Production and Operations Management- Chapters 1-8

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Production and Operations Management- Chapters 1-8

  1. 1. Introduction to Operations Management 1 C H A P T E R
  2. 2. OM Defined <ul><li>Operations management : </li></ul><ul><li>The business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s products and services </li></ul>Page
  3. 3. Simplified Organizational Chart Page
  4. 4. Information Flows Page
  5. 5. Information Flows To & From Operations Page
  6. 6. The Role of OM in the Business Page
  7. 7. Value Added Defined Page Inputs in $$ Transformation Process Outputs in $$$ Value Added by Process
  8. 8. Service - Manufacturing <ul><li>Services : </li></ul><ul><li>Intangible product </li></ul><ul><li>No inventories </li></ul><ul><li>High customer contact </li></ul><ul><li>Short response time </li></ul><ul><li>Labor intensive </li></ul><ul><li>Manufacturing : </li></ul><ul><li>Tangible product </li></ul><ul><li>Can be inventoried </li></ul><ul><li>Low customer contact </li></ul><ul><li>Capital intensive </li></ul><ul><li>Long response time </li></ul>Page
  9. 9. Service-Manufacturing Continuum Page
  10. 10. OM Decisions <ul><li>Strategic decisions : </li></ul><ul><ul><li>Decisions that set the direction for the entire company. </li></ul></ul><ul><ul><li>Broad in scope & long-term in nature </li></ul></ul><ul><li>Tactical decisions : </li></ul><ul><ul><li>Short-term & specific in nature </li></ul></ul><ul><ul><li>Bound by the strategic decisions </li></ul></ul>Page
  11. 11. Example Page
  12. 12. Major Historical Developments <ul><li>Industrial Revolution Late 1700s </li></ul><ul><li>Scientific Management Early 1900s </li></ul><ul><li>Human Relations Movement 1930s to 1960s </li></ul><ul><li>Management Science Mid-1900s </li></ul><ul><li>Computer Age 1970s </li></ul><ul><li>Just-In-Time Systems 1980s </li></ul><ul><li>Total Quality Management (TQM) 1980s </li></ul><ul><li>Reengineering 1980s </li></ul><ul><li>Flexibility 1990s </li></ul><ul><li>Time-based Competition 1990s </li></ul><ul><li>Supply Chain Management 1990s </li></ul><ul><li>Global Competition 1990s </li></ul><ul><li>Environmental Issues 1990s </li></ul><ul><li>Electronic Commerce Late 1990s – Early 21 st Century </li></ul>Page
  13. 13. Industrial Revolution Late 1700s <ul><li>Replaced traditional craft methods </li></ul><ul><li>Substituted machine power for labor </li></ul><ul><li>Major contributions: </li></ul><ul><ul><li>James Watt (1764): steam engine </li></ul></ul><ul><ul><li>Adam Smith (1776): division of labor </li></ul></ul><ul><ul><li>Eli Whitney (1790): interchangeable parts </li></ul></ul>Page
  14. 14. Scientific Management Early 1900s <ul><li>Separated ‘planning’ from ‘doing’ </li></ul><ul><li>Management’s job was to discover worker’s physical limits through measurement, analysis & observation </li></ul><ul><li>Major contributors: </li></ul><ul><ul><li>Fredrick Taylor: stopwatch time studies </li></ul></ul><ul><ul><li>Henry Ford: moving assembly line </li></ul></ul>Page
  15. 15. Human Relations Movement 1930s to 1960s <ul><li>Recognition that factors other than money contribute to worker productivity </li></ul><ul><li>Major contributions: </li></ul><ul><ul><li>Understanding of the Hawthorn effect : </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Job enlargement </li></ul></ul><ul><ul><li>Job enrichment </li></ul></ul>Page
  16. 16. Management Science Mid-1900s <ul><li>Developed new quantitative techniques for common OM problems: </li></ul><ul><ul><li>Major contributions include: inventory modeling, linear programming, project management, forecasting, statistical sampling, & quality control techniques </li></ul></ul><ul><ul><li>Played a large role in supporting American military operations during World War II </li></ul></ul>Page
  17. 17. Computer Age 1970s <ul><li>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 </li></ul><ul><li>Major contributions include the development of Material Requirements Planning (MRP) systems for production control </li></ul>Page
  18. 18. Developments: 1980s Japanese Influence <ul><li>Just-In-Time (JIT): </li></ul><ul><ul><li>Techniques designed to achieve high-volume production using coordinated material flows, continuous improvement, & elimination of waste </li></ul></ul><ul><li>Total Quality Management (TQM): </li></ul><ul><ul><li>Techniques designed to achieve high levels of product quality through shared responsibility & by eliminating the root causes of product defects </li></ul></ul><ul><li>Business Process Reengineering: </li></ul><ul><ul><li>‘ Clean sheet’ redesign of work processes to increase efficiency, improve quality & reduce costs </li></ul></ul>Page
  19. 19. Developments: 1990s <ul><li>Flexibility: </li></ul><ul><ul><li>Offer a greater variety of product choices on a mass scale (mass customization) </li></ul></ul><ul><li>Time-based competition: </li></ul><ul><ul><li>Developing new product designs & delivering customer orders more quickly than competitors </li></ul></ul><ul><li>Supply Chain Management </li></ul><ul><ul><li>Cooperating with suppliers & customers to reduce overall costs of the supply chain & increase responsiveness to customers </li></ul></ul>Page
  20. 20. Developments: 1990s <ul><li>Global competition: </li></ul><ul><ul><li>International trade agreements open new markets for expansion & lower barriers to the entry of foreign competitors (e.g.: NAFTA & GATT) </li></ul></ul><ul><ul><li>Creates the need for decision-making tools for facility location, compliance with with local regulations, tailoring product offerings to local tastes, managing distribution networks, … </li></ul></ul><ul><li>Environmental issues: </li></ul><ul><ul><li>Pressure from consumers & regulators to reduce, reuse & recycle solid wastes & discharges to air & water </li></ul></ul>Page
  21. 21. Electronic Commerce <ul><li>Internet & related technologies enable new methods of business transactions: </li></ul><ul><ul><li>E-tailing creates a new outlet for retail goods & services with global access and 24-7 availability </li></ul></ul><ul><ul><li>Internet provides a cheap network for coordinating supply chain management information </li></ul></ul><ul><li>Developing influence of broadband & wireless </li></ul>Page
  22. 22. Operations Strategy & Competitiveness 2 C H A P T E R
  23. 23. The Role of Business Strategy <ul><li>Business Strategy : </li></ul><ul><ul><li>The firm’s long-range plan based on an understanding of the marketplace </li></ul></ul><ul><ul><li>Defines how a company intends to differentiate itself from competitors </li></ul></ul><ul><ul><li>Individual employees & functional units use the strategy to align their efforts with each other to accomplish the overall game plan </li></ul></ul>Page
  24. 24. Operations Strategy <ul><li>OM Strategy : </li></ul><ul><ul><li>The long-range plan for the design & use of the operations function to support the overall business strategy: </li></ul></ul><ul><ul><ul><li>The location, size, & type of facilities </li></ul></ul></ul><ul><ul><ul><li>The worker skills & talents required </li></ul></ul></ul><ul><ul><ul><li>The technology & processes to be used </li></ul></ul></ul><ul><ul><ul><li>How product & service quality will be controlled </li></ul></ul></ul><ul><ul><li>Operating efficiency  an operating strategy </li></ul></ul>Page
