Reducing Waste in the Production System Study Guide

Study Guide Lean Operations Lean Operations: An Introduction ● Reducing waste in the production system ● Waste= anything that interferes with or does not add value to the production system ● The ultimate goal: achieve a balanced system ○ One that achieves a smooth, rapid flow of materials and/or work through the system ● Most well-known lean operations= JIT (Just-In-Time) Operations ○ A management strategy that aligns raw-material orders from suppliers directly with production schedules; system requires constant, precise monitoring of demand ○ Kanban—signals between various points of production when the next part or product is needed ■ Streamlining, efficiency, and improving quality ● Lean production operations: a flexible system of operation that uses considerably less resources than a traditional system ○ Tend to achieve: ■ Greater productivity ■ Lower costs ■ Shorter cycle times ■ Higher quality ● More benefits of Lean System: ○ Increased flexibility ○ Reduced cycle time ○ Lower Costs ○ Reduced Waste ● Critical Risks ○ Increased stress on workers ○ Fewer resources available if problems occur ○ Supply chain disruptions can halt operations ● Lean Logic ○ Lean is based on the logic that nothing will be produced until it is needed ■ Company waits until inventory is empty ○ A sale pulls a replacement from the last position in the system ○ This triggers an order to the factory production line ○ Each upstream station then pulls up from the next station further upstream. Lean Principles: Respect for People ● 1. Lifetime employment for permanent positions ● ● ● ● 2. Maintain level payrolls even when business conditions deteriorate 3. Company unions 4. Bonuses 5. View workers as the most important asset ○ In the past business thought profit was the most important thing. ● 6. Building healthy organizational culture ● 7. Emphasize respect and appreciation for each other Lean Principles: 7 Sources of Waste ● 1. Waste from overproduction ● 2. Waste of waiting time (idle time) ● 3. Transportation waste ● 4. Inventory waste ● 5. Processing waste ● 6. Waste of motion ● 7. Waste from product defects Inventory as a source of waste: ● Inventory as a source of waste is many times brought on by the functional nature of many corporate structures ○ Inventory builds up functional boundaries ○ Functional boundaries cause organizations to invest in inventory for the wrong reasons, causing excess inventory (i.e. waste) ● Purchasing ○ Companies tend to buy raw materials in bulk ● Production ○ Economies of scale ○ Finished goods inventory ends up building up ○ WIP inventory that builds up as well ● Distribution ● Inventory as a source of waste is many times brought on by the functional nature of many corporate structures ○ Inventory builds up at functional boundaries ○ Functional boundaries impede process management ○ Functional boundaries cause organizations to invest in inventory for the wrong reasons, causing excess inventory (i.e waste) ■ Companies should try to invest in forecasting data ● Inventory ○ Productivity Problems ■ Work in process queues “banks” ■ Inspector backlog ■ Vendor delinquencies Chapter 14 of OCSM: Lean Supply Chains (Textbook Readings) ● Lean production: focus on eliminating as much waste as possible ○ Lean production is an integrated set of activities designed to achieve production using minimal inventories of raw materials, work-in-process, and finished goods. ● Customer value: defined as something for which the customer is willing to pay ● Waste: anything that does not add value from the customer’s perspective ● Elimination of Waste: “anything other than the minimum amount of equipment, materials, parts, and workers which are absolutely essential to production.” ○ 1.) Eliminating waste from overproduction ○ 2.) Waste of waiting time ○ 3.) Transportation waste ○ 4.) Inventory waste ○ 5.) Processing waste ○ 6.) Waste of motion ○ 7.) Waste from product defects ● Respect for People: ○ Assuring lifetime employment for permanent positions and maintain level payrolls even when businesses deteriorate ● Lean Supply Chain Processes ○ Value stream: value-adding and non-value-adding activities required to design, order, and provide a product or service from concept to launch, order to delivery, and raw materials to customers ○ Waste reduction: relates to the optimization of the value-adding activities and the elimination of non-value-adding activities ■ Lean Suppliers: able to respond to changes; they deliver on time and their culture is one of continuous improvement ■ Lean Procurement: automation, visibility, ■ Lean Manufacturing: producing what the customer wants, in the quantity they want, and with minimum resources ■ Lean Warehousing: eliminating non-value added steps and waste in product storage processes ■ Lean Logistics: can be applied to the functions associated with the movement of material through the system ■ Lean Customers: have a great understanding of their business needs and specify meaningful requirements ● Lean Layouts ■ Preventive maintenance is emphasized to ensure