Operations Management Final Study Guide- Add to Midterm study guide

Chapter 5-Quality and Performance

-Quality and performance should be everyones concern because without the best
of both the customer may not be please with their order or service-you always want
the best customer satisfaction
-video on BP oil spill mess up, Challenger space shuttle disaster and Toyota recall
problem
-Does not mean companies should have 100% satisfaction of ALL customers and
potential customers! This is because not everyone is the right customer-you
always want to 100% satisfy ALL current customers and the right potential
customers. To do this you have to decide who the right customers are also.
-for services customer service leads to a lot of the customer satisfaction
-Positive Customer experience
-Stick the dismount
-in class example: the telephone help desk employee- conclusion: best to end
on a positive note because the customer will typically remember what
happens last
-Get the bad news out of the way first
-During-distract, segment the pleasure, combine the pain
-let customer control processes and give people clear choices, even if none are
particularly desirable-know values and norms of customer
-in class example: dental hygienist teeth cleaning-guy in pain but still some
left-ask
Costs of Quality
-Quality: a term used by customers to describe their general satisfaction with a
service or product graph=quality loss function
-difficult to measure accurately but should still measure
-Defect: any instance when a process fails to satisfy its customer
-want to determine process gaps-reflect potential dissatisfied customers and
additional costs of quality= ~20-30% of gross sales
-4 categories of cost that are associated with process performance gaps:
-Prevention costs: costs associated with preventing defects before they happen,
cheapest costs ex. Redesigning the process to remove the cause of poor
performance, make processes simpler must invest additional time, effort and
money to do this ex. Training, design, and quality systems
-Appraisal costs: costs incurred when the firm assesses the performance level of
its processes prevention costs increase=appraisal costs decrease because
fewer resources need quality inspection ex. Inspection, testing, inventory counts
-Internal Failure costs: costs resulting from defects that are discovered during the
production of a product or service ex. Process downtime, disposal costs from

-2 categories:
-Rework: if some aspect of a service must be performed again or if a
defective item must be rerouted to some previous operation(s) to correct
the defect
-Scrap: if defective item is unfit for processing (waste)

-External Failure cost: costs that arise when a defect is discovered after the
customer receives the product or service, highest cost area of failures!
-customer may complain to friends/family about bad service and spread
itdecreases market share and profits costly for company to correct defects
-Also include warranty and litigation costs
-Warranty: a written guarantee that the producer will replace or repair
defective parts or perform the service to the customers satisfaction ex. 90
days
-it costs more and more for prevention and appraisal costs when aiming for
100% good quality products so the most optimal solution is for prevention and
appraisal costs to about equal internal and failure costs
Ethics and Quality
-Balancing the traditional measures of quality performance and the overall benefits
to society ex. Heart surgeon wants to aim for zero complications in every surgery
but if it comes at a cost of turning down high-risk patients, is society being served in
the right way?
-Ethical considerations-deciding how you want to handle your products and services
in a way that is fair for your customers
-Identify deceptive business practices-3 elements:
1. The conduct of the provider is intentional & motivated by a desire to exploit
the customer
2. The provider conceals the truth based on what is actually known to the
provider
3. The transaction is intended to generate a disproportionate economic benefit
to the provider at the expense of the customer
These behaviors are unethical, diminish the quality of a customers
experience and may impose a substantial threat on society. Also if these
behaviors happen, the customer with unfavorably asses the company and is
unlikely to return.
-Companies should develop a culture around ethics and train employees to
understand how ethics interfaces with jobs to avoid ethical problems in the future
-The message companies that engage in unethical behaviors send is that the
companys product cant compete so they must deceive to make
their company profitable
Total Quality Management
-a philosophy that stresses 3 principles for achieving high levels of
process performance and quality-also includes other important
elements
-Customer Satisfaction: customers, internal or external, are
satisfied when their expectations regarding a service or
product have been met or exceeded-often use the term quality
to describe their level of satisfaction with a product or service
(good quality=higher profits)-has multiple dimensions
-Conformance to specifications: ability to meet certain advertised or implied
performance standards ex. on-time deliver, delivery speed
-Fitness for use: assessing how well product or service performs
-Psychological impressions: atmosphere, image, or aesthetics ex. Nicely
dressed

-Value: how well the service/product serves its intended purpose at a price
customers are willing to pay
-Support: provided by the company
-Employee Involvement: changing org culture and encouraging teamwork
-Culture change: one of the main challenges in developing the proper culture
is to define customer for each employee
-External: people/firms who buy the service or product
-Internal: employees in the firm who rely on the output of other
employees
-Must do a good job at serving their internal customers if they want their
external customers to be satisfied
-Quality at the Source: a philosophy whereby defects are caught and
corrected where they were created
-Teams-small groups of people who have a common purpose, set own
performance goals and approaches, and hold selves accountable for success
-Employee Empowerment: moves responsibility for decisions further down
the organizational chart-to the level of the employee actually doing the job
-3 approaches:
-Quality Circles (problem-solving teams): small groups of supervisors
and employees who meet to identify, analyze, and solve process and
quality problems die out if management fails to implement any of
their suggestions
-Special Purpose teams: groups that address issues of paramount
(supreme) concern to management, labor, or both
-Self-managed team: small group of employees who work together to
produce a major portion, or sometime all, of a service or product;
employees have control over their jobs-highest worker participation
-Continuous Improvement: based on Japanese concept Kaizen, philosophy of
continually seeking ways to improve processes, focus is to reduce waste ex.
Time, amount of scrap, number of injuries
-any process can be improved-people most closely associated with a process
are in the best position to identify the changes that should be made
-main idea is to not wait until a massive problem occurs before acting
-employees should be given problem solving tools (SPC methods later in
chapter) and a sense of ownership of the process-shows them they have
control
-Train work teams in problem solving using the Deming Wheel-The plan-dostudy-act cycle:
-Plan: select a process that needs improvement-document process by
analyzing data, sets goals and ways to achieve them-after all this,
develops a plan with quantifiable measures for improvement
-Do: team implements plan and monitors progress-collects data
-Study: analyze data collected during the do step to find out how closely
the results correspond to the goals set in plan step
-Act: if results are successful, document process so it becomes the
standard procedure
Six Sigma

