Dr David J. Newlands d.newlands@ieseg. f r

2013-14

Supply Chain Management

Agenda Module Objectives

Assessment

Key Definitions

Operations Performance

Substitutes for Strategy – TQM, Lean, BPR, 6δ

Capacity Strategy

Purchasing, Supply Chain Management, Distribution

Key Paradigms

Key Problems, Risks

Key Solutions

Process technology strategy

Improvement strategy

Product and service development and organisation

Reverse Logistics and Green Logistics

Book Chapter Treatment Sequence Chapter 1 – What is operations strategy?

Chapter 2 – Operations Performance

Chapter 8 – Sustainable alignment

Chapter 9 – Substitutes for strategy ?

Chapter 3 – Capacity strategy

Chapter 4 – Supply network strategy

Chapter 5 – Process Technology strategy

Chapter 6 – Improvement Strategy

Chapter 7 – Product and service development and

organization

Chapter 10 – The process of operations strategy –

formulation and implementation

Module Objectives

To develop your skills and understanding to:

a) make and buy decisions

b) understand conventional supply chain processes

c) advanced concepts in supply chain management related to everyday

business operations

d) evaluate how supply chain management impacts other functions of the

company

d) key performance indicators

f) competing on time

g) transportation and logistics

h) security, tracking and value added supply chain services

i) e-logistics concepts

j) e-sales

k) e-purchase

l) e-supply

Module Weighting

• E2E Participation 10%

• Exam MCQ 40%

• E2E Report 25%

• Project 25%

These are the web sites that give you full text articles

• http://search.epnet.com

• Ask your librarian for a password

• http://search.proquest.com/advanced?accountid=120221

• PLAGERISM MEANS YOU CHEAT & YOU BREAK THE LAW!

– YOU GET ZERO, AND YOU GET TO HAVE A DISCIPLINARY HEARING! ENSURE YOU REFERENCE CITATIONS

– On the course ieseg-online site file 00 Plagiarism and Referencing.pdf is a file that explains how to reference different materials correctly

– Ensure you read instructions on how to reference your work. This is the difference between receiving your mark and zero.

– Last year 14 students received zero & called for disciplinary hearing.

– Maintain a disciplined approach to referencing for all courses because it will help you for your memoire / consulting project

– Wikipedia is not academically acceptable as a reference. – Last semester 4 groups received zero

– Turn it in - plagiarism Policy – 0-4% ‘okay’, 5-9 % ‘just okay’, 10 % plus not

assessed, 20 % plus – automatic disciplinary hearing

Try these

Multiple Choice Questions • Basic MCQs have one right answer and several stupid

ones.

• MBA MCQ – usually several answers copied directly from the notes and one wrong answer, you pick the one that is wrong of doesn’t fit. Some questions like 1st year model for statistical analysis reasons.

• MCQ is machine read. Two copies – question sheet to practice and think. Scan copy that must only have one box filled. Multiple boxes filled, wrong box filled or not answered – no marks or deductions. 1 correct response per question.

Message à l’attention des étudiants d’Operations management

• « Vous devez envoyer obligatoirement le fichier contenant votre travail au site Turnitin afin d’effectuer l’analyse anti plagiat. ATTENTION, CET ENVOI DOIT IMPERATIVEMENT SE FAIRE DE VOTRE BOITE IESEG. Une fois le travail envoyé, vous recevrez dans votre boîte IESEG un message de la Société ‘Turnitin’ indiquant la bonne réception de votre envoi. Un travail non analysé ne pourra pas être corrigé »

• https://turnitin.com/

• Please ensure that you have put all your names on your submissions. Ensure the file title conforms with requirements.

• Course ID 7112040, course title IR2013-14

• Password IRS1S2

Group review of the E2E game • Groups of 3 – produce a word file responding to questions in the E2E

cases.

– Mass, Lean (JIT3) and Agile/Mass customisation

– Hand in – 17.00hrs Friday two weeks after the event, to Turnitin

• Your E2E project file should carry the following file name structure:

• E2E Name Name Name game.docx

• Example

– E2E Bied Duenas Newlands Mass.docx

• Set page size at 160%, font Times New Roman, 12 font except headings, double spaced.

• 3000 words minimum.

Group Project Coursework • Study a company or supply chain of your choice, with the exception of IMT

Ghaziabad. (Larger companies have more resources and more likely to use advanced methods.)

1. Evaluate their currentor potential operations strategy 2. OR Evaluate and advise improvements to their JIT, Lean and Supply Chain

Management 3. OR Analyse models in Slack and Lewis in terms of the E2E games 4. OR use the case studies published in Slack and Lewis, and either – compare and

contrast with another company in the same business sector, identify key differences in operations strategy

Conditions and Limitations • In groups, min 2, max 6 students, No individual coursework permitted. No groups

of 7 or more. • A 5000 (minimum) word (.docx format) report. You should send a copy to the

person you met in the company. Should also contain diagrams.

• Send .docx to Turnitin by 17.00 on 31st December 2013 – Details on how to submit Turnitin.com – Course number 7034225 – Password IMTOS13

Group Project Coursework Marking Scheme

Six marking criteria • 10% - Company History and Business Environment • 20% - Existing Process Description • 30 % -Analysis using taught concepts and techniques • 30% - Recommendations – New Process Description • 10% - References - Credibility

• File attached to your email identified by your files with the same structure

– 1314G company name OS – for example 1314G Nokia OS

• Year ’13 ’14 Ghaziabad name of company studied Operations Strategy

– Recommendations shall not be assessed if the file name is incorrectly structured and anything other than a word .docx

– Use Times New Roman 12 font for the basic text, 160% size

Retrapage

Need a Retrapage Project ? – Each Individual • In your own words, discuss, compare and contrast

differences in strategic management in large multi-national and SMEs.

• Minimum 5000 word individual report of which:

– Minimum 1500 words literature review

– Minimum 30 properly referenced sources are used in the literature review

– Minimum 1500 words corporate examples

– Minimum 1000 words discussion

– Minimum 1000 words conclusions

– Less than 2% similarity to other sources

Definitions and Preconceptions

What is operations?

http://asweb.artsci.uc.edu/german/172/krup.jpg

• Photo exhibited in National Car Museum, Coventry 2009

Making people serve a purpose

• http://www.baekdal.com/notes/work/meetings/

Overcoming hurdles

• http://www.defense.gov/photos/newsphoto.aspx?newsphotoid=6351

• http://www.defense.gov/dodcmsshare/newsphoto/2005-04/050314-F-0017M-004.jpg

Fire Fighting

Management is a balancing act

• http://news.bbc.co.uk/2/hi/in_pictures/8629408.stm 200410

• Operations is

–Doing something for the customer to get paid

Make and supply a product Provide a service

What is strategy? • Strageos – commanding armies

• Need to revise the idea of planning and control

• Taylorism – 1880s worked fine. Produced results

• 2013? Mostly more educated workforce, unions, professional negotiators,

• The company is the union – no them and us, management and workers together

Planned or Emergent? • Work together to identify opportunities

• Not top down or bottom up

• Middle up-down and Hoshin Kanri are taking over

• New strategy every day (Semlar)

• Work place democracy (Semlar)

• Identify and eliminate risks

• If the customer doesn’t understand why we do it, we stop doing in (Lean)

• Benchmark and emulate

Lean • Lean is about not doing what the customer

doesnt understand, or want to pay for

• Lean is not about increasing profit

• Lean is about protecting the profit you have made

A Manufacturing Organization as a system

Money Market Shareholders Banks

Supply Market

Adapted from Smith, (1997)

Managing to Succeed

Design Mgt.

Quality Mgt.

Machines Stores

Operators

Stores

Purchasing

Manufacturing

Suppliers Transport Distribution

Product Market

Customers

Board of Directors

Managerial Accounting

Personnel

Marketing Negotiation

Social Infrastructure Roads Health

& safety

Education

Legal Environment

Taxation

Laws

Core Operations Activity

Supporting Operations Activity

Labour Market

Trade Union

Key Questions

• Why do it ?

• Why do it that way ?

• What questions should be asked ?

• What can go wrong ?

• What other ways are there?

• How do we choose?

• Can we live with the consequences for the next 20 years or so?

Where are the OM Jobs?

Heizer and Render

http://www.fhiplantservices.com/go2/warehouse-services.cfm

Oxylane Continental Distribution Centre

Clients include:

• Renault

• Adeo

• Leroy Merlin

• MSC in OPS

• Salary around €80000 based on

importance to the

business

Tryout these sites for All Concentrations/Types of Job

http://www.questsearch.co.uk/?

search=advanced

http://www.monster.fr/geo/siteselection

Try out these sites for Operations

jobs.supplymanagement.com

experteer.com

Head of Sales • Retail Marketing Strategy

• Sales Management

• Cross Cultural Relationship in Marketing and Negotiation

• ERP Software

• International Negotiation and Diplomacy

• International Sales and Commercial Law

• Internal Selling

• Lean Management in Industry and in Services

• Operational Excellence and Transformation

• Performance Indicators & Information Dashboards for Business

• Product Management

• Sustainable Development

• Total Quality Management

Customer Focus

Operations Focus

Tim Lyons

What do Ops Managers do?

• Ensure customer satisfaction with goods and services

• Make money by creating value

• Eliminating non-value adding waste

• Creating and protecting profits

Interrelated Strategies Framework

Marketing

Quality

Design and Process engineering

Business strategy

Product strategy

Purchasing and supply

Finance

Human resource management

Manufacturing

Corporate strategy

• http://www.sussex.ac.uk/Users/dt31/TOMI/images/opsman.gif

Voss, C.A. (1995) 'Operations management - from Taylor to Toyota - and Beyond?', British Journal of Management, Vol.6, Special Issue, S17 S29, December. http://www.sussex.ac.uk/Users/dt31/TOMI/images/opsman.gif

Continuous

Quality

Improvement

Human

Resource &

Conflict

Management

Component Quality Planning

& Supplier Management

QCDDM

Source: Waller

Building blocks of Operations Management KLASSEN, R., 2006, Cases in Operations Management, Sage Publications, California.

RULES OF THE OFFICE • A CLEAN DESK IS A SIGN OF A SICK MIND • TOMORROW WE ARE GOING TO GET ORGANISED • QUICK, LOOK BUSY, HERE COMES THE BOSS • THE BOSS IS ALWAYS RIGHT: MISSINFORMED, LAZY,

STUPID, BUT RIGHT • NOTHING IS IMPOSSIBLE, OUR BOSS SAYS SO • TO ERR IS HUMAN BUT TO FOUL THINGS UP COMPLETELY

REQUIRES A COMPUTER • NO-ONE IS FIRED HERE. SLAVES ARE ONLY SOLD • WORK FASCINATES US. WE CAN LOOK AT IT FOR HOURS • THE BOSS TREATS US LIKE MUSHROOMS. KEEPS US IN THE

DARK AND FEEDS US BULLSHIT • WE ARE THE WILLING, LED BY THE UNKNOWING, DOING

THE IMPOSSIBLE FOR THE UNGRATEFUL

©1999 Jack Dusty’s Earth 2000 Ltd, PO Box 37 Bognor Regis

WE ARE THE WILLING LED BY THE UNKNOWING DOING THE IMPOSSIBLE FOR THE UNGRATEFUL

WE HAVE NOW DONE SO MUCH FOR SO LONG – FOR SO MANY

WITH SO LITTLE WE CAN NOW DO ANYTHING

WITH NOTHING

©1999 Jack Dusty’s Earth 2000 Ltd, PO Box 37 Bognor Regis

• Operations strategy is the set of decisions and the processes used to make those decisions, that affect how the corporation delivered value to customers and other stakeholders

• Operations strategy aims to increase the fit between what customers want, competition, suppliers, alternatives, governments, lenders and other stakeholders want

Goods and Services

Characteristics of Goods

Tangible product

Consistent product definition

Production usually separate from consumption

Can be inventoried

Low customer interaction

Characteristics of Service

Intangible product

Produced and consumed at same time

Often unique

High customer interaction

Inconsistent product definition

Often knowledge-based

Frequently dispersed

Goods Versus Services

Table 1.3

Can be resold

Can be inventoried

Some aspects of quality measurable

Selling is distinct from production

Product is transportable

Site of facility important for cost

Often easy to automate

Revenue generated primarily from tangible product

Attributes of Goods

(Tangible Product)

Attributes of Services

(Intangible Product)

Reselling unusual

Difficult to inventory

Quality difficult to measure

Selling is part of service

Provider, not product, is often transportable

Site of facility important for customer contact

Often difficult to automate

Revenue generated primarily from the intangible service

Goods and Services

Automobile

Computer

Installed carpeting

Fast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/ investment management

Consulting service/ teaching

Counseling

Percent of Product that is a Good Percent of Product that is a Service

100% 75 50 25 0 25 50 75 100% | | | | | | | | |

Figure 1.4

Source: Waller

Source: Waller

Examples of Service Consultancy

Design, product configuration, part selection

Purchasing on behalf of the customer

Delivery

Installation and commissioning

Maintenance and servicing

Spare parts supply

On-line diagnostics and system updates

Security and product tracking

Training

Security, financing and insurance

Disaster recovery management

Examples of Manufacturing

Raw material extraction, processing, bespoking

Part fabrication

Structure construction

Final assembly

Refurbishment

Reconfiguration

Customization

Final product dismantling

Recycling

Runners, Repeaters, Strangers

Runners – make all day, every day. Routine.

Optimised processes for quality, low hand time

and flow’. Bread and butter work.

Repeaters – frequently in demand, Diwali,

Christmas, New Year, Summer Breaks. Need to

set up and produce limited quantity. May not

make the product again for days, weeks,

months.

Strangers – never made before. Requires design

attention. May need to re-design facilities if this

becomes a large, repetitive order. Otherwise,

do as jobbing.

http://fastlane.gmblogs.com/2012/10/25/new-small-block-corvette-lt1-engine-brings-big-gains-in-performance-and-fuel-economy/

Runner Examples

http://pitstopusa.com/i-5064704-auto-meter-12-volt-bulbs-replacement-bulb-3-watt.html

http://www.steeda.com/store/brisk-silver-racing-spark-plugs-for-ford-mustang.html

http://www.mobilemechanic212.com/car-batteriesstarting-charging-systems/

http://tonemain.en.made-in-china.com/product/eMSxXfDOyvWy/China-Car-Paint-Binder-System.html

http://www.conversionspecialists.com/seat_belts/

Repeater Examples

http://www.santabanta.com/photos/diwali/9000109.htm

http://www.onlygowns.com/blog/your-wedding-against-the-royal-wedding.asp

http://www.amazon.co.uk/Operations-Strategy-Slack-Nigel-Lewis/dp/B00DO8QXO2/ref=sr_1_3?s=books&ie=UTF8&qid=1383729879&sr=1-3&keywords=slack+and+lewis+operations+strategy

http://www.happybirthday11.com/birthday-cards/

http://www.whe.org/why-do-we-put-lights-on-christmas-trees.html

Stranger Examples

http://mystifyingindia.com/blog/wp-content/uploads/2010/09/taj_mahal.jpg

http://englishu2.blogspot.in/2012/07/happy-olympic-games.html

http://neilandheather.com/images/Will%20-%20Birth%20004.jpg

http://www.bhmpics.com/view-death_grim_reaper-1600x1200.html

http://ashaadi.blogspot.in/2011/09/indian-wedding-reception.html

• Operations strategy is the set of decisions and the processes used to make those decisions, that affect how the corporation delivered value to customers and other stakeholders

• Operations strategy aims to increase the fit between what customers want, competition, suppliers, alternatives, governments, lenders and other stakeholders want

Comparative Benchmarking

• Compare with the best – best practice benchmarking (Camp)

• Process of descovery – find out what is possible

• Understand why they are so good, so much better, faster, cheaper

• Learn – discover / identify – how to come up to the same level or exceed that level

Services

Development of the Service Economy

Heizer and Render Figure 1.5 (A)

Agriculture

100

90

80

70

60

50

40

30

20

10

0

1800 1850 1900 1950 2000

for 2011 fiscal, almost 52 percent of India’s GDP comes from the agricultural sector and the services sector is the second biggest contributor with 34 percent. The industrial sector contributes almost 14 percent of India’s GDP. Source: http://business.mapsofindia.com/india-gdp/

United States INDIA

http://thecalibre.in/in-depth-current-affairs/agriculture-sector-in-budget-2013-14/032013/?p=3101/

Typical Indian Farm?

http://indi.ca/2011/07/indias-food-supply-and-agriculture-in-crisis-infographic/

Productivity

in Indian

Farms

http://online.wsj.com/news/articles/SB122463109671256373

Typical US Farm

0 20 40 60 80 100 120 140 160 180

1940

1950

1960

1970

1980

1990

2000

Today

Productivity Improvements in US Farms

Source: American Farm Bureau Federation http://www.fb.org/index.php?action=yourag.facts

73

46

27

19

139

129

125

http://en.wikipedia.org/wiki/Norman_Borlaug

http://www.rba.gov.au/publications/bulletin/2011/jun/3.html

http://www.danielstrading.com/resources/newsletter/2013/02/05/

Industry and Services as Percentage of GDP

Services Manufacturing

Au

str

alia

Ca

na

da

Ch

ina

Czech

Rep

Fra

nce

Germ

an

y

Ho

ng

Ko

ng

Jap

an

Me

xic

o

Ru

ssia

n F

ed

So

uth

Afr

ica

Sp

ain

UK

US

90 −

80 −

70 −

60 −

50 −

40 −

30 −

20 −

10 −

0 −

IND

IA

55%

16.1%

While manufacturing has relatively few jobs, GDP is significantly affected by production efficiency

2011

http://www.telegraph.co.uk/finance/2857193/Nissa

n-Sunderland-retains-top-spot-for-

productivity.html

Volvo Uddevalla plant

http://sloanreview.mit.edu/article/pointcounterpoint

-nummi-vs-uddevalla/

Comparison between China and India

Productivity 1994-2005

http://www.zanran.com/q/Labor_and_Total_Factor_Productivity_Growth_in_India

Informal versus formal business performance

Deflation in India? Need to ‘print money’ to

devalue the rupee?

Need to cut government spending in order to

balance the fiscal budget and repay debt?

Comparing two recent years Excluding food

IND

IA

55%

2011

IND

IA

53,7%

2008

16.1%

29.1

90 −

80 −

70 −

60 −

50 −

40 −

30 −

20 −

10 −

0 −

2008 stats source: http://business.mapsofindia.com/india-gdp/sectorwise/ 2011 stats source: http://business.mapsofindia.com/articles/manufacturing-industry-contribution-to-gdp.html

Services Manufacturing

Some inconsistencies in data source figures What’s the big picture meaning for India?

Manufacturing issues

Not enough people involved in manufacturing

Right type of manufacturing?

Too many tie ups that only introduce basic

technology products and processes,

Breaking up business alliances (Marutti Suzuki)

too early – not working on technology transfers

(product and processes)

State contribution

to GDP

Source: http://business.mapsofindia.com/india-gdp/

India

Too many working without paying taxes, or getting

any benefits. Working toward a state pension?

Have enough to retire? Need to work until you

drop?

Foreign investers need to identify where it would

be good to invest.

Bombay-Dehli Corridor – 7 or 8 new cities to be

built, technology businesses, increased

production capacity,

Need to increase demand and change

consumption patterns

U.S. Development of the Service Economy

Figure 1.5 (B)

30 –

25 –

20 –

15 –

10 –

5 –

0 –

1950 1970 1990 2010

– 150

– 125

– 100

– 75

– 50

– 25

– 0

Em

plo

ym

en

t (m

illi

on

s)

In

dex:

1997 =

100 Manufacturing

employment

Industrial production

Estimate

Issues in India

Infrastructure – land acquisition to build is more

difficult in India. There are many filmed and

documented examples in China of more forceful

land acquisition approaches

Education – need higher quality of education for

both the highest, lowest and middle range of

achievers. Need more plombers, electricians

and architects.

Business regulation – India is famous for

bureaucracy. Too much over-regulation? Not

enough enforcement of basics like building

regulations, traffic code, environmental

Measurement of Productivity

Productivity = Output

Input

Productivity measures can be made -

- at different levels in an organisation

- in time, money or physical units

a measure is selected for a purpose

Source: Smith, (1997) Managing to Succeed

Paths to productivity Productivity

Technology Organization

People

Ability Motivation

Source: Based on Smith, (1997) Managing to Succeed

(Design, product, process)

Creativity

Empowerment

Reward structure

(Bonuses &

Equality)

Leadership, flat organisations

Easy communication

& learning

Training

Coaching

Job enrichment

Maslow

Hygene factors

Motivators

Expectancy

RESPECT

Stress levels

Productivity Calculations

Productivity = Units produced

Labour-hours used

= = 4 units/labour-hour 1,000

250

Labor Productivity

Work-rates may not have changed with the 35hour week.

Before: The 40hour week had paid breaks for tea => mins avail = 2100.

Now: Employers expect workers to work 35hours, breaks are un-paid.

Draconien & Tayloristic management can return in this environment.

Figure Source: Waller

Source: Waller

Labour hours/unit = Direct labour cost per unit

units/labour hours = comparative speed

Productivity - motor cycles

Country 1956 1973

Britain 19 13

Japan 16 195

The price of a product contains

1/n of a person's annual wage

Source: Smith, (1997) Managing to Succeed

Wharton finance professor Jeremy Siegel, 2010

• the foundations for long-term growth, Siegel cited productivity as the main driver, “including rates of innovation, invention, discovery, how to produce more with less, how we learn to do things better.”

• Source: From Recession to Recovery: Focus on Higher

Productivity, New Partnerships, Cost Competitiveness http://www.wharton.universia.net/index.cfm?fa=viewArticle&id=1928&language=english July 28,

Work-rates may not have changed with the 35hour week.

Before: The 40hour week had paid breaks for tea => mins avail = 2100.

Now: Employers expect workers to work 35hours, breaks are un-paid.

Draconien & Tayloristic management can return in this environment.

Figure Source: Waller

Measure of process improvement

Represents output relative to input

Only through productivity increases can our standard of living improve

Productivity

Productivity = Units produced

Input used

Nissan = 17 hours to produce a vehicle

• Is this why Rover died?

What you measure is what you

get

Original Source: Waller

Profit per customer (eat, drink, read, ticket)

Profit per TV hour (revenue – cost)

Production time / customer expected wait time

Amount of air and water (low cost fillers) used

as ingredients

Amount of food thrown out. Complaints.

Potential to change the economy

Yield (% of plane full),

Ground Turnaround Time - AOG

Actual Revenue vs theoretical revenue

Ramp-up on-time (delays) Ramp-up rate

Original Source: Waller

Multi-Factor Productivity

Output

Labour + Material + Energy + Capital + Miscellaneous

Productivity =

Also known as total factor productivity

Output and inputs are often expressed in dollars

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

= Old labour

productivity

8 titles/day

32 labour-hrs

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

8 titles/day

32 labour-hrs =

Old labour productivity = .25 titles/labour-hr

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labour-hrs =

Old labour productivity

= New labour productivity

= .25 titles/labour-hr

14 titles/day

32 labour-hrs

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labour-hrs =

Old labour productivity = .25 titles/labour-hr

14 titles/day

32 labour-hrs =

New labour productivity

= .4375 titles/labour-hr

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

= Old multifactor

productivity

8 titles/day

$640 + 400

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

$640 + 400 =

Old multifactor productivity

= .0077 titles/dollar

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

$640 + 400 =

Old multifactor productivity

= New multifactor

productivity

= .0077 titles/dollar

14 titles/day

$640 + 800

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

$640 + 400

14 titles/day

$640 + 800

= Old multifactor

productivity

= New multifactor

productivity

= .0077 titles/dollar

= .0097 titles/dollar

100% overhead increase (supervisors); only 75 % productivity increase.

Objective – Do not increase overhead. Reduce it.

Overhead absorption method to be re-evaluated. (Use team leaders.)

