Week 5,6 Discussion 1 & 2

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Chapter 13: Resource Management: 13-1 Resource Planning Framework for Goods and Services Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

13-1 Resource Planning Framework for Goods and Services A generic framework for resource planning is shown in Exhibit 13.1. This framework is broken down into three basic levels. Level 1 represents aggregate planning. Aggregate planning (is the development of a long-term output and resource plan in aggregate units of measure.) is the development of a long-term output and resource plan in aggregate units of measure. Aggregate plans define output levels over a planning horizon of one to two years, usually in monthly or quarterly time buckets. They normally focus on product families or total capacity requirements rather than individual products or specific capacity allocations. Aggregate plans also help to define budget allocations and associated resource requirements.

Exhibit 13.1

Framework for Resource Management Planning for Goods and Services

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Aggregate planning is driven by demand forecasts. High-level forecasts are often developed for aggregate groups of items (see the Nestlé box). For instance, a consumer-products company like Procter & Gamble might produce laundry soap in a variety of sizes. However, it might forecast the total demand for the soap in dollars over some future time horizon, regardless of product size. Aggregate planning would then translate these forecasts into monthly or quarterly production plans.

Nestlé: Aggregate Planning for Candy Manufacturing

Aggregate plans at a company that was acquired by Nestlé are focused on quality, personnel, capital, and customer service objectives. One of its major brand items that has a highly seasonal demand is boxed chocolates. Boxed chocolates are produced in three types, with a total of nine distinct end items: Black Magic, in 2 lb., 1, 1½ lb., and ½ boxes; Rendezvous, in a 14 oz. box; and Dairy Box, in the same four sizes as Black Magic. Forecasting is accomplished by dividing the year into 13 periods of four weeks each. Sales planning provides an item forecast, by period, for the full 13 periods. This estimate is updated every four weeks, reflecting the latest information on available inventories and estimated sales for the next 13 periods.

Aggregate planning is performed by first converting all items to a poundage figure. The planning task is to calculate levels of production that will best meet the quality, personnel, capital, and customer service restrictions. It is a stated company policy and practice to maintain a stable workforce. Short-term capacity can be increased with overtime and/or with part-time employees. The amount of inventory investment has become a major concern, and inventory levels must be kept low to meet restrictions on capital investment.

In Exhibit 13.1, Level 2 planning is called disaggregation. Disaggregation (is the process of translating aggregate plans into short-term operational plans that provide the basis for weekly and daily schedules and detailed resource requirements.) is the process of

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translating aggregate plans into short-term operational plans that provide the basis for weekly and daily schedules and detailed resource requirements. To disaggregate means to break up or separate into more detailed pieces. Disaggregation specifies more-detailed plans for the creation of individual goods and services or the allocation of capacity to specific time periods. For goods-producing firms, disaggregation takes Level 1 aggregate planning decisions and breaks them down into such details as order sizes and schedules for individual subassemblies and resources by week and day.

To illustrate aggregate planning and disaggregation, consider a producer of ice cream who might use long-term forecasts to determine the total number of gallons of ice cream to produce each quarter over the next two years. This projection provides the basis for determining how many employees and other resources such as delivery trucks would be needed throughout the year to support this plan. Disaggregation of the plan would involve developing targets for the number of gallons of each flavor to produce (which would sum to the aggregate planned number for each quarter); purchasing requirements for cream, chocolate, and other ingredients; work schedules and overtime plans; and so on.

As another example, an airline might use long-term passenger forecasts to develop monthly aggregate plans based on the number of passenger miles each month. This aggregate plan would also specify the resource requirements in terms of total airline capacity, flight crews, and so on. Disaggregation would then create detailed, point-to-point flight schedules, crew work assignments, food purchase plans, aircraft maintenance schedules, and other resource requirements.

Level 3 focuses on executing the detailed plans made at Level 2, creating detailed resource schedules and job sequences. Execution (refers to moving work from one workstation to another, assigning people to tasks, setting priorities for jobs, scheduling equipment, and controlling processes.) refers to moving work from one workstation to another, assigning people to tasks, setting priorities for jobs, scheduling equipment, and controlling processes. Level 3 planning and execution in manufacturing is sometimes called shop floor control and is addressed further in the next chapter.

© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder.

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Chapter 13: Resource Management: 13-1a Resource Planning in Service Organizations Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

13-1a Resource Planning in Service Organizations

Resource management for most service-providing organizations generally does not require as many intermediate levels of planning as it does for manufacturing. This is illustrated in Exhibit 13.2. Service firms frequently take their aggregate plans and disaggregate them down to the execution level as detailed frontline staff and resource schedules, job sequences, and service-encounter execution. Physician capacity, calendars and schedules, for example, at the Mayo Clinic use a two-level resource planning process similar to Exhibit 13.2. There are several reasons for this:

Most manufactured goods are discrete and are “built up” from many levels of raw materials, component parts, and subassemblies. However, many services, such as credit card authorizations, a telephone call, a movie, or arriving at a bank teller window, are instantaneous or continuous and are not discrete. Hence, there is no need for multiple levels of planning for some services.

Services do not have the advantage of physical inventory to buffer demand and supply uncertainty, so they must have sufficient service capacity on duty at the right time in the right place to provide good service to customers, making short-term demand forecasting and resource scheduling absolutely critical.

Exhibit 13.2

Two Levels of Disaggregation for Many Service Organizations

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Some services, however, use the three levels of planning similar to manufacturing firms. For example, many service facilities, such as fast-food restaurants, need to be close to the customer, requiring them to be scattered within a geographical area. In these cases, the firm creates aggregate plans at the corporate level and then disaggregates them by region or district (geographically). This is similar to Level 2 intermediate planning in manufacturing. Regional and district offices further disaggregate these plans and budgets given the intermediate-level budgets and resource constraints. Level 3 resource planning and execution occurs at the store level, where local forecasts, food and other supply orders, staff work shifts and schedules, and service encounters are created.

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Chapter 13: Resource Management: 13-1b Enterprise Resource Planning Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

13-1b Enterprise Resource Planning

Enterprise resource planning (ERP) is an important information systems tool for managing resources across the value chain. ERP systems (integrate all aspects of a business— accounting, customer relationship management, supply chain management, manufacturing, sales, human resources—into a unified information system, and they provide more timely analysis and reporting of sales, customer, inventory, manufacturing, human resource, and accounting data.) integrate all aspects of a business—accounting, customer relationship management, supply chain management, manufacturing, sales, human resources—into a unified information system, and they provide more timely analysis and reporting of sales, customer, inventory, manufacturing, human resource, and accounting data. Traditionally, each department of a company, such as finance, human resources, and manufacturing, has individual information systems optimized to the needs of that department. If the sales department wants to know the status of a customer’s order, for example, someone would typically have to call manufacturing or shipping. ERP combines each department’s information into a single, integrated system with a common database so that departments can easily share information and communicate with each other.

ERP systems usually consist of different modules that can be implemented individually so that each department still has a level of autonomy, but they are combined into an integrated operating system. For example, when a customer’s order is entered by sales, all information necessary to fulfill the order is built into the ERP system. The finance module would have the customer’s order history and credit rating; the warehouse module would have current inventory levels; and the supply chain module would have distribution and shipping information. Not only would sales be able to provide accurate information about product availability and shipping dates, but orders would also get processed faster, with fewer errors and delays.

Most subsystems of ERP systems, such as customer ordering, inventory management, and production scheduling, are real-time, transaction-processing systems, as opposed to batched processing systems, in which a day’s entire batch of transactions was typically processed during the night. In real-time processing, information is updated continuously, allowing the impacts to be reflected immediately in all other areas of the ERP system. Some business processes, however—such as the weekly payroll, monthly accounting reports, and billing—do not need real-time processing.

Two prominent vendors of ERP software are SAP (www.sap.com) and Oracle (www.oracle.com).

