Service Processes – Session 1 The Lean Enterprise Clear focus in operating decisions leads to superior performance But, limits to flexibility, risk of (market or technical) obsolescence, or the routine Operations Strategy is about deciding what solution to offer (product or service), to who, and how to deliver it. [pic] [pic] [pic] [pic] [pic] Manufacturing Process – Session 2 Distinct business processes are appropriate to create distinct value propositions Jumbled flow (job shop) for low volume and highly customized solutions • Disconnected line flow (batch) for multiple products in moderate volumes • Connected line flow (Assembly line) for high volume of major products • Continuous flow for commodity products Important sources of cost differentials • Operations strategy • Operational efficiency The dynamics of the product-process matrix • Positioning in the P-P matrix is not only driven by operations strategy but also by the product lifeline • Moving in the P-P matrix requires changing the entire mindset/culture of the organization [pic] [pic] [pic] [pic] pic] Part II – Business Process Analysis and Improvement Customer Response Performance in Services – Session 3 From parameters to performance If s = 1 server [pic]or use lookup table if s > 1 Parameters sNumber of Servers ?Frequency of arrivals -> x/day / x/hr / x/minute ?Average service time -> days / hrs / minutes ?=1/ ? Service rate ?Utilization; ? = ?? /s CVCoefficient of variation; CV = ? /? (stddev/mean) CVSVariation of service time = ?? /?? , = 1 if Exponential, 0 if constant. CVAVariation of arrival rate = ?? /?? , = 1 if Poisson. Average performance measures WqWaiting time WTotal throughput time
LqNumber of customers in the queue LNumber of customers in the system Wq + ? Customer response time Single Server What are the parameters? ?,? , CVA, CVS 1. Find ? = ?? 2. Find Wq from the formula above 3. Lq = ? Wq W = Wq + ? L = ? W Multiple Server 1. What are the parameters? ?,? , s 2. Find ? = ?? /s 3. Find Lq from table using s and ? ; Assumes CVA = 1 and CVS = 1. 4. Wq = Lq/? W = Wq + ? L = ? W Assembly lineJob Shop CVS0> 1 CVA^v Utilization (target)~90%~60% If multiple production machines, equalize Lq across the production lines Waiting is “inevitable”, even with less than 100% utilization Scale effects, ? • Utilization effects, ? /(1- ? ) • Variability effects, (CVA2 + CVS2)/2 Little’s Law: Inventory = rate x wait (on average) In general, for stable systems (? < 1), the average inventory in system = average arrival rate x average time in system. Can also be used to calculate the average time in system. L = ? W Managing waits/customer response time • Remove non-value added steps to reduce processing time (? v, ? v) • Reduce variability in demand (CVAv) and process (CVSv) • Pool resources to more effectively use existing capacity (s^) Lessons for Life: Keep slack
What is the Goal of the Enterprise? – Session 4 Definitions ThroughputThe rate at which the system generates revenues Production is not revenue Capacity utilization is not the goal, only a possible means to achieve it InventoryThe level of capital invested in the system “It takes money to make money” … just don’t take too much Money costs money; Opportunity cost of equity, interest charged on debt. Managing with bottlenecks 1. Find the bottleneck 2. Maximize throughput by exploiting the bottleneck o Avoid starving the bottleneck (create buffer for some inventory in front of it). Lost capacity at bottleneck is lost forever o Schedule to keep it busy. Reduce number of setups at the bottleneck (big batches) 3. Elevate: Increase capacity at bottleneck o Reduce length of setup time at the bottleneck o Quality check: Don’t let bad parts be processed on the bottleneck o Offload work to any other resource that can handle it (e. g. cross training, task offloading; resources in-house or contracted out) o More capacity at bottleneck means more throughput 4. As one bottleneck is resolved, a new bottleneck appears elsewhere. Repeat! 5.
