CHAPTER 8 PROCESS MANAGEMENT

PROCESS MANAGEMENT: LEAN & SIX SIGMA IN THE SUPPLY CHAINChapter 8Prepared by Cynthia Wisner, MBA

2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2Learning ObjectivesYou should be able to:List & discuss the major elements of lean production & Six Sigma qualityDescribe why lean production & Six Sigma quality are integral parts of SCMDiscuss the Toyota Production System & its association with lean production Discuss the linkage between lean production & environmental protectionDescribe the historical developments of lean production & Six SigmaDescribe & use the various tools of Six SigmaUnderstand the importance of statistical process control for improving quality2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3Chapter OutlineIntroduction Lean Production & the Toyota Production SystemLean Thinking & Supply Chain ManagementThe Elements of Lean ProductionLean Systems & the EnvironmentThe Origins of Six Sigma Quality Comparing Six Sigma & LeanSix Sigma & Supply Chain ManagementThe Elements of Six Sigma The Statistical Tools of Six SigmaIntroductionIn 1990s, supply chain management combined: Quick response (QR) - speed & flexibility Efficient Consumer Response (ECR) - speed & flexibility JIT - Continuous reduction of wasteKeiretsu Relationships partnership arrangements

These approaches have emerged as philosophies & practices known as Lean Production (or Lean Manufacturing) & Lean Thinking 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4Lean Production & the Toyota Production System (Continued) Lean Production an operating philosophy of waste reduction & value enhancement & was originally created as Toyota Production System (TPS) by key Toyota executives

Early versions were based on Ford assembly plants & U.S. supermarket distribution systems

2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5Lean Production & the Toyota Production System (Continued) Key concepts incorporated in TPS are Muda - waste in all aspects of productionKanban - signal card & part of JITStatistical process control (SPC) as part of TQM effortsPoka-Yoke - error or mistake-proofingYokoten sharing of best practices2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6Lean Production & the Toyota Production System Lean production emphasizes Reduction of waste Continuous improvement Synchronization of material flows within the organization Channel integration- extending partnerships in the supply chain

.2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7Lean Production & Supply Chain ManagementSupply chain management (SCM) seeks to incorporate Lean elements using cross-training, satisfying internal customer demand quickly moving products in the production system communicating demand forecasts & production schedules up the supply chainoptimizing inventory levels across the supply chain 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8The Elements of Lean ProductionThe Elements of LeanWaste ReductionLean Supply Chain RelationshipsLean LayoutsInventory & Setup Time ReductionSmall Batch SchedulingContinuous ImprovementWorkforce Empowerment2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9The Elements of Lean Production (Continued)Waste (Muda) ReductionFirms reduce costs & add value by eliminating waste from the productive system. Waste encompasses wait times, inventories, material & people movement, processing steps, variability, any other non-value-adding activity.Taiichi Ohno described the seven wastes2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10The Elements of Lean Production (Continued)The Seven Wastes

WastesDescriptionOverproducingUnnecessary production to maintain high utilizationsWaitingExcess idle machine & operator & inventory wait timeTransportationExcess movement of materials & multiple handlingOver-processingNon-value adding manufacturing & other activitiesExcess InventoryStorage of excess inventoryExcess MovementUnnecessary movements of employeesScrap & ReworkScrap materials & rework due to poor quality(Table 8.2)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11The Elements of Lean Production (Continued)The Five-Ss Japanese S-TermEnglish TranslationEnglish S-Term Used1. SeiriOrganizationSort2. SeitonTidinessSet in order3. SeisoPuritySweep4. SeiketsuCleanlinessStandardize5. ShitsukeDisciplineSelf-discipline(Table 8.3)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12The Elements of Lean Production (Continued)Lean Supply Chain RelationshipsSuppliers & customers work to remove waste, reduce cost, & improve quality & customer service

Lean Thinking includes delivering smaller quantities, more frequently to point of use

Firms develop lean supply chain relationships with key customers. Mutual dependency & benefits occur among these partners.

