OPM Two Day Seminar - Sheets

OPERATIONSOPERATIONSMANAGEMENTMANAGEMENTAN INTERNATIONAL PERSPECTIVEAN INTERNATIONAL PERSPECTIVE

Bernoud A.J. Jonker MBAHanze University of apllied sciencesGroningen, The Netherlands

OPERATIONS MANAGEMENTLearning outcomes

• Participants should understand:– The significance of operating systems in manufacturing

and service organizations– The link between general business strategy and

strategic operation management– The key issues faced by operations managers and be

aware of the different approaches available for thedesign of operating systems

– The role of operations consultancy

BAJJonker Operations Management Two day seminar 2

OPERATIONS MANAGEMENTLiterature

Literature used in this seminar:• Operations Management, Along the Supply

Chain, Russell & Taylor, 6th Edition, Wiley, 2009• Operations Management, An international perspective,

David Barnes, 1st Edition, Thompson, 2008• Operations Management, For MBA’s, Meredith &

Shafer, 3rd Edition, Wiley, 2007• Operations Management: An integrated approach, Reid

& Sanders, 3rd Edition, Wiley, 2007• Operations Management, Along the Supply Chain,

Russell & Taylor, 4th Edition, Wiley, 2003

BAJJonker 3Operations Management Two day seminar

OPERATIONS MANAGEMENTSeminar setup

• The seminar consist of 5 parts:

– 1. Introduction to Operations Management (Ch. 1-4)

– 2. The Operating System (Ch. 5-8)

– 3. Supply Chain Management (Ch. 9-11)

– 4. Lean Systems Methods (Ch. 12-13)

– 5. Operations Experience (Operations Simulation)


PART 1PART 1

INTRODUCTIONINTRODUCTIONTO OPERATIONSTO OPERATIONSMANAGEMENTMANAGEMENT

INTRODUCTION TO OPERATIONSMANAGEMENT

Sub blocks:

1. Operations Management (introduction)

2. Operations Strategy

3. International Operations Strategies

4. Operations and the Internet


OPERATIONS ANDOPERATIONS ANDSUPPLY CHAINSUPPLY CHAINMANAGEMENTMANAGEMENTINTRODUCTIONINTRODUCTION1


OPERATIONS MANAGEMENTIntroduction

• What is Operations Management, andwhat is the goal?

• How does Operations Managementrelate to Marketing, Finance and HRM?

• How does the internet ande-Business affects OperationsManagement?

8BAJJonker Operations Management Two day seminar 8

9

• Operations can be defined as a transformationprocess where e. g. materials, labour is transformedinto e.g. goods, services

OPERATIONS MANAGEMENTWhat is Operations?

INPUT•Material•Machines•Labour•Energy•Management•Capital

OUTPUT•Goods•Services

Feedback Feedback

Requirements

OPERATIONS

1

2

3

45

Source: Russell & Taylor, 2009



OPERATIONS MANAGEMENTTransformation processes

Transformationcan be:• Physical• Locational• Exchange• Physiological• Psychological• Informational

Example:

- Manufacturing operations- Transportation/warehousing- Retail- Health care- Entertainment- Communication

11

OPERATIONS MANAGEMENTOrganisation perspective

Supplier Make Deliver

Design

Sales

Finishedgoods

Finishedgoods

Design Specifications

Sales forecastParts

Orders

Organisation

Environment

Customer

Source: Andrew Greasly, 2006


12

OPERATIONS MANAGEMENTSystems perspective

Inputs•Capital•Material•Equipment•Facilities•Suppliers•Labour•Knowledge•Time

Environment

Monitoring &control

TransformationSystem•Alteration•Transportation•Storage•Inspection

Output•Facilitatinggoods

•Services

•Customers•Government

•Competitors•Technology

•Suppliers•Economy

DataDataData ActionAction

Source: J.R. Meredith & S. M. Shafer, 2007


OPERATIONS MANAGEMENTSupply Chain perspective

13

Transformationprocess

Supply side Demand side

Tier 3suppliers

Tier 2suppliers

Tier 1suppliers

Warehouses/Wholesale Retail Customers

Supply Chain

Source: David Barnes, 2008


OPERATIONS MANAGEMENTRange manufacturing to services

14

Flour purchase

DVD rental

Auto repair

Hand-made suit

Travel

Theatrical performance

Medical consultation

% Services% Products100 0 100

Deg

ree

of T

angi

bilit

yLo

wH

igh

Degree of Customer contactLow High

Source: Meredith & Shafer, 2007



OPERATIONS MANAGEMENTOperations within organisation

Generalmanagement

Marketing Operations Finance HumanResources

Generalmanagement

Marketing Operations Finance HumanResources

AvailabilityLead timeSales forecastCustomer orders

BudgetsCost analysisProduction- andinventory data

Job designEmployee evaluationHiring/firingTraining

Source: Own compilation

16

OPERATIONS MANAGEMENTHistory of Operations Management

• Craft production is the processof handcrafting products orservices for individual customers.

• Mass production is the high-volume production of a standardproduct for a mass market.

• Lean production is anadaptation of mass productionthat prizes quality and flexibility.


OPERATIONS MANAGEMENTProductivity and Competitiveness

• Competitiveness = degree to which an countriescan produce goods and services that meet the test ofinternational markets.

• Productivity = ratio of output to input

Output OutputProductivity = ------------- = -----------------

input Labour

17BAJJonker Operations Management Two day seminar 17

OPERATIONS MANAGEMENTGlobalisation

18



OPERATIONSOPERATIONSSTRATEGYSTRATEGY2

OPERATIONS STRATEGYIntroduction

• What is the relation betweenbusiness strategy and operationsstrategy?

• What methods/tools do you knowto relate both strategies?

• What approaches do you know ofinternational operating businesses?


OPERATIONS STRATEGYAbility to execute strategy

• … in the majority of cases – about 70% - the realproblem isn’t bad strategy but … bad execution.


OPERATIONS STRATEGYStrategy and strategy formulation

• Strategy is a common vision that unites anorganisation, provides consistency in decisions, andkeeps the organisation moving in the right direction.

• Strategy formulation consist of four basic steps:– Defining the primary task– Assessing internal- and external forces– Determining order winners and order qualifiers– Positioning the company


OPERATIONS STRATEGYStrategy planning

• Strategy planning hierarchy:


Corporate

Business

Function

What business shall we be in? Whatresources are needed?

How do we compete in the business?What is the mission?

How does the function contribute to thebusiness? What are the objectives?

Source: own compilation

OPERATIONS STRATEGYStrategy formulation


External forcesEnvironmentCompetitorsTechnologyCustomers

Vision/MissionStatement

Internal forcesResources

Core competencies/capacitiesCulture

Weakness\

Business strategy

Business model

Business UnitStrategies

Source: Meredith & Shafer, 2007

OPERATIONS STRATEGYBusiness and product strategies

• Business strategy based on introduction (Maidiqueand Patch):– First-to-market: Product available before competition.

