Archive for the ‘Improvement’ Category

Theory of Constraints — The Goal

Monday, April 19th, 2010

Whether you are a student of science, a project manager or working in manufacturing organizations or IT – the Theory of Constraints has its application in every field. The underlying business ideas of increasing efficiency/effectiveness and the challenges most managers feel in balancing personal and work commitments are timeless.

Theory of Constraints (TOC) is an overall management philosophy introduced by Dr. Eliyahu M. Goldratt in his 1984 book titled The Goal, that is geared to help organizations continually achieve their goal. The title comes from the contention that any manageable system is limited in achieving more of its goal by a very small number of constraints, and that there is always at least one constraint. The TOC process seeks to identify the constraint and restructure the rest of the organization around it, through the use of the Five Focusing Steps.

Key assumption

The underlying assumption of Theory of Constraints is that organizations can be measured and controlled by variations on three measures: throughput, operating expense, and inventory. Throughput is money (or goal units) generated through sales. Inventory is money the system invests in order to sell its goods and services. Operating expense is all the money the system spends in order to turn inventory into throughput.
The five focusing steps

Theory of Constraints is based on the premise that the rate of goal achievement is limited by at least one constraining process. Only by increasing flow through the constraint can overall throughput be increased.

Assuming the goal of the organization has been articulated (e.g., “Make money now and in the future”) the steps are:

1. Identify the constraint (the resource or policy that prevents the organization from obtaining more of the goal)
2. Decide how to exploit the constraint (make sure the constraint’s time is not wasted doing things that it should not do)
3. Subordinate all other processes to above decision (align the whole system or organization to support the decision made above)
4. Elevate the constraint (if required or possible, permanently increase capacity of the constraint; “buy more”)
5. If, as a result of these steps, the constraint has moved, return to Step 1. Don’t let inertia become the constraint.

The five focusing steps aim to ensure ongoing improvement efforts are centered around the organization’s constraints. In the TOC literature, this is referred to as the “Process of Ongoing Improvement” (POOGI).

These focusing steps are the key steps to developing the specific applications mentioned below.
Constraints

A constraint is anything that prevents the system from achieving more of its goal. There are many ways that constraints can show up, but a core principle within TOC is that there are not tens or hundreds of constraints. There is at least one and at most a few in any given system. Constraints can be internal or external to the system. An internal constraint is in evidence when the market demands more from the system than it can deliver. If this is the case, then the focus of the organization should be on discovering that constraint and following the five focusing steps to open it up (and potentially remove it). An external constraint exists when the system can produce more than the market will bear. If this is the case, then the organization should focus on mechanisms to create more demand for its products or services.

Types of (internal) constraints

* Equipment: The way equipment is currently used limits the ability of the system to produce more salable goods / services.
* People: Lack of skilled people limits the system.
* Policy: A written or unwritten policy prevents the system from making more.

The concept of the constraint in Theory of Constraints differs from the constraint that shows up in mathematical optimization. In TOC, the constraint is used as a focusing mechanism for management of the system. In optimization, the constraint is written into the mathematical expressions to limit the scope of the solution (X can be no greater than 5).

Please note: Organizations have many problems with equipment, people, policies, etc. But the constraint is the thing that is preventing the organization from getting more Throughput (typically, sales).
Buffers

Buffers are used throughout Theory of Constraints. They appear as part of the EXPLOIT and SUBORDINATE steps of the five focusing steps. Buffers are placed before the key constraint, thus ensuring that the constraint is never starved. Buffers used in this way protect the constraint and should allow for normal variation of processing time and the occasional upset (Murphy) before the constraint.

Buffers can be a bank of physical objects before a work center, waiting to be processed by that work center. Buffers can also be represented by time, as in the time before work reaches the constraint. There should always be enough (but not excessive) work in the time queue before the constraint.

Buffers are not the small queue of work that sits before every work center in a Kanban system. The assumption in Theory of Constraints is that with one constraint in the system, all other parts of the system have sufficient capacity to keep up with the work at the constraint. In a balanced line, as dictated by Kanban, when one work center goes down, then the entire system must wait until that work center is restored. In a TOC system, the only situation where work is in danger is if the constraint is unable to process (either due to malfunction, sickness or a “hole” in the buffer).
Plant types

There are four primary types of plants in the TOC lexicon. Draw the flow of material from the bottom of a page to the top, and you get the four types. They specify the general flow of materials through a system, and they provide some hints about where to look for typical problems. The four types can be combined in many ways in larger facilities.

* I-Plant: Material flows in a sequence, such as in an assembly line. The primary work is done in a straight sequence of events (one-to-one). The constraint is the slowest operation.
* A-Plant: The general flow of material is many-to-one, such as in a plant where many sub-assemblies converge for a final assembly. The primary problem in A-plants is in synchronizing the converging lines so that each supplies the final assembly point at the right time.
* V-Plant: The general flow of material is one-to-many, such as a plant that takes one raw material and can make many final products. Classic examples are meat rendering plants or a steel manufacturer. The primary problem in V-plants is “robbing” where one operation (A) immediately after a diverging point “steals” materials meant for the other operation (B). Once the material has been processed by A, it cannot come back and be run through B without significant rework.
* T-Plant: The general flow is that of an I-Plant (or has multiple lines), which then splits into many assemblies (many-to-many). Most manufactured parts are used in multiple assemblies and nearly all assemblies use multiple parts. Customized devices, such as computers, are good examples. T-plants suffer from both synchronization problems of A-plants (parts aren’t all available for an assembly) and the robbing problems of V-plants (one assembly steals parts that could have been used in another).

For non-material systems, one can draw the flow of work or the flow of processes and arrive at similar basic structures. A project, for example is an A-shaped sequence of work, culminating in a delivered project.
All information is taken from Wikipedia

Posted in Improvement, Kaizen, Management Philosophy, Quality, Supply Chain Management, The Goal | 175 Comments »

Reducing Healthcare Costs through Supply Chain Management

Monday, March 29th, 2010

Reducing Healthcare Costs through Supply Chain Management
Published: March 17, 2010 in Knowledge@W.P. Carey

In the national debate over how to make U.S. healthcare more efficient, one promising area for reform is often overlooked: supplies. Whether the products are knee implants, pacemakers, or expensive medications, hospitals have long purchased whatever doctors desired with little discussion among the parties involved about cost.

Researchers at the W. P. Carey School Business are trying to unravel the tangled supply relationships that drive up the cost of healthcare, burdening hospitals and frustrating efforts to expand coverage among the uninsured.

“We look very strategically at purchasing, distribution, and the other related areas,” says Eugene Schneller, professor at the School of Health Management and Policy and co-director of the Health Sector Supply Chain Research Consortium. “We consider how they affect efficiency and effectiveness, as well as the possibilities for improving clinical care.”

Co-director Natalia Wilson says, “The cost of supplies is second only to the cost of labor for hospitals. To take care of a patient in a hospital, there are all kinds of products involved, from cotton balls to bandages to hip implants.”

Aligning interests and saving money

Supplies are an important and growing part of hospital budgets. According to the Association for Healthcare Resource and Materials Management, the cost of supplies jumped nearly 40 percent between 2003 and 2005 and now represents as much as 31 percent of a hospital’s expenses on a per case basis.

Jonathan Ketcham, assistant professor at the School of Health Management and Policy, has found in his research that the runaway cost of supplies is due, to a large extent, to the fact that doctors and hospitals are not in a position to cooperate. In areas of medicine with highest supply costs — notably cardiology and orthopedics — physicians determine what devices and drugs are used, but hospitals pay for them.

