Signature Assignment: Managing a Crisis Simulation

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Signature/Benchmark Assignment: Managing a Crisis Simulation is designed to align with specific program student learning outcome(s) in your program. Program Student Learning Outcomes are broad statements that describe what students should know and be able to do upon completion of their degree. Signature/Benchmark Assignments are graded with a grading guide or an automated rubric that allows the University to collect data that can be aggregated across a location or college/school and used for course/program improvements.

Resource: Pg. 169-187 of Ch. 7 of Purchasing and Supply Management

You are a Supply Chain Manager of a building supply company. Your company sells building materials to building contractors, home improvement construction companies, as well as the do-it-yourself weekend project homeowners.

You have been struggling with the supplier of roofing nails for several months and you are fast approaching the peak roofing season. The supplier has been late on delivering orders and when orders are delivered the boxes are damaged and the quantities of nails in the boxes are inaccurate. Each box should have 1,000 nails, but you are getting complaints from your customers that they are only receiving partial quantities in the boxes. The situation with the supplier is getting so bad that some of your major customers are threatening to go to another building supply company for roofing nails.

You have to get this situation under control before you lose much needed seasonal sales!

Create a supplier performance improvement plan.

Incorporate Lean Six Sigma methodology into the problem solving and corrective action process.

Include the steps that need to be taken to identify the root cause, potential containment, and corrective action. Include how you will monitor the supplier's compliance to corrective action, and explain whether or not the corrective action is effective.

Write an improvement plan in a 1,050- to 1,400-word document.

Format the paper according to APA standards.

