OPERATIONS AND SUPPLY CHAIN

MANAGEMENT: PART 2
ALASSANE BALLE NDIAYE

LECTURE 1 – INTRODUCTION (04-10-2012)

LOGISTICS? A BACKWARD AND A FORWARD LOOK

Logistics is about how we could set the operations in order to make it work ! This is not about fancy, fashion, or
high-tech. Sometimes you just need simple things to make things work globally. However, this is not always
efficient. How can we find a way to “optimize” the operations? This is the point! This course will discuss Weird
examples of logistics:

Importance in everyday’s life : Supply of shops, supply of manufacturing companies , emergency operations,
defense operations, banks, leisure centers, hospitals,… It affects everyday’s life, it’s viability and smooth
functionning.

Logistics is often called under different names : business logisitcs, distributions/physical distributions, industrial
logistics, supply chain management, productions management, supply chain logistics,… What does these terms
have in common? The management of the flow of goods or materiels from point of origin to point of
consumption, and in some cases even to the point of disposal! If the chain is cut somewhere, the product will
never reach the consumer (who’ll never want to buy this product later!).

There are 3 main steps in this chain of opeartions:

o Rax material supply

o Production, internal and inter-plants flows management
o Physical distribution of the fiished good to the customer

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But now, a new step is appearing: recycling/reuse of the products. This kind of logistics is called reverse
logistics. Recycling is not just something fashionable, it’s also a big source of money & a business (not only the
envrionement fashion!).

Logistics is a chain of interelated flows & operations tightly linked to the other company functions.

When we talk about transport, we also talk about storing the products ! Ex: Warehouse inside or outside the
factory?

Logistics is not only relating to the manufacturing sector, but also to the government, hospital, banks, s chool,
retailers, sports, family, etc., operations.

It is also present in the animal life as well! The bees and the ants, for example, have a perfec t organization, that
we, human beings, can’t still reach!

Logistics was not always understood or managed the same way throughout human history. However, the use
of advanced scientific methods to manage logistics operations is quite recent.

Logistics is not really a new topic in itself ..

o Before JC: construction of pyramids, etc

o Before JC: supply of war troops (ex: very cold winter in Russia)
o Since the emergence of ‘organized” trade: problems of supply and distribution of goods
o 14 th century: Ventetian Naval shipyards (they started to discover the world at tha t time. That’s why
they needed many more ships. They navigated for years before coming back!)
o 1776: Adam Smith’s theories on labour organisation that has largely contributed to the development
of the industry
o Taylor (20 th century): a scientific approach to labor management in manufacturing (1911)
 Dominated industrial orgnaizations over hundred years
 Goal was to increase the productivity (there was a rising demand, so they had to produce
more. We don’t mind the quality of products. All we need is quantity : mass production)
 Main specificity: the used of unski lled labor force
 Principle 1:
 Horizontal division of operations into successive simpel tasks (Taylor decided to
subdivide everything in very simple tasks. The worforce, even unskilled, would be
much more productive this way, according to him)
 Principle 2:
 Vertical division: separation management and execution tasks

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  New tasks: quality control, maintenance, planning (they have created new tasks,
because they split the chain, which was not the case before!)
 Advantages:
 Easy training labour force
 High productivity
 Low wages and low mental workload
 Disadvantages:
 Remove all sense of responsibility (The problem is that if omeone is responsible for a
small piece of the car, he won’t be responsible for the end-product, if the car crashes
because the piece he made was not perfect)
 Lack of motivation (the yhave no incentive to do a high-quality job)
o Ford : Assembly lines and standardization (1913)
 To cope with growing demand
 Invention of the concept of assembly line (the lines move while you don’t)
 To reduce production costs, Ford establishes the principle of standardization (everything has
to be the same, otherwise it can’t work)
 System of mass production:
 Privileges quantity over quality
 Does not cope with the diversification of industrial products (“you can have the car
of the colour you want, as long as it stays black!”)
o Harris & Wilson : Economic order quantity – EOQ (1913-1924)
o Fayol : Principles of management (1916)
o Gantt: Principles of scheduling (Gantt Chart) (1917)
o Shewart: Quality control with the use of maths tools (1930)
o Operations research methods (Post war, 1950)
o Class IBM (190)
 First application of IT ti manage a complex production
o CAMM (1970): computer-aided management and manufacturing
o Early 1980’s : Just-in-Time concept (JIT)
 Taiichi Ohno (Ir and Dir Toyota Industrial )
 Produce what you need just the right time (from PUSH to PULL logistics)
 Reduce throughout the logistics process, stocks and response time
 Production equals to customers demand -> zero inventory
 Key Conditions:
 zero delay (absolute respect production plan)
 zero defects (total quality)
 zero failure (preventive maintenance)
 zero paper (Reduction of procedure, Administrative)
 Redefine relationships with suppliers (collaboration, partnership, risk sharing). If the
level of confidence is rising, you can become partner with someone, and thus share
the risk.

We’ll have have to face risks in the future. As a manager, what to do if a risk is coming? We will always a plan B.
The most important thing in a business are the customers. If a risk is coming, just put it backwards in the chain
(to the suppliers), never on the customers!

o 1990-2000 : the Total Productivity concept :

 Over the years, companies have accumulated a huge range of services and functions: These
must be reduced and unproductive functions/services cut! (Too many steps have been
accumulated over the years, steps that don’t contribute to the final benefits!)

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  Lean production: mobilize ONLY the (strictly) necessary resources (no waste, we have to
mobilize only the resources that we need) and avoid waste, duplication and etc.
 Business Process Reengineering (BPR) :
 Restructure the processes from the customer perspective (the first step is to put on
a sheet of paper all the processes of the company & to try to find the unnec essary
ones)
 Look for gains at the interface (a nice interface is very important) of the operations
 Growing use of IT technology
o …

In size, China is like Europe. As a manager, we

shouldn’t be scared of this or see it as a threat.
We should definitely see China as an opportunity
for the future!

Challenges:

o To cope with globalization of production/trade

o To cope with fierce global competition
o To cope with fast changing (and volatile) consumer habits
o To cope with the increasingly large variety of demanded goods
o To incorporate opportunities of new techs (robot…) & IT
o To cope with shortened Times to Market and product lifecycles

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 o To cope with new social and environmental demand/constraints
o To consider the flow of materials, $ and information as a whole and manage it as such

As performances are no longer local but global, there’s a real shift from local optimization to global integration.
Therefore:

o Global integration is becoming the key competitive fact

o Global integration is a new field for scientific research and for competitiveness.
o Emergence of supply chain concept:
 Coordinate and integrate:
 Flows of materials, $ , information between actors and processes
 Company functions: R&D, marketing, HR, Support
o All this is for a global performance and customer’s satisfaction! Those 2 needs have to be
met at the same time, satisfy the customer and make profits (good global performance).

LOGISTICS: COMPONENTS AND MANAGEMENT

This schema will be our nightmare. It’s really important and we’ll see it at every session!

1) PLAN

o Market Demand
o Quantities of finished goods
o Input Materials
o Human Resources
o $
o Manufacturing equipment
o Distribution systems
o Delivery operations

Keys challenges:

 Variability of Market Demand and new trends

 Variability of input materials’ costs

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  Unexpected events

The plan is the most important phase of logistics management!

2) SOURCE

o Input materials (supply, purchase)

o Input flows (continuous, on demand)
o Storage of input materials
o Timing of arrivals of input materials
o Variability of input materials’ costs
o Quality of input materials
o Unexpected event or change

Keys challenges:

 Identification and selection of the suppliers

 Quality control
 Integration of suppliers’ constraints
 Collaboration with the suppliers

CPR - Collaborative Planning & Replenishment

3) MAKE

o Types of finished goods

o Manufacturing plans/processes
o Manufacturing Equipment
o Manufacturing rhythm (continuous, on demand)
o Storage of semi-finished goods
o Timing of arrivals of input materials
o Storage of finished goods
o Quality of semi-finished and finished goods
o Unexpected event, change or breakdown

Key challenges:

 Optimal manufacturing plan/process

 Availability of input materials
 Reliability of the equipment and resources
 Quality control

4) [WAREHOUSE AND] DELIVER

o Type and function of warehouses

o Storage of finished/semi -finished goods
o Packaging/Cross-docking
o Handling of finished goods
o Orders’ management
o Selection of transport means
o Delivery to customers
o Customer support services

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Key challenges:

o Location, number and size of warehouses

o Handling equipment, human resources, Tech.
o Transport modes and delivery operations

This SCOR component is often outsourced. Why? We want to concentrate on the core business!

5) RETURN

o Return facilities location and number

o Handling, storage and transport of return products
o Recycling operations

Great concern due to recent environmental constraints!

LOGISTICS: THE QUALI TY ISSUE

Quality?

o Quality determines the success of a business

o Quality principles and rules have a strong impact on performance
o There are still difficulties in implementing the principles of Quality

“Quality” is not a matter of good or bad will of people but it results from a good or a bad management!

Some reasons behind the deterioration of “Quality”:

o Ambiguity of product specifications and working rules. Each actor has its own interpretation
o Machines are often out of order
o Work stations poorly lit or badly organized
o Work stations in disarray, cluttered aisles, mixed bins/trays
o Everyone tries to produce as fast as possible for operational profitability regardless of defects
o In case of accident: enhanced control after the event
o No preventive measures regarding to origin of the defect
o Purchasers continue to prefer cheaper suppliers
o Communication between services is insufficient everyone convinced that the fault is somebody else’s
o Need to set up in the company, a logical improvement plan (implications?)

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“Quality” definitions and issues from the client’s perspective

What is quality? Is a Rolls Royce car of a better quality than a Toyota car? No! The concept of quality is not
related to the intrinsic value of the product, but the expectations of the customer and his perception of the
product.

It is the customer satisfaction that makes the quality of the product, not the efforts spent to make it!

