Transcript Managing Quality Integrating the Supply Chain S. Thomas Foster

Managing Quality
Integrating the Supply Chain
S. Thomas Foster
Chapter 4
Strategic Quality Planning
Quality is not just a control system,
quality is a management function.
9/02 – 9:00AM
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Strategic Quality Planning
Strategic Planning and Quality Improvement
Strategic
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planning for quality improvement involves:
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identifying potential improvements
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prioritizing potential improvements
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planning the implementation of projects to accomplish the
improvements
Quality has become an order qualifier. High quality production
is an essential ingredient to participation in the market.
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Strategic Quality Planning
Quality and time
 The time it takes to achieve business goals related to quality is a
function of the speed at which can companies improve processes.
 The speed at which companies can improve processes depends on the
rate at which employees can learn. This interdependence between
employee learning and process improvement is a key variable in
improving quality because employee learning and freezing of
learning have to take place for process improvement to occur.
 The key to employee learning for process improvement is to put in
place a process that will improve the rate at which employees can
systematically learn, such as the Deming plan-do-check-act cycle.
 However, plants that improve quality more quickly did not see costs
improve as much as plants that improved more slowly because the
improvements were not real.
 Setting short-term goals for higher quality levels and managing
toward those goals actually may prove detrimental to the firm.
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Strategic Quality Planning
Quality and time
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When the culture is “management by dictate” then numeric goals are set
each year. When these numeric goals are set, then people will:
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achieve the goals and incur positive results
distort the data
distort the system
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In a “management by dictate” culture, achieving the goals is what
management hopes will occur. Management truly would like to think that a
goal can be dictated and accomplished without providing appropriate
systems to support employee learning.
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In a “management by dictate culture,” techniques for distorting the data
may range from:
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creative “cooking of the data” to
finding honest data that shed the best light on the system in
question.
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Strategic Quality Planning
Quality costs
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Two categories of quality costs:
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Costs due to poor quality
Costs associated with improving quality
Accounting for quality-related costs – The collection of
quality cost data has been constrained by the accounting
standards. Accounting rules require definitions which are not
open-ended or open to alternative interpretations. These
constraints relate most directly in classifying prevention
costs.
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Strategic Quality Planning
Quality costs
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PAF Paradigm – translates quality costs into three broad
categories which are then subdivided into other categories:
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Prevention costs – those costs associated with preventing
defects and imperfections from occurring. Prevention costs are
the most subjective of the three categories of costs.
Appraisal costs – those costs associated with the direct costs of
measuring quality.
Failure costs – when failure costs are significantly higher than
the sum of prevention plus appraisal costs, increasing prevention
and appraisal activities (and costs) could result in a significant
decrease in failure costs
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Internal failure costs – those costs caused by on-line failure
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External failure – those costs caused by product failure after
the production process
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Strategic Quality Planning
Quality costs
Prevention Costs - subjective
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The cost of setting up, planning, and maintaining a documented quality
system
Quality planning – establishing production process conformance to design
specification procedures, and designing test procedures and test
equipment
Quality and process engineering (including preventive maintenance)
Supplier quality assurance
Supplier assessment
All training
Robust design
Defect data analysis for corrective action purposes
Time spent on quality system audits
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Strategic Quality Planning
Quality costs
Appraisal Costs
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Laboratory acceptance
testing
Inspection and tests by
inspectors
Inspection and tests by noninspectors
Setup for inspection and test
Inspection and test materials
Product quality audits
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Review of test and inspection
data
On-site performance tests
Internal test and release
Evaluation of materials and
spares
Supplier monitoring
ISO 9000:2000 qualification
activities
Quality award assessments
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Strategic Quality Planning
Quality costs
Failure Costs
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Re-inspection of stocks after
defect detection
Disruption of production
schedules
Costs of trouble-shooting
Complaint handling and
replacements plus extra time with
customers
Warranty (taking care not to
duplicate previous item)
Cost of holding higher levels of
stock as a buffer against quality
failure
Cost of corrective maintenance to
plant
Cost associated with disposition
of all scrap
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Cost of corrective action to
product (redesign, repair)
Lost production because of
manpower availability problems
(this refers to idle time brought
about by failure to plan manpower
efficiently)
Lost production caused by
system problems (material or
instructions not available, cost of
idle time only)
Concessions (design and
engineering time)
Process waste (including the
waste commonly regarded as
avoidable)
Cost of product scrapped at
product audit
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Strategic Quality Planning
Supply Chain Strategy
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What is the ultimate goal of all supply chains?
The ultimate goal in all supply chains is to have
spontaneous re-supply,
build-to-order, and
mass customization to provide a
continuous,
level,
linear,
uninterrupted,
one-piece flow which exactly matches the
mix,
volume, and
timing of customer demand within your supply chain.
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Strategic Quality Planning
Supply Chain Strategy
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Why is this ultimate goal of all supply chains impossible to
achieve?
We cannot get the information to have perfect visibility about
our supply chain to make the best decisions and we cannot control
all of the factors in our supply chain in the execution of our
decisions to have instant responses, perfect velocity.
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Strategic Quality Planning
Supply Chain Strategy
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Why should we try to get our supply chain as close to this
goal as possible?
The firms which are the closest to providing, just-in-time, the
exact mix, volume, and timing of products or services which
customers demand will have the lowest costs and the most
profit. These firms will dominate the market after several shakeouts of firms which have greater waste, non-value-added time,
just-in-case buffers, and variances. These shake-outs will
eliminate firms which fail to have competitive cost structures
and which fail to competitively match the mix, volume, and
timing of customer demand.
