process management (1) - wz.uw.edu.pl management 1.pdf · process management (1) ... case study by:...

© Krzysztof Klincewicz Faculty of Management, University of Warsaw© Krzysztof Klincewicz

Process management (1)International Business Program

Faculty of Management, University of Warsaw

prof. UW dr hab. Krzysztof Klincewicz

[email protected]

TiMO (Department of Organization Theory and Methods)

www.timo.wz.uw.edu.pl

Faculty of Management, University of Warsaw

mailto:[email protected]

http://www.timo.wz.uw.edu.pl/


What do I need this for?


Learning outcomes

Upon the completion of the course, you will be able to:

• identify, map and analyze business processes of a selected organization,

• use analytical frameworks and techniques including value chain, make-or-buy, fishbone diagram, system dynamics, benchmarking, value analysis, business process reengineering,

• present principles, benefits and limitations of process approaches including Reorder Point System, ABC method, MRP, JiT, lean management, TQM, inventory-driven costs, Triple-A supply chain, Six Sigma, ISO 9001, ISO 14001, EMAS,

• model systemic interdependencies in organizations using software Vensim,

• model business processes in organizations using software ARIS Express,

• work in teams on solving practical business problems.


Course assessment

• 60%: individual and team assignments accompanying regular classes

• 40%: written exam

• Assignments have to be handed over on specific dates –no extensions will be granted, missed assignments cannotbe made up for and will influence the final grade

• Some assignments will be done in the classroom (i.e. onlystudents present during a particular class can score pointsfor these assignments)


Literature

• Obligatory readings required for the exam:

– case studies distributed in the classroom

– articles and book chapters in PDF format, available from the course website

– they supplement the classes and knowledge of their contents will be verified in the exam


Business process

• Collection of activities or tasks

• Has inputs and outputs

• Serves a particular goal (delivery of service, product or other value-added for customers, alsointernal customers)

• Is repetitive (as opposed to projects)

• Its improvement helps increase organizationalefficiency and reduce costs


Processes are managed for:

• Effectiveness

– achievement of expected outputs

• Efficiency

– optimization of time and money spent

• Control

– related to quality and predicability

• Compliance

– to avoid liability or comply with formal standards


Key Performance Indicators (KPI)

• Indicators of performance, usually related to processes

– measurable

– important for the organization

– controllable by the organization

– linked to specific business processes


Process complexity and automation potential (Harmon)

Simple proceduralprocesses

More complexprocesses

Very complex processes

• a step-by-step sequence• few rules or decision points• well defined subject matterperformed by „ordinary” employeesmanufacturing line, retail sales, bookeeping

• a complex, branching sequence• many rules or decision points• a less well defined subject matterperformed by knowledge workersrepair of equipment, B2B sales, business planning

• unique sequence• heuristics and „guesses”• undefined, evolving subject matterperformed by expertsnew product development, software design, consulting

…or maybe rather:projects?

© Harmon


Example – Kristen’s cookies

Case study by: Andy Shogan


Basic definitions

• THROUGHPUT TIME FOR AN ACTIVITY. The time it takes to perform an activity.

• THROUGHPUT TIME FOR THE PROCESS. The total amount of time a unit spends in the process from beginning to end, including the time spent being actively work on at the activities of the process as well as any time spent waiting between activities.


Basic definitions

• BOTTLENECK. The activity or resource that limits the capacity of the overall process. The bottleneck is usually the activity with the minimum capacity, but the bottleneck can sometimes be the labor available at a particular activity or set of activities.


Basic definitions

• CAPACITY OF THE PROCESS. The maximum rate of output of the process, measured in units of output per unit of time (e.g., 4 dozen per hour).

• CYCLE TIME OF THE PROCESS. The time that elapses between completion by the process of successive units, assuming the process operates continuously. (For example, if a process has a capacity of 4 dozen per hour, then the cycle time of the process is 15 minutes.)


Basic definitions

• CAPACITY OF AN ACTIVITY. An activity’s maximum rate of output, measured in units of output per unit of time (e.g., 4 dozen per hour).