  25. 25. Developing a Business Strategy <ul><li>Mission : </li></ul><ul><ul><li>A statement defining what business the firm is in, who its customers are, & how its core beliefs shape its decision-making </li></ul></ul><ul><li>Environmental scanning : </li></ul><ul><ul><li>Monitoring the external environment for market opportunities & competitive threats </li></ul></ul><ul><li>Core competencies : </li></ul><ul><ul><li>Internal strengths & weaknesses of the firm (e.g.: personnel with special expertise, access to unique technology, & things the firm does better than competitors) </li></ul></ul>Page
  26. 26. 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
  27. 27. Developing an Operations Strategy <ul><li>Identify the competitive priorities required to support the business strategy: </li></ul><ul><li>Common priorities include: </li></ul><ul><ul><li>Cost : low production costs enables the company to price its product below competitors </li></ul></ul><ul><ul><li>Quality : higher performance or a more consistent product can support a price premium </li></ul></ul><ul><ul><li>Time : faster delivery or consistent on-time delivery can support a price premium </li></ul></ul><ul><ul><li>Flexibility : highly customized products or volume flexibility can support a price premium </li></ul></ul>Page
  28. 28. Translate Priorities into Design Page Business Strategy Operations Strategy: Based on Competitive Priorities Design of Operations: Structure & Infrastructure
  29. 29. Design of Operations <ul><li>Structure: </li></ul><ul><ul><li>Facilities </li></ul></ul><ul><ul><li>Flow of work </li></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><li>Infrastructure: </li></ul><ul><ul><li>Planning & control systems </li></ul></ul><ul><ul><li>Work design & compensation </li></ul></ul>Page
  30. 30. Competing on Low Cost <ul><li>Eliminate wasted labor, materials, and facilities </li></ul><ul><li>Emphasize efficient processes & high productivity </li></ul><ul><li>Often limit the product range & offer little customization </li></ul><ul><li>May invest in automation to increase productivity </li></ul>Page
  31. 31. Competing on Quality <ul><li>High performance design: </li></ul><ul><ul><li>Superior features, high durability, & excellent customer service </li></ul></ul><ul><li>Product & service consistency: </li></ul><ul><ul><li>Error free delivery </li></ul></ul><ul><ul><li>Close tolerances </li></ul></ul>Page
  32. 32. Competing on Time <ul><li>Rapid delivery: </li></ul><ul><ul><li>How quickly an order is received after the order is placed </li></ul></ul><ul><li>On-time delivery: </li></ul><ul><ul><li>Sometimes items can arrive too quickly </li></ul></ul><ul><ul><ul><li>JIT firms try to avoid clutter of excess inventory </li></ul></ul></ul><ul><ul><li>Ability to deliver exactly when expected </li></ul></ul><ul><ul><ul><li>Not too early or too late </li></ul></ul></ul>Page
  33. 33. Competing on Flexibility <ul><li>Product flexibility : </li></ul><ul><ul><li>Easily switch the production process from one item to another (substitution) </li></ul></ul><ul><ul><li>Easily customize output to meet the specific requirements of a customer </li></ul></ul><ul><li>Volume flexibility : </li></ul><ul><ul><li>Rapidly increase or decrease the amount of product being produced to match demand </li></ul></ul>Page
  34. 34. 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
  35. 35. Distinguish Order Qualifiers from Order Winners <ul><li>Order Qualifiers : </li></ul><ul><ul><li>Competitive priorities that a product must meet to even be considered for purchase </li></ul></ul><ul><ul><li>Generally, represented by features shared by all competitors in a given market niche </li></ul></ul><ul><li>Order Winners : </li></ul><ul><ul><li>Competitive priorities that distinguish the firm’s offerings from competitors & ultimately win the customer’s order </li></ul></ul>Page
  36. 36. Productivity Page
  37. 37. Productivity Measures <ul><li>Partial Measures: </li></ul><ul><ul><li>A ratio of outputs to only one input (e.g.: labor productivity, machine utilization, energy efficiency) </li></ul></ul><ul><li>Multifactor Measures: </li></ul><ul><ul><li>A ratio of outputs to several, but not all, inputs </li></ul></ul><ul><li>Total Productivity Measures: </li></ul><ul><ul><li>The ratio of outputs to all inputs </li></ul></ul>Page
  38. 38. Labor Productivity <ul><li>Example: </li></ul><ul><ul><li>Assume two workers paint twenty-four tables in eight hours: </li></ul></ul><ul><ul><li>Inputs: 16 hours of labor (2 workers x 8 hours) </li></ul></ul><ul><ul><li>Outputs: 24 painted tables </li></ul></ul>Page
  39. 39. Multifactor Productivity <ul><li>Convert all inputs & outputs to $ value </li></ul><ul><li>Example: </li></ul><ul><ul><li>200 units produced sell for $12.00 each </li></ul></ul><ul><ul><li>Materials cost $6.50 per unit </li></ul></ul><ul><ul><li>40 hours of labor were required at $10 an hour </li></ul></ul>Page
  40. 40. Interpreting Productivity Measures <ul><li>Is the productivity measure of 1.41 in the previous example good or bad? </li></ul><ul><li>Can’t tell without a reference point </li></ul><ul><li>Compare to previous measures ( e.g.: last week) or to another benchmark </li></ul>Page
  41. 41. Productivity Growth Rate <ul><li>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 ) </li></ul>Page
  42. 42. Productivity Growth Rate <ul><li>Example: </li></ul><ul><ul><li>Last week a company produced 150 units using 200 hours of labor </li></ul></ul><ul><ul><li>This week, the same company produced 180 units using 250 hours of labor </li></ul></ul>Page
  43. 43. Product Design & Process Selection 3 C H A P T E R
  44. 44. Product & Service Design <ul><li>The process of deciding on the unique characteristics of a company’s product & service offerings </li></ul><ul><li>Serves to define a company’s customer base, image, competition and future growth </li></ul>Page
  45. 45. Products versus Services <ul><li>Products: </li></ul><ul><ul><li>Tangible offerings </li></ul></ul><ul><ul><li>Dimensions, materials, tolerances & performance standards </li></ul></ul><ul><li>Services: </li></ul><ul><ul><li>Intangible offerings </li></ul></ul><ul><ul><li>Physical elements + sensory, esthetic, & psychological benefits </li></ul></ul>Page
  46. 46. Strategic Importance <ul><li>Products & service offerings must support the company’s business strategy by satisfying the target customers’ needs & preferences </li></ul><ul><li>If not, the company will lose its customer base and its market position will erode </li></ul>Page
  47. 47. Step–by-Step <ul><li>Idea Development: </li></ul><ul><ul><li>A need is identified & a product idea to satisfy it is put together </li></ul></ul><ul><li>Product Screening: </li></ul><ul><ul><li>Initial ideas are evaluated for difficulty & likelihood of success </li></ul></ul><ul><li>Preliminary Design & Testing </li></ul><ul><ul><li>Market testing & prototype development </li></ul></ul><ul><li>Final Design </li></ul><ul><ul><li>Product & service characteristics are set </li></ul></ul>Page
