Process Improvement and Quality Management MD707 Operations Management Professor Joy Field

2 Incremental Improvement and Reengineering Non-value added activities or steps can be characterized as waste (i.e., no potential to add value) or slack (i.e., resources in excess of what are required to get the job done, including buffers). The concept of “value added” can be thought of in the context of whether a customer would be willing to pay for that activity or step to be performed and/or whether a product or service’s value can be increased through that activity. Incremental process improvement involves eliminating non-value added activities or steps while leaving the current process essentially intact. Reengineering involves a fundamental rethinking and radical redesign of processes to improve performance dramatically in terms of cost, quality, service, and speed. Elimination of non-value added activities or steps increases productivity, by definition. The purpose of incremental process improvement and reengineering is to move operations toward the performance frontier by: 1) eliminating non- value added activities and steps in the process and/or, 2) moving to a new performance frontier.

3 Sources of Non-Value Added Activities Why do non-value added activities or steps occur in processes?  Poor process and/or organizational design (dysfunctional uncertainty)  Historical artifact  Barriers to learning Individual Within group Across groups From outside the organization  Finding and correcting errors elsewhere in the process  Unclear understanding of “value” and “risks”

4 Process Improvement Approach Discover where non-value added activities are in the process and prioritize improvement efforts:  Flow charts (value stream mapping)  Brainstorming  Data collection Take action based on the source of the non-value added activity:  Process reviews  Remove barriers to learning  Continuous improvement Reducing dysfunctional uncertainty Implementing a systematic approach to process improvement Increasing process knowledge Reengineering projects often take more of a “clean-slate” approach than incremental process improvement and are typically higher risk and higher return.

Quality as a Competitive Advantage The costs of poor quality are estimated to be 20% - 30% of product or service costs. Companies can improve their bottom line through better quality in several ways:  Lower costs  Higher prices  Greater market share Consistent quality is an order qualifier in many markets Total Quality Management (TQM) is an approach to quality improvement with the goal of customer satisfaction through continuous improvement and employee involvement. 5

Quality at the Source Why?  It costs less.  Inspection and sorting often do not improve process quality. 6 Errors or defects should be caught and corrected at the source, not passed along to an internal or external customer. In other words, “Do It Right the First Time”!

Employee Involvement This suggest that:  Quality perceptions can be negatively affected at one point in the process, even if the rest of the process is fine.  All employees can participate in improving quality. 7 Employee involvement an important component of TQM because perceived and actual quality is assessed throughout the process, involving all employees.

Work Teams Work teams are small groups of people who have a common purpose, performance goals, and accountability. Types of teams  Problem-solving teams  Special-purpose teams  Self-managing teams How can work teams help improve quality?  Products and services are becoming more complex and interrelated.  Quality can not be ensured by individual efforts alone. 8

Plan-Do-Check-Act Cycle 9 Plan Do Check Act

Tools for Organizing Data Analysis Flowchart Checklist Bar chart/Histogram Pareto chart Scatter diagram Cause-and-effect diagram Control charts 10

Application of Data Analysis Tools 11

Six Sigma Principles Six Sigma  Emphasizes the need to recognize high-impact, financially quantifiable opportunities and eliminate defects as defined by customers  Recognizes that variation hinders the ability to reliably deliver high-quality products and services  Requires data-driven decisions using a comprehensive set of quality tools  Provides a highly prescriptive cultural infrastructure for aiding implementation  When implemented correctly, promises and delivers $500,000 of improved operating profit per Black Belt per year The Define-Measure-Analyze-Improve-Control (DMAIC) improvement process used in Six Sigma is analogous to the PDCA cycle

Six Sigma Organization Roles and Responsibilities Champion Green Belts Project MemberExecutive All employees Black Belts Master Black Belts Full-time Train and coach Black and Green Belts Statistical problem solving experts Devote 50%-100% of time to Black Belt activities Facilitate and practice problem solving Train and coach Green Belts and project teams Project owner Implement solutions Black Belt managers Understand vision Apply concepts Part-time Help Black Belts Own vision, direction, integration, results Lead change Part-time Project-specific

Lean Principles The lean approach to process improvement includes:  A focus on customers (both internal and external)  Maximizing process velocity (i.e., flow) Tools focused on analyzing process flow and delay times at each activity in a process  Eliminating waste Separating “value-add” from “non-value-add” and addressing the root causes of non-value-add activities Reducing unnecessary complexity and its costs

Lean Six Sigma Lean Six Sigma combines the emphasis on maximizing flows and reducing waste from Lean with variation reduction and an organizational infrastructure and specific improvement process from Six Sigma. Lean Six Sigma focuses on improving products and services by addressing poor flow and excess waste and variation in the process.

Lean Six Sigma DMAIC Tools (Lean tools in bold) DefineImproveControlAnalyzeMeasure Project selection tools PIP management process Value stream map Financial analysis Project charter Multi-generational plan Stakeholder analysis Communication plan SIPOC map High-level process map Non-value-added analysis VOC and Kano analysis QFD RACI and quad charts Operational definitions Data collection plan Pareto chart Histogram Box plot Statistical sampling Measurement system analysis Control charts Process cycle efficiency Process sizing Process capability Pareto charts C&E matrix Fishbone diagrams Brainstorming Detailed “As-Is” process maps Basic statistical tools Constraint identification Time trap analysis Non-value-added analysis Hypothesis testing Confidence intervals FMEA Simple & multiple regression ANOVA Queuing theory Analytical batch sizing Brainstorming Benchmarking TPM 5S Line balancing Process flow improvement Replenishment pull Sales & operations planning Setup reduction Generic pull Kaizen Poka-yoke FMEA Hypothesis testing Solution selection matrix “To-Be” process maps Piloting and simulation Control charts Standard operating procedures (SOPs) Training plan Communication plan Implementation plan Visual process control Mistake-proofing Process control plans Project commissioning Project replication Plan-Do-Check-Act cycle

Throughput Time and Process Speed Throughput time is the amount of time a “unit” (e.g. customer) takes to complete the process Work-in-process is the number of units in progress Average completion time is the number of units completed per unit time If two of the three quantities are known, the other two can be calculated Increasing process speed requires either reducing the WIP or increasing the completion rate Little’s Law:

Cost of Quality Quality assurance costsNonconformance costs PreventionInternal failure AppraisalExternal failure 18 Cost categories: There is a tradeoff between quality assurance and nonconformance costs. As the product or service moves farther along in the process, the cost to address a quality problem rises steeply.

Hidden Costs of Poor Quality Bank Transaction Processing Example 19

Quality Awards and Standards Awards  Malcolm Baldrige National Quality Award  European Quality Award  Deming Prize  State quality awards  Vendor/supplier quality awards Standards  ISO 9000/