“You have misaligned incentives between hospitals and physicians,” Ketcham says

Ketcham has been studying the practice of “gainsharing,” in which hospitals reward doctors when efficiencies bring down costs. In gainsharing, hospitals and doctors divide savings from improved efficiencies.

Ketcham recently received a two-year, $500,000 federal grant to study gainsharing experiments and other issues related to supply costs.

Supply chain lessons for healthcare

Supply chain management — the coordination of businesses and processes involved in producing and delivering a product or service — has been widely used in other industries for decades. Many businesses, retailers in particular, have attributed their success to effective supply chain management.

But supply chain management in healthcare has lagged. In part, this is because healthcare deals with finished products, according to Schneller. Unlike an auto manufacturer, which can ask suppliers to design a specific kind of brake for a vehicle, hospitals usually have to take what suppliers have off the shelf.

“It’s also an industry where supplies have not been seen as assets, and if you don’t see something as an asset, you probably don’t manage it,” Schneller says.

The consortium has been working to build the research base that will help healthcare leverage supply management. Much of the consortium’s attention has been focused on what are known as “supply-intensive admissions,” cases in which supplies represent between 50 and 80 percent of the cost of the procedures. Joint replacements and cardiac implants typically fall into this category.

“The reason we’ve worked in that area is that from a policy perspective, it’s one of the highest costs areas in American medicine and one of the fastest growing,” Schneller says. He points out that it is the ability for suppliers, physicians and hospitals to mutually find value in their transactions that will allow the health care industry to take advantages of the efficiencies associated with strategic supply chain management. As long as it is a “zero-sum game” it will be a contentious set of relationships.

One approach that has promise, according to researchers, is standardization of products. If physicians can agree on common products, such as for joint replacement, then costs can be brought down considerably, researchers at the consortium have found.

“A Chevy and a Ferrari will both get you to the grocery store,” says Schneller. “Are they the same car? No. Are they equivalent in terms of doing something? Probably.”

Sharing the benefits of efficiency

Ketcham is investigating whether gainsharing is an effective approach to improving the value of spending on supplies. “There is a wide spectrum of approaches hospitals can use to align incentives. Gainsharing is one of the few where cash can actually change hands,” he says.

The practice has faced legal barriers. The Inspector General of the U.S. Department of Health and Human Services has found gainsharing to violate anti-kickback and other federal regulations. Hospitals that wish to use gainsharing must get exemptions from the inspector general, but with the federal government increasingly interested in cutting costs, exemptions have not been extremely difficult to obtain. The U.S. Medicare program has authorized experimental gainsharing programs.

Ketcham has studied the effectiveness of gainsharing at 13 different hospitals where cardiology departments used stents for clogged arteries. In those experiments, gainsharing functioned as it was designed, according to Ketcham.

“It led to cost reductions of just over 7 percent per stent patient, and we didn’t find evidence that it worsens quality of care or access to care,” he says.

Working together to save money and serve patients

Getting hospitals, doctors, and other interests in healthcare to coordinate their efforts is a key to improving supply chains and saving money, according to researchers.

“There are a number of players so it makes it complex,” says Wilson, a research associate at the School of Health Management and Policy and physician. “Traditionally, they have functioned in separate silos. Improving efficiency and collaboration is very important.”

In a paper published in the journal Clinical Orthopaedics and Related Research, Schneller and Wilson detail the mistrust and misunderstanding that have characterized relationships between hospitals and orthopedic surgeons. Dependencies have developed by both physicians and hospitals on suppliers of products used in surgery. Doctors may need to reevaluate their roles, according to the researchers.

“The challenge for the profession is to redefine professionalism, accountability, and autonomy in the face of these changes and challenges,” Schneller and Wilson write. What is ideal, of course, is for suppliers to want to compete on the basis of the value they bring through various support efforts as well as demonstrated quality of their product.

Schneller maintains that hospitals could benefit by reaching out to physicians, inviting them to become partners in improving healthcare supply chains. Doctors are responsive to well-presented, reliable information about products, he says.

Up from the basement

The recession has created both challenges and opportunities for those overseeing supply chains in healthcare, according to researchers. With budgets tight, hospitals must monitor closely where savings can be achieved and are increasingly looking to supply chain.

With more medical records becoming electronic, some paper materials are redundant, the researchers say. And some items used in medical procedures can be reused, saving hospitals up to a million dollars a year and reducing waste going to landfills, according to Wilson and Schneller.

“It has been said that the recession is the hospital administrator’s best friend — or the supply chain manager’s best friend,” Schneller says.

According to Wilson and Schneller, supply chain management in healthcare is finally coming out of the hospital basement, where it has been relegated for years. In many hospitals, the manager of supply chain is being given the title of vice president, Schneller notes. Wilson says that people throughout the healthcare field are recognizing the benefits of managing supply chains efficiently and effectively.

“This is a critically important area because it highly impacts patient care,” Wilson says. “High quality care is the number one goal for everyone.”

Bottom Line:

* Supplies are the second leading cost to hospitals after labor in providing patient care. Managing supply chains in healthcare is been a neglected area in efforts to improve efficiency and save costs.
* Researchers at the W. P. Carey School of Business, working in collaboration with key players in the industry, are exploring ways to improve the efficiency of supply chain management in healthcare.
* The Health Sector Supply Chain Research Consortium is the only structured academic program in the United States focused on healthcare supply chains.
* Some of the leading companies in U.S. and regional healthcare are members of the consortium. They include Catholic Health Initiatives, Hospital Corporation of America, Ministry Health Care, Premier and Scottsdale Healthcare; as well as group purchasing organizations GHX, Novation, Owens & Minor and Yankee Alliance; and software and business intelligence company Craneware.
* As the consortium expands its collaboration with the supplier community, a greater emphasis will be on the ability of supply channel partners to craft “win-win” solutions.
* The biggest supply costs to hospitals flow from so-called “supply-intensive admissions,” typically orthopedic or cardiac procedures involving artificial joints, implants and stents. Standardizing some of these supplies could bring hospitals substantial savings.
* Gainsharing is a way of aligning the interests of hospitals and doctors. In gainsharing, hospitals reward doctors for efficiencies by sharing some of the money saved.
* Improving health sector supply chains requires physicians, hospitals, and others in the healthcare field to reassess the roles and collaborative efforts.

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Posted in Healthcare, Improvement, Kaizen, Supply Chain Management | 71 Comments »

Competition: A Procurement Perspective

Tuesday, February 23rd, 2010

Procurement_base
Author(s):

Timothy M. Laseter, Ph.D.
Timothy M. Laseter, Ph.D. teaches at a number of leading business schools, including the Darden Graduate School of Business at the University of Virginia in Charlottesville.

Raj Sharma
Raj Sharma is the president of Censeo Consulting Group as well as the Federal Acquisition Innovation and Reform (FAIR) Institute, both in Washington, D.C.

February 2010, Inside Supply Management® Vol. 21, No. 2, page 18

How is supplier competition defined in your organization: the right supplier for the need, or for the price?

Competition has been the linchpin of capitalism since the days of Adam Smith. Indeed, in his groundbreaking book The Wealth of Nations, Smith proclaimed, “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men.” Competition ensures that economic resources go to the strongest companies and accordingly advance the economy as a whole.

But competition in the procurement world often focuses on squeezing supplier margins rather than building strong companies. Supply managers pit companies against one another to achieve the lowest prices without sufficient thought to supplier qualifications and the underlying drivers of cost. By employing readily available, self-service reverse-auction technologies, the buyer can easily include global suppliers with the goal of pushing the current suppliers to bid down to variable cost.

