lean manufacturing and six sigma

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1 TWO DAY PROGRAMME ON LEAN & SIX SIGMA MANUFACTURING PRACTICES Faculty: Prof. A. Rajagopal, HEAD, SQC&OR UNIT INDIAN STATISTICAL INSTITUTE Ph: 0422-2441192

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LEAN AND SIX SIGMA MANUFACTURING PRACTICES THROUGH INFORMATION AND COMMUNICATION TECHNOLOGY Two day Training programme 5th and 6th may 2007 ORGANIZED BY SQC & OR UNIT INDIAN STATISTICAL INSTITUTE, COIMBATORE Faculty: Prof. A. Rajagopal, HEAD, SQC&OR unit INDIAN STATISTICAL INSTITUTE Coimbatore-43 Ph: 0422-2441192 Mob: 98422 45219

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TWO DAY PROGRAMME ON

LEAN&

SIX SIGMAMANUFACTURING

PRACTICESFaculty: Prof. A. Rajagopal,

HEAD,SQC&OR UNITINDIAN STATISTICAL INSTITUTEPh: 0422-2441192

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STATISTICS AS A KEY TECHNOLOGY IS NOT MERELY AN OPERATIONAL TOOL FOR PROFITABLE BUSINESS. BUT AS A POWERFUL ACCELERATOR AND CATALYST FOR ECONOMIC DEVELOPMENT

PROF: P.C.MAHALANOBIS

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ABOUT THE INSTITUTE

PIONEERING QUALITY MOVEMENT IN INDIA BY

SQC & OR DIVISION OF ISI70 years of existence as a centre of excellence promoting statistics as a key technology. One of the world’s leading organization recognized as an Institute of National Importance. At the Initiation of founder Prof. P.C.Mahalanobis, Dr.Walter Shewart visited the institute in 1947 to introduce SQC in the industries particularly in the textile sector in a significant way. Successfully demonstrated SQC / SPC not only as operational tool for profitable business but also as a powerful accelerator and catalyst for economic development.

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Every year about 100 organizations are benefited in following this approach in different sector, Private – Public – Government, around the country. Over 10,000 projects has been carried out so far. Now Coimbatore Unit is introducing this approach to small scale sector also based on the widespread experience in the application of Textile sector.Objective: Improve Quality Reduce Waste / Rework / Rejection Increase Productivity Best utilization of resources including time.

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The value of time

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When, You Don’t Work “On Time”,You Can Explain,“TIME IS NOT GOOD

LONG LIFE WITHOUT QUALITY(OR)

QUALITY WITH GIVEN LIFE

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Quality

Time

Price

PPM

Competitive Edge

Willingness to pay

TO BE THE FIRST AND FAST PLAYER TO BE THE FIRST AND FAST PLAYER

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TODAY’S BUSINESS ISSUES:Quality and price are two axis of business so long. The Third axis

emerged as -"THE TIME"- the factor taking leading position in business. “SPEED" is the need of hour. “To be FAST and to be FIRST has become the challenge".

Conventional Business approach is moving towards higher production (Quantity), which some time affects the Quality and may force to sell in discounts or as seconds, and to carry out "High Inventories“

“Quality in time" at the "least cost" is the mission statement, moving ahead in this changing environment.

"Statistical Methodologies" -that study the uncertainties, Analytical approach that economies the cost and which minimizes the waiting time/ idle time through such “No investment”- “No cost tools” enabled to maximize the return on valued resources.

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TAKING OF THE BLINDERS…

“In strategy it is important to see distant things as if they were close and to take a distanced view of close

things”

Miyamoto MusashiThe Book of Five Rings

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COMPETITIVE REQUIRES INNOVATIONCOMPETITIVE REQUIRES INNOVATION

No existing market share is safe today, no product life is indefinite. Not only is this true for high technology, but it is also true for all consumer products. Competition will tear away market niches and technology advantages from the established business through the weapon of innovation. Companies will become merely a shadow of their ‘glory days’ or will vanish if they do not find a way to re-create their market success through a steady stream of innovative products and customer – oriented solutions.

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INNOVATING FOR COMPETITIVENESSINNOVATING FOR COMPETITIVENESS

Innovation requires the planned abandonment of established, familiar, customary or comfortable ways of working… whether in product or services, competencies or human relationships or the organisation itself.

Business Assessment

Change Management

Break through Planning System

Strategic Decision Making

Conclusion: Innovation means that you must be organized to allow constant change.

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MANAGEMENT OF

TIME

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TIME CRESIS MANAGEMENT:Crisis involves two aspects. The cresis created by factors within one’s

control and such crisis can be avoided. Then those crisis created by factor’s beyond one’s control and have to be faced.

Major cresis can be avoid, if we act upon a situation at the right time. More often than not, there are two tendencies that present us from acting at the right time.

Postponement of the unpleasant Non recognition of the problem

PROCRASTINATION CREATES CRESIS:

The tendency to do what ii easy, trouble free, and pleasant and leave for the future the issues that are difficult, Thus the difficult issues keeps piling up. They become irritants. We do not want this because it remind us of our inefficiency and incapacity to face unpleasant issues. A thing undone always remain with us.

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DO THE UNPLEASANT FIRST:DO THE UNPLEASANT FIRST:We can not expect every thing in life to be pleasant. Like the two

sides of the coin, the unpleasant always goes with the pleasant.

The one who does not postpone making a decision, right or wrong, to fulfill a responsibility, that person alone can be successful.

Postponing something because it is unpleasant is wrong. It has the potential to create a crisis and when it occurs, we will be inadequately equipped to face it.

RECOGNIZE THE PROBLEM AND ACTRECOGNIZE THE PROBLEM AND ACT:We get used to the problem so much so chronically, that we don’t recognize it as a problem. When there is a problem, we tend to say, “There is no problem, Everything will be alright”. But it will not be all right.

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MURPHY’S LAW:MURPHY’S LAW:

What can go wrong, will go wrong. The possibility of something

going wrong is much greater than its going right. One can act upon a

problem, however small it is, only when the problem is first accepted. Action

presupposes a decision, a will, and the will can exists, only when there is

recognition.

KARMA: KARMA:

“Everything will be all right if my karma is good”. Karma does not

work that way, the theory of karma is not fatalism. It does not justify passing

the buck. It pins down the responsibility upon us.

so accept problem as it occurs.

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DEALING WITH THE ISSUES:DEALING WITH THE ISSUES:For any business man, interference from competitor will be a problem.

This is not created by him. This has to be faced. This requires inner strength. It is like learning to drive a car. The instruction cannot reproduce all possible traffic situations. The learner has to deal with particular situation as they occur.

EVERY EFFECT IS A CALCULATED RISK:EVERY EFFECT IS A CALCULATED RISK:When you make a business projection for the following year, factors

like potential demand, availability of raw material, changes in tax structure, shrikes are taken in to account.

Since every intelligent effort involves a calculated risk, only two results can be expected from every effort – Success to different degree – Failure to different degree.

With every failure, a person seems to become more and more frightened and a time comes when are is not able to act at all. So it is important that we are prepared for failure in our effort, because success may not always come. Our power are limited, and there are factors beyond our control.

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ACCEPT LIMITATIONS:ACCEPT LIMITATIONS:

To be for failure, it is necessary to recognize one’s limitations. Our knowledge is limited and so we can not avoid many situations from occurring- otherwise we could avoid all accidents.

sometime we have the knowledge but our power is limited and we feel helpless . If you permit yourself to be depressed for reasons you seem to have no control over, you become helpless and the outside factors will make you more and more inefficient and ineffective.

Depression is a reaction. In action, you have freedom to exercise your will.

Acceptance of facts is a precondition to an action, Non –acceptance is an ideal condition for reaction – in fact Non- acceptance itself is a reaction. Non –acceptance does not alter the facts- the reaction creates a chain of reactions. SO ACCEPT THE FACTS AND KEEP ACTION.

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TIME PRIORITIZATION:TIME PRIORITIZATION:

Water, Tumbler, pebbles, sand, stones, grane . All can be accommodated, if it is planned in priority while filling the tumbler without pilferage. We can find time for anything, provided we have passion for it.

GOALS MUST BE CLEAR:GOALS MUST BE CLEAR:

Nobody works for failure. You do not have to make an effort to achieve a failure. Sometimes people invest in failing business for tax purposes. It is not a real failure. It is a calculated achievement.

CORPORATE MANAGER:CORPORATE MANAGER:

BE CLEAR ABOUT GOAL.

What is to be accomplished. What is expected out of me. I must also know, what I expect of those who works for me.

PRIORITIZING GOALS:

With out conflict

Based on resources (Time, Manpower, resources)

Be concern with immediate plan without getting bogged down by the scale of the project.

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“What ever a leader does, other people do. The very thing. What ever the upholds as authority, an ordinary person follows that”.

- BHAGAVATGITA.

KRISHNA TO ARUGUNA:KRISHNA TO ARUGUNA:

If you runaway from this battle field, all others will also follow you. If you fail to do what is to be done, others will also do exactly that, because you are leader, whether you like it or not.

- Set our Example.

