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Supply Chain Management and Quality Management

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Page 1: Supply Chain Management and Quality Management. Volkswagen

Supply Chain Management

andQuality Management

Page 2: Supply Chain Management and Quality Management. Volkswagen

Volkswagen

Page 3: Supply Chain Management and Quality Management. Volkswagen

Supply Chain• Supply Chain: the facilities,

functions and activities involved in producing and delivering a product or service from suppliers (and their suppliers) to customers (and their customers)

Page 4: Supply Chain Management and Quality Management. Volkswagen

Value Chain• Value Chain: network of trading

partners that extends from the manufacturers to end-customers.

Page 5: Supply Chain Management and Quality Management. Volkswagen

The Supply ChainInformation

Cash

Products and Services

Products and Services

Products and Services

Customers

Total satisfaction with quality, price, delivery, and service

Distributors

Package and delivery

Inventory

Producers

Finished goods, end products and services

Inventory

Suppliers

Inventory

Materials, parts, sub-assemblies, and services

Figure 7.1

Page 6: Supply Chain Management and Quality Management. Volkswagen

The Strategic Importance

of the Supply ChainSupply-chain management is the integration of the activities that procure materials and services,

transform them into intermediate goods and the final product, and

deliver them to customersCompetition is no longer between

companies; it is between supply chains

Page 7: Supply Chain Management and Quality Management. Volkswagen

Effective Supply Chain Management Needs

• Good Information• Good Communication• Cooperation• Trust

Page 8: Supply Chain Management and Quality Management. Volkswagen

Inventory

• Inventory is insurance against Supply Chain uncertainty.

• Inventory is used as a buffer at various stages of the supply chain to keep goods and services flowing smoothly.

• For example, parts order arrives late => producer has parts to continue production.

• For example, companies may order in large batches to save money on transportation or to get special pricing.

Page 9: Supply Chain Management and Quality Management. Volkswagen

So, Is Inventory good?

• Although Inventory is insurance against Supply Chain uncertainty, it is very costly

• Products sitting on warehouses are like money sitting without being used

• Cost of carrying a retail product in inventory for one year is over 25% of what the item costs

Page 10: Supply Chain Management and Quality Management. Volkswagen

The Bullwhip Effect

• Distorted information through the supply chain when slight demand uncertainty becomes magnified through the eyes of the managers in each link of the supply chain

• This leads to stockpiling• Very costly• Everyone plans for the worst case

Page 11: Supply Chain Management and Quality Management. Volkswagen

How to Handle the Bullwhip Effect:

• Supply chain managers should share information, especially demand forecasts

• This is called “Transparency”• If the supply chain exhibits transparency,

the uncertainty along the supply chain is drastically reduced or eliminated

• This leads to lower levels of inventory and great cost savings.

Page 12: Supply Chain Management and Quality Management. Volkswagen

Information Shared in the Supply Chain to achieve

Transparency• Centralized coordination of information

flows• Integration of ordering, production,

transportation, and distribution• Direct access to domestic and global

transportation and distribution channels• Locating and tracking the movement of

every item in the supply chain

Page 13: Supply Chain Management and Quality Management. Volkswagen

Information Shared in the Supply Chain to achieve

Transparency• Consolidation of purchasing from all

suppliers• Intercompany and intracompany

information access• Data interchange• Data acquisition at the point of origin and

point of sale• Instantaneous updating of inventory levels

Page 14: Supply Chain Management and Quality Management. Volkswagen

IT: A Supply Chain Enabler

• IT links all aspects of the Supply Chain

• IT enables efficient flow of products through the Supply Chain

• IT is the most efficient enabler

Page 15: Supply Chain Management and Quality Management. Volkswagen

Electronic Business• Supply Chain transactions are conducted via

electronic media– EDI– E-mail– EFT (electronic funds transfer)– Image processing– Electronic bulletin boards– Shared databases– Bar coding– Fax– Internet (and Internet Websites)

• Companies can automate processes moving information electronically between suppliers and customers

Page 16: Supply Chain Management and Quality Management. Volkswagen

Electronic Business Means:

• Replacement of physical processes with electronic ones

• Cost and price reductions• Reduction or elimination of intermediaries• Shortening transaction times for ordering

and delivery• Wider presence and increased visibility

Page 17: Supply Chain Management and Quality Management. Volkswagen

Electronic Business Means:

• Greater choices and more information for customers

• Improved service• Collection and analysis of customer data

and preferences• Virtual companies with lower prices• Leveling the playing field for smaller

companies• Gain global access to markets &

customers

Page 18: Supply Chain Management and Quality Management. Volkswagen

Electronic Data Interchange (EDI)

• Computer-to-computer exchange of business documents in a standard format

• Quick access, better customer service, less paperwork, better communication, increased productivity, improved tracing and expediting, improves billing and cost efficiency

• Drastically reduces or eliminates Bullwhip effect

Page 19: Supply Chain Management and Quality Management. Volkswagen

Bar Codes• Computer readable codes attached to

items flowing through the supply chain• Generates point-of-sale data

(instantaneous computer record of the sale of a product) which is useful for determining sales trends, ordering, production scheduling, and deliver plans

1234 5678

Page 20: Supply Chain Management and Quality Management. Volkswagen

The Internet• Technological innovation with the biggest impact

on Supply Chain Management• Can communicate with customers• Can communicate with other businesses within

its supply chain anywhere in the world• Allowed geographic barriers to be torn down

enabling access to markets and suppliers around the world.

• Adds speed and accessibility to the supply chain

Page 21: Supply Chain Management and Quality Management. Volkswagen

Figure 7.2 Build-to-Order Cars over the Internet

Page 22: Supply Chain Management and Quality Management. Volkswagen

The E-Automotive Supply ChainSUPPLY CHAIN PROCESS AUTOMOTIVE PAST E-AUTOMOTIVE

Customer sales Push—sell from inventory Pull—Build-to-order

Production Goal of even and stable production

Focus on customer demand, respond with supply chain flexibility

Distribution Mass approach Fast, reliable, and customized to get cars to specific customer location

Customer relationships Dealer-owned Shared by dealers and manufacturers

Managing uncertainty Large car inventory at dealers Small inventories with shared information and strategically placed parts inventories

Procurement Batch-oriented; dealers order based on allocations

Orders made in real time based on available-to-promise information

Product design Complex products don’t match customer needs

Simplified products based on better information about what customers want

Table 7.2

Page 23: Supply Chain Management and Quality Management. Volkswagen

IT Issues

• Increased benefits and sophistication come with increased costs

• Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient

• Security problems are very real• Partnership and trust are important

elements that may be new to business relationships

Page 24: Supply Chain Management and Quality Management. Volkswagen

Suppliers• The most important link between companies and

suppliers is their information flow• Cross-enterprise teams: coordinate processes

between a company and its supplier (eg. Harley Davidson and Porsche)

• The supplier works with the company in the design process in order to ensure the most effective design possible (not like before where the supplier would design their part around the customer’s design).

Page 25: Supply Chain Management and Quality Management. Volkswagen

Suppliers• Required to provide “on-demand”

delivery to support JIT• Required to provide “continuous

replenishment” where orders are supplied in a short period of time according to a predetermined schedule (Wal-Mart)

Page 26: Supply Chain Management and Quality Management. Volkswagen

Continuous Replenishment

• Orders are supplied in a short period of time according to a predetermined schedule (Wal-Mart)

• Means making more frequent, partial deliveries, in order to reduce inventory and overall costs (instead of large batch orders)

• Increases flexibility since there is no large investment in inventory

Page 27: Supply Chain Management and Quality Management. Volkswagen

Suppliers• Often are required to move close to

their customer• Example: Honda in Marysville, Ohio• 75% of the US suppliers for Honda

are located within 150-mile radius of the Marysville, Ohio assembly plant

Page 28: Supply Chain Management and Quality Management. Volkswagen

Suppliers• Are required to deliver high quality,

low prices, process improvement, better deliver performance

• Require their own suppliers what is required of them: high quality, low prices, process improvement, better deliver performance