Chapter 13: Resource Management: 13-1b Enterprise Resource Planning Book Title: Operations and Supply Chain Management

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Chapter 13: Resource Management: 13-2 Aggregate Planning Options Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

13-2 Aggregate Planning Options Managers have a va riety of options in developing aggregate plans in the face of fluctuating demand: workforce changes, inventory smoothing, and adjustments to facilities, equipment, and transportation. These are summarized in Exhibit 13.3. The choice of strategy depends on corporate policies, practical limitations, and cost factors.

Exhibit 13.3

Example Aggregate Planning Variables and Revenue/Cost Implications

Aggregate Planning Decision Options Revenue/Cost Implications

Demand Management

Pricing strategies

Promotions and advertising

Increased revenue and lower unit costs

Economies of scale

Production Rate

Overtime

Undertime

Subcontracting

Higher labor costs and premiums

Idle time/lost opportunity costs

Overhead costs and some loss of control

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Aggregate Planning Decision Options Revenue/Cost Implications

Workforce

Hiring

Layoffs

Full- and part- time labor mix

Acquisition and training costs

Separation costs

Labor cost and productivity changes

Inventory

Anticipation (build) inventories

Allow stockouts

Plan for backorders

Inventory-carrying costs

Lost sales (revenue) and customer loyalty costs

Backorder costs and customer waiting costs

Facilities, Equipment, and Transportation

Open/closed facilities and hours

Resource utilization

Carbon emissions

Mode (truck, rail, ship, air)

Capacity and resource utilization

Variable and fixed costs

Service and delivery revenues and costs

Low- to high-utilization impact on unit costs

Inbound and outbound costs per mode

Cost of full versus partial truck loads

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Demand Management

Marketing strategies can be used to influence demand and to help create more feasible aggregate plans. For example, pricing and promotions can increase or decrease demand or shift it to other time periods. In services, recall that demand is time dependent, and there is no option to store the service. A hotel manager, for example, may advertise a low weekend rate to the local market in an attempt to increase short-term revenue and contribution to profit and overhead. Thus, demand management strategies are crucial for good aggregate planning and capacity utilization.

Production-Rate Changes

One means of increasing the output rate without changing existing resources is through planned overtime. Alternatively, hours can be reduced during slow periods through planned undertime. However, reduced overtime pay or sitting idle can seriously affect employee morale. Subcontracting during periods of peak demand may also alter the output rate. This would probably not be a feasible alternative for some companies, but it is effective in industries that manufacture a large portion of their own parts, such as the machine-tool industry. When business is brisk, components can be subcontracted; when business is slow, the firm may act as a subcontractor to other industries that may be working at their capacity limit. In that way, a stable workforce is maintained.

Workforce Changes

Changing the size of the workforce is usually accomplished through hiring and layoffs. Both have disadvantages. Hiring additional labor usually results in higher costs for the personnel department and for training. Layoffs result in severance pay and additional unemployment insurance costs, as well as low employee morale.

In many industries, changing workforce levels is not a feasible alternative. In firms that consist primarily of jobs with low skill requirements, however, it may be cost effective. The toy industry is a good example. Accurate forecasts for the winter holiday season cannot be made until wholesale buyers have placed orders, usually around midyear. Toy companies maintain a minimal number of employees until production is increased for the holidays. Then they hire a large number of part-time workers in order to operate at maximum capacity.

Inventory Changes

In planning for fluctuating demand, inventory is often built up during slack periods and held for peak periods. However, this increases carrying costs and may necessitate more warehouse space. A related strategy is to carry back orders or to tolerate lost sales during peak demand periods. But this may be unacceptable if profit margins are low and competition is high.

Facilities, Equipment, and Transportation

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Facilities, equipment, and transportation generally represent long-term capital investments. Short-term changes in facilities and equipment are seldom used in traditional aggregate planning methods because of the capital costs involved. However, in some cases, it might be possible to rent additional equipment such as industrial forklifts, small machines, trucks, or warehouse space to accommodate periods of high demand.

