Strategy Execution

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Operation Analysis

Techniques: Process Design

,Lean Operations, JIT

Seminar 11

Process Strategy 7

Outline - Continued

Ø Production Technology Ø Technology in Services Ø Process Redesign

Harley-Davidson

▶ The only major U.S. motorcycle company

▶ Emphasizes quality and lean manufacturing

▶ Materials as Needed (MAN) system ▶ Many variations possible ▶ Tightly scheduled repetitive production

Process Flow Diagram

THE ASSEMBLY LINE TESTING 28 tests

Oil tank work cell

Shocks and forks

Handlebars

Fender work cell

Air cleaners

Fluids and mufflers

Fuel tank work cell

Wheel work cell Roller testing

Incoming parts

Arrive on a JIT schedule from a 10-station work cell in Milwaukee

Engines and transmissions

Frame tube bending

Frame-building work cells

Frame machining

Hot-paint frame painting

Crating

Learning Objectives When you complete this section of the seminar you should be able to:

7.1 Describe four process strategies 7.2 Compute crossover points for different

processes 7.3 Use the tools of process analysis 7.4 Describe customer interaction in service

processes 7.5 Identify recent advances in production

technology

Process Strategy

The objective is to create a process to produce offerings that meet

customer requirements within cost and other managerial constraints

Process Strategies

Ø How to produce a product or provide a service that

§ Meets or exceeds customer requirements § Meets cost and managerial goals

Ø Has long term effects on § Efficiency and production flexibility § Costs and quality

Process, Volume, and Variety

Process Focus projects, job shops

(machine, print, hospitals,

restaurants) Arnold Palmer

Hospital

Repetitive (autos, motorcycles, home appliances) Harley-Davidson

Product Focus (commercial baked goods,

steel, glass, beer) Frito-Lay

High Variety one or few units per run, (allows customization)

Changes in Modules modest runs, standardized modules

Changes in Attributes (such as grade, quality, size, thickness, etc.) long runs only

Mass Customization (difficult to achieve, but

huge rewards) Dell Computer

Poor Strategy (Both fixed and variable costs

are high)

Low Volume

Repetitive Process

High Volume

VolumeFigure 7.1

Va ri

et y

(f le

xi bi

lit y)

Process Strategies

Four basic strategies

1. Process focus 2. Repetitive focus 3. Product focus 4. Mass customization

Within these basic strategies there are many ways they may be implemented

Process Focus Ø Facilities are organized around specific

activities or processes Ø General purpose equipment and skilled

personnel Ø High degree of product flexibility Ø Typically high costs and low equipment

utilization Ø Product flows may vary considerably making

planning and scheduling a challenge

Process Focus Many inputs (surgeries, sick patients,

baby deliveries, emergencies)

Many different outputs (uniquely treated patients)

Many departments and many routings

Figure 7.2(a)

(low-volume, high-variety, intermittent processes) Arnold Palmer Hospital

Repetitive Focus

Ø Facilities often organized as assembly lines Ø Characterized by modules with parts and

assemblies made previously Ø Modules may be combined for many output

options Ø Less flexibility than process-focused facilities

but more efficient

Repetitive Focus

Raw materials and module inputs

Modules combined for many Output options

(many combinations of motorcycles)

Few modules

(multiple engine models, wheel modules)

Figure 7.2(b)

(modular) Harley Davidson

Product Focus

Ø Facilities are organized by product Ø High volume but low variety of products Ø Long, continuous production runs enable

efficient processes Ø Typically high fixed cost but low variable cost Ø Generally less skilled labor

Product Focus Few inputs (corn, potatoes, water,

seasoning)

Output variations in size, shape, and packaging

(3-oz, 5-oz, 24-oz package labeled for each material)

Figure 7.2(c)

(high-volume, low-variety, continuous process)

Frito-Lay

Mass Customization

Ø The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires

Ø Combines the flexibility of a process focus with the efficiency of a product focus

Mass Customization

Figure 7.2(b)

(high-volume, high-variety) Dell Computer

Many parts and component inputs

Many output versions (custom PCs and notebooks)

(chips, hard drives, software, cases)

Many modules

Mass Customization

TABLE 7.1 Mass Customization Provides More Choices Than Ever NUMBER OF CHOICES

ITEM 1970s 21ST CENTURY Vehicle styles 18 1,212 Bicycle types 8 211,000 iPhone mobile game apps 0 1,200,000 Web sites 0 634,000,000 Movie releases per year 267 1551 New book titles 40,530 300,000+ Houston TV channels 5 185 Breakfast cereals 160 340 Items (SKUs) in supermarkets 14,000 150,000 High-definition TVs 0 102

Mass Customization

Ø Imaginative product design Ø Flexible process design Ø Tightly controlled inventory management Ø Tight schedules Ø Responsive partners in the supply-chain

Comparison of Processes

TABLE 7.2 Comparison of the Characteristics of Four Types of Processes

PROCESS FOCUS (LOW-VOLUME, HIGH-VARIETY

ARNOLD PALMER HOSPITAL)

REPETITIVE FOCUS

(MODULAR HARLEY-

DAVIDSON)

PRODUCT FOCUS

(HIGH-VOLUME, LOW-VARIETY

FRITO-LAY)

MASS CUSTOMIZATION (HIGH-VOLUME, HIGH-VARIETY

DELL COMPUTER)

1. Small quantity and large variety of products

1. Long runs, a standardized product from modules

1. Large quantity and small variety of products

1. Large quantity and large variety of products

2. Broadly skilled operators

2. Moderately trained employees

2. Less broadly skilled operators

2. Flexible operators

Comparison of Processes

TABLE 7.2 Comparison of the Characteristics of Four Types of Processes

PROCESS FOCUS (LOW-VOLUME, HIGH-VARIETY

ARNOLD PALMER HOSPITAL)

REPETITIVE FOCUS

(MODULAR HARLEY-

DAVIDSON)

PRODUCT FOCUS

(HIGH-VOLUME, LOW-VARIETY

FRITO-LAY)

MASS CUSTOMIZATION (HIGH-VOLUME, HIGH-VARIETY

DELL COMPUTER)

3. Instructions for each job

3. Few changes in the instructions

3. Standardized job instructions

3. Custom orders requiring many job instructions

4. High inventory

4. Low inventory 4. Low inventory

4. Low inventory relative to the value of the product

Comparison of Processes

TABLE 7.2 Comparison of the Characteristics of Four Types of Processes

PROCESS FOCUS (LOW-VOLUME, HIGH-VARIETY

ARNOLD PALMER HOSPITAL)

