Unit-5.

Unit-5

Supply Chain Management

Outline Global Company Profile: Darden Restaurants
The Supply Chain’s Strategic Importance Sourcing Issues: Make-or-Buy vs. Outsourcing Six Sourcing Strategies

Outline - Continued Supply Chain Risk
Managing the Integrated Supply Chain Building the Supply Base Logistics Management Distribution Management

Outline - Continued Ethics and Sustainable Supply Chain Management
Measuring Supply Chain Performance

Learning Objectives When you complete this chapter you should be able to: Explain the strategic importance of the supply chain Identify six sourcing strategies Explain issues and opportunities in the supply chain Describe the steps in supplier selection

Learning Objectives When you complete this chapter you should be able to: Explain major issues in logistics management Compute percent of assets committed to inventory and inventory turnover

Darden’s Supply Chain Largest publicly traded casual dining company in the world Serves over 400 million meals annually in more than 1,900 restaurants in the US and Canada Annual sales of flagship brands totals $6 billion Operations is the strategy © 2014 Pearson Education, Inc.

Darden’s Supply Chain Sources food from five continents and thousands of suppliers Four distinct supply chains Over $2 billion spent annually in supply chains Competitive advantage achieved through superior supply chain © 2014 Pearson Education, Inc.

Supply-Chain Management
The objective of supply chain management is to coordinate activities within the supply chain to maximize the supply chain’s competitive advantage and benefits to the ultimate consumer

The Supply Chain’s Strategic Importance
The coordination of all supply chain activities, starting with raw materials and ending with a satisfied customer Includes suppliers, manufacturers and/or service providers, distributors, wholesalers, retailers, and final customer

The Supply Chain’s Strategic Importance
Large portion of sales dollars spent on purchases Supplier relationships increasingly integrated and long term Improve innovation, speed design, reduce costs Managing supplier relationships has added emphasis

Supply Chain Costs TABLE 11.1
Supply Chain Costs as a Percentage of Sales INDUSTRY % PURCHASED Automobiles 67 Beverages 52 Chemical 62 Food 60 Lumber 61 Metals 65 Paper 55 Petroleum 79 Restaurants 35 Transportation

Supply Chain vs. Sales Strategy
Hau Lee Furniture 60% of sales $ in supply chain Current gross profit = $10,000 Increase profits to $15,000 (50%) CURRENT SITUATION SUPPLY CHAIN STRATEGY SALES STRATEGY Sales $100,000 $125,000 Cost of materials $60,000 (60%) $55,000 (55%) $75,000 (60%) Production costs $20,000 (20%) $25,000 (20%) Fixed costs $10,000 (10%) $10,000 (8%) Profit $15,000 (15%) $15,000 (12%)

A Supply Chain for Beer Figure 11.1

Supply Chain Management
TABLE 11.2 How Corporate Strategy Impacts Supply Chain Decisions LOW COST STRATEGY RESPONSE STRATEGY DIFFERENTIATION STRATEGY Primary supplier selection criteria Cost Capacity Speed Flexibility Product development skills Willing to share information Jointly and rapidly develop products Supply chain inventory Minimize inventory to hold down costs Use buffer stocks to ensure speedy supply Minimize inventory to avoid product obsolescence Distribution network Inexpensive transportation Sell through discount distributors/retailers Fast transportation Provide premium customer service Gather and communicate market research data Knowledgeable sales staff Product design characteristics Maximize performance Minimize cost Low setup time Rapid production ramp-up Modular design to aid product differentiation

Sourcing Issues Make-or-buy vs. outsourcing Outsourcing
Choosing between obtaining products and services externally as opposed to producing them internally Outsourcing Transfer traditional internal activities and resources to outside vendors Efficiency in specialization Focus on core competencies

Six Sourcing Strategies
Many suppliers Few suppliers Vertical integration Joint ventures Keiretsu networks Virtual companies

Many Suppliers Commonly used for commodity products
Purchasing is typically based on price Suppliers compete with one another Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery

Few Suppliers Buyer forms longer term relationships with fewer suppliers Create value through economies of scale and learning curve improvements Suppliers more willing to participate in JIT programs and contribute design and technological expertise Cost of changing suppliers is huge Trade secrets and other alliances

