week 2 busn 6110 spring 1, 2012. supply chain management

Week 2

BUSN 6110 Spring 1, 2012

Supply Chain Management

Supply Chain Management • First appearance – Financial Times • Importance -

→ Inventory ~ 14% of GDP→ GDP ~ $12 trillion→ Warehousing/Trans ~ 9% of GDP→ Rule of Thumb - $12 increase in sales to = $1 savings in Supply Chain

• 1982 Peter Drucker – last frontier• Supply Chain problems can cause ≤ 11% drop in stock

price• Customer perception of company

SCOR

Reference: www.supply-chain.org

End-to-End Supply Chain

• Whether from Cow to Cone or from Rock to Ring SCOR is not limited by organizational boundaries

5Copyright © Supply Chain Council, 2008. All rights reserved 5

Supplier CustomerSuppliers’Supplier

Source

Internal or External Internal or External

Your Company

Return

Deliver MakeSource

Return

PlanDeliver

Return

Source

Return

MakeSource

Return

PlanDeliver

Return

DeliverMake

Plan

Return Return

Customers’Customer

SCOR reference model

End-to-End Supply Chain

6Copyright © Supply Chain Council, 2008. All rights reserved 6

Customer’s CustomerCustomerMP3 CompanySupplierSupplier’s Supplier

Sub assemblies Manufacturer Retailer ConsumerComponents

Source

SourceDeliverDeliverSourceSourceDelive

r

DeliverMakeMakeSourc

e

Source

Deliver

DeliverMakeMakeSourc

e

Source

Deliver

DeliverMakeMakeSourc

e

Source

Process, arrow indicates material flow direction

Supply Chain

“The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash.”

APICS Dictionary

Supply Chain Uncertainty

Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability

Inventory is a form of insuranceDistorted information is one of the

main causes of uncertainty Bullwhip effect

Information in the Supply Chain

Centralized coordination of information flows

Integration of transportation, distribution, ordering, and production

Direct access to domestic and global transportation and distribution channels

Locating and tracking the movement of every item in the supply chain - RFID

Bar Codes

Computer readable codes attached to items flowing through the supply chain

Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans

1234 5678

IT Issues Increased benefits and sophistication come

with increased costs Efficient web sites do not necessarily mean

the rest of the supply chain will be as efficient Security problems are very real – camera

phones, cell phones, thumb drives Collaboration and trust are important

elements that may be new to business relationships

Suppliers

Purchased materials account for about half of manufacturing costs

Materials, parts, and service must be delivered on time, of high quality, and low cost

Suppliers should be integrated into their customers’ supply chains

Partnerships should be established On-demand delivery (JIT) is a frequent

requirement - what is JIT and does it work?

Sourcing Relationship between customers and suppliers

focuses on collaboration and cooperation Outsourcing has become a long-term strategic

decision Organizations focus on core competencies Single-sourcing is

increasingly a part of supplier relations

How doessingle sourcediffer from solesource?

DistributionThe actual movement of products

and materials between locationsHandling of materials and products at

receiving docks, storing products, packaging, and shipping

Often called logisticsDriving force today

is speed

Distribution Centers and Warehousing

DCs are some of the largest business facilities in the United States

Trend is for more frequent orders in smaller quantities

Flow-through facilities and automated material handling

Final assembly and product configuration (postponement) may be done at the DC

Vendor-Managed Inventory Not a new concept – same process used by

bread deliveries to stores for decades Reduces need for warehousing Increased speed, reduced errors, and

improved service Onus is on the supplier to keep the shelves

full or assembly lines running variation of JIT Proctor&Gamble - Wal-Mart Home Depot

Transportation

Railroads

95,000 - 150,000 miles in USLow cost, high-volume Improving flexibility

intermodal service double stacking

Complaints: slow, inflexible, large loadsAdvantages: large/bulky loads, intermodal

Trucking

Most used mode in US -75% of total freight (volume not total weight)

Flexible, small loadsConsolidation,

Internet load match sitesTruck load (TL) vs. Less Than Truck Load

(LTL)

