Production and Operations Mangement- Chapter 1-8
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Production and Operations Mangement- Chapter 1-8






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Production and Operations Mangement- Chapter 1-8 Production and Operations Mangement- Chapter 1-8 Presentation Transcript

  • Introduction to Operations Management 1 C H A P T E R
  • OM Defined
    • Operations management :
    • The business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s products and services
  • Simplified Organizational Chart Page
  • Information Flows Page
  • Information Flows To & From Operations Page
  • The Role of OM in the Business Page
  • Value Added Defined Page Inputs in $$ Transformation Process Outputs in $$$ Value Added by Process
  • Service - Manufacturing
    • Services :
    • Intangible product
    • No inventories
    • High customer contact
    • Short response time
    • Labor intensive
    • Manufacturing :
    • Tangible product
    • Can be inventoried
    • Low customer contact
    • Capital intensive
    • Long response time
  • Service-Manufacturing Continuum Page
  • OM Decisions
    • Strategic decisions :
      • Decisions that set the direction for the entire company.
      • Broad in scope & long-term in nature
    • Tactical decisions :
      • Short-term & specific in nature
      • Bound by the strategic decisions
  • Example Page
  • Major Historical Developments
    • Industrial Revolution Late 1700s
    • Scientific Management Early 1900s
    • Human Relations Movement 1930s to 1960s
    • Management Science Mid-1900s
    • Computer Age 1970s
    • Just-In-Time Systems 1980s
    • Total Quality Management (TQM) 1980s
    • Reengineering 1980s
    • Flexibility 1990s
    • Time-based Competition 1990s
    • Supply Chain Management 1990s
    • Global Competition 1990s
    • Environmental Issues 1990s
    • Electronic Commerce Late 1990s – Early 21 st Century
  • Industrial Revolution Late 1700s
    • Replaced traditional craft methods
    • Substituted machine power for labor
    • Major contributions:
      • James Watt (1764): steam engine
      • Adam Smith (1776): division of labor
      • Eli Whitney (1790): interchangeable parts
  • Scientific Management Early 1900s
    • Separated ‘planning’ from ‘doing’
    • Management’s job was to discover worker’s physical limits through measurement, analysis & observation
    • Major contributors:
      • Fredrick Taylor: stopwatch time studies
      • Henry Ford: moving assembly line
  • Human Relations Movement 1930s to 1960s
    • Recognition that factors other than money contribute to worker productivity
    • Major contributions:
      • Understanding of the Hawthorn effect :
      • Study of Western Electric plant in Hawthorn, Illinois intended to study impact of environmental factors (light & heat) on productivity, but found workers responded to management’s attention regardless of environmental changes
      • Job enlargement
      • Job enrichment
  • Management Science Mid-1900s
    • Developed new quantitative techniques for common OM problems:
      • Major contributions include: inventory modeling, linear programming, project management, forecasting, statistical sampling, & quality control techniques
      • Played a large role in supporting American military operations during World War II
  • Computer Age 1970s
    • Provided the tool necessary to support the widespread use of Management Science’s quantitative techniques – the ability to process huge amounts of data quickly & relatively cheaply
    • Major contributions include the development of Material Requirements Planning (MRP) systems for production control
  • Developments: 1980s Japanese Influence
    • Just-In-Time (JIT):
      • Techniques designed to achieve high-volume production using coordinated material flows, continuous improvement, & elimination of waste
    • Total Quality Management (TQM):
      • Techniques designed to achieve high levels of product quality through shared responsibility & by eliminating the root causes of product defects
    • Business Process Reengineering:
      • ‘ Clean sheet’ redesign of work processes to increase efficiency, improve quality & reduce costs
  • Developments: 1990s
    • Flexibility:
      • Offer a greater variety of product choices on a mass scale (mass customization)
    • Time-based competition:
      • Developing new product designs & delivering customer orders more quickly than competitors
    • Supply Chain Management
      • Cooperating with suppliers & customers to reduce overall costs of the supply chain & increase responsiveness to customers
  • Developments: 1990s
    • Global competition:
      • International trade agreements open new markets for expansion & lower barriers to the entry of foreign competitors (e.g.: NAFTA & GATT)
      • Creates the need for decision-making tools for facility location, compliance with with local regulations, tailoring product offerings to local tastes, managing distribution networks, …
    • Environmental issues:
      • Pressure from consumers & regulators to reduce, reuse & recycle solid wastes & discharges to air & water
  • Electronic Commerce
    • Internet & related technologies enable new methods of business transactions:
      • E-tailing creates a new outlet for retail goods & services with global access and 24-7 availability
      • Internet provides a cheap network for coordinating supply chain management information
    • Developing influence of broadband & wireless
  • Operations Strategy & Competitiveness 2 C H A P T E R
  • The Role of Business Strategy
    • Business Strategy :
      • The firm’s long-range plan based on an understanding of the marketplace
      • Defines how a company intends to differentiate itself from competitors
      • Individual employees & functional units use the strategy to align their efforts with each other to accomplish the overall game plan
  • Operations Strategy
    • OM Strategy :
      • The long-range plan for the design & use of the operations function to support the overall business strategy:
        • The location, size, & type of facilities
        • The worker skills & talents required
        • The technology & processes to be used
        • How product & service quality will be controlled
      • Operating efficiency  an operating strategy
  • Developing a Business Strategy
    • Mission :