-A comprehensive and flexible system for achieving, sustaining,

and maximizing business success by minimizing defects and
variability in processes-originally developed by Motorola
-Approach to align processes with their target performance
measures with low variability
-Goal of achieving low rates of defective output developing
processes whose mean output for a performance measure is +/6 standard deviations (sigma) from the limits of the design
specifications
-Can do for manufacturing and non-manufacturing processespopularized by GE
-Six Sigma improvement model:
-Define: determine characteristics of the processs output that are critical to
customer satisfaction and identify any gaps between these characteristics and
the processs capabilities-use flowcharts and process charts
-Measure: quantify the work the process does that affects the gap-select
measure, identify data sources, prepare data collection plan
-Analyze: use the data on measure to perform process analysis-use tools ex.
Pareto charts, scatter diagrams, cause and effect diagrams, and statistical
process control-use to determine where improvements are necessary
-Improve: modify or redesign existing methods to meet the new performance
objectives, implement changes
-Control: monitor the process to make sure that high performance levels are
maintained-can use data tools stated above
firms using this develop teachers who are responsible for teaching and
assisting teams involved in a process improvement project
-Green belt: devote part of time to teaching and helping teams and the rest of
time to normally assigned duties
-Black belt: highest level of 6 sigma training, full time teachers and leads of
teams involved in projects
-Master black belt: full time teachers who review and mentor black belts
Acceptance Sampling
-The application of statistical techniques to determine whether a quantity of
material should be accepted or rejected based on the inspection or test of a sample
-limits the buyers risk of rejecting good-quality materials or accepting badquality materials
-taking a sample is less expensive
-Acceptable quality level (AQL): the quantity level desired by the consumer-statement of the proportion of defective items that the buyer will accept in a
shipment
Statistical Process Control
-The application of statistical techniques to determine whether a process is
delivering what the customer wants
-detects defective services or products
-to indicate a process has changed
-inform management of improved process changes
-Variation of outputs: is unavoidable but want to minimize; Causes:
-Performance measurements-evaluated in 2 ways

-Variables: service or product characteristics that can be measured ex.

Weight, length, time
-Attributes: service or product characteristics that can be quickly counted
for acceptable performance-yes/no decision
-a transformational process can be described in terms of location, spread
and shape
-Sampling
-Complete inspection: inspect each service or product at each stage of the
process for quality, most thorough, costs of giving defects to
customers>inspection costs
-Sampling plan: a plan that specifies a sample size, the between successive
samples and decision rules that determine when action should be taken-good
when inspection costs are high
-Sampling Distribution
-a process will produce output that can be described by a
process distribution
-purpose is to estimate a variable or attribute measure
without doing a complete inspection
-a process can be described in terms of location, spread, and
shape-affected by variation
-some processes can be approximated by normal
n
distribution- n>4
xi -Mean:
xi x 2

-Standard
Deviation:
square
root
of

or
x i 1
n 1
variance
n

-Xi=observation of a quality characteristic n=total # of observations Xbar=mean

-Range: difference between largest observation in a sample and the
smallest
-Common causes of variation: the purely random, unidentifiable sources of
variation that is unavoidable with the current process, expensive to eliminate
-if process variability results only from this-assume process is in statistical
control, stable, and under normal operating conditions
-Assignable causes of variation: any variation causing factors that can be
identified and eliminated (also known as special causes), affect process for a
short period of time ex. Employee becomes ill, machine needing repair
-Control Charts: a time-ordered diagram that is used to determine whether observed
variations are abnormal
-UCL: upper control limit, larger value
-LCL: lower control limit, smaller value
-defined off of common control limits, both are based on the sampling
distribution and judge whether action is required
-nominal value: central line, average or average wanted; if location of
distribution=nominal value, then it is unbiased and centered
-Steps:
-take random sample from process and calculate a variable/attribute
performance measure

2
i

n 1

-if statistic falls outside charts control limits or exhibits unusual behavior,
look for an assignable cause
-eliminate cause if it degrades performance (easier); incorporate cause if it
improves performance, reconstruct chart with new
data
-repeat procedure periodically
-In statistical control means that the process will not
produce observations with a discernable pattern
other than that the observations will fall within upper
and lower control limits (A)
-B. Run: a sequence of observations with a certain
characteristic take action when 6 or more
observations show a downward or upward trend-6
points trend rule
-also 9 points 1 side rule when 9 points are on 1 side of the line
-C. sudden change from normal path-monitor process-14 points oscillating
rule
-D. Extreme point rule: process went out of control twice because 2 results
exceed control limits
-2 types of errors:
-Type 1 error: an error that occurs when the employee concludes that the
process is out of control based on a sample result that falls outside the
control limits, when in fact it was due to randomness
-Type 2 error: an error that occurs when the employee concludes that the
process is in control and only randomness is present, when actually the
process is out of statistical control
-Video in class-7 quality control tools: check sheet, cause-and-effect diagram
(most used), run chart, Pareto diagram, scattergram, histogram, and control
chart
Statistical Process Control Methods
-used to measure the current process performance and for detecting whether the
process has changed
-Variable control charts
-R-charts (range charts): used to monitor process variability
R=average of several past ranges central line
UCLR=D4R
D3 and D4=constraints that provide 3 standard deviation
limits for
LCLR=D3R
a given sample size- get values from given table
-X-bar charts: used to see whether the process is generating output consistent
with a target value set by management or whether its current performance, with
respect to the average performance measure, is consistent
-constructed after process variability is in control because you use R
X=average of past sample means or target valuecentral line
UCLx=X+A2R
A2=constant to provide 3 standard deviation limits
for the sample
LCLx=X+A2R
mean-get value from given table
-D3, D4, and A2 values from table change as a function of the sample size
-make charts using these values and then plot all of the sample ranges and
sample means on the graphs to see if they are in statistical control

-In class exercise with the coin catapult

-Attribute control charts
-P-chart: population proportion defective: control proportion of defective
services or products generated by the process
-sampling involves yes/no decisions so the underlying distribution is the
binomial distribution
P=average population proportion defective or a target value central line
Z=# of standard deviations from average (3 is common)
UCLp=P+zp
where
p p 1 p / n
LCLp=P-zp
-make chart using these numbers
-Steps for using:
1. random sample of size n is taken, number of defective services or
products counted
2. number of defectives/sample size=Pput on chart
3. when falls outside of control limits, look for cause (assignable)
4. observation below LCL=improvement
-C-chart: more than one defect per unit-a chart used for controlling the number
of defects when more than one defect can be present in a service or product
-the underlying distribution is the Poisson distribution
C= mean of the distributioncentral line
UCLc=C+zc
where c=c (square root of C-bar)
LCLc=C+zc
Process Capability
-Ability of the process to meet the design specifications for a service or product
-Nominal value: a target for design specifications
-Tolerance: an allowance above or below the nominal value

Process
capability index: measures the potential for a process to generate defective outputs
relative to either upper or lower specifications, measures how well a process is
centered and whether the variability is acceptable-measure for variable data
-=st. dev. of process
distribution
-minimum=worst case situation
-checks to see if avg. is +/- 3 st.
dev.
-critical value is usually 1/1.33 depending on 3 or 4 st. dev.
-if Cpk is greater than the critical value then the process is capable