Air

Lightweight, small itemsQuick, reliable, expensive (relatively

expensive depending on costs of not getting item there)

Major airlines and US Postal Service, UPS, FedEx

Package CarriersUPS, US Postal Service, FedEx GroundSignificant growth driven by

e-businesses and the move to smaller shipments and consumer desire to have it NOW

Use several modes of transportation Innovative use of technologies in some

casesOnline tracking – some better than others

Intermodal

Combination of several modes of transportation

Most common are truck/rail/truck and truck/water/rail/truck

Enabled by the use of containers – the development of the 20 and 40 foot containers significantly changed the face of shipping

Switching Milk Cans from a

Farmer’s Buggy to a Truck on a Rural Road in

North Carolina, 1929

Early form of intermodal transport and cross docking

WaterOne of oldest means of transportLow-cost, high-volume, slow (relative)Security - sheer volume - millions of

containers annuallyBulky, heavy and/or large itemsStandardized shipping containers

improve serviceThe most common form of international

shipping

Pipelines

Primarily for oil & refined oil productsSlurry lines carry coal or kaolinHigh initial capital investmentLow operating costsCan cross difficult terrain

Global Supply Chain

Free trade & global opportunitiesNations form trading groupsNo tariffs or dutiesFreely transport

goods across bordersSecurity!!

Quality Quality ManagementManagement

Quality is a measure of goodness that is inherent to a product or service.

Bottom line: perspective has to be from theCustomer – fitness for use

““The degree of excellence of a thing” The degree of excellence of a thing” (Webster’s Dictionary)(Webster’s Dictionary)

““The totality of features and The totality of features and characteristics that satisfy needs” (ASQ)characteristics that satisfy needs” (ASQ)

Fitness for useFitness for use Quality of designQuality of design

What Is Quality?

Quality

• Quality Management – not owned by any functional area – cross functional

• Measure of goodness that is inherent to a product or service

FedEx and Quality• Digitally Assisted Dispatch System – communicate

with 30K couriers • 1-10-100 rule

1 – if caught and fixed as soon as it occurs, it costs a certain amount of time and money to fix

10 – if caught later in different department or location = as much as 10X cost

100 – if mistake is caught by the customer = as much as 100X to fix

Product Quality Dimensions

• Product Based – found in the product attributes

• User Based – if customer satisfied• Manufacturing Based – conform to specs• Value Based – perceived as providing good

value for the price

Dimensions of Quality (Garvin)

1. Performance Basic operating characteristics

2. Features “Extra” items added to basic features

3. Reliability Probability product will operate over time

Dimensions of Quality (Garvin)

4. Conformance Meeting pre-established standards

5. Durability Life span before replacement

6. Serviceability Ease of getting repairs, speed & competence of repairs

Dimensions of Quality (Garvin)

7. Aesthetics Look, feel, sound, smell or taste

8. Safety Freedom from injury or harm

9. Other perceptions Subjective perceptions based on brand name, advertising, etc

1. Time & Timeliness Customer waiting time, completed on time

2. Completeness Customer gets all they asked for

3. Courtesy Treatment by employees

Service Quality

4. Consistency Same level of service for all customers

5. Accessibility & Convenience Ease of obtaining service

6. Accuracy Performed right every time

7. Responsiveness Reactions to unusual situations

Service Quality

Quality of Conformance

Ensuring product or service produced according to design

Depends on Design of production process Performance of machinery Materials Training

Quality Philosophers

Walter Shewhart – Statistical Process Control W. Edwards Deming Joseph Juran – strategic and planning based Armand Fiegenbaum – total quality control “entire

business must be involved in quality improvement”

Deming’s 14 Points

1. Create constancy of purpose2. Adopt philosophy of prevention3. Cease mass inspection4. Select a few suppliers based on quality5. Constantly improve system and

workers6. Institute worker training

Deming’s 14 Points

7. Instill leadership among supervisors8. Eliminate fear among employees9. Eliminate barriers between

departments10. Eliminate slogans11. Remove numerical quotas

Deming’s 14 Points

12. Enhance worker pride13. Institute vigorous training and

education programs14. Develop a commitment from top

management to implement these 13 points

The Deming Wheel(or PDCA Cycle)