Quality must always be defined by a client-product relation: the quality of a product or service is its ability to
meet the needs of the users/clients. Give the customer the quality he wants! The customer satisfaction is wha t
makes the quality of a product.

Key principles to good quality

Principle 1: meet customers’ expectations

Principe 2: Zero Defect/Fault/Failure

Principe 3: Preventive Approach

Principe 4: Objective monitoring method QM, with clear and pertinent rules

Principe 5: Permanent Progress

LOGISTICS: INTEGRATI ON  SUPPLY CHAIN MANAGEMENT

Objective of supply-chain integration: Conception and pilotage of an integrated and coordinated system (of
materials, information, processes, functions and resources) where the priority is given to the overall optimal
performance and not to the local optima.

o An overall optimal is not the addition of local optima

o Local optimization approaches lead to the “Bullwhip effect”
o Accrual of local fluctuations that leads to a final high uncertainty

The breakthrough to be targeted:

To go from … To …

A fragmented Logistics An integrated Supply Chain process

A “Push” Logistics (from operations towards markets) A “Pull” Logistics (from markets towards
= upstream to downstream operations): customer at the center
A monolithic Logistics A differentiated Logistics based on a
permanent trade-off process
“service value vs cost”

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The final target must be an efficient consumer response (ECR).

Provide to the:

1. Right Client
2. The Right Product
3. In the Right Quantity
4. At the Right Place
5. At the Right Time
6. At the Right Conditions
7. At the Right Price
8. + With the Right Overall Carbon footprint! Environment and sustainable development: we are
more and more interested in the carbon footprint.

COURSE STRUCTURE AND GENERAL INFORMATION

The course is based in the SCOR Matrix:

COURSE PLAN (THEORETICAL PART)

1. SESSION 1: INTRODUCTION, DEFINITIONS, SETTING THE SCENE

2. SESSION 2: PLAN
3. SESSION 3: SOURCE
4. SESSION 4: DELIVER (WAREHOUSING)
5. SESSION 5: DELIVER (DISTRIBUTION & TRANSPORT)
6. SESSION 6: MAKE & INVENTORY MANAGEMETN (GUEST SESSION)
7. SESSION 7: INTEGRATION AND SUPPLY CHAIN MANAGEMENT
8. SESSION 8: QUALITY MANAGEMENT : PRINCIPLES AND MAIN ISSUES
9. SESSION 9: QUALITY CONTROL IN THE MANUFACTURING & SERVICES SECTOR
10. SESSION 10: TOTAL QUALITY MANAGEMENT MODELS
11. SESSION 11 & 12: CONCLUSIONS, KEY ISSUES AND LOOKING FORWARD

Theoretical Sessions (common to GEST-H-501 & GEST-D-482_p2):

o 12 sessions (2h each)

o Thursday 10h-12h (from Sept 22nd to Dec 15th, excepted Nov 3rd)

Written exam (common to GEST-H-501 & GEST-D-482_p2): Multiple Choice Questions, 1 hour, January

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LECTURE 2 – PLAN (11-10-2012)

A. INTRODUCTION TO PLAN

SCOR Matrix

Plan

o Market Demand: more and more things! Ex: cell phones. What will be exactly the wishes of the
customers?
o Quantities of finished goods
o Input Materials
o Human Resources
o $
o Manufacturing equipment
o Distribution systems
o Delivery operations
o Etc.

Keys challenges

 Context in constantly changing (consumers, regulations, products)

 Variability of Market Demand and new trends
 Variability of input materials’ costs
 Unexpected events
 Need to anticipate  risk, uncertainty. According to the teacher, it’s better with risk because it
induces creativity and incentive to innovate!
 Need to forecast at all levels
 Importance of forecasting on logistics performance

The plan is a very important phase of logistics management! The demand forecast is a key issue!! We need to
address the worst and the best case and see how the impact will be on everything (resources, performance…)
for our whole activity.

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 B. KEY ISSUES OF DEMAND FORECASTING

Forecast

o Basic Questions?
 What products are needed in the short, medium and long-term?
 Where, when and in what quantities?
 How many more workers and equipment do we need?
 What kind of equipment would be necessary?
 What about the necessary financial resources?
o Forecast influences directly or indirectly every function in a company
o It has a major impact on the performance of a company
o It’s a basis for all strategic decision in supply chain management

Demand forecast

o Ensure the implementation of the necessary resources at the right time

o Complex process
o Disaggregation into different levels corresponding to the type of decisions (strategic, tactical,
operational)
o Define the levels of activity (investment, workload, workforce, inventory levels of raw materials and
finished products) for a given fiscal year.
o This is the link between business strategy and flows management in the supply chain.

Plan addresses the strategy and forecast should provide the demand! The forecast informs about all the
resources needed and used to make the right color, fashion, size, type and quantity!

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 C. THE PROCESS OF DEMAN D FORECASTING

Problem definition : Forecast method Data

Purpose of forecast Data selection selection collection/Correction Apply forecat Method Forecast Error Analysis

1. Problem definition: Identify what to forecast?

1.1. Time Horizon:

o Long term (months, years) : Investments, R&D, new products
o Medium term (weeks, months): supply, production, distribution
o Short term (Hours, Weeks): operational activ, job scheduling
1.2 Elementary period of the forecast: per hour, week, month, quarter, year
1.3 Aggregate degree of the forecast
(level of detail): By type of items, colors, total number of items, etc.

For all the blocks in my plan, I need values. Why should we forecast? Because we need to identify the problem!
(Quantity, color…)

2. Data selection

2.1. Validity of data

o Reliable and accurate
o Relevant
o Consistent
o Adequate time horizon
2.2. Types of data
o Data series, historical data
o Others (regulations, political situation, weather & climate issues, advertising
campaigns, etc.)

Which type of data should we choose? Snap shots of the market (go to the market and make a survey). We can
observe the way the market is behaving = reveal ed preferences. Or we could try to experience ourselves.

3. Forecast method selection

3.1. Qualitative methods

o Based on experiences, observation, intuition…
o Many disadvantages (e.g. Delphi methods, consumer market survey …)
3.2. Quantitative methods
o Based on mathematical techniques
o Explicit (easier to analyze and improve)
o Statistical extrapolation of data series to estimate future demand assuming that the
market keeps past logic past
o Relationship between future demand and explanatory variables (statistical
regression)
o Qualitative and quantitative methods can be combined!

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 4. Data collection/correction

o Often difficult and time consuming

o Present context: data are rapidly obsolete
o Emergence of ICT : opportunity
o Real time data exchange (through the supply chain)
o Collaborative forecasting opportunities

How far can we use our data? Are they reliable?

5. Apply a forecasting method

5.1. Who?
o Field specialist or expert (good approach but bias risks). Bias involves a lot of issues
out of our control.
o Not-a-field specialist or expert (this approach is often ineffective and distrusted by
users. Obscure methods?)
o A forecasting committee!
5.2. How?

Important: Use Pareto principle (80-20 rule): 80% of sales come from 20% of your products  Focus
primarily on these!

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6. Forecasting Error Analysis

o Measurement of the performance of a forecast

o Measurement of the quality of a forecast
o It allows to accept or reject the forecast

D. FORECASTING MODELS

1. Forecasting Model?

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2. Data Analysis & Decomposition

3. Types of forecasting models

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4. Choice of a forecasting model

5. Random component

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 E. CONCLUSION

Conclusion:

o It is not always the most complex methods that provide better results
o Better an “intelligent” application of a simple method rather than the use of unreasonably complex
methods

LECTURE 3 – SOURCE (18-10-2012)

A. INTRODUCTION TO SOURCE

Source

o Input materials (supply, purchase)

o Input flows (continuous, on demand supply?)
o Storage of input materials : Do we have to store the input materials or do we use it directly (just in
time)?
o Timing of arrivals of input materials : Between the ordering and the production, the costs of the inputs
can change!
o Variability of input materials’ costs
o Quality of input materials : Who’s responsible for the quality of the materials?
o Unexpected event or change

It’s always better if you can share the risk. The best way to do it is to shift the risk back to the suppliers, so it’s
no longer your responsibility. However, the suppliers need to accept this risk!

Key challenges

 Identification and selection of the suppliers: you know the type of products you need (already
planned) but there are plenty of suppliers in the market, which one do you take?
 Quality control
 Integration of suppliers’ constraints: If we share the risk, we should also accept the supplier’s
constraints (e.g. price)!

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  Collaboration with the suppliers
 Partnership with suppliers

All these key challenges look simple, but it’s really difficult in practice. Why?

 Instability in the supplier chain because you can’t do all that you want with your sup pliers
 You can’t have “entente” on the price between sellers

Purchases & supplies are needed to acquire the necessary inputs in order to manufacture finished products or
provide services.

The function “Supply and Purchasing” has a great impact on the level of competitiveness of a company.

This function is of a changing nature and it is becoming a strategic issue for the companies.

Studies tend to show that at least 50% of the co mpanies’ inco me sta tements is attributable to that function of
purchase & supply! (Any gain on it is therefo re impo rtant: a small gain on this function may have a big impact
on your profits!)

 Purchasing: once quantities (and types) of inputs required and date of availability are known, it is
about selecting the appropriate suppliers (specifications) = Strategy (Wher e should I go? Which
supplier? It’s about selecting the right supplier; you already know what you want as a product).
 Supply: purchase order to suppliers, order tracking, receipt of order & quality control, and transfer to
the warehouses = Operations

The fluctuating (and sometimes unpredictable) nature of the economic environment proves the necessity to
have flexible suppliers and products with an adequate quality at the right time.

 Importance of purchasing !

Overview of internal information flows from purchasing:

Which company function is impacted by supply and purchase? Almost everything (see the picture)!

There’s a least 1 or 2 questions at the exam on this picture.

