PU 306 D/YCMOU: MU-2402

World Class Manufacturing MITCOM

Syllabus

World Class Manufacturing

Semester 1 & 3, June 2013

Unit No. Contents No. of Sessions of

1 Hr each

1 World Class Manufacturing(WCM)

Definition

Historical Perspective:

Industrial Revolution

Evolution of Scientific Management

Globalization

Examples of WCM companies

4

2 Typical Characteristics of WCM Companies

Performance Indicators

Six Sigma Philosophy

Models for manufacturing excellence

4

3 Systems & Tools for WCM

Improving product & process design:

MRP, MRP2, ERP, Lean Manufacturing, JIT, FMS,

SQC, Poka Yoke, 5-S

4

4 Benchmarking:

Best Practices in WCM

Gaining competitive edge through WCM

Eliminating Waste

3

5 Human Resource Management in WCM

Teamwork, Motivation, Rewards

2

6 Customer focus:

Building strengths through customer focused

principles

2

7 Misc. Topics:

Costing & Valuation, Value Analysis

Strategic Linkages

2

8 Indian Scenario 2

9 Case Studies 4

10 Class Tests, Presentations, Assignments 4

Educational Resources:

1 Text Books World Class Manufacturing - Strategic Perspective

- B.S. Sahay, KBC Saxena,

Ashish Kumar. (Mac Milan) 2 Reference Books Making Common Sense Common Practice –

Models for manufacturing excellence –

Ron Moore (Butter worth Heinmann)

World Class Manufacturing: Book1, 2, 3

YCMOU 3 Supplementary Reading

Prof. A. Dhingra

(306 D)-WORLD CLASS MANUFACTURING

1. Historical perspective: World class Excellent organizations – American and

Japanese Companies, Deming Awards , Malcom Baldrige National Quality Award –

Globalization – Global Companies – Models for manufacturing excellence – Business

Excellence. (6)

2. Bench marks, Bottlenecks and Best Practices: Concepts of benchmarking,

bottleneck and best practices, Best performers – Gaining competitive edge through

world class manufacturing – Value added manufacturing – eliminating waste –

Toyota Production System – example. (6)

3. System & tools for world class manufacturing: Improving Product & Process

(6)

Design – Lean Production – SQC , FMS, Rapid Prototyping , Poka Yoke , 5-S ,3 M,

use of IT ,JIT, Product Mix , Optimizing , Procurement & stores practices , Total

Productive maintenance , Visual Control. (6)

4. Human Resource Management in WCM: Adding value to the organization –

Organizational learning – techniques of removing Root cause of problems – People as

problem solvers – New organizational structures. Associates – Facilitators –

Teamsmanship – Motivation and reward in the age of continuous improvement. (6)

5. Typical characteristics of WCM companies: Performance indicators – what is

world class Performance – Six Sigma philosophy (3)

6. Indian Scenario: Leading Indian companies towards world class manufacturing –

Task Ahead. (3)

Books Recommended:

1. World Class Manufacturing -Strategic Perspective -B.S. Sahay, KBC Saxena,

Ashish Kumar. (Mac Milan)

2. Making Common Sense Common Practice – Models for manufacturing excellence –

Ron Moore (Butter worth Heinmann)

3. The Toyota Way -Jeffrey K.Liker – (Tata McGraw Hill)

4. Operations Management for Competitive Advantage – Chase

5. Making Common Sense Common Practice – Moore

6. Managing Technology & Innovation for Competitive Advantage – Narayanan

7. Just In Time Manufacturing – M.G.Korgaonkar

8. Machine That Changed The World – Womack

Text Book: World Class Manufacturing, Book 1, 2, and 3 : by YCMOU

Questions from previous exams:

1. What is multicompany planning? Give three concepts in this regard.

2. List & explain types of line configuration.

3. Discuss on essence of high potential teams.

4. Discuss the salient features of manufacturing control systems like MRP, MRP 2,

ERP.

5. Explain the various types of assembly line configurations.

6. Define quality and state quality control tools.

7. What is traditional production cost system? How does it differ from target cost system?

8.How was labour productivity achieved in past? What are the factors responsible for

today’s productivity trends.

Manufacturing / Production : The process by which goods and services are

created.

Production Management :management of organization’s productive resources or

production systems, which converts inputs to products and services

Broader concept of production :Value addition

Operation : process of changing inputs to outputs thereby adding value to some entity

WCM Definitions:

The term WCM First used by Hayes & Wheelwright in 1985.

A world class manufacturer is one who can compete with the best, anywhere in the world.

Globally, internationally

Compete on 4 priorities: cost, quality, delivery/service, flexibility,

WCM are those that demonstrate best practices in industry.

High standards of excellence: Best of best, best in class, manufacturer at international level.

Definition of Department of trade & industry:

A company is said to have WCM status if its answer to the following questions is affirmative:

1. Is the plant clean?

2. Facility reliable?

3. Documentation up to date?

4. Develop your own products and processes?

5. Workforce flexible?

6. Shortest throughput time?

7. TQM & Kaizen?

8. Training?

9. Ideas from Shop-floor?

10. Continual change?

What does it mean to be a world-class competitor? It

means being successful in your chosen market against

any competition—regardless of size, country of origin or

resources. It means matching or exceeding any

competitor on quality, lead-time, flexibility, cost/price,

customer service and innovation. It means picking your

battles—competing where and when you choose and

on terms that you dictate. It means you are in control

and your competitors struggle to emulate your success.

What does it take to be world class? First and foremost,

you must be in control—in control of your processes and

resources, in control of your markets and customers and

in control of your information. Being in control doesn’t

necessarily mean you make all the decisions, but it does

mean you are prepared and will not be thrown by

unexpected changes in demand, technology,

circumstance or competition.

It takes a lot of efforts to become WCM. There are a number of manufacturing practices

a company must address if it is to reach world-class level.

Historic Perspective: Journey towards WCM:

Craft method: earliest way of organizing production of goods and services. Practiced by

individuals or small firms. Customized products & services. E.g. Tailoring

Industrial Revolution: 1700s

Industrial Revolution

Changes That Led to the Revolution

The most important of the changes that brought about the Industrial Revolution were (1) the invention of machines to do the work of hand tools; (2) the use of steam, and later of other kinds of power, in place of the muscles of human beings and of animals; and (3) the adoption of the factory system.

The commencement of the Industrial Revolution is closely linked to a small number of

innovations,[19] made in the second half of the 18th century:

Textiles – Cotton spinning using Richard Arkwright's water frame, James Hargreaves's

Spinning Jenny, and Samuel Crompton's Spinning Mule (a combination of the Spinning

Jenny and the Water Frame). This was patented in 1769 and so came out of patent in

1783. The end of the patent was rapidly followed by the erection of many cotton mills.

Similar technology was subsequently applied to spinning worsted yarn for various

textiles and flax for linen. The cotton revolution began in Derby, which has been known

since this period as the "Powerhouse of the North".

Steam power – The improved steam engine invented by James Watt and patented in

1775 was at first mainly used to power pumps for pumping water out of mines, but from

the 1780s was applied to power other types of machines. This enabled rapid development

of efficient semi-automated factories on a previously unimaginable scale in places where

waterpower was not available. For the first time in history people did not have to rely on

human or animal muscle, wind or water for power. The steam engine was used to pump

water from coal mines; to lift trucks of coal to the surface; to blow air into the furnaces

for the making of iron; to grind clay for pottery; and to power new factories of all kinds.

For over a hundred years the steam engine was the king of the industries.

Iron making – In the Iron industry, coke was finally applied to all stages of iron

smelting, replacing charcoal. This had been achieved much earlier for lead and copper as

well as for producing pig iron in a blast furnace, but the second stage in the production of

bar iron depended on the use of potting and stamping (for which a patent expired in 1786)

or puddling (patented by Henry Cort in 1784).

A few inventions. Replacement or extension of human and animal power with machines.

Industrial Revolution.

1700s : a development in England : industrial revolution :

two principles :

widespread substitution of machine power for human, water and animal power.

Establishment of factory system

1764 : James Watt : steam engine

Mechanization of agriculture, textiles production

Workers going away from homes to places where such machines were kept :

emergence of factories

This created the need to organize workers in logical ways to produce products

1776 : publication of Adam Smith’s : Wealth of nations : economic benefits of

division of labour or specialization of labour : work broken down in small

specialized tasks : thus factories organized workers and planned and controlled

their work .

interchangeable parts

Industrial Revolution 2:

Steam Power Ships, Railways

Internal Combustion Engine

Generation of Electrical Power

Steel

Industrial Revolution 3:

1948: Transistor (Electronics)

Scientific Management :

Elements of scientific management : focused on skills, strengths, learning, specialization of

workers

How much time, physical efforts, mental level, responsibility & accountability

Stopwatch studies, standard output of worker: quantity of work can be defined

Separation of workers and management

Work sequencing, material specs, incentives, improved supervision,

Standardization, quantitative techniques

Mechanized assembly

Scientific Management : the players and their parts :

Contributor year contribution

Adam Smith 1776 Division of Labour

Frederic Taylor 1856 Father of scientific management

Scientific management principles, time study,

methods analysis, standards, planning , control

Frank Gilbreth 1868 Motion study, methods, construction

contracting, consulting

Lilian Gilbreth 1878 Fatigue study, human factor in work, employee

selection and training

Henry Gantt 1861 Gantt charts, incentive pay system, humanistic

approach to labour, training

Carl Barth 1860 Mathematical analysis, slide rule, feeds and

speed studies, consulting to automobile

industry

Harrington Emerson 1885 Principles of efficiency, methods of control

Morris Cooke 1872 Scientific management application in education

and govt.

Harris 1914 EOQ

Walter Shewart 1924 SQC

Doge, Tippet sampling

Henry Ford 1920 Mass production techniques

Henry Ford 1863 - 1947: did not invent but applied principals of scientific management with

dramatic results demonstrated efficiency of mass scale production, assembly line concept.

1970s:

Japanese initiatives in quality. Deming & Juran. Toyota

Concepts :

TQM,

JIT/Kanban,

Cellular layout

TPM(total preventive management)

Target costing

QFD(quality function deployment)

Supplier partnerships

Employee involvement

Role of inventory

Quality circles

Team development

1900s:

American initiatives:

Realized importance of quality

DFM

ABC

Benchmarking

Re-engineering

Employee ownerships/gain sharing/broad band pay systems

Appraisal systems(peer appraisals)

Agile manufacturing

Aligning internal & external processes in supply chain

Globalization

IT

Eras of scale & cost strategies:

after WW2 and through 1960s : emergence of large US companies: GM, GE, IBM, Ford

1970s : Japanese companies emphasized costs.

Scale based & cost based thinking

Introduction of new technologies:

Craft, batch, mass production to computer integrated manufacturing, CAD, CAM.

Simplification of jobs, lower labour costs

Small organizations

Flexible

Responsive

Service sector:

Service: not a physical product, intangible

Consumed at the time it is produced

World-Class Manufacturing & Information Age Competition:

Agriculture age: 8000 BC to 1750: land and natural resources as capital, physical labour,

economic success: controlling land

Industrial Age: 1750 to 1960

Machine & blue collar workers

From land to capital(money)

Information Age: information technology, knowledge workers: information technology

breaks down barriers of space & time.

Information age :

mass customization, global,

electronic technology,

business process focus,

fluid markets and suppliers,

international competition,

horizontal structure of organization, team responsibility

Business Challenges of Information Age:

Managing uncertainty

Understanding customers

Understanding globalization of business

Business Model:

A business model describes the rationale of how an organization creates, delivers, and

captures value (economic, social, cultural, or other forms of value). The process of business

model construction is part of business strategy.

In theory and practice the term business model is used for a broad range of informal and formal

descriptions to represent core aspects of a business, including purpose, offerings, strategies,

infrastructure, organizational structures, trading practices, and operational processes and

policies. The literature has provided very diverse interpretations and definitions of a business

model. A systematic review and analysis of manager responses to a survey defines business

models as the design of organizational structures to enact a commercial opportunity.[2]

Further extensions to this design logic emphasize the use of narrative or coherence in business

model descriptions as mechanisms by which entrepreneurs create extraordinarily successful

growth firms.[3]

Whenever a business is established, it either explicitly or implicitly employs a particular

business model that describes the architecture of the value creation, delivery, and capture

mechanisms employed by the business enterprise. The essence of a business model is that it

defines the manner by which the business enterprise delivers value to customers, entices

customers to pay for value, and converts those payments to profit: it thus reflects management’s

hypothesis about what customers want, how they want it, and how an enterprise can organize to

best meet those needs, get paid for doing so, and make a profit.[4]

Business models are used to describe and classify businesses (especially in an entrepreneurial

setting), but they are also used by managers inside companies to explore possibilities for future

development. Also, well known business models operate as recipes for creative managers.[5]

Business models are also referred to in some instances within the context of accounting for

purposes of public reporting.

Business Model: plan(or formula) for earning profits. Calculates revenue-cost-profit

streams, dynamics of revenue, cost structure, margins, earnings generated by products &

strategies. Does the business make economic sense? Test of a business model’s success?

If yes, business model is good, proven.

Business models of Microsoft, DELL, Bata, Maruti (exclusive dealer network), Nokia(any

buyer) Shehnaz Hussain (franchise), any small company(direct sales, no office), Philips (

distributors & dealers).

Dell : adv. No dealer commission, disadvt. : office overheads

Teaching Model:

MIT : classes

Harvard : presentations, case studies

Distant learning model.

Globalization

Globalization:

1. Spread & connectedness of production, communication, technologies across

the world.

2. Political changes: Govts dictated by multinationals, decline of Government

Powers

3. Diffusion of ideas

4. Globalization of brand

5. Powerful economic, political, social, cultural dimensions

6. Delocalization: absence of face to face interactions

Globalization' is commonly used as a shorthand way of describing the spread and

connectedness of production, communication and technologies across the world. That spread

has involved the interlacing of economic and cultural activity.

With increased economic interconnection has come deep-seated political changes -

poorer, 'peripheral', countries have become even more dependent on activities in 'central'

economies such as the USA where capital and technical expertise tend to be located.

There has also been a shift in power away from the nation state and toward, some argue,

multinational corporations. We have also witnessed the rise and globalization of the

'brand'. It isn't just that large corporations operate across many different countries - they

have also developed and marketed products that could be just as well sold in Peking as in

Washington. Brands like Coca Cola, Nike, Sony, and a host of others have become part

of the fabric of vast numbers of people's lives.

Globalization involves the diffusion of ideas, practices and technologies. It is

something more than internationalization and universalization. It isn't simply

modernization or westernization. It is certainly isn't just the liberalization of markets.

Anthony Giddens (1990: 64) has described globalization as 'the intensification of

worldwide social relations which link distant localities in such a way that local

happenings are shaped by events occurring many miles away and vice versa'. This

involves a change in the way we understand geography and experience localness. As well

as offering opportunity it brings with considerable risks linked, for example, to

technological change. .

Globalization, thus, has powerful economic, political, cultural and social dimensions.

Here we want to focus on four themes that appear with some regularity in the literature:

de-localization and supraterritoriality;

Globalization: delocalization and supraterritoriality

Globalization and de-localization. Many of the activities that previously involved face-

to-face interaction, or that were local, are now conducted across great distances. There

has been a significant de-localization in social and economic exchanges. Activities and

relationships have been uprooted from local origins and cultures (Gray 1999: 57). One

important element in this has been the separation of work from the home (and the classic

move to the suburbs - see Putnam's discussion of the impact on this on local social

relations). But de-localization goes well beyond this. Increasingly people have to deal

with distant systems in order that they may live their lives. Banking and retailing, for

example, have adopted new technologies that involve people in less face-to-face

interaction. Your contact at the bank is in a call centre many miles away; when you buy

goods on the internet the only person you might speak to is the delivery driver. In this last

example we move beyond simple notions of distance and territory into a new realm (and

this is what Scholte is especially concerned with when he talks of globalization). When

we buy books from an internet supplier like Amazon our communications pass through a

large number of computers and routers and may well travel thousands of miles; the

computers taking our orders can be on a different continent; and the books can be located

anywhere in the world. The 'spaces' we inhabit when using the internet to buy things or to

communicate (via things like chatrooms and bulletin boards) can allow us to develop a

rather different sense of place and of the community to which we belong.

Not everything is global, of course. Most employment, for example, is local or regional -

but 'strategically crucial activities and economic factors are networked around a

globalized system of inputs and outputs' (Castells 2001: 52). What happens in local

neighbourhoods is increasingly influenced by the activities of people and systems

operating many miles away. For example, movements in the world commodity and

money markets can have a very significant impact upon people's lives across the

globe. People and systems are increasingly interdependent.

[T]he starting point for understanding the world today is not the size of its GDP or the

destructive power of its weapons systems, but the fact that it is so much more joined

together than before. It may look like it is made up of separate and sovereign

individuals, firms, nations or cities, but the deeper reality is one of multiple connections.

(Mulgan 1998: 3)

Businesses are classic example of this. As Castells (2001) noted they are organized

around networks of production, management and distribution. Those that are successful

have to be able to respond quickly to change - both in the market and in production.

Sophisticated information systems are essential in such globalization.

Globalization and the decline in power of national governments. It isn't just

individuals and neighbourhood institutions that have felt the impact of de-localization. A

major causality of this process has been a decline in the power of national governments to

direct and influence their economies (especially with regard to macroeconomic

management). Shifts in economic activity in say, Japan or the United States, are felt in

countries all over the globe. The internationalization of financial markets, of technology

and of some manufacturing and services bring with them a new set of limitations upon

the freedom of action of nation states. In addition, the emergence of institutions such as

the World Bank, the European Union and the European Central Bank, involve new

constraints and imperatives. Yet while the influence of nation states may have shrunk as

part of the process of globalization it has not disappeared. Indeed, they remain, in Hirst

and Thompson's (1996: 170) words, 'pivotal' institutions, 'especially in terms of creating

the conditions for effective international governance'. However, we need to examine the

way in which national governments frame their thinking about policy. There is a strong

argument that the impact of globalization is most felt through the extent to which politics

everywhere are now essentially market-driven. 'It is not just that governments can no

longer "manage" their national economies', Colin Leys (2001: 1) comments, 'to survive in

office they must increasingly "manage" national politics in such a ways as to adapt them

to the pressures of trans-national market forces'.