• CYCLE TIME OF AN ACTIVITY. The time that elapses between the activity’s completion of successive units, assuming the activity operates continuously. (For example, if an activity has a capacity of 4 dozen per hour, then the activity’s cycle time is 15 minutes.)


Basic definitions

• UTILIZATION OF A RESOURCE. The ratio of the time that the resource is actually used to the time that the resource is available to be used.


Fishbone diagram – example (1)

© BPI Consulting (2005)


Fishbone diagram - example (2)

© Syque Quality (2002)


Fishbone diagram - example (3)

© Enarsson (1998)


Case study

• Shortening customer telephone waiting times


Case study

• Freemantle restaurant


Case study

• Hongkong Disneyland


Sample process chart

Time: 56.2 min, Distance: 205 meters


Case study

• Emergency room admission


Case study

• Shaving process


Value added analysis

• Identification of tasks, which are not adding valueand are unnecessary

• For every step in a process, asking questions:

1. Does the end customer require this activity? (yes=VA)

2. Can the activity be performed differently? Is itrequired to support value-adding activities? (yes=NVA)

AUTOMATE / OUTSOURCE / REPLACE

3. Can the activity be eliminated without impact on the end customer? (yes=NVAU)

ELIMINATE


Value added analysis - example

Process step VA (value adding) NVA (non-valueadding)

NVAU (non-value addingand unnecessary)

Receive call regarding technical support NVA

Collect information NVA

Register information NVA

Print registered information NVAU

Put the printout into a folder NVAU

Assign request number NVA

Check in database if problem known VA

E-mail information to team leader NVAU

Assign priority NVA

Wait for 1-7 hours NVAU

Resolve request VA

Register updated information NVA

E-mail information to team leader NVAU


Value added analysis – example(analyzing possible time savings)

Process step VA (value adding) NVA (non-valueadding)

NVAU (non-value addingand unnecessary)

Receive call regarding technical support 1 minute

Collect information 1-5 minutes

Register information 1-3 minutes

Print registered information 0.5 minute

Put the printout into a folder 2 minutes

Assign request number 1-3 minutes

Check in database if problem known VA

E-mail information to team leader 1-3 minutes

Assign priority 0.5 minute

Wait for 1-7 hours 1-7 hours

Resolve request VA

Register updated information 1-5 minutes

E-mail information to team leader 1-3 minutes


Case study

• Registration at IMA Conference


Three major process management traditions (Harmon)

Qualitycontrol

Business management

Information Technology

TaylorFord

Deming

JiTTQM kaizen

lean Six SigmaCMM

Rummler

Porter

Kaplan, Norton

BPRHammer, Champy

ZachmanTOGAF

ERP

workflowEAI BPMS

process modelling Scheer


Quality control tradition (1)

• Focus on individual work

– Frederick Taylor’s „scientific management” and „taylorism”

– analysis and simplification of work

– identification of the best way to perform a task

– establishing appropriate control systems

• Mass manufacturing model

– Henry Ford and „fordism”



• Quality movement in Japan

– inspired by Edward Deming

– most widely recognized achievements by Toyota

– approaches: just-in-time, kaizen, Total Quality Management, lean management

• Six Sigma

– established by Motorola

– process management combined with statistical quality control

– focus on continuous process improvement



• Capability Maturity Model

– established by Software Engineering Institute, Carnegie Mellon University

– ordered by US Department of Defense

– five „maturity levels” related to an organization’s abilityto manage its own processes

1. Initial

2. Repeatable

3. Defined

4. Managed

5. Optimizing


Capability Maturity Model

(1)

Initial

(2) Repeatable

(3)

Defined

(4) Managed

(5) Optimizing

basic processes repeatedin disciplined ways

organization standardizes the processes and performs them consistently

managers collect data on processes and control them,

processes are predictable

continuous, company-wide process

improvement efforts

chaos, lack of coordination, „putting out fires”

© SEI


Business management tradition

• 1970s - cost cutting projects in response to economic crisis• Geary Rummler

– process redesign as a way of improving performance– focus on managing the activities and processes - comparing

inputs and outputs, assuring the availability of resources, monitoring the process, providing feedback and incentives