      • A statement defining what business the firm is in, who its customers are, & how its core beliefs shape its decision-making
    • Environmental scanning :
      • Monitoring the external environment for market opportunities & competitive threats
    • Core competencies :
      • Internal strengths & weaknesses of the firm (e.g.: personnel with special expertise, access to unique technology, & things the firm does better than competitors)
  • Putting it all Together Page Business Strategy: Defined long-range plan for the company Environmental Scanning: Monitoring the business environment for market trends, threats, and opportunities Mission: Statement that defines What our business is; Who our clients are; and How our values define our business Core Competencies: Our unique strengths that help us win in the marketplace
  • Developing an Operations Strategy
    • Identify the competitive priorities required to support the business strategy:
    • Common priorities include:
      • Cost : low production costs enables the company to price its product below competitors
      • Quality : higher performance or a more consistent product can support a price premium
      • Time : faster delivery or consistent on-time delivery can support a price premium
      • Flexibility : highly customized products or volume flexibility can support a price premium
  • Translate Priorities into Design Page Business Strategy Operations Strategy: Based on Competitive Priorities Design of Operations: Structure & Infrastructure
  • Design of Operations
    • Structure:
      • Facilities
      • Flow of work
      • Technology
    • Infrastructure:
      • Planning & control systems
      • Work design & compensation
  • Competing on Low Cost
    • Eliminate wasted labor, materials, and facilities
    • Emphasize efficient processes & high productivity
    • Often limit the product range & offer little customization
    • May invest in automation to increase productivity
  • Competing on Quality
    • High performance design:
      • Superior features, high durability, & excellent customer service
    • Product & service consistency:
      • Error free delivery
      • Close tolerances
  • Competing on Time
    • Rapid delivery:
      • How quickly an order is received after the order is placed
    • On-time delivery:
      • Sometimes items can arrive too quickly
        • JIT firms try to avoid clutter of excess inventory
      • Ability to deliver exactly when expected
        • Not too early or too late
  • Competing on Flexibility
    • Product flexibility :
      • Easily switch the production process from one item to another (substitution)
      • Easily customize output to meet the specific requirements of a customer
    • Volume flexibility :
      • Rapidly increase or decrease the amount of product being produced to match demand
  • Understand Tradeoffs Example: Made-to-Order Pizza Page Fresh, Natural Ingredients Toppings & Crust Choice Slow to Cook Expensive Ingredients Low Volume Ovens QUALITY QUALITY & DESIGN FLEXIBILITY VOLUME FLEXIBILITY TIME COST
  • Distinguish Order Qualifiers from Order Winners
    • Order Qualifiers :
      • Competitive priorities that a product must meet to even be considered for purchase
      • Generally, represented by features shared by all competitors in a given market niche
    • Order Winners :
      • Competitive priorities that distinguish the firm’s offerings from competitors & ultimately win the customer’s order
  • Productivity Page
  • Productivity Measures
    • Partial Measures:
      • A ratio of outputs to only one input (e.g.: labor productivity, machine utilization, energy efficiency)
    • Multifactor Measures:
      • A ratio of outputs to several, but not all, inputs
    • Total Productivity Measures:
      • The ratio of outputs to all inputs
  • Labor Productivity
    • Example:
      • Assume two workers paint twenty-four tables in eight hours:
      • Inputs: 16 hours of labor (2 workers x 8 hours)
      • Outputs: 24 painted tables
  • Multifactor Productivity
    • Convert all inputs & outputs to $ value
    • Example:
      • 200 units produced sell for $12.00 each
      • Materials cost $6.50 per unit
      • 40 hours of labor were required at $10 an hour
  • Interpreting Productivity Measures
    • Is the productivity measure of 1.41 in the previous example good or bad?
    • Can’t tell without a reference point
    • Compare to previous measures ( e.g.: last week) or to another benchmark
  • Productivity Growth Rate
    • Can be used to compare a process’ productivity at a given time (P 2 ) to the same process’ productivity at an earlier time (P 1 )
  • Productivity Growth Rate
    • Example:
      • Last week a company produced 150 units using 200 hours of labor
      • This week, the same company produced 180 units using 250 hours of labor
  • Product Design & Process Selection 3 C H A P T E R
  • Product & Service Design
    • The process of deciding on the unique characteristics of a company’s product & service offerings
    • Serves to define a company’s customer base, image, competition and future growth
  • Products versus Services
    • Products:
      • Tangible offerings
      • Dimensions, materials, tolerances & performance standards
    • Services:
      • Intangible offerings
      • Physical elements + sensory, esthetic, & psychological benefits
  • Strategic Importance
    • Products & service offerings must support the company’s business strategy by satisfying the target customers’ needs & preferences
    • If not, the company will lose its customer base and its market position will erode
  • Step–by-Step
    • Idea Development:
      • A need is identified & a product idea to satisfy it is put together
    • Product Screening:
      • Initial ideas are evaluated for difficulty & likelihood of success
    • Preliminary Design & Testing
      • Market testing & prototype development
    • Final Design
      • Product & service characteristics are set
  • Idea Development
    • Existing & target customers
      • Customer surveys & focus groups
    • Benchmarking
      • Studying “best in class” companies from your industry or others and comparing their practices & performance to your own
    • Reverse engineering
      • Disassembling a competitor’s product & analyzing its design characteristics & how it was made
    • Suppliers, employees and technical advances
  • Product Screening
    • Operations:
      • Are production requirements consistent with existing capacity?
