© 2007 Pearson Education 7- 1 Managing Quality Integrating the Supply Chain S. Thomas Foster Chapter 7 Internal & External Process Simplification 09/25 – 4:00AM

© 2007 Pearson Education 7- 2 Chapter 7 - Internal & External Process Simplification Internal Process Simplification What do you do and in what order do you do it to systematically simplify and improve process flows? S/LNCK/1PIP2 Reengineer setups to reduce or eliminate their interruptions and bottlenecks. Rearrange the cells and workcenters within the cells to create linear flows to eliminate confusing loops and forks. Move cells and workcenters next to each other to reduce or eliminate materials handling time, personnel, and equipment and work-in-process inventory.

© 2007 Pearson Education 7- 3 Chapter 7 - Internal & External Process Simplification Internal Process Simplification  Use parallel cells, cellular manufacturing, to eliminate interruptions caused by setups. Each cell can produce a family of parts without setups.  Use Kanban Signals to level the flows which eliminates surges and sags and regulates work-in-process inventory.  Use 1-piece flow, instead of batches to increase throughput, decrease cycle time, and decrease work-in-process inventory.  Use point-of-use inventory to eliminate stockrooms and reduce materials handling time, personnel, and equipment.

© 2007 Pearson Education 7- 4 Chapter 7 - Internal & External Process Simplification Internal Process Simplification  Cross train workers to be certified inspectors of their own work to eliminate inspectors and to immediately detect and correct defects and errors.  Implement pull signals from the customer to finished goods inventory to the production line to eliminate over- and under- production.  Implement pull signals from the production line to point-of-use inventory stock to the suppliers to eliminate overages and shortages in point-of-use inventory.

© 2007 Pearson Education 7- 5 Chapter 7 - Internal & External Process Simplification External Process Simplification You need to learn how to simplify your supply chain to reduce complexity before you begin process improvement efforts. What is the ultimate goal of all supply chains? The ultimate goal in all supply chains is to have spontaneous re- supply, build-to-order, and mass customization to provide a continuous, level, linear, uninterrupted, one-piece flow which exactly matches the mix, volume, and timing of customer demand within your supply chain.

© 2007 Pearson Education 7- 6 Chapter 7 - Internal & External Process Simplification External Process Simplification Why is this ultimate goal of all supply chains impossible to achieve? We cannot get the information to have perfect visibility about our supply chain to make the best decisions and we cannot control all of the factors in our supply chain in the execution of our decisions to have instant responses, perfect velocity.

© 2007 Pearson Education 7- 7 Chapter 7 - Internal & External Process Simplification External Process Simplification Why should we try to get our supply chain as close to this goal as possible? The firms which are the closest to providing, just-in-time, the exact mix, volume, and timing of products or services which customers demand will have the lowest costs and the most profit. These firms will dominate the market after several shake-outs of firms which have greater waste, non- value-added time, just-in-case buffers, and variances. These shake-outs will eliminate firms which fail to have competitive cost structures and which fail to competitively match the mix, volume, and timing of customer demand.

© 2007 Pearson Education 7- 8 Chapter 7 - Internal & External Process Simplification External Process Simplification To reach this goal, how do you first simplify and streamline your supply chain before you begin process improvement and correction efforts? You eliminate or outsource the 80% of the products and services which contribute only 20% of the profit. This reduces the complexity of your processes which simplifies your improvement and correction efforts to exactly match the mix, volume, and timing of customer demand.

© 2007 Pearson Education 7- 9 Chapter 7 - Internal & External Process Simplification External Process Simplification Why do you insource the 20% of your products and services which contribute 80% of your profit ? You will in-source and focus on the 20% of the products and services which contribute 80% or your profit so you can control the quality, mix, volume, timing, and innovation of these products and services. Why do you need to outsource the 80% of your products and services which contribute just 20% of your profit? The 80% of your products and services which provide just 20% of your profit will distract you and needlessly complicate your supply chain.

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification Why do we need to move from a build-to-forecast strategy to a build-to- order strategy? In a build-to-forecast strategy, you build to inventory according to a forecasted schedule and not to sold orders. Therefore, you will have the waste of over or under production, in relation to sales. In a build-to-order strategy, you do not have the waste caused by over- and under- production. You only build what you have sold.

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification What are the requirements for a build-to-order strategy? SC3 A build-to-order strategy to meet spontaneous, instantaneous demand without waste requires you to have:  spontaneous re-supply of standardized parts and raw materials from supply partners to create a high velocity, high visibility supply chain  continuous, level, linear, uninterrupted one-piece flow manufacturing (i.e., mass customization) which exactly matches the mix, volume, and timing of customer demand, to eliminate the waste from over- and under-production

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification  cellular manufacturing to eliminate interruptions caused by setups  concurrent engineering to integrate the needs of all stakeholders.

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification Why do you want to create a high velocity, high visibility supply chain? You want to reduce or eliminate just-in-case buffers (e.g., manpower, materials, machinery, time, and technology) because they are expensive. For example, inventory costs you 30% of its purchase cost per year. This cost includes obsolescence, damage, pilferage, insurance, storage, labor, management, etc.

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification What are the steps you must take to simplify your supply chain to reduce inventory costs? RS2/ISC3 You need to take the following steps in the order provided to simplify your end products, parts, raw materials, and suppliers.  You need to rationalize your product lines. Rationalize means you eliminate or outsource the 80% that you occasionally sell to reduce the variety you produce. When you eliminate or outsource this 80% that you occasionally sell, you will eliminate the related parts, raw materials, and suppliers, and you will immediately reduce the complexity of your supply chain.

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification  You need to standardize the parts and raw materials required for your rationalized product lines. Develop and use parts and raw materials that will work across all product lines to reduce the variety you need to forecast, order, inspect, move, and store.  You need to standardize on 2 or 3 suppliers for each of your standard parts and raw materials. You do not want to manage many vendors competing with each other to provide you with the lowest bid. You want to manage a few partners with the lowest operating cost who will continuously help you cut your costs by customizing their offerings for your needs with regard to quality, mix, volume, timing, and innovation.

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification  For the 20% of your products and services which provide you 80% of your profit, you need to in-source outsourced operations that constrain your quality, mix, volume, timing, and innovation to attain continuous, level, linear, one-piece flow manufacturing that responds spontaneously to immediate demand.

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification  You need to implement spontaneous resupply of standardized parts and raw materials. You need to cut costs and throughput time throughout the complete supply chain. The weakest link in the supply chain will constrain the remaining links. Firms do not compete today. Supply chains compete and they compete on the basis of cost, velocity, and value-added. You want spontaneous resupply to reduce or eliminate inventory because inventory costs 30% per year of the purchase cost to maintain. You also want spontaneous resupply to reduce or eliminate lead time because forecasting demand during lead becomes more difficult as the lead time increases.

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification  You need to implement continuous, level, linear, uninterrupted one-piece flow manufacturing which exactly matches the mix, volume, and timing of customer demand to eliminate the waste of over- and under-production.  You need to implement cellular lines based on product families which will eliminate the need for setups that interrupt process flows which, in turn, will eliminate batches and queues (i.e., work-in-process and delays).

© 2007 Pearson Education Chapter 7 - Internal & External Process Simplification External Process Simplification  You need to implement concurrent engineering for product development to achieve manufacturability and to use standard, readily available, off-the-shelf parts and raw materials. Concurrent engineering means that all factors involved in researching, designing, and producing a product communicate, coordinate, and collaborate in real time to assure the resulting product will meet the needs of all of the factors (i.e., stakeholders).