flow time is not disrupted by downtime or malfunctioning machines ○ Group technology ■ Philosophy where similar parts are grouped into families ○ Quality at the source ■ Do it right the first time mentality ○ JIT production ■ Producing what is needed when needed and no more ● Lean Production Schedules ■ Level schedule= one that requires material to be pulled into final assembly in a pattern uniform enough to allow the various elements of production to respond to pull signals ■ Freeze window: period of time during which the schedule is fixed and no further changes are possible ○ Uniform plant loading ○ Kanban production control system ○ Minimized setup times ● Lean Supply Chains ○ Specialized plants: small specialized plants rather than large vertically integrated manufacturing facilities; plants designed for one purpose can be constructed and operated more economically ○ Collaboration with suppliers: ■ Suppliers are also important to the process ○ Building a Lean Supply Chain: ■ The sum of the total organizations involved—from raw materials firms through tiers of suppliers to original equipment maunfacturers ● Value must be defined jointly for each product family ● All firms along the value stream ● The firms must work together to identify and eliminate muda (waste) ● When cost targets are met, the firms along the stream will immediately conduct new analyses to identify remaining muda and set targets ● Every participating firm has the right to examine every activity in every firm relevant to the value stream as part of the joint search for waste ● Value stream mapping: special type of flowcharting tool that is valuable for the development of lean processes ○ The development of lean processes ○ Technique used to identify all of the value-adding and non value-adding processes that materials are subjected to within a plant through delivery to customer ○ This machine runs through a five-step process consisting of machining, drilling, cleaning, inspection, and packaging. ● Kaizen: a Japanese philosophy that focuses on continuous improvement ○ Specific short-term projects: the teams work on to implement changes to the process ● Waste elimination: ○ A reasonable goal in service processes, just as it is manufacturing processes, compared to service processes, are far controllable. ○ Uncertainty in task times: the execution of each service delivery has some uniqueness ○ Uncertainty in demand: service demand can be forecasted, no forecast is 100 percent perfect ○ Customers’ production roles: both of the above uncertainties have much to do with customer involvement in service operations ○ Manufacturing processes compared to service processes are far more controllable ● Risks of Lean Systems: ○ Uncertainty in task times ○ Uncertainty in demand ○ Customers’ production roles Module 5: (HW Multiple Choice Questions) 1. What term refers to the optimization of value-adding activities and elimination of non valueadding activities that are part of a value stream? Answer: Waste Reduction 2. The text lists seven prominent types of waste that should be eliminated from the supply chain. Which of the following is not one of them? Waste from overproduction Transportation waste Waste of waiting time Waste of motion None of the above – they are all included in wastes that should be eliminated from supply chains 3. The periodic inspection and repair of equipment designed to keep the equipment reliable, thus eliminating unplanned downtime due to malfunctions is called _______________________. Answer: Preventative maintenance 4. What term refers to the concept of doing things right the first time, and when problems occur, stopping the process to fix the source of the problem? Answer: Quality at the source 5. In some JIT systems, marked spaces on a table or the floor identify where material should be stored. Supplying operations are signaled to produce more when the space is empty. What are these spaces called? Answer: Kanban squares 6. Under a kanban approach to lean manufacturing, order quantities should be as small as possible. For a part that is manufactured in-house, what part of its manufacturing process needs to be reduced to reduce the optimal order quantity for an item? Answer: Setup time 7. Lean production is an integrated set of activities designed to achieve high-volume production using minimal inventories of raw materials, work-in-process, and finished goods. Answer: True 8. Lean production requires a “push and pull” system of inventory replenishment. Answer: False 9. Group technology cells help to eliminate movement and queue (waiting) time between operations. Answer: True 10. Quality at the source requires factory workers to become their own inspectors. Answer: True 11. In the textbook, Toyota's Fujio Cho identified which of the following types of waste to be eliminated? Answer: Motion 12. In designing a lean production facility layout, a designer should do which of the following? Answer: Design for workflow balance 13. To implement lean production schedules, a firm would do which of the following? Answer: Have excess capacity Under lean production, excess labor, machines, and overtime provide the hedge. The excess capacity in labor and equipment that results is much cheaper than carrying excess inventory. 