Minimize inventory at non-bottlenecks o ‘Drum’ and ‘rope’ scheduling to let the bottleneck set the pace for input materials, to ‘balance flow’. o Reduce batch sizes at non bottle-neck o Efficiency & capacity improvements at non-bottleneck may reduce inventory, but won’t improve throughput 6. Bottleneck early in process simplifies flow management 7. The bottleneck may also be o Accounting systems or focus on operational targets (are not goals, should enable achievement of goals) o Mindsets o Suppliers o Market The “Goal” approach to management 1. Identify your goal . Identify your bottleneck 3. Exploit your bottleneck a. Don’t starve the bottleneck b. Lost capacity at the bottleneck is lost forever 4. Subordinate all other decisions to step 3 a. The bottleneck is the “drum” for loading the system 5. Elevate your bottleneck a. Find ways to increase the capacity at the bottleneck 6. Identify your next bottleneck a. Don’t let inertia set in Process of Continuous Improvement • WHAT is it that I should seek to achieve? What is the fundamental challenge? • WHERE is the bottleneck? What prohibits me/us from doing better? • HOW to change?
How can I alleviate or even remove this bottleneck? It is the task of the manager to create a process for continuous improvement, not just ad hoc solutions. Key Lessons from Industrial Excellence Award (IEA) Changing Strategies3 months Changing Product Design6 months – 2 years Changing Plant Process2 – 4 years Excellence of Plant Managers • Forecast needed changes in company’s manufacturing strategy … before anyone tells them • Prepare plant’s processes for future changes in product mix … before anyone tells them Business Process Economics – Session 5 Process Model Effective capacity of process as a whole is determined by the bottleneck step (step with the smallest effective capacity, expressed in units of final output) • Expressed in units of final output, the effective capacity of a process step depends on downstream losses • Effective capacity of a step also depends on the net availability of that step (including working hours, equipment breakdowns, preventive maintenance, …) • In a continuous process, no inventory between steps is allowed. If one step becomes unavailable all upstream steps are immediately blocked and all downstream steps are immediately starved.
Levers for Process Improvement • Yield improvements/quality control o Before bottleneck ? Reduce input cost per unit output (lower variable costs! ) ? Capacity doesn’t change (bottleneck still limiting factor) o After bottleneck ? More output per unit input (lower variable costs! ) ? Capacity increases (effect on fixed cost allocation per unit) ? Might change the bottleneck • Bottleneck speed improvement (infrastructure/availability similar) o Increases capacity – more productive hours o Unit variable costs don’t change (same output per unit input) o Bottleneck might shift Ask to see throughput model • Volatility: Can be in demand and price more than in production process Key Lessons • Process flow analysis is needed to understand economics of production and value of improvement, which is essential for good business decisions • The impact of levers for improvement depend on where (in the system) they are used: o Improvement at bottleneck ? Improves the whole system ? May shift the bottleneck o Yield (and quality) improvement before bottleneck ? Use less input per unit output o Yield (and quality) improvement after bottleneck ? Produce more outputs per unit input
You can always improve by implementing continuous improvement/learning efforts. Part III – Inventory: Operations and Tactics Customer Response Performance in Manufacturing Operations – Session 6 The Toyota Production System is the benchmark. Definitions BlockingCaused when downstream is slower than upstream StarvationCaused when downstream is faster than upstream BTFBuild-To-Forecast BTOBuild-To-Order Response Times – CRT ? TPT = OQT + PCT CRTCustomer Response Time TPTThroughput Time OQTOrder Queue Time PCTProcess Cycle Times The role of inventory Blocking goes down with inventory, use idle time to produce buffers.