Vertical Integration Vertical Integration Examples of Vertical Integration Raw material (suppliers) Tree Harvesting Backward integration Chipmakers Pulpmaking Current transformation Pepsi Apple International Paper Forward integration Bottling Retail stores End-User Paper Conversion Finished goods (customers) Figure 11.2

Vertical Integration Developing the ability to produce goods or service previously purchased Integration may be forward, towards the customer, or backward, towards suppliers Can improve cost, quality, and inventory but requires capital, managerial skills, and demand Risky in industries with rapid technological change

Joint Ventures Formal collaboration
Enhance skills Secure supply Reduce costs Cooperation without diluting brand or conceding competitive advantage

Keiretsu Networks A middle ground between few suppliers and vertical integration Supplier becomes part of the company coalition Often provide financial support for suppliers through ownership or loans Members expect long-term relationships and provide technical expertise and stable deliveries May extend through several levels of the supply chain

Virtual Companies Rely on a variety of supplier relationships to provide services on demand Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands Relationships may be short- or long-term Exceptionally lean performance, low capital investment, flexibility, and speed

Supply Chain Risk More reliance on supply chains means more risk
Fewer suppliers increase dependence Compounded by globalization and logistical complexity Vendor reliability and quality risks Political and currency risks

Risk and Mitigation Tactics
Research and assess possible risks Innovative planning Reduce potential disruptions Prepare responses for negative events Flexible, secure supply chains Diversified supplier base

TABLE 11.3 Supply Chain Risks and Tactics RISK RISK REDUCTION TACTICS EXAMPLE Supplier failure to deliver Use multiple suppliers; effective contracts with penalties; subcontractors on retainer; pre-planning McDonald’s planned its supply chain 6 years before its opening in Russia. Every plant—bakery, meat, chicken, fish, and lettuce—is closely monitored to ensure strong links. Supplier quality failure Careful supplier selection, training, certification, and monitoring Darden Restaurants has placed extensive controls, including third-party audits, on supplier processes and logistics to ensure constant monitoring and reduction of risk.

TABLE 11.3 Supply Chain Risks and Tactics RISK RISK REDUCTION TACTICS EXAMPLE Logistics delays or damage Multiple/redundant transportation modes and warehouses; secure packaging; effective contracts with penalties Walmart, with its own trucking fleet and numerous distribution centers located throughout the U.S., finds alternative origins and delivery routes bypassing problem areas. Distribution Careful selection, monitoring, and effective contracts with penalties Toyota trains its dealers around the world, invoking principles of the Toyota Production System to help dealers improve customer service, used-car logistics, and body and paint operations.

TABLE 11.3 Supply Chain Risks and Tactics RISK RISK REDUCTION TACTICS EXAMPLE Information loss or distortion Redundant databases; secure IT systems; training of supply chain partners on the proper interpretations and uses of information Boeing utilizes a state-of-the-art international communication system that transmits engineering, scheduling, and logistics data to Boeing facilities and suppliers worldwide. Political Political risk insurance; cross-country diversification; franchising and licensing Hard Rock Café reduces political risk by franchising and licensing, rather than owning, when the political and cultural barriers seem significant.

TABLE 11.3 Supply Chain Risks and Tactics RISK RISK REDUCTION TACTICS EXAMPLE Economic Hedging to combat exchange rate risk; purchasing contracts that address price fluctuations Honda and Nissan are moving more manufacturing out of Japan as the exchange rate for the yen makes Japanese-made autos more expensive. Natural catastrophes Insurance; alternate sourcing; cross-country diversification Toyota, after its experience with fires, earthquakes, and tsunamis, now attempts to have at least two suppliers, each in a different geographical region, for each component.

TABLE 11.3 Supply Chain Risks and Tactics RISK RISK REDUCTION TACTICS EXAMPLE Theft, vandalism, and terrorism Insurance; patent protection; security measures including RFID and GPS; diversification Domestic Port Radiation Initiative: The U.S. government has set up radiation portal monitors that scan nearly all imported containers for radiation.

