Descriptionالمملكة العربية السعودية
وزارة التعليم
الجامعة السعودية اإللكترونية
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
Department of Business Administration
College of Administrative and Financial sciences Assignment 2
Introduction to Operations Management (MGT311)
Deadline for students: (18th February) The 11TH Week
Course Name: INTRODUCTION TO
OPERATIONS MANAGEMENT
Student’s Name:
Course Code:
MGT311
Student’s ID Number:
Semester:
2nd
CRN: 22429
Academic Year: 2022-23 Second Semester
For Instructor’s Use only
Instructor’s Name: Dr.
Students’ Grade:
Level of Marks: High/Mid/Low
Instructions – PLEASE READ THEM CAREFULLY
❖
This assignment is an individual assignment.
❖ The Assignment must be submitted only in WORD format via allocated folder.
❖ Assignments submitted through email will not be accepted.
❖ Students are advised to make their work clear and well presented. This also
includes filling your information on the cover page.
❖ Students must mention question number clearly in their answer.
❖ Late submitted assignments will NOT be entertained.
❖ Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
❖ All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
❖ Place of Submission is Blackboard.
❖ Weight 15 Marks
Submissions without this cover page will NOT be accepted.
Learning Outcomes
1. Describe the concept of operations functions, supply chain strategy, process selection,
forecasting, capacity planning, production forecast methods and schedule operations
(CLO 1)
2. Define different perspectives and knowledge of process-flow analysis, process design
solutions, lean system, quality controls, Inventory control system and green systems
(CLO 2)
3. Demonstrate process-flow analysis, process design solutions, operations strategies,
Inventory Control System and customer services in the business operation. (CLO 5)
CREATIVE WRITING ASSIGNMENT ON BLOCK CHAIN TECHNOLOGY IN
SUPPLY CHAIN MANAGEMENT
Recent technological advancements and rapid manufacturing growth are having a
considerable impact on the global supply chain. For example, artificial intelligence is taking
over quality control, Internet of Things (IoT) devices and drones are monitoring
manufacturing and maintenance, and more than 1.9 million robots are already deployed in
manufacturing and warehousing globally.
Today, companies need to be agile, flexible, and responsive to survive. Those that drive
continuous innovation throughout their businesses and supply chains – and differentiate
themselves in a highly competitive market by remaining dynamic and relevant – are the ones
that succeed.
Keeping in view the above lines you are asked the following questions.
Q1. How does Block chain work in Supply chain Management?
(5 MM)
Q2. How can we say that Block chain technology bring efficiency and transparency in
transactions?
(4 MM)
Q3. What are characteristics of Blockchain technology?
(4 MM)
Q4. Name five companies in the world who use this technology.
(2 MM)
A1.
A2.
A3.
A4.
Chapter 1:
Introduction to Operations
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Chapter 1 Learning
Objectives
•LO 1.1 Define operations and supply chain management.
•LO 1.2 Review the role of operations in the firm and the economy.
•LO 1.3 Describe the five main decisions made by operations and supply chain
managers.
•LO 1.4 Explain the nature of cross-functional decision making with operations.
•LO 1.5 Describe typical inputs and outputs of an operations transformation
system.
•LO 1.6 Analyze trends in operations and supply chain management.
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1-2
Definition of Operations
Management
Operations management
focuses on decisions for the
internal production of the
firm’s products or services.
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1-3
A Typical Supply Chain
(Figure 1.1)
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1-4
Operations and Supply Chain
Management
Deals with the sourcing,
production, and distribution of the
product or service along with
managing the relationships with
supply chain partners.
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1-5
Importance of
Operations and Supply Chain
Providing the
products and
services that we
use and enjoy
Sustaining our
way of life while
working to
protect the planet
Constantly
improving both
productivity and
innovation
Creating revenue
from products &
services to drive
firm profitability
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1-6
Role of Operations in the
Economy
Gross Domestic Product (GDP) – monetary value of all goods
and services produced in a country.
Productivity – value of goods/services output, relative to input.
Productivity =
output
capital + labor
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1-7
Productivity Example
A retail (quick) clinic has the following output (revenue) and labor expenses.
Did productivity improve from Year 1 to Year 2? (assume equivalent capital costs)
Year 1
Annual
Year 2 Inflation
Output (revenue) $thousands
Labor $thousands
$280
$842
$292
$883
4%
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2%
1-8
Productivity Example Solution
A retail (quick) clinic has the following output (revenue) and labor expenses.
Did productivity improve from Year 1 to Year 2? (assume equivalent capital costs)
Productivity year 1 = Output year 1 = 842 = 3.01
Labor year 1
280
Productivity year 2 = Output year 2 = 883(.98) = 3.09
Labor year 2
292(.96)
Change in productivity = 3.09 = 1.027 which is a 2.7% increase
3.01
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1-9
Why Study Operations
Management?
Challenging and interesting career
opportunities – domestic, international
Cross-functional nature of decisions
– what every major needs to know
Principles of process thinking can be
applied across the organization
ammentorp/123RF
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1-10
Careers in
Operations and Supply Chain
Management
Supply Chain Analyst
Supply Chain Analytics
Plant Lead on Sustainability
Sourcing Specialist
Global Sourcing Analyst
Transportation Planner
Risk Consultant
NetPics/Alamy Stock Photo
Customs Specialist
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1-11
3 Aspects of
Operations and Supply Chain
Management
Decisions:
The operations manager must decide:
• Process, quality, capacity, inventory, and supply chain
Function:
Major functional areas in organizations:
• Operations, marketing, finance
Process:
Planning and controlling the transformation process and its interfaces
(internal/external)
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1-12
Let’s Manage Operations
at Pizza USA!
Steve Mason/Getty Images
Managing operations
is about making decisions.
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1-13
Major Decisions at Pizza
USA
Process
◦ How should we produce pizzas?
Quality
◦ How do we meet quality standards and ensure a good customer experience?
Capacity
◦ How much output do we need at various times?
Inventory
◦ Which ingredients, when & how much?
Supply Chain
◦ How to source inputs and manage logistics?
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1-14
Framework for Operations
Decisions (Figure 1.2)
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1-15
Cross-Functional Decision
Making
Operations is critical in every firm.
Marketing = create demand
Operations = produce and distribute goods and services
Finance = acquire and allocate capital
Supporting functions: human resources, information systems, accounting
Cross-functional decision making – see Table 1.2
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1-16
Operations as a Process
Inputs
Transformation
(Conversion)
Process
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Outputs
1-17
Operations as a Process
(Figure 1.3)
Energy
Materials
Labor
Capital
Transformation
(Conversion)
Process
Goods or
Services
Information
Feedback information for
control of process inputs
and process technology
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1-18
Transformation Process
Examples (Table 1.3)
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1-19
Trends in
Operations and Supply Chain
Management
▪ Sustainability – triple bottom line
▪ Services
▪ Digital Technologies
▪ Integration of Decisions Internally and Externally
▪ Globalization of Operations and the Supply Chain
StreetVJ/Shutterstock
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1-20
Chapter 1 Summary
•LO 1.1 Define operations and supply chain management.
•LO 1.2 Review the role of operations in the firm and the economy.
•LO 1.3 Describe the five main decisions made by operations and supply chain
managers.
•LO 1.4 Explain the nature of cross-functional decision making with operations.
•LO 1.5 Describe typical inputs and outputs of an operations transformation
system.
•LO 1.6 Analyze trends in operations and supply chain management.
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1-21
Questions for Discussion
•What do you hope to learn in this course?
•Review the operations and supply chain trends on slide 1-20. Which of
these is most interesting to you and why?
•What production systems have you seen in person? How do they
produce the intended product or service?
•Describe a transformation process that you recently experienced. Think
about a medical or dental clinic visit, or a restaurant visit.
•Why are global factors important in operations and supply chain?
•How is operations and supply chain related to environmental
responsibility?
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1-22
Chapter 2:
Operations and Supply Chain Strategy
McGraw-Hill Education
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Chapter 2 Learning
Objectives
LO 2.1 Define operations strategy.
LO 2.2 Describe the elements of operations strategy and alignment with business
and other functional strategies.
LO 2.3 Differentiate the ways to compete with operations objectives.
LO 2.4 Compare product imitator and innovator strategies.
LO 2.5 Explain the nature of global operations and supply chains.
LO 2.6 Analyze two types of supply chain strategies.
LO 2.7 Illustrate how operations and supply chain can become more sustainable.
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2-24
Operations Strategy
“A consistent pattern of business decisions for operations and the
associated supply chain …
… that are linked to the business strategy and other functional
strategies, leading to a competitive advantage for the firm.”
The operations strategy at Southwest
Airlines includes using only one type of
airplane.
This lowers staff training and
maintenance costs, and reduces on
hand spare parts.
These decisions support the business
strategy of being a low cost carrier.
Markus Mainka/123RF
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2-25
Operations
Strategy
Process (Figure 2.1)
Corporate strategy
Operations Strategy
Mission
Objectives: (cost, quality,
delivery, flexibility, sustainability)
Strategic Decisions: (process,
quality, capacity, inventory, supply chain)
Functional strategies in
marketing,
finance,
engineering,
human resources,
and
information systems
Distinctive
Competence
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2-26
Operations Strategic Objectives
Cost – resources used
Quality – conformance to customer expectations
Delivery – quickly and on time
Flexibility – ability to rapidly change operations
Sustainability – environmental, social, economic
How do firms
use these
objectives to
gain
competitive
advantage?