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 B. MISSION & OPERATIONA L OBJECTIVES

Seven key points

1. Find and acquire the ne cessary inputs (specifications are already set) according to clear and precise
specifications.
2. Target an objective quality level from the supplier: it’s stupid to target a too high quality of the
supplier can’t reach it.
3. Ensure the flexibility of the supplier (response to short delays, unforeseen variability of etc.).
4. Guarantee the level of services expected by internal customers (linked with quality): We talk about
internal customers because it can be something of your own company (there is also a supply chain
within the company, between departments).
5. Ensure a full control of related upstream risks: you must know the risks and how to control them.
6. Design & control company’s supply and purchasing policy.
7. Contribute to the innovation policy of the company through a good knowledge of upstream
(suppliers) innovations: it can be an advantage to have suppliers who could supply you with good
quality input materials, but also with ideas! That’s why you must innovate on each stage of the
supply chain.

o Quality, flexibility, level of service, risk and innovation!

C. THE PORTFOLIO

Definition

What should we purchase? A portfolio consists in a ll goods, services and facilities (information) purchased by
the company and clustered (clustering : we have a criteria on basis of which we cluster) according to a given
logic:

a) Purchase of direct (input) production materials: raw materials

b) Purchase of outsourced services/products
c) Purchase of transport and logistics services
d) Purchase of technical and R&D services
e) Purchase of energy
f) Purchase of investments
g) Purchase of overheads

o These clusters often cope with the tasks distribution observed within the Company’s
Purchasing Department.

Outsourced products or services are products that are not your own core business but that you may need, such
as cleaning services for example. The biggest problem now is the purchase of energy. Nobody can predict the
price of oil for the next years. And as we don’t have a lot of suppliers of energy, it’s risky!

D. PURCHASING STRA TEGY

What’s important now is to define a strategy. We should put a strategy into place (review it every year,
month?). For any type of strategy, we have 4 major steps.

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Four major steps

1. Clustering of the Purchasing Portfolio into homogeneous segments : it’s about knowing, definition of
the subject (e.g. cleaning, raw materials, energy …)
2. On each segment, we have to identify 3 things :
a. Identification of the economical stakes ,
b. Identification of the various associated risks,
c. Identification of the priority and specific leverages.
3. For each segment, definition of an operational action plan
4. Finally, definition of a performance measurement system for each segment and for all the segments: I
need to know if my strategy is working!

Focus on the second step

There are 2 types of risks:

o Risk linked to the supplier (market)

o Risk linked to the product (technical risk)

Segmentation and risk analysis according to three main axes:

• Axis 1: Economic stakes (Annual revenues of purchases)

• Axis 2: According to suppliers and associated risks
• Axis 3: According to product features and related internal risks, recurrence of purchase, etc…

Which type of product do you have if we have a low risk of market and product? Low risk means that plenty of
people can supply you with his product, so it’s a standard market: we have a competitive market. If there is a
risk linked to the supplier (market), it means that there are fewer suppliers (monopoly or oligopoly) and that
it’s a standard product (energy for example).

If there is no risk on the s uppliers, we can have risk on the product itself. This is the case for high tech products
with many suppliers (e.g. Iphone) or a few suppliers (e.g. engine for plane).

If you operate in both risks (market and product), what should be your reflex, how shou ld you act with your
supplier? What type of relation should you have? You have to do a partnership in order to survive as soon as
you have only a few suppliers that can provide you on high tech products. However, you don’t need any
partnership with suppliers that provide you pencils or such stuff. Acquire the supplier is dangerous because you
could get out of your core business.

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There is also a risk linked to the Globalization. You may have the best supplier in a country but if there is a
geopolitical instability you may be in danger.

The sequential process of purchasing strategy

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 E. SOURCING AND ELABORA TION OF THE SUPPLIERS

Management of the suppliers’ panel: evaluation of the suppliers. On what should we decide if we continue with
the same suppliers or should we add new ones?

The identification of the suppliers that can meet the needs of the company in terms of cost, time, innovation
and quality…

Four major steps

1. Market , Risk and Change Analysis

 Technological Foresight
 Benchmarking (between suppliers)
 Market trends
 Products trends/evolution
 Risks Analysis

2. Assessment and approval of suppliers

On which criteria should we assess the suppliers? It’s better to assess them a lot to ensure their quality.
However, it costs a lot so we have to limit the criteria!

 Competence and quality management system

 Competence and R&D innovation capacity
 Industrial competence
 Flexibility, logistics organization
 Reactivity / Additional services provided
 Level of competitiveness
 Compliance with sustainable development’s requirements
 Competence in terms of management skills
 Terms/conditions of delivery
 Total cost of acquisition (TCA) / economic conditions

3. Selection of the Suppliers Panel (use of multi -criteria analysis)

Usually it’s better to put higher (before you approve the final panel), “new
product/Business/Specifications/Criteria”.

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 4. Management (tightening) of the Suppliers Panel

 The panel should not be (is not) “frozen”

 Definition of a set of indicators to monitor suppliers’ performance
 Creation of subsets/pool of suppliers especially for riskier purchases
 Tighten progressively the Suppliers Panel, in order to avoid a scattering of purchases throughout
many sources
 Pay particular attention to new suppliers (newcomers)
 Set a Total Quality Management Plan with each supplier (win-win)
 Manage “ruthlessly” the elimination of bad suppliers if ever the recovery plans fail

Comments on the picture:

o Heart - most trustful and reliable suppliers

o Pool - they fit the criteria but are not the best
o To be eliminated - ready to be eliminated
o Prohibited: suppliers that don’t respect law, child labour…

Progressively, with the time, the heart should increase. Suppliers must shift from the pool to the heart. And to
be eliminated and prohibited should go together and we stop working with them.

o You must reduce the number of suppliers and the place of the heart suppliers must be bigger
than the others! You will not have a lot of pool suppliers at the end.

There is always at least 1 question about this picture at the exam!

F. COMPANY-SUPPLIERS RELATIONSHIPS

A very good management of company – suppliers relationships is critical!

 Makes more effective business links between a company and its suppliers
 Contributes to the decrease of production costs
 Contributes to the increase of the quality of raw materials supplied
 Increases the quality of services from suppliers (responsiveness, …)

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Three types of relationships

1. Traditional

It consists in a flat collaboration with the suppliers.

 Goal : increase profits through the control of costs (of purchases)

 Formal systems of evaluation and certification
 Open contracts (invitation to “deliver” rather than call tenders)
 Reliable forecasts of supply needs

2. Collaborative relationship dedicated to operational optimization

 It is not only the cost /price of purchases that matters

 Quality and high level of service required
 Real-Time Exchange of operational information between the company and the supplier
 Multi-annual plans (horizon)
 Overlapping of logistics systems, distribution systems, quality systems etc…

3. Partnership

 To cope with new business challenges: customization, rapid changes, short time-to-market,
ability to innovate quickly, etc.
 Suitable in the case of high level of risk or fast-changing technologies (IT, aeronautics, defense,
electronic business, etc.).

o Supplier is given a direct contribution in the design and evolution of the products
o Long-term r elationship, reciprocal commitments , mutual respect and transparency in
information exchange
o A technical co-contracting of final products /processes by joint R&D

Focus on the 3 rd type: Partnership

A specific tool: Supplier Relationship Management (SRM).

SRM is a set of tools to increase exchange of informa tion between a company and its suppliers.

Example of the data exchange system: in a supermarket, they detect electronically when ther e is not enough of
a product in the shelves and it orders by itself to the supplier.

When the relationship is mature and based on solid trust:

 Standardization of data exchange systems

 Integration of supply chain activities and processes , e.g. CPR - Collaborative Planning &
Replenishment
o A specific tool that retailers, distributors, manufacturers and suppliers can use to collaborate
on operational planning, forecasting, supply and replenishment.

24
 G. CONCLUSION AND FURTHER READINGS

Source

 Key challenges :
o Identification and selection of the suppliers
o Quality control
o Integration of suppliers’ constraints
o Collaboration with the suppliers
o Build gradually a Partnership with suppliers
 CPR - Collaborative Planning & Replenishment
 SRM – Supplier Relationship Management

LECTURE 4 - DELIVER: WAREHOUSING (08-11-2012)

A. INTRODUCTION TO DELI VER (WAREHOUSING)

“Deliver” is between source & make and between make & customers.

Deliver is an important function in the supply chain:

 It’s the interface producer-customer

 Its quality is critical since it shapes the first customer’s impression (which SHOULD BE positive!)
 It often requires a physical distribution network
 It often involves a WAREHOUSE (upstrea m or downstream) and/or an additional processing.
o A good inventory management system is critical!

B. ROLE OF WAREHOUSING, FUNCTIONS AND TYPES OF WAREHOUSES

Warehousing = grouping the products. This is the first contact (first impression) with the client. A good
inventory management is critical!

The use of warehouses in a distribution system can be justified by the need to:

o Cope with any variability of climate, market, prices, etc.

o Ensure delivery at the right time (shortening customer lead times)
o Group products from different producers/suppliers
o Save space in the manufacturing plant
o Increase quality of services

Warehouses can belong to the company or to a third party. As the warehouse activity is not the core business
of the company (most of the time), outsourcing can be a good solution.

Their role is to store items used to support production (raw materials, etc.) or finished goods to be delivered.

o The challenge is to reduce inventory costs!

25
Main warehouse functions

 QC = Quality Control. This is really expensive! Is the warehouse belonging to the company or is it the
warehouse of the third party? A third party of course! You will have to control the quality. But it’s not
the case if it is your warehouse (no second control). Or eating goods, the 2 control s are necessary!
 Cross-docking: to save money
 The in-control takes more time than the out-control. So, it costs more! There are also more things to
control when we receive the goods.

Four types of warehouses

1) Manufacturing support warehouse: it supports the production before the “make”.

2) Product mixing warehouse: they break the big packs and separate them to make a new mix, ready to
be delivered to customers. Example: yogurts (Nestlé, Danone,…)

26
3) Consolidation warehouse: Parts of A, B and C are put together to one product and then delivered to
the clients. Example: cars, bacs de bière (bacs & bottles delivered separately and put together in the
warehouse). All clients will receive the same.

