outline 5. next time a. sega b ... -product/system architecture ... -queueing analysis-capacity...
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Introduction to Operations Management
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Introduction to Operations Management
1. Introductions2. Housekeeping
a. SloanSpaceb. Course Introductionc. Professional Standards
3. Concepts & Nokia4. Course Outline5. Next Time
a. Segab. CPM
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“Housekeeping” for Operations Management
1. Course Materials:Course packet E.M. Goldratt and J. Cox, The Goal: A Process of Ongoing Improvement, North River Press, 2nd Rev. Ed., 1992.The Memory Jogger, Goal/QPC, 1988.
2. GradingClass participation: 30%First case write-up 20%Second case write-up 25%Third case write-up 25%
3. Professional StandardsAcademic Integrity--”Do your own work”Behavioral Integrity -- “Do unto others . . . “
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ProductDevelopment
SupplyChain
Process Design & Management
Three Foundational Components of Operations Management
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Product Development
• Product Design-Voice of the CustomerWhat is the role of product design in the demand and supply issues faced by Nokia and Ericsson?
-Product/System ArchitectureWere problem chips integral or modular?
• Product Development-Project management & Cost-Design for ManufacturingHow important was” “Nokia quickly redesigned some of its chips so they could be produced elsewhere?”
• Technology StrategyDid product technology play a role in the differential performance of N & E?
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Process Design & Management
• Process Design: Options & Assessment -Queueing Analysis-Capacity AnalysisHow did Nokia assess capacity in the crunch? How did they change capacity?
-Uncertainty AnalysisHow did each company prepare for difficult-to-anticipate events?
• Inventory Systems•Did N&E operate Just-in-Time, or did they hold big stores of chips waiting just in case?
• Production ControlWas Nokia’s software the principal instrument of control? How did they monitor the situation?
ERP/Software/Internet•Was Nokia’s software the principal instrument of communication?
• Operations Excellence- Continuous Improvement- Just-in-Time- Quality Management (SPC, 6σ)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Supply Chain
• Strategic Supply Chain Design -Make Vs. Buy
•Did sourcing strategy play a role in the differential performance of N & E?
-Supplier Selection , Sourcing Single vs. Dual sourcing
• Supply Chain Management-End-to-end coordinationDo we see here examples of integrated enterprise?
-Supplier Relationshard-nosed, polite, hostile, collaborative?
• Delayed Differentiation
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ProductElectronics & SW SegaProcessAutos: ToyotaElectronics: Dell, Cisco, QuantaFinancial Bank of America Food Retailing Burger King Food Processing National CranberryAir Transport Alaska AirHealth Care: University Health Software: Sega, SAP (Vandelay), Oracle (Cisco)Supply ChainElectronics: Nokia, HPFashion Apparel Sport ObermeyerFood Distribution Barilla Pasta eSupply Webvan
Companies and Industries we will cover
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1 Introduction Course Introduction Trial by Fire, powerpoint on Ops Strat
2 Product Dev Dreamcast/Sega Chap 8 in Clkspd on 3-DCE, ABC's of CPM3 Operations Burger King Types of Processes, EOQ, Newsvendor 4 Strategy Inventory Mgmt Inven probs, Relevant costs, Whirlwind/Web,
Dell/Conqueror, Laptop King5 Process Alaska Airlines Levitt6 Technology Webvan They've got mail. 7 Cisco MRP note, ERP Technology Note8 Process Process Flow Models Queueing Note & Inventory Buildup9 Analysis National Cranberry
10 Univ Health Service
11 Process Quality Mgmt Deming, Juran, Crosby; 6sig, Berwick, Memory Jogger
12 Quality Toyota Lean Production, Karmarkar13 The Goal
14 Bank of America Hammer & Cole Articles15 Supply Hewlett-Packard SMR paper16 Chain Barilla SPA
17 Sport Obermeyer
18 Wrap-Up Wrap-up
Course Outline
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Evolution in the industrial world:INFOTAINMENT is faster than MICROCHIPS is faster than AUTOS evolve faster than AIRCRAFT evolve faster than MINERAL EXTRACTIONTHE KEY TOOL:Cross-INDUSTRYBenchmarking of Dynamic Forces
Clockspeed:The Dimension of Time on Operations Management
Study the Industry Fruitflies
Evolution in the natural world:
FRUITFLIESevolve faster than
MAMMALSevolve faster than
REPTILES
THE KEY TOOL:
Cross-SPECIES Benchmarking of Dynamic Forceswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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INDUSTRY CLOCKSPEED IS A COMPOSITE:OF PRODUCT, PROCESS, AND ORGANIZATIONAL
CLOCKSPEEDS
THEMobile Phone
MANUFACTURING COMPANY
organization
Mobile Phone INDUSTRY CLOCKSPEED
THEMobile Phoneproduct technology THE
Mobile PhonePRODUCTION
PROCESS process technology
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Mobile Phone System CLOCKSPEED is a mix of Transmission Standards, Software and Handsets
Mobile Phone SystemTRANSMISSION
STANDARDslow clockspeed
SOFTWAREAPPLICATIONS
medium clockspeedHAND SET
fast clockspeed
ISSUE: THE FIRMS THAT ARE FORCED TO RUN AT THE FASTEST CLOCKSPEED ARE THE MOST LIKELY TO STAY AHEAD OF THE GAME.
OPERATINGSYSTEM
slow clockspeed
SERVICESfast clockspeed
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Dynamics between New Projects and Core Capability Development: PROJECTS MUST MAKE MONEY AND BUILD CAPABILITIES
CORE CAPABILITIES
NEW PROJECTS(New products, new processes, new suppliers)
See Leonard-Barton, D. Wellsprings of Knowledge
Clockspeed drivesBusiness Strategy Cadence
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ALL COMPETITIVE ADVANTAGE IS TEMPORARY
Autos:Ford in 1920, GM in 1955, Toyota in 1990Computing:IBM in 1970, DEC in 1980, Wintel in 1990World Dominion:Greece in 500 BC, Rome in 100AD, G.B. in 1800Sports:Bruins in 1971, Celtics in 1986, Yankees no endThe faster the clockspeed, the shorter the reign
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Integral product architectures feature close coupling among the elements
- Elements perform many functions- Elements are in close spacial proximity- Elements are tightly synchronized- Ex: jet engine, airplane wing, microprocessor
Modular product architectures feature separation among the elements
- Elements are interchangeable- Elements are individually upgradeable- Element interfaces are standardized- System failures can be localized- Ex: stereo system, desktop PC, bicycle
ARCHITECTURES IN 3-DINTEGRALITY VS. MODULARITY
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SUPPLY CHAIN ARCHITECTURE
Integral supply-chain architecturefeatures close proximity among its elements
- Proximity metrics: Geographic, Organizational Cultural, Electronic
- Example: Toyota city - Example: Ma Bell (AT&T in New Jersey)- Example: IBM mainframes & Hudson River Valley
Modular supply -chain architecture features multiple, interchangeable supplier and standard interfaces
- Example: Garment industry- Example: PC industry- Example: General Motors’ global sourcing- Example: Telephones and telephone service
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DESIGNING ARCHITECTURES FOR PRODUCTS & VALUE CHAINS: THE NEED FOR ALIGNMENT
INTEGRAL
MODULAR
PRODUCTARCHITECTURE
VALUE CHAIN ARCHITECTURE(Geog., Organ., Cultural, Elec.)
Jet enginesMicroprocessorsMercedes vehicles
Personal ComputersBicyclesChrysler VehiclesCisco
INTEGRAL MODULAR
PolaroidNortel, Lucent
Automotive Supplier Parks
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- Focus- Architecture
- Technology
DesignDetailedPerform.Specs& Funct.
UnitProcesses
Tech.& Equip.
Mfg.SystFunctnlCellular.
S.C.Architect.Orgs Set& Alloc.of Tasks
Logistics& CoordSystemAuton vs.Integrated
Product Process Supply Chain
Architect.Modular
vs.Integral
A 3-D CE decision modelillustrating the imperative
of concurrencywww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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DESIGNING ARCHITECTURES FOR PRODUCTS & VALUE CHAINS: MODULARITY VS. OPENNESS
INTEGRAL
MODULAR
ARCHITECTURALSTRUCTURE
ARCHITECTURALPROPRIETARINESS
Pentium ChipMercedes VehiclesSAP ERP
Palm Pilot software & accessoriesPhones & serviceWeb-based ERP
CLOSED OPEN
IBM MainframesMicrosoft WindowsChrysler Vehicles
Linux
INFORMATION ARCHITECTURE MUST REFLECT BUSINESS MODELwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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All Conclusions are Temporary
Clockspeeds are increasing almost everywhere
3-D Concurrent Engineering must anticipate Industry and Value Chain Dynamics
3-D Concurrent Engineering is a key organizational competency
Study of Fruit Flies can help with crafting strategy
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123456789
1011121314151617
18
Course OutlineIntroduction Course Introduction Trial by Fire, powerpoint on Ops Strat
Product Dev Dreamcast/Sega Chap 8 in Clkspd on 3-DCE, ABC's of CPM Operations Burger King Types of Processes, EOQ, Newsvendor Strategy Inventory Mgmt Inven probs, Relevant costs, Whirlwind/Web,
Dell/Conqueror, Laptop KingProcess Alaska Airlines Levitt Technology Webvan They've got mail.
Cisco MRP note, ERP Technology Note Process Process Flow Models Queueing Note & Inventory Buildup Analysis National Cranberry
Univ Health Service
Process Quality Mgmt Deming, Juran, Crosby; 6sig, Berwick, Memory Jogger
Quality Toyota Lean Production, Karmarkar The Goal Bank of America Hammer & Cole Articles
Supply Hewlett-Packard SMR paper Chain Barilla SPA
Sport Obermeyer Wrap-Up Wrap-up www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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15.760: Sega Dreamcast/CPM1. What are the key elements of the value chain
for the home video game business? 2. What are the possible failure modes for Sega
and its Dreamcast product?
3. What capabilities does Sega require to succeed?
4. What’s the critical path for the CPM exercise?
5. Launch as scheduled or postpone?
6. What happened. Why?
7. Lessons learned.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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15.760: CPM exerciseTask Description Duration (weeks Precedence A Market Study 14 B External Developer Focus Group 10 C Feature Selection 4 A,B D Hardware Engineering 25 C E Operating System Devlpt. 16 D,B F Advertising Campaign 20 D,M,N G Supplier Selection & Negotiation 20 D H Component Inventory Buildup 45 G I Assembly Facility Setup 18 D J Finished Good Inventory Buildup 7 I,H K Library & Programmer Toolkit Devlpt. 12 E L External Development Support Setup 5 K M Internal Game Devlpt. 30 K N External Game Devlpt. 32 L,O O Platform Promotion 6 K P Publisher Selection & Negotiation 5 M Q Website Setup 20 M R Release Promotion Material Design 3 D,M,N S Distribution Channels Devlpt. & Negotiation 9 R T Carrier Selection & Negotiation 4 S U Launch Event Organization & PR 5 R V Hardware & Software Shipment 1 J,T,P,N W Launch! 0 V,U,Q,F
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15.760: CPM exercise1. What is the critical path and total duration for this
project? 2. Suppose that a marketing study finds that the Advertising
Campaign can be shortened to 15 weeks without significant impact reduction. What is the new CP and total project duration?
3. Suppose we would like to reduce the time until launch to 28 months, what would you recommend?
4. Bonus: Suppose that the duration of the development tasks E, M and N are now random variables following exponential distributions with means 16, 30 and 32 respectively. What is the probability that the total project duration will be more than 135 weeks? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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B 10
C 4
E 16
D 25
G 20
I 18
H 45
J 7
K 12
M 30
P 5
N 32
L 5
O 6
R 3
S 9 T
4
U 5
F 20
Q 20
V 1
W 0
A 14
Ext Dev Focus Grp
Mkt Study
Features
HW Eng
O/S Dev
Advert Plan
Supp Sel & Neg
Comps Inv
Setup Factory FG Inv Build
SW Dev Kit
Dev Supp
Int Dev
Ext DevPlatform Mktg
Publisher Sel & Neg
Setup Website
Release Promo
Distr Neg
Carrier Neg
Plan Launch Event
Ship HW & SW GO!
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B 10
C 4
E 16
D 25
G 20
I 18
H 45
J 7
K 12
M 30
P 5
N 32
L 5
O 6
R 3
S 9 T
4
U 5
F 20
Q 20
V 1
W 0
A 14
0, 10
4,14
ES, EF
LS, LF
0, 14
0,14 14, 18
14,18 43, 59
43, 59
18, 43
18, 43
59, 71
59, 71
43, 61
103,121 43, 63
56,76
108, 115
121,128
63, 108
76, 121
71, 77
71, 77
71, 101
79, 109
71, 76
72, 77
101, 121
109,129
101, 106
123,128
77, 109
77, 109 109, 129
109, 129
108, 111
112,115
111, 116
124,129
124, 125
128, 129
111, 120
115,124
120, 124
124,128
129, 129
129, 129
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B 10
C 4
E 16
D 25
G 20
I 18
H 45
J 7
K 12
M 30
P 5
N 32
L 5
O 6
R 3
S 9 T
4
U 5
F 20
Q 20
V 1
W 0
A 14
0, 10
4,14
ES, EF
LS, LF
0, 14
0,14 14, 18
14,18 43, 59
43, 59
18, 43
18, 43
59, 71
59, 71
43, 61
103,121 43, 63
56,76
108, 115
121,128
63, 108
76, 121
71, 77
71, 77
71, 101
79, 109
71, 76
72, 77
101, 121
109,129
101, 106
123,128
77, 109
77, 109 109, 129
109, 129
108, 111
112,115
111, 116
124,129
124, 125
128, 129
111, 120
115,124
120, 124
124,128
129, 129
129, 129
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Effects onRelationships
NEC recovers
NEC late
NEC very late
Corporate Decision
Supplier Performance
Market Dynamics
Demand H
Demand L
Demand H
Demand L
Demand H
Demand L
d elayed
launch
launc
h Exh
aus ti
vely
seek a
prod
uctio
n fix
NEC recovers
Retailers increase dedicated space Software development accelerate Win-Win-Win !!! Product is a dudReinvigorate or Exit.
Sales puts on the best face possiblePressure/help NECRetailers unhappy with empty shelvesDisgruntled CustomersSoftware developers anxious
Need to stimulate demand & NECProduct may be a dudSoftware developers may quit
Production ramp-up crucialMust maintain good communicationsSlow start is overcome: win-win-win
Recrimination mode Was product a dud or was lateness to
market the killer?
Deep trouble Try to mend relationships and make new plan
or just exit. www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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INDUSTRY CLOCKSPEED IS A COMPOSITE:OF PRODUCT, PROCESS, AND ORGANIZATIONAL
CLOCKSPEEDS
Mobile Phone INDUSTRY CLOCKSPEED
THE Mobile Phone product technology THE
Mobile Phone PRODUCTION
PROCESS process technology
THEMobile Phone
MANUFACTURING COMPANY
organization
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Mobile Phone System CLOCKSPEED is a mix of Transmission Standards, Software and Handsets
Mobile Phone System TRANSMISSION
STANDARD SOFTWARE APPLICATIONS HAND SETslow clockspeed
medium clockspeed fast clockspeedOPERATING SERVICES
SYSTEM fast clockspeedslow clockspeed
ISSUE: THE FIRMS THAT ARE FORCED TO RUN AT THE FASTEST CLOCKSPEED ARE THE MOST LIKELY TO STAY AHEAD OF THE GAME.
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Product
Design Architect. Detailed Modular Perform. vs. Specs Integral & Funct.
Process
Unit Mfg.SystProcesses Functnl
Tech. Cellular. & Equip.