What tradeoffs exist
among the
objectives?
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2-27
Examples of Important
Strategic Decisions in Operations
(Table 2.2)
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2-28
Distinctive Competence
This operations capability is something an
organization does better than any
competing organization that adds value for
the customer.
Examples:
• patents, proprietary technology,
operations innovations
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2-29
Linking Operations to Business
Strategy
Business strategy alternatives
◦ Product Imitator
◦ Operations must focus on keeping costs low.
◦ Product Innovator
◦ Operations must maintain flexibility in processes, labor, and suppliers.
Customer perspective
◦ Order Qualifier
◦
Objective that must be delivered at an acceptable level for customer to consider
product/service. Can be an order loser if not met.
◦ Order Winner
◦
Objective that causes customer to choose a particular product/service.
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2-30
Linking Operations to Business
Strategy
◦ Product Imitator
◦ Order Winner = price (low cost)
◦ Order Qualifiers = flexibility, quality, delivery
◦ Product Innovator
◦ Order Winner = flexibility (rapid introduction of new products)
◦ Order Qualifiers = cost, delivery, quality
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2-31
Example:
McDonald’s Operations Strategy
Mission
fast product/service, consistent quality, low cost, clean/friendly environment
Operations Objectives
cost, quality, service
Strategic Decisions
process, quality, capacity, inventory, supply chain
Distinctive Competence
today: continuous improvement of the transformation system, and brand
(originally: unique service/supply chain)
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2-32
Characteristics of “Global
Corporations”
Facilities located worldwide, not country by country.
Products & services can be shifted among countries.
Sourcing on a global basis.
Supply chain is global in nature.
Product design & process technology are global.
Products/service fit global tastes.
Demand is considered on worldwide basis.
Logistics & inventory control is on worldwide basis.
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2-33
Supply Chain Strategy
To achieve competitive advantage for entire supply chain, rather
than individual entities.
Two supply chain strategies:
◦ Imitative Products (e.g. commodities)
◦ Predictable demand
◦ Efficient, low-cost supply chain
◦ Innovative Products (e.g. new technologies)
◦ Unpredictable demand
◦ Flexible, fast supply chain
Firms design supply chain for each product/service or group of
products/services
◦ Avoid “one size fits all” strategy
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2-34
Supply Chain Strategy (Table
2.4)
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Sustainability is in Operations
Operations Sustainability:
* minimizing or eliminating environmental impact of operations
* social and financial viability of the firm for future generations
Operations ‘greening’ may include:
◦ Curtailing air, water, landfill pollution
◦ Reducing energy consumption
◦ Minimizing transportation and total carbon footprint
◦ Working with suppliers to use recyclable and biodegradable packaging
◦ Incorporating product reuse, end-of-life return, recycling
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2-36
TEA/123RF
British retailer Marks & Spencer has met goals to
send zero waste to landfills and is the first major
retailer to be carbon neutral.
Supply chain partners have been an important
source of support for this effort.
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Chapter 2 Summary
LO 2.1 Define operations strategy.
LO 2.2 Describe the elements of operations strategy and alignment with business
and other functional strategies.
LO 2.3 Differentiate the ways to compete with operations objectives.
LO 2.4 Compare product imitator and innovator strategies.
LO 2.5 Explain the nature of global operations and supply chains.
LO 2.6 Analyze two types of supply chain strategies.
LO 2.7 Illustrate how operations and supply chain can become more sustainable.
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2-38
Questions for Discussion
•Describe operations strategy in your own words.
•What is the relationship between a firm’s business strategy and its
operations strategy?
•Think of examples of manufacturing and service firms that pursue the
operations objectives of cost, quality, delivery, flexibility, sustainability.
•How do Apple’s operations and supply chain characteristics support their
product innovator strategy?
•What are some operations or supply chain challenges facing global
corporations?
•Describe recent examples you have seen in person or in the media that
illustrate how operations is closely tied to environmental, social, and
financial sustainability.
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Chapter 3:
Product Design
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3-40
Chapter 3 Learning
Objectives
LO 3.1 Compare the three strategies for new product introduction.
LO 3.2 Describe the three phases of new product development.
LO 3.3 Evaluate how concurrent engineering deals with misalignment.
LO 3.4 Describe the criteria for selecting suppliers for collaboration.
LO 3.5 Evaluate an example of Quality Function Deployment.
LO 3.6 Explain the benefits of modular design.
McGraw-Hill/Irwin
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3-41
Product Design:
Why Does Operations Care?
In the past: Throw product design “over the wall”
Today:
◦ Must be able to produce the product (design the process)
◦ technology
◦ availability of resources
◦ Must have the right type and amount of capacity
◦ Must deliver a quality product or service
◦ Must have right inventory at right time
The LEGO Group is investing over $100 million
and hiring 100 workers to redesign its product.
The goal is to make the product entirely from
plant or recycled materials by 2030.
McGraw-Hill/Irwin
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Milosh Kojadinovich/12RF
3-42
Strategies for New Product
Introduction
Market Pull: “Make what we can sell”
◦ Organize resources to fulfill customer demand
◦ Food industry
Technology Push: “Sell what we can make”
◦ Develop superior technologies and products
◦ Electronics
Interfunctional View: most difficult
◦ Cross-functional design team – marketing, engineering, operations, finance
◦ Challenge to gain cooperation of all functions
◦ Consider existing and new markets
McGraw-Hill/Irwin
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3-43
McGraw-Hill/Irwin
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3-44
New Product Development
Process
Concept Development
◦ Idea generation and evaluation of alternative ideas
Product Design
◦ Design of the physical product
◦ Design of the production process
Pilot Production/Testing
◦ Testing production prototypes (e.g., 3D printing)
Shutterstock/Gorodenkoff
◦ Finalizing production process
◦ Finalizing ‘information package’ specifying product and process design details
McGraw-Hill/Irwin
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3-45
New Product Design Process
(Figure 3.2)
Concept development
McGraw-Hill/Irwin
Product design
Preliminary process design
Pilot production/testing
Final process design
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3-46
Production Prototypes
Robert Clark/Getty Images
3D Printing or Additive Manufacturing
–
McGraw-Hill/Irwin
Creates physical prototype
Allows rapid production of prototype designs
Software and hardware continue to improve
Now possible to print metal and human cells
Speeds entire product design process
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47
Cross-Functional Product
Design
Sequential approach
◦ Functions (marketing, engineering, operations) work independently
before passing work to next step. This is the ‘over the wall’ approach.
◦ Often results in misalignment of market needs, design, and production
process.
Concurrent approach
◦
◦
◦
◦
McGraw-Hill/Irwin
Also called concurrent engineering.
Functions cooperate, work together over the same time frame.
Cross-functional teams are common.
Not always “best” approach (e.g. high uncertainty of market or
technology).
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3-48
Cross-Functional Product
Design (Figure 3.3)
McGraw-Hill/Irwin
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3-49
Supply Chain Collaboration
Relationships with Customers
◦ Ask right questions
◦ Align incentives to share knowledge
◦ Create collaborative technology platform
◦ Include as advisors to design team
McGraw-Hill/Irwin
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3-50
Supply Chain Collaboration
Relationships with Suppliers
◦ Technical expertise
◦ Capabilities – cost, time, quality targets
◦ Capacity availability
◦ Low risk
McGraw-Hill/Irwin
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3-51
Quality Function Deployment
(QFD)
“House of Quality”
Tool for coordinating and communicating between functions
Helps identify tradeoffs
Customer Attributes
“Voice of the
Customer”
McGraw-Hill/Irwin
Engineering Characteristics
“Voice of the
Engineer”
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3-52
House of Quality (QFD) (Figure
3.4)
McGraw-Hill/Irwin
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3-53
House of Quality
(Figure(QFD)
HOUSE(QFD)
OF QUALITY
3.5)
McGraw-Hill/Irwin
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3-54
HOUSE
QUALITY (QFD)
QFD for Pizza
USAOF
Delivery
(Figure 3.6)
McGraw-Hill/Irwin
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3-55
Modular Design
Allows greater product variety through ‘mixing and
matching’ modules
Design, develop, and manage basic components
(modules) to (re)use in multiple products
Controls costs while enabling customer choice
Small number of components creates large number of
combinations, e.g., Dell notebooks, IKEA cabinets
McGraw-Hill/Irwin
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3-56
Modular Design
Most automobile manufacturers use modular design.
MINI Cooper’s basic model has
many choices:
◦ 4 body colors
◦ 3 wheel designs
◦ 8 interior finishes
◦ 2 engines
◦ 11 styles
The theoretical number of different
cars that can be produced:
4 × 3 × 8 × 2 × 11 = 2112
McGraw-Hill/Irwin
Robert Wilson/123RF
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Chapter 3 Summary
LO 3.1 Compare the three strategies for new product introduction.
LO 3.2 Describe the three phases of new product development.
LO 3.3 Evaluate how concurrent engineering deals with misalignment.
LO 3.4 Describe the criteria for selecting suppliers for collaboration.
LO 3.5 Evaluate an example of Quality Function Deployment.
