OPERATIONS MANAGEMENT for MBAs Fourth Edition 1 Meredith and Shafer John Wiley and Sons, Inc. Chapter 5: Process Improvement: Reducing Waste Through Lean Topic 8: Process Improvement / Lean Operations

Outline 2 Overview of Lean Traditional versus Lean 5 Lean Principles Benefits of Lean and 6 sigma Homework #3, #4

3 Five lean principles: ◦ Specify value from the customer’s point of view. ◦ Identify the value stream, the complete set of activities required to create the output valued by the customer. ◦ Make value flow through the value stream by eliminating non-value added activities and streamlining the remaining value added steps. ◦ Have the customer pull value through the value stream. ◦ Pursue perfection. Lean Thinking

Japan Their work systems tend to be based on three primary tenets: ◦ Minimizing waste in all forms. ◦ Continually improving processes and systems. ◦ Maintaining respect for all workers. 4

Traditional Systems versus Lean 5 Priorities Product/Service Design Capacity Layout Workforce Inventories Suppliers Planning and control Quality Maintenance

Cellular Process used in Lean 6

1. Specify Value 7 At the heart of lean is the concept of value, ultimately defined by the customer. Also, the opposite of waste. Waste is often classified into one of the following seven categories: ◦ Overproduction ◦ Inventory ◦ Waiting ◦ Unnecessary transport ◦ Unnecessary processing ◦ Unnecessary human motions ◦ Defects

2. Identify the Value Stream 8 The value stream includes all activities (value added and non-value added) from the creation of the raw materials to the final delivery of the output to the end consumer. Activities within a value stream map are often broadly categorized as: ◦ Value-added (e.g., patient diagnosis) ◦ Non-value-added but necessary (e.g., requiring patients to sign a HIPAA form) ◦ Non-value-added and not necessary (e.g., waiting for the doctor)

Example Value Stream Map 9

3. Make Value Flow 10

11 Effectiveness Resource Avail X Efficiency X Rate of Quality Output OEE = Avail X Performance X Quality Efficiency = average actual output / capacity Example: Call Center, available 96% of its operating hours. The center handles on average 750 call per hour but was designed to be able to handle 1000 calls per hour. 8% of the customers have to call back because of unacceptable service. a.Determine the call center efficiency and overall effectiveness. b.Assume the call center availability follows a triangular distribution with availabilities as low as 80% and as high as 99%, with 96% being most likely. Further assume the demand follows a uniform distribution ranging from 600 to 900 calls per hour. Finally assume the call back rate varies via a normal distribution with mean 8% and a standard deviation of 3%. Use simulation techniques to arrive a range for call center effectiveness. What are the managerial implications?

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4. Pull Value Through the Stream 16

5. Pursue Perfection 17 5S Visual Factory Kaizen Poka yoke Total productive maintenance Overall equipment effectiveness

Benefits of Lean 18 Five primary types of benefits: ◦ Cost savings ◦ Revenue increases ◦ Investment savings ◦ Workforce improvements ◦ Uncovering problems

Lean Six Sigma 19