  48. 48. Idea Development <ul><li>Existing & target customers </li></ul><ul><ul><li>Customer surveys & focus groups </li></ul></ul><ul><li>Benchmarking </li></ul><ul><ul><li>Studying “best in class” companies from your industry or others and comparing their practices & performance to your own </li></ul></ul><ul><li>Reverse engineering </li></ul><ul><ul><li>Disassembling a competitor’s product & analyzing its design characteristics & how it was made </li></ul></ul><ul><li>Suppliers, employees and technical advances </li></ul>Page
  49. 49. Product Screening <ul><li>Operations: </li></ul><ul><ul><li>Are production requirements consistent with existing capacity? </li></ul></ul><ul><ul><li>Are the necessary labor skills & raw materials available? </li></ul></ul><ul><li>Marketing: </li></ul><ul><ul><li>How large is the market niche? </li></ul></ul><ul><ul><li>What is the long-term potential for the product? </li></ul></ul><ul><li>Finance: </li></ul><ul><ul><li>What is the expected return on investment? </li></ul></ul>Page
  50. 50. Preliminary Design & Testing <ul><li>General performance characteristics are translated into technical specifications </li></ul><ul><li>Prototypes are built & tested (maybe offered for sale on a small scale) </li></ul><ul><li>Bugs are worked out & designs are refined </li></ul>Page
  51. 51. Final Design <ul><li>Specifications are set & then used to: </li></ul><ul><ul><li>Develop processing and service delivery instructions </li></ul></ul><ul><ul><li>Guide equipment selection </li></ul></ul><ul><ul><li>Outline jobs to be performed </li></ul></ul><ul><ul><li>Negotiate contracts with suppliers and distributors </li></ul></ul>Page
  52. 52. Break-Even Analysis Page
  53. 53. Break-Even Analysis <ul><li>Total cost = fixed costs + variable costs (quantity): </li></ul><ul><li>Revenue = selling price (quantity) </li></ul><ul><li>Break-even point is where total costs = revenue: </li></ul>Page
  54. 54. Example <ul><li>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: </li></ul><ul><ul><li>If each pair sells for $25, how many pairs must they sell to break-even? </li></ul></ul><ul><ul><li>If they sell 4000 pairs at $25 each, how much money will they make? </li></ul></ul>Page
  55. 55. Example Solved <ul><li>Break-even point: </li></ul><ul><li>Profit = total revenue – total costs </li></ul>Page
  56. 56. Design for Manufacture (DFM) <ul><li>Guidelines: </li></ul><ul><ul><li>Minimize the number of parts </li></ul></ul><ul><ul><li>Use common or standardized parts </li></ul></ul><ul><ul><li>Use modular design </li></ul></ul><ul><ul><li>Avoid the need for tools (e.g.: snap together components) </li></ul></ul><ul><ul><li>Simplify operations </li></ul></ul>Page
  57. 57. DFM Example Page
  58. 58. DFM Benefits <ul><li>Lower costs: </li></ul><ul><ul><li>Lower inventories (fewer, standardized components) </li></ul></ul><ul><ul><li>Less labor required (simpler flows, easier tasks) </li></ul></ul><ul><li>Higher quality: </li></ul><ul><ul><li>Simple, easy-to-make products means fewer opportunities to make mistakes </li></ul></ul>Page
  59. 59. Product Life Cycle Page
  60. 60. Concurrent Engineering <ul><li>A design approach that uses multifunctional teams to simultaneously design the product & process </li></ul><ul><li>Replaces a traditional ‘over-the-wall’ approach where one group does their part & then hands off the design to the next group </li></ul>Page
  61. 61. Sequential Design Page
  62. 62. Concurrent Engineering Page
  63. 63. Concurrent Engineering Benefits <ul><li>Representatives from the different groups can better consider trade-offs in cost & design choices as each decision is being made </li></ul><ul><li>Development time is reduced due to less rework (traditionally, groups would argue with earlier decisions & try to get them changed) </li></ul><ul><li>Emphasis is on problem-solving (not placing blame on the ‘other group’ for mistakes) </li></ul>Page
  64. 64. Process Selection <ul><li>Intermittent operations: </li></ul><ul><ul><li>Capable of producing a large variety of product designs in relatively low volumes </li></ul></ul><ul><li>Continuous operations: </li></ul><ul><ul><li>Capable of producing one (or a few) standardized designs in very high volumes </li></ul></ul>Page
  65. 65. Intermittent versus Continuous Page
  66. 66. Intermittent Operations <ul><li>Pros: </li></ul><ul><ul><li>Very flexible </li></ul></ul><ul><li>Cons: </li></ul><ul><ul><li>Material handling & variable costs are high </li></ul></ul><ul><ul><li>Work scheduling is difficult </li></ul></ul>Page
  67. 67. Continuous Operations <ul><li>Pros </li></ul><ul><ul><li>Highly efficient to produce large volumes (low variable costs) </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>Inflexible to design changes </li></ul></ul><ul><ul><li>Susceptible to component failure </li></ul></ul><ul><ul><li>High fixed costs for capital equipment </li></ul></ul>Page
  68. 68. Continuum of Process Types <ul><li>Projects </li></ul><ul><ul><li>Used for one-at-a-time products made exactly to customer specifications </li></ul></ul><ul><li>Batch processes: </li></ul><ul><ul><li>Used for small quantities (batches) with a high level of customization </li></ul></ul><ul><li>Line processes: </li></ul><ul><ul><li>Used for relatively high volumes with little customization </li></ul></ul><ul><li>Continuous processes: </li></ul><ul><ul><li>Used for very high volume standardized products (often commodities) </li></ul></ul>Page
  69. 69. Continuum of Process Types Page
  70. 70. Vertical Integration <ul><li>How much of the supply chain is owned by a company? </li></ul><ul><ul><li>A supply chain is the series of linked activities from raw material extraction to the final customer (Chapter 4) </li></ul></ul><ul><li>Consider the direction of integration: </li></ul><ul><ul><li>Forward (toward customers) </li></ul></ul><ul><ul><li>Backward (toward suppliers) </li></ul></ul>Page
  71. 71. Make-or-Buy <ul><li>Outsourcing decisions should consider: </li></ul><ul><ul><li>Long-term strategic impact </li></ul></ul><ul><ul><li>Existing capacity available </li></ul></ul><ul><ul><li>Expertise required & available </li></ul></ul><ul><ul><li>Quality issues </li></ul></ul><ul><ul><li>Ramp up speed & delivery issues </li></ul></ul><ul><ul><li>Total costs </li></ul></ul>Page
  72. 72. Process Flowcharting <ul><li>Graphically defines the operation, step-by-step </li></ul><ul><li>Used to help visualize the flow of work & information: </li></ul><ul><ul><li>Can help identify potential problem areas </li></ul></ul><ul><ul><li>Format can be as simple or detailed as needed </li></ul></ul>Page
  73. 73. Example Page
  74. 74. Process Technology <ul><li>Automation </li></ul><ul><li>Automated Material Handling: </li></ul><ul><ul><li>Automated guided vehicles (AGV) </li></ul></ul><ul><ul><li>Automated storage & retrieval systems (AS/RS) </li></ul></ul><ul><li>Computer-Aided Design (CAD) software </li></ul><ul><li>Robotics & Numerically-Controlled (NC) equipment </li></ul><ul><li>Flexible Manufacturing Systems (FMS) </li></ul><ul><li>Computer-Integrated Manufacturing (CIM) </li></ul>Page
