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Operations Management (ME-601)

UNIT 2,3

Prof. S. N. Varma

Ref.

Stevenson WJ; Operations Management; TMH

Hopp WJ and Spearman ML; Factory Physics; McGraw-Hill

Chary SN; Production and OM; TMH

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Learning Objectives

Explain PLCM, sharing of Product Data across SC

Explain importance of product and service design.

Identify main objectives of product, service design.

Discuss the importance of standardization. Discuss the importance of environmental issues.

Briefly describe the phases in product development.

Describe some of the main sources of design ideas.

Name several key issues in design for manufacturing. Name the phases and key issues in service design.

List the characteristics of well-designed service systems.

Name some of the challenges of service design.

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Computer-Aided Design, Engg., mfg. and PLM

Computer-Aided Design, Engg., Mfg., ResourcePlanning and Product Data(CAD, CAE, CIM, ERP,PDM) are components which help overall ProductLifecycle Management (PLM) mainly within anorganization.

Support concurrent collaborative design

increases productivity of designers, 3 to 10 times

create database for product specifications and mfg.

provides possibility of engineering and cost analysison proposed designs to optimize PLM.

SCM and CRM which include outsourcing and DRPare mainly inter organizational optimization function

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COMMUNICATION GAP IN DESIGNIt Happens due to communication lack, close room design

and transfer over the wall (Classical/ Concurrent Design)

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Concurrent Engineering

Concurrent engineeringis the bringing togetherof engineering design andmanufacturing personnelearly in the design phase.

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Life Cycles of Products or Services

Time

Introduction

Growth

Maturity

Saturation

Decline

D

emand/Re

venue

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Product Data Management

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PLC management

Product Life Cycle Management is a totalproduction system that tracks a product from

inception to disposal

PLM or PLC provides a framework to rediscover

the basic stages of product development,

1. Introduction. 2. Growth. 3. maturity. 4. decline

PLM is an IT tool (S/W) which provide facilities

for Product Data Mgt (PDM) and sharing thesedata with DFX (Design For X) concurrent design,

suppliers and all along the organizations

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More definition of PLM

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Advantages of PLM Info System

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Importance of more care at design

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Organizational pressures and drivers

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Organization Effectiveness & Efficiency

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Product Innovations to customer

delight (Kano Model)

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Input-PLM-xform-ERP-SCM-CRM-Output

Back and Front Engines

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IT Support

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Digitization of product

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Magnifying benefits of PLM

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PLM summary

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Reasons/ drivers and factors

in product designReasons/ Drivers for

product design

Economic

Social and demographicPolitical, liability, or legal

Competitive

Cost or availability

Technological

Major factors in

design strategy env.

Cost

Quality Time-to-market

Customer satisfaction

Competitive

advantage

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Product and service design or redesign should be

closely tied to an organizations strategy

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Objectives of Product Design

Main focus Customer satisfaction

Understand what the customer wants

Secondary focus

Function of product/service

Cost/profit

Quality

Appearance Ease of production/assembly/ dissembly

Ease of maintenance/service

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Evolution, innovation, invention

Evolution is a process of slow modification/ changes

over a long time horizon e.g. a pen, typing m/c, car

Innovations are new things generally driven by

technology and lead to customer delight. Sometimesthey replace and make old things obsolete. e.g.

electronic typewriter (computer-printer), laser printer,

surgical laser knife.

Invention are new things which provide newfunctionality. E.g. x-ray machine, IC engines

Discovery is exposing and highlighting existing

things. e.g. gravitational law

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Global Product Design

Virtual teams

Uses combined efforts of a team of designers

working in different countries

Provides a range of comparative advantagesover traditional teams such as:

Engaging the best human resources around the

world

Possibly operating on a 24-hr basis

Global customer needs assessment

Global design can increase marketability

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A. Design Phases1. Idea generation and Feasibility study

2. Preliminary design

3. Detailed designB. Production-Consumption phases

4. Planning for production

5. Planning for distribution6. Planning for consumption

7. Planning for retirement-disposal-recycle

Asimows Product Design steps/ phases

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Design for functionality

Design for form, structure and asthetics

Design for manufacturing (DFM)

Design for assembly (DFA)

Design for recycling (DFR)

RemanufacturingDesign for disassembly (DFD)

Robust design

Product design

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Phases in Product DevelopmentProcess

1. Idea generation2. Feasibility analysis

3. Product design/specifications

4.Process specifications

5. Prototype development

6. Design review

7. Market test

8. Product introduction

9. Follow-up evaluation

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Idea Generation

Ideas Competitor based

Supply chain based

Research based

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Reverse Engineering

Reverse engineeringis the

dismantling and inspecting

of a competitors product to discoverproduct improvements.

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Research & Development (R&D)

Organized efforts to increase scientificknowledge or product innovation & mayinvolve:

Basic Researchadvances knowledge

about a subject without near-termexpectations of commercial applications.

Applied Researchachieves commercialapplications.

Developmentconverts results of appliedresearch into commercial applications.

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Regulations & guidelinesLegal regulations

Product Liability -A manufacturer is liable for anyinjuries or damages caused by a faulty product.

Uniform Commercial Code -Products carry an

implication of merchantability and fitness.Guidelines for designers

Produce designs consistent with the goals of company

Give customers the value they expect

Make health and safety a primary concern

Consider potential harm to the environment

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Other Issues in Design

Product/service life cyclesHow much standardization

Mass customization

Degree of newness

Cultural differences

Reliability (discussed with process design)

Robust design

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Three S

Simplification is a process to reduce unnecessarynumber of parts and variety

Standardization is a process to freeze the designor specifications to remove variations in something

and make all parts reproducible in conformity withone another. It is extent to which there is absence

of variety in a part, product, service or process.

Specialization is a process to concentrate on

limited number of product/ services to create corecompetency.

The three processes are linked together and develop

as a logical sequence.

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Advantages of Standardization

Fewer parts to deal with in inventory & manufacturing Design costs are generally lower

Reduced training costs and time

More routine purchasing, handling, and inspection

procedures

Quality is more consistent

Orders can be filled from inventory

Opportunities for long production runs and automation Need for fewer parts justifies increased expenditures

on perfecting designs and improving quality controlprocedures.