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External Failure Costs External failure costs are incurred when poor-quality goods or services are passed on to the customer and include costs of returns, replacement of services, warranty costs, and management time handling customer complaints. Unfortunately, when poor-quality 169 parts are incorporated in assemblies, disassembly and reassembly costs may far outweigh the cost of the original part itself. When a defective product gets into the hands of customers or their customers, the possibility of consequential damages arises because a paper roll did not meet specifications, the printer missed an important deadline, a magazine did not reach advertisers and subscribers on time, and so on. There may be health or safety consequences from defective products. External failure costs for services occur during or after the delivery of the service. Examples include the cost of correcting a bank statement, reprocessing an application, or reteaching a seminar that failed to meet agreed-upon outcomes. These costs are the most expensive because of the possible effects on individual customer goodwill and lost sales and profits. The loss of customers, the inability to secure new customers, and the penalties paid to keep existing customers are also part of external failure costs. Morale Costs One cost seldom recognized in an accounting sense is the morale cost of producing (or having to use) defective products or services. Aside from the obvious productivity impact, it may remove pride in one’s work or the incentive to keep searching for continuing improvement. The motivation to work hard and well may be replaced by a “don’t care” attitude. An Overall Quality–Cost Perspective It is so unpleasant to detail the costs of defective quality that the temptation is strong to ignore them. And that is exactly what many organizations have done for many years. They also have built these costs into internally accepted standards. As a consequence, the opportunity to improve quality is great in most organizations. Some organizations have attempted to quantify the total cost of quality, and the outcome of such studies suggests that 30 to 40 percent of final product cost may be attributable to quality. There is a huge incentive to tackle quality as a major organizational challenge. For example, Kodak’s Supplier Quality Process expects suppliers to meet or exceed world-class standards of performance in quality and the reliability, cost, and delivery of the products and services provided. One element is the cost of quality model used to quantify, in dollars, quality performance of suppliers by looking at defects per part per million (DPPM), delivery, lead times, administrative costs of corrective actions, and potential line down situations. The model may also be used in benchmarking suppliers in e-auctions and on sourcing activities.1 QUALITY MANAGEMENT TOOLS AND TECHNIQUES The question of how to assure quality is important for all three roles played by an organization: customer, converter, or supplier of goods or services. This section addresses tools and techniques for assuring quality, including lean thinking; total quality management (TQM); continuous improvement or kaizen; quality function deployment (QFD); Six Sigma; statistical process control (SPC); sampling; inspection and testing; and supplier certification. 170 Lean Enterprise Lean thinking is a management philosophy focused on maximizing customer value while minimizing waste, typically in the form of overproduction, waiting, transportation, nonvalue-adding processes, inventory, motion, and costs of quality (scrap, rework, and inspection). Lean was first used to describe Toyota’s Production System in the late 1980s and has also been called just-in-time (JIT) manufacturing. Today, lean principles and practices are applied in all industries and services, including health care and government. The goal is to optimize the flow of products and services through value streams that flow internally across technologies, assets, and departments to customers and externally with supply chain partners. The product or service flows when pulled by the next downstream step. A value stream is a series of steps executed in the right way and at the right time to create value for the customer. Each step in a value stream must be valuable to the customer, capable, available, adequate, and flexible. A step is capable if it gets the exact same result every time, available if it can be performed whenever it is needed, adequate if there is capacity to perform it exactly when it is needed, and flexible if it can respond rapidly to changing customer desires without creating inefficiencies. Lean supply networks require advanced modeling tools that consider all costs and provide optimized strategies across a network of distribution centers, plants, contract manufacturers, sourcing options, and logistical lanes. Demand variability drives waste into the network. Therefore, lean enterprises use tools such as IT solutions that solve complex optimization problems yet are easy to use and deploy, capable of responding to real-time information, and integrate and align internal and external supply chain partners globally. Honda’s strategy is to move production as close to customers as possible to minimize lead times and inventories and to move design close to production to maximize information flow while minimizing response time. Honda’s lean enterprise includes designing and making high-volume products for each world region entirely within the region and cross-trading niche products between regions to capture scale economies. Total Quality Management (TQM) Total quality management (TQM) is a philosophy and system of management focused on long-term success through customer satisfaction. It was developed in Japan after W. Edwards Deming taught statistical quality control to the Union of Japanese Scientists and Engineers (JUSE) in 1950. Total quality control (TQC) was reimported to the United States in the 1980s and contributed to the revitalization of U.S. industries. It is known internationally as total quality management (TQM). In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work. Top management develops the vision for total quality and provides the commitment and support, including progress reviews, to realize this vision. The customer can be internal or external and is anyone in the supply chain who receives materials from a previous step in the chain. The methods for implementing this approach come from the teachings of such quality leaders as Philip B. Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa, and Joseph M. Juran. 171 Deming’s 14 Points A core concept in implementing TQM is Deming’s 14 points, a set of management practices to help companies increase their quality and productivity. These are:2 1. Create constancy of purpose for improving products and services. 2. Adopt the new philosophy. 3. Cease dependence on inspection to achieve quality. 4. End the practice of awarding business on price alone; instead, minimize total cost by working with a single supplier. 5. Improve constantly and forever every process for planning, production, and service. 6. Institute training on the job. 7. Adopt and institute leadership. 8. Drive out fear. 9. Break down barriers between staff areas. 10. Eliminate slogans, exhortations, and targets for the workforce. 11. Eliminate numerical quotas for the workforce and numerical goals for management. 12. Remove barriers that rob people of pride of workmanship, and eliminate the annual rating or merit system. 13. Institute a vigorous program of education and self-improvement for everyone. 14. Put everybody in the company to work accomplishing the transformation. From this list, four important features of TQM emerge: 1. Quality must be integrated throughout the organization’s activities. 2. There must be employee commitment to continuous improvement. 3. The goal of customer satisfaction and the systematic and continuous research process related to customer satisfaction drive TQM systems. 4. Suppliers are partners in the TQM process. TQM stresses quality as the integrating force in the organization. For TQM to work, all stages in the production process must conform to specifications that are driven by the needs and wants of the end customer. All processes, those of the buyer and the suppliers, must be in control and possess minimal variation to reduce time and expense of inspection. This in turn reduces scrap and rework, increases productivity, and reduces total cost. TQM is more than a philosophy. It involves the use of several tools, such as continuous improvement or kaizen, quality function deployment (QFD), and statistical process control to achieve performance improvements. The following sections describe how quality management techniques are used and how they apply to the supply function. Continuous Improvement Continuous improvement, sometimes called by its Japanese name, kaizen, refers to the relentless pursuit of product and process improvement through a series of small, progressive steps. It is an integral part of both just-in-time (JIT) and TQM. Continuous improvement 172 should follow a well-defined and structured approach and incorporate problem-solving tools such as Pareto analysis, histograms, scatter diagrams, check sheets, fishbone diagrams, control charts, run charts, and process flow diagrams. The plan–do–check–act cycle, sometimes called the Deming Wheel, provides a good model for conducting continuous improvement activities. Plan: Collect data and set performance target. Do: Implement countermeasures. Check: Measure and evaluate the results of countermeasures. Act: Standardize and apply improvement to other parts of the organization. For example, at Thomas Jefferson University Hospitals in Philadelphia, operating room patient