Week 2 BUSN 6110 Summer, 2012

Electronics giants shake up supply chain Toshiba has announced a new supply chain deal which involves outsourcing its production of semiconductors to a rival company. The electronics giant is restructuring its chip-related operations and is looking to concentrate its resources in other markets. Analysts believe Toshiba's decision to outsource production is driven by a need to cut costs in the LSI chip market which is dominated by Intel. LSI chips contain a microprocessor and are at the heart of many consumer electronics devices. The supply chain deal will free up Toshiba to concentrate on building memory chips for smartphones, as well as the LCD displays for Apple's iPhone device. Both Toshiba and Samsung refused to comment on the value of the supply chain deal, which took effect on January 1st.

Supply Chain Management

Supply Chain Management /Ops Management Acct’g Finance Marketing Business Admin Info Systems Intl Business Mgmt Sales

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:

End-to-End Supply Chain Whether from Cow to Cone or from Rock to Ring SCOR is not limited by organizational boundaries 8 Copyright © Supply Chain Council, All rights reserved 8 Supplier Customer Suppliers’ Supplier Source Internal or External Your Company Return Deliver Make Source Return Plan Deliver Return Source Return Make Source Return Plan Deliver Return DeliverMake Plan Return Customers’ Customer SCOR reference model

End-to-End Supply Chain 9 Copyright © Supply Chain Council, All rights reserved 9 Customer’s CustomerCustomer MP3 Company SupplierSupplier’s Supplier Sub assembliesManufacturerRetailerConsumerComponents Source Deliver Source Deliver Make Source Deliver Make Source Deliver Make Source Process, arrow indicates material flow direction

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

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

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

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 – camera phones, cell phones, thumb drives Collaboration and trust are important elements that may be new to business relationships

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

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

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

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

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

Transportation

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

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

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

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

Intermodal Combination of several modes of transportation Most common are truck/rail/truck and truck/water/rail/truck 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 One of oldest means of transport Low-cost, high-volume, slow (relative) Security - sheer volume - millions of containers annually Bulky, heavy and/or large items Standardized shipping containers improve service The most common form of international shipping

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

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

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

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

FedEx and Quality Digitally Assisted Dispatch System – communicate with 30K couriers 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 10X cost  100 – if mistake is caught by the customer = as much as 100X 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 Basic operating characteristics 2.Features “Extra” items added to basic features 3.Reliability Probability product will operate over time

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

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

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

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

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

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

Deming’s 14 Points 1.Create constancy of purpose 2.Adopt philosophy of prevention 3.Cease mass inspection 4.Select a few suppliers based on quality 5.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) 1. Plan Identify the problem and develop the plan for improvement. 2. Do Implement the plan on a test basis. 3. Study/Check Assess the plan; is it working? 4. Act Institutionalize improvement; continue the cycle. Also known as the Shewart Cycle

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

Cost of Quality Cost of achieving good quality Prevention Planning, Product design, Process, Training, Information Appraisal Inspection and testing, Test equipment, Operator

Cost of Quality Cost of poor quality Internal failure costs Scrap, Rework, Process failure, Process downtime, Price- downgrading External failure costs Customer complaints, Product return, Warranty, Product liability, Lost sales

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

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

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

Product Development

Introduction 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 Product Development is a process which generates concepts, designs, and plans to create services and goods to meet customer needs.

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 Specifies materials Determines dimensions & tolerances Defines appearance Sets performance standards

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

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

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

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

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

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

Perceptual Map of Breakfast Cereals © Russell and Taylor, Prentice Hall, 2004 HIGH NUTRITION LOW NUTRITION GOOD TASTE Cocoa Puffs BAD TASTE RiceKrispies Wheaties Cheerios ShreddedWheat

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

Feasibility Study Market Analysis - Market Segmentation Economic Analysis Technical / Strategic Analysis Performance Specifications 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 Sales Price – Variable Costs B/E Point =

Example Fixed Costs = $2000 Variable Costs = $5/item Sales Price = $10/item Fixed Costs ($2000) Sales Price ($10) – Variable Costs ($5) B/E PT = 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 Create form & functional design Build prototype Test prototype Revise prototype Retest How will it look?

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

System Availability System Availability, SA = MTBF MTBF + MTTR PROVIDERMTBF (HR)MTTR (HR) A604.0 B362.0 C241.0

System Availability PROVIDERMTBF (HR)MTTR (HR) A604.0 B362.0 C241.0 SA A = 60 / (60 + 4) =.9375 or 93.75% SA B = 36 / (36 + 2) =.9473 or 94.73% SA C = 24 / (24 + 1) =.96 or 96%

Production Design Part of the preliminary design phase Simplification Standardization Modularity

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

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

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

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

Design for Manufacture and Assembly Design a product for easy & economical production Incorporate production design early in the design phase Improves quality and reduces costs Shortens time to design and manufacture 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) Procedure for reducing number of parts Evaluate methods for assembly Determine assembly sequence

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

Value Analysis (Value Engineering) Ratio of value / cost 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? Is there value added?

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

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

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

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

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 95

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? 96

The Point of Indifference Comparing Two Processes What is it? Who cares? How do you calculate it? 97

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

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

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? 100

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? 101

Process Strategy - Defines Capital intensity Process flexibility Vertical integration Customer involvement 102

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? 103

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. 104

Process Planning Make-or-buy decisions Process selection Specific equipment selection Process plans Process analysis 105

Make-or-Buy Decisions 1. Cost 2. Capacity 3. Quality 4. Speed 5. Reliability 6. Expertise 106 What about Proprietary Information? Barrier to Make-or-Buy?

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

Process Plans Blueprints Bill of material Flat or multiple layers - part or assembly Assembly chart / product structure diagram Operations process chart - list of operations involved in assembly Routing sheet - sequence of events 108

Process Analysis 109 The systematic examination of all aspects of a process to improve its operation The systematic examination of all aspects of a process to improve its operation Faster Faster More efficient More efficient Less costly Less costly More responsive More responsive Basic tools Basic tools Process flowchart Process flowchart Process diagrams Process diagrams Process maps Process maps

Operations Process Chart 110 Part nameCrevice Tool Part No UsageHand-Vac Assembly No.520 Oper. No.DescriptionDept.Machine/ToolsTime 10Pour in plastic bits041Injection molding2 min 20Insert mold041#0762 min 30Check settings041113, 67, min & start machine 40Collect parts & lay flat051Plastics finishing10 min 50Remove & clean mold042Parts washer15 min 60Break off rough edges051Plastics finishing10 min

Process Analysis – What processes feed other processes? 111

Process Flowchart 112

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 113

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 114

Techniques for Generating Innovative Ideas Vary entry point to a problem Draw analogies Change your perspective Use attribute brainstorming 115

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 116

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Robotics Programmable manipulators Follow specified path Better than humans with respect to Hostile environments Long hours Consistency Adoption has been slowed by ineffective integration and adaptation of systems Welding at Harley Davidson Plant 119 Questions?