  75. 75. Supply Chain Management 4 C H A P T E R
  76. 76. What is a Supply Chain? <ul><li>A network of activities that deliver a finished product or service to the customer. </li></ul><ul><ul><li>The connected links of external suppliers, internal processes, and external distributors. </li></ul></ul>Page
  77. 77. Components of a Typical Supply Chain Page External Suppliers Internal Functions External Distributors INFORMATION
  78. 78. A Basic Supply Chain Page
  79. 79. Supply Chain Management <ul><li>Supply Chain Management entails: </li></ul><ul><ul><li>Coordinating the movement of goods and delivery of services. </li></ul></ul><ul><ul><li>Sharing information between members of the supply chain. </li></ul></ul><ul><ul><ul><li>For example: sales, forecasts, promotional campaigns, and inventory levels. </li></ul></ul></ul>Page
  80. 80. Page Supply Chain for Milk Products
  81. 81. External Suppliers <ul><li>External suppliers provide the necessary raw materials, services, and component parts. </li></ul><ul><li>Purchased materials & services frequently represent 50% (or more) of the costs of goods sold. </li></ul><ul><li>Suppliers are frequently members of several supply chains – often in different roles. </li></ul>Page
  82. 82. External Suppliers <ul><li>Tier one suppliers: </li></ul><ul><ul><li>Directly supplies materials or services to the firm that does business with the final customer </li></ul></ul><ul><li>Tier two suppliers: </li></ul><ul><ul><li>Provides materials or services to tier one suppliers </li></ul></ul><ul><li>Tier three suppliers: </li></ul><ul><ul><li>Providers materials or services to tier two suppliers </li></ul></ul>Page
  83. 83. Internal Functions <ul><li>Vary by industry & firm, but might include: </li></ul><ul><ul><li>Processing </li></ul></ul><ul><ul><li>Purchasing </li></ul></ul><ul><ul><li>Production Planning & Control </li></ul></ul><ul><ul><li>Quality Assurance </li></ul></ul><ul><ul><li>Shipping </li></ul></ul>Page
  84. 84. Logistics & Distribution <ul><li>Logistics: getting the right material to the right place at the right time in the right quantity: </li></ul><ul><ul><li>Traffic Management: </li></ul></ul><ul><ul><ul><li>The selection, scheduling & control of carriers (e.g.: trucks & rail) for both incoming & outgoing materials & products </li></ul></ul></ul><ul><ul><li>Distribution Management: </li></ul></ul><ul><ul><ul><li>The packaging, storing & handling of products in transit to the end-user. </li></ul></ul></ul>Page
  85. 85. Information Sharing <ul><li>Supply chain partners can benefit by sharing information on sales, demand forecasts, inventory levels & marketing campaigns </li></ul><ul><li>Inaccurate or distorted information leads to the Bullwhip Effect </li></ul>Page
  86. 86. Typical Information Flow Page
  87. 87. The Bullwhip Effect <ul><li>If information isn’t shared, everyone has to guess what is going on downstream. </li></ul><ul><li>Guessing wrong leads to too much or too little inventory: </li></ul><ul><ul><li>If too much, firms hold off buying more until inventories fall (leading suppliers to think demand has fallen). </li></ul></ul><ul><ul><li>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). </li></ul></ul>Page
  88. 88. The Bullwhip Effect <ul><li>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. </li></ul><ul><li>The result is increasingly inefficient inventory management, manufacturing, & logistics </li></ul>Page
  89. 89. Short-Circuit the Bullwhip <ul><li>Make information transparent: </li></ul><ul><ul><li>Use Electronic Data Interchange (EDI) to support Just-In-Time supplier replenishment </li></ul></ul><ul><ul><li>Use bar codes & electronic scanning to capture & share point-of-sale data </li></ul></ul><ul><li>Eliminate wholesale price promotions & quantity discounts </li></ul><ul><li>Allocate scarce items in proportion to past sales to avoid attempts to ‘game’ the system </li></ul>Page
  90. 90. Electronic Data Interchange <ul><li>The most common method of using computer-to-computer links to exchange data between supply chain partners in a standardized format. </li></ul><ul><li>Benefits include: </li></ul><ul><ul><li>Quick transfer of information </li></ul></ul><ul><ul><li>Reduced paperwork & administration </li></ul></ul><ul><ul><li>Improved data accuracy & tracking capability </li></ul></ul>Page
  91. 91. Vertical Integration <ul><li>A measure of how much of the supply chain is controlled by the manufacturer. </li></ul><ul><ul><li>Backward integration: </li></ul></ul><ul><ul><ul><li>Acquiring control of raw material suppliers. </li></ul></ul></ul><ul><ul><li>Forward integration: </li></ul></ul><ul><ul><ul><li>Acquiring control of distribution channels. </li></ul></ul></ul>Page
  92. 92. Outsourcing <ul><li>Entails paying third-party suppliers to provide raw materials and services, rather than making them in-house. </li></ul><ul><li>Outsourcing is increasing as many firms try to focus their internal operations on what they do best. </li></ul>Page
  93. 93. Whether to Outsource? <ul><li>What volume is required? </li></ul><ul><li>Are items of similar quality available in the marketplace? </li></ul><ul><li>Is long-term demand for the item stable? </li></ul><ul><li>Is the item critical to success of the firm? </li></ul><ul><li>Does the item represent a core competency of the firm? </li></ul>Page
  94. 94. Breakeven Analysis Page
  95. 95. Example: The Bagel Shop <ul><li>Bill & Nancy plan to open a small bagel shop. </li></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>Alternatively, they can bake the bagels at their store for 15 cents each if they invest $15,00 in kitchen equipment. </li></ul></ul><ul><ul><li>They expect to sell 60,000 bagels each year. </li></ul></ul><ul><li>What should they do? </li></ul>Page
  96. 96. Example Solved <ul><li>Interpretation: </li></ul><ul><ul><li>They anticipate selling 60,000 bagels (greater than the indifference point of 56,000). </li></ul></ul><ul><ul><li>Therefore, make the bagels in-house. </li></ul></ul>Page
  97. 97. Developing a Supply Base <ul><li>How to chose between suppliers? </li></ul><ul><li>One supplier or many per item? </li></ul><ul><li>Whether to partner with suppliers? </li></ul>Page
  98. 98. Criteria for Choosing Suppliers <ul><li>Cost: </li></ul><ul><ul><li>Cost per unit & transaction costs </li></ul></ul><ul><li>Quality: </li></ul><ul><ul><li>Conformance to specifications </li></ul></ul><ul><li>On-time delivery: </li></ul><ul><ul><li>Speed & predictability </li></ul></ul>Page
  99. 99. Arguments for One Supplier per Item <ul><li>May only be one practical source for the item </li></ul><ul><ul><li>Patent issues, geography, or quality considerations) </li></ul></ul><ul><li>The supply chain is integrated to support JIT or EDI </li></ul><ul><ul><li>Making multiple suppliers impractical </li></ul></ul><ul><li>Availability of quantity discounts </li></ul><ul><li>Supplier may be more responsive if it’s guaranteed all your business for the item </li></ul><ul><li>Contract might bind you to using only one supplier </li></ul><ul><li>Deliveries may be scheduled more easily </li></ul>Page