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Ignore Overhead

Old System:

14 titles/day Ignore overhead

New System:

$640

8 titles/day

$640

14 titles/day

= Old multifactor

productivity

= New multifactor

productivity

= 80 dollars/title

= 45.71 dollars/title

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400

Old System:

14 titles/day Do not change overhead

New System:

$640 + $400

8 titles/day

$640 + $400

14 titles/day

= Old multifactor

productivity

= New multifactor

productivity

= 130 dollars/title

= 74.28 dollars/title

Productivity Variables

Labour - contributes about 10% of the annual increase

Capital - contributes about 32% of the annual increase

Management - contributes about 52% of the annual increase

Design – about 95 % of product costs are committed when products are designed

New Trends in OM

Local or

national focus

Low-cost, reliable

worldwide communication

and transportation networks

Global focus

Batch (large)

shipments

Short product life cycles and

cost of capital put pressure

on reducing inventory

Just-in-time

shipments

Low-bid

purchasing

Quality emphasis requires

that suppliers be engaged in

product improvement

Supply-chain

partners,

Enterprise

Resource

Planning,

e-commerce

Heizer and Render Figure 1.6

Past Causes Future

New Trends in OM

Lengthy

product

development

Shorter life cycles, Internet,

rapid international

communication, computer-

aided design, and

international collaboration

Rapid product

development,

alliances,

collaborative

designs

Standardized

products

Affluence and worldwide

markets; increasingly

flexible production processes

Mass

customization

with added

emphasis on

quality

Job

specialization

Changing socioculture

milieu; increasingly a

knowledge and information

society

Empowered

employees,

teams, and lean

production

Heizer and Render Figure 1.6

Past Causes Future

New Trends in OM

Low-cost

focus

(purchase

price)

Environmental issues, ISO

14000, increasing disposal

costs

- Total cost of ownership

- Total cost to society

- Life cycle costs

Environmentally

sensitive

production, green

manufacturing,

recycled

materials,

remanufacturing

Figure 1.6

Past Causes Future

Productivity at Taco Bell

Improvements:

Revised the menu

Designed meals for easy preparation

Shifted some preparation to suppliers

Efficient layout and automation

Training and employee empowerment

Productivity at Taco Bell

Improvements:

Revised the menu

Designed meals for easy preparation

Shifted some preparation to suppliers

Efficient layout and automation

Training and employee empowerment

Results:

Preparation time cut to 8 seconds

Management span of control increased from 5 to 30

In-store labour cut by 15 hours/day

Stores handle twice the volume with half the labour

Fast-food low-cost leader

Ethics and Social Responsibility

Challenges facing operations managers:

Developing safe quality products

Maintaining a clean environment

Providing a safe workplace

Honouring community commitments

Chapter 7

Improvement strategy

Decision areas

Capacity Supply Network

Mark

et

com

petitiveness

Process Technology

Resource usage

Development

and Organisation

(Operations development and improvement)

Issues include,

• Big radical improvement

projects, or small, continuous

improvements.

• Performance measurement

used for setting the direction

of improvement.

• Benchmarking against other

operators.

• Prioritising improvements.

• Learning and enhancing

process knowledge through

control.

• Expectations on, and

contributions from, the

operations function.

Quality

Perf

orm

ance

obje

ctives

Dependability

Speed

Flexibility

Cost

Improvement strategy

Customer

Satisfaction Resilience

Quality Dependability Speed Flexibility Cost

Agility

Market

strategic

objectives

Financial

strategic

objectives

Overall strategic

objectives

Detailed

performance

measures, e.g.

Operations

strategic

objectives

Broad strategic measures

Functional strategic

measures, e.g.

Composite performance

measures, e.g.

Generic operations

performance

measures, e.g.

• Defects per unit •Level of customer complaints • Scrap level

• Mean time between failures • Lateness complaints

• Customer query time • Order lead- time • Throughput time

• Time to market • Product range

• Transaction costs • Labour productivity • Machine efficiency

Performance targets can involve different levels of aggregation

Key Performance Metric Improvement Over

Time - Satisfaction, Success and Failure.

Sources: Kidd (1995) Warren, (1995), Unipart 10-to-Zero (1995)

Elevated Supplier Performance

Or competitor's systems design performance

Customer Requirements

Customer Satisfaction

(Expectations)

Time

Failure

Success

40

X X X

X

X

X

Time

Last year’s average performance = 60%

Actual performance = 83%

Performance by historical standards is GOOD

50

60

70

80

90

100

Different standards of comparison give different messages

40

X X X

X

X

X

Time

Last year’s average performance = 60%

Actual performance = 83%

Performance by historical standards is GOOD

Performance against improvement goal is POOR

50

60

70

80

90

100

Improvement goal = 95%

Different standards of comparison give different messages

(Continued)

40

X X X

X

X

X

Time

Last year’s average performance = 60%

Actual performance = 83%

Performance by historical standards is GOOD

Performance against improvement goal is POOR

Performance against competitors is GOOD

50

60

70

80

90

100

Improvement goal = 95%

Competitor performance = 75%

Different standards of comparison give different messages

(Continued)

40

X X X

X

X

X

Time

Last year’s average performance = 60%

Actual performance = 83%

Performance by historical standards is GOOD

Performance against improvement goal is POOR

Performance against competitors is GOOD

Absolute performance is POOR

50

60

70

80

90

100

Improvement goal = 95%

Competitor performance = 75%

Absolute performance =100%

Different standards of comparison give different messages

(Continued)

1

2

3

4

5

6

7

8

9

1 2 3 4 5 6 7 8 9

Importance for

customers LOW HIGH

Pe

rfo

rma

nce

ag

ain

st

co

mp

etito

rs

GO

OD

B

AD

URGENT ACTION

IMPROVE

APPROPRIATE

EXCESS?

F

E

A

C

D

B

The importance-performance matrix

Based on the ‘Kano Model’

1

2

3

4

5

6

7

8

9

1 2 3 4 5 6 7 8 9

Importance for customers LOW HIGH

Perf

orm

ance a

gain

st

com

petito

rs

GO

OD

B

AD

The importance-performance matrix for TAG’s ‘overnight

temperature-controlled’ service

X

X X

X

X

X

X

X

X

X Volume flexibility

Delivery

Drop quote

Window quote

Distribution quality

Documentation service

Delivery flexibility

Enquiry lead-time

Order/dispatch quality

Price/Cost

Systematic learning

You can’t learn about a process when it’s out of control

If things are in control

you notice changes

so you can investigate them

so you can identify root causes

so you can put things right

and improve the process

and learn more about it

Process

Control

Learning

Process

Knowledge

Process control starts the learning that develops process

knowledge

‘Knowledge is power’

1 Complete ignorance Nowhere

2 Awareness Tacit

3 Measurement Written

4 Control of mean Written and in hardware

5 Process capability Hardware and operating manual

6 Process characterisation Empirical equations

7 Know why Scientific models

8 Complete knowledge

None

Full

Stage Term Knowledge Typical form of knowledge

Source: from Bohn, R.E. (1994) ‘measuring and managing technical knowledge’, MIT

Sloan Management Review, Fall 1994, article no. 3615. Copyright

© 1994 Massachusetts Institute of Technology, all rights reserved. Reproduced with

permission.

Building on learning

Key Indicators

Learning is made explicit, ‘What have you learned at

work today?’

Process knowledge is seen as a key operations

objective

Individuals and groups share their learning

Individuals seek out opportunities to actively learn

and experiment

Learning is captured and debated

Designated individuals are responsible for learning

from other operations

• People have had plenty of time to learn and practice undesirable behaviours.

• Change requires

– Stopping doing things not required,

– Starting to do things that are needed

– Learning to do these things faster, better and cheaper than anyone else

– Creating, maintaining and increasing the competitive gap.

– Being prepared to do all this over again.

Lean / Toyotism

• The most dangerous thing for the long-term survival of a company is being successful at something.

• We get too complacent, and don’t want to change.

• Long service managers got their position because they made decisions a long time ago that are still of value to them today.

Axioms • If it ain’t broke, don’t fix it.

• Don’t use quick fixes. Over time, they reduce the overall efficiency of the process. (Deming)

• Put in quick fixes (Crosby)

• ‘Obliterate’ Michael Hammer.

• I think, you do. Follow the rules. (Taylorism)

• First, break all the rules.

Leading the revolution Gary Hamel

Old Brick New Brick

Top mgmt. is responsible for

setting strategy

Everyone is responsible for setting

strategy

Getting better, getting faster is

the way to win Rule-busting innovation is the way to win

Being revolutionary is high risk More of the same is high risk

Change starts at the top Change starts with activists

Big companies can’t innovate

Big companies can become gray-haired

revolutionaries

IT creates competitive advantage

Unconventional business concepts create

competitive advantage

Innovation equals new products

and new technology

Innovation equals entirely new business

concepts

Crosby’s Five Step Method

1. Identify the problem

2. Identify and implement a quick fix

3. Analyse the problem to identify the route cause

4. Eliminate the root cause

5. Measure and follow up to ensure the problem doesn’t come back and that you achieve the results desired.

Crosby Quality Workbook

Creating the Future

How Creative are you?

• An object will appear. Your job is to identify as many uses for it as you can in two minutes.

http://www.sxc.hu/photo/205250

• 1 in 2 come up with 4 or less

• 1 in 500 come up with 8 or more

• 1 in 2000 come up with 16 or more suggestions

• How can you possibly expect to lead unless you have ideas?

• Collect ideas,

• Filter ideas

• Refine concepts

• Create plans

• Sell these to convince people to join you in the quest to achieve…

Lead or Facilitate Seminar

Exercise 1 Key Questions 10 minutes

• Why are you here?

• Why learn – go through years of training?

• What do you want to get out of your time in higher education?

Mission et Valeurs de l’IÉSEG IÉSEG’s Our Mission and Values

• Dans un contexte international, la mission de l’ IÉSEG est de préparer des managers acteurs du changement et de contribuer au renforcement d’organisations responsables, innovantes et humanistes. L’Ecole veut être reconnue comme une institution éducative très internationale et rigoureuse, avec des valeurs humaines fortes.

• In an international context, the mission of IÉSEG is to prepare managers who are able to initiate change and to contribute to the development of responsible, innovative and humanistic organizations. The School wants to be recognized as a very international and rigorous educational institution, with strong human values.

Mission et valeurs Our Mission and values

• Nos valeurs: Responsabilité, Tolérance, Respect des autres, Engagement, Esprit d’équipe, Force de travail, Modestie et Honnêteté.

• Our values: Responsibility, Tolerance, Respect of the people, Commitment, Team Spirit, Hard Work, Humility and Honesty.

Exercise 2 a 15 minutes • Individually, think of an occassion when you made a

change.

• What did you think off first?

• What did you do?

• How did you make sure the change stuck?

• Write down the sequence of events that made the change.

• E.G. Stop A, reduce B, start C, start D later

• Professors – do the same just in case odd person

Exercise 2 b 15 minutes

• With a colleague, compare notes.

• Try to identify common characteristics

• Session objective: Make a model that you both agree on that represents what you did, the sequence, how you did it,

• Include what you considered, who you considered, what you measured

Exercise 2 c 15 minutes

• Pairs work together with other pairs and compare notes

• Come up with an agreed model

• Present your model to the rest of the group using a laptop or the flip chart paper provided

The four-stage model of operations contribution

Internally

neutral

Holding the

organisation back

Externally

neutral

As good as

competitors

Internally

supportive

Clearly the best in

the industry

Externally

supportive

Redefining industry

expectations

STAGE 2

Adopt best

practice

STAGE 3 Link strategy

with operations

STAGE 4 Give an

operations Advantage

Increasing operations capabilities

Incre

asin

g s

trate

gic

im

pact

STAGE 1 Correct the

worst problems

Contribution and role

Key Indicators

Staff cooperate and contribute in areas other than

their own

Staff understand their role in the internal and external

supply chain

The concept of internal supplier development is

established

Staff have visited and talked with their internal and

external customers

Staff are capable of making a contribution too

organisational levels above their own

Investment and Productivity in Selected Nations

US UK

Canada

Italy

Belgium

France

Netherlands

Japan

10

8

6

4

2

0 Perc

en

t in

cre

ase i

n m

fg p

rod

ucti

vit

y

Percentage investment

10 15 20 25 30 35

Classic concept of a supply chain

Necessary Capabilities

– qualifiers and winners

Days of Supply

Supplier’s Manufacture

FG Variant Batches

In Transit

DC Goods-In

Inspection & Storage

Sales Packs

MC Production Line Loading

Components & sub-assemblies

FG

In Transit

Inspection & Storage

In market DC Goods-In Customs

FG In Transit

Inspection & Storage

Competitors goods

AF

SL

Operator Stock

Point of

Sale

RM

Related Areas

Capabilities

Technical Capabilities

Product Related

Quality Capabilities

Delivery Capabilities

Cost Capabilities

Process Related

Operating Systems Related

Capabilities in: •Design •New Product Introduction •Feasibility Testing •Product Improvement

•Process Capability •Process Design •Automation •Reconfiguration

•CAD/CAM •CIM/FMS •JIT/MRP

•Specification Limits •Incoming Materials Control

•Process Capability •Testing Equipment •Workmanship (skills)

•Quality Assurance Program •Quality Circles •S.P.C. Program •Worker Training

•Product Mix •Materials Lead Time

•Capacity Level •Process Flexibility •Set-up Times (SMED)

•Order Entry System •Scheduling Flexibility •Transportation/ Inventory System

•Value Analysis •R&D Expenditure •Cost Reduction Programs

•Process efficiency •Capital Investment •Rationalisation of Work place

•Work Productivity •Indirect Costs •Control

Hahn, Watts, & Kim, 1990. Supplier Development Capabilities Matrix.

Key Problems

The open systems model of organisations

Mullins, L. (1996) Management and Organisational Behaviour, Pitman Publishing, London.p80.

ENVIRONMENT

INPUTS Series of activities

TRANSFORMATION OR

CONVERSION UNIT

Interrelated sub-systems

OUTPUTS ORGANISATIONAL GOALS

MEASURES OF ACHIEVEMENT

ENVIRONMENT

AIMS AND 0BJECTIVES

Outputs from other systems

Inputs to other systems

FEEDBACK FEEDBACK

An example of the open systems model

Mullins, L. (1996) Management and Organisational Behaviour, Pitman Publishing, London.p81.

ENVIRONMENTAL INFLUENCES • General economic health of UK industry • Opportunity of stricter pollution control legislation • Threat of same legislation • Competition • Share holders • Culture

INPUTS • Company products • Factored products • Staff • Technology • Management/sales/ technical expertise • Finance • Sub-contractors for installation, wiring, commissioning • Customers

TRANSFORMATION OR CONVERSION PROCESS • Comfortable and safe environments for customer businesses • Design of system • Selling of systems expertise • Provide customer with quality service •Staff development •Project management of customer order •Site presence •Innovation • Internal and external communication • Management commitment to customers and staff • Provide solutions to customer problems

OUTPUTS • Invoiced sales • Satisfied and committed staff • Reputation for excellence • Installations that are fit for purpose • Satisfy customers

ORGANISATIONAL GOALS • Market leadership • Growth • Profitability • To be the best in our field • To invest in our people and them as our greatest asset • To be professional and honest in our dealings • Delighted customers

MEASURES OF ACHIEVEMENT • Repeat business • Customer questionnaires • Budgets (expenditure, cash flow, profit, etc) • Margin performance • Staff appraisal and general feedback • Free of charge work • Volume of work (sales) • Relationship with specifiers (architects/consultants) and government agencies (Environmental Health/Fire Officers); support from group board

Forrester and Burbidge Effects

Forrester Effect

Burbidge Effect

Actual Demand Fluctuation

Mean

Mean

Factory orders

Factory orders

Amplified demand and low synchronisation

Effect of poor information flow and multi-phase ordering in a supply chain

Actual demand variation

Forrester, J.W. (1961), Industrial Dynamics, MIT Press. Burbidge, J. (1995) Back to production mangement, Manufacturing Engineer, 74 (2) pp66-71. Naim, M. (1997) The book that changed the world, Manufacturing Engineer, IEE, February 1997, pp13-16.

0 Time

Sales from store

Consumers

0 Time

Store’s orders to wholesaler

Manufacturer’s orders to its

suppliers

0 Time

Wholesaler’s orders to

manufacturer

0 Time

Retail Store

Whole -saler

Manuf-

acturer

Supplier

Supply Chain Dynamics

154

Waste (muda) Remember these process charting symbols?

Which of these symbols signify NON-VALUE-

ADDING activities?

OPERATION

MOVEMENT

INSPECTION

DELAY

STORAGE

12 Types of Waste:

• Over production

• Waiting time

• Transport

• Process (poor tooling, product

design)

• Inventory

• Motion

• Defective goods

• Over-designing

•

The aim is to influence the

THROUGHPUT EFFICIENCY

Other wastes identified since Ohno • Over-administration

– In accurate communications

• Under-utilisation of supply chain brain power

– Group think rather than teams

– The leader thinks everyone thinks the same as he/she does

– Too much dogma

• Untapped Resources

• Not asking for help, not asking for ideas, not asking good questions

• Mis-used Resources

• Not recognising true value

155

The Waste that was described by Gilbreth and Gilbreth (1916)

• Fatigue – taking a breather, working slower because the worker is tired

• Gilbreth, F., and Gilbreth, J. (1916) Fatigue Study: The Elimination of Humanity's Greatest Unnecessary Waste; A First Step in Motion Study, reprinted by Kessinger Publishing (2007)

156

157

Input Volume Required = Demand*(1 / 1 + (1- Yield)) Inspection Inspection Inspection Inspection

Yield Yield Yield Yield

0.9 0.9 0.9 0.9

Volume

Volume Volume Volume Volume Demanded

Required Required Required Required per day

7621 6859 6173 5556 5000

NOT 5500

2621

Net loss

762 686 617 556

Gross and Stage Shrinkage Ratios

52% 37% 23% 11%

11% 11% 11% 11%

Total Shrinkage = 34.39% Net Yield = 65.61%

158

Net loss

762 686 617 556

Gross and Stage Shrinkage Ratios

52% 37% 23% 11%

11% 11% 11% 11%

Total Shrinkage

= 34.39% Net Yield = 65.61%

159

Examples of Waste • Watching a machine run

• Waiting for parts

• Counting parts

• Producing parts that aren’t needed

• Moving parts over long distances

• Storing inventory

• Looking for tools or parts

• Machine breakdown

• Rework and scrap

• Products that don’t meet the needs of customers

160

Targets for Eliminating Waste • Zero defects

• Zero setup time

• Zero inventories

• Zero part handling

• Zero breakdowns

• Zero lead time

• Lot size of one

• Match products to customer needs

Strategic Perspectives

Chapter 1

Levels of Corporate Strategy

Corporate Strategy

Function 1 Strategy

Business Strategy

- What business to be in? - Allocation of cash to different businesses - Manage relationships between different businesses

- Defining mission of businesses - Defining strategic objectives - How to compete in the market - Co-ordinating functional strategies

- Contribution to business strategy - Establish performance improvement priorities - How to manage function’s resources to achieve functional objectives

Operations management and strategy requires analysis at three levels

Flow between operations

Analysis at the level of the supply network

Analysis at the level of the business operation

Flow between processes

Analysis at the level of the process

Flow between resources

Strategic analysis

Operational analysis

Operations strategy is …..

‘…. the total pattern of decisions ….

…. whilst managing the risks of misalignment ’ .

…. through the on-going reconciliation of market requirements and operations resources ….

…. and their contribution to overall strategy….

…. of any type of operation ....

…. that shape the long-term capabilities ….

…. so as to achieve a sustainable fit between the two ….

Level of analysis Concerned with the macro operation (level of the firm)

Micro

Operations management

Macro

Operations strategy

How is operations strategy different from operations management? (Continued)

Level of abstraction Concerned with the conceptual

Concrete

Operations management

Philosophical

Operations strategy

‘How do we improve our purchasing procedures?’

‘Should we develop strategic alliances with suppliers?’

How is operations strategy different from operations management? (Continued)

Stages of Business Development

Strategy Formulation Corporate Planning A Market Approach Long Range Planning Financial Control Entrepreneur

Suggested reading - Pages 253 - 255, Bowman and Asch

Products or services?

Manufacturing or non-manufacturing?

What is Operations Strategy about?

For profit or not-for-profit?

The sectoral scope of Operations Strategy

Operational Operations

Operational Finance

Marketing strategy

Operations strategy

Finance strategy

Technology strategy

The business model

The operating model

Business strategy

Functional strategies

Operational Marketing

Operational Technology

The relationship between the concepts of ‘the business model’ and the ‘operating model’

….sets the overall purpose and objectives for……

….defines how the business model will be achieved……

Contributing to the leadership team and aligning business and functional visions

C-suite’ expertise should include strength in his or her specialist technical area, leadership responsibility and the ability to make sure that their processes deliver the internal and external services that fulfil their organisational role.

Technical expertise Leadership

expertise

Process expertise

Being the trusted advisor to the business and representing your function’s perspective

Delivering your expertise through your service processes

Functional ‘Operations strategy’

Top-down Operations strategy should interpret higher- level strategy

Operations resources Operations strategy should build operations capabilities

Operations strategy should learn from day-to-day experiences

Bottom-up

Market requirements Operations strategy should satisfy the organisation’s markets

The four perspectives on operations strategy–top-down, bottom-up, market requirements and operations resources

Operations strategy

Top-down

Bottom-up

Corporate strategy

Business strategy

Emergent sense of what the strategy should be

Operational experience

Capacity

Supply networks

Process technology

Development and organisation

Market requirements

Quality

Speed

Dependability

Flexibility

Cost

The four perspectives on operations strategy–top-down, bottom-up, market requirements and operations resources

Operations strategy

Operations resources

Top-down and bottom-up perspectives of strategy for the Metrology Company

Corporate objectives impact on business objectives that, in turn, influence Operations Strategy

Top

-Do

wn

Corporate strategy

Business strategy

Bo

tto

m-U

p

Day-to-day experience of providing products and services to the market reveals problems and potential solutions that become formalised into Operations Strategy

Emergent sense of what the strategy should be

Operational experience

Operations strategy

Top-down and bottom-up perspectives of strategy for the Metrology Company (Continued)

Corporate objectives impact on business objectives that, in turn, influence Operations Strategy

Top

-Do

wn

B

ott

om

-Up

Day-to-day experience of providing products and services to the market reveals problems and potential solutions that become formalised into Operations Strategy

Group building corporate capability in high technology products and services Metrology division competes on ‘fast-to-market’ innovations

Experiment with ‘modular’ design of key products and components

Customers confused by continual product innovation and costs are increasing

Operations must have fast and flexible technology, supply relationships, process and staff

Modular strategy provides flexibility and innovation at relatively low cost

Operations Resources

Market Requirements

Operations strategy reconciles the requirements of the market with the capabilities of operations resources

Strategic Reconciliation

Operations Strategy

Tangible and intangible resources

Operations capabilities

Operations processes

Operations strategy

decision areas

Customer needs

Market positioning

Competitors’ Actions

Performance objectives

Understanding resources and processes

Strategic decisions Capacity Supply networks Process technology Development and organisation

Required performance Quality Speed Dependability Flexibility Cost

Understanding markets

Operations strategy reconciles the requirements of the market with the capabilities of operations resources (Continued)

The ‘market requirements’ and ‘operations resource’ analysis of a lighting company

Resources

Equipment

Staff

Reputation

Relationships (internal and external)

Experience

Capabilities

Application of leading-edge lighting and sound technology

Articulation of client requirements

Processes

Integration of equipment supply and client requirements

Design process

Supplier liaison process

Operations strategy decisions

Location

Virtual reality technology

Supplier development

Equipment tracking system

Organisational structure

Staff meetings

Customers

Professional theatres (static, low margins)

Exhibitions (slow growth, low margins)

Conferences, etc. (fast growth, higher margins

Market position

Traditionally differentiated on high service level in theatre and exhibition markets, innovation and service in conference market

Competitors

Big groups dominating professional theatres

In-house operations growing in exhibitions market

Conference market still fragmented

Performance objectives

Aesthetically innovative designs

Presentation advice

High customisation of lighting solutions

Fast and dependable supply

Operations strategy …..

‘… the decisions which shape the long-term

capabilities of the company’s operations and their

contribution to overall strategy through the on-

going reconciliation of market requirements and

operations resources …’

PERFORMANCE OBJECTIVES

The market perspective analysis of a garment company

MARKET POSITION Differentiation on:

CUSTOMERS Segmentation on:

Age – youth

Purpose – general

COMPETITORS Traditionally weak in:

Innovative products Time to market Product range Coordinated launches

Promotion Design innovation

Dependability Speed of delivery Product mix flexibility Speed to market

Promotions and the marketing mix:

a sequential model

TOTAL

AVAILABLE

MARKET

0

100%

MARKETING MIX DECISIONS

P

R

O

D

U

C

T

P

R

I

C

E

P

L

A

C

E

ADV

PR

and

SALES

SALES

PROMOTION

Core

Consumers

Marginal

Consumers

Competitors'

Share

Source: Peattie, S. and Peattie, K. (1999) Sales Promotion, in Baker, M. (1999)

The Marketing Book (4th edition), Butterworth-Heinemann, Oxford, 418-442.

Intended outcome Actual outcome

1. Increase advertising spend

2. Gain a few extra points in market share so your new

boss can make a mark

1. You increase advertising

spend

2. Competitor reviews account and

changes ad agency

4. Competitor attracts media interest, better employees and higher status with customers

3. Competitor’s new campaign a success - they

gain image as the most dynamic firm in the market

5. Market moves to new position, where

competitor has gone from 15 to 30% share,

mostly at your expense

In complex, non-linear systems, actions can quickly lead to self-reinforcing virtuous or vicious spirals

Source: Peattie and Peattie, Marketing Handbook.

Capabilities

Resources

•Tangible: Equipment Staff

Processes

Reputation Relationships (internal and external) Experience

•Intangible:

•Application of leading-edge lighting and sound technology •Articulation of client requirements

•Integration of equipment supply and client requirements •Design process •Supplier liaison process

Operations strategy decisions

•Location

•Virtual reality technology

•Supplier development

•Equipment tracking system

•Organisational structures

•Staff meetings

The operations resource perspective analysis of the lighting company

What you HAVE

in terms of operations capabilities

What you NEED

to ‘compete’ in the market

Operations Resources

Market Requirements

What you WANT

from your operations to help you ‘compete’

What you DO

to maintain your capabilities and satisfy markets

Strategic Reconciliation

Building blocks of Operations Management KLASSEN, R., 2006, Cases in Operations Management, Sage Publications, California.