4) Breakbulk

27
 C. A PARTICULAR FUNCTIO N: CROSS-DOCKING

Cross-docking: these activities bring value to the product fragmentation, sorting and repackaging)!

Example: computer made of different parts of different companies. They add a value to the product. Dell did it.

EXAM: What’s the difference between cross -docking and consolidation? There is no added-value with
consolidation! Beers have to be put in the “bac” before being delivered. That is just consolidation.

Principle

o Reception at the platform of pallets from multiple suppliers

o Fragmentation of pallets, sorting and repacking (each package may contain products from multiple
suppliers)
o Shipping packages to customers

Benefits of cross-docking

o Reduction of inventory costs in the central warehouse

o Increased Gross Leasable Area (GLA) of shops
o Reducing of storage points
o Greater frequency of products delivery
o Increase in product availability

o Average gains of +/- 20% of the storage time of a product!

28
 D. A PARTICULAR TYPE: THE PLATFORM

The platform is an intermediate physical entity in the distribution process which allows unloading, repackaging
and shipping of goods.

It’s not intended to store goods, but it facilitates transfers between means of transport. It is just a transit point.
Eventually, a value can be added or repackaging can appear, but they are not stored.

The main types of platforms are:

o Distribution platform
o Consolidation platform
o “Breakbulk” or “Re-sorting/Re-assembly” Platform

29
 E. WAREHOUSE MANAGEMENT

1. BASIC QUESTIONS AND CHALLENGES

Where should we locate the warehouse? Which size? Which picking system (automatic, manual…)? What kind
of skill do we need? What king of employees? Should we have a safety stock?

2. SUPPLIER  WAREHOUSE RELATIONS

Here are two basics graphic to show the two difficulties linked with inventory management. Those 2 models
are important models for warehouse management. There are very many models, no true or false. What’s
important is to learn to interprete “results”, and afterwards, to take a good decision.

When to order: order point

You don’t have to stock too much but nei ther too less. As soon as you reach the safety stock, you need to order
products. But be careful if you order when you reach this safety stock, it’s too late because before getting the
products, it takes time (called the lead time). So you have to order BEFORE reaching the safety stock. So that
when you will get the products, you will be at the safety stock.

You could increase the safety stock so that you have mor e time for the lead time but it would cost you. So you
could reduce it to earn more but then what if you face a high variability in the demand!? You have to find the
right quantity to have.

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 What quantity?

The second problem is quantity. If the quantity you order increase, the price per unit decreases (so the
ordering cost decreases). But at the same time, the more you order, the mor e you stock and so you have more
inventory costs. And you have to minimise the order cost and the inventory costs! This point is called economic
order quantity.

Key aspect: to have the right product at the right time (we will come back on this later, with another session):

o Importance of good sourcing

o Suppliers – company (warehouse) relationships
o Real-Time exchange of operational information between the company (warehouse) and the suppliers
o Standardization of data

3. BASIC EQUIPMENT, RECEIVING, STORAGE AND PICKIN G ACTIVITIES

Receiving

o Unloading, compliance and quality control

o Transfer to a predetermined storage point
o Declaration in the e-management (IT) system
o Traceability: barcode, RFID (especially for food)

Storage of products

o Identification/coordinates (3 items: x, y, z)
 Span/rack
 Column
 Level
o Assignment of a location:
 Random (unmarked)
 Fixed (dedicated)
 Mixed

CHALLENGE: to optimize the allocation of space!

o Could Pareto ABC approach be helpful (see session 2)? How?

20% of activity brings 80% of your revenues. It’s clear that if it is the case, you should allocate the best space to
those 20% of products. The products with higher turnovers and the heavy products should be the closest to the
shipping area.

According to the importance of flows and turnovers, fast-moving products should be located close to the
shipping area.

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Picking

Picking consists in collecting stored items in the warehouse and prepare them before shipping to customers.
The optimization of this operation can both increase productivity and improve the quality of service.

Rules in the warehouse (we may also have some other combinations):

 FIFO (first in first out)

 FEFO first expired first out: perishable products)
 LIFO (last in first out: export goods)

Orders can be prepared in different ways (you can save time and money there):

o Pick and pack: items for a customer are “packed when picked” then transferred to the shipping
area
o Pick then pack: all items for a customer are picked and transferred to the packaging area for
packing before transfer to the shipping area (you pack at the shipping area)
o Pick and sort then pack: items for several customers are picked and transferred to the sorting
area then to packaging area then to shopping area
o Etc.

By optimizing the way of preparing orders, you will save time, money and space but also you will decrease the
risk. If you have space or if the regulations put you some constraints you could pick then pack or even control
(the quality…) before packing!

4. CAPACITY OPTIMIZATIO N

The capacity optimization is the deter mination of the needed storage capacity. This is a typical math
optimization problem. For capacity optimisation, we usually use forecast at 5 years but the market is changing,
going faster so we are going to 2-3 years now. And we will forecast the quantity we need to receive, store,
deliver… And then you can find what you will need for it: technical resources, human resources…

Inputs: forecasts (5 years +) of quantity of products to be received, stored, delivered, frequ ency of delivery (in
and out)

Output:

o Storage space required

o Building dimensions/size (L, l and h)
o Technical resources needed (equipment, etc.)
o Human resources needed
o Necessary investments
o Operating costs
o …

5. KEY PERFORMANCE INDI CATORS

Key performance indicators are really important! The teacher will stress it all the time!

We have to measure to check that our strategy is okay. That’s why we need to have control points in order to
know if our strategy works. If we can’t check our strategy, then it’s not a strategy! W e must have key
performance indicators (KPI). That is why strategy goes always with performance indicators!

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Relating to Productivity

o Level of service (% tasks completed on time)

o Processing time (of orders)
o Cost/transit time
o Error rates
o Fill rate of the warehouse/platform
o Number of pallets handled/person/hour …

Relating to HR

o “No shows”
o Accident rate
o Satisfaction of workers …

Relating to Financial issues

o Inventory
o Assets …

6. TRENDS IN WAREHOUSE MANAGEMENT

Automation and computerization of warehouses is a key factor to reduce costs and significantly increase
productivity (we can automate 90 to 95% of the process between the time when you receive the good and
when you ship it):

o Automated storage and retrieval system

o Automated guided vehicles (AGV) via GPS system or laser

Use of Warehouse Management System (WMS):

o Manages all the activities of the warehouse, starting from the r eception through the optimization of
storage until shipping of products
o Monitoring of KPIs
o E.G. of WMS: Infolog, Générix, Crystal, Gold

Co-managed inventory (CMI):

o Collaborative approach which consists in the exchange information relating to the level of inventory
o Allows suppliers to make directly their forecast and planning
o Helps in sharing the risks and monitor KPIs
o Products are picked up and delivered when customers need it (PULL)
o Real time exchange of information between warehouse and customers
o Sound transportation management system: delivery with adequate transportation at reasonable cost,
safety & security issues, etc.

Co-managed inventory: for example, the supplier and the supermarket. The supplier knows exactly the stock of
its clients by an exchange of information.

33
CONCLUSION

As the primary role of a warehouse is to store items used to support production (raw materials, etc.) or finished
goods to be delivered, the critical challenge is to reduce inventory costs!

A particular trend is to introduce within the warehouses, cost efficient activities/actions that add value to the
products there in stored.

LECTURE 5 - DELIVER: DISTRIBUTION & TRANSPORT (15-11-2012)

A. INTRODUCTION TO DELI VER AND DISTRIBUTION NETWORK

We have delivery (and warehousing) between source and make. But the most important delivery (and
warehousing) is between make and customers.

Deliver is an important function in the supply chain:

 It’s the interface producer-customer

 Its quality is critical since it shapes the first customer’s impression (which SHOULD BE positive!)
 It often requires a physical distribution network
 It often involves a WAREHOUSE (upstream or downstream) and/or an additional processing.
o A good inventory management system is critical!

 If you don’t have a good delivery system, the customer will be unhappy for sure. You also need a
good system of warehousing in order to have a good system of delivery!

The main objective of a distribution network is to ensure at the lowest cost, a high level of service delivery
(shorter and flexible).

It’s an optimisation problem; we have to have the best delivery system at the lowest cost. There are a lot of
different transport modes but they don’t have the same quality. Sometimes, you can’t choose: you can’t use
trucks from China to Europe; you have to use boat, train or plane.

A successful achievement of the above depends on:

o Number and location of customers to be served (or suppliers)

o Type of distribution networks
o Number and location of warehouses/platforms
o Characteristics of transport networks

34
 o Characteristics of available of transportation means
o Rules/constraints in transport
o …

B. BASIC STRUCTURES OF A DISTRIBUTION NETWO RK

1. DIRECT DELIVERY (WITHOUT TRANSFERS)

The main advantage of direct delivery is that there is no need to have strong focus on inventory management
because you don’t have a warehous e: as soon as you have produced a product, you send it.

The main disadvantage of direct delivery is the complexity of this system when you have a lot of customers all
around the world (so it’s better for local distribution).

2. ONE LEVEL STRUCTURE

 A central warehouse
o Advantage= close to the customers and possibility to consolidate
o Disadvantage= transfers and breaking of loads

The one level structure, you have a central warehouse between the sources and the customers. The advantage
is that you are closer to the customers (and the market) and we can also consolidate. We can have different
sourcing and consolidate everything in the c entral warehouse. But the disadvantage is the number of transfers
and it’s also costly.

 A network of local stores

o Advantage= faster delivery
o Disadvantage= inventory level, difficulty to consolidate

We could also have some local stores between sources and customers in order to be really close from the
customers and deliver faster but it’s very difficult to consolidate then and you need a very good inventory
system.

Which one is better? It depends on the case; there are pros and cons for each.

