Operations Management: Improving Quality and Productivity through Processes

1. Operations Management:Improving Quality and Productivity through Processes Presented by: Enrico C. Mina, DBA Operations Management

2. Operations Management Operations management lies at the very core of an organization’s mission and reason for existence. It defines what outputs the organization is committed to produce for its key customers, the inputs and resources that go into these outputs, and the activities needed to create and deliver them. Operations Management

3. Objectives (1) At the end of this course, the participants will have been able to: • Learn the basic principles and concepts of process quality and continuous improvement (kaizen) in quality and productivity • Learn the concept of process waste or non-value adding activities Operations Management

4. Objectives (2) • Learn the techniques of flowmapping or process flowcharting • Apply the techniques to an actual problematic operational process Operations Management

5. The Changing Economic Environment (1) • Globalization of business • More turbulent business climate • More demanding customers • Faster technological change • Tougher competition Operations Management

6. The Changing Economic Environment (2) • Survival in the face of such a rapidly changing environment requires quick adaptation and the ability to enhance competitiveness. • Competitiveness is achieved by giving customers and other stakeholders superior value (benefits vs. costs) at the time they want it. Operations Management

7. The Changing Economic Environment (3) • Even units doing administrative work or giving support services to operating units have to contribute to overall organizational competitiveness. They are serving internal customers. • This is even more true for offices or units dealing directly with external customers. Operations Management

8. The Chain of Customer-Supplier Relationships EXTERNAL SUPPLIERS THE ORGANIZATION 3 1 2 4 5 EXTERNAL CUSTOMERS AND STAKEHOLDERS Operations Management

9. Customer Goals • QUALITY- the ability of the output or service to satisfy customer needs • COST - the price, plus the costs of operating, maintaining, and disposing • DELIVERY- the timeliness, quantity, and manner of making the output or service available. Customers want all three. Operations Management

10. Customer Superordinate Goals GOALS EXPECTATION LEVELS Explicit Implicit Customer Delight Quality Cost Delivery Operations Management

11. Total Quality Management • Total Quality Management (TQM) is a philosophy and system of management that seeks to achieve high levels of customer satisfaction and a strong competitive position through products/services of superior quality, while at the same time achieving low costs and fast delivery.

12. The Process System (1) • The three customer goals are all end-results of a process. • A processis a series of interrelated activities that predictably transform inputs into desirable outputs. Operations Management

13. Process Elements (1) Most processes have six elements: • Man (people)- the personnel that perform the work in the process • Machines - the process equipment, physical facilities, vehicles, tools, etc. • Materials - the raw materials, supplies, components, packaging, fuel, forms, source documents, raw data, etc. Operations Management

14. Process Elements (2) • Methods - standards, procedures, guidelines, instructions, techniques • Measurements - the capturing, recording, summarizing, and reporting of quantitative data generated by the process during operation • Environment - working conditions under which the process operates Operations Management

15. The Process System (2) • The six process elements are distinctive but interdependent. Outputs (products and services) are the result of their systemic interaction. • W. Edwards Deming: The “common causes” inherent in the process system account for 94% of process failures. A bad system will always beat a good performer. Operations Management

16. Cost of Quality (1) • Cost of Quality is defined as the cost of keeping customers satisfied. It includes all costs incurred to ensure that customer requirements are ultimately met. • Components: • Cost of prevention - costs incurred to prevent failures in each process element Operations Management

17. Cost of Quality (2) • Cost of appraisal - costs of inspection, testing, measurement, and information-gathering to determine the state of the process • Cost of non-conformance - the costs of failure or poor quality. Two types: • Internal failure costs - incurred when failures are detected in-house, before sending output to the customer • External failure costs - incurred when failures are detected by the external customer. Operations Management

18. Cost of Quality (3) • Quality experts estimate that costs of non-conformance are equal to 25% - 35% of gross sales or revenue. • Not all CONCs are visible because conventional accounting systems do not distinguish between productive vs. non-productive uses of resources. Operations Management

19. The Cost of Non-conformance Iceberg visible costs hidden costs Operations Management

20. Cost of Quality (4) What should happen: External failure cost Savings Costs Internal failure cost Total costs with improved process quality Appraisal cost Prevention cost T i m e Operations Management

21. Process Reliability: How High? • Process reliability is the ability of the process to repeat its operations and results in a predictable and desirable way. • Acceptable Quality Levels: are 95%, 98%, and 99% reliability good enough? Operations Management

22. 99.9% Reliability • If the human heart were 99.9% reliable, it would miss 36,817 beats a year (@ 70 / minute), equivalent to 8.8 hours without a heartbeat. Operations Management

23. 6-sigma Reliability • 99.99966% reliability or 3.4 failures per million • Equivalent to missing only one free throw out of 300,000 attempts. Operations Management

24. Overall Process/System Reliability Number of steps or elements R 20 10 5 0.95 0.36 0.60 0.77 0.98 0.67 0.82 0.90 0.95 0.99 0.90 0.82 0.98 0.999 0.995 0.99 Operations Management

25. The Gemba (Workplace) • Kaizen places heavy emphasis on seeking improvements in the gemba, the work-place where processes are in operation and where value is created for customers. • The opportunities for improvement in the gemba are infinite. Operations Management