Locate production or warehousing facilities close to key customers2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13The Elements of Lean Production (Continued)Lean LayoutsMove people & materials when & where needed, ASAPLean layouts are very visual (lines of visibility are unobstructed) with operators at one processing center able to monitor work at anotherManufacturing cells Process similar parts or components saving duplication of equipment & labor Are often U-shaped to facilitate easier operator & material movements2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14The Elements of Lean Production (Continued)Manufacturing cells 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

The Elements of Lean Production (Continued)Inventory & Setup Time Reduction Excess inventory is a waste Reducing inventory levels causes production problemsOnce problems are detected, they can be solved.The end result is a smoother running organization with less inventory investment.Reduce purchase order quantities and production lot sizes2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16The Elements of Lean Production (Continued)When order quantity/lot size Q = 100, avg. inventory = 50; when Q is reduced to 50, avg. inventory falls to 25.10050avg. inventory for Q=100avg. inventory for Q=50Time

25Relationship between Order Quantity, Lot Size, and Average Inventory(Figure 8.2)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17Small Batch SchedulingSmall batch scheduling drives down costs by Reducing purchased, WIP, & finished goods inventories Makes the firm more flexible to meet customer demand

Small production batches are accomplished with the use of kanbans

Kanbans generate demand for parts at all stages of production creating a pull system2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18The Elements of Lean Production (Continued)Small Lot Size Increases Flexibility(Figure 8.3)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19The Elements of Lean Production (Continued)Small Lot Size ApproachAAAAA BBBBB CCCCC DDDDD AAAAA BBBBB CCCCC DDDDD AAAAA 9 product changes Short setup timesLong setup timesLarge Lot Size ApproachAAAAAAAAAAAAAAA BBBBBBBBBBBBBBB CCCCCCCCCCCCCCC 3 product changesA Kanban Pull SystemWork cell AMfg. Cell BMfg. Cell AMovement of matl. into Work cell B creates a movement kanban to Work cell A Movement of finished component to assembly line creates a production kanban to Work cell BMovement of matl. to input area of Work cell B creates a production kanban to Work cell AMovement of matl. into Work cell A creates a movement kanban to the external supplierExternal supplies Input areaOutput areaFinal assembly line(Figure 8.4)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20The Elements of Lean Production (Continued)To determine the number of containers or kanban card sets:D = the demand rate of the assembly line; T = the time for a container to make an entire circuit through the system, from being filled, moving, being emptied, and returning to be filled again; C = the container size, in number of parts; andS = the safety stock factor, from 0 to 100 percent. # of containers =DT(1 + S)CWhere: 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21The Elements of Lean Production (Continued)Continuous Improvement (Kaizen)Continuous approach to reduce process, delivery, & quality problems, such as machine breakdown problems, setup problems, & internal quality problemsWorkforce CommitmentManagers must support Lean Production by providing subordinates with the skills, tools, time, & other necessary resources to identify problems & implement solutions2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22The Elements of Lean Production (Continued)The Elements of Lean Production (Continued)In Lean Manufacturing Employees are:Cross-trained on various production processesGiven time during their day to solve problems and work on reducing machine setup timesExpected to perform a number of quality checksEmpowered to shut down the production process until the source of a problem is found and corrected2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23Lean Systems & the Environment Lean green practices Reduce the cost of environmental management Lead to improved environmental performance. Increase the possibility that firms will adopt more advanced environmental management systems2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24The Origins of Six Sigma QualitySix Sigma Near quality perfection (the statistical likelihood of non-defects 99.99966% of the time) Pioneered by Motorola in 1987 A statistics-based decision-making framework designed to make significant quality improvements in value-adding processes 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25The Origins of Six Sigma QualitySix Sigma Metrics# of std devabove the mean% of defect-freeoutputDPMO269.15308,5372.584.13158,686393.3266,8073.597.7322,750499.386,2104.599.8651,350599.9772335.599.996832699.999663.4Note: standard deviations include 1.5 sigma drift (Table 8.4)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26Six Sigma & Lean Production Lean Six Sigma (Lean Six ) Describes the melding of lean production and Six Sigma quality practices. Both use High quality input materials, WIP, and finished goodsContinuous Improvement (Kaizen) Lean and Six Sigma use complementary tool sets and are not competing philosophies

2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27Six Sigma & Supply Chain Management Process integration & communication lead to fewer negative chain reactions along the supply chain, such as greater levels of safety stock, lost time & less productivity Six Sigma is an enterprise and supply chain-wide philosophy, that emphasizes a commitment toward excellence & encompasses suppliers employees, and customers2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28Elements of Six SigmaCreate constancy of purpose to improve product & service.Adopt the new philosophy.Cease dependence on mass inspectionEnd the practice of awarding business on the basis of price.Constantly improve the production & service system.Institute training on the job.