1. PlanIdentify the problem and develop the plan for improvement.

2. DoImplement the plan on a test basis.

3. Study/CheckAssess the plan; is it working?

4. ActInstitutionalize improvement; continue the cycle.

Also known as the Shewart CycleAlso known as the Shewart Cycle

Six Sigma

• Quality management program that measures and improves the operational performance of a company by identifying and correcting defects in the company’s processes and products

Six SigmaStarted By Motorola

• Define• Measure• Analyze• Improve • Control

Made Famous by General Electric40% of GE executives’bonuses tied to 6 sigmaimplementation

Malcolm Baldrige National Quality Award

• Category 3 – determine requirements, expectations, preferences of customers and markets

• Category 4 – what is important to the customer and the company; how does company improve

Total Quality Management

1. Customer defined quality2. Top management leadership3. Quality as a strategic issue4. All employees responsible for quality5. Continuous improvement6. Shared problem solving7. Statistical quality control8. Training & education for all employees

Cost of QualityCost of achieving good quality

PreventionPlanning, Product design,

Process, Training, InformationAppraisal

Inspection and testing, Test equipment, Operator

Cost of QualityCost of poor quality

Internal failure costsScrap, Rework, Process failure,

Process downtime, Price-downgrading

External failure costsCustomer complaints,

Product return, Warranty, Product liability, Lost sales

Cause-and-Effect Diagram

QualityProblemQuality

Problem

Out of adjustmentOut of adjustment

Tooling problemsTooling problems

Old / wornOld / worn

MachinesMachinesFaultyFaulty testing equipmenttesting equipment

Incorrect specificationsIncorrect specifications

Improper methodsImproper methods

MeasurementMeasurement

Poor supervisionPoor supervision

Lack of concentrationLack of concentration

Inadequate trainingInadequate training

HumanHuman

DeficienciesDeficienciesin product designin product design

Ineffective qualityIneffective qualitymanagementmanagement

Poor process designPoor process design

ProcessProcess

InaccurateInaccuratetemperature temperature controlcontrol

Dust and DirtDust and Dirt

EnvironmentEnvironment

Defective from vendorDefective from vendor

Not to specificationsNot to specifications

Material-Material-handling problemshandling problems

MaterialsMaterials

Also known as Ishikawa Diagram or Fish BoneAlso known as Ishikawa Diagram or Fish Bone

Hot House Quality

Lots of Hoopla and no follow through

ISO 9000:2008

• Customer focus• Leadership• Involvement of the people• Process approach• Systems approach to management• Continual process improvement – GAO• Factual approach to decision making• Mutually beneficial supplier relationships

Implications Of ISO 9000Truly international in scopeCertification required by many foreign firmsU.S. firms export more than

$150 billion annually to EuropeAdopted by U.S. Navy,

DuPont, 3M, AT&T, and others

ISO Accreditation

European registration

3rd party registrar assesses quality program European Conformity (CE) mark authorized

United States 3rd party registrars

American National Standards Institute (ANSI) American Society for Quality (ASQ) Registrar Accreditation Board (RAB)

Product Development

IntroductionIntroduction

1. Analyze market to assess need2. Design product3. Design process for making product4. Develop plan to market product5. Develop plan for full-scale production6. Analyze financial feasibility

Product Development is a process which generates concepts, designs, and plans to create services and goods to meet customer needs.

Increasing Importance of

Product Development Increasing Importance of

Product Development 1. Customers demand greater product variety.

2. Customers are causing shorter product life cycles.

3. Improving technology is causing new products to be introduced

4. The impact of increasing product variety and shortening product life cycles is having a multiplicative effect on the need for product development.

5. Today, in order to be competitive, the firm may have to produce many different products with a life cycle of only five years or less. End of Life issues

Product Design

Specifies materialsDetermines dimensions &

tolerancesDefines appearanceSets performance standards

Service DesignSpecifies what the customer is to

experience Physical items Sensual benefits Psychological benefits

An Effective Design Process

Matches product/service characteristics with customer needs

Meets customer requirements in simplest, most cost-effective manner

Reduces time to market - haste vs. speed to market

Minimizes revisions - quality designed into the product

Stages in the Design Process Idea Generation — Product Concept - can you

create your own market? What role does the voice of the customer play in idea generation?

