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Operations Management (ME-601)
UNIT 2,3
Prof. S. N. Varma
Ref.
Stevenson WJ; Operations Management; TMH
Hopp WJ and Spearman ML; Factory Physics; McGraw-Hill
Chary SN; Production and OM; TMH
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Learning Objectives
Explain PLCM, sharing of Product Data across SC
Explain importance of product and service design.
Identify main objectives of product, service design.
Discuss the importance of standardization. Discuss the importance of environmental issues.
Briefly describe the phases in product development.
Describe some of the main sources of design ideas.
Name several key issues in design for manufacturing. Name the phases and key issues in service design.
List the characteristics of well-designed service systems.
Name some of the challenges of service design.
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Computer-Aided Design, Engg., mfg. and PLM
Computer-Aided Design, Engg., Mfg., ResourcePlanning and Product Data(CAD, CAE, CIM, ERP,PDM) are components which help overall ProductLifecycle Management (PLM) mainly within anorganization.
Support concurrent collaborative design
increases productivity of designers, 3 to 10 times
create database for product specifications and mfg.
provides possibility of engineering and cost analysison proposed designs to optimize PLM.
SCM and CRM which include outsourcing and DRPare mainly inter organizational optimization function
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COMMUNICATION GAP IN DESIGNIt Happens due to communication lack, close room design
and transfer over the wall (Classical/ Concurrent Design)
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Concurrent Engineering
Concurrent engineeringis the bringing togetherof engineering design andmanufacturing personnelearly in the design phase.
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Life Cycles of Products or Services
Time
Introduction
Growth
Maturity
Saturation
Decline
D
emand/Re
venue
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Product Data Management
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PLC management
Product Life Cycle Management is a totalproduction system that tracks a product from
inception to disposal
PLM or PLC provides a framework to rediscover
the basic stages of product development,
1. Introduction. 2. Growth. 3. maturity. 4. decline
PLM is an IT tool (S/W) which provide facilities
for Product Data Mgt (PDM) and sharing thesedata with DFX (Design For X) concurrent design,
suppliers and all along the organizations
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More definition of PLM
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Advantages of PLM Info System
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Importance of more care at design
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Organizational pressures and drivers
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Organization Effectiveness & Efficiency
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Product Innovations to customer
delight (Kano Model)
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Input-PLM-xform-ERP-SCM-CRM-Output
Back and Front Engines
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IT Support
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Digitization of product
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Magnifying benefits of PLM
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PLM summary
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Reasons/ drivers and factors
in product designReasons/ Drivers for
product design
Economic
Social and demographicPolitical, liability, or legal
Competitive
Cost or availability
Technological
Major factors in
design strategy env.
Cost
Quality Time-to-market
Customer satisfaction
Competitive
advantage
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Product and service design or redesign should be
closely tied to an organizations strategy
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Objectives of Product Design
Main focus Customer satisfaction
Understand what the customer wants
Secondary focus
Function of product/service
Cost/profit
Quality
Appearance Ease of production/assembly/ dissembly
Ease of maintenance/service
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Evolution, innovation, invention
Evolution is a process of slow modification/ changes
over a long time horizon e.g. a pen, typing m/c, car
Innovations are new things generally driven by
technology and lead to customer delight. Sometimesthey replace and make old things obsolete. e.g.
electronic typewriter (computer-printer), laser printer,
surgical laser knife.
Invention are new things which provide newfunctionality. E.g. x-ray machine, IC engines
Discovery is exposing and highlighting existing
things. e.g. gravitational law
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Global Product Design
Virtual teams
Uses combined efforts of a team of designers
working in different countries
Provides a range of comparative advantagesover traditional teams such as:
Engaging the best human resources around the
world
Possibly operating on a 24-hr basis
Global customer needs assessment
Global design can increase marketability
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A. Design Phases1. Idea generation and Feasibility study
2. Preliminary design
3. Detailed designB. Production-Consumption phases
4. Planning for production
5. Planning for distribution6. Planning for consumption
7. Planning for retirement-disposal-recycle
Asimows Product Design steps/ phases
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Design for functionality
Design for form, structure and asthetics
Design for manufacturing (DFM)
Design for assembly (DFA)
Design for recycling (DFR)
RemanufacturingDesign for disassembly (DFD)
Robust design
Product design
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Phases in Product DevelopmentProcess
1. Idea generation2. Feasibility analysis
3. Product design/specifications
4.Process specifications
5. Prototype development
6. Design review
7. Market test
8. Product introduction
9. Follow-up evaluation
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Idea Generation
Ideas Competitor based
Supply chain based
Research based
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Reverse Engineering
Reverse engineeringis the
dismantling and inspecting
of a competitors product to discoverproduct improvements.
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Research & Development (R&D)
Organized efforts to increase scientificknowledge or product innovation & mayinvolve:
Basic Researchadvances knowledge
about a subject without near-termexpectations of commercial applications.
Applied Researchachieves commercialapplications.
Developmentconverts results of appliedresearch into commercial applications.
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Regulations & guidelinesLegal regulations
Product Liability -A manufacturer is liable for anyinjuries or damages caused by a faulty product.
Uniform Commercial Code -Products carry an
implication of merchantability and fitness.Guidelines for designers
Produce designs consistent with the goals of company
Give customers the value they expect
Make health and safety a primary concern
Consider potential harm to the environment
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Other Issues in Design
Product/service life cyclesHow much standardization
Mass customization
Degree of newness
Cultural differences
Reliability (discussed with process design)
Robust design
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Three S
Simplification is a process to reduce unnecessarynumber of parts and variety
Standardization is a process to freeze the designor specifications to remove variations in something
and make all parts reproducible in conformity withone another. It is extent to which there is absence
of variety in a part, product, service or process.
Specialization is a process to concentrate on
limited number of product/ services to create corecompetency.
The three processes are linked together and develop
as a logical sequence.
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Advantages of Standardization
Fewer parts to deal with in inventory & manufacturing Design costs are generally lower
Reduced training costs and time
More routine purchasing, handling, and inspection
procedures
Quality is more consistent
Orders can be filled from inventory
Opportunities for long production runs and automation Need for fewer parts justifies increased expenditures
on perfecting designs and improving quality controlprocedures.