Price: high = skimming, low = volume– Second-to-market: Quickly imitating first, learn from

mistakes, provide improved version.– Cost-minimalisation or late-to-market: Wait till demand

is high and compete on price.– Market segmentation: Focussing on serving niche

markets with specific needs. Flexible manufacturing.


OPERATIONS STRATEGYStrategic decisions

• Strategic decisions affect:– Capacity: lead-times, responsiveness, operating costs– Facilities: where put production facilities– Human resources: skill levels, training requirements– Quality: target quality, what type of systems– Sourcing: suppliers selection, relationship/cooperation– Operating systems: technologies, processes,

supporting systems



OPERATIONS STRATEGYStrategy implementation

Provide value for our customers

Low prices every day

Low inventories

Linked systems

EDI/satellites

Mission

Competitive priority

Short flow times

Fast transport systems

Cross-docking

Operationsstrategy

Operationsstructure

Enabling processesAnd technologies Focussed

locationsFocussedlocations

Operations strategy at Wal-Mart

Source: Russell & Taylor, 4th Edition, 2003


OPERATIONS STRATEGYStrategy deployment

• After a strategy is defined the work only begins:– Strategy can be hard to understand;– Strategy can be to general, or unrealistic;– Areas and persons may interpret the same strategy

differently.

• How to implement a strategy:– The strategic planning hierarchy;– The aggregate project plan;– Policy deployment;– Balanced scorecard.

OPERATIONS STRATEGYStrategic planning hierarchy


Mission andVision

CorporateStrategy

Voice of theBusiness

OperationsStrategy

MarketingStrategy

FinancialStrategy

Voice of theCustomer


OPERATIONS STRATEGYFrom Vision to Targets


Vision: Which future developments are important for myorganisation?

Mission: Given the Vision, which role can this organisation play infuture developments?

Culture: Given the Vision and the Mission, what is the desiredculture?

Slogan: How can we tell in 3 to 8 words where we, as anorganisation, stand for?

Operational target setting: define the quantitive targets, criticalsuccess factors, performance indicators, norms and contingency .

Strategy: Given the Vision and Mission how can the organisationorganise the activities in the most successful way


OPERATIONS STRATEGYPolicy deployment


Reduce businesscycle time by50 percent

Reduce productioncycle time by 30percent

Reduce queue timeby 50 percent

Reduce set-up timeby 50 percent

Cut lot sizesIn half

Increase electronicTransactions by 30 percent

Redesign supplier qualityreporting process

Reduce supplier baseby 50 percent

Reduce purchasingCycle time by 30percent

. . .

. . .

. . .

. . .

. . .

. . .


OPERATIONS STRATEGYPolicy deployment


….

€ 5,000Averagequeue timeper job

9-1-2003Bill WrayImprovework flow

ResourceMeasureWhenWhoWhatWhat Who When Measure ResourceImprove workflow

Bill Wray 9-1-2003 Averagequeue timeper job

€ 5,000

….


OPERATIONS STRATEGYBalanced Scorecard

• Balanced scorecard developed by Robert Kaplan andDavid Norton examines an organisation in four criticalareas:– Finance: How should we look to our shareholders?– Customer: How should we look to our customers?– Processes: At which process must we excel?– Learning and growing: How will we sustain our ability

to change and improve?


OPERATIONS STRATEGYBalanced Scorecard


Revenue growthstrategy

Build best-in-classfranchise

Create newproducts & services

Deliver productsOn spec,on time

Functional excellencePersonal growth Process improvement

Delight the customer Win-win dealerrelations

Volume growth Net margin

Non-gasoline products & services

Clean, fast, safe

Convenience store

Align goals

More premium brands

Develop, business skills

Inventory management

New technology

Teamwork, quality

Strategic & job skills

Finances

Customers

Processes

Learningand Growth

Mobil’s Strategy Map


INTERNATIONALINTERNATIONALOPERATIONSOPERATIONSSTRATEGIESSTRATEGIES3

INTERNATIONAL STRATEGIESIntroduction

• How does internationalisationinfluences OperationsManagement?


INTERNATIONAL STRATEGIESGeneric international strategies

• Generic strategies:

• Market Access strategy: In orderto access and serve marketsoutside home country

• Resource Seeking strategy: Inorder to access and utilize specificresources outside home country

– Flaharty & Ferdows


INTERNATIONAL STRATEGIESEntering foreign markets

• An organisation might enter the foreign market by:– Direct exports to the country: special attention to

communication, delivery, service, tailoring products– Joint venture involving local partner: using sales

channels and distribution, special attention to choice ofpartner (and ownership)

– Establishing a sales subsidiary: first real stage ofdirect foreign investment, direct control, specialattention to communication local-home

– Establishing a production facility: Major stepinvolving significant direct investment, involving,product, process and in- and outbound logistics.


INTERNATIONAL STRATEGIESConfigurations for Operations


Home country with exports Multi domestic operations

Regional operations Global co-ordinated operations

Source: Barnes, 2008

INTERNATIONAL STRATEGIESCompetitive advantages

• Sources of competitive advantage can be developedby strategic actions in international operations:– Global sourcing: Basic input resources from lowest

cost location or sourcing sophisticated products fromthe best suppliers

– Location: Near customer facilities or concentratedlocations

– Network effects: Configuring supplier network ormanaging the supply network

– Competition: A trigger to improve operations and/orfocussing how and where to compete


OPERATIONS ANDOPERATIONS ANDTHE INTERNETTHE INTERNET4


OPERATIONS AND THE INTERNETIntroduction

• How does the internet influencesOperations Management?



OPERATIONS AND THE INTERNETE-Business and the Value Chain

Manufacturer Wholesaler/Distributor Retailer Consumer

Traditional Value Chain

Value Chain with Intermediaries Eliminated

Manufacturer Consumer

Value Chain introducing New Intermediaries

Manufacturer Infomediary eRetailer ConsumerAggregator Portal

• E-Business is changing the value chain, instead ofexpected elimination, new steps are created.



OPERATIONS AND THE INTERNETE-Business transactions

Buyer Seller

Electronic storefront

Buyers

Seller

Sellers auction

Buyers auction

Buyer

Sellers Buyers Sellers

E-Marketplace (exchange)


OPERATIONS AND THE INTERNETImpact of e-Business

• Better customer relationship• More efficient processes• Lower costs of materials• Information technology synergy• Better and faster decision making• New forms of organisations• Expanded supply chain• Higher customer expectations• New ways of doing business• Globalisation


PART 2PART 2

THE OPERATINGTHE OPERATINGSYSTEMSYSTEM

THE OPERATING SYSTEMMANAGEMENT

Sub blocks:

5. The Operating System

6. Operations Planning

7. Enterprise Resource Planning (ERP)

8. Business Process Redesign (BPR)


THE OPERATINGTHE OPERATINGSYSTEMSYSTEM5

THE OPERATING SYSTEMIntroduction

• What decisions must be made fororganising the operations process?