LO 3.6 Explain the benefits of modular design.
McGraw-Hill/Irwin
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3-58
Questions for Discussion
•Can you think of examples of new products that did not function well for
the customers who bought them? What went wrong?
•Describe what can happen if product design and process design are
approached separately by different work teams.
•What are the key activities in pilot production?
•What do you know about 3D printing? 4D printing?!
•What do marketing, finance, and HR do when they are involved in a crossfunction concurrent engineering team?
•How can suppliers be involved in new product development?
•Can you think of products you own that include modular design
elements?
McGraw-Hill/Irwin
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59
Chapter 4:
Process Selection
McGraw-Hill Education
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4-60
Chapter 4 Learning
Objectives
LO 4.1 Contrast and compare the five types of product-flow processes.
LO 4.2 Describe the differences among order fulfillment processes.
LO 4.3 Explain how companies should make process selection decisions.
LO 4.4 Correctly place examples of products on the product-process matrix.
LO 4.5 Describe the features of focused operations.
LO 4.6 Discuss the uses of mass customization and 3D printing.
LO 4.7 Contrast pollution prevention, pollution control and pollution practices.
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4-61
Product-Flow Characteristics
Types of Product Flow
◦ Continuous process
◦ Assembly line
◦ Batch flow
◦ Job shop
◦ Project
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Product-Flow Characteristics:
Continuous Process
Highly standardized and automated
Flexibility limited
High volumes of production
Commodity products
Low cost is the ‘Order Winner’
Process industries (sugar, paper, oil, electricity, etc.)
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4-63
Product-Flow Characteristics:
Assembly Line
Linear sequence of operations (often paced)
Large capital investment, use of automation
Very efficient
High-volume, standardized products
Low flexibility to product and volume changes
Discrete products (autos, appliances, computers, etc.)
nikitabuida/Shutterstock
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4-64
Assembly Line: Metal Bracket
(Figure 4.1)
cut
drill
bend
paint
Task or work station
Product flow
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4-65
Product-Flow Characteristics:
Batch Flow
Production of batches or lots
Batches flow as a unit (set) from one work center to another
Process layout of work centers (by tasks)
Flow is jumbled and intermittent
Flexible labor and equipment (general purpose)
Low to high volume, variety of products
Many types of products (furniture, dishes, boats)
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Batch Flow: Metal Brackets (Figure
4.2)
Bend
Paint
Cut
Batch A
Batch B
Batch C
Drill
Task or work station
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Product flows
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Product-Flow Characteristics:
Job Shop
Customized to customer order
Production of small batches or lots
Layout/flow similar to Batch Flow
Flexible labor and equipment (general purpose)
Many types of made-to-order products (plastic parts, machine
components, sheet metal parts, custom signs, artificial limbs, etc.)
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Product-Flow Characteristics:
Project
Production of customized single products
Labor and materials brought to site
Planning, scheduling challenges
Little automation, general purpose equipment
Highly skilled and flexible labor
Unique, one of a kind products (bridges, building construction, large
aircraft, etc.)
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Throughput Ratio: Process
efficiency
TR =
Total processing time for the job
X 100%
Total time in operations
Typically:
90-100% in continuous process & assembly line
10-20% in batch flow & job shop
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Order Fulfillment
Make-to-Stock (MTS)
Make-to-Order (MTO)
Assemble-to-Order (ATO)
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Make-to-Stock (MTS)
•Produce finished goods according to production schedule
•Customer buys from inventory
Advantage
Faster fulfillment of
customer demand,
lower cost, smooth
production rate
Disadvantage
Inventory holding costs,
slower to respond to
changes in customer
preferences
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Make-to-Stock (Figure
4.3)
Forecast
orders
Customer
Product
Customer
order
Finished goods
inventory
Product
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Production
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MTS Performance Measures
Service level (orders filled when requested)
Inventory replenishment time
Inventory turnover (sales/avg. inventory)
Capacity utilization
Time to fill back order
Others, such as shrinkage rate
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Make-to-Order (MTO)
Start production after customer orders
No finished goods inventory
Advantage
Higher flexibility to customize
order; no finished goods
inventory costs
Disadvantage
Intermittent production (i.e.,
lumpy demand pattern),
slower response to customer
demand
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Make-to-Order (Figure
4.3)
Customer
Customer order
Product
Production
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MTO Performance Measures
Lead time
Orders completed on time (%)
Customer request date
Promise date
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Assemble-to-Order (ATO)
Produce parts and subassemblies (modules); complete production
when customer places order
Advantage
Less finished goods
inventory, faster fulfillment
of customer order
Disadvantage
Work-in-process
inventory
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Assemble-to-Order (Figure
4.3)
Forecast
orders
Customer
Product
Customer
order
Order
assembly
Holding inventory
of subassemblies
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Production of
subassemblies
4-79
MTS and MTO Comparison
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Order Penetration Point (Figure
4.4)
MTO
∇———-∇
Raw
materials
MTO
ATO
∇
Fabrication
MTS
∇
Assembly
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Distribution
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Process Selection Decisions
Produce how?
Produce when?
Continuous process
Assembly line
Batch flow
Job shop
Project
MTS
MTO
ATO
Factors affecting process choice
◦ Market conditions
◦ Capital requirements
◦ Availability and cost of labor
◦ Technology options
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Process Characteristics Matrix
(Table 4.2)
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Product-Process Strategy
Strategy must consider:
◦ Product characteristics
◦ Process capabilities
Product life cycle:
◦ Often begins in Job shop, then Batch flow, then Continuous/Assembly line.
Example:
◦ Bread was first produced by hand in individual units in traditional bakeries. It
is now produced in very large batches in modern automated bakeries.
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Product-Process Matrix (Figure 4.5)
Unique, one of
a kind
product
Low volume,
Low volume,
Higher volume High volume, high
multiple
low
few major
standardization,
products
standardization
products
commodity
Project
Building
NONE
Job Shop
Printing
Heavy
equipment
Batch
Auto
assembly
Assembly
Line
Continuous
NONE
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Sugar
refinery
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Focused Operations
Focused factory: Meeting one set of goals.
Plant-within-a-plant (PWP): Separate products/services with differing
goals by production lines/areas within the same facility.
Lack of focus = attempting to meet too many goals at one plant or facility.
Signs of declining focus = product/service proliferation, different volumes,
different levels of standardization.
Example:
Midwest Orthopedic Specialty Hospital (Milwaukee, WI)
specializes in medical treatments on bones and joints.
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Mass Customization
Produce custom products using a high volume process
economies of scale = low unit cost
economies of scope = high variety
•Strategy to produce products in lot sizes = 1, high volume.
•Flexible manufacturing provides economies of scope.
•Traditional mass production provides economies of scale.
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Forms of Mass Customization
Modular production & assemble-to-order (ATO)
◦ e.g., assembling modules for Dell computers
Fast changeover
◦ e.g., zero set-up time at Motorola
Postponement of options
◦ e.g. power supply for Hewlett-Packard printers
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3D Printing & Additive
Manufacturing
Based on digital design model
◦ Stored in cloud, in not warehouse!
Layer plastic, metal, ceramic to build object
◦ Normal (real) size
◦ Complex shapes and spaces
Uses: medical implants, aerospace, spare parts, etc.
◦ Complements manufacturing for special needs, rather than
replacing production facilities
◦ Can shorten global supply chain; reduce inventory
cookelma/Getty Images; Maruna Skoropadska/123RF
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Environmental Concerns
Technologies for pollution prevention.
Technologies for pollution control.
Infrastructure Systems for pollution practices.
Other concerns
• Recycling outputs
• Recycled inputs
• Remanufacturing
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Cross-Functional Decision
Making
Who has a stake in process choice?
Marketing wants fast response to customer demand
Finance provides funds to configure the process
HR finds/creates the properly skilled workers
IT serves various data requirements
Accounting evolves in setting performance measures
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Chapter 4 Summary
LO 4.1 Contrast and compare the five types of product-flow processes.
LO 4.2 Describe the differences among order fulfillment processes.
LO 4.3 Explain how companies should make process selection decisions.
LO 4.4 Correctly place examples of products on the product-process matrix.
LO 4.5 Describe the features of focused operations.
LO 4.6 Discuss the uses of mass customization and 3D printing.
LO 4.7 Contrast pollution prevention, pollution control and pollution practices.
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Questions for Discussion
•In your own words, describe the advantages of each of the product flows:
continuous, assembly line, batch, job shop, and project.
•Let’s say you are starting a new company that manufacturers customized
jewelry. What types of process equipment will you search for? What types of
workforce skills will you want?
•For your jewelry company, how will you decide between make-to-stock, maketo-order, and assemble-to-order?
•Can you think of examples where you have seen processes that are assembleto-order?
•On the product-process matrix, why are there no firms in two of the corners?
•Have you purchased any mass customized products? Try to determine how you
think they were made.
•What examples have you seen of organizations using pollution prevention,
pollution control, or other pollution practices?
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Chapter 5:
Service Process Design
McGraw-Hill Education
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Chapter 5 Learning
Objectives
LO 5.1 Differentiate the characteristics of a service organization from a
manufacturing organization.
LO 5. 2 Explain the elements of a service-product bundle.
LO 5.3 Organize a variety of service offerings into the service delivery system
matrix.