-Process capability ratio: a test to see if the process variability is capable of

producing output within a products specifications-if it is causing the problemmeasure for variable data
-critical value is the same as the one for Cpk
-if Cp passes and Cpk doesnt can assume the problem is that the process is not
centered adequately
-If process is centered or on-target then Cpk=Cp
-If process is not centered or on-target Cpk<Cp
-Cp is the upper bound on the value of C pk
-Use continuous improvement to determine the capability of a process
1. Collect data on process output and calculate mean and standard deviation of
the distribution
2. Use data from process distribution to compute process control charts
3. Take at least 20 samples with size n and plot on charts; see if it is in statistical
control, if not, re-calculate and find causes
4. Calculate Cpk, if acceptable-process is capable, if unacceptable calculate C p-if
acceptable- variability is fine and just need to center process, if unacceptablefocus on reducing variability until it passes the test
-Quality engineering: an approach originated by Genichi Taguchi
that involves combining engineering and statistical methods to
reduce costs and improve quality by optimizing product design
and manufacturing processes
-Quality loss function: rationale that a service or product that
barely conforms to the specifications is more like a defective
service or product than a perfect one, equals zero when on
target value and rises when it goes towards specifications
International Quality Documentation Standards
-Especially important in international trade
-ISO 9001:2008 documentation standards-of quality program, quality management
-ISO 14000:2004 environmental management system-raw material use and
hazardous wastes
-ISO 26000:2010 social responsibility guidelines
-Benefits of ISO certification= takes long and is expensive but can have a sales
advantage, increase profitability, and increase marketing
Baldrige Performance Excellence Program
-An award that promotes, recognizes, and publicizes quality strategies and
achievements
-7 criteria=
-Leadership
-Strategic Planning
-Customer Focus
-Workforce Focus
-Measurement, Analysis, and Knowledge management
-Operations Focus
-Results-given the most weight when selecting winners
Chapter 4-Process Analysis

-To understand process ask W4H=Who, What, When, Where and How; and ask
FTQ2C= Flow, Time, Quality, Quantity, and Cost
Process Analysis Across the Organization
-Process Analysis: The set of tools used to identify opportunities for improvement,
document current processes, evaluate processes to find performance gaps, redesign
processes, and implement desired changes.
-Goal=continual improvement
-Techniques:
-Flowcharts
-Service blueprints
-Work measurement techniques
-Process charts
-Data analysis tools:
-Checklists
-Bar graphs
-Cause and effect diagrams
-Simulation
-Pareto charts
-Processes can be analyzed, understood, and redesigned so they are providing the
most value to their customers (internal and external) by focusing not only on
operations and sales departments but all other departments in the company too
A Systematic Approach
-A six-step blueprint for process analysis:
1. Identify Opportunities
-need to pay attention to 4 core processes Supplier Relationship, New
service/Product Development, Order Fulfillment, and Customer Relationship
-monitor customer satisfaction
-look at the strategic issues- is there a good strategic fit? Gaps? Etc.
-Suggestion system: a voluntary system by which employees submit their
new ideas on process improvements
2. Define the Scope
-establishes the boundaries of the process to be analyzed
-Design team: group of knowledgeable, team-oriented individuals who work
at one or more steps in the process, conduct the process analysis and make
the necessary changes
-Facilitators: full time specialists
-Steering team: several managers from various departments
3. Document the Process
-includes making a list of the processs inputs, suppliers (internal and
external), outputs, and customers (internal and external)- this info is shown in
a diagram or table
-then understand the different steps performed in the process using
diagrams, tables and charts
4. Evaluate the Performance
-need to have good performance measures
-Metrics: performance measures that are established for a process and the
steps within it
-good to start with competitive priorities-then collect information on how the
process is currently performing on each one
5. Redesign the Process
-with careful analysis of the process and its performance on the selected
metrics-can uncover disconnects (gaps) between actual and desired

performance; need to dig and find root cause of them and then come up with
ideas for improvement
-justifiable ideas are put into a new process design
6. Implement Changes
-want widespread participation-increases commitment
-brings to life the steps needed to bring the redesigned process online
Documenting the Process
-Flowcharts: (also known as flow diagrams, process maps,
relationships maps, or blue prints) a diagram that traces
the flow of information, customers, equipment, or
materials through the various steps of a process
-has colors, shading and different shapes that
represent different types of steps-rectangle shape is
most common
-divergence is shown when an outgoing arrow splits into 2
or more arrows that lead to different boxes
-yes/no decision point- 2 arrows coming off a box leading to
different processes whether answer is yes or no
-Use nested charts when you cant fit all details in one chart
-Swim Lane Flowchart: a visual representation that groups
functional areas responsible for different sub-processes into
lanes; most appropriate when the business process spans
several department boundaries-each department is separated by parallel lines
-shows cross-functional work processes and shows
connections between departments
-Service Blueprints: a special flowchart of a service process
that shows which steps have high customer contact (very
important)
-has a line of visibility that identifies which steps are
visible to the customer and which are not
-or can create 3 levels showing how much control the
customer has over each step
-Process Charts- an organized way of documenting all the
activities performed by a person or group of people, at a
workstation, with a customer or on materials
-analyzes a process using a table and provides
information about each step in the process
-requires time estimates
-Activities organized into 5 categories:
- Operation, l: changes, creates, or adds something
ex. Drill hole
-Transportation, : materials handling, moves object
ex. Shipping
-Inspection, n: checks or verifies something but doesnt change ex. Weigh
product
-Delay, : subject held up ex. Clean
up time
-Storage, q: put away until later ex.
inventory

-the annual cost of the project can be estimated

Evaluating Performance
-metrics may reveal a performance gap
-Data analysis tools
-Checklists: a form used to record the frequency of occurrence of certain process
failures-first step in analysis of a metric; yes/no, scale, time, percetages
-Process failure: any performance short falls, such as error, delay,
environmental waste etc.
-Histograms and bar charts-use data from checklist
-Histogram: summarization of data measured on a continuous scale, showing
frequency distribution of some process failure- the central tendency and
dispersion of the data
-Bar graph: a series of bars representing the frequency of occurrence of data
characteristics measured on a yes/no basis
-Pareto Charts: a bar chart on which factors are plotted
along the horizontal axis in decreasing order of
frequency-puts into %s
-80-20 rule: 80 percent of the activity is caused by
20% of the factors- by concentrating on the 20%
you can attack 80% of process failure problems
-Scatter Diagrams: a plot of 2 variables showing
whether they are related-verifies or
Bone
negates whether a factor is causing
(correlation) a particular process failure
-Cause-and-effect diagram (Fishbone
diagram or Ishikawa diagram): a
diagram that relates a key performance
problem to its potential causes, allows
managers to trace disconnects directly
to the operations involved
-Head: main performance gap
-Bones: major categories of potential
causes-Machines, manpower,
methods, materials, other (usually these)
-Ribs: likely specific causes
-Graphs: representations of data in a variety of pictorial forms
-Line chart: represent data sequentially with data points connected by line
segments to highlight trends in data
-Pie chart: represent process factors as slices of a pie-size of each is in
proportion to the number of occurrences of the factor (100%)
-Data snooping: when managers often must act as detectives, sifting data to clarify
the issues involved and deducing the causes
-Process simulation: the act of reproducing the behavior of a process using a model
that describes each step, shows how process dynamically changes over time
Redesigning the Process
-Generating ideas: questioning and brainstorming
-ideas can be uncovered by asking 6 questions:

Head

Ribs

-What is being done?

