Week 2 BUSN 6110 Spring 2 2012 Supply

Week 2 BUSN 6110 Spring 2, 2012

Supply Chain Management

Supply Chain Management • First appearance – Financial Times • Importance → Inventory ~ 14% of GDP → GDP ~ $12 trillion → Warehousing/Trans ~ 9% of GDP → Rule of Thumb - $12 increase in sales to = $1 savings in Supply Chain • 1982 Peter Drucker – last frontier • Supply Chain problems can cause ≤ 11% drop in stock price • Customer perception of company

SCOR Reference: www. supply-chain. org

End-to-End Supply Chain Plan Deliver Sourc Return e Suppliers’ Supplier Make Deliver Return Supplier Source Return Your Company Internal or External Make Deliver Return Plan Sourc e Return Make Deliver Sourc Return e Return Customer Internal or External Customers’ Customer SCOR reference model • Whether from Cow to Cone or from Rock to Ring SCOR is not limited by organizational boundaries Copyright © Supply Chain Council, 2008. All rights reserved 55

Components Source Make End-to-End Supply Chain Sub assemblies Deliver Supplier’s Supplier Source Make Supplier Deliver Manufacturer Source Make Deliver MP 3 Company Retailer Source Consumer Deliver Customer Source Customer’s Customer Process, arrow indicates material flow direction Copyright © Supply Chain Council, 2008. All rights reserved 66

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

Supply Chain Uncertainty ü Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability ü Inventory is a form of insurance ü Distorted information is one of the main causes of uncertainty Bullwhip effect

Information in the Supply Chain ü Centralized coordination of information flows ü Integration of transportation, distribution, ordering, and production ü Direct access to domestic and global transportation and distribution channels ü Locating and tracking the movement of every item in the supply chain - RFID

Bar Codes ü Computer readable codes attached to items flowing through the supply chain ü Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans 1234 5678

IT Issues ü Increased benefits and sophistication come with increased costs ü Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient ü Security problems are very real – camera phones, cell phones, thumb drives ü Collaboration and trust are important elements that may be new to business relationships

Suppliers ü Purchased materials account for about half of manufacturing costs ü Materials, parts, and service must be delivered on time, of high quality, and low cost ü Suppliers should be integrated into their customers’ supply chains ü Partnerships should be established ü On-demand delivery (JIT) is a frequent requirement - what is JIT and does it work?

Sourcing ü Relationship between customers and suppliers focuses on collaboration and cooperation ü Outsourcing has become a long-term strategic decision ü Organizations focus on core competencies ü Single-sourcing is increasingly a part How does of supplier relations single source differ from sole source?

Distribution ü The actual movement of products and materials between locations ü Handling of materials and products at receiving docks, storing products, packaging, and shipping ü Often called logistics ü Driving force today is speed

Distribution Centers and Warehousing ü DCs are some of the largest business facilities in the United States ü Trend is for more frequent orders in smaller quantities ü Flow-through facilities and automated material handling ü Final assembly and product configuration (postponement) may be done at the DC

Vendor-Managed Inventory ü Not a new concept – same process used by bread deliveries to stores for decades ü Reduces need for warehousing ü Increased speed, reduced errors, and improved service ü Onus is on the supplier to keep the shelves full or assembly lines running ü variation of JIT ü Proctor&Gamble - Wal-Mart ü Home Depot

Transportation

Railroads ü 95, 000 - 150, 000 miles in US ü Low cost, high-volume ü Improving flexibility ü intermodal service ü double stacking Complaints: slow, inflexible, large loads Advantages: large/bulky loads, intermodal

Trucking ü Most used mode in US -75% of total freight (volume not total weight) ü Flexible, small loads ü Consolidation, Internet load match sites ü Truck load (TL) vs. Less Than Truck Load (LTL)

Air ü Lightweight, small items ü Quick, reliable, expensive (relatively expensive depending on costs of not getting item there) ü Major airlines and US Postal Service, UPS, Fed. Ex

Package Carriers ü UPS, US Postal Service, Fed. Ex Ground ü Significant growth driven by e-businesses and the move to smaller shipments and consumer desire to have it NOW ü Use several modes of transportation ü Innovative use of technologies in some cases ü Online tracking – some better than others

Intermodal ü Combination of several modes of transportation ü Most common are truck/rail/truck and truck/water/rail/truck ü Enabled by the use of containers – the development of the 20 and 40 foot containers significantly changed the face of shipping