Make or Buy • Most businesses do not do all of the following:

• design, create raw materials, make parts, assemble, test, transport,

• Short technology life cycles, development costs

• Short life cycles,

• Low/insufficient capacity,

• Low/insufficient finance,

• Low/insufficient quality

• Risk is too high,

• Costs too high

Value Chain Fight Deconstruction & Value Migration in PC Industry

IBM – 1985

Microchip design and manufacturing

Computer assembly

Applications software

Marketing, sales, and

distribution

Operating systems

IBM

OS/2

PC industry - 2000

Reconstruction

Intel

Motorola

AMD Cyrix

Compaq

Dell

Apple

Packard Bell DOS and Windows

UNIX

Mac OS

Microsoft Office

WordPerfect

Others

CompUSA

Sam’s Club

PC-order.com

Mail order

NeXt Dell

Resellers

Resellers

Resellers

Source: The Boston Consulting Group

IBM

Marketing & Operations

• Does the company make what is sells?

• Does the company sell what it makes?

• Know the name of the customer?

– Made for a customer?

– Made for a market segment?

DES

IGN

PR

OC

UR

E

FAB

RIC

ATI

ON

SUB

ASS

EMB

LE

FIN

AL

ASS

EMB

LE

TEST

PAC

K

SHIP

= YES

= NO

= PERHAPS

MAKE-TO-STOCK

ASSEMBLE TO-ORDER

ENGINEER-TO-ORDER

MAKE-TO-ORDER

Elements impacting on lead-time.

Manufacturing Policies / Strategies

Source: APICS

RECALL RUNNERS, REPEATERS AND STRANGERS

a. Runners are made to stock and/or assembled

to order

b. Repeaters are assembled to order

c. Strangers are engineered to order

d. Non-core parts of runners, repeaters and

strangers are purchased to order

e. Strangers are made to order

Runners have time to evolve – continuous

improvement – kaizen

Repeaters more likely to have stepped

improvement

Strangers – design to order, can be over

engineered. Cost per unit includes design

overhead, part purchase cost, set-up by skilled

employees, PPAP, manufacturing, inspection

and test, distribution, commissioning, customer

final approval

Manufacturing Policies / Strategies

Identify your own examples

http://www.instructables.com/id/Red-car-Yellow-car-Mini-The-reaction-sport/

Customer Appreciated Variants

• As soon as you paint a car red, you can only sell it to someone that wants a red car.

http://auto.howstuffworks.com/smart-car.htm

Customer Appreciated Variants

• Exception to the rule - SMART

http://en.wikipedia.org/wiki/File:Smart_car.jpg

http://siliconcontrols.ca/system%20integration.htm

http://www.globaltextiles.com/tradeleads/detail/007/569202/Buy-Velcro-Tape.html

Spot weld and Velcro

• Smart velcro on variant parts – door skins. Other manufacturers glue them on so paint inside and outside together.

• After two years, a SMART owner may have a different colour, -takes 2 hours with appointment.

• Change colour of a conventional car – 1 month and many thousands of €

• SMART cars get stronger. Spot welded cars get weaker.

Conventional Sweater Product Variety Funnel YARN

GAUGE

YARN

KNIT

KNIT

SIZE

DYE

COLOUR

PACKED

PRODUCT

(FGS)

PACK

VARIANT

FLEXIBILITY

LEAD TIME

PACK

SIZE

COLOUR

GAUGE

(TUBE)

CUT

PIECE

PARTS

SEW

PRODUCT

PIECE PART CUT

(SIZING)

Source: Hines 2005 http://odette.test.litium.se/BinaryLoader.axd?OwnerID=8cef647a-7510-44b3-9149-8b24cd7adfb7&OwnerType=0&PropertyName=File1&FileName=Peter%20Hines.pdf

Strategy Focus

• Low varety

• High volume of standard items – large infrequent batches

• Potentially a commodity – hence low unit sales price

• Long lead times

• Production focus – make to forecast & low unit cost

Product Variety Funnel

YARN

GAUGE

YARN

KNIT

KNIT

SIZE

DYE

COLOUR

PACK

VARIANT

FLEXIBILITY

LEAD TIME

PACK

SIZE

COLOUR

GAUGE

CUT SEW

PRODUCT

PIECE

PART CUT

(SIZING)

Adapted to suit

United Colors of

Benetton strategy

Source: Hines 2005 http://odette.test.litium.se/BinaryLoader.axd?OwnerID=8cef647a-7510-44b3-9149-8b24cd7adfb7&OwnerType=0&PropertyName=File1&FileName=Peter%20Hines.pdf

Check This Out

• http://bookboon.com/en/textbooks/management-organisation/fundamentals-of-supply-chain-management

Strategy Focus • High variety • High gross volume of low volume variant

items • Made to replenish • Low lead time • Frequent mix adjustments • Little need to hold ‘Sales’ hence hold unit

sales price

• Production focus – Product mix flexibility and short delivery lead times

• Produce based on actual orders

Profit Total assets

Output Total assets

Profit

Output =

×

Decomposing the ratio profit/total assets to derive the four strategic decision areas of operations strategy

Output Total assets

Output Capacity

Fixed assets Total assets

Capacity Fixed assets

Utilisation Working capital Productivity of fixed assets

= × ×

Operations strategy decision areas

Capacity Supply network

Process technology

Development and organisation

Profit Output

Revenue Output

Cost Output

Average revenue

Average cost

= –

Options for Increasing Contribution

Sales $100,000 $150,000 $100,000 $100,000

Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000

Gross Margin 20,000 30,000 20,000 36,000

Finance Costs – 6,000 – 6,000 – 3,000 – 6,000

Subtotal 14,000 24,000 17,000 30,000

Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500

Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

Finance/ Marketing Accounting OM Option Option Option Increase Reduce Reduce Sales Finance Production Current Revenue 50% Costs 50% Costs 20%

Operation’s and the Bottom Line Reduce Purchasing Increase Sales

SALES £ 1000 £ 1000 £ 1050

COST OF

SALES

Manuf' inc O/H £ 300 30 % £ 300 30 % £ 315 31,5 %

Purchases £ 600 60 % £ 570 57 % £ 625 62,5 %

£ 900 10 % £ 870 13 % £ 940 6 %

GROSS

PROFIT £ 100 10 % £ 130 13 % £ 110 11 %

INCREASE 0 0 % 30 30 % 10 10 %

Increase Price Reduce Manuf' O/H

SALES £ 1050 £ 1000

COST OF

SALES

Manuf' inc O/H £ 300 30 % £ 285 28,5 %

Purchases £ 600 60 % £ 600 60 %

£ 900 10 % £ 885 11,5 %

GROSS

PROFIT £ 150 15 % £ 115 11,5 %

INCREASE 50 50 % 15 15 %

Steele and Court, (1996)

Is it easy to do?

£ Difficulty

Increase sales prices by 5% without losing volume 50,000 Very high

Increase sales volume by 5% 10,000 Very high

Reduce manuf’ and O/H costs by 5% 15,000 High

Reduce purchase costs by 5% 30,000 Moderate

Reduce logistics costs by 5% 6,250 Moderate

Steele and Court, (1996)

OPERATIONS MANAGEMENT

DEFINITION Operations Management is about the way that organisations produce goods and services. It concerns the concepts, methodologies, techniques and technologies used by managers in the transformational process of using resources to provide the output of goods and services.

Sale of Goods and

Services

OUTPUT INPUT

Purchase Materials People

Finance Customers Information Facilities

THE TRANSFORMATION

PROCESS

Primary resources are Time, Money & People

Look up ‘The HP Way’

Source: Waller

The Critical Decisions

Service and product design What good or service should we offer? How should we design these products and

services?

Quality management How do we define quality? Who is responsible for quality?

Table 1.2 (cont.)

The Critical Decisions

Process and capacity design

What process and what capacity will these products require?

What equipment and technology is necessary for these processes?

Location

Where should we put the facility?

On what criteria should we base the location decision?

Table 1.2 (cont.)

Most Important Decision -

Most Infrequent Decision

Where do you want to be?

Ask:

Where are customers?

Where are suppliers?

How can we achieve ‘flow’ from suppliers to

customers?

The Critical Decisions Layout design

How should we arrange the facility and material flow?

How large must the facility(ies) be to meet our plan?

Human resources and job design How do we provide a reasonable work

environment? How much can we expect our employees to

produce?

Table 1.2 (cont.)

The Critical Decisions

Supply-chain management

Should we make or buy this component?

Who are our suppliers and who can integrate into our e-commerce program?

Inventory, material requirements planning, and JIT

How much inventory of each item should we have?

When do we re-order?

Table 1.2 (cont.)

The Critical Decisions

Intermediate and short–term scheduling

Are we better off keeping people on the payroll during slowdowns?

Which jobs do we perform next?

Maintenance

Who is responsible for maintenance?

When do we do maintenance?

Table 1.2 (cont.)

New Challenges in OM

Global focus

Just-in-time

Supply chain

partnering

Rapid product

development,

alliances

Mass

customization

Empowered

employees, teams

To From

Local or national focus

Batch shipments

Low bid purchasing

Lengthy product development

Standard products

Job specialization

OPERATIONS MANAGEMENT The Japanese have shown us how important operations are in providing what the customer needs. Operations can make changes which have a big impact on a company’s success.

SIMPLIFYING

separating - division of labour unifying - core competence & self directed work teams common understanding

GETTING DOWN TO BASICS

doing work BETTER, FASTER, CHEAPER, MORE FREQUENTLY, CLOSER, GREENER & HAPPIER/PROUD

CUTTING OUT WASTES

reduce costs, rework, scrap - righter first time MORE POPULAR (it works, less left over for the sales),

USING ‘SMART’ PEOPLE

awareness, training problem solving skills support & leadership

Operations strategy

Perf

orm

ance

ob

ject

ives

Quality

Speed

Dependability

Flexibility

Cost

Development and Organisation

Capacity Supply network

Process technology

Decision areas

Mar

ket

com

pet

itiv

enes

s

The operations strategy matrix

Resource usage

COST in terms of minimising… •operating cost •capital cost •working capital

QUALITY of products and services

Speed and dependability combined to indicate AVAILABILITY

FLEXIBILITY of response to sales and customers trends

Area dominance reduces distribution and advertising costs

•Location of stores •Size of stores

Distribution centre grouping by temperature

Distribution centres and inventory management systems give fast stock replenishment

TIS allows trends to be forecast and supply adjustments made

Common distribution centres give small, frequent deliveries from fewer sources

•Number and type of distribution centres •Order and stock replenishment

TIS gives comprehensive and sophisticated analysis of sales and supply patterns daily

•The Total Information System (TIS)

Information sharing and parenting system spreads service ideas

Field counsellors with sales data help stores to minimise waste and increase sales

•Franchisee relationships •New product/service development •Approach to operations improvement

DEVELOPMENT AND ORGANISATION

PROCESS TECHNOLOGY

SUPPLY NETWORKS CAPACITY

Resource Deployment

Mar

ket

Co

mp

etit

ive

nes

s

very critical critical secondary

7-11 JAPAN

The stages of the process of operations strategy

Operations strategy

Formulation

Operations strategy

Implementation

Operations strategy

Monitoring

Operations strategy Control

Manufacturing

Strategy

Corporate

Strategy

Purchasing

Strategy

Financial

Strategy

Manpower

Strategy

Marketing

Strategy

Product

Strategy

Functional Inter-Relationships

What Operations Managers Do

Planning

Organizing

Staffing

Leading

Controlling

Basic Management Functions Next year’s budget is this year’s

budget plus inflation

•Seeking opportunities

•Persuading,

•Selling ideas and solutions

•Change management

•Project management

•New staff training

•Budget creation and management

Operations Management Waller’s Definition

• Operations management is the planning, organising, and control of all the resources and activities to provide goods and services. It applies equally to manufacturing, and services in the private and public sector, and even government.

Planning ≠ Helping others understand the process and let them learn

Organising ≠ Creating and supporting self directed work teams

Control ≠ Giving empowerment to workers and staff

≠ saying I trust you will do what is right for the company and

yourself

Broad strategic objectives for a parcel delivery operation applied to stakeholder groups

Society Increase employment

Enhance community well-being Produce sustainable products

Ensure clean environment Customers

Appropriate product or service specification

Consistent quality Fast delivery

Dependable delivery Acceptable price

Suppliers Continue business Develop supplier

capability Provide transparent

information

Shareholders Economic value from

investment Ethical value from

investment

Employees Continuous employment

Fair pay Good working conditions

Personal development

Parcel delivery

Five Forces Perspective of Influences New Entrants

Economies of Scale, Product Differentiation, Capital Requirements, Switching Costs, Access to Distribution Channels, Cost Advantages Independent of Scale. Potential new suppliers. Develop new suppliers.

Rivalry from Existing Competitors Concentration, Product Life Cycle, High Fixed Costs, Lack of Differentiation, Capacity, Exit Barriers. Rivalry amongst Existing Suppliers

Substitute Products Low Cost Alternatives, Needs v Wants, Technology. All are Sources of Customer Power & Supplier Competitive Advantage

Power of Suppliers Concentration, Substitutes, Size of Market, Technology, Switching Costs, Forward Integration, Labour.

Power of Buyers Concentration, Component Cost, Little Differentiation, Profits, Backward Integration, Quality.

Manufacturing Strategy

Manufacturing Strategy

Product Manufacturing Management Business

Design System Design System Design Environment

Market Make/Buy Organization Macro-

Needs Process choice Info. Systems Economic

Demand Capacity Planning/Control Changes

Mfg. Layout

The process provides a framework for strategy development

Manufacturing Strategy - the process

Corporate Marketing Order Manufacturing Strategy Objective Strategy Winners Process Infrastructure Choice

Growth Product markets Price Process choice Function support and segments Quality Trade off's orgn. structure

Survival Product range Delivery Inventory level Planning control

Profit Product mix Reliability Process span Mfg. system eng.

Return to Volumes Colour Make-buy Quality assurance investors Standardisation Range Capacity Work/job design

Innovation Design Timescales Orgn. culture

Leader/follower Image, Support Payment system Location Clerical procedures

1 2 3 4 5

iteration

Source: Manufacturing Strategy, Terry Hill

• Facilities

• Capacity

• Span of process

• Processes

• Human resources

• Quality

• Control policies

• Suppliers

• New Products

The existing operation

What do we need to do to improve the revised operations

strategy?

What the market wants?

• Features • Quality • Delivery • Flexibility • Price

Opportunities and threats?

The Platts-Gregory procedure

How the operations performs

• Features • Quality • Delivery • Flexibility • Price

The operations function can provide a competitive advantage through its performance at the five competitive objectives

Quality Being RIGHT

Speed Being FAST

Dependability Being ON TIME

Cost Being PRODUCTIVE

Being ABLE TO CHANGE Flexibility

Product family

Reliability Into stock point Variable

Critical: Project delay Good

Features Fit for purpose Few features

Many features/ High absolute level

Total reliability essential High

Flexibility design Standard range only

Standard only

Quality Acceptable at price Acceptable

All designs customer specified All products customised

Stable market Little variation required Volume variations low

Highly cyclic variable market Volume variations high

Delivery lead-time Ex-stock Short Not significant Long

Volume

Price cost Price competition dominant Low

Non-price competition dominant High

Achieved performance Market requirements

Uses of profiling in the Platts-Gregory procedure

The Integrated Materials Value Pipeline

Source: Hines, P. (1994) Creating World Class Suppliers: Unlocking Mutual Competitive Advantage,

Pitman Publishing - Financial Times Series, London, p49.

Jointly

define

value

at each

stage

Marketing team

Materials team

Engineering team

Quality team

R & D team

Design team

Defined

product

value and

volume

Primary

activity

Secondary

activity

Transparent costing system

HRM / Training / Education

TQM / Kaizen

EDI - Electronic Data Interchange (or Integration)

Profit

Consumer Customer

Chain

Outbound

Logistics

Inbound

Logistics Operations

Raw

Materials

Order Winners and Qualifiers

Order qualifiers are the criteria to be satisfied in order to be considered as a supplier (needs).

Order winners are those criteria by which a customer decides to purchase the product (demands).

Order Winners are the source of competitive advantage.

Price Delivery reliability Quality in design Delivery speed Manufacturing quality Volume variation Product range Existing supplier Product features Brand name Technical competence Technical support Speed to market After sales service

Order winners and qualifiers are time and market specific

Order-Winners as Performance Measures

- Quality - % defects, warranty claims, customer satisfaction - Cost - product, inventory, total ownership cost for BOF - Dependability - % on-time delivery, supplier schedule changes - Service - customer enquiry response time, no. of complaints - Speed - throughput time, new product development, set-up - Flexibility - batch sizes, set-up time, P/D ratio

Chapter 2

1946–1951 Implementing

strategy

Building up capacity and capability

Simple design

Standardised design Systemisation of resources and process

Emerging, any

working vehicle

Maturing, simple robust vehicle

Minor reconfiguration for new model

More sophisticated performance, quality

New 1500 model

Operations resources

Market requirements

1952–1958 Continuity of

strategy

1959–1964 Minor change and continuity

Strategic reconciliation

Operations Strategy of Volkswagenwerk (1920–2008) (Continued)

1965–1970 Search for

viable strategy

Fragmented acquisition of new resources

Multiple new designs

Defined range Adapt best practices from enlarged group

Uncertain rejection of VW traditional

products

Clarifying around style, quality and

variety

Accommodate new models and acquisitions

Segmentation around performance, style and

variety

Product development paths

Operations resources

Market requirements

1971–1975 Emergent strategy

1976–1979 Continuing with minor

changes

Operations Strategy of Volkswagenwerk (1920–2008) (Continued)

Strategic reconciliation

1990–1996 Major change

(internal)

Drastic reconfiguration to increase efficiency, reduce costs

Design for low- cost manufacture

Common product platforms

Continuous process improvement and cost reduction

Increasingly competitive

around price

Branding with price, quality and

style

Lean process improvement and more low-cost locations

Increasingly competitive around

price and innovation

Modular design

Operations resources

Market requirements

1997–2000 Implementing

strategy

2001–2008 Implementing

refined strategy

Operations Strategy of Volkswagenwerk (1920–2008) (Continued)

Strategic reconciliation

Trade-offs

‘Do you want it good, or do you want it Tuesday?’

‘No such thing as a free lunch.’

‘For instance, no one today can design a 500-passenger plane that

can land on a carrier and also break the sonic barrier.’ (Skinner)

‘Trade-offs in operations are the way we are willing to sacrifice one

performance objective to achieve excellence in another.’

X

Cost efficiency

Var

iety

A

C

D

B

The ‘efficient frontier’ A

X C

D

Cost efficiency V

arie

ty

B

The new ‘efficient frontier’

B1

The ‘efficient frontier’ view

To what extent do ethical and financial performance trade-off?

Ethical performance Fi

nan

cial

p

erf

orm

ance

Societal pressure + reputational risk defining minimum ethical standards

Stockholder expectations

defining minimum financial

standards

Ethical performance

Fin

anci

al

pe

rfo

rman

ce Repositioning

between ethical and financial

performance

The efficient frontier between ethical and financial performance

Changing the balance (trade-off) between ethical and financial performance

Simultaneously improving both ethical and financial performance, partly because extreme positions on either are becoming less acceptable

Kano Model of Customer Satisfaction Customer

Satisfaction

Very

High

Very

Low

Excitement

Features

Performance

Features

Basic

Features

Time

High Low

Degree of Achievement

Smith

Stakeholder View of an Organisation

Capital Investment

Skills & Effort

Wages & Salaries

Products or Services

Payment for Goods

Taxation Legislation &

Social Infrastructure

Payment for Materials

Materials or Services

Profit

Share

Holders Job

Holders

Customers

Government

Suppliers

Smith

Stakeholders Inputs & Outputs INPUTS

• Shareholders - Investment • Job holders - Skill & effort • Customers - Payment for goods • Suppliers - Materials or services • Government - Legislation - Infrastructure

OUTPUTS

• Shareholders Dividends • Job holders Wages & salaries • Customers Products or services • Suppliers Payment for materials • Government Co. Tax V.A.Tax

S Y S T E M

Smith

Added Value Sales - Materials - Wages - Taxes = Profit Sales - Materials = Wages + Taxes + Profit Left = Net Revenue = Added Value = Right L = Wealth Created = Wealth Distributed = R

Added Value

Profit Wages

Taxes

02 Stake 6

Smith

Productivity & Wealth Creation

Fixed Sum View

Conflict over the SHARE of the

Wealth

Productivity enables Profit & Wages to rise simultaneously

Variable Sum View

Co-operation to raise the

SIZE of the

Wealth

Taxes

More social services

Complexity in Organizations Traditional view Large units are efficient

Small units duplicate resources

Modern view Large units are complex

Complexity causes inefficiency

Small units enable better

communication & involvement

Duplication of resources can be

justified if it reduces complexity

and increases productivity

Strategic Business Units

To reduce complexity a large organization can be split

into a number of smaller business units.

These are focussed, semi-independent units

They enable decentralized decision-making

They enable motivation through involvement

Each unit treats others as suppliers & customers

• Plant-within-a-Plant

Profit Centre

• Internal Market

• Autonomous Work Groups

Strategic Business Units

Chapter 3

Substitutes for strategy

Look at four of the most commonly adopted approaches to operations that are often used as ‘substitutes for strategy’

Total Quality Management

Lean operations

Business Process Reengineering

Six Sigma

The Flow of Activities Organizational Practices Leadership, Mission statement, Effective operating

procedures, Staff support, Training Yields: What is important and what is to be accomplished

Quality Principles Customer focus, Continuous improvement, Benchmarking,

Just-in-time, Tools of TQM Yields: How to do what is important and to be

accomplished

Employee Fulfillment Empowerment, Organizational commitment Yields: Employee attitudes that can accomplish

what is important

Customer Satisfaction Winning orders, Repeat customers Yields: An effective organization with

a competitive advantage Source: Heizer and Render

‘an effective system for integrating the quality

development, quality maintenance and quality

improvement efforts of the various groups in an

organisation so as to enable production and service at

the most economical levels which allow for full customer

satisfaction’

Feigenbaum (generally held to be the originator of the term) defines TQM as………

The elements of TQM

Meeting the needs and expectations of customers

Covering all parts of the organisation

Including every person in the organisation

Examining all costs that are related to quality, especially failure costs

Getting things ‘right first time’

Developing the systems and procedures that support improvement

Leadership People

Policy and strategy

Partnership and resources

Processes People results

Customer results

Society results

Key performance results

EFQM excellence model

People

Policy and

strategy

Partnership and

resources

Processes People

results

Customer

results

Society

results

Key

performance

results

EFQM excellence model - Leadership

Leadership – how leaders

develop and facilitate the

achievement of the mission

and vision, develop values

required for long-term

success and implement these

through appropriate actions

and behaviour, and are

personally involved in

ensuring that the

organisation’s management

system is developed and

implemented

Policy and strategy – how the

organisation implements its mission

and vision through a clear stakeholder-

focused strategy, supported by

relevant policies, plans, objectives,

targets and processes.

Processes People

results

Customer

results

Society

results

Key

performance

results

EFQM excellence model – People, policy and strategy, partnerships and resources

People – how the organisation

manages, develops and releases the

knowledge and full potential of its

people.

Partnerships and resources – how

the organisation plans and manages

its external partnerships and internal

resources to support its policy and

strategy and the effective operation of

its processes.

Leadershi

p

Leadership People

Policy and

strategy

Partnership

and resources

People

results

Customer

results

Society

results

Key

performance

results Processes – how the

organisation designs,

manages and improves its

processes in order to

support its policy and

strategy and fully satisfy

and generate increasing

value for its customers

and other stakeholders.

EFQM excellence model – Processes

Processes People

Policy and

strategy

Partnership

and resources

Key

performance

results

EFQM excellence model – People results, customer results and society results

Customer results – this includes

customers’ loyalty and their

perceptions of the organisation’s

image, product and services, sales

and after-sales support.

People results – this covers

employees’ motivation, satisfaction,

performance and the services the

organisation provides for its people.

Society results – this relates to the

organisation’s performance as a

responsible citizen, its involvement in

the community in which it operates

and any recognition it might have

received.

Leadershi

p

People

Policy and

strategy

Partnership and

resources

Processes People

results

Customer

results

Society

results

EFQM excellence model – Key performance results

Key performance results –

this shows the financial and

non-financial outcomes of

the organisation’s planned

performance, including such

things as cash flow, profit,

meeting budgets, success

rates and the value of

intellectual property.

Leadership

Decision areas

Mar

ket

com

pet

itiv

enes

s

Process Technology

Resource usage

TQM elements in the four operations strategy decision categories

Development and Organisation

• Provide resources to support quality

• Use quality as performance criterion

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Capacity

Supply Network

Capacity

Decision areas

Capacity Process

Technology

Resource usage

Development and Organisation

• Continuous quality emphasis with suppliers

• Purchase using quality criterion

• Work on functional barriers

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Supply Network

Supply Network

TQM elements in the four operations strategy decision categories (Continued)

Mar

ket

com

pet

itiv

enes

s

Decision areas

Capacity Supply

Network Process Technology

Resource usage

Development and Organisation

• Built-in quality in process

• Statistical process control

• Enhance quality capability

• Quality as a performance criterion

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Process Technology

TQM elements in the four operations strategy decision categories (Continued)

Mar

ket

com

pet

itiv

enes

s

Decision areas

Capacity Supply

Network

Mar

ket

com

pet

itiv

enes

s

Process Technology

Resource usage

Development and Organisation

• Long-term plans

• Quality culture

• Continuous improvement

• Quality performance measurement and control

• Training and education emphasis

• Operational supervision is important

• Communication

• Appropriate organisational structure

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Development and Organization

TQM elements in the four operations strategy decision categories (Continued)

MRP and Lean/JIT

Suitability of JIT, MRPII, MRP & PERT for Controlling Production

JIT

JIT + MRPII

PERT

MRP

Simple

routings Complex

routings

Simple

structures

Complex

structures

Bicheno, J. R., (1988) A Framework for JIT Implementation,

in Voss, C. (Editor) (1988) Just-In-Time Manufacture, IFS (Publications) Ltd UK, Springer-Verlag, pp 191-204.