If we have a buffer, then starvation will also go down. Push 1. No WIP control 2. If buffer before has units, you produce at next machine Pull 1. WIP control 2. If inventory buffer after needs units, you produce at previous machine If no variability, PUSH = PULL! As variability increases for each machine, what happens to system capacity and why? • As CV2 increases, we are already losing capacity and further increase has less effect. • Asymptotic behaviour – capacity approaches 0. As serial length of facility increases, what happens to system capacity and why? As length increases, we are already losing capacity to variability and further increase has less effect. • Asymptotic behaviour – capacity approaches 0. • Once again, kanban length increases capacity. WIP Strategy | |Push |Pull | |BTO | |Target | |BTF |Compaq Now |>^ | Producing to Forecast – Session 7 Supply Chain Management – How Much To order |Demand |5 |6 |7 | |Probability |1/3 |1/3 |1/3 | Cost: $5 |Price |$5. 05 |$10 |$100 | Order Quantity |5 |6 |7 | Reasoning: Margin vs Cost. If margin < Cost, = Cost or > Cost, order quantity will vary accordingly. |Qty |5 |6 |7 | |E[Sales] |5 |5*1/3 + 6*2/3 |5*1/3 + 6*1/3 + 7 * 1/3| |E[Lost Sales] |1 |1/3 |0 | |E[Salvage] |0 |1/3 |1 | E[Demand] = 6 E[Sales] = E[Demand] – E[Lost Sales] E[Salvages] = i – E[Sales] i = ordered quantity -C + VProb(D ? i) = 0 VProb(D ? i) = C Prob(D ? i) = C/V i = ? + z?
E[Profits] = Revenue – Cost = Price * E[Sales] + Salvage*E[Salvage] – i * C E[Sales] = E[Demand] – E[Lost Sales] E[Lost Sales] = E[D – i] = NormalLoss(z)* ? Supply Decisions – Alternative Manufacturing / Processing 1. Calculate “Profit” function for alternative 1 (piV1 – C1) 2. Calculate “Profit” function for alternative 2 (piV2 – C2) 3. Solve for pi by setting piV1 – C1 = piV2 – C2 4. pi defines the breakpoint. a. Alternative 1 is better when P(D? i) ? pi b. Alternative 2 is better when P(D? i) > pi 5. Use the z-lookup table to find z for pi a. Use this to calculate the order quantity for Alternative 1 (i1) 6.
Calculate the full chance tree for option 2 to find total order quantity (i*) 7. Calculate i2 = i* – i1 Note: If multiple options, repeat process successively. Business Process Competition: M&S and Zara – Session 8 |[pic] |[pic] | Inventory Management depends upon the clock speed of the process • Long lead times -> Forecast -> FGI Process (in contrast to product) innovation is an enormous weapon that can disupt the basis of competition • Drive to mass customization, postponement, … • Shifts the diagonal of the product-process matrix down
Continuous improvement is a key competitive weapon too, but can lead to rigidity • Market segments, product needs, and technologies shift o Can you adapt your process and market approach fast enough? • Business process reengineering is a difficult alternative to execute • Business process portfolio management may be a good alternative Part IV – Total Quality Management Quality Management in Services – Session 9 Deming • Prevention rather than cure o Process Improvement o Plan, Do, Check, Act • Variations in Manufacturing and Service performance comes from o Process Design – 99% Process Operations – 1% • How to divide process variations across design and operations? • Process variation occurs due to many factors o Normal Distribution! ? Central tendency = mean (? ) ? Variability = standard deviation (? ) Historical Performance • Process is in control – process works well according to historical performance • Process is out of control – process has changed 1. Historical mean [pic] 2. Two points consecutively close to UCL or LCL 3. Five consecutive points above/below mean 4. Increasing or decreasing trends (mean is shifting) Tracking Mechanics Discrete variables (Yes/No or OK/defect measure) • P-chart (or s-chart) track proportion defectives (or cumulative number of defectives) • Identify when process goes outside of lower control limit (LCL) or upper control limit (UCL) • Continuous variables (width, time, temp, …) • X-bar identifies changes in central position (process mean) through tracking sample mean • R-bar identifies changes in variability (process variation) through tracking sample range (hi-low) Capability analysis • What is the currently “inherent” capability of my process when it is “in control”? Conformance analysis SPC charts identify when control has likely been lost and assignable cause variation has occurred Investigate for assignable cause • Find “Root Cause(s)” of Potential Loss of Statistical Control Eliminate or replicate assignable cause • Need Corrective Action To Move Forward Process Capability & Total Quality Management – Session 10 Definitions CpProcess Capability ratio CpkProcess Reliability Index LCLLower Control Limit