      • Are the necessary labor skills & raw materials available?
    • Marketing:
      • How large is the market niche?
      • What is the long-term potential for the product?
    • Finance:
      • What is the expected return on investment?
  • Preliminary Design & Testing
    • General performance characteristics are translated into technical specifications
    • Prototypes are built & tested (maybe offered for sale on a small scale)
    • Bugs are worked out & designs are refined
  • Final Design
    • Specifications are set & then used to:
      • Develop processing and service delivery instructions
      • Guide equipment selection
      • Outline jobs to be performed
      • Negotiate contracts with suppliers and distributors
  • Break-Even Analysis Page
  • Break-Even Analysis
    • Total cost = fixed costs + variable costs (quantity):
    • Revenue = selling price (quantity)
    • Break-even point is where total costs = revenue:
  • Example
    • A firm estimates that the fixed cost of producing a line of footwear is $52,000 with a $9 variable cost for each pair produced. They want to know:
      • If each pair sells for $25, how many pairs must they sell to break-even?
      • If they sell 4000 pairs at $25 each, how much money will they make?
  • Example Solved
    • Break-even point:
    • Profit = total revenue – total costs
  • Design for Manufacture (DFM)
    • Guidelines:
      • Minimize the number of parts
      • Use common or standardized parts
      • Use modular design
      • Avoid the need for tools (e.g.: snap together components)
      • Simplify operations
  • DFM Example Page
  • DFM Benefits
    • Lower costs:
      • Lower inventories (fewer, standardized components)
      • Less labor required (simpler flows, easier tasks)
    • Higher quality:
      • Simple, easy-to-make products means fewer opportunities to make mistakes
  • Product Life Cycle Page
  • Concurrent Engineering
    • A design approach that uses multifunctional teams to simultaneously design the product & process
    • Replaces a traditional ‘over-the-wall’ approach where one group does their part & then hands off the design to the next group
  • Sequential Design Page
  • Concurrent Engineering Page
  • Concurrent Engineering Benefits
    • Representatives from the different groups can better consider trade-offs in cost & design choices as each decision is being made
    • Development time is reduced due to less rework (traditionally, groups would argue with earlier decisions & try to get them changed)
    • Emphasis is on problem-solving (not placing blame on the ‘other group’ for mistakes)
  • Process Selection
    • Intermittent operations:
      • Capable of producing a large variety of product designs in relatively low volumes
    • Continuous operations:
      • Capable of producing one (or a few) standardized designs in very high volumes
  • Intermittent versus Continuous Page
  • Intermittent Operations
    • Pros:
      • Very flexible
    • Cons:
      • Material handling & variable costs are high
      • Work scheduling is difficult
  • Continuous Operations
    • Pros
      • Highly efficient to produce large volumes (low variable costs)
    • Cons
      • Inflexible to design changes
      • Susceptible to component failure
      • High fixed costs for capital equipment
  • Continuum of Process Types
    • Projects
      • Used for one-at-a-time products made exactly to customer specifications
    • Batch processes:
      • Used for small quantities (batches) with a high level of customization
    • Line processes:
      • Used for relatively high volumes with little customization
    • Continuous processes:
      • Used for very high volume standardized products (often commodities)
  • Continuum of Process Types Page
  • Vertical Integration
    • How much of the supply chain is owned by a company?
      • A supply chain is the series of linked activities from raw material extraction to the final customer (Chapter 4)
    • Consider the direction of integration:
      • Forward (toward customers)
      • Backward (toward suppliers)
  • Make-or-Buy
    • Outsourcing decisions should consider:
      • Long-term strategic impact
      • Existing capacity available
      • Expertise required & available
      • Quality issues
      • Ramp up speed & delivery issues
      • Total costs
  • Process Flowcharting
    • Graphically defines the operation, step-by-step
    • Used to help visualize the flow of work & information:
      • Can help identify potential problem areas
      • Format can be as simple or detailed as needed
  • Example Page
  • Process Technology
    • Automation
    • Automated Material Handling:
      • Automated guided vehicles (AGV)
      • Automated storage & retrieval systems (AS/RS)
    • Computer-Aided Design (CAD) software
    • Robotics & Numerically-Controlled (NC) equipment
    • Flexible Manufacturing Systems (FMS)
    • Computer-Integrated Manufacturing (CIM)
  • Supply Chain Management 4 C H A P T E R
  • What is a Supply Chain?