• Michael Porter– value chain (originally introduced by McKinsey)– operational effectiveness - performing operations better than

competitors

• Robert S. Kaplan and David P. Norton– Balanced Scorecard– multidimensional measurement of corporate performance and

goal setting


Information Technology tradition

• Automation of work thanks to IT systems

• Michael Hammer, James Champy– Business Process Reengineering

– thinking in terms of corporate-wide processes

– radical redesign of processes , focused on customers

– active use of IT to support process improvement

• John Zachman (IBM)– Zachman Framework

– approach to modeling enterprise with respect to the implementation and maintenance of IT systems

– established perspective referred to as "Enterprise Architecture"

– similar approach: TOGAF (The Open Group Architecture Framework)


Information Technology tools

• Process modelling software– process capture / mapping / modelling, analysis and

optimization

– pioneer: August Scheer and ARIS

• Workflow software– automation of processes

• MRP/MRP2/ERP (Enterprise Resource Planning) systems and transaction systems

• EAI (Enterprise Application Integration) software

• BPMS (Business Process Management Systems)


Case study

• Janson Medical Clinic


Benchmarking

• Competitive benchmarking

– Analysis of processes of a competitor

• Problems

– Access to knowledge about competitor

– You can never be better than the object of benchmarking

– Good ideas may come from outside of the industry

• First known example: Xerox


Benchmarking

• Non-competitor, collaborative benchmarking

– Analysis of „process leaders”, companies with superior performance in specific areas

– Interest in companies from other industries

– Co-operation with the analyzed company

– Focus on specific processes – e.g. logistics

– Identification of best practices


Benchmarking example - Xerox

• Benchmarking of L.L.Bean, Inc., outdoor sportinggoods retailer and mail-order house (1981)

– Identified as a good performer thanks to financialindicators

– Focus on inventory management, warehousing and transport

– Xerox was able to process 117 warehouse orders per man-day, L.L.Bean – 550

– Adopting best practices related to: inventory sortingand placing in the warehouse, staff bonuses, use of automation, IT and barcodes


Case study

• Gifford Hospital Pharmacy


Analysis of business operations

• Value chain model (McKinsey, Michael Porter)

– strategically relevant activities of a firm

– helps understand costs and potential sources of differentiation

– created for an entire firm or a business unit


Value chain (Porter)

• Value - the amount that buyers are willing to pay for what a firm provides them (measured by total revenue)

• Margin - difference between total value and total costs of performing the value activities

• Primary activities - involved in the physical creation of a product, its sale and delivery to buyers and further assistance

• Support activities - support the primary activities by providing inputs, technology, people and administration


Value chain (Porter)

Inboundlogistics

OperationsOutbound

logisticsMarketingand sales

Services

Firm infrastructure

Human resource management

Technology development

Procurement

PR

IMA

RY

AC

TIV

ITIE

SSU

PP

OR

T A

CTI

VIT

IES

© Porter


Terminological confusion?

inbound logistics

outbound logistics

purchasing

procurement

distribution

administration


Value chain and organizationaldepartments (Porter)

Inboundlogistics

OperationsOutbound

logisticsServices

Firm infrastructure


Marketingand sales


Procurement

Production Marketing Research & Development Administration Purchasing

© Porter


Value chain used to analyzecosts

• Value activities form the basis for allocation of operating costs and assets

• Concepts of direct and indirect costs

– allocation of worktime (project management)

– allocation of shared activities costs

• Analyzing costs of purchased inputs & cost drivers

• Looking for cost advantages compared to competitors


Costs of purchasing

• What to analyze?– Buying assets or buying operating inputs

– Regular and irregular purchases

– Cost changes for regular purchases

– Identification of specific suppliers and order values

• Opportunities for cost reduction– small regularly purchased inputs - optimization

– irregularly purchased inputs and assets - competitive negotiations, buyer consortia

• Cost reductions may impact quality, erode differentiation, reduce flexibility


Cost drivers (Porter)

1. economies of scale (not only in production, also e.g. in purchasing)