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Differentiation and Masscustomization is a strategy to

provide little differentiations andoptional features in the standard

main product or services e.g. color,

deluxe, LXi/ Vxi models

Differentiation and Mass Customization

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Modular Design

Modular designis a form of standardizationin which component parts are subdividedinto modules or sub assemlies that areeasily replaced or interchanged. It allows:

easier diagnosis and remedy of failures

easier repair and replacement

simplification of manufacturing andassembly

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Advantages of Modular design

Ex 1. If one car model has 1000 parts( More?) then

Five car models will have item inventory of 5* 1000=

5000 standard items for exchangeability.

Ex 2. Types of engines 3, gear drives 4, wheelbase 4

and body with doors bumpers 10. Total no of standard

items =21. But permutation of these standard items

can produce 3* 4* 4* 10=480 car models. Thus

modular design increase flexibility, standardization,

variety at the same time keeping lower volume and

type/ no of standard item inventories.


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Module/ Component Commonality

Multiple products or product families that have a highdegree of similarity can share components

Automakers using internal parts

Engines and transmissions Fuel injection and Water pumps

Wheel bases, braking systems

Other benefits

Reduced training for assemble and installation Reduced repair time and costs

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Degree of Newness

Modification/Expansion of existing product/service

Clone of a competitors product/service

New product/service

Type of DesignChange Newness to theorganization Newness to themarket

Modification Low Low

Expansion Low Low

Clone High Low

New High High

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Cultural Differences Multinational companies must take into account

cultural differences related to the product design and

more specifically in service design. Most of offerings

have a core product/ service and extended supply/

services, which may be called a service flower. The

core may be a global standard product but the petals

must satisfy the cultural likings.

Notable failures: Chevy Nova in Mexico

Ikea beds in U.S.

I i R li bili

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Improving Reliability

Component design Production/assembly techniques

Testing

Redundancy/backup

Preventive maintenance procedures

User education System design

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Robust Design: Design that results in productsor services that can function over a broad

range of conditions.

Robust Design

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Taguchi Loss Function Goalpost view of losses Losses are binary-yes/no

Taguchi Loss Function

Losses are continuous,

Continuous improve, kaizen, 6

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

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Reje

ct,cons

tan

tloss

due

tore

jec

tion

Rejec

t,cons

tan

tloss

due

tore

jec

tion

Good parts,

no losses

Lower Spec Limit Upper spec Limit

LSL Nominal value, m USLPrime dimension, m y

Losses

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Taguchi Loss Function- Compared

Cost

TargetLowerspec

Upper

spec

Traditional

cost function

Taguchi

cost function

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Taguchi Approach to Robust Design

Design a robust product

Insensitive to environmental factors either inmanufacturing or in use.

Central feature is Parameter Design.

Determines:

factors that are controllable and those not controllable

their optimal levels relative to major product advances

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Manufacturability

Manufacturability is the ease of fabricationand/or assembly which is important for:

Cost

Productivity

Quality

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Designing for Manufacturing

Beyond the overall objective to achieve customersatisfaction while making a reasonable profit is:

Design for Manufacturing(DFM)

It is defined as the designers consideration of the

organizations manufacturing capabilities whendesigning a product.

The more general term design for operationsencompasses services as well as manufacturing

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Design for manufacturing DFM


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Blunt of serial engg. On manfg.


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Product cost and influence


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Alternative Production Processes


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Process Compatibility


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Production Processescapabilities


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Feedback for Concurrent Engg.


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Use of networking in feedback


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Use of rules in DFM


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General rules


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Though product design term encompasses quality

of structure and functionality, still special attentionto quality can enhance design for quality planning

QFD, Quality Function Deployment

Voice of the customer

House of quality

Design For Quality, DFQ and QFD

QFD: An approach that integrates the voice of the customer

into the product and service development process.

Cus

tomer

Requ

iremen

t DesignCharacteristic

House 1 House 2 House 3 House 4

Spec

ific

Componen

tsSpecificComponents

Des

ign

Charac

teris

tic Production

Process

Pro

duc

tion

Process

Quality Plan

The House of Quality

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The House of Quality

Correlation

matrix

Design

requirements

Customer

require-

ments

Competitive

assessment

Relationship

matrix

Specifications

or

target values

House of Quality Example

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Customer

Requirements

Easy to close

Stays open on a hill

Easy to open

Doesnt leak in rain

No road noise

Importance weighting

Engineering

Characteristics

Energyneeded

toclosedoor

Checkforceon

levelground

Energyneeded

toopendoor

Water

resistance

63 63 45 27 6 27

7

5

3

3

2

X

X

X

X

X

Correlation:Strong positive

Positive

NegativeStrong negative

X*

Competitive evaluation

X = We/ UsA = Competitor AB = Competitor B(5 is best)

1 2 3 4 5

X AB

X AB

XAB

A X B

X A B

Relationships:

Strong = 9

Medium = 3

Small = 1Target values

Reduceenergy

levelto7.5

ft/lb

Reduceforce

to9lb.

Reduceenergy

to7.5

ft/lb.

Maintain

currentlevel

Technical evaluation

(5 is best)

54321

B

A

X

BA

X B

A

X

B

X

A

BXABA

X

Doorseal

resistance

Accoust.

Trans.

Window

Maintain

currentlevel

Maintain

currentlevel

House of Quality Example

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Why DFE? Design For Environment


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Responsibility to future generation


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DFE Definition- Green Design


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Scan on responses to DFE


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Automobiles and environment


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Rules for DFE


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Environment and Materials


Recycling

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Recycling: recovering materials for future use Recycling reasons

Cost savings

Environment concerns

Environment regulations

Recycling

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Materials Recycling


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Design for disassembly


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Costs and Benefits of Reuse, Recycle


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Remanufacturing

Remanufacturing: Refurbishing used products byreplacing worn-out or defective components.

Remanufactured products can be sold for 50% of the costof a new producr

Remanufacturing can use unskilled labor Some governments require manufacturers to take back

used products

Design for Disassembly (DFD): Designing products so

that they can be easily taken apart.