Supply Chain
S.C. Logistics Architect. & Coord Orgs Set System & Alloc. Auton vs. of Tasks Integrated
- Focus - Architecture - Technology
A 3-D CE decision modelillustrating the imperative
of concurrencywww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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123456789
1011121314151617
18
Course Outline, 15.760AIntroduction Course Introduction Trial by Fire, powerpoint on Ops Strat
Product Dev Dreamcast/Sega Chap 8 in Clkspd on 3-DCE, ABC's of CPM Operations Burger King Types of Processes, EOQ, Newsvendor Strategy Inventory Mgmt Inven probs, Relevant costs, Whirlwind/Web,
Dell/Conqueror, Laptop KingProcess Alaska Airlines Levitt Technology Webvan They've got mail.
Cisco MRP note, ERP Technology Note Process Process Flow Models Queueing Note & Inventory Buildup Analysis National Cranberry
Univ Health Service
Process Quality Mgmt Deming, Juran, Crosby; 6sig, Berwick, Memory Jogger
Quality Toyota Lean Production, Karmarkar The Goal Bank of America Hammer & Cole Articles
Supply Hewlett-Packard SMR paper Chain Barilla SPA
Sport Obermeyer Wrap-Up Wrap-up www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
32www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
Three Foundational Components of Operations Management
Product Development
(Sega, #2)
Supply Chain
(Nokia, #1, Dell, #4)
Process Design & Management (Burger King, #3)
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15.760: Burger King
1. What are the operations objectives for Burger King? 2. Process flow diagram for hamburger sandwich
production. 3. Where are the inventories? Why? 4. Peak hourly capacity vs. peak hourly demand for
burger patties. 5. How does the management of operations relate to the
company's method of competing in the marketplace?
6. What are the fastest clockspeed components of theBurger King value chain?
7. How well integrated are BK’s product, process, andmarket? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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BK: Process Flow Diagram for Sandwiches
RAW BURGERS
RAW BUNS
BROILER
BROILER
MATE BUNS & BURGERS STEAMER
CHEESE CONDI-MENTS
TOMA-TOES
SANDWICH ASSEMBLY
FIN-ISHED SAND-
WICHES
ORDER DELIVERY
MICRO-WAVE
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BK: Peak Load Demand vs. Capacity 34227 Sandwiches ÷ 4.3 weeks x 18% (Fridays) x 17.9% =
month month (noon hour)
256 sandwiches , of which 48 are hamburgers peak hour 51 are cheeseburgers
24 are double cheeseburgers => peak demand = 147 burger patties/hour
Each broiler chain cooks 8 patties => 480 patties minute hour
(Assume other chain used for Whoppers)
Case fact: max assembly rate = 200 burgers/hour 100 specialty sandwiches/hr
Broiler utilization = 147/200 = 74%Bottleneck is assembly www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Restaurant Operations Management1. What are the key DESIGN parameters for Burger King?
A. ProductB. Process TechnologyC. FacilityD. Work System/HR System
2. What are the key PLANNING tasks for Burger King?A. SupplyB. DemandC. Capacity/Workload
3. What are the key CONTROL processes for Burger King?A. Production ControlB. Quality ControlC. Process Control
4. What are the key IMPROVEMENT processes for BK?A. Quality ImprovementB. Productivity ImprovementC. Technological ImprovementD. Systems Improvementwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Some Characteristics of Services (vs. Manufacturing)
– Intangibility - explicit and implicit intangibles • “We manufacture perfume; we sell hope.”
– Perishability - an hour of non-production is an hour lost
• Airplane w/o spare part costs > $10K/hr
– Heterogeneity - inherent variability of service • Each doctor’s bedside care is unique
– Simultaneity - services are simultaneously produced and consumed
• A poor attitude by the server cannot be recalled www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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INDUSTRY CLOCKSPEED IS A COMPOSITE:OF PRODUCT, PROCESS, AND ORGANIZATIONAL
CLOCKSPEEDS
Mobile Phone INDUSTRY CLOCKSPEED
THE Mobile Phone product technology THE
Mobile Phone PRODUCTION
PROCESS process technology
THEMobile Phone
MANUFACTURING COMPANY
organization
www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
39www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
Mobile Phone System CLOCKSPEED is a mix of Transmission Standards, Software and Handsets
Mobile Phone System TRANSMISSION
STANDARD SOFTWARE APPLICATIONS HAND SETslow clockspeed
medium clockspeed fast clockspeedOPERATING SERVICES
SYSTEM fast clockspeedslow clockspeed
ISSUE: THE FIRMS THAT ARE FORCED TO RUN AT THE FASTEST CLOCKSPEED ARE THE MOST LIKELY TO STAY AHEAD OF THE GAME.
www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
40www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
Product
Design Architect. Detailed Modular Perform. vs. Specs Integral & Funct.
Process
Unit Mfg.SystProcesses Functnl
Tech. Cellular. & Equip.
Supply Chain
S.C. Logistics Architect. & Coord Orgs Set System & Alloc. Auton vs. of Tasks Integrated
- Focus - Architecture - Technology
A 3-D CE decision modelillustrating the imperative
of concurrencywww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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15.760: Dell/Quanta/Inventory 1. Admin: SloanSpace, Namecards, CourseIntro 2. Explain the logic of the EOQ model. How useful
do you think it is? 3. Dellpaq problem 4. Explain the logic of the newsvendor model. How
useful do you think it is? 5. FruitflyTM problem 6. How would you characterize Dell’s approach to
inventory management? Are the math models relevant or informative?
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Inventory Problems: Dellpaq Computers
Relevant costs Fixed Costs: shipments $100,000
placing order 5hrs * $10/hr = $50 S = $100,050
Variable Costs: complete systems $3000 loading plus shipping $25 unloading employee .1 hr * $10/hr = $1 unloading equipment .1 hr * $50/hr = $5 arranging in storage .05 hr * $10/hr = $.50
C = $3031.50
Irrelevant costs Removing sets from storage, cost of processor and motherboard, surveillance/security equipment
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-------------------------
Inventory Problems: Dellpaq Computers
Annual demands: R=300,000 Carrying charge: K=20%
EOQ = 2(300,000)(100,050) = 9950
.20 (3031.50)
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Inventory Problems: TMFruitfly
Decision: D Demand: d~Normal(150000,45000) Price: p=150 Cost: c=50
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----------- ------------------------ ------
Inventory Problems: FruitflyTM
.167
P(d≤Q) =r-c
= 150-50
= 2
r 150 3
Z(.167) = .431 Q = 150,000 + .431 * 45,000 = 169,395
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Dell Operations Management 1. What are the key DESIGN parameters for Dell?
A. Product B. Process Technology C. Facility D. Work System/HR System
2. What are the key PLANNING tasks for Dell? A. Supply B. Demand C. Capacity/Workload
3. What are the key CONTROL processes for Dell? A. Production Control B. Quality Control C. Process Control
4. What are the key IMPROVEMENT processes for Dell? A. Quality Improvement B. Productivity Improvement C. Technological Improvement D. Systems Improvement www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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The Strategic Impact of Development Partnership Design:
Who let Intel Inside?1980: IBM designed a new product and
created a new set of development partners Customers
IBMIntel Inside
Intel
Microsoft The Outcome:
A phenomenally successful product design A disastrous market value impact (for IBM)
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LESSONS FROM A FRUIT FLY: THE PERSONAL COMPUTER
1. BEWARE OF INTEL INSIDE (Regardless of your industry)
2. MAKE/BUY IS NOT ABOUT WHETHER IT IS TWO CENTS CHEAPER OR TWO DAYS FASTER TO OUTSOURCE VERSUS INSOURCE.
3. DEVELOPMENT PARTNERSHIP DESIGN CAN DETERMINE THE FATE OF COMPANIES AND INDUSTRIES, AND OF PROFIT AND POWER
4. THE LOCUS OF VALUE CHAIN CONTROL CAN SHIFT IN UNPREDICTABLE WAYS
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Vertical Industry Structurewith Integral Product
ArchitectureComputer Industry Structure, 1975-85
IBM DEC BUNCH Microprocessors
Operating Systems
Peripherals
Applications Software
Network Services
Assembled Hardware
All Products
All Products
All Products
(Adapted from A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Horizontal Industry Structurewith Modular Product Architecture
Computer Industry Structure, 1985-95
Microprocessors
Operating Systems
Peripherals
Applications Software
Network Services
Assembled Hardware
Microsoft Mac Unix
Intel Moto AMD etc
HP Seagate etc Epson etc
AOL/Netscape EDS etc Microsoft
Microsoft NovellLotus etc
HP Dell etcIBMCompaq (Adapted from A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)
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THE DYNAMICS OF PRODUCT ARCHITECTURE AND VALUE CHAIN STRUCTURE:
THE DOUBLE HELIX
See Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”
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Product
Design Architect. Detailed Modular Perform. vs. Specs Integral & Funct.
Process
Unit Mfg.SystProcesses Functnl
Tech. Cellular. & Equip.
Supply Chain
S.C. Logistics Architect. & Coord Orgs Set System & Alloc. Auton vs. of Tasks Integrated
- Focus - Architecture - Technology
A 3-D CE decision modelillustrating the imperative
of concurrencywww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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15.760: Alaska Air1. Admin/Intro: PeaPod, Webvan 2. What are important characteristics of services
vs. manufactured products? 3. In what sense must AA concurrently develop
product & process? 4. What are the key operations tasks that AA must
accomplish? 5. Can “self-service through technology” provide
a “sustainable competitive advantage” for AA? 6. Why use hubs?
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15.760: WEBVAN ASSIGNMENT
Take the position of a consultant to Webvan. Write a memo to theCEO of Webvan, providing him with your assessment of theWebvan operations model and business model -- based solely onthe information available in the case. Include in your assessmentsome analysis of the value proposition to customers as well as thevalue proposition to investors. (I.e., how profitable will Webvanlikely be?) (Max length: 1500 words & six supporting exhibits.)
We all know that Webvan went broke. Feel free to take the positioneither that the business could make money (and provide theassumptions and/or analysis and/or creative ideas that supportyour position) or that the business is hopeless. If you take thelatter position, you still need to back up your assessment with ananalysis of why you concluded what you did. (I.e., whatspecifically are the flaws in the business model or operationsassumptions?)
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Some Characteristics of Services (vs. Manufacturing)– Intangibility - explicit and implicit intangibles • “We manufacture perfume; we sell hope.” • Mgmt Issues: Expectations & Perceptions
– Perishability - an hour of non-production is an hour lost • Airplane w/o spare part costs > $10K/hr • Mgmt Issues: Preventation Processes & Mentality
– Heterogeneity - inherent variability of service & customer • Each doctor’s bedside care is unique, as is each patient • Mgmt Issues: Hiring, Training, Listening, Customization
– Simultaneity - services simultaneously produced & consumed • A poor attitude by the server cannot be recalled • Mgmt Issues: Hiring, Training, Situation Control www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Product Development
(Sega, #2)
Supply Chain
(Nokia, #1, Dell, #4)
Process Design & Management (Burger King, #3)
Three Foundational Components of Operations Management
(Alaska Air #5)
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Product Development
(Sega, #2)
Supply Chain
(Nokia, #1, Dell, #4)
Process Design & Management (Burger King, #3)
Three Foundational Components of Operations Management
(Alaska Air #5)
Dell Product Features • µP & modem speed • CD ROM speed • MB DRAM & HD • screen size • order-to-deliv time • features range • fufillment accuracy
AA Product Features • check-in time • reservations help • meals • price • flight frequency • mileage awards • route coverage • baggage handling • customer coddling
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Operations Tasks for Alaska Airlines1. DESIGN
A. Product Features (See Above; Contrast with Southwest)B. Fleet ConfigurationC. Reservations SystemD. Human Resources System (Care of Employees; Esprit de Corp)
2. PLANNINGA. System schedule;B. Hiring/Training of Pilots, Flight Attendants, Ground CrewC. Workforce scheduling, Aircraft scheduling & maintenanceD. Pricing, Marketing, Promotions (Competitor Actions)
3. CONTROLA. Reservations, Check-in, & Flight processesB. Responses to unplanned events: weather, breakdowns, etc.C. Processing Customer Complaints
4. IMPROVEMENTA. Operations Costs; Capacity Utilization (Role of Technology)B. Customer Experience (Role of Technology)C. Reputation & Brandwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Technology Strategy at Alaska Airlines
Hypothesis: “Self-service through technology” provides “sustainable competitive advantage.”
***Eliminate, Simplify Automate*** 1. Culture of Innovation (among tech leadership) 2. IMAGE system
• customer service, employee satisfaction, • flexibility with laptops, missed opportunity?
3. On-line booking, e-tickets, kiosks, redeem miles • Reduce costs and Improve Customer Satisfac.
4. Navigation and Guidance Systems
Is this profitable? Sustainable? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Why use hubs (e.g., Seattle) ?
Victoria Calgary
Seattle
San Francisco
Las Vegas
Victoria Calgary
Seattle
San Francisco
Las Vegas
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15.760: Webvan1. Admin/Intro: PeaPod: tomorrow night 2. What are the important features of the
product/service offered by Webvan? How does it differ from competing offerings?.
3. In what sense must Webvan concurrently develop product & process?.
4. What are the key operations tasks that Webvan must accomplish?
5. Can you make sense out of their financial model?
6. Why use hubs & spokes? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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15.760: WEBVAN ASSIGNMENT
Take the position of a consultant to Webvan. Write a memo to theCEO of Webvan, providing him with your assessment of theWebvan operations model and business model -- based solely onthe information available in the case. Include in your assessmentsome analysis of the value proposition to customers as well as thevalue proposition to investors. (I.e., how profitable will Webvanlikely be?) (Max length: 1500 words & six supporting exhibits.)
We all know that Webvan went broke. Feel free to take the positioneither that the business could make money (and provide theassumptions and/or analysis and/or creative ideas that supportyour position) or that the business is hopeless. If you take thelatter position, you still need to back up your assessment with ananalysis of why you concluded what you did. (I.e., whatspecifically are the flaws in the business model or operationsassumptions?)
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Challenges of Service Interface:Grocery Stores vs. Webvan
– Intangibility - customer expectations vs. perceptions • Grocery Stores: quality, selection, ENVIRONMENT • Webvan: quality, selection, DELIVERY
– Perishability - use it or lose it • Grocery Stores: fresh foods (produce, meats, baked goods) • Webvan: fresh foods & TRUCK CAPACITY
– Heterogeneity - inherent variability of service & customer • Grocery: checkout people, counter people, customer needs • Webvan: DELIVERY PERSON
– Simultaneity - services simultaneously produced & consumed • Grocery: presentation in the store • Webvan: DELIVERY TO THE HOME www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Product Development
(Sega, #2)
Supply Chain
(Nokia, #1, Dell, #4)
Process Design & Management (Burger King, #3)
Three Foundational Components of Operations Management
(Alaska Air #5, Webvan #6)
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Product Development
(Sega, #2)
Supply Chain
(Nokia, #1, Dell, #4)
Process Design & Management (Burger King, #3)
Three Foundational Components of Operations Management
Grocery Store Features • selection • price • quality/freshness • shopping environment
Webvan Features • selection • price • quality/freshness • shop any hour • never leave home • choose delivery time • save your time • same day delivery • fulfillment accuracy • no lugging required
(Alaska Air #5, Webvan #6)
Who has the advantage on each dimension? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Hub Operations for Webvan
1. ASSUMPTIONS & ANALYSIS, CASE EXHIBIT 2A. 50,000 SKU’sB. 2,920,000 orders/yearC. $103.00/orderD. ==> $300,000,000 revenue per hub per yearE. Requires 2920000/50000= 58 big trucks/year @ $100K = $5.8M
58x40x52=120640 hours/year ==> 120640 /(365x24)= 14 trucks on roadF. Requires 580 small trucks per year @ $60K = $34.8M
==> 140 small trucks on the roadG. If grocery business serves 20 stores per hub, they would need twice the
big truck capacity, but no small trucks,==> Webvan extra delivery cost ~ $34.8M-$5.8M=$29M ~ %9.67
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Hub Operations for Webvan
2. HUB PRODUCTIVITY A. 450 items/person/hrB. Assume 300,000,000 items/yrC. => 666,667 man hrs/yr = $6,666,667/yr @ $10/hrD. => $666,667/spoke /yr in direct laborE. Assumed 8000 orders/day x 365 x $103 = ~ $300M
F. Summer 1999: Sales of $1.05M/monthAvg order = $71 => 14,789 orders/month
= 493 orders/day“Management estimated that the hub was operatingat less than 20% of its designed capacity.”