2. learning effects, knowledge spillovers

3. pattern of capacity utilization (e.g. seasonality)

4. linkages (within value chain and within supply chain, including supplier agreements, supplier selection standards)

5. interrelationships (e.g. shared service centres, outsourcing)

5. integration (e.g. vertical integration, insourcing)

6. timing (e.g. first mover advantage or first mover disadvantage, timing of purchase and holding stock)

7. discretionary policies of a firm (e.g. delivery time, service standards, payment terms)

8. location (e.g. offshoring)

9. institutional factors (e.g. government, macroeconomics)

Read more about cost drivers in Porter’s chapter (obligatory readingavailable in PDF format)!


Technologies in value chain(Porter)

Inboundlogistics

Operations

Outboundlogistics

Marketingand sales

Services

Firm infrastructure



Procurement

PR

IMA

RY

AC

TIV

ITIE

SSU

PP

OR

T A

CTI

VIT

IES

TransportationMaterial handling

Storage and preservationCommunication

Quality testingInformation processing

Production processMaterials

Machine toolsMaterial handling

PackagingMaintenance

Quality testingDesign

Information processing

TransportationMaterial handling

PackagingCommunication


Mass mediaAudio & video recordingDesktop publishing

CommunicationInformation processing

Diagnostic toolsQuality testing

CommunicationInformation processing


Planning and budgeting

Office automation

TrainingMotivation


Product technologyComputer-aided design

Pilot plants


Information processingCommunication

Transportation © Porter


Outsourcing

• Contracting certain activities or entire processes to third-party suppliers

• Major reasons

– cost reduction

– risk management

– more flexibility („hire and fire”)

– lack of knowledge and skills

– lack of capacity or people

– willingness to focus on core business

– willingness to improve quality


Costs as motivation to oursource

In-house costs

• hourly wages of employees

• vacation allowances

• sick leaves

• employee benefits (agreed with labor unions)

• office space cost

• depreciation of equipment (computers, printers)

• technical support for employees

• office expences

• employee training

Outsourcing costs

• contract value

• contract administration costs(including: search and selection of suppliers, qualityassurance)

• transition costs (including severance pays and conversion of assets)

Read more about outsourcing costsin Michel’s article (obligatoryreading available in PDF format)!


Outsourcing problems

• Increase in costs of renewed contracts

• Quality control issues

• Need to define Service Level Agreements

• Limited direct contacts with people performing the activities

• Loss of in-house expertise

• Recently, some companies decide to useinsourcing! Read more about outsourcing and

offshoring problems in Overby’sarticle (obligatory reading availablein PDF format)!


Suitability of outsourcing

buildingsecurity,

managingcompanycanteen,

cleaning jobs

accounting, market

research, mass media advertising

building orproduction

linemaintenance

informationprocessing,

procurement, customerservice

Integration withcore business

Complexity

low high

high

low


Offshoring

• Outsourcing in international environment – services provided by people working in country A for a clientorganization in country B

• Attention: offshoring can also be used within anorganization by relocating processes to foreignbranches (=not outsourcing)

Retail bank in Germany

Customer callcentre in Poland

Employees of the company,providing offshoring

services, work in Poland- not in Germany


Examples of offshoring

• Business Process Offshoring (BPO)

– call centres, accounting/payroll documents processing

• Knowledge Process Offshoring (KPO)

– software development, clinical trials of medicines, legalanalyzes

• Contract manufacturing

– Original Equipment Manufacturers (OEM), ElectronicManufacturing Services (EMS), Original Design Manufacturers (ODM)


Li&Fung (Hong Kong) –managing a virtual organization

© Fung, Fung & Wind


Li&Fung (Hong Kong)

• „tackling the soft $3”

– a product leaves the factory at a price of $1

– it ends up on retail shelves at $4

• major source of costs: not production, but other costs in distribution channels(transaction costs)


Make-or-buy decisions

Product X: MP3 player

Component Y: memory chip

Should you make Y – or buy froman external supplier?


