operations notes readings

7/26/2019 Operations Notes Readings

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Ch 1- Creating Customer Value Through Operations

Chapter 1 Pg. 1-12

Corresponding Case: Benihana of Tokyo

Case Topic: Application of production logic to service design and delivery, leveraging efficient

and effective operational systems

Operations management: The systematic design, direction, and control of processes that

transform inputs into services and products for internal, as well as external, customers.

Managers can design and operate processes to give companies a competitive edge

Supply chain: An interrelated series of processes within and across firms that produces a serviceor good to the satisfaction of customers.

Supply chain management: The synchroniation of a firm!s processes with those of its suppliers

and customers to match the flow of materials, services, and information with customer demand.

"utcomes of "perations:

- Contri#utes to customer value

- Competitive advantage

$rocess %iew

$rocess view is helpful for understanding how services or products are produced and why cross&

functional coordination is important. 'oesn!t explain strategic #enefits of processes.

Process:Any activity or group of activities that takes one or more inputs, transforms and adds

value to them, and provides one or more outputs for its customers.

Types of processes: primary process, support ( service processes

)x of primary process for airline: movement of passengers ( their luggage

$rocess structure: pro*ect, #atch, line, continuous flow


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+.+ $rocesses have inputs and customer outputs. The circles are operations through which

services, products, and customers pass where activities are performed. 'ifferent customers

can have different reuirements -different flow pattern and processes must #e managed with

the right customer in mind. All types of info on performance -ex. internal reports, external

market research, govt reports are necc. for managers to manage processes most effectively

External customers )nd users or intermediaries, such as manufacturers, wholesalers, or

retailers, who #uy a firm!s products and services.

Internal customers "ne or more employees who use outputs from earlier, upstream

processes to perform processes in the next office, shop, or department.

Nested process: a process within a process

/f segments of the process are standardizedfor all customers high volume ops is

possi#le.

/f segments of the process are customized, processes should #e suited to flexi#le, low

volume ops

Service vs. Manufacturing Processes

- $rocesses are often classified as services or manufacturing #ased on the primary output of

the process


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- 0ervice processes usually reuire customer to #e involvedthey cannot #e produced in

advance to insulate the process from erratic customer demands

- 0ervice processes do not have 12 inventories #ut they do inventory their inputs -ex.

3ospital inventory of medical supplies. Because of costs, some manufacturing processes

do not inventory outputs such as low volume customied products or products with short

shelf lives.

0upply Chain %iew

Supply chain: An interrelated series of processes within and across firms that produces a service

or good to the satisfaction of customers.

)ach activity should add value to the preceding activities

4aste and unnecessary cost should #e eliminated

5ink #twn internal and external processes and performance

6 main types of processes in the supply chain: core processes ( support processes

Customer value The com#ination of uality, time, flexi#ility, customer experience, and

innovation relative to price for a particular customer #enefit #undle of goods and services. $rice

translates into cost for operations management.

$rocesses must add value for every customer along the supply chain

Core process: a set of activities that delivers value to external customers

Managers ( employees of core processes interact w7 external customers, develop new

products and services, interact with suppliers and produce the service or product

8 core processes:


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- Supplier relationship process: )mployees select suppliers of services, materials and

info and facilitate efficient flow of these items into the firm. 4orking effectively w7

suppliers can add customer value -ex. 9egotiating fair prices, scheduling on time

deliveries, gaining ideas from critical suppliers

-Order fulfillment process: Activities reuired to produce and deliver the service or

product to the external customer

- Customer relationship process-aka customer relationship management: /dentify,

attract and #uild relationships w7 external customers and facilitate the placement of

customer orders

- New service or product development process: $rocess to design, develop and launch

new goods or services.

Support process: A process that provides vital resources, capa#ilities and inputs to the core

processes and therefore is essential to the management of the #usiness.

Accounting, #udgeting, recruiting, scheduling

Operations strategy The pattern of decisions and investments in products, services, and

processes used to implement an organiation!s corporate strategy, achieve specific competitive

priorities and to create customer value -must #e linked to needs of customer

5inks 5T ( 0T operations decisions to corporate strategy and develops the capa#ilities

the firm needs to #e competitive. Brings processes together to form supply chains #eyond

the firm that include suppliers and customers

/nternal processes must #e organied to #e effective in a competitive setting


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Corporate strategy: "verall direction for carrying out organiation!s functions. /ncludes

monitoring and ad*usting to changes in the #usiness setting, targeting resources to develop core

process and developing the firms operations with a glo#al perspective

Monitoring and adjusting to changes in the usiness settingincludes staying on top of

what the competition is doing as well as monitoring technology, economic, political

trends -$)0T.