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Chapter 13: Resource Management: 13-3 Strategies for Aggregate Planning Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

13-3 Strategies for Aggregate Planning To illustrate some of the major issues involved with aggregate planning, consider the situation faced by Golden Beverages, a producer of two major products—Old Fashioned and Foamy Delite root beers. The spreadsheet in Exhibit 13.4 shows a monthly aggregate demand forecast for the next year. Notice that demand is in barrels per month—an aggregate unit of measure for both products. Golden Beverages operates as a continuous flow factory and must plan future production for a demand forecast that fluctuates quite a bit over the year, with seasonal peaks in the summer and winter holiday season.

Exhibit 13.4

Level Aggregate Production Plan for Golden Beverages (Excel Agg Plan— Level Template, available in Spreadsheet Templates in MindTap)

How Can We Use Aggregate Planning for a Tennis Club?

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Services face many of the same issues in planning and managing resources as do manufacturing firms. Consider a 145-acre oceanfront resort located in Myrtle Beach, South Carolina, that is owned and operated by a major corporation. The tennis club and four courts are located next to the Sport & Health Club. All courts are lighted for night play, and there is no more room to build additional tennis courts. The demand for tennis lessons is highly seasonal, with peak demand in June, July, and August. In the summer months, when resort rooms are 98 to 100 percent occupied, requests for lesson time far exceed capacity, and owner and hotel guest complaints increase dramatically. The manager of the health club might consider a chase resource strategy with a base full-time tennis staff of two people and the use of part-time staff for much of the year. Or she might consider a level strategy with four full-time staff and no part-time staff.

How should Golden Beverages plan its overall production for the next 12 months in the face of such fluctuating demand? Suppose that the company has a normal production capacity of 2,200 barrels per month and a current inventory of 1,000 barrels. If it produces at normal capacity each month, we have the aggregate plan shown in Exhibit 13.4. To calculate the ending inventory for each month, we use Equation 13.1.

[13.1]

For example, January is and February is .

A level production strategy ( plans for the same production rate in each time period.) plans for the same production rate in each time period. The aggregate plan for Golden Beverages shown in Exhibit 13.4 is an example of a level production strategy with a constant production rate of 2,200 barrels per month. A level strategy avoids changes in the

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production rate, working within normal capacity restrictions. Labor and equipment schedules are stable and repetitive, making it easier to execute the plan. However, ending inventory builds up to a peak of 3,200 barrels in March, and lost sales are 500 barrels in August due to inventory shortages.

An alternative to a level production strategy is to match production to demand every month. A chase demand strategy ( sets the production rate equal to the demand in each time period.) sets the production rate equal to the demand in each time period. Although inventories will be reduced and lost sales will be eliminated, many production-rate changes will dramatically change resource levels (the number of employees, machines, etc.). A chase demand strategy for Golden Beverages is shown in Exhibit 13.5 with a total cost of $1,835,050. As compared with the level production strategy documented in Exhibit 13.4, the cost of the chase demand strategy is . Notice that no inventory carrying or lost sales costs are incurred, but substantial overtime, undertime, and rate-change costs are required.

Exhibit 13.5

Chase Demand Aggregate Production Plan for Golden Beverages (Excel Agg Plan—Chase Template, available in Spreadsheet Templates in MindTap)

Given the large number of aggregate planning decision variables with an infinite number of possible levels and combinations, countless alternative aggregate plans could be developed. Good solutions using spreadsheets can often be found by trial-and-error approaches. The Excel Aggregate Planning template allows you to experiment with production levels using trial-and-error methods to identify good options.

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Managers have a variety of options in developing aggregate plans when demand fluctuates.

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17-1

17-2

17-3

17-4

17-5

Chapter Introduction

Lean principles improve the efficiency of hospital pharmacies and many other processes.

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Learning Objectives

After studying this chapter, you should be able to:

Explain the four principles of lean operating systems.

Describe the basic lean tools and approaches.

Explain the concept of Lean Six Sigma and how it is applied to improving operations performance.

Explain how lean principles are used in manufacturing and service organizations.

Describe the concepts and philosophy of just-in-time operating systems.