Make-or-buy decisions

• How important is X for my strategy?• What knowledge/technologies are needed to make Y?• Can Y be used in my other products?• Can knowledge/technologies also be used in my other

products?• How many pieces of X do I intend to produce?• How many pieces of Y do I need?• What is the minimum production scale of Y, that

guarantees the returns on investment in own plant?• Can I get better prices from external suppliers?• ...


Transaction costs

• Costs incurred in an economic exchange

– Search and information costs

– Bargaining costs

– Communication costs

– Coordination costs

– Measurement costs (quality control, customer complaints)

• Important for make-or-buy decisions: not only the manufacturing cost!


Agency costs

• Costs, which you would not incur, if you completedthe work by yourself

• Costs, which arise, when you have: suppliers, subcontractors, employees, managers, ...

• Sometimes outsourcing and use of externalsuppliers turns out to be very costly in the end

→ insourcing


Team assignment

• Analyze the selected company using value chain model– either Jeronimo Martins Polska (www.biedronka.pl) or LOT

(www.lot.com) or Asseco (www.asseco.com) or KGHM (www.kghm.pl)– detailed analysis:

• primary and supporting activities• cost drivers• use of technologies in different segments of value chain• use of outsourcing in different segments of value chain

– you might want to look for industry reports and company analyses in EBSCO, ABI/Inform and Factiva databases

• Formal requirements– PDF file sent by e-mail by …– original work (plagiarism = course fail)– prepared by teams (minimum size=3, maximum size=5, you are not

allowed to prepare this assignment individually)

http://www.biedronka.pl/

http://www.lot.com/

http://www.asseco.com/

http://www.kghm.pl/


Individual assignment

• Read the article „In this corner! The Contender” aboutJamie Dimon and describe, how the costs of operations at JP Morgan Chase were (or could have been) reduced by (1) exploiting cost drivers and (2) reconfiguring the value chain– you need to read the assigned chapter by Porter in order to

prepare the assignment and you should refer to specialistterminology from the reading and from the class!

– you might also benefit from looking for additional informationabout the bank’s transformation, supplementing the case study

• Formal requirements– PDF file sent by e-mail by…– original work (plagiarism = course fail)– prepared individually (every person needs to prepare an own

essay)


Case study

• Hank Kolb


How to optimize manufacturingoperations?

IT-based methods Japanese approaches

MRP (MaterialRequire-

mentsPlanning)

MRP II (Manufactu-

ring Resource Planning)

ROP (Re-Order Point

System)

ABC method

Value analysis

JiT (Just-in-Time)

Total QualityManagement

Kanban

Lean management

Traditional approaches

„Listen carefully, I shall say it onlyonce!” The above topics are notcovered by obligatory readings!


Re-Order Point System (ROP)

• Components/parts re-ordered once the stocklevels drop beyond certain level

• Economic Order Quantity (EOQ) – optimal numberof units of the part which should be ordered to minimize the total costs of purchasing, storing and delivering the parts


Economic Order Quantity (EOQ)

EOQ = optimal quantity of ordered parts

N = annual needs for parts

O = fixed cost per order

S = annual carrying (storage/holding) cost per unit

• Q does not depend on unit purchase costs!



Quantity of ordered parts

Tota

l co

sts

EOQ = optimal quantity of ordered partsN = annual needs for parts

O = fixed cost per orderS = annual carrying (storage/holding) cost per unit



• Annual demand for bicycles is 8,000 units. Eachbicycle requires one pair of wheels. Costs of storinga wheel in the warehouse is $2.50 per year. Placingan order for additional wheels costs $50.0 per order.

• What is the Economic Order Quantity?

EOQ = optimal quantity of ordered partsN = annual needs for parts

O = fixed cost per orderS = annual carrying (storage/holding) cost per unit



• Simplifications and assumptions

– Cost of ordering does not change

– Annual needs for parts do not change

– Unit purchase prices do not change depending on order size

– Delivery is immediate and does not disrupt operations

• Limited practical benefits of EOQ in real-life scenarios


Case study

• Slayton's Furniture Store


ABC method of inventory control

• Attention: the method has nothing to do with activity-based costing!