S i D i

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Service Design

Service is an act that is done to or for a customer Service delivery system

Facilities, processes, and skills needed for a service

Product bundle

Promised combination of goods and services. Service design involves

The physical resources needed

The goods purchased or consumed by the customer

Explicit services

Implicit services

S i Cl ifi ti

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Service Classification


People Things

Ac

tions

Direc

ted

at

Intang

ible

Tang

ible

SERVICE DIRECTED AT

PEOPLES BODIES

Health/ Beauty Care,

Haircut

Passenger transportation

Gymnasium

Restaurants

SERVICE DIRECTED AT THINGS

Freight transport

Industrial maintenance

Janitorial services

Laundry

Landscape, lawn

Veterinary Care

SERVICEICE DIRECTED

AT PEOPLES MINDS

Education

BroadcastingInfo service

Theaters

Museums

SERVICE DIRECTED AT

INTANGIBLE ASSETS

Banking

Legal servicesAccounting

Securities

Insurance

Th i t i l

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The service triangleAll the services are customer centered, so service

strategy, system and peoples must align/ focus oncustomers


Service Strategy

Service System Service People

Customer

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Challenges of Service Design

1. Variable requirements2. Difficult to describe

3. High customer contact

4. Service customer encounter

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Service Demand Variability

Demand variability creates waiting lines, idle serviceresources. Customer waiting costs and idle resource

costs must be optimized. Plan buffer capacities.

Service registration, queuing order and appointments

are to be used to reduce customer waiting time.

Differential costing at peak hours can smooth demand

Customer participation makes quality and demand

variability hard to manageAttempts to achieve high efficiency may depersonalize

service and change customers perception of quality

Ph i S i D i

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Phases in Service Design

1.Conceptualize2.Identify service package components

3.Determine performance specifications

4.Translate performance specifications into design

specifications

5.Translate design specifications into delivery

specifications

Ser ice Bl eprinting

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Service Blueprinting

Service blueprinting is a method used in servicedesign to describe and analyze a proposed service

A tool for conceptualizing a service delivery system

Major steps in service blue printing

1. Establish boundaries

2. Identify sequence of customer interactions

Prepare a flowchart

3. Develop time estimates4. Identify potential failure points

Characteristics of Well Designed

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Characteristics of Well DesignedService Systems

1. Consistent with the organization mission2. User friendly

3. Robust

4. Easy to sustain5. Cost effective

6. Value to customers

7. Effective linkages between back operations8. Single unifying theme

9. Ensure reliability and high quality

G id li f S f l S i D i

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Guidelines for Successful Service Design

1. Define the service package

2. Focus on customers perspective

3. Consider image of the service package

4. Recognize that designers perspective is different

from the customers perspective5. Make sure that managers are involved

6. Define quality for tangible and intangibles

7. Make sure that recruitment, training and rewards

are consistent with service expectations8. Establish procedures to handle exceptions

9. Establish systems to monitor service

Service Operations Strategy

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1. Increase emphasis on component commonality

2. Package products and services3. Use multiple-use platforms

4. Consider tactics for mass customization

5. Look for continual improvement

6. Shorten time to market

Use standardized components

Use technology

Use concurrent engineering

p gy

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Quality of service- Valeries Gaps

This model identify various Gaps in service to take care

G1: Perception gape btwn mgt and customers expectn

G2: Specification gap between mgt perception and

service specificationsG3:Service performance gap btwn specs and delivery

G4: Communication gap between mgt and customers

G5: Overall gap between customer expectations and

the perception of the received services

These gaps are depicted in figure


V l i M d l f i lit

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Valeries Model of service quality

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


Personal needs

Expected Service

Perceived Service

Service Delivery with

Pre/post contacts

Mgt perception of

consumer expectations

Word of mouthcommunications

Past Experience

External

communication

s to consumer

Translate mgt perceptionto service specifications

Markete

r

Consumer

GAP 1GAP 3

GAP 2

GAP 5

GAP

4

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Unit 3

Process strategy and selection

decisions


Transformation

Processes

Inputs Output Product/ services

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Learning Objectives

Explain the strategic importance of process selection

Explain the influence that process selection has on

an organization.

Describe the basic processing types. Discuss automated approaches to processing.

Explain the need for management of technology.

Describe the basic product, process and cellular

layouts.

Introduction

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Process selection involve deciding on the way

production of goods or services will be organized

Process selection is based on

Cost of equipments, technology

Quality, tolerances required Flexibility of equipment and layouts

Major implications

Capacity planning

Layout of facilities Equipment

Design of work systems

S t D i P S l ti

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Forecasting

Product and

Service Design

Technological

Change

Capacity

Planning

Process

Selection

Facilities and

Equipment

Layout

Work

Design

System Design-Process Selection

Process Strategy

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Key aspects of process strategy Capital intensive equipment/labor

Process flexibility

Technology

Adjust to changes

Design

Volume

technology

Process Strategy

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Technology

Technology: The application of scientific discoveries

to the development and improvement of products

and services and operations processes.

Technology innovation: The discovery anddevelopment of new or improved products, services,

or processes for producing or providing them.

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Kinds of Technology

Operations management is primarily concerned withthree kinds of technology:

Product and service technology

Process technology

Information technology

All three have a major impact on:

Costs

Productivity

Competitiveness

C

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Technology Competitive Advantage

Innovations in Products and services

Cell phones

PDAs

Wireless computing Processing technology

Increasing productivity

Increasing quality

Lowering costs

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Basic Product-Process matrix


One of a

Kind Low

Volume

Multiple

Products

Moderate

Volumes

Few Major

Products

High

Volume

Commodity

Products

Project

Job Shop

Batch

Line/ Mass Pr

Continuous

Flow

Very Poor Fit

(Unskilled)

Very Poor Fit

(Genius)

Low ----------------VOLUME----------------- High

High--------Time between parts-------------- Low

Jumbled--Flow smoothness---------------- Smooth

Low--

VAR

IETY(parts

)--

High

Low--

Proc

ess

Flex

ibility-

High

High--

Sta

ndard

iza

tion---

Low

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Basic Plant Layouts


BasicProcesses

Layout Examples

Continuous Flow

Production (Fluid)

Product piping Refinery, Sugar

Commodities

Mass Production Product Layout, Connected

mechanized material

transfer, assembly lines

Automobile, TV,

Packed Food

Batch Production Mixed Flow, Cellular Layout,

Disconnected lines,

Watches, Drilling Rigs

Job-shop Prod.,Jumbled Flow

Process Layout Tools,

Project work,

Jumbled Flow

Site work layout Dams, Ships, Houses

Reliability

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y

Reliability: The ability of a product, part, orsystem to perform its intended function under a

prescribed set of conditions

Failure: Situation in which a product, part, orsystem does not perform as intended

Normal operating conditions: The set of

conditions under which an items reliability is

specified

R li bilit 4 i l t

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Reliability - 4 main elements

1. Reliability is expressed as Probability - number

of times that an event occurs (success) divided

by total number trials

2. Satisfactory performance criteria of what is

considered to be satisfactory system operation

3. Specified timeReliability always have reference to

time, a measure against which degree of system

performance can be related

4. Specified operating conditions expect a system to

function at specified environmental factors like

humidity, vibration, shock, temperature cycle,

operational profile, etc.