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Understanding lean

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Lean:

A systematic approach to identifying and eliminating waste {non- value-added activities) through continuous improvement in pursuit of perfection by flowing the product at the pull of the customer.

Lean champion:

Subject matter expert in the tools of lean typically chosen to lead lean training, lean projects, and lean transformation.

Lean enterprise:

Any organization that continually strives to eliminate waste, reduce costs, and improve quality, on-time delivery, and service levels.

Understanding lean

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Lean production:The opposite of mass production.

Muda:

A Japanese word, usually translated as “waste”, that refers to those elements of production that do not add value to the product.Takt Time:

The available production time divided by the rate of customer demand. Takt time sets the pace of production to math the rate of customer demand and becomes the heartbeat of any lean system.

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Example for takt timeTime Available Minutes

Shift 480Breaks -10Lunch -20

5S -10Meetings -5

Changeover -220Maintenance -5

Other -0Total minutes 210Total seconds 12600

Demand Min 900Avg 1080Max 1800

Takt time (Min) = 12600900

Takt time (Avg) = 126001080

Takt time (Max) = 126001800

Takt timeMin 14.0Avg 11.7Max 7.0

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BusinessProcess

Improvement system

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• Everyone participates• Anything is open to question• Look at issues from larger perspective• Ideas from anyone is respected• Talk to the ideas generated ; not the person• No complaining – unless accompanied with

solution and action plan• No blaming

Ground Rules

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• “Quality . . . is the next opportunity for our Company to set itself apart from its competitors . . .

... Dramatically improved Quality will increase employee and customer satisfaction, will improve share and profitability, and will enhance our reputation.

... “[Six Sigma] is the most important training thing we have ever had. It’s better than going to Harvard Business School.” J.F. Welch

Leadership Vision

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A Process Is A Collection Of Activities That Takes One Or

More Kinds Of Input And Creates Output That Is Of

Value To The Customer

Definition of a process

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#2: When convinced of the value of thinking in terms of processes, most people still don’t think in terms of processes

#3:The word “process” generates fear and resistance.

Processes

All activity takes place in terms of a process.The quality of the process determines the quality of the output.

Shocking lessons#1: Most people do not think in terms of processes. They

would rather think terms of isolated events.

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Black Belt ProjectsBlack Belt Projects

SupplierSupplierQualityQuality

““Voice Of The Shareholder”Voice Of The Shareholder”(Profitability Analysis)(Profitability Analysis)

““Voice Of The Customer”Voice Of The Customer”(Surveys)(Surveys)

StakeholderStakeholderRequirementsRequirementsCustomer Requirements PrioritizationCustomer Requirements Prioritization

Core Processes And Output Measures

Internal Processes And Output Measures

Key Subprocesses And Input Measures

Other StakeholdersOther Stakeholders EmployeesEmployees LendersLenders RegulatorsRegulators

Strategic Focus

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Pick-Up &Pick-Up &DeliveryDelivery

Order/Order/LeasingLeasing BillingBillingCustomerCustomer

ServiceServiceEquip.Equip.Mgmt.Mgmt.

Core Process(Level I)

Subprocesses(Level 2)

CSR CSR Qualifies Qualifies

Customers’ Customers’ NeedsNeeds

CSR Enters CSR Enters Case In CISCase In CIS

Branch Branch Schedules Schedules

RepairRepair

Servicer Servicer Fixes Fixes

ProblemProblem

CSR Verifies CSR Verifies Customer Customer

SatisfactionSatisfaction

CustomerCustomerCalls ForCalls For

RepairRepair

CSRCSRCompletesCompletes

CaseCase

Subprocesses ThroughMicroprocesses

(Level 3 And Below)

Levels of Process

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The Dimensions Of Process Focus

Desig

n

Desig

n Fo

r Six

Sigm

a Improvem

ent

DMAIC

ManagementProcess Management

3 Dimensions of Process

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BPMS

What is BPMS?

A nine step methodology designed to create ongoing accountability for managing entire cross-functional processes to satisfy process goals

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Why BPMS ?

• Proven methodology to optimize process performance

• Establishes value-added metrics to assess process performance – takes the guesswork out of how a process is performing

BPMS

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Step 1: Create Process Mission

C O P I

Process Mission Statement

Key Process Verbatim Issue Requirement

Purpose:Importance:Boundaries:Process Goals:

Process OwnerBeginning Point End Point

S

Proc.CTQ Rqmt Output Proc Input

Operational DefinitionsData OwnerDefinitionUnitHow ManyDPU

Process Management System

Clarify OperationalData Definitions

Validate System

DataDisplay

Jan

Feb

Mar

Apr

May Ju

n

Jul

Aug

Sep Oct

Nov

Dec

01234

5678

910

Jan

Feb

Mar

Apr

May Ju

n

Jul

Aug

Sep Oct

Nov

Dec

0 5 10 15

Jan

Mar

May

Jul

Sep

Nov

0 5 10 15

Jan

Mar

May

Jul

Sep

Nov

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600Ja

n

Mar

May Ju

l

Sep

Nov

05

10152025

Jan

Feb

Mar

Apr

May Ju

n

Jul

Aug

Sep

Oct

Nov

Dec

0

10

20

30

40

50

60

70

80

3-A

pr

17-A

pr

1-M

ay

15-M

ay

29-M

ay

12-J

un

26-J

un

10-J

ul

24-J

ul

21-A

ug

4-S

ep

18-S

ep

UCL

LCL

Step 3: Document Customer and Process Requirements

Step 2:Document Process

Step 4:Identify Output and Process Measures

Step 5: Build Process Management System

Step 6 Establish Data Collection Plan

Step 7: Process Performance Monitoring

Step 8: Develop Dashboards with Spec Limits and Targets

Step 9: Identify Improvement Opportunities

Process Management System

Trend Chart

Problem Pareto

Root Cause

Corrective Actions

•Assess your previous mission/goals•Evaluate if your process boundaries have changed•Adjust and make corrections

•Assess current CTQs and if they reflect process•Assess if any new CTQs or measures are needed•Adjust and make corrections

A.

•Assess if current dashboards are representative•Collect Data and populate dashboards•Assess performance against targets•Adjust and make corrections

B.

D.

E.•Develop actions to address variation

C. •Develop should be process map•Create a simple data collection plan

BPMS

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Step-1 : Create Process Mission

Define process specific mission.

Mission statement of the plant

List out preliminary process goals

Measurable type Attribute type

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Step-2 : Define & Document the Process

Use SIPOC to define the process.

Use flow charts to create & validate process maps.Yet to be incorporated

Ready for all plants

Flowcharts are to be drawn on four different perspectives on a process

What one think the process is.

What the process really is.

What the process could be.

What the process should be.

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Use SIPOC to define the process.Starting at the Top

Key business activities can be defined at different levels of the organization:

Level 1 = highest -level view of work in the organization

Level 2 = work that flows across several departments or within a n entire department or work area

Level 3 = a detailed view of of a particular process

Filling Sealing Packing

New Productdevelopment

Demand Generation

Demand Fulfillment

CustomerService

Ordering Materials Producing Picking Shipping

Mixing

Level 1

Level 2

Level 3

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Which Flowcharting Technique Should I use?

BasicFlowchart

ActivityFlowchart

DeploymentFlowchart

To identify the majorsteps of the processand where it beginsand ends

To illustrate where inthe process you willcollect data

To display thecomplexity anddecision points of aprocess

To identify reworkloops and bottlenecks

To help highlighthandoff areas inprocesses betweenpeople or functions

To clarify roles andindicate dependencies

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Types of Flowcharts Useful for Understanding Process Flow

Activity flowcharts

Sales Technical Shipping Coordinator

Deployment flowcharts

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Activity Flowcharts

Activity flowcharts are specific about what happens in a process. They often capture decision points, rework loops, complexity, etc.

Hotel Check-out Process

1 Approach front desk

3 Wait

4 Step up to desk

6 Wait

7 Give room number

8 Check bill

10 Correct charges

11 Pay bill

NO

NO

NO

YES

YES

YES

Start/End

Action/Task

Sequence

Process Name

Date of creationor update &

name of creator

Clear startingand ending

points

Cleardirection offlow (top tobottom or

left to right)

Consistentlevel ofdetail

Key of symbols

Numberedsteps

2 Is therea line?

5 Clerk

available?

9 Chargescorrect?

Decision

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Deployment Flowcharts

Deployment flowcharts show the detailed steps in a process and which people or groups are involved in each step. They are particularly useful in processes that involve the flow of information between people or functions, as they help highlight handoff areas.

Invoicing Process

Shipping Customer Elapsed Time

5 days

10 days

7

Reviews weeklyreport of overdue

accounts

Sales Billing

6

Receives andrecords payment

5

Files invoice

3

Sends invoice tocustomer

4

Notifies billing of invoice

2

Notifies sales ofcompleted delivery

1

Delivers goods

8

Receives delivery

9

Records receipt and claims against this

delivery

10

Receives invoice

11

Checks invoice against receipt

12

Pays bill

People or groupslisted across the top

Time flowsdown the

page

Horizontal linesclearly identify

handoffs

Steps listed incolumn of person orgroup doing step or

in charge

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Value- Added and Nonvalue- Added Steps

Value-Added Step:Customers are willing to pay for it.