Page 29: Supply Chain Management and Quality Management. Volkswagen

Sourcing, Outsourcing, and Single Sourcing

• Sourcing: the selection of suppliers• Outsourcing: the purchase of goods

and services from a supplier• Single-Sourcing: purchasing goods

from only one (or a few) suppliers

Page 30: Supply Chain Management and Quality Management. Volkswagen

Why Outsource?• Many companies are outsourcing in

order to focus more on their core competencies (Nabisco)

Page 31: Supply Chain Management and Quality Management. Volkswagen

Why Single-source?• Companies single-source in order to

have more direct influence and control over the quality, cost, and delivery performance of a supplier (since the company will have a major portion of that supplier’s volume of business)

Page 32: Supply Chain Management and Quality Management. Volkswagen

E-Procurement• B2B Commerce on the Internet• Direct purchase from suppliers over the

Internet• E-Marketplaces: websites where

companies and suppliers do B2B activities (for industry specific companies)

• Reverse Auction: a company posts orders on the Internet for suppliers to bid on

Page 33: Supply Chain Management and Quality Management. Volkswagen

Logistics• Transportation and distribution of

goods and services

Page 34: Supply Chain Management and Quality Management. Volkswagen

Vendor-Managed Inventory (Wal-Mart)

• Vendor-Managed Inventory is an integral part of supply chain collaboration

• Manufacturers receive electronic data via EDI or Internet about distributors sales and stock levels.

• Manufacturers see point of sale data, expected growth, promotions, lost business, inventory goals

• Manufacturers use this information to create and maintain a forecast and inventory plan

Page 35: Supply Chain Management and Quality Management. Volkswagen

Vendor-Managed Inventory

• Manufacturers generate orders, not distributors

• Increased speed, reduced errors, and improved service

Page 36: Supply Chain Management and Quality Management. Volkswagen

Collaborative Logistics• Different companies (even rival companies) are

finding ways to collaborate in distribution• Example: Nabisco discovered it was paying too

much for half-empty trucks and now they share trucks and warehouse space with other companies, even competitors (Dole, Lea & Perrins, General Mills, Pillsbury)

• Example: General Mills worked out a collaborative agreement with Fort James Corp. (Dixie Cups) sharing truck routes. General Mills saved $800,000 in it’s first year.

• Reduce costs

Page 37: Supply Chain Management and Quality Management. Volkswagen

Make-or-Buy Decisions

1. Maintain core competence2. Lower production cost3. Unsuitable suppliers4. Assure adequate supply (quantity or delivery)5. Utilize surplus labor or facilities6. Obtain desired quality7. Remove supplier collusion8. Obtain unique item that would entail a prohibitive

commitment for a supplier9. Protect personnel from a layoff10. Protect proprietary design or quality11. Increase or maintain size of company

Reasons for Making

Table 11.4

Page 38: Supply Chain Management and Quality Management. Volkswagen

Make-or-Buy Decisions

1. Frees management to deal with its primary business

2. Lower acquisition cost3. Preserve supplier commitment4. Obtain technical or management ability5. Inadequate capacity6. Reduce inventory costs7. Ensure alternative sources8. Inadequate managerial or technical resources9. Reciprocity10. Item is protected by a patent or trade secret

Reasons for Buying

Table 11.4

Page 39: Supply Chain Management and Quality Management. Volkswagen

Ethics in the Supply Chain

Opportunities for unethical behavior are enormous and temptations are high

Many companies have strict rules and codes of conduct that define acceptable behavior

Institute for Supply Management has developed a detailed set of principles and standards for ethical behavior

Page 40: Supply Chain Management and Quality Management. Volkswagen

Principles and Standards for Ethical Supply Management

Conduct

LOYALTY TO YOUR ORGANIZATION

JUSTICE TO THOSE WITH WHOM YOU DEAL

FAITH IN YOUR PROFESSION

Table 11.5

Page 41: Supply Chain Management and Quality Management. Volkswagen

Principles and Standards for Ethical Supply Management

Conduct

1. Avoid the intent and appearance of unethical or compromising practice in relationships, actions, and communications

2. Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer, using reasonable care and granted authority