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The bath tub curve


EARLY LIFE

(burn-in or

break-in orinfant mortality

or teething

period)

(failure rate

decreases with time)

USEFUL LIFE

(or normal life)

(failure rate approx. const)

WEAROUT LIFE

(failure rate

increases withtime)

TIME

Fa

ilure

Ra

te

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Debugging (Infant mortality) Phase

rapid decrease in failure rate

Weibull distribution with shape parameter< 1 is used to describe the occurrences offailure

Usually covered by warranty period

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Chance failure phase

Constant failure rate failure occur in random

manner

Exponential and also Weibull with =1 can be

used to describe this phase

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Wear-out phase

Sharp rise in failure rate fatigue, corrosion (old

age)

Normal distribution is one that best describes this

phase

Also can use Weibull with shape parameter > 1

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Measures of Maintainability

MTBM mean time between maintenance,

include preventive and corrective maintenance

MTBR mean time between replacement,generate spare part requirement

- mean active maintenance time

ct mean corrective maintenance time or mean

time to repair

pt mean preventive maintenance time

M

M

M

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Frequency of maintenance for a given time is highly

dependent on the reliability of that item

Reliability frequency of maintenance

Unreliable system require extensive maintenance

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Reliability function [R(t)]

R(t) = 1 F(t)

F(t) = probability of a system will fail by time (t) =

failure distribution function

Eg. If probability of failure F(t) is 20%, thenreliability at time t is

R(t) = 1 0.20 = 0.80 or 80%

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Reliability at time (t)

R(t) = e-t/

e = 2.7183

= MTBF

= failure rate

So,

R(t) = e-t

1

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Failure Rate ()

Rate at which failure occur in a specified timeinterval

Can be expected in terms of failures per hour, %of failure per 1,000 hours or failures per millionhours

= number of failures

total operating hours

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Example 1

10 components were tested. The components (notrepairable) failed as follows:

Component 1 failed after 75 ours

Component 2 failed after 125 hoursComponent 3 failed after 130 hours

Component 4 failed after 325 hours

Component 5 failed after 525 hours

Determine the MTBF

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Solution:

Five failures, operating time = 3805 hours

75

125

130

325525

5 x 525

S l ti

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Solution

= 5 / 3805 = 0.001314

l

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Example 2

20.2 6.1 7.1 24.4 4.2 35.3 1.8 46.7

Operating time Down time

2.5

a) Determine the MTBF.

Solution:

Total operating time = 20.2 + 6.1 + 24.4 + 4.2 + 35.3 + 46.7

= 136.9 hours

The chart below shows operating time and breakdown time of a machine.

S l ti

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Solution

= 4 / 136.9 = 0.02922

Therefore;

= MTBF = 1/ = 34.22 hours

b) What is the system reliability for a mission time of 20hours?

R = e-t t = 20 hours

R= e-(0.02922)(20)

R = 55.74%

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Reliability Component Relationship

Application in series network, parallel and

combination of both

S i N t k

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Series Network

Most commonly used and the simplest to analyze

A B CInput Output

All components must operate if the system is to function properly.

R = RA x RB x RC

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If the series is expected to operate for a specified

time period, then

Rs (t) =

tne)...(

321

E l

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Example

Systems expected to operate for 1000 hours. Itconsists of 4 subsystems in series, MTBFA =6000 hours, MTBFB = 4500 hours, MTBFC =

10,500 hours, MTBFD = 3200 hours. Determineoverall reliability.

A = 1 /MTBFA = 1/6000 = 0.000167

B = 1/MTBFB = 1/4500 = 0.000222

C = 1/MTBFC = 1/10500 = 0.000095 D = 1/MTBFD = 1/3200 = 0.000313

Therefore; R = e-(0.000797)(1000) = 0.4507

P ll l N t k

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Parallel Network

A number of the same components must fail order to

cause total system failure

A

B

C

E l

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Example

Consider two units A and B in parallel. The systems

fails only when A and B failed.

A

B

Fs(t) = Fa(t) Fb(t)

= [1-Ra(t)][1-Rb(t)]

= 1-Ra(t)- Rb(t) + Ra(t) Rb(t)

Rs(t) = 1- Fs(t)

= Ra(t) + Rb(t)Ra(t) Rb(t)

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If A and B are constant failure rate units, then:

Ra(t) = Rb(t) =

tae

tbe

And Rs(t) =

baba

s dttR

111)(

0

s = MTBF

C id 3 t i ll l

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Consider 3 components in parallel

Rs = 1 Fs

Fa = 1- Ra Fb = 1- Rb Fc = 1- Rc

Rs = 1 (1-Ra)(1-Rb)(1-Rc)

If componentsA, B and C are identical, then

the reliability,

Rs = 1 (1 R)3

For a system with n identical components,Rs=1- (1-R)

n

A

B

C

C bi d i ll l t k

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Combined series parallel network

A

B

C

Rs

= RA

[RB+R

C-R

BR

C]

C bi d i ll l t k

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A

B

C

D

Rs = [1-(1-RA)(1-RB)][1-(1-RC)(1-RD)]

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A

B

C

D

E

F

Rs=[1-(1-RA)(1-RB)(1-RC)][RD] x [RE+RF-(RE)(RF)]