Institute leadership. Drive out fear.Break down barriers between departments.Eliminate slogans & exhortations.Eliminate quotas.Remove barriers to pride of workmanship.Institute program of self-improvementPut everyone to work to accomplish the transformation Demings Way2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29Elements of Six Sigma (Continued)Crosbys Way Four Absolutes of QualityThe definition of quality is conformance to requirementsThe system of quality is prevention.Performance standard is zero defects.The measure of quality is the price of nonconformance 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30Elements of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31Table 8.6Crosbys Four Absolutes of Quality1. The definition of quality is conformance to requirements.Adopt a do-it-right-the-first-time attitude. Never sell a faulty product to a customer.2. The system of quality is prevention.Use SPC as part of the prevention system. Make corrective changes when problems occur. Take preventative action.3. The performance standard is zero defects.Insist on zero defects from suppliers and workers. Education, training, and commitment will eliminate defects.4. The measure of quality is the price of nonconformance.The price of nonconformance is the cost of poor quality. Implementing a prevention program will eliminate this.Elements of Six Sigma (Continued)Jurans WayQuality Planning- Identify internal/external customers & their needs, develop products that satisfy those needs. Mangers set goals, priorities, & compare resultsQuality Control- Determine what to control, establish standards of performance, measure performance, interpret the difference, & take actionQuality Improvement- Show need for improvement, identify projects for improvement, implement remedies, provide control to maintain improvement.2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32Elements of Six Sigma (Continued)Objectives Stimulate firms to improveRecognize firms for quality achievements, Establish guidelines so that organizations can evaluate their improvement & provide guidance to others

Categories MeasuredLeadershipStrategic planningCustomer & market focusInformation & analysisHuman resource focusProcess managementBusiness ResultsMalcolm Baldrige National Quality Award2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33Elements of Six Sigma (Continued)ISO 9000 and ISO 14000 Families of Management Standards International Organization for Standardization (ISO) located in Switzerland has > 163 member countries.ISO 9000 and 14000 govern quality and environmental certification standards of production, respectively.ISO standards are voluntary2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34Elements of Six Sigma (Continued)ISO 9000 and ISO 14000 Families of Management Standards ISO requires review of its standards at least every five years.Worldwide reputation as generic management system standardsThe ISO 9000 standards were adopted in the US by ANSI and ASQC. 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35Elements of Six Sigma (Continued)The DMAIC Improvement Cycle DefineMeasureAnalyzeImproveControl(Fig. 8.5)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36Elements of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37The DMAIC Improvement Cycle 1. DefineIdentify customers service or product requirements critical to achieving customer satisfaction 2. MeasurePrepare a data-collection plan. Determine what to measure for each process gap and how to measure it. 3. AnalyzePerform a process analysis .Use Pareto charts and fishbone diagrams to identify the root causes of the process variations or defects.4. ImproveDesign an improvement plan. Remove the causes of process variation by implementing the improvement plan. 5. ControlMonitor the process to assure that performance levels are maintained. If performance gaps are identified, repeat Steps 15.Elements of Six Sigma (Continued)Six Sigma Training LevelsLevelsDescriptionYellow BeltBasic understanding of Six Sigma Methodology and tools in the DMAIC problem solving process. Team member on process improvement project.Green BeltA trained team member allowed to work on small, carefully defined Six Sigma projects, requiring less than a Black Belts full-time commitment. Black BeltThorough knowledge of Six Sigma philosophies and principles. Coaches successful project teams. Identifies projects and selects project team members.Master Black BeltA proven mastery of process variability reduction, waste reduction and growth principles and can effectively present training at all levels2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 38Statistical Tools of Six SigmaFlow Diagrams - Annotated boxes representing process to show the flow of products or customers.Check Sheets - to determine frequencies for specific problems.Pareto Charts - for presenting data in an organized fashion, indicating process problems from most to least severe. Cause and Effect Diagrams (Fishbone or Ishikawa diagrams) - used to aid in brainstorming & isolating the causes of a problem.2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 39Statistical Tools of Six Sigma (Continued)

