Interesting Quote “With the storehouse of skills and knowledge contained in it millions of unemployed, and with the even more appalling underuse, misuse, and abuse of skills and knowledge in the army of employed people in all ranks of industries, the United States may be today the most underdeveloped nation in the world.” –W. Edwards Deming, Out of the Crisis, 1982

Chapter 15 Just-In-Time and Lean Production

Producing only what is needed, when it is needed Producing only what is needed, when it is needed A philosophy A philosophy An integrated management system An integrated management system JIT’s mandate: Eliminate all waste JIT’s mandate: Eliminate all waste What is JIT ?

Basic Elements of JIT 1.Flexible resources 2.Cellular layouts 3.Pull production system 4.Kanban production control 5.Small-lot production 6.Quick setups 7.Uniform production levels 8.Quality at the source 9.Total productive maintenance 10.Supplier networks

Toyota’s waste elimination in Operations 1. Overproduction 2. Waiting 3. Inessential handling 4. Non-value adding processing 5. Inventory in excess of immediate needs 6. Inessential motion 7. Correction necessitated by defects

A Sample Kanban

Types of Kanbans

Kaizen Continuous improvement Continuous improvement Requires total employment involvement Requires total employment involvement Essence of JIT is willingness of workers to Essence of JIT is willingness of workers to Spot quality problems Spot quality problems Halt production when necessary Halt production when necessary Generate ideas for improvement Generate ideas for improvement Analyze problems Analyze problems Perform different functions Perform different functions

Reverse Logistics: Important or Irritant? Estimated $100 billion industry in 2006

“In an ideal world, reverse logistics would not exist.” Jim Whalen, “In Through the Out Door,” Warehousing Management, March 2001

Reverse Logistics - What is it? The Army’s Definition The return of serviceable supplies that are surplus to the needs of the unit or are unserviceable and in need of rebuild or remanufacturing to return the item to a serviceable status

Reverse Logistics - What is it? The Commercial Perspective Reverse Logistics is the process of moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.

Typical Reverse Logistics Activities Processing returned merchandise - damaged, seasonal, restock, salvage, recall, or excess inventory Recycling packaging materials/containers Reconditioning, refurbishing, remanufacturing Disposition of obsolete stuff Hazmat recovery

Why Reverse Logistics? Competitive advantage Customer service - Very Important: 57% - Important: 18% - Somewhat/unimportant:23% Bottom line profits

Reverse Logistics - New Problem? Sherman Montgomery Ward’s Recycling/remanufacturing in 1940s World War II - 77,000,000 square feet of storage across Europe with over $6.3 billion in excess stuff Salvage and reuse of clothing and shoes in the Pacific Theater World War II

Key Dates in Reverse Logistics World War II – the advent of refurbished automobile parts due to shortages Tylenol Scare - Johnson and Johnson German ordinance that put teeth in environmental reverse pipeline Summer 1996 – UK Packaging and Packaging Waste Legislation first real study of reverse logistics in the US - University of Nevada, Reno 2001 – EU goal of 50-65% recovering or recycling of packaging waste

Reverse Logistics A US Army Perspective

Operation Iraqi Freedom The US Army moved the equivalent of 150 Wal-Mart Supercenters to Kuwait in a matter of a few months

Military Operations and Excess “In battle, troops get temperamental and ask for things which they really do not need. However, where humanly possible, their requests, no matter how unreasonable, should be answered.” George S. Patton, Jr.

Jane’s Defence Weekly “Recent report (Aug 2003): There is a 40 hectare (~100 acres) area in Kuwait with items waiting to be retrograded back to the US.”

From GAO Audit Report Does this create a problem?

From GAO Audit Report

Reverse Logistics The Commercial Perspective

Reverse Logistics Rate of returns? Cost to process a return? Time to get the item back on the shelf if resaleable?

Costs - above the cost of the item –Merchandise credits to the customers. –The transportation costs of moving the items from the retail stores to the central returns distribution center. –The repackaging of the serviceable items for resale. –The cost of warehousing the items awaiting disposition. –The cost of disposing of items that are unserviceable, damaged, or obsolete.