C bi d i ll l t k

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For combined series-parallel network, first evaluate

the parallel elements to obtain unit reliability

Overall system reliability is determined by finding the

product of all series reliability

Improving Reliability

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Component design

Production/assembly techniques

Testing

Redundancy/backup Preventive maintenance procedures

User education

System design

Product and Process Profiling

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Product and Process Profiling Process selection can involve substantial

investment in Equipment

Layout of facilities

Product profiling: Linking key product or service

requirements to process capabilities

Key dimensions

Range of products or services

Expected order sizes Pricing strategies

Expected schedule changes

Order winning requirements

Automation

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Automation: Machinery that has sensing and control

devices that enables it to operate Fixed automation

Programmable automation

Automation

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Computer-aided design and

manufacturing systems (CAD/CAM)

Numerically controlled (NC) machines

Robot

Manufacturing cell

Flexible manufacturing systems(FMS)

Computer-integrated manufacturing (CIM)

Value, Value analysis, Value Engg

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Value, Value analysis, Value Engg The value is what customers are demanding- the right

combination of product quality, fair price and services. Value is ultimately defined by the customer

Traits: speed, cost, quality and flexibility

Value = performance / cost

Performance = quality + speed + f lexibility

Offer products that perform Give more than the customer expects

Give guarantees

Avoid unreasonable pricing

Give the customer the facts

Build relationship

Value Chain Analysis

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y

Def. A systematic approach to lower cost keeping same/

better level of performance w.r.t. function and quality

A study of the relationship of design, function and cost of

product, material or service with objective to reduce cost

Value Chain analysis was correlated to competitiveIntelligence (CI) by Michael Porter (1995)

It can:

Increase your competitiveness

Reduce your costs Improve your market share

Bottom Line - improve overall rofitability!

B i P id

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Business Pyramid

Business/ Market

Intelligence

Competitor

Analysis

Competitive

Intelligence

Individual Competitor

Profile

Assimilates all

Competitive Intelligence

Broad environmental

scanning, market researchand analysis

M k t I t lli / CI

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Market Intelligence v/s CI

Market Intelligence: Tells a company about its environment

Supply and demand for its products

Drivers that influence demand

Who the buyers and suppliers are Overall economic outlook for the product

Competitive Intelligence:

Helps a company understand what itscompetitive position is in a specific

market weaknesses and strengths

Competitive Intelligence what is it?

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Competitive Intelligence what is it?

Competitive Intelligence is: Information about opportunities and threats

Information which makes companies and

local industries more competitive

Forecasting of changes about the economicenvironment

Actionable recommendations from analysis

of the environment

It is the total knowledge, gathered by an

organization in ethical manner,

about the environment in which it competes

Different tools and techniques

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Different tools and techniques

Five basic tools : Strategic Analysis

Product-oriented Analysis

Behavioral Analysis Financial Analysis

Customer Oriented Analysis

Value Chain Analysis

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Three tiers of Value Chain Analysis

Internal Cost Analysis: A firm or a sector

needs to understand its own value chain in

order to compare to its competitors

Internal Differentiation Analysis:A firm or asector then needs to identify the processes

that distinguish its products or services from

that of its competitors

Vertical Linkage Analysis


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gaining and sustaining a competitive advantagerequires that a firm understand the entire valuedelivery system, not just the portion of the valuechain in which it participates. Suppliers and

customers and suppliers suppliers and customerscustomers have profit margins that are important toidentify in understanding a firms cost/differentiationpositioning, because the end-use customersultimately pay for all the profit margins along theentire value chain.

Shank and Govindarajan (1993)

H fi V l Ch i A l i

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How a firm can use Value Chain Analysis

Three useful strategic frameworks have been

identified for value chain analysis:\

Industry Structure Analysis

Core Competencies Segmentation Analysis

Value Chain analysis can show

opportunities for participants within thechain that can have an immediate

effect on your costs

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Managementof Quality

Learning Objectives

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Learning Objectives

Define the term quality.

Explain why quality is important and the

consequences of poor quality.

Identify the determinants of quality.

Describe the costs associated with quality.

Describe the quality awards.

Learning Objectives

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Learning Objectives

Discuss the philosophies of quality gurus.

Describe TQM.

Give an overview of problem solving.

Give an overview of process improvement.

Describe and use various quality tools.

Quality Management

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What does the term qualitymean? Qualityis the ability of a product or service to

consistently meet or exceed customer

expectations.

Evolution of Quality Management

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y g 1924 - Statistical process control charts

1930 - Tables for acceptance sampling

1940s - Statistical sampling techniques

1950s - Quality assurance/TQC

1960s - Zero defects 1970s - Quality assurance in services

Quality Assurance vs. Strategic Approach

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Quality Assurance

Emphasis on finding and correcting defects beforereaching market

Strategic Approach

Proactive, focusing on preventing mistakes from

occurring

Greater emphasis on customer satisfaction

The Quality Gurus

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The Quality Gurus Walter Shewhart

Father of statistical quality control

W. Edwards Deming

Joseph M. Juran

Armand Feignbaum Philip B. Crosby

Kaoru Ishikawa

Genichi Taguchi

Key Contributors to QualityManagementTable 9.2

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gContributor

Deming

Juran

Feignbaum

Crosby

Ishikawa

Taguchi

Ohno andShingo

Known for

14 points; special & common causes ofvariation

Quality is fitness for use; quality trilogy

Quality is a total field

Quality is free; zero defects

Cause-and effect diagrams; qualitycircles

Taguchi loss function

Continuous improvenmentQuality

Deming Funnel Experiment:Strategies

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Strategies

Strategy 1: Do not react to this randomvariation and do not move the funnel

Strategy 2: Measure the distance fromthe marbles resting place to the bulls-eyeMove the funnel and equal distance,but in the opposite direction

Deming Funnel Experiment:

Strategies

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Strategies

Strategy 3: Measure the distancefrom the marbles resting place to the

bulls-eyeMove the funnel this distance, in theopposite direction, starting at the

bulls-eye

Deming Funnel Experiment

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g p

Figure 12.5(a)

Marble

Target paperwith bulls eye

FunnelApparatus

Rules of the Nelson Funnel Experiment

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Rules of the Nelson Funnel Experiment

Rule 1. Leave the funnel aloneRule 2. Move the funnel from wherever it is at in

an equal but opposite direction from wherethe marble landed in relation to the target

Rule 3. Move the funnel back to its rest positionbefore moving it in an equal but oppositedirection from where the marble landed inrelation to the target

Rule 4. Move the funnel over the last position of

where the marble landedSolution: Move the funnel nearer to the target.