G. 26 warehouses & 260 spokes staffed by 10000 people at$40K/year => $1,538,461 in labor per spoke
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%12???0.02Net Oper Profit
0.242Total expenses
2,900,0000.967Home Delivery
1,538,461total labor
warehouse opns
666,6670.022warehouse labor
300,0000.010.07Warehouse alloc
>3%?0.03HQ alloc
>%2?0.02IT costs
0.122Store related costs
7,860,0000.2623,682,4100.262Gross Margin
22,140,0000.73810,372,5900.738Cost of goods
2415Inv turns
30,000,000Rev/spoke/yr
14,055,000Rev/store/yr
WebvanWebvanGroceryGrocery
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Operations Tasks for Webvan
1. DESIGN
2. PLANNING
3. CONTROL
4. IMPROVEMENT
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Matching Fulfillment Strategies with Product Features
Demand uncertainty
H
L
Computers
GroceryBooks & CDs
Furniture
L H
Prof. David Simchi-Levi, MIT
Delivery costUnit price
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15.760: Cisco/MRP/ERP
1. Admin: Peapod, Questions/Feedback2. What were the lessons of the Beer Game?3. How does production control work in the beer game?4. Explain the purpose and logic of MRP. 5. What is the function of Cisco’s ERP system?
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Volatility Amplification in the Supply Chain:“The Bullwhip Effect”
Order Order Order InfoInfo Info
Retailer Wholesaler Distributor Factory How does production control work in the Beer Game?
Information lags
Over- and underordering Delivery lags SOLUTIONS:
Countercyclical MarketsMisperceptions of feedback Lumpiness in ordering
Countercyclical TechnologiesCollaborative channel mgmt.(Cincinnati Milacron & Boeing)
Chain accumulations www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Applying EOQ and Newsvendor models to setReorder Points and Reorder Quantities
(s,S) (ROP, ROQ), (min, max)
Q Q
Q Q
SS ROP
Q = 2RS = ROQ (REORDER QUANTITY) CK
ROP=Reorder Point = Expected Demand During the order lead time + safety stock = E{DDL} + SS
Prob {DDL≤ROP} = Cu/(Co+Cu) Cu=Cost of Underage (r-c in newsvendor); Co=Cost of Overage (c in newsvendor) But, Co with nonperishables is c x cost of holding ROP=SS+E{DDL}; DDL = X1 + X2 + . . . + XL; E{DDL} = E{L} x E{X} i.e., DDL has a mean of Expected lead time x Expected avg demand/unit time Variance{DDL}~Var{X} x E{L} + Var{L} x E{X2}
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What is the Purpose and Logic of MRP ?
Exception Report & Schedules
Master Production Schedule
Inventory Status
Bill of Materials
MRP: (Explosion
Offsets, Nets)
Engineering Changes
Inventory Transactions
Customer Orders
Forecasts
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What is the Purpose and Logic of MRP?
• Coordination of Production and Inventory in large, multi-stage production systems
• Used for - Scheduling & re-scheduling - Capacity Planning - Supplier coordination (internal & external)
• Timely dissemination of information • Time-phased production & procurement
- with lead time offsets & BOM explosions • Independent vs. Dependent demand • Requires centralized information system; hence ERP • Organizes large complex production and
delivery coordination requirements
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Criticisms of MRP
• Deterministic Model • Push system • poor data ==> GIGO • Self-fulfilling lead times • Difficult/costly ot install & maintain • Centralized command & control mindset
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Cisco’s End-to-End Integration for its Fulfillment Supply Chain
Cisco
Customers
Contract Manufacturers
ComponentSuppliers &Distributors
• New product development on-line with supply base
• Technology Supply Chain Design: Innovation through Acquisition
• Single enterprise information system • Dynamic replenishment, direct fulfillment,
merge in transit • Customer orders through Cisco
Connection online
Finished Product flows direct to customer via logistics supplier
Order info flows direct to Cisco and suppliers
Basic Design Principle: Arm’s length Relationship with Fulfillment Chain Partnerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Cisco’s Strategy for Technology Supply Chain Design
1.Integrate technology around the router tobe a communications network provider.
2. Leverage acquired technology with - sales muscle and reach - end-to-end IT - outsourced manufacturing - market growth
3. Leverage venture capital to supply R&D
Basic Design Principle: Acquisition Relationship with Technology Chain Partnerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Volatility Amplification in the Supply Chain:“The Bullwhip Effect”
Customer Retailer Distributor Factory Tier 1 Supplier Equipment
Information lags Delivery lags Over- and underordering Misperceptions of feedback Lumpiness in ordering
SOLUTIONS: Countercyclical Markets Countercyclical TechnologiesCollaborative channel mgmt.(Cincinnati Milacron & Boeing)
Chain accumulationswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Supply Chain Volatility Amplification:Machine Tools at the tip of the Bullwhip
“We are experiencing a 100-year flood.” J. Chambers, 4/16/01
See "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," E. Anderson, C. Fine & G. Parker Production and Operations Management,Vol. 9, No. 3, Fall 2000, pp. 239-261.
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LESSONS FROM A FRUIT FLY: CISCO SYSTEMS
1. KNOW YOUR LOCATION IN THE VALUE CHAIN
2. UNDERSTAND THE DYNAMICS OF VALUE CHAIN FLUCTUATIONS
3. THINK CAREFULLY ABOUT THE ROLE OF VERTICAL COLLABORATIVE RELATIONSHIPS
4. INFORMATION AND LOGISTICS SPEED DO NOT REPEAL BUSINESS CYCLES OR THE BULLWHIP.
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15.760 Class #8:Basic Concepts in Queueing
System Performance = f(System parameters)
Arrival rate ( λ )Output/throughput rate (
( λ �
))
Service rate ( µ )Inventory Level/Queue Size/ Service time ( M )
Line length Number of servers ( S )Waiting Time/Cycle Time ( W ) Queue/Buffer capacity ( R )Capacity or Server utilization ( ρ ) Capacity or Server utilization ( ρ )Probability that Queue is full ( Pfull ) Number of Service classes ( K )
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Fish Processing ExampleIn
put R
ate
(Ton
s per
mon
th)
4800
3600
600
0 4 8 12Time (Months)
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Fish Processing Example (con’t)λ = 3600 then 4800 then 600
µ=3000, R= unlimited
Freezer Inventory (Exhibit 3)
Average Inventory = 1/3 x (2400/2) + 1/3 x (9600 + 2400)/2 + 1/3 x (9600/2)
= (1200 + 6000 + 4800)/3 = 4000 tons www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Fish Processing Example (con’t)λ = 3600 then 4800 then 600
µ=3000, R= 2400
Freezer Inventory (Exhibit 4)
Average Inventory = 1/3 x (2400/2) + 1/3 x 2400 + 1/12 x (2400/2) + 1/4 x 0
= (1200/3 + 2400/3 + 1200/12) = 1300 tons www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Fish Processing Example (con’t)λ = 3600 then 4800 then 600
µ=3300, R= 2400
Freezer Inventory (Exhibit 5)
Average Inventory = 1/3 x (1200/2) + .8/12 x 1800+ 3.2/12 x (2400) + .89/12 x (2400/2)
= (200 + 120 + 640 + 89) = 1049 tons www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Fish Processing Example (con’t)λ = 3600 then 4800 then 600
Average Thruput Capacity Inventory per month Utilization
µ=3000, R=∞ 4000 tons 3000 (.63) 100%
µ=3000, R= 2400 1300 tons 2400 (.63) 80%
µ=3300, R= 2400 1049 tons 2600 (.63) 79%
Tradeoffs: Cost of processing capacity vs. Cost of Storage Capacity vs. Value of output (net of holding costs)
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Basic Concepts in Queueing:Capacity Utilization in Stochastic Systems
Suppose avg arrival rate = 1/minuteAvg service rate = 1.33/minute (or avg service time = 45 seconds)
0 1 2 3 4 5 6 7 8 9 10 time
1 1 .5 1 1 .5 .5 .5 1 .5 arrivals www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Basic Concepts in Queueing:Capacity Utilization in Stochastic Systems
System Performance = f(System parameters)
Capacity or Server utilization
ρ = λ / µ (arrival rate/service rate)
ρ = λ (S x µ)
ρ = λ x M
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Basic Concepts in Queueing:Little’s Law
System Performance = f(System parameters)
Conservation of Flows in Stochastic Systems
L = λ x W Avg Length of the Queue = Arrival rate x Avg Waiting time
600 MBA’s = 300/year x 2 years
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Basic Concepts in Queueing:Nonlinearities in Congestion in Stochastic Systems
If service times and interarrival times have exponentialdistributions, then
L= ρ2/(1-ρ)
W= ρ2/λ(1-ρ) ∆WA
T ot a
l wa it
in th
e qu e
u e
∆ ρ ∆ ρ
A
B
∆WB
0 1 (Arrival Rate / Service Rate = ρ)
= “congestion”www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Basic Concepts in Queueing:Nonlinearities in Congestion in Stochastic Systems
System Performance = f(System parameters)
With exponential (λ) interarrivals, and service times with mean = M and std dev = σ, Then
W= λ (M2 +σ2) 2(1-ρ)
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Volatility Amplification in the Supply Chain:“The Bullwhip Effect”
Order Order Order InfoInfo Info
Retailer Wholesaler Distributor Factory How does production control work in the Beer Game?
Information lags Delivery lags SOLUTIONS: Over- and underordering Countercyclical Markets
Countercyclical Technologies
Lumpiness in ordering Misperceptions of feedback Collaborative channel mgmt.
(Cincinnati Milacron & Boeing)Chain accumulations www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Management of Queues The Physics of Waiting Lines
– Number and type of servers – Waiting time, service time, and system time – Queue discipline – Number of people in queue – System utilization
0
Delay Cost
Capacity Cost
Total Cost
Cost
∆ ρ ∆ ρ A
B
∆WA
∆WB
0
Tota
l tim
e in
the q
ueue
1 1 Congestion (Arrival Rate / Service Rate)
Congestion(Arrival Rate / Service Rate)
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Management of QueuesSERVERS
The Psychology of Waiting Lines
CUSTOMERS
WAITING LINE
Propositions 1. Unoccupied time feels longer than occupied time2. Process waits feel longer than in process waits 3. Anxiety makes waits seem longer 4. Uncertain waits seem longer than known, finite waits5. Unexplained waits are longer than explained6. Unfair waits are longer than equitable waits7. The more valuable the service, the longer the customer will wait8. Solo waits feel longer than group waits
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15.760: National Cranberry Case1. Admin: Webvan case; UHS case2. What are the sources of variability in the NCC case? 3. What are the problems NCC is experiencing that should be
addressed? 4. Describe the Process Flow Diagram.5. Assess possible options for relieving truck waiting.6. How would you assess converting some dry bins to wet? 7. How would you assess whether you can begin at 8 am?8. How would you assess labor cost impacts?9. How would you deal with the distribution of wet/dry and volume
over the days of the season?10. Can you eliminate/reduce demand peaks?
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National Cranberry Process Flow Diagram
Unload
weighed/ graded
tested/ sampled
destone
dechaff dry
separate
Bag 667 bbl/hr
dry1-16
250 bbls =4000 bbls
both 17-24
250 bbls =2000 bbls
wet 25-27
3x400 bbls = 1200 bbls
2 x 1500 bbls/hr
1500 bbls/hr
5-10 min/truck
3 x 200 bbls/hr
3 x 400 bbls/hr
destone 2 x 1500 bbls/hr
dechaff 1500 bbls/hr
Bulk Truck 2000 bbl/hr
Bulk Bins 800 bbl/hr
Freeze
Freeze
dry
wet
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Wet Cranberry Inventory Buildup Assume: buildup 18000 x 70% wet =12600 bbl/day 12600/12=1050 bbls/hr; Plant begins operations at 11:00; Drying bottleneck @ 600 bbl/hr Truck waiting =
7500
6000
4500
3000
1500
4200
7800
1050x4
450x8
-600/hr
4600/600= 7.67hrs = 2:40 am No more trucks
3200/1050 = trucks begin waiting at 10:03 am
16.67 hrs x (4600/2)/75 = 511 hours
7:00 9:00 11:00 13:00 15:00 17:00 19:00 21:00 23:00 1:00 3:00
Plant is empty after 7800/600 = 13 hours after 19:00 or 8 am the next morning Total run time = 12600/600 = 21 hours www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Wet Cranberry Inventory Buildup Assume: buildup 18000 x 70% wet =12600 bbl/day 12600/12=1050 bbls/hr; Plant begins operations at 7:00; Drying bottleneck @ 600 bbl/hr Truck waiting =
7500
6000
4500
3000
1500
450x12 =5400
-600/hr 2200/600= 3.67hrs = 20:40 pmNo more trucks
3200/450 = 7.1 = trucks begin waiting at 14:06 pm
8.67 hrs x (2200/2)/75 = 127 hours
7:00 9:00 11:00 13:00 15:00 17:00 19:00 21:00 23:00 1:00 3:00
Plant is empty after 5400/600 = 9 hours after 19:00 or 4 am the next morning Total run time = 12600/600 = 21 hours www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Wet Cranberry Inventory Buildup Assume: buildup 18000 x 70% wet =12600 bbl/day 12600/12=1050 bbls/hr; Plant begins operations at 7:00; Drying bottleneck @ 800 bbl/hr Truck waiting = 0 !!
7500
6000
4500
3000
1500
250x12 =3000
3000/800= 3.75hrs = 20:45 pmProcessing complete
No truck buildup
7:00 9:00 11:00 13:00 15:00 17:00 19:00 21:00 23:00 1:00 3:00
Plant is empty after 3000/800 = 3.75 hours after 19:00 or 20;45 the next morning Total run time = 12600/800 = 15.75 hours; dry berry processing drops to 400/hr www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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15.760 Basic Concepts in Queueing
System Performance = f(System parameters)
Arrival rate ( λ )Output/throughput rate (
( λ �
))
Service rate ( µ )Inventory Level/Queue Size/ Service time ( M )
Line length Number of servers ( S )Waiting Time/Cycle Time ( W ) Queue/Buffer capacity ( R )Capacity or Server utilization ( ρ ) Capacity or Server utilization ( ρ )Probability that Queue is full ( Pfull ) Number of Service classes ( K )
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Kiwanee Dumpers:Capacity Analysis
Busy Day: Arrival rate = 18,000 bbl/day = 1500bbl/hr = 20 trucks/hr
L= ρ2/(1-ρ)
W= ρ2/λ(1-ρ)
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Basic Concepts in Queueing:Nonlinearities in Congestion in Stochastic Systems
If service times and interarrival times have exponentialdistributions, then
L= ρ2/(1-ρ)
W= ρ2/λ(1-ρ) ∆WA
T ot a
l wa it
in th
e qu e
u e
∆ ρ ∆ ρ
A
B
∆WB
0 1 (Arrival Rate / Service Rate = ρ)
= “congestion”www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Management of Queues The Physics of Waiting Lines
– Number and type of servers – Waiting time, service time, and system time – Queue discipline – Number of people in queue – System utilization
Congestion0
Delay Cost
Capacity Cost
Total Cost
Cost
∆ ρ ∆ ρ A
B
∆WA
∆WB
0 Congestion
Tota
l tim
e in
the q
ueue
1 1(Arrival Rate / Service Rate) (Arrival Rate / Service Rate) www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Management of QueuesSERVERS
The Psychology of Waiting Lines
CUSTOMERS
WAITING LINE
Propositions 1. Unoccupied time feels longer than occupied time2. Process waits feel longer than in process waits 3. Anxiety makes waits seem longer 4. Uncertain waits seem longer than known, finite waits5. Unexplained waits are longer than explained6. Unfair waits are longer than equitable waits7. The more valuable the service, the longer the customer will wait8. Solo waits feel longer than group waits
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15.760: University Health Service1. Admin:
Memory Jogger, The Goal, Mike Hammer2. What are the sources of variability at UHS? 3. What are the problems UHS is experiencing
that should be addressed? 4. Describe the Process Flow Diagram.5. How to usefully model this system? 6. Utilization and waiting for nurse practitioners.7. Utilization and waiting for physicians.8. Recommendations
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UHS Process Flow Diagram
Wait for Wait for Triage
Front desk
AVF form
Nurse Practioners
Dr. A
NP wait
AnyMD wait
Exit
Patients arrive
Triage
records
Dr. B
Dr. C www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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ilsources ofvariab ity
- Patients arrival rates by hour, day, week and season.- Number of MD's on duty - by time of day, day of week.- Number of NP's on duty - by time of day, day of week.- MD service rates by Doctor and patient ailment- NP service rate by nurse and patient ailment.- Triage service rate.- Triage coordinator allocation to MD - NPs.