• What is the importance of thelayout of the process?

• What is the importance ofinnovation?


THE OPERATING SYSTEMPlanning hierarchy

• Decision steps in designing the operating system:


Decouple Point

Process

Technologies

How do we want to serve thecustomer?

How can we balance between batchsize and set-up time?

What technologies are available or canbe developed?


Layout What is the smartest routing?


THE OPERATING SYSTEMProcess strategy

• Process strategy is an organisation’s overallapproach for physical producing goods and services.

• Process strategy includes:– Vertical integration: The degree to which a firm

produces parts that go into its products– Capital intensity: mix of capital and labour resources

used in the production process– Process flexibility: the easy at which can be

responded to changes in demand,– Customer involvement: The role of the customer.

THE OPERATING SYSTEMCustomer-decoupling-point


Supplier

Customer

The logistic chain

make-to-stock

assemble-to-order

make-to-order

design-to-orderSource: Own compilation

THE OPERATING SYSTEMCustomer-decouple-point


Ship buildingindustry

Car buildingindustry

Manyindustries

Make-to-order Assemble-to-order Make-to-stock

Examples from manufacturing industry


THE OPERATING SYSTEMCustomer-decouple-point


Cateringindustry

Fast foodindustry

Pre-preparedFood industry

Make-to-order Assemble-to-order Make-to-stock

Examples from food/service industry


THE OPERATING SYSTEMProcess selection

• Production process can be classified into:– Project: is a one-at-a-time production of a product to

customer order;– Batch production: processes many different jobs at

the same time in groups (or batches);– Mass production: produces large volumes of a

standard product for a mass market;– Continuous production: is used for very high-

volume commodity products.


THE OPERATING SYSTEMProduction process selection


Projects

High

High

LowLow

Vol

um

e

Standardisation

Batchproduction

Massproduction

Continuousproduction

Production of oil, electricity,paper, steel, foodstuffs.

Production of automobiles,televisions, personalcomputers, fast food.

Machine shops, bakeries,education, furniture making.

Building ship, rock concert,development new product.

Examples


THE OPERATING SYSTEMService process selection


Professionalservice

High

Low

LowHigh

Labo

ur

inte

nsi

ty

Customisation

Serviceshop

Massservice

Servicefactory

Electricity distribution

Retail store

Education

Medical consult

Examples


THE OPERATING SYSTEMManufacturing technology (1 of 3)

• Computer numericalcontrolled (CNC) machinesare controlled by softwareinstructions in the memory of acomputer.

• Conveyors are intelligent, fastand flexible transport systemsto route the product throughthe process.



• Automatic guided vehicles(AGV) is a driverless truck thatfollows a path of tape, rail orwires embedded in the floor orwireless radio commands.

• Automated storage andretrieval systems (ASRS) canautomatic store and retrievegoods (automatedwarehouses).



• Flexible manufacturingsystems (FMS) consists ofnumerous programmablemachine tools connected by anautomated material handlingsystem.

• Robots are manipulators thatcan be programmed to movework pieces or tools along aspecified path.


THE OPERATING SYSTEMProcess plans

• Process plans may include:– Blueprint is a detailed drawing of product design;– Bill of material (BOM) is a list of the materials and

parts that go into the products;– Assembly charts shows how a product is to be

assembled;– Operating process charts shows how a product is to

be fabricated;– Routing sheet is list of machines of work stations

that shows the routing of a product.


THE OPERATING SYSTEMAssembly chart

Bottom bun

Beef patty

Salt

Cheese

Lettuce

Sauce

Onions

Middle bun

Beef patty

Salt

Cheese

Lettuce

Inions

Pickles

Sesam seed top bun

Wrapper

First layerassembly

Second layerassembly

CompleteBig Mac

Assembly chart of Big Mac


Source: Russell & Taylor, 2009, p. 228

63

THE OPERATING SYSTEMProcess flow chart

..

150410TotalPage 1 of 13

…6

360Wait until needed5

50Move to storage4

30Weight, inspect, sort3

100Move to inspection2

20Unload apples from truck1

Distance (Ft)Time (min)Description of processProcess stepStep

Location: Graves MountainProcess: Applesauce

Date: 9-30-02Analyst TR

Process flow chart of apple processing



64

THE OPERATING SYSTEMProcess diagram

Receiving ActiveBins

ReserveStorage

Picking Packing Shipping

QualityControl

Bak toVendor

Mono-gramming

Embroid-ering

Hemming

GiftBoxing

Receiving ActiveBins

ReserveStorage

Picking Packing Shipping

QualityControl

Back toVendor

Mono-gramming

Embroid-ering

Hemming

GiftBoxing

Material Flow at Lands’ End




THE OPERATING SYSTEMFacility layouts

• Effective facility layouts:– Minimize material handling costs– Utilize space and labour efficiently– Eliminate bottlenecks– Facilitate communication and interaction– Reduce manufacturing/service cycle time– Eliminate waste– Incorporate safety– Promote product and service quality– Provide visual control and flexibility– Increase capacity


THE OPERATING SYSTEMBasic types of production layouts

• Basic types of production layouts:– Process layouts (functional layouts) are flexible and

groups similar activities together according to theprocess or function they perform.

– Product layouts (assembly lines) are efficient andarrange activities in a line according to the sequence ofoperations for a particular product or service.

– Fixed position layouts are used for projects in whichthe product can not removed (too heavy, too fragile,too bulky).

THE OPERATING SYSTEMDifferent layout types


Process layout Product layout

Fixed position layout Hybrid layout

Adopted from: Russell & Taylor, 2009

THE OPERATING SYSTEMDifferent layout types services


Process layout Product layout

Fixed position layout Cellular layout

Adopted from: Russell & Taylor, 2009


THE OPERATING SYSTEMService layout

• Service layouts are mostly similar to process layouts.

• Differences could be:– Minimise the flow of customer (banking);– Minimise the flow of paperwork (government);– Maximise profit per unit of display space (retail);– Maximise customer flow (grocery).

• Service layouts are often visible to customer, so theymust be aesthetically pleasing as well as functional.


THE OPERATING SYSTEMLine balancing

• Line balancing tries to equalize the amount of workat each work station.

• Cycle time refers to the maximum amount f timethe product is allowed to spend at each workstation ifthe targeted production rate is to be reached.

• Idle time is the time a workstation is performing nooperation.

• Balance delay is the total idle time of the line.



