supply chain management and quality management. volkswagen
TRANSCRIPT
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Supply Chain Management
andQuality Management
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Volkswagen
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Supply Chain• Supply Chain: the facilities,
functions and activities involved in producing and delivering a product or service from suppliers (and their suppliers) to customers (and their customers)
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Value Chain• Value Chain: network of trading
partners that extends from the manufacturers to end-customers.
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The Supply ChainInformation
Cash
Products and Services
Products and Services
Products and Services
Customers
Total satisfaction with quality, price, delivery, and service
Distributors
Package and delivery
Inventory
Producers
Finished goods, end products and services
Inventory
Suppliers
Inventory
Materials, parts, sub-assemblies, and services
Figure 7.1
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The Strategic Importance
of the Supply ChainSupply-chain management is the integration of the activities that procure materials and services,
transform them into intermediate goods and the final product, and
deliver them to customersCompetition is no longer between
companies; it is between supply chains
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Effective Supply Chain Management Needs
• Good Information• Good Communication• Cooperation• Trust
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Inventory
• Inventory is insurance against Supply Chain uncertainty.
• Inventory is used as a buffer at various stages of the supply chain to keep goods and services flowing smoothly.
• For example, parts order arrives late => producer has parts to continue production.
• For example, companies may order in large batches to save money on transportation or to get special pricing.
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So, Is Inventory good?
• Although Inventory is insurance against Supply Chain uncertainty, it is very costly
• Products sitting on warehouses are like money sitting without being used
• Cost of carrying a retail product in inventory for one year is over 25% of what the item costs
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The Bullwhip Effect
• Distorted information through the supply chain when slight demand uncertainty becomes magnified through the eyes of the managers in each link of the supply chain
• This leads to stockpiling• Very costly• Everyone plans for the worst case
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How to Handle the Bullwhip Effect:
• Supply chain managers should share information, especially demand forecasts
• This is called “Transparency”• If the supply chain exhibits transparency,
the uncertainty along the supply chain is drastically reduced or eliminated
• This leads to lower levels of inventory and great cost savings.
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Information Shared in the Supply Chain to achieve
Transparency• Centralized coordination of information
flows• Integration of ordering, production,
transportation, and distribution• Direct access to domestic and global
transportation and distribution channels• Locating and tracking the movement of
every item in the supply chain
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Information Shared in the Supply Chain to achieve
Transparency• Consolidation of purchasing from all
suppliers• Intercompany and intracompany
information access• Data interchange• Data acquisition at the point of origin and
point of sale• Instantaneous updating of inventory levels
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IT: A Supply Chain Enabler
• IT links all aspects of the Supply Chain
• IT enables efficient flow of products through the Supply Chain
• IT is the most efficient enabler
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Electronic Business• Supply Chain transactions are conducted via
electronic media– EDI– E-mail– EFT (electronic funds transfer)– Image processing– Electronic bulletin boards– Shared databases– Bar coding– Fax– Internet (and Internet Websites)
• Companies can automate processes moving information electronically between suppliers and customers
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Electronic Business Means:
• Replacement of physical processes with electronic ones
• Cost and price reductions• Reduction or elimination of intermediaries• Shortening transaction times for ordering
and delivery• Wider presence and increased visibility
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Electronic Business Means:
• Greater choices and more information for customers
• Improved service• Collection and analysis of customer data
and preferences• Virtual companies with lower prices• Leveling the playing field for smaller
companies• Gain global access to markets &
customers
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Electronic Data Interchange (EDI)
• Computer-to-computer exchange of business documents in a standard format
• Quick access, better customer service, less paperwork, better communication, increased productivity, improved tracing and expediting, improves billing and cost efficiency
• Drastically reduces or eliminates Bullwhip effect
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Bar Codes• Computer readable codes attached to
items flowing through the supply chain• Generates point-of-sale data
(instantaneous computer record of the sale of a product) which is useful for determining sales trends, ordering, production scheduling, and deliver plans
1234 5678
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The Internet• Technological innovation with the biggest impact
on Supply Chain Management• Can communicate with customers• Can communicate with other businesses within
its supply chain anywhere in the world• Allowed geographic barriers to be torn down
enabling access to markets and suppliers around the world.