REPETITIVE FOCUS

(MODULAR HARLEY-

DAVIDSON)

PRODUCT FOCUS

(HIGH-VOLUME, LOW-VARIETY

FRITO-LAY)

MASS CUSTOMIZATION (HIGH-VOLUME, HIGH-VARIETY

DELL COMPUTER)

5. Finished goods are made to order and not stored

5. Finished goods are made to frequent forecasts

5. Finished goods are made to a forecast and stored

5. Finished goods are build-to- order (BTO)

6. Scheduling is complex

6. Scheduling is routine

6. Sophisticated scheduling accommodates custom orders

Comparison of Processes

TABLE 7.2 Comparison of the Characteristics of Four Types of Processes

PROCESS FOCUS (LOW-VOLUME, HIGH-VARIETY

ARNOLD PALMER HOSPITAL)

REPETITIVE FOCUS

(MODULAR HARLEY-

DAVIDSON)

PRODUCT FOCUS

(HIGH-VOLUME, LOW-VARIETY

FRITO-LAY)

MASS CUSTOMIZATION (HIGH-VOLUME, HIGH-VARIETY

DELL COMPUTER)

7. Fixed costs are low and variable costs high

7. Fixed costs are dependent on flexibility of the facility

7. Fixed costs are high and variable costs low

7. Fixed costs tend to be high and variable costs low

Crossover Chart Example

▶ Evaluate three different accounting software products

▶ Calculate crossover points between software A and B and between software B and C

TOTAL FIXED COST DOLLARS REQUIRED PER

ACCOUNTING REPORT Software A $200,000 $60

Software B $300,000 $25

Software C $400,000 $10

Crossover Chart Example

200,000+ 60( )V1 =300,000+ 25( )V1 35V1 =100,000 V1 =2,857

▶ Software A is most economical from 0 to 2,857 reports

300,000+ 25( )V2 = 400,000+ 10( )V2 15V2 =100,000 V2 =6,666

▶ Software B is most economical from 2,857 to 6,666 reports

Crossover Charts

Fixed costs

Variable costs$

High volume, low variety Process C

Fixed costs

Variable costs$

Repetitive Process B

Fixed costs

Variable costs$

Low volume, high variety Process A

Fixed cost Process A

Fixed cost Process B

Fixed cost Process C

To ta

l p ro

ce ss

A c

os ts

Tot al p

roc ess

B cos

Total proc

ess C cost

V1(2,857) V2 (6,666)

400,000 300,000 200,000

Volume

Figure 7.3

Focused Processes

Ø Focus brings efficiency Ø Focus on depth of product line rather

than breadth Ø Focus can be

§ Customers § Products § Service § Technology

Selection of Equipment

Ø Decisions can be complex as alternate methods may be available

Ø Important factors may be

§ Cost § Cash flow § Market stability

§ Quality § Capacity § Flexibility

Flexibility

Ø Flexibility is the ability to respond with little penalty in time, cost, or customer value

Ø May be a competitive advantage Ø May be difficult and expensive Ø Without it, change may mean starting over

Process Analysis and Design

Ø Is the process designed to achieve a competitive advantage?

Ø Does the process eliminate steps that do not add value?

Ø Does the process maximize customer value?

Ø Will the process win orders?

Process Analysis and Design

Ø Flowchart § Shows the movement of materials § Harley-Davidson flowchart

Ø Time-Function Mapping § Shows flows and time frame

"Baseline" Time-Function Map Customer

Sales

Production control

Plant A

Warehouse

Plant B

Transport

12 days 13 days 1 day 4 days 1 day 10 days 1 day 9 day 1 day 52 daysFigure 7.4(a)

Move

Receive product

P ro

du ct

P ro

du ct

Extrude

Wait

W IP

P ro

du ct

Move

Wait W

IP W IP

Wait

O rd

W IP

Order product

Process order

Wait

O rd

"Target" Time-Function Map Customer

Sales

Production control

Plant

Warehouse

Transport

1 day 2 days 1 day 1 day 1 day 6 days

Figure 7.4(b)

Move

Receive product

P ro

du ct

P ro

du ct

Extrude

Wait

PrintO rd

er WIP

P ro

du ct

Order product

Process order

Wait

O rd

Process Chart

Figure 7.5

Process Analysis and Design

▶ Value-Stream Mapping (VSM) § Where value is added in the entire production

process, including the supply chain § Extends from the customer back to the

suppliers

Value-Stream Mapping

1. Begin with symbols for customer, supplier, and production to ensure the big picture

2. Enter customer order requirements 3. Calculate the daily production

requirements 4. Enter the outbound shipping requirements

and delivery frequency 5. Determine inbound shipping method and

delivery frequency

Value-Stream Mapping

6. Add the process steps (i.e., machine, assemble) in sequence, left to right

7. Add communication methods, add their frequency, and show the direction with arrows

8. Add inventory quantities between every step of the entire flow

9. Determine total working time (value-added time) and delay (non-value-added time)

Value-Stream Mapping

Figure 7.6

Service Blueprinting

Ø Focuses on the customer and provider interaction

Ø Defines three levels of interaction Ø Each level has different management issues Ø Identifies potential failure points

Service Blueprint Personal Greeting Service Diagnosis Perform Service Friendly Close

Level #3

Level #1

Level #2

Figure 7.7

Notify customer

and recommend an alternative

provider. (7 min)

Customer arrives for service.

(3 min)

Warm greeting and obtain

service request. (10 sec)

Direct customer to waiting room.

Notify customer the car is ready.

(3 min)

Customer departs

Customer pays bill. (4 min)

Perform required work.

(varies) Prepare invoice.