3. Avoid any personal business or professional activity that would create a conflict between personal interests and the interests of the employer

Table 11.5

Page 42: Supply Chain Management and Quality Management. Volkswagen

Principles and Standards for Ethical Supply Management

Conduct

4. Avoid soliciting or accepting money, loans, credits, or preferential discounts, and the acceptance of gifts, entertainment, favors, or services from present or potential suppliers that might influence, or appear to influence, supply management decisions

5. Handle confidential or proprietary information with due care and proper consideration of ethical and legal ramifications and government regulations

6. Promote positive supplier relationships through courtesy and impartiality

7. Avoid improper reciprocal agreementsTable 11.5

Page 43: Supply Chain Management and Quality Management. Volkswagen

Principles and Standards for Ethical Supply Management

Conduct

8. Know and obey the letter and spirit of laws applicable to supply management

9. Encourage support for small, disadvantaged, and minority-owned businesses

10. Acquire and maintain professional competence

11. Conduct supply management activities in accordance with national and international laws, customs, and practices, your organization’s policies, and these ethical principles and standards of conduct

12. Enhance the stature of the supply management profession

Table 11.5

Page 44: Supply Chain Management and Quality Management. Volkswagen

Supply-Chain Strategies

Negotiating with many suppliers Long-term partnering with few

suppliers Vertical integration Keiretsu Virtual companies that use

suppliers on an as needed basis

Page 45: Supply Chain Management and Quality Management. Volkswagen

Many Suppliers Commonly used for commodity

products Purchasing is typically based on

price Suppliers are pitted against one

another Supplier is responsible for

technology, expertise, forecasting, cost, quality, and delivery

Page 46: Supply Chain Management and Quality Management. Volkswagen

Few Suppliers Buyer forms longer term

relationships with fewer suppliers Create value through economies of

scale and learning curve improvements

Suppliers more willing to participate in JIT programs and contribute design and technological expertise

Cost of changing suppliers is huge

Page 47: Supply Chain Management and Quality Management. Volkswagen

Vertical Integration

Figure 11.2

Raw material (suppliers) Iron ore Silicon Farming

Backward integration Steel

Current transformation Automobiles Integrated

circuits Flour milling

Forward integration Distribution systems Circuit boards

Finished goods (customers) Dealers

Computers Watches

CalculatorsBaked goods

Vertical Integration Examples of Vertical Integration

Page 48: Supply Chain Management and Quality Management. Volkswagen

Vertical Integration

Developing the ability to produce goods or service previously purchased

Integration may be forward, towards the customer, or backward, towards suppliers

Can improve cost, quality, and inventory but requires capital, managerial skills, and demand

Risky in industries with rapid technological change

Page 49: Supply Chain Management and Quality Management. Volkswagen

Keiretsu Networks Supplier becomes part of the company

coalition Often provide financial support for

suppliers through ownership or loans Members expect long-term relationships

and provide technical expertise and stable deliveries

May extend through several levels of the supply chain

Page 50: Supply Chain Management and Quality Management. Volkswagen

Virtual Companies

Rely on a variety of supplier relationships to provide services on demand

Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands

Exceptionally lean performance, low capital investment, flexibility, and speed

Page 51: Supply Chain Management and Quality Management. Volkswagen

Transportation

• Important element of Supply Chain Management, often overlooked

• Common methods are railroads, trucking, water, air, intermodal (combining several modes), package carriers, and pipelines

Page 52: Supply Chain Management and Quality Management. Volkswagen

Global Supply Chain• Free trade & global opportunities• Nations form trading groups• No tariffs or duties• Freely transport

goods across borders

Page 53: Supply Chain Management and Quality Management. Volkswagen

Quality Management• What is Quality?