• Based on Pareto’s law

• 3 groups of inventory items– A – account for 20% of items and 80% of annual costs

– B – account for 30% of items and 15% of annual costs

– C – account for 50% of items and 5% of annual costs

• Tight control of A, frequent reviews of B, limitedattention paid to C


Inventory control à la ABC –example of Unilever’s e-procurement

© May (2003)* MRO – maintenance, repair and overhaul


Case study

• Ohio Tool Company


Value analysis / valueengineering

• Introduced by General Electric Co. in 1947

• Analyzing product designs in order to improvevalue (reduce costs)

• Formal procedure, involving work of expert teamsand brainstorming as part of a unique project

• Different from Japanese concept of quality circles: regular, repetitive analyses by teams of productionline workers


Optimization of operations

Inboundlogistics

OperationsOutbound


Services

Optimizingmanufacturing

operations

Optimizinginboundlogistics

Optimizingoutboundlogistics

Just-in-TimePurchasing

Just-in-TimeManufacturing

Total QualityManagement

Inventory-DrivenCost Optimization

kanbanlean management

(USA)


Inventory-driven costs (IDCs)

• Computer firm HP optimized IDCs in the 1990s to improveoperations profitability

• Holding cost of inventory in outbound logistics(distribution) – money involved, physical cost of maintaining the inventory

• Component devaluation costs – due to price drops in hightech

• Price protection costs – reimbursements when lowering pricesfor products held by distributors

• Product return costs – excess inventory from distributors orproduct faults

• Obsolescence costs – end-of-life writeoffs for discontinued orexpired products


Inventory-driven costs (IDCs)

• IDCs account for significant part of total costs

• Important for companies working with distributors

• Important for companies in dynamically changingmarkets

• Important for companies selling perishables

• Reduction of IDCs = improvement of supply chains

• traditional approaches were focused on improvementsof inbound logistics – but significant cost reductionsmay also result from outbound logistics

Read more about IDCs in Callioni’set. al. article (obligatory reading, available in PDF format)!


Supply chain

Inboundlogistics

OperationsOutbound


Services

value chainsof our suppliers

value chainsof our distributors

vertical integration:integration with suppliers or distributors

supply chain: transforms raw materials into finished products, delivered to customers


Supply chain management (SCM)

• Involves company with its suppliers and distributors (separate business entities, havingdifferent goals, working based on contracts, building a network)

• Transaction cost economics: difference between„networks” and „hierarchies”

• Vertical integration – acquiring a company in one'ssupply chain (part of a network becomes part of organizational hierarchy)


Supply chain management (SCM)

• Selected SCM areas

– planning the co-operation within the chain

– sourcing and procurement strategies and tactics

– distribution strategies and tactics

– physical logistics (including optimization of packaging, transport and warehousing)

• barcodes and RFID (Radio-frequency Identification)

– communication, coordination and collaboration

– integration of IT systems to support information flows

• EDI (Electronic Document Interchange)


Beer distribution game (MIT)

Beerfactory

Distributor Wholesaler Retailer

orders orders orders

products productsproducts

delay delay delay

Read more about beer game in Senge’s chapter (obligatory reading for next class, available in PDF format)!


„Triple-A” supply chain (Lee)

• „Extreme” optimization of supply chain may harmthe business – the chain should rather be:– agile - can react to changes in demand or supply

• good information flows; inventory buffers; dependablepartners; contingency planning

– adaptable - can evolve with markets• constant market monitoring; flexible product designs

– aligned - so that all chain members maximize theirinterests

• close relations; clear role definitions for all members; equitable division of risks, costs and gains of improvementinitiatives

Read more about „triple-A” supplychain in Lee’s article (obligatoryreading, available in PDF format)!