Security and JIT Shipments get misrouted, stolen, damaged, or excessively delayed Technological innovations are improving security and inventory management Location, motion sensors, broken seals, temperature Tracking can help expedite shipments

Managing the Integrated Supply Chain
Bullwhip effect occurs when orders are relayed through the supply chain increasing at each step Issues Local optimization can magnify fluctuations Incentives push merchandise into the supply chain for sales that have not occurred Large lots reduce shipping costs but increase inventory holding and do not reflect actual sales

Opportunities Accurate “pull” data, shared information Lot size reduction, shipping, discounts, reduced ordering costs Single stage control of replenishment Single supply chain member responsible for ordering Vendor managed inventory (VMI)

Opportunities Collaborative planning, forecasting, and replenishment (CPFR) through the supply chain Blanket orders against which actual orders are released Standardization

Opportunities Postponement withholds modification as long as possible Electronic ordering and funds transfer speed transactions and reduce paperwork Drop shipping and special packaging bypasses the seller and reduces costs

Building the Supply Base
Supplier evaluation Finding potential suppliers Determine likelihood of their becoming good suppliers Supplier certification Qualification Education Certification

Supplier development Integrate the supplier into the system Quality requirements Product specifications Schedules and delivery Procurement policies Training Engineering and production help Information transfer procedures

Negotiation A significant element in purchasing Highly valued skills Cost-based price model Supplier opens books Market-based price model Based on published, auction, or indexed prices Competitive bidding Common policy for many purchases Does not generally foster long-term relationships

Contracting Share risks, benefits, create incentives Centralized purchasing Leverage volume Develop specialized staff Develop supplier relationships Maintain professional control Devote resources to selection and negotiation Reduce duplication of tasks Promote standardization

E-Procurement Speeds purchasing, reduces costs, integrates supply chain Online catalogs and exchanges Standard items or industry-specific web sites Online auctions Low barriers to entry Reverse auctions for buyers Price not always the most important factor

Logistics Management Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities Is a frequent candidate for outsourcing Allows competitive advantage to be gained through reduced costs and improved customer service

Shipping Systems Trucking Railroads
Moves the vast majority of manufactured goods Chief advantage is flexibility Railroads Capable of carrying large loads Little flexibility though containers and piggybacking have helped with this

Shipping Systems Airfreight Waterways
Fast and flexible for light loads May be expensive Waterways Typically used for bulky, low-value cargo Used when shipping cost is more important than speed

Shipping Systems Pipelines Multimodal
Used for transporting oil, gas, and other chemical products Multimodal Combines shipping methods Common, especially in international shipments Aided by standardized containers

Cost and Speed of Shipments
Faster shipping is generally more expensive than slower shipping Faster methods tend to involve smaller shipment sizes while slower methods involve very large shipment sizes

Warehousing May be expensive, but alternatives may be more so
Fundamental purpose is to store goods May provide other functions Consolidation Break-bulk Cross-docking Channel assembly

Third-Party Logistics (3PL)
Outsourcing logistics can reduce inventory, costs, and improve delivery reliability and speed Coordinate supplier inventory with delivery services May provide warehousing, assembly, testing, shipping, customs

Distribution Management
The outbound flow of products Rapid response Product choice Service Increasing the number of facilities generally improves response time and customer satisfaction Total costs are important

Figure 11.3 Time Number of facilities Response time (a) Response Time $ Number of facilities Lowest cost (b) Cost $ Total logistics cost Facility costs Inventory costs Transportation costs

$ Number of facilities Revenue (c) Cost, Revenue, and Profit Total logistics cost Max profit Figure 11.3

Facilities, packaging, and logistics Selection and development of dealers or retailers Downstream management as important as upstream management

Ethics and Sustainable Supply Chain Management
Personal ethics Critical to long term success of an organization Supply chains particularly susceptible Ethics within the supply chain Ethical behavior regarding the environment

Institute for Supply Management Principles and Standards
Promote and uphold responsibilities to one’s employer; positive supplier and customer relationships; sustainability and social responsibility; protection of confidential and proprietary information; applicable laws, regulations, and trade agreements; and development of professional competence Avoid perceived impropriety; conflicts of interest; behaviors that negatively influence supply chain decisions; and improper reciprocal agreements

ISM Ethical Standards PERCEIVED IMPROPRIETY. Prevent the intent and appearance of unethical or compromising conduct in relationships, actions and communications CONFLICTS OF INTEREST. Ensure that any personal, business or other activity do not conflict with the lawful interests of your employer ISSUES OF INFLUENCE. Avoid behaviors or actions that may negatively influence, or appear to influence, supply management decisions