    • A network of activities that deliver a finished product or service to the customer.
      • The connected links of external suppliers, internal processes, and external distributors.
  • Components of a Typical Supply Chain Page External Suppliers Internal Functions External Distributors INFORMATION
  • A Basic Supply Chain Page
  • Supply Chain Management
    • Supply Chain Management entails:
      • Coordinating the movement of goods and delivery of services.
      • Sharing information between members of the supply chain.
        • For example: sales, forecasts, promotional campaigns, and inventory levels.
  • Page Supply Chain for Milk Products
  • External Suppliers
    • External suppliers provide the necessary raw materials, services, and component parts.
    • Purchased materials & services frequently represent 50% (or more) of the costs of goods sold.
    • Suppliers are frequently members of several supply chains – often in different roles.
  • External Suppliers
    • Tier one suppliers:
      • Directly supplies materials or services to the firm that does business with the final customer
    • Tier two suppliers:
      • Provides materials or services to tier one suppliers
    • Tier three suppliers:
      • Providers materials or services to tier two suppliers
  • Internal Functions
    • Vary by industry & firm, but might include:
      • Processing
      • Purchasing
      • Production Planning & Control
      • Quality Assurance
      • Shipping
  • Logistics & Distribution
    • Logistics: getting the right material to the right place at the right time in the right quantity:
      • Traffic Management:
        • The selection, scheduling & control of carriers (e.g.: trucks & rail) for both incoming & outgoing materials & products
      • Distribution Management:
        • The packaging, storing & handling of products in transit to the end-user.
  • Information Sharing
    • Supply chain partners can benefit by sharing information on sales, demand forecasts, inventory levels & marketing campaigns
    • Inaccurate or distorted information leads to the Bullwhip Effect
  • Typical Information Flow Page
  • The Bullwhip Effect
    • If information isn’t shared, everyone has to guess what is going on downstream.
    • Guessing wrong leads to too much or too little inventory:
      • If too much, firms hold off buying more until inventories fall (leading suppliers to think demand has fallen).
      • If too little, firms demand a rush order & order more than usual to avoid being caught short in the future (leading suppliers to think demand has risen).
  • The Bullwhip Effect
    • Farther away from the customer, the quality of information gets worse & worse as supply chain members base their guesses on the bad guesses of their partners.
    • The result is increasingly inefficient inventory management, manufacturing, & logistics
  • Short-Circuit the Bullwhip
    • Make information transparent:
      • Use Electronic Data Interchange (EDI) to support Just-In-Time supplier replenishment
      • Use bar codes & electronic scanning to capture & share point-of-sale data
    • Eliminate wholesale price promotions & quantity discounts
    • Allocate scarce items in proportion to past sales to avoid attempts to ‘game’ the system
  • Electronic Data Interchange
    • The most common method of using computer-to-computer links to exchange data between supply chain partners in a standardized format.
    • Benefits include:
      • Quick transfer of information
      • Reduced paperwork & administration
      • Improved data accuracy & tracking capability
  • Vertical Integration
    • A measure of how much of the supply chain is controlled by the manufacturer.
      • Backward integration:
        • Acquiring control of raw material suppliers.
      • Forward integration:
        • Acquiring control of distribution channels.
  • Outsourcing
    • Entails paying third-party suppliers to provide raw materials and services, rather than making them in-house.
    • Outsourcing is increasing as many firms try to focus their internal operations on what they do best.
  • Whether to Outsource?
    • What volume is required?
    • Are items of similar quality available in the marketplace?
    • Is long-term demand for the item stable?
    • Is the item critical to success of the firm?
    • Does the item represent a core competency of the firm?
  • Breakeven Analysis Page
  • Example: The Bagel Shop
    • Bill & Nancy plan to open a small bagel shop.
      • The local baker has offered to sell them bagels at 40 cents each. However, they will need to invest $1,000 in bread racks to transport the bagels back & forth from the bakery to their store.
      • Alternatively, they can bake the bagels at their store for 15 cents each if they invest $15,00 in kitchen equipment.
      • They expect to sell 60,000 bagels each year.
    • What should they do?
  • Example Solved
    • Interpretation:
      • They anticipate selling 60,000 bagels (greater than the indifference point of 56,000).
      • Therefore, make the bagels in-house.
  • Developing a Supply Base
    • How to chose between suppliers?
    • One supplier or many per item?
    • Whether to partner with suppliers?