Switching Milk Cans from a Farmer’s Buggy to a Truck on a Rural Road in North Carolina, 1929 Early form of intermodal transport and cross docking

Water ü One of oldest means of transport ü Low-cost, high-volume, slow (relative) ü Security - sheer volume - millions of containers annually ü Bulky, heavy and/or large items ü Standardized shipping containers improve service ü The most common form of international shipping

Pipelines ü Primarily for oil & refined oil products ü Slurry lines carry coal or kaolin ü High initial capital investment ü Low operating costs ü Can cross difficult terrain

Global Supply Chain ü Free trade & global opportunities ü Nations form trading groups ü No tariffs or duties ü Freely transport goods across borders ü Security!!

Quality Management Quality is a measure of goodness that is inherent to a product or service. Bottom line: perspective has to be from the Customer – fitness for use

What Is Quality? ü “The degree of excellence of a thing” (Webster’s Dictionary) ü “The totality of features and characteristics that satisfy needs” (ASQ) ü Fitness for use ü Quality of design

Quality • Quality Management – not owned by any functional area – cross functional • Measure of goodness that is inherent to a product or service

Fed. Ex and Quality • Digitally Assisted Dispatch System – communicate with 30 K couriers • 1 -10 -100 rule 1 – if caught and fixed as soon as it occurs, it costs a certain amount of time and money to fix 10 – if caught later in different department or location = as much as 10 X cost 100 – if mistake is caught by the customer = as much as 100 X to fix

Product Quality Dimensions • Product Based – found in the product attributes • User Based – if customer satisfied • Manufacturing Based – conform to specs • Value Based – perceived as providing good value for the price

Dimensions of Quality (Garvin) 1. Performance ü Basic operating characteristics 2. Features ü “Extra” items added to basic features 3. Reliability ü Probability product will operate over time

Dimensions of Quality (Garvin) 4. Conformance ü Meeting pre-established standards 5. Durability ü Life span before replacement 6. Serviceability ü Ease of getting repairs, speed & competence of repairs

Dimensions of Quality (Garvin) 7. Aesthetics ü Look, feel, sound, smell or taste 8. Safety ü Freedom from injury or harm 9. Other perceptions ü Subjective perceptions based on brand name, advertising, etc

Service Quality 1. Time & Timeliness ü Customer waiting time, completed on time 2. Completeness ü Customer gets all they asked for 3. Courtesy ü Treatment by employees

Service Quality 4. Consistency ü Same level of service for all customers 5. Accessibility & Convenience ü Ease of obtaining service 6. Accuracy ü Performed right every time 7. Responsiveness ü Reactions to unusual situations

Quality of Conformance ü Ensuring product or service produced according to design ü Depends on ü ü Design of production process Performance of machinery Materials Training

Quality Philosophers ü Walter Shewhart – Statistical Process Control ü W. Edwards Deming ü Joseph Juran – strategic and planning based ü Armand Fiegenbaum – total quality control “entire business must be involved in quality improvement”

Deming’s 14 Points 1. 2. 3. 4. 5. Create constancy of purpose Adopt philosophy of prevention Cease mass inspection Select a few suppliers based on quality Constantly improve system and workers 6. Institute worker training

Deming’s 14 Points 7. Instill leadership among supervisors 8. Eliminate fear among employees 9. Eliminate barriers between departments 10. Eliminate slogans 11. Remove numerical quotas

Deming’s 14 Points 12. Enhance worker pride 13. Institute vigorous training and education programs 14. Develop a commitment from top management to implement these 13 points

The Deming Wheel (or PDCA Cycle) 4. Act Institutionalize improvement; continue the cycle. 3. Study/Check Assess the plan; is it working? Also known as the Shewart Cycle 1. Plan Identify the problem and develop the plan for improvement. 2. Do Implement the plan on a test basis.