• Flow time = 4 + 4 + 4 = 12• Cycle time = max{ 4, 4, 4} = 4• Idle time = 0• Balance delay = 0

• Flow time = 3 + 4 + 3 = 10• Cycle time = max{3, 4, 3} = 4• Idle time = 1• Balance delay = 2

21 34 minutes 4 minutes 4 minutes

21 33 minutes 4 minutes 3 minutes



• Flow time = 3 + 2 + 3 = 8• Cycle time = max{ 3, 2, 3} = 3• Idle time = 1• Balance delay = 1

2

1 33 minutes

4 minutes, 2 parallel = 2 minutes

3 minutes

2

OPERATIONSOPERATIONSPLANNINGPLANNING6

OPERATIONS PLANNINGIntroduction

• What levels of planning do youknow?

• How can an organisation controltheir stock levels?

• How can an organisation determinethe re-order point?


OPERATIONS PLANNINGPlanning hierarchy

• Operations planning hierarchy:


Forecasting

Planning

Scheduling

Input from sales/marketing incombination with historic data

Input from forecasting in combinationwith rough capacity calculations

Input from planning in combinationwith machine capacity calculations



OPERATIONS PLANNINGStrategic role of forecasting

• Forecasting is making a prediction of how muchproduct will be sold in the future.

• A forecast is the basis for most important planningdecisions like:– Scheduling– Inventory– Production– Workforce– Purchasing– Distribution


OPERATIONS PLANNINGStrategic role of forecasting

• Forecast methods management can use:– Qualitative forecast methods are subjective,

like: judgement, opinion or experience from past.– Quantitative forecast methods are based on

mathematics, like: time series and regression.

• A long-range forecast is usually for a period longerthan 2 years.

• A short to mid range forecast is typically for daily,weekly, or monthly sales, up to 2 years.


OPERATIONS PLANNINGComponents of forecasting

Trend with random movements Cycle

Seasonal pattern Trend with seasonal pattern

Forms of forecast movements



OPERATIONS PLANNINGComponents of forecasting

• Basic types of forecasting methods are:– Time series;– Regression methods;– Qualitative methods.

• Time series methods are statistical techniques thatuse historical demand data to predict future demand.

• Regression (or qualitative) methods attempt todevelop a mathematical relationship betweendemand and factors that cause it to behave the wayit does.


OPERATIONS PLANNINGCapacity planning

• Capacity planning is a long term strategic decisionthat establishes the overall level of productiveresources for an organisation.

• Capacity expansion strategies, as demand growsthe following strategies can be used:– Capacity lead strategy– Capacity lag strategy– Average capacity strategy



Capacity lead strategyTime

Units

Capacity lag strategyTime

Units

Time

Units

Average capacity strategy

Capacity

DemandCapacity

Demand

Incremental vs one-stepTime

UnitsDemand

Capacity



Aver

age

cost

per

uni

t

Best operating levelBest operating levelBest operating level


• The best operating level is the percent of capacityutilisation that minimises the unit costs.


OPERATIONS PLANNINGAggregate production planning

AggregateProduction

Planning

StrategicObjectives

Capacityconstraints

Companypolicies

Demandforecasts

Financialconstraints

Sales Plan Operations Plan

Inputs and outputs from aggregate production planning


Periodic updating


OPERATIONS PLANNINGAdjusting capacity to demand

• When demand fluctuates (e.g. seasonal demand),demand patterns can be met:– Producing at a constant rate, using inventory to absorb

demand;– Hiring and firing workers to match demand;– Maintaining resources for high level demand;– Increasing or decreasing working hours (overtime and

undertime;– Subcontracting work to other firms;– Using part-time workers;– Providing the service or product at a later period.


OPERATIONS PLANNINGAdjusting capacity to demand

Level production Chase demand

demand production production

Time

Prod

uctio

n un

its

Time

Stoc

k un

its

demand

Time

Prod

uctio

n un

its

Time

Stoc

k un

its



Aggregateproductionplanning

Masterproductionschedule

Materialrequirements

plan

Shop floorschedule

Resourcerequirements

plan

Rough cutcapacity plan

Capacityrequirements

plan

Input/outputcontrol

OPERATIONS PLANNINGHierarchical planning

ProductionPlanning

CapacityPlanning

Items Resourcelevel

Aggregateproductionplanning

Resourcerequirements

plan

Product lines orfamilies Plants


Rough cutcapacity plan

Individualproducts

Critical workcentres

Materialrequirements

plan

Capacityrequirements

planComponents All work centres

Shop floorschedule

Input/outputcontrol

Manufacturingoperations

Individualmachines



OPERATIONS PLANNINGSequencing

• Guidelines for selecting sequencing rules:– SPT (shortest processing time) is most useful when

the shop is highly congested– Use SLACK (slack) for periods of normal activity– Use DDATE (due date) when only small tardiness

values can be tolerated– Use LPT (longest processing time) if subcontracting is

anticipated– Use FCFS (first come first served) when operating at

low-capacity levels– Do not use SPT to sequence jobs that have to be

assembled with other jobs at a later date


OPERATIONS PLANNINGMonitoring

1 2 3 4 5 6 7 8 9 10 11 12 Days

3

2

1

Gantt Chart

Behind schedule

Ahead of schedule

On schedule

Planned activity Completed activity

Today’s date


ENTERPRISEENTERPRISERESOURCERESOURCEPLANNING (ERP)PLANNING (ERP)7

ENTERPRICE RESOURCE PLANNINGIntroduction

• What is Enterprise Resource Planning(ERP)?

• What advantages and disadvantagesof ERP do you know?

• If you have many orders on the shopfloor which orders would you givepriority?



ENTERPRICE RESOURCE PLANNINGERP and MRP

• Material requirement planning (MRP) is acomputerized inventory control and productionplanning.

1970 1980 1990 Now

MRP MRP II ERP ERP IIProduction

controlInventorycontrol

+Capacityplanning

Shop floorcontrol

+Linking all

internal businesstransactions

+Linking allexternalbusiness

transactions



ENTERPRICE RESOURCE PLANNINGMaterial requirements planning

• Master Requirements planning (MRP) translatesa master schedule for end items into time-phasedrequirements for subassemblies, components andraw materials.

• MRP is useful for dependant and discrete demanditems, complex products, job shop production, andassemble-to-order environments.


ENTERPRICE RESOURCE PLANNINGMaterial requirements planning

Materialrequirement

planning

Work orders

Materialrequirement

planning

Materialrequirement

planning

Productstructure file

Item masterfile


Purchaseorders

Reschedulingnotices

Material Requirements Planning


Plannedorder

releases

ENTERPRICE RESOURCE PLANNINGLevels of scheduling


Make-to-stock Assemble-to-order Make-to-order

Master schedulefinished products

Master schedulemajor subassemblies

or modules

Master schedulecomponents or

materials



ENTERPRICE RESOURCE PLANNINGRelaxing MRP assumptions

4 65321

overtime

Pull ahead

Work anextrashift

Push back

Push back

Hou

rs o

f ca

pac

ity

Time (weeks)

Adjusted load profile



ENTERPRICE RESOURCE PLANNINGERP modules

Suppliers

CustomersSales &marketing

HumanResources

Production & MaterialManagement

Finance &Accounting

Customer order

Order status

Hiring & Training

Job description

Forecast &Sales orders

Cost &Estimates

Purchase order

DeliveryConfirmation

Costanalysis

Production data& Inventory

Salesdata

Salesanalysis

Payrolldata

Hiringinfo


ENTERPRICE RESOURCE PLANNINGERP implementation

• ERP implementations have a history of mammothprojects over budget, out-of-control and bringingcompanies to bankruptcy.