3. TWO LEVELS STRUCTURE

Central warehouse with a network of regional stores

It consists in plants that supply warehouse that supply local stores that deliver to the customer

35
 o Advantage = consolidation is possible
o Disadvantage = high inventory costs

You have first of all a central warehouse and then local stores to deliver to customer.

The advantage is that we can consolidate in the central warehouse but it becomes much more difficult to
manage inventory (because you have to do it in each local store).

Central warehouse and a network of distribution platforms

Orders are prepared in the central warehouse then disaggregated and distributed from the platforms

You have a central warehouse (which is supplied by a source) and they sent it in distribution platform where we
don’t stock but we ship to all the transportation modes.

The advantage is that it’s interesting if you have a large level (set of countries) to deliver but you will have
difficulty in inventory management. You can also find combination of the structures, but those are the basic
ones.

 When you choose, you have to check the pros and cons of each system and take the one that fits
with your expec tation the best but you must be careful because you can’t change it so easily after
because it’s linked to buildings and so on. You can do step by step, increase slowly. First you do
local shops and then you add a central warehouse for example.

Why should you have a safety stock (buffer quantity and time)? Because we are facing a lot of uncertainty!
They are a lot of unexpected events that can influence the demand, the offer…

You don’t have the choice, because of competitors, if you don’t react straightaway, customers will go to see
somewhere else.

C. OPTIMIZATION OF A DI STRIBUTION NETWORK

The economic optimization of a distribution network depends on number, size and location of warehouses,
stores, platforms and needs of inventory/shipment.

36
If you increase the number of warehouses, the cost of transportation decreases. However, at the end it will
increase again if you have really too many warehouses but we don’t consider it (see next picture) because the
customers are closer. But it will increase the cost to supply the warehouses and it also increases the inventory
cost because each warehouse will have to be linked to the inventory system. It will also increase the number of
storage and the information processing.

At the end, what we find is the last graph (when we put everything together), and from there we can find the
best number of warehouses.

The location is also very important and you will use optimisation process to find the best place to locate.
Example: Firemen - they must arrive in the 10 minutes after the fire started, if not it will be too late!

This is exactly the same as on the previous picture.

D. TRANSPORT

What are the components of the distribution network?

Plants, warehouses, local stores, distribution platforms and customers  the link between them is where you
find the transport!

Transport is the connection between the levels of the distribution network. Its quality is a key component of
overall service quality.

Here are different transport modes:

o Road

37
 o Rail
o Waterways
o Maritime (increase in containerization, 75% of global freight traffic)
o Air
o Multimodal
o Intermodal

1. TRANSPORT EXECUTION PROCESS: COMPLEXITY & COSTS

Transportation can be seen as an easy task but if you look at the execution, it’s quite complex. It involves more
and more information processes of different types.

There is the transport from the buyer point of view (where you have: shipping of course but then customer
service of the organisation must know it to warn the customers and also the accounting department to make
the bill), there is also the part from the carrier point of view (he has to plan everything, deliver, billing…) and
finally, there is also the part from the customer point of view (receipt, pay, comments on the products…).
You can find questions to evaluate the transport event management performance at the end of the slide.

38
The 100% represents the total cost of delivering. We could divide it into two blocks: warehouse and inventory
management (65%) and transport (35%). This was the way it was divided something like 20 -30 years ago.

Nowadays, we have warehouse (45%) and trans port (55%) because nowadays we decrease the cost of
inventory (because now we manage it much better) but we didn’t find really solution to the transport. Since a
few years, we are working on this problem to decrease the transportation costs. However, we c an see that, in
total, the costs have increased.

2. INTERMODAL, MULTIMODAL, COMBINED TRANSPO RTS

Definitions

Intermodal transport = transport of freights by using two or more transport modes with the same loading unit
or the same vehicle without handling of the goods while changing modes.

Multimodal transport = the use of two and + modes.

Combined transportation wher e the major distances are covered by rail, inland navigation or mariti me
navigation and the departure and arrival sections by road (also called pre- and end-haulage).

When you speak about combined transportation: it’s about using rail for the major distance and then truck.
Note: The professor doesn’t agree that navigation should be in this category of combined transportation.

Multi modal, inter modal or combined transport

o Additional storages
o Additional transshipment points
o Additional risks

39
You could use the ships as a mobile warehouse.

Trucks can go faster, but is it useful if at the end the goods stay for some days before being used, couldn’t use
ship (canal)?

3. CRITICAL TRANSPORT CHALLENGES & KEY TRAN SPORT STATISTICS

Critical issues

o Increasing environmental constraints

o Globalization, international transport
o Need for transport
o Transport fleet needed
o Transport costs (fixed, variable, overheads)
o Choice of transport mode
o Route optimization

This is seriously unbalanced. We have to find a way to decrease the use of the roads.

40
Key Statistics

EU trends:

o Unequal growth of (freight) transport modes

o Growing conge stion (7500 km of road daily congested in EU +/ - 10%)  80 billion € in 2010 (+/- 1%
EU GDP)
o Severe social, health and environmental problems

European Council (Goteborg, 2001/06/15-16): The modal distribu tion is unbalanced and needs to be balanced
to cope with the sustainable development requirements.

There is a mistake on the graph: for Truck, the first one is > 3 and the second one should be <30!

41
LECTURE 6 – MAKE & INVENTORY MANAGEMENT (GUEST SESSION)

LECTURE 7 - INTEGRATION AND SUPPLY CHAIN MANAGEMENT

A. SUPPLY CHAIN INTEGRA TION & MATURITY LEVELS

The breakthrough to be targeted:

To go from … To …

A fragmented Logistics An integrated Supply Chain process

A “Push” Logistics (from operations towards markets) A “Pull” Logistics (from markets towards
= upstream to downstream operations): customer at the center
A monolithic Logistics A differentiated Logistics based on a
permanent trade-off process
“service value vs cost”

Objective of supply-chain integration

It’s the conception and pilotage of an integrated and coordinated system (of materials, information, processes,
functions and resources) where the priority is given to the overall optimal performance and not to the local
optima.

 An overall optima performance is not the addition of local optima

 Local optimization approaches lead to the “Bullwhip effect”
o Accrual of local fluctuations that leads to a final high uncertainty

There are 3 levels of maturity corresponding to 3 types of supply chain management

Type 1

o Clustered “Vertical functions” (R&D, Production, Marketing…-

o Target parameters: product cost

Type 2

o Still clustered but some functions are grouped

o Target parameters: product cost and product quality

42
Type 3

o “Client oriented” organization, internal integration, supply chain manager

o Target parameters: cost, quality and respect of promises made to the client

Type 4

o Cooperative approach, external integration from the supplier to the final client/customer
o Target parameters: build a strong competitive advantage

43
 B. DESIGNING A PERFORMA NCE MEASUREMENT SYSTEM

The Generic Supply Chain Performance Measurement Model

 Dimension 1: Effectiveness (performance expressed in terms of expected operational results)

 Dimension 2: Efficiency (link between operational decisions and results obtained)
 Dimension 3: Ratio productivity/cost (results obtained and resources used)
 Dimension 4: Internal reference values/targets or benchmarks
 Dimension 5: External Reference values/targets or benchmarks

Supply Chain Performance indicators

An indicator MUST have the following characteristics:

 Pertinence ( really related to the objective, the targeted item)

 Quantifiable (from the available information/data)
 Perennity (in time)
 Unchallengeable, « uncontestable » by the users
 Sensibility (to cope with the level of detail defined)
 Unbiased (no possibility of multiple interpretations/understanding)

Internal and external benchmarking

 Internal Benchmarking
o Multi Business Units Groups: objective is to lift the Bus performances to the level of the best
performing BU.
 External Benchmarking
o Objective is to lift the Company’s performances to the level of the best performing company
within the sector (Best Performers, Best in Class).
 Internal: Bus should operate on similar markets and under similar conditions

 External: Companies should operate within the same industrial or services sector.

 Difficulties :
o Data Availability (but linked ERPs could help)
o Data confidentiality (data sharing ?)
o Benchmarking is always a win-win exercise

44
The final target of any supply chain must be an Efficient Consumer Response (ECR)

Provide to the:

1. Right Client
2. The Right Product
3. In the right quantity
4. At the Right Place
5. At the Right Time
6. At the Rights conditions
7. At the Right Price
8. + With the Right Overall Carbon Footprint!

 How to design an ECR + evaluation platform and an aggregated monitoring index?

C. (BASICS OF) AUDITING SUPPLY CHAIN PERFORMANCES

Objectives

 Assess the performances of the company’s functions

 Determine the levels of maturity of the company’s supply chain
 Highlight the potential for progress (Progress zones)
 Determine the decisions/plans to be put into place in order to reach a higher integrated level (move to
the progress zone)

Maturity levels

Framework for the determination of SC maturity level

45
Determination of SC maturity level

Methodology:

1. Each of the 6 fields is divided into attributes (subcomponents)

2. Each of these attributes is evaluated with respect to the level of integration
3. The consolidation (aggregation) of the above evaluations helps in highlighting, for each field, the
actual level of maturity.

The above evaluations:

 Are used for the benchmarking process: comparison with other companies ’ values and often the «
best-in-class » company
 Highlight the gaps with the highest maturity level .

Diagnostic: This company’s supply chain is mostly « operations » oriented. Ther e is no external integration, no
preventive management of unexpected events (e.g. supplier failure) no integration between internal functions.
The performance parameters are all centered around product delivery, product cost, product quality and not
the competitive advantage.

46
 D. CONCLUSION

Deploying a (successful) supply chain strategy is a permanent process!

LECTURE 8 - QUALITY MANAGEMENT: PRINCIPLES AND MAIN ISSUES

B. INTRODUCTION TO THE CONCEPT OF “QUALITY”

1) UNDERSTANDING THE CO NCEPT OF “QUALITY”

 Quality determines the success of a business

 Quality principles and rules have a strong impact on performance
 There are still difficulties in implementing the principles of Quality

“Quality” is not a matter of good or bad will of people but it results from a good or a bad management!