MRPII: Manufacturing Resource Planning

PERT: Programme Evaluation Review Technique (critical path for project planning)

(MS Project)

Questions

• What is the most expensive component on a computer?

• What is the most expensive component on an aeroplane?

• What is the most expensive component on a car?

Answer

• The one you don’t have.

• If you don’t have it, you can’t build the product. You then can’t get paid for it and hence your cash flow suffers.

Natural disasters – fire, earthquakes, tusnami etc,

Strikes

Raw material shortages

Late and erratic deliveries

Material Requirements Planning (MRP)

Part Master

BOM

Inventory Control

Sales Order Processing

Purchase Order Processing

MPS

CRP MRP Works Order Processing

MPS – Master Production Schedule

CRP – Capacity Requirements Planning

BOM – Bill of Material

Provided by Greenfield

Manufacturing Resource Planning (MRPII)

Part Master

BOM

Inventory Control

Sales Order Processing

Purchase Order Processing

Sales Ledger

Purchase Ledger

MPS

CRP MRP Works Order Processing

General Ledger

If properly configured an accounts package can do MRP runs, i.e Sage.

Provided by Greenfield

Inventory Management

A

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent Demand

Dependent Demand Sales

Production

Low Level Code The lowest level at which a part occurs in the BOM relationships

M1

P1 M2

P2 P3 2

1

0

2 off

Low level code : 0 M1

1 M2 P1

2 P3 P2

Low Level Code The lowest level at which a part occurs in the BOM relationships

M1 M3

P1 M2 M4 P4

P2 P3 P5 P6 M5

M6

P2 4

3

2

1

0

3 off

2 off 4 off

2 off

10 off

2 off

Low level code : 0 M1 M3

1 M2 M4 P1 P4

2 P3 P5 P6 M5

3 M6

4 P2

How many P2s do you need to order to make 1 M1 plus 1 M3 ?

242 = (1*3*4*10*2)+(1*1*2) 24200 = 100*((1*3*4*10*2)+(1*1*2))

How many P2s do you need to sell 100 M1s and 100 M3s ?

Lead-Times

• In purchasing systems, the time between recognition of the need for an order and receiving it. This is comprised of the lead times for production items plus administrative delays.

• In production items, it is the order, wait, move, queue, setup, and run times for each component (at each work station through the sequence of steps required to produce the good. Each step may be done by different companies, in different countries, or for example integrated on a single campus or under a single roof.)

Which activities add cost and which add value?

COST-ADDED

Production, Storage & Transport costs & the Time Cost of Money

VALUE-

ADDED

Time,

Place &

Form

Utility

Raw Material

Stock

Production

Finished

Product In-

Transit

Regional

Stock

Customer

Order

Cycle

Source: Martin Christopher (1997)

Question

• How long does it take to make 10?

• 10 times longer than it takes to make 1

Which activities add cost and which add value?

COST-ADDED

Production, Storage & Transport costs & the Time Cost of Money

VALUE-

ADDED

Time,

Place &

Form

Utility

Finished

Product

After: Christopher (1997)

Return on Capital Employed

More Sales Higher prices

Lower Costs Lower Overheads

Reduce Inventories Reduce Fixed Assets

Reduce Debtors Increase Creditors

PROFIT

CAPITAL EMPLOYED R.O.C.E. = % Major focus

for JIT

Improved

Designs

Dell model

Credit first

Then make

Supplier*

Payments

*Toyota 120 Days

after end of assembly

approval (not

extracting from stock)

Halfords 120 days

after sale, Norauto &

Midas copied this

Source: Saunders 1997

MRP Example

Week 1 Week 2 Week 3 Week 4 Widgets

100 50

60

20 80 -20 -50

20 50

20 50

Gross requirements

Scheduled receipts

On hand

Net requirements

Planned order releases

Time Phased Order Point, TPOP (Independent Demand)

Demand, forecast

Open, released orders

(Scheduled Receipts)

Projected available

balance (On hand)

Net requirements

Planned order receipts

Planned order releases

50 75 100 100 100 100 100 100

200

1 2 3 4 5 6 7 8

Periods

SKU :

Safety stock : 50

Order quantity : 200

Lead time : 3

Stock on hand : 150

150

Source: APICS

Material Requirements Planning, MRP

Demand, forecast

Open, released orders

Projected available

balance

Net requirements

Planned order receipts

Planned order releases

50 75 100 100 100 100 100 125

200

100 225 125 225 125 225 125 200

25 25 50

200 200 200

200 200 200

1 2 3 4 5 6 7 8

Periods

SKU : LCD projector

Safety stock : 50

Order quantity : 200

Lead time : 3

Stock on hand : 150

150

Source: APICS

Distribution environment

Demand, forecast

Open, released

orders

Projected

available balance

Net requirements

Planned order

receipts

Planned order

releases

50 75 100 100 100 100 100 125

200

100 225 125 225 125 225 125 200

25 25 50

200 200 200

200 200 200

1 2 3 4 5 6 7 8

150

SKU : LCD projector

Safety stock : 50

Order quantity : 200

Lead time : 3

Stock on hand : 150

Demand, forecast

Open, released

orders

Projected

available balance

Net requirements

Planned order

receipts

Planned order

releases

50 50 50 25 25 25 125 50

100

75 25 75 50 25 100 75 25

25 50

100 100

100 100

1 2 3 4 5 6 7 8

125

SKU : LCD projector

Safety stock : 25

Order quantity : 100

Lead time : 2

Stock on hand : 125

Periods Periods

Warehouse 1 Warehouse 2

Demand, forecast

Open, released

orders

Projected

available balance

Net requirements

Planned order

receipts

Planned order

releases

200 200 100 200

100

250

150 150 200 100 50 50 50 50

250

250

250

1 2 3 4 5 6 7 8

350

SKU : LCD projector

Safety stock : 50

Order quantity : 250

Lead time : 4

Stock on hand : 250

Periods

Central Warehouse

W1 W2

CW

(400) (750)

750+400 =1150 ?

No 800 !

Source: APICS

MRP and dependent demand

Demand, forecast

Open, released

orders

Projected

available balance

Net requirements

Planned order

receipts

Planned order

releases

50 75 100 100 100 100 100 125

200

100 225 125 225 125 225 125 200

25 25 50

200 200 200

200 200 200

1 2 3 4 5 6 7 8

150

SKU : M2

Safety stock : 50

Order quantity : 200

Lead time : 3

Stock on hand : 150

Gross requirements

Open, released

orders

Projected

available balance

Net requirements

Planned order

receipts

Planned order

releases

200 200 200

800

100 100 700 700 500 500 500 500

1 2 3 4 5 6 7 8

300

SKU : P3

Safety stock : 50

Order quantity : 800

Lead time : 1

Stock on hand : 300

Periods

Periods

Gross requirements

Open, released

orders

Projected

available balance

Net requirements

Planned order

receipts

Planned order

releases

400 400 400

1600 1600 1200 1200 10800 10800 10800 10800

200

10K

10K

1 2 3 4 5 6 7 8

2000

SKU : P2

Safety stock : 1000

Order quantity : 10000

Lead time : 3

Stock on hand : 2000

Periods

M2

P2 P3

2 off

750

Source: APICS

There can be many sources of demand

Netted sales forecast

Customer orders

Dependent demand

Interplant orders

Warehouse orders

Charity donations

Special marketing promotion

Safety stock increase

Anticipation buildup

Prototype build

Total

50 60 60 70 90 100 100 100

50 40 40 30 10

50 50 50 50

10 10 10

20 20 20 20

5

10 10 10

10 -10

5 10 15

5 5

160 130 165 130 160 130 175 135

1 2 3 4 5 6 7 8

Hedging stock allows the gross demand to be balanced. Orders can

replace hedging volume. The volume is put back to a later time slot.

Source: APICS

Problems with MRP

• Transfer lots smaller than the batch size are discouraged

– but this strategy can significantly reduce WIP and lead time

• MRP encourages uneven flow of materials

– because it can calculate the appropriate time-phased schedules (at least in theory!)

• Excessive reporting requirements

Problems with MRP

• Material requirements plan is first; capacity is an afterthought

• MRP assumes lead times are fixed and known – in fact, they are load and schedule

dependent

• MRP tends to lengthen lead times – because they are estimated conservatively

just to be safe

The lean approach aims to meet demand instantaneously, with perfect quality and no waste

It means that the flow of products and services always delivers….

exactly what customers want (perfect quality)

in exact quantities (neither too much nor too little)

exactly when needed (not too early or too late)

exactly where required (not to the wrong location)

at the lowest possible cost.

It results in items flowing rapidly and smoothly through processes, operations and supply networks.

The lean approach to operations includes…..

Customer-based demand triggers

Synchronised flow

Involvement behaviour

Waste elimination

Waste from irregular flow

Waste from inexact supply

Waste from inflexible response

Waste from variability

Work centre

Work centre

Work centre

Buffer inventory

Buffer inventory

Lean flow – how do items move through your processes?

Traditional approach – ‘Push’

Work centre

Work centre

Work centre

Work centre

Request

Delivery

Request

Delivery

Request

Delivery

Lean approach – ‘Pull’

….Don’t send nothin’ nowhere…. Make ‘em come

and get it….

Lean flow – how do items move through your processes? (Continued)

WIP

Defective materials

Rework Scrap

Downtime

productivity problems

productivity problems

Reduce the level of inventory (water) to reveal the operation’s problems

WIP

Defective materials

Rework Scrap

Downtime

291

292

293

294

• httpwww.chezpilou.infopublicInclassables.girafe_obese_m.jpg

295

Underlying Philosophy

Productivity Problems WIP Queues

Late Deliveries

Design Changes

Poor Quality Parts

Rework

Poor Space Layout

Scrap

Demand Instability

Machine Down-Time

Cost of Production

Expose Problems

Eliminate Problems

Reduce Costs:

• Space

• Inventory

• Manpower

• Equipment

296

Product Transport Costs for Japan Market Products

Japan Region LogisticsOriginator: David Newlands

Product Datum Data and Possible Scenarios

Nominal Production Volume per day (24hrs) 5000

Number of days producing/week 6 Number of production days/year 288

NMP Internal operations Lead Time (days) 4

Customer lead time expectations (days) 6

Datum Current Scenario Scenario Scenario

Data Plan Possible 1 Possible 2 Possible 3

Product Nominal cost ex-works £80.00 £80.00 £80.00 £80.00 £80.00

Nominal Life Cycle Volume (Millions) 1.2 1.7 1.7 1.7 1.7

Mechanics Supplier (Plastics) Local Japan Japan Japan Japan

Supplier Location Europe Japan Japan Korea Japan

Mechanics Supplier (Metal) N/A Japan Japan Japan Japan

Supplier Location N/A Japan Japan Japan Japan

Product PCB SMD Country Europe Europe Europe Europe Japan

Product PCB SMD Site Coventry Coventry Coventry Coventry Japan

Product Fin Ass. Site Coventry Coventry Tokyo Tokyo Tokyo

Shipping Frequency (nominal per week) 2 2 2 2 18

Shipping Duration (Days) 1 3 1 4 1

Shipment Quantity 15000 15000 15000 15000 1667

Dispatch Safety Stock

(delivery LT x daily requirements) 5000 15000 5000 20000 5000

Receiving Buffer Stock 15000 15000 15000 15000 1667

Plant Line Loaded Raw Materials 5000 5000 5000 5000 5000

297

In-bound Transport Costs From Japan to Europe

Mechanics Inbound Costs Total Total £200.00 £1,320.00 £200.00 £1,120.00 £1,800.00

per unit £0.01 £0.09 £0.01 £0.07 £1.08

Electro-mech. Inbound Cost Total £1,467 £1,800 £556 £556 £5,000

per unit £0.10 £0.12 £0.04 £0.04 £3.00

Total Inbound Transport Cost Total £1,667 £3,120 £756 £1,676 £6,800

(Six days production) per unit £0.11 £0.21 £0.05 £0.11 £4.08

Outbound Transport Costs Europe to Japan

Mechanics Outbound Cost Total £1,274.00 £1,204.00 £0.00 £0.00 £0.00

per unit £0.08 £0.08 £0.00 £0.00 £0.00

Electronics Outbound Cost Total £160.00 £172.00 £142.00 £142.00 £1,800.00

per unit £0.01 £0.01 £0.01 £0.01 £1.08

Electro-mech Outbound Cost Total £263.00 £362.00 £0.00 £0.00 £0.00

per unit £0.02 £0.02 £0.00 £0.00 £0.00

Total Material Outbound Cost £1,697 £1,738 £142 £142 £1,800

Total Material Turning Cost per week

Total £3,364 £4,858 £898 £1,818 £8,600

per unit £0.22 £0.32 £0.06 £0.12 £5.16

Mean Cost from analysis Mean = £1.18

Lowest £0.06 -£1.12 Favourable

Highest £5.16 £3.98 Unfavourable

Life Time Cost Total £262,000 £544,000 £102,000 £204,000 £8,772,000

Mean Cost from analysis Mean = £1,976,800

Lowest £102,000 -£1,874,800 Favourable

Highest £8,772,000 £6,795,200 Unfavourable

Based on Total material stock cost (1 week)

Total Value All inbound & outbound stock

(Worst Case) £5,197,123 £5,213,848 £3,802,020 £4,618,615 £1,321,212

298

Total Value Safety Stock (worst case)

(complete Products) £3,600,000 £9,000,000 £1,800,000 £9,000,000 £1,800,000

Total Stock (worst case; Products) £8,797,123 £14,123,818 £5,602,020 £13,618,615 £3,121,212

Gross Value of Mechanics inbound & outbound, inc safety stock

£362,401 £653,030 £188,005 £649,400 £147,197

Mean £400,007

Max £653,030

Min £147,197

Min/Max % 22.54% Total Saving = -£505,833 Favourable

Worst Case Lead Time Weeks 3 3 1 2 1

Days 18 18 6 12 6

Stock Turns per year 19 22 36 26 108

Product Cost for Lead Time Stock £158,348,214 £254,228,724 £33,612,120 £163,423,380 £18,727,272

Mechanics Cost for Lead Time Stock £6,523,218 £11,754,540 £1,128,030 £7,792,800 £883,182

Mean £125,667,942

Max £254,228,724

Min £18,727,272

Min/Max % 7.37% Total Saving = -£235,501,452 Favourable

% of Business Exposure = Transport 0.1667% 0.2126% 0.3035% 0.1248% 46.8408%

The four elements of lean

Decision areas

Mar

ket

com

pet

itiv

enes

s

Process Technology

Resource usage

Lean elements in the four operations strategy decision categories

Development and Organisation

• Sacrifice high utilisation for fast

and dependable throughput

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Capacity

Supply Network

Capacity

Decision areas

Capacity

Mar

ket

com

pet

itiv

enes

s

Process Technology

Resource usage

Development and Organisation

• Supplier development to ensure quality and delivery conformance

• Integrated supply network coordination to ensure synchronous flow

• Work on functional barriers

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Supply Network

Supply Network

Lean elements in the four operations strategy decision categories (Continued)

Decision areas

Capacity Supply

Network

Mar

ket

com

pet

itiv

enes

s

Process Technology

Resource usage

Development and Organisation

• Small flexible technology

• Emphasis on equipment reliability

• Reduce process variability

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Process Technology

Lean elements in the four operations strategy decision categories (Continued)

Decision areas

Capacity Supply

Network

Mar

ket

com

pet

itiv

enes

s

Process Technology

Resource usage

Development and Organisation

• Continuous improvement through waste elimination

• Smooth synchronised flow exposes waste

• People motivation and involvement through reduced buffering

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Development and Organisation

Lean elements in the four operations strategy decision categories (Continued)

What is BPR?

BPR has been defined as…..

the fundamental rethinking and radical redesign of

business processes to achieve dramatic improvements in

critical, contemporary measures of performance such as

cost, quality, service and speed.

Hammer, M. and Champy, J. (1993) Reengineering the Corporation: A manifesto for business revolution, New York: Harper Business.

‘an effective system for integrating the quality

development, quality maintenance and quality

improvement efforts of the various groups in an

organisation so as to enable production and service at

the most economical levels which allow for full customer

satisfaction’

BPR advocates reorganising (re-engineering) processes to reflect the natural processes that fulfil customer needs

Function 1

Cu

sto

mer

ne

eds

Cu

sto

mer

nee

ds

fulf

illed

Functionally-based processes

Function 2

Function 3

Function 4

Bu

sin

ess

pro

cess

es

End-to-end process 1

End-to-end process 2

End-to-end process 3

Decision areas

Mar

ket

com

pet

itiv

enes

s

Process Technology

Resource usage

BPR elements in the four operations strategy decision categories

Development and Organisation

• Balance capacity across end-to-end processes

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Capacity

Supply Network

Capacity

Decision areas

Capacity Process

Technology

Resource usage

Development and Organization

• Internally, customers become their own supplier rather than depending on another function

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Supply Network

Supply Network

BPR elements in the four operations strategy decision categories (Continued)

Mar

ket

com

pet

itiv

enes

s

Decision areas

Capacity Supply

Network Process Technology

Resource usage

Development and Organisation

• Information technology is an enabler of cost reduction

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Process Technology

BPR elements in the four operations strategy decision categories (Continued)

Mar

ket

com

pet

itiv

enes

s

Decision areas

Capacity Supply

Network

Process Technology

Resource usage

Development and Organisation

• Locate decision making at the lowest practical level

• Rethink business processes in a cross- functional manner

•Dramatic cost reductions can come from the elimination of unnecessary process steps

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Development and Organisation

BPR elements in the four operations strategy decision categories (Continued)

Mar

ket

com

pet

itiv

enes

s

Benchmarking

Selecting best practices to use as a standard for performance

Determine what to benchmark

Form a benchmark team

Identify benchmarking partners

Collect and analyze benchmarking information

Take action to match or exceed the benchmark

EVERYONE GETS TWO SHEETS OF PAPER

Paper Aeroplane Exercise

Comparative Assessment Matrix: Quality Management Tasks

Tasks Crosby’s 14

Steps

Deming’s 14

Points

Juran’s 7

Points

People Oriented

Build top mgmtcommitment 1 1 1

Teamwork 2, 10, 13 4, 9 3, 5, 6

Improve qualityawareness 5, 7, 9, 12 2, 3, 8, 10, 11, 12 5

Expand training 8 6, 7, 13 5

Technically Oriented

Measure quality 3 3, 4 4

Quality of costrecognition 4 3, 4 2

Take corrective action 6, 11 14 6, 7

Continuousimprovement process 14 5 7

Source: Dr. David Raffo ISQA 572/ 449 Models for Quality Control/ Process Control and Improvement

Tel: 725-8508, Fax: 725-5850 Email: davidr@sba.pdx.edu

Capability Maturity Model • Provides a framework for process

improvement

• Processes are assessed to determine their current level of process maturity

• Five levels of maturity

• 17 Key Process Areas (KPAs) related to essential core software development processes

• Actions to be taken based on current state of the process

Source: Raffo, ISQA 572/ 449

Models for Quality Control/ Process

Control and Improvement

The Five Levels of Software Process Maturity

Implications Of Advancing Through CMM Levels

Key Practice Areas

• Level 2 - Repeatable – Software requirements management – Software configuration management – Project planning – Project monitoring and control

• Level 3 - Defined – Organization process definition – Training program – Peer Reviews – Integrated software management

Key Process Areas

• Level 4 - Managed – Software quality management – Quantitative process management

• Level 5 - Optimizing – Process change management – Technology change management – Defect prevention

Ethics and Quality Management

Operations managers must deliver healthy, safe, quality products and services

Poor quality risks injuries, lawsuits, recalls, and regulation

Organizations are judged by how they respond to problems

COSHH and Quality Control of Substances Hazardous to Health

1. Eliminate the need to use dangerous materials

2. Substitute them with benign materials

3. Minimise use if can’t substitute

4. Isolate from dangerous materials

5. Minimise exposure time.

K19 with Harrison Ford

Failure in all five strategies.

TQM

Encompasses the entire organisation, from supplier to customer

Stresses a commitment by management to have a continuing companywide drive

toward excellence in all aspects of products and services that are important to the

customer

New Approaches to Quality

Three Threads

1. The need for top level commitment

2. Involvement throughout the organisation

3. Use of statistical tools to plan, control & improve quality.

The whole climate in the organisation may have to change -

Quality becomes everyone’s responsibility, ceasing to rest

with the Quality Department. It becomes a

TOTAL QUALITY PHILOSOPHY

• That leads to Total Quality Culture

T.Q.M. • Customer driven

• Conformance to customer expectations has top importance

• Respect people and their ability to contribute to improvement

– Innovation management

• Quality applies to everyone, in all parts of the organisation.

• Care and thought, translated into deed

• Emphasis on prevention & problem solving

• Employees brought into decision process

Develop “Quattitude”

• Quality begins with personal attitudes

• Quality-focused individuals often exceed customer expectations (i.e., whomever you deal with)

• Attitudes can be changed through awareness and effort (e.g., personal quality checklists)

• Personal initiative has a positive impact on success (business, family, or friends)

What is TOTAL QUALITY? Applies not just to technical quality of products

but rather to quality of performance of every

function in a company

It needs:-

• Simpler organisation structures and

groupings of facilities & functions

• Application of relevant techniques

inc. SPC, Taguchi, FMEA etc.

• Well managed communication

systems

• Effective Supplier Development

• Focus on N.V.A.W.

Total Quality

• Universal participation • Focus on customer’s needs • Everything is a process which contributes to quality • Continuous process improvement

Better performance at lower cost

Quality that wins business

Approaches to Productivity

95%

WASTE

5%

VALUE-ADD

Traditional Approach Focus on Value-added

Resources Through

•Methods Improvement

•Work Study

•Automation

JIT Approach Focus on the 95%

Non Value-Added

Resources Through

•Total Quality Management

•Total Waste Elimination

•Enforced Problem Solving

•Total Involvement

Source: ATKEARNEY

Philip Crosby

Enforced Problem Solving Crosby’s Five Step Method

1. Identify the problem

2. Put in a quick fix

3. Analyse the problem to identify the route cause, use the process mapping tool

4. Create plan and implement the change

5. Monitor the situation, make the change habit

http://www.videobash.com/photo_show/Fail-Safe-7140

Crosby developed the concepts of 'zero defects', doing things 'right first time' and that 'quality is free'.

Crosby's philosophy is based on 5 'absolutes' of quality,

1. Quality means conformance to requirements.

2. There is no such thing as a quality problem, only a functional problem.

3. There is no such thing as the economics of quality. Right 1st time is always cheaper.

4. The only performance measure is the cost of non-conformance (poor quality).

5. The only performance standard is 'zero defects'.

The 14 steps are a framework for top management to implement these concepts of quality improvement

Crosby's 14-Step Quality Improvement Programme

1. Demonstrate management commitment

2. Form a ‘Quality Improvement’ team

3. Establish real quality measures

4. Calculate the real cost of quality

5. Raise quality awareness throughout the company

6. Implement corrective action as soon as opportunities surface.

7. Establish a committee for a ‘zero defects’ programme

8. Train supervisors in all aspects of the programme

9. Have a ‘zero defects’ day, a corporation-wide event

10. Establish formal goals for each group

11. Remove causes of errors in process

12. Recognise outstanding acts or contributions

13. Form quality councils to meet and review regularly

14. Do it all over again, regularly.

Process

Name:

1. Outputs (List the products & / or services that flow out

of the process - what you give your

CUSTOMERS

2. Process (Write a brief description of

what the

process does)

Write the process name

below

3. Boundary (Describe where & / or how the process

STARTS)

4. Boundary (Describe where & / or how the process

ENDS)

5. Inputs (List the materials & / or information that flow

into the process - what you get from your

SUPPLIERS

Process Worksheet Source: after Crosby

http://www.plex.com/modules/software-QMS.asp

Traditional approach to quality

Based on Quality Control of manufactured

output by Inspection of output from processes. Defects are only detected after they have occurred Time delay between production and inspection leads to further defective work being produced Costs - of inspection to prevent dispatch of defective products. - of rectification or scrapping of defective products. (material and labour costs)

Armand Feigenbaum: Total Quality Control

http://news.bbc.co.uk/2/hi/in_pictures/6924104.stm

Bottles of kosher beer Simcha speed through the production process at a German brewery, under the watchful eye of master brewer Michael Huschens.

Modern approach to quality

A systemic approach to an organization's activities.

