Operations Management / Supply Chain Management

Module 05.02 Key Concepts: Continuous Improvement Tools

Just to recap a little – all continuous improvement initiatives (JIT, Six Sigma, Total Quality Management, whatever), have two basic components: Philosophy and tools / methods.

From a philosophical perspective, all continuous improvement activities share the following common principles:

  • Improving quality by removing the cause of problems in the system inevitably leads to improved productivity, and should lead to higher customer satisfaction and business performance.
  • The person doing the job is most knowledgeable about that job.
  • People want to be involved and do their jobs well.
  • Every person wants to feel like a valued contributor.
  • More can be accomplished by working together to improve the system than having individual contributors working around the system.
  • A structured problem-solving process, using graphical techniques produces better solutions than an unstructured process.
  • The adversarial relationship between labor and management is counterproductive and outmoded.
  • Every organization has undiscovered assets waiting to be developed.

Customer focus is a primary component of Total Quality Management.  This begins with an overall goal of meeting and exceeding customer expectations, while at the same time balancing the overall strategic goals of the company.  One thing that often gets missed is the fact that every function in every organization has customers and suppliers.  Therefore, each function should treat every other function just like an external customer.

As mentioned earlier, Total Quality Management relies on actively engaged employees that are empowered to do their jobs and supported by leadership.  Close supplier partnerships are also key elements of successful Total Quality Management.

It is often said: “What gets measured is what gets done.”  Measurement is a key attribute of any business process.  Performance metrics should be good predictors of the quality of a process and its daily execution.  All performance metrics should be simple, understandable, relevant and visible to the user.  Performance metrics should be designed to promote improvement.  Some typical examples are presented below:

  • Customer
    • number of complaints
    • on-time delivery
  • Production
    • Inventory turns, scrap, cost per unit, time to delivery
  • Suppliers
    • on-time delivery
    • rating
    • quality performance
    • billing accuracy
  • Sales
    • expense to revenue
    • new customers
    • sales per square foot

 Remember our PDCA cycle?  Well, metrics are the key input to the “Check” part of the process.  This is followed by analysis of the data and action.  Within the “Analyze” step there are many, many different graphical / continuous improvement techniques available.

These are used differently depending on the type of initiative selected.  However, there are several basic techniques that are quite relevant to Supply Chain Management in general.  These are described in virtually any Quality Management text on the market.  Our Text autors present the following 7 tools for us to consider:

  • Tools for Generating Ideas
–Check Sheet
–Scatter Diagram
–Cause-and-Effect Diagram
  • Tools to Organize the Data
–Pareto Chart
–Flowchart (Process Diagram)
  • Tools for Identifying Problems
–Histogram
–Statistical Process Control Chart

We will review some key elements and applications.

 

Check Sheet

A Check Sheets is simply an easy to understand form used to answer the question “How often are certain events happening?”  It starts the process of translating opinions into facts.  To construct a check sheet you first agree on the event being observed and the time frame for monitoring.  You then develop a check sheet form (manual or electronic) with fields for entering numeric and narrative data.  Check Sheets are useful on gathering information on defects / quality problems, missed shipments, back-order problems, etc.

Scatter Diagram

A scatter diagram is used to study the possible relationship between two different variables.  We actually described the use of scatter diagrams in the Module devoted to Forecasting.  From a continuous improvement perspective, a scatter Diagram is used to test for possible cause and effect relationships.  It cannot prove that one variable causes the other but it can determine if some type of relationship exists and the strength of that relationship.  For example, does time of day impact computer response time?  Does number of users impact number of transaction errors?

Cause and Effect (Fishbone) Diagram

A Cause and Effect Diagram represents the relationship between some “effect” and all the possible “causes” influencing it.  The effect or problem is stated at the right side of the chart and the major influences or “causes” are listed to the left.  Cause and Effect Diagrams are drawn to clearly illustrate the various causes affecting a process by sorting out and relating them.  It is a categorization technique to group causes.  For example, they may be categorized under groupings such as: people, machines, materials, and methods.  Or, some other relevant approach can be used.  Any major category can be specified to encourage and support individual creativity, Cause and Effect Diagrams can be used in virtually any continuous improvement endeavor to bring clarity and focus, and to bring a team to swift identification of the root cause for follow-on identification of ways to eliminate / prevent problems in the future.