-When is it being

done?
-Who is doing it?
-Where is it being done?
-How well does it do on the various metrics of importance?
-How is it
being done?
-Brainstorming: letting a group of people, knowledgeable about the process,
propose ideas for change by saying whatever comes to mind and then evaluate
the ideas to find the best
-Benchmarking: a systematic procedure that measures a firms processes, services,
and products against those of industry leaders-focuses on setting quantitative goals
for improvement
-Types:
-Competitive: based on comparisons with a direct industry competitor
-Functional: compares areas such as administration, customer service and
sales operations with those of outstanding firms in any industry-collected by
professionals
-Internal: using an organizational unit with superior performance as the
benchmark for other units-advantageous for firms with several units or
divisions- most accessible
-All are best when looking for a long-term program of continuous
improvement
-Basic steps:
-Planning: identify what is being benchmarked and the firm (s) of comparison,
determine performance metrics, and collect data
-Analysis: determine gap between firms current performance and that of the
benchmark firm- identify causes
-Integration: establish goals and obtain resources needed
-Action: develop cross-functional teams, action plans, team assignments;
implement plans, monitor progress, recalibrate benchmarks as improvements
are made
Managing and Implementing Processes
-Seven mistakes to avoid:
-Not connecting with strategic issues
-Not involving the right people in the right way
-Not giving the design teams and process analysts a clear charter and then
holding them accountable
-Not being satisfied unless fundamental reengineering changes are made
-Not considering the impact on people
-Not giving attention to implementation
-Not creating an infrastructure for continuous process improvement
Chapter 8- Lean Systems
-Example in class: Boeing in Everett Washington implementing lean systems
-Lean systems affect a firms core and supporting processes and also its customers
and suppliers through marketing, human resources, engineering, operations,
accounting etc.
Continuous Improvement Using a Lean Systems Approach

-Lean system: operations systems that maximize the value added by each of a
companys activities by removing waste and delays for them
-specify what creates value from the customers perspective-value is the solution
to a problem that your customers face
-Just-in-time (JIT) philosophy: the belief that waste (also called muda) can be
eliminated by cutting unnecessary capacity or inventory and removing non-valueadded activities in operations
-processes flow simply and smoothly
-JIT system: a system that organizes the resources, information flows, and decision
rules that enable a firm to realize the benefits of JIT principles
-8 types of lean waste:
-Overproduction
-Waiting
-Transportation
-Motion
-Defects
-Inventory
-Underutilization of employees
-Inappropriate processing: using expensive equipment when simpler machines
will suffice
-Kaizen: continuous improvement in quality and productivity
-key is understanding that excess capacity or inventory hides underlying
problems with the processes that produce a service or a product
-ex. Video in class of guy making toast
-Honda example in class about how to find waste Acronym DOWNTIME= same
as 8 types of lean waste except underutilization of workers=not using works
properly and inappropriate processing=extra processing
-Lean systems provide
-a mechanism for management to reveal the
problems by systematically lowering capacities or
inventories until the problems are exposed
-philosophy=continuous improvement occurs with
ongoing involvement and input of new ideas from
employees
- Metaphor of boat in water and rocks under
surface
-In services: water surface represents service
system capacity ex. Staff levels
-In manufacturing: water surface represents product and component
inventory levels
-Rocks represent: problems encountered in the fulfillment of services
and products
when water surface is high enough, the boats pass over the rocks
because there is a high level of capacity or the inventory covers up
problems, as the water surface decreases the rocks are exposed; with lean
systems, companies create methods to demolish exposed rock
Supply Chain Considerations in Lean Systems-2 salient characteristics:
-Closer supply ties
-need because they operate with low levels of capacity slack or inventory so they
need supplies shipped frequently, smaller lead times, supplies to arrive on
schedule and supplies to be of high quality
-improves supplies profit margins and can lower component prices

-one of the first actions taken in lean systems is decreasing the number of
suppliers and making sure they are located close in order to promote strong
partnerships and better synchronize product flow
-in a JIT II system the supplier has an in-plant representative at the company
they supply for
-Small Lot Sizes
-Lot: quantity of items that are processed together
-Advantages:
-reduce average level of inventory
-pass through
system faster
-more efficiently utilize capacities
-if you have defective items, takes less time to examine all, less delays
-achieve uniform workload and prevent overproduction
-GOAL= Single-Digit setup: setup is less than 10 minutes long
-Disadvantages:
-increased set up frequency
-may have more idle employees, equipment, and materials
Process Considerations in Lean Systems-characteristics
-Method of material flow
-Push method: a method in which production of the item begins in advance of
customer needs-mostly conventional systems, not lean
-ex. Cafeteria with set food options and pre-prepared food options because
rush of people eating at once-must forecast number expected to serve
-Pull method: a method in which customer demand activates production of the
service or item-most firms with lean systems do this
ex. Got to restaurant and look at menu to decide what you want, chef then
prepares it for you then and there
-How to choose between push and pull?
-often situational
-assemble to orderuse both
-standardized componentspush
-customers request something
specificpull
-Quality at the Source
-How is obtained and defined?
-defects are caught and corrected where they are created
-goal= workers act as their own quality inspectors and never pass defective
units on to the next process
-Poka-yoke: mistake-proofing methods aimed at designing fail-safe systems that
minimize human error ex. Make a product that can only be assembled in one
way
-Jidoka: automatically stopping the process when something is wrong and then
fixing the problems on the line itself as they occur
-visual management system: safety, quality, goals, delivery, cost
performance for a given work station if visible to workers at all times
-an alternative is pushing problems down the line to be solved later
-Andon: a system that gives machines and machines operators the ability to
signal the occurrence of any abnormal conditions ex. Tool malfunction, shortage
of parts
-shown with audio alarms, blinking lights, test displays, chords that can be
pulled