Based on Quality Assurance by design

The creation of a Quality Culture The commitment of top management The involvement of all employees Building quality into processes to prevent defects Control of processes at all stages over all activities Understanding cause of and reducing variations

= RIGHT FIRST TIME + RIGHT EVERY TIME

The ability, to trace back from a product in use to its manufacturer, the day, machine, operator and batch of material from which it was made. This requires keeping accurate quality records, From this to trace forward to other customers having products made the same day, machine, operator and batch of material. This is used when products fail prematurely. Used in the following industries - - Nuclear power - Aircraft parts - Military equipment - Motor industry

Traceability

Quality Audit • Monitoring and evaluation of an organisation's

quality systems to ensure that they are achieving quality.

• An 'audit trail' follows an item of information through the set of quality procedures to ensure that it is being transferred correctly.

• The audit may be carried out:

– internally within the organisation.

– by a purchaser or supplier

– by a 'third party' assessment body

Quality Circles • Quality Circles originated in Japan in the 1960s

• Quality Circles are groups of 4 or 5 employees, meeting to diagnose and solve problems.

• A participative style of management is needed quality must be established as a common objective

• Quality circles can also discuss safety and productivity

• Quality circles are an effective way of gaining commitment and enthusiasm of employees.

• They use employee skills to create quality and method improvements (= Kaizen, continuous improvement)

• Quality Circles (or Quality Groups) are groups of 4 or 5 employees meeting with their superviser to identify, diagnose and resolve problems affecting quality in their work area. They meet to share experience and develop better quality in their work.

• There may be a second tier covering the whole organization, at which representatives from each smaller quality circle attend. This is a way of spreading ideas and co-ordinating them across the organization.

• Quality circles involve people in quality and commit them to it as a philosophy. Quality circles need a participative style of management for them to work.

• They only work when quality has been established as a common objective. Without this, employees will not be interested in being involved in achieving quality.

Achieving Quality requires Psychological Stroking

The Quality Staircase

1 Inspection after manufacture Audits of finished products (product focus)

2 Quality Control at the process using quality control charts (process focus)

3 Quality Assurance in all departments (systems focus)

4 Changing the thinking of all employees (human focus)

5 low cost product and processes design optimisation (society focus)

6 Cost effective improvement, Quality loss function (cost focus)

7 QFD to define the voice of the customer (customer focus)

Total Quality Management Principles

• Agree Customer Requirements

• Understand / Improve Customer Supplier chains

• Do things Right First Time

• Do the Right Things

• Measure for success

• Continuous Improvement is the goal

• Management must lead

• Training is essential

• Communicate more effectively

• Recognise successful involvement

Source: Waller

Quality and productivity

• Traditional Do things wrong level 1 – allow defects, off-line inspection

• Q Control Do things right level 2 – monitor process, on-line inspection

• Q Assurance Right first time level 3 – reduce process variation

– introduce quality systems

• TQM Do right things level 4+ – improve productivity as well as quality

– 'work smarter' not 'work harder'

• Traditionally (level 1) both quality and productivity is focused on the manufacturing task (productivity = speed) This allow defects, uses off-line inspection

• Quality Control (level 2) attempts to ‘Do things right’ This involves monitoring the process, on-line inspection. (some attempt to prevent defects, but no change to the process)

• Quality Assurance (level 3) based on ‘Right first time’ This involves reducing process variation and introducing quality systems. Quality and productivity extend to cover office procedures and ail organization activities

• TQM (level 4+) is based on 'Do right things'. This means improving productivity as well as quality. The definition of quality expands to include productivity.

What is Six Sigma?

Named because it requires the natural variation of processes (± 3 standard deviations, or ‘sigma’) to be half their specification range

So, the specification range of a product or service should be ± 6 the standard deviation of the process.

Now the definition of Six Sigma has widened to be defined as….

‘… a disciplined methodology of defining, measuring,

analysing, improving and controlling the quality in every

one of the company’s products, processes and

transactions – with the ultimate goal of virtually

eliminating all defects.’

The elements of Six Sigma

Customer-driven objectives

Use of evidence

Structured improvement cycle

Structured training and organisation of improvement

Process capability and control

Process design

Process improvement

Process / Product Statistical Spread

LSL USL

LSL USL

LSL USL

You have to close two of three factories down because

of a lack of demand. Which factories should you close

and why?

Factory A

Factory C

Factory B

Lower/Upper

Specification

Limit

(design tolerances)

Process / Product Statistical Spread

LSL USL

±3σ

±6σ

= 99.73%

100% – 99.73% = 0.27%

Multiply by 1000000

= 2700 parts per million defects

Six sigma is plus/minus six sigma - Process Capability Constant Cpk = specification / actual = 2 ±6σ - ±3σ ≤ ±6σ/2 allowing for 1.5σ mean shift this means ±3.4ppm either side (6.8ppm total)

A typical car has 10000 parts.

Dimensioning and 6σ

25 25 25 25

13

13

Tol: All Dimensions all ±1mm

•Whole 4 max = 26+26+26+26 = 104

•Whole 4 min = 24+24+24+24 = 96

Dimensioning and 6σ

25

50

100

75

13

26

Common

Datum for

All

measurements

Tol: All Dimensions all ±1mm

•Whole 1 = 24-26mm

•Whole 2 = 49-51 mm

•Whole 3 = 74-76 mm

•Whole 4 = 99-101 mm

DMAIC

D

M

I

A

C

Define what’s important?

Measure how we’re doing?

Analyze what’s wrong? Improve by fixing what’s wrong!

Control to guarantee performance

Define – identify problem, define

requirements and set the goal

Measure – gather data, refine problem and measure inputs

and outputs

Analyse – develop problem hypotheses, identify ‘root causes’

and validate hypotheses

Improve – develop improvement ideas,

test, establish solution and

measure results

Control – establish performance

standards and deal with any problems

The DMAIC cycle used in Six Sigma

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Decision areas

Capacity Supply

Network

Mar

ket

com

pet

itiv

enes

s

Process Technology

Resource usage

Six Sigma elements in the four operations strategy decision categories

Development and Organisation

• Emphasis on process control

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Process Technology

Decision areas

Capacity Supply

Network

Mar

ket

com

pet

itiv

enes

s

Process Technology

Resource usage

Development and Organisation

• Improvement through a structured decision- making cycle

• Strong evidence- based methodology

• Very substantial training required

• Emphasis on process knowledge

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Development and Organisation

Six Sigma elements in the four operations strategy decision categories (Continued)

Some points for discussion How much should one be influenced by the

experiences of other organisations?

Operations that rely on others to define what is

‘best practice’, are always limiting themselves to

currently accepted methods of operating or

currently accepted limits to performance.

Best practice is not ‘best’ in the sense that it

cannot be bettered, it is only ‘best’ in the sense

that it is the best one can currently find.

Some points for discussion (Continued) Senior managers sometimes use these new approaches

without fully understanding them.

If senior managers do not understand these

approaches, how can the rest of the organisation take

them seriously?

Not every approach fits every set of

circumstances. So, understanding in detail what

each approach means must be the first step in

deciding whether it is appropriate.

The details of these approaches are not simply

technical matters. They are fundamental to how

appropriate the approach could be in different

contexts.

All these approaches are different.

Does the approach emphasise a gradual,

continuous approach to change, or a more

radical ‘breakthrough’ change?

What is the balance between whether the

approach emphasises what changes should

be made or how changes should be made?

Some points for discussion (Continued)

Each of the ‘new approaches’ are positioned in terms of their emphasis on what changes to make or how to make the changes, and whether

they emphasise rapid or gradual change

Emphasis on rapid change

Emphasis on gradual change

Emphasis on what to do

Emphasis on how to do it

Six Sigma

BPR

Lean TQM

These approaches are not strategies, but they are strategic

decisions.

Operations strategy is the ‘reconciliation of market

requirements and operations resource capabilities’.

Operations strategy is individual and specific to one

organisation at one point in time, but these approaches are

generic.

An individual enterprise’s market requirements and operations

resource capabilities are unique.

They are an important part of a strategy, but not strategies in

themselves.

Some points for discussion (Continued)

Lean & Agile Organizations

A ‘lean’ organization has-

minimum resource (people, stocks)

limited process span

non-critical processes are outsourced

An ‘agile’ organization is ‘lean’ but

has the flexibility to cope with change

Strategic Purchasing

• Differentiate the Supply Market

• Identify Critical Criteria

• Identify Key Suppliers

• Position Purchasing Process

• Focus on Relationships

Focus and the Product Life Cycle The type of focus required depends on the characteristics of the products and markets (as used in profile analysis)

Focus needs to change over the product life cycle.

Sales Process Focus Product Focus Process Focus (capacity) (customer appreciated variants) (process efficiency)

Time

Market Develpm't

Rapid Growth

Competitive Turbulence

Saturation Maturity

Decline

Process Focus – cost reduction

Evaluation

PLC Stage Significant strengths and weaknesses

1. Market 1. Product introduction skills

Development 2. Product Quality

3. Customer education

2. Rapid Growth 1. Brand management skills

2. Distribution system

3. Productive capacity

4. Cash and human resources

3. Competitive 1. Market development

turbulence

4. Saturation or 1. Brand defence

2. Product improvement skills

3. Cost advantage

5. Decline 1. Brand management in decline

Withdrawn Product Categories in the UK • Dial phones 1980 – now exclusively touch tone • BetaMax video recorders 1980 - VHS • 45s and 33 LPs 2000 – CD & download • Pre-recorded music on tape 2004 • VHS camcorders 2005 – record to disk or digitally onto chips • VHS recorders 2006 – Hard disk / DVD recorders • Pre-recorded films on VHS 2007 • Celluloid film cameras for home use 2006 • Celluloid film soon, when? • Toshiba’s HD DVD 2008 - Blue Light from Sony • Terrestrial analogue TV 2009 – Satellite and digital • Ordinary filament light bulbs 2012 – strip lamp and LED • Internal combustion engine vehicles 2025 – early indications

alternatives available from 2011 – Value relates to mean time to failure or service life – Mean retail price reduction because goods will loose value – new

TATA cars selling for €1800

Determinants of Performance

• Quality - doing it right

• Speed - being quick at what you do

• Flexibility - changing what you do

• Dependability - being on time

• Innovation - doing new things

• Productivity - being Efficient

• Customer Service - being Effective

Critical Criteria

Supply Chain Strategy Framework

Product Strategy

Design Strategy

Supply Chain Strategy

Structure – make, move, store

Buy Strategies

Make strategies

Infrastructure

Operations & Strategic Decisions

System control & further analysis

OUTPUTS Tangible Products

Services

Information

Scrap/Waste

Recycle?

Recover value?

Customers

INPUTS People

Equipment Suppliers Money

Buildings Information Procedures

Policies Subcontractors

Material Client needs

Legal constraints Environmental

Regulations

Social requirements

Transformation

Planning & Control

Design in Ops Man

Information flow

Physical flow

INPUT-OUTPUT MODEL

Source: Adapted from Waller, D. (2005) Operations Management, 2nd Ed,

Network of Suppliers and Value Creation

Final Product

producer

Client or Customer

Suppliers

Awareness of need

Request for information

Milestone Hospital Software producer

Presentation of symptoms

Visit to doctor for advice and tests

Test information confirms diagnosis

Decide on surgery

Enter hospital for surgery

Procedure successfully completed

Patient fully recovered

Customer decides new software is needed

Asks for specification and estimates

Receives proposal

Places order

Start of design and coding

Software ‘completed’

Software fully debugged and working

Receipt of information

Request for product/service

Start of core processing

End of core processing

‘Installed’ product/service fully operational

Significant ‘milestone’ times for the delivery of two products /services

Installation time

Core processing time

Waiting time

Enquiry time

Customer decision time

Enquiry decision time

2.5

374

• https://jdsupply.deere.com/business_processes/supplier_development_process/sd_tools/docs/industry_standard_value_stream_map.JPG

Separate through to Integrated

Suppliers Purchasing Materials

Control Sales Distribution Customers

Materials Flow Operations Customer Facing Activities

Operations

Process

Vertical reporting structures and systems

Internal supply chain Suppliers Distribution Customers

Delays/inventory

Levels of Integration

Tier 2

Suppliers

Tier 1

Suppliers

Wholesaler/retailer

or

Distributor/dealer

Customer Internal

Supply Chain

Tier 2

Suppliers

Tier 1

Suppliers

Wholesaler/retailer

or

Distributor/dealer

Customer Internal

Supply Chain

Synchronized and real-time information flows

Concept generation

Concept screening

Preliminary design

Design evaluation and improvement

Prototyping and final design

Developing the operations process

A typical ‘stage model’ of the product and service development process

Development of the service

Development of the process

Development of the product

Development of the process

In most service operations the overlap between service and process

development is implicit in the nature of service

In manufacturing operations overlapping the

activities of product and process development is

beneficial

The development of products/services and processes is interrelated and should be treated together

Sequential

Technology development

Market research

Concept design

Detail design

Process planning

Buy machines

Arrange supplies

Market promotion

Start manufacturing

1 2 3 4 5 6 years

Newlands, in Newlands and Hooper (2009)

Concurrent

Tech. dev.

Mkt. res

C. design

D. design

Proc. plan

Buy m/c

Supply

Mkg

Start mfg V1**

1 2 3 years

Manuf ’ g Systems Eng. Kaizen/ Kaikaku *

Start mfg V2**

Project/process steering, performance review

- 1 0 Newlands, in Newlands and Hooper (2009)

Delays in ‘Time to Market’ usually delays the financial breakeven point far more than the delay in the Time to Market

Delay in financial

breakeven

Delay in time to market

Development costs

Development costs of delayed project

Time

Cash Sales revenue

Delayed sales revenue

Cash flow

Delayed cash flow

382

Time

Volume

Planned

Ramp-up

rate

Actual

Ramp-up rate

Planned Ramp-up Start Actual Ramp-up Start

Lost Production and Sales

Opportunity Cost

Sequential

(a) Traditional sequential order processing system

What is the centre of the cluster?

Production Scheduling

Order Entry Transport Planning

Credit Control Invoicing

(b) Order management system with ‘clustered’ activities

Manufacturer-Supplier Relationship

Traditionally an adversarial approach.

Hold down prices - short cuts taken

Short-termist - supplier does not invest

Machinery break downs - supply unreliable

Lack of trust - no shared information

Suppliers need to hold stocks - total system cost rises

Supplier unaware of delays - manufacturing stops

This approach is sub-optimal and restricts profit

Manufacturer - Supplier Relationship

Modern approach is based on partnership.

Based on common objectives - mutual benefit

Long-term contract - supplier able to invest

Built on trust - shared information

Reliable modern machines - supply reliability

More accurate machines - better quality

Manufacturer helps supplier - mutual benefit

Looks at the whole system to optimise benefits.

First/Business-class cabin, airport lounges, pick-up service

Economy cabin

Wealthy people, business people, VIPs

Travellers (friends and family), vacation takers, cost-sensitive business travel

Wide range, may need to be customised

Standardised cabin

Relatively high Relatively low

Relatively low volume Relatively high volume

Medium to high Low to medium

First/Business class Economy class

Customisation, extra service, comfort features, convenience

Quality (specification and conformance), Flexibility, Speed

Price, acceptable service

Cost, Quality (conformance)

Services

Customers

Service range

Rate of service innovation

Volume of activity

Profit margins

Main competitive factors

Performance objectives

Different product groups require different performance objectives

What performance objectives are Qualifiers, Order Winners and Delights ?

Delights

Order Winners

Qualifiers

Today Tomorrow

… and in the future ?

???

What is the operation doing today to develop the capabilities that will provide the ‘Delights’ of the future ?

Qualifiers, order winners and ‘delights’ (Continued)

The effects of the product/service life cycle on operations performance objectives

Sales volume

Customers

Competitors

Dominant operations

performance objectives

Introduction into market

Growth in market

acceptance

Maturity of market, sales

level off

Decline as market

becomes saturated

Innovators

Early adopters Bulk of market

Laggard

Likely order winners

Few/none Increasing numbers Stable numbers Declining numbers

Product/service specification

Availability Low price Dependable supply

Low price

Likely qualifiers Quality Range

Price Range

Range Quality

Dependable supply

Flexibility Quality

Speed Dependability Quality

Cost Dependability

Cost

Delays in ‘Time to Market’ usually delays the financial breakeven point far more than the delay in the Time to Market

Delay in financial

breakeven

Delay in time to market

Development costs

Development costs of delayed project

Time

Cash Sales revenue

Delayed sales revenue

Cash flow

Delayed cash flow

X

Cost efficiency

Var

iety

A

C

D

B

The ‘efficient frontier’ A

X C

D

Cost efficiency V

arie

ty

B

The new ‘efficient frontier’

B1

The ‘efficient frontier’ view

What stops us from achieving: 100% Increase in Sales

50% Increase in Productivity 100% Increase in Profits

This Year!

The Limits of Change

Identify Limiting Beliefs!

http://www.ictinteg.co.uk/serv01.htm

Lean Promises • Double labour productivity

• 90% reduction in throughput times

• 90% reduction in inventory

• Improved quality

• Reduced time to market

• YOU are going to prove it is achievable in the E2E game

Chapter 4

Capacity strategy

Forecast level of demand

Consequences of over/under-

supply

Availability of capital

Flexibility of capacity

provisions

Some factors influencing the overall level of capacity

Changes in future

demand

Uncertainty of future demand

Cost structure of capacity increment

Economies of scale

Operations Resources

Market Requirements

Overall level of capacity

Capacity strategy issues include…..

NUMBER OF SITES

LOCATION OF EACH SITE

ALLOCATION OF TASKS

TO EACH SITE

CAPACITY OF EACH SITE

LONG-TERM CAPACITY CHANGE

STRATEGY

NUMBER OF SITES and CAPACITY OF SITES

LOCATION OF SITES

ALLOCATION OF TASKS TO SITES

LONG-TERM CAPACITY CHANGE STRATEGY

Many small sites?

Few larger sites?

Questions Options

Supply side dominated?

Demand side dominated?

All sites make all products/services?

Each site focuses on a few products/ services?

Capacity leads demand?

Capacity lags demand?

Capacity strategy issues include…..

Why is capacity strategy important?

Without an appropriate capacity strategy operations will always be struggling to supply markets in a

competitive manner

Getting capacity strategy right is the starting point for developing

competitive operations

LONG-TERM CAPACITY CHANGE

STRATEGY

NUMBER OF SITES

LOCATION OF EACH SITE

CAPACITY OF EACH SITE

ALLOCATION OF TASKS TO SITES

What performance

measures will all these decisions

have a major impact on?

Costs

Revenues

Cash requirements

Service levels

How should one judge a capacity strategy?

Required service level

Geographical distribution of demand

Economies of scale

Supply costs

OPERATIONS RESOURCES

MARKET REQUIREMENTS

Size and number of sites

Some factors influencing the number and size of sites

2

4

6

8

10

12

0 0 2 4 6 8 10 12

Co

sts/

Rev

enu

e

($)

Volume in thousands of units Forecast

demand = 9,000 units

Cost

Revenue

Cost, volume, profit illustration

1 2 3 4 5 6 0 0

2

4

6

8

Un

it c

ost

(to

tal c

ost

/vo

lum

e)

Volume in thousands of units

(a)

Nominal capacity limit

Unit cost curve

1 2 3 4 5 6 0 0

2

4

6

8

Un

it c

ost

(to

tal c

ost

/vo

lum

e)

Volume in thousands of units

(b)

Diseconomies of scale kick in

Unit cost curve (Continued)

Physical capacity of

facilities

Effective Capacity

Demand

Time

Expanding physical capacity in advance of effective capacity can bring greater returns in the longer term

Cash flow with extended physical

capacity

Cash flow with two identical capacity increments

Time

Expanding physical capacity in advance of effective capacity can bring greater returns in the longer term (Continued)

Required service level

Resource costs

Community factors

Some factors influencing the location of sites

Suitability of site

Image of location

Land and facilities

investment

Resource availability

OPERATIONS RESOURCES

MARKET REQUIREMENTS

Location of sites

Forecast level of demand

Required level of service

Lead-time of capacity change

Some factors influencing the timing of capacity change

Competitor activity

Uncertainty of future demand

Ability to cope with

change

Economies of scale

OPERATIONS RESOURCES

MARKET REQUIREMENTS

Overall level of capacity

400

800

1,200

1,600

2,000

2,400

Vo

lum

e (U

nit

s/w

eek)

Time

Demand

Capacity plans for meeting demand using either 800- or 400-unit capacity plants

Capacity plan using 800-unit plants

Capacity plan using 400-unit

plants

Forecast Demand

Smaller-scale capacity increments allow the capacity plan to be adjusted to accommodate changes in demand

Actual Demand

Capacity plan using 800-unit plants

Capacity plan using 400-unit

plants

400

800

1,200

1,600

2,000

2,400

Vo

lum

e (U

nit

s/w

eek)

Time

Current capacity = 1,010 units

Required new

capacity = 1,800 units

Current capacity = 1,000 units

Required new

capacity = 1,800 units

Current capacity = 900 units

Required new

capacity = 1,800 units

Current capacity = 1,100 units

Required new

capacity = 1,800 units

Capacity increment

Op

erat

ing

cost

Capacity increment

Op

erat

ing

cost

Capacity increment

Op

erat

ing

cost

Capacity increment

Op

erat

ing

cost

800 units 600 units

Parts manufacture

Assembly plant

Warehouse Distribution

Rarely does each stage of a supply chain have perfectly balanced capacity, because of different optimum capacity increments

2

4

6

8

10

12

0 0 2 4 6 8 10 12

Co

sts/

Rev

enu

e ($

)

Volume in thousands of units

Fore

cast

dem

and

= 9

,00

0 u

nit

s

Cost

Revenue

Cost, volume, profit illustration

Capacity Expansion

• Volume & certainty of anticipated demand

• Strategic objectives for growth

• Costs of expansion & operation

• Incremental or one-step expansion

Capacity Expansion Strategies

Units

Capacity

Time

Demand

Capacity lead strategy Units

Capacity

Time

Demand

Capacity lag strategy

Units

Capacity

Time

Demand

Average capacity strategy Incremental vs. one-step expansion

Units

Incremental

expansion

Time

Demand

One-step

expansion

Strategies for Meeting Non-Uniform Demand

• Build up inventory

• Back-ordering

• Smooth demand through marketing

– Forecast data analysis – smoothing to eliminate seasonality

– increase price to reduce demand

– decrease price to increase demand

Level Production

Time

Demand

Production Units

Ou

tpu

t Planned capacity

Forecast demand

Capacity increment

1

Capacity increment

2

Capacity increment

3

Capacity increment

4

Time

Capacity planning with certain forecasts and capacity introduction

Forrester Effect

Third Tier Second Tier First Tier Original

Supplier Supplier Supplier equipment mfg

Period Prodn Stock Prodn Stock Prodn Stock Prodn Stock Demand

100 100 100 100

1 100 100 100 100 100 100 100 100 100

100 100 100 100

2 -60 20 20 60 60 80 80 90 90

20 60 80 90

3 260 140 140 100 100 90 90 90 90

140 100 90 90

4 20 80 80 90 90 90 90 90 90

80 90 90 90

5 100 90 90 90 90 90 90 90 90

90 90 90 90

6 90 90 90 90 90 90 90 90 90

Table adapted from Slack et al, in Newlands (2005)

Downstream Orders Orders Orders

Tier3

Tier2

Tier1

OEM

Orders

Items Items Items Items

Source: Slack, N., Chambers, S. and Johnston, R. (2007). Operations Management, 5th edn, Harlow: Financial Times Prentice Hall. Reproduced with permission of Pearson Education Ltd.

419

Causes of uneven demand at plant level

(A) Lot size replenishment policies in multiples of 5 (overpack quantity)

(B) Lot size replenishment policies in multiples of 25 (pallet/truck)

Independent

Demand 1 1 1 1 1 1 1 5 5 5 5 5 5 5 3 3 3 3 3 3 3 11 11 11 11 11 11 11

DC1 DC2 DC3 DC4

Orders

Received 75 50 25 75

PLANT

Orders

Placed (A)

Combined

Demand

Orders

Placed (B)

5 5 15 15 15 10 10 10 25 25 25 25

35 25 10 25 35

25 25 25 50 50 50

20 15 5 15

RDC 1 RDC 2

Economic order quantities and economic batch quantities

Christopher, M. (1997)

420

Idealised Make to Replenish

(A) Lot size replenishment policies - equals daily sales volume

(B) Lot size replenishment policies – equals regional consolidated actual replenishment volume

Independent

Demand 1 1 1 1 1 1 1 5 5 5 5 5 5 5 3 3 3 3 3 3 3 11 11 11 11 11 11 11

DC1 DC2 DC3 DC4

Orders

Received

PLANT

Orders

Placed (A)

Combined

Demand

Orders

Placed (B)

RDC 1 RDC 2

1 1 1 1 1 1 1 5 5 5 5 5 5 5 3 3 3 3 3 3 3 11 11 11 11 11 11 11

20 20 20 20 20 20 20

6 6 6 6 6 6 6 14 14 14 14 14 14 14

6 6 6 6 6 6 6 14 14 14 14 14 14 14

421

Forrester Effect

Third Tier Second Tier First Tier Original

Supplier Supplier Supplier equipment mfg

Period Prodn Stock Prodn Stock Prodn Stock Prodn Stock Demand

100 100 100 100

1 100 100 100 100 100 100 100 100 100

100 100 100 100

2 -60 20 20 60 60 80 80 90 90

20 60 80 90

3 260 140 140 100 100 90 90 90 90

140 100 90 90

4 20 80 80 90 90 90 90 90 90

80 90 90 90

5 100 90 90 90 90 90 90 90 90

90 90 90 90

6 90 90 90 90 90 90 90 90 90

422

Forrester Effect

-100

-50

0

50

100

150

200

250

300

1 2 3 4 5 6

Period

Flu

ctu

ati

on

s

Demand OEM Prd 1st Tier 2nd Tier 3rd Tier

423

Forrester Effect

Supplier Supplier Supplier equipment mfg

Period Prodn Stock Prodn Stock Prodn Stock Prodn Stock Demand

90 90 90 90

1 90 90 90 90 90 90 90 90 90

90 90 90 90

2 250 170 170 130 130 110 110 100 100

170 130 110 100

3 -70 50 50 90 90 100 100 100 100

50 90 100 100

4 170 110 110 100 100 100 100 100 100

110 100 100 100

5 90 100 100 100 100 100 100 100 100

100 100 100 100

6 100 100 100 100 100 100 100 100 100

Source: After Slack et al

424

Damped fluctuations of production levels along a supply

chain in response to small change in end-customer

demand Third Tier Second Tier First Tier Original

Supplier Supplier Supplier equipment mfg

Period Prodn Stock Prodn Stock Prodn Stock Prodn Stock Demand

100 100 100 100

1 100 100 100 100 100 100 100 100 100

100 100 100 100

2 100 100 100 100 100 100 100 90 90

100 100 100 90

3 100 100 100 100 100 90 90 90 90

100 100 90 90

4 100 100 100 90 90 90 90 90 90

100 90 90 90

5 100 90 90 90 90 90 90 90 90

90 90 90 90

6 90 90 90 90 90 90 90 90 90

The only change between these two tables is from Original stock minus end stock to End

stock minus original stock plus production. This allows for a buffer to be created if demand

increases. Discuss the merits of the logic in both tables.