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“Our hospital pharmacy processes are out of control. Patient health is at stake,” noted a Michigan hospital manager. A study of pharmacy outcomes revealed that technicians were spending 77.4 percent of their time locating products; medication errors were high; and the current, 14-stage process had some unnecessary steps, resulting in a total lead time of 166 minutes to fill a hospital prescription. Teams with names like “Paper Pushers” and “Zip Scripts” were formed and trained in lean operating methods and principles. Their objective was to apply lean principles to enhance the ability to deliver medications safely to hospital patients. After redesigning the system, the pharmacy realized a 33 percent reduction in time to get medications to patients, and reduced the number of process steps from 14 to 9 simply by removing non-value-added steps. Patients have experienced a 40 percent reduction in pharmacy-related medication errors, and the severity of those errors has decreased.

What Do You Think?

Can you cite any personal experiences in your work or around your school where you have observed similar inefficiencies (how about your dorm or bedroom)?

Lean thinking (refers to approaches that focus on the elimination of waste in all forms, and smooth, efficient flow of materials and information throughout the value chain to obtain faster customer response, higher quality, and lower costs.) refers to approaches that focus on the elimination of waste in all forms, and smooth, efficient flow of materials and information throughout the value chain to obtain faster customer response, higher quality, and lower costs. Manufacturing and service operations that apply the principles of lean enterprise are often called lean operating systems (Manufacturing and service operations that apply the principles of lean enterprise.) . Lean concepts were initially developed and implemented by the Toyota Motor Corporation, and lean operating systems are often benchmarked with the Toyota Production System (TPS).

In the opening scenario, the lean teams greatly improved hospital pharmacy processes, enhanced patient health, and reduced liability risk to the hospital. For example, with only one printer for prescription labels in the pharmacy, labels were not always printed in the same order that the physical goods were available. This created confusion, and pharmacy technicians occasionally placed labels on the wrong bottles and bags. After applying lean thinking and methods, processing time and quality were greatly improved.

Lean thinking is playing a large role in making supply chains more efficient and in sustainability efforts. Lean thinking helps to drive a culture of waste elimination. At a recent conference of the Association for Manufacturing Excellence, Interface Americas, a LaGrange, Georgia, manufacturer of commercial carpet, tile, and interior fabrics, cited

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numerous examples of waste elimination activities that resulted from lean thinking, including over $300 million in cost avoidance from waste elimination, a 70 percent reduction of manufacturing waste sent to landfills, a 60 percent reduction in greenhouse gas emissions, and over 1 million pounds of carpet diverted from landfills.

Any activity, material, or operation that does not add value in an organization is considered waste.

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Chapter 17: Lean Operating Systems: 17-1 Principles of Lean Operating Systems Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

17-1 Principles of Lean Operating Systems Lean operating systems have four basic principles:

1. Elimination of waste.

2. Increased speed and response.

3. Improved quality.

4. Reduced cost.

As simple as these may seem, organizations require disciplined thinking and application of good operations management tools and approaches to achieve them.

Eliminate Waste

Lean, by the very nature of the term, implies doing only what is necessary to get the job done. Any activity, material, or operation that does not add value in an organization is considered waste. The goal is zero waste in all value-creation and support processes in the entire value chain. Exhibit 17.1 shows a variety of specific examples. The Toyota Motor Company classified waste into seven major categories:

1. Overproduction: for example, making a batch of 100 when there are orders for only 50 in order to avoid an expensive setup, or making a batch of 52 instead of 50 in case there are rejects. Overproduction ties up production facilities, and the resulting excess inventory simply sits idle.

2. Waiting time: for instance, allowing queues to build up between operations, resulting in longer lead times and more work-in-process.

3. Transportation: the time and effort spent in moving products around the factory as a result of poor layout.

4. Processing: the traditional notion of waste, as exemplified by scrap that often results from poor product or process design.

5. Inventory: waste associated with the expense of idle stock and extra storage and handling requirements needed to maintain it.