• ERP implementation involves:– Analyse business process– Choose modules to implement– Align level of sophistication– Finalise delivery and access– Link with external partners



ENTERPRICE RESOURCE PLANNINGSAP ERP modules

mySAP Supply Chain Management

SupplierCollaboration

Supply ChainAnalytics

TransportationVisibility

FulfilmentVisibility

ManufacturingVisibility

ProcurementVisibilityVisibility

Freight CostingTransportation ExecutionTransportation PlanningTransportation

BillingLogistics CoordinationSales Order ProcessingOrder fulfilment

PhysicalInventory

Warehouse &StorageCrossdockingOutbound

ProcessingInbound

ProcessingWarehousing

Manufacturing executionProduction Planning & Detailed SchedulingManufacturing

Invoice VerificationReceipt ConfirmationPurchase Order ProcessingProcurement

CustomerCollaboration

DistributionPlanning

Supply NetworkPlanning &

Outsourcing

Safety StockPlanningSupply Planning

Consensus Demand PlaningPromotion PlanningForecasting & LifeclePlanningDemand Planning

Strategic SourcingStrategic Supply Chain DesignStrategic Planning

Source: SAP website


ENTERPRICE RESOURCE PLANNINGERP implementation

• Industry solutions are best-practice templatesdesigned to maximize efficiency and minimizecustomisation.

• Fast track implementation by standardised approach,for example AccelaratedSAP solution:– Phase 1: Project preparation– Phase 2: Business Blueprint– Phase 3: Realisation– Phase 4: Final preparation– Phase 5: Go Live & support

ENTERPRICE RESOURCE PLANNINGERP project set-up

• Project steps ERP implementation


First decission

Selection ERP package

Set-up project team

Go live preparation

Go live

Configurarion phase 1base

Configurationphase 2

middle

Confogurationphase 3

fine

Training

Integrative testing


Blue print

redesign


ENTERPRICE RESOURCE PLANNINGOther ERP related software

• Customer relationship management (CRM)supports processes that involve customer interaction.

• Supply chain management (SCM) supportsprocesses related to supply chains.

• Product life cycle management (PLM) supportsthe product development and the product life cycle.

• Difficulty is connection between systems acrossmultiple companies: XML can be good solution.

BUSINESS PROCESSBUSINESS PROCESSREDESIGNREDESIGN8

BUSINESS PROCESS REDESIGNIntroduction

• Why is the importance ofredesigning processes

• How would you approach aredesign


BUSINESS PROCESS REDESIGNProcess innovation

• Process innovation is important to:– Increase productivity– Increase competitiveness

• Methods of process innovation:– Continuous improvements: small improvements– Breakthrough improvement: 50-100% improvement



BUSINESS PROCESS REDESIGNBreakthrough/Process Redesign

Breakthroughimprovement

Continuous improvementActivities peak

Continuous improvementTo refine

Time

Perf

orm

ance

Business processredesign



BUSINESS PROCESS REDESIGNThe reengineering process

Goals and specifications

High-level process map

Detailed process map

Pilot study

Customerrequirements

Benchmarkdata

Baselineanalysis

Designprinciples

Innovativeideas

Performancemeasures

Modelvalidation

Strategic directives

Pilot study



BUSINESS PROCESS REDESIGNBusiness Process Redesign (BPR)

• Remove waste, simplify, and consolidate activities;• Link processes to create value;• Let swiftest/most capable enterprise execute process;• Flex the process for any time, any place, any way;• Capture information digitally at the source• Provide visibility through fresher/richer information;• Fit the process with sensors and feedback loops• Add analytic capabilities to the process;• Connect, collect, create knowledge around process;• Personalize the process with preferences of

participants.


BUSINESS PROCESS REDESIGNTheory of constraints

• The theory of constraints (Eliyahu Goldratt)describes how complex organisations simply canachieve big breakthrough’s. The five main rules are:– Identify the bottleneck in the system;– Determine how the bottleneck can be exploited

maximum;– Make all other process steps subordinated to the

bottleneck;– Increase the throughput of the bottleneck;– If this works successful a new bottleneck will show up.

Without hesitation go back to step 1.


BUSINESS PROCESS REDESIGNTheory of constraints

50 40 30 50

50 40 30 50

35 35 35 35

50 40 50 50

Situation

Identify bottleneck

Subordinated tobottleneck

40 40 40 40

Increase outputbottleneck

New bottleneck willshow up

50 40 35 35Bottleneck exploitedmaximum


PART 3PART 3

SUPPLY CHAINSUPPLY CHAINMANAGEMENTMANAGEMENT

SUPPLY CHAIN MANAGEMENT

Sub blocks:

9. Supply Chain Management

10. Supply Chain Globalisation

11. Inventory Management


SUPPLY CHAINSUPPLY CHAINMANAGEMENTMANAGEMENT9

SUPPLY CHAIN MANAGEMENTIntroduction

• What is supply chain? What are allelements of the supply chain?

• What are drivers for supply chainmanagement?

• How does the internet ande-Business affects Supply ChainManagement?


SUPPLY CHAIN MANAGEMENTSupply chain functions

• Functions of the supply chain are:


Suppliers

Pri. sectorSource

Source: own compilationM

anufacturer

Wholesale

Retail

Sec. sectorMake

Ter. SectorDistribution and services


SUPPLY CHAIN MANAGEMENTThe supply chain

Supplier Manufacturer Wholesale Customer

Purchasing

Physical distribution

Production

Retailing

Supply chain

Reverse logistics


Retail

SUPPLY CHAIN MANAGEMENTSource, make and deliver


Supplier Supplier SupplierWarehouse

Factory

Factory

Wholesale

Wholesale

Retail

Retail

Retail

Retail

Retail

Customer

Warehouse

Warehouse


SUPPLY CHAIN MANAGEMENTPlayers in the supply chain

Customers Become more critical, less bounded to products, servicesand shops and are open for testing from increasingalternatives.

Retail Confronted with increasing competition, forces toimproving retail forms and more professionalism with anincreasing buying power to producers.

Producers Confronted with increasing competition because ofglobalisation, and increasing pressure on margins andlooking for optimising production and logistics.

Logistic serviceproviders

Transportation, warehousing, assembling activities aremore and more outsourced , increasing pressure onspeed of delivery, large logistic service providers takethe total-package and subcontract the transportation.