Feasibility Study — Performance Specifications Preliminary Design — Prototype - testing and

redesign Final Design — Final Design Specifications Process Planning — Manufacturing

Specifications - make to order/stock – assembly line?

Idea Generation

Suppliers, distributors, salespersons Trade journals and other published material Warranty claims, customer complaints,

failures Customer surveys, focus groups, interviews Field testing, trial users Research and development

More Idea Generators Perceptual Maps

Visual comparison of customer perceptions

BenchmarkingComparing product/service

against best-in-class Reverse engineering

Dismantling competitor’s product to improve your own product

Perceptual Map of Breakfast Cereals

HIGH HIGH NUTRITIONNUTRITION

LOW LOW NUTRITIONNUTRITION

GOOD GOOD TASTETASTE

BAD BAD TASTETASTE

Perceptual Map of Breakfast Cereals

© Russell and Taylor, Prentice Hall, 2004

HIGH HIGH NUTRITIONNUTRITION

LOW LOW NUTRITIONNUTRITION

GOOD GOOD TASTETASTE

Cocoa PuffsCocoa Puffs

BAD BAD TASTETASTE

Rice Rice KrispiesKrispies

WheatiesWheaties

CheeriosCheerios

Shredded Shredded WheatWheat

Perceptual Map of Breakfast Cereals

© Russell and Taylor, Prentice Hall, 2004

HIGH HIGH NUTRITIONNUTRITION

LOW LOW NUTRITIONNUTRITION

GOOD GOOD TASTETASTE

Cocoa PuffsCocoa Puffs

BAD BAD TASTETASTE

Rice Rice KrispiesKrispies

WheatiesWheaties

CheeriosCheerios

Shredded Shredded WheatWheat

How do I get here?

Feasibility Study

Market Analysis - Market Segmentation

Economic Analysis Technical / Strategic Analysis Performance Specifications Risk Analysis

Economic Analysis

• Can we produce it at a volume to make a profit?

• If not, why produce?• How many do we have to make to break

even?

Break Even AnalysisTotal Costs = Total Revenues

(Volume x Price) = (Fixed Costs + Variable Costs)

Profit = (Total Revenue – Total Costs)

Fixed Costs

Sales Price – Variable CostsB/E Point =

Example

Fixed Costs = $2000

Variable Costs = $5/item

Sales Price = $10/item

Fixed Costs ($2000)

Sales Price ($10) – Variable Costs ($5)

B/E PT =

B/E point = ($2000/$5) 400 items

Risk Analysis

1. Identify the Hazards2.Assess hazards to determine risks.3.Develop controls and make risk decisions.4.Implement controls.5.Supervise and evaluate.

Preliminary Design

Create form & functional designBuild prototypeTest prototypeRevise prototypeRetest

How will it look?

Functional Design(How the Product Performs)

Reliability Probability product performs intended function

for specified length of time

Maintainability Ease and/or cost or maintaining/repairing

product

System Availability

System Availability, SA = MTBF

MTBF + MTTR

PROVIDERPROVIDER MTBF (HR)MTBF (HR) MTTR (HR)MTTR (HR)

AA 6060 4.04.0BB 3636 2.02.0CC 2424 1.01.0

System AvailabilityPROVIDER MTBF (HR) MTTR (HR)

A 60 4.0B 36 2.0C 24 1.0

SASAAA = 60 / (60 + 4) = .9375 or 93.75% = 60 / (60 + 4) = .9375 or 93.75%

SASABB = 36 / (36 + 2) = .9473 or 94.73% = 36 / (36 + 2) = .9473 or 94.73%

SASACC = 24 / (24 + 1) = .96 or 96% = 24 / (24 + 1) = .96 or 96%

Production Design

Part of the preliminary design phase

Simplification Standardization Modularity

Final Design & Process Plans

Produce detailed drawings & specificationsCreate workable instructions for

manufactureSelect tooling & equipmentPrepare job descriptionsDetermine operation & assembly orderProgram automated machines