LO 5.4 Describe the effect on the service delivery system of customer contact.
LO 5.5 Explain service recovery and service guarantees.
LO 5.6 Evaluate the role of technology in service management.
LO 5.7 Appraise how globalization has affected services.
LO 5.7 Define the attributes of the service-profit chain.
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The Service Economy
15 Largest U.S. employers
1960
12 manufacturers
3 services
X
2010
3 manufacturers
12 services
Source: Government Accountability Office, 2019
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The Service Economy
Source: Bureau of Labor Statistics, 2019
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Defining Service
Intangibility of the offering
Simultaneous production and consumption
No finished goods inventory
Front office vs. back office
Cannot be stored/resold
Leonard Zhukovsky/123RF
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Service-Product Bundle
Service – explicit service
◦ what the provider does for customer
Psychological benefits – implicit service
◦ how customer feels after service
Physical goods – facilitating goods
◦ used during service or received by customer
Enjoyment
Delivery
vehicle
Pizza
delivery
Pizza
Speed/
convenience
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Goods and Services Packages
(Figure 5.1)
Services
Goods
100%
75%
50%
25%
0%
25%
50%
75%
100%
Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services
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Service
Delivery
System
Matrix (Figure
Customer Wants and Needs in the Service Package
Highly customized with unique Standard with options, using Standardized with highly
moderately repeatable
repeatable process
process sequence.
sequence.
sequence.
Customer has
Customer has
Customer has
great decision-making power.some decision-making power.
low decision-making power.
Many process
pathways.
Service Delivery System Design
5.2) Jumbled
flows,
complex
work with
many
exceptions.
Moderate
number of
process
pathways.
Customer Routed
•Estate planning
Co-routed
•Stock brokerage
Flexible flows
with some
dominant paths,
moderate work
complexity.
Limited
number of
process
pathways.
Line flows,
low
complexity
work.
Provider Routed
•ATM
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Customer Contact
Extent of interaction between
service organization and customer.
Lower contact
Higher contact
(buffered core)
(reactive system)
…
…
“provider-routed”
(standardized)
“customer routed”
(customized)
…
…
Example
online shopping
Example
dentist appointment
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Customer Contact (see Figure 5.3)
Low customer contact
High customer contact
◦ Higher production efficiency
◦ Lower production efficiency
◦ Lower sales opportunity
◦ Higher sales opportunity
◦ Workers with technical skills
◦ Focus on routing methods
◦ Office automation
◦ Workers with diagnostic skills
◦ Focus on client mix
◦ Client/worker teams
Balancing sales opportunity and production efficiency
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Customer-Introduced Variability
Arrival
◦ Uncertainty in when customers will arrive to consume a service
Request
◦ Uncertainty in what customers ask for in the service-product bundle
Capability
◦ Uncertainty in the ability of customers to participate in a service
Effort
◦ Uncertainty in the willingness of customers to perform appropriate actions
Subjective preference
◦ Uncertainty in the customer’s intangible preferences in how service is carried
out
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Service Failure / Service
Recovery
◦ Taking swift and appropriate action to compensate customer
for a failed service.
◦ Fly in customer’s soup New bowl of soup plus free dessert!
UPS recovered from a
service failure by not
only delivering the
package, but bringing
flowers, chocolates, and
doggy treats as well!
roberto galan/123RF
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Service Guarantee
Benefits to the customer
◦ Promise of service to be delivered
◦ Payout to customer if promise not delivered
◦ FedEx package delivery On time, or it is free!
Benefits to the organization
◦ Focuses on customer (service promise)
◦ Clearly defines payout
◦ Improves customer loyalty
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Technology – Artificial
Intelligence
Software and hardware programmed to exhibit human intelligence
◦ Routine – repetitive tasks
Example: conversational phone bots provide customer service
◦ Analytical – problem solving and learning
Example: sports data analytics for player recruiting decisions
◦ Intuitive – think creatively
Example: helping doctors diagnose patients
◦ Empathetic – respond emotionally
Example: bot Pepper welcomes and amuses
Japanese bank customers
VTT Studio/Shutterstock
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Globalization:
Outsourcing & Offshoring Services
Outsourcing:
◦ An outside firm performs service activities such as workforce recruiting,
payroll management, accounting services, and call center functions.
Offshoring:
◦ Export of these service activities to other countries.
Advantages:
Disadvantages:
•
•
•
•
Lower costs
Focus on core competencies
Coordination costs
Loss of direct control
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Service Profit Chain (Figure 5.4)
Internal service quality drives…
Employee satisfaction drives…
Employee retention & productivity drives…
External service value (to customer) drives…
Customer satisfaction drives…
Customer loyalty drives…
Revenue growth & profitability
◦ Feed investment back into internal service quality
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Chapter 5 Summary
LO 5.1 Differentiate the characteristics of a service organization from a
manufacturing organization.
LO 5. 2 Explain the elements of a service-product bundle.
LO 5.3 Organize a variety of service offerings into the service delivery system
matrix.
LO 5.4 Describe the effect on the service delivery system of customer contact.
LO 5.5 Explain service recovery and service guarantees.
LO 5.6 Evaluate the role of technology in service management.
LO 5.7 Appraise how globalization has affected services.
LO 5.7 Define the attributes of the service-profit chain.
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5-110
Questions for Discussion
•Which service firms do you think are among the largest of all U.S. employers?
•What type of education and training are needed to fill the fastest growing
occupations in the U.S.?
•Define the elements in the service-product bundle for your most recent
service purchase.
•Can you think of examples of customer-routed, co-routed, and providerrouted services?
•How do firms decide if a service should be delivered in a high contact manner
or a low contact manner?
•What was the outcome the last time you experienced a service failure?
•What ideas do you have for using artificial intelligence in the future?
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Chapter 6:
Process-Flow Analysis
McGraw-Hill Education
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Chapter 6 Learning
Objectives
LO 6.1 Describe process thinking and system boundaries.
LO 6.2 Explain how the process view of business is cross-functional.
LO 6.3 Construct a process flowchart for a given process.
LO 6.4 Analyze a process by asking a wide variety of questions informed
by the process flowchart.
LO 6.5 Calculate process-flow capabilities using analytics.
LO 6.6 Explain the principles of process redesign.
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Process Thinking
All work is a process.
All business functions use processes.
System: Collection of interrelated elements where…
Whole system > Sum of parts
Apply systems thinking to business.
Define system boundaries
Use cross-functional teams for systems analysis.
Include all affected functions
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Process View of Business
CEO
M a r k e t in g
O p e r a t io n s
F in a n c e
Customer
request
Order
fulfillment
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Process Flowcharting
Creating a visual diagram to describe (represent) a
transformation process
Also called (or similar to):
◦ Process mapping
◦ Flow-process charting
◦ Service blueprinting
◦ Systems flowchart
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Process Flowcharting
First, visually describe current process.
Second, find ways to improve current process.
◦ Find repetitive operations
◦ Identify bottlenecks
◦ Describe directions and distances of flows
(people, material and information)
◦ Reduce waste
Often required for certifications such as ISO9000.
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Process Flowcharting
1. Select a transformation process to study.
2. Form a team to develop flowchart & for analysis (to improve
the system).
3. Specify the boundaries of transformation process.
4. Identify and sequence the operational steps.
5. Identify the performance metrics for the steps.
– e.g., time to complete each step
6. Draw the flowchart, using consistent symbols.
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Common Flowcharting
Symbols
Terminator: “START” and “END”
Process: operation, activity, or task
Decision: evaluation or “IF-THEN”
Flow: materials, information, customer
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Example: Selecting a Supplier
(Figure 6.2)
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Service Blueprint
What is the process for
selecting and altering a
suit at a retail store?
What activities involved
each of the following?
1. Customer
2. Sales associate
3. Tailor
Pressmaster/Shutterstock
Each needs a “swim lane”
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Symbols for Flow-Process
Chart
Operation: task or work activity
Inspection: checking product quantity or quality
Transportation: movement of material from point to point
Storage: inventory of materials awaiting next operation
Delay: delay in sequence of operations
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Example
Picking Operations
at Grocery Store
Distribution Center
(Figure 6.5)
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Questions to Ask in Process-Flow
Analysis
Flow: Is it balanced? Where is the bottleneck? Are all steps necessary?
How jumbled is the flow?
Time: How long to produce one unit? Can it be reduced? Is set-up time
excessive? Is waiting time excessive?
Quantity: Theoretical production amount? How easy to change? How
many units actually produced?
Quality: Historical defect rate? Which steps contribute to defects?
Where do errors occur?
Cost: How much to produce one unit? What are cost buckets for one unit?
Can some cost buckets be reduced or eliminated?
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Measuring Process Flows
System Capacity = capacity of the most constraining resource
→ The single resource with the least capacity is
called the bottleneck
Flow rate = minimum (Supply, Demand, Capacity)
Throughput time = from when processing begins until product or
service is completed
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Measuring Process Flows
Little’s Law
I=TxR
I = average number of things in the system
T = average throughput time
R = average flow rate into the process
◦ Relates number of items in the system (I) to arrival rate (R) and
throughput time (T).
◦ Assumes system is in a ‘steady state.’
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Little’s Law Example
◦ People are in a line to get through security checks at a music festival.