Others- # of patients wanting to see a special NP or MD, - by hour, day, week.- Speed of filling out AVF forms.
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Patient Arrival Rates
The clinic is opened to patients from 8:00AM to 5:30PM, a total of 9.5 hrs. Staff are asked to stay until 6:00 PM, So the clinic serves patients 10 hours per day. For simplification,
we will assume that patients arrive over the 10 hrs.
Patient average arrival rate = λ =(143 pat/day)/10 hrs/day = 14.3 pat/hr
8 - 9:00 AM on Monday mornings is a peak hour.
Patient peak arrival rate = λ = 14.3 [average rate] X (163/143)[the Monday factor]
X (18.2/14.3)[the 8-9 AM factor] = 20.7 patients/hr www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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ASSUMPTIONS OF THE QUEUEING MODELS
Poisson arrivals/exponentialservicetimessteady stateρ < 1, when computingthe queue lengths
and waiting timesConstant# ofserversFIFO serviceSingle-line queue (to MD's)Infinite queue capacityIgnore special priority emergenciesIgnore special priority requests
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Triage and arrivalrates
Let’sinterpretthe second column ofdatain Exhibit6 as follows:28% ofpatients are triaged tothe NP queue,48% aretriaged to the queue forfirstavailableMD,and 24% queue up for a specific MD.(I.e.,let’s assume thefraction of patients thatrequestto see a specific NP is zero.)However,since 5% of patients seen by NP’s getsenton toMD’s(bottom of p.4),these patients waittwiceand are seen twice, sothe totalload on the systemmightbe thought ofas greaterthan 100% ofinitialdemand.
Therefore,let’s assume thatthe percentage of patientswho see an MD =24% + 48% + [(28%) x 0.05] =73.4% ofinitialarrivals and the arrivalratetothe NP queueis 28% ofinitialarrivals.
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Arrival Rates
Patients average arrivalrateto an NP
Average overweek,λ = 14.3 pat/hr(28%)= 4.0 pat/hr.
Average overpeak hourλ = 20.7 pat/hr(28%)= 5.8 pat/hr.
Patients average arrivalrateto an MD
Average overweek,λ = 14.3 pat/hr(73.4%) = 10.5pat/hr
Av. over peak hour λ = 20.7 pat/hr (73.4%) = 15.2 pat/hrwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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NumberofServers
(From exhibit4)Weekly average number ofNP servers = 3.15Average number of NP serversduring peak Monday hour =2Weekly average number ofMD servers = 2.9Average number of MD servers during peak Monday hour = 2
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l
il
utilization rate,length of queue and waitingtime forthe MD's and NP's.
Sadly, asinreal ife,data and modelsareimperfect. As a result,one must often makedecisions with admittedlyimperfectunderstanding ofthe systems under study.The data inthe case permit a range ofanalyticalapproaches,two of which arelustrated below.
The firstmethod uses asinputsthe expected service time,patient arrivalrates and numberof servers given inthe case to computeutilization rates. The second method uses aninputs waitingtime and patients arrivalratefrom the case to compute the queue length usingLittle'sformula.Then,the queuelengthcombined with the number ofservers gives theutilization rateusing table A2.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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METHOD #1
M, λ,S (from case) r by definition, ρ =λ M/S ρ, S L from Table A2. L, λ W(*)with Little'sformula, W = L/λ
(*compare with case data)
Method #2
W, λ L with Little'sformula,L= λ WL, S, ρ from Table A2ρ, λ, S M = λ/ρS by definition
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NP CalculationsA. Method #1
Average forthe Week. M = 32.8 min/patient(Ex5) =.547 hrs/pat S = 3.15(Ex4) λ = 4.0 patients/hour (above page) ρ = λ M/S = (4.0)(.547)/3.15 =.695 From table A-2, we have L = 1.15 patients W = L/λ = 1.15 pat/4.0 pat/hour = .29 hrs = 17 min
Peak Hour
M = 32.8 min/pat(above) =.547 hr/pat S = 2 (Exhibit4) λ = 5.8 patients/hour (above page) ρ = λM/S = (5.8)(.547)/2 = 1.58
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..
Method 2: Nurse PractitionersAverage forthe WeekW = 6.7 min =.112 hrsL = λW = 4.0 pat/hr(0.112 hrs)= .418 patientsS = 3.15 .from Table A2, ρ = 0.57
M = Sρ/λ = (3.15)(0.57)/4.0 =.449 hrs/patThus the service rateis1/(.449) =2.23 pat/hr and ρ/M = .57/.449 = 1.27 pat/hr,Peak Hour
S = 2.M =.449 hrs/pat,since we assume the sameservice rate as during regularhours,i.e.,theirservice rateisindependentofthe patients arrivalrate.ρ = λM/S = (5.8)(.449)/2 = 1.30, again greater than one, so inventory builds up.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Method #1 : MD CalculationsAverage for week
M = 19.4 minutes/patient= .323 hrs/patientS = 2.9(exhibit4)λ = 10.5 pat/hrρ = λM/S = 10.5(.323)/(2.9) =1.17,implyingthatqueues buildallday. Thisissuspicioussince thereis no indication that some patientscamp overnight orare sent home. Perhaps:
- triage sends patientsto NP's when theMD's arebusy.
- Staffstayslate
Peak Hour
M =.323 hrs/patient, S =2λ = 15.2 pat/hr, ρ = (15.2)(.323)/2 = 2.45 !!www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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MD CALCULATIONS: Method #2Average for Week
W = 25.2min = .42 hrsL = λW = 10.5pat/hr (.42 hr)=>4.4 patinqueue.Using S = 2.9 and L = 4.4in Table A-2 gives
ρ =.86 M = Sr/l=(2.9)(.86)/10.5= .238 hrs/pat Thus the service rateis1/.238 = 4.21 pat/hr and ρ/M = (.86)/.238 = 3.61 PATIENTS/hr, neither ofwhich is very close tothe reported value of3.1 patients perhour.
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LEARNING POINTS1. Queueing models do not predictthe customerwaiting times with great accuracy.Thiscould be because one or more oftheassumptions underlying the model was seriouslyviolated,oritcould be thatinaccurate datawas reported in the case.
2. Analysissuggeststhatthe MD's were moreheavilyloaded than the NP's,and thattheentire staff was heavilyloaded during peak hours.3. The modelsprovide astructureforthinkingaboutthe operating system.The formulas L= λ W,ρ = λM, and W = λ (M2 + σ2)/2(1-ρ) do stimulatethought abouttheimportantparameters oftheSystem,theirrelationships with each otherand the decision variables availableto Ms. Angell.
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1
TQM 15.760
TOTAL QUALITY MANAGEMENT
THEMES
FOUR LEVELS OF QUALITY
FOUR THOUGHT REVOLUTIONS Customers first Continuous Improvement Total Participation Societal Learning
ORGANIZATIONAL MANAGEMENT Information & Measurement Systems Education Incentive Systems Organizational Change
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2
Four Levels of Quality 1. FITNESS FOR STANDARD
-inspection oriented -no consciousness to customer/mkt
2. FITNESS FOR USE -Must satisfy customer need for use -Hotel shampoo & body oil
3. FITNESS FOR MARKET -Must achieve low cost as well as
1 & 2
high cost low cost
4. FITNESS FOR LATENT REQ'TS -Listening to the voice of the customer -V-8 engine, Swatch -Uncovering latent req't adds value
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3
==> need continuous innovation
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4
TQM: Four Thought Revolutions 1. Customer-First Revolution
(From "Product-out to "Market-in")
market-in
work specs
job descrip.
satisfy customers (internal & external)
means
purpose
satisfy?
yes
noimprove
Develop Product
product-out
output
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5
2. Continuous Improvement Revolution
Fundamental Concept: PDCA (Observe, Assess, Design, Intervene)
Quality Control: Manage known sources of variation
-process control charts -management by exception -ROI control
Reactive Quality Management: Problem solving -application of SQC tools
(Pareto anlysis, proeess flow chart, fishbone diagrams, histograms)
Proactive Quality Management: Finding hidden opportunities
MANAGEMENT BY FACT: "IN GOD WE TRUST;
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6
ALL OTHERS BRING DATA"
3. Total Participation Revolution
-Total Involvement of CEO (Leadership)
-Quality Specialist ----> All Employees
-Build Infrastructure: goals, training, promotion, feedback, diagnosis, etc.
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7
4. Societal Learning Revolution
Success stories need wide diffusion (Baldridge, Deming Awards)
In Japan: progression through -Process industries -Mass Production -Small Volume Manufacturing -Construction -Services
Role of outside change agents -Deming, Juran, Shiba
Role of University/Industry Consortia -MIT: Center for Quality Management
Leaders for Manufacturing
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8
PRINCIPLES OF LEADERSHIP
1. LEADERS LEAD BY EXAMPLE -LEADERS MUST BE ROLE MODELS -LIVE YOUR LIFE AS A LEADER
2. LEADERS LEAD BY THEIR COMMITMENT -STATE CLEARLY YOUR COMMITMENTS -DEMONSTRATE YOUR COMMITMENT -HONOR YOUR COMMITMENTS
3. SET STANDARDS FOR -DISCIPLINE -ETHICS -ENTHUSIASM
4. MAKE EACH EMPLOYEE FEEL THAT HE/SHE MATTERS
5. CELEBRATE/RECOGNIZE ACHIEVEMENTS
6. BE A GOOD LISTENER
7. BE CONSISTENT AND PREDICTABLE
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9
TQM GOAL:
HABITUAL, CONTINUOUS IMPROVEMENT IN PURSUIT OF
PERFECT PRODUCTION
-Zero Defects -Zero Inventories -Zero Lead Times & Cycle Times -Zero Injuries -Zero Machine Downtime -Zero Customer Returns -Zero Warranty Costs -Zero Absenteeism -Process Capability > 2 and incr. -Rapid Product Introduction -Rapid Learning -Teamwork -High Morale
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-Pride
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QUALITY INFORMATION SYSTEMS
OBJECTIVE: RAPID FEEDBACK From Customers:
-Field personnel reports -Customer interviews & surveys
From Competitors/External Studies: -Benchmarking
In the Production/Delivery System: Rapid Feedback Systems: Detailed,
Comprehensive, Fast -Who are customers/suppliers? -Faster flow times==>less tracking -Tight Feedback Loops -CIM oriented--much integration
Provide Data on:
-Defects, Downtime, Warranties, Returns -Inventories, Lead Times, Cycle Times -Injuries, Absenteeism, Turnover -Process Capability, Learning Rates -Vendor Quality
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-Quality Costs
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QUALITY DECISION TOOLS AND DATA ANALYSIS
DEMING: SIX SQC TOOLS THAT EVERYONE SHOULD KNOW AND USE
1. Pareto Analysis
2. Process Flow Chart
3. Fishbone (Cause & Effect) Diagrams
4. Histograms
5. Control Charts
6. Scatter Plots
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WE HAVE TOOLS FOR TWO TYPES OF DATA: 1. NUMERICAL DATA
-HISTOGRAMS -PARETO DIAGRAMS -CONTROL CHARTS -SCATTER PLOTS -PROCESS CAPABILITY
2. LANGUAGE DATA -CAUSE & EFFECT DIAGRAMS -KJ (or “LP” PROCESS
(AFFINITY DIAGRAMS) MANY OF THE LANGUAGE DATA TOOLS ARE NOT WIDELY TAUGHT IN THE WEST.
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Quality Economics -Macro: International Competitiveness -Micro: Quality/Productivity Relation
(Economics of DIRTFT) -Cost of Quality:
Careful Analysis and Accounting -Failure Costs -Appraisal Costs -Prevention Investments -Revenue effects of quality
Contributions of Taguchi
-Quality Loss Function -Two-step process for parameter optimization (control variance and mean)
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-Orthogonal Arrays for experimental design
PRODUCT DEVELOPMENT LEVERAGE APPROXIMATELY 75% OF LIFE CYCLE (DESIGN AND MANUFACTURING) COSTS ARE DETERMINED DURING THE PRODUCT DEVELOPMENT PROCESS
Concurrent Design of Products and Processes Whitney & Nevins, et al
McGraw-Hill 1989
PRODUCT DEVELOPMENT IN THE JAPANESE AUTOMOBILE INDUSTRY (COMPARED WITH U.S.):
--25% FASTER --50% FEWER ENGINEERING HOURS
(EUROPEANS ARE FARTHER BEHIND)Product Development Performance
Clark & Fujimoto HBS Press 1991
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ACTIVE PARTICIPATION OF ALL PLAYERS IS CRITICAL
Customer-driven Requirements Suppliers (Vendor Management)
Company-wide Involvement
-Manufacturing
-Marketing
-Engineering (Design of Products, Processes, Systems)
-Purchasing
-Quality Assurance
-Workforce Participation
-Distribution and Field Service
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-Personnel
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CONTINUOUS TRAINING AND EDUCATION -General Quality Concepts -Statistical Quality Control -Cost of Quality -Problem Solving -Decision Making -Teamwork -Experimental Design -Parameter Optimization -Customer/Supplier Analysis -Design for Manufacturability
WHO GETS WHAT TRAINING?
WHO DOES THE TRAINING?
WHO DESIGNS THE CURRICULUM?
MOTIVATION FOR LEARNING
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SUPPLY CHAIN MANAGEMENT
Schonberger on Supplier Development
-RELY ON FEWER, BETTER SUPPLIERS -"TREAT THEM LIKE FAMILY" -EMPHASIZE PARTNERSHIP WITH
ORGANIZATIONAL INTERACTION ON ALL LEVELS
SINGLE SOURCE MULTIPLE SOURCES ______________ ________________
Get to know each supplier better
QC is easier
DFM is easier
Short supply lines
less risk to supplier strikes/shutdowns
lower spot prices
less scrutiny of each
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SUPPLY CHAIN MANAGEMENT:
DEMONSTRATE TO CUSTOMERS:
Quality at the Source Process Capability Declining Nonconformities Declining WIP, LT, Space, Flow Dists Operators -cross-trained, doing Prev Maint -presenting on SPC, Setup Reduction -charting probs, processes/methods -trained in JIT/TQC Concurrent Design Competitive Analysis Flexibility of labor and equipment Dedicated Capacity Exact counts in standard containers
COMMITMENT TO World Class STATUS
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EMPLOYEE INVOLVEMENT
"IF A FIRM THAT UTILIZES THE MINDS OF ONLY 50% OF ITS EMPLOYEES COMPETES WITH A FIRM THAT UTILIZES THE MINDS OF 100% OF ITS EMPLOYEES, WHICH DO YOU THINK WILL PREVAIL?"
