OM&PM/Class 8b1 ¬Operations Strategy ­Process Analysis ®Lean Operations ¯Supply Chain Management °Capacity Management in Services ±Quality Management –Class 7b: Quality & the Voice of the Customer –Class 8a: Control Charts & Voice of the Process –Class 8b: Paradigms for Continuous Improvement »Process Capability »Analog Devices & Continuous Improvement »Introduce National Printing Company Operations Management & Performance Modeling

OM&PM/Class 8b2 Class 8a: Key Learning Objectives u The role of variability in evaluating performance u A process –in control has only inherent (from common cause) variation –out of control has variation from an assignable cause u Pareto analysis to identify key causes of error u SPC framework for process control and improvement

OM&PM/Class 8b3 Statistical Process Control: Attribute Measurements (p-Charts)

OM&PM/Class 8b4 Control Chart of errors in Receiving Process

OM&PM/Class 8b5 Errors by Type & Module (Pareto Analysis) 80 % of the errors may be attributed to 20 % of the causes. Number of Errors by Type OtherSlotterLetdownPutawayKeyingITR ADJ Module 1Module 3 Number of Errors by Module

OM&PM/Class 8b6 Control Chart Module 1 Errors

OM&PM/Class 8b7 Module 1 of Receiving Process 1. Calculate average proportion of errors per sample: 2. Calculate the standard deviation of proportion defects per sample of 400: 3. Calculate control limits: 4. Plot control chart with control limits 400*(UCL, LCL) = (20.52, 1.08) Module 1 is out of control

OM&PM/Class 8b8 Module 1 Errors by Type Number of Errors by type in Module SlotterOtherLetdownPutawayKeyingITR ADJ Error Types

OM&PM/Class 8b9 Process Capability Voice of the CustomerVoice of the Process Process Capability = How well is process capable of meeting customer specifications? è For the Receiving process, customer specifications require no more than 2% errors on any given day. u Proportion of days where errors are beyond customer specifications =

OM&PM/Class 8b10 Process Capability: Sigma or ‘z’ Capability u Sigma capability is the number of standard deviations from the mean to the closest specification limit. u Sigma capability of Receiving process = u What if Receiving is to become a 3-Sigma process? –Target mean = –Target standard deviation =

OM&PM/Class 8b11 Improving Process Capability LSLUSL  = LSLUSL  = 10 LSLUSL  = LSLUSL  = %

OM&PM/Class 8b12 Magnitude of Difference Between Sigma Levels

OM&PM/Class 8b % Suppliers u At least 20,000 wrong prescriptions per year u More than 15,000 newborns dropped by doctors or nurses u No electricity, water or heat for 8.6 hours each year u No telephone service or TV transmission for nearly 10 minutes each week u Two short (or long) landings at O’Hare each week

OM&PM/Class 8b14 Why 6-Sigma? u Impact of # of parts/stages in a process u Impact of mean shift

OM&PM/Class 8b15 Relationship Between Sigma Capability, Proportion Defects, and C pk LSL mUSL z 

OM&PM/Class 8b16

OM&PM/Class 8b17 ADI Stock Price Performance

OM&PM/Class 8b18 Key learning objectives: Analog Devices u Methods to drive improvement –visibility: expose the rocks(“mgt. by sight”) –exploratory stress: crisis(“mgt. by stress”) –set standards: half live(“mgt. by stretch”) u Short term performance evaluation of complex organizations requires a balanced scorecard u Operational improvement needs to be converted into financial improvement

OM&PM/Class 8b19 Class 8b: Key Learning Objectives: SPC u Specification limits: Voice of the customer u Control limits used to verify if process is in control (internal), i.e., is maintaining capability: Voice of the process u Process capability is a measure of the quality delivered (external): links VoP with VoC u Improving capability may require variability reduction and/or mean shift u Reducing number of stages/parts improves capability

OM&PM/Class 8b20 Continuous Improvement: PDCA Cycle (Deming Wheel) Institutionalize the change or abandon or do it again. Execute the change. Study the results; did it work? 1. Plan 2. Do3. Check 4. Act Plan a change aimed at improvement.

OM&PM/Class 8b21 Process Improvements at Analog July 1, 1987 July 1, 1990 Average Yields July 1, 1987 July 1, 1990 Manufacturing Cycle Time Defects 51% 20% 15 weeks 7 weeks 500 ppm 50 ppm

OM&PM/Class 8b22 Target Half-Lives

OM&PM/Class 8b23 Continuous Improvement: Benchmarking 1. Identify those processes needing improvement. 2. Identify a firm that is the world leader in performing the process. 3. Contact the managers of that company and make a personal visit to interview managers and workers. 4. Analyze data