425

Damped fluctuations of production levels along a supply

chain in response to small change in end-customer

demand Third Tier Second Tier First Tier Original

Supplier Supplier Supplier equipment mfg

Period Prodn Stock Prodn Stock Prodn Stock Prodn Stock Demand

90 90 90 90

1 90 90 90 90 90 90 90 90 90

90 90 90 90

2 90 90 90 90 90 90 90 100 100

90 90 90 100

3 90 90 90 90 90 100 100 100 100

90 90 100 100

4 90 90 90 100 100 100 100 100 100

90 100 100 100

5 90 100 100 100 100 100 100 100 100

100 100 100 100

6 100 100 100 100 100 100 100 100 100

426

Forrester Effect – permanent reduction in demand

Third Tier Second Tier First Tier Original

Supplier Supplier Supplier equipment mfg

Period Prodn Stock Prodn Stock Prodn Stock Prodn Stock Demand

100 100 100 100

1 100 100 100 100 100 100 100 100 100

100 100 100 100

2 -60 20 20 60 60 80 80 90 90

20 60 80 90

3 260 140 140 100 100 90 90 90 90

140 100 90 90

4 20 80 80 90 90 90 90 90 90

80 90 90 90

5 100 90 90 90 90 90 90 90 90

90 90 90 90

6 90 90 90 90 90 90 90 90 90

90 70

90 90

60

90 90

90 50

90 90

90 90

90

90

Source: Analysis by F. Goethals

427

The Pull System

• This leads to a chain reaction, with each station pulling material from its preceding station

• JIT uses the “Kanban” system to control the flow of material with very little work-in-process inventory

Level Production

Time

Production

Units

Demand in

the domestic

market

Export Volume

Demand for

domestic

market

Registration of vehicles in Japan and the US (1970-

1990).

0

2000000

4000000

6000000

8000000

10000000

12000000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

Years

Gro

ss

nu

mb

er

Japanese

Vehicle

Registrations

US Vehicle

Registrations

Strategies for Meeting Non-Uniform Demand

• Vary capacity

– overtime

– extra shifts

– subcontracting

– hiring and layoffs

Chase Demand

Time

Units

Demand

Production

Calculating Capacity

• 2 copiers, 2 operators

• 5 days/wk, 8 hr/day

• 1/2 hr meals, 1/2 hr maintenance per day

• Efficiency = 100%

• Utilization = 7/8 = 87.5%

Daily capacity = 2 machines x 2 shifts x 8 hours/shift x 100% efficiency x 87.5% utilization

= 28 hours or 1,680 minutes

Determining Load & Load %

10 500 5.2 0.08 5.2 + (500 x 0.08) = 45.2

20 1,000 10.6 0.10 10.6 + (1,000 x 0.10) = 110.6

30 5,000 3.4 0.12 3.4 + (5,000 x 0.12) = 603.4

40 10,000 11.2 0.14 11.2 + (10,000 x 0.14) = 1,411.2

50 2,000 15.3 0.10 15.3 + (2,000 x 0.10) = 215.3

2385.7 min

Load percent = 2,385.7 / 1,680 = 1.42 x 100% = 142%

Add another shift:

Daily capacity = 2 machines x 3 shifts x 8 hours/shift x 100% efficiency x 87.5% utilization = 42 hours or 2,520 minutes

Revised load percent = 2,385.7 / 2,520 = 0.9467 x 100% = 94.67%

Job Set-up Run time Total

# Copies time (min) (min/unit) Time Load

Initial Load Profile

1 2 3 4 5 6

Time (weeks)

Normal

capacity

Hours of

capacity

Adjusted Load Profile

1 2 3 4 5 6

Time (weeks)

Overtime Push back

Push back

Pull ahead

Work an

extra shift Hours of

capacity

Remedies for Underloads 1. Acquire more work

2. Pull work ahead that is scheduled for later time periods

3. Reduce normal capacity (temporary or permanent)

4. Revise master schedule

5. Focus on system design and process improvement

Remedies for Overloads 1. Eliminate unnecessary requirements

2. Reroute jobs to alternative machines or work centres

3. Split lots between two or more machines

4. Increase normal capacity

5. Subcontract

6. Increase the efficiency of the operation

7. Push work back to later time periods

8. Revise master schedule

A

B

$10m

$3m

$5m

$5m

Decision tree for simple capacity expansion example

$32m

$18m

$24m

$24m

$15m

$8m

$17m

$9m $18m

$18m

$8m

$8m

$18m

$14m

$8m

$8m

B

Decision tree for two year analysis

F

E

D

C

A

Chapter 5

Purchasing and supply strategy

Quality

Dependabilit

y

Speed

Flexibilit

y

Cost

Resource usage

Mark

et

com

petitiveness

Decision areas

Perf

orm

ance

obje

ctives

Development and

organisation

Process

technology Supply networks Capacity strategy

Issues include:

• What is purchasing and supply

strategy?

•What should we do and what

should we buy?

•How do we buy; what is the role

of contracts and/or relationships?

•How do we manage supply

dynamics?

•How do we manage suppliers

over time?

•How do we manage supply

chain risks?

Purchasing and supply strategy

Second-tier suppliers

First-tier suppliers

Company A

Company B

Company C

x

Second-tier customers

First-tier customers

x

x x

x

Focal level

Upstream Downstream

Supply side of the network Demand side of the network

Flow of products/services Flow of information

Supply networks are the interconnections of relationships between operations

Operations performance should be seen as a whole supply chain issue

Benefits of looking at the whole supply chain include

Puts the operation into its competitive context

Helps to identify the key players

Shifts emphasis to the long term

Sensitises the operation to macro changes

Changes the nature of the ‘supplier-buyer’ relationship

Make- Buy Choices

Design Make Assemble Distribute

Deliver Deliver

Design Distribute

Supplier O.E.M.

Supplier Sub-Contractor

In House

External Source

Do nothing Do everything

The character of internal operations activity

Virtual spot

trading

Traditional market

supply (based on

contractual

arrangements)

Resource scope

Long-term virtual operation

‘Partnership’

supply

relationships

Vertical

integration

Type o

f in

ter-

firm

conta

ct

Tra

nsactional –

Many s

upplie

rs

Clo

se

– F

ew

supplie

rs

Types of supply arrangement

When to Make

Decisions can be affected by: - cheaper than buying

- control of quality

- protect security of design

- establish reputation as manufacturers

- volumes are high and stable

- expertise is available in-house

- spare capacity exists

- capital is available

- control of supply chain

When to Buy

Decisions can be affected by: - cheaper than making

- confident of supplier quality

- part needs special equipment

- confident of market image

- cope with volume variations

- expertise is not available

- space/machines not available

- avoid capital investment

- reduce process span and complexity

Key Performance Metric Improvement Over Time -

Satisfaction, Success and Failure Adapted.

Sources: Kidd (1995) Warren, (1995), Unipart 10-to-Zero (1995)

Elevated Supplier

Performance

Or competitor's systems

design performance

Customer

Requirements Customer

Satisfaction

(Expectations)

Time

Failure

Success

Competing on Price & Cost

Direct Materials

Direct Labour

Indirect Labour

Indirect Costs

Profit

Direct materials costs can be reduced by supplier development.

Increasing profit as a result of reducing cost and sharing the benefits with

suppliers. Suppliers profit increases in price is the goal.

Price before tax

Supplier’s Profit

Direct Materials

Direct Labour

Indirect Labour

Indirect Costs

Profit

Supplier’s Profit

Direct Materials

Direct Labour

Indirect Labour

Indirect Costs

Profit

Supplier’s Profit

Competing on Price & Cost

Direct Materials

Direct Labour

Indirect Labour

Indirect Costs

Profit

Direct materials costs can be reduced by supplier development.

Increasing profit as a result of reducing cost and sharing the benefits with

suppliers. Suppliers profit increases in price is the goal.

Price before tax

Supplier’s Profit

Direct Materials

Direct Labour

Indirect Labour

Indirect Costs

Profit

Supplier’s Profit

Direct Materials

Direct Labour Indirect Labour Indirect Costs

Profit

Supplier’s Profit

Higher sales volume

Price based competition

for basic products

Highly competitive

Quality product

Marginal Profit

Degree of Improvement Attributable to the Firm’s

Supplier Development Effort

Area of Improvement Estimated Percentage

Improvement On-time delivery (ability of supplier to deliver within

the buying company’s specified delivery window).

39%

Order cycle-time

(from order placement with supplier to receipt of item). 19%

24% Quality (reduction in parts per million defective,

warranty returns and so on).

19% New product development time

(from concept to volume production)

15% Access to new technologies

7% Shared price reduction

(cost savings shared with this supplier)

5% Percentage price change for this item (from this supplier)

Source: Krause and Handfield, (1999:9).

Vertical Integration

Process positioning considers more than the make/buy decisions.

Considers the degree of vertical integration within the

Supply - Manufacture - Distribution chain.

Organisations integrate suppliers to achieve better information and better control.

Organisations integrate customers to satisfy customer demands more effectively.

Can result in complex unfocused organisations in which productivity and profits fall.

Choice of Process Span

Wide process span increases added value and profit potential but complexity can restrict profitability.

Narrow process span is focused and less complex, added value and investment are lower, profitability may be higher.

Organisations with a very narrow process span can: - lack skill variety necessary to respond to change - have low added value - have little revenue to cover overload costs - buy everything and make nothing - be unable to cope with market variations

They are known as Hollow Organisations.

Product Range Management and

Process Flexibility

Using Group Technology to group machines for a family of products and sequence these.

Layouts and their characteristics/limits

456

Inventory carrying costs + INTEREST RATE 7 %

+ PRICE EROSION 25 %

+ OBSOLESCENCE 5 %

+ WAREHOUSING 6 %

+ TOTAL 40 % per year

For Nokia Mobile Phones, one day of inventory costs appr 0.15 Euros/phone 10 days of inventory corresponds to 1 % Return on Sales => with 30 days inventory reduction NMP could finance 50% increase in R&D...

Source: Christopher (1997)

457

Making Products & MacDonald’s We want to make high tech’ Big Mac’s, Drink and Fries. • Some off-the-shelf goods to be always ready

• Anything special is Assembled to Order.

• We use the same ingredients as much as possible. Use similar buns, patty, relish, sauce in all variants from Big Mac down to a plain bun and burger.

– Commonality of components

– Options include with cheese, XL size

– Eat in or take out packaging.

– Phone and internet ordering for home deliveries

• We make what the customer wants! Easy when they sell like ‘hot cakes’. In a competitive market, such as Japan, we need to adapt and improve our offering. We survive on fast turn over. We must minimise the risk of our goods getting cold, stodgy and left on the shelf. These have to be thrown away.

• Expected extras (Fries and Drink) are accessories to the bun

• Non-core products – box, reused tray, take-away bag, straws, sauce sachets,

458

MacDonald’s Stock Carrying Costs • 8minutes from cooking to disposal

• 7.5 times per hour

• 11-23h. = 12 hours open per day

• Therefore 90 stock turns per day

• Hence stock holding cost is 9000% per day

• Open every day, hence stock holding cost per year,

• Hence MacDonald’s stock carrying cost = 3285000 % per year

MacDonald’s Inventory Carrying Cost (cold served food – muffins) = 100% per day

= 36500 % per year

459

KPI Run dual accounting systems • Conventional financial accounting – perceives

stock as adding to the value of the business because it is a liquid asset – The aim therefore is an accurate stock take

• Technical accuracy for previous year’s tax records

• JIT/Lean supply chain (management)

accounting perceives stock as an obsolescence risk – i.e. a threat to profit and reduces profitability. – The aim therefore is to minimise stock

• An improvement objective for future year’s performance

Dell's Days of Supply and Return on

Investment

0

5

10

15

20

25

30

35

40

3Q/9

5

4Q/9

5

1Q/9

6

2Q/9

6

3Q/9

6

4Q/9

6

1Q/9

7

2Q/9

7

3Q/9

7

4Q/9

7

1Q98

2Q98

3Q98

4Q98

1Q99

2Q99

0%

50%

100%

150%

200%

250%

300%

DOS

ROI

461

Basic Elements of JIT

1. Flexible resources

2. Cellular layouts

3. Pull production system

4. Kanban production control

5. Small-lot production

6. Quick setups

7. Uniform (mixed model) production

8. Quality at the source

9. Total productive maintenance

10. Supplier networks

Focal operation

Extent of integration

Backward integration

Forward integration

Non-exclusive balance between stages

Exclusive balance between stages

Vertical integration decisions

Is activity

of

strategic

importanc

e?

Does

company

have

specialised

knowledge?

Is

company’s

operations

performance

superior?

Is significant

operations

performance

improvement

likely? No No No No

Explore keeping this activity in-house

Yes Yes Yes Yes

The decision logic of outsourcing

Explore

outsourcing

of this

activity

Invest to perform internally

(if high potential for

opportunism)

Contr

ibution t

o

Com

petitive

advanta

ge

Relative capability

position Stronger Weaker

Not

critical

Critical Perform internally to develop

(if high potential for

opportunism)

Outsource

(if possible to mitigate risk of

opportunism)

Outsource

(if possible to mitigate risk of

opportunism)

Keep internal

(if lack of capable suppliers and

spin-off not feasible)

Outsource

(if possible to mitigate risk of

opportunism)

Outsource

(if possible to mitigate risk of

opportunism)

Generic sourcing strategies

Source: Adapted from Mclvor, R. (2008) what is the right outsourcing strategy for your process?, European

Management Journal, 26, pp. 24-34.

Partnership relationships are seen as

desirable because they can reduce the

transaction costs of doing business

Partnership relationships

Attitudes

Actions

Trust

Elements of process partnership relationships

Joint problem solving

Joint co-ordination of

activities

Joint learning

Long-term expectations

Sharing success

Multiple points of contact

Few relationships

Information transparency

Dedicated assets

Closeness of relationship

There are strong forces acting against the

maintenance of trust

Partnership relationships

Market position

Competitive behaviour

Economies of scale

Resource deficiencies

Some factors influencing the nature of network relationships

Market risks

Market structure

Transaction costs

Learning potential

Operations resources

Market requirements

Nature of network

relationship

Emphasis predominantly

on contracting

Emphasis predominantly

on relationships

‘Transactional’ or ‘market-

based’ supply arrangements

‘Partnership’ supply

arrangements

Supply arrangements are a balance between contracting and

relationship

Purchasing Production Logistics Marketing Sales

- quality - price evolution - delivery accuracy - service levels - invoice errors - supplier base size

- quality - utilisation rates - productivity - downtime - maintenance - output/employee

- stock turns - transport cost - vehicle utilisation - handling costs - service levels - lead times

- market share - share of voice - recall - hall tests - focus groups - blind tests

- $ per salesperson - margins - volumes - % promotion sales - customer calls - conversion rates

Too much focus on measuring all the individual parts of a process can lead to local optimisation but poor performance of the process as a whole

Reducing Number of Suppliers

Ref: “Europe-the battle continues.” KPMG Automotive Industry Group, 1996

0

500

1000

1500

2000

2500

Fiat Ford GM Renault VW PSA

1986

1988

1990

1992

1994

Required Supplier Capabilities

CAPABILITY

YEAR BY YEAR COST REDUCTION

DESIGN DEVELOPMENT

PROJECT MANAGEMENT

MANUFACTURED

QUALITY

LOGISTICS

COSTS

WORLD CLASS NEW MODEL

INTRODUCTION

WORLD CLASS QUALITY & RELIABILITY

SPC CAPABLE

PROCESSES

WORLD CLASS LEAD TIME FLEXIBILITY

Primary relationship Supporting relationship

Warren, (1995)

Commodity Portfolio Matrix

So

urc

e: H

and

fiel

d, K

rau

se, S

can

nel

l an

d M

on

czk

a

Slo

an M

anag

emen

t R

evie

w, W

inte

r 2

00

0:3

7-4

9

Bottleneck Supplies

•Substitution difficult

•Monopolistic markets

•High entry barriers

•Critical geographic or

political situation

Non-critical Supplies

•Availability adequate

•Standard specifications

of goods and services

•Substitution possible

Leverage Supplies

•Availability adequate

•Alternative suppliers

available

•Standard product

specifications

•Substitution possible

Low-Volume Purchases High-Volume Purchases

Hig

h-O

pport

unit

y

Hig

her

-Ris

k

Com

modit

ies

Low

-Opport

unit

y

Lo

wer

-Ris

k

Com

modit

ies

Critical Strategic Supplies

•Strategically important

•Substitution or alternate

supplier difficult to find

•Of major importance for

purchasing overall

Selection Criteria

(1) Production facilities and capacity

(2) Financial issues

(3) Quality

(4) Culture and Strategy

(5) Administration

Key Measurements

Total lead time Production flexibility (batch size) Delivery performance Capacity planning Pricing Financial stability Total quality management Statistical Process Control (SPC) or similar Quality improvement plan Management style Organisation’s structure Mission statement Communication interface Invoice queries Communication linkages

Supplier Alliance Selection Criteria

Source: Ellram (1990)

Pareto Analysis of Supplier Performance

Eliminate Eliminate

Suppliers Warranting

Buyer Development

Critical

Commodity A

Critical

Commodity B

Critical

Commodity C

Low

High S

uppli

er P

erfo

rman

ce High Performance

So

urc

e: H

and

fiel

d, K

rau

se, S

can

nel

l an

d M

on

czk

a

Slo

an M

anag

emen

t R

evie

w, W

inte

r 2

00

0:3

7-4

9

Matrix organization structure

F1 P1 M1

F2 P2 M2

F3 P3 M3

MD

Product 1

Product 2

Pr. 3

Operating departments

Managers

DECISION MAKER

sales

Human resources

Operations

Accounting

marketing

Teams: Levels of participation

traditional work groups

efficient implementation of management decisions,

but waste and slow response shared leadership teams

cross functional co-ordination, more ownership supervisor unwillingness, middle manager threat

participative improvement team

broad base of experience brought to bear, turf issues; time pressure when

an add-on activity

SDWT

flexible, highly responsive, but communication information significant;

costs of training

after Moran, Musselwhite and Zenger “Keeping Teams on Track”, Irwin, 1996.

Information relationships for the four types of central operations functions

Dominant

Subservient Predominantly one-way

Predominantly two-way

Strong

Weak

Power Communication Relationship

Market requirements

Operations resources

Top down GOVERNOR TRAINER

FACILIATOR CURATOR Cap

abili

ties

Fo

cus

Perf

orm

ance

Fo

cus

Programmatic

Top-down

Emergent

Bottom-up

Increasing project orientation

Organisation structures for development processes

Pure functional organisation

FM FM FM P.M.

PM

PM

PM

FM FM FM

FM FM FM

P.M.

PM

PM

PM

Pure project organisation

P.M.

PM PM

PM

P.M.

PM

PM

PM

FM FM FM

Balanced matrix

organisation

FM = Functional manager

PM = Project manager

P.M.

PM PM

PM

FM FM FM

Lightweight project managers

FM FM FM

P.M.

PM

PM

PM

Heavyweight project managers

Monitoring and control is less clear at a strategic level

Operation or process

Input Output

Compare/ re-plan

Intervention Plans

Monitor

Simple operational control model

Monitoring and control is less clear at a strategic level (Continued)

Operations strategy formulation

Objectives Implementation

plans

Compare/ re-plan

Change assumptions or strategy Plans

Track progress

How evident is progress?

Are objectives clear?

Frequency?

Can we predict outcomes?

Simplified strategic control model

Fully meeting business requirements (%)

Response time acceptable (%)

Report finished as promised (%)

Customised as requested (%)

Cost per project ($’0000)

Follow-up service acceptable (%)

Engineer utilisation (on nominal FTE basis)

100 90 80 70 60 50 40 30

100 90 80 70 60 50 40 30

100 90 80 70 60 50 40 30

100 90 80 70 60 50 40 30

20 30 40 50 60 70 80 90

100 90 80 70 60 50 40 30

140 130 120 110 100 90 80 70

Process performance at the start of the implementation

Target process performance when new organisation implemented

Process performance at Month 1

Process performance at Month 2

Process performance at Month 3

Process objectives for centralisation of Risk Assessment departments implementation

Actual performance

Planned implementation

period

Op

erat

ion

s p

erf

orm

ance

(Q

ual

ity

leve

ls)

Time

The reduction in performance during and after the implementation of a new technology reflects ‘adjustments costs’

Planned performance

Start of new technology implementation

New technology planned to be on-stream

Forecast performance

Chapter 6

Process technology strategy

Development and organisation

Decision areas

Capacity Supply network

Mar

ket

com

pet

itiv

ene

ss

Issues include: • Characterising process technologies • Understanding the general characteristics of process technologies over time • The effect of new forms of technology on performance • Evaluating process technology • The impact of process technology on performance objectives

Process technology definition and characteristics

Resource usage

Quality

Perf

orm

ance

o

bje

ctiv

es

Dependability

Speed

Flexibility

Cost

Process technology strategy

Process Choices

Processes developed based on efficiency?

Processes developed based on flexibility

Processes developed based on cost?

Start with the product mix! Use Group Technology

(GT).

488

Product Families

• Group Technology (GT) is commonly used to identify product families based on similarities in design or processing

• GT helps reduce unnecessary duplication in product design

• GT identifies product families with similar processing requirements

• These families can be manufactured in well-defined manufacturing cells

489

An Example of a Dendogram

100%

30%

60%

90%

A B E C D F G I H

The Math only divides into two at any one %.

490

Represents a processing unit P.U.

Represents a process route between two P.U.s that services 26 different components i.e. frequency 26

26

491

Factory Flow Analysis 1

1 1

1

2+3

234

2

2

4

5

3 4

3

5

4

SIMPLE

COMPLEX

COMBINING

COMBINING

492

Factory Flow Analysis -

Redeployment of Plant

1

2

5

3 4

COMPLEX

1

2

SIMPLE

1

2 1

1

234 1

493

Avoid Looping and Backflows

1

2

NO BACKFLOW

1 2

3

NO LOOPING

494

FACTORY FLOW ANALYSIS - Example

Route A B C D E F G H I J

Saw S/C S/C S/C S/C Saw M/C S/C S/C M/C

HT M/C M/C M/C Plate M/C Assy Assy HT S/C

M/C Assy H/T H/T Assy Plate M/C Assy M/C

HT M/C M/C Assy Assy Assy

M/C Assy Plate

Assy Assy

25 35 30 10 10 10 1 16 4 1

495

Basic Flow Chart Answer

Store Saw

HT

M/C

S/C

P Assy

142

142

4

90

65

25

4

35

10 2 105

16

10

76

1

20

30

1

90

496

Simplified Flow Chart

Store

Assy

142

497

Simplified Flow Chart

Store Saw

HT M/C

Sub Ass

S/C

P Assy

142

142

35

35 1 106

16

10

80

20

30

96

Combine HT & M/C Relocate subass G in M/C P.U. Sub contract J 1st M/C op.

Spaghetti Drawing-Before

Source: http://www.seaonline.org/docs/Regent.ppt

499

Spaghetti Drawing-After

Source: http://www.seaonline.org/docs/Regent.ppt

Nokia - Salo Operations Material Flow

Example

JKJK

JKJK

JKJK

.00 cm .00 cm

.00 cm

.00

cm

.00

cm

.00

cm

.00

cm

.00

cm

.00

cm

.00

cm

MPM

s

4.7 m

3.9 m

1.5

m

PP

P

PP P

PP

P

SÄ

HK

ÖK

.

MA

TE

R.