  100. 100. Arguments for Multiple Suppliers per Item <ul><li>No single supplier may have sufficient capacity </li></ul><ul><li>Competition may result in better pricing or service </li></ul><ul><li>Multiple suppliers spreads the risk of supply chain interruption </li></ul><ul><li>Eliminates purchaser’s dependence on a single source of supply </li></ul><ul><li>Provides greater volume flexibility </li></ul><ul><li>Government regulation may require multiple suppliers </li></ul><ul><ul><li>Antitrust issues </li></ul></ul><ul><li>Allows testing new suppliers without risking a complete disruption of material flow </li></ul>Page
  101. 101. Partnering with Suppliers <ul><li>Involves developing a long-term, mutually-beneficial relationship: </li></ul><ul><ul><li>Requires trust to share information, risk, opportunities, & investing in compatible technology </li></ul></ul><ul><ul><li>Work together to reduce waste and inefficiency & develop new products </li></ul></ul><ul><ul><li>Agree to share the gains </li></ul></ul>Page
  102. 102. The Role of Warehouses <ul><li>General Warehouses: </li></ul><ul><ul><li>Used for long-term storage of goods </li></ul></ul><ul><li>Distribution Warehouses: </li></ul><ul><ul><li>Transportation consolidation: </li></ul></ul><ul><ul><ul><li>Consolidate LTL into TL deliveries </li></ul></ul></ul><ul><ul><li>Product mixing & blending: </li></ul></ul><ul><ul><ul><li>Group multiple items from various suppliers </li></ul></ul></ul><ul><ul><li>Improve service: </li></ul></ul><ul><ul><ul><li>Reduced response time </li></ul></ul></ul><ul><ul><ul><li>Allow for last-minute customization </li></ul></ul></ul>Page
  103. 103. Future Challenges <ul><li>Household Replenishment: </li></ul><ul><ul><li>Fulfilling consumer demand at the point of use (the home). </li></ul></ul><ul><ul><li>Often called ‘the last mile’ problem. </li></ul></ul><ul><li>Freeze Point Delay (Postponement): </li></ul><ul><ul><li>Last minute customization to provide exactly what the consumer wants while maintaining very small inventories </li></ul></ul>Page
  104. 104. Total Quality Management 5 C H A P T E R
  105. 105. What is TQM? <ul><li>Total Quality Management </li></ul><ul><ul><li>An integrated effort designed to improve quality performance at every level of the organization. </li></ul></ul><ul><li>Customer-defined quality </li></ul><ul><ul><li>The meaning of quality as defined by the customer. </li></ul></ul>Page
  106. 106. Defining Quality <ul><li>Conformance to Specifications </li></ul><ul><ul><li>How well the product or service meets the targets and tolerances determined by its designers </li></ul></ul><ul><li>Fitness for Use </li></ul><ul><ul><li>Definition of quality that evaluates how well the product performs for its intended use. </li></ul></ul><ul><li>Value for Price Paid </li></ul><ul><ul><li>Quality defined in terms of product or service usefulness for the price paid. </li></ul></ul>Page
  107. 107. Defining Quality <ul><li>Support Services </li></ul><ul><ul><li>Quality defined in terms of the support provided after the product or service is purchased </li></ul></ul><ul><li>Psychological Criteria </li></ul><ul><ul><li>A way of defining quality that focuses on judgmental evaluations of what constitutes product or service excellence. </li></ul></ul>Page
  108. 108. Manufacturing vs. Service <ul><li>Manufacturing produces a tangible product </li></ul><ul><ul><li>Quality is often defined by tangible characteristics </li></ul></ul><ul><ul><li>Conformance, Performance, Reliability, Features </li></ul></ul><ul><li>Service produces an intangible product </li></ul><ul><ul><li>Quality is often defined by perceptual factors </li></ul></ul><ul><ul><li>Courtesy, Friendliness, Promptness, Atmosphere, Consistency </li></ul></ul>Page
  109. 109. Changing Focus of Quality Management Page
  110. 110. Overview of TQM Philosophy <ul><li>Focus on identifying root causes of reoccurring problems & correcting them </li></ul><ul><ul><li>A proactive, not reactive approach </li></ul></ul><ul><li>Allow customers to determine what’s important (customer-driven quality) </li></ul><ul><li>Involve everyone in the organization </li></ul>Page
  111. 111. TQM Philosophy <ul><li>Maintain a Customer Focus: </li></ul><ul><ul><li>Identify and meet current customer needs </li></ul></ul><ul><ul><li>Continually gather data (look for changing preferences) </li></ul></ul><ul><li>Continuous Improvement: </li></ul><ul><ul><li>Continually strive to improve </li></ul></ul><ul><ul><li>Good enough, isn’t good enough </li></ul></ul><ul><li>Quality at the Source: </li></ul><ul><ul><li>Find the source of quality problems & correct them </li></ul></ul>Page
  112. 112. TQM Philosophy <ul><li>Employee Empowerment: </li></ul><ul><ul><li>Empower all employees to find quality problems and correct them </li></ul></ul><ul><li>Focus on internal & external customer needs: </li></ul><ul><ul><li>External customers: </li></ul></ul><ul><ul><ul><li>People who purchase the company’s goods and services </li></ul></ul></ul><ul><ul><li>Internal customers: </li></ul></ul><ul><ul><ul><li>Other downstream employees who rely on preceding employees to do their job </li></ul></ul></ul>Page
  113. 113. TQM Philosophy <ul><li>Understanding Quality Tools: </li></ul><ul><ul><li>All employees should be trained to properly utilize quality control tools </li></ul></ul><ul><li>Team Approach: </li></ul><ul><ul><li>Quality is an organization-wide effort </li></ul></ul><ul><ul><li>Quality circles: work groups acting as problem-solving teams </li></ul></ul><ul><li>Benchmarking </li></ul><ul><ul><li>Studying the business practices of other companies for purposes of comparison. </li></ul></ul>Page
  114. 114. TQM Philosophy <ul><li>Manage Supplier Quality: </li></ul><ul><ul><li>Ensuring that suppliers engage in the same high quality practices </li></ul></ul><ul><ul><li>Strategic partnering with key suppliers </li></ul></ul><ul><li>Quality of Design: </li></ul><ul><ul><li>Determining which features will be included in the final design of a product to meet customers’ needs & preferences </li></ul></ul><ul><li>Ease of Use: </li></ul><ul><ul><li>Ergonomics, easy to understand directions, etc. </li></ul></ul>Page
  115. 115. TQM Philosophy <ul><li>Quality of Conformance to Design: </li></ul><ul><ul><li>Degree to which the product conforms to it’s design specifications (a measure of consistency & lack of variation) </li></ul></ul><ul><li>Post-Sale Service: </li></ul><ul><ul><li>Assisting with issues that arise after the purchase </li></ul></ul><ul><ul><li>Warranty & repair issues, follow through on any promises to build a continuing relationship with the customer </li></ul></ul>Page
  116. 116. Costs of Quality Page
  117. 117. Ways to Improve Quality <ul><li>PDSA Cycle </li></ul><ul><li>Quality Function Deployment </li></ul><ul><li>Problem-solving tools </li></ul>Page
  118. 118. Plan-Do-Study-Act Cycle (PDSA) Page
  119. 119. Plan-Do-Study-Act Cycle (PDSA) <ul><li>Plan : Plan experiments to uncover the root cause of problems </li></ul><ul><li>Do : Conduct the experiments </li></ul><ul><li>Study : Study the data generated </li></ul><ul><li>Act : Implement improvements or start over </li></ul><ul><li>Repeat : Continuously improve </li></ul>Page
