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 Just-In-Time and Lean ProductionLean Production

Producing only what is needed, Producing only what is needed, when it is neededwhen it is needed

A philosophy A philosophy An integrated management systemAn integrated management systemJIT’s mandate: JIT’s mandate:

Eliminate all wasteEliminate all waste

What is JIT ?

Basic Elements of JIT

1.1. Flexible resourcesFlexible resources2.2. Cellular layoutsCellular layouts3.3. Pull production systemPull production system4.4. Kanban production controlKanban production control5.5. Small-lot productionSmall-lot production6.6. Quick setupsQuick setups7.7. Uniform production levelsUniform production levels8.8. Quality at the sourceQuality at the source9.9. Total productive maintenanceTotal productive maintenance10.10. Supplier networksSupplier 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

Kaizen

Continuous improvementContinuous improvementRequires total employment Requires total employment

involvementinvolvementEssence of JIT is willingness of Essence of JIT is willingness of

workers toworkers toSpot quality problemsSpot quality problemsHalt production when necessaryHalt production when necessaryGenerate ideas for improvementGenerate ideas for improvementAnalyze problemsAnalyze problemsPerform different functionsPerform 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 - 1894• 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

• 1984 - Tylenol Scare - Johnson and Johnson• 1991 - German ordinance that put teeth in

environmental reverse pipeline• Summer 1996 – UK Packaging and Packaging

Waste Legislation• 1998 - 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 2003 - 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

• 2001 - 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.

Six Symptoms (Continued)

5. The total cost of the returns process is unknown.

6. Customers lose confidence in the repair activities.

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 200-300%.

• “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 Quality ManagementManagement

Quality is a measure of goodness that is inherent to a product or service.

Bottom line: perspective has to be from theCustomer – 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

• 1-10-100 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

4.4. ConsistencyConsistency Same level of service for all customers Same level of service for all customers

5.5. Accessibility & Convenience Accessibility & Convenience Ease of obtaining serviceEase of obtaining service

6.6. AccuracyAccuracy Performed right every timePerformed right every time

7.7. ResponsivenessResponsiveness Reactions to unusual situationsReactions 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 employees9. Eliminate barriers between

departments10. Eliminate slogans11. 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. PlanIdentify the problem and develop the plan for improvement.

2. DoImplement the plan on a test basis.

3. Study/CheckAssess the plan; is it working?

4. ActInstitutionalize 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 SigmaStarted By Motorola

• Define

• Measure

• Analyze

• Improve

• Control

Made Famous by General Electric40% of GE executives’bonuses tied to 6 sigmaimplementation

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 qualityPrevention

Planning, Product design, Process, Training, Information

Appraisal Inspection and testing,

Test equipment, Operator

Cost of QualityCost 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 involvementQuality circlesProcess improvement teamsEmployee suggestions

Cause-and-Effect Diagram

QualityProblemQuality

Problem

Out of adjustment

Tooling problems

Old / worn

MachinesMachinesFaulty testing equipment

Incorrect specifications

Improper methods

MeasurementMeasurement

Poor supervision

Lack of concentration

Inadequate training

HumanHuman

Deficienciesin product design

Ineffective qualitymanagement

Poor process design

ProcessProcess

Inaccuratetemperature control

Dust and Dirt

EnvironmentEnvironment

Defective from vendor

Not to specifications

Material-handling problems

MaterialsMaterials

Also known as Ishikawa Diagram or Fish BoneAlso 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 scopeCertification required by many foreign

firmsU.S. firms export more than

$150 billion annually to EuropeAdopted by U.S. Navy,

DuPont, 3M, AT&T, and others

ISO Accreditation

European registration

3rd party registrar assesses quality programEuropean 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