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Strategic Quality Planning
Supply Chain Strategy
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To reach this goal, how do you first simplify and streamline
your supply chain before you begin process improvement and
correction efforts?
You eliminate or outsource the 80% of the products and
services which contribute only 20% of the profit. This reduces the
complexity of your processes which simplifies your improvement
and correction efforts to exactly match the mix, volume, and
timing of customer demand.
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Strategic Quality Planning
Supply Chain Strategy
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Why do you insource the 20% of your products and services
which contribute 80% of your profit?
You will in-source and focus on the 20% of the products and
services which contribute 80% or your profit so you can control
the quality, mix, volume, timing, and innovation of these
products and services.
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Why do you need to outsource the 80% of your products
and services which contribute just 20% of your profit?
The 80% of your products and services which provide just 20%
of your profit will distract you and needlessly complicate your
supply chain.
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Strategic Quality Planning
Supply Chain Strategy
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Why do we need to move from a build-to-forecast strategy to
a build-to-order strategy?
In a build-to-forecast strategy, you build to inventory according
to a forecasted schedule and not to sold orders. Therefore, you
will have the waste of over or under production, in relation to
sales. In a build-to-order strategy, you do not have the waste
caused by over- and under-production. You only build what
you have sold.
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Strategic Quality Planning
Supply Chain Strategy
What are the requirements for a build-to-order strategy?
A build-to-order strategy to meet spontaneous, instantaneous
demand without waste requires you to have:
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spontaneous re-supply of standardized parts and raw materials
from supply partners to create a high velocity, high visibility
supply chain
continuous, level, linear, uninterrupted one-piece flow
manufacturing (i.e., mass customization) which exactly
matches the mix, volume, and timing of customer demand, to
eliminate the waste from over- and under-production
cellular manufacturing to eliminate interruptions caused by
setups
concurrent engineering to integrate the needs of all
stakeholders.
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Strategic Quality Planning
Supply Chain Strategy
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Why do you want to create a high velocity, high visibility
supply chain?
You want to reduce or eliminate just-in-case buffers (e.g.,
manpower, materials, machinery, time, and technology) because
they are expensive. For example, inventory costs you 30% of
its purchase cost per year. This cost includes obsolescence,
damage, pilferage, insurance, storage, labor, management, etc.
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Strategic Quality Planning
Supply Chain Strategy
What are the steps you must take to simplify your supply
chain to reduce inventory costs?
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You need to take the following steps in the order provided to
simplify your end products, parts, raw materials, and
suppliers.
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You need to rationalize your product lines. Rationalize
means you eliminate or outsource the 80% that you
occasionally sell to reduce the variety you produce. When
you eliminate or outsource this 80% that you occasionally
sell, you will eliminate the related parts, raw materials, and
suppliers, and you will immediately reduce the complexity
of your supply chain.
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Strategic Quality Planning
Supply Chain Strategy
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You need to standardize the parts and raw materials required
for your rationalized product lines. Develop and use parts and
raw materials that will work across all product lines to
reduce the variety you need to forecast, order, inspect,
move, and store.
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You need to standardize on 2 or 3 suppliers for each of your
standard parts and raw materials. You do not want to
manage many vendors competing with each other to provide
you with the lowest bid. You want to manage a few partners
with the lowest operating cost who will continuously help you
cut your costs by customizing their offerings for your needs with
regard to quality, mix, volume, timing, and innovation.
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Strategic Quality Planning
Supply Chain Strategy
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For the 20% of your products and services which provide you
80% of your profit, you need to in-source outsourced
operations that constrain your quality, mix, volume,
timing, and innovation to attain continuous, level, linear,
one-piece flow manufacturing that responds spontaneously to
immediate demand.
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Strategic Quality Planning
Supply Chain Strategy
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You need to implement spontaneous resupply of
standardized parts and raw materials. You need to cut
costs and throughput time throughout the complete supply
chain. The weakest link in the supply chain will constrain the
remaining links. Firms do not compete today. Supply chains
compete and they compete on the basis of cost, velocity, and
value-added. You want spontaneous resupply to reduce or
eliminate inventory because inventory costs 30% per year of
the purchase cost to maintain. You also want spontaneous
resupply to reduce or eliminate lead time because
forecasting demand during lead becomes more difficult as the
lead time increases.
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Strategic Quality Planning
Supply Chain Strategy
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You need to implement continuous, level, linear,
uninterrupted one-piece flow manufacturing which exactly
matches the mix, volume, and timing of customer demand to
eliminate the waste of over- and under-production.
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You need to implement cellular lines based on product
families which will eliminate the need for setups that interrupt
process flows which, in turn, will eliminate batches and
queues (i.e., work-in-process and delays).
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Strategic Quality Planning
Supply Chain Strategy
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You need to implement concurrent engineering for product
development to achieve manufacturability and to use standard,
readily available, off-the-shelf parts and raw materials.
Concurrent engineering means that all factors involved in
researching, designing, and producing a product communicate,
coordinate, and collaborate in real time to assure the resulting
product will meet the needs of all of the factors (i.e.,
stakeholders).
You need to continuously repeat this supply chain
simplification process because your supply chain will
continuously become more complicated because of changes in
your products and services.
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