It physically changes the product.

It’s done right the first time.

Nonvalue -Added Step:Is not essential to produce output.

Does not add value to the output.

Includes:• Defects, errors, omissions. • Preparation/setup, control/inspection.• Over-production, processing,

inventory.• Transporting, motion, waiting, delays.

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How to Create an Opportunity Flowchart

Divide page into two sections

• Value-added section smaller than cost-added-only section

Time flows down the page

Only join two Value-Added steps with an arrow if there are no

Nonvalue - Added steps in between

Yes

No No

No

Yes

Yes

Loop

Loop

Loop

Value- Added Steps Nonvalue - Added Steps

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Step-3 : Document Customer & Process Requirements

Types of customers.

Translating VOC into specific requirements. this is the place for defining the QFD

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VOC Process

Outcomes:A list of customers and customer segments

Identification of relevant reactive and proactive sources of data

Verbal or numerical data that identify customer needs

Defined Critical-to-Quality requirements (CTQ)

Specifications for each CTQ

1.Identify

customers and determinewhat you need

to know

2.Collect and

analyzereactive

system datathen fill gapswith proactiveapproaches

3.Analyze datato generatea key list

of customerneeds in

their language

4.Translate

the customerlanguageinto CTQs

5.Set

specificationsfor CTQs

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What is Critical to Quality (CTQ)? What a customer tells us they want from our product / service or process output CTQs are rendered from Voice of Customer (VOC) CTQs must be specific CTQs must be measurable CTQs must be actionable

CTQs always have three elements: CTQ Category (also known as an Output Characteristic or CTQ name, e.g. Claims

Processing Timeliness) Customer Specification (customer’s requirement of our product/ service or

process, e.g. “30”) Unit of Measure (how output is quantified by the customer, e.g. “Days”)

CTQ Example: Claims Processing Timeliness: 30 Days

Category Specification Unit of Measure

What is Critical to Quality

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Example: CTQ Tree

Need Drivers CTQs

General Specific

Hard to measure Easy to measure

Ease of Operationand Maintenance

Operation

Low qualification of operator

Easy to setup (training / documentation)

Digital Control

MaintenanceMTBF

Maintenance

DocumentationMinimum special tools / equipment required

Modification

Cost

Mistake Proofing and

One of 7 Management Tools – Tree diagram

Standardization

Down time

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Establishing a Performance Standard

• A performance standard translates customer needs into quantified requirements for our product or process

Better Throughput

% Trained

CustomerNeed

CTQ

Product/Process

Characteristic

Measure

Specification/Tolerance

Limit(s)

Target 95 %

90%

No. Trained against no. identified for training in a

chosen subject

Defect Definition Below 90%

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Voice of Customer After Clarifying, the Key Issue(s) Is... CTQ Customer

Requirements

Step 3 – Document Customer/Process Requirements VOC Guidelines

Your Outputs Key Issues Customer

RequirementsCTQ’sVoice of Customer

Outputs of your process are designed to satisfy customer needs profitably

Customer needs are stated in the language of the customer

Clarification of the customer’s language identifies the key issues

Defined as customer performance requirements of a product or service

Key issues are translated into customer requirements

Sample CTQ’s

ReliabilityDurabilityAccuracyTimeliness

Failure RecoveryEfficiency

Cost SavingsEasy to Use

Quick Response

Internal Customers

LeadershipProcess Owners

Stakeholders

External Customers

ClientsConsumersRegulators

Brokers

VOC Translation Process

BPMS

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Voice of Customer After Clarifying, the Key Issue(s) Is... CTQ Customer

Requirements

Step 3 – Document Customer/Process Requirements VOC Guidelines

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Measurement Criteria

•The measure must be important•The measure must be easy to understand•The measure is sensitive to the right things and insensitive to other things•The measure promotes appropriate analysis/action•The measure must be easy to get

Process

Inpu

t Var

iabl

es

(X’s

)

Process Variables (X’s)

Output V

ariables (Y’s)

Step 4 – Identify Output/Process Measures: Measurement Matrix GuidelinesCTQ Tree Template

CTQKey Issue

Specific CTQCustomer

RequirementTarget

MinimumLower Specification

Limit (LSL)

MaximumUpper Specification

Limit (USL)

OutputMeasurements

ProcessMeasurements

InputMeasurements

BPMS

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CTQ Tree TemplateCTQ

Key IssueSpecific CTQ

CustomerRequirement

TargetMinimum

Lower SpecificationLimit (LSL)

MaximumUpper Specification

Limit (USL)Output

MeasurementsProcess

MeasurementsInput

Measurements

CTQ Template

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BPMS

Objectives: Consolidate work performed in steps 1-5 onto one concise page which captures the essence of your process. Establish process specs/targets, control limits, and response plan for out-of-control/under-performing metrics.

Why Is This Important?: A process management system allows a process owner to quickly respond to performance trends. It is an enabler for process optimization.

Tools : Control Plan

Step 5 – Build Process Mgmt. System

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Step-5 : Build Process Management System

Measures & Targets.

Monitoring System.

Contingency Plan.

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Remarks

Desc.

Target LSL USL

Checking Item Frequency Resp.

Contingency plan

SOP/SOC/Document

no.Y1Y2Y2.1X1X2X2.1

Process Management System

Process Flow Chart Measure Checking

Process Description: Process Customer : Customer Requirements : Outcome Quality Indicators :

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BPMS

Measures

Reporting Frequency

of Measures (Daily,

Weekly, Monthly)

Upper Spec Limit

Lower Spec Limit

Operation Definition of

Metric

Green Calculation/

Definition

Yellow Calculation/

Definition

Red Calculation/

Definition Data TypeData

OwnerDisplay Method

Sampling Plan (what, where,

when, how many)

Develop Operational

Definitions & Procedures

• Operational Definitions

• Collecting Data

• Sampling

Plan for Data Consistency & Stability

• Validating Measurement Systems

Begin Data Collection

• Training Data Collectors

• Making Data Collection Activities “Error Proof”

ContinueImproving

MeasurementConsistency

• Creating Monitoring

Procedures

Data Collection Roadmap

Step 6 – Establish Data Collection Plan Guidelines

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Measures

Reporting Frequency

of Measures (Daily,

Weekly, Monthly)

Upper Spec Limit

Lower Spec Limit

Operation Definition of

Metric

Green Calculation/

Definition

Yellow Calculation/

Definition

Red Calculation/

Definition Data TypeData

OwnerDisplay Method

Sampling Plan (what, where,

when, how many)

Data Collection Plan

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BPMSStep 6 – Establish Data Collection Plan Guidelines

Decision to Collect New Data

• Is there existing data to help with problem solving mission?

• Is current data enough?

• Does the current data meet the process needs?

• Is the team just using data that is available?

Decision to Sample

• It is often impractical or too costly to collect all of the data

• Sound conclusions can often be drawn from a relatively small amount of data

One BB to finalise sampling strategy

Validating Measurement Systems

• Data is only as good as the measurement system used to gather it. Measurement systems must be validated to ensure data is free from errors

• There are a variety of techniques to validate data – consult a Quality representative or refer to your six sigma training

• Review the measurement system periodically to ensure consistency and stability over time

Data CollectionConsiderations

• Can the new data be generated through systems modifications?

• Can data collection be integrated into existing work processes?

• Is all data being collected necessary to calculate process measures?

• Can some data collection efforts be curtailed because they don’t add value?

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BPMSStep 7 – Process Performance Monitoring Guidelines

Type of Data Variation Over A Period of Time

Variation Over Time

Pareto Diagram Run ChartsDiscrete Bar Charts Control Charts

Pie ChartsHistograms Run Charts

Continuous Box Plots Control ChartsMulti-Vari Charts

Purpose of Control Charts

•Determine whether or not process variation is due to special cause or common cause variation

•Determine whether the process is in control or out of control

Upper Control Limit

Average

Lower Control Limit

Mea

sure

men

t

Time

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Process Performance Monitoring

All Repetitive activities of a process have a certain amount of fluctuation .

Input, Process & Output measures will fluctuate.

Variation is the ‘Voice of the Process’ – Learn to Listen to it and Understand it.

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BPMS

Defective Rate, DPMO, and Sigma for Purchase Order Request Process

0

100000

200000

300000

400000

500000

600000

700000

Week Ending

Defe

ctiv

e Ra

te/D

PMO

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Sigm

a

Defectives per Million DPMO Sigma

Defectives per Million 63809 34574 38271 30000 11842 16666 14814 17613 16000 25000 31147 22413 71429 30833 0 0 0 0 0

DPMO 70899 46099 43896 34921 24123 17490 16461 10101 8889 34722 38251 23946 7937 33333 0 0 0 0 0

Sigma 2.97 3.18 3.21 3.31 3.48 3.61 3.63 3.82 3.87 3.32 3.27 3.48 3.91 3.33

9/28/01

10/5/01

10/19/01

10/26/01

11/9/01

11/16/01

11/30/01

12/7/01

12/14/01

12/28/01

1/4/021/18/0

21/25/0

22/1/02

2/15/02

2/22/02

3/8/023/15/0

23/29/0

2

0 10 20

3.0

3.5

4.0

MeasurementWeek of

Sig

ma

Individuals Control Chart for Weekly Requistion Sigma

X=3.448

3.0SL=3.939

-3.0SL=2.958

Step 7 – Process Performance Monitoring Charts

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BPMS

Key Considerations• How do you want the information displayed?• To what level do you want to drill down in the information?• How might you want to segment the information for making critical decisions?• Who should access the information?• What supporting information do you want to see? • Lower level dashboards should roll-up to higher level dashboards.