!eveloping core processes relates to allocating resources to the four core processes.

0ince resources are limited some firms may focus on only a few of the core processes to

remain competitive

!eveloping operations "ith a gloal perspective means that firms identify opportunities

and threats on a glo#al scale. The outcome is international expansion or strategic

alliances that result in #uyer supplier relationships #etween firms in different countries

Customer %alue and Competitive $riorities

Customer value: The com#ination of uality, time, flexi#ility, customer experience, and

innovation relative to price for a particular customer #enefit #undle of goods and services. $rice

translates into cost for operations management.


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Customer enefit undle: A package of core goods and services along with a set of peripheralgoods or services. -ex. car is core good and services offered #y dealer are peripheral

#road dimensions of customer value collectively create the #enefit #undle: uality, time

flexi#ility, customer experience, innovation and price.

$rice is driven #y outside forces often so to improve price operations must focus on

improving costs

Competitive priorities: The relative weighting of the dimensions of customer value that

operations management must possess to out& perform its competitors.

The dimensions of customer value can #e #roken into +6 possi#le competitive priorities

for processes:

o 5ow cost operations& delivering a good or service at the lowest possi#le cost

)x Costco

o 3igh performance design& delivering an outstanding good or service )x 1errari

o Consistent uality& design specifications are met consistently )x Tim 3orton!s

o 'elivery 0peed& ;uickly filling a customers order )x 'ell

o "n time delivery& meeting delivery time promises )x


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$rocess designed to reduce lead time through capacity cushions

o "n time 'elivery& Meet delivery promises with reducing lead time -

'esigned to solicit customer preferences process cues are structured

interaction create a C"90/0T)9T experience

o Customer Connection& extent customer immersed -C/9)$5)?

$rocess employ multiple senses -enriching connection

Competition through /nnovation

o $roduct /nnovation& 9ovelity -A$$5)

=euires = and ' and new technologies -supply chain critical

o $rocess /nnovation& 9ovel supply chain -$="2=)00/%) /90


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o 0ustaina#ility& means processes are designed and managed to ensure that

we meet humanity!s needs without hurting the future -triple #ottom line

%alue@ 1inancial, )nvironmental, 0ocial $erformance

"perations 6 key $rinciples

+. )ach part of the organiation M


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(igh )olume of Customer Involvement

5ine or continuous flow process

o Customers or products moving through a consistent series of steps

o )xample: 0u#way sandwich

5ess customer involvement

o 1or services, customers may not #e present #ecause the process has little

variation

o 1or example: Backroom operations of financial institutions

5ess resource flexi#ility

o 3igh process volumes and repetition create less need for resource flexi#ility,

which is usually more expensive

o 0pecialiation and simplification is possi#le, which reduced capital and la#our

costs

More capital intensity and automation

o 3igh volumes *ustify large fixed costs and increase repetition, which can improve

the efficiency of operations

o More capital intensity @ less la#our content

*ow )olume of Customer Involvement

A pro*ect or small #atch process

o Customie treatment means a low&volume process, and each customer reuires

different changes in the process itself

More customer involvement

o 1ront line employee interact more freuently with customers

More =esource 1lexi#ility

o

)mployees and euipment must #e trained and a#le to handle new or uniueservices as demand occurs and changes

5ess capital intensity and automation

o 'ue to infinite varia#ility of pro#lems and customer specifications

o 3igh la#our intensity

%ocused %actories

0plitting large plants that produced all the company!s products into several specialied

smaller plants 9arrowing the range of demands on a facility will lead to #etter performance #ecause

management can concentrate on fewer tasks and lead a workforce toward a single goal

%ocused y Process Segment

$lants within $lants -$4$ are different operations within a facility


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Customiation, capital intensity, volume and other relationships are crucial and must #e

complementary

Advantages fewer layers of management, greater a#ility to rely on team pro#lem

solving and shorter lines of communication among departments

%low 'iagrams

=ectangle @ operation

o Changes, creates or adds somethign

Triangle @ ueue

o /nventory @ supplies unloaded and placed in storeroom

o ;ueues @ customers in a waiting line and a #acklog of orders waiting to #e filled

'iamond @ decision

Circle @ inspection

o Checks or verifies something #ut does not change it

0emi circle @ delay

o "ccurs when the su#*ect is held up awaiting further action

Transportation moves the study!s su#*ect from one place to another

Cost

Annual la#our cost @ time to perform the process x varia#le cost per hour x num#er of

times process performed per year

Operations +Chapter $ , Capacity- p. "/0!""#1:

Capacity is important to:

Accounting

o $repares cost information

1inance

o Analyes proposed capacity expansion investments and how to fund it

3uman resources

o 3ires and trains employees to support capacity plans

Marketing

o 1orecasts demand to identify capacity gaps

"perations

o 'evelop capacity strategies to meet future demand in the most effective manner

$urchasingo "#tains capacity from other firms #y outsourcing

Capacit#$the maximum rate of output for a process

o "perations manager must provide capacity to meet current and future demandF

otherwise, the organiation misses growth and profit opportunities


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Capacity planning -two types:

o 5ong&term capacity plans

/nvestments in new facilities and euipment

At least two years into the future

o 0hort&term

1ocus on workforce sie, overtime #udgets, inventoriesGetc. $rocess structure -pro*ect, #atch, line, or continuous flow all implicityly com#ine three

$rocess 1actors:

o Capacity utiliation

o /nventory

o %aria#ility

Capacity must #e measured in items per unit time -i.e. cars7hour, sales per suare

meter7week, availa#le seat&miles7monthGetc.

Two general capacity measurements:

o "utput


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Setup time$the time reuired to change or read*ust a process or an operation from one

service or product to another

o /ncreases processing time

/nventory

o /mplications to process structure: Cost ( Time

Throughput time$total time for an item to move through a process from the first

operation to the last, including operations time, movement time #etween operations, and

wait time.

o 2hroughput time 3 4IP inventory5output rate

o 2hroughput time 3 Operations time 6 7ovement time 6 4ait time


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)ariaility

K%aria#ility is a measure of how much something changes

/mplications for $rocess Capacity

/mportant to differentiate #etween the capacity of individual operations and the overall

capacity of the process

/f each individual operation has some varia#ility, then its output rate is an average

%ariation in a dependent operation can force downstream operations to stop

8loc9ed operationan operation that cannot pass work along to the next operation

down&stream and must stop

Starved operationan operation that runs out of work to process

/mportant to consider how different operations interact to determine the overall process

capacity Two options to accommodate varia#ility:

o Add capacity to the #ottleneck

o Add inventory #etween the #ottleneck and the next stage so the next step can

continue to produce if a #reakdown occurs at a previous stage

Measuring %aria#ility

"ne measure to compare varia#ility #etween operations or processes is the coefficient of

variation (cv)

cv @ standard deviation L average

3igh varia#ility is typically a process with a cv greater than +.

Two 1orms of %aria#ility

+ andom variation


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Can #e modified with things such as discounts to create incentive to reduce variation

0ource1orm of %aria#ility

=andom $redicta#le

/nternal -e.g.

process

;uality defects from a metal

stamping press

)uipment #reakdowns

4orker a#senteeism

0etup time

$reventative maintenance

9um#er of models of an

automo#ile

)xternal -e.g.

market

Arrival of individual customers at

a hair salon Transit time for local delivery of

package

Medical treatments needed for

emergency patients

'aily pattern of demand for fast&

food restaurant 0easonal demand for printing of

annual reports

More technical support

immediately after new product

launch

Strategically 7anaging Capacity

2heory of Constraints +2OC1

An approach to management that focuses on whatever impedes progress toward the goal

of maximiing the flow of total value&added funds or sales, less discounts and varia#le

costs. AA #ottlenecks.

The goal is to simultaneously improve net profit, ="/, and cash flow

Bottleneck resources must #e kept as #usy as practical & minimie the idle time

1ocus on scheduling around the #ottleneck, #ecause that is what sets the pace

AA 'rum&=ope&Buffer Method

o 'rum @ #ottleneck that sets the pace

o =ope @ inputs #eing pulled into the process at that pace

o Buffer @ extra inventory placed around the #ottleneck so that it is never starved

or #locked

Applying T"C

+ /dentify the #ottleneck-s in the system

=estricting firms a#ility to meet the schedules of su#seuent processes


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"peration with the largest ueue

6 )xploit the #ottleneck-s

Create schedules that maximie the throughput of the #ottleneck-s

)nsure only good&uality parts are #eing passed onto the #ottleneck-s

0u#ordinate all other decisions to step 6

9onottleneck resources should only #e producing the amount the #ottleneck can handle

8 )levate the #ottleneck-s

/f the #ottleneck is still a constraint to throughput, increase the capacity of the #ottleneck

-i.e. add another shift or other resources 'o not let inertia set in

The systems constraints may have shifted if so, repeat steps +&8 for the new #ottleneck

0trategically $ositioning the Bottleneck

$osition as the first operation of the process

The most expensive operation should #e our #ottleneck, #ecause it is the last place that

we want to add capacity

elating Capacity ;tilization to )ariaility

5ower capacity utiliation appropriate when varia#ility increases -which ena#les them to

handle peak demand

0upply uncertainty also favors high capacity cushions

Capacity, inventory and varia#ility are strongly related to process structure


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High

Low

Competitive $riorities

Continuous process generally means little customer involvement and customiation, low

capacity cushion, low resource flexi#ility, and high vertical integration. This favors low

cost and consistent high uality, which doesn!t leave room for much variation.