This reduces variation

55

60

55

60RULE 1

RULE 2

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40

45

50

55

0 5 10 15 20 25

40

45

50

55

0 5 10 15 20 25

40

45

50

55

60

0 5 10 15 20 25

40

45

50

55

60

0 5 10 15 20 25

RULE 3RULE 4

Sequence

Sequence Sequence

Sequence

SIDE-BY-SIDE COMPARISON OF WALTERS RESULTS


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g p

Figure 12.5(b)

CONTROL STRATEGY 1

4.0

0.0

-4.0

Y

| | | | |

-5.0 -2.5 0.0 2.5 5.0X


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g p

Figure 12.5(c)

CONTROL STRATEGY 2

4.0

0.0

-4.0

Y

| | | | |

-5.0 -2.5 0.0 2.5 5.0X


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g p

Figure 12.5(d)

CONTROL STRATEGY 3

4.0

0.0

-4.0

Y

| | | | |

-30 -15 0 15 30X

Dimensions of Quality

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Performance- main characteristics of theproduct/service

Aesthetics- appearance, feel, smell, taste

Special Features- extra characteristics

Conformance- how well product/service conformsto customers expectations

Reliability- consistency of performance

Dimensions of Quality (Contd)

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Durability- useful life of the product/service Perceived Quality -indirect evaluation of

quality (e.g. reputation)

Serviceability - service after sale

Examples of Quality Dimensions

Di i (P d t) (S i )

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Dimension

1. Performance

2. Aesthetics

3. Special features

(Product)

AutomobileEverything works, fit &finishRide, handling, grade of

materials usedInterior design, soft touch

Gauge/control placementCellular phone, CD

player

(Service)

Auto RepairAll work done, at agreedpriceFriendliness, courtesy,

Competency, quicknessClean work/waiting area

Location, call when readyComputer diagnostics

Examples of Quality Dimensions(Contd)

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Dimension

5. Reliability

6. Durability

7. Perceived

quality

8. Serviceability

(Product)

AutomobileInfrequency of breakdowns

Useful life in miles, resistanceto rust & corrosion

Top-rated car

Handling ofcomplaints and/orrequests for information

(Service)

Auto RepairWork done correctly,ready when promised

Work holds up overtime

Award-winning service

department

Handling of complaints

Service Quality

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Convenience

Reliability

Responsiveness

Time

Assurance

Courtesy

Tangibles

Examples of Service QualityTable 9.4

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Dimension Examples

1. Convenience Was the service center conveniently located?

2. Reliability Was the problem fixed?

3. Responsiveness Were customer service personnel willing and

able to answer questions?

4. Time How long did the customer wait?

5. Assurance Did the customer service personnel seem

knowledgeable about the repair?

6. Courtesy Were customer service personnel and the

cashierfriendly and courteous?

7. Tangibles Were the facilities clean, personnel neat?

Challenges with Service Quality

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g y

Customer expectations often change

Different customers have different expectations

Each customer contact is a moment of truth

Customer participation can affect perception ofquality

Fail-safing must be designed into the system

Determinants of Quality

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Service

Ease of

use

Conforms

to design

Design

Determinants of Quality (contd)

Q lit f d i

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Quality of design

Intension of designers to include or excludefeatures in a product or service

Quality of conformance

The degree to which goods or services conform to

the intent of the designers

The Consequences of Poor Quality

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Loss of business

Liability

Productivity

Costs

Responsibility for Quality

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Top management Design

Procurement

Production/operations

Quality assurance Packaging and shipping

Marketing and sales

Customer service

Costs of Quality

F il C t t i d b d f ti

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Failure Costs - costs incurred by defective

parts/products or faulty services.

Internal Failure Costs

Costs incurred to fix problems that are detected

before the product/service is delivered to thecustomer.

External Failure Costs

All costs incurred to fix problems that aredetected after the product/service is delivered tothe customer.

Costs of Quality (continued)

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Appraisal Costs Costs of activities designed to ensure quality or

uncover defects

Prevention Costs

All TQ training, TQ planning, customerassessment, process control, and qualityimprovement costs to prevent defects fromoccurring

Ethics and Quality

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Substandard work

Defective products

Substandard service

Poor designs

Shoddy workmanship Substandard parts and materials

Having knowledge of this and failing to correctand report it in a timely manner is unethical.

Quality Awards

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Baldrige Award

Deming Prize

Malcolm Baldrige National QualityAward

1 0 L d hi

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1.0 Leadership (125 points)

2.0 Strategic Planning (85 points)

3.0 Customer and Market Focus (85 points)

4.0 Information and Analysis (85 points)

5.0 Human Resource Focus (85 points)

6.0 Process Management (85 points)

7.0 Business Results (450 points)

Benefits of Baldrige Competition Financial success

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Financial success

Winners share their knowledge The process motivates employees

The process provides a well-designed quality

system

The process requires obtaining data

The process provides feedback

European Quality Award Prizes intended to identify role models

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Prizes intended to identify role models

Leadership Customer focus

Corporate social responsibility

People development and involvement

Results orientation

The Deming Prize

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Honoring W. Edwards Deming

Japans highly coveted award

Main focus on statistical quality control

Quality Certification ISO 9000

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ISO 9000

Set of international standards on qualitymanagement and quality assurance, critical to

international business

ISO 14000

A set of international standards for assessing a

companys environmental performance

ISO 9000 Standards

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Requirements

System requirements

Management

Resource

Realization

Remedial

ISO 9000 Quality ManagementPrinciples

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Customer focus Leadership

People involvement

Process approach

A systems approach to management

Continual improvement

Factual approach to decision making

Mutually beneficial supplier relationships

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ISO 14000

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Management systems

Systems development and integration ofenvironmental responsibilities into businessplanning

Operations

Consumption of natural resources and energy

Environmental systems

Measuring, assessing and managing emissions,effluents, and other waste

Total Quality ManagementA philosophy that involves everyone in an

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A philosophy that involves everyone in an

organization in a continual effort to improve qualityand achieve customer satisfaction.