At the other extreme, supply managers emphasize long-term relationships and forego competition in exchange for cooperation. Taking inspiration from the success of Japanese manufacturers like Toyota and Honda, these purchasing professionals seek to reduce the supply base to a few “supplier partners” that collaborate on waste elimination. Unfortunately, the quest for a reduced supply base usually leads to a focus on large suppliers that can cover a broad geographic and/or product-service scope rather than the best supplier for the specific location or need.

Though the “invisible hand” of competition remains the linchpin of capitalism at a macro level, supply management professionals need to employ a more visible competitive approach focused on building the right supply base. Competition within the wrong supply base does not produce the lowest cost or prices; in the worst case, it can yield supplier bankruptcies, which put the supply management organization at risk. The most effective companies build a competitive supply base, not simply a competitive buying process. The latter is fairly straightforward; the former requires real skill.
The Cyclical Nature of Supplier Competition

A focus on supplier competition tends to run in cycles within the procurement community. Consider the automotive sector over the past 30 years as an example. In 1992, Jose Ignacio Lopez de Arriortua became the head of the General Motors (GM) Worldwide Purchasing Group, with a clear mandate to enhance competitive pressure on GM’s traditional supply base. Lopez had gained the notice of GM’s CEO Jack Smith through his success in reigniting competition among the stagnant and, at times, cozy relationship between GM and its European suppliers.

Lopez called together the company’s top suppliers (mostly U.S.-based organizations) and dramatically tore up a contract in front of the room. Lopez explained that past relationships meant nothing. Suppliers needed to compete for the US$50 billion that GM purchased each year. Though Lopez helped drive a billion dollars in savings to the bottom line of GM, a backlash ensued. Suppliers complained that GM pitted them against unqualified suppliers to drive down their pricing. Others noted that while they continued to sell to GM, they now took their best ideas to GM’s competitors — including Japanese transplants Toyota and Honda.

Over time, the automotive supply base diversified its customer base away from the “Big Three” of General Motors, Ford and Chrysler (which today are known as the “Detroit Three”). Suppliers such as Johnson Controls began to serve the full suite of global vehicle producers and also acquired competitors to lessen their dependency on the likes of GM. In the mid-1990s, 31 suppliers accounted for 50 percent of automotive parts sales, but by the early part of this decade, the number had dropped to a mere 10 suppliers. Clearly, larger suppliers that have a broader customer base feel less pressure from any single customer — and, accordingly, simple price competition proves less effective.

Supplier collaboration came to dominate the supply management world at many companies during the early part of this decade. This became especially true as commodity prices shot through the roof due to growing demand from China. Supply managers became less concerned about price and, instead, simply sought continuity of supply at any price. Of course, commodity prices cycle, and the recent recession has shifted the supply and demand balance back in favor of the buyer. As such, supplier competition is on the rise again.

Unfortunately, supplier bankruptcies are also on the rise. According to U.S. Bankruptcy Court data, bankruptcy filings in 2008 totaled 44,000 — up 57 percent over 2007. Dun & Bradstreet suggests that the government numbers dramatically underestimate the true total. Considering the full collection of businesses in its database, the total business failures probably topped 110,000 in 2008. Though official numbers for 2009 are not yet in, a twofold increase in bankruptcies over two years seems likely. Arguably, such failures offer evidence of the “invisible hand” at work driving the economy forward at the macro level over the long term. But, as an individual company or supply management professional, dependency on a bankrupt supplier can put a business at risk or, at a minimum, wipe out those savings squeezed from the supplier margins.

Portending another iteration of the cycle, the federal government, which purchases more than $500 billion in goods and services annually, has highlighted the need to increase competition as a core tenet of procurement reform. On March 9, 2009, the Obama administration issued a presidential memorandum to the heads of all government agencies highlighting its concern over the growth of sole-source contracts and a decrease in competition for government work. Recent guidance emphasizes processes for increasing competition but does not clearly address a key issue: Barriers to entry sometimes limit the ability of the most qualified suppliers from competing.
From Competitive Bidding to a Competitive Supply Base

Whether you are a commercial enterprise or the federal government, the goal should not be to create a more competitive bidding process. Instead, the goal should be to create a dynamic, competitive supply base. Free and open competition can help… but only in the right context.

Ensuring a competitive supply base requires four fundamentals. Without them, competitive bidding can do as much harm as good:

1. Understand the sources of value creation.
2. Find and attract the best suppliers.
3. Align incentives to create value.
4. Collaborate to achieve results.

Understand the sources of value creation. Before launching any form of competitive bid, supply managers need to focus on two critical activities. First, they must define the product or service requirements by truly understanding the performance objectives of the customer (either external, but more likely internal). Second, supply management professionals must understand the sources of value creation based not only upon customer needs but also supplier cost drivers. Too often, supply managers simply start with written specs but lack a deep understanding of the need or the drivers of the requirements. For example:

* An automotive brakes supplier specified full paint coating for all of its springs. Upon investigation, the supplier explained that paint did not provide the desired rust protection once the spring was installed, and that an oil dip would be more effective and less costly.

* In the services sector, maintenance contracts often set a service level for parts availability without an appreciation of the real cost of the downtime. At an oil company, certain equipment failures, such as a main production pipeline, could shut down the entire operation at an enormous cost. But for other equipment, such as a single wellhead (a pressure-containing component), downtime can be less costly as the oil pools during the shutdown and flows at an above-average rate for some time once the equipment starts up again.

Find and attract the best suppliers. Understanding the drivers of requirements and sources of value requires a supply manager with deep knowledge of the product or service and the supply base. Supply management professionals must work closely with customers to understand their needs and then go into the field to find the best suppliers. Too many supply management professionals simply reach out to the same set of suppliers. Though such bidding may give the impression of competition, it tends to be an illusion. For example, “full and open competition” in the government often results in the same set of players, not necessarily the most qualified in the industry, competing for government work. It can be hard for supply managers to attract the most qualified suppliers due to the burdensome regulations imposed by Federal Acquisition Regulations (FAR). No amount of bidding will help if the competition exists among noncompetitive suppliers. On the opposite end of the spectrum, when Honda built its first U.S. manufacturing plant in Marysville, Ohio, supply managers visited hundreds of suppliers, seeking those with the right technology, and more important, the right management commitment to become world-class suppliers.

Align incentives to create value. Once a company has attracted the best suppliers based upon an understanding of the true requirements and sources of value, the challenge becomes aligning incentives to capture the value — which can include incentives within the organization as well as across the supply chain. Many supply management professionals stick with the same suppliers because their internal customers insist that no one knows the company like the incumbent. Competition among suppliers can provide a serious “stick,” but a “carrot” can also be effective. Rather than constantly bidding out work in hopes of finding better suppliers, the best companies set long-term improvement goals for the supplier and share the savings. Of course, setting realistic goals and capturing your share of the value depends upon that deep understanding of the requirements and the sources of value.

Collaborate to achieve results. Finally, let’s not forget that a competitive supply base requires ongoing collaborative work. Supply managers who assume their job is done upon contract award will not build the best supply base. Instead, leading companies select their supplier strategically — that is, with a long-term perspective — and then take a long-term view to develop that supply base. They invest in shared cost reduction, joint product development and collaborative planning.

Take the infamous case of the cancelled presidential helicopter in 2009. The contract was awarded through a competitive bid between Sikorsky and a consortium comprised of many European companies — because no other combination could conceivably produce the design, which represented a major step-function advancement over the existing Marine One fleet. Unfortunately, the selected consortium was unable to meet promised milestones and cost targets, which were probably overly ambitious to start with. A lack of competition was not the issue, but rather an inability to collaborate to produce a feasible design at an agreed target cost.