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Differentiation and Masscustomization is a strategy to
provide little differentiations andoptional features in the standard
main product or services e.g. color,
deluxe, LXi/ Vxi models
Differentiation and Mass Customization
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Modular Design
Modular designis a form of standardizationin which component parts are subdividedinto modules or sub assemlies that areeasily replaced or interchanged. It allows:
easier diagnosis and remedy of failures
easier repair and replacement
simplification of manufacturing andassembly
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Advantages of Modular design
Ex 1. If one car model has 1000 parts( More?) then
Five car models will have item inventory of 5* 1000=
5000 standard items for exchangeability.
Ex 2. Types of engines 3, gear drives 4, wheelbase 4
and body with doors bumpers 10. Total no of standard
items =21. But permutation of these standard items
can produce 3* 4* 4* 10=480 car models. Thus
modular design increase flexibility, standardization,
variety at the same time keeping lower volume and
type/ no of standard item inventories.
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Module/ Component Commonality
Multiple products or product families that have a highdegree of similarity can share components
Automakers using internal parts
Engines and transmissions Fuel injection and Water pumps
Wheel bases, braking systems
Other benefits
Reduced training for assemble and installation Reduced repair time and costs
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Degree of Newness
Modification/Expansion of existing product/service
Clone of a competitors product/service
New product/service
Type of DesignChange Newness to theorganization Newness to themarket
Modification Low Low
Expansion Low Low
Clone High Low
New High High
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Cultural Differences Multinational companies must take into account
cultural differences related to the product design and
more specifically in service design. Most of offerings
have a core product/ service and extended supply/
services, which may be called a service flower. The
core may be a global standard product but the petals
must satisfy the cultural likings.
Notable failures: Chevy Nova in Mexico
Ikea beds in U.S.
I i R li bili
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Improving Reliability
Component design Production/assembly techniques
Testing
Redundancy/backup
Preventive maintenance procedures
User education System design
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Robust Design: Design that results in productsor services that can function over a broad
range of conditions.
Robust Design
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Taguchi Loss Function Goalpost view of losses Losses are binary-yes/no
Taguchi Loss Function
Losses are continuous,
Continuous improve, kaizen, 6
L(y) = k (y-m)2
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Reje
ct,cons
tan
tloss
due
tore
jec
tion
Rejec
t,cons
tan
tloss
due
tore
jec
tion
Good parts,
no losses
Lower Spec Limit Upper spec Limit
LSL Nominal value, m USLPrime dimension, m y
Losses
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Taguchi Loss Function- Compared
Cost
TargetLowerspec
Upper
spec
Traditional
cost function
Taguchi
cost function
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Taguchi Approach to Robust Design
Design a robust product
Insensitive to environmental factors either inmanufacturing or in use.
Central feature is Parameter Design.
Determines:
factors that are controllable and those not controllable
their optimal levels relative to major product advances
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Manufacturability
Manufacturability is the ease of fabricationand/or assembly which is important for:
Cost
Productivity
Quality
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Designing for Manufacturing
Beyond the overall objective to achieve customersatisfaction while making a reasonable profit is:
Design for Manufacturing(DFM)
It is defined as the designers consideration of the
organizations manufacturing capabilities whendesigning a product.
The more general term design for operationsencompasses services as well as manufacturing
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Design for manufacturing DFM
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Blunt of serial engg. On manfg.
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Product cost and influence
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Alternative Production Processes
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Process Compatibility
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Production Processescapabilities
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Feedback for Concurrent Engg.
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Use of networking in feedback
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Use of rules in DFM
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General rules
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Though product design term encompasses quality
of structure and functionality, still special attentionto quality can enhance design for quality planning
QFD, Quality Function Deployment
Voice of the customer
House of quality
Design For Quality, DFQ and QFD
QFD: An approach that integrates the voice of the customer
into the product and service development process.
Cus
tomer
Requ
iremen
t DesignCharacteristic
House 1 House 2 House 3 House 4
Spec
ific
Componen
tsSpecificComponents
Des
ign
Charac
teris
tic Production
Process
Pro
duc
tion
Process
Quality Plan
The House of Quality
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The House of Quality
Correlation
matrix
Design
requirements
Customer
require-
ments
Competitive
assessment
Relationship
matrix
Specifications
or
target values
House of Quality Example
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Customer
Requirements
Easy to close
Stays open on a hill
Easy to open
Doesnt leak in rain
No road noise
Importance weighting
Engineering
Characteristics
Energyneeded
toclosedoor
Checkforceon
levelground
Energyneeded
toopendoor
Water
resistance
63 63 45 27 6 27
7
5
3
3
2
X
X
X
X
X
Correlation:Strong positive
Positive
NegativeStrong negative
X*
Competitive evaluation
X = We/ UsA = Competitor AB = Competitor B(5 is best)
1 2 3 4 5
X AB
X AB
XAB
A X B
X A B
Relationships:
Strong = 9
Medium = 3
Small = 1Target values
Reduceenergy
levelto7.5
ft/lb
Reduceforce
to9lb.
Reduceenergy
to7.5
ft/lb.
Maintain
currentlevel
Technical evaluation
(5 is best)
54321
B
A
X
BA
X B
A
X
B
X
A
BXABA
X
Doorseal
resistance
Accoust.
Trans.
Window
Maintain
currentlevel
Maintain
currentlevel
House of Quality Example
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Why DFE? Design For Environment
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Responsibility to future generation
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DFE Definition- Green Design
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Scan on responses to DFE
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Automobiles and environment
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Rules for DFE
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Environment and Materials
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Recycling
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Recycling: recovering materials for future use Recycling reasons
Cost savings
Environment concerns
Environment regulations
Recycling
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Materials Recycling
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Design for disassembly
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Costs and Benefits of Reuse, Recycle
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Remanufacturing
Remanufacturing: Refurbishing used products byreplacing worn-out or defective components.
Remanufactured products can be sold for 50% of the costof a new producr
Remanufacturing can use unskilled labor Some governments require manufacturers to take back
used products
Design for Disassembly (DFD): Designing products so
that they can be easily taken apart.