(3 min)F

F Yes F

Yes F

Standard request. (3 min)

Determine specifics. (5 min)

Can service be

done and does customer approve? (5 min)

Special Considerations for Service Process Design

Ø Some interaction with customer is necessary, but this often affects performance adversely

Ø The better these interactions are accommodated in the process design, the more efficient and effective the process

Ø Find the right combination of cost and customer interaction

Service Factory Service Shop

Degree of Customization Low High

D eg

re e

of L

ab or

Low

High

Mass Service Professional Service

Service Process Matrix

Commercial banking

Private banking

General- purpose law firms

Law clinics Specialized

hospitals

Hospitals

Full-service stockbroker

Limited-service stockbroker

Retailing Boutiques

Warehouse and catalog stores

Fast-food restaurants

Fine-dining restaurants

Airlines

No-frills airlines

Figure 7.8

Digitized orthodontics

Traditional orthodontics

Service Process Matrix

Ø Labor involvement is high Ø Focus on human resources Ø Selection and training highly

important Ø Personalized services

Mass Service and Professional Service

Service Factory Service Shop

Degree of Customization Low High

D eg

re e

of L

ab or

Low

High

Mass Service Professional Service

Commercial banking

Private banking

General- purpose law

firms

Law clinics

Specialized hospitals

Hospitals

Full-service stockbroker

Limited-service stockbroker

Retailing

Boutiques

Warehouse and catalog stores

Fast-food restaurants Fine-dining restaurants

Airlines

No-frills airlines

Digital orthodontics

Traditional orthodontics

Service Process Matrix

Service Factory and Service Shop § Automation of standardized services § Restricted offerings § Low labor intensity responds well to

process technology and scheduling

§ Tight control required to maintain standards

Service Factory Service Shop

Degree of Customization Low High

D eg

re e

of L

ab or

Low

High

Mass Service Professional Service

Commercial banking

Private banking

General- purpose law

firms

Law clinics

Specialized hospitals

Hospitals

Full-service stockbroker

Limited-service stockbroker

Retailing

Boutiques

Warehouse and catalog stores

Fast-food restaurants Fine-dining restaurants

Airlines

No-frills airlines

Digital orthodontics

Traditional orthodontics

Improving Service Productivity

TABLE 7.3 Techniques for Improving Service Productivity STRATEGY TECHNIQUE EXAMPLE Separation Structuring service so

customers must go where the service is offered

Bank customers go to a manager to open a new account, to loan officers for loans, and to tellers for deposits

Self-service Self-service so customers examine, compare, and evaluate at their own pace

Supermarkets and department stores Internet ordering

Postponement Customizing at delivery Customizing vans at delivery rather than at production

Focus Restricting the offerings Limited-menu restaurant

Improving Service Productivity

TABLE 7.3 Techniques for Improving Service Productivity STRATEGY TECHNIQUE EXAMPLE Modules Modular selection of

service Modular production

Investment and insurance selection Prepackaged food modules in restaurants

Automation Separating services that may lend themselves to some type of automation

Automatic teller machines

Scheduling Precise personnel scheduling

Scheduling ticket counter personnel at 15-minute intervals at airlines

Training Clarifying the service options Explaining how to avoid problems

Investment counselor, funeral directors After-sale maintenance personnel

Production Technology

1. Machine technology 2. Automatic identification systems (AISs) 3. Process control 4. Vision systems 5. Robots 6. Automated storage and retrieval systems (ASRSs) 7. Automated guided vehicles (AGVs) 8. Flexible manufacturing systems (FMSs) 9. Computer-integrated manufacturing (CIM)

Machine Technology Ø Increased precision,

productivity, and flexibility

Ø Reduced environmental impact Ø Additive manufacturing produces products

by adding material, not removing it Ø Supports innovative product design,

minimal custom tooling required, minimal assembly time, low inventory, and reduced time to market

Computer numerical control (CNC)

Automatic Identification Systems (AISs) and RFID

Ø Improved data acquisition Ø Reduced data entry errors Ø Increased speed Ø Increased scope

of process automation

Bar codes and RFID

Process Control Ø Real-time monitoring and control of processes

§ Sensors collect data § Devices read data

on periodic basis § Measurements translated into digital signals then

sent to a computer § Computer programs analyze the data § Resulting output may take numerous forms

Vision Systems

Ø Particular aid to inspection Ø Consistently accurate Ø Never bored Ø Modest cost Ø Superior to individuals performing the same

tasks

Robots

Ø Perform monotonous or dangerous tasks Ø Perform tasks

requiring significant strength or endurance

Ø Generally enhanced consistency and accuracy

Automated Storage and Retrieval Systems (ASRSs)

Ø Automated placement and withdrawal of parts and products

Ø Reduced errors and labor

Ø Particularly useful in inventory and test areas of manufacturing firms

Automated Guided Vehicle (AGVs)

Ø Electronically guided and controlled carts

Ø Used for movement of products and/or individuals

Flexible Manufacturing Systems (FMSs)

Ø Computer controls both the workstation and the material handling equipment

Ø Enhance flexibility and reduced waste Ø Can economically produce low volume but

high variety Ø Reduced changeover time and increased

utilization Ø Stringent communication requirement between

components

Computer-Integrated Manufacturing (CIM)

Ø Extend flexible manufacturing § Backward to engineering and inventory control § Forward into warehousing and shipping § Can also include financial and customer service

areas § Reducing the distinction between low-

volume/high-variety, and high-volume/low-variety production

Computer- Integrated

Manufacturing (CIM)

Figure 7.9

Technology in Services TABLE 7.4 Examples of Technology's Impact on Services SERVICE INDUSTRY EXAMPLE Financial Services Debit cards, electronic funds transfer, ATMs,

Internet stock trading, online banking via cell phone

Education Online newspapers and journals, interactive assignments via WebCT, Blackboard, and smartphones

Utilities and government Automated one-person garbage trucks, optical mail scanners, flood-warning systems, meters that allow homeowners to control energy usage and costs

Restaurants and foods Wireless orders from waiters to kitchen, robot butchering, transponders on cars that track sales at drive-throughs

Communications Interactive TV, e-books via Kindle

Capacity and Constraint Management 7

S U

P P

LE M

E N

Outline

Ø Capacity Ø Bottleneck Analysis and the Theory of

Constraints Ø Break-Even Analysis Ø Reducing Risk with Incremental Changes

Outline - Continued

Ø Applying Expected Monetary Value (EMV) to Capacity Decisions

Ø Applying Investment Analysis to Strategy- Driven Investments

Learning Objectives

When you complete this supplement you should be able to:

S7.1 Define capacity S7.2 Determine design capacity,

effective capacity, and utilization S7.3 Perform bottleneck analysis S7.4 Compute break-even

Learning Objectives

When you complete this supplement you should be able to:

S7.5 Determine the expected monetary value of a capacity decision

S7.6 Compute net present value

Capacity

Ø The throughput, or the number of units a facility can hold, receive, store, or produce in a period of time

Ø Determines fixed costs

Ø Determines if demand will be satisfied

Ø Three time horizons

Planning Over a Time Horizon Figure S7.1

Modify capacity Use capacity

Intermediate- range planning (aggregate planning)

Subcontract Build or use inventory Add or sell equipment More or improved training Add or reduce shifts Add or reduce personnel

Short-range planning (scheduling)

Schedule jobs Schedule personnel Allocate machinery*

Long-range planning

Design new production processes Add (or sell existing)

long-lead-time equipment Acquire or sell facilities Acquire competitors

* Difficult to adjust capacity as limited options exist

Options for Adjusting Capacity Time Horizon

Design and Effective Capacity

Ø Design capacity is the maximum theoretical output of a system

§ Normally expressed as a rate Ø Effective capacity is the capacity a firm expects

to achieve given current operating constraints § Often lower than design capacity

Design and Effective Capacity TABLE S7.1 Capacity Measurements MEASURE DEFINITION EXAMPLE

Design capacity Ideal conditions exist during the time that the system is available

Machines at Frito-Lay are designed to produce 1,000 bags of chips/hr., and the plant operates 16 hrs./day. Design Capacity = 1,000 bags/hr. × 16 hrs.