ISM Ethical Standards RESPONSIBILITIES TO YOUR EMPLOYER. Uphold fiduciary and other responsibilities using reasonable care and granted authority to deliver value to your employer SUPPLIER AND CUSTOMER RELATIONSHIPS. Promote positive supplier and customer relationships SUSTAINABILITY AND SOCIAL RESPONSIBILITY. Champion social responsibility and sustainability practices in supply management

ISM Ethical Standards CONFIDENTIAL AND PROPRIETARY INFORMATION. Protect confidential and proprietary information RECIPROCITY. Avoid improper reciprocal agreements APPLICABLE LAWS, REGULATIONS AND TRADE AGREEMENTS. Know and obey the letter and spirit of laws, regulations and trade agreements applicable to supply management

ISM Ethical Standards PROFESSIONAL COMPETENCE. Develop skills, expand knowledge and conduct business that demonstrates competence and promotes the supply management profession

Establishing Sustainability in Supply Chains
Return or reverse logistics Sending returned products back up the supply chain for resale, repair, reuse, remanufacture, recycling, or disposal Closed-loop supply chain Proactive design of a supply chain that tries to optimize all forward and reverse flows Prepares for returns prior to product introduction

Establishing Sustainability in Supply Chains
TABLE 11.4 Management Challenges of Reverse Logistics ISSUE FORWARD LOGISTICS REVERSE LOGISTICS Forecasting Relatively straightforward More uncertain Product quality Uniform Not uniform Product packaging Often damaged Pricing Relatively uniform Dependent on many factors Speed Often very important Often not a priority Distribution costs Easily visible Less directly visible Inventory management Consistent Not consistent

Measuring Supply-Chain Performance
Assets committed to inventory Percentage invested in inventory = x 100 Total inventory investment Total assets Home Depot had $11.4b inventory, total assets of $44.4b Percentage invested in inventory = x 100 = 25.7% 11.4 44.4

TABLE 11.5 Inventory as Percentage of Total Assets (with examples of exceptional performance) Manufacturer (Toyota 5%) 15% Wholesale (Coca-Cola 2.9%) 34% Restaurants (McDonald’s .05%) 2.9% Retail (Home Depot 25.7%) 28%

Inventory turnover Inventory turnover = Cost of goods sold Inventory investment Inventory investment Average of several periods (beginning plus ending)/2 Ending inventory

From PepsiCo, Inc. Annual Report Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69 Inventory turnover = = 8.4 14.2 1.69

TABLE 11.6 Examples of Annual Inventory Turnover FOOD, BEVERAGE, RETAIL Anheuser Busch 15 Coca-Cola Home Depot 5 McDonald’s 112 MANUFACTURING Dell Computer 90 Johnson controls 22 Toyota (overall) 13 Nissan (assembly) 150

Weeks of supply Weeks of supply = Inventory investment Annual cost of goods sold 52 weeks For PepsiCo Inventory investment = $1.69b Average weekly cost of goods sold = $14.2b / 52 = $.273b Weeks of supply = 1.69 / .273 = 6.19 weeks

Benchmarking the Supply Chain
Comparison with benchmark firms TABLE 11.7 Supply Chain Metrics in the Consumer Packaged Goods Industry TYPICAL FIRMS BENCHMARK FIRMS Order fill rate 71% 98% Oder fulfillment lead time (days) 7 3 Cash-to-cash cycle time (days) 100 30 Inventory days of supply 50 20

The SCOR Model Processes, metrics and best practices Figure 11.4
Plan: Demand/Supply planning and Management Source: Identify, select, manage, and assess sources Make: Manage production execution, testing and packaging Deliver: Invoice, warehouse, transport and install Return: Raw material Return: Finished goods

PERFORMANCE ATTRIBUTE
The SCOR Model TABLE 11.8 SCOR Model Metrics to Help Firms Benchmark Performance Against the Industry PERFORMANCE ATTRIBUTE SAMPLE METRIC CALCULATION Supply chain reliability Perfect order fulfillment (Total perfect orders) / (Total number of orders) Supply chain responsiveness Average order fulfillment cycle time (Sum of actual cycle times for all orders delivered) / (Total number of orders delivered) Supply chain agility Upside supply chain flexibility Time required to achieve an unplanned 20% increase in delivered quantities Supply chain costs Supply chain management costs Cost to plan + Cost to source + Cost to deliver + Cost to return Supply chain asset management Cash-to-cash cycle time Inventory days of supply + Days of receivables outstanding – Days of payables outstanding

Benchmarking the Supply Chain
Benchmarking useful May not be adequate Audits may be necessary Continuing communication, Understanding, Trust, Performance, Corporate strategy Foster a mutual belief that “we are in this together”

Printed in the United States of America.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

6 Managing Quality PowerPoint presentation to accompany
Heizer and Render Operations Management, Eleventh Edition Principles of Operations Management, Ninth Edition PowerPoint slides by Jeff Heyl © 2014 Pearson Education, Inc.