  • Criteria for Choosing Suppliers
    • Cost:
      • Cost per unit & transaction costs
    • Quality:
      • Conformance to specifications
    • On-time delivery:
      • Speed & predictability
  • Arguments for One Supplier per Item
    • May only be one practical source for the item
      • Patent issues, geography, or quality considerations)
    • The supply chain is integrated to support JIT or EDI
      • Making multiple suppliers impractical
    • Availability of quantity discounts
    • Supplier may be more responsive if it’s guaranteed all your business for the item
    • Contract might bind you to using only one supplier
    • Deliveries may be scheduled more easily
  • Arguments for Multiple Suppliers per Item
    • No single supplier may have sufficient capacity
    • Competition may result in better pricing or service
    • Multiple suppliers spreads the risk of supply chain interruption
    • Eliminates purchaser’s dependence on a single source of supply
    • Provides greater volume flexibility
    • Government regulation may require multiple suppliers
      • Antitrust issues
    • Allows testing new suppliers without risking a complete disruption of material flow
  • Partnering with Suppliers
    • Involves developing a long-term, mutually-beneficial relationship:
      • Requires trust to share information, risk, opportunities, & investing in compatible technology
      • Work together to reduce waste and inefficiency & develop new products
      • Agree to share the gains
  • The Role of Warehouses
    • General Warehouses:
      • Used for long-term storage of goods
    • Distribution Warehouses:
      • Transportation consolidation:
        • Consolidate LTL into TL deliveries
      • Product mixing & blending:
        • Group multiple items from various suppliers
      • Improve service:
        • Reduced response time
        • Allow for last-minute customization
  • Future Challenges
    • Household Replenishment:
      • Fulfilling consumer demand at the point of use (the home).
      • Often called ‘the last mile’ problem.
    • Freeze Point Delay (Postponement):
      • Last minute customization to provide exactly what the consumer wants while maintaining very small inventories
  • Total Quality Management 5 C H A P T E R
  • What is TQM?
    • Total Quality Management
      • An integrated effort designed to improve quality performance at every level of the organization.
    • Customer-defined quality
      • The meaning of quality as defined by the customer.
  • Defining Quality
    • Conformance to Specifications
      • How well the product or service meets the targets and tolerances determined by its designers
    • Fitness for Use
      • Definition of quality that evaluates how well the product performs for its intended use.
    • Value for Price Paid
      • Quality defined in terms of product or service usefulness for the price paid.
  • Defining Quality
    • Support Services
      • Quality defined in terms of the support provided after the product or service is purchased
    • Psychological Criteria
      • A way of defining quality that focuses on judgmental evaluations of what constitutes product or service excellence.
  • Manufacturing vs. Service
    • Manufacturing produces a tangible product
      • Quality is often defined by tangible characteristics
      • Conformance, Performance, Reliability, Features
    • Service produces an intangible product
      • Quality is often defined by perceptual factors
      • Courtesy, Friendliness, Promptness, Atmosphere, Consistency
  • Changing Focus of Quality Management Page
  • Overview of TQM Philosophy
    • Focus on identifying root causes of reoccurring problems & correcting them
      • A proactive, not reactive approach
    • Allow customers to determine what’s important (customer-driven quality)
    • Involve everyone in the organization
  • TQM Philosophy
    • Maintain a Customer Focus:
      • Identify and meet current customer needs
      • Continually gather data (look for changing preferences)
    • Continuous Improvement:
      • Continually strive to improve
      • Good enough, isn’t good enough
    • Quality at the Source:
      • Find the source of quality problems & correct them
  • TQM Philosophy
    • Employee Empowerment:
      • Empower all employees to find quality problems and correct them
    • Focus on internal & external customer needs:
      • External customers:
        • People who purchase the company’s goods and services
      • Internal customers:
        • Other downstream employees who rely on preceding employees to do their job
  • TQM Philosophy
    • Understanding Quality Tools:
      • All employees should be trained to properly utilize quality control tools
    • Team Approach:
      • Quality is an organization-wide effort
      • Quality circles: work groups acting as problem-solving teams
    • Benchmarking
      • Studying the business practices of other companies for purposes of comparison.
  • TQM Philosophy
    • Manage Supplier Quality:
      • Ensuring that suppliers engage in the same high quality practices
      • Strategic partnering with key suppliers
    • Quality of Design:
      • Determining which features will be included in the final design of a product to meet customers’ needs & preferences
    • Ease of Use:
      • Ergonomics, easy to understand directions, etc.