flow from preadmissions testing to the post-anesthesia unit was marked by inefficiencies, including delays and bottlenecks. By forming kaizen teams and executing events to identify and eliminate root causes, the hospital realized significant efficiencies.3 At Honda, the purchasing policy is “Best possible quality, cost, delivery, development, and environment (QCDDE): sensing worldwide, acting worldwide, creating worldwide.” The goal is to help achieve the company’s 2020 Vision of providing “good products that maximize the joy of customers with speed, affordability and low CO2 emissions.”4 Quality Function Deployment (QFD) Quality function deployment (QFD) is an important aspect of TQM. It is a comprehensive quality system aimed specifically at satisfying the customer throughout the development and business process—end to end. It is a method for listening and effectively responding to the voice of the customer to develop higher-quality new products at less cost and in less time. The QFD method can be used for both tangible products and nontangible services across business sectors.5 It has been used successfully by companies, including Accenture, Boeing, Continental Rehabilitation Hospital, Ford, and the U.S. Department of Defense. Modern QFD addresses the four Ss of today’s lean business environment: speed, smart, slim and sustainable. QFD is a comprehensive quality system that: • Seeks both spoken and unspoken customer needs. • Maximizes “positive” quality (such as ease of use, fun, luxury) that creates value. • Translates these into actions and designs by using transparent analytic and prioritization methods. • Empowers organizations to exceed normal expectations. • Provides a level of unanticipated excitement that generates value. QFD is based on teamwork and customer involvement. It integrates marketing, design, engineering development, manufacturing, production, and supply in new product development from the conception stage through final delivery. Through coordination and integration, rather than the traditional sequential development approach, QFD allows the end customer’s needs and wants to be communicated at the product development stage and then drive the 173 design and production stages. More time is spent up front in product development, but by accurately defining customer needs and wants, the total time spent on the design cycle is reduced because fewer design changes are made in later stages of the process. The four integrated stages of the QFD process are: 1. Product or service planning, to determine design requirements. 2. Parts deployment, to determine parts characteristics for manufactured goods. 3. Process planning, to determine manufacturing requirements or service process elements. 4. Production or action planning, to determine production requirements or service action plans. Buyer and supplier integration into the process can benefit the organization by: 1. Reducing or eliminating engineering or service design changes during product or service development. 2. Reducing product or process development cycle time. 3. Reducing start-up cycle time. 4. Minimizing product or service failures and repair or service replacement costs over the product or service life. 5. Creating product or service uniformity and reliability during production or service delivery. From the perspective of supply management, well-functioning buyer–supplier relationships are a key contribution that purchasers and supply managers can make to the organizations’ TQM and QFD efforts. Supply-base rationalization (determining the optimum number of suppliers to meet business needs) and closer relationships with key suppliers through partnering arrangements or strategic alliances go hand in hand with quality initiatives (see Chapter 13). The importance of matching supply performance measures to the strategic initiatives of the organization is also important if TQM and QFD are to be successful. For example, if supply’s performance is measured by a reduction in the prices of materials and improved operating efficiency rather than the quality of supplier relationships, then purchasers may buy on the basis of price alone. This will undermine the quality initiatives of the firm. Integration of functions and processes throughout the firm, and with key suppliers, is a critical component of global competitiveness. Six Sigma A Six Sigma (6s) approach to quality focuses on preventing defects by using data to reduce variation and waste. This quality initiative was developed by GE and Motorola and has been adopted by many organizations. Six Sigma quality means there are no more than 3.4 defects per million opportunities. Technically, 6s or six standard deviations are very close to zero defects and correspond to a Cpk value (discussed later in this chapter) of 2.0. Six Sigma initiatives have measurable goals such as cost reduction or profit increase through improvements in cycle time, delivery, safety, and so on. Six Sigma methods may also be adapted to service processes. First, categorize service processes as highly customized, mass customized, or standard. While opportunities may exist in any category, the greatest occur in standardized services such as credit card 174 account services, fast-food, benefits processing, and payroll or accounts payable. The next step is defining a service defect. A service defect is a flaw in a process that results in a lower level of customer satisfaction or a lost customer. Easily quantified measures are lost customers, customer satisfaction ratings, and service turnaround times. After identifying a service defect, conduct root cause analysis, then develop and implement improvement action plans. According to Kubiak and Benbow, writing for the ASQ, Six Sigma is defined in several ways: 1. It is a philosophy based on the view that all work is processes that can be defined, measured, analyzed, improved, and controlled. Processes require inputs (x) and produce outputs (y). If you control the inputs, you will control the outputs. 2. It is a set of tools, including statistical process control (SPC), control charts, failure mode and effects analysis, and flowcharting. These are qualitative and quantitative techniques to drive process improvement. 3. It is a methodology with five steps: define, measure, analyze, improve, and control (DMAIC). This is the most widely adopted and recognized Six Sigma methodology.6 The common elements of Six Sigma initiatives are: • A management environment that supports the initiatives as business strategy. Organizational support is provided by designated executives and champions who set the direction for project selection and deployment. • Well-defined projects with bottom-line impact. • Teams whose members have statistical training. Levels include black belt, master black, green, yellow, and white belts. Each level has specific roles and project responsibilities. • Emphasis on the DMAIC approach. Statistical Process Control (SPC) Dr. W. Edwards Deming, the well-known American quality control specialist, assisted Japanese manufacturers in instituting statistical quality control (SQC) beginning in the 1950s. Dr. Deming showed that most processes tend to behave in a statistical manner and that understanding how the process behaves without operator interference is necessary before controls can be instituted. Managing quality using SQC techniques involves sampling processes and using the data and statistical analysis to establish performance criteria and monitor processes. Statistical process control (SPC) is a technique that involves testing a random sample of output from a process in order to detect if nonrandom, assignable changes in the process are occurring. Because almost all output results from a manufacturing or transformation process of some sort, process control is the preferred approach to controlling product quality. The first step in quality assurance is making sure that the supplier’s process capability and the buyer’s acceptable quality range mesh. If the natural range of the supplier’s process is wider than the range of the buyer’s quality requirements, then the buyer 175 must negotiate with the supplier to have the supplier narrow the natural range through process improvements such as operator training or machine improvements. If it is not economically feasible or the supplier is unable or unwilling to make improvements for some reason, then the buyer may seek another supplier rather than incur the extra cost of inspection, rework, and scrap. From the buyer’s perspective, the basic steps in assuring quality through statistical process control are: 1. Buyer establishes required quality specifications. 2. Supplier determines process capability. a. Identify common or chance causes of variation. b. Identify special or assignable causes of variation. c. Eliminate special causes. 3. Compare buyer’s quality requirements to supplier’s process capability. 4. Make adjustments, if necessary. a. Negotiate with supplier for process improvements. b. Seek an alternate supplier. Causes of Variation Since no process can produce the same exact results each time the activity is performed, it is important to establish what kind of variation is occurring and eliminate as much as possible. A process capability study identifies two types of variation: (1) common causes or random variation and (2) special or assignable causes of variation. Common or chance causes of variation. These causes are intrinsic to the process and will always be there unless the process is changed. They may be related to machine, people, material, method, environment, or measurement. For instance, machine lubrication, tool wear, or operator technique would be common causes that result in inconsistent output. If too many defects occur because of common causes, then the p ...
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Tutor Answer