Outline Global Company Profile: Arnold Palmer Hospital
Quality and Strategy Defining Quality Total Quality Management Tools of TQM The Role of Inspection TQM in Services

Learning Objectives When you complete this chapter you should be able to: Define quality and TQM Describe the ISO international quality standards Explain what Six Sigma is Explain how benchmarking is used in TQM Explain quality robust products and Taguchi concepts Use the seven tools of TQM

Managing Quality Provides a Competitive Advantage
Arnold Palmer Hospital Deliver over 12,000 babies annually Virtually every type of quality tool is employed Continuous improvement Employee empowerment Benchmarking Just-in-time Quality tools © 2014 Pearson Education, Inc.

Quality and Strategy Managing quality supports differentiation, low cost, and response strategies Quality helps firms increase sales and reduce costs Building a quality organization is a demanding task

Two Ways Quality Improves Profitability
Figure 6.1 Improved response Flexible pricing Improved reputation Sales Gains via Improved Quality Increased Profits Increased productivity Lower rework and scrap costs Lower warranty costs Reduced Costs via

The Flow of Activities Organizational Practices
Leadership, Mission statement, Effective operating procedures, Staff support, Training Yields: What is important and what is to be accomplished Quality Principles Customer focus, Continuous improvement, Benchmarking, Just-in-time, Tools of TQM Yields: How to do what is important and to be accomplished Employee Fulfillment Empowerment, Organizational commitment Yields: Employee attitudes that can accomplish what is important Customer Satisfaction Winning orders, Repeat customers Yields: An effective organization with a competitive advantage Figure 6.2

Defining Quality An operations manager’s objective is to build a total quality management system that identifies and satisfies customer needs

Defining Quality The totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs American Society for Quality

Different Views User-based: better performance, more features
Manufacturing-based: conformance to standards, making it right the first time Product-based: specific and measurable attributes of the product

Implications of Quality
Company reputation Perception of new products Employment practices Supplier relations Product liability Reduce risk Global implications Improved ability to compete

Malcolm Baldrige National Quality Award
Established in 1988 by the U.S. government Designed to promote TQM practices Recent winners include Lockheed Martin Missiles and Fire Control, MESA Products Inc., North Mississippi Health Services, City of Irving, Concordia Publishing House, Henry Ford Health System, MEDRAD, Nestlé Purina PetCare Co., Montgomery County Public Schools

Baldrige Criteria Applicants are evaluated on: CATEGORIES POINTS
Leadership 120 Strategic Planning 85 Customer Focus Measurement, Analysis, and Knowledge Management 90 Workforce Focus Operations Focus Results 450

ISO 9000 International Quality Standards
International recognition Encourages quality management procedures, detailed documentation, work instructions, and recordkeeping 2009 revision emphasized sustained success Over one million certifications in 178 countries Critical for global business

ISO 9000 International Quality Standards
Management principles Top management leadership Customer satisfaction Continual improvement Involvement of people Process analysis Use of data-driven decision making A systems approach to management Mutually beneficial supplier relationships

Costs of Quality Prevention costs - reducing the potential for defects
Appraisal costs - evaluating products, parts, and services Internal failure costs - producing defective parts or service before delivery External failure costs - defects discovered after delivery

Costs of Quality External Failure Internal Failure Prevention
Total Cost Quality Improvement Total Cost External Failure Internal Failure Prevention Appraisal

Takumi A Japanese character that symbolizes a broader dimension than quality, a deeper process than education, and a more perfect method than persistence

Leaders in Quality TABLE 6.1
Leaders in the Field of Quality Management LEADER PHILOSOPHY/CONTRIBUTION W. Edwards Deming Deming insisted management accept responsibility for building good systems. The employee cannot produce products that on average exceed the quality of what the process is capable of producing. His 14 points for implementing quality improvement are presented in this chapter. Joseph M. Juran A pioneer in teaching the Japanese how to improve quality, Juran believed strongly in top-management commitment, support, and involvement in the quality effort. He was also a believer in teams that continually seek to raise quality standards. Juran varies from Deming somewhat in focusing on the customer and defining quality as fitness for use, not necessarily the written specifications.