14. In implementing a lean production system, you should work with suppliers to do which of the following? Answer: Reduce lead times 15. One of the few lean techniques that does not work well in service firms is demand-pull scheduling. Answer: False 16. Preventative maintanence is emphasized in lean production to ensure that flows are not interrupted by downtime or malfunctioning equipment. Answer: True 17. In the textbook, Toyota’s Fujio Cho identified which of the following types of waste to be eliminated? Answer: Overproduction 18. Group technology (GT) is credited with which of the following benefits? Answer: Reducing waiting time between process operations Group technology cells eliminate movement and queue (waiting) time between operations, reduce inventory, and reduce the number of employees required. 19. Which of the following statements holds true for kanban production control systems? Answer: In a paperless control system, containers can be used instead of cards. 20. Lean Layouts—Group technology, Quality at the source, JIT production; Lean Production Schedules—Uniform plant loading, Kanban production control system, determination of number of Kanban needed; Lean Supply Chain—specialized plants, collaboration with suppliers, building a lean supply chain Muda is something that all organizations involved in a lean supply chain must work together to identify and eliminate. JIT production is producing what is needed when needed and no more, just-in-time, with a minimum of work-in-process inventory. Lean supply chains are more compatible with small specialized plants than large integrated manufacturing facilities. Minimized set up times facilitate frequent changeovers with an ultimate goal being a lot size of one. Quality at the source is a philosophy of making workers personally responsible for the quality of their output. Uniform plant loading smooths the production flow to dampen the reaction waves that normally occur in response to schedule variations. ___________________________________________________________________________________________ __ Module 6: Quality Management Quality Management: Lecture Videos ● Total quality management: managing the entire organization so that it excels on all dimensions of products and services that are important to the customer ● Two fundamental operational goals: ○ 1. Careful design of the product or service ○ 2. Ensuring that the organization’s systems can consistently produce the design ● ISO 9000 and ISO 14000 ● ● ● ● ● ○ Series of standards agreed upon by the International Organization for Standardization (ISO) ■ Adopted in 1987 ■ Used in more than 160 countries ○ A prerequisite for global competition ■ ISO 9000 an international reference for quality ■ ISO 14000 primarily concerned with environmental management Malcolm Baldrige National Quality Award ○ An award established by the U.S Department of Commerce given annually to companies that excel in quality ○ The Baldrige Quality Award is given to organizations that have demonstrated outstanding quality in their products and processes Design and Conformance Quality ○ Design quality: inherent value of the product in the marketplace ○ Conformance quality: degree to which the product or service design specifications are met Costs of Quality: Expenditures related to achieving product and/or service quality, such as those identified ○ Appraisal costs—costs of the inspection and testing to ensure that the process is acceptable ○ Prevention costs—sum of all the costs to prevent defects ○ Internal failure costs—costs for defects incurred within the system ○ External failure costs—costs for defects that pass through the system Six Sigma Concept ○ A rigorous statistical method that enables companies to deliver near perfect products and/or services ■ Seeks to reduce variation in the processes that lead to product and process defects ■ The name, “Six Sigma,” refers to the goal of no more than 3.4 defects per million opportunities ■ DPMO= (# of defects / Number of opportunities for error per unit x Number of units) * 1,000,000 ○ 1. Unit. The item produced or being serviced ○ 2. Defect. Any item or event that does not meet the customer’s requirement ○ 3. Opportunity. A chance for a defect to occur DMAIC Cycle ○ Define- identify customers and their priorities ○ Measure - determine how to measure the process and how it is performing ○ Analyze- determine the most likely causes of defects ○ Improve- identify means to remove the causes of defects ○ Control - determine how to maintain the improvement ● Six Sigma Roles and Responsibilities ○ 1. Executive leaders must champion the process of improvement ○ 2. Corporation-wide training in Six Sigma concepts and tools ■ Six sigma white, yellow, green and black belt certifications ○ 3. Set stretch objectives for improvement ○ 4. Continuous reinforcement and rewards ● Statistical Quality Control (SQC): a number of various techniques that evaluate