= 16,000 bags/day

Design and Effective Capacity TABLE S7.1 Capacity Measurements MEASURE DEFINITION EXAMPLE

Effective capacity Design capacity minus lost output because of planned resource unavailability (e.g., preventive maintenance, machine setups/changeovers, changes in product mix, scheduled breaks)

Frito-Lay loses 3 hours of output per day (= 0.5 hrs./day on preventive maintenance, 1 hr./day on employee breaks, and 1.5 hrs./day setting up machines for different products). Effective Capacity = 16,000 bags/day

– (1,000 bags/hr.) (3 hrs./day)

= 16,000 bags/day – 3,000 bags/day

= 13,000 bags/day

Design and Effective Capacity TABLE S7.1 Capacity Measurements MEASURE DEFINITION EXAMPLE

Actual output Effective capacity minus lost output during unplanned resource idleness (e.g., absenteeism, machine breakdowns, unavailable parts, quality problems)

On average, machines at Frito-Lay are not running 1 hr./day due to late parts and machine breakdowns. Actual Output = 13,000 bags/day

– (1,000 bags/hr.) (1 hr./day)

= 13,000 bags/day – 1,000 bags/day

= 12,000 bags/day

Utilization and Efficiency

Utilization is the percent of design capacity actually achieved

Efficiency is the percent of effective capacity actually achieved

Utilization = Actual output/Design capacity

Efficiency = Actual output/Effective capacity

Bakery Example

Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Design Capacity

Bakery Example

Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Utilization

Bakery Example

Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

Efficiency

Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 201,600 rolls per line Efficiency = 84.6%

Design capacity = 201,600 x 2 = 403,200 rolls

Expected output of new line = 130,000 rolls

Design Capacity

Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 201,600 rolls per line Efficiency = 84.6%

Design capacity = 201,600 x 2 = 403,200 rolls

Expected output of new line = 130,000 rolls

Effective capacity = 175,000 x 2 = 350,000 rolls

Effective Capacity

Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 201,600 rolls per line Efficiency = 84.6%

Design capacity = 201,600 x 2 = 403,200 rolls

Effective capacity = 175,000 x 2 = 350,000 rolls

Expected output of new line = 130,000 rolls

Actual output = 148,000 + 130,000 = 278,000 rolls

Actual Output

Bakery Example Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 201,600 rolls per line Efficiency = 84.6%

Design capacity = 201,600 x 2 = 403,200 rolls

Effective capacity = 175,000 x 2 = 350,000 rolls

Actual output = 148,000 + 130,000 = 278,000 rolls Utilization = 278,000/403,200 = 68.95% Efficiency = 278,000/350,000 = 79.43%

Expected output of new line = 130,000 rolls

Utilization Efficiency

Capacity and Strategy

Ø Capacity decisions impact all 10 decisions of operations management as well as other functional areas of the organization

Ø Capacity decisions must be integrated into the organization’s mission and strategy

Capacity Considerations

1. Forecast demand accurately 2. Match technology increments and

sales volume 3. Find the optimum operating size

(volume) 4. Build for change

Economies and Diseconomies of Scale

Economies of scale

Diseconomies of scale

1,300 sq ft store 2,600 sq ft

store

8,000 sq ft store

Number of square feet in store 1,300 2,600 8,000

A ve

ra ge

u ni

t c os

t (s

al es

p er

s qu

ar e

fo ot

)

Figure S7.2

Managing Demand

Ø Demand exceeds capacity ▶ Curtail demand by raising prices, scheduling

longer lead times ▶ Long-term solution is to increase capacity

Ø Capacity exceeds demand ▶ Stimulate market ▶ Product changes

Ø Adjusting to seasonal demands ▶ Produce products with complementary

demand patterns

Complementary Demand Patterns

4,000 –

3,000 –

2,000 –

1,000 –

J F M A M J J A S O N D J F M A M J J A S O N D J

S al

es in

u ni

Time (months)

Combining the two demand patterns reduces the variation

Snowmobile motor sales

Jet ski engine sales

Figure S7.3

Tactics for Matching Capacity to Demand

1. Making staffing changes 2. Adjusting equipment

▶ Purchasing additional machinery ▶ Selling or leasing out existing equipment

3. Improving processes to increase throughput 4. Redesigning products to facilitate more throughput 5. Adding process flexibility to meet changing product

preferences 6. Closing facilities

Service-Sector Demand and Capacity Management

Ø Demand management ▶ Appointment, reservations, FCFS rule

Ø Capacity management

▶ Full time, temporary, part-time staff

Bottleneck Analysis and the Theory of Constraints

Ø Each work area can have its own unique capacity

Ø Capacity analysis determines the throughput capacity of workstations in a system

Ø A bottleneck is a limiting factor or constraint Ø A bottleneck has the lowest effective capacity

in a system Ø The time to produce a unit or a specified

batch size is the process time

Bottleneck Analysis and the Theory of Constraints

Ø The bottleneck time is the time of the slowest workstation (the one that takes the longest) in a production system

Ø The throughput time is the time it takes a unit to go through production from start to end, with no waiting

2 min/unit 4 min/unit 3 min/unit

A B C

Figure S7.4

Capacity Analysis

Ø Two identical sandwich lines Ø Lines have two workers and three operations Ø All completed sandwiches are wrapped

Wrap/ Deliver

37.5 sec/sandwich

Order

30 sec/sandwich

Bread Fill

15 sec/sandwich 20 sec/sandwich 40 sec/sandwich

Bread Fill Toaster

15 sec/sandwich 20 sec/sandwich

Toaster

40 sec/sandwich

First assembly line

Second assembly line

Capacity Analysis

Ø The two lines are identical, so parallel processing can occur

Ø At 40 seconds, the toaster has the longest processing time and is the bottleneck for each line