$ro*ect7small #atch means higher customer involvement7customiation, high capacity

cushion, high resource flexi#ility, and little vertical integration. The competitive priorities


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favor high&performance design, fast delivery and customiation. %ariation can #e dealt

with more easily.

Economies of Scale

K The average unit cost of a good or service can #e reduced #y increasing its output rate

K 1our principle reasons why economies of scale can drive down costs when output increases:

+ 0preading 1ixed Costs

6 =educing Construction Costs

Cutting Costs of $urchased Materials -#ecause of volume discounts

8 1inding $rocess Advantages

0hift towards a line or continuous process, dedicating resources to individual products

that ends up speeding up the learning effect, lowering inventory, improving process7*o#

designs, and reducing the num#er of changeovers

'is!Economies of Scale

4hen the average cost per unit increases as the facility sie increases

)xcessive sie can #ring complexity, loss of focus, and inefficiencies

Too many layers of employees that management loses touch with employees and

customers

/nnovate less and avoid risk

5eads to small companies outperforming corporate giants

2iming of Expansion

Two extreme strategies:

+ The expansionist strategy

5arge, infreuent *umps in capacity

Capacity expansion ahead of demand

Minimies the change of sales lost to insufficient capacity

May result in economies of scale and a faster rate of learning

1orm of pre&emptive marketing -#y allowing them to compete on cost. Must have

credi#ility though to convince competition that it will carry out its plans

6 The wait&and&see strategy

0maller, more freuent *umps in capacity

Capacity expansion trailing demand


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=elies on short term options such as overtime, temporary workers, su#contractors, stock&

outs etc. to meet any shortfalls

)xpands in smaller increments such as renovating existing facilities, rather than #uilding

new ones

=educes the risk of overexpansion

=uns the risk of #eing una#le to respond if demand is unexpectedly high

1its a short&term outlook, #ut can erode market share over the long run

K /ntermediate strategy could #e a Nfollow the leader! strategy, involving expanding when others

do

Planning %or *ong!2erm Capacity

+ )stimate Capacity =euirements

Capacity re


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4aiting!*ine 7odels

Account for the random, independent #ehavior of many customers i.e. lines at an airport

ticket counter, machine center, or central computer


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- 0hrinkage takes three forms:- $ilferage theft of inventory #y customers or employees- "#solescence occurs when inv cannot #e used or sold at full value owing to

model changes, engineering modifications or low demand

- 'eterioration through physical spoilage or damage

Pressures for High Inventory

Customer Service

- Stoc9out occurs when an item that is typically stocked in not availa#le to satisfy a

demand the moment it occurs

- 8ac9 order is a customer order that cannot #e filled when promised or demanded #ut

filled later

Ordering Cost

- each time a firm places a new order, it incurs an ordering costs, cost of preparing apurchase order for a supplier or production order for the shop

Setup Cost

- The cost involved in changing over an operation to produce a different component or

provide a different type of service is a setup cost

- /ncludes la#our and time to make the changeover, cleaning and new tools or fixtures

- Also is independent of order sie, so there is pressure to order a large supply of the

component an hold it in inventory

,aour and %uipment tili/ation

- By having more inv, mgt can increase workforce productivity and facility utiliation in

three ways, all reducing varia#ility

- $lacing larger, less freuent production orders reduces the num#er of unproductive

setups, which add no value to the product or service

- 3olding /nv reduces the chance of costly rescheduling of production orders, #ecause the

components needed to make the product are not in inv

- Building inventories improves resource utiliation #y sta#iliing the output rate for

industries when demand is cyclical or seasonal

- 1irm uses inventory #uilt during slack periods to handle extra demand in peak seasons

and minimies the need for extra shifts, hiring, lay offs etcTransportation Cost

- out#ound trans cost can #e reduced #y increasing inv levels- forward placement of inv can also reduce out#ound trans costs, even though the pooling

effect is lessened and more inv in necessary

Purchasing Cost !iscounts


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- reduce total payments to suppliers if it can tolerate higher inv levels- @uantity discount, where#y the price per unit drops when the order is sufficiently large,

incentive

Functions of Inventory5 Functions: Safety Stock, decoupling, anticipation, cycle and pipeline

1 Safety Stock inv held to protect against uncertainties and random variation in demand,

lead time, processing time, uality and supply.