the quality of a finished good/service from a conformance quality standpoint ○ The quantitative aspects of quality management ● Assignable variation: variation that is caused by factors that can be identified and managed ● Common variation: variation that is inherent in the process itself ○ Stapling machine on a copier example; variation in the copier; not so concerned with this variation ● Processes usually exhibit some variation in their output ● Voice of Customer vs. Voice of Process ○ Ordering a cheeseburger, pizza, or bank ○ The provider can hear your VOICE at the time of service provision ○ Buying clothes or shoes ○ The provider can hear your VOICE surveys, secret shoppers ○ Product (design) specifications and specification limits ○ Process design and process control limits ○ Finished goods that meet our customer’s desires ● Specification limits—range of variation (company wants to accumulate common variation) that is determined by listening to the voice of the customer. This range is considered acceptable by the product or service designer and customer. (thin crust vs. thick crust pizza) ● Process limits—range of variation that represents the voice of the process. Within this range, a process is able to maintain control with a high degree of certainty. ● Rule of thumb for specification limits and control limits… ○ A good process is one where the control limits are within the specification limits. A bad process is one where the control limits are outside of the specification limits. ● Variation and Specifications of quality cost ○ Upper specification– the maximum acceptable value for a characteristic ○ Lower specification- the minimum acceptable value for a characteristic ■ Ex. making a gold shoe, making sure 10,000 pairs of gold shoes are gold ■ Trying to make the process consistent ● Process Capability: ○ The ability of a process to consistently produce a good or deliver a service with low probability of generating a defect ■ Specification limits ■ Process Control limits ● Ex. Dasani water producing any defect water ● Process Capability Index: Cpk ○ Ratio of the ranges of values produced divided by the range of values allowed ○ Shows how well the parts being produced fit into the range specified by the design specifications ○ Cpk larger than one indicate that the process is capable ○ When the two numbers are not close, indicates mean has shifted ● Statistical Quality Control (SQC) ○ SQC is a number of various techniques that evaluate the quality of a finished good/service from a conformance quality standpoint ■ The quantitative aspects of quality management ○ Processes usually exhibit some sort of variation in their output ● Process Control ○ Concerned with monitoring quality while the product or service is being produced ○ Statistical process control- testing a sample of output to determine if the process is producing items within a preselected range ○ Variable- characteristics that are measured using an actual value (x bar and r charts) Module 6: Textbook Readings Chapter 12 of OCSM: Six Sigma Quality ● Total quality management: defined as managing the entire organization so that it excels on all dimensions of products and services that are important to the customer ○ 1. Careful design of the product ○ 2. Ensuring that the organization’s systems can consistently produce the design ● Best quality American products had higher defect rates than those of the poorest Japanese manufacturers ○ Malcolm Baldrige National Quality Award established to help companies review and structure their quality programs; demonstrates outstanding quality in their products and processes ● Developing Quality Specifications ○ Design quality: inherent value of the product in the marketplace and is thus a strategic decision for the firm ○ Dimensions of Design Quality: ■ Performance: primary product or service characteristics ■ Features: added touches, bells, and whistles, secondary characteristics ■ Reliability/durability: Consistency of performance over time, probability ● ● ● ● of failing, useful life ■ Serviceability: Ease of repair ■ Aesthetics: sensory characteristics (sound, feel, look, etc) ■ Perceived quality: Past performance and reputation ○ Conformance quality: the degree to which the product or service design specifications are met ○ Quality at the source: the person who does the work takes responsibility for making sure that his or her output meets specifications ■ Dimensions of quality ● Product example: laser printer ● Service example: checking account at a bank Cost of quality ○ All of the costs attributable to the production of quality that is not 100 percent perfect ■ Expected cost from excellent performance - the current costs that exist ■ Example: 15-20% of every sales dollar; cost of reworking, inspections, tests Assumptions of the costs of quality: ○ 1. Failures are caused ○ 2. Prevention is cheaper ○ 3. Performance can be measured Costs of quality classified into four types: ○ 1. Appraisal costs: cost of inspections, testing, ○ 2. Prevention costs: sum of all costs to prevent defects ○ 3. Internal failure costs: costs of