Managing Flow Variability: Process Control and Capability

1. Chapter 9 Managing Flow Variability: Process Control and Capability Amber Young Sam Parduhn Paresh Sinha

2. Managing Flow Variability § 9.1 Performance Variability § 9.2 Analysis of Variability § 9.3 Process Control § 9.4 Process Capability § 9.5 Process Capability Improvement § 9.6 Product and Process Design

3. Introduction ~ MBPF Example MBPF, Inc. - High-tech manufacturer of steel doors • This company prided themselves on: • High Quality Products • Professional after-sales service • Solid reputation (15% share of market) • Recently were celebrating their successes during a holiday company party • Numerous Speeches; Executives congratulating one another on successes/accomplishments • Company believed they were headed in the right direction & that all was operating smoothly.

4. MBPF Example (continued) The celebration was short lived & had a quick change of pace when a sales manager spoke up: “Ladies & Gentlemen, I do not wish to spoil your mood, but I have some disturbing news! Lately I have been talking to some of our major customers, and I have found, much to my surprise, that many of them are less than satisfied with our products and service…” “…Although we think our products are great & that our service is unsurpassed, if what I’m hearing is right, it is only a matter of time before we lose our loyal customer base to the competition, which is working hard to provide newer & better products, cheaper & faster.”

5. MBPF Example (continued) Wasn’t the case at MBPF as their CEO was a true leader & was interested in these findings and asked for elaboration: CUSTOMER DISSATISFACTIONS/COMPLAINTS: • Door quality in terms of safety, durability & ease of use • Costs are much more than competitors • Difficulty getting orders in on-time • Customer Service when something went wrong with installation/operation *All very valid complaints for a company in their type of business.

6. MBPF Solution CEO listened carefully to all complaints & decided it was time to be PROACTIVE: • Since the sales managers observations were primarily subjective, the CEO recognized the need for something solid as opposed to mere hearsay or intuition. NEXT LOGICAL STEP: • COLLECT & ANALYZE SOME HARD DATA • Assigned a team to analyze the concrete data on critical performance measures that drive customer satisfaction GOAL: • To IDENTIFY, CORRECT & PREVENT sources of future problems

7. Variability often = Customer Dissatisfaction All Products & Services VARY in Terms Of: Variability often leads to Customer Dissatisfaction • Chapter covers some geographical/statistical methods for measuring, analyzing, controlling & reducing variability in product & process performance to improve customer satisfaction. Quality Availability Flow Times Cost

8. § 9.1 Performance Variability • All measures of product & process performance (internal & external) display Variability. • External Measurements - customer satisfaction, relative product rankings, customer complaints (vary from one market survey to the next) • Internally, flow units in all business processes vary with respect to cost, quality & flow times Example 1 ~ No 2 cars rolling off an assembly line are identical. Even under identical circumstances, the time & cost required to produce the same product could be quite different. Example 2 ~ Cost of operating a department within a company can vary from one quarter to the next.

9. § 9.1 Performance Variability • Sources of Variability • Internal: imprecise equipment, untrained workers, and lack of standard operating procedures • External: inconsistent raw materials, supplier delivery delays, changing consumer tastes & requirements, and changing economic conditions In general, variability refers to a discrepancy between the actual and the expected performance.

10. § 9.1 Performance Variability A discrepancy between the actual and the expected performance often leads to: • higher costs, longer flow times, lower quality & DISSATISFIED CUSTOMERS • Processes with greater performance variability are generally judged LESS satisfactory than those with consistent, predictable performance. • Variability in product & process performance, not just its average, Matters to consumers! • Customers perceive any variation in their product or service from what they expected as a LOSS IN VALUE.

11. Quality Management Terms • In general, a product is classified as defective if its cost, quality, availability or flow time differ significantly from their expected values, leading to dissatisfied customers. **BOOK COVERS A FEW QUALITY MANAGEMENT TERMS: • Quality of Design: how well product specifications aim to meet customer requirements (what we promise consumers ~ in terms of what the product can do) • Quality Function Deployment (QFD): conceptual framework for translating customers’ functional requirements (such as ease of operation of a door or its durability) into concrete design specifications (such as the door weight should be between 75 and 85 kg.)

12. Quality Management Terms • Quality of conformance: how closely the actual product conforms to the chosen design specifications (how well we keep our promise in terms of how it actually performs) • Measures: # defects per car, fraction of output that meets specifications • Example: Airline conformance can be measured in terms of the percentage of flights delayed for more than 15 minutes OR the number of reservation errors made in a specific period of time.

13. § 9.2 Analysis of Variability • To analyze and improve variability there are diagnostic tools to help us: • Monitor the actual process performance over time • Analyze variability in the process • Uncover root causes • Eliminate those causes • Prevent them from recurring in the future *Again we will use MBPF Inc. as an example and look at how their customers perceive the experience of doing business with the company & how it can be improved.

14. § 9.2 Analysis of Variability • Need to present raw data in a way to make sense of the numbers, track change over time, or identify key characteristics of the data set.

15. § 9.2.1 Check Sheets • A check sheet is simply a tally of the types and frequency of problems with a product or a service experienced by customers.