EI OBJECTIVES:
EMPLOYEE INITIATIVE OWNERSHIP ENTHUSIASM LOYALTY
EI METHODS:
STRONG LEADERSHIP TEAMWORK PROGRAMS RECOGNITION AND REWARDS INDIVIDUAL RESPONSIBILITY TRAINING AND TOOLS
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INCENTIVES
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IMPLEMENTATION OF TQM
-Major Cultural Transition (Trust as the lubricant)
-Education and Training are Critical
-Tailor the process to the specific firm
-Quality Improvement Teams (Harnessing the Collective Genius)
Top Management Leadership: -Importance of Quality -Goals and Objectives -Commitment to these Goals -Responsibility for these Goals
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Dr. W. Edwards Deming’s Fourteen Points 1. Create constancy of purpose for impr. of product and service. 2. Adopt the new philosophy -- poor quality cannot be tolerated. 3. Cease dependence on inspection to achieve quality. 4. End the practice of awarding contracts on the price tag alone; work with a single supplier.
5. Improve constantly and forever every process for planning, production, and service.
6. Institute training on the job.
7. Adopt and institute leadership.
8. Drive out fear.
9. Break down barriers among staff areas.
10. Eliminate slogans, exhortations, and targets for workers.
11. Eliminate numerical quotas for the workforce and numerical goals for management.
12. Remove barriers that rob people of their pride of workmanship. Eliminate the annual rating or merit system.
13. Institute a vigorous program of education and self-improvement for everyone.
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14. Put everybody in the company to work to accomplish the transformation.
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Some Words from Dr. W. Edwards Deming
“The prevailing system of management has destroyed our people. People are born with intrinsic motivation, self-esteem, dignity, curiousity to learn, joy in learning. The forces of destruction begin with toddlers--a prize for the best Halloween costume, grades in school, gold stars--and on up through the university. On the job, people, teams, divisions are ranked--reward for the one at the top, punishment for the one at the bottom.”
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-Top Management Leadership
-Habitual Continuous Improvement
-Rapid Feedback Systems (Who are customers/suppliers?)
-Data-Driven Decision Support Tools (Statistical Quality Control, Cost of Quality, Taguchi Methods)
-Continuous training and education
-Company-wide participation
-Supply-Chain Management
-TQM Implementation
-Employee Involvement
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29€
Measuring Quality
Customer Satisfaction Defect Rates Cost of Poor Quality Inventory Productivity Innovativeness Complexity Order Lead Times Manufacturing Cycle Times Product Development Cycle Times Injuries Machine Downtime Absenteeism and Turnover Changeover time improvements Rate of Product Introduction Rates of Learning and Process Imp. Workforce Training and Education Workforce Suggestions
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Teamwork, Morale, Pride Vendor Cooperation
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Baldridge Quality Award Criticisms 1. requires large expenditures
2. fails to predict financial performance
3. not focused on superior product or service quality
Judging 1. Deployment - horizontal and vertical
2. Integration - alignment, communication - speed
Legacy Spirit of Cooperation
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Baldridge Quality Award Categories for Scoring 1. Leadership--symbolism & involvement
2. Info systems/analysis--internal, benchmk
3. Strategic Quality Planning Plans and Goals that are concrete, focused, integrated, aggressive
4. Human Resource Utilization -empowerment, teamwork, skills
5. Quality Assurance of Pdts & Services -process quality drives product quality
6. Quality Results -data on quality and defects, etc.
7. Customer Satisfaction -systems and results
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i
33€
Award's Merits
stimulate debate raise consciousness decathalon: composite
Award's Demer ts
ignores finan. perf. downplays product qua. self-nominating no definition of quality examiners also consult aims too low thermometer
-not instructive philosophically agnostic not focused on
world-class too process oriented bureaucratic
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Donald Berwick
"Controlling Variation in Health Care"
Subject: Control & Reduction of Variation
TQM = customer satisfaction + organ. culture (empowerment) + continuous improvement
Concept of variation categorized by -special causes -common causes
Identify disconnected alarm systems
Beware: local excellence, systemic garbage
Tells what (articulately) but not how
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35€
Peter Senge "Building Learning Organizations: The Real Message of the Quality Movement"
First Wave of Quality: -champion continuous improvement -remove impediments that disempower
people -support new practices
Second Wave of Quality: Improve Management Processes The industrial engineering of managment
work
Third Wave of Quality -institutionalize learning w/5 disciplines:
Shared Vision Personal Mastery Mental Models Team Learning Systems Modeling
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Intrinsic vs. Extrinsic motivation
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Schaffer and Thompson
Successful Change Programs Begin with Results
The Activity-Centered Fallacy:
1. Not keyed to specific results
2. Too large-scale and diffused
3. Results is a four-letter word (avoid appearance of short-termism)
4. Delusional Measurements
5. Staff and Consultant Driven
6. Bias to orthodoxy, not empiricism
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THE TIMELESS SECRETS OF INDUSTRIAL SUCCESS (R. H. HAYES, HARVARD UNIVERSITY)
1. BEWARE OF COMPLACENCY
2. CONTINUALLY ENLIST THE HELP OF EMPLOYEES TO IMPROVE PRODUCT AND PROCESS
3. DENY EVERY INCH TO COMPETITORS AND POTENTIAL COMPETITORS
4. STUDY COMPETITORS' SOURCES OF SUCCESS
5. DON'T BE TOO RATIONAL
6. YOU ARE NEVER DONE
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Results Driven
1. Introduce Managerial and Process innovations only as needed
2. Empirical testing reveals what works
3. Frequent reinforcement energizes
4. Use lessons of each phase to design next phase (i.e., continuous process)
How to get started
1. Create the context and Identify the crucial business challenges
2. Ask each unit for a few ambitious short-term goals
3. Monitor progress, capture the essential learning, reformulate strategy
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4. Institutionalize only what works FALSE STARTS & FAILURE MODES IN TQM PROGRAMS
1. TRAINING CAPACITY
2. RESISTANCE TO CHANGE
3. FEAR OF FIRING
4. CAPITAL CRUNCH
5. WORK OVERLOAD
6. SATISFIED CUSTOMERS
7. COST OF QUALITY
8. LOVED TO DEATH (institutionalized)
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TQM 15.760
TOTAL QUALITY MANAGEMENT
FOUR LEVELS OF QUALITY FOUR THOUGHT REVOLUTIONS Customers firstContinuous ImprovementTotal ParticipationSocietal Learning
ORGANIZATIONAL MANAGEMENTInformation & Measurement SystemsEducationIncentive SystemsOrganizational Change
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Four Levels of Quality 1. FITNESS FOR STANDARD
-inspection oriented -no consciousness to customer/mkt
2. FITNESS FOR USE -Must satisfy customer need for use -Hotel shampoo & body oil
3. FITNESS FOR MARKET -Must achieve low cost as well as 1 & 2
4. FITNESS FOR LATENT REQ'TS -Listening to the voice of the customer -V-8 engine, Swatch -Uncovering latent req't adds value
==> need continuous innovation www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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TQM: Four Thought Revolutions
1. Customer-First Revolution
From "Product-out (PUSH what you can do)
to
"Market-in” (Learn and develop what the market wants)
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PRODUCT DEVELOPMENT LEVERAGE
APPROXIMATELY 75% OF LIFE CYCLE (DESIGN AND MANUFACTURING) COSTS ARE DETERMINED DURING THE PRODUCT DEVELOPMENT PROCESS
See Concurrent Design of Products and Processes Whitney & Nevins, et al McGraw-Hill 1989
PRODUCT DEVELOPMENT IN THE JAPANESE AUTO INDUSTRY (COMPARED WITH U.S.):--25% FASTER--50% FEWER ENGINEERING HOURS (EUROPEANS ARE FARTHER BEHIND)
see Product Development Performance Clark, K. & Fujimoto, T. HBS Press 1991
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DEMONSTRATE TO CUSTOMERS:Quality at the SourceProcess CapabilityDeclining NonconformitiesDeclining WIP, LT, Space, Flow DistsOperators
-cross-trained, doing Prev Maint -presenting on SPC, Setup Reduction-charting probs, processes/methods-trained in JIT/TQC
Concurrent DesignCompetitive AnalysisFlexibility of labor and equipmentDedicated CapacityExact counts in standard containers
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2. Continuous Improvement Revolution Fundamental Concept: PDCA
(Observe, Assess, Design, Intervene) Quality Control:
Manage known sources of variation-process control charts-management by exception-ROI control
Reactive Quality Management:Problem solving-application of SQC tools
(Pareto anlysis, proeess flow chart,fishbone diagrams, histograms)
Proactive Quality Management:Finding hidden opportunities
MANAGEMENT BY FACT: "IN GOD WE TRUST;
ALL OTHERS BRING DATA" www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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QUALITY DECISION TOOLS AND DATA ANALYSIS
DEMING: SIX SQC TOOLS THAT EVERYONE SHOULD KNOW AND USE
1. Pareto Analysis
2. Process Flow Chart
3. Fishbone (Cause & Effect) Diagrams
4. Histograms
5. Control Charts
6. Scatter Plotswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Donald Berwick
"Controlling Variation in Health Care"
Subject: Control & Reduction of Variation TQM = customer satisfaction +
organ. culture (empowerment) + continuous improvement
Concept of variation categorized by -special causes -common causes
Identify disconnected alarm systems Beware: local excellence, systemic garbage
Tells what (articulately) but not how
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169www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
QUALITY INFORMATION SYSTEMS OBJECTIVE: RAPID FEEDBACK From Customers: -Field personnel reports
-Customer interviews & surveys From Competitors/External Studies:
-Benchmarking In the Production/Delivery System:Rapid Feedback Systems: Detailed, Comprehensive, Fast
-Who are customers/suppliers?-Faster flow times==>less tracking-Tight Feedback Loops
Provide Data on: -Defects, Downtime, Warranties, Returns -Inventories, Lead Times, Cycle Times-Injuries, Absenteeism, Turnover-Process Capability, Learning Rates-Vendor Quality-Quality Costs www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Measuring QualityCustomer Satisfaction Defect Rates Cost of Poor QualityInventoryProductivityInnovativeness ComplexityOrder Lead Times Manufacturing Cycle TimesProduct Development Cycle TimesInjuriesMachine Downtime Absenteeism and Turnover Changeover time improvementsRate of Product Introduction Rates of Learning and Process Imp.Workforce Training and EducationWorkforce SuggestionsTeamwork, Morale, Pride Vendor Cooperation
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WE HAVE TOOLS FOR TWO TYPES OF DATA:
1. NUMERICAL DATA -HISTOGRAMS -PARETO DIAGRAMS -CONTROL CHARTS -SCATTER PLOTS -PROCESS CAPABILITY
2. LANGUAGE DATA -CAUSE & EFFECT DIAGRAMS -KJ (or “LP” PROCESS
(AFFINITY DIAGRAMS)
MANY OF THE LANGUAGE DATA TOOLSARE NOT WIDELY TAUGHT IN THE W EST.
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WWW.BSSVE.IN
Quality Economics -Macro: International Competitiveness -Micro: Quality/Productivity Relation
(Economics of DIRTFT) -Cost of Quality:
Careful Analysis and Accounting -Failure Costs -Appraisal Costs -Prevention Investments -Revenue effects of quality
Contributions of Taguchi -Quality Loss Function -Two-step process for parameter optimization
(control variance and mean) -Orthogonal Arrays for experimental design
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3. Total Participation Revolution -Total Involvement of CEO (Leadership) -Quality Specialist ----> All Employees -Build Infrastructure: goals, training,
promotion, feedback, diagnosis, etc.
Customer-driven Requirements Suppliers (Vendor Management) Company-wide Involvement
-Manufacturing -Marketing -Engineering (Design of Products, Processes, Systems) -Purchasing -Quality Assurance -Workforce Participation -Distribution and Field Service -Personnel www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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EMPLOYEE INVOLVEMENT "IF A FIRM THAT UTILIZES THE MINDS OF ONLY 50% OF ITS EMPLOYEES COMPETES WITH A FIRM THAT UTILIZES THE MINDS OF 100% OF ITS EMPLOYEES, WHICH DO YOU THINK WILL PREVAIL?" EI OBJECTIVES: EMPLOYEE INITIATIVE
OWNERSHIP ENTHUSIASM LOYALTY
EI METHODS: STRONG LEADERSHIP TEAMWORK PROGRAMS RECOGNITION AND REWARDS INDIVIDUAL RESPONSIBILITY TRAINING AND TOOLS INCENTIVES
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PRINCIPLES OF LEADERSHIP 1. LEADERS LEAD BY EXAMPLE
-LEADERS MUST BE ROLE MODELS -LIVE YOUR LIFE AS A LEADER
2. LEADERS LEAD BY THEIR COMMITMENT -STATE CLEARLY YOUR COMMITMENTS -DEMONSTRATE YOUR COMMITMENT -HONOR YOUR COMMITMENTS
3. SET STANDARDS FOR -DISCIPLINE -ETHICS -ENTHUSIASM
4. MAKE EACH EMPLOYEE FEEL THAT HE/SHE MATTERS 5. CELEBRATE/RECOGNIZE ACHIEVEMENTS 6. BE A GOOD LISTENER 7. BE CONSISTENT AND PREDICTABLE www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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CONTINUOUS TRAINING AND EDUCATION
-General Quality Concepts-Statistical Quality Control-Cost of Quality-Problem Solving-Decision Making-Teamwork-Experimental Design-Parameter Optimization-Customer/Supplier Analysis-Design for Manufacturability
WHO GETS WHAT TRAINING?
WHO DOES THE TRAINING?
WHO DESIGNS THE CURRICULUM?
MOTIVATION FOR LEARNINGwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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TQM GOAL:HABITUAL, CONTINUOUS IMPROVEMENT IN PURSUIT OF
PERFECT PRODUCTION -Zero Defects-Zero Inventories-Zero Lead Times & Cycle Times-Zero Injuries-Zero Machine Downtime-Zero Customer Returns -Zero Warranty Costs-Zero Absenteeism-Process Capability > 2 and incr.-Rapid Product Introduction-Rapid Learning-Teamwork-High Morale-Pride
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4. Societal Learning Revolution Success stories need wide diffusion
(Baldridge, Deming Awards) In Japan: progression through
-Process industries -Mass Production -Small Volume Manufacturing -Construction -Services
Role of outside change agents -Deming, Juran, Shiba
Role of University/Industry Consortia -MIT: Center for Quality Management
Leaders for Manufacturing www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Baldridge Quality Award Categories for Scoring 1. Leadership--symbolism & involvement 2. Info systems/analysis--internal, benchmk 3. Strategic Quality Planning
Plans and Goals that are concrete, focused, integrated, aggressive
4. Human Resource Utilization -empowerment, teamwork, skills
5. Quality Assurance of Pdts & Services -process quality drives product quality
6. Quality Results -data on quality and defects, etc.
7. Customer Satisfaction -systems and results
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Award's Merits
stimulate debate raise consciousness decathalon: composite
Award's Demerits
ignores finan. perf. downplays product qua. self-nominating no definition of quality examiners also consult aims too low thermometer
-not instructive philosophically agnostic not focused on
world-class too process oriented bureaucratic
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Baldridge Quality Award Criticisms 1. requires large expenditures 2. fails to predict financial performance 3. not focused on superior product or service quality
Judging 1. Deployment - horizontal and vertical 2. Integration - alignment, communication
- speed
Legacy
Spirit of Cooperation www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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IMPLEMENTATION OF TQM
-Major Cultural Transition (Trust as the lubricant)
-Education and Training are Critical
-Tailor the process to the specific firm
-Quality Improvement Teams (Harnessing the Collective Genius)
Top Management Leadership: -Importance of Quality -Goals and Objectives -Commitment to these Goals -Responsibility for these Goals
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DEMING’S FOURTEEN POINTS
1. Create constancy of purpose for improvement of product and service.2. Adopt the new philosophy -- poor quality cannot be tolerated.3. Cease dependence on inspection to achieve quality.4. End the practice of awarding contracts on the price tag alone; work with a single supplier.5. Improve constantly and forever every process for planning, production, and service.6. Institute training on the job.7. Adopt and institute leadership.8. Drive out fear.9. Break down barriers among staff areas.10. Eliminate slogans, exhortations , and targets for workers.11. Eliminate numerical quotas for the workforce and numerical goals for management.12. Remove barriers that rob people of their pride of workmanship. Eliminate the annual rating or merit system.13. Institute a vigorous program of education and self-improvement for everyone.14. Put everybody in the company to work to accomplish the transformation.