6. Motion: as a result of inefficient workplace design and location of tools and materials.

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7. Production defects: the result of not performing work correctly the first time.

Exhibit 17.1

Common Examples of Waste in Organizations

Excess capacity

Inaccurate information

Clutter

Planned product obsolescence

Excessive material handling

Overproduction

Producing too early

Long distance traveled

Retraining and relearning time and expense

Excess inventory

Long changeover and setup times

Scrap

Rework and repair

Long, unproductive meetings

Poor communication

Waiting time

Accidents

Too much space

Spoilage

Excessive energy use

Unnecessary movement of materials, people, and information

Equipment breakdowns

Knowledge bottlenecks

Non-value-added process steps

Misrouting jobs

Wrong transportation mode

D’Addario & Co. Exploits Lean Thinking

D’Addario & Co. manufactures strings found on all sorts of musical instruments, from cellos to electric guitars. The company has invested in technology that makes it lean, boosting output with fewer workers and smarter production. It’s an example of a company that’s managed to grow despite a shrinking marketplace, partly by freeing up more than 70,000 square feet of space for manufacturing and warehousing, and investing in technology and automation that also has allowed it to bring back jobs from abroad.

“Manufacturers have learned to be a lot more lean, do a lot more with less,” said the chief economist for the National Association of Manufacturers. “In kind of a twist, those efforts to increase productivity have made the United States a lot more

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attractive (for investment) on a global scale. Those investments in technology and innovation … have also helped to increase U.S. viability in terms of manufacturing.”

Increase Speed and Response

Lean operating systems focus on quick and efficient response in designing and getting goods and services to market, producing to customer demand and delivery requirements, responding to competitors’ actions, collecting payments, and addressing customer inquiries or problems. Perhaps the most effective way of increasing speed and response is to synchronize the entire value chain. By this we mean that not only are all elements of the value chain focused on a common goal, but that the transfer of all physical materials and information is coordinated to achieve a high level of efficiency. A champion of lean practices would argue “be fast or last” and “synchronize value chain operations.”

Improve Quality

Lean operating systems cannot function if raw materials are bad; processing operations are not consistent; materials and tools are not located in the correct place; or machines break down. Poor quality disrupts work schedules and reduces yields, requiring extra inventory, processing time, and space for scrap and parts waiting for rework. All these are forms of waste and increase costs to the customer. Eliminating the sources of defects and errors in all processes in the value chain greatly improves speed, reduces variability, and supports the notion of continuous flow. All of the concepts and methods of quality management, such as product and process design simplification, root cause analysis, mistake-proofing, and statistical process control, are employed to improve quality.

Reduce Cost

Certainly, reducing cost is an important objective of lean enterprise. Anything that is done to reduce waste and improve quality often reduces cost at the same time. More efficient equipment, better preventive maintenance, and smaller inventories reduce costs in manufacturing firms. Simplifying processes, such as using customer labor via self-service in a fast-food restaurant, depositing a check using an automatic teller machine, and

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completing medical forms online before medical service, are ways for service businesses to become leaner and reduce costs.

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Chapter 17: Lean Operating Systems: 17-2 Lean Tools and Approaches Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

17-2 Lean Tools and Approaches Meeting the objectives of lean enterprise requires disciplined approaches for designing and improving processes. Organizations use several tools and approaches to create a lean organization. We describe some of these here.

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17-2a The 5Ss

Workers cannot be efficient if their workplaces are messy and disorganized. Efficient manufacturing plants are clean and well organized. Firms use the “5S” principles to create this work environment. The 5Ss (The 5Ss are derived from Japanese terms: seiri (sort), seiton (set in order), seiso (shine), seiketsu (standardize), and shitsuke (sustain).) are derived from Japanese terms: seiri (sort), seiton (set in order), seiso (shine), seiketsu (standardize), and shitsuke (sustain).

Sort refers to ensuring that each item in a workplace is in its proper place or identified as unnecessary and removed.

Set in order means to arrange materials and equipment so that they are easy to find and use.