Ø At 40 seconds for two sandwiches, the bottleneck time of the combined lines = 20 seconds

Ø At 37.5 seconds, wrapping and delivery is the bottleneck for the entire operation

Wrap

37.5 sec

Order

30 sec

Bread Fill

15 sec 20 sec

40 sec

Bread Fill

Toaster

15 sec 20 sec

Toaster

40 sec

Capacity Analysis

Ø Capacity per hour is 3,600 seconds/37.5 seconds/sandwich = 96 sandwiches per hour

Ø Throughput time is 30 + 15 + 20 + 40 + 37.5 = 142.5 seconds

Wrap

37.5 sec

Order

30 sec

Bread Fill

15 sec 20 sec

40 sec

Bread Fill

Toaster

15 sec 20 sec

Toaster

40 sec

Capacity Analysis

Ø Standard process for cleaning teeth Ø Cleaning and examining X-rays can happen

simultaneously

Check out

6 min/unit

Check in

2 min/unit

Develops X-ray

4 min/unit 8 min/unit

DentistTakesX-ray

2 min/unit

5 min/unit

X-ray exam

Hygienist cleaning

24 min/unit

Capacity Analysis

▶ All possible paths must be compared

▶ Bottleneck is the hygienist at 24 minutes ▶ Hourly capacity is 60/24 = 2.5 patients

▶ X-ray exam path is 2 + 2 + 4 + 5 + 8 + 6 = 27 minutes

▶ Cleaning path is 2 + 2 + 4 + 24 + 8 + 6 = 46 minutes ▶ Longest path involves the hygienist cleaning the

teeth, patient should complete in 46 minutes

Check out

6 min/unit

Check in

2 min/unit

Develops X-ray

4 min/unit 8 min/unit

DentistTakesX-ray

2 min/unit

5 min/unit

X-ray exam

Hygienist cleaning

24 min/unit

Theory of Constraints

▶ Five-step process for recognizing and managing limitations Step 1: Identify the constraints Step 2: Develop a plan for overcoming the constraints Step 3: Focus resources on accomplishing Step 2 Step 4: Reduce the effects of constraints by offloading

work or expanding capability Step 5: Once overcome, go back to Step 1 and find

new constraints

Bottleneck Management

1. Release work orders to the system at the pace of set by the bottleneck’s capacity ▶ Drum, Buffer, Rope

2. Lost time at the bottleneck represents lost capacity for the whole system

3. Increasing the capacity of a nonbottleneck station is a mirage

4. Increasing the capacity of a bottleneck increases the capacity of the whole system

Break-Even Analysis

Ø Technique for evaluating process and equipment alternatives

Ø Objective is to find the point in dollars and units at which cost equals revenue

Ø Requires estimation of fixed costs, variable costs, and revenue

Break-Even Analysis Ø Fixed costs are costs that continue even if no

units are produced § Depreciation, taxes, debt, mortgage payments

Ø Variable costs are costs that vary with the volume of units produced

§ Labor, materials, portion of utilities § Contribution is the difference between selling

price and variable cost

Break-Even Analysis

Ø Revenue function begins at the origin and proceeds upward to the right, increasing by the selling price of each unit

Ø Where the revenue function crosses the total cost line is the break-even point

Pro fit c

orr ido

Lo ss

co rrid

Break-Even Analysis Total revenue line

Total cost line

Variable cost

Fixed cost

Break-even point Total cost = Total revenue

–

900 –

800 –

700 –

600 –

500 –

400 –

300 –

200 –

100 – | | | | | | | | | | | |

0 100 200 300 400 500 600 700 800 900 1000 1100

C os

t i n

do lla

Volume (units per period) Figure S7.5

Break-Even Analysis

Ø Costs and revenue are linear functions § Generally not the case in the real world

Ø We actually know these costs § Very difficult to verify

Ø Time value of money is often ignored

Assumptions

Break-Even Analysis BEPx = break-even point

in units BEP$ = break-even point

in dollars P = price per unit

(after all discounts)

x = number of units produced

TR = total revenue = Px F = fixed costs V = variable cost per unit

TC = total costs = F + Vx

TR = TC or

Px = F + Vx

Break-even point occurs when

BEPx = F

P – V

Break-Even Analysis BEPx = break-even point

in units BEP$ = break-even point

in dollars P = price per unit

(after all discounts)

x = number of units produced

TR = total revenue = Px F = fixed costs V = variable cost per unit

TC = total costs = F + Vx

BEP$ = BEPx P = P

F (P – V)/P

F P – V

F 1 – V/P

Profit = TR - TC = Px – (F + Vx) = Px – F – Vx = (P - V)x – F

Break-Even Example

Fixed costs = $10,000 Material = $.75/unit Direct labor = $1.50/unit Selling price = $4.00 per unit

BEP$ = = F

1 – (V/P) $10,000

1 – [(1.50 + .75)/(4.00)]

= = $22,857.14 $10,000

.4375

Break-Even Example

Fixed costs = $10,000 Material = $.75/unit Direct labor = $1.50/unit Selling price = $4.00 per unit

BEP$ = = F

1 – (V/P) $10,000

1 – [(1.50 + .75)/(4.00)]

= = $22,857.14 $10,000

.4375

BEPx = = = 5,714 F

P – V $10,000

4.00 – (1.50 + .75)

Break-Even Example

50,000 –

40,000 –

30,000 –

20,000 –

10,000 –

| | | | | | 0 2,000 4,000 6,000 8,000 10,000

D ol

la rs

Units

Fixed costs

Total costs

Revenue

Break-even point

Break-Even Example

Multiproduct Case

where V = variable cost per unit P = price per unit F = fixed costs W = percent each product is of total dollar sales

expressed as a decimal i = each product

= F

1− Vi Pi

# $

& '× Wi( )

)

* + +

- . .