2) REASONS BEHIND THE DETERIORATION OF “QUA LITY”

 Ambiguity of product specifications and working rules. Each actor has its own interpretation
 Machines are often out of order
 Work stations poorly lit or badly organized
 Work stations in disarray, cluttered aisles, mixed bins/trays
 Everyone tries to produce as fast as possible for operational profitability regardless of defects
 In case of accident: enhanced control after the event
 No preventive measures regarding to origin of the defect
 Purchasers continue to prefer cheaper suppliers
 Communication between services is insufficient everyone is convinced that the fault is somebody
else’s

There is a need to set up (formalize) in the company, a sound and continuous improvement plan.

3) QUALITY ISSUES FROM THE CUSTOMERS’ PERSP ECTIVE

 What is quality?
o Is a Rolls Royce car of a better quality than a Toyota car?
 Concept of Quality is not related to the intrinsic value of the product, but the expectations of the
customer and his perception of the product
 It is the customer satisfaction that makes the quality of the product, not the efforts spent to make it!

47
Quality must always be defined by a client-product relation: The quality of a product or service is its ability to
meet the needs of the users/clients!

4) QUALITY ISSUES FROM THE COMPANIES’ PERSP ECTIVE

 Artisan or shopkeeper receives immediate appreciation from the customers and adjusts its offer.
 It is not the case of an industrial organization: the product nature and the number of people involved
in the production do not allow a direct, permanent contact with the customer.
 In this case, “Quality” is a complex process defined by a two-steps mechanism:
o Specification of needs (simulates “contact” with the customer)
o Production in accordance with the specifications

5) THE “QUALITY LOOP”

Simple definition but not that easy to achieve! Three major difficulties:

Difficulty 1: Number of players in the process

Numerous entities and persons are involved in the production process  a high probability of occurrence of
errors

 Productivity : Sum of the efforts provided by the differ ent actors involved in the production process
[Additive characteristic]
 The “No-Quality” at a point in the production process cannot be compensated by an “Over -Quality”
made elsewhere in the process

[Quality = Disjunctive characteristic]

Difficulty 2: “Combinatorial”

 Complex product = Opportunities for defects increase

 Example:
o A simple car with 10,000 components.
o If for each component the probability of default is 1/10 000, the proportion of finished
vehicles without any default will be only 1/3!!! (0.9999 power 10 000, say 36%)

48
 [There is only one principle that should apply: Zero default/defect]

Difficulty 3: Induced cost

 Who is willing to pay a (promised) default less car five times more expensive than the normal market
price?
 Ensuring product “Quality”= YES, but not at the expense of very high induced costs (inspections,
controls, reworks/changes, etc).

[“Quality” sets a real company culture with values & principles!]

6) A TENTATIVE DEFINITI ON OF THE CONCEPT OF “QUALITY”

 “Quality” is not a matter of good or bad will of people but it results from a good or a bad
management!
 “Quality” sets a real company culture with values & principles!
 “Quality” must always be defined by a client-product relation

 The quality of a product or service is its ability to meet the needs of the customers (users, clients).

C. THE FIVE FUNDAMENTAL PRINCIPLES OF QUALI TY MANAGEMENT

PRINCIPLE 1: MEET CUSTOMERS EXPECTATIO NS

Compliance with the customers’ needs and expectations:

 Must be applied to all levels of the company

 All services must be adequately informed
 “Quality” in the way of doing is necessary between these internal services who should behave like
"clients-suppliers“do.
 “Over”-Quality must not occur!

PRINCIPLE 2: ZERO DEFECT/FAULT/FAILURE

There is only one acceptable standard "target”: zero defect!

 No target such as "close to 100%”

 Expression is percentage may be dangerous! 99.99% success rate means:
o At least one flight would crash per day at some airports
o Tens of thousands of false medical prescriptions per day
o Tens of thousands of erroneous banking operations pd
o Hundreds of errors at ATMs per day
o Etc.

PRINCIPLE 3: PREVENTIVE APPROACH

Only one viable method: a preventive approach. “It is better safe than sorry “.

 Avoid generating defects because this involves repair or scrapping costs

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  Investigate systematically the causes of the phenomena and tr eat them rather than addressing the
effects
 Anticipate upstream the supply chain and “drive” your suppliers to adopt the same approach.

PRINCIPLE 4: OBJECTIVE MONITORING METHOD QM, WITH CLEAR AND PERTINEN T

RULES

Meet two essential conditions:

 A first essential condition: Have an objective measurement system with clear and indisputable
indicators
 A second essential condition: Formalize rules and methods for:
o Internal and external communication
o Training of employees (on these QM management tools)
o Ensuring their reproducibility at all stakeholders levels

 Develop and maintain a Quality Handbook

PRINCIPE 5: PERMANENT PRO GRESS

Establish an effective system for continuous improvement

 Business is not (cannot be) a juxtaposition of specialists, performers and operators

 Managers and leaders are becoming “MCs”
 Think first to eliminate the causes of the problems rather than their effects. The effective resolution of
the problems should involve the operators
 Operators have extended responsibilities

 Quality : a long and continuous process of learning and progress

D. ABOUT THE COST OF “QUALITY”

Quality acquisition cost

This is a dominant concept in the industry until the late 80.

Find the best economic balance between costs related to compliance and costs of no-compliance (no-quality)

Hypothesis - These two types of costs vary inversely:

 Compliance costs : costs of prevention + costs of quality control

 Costs of no-compliance : costs of internal failures (scrap, rework) + costs of external failures (repairs,
exchanges, claims, losses in terms of image, ...)

Find the best economic balance between costs related to compliance and costs of no-compliance (no-quality)

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  Costs of no-compliance (no quality) do not include indirect effects on inventories at all level and
overhead costs.
o Example: the management team of a workshop spends half of his time dealing with the
consequences of non-quality and this cost is not taken into account. Amounts observed in
some companies can be extremely high!!!
 BUT: Is it appropriate to ask the question in terms of economic balance when it is about a distortion
between what should have been done and what has been done?

The only way out: Ensure the systematic application of the "zero defect” concept and develop adequate quality
management systems.

E. ISO CERTIFICATION

1) BACKGROUND AND CONTEXT

 To certify a company is to acknowledge that it has a Quality Assurance System in accordance with
standards explicitly defined.
o Military and nuclear sectors have been the first to use a formal process to certify their
suppliers.
o Subsequently, the standards have tended to increase, which involved endless controls.
 The series of International standards ISO (International Standard Organization) were established in
1986 (updated in 2000 and 2008) to streamline and strengthen all the references relating to Quality.
 If the certification confirms that a company applies the ISO recommendations, it does not prove that
the products are of a good quality!!!
 The certification attests that the ISO procedures exist and are enforced, no more, no less.
 The certification process of a company is conducted by an independent agency (control and
certification bodies, etc…).
 Certificates are valid for a limited period (usually 1 to 3 years)
 Many companies have embarked on a project certification (industry, services, restaurants, training
organizations, etc.).
 The efforts needed to achieve certification are important and costly: analysis of existing procedures,
make them conform to the standards, prepare and draft the documents required by the targeted
standard/certificate, etc…
 The companies therefore expect from the certi fication:
o Recognition by the customers
o A simplification/decrease of inspections and audits by customers
o An organization more transparent and easier to understand/use by all employees

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 Going through a certification process is an opportunity to engage all employees in a “Total Quality”
approach/way of doing.

2) THE 7 KEYS TO CERTIF ICATION

1. Have a strong and motivated commitment from the Management Board (should set an example)
2. Select a Leader of the operation
3. Choose the ISO model that fits the best
4. Make a thorough assessment of existing company procedures and processes
5. Mobilize st aff through adequate training and indicate clearly the place, role and responsibility of every
single employee
6. Define a “Quality dashboard” (Monitor) to measure progress
7. Improve and complete the company’s Quality system to guarantee its compliance with the
requirements set by the selected ISO model.

 Communication will be the "cement" of the project!!!

3) ISO NORMS, OTHER NORMS & CERTIFICATION BODIES

 ISO standards relate to the processes and their coherence and not to separate operations.
 Focus is on the quality and efficiency of transversal processes (linking different sectors) and not on the
sole quality of operations in a given sector.
 Focus on the existence of a real dynamic of progress wi thin the company and the effective
participation of all actors (staff, etc.)
 Focus on quality assessment at all levels (management, operations, communication, etc.)

 Certification of companies is a booming market

 In most countries there are recognized certification bodies
 At European level there is the EAC (European Accreditation Council), which includes several European
countries.
 To get the European Label, a certification body shall undergo the EAC audit
 There are also associations that act as certificati on bodies and have a great standing in the country
(and feared by many industries): Test Achats, Consumer Associations, etc.
 There is yet no global, world consensus related to standards in the social, environmental and
corporate social responsibility fields.
 However strict norms do exist and one may refer to these if needed
o OAHSAS 18001 : Occupational Health & Safety Management System
o SA 8000 : Social Norm (edited in 1997 by the US Council on Economic Priorities Accreditation
Agency)
o FD X30-021-SD21000 : Sustainable Development and Corporate Social Responsibility - (2003)
 A client may impose to a supplier the respect of requirements stricter (or less) than the usual
standards:
o Additional security issues, use of specific equipment, etc.
o This is the case of defense, aeronautic and nuclear sectors.

F. CONCLUSION

 Quality must always be defined by a client-product relation:

The quality of a product or service is its ability to meet the needs of the users/clients.