Shine refers to a clean work area. Not only is this important for safety, but as a work area is cleaned, maintenance problems such as oil leaks can be identified before they cause problems.

Standardize means to formalize procedures and practices to create consistency and ensure that all steps are performed correctly.

Finally, sustain means to keep the process going through training, communication, and organizational structures.

The Benefits of 5S

Jeff Frushtick, CEO of industrial equipment maker Leonard Automatics, discovered through a consultant that his team spent hours each week hunting for missing tools at the Denver, North Carolina, firm. They turned up in places like “someone’s tool belt or a work bucket at a different assembly job,” Frushtick says. By storing all tools for each operation on its own cart located in its own space (i.e., sort and set in order)—and addressing dozens of other comparable operational hiccups—he has raised profits fivefold since 2013 at the 35-employee firm.

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17-2b Visual Controls

Visual controls (are indicators for operating activities that are placed in plain sight of all employees so that everyone can quickly and easily understand the status and performance of the work system.) are indicators for operating activities that are placed in plain sight of all employees so that everyone can quickly and easily understand the status and performance of the work system. Visual signaling systems are known as andon, drawing from the Japanese term from which the concept first originated. For example, if a machine fails or a part is defective or manufactured incorrectly, a light might turn on or a buzzer might sound, indicating that immediate action should be taken. Many firms have cords that operators can pull that tell supervisors and other workers that a problem has occurred. Some firms, such as Honda (on the manufacturing floor) and JPMorgan Chase (at its call centers), use electronic “scoreboards” to keep track of daily performance. These scoreboards are located where everyone can see them and report key metrics such as volume, quality levels, speed of service, and so on.

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Chapter 17: Lean Operating Systems: 17-2c Single Minute Exchange of Dies (SMED) Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

17-2c Single Minute Exchange of Dies (SMED)

Long setup times waste manufacturing resources. Short setup times, on the other hand, enable a manufacturer to have frequent changeovers and move toward single-piece flow, thus achieving high flexibility and product variety. Reducing setup time also frees up capacity for other productive uses. Single Minute Exchange of Dies (SMED) (refers to the quick setup or changeover of tooling and fixtures in processes so that multiple products in smaller batches can be run on the same equipment.) refers to the quick setup or changeover of tooling and fixtures in processes so that multiple products in smaller batches can be run on the same equipment. SMED was pioneered by Toyota and other Japanese manufacturers and has been adopted by companies around the world.

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Chapter 17: Lean Operating Systems: 17-2d Small Batch and Single-Piece Flow Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

17-2d Small Batch and Single-Piece Flow

One of the practices that inhibits increasing speed and response in manufacturing or service processing of discrete parts such as a manufactured part, invoices, medical claims, or home loan mortgage approvals is batching (is the process of producing large quantities of items as a group before they are transferred to the next operation.) —the process of producing large quantities of items as a group before they are transferred to the next operation. Batching is often necessary when producing a broad goods or service mix with diverse requirements on common equipment. When making different goods, manufacturers often need to change dies, tools, and fixtures on equipment, resulting in expensive time- consuming setups and teardowns. For services, preprinted forms or software may have to be changed or modified. By running large batches, setups and teardowns are reduced, providing economies of scale. However, this often builds up inventory that might not match market demand, particularly in highly dynamic markets.

A better strategy would be to use small batches or single-piece flow. Single-piece flow (is the concept of ideally using batch sizes of one.) is the concept of ideally using batch sizes of one. However, to do this economically requires the ability to change between products quickly and inexpensively.

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Chapter 17: Lean Operating Systems: 17-2e Quality and Continuous Improvement Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

17-2e Quality and Continuous Improvement

Quality at the source requires doing it right the first time, and therefore eliminates the opportunities for waste. Employees inspect, analyze, and control their own work to guarantee that the good or service passed on to the next process stage conforms to specifications. Continuous improvement initiatives are vital in lean environments, as is teamwork among all managers and employees.

Quality at the source requires doing it right the first time, and therefore eliminates the opportunities for waste.