-Uniform work stations

-use reservation systems-schedule in advance
-use differential pricing to manage demand ex. Red eye flights
-assemble same type and number of units each day
-Takt time: cycle time needed to match the rate of production to the rate of sales
or consumption =total available time/total demand
-Heijunka: the leveling of production load by both volume and product mix;
doesnt build products according to the actual flow of customer orders, levels
total volume so the same amount and mix are made each day 2 options:
-Mixed-model assembly: a type of assembly that produces a mix of models in
smaller lots ex. 4Cs, 3As and 2Ds per 1 cycle and then repeated
-Lot size of one: ex. C-D-C-A-C-A-C-D-A=1 cycle and this is repeated over and
over
-feasible only with brief set up times
-the capacity requirements at the feeder workstations are smoothed
-Standardized components and work methods
-used in highly repetitive service operations
-in manufacturing, increases totally quantity
-standardized task performed more each day which increases productivity
-Flexible workforce
-trained to work more than one job
-benefit: can shift workers to help relieve bottlenecks as they arise without need
for inventory buffers
-relieves boredom and refreshes workers
-Automation
-use of more machines instead of workers
-key to low-cost operations
-benefits: greater profits (because prices can be cut), greater market share
-more is not always better-humans can do some jobs better than robots or
automated assembly systems
-Five S Practices: conducive to visual controls and lean production; methodology for
organizing, cleaning, developing, and sustaining a productive work environment 5
practices that build on one another, are interconnected and are done systematically
-Sort: separate needed items from unneeded items (discard)
-Straighten: neatly arrange what is left-place for everything, organize so its
easy to find
-Shine: clean and wash work area
-Standardize: establish schedules and methods of performing the cleaning and
sorting- cleanliness and state of readiness maintained
-Sustain: create discipline to perform the first 4 S practices where everyone
understands, obeys, and practices the rules-make it a habit
-lowers cost, improves on time delivery and productivity, increases quality,
better use of floor space, safe working environment, builds discipline to make
lean systems work well
-Total preventative maintenance: (total productive maintenance), can reduce the
frequency and duration of machine downtime; perform routine maintenance and
then test specific parts that may need to be replaced to prevent them from failing
during production
-employees may be responsible for maintaining their own equipment

Toyota Production System (TPS)

-great example of lean systems
-built a learning organization-sets up operations as
experiments for employees
-4 principles:
-All work should be specified as to content, sequence,
timing, and outcome.
-All customer-supplier connections should be direct
and unambiguous; specify people, form and quantity,
expected time and way requests are made
-All pathways should be simple and direct
-All improvements should be made in accordance to
scientific method, under the guidance of a teacher,
and at the lowest possible organization level-where employees are actually doing
the work
-Created the House of Toyota to capture 4 principles
Designing Lean System Layouts
-line flows recommended
-2 techniques for creating:
-One worker, multiple machines (OWMM)- a one-person cell in which a worker
operates several different machines simultaneously to achieve line flow
-reduces labor and inventory requirements
-Group technology (GT)- an option for achieving line-flow layouts with low
volume processes; tis technique creates cells not limited to just one worker and
has a unique way of selecting work to be done by cell
-groups parts/products with similar characteristics into groups called families
and sets aside groups of machines for their production-based on size, shape,
demand etc.
-goal: minimize machine changeover/setup
Value Stream Mapping
-a qualitative lean tool for eliminating waste (muda), shows the activities
within a process required to create and deliver value
-waste in many processes can be as high as 60%
-spans supply system from firms receipt of raw materials to delivery of
finished goods
-creates a visual map of every process involved in the flow of materials
and information in a products value chain
-Steps shown in diagram
-Much more information about this in book Learning to See (notes later in
study guide)
The Kanban System

-a Japanese word meaning card or visible record

that refers to cards used to control the flow of
production through a factory
-developed by Toyota-use a 2 card system
-container has a card, empty the container and take
card off, when refilled put the card back on
-General operating rules:
-each container must have a card
-assembly line always withdraws materials from
fabrication cell-pull system; does not push parts
-containers of parts must never be removed from storage area without a
Kanban first being posted on the receiving post
-containers should always contain the same number of good parts or else
production flow can be disrupted
-only non-defective (good) parts should be passed along to the assembly line to
make the best use of materials and workers time-quality at source
-total production should not exceed the total amount authorized on the
Kanbans in the system
-Other Kanban systems:
-Container system: container used as a signal device-empty container signals
the need to fill it
-amount of inventory is adjusted by adding or removing containers
-Containerless system: using visual means as a signal device; in assembly-line
operations, operators use their work bench area to put completed units on
painted squares (1 unit square=container) and the number of squares is
calculated to balance flow, when the unit is removed, the empty square signals
the need to produce another
Operational Benefits and Implementation Issues
-Organizational considerations:
-The human costs of lean systems:
-can stress out the workforce with high degree of regimentation which can
cause productivity losses or quality reductions
-may feel loss of autonomy
-managers can lessen some of this by allowing for some slack in the system
(safety stock or capacity slack) and by emphasizing work flows instead of
worker pace, can also promote use of work teams
-Cooperation and trust: is needed between the workforce and management
because workers take on more important responsibilities
-Reward systems and labor classifications- may need to be changed
-Process considerations: may need to change layout of plant, which can be costly
ex. Move work stations closer, cells of machines established, adding a loading dock
for trucks
-Inventory and Scheduling:
-Schedule stability: schedules must be made stable for extended periods (ex. 3
months), needed so production lines can be balanced and new assignments
found for employees who may be underutilized; reason is because lean systems
cant respond quickly to scheduling changes because little slack inventory or
capacity is available to absorb changes

-Setups: need to reduce time of setups because with lean systems you use small
lot sizes
-Purchasing and logistics: shipments of materials must be reliable because of low
inventory levels; want to try and get savings or discounts from suppliers but also
harder to find suppliers that can do frequent small shipments
Learning to See-Supplemental book on Value Stream Mapping
-In class: main example of all of these concepts was with the Pencil Pushers case
look at this case for help and also can look at the team based homework
Introduction
-Value stream: all the actions (both value-creating and non-value creating) currently
required to bring a product through the main flows essential to every product:
-Production flow-from raw materials to the arms of the customer (what book
and lean systems are focused on)
-Design flow- from concept to launch
-Want to improve the whole (big picture) not just optimize the parts and processes
-Value stream mapping helps you see and understand the flow of material and
information as a product makes its way through the value stream-shows what has
value and where waste is and serves has blueprint to make a lean system
-Focus on one product family (definition above) per one map
-Usually individual processing areas only know what is going on in their section so
they work in a way that is optimum for them but not for the value-streams
perspective as a whole
-Have one value-stream manager who oversees everything and understands whole
process
-Flow Kaizen: value stream improvement, focuses on material and information flow
-Process Kaizen: elimination of waste, focuses on people and process flow
-A current state map isnt important unless you draw a future state map (most
important)
Current-State Map
-ALWAYS draw by hand, in pencil
-Five major chunks of a value-stream map (draw in this order)
1. Customer
2. Main fulfillment process
3. Supplier
4. Information control or production control
5. Timeline computations
1. Draw customer and enter in customer requirements in data box
-may include daily output or container requirements
2. Use process boxes to draw the production processes-indicates one area of
material flow
-a section that may have multiple workstations to complete the process but is all
considered one process until the assembly is disconnected and continued
elsewhere with the possibility of inventory accumulating
-drawn from left to right on the bottom of the map
3. Add a data box under each process box
-Use seconds when calculating