Identify Universeof Potential Measures

Narrow List ofMeasures

Data Collection

Determine Measuresw/Best Relationship

to CTQ’s

Finalize Dashboard

Dashboard Creation RoadmapStep 8 – Develop Dashboards Guidelines

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External Environmental

Information

Dashboard Indicators

InternalEnvironmental

Information

Process Review

Satisfied withIndicators?

Continue ControlActions

Yes

Plan/ImplementImprovement

Actions to Correct

No Action Troubleshoot DMADV

QC/SGA/Quick Hit/DMAIC

Identify Problem Diagnose Root Cause Remedy Cause

Process Improvement Process Redesign (process not capable of performing to standards)

Step 9 – Operate Process Management System & Identify

Improvement Opportunities

No

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Measures

Target USL LSL

Data collection method

Immediate Control/Fix

Process Improvement

projects

Process Map Monitoring Response Plan

Process Management ChartProcess Name : Process Owner : Date :

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Business Big Y’s

Project Y

Process Y’s

ManagementManagement

PROCESSPROCESSYY

YY

Key output metrics that are aligned with strategic

goals/objectives of the business. Big Y’s provide a direct measure of business

performance.

Key output metrics that summarize process

performance

Key project metric defined from the customer’s

perspective

Any parameters that influence the Y

X1 X2 X3

Project Y Alignment

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Project Identification

Customer wants andneeds should drive

our actions!

Who’s the customer? What does he/she

think is critical to quality?

Who speaks for the customer?

What’s the business strategy?

Who in the business holds a stake in this?

Who can help define the issues?

What are the processes involved?

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A Great Project Should…

Be clearly bound with defined goalsIf it looks too big, it is

Be aligned with Strategic Business Objectives and initiativesIt enables full support of business

Should have high Impact the Bottom LineBe felt by the customer

There should be a significant impactWork with other projects for combined effect

Global business initiativesShow improvement that is locally actionableRelate to your day jobFocus on key CTQ’s

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Six issues in selecting a project: Process Feasibility (Is it doable?) Measurable impact Potential for improvement Resource support within the organization Project interactions

Low Medium High

LowImpact

MediumImpact

HighImpact

Del

iver

ed C

TQ Im

port

ance

Performance

Top priorities based on impact and performance:strategic issues

Selecting the Right Projects

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Project Prioritization Matrix

The desirability of a project increases as you move from the lower right to the upper left, and as the circle gets larger

Low Med Hi EFFORT

Low

Med

Hi

IMPA

CT

Low

Med

Hi

Probability of SuccessIncreasing

Desirability

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• Success Factors– Project scope is manageable– Project has identifiable defect– Project has identifiable impact– Adequate buy-in from key stakeholders

• To Be Successful…– Set up project charter and have it reviewed– Measure where defects occur in the process– Assess and quantify potential impact up front– Perform stakeholder analysis

• Common Pitfalls– Inadequately resourcing the project– Duplicating another project– Losing project momentum– Picking the easy Y, not the critical Y

• Avoiding Pitfalls– Identify and get committed resources up front– Research the project database and translate from other projects where

possible– Set up milestones and a communications plan

Project Selection

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A Good Project

A good project:– Problem and Goal Statements are clearly stated

– Defect and opportunity definition is clearly understood

– Does not presuppose a solution

– Clearly relates to customers and their requirements

– Aligns to the business strategy

– Uses the tools effectively

– Is data driven

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A bad project: – Is not focused–scope is too broad

– Is not clear on what you are trying to fix

– May be an already-known solution mandated without proper investigation

– Is difficult to see linkage to customer needs

– Is not clearly aligned with business objectives

– Has little or no use of tools

– Is anecdotal–not data driven

A Bad Project

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Project Chartering

A Charter:– Clarifies what is expected of the team– Keeps the team focused– Keeps the team aligned with organizational priorities– Transfers the project from the Champion to the

improvement team

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Five Major Elements Of A Charter

1. Business CaseExplanation of why to do the project

2. Problem and Goal StatementsDescription of the problem/opportunity and objective in clear, concise, measurable terms

3. Project ScopeProcess dimensions, available resources

4. MilestonesKey steps and dates to achieve goal

5. RolesPeople, expectations, responsibilities

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The Goal Statement

The Goal Statement then defines the team’s improvement objective

Definition of the improvement the team is seeking to accomplish?

Starts with a verb (reduce, eliminate, control, increase)Tends to start broadly - eventually should include measurable target and completion dateMust not assign blame, presume cause, or prescribe solution!

Specific

Measurable

Attainable

Relevant

Time Bound

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8 Steps To Bind A Project

1. Identify the customer–Who receives the process output?

(May be an internal or external customer)2. Define customer expectations and needs

–Ask the customer–Think like the customer–Rank or prioritize the expectations

3. Clearly specify your deliverables tied to those expectations–What are the process outputs? (tangible and intangible

deliverables)–Rank or prioritize the deliverables–Rank your confidence in meeting each deliverable

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4. Identify CTQ’s for those deliverables– What are the specific, measurable attributes that are most

critical in the deliverables?– Select those attributes that have the greatest impact on

customer satisfaction

5. Map your process– Map the process as it works today (as is)– Map the informal processes, even if there is no formal,

uniform process in use

6. Determine where in the process the CTQ’s can be most seriously affected– Use a detailed flowchart– Estimate which steps contain the most variability

8 Steps To Bind A Project

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7. Evaluate which CTQ’s have the greatest opportunity for improvement– Consider available resources

– Compare variation in the processes with the various CTQ’s

– Emphasize process steps which are under the control of the team conducting the project

8. Define the project to improve the CTQ’s you have selected– Define the defect to be attacked

8 Steps To Bind A Project

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Project Selection Workshop

2 Ways :

• Top- down method – More effective & High impact projects. (Through CTQ selection workshop)

• Bottom-up method – Low impact & High numbers of projects

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List down the Strategic Business ObjectivesList down the Key Focus Areas to achieve the SBOsPrioritize the KFAsList down the core processesList the impact of the core processes on the KFAsRank and prioritize the core processesList down the performance indicators for the prioritized list of

core processesRank and Prioritize the CTQsGenerate projects list from CTQs

CTQ Selection Workshop

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Step 1- List down the Strategic Business

Objectives & Key focus areas of your

plant/deptt.

CTQ Selection Workshop

Sl.No SBO’s KFAs Wtg

1

2

3

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CTQ Selection WorkshopStep 2 Core Processes of Each Function

Impact of Core Processes on each KFA

Sl # Key Focus AreasWtg

of KFAsCore Process 1 Core Process 2 Core Process 3 Core Process 4 Core Process 5 Core Process 6 Core Process 7 Core Process 8 Core Process 9 Core Process 10

Process Absolute Importance (Column Sum : Sum of scores the process wrt SO)

Process Relative Importance (Realative Importance = Absolute Importance / Total)List your process and What level of impact it will have on the KFA , 1=Low, 3=Medium, 9=High

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CTQ Selection WorkshopStep3 Priority of CTQs

Sl # Process CTQs / Metrics As Is Must Be Gap Ease to Implement Impact on

MarginsTranslation Opportunity

Root Causes Already Known

with Confidence?

(Yes / No)

Is Problem Because of Variability?(Yes / No)

Data Availability on Xs and

Y

Priority

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

201=Low 1=High 1=Low3=Low to Medium 3 = Medium to High 3=Low to Medium Priority =5=Medium 5=Medium 5=Medium Gap*Ease*Impact*Translation7=Medium to High 7=Low to Medium 7=Medium to High9=High 9=Low 9=High

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CTQ Selection WorkshopStep-4 :

List of projects

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DEPTT./PROCESS/FUNCTION:

ISSUES

SAVING POTENTIAL PER ANNUM (IN LAKH OF RUPEES)

AVAILABILITY OF DATA (Y/N)

ISSUES WHICH MAY BE IMPACTED

OTHER FUNCTIONS CONCERNED

PART OF THE EXISTING PROJECT (Y/N)

REMARKS

ISSUES OF COST REDUCTION & CUSTOMER SATISFACTION OBTAINED FROM EACH DEPTT THROUGH BRAINSTORMING

ISSUES SELECTED FROM OPERATIONSFORMAT No.: …

AREA OWNER:

Front line Project Selection

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Thinking line for Project Selection

Thinking line for Front-line project selection :

• Cost saving projects• Cost avoidance projects• Reliability/Process improvement projects• Quality/ Customer/Competitor oriented projects.• Ease of operation projects.• Knowledge management projects.• Material handling projects.