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

Six Sigma Started By Motorola • • • Define Measure Analyze Improve Control Made Famous by General Electric 40% of GE executives’ bonuses tied to 6 sigma implementation

Malcolm Baldrige National Quality Award • Category 3 – determine requirements, expectations, preferences of customers and markets • Category 4 – what is important to the customer and the company; how does company improve

Total Quality Management 1. 2. 3. 4. 5. 6. 7. 8. Customer defined quality Top management leadership Quality as a strategic issue All employees responsible for quality Continuous improvement Shared problem solving Statistical quality control Training & education for all employees

Cost of Quality ü Cost of achieving good quality üPrevention ü Planning, Product design, Process, Training, Information üAppraisal ü Inspection and testing, Test equipment, Operator

Cost of Quality ü Cost of poor quality üInternal failure costs ü Scrap, Rework, Process failure, Process downtime, Pricedowngrading üExternal failure costs ü Customer complaints, Product return, Warranty, Product liability, Lost sales

Cause-and-Effect Diagram Measurement Faulty testing equipment Poor supervision Incorrect specifications Lack of concentration Improper methods Inaccurate temperature control Human Environment Out of adjustment Tooling problems Old / worn Inadequate training Quality Problem Defective from vendor Not to specifications Dust and Dirt Machines Materialhandling problems Materials Also known as Ishikawa Diagram or Fish Bone Poor process design Ineffective quality management Deficiencies in product design Process

Hot House Quality Lots of Hoopla and no follow through

ISO 9000: 2008 • • Customer focus Leadership Involvement of the people Process approach Systems approach to management Continual process improvement – GAO Factual approach to decision making Mutually beneficial supplier relationships

Implications Of ISO 9000 ü Truly international in scope ü Certification required by many foreign firms ü U. S. firms export more than $150 billion annually to Europe ü Adopted by U. S. Navy, Du. Pont, 3 M, AT&T, and others

ISO Accreditation ü European registration ü 3 rd party registrar assesses quality program ü European Conformity (CE) mark authorized ü United States 3 rd party registrars ü American National Standards Institute (ANSI) ü American Society for Quality (ASQ) ü Registrar Accreditation Board (RAB)

Product Development

Introduction Product Development is a process which generates concepts, designs, and plans to create services and goods to meet customer needs. 1. Analyze market to assess need 2. Design product 3. Design process for making product 4. Develop plan to market product 5. Develop plan for full-scale production 6. Analyze financial feasibility

Increasing Importance of Product Development 1. Customers demand greater product variety. 2. Customers are causing shorter product life cycles. 3. Improving technology is causing new products to be introduced 4. The impact of increasing product variety and shortening product life cycles is having a multiplicative effect on the need for product development. 5. Today, in order to be competitive, the firm may have to produce many different products with a life cycle of only five years or less. End of Life issues

Product Design ü Specifies materials ü Determines dimensions & tolerances ü Defines appearance ü Sets performance standards

Service Design ü Specifies what the customer is to experience ü Physical items ü Sensual benefits ü Psychological benefits

An Effective Design Process ü Matches product/service characteristics with customer needs ü Meets customer requirements in simplest, most cost-effective manner ü Reduces time to market - haste vs. speed to market ü Minimizes revisions - quality designed into the product

Stages in the Design Process ü Idea Generation — Product Concept - can you create your own market? What role does the voice of the customer play in idea generation? ü Feasibility Study — Performance Specifications ü Preliminary Design — Prototype - testing and redesign ü Final Design — Final Design Specifications ü Process Planning — Manufacturing Specifications - make to order/stock – assembly line?

Idea Generation ü Suppliers, distributors, salespersons ü Trade journals and other published material ü Warranty claims, customer complaints, failures ü Customer surveys, focus groups, interviews ü Field testing, trial users ü Research and development

More Idea Generators ü Perceptual Maps ü Visual comparison of customer perceptions ü Benchmarking ü Comparing product/service against best-in-class ü Reverse engineering ü Dismantling competitor’s product to improve your own product

Perceptual Map of Breakfast Cereals GOOD TASTE LOW NUTRITION HIGH NUTRITION BAD TASTE

Perceptual Map of Breakfast Cereals GOOD TASTE Cocoa Puffs LOW NUTRITION HIGH NUTRITION Rice Krispies Cheerios Wheaties BAD TASTE © Russell and Taylor, Prentice Hall, 2004 Shredded Wheat

Perceptual Map of Breakfast Cereals GOOD TASTE How do I get here? Cocoa Puffs LOW NUTRITION HIGH NUTRITION Rice Krispies Cheerios Wheaties BAD TASTE © Russell and Taylor, Prentice Hall, 2004 Shredded Wheat

Feasibility Study ü Market Analysis Market Segmentation ü Economic Analysis ü Technical / Strategic Analysis ü Performance Specifications ü Risk Analysis

Economic Analysis • Can we produce it at a volume to make a profit? • If not, why produce? • How many do we have to make to break even?