-typical process data to be put in the box is:

-Processing time (P/T)- average time it takes to complete one unit-value
creating time
P/T=(C/T)*FTE
-FTE- number of full-time employees for a processing step
FTE=(P/T)/(C/T)
-or solved if a certain number of workers only spend a percentage of time
on a process
-Cycle time (C/T)-average time between successive units being completed
(how often)-time that elapses between one part coming off the process to the
next part coming off
C/T=(P/T)/FTE
-Changeover time (C/O)- time it takes to switch from producing one product
type to another-given
-Takt time- time per piece required to satisfy demand, synchronizes pace of
production to match pace of sales
=total available time/total demand
-Batch Size (EPE)- solve with problem
information
-Utilization-ratio of amount of time or resource
used to amount of time or resource available
utilization (%)= ((C/T)/takt time) *100
-Days of inventory: shown in a triangle where
it accumulates between processes
=units of inventory/daily demand
-Total Lead (production) time: the time it takes
one piece to move all the way through a process or a value stream, from start
to finish
sum of days of inventory and all process times
-Total Process time: add up all process lengths (in seconds usually)
4. Add in supplier box
5. Add in inbound and outbound shipping arrows
from supplier to the process and the end of the
process to the customer. Also include the mode
of transportation.
6. Add in information flow with arrows, from right
to left in the top half- a lightning bolt arrow
indicates the information flows electronically. Ad
in small boxes to explain what the information
flows are.
7. Add in push arrows or FIFO (stated in problem)
boxes between process data boxes
8. Draw a timeline under the process data boxes
showing the production lead-time and total process times
-see example of a value stream map
What makes a value stream lean?
-Companies have established principles on value stream mapping for other
companies to now build off of adapt to fit their own processes
-Overproduction:

-Each process in current value stream maps works according to schedules, not
the actual needs of the customer, which leads to overproduction and longer lead
times
-The most significant source of waste is overproduction
-In lean manufacturing, you want to get one process to make only what
the next process needs when it needs it and this will generate the
shortest lead time, highest quality, and lowest cost
-Ways to improve-characteristics of a lean value system:
-Want to develop continuous flow wherever possible
-Can use supermarkets to control production where continuous flow
doesnt extend upstream and need to use batches
-implement a pull system with a customer process that comes
and takes what it needs and a supplying process that replenishes it
-use a Kanban to know when it needs to be supplied-withdrawal
and production
-also can keep safety stock to protect against sudden fluctuations
in customer orders
-can sometimes use a FIFO (first in, first out) lane between two processes
-can make a pacemaker process to set the pace for processes following it
Future-State Map
-after highlighting the sources of waste, you will use the future state map to
eliminate them
-look at your current state map and see where you can implement
-want to eliminate overproduction
-Bottleneck happens where utilization is over 100%-need to find a way to get rid of
it
-can combine processes (continuous flow) with low utilization or take away workers
-change delivery so it delivers more often
-find a way so there is not a lot of inventory between processes (WIP-work in
progress)
there are many possible future states, not one right one. You just have to do what is
best for your company
best way to understand=look at examples and then do them yourself
Chapter 10- Supply Chain Design
Supply Chain Design Across the Organization
-Supply chain design: designing a firms supply chain to meet the competitive
priorities of the firms operations strategy-guided by the firms operations strategy
and competitive priorities
-3 major areas of focus in creating an efficient supply chain (diagram on left)
-Supply chain efficiency curve-shows the trade-offs between costs and performance
(diagram on right)-red dot=actual, blue line=efficiency curve that you want to be as
close as possible to

the challenge for the management of inefficient supply chain operations is to

improve operations planning for the current supply chain design, or to improve the
design of the supply chain itself
-goal=reduce costs and increase performance
-Significant leaps in efficiency and performance can be had with a better supply
chain design-design issues include:
-placement of inventories
-mass customization
-outsourcing
-supply chain collaboration
-supplier selection
-closed-loop supply
chains
-facility location
-Supply chain design internal organizational pressures:
-Dynamic sales volumes: costly to meet; involves excessive inventories,
underutilized personnel, or more expensive delivery to meet customer demands
-often caused by end of the month sales promotions
-Customer service levels: pressure from sales and marketing groups for superior
service levels for the organizations customers; what sales, marketing and
finance groups sometimes want imposes on supply chain design
-Service/product proliferation: when you add new markets, it adds complexity to
the supply chain, need balance between cost of operating supply chain and the
need to market new services and products
Supply Chain for Services and Manufacturing
-every firm or organization is a member of some supply chain
because you cant produce products and services without
one
-Similarities and differences between supply chains:
-Services:
-supply chain design is driven by need to provide
support for the essential elements of the various
services it delivers
-need to be convenient and quick and may use many
suppliers to do so
-spend 30-40% of income on purchased services and materials

-Manufacturing:
-fundamental purpose=control inventory by managing
the flow of materials
-spend >60% of income on purchased services and
materials
-want to have lowest cost of materials
-shows tiers to identify suppliers
Measures of Supply Chain Performance
-Inventory measures
-Average aggregate inventory value: total
average value of all items held in
inventory for a firm
-Weeks of supply: inventory measure
obtained by dividing the average
aggregate inventory by sales per week at
cost of goods sold
-Inventory turnover: inventory measure
obtained by dividing annual sales at cost
of goods sold by the average aggregate inventory value maintained during the
year
-Financial measures
-total revenue
-cost of goods sold-effect net income
and contribution margin
-operating expenses
-cash flow- cash to cash (time lag
between paying and receiving money)
-working capital- money used to
finance on going operations
-return on assets- (ROA)=net
income/total assets-diagram shows
how each of them effect ROA
Inventory Placement
-Centralized placement: keeping all the
inventory of a product at a single location such as a firms manufacturing plant or a
warehouse and shipping directly to each of its customers
-advantage comes from inventory pooling: a reduction in inventory and safety
stock because of the merging of variable demands from customers-- demand
remains fairly stable
-disadvantage: added cost of shipping smaller, uneconomical quantities to
customers over long distances
-Forward placement: locating stock closer to customers at a warehouse, distribution
center, wholesaler or retailer
-advantage: faster delivery times, decreased transportation costs
-disadvantage: pooling effect of inventories is reduced because of increased
safety stocks to take care of uncertain demand
Mass Customization