S i D i
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Service Design
Service is an act that is done to or for a customer Service delivery system
Facilities, processes, and skills needed for a service
Product bundle
Promised combination of goods and services. Service design involves
The physical resources needed
The goods purchased or consumed by the customer
Explicit services
Implicit services
S i Cl ifi ti
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Service Classification
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People Things
Ac
tions
Direc
ted
at
Intang
ible
Tang
ible
SERVICE DIRECTED AT
PEOPLES BODIES
Health/ Beauty Care,
Haircut
Passenger transportation
Gymnasium
Restaurants
SERVICE DIRECTED AT THINGS
Freight transport
Industrial maintenance
Janitorial services
Laundry
Landscape, lawn
Veterinary Care
SERVICEICE DIRECTED
AT PEOPLES MINDS
Education
BroadcastingInfo service
Theaters
Museums
SERVICE DIRECTED AT
INTANGIBLE ASSETS
Banking
Legal servicesAccounting
Securities
Insurance
Th i t i l
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The service triangleAll the services are customer centered, so service
strategy, system and peoples must align/ focus oncustomers
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Service Strategy
Service System Service People
Customer
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Challenges of Service Design
1. Variable requirements2. Difficult to describe
3. High customer contact
4. Service customer encounter
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Service Demand Variability
Demand variability creates waiting lines, idle serviceresources. Customer waiting costs and idle resource
costs must be optimized. Plan buffer capacities.
Service registration, queuing order and appointments
are to be used to reduce customer waiting time.
Differential costing at peak hours can smooth demand
Customer participation makes quality and demand
variability hard to manageAttempts to achieve high efficiency may depersonalize
service and change customers perception of quality
Ph i S i D i
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Phases in Service Design
1.Conceptualize2.Identify service package components
3.Determine performance specifications
4.Translate performance specifications into design
specifications
5.Translate design specifications into delivery
specifications
Ser ice Bl eprinting
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Service Blueprinting
Service blueprinting is a method used in servicedesign to describe and analyze a proposed service
A tool for conceptualizing a service delivery system
Major steps in service blue printing
1. Establish boundaries
2. Identify sequence of customer interactions
Prepare a flowchart
3. Develop time estimates4. Identify potential failure points
Characteristics of Well Designed
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Characteristics of Well DesignedService Systems
1. Consistent with the organization mission2. User friendly
3. Robust
4. Easy to sustain5. Cost effective
6. Value to customers
7. Effective linkages between back operations8. Single unifying theme
9. Ensure reliability and high quality
G id li f S f l S i D i
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Guidelines for Successful Service Design
1. Define the service package
2. Focus on customers perspective
3. Consider image of the service package
4. Recognize that designers perspective is different
from the customers perspective5. Make sure that managers are involved
6. Define quality for tangible and intangibles
7. Make sure that recruitment, training and rewards
are consistent with service expectations8. Establish procedures to handle exceptions
9. Establish systems to monitor service
Service Operations Strategy
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1. Increase emphasis on component commonality
2. Package products and services3. Use multiple-use platforms
4. Consider tactics for mass customization
5. Look for continual improvement
6. Shorten time to market
Use standardized components
Use technology
Use concurrent engineering
p gy
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Quality of service- Valeries Gaps
This model identify various Gaps in service to take care
G1: Perception gape btwn mgt and customers expectn
G2: Specification gap between mgt perception and
service specificationsG3:Service performance gap btwn specs and delivery
G4: Communication gap between mgt and customers
G5: Overall gap between customer expectations and
the perception of the received services
These gaps are depicted in figure
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V l i M d l f i lit
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Valeries Model of service quality
--------------------------------------------------------------------------------------------------------
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Personal needs
Expected Service
Perceived Service
Service Delivery with
Pre/post contacts
Mgt perception of
consumer expectations
Word of mouthcommunications
Past Experience
External
communication
s to consumer
Translate mgt perceptionto service specifications
Markete
r
Consumer
GAP 1GAP 3
GAP 2
GAP 5
GAP
4
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Unit 3
Process strategy and selection
decisions
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Transformation
Processes
Inputs Output Product/ services
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Learning Objectives
Explain the strategic importance of process selection
Explain the influence that process selection has on
an organization.
Describe the basic processing types. Discuss automated approaches to processing.
Explain the need for management of technology.
Describe the basic product, process and cellular
layouts.
Introduction
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Process selection involve deciding on the way
production of goods or services will be organized
Process selection is based on
Cost of equipments, technology
Quality, tolerances required Flexibility of equipment and layouts
Major implications
Capacity planning
Layout of facilities Equipment
Design of work systems
S t D i P S l ti
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Forecasting
Product and
Service Design
Technological
Change
Capacity
Planning
Process
Selection
Facilities and
Equipment
Layout
Work
Design
System Design-Process Selection
Process Strategy
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Key aspects of process strategy Capital intensive equipment/labor
Process flexibility
Technology
Adjust to changes
Design
Volume
technology
Process Strategy
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Technology
Technology: The application of scientific discoveries
to the development and improvement of products
and services and operations processes.
Technology innovation: The discovery anddevelopment of new or improved products, services,
or processes for producing or providing them.
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Kinds of Technology
Operations management is primarily concerned withthree kinds of technology:
Product and service technology
Process technology
Information technology
All three have a major impact on:
Costs
Productivity
Competitiveness
C
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Technology Competitive Advantage
Innovations in Products and services
Cell phones
PDAs
Wireless computing Processing technology
Increasing productivity
Increasing quality
Lowering costs
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Basic Product-Process matrix
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One of a
Kind Low
Volume
Multiple
Products
Moderate
Volumes
Few Major
Products
High
Volume
Commodity
Products
Project
Job Shop
Batch
Line/ Mass Pr
Continuous
Flow
Very Poor Fit
(Unskilled)
Very Poor Fit
(Genius)
Low ----------------VOLUME----------------- High
High--------Time between parts-------------- Low
Jumbled--Flow smoothness---------------- Smooth
Low--
VAR
IETY(parts
)--
High
Low--
Proc
ess
Flex
ibility-
High
High--
Sta
ndard
iza
tion---
Low
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Basic Plant Layouts
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BasicProcesses
Layout Examples
Continuous Flow
Production (Fluid)
Product piping Refinery, Sugar
Commodities
Mass Production Product Layout, Connected
mechanized material
transfer, assembly lines
Automobile, TV,
Packed Food
Batch Production Mixed Flow, Cellular Layout,
Disconnected lines,
Watches, Drilling Rigs
Job-shop Prod.,Jumbled Flow
Process Layout Tools,
Project work,
Jumbled Flow
Site work layout Dams, Ships, Houses
Reliability
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y
Reliability: The ability of a product, part, orsystem to perform its intended function under a
prescribed set of conditions
Failure: Situation in which a product, part, orsystem does not perform as intended
Normal operating conditions: The set of
conditions under which an items reliability is
specified
R li bilit 4 i l t
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Reliability - 4 main elements
1. Reliability is expressed as Probability - number
of times that an event occurs (success) divided
by total number trials
2. Satisfactory performance criteria of what is
considered to be satisfactory system operation
3. Specified timeReliability always have reference to
time, a measure against which degree of system
performance can be related
4. Specified operating conditions expect a system to
function at specified environmental factors like
humidity, vibration, shock, temperature cycle,
operational profile, etc.