Break Even Analysis Total Costs = Total Revenues (Volume x Price) = (Fixed Costs + Variable Costs) Profit = (Total Revenue – Total Costs) Fixed Costs B/E Point = Sales Price – Variable Costs

Example Fixed Costs = $2000 Variable Costs = $5/item Sales Price = $10/item Fixed Costs ($2000) B/E PT = Sales Price ($10) – Variable Costs ($5) B/E point = ($2000/$5) 400 items

Risk Analysis 1. Identify the Hazards 2. Assess hazards to determine risks. 3. Develop controls and make risk decisions. 4. Implement controls. 5. Supervise and evaluate.

Preliminary Design How will it look? ü Create form & functional design ü Build prototype ü Test prototype ü Revise prototype ü Retest

Functional Design (How the Product Performs) ü Reliability ü Probability product performs intended function for specified length of time ü Maintainability ü Ease and/or cost or maintaining/repairing product

System Availability, SA = MTBF + MTTR PROVIDER MTBF (HR) MTTR (HR) A B C 60 36 24 4. 0 2. 0 1. 0

System Availability PROVIDER MTBF (HR) MTTR (HR) A B C 60 36 24 4. 0 2. 0 1. 0 SAA = 60 / (60 + 4) =. 9375 or 93. 75% SAB = 36 / (36 + 2) =. 9473 or 94. 73% SAC = 24 / (24 + 1) =. 96 or 96%

Production Design ü Part of the preliminary design phase ü Simplification ü Standardization ü Modularity

Final Design & Process Plans ü Produce detailed drawings & specifications ü Create workable instructions for manufacture ü Select tooling & equipment ü Prepare job descriptions ü Determine operation & assembly order ü Program automated machines

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

Design Teams Preferred solution = cross functional teams ü Marketing, manufacturing, engineering ü Suppliers, dealers, customers ü Lawyers, accountants, insurance companies

Concurrent Design ü Improves quality of early design decisions ü Decentralized - suppliers complete detailed design ü Incorporates production process ü Scheduling and management can be complex as tasks are done in parallel ü include the customer in the process!!

Design for Manufacture and Assembly ü Design a product for easy & economical production ü Incorporate production design early in the design phase ü Improves quality and reduces costs ü Shortens time to design and manufacture ü also known as Design for Six Sigma

Design for Six Sigma • Define – the goals of the design activity • Measure – customer input to determine what is critical to quality from the customers’ perspective – what are customer delighters? What aspects are critical to quality? • Analyze – innovative concepts for products and services to create value for the customer • Design – new processes, products, and services to deliver customer value • Verify – new systems perform as expected

DFM Guidelines 1. Minimize the number of parts, tools, fasteners, and assemblies 2. Use standard parts and repeatable processes 3. Modular design 4. Design for ease of assembly, minimal handling 5. Allow for efficient testing and parts replacement

Design for Assembly (DFA) ü Procedure for reducing number of parts ü Evaluate methods for assembly ü Determine assembly sequence

Design Review ü Failure Mode and Effects Analysis (FMEA) ü A systematic approach for analyzing causes & effects of failures ü Prioritizes failures ü Attempts to eliminate causes

Value Analysis (Value Engineering) Is there value added? ü Ratio of value / cost ü Assessment of value : 1. Can we do without it? 2. Does it do more than is required? 3. Does it cost more than it is worth? 4. Can something else do a better job 5. Can it be made by less costly method, tools, material? 6. Can it be made cheaper, better or faster by someone else? Should we contract it out?

Design for Environment ü Design from recycled material ü Use materials which can be recycled ü Design for ease of repair ü Minimize packaging ü Minimize material & energy used during manufacture, consumption & disposal ü green laws in Europe -

Design for Robustness ü Product can fail due to poor design quality ü Products subjected to many conditions ü Robust design studies üControllable factors - under designer’s control üUncontrollable factors - from user or environment ü Designs products for consistent performance

A Well-Designed Service System is ü Consistent with firm’s strategic focus ü Customer friendly ü Easy to sustain ü Effectively linked between front & back office ü Cost effective ü Visible to customer

CHAPTER 8 Process Selection affects the outcome – in production or sports: 91

What is Process Selection? • Series of decisions that includes technical/engineering issues and volume/scale issues • Technical/engineering: basic methods that produce a good or service • Scale: how many or how much to produce; how many to serve at a time • Trade off analysis between capacity and costs 92

Why process selection is critical • Dell – from make/assemble to order in Texas to make/assemble to stock off shore • Does this work? • Break even analysis may depend on process costs • Which process gives the lowest costs – assumption? 93

The Point of Indifference Comparing Two Processes • What is it? • Who cares? • How do you calculate it? 94

Comparing Two Processes • Process A • Fixed = $2000 • Variable = $5/item • Process B • Fixed = $11000 • Variable = $2/item

Comparing the Processes Fixed. A + (Var. A)x = Fixed. B + (Var. B)x 2000 + 5 x = 11, 000 + 2 x 3 x = 9000 X = 3000 So what?