Costs Process inbound shipment at a major distribution center = 1.1 days Process inbound return shipment = 8.5 days Cost of lost sales Wal-Mart: Christmas returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers PalmOne - 25% return rate on PDAs

More Costs Hoover - $40 Million per year Cost of processing $85 per item Unnamed Distribution Company - $700K items on reverse auction over $60 billion in returns; $52 billion excess to systems; $40 billion to process

Is it a problem? Estimate of 2004 holiday returns: $13.2 billion % of estimated 2004/2005 holiday returns: 25% Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day) Electronics: $10 Billion annually in returns Personal Computers: $1.5 Billion annually = approximately $95 per PC sold 79% of returned PCs have no defects Home Depot ~ $10 million in returns in the stores alone Local Wal-Mart ~ $1 million a month in returns

Is it a Problem? European influence – spread to US - Green Laws Estee Lauder - $60 million a year into land fills FORTUNE 500 Company - $200 million over their $300 million budget for returns Same Provider - 40,000 products returned per month; 55% no faults noted K-Mart - $980 million in returns 1999 Warranty vice paid repairs

More consequences Increased Customer Wait Times Loss of Confidence in the Supply System Multiple orders for the same items Excess supplies in the forward pipeline Increase in “stuff” in the reverse pipeline Constipated supply chain

Impact? Every resaleable item that is in the reverse supply chain results in a potential stock out or “zero balance” at the next level of supply. Creates a “stockout” do-loop

Results? This potential for a stock out results in additional parts on the shelves at each location to prevent a stock out from occurring. More stocks = “larger logistics footprint” = the need for larger distribution centers and returns centers.

Dawes’ Six Symptoms of a Problem 1. Returned merchandise or supplies arrive faster than they are processed or disposed of. 2. There are large amounts of returned inventory held in the distribution center or warehouse. 3. There are unidentified or unauthorized returns. 4. There is a lengthy processing cycle time for returned goods. Dr. Richard Dawes, University of San Francisco

Six Symptoms (Continued) 5. The total cost of the returns process is unknown. 6. Customers lose confidence in the repair activities.

Reverse Logistics reverse logistics is: The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics. Reverse logistics is more than reusing containers and recycling packaging materials. It includes redesigning packaging to use less material, or reducing the energy and pollution from transportation are important activities.

Reverse Logistics For "industrial equipment" the return rate is over 8% and the total revenue impacted by returns is $105.6 billion in 2005, in just the U.S. alone. For computers and network equipment, the return rate reaches as high as 20%, for a 2005 total of $65.8 billion, up from $61.4 billion in 2004.

Reverse Logistics According to the Reverse Logistics Executive Council, the percent increase in costs for processing a return, as compared to a forward sale, is an astounding %. “In the U.S. alone, the cost is an annual $100 billion.” Forbes, March 2005 Typically, as many as 8-12 more steps per item in the reverse pipeline than items in the forward pipeline

“The truth is, for one reason or another, materials do come back and it is up to those involved in the warehouse to effectively recover as much of the cost for these items as possible.” - Whalen, “In Through the Out Door”

RFID and Returns Visibility Tracking Component tracking Data Warehouse on what, why, when Altered products Not for every product

Impacts of Reverse Logistics Forecasting Carrying costs Processing costs Warehousing Distribution Transportation Personnel Marketing

Chapter 4 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

Out of the Crisis “Failure of management to plan for the future and to foresee problems has brought about waste of manpower, of materials, and of machine-time, all of which raise the manufacturer’s cost and price that the purchaser must pay.

More Deming The consumer is not always willing to subsidize this waste. The inevitable result is loss of market. Loss of market begets unemployment. Performance of management should be measured by potential to stay in business, to protect investment, to ensure future dividends and jobs through improvement of product and service for the future, not by the quarterly dividend….

Deming’s solution The basic cause of sickness in American industry and resulting unemployment is failure to top management to manage. He that sells not can buy not.” The job of management is inseparable from the welfare of the company.

“The degree of excellence of a thing” (Webster’s Dictionary) “The totality of features and characteristics that satisfy needs” (ASQ) Fitness for use 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 Same level of service for all customers 5.Accessibility & Convenience Ease of obtaining service Ease of obtaining service 6.Accuracy Performed right every time Performed right every time 7.Responsiveness Reactions to unusual situations 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

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

Employees and Quality Improvement Employee involvement Quality circles Process improvement teams Employee suggestions

Cause-and-Effect Diagram Quality Problem Quality Problem Out of adjustment Tooling problems Old / worn Machines Faulty 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 Inaccurate temperature control 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 9000:2000 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)

Upcoming Events Final Exam due by Saturday Harley Papers by Saturday