• Adds speed and accessibility to the supply chain
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Figure 7.2 Build-to-Order Cars over the Internet
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The E-Automotive Supply ChainSUPPLY CHAIN PROCESS AUTOMOTIVE PAST E-AUTOMOTIVE
Customer sales Push—sell from inventory Pull—Build-to-order
Production Goal of even and stable production
Focus on customer demand, respond with supply chain flexibility
Distribution Mass approach Fast, reliable, and customized to get cars to specific customer location
Customer relationships Dealer-owned Shared by dealers and manufacturers
Managing uncertainty Large car inventory at dealers Small inventories with shared information and strategically placed parts inventories
Procurement Batch-oriented; dealers order based on allocations
Orders made in real time based on available-to-promise information
Product design Complex products don’t match customer needs
Simplified products based on better information about what customers want
Table 7.2
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IT Issues
• Increased benefits and sophistication come with increased costs
• Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient
• Security problems are very real• Partnership and trust are important
elements that may be new to business relationships
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Suppliers• The most important link between companies and
suppliers is their information flow• Cross-enterprise teams: coordinate processes
between a company and its supplier (eg. Harley Davidson and Porsche)
• The supplier works with the company in the design process in order to ensure the most effective design possible (not like before where the supplier would design their part around the customer’s design).
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Suppliers• Required to provide “on-demand”
delivery to support JIT• Required to provide “continuous
replenishment” where orders are supplied in a short period of time according to a predetermined schedule (Wal-Mart)
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Continuous Replenishment
• Orders are supplied in a short period of time according to a predetermined schedule (Wal-Mart)
• Means making more frequent, partial deliveries, in order to reduce inventory and overall costs (instead of large batch orders)
• Increases flexibility since there is no large investment in inventory
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Suppliers• Often are required to move close to
their customer• Example: Honda in Marysville, Ohio• 75% of the US suppliers for Honda
are located within 150-mile radius of the Marysville, Ohio assembly plant
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Suppliers• Are required to deliver high quality,
low prices, process improvement, better deliver performance
• Require their own suppliers what is required of them: high quality, low prices, process improvement, better deliver performance
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Sourcing, Outsourcing, and Single Sourcing
• Sourcing: the selection of suppliers• Outsourcing: the purchase of goods
and services from a supplier• Single-Sourcing: purchasing goods
from only one (or a few) suppliers
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Why Outsource?• Many companies are outsourcing in
order to focus more on their core competencies (Nabisco)
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Why Single-source?• Companies single-source in order to
have more direct influence and control over the quality, cost, and delivery performance of a supplier (since the company will have a major portion of that supplier’s volume of business)
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E-Procurement• B2B Commerce on the Internet• Direct purchase from suppliers over the
Internet• E-Marketplaces: websites where
companies and suppliers do B2B activities (for industry specific companies)
• Reverse Auction: a company posts orders on the Internet for suppliers to bid on
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Logistics• Transportation and distribution of
goods and services
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Vendor-Managed Inventory (Wal-Mart)
• Vendor-Managed Inventory is an integral part of supply chain collaboration
• Manufacturers receive electronic data via EDI or Internet about distributors sales and stock levels.
• Manufacturers see point of sale data, expected growth, promotions, lost business, inventory goals
• Manufacturers use this information to create and maintain a forecast and inventory plan
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Vendor-Managed Inventory
• Manufacturers generate orders, not distributors
• Increased speed, reduced errors, and improved service
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Collaborative Logistics• Different companies (even rival companies) are
finding ways to collaborate in distribution• Example: Nabisco discovered it was paying too
much for half-empty trucks and now they share trucks and warehouse space with other companies, even competitors (Dole, Lea & Perrins, General Mills, Pillsbury)
• Example: General Mills worked out a collaborative agreement with Fort James Corp. (Dixie Cups) sharing truck routes. General Mills saved $800,000 in it’s first year.