Leaders in Quality TABLE 6.1
Leaders in the Field of Quality Management LEADER PHILOSOPHY/CONTRIBUTION Amarnd Feigenbaum His 1961 book Total Quality Control laid out 40 steps to quality improvement processes. He viewed quality not as a set of tools but as a total field that integrated the processes of a company. His work in how people learn from each other’s successes led to the field of cross-functional teamwork. Philip B. Crosby Quality Is Free was Crosby’s attention-getting book published in Crosby believed that in the traditional trade-off between the cost of improving quality and the cost of poor quality, the cost of poor quality is understated. The cost of poor quality should include all of the things that are involved in not doing the job right the first time. Crosby coined the term zero defects and stated, “There is absolutely no reason for having errors or defects in any product or service.”

Ethics and Quality Management
Operations managers must deliver healthy, safe, quality products and services Poor quality risks injuries, lawsuits, recalls, and regulation Ethical conduct must dictate response to problems All stakeholders much be considered

Total Quality Management
Encompasses entire organization from supplier to customer Stresses a commitment by management to have a continuing companywide drive toward excellence in all aspects of products and services that are important to the customer

Deming’s Fourteen Points
TABLE 6.2 Deming’s 14 Points for Implementing Quality Improvement 1. Create consistency of purpose 2. Lead to promote change 3. Build quality into the product; stop depending on inspections to catch problems 4. Build long-term relationships based on performance instead of awarding business on price 5. Continuously improve product, quality, and service 6. Start training 7. Emphasize leadership

Deming’s Fourteen Points
TABLE 6.2 Deming’s 14 Points for Implementing Quality Improvement 8. Drive out fear 9. Break down barriers between departments 10. Stop haranguing workers 11. Support, help, and improve 12. Remove barriers to pride in work 13. Institute a vigorous program of education and self-improvement 14. Put everyone in the company to work on the transformation

Seven Concepts of TQM Continuous improvement Six Sigma
Employee empowerment Benchmarking Just-in-time (JIT) Taguchi concepts Knowledge of TQM tools

Continuous Improvement
Never-ending process of continual improvement Covers people, equipment, materials, procedures Every operation can be improved

Shewhart’s PDCA Model 4. Act Implement the plan, document Plan
Identify the pattern and make a plan Figure 6.3 3. Check Is the plan working? 2. Do Test the plan

Continuous Improvement
Kaizen describes the ongoing process of unending improvement TQM and zero defects also used to describe continuous improvement

Six Sigma Two meanings Statistical definition of a process that is % capable, 3.4 defects per million opportunities (DPMO) A program designed to reduce defects, lower costs, save time, and improve customer satisfaction A comprehensive system for achieving and sustaining business success

Six Sigma Two meanings Statistical definition of a process that is % capable, 3.4 defects per million opportunities (DPMO) A program designed to reduce defects, lower costs, save time, and improve customer satisfaction A comprehensive system for achieving and sustaining business success Lower limits Upper limits 2,700 defects/million ±3 Mean 3.4 defects/million ±6 Figure 6.4

Six Sigma Program Originally developed by Motorola, adopted and enhanced by Honeywell and GE Highly structured approach to process improvement A strategy A discipline – DMAIC A set of 7 tools 6

Six Sigma Defines the project’s purpose, scope, and outputs, identifies the required process information keeping in mind the customer’s definition of quality Measures the process and collects data Analyzes the data ensuring repeatability and reproducibility Improves by modifying or redesigning existing processes and procedures Controls the new process to make sure performance levels are maintained DMAIC Approach

Implementing Six Sigma
Emphasize defects per million opportunities as a standard metric Provide extensive training Focus on corporate sponsor support (Champions) Create qualified process improvement experts (Black Belts, Green Belts, etc.) Set stretch objectives This cannot be accomplished without a major commitment from top level management

Employee Empowerment Getting employees involved in product and process improvements 85% of quality problems are due to process and material Techniques Build communication networks that include employees Develop open, supportive supervisors Move responsibility to employees Build a high-morale organization Create formal team structures