An important synergy exists between quality improvement and lean thinking. Clearly, as an organization continuously improves its processes, it eliminates rework and waste, thus making the processes leaner. Moreover, as an organization tries to make itself leaner by eliminating non-value-added activities and simplifying processes, it reduces the number of opportunities for error, thus improving quality at the same time.

Setup Time Reduction from 9.2 Hours to 9 Minutes

Many companies have made remarkable improvements in reducing product setup times, making small-batch or single-piece flow a reality in job shop environments. Yammar Diesel reduced a machining line tool setting from 9.2 hours to 9 minutes; a U.S. chainsaw manufacturer reduced setup time on a punch press from more than 2 hours to 3 minutes; and a midwestern manufacturer was able to cut equipment setup time on a 60-ton press from 45 minutes to 1 minute.

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Chapter 17: Lean Operating Systems: 17-2f Total Productive Maintenance Book Title: Operations and Supply Chain Management Printed By: Washburn Kelly ([email protected]) © 2019 Cengage, Cengage Learning, Inc.

17-2f Total Productive Maintenance

Total productive maintenance (TPM) (is focused on ensuring that operating systems will perform their intended function reliably.) is focused on ensuring that operating systems will perform their intended function reliably. The goal of TPM is to prevent equipment failures and downtime—ideally, to have “zero accidents, zero defects, and zero failures” in the entire life cycle of the operating system. TPM seeks to

maximize overall equipment effectiveness and eliminate unplanned downtime,

create worker “ownership” of the equipment by involving employees in maintenance activities, and

foster continuous efforts to improve equipment operation through employee involvement activities.

Because of its importance in lean thinking, TPM has been called “lean maintenance.” Lean maintenance is more than preventing failures of equipment and processes; it now includes maintenance and backup systems for software and electronic network systems such as the Internet or wireless networks.

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17-3 Lean Six Sigma Six Sigma is a useful and complementary approach to lean production. For example, a cycle-time-reduction project might involve aspects of both. Lean tools might be applied to streamline an order entry process. This application leads to the discovery that significant rework occurs because of incorrect addresses, customer numbers, or shipping charges, and results in high variation of processing time. Six Sigma tools might then be used to drill down to the root cause of the problems and identify a solution. Because of these similarities, many practitioners have begun to focus on Lean Six Sigma, drawing upon the best practices of both approaches. Both are driven by customer requirements, focus on real dollar savings, have the ability to make significant financial impacts on the organization, and can easily be used in nonmanufacturing environments. Both use basic root cause, process, and data analysis techniques.

However, some differences clearly exist between lean production and Six Sigma. First, they attack different types of problems. Lean production addresses visible problems in processes; for example, inventory, material flow, and safety. Six Sigma is more concerned with less visible problems; for example, variation in performance. In essence, lean is focused on efficiency by reducing waste and improving process flow, whereas Six Sigma is focused on effectiveness by reducing errors and defects. Another difference is that lean tools are more intuitive and easier to apply by anybody in the workplace, whereas many Six Sigma tools require advanced training and expertise of specialists, particularly in statistical analyses, commonly called Black Belts and Master Black Belts. For example, most workers can easily understand the concept of the 5Ss, but may have more difficulty with statistical methods. Thus, organizations might be well advised to start with basic lean principles and evolve toward more sophisticated Six Sigma approaches. However, it is important to integrate both approaches with a common goal—improving business results. Lean Six Sigma often is an important part of implementing a strategy built upon sustainability.

13-1 Resource Planning Framework for Goods and Services
13-1a Resource Planning in Service Organizations
13-1b Enterprise Resource Planning
13-2 Aggregate Planning Options
13-3 Strategies for Aggregate Planning
17-0 Chapter Introduction
17-1 Principles of Lean Operating Systems
17-2 Lean Tools and Approaches
17-2a The 5Ss
17-2b Visual Controls
17-2c Single Minute Exchange of Dies (SMED)
17-2d Small Batch and Single-Piece Flow
17-2e Quality and Continuous Improvement
17-2f Total Productive Maintenance
17-3 Lean Six Sigma