26. Five Gemba Principles (1) • When an abnormality takes place, go to the gemba first to get first-hand information. • Check with the gembutsu (the “real things” inside the gemba: employees, materials, equipment, records, actual errors, working conditions, etc.). • Take temporary countermeasures on the spot to relieve the situation. Operations Management

27. Five Gemba Principles (2) • Trace the root causes of the abnormality and take permanent countermeasures that will prevent recurrence. • Standardize all improvements made. Operations Management

28. Traditional Organizations and Their Limits • Focus on results only, ignoring the process • Focus on individual functions, rather than on the total system • Plenty of blaming and judgmental behavior when things go wrong, rather than searching for permanent solutions Operations Management

29. Superordinate Principles • Process and Results • Total Systems Focus • Non-blaming/Non-judgmental Behavior Operations Management

30. Process and Results (1) • A process is a series of interrelated activities that transform inputs into desirable and predictable outputs. • Characteristics: • On-going, continuous • Not based on existing organizational structures; usually cuts across boundaries • Often unnamed and unrecognized Operations Management

31. Process and Results (2) • Typically not many; around 10-12 major ones in an organization • Ideally, should start and end with the customer or recipient of the output. • Understanding business processes is essential to implementing effective and efficient improvement programs. Operations Management

32. Process and Results (3) • Process creates results. If results are not satisfactory, the only permanent way to improve them is to improve the process first (cause and effect). • Results are needed to verify if process improvements are working. • Therefore, there must be a balanced emphasis on both process and results. Operations Management

33. Total Systems Focus • A system is an integrated whole made up of distinct but interdependent and interacting parts. • The only real improvement is that which enables the entire organization to serve customer requirements better. • Systemic problems can only be solved through cross-functional teamwork. Operations Management

34. Non-blaming/Non-judgmental Behavior • A blaming culture causes people to hide problems. • Problems are really opportunities for improvement in disguise. • Focus on the problem and make people problem-solvers. • “The first time you get angry is the last time you get the truth.” (Ishikawa) Operations Management

35. Seven Basic Concepts (1) • SDCA to PDCA • The next process is the customer. • Quality first • Market in • Upstream management • Speak with data • Variability control and recurrence prevention Operations Management

36. SDCA to PDCA • Standardization and Improvement A S A P C D C D Operations Management

37. inputs Your Process outputs Your Customer Your Supplier Do not accept defects. Do not make defects. Do not pass on defects. The Next Process Is the Customer. • The Customer-Supplier Chain • Three Rules: Operations Management

38. Quality First • The quality of the process must receive first priority, ahead of Cost or Delivery. • A high quality process produces high quality products at least cost and with the shortest cycle time (enabling on-time delivery). Operations Management

39. Market-in • A philosophy that seeks to find out factually what customers need and want, and then designs the product or service, and the processes that create and deliver them, to suit customer requirements. • Product-out: We know better than the customers; we tell them what to do. We do what is convenient for us, not for them. Operations Management

40. Service Concept Service Strategy Service Systems Service Staff Full-scale Operations Trial Run Follow-up Service Upstream Management • Service Operations Management

41. Speak with Data • Data mean facts. • Identify problems with data, analyze causes with data, evaluate solution alternatives with data, verify success with data. • Gut-feel and past experience are useful but not enough. They must be validated with data. Operations Management

42. Variability Control and Recurrence Prevention • Problems are caused by failures occurring in man, machines, materials, methods, measurements, or environment. • It is necessary to identify the root causes of a problem and to adopt countermeasures that eliminate them, to prevent recurrence. • Ask “Why?” 5 times to trace root causes. Operations Management

43. Process Muda (1) • Muda is the Japanese word for waste. • The presence of muda in a process deteriorates quality, increases costs, and delays delivery by lengthening the cycle time. • Mudais non-value-adding and therefore unproductive. Operations Management

44. Process Muda (2) • Overproduction- Each work station or process stage tries to operate at full capacity, leading to a build-up of WIP or FGI. These hide problems by making them tolerable, although at high cost, and prevent them from being addressed. This is the “mother of allmuda.” Operations Management

45. Process Muda (3) • Inventory - Excessive supplies and parts are costly to carry: cost of tied-up capital, storage, security and pilferage, supervision, insurance, obsolescence and deterioration. • Waiting - Waste of time when people and work stations are capable of work but are idle. Operations Management

46. Process Muda (4) • Transportation - Additional cost and time created by transferring the location of people, materials, or products without any value being added. • Motion - Created by people being made to exert physical efforts that merely add to fatigue and time but do not create value. Operations Management

47. Process Muda (5) • Overprocessing - Created when the process is performing work that is unnecessary from the customer’s point of view. • Producing failures - Process failures like defects and errors result in customer dissatisfaction, higher costs, and delays. Operations Management

48. Process Muda (6) • In most organizations, mudas are considered normal and have been tolerated over a long period of time. Many are even in budgets. • Every muda removed and prevented from recurring improves process quality and reduces cost and cycle time, thereby automatically increasing productivity. Operations Management

49. Process Flowcharting (1) • The first step in identifying muda is to draw a flowchart of the process. • A flowchart is a graphical representation of a process. It is essential to process analysis and improvement. Operations Management

50. Process Flowcharting (2) • The flowchart, to be useful, must be the “as is” flow (based on the actual sequence of activities), not necessarily the theoretical one in the manuals. • The best sources of information are the people who are actually working on the process. Operations Management