  • TQM Philosophy
    • Quality of Conformance to Design:
      • Degree to which the product conforms to it’s design specifications (a measure of consistency & lack of variation)
    • Post-Sale Service:
      • Assisting with issues that arise after the purchase
      • Warranty & repair issues, follow through on any promises to build a continuing relationship with the customer
  • Costs of Quality Page
  • Ways to Improve Quality
    • PDSA Cycle
    • Quality Function Deployment
    • Problem-solving tools
  • Plan-Do-Study-Act Cycle (PDSA) Page
  • Plan-Do-Study-Act Cycle (PDSA)
    • Plan : Plan experiments to uncover the root cause of problems
    • Do : Conduct the experiments
    • Study : Study the data generated
    • Act : Implement improvements or start over
    • Repeat : Continuously improve
  • Quality Function Deployment
    • Compares customer requirements & product’s characteristics
    • Understand how the product delivers quality to the customer
  • Comparing “Voices” Page Voice of the Customer Voice of the Engineer Customer-based Benchmarks
  • QFD
    • In addition, QFD:
    • Provides for competitive evaluation (benchmarks)
    • Considers design trade-offs & synergies
    • Facilitates target setting & developing product specifications
  • Setting Specifications Page Trade-offs Targets Technical Benchmarks
  • Problem Solving Tools
    • Cause-and-Effect Diagrams
    • Flow Charts
    • Check Lists
    • Control Charts
    • Scatter Diagrams
    • Pareto Charts
    • Histograms
  • Cause-and-Effect Diagrams
    • Also called Fishbone Diagrams
    • Help identify potential causes of specific ‘effects’ (quality problems)
  • Flow Charts
    • Diagrams of the steps involved in an operation or process
  • Checklists
    • Simple forms used to record the appearance of common defects and the number of occurrences
  • Control Charts
    • Track whether a process is operating as expected
  • Scatter Diagrams
    • Illustrate how two variables are related to each other
  • Pareto Analysis
    • Helps identify the degree of importance of different quality problems
  • Histograms
    • Illustrate a frequency distribution
  • Quality Awards
    • Malcolm Baldrige National Quality Award is given annually to companies demonstrating excellence
      • Manufacturing
      • Service
      • Small Business
      • Education
      • Healthcare
  • MBNQA Criteria Page
  • Quality Standards
    • ISO 9000 Standards:
      • Set of internationally recognized quality standards
      • Companies are periodically audited & certified
    • ISO 14000:
      • Focuses on a company’s environmental responsibility
    • QS 9000:
      • Auto industry’s version of ISO 9000
  • Quality Gurus
    • W. Edwards Deming
    • Joseph Juran
    • Phillip Crosby
  • W. Edwards Deming
    • Focus on optimizing the system - not individual components
    • Management is responsible for the system (source of 85% of problems)
    • Continuous improvement (focus on prevention, not after-the-fact inspection)
    • Understand variation (special versus common causes)
  • Joseph Juran
    • Quality = fitness for use
    • Developed the quality trilogy:
      • Quality planning (future orientation/design quality)
      • Quality control (statistical control of variation)
      • Quality improvement (continuous improvement)
    • Emphasized the costs of quality:
      • Understand the trade-offs between prevention & appraisal costs with failure costs
  • Phillip Crosby
    • Quality requires leadership:
      • Do it right the first time
      • The goal is zero defects
    • Argued that ‘quality is free’:
      • The benefits far outweigh the cost of achieving zero defects
  • Statistical Quality Control 6 C H A P T E R
  • Quality Control Methods
    • Descriptive statistics:
      • Used to describe distributions of data
    • Statistical process control (SPC):
      • Used to determine whether a process is performing as expected
    • Acceptance sampling:
      • Used to accept or reject entire batches by only inspecting a few items
  • Descriptive Statistics
    • Mean (x-bar):
      • The average or central tendency of a data set
    • Standard deviation (sigma):
      • Describes the amount of spread or observed variation in the data set
    • Range:
      • Another measure of spread
      • The range measures the difference between the largest & smallest observed values in the data set
  • The Normal Distribution Page
  • Equations
    • Mean:
    • Standard deviation:
  • Impact of Standard Deviation Page
  • Skewed Distributions (One Form of Non-Normal Distribution) Page
  • SPC Methods
    • Control charts
      • Use statistical limits to identify when a sample of data falls within a normal range of variation
  • Setting Limits Requires Balancing Risks
    • Control limits are based on a willingness to think something’s wrong, when it’s actually not (Type I or alpha error), balanced against the sensitivity of the tool - the ability to quickly reveal a problem (failure is Type II or beta error)
  • Types of Data
    • Variable level data:
      • Can be measured using a continuous scale
      • Examples: length, weight, time, & temperature
    • Attribute level data:
      • Can only be described by discrete characteristics
      • Example: defective & not defective
  • Control Charts for Variable Data
    • Mean (x-bar) charts
      • Tracks the central tendency (the average value observed) over time
    • Range (R) charts:
      • Tracks the spread of the distribution over time (estimates the observed variation)
  • x-Bar Computations Page
  • Example
    • Assume the standard deviation of the process is given as 1.13 ounces
    • Management wants a 3-sigma chart (only 0.26% chance of alpha error)
    • Observed values shown in the table are in ounces
    Page Time 1 Time 2 Time 3 Observation 1 15.8 16.1 16.0 Observation 2 16.0 16.0 15.9 Observation 3 15.8 15.8 15.9 Observation 4 15.9 15.9 15.8 Sample means 15.875 15.975 15.9
  • Computations
    • Center line (x-double bar):
    • Control limits:
  • 2 nd Method Using R-bar Page
  • Control Chart Factors Page
  • Example Page Time 1 Time 2 Time 3 Observation 1 15.8 16.1 16.0 Observation 2 16.0 16.0 15.9 Observation 3 15.8 15.8 15.9 Observation 4 15.9 15.9 15.8 Sample means 15.875 15.975 15.9 Sample ranges 0.2 0.3 0.2
  • Computations Page
  • Example x-bar Chart Page
  • R-chart Computations (Use D3 & D4 Factors: Table 6-1) Page
  • Example R-chart Page
  • Using x-bar & R-charts
    • Use together
    • Reveal different problems
  • Control Charts for Attribute Data
    • p-Charts:
      • Track the proportion defective in a sample
    • c-Charts:
      • Track the average number of defects per unit of output
  • Process Capability
    • A measure of the ability of a process to meet preset design specifications:
      • Determines whether the process can do what we are asking it to do
    • Design specifications (a/k/a tolerance limits):
      • Preset by design engineers to define the acceptable range of individual product characteristics (e.g.: physical dimensions, elapsed time, etc.)