The initiation, or acceleration, of the commodification of public services was... a logical

result of government's increasingly deferential attitude towards market forces in the era

of the globalized economy... A good deal of what was needed [for the conversion of

non-market spheres into profitable fields for investment] was accomplished by market

forces themselves, with only periodic interventions by the state, which then appeared

as rational responses to previous changes. (Leys 2001: 214)

In other words, the impact of globalization is less about the direct way in which specific

policy choices are made, as the shaping and reshaping of social relations within all

countries.

Risk, technological innovation and globalization

As we have already noted, a particular feature of 'globalization' is the momentum and

power of the change involved. 'It is the interaction of extraordinary technological

innovation combined with world-wide reach that gives today's change its particular

complexion' (Hutton and Giddens 2001: vii). Developments in the life sciences, and in

digital technology and the like, have opened up vast, new possibilities for production and

exchange. Innovations like the internet have made it possible to access information and

resources across the world - and to coordinate activities in real time.

Globalization and the knowledge economy. Earlier we saw Castells making the point

that productivity and competitiveness are, by and large, a function of knowledge

generation and information processing. This has involved a major shift - and entails a

different way of thinking about economies.

For countries in the vanguard of the world economy, the balance between knowledge

and resources has shifted so far towards the former that knowledge has become

perhaps the most important factor determining the standard of living - more than land,

than tools, than labour. Today's most technologically advanced economies are truly

knowledge-based. (World Bank 1998)

The rise of the so-called 'knowledge economy' has meant that economists have been

challenged to look beyond labour and capital as the central factors of production. Paul

Romer and others have argued that technology (and the knowledge on which it is based)

has to be viewed as a third factor in leading economies. (Romer, 1986; 1990). Global

finance, thus, becomes just one force driving economies. Knowledge capitalism: 'the

drive to generate new ideas and turn them into commercial products and services which

consumers want' is now just as pervasive and powerful (Leadbeater 2000: 8). Inevitably

this leads onto questions around the generation and exploitation of knowledge. There is

already a gaping divide between rich and poor nations - and this appears to be

accelerating under 'knowledge capitalism'. There is also a growing gap within societies

(and this is one of the driving forces behind the English government's Connexions

strategy). Commentators like Charles Leadbeater have argued for the need to 'innovate

and include' and for a recognition that successful knowledge economies have to take a

democratic approach to the spread of knowledge: 'We must breed an open, inquisitive,

challenging and ambitious society' (Leadbeater 2000: 235, 237). However, there are

powerful counter-forces to this ideal. In recent years we have witnessed a significant

growth in attempts by large corporations to claim intellectual rights over new discoveries,

for example in relation to genetic research, and to reap large profits from licensing use of

this 'knowledge' to others. There are also significant doubts as to whether 'modern

economies' are, indeed, 'knowledge economies'. It doesn't follow, for example, that only

those nations committed to lifelong learning and to creating a learning society will thrive

(see Wolf 2002: 13-55).

Globalization and risk. As well as opening up considerable possibility, the employment

of new technologies, when combined with the desire for profit and this 'world-wide'

reach, brings with it particular risks. Indeed, writers like Ulrich Beck (1992: 13) have

argued that the gain in power from the 'techno-economic progress' is quickly being

overshadowed by the production of risks. (Risks in this sense can be viewed as the

probability of harm arising from technological and economic change). Hazards linked to

industrial production, for example, can quickly spread beyond the immediate context in

which they are generated. In other words, risks become globalized.

[Modernization risks] possess an inherent tendency towards globalization. A

universalization of hazards accompanies industrial production, independent of the place

where they are produced: food chains connect practically everyone on earth to

everyone else. They dip under borders. (Beck 1992: 39)

As Beck (1992: 37) has argued there is a boomerang effect in globalization of this kind.

Risks can catch up with those who profit or produce from them.

The basic insight lying behind all this is as simple as possible: everything which threatens

life on this Earth also threatens the property and commercial interests of those who live

from the commodification of life and its requisites. In this way a genuine and

systematically intensifying contradiction arises between the profit and property

interests that advance the industrialization process and its frequently threatening

consequences, which endanger and expropriate possessions and profits (not to mention

the possession and profit of life) (Beck 1992: 39).

Here we have one of the central paradoxes of what Beck has termed 'the risk society'. As

knowledge has grown, so has risk. Indeed, it could be argued that the social relationships,

institutions and dynamics within which knowledge is produced have accentuated the risks

involved. Risk has been globalized.

Globalization and the rise of multinational corporations and branding

A further, crucial aspect of globalization is the nature and power of multinational

corporations. Such companies now account for over 33 per cent of world output, and 66

per cent of world trade (Gray 1999: 62). Significantly, something like a quarter of world

trade occurs within multinational corporations (op. cit). This last point is well illustrated

by the operations of car manufacturers who typically source their components from plants

situated in different countries. However, it is important not to run away with the idea that

the sort of globalization we have been discussing involves multinationals turning, on any

large scale, to transnationals:

International businesses are still largely confined to their home territory in terms of

their overall business activity; they remain heavily 'nationally embedded' and continue

to be multinational, rather than transnational, corporations. (Hirst and Thompson 1996:

98).

While full globalization in this organizational sense may not have occurred on a large

scale, these large multinational corporations still have considerable economic and cultural

power.

Globalization and the impact of multinationals on local communities. Multinationals

can impact upon communities in very diverse places. First, they look to establish or

contract operations (production, service and sales) in countries and regions where they

can exploit cheaper labour and resources. While this can mean additional wealth flowing

into those communities, this form of 'globalization' entails significant inequalities. It can

also mean large scale unemployment in those communities where those industries were

previously located. The wages paid in the new settings can be minimal, and worker's

rights and conditions poor. For example, a 1998 survey of special economic zones in

China showed that manufacturers for companies like Ralph Lauren, Adidas and Nike

were paying as little as 13 cents per hour (a 'living wage' in that area is around 87 cents

per hour). In the United States workers doing similar jobs might expect US$10 per hour

(Klein 2001: 212).

Second, multinationals constantly seek out new or under-exploited markets. They look to

increase sales - often by trying to create new needs among different target groups. One

example here has been the activities of tobacco companies in southern countries. Another

has been the development of the markets predominantly populated by children and young

people. In fact the child and youth market has grown into one the most profitable and

influential sectors. 'The young are not only prized not only for the influence they have

over adult spending, but also for their own burgeoning spending power' (Kenway and

Bullen 2001: 90). There is increasing evidence that this is having a deep effect; that our

view of childhood (especially in northern and 'developed' countries) is increasingly the

product of 'consumer-media' culture. Furthermore, that culture:

... is underpinned in the sweated work of the 'othered' children of the so-called 'Third

World'. [W]ith the aid of various media, the commodity form has increasingly become

central to the life of the young of the West, constructing their identities and

relationships, their emotional and social worlds... [A]dults and schools have been

negatively positioned in this matrix to the extent that youthful power and pleasure are

constructed as that which happens elsewhere - away from adults and schools and

mainly with the aid of commodities. (Kenway and Bullen 2001: 187).

Of course such commodification of everyday life is hardly new. Writers like Erich

Fromm were commenting on the phenomenon in the early 1950s. However, there has

been a significant acceleration and intensification (and globalization) with the rise of the

brand (see below) and a heavier focus on seeking to condition children and young people

to construct their identities around brands.

Third, and linked to the above, we have seen the erosion of pubic space by corporate

activities. Significant areas of leisure, for example, have moved from more associational

forms like clubs to privatized, commercialized activity. Giroux (2000: 10), for example,

charts this with respect to young people

[Y]oung people are increasingly excluded from public spaces outside of schools that

once offered them the opportunity to hang out with relative security, work with

mentors, and develop their own talents and sense of self-worth. Like the concept of

citizenship itself, recreational space is now privatized as commercial profit-making

venture. Gone are the youth centers, city public parks, outdoor basketball courts or

empty lots where kids call play stick ball. Play areas are now rented out to the highest

bidder...

This movement has been well documented in the USA (particularly by Robert Putnam

with respect to a decline in social capital and civic community - but did not examine in

any depth the role corporations have taken). It has profound implications for the quality

of life within communities and the sense of well-being that people experience.

Fourth, multinational companies can also have significant influence with regard to policy

formation in many national governments and in transnational bodies such as the

European Union and the World Bank (key actors within the glboalization process). They

have also profited from privatization and the opening up of services. As George Monbiot

has argued with respect to Britain, for example: the provision of hospitals, roads and

prisons... has been deliberately tailored to meet corporate demands rather than public

need' (2001: 4). He continues:

... biotechnology companies have sought to turn the food chain into a controllable

commodity and [there is an] extraordinary web of influence linking them to government

ministers and government agencies.... [C]orporations have come to govern key decision-

making processes within the European Union and, with the British government's

blessing, begun to develop a transatlantic single market, controlled and run by

corporate chief executives. (Monbiot 2001: 5)

While with globalization the power of national governments over macro-economic forces

may have been limited in recent years, the services and support they provide for their

citizens have been seen as a considerable opportunity for corporations. In addition,

national governments still have considerable influence in international organizations -

and have therefore become the target of multinationals for action in this arena.

Branding and globalization. The growth of multinationals and the globalization of their

impact is wrapped up with the rise of the brand.

The astronomical growth in the wealth and cultural influence of multi-national

corporations over the last fifteen years can arguably be traced back to a single,

seemingly innocuous idea developed by management theorists in the mid-1980s: that

successful corporations must primarily produce brands, as opposed to products. (Klein

2001: 3)

As Naomi Klein (2001: 196) has suggested, 'brand builders are the new primary

producers in our so-called knowledge economy'. One of the key elements that keeps

companies as multinationals rather than transnationals is the extent to which they look to

'outsource' products, components and services. The logic underlying this runs something

like the following:

.... corporations should not expend their finite resources on factories that will demand

physical upkeep, on machines that will corrode or on employees who will certainly age

and die. Instead, they should concentrate those resources in the virtual brick and mortar

used to build their brands

Nike, Levi, Coca Cola and other major companies spend huge sums of money in

promoting and sustaining their brands. One strategy is to try and establish particular

brands as an integral part of the way people understand, or would like to see, themselves.

As we have already seen with respect the operation of multinationals this has had a

particular impact on children and young people (and education). There is an attempt 'to

get them young'.

Significantly, the focus on brand rather than the inherent qualities of the product as well

as advantaging multinationals in terms of market development also has an Achilles heel.

Damage to the brand can do disproportionate harm to sales and profitability. If a brand

becomes associated with failure or disgrace (for example where a sports star they use to

advertise their brand is exposed as a drug-taker; or where the brand becomes associated

in the public's mind with the exploitation of children - as for example has happened with

some of the main trainer makers) then it can face major problems in the marketplace.

Globalization and the multinationals. While there is no doubting the growth in scale

and scope of multinational corporations - the degree of control they have over the central

dynamics of globalization remains limited.

In reality, they are often weak and amorphous organizations. They display the loss of

authority and erosion of common values that afflicts practically all late modern social

institutions. The global market is not spawning corporations which assume the past

functions of sovereign states. Rather, it has weakened and hollowed out both

institutions. (Gray 1999: 63)

While multinationals have played a very significant role in the growth of globalization, it

is important not to overplay the degree of control they have had over the central

dynamics.

Capitalism, free markets, instability and division

Amartya Sen (2002) has argued that 'the market economy does not work by itself in

global relations--indeed, it cannot operate alone even within a given country'. Yet, for

some proponents of globalization the aim is to expand market relations, push back state

and interstate interference, and create a global free market. This political project can be

seen at work in the activities of transnational organizations like the World Trade

Organization (WTO), the International Monetary Fund (IMF), and the Organization for

Economic Cooperation and Development (OECD), and has been a significant objective

of United States intervention. Part of the impetus for this project was the limited success

of corporate/state structures in planning and organizing economies. However, even more

significant was the growth in influence of neo-liberal ideologies and their promotion by

powerful politicians like Reagan in the USA and Thatcher in the UK.

A new orthodoxy became ascendant. In the USA a Democrat President renounced 'big

government'; in Britain, the Labour Party abandoned its commitment to social ownership.

The 'markets were in command' (Frank 2002: xv). The basic formula ran something like

the following:

Privatization + Deregulation + Globalization = Turbo-capitalism = Prosperity

(Luttwak quoted by Frank 2002: 17)

As various commentators have pointed out, the push toward deregulation and 'setting

markets free' that so dominated political rhetoric in many northern countries during the

1980s and 1990s was deeply flawed. For example, the central tenet of free market

economics - that unregulated markets 'will of their own accord find unimprovable results

for all participants' has, according to Will Hutton (1995: 237), 'now proved to be a

nonsense. It does not hold in theory. It is not true'. Historically, free markets have been

dependent upon state power. For markets to function over time they require a reasonable

degree of political stability, a solid legal framework and a significant amount of social

capital. The push to engineer free markets has contained within it the seeds of its own

destruction.

The central paradox of our time can be stated thus: economic globalization does not

strengthen the current regime of global laissez-faire. It works to undermine it. There is

nothing in today's global market that buffers it against the social strains arising from

high uneven economic development within and between the world's diverse societies.

The swift waxing and waning of industries and livelihoods, the sudden shifts of

production and capital, the casino of currency speculation - these conditions trigger

political counter-movements that challenge the very ground rules of the global free

market. (Gray 1999: 7)

Capitalism is essentially disruptive and ever-changing - and takes very different forms

across the world. While it produces wealth for significant numbers of people, many

others have suffered. The gap between rich and poor has widened as global capitalism

has expanded. For example, David Landes (1999: xx) has calculated that the difference in

income per head between the richest nation (he cited Switzerland) and the poorest non-

industrial country, Mozambique, is now about 400 to 1. 'Two hundred and fifty years

ago, the gap between richest and poorest was perhaps 5 to 1, and the difference between

Europe and, say, East or South Asia (China or India) was around 1.5 or 2 to 1' (op. cit.).

The development of markets, the expansion of economic activity, and the extent to which

growing prosperity is experienced by populations as a whole has been, and remains,

deeply influenced by public policies around, for example, education, land reform and the

legal framework for activity. Economists like Amartya Sen have argued that 'public

action that can radically alter the outcome of local and global economic relations'. For

him the:

... central issue of contention is not globalization itself, nor is it the use of the market as

an institution, but the inequity in the overall balance of institutional arrangements--

which produces very unequal sharing of the benefits of globalization. The question is not

just whether the poor, too, gain something from globalization, but whether they get a

fair share and a fair opportunity. (Sen 2002)

Strong markets require significant state and transnational intervention. To be sustained

across time they also require stable social relationships and an environment of trust.

Moreover, they can be organized and framed so that people throughout different societies

can benefit.

Conclusion

One commentator has argued that there is a very serious case not against 'globalization',

... but against the particular version of it imposed by the world's financial elites. The

brand currently ascendant needlessly widens gaps of wealth and poverty, erodes

democracy, seeds instability, and fails even its own test of maximizing sustainable

economic growth. (Kuttner 2002)

The gap between rich and poor countries has widened considerably. However, as Sen

(2002) has commented, to 'see globalization as merely Western imperialism of ideas and

beliefs (as the rhetoric often suggests) would be a serious and costly error'. He continues:

Of course, there are issues related to globalization that do connect with imperialism (the

history of conquests, colonialism, and alien rule remains relevant today in many ways),

and a postcolonial understanding of the world has its merits. But it would be a great

mistake to see globalization primarily as a feature of imperialism. It is much bigger--

much greater--than that.

For example, while the reach and power of multinationals appears to have grown

significantly, neither they, nor individual national governments, have the control over

macro-economic forces that they would like. Ecological and technological risks have

multiplied. Globalization in the sense of connectivity in economic and cultural life across

the world, is of a different order to what has gone before. As we said at the start, the

speed of communication and exchange, the complexity and size of the networks involved,

and the sheer volume of trade, interaction and risk give what we now label as

'globalization' a peculiar force.

All this raises particular questions for educators. Has the process of globalization eroded

the autonomy of national education systems? How has it impacted on the forms that

education now takes? What is the effect of an increased corporate presence and branding

in education? What response should educators make? We examine these and other issues

in globalization and the incorporation of education.

Business Model:

What is Business Excellence? Business Excellence is often described as outstanding practices in managing the organisation

and achieving results, all based on a set of fundamental concepts or values.

These practices have evolved into models for how a world class organisation should operate.

These models have been developed and continue to evolve through extensive study of the

practice and values of the world’s highest performing organisations.

Many countries have developed their own models and use these as frameworks to assess and

recognise the performance of organisations through awards programmes.

Since the 1990s there has been a general decline in award applications. However there has been

an increasing trend for organisations to apply these models and integrate the principles and

practice with their day-to-day operations thereby achieving the benefits business excellence

brings. Find out more about who uses these models.

What are business excellence models?

Baldrige Model

EFQM Model

Award Programmes

Who uses business excellence/models?

How Organisations use Business Excellence Models

Benefits of Business Excellence Use

How Long Before I Can Expect Results?

Choosing a Self Assessment Method

What are business excellence models?

Business excellence models are frameworks that when applied within an organisation can help

to focus thought and action in a more systematic and structured way that should lead to

increased performance. The models are holistic in that they focus upon all areas and dimensions

of an organisation, and in particular, factors that drive performance. These models are

internationally recognised as both providing a framework to assist the adoption of business

excellence principles, and an effective way of measuring how thoroughly this adoption has been

incorporated.