• Reduce costs
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Make-or-Buy Decisions
1. Maintain core competence2. Lower production cost3. Unsuitable suppliers4. Assure adequate supply (quantity or delivery)5. Utilize surplus labor or facilities6. Obtain desired quality7. Remove supplier collusion8. Obtain unique item that would entail a prohibitive
commitment for a supplier9. Protect personnel from a layoff10. Protect proprietary design or quality11. Increase or maintain size of company
Reasons for Making
Table 11.4
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Make-or-Buy Decisions
1. Frees management to deal with its primary business
2. Lower acquisition cost3. Preserve supplier commitment4. Obtain technical or management ability5. Inadequate capacity6. Reduce inventory costs7. Ensure alternative sources8. Inadequate managerial or technical resources9. Reciprocity10. Item is protected by a patent or trade secret
Reasons for Buying
Table 11.4
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Ethics in the Supply Chain
Opportunities for unethical behavior are enormous and temptations are high
Many companies have strict rules and codes of conduct that define acceptable behavior
Institute for Supply Management has developed a detailed set of principles and standards for ethical behavior
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Principles and Standards for Ethical Supply Management
Conduct
LOYALTY TO YOUR ORGANIZATION
JUSTICE TO THOSE WITH WHOM YOU DEAL
FAITH IN YOUR PROFESSION
Table 11.5
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Principles and Standards for Ethical Supply Management
Conduct
1. Avoid the intent and appearance of unethical or compromising practice in relationships, actions, and communications
2. Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer, using reasonable care and granted authority
3. Avoid any personal business or professional activity that would create a conflict between personal interests and the interests of the employer
Table 11.5
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Principles and Standards for Ethical Supply Management
Conduct
4. Avoid soliciting or accepting money, loans, credits, or preferential discounts, and the acceptance of gifts, entertainment, favors, or services from present or potential suppliers that might influence, or appear to influence, supply management decisions
5. Handle confidential or proprietary information with due care and proper consideration of ethical and legal ramifications and government regulations
6. Promote positive supplier relationships through courtesy and impartiality
7. Avoid improper reciprocal agreementsTable 11.5
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Principles and Standards for Ethical Supply Management
Conduct
8. Know and obey the letter and spirit of laws applicable to supply management
9. Encourage support for small, disadvantaged, and minority-owned businesses
10. Acquire and maintain professional competence
11. Conduct supply management activities in accordance with national and international laws, customs, and practices, your organization’s policies, and these ethical principles and standards of conduct
12. Enhance the stature of the supply management profession
Table 11.5
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Supply-Chain Strategies
Negotiating with many suppliers Long-term partnering with few
suppliers Vertical integration Keiretsu Virtual companies that use
suppliers on an as needed basis
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Many Suppliers Commonly used for commodity
products Purchasing is typically based on
price Suppliers are pitted against one
another Supplier is responsible for
technology, expertise, forecasting, cost, quality, and delivery
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Few Suppliers Buyer forms longer term
relationships with fewer suppliers Create value through economies of
scale and learning curve improvements
Suppliers more willing to participate in JIT programs and contribute design and technological expertise
Cost of changing suppliers is huge
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Vertical Integration
Figure 11.2
Raw material (suppliers) Iron ore Silicon Farming
Backward integration Steel
Current transformation Automobiles Integrated
circuits Flour milling
Forward integration Distribution systems Circuit boards
Finished goods (customers) Dealers
Computers Watches
CalculatorsBaked goods
Vertical Integration Examples of Vertical Integration
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Vertical Integration
Developing the ability to produce goods or service previously purchased
Integration may be forward, towards the customer, or backward, towards suppliers
Can improve cost, quality, and inventory but requires capital, managerial skills, and demand
Risky in industries with rapid technological change
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Keiretsu Networks Supplier becomes part of the company
coalition Often provide financial support for
suppliers through ownership or loans Members expect long-term relationships
and provide technical expertise and stable deliveries
May extend through several levels of the supply chain
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Virtual Companies
Rely on a variety of supplier relationships to provide services on demand
Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands
Exceptionally lean performance, low capital investment, flexibility, and speed
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Transportation
• Important element of Supply Chain Management, often overlooked
• Common methods are railroads, trucking, water, air, intermodal (combining several modes), package carriers, and pipelines
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Global Supply Chain• Free trade & global opportunities• Nations form trading groups• No tariffs or duties• Freely transport
goods across borders
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Quality Management• What is Quality?