Case study

• West Midland Electric Car Component Company


Material Requirements Planning (MRP)

• Complex, computer-based algorithm

1. Preparation of master production schedule(based on demand forecasts)

2. MRP system calculates demands for individualparts/components

3. MRP system triggers orders for making or buyingindividual parts/components


Problems of MRP

• „Push system” – based on guesswork, requiringforecasts of demand and of time needed to manufracture the needed components

• Errors resulting from low quality of data in IT systems

• Simplistic algorithm – does not take into accountcomplex manufacturing processes, by-products, capacity constraints, demand fluctuations

• MRP II (Manufacturing Resource Planning) systemsadd accounting and financial modules, improvethe MRP algorithm


US and Japanese approaches

US

• EOQ, ABC, value analysis, MRP

• Focus on optimization

• Complex algorithms

• Use of computers

• Statistical techniques

• No concerns for quality

Japan

• JiT, TQM, kanban, lean

• Focus on quality

• Simple rules

• No computers required

• No statistics

• Procedures and culture

US („fordism”) = producing large quantities „just in case”Japan = producing small quantities „just in time”

(Schonberger)


Just-in-time production (JiT) (Schonberger) (1)

1. Cutting lot sizes

– Reducing storage costs by more frequently orderingsmaller lots of components (leads to production setup problems)

2. Cutting setup time

– Changes to machines and procedures to make setup faster and cheaper

3. Cutting purchase order costs

– Simplifying the buying process – integration with suppliers, elimination of bureaucracy



4. Introducing quality-oriented culture

5. Increased awareness of quality problems

– Smaller lots help track problems, focus on detail, eliminate waste and need for rework

6. Increased responsibility

– Smaller lots help link work to individuals and groupsand make them responsible

7. Withdrawal of buffer inventory

8. Consequences for indirect costs



7. Withdrawal of buffer inventory– Regularity of production eliminates the need for buffer

inventory – but if any production irregularities occur, employees need to identify roots of the problem and eliminate them

8. Consequences for indirect costs– Less bureaucracy, less employees, less storage space, …

• JiT promoted by Toyota’s VP Taiichi Ohno in ~1970, but initiated by other Japanese companies

• Attention: JiT will not necessarily improve quality!


Just-in-time purchasing

• Frequent deliveries of small quantities of parts

• Long-term contracts with suppliers

• Variable delivery quantities – but fixed quantitiesfor the entire period of contract

• Few suppliers, located close to the factory

• Repeated business with the same suppliers

• Suppliers encouraged to continuously improve: reduce costs and innovate

• Suppliers hold inventories and incur storage costsand business risks


Total Quality Management (TQM)

• Prevention of defects – not their detection

• Involvement of production line workers – not quality assurance personnel („control at source”)

• Elimination of:– 無理 [むり/muri] – excess – no need for inventory

– 無駄 [むだ/muda] – waste – no defects, quality of source

– 斑 [むら/mura] – unevenness – regularity in production

• TQM initiated in ~1962 in Japan


Total Quality Management (TQM) (Schonberger) (1)

1. Responsibility and process control

– Makes of a part (production department) responsiblefor its quality, no separate quality department

2. Easy-to-see indicators of quality for every process

– Visual, easy-to-understand quality indicators

3. Insistence on compliance

– Indisputable compliance with corporate, industry orgovernment standards


Total Quality Management (TQM) (Schonberger) (2)

4. Line stop

– Each production line workers may stop the process ifproblems occur – output rate not a priority

5. Correcting one’s own errors

– Everyone needs to rectify his own mistakes – outputrate not a priority

6. 100 percent check

– No defects acceptable, control of every item (or N=2) instead of drawing statistical samples

7. Continuous improvement


TQM tools

• Fishbone diagram (Ishikawa diagram, JapaneseIndustrial Standard Z-8101)

• Quality circles

• Industrial robots (due to the development of mechatronics/robotics)

• CAD (computer aided design)

• CAM (computer aided manufacturing) – productdesigns „translated” into component orders and setups of production lines/robots


Kanban system (1)

• 看板 [かんばん/kanban] – card, signboard, plate, poster

• Every part used in production has its special container, holding a precise quantity of the part

• Each container has 2 cards (kanbans)

– Cards signal the need to produce or deliver more parts• Card 1: for people producing the part

• Card 2: for people using the card

• Containers circulate between people producing and usingthe parts

– Cards are exchanges in the process (container empty/full)