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Production cycle time

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PAY BACK WORKING:PAY BACK WORKING:Existing Contribution in Rs. 4744113.0

Contribution after Modernization in Rs. 6859511.0

Increase in Contribution in Rs. 2115398.0

Pay Back Period in Months 31.0

ADVANTAGES:ADVANTAGES: High Speed machines *High end product * High end market

Higher productivity (Present 35.91 gss is chronic problem in 80’s)

Cost reduction due to productivity utilization increase and way the minimization.

Turnover increase with investment “State of the art Technology ”

Branded Product

Lead Supplier

Fast Pay Back and first Player

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Note:

The Financial Overheads need to be taken after contribution, with present worth of future returns.

EARLIER INTERNAL SCHEME:

Only replacement Horizontal not vertically

No increase turnover even after modernization

Substance medium product in medium market

Space kept idle

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PRODUCTION CYCLE TIME Time gap between the starting time to produce a completed item (or

Batch, ready for dispatch) till the next item (or Batch ) is started. The total time is production cycle time.

CONTINUOUS IMPROVEMENT:

Continuous Improvement View of Losses of Deviations from Normal

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L(y) =K(y-m)2 = Taguchi Loss Function

Where, y = the value of the quality characteristic for a particular item of product or service,

m = the nominal value for the quality characteristic, and

k = a constant, A/d2

A = the loss (cost) of exceeding specification limits (e.g., the cost to scrap a unit of output), and

d = the allowable tolerance from the nominal value that is used to determine specification limits.

LOSS FUNCTION :

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The Continuous definition of quality, return to the sample of the production of stainless steel ball bearings, Every millimeter higher or lower than 25mm causes a loss that can be expressed by the following Taguchi Loss function:

L(y) = K(y-m)2 = (A/d2)(y-m)2 = (Rs.1.00/ 52) (y-25mm)2

= (0.04)(y- 25mm)2

if 20 y 30,

L(y) = Rs.1.00, if y < 20 or y > 30

Table shows the values of L(y) for the Quality characteristic (diameter of ball bearings)

ILLUSTRATION:

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ORDERING TIME, SETUP TIME,

OPTIMUM PRODUCTION

QUANTITY

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The basic principle of inventory optimization and materials management is to minimize the competing costs of having either too little or too much in inventories of raw material, work in process, or finished goods.

Inventories provide indispensable buffers to improve the leveling of production activity, but they constitute a major investment of the funds of most firms.

The traditional method of timing production runs and inventory replenishment has been by reorder point.

INVENTORY OPTIMIZATION AND MATERIAL REQUIREMENTS PLANNING

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Reorder point control should be replaced with MRP for production items and by DRP (distribution requirement planning) for finished goods inventories. Under reorder point, total costs of inventory policy (TC) are generally taken to include the following as the most important cost elements:

TC = setup costs (or procurement costs) + holding costs + stock out costs A first approximation to the cost categories of this equation is to specify the total cost to be

(for never stock situation)

For D= Annual Demand, p=price per unit

2d/r))/ -(ipQ(1 cD/Q TC

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The procurement or setup cost is “c” dollars per order,

and the order or production run amount is “Q”

units per batch. If the item is produced, it is at a daily rate of

“r” and depleted at a daily rate of “d”.

The value for the effective rate of interest, i, is often

taken to be about 30 percent, to include the opportunity cost

of capital. insurance, obsolescence, and other costs of holding.

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The above TC equation is minimized when This equation is for the case of setting up a machine to run the item to a certain inventory level, then running that machine on another item until stocks are nearly depleted.

The economical production quantity, or EPQ, is the approximate optimal value of units per batch to manufacture, assuming simplistic uniform demand rates for finished goods with simplified work centers. Although reorder point continues to be commonly used, superior total planning control is possible with computer-based MRP.

)/1(/2 rdipDcEPQ

Economical Production Quantity (EPQ):

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INVENTORY THEORY AND MODELING:Proper control of inventory requires a delicate balance and careful, detailed

planning. To the controller who sees funds tied up in material in the warehouse, work-in- process inventory, and finished goods not shipped, the natural reaction is that inventories are too high. To the production superintendent faced with the prospect of interrupted deliveries or silent production lines due to inadequate raw, in-process, or finished materials, the response must be that inventories are too low. Therefore, a balance is needed between holding large quantities to satisfy the latter and frequent stock replenishment to satisfy the former. This might be represented, as in below figure

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If the replenishment quantity q is represented on one axis and the total

inventory cost in dollars is represented on the other.

Many reasons exist for keeping inventory. They include: to improve

customer service; to hedge against demand surges and variation of production

level; to take advantage of favorable prices; to ensure against error and loss; and

to avoid production stoppage.

Overproduction for any of these reasons can, on the other hand, increase

costs through high investment and low capital turnover, material obsolescence,

spoilage an deterioration, storage and handling excesses, and inefficient use of

space due to overcrowding.

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Two basic concepts of control models need to be cognized:Transaction reporting periodic review.

TRANSACTION REPORTING:TRANSACTION REPORTING:

Transaction reporting requires continuous, accurate updating of stock

records to determine when a replenishment order should be initiated. Frequent

stock activity, high volume requirements, and identifiable individual units may

make this type of system more desirable. This system may entail perpetual (or

continuous) record processing: e.g., reporting the use of each item and continuous

monitoring of stock levels. When a predetermined reorder point is reached, an

economic order quantity acquisition is initiated. This reorder point is set to ensure

that sufficient stock is available to carry the production process until the

replenishment supply is received.

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A second concept is that records will be reviewed periodically (weekly, monthly, quarterly, etc.) and if the level of inventory for that ; item has fallen below a certain target level, anew ) order will be placed. If it has not, the record will be , returned to the file for review again at the end of the next period. Target levels, period lengths, and e replenishment quantities are dependent on frequency of use, replenishment lead time, and criticality of item. This system is usually more difficult to establish but results in lower clerical cost to maintain stock control. Both transaction reporting and periodic review systems can be maintained manually or by computer, if the inventory system is of sufficient size to warrant computer control.

EXAMPLE: EXAMPLE: A manufacturer uses wooden pallets for unit load shipping of the product.

These pallets are used regularly at rate of 100 per month and purchased from a vendor Rs. 3.50 per pallet. They are stored in an unheated but covered shed until needed, 19 and it is estimated that it costs 20 percent of the unit value to pay for the investment and storage costs.

PERIODIC REVIEW:PERIODIC REVIEW:

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A fixed cost of 150 in clerical time and processing is incurred every time a replenishment order is processed. If pallets are available when needed, re -handling of the unit load of final product is necessary at a cost of Rs10 per unit. Delivery normally takes from 6 to 10 days from the time of order, and 6, 7, 8, 9, or 10 days are equally likely. To determine the EOQ, the following is considered:

If C = replenishment cost S = storage cost I = number of inventory turnovers per year T = total cost per year for storage and replenishment R = rate of demand Q = order quantity (EOQ)

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then Q can be calculated to be the order quantity which results in the lowest cost T

Q = (2CR/S)

= (2(50) (100)/ (0.2)(3.50))= 120 Pallets/ Order.I = ( R ) (Number of Months)/ Q = (100)(12)/ 120 = 10 Turnovers/ Year

In this example, a transaction system is to be used, and a reorder point needs to be determined which will provide protection during the reorder period of 6 to 10 days. Since it is equally likely that delivery can be at any time between 6 and 10 days, inclusive, the reorder point will be selected at the point that gives a cost balance between overstocking during the lead time and under stocking.

Each time period of days from 6 to 10 has 1 chance in 5 of occurring in the replenishment cycle. By weighting the chances of various delivery possibilities by the cost of overstocking versus under- stocking, a weighted average of delivery days can be computed which establishes a basis of the reorder points.

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In this example it may be computed as follows:Number of items demanded per day = 100/20* = 5 .*20 days assumes a 5-day workweek Average cost of overstocking = (5)( 3.50)(1/5)(x- 5)

where x = delivery period between 6 to 10 days Average cost of under stocking =(10 X 1/5)[10-(x -5)]

Solving for x as the point where the weighted-average overstocking cost equals the weighted-average under stocking cost: (5)(3.50)(1/5)(x- 5) = (10)(1/5)(10 -x)

3.5x- 17.5 = 20 -2x 5.5x = 37.5

x= 6.8

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The weighted-average delivery period for the purpose of planning

the reorder point is 6.8 days.

Reorder point = (100/20)(6.8) = 34.0

In summary, place an order for pallets when the pal- let inventory

drops to 34. Thus, you will provide an economical stock system

for pallets as long as the costs and d factors or the delivery time

factors do not change.

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Pay back time

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PAYBACK TIMEPayback Time is a rough – and – ready model that is looked upon disdain by

many academic theorists . Payback sometimes called payout or payoff. Yet pay

back is most widely used decision model, and it certainly is an improvement over

the criterion of urgency or postponability.

Further more, it is a handy device

a. Where precision in estimates of profitability is not crucial and

preliminary screening of a rash of proposals is necessary

b. Where a weak cash and –credit position has a heavy bearing on the

selection of investment possibilities and

c. Where the contemplated project is extremely risky.