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Defining Quality• The totality of features and
characteristics of a product or service that bears on its ability to satisfy stated or implied needs American Society for Quality
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Defining Quality• Getting what you pay for• Getting more than what you pay for• Getting a high level or degree of
excellence• Getting a superior product or service• A product or service with
distinguished features• A product with outstanding traits
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Key Dimensions of Quality
Key Dimensions of Quality
• Performance• Features• Reliability• Conformance• Durability• Serviceability• Aesthetics• Safety• Value
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Different Views• User-based – better performance,
more features• Manufacturing-based – conformance
to standards, making it right the first time
• Product-based – specific and measurable attributes of the product
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Quality and Strategy• Managing quality supports
differentiation, low cost, and response strategies
• Quality helps firms increase sales and reduce costs
• Building a quality organization is a demanding task
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Ways Quality Improves Profits
Improved Quality
Increased Profits
Increased productivity Lower rework and scrap costs
Lower warranty costs
Reduced Costs
Improved response Higher Prices
Improved reputation
Sales Gains
Figure 6.1
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The Flow of Activities
Organizational PracticesLeadership, Mission statement, Effective operating
procedures, Staff support, Training
Yields: What is important and what is to be accomplished
Quality PrinciplesCustomer focus, Continuous improvement, Benchmarking,
Just-in-time, Tools of TQMYields: How to do what is important and to be
accomplished
Employee FulfillmentEmpowerment, Organizational commitment
Yields: Employee attitudes that can accomplish what is important
Customer SatisfactionWinning orders, Repeat customers
Yields: An effective organization with a competitive advantage
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Implications of Quality• Company reputation
– Perception of new products– Employment practices– Supplier relations
• Product liability– Reduce risk
• Global implications– Improved ability to compete
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Malcom Baldrige National Quality Award• Established in 1988 by the U.S.
government (named after former Secretary of Commerce)
• Designed to promote TQM practices• Winners
– AT&T, Motorola, Xerox, Federal Express, Texas Instruments, Cadillac
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Deming Prize
• Japanese National Quality Award named after Dr. W. Edwards Deming
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Takumi
A Japanese character that symbolizes a broader dimension than quality, a deeper process than education, and a more perfect method than persistence
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Giants in the field of Quality
W. Edwards Deming 14 Points for Management
Joseph M. Juran Top management commitment,
fitness for use
Armand Feigenbaum Total Quality Control
Philip B. Crosby Quality is Free
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Giants in the field of Quality: Deming
• Management is responsible for building good systems
• The process dictates the level of quality and employees cannot produce products at a higher quality than what the process dictates
• Developed the 14 points for implementing quality
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Giants in the field of Quality: Juran
• Management involvement in quality effort
• Teams raise quality standards• Focus on the customer• Cost of poor quality: “are huge, but
the amounts are not known with precision”
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Giants in the field of Quality: Feigenbaum
• Laid out 40 steps in Quality Improvement (TQC)
• His ideas where people learn from each other led to the field of “cross –functional teamwork”
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Giants in the field of Quality: Crosby
• Quality is free: “It is not a gift, but it is free. What costs money is the unquality things – all the actions that involve not doing it right the first time”
• Coined the term “zero defects”• Cost of poor quality: includes all the
things that are involved in not doing the job right the first time.
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Costs of Quality
• Prevention costs - reducing the potential for defects
• Appraisal costs - evaluating products, parts, and services
• Internal failure - producing defective parts or service before delivery
• External costs - defects discovered after delivery
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External Failure
Internal Failure
Prevention
Costs of Quality
Appraisal
Total Cost
Quality Improvement
Total Cost
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International Quality Standards
• ISO 9000 series (Europe/EC)– Common quality standards for products sold
in Europe (even if made in U.S.)– Revised in 2000, it places greater emphasis on
leadership and customer satisfaction (ISO 9001:2000)
• ISO 14000 series (Europe/EC): emphasis in environmental management (public image, pollution prevention)
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Quality Standards in Food
• BRC (British Retail Consortium). This standard published by the union of British supermarket chains, the BRC, requires documented approval to ensure food quality and safety.
• IFS (International Featured Standard). This food quality and safety standard is published by the union of German supermarket chains, HDE
• FCD (Fédération des entreprises du Commerce et de la Distribution) is the French Equivalent to the IFS
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What are BRC and IFS?
• These food quality and safety standards are published by retail trade groups. Any company wishing to supply its food products to those retailers must meet the required standards. The retailers request that an independent third party approves the quality and food safety system of the supplier.