– Parts are made only if there is a card authorizing it


Kanban system (2)

• Careful control of quantities in the container

– Management decision

– Small quantities per container to facilitate control

• By the end of the day – kanbans and containerscounted

– Control of incomplete production orders or unusedresources

– Two groups of people motivated to co-operate on production scheduling


Kanban system (3)

• Kanban system = „pull” (from expressed needs to production, production stops if there are no kanbans, inventory planned for specific days)

• MRP system = „push” (from forecasts and master plan to production, might lead to waste and deficits, inventory planned for specific weeks)

• Traditional kanban and JiT systems used no computers

• First documented use of kanban – Toyota

• Yamaha Motor – combination of kanban and MRP


Lean management

• American interpretation of the Japanesemanufacturing techniques

• Promoted by the James P. Womack, Daniel T. Jones and Daniel Roos in the book „The Machine ThatChanged The World”

• Unclear recommendations, blending manyconcepts – buzzword?


Six Sigma

• Set of quality management techniques/strategies, developed by Motorola in 1986, trademark registered by Motorola

• Fundamentals– Minimizing variability in processes

– Identifying and eliminating the causes of errors

– Use of statistical techniques

– Use of organizational experts (e.g. „black belts”)

• Naming convention– Sigma symbolizes yield of manufacturing process (% of products

without defects)

– 6 sigma (6 x SD) = 99.99966% of manufactured products freefrom defects (3.4 DPMO - defects per million opportunities)


Why Six Sigma?

99% defect-free (3.8 sigma)

• 20,000 lost articles of mail per hour

• Unsafe drinking water for 15 minutesper day

• 5,000 incorrect surgical operationsper day

• 200,000 incorrect drug prescriptionsper year

• No electricity for 7 hours per month

• 11.8 million shares incorrectly tradedon the NYSE every day

• 3 warranty claims for each newautomobile

• 48,000 to 96,000 deaths attributedto hospital errors each year

99.99966% defect-free (6 sigma)

• 7 lost articles of mail per hour• Unsafe drinking water for one

minute every seven months• 1.7 incorrect surgical operations per

week• 68 incorrect drug prescriptions per

year• No electricity for 1 hour per 34 years• 4,021 shares incorrectly traded on

the NYSE every day• 1 warranty claim for every 980 new

automobiles• 17 to 34 deaths attributed to

hospital errors each year

© Gyri, DeCarlo, Williams (2005)


DMAIC improvementmethodology for Six Sigma

Define

Measure

Analyze

Improve

Control

Define the problem, customer needsand projectgoals

Measure the keyaspects of the existing process

Analyze the data, identify cause-effectrelations and root causes

Improvethe current

process

Control the new processto eliminate

deviations

Read more about Six Sigma in assigned chapters (obligatoryreadings, available in PDF format)!


Quality management systems

• ISO 9001 standard & certification

– Formal description of processes

– Every employee knows her work and linkages to otherprocess activities

– Documenting work outcomes

– Carrying out internal and external audits

– Controlling non-conforming products or services

– Taking corrective and preventive actions (CAPA)

• rectifying failures, investigating their causes and improvingoperations to prevent the repeated occurence of failures

• leads to continuous improvement


Quality management systems

• Industry standards, including:– Good Manufacturing Practice (GMP) – pharmaceuticals

– TL 9000 – telecoms

– ISO/TS 16949 – automobile manufacturers

– ISO 13485 – medicals

• Problems– Too much formalization, too much standardization

– Process, not product quality

– Costs of maintaining the certificate

– Formal quality management systems differ from Total Quality Management ideals


Environmental management systems

• ISO 14001 – minimizing adverse effects on environment, complying with relevant laws and continuous improvement

• EMAS (Eco-Management and Audit Scheme) –standard enriching ISO 14001, established by EU

• Numerous standards and laws related to: waste and wastewater management, air quality, carbondioxide emissions, health & safety, …

• Efficient energy use and eco-efficiency helpimprove business processes and attract customers


Case study

• Bonnie Blaine

process management (1) - wz.uw.edu.pl management 1.pdf · process management (1) ... case study by:...

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