Ongoing efforts working with strategic suppliers deepen supply management professionals’ knowledge of the sources of value from the supply base, which reinforces the four fundamentals and reduces the necessity for the relatively crude tool of price-based competition.
Driving Change

Competition is necessary, but by itself is not sufficient. Even the Japanese leaders in supplier collaboration maintain more than one supplier for a given commodity. Competitive tension certainly prevents complacency among the supply base. But, a single-minded focus on competition — particularly among a marginal supply base — can wreak havoc by forcing suppliers to cut corners at best or put them out of business at worst. To manage the balance, organizations need to move toward a focus on creating a competitive supply base rather than creating a competitive bidding process. The distinction is far from trivial.

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Posted in Improvement, Procurement, Supply Chain Management | 148 Comments »

What Can We Learn from Red Bead Experiment

Tuesday, January 19th, 2010

LESSONS LEARNED FROM THE RED BEAD EXPERIMENT

1) It’s the system, not the workers. If you want to improve performance, you must work on the system.

Red beads were the result of a bad system; the Willing Workers were not the problem. The system is the problem. Dr. Deming stated 94 percent of the problems come from the system rather than the worker. Yet most efforts at improvement are aimed at the worker.

2) Quality is made at the top. Quality is an outcome of the system. Top management owns the system.

The systems developed by top mangers of an organization have far greater impact on the success of the organization than the best efforts exerted by Willing Workers. The decision to produce white beads in the first place; the decision to purchase beads from a particular supplier; the decision to use rigid procedures; and the decision to rely on mass inspection – all these decisions made by top management resulted in a system that contributed more than the Willing Workers to the waste, the lack of quality, and to going out of business.

3) Numerical goals and production standards can be meaningless. The number of red beads produced is determined by the process, not by the standard.

The production standard of three red beads per day was impossible to achieve. The Willing Workers could not affect the number of beads produced; meeting the standard was beyond their control. The “Voice of the Customer”, translated by management into a goal of 3 red beads or less, had no effect on the number of red or white beads produced. No method was given.

Even if the goal is “possible”, there is little to be gained by announcing such a goal to the workforce. If the goal is based upon what you expect can happen, then 50% of the time you will come in better than the goal, and 50% of the time you will come in worse (and set yourself up for failure). If you “pad” the goal to provide a margin for expected fluctuations in results, then the goal probably is no longer “challenging”.

If higher quality standards are required – a lower defect rate, for example – then the production process must be improved to achieve the standard. Management must provide the method.

4) Rewarding or punishing the Willing Workers had no effect on the outcome. Extrinsic motivation is not effective.

Rewarding or punishing the Willing Workers had no effect on red bead production. Fear was not the answer.

All the red beads produced were an outcome of the system’s performance, not the individual Willing Workers. Yet the Foreman gave bonus pay and put people on probation supposedly as rewards and punishment for performance. The Foreman was actually rewarding and punishing the performance of the process, not the Willing Workers.

Quality is achieved when workers have “Joy in Their Work” – are motivated from within (intrinsic motivation), not by rewards or punishment.

5) We can use statistics to create a quality control chart and look for problem areas and to predict future performance.

Development of a Statistical Process Control (SPC) control chart with control limits will show us if our production system is stable – working in a state of control. If the system is stable, we can predict future performance with some certainty.

The red bead production system turned out to be stable – all points within the upper and lower control limits. The variation and level of output of the Willing Workers, under continuance of the same system, were predictable. Costs were predictable.

6) A faulty item is not a signal of “special” causes. A process can be stable, in-control and be producing 100 percent defective items. “Defects” are defined by specification, not by process.

The production system produced about 10 red beads or defects per run. Yet the entire process was working in a state of control. The red beads produced were not a signal of special cause. The varying number of red beads produced in each run was caused by random variation – pure chance.

It is wrong to assume that every faulty item, any failure, and any problem is due to special causes and that corrective action is required. This type of thinking results in fire-fighting with no permanent improvement achieved. We may reward fire-fighters, but most fire-fighters fall into the trap of being so caught up in the fire fighting that they allow other fires to start.

Defects may result from random variation of a stable process that is capable of achieving the required specifications – an incapable process. We must improve the process to produce a product meeting specifications.

7) Rigid and precise procedures are not sufficient to produce the desired quality.

The Willing Workers followed the procedures prescribed by the foreman. “Procedure compliance is mandatory.” Despite following rigid procedures, quality was not achieved. The Willing Workers had no chance to offer suggestions for process improvement. Too many red beads were produced – the plant closed down.

The entire workforce must be engaged in process improvement in order to help get rid of the red beads, to stay in business and to create more jobs. Everyone has an obligation to improve the system, and thus to improve his own performance and everyone else’s. The Willing Workers were victims of the process. They could not, under the rules laid down by the foreman, improve their performance.

Only management can change a system or empower employees to change the system. Dr. Deming asked, “How can a man (or woman) do it right the first time when the incoming material is off gauge, off color, or otherwise defective, or if his machine is not in good order?”

8) Keeping the place open with only the “best” workers was acting on “superstitious” knowledge.

Management acted on the outcome of the process itself. Acting without clear evidence, management believed the “best” workers in the past would be the “best” workers in the future. Differences in red bead production were due entirely to the process, not to differences in the Willing Workers.

“What is the purpose of management?” Dr. Deming asks. “Not to play games but to use numbers so that we can predict the future.”

9) Management was “tampering” with the system by rewarding and punishing the Willing Workers.

To react to an outcome as if it came from a special cause when it actually came from a common cause of variation is “tampering” with the system.

Action taken on a stable system in response to variation within the control limits, in an effort to compensate for this variation, is tampering. Tampering will inevitably increase the variation and increase costs. This advice holds even if the stable system is producing faulty items.

Rewarding and punishing Willing Workers for perceived good and bad performance is tampering with the system. When errors go down, we give a bonus, or maybe we give a pizza party. We determine which workers have the highest error rate and then we take corrective action – discipline or termination. This practice is wrong – even worse, it is destructive.

10) People are not always the dominant source of variability.

All the variation – differences between Willing Workers in the production of red beads, and the variation day to day of any Willing Worker – came entirely from the system itself. There was no evidence that any one worker was better than another. Variation is part of any process. Even with identical or similar tools, tasks, and talents, production will vary. There is always variation.

The system consisted of the vessels, paddle, red beads, white beads, instructions and procedures. The environment, equipment, materials and procedures all contribute to variation. The Willing Worker becomes part of the system subject to variation. The Willing Workers had put into the job all that they had to offer. They could not, under the circumstances, do better. The variation in performance arises from the system itself, not from the Willing Workers.

In the Red Bead Experiment Dr. Deming has purposefully eliminated the source of variation that many think is always the dominant source: that is, the people.

The common wisdom is that if only people did not make so many mistakes, there would not be so many problems. But even with the variation contributed by the people reduced to zero, there are still too many red beads.

11) Slogans, Exhortations and Posters Are At Best Useless To The Willing Worker.

Motivational posters had no effect on red bead production.

Slogans like “Do it right the first time” are an insult. Exhortations and posters generate frustration and resentment. They advertise to the production worker that management is unaware of barriers to pride of workmanship.

If we have set up our business correctly, “it” will be done right the first time. In that case the slogan is useless.

If we did not set it up correctly, there is nothing that the Willing Worker can do to make it right the first time. If we didn’t set up the business properly, a slogan such as this will only frustrate the worker. If the worker tries to make changes, he can only make the result worse by tampering.

Thoughts from a Willing Worker named Ann. A Willing Worker named Ann, after the experiment on the Red Beads came to a close, expressed to Dr. Deming some provocative thoughts. She wrote her thoughts down in the following letter:

When I was a Willing Worker on the Red Beads, I learned more than statistical theory. I knew that the system would not allow me to meet the goal, but I still felt that I could. I wished to. I tried so hard. I felt responsibility: others depended on me. My logic and emotions conflicted, and I was frustrated. Logic said there was no way to succeed. Emotion said that I could by trying.