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What are the key benefits?
• Access to your markets in the UK, Germany and France
• Strengthened relationships with retail distributors • Increased transparency • Reinforced customer confidence • Streamlined production • Minimization of significant food risks • Effective control of internal processes and
minimizing risk of failure • Signal sent about a proactive approach to food
safety75
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TQM
Encompasses entire organization, 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
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W.E. Deming’s 14 Points
1. Create a constancy of purpose toward product improvement to achieve long-term organizational goals
2. Adopt a philosophy of preventing poor-quality products instead of acceptable levels of poor quality as necessary to compete internationally
3. Eliminate need for inspection to achieve quality by relying instead on statistical quality control to improve product and process design
4. Select a few suppliers or vendors based on quality commitment rather than competitive prices
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W.E. Deming’s 14 Points
5. Constantly improve the production process by focusing on the two primary sources of quality problems, the system and employees, thus increasing productivity and reducing costs
6. Institute worker training that focuses on the prevention of quality problems and the use of statistical-quality control techniques
7. Instill leadership among supervisors to help employees perform better
8. Encourage employee involvement by eliminating the fear of reprisal for asking questions or identifying quality problems
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W.E. Deming’s 14 Points
9. Eliminate barriers between departments, and promote cooperation and a team approach for working together
10. Eliminate slogans and numerical targets that urge employees to achieve higher performance levels without first showing them how to do it.
11. Eliminate numerical quotas that employees attempt to meet at any cost without regard to quality
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W.E. Deming’s 14 Points
12. Enhance worker pride, artisanry, and self-esteem by improving supervision and the production process so that employees can perform to their capabilities
13. Institute vigorous education and training programs in methods of quality improvement throughout the organization, from top management down, so that continuous improvement can occur
14. Develop a commitment from top management to implement the previous 13 steps.
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Concepts of TQM
• Continuous improvement• Six Sigma• Employee empowerment• Benchmarking• Just-in-time (JIT)• Knowledge of TQM tools
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Continuous Improvement
• Represents continual improvement of all processes
• Involves all operations and work centers including suppliers and customers– People, Equipment, Materials,
Procedures
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Six Sigma• Originally developed by Motorola,
Six Sigma refers to an extremely high measure of process capability
• A Six Sigma capable process will return no more than 3.4 defects per million operations (DPMO)
• Highly structured approach to process improvement
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Six Sigma: Example• 20,000,000 passengers pass through
London’s Heathrow Airport with luggage each year
• At 6-sigma, 72 passengers would have misplaced luggage
• At 3-sigma (most common) 2,076 would have misplaced luggage
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Six Sigma Implementation
• Provide extensive training• Focus on corporate sponsor support
(Champions)• Create qualified process
improvement experts (Black Belts, Green Belts, etc.)
This cannot be accomplished without a major commitment from top level management
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Employee Empowerment
• Getting employees involved in product and process improvements– 85% of quality problems are due to process
and material • Techniques
– Build communication networks that include employees
– Develop open, supportive supervisors– Move responsibility to employees– Build a high-morale organization– Create formal team structures
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Use internal
benchmarking
if you’re big
enough
BenchmarkingSelecting best practices to use as a standard for performance (Chrysler
uses Toyota as a Benchmark)
• Determine what to benchmark
• Form a benchmark team• Identify benchmarking partners• Collect and analyze benchmarking information• Take action to match or exceed the benchmark
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Just-in-Time (JIT)
Relationship to quality:• JIT cuts the cost of quality• JIT improves quality• Better quality means less inventory
and better, easier-to-employ JIT system
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Just-in-Time (JIT)