Page 54: Supply Chain Management and Quality Management. Volkswagen

54

Defining Quality• The totality of features and

characteristics of a product or service that bears on its ability to satisfy stated or implied needs American Society for Quality

Page 55: Supply Chain Management and Quality Management. Volkswagen

55

Defining Quality• Getting what you pay for• Getting more than what you pay for• Getting a high level or degree of

excellence• Getting a superior product or service• A product or service with

distinguished features• A product with outstanding traits

Page 56: Supply Chain Management and Quality Management. Volkswagen

56

Key Dimensions of Quality

Key Dimensions of Quality

• Performance• Features• Reliability• Conformance• Durability• Serviceability• Aesthetics• Safety• Value

Page 57: Supply Chain Management and Quality Management. Volkswagen

57

Different Views• User-based – better performance,

more features• Manufacturing-based – conformance

to standards, making it right the first time

• Product-based – specific and measurable attributes of the product

Page 58: Supply Chain Management and Quality Management. Volkswagen

58

Quality and Strategy• Managing quality supports

differentiation, low cost, and response strategies

• Quality helps firms increase sales and reduce costs

• Building a quality organization is a demanding task

Page 59: Supply Chain Management and Quality Management. Volkswagen

59

Ways Quality Improves Profits

Improved Quality

Increased Profits

Increased productivity Lower rework and scrap costs

Lower warranty costs

Reduced Costs

Improved response Higher Prices

Improved reputation

Sales Gains

Figure 6.1

Page 60: Supply Chain Management and Quality Management. Volkswagen

The Flow of Activities

Organizational PracticesLeadership, Mission statement, Effective operating

procedures, Staff support, Training

Yields: What is important and what is to be accomplished

Quality PrinciplesCustomer focus, Continuous improvement, Benchmarking,

Just-in-time, Tools of TQMYields: How to do what is important and to be

accomplished

Employee FulfillmentEmpowerment, Organizational commitment

Yields: Employee attitudes that can accomplish what is important

Customer SatisfactionWinning orders, Repeat customers

Yields: An effective organization with a competitive advantage

Page 61: Supply Chain Management and Quality Management. Volkswagen

61

Implications of Quality• Company reputation

– Perception of new products– Employment practices– Supplier relations

• Product liability– Reduce risk

• Global implications– Improved ability to compete

Page 62: Supply Chain Management and Quality Management. Volkswagen

62

Malcom Baldrige National Quality Award• Established in 1988 by the U.S.

government (named after former Secretary of Commerce)

• Designed to promote TQM practices• Winners

– AT&T, Motorola, Xerox, Federal Express, Texas Instruments, Cadillac

Page 63: Supply Chain Management and Quality Management. Volkswagen

63

Deming Prize

• Japanese National Quality Award named after Dr. W. Edwards Deming

Page 64: Supply Chain Management and Quality Management. Volkswagen

64

Takumi

A Japanese character that symbolizes a broader dimension than quality, a deeper process than education, and a more perfect method than persistence

Page 65: Supply Chain Management and Quality Management. Volkswagen

65

Giants in the field of Quality

W. Edwards Deming 14 Points for Management

Joseph M. Juran Top management commitment,

fitness for use

Armand Feigenbaum Total Quality Control

Philip B. Crosby Quality is Free

Page 66: Supply Chain Management and Quality Management. Volkswagen

66

Giants in the field of Quality: Deming

• Management is responsible for building good systems

• The process dictates the level of quality and employees cannot produce products at a higher quality than what the process dictates

• Developed the 14 points for implementing quality

Page 67: Supply Chain Management and Quality Management. Volkswagen

67

Giants in the field of Quality: Juran

• Management involvement in quality effort

• Teams raise quality standards• Focus on the customer• Cost of poor quality: “are huge, but

the amounts are not known with precision”

Page 68: Supply Chain Management and Quality Management. Volkswagen

68

Giants in the field of Quality: Feigenbaum

• Laid out 40 steps in Quality Improvement (TQC)

• His ideas where people learn from each other led to the field of “cross –functional teamwork”

Page 69: Supply Chain Management and Quality Management. Volkswagen

69

Giants in the field of Quality: Crosby

• Quality is free: “It is not a gift, but it is free. What costs money is the unquality things – all the actions that involve not doing it right the first time”

• Coined the term “zero defects”• Cost of poor quality: includes all the

things that are involved in not doing the job right the first time.