      • Based upon customer expectations & how the product works (not statistics!)
  • Measuring Process Capability
    • Compare the width of design specifications & observed process output
  • Capability Indexes
    • Centered Process (C p ):
    • Any Process (C pk ):
  • Example
    • Design specifications call for a target value of 16.0 +/-0.2 microns (USL = 16.2 & LSL = 15.8)
    • Observed process output has a mean of 15.9 and a standard deviation of 0.1 microns
  • Computations
    • C p :
    • C pk :
  • Three Sigma Capability
    • Until now, we assumed process output should be modeled as +/- 3 standard deviations
    • By doing so, we ignore the 0.26% of output that falls outside +/- 3 sigma range
    • The result: a 3-sigma capable process produces 2600 defects for every million units produced
  • Six Sigma Capability
    • Six sigma capability assumes the process is capable of producing output where +/- 6 standard deviations fall within the design specifications (even when the mean output drifts up to 1.5 standard deviations off target)
    • The result: only 3.4 defects for every million produced
  • 3-Sigma versus 6-Sigma Page
  • Just-In-Time Systems 7 C H A P T E R
  • Just-In-Time
    • Getting the right quantity of goods to the right place – exactly when needed!
    • Just-In-Time= not late & not early
  • Philosophy of JIT
    • Elimination of waste
    • Broad view of operations
    • Simplicity
    • Continuous improvement
    • Visibility
    • Flexibility
  • Eliminate Waste
    • Waste is anything that doesn’t add value:
      • Unsynchronized production
      • Inefficient & unstreamlined layouts
      • Unnecessary material handling
      • Scrap & rework
  • Broad View of Operations
    • Understanding that operations is part of a larger system
    • Goal is to optimize the system – not each part:
      • Avoid narrow view: “That’s not in my job description!”
      • Avoid sub-optimization
  • Simplicity
    • It’s often easy to develop complex solutions to problems by adding extra steps
    • Goal is to find a simpler way to do things right:
      • Less chance to forget extra step
      • Fewer opportunities to make mistakes
      • More efficient
  • Continuous Improvement
    • Traditional viewpoint: “It’s good enough”
    • JIT viewpoint: “If it’s not perfect, make it better”
  • Visibility
    • Waste can only be eliminated after it’s discovered
    • Clutter hides waste
    • JIT requires good housekeeping
  • Visibility Page
  • Flexibility
    • Easy to make volume changes:
      • Ramp up & down to meet demand
    • Easy to switch from one product to another:
      • Build a mix of products without wasting time with long changeovers
  • Three Elements of JIT Page
  • JIT Manufacturing
    • Kanbans & pull production systems
    • Quick setups & small lots
    • Uniform plant loading
    • Flexible resources
    • Efficient facility layouts
  • Pull Production & Kanbans Page
  • Number of Kanbans Required
    • N = number of containers
    • D = demand rate at the withdraw station
    • T = lead time from supply station
    • C = container size
  • Quick Setups & Small Lots
    • Setup times = time required to get ready
      • E.g .: clean & calibrate equipment, changing tools, etc.
    • Internal versus external setups
      • Stop production or setup will still running
    • Internal setups = lost production time
      • Inefficient setups = waste
  • Uniform Plant Loading Page
  • Flexible Resources
    • General purpose equipment:
      • E.g .: drills, lathes, printer-fax-copiers, etc.