After it was over, I thought about my own work situation. How often are people in a situation that they can not govern, but wish to do their best? And people do their best. And after a while, what happens to their drive, their care, and their desire?

(From The New Economics by W. Edwards Deming)

RED BEAD EXPERIMENT RESOURCES

From the Master:

1) Out of the Crisis, by W. Edwards Deming
Published by the Massachusetts Institute of Technology, 1986
Center for Advanced Engineering Study, Cambridge, A 02139

2) The New Economics For Industry, Government, Education, by W. Edwards
Deming.
Published by the Massachusetts Institute of Technology, 1993
Center for Advanced Engineering Study, Cambridge, A 02139

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Deming’s 14 points

Tuesday, January 19th, 2010

deming

The 14 points for management (Out of the Crisis, Ch.2) in industry, education and government follow naturally as application of this outside knowledge, for transformation from the present Western style of management to one of optimization.

Origin of the 14 points.
The 14 points are the basis for transformation of American industry. It will not suffice merely to solve problems, big or little. Adoption and action on the 14 points are a signal that the management intend to stay in business and aim to protect investors and jobs. Such a system formed the basis for lessons for top management in Japan in 1950 and in subsequent years (see pp. 1-6 and the Appendix).

The 14 points apply anywhere, to small organizations as well as to large ones, to the service industry as well as to manufacturing. They apply to a division within a company.

The 14 points.

1. Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs.
2. Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.
3. Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.
4. End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.
5. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.
6. Institute training on the job.
7. Institute leadership (see Point 12 and Ch. 8). The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
8. Drive out fear, so that everyone may work effectively for the company (see Ch. 3).
9. Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.
10. Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.

* Eliminate work standards (quotas) on the factory floor. Substitute leadership.
* Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.

11. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality.
12. Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual or merit rating and of management by objective (see Ch. 3).
13. Institute a vigorous program of education and self-improvement.
14. Put everybody in the company to work to accomplish the transformation. The transformation is everybody’s job.

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Toyota’s Supply Chain System

Monday, November 23rd, 2009

toyota
Today, consumers have more choices than ever to obtain their goods and services. Consumers are looking for value in the products that they purchase. This is high quality at a low price. Increased competition in all industries is forcing business to redirect their focus towards their consumers. This customer-driven focus is forcing business to redesign their process to be more effective and efficient. Toyota, a leader in the automobile industry, has obtained success through the implementation of a lean production system. This system eliminates waste, reduces costs, and improves customer satisfaction through shortened lead times. Toyota’s flexible production system gives them the ability to react to demand fluctuations and increases their market response times. Their quick response to market demands while keeping their inventories low is a major component for success in this customer-driven marketplace.
The Toyota production system (TPS) was founded by Tailchi Ohno in the 1950’s. The system is based on two pillars, Just-in-Time and Jidoka. Just-in-Time is a philosophy that is based on little inventory, first-in/first out flows, and only feeding the production process with the right products, at the right time, and in the right amounts. Jidoka is automation with a human touch. When defects occur in the product/part, the employees can stop the production and correct the problem before it continues and becomes apart of the end product. The drivers of these two pillars are Heijunka, Standardized work, and Kaizen. Heijunka is the level scheduling of production and maintains a continues flow of goods through the system. Standardized work refers to a simplified process that is outlined by procedures that ensure quality. Kaizen is the continues improvement of processes. Employees make suggestions about the process because they work with them every day and know what problems exist. This production system makes up the Toyota house and the goals are high quality, low cost, and short lead times. Supplier relations are an important part of the Toyota Way. Toyota treats their suppliers as partners and works with them to develop their core competencies and improve their processes. Having a limited number of suppliers in their supply base allows them to develop close relationships with them and improves the quality of parts received.
Supply chain managers that understand Toyota’s production system will be able to implement it in their business practices to achieve better processes and greater market- share. In these unstable economic times a change to a lean production system is essential to maintain success in all industries. The Toyota production system provides a framework for supply chain mangers to achieve a competitive advantage in these unsteady economic times as well as in flourishing economic times.

Toyota is one of the ten largest companies in the world and is a leader in the automobile industry. In 2007, it was the largest car manufacturer and had more profits than all the other automobile companies combined (Toyota Production System). Toyota achieved this status due to their exceptional ability to implement a lean production system. The Toyota production system (TPS) has provided quality, low cost products with short lead times. The TPS is made up of two pillars, Just-in-Time and Jidoka. These two pillars are driven by Heijunka, Standardized Work, and Kaizen (See Appendix Figure A). The overall system enables Toyota to lead the industry with exceptional performance and unprecedented profits.

Just-in-Time
Just-in-Time (JIT) is a strategy that focuses on reducing inventory, improving quality, and increasing efficiency in the production system. Customer demand drives the system to produce only what is needed, when it is needed, and in the right amount needed. It utilizes a pull system in which materials are only released when the flowing process signals the need for material release. These signals are referred to as Kanban. Kanban tells the production processes when to make or acquire the next part. These signals can be visual cues (an empty shelf) or tickets. A JIT system reinforces quality, cost reduction, and productivity. Quality must be checked at every step in the process so that first-in/first out flow is maintained and rework is eliminated. Cost reduction is achieved by reducing waste such as inventory, excess warehousing, scrapped parts, and excess labor costs. Also, JIT maximizes productivity because the right parts and materials are delivered in the right amounts at the right times. When implemented correctly, JIT can give companies a competitive advantage (Toyota Production System).
Toyota Motor Corporation is a prime example of a company that implemented JIT with tremendous success. They adopted the system from Piggly Wiggly supermarkets in the 1950’s. Taiichi Ohno, chief engineer at Toyota, was concerned with the limited amounts of warehousing available in Japan due to the limited amounts of land available. He discovered that JIT would be a plausible system because it allowed them to reduce their lot sizes to accommodate the limited warehousing space. Their critical bottleneck was discovered to be the retooling process which would take several days to change stamping dies. To overcome this bottleneck, Toyota implemented a strategy called Single Minute Exchange of Die (SMED). This strategy made the retooling process go from days to hours to change dies. Identifying this critical bottleneck in the production process enabled Toyota to use lot sizes as little as one vehicle (Just-in-Time).
Toyota’s 7 JIT principles
• Reduced setup times- no value is added during setups so Toyota trained workers to do their own setups which reduced times from days to minutes
• Small-Lot Production-small lot sizes enabled Toyota to realize lower inventory costs, shorter lead times, and lower defect costs.
• Employee Involvement and Empowerment-Toyota trained their team to do specialized tasks and even minor equipment repair.
• Quality at the Source-Employees are given the responsibility of identifying and fixing quality at each stage in the production process.
• Equipment Maintenance-Toyota operators are responsible for doing routine maintenance
• Pull Production-Products are transferred to the next stage only when they are needed which reduces inventory holding costs and reduces lead times.
• Supplier Involvement-Toyota helps their suppliers improve their production processes and treats them like partners. (Just-in-Time).
After the implementing of JIT, Toyota recognized huge amounts of extra cash flows. This primarily came from the low work-in-process inventory and high inventory turns. Customer satisfaction increased because of the short lead times usually a day or two. Also, most of the vehicles were built to order reducing the risk of unwanted inventory. Quality increased immensely due to the JIT system. Every part was designed to eliminate or widen tolerances and included quality controls. Parts were fixed as soon as they were noticed and the cost of defects reduced to practically zero. Overall, the JIT system greatly improved the production system for Toyota and enabled them to become an industry leader.
Jikoda
To become competitive with American and European automakers, Toyota recognized that it would have to automate its manufacturing facilities. The goal was to increase production and eliminate waste in greater volume. They found that even with automation, inspectors would be required to be at each machine to detect defects or malfunctions. The labor required in the factory did not decrease, leaving almost no difference between machines that were manually operated and the ones that were automated. When Toyota’s president, Taiichi Ohno, looked at his new machine shop, he saw that the workers were standing as if tied to the machines as if they owned them and he knew that changes had to be made. (Liker, 50)
This is where the principal of Jikoda comes into play. The word Jikoda has no exact English translation but it roughly means “automation with a human touch” or in other words, an automation or process that automatically stops when a defect, error or malfunction occurs. The term can be traced back to Sakichi Toyoda, founder of the Toyota group in the late 1800’s. He developed an automatic loom that would stop whenever a line would be missing or snapped, which eliminated defective fabric and increased production. From there the concept was applied to Toyota. Jikoda applies to the machinery and to the worker on the assembly line. “Automation with a human touch has an automatic stopping device if something goes wrong, when the process is over or defective item is manufactured, without this automatic stopping device the situation can get serious. If defects were created in large quantity, it would become difficult to control. We simply had to install a device that could prevent mass production of defective items” (Kanban, 70). When defects are detected by workers where no automatic stops are in place, they have a button to push that will stop the entire line. At this disruption in production, the workers can scramble to correct or repair the error. With machinery working with humans to detect and resolve defects, Jikoda has been pivotal in Toyotas continued improvement efforts.