T Q M

The TQM Approach

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1.Find out what the customer wants

2.Design a product or service that meets or

exceeds customer wants

3.Design processes that facilitates doing the job

right the first time4.Keep track of results

5.Extend these concepts to suppliers

Elements of TQM

1 Continual improvement

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1. Continual improvement

2. Competitive benchmarking3. Employee empowerment

4. Team approach

5. Decisions based on facts

6. Knowledge of tools

7. Supplier quality

8. Champion

9.Quality at the source10. Suppliers

Continuous Improvement

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Philosophy that seeks to make never-ending improvements to the process ofconverting inputs into outputs.

Kaizen: Japanese

word for continuousimprovement.

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Six Sigma

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Statistically

Having no more than 3.4 defects per million

Conceptually

Program designed to reduce defects

Requires the use of certain tools and techniques

Six sigma: A business process for improving

quality, reducing costs, and increasing

customer satisfaction.

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Six Sigma Management

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Providing strong leadership

Defining performance metrics

Selecting projects likely to succeed

Selecting and training appropriate people

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Six Sigma Team

Top management

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op a age e t

Program champions Master black belts

Black belts

Green belts

Six Sigma Process

Define

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MeasureAnalyze

Improve

ControlDMAIC

Obstacles to Implementing TQM

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Lack of:

Company-wide definition of quality

Strategic plan for change

Customer focus

Real employee empowerment

Strong motivation

Time to devote to quality initiatives

Leadership

P i t i ti l i ti

Obstacles to Implementing TQM

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Poor inter-organizational communication

View of quality as a quick fix

Emphasis on short-term financial results

Internal political and turf wars

Criticisms of TQM

1. Blind pursuit of TQM programs

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p p g

2. Programs may not be linked to strategies3. Quality-related decisions may not be tied to market

performance

4. Failure to carefully plan a program

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The PDSA CyclePlan

Figure 9.2

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Do

Study

Act

The Process Improvement CycleSelect aprocess

Figure. 9.3

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Implement theImproved process

process

Study/document

Seek ways toImprove it

Design anImproved process

Evaluate

Document

Process Improvement: A systematic approach to

Process Improvement

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Process Improvement: A systematic approach to

improving a process

Process mapping

Analyze the process

Redesign the process

Process Improvement and Tools

Process improvement - a systematic approach toimproving a process

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improving a process

Process mapping

Analyze the process

Redesign the process

Tools There are a number of tools that can be used for

problem solving and process improvement

Tools aid in data collection and interpretation, and

provide the basis for decision making

Basic Quality Tools

Fl h t

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Flowcharts

Check sheets

Histograms

Pareto Charts

Scatter diagrams

Control charts

Cause-and-effect diagrams

Run charts

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Pareto Analysis80% of the

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problemsmay be

attributed to

20% of the

causes.

Smeared

print

Numberof

defects

Off

center

Missing

label

Loose Other

Control ChartFigure 9.11

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970

980

990

1000

10101020

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

UCL

LCL

Cause-and-Effect DiagramFigure 9.12

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Effect

MaterialsMethods

EquipmentPeople

Environment

Cause

Cause

Cause

Cause

Cause

CauseCause

Cause

CauseCause

Cause

Cause

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Tracking ImprovementsUCL

Figure 9-18

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UCL

LCL

LCL

LCL

UCLUCL

Process not centeredand not stable

Process centeredand stable

Additional improvementsmade to the process

Methods for Generating Ideas

Brainstorming

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Brainstorming

Quality circles

Interviewing

Benchmarking 5W2H

Team approach

Quality Circles

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Team approach

List reduction

Balance sheet

Paired comparisons

Identify a critical process that needs improving

Benchmarking Process

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Identify a critical process that needs improving

Identify an organization that excels in this

process

Contact that organization

Analyze the data Improve the critical process

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Quality Control

Learning Objectives

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List and briefly explain the elements of the control

process.

Explain how control charts are used to monitor a

process, and the concepts that underlie their use. Use and interpret control charts.

Use run tests to check for nonrandomness in

process output.

Assess process capability.

Phases of Quality AssuranceFigure 10.1

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Acceptancesampling Processcontrol Continuousimprovement

Inspection of lotsbefore/afterproduction

Inspection andcorrective

action duringproduction

Quality builtinto theprocess

The leastprogressive

The mostprogressive

Inspection

How Much/How Often

Figure 10.2

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How Much/How Often

Where/When

Centralized vs. On-site

Inputs Transformation Outputs

Acceptancesampling

Processcontrol

Acceptancesampling

Inspection CostsFigure 10.3

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Cost

OptimalAmount of Inspection

Cost ofinspection

Cost ofpassing

defectives

Total Cost

Where to Inspect in the Process

Raw materials and purchased parts

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Raw materials and purchased parts

Finished products

Before a costly operation

Before an irreversible process Before a covering process

Examples of Inspection Points

Type of Inspection Characteristics

Table 10.1

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yp

business

p

pointsFast Food Cashier

Counter area

Eating area

BuildingKitchen

Accuracy

Appearance, productivity

Cleanliness

AppearanceHealth regulations

Hotel/motel Parking lot

Accounting

BuildingMain desk

Safe, well lighted

Accuracy, timeliness

Appearance, safetyWaiting times

Su ermarket Cashiers

Deliveries

Accuracy, courtesy

Quality, quantity

Statistical Process Control:

Statistical Control

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Statistical Process Control:

Statistical evaluation of the output of aprocess during production

Quality of Conformance:

A product or service conforms to specifications

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Control ChartFigure 10.4

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0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

UCL

LCL

Sample number

Mean

Out ofcontrol

Normal variationdue to chance

Abnormal variationdue to assignable sources

Abnormal variationdue to assignable sources

Statistical Process Control The essence of statistical process control is to

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assure that the output of a process is random sothat future outputwill be random.

Statistical Process Control

The Control Process

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Define

Measure

Compare

Evaluate Correct

Monitor results

Statistical Process Control

Variations and Control

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Random variation: Natural variations in the outputof a process, created by countless minor factors

Assignable variation: A variation whose source canbe identified

Sampling DistributionSampling

Figure 10.5

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p g

distribution

Processdistribution

Mean

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Control LimitsSamplingdistribution

Figure 10.7

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Processdistribution

Mean

Lower

controllimit

Upper

controllimit

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Type I and Type II ErrorsTable 10.2

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In control Out of control

In control No Error Type I error

(producers risk)

Out ofcontrol

Type II Error

(consumers risk)

No error

Type I ErrorFigure 10.8

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Mean

LCL UCL

/2 /2

Probabilityof Type I error

Observations from Sample DistributionUCL

Figure 10.9

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Sample number

LCL

1 2 3 4

Control Charts for Variables

Variables generate data that are measured.