defects incurred in the system—scrap, rework, repair ○ 4. External failure costs: customer warranty replacements, loss of customers or goodwill, handling complaints Six Sigma: ○ The philosophy and methods companies such as General Electric and Motorola use to eliminate defects in their products and processes ■ Defect would be something that does not fall within the customer’s specification ○ Defects per million opportunities (DPMO) = (Number of Defects/ Number of opportunities ) * 1,000,000 ○ Six Sigma Methodology: define, measure, analyze, improve, and control (DMAIC) ■ 1. Define—customers and their priorities, project suitable for six sigma efforts; term CTQ is used to define ■ 2. Measure—how the process is performing ■ 3. Analyze—most likely cause of defects ● ● ● ● ● ● ● ● ■ 4. Improve—means to remove the causes of defects ■ 5. Control—determine how to maintain the improvements Analytical Tools for Six Sigma: ○ Flowcharts ○ Run charts: depict trends in data over time ○ Pareto charts: help break down a problem into the relative contributions of its components ○ Checksheets: basic forms that standardize data collection ○ Cause and effect diagrams: also called fishbone diagrams, they show hypothesized relationships between potential causes and the problem under study ○ Opportunity flow diagram: used to separate value added from non-value added steps in a process ○ Process control charts: time sequenced charts showing plotted values of a statistic including a centerline average and one or more control limits Failure mode and effect analysis ○ Structured approach to identify, estimate, prioritize, and evaluate risk of possible failures at each stage of a process Design of Experiments (DOE) ○ Multivariate testing: a statistical methodology used for determining the causeand-effect relationship between process variables (x) and output variable (y) Lean Six Sigma ○ Combines thee implementation and quality control tools of Six Sigma and the inventory management concept of lean manufacturing ○ Lean in this context: a focus on reducing costs by lowering raw material, work-inprocess, and finished goods inventory to an absolute minimum Six Sigma Roles and Responsibilities ○ 1. Executive leaders, who are truly committed to Six Sigma and who promote it throughout the organization, and champions, who take ownership of the processes that are to be improved ○ 2. Corporatewide training in Six Sigma concepts and tool ○ 3. Setting of stretch objectives for improvement ○ 4. Continuous reinforcement and rewards Shingo System ○ Single minute exchange of die: drastic cuts in equipment set up times ○ Use of the poka-yoka system to achieve zero defects Fail-safe procedures: ○ Devices called poka-yokes: checklists such as special tooling that 1.) prevents the worker from making an error that leads to a defect before starting a process 2.) gives rapid feedback of abnormalities in the process to the worker in time to correct them ISO 9000: an international reference for quality management requirements in business-to- business dealing; defects can be prevented through planning ● ISO 14000 is primarily concerned with environmental management ○ Based on 8 quality management principles: ■ 1. Customer focus ■ 2. Leadership ■ 3. Involvement of people ■ 4. Process approach ■ 5. System approach to management ■ 6. Continual improvement ■ 7. Factual approach to decision making ■ 8. Mutually beneficial supplier relationships ○ Three forms of ISO 9000 certification: ■ 1. First party: a firm audits itself against ISO 9000 standards ■ 2. Second party: a customer audits its supplier ■ 3. Third party: a “qualified” national or international standards of certifying agency serves as an auditor ○ External benchmarking: ■ Goes outside the organization to examine which industry competitors and excellent performers outside of the industry are doing ● Identify processes needing improvement ● Analyze data ● Process Control with Variable Measurements (x-bar vs. r-bar) ○ X and R charts are widely used in statistical process control ■ Four main issues to address in creating a control chart: ● 1. Size of samples ● 2. Number of samples ● 3. Frequency of samples ● 4. Control Limits Module 6: (HW Multiple Choice Questions) Assignment 6— 1. 2. 3. TQM was defined in the textbook as managing the entire organization so that it excels on all dimensions of products and services that are important to the customer. a. Answer: True The term "conformance quality" refers to the relative level of performance of a product as compared to competing products. For instance, certain luxury sedans are said to be of "higher quality" than some lowpriced subcompact automobiles. a. Answer: False Design quality in products refers to the degree to which product or service design specifications are met. a. Answer: False 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. Six Sigma refers to the philosophy and methods that some companies use to eliminate defects in their products and processes. a. Answer: True A process that is in Six-Sigma control will produce no more than two defects out of every million