An average of 10 people per minute are processed. People spend 24
minutes in line, on average.
◦ What is the average number of people in line?
◦ I=TxR
◦ I = 24 x 10
→ I = 240 people in line, on average
◦ Same problem, but an average of 4 people per minute are processed,
and the average number of people in line is 240.
◦ What is the average time spent in line?
◦ T=I/R
◦ T = 240 / 4
→ T = 60 minutes in line, on average
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Pizza U.S.A. example (section
6.6)
Activity
Minutes
Who/What
Take the order
1
Assistant
Make the crust
3
Chef
Prepare and add
ingredients
2
Chef
Bake the pizza
24
Oven
Cut pizza and box
the order
1
Assistant
Take payment
1
Assistant
Details:
Assume all toppings added to every pizza.
Two employees working at a time.
Oven can bake up to 4 pizzas at a time.
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Map the Process
STAR
T
END
Take
order
Make
crust
1 min.
3 min.
Prep/add
ingredie
nts2 min.
Take
payme
1 nt
min.
Cut/bo
x pizza
Bake
pizza
1 min.
24
min.
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What is the Throughput
Time?
Throughput time = time to complete one
product or service
Pizza throughput time?
1 + 3 + 2 + 24 + 1 + 1 =
32 min.
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What is Process Capacity?
3
resource
s
Assistant: 1+1+1=3 min. per pizza, 20 pizzas
per hr.
Chef:
hr.
3+2=5 min. per pizza, 12 pizzas per
Therefore…
Oven: 24/4=6 min. per pizza, 10 pizzas per hr.
process capacity (flow rate) = 10 pizzas/hour
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What is the Process
Bottleneck?
At an average process time of 6 min. per pizza…
the OVEN is the slowest activity…..
and that determines process capacity….
and is, therefore, the bottleneck.
The process cannot produce more
than the slowest activity.
(flow rate = 10 pizzas/hr)
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Process Redesign
Identify, analyze, improve critical processes.
(may cross organizational boundaries)
Extreme cases: Complete process reconfiguration.
(eliminating many steps)
Business Process Reengineering (BPR)
Check the text for a
successful example
from Credit Suisse.
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Principles of Process
Redesign
• Organize around outcomes, not tasks.
• Have the people who do the work process their own
information.
Avoid handoffs, whenever possible.
• Put the decision point where work is performed, and
build control into the process.
Make decisions at lowest possible level.
• Eliminate unnecessary steps in the process.
Simplify, eliminate non-value-added activities.
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Chapter 6 Summary
LO 6.1 Describe process thinking and system boundaries.
LO 6.2 Explain how the process view of business is cross-functional.
LO 6.3 Construct a process flowchart for a given process.
LO 6.4 Analyze a process by asking a wide variety of questions informed
by the process flowchart.
LO 6.5 Calculate process-flow capabilities using analytics.
LO 6.6 Explain the principles of process redesign.
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Questions for Discussion
•Based on your work experience, can you define a “system” in which you
have worked?
•Draw a simple process map for a breakfast process such as making
coffee or toast.
•What sorts of “decisions” are involved in your breakfast process?
•What is the bottleneck in your breakfast process?
•Have a classmate review your breakfast process map and provide
suggestions for improvement!
•If you could redesign one of the processes on campus, which would you
choose? What are some of your ideas?
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136
Chapter 7:
Lean Thinking and Lean Systems
McGraw-Hill Education
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137
Chapter 7 Learning
Objectives
LO 7.1 Describe the origins and evolution of lean thinking.
LO 7.2 Describe the five tenets of lean thinking and the seven forms of waste
in a lean system.
LO 7.3 Explain why a stabilized master schedule is required for smooth flow.
LO 7.4 Explain how setup time, lot size, layout, and maintenance are related
to lean thinking.
LO 7.5 Differentiate how employees are unique in lean systems.
LO 7.6 Design a Kanban system to achieve customer pull.
LO 7.7 Compare lean suppliers to traditional manufacturing suppliers.
LO 7.8 Explain how to implement a lean system.
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Evolution of Lean
Toyota Production System (TPS)
◦ Developed in Japan following WWII (due to limited resources)
◦ Also known as Just-in-Time (JIT) manufacturing
◦ Came to U.S. in 1981 at Kawasaki motorcycle plant in Lincoln, Nebraska
1990s book,
“The Machine That Changed the World”
by Womack, Jones & Roos
Popularized a new label:
Lean Production
Walter Cicchetti/123RF
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Lean Tenets
Create product/service value from customer perspective
◦ Reduce waste – muda
Identify, study, improve the value stream
◦ Observe the process – gemba
Ensure simple, smooth, error-free flow
◦ Determine takt time
Produce only what is pulled by customer
◦ Use kanbans
Strive for perfection
◦ Hold kaizen events, 5S, 5 Whys
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Create Value: Seven Forms
of Waste
Overproduction: Producing more than the demand for customers, resulting in
unnecessary inventory, handling, paperwork, and warehouse space.
Waiting time: Operators and machines waiting for parts or work to arrive from
suppliers or other operations. Customers waiting in line.
Unnecessary transportation: Double or triple movement of materials due to
poor layouts, lack of coordination, and poor workplace organization.
Excess processing: Poor design or inadequate maintenance or processes,
requiring additional labor or machine time.
Too much inventory: Excess inventory due to large lot sizes, obsolete items,
poor forecasts, or improper production planning.
Unnecessary motion: Wasted movements of people or extra walking to get
materials.
Defects: Use of material, labor, and capacity for production of defects, sorting
out bad parts, or warranty costs with customers.
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Value Stream Mapping
Value stream is all processing steps to complete
product/service
Extension of process flowcharting
Includes value-adding/non-value-adding activities
Requires direct observation of process – gemba
“Is this step or task necessary in creating value for
the customer?”
Change and improve process
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Example: Value Stream
Mapping
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Ensure Flow:
Inventory Hides Problems
(Figure 7.2)
Water
Level
Bad
design
Poor
quality
Lengthy
setups
Inefficient
layout
Machine
breakdown
Unreliable
supplier
Water level indicates level of inventory in the system
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Lower Inventory Level Exposes
Problems
Water
Level
Bad
design
Poor
quality
Lengthy
setups
Inefficient
layout
Machine
breakdown
Unreliable
supplier
Water level indicates level of inventory in the system
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Water Flows Smoothly…
Once Problems Resolved
Water
Level
Problems addressed/solved
Water level indicates level of inventory in the system
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Customer Pull:
Push versus Pull System (Figure
7.3)
Downstream customer
signals need for good
or service.
Signal is sent upstream
that production is
needed.
No upstream process is
authorized to produce
until customer pulls,
thus minimizing
inventory in the system.
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Strive for Perfection:
Quality in a Lean System
Quality is essential input
into lean system.
Defects are waste.
No inventory to cover
up mistakes.
System designed to
expose errors; correct
them at their source (so
not repeated in the future).
Continuous improvement
of the process.
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5 Whys Technique
Explores cause-and-effect relationships that underlie problems
(root causes)
Enables root causes to be identified/resolved
Example: Truck won’t start.
◦
◦
◦
◦
◦
◦
Why? Battery is dead.
Why? Alternator is not functioning.
Why? Alternator belt is broken.
Why? Truck was not maintained as recommended.
Why? Truck is old; no replacement parts available.
Solution? Find source for parts, or purchase new truck.
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5S Technique
Organize workspace to improve employee morale, safety, efficiency.
Reduces time looking for “things.”
Seiri to Sort (keep, toss)
Seiton
to Straighten or set in order
Seiso to Shine, sweep, or clean
Seiketsu to Standardize
Shitsuke to Sustain (maintain)
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Example: 5S Technique
Storage of chemicals in production area
Before
• Quantities greater than needed
• Difficult to see what is missing
• Hard to find anything
After Source: The Lean & Chemicals Toolkit/U.S. Environmental Protection Age
• Appropriately sized quantities
• Quickly see what is missing
• Easy to find anything
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Creating Flow
Stabilize master schedule
Reduce setup times and lot sizes
Change to cellular layout and preventative maintenance
Cross-train and engage workers
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Stabilize the Master Schedule
Production horizon set according to demand.
Production schedule repeated each day.
Uniform load: level work load across workers/machines.
Takt time: match supply (production rate) to demand rate .
Produce planned quantity each day, and no more.
These concepts are desirable, but not essential, to a lean system.
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Reduce Setup Time and Lot Size
Reducing setup time…
◦ increases available capacity
◦ increases flexibility to meet schedule changes
◦ reduces inventory
Setup types
◦ Single (single digit minutes)
◦ One-touch (less then 1 min; 2-step process)
◦ Internal (while machine stopped)
◦ External (while machine operating)
Lot size reduction
◦ Goal: single unit production
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Cellular Layout (Figure 7.4)
• Inventory kept on
shop floor close to
where it is used.
• Eliminates wasted
transportation
moving materials.
• Work centers
organized into
group technology
layout – cellular
manufacturing.
• U-shape ensures
flow without
interruption.