Page 70: Supply Chain Management and Quality Management. Volkswagen

70

Costs of Quality

• Prevention costs - reducing the potential for defects

• Appraisal costs - evaluating products, parts, and services

• Internal failure - producing defective parts or service before delivery

• External costs - defects discovered after delivery

Page 71: Supply Chain Management and Quality Management. Volkswagen

71

External Failure

Internal Failure

Prevention

Costs of Quality

Appraisal

Total Cost

Quality Improvement

Total Cost

Page 72: Supply Chain Management and Quality Management. Volkswagen

72

International Quality Standards

• ISO 9000 series (Europe/EC)– Common quality standards for products sold

in Europe (even if made in U.S.)– Revised in 2000, it places greater emphasis on

leadership and customer satisfaction (ISO 9001:2000)

• ISO 14000 series (Europe/EC): emphasis in environmental management (public image, pollution prevention)

Page 73: Supply Chain Management and Quality Management. Volkswagen

Quality Standards in Food

• BRC (British Retail Consortium). This standard published by the union of British supermarket chains, the BRC, requires documented approval to ensure food quality and safety.

• IFS (International Featured Standard). This food quality and safety standard is published by the union of German supermarket chains, HDE

• FCD (Fédération des entreprises du Commerce et de la Distribution) is the French Equivalent to the IFS

73

Page 74: Supply Chain Management and Quality Management. Volkswagen

What are BRC and IFS?

• These food quality and safety standards are published by retail trade groups. Any company wishing to supply its food products to those retailers must meet the required standards. The retailers request that an independent third party approves the quality and food safety system of the supplier.

74

Page 75: Supply Chain Management and Quality Management. Volkswagen

What are the key benefits?

• Access to your markets in the UK, Germany and France

• Strengthened relationships with retail distributors • Increased transparency • Reinforced customer confidence • Streamlined production • Minimization of significant food risks • Effective control of internal processes and

minimizing risk of failure • Signal sent about a proactive approach to food

safety75

Page 76: Supply Chain Management and Quality Management. Volkswagen

76

TQM

Encompasses entire organization, from supplier to customer

Stresses a commitment by management to have a continuing,

companywide drive toward excellence in all aspects of products

and services that are important to the customer

Page 77: Supply Chain Management and Quality Management. Volkswagen

77

W.E. Deming’s 14 Points

1. Create a constancy of purpose toward product improvement to achieve long-term organizational goals

2. Adopt a philosophy of preventing poor-quality products instead of acceptable levels of poor quality as necessary to compete internationally

3. Eliminate need for inspection to achieve quality by relying instead on statistical quality control to improve product and process design

4. Select a few suppliers or vendors based on quality commitment rather than competitive prices

Page 78: Supply Chain Management and Quality Management. Volkswagen

78

W.E. Deming’s 14 Points

5. Constantly improve the production process by focusing on the two primary sources of quality problems, the system and employees, thus increasing productivity and reducing costs

6. Institute worker training that focuses on the prevention of quality problems and the use of statistical-quality control techniques

7. Instill leadership among supervisors to help employees perform better

8. Encourage employee involvement by eliminating the fear of reprisal for asking questions or identifying quality problems

Page 79: Supply Chain Management and Quality Management. Volkswagen

79

W.E. Deming’s 14 Points

9. Eliminate barriers between departments, and promote cooperation and a team approach for working together

10. Eliminate slogans and numerical targets that urge employees to achieve higher performance levels without first showing them how to do it.