SUPPLY CHAIN MANAGEMENTStrategic need

• Costs: total supply chain costs can be 50% or moreof total operating costs.– Costs of storage, movement, personal, goods– Costs of responsive distribution and procuring– Costs of discontinuities between supply chain elements

• Others:– Increased global competition– Outsourcing– E-commerce– Increasing supply chain complexity.



SUPPLY CHAIN MANAGEMENTUncertainty and bullwhip

Supplier Manufacturer Retail Customer

• Lack of global visibility for the entiresupply chain

• Local optimal, not global optimal

• Difficult to Promise the Delivery Date

• Low On-Time-Delivery Ratio

upstream downstream


SUPPLY CHAIN MANAGEMENTInformation in the supply chain

• In the supply chain following informationtechnologies are used:– Bar coding– Electronic Data Interchange (EDI)– XML– Handheld devices– RF technology– Computers, satellite tracking– Imaging– Artificial intelligence– Point-of-sale




Supplier Manufacturer Retail Customer

EDI EDI EDI



• General benefits of informationexchange provides:– Improved customer service– Decreased cost-of-sales– Improved vendor/supplier

relationships– Increased ROA– Improved cash-to-cash– Ability to proactively respond– Improved performance metrics


SUPPLY CHAIN MANAGEMENTPerformance metrics


Performance attribute Metric performance

Customeroriented

Supply chain deliver Delivery performance

Fill rate

Perfect order fulfilment

Supply chain responsiveness Order fulfilment lead-time

Supply chain flexibility Supply chain response time

Production flexibility

Internalfacing

Supply chain costs Supply chain management costs

Cost of goods sold

Value added productivity

Warranty/return costs

Supply chain assetmanagement efficiency

Cash-to-cash cycle time

Inventory days of supply

Asset turns

SUPPLY CHAINSUPPLY CHAINGLOBALISATIONGLOBALISATION10

SUPPLY CHAIN GLOBALISATIONIntroduction

• What is the effect of globalisation onthe supply chain?



SUPPLY CHAIN GLOBALISATIONE-procurement

Supplier

Supplier

Supplier

P.O.

Assembly plant

P.O.

Plastics

Aluminium

Steel

Supply chain management at Honda

1 2 3 4

5

6 7

Honda trading

New car



SUPPLY CHAIN GLOBALISATIONOrder fulfilment

Internet

Customer

Automobile company

CD player supplier

Navigation system supplier

Wheel supplier

Dealer

CD playerNavigationAluminium wheels

Assembly plant

Build-to-order cars over the Internet


SUPPLY CHAIN GLOBALISATIONWarehouse management

• Warehouse Management systems (WMS) runsthe DC’s daily operations and keeps track ofinventories.

• WMS may include: transportation management,labour management, and warehouse optimisation.

• Typical WMS steps:– Put-away: receive and storage at specific location;– Picking: take an item from a location;– Packing: preparing item(s) for transportation;– Shipping: ship the goods via a carrier.



Order management

Warehouse Management System (WMS)

Labour management

Warehouse optimisationPut-away and Picking

Packaging and labelling

WMS management

Cross docking

Yard management

Order tracking




C

B

A

C

B

A

HR HR

LR

HR

On “Popularity” On “Unit size”

LR

On “Accessibility”



SUPPLY CHAIN GLOBALISATIONCross-docking

Distribution Center Before cross docking

After cross docking

Suppliers

Customers

Receiving

Sorting

Shipping


• Manufacturersorganises owndistribution

• Manufactureroutsourcetransportation

• Manufactureroutsource all logisticfunctions

SUPPLY CHAIN GLOBALISATIONOutsourcing logistics


SUPPLY CHAIN GLOBALISATIONBasic modes of transportation


RailroadOffer low-cost, large volume, great distancetransport with accessibility limitations and longtransit time.

Motor carriersAccessible, flexible point-to-point service ofsmall loads over short and long distances withconsistent transit times, but more costly

Water carriersLow cost, large volume great distancetransportation with long transit times andservice disruptions because of weather

Air carriersShort transit time, high rate transportation,(service above price). Transportation option forhigh value-to-weight commodities.

Pipelines Can only be used for liquids, low rate, but nooption for manufactured goods.

SUPPLY CHAIN GLOBALISATIONGlobalisation

• Globalisation creates new obstacles:– Increased documentation for invoices, insurance, letter

of credit, ocean bills, airway bills– Changing regulations varying per country– Trade groups, tariffs, duties, landing costs– Limited shipping modes– Differences in communication– Difference in business practises– Government codes and reporting requirements– Numerous players, agents, custom house brokers,

financial institutions, insurance providers, carriers



SUPPLY CHAIN GLOBALISATIONInternational trade expertise

Duty specialistadvising companieshow to optimise for

dutiesExport trading

companiescombining all servicesof international trade

Purchasingagents in foreigncountries identifyreliable suppliers

Custom housebroker manage the

movements of importedgoods through acountry’s custom

procedure

International freightforwarders handling all

the details and obtaindocuments for crossing

borders.

Export packersperform customized

labelling andpackaging

Export managementcompanies handleoverseas sales for

companies and identifyforeign companies

licensed to manufacturetheir products

Supplier(s)


INVENTORYINVENTORYMANAGEMENTMANAGEMENT11

INVENTORY MANAGEMENTIntroduction

• What types of inventory do youknow?

• Why do organisations keepinventory?



INVENTORY MANAGEMENTInventory management elements

• Raw material buffers: to cover for variations insuppliers deliveries;

• buffer inventories: so that production can runsmoothly in case of temporary machine breakdowns,or other work stoppages.

• Finished goods inventories: to cover forfluctuations in demand and work stoppage.

Raw material In-processbuffer

Productionstep 2

Finished productProductionstep 1


INVENTORY MANAGEMENTInventory management elements

• Inventory management is to determine theamount of inventory to keep in stock.

• Inventory costs is the total of carrying, ordering,and shortage costs:– Carrying costs are the costs of holding an item in

inventory.– Ordering costs are the costs of replenishing

inventory.– Shortage costs are temporary or permanent loss of

sales when demand cannot be met.


INVENTORY MANAGEMENTInventory control approach

Bitems

Aitems

C items

20 50 100

70

20

10Tota

l ann

ual $

usa

ge (

%)

Total inventory items (%)

• ABC classification system:– A parts: 70% of sales revenue, 20% of inventory items– B parts: 20% of sales revenue, 30% of inventory items– C parts: 10% of sales revenue, 50% of inventory items




• Inventory control using ABC classification:– A parts: control each item with high frequency– B parts: control each item with lower frequency– C parts: control on minimum-maximum rules

A parts OK

B parts OK

C parts OK

Out-of-Stock risk

To muchstock risk

Stock level in weeks



-10

0

10

20

30

40

50

60

70

Phase 0 Phase 1 Phase 2 Phase 3

Define ABCProducezero-run

Monitor salesRefine ABC

Production planning using SAP re-orderfunctionality

Monitor stocks andsales only plan if

necessary

Development Introduction OutphasingIn market




INVENTORY MANAGEMENTEconomic order quantity models

Reorder point, R

Order quantity, Q

Inventory level

Time

Orderplaced

Orderreceived

Leadtime

Orderplaced

Orderreceived

Leadtime

Demand rate

The Inventory Order Cycle



INVENTORY MANAGEMENTEconomic order quantity models

• EOQ is the optimal order quantity that will minimizetotal inventory costs.