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The Payback Calculations follows:

P=I/OWhere P= Payback Time, I= Initial increment amount invested and O= The uniform annual incremental each inflow from operations.

Essentially, payback is a measure of the time, it will take to recoup in the form of cash from operations only the original amount invested. Given the useful life of an assets and uniform cash flows, the less payout period , the greater the profitability or given payback period, the greater useful life of the asset, the greater the profitability. Note that, payback does not measure profitability, it does measure how quickly investment amount may be recouped.

An investment’s main objective is profitability, not recapturing the original outlay. If a company wants to recover its investment outlay rapidly it need not bother spending in the first place. Then payback time is ZERO; NO WAITING TIME is needed.

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The Major weakness of the payback model is its neglect the profitability.

Continuous Technological up gradation is required to be in the competition.The profit earned is ploughed back, with additional investment in order to enhance the growth of the organizationSuch options involves various alternatives and working for return on investment.Firstly the technical feasibility is examined reliably predication is a valuable activity to design reliable systems.Failure have to be identified and proactedSystem need to be designed that is robust

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Design Review:

1. Determine if the product will actually work as desired

and meet the customer’s requirements

2. Determine if the new design is producible and

inspectable

3. Determine if the new design is maintainable and

repairable

Financial Feasibility: Net income

Margin on Sales = Sales

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RETURN ON INVESTMENT (ROI):RETURN ON INVESTMENT (ROI):The return on investment is measured by adding back interest to net

income after taxes and dividing by total assets. It is a measure of the after –tax profitability with which the firm’s total resources have been employed.

Return on investment = Net income + interest Total Sales

=192,000 + 40,000 2,000,000

ROI=I= S-P P

Where P= The amount borrowed (or the amount invested )

S= The amount paid back (or the amount collected) at the end of the year

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RATE OF RETURN:RATE OF RETURN:For example, assume the following situation.

Invest Rs.10,000 in a laborsaving machine. Labor savings = Rs 2500 per year. Useful life = 10 years. Company desires 10 percent return on investment. Machine will be depreciated for tax purposes over 10 years on a straight-line basis. Company has 50 percent tax rate. Machine will have no salvage value.

Annual Cash-Flow Computations: Compute the annual cash flow as follows (in this example, the savings are the same each year): Cash in from labor savings ………………………………………….Rs. 2500Cash out for taxes ………………………………………………… Rs. 750*Annual Net cash inflow……………………………………………..Rs.1750

* Income subject to tax = Rs2500- Rs.1000 depreciations = Rs.1500 at 50% = Rs750

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RATE-OF-RETURN CALCULATIONS:RATE-OF-RETURN CALCULATIONS:The investment outlay is Rs.10,000. The annual cash savings is Rs.1750. A 10

percent return is desired. Look at Table B-4. Under the 10 percent column, read

down to 10 years. The factor is 6.44. Multiply 6.44 by the annual savings of

Rs.1750. The result is Rs.11,270. This means that the present value of the future

cash inflows of Rs.1750 per year is worth Rs.11,270 today if a 10 percent return

on investment is desired. Since the investment is only Rs.10,000 and the present

value of future inflows is Rs.11,270, the investment would be made.

If the actual return is desired, divide the investment by the annual savings,

Rs.10,000/Rs1750 = 5.71, Again, look at Table B.4 and read across from year

10. The factor 5.71 is between 12 % and 14 % or about 13% return on

investment.

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COMPLEXITIES:

Variable Annual Savings: The cash savings generated from a capital project are seldom the same for each year of the life of the project. The savings may be different because of the use of accelerated depreciation, varying production levels, changes in tax rates, and other related items. The discounted cash-flow concept can be used with varying annual savings in two ways, as illustrated in the following example company has the opportunity to invest Rs.1000 in e of four alternative projects. Each project has an estimated life of 6 years and a total return of Rs.1800. The flow of the savings is as shown in this array.

RsRsRsRs

RsRsRsRs

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0 2 4 6 8 10 12 14 16 18 20

30%

20%

10%

0

30%

20%

10%

0

Rate of return

Reciprocal pf Payback Period

RECIPROCAL OF PAYBACK PERIOD COMPARED WITH RATE OF RETURN

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INTERNAL RATE OF RETURN:

One approach is to calculate the rate of return on each project. The

internal rate of return is the rate which is being earned on the unamortized

balance of the investment, such as the rate on a home mortgage. Using Table B-

4, the calculation is made using a trial-and-error approach. What rate will bring the

future cash flow back to Rs.1000 today?

The rates are,

Project A: 25 + percent

Project : 30 + percent

Project C: 16 percent

Project D: 25 percent

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NET PRESENT VALUENET PRESENT VALUE:The net present value of an investment is the difference between future

cash inflows discounted at a specified rate and the amount of the original investment. If a desired rate of return is known, the present value of the future flow can be determined. Assume the company wants a 20 percent return on investment. The present-value factors for 20 percent for each year are given in Table B-2. Applying these factors to the flows for the four projects, a present value for each project is as follows:

Project investment Present Value Net Present @ 20%

A Rs.1000 Rs. 1092 Rs. 92

B 1000 1188 188

C 1000 996 - 4

D 1000 1142 142Refer the table B-2

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Using the net-present-value (NPV) approach, we see that project B has the

highest net present value. Projects A, B, and D all have positive net present

values, which mean that these projects all return more than 20 percent. Project

B has the highest NPV, which makes it the most attractive alternative. Project

C, with a negative NPV, returns slightly less than 20 percent.

How would you rank projects if the original outlay is different? The one with

the highest investment is likely to have the highest absolute Rupee NPV but

may have a smaller return. Projects of this nature can be ranked by the use of a

profitability index.

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PROFITABILITY INDEX:

Project A has the lowest Rupee NPV. It also has the lowest investment outlay.

The index shows, how- ever, that it has the highest return; i.e., the Rupee

received discounted at 20 percent are higher relative to the investment than the

Rupee received in either project B or project C.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

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TABLE : B-1 PRESENT VALUE OF RS.1 RECEIVED AT END OF THE YEAR INDICATED Present Value =1/(1+i)n

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TABLE : B-2 PRESENT VALUE OF RS.1 RECEIVED AT MIDDLE OF THE YEAR INDICATED Present Value =1/(1+i)n-1/2

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TABLE : B-3 PRESENT VALUE OF RS.1 RECEIVED AT END OF EACH YEAR FOR N YEARS

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TABLE : B-4 PRESENT VALUE OF RS.1 RECEIVED AT MIDDLE OF EACH YEAR FOR N YEARS

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Emulating

the bench mark of

Koba Yashi – Mitsubishi

Success Model

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The Keys

Small group activity a. One suggestion per month per person.b. Short standing meetings to stress efficiency.

Cleaning and Organizing

KEY: 1

Measured Management Objectives ( Safety, Horizontal Hierarchy, Clear Instruction from TOP)

KEY: 2

KEY: 3

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Reducing Inventory. (Work - in - Progress)

a. All activity that don’t add value to product are wasteful.

KEY: 4

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QUICK CHANGEOVER TECHNOLOGYa. Any one should be able to perform a

quick changeover ever in new environments.

b. Accept the change to shorten all changeovers to less than one cycle time.

KEY: 5

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Value Analysis of Manufacturing Methods (Improvement in Methods)

a. Ask “WHY” five times for every motion of activity.

b. Modular a management of predetermined Time standards

(i) Material Handling Method

KEY: 6

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Zero Monitor Production

a. Monitoring is a form of Wasteb. Watching the running machine?

KEY: 7

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Integrating Functions

a. Reduce the inventory at the joining points.

b. Reduce the “Joints” and make seamless.c. Planned Maintenance activity.

KEY: 8

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Maintaining Machines and Equipment

a. Prepare Preventive maintenance groupb. Full employee involvement in study

groups

KEY: 9

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KEY: 10

WORK FLOOR TIME POLICES

Encourage the workers to do the next day’s preparation before they go home at night.

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KEY: 11

QUALITY ASSURANCE SYSTEM

Next process is customer. No bad product to the next process. Workers perform inspection on their

own product.

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We must build quality in the

processes themselves!

I’ll inspect what I make

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POKA YOKA

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KEY: 12

DEVELOPING YOUR SUPPLIERS

Treat external as internal division. Technical Support.

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KEY: 13

ELIMINATING WASTE WITH A “ TREASURE MOUNTAIN MAP”

Only do those actions customer will pay.

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KEY: 14

EMPOWER WORKER TO MAKE IMPROVEMENTS

Expand processing capability in the improvement corner.

Building through Low-cost Automation Devices.

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KEY: 15

SKILL VERSATALITY AND CROSS TRAINING

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KEY: 16

PRODUCTION SCHEDULING

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KEY: 17

EFFICIENCY CONTROL

Decide on standard times for each process. Compare the standard times to actual times.

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KEY: 18

USING MICROPROCESSORS

Mechatronics. Learnt about sensors and how they are used.

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KEY: 19

CONSERVING ENERGY AND MATERIALS

Quantify the importance of conservation by showing energy and material costs as a percentage of total costs.

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KEY: 20

LEADING TECHNOLOGY - SITE TECHNOLOGY

There is no interest in the progress of the other players in the industry.

