OPSM 901: Operations Management

1. Koç University Graduate School of Business EMBA Program OPSM 901: Operations Management Session 5: Lean Thinking Zeynep Aksin zaksin@ku.edu.tr

2. Toyota questions • Try to understand the Toyota Production System and how it applies to a specific problem • As Doug Friesen, what would you do to address the seat problem? Where would you focus your attention and solution efforts? • What options exist? What would you recommend? • Where if at all does the current routine for handling defective seats deviate from the principles of the Toyota Production System

3. Southwest questions • Try to understand the Southwest model and its advantages. • How does the company make money even when other airlines don’t? What are important contributors to its financial success? • How should management respond to the fact that Southwest has fallen so low in terms of on-time performance? • Would you recommend Southwest to grow at existing rates? Why or why not?

4. Lean Thinking • The Ideal: Synchronization and Efficiency • Just the right part in the right quantity at the right time in the right place, at minimum cost • Eliminate Waste (Muda) • Defects, inventory, waiting, movement (NVA) • Expose Sources of Waste (Jidoka) • Problem visibility, fast feedback and correction • Management by sight • Continuous Improvement (Kaizen) • Buffer reduction and employee involvement • Management by stress

5. The River Analogy Defects Defective Materials Machine Breakdowns Long Set ups Long Lead times Unsuitable Equipment Uneven Schedules Unreliable Suppliers Inefficient Layouts Absenteeism Rigid Work Rules

6. Ongoing objectives • Improve process flows • Efficient plant layout • Fast and accurate flow of material and information • Increase process flexibility • Reduce changeover times • Cross-training • Decrease process variability • Flow rates • Processing times • Quality • Minimize processing costs • Eliminate transportation, inspection, rework

7. How? • Improve process flows • Cellular layouts • Demand pull mechanisms • Increase process flexibility • Fast changeovers • Smaller lotsizes, level production • Decrease process variability • Standardize • Improve supplier reliability and capacity • Safety capacity, preventive maintenance • Fast feedback and correction • Minimize processing costs • Improve quality, eliminate non-value-adding activities

8. P D C A P D C A Process Improvement • Measurement • External and Internal • Analysis • Analyze Variation • Control • Adjust Process • Improvement • Reduce Variation • Innovation • Redesign Product/Process Improve Innovate Improve Control

9. Variability = Actual - Expected • Customer Needs - Product Design • Product Design - Process Capability • Process Capability - Process Performance • Process Performance - Product Performance • Product Performance - Customer Perception

10. Quality: Traditional Perspective Lower Limit Upper Limit Quality Loss Target

11. Quality Loss Function (Taguchi) Lower Limit Upper Limit Quality Loss Target

12. Statistical Process Control (SPC) • Statistical technique used to ensure process is making product to standard • All process are subject to variability • Natural causes: Random variations • Assignable causes: Correctable problems • Machine wear, unskilled workers, poor material • Objective: Identify assignable causes

13. Disturbances: Normal and Abnormal Target SettingsProcess Performance DecisionInformation The Feedback Control Principle

14. Cost Cost of Control Cost of Non-Conformance Degree of Control Tradeoffs in Process Control

15. Quality Costs • Cost of Control (Quality, Conformance) • Prevention costs: reducing the potential for defects • Appraisal costs: evaluating products • Cost of Failure of Control (Unquality, non-conformance) • Internal failure costs:of producing defective parts or service • External failure costs: occur after delivery

16. Stage: At Source Next Process End of Line Final Inspection End User Cost: Impact: • Little • Minor • Rework • Much rework • Warranty delay • Reschedule • Delivery delay • Complaints • Inspect more • Reputation • Market share Early Defect Detection Saves Prevention Saves Even More!

17. Process Control and Capability • Every process displays variability: normal or abnormal • Do not tamper with process “in control” with normal variability Correct “out of control” process with abnormal variability • Control charts monitor process to identify abnormal variability • Control charts may cause false alarms (or missed signals) by mistaking normal (abnormal) for abnormal (normal) variability • Local control yields early detection and correction of abnormal • Process “in control” indicates only its internal stability • Process capability is its ability to meet external customer needs • Improving process capability involves changing the mean and reducing normal variability, requiring a long term investment • Robust, simple, standard, and mistake - proof design improves process capability • Joint, early involvement in design improves quality, speed, cost

18. Customer assesment of service quality external communication Dimensions of service quality word of mouth personal needs past experience • tangibles • reliability • responsiveness • competence • courtesy • credibility • security • access • communication • understanding • the customer expected service Perceived service quality perceived service

19. Identifying quality shortfalls word-of-mouth personal needs past experience expected service Gap 5 perceived service Customer Provider service delivery Gap 3: conformance quality Gap 1: quality of design Gap 4 external communications to customer service quality specifications Gap 2: quality function deployment management perceptions

20. Services: customers introduce variability • Arrival variability • Request variability • Capability variability • Effort variability • Subjective preference variability

21. Shouldice as a lean enterprise Womack and Jones (2000) From Lean Production to Lean Enterprise, HBR March-April 1994

22. Zara as a lean enterprise

23. Southwest as a lean enterprise

24. Understanding Southwest:The Value Profit Chain - Sasser • Customer Loyalty • Conventional theory is that share of market is the primary driver of profitability • Sasser’s research found customer loyalty was more frequently associated with high profits and rapid growth.

25. Understanding Southwest:The Value Profit Chain - Schlesinger • Determinants of employee and customer loyalty • cycle of failure - low wages, little training, => limited employee and customer loyalty, high turnover • cycle of capability - share of profits, greater control, => highly productive employees, satisfied customers

26. Understanding Southwest:The value profit chain • Direct and strong links between: • Profit • Growth • Customer Loyalty • Customer Satisfaction • Value of goods/services to customer • Employee capability, satisfaction, loyalty and productivity

27. The Service Profit Chain - Heskett • Strategic Service Vision • markets targeted on “psychographic” (how people think and act) as well as demographic factors. • Service concepts, products, and entire businesses defined in terms of the results produced for customers.

28. Heskett - continued • Strategic Service Vision - continued • Operating strategies comprising organization controls, operating policies, and process that “leverage” value to customers over cost. • Service delivery systems comprising bricks and mortar, information systems and equipment that complement associated operating strategies

29. Loyalty Satisfaction Productivity and Output Quality Employees Capability Service Quality The service profit chain Internal External Operating strategy and service delivery system Service concept Target market Revenue growth Customers Service value Satisfaction Loyalty Profitability • Workplace design • Job design/decision-making latitude • Selection and development • Rewards and recognition • Information and communication • Adequate “tools” to serve customers • Quality and productivity improvements yield higher service quality and lower cost • Attractive value • Service designed and delivered to meet targeted customers’ needs • Lifetime value • Retention • Repeat business • Referral Source: Adapted from Harvard Business Review. An exhibit from “Putting the Service Profit Chain to Work,” by James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr., and Leonard A. Schlesinger, March-April 1994, p. 166

30. Next class • Read and prepare Li&Fung. Responsible groups prepare reports focusing on the following questions: • What has been the historic strength and strategy of Li&Fung? • What capabilities of Li&Fung does StudioDirect.com leverage? What are the risks of their strategy? • What advice would you give to William and Victor Fung?