Qopt = 2 x Co x DCc

Qopt = Optimal order quantityD = DemandCo = Order costs / set-up costsCc = Unit carrying costs / stock costs

• Assumptions to EOQ model:– Demand is known with certainty, is constant in time;– No shortages are allowed;– Lead-time for receipt of orders is constant– The order quantity is received all at once


INVENTORY MANAGEMENTReorder point

Reorderpoint, R

LT

Safety stock

LT

Inventory level

Time

Stockout and safety stock

Stockout if nosafety stock

Q


INVENTORY MANAGEMENTStock controll


Stock 100 80 80 60 50 25 10

Sales 40 30 20 10 5 2 1

Stock 100 80 80 60 50 25 10

Sales 40 30 20 10 5 2 1


PART 4PART 4

LEAN SYSTEMSLEAN SYSTEMSMETHODMETHOD

LEAN SYSTEMS METHOD

Sub blocks:

12. Lean Manufacturing

13. Quality Management


LEANLEANMANUFACTURINGMANUFACTURING12

LEAN MANUFACTURINGIntroduction

• What is Lean Manufacturing?

• Who invented Lean Manufacturing?

• Name some elements of LeanManufacturing?


LEAN MANUFACTURINGIntroduction

• Colloseum (Rome) – Standardisation– Capacity: 50.000 people– Build in 8 years

• Henry Ford – Assembly line– Price from $825 (1908) to $360 (1916)– Build in 81 hours

• Taiichi Ohno – Just-In-Time– Small lots mixed model assembly– Producing only what is needed


LEAN MANUFACTURINGToyota Production System

• Toyota Production System (TPS):– Mass production not suitable for Japan– Scarcity of resources

• TPS basic principle: Sell one, make one– Efficient process: eliminating waste– Effective process: no intermediate storage– Flexibility: one piece flow mixed model

• Lean Manufacturing is the American version of TPS

BAJJonkerBAJJonker Operations Management Two day seminar 152

LEAN MANUFACTURINGBasic elements of Lean

• Basic elements of Lean– Flexible resources;– Cellular layouts;– Pull production system;– Kanban production control;– Small-lot production;– Quick set-ups;– Uniform production levels;– Quality at the source;– Total productive maintenance;– Supplier networks.


LEAN MANUFACTURINGFlexible resources

• Flexible resources means multifunctional workersas general purpose machines

• Multifunctional workers perform more than onejob.

• General-purpose machines perform several basicfunctions– Adopt machines to improve so that less operator

presence is required.


LEAN MANUFACTURINGCellular layout

Cell 1

Cell 3 Cell 4 Cell 5

Cell 2

Worker 1 Worker 2

Worker 3

Worker routes operating one or more cells


LEAN MANUFACTURINGPull versus push

• Push systems rely on a predetermined schedule.

• Pull systems rely on customer requests.

Planbuffer stocktransfor-

mationtransfor-mation

buffer stockOrdertransfor-

mationtransfor-mation


LEAN MANUFACTURINGKanban production control

• A kanban is a signal card that corresponds to astandard quantity of production.

RMaterials ready for use byoperator

Materials in use, kanbanissued for replenishment

New materials arriveabout quantity R is used

R

R

Storage Operator


LEAN MANUFACTURINGSmall lot productions

• Small lot productions requires less space, lesscapital investment, more flexibility, closer together,more simple transportation and …… quality problems are more easy to detect.

• Lower inventory levels expose problems as: lengthyset-ups, machine breakdowns, poor quality, baddesign, unreliable suppliers.

Sea of excess…


LEAN MANUFACTURINGReduction of lead time

• Lead time is typically made up of four components:

– Waiting time, reduce or eliminate– Moving time, reduce by shorter distances– Set-up time, reduce by smart set-up– Processing time, reduce by increasing speed


LEAN MANUFACTURINGSMED

• Single-Minute Exchange of Dies– Separate internal set-up from

external set-up;– Convert internal set-up to external

set-up;– Streamline all aspects of set-up;– Perform set-up activities parallel or

eliminate then entirely.

• Common techniques: presetsettings, quick fasteners, locatorpins, eliminate tools and makemovements easier.


LEAN MANUFACTURINGUniform production levels

• Uniform production levels result from smoothingproduction requirements by:– More accurate forecasts.– Smoothing demand.– Mixed model assembly steadies component production.


Daily sequence-batched

S S A A A C C C C

Daily sequence-mixed

S A C A C S C A C

LEAN MANUFACTURINGQuality at the source

• No buffers leave no room for errorsand so focus on high quality.

• Visual control: kanban, standardoperation sheets, process controlcharts and tool boards.

• Jidoka: Never pass on a defect byauthorising workers to stopproduction to solve problem.


LEAN MANUFACTURINGTotal Productive Maintenance

• Total productive maintenance (TPM)combines preventive maintenancewith total quality with the objectiveof zero breakdowns.

• Breakdown maintenance = repair tomake a machine operational.

• Preventive maintenance =maintenance to keep the machineoperational.


LEAN MANUFACTURING5S


5S: Seiri, Seiton, Seison, Seiketsu, Shitsuke

LEAN MANUFACTURINGSupplier networks

• Supplier networks includes:– Located near to customer;– Use small, side-loaded trucks and ship mixed loads;– Consider establishing small warehouses near to

customer or consolidating warehouses with othersuppliers;

– Use standard containers and make deliveries accordingto a precise delivery schedule;

– Become a certified supplier and accept payment atregular intervals rather than on delivery.


LEAN MANUFACTURINGBenefits of Lean manufacturing

• JIT provides a wide range of benefits, including:– Reduced inventory, and space requirements– Improved quality– Lower costs– Shorter lead time– Increased productivity– Greater flexibility– Better relationship with suppliers– Simplified scheduling and control systems– Increased capacity– Better use of human resources and more product

variety.BAJJonker Operations Management Two day seminar 166

LEAN MANUFACTURINGDrawbacks of Lean manufacturing

• Lean is difficult to apply inorganisations:– With a variability in demand– Low volume products– High volume mass production– Big changes in supply

• strikes• fire• natural disasters• terrorism• epidemics like SARS


LEAN MANUFACTURINGLean in services

• The Lean concept can also be applied to services:– MacDonald’s, Domino’s and FedEx, who compete on

speed and still provide their products at low cost andincreasing variety;

– Construction firms that coordinate the arrival ofmaterials “just as needed” instead of stockpiling themat site;

– Multifunctional workers in department stores that workthe cash register, stock goods, arrange displays, andmake sales;

– Level selling with “everyday low prices” at Wal-Martand Food Lion;


LEAN MANUFACTURINGMore lean

• Lean retailing:– Smaller orders, frequent replenishment– Shorter time-to-market

• Lean banking:– Standardisation pf processes– Simplifying services

• Lean health care:– Reducing hospital visits– Simplifying forms and procedures


QUALITYQUALITYMANAGEMENTMANAGEMENT13

QUALITY MANAGEMENTIntroduction

• How would you define quality?