Heijunka
Companies are striving for continuous flow of goods to reduce costs. In the real world demand fluctuates which causes uneven production flows and increased safety stock. Also, it causes labor increases and decrease because of the high/low production scheduling. Toyota invented a concept known as heijunka to level out the production.
Heijunka levels production in terms of product mix and product volume. It takes customer orders for a given time period and evenly disperses them so that the same amount is produced each day. (See Appendix Figure B)

Toyota developed five adaption steps that promote heijunka. If these steps are not implemented and followed major problems in the production process can arise.

1. Implement Green Stream/Red Stream or Fixed sequence, Fixed Volume-this is a fixed repeating schedule with the Green stream representing predictable demand products and the Red stream high value unpredictable demand products. This produces Every Product Every Cycle (EPEC) in production.
2. Faster fixed sequence with fixed volume-the streams remain the same but once familiar with the cycle speed of production can increase. For example, the repeating sequence is duplicated daily rather than monthly or weekly.
3. Fixed Sequence with unfixed volumes-Keeping the stream sequence the same but allowing sales to determine the volume within the sequences.
4. Unfixed sequence with fixed volume-The EPEC and sequence can now be flexible but still maintaining small batch sizes.
5. Unfixed sequence with fixed volume-moving to single piece flow of goods by utilizing a pull system. (Imai)