16. Example 9.1

17. Check Sheets Good • Easy to collect data Bad • Not very enlightening • No numerical characteristics

18. § 9.2.2 Pareto Charts • A Pareto chart is simply a bar chart that plots frequencies of occurrences of problem types in decreasing order. • The 80-20 Pareto principle states that 20% of problem types account for 80% of all occurrences.

19. Example 9.2

20. Pareto Charts Good • Ranks problems • Shows relative size of quantities Bad • No numerical characteristics • Only categorizes data • No comparison process information

21. § 9.2.3 Histograms • A histogram is a bar plot that displays the frequency distribution of an observed performance characteristic.

22. Example 9.3

23. Histograms Good • Visualizes data distribution • Shows relative size of quantities Bad • No numerical characteristics • Dependant on category size

24. Table 9.1

25. Raw Data Good • Actual information • Specific numbers Bad • Not intuitive • Does not help with understanding of relationships

26. § 9.2.4 Run Charts • A run chart is a plot of some measure of process performance monitored over time.

27. Example 9.4

28. Run Charts Good • Shows data in chronological order • Displays relative change over time Bad • Erratic graph • No numerical characteristics

29. § 9.2.5 Multi-Vari Charts • A multi-vari chart is a plot of high-average-low values of performance measurement sampled over time.

30. Example 9.5

31. Table 9.2

32. Multi-Vari Charts Good • Shows numerical range and average • Displays relative change over time Bad • Erratic graph • No numerical characteristics • Lacks distribution information

33. Process Management Two aspects to process management • Process planning • Process control

34. § 9.3 Process Planning It involves • Structuring the process • Designing operating procedures and • Developing key competencies such as process capability, flexibility, capacity, and cost efficiency. Its goal is to produce and deliver products that satisfy targeted customer needs.

35. § 9.3 Process Control Involves: • Tracking deviations between the actual and the planned performance and taking corrective actions to identify and eliminate sources of these variations. • There could be various reasons behind variation in performance. • Its goal is to ensure that actual performance conforms to the planned performance.

36. § 9.3.1 The Feedback Control Principle • Process performance management is based on the general principle of feedback control of dynamical systems.

37. The Feedback Control Principle Applying the feedback control principle to process control.. “involves periodically monitoring the actual process performance (in terms of cost, quality, availability, and response time), comparing it to the planned levels of performance, identifying causes of the observed discrepancy between the two, and taking corrective actions to eliminate those causes.”

38. Plan-Do-Check-Act (PDCA) • Process planning and process control are similar to the Plan-Do-Check-Act (PDCA) cycle. • PDCA cycle… “involves planning the process, operating it inspecting its output, and adjusting it in light of the observation.” • Performed continuously to monitor and improve the process performance.

39. Problems in Process Control • Performance variances are determined by comparison of the current and previous period’s performances. • Decisions are based on results of this comparison. • Some variances may be due to factors beyond a worker’s control.

40. Process Control • According to W. Edward Deming, incentives based on factors that are beyond a worker’s control is like rewarding or punishing workers according to a lottery. • Two categories of performance variability • Variability due to factors within a worker’s control. • Variability due to factors beyond a worker’s control. • Two types of variability • Normal variability • Abnormal variability

41. § 9.3.2 Types and Cause of Variability Two types of variability • Normal variability is statistically predictable and includes both structural variability and stochastic variability. • Abnormal variability is unpredictable and disturbs the state of statistical equilibrium of the process by changing parameters of its distribution in an unexpected way.

42. Normal Variability • Statistically predictable. • Contains structural variability & stochastic variability. • Random causes have unpredictable effect, and cannot be removed easily. • Not in worker’s control. • Can be removed only by process re-design, more precise equipment, skilled workers, better quality material etc.

43. Abnormal Variability • Unpredictable • Disturbs statistical equilibrium in unexpected way. • Implies that one or more performance affecting factors may have changed. • Due to causes superimposed externally or process tampering. • Within worker’s control. • Can be identified and removed easily therefore worker’s responsibility.

44. Process Control • If observed performance variability is • Normal - due to random causes - process is in control • Abnormal - due to assignable causes - process is out of control • The short run goal is: • Estimate normal stochastic variability. • Accept it as an inevitable and avoid tampering • Detect presence of abnormal variability • Identify and eliminate its sources • The long run goal is to reduce normal variability by improving process.

45. § 9.3.3 Control Limit Policy • How to decide whether observed variability is normal or abnormal? • Control Limit Policy • Control band - A range within which any variation in performance is interpreted as normal due to causes that cannot be identified or eliminated in short run. • Variability outside this range is abnormal. • Lower limit of acceptable mileage, control band for house temperature.

46. Process Control • Process control is useful to control any type of process. • Application of control limit policy • Managing inventory, process capacity and flow time. • Cash management - liquidate some assets if cash falls below a certain level. • Stock trading - purchase a stock if and when its price drops to a specific level. • Control limit policy has usage in a wide variety of business in form of critical threshold for taking action

47. Questions?(Applause)