1. Copyright 2013 John Wiley & Sons, Inc. Chapter 3 Monitoring and Controlling the Transformation System

2. 3-2 Overview

3. 3-3 Introduction Each year the Columbus air mail processing center (AMC) processes in excess of 50 million letters Unfortunately, 8.7 percent did not meet on- time delivery commitments A Six Sigma improvement project was initiated Late deliveries were reduced by 14.3 percent and $15,000 was saved annually On time delivery is monitored using a p-chart

4. 3-4 Monitoring and Control Monitoring system is a direct connection between planning and control Monitor processes, output, and environment to make sure that strategy is appropriate to achieve goals –First, identify the key factors to be controlled –Second, identify the relevant information to be collected

5. 3-5 Process Monitoring There are a wide variety of elements to potentially monitor Too much data can be worse than too little data –It can obscure important information Want to monitor our various processes Also need to monitor the environment

6. 3-6 Stages of Operational Effectiveness 1.Internally neutral –Minimize manufacturing’s negative potential 2.Externally neutral –Industry practice is followed 3.Internally supportive –Manufacturing investment support the business strategy 4.Externally supportive –Manufacturing is involved up front in strategic decision

7. 3-7 Measures for Operational Effectiveness Table 3.1

8. 3-8 Balanced Scorecard In the past, it was common to rely on financial measures When inadequacies discovered, managers either tried to improve or switched to operational measures Many organizations now realize no one type of measurement is best The purpose of the balanced scorecard it to provide a comprehensive view

9. 3-9 Benefits of Balanced Scorecard An effective way to clarify and gain consensus of the strategy A mechanism for communicating the strategy throughout the entire organization A mechanism for aligning departmental and personal goals to the strategy A way to ensure that strategic objectives are linked to annual budgets Timely feedback related to improving the strategy

10. 3-10 Areas Measured by Balanced Scorecard 1.Financial performance 2.Customer performance 3.Internal business process performance 4.Organizational learning and growth

11. 3-11 The Strategy Map Used to illustrate and monitor the cause- and-effect relationships identified by a balanced scorecard Provide a tool to better monitor important details about their strategic business processes Maps same four perspectives as the balanced scorecard

12. 3-12 Sample Strategy Map Figure 3.1

13. 3-13 ISO 9000 ISO 9000 was developed by International Organization for Standardization ISO 9000 was developed as a guideline for designing, manufacturing, selling, and servicing products It is a “checklist” of good business practices Selecting an ISO 9000 certified supplier provides some assurance that supplier follows accepted business practices in areas covered by the standard

14. 3-14 ISO 14000 and 14001 Series of standards covering environmental management systems, environmental auditing, evaluation of environmental performance, environmental labeling, and life-cycle assessment Focus of ISO 14001 is on an organization’s environment management system –A standard on which organizations can become certified

15. 3-15 Failure Mode and Effect Analysis (FMEA) Developed as a structured approach to identify and prioritize for close monitoring Uses a scoring model approach set up in six steps One way to identify items for inclusion is by evaluating their process capability

16. 3-16 FMEA Steps 1.List ways a production system might fail 2.Evaluate the severity (S) of each failure 3.Estimate the likelihood (L) of each failure 4.Estimate the ability to detect (D) for each cause 5.Find risk priority number RPN=S  L  D 6.Consider ways to reduce S, L, and D where RPN is high

17. 3-17 Process Control Process control is the act of reducing difference between plan and reality for each process –To no avail if corrections not made Control is one of the manager’s most difficult tasks involving mechanistic and human elements Control brings performance back in line with the plan

18. 3-18 Characteristics of a Good Control System Flexible Cost effective Simple Timely Sufficiently precise Easy to maintain Signal if out of order Capable of being extended Fully documented Ethical

19. 3-19 Statistical Process Control 1.Inspection for variables –Measuring a variable that can be scaled such as weight, length, temperature, and diameter 2.Inspection of characteristic (attribute) –Determining the existence of a characteristic such as acceptable- defective, timely-late, and right-wrong

20. 3-20 Chance Versus Assignable Variation Chance variation is variability built into the system Assignable variation occurs because some element of the system or some operating condition is out of control Quality control seeks to identify when assignable variation is present so that corrective action can be taken

21. 3-21 Control Charts Developed to distinguish between chance variation and assignable variation Measurements from the continued repetition of some process are a population –Normally distributed with some mean and standard deviation As long as distribution stays the same, the process is in control If it changes, the process is out of control

22. 3-22 Control Chart with Limits Set at Three Standard Deviations Figure 3.2

23. 3-23 Two Control Charts for Variables 1.Sample Means Chart 2.Range Chart

24. 3-24 Sample Data of Process Times Table 3.3

25. 3-25 Sample Calculations Scenario 1 –Sample 1: mean = 5, range = 2 –Sample 2: mean = 7, range = 2 –Sample 3: mean = 8, range = 2 Scenario 2 –Sample 1: mean = 5, range = 2 –Sample 2: mean = 5, range = 4 –Sample 3: mean = 5, range = 6

26. 3-26 Patterns of Change in Process Distributions Figure 3.3

27. 3-27 Control Limits for Sample Means and Range Charts

28. 3-28 Constructing Control Charts A bank has 10 branches Wishes to monitor the age of applications for home mortgages Branches selected at random and ages of the applications noted Sample size of four out of the 10 branches each day Data summary on next slide

29. 3-29 Mean and Range of Ages of Mortgage Applications Table 3.5

30. 3-30 Finding Control Limits

31. 3-31 Mean Mortgage Application Age Figure 3.4

32. 3-32 Range in Mortgage Application Age Figure 3.4

33. 3-33 Fraction-Defective (ρ) Charts

34. 3-34 Number-of-Defects (c) Charts

35. 3-35 Controlling Service Quality Process control, strategy maps, and control charts can also be used for quality control in services Measuring service quality is more difficult –Service is abstract, transient, and psychological Can cope using customer satisfaction surveys Training employees in standard procedures can improve quality

36. 3-36 Service Defections Feedback from defecting customers can be used to identify problem areas Can determine what is needed to win them back Changes in defection rate can be used as early warning signal