- =educeF #y reducing random variation, improve demand forecasts, encourage customers

to order items #efore they need them, more flexi#le euipment and workers. 0horten lead

times

6 !ecoupling Inv& inv held to accommodate different rates or patterns of production

#etween two operations. 0mooths the flow of items. $redicta#le variation, will #uild up- the more tightly coupled the process is, the less flexi#le you are and the more dependent

the steps are on one another

- =educeF predicta#le variation, slow down the really fast items, more closely aligned

schedules - translates into more freuent, shorter reductions in output for a higher

capacity operation, production rate of individual higher output operations might #e

slowed to more closely math the overall output rate of the system

" #nticipation Inventory$inv used to a#sor# uneven, #ut predicta#le rates of demand or supply.

5ike seasonality

& =educe: provide off season promo campaigns, season pricing, new products with different

demand cycles, #uild in capacity to handle peak demand

% &ycle Inventory& the portion of total inv that varies directly with lot sie

& determining how freuently to order, and in what uantity is called lot siing

& The uantity produced is called a lot or #atch

& the lot sie varies directly with the elapsed time #etween orders, the longer the time #etween

orders the greater the cycle inv must #e

& =educe the #atch sie, #e careful #ecause set up costs increase, try and decrease set up time,

increase repeata#ility which is the degree to which the same work can #e done again

5 Pipline& inv in motion, #ased on the avg demand that occurs during an items lead time,

demand per period multiplied #y the time that the item is #eing moved or shipped


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reduce: shorten distance #etween you and suppliers

Placement of 7anufacturing Inventories

- =efers to the relative allocation of inventory across a process

- $rocess configuration related to the degree of product customiation- /nv held toward the finished goods level means short delivery times& #ut a higher dollar

investment in inv

- $rocess has few raw materials and creates many finished goods, want to hold it in raw

materials as long as possi#le

- /f a small num#er of modules - each of which has many raw materials is needed to create

a wide variety of products, the largest allocation of inv is usually in intermediate modules

&8C &nalysis:the method of dividing items into three classes according to their dollar usage so

that managers can focus on important items- Class a 6HI of items, #ut DHI dollar usage- Class #& HI of items, #ut + I of dollar usage- Class c& HI of items, #ut I of dollar usage

$ages +E&+8

4aiting *ines

4aiting lines #alance two types of costsF capacity and waiting

- 1or capacity related costs, waiting lines allow managers to accommodate short surges

in demand with less capacity& provided that, at a min avg capacity exceeds avg

demand

- /t improves the utiliation of resources and lowers investment and op costs.- As additional capacity is installed, lines will #e shorter, #ut capacity related

investment and op costs increase.

- Customer related waiting costs increase as the num#er of people, machines etc

increases

0h# do "aiting lines form

- Temporary im#alance #etween demand and capacity- 4aiting lines can develop even if the time to process a customer is constant- /n general, if there is no varia#ility in demand and operations rates and enough

capacity has #een provided, no lines form


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Structure of 0aiting ,ines

+. /nput of customers or items, customer population-that generates potential demand

6. A waiting line of customers

. A workstation or operation, consisting of a person, machine or #oth, necessary to perform

one or more activities

8. A priority rule-which selects the next customer to #e served or item to #e transformed

#y a workstation or operation

- the ueuing configuration descri#es the num#er of lines and the arrangement of the

workstations or operations

Customer Population

- is a source of input to the system. An infinite customer population is one in which the

num#er of customers in the system does not affect the rate at which the population

generates new customers.

- The potential num#er of new customers apprecia#ly affects the num#er of customers

in the system, the input source is said to #e finite.

- Customers in waiting lines may #e patient or impatient

@ueuing Configuration

- may #e descri#ed #y the num#er of lines and the arrangement of the workstations.

- Could #e single or multiple lines- 4hen multiple workstations are availa#le and each can handle general transactions,

the single line arrangement keeps each workstation uniformly #usy

rrangements$

Single channel+ single phase s#stemF ops demanded #y a customer can #e performed #y a single

workstation

Single channel+ multiple phase3used when several ops are #est performed in seuence #y more

then one workstation, yet customer volume or other constraints limit the design to one channel.

)x mcdonalds drive thru


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Multiple channel+ single phase3 when demand is large enough to warrant providing the same

service at more than one workstation or when the services offered #y the workstations are

different.

Multiple channel+ multiple phase3when customers can #e served #y one of the first phase

workstations #ut then reuire another operation from a second phase workstation and so on.

A mixed arrangement, waiting lines develop in front of each work station, where each customied

order may reuire the use of various machines.

Pre ,emptive discipline: a rule that allows a customer of higher priority to interrupt the service

of another customer.