  120. 120. Quality Function Deployment <ul><li>Compares customer requirements & product’s characteristics </li></ul><ul><li>Understand how the product delivers quality to the customer </li></ul>Page
  121. 121. Comparing “Voices” Page Voice of the Customer Voice of the Engineer Customer-based Benchmarks
  122. 122. QFD <ul><li>In addition, QFD: </li></ul><ul><li>Provides for competitive evaluation (benchmarks) </li></ul><ul><li>Considers design trade-offs & synergies </li></ul><ul><li>Facilitates target setting & developing product specifications </li></ul>Page
  123. 123. Setting Specifications Page Trade-offs Targets Technical Benchmarks
  124. 124. Problem Solving Tools <ul><li>Cause-and-Effect Diagrams </li></ul><ul><li>Flow Charts </li></ul><ul><li>Check Lists </li></ul><ul><li>Control Charts </li></ul><ul><li>Scatter Diagrams </li></ul><ul><li>Pareto Charts </li></ul><ul><li>Histograms </li></ul>Page
  125. 125. Cause-and-Effect Diagrams <ul><li>Also called Fishbone Diagrams </li></ul><ul><li>Help identify potential causes of specific ‘effects’ (quality problems) </li></ul>Page
  126. 126. Flow Charts <ul><li>Diagrams of the steps involved in an operation or process </li></ul>Page
  127. 127. Checklists <ul><li>Simple forms used to record the appearance of common defects and the number of occurrences </li></ul>Page
  128. 128. Control Charts <ul><li>Track whether a process is operating as expected </li></ul>Page
  129. 129. Scatter Diagrams <ul><li>Illustrate how two variables are related to each other </li></ul>Page
  130. 130. Pareto Analysis <ul><li>Helps identify the degree of importance of different quality problems </li></ul>Page
  131. 131. Histograms <ul><li>Illustrate a frequency distribution </li></ul>Page
  132. 132. Quality Awards <ul><li>Malcolm Baldrige National Quality Award is given annually to companies demonstrating excellence </li></ul><ul><ul><li>Manufacturing </li></ul></ul><ul><ul><li>Service </li></ul></ul><ul><ul><li>Small Business </li></ul></ul><ul><ul><li>Education </li></ul></ul><ul><ul><li>Healthcare </li></ul></ul>Page
  133. 133. MBNQA Criteria Page
  134. 134. Quality Standards <ul><li>ISO 9000 Standards: </li></ul><ul><ul><li>Set of internationally recognized quality standards </li></ul></ul><ul><ul><li>Companies are periodically audited & certified </li></ul></ul><ul><li>ISO 14000: </li></ul><ul><ul><li>Focuses on a company’s environmental responsibility </li></ul></ul><ul><li>QS 9000: </li></ul><ul><ul><li>Auto industry’s version of ISO 9000 </li></ul></ul>Page
  135. 135. Quality Gurus <ul><li>W. Edwards Deming </li></ul><ul><li>Joseph Juran </li></ul><ul><li>Phillip Crosby </li></ul>Page
  136. 136. W. Edwards Deming <ul><li>Focus on optimizing the system - not individual components </li></ul><ul><li>Management is responsible for the system (source of 85% of problems) </li></ul><ul><li>Continuous improvement (focus on prevention, not after-the-fact inspection) </li></ul><ul><li>Understand variation (special versus common causes) </li></ul>Page
  137. 137. Joseph Juran <ul><li>Quality = fitness for use </li></ul><ul><li>Developed the quality trilogy: </li></ul><ul><ul><li>Quality planning (future orientation/design quality) </li></ul></ul><ul><ul><li>Quality control (statistical control of variation) </li></ul></ul><ul><ul><li>Quality improvement (continuous improvement) </li></ul></ul><ul><li>Emphasized the costs of quality: </li></ul><ul><ul><li>Understand the trade-offs between prevention & appraisal costs with failure costs </li></ul></ul>Page
  138. 138. Phillip Crosby <ul><li>Quality requires leadership: </li></ul><ul><ul><li>Do it right the first time </li></ul></ul><ul><ul><li>The goal is zero defects </li></ul></ul><ul><li>Argued that ‘quality is free’: </li></ul><ul><ul><li>The benefits far outweigh the cost of achieving zero defects </li></ul></ul>Page
  139. 139. Statistical Quality Control 6 C H A P T E R
  140. 140. Quality Control Methods <ul><li>Descriptive statistics: </li></ul><ul><ul><li>Used to describe distributions of data </li></ul></ul><ul><li>Statistical process control (SPC): </li></ul><ul><ul><li>Used to determine whether a process is performing as expected </li></ul></ul><ul><li>Acceptance sampling: </li></ul><ul><ul><li>Used to accept or reject entire batches by only inspecting a few items </li></ul></ul>Page
  141. 141. Descriptive Statistics <ul><li>Mean (x-bar): </li></ul><ul><ul><li>The average or central tendency of a data set </li></ul></ul><ul><li>Standard deviation (sigma): </li></ul><ul><ul><li>Describes the amount of spread or observed variation in the data set </li></ul></ul><ul><li>Range: </li></ul><ul><ul><li>Another measure of spread </li></ul></ul><ul><ul><li>The range measures the difference between the largest & smallest observed values in the data set </li></ul></ul>Page
  142. 142. The Normal Distribution Page
  143. 143. Equations <ul><li>Mean: </li></ul><ul><li>Standard deviation: </li></ul>Page
  144. 144. Impact of Standard Deviation Page
  145. 145. Skewed Distributions (One Form of Non-Normal Distribution) Page
  146. 146. SPC Methods <ul><li>Control charts </li></ul><ul><ul><li>Use statistical limits to identify when a sample of data falls within a normal range of variation </li></ul></ul>Page
  147. 147. Setting Limits Requires Balancing Risks <ul><li>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) </li></ul>Page
  148. 148. Types of Data <ul><li>Variable level data: </li></ul><ul><ul><li>Can be measured using a continuous scale </li></ul></ul><ul><ul><li>Examples: length, weight, time, & temperature </li></ul></ul><ul><li>Attribute level data: </li></ul><ul><ul><li>Can only be described by discrete characteristics </li></ul></ul><ul><ul><li>Example: defective & not defective </li></ul></ul>Page
  149. 149. Control Charts for Variable Data <ul><li>Mean (x-bar) charts </li></ul><ul><ul><li>Tracks the central tendency (the average value observed) over time </li></ul></ul><ul><li>Range (R) charts: </li></ul><ul><ul><li>Tracks the spread of the distribution over time (estimates the observed variation) </li></ul></ul>Page
  150. 150. x-Bar Computations Page
  151. 151. Example <ul><li>Assume the standard deviation of the process is given as 1.13 ounces </li></ul><ul><li>Management wants a 3-sigma chart (only 0.26% chance of alpha error) </li></ul><ul><li>Observed values shown in the table are in ounces </li></ul>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
  152. 152. Computations <ul><li>Center line (x-double bar): </li></ul><ul><li>Control limits: </li></ul>Page
  153. 153. 2 nd Method Using R-bar Page
  154. 154. Control Chart Factors Page
  155. 155. 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
  156. 156. Computations Page
  157. 157. Example x-bar Chart Page
  158. 158. R-chart Computations (Use D3 & D4 Factors: Table 6-1) Page
  159. 159. Example R-chart Page
  160. 160. Using x-bar & R-charts <ul><li>Use together </li></ul><ul><li>Reveal different problems </li></ul>Page