-a firms highly divergent processes generate a wide variety of customized services

or products at reasonably low costs-firm allows customers to select from a variety of
standard options to create the service or product of their choice ex. Mixing paint
-Competitive advantages:
-managing customer relationships-get detailed inputs from customers and put
in database
-eliminating finished goods inventory-dont need to forecast, can use a
configurator for order placement
-increasing perceived value of services or products-by customers
-Supply chain design for mass customization
-Assemble to order strategy: produce/ purchase standardized components,
assemble to a specific customer order, no finished goods inventory ex. My twinn
dolls
-Modular design: enables customization, final service/product can be assembled
from a set of standardized modules cheap and fast
-Postponement: some of final activities in the provision of a service or product
are delayed until the orders are received; avoids inventory buildup
-Channel assembly: process of using members of the distribution channel
as if they were assembly stations in the factory
Outsourcing Processes
-Make-or-buy decision: a managerial choice between whether to outsource a
process or do it in-house; if you want vertical integration=make, outsource=buy
-Can use breakeven analysis to decide what to do
-Vertical integration: 2 directions
-Backward integration: a firms movement upstream toward the sources of raw
materials, parts, and services through acquisitions-reduces risk of supply ex.
Grocery chain has own plant to produce house brand of ice cream etc.
-better control over costs of supply and reliability of supply (delivery,
quality, quantity)
-Forward integration: acquiring more channels of distribution, such as
distribution centers (warehouses) and retail stores, or even business customers
-better control over costs of demand and reliability of demand info (delivery,
quality, quantity)
-the more processes in the supply chain that the organization performs itself, the
more vertically integrated it is
-best when input volumes are high
-Outsourcing: paying suppliers and distributors to perform processes and provide
needed services and materials
-best with firms that have low volumes
-firms can do processes more efficiently and with better quality
-Offshoring: supply chain strategy that involves moving processes to another
country
-Outsourcing decision factors to outsource or offshore a process of stay:
-comparative labor costs
-logistics costs
-rework and product returns
-tariffs and taxes
-market effects
-internet

-labor laws and unions

-Pitfalls of outsourcing:
-Pulling the plug too quickly-decide to outsource before
making a good effort to fix existing process
-Technology transfer- joint venture, need to bring one
partner up to speed-can set up other to be a competitor
-Process integration- hard to integrate outsourced
processes with firms other processes
-Sins:
-outsourcing activities that shouldnt be
-selecting wrong supplier
-neglecting to take into consideration people
bad contract
-losing control over outsourced activities
exit strategy
-not capturing and factoring in hidden costs

-writing a
-not developing

Strategic Implications
-2 distinct designs used to competitive advantage:
-Efficient supply chains
-popular design: build-to-stock (BTS): built to a sales forecast and sold to
customers from finished goods stock ex. Groceries, books, appliances
-Responsive supply chains
-react quickly
-common designs:
-assemble-to-order (ATO)
-make-to-order (MTO)
-design-to-order (DTO)-designed and built entirely to customer
specifications ex. Custom suit
-Environments best suited for each:
Design Features of each:

-poor supply chain performance is

often the result of using the wrong
supply chain design
Chapter 12-Supply Chain
Integration
Supply

Chain Integration Across the

Organization
-Supply
chain integration: effective
coordination of supply chain processes through the seamless flow of information up
and down the supply chain
-think of a supply chain as a river that flows from raw material suppliers to
customers
-involves internal and external processes
-Example of a ketchup factory if an upstream
supplier has a major failure, the ketchup
factory will dwindle to a trickle-as if someone
built a dam across the river
-upstream must react to demands placed on
them by downstream
Supply Chain Dynamics
-Bullwhip effect: the phenomenon in supply chains whereby ordering patterns
experience increasing variance as you proceed upstream in the chain
-handle of whip initiates action but the tip experiences the wildest action
-the slightest change in demands can ripple through the entire chain-can cause
inventories or shortages
-External disruptions: firm has least amount of control over
-Volume change- need quick reaction from suppliers
-Service and product mix changes
-Late deliveries- may force a firm to switch its schedule from production of one
product model to another
-Underfilled shipments-supplier send because of disruptions at own plants, has
same consequences as late deliveries
-Internal disruptions: affect suppliers
-Internally generated shortages
-Engineering changes
-Order batching- discount when purchasing large quantities
-New service or product introductions
-Service or product promotions-increase in demand
-Information errors
-Integrated supply chains
-External supply chain linkages
-SCOR (supply chain operations reference)
model: a framework that focuses on a basic
supply chain of plan, source, make, deliver,
and return processes, repeated again and
again along the supply chain-design is
complex and requires a process view

New Product or Service

Development Process
-defines nature of materials, services, and information flows the supply chain must
support
-essential to long term survival of firm
-competitive priorities help managers develop services
and products that customers want
-Process shown in diagram
-Design: links creation of new services or products to
the corporate strategy of the firm and defines the
requirements for the firms supply chain
-ideas for new offerings proposed and screened
for feasibility and market worthiness
-how it will be produced and delivered
-Analysis: critical review of new offering and how it
will be produced to make sure it fits the corporate
strategy, is compatible with standards, satisfies customer needs, and has
acceptable market risk; may lead to design being revised
-Development: design processes to meet competitive priorities and add value,
design market program, train personnel
-Concurrent engineering: concept that brings product engineers, process
engineers, marketers, buyers, information specialists, quality specialists and
suppliers together to design a product and the processes that will meet
customer expectations
-Full launch: promotions initiated, sales personnel briefed, distribution
processes activated, and old services or products that the new offering is to
replace are withdrawn
-Ramp up: when production processes must increase volume to meet
demands while coping with quality problems and last minute design changes
Supplier Relationship Process
-These processes are the organizational responsibility of purchasing: the activity
that decides which suppliers to use, negotiates contracts, and determines whether
to buy locally
1. Sourcing: selection, certification, and evaluation of suppliers and in general, the
management of supply contracts
-Supplier selection-start with total cost analysis
-Material costs= pD p=price/unit and D=annual requirements (demand)
-Freight costs: transporting product or equipment and personnel who will
perform; depends on location, size f shipment number of shipments, and
mode of transportation
-Inventory costs:
-cycle inventory= Q/2
.
Q= shipping quantity