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Mean control charts

Used to monitor the central tendency of a process.

X bar charts

Range control charts

Used to monitor the process dispersion

R charts

Mean and Range ChartsFigure 10.10A

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UCL

LCL

UCL

LCL

R-chart

x-Chart Detects shift

Does notdetect shift

(process mean isshifting upward)Sampling

Distribution

Mean and Range ChartsFigure 10.10B

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x-Chart

UCL

Does notreveal increase

UCL

LCL

LCL

R-chart Reveals increase

(process variability is increasing)Sampling

Distribution

Control Chart for Attributes

p-Chart - Control chart used to monitor the

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proportion of defectives in a process

c-Chart - Control chart used to monitor the

number of defects per unit

Attributes generate data that are counted.

Use of p-Charts

When observations can be placed into two

Table 10.4

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categories.

Good or bad

Pass or fail

Operate or dont operate When the data consists of multiple samples of

several observations each

Use of c-Charts

Use only when the number of occurrences per unit

Table 10.4

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y p

of measure can be counted; non-occurrences

cannot be counted.

Scratches, chips, dents, or errors per item

Cracks or faults per unit of distance Breaks or Tears per unit of area

Bacteria or pollutants per unit of volume

Calls, complaints, failures per unit of time

Use of Control ChartsAt what point in the process to use control charts

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What size samples to take

What type of control chart to use

Variables

Attributes

Run Tests Run test a test for randomness

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Any sort of pattern in the data would suggest anon-random process

All points are within the control limits - the process

may not be random

Nonrandom Patterns in Control charts Trend

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Cycles Bias

Mean shift

Too much dispersion

Counting Above/Below Median Runs (7 runs)Figure 10.12

Counting Runs

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Counting Up/Down Runs (8 runs)

U U D U D U D U U D

B A A B A B B B A A B

Figure 10.13

NonRandom Variation

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Managers should have response plans to investigatecause

May be false alarm (Type I error)

May be assignable variation

Tolerances or specifications

Process Capability

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Range of acceptable values established byengineering design or customer requirements

Process variability

Natural variability in a process

Process capability

Process variability relative to specification

Process Capability

LowerSpecification

UpperSpecification

Figure 10.15

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A. Process variabilitymatches specifications

LowerSpecification

UpperSpecification

B. Process variabilitywell within specifications

LowerSpecification

UpperSpecification

C. Process variabilityexceeds specifications

Process Capability Ratio

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Process capability ratio, Cp =specification width

process width

Upper specificationlower specification

6Cp =

3X-UTLor

3LTLXmin=Cpk

If the process is centered use Cp

If the process is not centered use Cpk

Limitations of Capability Indexes1. Process may not be stable

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2. Process output may not be normally distributed

3. Process not centered but Cp is used

Example 8Standard Machine

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Machine Deviation Capability CpA 0.13 0.78 0.80/0.78 = 1.03

B 0.08 0.48 0.80/0.48 = 1.67

C 0.16 0.96 0.80/0.96 = 0.83

Cp > 1.33 is desirable

Cp = 1.00 process is barely capableCp < 1.00 process is not capable

Lower

specification

Upper

specification

3 Sigma and 6 Sigma Quality

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Process

mean

1350 ppm 1350 ppm

1.7 ppm 1.7 ppm

+/- 3 Sigma

+/- 6 Sigma

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AcceptanceSampling

Learning Objectives

E l i th f t li

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Explain the purpose of acceptance sampling

Contrast acceptance sampling and process control

Compare and contrast single- and multiple-sampling

plans Determine the average outgoing quality of inspected

lots

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Acceptance Sampling

A t S li t f l h

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Acceptance Sampling most useful when

A large number of items must be processed in a short

time

The cost consequences of passing defects are low

Destructive testing is required

Fatigue or boredom leads to inspection errors

Operating Characteristic Curve

O ti Ch t i ti (OC) C P b bilit

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Operating Characteristic (OC) Curve: Probabilitycurve that shows the probabilities of accepting

lots with various fractions defective.

Typical OC Curve0 9

1

lot

Figure 10S.1

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0

0.1

0.2

0.30.4

0.5

0.6

0.7

0.80.9

0 .05 .10 .15 .20 .25Probabilityo

faccepting

Lot quality (fraction defective)

3%

Decision Criteria1.00

lot

Ideal

Figure 10S.2

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0Probabilityo

faccepting


Good Bad

Ideal

Not very

discriminating

Sampling Terms

Acceptance quality level (AQL): the percentageof defects at which consumers are willing to

t l t d

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accept lots as good

Lot tolerance percent defective (LTPD): the upperlimit on the percentage of defects that aconsumer is willing to accept

Consumers risk: the probability that a lotcontained defectives exceeding the LTPD willbe accepted

Producers risk: the probability that a lotcontaining the acceptable quality level will berejected

Consumers and Producers Risk

0 9

1

lot = .10

Figure 10S.3

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0

0.1

0.2

0.30.4

0.5

0.6

0.7

0.80.9

0 .05 .10 .15 .20 .25Probabilityo

faccepting


= .10

Good

AQL

BadIndifferent

LTPD

QC Curve for n = 10, c = 1Figure 10S.4

0 9

1.9139

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0

0.1

0.2

0.30.4

0.5

0.6

0.7

0.80.9

0 .10 .20 .30 .40 .50Probabilityo

facceptance

Fraction defective in lot

.7361

.5443

.3758

.2440

.1493.0860

Average Quality

Average outgoing quality (AOQ): Average of

inspected lots (100%) and uninspected lots

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inspected lots (100%) and uninspected lots

AOQ Pac pN n

N

Pac = Probability of accepting lot

p = Fraction defective

N = Lot size

n = Sample size

Example S-2: AOQ0 0

0 05 0 046

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0.05 0.0460.1 0.074

0.15 0.082

0.2 0.075

0.25 0.061

0.3 0.0450.35 0.03

0.4 0.019

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09 Approximate AOQL = .082

Fractiond

efectiveout)

Documents

Unit2-3 OM