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  The unique viable approach is the “zero default” approach
 “Quality” should not only focus on the product stricto sensu but rather on the underlying system,
procedures and people that make the product.
 More on more companies build their business on this statement.
 A necessary move is the permanent improvement process (permanent progress) through the PDCA
(Wheel of Deming) methodology:
o PLAN - HR, materials, resources, equipment, production process, delivery...
o DO - Design, production, management, measurements
o CHECK - measure deviations, audit, customer feedback, analyze data
o ACT – control of non-conform products, repairs, preventive checks , lessons

LECTURE 9 - QUALITY CONTROL IN THE MANUF ACTURING & SERVICES SECTOR

A. QUALITY CONTROL: CLA SSICAL INDUSTRIAL AP PROACH

1) INTRODUCTION

Issue: Repair faults progressively when manufacturing because the repair costs rise fast if we do not detect the
default in time.

2) BASIC QUALITY CONTRO L TECHNICS

a. Control by measure: when it is possible to quantify exactly the feature to be evaluated: weight,
thickness, size, etc.
b. Control by attribute: when the characteristic is qualitative and is assessed on a "all or nothing" basis:
bad wine, bolt passes or not through a given section/ring, etc.

It is often possible to transform control by measure into control by attribute:

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 o Instead of measuring the diameter of a piece whose value is D ± t, we can instead make sure
that it does not pass through a ring of diameter D - t as it passes through a ring of diameter D
+ t.

Control by attribute is easier to implement but in the case of statistical control, it is less effective and gives less
information about deviations in the production process

c. Control per unit: systematically control all products

 Difficult and expensive in the case of mass production
 Impossible in the case of destructive“ control (rupture tests)

d. Statistical control: deter mines the characteristics of a batch of products by controlling a small sample
of these.
 Advantage = Reduction of control costs
 Disadvantage = loss of precision in the measurement of qua lity

3) STATISTICAL CONTROL: ISSUES, EFFECTIVENESS AND RISKS

Let’s consider a set (lot) of good and bad pieces . Assumption: the set is homogeneous, i.e. if we choose a
random sample, it will represent statistically the set.

But if pieces are made on two different production lines, the set will not be statistically homogeneous.

Example of the case of the fruit seller: the (beautiful) image provided by the fruit baskets are not often
representative of the actual quality.

Example: a plant receives 10 000 diodes with a 5% of defective parts . If we gradually control the entire set, the
number of bad pieces will increase to 500

 Lower curve: unlikely event that defective parts were drawn mostly at the end of the batch
 Upper curve: unlikely event that defective parts were drawn mostly at the beginning of the batch
 Between these two curves there is an infinite number of paths (draws) that converge when the
sampling progresses.
 If we increase the sample size, the upper and lower curves come close in relative value and
uncertainty decreases. But the cost of control increases .

 Let’s consider a sample of 200 pieces and let’s analyze the results

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 o There is a possibility to detect 5 bad pieces out of 200 (favorable draw) or 15 out of 200 (unfavorable
draw).
o Should we conclude that the batch is with 2,5 % defective parts (5 / 200) or 7.5% (15/200)?
o What information can we learn from this?
o In the first case, the sample overestimates the quality of the batch and if it is accepted, the customer
is penalized (customer's risk)
o In the second case, the sample underestimates the quality of the batch and if rejected the supplier is
penalized (supplier's risk)

 There is a risk associated with statistical control and we must be aware of it.

4) ORGANISATION OF QUALITY CONTROL

Where to place the control points?

 If a defective part is not detected in time, it will move forward through the manufacturing process
until the next control when it will be detected. Meanwhile, value is added to a bad part: That is the
propagation in space.
 If we do not detect immediately a default due to malfunction of a machine, defective parts will be
produced until the elimination of the malfunction: it is the propagation in time.

Economic studies should determine the best strategy according to (cost of controls, a foreseeabl e risk of
occurrence of default upstream, additional costs res ulting from the propagations in time and space).

What is the acceptable level of quality for a batch of parts?

Traditional industrial approach: Set an acceptable quality level by degree of severity of defects: critical defects,
major defects, minor defects, etc.

This approach is now being challenged: many companies send back to their suppliers a delivery of 10,000
pieces when a single defective piece is detected!

 Only one concept should prevail : Zero Defect!

Who ensures the controls?

 Classical School: Who does the work should not control it! Use instead, specialized (and independent
from the process) controllers.
o Mistrust about the individual performing the work,
o Technical inability of the worker to perform an objective measure.
 Modern School: Train the workers and provide them the means necessary to control their production.
o High speed of response
o Time savings
o Involvement of workers

Does not mean neither we give up any rule nor an independence from the hierarchy! Intermittent controls are
conducted rather as audit and verification of:

(1) compliance with procedures and

(2) effectiveness of auto-control.

B. QUALITY CONTROL: PREVENTIVE APPROACH IN THE INDUSTRIAL SECTO R

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 1) FROM PRODUCTS CONTROL TO PROCESS CONTROL

Objective: Act before the defect occurs!

Example: Statistical Process Control (Statistical Process Control)

Control samples at the output of a ma chine (ex: 1/50) and record the measurement on a control chart. When
the value exceeds the control limits set (before the product is considered unacceptable) or when a suspicious
deviation is detected, the machine is stopped and the cause is sought and treated.

Control Chart

2) POKA YOKE AND OTHER DEFAULT PREVENTING DEVICES

Objective: Act before the defect occurs!

The idea is not the result of a theoreti cal work but the good sense and pragmatism of users (e.g. spouts of
petrol pumps vs diesel, etc.). Ther e are simple systems (ad hoc templates) or sophisticated (photoelectric
detection cells on conveyor belts to alert the presence suspect pieces).

Example:

3) QUALITY IN THE DESIGN PHASE

Objective: Act before the defect occurs!

 When a design bureau is interested in quality, he thinks mainly to improve product features:
performance, aesthetics, reliability, etc.
 There is a risk that this focus on performance is done at the expense of the ease of production.
 Some problems may arise in workshops from inadequate design of the product (manufacturability of a
product).
 A close collaboration between designers, R&D and production services (regular meetings of projects,
etc.) is necessary.

4) QUALITY OF SOURCED MATERIALS

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Objective: Act before the defect occurs!

 Buyer (client, customer company) will not tolerate a delivery with a certain percentage of defective
parts (the concept of "statistically correct" is no longer tolerated!!!)
 Buyers do not want to control the delivery especially if they are working under JIT scheme: trend is to
have it done by the supplier!
 The quality of a supplier is not limited to the quality of its deliveries but also concerns the quality of its
machines and organization, the competence of its staff, etc.
 Supplier must have an appropriate Quality Manual and undergo periodic control audits or Quali ty
Certification.

 Concept of Quality: strengthening the quality of a product means to focus on the quality of the system
that realizes it rather than the product itself.

C. QUALITY CONTROL: THE CASE OF THE SERVICES’ SECTOR

1) KEY CHARACTERISTICS

"In the sector of services, a satisfied customer tells it to 3 people and a dissatisfied customer tells it to 100
people (even more nowadays).”

 A service is intangible (not a material good, is not produced in advance and is not portable: it is made
usually in front of the customer)
 A service is not storable (production and consumption are simultaneous): you cannot store airline
places, if number of passengers is less than capacity, the company bears the loss and if passengers are
more than capacity, some people should be denied boarding => Customer dissatisfaction
 There is direct contact between "production" and client (which is not the case in the industrial
sector), hence the importance of selecting and training appropriately the staff (this affects the quality
perceived by the customer)
 The customer often participates in the production of the service (self-service supermarkets, ATMs,
etc.).
 The service must be made wher e the customer is located (the intangible service is not portable), so
there is a need to develop capabilities of service at the site of consumption: the location of
“production” sites will be constrained by the location of consumption places.
 A service is often a "package" (combining several basic services: hotel, restaurant, etc). It is critical to
manage the interactions between sub-services.
o Positive interactions : guarantees the inflow of customers
o Negative interactions : Perceived quality of each service affects the other services

2) QUALITY LOOP IN THE SECTOR OF SERVICES

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  Quality perform ance should be nurtured at the design stage (good understanding of customer
expectations and clear identification of the potential risks of non-quality)
 Quality assur ance must be made before production not after as is the case with industrial activi ties
(eg haircut: a client does not exist before and cannot be demonstrated; and when poor ex ecution
occurs, there is no possibility to return to the "producer" for repair)
 Quality control is necessary during the process (execution of the service), not after.
 Standards of quality in the services sector not as clearly marked as for the industrial products: (be
familiar with the expectations of the customer in order to properly design the supply of services.)

Physical and psychological determinants of the qua lity for the customer:

o Definition of standards (reception, equipment, appearance of staff, etc.).

o Listening to customer needs (research and identification of needs not clearly expressed)
o Reliability and responsiveness: the conviction of the customer in company's ability to meet the
contract (clear vision of the knowhow)
o Accessibility and helpfulness of staff, easy contact, courtesy, friendliness, etc.
o Credibility with the client (perception of fairness and honesty)
o Control (all must appear well controlled, the client hates to feel as there is "no pilot in the airplane")

3) EXPECTED VERSUS PERC EIVED QUALITY: THE REFERENCE MODEL

In the service sector, the expected quality is the result of the potential need of the cl ient, his previous
experiences, information received by word-of-mouth or communication of actors such as consumer
organizations or rating agencies

This expectation of the customer must be translated by the producer of the service into specification of service
offered

Several distortions can occur (5 types):

1. Gap potential need-expressed need

2. Gap expressed need-pattern (specific service to be provided)
3. Gap pattern-final service offered (rendered)
4. Gap service offered-customer satisfaction
5. Gap promise made to the client-service provided

 Quality of service is the resultant of these differences !