∑

Break-even point in dollars (BEP$)

Multiproduct Example Fixed costs = $3,000 per month

ITEM ANNUAL FORECASTED

SALES UNITS PRICE COST Sandwich 9,000 $5.00 $3.00

Drink 9,000 1.50 .50

Baked potato 7,000 2.00 1.00

1 2 3 4 5 6 7 8 9

ITEM (i)

ANNUAL FORECASTED SALES UNITS

SELLING PRICE (Pi)

VARIABLE COST (Vi) (Vi/Pi) 1 - (Vi/Pi)

ANNUAL FORECASTED

SALES $ % OF SALES

(Wi)

WEIGHTED CONTRIBUTION (COL 6 X COL 8)

Sandwich 9,000 $5.00 $3.00 .60 .40 $45,000 .621 .248

Drinks 9,000 1.50 0.50 .33 .67 13,500 .186 .125

Baked potato

7,000 2.00 1.00 .50 .50 14,000 .193 .097

$72,500 1.000 .470

Multiproduct Example Fixed costs = $3,000 per month

ITEM ANNUAL FORECASTED

SALES UNITS PRICE COST Sandwich 9,000 $5.00 $3.00

Drink 9,000 1.50 .50

Baked potato 7,000 2.00 1.00

1 2 3 4 5 6 7 8 9

ITEM (i)

ANNUAL FORECASTED SALES UNITS

SELLING PRICE (P)

VARIABLE COST (V) (V/P) 1 - (V/P)

ANNUAL FORECASTED

SALES $ % OF SALES

WEIGHTED CONTRIBUTION (COL 5 X COL 7)

Sandwich 9,000 $5.00 $3.00 .60 .40 $45,000 .621 .248

Drinks 9,000 1.50 0.50 .33 .67 13,500 .186 .125

Baked potato

7,000 2.00 1.00 .50 .50 14,000 .193 .097

$72,500 1.000 .470

= = $76,596 $3,000 x 12

.47

Daily sales = = $245.50

$76,596 312 days

BEP$ = F

1− Vi Pi

# $

& '× Wi( )

)

* + +

- . .

∑

Reducing Risk with Incremental Changes

(a) Leading demand with incremental expansion

D em

an d

Expected demand

New capacity

(d) Attempts to have an average capacity with incremental expansion

D em

an d

New capacity Expected

demand

D em

an d

New capacity

Expected demand

Figure S7.6

(b) Leading demand with a one-step expansion

D em

an d

Expected demand

New capacity

Reducing Risk with Incremental Changes

(a) Leading demand with incremental expansion

Expected demand

Figure S7.6

New capacity

D em

an d

Time (years) 1 2 3

Reducing Risk with Incremental Changes

(b) Leading demand with a one-step expansion

Expected demand

Figure S7.6

New capacity

D em

an d

Time (years) 1 2 3

Reducing Risk with Incremental Changes

Expected demand

D em

an d

Time (years) 1 2 3

New capacity

Figure S7.6

Reducing Risk with Incremental Changes

(d) Attempts to have an average capacity with incremental expansion

Expected demand

New capacity

D em

an d

Time (years) 1 2 3

Figure S7.6

Applying Expected Monetary Value (EMV) and Capacity Decisions

▶ Determine states of nature § Future demand § Market favorability

▶ Assign probability values to states of nature to determine expected value

EMV Applied to Capacity Decision

▶ Southern Hospital Supplies capacity expansion

EMV (large plant) = (.4)($100,000) + (.6)(–$90,000) = –$14,000

EMV (medium plant) = (.4)($60,000) + (.6)(–$10,000) = +$18,000

EMV (small plant) = (.4)($40,000) + (.6)(–$5,000) = +$13,000

EMV (do nothing) = $0

Strategy-Driven Investments

▶ Operations managers may have to decide among various financial options

▶ Analyzing capacity alternatives should include capital investment, variable cost, cash flows, and net present value

Net Present Value (NPV)

where F = future value P = present value i = interest rate

N = number of years

P = F

(1 + i)N

F = P(1 + i)N In general:

Solving for P:

Net Present Value (NPV)

where F = future value P = present value i = interest rate

N = number of years

P = F

(1 + i)N

F = P(1 + i)N In general:

Solving for P:

While this works fine, it is cumbersome for

larger values of N

NPV Using Factors

P = = FX F

(1 + i)N

where X = a factor from Table S7.2 defined as = 1/(1 + i)N and F = future value

Portion of Table S7.2

TABLE S7.2 Present Value of $1 YEAR 6% 8% 10% 12% 14%

1 .943 .926 .909 .893 .877 2 .890 .857 .826 .797 .769 3 .840 .794 .751 .712 .675 4 .792 .735 .683 .636 .592 5 .747 .681 .621 .567 .519

Present Value of an Annuity

An annuity is an investment that generates uniform equal payments

S = RX

where X = factor from Table S7.3 S = present value of a series of uniform

annual receipts R = receipts that are received every year

of the life of the investment

Present Value of an Annuity

Portion of Table S7.3

TABLE S7.3 Present Value of and Annuity of $1 YEAR 6% 8% 10% 12% 14%

1 .943 .926 .909 .893 .877 2 1.833 1.783 1.736 1.690 1.647 3 2.673 2.577 2.487 2.402 2.322 4 3.465 3.312 3.170 3.037 2.914 5 4.212 3.993 3.791 3.605 3.433

Present Value of an Annuity

▶ River Road Medical Clinic equipment investment

$7,000 in receipts per year for 5 years Interest rate = 6%

From Table S7.3 X = 4.212

S = RX S = $7,000(4.212) = $29,484

Limitations

1. Investments with the same NPV may have different projected lives and salvage values

2. Investments with the same NPV may have different cash flows

3. Assumes we know future interest rates 4. Payments are not always made at the end

of a period

Lean Operations 16

Outline Ø Global Company Profile:

Toyota Motor Corporation

Ø Lean Operations Ø Lean and Just-in-Time Ø Lean and the Toyota Production System Ø Lean Organizations Ø Lean in Services

Toyota Motor Corporation

▶ One of the largest vehicle manufacturers in the world with annual sales of over 9 million vehicles

▶ Success due to two techniques, JIT and TPS

▶ Continual problem solving is central to JIT

▶ Eliminating excess inventory makes problems immediately evident

Toyota Motor Corporation

▶ Central to TPS is employee learning and a continuing effort to produce products under ideal conditions

▶ Respect for people is fundamental ▶ Small building but high levels of

production ▶ Subassemblies are transferred to the

assembly line on a JIT basis ▶ High quality and low assembly time per

vehicle

TPS Elements

Seminar Learning Objectives

When you complete this section of the seminar you should be able to:

16.1 Define Lean operations 16.2 Define the seven wastes and the

5Ss 16.3 Identify the concerns of suppliers

when moving to supplier partnerships

16.4 Determine optimal setup time

When you complete this section of the seminar you should be able to:

Seminar Learning Objectives

16.5 Define kanban 16.6 Compute the required number of

kanbans 16.7 Identify six attributes of Lean

organizations 19.8 Explain how Lean applies to

services

Lean Operations

• Lean operations supply the customer with exactly what the customer wants when the customer wants it, without waste, through continuous improvement