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The bath tub curve
21-Feb-12 Prof. S.N. Varma 98
EARLY LIFE
(burn-in or
break-in orinfant mortality
or teething
period)
(failure rate
decreases with time)
USEFUL LIFE
(or normal life)
(failure rate approx. const)
WEAROUT LIFE
(failure rate
increases withtime)
TIME
Fa
ilure
Ra
te
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Debugging (Infant mortality) Phase
rapid decrease in failure rate
Weibull distribution with shape parameter< 1 is used to describe the occurrences offailure
Usually covered by warranty period
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Chance failure phase
Constant failure rate failure occur in random
manner
Exponential and also Weibull with =1 can be
used to describe this phase
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Wear-out phase
Sharp rise in failure rate fatigue, corrosion (old
age)
Normal distribution is one that best describes this
phase
Also can use Weibull with shape parameter > 1
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Measures of Maintainability
MTBM mean time between maintenance,
include preventive and corrective maintenance
MTBR mean time between replacement,generate spare part requirement
- mean active maintenance time
ct mean corrective maintenance time or mean
time to repair
pt mean preventive maintenance time
M
M
M
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Frequency of maintenance for a given time is highly
dependent on the reliability of that item
Reliability frequency of maintenance
Unreliable system require extensive maintenance
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Reliability function [R(t)]
R(t) = 1 F(t)
F(t) = probability of a system will fail by time (t) =
failure distribution function
Eg. If probability of failure F(t) is 20%, thenreliability at time t is
R(t) = 1 0.20 = 0.80 or 80%
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Reliability at time (t)
R(t) = e-t/
e = 2.7183
= MTBF
= failure rate
So,
R(t) = e-t
1
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Failure Rate ()
Rate at which failure occur in a specified timeinterval
Can be expected in terms of failures per hour, %of failure per 1,000 hours or failures per millionhours
= number of failures
total operating hours
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Example 1
10 components were tested. The components (notrepairable) failed as follows:
Component 1 failed after 75 ours
Component 2 failed after 125 hoursComponent 3 failed after 130 hours
Component 4 failed after 325 hours
Component 5 failed after 525 hours
Determine the MTBF
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Solution:
Five failures, operating time = 3805 hours
75
125
130
325525
5 x 525
S l ti
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Solution
= 5 / 3805 = 0.001314
l
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Example 2
20.2 6.1 7.1 24.4 4.2 35.3 1.8 46.7
Operating time Down time
2.5
a) Determine the MTBF.
Solution:
Total operating time = 20.2 + 6.1 + 24.4 + 4.2 + 35.3 + 46.7
= 136.9 hours
The chart below shows operating time and breakdown time of a machine.
S l ti
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Solution
= 4 / 136.9 = 0.02922
Therefore;
= MTBF = 1/ = 34.22 hours
b) What is the system reliability for a mission time of 20hours?
R = e-t t = 20 hours
R= e-(0.02922)(20)
R = 55.74%
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Reliability Component Relationship
Application in series network, parallel and
combination of both
S i N t k
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Series Network
Most commonly used and the simplest to analyze
A B CInput Output
All components must operate if the system is to function properly.
R = RA x RB x RC
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If the series is expected to operate for a specified
time period, then
Rs (t) =
tne)...(
321
E l
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Example
Systems expected to operate for 1000 hours. Itconsists of 4 subsystems in series, MTBFA =6000 hours, MTBFB = 4500 hours, MTBFC =
10,500 hours, MTBFD = 3200 hours. Determineoverall reliability.
A = 1 /MTBFA = 1/6000 = 0.000167
B = 1/MTBFB = 1/4500 = 0.000222
C = 1/MTBFC = 1/10500 = 0.000095 D = 1/MTBFD = 1/3200 = 0.000313
Therefore; R = e-(0.000797)(1000) = 0.4507
P ll l N t k
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Parallel Network
A number of the same components must fail order to
cause total system failure
A
B
C
E l
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Example
Consider two units A and B in parallel. The systems
fails only when A and B failed.
A
B
Fs(t) = Fa(t) Fb(t)
= [1-Ra(t)][1-Rb(t)]
= 1-Ra(t)- Rb(t) + Ra(t) Rb(t)
Rs(t) = 1- Fs(t)
= Ra(t) + Rb(t)Ra(t) Rb(t)
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If A and B are constant failure rate units, then:
Ra(t) = Rb(t) =
tae
tbe
And Rs(t) =
baba
s dttR
111)(
0
s = MTBF
C id 3 t i ll l
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Consider 3 components in parallel
Rs = 1 Fs
Fa = 1- Ra Fb = 1- Rb Fc = 1- Rc
Rs = 1 (1-Ra)(1-Rb)(1-Rc)
If componentsA, B and C are identical, then
the reliability,
Rs = 1 (1 R)3
For a system with n identical components,Rs=1- (1-R)
n
A
B
C
C bi d i ll l t k
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Combined series parallel network
A
B
C
Rs
= RA
[RB+R
C-R
BR
C]
C bi d i ll l t k
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Combined series parallel network
A
B
C
D
Rs = [1-(1-RA)(1-RB)][1-(1-RC)(1-RD)]
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Combined series parallel network
A
B
C
D
E
F
Rs=[1-(1-RA)(1-RB)(1-RC)][RD] x [RE+RF-(RE)(RF)]
C bi d i ll l t k
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Combined series parallel network
For combined series-parallel network, first evaluate
the parallel elements to obtain unit reliability
Overall system reliability is determined by finding the
product of all series reliability
Improving Reliability
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Component design
Production/assembly techniques
Testing
Redundancy/backup Preventive maintenance procedures
User education
System design
Product and Process Profiling
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Product and Process Profiling Process selection can involve substantial
investment in Equipment
Layout of facilities
Product profiling: Linking key product or service
requirements to process capabilities
Key dimensions
Range of products or services
Expected order sizes Pricing strategies
Expected schedule changes
Order winning requirements
Automation
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Automation: Machinery that has sensing and control
devices that enables it to operate Fixed automation
Programmable automation
Automation
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Computer-aided design and
manufacturing systems (CAD/CAM)
Numerically controlled (NC) machines
Robot
Manufacturing cell
Flexible manufacturing systems(FMS)
Computer-integrated manufacturing (CIM)
Value, Value analysis, Value Engg
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Value, Value analysis, Value Engg The value is what customers are demanding- the right
combination of product quality, fair price and services. Value is ultimately defined by the customer
Traits: speed, cost, quality and flexibility
Value = performance / cost
Performance = quality + speed + f lexibility
Offer products that perform Give more than the customer expects
Give guarantees
Avoid unreasonable pricing
Give the customer the facts
Build relationship
Value Chain Analysis
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y
Def. A systematic approach to lower cost keeping same/
better level of performance w.r.t. function and quality
A study of the relationship of design, function and cost of
product, material or service with objective to reduce cost
Value Chain analysis was correlated to competitiveIntelligence (CI) by Michael Porter (1995)
It can:
Increase your competitiveness
Reduce your costs Improve your market share
Bottom Line - improve overall rofitability!