Quality Circles Group of employees who meet regularly to solve problems Trained in planning, problem solving, and statistical methods Often led by a facilitator Very effective when done properly

Benchmarking Selecting best practices to use as a standard for performance Determine what to benchmark Form a benchmark team Identify benchmarking partners Collect and analyze benchmarking information Take action to match or exceed the benchmark

Best Practices for Resolving Customer Complaints
Table 6.3 BEST PRACTICE JUSTIFICATION Make it easy for clients to complain It is free market research Respond quickly to complaints It adds customers and loyalty Resolve complaints on first contact It reduces cost Use computers to manage complaints Discover trends, share them, and align your services Recruit the best for customer service jobs It should be part of formal training and career advancement

Internal Benchmarking
When the organization is large enough Data more accessible Can and should be established in a variety of areas

Just-in-Time (JIT) Relationship to quality:
JIT cuts the cost of quality JIT improves quality Better quality means less inventory and better, easier-to- employ JIT system

Just-in-Time (JIT) ‘Pull’ system of production scheduling including supply management Production only when signaled Allows reduced inventory levels Inventory costs money and hides process and material problems Encourages improved process and product quality

Taguchi Concepts Engineering and experimental design methods to improve product and process design Identify key component and process variables affecting product variation Taguchi Concepts Quality robustness Quality loss function Target-oriented quality

Quality Robustness Ability to produce products uniformly in adverse manufacturing and environmental conditions Remove the effects of adverse conditions Small variations in materials and process do not destroy product quality

Target-oriented quality
Quality Loss Function Shows that costs increase as the product moves away from what the customer wants Costs include customer dissatisfaction, warranty and service, internal scrap and repair, and costs to society Traditional conformance specifications are too simplistic Target-oriented quality

Quality Loss Function L = D2C where L = loss to society
D2 = square of the distance from target value C = cost of deviation High loss Loss (to producing organization, customer, and society) Low loss Unacceptable Poor Good Best Fair Frequency Lower Target Upper Specification Target-oriented quality yields more product in the “best” category Target-oriented quality brings product toward the target value Conformance-oriented quality keeps products within 3 standard deviations Figure 6.5

TQM Tools Tools for Generating Ideas Tools to Organize the Data
Check Sheet Scatter Diagram Cause-and-Effect Diagram Tools to Organize the Data Pareto Chart Flowchart (Process Diagram)

TQM Tools Tools for Identifying Problems Histogram
Statistical Process Control Chart

Seven Tools of TQM (a) Check Sheet: An organized method of recording data Hour Defect A B C / / / / Figure 6.6

Seven Tools of TQM (b) Scatter Diagram: A graph of the value of one variable vs. another variable Absenteeism Productivity Figure 6.6

Seven Tools of TQM (c) Cause-and-Effect Diagram: A tool that identifies process elements (causes) that might effect an outcome Cause Materials Methods Manpower Machinery Effect Figure 6.6

Seven Tools of TQM (d) Pareto Chart: A graph to identify and plot problems or defects in descending order of frequency Frequency Percent A B C D E Figure 6.6

Seven Tools of TQM (e) Flowchart (Process Diagram): A chart that describes the steps in a process Figure 6.6

Seven Tools of TQM (f) Histogram: A distribution showing the frequency of occurrences of a variable Distribution Repair time (minutes) Frequency Figure 6.6

Seven Tools of TQM (g) Statistical Process Control Chart: A chart with time on the horizontal axis to plot values of a statistic Upper control limit Target value Lower control limit Time Figure 6.6

Cause-and-Effect Diagrams
Material (ball) Method (shooting process) Size of ball Lopsidedness Grain/Feel (grip) Air pressure Follow-through Hand position Aiming point Bend knees Balance Missed free-throws Training Conditioning Motivation Concentration Consistency Manpower (shooter) Rim alignment Rim size Backboard stability Rim height Machine (hoop & backboard) Figure 6.7

Pareto Charts Data for October 54 12 4 3 2 70 – 60 – 50 – 40 – 30 –
70 – 60 – 50 – 40 – 30 – 20 – 10 – 0 – Frequency (number) Causes and percent of the total Cumulative percent Data for October – 100 – 93 – 88 – 72 Room svc Check-in Pool hours Minibar Misc. 72% 16% 5% 4% 3% 12 4 3 2 54 Number of occurrences