• ‘Pull’ system of production scheduling including supply management– Production only when signaled
• Allows reduced inventory levels– Inventory costs money and hides process and
material problems
• Encourages improved process and product quality
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Just-In-Time (JIT) Example
ScrapUnreliable Vendors
Capacity Imbalances
Work in process inventory level
(hides problems)
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Just-In-Time (JIT) Example
Reducing inventory revealsproblems so they can be solved
ScrapUnreliable Vendors
Capacity Imbalances
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Tools of TQM
• Tools for Generating Ideas– Check sheets– Scatter diagrams– Cause and effect diagrams
• Tools to Organize the Data– Pareto charts– Flow charts
• Tools for Identifying Problems– Histogram– Statistical process control chart
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/
/
/ / /// /
// ///
// ////
///
//
/
Hour
Defect 1 2 3 4 5 6 7 8
A
B
C
/
/
//
/
Tools for TQM(a) Check Sheet: An organized method of
recording data
Figure 6.5
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Tools for TQM(b) Scatter Diagram: A graph of the value
of one variable vs. another variable
Absenteeism
Pro
du
cti
vit
y
Figure 6.5
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Tools for TQM(c) Cause-and-effect diagram (also called an Ishikawa or Fishbone
Diagram): A tool that identifies process elements (causes) that might effect an outcome
Figure 6.5
QualityProblemQuality
Problem
Out of adjustment
Tooling problems
Old / worn
MachinesMachinesFaulty
testing equipment
Incorrect specifications
Improper methods
MeasurementMeasurement
Poor supervision
Lack of concentration
Inadequate training
HumanHuman
Deficienciesin product design
Ineffective qualitymanagement
Poor process design
ProcessProcess
Inaccuratetemperature
control
Dust and Dirt
EnvironmentEnvironment
Defective from vendor
Not to specifications
Material-handling problems
MaterialsMaterials
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Cause-and-Effect Diagrams
Material Machinery
Methods Manpower
Inadequate
supply of magazines
Inadequate special
meals on-board
Insu
ffic
ien
t cl
ean
pil
low
s
& b
lan
kets
o
n-b
oa
rdBroken luggage
carousel
Mechanical delay
on plane
Dei
cin
g
equ
ipm
ent
no
t av
aila
ble
Overbooking policies
Bumping policies
Mis
tag
ged
bag
s
Po
or
chec
k-in
po
lici
es
Understaffed
ticket counters
Understaffed
crew
Po
orl
y tr
ain
ed
atte
nd
ants
Dissatisfied Airline
Customer
Figure 6.6
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Tools for TQM
(d) Pareto Charts: A graph to identify
and plot problems or
defects in descending
order of frequency P
erce
nt
fro
m e
ach
cau
se
Causes of poor quality
Mac
hine
cal
ibra
tions
Defec
tive
parts
Wro
ng d
imen
sion
s
Poor D
esig
n
Ope
rato
r err
ors
Defec
tive
mat
eria
ls
Surfa
ce a
bras
ions
0
10
20
30
40
50
60
70 (64)
(13)(10)(6) (3) (2) (2)
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Pareto Charts
Number of occurrences
Room svc Check-in Pool hours Minibar Misc.72% 16% 5% 4% 3%
124 3 2
54
– 100– 93– 88
– 72
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 –
Fre
qu
ency
(n
um
ber
)
Causes and percent
Cu
mu
lati
ve p
erce
nt
Data for October
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Pareto Charts• It was named after the Italian economist Vilfredo Pareto,
who observed that 80% of income in Italy was received by 20% of the Italian population.
• The principle was suggested by management thinker Joseph Juran
• The Pareto principle (also known as the 80-20 rule or the law of the vital few) states that for many phenomena, 80% of the consequences stem from 20% of the causes
• Examples:– "20% of clients are responsible for 80% of sales volume." – “80% of the resources are typically used by 20% of the
operations “– “80% of the defective units are a result of 20% of the
causes”
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Tools for TQM(e) Flow Charts (Process Diagrams): A chart
that describes the steps in a process. Helps focus on where in a process a quality
problem might exist
Figure 6.5
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Tools for TQM(f) Histogram: A distribution showing the
frequency of occurrence of a variable
Figure 6.5
Distribution
Repair time (minutes)
Fre
qu
en
cy
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Tools for TQM(g) Statistical Process Control Chart: A chart with
time on the horizontal axis to plot values of a statistic
Figure 6.5
Upper control limit
Target value
Lower control limit
Time
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Statistical Process Control (SPC)
Uses statistics and control charts to tell when to take corrective action Drives process improvement
Four key steps Measure the process
When a change is indicated, find the assignable cause
Eliminate or incorporate the cause Restart the revised process
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An SPC Chart
Upper control limit
Coach’s target value
Lower control limit
Game number
| | | | | | | | |
1 2 3 4 5 6 7 8 9
20%
10%
0%
Plots the percent of free throws missed
Figure 6.7