S

YÖ

TT

Ö

Nai

ste

n

puku

til

a

Mie

ste

n

puku

til

a

Vaatesäilytys

ilmastointi-

kanava

Sis

ään

käy

nti

Ulo

skä

ynt

i

DC

-CO

NN

EC

TIO

N

No

sti

n

post

ipa

ket

it

säh

kök

aap

pi

PE

SU

Käry

-

imuri

Tu

pa

kk

a

Välis

ein

ä

Type

nke

hit

in

PCMikrosk.

X - ra y

SAT

Puhdasvesiasema

PESUP.

ME

MM

ER

T

NE

UK

KA

RI

NE

UK

KA

RI

KA

TIS

KA

FA

X

CO

PY

PR

INT

ER

säh

kök

aap

pi

sähkökaappi

Incoming

materials

Receiving

and

inspection

Raw

material

storage

Material

replenishme

nt

Outgoing Products

On-line

packaging

Or

packaging in

DC

Finished

products

storage

Shipping to

customers

Recyclable and waste

material

501

Sorting Route Cards into Packs 1st sort by M/C used for operation #1 2nd sort for op #2 3rd sort for op #3

Superceeded by DNC.

502

Component / Machine Chart Part

Machine 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43

A 1 1 2

B 1 1 1 1 1 1 1 1 8

C 1 1 1 1 1 5

D 1 1 1 1 1 1 1 7

E 1 1 1 1 1 1 1 1 1 1 1 1 1 13

F 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 19

G 1 1 1 3

H 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 20

I 1 1 1 1 1 1 1 1 1 1 10

J 1 1 1 1 1 1 1 7

K 1 1 1 1 1 1 6

L 1 1 1 1 1 5

M 1 1 2

N 1 1 1 1 4

O 1 1 1 1 1 1 1 7

P 1 1 1 1 1 1 1 1 8

20% OF MACHINES WITH HIGHEST FREQUENCY IN PARTS PER M/C. THESE M/Cs ARE TAKEN OUT THEN READMITTED.

E 1 1 1 1 1 1 1 1 1 1 1 1 1 13

F 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 19

H 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 20

Division into Family Groups

Part Machine 1 13 39 25 12 31 26 42 37 2 32 38 10 40 28 18 4 27 24 3 20 30 11 22 17 7 35 6 34 36 19 23 14 43 5 9 21 41 15 29 8 33 16

J 1 1 1 1 1 1 1 F1 1 1 1 1 G 1 1 1

H1 1 1 1

I 1 1 1 1 1 1 1 1 1 1 B 1 1 1 1 1 1 1 1 P 1 1 1 1 1 1 1 1 F2 1 1 1 1 1 H2 1 1 1 1 A 1 1

K 1 1 1 1 1 1 L 1 1 1 1 1

H3 1 1 1 1 1 M 1 1

C 1 1 1 1 1 F3 1 1 1 1 N 1 1 1 1

E 1 1 1 1 1 1 1 1 1 1 1 1 1

D 1 1 1 1 1 1 1 F4 1 1 1 1 1 1 O 1 1 1 1 1 1 1

H4 1 1 1 1 1 1 1 1

There is no absolute answer, only an optimum! Modify the features to fit standard cells or modify the cell (re-plan) or subcontract. If utilisation is low, consider mixing cells.

exception

exception

exception

504

Rank Order Clustering Example /

Question COMPONENTS

MA

CH

INES

A

B

F

C

E

G

H

I

1 2 3 4 5 6 7 8 9 10 X X X X

X

X

X

X

X X X

X X X

X X X X X X

X X X

X X X X X X

X X X

505

RANK ORDER CLUSTERING WORKSHEET

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS M

AC

HIN

ES

A

B

F

C

E

G

H

I

1 2 3 4 5 6 7 8 9 10 X X X X

X

X

X

X

X X X

X X X

X X X X X X

X X X

X X X X X X

X X X

506

RANK ORDER CLUSTERING WORKSHEET

COMPONENTS

MA

CH

INES

A

B

F

C

E

G

H

I

1 2 3 4 5 6 7 8 9 10

X X X X

X

X

X

X

X X X

X X X

X X X X X X

X X X

X X X

X X X

X X X 1

2

4

8

16

32

64

128

81 52 98 154 101 154 152 144 96 101

507

RANK ORDER CLUSTERING WORKSHEET

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS M

AC

HIN

ES

A

B

F

C

E

G

H

I

1 2 3 4 5 6 7 8 9 10 X X X X

X

X

X

X

X X X

X X X

X X X X X X

X X X

X X X X X X

X X X 1

2

4

8

16

32

64

128

16

128

256

1

2

4

8

32

6

4

512

16

128

256

1

2

4

8

32

6

4

512

81 52 98 154 101 152 154 144 96 101

A

B

F

C

E

G

H

I

1 2 3 4 5 6 7 8 9 10 X

X X

X

X

X

X

X

X

X

X

X

X X

X

X

X X

X

X

X

X

X

X

X

X

X

X

X

X

X

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1 2 3 4 5 6 7 8 9 10

508

COMPONENTS

MA

CH

INES

16

128

256

1

2

4

8

32

64

512

A

B

F

C

E

G

H

I

1 2 3 4 5 6 7 8 9 10

X

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X

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50

776

49

896

963

61

62

960

509

RANK ORDER CLUSTERING WORKSHEET

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS

MA

CH

INES

COMPONENTS M

AC

HIN

ES

A

B

F

C

E

G

H

I

1 2 3 4 5 6 7 8 9 10 X X X X

X

X

X

X

X X X

X X X

X X X X X X

X X X

X X X X X X

X X X

A

B

F

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1 2 3 4 5 1 7 8 9 10 X

X X

X

X

X

X

X

X

X

X

X

X X

X

X

X X

X

X

X

X

X

X

X

X

X

X

X

X

X

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6 COMPONENTS

MA

CH

INES

1

2

4

8

16

32

64

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E

A

H

F

C

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I

X X X X

X X X X

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510

RANK ORDER CLUSTERING WORKSHEET

COMPONENTS

MA

CH

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COMPONENTS M

AC

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ES

A

B

F

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1 2 3 4 5 6 7 8 9 10 X X X X

X

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X X X

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A

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H

I

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X

X

X

X

X

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X

X

X

X

X

X

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6

COMPONENTS

MA

CH

INES

10 6 3 4 5 8 7 9 2 1 E

A

H

F

C

B

G

I

X X X X

X X X X

X

X

X

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X

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X

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X

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COMPONENTS

MA

CH

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COMPONENTS

MA

CH

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COMPONENTS

MA

CH

INES

1

2

4

8

16

32

64

128 6 2 3 4 5 1 7 8 9 10

E

A

H

F

C

B

G

I

X X X X

X X X X

X

X

X

X

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X

X

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X X X

X X X X

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X

X

X

X

X

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511

RANK ORDER CLUSTERING WORKSHEET

COMPONENTS

MA

CH

INES

COMPONENTS M

AC

HIN

ES

A

B

F

C

E

G

H

I

1 2 3 4 5 6 7 8 9 10 X X X X

X

X

X

X

X X X

X X X

X X X X X X

X X X

X X X X X X

X X X 1

2

4

8

16

32

64

128

16

128

256

1

2

4

8

32

6

4

512

81 52 98 154 101 152 154 144 96 101

A

B

F

C

E

G

H

I

1 2 3 4 5 1 7 8 9 10 X

X X

X

X

X

X

X

X

X

X

X

X X

X

X

X X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

6

COMPONENTS

MA

CH

INES

10 6 3 4 5 8 7 9 2 1 E

A

H

F

C

B

G

I

X X X X

X X X X

X

X

X

X

X

X

X X

X

X X X

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X

X

X

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X

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X

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COMPONENTS

MA

CH

INES

10 6 3 4 5 8 7 9 2 1 E

A

H

F

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X X X X

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X

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COMPONENTS

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CH

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1

2

4

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16

32

64

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A

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F

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I

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COMPONENTS

MA

CH

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10 6 3 4 5 8 7 9 2 1 E

A

H

F

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X X X X

X

X

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X

X

X

X

X

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512

RANK ORDER CLUSTERING WORKSHEET

COMPONENTS

MA

CH

INES

COMPONENTS M

AC

HIN

ES

A

B

F

C

E

G

H

I

1 2 3 4 5 6 7 8 9 10 X X X X

X

X

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X X X 1

2

4

8

16

32

64

128

16

128

256

1

2

4

8

32

6

4

512

81 52 98 154 101 152 154 144 96 101

A

B

F

C

E

G

H

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1 2 3 4 5 1 7 8 9 10 X

X X

X

X

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X

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X

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COMPONENTS

MA

CH

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COMPONENTS

MA

CH

INES

1

2

4

8

16

32

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E

A

H

F

C

B

G

I

X X X X

X X X X

X

X

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X X

X

X

X

X

X

X

16

12

8

25

6

1

2

4

8

32

6

4

512

513

Dealing with Exceptions • Change the component specification to eliminate the process • Redesign products to eliminate exception processes • Modify the manufacturing sequence to push to the beginning or

end activity • Subcontract the individual activity – particularly first and last

activities • Purchase instead of making the entire component – particularly

older designs (then focus in-house on products with high value add and less than 2 year old designs, focus on cost elimination at supplier)

• Co-locate cells to share the process, particularly for low utilised machines.

• Consider purchasing / leasing a new machine to deal with exceptions where co-location isn’t possible

• Re-routing exceptional operations to machines inside the group – if capacity allows

• Create a further division of machines between groups • Consider super-cells – in a jobbing environment join two or more

cells into a crazy line

514

To-From Data to Optimise Flow and

Minimise Back flow or Looping

Determine the preferred layout order of machines that minimises back flow. Hence, express as a percentage of all work movements, the extent of back flow for the idealised layout.

To

From 1 2 3 4 5 6

1 0 0 15 5 0 10

2 12 0 0 18 6 0

3 5 25 0 3 8 7

4 20 10 0 0 22 16

5 14 0 12 10 0 8

6 0 12 8 8 25 0

= 30

=51

515

To-From Ratio and Optimum Sequence

To From RatioOptimum Flow

Ratio Sequence

Optimal Sequence =

1

2

3

4

5

6

MC

516

To-From Ratio and Optimum Sequence

To From Ratio

51 30 1.70

47 36 1.31

35 48 0.73

44 68 0.65

61 44 1.39

41 53 0.77

Optimum Flow

Ratio Sequence

0.65 4

0.73 3

0.77 6

1.31 2

1.39 5

1.70 1

Optimal Sequence = 4 3 6 2 5 1

1

2

3

4

5

6

MC

517

Determine Back flow / Looping as a % To

From 1 2 3 4 5 6

1 0 0 15 5 0 10

2 12 0 0 18 6 0

3 5 25 0 3 8 7

4 20 10 0 0 22 16

5 14 0 12 10 0 8

6 0 12 8 8 25 0

Total number of movements = 279

All backflows from 1 = , , All backflows from 5 = , , All backflows from 2 = All backflows from 6 = , All backflows from 3 =

Total backflow = Backflow % = = . % 279

Optimal Sequence = 4 3 6 2 5 1

518

Identify back flow away from the customer

4 3 6 2 5 1

4 3 6 2 5 1 This is okay

4 3 6 2 5 1 These are okay

4 3 6 2 5 1

4 3 6 2 5 1

519

Determine Back flow / Looping as a % To

From 1 2 3 4 5 6

1 0 0 15 5 0 10

2 12 0 0 18 6 0

3 5 25 0 3 8 7

4 20 10 0 0 22 16

5 14 0 12 10 0 8

6 0 12 8 8 25 0

Total number of movements = 279

All backflows from 1 = 15, 5, 10 All backflows from 5 = 12, 10, 8 All backflows from 2 = 18 All backflows from 6 = 8, 8 All backflows from 3 = 3

Total backflow = 97 Backflow % = 97 = 34.77% 279

Forward flow 65 %

520

Coping with back flow away from the customer

4 3 6 2 5 1

4 3 6 2 5 1

This is okay

4 3 6 2 5 1 These are okay

4 3 6 2 5 1

4 3 6 2 5 1

If you are walking, you are not working

521

Use Cells to Minimise Distances Travelled

Forward and Backward Using Cellular Layouts

4

3

2 6

1

5

4

3

2 6

1

5

Backflow Forward Flows

Backflow is acceptable when volumes are low

Redesign products to eliminate backflow

Create demand then set aside specific cells for specific product families

to eliminate backflow

Outsource low volume products or withdraw them if they do not fit

forward flow

Examine the data and expect to re-layout plant every six months or when

ever there are changes to product designs and marketing mix

Profit Total assets

Output Total assets

Profit

Output =

×

Decomposing the ratio profit/total assets to derive the four strategic decision areas of operations strategy

Output Total assets

Output Capacity

Fixed assets Total assets

Capacity Fixed assets

Utilisation Working capital Productivity of fixed assets

= × ×

Operations strategy decision areas

Capacity Supply network

Process technology

Development and organisation

Profit Output

Revenue Output

Cost Output

Average revenue

Average cost

= –

523

Logistics Impact on "Return on Investment",

Sales revenue

Costs

Inventory

Accounts receivable

Cash

Fixed Assets

-

+

+

+

Profit

Capital Employed

ROI

Customer Service

Logistics Efficiency

Inventory policies, Service Levels

Order completion rate Invoice accuracy Purchasing policies

Manufacturing & distribution facilities Transportation equipment

524

Comparison of Set up and Variable Costs

Under Various Lot Sizes

Variable Cost per Unit £10 000

Total

Number Set Up Variable Total Cost Per

of Units Cost Cost Cost Unit

1 £1 000 000 £10 000 £1 010 000 £1 010 000

10 £1 000 000 £100 000 £1 100 000 £110 000

100 £1 000 000 £1 000 000 £2 000 000 £20 000

1000 £1 000 000 £10 000 000 £11 000 000 £11 000

2000 £1 000 000 £20 000 000 £21 000 000 £10 500

525

• If you have 1€ million, and the machine you want costs 1€ million, what do you do?

526

Potential Solutions • Just buy it • Lease it • Borrow against money in the bank • …..

• Japanese solution: Buy 10 machines, pay 10% on each (€1M paid). Use the extra capacity to reduce fixed costs. Do not locate in one location. Make where you sell, buy where you make. Global Market, make locally. – By stimulating large demand, significant reductions in

variable cost can be achieved via economies of scale at all preferred suppliers. Reduce the number of suppliers to ensure they achieve economies of scale. Select the best, highest quality, fastest delivery, and most willing to learn and contribute to design of the process and product improvement schemes.

527

Traditional Jobbing Machine Shop Layout

Six Machines, Six Skilled Men

528

529

Traditional Jobbing Machine Shop WIP

Six Machines, Six Skilled Men

530

Productive Traditional Machine Layout

Twelve Semi-Auto/NC Machines, Six Skilled & Semi-skilled Men

531

Productive Traditional Machine Layout

– Batch Manufacture => WIP

Twelve Semi-Auto/NC Machines, Six Skilled & Semi-skilled Men

532

533 Machine Cell Layout Eighteen Semi-auto machines, Six Skilled Men

534 Cellular Manufacturing 21 Automated NC Machines (Inc Auto Eject) 1, 2, 3, 4, 6, 8 Semi-skilled Men/Cell

Kanban Bin In

Kanban Bin Out

Kanban Bin In

Kanban Bin Out

Kanban Bin In

Kanban Bin Out

535

Kanban Bin In

Flexible Manufacturing Cells

536

Machine Tools, Buffers and an AGV htt

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538

PRODUCT

‘X’ L L D M M

‘Y’ L M M G D

Line Layout

L L M M

L L M M

L L M M

G G D D

G G D D

G G D D

Process / Job Layout Product X

(10)

(6)

(24) L D

L G

M M

Product Y

Cell Layout

539

A Simulation of Cellular Manufacturing – Two Handed Operations, One Handed Operations,

and Loading Kanban Bins

©Dr David J. Newlands 2004

540

Traditional Shop Floor Layout

Receiving

Stores

Stores Shipping

Test

Assembly

Machining

Fabrication

Inspection

• Complexity

• Conflicting Objectives

• “Protectionist”

• Barriers to teamwork/problem solving

Long lead-times and Unresponsive

541

Group Technology Shop Floor Layout

S

Receive

Store

Store

Store

Store

S

S

S

• Grouped by product family

• Economies of scope

• Common objectives

• Immediate feedback / good communications

Short lead-times and Flexible with no, or little backward flow

M F A T

M A A F T

T

M F A A T

T

M A T

542

Steps to Achieving Cellular Manufacturing

1 Find out the parts that are made and used, and map how the

process brings them together.

2 Work out the sequence of operations to achieve flow.

3 Design the layout to minimise movement and prevent build-

up of stock within the process. Select equipment to make future

improvements easy to implement.

4 Plan to produce to demand with minimal batch sizes.

5 Use automation and visual management to release people from

waiting.

6 Design mistake-proofing (poka-yoke) into the process.

7 Balance the times for each operation.

8 Train people to allow them to move freely between

operations.

9 Decide performance measures for the cell.

10 Create a culture of ownership, responsibility and continuous

improvement.

543

544

545

546

Characteristics of basic manufacturing systems

Characteristics Job shop Flow shop Project shop Continuous

Process

Types of

machines

Design of

processes

Set-up time

Workers

Inventories

Lot sizes

Production time

per unit

Examples in

goods industry

Examples in

service industry

Flexible; general

purpose

Functional or

process

Long, variable

Single functioned,

highly skilled (1

man to 1 machine) Large inventory to

provide for large

variety

Small to medium

Long, variable

Machine shop; tool

and die shop

Hospital;

restaurant

Special purpose;

single functions

Product flow layout

Long

One function;

lower skilled

Large to provide

buffer storage

Large lot

Short; constant

TV factory; auto

assembly line

College

registration;

cafeteria

General purpose;

mobile

Project or fixed

position layout

Variable

Single function

skilled; 1 man to

1 machine

Variable, usually

raw materials

Small lot

Long; variable

Special purpose

Product

Very long

Few

Small in-process

Not applicable

Short; constant

Shipbuilding;

house construction

Movie; TV show;

play; buffet

Oil or chemical

processing

Agriculture;

Bla

ck,

J. T

. (1

98

8)

Cel

lula

r M

anufa

cturi

ng S

yst

ems,

in V

oss

, C

. (E

dit

or)

(1

98

8)

Just

-In-T

ime

Man

ufa

cture

,

IFS

(P

ub

lica

tio

ns)

Ltd

UK

, S

pri

nger

-Ver

lag,

pp

27

-49

.

547

Automated Robotic

Assembly Lines

548

JIT and the Manufacturing Environment

Variety

High

Low

Medium

Part of JIT

unsuitable, application

of selected techniques

JIT suitable for

part of plant

JIT suitable for

all of plant

LINE MANUFACTURE

BATCH MANUFACTURE

JOBBING/PROJECT

PROCESS MANUFACTURE

JIT suitable for

manufacture

Much of JIT in place,

application of selected

techniques

Volume

High Low Medium

Bicheno, J. R., (1988) A Framework for JIT Implementation, in

Voss, C. (Editor) (1988) Just-In-Time Manufacture, IFS (Publications) Ltd UK, Springer-Verlag, pp 191-204.

Small batch

Mass

production

Continuous

process

New choices

BATCH SIZE

PR

OD

UC

T FL

EXIB

ILIT

Y

Lean manufacturing

Mass

customization

Graph from Richard L. Daft, Jonathan Murphy, Hugh Willmott, Organization Theory, page 280

Labour

Transport

Fabric

Supplies

Custom duties

15.55 France

14.33 Portugal

11.43 Turkey

11.43 Thailand

11.13 Morocco

10.82 Romania

10.37 China

9.60 Myanmar

Cost in €uros

2 4 6 8 10 12 14 16 0

The cost breakdown of shirts made in various countries and sold in France

Source: Slack, N., Chambers, S. and Johnston, R. (2007) Operations Management, 5th edn. Harlow: Financial Times Prentice Hall. Reproduced with permission from Pearson Education Ltd.

Low

Fl

exib

ility

H

igh

High Low Cost

Market fragmentation

making flexibility more valuable

Competitive pressure to

reduce costs

Market pressures are requiring operations to be both flexible and low cost

What INVESTMENT (both managerial and

financial) will be needed?

What RETURN (in terms of benefits to the

operation) will it give?

What RISKS do we run if things go wrong?

Feasibility – How difficult is it?

The criteria for screening technology

Overall evaluation of

the technology

Acceptability – How worthwhile is it?

Vulnerability – what could go wrong?

Broad categories of evaluation criteria for assessing concepts

Operations resource capabilities

Is the process technology:

Market requirements

How does the process technology affect: Proposed

process technology

Financial evaluation

Does the process technology give an acceptable return on the investment necessary for its adoption?

Assessing the ‘acceptability’ of a process technology

Scarce? Difficult to move? Difficult to copy? Difficult to substitute for?

Quality? Speed? Dependability? Flexibility? Cost?

Cash inflows Cash outflows Net cash flow Beginning cash without financing Ending cash without financing

0 1050

(1050)

0

(1050)

1000 800 200

(1050)

(850)

1000 970

30

(850)

(820)

1000 950

50

(820)

(770)

1000 700 300

(770)

(470)

2000 200

1800

(470)

1330

0 200

(200)

1330

1130

0 200

(200)

1130

930

3000 30

1700

930

2630

Six month periods 0 1 2 3 4 5 6 7 8

All figures in €000s

3000

2000

1000

Cash requirements (€000s)

12 36 48 Start

–1000 Finish

Time (months) 24

Cash inflows, outflows and requirements up to the finish of the project (€000s)

Excellent

Target performance

Current performance

Quality

Confidence in analysis

Number of tests possible

Improvement potential

Speed

Analysis time

Report lead-time

Dependability

Proportion on-time reports

Flexibility

Volume fluctuations

Range of tests

Cost

Productivity of direct work

Productivity of indirect work

Poor

Excellent Poor

Data allows statistical tracking of cases over time. Tool for internal process improvement and enhanced crime solving

Reduced time to analyse case material and product reports

Increased % on-time delivery of crime reports. Often a critical-path element in a criminal investigation

The new (more scalable) system allows increased case volume (5% growth predicted) to be accommodated

The elimination of paperwork is intended to increase productivity by freeing staff from non-core activities

Notes

Performance of laboratory analysis and data-based systems

556

Cellular Manufacturing

• Group dissimilar machines in manufacturing cell to produce family of parts

• Work flows in one direction through cell (as much as possible)

• One worker tends several machines

• Cycle time adjusted by changing number of workers

557

Requirements of Work Cells

1. Identification of families of products

2. A high level of training and flexibility on the part of employees

3. Either staff support or flexible, imaginative employees to establish work cells initially

4. Test (poka-yoke) at each station in the cell

Source: Heizer & Render

558

Staffing and Balancing Work Cells

Determine the takt time

Takt time = total work time available

units required

Determine the number of operators required

Workers

required =

total operation time

required takt time

Source: Heizer & Render

559

Staffing Work Cells Example 600 Mirrors per day required

Mirror production scheduled for 8 hours per day

From a work balance chart

total operation time = 140 seconds S

tan

dard

tim

e r

eq

uir

ed

Operations

Assemble Paint Test Label Pack for shipment

60

50

40

30

20

10

0

Source: Heizer & Render

560

600 Mirrors per day required

Mirror production scheduled for 8 hours per day

From a work balance chart

total operation time = 140 seconds

Staffing Work Cells Example

Takt time = (8 hrs x 60 mins) / 600 units

= .8 mins = 48 seconds

Workers required = total operation time required

takt time

= 140 / 48 = 2.91

Source: Heizer & Render

561

Manufacturing Cell With Worker Routes

Worker 1

Worker 2 Worker

3

Enter

Exit

Machines

Key: Product route

Worker route

562

TAKT Time Observations • Blindly following TAKT calculations will lead to one

solution. This may be only the obvious solution.

• Benchmark what competitors do.

• Benchmark against an absolute value – the absolute minimum or maximum conceivable.

• Volume may increase or drop. Employ flexible workforces able to take holidays and work when needed.

• Work backwards from number of employees available during holidays.

• Increase the process time flexibility – reduce time by identifying efficiencies and reducing component part count – reduces hand time required to pick up and assemble.

• Can the product be made slower with fewer resources?

• Outsource low value add work.

563

A Simulation of Lean Manufacturing

564

Batch Processing Example

Product requires three processes that take one minute each

565

Batch Processing Example

Product requires three processes that take one minute each

566

Batch Processing Example Product requires three processes that take one minute each

• Complete processing of first batch of 10 takes 30 minutes • First good part out takes 21 minutes (plus transport time) • There are at least 21 parts in-process

567

Continuous Flow Processing Example

• First part out in 3 minutes

• 10 completed in 12 minutes

• Only 2 sub-assemblies in process at a time.

Product requires three processes that take one minute each

Surveys of Activity

Figure 3.10. Purchasing Strategy Implementation Sequence

Source: Monczka and Trent (1991).

Supply base optimisation/total quality management

World-wide sourcing

Longer-term contracting

Formal supplier evaluation

Cross functional teams

Early involvement

Longer-term relationships

Supplier certification

Consulting teams

Total cost

Low High

Expected performance improvement

Strategy implementation sequence

Relative proportion of firms executing each strategy

Coopers and Lybrand's survey results

Walker, P. (1995) How can suppliers develop themselves to become "preferred" suppliers? in Ashmore, S. Supplier Development: Measuring, Developing & Improving Supplier Performance, ICM Marketing Ltd. (International Communications for Management), The Cavendish Square Conference Centre, London, 11-12 December, 1995.