Flow Charts MRI Flowchart Physician schedules MRI Patient taken to MRI
Patient signs in Patient is prepped Technician carries out MRI Technician inspects film If unsatisfactory, repeat Patient taken back to room MRI read by radiologist MRI report transferred to physician Patient and physician discuss 9 8 80% 11 10 1 2 3 4 5 6 7 20%

Statistical Process Control (SPC)
Uses statistics and control charts to tell when to take corrective action Drives process improvement Four key steps Measure the process When a change is indicated, find the assignable cause Eliminate or incorporate the cause Restart the revised process

Control Charts Plot the percent of free throws missed
Figure 6.8 Plot the percent of free throws missed Upper control limit Coach’s target value Lower control limit Game number | | | | | | | | | 40% 20% 0%

Inspection Involves examining items to see if an item is good or defective Detect a defective product Does not correct deficiencies in process or product It is expensive Issues When to inspect Where in process to inspect

When and Where to Inspect
At the supplier’s plant while the supplier is producing At your facility upon receipt of goods from your supplier Before costly or irreversible processes During the step-by-step production process When production or service is complete Before delivery to your customer At the point of customer contact

Inspection Many problems Cannot inspect quality into a product
Worker fatigue Measurement error Process variability Cannot inspect quality into a product Robust design, empowered employees, and sound processes are better solutions

Source Inspection Also known as source control
The next step in the process is your customer Ensure perfect product to your customer

Source Inspection Poka-yoke is the concept of foolproof devices or techniques designed to pass only acceptable product Checklists ensure consistency and completeness

Service Industry Inspection
TABLE 6.4 Examples of Inspection in Services ORGANIZATION WHAT IS INSPECTED STANDARD Jones Law Office Receptionist performance Billing Attorney Phone answered by the second ring Accurate, timely, and correct format Promptness in returning calls Hard Rock Hotel Reception desk Doorman Room Minibar Use customer’s name Greet guest in less than 30 seconds All lights working, spotless bathroom Restocked and charges accurately posted to bill

TABLE 6.4 Examples of Inspection in Services ORGANIZATION WHAT IS INSPECTED STANDARD Arnold Palmer Hospital Billing Pharmacy Lab Nurses Admissions Accurate, timely, and correct format Prescription accuracy, inventory accuracy Audit for lab-test accuracy Charts immediately updated Data entered correctly and completely Olive Garden Restaurant Busboy Waiter Serves water and bread within 1 minute Clears all entrée items and crumbs prior to dessert Knows and suggest specials, desserts

TABLE 6.4 Examples of Inspection in Services ORGANIZATION WHAT IS INSPECTED STANDARD Nordstrom Department Store Display areas Stockrooms Salesclerks Attractive, well-organized, stocked, good lighting Rotation of goods, organized, clean Neat, courteous, very knowledgeable

Attributes Versus Variables
Items are either good or bad, acceptable or unacceptable Does not address degree of failure Variables Measures dimensions such as weight, speed, height, or strength Falls within an acceptable range Use different statistical techniques

TQM In Services Service quality is more difficult to measure than the quality of goods Service quality perceptions depend on Intangible differences between products Intangible expectations customers have of those products

Service Quality The Operations Manager must recognize:
The tangible component of services is important The service process is important The service is judged against the customer’s expectations Exceptions will occur

Service Specifications

Determinants of Service Quality
Table 6.5 Reliability involves consistency of performance and dependability Responsiveness concerns the willingness or readiness of employees to provide service Competence means possession of the required skills and knowledge to perform the service Access involves approachability and ease of contact Courtesy involves politeness, respect, consideration, and friendliness Communication means keeping customers informed and listening to them Credibility involves trustworthiness, believability, and honesty Security is the freedom from danger, risk, or doubt Understanding/knowing the customer involves making the effort to understand the customer’s needs Tangibles include the physical evidence of the service

Service Recovery Strategy
Managers should have a plan for when services fail Marriott’s LEARN routine Listen Empathize Apologize React Notify

Printed in the United States of America.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

Unit-5.

Similar presentations

Presentation on theme: "Unit-5."— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Unit-5.

Similar presentations

Presentation on theme: "Unit-5."— Presentation transcript:

Similar presentations

About project

Feedback