B i P id
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Business Pyramid
Business/ Market
Intelligence
Competitor
Analysis
Competitive
Intelligence
Individual Competitor
Profile
Assimilates all
Competitive Intelligence
Broad environmental
scanning, market researchand analysis
M k t I t lli / CI
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Market Intelligence v/s CI
Market Intelligence: Tells a company about its environment
Supply and demand for its products
Drivers that influence demand
Who the buyers and suppliers are Overall economic outlook for the product
Competitive Intelligence:
Helps a company understand what itscompetitive position is in a specific
market weaknesses and strengths
Competitive Intelligence what is it?
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Competitive Intelligence what is it?
Competitive Intelligence is: Information about opportunities and threats
Information which makes companies and
local industries more competitive
Forecasting of changes about the economicenvironment
Actionable recommendations from analysis
of the environment
It is the total knowledge, gathered by an
organization in ethical manner,
about the environment in which it competes
Different tools and techniques
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Different tools and techniques
Five basic tools : Strategic Analysis
Product-oriented Analysis
Behavioral Analysis Financial Analysis
Customer Oriented Analysis
Value Chain Analysis
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Three tiers of Value Chain Analysis
Internal Cost Analysis: A firm or a sector
needs to understand its own value chain in
order to compare to its competitors
Internal Differentiation Analysis:A firm or asector then needs to identify the processes
that distinguish its products or services from
that of its competitors
Vertical Linkage Analysis
Vertical Linkage Analysis
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Vertical Linkage Analysis
gaining and sustaining a competitive advantagerequires that a firm understand the entire valuedelivery system, not just the portion of the valuechain in which it participates. Suppliers and
customers and suppliers suppliers and customerscustomers have profit margins that are important toidentify in understanding a firms cost/differentiationpositioning, because the end-use customersultimately pay for all the profit margins along theentire value chain.
Shank and Govindarajan (1993)
H fi V l Ch i A l i
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How a firm can use Value Chain Analysis
Three useful strategic frameworks have been
identified for value chain analysis:\
Industry Structure Analysis
Core Competencies Segmentation Analysis
Value Chain analysis can show
opportunities for participants within thechain that can have an immediate
effect on your costs
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Managementof Quality
Learning Objectives
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Learning Objectives
Define the term quality.
Explain why quality is important and the
consequences of poor quality.
Identify the determinants of quality.
Describe the costs associated with quality.
Describe the quality awards.
Learning Objectives
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9-140
Learning Objectives
Discuss the philosophies of quality gurus.
Describe TQM.
Give an overview of problem solving.
Give an overview of process improvement.
Describe and use various quality tools.
Quality Management
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What does the term qualitymean? Qualityis the ability of a product or service to
consistently meet or exceed customer
expectations.
Evolution of Quality Management
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y g 1924 - Statistical process control charts
1930 - Tables for acceptance sampling
1940s - Statistical sampling techniques
1950s - Quality assurance/TQC
1960s - Zero defects 1970s - Quality assurance in services
Quality Assurance vs. Strategic Approach
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Quality Assurance
Emphasis on finding and correcting defects beforereaching market
Strategic Approach
Proactive, focusing on preventing mistakes from
occurring
Greater emphasis on customer satisfaction
The Quality Gurus
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The Quality Gurus Walter Shewhart
Father of statistical quality control
W. Edwards Deming
Joseph M. Juran
Armand Feignbaum Philip B. Crosby
Kaoru Ishikawa
Genichi Taguchi
Key Contributors to QualityManagementTable 9.2
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gContributor
Deming
Juran
Feignbaum
Crosby
Ishikawa
Taguchi
Ohno andShingo
Known for
14 points; special & common causes ofvariation
Quality is fitness for use; quality trilogy
Quality is a total field
Quality is free; zero defects
Cause-and effect diagrams; qualitycircles
Taguchi loss function
Continuous improvenmentQuality
Deming Funnel Experiment:Strategies
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Strategies
Strategy 1: Do not react to this randomvariation and do not move the funnel
Strategy 2: Measure the distance fromthe marbles resting place to the bulls-eyeMove the funnel and equal distance,but in the opposite direction
Deming Funnel Experiment:
Strategies
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Strategies
Strategy 3: Measure the distancefrom the marbles resting place to the
bulls-eyeMove the funnel this distance, in theopposite direction, starting at the
bulls-eye
Deming Funnel Experiment
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g p
Figure 12.5(a)
Marble
Target paperwith bulls eye
FunnelApparatus
Rules of the Nelson Funnel Experiment
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Rules of the Nelson Funnel Experiment
Rule 1. Leave the funnel aloneRule 2. Move the funnel from wherever it is at in
an equal but opposite direction from wherethe marble landed in relation to the target
Rule 3. Move the funnel back to its rest positionbefore moving it in an equal but oppositedirection from where the marble landed inrelation to the target
Rule 4. Move the funnel over the last position of
where the marble landedSolution: Move the funnel nearer to the target.