11. Eliminate numerical quotas that employees attempt to meet at any cost without regard to quality

Page 80: Supply Chain Management and Quality Management. Volkswagen

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W.E. Deming’s 14 Points

12. Enhance worker pride, artisanry, and self-esteem by improving supervision and the production process so that employees can perform to their capabilities

13. Institute vigorous education and training programs in methods of quality improvement throughout the organization, from top management down, so that continuous improvement can occur

14. Develop a commitment from top management to implement the previous 13 steps.

Page 81: Supply Chain Management and Quality Management. Volkswagen

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Concepts of TQM

• Continuous improvement• Six Sigma• Employee empowerment• Benchmarking• Just-in-time (JIT)• Knowledge of TQM tools

Page 82: Supply Chain Management and Quality Management. Volkswagen

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Continuous Improvement

• Represents continual improvement of all processes

• Involves all operations and work centers including suppliers and customers– People, Equipment, Materials,

Procedures

Page 83: Supply Chain Management and Quality Management. Volkswagen

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Six Sigma• Originally developed by Motorola,

Six Sigma refers to an extremely high measure of process capability

• A Six Sigma capable process will return no more than 3.4 defects per million operations (DPMO)

• Highly structured approach to process improvement

Page 84: Supply Chain Management and Quality Management. Volkswagen

84

Six Sigma: Example• 20,000,000 passengers pass through

London’s Heathrow Airport with luggage each year

• At 6-sigma, 72 passengers would have misplaced luggage

• At 3-sigma (most common) 2,076 would have misplaced luggage

Page 85: Supply Chain Management and Quality Management. Volkswagen

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Six Sigma Implementation

• Provide extensive training• Focus on corporate sponsor support

(Champions)• Create qualified process

improvement experts (Black Belts, Green Belts, etc.)

This cannot be accomplished without a major commitment from top level management

Page 86: Supply Chain Management and Quality Management. Volkswagen

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Employee Empowerment

• Getting employees involved in product and process improvements– 85% of quality problems are due to process

and material • Techniques

– Build communication networks that include employees

– Develop open, supportive supervisors– Move responsibility to employees– Build a high-morale organization– Create formal team structures

Page 87: Supply Chain Management and Quality Management. Volkswagen

87

Use internal

benchmarking

if you’re big

enough

BenchmarkingSelecting best practices to use as a standard for performance (Chrysler

uses Toyota as a Benchmark)

• Determine what to benchmark

• Form a benchmark team• Identify benchmarking partners• Collect and analyze benchmarking information• Take action to match or exceed the benchmark

Page 88: Supply Chain Management and Quality Management. Volkswagen

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Just-in-Time (JIT)

Relationship to quality:• JIT cuts the cost of quality• JIT improves quality• Better quality means less inventory

and better, easier-to-employ JIT system

Page 89: Supply Chain Management and Quality Management. Volkswagen

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Just-in-Time (JIT)

• ‘Pull’ system of production scheduling including supply management– Production only when signaled

• Allows reduced inventory levels– Inventory costs money and hides process and

material problems

• Encourages improved process and product quality

Page 90: Supply Chain Management and Quality Management. Volkswagen

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Just-In-Time (JIT) Example

ScrapUnreliable Vendors

Capacity Imbalances

Work in process inventory level

(hides problems)

Page 91: Supply Chain Management and Quality Management. Volkswagen

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Just-In-Time (JIT) Example

Reducing inventory revealsproblems so they can be solved

ScrapUnreliable Vendors

Capacity Imbalances

Page 92: Supply Chain Management and Quality Management. Volkswagen

92

Tools of TQM

• Tools for Generating Ideas– Check sheets– Scatter diagrams– Cause and effect diagrams

• Tools to Organize the Data– Pareto charts– Flow charts

• Tools for Identifying Problems– Histogram– Statistical process control chart

Page 93: Supply Chain Management and Quality Management. Volkswagen

93

/

/

/ / /// /

// ///

// ////

///

//

/

Hour

Defect 1 2 3 4 5 6 7 8

A

B

C

/

/

//

/

Tools for TQM(a) Check Sheet: An organized method of

recording data

Figure 6.5

Page 94: Supply Chain Management and Quality Management. Volkswagen

94

Tools for TQM(b) Scatter Diagram: A graph of the value

of one variable vs. another variable

Absenteeism

Pro

du

cti

vit

y

Figure 6.5

Page 95: Supply Chain Management and Quality Management. Volkswagen

95

Tools for TQM(c) Cause-and-effect diagram (also called an Ishikawa or Fishbone

Diagram): A tool that identifies process elements (causes) that might effect an outcome