Improving the Design Process Design teams Concurrent design Design for manufacture & assembly Design to prevent failures and ensure value Design for environment Measure design quality Utilize quality function deployment Design for robustness Engage in collaborative design

Design Teams

Marketing, manufacturing, engineeringSuppliers, dealers, customersLawyers, accountants, insurance

companies

Preferred solution = cross functional teams

Concurrent Design

Improves quality of early design decisionsDecentralized - suppliers complete

detailed design Incorporates production processScheduling and management can be

complex as tasks are done in parallel include the customer in the process!!

Design for Manufacture and Assembly

Design a product for easy& economical production

Incorporate production design early in the design phase

Improves quality and reduces costs Shortens time to design and manufacturealso known as Design for Six Sigma

Design for Six Sigma• Define – the goals of the design activity• Measure – customer input to determine what is

critical to quality from the customers’ perspective – what are customer delighters? What aspects are critical to quality?

• Analyze – innovative concepts for products and services to create value for the customer

• Design – new processes, products, and services to deliver customer value

• Verify – new systems perform as expected

DFM Guidelines

1. Minimize the number of parts, tools, fasteners, and assemblies

2. Use standard parts and repeatable processes

3. Modular design4. Design for ease of assembly, minimal

handling5. Allow for efficient testing and parts

replacement

Design for Assembly (DFA)Procedure for reducing number of partsEvaluate methods for assemblyDetermine assembly sequence

Design Review

Failure Mode and Effects Analysis (FMEA)A systematic approach for analyzing causes

& effects of failuresPrioritizes failuresAttempts to eliminate causes

Value Analysis (Value Engineering)

Ratio of value / cost Assessment of value :

1. Can we do without it?2. Does it do more than is required?3. Does it cost more than it is worth?4. Can something else do a better job5. Can it be made by less costly method, tools,

material?6. Can it be made cheaper, better or faster by

someone else? Should we contract it out?

Is there value added?

Design for EnvironmentDesign from recycled materialUse materials which can be recycledDesign for ease of repairMinimize packagingMinimize material & energy

used during manufacture, consumption & disposal

green laws in Europe -

Design for Robustness

Product can fail due to poor design quality Products subjected to many conditions Robust design studies

Controllable factors - under designer’s control

Uncontrollable factors - from user or environment

Designs products for consistent performance

A Well-Designed Service System is

Consistent with firm’s strategic focusCustomer friendlyEasy to sustainEffectively linked between front & back

officeCost effectiveVisible to customer

91

CHAPTER 8 CHAPTER 8

Process Selection affects the outcome – in production or sports:

What is Process Selection?

• Series of decisions that includes technical/engineering issues and volume/scale issues

• Technical/engineering: basic methods that produce a good or service

• Scale: how many or how much to produce; how many to serve at a time

• Trade off analysis between capacity and costs

92

Why process selection is critical

• Dell – from make/assemble to order in Texas to make/assemble to stock off shore

• Does this work?• Break even analysis may depend on process

costs• Which process gives the lowest costs –

assumption?

93

The Point of IndifferenceComparing Two Processes

• What is it? • Who cares? • How do you calculate it?

94

Comparing Two Processes

• Process A• Fixed = $2000• Variable = $5/item

• Process B• Fixed = $11000• Variable = $2/item

FixedA + (VarA)x = FixedB + (VarB)x

2000 + 5x = 11,000 + 2x

3x = 9000

X = 3000

So what?

Comparing the Processes

Trade off analysis

• Customer demanded quantity drives the trade off analysis and decision process

• Example:→ retail stocks at Christmas 2008 and 2009 season - goal save money by stocking less→ At what point do you lose sales due to lower stockage levels?

97

Process Design/Selection/Capacity

• Have to be simultaneous operations – some texts suggest sequential steps

• Decision process has to be customer based → what should it be? → how many should be produced/how many

are we capable of producing? → how should it be produced?