This reduces variation
55
60
55
60RULE 1
RULE 2
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40
45
50
55
0 5 10 15 20 25
40
45
50
55
0 5 10 15 20 25
40
45
50
55
60
0 5 10 15 20 25
40
45
50
55
60
0 5 10 15 20 25
RULE 3RULE 4
Sequence
Sequence Sequence
Sequence
SIDE-BY-SIDE COMPARISON OF WALTERS RESULTS
Deming Funnel Experiment
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g p
Figure 12.5(b)
CONTROL STRATEGY 1
4.0
0.0
-4.0
Y
| | | | |
-5.0 -2.5 0.0 2.5 5.0X
Deming Funnel Experiment
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g p
Figure 12.5(c)
CONTROL STRATEGY 2
4.0
0.0
-4.0
Y
| | | | |
-5.0 -2.5 0.0 2.5 5.0X
Deming Funnel Experiment
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g p
Figure 12.5(d)
CONTROL STRATEGY 3
4.0
0.0
-4.0
Y
| | | | |
-30 -15 0 15 30X
Dimensions of Quality
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Performance- main characteristics of theproduct/service
Aesthetics- appearance, feel, smell, taste
Special Features- extra characteristics
Conformance- how well product/service conformsto customers expectations
Reliability- consistency of performance
Dimensions of Quality (Contd)
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Durability- useful life of the product/service Perceived Quality -indirect evaluation of
quality (e.g. reputation)
Serviceability - service after sale
Examples of Quality Dimensions
Di i (P d t) (S i )
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Dimension
1. Performance
2. Aesthetics
3. Special features
(Product)
AutomobileEverything works, fit &finishRide, handling, grade of
materials usedInterior design, soft touch
Gauge/control placementCellular phone, CD
player
(Service)
Auto RepairAll work done, at agreedpriceFriendliness, courtesy,
Competency, quicknessClean work/waiting area
Location, call when readyComputer diagnostics
Examples of Quality Dimensions(Contd)
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Dimension
5. Reliability
6. Durability
7. Perceived
quality
8. Serviceability
(Product)
AutomobileInfrequency of breakdowns
Useful life in miles, resistanceto rust & corrosion
Top-rated car
Handling ofcomplaints and/orrequests for information
(Service)
Auto RepairWork done correctly,ready when promised
Work holds up overtime
Award-winning service
department
Handling of complaints
Service Quality
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Convenience
Reliability
Responsiveness
Time
Assurance
Courtesy
Tangibles
Examples of Service QualityTable 9.4
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Dimension Examples
1. Convenience Was the service center conveniently located?
2. Reliability Was the problem fixed?
3. Responsiveness Were customer service personnel willing and
able to answer questions?
4. Time How long did the customer wait?
5. Assurance Did the customer service personnel seem
knowledgeable about the repair?
6. Courtesy Were customer service personnel and the
cashierfriendly and courteous?
7. Tangibles Were the facilities clean, personnel neat?
Challenges with Service Quality
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g y
Customer expectations often change
Different customers have different expectations
Each customer contact is a moment of truth
Customer participation can affect perception ofquality
Fail-safing must be designed into the system
Determinants of Quality
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Service
Ease of
use
Conforms
to design
Design
Determinants of Quality (contd)
Q lit f d i
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Quality of design
Intension of designers to include or excludefeatures in a product or service
Quality of conformance
The degree to which goods or services conform to
the intent of the designers
The Consequences of Poor Quality
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Loss of business
Liability
Productivity
Costs
Responsibility for Quality
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Top management Design
Procurement
Production/operations
Quality assurance Packaging and shipping
Marketing and sales
Customer service
Costs of Quality
F il C t t i d b d f ti
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Failure Costs - costs incurred by defective
parts/products or faulty services.
Internal Failure Costs
Costs incurred to fix problems that are detected
before the product/service is delivered to thecustomer.
External Failure Costs
All costs incurred to fix problems that aredetected after the product/service is delivered tothe customer.
Costs of Quality (continued)
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Appraisal Costs Costs of activities designed to ensure quality or
uncover defects
Prevention Costs
All TQ training, TQ planning, customerassessment, process control, and qualityimprovement costs to prevent defects fromoccurring
Ethics and Quality
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Substandard work
Defective products
Substandard service
Poor designs
Shoddy workmanship Substandard parts and materials
Having knowledge of this and failing to correctand report it in a timely manner is unethical.
Quality Awards
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Baldrige Award
Deming Prize
Malcolm Baldrige National QualityAward
1 0 L d hi
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1.0 Leadership (125 points)
2.0 Strategic Planning (85 points)
3.0 Customer and Market Focus (85 points)
4.0 Information and Analysis (85 points)
5.0 Human Resource Focus (85 points)
6.0 Process Management (85 points)
7.0 Business Results (450 points)
Benefits of Baldrige Competition Financial success
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Financial success
Winners share their knowledge The process motivates employees
The process provides a well-designed quality
system
The process requires obtaining data
The process provides feedback
European Quality Award Prizes intended to identify role models
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Prizes intended to identify role models
Leadership Customer focus
Corporate social responsibility
People development and involvement
Results orientation
The Deming Prize
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Honoring W. Edwards Deming
Japans highly coveted award
Main focus on statistical quality control
Quality Certification ISO 9000
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ISO 9000
Set of international standards on qualitymanagement and quality assurance, critical to
international business
ISO 14000
A set of international standards for assessing a
companys environmental performance
ISO 9000 Standards
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Requirements
System requirements
Management
Resource
Realization
Remedial
ISO 9000 Quality ManagementPrinciples
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Customer focus Leadership
People involvement
Process approach
A systems approach to management
Continual improvement
Factual approach to decision making
Mutually beneficial supplier relationships
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ISO 14000
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Management systems
Systems development and integration ofenvironmental responsibilities into businessplanning
Operations
Consumption of natural resources and energy
Environmental systems
Measuring, assessing and managing emissions,effluents, and other waste
Total Quality ManagementA philosophy that involves everyone in an
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A philosophy that involves everyone in an
organization in a continual effort to improve qualityand achieve customer satisfaction.