Figure 6.5

QualityProblemQuality

Problem

Out of adjustment

Tooling problems

Old / worn

MachinesMachinesFaulty

testing equipment

Incorrect specifications

Improper methods

MeasurementMeasurement

Poor supervision

Lack of concentration

Inadequate training

HumanHuman

Deficienciesin product design

Ineffective qualitymanagement

Poor process design

ProcessProcess

Inaccuratetemperature

control

Dust and Dirt

EnvironmentEnvironment

Defective from vendor

Not to specifications

Material-handling problems

MaterialsMaterials

Page 96: Supply Chain Management and Quality Management. Volkswagen

96

Cause-and-Effect Diagrams

Material Machinery

Methods Manpower

Inadequate

supply of magazines

Inadequate special

meals on-board

Insu

ffic

ien

t cl

ean

pil

low

s

& b

lan

kets

o

n-b

oa

rdBroken luggage

carousel

Mechanical delay

on plane

Dei

cin

g

equ

ipm

ent

no

t av

aila

ble

Overbooking policies

Bumping policies

Mis

tag

ged

bag

s

Po

or

chec

k-in

po

lici

es

Understaffed

ticket counters

Understaffed

crew

Po

orl

y tr

ain

ed

atte

nd

ants

Dissatisfied Airline

Customer

Figure 6.6

Page 97: Supply Chain Management and Quality Management. Volkswagen

97

Tools for TQM

(d) Pareto Charts: A graph to identify

and plot problems or

defects in descending

order of frequency P

erce

nt

fro

m e

ach

cau

se

Causes of poor quality

Mac

hine

cal

ibra

tions

Defec

tive

parts

Wro

ng d

imen

sion

s

Poor D

esig

n

Ope

rato

r err

ors

Defec

tive

mat

eria

ls

Surfa

ce a

bras

ions

0

10

20

30

40

50

60

70 (64)

(13)(10)(6) (3) (2) (2)

Page 98: Supply Chain Management and Quality Management. Volkswagen

98

Pareto Charts

Number of occurrences

Room svc Check-in Pool hours Minibar Misc.72% 16% 5% 4% 3%

124 3 2

54

– 100– 93– 88

– 72

70 –

60 –

50 –

40 –

30 –

20 –

10 –

0 –

Fre

qu

ency

(n

um

ber

)

Causes and percent

Cu

mu

lati

ve p

erce

nt

Data for October

Page 99: Supply Chain Management and Quality Management. Volkswagen

99

Pareto Charts• It was named after the Italian economist Vilfredo Pareto,

who observed that 80% of income in Italy was received by 20% of the Italian population.

• The principle was suggested by management thinker Joseph Juran

• The Pareto principle (also known as the 80-20 rule or the law of the vital few) states that for many phenomena, 80% of the consequences stem from 20% of the causes

• Examples:– "20% of clients are responsible for 80% of sales volume." – “80% of the resources are typically used by 20% of the

operations “– “80% of the defective units are a result of 20% of the

causes”

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Tools for TQM(e) Flow Charts (Process Diagrams): A chart

that describes the steps in a process. Helps focus on where in a process a quality

problem might exist

Figure 6.5

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Tools for TQM(f) Histogram: A distribution showing the

frequency of occurrence of a variable

Figure 6.5

Distribution

Repair time (minutes)

Fre

qu

en

cy

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Tools for TQM(g) Statistical Process Control Chart: A chart with

time on the horizontal axis to plot values of a statistic

Figure 6.5

Upper control limit

Target value

Lower control limit

Time

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Statistical Process Control (SPC)

Uses statistics and control charts to tell when to take corrective action Drives process improvement

Four key steps Measure the process

When a change is indicated, find the assignable cause

Eliminate or incorporate the cause Restart the revised process

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An SPC Chart

Upper control limit

Coach’s target value

Lower control limit

Game number

| | | | | | | | |

1 2 3 4 5 6 7 8 9

20%

10%

0%

Plots the percent of free throws missed

Figure 6.7