98

Process Strategy - Defines

• Capital intensity• Process flexibility• Vertical integration• Customer involvement

99

Goal of Process Design

• Reduce lead time for product to the customer• Is it best to be the first to market and establish

the market?• Or, be the follower and let someone else do

the R&D/design/risk?

100

Problems with Managing Large, Unfocused Operations

Problems with Managing Large, Unfocused Operations

• Growing facilities add more levels of management and make coordination and control difficult.

• New products are added to the facility as customers demand greater product variety.

• Hidden overhead costs increase as managers add staff to deal with increased complexity.

101

Process Planning

Make-or-buy decisions Process selection Specific equipment selection Process plans Process analysis

102

Make-or-Buy Decisions

1. Cost2. Capacity3. Quality4. Speed5. Reliability6. Expertise

103

What about

Proprietary Information?

Barrier to Make-or-Buy?

104

Rationale for Off Shore to Low Country Source

94.00%

37.00%

27.00%23.00% 22.00% 21.00% 20.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

$ Savings procuredgoods

Penetration to newmarket

inventory redux inc customer service access newtechnology

reduced cycle time log cost reductions

Source: Aberdeen Research, “Low-Cost Country Sourcing Success Strategies: Maximizing and Sustaining the Next Big Supply Savings Opportunity,” Jun 2005

Process Plans Blueprints Bill of material Flat or multiple layers -

part or assembly Assembly chart /

product structure diagram Operations process chart - list of

operations involved in assembly Routing sheet - sequence of events

105

Process Analysis

106

The systematic examination of all aspects The systematic examination of all aspects of a process to improve its operationof a process to improve its operation FasterFaster More efficientMore efficient Less costlyLess costly More responsiveMore responsive

Basic toolsBasic tools Process flowchartProcess flowchart Process diagramsProcess diagrams Process mapsProcess maps

Operations Process Chart

107

Part name Crevice Tool

Part No. 52074

Usage Hand-Vac

Assembly No. 520

Oper. No. Description Dept. Machine/Tools Time

10 Pour in plastic bits 041 Injection molding 2 min

20 Insert mold 041 #076 2 min

30 Check settings 041 113, 67, 650 20 min& start machine

40 Collect parts & lay flat 051 Plastics finishing 10 min

50 Remove & clean mold 042 Parts washer 15 min

60 Break off rough edges 051 Plastics finishing 10 min

Process Analysis – What processes feed other processes?

108

Process Flowchart

109

Ste

p

Op

erat

ion

Tra

nsp

ort

Insp

ect

Del

ay

Sto

rag

e

Dis

tan

ce(f

eet)

Tim

e(m

in)Description

ofprocess

1

2

3

4

5

6

7

8

9

10

11

Unload apples from truck

Move to inspection station

Weigh, inspect, sort

Move to storage

Wait until needed

Move to peeler

Apples peeled and cored

Soak in water until needed

Place in conveyor

Move to mixing area

Weigh, inspect, sort

TotalPage 1 0f 3 480

30

5

20

15

360

30

20

190 ft

20 ft

20 ft

50 ft

100 ft

Date: 9-30-02Analyst: TLR

Location: Graves MountainProcess: Apple Sauce

Principles for Redesigning Processes

• Walk the Process!• Remove waste, simplify, consolidate• Link processes to create value• Let the swiftest and most capable

execute• Capture information digitally, data mine,

and use information to improve operations

110

Principles for Redesigning Processes

• Provide visibility through information about process status

• Fit the process with sensors and feedback loops

• Add analytic capabilities• Connect, collect and create knowledge

around the process• Personalize the process

111

Techniques for Generating Innovative Ideas

Vary entry point to a problem Draw analogies Change your perspective Use attribute brainstorming

112

RFID

• Active Tags• Always on • Battery powered• Can be read from up to

300 ft• US Army • Savi Tags

• Passive Tags• Small• Must be activated• May be turned off• England• California• Rolex

113

114

115

Robotics Programmable manipulators Follow specified path Better than humans with respect to

Hostile environments Long hoursConsistency

Adoption has been slowed by ineffective integration and adaptation of systems

Welding at Harley Davidson Plant

116Questions?