T Q M
The TQM Approach
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1.Find out what the customer wants
2.Design a product or service that meets or
exceeds customer wants
3.Design processes that facilitates doing the job
right the first time4.Keep track of results
5.Extend these concepts to suppliers
Elements of TQM
1 Continual improvement
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1. Continual improvement
2. Competitive benchmarking3. Employee empowerment
4. Team approach
5. Decisions based on facts
6. Knowledge of tools
7. Supplier quality
8. Champion
9.Quality at the source10. Suppliers
Continuous Improvement
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Philosophy that seeks to make never-ending improvements to the process ofconverting inputs into outputs.
Kaizen: Japanese
word for continuousimprovement.
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Six Sigma
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Statistically
Having no more than 3.4 defects per million
Conceptually
Program designed to reduce defects
Requires the use of certain tools and techniques
Six sigma: A business process for improving
quality, reducing costs, and increasing
customer satisfaction.
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Six Sigma Management
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Providing strong leadership
Defining performance metrics
Selecting projects likely to succeed
Selecting and training appropriate people
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Six Sigma Team
Top management
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op a age e t
Program champions Master black belts
Black belts
Green belts
Six Sigma Process
Define
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MeasureAnalyze
Improve
ControlDMAIC
Obstacles to Implementing TQM
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Lack of:
Company-wide definition of quality
Strategic plan for change
Customer focus
Real employee empowerment
Strong motivation
Time to devote to quality initiatives
Leadership
P i t i ti l i ti
Obstacles to Implementing TQM
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Poor inter-organizational communication
View of quality as a quick fix
Emphasis on short-term financial results
Internal political and turf wars
Criticisms of TQM
1. Blind pursuit of TQM programs
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p p g
2. Programs may not be linked to strategies3. Quality-related decisions may not be tied to market
performance
4. Failure to carefully plan a program
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The PDSA CyclePlan
Figure 9.2
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Do
Study
Act
The Process Improvement CycleSelect aprocess
Figure. 9.3
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Implement theImproved process
process
Study/document
Seek ways toImprove it
Design anImproved process
Evaluate
Document
Process Improvement: A systematic approach to
Process Improvement
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Process Improvement: A systematic approach to
improving a process
Process mapping
Analyze the process
Redesign the process
Process Improvement and Tools
Process improvement - a systematic approach toimproving a process
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improving a process
Process mapping
Analyze the process
Redesign the process
Tools There are a number of tools that can be used for
problem solving and process improvement
Tools aid in data collection and interpretation, and
provide the basis for decision making
Basic Quality Tools
Fl h t
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Flowcharts
Check sheets
Histograms
Pareto Charts
Scatter diagrams
Control charts
Cause-and-effect diagrams
Run charts
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Pareto Analysis80% of the
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problemsmay be
attributed to
20% of the
causes.
Smeared
Numberof
defects
Off
center
Missing
label
Loose Other
Control ChartFigure 9.11
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9-200
970
980
990
1000
10101020
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
UCL
LCL
Cause-and-Effect DiagramFigure 9.12
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Effect
MaterialsMethods
EquipmentPeople
Environment
Cause
Cause
Cause
Cause
Cause
CauseCause
Cause
CauseCause
Cause
Cause
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Tracking ImprovementsUCL
Figure 9-18
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UCL
LCL
LCL
LCL
UCLUCL
Process not centeredand not stable
Process centeredand stable
Additional improvementsmade to the process
Methods for Generating Ideas
Brainstorming
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Brainstorming
Quality circles
Interviewing
Benchmarking 5W2H
Team approach
Quality Circles
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Team approach
List reduction
Balance sheet
Paired comparisons
Identify a critical process that needs improving
Benchmarking Process
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Identify a critical process that needs improving
Identify an organization that excels in this
process
Contact that organization
Analyze the data Improve the critical process
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Quality Control
Learning Objectives
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List and briefly explain the elements of the control
process.
Explain how control charts are used to monitor a
process, and the concepts that underlie their use. Use and interpret control charts.
Use run tests to check for nonrandomness in
process output.
Assess process capability.
Phases of Quality AssuranceFigure 10.1
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Acceptancesampling Processcontrol Continuousimprovement
Inspection of lotsbefore/afterproduction
Inspection andcorrective
action duringproduction
Quality builtinto theprocess
The leastprogressive
The mostprogressive
Inspection
How Much/How Often
Figure 10.2
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How Much/How Often
Where/When
Centralized vs. On-site
Inputs Transformation Outputs
Acceptancesampling
Processcontrol
Acceptancesampling
Inspection CostsFigure 10.3
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Cost
OptimalAmount of Inspection
Cost ofinspection
Cost ofpassing
defectives
Total Cost
Where to Inspect in the Process
Raw materials and purchased parts
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Raw materials and purchased parts
Finished products
Before a costly operation
Before an irreversible process Before a covering process
Examples of Inspection Points
Type of Inspection Characteristics
Table 10.1
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yp
business
p
pointsFast Food Cashier
Counter area
Eating area
BuildingKitchen
Accuracy
Appearance, productivity
Cleanliness
AppearanceHealth regulations
Hotel/motel Parking lot
Accounting
BuildingMain desk
Safe, well lighted
Accuracy, timeliness
Appearance, safetyWaiting times
Su ermarket Cashiers
Deliveries
Accuracy, courtesy
Quality, quantity
Statistical Process Control:
Statistical Control
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Statistical Process Control:
Statistical evaluation of the output of aprocess during production
Quality of Conformance:
A product or service conforms to specifications
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Control ChartFigure 10.4
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0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
UCL
LCL
Sample number
Mean
Out ofcontrol
Normal variationdue to chance
Abnormal variationdue to assignable sources
Abnormal variationdue to assignable sources
Statistical Process Control The essence of statistical process control is to
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assure that the output of a process is random sothat future outputwill be random.
Statistical Process Control
The Control Process
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Define
Measure
Compare
Evaluate Correct
Monitor results
Statistical Process Control
Variations and Control
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Random variation: Natural variations in the outputof a process, created by countless minor factors
Assignable variation: A variation whose source canbe identified
Sampling DistributionSampling
Figure 10.5
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p g
distribution
Processdistribution
Mean
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Control LimitsSamplingdistribution
Figure 10.7
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Processdistribution
Mean
Lower
controllimit
Upper
controllimit
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Type I and Type II ErrorsTable 10.2
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In control Out of control
In control No Error Type I error
(producers risk)
Out ofcontrol
Type II Error
(consumers risk)
No error
Type I ErrorFigure 10.8
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Mean
LCL UCL
/2 /2
Probabilityof Type I error
Observations from Sample DistributionUCL
Figure 10.9
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Sample number
LCL
1 2 3 4
Control Charts for Variables
Variables generate data that are measured.