People in the factory are content with the current site technology.

The factory is about on par with the rest of the industry.

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Taiichi Ohno's original enumeration of the seven wastes plus underutilized people. These are:

Eight wastes

1. Overproduction: Making more, "earlier, or faster than the next operation needs it.

2. Waiting for the next process, worker, material, information, or equipment.

3. Transportation: unnecessary transport of materials.4. Overprocessings of anything that does not add value.5. Inventories more than the absolute minimum required to meet

customer demand.6. Motion: unnecessary movement (like waiting) of people.7. Production of defective parts or information.8. Not fully utilizing employees brain power, skills, experience,

talents and creativity.

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Value stream mapping

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Value stream mapping – from rfq to delivery

1. Determine the process family.

2. Draw the current state map

3. Create a future state map

4. Develop the action plan to get to the improved future state.

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Four steps to Value stream mapping

Step 1: product development

Identify customer requirements,

Define method of delivery, and

Define typical quantity requirements.

This value stream can serve more than one customer, but be sure to use similar primary processes. Use a pencil rather than a computer.

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Step 2: process design

Cycle time (Operator and Machine cycle time)Changeover times,Average inventory queue,Average production batch size,Number of operations at each process,Package or container size,Available time (take out break and lunch times),Scrap rate,Machine up-time (availability), andNumber of product variations.

Perform an upstream walk-through for each process step, observing and documenting as much of the following as possible.

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Step 3: preparationRecord as much information as is pertinent in the process description box.

Step 4: planning

Develop a future state map,Dream about perfection (Imagineering),Think outside the box,Develop alternatives to the current state map that are muda free, andFocus on velocity.

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1% error Adds Directly

to The Bottom Line

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This business was very focused on its core processing activity, but less focused on the support functions. One of these support functions was the off-line handling and managing of its molds, which were quite fragile and breakable.

This was considered to be a less important activity than production and, as long as the molds were ready for production as required, Plant Management largely ignored this activity.

Also, the budget for this section was relatively small; in anyone year they would spend about $200,000 on the replacement of molds that were broken off line. As this was only about 1% of costs, the activity was never previously targeted in typical cost reduction programs.

1 % error Adds Directly to The Bottom Line

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As part of an operational review, this organization investigated its 1

%errors and this previously ignored cost.

A comparison with similar plants showed that it was possible to operate

with almost zero breakages and that the current expense could be

eliminated with better handling and management. The procedures from

the other plants were adopted to address the issue.

This resulted in breakages being almost eliminated. Focusing on this

previously ignored 1 % error and adopting simple procedural changes

added $200,000 to the bottom line.

Contd…

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Process capability

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PROCESS CAPABILITY RATIO

The concept of Process Capability Ratio (PCR), was defined as

PCR = USL – LSL / 6σ (two – sided)

For one – sided upper specifications only, the PCR is defined as

PCRU = USL -µ / 3σ (upper)

And for one – sided lower specifications only, the PCR id defined as

PCRL = µ - LSL / 3σ (Lower)

The PCR aids in the evaluation of processes with respect to their specification

limits.

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Recommended Minimum values of the Process Capability Ratio

Two – sided

Specification

One – Sided

Specification

Existing processes 1.33 1.25

New processes 1.50 1.45

Safety, strength, or critical

parameter, existing

process

1.50 1.45

Safety, strength, or critical

parameter, new process

1.67 1.60

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Process follow out for a normally distributed characteristics (One-sided specifications). For Two sided Double the value of Y- axis

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INDICES OF PROCESS CAPABILITY

SHORT TERM CAPABILITY

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LONG TERM CAPABILITY

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Example: PCRs AS FRACTION NONCONFORMING

PCRs may be translated into an expected fraction nonconforming, assuming a normal distribution for the characteristic of interest. For instance , a PCR = 1.25 for a two –sided specification indicates that

PCR = USL – LSL / 6σ = 1.25

So that USL – LSL = 7.5σ and

Z = 3.75σ / σ = 3.75More extensive tabulation from Normal Distribution Table, show that,

1 – Φ (3.75) = 0.000088

Since we are considering a two – sided specification, the expected fraction non conforming is 2 (0.000088) = 0.00018. Currently, quality controllers are concerned with parts per million (ppm) defective. For PCR = 1.25, we expect 180 ppm non conforming.

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THE SIGMA CONVERSION GUIDELINES

No Action + 1.5

- 1.5 No Action

Short - Term

To

Long - Term

FROM

Short - Term Long - Term

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Product quality

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WHEN TO USE DPO AND WHEN DPU?

• e-dpo denotes the probability that an opportunity will not have a

defect.

• e-dpu denotes the probability that a unit will be defect free.

•In most practical situations, we have more than one CTQ (critical-

to-quality) characteristics associated with a product and hence

more than one opportunity of defect. Hence it is more rational to

use e-dpo as a measure of yield.

• However, if the possible number of opportunities is infinitely

large, then e-dpu should be used as a measure of yield.

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PERFORMANCE MEASURES AT A GLANCE

d: Number of defects

dpu: Defects per unit

dpo: Defects per opportunities

Dpmo: Defects per million opportunities

Zst: Short term sigma rating

Zlt: Long term sigma rating = Zst + 1.5

Y tp: Through put yield

Y rt: Rolled through put yield

Cp: Process capability (Potential) index

Cpk: Process capability (performance) index

PPM: Parts per million defects

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Yes

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NO

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YIELD: THE CLASSICAL PERSPECTIVEY final == S / Uwhere Y final == Final yieldU == Number of units testedS == Number of units that passIs the classical calculation of yield con-elated to other- major business metrics?

-Yield has always been considered a very important metric for guiding the business; however, no correlation is observed between yield and profit margin. How can this be explained?

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Suppose we say that there are 5 key tasks which must be executed ( without error) in order to successfully prepare a report, viz writing, typing, Xeroxing, collating and binding .

Suppose that each of these tasks are operated at 3σ level. The probability of not getting a defect at any of these stages is 0.9973.

Then the probability of preparing an error free report is given by 0.9973 x 0.9973 x 0.9973 x 0.9973 x 0.9973 = 0.9866.

If there are 18 such reports prepared, then the total number of opportunities for non-conformance would be 5xI8=90.

The probability of 100% conformance to all requirements would be 0.986618 = 0.7840.

Thus the rolled throughput yield is given by ytp = 78.40%.

IDEA OF ROLLED THROUGHPUT YIELD

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1. In an organization the rate for winding, machine, laminating and processing Departments are 80%,98%,68%, & 99%. What is the YRT, YNA, PPM.

2. In the process of producing 7500 units 50 defects were observed. The total type id defects that could have occurred were 10. Find DPU, TOP, DPO & YFT. The yield of 96%. What is the PPM Level?

3. What is the PPM level for DPU of 2.5?

EXERCISES

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The 10 steps And

Minimizing inventory investment

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Ensure consistent sign in and sign out of goods.Identify rush periods and level load activity accordingly.

Step #1: Get Organized Arrange warehouse/ store in a logical and orderly manner.

Appropriate shelving/ rackingHigh- frequency items closest to entry / exit Group like products Clearly identified names and code numbers

Ensure a high standard of housekeeping at all times. Use visual management techniques.

Location indicators Reorder indicatorsLine marking

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Step #2: Apply the Fundamentals with Rigor

Use the fundamentals of supply chain management and stock

calculation to set and review holding requirements.

Step #3: Focus on Function, not Cost

Recognize that the function of inventory is to maintain a

supply promise to customers and manage the inventory to

fulf1l this need.

Inventory that does not move does not fulfi1 this need Base stocking policy on movement and service and not cost of product .

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Step #4: Identify and Focus on Leverage Points

The key steps of cost in inventory are the ownership of the item and

the length of time of ownership.

To minimize cost, activities should focus on eliminating ownership

(as opposed to access) and/or minimizing the time between gaining

ownership and shipping/using the item.

Step #5: Limit and Prioritize Resources

Limiting the funds available for investment in inventory will drive the

need to prioritize inventory and extract greater value from the

investment.

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Step #6: Work on the 1% errors A key 1% error in inventory management is the tracking of

receipts and delivery. By ensuring that the systems are followed and

records kept, the data will be available to make sound stocking

decisions. Step #7: Eliminate Duplication This includes duplication of items, but also duplication of

locations and duplication of safety stock.

Step #8: Question Everything The assumptions made when inventory levels were first set may no

longer be valid. Have supply dynamics changed? Have customer

needs/usage changed? Has our appetite for risk changed?

Review inventory assumptions on a regular basis.

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Step #9: Take Some Chances

Seek to use innovations that do not have an obvious direct

payback. For example, apply visual management techniques-

Arrange for consignment stocks if this has not been your

policy. Remember to understand and manage the risks.

Step #10: Ignore Tradition

Review what is preventing further improvement and change it!

Review e-business changes that might provide further

opportunity.

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Quality tools with

jidoka and

poka yoke

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Andon:A Japanese word meaning light or lantern. It is triggered by an

abnormal condition or machine breakdown. It is a form of communication indicating that human intervention is required. Many times these are presented like a stoplight (red = stop, yellow = caution, green = go).