Chapter ;uality and $rocess /mprovement -pages +ED&6H

@uality is a key dimension of customer value

;uality is much more important today than in the past

2ood uality euals higher profits Can also eual lower costs and therefore yield a greater profit

Consistent uality is very important in commodity industries

There are dimensions to high!performance designthat create uality to customers:

+. Basic performance

Customers expect functionality

The capa#ilities7characteristics much #e measuraleand understood

Must allow client to draw comparisons #etween competitors

6. 0upplemental features

P#ells and whistlesQ less important aspect of product7service that makes it

easier7more pleasant

. =elia#ility


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The likelihood of the product working properly

=elia#ility is usually expected to #e high, so most firms measure it in terms of

failure -percentage

8. 'ura#ility The lifespan of a product #efore it deteriorates

. 0upport

0upport provided #y the company

Serviceaility after the sale of the product7service adds to lifespan

Can #e as important to customers as the functionality of product

. $sychological impressions

Atmosphere, image, craftsmanship, aesthetic, etc. $eople can evaluate the uality of a product #ased on the appearance of the

salesman, the attitude, etc.

Conformancethe consistency with which the firms meets the specifications of the client

3igh conformance uality coupled with tight tolerances for specifications yield

consistent products with low variaility

$rocess Capa#ility -pages 66D&6

Process capailityrefers to the a#ility of the process to meet the design specifications

Nominal value +target1terms in which design specifications are expressed

2olerancethe allowance a#ove or #elow the nominal value that is permitted

Allowance #elow is called a lo"er specification, and an allowance a#ove is called a

upper specification

Kthis is similar to a normal distri#ution curve the nominal value is the mean, and the tolerance is

the standard deviation -see figure .+H, page 66E


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A process is capa#le if it falls #etween the upper and lower specifications

Process capaility ratiothe varia#ility of a process

@ -upper specification lower specification7Kstandard deviation

A capa#ility ratio of +.H means that the firm is producing three!sigmaualityH.6I

defects, the process consistently produces uality products even though defects rarely

occur

Anything greater than +.H implies that the uality is improving further

Process capaility indexmeasures the potential for a process to generate defective outputs

relative to either upper or lower specification

@ minimum of --x lower specification7Kstandard deviation, -upper specification

x7Kstandard deviation

4e take minimum #ecause it is a worst case scenario

@uality engineeringcom#ining engineering and statistical methods to reduce costs and

improve uality #y optimiing product design and process characteristics

@uality loss functionthe rationale that a product or service that #arely conforms to the

specifications is more like a defective defective product or service than a perfect one

The Interntional Oraganization for Standards +ISO1 has devised a set of standards called ISO

?///for companies doing #usiness in the earopean union and internationally.

The ISO "$///:#//$ were also created as a family of standards governing environmental

management of products and processes, including material use, recycling, and disposal of waste

"ps =eadings

Conformance

Conformanceconsistency with which the firm meets specifications


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o 1irms develop specifications for product7service design ( operating

characteristics

'escri#e high&performance design in detail

).g. #asic performance, supplemental features, relia#ility

3igh conformance O tight tolerances for specifications @ consistent products with low

varia#ility

;uality as competitive weapon

Consumers more often value uality #ut perceptions of uality are always changing

Business success @ accuracy of its perceptions of consumer expectations and a#ility to

#ridge the gap #etween expectations and operating capa#ilities

3igh uality

o 2reater consistency and less varia#ility

o Can lead to lower costs yield a greater return for same sales dollar

o Management can #etter compete on #oth price and uality, yielding significantly

#etter customer value

Costs of ;uality

$rocess gaps

o =eflect potential dissatisfied customers7additional costs for the firm

o 'efect: Any instance of a process failing to satisfy its customer

Ma*or costs associated with uality management

o Prevention Costs: Costs associated with preventing defects #efore they happen

=edesigning the process, redesigning the product, training employees,

working with suppliers

1irms have to invest additional time, effort and money to improve uality

o &ppraisal Costs:Costs incurred in assessing the level of uality attained #y the

operating system

3elp managers detect pro#lems

o Internal %ailure Costs:Costs resulting rom defects that are discovered during

the production of a product or service

=ework defects: incurred if some aspect of a service must #e performed

again7if a defective item must #e rerouted to some previous operation-s

0crap defects: incurred if a defective item is unfit for further processingo External %ailure Costs:Costs that arise when a defect is discovered after the

customer has received the product or service

)rode market share and profits

'ifficult to assess potential impact on future

1ixing the pro#lem is very costly

4arranty service and litigation costs


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4arranty: A written garuntee that the producer will replace or

repair defective parts or perform the service to the customer!s

satisfaction

)mployee /nvolvement

Cultural Change

Must define customerfor each employee

o /nternal -e.g. assem#ly line or external

o )mployees must serve their internal customers well if external customers are to