Process Map for Customer Flow at a Restaurant(Figure 8.6)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 40Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 41Figure 8.7 Check Sheet for Problems at a RestaurantProblemMon.Tues.Wed.Thurs.Fri.Sat.Sun.Totals% of Totallong wait////////////////////////////////////////////////4826.5cold food/////////95.0bad food///////////116.1wrong food///////////////////1910.5bad server////////////////////////2413.3bad table////////84.4room temp.///////////////158.3expensive///////////116.1no parking//////////////147.7wrong change//////////////////189.9Other////42.2Totals2618311442437181100Pareto Chart for Restaurant Problems(Figure 8.8)Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 42

Pareto Chart for Restaurant Problems(Figure 8.8)Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 43

Not enough tablesRun out of foodPoor hiring practicesCooking delaysLONGWAITWashing machine breaksCredit card scanner breaksNew automated cooking baysLate deliveriesNeeds frequent maintenanceInadequate waiting areaToo much overbookingPreference to VIPsCant find customersNo system for food or drink pickupUnderstaffed shiftsHigh turnoverUntrained servers, cooksNo supervisionMethodsManpowerMachineryMaterialCause and Effect Diagram for the Long Wait Problem(Figure 8.9)Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 44Statistical Process Control Allows firms to visually monitor process performancecompare the performance to desired levels or standardstake corrective action Firms gather process performance datacreate control charts to monitor process variabilitythen collect sample measurements of the process over time and plot on charts.Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 45Statistical Process ControlNatural variationsexpected and random (cant control)Assignable variationshave a specific cause (can control)Variable datacontinuous, (e.g., weight)Attribute data indicate some attribute such as color & satisfaction, or beauty. Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 46Statistical Process Control

Variable Control Charts (2 types):x-bar chart tracks central tendency of sample meansR-chart tracks sample rangesSteps Gather data when the process is in control.Calculate the mean & the range for each sample.Calculate the overall mean and average range of all the samples. Use the x-means to calculate the upper & lower control limits.Use the means & control limits to construct x-bar and R control charts.Collect samples over time and plot. Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 47Formulas

= =

UCL =

+ A2

LCL =

- A2

UCLR =D4

LCLR =D3

Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 48Statistical Process Control

chart for the Hayley Girl Soup Co. Statistical Tools of Six Sigma (Continued)(Figure 8.10)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 49Statistical Process Control

Attribute Data Control Charts P charts monitor the percent defective in each sampleC charts count the number of defects per unit of output

Calculate the center line where( ) - mean fraction defective for all samples collectedk - the number of samplesP -the fraction defective in one samplei -the specific sample

Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 50

Attribute Data Control Charts Sample standard deviation for the P chart

Upper and lower control limits for the P chart

z number of standard deviations from the mean n - size of each samplep- standard deviation of the sampling distribution

Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 51

Attribute Data Control Charts C Charts

= mean errors per unit of measure

= sample standard deviation

= upper and lower control limits

Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 52

Acceptance SamplingWhen shipments are received from suppliers, samples are taken and measured against the quality acceptance standard. Shipment is assumed to have the same quality.Sampling is less time-consuming than testing every unit but can result in errorsProducers risk- A buyer rejects a shipment of good quality units because the sample quality level did not meet standards (type I error) Consumers risk- Buyer accepts a shipment of poor-quality units because the sample falsely provides a positive answer (type II error)Statistical Tools of Six Sigma (Continued)2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 53Chart21

hoursounces

Sheet1Hour1234R11212.211.711.611.880.6211.511.711.612.311.780.8311.912.212.11212.050.3412.111.812.111.711.930.4512.212.311.711.912.030.6612.111.912.312.212.130.471211.711.612.111.850.581212.112.212.312.150.3911.811.9121211.930.21012.111.911.811.711.880.31112.11212.111.912.030.21211.911.911.711.811.830.213121211.812.111.980.31412.111.91211.711.930.415121211.711.211.730.81612.1121211.9120.21712.112.21211.912.050.31812.21211.711.811.930.5191212.112.31212.10.3201212.211.91212.030.32111.911.812.11211.950.32212.111.811.91211.950.32312.11211.911.911.980.2241212.311.712120.6MEANS11.980.39

Sheet1

4HourOuncesxbar chart

Sheet2

Sheet3

MBD000552D1.unknown