LSLLower Specification Limit LTLLower Tolerance Limit (See LSL) UCLUpper Control Limit USLUpper Specification Limit UTLUpper Tolerance Limit (See USL) Potential [pic] gt; 1implies that potential is good, i. e. that the specification limits are greater than the potential performance of the system < 1implies that the potential is bad Performance [pic] > 1implies that performance is good, i. e. that the upper and lower specification limits are more than 3 standard deviations away from the mean performance of the system Why Quality? • Revenue Impact – Customer Satisfaction o Value o Fitness of Use • Cost Impact – Cost of poor quality o Prevention costs o Appraisal costs o Internal failure costs o External failure costs Costs of Quality : Juran model Prevention Costs |Appraisal Costs |Internal Failure|External Failure | | | |Costs |Costs | |Very good machines |Inspection costs |Cost of rework |Costs of warranty | |Very well-trained |Review costs |Scrap costs |Customers go to | |workers | | |competitors | |Excellent, |Workers stopping |Lost time on |Legal costs | |well-defined process |the line |machines | | |Standard operating |Process improvement| |Brand image | |procedures defined |costs | |affected | |clearly | | | | At each stage, costs multiply by a factor of 10!!! The Process Improvement Cycle – PDCA • PLAN a quality improvement o Select theme, grasp situation, preliminary analysis, training programmes, introduce tracking measures and controls, etc… • DO the investigations for improvements Investigate the deviations from “normal” behaviour – these are opportunities for improvement – and find improvement actions • CHECK the effectiveness of improvement actions o Confirm the effect of countermeasures • ACT by implementing the improvement measures throughout the company [pic] PART V – Course in Review Inventory Between Buyers and Suppliers – Session 11 JIT – Just in Time • Produce what the customer wants, when it is wanted, in the amount it is wanted, where it is wanted • High Volume • Low Inventory (raw materials, WIP, FGI) • Demand pull (produce when needed) • Little JIT: scheduling, inventory • Bit JIT (“lean”): eliminate waste in all activities (scheduling, inventory, human resources, vendors, technology) Seven Forms of Waste (“MUDA”) |Seven Methods to Eliminate Waste | |Overproduction |Focused factory networks | |Waiting time |Group technology | |Transportation waste |Quality at the source | |Inventory waste |JIT production | |Processing waste |Uniform plant loading | |Waste of motion |Kanban production | |Product defects |Minimize setup times | JIT vs JIT II |JIT |JIT I |Ideal view: piece for piece; lot for lot | | | |Eliminate excess (RMI, WIP and FGI) inventory | | | |Pull supply chain view | | | |Supplier timely and efficient source (RMI) | |JIT II |Administration and management | | | |Eliminate administrative waste | | | |Supplier pulls production from his own plant | | | |Supplier is an effective source of ideas too | Potential gains • Reduced lead times of delivery • Reduced costs of procurement • Avoid excess inventory stock • Better monitoring of incoming quality • Greater role in new product development for supplier Potential hazards • Supplier gains inside information on cost, process & design • Loss of bargaining power with supplier • Cannot change suppliers easily Requirements for JIT II to create opportunities for win-win • Fair prices • Commitment Communication • Transparency Increasing competition leads to greater focus on core competencies and process efficiencies • JIT is about having lean manufacturing processes to reduce waste • JIT II is about reducing waste with suppliers and distributors Benefits of JIT II include • Improve communication across firm boundaries • Reducing rework • Reducing duplication • Offload work to any other resource that can handle it (e. g. cross training, task Real Just-In-Time delivery (less inventory in the supply chain) • Increased involvement in the buyer-supplier relationship results in better products/services for the customer Conditions for JIT II to work Sufficient volume and transactions to generate cost savings • Supplier has good engineering capabilities to improve overall product/service • Supplier does not provide core technologies for the buyer • TRUST…. How to build trust? o Common goal, open communication, and commitment ----------------------- Prob(D< i) -c C = c - s ith unit demanded Prob(D ? i) Salvage Value ith unit not demanded Revenue Value = revenue – salvage Work in Progress PUSH PULL No Inventory Control Inventory Control Finished Goods Inventory???????????? Build-To-Forecast Build-To-Order FGI >> 0 FGI ~0 Capability Analysis Conformance Analysis Eliminate Assignable Cause Investigate for Assignable Cause