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Actions to be taken to reduce the potential gaps :

 Define cle arly the service offered (GAP 1) and define the target audience (to be careful not to cover too
much: a too large offer comes at the expense of quality)  Market studies/research.
 Specify all aspects of the service offer ed ( GAP 2). There should not be a permanent improvisation. Define
ranges, recipes, menus, etc., very carefully.
 Monitor the implementation of the service (GAP 3): it’s difficult to repair a badly rendered service as it is
non-storable. Use quality assurance process approach, ensure appropriate training of staff, etc.
 Meet the expectations of customers (GAP 4): safety, consistency, attitude of workers, emphasis on the all
details that found customer loyalty.
 Explicate cle arly the promise (GAP 5). One must explain the promise of service to avoid any
misunderstanding. Beware of false and misleading advertising!
 Develop a system for measuring the perceived quality (physical and psychological indicators). These are
indicators that should enable a posteriori to draw lessons : claim rates, average waiting times, frequency of
purchases/ renewals, etc.
[Through satisfaction surveys a priori or a posteriori]

D. CONCLUSION

Preventive approach through the permanent improvement process (permanent progress) based on the PDCA
(Wheel of Deming) methodology:

 PLAN - HR, materials, resources, equipment, production process, delivery...

 DO - Design, production, management, measurements
 CHECK - measure deviations, audit, customer feedback, analyze data
 ACT – control of non-conform products, repairs, preventive checks , lessons

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LECTURE 10 - TOTAL QUALITY MANAGEMENT MODELS

A. INTRODUCTION

We started talking about the quality of the product sold, and then gradually we have integrated the quality of
the underlying production process, the quality of the management and the quality of the human resources.

Gradually we have defined the field of Total Quality which includes:

 Customer focus, that is the essential element of the company

 Zero defect; that does not respond to an economic logic of optimization but belongs to the value of
the company.
 Joint action of all stakeholders, everyone participates to quality function (phone operator, desk
operator, sales operators, drivers, accounting services staff, customer dept’s staff, marketing, etc.)

 That is why many companies build their Business Plan around this issue!

Major shift: from Taylor Concept to Permanent Progress/Continuous Improvement Concept

Preventive approach through the continuous improvement process (permanent progress) based on the PDCA
(Wheel of Deming) concept:

o PLAN - HR, materials, resources, equipment, production process, delivery...

o DO - Design, production, management, measurements
o CHECK - measure deviations, audit, customer feedback, analyze data
o ACT – control of non-conform products, repairs, preventive checks , lessons

Several concepts and tools can help companies to implement and manage an Efficient and sustainable Total
Quality System:

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  Kaizen methods
 Six Sigma
 5S
 Lean Production
 Autonomous teams
 Etc.

B. THE KAIZEN METHODS

1) DEFINITION OF THE CO NCEPT

Kaizen is a concept of continuous improvement:

“Everyone must continuously make improvements on his work/workplace”

Japanese companies attach importance to Kaizen, they find that:

 Despite the quality of equipment and methods, there is potential for progress that is expressed only
during the implementation phase.
 The person the better placed to suggest improvements is the one who uses the device daily.
 TOYOTA leaders estimated that productivity gains are 50% from Kaizen methods and 50% from new
investments (a point of view which is shared nowadays by the Western industrials!)

FUKUDA’s study on several plants of the Japanese Sumitomo Group (rubber)

Increasing productivity gains from 20 to 25% can be achieved:

 Either by an investment of about $ 7,000 / person / year

 or by increasing the number of suggestions from 3.5 to 5.5 per pers on /year

One suggestion per person per year is equivalent to an investment of ± 350 0$

Masaaki Imai’s study

Performance increase always involves 2 components:

 Structural modification in technology or organization (innovation)

 All (non-structural) improvements made continuously by the workers (Kaizen)

Consider 2 strategies:

(1) Innovation + Kaizen

(2) Innovation only

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  In the absence of Kaizen, performance degrades after each tech or org change;
 Kaizen allows increasing performance continuously between two major “jumps”.

2) SIMPLE SUGGESTION SYSTEMS

 Oldest example of application of Kaizen: Eastman Kodak in 1898: William Connors, employee, suggests
to clean the workshop windows to improve its brightness.
 1920s, Siemens, Michelin, etc.
 Then the Japanese have taken the concept successfully: In an average 0,1 suggest applied
/person/year in west country and 30 suggests applied / person / year in Japan
 But in the W est, it is rather elitist “Suggestion Box” rewarding one that saves more money while in
Japan it is rather to make suggestions for improvements involving more people.

Main differences between “Suggestions Box” and “Kaizen suggestions”

Conditions for success

o All ideas are interesting, because even if they cannot be implemented, they reflect a problem to be
solved.
o The proposals are discussed in Team: adherence and improved formulation
o The proposals are shown and visible by all
o Supervision and Support Services provide a help
o The realization is fast: powerful motivation for employees.

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Are integrated into a broader set:

[In some cases, specific methods should be used in parallel]

o Problem-Solving Groups following a systematic approach to solve a given problem and made in
consultation with management
o Hoshin Method : mobilize the entire team for a short time to reorganize the work tool
o CEDAC (Cause & Effect Diagram with the Addition of Cards)
o Ishikawa “Fishbone” Diagram
o Etc.

3) CEDAC METHOD

CEDAC (Cause & Effect Diagram with the Addition of Cards)

 Large flipchart, located at the place of work, dedicated to r eceive improvement ideas for a given
problem (all types of problems).
 Everyone can make a proposal (summarized briefly on a ticket or post-it) even if he does not belong to
the department concerned
 Every week a small group meets to review the proposals and initiate priority actions
 A CEDAC takes about 2 to 3 months and several CEDAC can be launched in parallel in the company.

Example of CEDAC

4) PROBLEM-SOLVING GROUPS

Problem solving groups is:

 Developed by the Japanese for the Quality Forums/Circles who needed structured methods to help
them in their approach to solving quality problems
 Currently widely used by all industrial groups

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 5) ISHIKAWA “FISHBONE” DIAGRAMS

Step 1 - Record all defects observed whenever non-quality occurs

Step 2 – Pareto analysis on the previous data recorded

 Classify defects in nature on the basis of their relative importance.

 Find out the critical ones: from experience, a small number of defects represents the greater
percentage of non-quality occurrence.
 These critical defects must be addressed in priority!!! (in this case n°4)

Step 3 – The 5 main branches of the Ishikawa diagram

Key Hypothesis:

 The causes/origins of a defect are to be sought in the five categories, (“5”M):

Materials, Man power, Machine, Methods, Milieu (Location/environment)

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Step 4 – Elaborate the fishbone (Causes -Effects) Diagram

1. Elaborate the scheme of the diagram with the defect and the 5 branches
2. For each branch, seek the causes  the causes of the causes to the root cause

3. Analyze for each branch, the “tree” of causes and classify them
4. Focus primarily on the most important

Ishikawa diagram classifies the possible causes of failure according to their origin. Its effectiveness stems from
two elements:

65
  Helps decompose a complex problem
 Helps to avoid forgetting some important causes
 It’s a powerful tool.

C. OTHER TOTAL QUALITY MANAGEMENT METHODS

1) AUTONOMOUS TEAMS

The method of autonomous teams i s part of a commitment to deploy continuous improvement and address
the need for responsiveness, proactiveness and adaptation.

This is the form of organization best suited to solve dai ly problems and improve performance

Strengths (and prerequisites)

 The work is done in teams (it is better to share the work, change job post/be flexible if necessary, or
help a co-worker)
 The team is autonomous for some decisions (depending on employees skills and maturity levels)
 The team is responsible for its performance

The autonomy increases as we move down through the table:

Evolution of the Organization Chart

The autonomous team has generally from 5 to 15 members:

66
From Taylor organization to Team organization

 Integration, network, the hierarchy is no longer the exclusive information holder

 Team operations: accountability and transparency
o Fundamental change in labor organization: faces obstacles & resistance
o Duration (on average it takes 5 years to achieve satisfactory results)

2) 5S

 The 5 S illustrates the principles of Kaizen

 It was developed in Japan, late 1980
 It applies to offices, shops, stores
 It mobilizes all employees to improve the cleanliness and “spirit” of the working environment/place

The "5S" process = to get there:

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  SEIRI (remove all that does not belong or is not necessary to the working place)
 SEITON (sort/put in order)
 SEISO (keep it clean)
 SEIKETSU (standardize, visualize, good practices)
 SHITSUKE (respect rules)

 5S is an extremely efficient and cost effective process!

Example of 5S organization

 Best choice to promote organizational learning

o Work in groups, develop a common language, organize, plan, solve problems, communicate,
etc.
 Implementation of a "5S" project in a medium company takes about 2 years: strong commitment and
investment in time are critical
 Helps to introduce gradually a “new culture of quality and performance” favorable to the successful
realization of Just-in-Time and Total Quality plans, or the successful introduction of new technologies.
 Many companies see it as "a base camp” for the conquest of other success peaks.

3) 6 SIGMA

 Developed by Motorola in the 1980s as a way to reach "zero defect/default”, it is widely used
nowadays.
 Goal= reduce the risk of defects to a few parts per million (ppm), e.g. percentage of non-compliant
products is less than what a normal probability distribution leaves beyond six standard deviations.
 To say that a process is "six sigma" means that there is a probability of defects less than 3.4 DPMO,
e.g. the probability of occurrence of a defect is less than 3.4 x10-6 % or 0.0000034%.
 To say that a process is "3 sigma" mean:
o 20,000 letters lost per hour,
o 5000 failed surgeries per week, etc.

 "Six sigma" = very powerful, very demanding method for continuous improvement!

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5 Steps Methodology

A dedicated team to manage a 6-Sigma project with well -defined roles supported by extensive training

D. CONCLUSION

Total Quality is certainly a method, an ongoing commitment, but it is mostly a state of mind and a corporate
culture that must involve every staff member.

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All the methods for continuous improvement (permanent progress) are based on the Preventive approach.

These methods for continuous improvement must be:

 Collective: cooperation of all stakeholders

 Based on an organized process (definition clear, precise and simple of the problem, methods simple
and effective resolution)
 Resolutely turned towards “action” and not only “findings”.

LECTURE 11&12 – CONCLUSIONS, KEY ISSUES AND LOOKING FORWARD

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