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Engaging Workers
Multifunction, cross-trained workers
◦ Flexibility to move to busy work centers
New pay system to reflect skills variety
Workers contribute individually and collaboratively
◦ Perform own maintenance and inspection
◦ Teamwork, problem solving
◦ Suggestion systems
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Pull:
Kanban System
Signals the need for more parts
Uses simple cards or signals to control production and inventory
Each work center receives production order (signal or card) from
succeeding (downstream) work center
Prevents buildup of inventory
Reduces lead time
Same concept applies to receiving deliveries from suppliers
(supplier must wait for signal)
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Kanban System (Figure 7.5)
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Kanban System
Kanban: “marker” (card, sign, empty container)
Visual control system of cards and containers, or other signal.
Number of containers:
DT
n
C
D = Demand rate (at work center)
T = Time for container to complete circuit
C = Container size (# units)
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Kanban Containers Example
Demand at work center B is 5 parts per minute and a
standard container holds 50 parts.
It takes 90 minutes for a container to make a complete circuit
through work center A and work center B (and back to A),
including all setup, run, move, and wait times.
The number of containers needed:
n = 5(90) / 50 = 9 containers
The maximum inventory in the production system, a useful
measure of how lean the system is:
Maximum inventory = nC = DT = (9 × 50) = (5 × 90)
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Supplier Relationships
Viewed as the ‘external factory’
Co-location, frequent deliveries
Fewer suppliers
No inspection—high quality is assumed (required)
Integrated supplier programs
Early supplier selection
Family-of-parts sourcing
Long-term strategic relationship
Reduce paperwork and inspection
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Implementation: Kaizen Event
Establish a cross-functional team
Determine what customers value
Construct value stream map
Eliminate waste (non-value-adding activities)
Create smooth and error-free flow
Use customer demand to pull work thru process
Implement team ideas
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Chapter 7 Summary
LO 7.1 Describe the origins and evolution of lean thinking.
LO 7.2 Describe the five tenets of lean thinking and the seven forms of waste
in a lean system.
LO 7.3 Explain why a stabilized master schedule is required for smooth flow.
LO 7.4 Explain how setup time, lot size, layout, and maintenance are related
to lean thinking.
LO 7.5 Differentiate how employees are unique in lean systems.
LO 7.6 Design a Kanban system to achieve customer pull.
LO 7.7 Compare lean suppliers to traditional manufacturing suppliers.
LO 7.8 Explain how to implement a lean system.
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7-163
Questions for Discussion
•Why did lean (Toyota Production System) work so well in Japan after World
War II?
•Choose one of the Japanese words from the 5 lean tenets and explain it in
your own words.
•Which of the 7 forms of waste can you observe at your favorite restaurants?
•What does it mean to say that “inventory hides problems” in a production
system?
•Consider what “setup time” looks like in different industries: hospitals, quick
oil change shops, restaurants, garment producing factories.
•Make a mental list of how you would “5S” your own refrigerator. Then, share
your ideas with classmates and compare how they approached this task.
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164
Chapter 8:
Managing Quality
McGraw-Hill Education
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Chapter 8 Learning
Objectives
LO 8.1 Explain quality, from a customer perspective.
LO 8.2 Characterize product quality based on four dimensions.
LO 8.3 Distinguish service quality from product quality based on its distinct
measurement.
LO 8.4 Apply the quality cycle to a product or service.
LO 8.5 Explain how mistake-proofing and the supply chain are integrated with
quality management planning.
LO 8.6 Attribute how cost of quality is related to financial performance.
LO 8.7 Recall the two key quality pioneers and their main ideas.
LO 8.8 Compare and contrast ISO 9000 standards and the Baldrige Award criteria.
LO 8.9 Articulate some key barriers to successful quality improvement efforts.
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What is Quality
Management?
Quality is one of the four key objectives of operations:
◦ cost, quality, delivery, flexibility
Historical development of quality concepts
◦ Inspection (early 1900s)
◦ Statistics quality control (Shewhart – 1940s)
◦ Quality management (1960s)
Quality
is now viewed
as the responsibility
of all functions
in the organization.
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Comair Flight 5191, Lexington,
KY
“The Comair Flight 5191 crew began the day by powering
up the wrong plane. They took off down the wrong
runway. The air traffic controller, working alone in
violation of FAA policy, had turned his back to do other
duties. Investigators are uncovering a series of mistakes
before the plane crashed, killing 49 people.”
Source: www.cnn.com, 2006
Quality involves the entire organization and the supply chain.
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Definition of Quality
Meeting, or exceeding, customer
requirements now and in the future.
Meaning:
The product or service is fit for customer use.
Meaning:
Only the customer can determine quality.
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Dimensions of Product
Quality
QUALITY
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Quality of Design
Determined before the product is produced
Responsibility of cross-functional product design team
Translates customer “wishes” into specifications
Depends on market research, design concept, product
specifications
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Quality of Conformance
Producing a product (or service) that meets specifications
Even ‘cheap’ products can have high conformance quality
– May not be durable, but conformance quality is achieved if
product matches the design.
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The “Abilities”
• Availability
•
Continuity of usefulness to customers (operational)
• Reliability
•
•
Useful product/service time until failure
Mean time before failure (MTBF)
• Maintainability
•
•
Restoration of product/service after failure
Mean time to repair (MTTR)
Uptime
Availability
Uptime Downtime
MTBF
Availability
MTBF MTTR
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Availability Example
• A piece of medical testing equipment is typically used for
3 hours and then requires 1 hour of maintenance.
→ Calculate the machine’s availability.
Uptime
Availability
Uptime Downtime
•
•
•
•
MTBF
Availability
MTBF MTTR
MTBF = 3 hours
MTTR = 1 hour
Availability = 3 / (3 + 1) = .75
The machine’s average availability is 75%.
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Field Service
Warranty and repair/replacement of the product after
it has been sold
Also called customer service, sales service, or just
“service”
Dimensions
◦ Promptness
◦ Competence
◦ Integrity
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Different Types of Quality
(Figure 8.1)
Quality of market research
Quality of design
Quality of concept
Quality of specification
Technology
Customer
satisfaction
Quality of conformance
Employees
Management
Reliability
Fitness
for use
Availability
Maintainability
Logistical support
Promptness
Field service
Competence
Integrity
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Service Quality
• Includes explicit and implicit service characteristics
• Measures are perceptual/subjective
SERVQUAL is most popular measure
•
•
•
•
•
Tangibles → appearance
Dependability → promised service
Responsiveness → prompt, helpful
Assurance → knowledge, courtesy
Empathy → caring, individualized
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The Quality Cycle (Figure 8.2)
Needs
Crossfunctional
team
CUSTOMER
Product
Quality needs
MARKETING
Interprets customer needs
Works with customer to
design product
OPERATIONS
Interpretation
of needs
Specifications
ENGINEERING
Defines design concept
Prepares specifications
Defines quality characteristics
Produces the product
or services
QUALITY CONTROL
Plans and monitors
quality
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Quality Cycle in Mass Transit
System (Figure 8.3)
County planning
Regional planning
State transportation agency
Riders’
needs
Operations office
Planner
Scheduler
Routes
Schedules
Budgets
Method
Facilities
Equipment
Evaluation
Inspection
Audits
Surveys
Hearings
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Public
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Quality Improvement
Cycle
Define quality attributes on the basis of customer needs.
Decide how to measure each attribute.
Set quality standards.
Establish appropriate tests for each standard.
Find and correct causes of poor quality.
Continue to make improvements.
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Poka-Yoke
(poh-kah yoh-kay)
Developed at Toyota, means ‘mistake proofing’
Design the product or process so that mistakes cannot
occur or are immediately detectable
Examples
– In manufacturing, 2 parts are notched to
only fit together one way
– For consumers, snow blower requires
that two hand levers be held during
operation (so no hands can be in the
dangerous moving parts!)
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Suppliers Role in Quality
Involve in product design
◦ Prevent design defects; help select materials
Supplier certification
◦ Planning and control system for quality
Manage rolled yield (cumulative defect rate)
Boeing supplier rating system:
Red (Unsatisfactory)
Yellow (Improvement needed)
Bronze (Satisfactory)
Silver (Very Good)
Gold (Exceptional)
◦ 10 parts (1% defects in each)
◦ Rolled yield = (.99)10 = .90
◦ 90% quality yield for final product
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Cost of Quality
Control ◦ Prevention
◦ Training, data management, planning
costs
◦ Appraisal
◦ Incoming materials inspection, final inspection
Failure
costs ◦ Internal failure
◦ Scrap, rework, downtime
◦ External failure
◦ Warranty, returns, complaints
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Cost of Quality Trade-offs (Figure
8.5)
Cost/unit
Internal &
external
failure costs
Prevention
& appraisal
costs
100%
defective
100%
good
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Quality Pioneer:
W. Edwards Deming
14 Management Principles
Do not sacrifice quality for short-term profit
Emphasis on continuous improvement
PDCA Wheel
◦ Plan, Do, Check, Act
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Quality Pioneer:
Joseph Juran
Quality “Trilogy”—planning, control and improvement
Solve “the vital few” quality problems
Stressed quality control methods
©Roger Schroeder
“Quality Handbook”
Juran lived to age 104,
shown here with author
Roger Schroeder
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ISO 9000 Standards
Guidelines for designing, manufacturing, selling, and
servicing products.
Selecting ISO 9000 certified suppliers provides some
assurance that they follow accepted quality practices.