#e satisfied

)veryone must share the view that high uality is an end in itself

o )rrors7defects caught at the source ualit# at the source

Teams

2eams: small groups of people who have a common purpose, set their own performance

goals and approaches, and hold themselves accounta#le for success

Three approaches to teamwork all use some amount of employee empowerment: an

approach to teamwork that moves responsi#ility for decisions farther down the

organiational chart to the level of the employee actually doing the *o#

o +. $ro#lem&solving teams

@uality Circles: another name for pro#lem&solving teams small groups

of supervisors and employees who meet to identify, analye, and solve

production and uality pro#lems

$eople directly involved will #e #est a#le to consider solution to pro#lem

o 6. 0pecial&purpose teams

2roups that address issues of paramount concern to management, la#our,

or #oth

2ives workers a voice in high&level decisions

o . 0elf&managing teams

A small group of employees who work together to produce a ma*or

portion, or sometimes all, of a product or service

Continuous /mprovement

Continuous Improvement: the philosophy of continually seeking ways to improve

operations, #ased on a Rapanese concept called &ai/en

o /dentifying #enchamrks of excellent practice and instilling a sense of employee

ownership in the process

o Can focuson pro#lems with customers or suppliers


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o Belief that any aspect of an operation can #e improved and that the people most

closely associated with it are in the #est position to identify changes to #e made

o =educe7eliminate activities that do not add value & wasteful

Plan!do!chec9!act cycle: A cycle, also called the!eming 0heel, used #y firms actively

engaged in continuous improvement to train their work teams in pro#lem solving

o +. $lan: select process to improve, and develop plan

o 6. 'o: implements the plan

o . Check: analye data from dostep to see if correspond to goals inplan

o 8. Act: successful results #ecome standard procedure

0ystematically /mproving ;uality

Six Sigma: A comprehensive and flexi#le system for achieving, sustaining, and

maximiing #usiess success #y minimiing defects and varia#ility in processes

o 'riven #y close understanding of customer needs

o $rocess average okF too much variation

reduce spread

process on target

with low varia#ility

o $rocess varia#ility "F process off targetcentre processprocess on target

with low varia#ility

0ix 0igma /mprovement Model -'MA/C process

o +. 'efine: determine critical characteristics of process output to customer

satisfaction and identify any gaps

o 6. Measure: uantify the work the process does that affects the gap

o . Analye: use the measuredata to perform process analysis

o 8. /mprove: modify7redesign existing methods to meet new o#*ectives

o . Control: monitor the process

9ew 0ervice and $roduct 'esign

'esign changes can increase defect rates

3igher uality7increased competitiveness potentially are exchanged for added time and

cost

eliaiility: The pro#a#ility that a product will #e functional when used

o The relia#ility of the complete product @ the product of all the relia#ilities of the

componentsall independent of eachother

$rocess 'esign

The design of the process used to product a product7service affects its uality

;uality 1unction 'eployement


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@%': A means of translating customer reuirements into the appropriate technical

reuirements for each stage of product7service development and production

o P%oice of the customerQPvoice of the engineerQ

Benchmarking

A continuous, sustematic procedure that measures a firm!s products, services, and

processes against those of industry leaders

o Competitive: #ased on comparisons with a direct industry competitor

o 1unctional: compares areas such as admin, customer service, sales withthose of

outstanding firms in industry

o /nternal: using an organiational unit with superior performance as #enchmark

for other units

Tools for 'ata Analysis

1low diagrams

$rocess charts

Chec9lists: A form used to record the freuency of occurrence of certain product or

service characteristics related to uality

(istograms5ar charts: A summariation of data measured on a continutious scale

shows freuency of uality7 a series of #ars showing freeuency yes7no #asis

Pareto charts: A #ar chart on which factors are plotted in decreasing order of freuency

along the horiontal axis

o DH76H rule: DHI defects caused #y 6HI factors

Scatter diagrams: a plot of two varia#les showing whether they are related

Cause!and!effect diagrams: A diagram that relates a key uality pro#lem to its potential

causes fish#one diagram

2raphs

Control charts

"perations pg. 6+D 66D

0tatistical $rocess Control:

0tatistical process control -0$C

The application of statistical techniues to determine

whether the output of a process conforms to the product or service design

Tools called control charts are used to detect production of defective products or services

or to indicate that the production process has changed and that products or services will

deviate from their design specifications unless something is done to correct them


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Also used to inform management of process changes that have changed the output for the

#etter

Acceptance sampling: the application of statistical techniues to determine whether a

uantity of material should #e accepted or re*ected #ased on a test of a sample

1undamental reason for 0$C techniues: variation in outputs

%ariation of outputsno two services or products are identical, #7c the process used to

produce them has variation -operator skill, temperature, time for example

9othing can #e done to eliminate variation completely #ut can investigate causes to

minimie it

;uality Measurements:

)mployees or euipment used to measure uality characteristics to determine variation

'one in two ways

o Measure varia#les $roduct or service characteristics, such as weight, length,

volume, or time that can #e measured.