• What has more quality a Ferrari or aPick up truck?

• How can an organisation ensurequality?

• What quality systems do you know?



QUALITY MANAGEMENTThe meaning of quality

• Quality or fitness for use is how well the productor service does what it is supposed to do.

• Quality of design involves designing qualitycharacteristics into a product or service.

A sports car an a pick-up are equally “fit for use”. But with different designdimensions for different customer markets that result in different purchase prices.



• Dimensions of quality for which a consumer looks:– Performance: basic operating characteristic;– Features: extra items added to the basic features;– Reliability: probability that a product will operate;– Conformance: degree to which standards are met;– Durability: how long the products lasts;– Serviceability: the ease, speed, of getting repairs,– Aesthetics: how a product looks, feels, smells, tastes;– Safety: assurance that the user will not be injured;– Other perceptions: subjective perceptions based on

brand name, advertising, and the like.



• Dimensions of service quality for which aconsumer looks:– Time and timelines: how long a customer must wait;– Completeness: is everything expected also provided;– Courtesy: how customers are treated by employees;– Consistency: is the same level provided each time;– Accessibility and convenience: how easy to obtain;– Accuracy: service performance right every time;– Responsiveness: how well the company reacts to

unusual situations.



The meaning of quality

Producer’s perspective Consumer's perspective

Quality of conformance------------------•Conformance tospecifications•Costs

Quality of design------------------•Quality characteristics•Price

Production Marketing

Fitness for consumer use

The meaning of quality



QUALITY MANAGEMENTThe cost of quality

• Prevention costs are costs incurred during productdesign, but also include training cost etc.

• Appraisal costs are costs of measuring, testing andanalysing.

• Internal failure costs include scrap, rework,process failure, downtime, and price reductions.

• External failure costs include complaints, returns,warranty claims, liability, and lost sales.

QUALITY MANAGEMENTEvolution of quality management


Quality inspection

Quality Control

Quality Assurance

Total QualityManagement



QUALITY MANAGEMENTA basic quality model

4 ActInstitutionaliseimprovement;continue thecycle

1 PlanIdentify theproblem anddevelop theplan forimprovement

2 DoImplementthe plan on atest basis.

3 CheckAsses theplan; is itworking?

Deming wheel



QUALITY MANAGEMENTQuality circle

Organisation

Training

Problemidentificati

on

Presentation

Solution

Problemanalysis

• Quality circle is agroup of workers whoaddress (production)problems.

• Quality circles weredeveloped by KaoruIshikawa in Japan inthe 1960’s.



QUALITY MANAGEMENTTotal quality management

• Total quality management (TQM) assures thatproducts and services have the quality they havebeen designed for.

• Quality assurance is a commitment to qualitythroughout the organisation.

• Total quality control is a company-wide, systemsapproach to quality.



• Total quality management principles:– The customer defines quality;– Top management must provide the leadership for

quality;– Quality is a strategic issue, requires a strategic plan;– Quality is the responsibility of all employees;– Focus on continuous quality improvement;– Quality problems are solved through cooperation;– Make use of statistical quality control methods;– Training and education of all employees are the basis

for continuous quality improvement.



Marketing and R&Ddefine what thecustomer wants

TQM throughout the organisation

Engineering creates adesign to meet

customers expectation

Purchasing acquireshigh quality parts

and materials

Management maintainsa smooth flow throughproduction or service

process

Human resources hiresemployees with required

skills and providestraining

Logistics ensures on-time delivery without

damage

After sales supportprovides customer withgood instructions and

assistance

Manufacturing ensurescontrolled production

with zero defects.



QUALITY MANAGEMENTISO 9000

• ISO 9001 (9002) is a world wide procedure for theinternational quality certification of suppliers.

• The International Organisation forStandardisation (ISO), headquartered in Geneva,Switzerland, has as its members the nationalstandards organisation for more than 130 countries.

• Many (overseas) companies will not do business witha supplier unless it has ISO 9000 certification.

QUALITY MANAGEMENTISO 14000


• ISO 14001 is a world wide procedure for thecertification of environment management systems.

• Seven steps to implement ISO 14001:– Step 1: Where are we now? Zero measurement– Step 2: What are the important environment topics?– Step 3: How can we control it day-by-day?– Step 4: What goals do we have?– Step 5: How can we set up the system?– Step 6: Get the system live– Step 7: Do what we promise

QUALITY MANAGEMENTSix Sigma

• Six sigma means 3.4 defects per million!

• The goal is to improve process by reducingvariations, waste of time & materials, costs of repair

• The four basic steps of six sigma:– Align: Define metrics and high impact projects– Mobilize: Develop empowered teams using DMAIC– Accelerate: Execute project with aggressive time line– Govern: Review status and share knowledge


QUALITY MANAGEMENTSix Sigma DMAIC

• Break through problem solving: DMAIC– Define: What is the problem, who is the customer and

what are needs– Measure: Process is measured, data collected and

compare to desired– Analyze: Analyse to find the root cause of the

problem– Improve: Develop solutions and implement them,

measure to check, change if necessary– Control: Monitor the process to ensure right level of

performance


PART 5PART 5

CURRENT TRENDSCURRENT TRENDSIN OPERATIONSIN OPERATIONSMANAGEMENTMANAGEMENT

OPERATIONS MANAGEMENTCurrent Trends

• Moving beyond the factory: Operations is strongaffected by what goes on outside

• The growing importance of services: The servicesector continue to grow

• The increased importance of the supplynetwork: The next step is working/sharing together.

• The increased importance of ICT: Internationalisationof services, mass customization, supporting productdifferentiation

• Low cost labour: Off-shoring production/services toreduce costs, organising transferring operations


OPERATIONS MANAGEMENTCurrent Trends

• Population changes: In Europe, Japan and Russiaaging populations, internationalisation of work force.

• Discontinuities: Increased risk of operations,bankruptcy of supplier/customer to death of keyemployee, more focus on business continuityplanning.

• Environmentalism: Wide range of concerns thatcentre of environmental degradation.

• Social responsibility: Renewal of interest inconcept that organizations should behave ethical.

• Learning to change: Organizations should be ableto respond and adapt to changes in environment.


OPERATIONS MANAGEMENT

• Topics not included today:

– Work Organisation– New Product Development– Project Management– Performance Measurement

– Company visit– Company analysis


OPERATIONS MANAGEMENT

That’s it all Thank you


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