Several business excellence models exist world-wide. While variations exist, these models are

all remarkably similar. The most common include;

Baldrige (MBNQA) – Used in over 25 countries including US and NZ

European Foundation for Quality Management (EFQM) – Used throughout Europe

Singapore Quality Award Model - Singapore

Japan Quality Award Model - Japan

Canadian Business Excellence Model - Canada Australian Business Excellence Framework (ABEF) - Australia

Baldrige Model

The most popular and influential model in the western world is the one launched by the US

government called the Malcolm Baldrige Award Model (also commonly known as the Baldrige

model, the Baldrige criteria, or The Criteria for Performance Excellence). More than 25

countries base their frameworks upon the Baldrige criteria.

The Baldrige model consists of practices that are incorporated into six Approach categories plus

a Results category consisting of -

Leadership

Strategic Planning

Customer and Market Focus

Measurement, Analysis, and Knowledge Management

Workforce focus

Process Management Business Results, creating value

The Baldrige Values include:

Visionary Leadership

Customer-Driven Excellence

Organisational and Personal Learning

Valuing Employees and Partners

Agility

Focus on the Future

Managing for Innovation

Management by Fact

Social Responsibility

Focus on Results and Creating Value Systems Perspective

EFQM model

The EFQM model consists of six process enablers and one results category:

Leadership

Policy and Strategy

People

Partnerships and Resources

Processes

Customer Results

People Results

Society Results Key Performance Results

The fundamental concepts include:

Results orientation

Customer focus

Leadership and constancy of purpose

Management by processes and facts

People development and involvement

Continuous learning, innovation and improvement

Partnership development Public responsibility

Award Programmes

In general, business excellence models have been developed by national bodies as a basis for

award programmes. For most of these bodies, the awards themselves are secondary in

importance to the wide-spread take up of the concepts of business excellence, which ultimately

lead to improved national economic performance.

Often awards programmes operate at a local, regional and national level to recognise and

celebrate the achievement of all levels of organisational maturity. It is through these award

programmes that an organisation can be assessed and justifiably claim to operate at World Class

levels of performance. Awards are usually only given to those organisations that have been

assessed as “excellent” through a rigorous awards process using independent teams of evaluators

to assess award applicants.

It was recently estimated that there are at least 76 countries operating a business excellence

award programme at a national level.

Who uses business excellence / models?

Organisations across the world are using these business excellence models as a basis for

continuous performance improvement.

In the US nearly two million copies of the Malcolm Baldrige Model have been distributed since

the award’s launch in 1988, and this does not include copies that are available in books, state

and local award programs, or those downloaded from the web.

In Europe alone the European Foundation for Quality Management believes that at least 30,000

organisations are using the EFQM model. The EFQM’s figure was based on the number of

EFQM members, the members of its national partners, and those organisations that they know

are using the model in their business.

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Benchmarking

Benchmarking is the process of comparing one's business processes and performance metrics to

industry bests or best practices from other industries. Dimensions typically measured are quality,

time and cost. In the process of benchmarking, management identifies the best firms in their

industry, or in another industry where similar processes exist, and compare the results and

processes of those studied (the "targets") to one's own results and processes. In this way, they

learn how well the targets perform and, more importantly, the business processes that explain

why these firms are successful.

The term benchmarking was first used by cobblers to measure people's feet for shoes. They

would place someone's foot on a "bench" and mark it out to make the pattern for the shoes.

Benchmarking is used to measure performance using a specific indicator (cost per unit of

measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit

of measure) resulting in a metric of performance that is then compared to others.[citation needed]

Also referred to as "best practice benchmarking" or "process benchmarking", this process is used

in management and particularly strategic management, in which organizations evaluate various

aspects of their processes in relation to best practice companies' processes, usually within a peer

group defined for the purposes of comparison. This then allows organizations to develop plans

on how to make improvements or adapt specific best practices, usually with the aim of increasing

some aspect of performance. Benchmarking may be a one-off event, but is often treated as a

continuous process in which organizations continually seek to improve their practices.

Benefits and use

In 2008, a comprehensive survey [1] on benchmarking was commissioned by The Global

Benchmarking Network, a network of benchmarking centers representing 22 countries. Over 450

organizations responded from over 40 countries. The results showed that:

1. Mission and Vision Statements and Customer (Client) Surveys are the most used (by

77% of organizations of 20 improvement tools, followed by SWOT analysis(72%), and

Informal Benchmarking (68%). Performance Benchmarking was used by 49% and Best

Practice Benchmarking by 39%.

2. The tools that are likely to increase in popularity the most over the next three years are

Performance Benchmarking, Informal Benchmarking, SWOT, and Best Practice

Benchmarking. Over 60% of organizations that are not currently using these tools

indicated they are likely to use them in the next three years.

Collaborative benchmarking

Benchmarking, originally described [Rank Xerox]], is usually carried out by individual

companies. Sometimes it may be carried out collaboratively by groups of companies (e.g.

subsidiaries of a multinational in different countries). One example is that of the Dutch

municipally-owned water supply companies, which have carried out a voluntary collaborative

benchmarking process since 1997 through their industry association. Another example is the UK

construction industry which has carried out benchmarking since the late 1990s again through its

industry association and with financial support from the UK Government.

Procedure

There is no single benchmarking process that has been universally adopted. The wide appeal and

acceptance of benchmarking has led to the emergence of benchmarking methodologies. One

seminal book is Boxwell's Benchmarking for Competitive Advantage (1994).[2] The first book on

benchmarking, written and published by Kaiser Associates,[3] is a practical guide and offers a

seven-step approach. Robert Camp (who wrote one of the earliest books on benchmarking in

1989)[4] developed a 12-stage approach to benchmarking.

The 12 stage methodology consists of:

1. Select subject

2. Define the process

3. Identify potential partners

4. Identify data sources

5. Collect data and select partners

6. Determine the gap

7. Establish process differences

8. Target future performance

9. Communicate

10. Adjust goal

11. Implement

12. Review and recalibrate

The following is an example of a typical benchmarking methodology:

1.Identify problem areas: Because benchmarking can be applied to any business

process or function, a range of research techniques may be required. They include

informal conversations with customers, employees, or suppliers; exploratory research

techniques such as focus groups; or in-depth marketing research, quantitative research,

surveys, questionnaires, re-engineering analysis, process mapping, quality control

variance reports, financial ratio analysis, or simply reviewing cycle times or other

performance indicators. Before embarking on comparison with other organizations it is

essential to know the organization's function and processes; base lining performance

provides a point against which improvement effort can be measured.

2.Identify other industries that have similar processes: For instance, if one were

interested in improving hand-offs in addiction treatment one would identify other fields

that also have hand-off challenges. These could include air traffic control, cell phone

switching between towers, transfer of patients from surgery to recovery rooms.

3.Identify organizations that are leaders in these areas: Look for the very best in any

industry and in any country. Consult customers, suppliers, financial analysts, trade

associations, and magazines to determine which companies are worthy of study.

4.Survey companies for measures and practices: Companies target specific business

processes using detailed surveys of measures and practices used to identify business

process alternatives and leading companies. Surveys are typically masked to protect

confidential data by neutral associations and consultants.

5.Visit the "best practice" companies to identify leading edge practices: Companies

typically agree to mutually exchange information beneficial to all parties in a

benchmarking group and share the results within the group.

6.Implement new and improved business practices: Take the leading edge practices

and develop implementation plans which include identification of specific opportunities,

funding the project and selling the ideas to the organization for the purpose of gaining

demonstrated value from the process.

Costs

The three main types of costs in benchmarking are:

Visit Costs - This includes hotel rooms, travel costs, meals, a token gift, and lost labor

time.

Time Costs - Members of the benchmarking team will be investing time in researching

problems, finding exceptional companies to study, visits, and implementation. This will

take them away from their regular tasks for part of each day so additional staff might be

required.

Benchmarking Database Costs - Organizations that institutionalize benchmarking into

their daily procedures find it is useful to create and maintain a database of best practices

and the companies associated with each best practice now.

The cost of benchmarking can substantially be reduced through utilizing the many internet

resources that have sprung up over the last few years. These aim to capture benchmarks and best

practices from organizations, business sectors and countries to make the benchmarking process

much quicker and cheaper.

Technical/product benchmarking

The technique initially used to compare existing corporate strategies with a view to achieving the

best possible performance in new situations (see above), has recently been extended to the

comparison of technical products. This process is usually referred to as "technical

benchmarking" or "product benchmarking". Its use is well-developed within the automotive

industry ("automotive benchmarking"), where it is vital to design products that match precise

user expectations, at minimal cost, by applying the best technologies available worldwide. Data

is obtained by fully disassembling existing cars and their systems. Such analyses were initially

carried out in-house by car makers and their suppliers. However, as these analyses are expensive,

they are increasingly being outsourced to companies who specialize in this area. Outsourcing has

enabled a drastic decrease in costs for each company (by cost sharing) and the development of

efficient tools (standards, software).

Types

Process benchmarking - the initiating firm focuses its observation and investigation of

business processes with a goal of identifying and observing the best practices from one or

more benchmark firms. Activity analysis will be required where the objective is to

benchmark cost and efficiency; increasingly applied to back-office processes where

outsourcing may be a consideration.

Financial benchmarking - performing a financial analysis and comparing the results in

an effort to assess your overall competitiveness and productivity.

Benchmarking from an investor perspective- extending the benchmarking universe to

also compare to peer companies that can be considered alternative investment

opportunities from the perspective of an investor.

Performance benchmarking - allows the initiator firm to assess their competitive

position by comparing products and services with those of target firms.

Product benchmarking - the process of designing new products or upgrades to current

ones. This process can sometimes involve reverse engineering which is taking apart

competitors products to find strengths and weaknesses.

Strategic benchmarking - involves observing how others compete. This type is usually

not industry specific, meaning it is best to look at other industries.

Functional benchmarking - a company will focus its benchmarking on a single function

to improve the operation of that particular function. Complex functions such as Human

Resources, Finance and Accounting and Information and Communication Technology are

unlikely to be directly comparable in cost and efficiency terms and may need to be

disaggregated into processes to make valid comparison.

Best-in-class benchmarking - involves studying the leading competitor or the company

that best carries out a specific function.

Operational benchmarking - embraces everything from staffing and productivity to

office flow and analysis of procedures performed.[5]

Energy benchmarking - process of collecting, analysing and relating energy

performance data of comparable activities with the purpose of evaluating and comparing

performance between or within entities[6]. Entities can include processes, buildings or

companies. Benchmarking may be internal between entities within a single organization,

or - subject to confidentiality restrictions - external between competing entities.

Tools

Benchmarking software can be used to organize large and complex amounts of information.

Software packages can extend the concept of benchmarking and competitive analysis by

allowing individuals to handle such large and complex amounts or strategies. Such tools support

different types of benchmarking (see above) and can reduce the above costs significantly.

Metric benchmarking

Another approach to making comparisons involves using more aggregative cost or production

information to identify strong and weak performing units. The two most common forms of

quantitative analysis used in metric benchmarking are data envelope analysis (DEA) and

regression analysis. DEA estimates the cost level an efficient firm should be able to achieve in a

particular market. In infrastructure regulation, DEA can be used to reward companies/operators

whose costs are near the efficient frontier with additional profits. Regression analysis estimates

what the average firm should be able to achieve. With regression analysis, firms that performed

better than average can be rewarded while firms that performed worse than average can be

penalized. Such benchmarking studies are used to create yardstick comparisons, allowing

outsiders to evaluate the performance of operators in an industry. Advanced statistical

techniques, including stochastic frontier analysis, have been used to identify high and weak

performers in industries, including applications to schools, hospitals, water utilities, and electric

utilities.[7]

One of the biggest challenges for metric benchmarking is the variety of metric definitions used

among companies or divisions. Definitions may change over time within the same organization

due to changes in leadership and priorities. The most useful comparisons can be made when

metrics definitions are common between compared units and do not change so improvements can

be verified.

Facility Design & Management:

Facility: infrastructure, and organizations supporting main activity

A good plant design affects production efficiency. Interaction between work, workers, and

workplace.

Objectives: minimize wastage of energy, movement, and time.

Facility Management: Multidisciplinary, multiskills

- Maintenance

- Space management

- Real estate

Manufacturing practices for WCM:

Investments in info systems

Lean production practices

Linking mfg strategy to business strategy

Social attitudes

Intensity of Competition

Kaizen based tools

Following concepts(buzzwords) are part of WCM :

Agile production

TQM

JIT/Kanban – Toyota production system

Cellular layout

Joint product/process design – concurrent engineering

Total preventive maintenance(TPM)

Target costing

Quality function deployment

Supplier partnerships

Employee involvement

Quality circle

Design for manufacturing

Benchmarking

Re engineering

Quick response/supplier managed inventory system

Peer appraisal system

Broad band pay system (incentives)

Employee ownership/gain sharing

Examples of world class manufacturing companies:

Japanese :Toyota, Sony, Honda

American : HP, GM, Motorala, GE

French: Legrand, Renaults, Peugeot, Valeo,

Fig. above shows practices of World Class Manufacturing

Systems & Tools for World-Class Manufacturing

Information Management Tools:

Product & Process Design tools: CAD, CAM Group Technology

JIT

SQC

Bar Code Systems

MRP-2, ERP, Supply Chain Management

Fsz l[.

Material Processing & Handling Tools:

FMS

CNC

AGV(Automatic Guided Vehicles)

Automatic Storage & Retrieval Systems

Poka Yoke (Error free)

Rapid Prototyping

Lean Production

Single Minute Exchange of Dies

Facility Design & Management

Teamwork, Motivation, and Rewards

-------------------------------------------------------------------------------------------------------

26.08.13

Syllabus for Mid Term:

Defining WCM

Historical Perspective

Manufacturing Practices in WCM

Information Age Competition

Globalization

Business Models & Business Excellence Models

Benchmarking

Systems & Tools for WCM

Facility Design & Management

-------------------------------------------------------------------------------------------------------

What is the difference between services and manufactured products ?

Services Products

Intangible outputs

Outputs can not be inventoried,

delivered in real time when customer demands

Extensive customer contact

Short lead times

Labour intensive

Service quality subjectively determined

Organization : flat Taller

Products require associated services. E.g. a TV require broadcasting services, serials,

movies, news.

Products and services inseparable.

Communication services

Hospitality

Rise of service sector:

Changes in economy

Customer expectations and demands

Opportunities offered by new technologies

Manufacturing productivity trends:

1. Division of labour

2. Scientific management : reducing a complex job into a series of simple tasks.

Scientifically analysed and optimized.

3. Improvement in machine sizes and speed

4. Improved machine tools

5. Stronger engineering materials e.g. steel, alloys

6. Conveyers

7. Computerization

Indian Scenario:

Vast domestic market

Relatively low cost workers

Advance technical skills: IT

Large no. of engineering graduates

Improving infrastructure : roads, ports, power, airports

Indian WCM

Review Questions – Unit 1:

1. Why is world class manufacturing the need of today’s highly competitive market?

2. What were major contributions of Japan & US in the journey to manufacturing

excellence?

3. What forces made the global decade to be so?

4. The quality revolution set the pace towards manufacturing excellence. Discuss.

5. Why is sustainable improvement & growth more important of organizations?

6. How was labour productivity achieved in past? What are the factors responsible for

today’s productivity trends.

Quality

Quality :

- superiority, excellence

- Lack of manufacturing defects or services defects

- Related product features or price

- ANSI, ASC : totality of features and characteristics of a product or service that

affects its ability to satisfy given needs.

- Fitness for use.

- Meeting or Exceeding customer expectations.

- A predictable degree of uniformity and dependability, at low cost and suited to

market.

Example : Milk expiry date

Quality in manufacturing: dimensions of quality:

1. Performance

2. Features

3. Reliability

4. Conformance

5. Durability

6. Serviceability

7. Aesthetics

8. Perceived quality: subjective

Quality in service :

1. Time : waiting time

2. Timeliness

3. Completeness

4. Courtesy

5. Consistency

6. Accessibility & convenience : easy to obtain?

7. Accuracy right first time?

8. Responsiveness

Determinants of quality:

Design

Manufacturing

Materials

Culture

Cost of quality:

1. Appraisal costs : inspection, testing etc. 2. Prevention costs : costs to analyze, identify causes of defects, implement corrective action, train

personnel, purchase new equipments 3. Internal failure: defects occurring within the system: scrap, rework, repair 4. External failure: customer warranty, loss of goodwill, handling complaints.

Evolution of quality management: four phases

Inspection

Quality control

Quality assurance

TQM

Contribution of quality gurus:

Walter Shewart : 1924: SQC to improve quality of Bell telephones.

W. Edwards Deming: taught quality in 1950 in Japan. Improved quality in Japan

Improving quality improves productivity.

Focus on customer values.

Most quality problems are due to the faulty system and not because of employees.

Plan-do-check-Act (PDCA) cycle :

Plan : study the process, identify potential improvements & develop an improvement plan

Do : try plan on a test basis, document results

Check : evaluate results to see if plan works

Act : permanently implement improvements

Deming’s 14 points for managers :

1. create constancy of purpose towards product quality to achieve organizational goals

2. Refuse to allow commonly accepted levels of poor quality

3. stop depending on inspection

4. Use fewer suppliers, selection based on quality not price

5. install programs for continuous improvements in costs, quality, service and

productivity

6. train all employees on quality concepts

7. focus supervision on helping people a better job

8. eliminate fear, create trust, encourage two way communication

9. eliminate barriers between departments, encourage joint problem solving

10. eliminate the use of numerical goals and slogans to make workers harder

11. Use statistical methods for continuous improvement of quality and productivity

instead of numerical quotas

12. Remove barriers to pride of workmanship

13. Encourage education and self-improvement for every one

14. Clearly define management’s permanent commitment to quality & productivity

Joseph M Juran: when performance is out of control, look at vital few.

Top management contribution to quality.

Philip B Crosby : quality is free. Do it right first time. there are no acceptable no of

defects. Goal : zero defects

Armand Feigenbaum : total quality : quality at source, product quality more important

than production rates

Kaoru Ishikawa : quality circles

Tagushi : quality must be designed into the product. cost of defects on society, design of

experiments.

TQM : objective : to build an organization which will produce products and services which

are considered best in class by customers.

All areas & functions: sales, production

All activities: designing, costing

All employees:

Always

All places: factory, offices

1. Top Management commitment & involvement

- management support, budgets, investments in quality, design, process

2. Customer involvement : feedback, discussions, before products are designed

QFD : quality function deployment : a formal system for identifying customer wants,

eliminating wasteful product features. Formal customer inputs into product design.

3. Designing products for quality:

- Robustness : products must function in all field conditions

- Designing for production : less wiring, easy assembly, should not require much

thinking , fewer parts, less scope for errors

- Designing for reliability : component reliability(CR) :

SR (system reliability) = CR1 x CR2 x CR3 …CRn : graph of System Reliability Vs.

No. of components at various CR.

Improving system reliability : overdesign of components

Design simplification : the number of interacting

parts

Redundant parts : back up components

4. Designing production process for quality: internal customers

Process capability index : PCI = (UL – LL)/6 sigma

Sigma = the standard deviation of a product characteristics from a production

process, a measure of the long term variation of a product characteristics from a

production process.

PCI > 1.00, process has capability

PCI < 1.00 Process does not have capability ( diagram of PCI = .8, PCI = 1, PCI =

1.2

5. Developing supplier partnerships : suppliers also participate in design, company’s

training programs, long term orders

6. Building teams of empowered employees

- employee training programs, ex, training programs in Philips

- work teams and empowerment : authority to act

- quality at source : each worker quality control station

SQC training

Right to stop production

Quality circles

Assign responsibility of improving quality to workers

7. Benchmarking ( internal standards) &

8. continuous improvements KAIZEN :

CONTINUOUS OR ON GOING IMPROVEMENT

Small step by step improvements

Smaller improvements are realizable, predictable, controllable , acceptable

TQM a tool for global competitiveness

Customer selective

Increased quality, increased productivity

Customer driven standards

Employee participation

Kaizen

Quality circles

TQM tools & techniques:

QFD : planning technique Quality function deployment(QFD):To convey customer

requirements to all departments.

Quality function Focused on delivering products and services that satisfy customer

requirements.

Involve customers in new product development

QFD links the needs of the customers with design, development, engineering,

manufacturing, and service functions.

QFD is :

1. Understanding customer requirements

2. Quality systems thinking, psychology, knowledge

3. Maximizing positive quality that adds value

4. Comprehensive quality system for customer satisfaction

5. Strategy to stay ahead

Four phases of QFD:

Phase 1: Listen to the customer. Accurately understand. Analyze vs. capability & strategic

plans.

Phase 2: identify the area of priority breakthrough that will result in dramatic growth

Phase 3: breakthrough to new technology

Phase 4: production of new products in highest quality.

1.

2. Concurrent engineering: approach to stream line product development

3. The seven QC tools: flow charts, check sheets, Histograms, Pareto analysis, cause &

effect analysis, scatter diagrams, control charts

4. The Deming cycle: methodology of continuous improvement. PDCA cycle: Plan, Do,

Check, Act. DMAIC cycle : Define, Measure, Analyze, Improve, Control.

5. Benchmarking : search for best practices: helps companies learn their (and their

competitors) strengths and weaknesses.

First initiated by Xerox. They found:

a. Their unit manufacturing costs equaled the Japanese(Canon) selling prices in the

US.

b. Their production suppliers were nine times that of best suppliers.

c. Assembly lead times were ten times higher.

d. Product lead times were twice as long.

e. Defects per hundred machines were seven times higher.

Bench marking process can be described as follows:

1. Determine which function to benchmark.

2. Identify the key performance indicators.

3. Identify the best in class companies.

4. Measure the performance of the best in class companies and compare results with

your own performance.

5. Define and take action to meet or exceed the best performers.

Motorola encourages every one in the organization to ask: ‘who is the best persons in my

own field and how I might use some of their technique and characteristics to improve my

own performance in order to be the best in my class.’ (executive, machine operator etc.)

Quality as a culture:

Factors affecting quality management:

(Barriers to quality management)

Financial & human Resources

Documentation of processes, products, services

Mind set of top management

Long term corporate directions

Training & education

5S principles: clean it up and make it visible:

Five S : seri, seiton, seiso, seiketsu, shitsuke

1. Sort: sort through items and retain only what is needed. Dispose of others.

2. Straighten(orderliness): a place of everything and everything in place.

3. Shine(cleanliness): cleanliness facilitates inspection and exposes abnormal and pre-

failure conditions.

4. Standardize(create rules): develop systems and procedures to monitor & maintain

these.

5. Sustain(self discipline): maintain stabilized work place as a continuous process.

Flow charts: diagram of the sequence of operations in a manufacturing process.

Check sheets (Data collection forms) : data collection forms that facilitate the interpretation.

The check sheet is a simple document that is used for collecting data in real-time and at the

location where the data is generated. The document is typically a blank form that is designed for

the quick, easy, and efficient recording of the desired information, which can be either

quantitative or qualitative. When the information is quantitative, the checksheet is sometimes

called a tally sheet.

A defining characteristic of a checksheet is that data is recorded by making marks ("checks") on

it. A typical checksheet is divided into regions, and marks made in different regions have

different significance. Data is read by observing the location and number of marks on the sheet. 5

Basic types of Check Sheets:

Classification: A trait such as a defect or failure mode must be classified into a category.

Location: The physical location of a trait is indicated on a picture of a part or item being

evaluated.

Frequency: The presence or absence of a trait or combination of traits is indicated. Also

number of occurrences of a trait on a part can be indicated.

Measurement Scale: A measurement scale is divided into intervals, and measurements are

indicated by checking an appropriate interval.

Check List: The items to be performed for a task are listed so that, as each is

accomplished, it can be indicated as having been completed.

An example of a simple q

Quality related data: attribute, variable.

Attribute : defects or no defects. No continuous scale. invoices with errors, invoices without

errors. Parts which confirm to specifications, number of surface defects on an automobile

panel.

Variable: variable data collected by numerical measurements on a continuous scale.

Histogram: graphical representation of variation in a set of data. Frequency or number of

observations of a particular value within a specified group. Histograms provide clues about

the characteristics of the population from which a sample is taken.

A histogram is a bar graph that shows how frequently data occur within certain ranges or

intervals. The height of each bar gives the frequency in the respective interval.

Examples of Histogram

Pareto analysis is a statistical technique in decision making that is used for selection of a limited

number of tasks that produce significant overall effect. It uses the Pareto principle – the idea that

by doing 20% of work, 80% of the advantage of doing the entire job can be generated. Or in

terms of quality improvement, a large majority of problems (80%) are produced by a few key

causes (20%).

Pareto analysis is a formal technique useful where many possible courses of action are

competing for attention. In essence, the problem-solver estimates the benefit delivered by each

action, then selects a number of the most effective actions that deliver a total benefit reasonably

close to the maximal possible one.[citation needed]

Pareto analysis is a creative way of looking at causes of problems because it helps stimulate

thinking and organize thoughts. However, it can be limited by its exclusion of possibly important

problems which may be small initially, but which grow with time. It should be combined with

other analytical tools such as failure mode and effects analysis and fault tree analysis for

example.[citation needed]

This technique helps to identify the top 20% of causes that needs to be addressed to resolve the

80% of the problems. Once the top 20% of the causes are identified, then tools like the Ishikawa

diagram or Fish-bone Analysis can be used to identify the root causes of the problems.

The application of the Pareto analysis in risk management allows management to focus on the

20% of the risks that have the most impact on the project.[1]

Scatter diagrams

A scatter plot or scattergraph is a type of mathematical diagram using Cartesian coordinates to

display values for two variables for a set of data.

The data is displayed as a collection of points, each having the value of one variable determining

the position on the horizontal axis and the value of the other variable determining the position on

the vertical axis.[2] This kind of plot is also called a scatter chart, scattergram, scatter diagram

or scatter graph.

[hide]

Process input vs. quality

Control charts

Quality drives the productivity machine: if production does it right first time, and

produces products and services free of defects, waste is eliminated and costs are reduced.

Other aspects of quality picture :

JIT and lean manufacturing : JIT ; system of enforced problem solving -

Product standardization :

Automated equipments : robots

Preventive maintenance :

Quality circles :

3 – 15 persons

Volunteers

Regular meetings

People with same background

Objectives : analyze, identify, problem, search for solutions

To work related problems

Philosophy : workers direct involvement

TQM

Total customer satisfaction

All departments

All products

All aspects of q

Involve every one

Total commitments

9.

ISO 9000 standards :

ISO 9000 : quality management systems : fundamentals & vocabulary

ISO 9001 : quality management systems : requirements

ISO 9004 : Quality management systems – guidelines for performance improvements

ISO19011 : Guidelines on quality & environment auditing

These standards are based on 8 quality management principles that reflect best

management practices

Customer focused approach

Leadership

Involvement of people

Process approach

System approach to management

Continual improvement

Factual approach to decision making

Mutually beneficial supplier relationship

These standards provide guidelines for better management of quality but do not provide any

levels of quality that must be obtained.

Method of certification : passing repeated audits, no non – compliances.

In India BS standards

IEC standards

Quality control:

7. Statistical concepts in quality control

A flow of products is broken into discrete batches called lots. A quality control lot is

produced under same operating conditions. Lots are then sampled to determine if lots meet

quality standards.

Random sampling : a unit in the lot has same chances of inclusion in the sample. Sample

is likely to be representative of the lot.

What is size and frequency of lot? Cost & quality considerations.

When to inspect : after operations that are likely to produce defectives, inspect before

costly operations, inspect before assembly operations, for automatic machines, inspect first

and last pieces and a few in between.

Central Limit theorem :

Sampling distribution can be assumed to be normally distributed

sampling distribution can be assumed to be normally distributed unless sample size is

small.

1. the mean of population distribution is equal to population mean.

2. the standard error of the sampling distribution is smaller than population standard

deviation by a factor 1/√ n

Control charts for variables: upper control limit, lower control limit : SPC statistical process

control

Acceptance Plans

Al parts, purchased and manufactured are subjected to quality control.

Types of inspection : 10%, sampling

Classification of defects : critical, major, minor

Operating characteristics is a graph of the performance of acceptance plan. When lot is

large compared to sample, a binomial graph will result.

N : total production lot

n : sample size

c : maximum no. of defectives

Acceptance quality level (AQL) : Used to define good lots. If lots have no more than AQL

defectives, they are considered good lots.

Consumer’s risk : with a acceptance plan, percent possibility that bad lot can be accepted:

LTPD : lot tolerance percent defective :used to define bad lots . If lots have greater

than LTPD defectives they are considered bad lots

Producer’s risk : the percent possibility of rejecting a good lot

An acceptance plan is the overall scheme for either accepting or rejecting a lot based on

information gained from samples. Acceptance plan identifies size and type of samples, and

criteria to be used to either accept or reject the lot.

Single, double, sequential samples.

OC curve of an ideal plan : vertical rectangle

OC curve for varying sample sizes

OC curve for varying percentage defectives

A typical example of AQL :

Critical : .65%,

Major : 1.5%

Minor 4%

Sampling Plans :

Single e.g. N=4000, n= 80, c= 2

Double : N=4000, n1=50, c1=0, n2=50, c2=3 ( in the cumulative sample n1+n2

Rejection number r1= 3, r2=4

Multiple an extension of double : N=4000, n1=20, c1=0, n2=20, c2=1, n3=20, c3=2,

n4=20, c4=3, r1=4, r2=6, r3=8, r4=10

Sequential

Single double multiple

Comparison :

Administrative simplicity highest

Sampling inspection cost highest

Reliability of info on level of quality largest

Acceptability to producer lowest

SPC :

1. variability of process is inherent in any process

2. two types : internal ( chance), external (assignable)

3. variations due to chance causes are statistical

4. variation pattern due to chance causes : bell shape, normal distribution curve

5. symmetrical about mean

6. area under curve unity (normalized)

7. avg. + 1 sigma = 68.26%

8. avg. + 2 sigma = 95.45%

9. avg. + 3 sigma = 99.73%

10. Avg. + 6 sigma = 99.997%

11. Process variability ( precision) , process centering(accuracy) :

12. Upper & lower spec limits : design limits

13. good process variability but bad centering

14. process variability (natural tolerances)is just adequate

control charts :

for variables :

avg. x charts

range r charts

for attributes :

percent defectives p charts

no. of defectives c charts

Inspection

Assurance , prevention

Total quality

Kaizen

6 sigma

Acceptance sampling : AQL

Quality circles

FMEA

Taguchi’s design of experiments

Quality systems :

Organization of q department, planning, objectives, investments

Training

Quality

Control : mechanism by which products are made to measure up to specifications

determines from customer requirement and transformed into engineering and

manufacturing requirements. It is concerned with making things right than rejecting those

which are wrong.

Q control refers to systematic control of variables in manufacturing process which affect

excellence of end product

Assurance (prevention)

8.10.09

What manufacturer/designer should provide in the product and what customer desires :

1. safety e.g medicines

2. Reliability e.g. mobiles

3. functionality, specifications

4. aesthetics : esteem value

5. serviceability

How to check these?

For mass scale production sampling plan

Why sampling ?

1. 100% too expensive, testing may require destructive testing

2. Even after 100%, on guarantee that outgoing will be fault free: inspection fatigue

3. acceptance or rejection is of total lot : greater responsibility for mfg.

For critical items 100% medicines , loudspeakers,

Sampling plans : operating characteristics curve : varies with sampling plan

N, n, c

Producer’s risk

Customer’s risk

Ex. Draw hypothetical OC for n=300, c=6, n=100, c=2, n=25, c=4

Double sampling:

N1, c1

If d>c1 but less than c2,

Take another sample of n2

Combined sample n1 + n2

D < c2.

Q planning:

Planning

Implementation

Monitoring& control

Set q objectives

Specifications

Vendor q

Set sqc

Training

Implementation :

Invest in q equipment, organization

Concepts :

Taguchi : do not be satisfied with defects < target, minimize them

L(y) = k (y-m) ^2

Design of experiments : input parameters adjusted randomly hoping to achieve process

improvement

Orthogonal matrics

Run x y z Output

1 0 0 0 352

2 0 0 1 340

3 0 1 0 326

4 0 1 1 362

5 1 0 0 404

6 1 0 1 417

7 1 1 0 493

8 1 1 1 432

X is important input , significant change when it changed from 0 to 1

Ishikawa : FMEA

KAIZEN :

CONTINUOUS OR ON GOING IMPROVEMENT

Small step by step improvements

Smaller improvements are realizable, predictable, controllable , acceptable

Quality circles :

3 – 15 persons

Volunteers

Regular meetings

People with same background

Objectives : analyze, identify, problem, search for solutions

To work related problems

Philosophy : workers direct involvement

Six sigma

Sigma level yield defects per mil

1 31 700K

2 69 300K

3 93 66K

4 99.4 6K

5 99.98 233

6 99,997 3.4

Why do we need 6 sigma?

What if 3 sigma were applied ?

1. no modern computer will function

2. 10 mil health care claims will be mishandled

3. 54K chq will be lost

4. 270 mil credit card transactions will be defective

5. 540 K erroneous call details

Why 6 sigma :

1. technological complexities : computers have to be zero defect

2. IC mfg. so complex, so many stages, ( min 9) it has to be zero defect

Facility Design and Management:

Good plant design considers:

production efficiency

Minimum wastage of energy, movement, time

Assembly line design

Flexibility in manufacturing

Modularity

Automation

Facilities management:

Multidisciplinary profession: involving

engineering,

architecture,

design,

accounting,

finance,

management,

behavioural science.

Affects work, workplace, workers, productivity

Requires broad & diverse set of skills

Roles and responsibilities of a facility manager:

Space management:

Space policies

Space inventory

Space allocation

Furniture: specifications, purchase, inventory, moves

Interior design

Hazardous materials

Waste

Future requirements

Maintenance:

Preventive

Breakdown

Housekeeping

Landscaping

Furniture, machines, building

Real estate:

Building leases

Site selection

Acquisition, disposal

Purchase building

Property appraisal

Financial planning:

Operational Budgets

Capital budgets

Major term loans

Administrative services:

Documentations, Records

Security

Telecommunications

Copy services

Shipping/receiving

Mail services

Health & safety:

Ergonomics

Energy management

Indoor air quality

Recycling program

Emissions

Architecture/engineering

Construction management

Building systems

Architectural design

Code compliances (e.g. Noise, space per person)

Facility planning:

Operational plans

Emergency plans

Strategic plans

Energy plans

Modular Design

Cells: a group of process functions

Pre assembly, pre fabrication

Replacement of one module with another

Flexibility in production systems:

Product mix flexibility

Routing: different, alternate processes

Expansion: capacity, quantity

Reconfiguring :

Benefits of high flexibility :

Better utilization of machines

Group technology cells: benefits of mass production in batch production

NC machines

FAR : flexibility audit and redesign

Method of diagnosing organizations flexibility and guiding the transition process.

Definition of flexible manufacturing system: an integrated, computer controlled complex

of automated material handling devices and NC machines tools that can simultaneously

process medium sized volumes of a variety of part types.

FMS:

High investments

Should be a perfectly controlled system, loss of qty, quality not acceptable

Should be heavily utilized

Prevent any breakdown

Importance of planning to keep machines busy, continuous RM supply

With FMS, focus shifting from production (the operator) to the pre production

stage(planning & design)

Higher level skills required from workers, multi skilled, having skills extending beyond their

traditional area of competence, may be asked to diagnose faults, minor

repairs.(mechatronics engineer)

Automation: fundamentals, needs, implementation

Automation is a technology in which a process or procedure is accomplished by means of

programmed instructions, usually combined with feedback control to ensure proper

execution of instructions.

Three basic components: power, machine programming, feedback control

Block diagram :

Power source

|

Program execution + control process

^ V

---Feedback------

Application of automation in manufacturing:

Automated guided vehicles, conveyers, material handling

Storage-retrieval systems

Industrial robots

CNC

Unattended production

Automated loading and unloading of parts

AGV for moving parts between machines

Comprehensive computer control system

Automated cleaning

Automated inspection

Capable of producing hundreds of parts

Machine centers: operated for long hrs.

Adaptive controls: can adjust operational speeds, motion paths to optimize manufacturing

processes or to satisfy constraint conditions against variations in manufacturing caused

by change in toughness of work material, tool wear

CIM : computer integrated manufacturing: integrates manufacturing environment of a

company through shared databases.

Assembly line design:

Used in mass production, low worker skills required, limited training, dedicated machines or

robots

Objective to increase efficiency, minimizing cost

Requires design of product, processes, plant layout before construction of the line.

DFA

Line balancing: cycle time, throughput time

Used in mass production

Efficiency

Low throughput time

Low cycle time

Henry Ford: pioneered concept of mass production & assembly lines

Material flow systems:

Like cardiovascular system

To provide and maintain supply of rm, tools, and consumables.

Works across department boundaries

Its effectiveness affects performance of the manufacturing system in which it is

embedded.

A good design can reduce work of a material flow system.

No. of components, no. of setups, no. of processes increase material flow.

One-shot manufacturing: full manufacturing on one machine. Versatile machines.

Material flow analysis: technique performed before establishing physical layout.

Main purpose: to determine logical position of each processing entity(machine,

workstation) by analyzing the flow sequence of the products. In a multi product flow

line

Four types of flow movements:

Repeat,

In sequence: most desirable, least flow distance

Backtrack: least desirable, larger flow distance

Bypass

Integration with suppliers

Elimination of inventory

Supply chain

Types of line configuration:

Serial lines: single stations along a straight line, conveying system, each station

performs one or more tasks on the partially finished product.

U shaped lines: JIT system, workers in the center of U, can monitor each other,

collaborate, acquire multiple skills, higher motivation, improved quality, increased

flexibility.

Parallel stations: longest task time may exceed cycle time.

Workers perform parallel or serial identical set of tasks.

Parallel independent lines: duplication of lines, requires more equipments, if one

line is closed other will continue to give production

Work centers: for complex products, assembly decomposed into subsystems(work

centers) which are easier to manage than the entire system. Routing between work

centers is fixed.

Review Questions:

1. Discuss the advantages of various types of line configurations.

2. What do you mean by adaptive controls?

3. What are the typical roles and responsibilities of a facilities manager?

4. A material flow system design impacts productivity in the long run by reducing

wastage. Discuss.

5. There are many application of automation industry. Give a comprehensive

account of the advantages, and the possible implications if any company decides

to go for automation.

6. How many types of flexibilities are there in a production system? Explain each.

7. How is the emphasis on skills shifting because of increased automated processes?

Discuss.

1. What are the broad categories of technological advances?

Hardware technologies:

Greater automation

Perform labour intensive tasks

e.x. NC machine tools

machining centers

industrial robots

automated material handling systems AMH

AGV

AS/RS automated storage and retrieval systems

Software based technologies:

CAD

CAPP computer aided process planning

Automated manufacturing planning & control systems MP & CS

CIM computer integrated manufacturing

CAM computer aided manufacturing

2. What are industrial robots? Do robots have to be trained?

Robot : a programmable multifunctional machines that may be equipped with end

detectors.

Suitable for manual repetitive activities

Dangerous, dirty tasks

May have advance capabilities : vision, tactile sensing, hand –to-hand coordination,

mobility, can be ‘taught’ a sequence of motions in three dimensional space

3. Technological investments can be very high. Discuss benefits and risks involved

in these investments.

a. Cost reduction: labour costs : replacing people with robots

Material costs

Inventory costs

Quality costs

Maintenance costs

b. Other benefits: increased product variety

Improved product features

Shorter cycle time

Greater product output

Risks : technological : untested,

Operational : disruptions

Market : obsolescence

Organizational problems in absorption

The Seven Keys to World-Class Manufacturing

Why is information on this list? Because information truly is

power. Information is what allows you to know what’s

happening inside and outside of your enterprise so you

can manage what you are able to and otherwise deal

with those things you cannot manage. Without

accurate, timely information, you are blind.

Exceed Customer

Expectations Streamline Outsourcing /Manage Global Enterprise

How can your company become and remain world

class? There are seven keys to becoming a world-class

manufacturer that distill the broad concepts above into

specific actions that can be addressed and

accomplished in your company. Each is presented with

a brief discussion and examples of its impact on a

manufacturing organization and its competitiveness. A

more detailed discussion of each of the seven keys is

available from MAPICS, Inc.

The keys to success, in no particular order, are:

• Reduce Lead-Time

• Reduce Operational Cost

• Increase Visibility to Business Performance

• Reduce Time-to-Market

• Satisfy Customer Expectations

• Streamline Outsourcing Processes

• Manage Multiple Locations and Global Operations

Each of these objectives is important in and of itself;

however, taken together, they describe the focus of the

activities and attitudes that define world class.

Reduce Lead-Times

Shorter lead-time is always a good thing. In many

markets, the ability to deliver sooner will win business

away from competitors with similar product features,

quality and price. In other markets, quick delivery can

justify a premium price and will certainly enhance

customer satisfaction. In all cases, shorter lead-time

increases flexibility, reduces the need for inventory

buffers and lowers obsolescence risk.

Lead times are cumulative and bi-directional—that is,

order handling, planning, procurement, inspection,

manufacturing, handling, picking, packing and delivery

all contribute to the lead-time; and the time it takes to

get signals down the supply chain to initiate each

activity adds to the overall time it takes to get the job

done.

Business rules and policies can drive undesired effects.

Purchasing rules too focused on unit cost lead to large

quantity buys that result in high inventory and long lead-

times. Ironically, this type of buying can also lead to

shortages, since longer lead times mean you will be

making and buying to a more inaccurate forecast. The

best combination of price and lead-time often comes

from a stable buyer-supplier relationship based on long-

term contracts with deliveries according to a forecast

that is shared with the supplier and updated frequently.

The same is true on the customer side. Instead of

focusing on securing large, one-time, single orders that

clog up the supply chain, companies must focus on

creating long-term contracts with customers and sharing

forecast information with customers to reduce lead

times.

The same issues concerning large lot sizes also apply to

internally produced parts and products. Large lots,

driven by a focus on lowest unit cost, raise inventory and

lengthen lead-times while reducing flexibility and

responsiveness, increasing eventual cost through

premium expediting instead of using large fixed lots,

companies must dynamically adjust the lot size based on

market demand, product mix and capacity. Ongoing

continuous improvement efforts focused on reducing

setup times can help companies reduce lot sizes, which

provides flexibility in responding to market demand.

Appropriate measurements contribute to high

performance on the plant floor. On-time shipment and

inventory turns are good examples of high-level

measures that tie to company objectives. Focusing on

isolated measurements like equipment utilization on non-

constraining resources encourages “busy work” that

creates excess inventory and longer lead-times. Shopfloor measurements must encourage

overall

performance—shipping orders on time at minimal total

cost and minimal total cycle times.

Performing manual transactions often slows down the

supply chain and adds to lead-time. Reporting

transactions at each operation or creating a paper

purchase order before suppliers work on a component

are just two examples. In addition, manual transaction

reporting often introduces errors and impacts work

productivity. Companies must eliminate non-value add

transactions and automate transactions to speed up the

supply chain. For example, backflushing can be used on

the shop floor, and supplier purchase orders can be

electronically sent or completely eliminated using VMI

programs.

Reduce Operational Costs

Although recent developments in planning and

customer relationship management have focused more

on top-line benefits (increased revenue), the bottom line

is still greatly dependent on controlling costs. Companies

with a lower operational cost structure enjoy an obvious

advantage in profitability and the ability to adjust pricing

to meet competitive pressures if necessary to maintain or

gain market share.

Costs are really just part of the scoreboard. When a

company implements world-class operational processes,

it improves multiple measurements simultaneously,

including cost, lead times, inventory and customer

service. This approach contrasts with a pure cost

reduction focus without associated business process

change, which can negatively impact other operational

measurements. Localized cost reduction efforts can

often increase costs in other areas. Moving production

overseas to an area with lower labor rates, for example,

will increase costs for procurement, transportation,

inventory and reduced flexibility, among others.

The relative cost of source/make/deliver, and therefore

the opportunities for cost reduction, will vary with the

industry that the manufacturer is in and the kind of

products the manufacturer makes. Most manufactured

products today have relatively little direct labor content,

generally less than 20% and often less than 10%, whereas

the material content of most products is more than half

of cost-of-goods sold (COGS). The rest is “overhead.”

Since most direct labor costs tend to be fixed, effective

deployment of these resources can reduce unplanned

manufacturing overtime, premium expediting and

outsourcing in addition to dramatically reducing cycle

times. Since material cost is the dominant cost,

significant opportunities exist in reducing this cost by

analyzing current spending and devising effective

sourcing strategies for material. Overhead reduction is

always a fertile area for cost reduction, using automation

to streamline the procurement, manufacturing and

customer management processes.

Additionally, fulfillment costs are an area that has not

received as much attention as it deserves; inventory

cost, transportation and storage account for a

significant part of the cost of doing business. Fortunately,

improving customer service can also generate cost

benefits at the same time.

Increase Visibility

to Business Performance

Today’s fast-moving, ever-changing manufacturing

environment demands faster responsiveness to changes

in the market, product innovation and supply chain

events. In this environment, ignorance is one of the

greatest threats to a manufacturing company’s health

and success. Executives and senior managers must

understand how the enterprise is meeting strategic

objectives. Middle-level managers need visibility into

how they are performing against tactical objectives.

Responsible individuals must be notified immediately

when supply chain issues threaten the completion of

objectives, so actions can be taken to ensure customer

delivery and quality requirements continue to be met.

A well-implemented and effective enterprise information

system delivers overall visibility into the health of the

company and its operations and provides detailed

information for performance measurement, process

management, and problem identification and

remediation. Such a system can help improve revenue

through competitive advantage, can help you

understand your business and therefore, manage it

better, reduce operational costs, improve performance

and improve results for all stakeholders—owners,

executives, managers and employees.

An enterprise information system will capture literally

thousands of pieces of information each day, as

activities are reported throughout the enterprise. All of

this detailed data is of little use without placing it in

context and seeing each activity in relationship with all

the other activities and the overall plan. To turn data into

meaningful information is an up-and-down process. Bits

of data, taken together and summarized, form higher-

level contextual information that shows status,

accomplishments and importance. From high-level

summaries, the observer must be able to dive back

down to details to understand exactly what is

happening and how to drive those activities toward the

goals and objectives.

Management information and analysis is only as good as

the data it is based on. Therefore, it is important to make

sure that data is collected as quickly as possible and

with the least amount of human intervention, which

tends to introduce delays and errors. It is equally

important to collect data from supply chain partners

through automation as much as possible. Electronic

Data Interchange (EDI) is the most commonly used

method today but EDI is rapidly being replaced by XML-

based e-commerce communications and Web-based

portal technologies.

All systems should be integrated so information can pass

freely between them without manual re-entry. Many

manufacturers are left with “islands of automation” after

implementation of specialized information systems in

isolated portions of the business over the years. While

each contains valuable information, absence of

integration prevents the effective use of that information

for overall management and coordination of effort

toward company objectives.

Reduce Time-to-Market

Developing and introducing new products and services

is vital to most manufacturing companies. Good ideas

are not enough; well-managed processes for bringing

new products to market can lead to significant

competitive advantages. Those activities, however,

represent a significant risk that can lead either to missed

opportunities or to huge financial losses.

In addition to new product development, the same

processes and resources are applied to product

improvements, corrections and variations throughout the

product lifecycle. Based on market research, customer

request; technological advances, regulatory concerns or

competitive pressures, products are often subject to

frequent engineering changes.

Changes and improvements are easiest to make—and

least costly and disruptive—earlier in the process. It is

good business practice to collaborate with all

operational areas of the business when the product and

process are still being designed. Cooperation should be

focused on making sure the new product meets market

needs (marketing and sales), is priced to sell and

generate a profit (marketing and accounting), can be

manufactured efficiently (production, production

engineering, quality, purchasing and key suppliers), and

can be maintained and serviced (service).

Because customer expectations are increasing, and

competition is coming from new players around the

world, bringing better and cheaper products quickly to

market is more crucial than ever. Research and

development is a key success factor in a manufacturer’s

survival and growth. Efficiency and responsiveness of

R&D processes will impact the top line as well as the

bottom line.

Customers are now quick to compare and switch

vendors. The Internet empowers buyers by providing

fingertip access to many more suppliers around the

globe; they can even customize products over the

Internet without having to ask an engineer to quote their

specific requirements. These capabilities change

behaviors and expectations, and success in today’s

markets can only be achieved through innovation,

agility and aggressive marketing.

Satisfy Customer Expectations

The ultimate key to success in any business enterprise is

to please your customers. The most successful

companies don’t just meet customer expectations, they

exceed them and beat the competition by setting the

bar at a level that makes it difficult if not impossible for

others to surpass. Successful manufacturers manage the

entire customer relationship—from prospect to post-sales

service and support—this involves the entire organization

in a customer focus. Whether or not they have direct

contact with the customer, contributors must keep the

customer’s need in mind as they plan and carry out day-

to-day operations.

It’s important to truly understand the customer’s goals

and objectives. Your products and services must strive to

support the customer’s vision. Communication is very

important; neglect is the number one reason that

customers terminate a relationship. The key is to give

customers access to all appropriate information about

your relationship and make it readily available whenever

and wherever they might need it—the Web is your ally in

achieving this objective.

As most companies have painfully learned in recent

years, customers often change their mind. To be fair,

market conditions are such that product cycles and

demand patterns are constantly changing. Agility is

extremely important. A solid, collaborative partnership

with customers will provide you with the most reliable

advanced information and therefore the earliest

warning of upcoming changes.

In short, the best strategy is to make the customer want

to do business with you. Strive to be the preferred

supplier through competitive products, high quality, the

right price and superior customer service.

Arguably, the most important aspect of customer service

is on-time performance. There are two sides to on-time

delivery: Promising a realistic date; then delivering on

that promise. It is imperative that you take that promise

seriously, meaning that it is not given lightly—all

considerations and constraints are factored in before

committing to a delivery date. Performance

measurements are a must; if you don’t know how you

are performing, you cannot improve upon it. It is not

unusual for companies to consistently have 98% - 99%

success in meeting agreed-to shipment dates.

Quality must be considered a given. Work with your

customers and engineering as early as possible in the

product development cycle to determine the required

measurements. Measuring and improving all processes

through the order and fulfillment cycles, with an eye

toward continuous improvement, will allow you to

achieve or even surpass expectations.

Streamline Outsourcing Processes

Outsourcing of manufacturing operations is a common

practice today because it offers flexibility—the ability to

change products or processes rapidly—and can often

save money by exploiting economies of scale or other

favorable cost factors the contractor has to offer. There

are two approaches to outsourcing; a single process

step or group of steps may be performed by an outside

resource—heat treating, for example, or electroplating—

or the entire manufacturing process might be

contracted out to a third party. In either case, the

manufacturer relieves demand on it own plants and has

an opportunity to concentrate on its core

competencies, which might not include volume

manufacturing, while its partner(s) provide the resources

for producing products.

Depending upon your current resources and

circumstances, outsourcing a part of the manufacturing

process could save you from having to expand your

manufacturing space (perhaps even adding a new

plant), searching for and hiring experienced resources,

training the new hires and various costs involved in

ramping up a new production line or process. Capital

assets can become a liability in a fast-changing

marketplace. As customer demands and technologies

change the nature and makeup of products, it can be

an advantage to not be tied to a relatively inflexible

physical plant.

For companies large and small, the goal is to become a

world-class organization and to be able to compete in

today’s global markets. For manufacturers, the fastest

and easiest way to achieve this goal is through

partnerships with companies that have attained superior

capabilities in particular phases of the process—like

production. By partnering with world-class contract

manufacturers you can reap the benefits almost

immediately—well-managed processes, high quality, on

time deliveries—and increase your performance and

delivery to meet your customers’ expectations. At the

same time, you can focus your own resources on the

things that you do best-product innovation, design,

marketing, distribution, sales or manufacturing.

Manage Global Operations

There’s no question the world is shrinking, and virtually

every business is now involved in some form of

international trade—whether marketing and selling to

customers in other countries or simply using parts or

materials that are produced elsewhere. We can thank

the Internet, or blame the Internet if you prefer, for

opening markets to product and services almost without

regard to time and distance. The “glass-is-half-full” crowd

will view these developments as the onset of unlimited

opportunity. If you tend toward the half-empty-glass

crowd, you are likely to see significant threats in virtually

unlimited competition from literally any place on earth.

Like it or not, every executive must recognize this new

reality and factor global business into plans, processes

and strategies. Design products to appeal to

international markets. Search for suppliers in other

geographies. Understand local regulations and

expectations, import/export processes and requirements.

Consider language challenges in labeling,

documentation, and marketing. Establish new sales

channels or coordinate manufacturing operations across

geographies and time zones. The Internet is a key tool for

joining the global business community and conducting

business around the globe.

Globalization and e-commerce have changed

traditional business behaviors and practices. If

manufacturers don’t expand into new geographic

markets, their market share is likely to shrink as new

competitors will be entering their own territory and

targeting their historical customers. Companies must

adapt their products and services to those new potential

customers. They must leverage the Internet to quickly

establish a virtual presence. They must use collaborative

technology in order to respond to customer’s

requirements better and faster.

Manufacturers often grow and enter new markets by

acquiring or merging with other companies. This usually

means, however, that different facilities within the newly

merged enterprise are using different systems on

different hardware platforms, they might have different

part numbers for the same items, and operating

procedures are undoubtedly different. The challenge is

to bring as much uniformity to the varied facilities as

practical without destroying the uniqueness and

competitive edge that the individual units displayed

before the merger. The new divisions have to

communicate, exchange many kinds of data (product

information, customers, suppliers, employees, etc.),

coordinate and synchronize logistics operations, provide

visibility on materials and components requirements,

optimize fixed assets utilization across multiple facilities,

consolidate financials and much more.

A natural consequence having operations scattered

through multiple locations, whether around the world or

in a specific region, is the need to gain visibility across all

sites. Visibility can lead to more negotiating power for

purchased parts, more efficient centralized credit and

collections and accounts payable and opportunities for

improved customer service by having (information)

access to world-wide inventories and production

capabilities.

Unlocking the Potential

The keys to becoming a world-class manufacturer are

not a secret—they are not even especially profound—

they are simply a distillation of the experiences of

leading companies and how they have managed to

excel in their chosen markets. Any company can take

advantage of the wisdom and the practices developed

in more than a hundred years of manufacturing since

the Industrial Revolution, but many simply do not have

the insight or the will to recognize what must be done

and to accomplish it.

It is a poor workman who blames his tools for shoddy

work, but it is also true that professionals understand the

value of good tools and insist on having and using the

best whenever possible. When selecting a production

machine—a machining center, insertion machine,

automated assembly line or robot—you would certainly

look for one that can handle the tasks you have in mind,

but also one that is flexible enough to adapt to

additional products and uses that may arise in the future.

This practice is even more important with an information

system because the handling and use of information is

changing faster than any other technology on the

planet. And, remember that information management is

a fundamental support for each and every one of the

keys to world-class performance.

When looking at enterprise systems or supply chain

systems (whichever term you prefer), some people tend

to get distracted by details of the technology and miss

the bigger picture. Keep in mind the reasons you are

looking for a system in the first place—to provide tools to

manage the information that is essential to effective

business management. And that’s the application

software, not the hardware or operating system. On the

technology side, you only have to ensure, as much as

you can, that the equipment is capable of supporting

your business needs today and in the foreseeable future,

and that the supplier(s) will be around when you need

them. Of course, no one knows the future, but you can

certainly improve your odds with careful selection.

Connectivity and interoperability (for data

communications, supply chain collaboration and

workflow messaging) are important issues that are reliant

on underlying technology; however, any and all

mainstream technologies today are fully capable of

participating in these kinds of connections. In addition,

many industry groups are working hard to develop and

publish neutral standards, guidelines and protocols that

will link disparate systems and further enable the

connectivity that is so vital to supply chain collaboration

and interaction.

Information-enabled collaboration and coordination are

what makes a supply chain work. The keys to world-class

manufacturing leverage information to generate cost

savings, efficient operations and responsiveness, superior

customer service and well-managed resources—no

matter where they are located or how complex your

facilities and relationships might be.

Being world class is all about being as good as any

competitor in the world, and just a little bit better,

quicker, smarter, or more responsive than the rest. World-

class manufacturers can choose their battles and

compete on their own terms. They are in control of their

own destiny and are seldom, if ever, blindsided by

something they haven’t anticipated or cannot handle.

World-class manufacturers use information as a strategic

tool for becoming and remaining the best they can be.

MAPICS is a visionary, global software company focused exclusively on

delivering collaborative business applications and expert consulting services that

help manufacturers become world class.

©Copyright 2002 MAPICS, Inc. MAPICS is a registered trademark of

MAPICS, Inc. All other brand and product names may be trademarks of their

respective owners. MPWPKEY

Topics in Human Resource Management

Team work, motivation, rewards, Multi-skilling

Teams: a group of people with common focus and a strong sense of identity. different than

a group of individuals.

Meetings : a group of people.

Achieves results collaboratively

A relatively small group of people

Complementary skills

Committed to common purpose

Performance goals

Ways of working together

Mutually accountable

Ask following questions about your team:

How large is the team?

Self managing:

What about interpersonal problems within teams? Team members themselves have to solve

them.

Responsibility for team performance on team members.

Models of team development: inclusion, assertion, cooperation

Groups develops into healthy, effective teams with a common focus, strong sense of

identity.

Team building: manager as facilitator.

Teamwork as a means to improve performance.

Team building on going process.

Self managed

Teamsmanship: spirit of being in a team

Group becoming a team

Being proud to belong to their team

promoting group harmony,

smoothing and protecting everybody’s ego.

Contributing and acknowledging contribution of others.

A team person: likes to work in a team

Team environment: whether relationships within team are cordial or not. Any hostility?

How high is moral?

Clear vision

Participation

Debate differences without hostility

Resolve conflicts through a mechanism

Self directed teams

Empowered teams

Leadership: strong leadership required. Without leadership waste of efforts, possible bad

decisions, possible failed products & services.

leadership collaborative rather than hard line authority or command

Instead of using word leader, use words like coach, facilitator, mentor, resource provider.

Team cohesiveness:

Interpersonal relationships, bonds formed

Leads to greater satisfaction

Reduces conflict

Factors conducive: working in close physical proximity, sharing similar type of work, sharing

similar values or attitudes, being of similar age group or gender, having effective

communication channels, having a small group size.

Fostering Teamsmanship(foundations of Teamsmanship): guidelines:

Establish specific meeting times

Stop & start on time

Set ground rules

Address infringements of ground rules as soon as they occur

Do not go to next topic until current topic is clearly understood

Set a time table for task accomplishment

Team communication techniques:

Develop paraphernalia, e.g. notes, team logo, newsletters.

Use positive remarks: let’s talk about it

Sounds like a great idea

Let’s try it

Tell us more about it

How can we help

No one else thought about it

That’s excellent

Avoid defeatist or procrastinating remarks:

Don’t move so fast

It is not our problem

I don’t think it will work

You don’t understand the problem

Yes, but. . .

The management won’t let us do it.

We will think about it later

It is not in the budget

We are too busy

It is too soon for that

Think we than me. Act as good team members

Let the other speak first

Do not say I understand, listen and mirror ( repeat in different words)

Ask if you have understood correctly

If you do not agree, begin with my experience is. . . or other neutral

statement

Avoid these:

I know how this should be done

I thought no one cared

It is not in my job description

That is my territory, not yours

This does not require consensus

No one asked me what I thought

If I had asked the group, we never would have made this decision

I am paid to make these decisions

Understanding team roles:

Team roles: position as a member of team: coordinator, leader, motivator, spokesperson

Functional roles: researcher for a particular topic, expert in a particular subject

Example: team has to launch a product

Team roles: someone monitors project progress and compares with planning.

Coordinate efforts, team leader

Functional roles : development engineer, packaging, marketing

Balance of functional & team roles. Effectiveness if roles are balanced

Division of roles depending on personal traits

Roles & responsibilities, areas of contribution(technical or professional) and responsibility

Trust & openness

Post activity feedback from team members

Discover hidden talents and experiences of team members

Bonding, Sharing

Process-focused teams:

Final output is important, so is the process to achieve that output

Means are as important as end.

What is the best process suiting the skill level of team members?

Best process: predictable (tested and tried, no surprises), dependable (no mistakes)

Managers as facilitators :

Traditional : plan, direct, control

New : leader, coach, team-builder, facilitator

Facilitation: enabling groups and individuals to succeed.

By designing and managing structures and processes that help individuals and groups do

their work.

Best possible actions to take to improve team’s results.

First Go slow to go fast.

Group intelligence prevails. Group can outthink the individual.

Competency based reward systems:

Money

Intrinsic rewards: feel good factors: fun, growth, teamwork, challenges, accomplishments

People are not workers but associates, members of teams

Performance measurement:

Appraisals :

Goals at the start of the year, at the end

Honest feedback

Appraisal ratings should be used to make compensations, promotions, termination, and

other decisions

Own appraisal

Recognition: great motivational tool: how do we change human behavior?

How to make a person come in time, not missing deadlines.

What People do depends on what happens to them as a result. If a person does something

and the result is positive, rewarding, pleasant, the person will keep on doing that thing. Will

stop if consequences are negative, punishing, distasteful. If no consequences, behavior will

be abandoned.

Methods of recognition:

Thank people personally

Use team members names in performance reports

Formal recognition

Thank in public meetings

Discuss individual & team performance

Issue certificates or tokens(buttons, pens)

Define : a. Lean Production, b. Group Technology, c. Cellular Layout, d. elimination of

waste

Lean Production :

Integrated activities designed to achieve high-volume, high-quality production using

minimal inventories, work-in-progress, and finished goods. Parts arrive at work stations

‘just in time’. Nothing is produced until it is needed. It is also a ‘pull system’.

Lean system attacks waste, exposes problems and bottlenecks, achieves streamlined

production.

Group technology:

GT is a philosophy in which similar parts are grouped together into families of parts and the

processes required to make the parts are arranged in a specialized work cell. The group

technology cells eliminate movement and queue(waiting time) between operations, reduce

inventory, and reduce number of employees requires. Workers therefore must be

multiskilled, capable of operating several machines and processes.

Cellular layout :

Cellular layout allocates different(dissimilar) machines into cells to work on products that

have similar shapes and processing requirements. Such layouts are used in metal

fabrication, computer chip manufacturing. The overall objective is to gain the benefits of

product layout in job-shop kinds of production. These benefits include:

1. Better human relations: small work teams

2. Improved operator expertise.

3. Less in process inventory and material handling.

4. Faster production setup.

Waste elimination:

Waste : anything other than minimum amount of equipment, materials, parts and workers (

working time) which are absolutely essential to production.

Seven prominent types of wastes to be eliminated:

1. Waste from over production

2. Waste of waiting time

3. Transportation waste

4. Inventory waste

5. Processing waste

6. Waste of motion

7. Waste from product defects

The seven elements that address elimination of waste are:

1. Focused factory networks

2. Group technology

3. Quality at source

4. JIT production

5. Uniform plant loading

6. Kanban production control system

7. Minimized set up times

Costing & Valuation

P09/MU2402/EE/20091115

Q1. What is traditional production cost system? How does it differ from target cost system?

Traditional costing : material + Labour + OH

Q2. What do you understand by cost reduction? How does it differ from cost saving?

Q3. What do you understand by ABC analysis? How is it relevant to process improvement?

Q4. Product & process costing together represent a complete picture to a manager about

cost effectiveness. Discuss.

Q5. Correlate cost reduction and performance improvement in the context of service

organizations.

Q6. Direct & fixed costs need to be managed differently. Discuss.

Q7. What are the various approaches of costing? Make a comparative analysis of all by

taking any specific industry of your choice.

Q7. What are the traps to avoid in product costing?

Q8. From which level of management must the cost targets be driven and why?

Q9. What are the two methods of product costing?

-----------------------------------------------------------------------------------------------

Types & Methods of Costing:

Costing & pricing.

Enterprise Valuation: what is the current financial standing of the organization?

Cost to produce, sell, distribute, service, retain customers. Capture all costs by using ERP &

updating data bases.

Pricing challenge: product options, variations, configurations. Hard to compare prices.

Calculating Unit product cost:

complex accounting systems to keep track of different costs.

Direct costs : RM, Labour, variable OH: relatively straight forward

Fixed manufacturing OH: are difficult to apportion.

Variety of products

Excess (idle) capacity

Inefficiencies

Excess production

Is Costing or watching over various overheads, a one time activity or quarterly or monthly

or weekly or daily?

Financial reporting is on yearly basis.

Traditional approach : ‘cost plus pricing’. Not suitable for today’s liberalized environment.

Price = material + labour + OH + Profit

Target costing:

a cost management tool

Purpose : to reduce overall cost of product in its entire life cycle

With help of production, engineering, research & design

Used by Japanese since 1970. Now becoming acceptable in US.

Target cost:

Max amount of cost that can be incurred on a product and with it the firm can still earn the

required profit margins from the product.

It is that estimated cost which enables the firm to remain and compete in the market in the

long run.

Who is responsible for target costing: top mgmt, COO, cross functional team: production

mgmt, sales, dev, purchasing, finance.

Product costing:

Tracking and studying all expenses : production, sales: RM, transportation,

Accuracy critically important.

Two methods of product costing:

Variable costing: fixed manufacturing oh is excluded from inventory cost, expensed

immediately in the period incurred.

Absorption costing: fixed manufacturing oh is included in inventory cost. Used for external

reporting.

Process costing:

Costs are accumulated according to each department, cost center, or process. There may be

more than one processes and cost centers in one department. So better to go by cost

centers.

Activity-based costing:

A management practice that looks at how an entity’s activities use resources and relate that

use to output.

A cost accounting method that allows organizations to determine actual costs associated

with each product and service without regards to organization structure.

Breaks down organizational processes into discrete activities

Measures each activity’s cost and performance effectiveness.

Activities are assigned costs based on resource use.

Costs are then tied to cost objects, such as products or customers.

Any costs that can not be traced to activity or output is then assigned on the basis of

experience or cause and effect basis.

ABC is a journey rather than final result.

Cost pools.

Goal of ABC : set up activity based target costs which every one can see. Transparency.

Steps :

1. Develop a cross-functional team to do analysis within the organization. Assign

ownership. It can be outside group, however ownership should remain internal. In

the org. who is the owner? Finance?

2. Identify processes

3. Prepare a detailed activity analysis for each internal process. Steps taken, who does

what, with what resources. Breakdown activities to very basic level. Study activity in

real time or historical. Discuss with people on the job or off the job. Other functions.

4. Estimate costs for each activity, variable and fixed. Support functions: HR, Admin.,

R & D.

5. Select method to be used to transfer the costs to the object we wish to cost.

6. Develop final cost estimates for the system.

Traditional costing:

total overhead

|

| - - - > labour hr allocation to the product

|

|

End product costing

Activity based costing:

Total overhead

|

|- - - - - > pooled, based on activities

|

|

Cost Pools

|

|- - - - - - > cost driver allocation

|

end product costing

Overhead allocation by an activity approach

Basic data

Activity Traceable

costs

Total events

Of

Transactions

Rate per

event

Product

A

Product B

Machine set ups 2,30,000 5,000 Rs. 46/setup 3000 2,000

Quality

inspections

1,60,000 8,000 Rs.20/insp. 5000 3,000

Production orders 81,000 600 Rs. 135/order 200 400

Machine-Hrs

worked

3,14,000 40,000 Rs. 7.85/hr 12,000 28,000

Material receipts 90,000 750 Rs.

120/Receipt

150 600

Number of units

produced

25,000 5,000 20,000

Total 8,75,000

Overhead cost per unit of product

Activity Product A Product B

events amount events amount

Machine set ups

@ Rs.46/setup

3,000 1,38,000 2,000 92,000

Quality Insp. @

Rs.20/Insp.

5,000 1,00,000 3,000 60,000

Product Orders

@ Rs. 135/order

200 27,000 400 54,000

Machine-Hrs

Worked @Rs.

7.85/Hr

12,000 94,200 28,000 2,19,800

Material

Receipts @ Rs.

120/Receipt

150 18,000 600 72,000

Total OH cost

assigned

3,77,200 4,97,800

No. of units

Produced

5,000 20,000

OH cost per Unit Rs. 75.44 Rs. 24.89

Cost reduction and performance Improvement:

Cost reduction: real and permanent reduction

Planned program of cost reduction

Without impairing suitability for use.

Maintaining quality, specifications

Reduction in expenditure, waste, non essential activities

cost reduction by improving productivity, methods, and techniques

cost reduction by managerial decisions : basic design, subcontracting

day-to-day control

identify improvement opportunities

systematic approach

develop effective performance measuring systems

Cost saving : not due to deliberate efforts, unplanned

Market price fluctuations

Change in tax rates

Cost control: Monitoring all cost factors, comparing with targets, reporting system

Pricing:

Effective pricing based on value of the product.

Pricing challenge: product options, variations, configurations. Hard to compare prices

Companies who price correctly have :

Insights into what the customer value.

Understand total cost to serve.

Insight into specifics of their product portfolio.

Have organizational energy to sustain pricing power.

Value and thus your pricing may differ from customer to customer, region to region.

Strategic Linkages :

Environment

Alliances, partnerships, mergers, and acquisitions

Vertical integration vs. outsourcing

Bridging marketing and operations divide

Multi company planning

Manufacturing planning

Effective product decisions

Smoothing demand turbulence

Strategic linkages : internal & external linkages that are critically important for enhancing

an organization’s alignment(adjustment, adaptation) with its environment for sustainable

competitive advantage.

Three phases :

Understanding broad, relevant environment by scanning. Org. must continuously scan &

analyze their environment.

Mapping(e.g. listing) of potential partners in terms of interest, concerns,

conceivable contribution to its alignment.(suppliers, customers, law makers, financial

institutions)

Development of short- and long-term strategic linkages enhancing organization’s

capabilities to compete and adapt.

Two types of environment: distant, close

Distant : elements that organization can not influence, but organization is influenced by

them. E.g. fiscal policies of USA.

Close : that influence organization’s performance and can also be influenced by managers

at the same time. Competitors in the same industry. Local govt.

Principles of Competitive Strategy.

Managers must have a deep understanding of a company’s situation- its external

environment and internal environment. Then only they can craft company’s

business/manufacturing strategy. This understanding requires thinking strategically about

two facets of company’s situation:

1. The industry and competitive environment in which company operates, forces acting

to reshape this environment.

2. Company’s own market position and competitiveness—its resources and capabilities,

its strengths and weaknesses vis-à-vis rivals, and its windows of opportunity. SWOT

The strategically relevant components of a company’s external environment:

1. Macro environment:

Gen economic conditions

Legislation & regulations

Technology

Population demographics

Societal values and lifestyles

2. Immediate industry and competitive environment:

Five Competitive forces.

a. Rival sellers, advertisements, promotions, aggression

b. New entrants: resources of new entrants, entry barriers

c. Substitute products: sugar/artificial sweetners, eyeglasses/contact lenses,

newspapers/ TV, movie theatres/movie channels/DVD players

substitutes of same quality?

Easily available? Cost?

d. Supplier bargaining power, supplier—seller collaboration

Microsoft, Intel, Indal, Dell computer collaborates with Intel

e. Buyer bargaining power, seller-buyer collaboration. Govt a big buyer, DGC rate

contracts, Reliance Fresh, Wal-Mart

Alliances, Partnerships, mergers, and acquisitions:

Demanding competitive race: global race to build presence all over the world, build resource

strength and business capability to compete successfully.

Resource gap, technology gap.

What to do?

Strategic alliances or collaborative partnerships : in which companies join forces to achieve

mutually beneficial strategic outcomes. Go beyond company to company dealings. No

possible change in ownership.

Strategic partnerships: alliances, mergers, acquisitions, outsourcing/vertical integration.

Oracle : 1500 alliances

IBM, Microsoft : 200 alliances

Samsung : 34 major strategic alliances

Large corporations : 30 to 50 alliances

MIT ties up with Harvard to introduce new teaching techniques and go ahead of other

institutes.

Examples: HP taking over Compaq, Tata taking over Corus, Mittal taking over Arcelor,

Microsoft buying Hotmail,

Intel tying up with PC manufacturers, programmers,

economic blocks

outsourcing

Objectives of partnerships:

1. To increase competitive advantage in domestic & international market.

2. To help defend against competitive challenge.

3. To achieve some strategic goals e.g. to increase market shares, to increase profits.

4. To help bypass the costly and slower process of building capacity internally.

Competitor develops products faster, achieve better quality at lower cost, has more

resources. How to catch up with such a competitor? Find Strategic partner.

Reasons for forming alliances :

1. Collaborate on new technologies: Samsung-Google(Android)

2. Develop new products: Airbus Industries

3. Strengthening mfg. weakness

4. Improve supply chain efficiency(Tata-Fiat)

5. Gain eco of scale

6. Acquire or improve market access(Tata-Fiat)

7. Access valuable skills & competencies

Alliances with whom? Alliance partners? Various, depending on objectives.

All types of alliances. With other manufacturer of different products, with manufacturers

of same products i.e. competitors; suppliers, dealers.

1. Alliances with distributors, suppliers : to gain efficiencies in supply chain

management. E.g. Philips & its exclusive distributors

Utilize dealer network for economizing on distribution costs, improve access to

customers. E.g. Tata & Fiat

2. Alliance between domestic & foreign co. to enter/penetrate foreign market. Maruti &

Suzuki, All BPO are collaborative, to enter Chinese markets, foreign companies tie up

with local ones. Local co helps with

govt. regulations

Knowledge of local market, guidance on customer preferences, knowledge of

unfamiliar markets and cultures

Set up mfg. facilities

Assist in distribution, marketing, promotion

3. Alliances with competitors : e.g. Dell & IBM for parts.

4. Alliances for cooperation: Intel with component suppliers and software developers.

5. Alliances (ganging up) against another alliances, e.g. wireless technology vendors

against fiber optic, cable system vendors.

Alliance success:

Depends on how well partners work together. A successful alliance: Merck and J & J for

Pepcid AC.

Depends on how well goals are defined. Pratt & Whitney + GE against Rolls Royce.

Alliance Risks :

Frictions & conflicts

today’s partner, tomorrow’s competitor. Alliances are temporary. A company that wants

to be industry leader must eventually develop its own capabilities.

Mergers & Acquisitions :

Merger : two equal sized companies join to form a new co. New ownerships.

Chrysaler(American) & Daimler Benz(German)

Acquisition: one co buying another.

Owner ship ties are more permanent than alliances.

Why merge or acquire when alliance possible? Deeper access to capabilities and

resources.

Advantages :

Source of competitive advantage, strengthening co’s industry position.

Fill resource gap, financial

Technology gaps(Cisco acquired 75 small, technology companies),

Wider range of products: Pepsi acquired Quaker Oats, Coca Cola acquiring Thumbs Up

(Parle’s soft drinks business)

Wider geographical coverage(Infosys acquired small software companies abroad)

More R & D

Increased capacity

Cost savings

Build market presence in other countries, globalization : Daimler Benz with Chrysler

While mergers & acquisitions are common with foreign companies, Indian company to

Indian company mergers & acquisitions are not so common. Reason? Indian companies

do not possess original technology. Also labour problems. Saraswat bank taking over

Kolhapur cooperative bank or Karad Bank, more so these were sick banks and were

available cheap.

Problems :

Skills needed to manage new entity

Resistance from employees

Conflicts in Management styles and cultures

Sometimes judgments go wrong and expected benefits don’t materialize. Ford – JLR

Airtel’s acquisition of MTL (South Africa) is in trouble. So is Tata’s acquisition of JLR &

Corus. Mittal’s acquisition of Arcelor is not producing enough profits.

Vertical Integration:

Defn. : Expanding company’s value chain of activities. Extends company’s competitive

scope with in the same basic industry. Firm’s ownership of vertically related activities.

Better control, coordination, Less vulnerability against suppliers

Lower costs because supplier’s profit not included

Critical components in house

Types of VI:

Forward, upwards : distribution, retailing

Backward, downwards : manufacturing what was earlier bought.

Backward Integration: cost & differentiation advantages, profit margin of supplier is not

applicable.

Forward integration :

Exclusive sales channel, better control. Better service. Closer to customer. Independent

dealers may not promote company’s products as they have no loyalty to the company.

Example: company owned petrol pumps.

Big companies want to be in retail business.

Disadvantages of Vertical Integration:

Increases capital investments, increases business risks

May not get economies of scale in all segments, or balancing capacities e.g. in TV

production & PCB production, speaker production.

Different types of managerial skills :

In a TV unit : TV assembly, part manufacturing.

In case of forward integration : manufacturing, distributing, and retailing require

different skills.

Outsourcing

Search for cost reduction,

fill capacity gaps,

fill capability gaps.

Broaden product range,

Focus on core strengths in marketing, distribution, brand building.

Core competences

Flexibility against change in customer needs, technology, and industry conditions.

Examples : Philips to Penguin, LG to Jabil, Onida to – for black & white TV

What to outsource?

An activity can be performed better

An activity can be performed cheaply

Activity not crucial

Activity requiring too much manpower.

When to outsource:

Product type

Company has

Capability Capacity

Product type

Modular Integral

No No Risky very risky

Toyota El systems

Yes No Good Idea Possibility

Toyota Tr.

Systems, Philips radios

No Yes Risky bad idea

IBM PC

Yes Yes Possibility bad idea

Toyota engines

Modular Product : made of interchangeable & independent parts. Interface between

components are standardized. Bicycles, PC, transmission components

Integral Products :made of tightly related components, customized for the product.

Medical equipment, machine tools, airplanes, cars, engines, electronic systems.

Outsource routine activities

Disadvantages : increased dependence on others, exposure of company’s resources to

outsiders.

Vertically related activities. Successive stages. Car manufacturing, oil companies. Buliders.

Different stages in production.

How many stages are with the company? Company’s ownership of vertically related

activities.

Degree of vertical integration: degree of ownership & control.

Vertical integration : ratio of firm’s value addition to its sales revenue.

Direction of vertical integration: forward, backward

Vertical integration vs. outsourcing:

Coordination

Strategic control

Intellectual property

Investment

Effective product decisions:

Products & services create an image of the firm. Customer’s feelings, perceptions.

Benefits products give to customer. Firms must communicate benefits.

Good value for money

Economy of use

Good design

Availability

Ease of use

Novelty, innovation

Safety

Multicompany Planning: Advanced Planning Systems

Extending planning beyond immediate enterprise.

Supplier planning, demand planning

QRM/TBC: quick response manufacturing/time based competition TBC

Strategy used by Japanese in 1980s.

Use of speed to gain competitive advantage : delivery faster than competitor

Reduction of lead time in all stages: design, engineering, process planning, procurement,

assembly

Need to forecast

Expanded variety

FMS

Innovation

External : responding to customer’s needs by rapidly designing, manufacturing

Internal: as above

Vendor managed Inventory:

Lower cost implementation of purchase control

Supplier continuously monitors inventory levels and replenishes as per agreed, authorized

policies

Summary purchase order, a single invoice at the end of the month

Ownership of inventory: VMI company owned or supplier owned,

line on production floor

Steps :

Capture data

Guide decisions on products

Replenish as needed

Eliminate obsolescence

Choose right VMI partner

ECR: efficient customer response

Integrated supply chain management system,

Originated in US 1993

A managerial approach, customer driven

Aim to improve customer service & efficiency

Distributors and suppliers working closely to to bring better value to customer. focus on

efficiency of total system: reduces total costs, inventories

Pull system

A seamless interface from consumer purchase to manufacturing schedules

Four strategies:

1. Efficient stores management: how many items to carry on one category,

what other specific details, how much space to allocate

2. Efficient replenishment: shorten order cycle, costs, continuous replenishment

programs

3. Efficient promotion(avoid inflation of inventories, good promotion should

affect customer purchase decisions)

4. Efficient new product intro:

Demand forecasting:

Forecast, inventory management, revenue management

A continuous process

Web based tracking of real time supply chain variables(adaptive logistics management)e.g.

product movements, inventories, service levels, revenue streams,

Reduce forecasting errors

Demand turbulence : bullwhip effect : can be avoided if customer demand is immediately

transferred to suppliers, sharing of information(sales, capacity, inventory) continuously.

even with customers. Electronic ordering systems.

Every day low pricing: (EDLP): prices consistent over time, somewhat higher than their Hi-

Lo competitors(Wal-Mart)

Review questions:

1. What are the three major interrelated elements of demand forecasting ?

2. Four major ECR strategies?

3. Perceived benefits in a product on which various product related issues are

based.: good value for money, ease of use, novelty, availability, good design,

safety, economy of use

How should managers handle demand turbulence in order to optimize inventory?

Why is there so much concern over quick responsiveness at each level and process? Does it

give competitive advantage? How?

Case study 1 :

Marriage between marketing and operations : Amazon Story

Remember the last time you ordered a book from Amazon.com? You might recall that

Amazon.com offers a variety of different shipping promises, such as ‘usually ships in 24

hrs’, ‘ships in three to five days’, or ‘special order’. The reason? The economics of

inventory.

Although Amazon offers some 4.5 million titles, it can’t afford to keep all these books in

inventory.

Amazon holds the most popular titles in its own distribution center and typically can ship

those books in 24 hrs. A second tier of books is stocked by book wholesalers. Some

wholesalers can fill an order in 24 to 48 hrs, enabling Amazon to meet its promise of ‘ships

in two to three days. Other wholesalers may take a few more days, so Amazon promises

three to five days. At some life cycle of the book, wholesalers stop carrying inventory and

only the publisher can fulfill an order-usually from inventory, but sometimes through a new

print run.

The longer lead-time from the publisher forces Amazon to extend its promise to one to two

weeks.

So a simple differentiated service policy-in this case based on lead time allows Amazon to

address the inherent conflict between marketing and operations. Marketing wants to offer

the broadest possible array of titles to reinforce Amazon’s positioning as having ‘Earth’s

Biggest Selection’ and to deliver these titles instantaneous to reinforce the convenience of

on line shopping. Operations on the other hand cannot support such a proposition at least

not cost effectively. So, by examining the economics of inventory and understanding the

value of lead time to customers, Amazon sets shipment lead times to define appropriate

compromises between marketing and operations.

Q1. Discuss Amazon’s distribution mechanism

Q2. How Amazon manages its business to be the best in services and cost effective?

Case Study 2: Kodak

Kodak faced a competitive challenge when Fuji announced a new 35 mm single use camera.

Kodak had no competitive offering and its traditional product design process would have

taken seventy weeks to produce a rival to Fuji’s camera. Kodak wanted to re engineer its

product development process.

Kodak’s old product development process was partly sequential and partly parallel but

entirely slow. Designing the camera was conducted in parallel where all parts were designed

simultaneously and integrated at the end. This system engenders problem because some of

the engineers made change in the design for improvement, but were not communicated to

other groups. The design of the manufacturing tools was tacked sequentially, but had long

wait time in between two steps.

At Kodak the manufacturing engineer did not even begin their work until twenty-eight

weeks after the product designers had started.

What according to you is the main cause of long product development time in the above

case?

Kodak wants to re engineer their product development process. Suggest appropriate

solution.

Q1(P09/MU2402/EE/201005)

Discuss in brief the evolution in manufacturing performance.

Replacement of human & animal power with machines Industrial Revolution.

1. Activities at home transferred to factories.

2. Division of labour

3. Interchangeable parts

4. Scientific management

5. Quantitative techniques, OR

6. Manufacturing performance declined from 1950 to 1975, and steadily increased from

1975 to 2000.

7. World War 2 ended in 1945. World economies took time to recover.

8. Importance of human elements: Job design based on behavioral models. Five

principles of job design: task identity, task variety, task autonomy, feedback, skill

variety. Physical factors : calorie requirements. Ergonomics.

9. Quality revolution. TQM, six sigma, QFD, Demings, Juran

10. Earlier way production systems : craft – job shop, project, customized products and

services.

11. Internet: opportunity to work faster and better

12. In 1970 : Japanese initiatives in quality : JIT, Kanban, cellular layout, QFD, TPM,

Inventory management, target costing, employee involvement, visual management,

quality circle,

13. In 1990 : American efforts: DFM, Malcom Baldridge Award, benchmarking, re-

engineering, supplier managed inventory, employee ownership/gain sharing, activity

based costing, Broadband pay system, peer appraisal, alignment of internal and

external processes in the management of supply chain.

14. Globalization

15. Use of IT

Q2(P09/MU2402/EE/20091115

How was labour productivity achieved in past? What are the factors responsible for today’s

productivity trends.

Labour productivity = output / labour input

1. Specialization of tasks : division of labour (Adam Smith)

2. In 1850 : Scientific Management : Frederic Taylor : reducing a complex job into a

series of simple tasks.

3. Substitution of manual labour with water or steam power.

4. Larger and more accurate machines.

5. Better engineering materials : harder & stronger : steel for wrought iron, high speed

steel, synthetic carbides for cutting and grinding

6. Moving assembly lines, mechanical integration

7. Increasing capital investments in machines, automation

Manufacturing Outputs & Production systems

Competitive advantage : superior values to customer.

How manufacturing creates value?

Four types of value: form, time, place, and possession.

Possession created by sales. Others by mfg. called mfg outputs.

Mfg. networks : includes distribution centers, mfg. facilities, offices, R & D Labs, etc.

Mfg facility consists of one or more macro factories : Godrej washing machine and Fridge

mfg facility: each Macro factory consists of focused factories : Moulding plant, machining

plant, assembly plant: all in one mfg. complex.

Each macro factory has a number of micro or focused factories.

Focused factory: a well defined production system .

Six Mfg. Outputs : cost, quality, performance, delivery, flexibility, innovativeness

Table 5.1

Output Definition

Cost Cost of material, overhead, and other resources used to produce a

product.

Low cost a better opportunity for profit.

Difficult to estimate OH costs.

Proper cost accounting system in factory.

Quality Extent to which products confirm to specs and customer

expectations and how tight or difficult the specs and expectations

are.

Ex. : Car specs : measurable parameters: Power, Speed, Noise,

Consumption.

Tools & Technologies ( SQC, six sigma, standardization) provide

quality

Performance Product’s features and the extent to which features permit the

product to do things.

Ex. Car features: Safety, Comfort, Aesthetics(looks)

Provided by highly skilled workers, concurrent engineering, design

complexity

Delivery time &

Delivery time reliability

Time between order taking and delivery. How often orders are

late? How late ?

Flexibility Extent to which existing products can be increased or decreased

to respond quickly to meet customer needs.

A mass production set up very efficient & economical but not

flexible.

Innovativeness Ability to quickly introduce new products or make changes in

existing products.

A job shop production not efficient & economical but can

implement innovativeness.

A tailor can be more innovative than a ready made garment

factory.

Elements that quantify the Outputs :

Table 5.2

Output Measures (of the output)

Cost material cost, labour cost

total manufacturing OH cost

Inventory turnover : RM, WIP, FG

Capital productivity

Capacity utilization

Materials yield

Indirect costs : R & D, HR

Quality Internal failure cost : scrap, rework

External failure cost : filed failures, returns

Quality of incoming material

% defectives

Warranty costs as a % of sales

Reworks as a % of sales

Performance Number of standard features

Advanced

MTBF

Delivery Assured delivery time

% of on time deliveries

Avg. lateness

Cycle time, throughput time

Flexibility No. of products

No. of versions, options

Min. order size

Avg. production lot size

Machine versatility : no. of types parts processed

Innovativeness Improvements per year: change orders

No. of new products introduced per year

Level of R & D investment

Lead times to design and introduce new products.

Tradeoffs & Competitive Advantage:

Factories can not provide all outputs at their highest levels.

Standardization (low cost) Vs. Innovativeness

Flexibility Vs. Productivity

Cost Vs. performance

Manufacturers therefore choose ton optimize one or two outputs. They select production

systems which help them optimize these outputs.

They choose to compete on one or two of these outputs.

Competing on cost:

Generic products, Standard items have similar features and prices. In that case

manufacturer competes on cost. Cost then becomes most important output.

Tata Motors : More car per car.

Competing on quality : Mcdonald, Toyota

Toyota slogan : There is quality, there is Toyota quality.

Christion Doir : cosmetics : A name synonymous with quality.

Ford : Quality is job one.

Chitale Bandhu

Vaishali

Competing on performance:

Honda Racing: Performance first.

Honda Power Equipment : Honda engineering makes the difference.

Mercedes : Engineered like no other car in the world.

Philips : Let’s make things better.

Tide detergent : If it’s clean, it got to be tide.

Amul : Taste of India

Three kinds of product features:

Dissatisfiers : customer expect some features

Satisfiers : customers want some features

Delighters : exceed customer needs and expectations.

Competing on delivery : Fedex. At one time Intel had this slogan : We deliver.

Airlines.

Competing on Innovativeness :

HP : Invent

Seiko : Innovation & Refinement

3M : Making innovation working for you.

Sony

Philips

Apple

Competing on flexibility : range of products, customizations. Design your own house.

Competing on several outputs.

Manufacturing capability:

Production systems with high levels of manufacturing capability:

provide high levels of manufacturing outputs

Make changes quickly and easily

A progressive company may go through these stages of manufacturing capability:

A measure of overall level of manufacturing capability:

Increasing level of manufacturing capability -----

Infant 1.0 Avg. 2.0 Adult 3.0 World Class 4.0

Production system

barely contributes to

company’s success.

When company is

newly formed focus

is on product design

and marketing

When company is

small it is not able to

invest initially in

production

infrastructure

When company is

Poorly managed

Mfg. low tech,

unskilled

Production system

keeps up with

competitors and

maintains status

quo.

Follows industry wide

practices.

Similar process

technologies.

New technologies

adapted only when

most companies in

the industry use

them.

Avg. levels are

adequate when

market is growing.

When markets are

saturated, extra

efforts required.

Manufacturing

consists of

Standard, routine

activities.

Production system

provides market

qualifying and order

winning outputs at

target levels.

Focused factories.

Management has

Long term view.

Marketing decisions

are consistent with

manufacturing

strategy.

They have resources.

Production system

tries to be best in

industry in each

activity in each

production

subsystem.

Provides more than

one output at highest

level. E.g. highest

quality at lowest

cost.

Develop own

technologies.

High Investments

Production system is

an important source

of competitive

advantage.

Review questions:

1. What are the four types of product values? Which values are created in production?

2. What are the six attributes ( also called outputs of production) of products, a factory

must try to optimize?

3. Is it possible to optimize all these attributes simultaneously? If not, what is the

tradeoff?

4. How to determine if a manufacturing is innovative? What are the measures of :

Innovativeness?

Flexibility?

Delivery?

Performance?

Quality?

5. Why is WCM the need of today’s highly competitive market?

6. What were the major contributors of the US in its journey to manufacturing excellence?

7. The quality revolution in Japan set the pace towards manufacturing excellence. Discuss.

8. Why is sustainable improvement and growth more important for organization?

Customer Focused Principles

Total customer service:

Purpose of business to serve customers. How customers perceive the service your business

provides?

Typical customer service measurements are transaction based.

On time delivery

Lead time

Customer surveys: often structured to gather info based on criteria company believes is

important than how actually customer experienced your service. End result: surveys results

are defined on the service provider’s terms.

Design your processes and systems around your customers

Provide total customer service.

Total customer service: every step in the process that involves the customer should have

highest level of service.

End-to-end thinking about every business process & delivery system that touches the

customer.

1. Defining customer requirements

2. Selection & sourcing: how does the customer search for the product

3. Purchasing & ordering:

4. Producing & packaging

5. Shipping & delivering the product

6. Receiving the product (intact?)

7. Product use

8. Invoicing & payment: accuracy

9. Service

10. Warranty

11. Returns

These systems must work in harmony.

Test your customer service:

Become a customer. Take an end to end journey through customer interaction system.

World Class Manufacturing Organizations are customer focused :

1. Customers are demanding : know about what is available, higher incomes, large

number of sellers

2. World is becoming highly competitive: large no. of sellers, technology available to all

3. Earlier : product focus, product features & specs, lower cost

4. Now : q, lead times, efficiency

5. Two critical criteria : customer satisfaction, total value to customer

6. Not just responding to customer needs but anticipating

7. Process management: every business process has a immediate customer. Marketing

department is customer of manufacturing department. Manufacturing department is

customer of R & D.

8. Three steps to customer focus :

Define customer value : market research, marketing info system, core competences

Develop customer value: new product dev., pricing & value positioning, design of

distribution channel, selection of alliances and partners

Deliver customer value : logistics, sales function, after sales service, customer

support

CVM : identify values that can be delivered not only by products but also by processes &

services. Engineer business capabilities to deliver ideal customer defined value at each

customer interaction.

Alignment between customer’s vision of ideal value delivery and capabilities of the business

to deliver that value.

1. How to attract customers and attain growth.

2. Competition is forcing products to be equally advanced and prices the same.

3. Identify deliverable value: by products, processes, services.

4. Monitor & maintain alignment between customer values and business capabilities

5. Goal : to deliver optimal values to customer; improve capabilities, organization,

infrastructure, value chain with customer defined values.

6. Methodical approach- long term approach-alignment of company’s essential

capabilities –its processes, organization, infrastructure, value chain to meet current

and future customers’ needs & benefits by company’s products, services, processes,

and relationships.. Mass customization.

7. Identify market : tightly define scope, focus on well defined markets. Customer

service segmenting: what customer wants before purchasing, during, and after

8. Who are our customers?- distributor? End user? Dealer? All of them? Immediate &

end users

9. What do they expect? Not only Market research, brainstorm, staff meeting, survey,

but also open ended questions, in depth interviews.

10. How are you different than your competitor?

11. Schonberger’s 16 principles ( 1990): assess on a scale of 1 to 5, high score :

mature, customer focused.

Teaming with customer

Info from customer

Improve quality rapidly

Manage change

Lean with the few best

Shorten time

Match customer demand rate

Training for new roles

Variety in compensation

Reduction in variation

Market improvement

Data owning by front liners

Targeting root causes

Performance measures alignment

Capacity improvement

Simple equipment

Customer Focused Principles : Eight broad categories :

Customer orientation

Design

Operations

Capacity

Quality

Information

Marketing

Human resources

Customer Orientation:

Defn. : Comprehensive, continuous establishing and analysis of customer expectations,

internal & external realization into:

Entrepreneurial performance

Interactions intended to establish stable customer relations in the long term.

Overcapacity: customers in short supply but products are many.

Buyer’s market: Attn. on Customer preferences and not on products: Change to sense and

respond to make and sell

Attract & retain customers.

Create Customer values and deliver. Superior value.

Meet & exceed customer needs better than competition.

Example : McDonald’s global success due to: creating good food and delivery system

suitable for fast food restaurants.

High standards of QSCV – Quality, Service, Cleanliness, Value. Same standards all over.

Thus customer value depends on many factors apart from product itself.

Customer satisfaction index(indices):

Survey the customers

Plot results w.r.t. time to reveal changes in satisfaction level.

Method :

Identify what customers’ choice criteria : what customers’ think as important while

evaluating competing products.

Developing measuring scales to quantitatively assess satisfaction. Statements

followed by ‘strongly agree’, ‘strongly disagree’ types of response boxes.

Question new customers on why they bought.

Question customers on why they ceased buying (defectors). Try to retain such

customers.

Questions :

1. Why are companies emphasizing the need for customer focus in their business plans

on such a serious note?

2. In today’s competitive business environment, customer satisfaction has gone far

beyond its notion of satisfying them to actually delighting them. Discuss.

Product design :

Design : a series of activities by which info known and recorded about a designed object is

added to, refined (i.e. made more detailed), modified, and made more certain. Process of

design changes the state of info that exists about the designed object. During successful

design, info about the product increases, and product becomes less abstract. Design is

therefore a process that modifies info we have about an artifact or designed object.

Manufacturing changes the physical form.

Concurrent engineering.

Design has to be a fast activity.

Design for customer

Three fundamental elements of design:

aesthetics : aspects that impact human senses : colour, texture, smell, noise, form,

taste.

Strenuosity : load bearing functions : stress, displacement, current capacity, thermal

endurance, wear

Kinaesthetics : mechanisms of design : levers, gears, electrical circuits, hydraulics, that

enable kinematic realization of the design.

Four Processes that affect design :

Reduction

Simulation

Optimization

Modularization

Reduction : design is reduced in complexity but still achieves its purpose.

Simulation : developing & operating a mathematical model to determine how it will

function. There may be several models.

Optimization : selected aspects : costs, thermal efficiency, material usage etc.

Modularization : composition : composed of separately assembled units. Easily

interchangeable parts(modules)

Design processes : several iterations : initial design (concept), detailed design, design

analysis, prototype, testing, evaluation, small production, changes, release for production

Design improvements for mass production

Design automation : CAD, automated tolerance analysis, CAPP (computer aided process

planning), CNC machining, inspection using coordinate measuring machine(CMM), robot

assembly, auto insertion

‘Islands of automation’

Concurrent engineering: integration of design and manufacturing,

considerations in design. Maintenance. Less iterations, lower production costs.

DFM: a philosophy and a mind set in which manufacturing input is used at the earliest in

design stage. Aspect of design process in which the issues involved in manufacturing are

considered explicitly. E.g. tooling cost or time, processing cost or control, assembly time

and cost, human concerns in manufacturing like worker safety.

Product design :

Generating a steady of new products to market extremely important to competitiveness

Response to customer changing needs

Ability to identify opportunities

Have courage of conviction to invest in development

a major challenge that impacts long term success of a company .

an integrated effort involving all functional areas in the company

Company strategy : to continuously design / develop new products

Competitive requirement : for survival and growth, to keep competitors away

Product design and development can be due to other reasons too:

1. to introduce low cost products, or reduce cost of existing products

2. to introduce new features

3. to improve reliability

4. to introduce new technology :

5. To change aesthetics

Examples :

1. After Apple introduced iPhone with touch screen, other companies also did the same.

Constant innovations in Mobiles, computers, software field,

2. Tata Nano : to introduce a new class of cars

3. TV : picture tube, LCD, LED, Plasma

4. Radio : MW, SW, FM, with torch, 2 in 1, with CD player

Definitions :

1. Design : translation of requirements into a form convenient for production or use

2. Research : planned and deliberate efforts to discover new ideas

3. Development : improvement in existing technique or system

4. Innovation : generation of new ideas

5. Prototype : model of a product or part of product, functional, used for demonstrating

looks, features, functions. Not a production piece

Requirements of a good design :

1. Function : should meet customer requirements

2. quality : Reliability : trouble free service over its life

3. Maintainability

4. Producibility

5. Simplification

6. standardization and variety reduction

7. Cost

Stages in Product design

1. Conceptualization: features, draft specs, aesthetics (industrial design)

2. Execution resulting in prototype

3. Evaluation

4. Repeat steps 2 & 3 if not acceptable

5. Actual trials

Product categories :

Generic: market pull products Sporting goods, furniture, tools

Technology push products : new

technology, market has to be established

iPod

Platform products :built around

established technologies

Mobiles, computers, printers

Process intensive products :

characteristics of products are highly

constrained by process: product design

can not be separated from process

Semiconductors, fast foods, chemicals,

paper

Customized products : New products are

variations of existing configurations

Motors, switches, batteries : new

dimensions, materials

High risk products: technical or market

uncertainties create high risks of failure

Pharmaceuticals, space systems

Quick build products : rapid modeling

and prototyping enables design-build-

test cycles

Software, TVs

Complex systems :system consists of

several sub systems and components:

Concurrent engineering : Different teams

are assigned to develop different

components: parallel developments by

several specialists

Airplanes, automobiles

General (generic)Product design process :

PHASE Functional areas

Marketing. . . .

. .

Design. . . . . . . Manufacturing

. .

Other functions.

. .

Phase

0:

Plng.

Mission

Statem

ent

Target

Market

Busines

s goals,

Assump

tions,

constrai

nts

Define:

Market opp.,

segments

Product Platform

& architecture

Assess new tech

Nologies:

e.g. TV: LCD,

Plasma?

Identify Prodn.

Constraints

Set supply

chain

strategy

Research :

Available

Techno.

Finance:

Provide

Planning goals

Gen. Mgmt. :

Allocate project

Resources

Phase

1

Concept

Dev.

form,

Functio

n,

feature

s,

specs,

eco

justifica

tion

Identify :

Customer

needs

Competitive

products

Feasibility of product

concepts

Alternate concepts

Dev. Ind. Design

concepts

Build & test

experimental protos.

Mfg. costs

Prodn.

Feasibility

Finance:

facilitate eco

Analysis

Legal:patent

issues

Phase

2

System

Level

Design:

Definin

g sub

system

s &

comp.

Dev.Plans for

variants

Target sales

price

Refine Ind. Design

Define major sub

Systems & interfaces

Identify

Suppliers for

Key comp.

Make-buy?

Target cost?

Assy. scheme

Process flow

dia.

Finance:

Facilitate make

Buy decisions

Service :

service issues

Phase

3

Detail

design

Dev. Marketing

plan

Complete ind.

Design,

Finalize materials,

Tolerances, drawings

Issue documents

Tooling,

Quality

start

Procurement

Of long lead

components

-

Phase

4

Testing

&

Refine

ment

promotion Test :

reliability.,

life,

performance

obtain approvals

implement

design changes

Train workers

Finalize : assy.

quality

Sales : plan

Phase

5

Prodn.

Ramp

up

Test marketing Evaluate early

prodn.

Begin full

prodn.

Designing for the customer : QFD (Toyota) : interfunctional teams

Value analysis/Value engineering

DFMS : designing products for manufacturing & assembly

Measuring product development performance : time , quality, productivity

Speed and frequency of bringing new products

Quality of products

Productivity : resources used

Capacity :

A set of resources used to create value for the customer, cost of capacity lower than what

customer pays. Without capacity not possible to create value.

Set of human resources and equipment company can use to produce goods or services to

sell.

Capacity of a worker, machine, work center, plant, or organization : Amount of work that

can be done in a specified time period, to produce output per period of time.

Capacity is the rate of doing work, not the qty of work done. Capacity is the rate at which

work is withdrawn from the system.

Capacity : in terms of labour hours, machine hours, material handling, or of any

manufacturing resource.

CRP : capacity requirement planning: mostly calculates for labour and machines.

Capacity Management:

Manufacturing resources :

Direct manufacturing labour

Machines

Tools,

Fixtures

Material handling equipment

Warehouse space

Quality measurement systems

Indirect labour

CRP : capacity requirement planning: computerized systems mostly include direct labour,

machine hours. However capable of including and analyzing all resources.

Capacity management: concerned with supplying necessary resources.

Responsible for Determining capacity needed to achieve priority plans

Providing, monitoring, and controlling that capacity so that priority plans can be met.

Planning & controlling

Capacity decisions affect :

Product lead times

Customer responsiveness

Operating costs

Ability to compete

Growth

Inadequate capacity:

Loose customers

Limit growth

Excess capacity:

Drain resources

Prevent investments in more lucrative ventures

Critical decision: when to increase, when to decrease capacity.,

Capacity Planning:

Process of

Determining the resources required to meet the priority plan

Methods needed to make that capacity available.

Takes place at each level of planning:

Production planning

Materials requirement planning

Master production schedule

These priority plans can not be implemented unless the firm has sufficient capacity to fulfill

demand.

Capacity planning links various production priority plans schedules to manufacturing

resources.

Capacity to be adequate to meet demand.

Time horizons :

long range (> 1 year), applicable to buildings, heavy machines.

Intermediate(upto 18 months) : alternatives to change : hiring, layoffs, new tools, minor

equipment purchase, subcontracting

Short range(< 1 month): daily or weekly schedules. Change : OT, personnel transfers,

alternate production routings.

Problems in planning capacity:

Wild fluctuations in demand

Inflexibilities of plant

Variabilities of plant

Demand chain amplification

Differences between demand and actual orders

Tactical over ordering

Dimensions of manufacturing capacity:

Type:

Standard or advanced

Rigid or flexible

Capital intensive or not

Automated or manual

Amount:

Quantity of capacity : theoretical/nominal, actual(utilized)- can change from day to day.

Expressed as machine hours in a day or week, a year

Labour hours

Cost : total economic value to acquire, run, maintain, or even later discard

Why the difference between nominal & utilized capacity

personnel scheduling

Set up time

Maintenance

Lack of demand

Capacity cannot be stored. Alternative, produce even if no demand. Inventory costs.

Capacity policy : statement of commitment of investments. Max capacity. Master schedules

based on max capacity. Guidelines re subcontracting, investments

Subcontracting to increase capacity.

WIP, FG inventories.

Operational excellence: operational efficiency

Required for world class quality

Enhanced productivity

Better delivery of goods & service to customers

At competitive prices

Best value strategy – best price & performance

Focus on high quality, quick customer service, quick delivery improvement in supporting

business process improvement.

Standardization

Automated processes

Purchases

Process innovations

Success of mass production

TQM

Business process re engineering

Lean supply chain

Agile manufacturing

Core competency

Global perspective

Learning economies

Quick intro of new products

High performance

Value engineering

Quality:

Quality initiatives

Top management commitment

Balancing both quality and quantity

Six sigma

Increased unit operations yield

Reduced cost

Improved productivity

Information for control & operations:

Strategic benefits:

Systems integration, external & internal

All can access data base

Managers are able to identify, analyse, and manage new developments

Assess risks and consequences

Learning has become focus of manufacturing plants

Information driven manufacturing : customer orders and market demands, no building of

inventories

Capacity drive manufacturing : production planning & control, first manufacture and then

offer persuasively

Marketing/Promotion

Market analysis

Macro forces: economic, political-legal, socio-cultural, technological

5 competitive forces

Decide promotional mix: advertising, personal selling, sales promotion, PR, direct

marketing, internet, on line

Adv. & disadv. Of each strategy, changing strategy over time in response to customers

Customers demand more involvement

bottoms-up strategy: listen to them & let them co create the product.

Customization

Two distinct sets of activities on value chain:

Product definition and market intelligence: marketing domain

Product development, process & technology: manufacturing domain

Products : dissatisfiers, satisfiers, delighters

Demographic factors

Maximizing customer satisfaction

Human Resource:

How best to deploy HR assets to create value for the customers.

Great companies respect their employees. Invest in people. Update their skills. Develop

leaders.

Building a sustainable work community

Empowered workers: giving more authority, decision making, skilled workers

Theory X managers: workers work best when closely supervised.

Theory Y managers: employees can act independently to benefit organization and

customers. Eliminate terms like supervisors and supervision.

Team work.