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Mean control charts
Used to monitor the central tendency of a process.
X bar charts
Range control charts
Used to monitor the process dispersion
R charts
Mean and Range ChartsFigure 10.10A
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UCL
LCL
UCL
LCL
R-chart
x-Chart Detects shift
Does notdetect shift
(process mean isshifting upward)Sampling
Distribution
Mean and Range ChartsFigure 10.10B
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x-Chart
UCL
Does notreveal increase
UCL
LCL
LCL
R-chart Reveals increase
(process variability is increasing)Sampling
Distribution
Control Chart for Attributes
p-Chart - Control chart used to monitor the
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proportion of defectives in a process
c-Chart - Control chart used to monitor the
number of defects per unit
Attributes generate data that are counted.
Use of p-Charts
When observations can be placed into two
Table 10.4
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categories.
Good or bad
Pass or fail
Operate or dont operate When the data consists of multiple samples of
several observations each
Use of c-Charts
Use only when the number of occurrences per unit
Table 10.4
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y p
of measure can be counted; non-occurrences
cannot be counted.
Scratches, chips, dents, or errors per item
Cracks or faults per unit of distance Breaks or Tears per unit of area
Bacteria or pollutants per unit of volume
Calls, complaints, failures per unit of time
Use of Control ChartsAt what point in the process to use control charts
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What size samples to take
What type of control chart to use
Variables
Attributes
Run Tests Run test a test for randomness
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Any sort of pattern in the data would suggest anon-random process
All points are within the control limits - the process
may not be random
Nonrandom Patterns in Control charts Trend
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Cycles Bias
Mean shift
Too much dispersion
Counting Above/Below Median Runs (7 runs)Figure 10.12
Counting Runs
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Counting Up/Down Runs (8 runs)
U U D U D U D U U D
B A A B A B B B A A B
Figure 10.13
NonRandom Variation
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Managers should have response plans to investigatecause
May be false alarm (Type I error)
May be assignable variation
Tolerances or specifications
Process Capability
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Range of acceptable values established byengineering design or customer requirements
Process variability
Natural variability in a process
Process capability
Process variability relative to specification
Process Capability
LowerSpecification
UpperSpecification
Figure 10.15
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A. Process variabilitymatches specifications
LowerSpecification
UpperSpecification
B. Process variabilitywell within specifications
LowerSpecification
UpperSpecification
C. Process variabilityexceeds specifications
Process Capability Ratio
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Process capability ratio, Cp =specification width
process width
Upper specificationlower specification
6Cp =
3X-UTLor
3LTLXmin=Cpk
If the process is centered use Cp
If the process is not centered use Cpk
Limitations of Capability Indexes1. Process may not be stable
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2. Process output may not be normally distributed
3. Process not centered but Cp is used
Example 8Standard Machine
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Machine Deviation Capability CpA 0.13 0.78 0.80/0.78 = 1.03
B 0.08 0.48 0.80/0.48 = 1.67
C 0.16 0.96 0.80/0.96 = 0.83
Cp > 1.33 is desirable
Cp = 1.00 process is barely capableCp < 1.00 process is not capable
Lower
specification
Upper
specification
3 Sigma and 6 Sigma Quality
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Process
mean
1350 ppm 1350 ppm
1.7 ppm 1.7 ppm
+/- 3 Sigma
+/- 6 Sigma
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AcceptanceSampling
Learning Objectives
E l i th f t li
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Explain the purpose of acceptance sampling
Contrast acceptance sampling and process control
Compare and contrast single- and multiple-sampling
plans Determine the average outgoing quality of inspected
lots
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Acceptance Sampling
A t S li t f l h
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Acceptance Sampling most useful when
A large number of items must be processed in a short
time
The cost consequences of passing defects are low
Destructive testing is required
Fatigue or boredom leads to inspection errors
Operating Characteristic Curve
O ti Ch t i ti (OC) C P b bilit
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Operating Characteristic (OC) Curve: Probabilitycurve that shows the probabilities of accepting
lots with various fractions defective.
Typical OC Curve0 9
1
lot
Figure 10S.1
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0
0.1
0.2
0.30.4
0.5
0.6
0.7
0.80.9
0 .05 .10 .15 .20 .25Probabilityo
faccepting
Lot quality (fraction defective)
3%
Decision Criteria1.00
lot
Ideal
Figure 10S.2
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0Probabilityo
faccepting
Lot quality (fraction defective)
Good Bad
Ideal
Not very
discriminating
Sampling Terms
Acceptance quality level (AQL): the percentageof defects at which consumers are willing to
t l t d
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accept lots as good
Lot tolerance percent defective (LTPD): the upperlimit on the percentage of defects that aconsumer is willing to accept
Consumers risk: the probability that a lotcontained defectives exceeding the LTPD willbe accepted
Producers risk: the probability that a lotcontaining the acceptable quality level will berejected
Consumers and Producers Risk
0 9
1
lot = .10
Figure 10S.3
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0
0.1
0.2
0.30.4
0.5
0.6
0.7
0.80.9
0 .05 .10 .15 .20 .25Probabilityo
faccepting
Lot quality (fraction defective)
= .10
Good
AQL
BadIndifferent
LTPD
QC Curve for n = 10, c = 1Figure 10S.4
0 9
1.9139
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0
0.1
0.2
0.30.4
0.5
0.6
0.7
0.80.9
0 .10 .20 .30 .40 .50Probabilityo
facceptance
Fraction defective in lot
.7361
.5443
.3758
.2440
.1493.0860
Average Quality
Average outgoing quality (AOQ): Average of
inspected lots (100%) and uninspected lots
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inspected lots (100%) and uninspected lots
AOQ Pac pN n
N
Pac = Probability of accepting lot
p = Fraction defective
N = Lot size
n = Sample size
Example S-2: AOQ0 0
0 05 0 046
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0.05 0.0460.1 0.074
0.15 0.082
0.2 0.075
0.25 0.061
0.3 0.0450.35 0.03
0.4 0.019
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09 Approximate AOQL = .082
Fractiond
efectiveout)