  161. 161. Control Charts for Attribute Data <ul><li>p-Charts: </li></ul><ul><ul><li>Track the proportion defective in a sample </li></ul></ul><ul><li>c-Charts: </li></ul><ul><ul><li>Track the average number of defects per unit of output </li></ul></ul>Page
  162. 162. Process Capability <ul><li>A measure of the ability of a process to meet preset design specifications: </li></ul><ul><ul><li>Determines whether the process can do what we are asking it to do </li></ul></ul><ul><li>Design specifications (a/k/a tolerance limits): </li></ul><ul><ul><li>Preset by design engineers to define the acceptable range of individual product characteristics (e.g.: physical dimensions, elapsed time, etc.) </li></ul></ul><ul><ul><li>Based upon customer expectations & how the product works (not statistics!) </li></ul></ul>Page
  163. 163. Measuring Process Capability <ul><li>Compare the width of design specifications & observed process output </li></ul>Page
  164. 164. Capability Indexes <ul><li>Centered Process (C p ): </li></ul><ul><li>Any Process (C pk ): </li></ul>Page
  165. 165. Example <ul><li>Design specifications call for a target value of 16.0 +/-0.2 microns (USL = 16.2 & LSL = 15.8) </li></ul><ul><li>Observed process output has a mean of 15.9 and a standard deviation of 0.1 microns </li></ul>Page
  166. 166. Computations <ul><li>C p : </li></ul><ul><li>C pk : </li></ul>Page
  167. 167. Three Sigma Capability <ul><li>Until now, we assumed process output should be modeled as +/- 3 standard deviations </li></ul><ul><li>By doing so, we ignore the 0.26% of output that falls outside +/- 3 sigma range </li></ul><ul><li>The result: a 3-sigma capable process produces 2600 defects for every million units produced </li></ul>Page
  168. 168. Six Sigma Capability <ul><li>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) </li></ul><ul><li>The result: only 3.4 defects for every million produced </li></ul>Page
  169. 169. 3-Sigma versus 6-Sigma Page
  170. 170. Just-In-Time Systems 7 C H A P T E R
  171. 171. Just-In-Time <ul><li>Getting the right quantity of goods to the right place – exactly when needed! </li></ul><ul><li>Just-In-Time= not late & not early </li></ul>Page
  172. 172. Philosophy of JIT <ul><li>Elimination of waste </li></ul><ul><li>Broad view of operations </li></ul><ul><li>Simplicity </li></ul><ul><li>Continuous improvement </li></ul><ul><li>Visibility </li></ul><ul><li>Flexibility </li></ul>Page
  173. 173. Eliminate Waste <ul><li>Waste is anything that doesn’t add value: </li></ul><ul><ul><li>Unsynchronized production </li></ul></ul><ul><ul><li>Inefficient & unstreamlined layouts </li></ul></ul><ul><ul><li>Unnecessary material handling </li></ul></ul><ul><ul><li>Scrap & rework </li></ul></ul>Page
  174. 174. Broad View of Operations <ul><li>Understanding that operations is part of a larger system </li></ul><ul><li>Goal is to optimize the system – not each part: </li></ul><ul><ul><li>Avoid narrow view: “That’s not in my job description!” </li></ul></ul><ul><ul><li>Avoid sub-optimization </li></ul></ul>Page
  175. 175. Simplicity <ul><li>It’s often easy to develop complex solutions to problems by adding extra steps </li></ul><ul><li>Goal is to find a simpler way to do things right: </li></ul><ul><ul><li>Less chance to forget extra step </li></ul></ul><ul><ul><li>Fewer opportunities to make mistakes </li></ul></ul><ul><ul><li>More efficient </li></ul></ul>Page
  176. 176. Continuous Improvement <ul><li>Traditional viewpoint: “It’s good enough” </li></ul><ul><li>JIT viewpoint: “If it’s not perfect, make it better” </li></ul>Page
  177. 177. Visibility <ul><li>Waste can only be eliminated after it’s discovered </li></ul><ul><li>Clutter hides waste </li></ul><ul><li>JIT requires good housekeeping </li></ul>Page
  178. 178. Visibility Page
  179. 179. Flexibility <ul><li>Easy to make volume changes: </li></ul><ul><ul><li>Ramp up & down to meet demand </li></ul></ul><ul><li>Easy to switch from one product to another: </li></ul><ul><ul><li>Build a mix of products without wasting time with long changeovers </li></ul></ul>Page
  180. 180. Three Elements of JIT Page
  181. 181. JIT Manufacturing <ul><li>Kanbans & pull production systems </li></ul><ul><li>Quick setups & small lots </li></ul><ul><li>Uniform plant loading </li></ul><ul><li>Flexible resources </li></ul><ul><li>Efficient facility layouts </li></ul>Page
  182. 182. Pull Production & Kanbans Page
  183. 183. Number of Kanbans Required <ul><li>N = number of containers </li></ul><ul><li>D = demand rate at the withdraw station </li></ul><ul><li>T = lead time from supply station </li></ul><ul><li>C = container size </li></ul>Page
  184. 184. Quick Setups & Small Lots <ul><li>Setup times = time required to get ready </li></ul><ul><ul><li>E.g .: clean & calibrate equipment, changing tools, etc. </li></ul></ul><ul><li>Internal versus external setups </li></ul><ul><ul><li>Stop production or setup will still running </li></ul></ul><ul><li>Internal setups = lost production time </li></ul><ul><ul><li>Inefficient setups = waste </li></ul></ul>Page
  185. 185. Uniform Plant Loading Page
  186. 186. Flexible Resources <ul><li>General purpose equipment: </li></ul><ul><ul><li>E.g .: drills, lathes, printer-fax-copiers, etc. </li></ul></ul><ul><ul><li>Capable of being setup to do many different things </li></ul></ul><ul><li>Multifunctional workers: </li></ul><ul><ul><li>Cross-trained to perform several different duties </li></ul></ul>Page
  187. 187. Efficient Facility Layouts <ul><li>Workstations in close physical proximity to reduce transport & movement </li></ul><ul><li>Streamlined flow of material </li></ul><ul><li>Often use: </li></ul><ul><ul><li>Cellular Manufacturing (instead of job shops) </li></ul></ul><ul><ul><li>U-shaped lines: (allows material handler to quickly drop off materials & pick up finished work) </li></ul></ul>Page
  188. 188. Job Shop Layout Page
  189. 189. Cellular Manufacturing Page
  190. 190. TQM & JIT <ul><li>Quality at the Source </li></ul><ul><li>Jidoka (authority to stop line) </li></ul><ul><li>Poka-yoke (foolproof the process) </li></ul><ul><li>Preventive maintenance </li></ul>Page
  191. 191. Respect for People: The Role of Workers <ul><li>Cross-trained workers </li></ul><ul><li>Actively engaged in problem-solving </li></ul><ul><li>Workers are empowered </li></ul><ul><li>Everyone responsible for quality </li></ul><ul><li>Workers gather performance data </li></ul><ul><li>Team approaches used for problem-solving </li></ul><ul><li>Decision made bottom-up </li></ul><ul><li>Workers responsible for preventive maintenance </li></ul>Page
  192. 192. Page Respect for People: The Role of Management <ul><li>Responsible for culture of mutual trust </li></ul><ul><li>Serve as coaches & facilitators </li></ul><ul><li>Support culture with appropriate incentive system </li></ul><ul><li>Responsible for developing workers </li></ul><ul><li>Provide multi-functional training </li></ul><ul><li>Facilitate teamwork </li></ul>
  193. 193. Supplier Relations & JIT <ul><li>Use single-source suppliers </li></ul><ul><li>Build long-term relationships </li></ul><ul><li>Co-locate facilities to reduce transport </li></ul><ul><li>Stable delivery schedules </li></ul><ul><li>Share cost & other information </li></ul>Page