Many manufacturers require supplier certification,
particularly in Europe.
www.iso.org
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ISO 14000 Standards
Standards covering environmental management systems,
environmental auditing, evaluation of environmental
performance, environmental labeling, and life-cycle
assessment.
Helps organizations improve their environmental
performance through documentation control, operational
control, control of records, training, statistical techniques,
and corrective and preventive actions.
ISO 26000 – social responsibility
ISO 31000 – risk management
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Baldrige Award
Highest U.S. quality award.
Promotes quality management practices and
improved quality results by U.S. industry.
Award criteria are the standard for “best quality
practices” in U.S.
Many state and other country awards modeled on
award criteria.
Source: United States Department of Commerce
www.baldrige.gov
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Baldrige Criteria
Categories
1. Leadership
2. Strategy
3. Customers
4. Measurement, Analysis, and
Knowledge Management
5. Workforce
6. Operations
7. Results
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Why Some
Quality Improvement Efforts
Fail
Lack of middle and top management leadership attention
Lack of funds for training and time for improvement activities
“Blame the employee” rather than the system
Belief in “trade-offs” (quality vs. cost)
Management interference with teamwork
Supplier quality problems
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Chapter 8 Summary
LO 8.1 Explain quality, from a customer perspective.
LO 8.2 Characterize product quality based on four dimensions.
LO 8.3 Distinguish service quality from product quality based on its distinct
measurement.
LO 8.4 Apply the quality cycle to a product or service.
LO 8.5 Explain how mistake-proofing and the supply chain are integrated with
quality management planning.
LO 8.6 Attribute how cost of quality is related to financial performance.
LO 8.7 Recall the two key quality pioneers and their main ideas.
LO 8.8 Compare and contrast ISO 9000 standards and the Baldrige Award criteria.
LO 8.9 Articulate some key barriers to successful quality improvement efforts.
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Questions for Discussion
•Look at a product you are carrying with you today. What design
characteristics contribute to its overall quality?
•Why does the customer need to define quality for a product or service?
•Consider your favorite restaurant or coffee shop. What “tangible”
observations contribute to your assessment of quality?
•Availability of a system is never 100%! What do you think the availability
of wifi on your campus is? Availability of your phone service?
•Can you think of examples of poka yokes? Have you designed some of
your own?
•Why don’t companies spend more on prevention of quality problems?
•Look up some Baldrige Award winning organizations. Are you a customer
of some of these?
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Chapter 9:
Quality Control and Improvement
McGraw-Hill Education
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9-1
Chapter 9 Learning
Objectives
LO 9.1 Describe the steps in designing a quality control system.
LO 9.2 Design a process control system using control charts.
LO 9.3 Define and calculate process capability.
LO 9.4 Apply continuous improvement concepts using the seven quality tools.
LO 9.5 Explain Six Sigma and the DMAIC process.
LO 9.6 Differentiate lean and Six Sigma.
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Design of Quality Control
Systems
Break down production process into subprocesses and identify internal customers.
Identify critical control points where
inspection or measurement should take
place.
Use operator inspection when possible,
placing responsibility for quality on workers.
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Design of Quality Control
Systems
Identify critical points for inspection and testing
•
•
•
Incoming materials and services
During processes
Finished product or service
Decide on the type of measurement
•
•
Variables: continuous scale
Attributes: discrete count, or good/bad
Decide on amount of inspection to use
Decide who should do inspection
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Types of Measurement
Variables measurement
Product/service characteristic that can be measured on a continuous scale:
Length, size, weight, height, time, velocity, temperature
Examples: dimensions of parts, viscosity of liquids, weight of packaged food,
time to load webpage, temperature of coffee when served
Attributes measurement
Product/service characteristic evaluated with a discrete choice:
Good/bad, pass/fail, count of defects
Examples: laptop is defective if it fails any functional tests, bank check is/is not
deposited in correct account, inspection of fabric reveals the number
of defects per 100 yards
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Process Quality Control
Principles of Process Control:
◦ Every process has random variation.
◦ Production processes are not usually in a state of control.
“State of Statistical Control” – What does it mean?
◦ Unnecessary variation has been eliminated.
◦ Remaining variation is due to random causes.
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9-6
Process Quality Control
Assignable (special) cause variation
◦ Can be identified and corrected.
◦ Could be due to machine, worker, materials, etc.
Common (random) cause variation
◦ Reasonable, acceptable variation.
◦ Within 3 standard deviations ( 3) of mean.
◦ Cannot be changed unless process is redesigned.
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9-7
Quality Control Chart
y
Time →
x
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9-8
Normal Distribution on Control Chart
UCL
Mean
LCL
Samples:
1
2
Assignable
causes likely
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3
9-9
Attribute Control (3)
p-chart
Calculate center line = mean proportion defective
across many samples
Calculate upper and lower control limits
p (1 p )
p 3
n
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9-10
9-10
Variables Control (3)
x-chart
Calculate center line = mean of sample means
Calculate upper and lower control limits
x A2 R
R-chart
Calculate center line = mean of sample ranges
Calculate upper and lower control limits
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UCL D4 R
LCL D 3 R
9-11
9-11
Quality Control Chart Example
(Figure 9.2)
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12
Using Quality Control Charts
If an observation (data point) is outside 3
and/or a pattern is detected, the process is NOT in
control.
Very likely something is wrong.
An assignable cause of variation may exist.
This is a signal to take action to eliminate the
assignable cause:
◦ Find it, understand its cause, fix it so it does not occur again!
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9-13
Using Quality Control Charts
How large should sample be?
◦ Large enough to detect defects
◦ Variables can use smaller sample sizes
How frequently to sample?
◦ Depends on cost, production rate
Process control vs. Process capability
◦ Is the process capable of producing to specification?
◦ Are the specifications appropriate?
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9-14
Process Capability Index (Figure
Frequency
9.3)
Process measure
Process measure
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9-15
Frequency
Computation of Cpk (Figure 9.4)
Process measure
Process measure
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9-16
Continuous Improvement
When process is not meeting customer
specifications.
Work on processes with strategic importance and
low process capability first!
Use the seven tools of quality control.
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9-17
Seven Tools of Quality Control
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9-18
Seven Tools of Quality
Control
A battery manufacturer in NW Ohio,
using only the seven tools of quality,
decreased defectives from 7.2 per 100
to 2.6 per 100 in just 6 weeks!
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9-19
Pareto Analysis (Table 9.4)
Note: 40% (2) of the sources cause 78.6% of the defects.
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9-20
Pareto Diagram (Figure 9.6)
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9-21
Cause-and-Effect (fishbone, Ishikawa)
Diagram
(Figure 9.7)
M a t e r ia l
c o n n e c to rs
W o rk e rs
S m a ll
S iz e
L a rg e
C o n te n t
N u ts
T r a in in g
S iz e
F a tig u e
K n o w le d g e
Hose
Loose
c o n n e c t io n s
S u rfa c e d e fe c t
M e a s u re m e n t
M e a s u r in g
t o o ls
E x p e r ie n c e
E rro rs
Judgm ent
In s p e c to r
W ear
A d ju s tm e n t
T r a in in g
In s p e c t io n
T o rq u e
A ir p r e s s u r e
T o o ls
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9-22
Six Sigma Quality
Philosophy of 3.4 defects per million.
Uses project/team approach.
Strategic process is selected for improvement.
Cross-functional team is formed.
‘Black belt’ leader is chosen.
Team uses DMAIC method (and quality tools) to find root
causes and improve processes.
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9-23
Six Sigma Process
Process Improvement steps (DMAIC):
1. Define – select process
2. Measure – measure relevant variables
3. Analyze – determine root causes and alternatives
4. Improve – change process
5. Control – ensure improvements not lost over time
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9-24
Lean and Six Sigma
Complementary approaches to improvement
◦
◦
Lean seeks to eliminate waste (non-value-added)
Six Sigma seeks to eliminate defects
◦
◦
Lean uses part-time leaders and all employees
Six Sigma uses full-time leaders and selected employees
◦
◦
Lean requires limited training
Six Sigma requires extensive training and experts
◦
◦
Lean focuses on simpler projects
Six Sigma takes on complex projects
◦
◦
Lean projects may last a week or less
Six Sigma projects may last for months
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9-25
Chapter 9 Summary
LO 9.1 Describe the steps in designing a quality control system.
LO 9.2 Design a process control system using control charts.
LO 9.3 Define and calculate process capability.
LO 9.4 Apply continuous improvement concepts using the seven quality tools.
LO 9.5 Explain Six Sigma and the DMAIC process.
LO 9.6 Differentiate lean and Six Sigma.
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9-26
Questions for Discussion
•In your own words, what is quality control?
•Why is quality control needed in manufacturing? In services?
•How do you decide which type of control chart may be useful for a
particularly situation?
•Look at the seven quality tools. Brainstorm various situations in which
each of the tools could be useful.
•Why is Six Sigma called “Six Sigma”?
•How are lean and Six Sigma the same, and how are they different?
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27
Chapter 10:
Forecasting
McGraw-Hill Education
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10-28
Chapter 10 Learning
Objectives
LO 10.1 Describe why forecasting is important.
LO 10.2 Describe the four common methods of qualitative forecasting.
LO 10.3 Use forecast analytics to calculate a moving average and exponential
smoothed average.