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Some Words from Dr. W. Edwards Deming
“The prevailing system of management has destroyed our people. People are born with intrinsic motivation, self-esteem, dignity, curiousity to learn, joy in learning. The forces of destruction begins with toddlers--a prize for the best Halloween costume, grades in school, gold stars--and on up through the university. On the job, people, teams, divisions are ranked--reward for the one at the top, punishment for the one at the bottom.”
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-Top Management Leadership -Habitual Continuous Improvement-Rapid Feedback Systems (Who are customers/suppliers?) -Data-Driven Decision Support Tools
(Statistical Quality Control, Cost of Quality, Taguchi Methods)
-Continuous training and education
-Company-wide participation -Supply-Chain Management -TQM Implementation -Employee Involvement
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Peter Senge "Building Learning Organizations:
The Real Message of the Quality Movement" First Wave of Quality:
-champion continuous improvement-remove impediments that disempower people-support new practices
Second Wave of Quality:Improve Management ProcessesThe industrial engineering of management work
Third Wave of Quality-institutionalize learning w/5 disciplines:
Shared Vision Personal MasteryMental Models Team LearningSystems Modeling
Intrinsic vs. Extrinsic motivation www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Schaffer and Thompson
Successful Change Programs Begin with Results
The Activity-Centered Fallacy:
1. Not keyed to specific results
2. Too large-scale and diffused
3. Results is a four-letter word (avoid appearance of short-termism)
4. Delusional Measurements
5. Staff and Consultant Driven
6. Bias to orthodoxy, not empiricismwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Results Driven 1. Introduce Managerial and Process
innovations only as needed 2. Empirical testing reveals what works 3. Frequent reinforcement energizes 4. Use lessons of each phase to design next
phase (i.e., continuous process) How to get started 1. Create the context and
Identify the crucial business challenges 2. Ask each unit for a few ambitious short-term goals 3. Monitor progress, capture the essential
learning, reformulate strategy Institutionalize only what works
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FALSE STARTS & FAILURE MODES IN TQM PROGRAMS
1. TRAINING CAPACITY
2. RESISTANCE TO CHANGE
3. FEAR OF FIRING
4. CAPITAL CRUNCH
5. WORK OVERLOAD
6. SATISFIED CUSTOMERS
7. COST OF QUALITY
8. LOVED TO DEATH (institutionalized)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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JUST-IN-TIME PRODUCTION OBJECTIVE:
-Constant Improvement of the Production/Delivery System, as measured by Quality, Cost, Lead Times, Service, Flexibility
METHOD: -Simplify the Production System -Rapid Feedback on Problems Thru
Tightly Integrated Production -Pull System for Inventory Control -Exploratory Stress to Drive Improvement -Effective Management of Capital Equipment
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SIMPLIFY THE PRODUCTION SYSTEM
Fewer SuppliersReduced Parts CountsFocused FactoriesScheduling by rate, not lotsFewer storage containersMore Frequent DeliveriesSmaller PlantsShorter DistancesLess ReportingFewer InspectorsLess Buffer StockFewer Job Classifications
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RAPID FEEDBACK "A DEFECT IS A TREASURE"
ACTION STEPS:
1. REMOVE FEEDBACK DELAYS --ESPECIALLY WIP INVENTORIES
2. LINE WORKERS STOP PRODUCTION WHEN PROBLEMS ARISE
BENEFITS: INSTANT FEEDBACK TO PROBLEM SOURCE
JOB ENRICHMENT -UTILIZE MENTAL POWERS
INCENTIVES TO AVOID DEFECTS -CAUSE IS EASILY TRACEABLE
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PULL SYSTEM FOR PRODUCTION AND INVENTORY CONTROL
PRODUCE EXACTLY -WHAT IS NEEDED -WHEN IT IS NEEDED
KANBAN OR CARD CONTROL REPLACES COSTLY COMPUTERIZED PLANNING AND TRACKING SYSTEM
PROBLEMS ARE QUICKLY FELT THROUGHOUT THE SYSTEM
ELIMINATES JUST-IN-CASE INVENTORIES
REQUIRES -FLEXIBILITY -FAST CHANGEOVERS -SMALL LOT SIZES
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EXPLORATORY STRESS TO DRIVE IMPROVEMENT TO EXPOSE PROBLEMS
REDUCE BUFFERSREDUCE CYCLE TIME TARGETSREDUCE LABOR ALLOCATIONS
PROBLEM EXPOSURE DRIVES EMPLOYEES TO WORK ON
SETUP REDUCTION VARIABILITY REDUCTION CYCLE TIME REDUCTION
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MANAGING CAPITAL EQUIPMENT
TOTAL PREVENTIVE MAINTENANCE
-ASSURES BETTER UPTIME RELIABILITY -OFTEN PROVIDES MORE TOTAL UPTIME -OPERATORS PERFORM REGULAR MAINT.
PRE-AUTOMATION
-PRODUCT DESIGN FOR ASSEMBLY -REDUCE PARTS COUNT -UTILIZE MODULARITY -SET SPECICATIONS EFFICIENTLY
Know cust. needs and mfg capability
-PROCESS DESIGN FOR ASSEMBLY -REDUCE FLOW DISTANCES -UTILIZE FAIL-SAFE DEVICES -LOCATE TOOLS CONVENIENTLY -STREAMLINE BEFORE AUTOMATING
ADD CAPITAL INCREMENTALLY
-SEVERAL SMALL MACHINES MORE FLEXIBLE -MATCH SUPPLY WITH DEMAND -LESS CYCLE INVENTORY NEEDED
-MOVABILITY PERMITS DEDICATED CELLS
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JIT IMPLEMENTATION ISSUES
1. INVENTORY AS A SECURITY BLANKET 2. REDUCE INVENTORY CARRYING COSTS
VS. REDUCE SOURCES OF VARIABLIITY
3. SUPPLIER MANAGEMENT-BULLYING VS. COOPERATION
-HOW TO SHARE THE PAINS & GAINS -GET OWN HOUSE IN ORDER FIRST?
4. PHYSICAL DISTANCES-BETWEEN PLANTS
-BETWEEN WORKSTATIONS 5. COOPERATIVE EFFORTS AMONG
-MANUFACTURING -MARKETING -PURCHASING -ENGINEERING
6. PATIENCE www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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760 Class #13: JUST-IN-TIME/TPS
1. Admin:2. What are the principles of TPS?3. Why are they so hard to copy & get right?4. What is the nature of TMM-Georgetown’s seat
problem. 5. What should they do?
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JUST-IN-TIME PRODUCTION OBJECTIVE:
-Constant Improvement of the Production/Delivery System, as measured by Quality, Cost, Lead Times, Service, Flexibility
METHOD: -Simplify the Production System -Rapid Feedback on Problems Thru
Tightly Integrated Production -Pull System for Inventory Control -Exploratory Stress to Drive Improvement -Effective Management of Capital Equipment
www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
199www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
SIMPLIFY THE PRODUCTION SYSTEM
Fewer SuppliersReduced Parts CountsFocused FactoriesScheduling by rate, not lotsFewer storage containersMore Frequent DeliveriesSmaller PlantsShorter DistancesLess ReportingFewer InspectorsLess Buffer StockFewer Job Classifications
www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
200www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
RAPID FEEDBACK "A DEFECT IS A TREASURE"
ACTION STEPS:
1. REMOVE FEEDBACK DELAYS --ESPECIALLY WIP INVENTORIES
2. LINE WORKERS STOP PRODUCTION WHEN PROBLEMS ARISE
BENEFITS: INSTANT FEEDBACK TO PROBLEM SOURCE
JOB ENRICHMENT -UTILIZE MENTAL POWERS
INCENTIVES TO AVOID DEFECTS -CAUSE IS EASILY TRACEABLE
www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
201www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
PULL SYSTEM FOR PRODUCTION AND INVENTORY CONTROL
PRODUCE EXACTLY -WHAT IS NEEDED -WHEN IT IS NEEDED
KANBAN OR CARD CONTROL REPLACES COSTLY COMPUTERIZED PLANNING AND TRACKING SYSTEM
PROBLEMS ARE QUICKLY FELT THROUGHOUT THE SYSTEM
ELIMINATES JUST-IN-CASE INVENTORIES
REQUIRES -FLEXIBILITY -FAST CHANGEOVERS -SMALL LOT SIZES
www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
202www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
EXPLORATORY STRESS TO DRIVE IMPROVEMENT TO EXPOSE PROBLEMS
REDUCE BUFFERSREDUCE CYCLE TIME TARGETSREDUCE LABOR ALLOCATIONS
PROBLEM EXPOSURE DRIVES EMPLOYEES TO WORK ON
SETUP REDUCTION VARIABILITY REDUCTION CYCLE TIME REDUCTION
www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
203www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
MANAGING CAPITAL EQUIPMENT
TOTAL PREVENTIVE MAINTENANCE
-ASSURES BETTER UPTIME RELIABILITY -OFTEN PROVIDES MORE TOTAL UPTIME -OPERATORS PERFORM REGULAR MAINT.
PRE-AUTOMATION
-PRODUCT DESIGN FOR ASSEMBLY -REDUCE PARTS COUNT -UTILIZE MODULARITY -SET SPECICATIONS EFFICIENTLY
Know cust. needs and mfg capability
-PROCESS DESIGN FOR ASSEMBLY -REDUCE FLOW DISTANCES -UTILIZE FAIL-SAFE DEVICES -LOCATE TOOLS CONVENIENTLY -STREAMLINE BEFORE AUTOMATING
ADD CAPITAL INCREMENTALLY
-SEVERAL SMALL MACHINES MORE FLEXIBLE -MATCH SUPPLY WITH DEMAND -LESS CYCLE INVENTORY NEEDED
-MOVABILITY PERMITS DEDICATED CELLS
www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
204www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in
WWW.BSSVE.IN
JIT IMPLEMENTATION ISSUES
1. INVENTORY AS A SECURITY BLANKET 2. REDUCE INVENTORY CARRYING COSTSVS.REDUCE SOURCES OF VARIABLIITY3. SUPPLIER MANAGEMENT
-BULLYING VS. COOPERATION -HOW TO SHARE THE PAINS & GAINS -GET OWN HOUSE IN ORDER FIRST?
4. PHYSICAL DISTANCES -BETWEEN PLANTS -BETWEEN WORKSTATIONS
5. COOPERATIVE EFFORTS AMONG -MANUFACTURING -MARKETING -PURCHASING -ENGINEERING
6. PATIENCE www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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The Logic and Processes of JIT Improvement
QualityProblems
+ +
Qual. Imp. Processes
+
Setup Times & Setup Costs System Problem
Variability Invisibility
P{D≤µ+kσ}=Cu/(Co+Cu) + ρ2 [ σA
2 + σSL≈ (1-ρ2 ) [ µA2 + µS
Inventories &EOQ = CK + 2RS
Rapid Feedback
2 ]/2 2 ]
Lead TimesL=λW
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See Karmarkar: Getting Control of JIT, HBR, Sept-Oct 1989
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Strategic Sourcing andSupply Chain Design
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1. Fruit Flies & Temporary Advantage
Strategic Sourcing andSupply Chain Design
1. Fruit Flies & Temporary Advantage 2. Supply Chain Design & 3-DCE
3. eBusiness Phenomena: Business Model Innovation
4. Technology Roadmapping: A telecom example
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Business System Design in a Fast-Clockspeed World:
Evolution in the industrial world: INFOTAINMENT is faster than MICROCHIPS is faster than AUTOS evolve faster than AIRCRAFT evolve faster than MINERAL EXTRACTION THE KEY TOOL: Cross-INDUSTRY Benchmarking of Dynamic Forces
Study the Industry Fruitflies Evolution in the natural world:
FRUITFLIES evolve faster than
MAMMALS evolve faster than
REPTILES
THE KEY TOOL:
Cross-SPECIES Benchmarking of Dynamic Forces
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Cisco’s End-to-End Integration for its Fulfillment Supply Chain
Cisco
Customers
Contract Manufacturers
ComponentSuppliers &Distributors
• New product development on-line with supply base
• Technology Supply Chain Design: Innovation through Acquisition
• Single enterprise information system • Dynamic replenishment, direct fulfillment,
merge in transit • Customer orders through Cisco
Connection online
Finished Product flows direct to customer via logistics supplier
Order info flows direct to Cisco and suppliers
Basic Design Principle: Arm’s length Relationship with Fulfillment Chain Partnerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Cisco’s Strategy for Technology Supply Chain Design
1.Integrate technology around the router tobe a communications network provider.
2. Leverage acquired technology with - sales muscle and reach - end-to-end IT - outsourced manufacturing - market growth
3. Leverage venture capital to supply R&D
Basic Design Principle: Acquisition Relationship with Technology Chain Partnerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Volatility Amplification in the Supply Chain:“The Bullwhip Effect”
Customer Retailer Distributor Factory Tier 1 Supplier Equipment
Information lags Delivery lags SOLUTIONS: Over- and underordering Countercyclical Markets
Countercyclical Technologies
Lumpiness in ordering Misperceptions of feedback Collaborative channel mgmt.
(Cincinnati Milacron & Boeing)Chain accumulations
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Supply Chain Volatility Amplification:Machine Tools at the tip of the Bullwhip
“We are experiencing a 100-year flood.” J. Chambers, 4/16/01
See "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," E. Anderson, C. Fine & G. Parker Production and Operations Management,Vol. 9, No. 3, Fall 2000, pp. 239-261.
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LESSONS FROM A FRUIT FLY:CISCO SYSTEMS
1.KNOW YOUR LOCATION IN THE VALUE CHAIN
2. UNDERSTAND THE DYNAMICS OF VALUE CHAIN FLUCTUATIONS
3. THINK CAREFULLY ABOUT THE ROLE OF VERTICAL COLLABORATIVE RELATIONSHIPS
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INDUSTRY CLOCKSPEED IS A COMPOSITE:OF PRODUCT, PROCESS, AND ORGANIZATIONAL
CLOCKSPEEDS
Mobile Phone INDUSTRY CLOCKSPEED
THE Mobile Phone product technology THE
Mobile Phone PRODUCTION
PROCESS process technology
THEMobile Phone
MANUFACTURING COMPANY
organization
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Mobile Phone System CLOCKSPEED is a mix of Transmission Standards, Software and Handsets
HAND SET
Mobile Phone System TRANSMISSION
STANDARD slow clockspeed
SOFTWARE APPLICATIONS
medium clockspeed OPERATING SERVICES
fast clockspeed
SYSTEM fast clockspeedslow clockspeed
ISSUE: THE FIRMS THAT ARE FORCED TO RUN AT THE FASTEST CLOCKSPEED ARE THE MOST LIKELY TO STAY AHEAD OF THE GAME.
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Clockspeed drivesBusiness Strategy Cadence
Dynamics between New Projects and Core Capability Development: PROJECTS MUST MAKE MONEY AND BUILD CAPABILITIES
CORE CAPABILITIES
NEW PROJECTS (New products, new processes, new suppliers)
See Leonard-Barton, D. Wellsprings of Knowledgewww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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The Strategic Leverage of Supply Chain Design:Who let Intel Inside?