units. a. Answer: False The term CTQ is used in the "define (D)" portion of the DMAIC methodology. a. Answer: True The dimension of design quality that concerns the sensory characteristics of the product is which of the following? a. Answer: Aesthetics The dimension of design quality that concerns the consistency of performance over time or the probability of failing is which of the following? a. Answer: Reliability The dimension of design quality that concerns secondary characteristics is which of the following? a. Answer: Features Which of the following is the cost of quality classification for costs such as scrap, rework, or repair? a. Answer: Internal Failure Costs Which of the following is the cost of quality classification for costs such as inspection, testing, and other tasks to ensure that the product or process is acceptable? a. Answer: Appraisal Costs Which of the following is the cost of quality classification for costs such as defects that pass through the system (e.g., customer warranty replacements, loss of customer or goodwill, handling complaints, and product repair)? a. Answer: External failure costs Six Sigma a. Define: Flow Chart b. Measure: Run charts, Data collection forms (aka checksheets), Pareto charts c. Analyze: Cause & Effect Fishbone diagrams d. Improve: Opportunity flow diagram e. Control: Process control charts ISO 9000 is primarily concerned with environmental management. a. Answer: False ISO 14000 is primarily concerned with environmental management. a. Answer: True The Malcolm Baldrige National Quality Award is given to organizations that have done which of the following? a. Answer: Demonstrated outstanding quality in their products and processes A quality guru named Philip Crosby suggested that a general approach to quality management should involve prevention, not inspection. a. Answer: True Conformance quality is a strategic decision for a firm. a. Answer: False Assignment 7— 1. 2. Variation in production systems that is caused by factors that can be clearly identified and possibly even managed is called assignable variation. a. Answer: True Variation that is inherent in a production process itself is called assignable variation. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. a. Answer: False Process contorl is concerned with monitoring quality after the product or service has been produced. a. Answer: False A p-chart has upper and lower control limits expressed as lines on the chart. As long as the sample values fall between these two lines, there is no need to investigate process behavior. a. Answer: False The value for “z” used in quality control charts is based on the degree of confidence you want to have in the resulting UCL and LCL values. a. Answer: True To obtain a 99.7 percent confidence level in a p-chart, we would use a value of 3 for “z.” a. Answer: True Acceptance sampling is performed on goods that already exist to determine what percentage of items conforms to specifications. a. Answer: True In acceptance sampling, the value for the acceptance number (c) is determined by the interaction of the acceptable quality level (AQL), the lot tolerance percent defective (LTPD), the probability of rejecting a high-quality lot (alpha), and the probability of accepting a low-quality lot (beta). a. Answer: True The probability associated with accepting a low-quality lot is denoted in acceptance sampling with the Greek letter alpha. a. Answer: False In variances sampling, the actual measurements of the variable observed are used regardless of whether the unit is good or bad. a. Answer: True You have just used the capability index (Cpk) formulas to compute the two values "min [1, 1]." Which of the following is the proper interpretation of these numbers? a. Answer: The mean has not shifted at all You have just used the capability index (Cpk) formulas to compute the two values "min [1.5, 1]." Which of the following is the interpretation of these numbers? a. Answer: The mean of the production process has shifted to the right of the design limits For which of the following should we use a p-chart to monitor process quality? a. Answer: Grades in a freshman “pass/fail” course The capability index (Cpk) calculates the percentage of items being produced within specifications. a. Answer: False You want to develop a three-sigma R-chart. You know the average range is 5 based on several samples of size 10. Which of the following is the resulting UCL? a. Answer: 8.9 Module 7: Introduction to Supply Chain Management ● Bullwhip effect: In the supply chain world, the end customers have the whip handle and they create a little movement in the demand which travels up the supply chain in increasing fashion. As we move away from the customer, we can see bigger movements. On average, there are six to seven inventory points between the end customer and raw material supplier (as shown below in figure 1). Everyone tries to protect themselves from stock-out situations and missed customer orders, by keeping extra inventory to hedge against variability in the supply chain. Hence, huge buffers of inventories up to six