LO 10.4 Evaluate forecast accuracy using a variety of methods.
LO 10.5 Carry out forecast analytics for a causal model.
LO 10.6 Evaluate factors that impact forecasting method selection.
LO 10.7 Describe how big data analytics are used to forecast.
LO 10.8 Explain the benefits and costs of CPFR.
LO 10.9 Solve advanced forecasting problems (chapter supplement).
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10-29
Forecasting for Decision
Making
Forecasting demand for operations output
◦ Forecasting: what we think demand will be
◦ Planning: what we think demand should be
◦ Demand: may differ from sales
Forecasts are used in all functional areas:
◦ marketing, finance, human resources, etc.
Forecasts are necessary for operations decision areas:
◦ process design, capacity planning, inventory management, scheduling
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10-30
Use of Forecasting:
Marketing, Finance/Accounting, &
HR
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10-31
Use of Forecasting:
Operations Decisions
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10-32
Qualitative Forecasting Methods
Based on managerial judgment when there is a lack
of data available.
Major methods:
◦ Delphi technique
◦ Market surveys
◦ Life-cycles analogy
◦ Informed judgment
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10-33
Time-Series Analytics
Demand can be
decomposed into:
◦ Level – average
◦ Trend – general direction
(increasing/decreasing)
◦ Seasonality – short term
recurring cycles
◦ Cycle – long term business cycle
◦ Error – random or irregular
component
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10-34
Time-Series Analytics
Components of
demand data:
◦ Level
◦ Trend
◦ Seasonality
◦ Cycle
◦ Error
Adie Bush/Getty Images
Snow boarding is an industry that exhibits several demand patterns.
It is primarily a seasonal industry, and over many years the industry
has experienced a growth trend. Random factors like snowfall cause
abrupt variations in demand.
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10-35
Analytics: Moving
Average
Assumes no trend, seasonality, or cycle
Simple moving average:
D Dt 1 …… Dt N 1
At t
N
Ft 1 At
Weighted moving average:
Ft 1 At W1 Dt W2 Dt 1 …… WN Dt N 1
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10-36
Moving Average – Example
Period
Actual Demand Forecast
1
10
2
18
3
29
4
–
19
Compute three period moving average for Period 4
(number of periods is forecaster’s decision)
F4 = A3 = (29 + 18 + 10) / 3 = 19
F5 = (actual demand for period 4 + 29 + 18) / 3
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10-37
Time-Series Data (Figure 10.2)
Note: The forecast is smoother as the number of periods
in the moving average increases.
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10-38
Analytics: Exponential
Smoothing
The new average is computed from the old average:
At Dt 1 At 1
The value of the smoothing constant () is a choice. It
determines the extent to which the new forecast weights
recent demand (smooths random variation).
Αlpha (α) ranges between 0 and 1, and is usually 0.1 – 0.2.
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10-39
Simple Exponential
Smoothing
Forecast:
Ft 1 Ft Dt Ft
F = forecast of demand
D = actual demand
t = time period
Assumes no trend, seasonality, or cycle
Note: we are adjusting Ft to get Ft+1
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10-40
Exponential Smoothing Example
Sept. forecast was 15, but Sept. actual sales were 13.
Use alpha (α) of 0.2.
What is the October forecast?
October forecast = Sept. forecast + α(Sept. actual – Sept. forecast)
= 15 + 0.2(13 – 15)
= 15 – 0.4 = 14.6
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10-41
Time-Series Data (Figure 10.3)
Note: The forecast is smoother as the value
of alpha (α) is reduced.
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10-42
Forecast Accuracy
Firms should estimate forecast accuracy:
To monitor erratic demand observations or “outliers”
To determine when the forecasting method is no longer
tracking actual demand
To determine the parameter values that provide the
forecast with the least error
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10-43
Forecast Accuracy Measures
Cumulative sum of
forecast errors
Mean absolute
percentage errors
Mean square error
Tracking signal
Mean absolute
deviation
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10-44
Advanced Time-Series
Forecasting
Adaptive exponential smoothing
◦ Smoothing coefficient () is varied
Mathematical models
◦ Linear or nonlinear
Box-Jenkins method
◦ Requires about 60 periods of past data
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10-45
Causal Forecasting Analytics
Cause-and-effect model, using a data set of
other variables to predict demand (forecast).
Examples:
◦ Use population and location
characteristics to forecast
restaurant sales.
◦ Use supply chain data on
inventory levels to forecast sales
of new generation products such
as cell phones.
◦ Use day of week and attendance
of entertainment event at same
venue to forecast expected
guests at casino.
Steve Allen/Brand X
Pictures/Jupiterimages
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10-46
Causal Forecasting Model
The general regression model:
Other forms of causal model:
◦ Econometric
◦ Input-output
◦ Simulation models
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10-47
Causal Model – Example
Dt = actual sales in year t
Ft = forecasted sales
It = median family
income (000’s)
Yt = a + b(It)
F7 = 38.23 + 2.397(37.6) = 128.34 = forecast for Period 7
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10-48
Selecting a Forecasting Method
Use or decision characteristics
◦ Scheduling decision? Facility expansion?
◦ Short range? Long range?
Data availability
◦ Quantity and quality
Data pattern
◦ Level? Unstable?
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10-49
Big Data Analytics
Resources needed:
Data
• Either firm’s own or
acquire from
elsewhere
• Quantitative (e.g.
past demand) or
qualitative (e.g. call
center recordings)
Tools
•
•
•
•
Hardware
Software
Data storage
Tools for analysis
Expertise
•
•
•
•
Data scientists
Statisticians
Analysists
Technical skills
needed but also
understanding of
industry and key
challenges
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50
Big Data Analytics
Walmart collects data on more
than one million customer
transactions every hour.
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51
Collaborative Planning,
Forecasting, and Replenishment
(CPFR)
Aim is to achieve more accurate forecasts
Share information across supply chain with customers and suppliers
Compare forecasts
If discrepancy observed, look for reason
Reach a consensus forecast
Works best in B2B with few customers (e.g., a manufacturer supplying
a small number of large retailers)
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10-52
Chapter 10 Summary
LO 10.1 Describe why forecasting is important.
LO 10.2 Describe the four common methods of qualitative forecasting.
LO 10.3 Use forecast analytics to calculate a moving average and exponential
smoothed average.
LO 10.4 Evaluate forecast accuracy using a variety of methods.
LO 10.5 Carry out forecast analytics for a causal model.
LO 10.6 Evaluate factors that impact forecasting method selection.
LO 10.7 Describe how big data analytics are used to forecast.
LO 10.8 Explain the benefits and costs of CPFR.
LO 10.9 Solve advanced forecasting problems (chapter supplement).
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RESERVED.
10-53
Questions for Discussion
•Think of examples of products and services for which demand may be
fairly easy to forecast, and that may be quite difficult to forecast.
•Why are all firm functional areas – finance, accounting, HR, marketing, IT
– involved in forecasting?
•How do qualitative forecasting methods translate “information” into
quantities?
•When should a firm use a weighted moving average forecast, rather than
the simple moving average?
•What opportunities do big data and analytics create for firms?
•Define “analysis paralysis” for forecasting. How does this happen? What
can management do about it?
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54
Chapter 11:
Capacity Planning
McGraw-Hill Education
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11-55
Chapter 11 Learning
Objectives
LO 11.1 Define capacity and utilization.
LO 11.2 Illustrate with an example a facilities strategy that considers:
amount, size, timing, location and type.
LO 11.3 Explain how S&OP is done.
LO 11.4 Identify the demand and supply options that are available for S&OP.
LO 11.5 Contrast and compare the chase and level strategies.
LO 11.6 Define the various costs associated with aggregate planning.
LO 11.7 Create an alternative strategy for the Hefty Beer Company example.
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11-56
Hierarchy of Capacity
Decisions
Facilities
decisions
Facilities
decisions
Aggregate
planning
Aggregate
planning
Scheduling
Scheduling
0
6
12
18
24
Months
Planning Horizon
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11-57
Definition of Capacity
Maximum output that can be produced
over a given period of time.
Theoretical capacity
•
•
•
Labor availability and overtime
Physical assets, delayed maintenance, etc.
Can be used for short-term demand spikes
Effective capacity
sattapapan tratong/123RF
•
•
Used for planning
Subtracts maintenance downtime, shift breaks,
absenteeism, etc.
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11-58
Capacity Utilization
Utilization = Actual output
x 100%
Capacity
→ Utilization is seldom 100%.
→ Estimates capacity usage and ‘busyness.’
A production facility that builds 1000 cars during the time it can
actually produce 1200 cars has utilization = 1000/1200 = 83%
A doctor who is busy working for 6 hours during an 8 hour shift
has utilization = 6/8 = 75%
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11-59
Facilities Decisions
• How much capacity is needed?
• How large should each facility be?
• When is the capacity needed?
• Where should the facilities be located?
• What type of facilities/capacity are needed?
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11-60
Facilities Strategy
How much? Amount of capacity
◦ Size of capacity cushion
How large? Size of facilities
◦ Economies/diseconomies of scale
When? Timing of facility decisions
◦ Preemptive, wait-and-see
Where? Location of facilities
◦ Variety of factors to consider
What type? Types of facilities
◦ Product-focused, market-focused, process-focused, general-purpose
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