1980: IBM designs a product, a process, & supply chain
Customers
IBMIntel Inside
Intel
Microsoft The Outcome:
A phenomenally successful product design A disastrous value chain design (for IBM)
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LESSONS FROM A FRUIT FLY:THE PERSONAL COMPUTER
1. BEWARE OF INTEL INSIDE (Regardless of your industry)
2. MAKE/BUY IS NOT ABOUT WHETHER IT IS TWO CENTS CHEAPER OR TWO DAYS FASTER TO OUTSOURCE VS. INSOURCE
3. SUPPLY CHAIN DESIGN CAN DETERMINE THE FATE OF COMPANIES AND INDUSTRIES, AND OF PROFIT AND POWER
4. THE LOCUS OF VALUE CHAIN CONTROL CAN SHIFT IN UNPREDICTABLE WAYS
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Vertical Industry Structurewith Integral Product Architecture
Computer Industry Structure, 1975-85
IBM DEC BUNCH Microprocessors
Operating Systems
Peripherals
Applications Software
Network Services
Assembled Hardware
All Products
All Products
All Products
(See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)
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Horizontal Industry Structurewith Modular Product Architecture
Computer Industry Structure, 1985-95
Microprocessors
Operating Systems
Peripherals
Applications Software
Network Services
Assembled Hardware
Microsoft Mac Unix
Intel Moto AMD etc
HP Seagate etcEpson etc
Microsoft NovellLotus etc
AOL/Netscape EDS etcMicrosoft
HP Dell etcIBMCompaq (See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)
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THE DYNAMICS OF PRODUCT ARCHITECTURE AND VALUE CHAIN STRUCTURE:
THE DOUBLE HELIX
See Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”
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Shimano Inside
THE DOUBLE HELIXIN OTHER INDUSTRIES
• TELECOMMUNICATIONS--– “MA BELL” was Vertical /Integral – BABY BELLS & LONG LINES & CELLULAR are
Horizontal/Modular – Today’s Verizon is going back to Vertical /Integral
• AUTOMOTIVE--– Detroit in the 1890’s was Horizontal/Modular – Ford & GM in the mid 1900’s were Vertical /Integral – Today’s Auto Industry is going back to Horizontal/Modular
• TELEVISION--– RCA was Vertical /Integral – 1970’S THROUGH 1990’S were Horizontal/Modular – Today’s media giants are going back to Vertical /Integral
• BICYCLES--– Safety Bikes to 1890’s boom to Schwinn to Shimano Inside
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Controlling the Chain Through Distribution:The End of P&G Inside ?
• Controlling the Channel Through Closeness to Customers: • consumer research, pricing, promotion, product development
Customers
Retailer
Retailer
Retailer
P&G
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Controlling the Chain Through Distribution:Beware of Walmart Outside
Controlling the Channel Through Closeness to Customers: Chain Proximity
Retailer
Retailer
Retailer
Customers
P&G
WalMart
WalMart Private Label
Vertical Growth on the Double Helixwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Volatility Amplification in “The Bullwhip Effect” and Clockspeed Amplification in “The Speedup Effect”
Customer Retailer Distributor Factory Tier 1 Equipment
Inventories & Orders fluctuate more as you look upstream, tough on suppliers, but
New Phone Applications
Handsets Telecom Equipment
OpticalComponents
Clockspeeds accelerate as you head downstream, closer to the final customer
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Media Supply Chains: An Industry at Lightspeed
-copper POTS Wireless phone -fiber
-DSL
PC/laptop Cable Networks
PDA Wireless: -broadcast TV
Television -CDMA, TDMA, GSM -satellite/microwave
VCR
Pager
Retail Outlets -Borders: -Blockbuster -Seven-Eleven
Delivery (e.g., Fedex)
Movies & Art & News & Sports
News/articles/books (newspapers &
magazines)
Communication: voice & video & email
Banking
Education
Shopping
Internet, et al
Customers The box The Pipe The Content (Access, Metro, Backbone) Video/Audio:Wired Phone
Land-basedTelco:
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ALL COMPETITIVE ADVANTAGE IS TEMPORARY
Autos: Ford in 1920, GM in 1955, Toyota in 1990
Computing:IBM in 1970, DEC in 1980, Wintel in 1990
World Dominion:Greece in 500 BC, Rome in 100AD, G.B. in 1800
Sports:Bruins in 1971, Celtics in 1986, Yankees no end
The faster the clockspeed, the shorter the reign
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1. Fruit Flies & Temporary Advantage2. Supply Chain Design & 3-DCE
Strategic Business System DesignAnd Technology Roadmapping
1. Fruit Flies & Temporary Advantage 2. Supply Chain Design & 3-DCE 3. eBusiness Phenomena:
Business Model Innovation 4. Telecom Value Chains:
A fruit fly example
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SUPPLY CHAIN DESIGN:Three Components
1. Insourcing/OutSourcing(The Make/Buy or Vertical Integration Decision)
2. Partner Selection(Choice of suppliers and partners for the chain)
3. The Contractual Relationship (Arm’s length, joint venture, long-term contract,
strategic alliance, equity participation, etc.)
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IMPLEMENTATION OF GUSINESS SYSTEM DESIGN: EMBED IT IN 3-D CONCURRENT ENGINEERING
PRODUCT PROCESS
VALUE CHAIN
Recipe, Unit Process
Performance Specifications
Product Architecture, Make/Buy components Time, Space, Availability
Technology, & Process Planning
Manufacturing System, Make/Buy processes
Details,Strategy
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ARCHITECTURES IN 3-DINTEGRALITY VS. MODULARITY
Integral product architectures feature close coupling among the elements
- Elements perform many functions - Elements are in close spacial proximity - Elements are tightly synchronized - Ex: jet engine, airplane wing, microprocessor
Modular product architectures feature separation among the elements
- Elements are interchangeable - Elements are individually upgradeable - Element interfaces are standardized - System failures can be localized - Ex: stereo system, desktop PC, bicycle
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SUPPLY CHAIN ARCHITECTURE
Integral value-chain architecture features close proximity among its elements
- Proximity metrics: Geographic, Organizational Cultural, Electronic
- Example: Toyota city - Example: Ma Bell (AT&T in New Jersey) - Example: IBM mainframes & Hudson River Valley
Modular value-chain architecture features multiple, interchangeable supplier and standard interfaces
- Example: Garment industry - Example: PC industry - Example: General Motors’ global sourcing - Example: Telephones and telephone service
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DESIGNING ARCHITECTURES FOR PRODUCTS & SUPPLY CHAINS: THE NEED FOR ALIGNMENT
SUPPLY CHAIN ARCHITECTURE
INTEGRAL
MODULAR
PRODUCT ARCHITECTURE
(Geog., Organ., Cultural, Elec.)
Jet engines Microprocessors Mercedes vehicles
Personal Computers Bicycles Chrysler Vehicles Cisco
INTEGRAL MODULAR
Polaroid Nortel, Lucent
Automotive Supplier Parks
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In/Outsourcing: Sowing the Seeds of Competence Development to develop
dependence for knowledge or dependence for capacity
+ Amount of
Work Outsourced knowledge +/or supply
Amount of Supplier Learning
Supplier Capability
Dependence
+
Independence
++ Amount of Work
Done In-house knowledge +/or supply
Amount of Internal Learning
Internal Capability
+ +www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Technology Dynamics in the Aircraft Industry:LEARNING FROM THE DINOSAURS
Japanese industry size & capability
Japanese appeal as
subcontractors
U.S. industry size &
capability
U.S. firms’ appeal as subcontractors
Boeing outsources to Japan
(Mitsubishi Inside?)
Japanese Industry Autonomy
+
+
+
+
-
+
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SOURCEABLE ELEMENTS
PROCESS ELEMENTS
ENGINEERING
ASSY
TEST
CONTROLLER
VALVETRAIN
BLOCK I4 V6 V8 PRODUCTS
SUBSYSTEMS
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Strategic Make/Buy Decisions: Assess Critical Knowledge & Product Architecture
DEPENDENT FOR INDEPENDENT FOR KNOWLEDGE KNOWLEDGE & INDEPENDENT FOR
CAPACITY
BEST OUTSOURCING OPPORTUNITY
WORST OUTSOURCING
SITUATION
CAN LIVE WITH
OUTSOURCING
A POTENTIAL
OUTSOURCING TRAP
BEST INSOURCING SITUATION
OVERKILL IN
VERTICAL INTEGRATION
& CAPACITY DEPENDENT FOR KNOWLEDGE & CAPACITY
ITEM
IS IN
TEG
RAL
ITEM
IS M
OD
ULA
R
Adapted from Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Strategic Make/Buy Decisions: Also consider Clockspeed & Supply Base Capability
DEPENDENT FORDEPENDENT FORKNOWLEDGE & CAPACITY
INDEPENDENT FORCAPACITY ONLY
Clockspeed
Supp
liers
F
ew M
any Fast
Clockspeed
Supp
liers
F
ew M
any Fast
Clockspeed
Supp
liers
F
ew M
any Fast
Clockspeed
Supp
liers
F
ew M
any Fast
OK Watch
it!
Trap
Best
Out
W or
st
OK
Clockspeed
Supp
liers
F
ew M
any Fast
Clockspeed
Supp
liers
F
ew M
any Fast
Over-
kill
Best
In
Slow
Slow
Slow
Slow
Slow
Slow
KNOWLEDGE & CAPACITY
DEC
OM
POSA
BLE
INTE
GR
AL
(Mod
ular
)
Adapted from C. Fine, Clockspeed, Chap. 9www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Strategic Sourcing Assessment requires evaluation of five key criteria
Customer Importance:
• High • Medium• Low
Technology Clockspeed:• Fast• Medium• Slow Competitive
Position:• Advantage• Parity• Disadvantage
Capable Suppliers:• None• Few• Many
Architecture:• Integral• Modular
Possible Decisions (Knowledge & Supply):
• Insource• Outsource• Partner/Acquire• Partial Insource• Partial Outsource• Invest• Spin Off• Develop Suppliers
Competitive Position:
• Advantage• Parity• Disadvantage
Model Developed by PRTM, Inc., GM Powertrain & Clockspeed, Inc.
� High customer importance and fast clockspeedmeans more strategic
� Competitive position is critical for assessing value of outsourcing
� Supply Base Capabilitymust be present for successful outsourcing
� Degree of modularity affects significantly the ease of outsourcing
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Every decision requires qualitative and quantitative analysis to reach a conclusion
Quantitative Model(Financial)
Qualitative Model
EVA
StrategicImportance
CustomerImportance:
• High• Medium• Low
TechnologyClockspeed:
• Fast• Medium• Slow
CompetitivePosition:
• Ad vantage• Parity• Disadvantage
Capable Suppliers:• None• Few• Many
Architecture:• In teg ral• Modular
Possible Decisions:• Insource• Outsource• Partner/Acquire• Partial Insource• Partial Outsource• Invest• Spin Off• Develop Suppliers
CompetitivePosition:
• Ad vantage• Parity• Disadvantage
NOPAT
AS-IS
BIC
CapitalCharge
AS-
IS
BIC
TransmissionsEVA
AS-
ISBI
C
EnginesEVA
AS-IS
BIC
.
.
.
Engine AEVA
AS-IS
BIC
Engine BEVA
AS-
ISBI
C
PBIT
AS-IS
BIC
−.
GMPTEVA
Net Assets
AS-IS
BM
K
+.X WACC
WorkingCapital
FixedAssets
AS-ISBMK
AS-ISBMK
Taxes
Revenue
−.
COGSAS-ISBMK
QuantitativeValue
Low High
Qua
litat
ive
Valu
eLo
wH
igh
KnowledgeSupply
Invest & Build
Harvest Investment
Divest/ Outsource
Improve Economics
Model Developed by PRTM, Inc., GM Powertrain & Clockspeed, Inc. www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Value Chain Mapping
Organizational Supply Chaincasting
Chrysler Eaton supplier clay
supplier
Technology Supply Chain
engines valve lifterscasting
manufacturing process
clay chemistry
Capability ChainSupply Chain Management Quality assurance NVH engineering R&D
Underlying Assumption: You have to drawthe maps before you can assess their dynamics.
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SUPPLY CHAIN DESIGN ISTHE ULTIMATE CORE COMPETENCY
Since all advantages are temporary, the only lasting competency is to continuously build and assemble capabilities chains.
KEY SUB-COMPETENCIES: 1. Forecasting the dynamic evolution of market power and market opportunities 2. Anticipating Windows of Opportunity
3. 3-D Concurrent Engineering: Product, Process, Value Chain CAPABILITIES
Fortune Favors the Prepared Firm PROJECTS CAPABILITIES
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PROCESS FOR SUPPLY CHAIN DESIGN
1. Fruit Flies 2. our Supply Chain
-Organizational Supply Chain -Technology Supply Chain -Competence Chain
3. namic Chain Analysis at each node of each chain map
BOEING
HELIXDOUBLE Benchmark the Map y
Dy
4. Identify Windows of Opportunity 5. Exploit Competency Development Dynamics
with 3-D Concurrent Engineering CAPABILITIES PROJECTS
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1. Fruit Flies & Temporary Advantage
3. eBusiness Phenomena: Business Model Innovation
Strategic Business System DesignAnd Technology Roadmapping
1. Fruit Flies & Temporary Advantage 2. Supply Chain Design & 3-DCE
3. eBusiness Phenomena: Business Model Innovation
4. Telecom Value Chains: A fruit fly example
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Internet Era Phenomena:eCompetition in Business Model Innovation
E-tailing: Benchmarking the eFlies
Attack: Amazon, Webvan Market disruption in hopes of making a place
Defend: Walmart.com, Ford.com Defense can require costly SC revamping
B2B: E2E integration:
Cisco, Dell Integration pays off with modular productsMarketplace Creation:
Freemarkets Reverse auctions reduce short term costs Covisint Common standards reduced supplier investment cost
Free & Open Digital Content: Peer-toPeer Sharing/Theft:
Napster Industry-shaking disruptions require value chain SWAT team www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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DOT.COM COMPETITION: FOCUS ON THE SUPPLY CHAIN
CASE#1: WALMART.COM GOT NO TRACTION Customers
Walmart SupplierStore
Walmart WalMart Store Procurement
Shipper Walmart.com Supplier
Alternate Solution: Partner with UPS or Fedexwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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DOT.COM COMPETITION: FOCUS ON THE SUPPLY CHAINNapster’s New Supply Chain Strategy
(go to the end and steal everything!)
Identify Talent
Develop Songs
Record Music
Promote Music Press
CD’s Sell to Retail
Vertically Integrated Music Giants
Customer Consumption
Steal Songs
Alternate Solution: partner with your competitor www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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1. Fruit Flies & Temporary Advantage
4. Technology Roadmapping:A telecom example
Strategic Business System DesignAnd Technology Roadmapping
1. Fruit Flies & Temporary Advantage 2. Supply Chain Design & 3-DCE
3. eBusiness Phenomena: Business Model Innovation
4. Technology Roadmapping: A telecom example
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Moore’s Law Transistors per chip
See: Joel Birnbaum, HP, Lecture at APS Centennial, Atlanta, 1999
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Disk Drive Development1978-1991
Disk Drive Generation
14”
8”
5.25”
3.5”
2.5”
DominantProducer
IBM
Quantum
Seagate
Conner
Conner
Dominant Approx cost perUsage Megabyte
mainframe
Mini-computer
Desktop PC
Portable PC
Notebook PC
$750
$100
$30
$7
$2From 1991-98, Disk Drive storage density increased by 60%/year while semiconductor density grew ~50%/year. Disk Drive cost per megabyte in 1997 was ~ $ .10
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”Killer Technologies” of the Information Age:Semiconductors, Magnetic Memory, Optoelectronics
“We define a ‘killer technology’ as one that delivers enhanced systems performance of afactor of at least a hundred-fold per decade.”
C.H.Fine & L.K. Kimerling, "Biography of a Killer Technology: Optoelectronics Drives Industrial Growth with the Speed of Light,”published in 1997 by the Optoelectronics Industry Develoment Association, 2010 Mass Ave, NW, Suite 200, Wash. DC 20036-1023.
Killer Question: Will Integrated Optics evolve linearly like Semiconductors with Moore’s Law or like Disk Drives with repeated industry disruptions?