COST REDUCTION ACTIVITIES QUALITY IMPROVEMENT INITIATIVES LONG TERM CONTRACTING REDUCTION IN THE NUMBER OF SUPPLIERS LONGER TERM SUPPLIER RELATIONSHIPS SINGLE SOURCING SUPPLIER DEVELOPMENT PROGRAMMES USE OF FULL SERVICE SUPPLIERS CROSS FUNCTIONAL SOURCING TEAMS CORPORATE WIDE CONSOLATION OF PURCHASING EARLY SUPPLIER DESIGN INVOLVEMENT BUYER SELLER CONSULTING TEAMS SUPPLIER PERFORMANCE EVALUATION

COST BASED PRICING

1 2 3 4 5 6 7 8 9

10 11 12 13 14

Cost Analysis for World Class

Change

• Dr David J. Newlands

Price

Total Cost of Ownership

- Speed and accuracy of response - Accuracy on information - Administration interface

- Delivery accuracy - Lead times

- Inventory Level - Expediting costs Qualification data - Ease of design-in

- Number of suppliers

Approaches to Productivity

95% WASTE

5% VALUE-ADD

Traditional Approach Focus on Value-added Resources Through

•Methods Improvement •Work Study •Automation

JIT Approach Focus on the 95% Non Value-Added Resources Through

•Total Quality Management •Total Waste Elimination •Enforced Problem Solving •Total Involvement

Source: ATKEARNEY

PMMS empirical figures for typical revenue

breakdowns

% of revenue

Purchases for production 50

Purchases for MRO (maintenance, repair and operating supplies) 10

Manufacturing, sales and over heads 30

Profit 10

Source: Steele and Court (1996)

Steele and Court's Sensitivity Analysis (1996)

Reduce Purchasing Increase Sales

SALES £ 1000 £ 1000 £ 1050

COST OF

SALES

Manuf' inc O/H £ 300 30 % £ 300 30 % £ 315 31,5 %

Purchases £ 600 60 % £ 570 57 % £ 625 62,5 %

£ 900 10 % £ 870 13 % £ 940 6 %

GROSS

PROFIT £ 100 10 % £ 130 13 % £ 110 11 %

INCREASE 0 0 % 30 30 % 10 10 %

Increase Price Reduce Manuf' O/H

SALES £ 1050 £ 1000

COST OF

SALES

Manuf' inc O/H £ 300 30 % £ 285 28,5 %

Purchases £ 600 60 % £ 600 60 %

£ 900 10 % £ 885 11,5 %

GROSS

PROFIT £ 150 15 % £ 115 11,5 %

INCREASE 50 50 % 15 15 %

Independent variables’ financial impact on

bottom line profit

£ DifficultyIncrease sales prices by 5% without losing volume 50,000 Very high

Increase sales volume by 5% 10,000 Very high

Reduce manuf’ and O/H costs by 5% 15,000 High

Reduce purchase costs by 5% 30,000 Moderate

Reduce logistics costs by 5% 6,250 Moderate

Source: Steele and Court (1996)

Alternative financial impact analysis, according to N. E. C. Hoare (1995).

WORLD CLASS PROCUREMENT

Reduce Purchasing Increase Sales

SALES £ 100 £ 100 £ 150

COST OF

SALES

Labour £ 8 8 % £ 8 8 % £ 12 8 %

Overheads £ 8 8 % £ 8 8 % £ 12 8 %

Purchases £ 60 60 % £ 58 58 % £ 90 60 %

£ 76 76 % £ 74 74 % £ 114 76 %

GROSS

PROFIT £ 24 24 % £ 26 26 % £ 36 24 %

General

Overheads £ £ 16 16 % £ 16 16 % £ 24 16 %

TRADING

PROFIT £ 8 8 % £ 10 10 % £ 12 8 %

Interest £ 4 4 % £ 4 4 % £ 6 4 %

OPERATING

INCOME £ 4 4 % £ 6 6 % £ 6 4 %

N E C Hoare, (1995)

Prevention, Appraisal and Failure Costs of

Supplier Non-Performance

£ £

000's 000's

Pre-tax Profit 35000

Pre-tax Profit 35000

£ £

Total Spend Spend 000's 000's

Purchase Spend 170000

Total Purchase Spend 170000

Source: Peter Hines, Richard James and Owen Jones, A Cost Benefit Model for Decision Making in Supplier Development Activities in Cox, A. (Ed). (1996) Innovations in Procurement Management, Earlsgate Press, Boston, Lincolnshire, Pages 63-84.

Prevention, Appraisal and Failure Costs of Supplier Non-Performance

£ £ £

000's Cost of prevention 000's 000's

Customer assistance 3

Supplier Developent 500

Supplier Training 7

Audit feedback 3

Supplier Suggetions 3

Training (internal) 26

Expedition 735

Penalty clauses 18

Total prevention costs 1295

Cost of appraisal

Supplier audit (ongoing) 263

Performance monitor 105

Stock take (shortage) 25

Total appraisal costs 393

Prevention, Appraisal and Failure Costs of Supplier Non-Performance

Cost of Failure

Lost business ?

Lost prestige ?

Stock excess (buffer) 15600

Stock excess (other) 4950

Stock discrepancies 3

Double handling 120

Re-sourcing 80

Legal costs 54

Price query 15

Discrepancy claim 42

Technical queries 22

Rework 70

Over delivery 10

Urgent transport 62

Expediting / rush orders 923

Customer queries 788

Excess cost in market 8000

Total cost of failure 30739

TOTAL COST OF SUPPLIER NON PERFORMANCE 32427

Ratios Derived from Prevention, Appraisal and Failure Cost Analysis

RATIOS

Total prevention costs 1295 = 4.21%

Total cost of failure 30739

Return on Supplier Development per £'000

Total cost of failure *1000 30739 = £18,210.31

Cost of prevention plus Appraisal 1688 per £ 1000

= 18 : 1

Total cost of failure 30739 = 18.08%

Total Purchase Spend 170000

Total cost of failure 30739 = 87.83%

Pre-tax Profit 35000

Total possible pre-tax profit

Pre-tax Profit + Total cost of failure 35000 + 30739

= 65739

Conclusions

Hines analysis does not take into account the costs of quality at each of the suppliers where the spend is incurred. The analysis only looks at direct (exposed / explicit) costs. Refer to the iceberg model. If suppliers improve their processes, the total spend can be reduced for given products. This can be used to increase the budget to spend on product development, staff training, process improvements, etc, while maintaining the end sales price.

Product and Process Design

Cases

584

Typical Layout of Trim and Functional Elements

585

Reduced Part Numbers => Reduced Hand Time

=> Increased Productivity

586

Mercedes – Motors & Light Mounted in the Mirror

587

Renault Altenate Solution

588

Component Count

589

Component Count Reduction, Same Customer Value

590

Ability to Late Configure

No electronics fitted, motors or leavers within the door

591

Rapid Fitting & Rapid Colour Customisation, Rapid Fitting

592

Developing an integrated supply chain

Round One: Traditional Mass Production – Baseline Conditions

Good

Received Supplier Production

Trade

customer

Source: Adapted from Christopher, (1997)

Material flow direction

PO

S

Round Two: Lean Manufacturing

Manufacturing

Management Integrated

Suppliers Distribution POS

Round Three: Agile – Mass Customisation

Manufacturing

Management

Responsive

Suppliers Distribution POS

Core Common

Module Stock

Low cost customer appreciated variant to be

added rapidly at the point of sale when sold

POS = Point of sale – the shops

Raw Materials Components Inspected

Components

Finished

Goods +

Competitor

products

Trade

Customer

Stock

Alpha Co.

Quantity Sold

Competitors

Quantity Sold

593

Variants in the Supply Chain

Variants

Time through the supply chain

Raw

Material POS

Finished

Good

Component

Blanks

Component

Finishing

Sub-

Assembly

594

596

Teddy Bear Factory

597

598

Child Height Product Placement

599

Baby Safe Products

600

All Products are empty of filling

601

Filling Added

602

Personal Stroking during the sale

603

Hearts and Voices

604

Stitching Up

605

Clothes Variants

606

Theme and Special Occasion Clothes

607

Traditional Bicycle Plant Layout and Flow

Tube Stock

Storage

Tube

Cutting Deburr

Tube

Miter

Finished

Stores

and

Shipping

Component

Parts

Storage

Frame

Parts

Storage

Frame

Welding

Tube

Bending

Final

Assembly

Frame

Storage

Frame

Painting

Frame

Wash

Source: Womack & Jones (1997:57)

608

Lean - Cellular Bicycle Plant Layout and Flow

Tube

Stock

&

Parts

Cut Deburr Miter

Weld

Bend

Assemble Paint Wash

Source: Womack & Jones (1997:62)

Ship

Cut Deburr Miter

Weld

Bend

Assemble Paint Wash

Cut Deburr Miter

Weld

Bend

Assemble Paint Wash

Steel bike cell

Aluminium bike cell

Titanium bike cell

Half the space

Half the time

Half the human effort

Half the costs

10% of the stock

Double the sales volume

Almost no customer waiting for orders

Maximum flexibility

Little pipeline liability

Make to order => No risk to profit

http://www.fhiplantservices.com/go2/warehouse-services.cfm

Stores – A Cost Centre, Manufacturing areas are a PROFIT CENTRE

Japan Supply Chain Case

© Dr David J. Newlands

Ideal Flow of Sales Packs

Points of Sale

Operator shop

Franchise Shop

Discount Retailer

Sole Trader

Non- specialist

Shop

Operator

Operator

Distributor

Distributors UDS

Third party logistics service provider

Supplier

PF

YM

PU

AP

Assembler

NP

Japan Distribution Market

Operator 1 month

DOS

NMP & Unitron Distributors

30kYen

Sales Packs Sales Packs

31kYen

Claw back

Operator shop

Franchise Shop

Discount Retailer

Sole Trader

Non- specialist

Shop

Manufacturer Operator Points of Sale Distributor

(& 40kYen

Incentive)

FFR Claw back

Source: Tooru Fukui, Director, Senior G.M. Marketing, NP.

Case Study: HD928

• Based on recent experience in the toughest and fastest developing market

• Major challenges: quality-volume, capacity, delivery reliability, lead-time, communication

• First hand experience as the basis of lessons to learn

Inbound Structural Component Chain Plan

NP Final Assembly

Subcontract Gasket

Subcontract Special Paint

Subcontract Paint&gloss

Component Forming

Sub- Assembly

Material Flow

W, X, Y & Z

W, Y & Z

X X

X

W, X, Y & Z

W, X, Y & Z

Material Code

PU Ltd Partner Sub-contractor

Problem: Inspection Scramble

Inspection

Subcontract Gasket

Subcontract Special Paint

Subcontract Paint&gloss

Component Forming

Sub- Assembly

Issues: Yield, lead-time, quality, ownership, control, transport, product damage, pointing the finger, delivered quantities…...

NP Final Assembly

UDC Distributor Customer

PU Ltd

http://www.suji2k.50megs.com/cell.htm

http://itzr.en.alibaba.com/product/336440847-210389654/PCB_A_for_MOBILE_PHONE_CELL_1200_1202_1203_1208_1209.html

http://www.hiwtc.com/photo/products/34/01/92/19234.jpg

http://gadgetstress.com/2011/08/alcatel-ot-606-stress-test/

Revised Inbound Mechanics Value Chain After Supplier

Development

Partner adds all mechanics value. Key issues: production capacity and quality.

Single Partner Sub-contractor

NP Final Assembly

Component Forming

Sub- assembly

Surface Treatment & processes

Plant 1

Plant 2

Advantages: Better information flow, better quality planning, Supplier accountability, better production planning….

PF Ltd

Conclusions

• The advantages are clear when working with a single supplier source.

• Low WIP

• Fast identification of quality issues and where they originated

• Not a Logistics nightmare.

Supply Chain Position and Value Add: In The Box

Model from Price Waterhouse/Arthur Anderson

micro processors

job specific systems

software

printed circuit

customisation

Final Assembly + Test

(Intel)

(Microsoft)

(D2D)

Value added

content

Supply Chain

COMPONENT SUPPLIER

BASE

PRODUCT DEVELOPMENT PROGRAMME

OPA CUSTOMER

NP Product Development Communication Flows

OPA CUSTOMER

COMPONENT SUPPLIER

BASE

PRODUCT DEVELOPMENT PROGRAMME

NP Supplier Audit Communication Flows

OPA CUSTOMER

COMPONENT SUPPLIER

BASE

PRODUCT DEVELOPMENT PROGRAMME

Communication Flows During Manufacturing Preparation Phase

SERIES COMMUNICATION AND MATERIALS STOCKS

MATERIAL SUPPLIER

COMPONENT SUPPLIER

BASE

OPA CUSTOMER

STOCKS STOCKS STOCKS STOCKS STOCKS STOCKS

COMPONENT CONCENTRATED COMMUNICATIONS FLOWS

OPA CUSTOMER

MATERIAL SUPPLIER

COMPONENT SUPPLIER

BASE

STOCKS

DEVELOPMENT AND STOCK COMUNICATIONS FLOWS

OPA CUSTOMER

MATERIAL SUPPLIER

COMPONENT SUPPLIER

BASE

Conclusions • Conventional supplier development models focus on

administrative and process procedures for procurement managers

• Suppliers need to be trained, developed and encouraged to learn - by doing and designing.

• The importance of product creation metrics and design the product for logistics impact should be reflected in the typology range of supplier training, development and learning initiatives.

• It is important that both customer and supplier understand the nature of their preferred styles for interaction and behaviour.

Typology of Purchase

Decision Makers

Co

mm

erci

al U

nce

rtai

nty

Low

Low

High

High

Purchasing dept. Dominant

Engineering Dominant

Finance & admin Dominant

Cross-Functional DMU

DMU - Decision Making Unit, i.e. concurrent engineering team

Independence/Integration

Trends In Supplier Policies

1. Original Product Assembler (OPA) locates near consumer base

2. Locate near to the OPA

3. Use small, side loaded trucks and ship mixed loads

4. Consider establishing small warehouses near to the customer or consolidating warehouses with other suppliers

5. Use standardized containers and make deliveries according to a precise delivery schedule

6. Become a certified supplier and accept payment at regular intervals rather than upon delivery

The four stages of purchasing and supply management

development

Professional staff Proactive approach Some long-term contracts Measures some cost of ownership Suppliers considered resources Reports to higher managment Some cross-functional support Training and education offered Pruchasing power ‘in purchasing ’ Limited use of data Some commodity strategies

Some college education Computer processes paper Transaction driven Spot buy system Measures « prices reductions » Reports focus: Keep Production line running Tracks purchase price Variance Poor data availability Data refer to quality/cost trade-offs, historic and current cost information, price, and inflation forecastes.

High school education Process paper Clerical function Reactive./Crisis mode Reports at very low level

Stage 4 Strategic Supply Management

Stage 3 Proactive

Stage 2 Mechanical

Stage 1 Reactive

Adapted from the Burt & Doyle, (1993) American Keiretsu, Business One-Irwin,

Supply as a competitive weapon

Supply strategy integrated with SBU’s strategy

Velocity: Development and production

Measures continuous improvement

Global review

Optimise costof ownership or total cost of ‘outside shop’

Supply strategy centralised

Purchasing activity decentralised

Data available and used

Supply base by design

Leverages supplier technology

Monitor environment

Manages relationships

Value chain ‘management’

Key Solutions

Balanced Purchasing: Cooperation and Competition in Supplier Relationships

Maximize “Co-opetition” w/in your supply chain

• Unclear incentive to drive improvement • Supplier may capture all of the value creation • Assumes supplier goal congruence

Fully leverages supplier capabilities

Drives improvement at both customer & supplier

Requires significant customer capability

Clerical purchasing mentality of traditional purchasing

“Price taker” results

Leaves lots of money on the table

•Requires significant purchasing clout •Eliminates supplier lethargy but may instill resentment •Does not drive synergistic improvement

Commitment to Competitive Pricing

Commitment to a Cooperative Relationship

Purchasing Approaches

ASQ Group Presentation March 17th, 2004, 6 – 8 PM http://www.asqswwa.org/asq%20group%20overview.doc

Trust-Based “Partnership” Balanced Purchasing

Unleaveraged Purchasing Darwinian Rivalry

QCDDM

• Nissan’s Management Concept

• Quality

• Cost

• Delivery

• Design

• Management

Quality has to be Attacked

• At source - raw material and components

• At design - design to be made right first time

• In process - through process control

• In people - responsibility for quality where it matters - with the operators

Process / Product Statistical Spread

LSL USL

LSL USL

LSL USL

You have to close two of three factories down because of a lack of demand. Which factories should you close and why?

Factory A

Factory C

Factory B

Lower/Upper Specification Limit (design tolerances)

Kaizen

• Continuous improvement

• Requires total employment involvement

• Essence of JIT is willingness of workers to

– spot quality problems

– halt production when necessary

– generate ideas for improvement

– analyze problems

– perform different functions

Coordinated Application of Improvement Techniques

Achieving Critical Performance Measures

Time (3 Years)

Market Leader

Target Company

BPR and C.I.

Managing what is

BPR

Continuous Improvement (Kaizen/C.I.)

Kaikaku

Technology Advance Coordinated

Business System Engineering

The Need For Change Attitude and Culture

Quality •Right first time •Less than 1 fault/vehicle •Quality as company philosophy •Company set up for quality

Logistics and Response Time •Real JIT manufacture •Increased stock turns •Short development times

Cost •Reduce indirect labour •Reduce overhead •Eliminate unexpected events •Continuous improvement •Full engagement of all employees

Product Change and Innovation •Improve management of change •Variety is high •Supplier is involved up front •Responsibility is devolved to the supplier

Warren, (1995)

O’Laughlin K., Cooper J., Cabocel E., (1993) Reconfiguring European logistics systems, The Council of Logistics Management, Oak Brook.

Market success Market success

Logistic Process Capability

Delivery times in line with real market conditions

Efficiency

High rate of utilisation Low stock and WIP

Logistic Process Reliability

Low and stable lead-time

Deliver Reliability

Meeting the promised deadline

Price

Marketable cost of production

Deliver Capability

Ability of promising a desired date of delivery

Process Control

Product and Process Design

- Resource planning - Manufacturing and assembly control - Inventory management - Procurement control

- Product structure - Supplier structure - Variant structure - Technology choice - Production structure - Planning strategies

Des

ign

Fie

lds

Pip

elin

e Fi

eld

s

Product Development Learning Opportunities

• "Everyone participating in the development process is engaged in learning, even outside suppliers. Learning also takes place across all phases of management and across functional boundaries. It is this kind of 'learning in breadth' that supports the dynamic process of product development among Japanese companies. This learning emanating from the development process, in turn serves as the trigger to set total organisational learning in motion. In this sense, new product development is the particular device that fosters corporate-wide learning"

Imai, K., Nonaka, I. and Takeuchi, H. (1985) Managing the new product development process: how Japanese companies learn and unlearn,

in Clark, K., Hayes, R. and Lorenz, C. (Editors), (1985) The Uneasy Alliance: Managing the productivity-technology dilemma,

Harvard Business School Press, Cambridge, M.A., quoted in Lamming 1993:101-2.

What Is Expected Of Suppliers

And How Do They Fulfil Those

Expectations?

Dunlop Ltd. - Topy Wheels Ltd.

• Gerald Brooks

TRADITIONAL BEST

PRACTICE PARTNERSHIP SOURCING

INVOLVEMENT IN DESIGN

COST INFORMATION

SUPPLIER RELATIONSHIPS

CONTRACT LENGTH

QUALITY PROCESS

SUPPLY CHAIN INTEGRATION

BUILD TO DRAWING/ PRINT

PRICE ONLY

PURCHASE ORDER, ADVERSARIAL

1 YEAR

INCOMING INSPECTION

PURCHASE ORDER DRIVEN

DESIGN REVIEW

CUSTOMER REQUEST

BLANKET CONTRACT, STILL ADVERSARIAL

PROCESS CERTIFICATION

ON-SITE PROCESS ENGINEER EXCHANGE

SHARED COST RESPONSIBILITY

DETAILED COST UNDERSTANDING

LIFETIME

INTEGRAL TO DESIGN PROCESS

TURNKEY TO PERFORMANCE SPEC.

CUSTOMER PARTNERSHIP COLLABORATIVE

JIT FULLY SYNCHRONISED

3 -5 YEARS

SELF- INSPECTION

MRP DRIVEN

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

No Co-ordination or Direction

SUPPLIER BASE DUNLOP SUSPENSION

AUTOMOTIVE MANUFACTURER

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

No Co-ordination or Direction

SUPPLIER BASE DUNLOP SUSPENSION

AUTOMOTIVE MANUFACTURER

and

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

Assessment

Analyse

Report Determine Actions

Plan

Implement Plan

REPEAT

Supplier Development Cycle

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

Assessment Structure

OVERALL RATING

CURRENT PERFORMANCE

(%)

FUTURE POTENTIAL

(%)

PRODUCT QUALITY

(30%)

DELIVERY PERFORMANCE

(30%)

QUALITY SYSTEM (30%)

COMMITMENT (40%)

PHILOSOPHY {Continuous

improvement} (30%)

BUSINESS ISSUES (10%)

COSTING (10%)

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

PRODUCT DEVELOPMENT

(20%)

OVERALL RATING

CURRENT PERFORMANCE

(%)

FUTURE POTENTIAL

(%)

Current “Reliability” of the supplier in terms of product and service. Control over actions and processes.

Identify the suppliers driving force. Showing how they are developing towards a world class status. Long-term potential.

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

CURRENT PERFORMANCE

(%)

PRODUCT QUALITY

(30%)

DELIVERY PERFORMANCE

(30%)

QUALITY SYSTEM (30%)

COSTING (10%)

Product Quality - confidence in the supplied product being to agreed specifications. Delivery Performance - effectiveness and reliability of supplier to deliver to a schedule. Quality Management System - control the supplier has over those activities that affect the quality of the product and service they offer. Costing - competitiveness relative to the level of product and service offered.

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

FUTURE POTENTIAL

(%)

PHILOSOPHY {Continuous

improvement} (30%)

PRODUCT DEVELOPMENT

(20%)

BUSINESS ISSUES (10%)

COMMITMENT (40%)

Commitment - senior management’s commitment to working toward and achieving “world class” status. Continuous Improvement - part of the organisations culture, reflected in all it’s business activities. Product Development - ability to perform thorough and effective product and process development work. Business Issues - financial stability and key ratios of the business.

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

Overall Rating

A2 A1

B

C2 C1

A1 Preferred - Exceptional A2 Preferred B Acceptable C1 Conditionally Acceptable C2 Unacceptable X No data

Future Potential (%)

0

0 100 75 40

100

85

70

Cu

rren

t Pe

rfo

rman

ce

(%)

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

The Benefits To Dunlop: To the Supplier:

Develop closer relationship with suppliers Greater confidence in supplier Reduced production problems Less effort spent chasing suppliers, more on their development Earlier selection of suppliers for new projects

Improvements can be read across to other parts of the business Increased overall competitiveness Preferred position in new project development and source selection Greater input earlier on in the project Improved financial stability

To the OEM: A greater confidence in the overall supplier chain

Gerald Brooks (1995) What Is Expected Of Suppliers And How Do They Fulfill Those Expectations? Dunlop Ltd. - Topy Wheels Ltd.

Traditional Collaboration versus Coevolution

Form of

collaboration

Objectives

Internal dynamics

Focus

Corporate role

Business role

Incentive

Business metrics

Frozen links

among static businesses

Efficiency and

economies of scope

Collaborate

Content of collaboration

Drive collaboration

Execute collaboration

Varied

Performance against

budget, the preceding

year, or sister-business

performance

Shifting webs among

evolving businesses

Growth, agility, and

economies of scope

Collaborate and compete

Set collaborative context

Drive and execute

collaboration

Self-interest, based on

individual business-unit

performance

Performance against

competitors in growth,

share, and profits

Content and number

of collaborative links

Traditional Collaboration Coevolution

Reverse Logistics

Environment – A Growing Concern

• Concern at two levels:-

1. As a universal problem – ‘general threat to the planet’

2. At the local level – protection against particular threats

• Pursuit to ‘Sustainable Development’ not ‘No Growth’

– ‘… meeting the needs of today without jeopardising the ability of future generations to meet their need…’

– Meeting demands of a growing population for rising living standards

• Implications for:-

1. Public Policy

2. Business Policy

3. Technology Management Policy

Reverse Logistics

Point of Sale

Collection process

Repair and

Return Process

Value Retrieval Selection Process

Alternate Points of

Sale

Recycle Processing

Module and Component

Retrieval Process

‘As new’ Component

Stores

New Component Processing

New Component

Stores

Supplier Distributor Assembler

©Dr David J. Newlands 2009

Reverse Logistics

Point of Sale

Collection process

Repair and

Return Process

Value Retrieval Selection Process

Alternate Points of

Sale

Recycle Processing

Module and Component

Retrieval Process

‘As new’ Component

Stores

New Component Processing

New Component

Stores

Supplier Distributor Assembler

Alternate Collection

Points

©Dr David J. Newlands 2009

Reverse Logistics vs Green Logistics

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