Toyota has achieved many benefits with the implementation of Heijunka. It has eliminated waste and lowered costs because of the level production schedule. In addition, the workforce will have level amounts of work and productivity will be stable.
Standardized Work
A standard is the best way things should be done within company. This represents the correct policy or procedure for doing a process or service. Setting Standards promotes products and services with the lowest cost, highest quality, and highest customer satisfaction. Toyota successfully has implemented standardized work to improve their processes. The standard condition ensures that quality is being met at every stage in the production process. For example, Norman Bodek stated,
“I noticed a woman on the factory floor putting nozzles onto rubber hoses. In front of her was a piece of wood around one inch thick and two feet by two feet. Onto the wood was the exact procedure of how the nozzle was to be inserted onto the hose. Also, on the wood were examples of the perfect finished piece of hose plus variations of the hose with errors. There were also the quality tolerances for her to check and there was space for her to write both the problems she detected and also a place for her to write suggestions on how to improve the process.” (Bodek).
This example clearly shows how Toyota has implemented standardized work into their processes. This simplification and step by step procedures assures better conforming products. Toyota has realized higher employee moral, higher quality, improved productivity, and a reduction in costs.
Kaizen
Quality is a race without a finish line describes the competitive business world and Japanese term Kaizen. Kaizen is a Japanese philosophy that focuses on continuous improvement throughout all aspects of life. When applied to the workplace, Kaizen activities continually improve all functions of a business, from manufacturing to management and from the CEO to the assembly line workers (Imai). In addition, Kaizen is the essential part of Toyota’s success as well as supply chain management. In today’s competitive business, customers want the best products, best service for their money. Products are driven by customer wants and needs. When there are so many companies in the market, quality plays an essential role in decision making. Founder of Procter and Gamble Company, William Procter said, “The first job we have is to turn out quality merchandise that consumers will buy and keep on buying. If we produce it efficiently and economically, we will earn a profit.” In addition, quality could be a competitive advantage. Competitive advantage makes a significant contribution to business success. Companies can always increase their quality. In this global world, companies will continue to grow and serve their customers if they only improve business processes, customer service, and product quality. Nowadays, quality is not a luxury. It is a necessity that each product has to carry. Toyota supply chain system is a live example of how Kaizen can improve a business. The Toyota way puts great emphasis on building a culture of stopping to fix problems to get the quality right the first time. It says that standardized tasks are the foundation for continuous improvement and employee empowerment.
Kaizen is a Japanese philosophy that is based on continuous improvement throughout all aspects of life. If Kaizen is implemented in a business, it may improve all business aspects which will increase overall quality. When overall quality is improved, companies will eliminate waste, decrease defect rates, and lower their production cost. Quality is a race without a finish line because there is unlimited potential for improvement.
Quality is an essential part of today’s competitive business. It is significant to Toyota and other companies because it improves their products and services which will increase market share and total profit. Toyota understands based on their experience that there is always ways to improve quality. It is important for a company to analyze their condition and make the best possible move based on their analysis. In addition, improved quality will reduce production cost, and it will help to establish brand image and loyalty. Toyota has a positive brand image because of quality and reliability of their products.
This philosophy of continuous improvement is also a main principle at Toyota. The strength of Kaizen is that everybody is apart of improvement. Even small inventions could increase product quality and overall improvement of the product. The assembly line plays an essential role in the auto industry. In the auto industry most of the defects occur on the assembly line; therefore, it is very important to have preventive and corrective quality controls. Toyota is a great example of integrating Kaizen to achieve production success. Kaizen is people-oriented and easy to implement, but it requires a long term commitment.
Kaizen has five main elements:
1. Teamwork
2. Personal discipline
3. Improved morale and work ethic
4. Quality circles
5. Improvements Suggestions
Toyota used these methods wisely. For example, they educated employees and defined every stage of production so each member in the organization understood the importance of team work. Toyota underlines the importance of team work which increases motivation. Toyota reinforces the idea that each job is important and how one job affects another.
Toyota created a comfortable work area to reduce defects and improves productivity. A clean work area plays a vital role in auto manufacturing; therefore, Toyota implemented preventive controls such as a dress code for people who work in manufacturing. Toyota understands very well the importance of quality that must be built into each part of the production process. 5S methodology is a part of Kaizen. It is a system to reduce waste and optimize productivity by maintaining an orderly workplace and using visual cues to achieve more consistent operational results (Productivity Press Development Team).
Toyota uses 5S methodology to organize and minimize items within a workplace. 5S consists of:
• Sort – Getting rid of unwanted items
• Simplify – Find proper location
• Shine – Clean workspace
• Standardize – Business process
• Sustain – Integration
See Appendix Figure D
With Kaizen each employee is a quality inspector; therefore, they can eliminate defects in a very short time and more importantly before the production is complete. Also, they can see the live status of production from computer monitors which are located throughout the production line. Toyota introduced the improved version of “quality gates”, a system to trap failed parts and redesign or revise them. It is not surprising that Toyota has developed a reputation for vehicle reliability and customer satisfaction. Also, Consumer Reports reported that Toyota was one of top five most reliable brands in its Annual Car Reliability Surveys.
Toyota used Kaizen philosophy in its supplier relations. Toyota is well aware of how supplier quality can affect the overall product. Toyota suppliers have been an essential part of their innovation and success. Kaizen philosophy and The Toyota Way are apart of their supplier relations; therefore, many of the cost-cutting ideas that made Toyota so successful came from suppliers. Toyota’s supply relations follow these essential practices:
• Conduct joint improvement activities
• Share information intensively
• Develop suppliers’ technical capabilities
• Supervise suppliers
• Turn supplier rivalry into opportunity
• Understand how suppliers work
Figure E in the appendix shows the essential parts of Toyota’s Supplier relations form of a supplier partnering hierarchy. A closer look at the practices in the supplier-partnering hierarchy underlines Toyota’s commitment to forming excellent supplier relations.
The Toyota Way
The business world is admiring Toyota’s supply chain system, management style, and Toyota’s way of business. They call it The Toyota Way. The Toyota Way can be briefly summarized through the two components that support it: “Continuous Improvement” and “Respect for People.” Continuous improvement often called Kaizen, defines Toyota’s basic approach towards doing business – challenge everything. More important than the actual improvements that individuals contribute, the true value of continuous improvement is in creating an atmosphere of continuous learning and an environment that not only accepts, but actually embraces change. Such an environment can only be created where there is respect for people – hence the second pillar of the Toyota Way (Liker).
The Toyota Way has four fundamentals:
• Philosophy: Long-term philosophy of adding value to associates, partners, customers, and society
• Process: The right process will produce the right results plus eliminating waste
• People: Add value to the organization by challenging your people and partners to grow
• Problem solving: Continuously solving root problems drives organizational learning throughout the enterprise.
See Appendix figure C
Supplier Quality
Toyota’s suppliers are held to very high standards and with good reason. Toyota relies on outside suppliers for about 80% of their manufacturing. The reason for this is simple, by outsourcing the manufacture of most components, Toyota can save money on fixed assets for manufacturing and labor while getting the best price/quality among competing suppliers who have become specialized in the production of specific components.
While many other auto companies have been following a similar game plan, Toyota has stood out among the others and is ranked higher by suppliers then any other US customer. While Toyota is a favorite among suppliers, they’re also ranked as the customer with the highest standards to adhere to in terms of timeliness, innovation, cost reduction and quality. There are reasons why suppliers regard Toyota so highly despite their demanding criteria that is often too difficult for suppliers to adhere to:
• They work with new or struggling suppliers to get them up to speed.
• They make commitments to suppliers early in the product development process and make good on promises.
• They are the best at balancing a focus on cost with a focus on quality compared to other auto makers.
• Honors the contracts – does not renege on them to save cost.
• Treats suppliers respectfully and respects the integrity of intellectual property.
• Sets aggressive price reduction targets, but works with suppliers to achieve these targets. (Liker, 181).
Toyota deals with suppliers on a hierarchal tiered system and communicates mainly with the top tier or partner level in the supplier ladder. The partner is a self contained supplier that works on a collaborative level with Toyota and supplies whole subsystems. The partner supplier in turn, deals with those on the “mature” level where they get complex assemblies. The simple assemblies are delivered to the mature supplier by the consultative supplier and they get basic components from contractual suppliers. This model of interlocking companies or “keiretsu” is how Toyota keeps track and control over its whole complex supplier network. To become part of this network is very complicated and few measure up to Toyota’s high standards. When they do, they are generally awarded a small contract for a lower end vehicle. As the firm improves its cost, quality and reputation with Toyota they will be awarded more lucrative contracts. The process is long and can sometimes take as long as 10 years before Toyota will consider a supplier to provide components for higher end, large contracts. In conclusion, despite being a very demanding customer, Toyota’s reputation of improvement and relationship building with suppliers is what has given them the advantage in the automotive market.
Implementing the Toyota production System in other Businesses
Many companies want a reduction in labor costs, increased productivity, higher quality, and better employee motivation. The Toyota production system (TPS) can be applied to any industry, any culture, and any work situation (Kitano). The underlying theme of TPS is “do it right the first time”. Other businesses need to realize that rework and repair leads to low quality and high costs. Following the JIT philosophy companies need to use a pull system. This means that products conform to a step-by-step process with one step completed before the other step is started. Heijunka will level the production scheduling allowing JIT to be fully recognized. Also, standardized work will assure quality and simplify the process. Using improvement teams (Kaizen) will promote continuous improvement in the process and promote employee moral. Businesses need to listen to their customers’ demands and get things “done right the first time” (Kitano). Management must plan, do, check, and take action to realize the full poetical of a lean production system.
• Plan-avoid unreasonableness (MURI)
• Do-control inconsistencies (MURA)
• Check-find or avoid waste (MUDA)
• Action-motivation and determination of management
Overall, businesses looking to reduce waste, increase productivity, and lower costs need to implement a lean production system like the TPS.

Conclusion
Overall, Toyota has implemented a production system that allows them to sustain long term growth and increased profits. Even in unstable economic times, Toyota maintains their edge over other companies because of their strong commitment to lean production systems. Their production system lowers their risks when demand is fluctuating or even declining. Supply Chain Managers need to recognize the benefits of a lean production system and how it will positively impact their businesses. Today’s customers have more choices about where to obtain their products so businesses need to implement tight, controlled processes. Supply chain managers understanding the TPS model will be able to achieve low costs, increased quality, and increased customer satisfaction.
Bibliography

“5S Methodology” Chart. Lean and the Environment. 2006. EPA 18 Nov. 2008

Imai, Masaaki. Kaizen: The Key to Japan’s Competitive Success. New York: Random
House, 1986.

Liker, Jeffrey K. The Toyota Way: 14 Management Principles from the World’s Greatest
Manufacturer. New York: McGraw-Hill Professional, 2004.

Productivity Press Development Team. 5S for Operators: 5 Pillars of the Visual
Workplace. Portland, Oregon: Productivity Press, 1996.

Shimizu, Koichi. Transforming Kaizen at Toyota. Okayama: Okayama University, 2000.

Kitano, Jeff. Toyota Production System, “One-by-One Confirmation”. Univerity of
Kentucky, 1997.

“Production Leveling”. Wikipedia. 2002. EPA 18 Nov.
2008.

“Toyota production System”. Wikipedia. 2002. EPA 18
Nov. 2008.

“Just-in-Time”. Wikipedia. 2002. EPA 18 Nov. 2008.

“Heijunka: Leveling the Load”. < http://www.emsstrategies.com/dm090804article.html>
2005.

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Dell and Mass Customization

Saturday, November 21st, 2009

Dell’s success simply mass customization 





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Introduction to Quality

Thursday, November 19th, 2009

“The first job we have is to turn out quality merchandise that consumers will buy and keep on buying. If we produce it efficiently and economically, we will earn a profit, in which you will share.”
- William Cooper Procter

 

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5S The Japanese Management Philosophy

Tuesday, November 17th, 2009

5s

Introduction
5S is a system to reduce waste and optimize productivity through maintaining an orderly workplace and using visual cues to achieve more consistent operational results. Implementation of this method “cleans up” and organizes the workplace basically in its existing configuration, and it is typically the first lean method which organizations implement.

The 5S pillars, Sort (Seiri), Set in Order (Seiton), Shine (Seiso), Standardize (Seiketsu), and Sustain (Shitsuke), provide a methodology for organizing, cleaning, developing, and sustaining a productive work environment. In the daily work of a company, routines that maintain organization and orderliness are essential to a smooth and efficient flow of activities. This lean method encourages workers to improve their working conditions and helps them to learn to reduce waste, unplanned downtime, and in-process inventory.