Trade off analysis • Customer demanded quantity drives the trade off analysis and decision process • Example: → retail stocks at Christmas 2008 and 2009 season - goal save money by stocking less → At what point do you lose sales due to lower stockage levels? 97

Process Design/Selection/Capacity • Have to be simultaneous operations – some texts suggest sequential steps • Decision process has to be customer based → what should it be? → how many should be produced/how many are we capable of producing? → how should it be produced? 98

Process Strategy - Defines • • Capital intensity Process flexibility Vertical integration Customer involvement 99

Goal of Process Design • Reduce lead time for product to the customer • Is it best to be the first to market and establish the market? • Or, be the follower and let someone else do the R&D/design/risk? 100

Problems with Managing Large, Unfocused Operations • Growing facilities add more levels of management and make coordination and control difficult. • New products are added to the facility as customers demand greater product variety. • Hidden overhead costs increase as managers add staff to deal with increased complexity. 101

Process Planning ü Make-or-buy decisions ü Process selection ü Specific equipment selection ü Process plans ü Process analysis 102

Make-or-Buy Decisions 1. 2. 3. 4. 5. 6. Cost Capacity Quality Speed Reliability Expertise What about Proprietary Information? Barrier to Make-or-Buy? 103

Source: Aberdeen Research, “Low-Cost Country Sourcing Success Strategies: Maximizing and Sustaining the Next Big Supply Savings Opportunity, ” Jun 2005 104

Process Plans ü Blueprints ü Bill of material Flat or multiple layers part or assembly ü Assembly chart / product structure diagram ü Operations process chart - list of operations involved in assembly ü Routing sheet - sequence of events 105

Process Analysis ü The systematic examination of all aspects of a process to improve its operation ü ü Faster More efficient Less costly More responsive ü Basic tools ü Process flowchart ü Process diagrams ü Process maps 106

Operations Process Chart Part name Crevice Tool Part No. 52074 Usage Hand-Vac Assembly No. 520 Oper. No. Description Dept. Machine/Tools Time 10 Pour in plastic bits 041 Injection molding 2 min 20 Insert mold 041 #076 2 min 30 Check settings & start machine 041 113, 67, 650 20 min 40 Collect parts & lay flat 051 Plastics finishing 10 min 50 Remove & clean mold 042 Parts washer 15 min 60 Break off rough edges 051 Plastics finishing 10 min 107

Process Analysis – What processes feed other processes? 108

Process Flowchart Description of process 1 Unload apples from truck 2 Move to inspection station 3 Weigh, inspect, sort 4 Move to storage 5 Wait until needed 6 Move to peeler 7 Apples peeled and cored 15 8 Soak in water until needed 20 9 Place in conveyor 5 10 Move to mixing area 11 Weigh, inspect, sort Page 1 0 f 3 Total Distance (feet) Location: Graves Mountain Process: Apple Sauce Time (min) Operation Transport Inspect Delay Storage Step Date: 9 -30 -02 Analyst: TLR 20 100 ft 30 50 ft 360 20 ft 30 480 190 ft 109

Principles for Redesigning Processes • • • Walk the Process! Remove waste, simplify, consolidate Link processes to create value Let the swiftest and most capable execute Capture information digitally, data mine, and use information to improve operations 110

Principles for Redesigning Processes • • • Provide visibility through information about process status Fit the process with sensors and feedback loops Add analytic capabilities Connect, collect and create knowledge around the process Personalize the process 111

Techniques for Generating Innovative Ideas ü ü Vary entry point to a problem Draw analogies Change your perspective Use attribute brainstorming 112

RFID Active Tags Always on Battery powered Can be read from up to 300 ft • US Army • Savi Tags • • • Passive Tags Small Must be activated May be turned off England California Rolex 113

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Robotics ü Programmable manipulators ü Follow specified path ü Better than humans with respect to ü Hostile environments ü Long hours ü Consistency ü Adoption has been slowed by ineffective integration and adaptation of systems ü Welding at Harley Davidson Plant Questions? 116