• Driven by “pulling” customer orders

Lean Operations

Ø Just-in-time (JIT) focuses on continuous forced problem solving

Ø Toyota Production System (TPS) emphasizes continuous improvement, respect for people, and standard work practices in an assembly-line environment

Lean Operations

Ø Encompasses both JIT and TPS Ø Sustains competitive advantage and

increases return to stakeholders Ø Three fundamental issues

§ Eliminate waste § Remove variability § Improve throughput

Eliminate Waste

Ø Waste is anything that does not add value from the customer point of view

Ø Storage, inspection, delay, waiting in queues, and defective products do not add value and are 100% waste

Ohno's Seven Wastes

Ø Overproduction Ø Queues Ø Transportation Ø Inventory Ø Motion Ø Overprocessing Ø Defective products

Eliminate Waste

Ø Other resources such as energy, water, and air are often wasted

Ø Efficient, sustainable production minimizes inputs, reduces waste

Ø Traditional "housekeeping" has been expanded to the 5Ss

The 5Ss

Ø Sort/segregate – when in doubt, throw it out Ø Simplify/straighten – methods analysis tools Ø Shine/sweep – clean daily Ø Standardize – remove variations from processes Ø Sustain/self-discipline – review work and

recognize progress

The 5Ss

Two additional Ss ▶ Safety – built in good practices ▶ Support/maintenance – reduce

variability and unplanned downtime

Remove Variability

Ø Variability is any deviation from the optimum process

Ø Lean systems require managers to reduce variability caused by both internal and external factors

Ø Inventory hides variability Ø Less variability results in less waste

Sources of Variability

Ø Poor processes resulting in improper quantities, late, or non-conforming units

Ø Inadequate maintenance Ø Unknown and changing customer

demands Ø Incomplete or inaccurate drawings,

specifications, or bills of material

Ø Poor processes resulting in improper quantities, late, or non-conforming units

Ø Inadequate maintenance Ø Unknown customer demands Ø Incomplete or inaccurate drawings,

specifications, or bills of material

Sources of Variability

Both JIT an d inventory

reduction a re effective

tools in

identifying causes of v

ariability

Improve Throughput

Ø The rate at which units move through a process

Ø The time between the arrival of raw materials and the shipping of the finished order is called manufacturing cycle time

Ø A pull system increases throughput

Improve Throughput

Ø By pulling material in small lots, inventory cushions are removed, exposing problems and emphasizing continual improvement

Ø Manufacturing cycle time is reduced Ø Push systems dump orders on the

downstream stations regardless of the need

Lean and Just-In-Time Ø Powerful strategy for improving operations Ø Materials arrive where they

are needed only when they are needed

Ø Identifying problems and driving out waste reduces costs and variability and improves throughput

Ø Requires a meaningful buyer-supplier relationship

JIT and Competitive Advantage

Figure 16.1

JIT and Competitive Advantage

Figure 16.1

WHICH RESULTS IN:

Rapid throughput frees assets Quality improvement reduces waste

Cost reduction adds pricing flexibility Variability reduction

Rework reduction

WHICH WINS ORDERS BY:

Faster response to the customer at lower cost and higher quality – A Competitive Advantage

Supplier Partnerships

Ø Supplier partnerships exist when a supplier and purchaser work together to remove waste and drive down costs

Ø Four goals of supplier partnerships are: § Removal of unnecessary activities § Removal of in-plant inventory § Removal of in-transit inventory § Improved quality and reliability

JIT Partnerships

Figure 16.2

Concerns of Suppliers

Ø Diversification – ties to only one customer increases risk

Ø Scheduling – don't believe customers can create a smooth schedule

Ø Lead time – short lead times mean engineering or specification changes can create problems

Ø Quality – limited by capital budgets, processes, or technology

Ø Lot sizes – small lot sizes may transfer costs to suppliers

Lean Layout

▶ Reduce waste due to movement

TABLE 16.1 LEAN LAYOUT TACTICS

Build work cells for families of products Include a large number operations in a small area Minimize distance Design little space for inventory Improve employee communication Use poka-yoke devices Build flexible or movable equipment Cross-train workers to add flexibility

Distance Reduction Ø Large lots and long production lines with

single-purpose machinery are being replaced by smaller flexible cells

Ø Often U-shaped for shorter paths and improved communication

Ø Often using group technology concepts

Increased Flexibility

Ø Cells designed to be rearranged as volume or designs change

Ø Applicable in office environments as well as production settings

Ø Facilitates both product and process improvement

Impact on Employees

Ø Employees may be cross-trained for flexibility and efficiency

Ø Improved communications facilitate the passing on of important information about the process (poka-yoke functions can help)

Ø With little or no inventory buffer, getting it right the first time is critical

Reduced Space and Inventory

Ø With reduced space, inventory must be in very small lots

Ø Units are always moving because there is no storage

Lean Inventory

Ø Inventory is at the minimum level necessary to keep operations running

TABLE 16.2 LEAN INVENTORY TACTICS

Use a pull system to move inventory Reduce lot sizes Develop just-in-time delivery systems with suppliers Deliver directly to point of use Perform to schedule Reduce setup time Use group technology

Reduce Variability

Inventory level

Process downtimeScrap

Setup time

Late deliveries

Quality problems

Figure 16.3

Inventory level

Reduce Variability

Figure 16.3

Process downtimeScrap

Setup time

Late deliveries

Quality problems

Inventory level

Reduce Variability

Figure 16.3

Process downtime removed

No scrap

Setup time

reduced No late

deliveries

Quality problems removed

Reduce Inventory

Ø Reducing inventory uncovers the "rocks" Ø Problems are exposed Ø Ultimately there will

be virtually no inventory and no problems

Ø Shingo says "Inventory is evil"

Inventory

Reduce Lot Sizes

Figure 16.4

200 –

100 –

In ve

nt or

Time

Q2 When average order size = 100 average inventory is 50

Q1 When average order size = 200 average inventory is 100

Reduce Lot Sizes

Ø Ideal situation is to have lot sizes of one pulled from one process to the next

Ø Often not feasible Ø Can use EOQ analysis to calculate desired

setup time Ø Two key changes necessary

§ Improve material handling § Reduce setup time

Qp * =

2DS H 1−(d / p)"# $%

Setup Time Example D = Annual demand = 400,000 units d = Daily demand = 400,000/250 = 1,600 per day p = Daily production rate = 4,000 units

Qp = EOQ desired = 400 H = Holding cost = $20 per unit S = Setup cost (to be determined)