      • Capable of being setup to do many different things
    • Multifunctional workers:
      • Cross-trained to perform several different duties
  • Efficient Facility Layouts
    • Workstations in close physical proximity to reduce transport & movement
    • Streamlined flow of material
    • Often use:
      • Cellular Manufacturing (instead of job shops)
      • U-shaped lines: (allows material handler to quickly drop off materials & pick up finished work)
  • Job Shop Layout Page
  • Cellular Manufacturing Page
  • TQM & JIT
    • Quality at the Source
    • Jidoka (authority to stop line)
    • Poka-yoke (foolproof the process)
    • Preventive maintenance
  • Respect for People: The Role of Workers
    • Cross-trained workers
    • Actively engaged in problem-solving
    • Workers are empowered
    • Everyone responsible for quality
    • Workers gather performance data
    • Team approaches used for problem-solving
    • Decision made bottom-up
    • Workers responsible for preventive maintenance
  • Page Respect for People: The Role of Management
    • Responsible for culture of mutual trust
    • Serve as coaches & facilitators
    • Support culture with appropriate incentive system
    • Responsible for developing workers
    • Provide multi-functional training
    • Facilitate teamwork
  • Supplier Relations & JIT
    • Use single-source suppliers
    • Build long-term relationships
    • Co-locate facilities to reduce transport
    • Stable delivery schedules
    • Share cost & other information
  • Benefits of JIT
    • Smaller inventories
    • Improved quality
    • Reduced space requirements
    • Shorter lead times
    • Lower production costs
    • Increased productivity
    • Increased machine utilization
    • Greater flexibility
  • Implementing JIT Manufacturing
    • Identify & fix problems
    • Reorganize workplace
      • Remove clutter & designate storage
    • Reduce setup times
    • Reduce lot sizes & lead times
    • Implement layout changes
      • Cellular manufacturing & close proximity
    • Switch to pull production
    • Extend methods to suppliers
  • JIT in Services
    • Multifunctional workers
    • Reduce cycle times
    • Minimize setups
    • Parallel processing
    • Good housekeeping
    • Simple, highly-visible flow of work
  • Forecasting 8 C H A P T E R
  • Principles of Forecasting
    • Forecasts are rarely perfect
    • Grouped forecasts are more accurate than individual items
    • Forecast accuracy is higher for shorter time horizons
  • Step-by-Step
    • Decide what to forecast:
      • Level of detail, units of analysis & time horizon required
    • Evaluate & analyze appropriate data
      • Identify needed data & whether it’s available
    • Select & test the forecasting model
      • Cost, ease of use & accuracy
    • Generate the forecast
    • Monitor forecast accuracy over time
  • Types of Forecasting Methods
    • Qualitative methods:
      • Forecasts generated subjectively by the forecaster
    • Quantitative methods:
      • Forecasts generated through mathematical modeling
  • Qualitative Methods
    • Strengths:
      • Incorporates inside information
      • Particularly useful when the future is expected to be very different than the past
    • Weaknesses:
      • Forecaster bias can reduce the accuracy of the forecast
  • Types of Qualitative Models Page
  • Quantitative Methods
    • Strengths:
      • Consistent and objective
      • Can consider a lot of data at once
    • Weaknesses:
      • Necessary data isn’t always available
      • Forecast quality is dependent upon data quality
  • Types of Quantitative Methods
    • Time Series Models:
      • Assumes the future will follow same patterns as the past
    • Causal Models:
      • Explores cause-and-effect relationships
      • Uses leading indicators to predict the future
  • Patterns in Time Series Data Page
  • Logic of Time Series Models
    • Data = historic pattern + random variation
    • Historic pattern may include:
      • Level (long-term average)
      • Trend
      • Seasonality
      • Cycle
  • Time Series Models
    • Naive:
      • The forecast is equal to the actual value observed during the last period
    • Simple Mean:
      • The average of all available data
    • Moving Average:
      • The average value over a set time period (e.g.: the last four weeks)
      • Each new forecast drops the oldest data point & adds a new observation
  • Weighted Moving Average
    • All weights must add to 100% or 1.00
    • Allows the forecaster to emphasize one period over others
    • Differs from the simple moving average that weights all periods equally
  • Exponential Smoothing
    • Forecast quality is highly dependent on selection of alpha:
      • Low alpha values generate more stable forecasts
      • High alpha values generate forecasts that respond quickly to recent data
    • Issue is whether recent changes reflect random variation or real change in long-term demand
  • Forecasting Trends
    • Trend-adjusted exponential smoothing
    • Three step process:
      • Smooth the level of the series:
      • Smooth the trend:
      • Calculate the forecast including trend:
  • Adjusting for Seasonality
    • Calculate the average demand per season
      • E.g.: average quarterly demand
    • Calculate a seasonal index for each season of each year:
      • Divide the actual demand of each season by the average demand per season for that year
    • Average the indexes by season
      • E.g .: take the average of all Spring indexes, then of all Summer indexes, ...
  • Adjusting for Seasonality
    • Forecast demand for the next year & divide by the number of seasons
      • Use regular forecasting method & divide by four for average quarterly demand
    • Multiply next year’s average seasonal demand by each average seasonal index
      • Result is a forecast of demand for each season of next year
  • Casual Models
    • Often, leading indicators hint can help predict changes in demand
    • Causal models build on these cause-and-effect relationships
    • A common tool of causal modeling is linear regression:
  • Linear Regression Page
  • Forecast Accuracy
    • Forecasts are rarely perfect
    • Need to know how much we should rely on our chosen forecasting method
    • Measuring forecast error :
    • Note that over-forecasts = negative errors and under-forecasts = positive errors
  • Tracking Forecast Error Over Time
    • Mean Absolute Deviation (MAD):
      • A good measure of the actual error in a forecast
    • Mean Square Error (MSE):
      • Penalizes extreme errors
    • Tracking Signal
      • Exposes bias (positive or negative)
  • Factors for Selecting a Forecasting Model
    • The amount & type of available data
    • Degree of accuracy required
    • Length of forecast horizon
    • Presence of data patterns