Benefit: employee knows how much

'isadvantage: involve special euipment, employee skills, exact

procedures etc

o Measure attri#utes product or service characteristics that can #e uickly

counted for accepta#le uality

Benefit: yes or no decision a#out meeting service, less effort, fewer

resources

'isadvantage: even though attri#ute counts can reveal that uality of

performance has changed, they may not #e of much use in indicating #yhow much

0ampling

Most thorough approach to inspection is to inspect each product or service at each stage

for uality

0ampling planA plan that specifies a sample sie, the time #etween successive

samples, and decision rules that determine when action should #e taken

0ample sieA uantity of randomly selected o#servations of process outputs.

A sampling plan specifies a sample sie, which is a uantity of randomly selected

o#servations of process outputsF the time #etween successive samplesF and decision rules

that determine when action should #e taken

0ampling is appropriate when inspection costs are high

0ampling 'istri#ution


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$rocess producing output that can #e assessed using varia#le or attri#ute measures

Called a process distri#ution, characteried #y location, speed and shape

Mean @ location

0peed @ range or standard deviation

o 0mall values mean clustered near the mean

0hape @ symmetric or skewed

o 0ymmetric @ same shape a#ove and #elow mean

4ith sampling, we try to estimate the parameters of the process distri#ution using

statistics such as the sample mean and the sample range or standard deviation

These sample statistics have their own distri#ution, called a sampling distri#ution,

which is different from the process distri#ution.

0ome distri#utions of sample means can #e approximated #y the normal distri#ution,

allowing the use of the normal ta#le if #oth the mean and standard deviation are

known


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After the process is in statistical control, use control charts to detect the onset of

assigna#le causes so that they can #e eliminated

To determine whether o#served variations are a#normal, measure and plot the uality

characteristic taken from the sample on a time&ordered diagram called a control chart

Control chartA time&ordered diagram used to determine whether o#served variations

are a#normal

A control chart has a central line, which is the mean of the sample distri#ution, and two

control limits #ased on the sampling distri#ution of the uality measure

The control limits are used to *udge whether action is reuired

The larger value represents the upper control limit -


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Two types of error are possi#le with the use of control charts

Type / error occurs when the employee concludes that the process is out

of control #ased on a sample result that falls outside the control limits,

when in fact it was due to pure randomness

Type // error occurs when the employee concludes that the process is in

control and only randomness is present, when actually the process is out

of statistical control

C"90T=


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o 0tep S. $lot the sample means. /f all are in control, the process is in statistical

control in terms of the process average and process varia#ility. Continue to take

samples and monitor the process. /f any are out of control, find the assigna#le

causes, correct them, and return to step +. /f no assigna#le causes are found after

a diligent search, assume that the out&of&control points represent common causes

of variation and continue to monitor the process.

Control Charts for Attri#utes

Two chartsp and c charts

$&chart is used for controlling the proportion of defective products or services generated

#y the process

C&chart is used for controlling the num#er of defects when more than oe defect can #e

present in a product or service

$& chart:o ;uality characteristic is counted rather than measured and the entire item or

service can #e declared good or defective

o 0electing a random sample, inspecting each item in it and calculating the sample

proportion defective, p, which is the num#er of defective units divided #y sample

sie

o 0tatistical distri#ution is #ased on #inomial distri#ution

o 5arger sample sies normal distri#ution gives good approx..

o The standard deviation of the distri#ution of proportion defective, , is

o

o $eriodically, a random sample of sie n is taken, and the num#er of defective

products or services is countedo The num#er of defectives is divided #y the sample sie to get a sample

proportion defective, p, which is plotted on the chart.

o 4hen a sample proportion defective falls outside the control limits, analyst

assumes that the proportion defective generated #y the process has changed and

searches for the assigna#le cause


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o "#servations falling #elow the 5C5p indicate that the process may actually have

improved

o The analyst may find no assigna#le cause #ecause there is always a small chance

that an Pout of controlQ proportion will have occurred randomly

C&charts

o 0ometimes products have more than one defect per unit for which the c&chart, is

useful

o

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