Pareto Chart

A Pareto Chart is a special form of vertical bar graph that helps to determine which problems to solve in what order.  Construction of a Pareto Chart is based on either: Check Sheets, output of Brainstorming sessions, or some other type of data collection (inventories, sales, shipment lead time, etc.).  The general thinking is that the most benefit will be derived on the most frequently occurring problem.

Pareto Charts are used to target corrective action activities as well as for inventory control (A, B, C Analysis), market and or product segmentation (the 80/20 rule – 80% of our business comes from 20% of our customers) and such.

 Flowchart

A flowchart is a pictorial representation that shows all the steps of a process.  Flowcharts provide documentation of system steps and can be a useful tool for examining how various steps in a process are related to each other.  Flow-charting uses easily recognizable symbols to represent the type of step performed.  Flow charts are used in a lean / JIT initiative to identify disconnected or unnecessary steps.  In an ERP implementation project, flow charts are used to describe the “As-Is” business processes and then, after re-engineering, to describe the “To-Be” business processes that are to be configured in the ERP system.

Flowcharts can be applied to anything from movement of an invoice or the flow of materials, to the steps in making a sale or servicing a product.

 Histogram

A histogram is a bar chart of data that are grouped according to numerical value (frequency distribution).  It is used to show a general picture of the location of the center of data on the number scale (mean), the variability (spread) and distribution (shape) of the data.  The pictorial nature of a histogram highlights patterns that are difficult to see in a simple table of numbers.

Statistical Process Control Chart

There is variation in everything and every process.

Statistical Process Control has two basic objectives: select processes capable of producing the required quality products and monitor processes to ensure they continue to produce the required level of quality.  In doing so, the ultimate expectation is that defects will be reduced and customer satisfaction will increase.

Statistical Process Control is different from Product inspection. Statistical Process Control monitors processes against statistical control limits.  It adds value for the customer by identifying changes in variation so that corrective action can be taken to prevent defects.

Statistical Process Control consists of four basic steps:

  • Measure the process
  • When a change is indicated, find the assignable cause
  • Eliminate or incorporate the cause
  • Restart the revised process

This sounds pretty easy doesn’t it?  We will go into more detail a little later but first let’s look at a comparison with Inspection as an approach.

Product Inspection assesses products against a specification.  This does not add value for the customer but only “catches’ defects after they occur.  Product Inspection is expensive and usually considered waste as it may not result in correction of defect root cause.  Inspection can occur at different times and different points in the production process for both products and services:

  • At the supplier’s plant while the supplier is producing
  • At your facility upon receipt of goods from your supplier
  • Before costly or irreversible processes
  • During the step-by-step production process
  • When production or service is complete
  • Before delivery to your customer
  • At the point of customer contact

Inspection may often be required but is not a perfect solution.  Inspection has many problems such as: worker fatigue, measurement error and process variability.   A company cannot “inspect” quality into a product.  Rather, robust design, empowered employees and sound processes are better solutions.

The term “Quality at the Source” is often mentioned as a clear goal of process improvement and Lean / JIT approaches.   In general terms we should consider the next step in any process as the “customer”.  So this means that the preceding product / intermediate product or service must have the desired quality to ensure quality at the next step.  This can relate to internal and external supplier / customer relationships.

Poka-yoke is the concept of foolproof devices or techniques designed to pass only acceptable product.  Checklists are an example because the can ensure consistency and completeness of processes and work procedures.   Some service examples of inspection parameters are shown in the text but you can probably think of some of your own.
In general, Service quality is more difficult to measure than the quality of goods.  Service quality perceptions depend on intangible differences between products and intangible expectations customers have of those products.  Therefore, Operations Managers must recognize that the tangible component of services is important.  Also they must understand that the service process is important.  The service is judged against the customer’s expectations and exceptions will certainly occur.
Some basic continuous improvement tools and approaches were presented in this section.  A contrast was also drawn between inspection and statistical process control.  In the next section we will explore Statistical Process Control methods in more detail.