Setup time = $2.40/($30/hour) = 0.08 hr = 4.8 minutes

Qp * =

2DS H 1−(d / p)"# $%

###########Qp 2 =

2DS H 1−(d / p)"# $%

S = Qp

2( ) H( ) 1−d / p( ) 2D

= (400)2(20)(1−1,600 / 4,000)

2(400,000) =$2.40

Reduce Setup Costs

Ø High setup costs encourage large lot sizes Ø Reducing setup costs reduces lot size and

reduces average inventory Ø Setup time can be reduced through

preparation prior to shutdown and changeover

Lower Setup Costs Figure 16.5

Sum of ordering and holding costs

Holding cost

Setup cost curve (S1)

S1 T2

C os

Lot size

Setup cost curve (S2)

Reduce Setup Costs Figure 16.6

90 min —

60 min —

40 min —

25 min —

15 min — 13 min —

—

Use one-touch system to eliminate adjustments (save 10 minutes)

Training operators and standardizing work procedures (save 2 minutes)

Step 4

Step 5

Initial Setup Time

Step 2 Move material closer and improve material handling

(save 20 minutes)

Step 1 Separate setup into preparation and actual setup,

doing as much as possible while the machine/process is operating

(save 30 minutes)

Step 3 Standardize and improve tooling

(save 15 minutes)

Repeat cycle until subminute setup is achieved

Step 6

Lean Scheduling

Ø Schedules must be communicated inside and outside the organization

Ø Level schedules § Process frequent small batches § Freezing the schedule helps stability

Ø Kanban § Signals used in a pull system

Lean Scheduling Ø Better scheduling improves performance

TABLE 16.3 LEAN SCHEDULING TACTICS

Make level schedules Use kanbans Communicate schedules to suppliers Freeze part of the schedule Perform to schedule Seek one-piece-make and one-piece-move Eliminate waste Produce in small lots Make each operation produce a perfect part

Level Schedules

Ø Process frequent small batches rather than a few large batches

Ø Make and move small lots so the level schedule is economical

Ø Freezing the schedule closest to the due dates can improve performance

Scheduling Small Lots

A B CA AAB B B B B C JIT Level Material-Use Approach

A CA AA B B B B B C CB B B BA A

Large-Lot Approach

Time

Figure 16.7

Kanban

Ø Kanban is the Japanese word for card Ø The card is an authorization for the next

container of material to be produced Ø A sequence of kanbans

pulls material through the process

Ø Many different sorts of signals are used, but the system is still called a kanban

Signal marker hanging on post for part Z405 shows that production should start for that part. The post is located so that workers in normal locations can easily see it.

Signal marker on stack of boxes

Part numbers mark location of specific part

Kanban Figure 16.8

Kanban

Ø When there is visual contact – The user removes a standard-size container

of parts from a small storage area, as shown in Figure 16.8.

– The signal at the storage area is seen by the producing department as authorization to replenish the using department or storage area. Because there is an optimum lot size, the producing department may make several containers at a time.

Kanban

Kanban Kanban

Final assembly

Work cell

Kanban

Material/Parts Supplier Finished goods

Customer order

Kanban

Ø When the producer and user are not in visual contact, a card can be used; otherwise, a light or flag or empty spot on the floor may be adequate

Ø Usually each card controls a specific quantity of parts although multiple card systems may be used if there are several components or if the lot size is different from the move size

Kanban

Ø Kanban cards provide a direct control and limit on the amount of work-in-process between cells

Ø A complicating factor in a manufacturing firm is the time needed for actual manufacturing (production) to take place

The Number of Kanban Cards or Containers

Ø Need to know the lead time needed to produce a container of parts

Ø Need to know the amount of safety stock needed

Number of kanbans (containers)

Demand during Safety lead time + stock Size of container=

Number of Kanbans Example Daily demand = 500 cakes Production lead time = 2 days (Wait time + Material handling time + Processing time) Safety stock = 1/2 day Container size = 250 cakes

Demand during lead time = 2 days x 500 cakes = 1,000 Safety stock = ½ x Daily demand = 250

Number of kanbans = = 5 1,000 + 250

250

Advantages of Kanban

Ø Small containers require tight schedules, smooth operations, little variability

Ø Shortages create an immediate impact Ø Places emphasis on meeting schedules,

reducing lead time and setups, and economic material handling

Ø Standardized containers reduce weight, disposal costs, wasted space, and labor

Lean Quality

Ø Strong relationship § Lean cuts the cost of obtaining good quality

because Lean exposes poor quality § Because lead times are shorter, quality

problems are exposed sooner § Better quality means fewer buffers and allows

simpler Lean systems to be used

Lean Quality Tactics

TABLE 16.4 LEAN QUALITY TACTICS

Use statistical process control Empower employees Build fail-safe methods (poka-yoke, checklists, etc.) Expose poor quality with small lots Provide immediate feedback

Toyota Production System

Ø Continuous improvement § Build an organizational culture and value system

that stresses improvement of all processes, kaizen

§ Part of everyone’s job Ø Respect for people

§ People are treated as knowledge workers

§ Engage mental and physical capabilities

§ Empower employees

Toyota Production System

Ø Processes and standard work practice § Work shall be completely specified as to content,

sequence, timing, and outcome § Internal and external customer-supplier

connections are direct § Material and service flows must be simple and

directly linked to the people or machinery involved

§ Process improvement must be made in accordance with the scientific method at the lowest possible level of the organization

Toyota Production System

Ø Processes and standard work practice § Stopping production because of a defect is

called jidoka § Dual focus ▶ Education and training of employees ▶ Responsiveness of the system to problems

Ø Result is continuous improvement

Lean Organizations

Ø Understanding the customer and their expectations

Ø Functional areas communicate and collaborate to make sure customer expectations are met

Ø Implement the tools of Lean throughout the organization

Building a Lean Organization

Ø Transitioning to a Lean system can be difficult Ø Build a culture of continual improvement Ø Open communication Ø Demonstrated respect for people Ø Gemba walks to see work being performed

Building a Lean Organization

Ø Lean systems tend to have the following attributes § Respect and develop employees § Empower employees § Develop worker flexibility § Develop collaborative partnerships with suppliers § Eliminate waste by performing only value-added

activities

Lean Sustainability

Ø Two sides of the same coin Ø Maximize resource use and economic

efficiency Ø Focus on issues outside the immediate firm Ø Driving out waste is the common ground

Lean in Services

Ø The Lean techniques used in manufacturing are used in services § Suppliers § Layouts § Inventory § Scheduling