School: Carnegie Mellon University




A Supplier Performance Improvement Plan
Course Code:

Case Overview
My building supply company is facing a range of troubles lately. Our company
sells building materials to building contractors, do-it-yourself project homeowners as well as
project home improvement construction companies. The problem stems from our supplier of
roofing nails over the past several months. Apart from lateness in delivering orders, the packages
of the boxes appear to be damaged and the number of nails appears shy of the recommended
1,000 pieces threshold of every box. Complaints from customers are ravaging and some have
threatened to shift to another company.
The problem might implicate a number of detrimental effects to the company. For
one, our company incurs external failure costs (Johnson, Leenders & Flynn, 2011, pg. 168) as a
result of the poor services (due to lateness) and goods (damaged packaging and less number of
goods than promised) being passed on to the consumer. This, in turn, incurs morale costs, as a
result of producing and consuming defective goods (Johnson, Leenders & Flynn, 2011, pg. 169).
In light of these financial effects of the same, it is prudent for an effective
investigation and correction of the issue to be conducted, in order to reduce the costs as a result
of the same and reinstate the trust of clients. The Lean Six Sigma methodology should be
incorporated in the investigation and corrective measures proposed as well as a strict ‘Plan-DoCheck-Act’ methodology. ‘Plan’ entails gathering data from the supplier and formulating
countermeasures to remedy the process, ‘Do’ entails forming implementation plan, ‘Check’
entails proposed investigative measures to evaluate the corrective measures and ‘Act’ entails
proposed standardization techniques in the development of corrective procedures (Johnson,
Leenders & Flynn, 2011, pg. 173).
Identifying the Root Cause


The basic investigative steps in investigating and assuring quality should be
applied from the buyer’s perspective. The main investigative processes would be done with the
willing consent of the buyer. This process would include:

Evaluation of the required quality specifications (Johnson, Leenders &
Flynn, 2011, pg 176). The quality specifications are the number of nails
per packaging item, the product specifications (size, weight, material etc.)
and the quality of the packaging material. The supplier already accepted
the process capability as both feasible and achievable.

Determining process variation (Johnson, Leenders & Flynn, 2011, pg
176).. The causes of chance variation are determined to be machine wear,
tool wear and the different techniques used by people involved in the
manufacturing process. However, these causes are intrinsic to the process
and nothing much can be done. However, there are possible discoveries of
special causes of variation. The variation, upon investigation of the
production process, would probably show human error (mishandling of the
products resulting to damage of the product packaging) and inaccuracies
of the machine while loading of the products as major causes of the
degraded quality.

The process capability index (Cp), which incorporates a tolerance in length of 2
inches, with a...

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