  194. 194. Benefits of JIT <ul><li>Smaller inventories </li></ul><ul><li>Improved quality </li></ul><ul><li>Reduced space requirements </li></ul><ul><li>Shorter lead times </li></ul><ul><li>Lower production costs </li></ul><ul><li>Increased productivity </li></ul><ul><li>Increased machine utilization </li></ul><ul><li>Greater flexibility </li></ul>Page
  195. 195. Implementing JIT Manufacturing <ul><li>Identify & fix problems </li></ul><ul><li>Reorganize workplace </li></ul><ul><ul><li>Remove clutter & designate storage </li></ul></ul><ul><li>Reduce setup times </li></ul><ul><li>Reduce lot sizes & lead times </li></ul><ul><li>Implement layout changes </li></ul><ul><ul><li>Cellular manufacturing & close proximity </li></ul></ul><ul><li>Switch to pull production </li></ul><ul><li>Extend methods to suppliers </li></ul>Page
  196. 196. JIT in Services <ul><li>Multifunctional workers </li></ul><ul><li>Reduce cycle times </li></ul><ul><li>Minimize setups </li></ul><ul><li>Parallel processing </li></ul><ul><li>Good housekeeping </li></ul><ul><li>Simple, highly-visible flow of work </li></ul>Page
  197. 197. Forecasting 8 C H A P T E R
  198. 198. Principles of Forecasting <ul><li>Forecasts are rarely perfect </li></ul><ul><li>Grouped forecasts are more accurate than individual items </li></ul><ul><li>Forecast accuracy is higher for shorter time horizons </li></ul>Page
  199. 199. Step-by-Step <ul><li>Decide what to forecast: </li></ul><ul><ul><li>Level of detail, units of analysis & time horizon required </li></ul></ul><ul><li>Evaluate & analyze appropriate data </li></ul><ul><ul><li>Identify needed data & whether it’s available </li></ul></ul><ul><li>Select & test the forecasting model </li></ul><ul><ul><li>Cost, ease of use & accuracy </li></ul></ul><ul><li>Generate the forecast </li></ul><ul><li>Monitor forecast accuracy over time </li></ul>Page
  200. 200. Types of Forecasting Methods <ul><li>Qualitative methods: </li></ul><ul><ul><li>Forecasts generated subjectively by the forecaster </li></ul></ul><ul><li>Quantitative methods: </li></ul><ul><ul><li>Forecasts generated through mathematical modeling </li></ul></ul>Page
  201. 201. Qualitative Methods <ul><li>Strengths: </li></ul><ul><ul><li>Incorporates inside information </li></ul></ul><ul><ul><li>Particularly useful when the future is expected to be very different than the past </li></ul></ul><ul><li>Weaknesses: </li></ul><ul><ul><li>Forecaster bias can reduce the accuracy of the forecast </li></ul></ul>Page
  202. 202. Types of Qualitative Models Page
  203. 203. Quantitative Methods <ul><li>Strengths: </li></ul><ul><ul><li>Consistent and objective </li></ul></ul><ul><ul><li>Can consider a lot of data at once </li></ul></ul><ul><li>Weaknesses: </li></ul><ul><ul><li>Necessary data isn’t always available </li></ul></ul><ul><ul><li>Forecast quality is dependent upon data quality </li></ul></ul>Page
  204. 204. Types of Quantitative Methods <ul><li>Time Series Models: </li></ul><ul><ul><li>Assumes the future will follow same patterns as the past </li></ul></ul><ul><li>Causal Models: </li></ul><ul><ul><li>Explores cause-and-effect relationships </li></ul></ul><ul><ul><li>Uses leading indicators to predict the future </li></ul></ul>Page
  205. 205. Patterns in Time Series Data Page
  206. 206. Logic of Time Series Models <ul><li>Data = historic pattern + random variation </li></ul><ul><li>Historic pattern may include: </li></ul><ul><ul><li>Level (long-term average) </li></ul></ul><ul><ul><li>Trend </li></ul></ul><ul><ul><li>Seasonality </li></ul></ul><ul><ul><li>Cycle </li></ul></ul>Page
  207. 207. Time Series Models <ul><li>Naive: </li></ul><ul><ul><li>The forecast is equal to the actual value observed during the last period </li></ul></ul><ul><li>Simple Mean: </li></ul><ul><ul><li>The average of all available data </li></ul></ul><ul><li>Moving Average: </li></ul><ul><ul><li>The average value over a set time period (e.g.: the last four weeks) </li></ul></ul><ul><ul><li>Each new forecast drops the oldest data point & adds a new observation </li></ul></ul>Page
  208. 208. Weighted Moving Average <ul><li>All weights must add to 100% or 1.00 </li></ul><ul><li>Allows the forecaster to emphasize one period over others </li></ul><ul><li>Differs from the simple moving average that weights all periods equally </li></ul>Page
  209. 209. Exponential Smoothing <ul><li>Forecast quality is highly dependent on selection of alpha: </li></ul><ul><ul><li>Low alpha values generate more stable forecasts </li></ul></ul><ul><ul><li>High alpha values generate forecasts that respond quickly to recent data </li></ul></ul><ul><li>Issue is whether recent changes reflect random variation or real change in long-term demand </li></ul>Page
  210. 210. Forecasting Trends <ul><li>Trend-adjusted exponential smoothing </li></ul><ul><li>Three step process: </li></ul><ul><ul><li>Smooth the level of the series: </li></ul></ul><ul><ul><li>Smooth the trend: </li></ul></ul><ul><ul><li>Calculate the forecast including trend: </li></ul></ul>Page
  211. 211. Adjusting for Seasonality <ul><li>Calculate the average demand per season </li></ul><ul><ul><li>E.g.: average quarterly demand </li></ul></ul><ul><li>Calculate a seasonal index for each season of each year: </li></ul><ul><ul><li>Divide the actual demand of each season by the average demand per season for that year </li></ul></ul><ul><li>Average the indexes by season </li></ul><ul><ul><li>E.g .: take the average of all Spring indexes, then of all Summer indexes, ... </li></ul></ul>Page
  212. 212. Adjusting for Seasonality <ul><li>Forecast demand for the next year & divide by the number of seasons </li></ul><ul><ul><li>Use regular forecasting method & divide by four for average quarterly demand </li></ul></ul><ul><li>Multiply next year’s average seasonal demand by each average seasonal index </li></ul><ul><ul><li>Result is a forecast of demand for each season of next year </li></ul></ul>Page
  213. 213. Casual Models <ul><li>Often, leading indicators hint can help predict changes in demand </li></ul><ul><li>Causal models build on these cause-and-effect relationships </li></ul><ul><li>A common tool of causal modeling is linear regression: </li></ul>Page
  214. 214. Linear Regression Page
  215. 215. Forecast Accuracy <ul><li>Forecasts are rarely perfect </li></ul><ul><li>Need to know how much we should rely on our chosen forecasting method </li></ul><ul><li>Measuring forecast error : </li></ul><ul><li>Note that over-forecasts = negative errors and under-forecasts = positive errors </li></ul>Page
  216. 216. Tracking Forecast Error Over Time <ul><li>Mean Absolute Deviation (MAD): </li></ul><ul><ul><li>A good measure of the actual error in a forecast </li></ul></ul><ul><li>Mean Square Error (MSE): </li></ul><ul><ul><li>Penalizes extreme errors </li></ul></ul><ul><li>Tracking Signal </li></ul><ul><ul><li>Exposes bias (positive or negative) </li></ul></ul>Page
  217. 217. Factors for Selecting a Forecasting Model <ul><li>The amount & type of available data </li></ul><ul><li>Degree of accuracy required </li></ul><ul><li>Length of forecast horizon </li></ul><ul><li>Presence of data patterns </li></ul>Page

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