A typical 5S implementation would result in significant reductions in the square footage of space needed for existing operations. It also would result in the organization of tools and materials into labeled and color coded storage locations, as well as “kits” that contain just what is needed to perform a task. 5S provides the foundation on which other lean methods, such as TPM, cellular manufacturing, just-in-time production, and six sigma can be introduced.

Method and Implementation Approach
5S is a cyclical methodology: sort, set in order, shine, standardize, sustain the cycle. This results in continuous improvement.

The 5S Pillars

Sort
Sort, the first S, focuses on eliminating unnecessary items from the workplace that are not needed for current production operations. An effective visual method to identify these unneeded items is called “red tagging”, which involves evaluating the necessity of each item in a work area and dealing with it appropriately. A red tag is placed on all items that are not important for operations or that are not in the proper location or quantity. Once the red tag items are identified, these items are then moved to a central holding area for subsequent disposal, recycling, or reassignment. Organizations often find that sorting enables them to reclaim valuable floor space and eliminate such things as broken tools, scrap, and excess raw material.

Set In Order
Set In Order focuses on creating efficient and effective storage methods to arrange items so that they are easy to use and to label them so that they are easy to find and put away. Set in Order can only be implemented once the first pillar, Sort, has cleared the work area of unneeded items. Strategies for effective Set In Order include painting floors, affixing labels and placards to designate proper storage locations and methods, outlining work areas and locations, and installing modular shelving and cabinets.

Shine
Once the clutter that has been clogging the work areas is eliminated and remaining items are organized, the next step is to thoroughly clean the work area. Daily follow-up cleaning is necessary to sustain this improvement. Working in a clean environment enables workers to notice malfunctions in equipment such as leaks, vibrations, breakages, and misalignments. These changes, if left unattended, could lead to equipment failure and loss of production. Organizations often establish Shine targets, assignments, methods, and tools before beginning the shine pillar.

Standardize
Once the first three 5S’s have been implemented, the next pillar is to standardize the best practices in the work area. Standardize, the method to maintain the first three pillars, creates a consistent approach with which tasks and procedures are done. The three steps in this process are assigning 5S (Sort, Set in Order, Shine) job responsibilities, integrating 5S duties into regular work duties, and checking on the maintenance of 5S. Some of the tools used in standardizing the 5S procedures are: job cycle charts, visual cues (e.g., signs, placards, display scoreboards), scheduling of “five-minute” 5S periods, and check lists. The second part of Standardize is prevention – preventing accumulation of unneeded items, preventing procedures from breaking down, and preventing equipment and materials from getting dirty.

Sustain
Sustain, making a habit of properly maintaining correct procedures, is often the most difficult S to implement and achieve. Changing entrenched behaviors can be difficult, and the tendency is often to return to the status quo and the comfort zone of the “old way” of doing things. Sustain focuses on defining a new status quo and standard of work place organization. Without the Sustain pillar the achievements of the other pillars will not last long. Tools for sustaining 5S include signs and posters, newsletters, pocket manuals, team and management check-ins, performance reviews, and department tours. Organizations typically seek to reinforce 5S messages in multiple formats until it becomes “the way things are done.”

Proper discipline keeps the 5S circle in motion.

Implications for Environmental Performance

Potential Benefits:
Painting the machines and the equipment light colors and cleaning the windows, often done under the Shine pillar, decreases energy needs associated with lighting.
Painting and cleaning makes it easier for workers to notice spills or leaks quickly, thereby decreasing spill response. This can significantly reduce waste generation from spills and clean-up.
The removal of obstacles and the marking of main thoroughfares decreases the potential of accidents that could lead to spills and associated hazardous waste generation (e.g., spilled material, absorbent pads and clean up materials).
Regular cleaning, as part of the Shine pillar, decreases the accumulation of cuttings, shavings, dirt, and other substances that can contaminate production processes and result in defects. Reduction in defects has significant environmental benefits (e.g., avoided materials, wastes, and energy needed to produce the defective output; avoided need to dispose of defective output).
5S implementation can significant reduce the square footage needed for operations by organizing and disposing of unused equipment and supplies. Less storage space decreases energy needed to heat and light the space.
Organizing equipment, parts, and materials so they are easy to find can significantly reduce unneeded consumption. Employees are more likely to finish one batch of chemicals or materials before opening or ordering more, resulting in less chemicals or materials expiring and needing disposal.
5S visual cues (e.g., signs, placards, scoreboards, laminated procedures in workstations) can be used to raise employee understanding of proper waste handling and management procedures, as well as workplace hazards and appropriate emergency response procedures. 5S techniques can be used to improve labeling of hazardous materials and wastes. In addition, environmental procedures often are separate from operating procedures, and they are not easily accessible to the workstation. 5S implementation often result is easy to read, laminated procedures located in workstations. Integration with 5S visual cues and operating procedures can improve employee environmental management.
Potential Shortcomings:
Regularly painting and cleaning machines and equipment could lead to increased use of paints and cleaning supplies. Paints and cleaning supplies may contain solvents and/or chemicals that can result in air emissions or increased waste generation.
Disposing of unneeded equipment and supplies creates a short-term surge in waste generation. In some cases, there may be unlabeled wastes that could be hazardous. Failure to involve environmental personnel in waste handling could result in some wastes being disposed improperly or in lost opportunities for reclamation or recycling.
Useful Resources

Greif, M.. The Visual Factory: Building Participation Through Shared Information (Portland, Oregon: Productivity Press, 1995).

Hirano, Hiroyuki. 5 Pillars of the Visual Workplace (Portland, Oregon: Productivity Press, 1995).

Peterson, Jim, Roland Smith, Ph.D. The 5S Pocket Guide (Portland, Oregon: Productivity Press,1998).

Pojasek, Robert B. “Five Ss: A Tool That Prepares an Organization for Change”. Environmental Quality Management (Autumn 1999) 97-103.

Productivity Press Development Team. 5S for Operators: 5 Pillars of the Visual Workplace (Portland, Oregon: Productivity Press, 1996).

Productivity Press Development Team. 5S for Safety Implementation Toolkit: Creating Safe Conditions Using the 5S System (Portland, Oregon: Productivity Press, 2000).

Productivity Press Development Team. 5S for Safety: New Eyes for the Shop Floor (Portland, Oregon: Productivity Press, 1999).

Shimbun, Nikkan Kogyo, ed. Visual Control Systems (Portland, Oregon: Productivity Press, 1995).

Tel-A-Train and the Productivity Development Team. The 5S System: Workplace Organizations Standardization (video) (Portland, Oregon: Productivity Press, 1997).

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Footnotes
1. Productivity Press Development Team, 5S for Operators: 5 Pillars of the Visual Workplace (Portland, Oregon: Productivity Press, 1996).

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Kaizen

Monday, November 16th, 2009

Kaizen

Kaizen is a Japanese philosophy that based on continuous improvement throughout all aspects of life. If Kaizen implemented to a business, it may improve all business aspects which will increase overall quality. When overall quality is improved, companies will eliminate waste, decrease defect rate, lower their production cost. This philosophy of continuous improvement is also the main principle at Lexus. The strength of Kaizen is that everybody is the part of improvement. Even small inventions could increase product quality and overall improvement for the product. Assembly line plays an essential role in the auto industry. In auto industry, most of the defects occur in assembly line; therefore, it is very important to have preventive and corrective quality controls. Kaizen method has five main elements that include:
1. Teamwork
2. Personal discipline
3. Improved morale and work ethic
4. Quality circles
5. Improvements Suggestions

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