Poke – yoke (error Proofing):low – cost, highly reliable devices or innovations that can

either detect abnormal situations before they occur in a production process, or, if they occur, will stop the machines or equipment and prevent the production of defective products, those that prevent errors by an operator, and those that detect errors by an operator and give a warning, and those that defects in products and prevent further processing of them.

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Heijunka:A method of leveling production for mix and volume.

jidoka:This defect detection system automatically or manually stops

production and/or equipment whenever an abnormal or defective condition arises. Any necessary improvements can then be made by directing attention to the stopped equipment and the worker who stopped the operation. The jidoka system posits faith in the worker as a thinker and allows all workers the right to stop the line on which they are working. It is now called autonomation in English.

Continuous flow production:A production system where products flow continuously

rather than being separated into lots. No work in process is built up.

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Manufacturing resource planning (MRP II):MRP as just defined, plus capacity planning and a finance interface to translate operations planning into financial terms, and a simulation tool to assess alternate production plans. ERP is enterprise wide resource planning waste.

Material requirements planning (MRP):A computerized system typically used to determine the quantity and timing requirements for production and delivery of items (both customers and suppliers). Using MRP to schedule production at various processes will result in push production, since any predetermined schedule is only an estimate of what the next process will actually need.

Overall equipment effectiveness (oee):A machine’s overall equipment effectiveness is the product of

its availability. Performance efficiency, and first – pass yield.

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First- pass yield (fpy):

The time required to complete one cycle of an operation. The time elapsing between a particular point in one cycle and the same point in the next cycle. If cycle time for every operation in a complete process can be reduced to equal takt time, products can be made in single-piece flow.

Cycle time

The quality rate, is the percentage of units that complete a process and meet quality guidelines with out being scrapped, rerun, retested, reworked, returned, or diverted into an off-line repair area. FPY is calculated by dividing the units entering the process minus the defective units by the total number of units entering the process.

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Mistake - Proofing emphasizes the detection and correction of mistakes before

they become defects delivered to customers. It puts special attention on the one

constant threat to any process: human error. Mistake – Proofing is simply to pay

careful attention to every activity in the process and to place checks and problem

prevention at each step. It’s a matter of constant, instantaneous feedback, rather

like the balance and direction data transmitted from a cyclist’s ears to brain,

keeping his or her bike upright and on the path.

MISTAKE - PROOFING (OR POKA – YOKE)

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USES OF MISTAKE – PROOFING

Mistake – Proofing can be used to:

Fine – tune improvements and process designs from DMAIC projects.

Gather data from processes approaching Six Sigma performance.

Eliminate the kinds of process issues and defects needed to take a

process from 4.5 to 6 Sigma.

BASIC STEPS IN MISTAKE – PROOFING

Mistake – Proofing is best applied after completion of a through FMEA

prediction and prevention review. Then we can

Identify possible errors that might occur despite preventive actions.

Determine a way to detect that an error or malfunction is taking place or about to occur.

Identify and select the type of action to be taken when an error is detected.

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DIFFERENT KIND OF ERRORS

• Forgetfulness – Rail gate closing

• Errors due to misunderstanding – Steps on break car with auto transmission

• Errors in identification – Bill amount

• Errors made by Amateurs

• Wilfull errors – No cars at sight crossing in red.

• In advertent errors – Crossing without noticing

• Errors due to slowness – Delays, step on break

• Errors due to lack of standards – To discretion

• Surprise errors – Malfunction without warning

• Intentional errors – CrimesMistake happen for many reasons, but almost all can be prevented if we take the

Time to identify when and why they happen.

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The basic types of “Mistake – Proofing Device” are:

Control:

An action that self – corrects the process, like an automatic spell –checker / corrector.

Shutdown:

A procedure or device that blocks or shuts down the process when an error occurs. Example. The automatic shutoff feature of a home iron.

Warning:

This alerts the person involved in the work that something is going wrong.

Example. A seat – belt buzzer. So is a control chart that shows that a process may

be “out of control”.

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Some common types of Mistake –Proofing measures include:

• Color-and shape-coding of materials and documents

• Distinctive shapes of such key items as legal documents

• Symbols and icons to identify easily confused items

• Computerized checklists, clear forms, best-in-class, up-to-date procedures and

simple workflows will help to prevent errors from becoming defects in the

hands of customers.

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MISTAKE – PROOFING “DOS AND DON’TS”

DO’s:

Try to imagine all conceivable errors that can be made.

Use of all your creative powers to brainstorming clever ways to detect

and correct errors as part of the work process itself.

DON’TS:

Fall into the “ to error is human” mindset.

Rely on people to catch their own errors all the time.

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IMPLEMENTING

THE LEAN

KAIZEN

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Vision Statement

Broad ObjectivesFoster a commitment to continuous improvement with in- creased visibility of how we use time. Reduce or eliminate activities that do not add value.

Foster a commitment to a high level of quality-doing the right things right the first time.

Apply state-of-the-art tools for waste reduction and quality improvement.

Change the management culture from "traditional" to "team oriented," enhancing employee involvement at all levels.

Employ statistical management techniques as a new language for all employees, identifying problems when they occur, and resolving them at the lowest possible level in the organization.

Train employees to be team leaders, facilitators, and team members in accordance with the new culture.

Foster innovation and commitment to being world class all levels.

Promote the use of consensus decision- making whenever possible as the foundation for the new culture.

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Market Imperatives Compress lead-time from six weeks to two weeks.

Improve on-time delivery performance from 75 to 95 percent.

Current Conditions Backlog: 2-3 weeks (shippable orders) Setup times: punch, 45 minutes

brake, 40 minutes hardware, 30 minutes spot weld, 25 minutes

Material management: batch-push Subcontract lead times: 1-2 weeks Lot sizes: 90 days Inventory turns: 8 turns/year Lead time: 5-8 weeks (including outside processes) Facilities layout: process functional, multiple buildings Quality: Cost = 2% of sales Productivity: Rs. 8500 per employee/year (Rs. 12000 direct labour)

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To – be Vision Backlog: 3 days maximum (shippable orders) Setup times: punch, 9 minutes

brake, 12 minutes hardware, 5 minutes spot weld, 9 minutes

Material management: demand pull Subcontract lead times: 2-3 days Lot sizes: 2 weeks Inventory turns: 20 turns/year Lead time: 9-11 days (including outside processes) Facilities layout: cellular, single building Quality: cost < 1 % of sales Productivity: Rs. 10000 per employee/year (Rs. 130000 direct labor)

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Model-line personnel will exhibit the following characteristics:

Accept only zero quality rejections; Are not passive witnesses; Keep the flow; Continually suggest improvement;Are interested in production goals; Know how to do their jobs; Know how to do others' jobs; Can stop the line; Assist their teammates. Predict and avoid problems;Measure their own output; Measure their own quality; Understand the product; Understand the process; Call in resources as needed; Communicate, cooperate, collaborate; and Are team players and team leaders.

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Role of Steering Team:

Visits other successful companies; Provides organizational development through training; Generates, revises, maintains the vision; Develops and communicates the vision and plan, formally and informally; Acts as strong sponsor for the entire improvement process; Remains visible in the implementation process; Sets the example (good at the fundamentals); Demonstrates the new values of absolute quality and waste elimination; Models pro-active behavior; Begins and ends meetings on time; Uses consensus decision-making; Supports "do it right the first time"; Directs, informs, and guides the continuous improvement coordinator, outside consultants, and model-line team in a collaborative manner;

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Cond…

Resolves disagreement by consensus; Meets periodically (not less than monthly) to review the progress of the program; Encourages and sponsors program activities and strongly sponsors the successful adaptation of the new philosophy at The Jobbe Shoppe; Chooses problem/opportunity areas for teams to work on; Creates guidelines and provides support to team (for example, defines boundaries, expectations); Meets with team leaders and program coordinator to review problem statement, milestones, and action plans;Manages change by spreading and demonstrating (by action) the new values; and Ensures the proper resources are assigned to accomplish the task within budget and schedule

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Role of the Continuous Improvement Coordinator

Coordinates with steering team members; Reports status and problem areas to facilitate corrective action when needed; Establishes ongoing education program in collaboration with steering team; Ensures that teams have a fully developed project plan; Supports the teams in using quality improvement processes, applying Just-in Time (JIT) techniques, and developing as a team;Aids the team leaders in preparing for meetings, provides feedback on team meetings; Provides a link between team leaders and the steering team; Keeps up to date on world-class technologies; Instructs on general problem-solving techniques; Prepares and delivers team training on selected topics, serves as resource person to supervisors, team leaders, and members;

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Cond…

Monitors progress of the teams, consults on use of techniques; Shares experiences and results of team activities with others; and Observes group dynamics and works with team leader to design and implement activities that contribute to team health; Leads the team through the problem -solving process reflected in the project plan and schedule; Teaches/refreshes quality improvement and waste reduction JIT techniques; Communicates team progress to the team; Communicates/coordinates with supervisor and program coordinator, especially before and after team meetings; Shares experience and knowledge; Fulfills administrative duties; and Encourages team member participation.

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