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All Conclusions are Temporary
Clockspeeds are increasing almost everywhere
Supply Chain Relationships must anticipateIndustry and Value Chain Dynamics
Proactive Relationships Design is a keyorganizational competency
Supply Chain Relationships must be designedconcurrently with the products and systems theywill deliver
Study of Fruit Flies can help with crafting strategywww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Retrospective: Introduction to Operations Management
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ProductDevelopment
(Sega, #2)
SupplyChain
(Nokia, #1, Dell, #4)
Process Design & Management(Burger King, #3)
Three Foundational Components of Operations Management
(Alaska Air #5,Webvan #6)
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B10
C4
E16
D25
G20
I18
H45
J7
K12
M30
P5
N32
L5
O6
R3
S9 T
4
U5
F20
Q20
V1
W0
A14
0, 10
4,14
ES, EF
LS, LF
0, 14
0,14 14, 18
14,1843, 59
43, 59
18, 43
18, 43
59, 71
59, 71
43, 61
103,12143, 63
56,76
108, 115
121,128
63, 108
76, 121
71, 77
71, 77
71, 101
79, 109
71, 76
72, 77
101, 121
109,129
101, 106
123,128
77, 109
77, 109 109, 129
109, 129
108, 111
112,115
111, 116
124,129
124, 125
128, 129
111, 120
115,124
120, 124
124,128
129, 129
129, 129
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Process Design & Management
• Process Design: Options & Assessment -Queueing Analysis-Capacity AnalysisHow did Nokia assess capacity in the crunch? How did they change capacity?
-Uncertainty AnalysisHow did each company prepare for difficult-to-anticipate events?
• Inventory Systems•Did N&E operate Just-in-Time, or did they hold big stores of chips waiting just in case?
• Production ControlWas Nokia’s software the principal instrument of control? How did they monitor the situation?
ERP/Software/Internet•Was Nokia’s software the principal instrument of communication?
• Operations Excellence- Continuous Improvement- Just-in-Time- Quality Management (SPC, 6σ)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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ProductDevelopment
(Sega, #2)
SupplyChain
(Nokia, #1, Dell, #4)
Process Design & Management(Burger King, #3)
Three Foundational Components of Operations Management
(Alaska Air #5)
Dell Product Features• µP & modem speed• CD ROM speed• MB DRAM & HD• screen size• order-to-deliv time• features range• fufillment accuracy
AA Product Features• check-in time• reservations help• meals• price• flight frequency• mileage awards• route coverage• baggage handling• customer coddling
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ProductDevelopment
(Sega, #2)
SupplyChain
(Nokia, #1, Dell, #4)
Process Design & Management(Burger King, #3)
Three Foundational Components of Operations Management
Grocery Store Features• selection• price• quality/freshness• shopping environment
Webvan Features• selection• price • quality/freshness• shop any hour• never leave home• choose delivery time• save your time• same day delivery• fulfillment accuracy• no lugging required
(Alaska Air #5,Webvan #6)
Who has theadvantage oneach dimension?www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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Challenges of Service Interface: Grocery Stores vs. Webvan
– Intangibility - customer expectations vs. perceptions• Grocery Stores: quality, selection, ENVIRONMENT• Webvan: quality, selection, DELIVERY
– Perishability - use it or lose it• Grocery Stores: fresh foods (produce, meats, baked
goods)• Webvan: fresh foods & TRUCK CAPACITY
– Heterogeneity - inherent variability of service & customer• Grocery: checkout people, counter people, customer
needs • Webvan: DELIVERY PERSON
– Simultaneity - services simultaneously produced & consumed• Grocery: presentation in the store• Webvan: DELIVERY TO THE HOME
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Supply Chain
• Strategic Supply Chain Design -Make Vs. Buy
•Did sourcing strategy play a role in the differential performance of N & E?
-Supplier Selection , Sourcing Single vs. Dual sourcing
• Supply Chain Management-End-to-end coordinationDo we see here examples of integrated enterprise?
-Supplier Relationshard-nosed, polite, hostile, collaborative?
• Delayed Differentiation
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BK: Process Flow Diagram for Sandwiches
RAWBURGERS
RAWBUNS
BROILER
BROILER
MATE BUNS& BURGERS STEAMER
CHEESE CONDI-MENTS
TOMA-TOES
SANDWICHASSEMBLY
FIN-ISHEDSAND-
WICHES
ORDERDELIVERY
MICRO-WAVE
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National Cranberry Process Flow Diagram
weighed/graded
tested/sampled
destone
dechaffdry
separate
Bag667 bbl/hr
dry1-16
250 bbls=4000 bbls
both17-24
250 bbls=2000 bbls
wet25-27
3x400 bbls = 1200 bbls
2 x 1500 bbls/hr
1500 bbls/hr
Unload5-10 min/truck
3 x 200 bbls/hr
3 x 400 bbls/hr
destone2 x 1500 bbls/hr
dechaff1500 bbls/hr
Bulk Truck2000 bbl/hr
Bulk Bins800 bbl/hr
Freeze
Freeze
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1. What are the key DESIGN parameters for Burger King?A. ProductB. Process TechnologyC. FacilityD. Work System/HR System
2. What are the key PLANNING tasks for Burger King?A. SupplyB. DemandC. Capacity/Workload
3. What are the key CONTROL processes for Burger King?A. Production ControlB. Quality ControlC. Process Control
4. What are the key IMPROVEMENT processes for BK?A. Quality ImprovementB. Productivity ImprovementC. Technological ImprovementD. Systems Improvement
Restaurant Operations Management
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Volatility Amplification in the Supply Chain:“The Bullwhip Effect”
Retailer Wholesaler Distributor Factory
Information lagsDelivery lagsOver- and underorderingMisperceptions of feedbackLumpiness in orderingChain accumulations
SOLUTIONS:Countercyclical MarketsCountercyclical TechnologiesCollaborative channel mgmt.(Cincinnati Milacron & Boeing)
Order Info
Order Info
Order Info
How does production control work in the Beer Game?
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Applying EOQ and Newsvendor models to set Reorder Points and Reorder Quantities
(s,S) (ROP, ROQ), (min, max)
Q Q
SSROP
Q = 2RS = ROQ (REORDER QUANTITY)CK
ROP=Reorder Point = Expected Demand During the order lead time + safety stock= E{DDL} + SS
Prob {DDL≤ROP} = Cu/(Co+Cu)Cu=Cost of Underage (r-c in newsvendor); Co=Cost of Overage (c in newsvendor)But, Co with nonperishables is c x cost of holding ROP=SS+E{DDL}; DDL = X1 + X2 + . . . + XL; E{DDL} = E{L} x E{X}i.e., DDL has a mean of Expected lead time x Expected avg demand/unit timeVariance{DDL}~Var{X} x E{L} + Var{L} x E{X2}
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Safety Stock
Periodic Review System
LT = Lead TimeT = Cycle Time or
Review PeriodU = Actual Demand
During Lead TimeQ = Order SizeS = Order Up To
Level
LT 2
Order 1 placedOrder 1 received
U2
LT 1Q
1
Q2
Q3
U1
T T TSTI
If Q*=EOQ = 2DS , where Demand Rate=D units per week,CKThen T=Time between orders = D/Q*.Want Q1 units to arrive at time D/Q*, so order at D/Q*- E{LT}.
D/Q* -E{LT}. E{D/Q*} 2(D/Q*) -
E{LT}.
3(D/Q*) -E{LT}.
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15.760 Class #8:Basic Concepts in Queueing
Output/throughput rate ( λ )Inventory Level/Queue Size/ ( � )
Line lengthWaiting Time/Cycle Time ( W )Capacity or Server utilization ( ρ )Probability that Queue is full ( Pfull )
System Performance = f(System parameters)
Arrival rate ( λ )Service rate ( µ ) Service time ( M )Number of servers ( S ) Queue/Buffer capacity ( R )Capacity or Server utilization ( ρ )Number of Service classes ( K )
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Fish Processing Example
4 8 120
4800
3600
600
Time (Months)
Inpu
t Rat
e (T
ons p
er m
onth
)
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Poisson arrivals/exponential service timessteady stateρ < 1, when computing the queue lengths
and waiting timesConstant # of serversFIFO serviceSingle-line queue (to MD's)Infinite queue capacityIgnore special priority emergenciesIgnore special priority requests
ASSUMPTIONS OF THE QUEUEING MODELS
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Basic Concepts in Queueing:Nonlinearities in Congestion in Stochastic Systems
If service times and interarrival times have exponential distributions, then
L= ρ2/(1-ρ)
W= ρ2/λ(1-ρ) ∆ ρ∆ ρ
A
B
∆WA
∆WB
0 1(Arrival Rate / Service Rate = ρ)
= “congestion”
Tota
l wa it
in th
e qu e
u e
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Management of Queues
Propositions1. Unoccupied time feels longer than occupied time2. Process waits feel longer than in process waits 3. Anxiety makes waits seem longer 4. Uncertain waits seem longer than known, finite waits5. Unexplained waits are longer than explained6. Unfair waits are longer than equitable waits7. The more valuable the service, the longer the customer
will wait8. Solo waits feel longer than group waits
The Psychology of Waiting Lines
CUSTOMERS
WAITING LINE
SERVERS
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What is the Purpose and Logic of MRP ?
ExceptionReport & Schedules
MasterProductionSchedule
InventoryStatus
Bill ofMaterials
MRP:(Explosion
Offsets,Nets)
EngineeringChanges
InventoryTransactions
Customer Orders
Forecasts
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Evolution in the industrial world:INFOTAINMENT is faster than MICROCHIPS is faster than AUTOS evolve faster than AIRCRAFT evolve faster than MINERAL EXTRACTIONTHE KEY TOOL:Cross-INDUSTRYBenchmarking of Dynamic Forces
Clockspeed:The Dimension of Time on Operations Management
Study the Industry Fruitflies
Evolution in the natural world:
FRUITFLIESevolve faster than
MAMMALSevolve faster than
REPTILES
THE KEY TOOL:
Cross-SPECIES Benchmarking of Dynamic Forceswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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TQM 15.760, Spring 2002TOTAL QUALITY MANAGEMENTFOUR LEVELS OF QUALITYFOUR THOUGHT REVOLUTIONSCustomers firstContinuous ImprovementTotal ParticipationSocietal LearningORGANIZATIONAL MANAGEMENTInformation & Measurement SystemsEducationIncentive SystemsOrganizational Change
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The Logic and Processes of JIT Improvement
QualityProblems
Inventories & Lead Times
L=λW
ProblemInvisibility
Setup Times & Setup Costs
Qual. Imp.Processes
RapidFeedback
ρ2 [ σA2 + σS
2 ]/2(1-ρ2 ) [ µA
2 + µS2 ]
SystemVariability
L≈
P{D≤µ+kσ}=Cu/(Co+Cu)
EOQ = 2RSCK
+
+
+
+
+
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See Karmarkar: Getting Control of JIT, HBR, Sept-Oct 1989
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MIT Sloan SchoolDr. Michael HammerMarch 2002 Summary: Seven Things to Remember
From Reengineering to Process Management and Beyond
or
In the Footsteps of the Buffalo Springfield“Something’s happening here; what is ain’t exactly clear . . . “
• Process• Process redesign• Process evolution• Process enterprise• Process ownership• Process as universal enabler• Process integration across
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1. Measuring Operations Performance2. Flow System management3. Bottleneck Management
Operations Lessons fromThe Goal
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HP Supply Chain Problems•Long chain with bullwhip•local customization needs
with unpredictable demands
Possible solutions:•Air Ship• Europe Factory• Universal Model• Better Forecast• Product Line change• Shorten Review Period• More Inventory
Postponing customizationallows inventory poolingwhich provides greaterCoverage with lessstock
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1920’s: Ford & TaylorMoving Production line and standardized work
1930’s: ShewhartStatistical Control of Quality
1960’s: OhnoLean Production System
1980’s: Goldratt & KaplanMeasurement & Theory of Constraints
1990’s: HammerReengineering & Process Focus
A thumbnail sketch of the 20th century’s big ideas in operations management
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- Focus- Architecture
- Technology
DesignDetailedPerform.Specs& Funct.
UnitProcesses
Tech.& Equip.
Mfg.SystFunctnlCellular.
S.C.Architect.Orgs Set& Alloc.of Tasks
Logistics& CoordSystemAuton vs.Integrated
Product Process Supply Chain
Architect.Modular
vs.Integral
A 3-D CE decision modelillustrating the imperative
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All Conclusions are Temporary
Clockspeeds are increasing almost everywhere
Supply Chain Relationships must anticipate Industry and Value Chain Dynamics
Proactive Relationships Design is a key organizational competency
Supply Chain Relationships must be designed concurrently with the products and systems they will deliver
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PROCESS CAPABILITY
GIVEN: A VARIABLE TO BE TRACKED, For example, the diameter of a machined part: Let T=Target Diameter
USL= Upper Specification Limit LSL= Lower Specification Limit
Collect some data for the diameters, X1, ..., Xn
Suppose µ=ΣXi/n, σ= Σ(Xi-µ)2/n-1 .
µ+3σ _ . .. . . . . . .. .
µ . . . ... .. .. . .... ... ___.____________.._____.______
. .. .. . .. . . . .. . . . . ... . . .. . . . . . .
µ−3σ . . _ .
How well is the process performing? One Measure: Cp=(USL-LSL)/6σ
If µ=T, µ+3σ=USL, and µ−3σ=LSL, then, Cp=1.
µ+3σ=USL _ . . . . . . . .. .
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µ=T .. ... .... .. ... ... ___.____________.._____.______
. .. ... . .. . . .. . . . .. . . . .
µ−3σ=LSL _ . . .
_____________________________________________________________________________
If µ=T, µ+6σ=USL, and µ−6σ=LSL, then, Cp=2.
µ+6σ=USL _ . . . . . . . . .. .
µ=T . . . .. ... .. .. . . . .. . . ___._____.______.._____._..____
. . . . . . . . .. . .. . .. . . . . . . ... .. ... . . .
. µ−6σ=LSL _
Which is better, Cp=1 or Cp=2?
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Define Cpk=min{(USL-µ)/3σ, (µ−LSL)/3σ} Suppose Τ+3σ=USL and Τ−3σ=LSL. If µ=T, then Cp=Cpk If µ>T, e.g., if µ=T+σ, then
Cp=(Τ+3σ-Τ−3σ)/6σ=1
Cpk=min{(Τ+3σ-T−σ)/3σ, (T+σ−Τ+3σ)/3σ} =min{2/3, 4/3}=2/3.
. . µ+2σ=USL _ . .
. . . µ=T+σ . . . . . .. . T ___.____________.._____.______
. . .. .. . . . .
µ−4σ=LSL _
Which measure do you prefer? At Motorola, 6σ program aims for Cpk=2 for all processes. What defect frequency does that imply? (Hint: Z~N(0,1)=6 =>area under curve=.4999983.)
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Task Description Duration (weeks) PrecedenceA Market Study 14B External Developer Focus Group 10C Feature Selection 4 A,BD Hardware Engineering 25 CE Operating System Devlpt. 16 D,BF Advertising Campaign 20 D,M,NG Supplier Selection & Negotiation 20 DH Component Inventory Buildup 45 GI Assembly Facility Setup 18 DJ Finished Good Inventory Buildup 7 I,HK Library & Programmer Toolkit Devlpt. 12 EL External Development Support Setup 5 KM Internal Game Devlpt. 30 KN External Game Devlpt. 32 L,OO Platform Promotion 6 KP Publisher Selection & Negotiation 5 MQ Website Setup 20 MR Release Promotion Material Design 3 D,M,NS Distribution Channels Devlpt. & Negotiation 9 RT Carrier Selection & Negotiation 4 SU Launch Event Organization & PR 5 RV Hardware & Software Shipment 1 J,T,P,NW Launch! 0 V,U,Q,FW Launch! 0 V,U,Q,F
What is the critical path and total duration for this project?Suppose that a marketing study finds that the Advertising Campaign can be shortened to 15 weeks without significant impact reduction. What is the new CP and total project duration?Suppose we would like to reduce the itme until launch to 28 months, what would you recommend?Bonus: Suppose that the duration of the development tasks E, M and N are now random variables following exponential distributions with means 16, 30 and 32 respectively. What is the probability that the total project duration will be more than 135 weeks?
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