Transcript Managing Quality Integrating the Supply Chain S. Thomas Foster

Managing Quality
Integrating the Supply Chain
S. Thomas Foster
Chapter 7
Internal & External Process Simplification
09/25 – 4:00AM
© 2007 Pearson Education
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Chapter 7 - Internal & External Process Simplification
Internal Process Simplification
What do you do and in what order do you do it to systematically simplify and
improve process flows?
S/LNCK/1PIP2
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Reengineer setups to reduce or eliminate their interruptions
and bottlenecks.
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Rearrange the cells and workcenters within the cells to create
linear flows to eliminate confusing loops and forks.

Move cells and workcenters next to each other to reduce or
eliminate materials handling time, personnel, and equipment
and work-in-process inventory.
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Chapter 7 - Internal & External Process Simplification
Internal Process Simplification
 Use parallel cells, cellular manufacturing, to eliminate
interruptions caused by setups. Each cell can produce a family of
parts without setups.
 Use Kanban Signals to level the flows which eliminates
surges and sags and regulates work-in-process inventory.
 Use 1-piece flow, instead of batches to increase throughput,
decrease cycle time, and decrease work-in-process inventory.
 Use point-of-use inventory to eliminate stockrooms and
reduce materials handling time, personnel, and equipment.
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Chapter 7 - Internal & External Process Simplification
Internal Process Simplification
 Cross train workers to be certified inspectors of their own work to
eliminate inspectors and to immediately detect and correct
defects and errors.
 Implement pull signals from the customer to finished goods
inventory to the production line to eliminate over- and underproduction.
 Implement pull signals from the production line to point-of-use
inventory stock to the suppliers to eliminate overages and
shortages in point-of-use inventory.
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Chapter 7 - Internal & External Process Simplification
External Process Simplification
You need to learn how to simplify your supply chain to reduce complexity
before you begin process improvement efforts.
What is the ultimate goal of all supply chains?
The ultimate goal in all supply chains is to have spontaneous resupply, 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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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 shake-outs of firms which have greater waste, nonvalue-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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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.
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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
Why do we need to move from a build-to-forecast strategy to a build-toorder 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 underproduction. You only build what you have sold.
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Chapter 7 - Internal & External Process Simplification
External Process Simplification
What are the requirements for a build-to-order strategy?
SC3
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
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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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cellular manufacturing to eliminate interruptions caused
by setups
concurrent engineering to integrate the needs of all
stakeholders.
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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
What are the steps you must take to simplify your supply chain to reduce
inventory costs?
RS2/ISC3
You need to take the following steps in the order provided to
simplify your end products, parts, raw materials, and
suppliers.

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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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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.
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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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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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Chapter 7 - Internal & External Process Simplification
External Process Simplification

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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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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.
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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Chapter 7 - Internal & External Process Simplification
External Process Simplification
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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).
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