-annual inventory costs= (Q/2 +dL)H d=average demand per

day/week
-pipeline inventory= dL
L= lead time H=holding costs
-Administrative costs: managerial time, travel and other variable costs
associated with interacting with a suppler
-Total annual cost =sum of all above costs
-competitive priorities and order winners are a good starting point in
developing a list of performance criteria to be used when selecting
-Green purchasing: process of identifying, assessing, and managing the
flow of environmental waste and finding ways to reduce it and minimize its
impact on the environment
-becoming more and more important when choosing suppliers-want to
make sure you choose environmentally conscious ones
-use and substantiate claims such as green, biodegradable, natural,
and recycled
-use sustainability as a criteria for certification
-Supplier certification and evaluation: verify that potential suppliers have the
capability to provide services or materials the buying firm requires
2. Design Collaboration: jointly designing a new series of services or products with
key suppliers, draw key suppliers into development process
-eliminate costly delays and mistakes
-Early supplier involvement: a program that includes suppliers in the design
phase of a service or product
-Presourcing: a level of supplier involvement in which suppliers are selected
early in a products concept development stage and are given significant, if not
total, responsibility for the design of certain components or systems of the
product ex. In automotive industry
-Value analysis: a systematic effort to reduce the cost or improve the
performance of services or products, either purchased or produced
3. Negotiation: obtain an effective contract that meets the price, quality, and
delivery requirements of the supplier relationship processs internal customers
-Competitive orientation: a supplier relation that views negotiations between
buyer and seller as a zero-sum game: whatever one side loses, the other side
gains, and short-term advantages are prized over long-term commitments
-determined by purchasing power
-other sources of power include:
-Referent: supplier values identification with the buyer
-Expert: the buyer has access to knowledge, information, and skills desired
by the supplier
-Reward: buyer has the ability to give rewards to the supplier
-Legal: buyer has legal right to prescribe behavior for the supplier
-Coercive: buyer has the ability to punish the supplier
-the buyer or the supplier can have the power
-Cooperative orientation: a supplier relation in which the buyer and seller are
partners, each helping the other as much as possible; long-term commitment,
buyer shares information with supplier about future buying intentions, decreases
number of suppliers in supply chain
-Sole sourcing: the awarding of a contract for a service or item to only one
supplier
-not always great because it may increase the risk of interruption in supply

4. Buying: procurement of the service or material from the supplier

-4 approaches to e-purchasing:
-Electronic Data Interchange (EDI): technology that enables the transmission
of routine business documents having a standard format from computer to
computer over telephone or direct leased lines
-Catalog hubs: decrease costs, system whereby suppliers post their catalog
of items on the Internet and buyers select what they need and purchase
them electronically
-Exchanges: an electronic marketplace where buying firms and selling firms
come together to do business
-Auction: a market place where firms place competitive bids to buy
something; reverse auction- suppliers bid for contracts with buyers
-Locus of control: when an organization has several facilities-must decide
whether to buy centrally or locally
5. Information Exchange: facilities exchange of pertinent operating information,
such as forecasts, schedules, and inventory levels between the firm and its
suppliers
-Radio frequency identification (RFID): a method for identifying items through
the use of radio signals from a tag attached to an item; the tag has information
about the item and sends a signal to a device that could read it and edit it and
that can be transmitted around
-Vendor managed inventory (VMI): a system in which the supplier has access to
the customers inventory data and is responsible for maintaining the inventory
on the customers site
- Elements= collaborative effort w/ cust, customer service, cost savings,
written agreement
Order Fulfillment Process
-the order fulfillment process is linked to the customer relationship process by
producing and delivering the service or product to the firms customers
-4 nested processes:
-Customer demand planning: facilitates the collaboration of a supplier and its
customers for the purpose of forecasting customer requirements for a service or
a product
-Supply planning: takes demand forecasts produced by the customer demand
planning process, the customer service levels and inventory targets provided by
inventory management and the resources provided by aggregate and detailed
capacity planning to generate a plan to meet demand
-planning aggregate resource levels are very important so that the supply
is in balance with the demands
-Production: executes the supply plan to produce the service or product
-production processes must be integrated with the processes that that
supply the inputs, establish the demands and deliver the product to the
customers
-Logistics: delivers the product or service to the customer
-5 services determine the design and implementation of logistics
processes:
-Degree of ownership:
-have most control over the process if the firm owns and operates
it=private carrier-high cost

-third party logistics provider (3PL)-negotiate with for special

services
-Facility location-serve as points of service, storage or manufacturing
-Mode selection:
-Truck: greatest flexibility, rates are better than train for small
quantities and short distances, have good transit times
-Train: move large quantities cheaply, long and variable transit
times
-Ship: high capacity, low costs, slow transit time, highway or rail
still needed after
-Pipeline: highly specialized; for liquid, gases, or solids in slurry
form, low cost
-Airplane: fastest, most costly
-Capacity: need to solve how much is needed-ownership and modal
selection intertwined
-Expected value of an alternative use to evaluate capacity
alternatives
=(probability of a level of demand occurring)(payoff for using
the alternative if that level of demand materialized)
this value is summed over all possible levels of demand
-Amount of Cross-docking: the packing of products on incoming
shipments so that they can be easily sorted at intermediate warehouses
for outgoing shipments based on their final destinations
The Customer Relationship Process
-The customer relationship process addresses the interface (boundary) between the
firm and its customers downstream in the supply chain
-Purpose: to identify, attract, and build relationships with customers and to facilitate
the transmission and tracking of orders
-Key nested processes:
-Marketing-determining the customers to target, how to target them, what to
offer and prices, and how to manage promotion campaigns
-Electronic commerce (E-commerce): application of information and
communication technology anywhere along the supply chain of business
processes-2 types:
-Business-to-Consumer systems (B2C): allow customers to transact
business over the internet-can avoid department stores
-Business-to-Business systems (B2B): biggest growth; commerce
between firms that facilitate trade up and down the supply chain
-Order placement process: involves activities required to execute a sale,
register the specifics of order request, confirm acceptance of order, and track
progress of order until completed
-Internet provides the following advantages:
-cost reduction
-revenue flow increase
-global access
-pricing flexibility
-Customer service: helps customers with answers to questions regarding the
service/product, resolves problems, and provides information to assist
customers-best not to outsource
Levers for Improved Supply Chain Performance

-Levers:
-Sharing data: point of sale data; helps visibility of end-user demand by
suppliers upstream
-Collaborative activities: between customers and suppliers in customer demand
planning and environmental health and safety programs and design
collaboration improves flows, environmental stewardship and decreases
surprises
-Reduce replenishment lead times: allows firm to wait longer before reacting to
a change in demand levels
-Reduce order lot sizes: reduces costs with ordering, transporting, and receiving
inventory
-Ration short supplies to customers- on basis of past sales
-Use everyday low pricing (EDLP): encourages spikes in demand and levels it
ex. Walmart
-Be cooperative and trustworthy
-Performance measures
-monitor to see where improvements can be made or to measure the impact of
applying the levers-periodically collect data and track
-monitor performance by measuring
-Costs
-Time
-Quality
-Environmental Impact
-Commonly used performance measures for the 3 supply chain processes
above: