CH-12-15 Six Sigma Quality – Operations and Supply Chain Management : Book Guide

This Document Contains Chapters 12 to 15 CHAPTER 12 SIX SIGMA QUALITY Review and Discussion Questions 1. Is the goal of Six Sigma quality realistic for services such as Blockbuster Video Stores or Redbox DVD Kiosks? A goal of Six Sigma can also be used for services. The one area where Six Sigma maybe difficult is that many aspects of service quality are based upon customer perception--for example--the courtesy of the clerk. In spite of all efforts, someone may perceive that the clerk was not courteous. But in spite of this problem, every effort should be made to attain Six Sigma in both manufacturing and service settings. Six Sigma seems more applicable to Redbox, where customer interactions are much more closely controlled. 2. “If line employees are required to work on quality improvement activities, their productivity will suffer.” Discuss. The Japanese have demonstrated that high quality and the high productivity needed to offer low prices are not mutually exclusive. Products made correctly the first time do not have to be reworked or scrapped, which translates into lower costs for materials and workers. If one includes the time required for rework, time expended for the production of each product would be lower if quality control becomes a line responsibility. 3. “You don’t inspect quality into a product; you have to build it in.” Discuss the implications of this statement. The typical U.S. factory invests 20 to 25 percent of its operating budget in finding and fixing mistakes. One fourth of all workers fix things that are not done right. These are appraisal and internal failure cost. On the other hand, if quality standards are enforced as the item is being built, appraisal, internal and external failure costs will decrease while prevention costs will increase. The rule of thumb is that for every dollar spent in prevention, ten dollars are saved in failure and appraisal costs. 4. “Before you build quality in, you must think it in.” How do the implications of this statement differ from those of Question 3? The “thinking quality in” philosophy requires a longer-term perspective than the “building quality in” philosophy. “Building quality in” includes short-term techniques, such as tuning the production equipment to assure consistent quality. “Thinking quality in” includes longerterm techniques such as designing the product to be robust enough to achieve high quality despite fluctuations on the production line, training workers to be capable of “thinking in quality,” and developing a working environment in which “thinking in quality” is nurtured. 5. Business writer Tom Peters has suggested that in making process changes, we should “Try it, test it, and get on with it.” How does this square with the DMAIC/Continuous Improvement philosophy? “Try it, test it, and get on with it” is closely related to Analyze and Improve stage of DMAIC. Missing from Peter’s suggestion is the planning portion of the DMAIC cycle. The plan involves determining the appropriate improvement that is tested on a small scale during the “analyze and improve” activities, and implemented on a wider scale during the improve stage of the DMAIC. 6. Develop a cause and effect (fishbone) diagram to address everything that impacts your grade in this course. How much is under your control? Student answers will vary widely. Main categories identified will often include the instructor, the text, assessment instruments, and the student’s own behavior/characteristics. It is always interesting to see how much they see themselves as a controlling factor! 7. Shingo told a story of a poka-yoke he developed to make sure that operators avoided the mistake of putting fewer than the required four springs in a push button device. The existing method involved assemblers taking individual springs from a box containing several hundred and then placing two of them behind an ON button and two more behind an OFF button. What was the poka-yoke Shingo created? One common poka-yoke is part kitting. By kitting individual boxes of four springs, operators could make sure no springs remain in the box after the assembly operations. 8. The typical computerized word processing package is loaded with poka-yokes. List three. Are there any others you wish the packages had? (i) When exiting the word processor, a prompt asks whether or not you want to save the document. (ii) Many word processors will make backup files at various points in time. (iii) Many word processors will automatically correct certain words when they are misspelled, such as “the.” Word processors have made tremendous strides in this area. Although it would be nice if the word processor checked the form of a word like “to,” too,” and “two.” 9. Is certification under the ISO standards in this chapter necessary for competing in the modern market? What should companies consider when deciding whether or not to become certified? The answer to the first question (like many is OSCM) starts with “it depends.” Certainly many companies worldwide are operating successfully without ISO certification. Whether certification is necessary or even worth the effort depends on many factors. Companies need to consider what the expectations of their current and potential customers are now, and are likely to be in the future. Often certification can bring a new competitive advantage to the firm that will help them compete and grow in the future. Another advantage is that going through the certification process often tightens up quality processes in the company and as such can be a process improvement tool unto itself. Smaller firms looking to gain this latter advantage could pursue first-party certification to meet that end. 10. Do you see any relationship between ISO standards mentioned in this chapter and the competitive strategy concepts mentioned earlier in the text? One could draw parallels between the ISO standards and the concept of the “triple bottom line” mentioned in chapter 2. ISO 9000 certification can lead to improved quality systems and reduced overall costs of quality, thus improving economic prosperity. ISO 14000 obviously impacts environmental stewardship. The third leg of the triple bottom line has recently been addressed by ISO 26000 standard on socially responsible behavior. Objective Questions 1. What is the name of the national quality award given by the government of the United States? Malcolm Baldrige National Quality Award 2. Match the quality “guru” with the specific aspects of their teachings. Use “C” for Crosby, “D” for Deming, and “J” for Juran. J Defined quality as “fitness for use.” C Defined quality as “conformance to requirements.” C Set the performance standard as “zero defects.” D Defined 14 points for management to follow. J Emphasized a general management approach to quality, especially the human elements. C Rejected the concept of statistically acceptable levels of quality. J Stated that less than 20% of quality problems are due to workers. D Recommended continuous improvement to reduce variations. 3. What is the term that means making the person who does the work responsible for ensuring that specifications are met? Quality at the source 4. What are the four general categories of quality costs? Appraisal, prevention, internal failure, external failure 5. What term means managing the entire organization so that it excels on all dimensions of products and services that are important to customer? Total quality management 6. Not so good. He has 23 defectives, a DPMO of 15,333 and a sigma of around 2.4. DPMO = [23/1 defect opportunity/unit x 1500] x 1,000,000 = 23/1500 = .15333 * 1,000,000 = 15,333 7. $155,000 + $543,000 = $698,000 8. The percentage of total complaints represented by the two most common categories is: Stock condition: 23.5% Product request: 14.5% The total percentage of complaints accounted for by these two largest categories is 38%. 9. Answers will vary. Here is one possibility: 10. 𝐷𝑃𝑀𝑂 11. What is the term for a flowchart that is used to separate value-added from non-value-added steps in a process? Opportunity flow diagram 12. What does the acronym DMAIC stand for? Define, Measure, Analyze, Improve, Control 13. A customer call center is evaluating customer satisfaction surveys to identify the most prevalent quality problems in their process. Specific customer complaints have been analyzed and grouped into eight different categories. Every instance of a complaint adds to the count in its category. Which six-sigma analytical tool would be most helpful to management here? Pareto charts 14. Which international standard has recently been developed to address socially responsible behavior of firms? ISO 26000 15. Which industry specific standard has been developed by the big three auto makers for suppliers of parts, materials, and services to the automotive industry? QS-9000 16. What is it called when a firm looks externally and examines others companies for examples of best practices? External benchmarking ANALYTICS EXERCISE: Quality Management – Toyota Part A: Toyota – Under the Radar Recall Responses 1. Develop a diagram that summarizes what Toyota has done in response to its recent quality recall problems. Focus on the changes by functional area (i.e. Management, Product Design, Quality, and Manufacturing). Immediate Management Changes Product Design/Engineering Quality Management Manufacturing 1. 20% pay cut for senior officials. 2. Lowered threshold for effecting recalls. 1. Managing director to oversee safetyrelated issues. 2. Hired 1,000 engineers to spot check quality. 3. Improved perception of quality – e.g. reduce vibration in steering wheel. 1. TAQIC – Toyota Advanced Quality Information Center. Global computer data base to track vehicle repairs and track customer complaints. 2. SMART – Swift Market Analysis Response Teams. Rapid response teams to determine causes of accidents – beyond US and Japan to China and Europe. 1. No major changes other than an increased awareness for the workers. 2. Evaluate the statement in the case made by Toru Sakuragi that “… Toyota has been caught between a need to cut costs to overcome the strong yen and the need to improve quality to prevent recalls.” And that “They are now pursuing both strategies but they are essentially at odds with one another.” Is this a realistic strategy? Do you have suggestions for how the strategy might be improved? It appears that Toyota has spent a significant amount of money to improve quality. Hiring the 1,000 engineers in product design, and appointing a director to oversee safety-related issues are significant steps. Clearly, Toyota sees this as very much a product design issue and not related to manufacturing or build quality. Also, the implementation of TAQIC and SMART are intended to speed the time that information related to quality problem become apparent. These are fairly expensive moves and Toyota is investing in infrastructure to solve their quality problems. There is nothing in the case to indicate that their problems are related to cost cutting initiatives, but they need to be careful that they don’t do things related to this initiative that impacts the safety of their cars. Their problems at this point seem to be largely the consumer’s perception of Toyota quality due to the recalls and lawsuits since no defects have actually been found in the cars. Many things can be done to improve the safety associated with how the cars are used such as consumer awareness of the floor mat issues and the programming of the throttle control computer (i.e. such as not allowing brakes and the accelerator to be applied heavily at the same time). 3. Suggest improvements that you feel could be made to Toyota’s quality program. Also, what might Toyota do to improve its image to the consumer relative to quality? Here are some thoughts, but many other ideas are possible. It was very important that Toyota focus on two aspects of its operations, the design of the cars, and its response to issues as they arise. First, relative to design, anything that can be done to make the cars more foolproof should be pursued. For example, the brake and accelerator pedal system should be designed so that they cannot be hung up by items lying on the floor. These types of changes should be driven by the information they learn through their TAQIC and SMART initiatives. A lot of Toyota problems now are image and consumer perception. Toyota will need to aggressively advertise the changes it makes to its vehicles relative to safety improvements. They need to develop a strategy that directly addresses the improvement in their image relative to safety. CHAPTER 13 STATISTICAL QUALITY CONTROL Discussion Questions 1. The capability index allows for some drifting of the process mean. Discuss what this means in terms of product quality output. When Cpk is larger than 1.0, this means that the mean of the process can drift (up to a limit) while still producing within specifications. This is what is implied by the phrase “a capable process." The amount of drift allowed (measured in standard deviations) is Cpk – 1. 2. In an agreement between a supplier and a customer, the supplier must ensure that all parts are within tolerance before shipment to the customer. What would be the effect on the cost of quality to the customer? Before the agreement was made, the customer probably inspected each part to protect against off-spec supplies. This agreement (ideally) eliminates the need for this inspection. Appraisal costs, such as materials and supplies inspection and reliability testing, will be reduced since the agreement would ensure that the supplies are totally within tolerance. This allows the customer to focus attention on quality improvement within his or her own processes, requiring an increase in prevention cost. Scrap and rework costs will initially drop because of the improvement in the quality of the part supply. Once prevention programs are in force, scrap, repair, rework, and downtime costs will drop even further because of improvements in the internal process. External failure costs will drop because of improvement in the product and the process. 3. In the situation described in Question 2, what would be the effect on the cost of quality to the supplier? If operating under the traditional definition for the quality control function, appraisal costs will increase since all parts, not just a sample, must be inspected before shipment. This will also likely increase the cost of internal failure. These increases will be offset to some degree by the reduction or elimination of external failure costs. 4. Discuss the purposes and differences between the p-charts and X-bar and R charts. P-charts are used to monitor the process for attribute data. These are typically binomial “go, no-go” data. An example of a p-chart is percent of pieces nonconforming. X-bar charts are used for charting population values for continuous measurement. X-bar charts operate effectively with smaller sample sizes than p-charts, but it is more involved to analyze the sample for an X-bar chart since a measurement must be taken. A rule of thumb for the sample size of a p-chart is to have at least one defective in each sample. This can require a relatively large sample size in some cases. If the process is slow, an X-bar chart will generally be a better choice since it functions with smaller sample sizes. An example of an X-bar chart is average time to complete a mile run for one person. R charts are used to compute process ranges for variable data, and are generally used in concert with X-bar charts. 5. The application of control charts is straightforward in manufacturing processes where you have tangible goods with physical characteristics you can easily measure on a numerical scale. Quality control is also important in service businesses, but you are generally not going to want to measure the physical characteristics of your customers! Do you think control charts have a place in service businesses? Discuss how you might apply them to specific examples. Student responses will be widely varied. They should hit on the idea of surveys to convert the customers’ qualitative thoughts about the service into numerical data. They may also recognize that waiting and service times are also keys to service quality and can easily be measured on a quantitative scale. 6. Discuss the trade-off between achieving a zero AQL (acceptable quality level) and a positive AQL (e.g., an AQL of 2 percent). The tradeoff involves a cost/precision tradeoff. This is analogous to the service level/cost tradeoff. From a classical economic point of view, if the cost of defects is very high, an AQL of zero is economical. If defect costs are nominal, the cost of achieving near perfect quality can be prohibitive. This assumes that conformance is asymptotic to the cost axis. 7. The cost of performing inspection sampling moves inversely to the cost of quality failures. We can reduce the cost of quality failures by increased levels of inspection, but that of course increases the cost of inspection. Can you think of any methods to reduce the cost of quality failures without increasing a company’s cost of inspection? Think specifically in terms of material purchased from vendors. The one thing we expect the students might address here is the idea of vendor relationship management. Partnering with vendors, purchasing representation in the vendor plant, and negotiating vendor inspections are several ways to try and achieve this. Objective Questions 1. Defective average = .04, inspection rate = 50 per hour, cost of inspector = $9 per hour, and repair cost is $10 each. a. Calculation Cost per hour No inspection .04 * (50) * $10 $20 Inspection 9 Therefore, it is cheaper to inspect in this case. b. Cost per unit for inspection = $9/50 = $.18 c. Benefit from the current inspection process is Hourly: cost of no inspection – cost of inspection ($20 - $9 = $11) Per unit: average cost of quality – cost of inspection ((.04)$10 - $.18 = $.22) 2. a. Cpk = minUTL−X , X−LTL= min1.01−1.002,1.002−.99= min.889,1.333  3 3   3(.003) 3(.003)  = .889 b. The process is capable of producing much better quality, but it would need to be centered. The capability of the process would then be 1.111 (Z-3.333, .09% defective). 3. Defective average = .02, inspection rate = 20 per hour, cost of inspector = $8 per hour, and replacement cost is $25 each. a. Cost per unit for inspection = $8/20 = $.40 Benefit from the current inspection process per unit is: average cost of quality – cost of inspection ((.02)$25 - $.40 = $.10) b. Calculation Cost per hour No inspection .02(20)$25 $10 Inspection 8 Therefore, it is cheaper to inspect in this case. 4. a. Defective average = .03, inspection rate = 30 per hour, cost of inspector = $8 per hour, and correction cost is $10 each. Calculation Cost per hour Cost per unit No inspection .03(30)$10 $9 $.300 Inspection $8 $.267 Therefore, it is cheaper to inspect in this case. 5. pk =   3 = .8333 3 =  3(4) 3(4) = a. C minUTL−X , X−LTL min110−100,100−90 min.8333,.8333 Cpk = minUTL−X , X−LTL= min110−92,92−90= min1.5000,.1667 b.  3 3   3(4) 3(4)  = .1667 c. Many defects will be produced. Assuming a normal distribution, the left tail (Prob{x110} = 1-Prob{x<110})is z = (110-92)/4 = 4.5, which approximately corresponds to a probability of .1-0.9999966 = 0.0000034. Therefore0.3085+0.0000034=0.3085 or approximately 31% are outside the specification limits. 6. a. Cpk = minUTL−X , X−LTL= min4.003− 4.001, 4.001−3.997= min.333,.667 = .333  3 3   3(.002) 3(.002)  b. No, the machine is not capable of producing the part at the desired quality level. 7. a. Ten defectives were found in 10 samples of size 15. P= = .067 Sp = = 0.0646 UCL = P + 1.96 Sp = .067 + 1.96(.0646) = .194 LCL = P - 1.96 Sp = .067 - 1.96(.0646) = -.060 → zero b. Stop the process and look for the special cause, it is out of statistical control. 8. Sample Irregularities 1 3 2 5 3 2 4 6 5 5 6 4 7 6 8 3 9 4 10 5 Total 43 a. Average Number of Defects c = 4.3 sp = c = 2.07 UCL=c+z c = 4.3+ 2(2.07) =8.44 LCL=c−z c = 4.3−2(2.07) = 0.16 b. The process is under control. The UCL is 8.44 9. Sample 1 2 3 4 mean range 1 1010 991 985 986 993.00 25 2 995 996 1009 994 998.50 15 3 990 1003 1015 1008 1004.00 25 4 1015 1020 1009 998 1010.50 22 5 1013 1019 1005 993 1007.50 26 6 994 1001 994 1005 998.50 11 7 989 992 982 1020 995.75 38 8 1001 986 996 996 994.75 15 9 1006 989 1005 1007 1001.75 18 10 992 1007 1006 979 996.00 28 11 996 1006 997 989 997.00 17 12 1019 996 991 1011 1004.25 28 13 981 991 989 1003 991.00 22 14 999 993 988 984 991.00 15 15 1013 1002 1005 992 1003.00 21 X = 999.1, R = 21.733 Control limits for X-bar chart: UCL, LCL = X+A2R = 999.1 ± .73(21.733) = 1014.965, 983.235 Control limits for R chart: The process is in statistical control. Students may not samples 4-8 on the X-bar chart, but strictly speaking there are only 4 decreases in a row there. 10. Date Number Unsatisfactory Meals Sample Size p 1-Dec 74 1000 0.074 2-Dec 42 1000 0.042 3-Dec 64 1000 0.064 4-Dec 80 1000 0.08 5-Dec 40 1000 0.04 6-Dec 50 1000 0.05 7-Dec 65 1000 0.065 8-Dec 70 1000 0.07 9-Dec 40 1000 0.04 10-Dec 75 1000 0.075 Sum: 600 10000 a. 600 p(1−p) .06(1−.06) p= = .06 Sp = = = .0075 10(1000) n 1000 UCL = p + 2Sp = .06 + 2(.0075) = .075 LCL = p - 2Sp = .06 - 2(.0075) = .045 b. The chart indicates that the process is out of control. The administrator should investigate the quality of the patient meals. 11. Month Crimes Sample Size Crime Rate January 7 1000 0.007 February 9 1000 0.009 March 7 1000 0.007 April 7 1000 0.007 May 7 1000 0.007 June 9 1000 0.009 July 7 1000 0.007 August 10 1000 0.01 September 8 1000 0.008 October 11 1000 0.011 November 10 1000 0.01 December 8 1000 0.008 SUM: 100 12000 100 p(1−p) .008333(1−.008333) p= = .008333 Sp = = = .00287 12(1000) n 1000 UCL = p + 1.96 Sp = .008333 + 1.96(.00287) = .01396 LCL = p - 1.96 Sp = .008333 - 1.96(.00287) = .0027 The process appears in control. Therefore, it can be stated that the crime rate has not increased. However, there appears to be a gradual increasing trend in the crime rate in later data, including the new Jan – Mar figures given in the problem. That may warrant investigation into the cause, or at the least should be watched to confirm if there is indeed a trend that continues in future periods. 12. Sample Crime Area Crimes Size Rate 1 14 1000 0.014 2 3 1000 0.003 3 19 1000 0.019 4 18 1000 0.018 5 14 1000 0.014 6 28 1000 0.028 7 10 1000 0.01 8 18 1000 0.018 9 12 1000 0.012 10 3 1000 0.003 11 20 1000 0.02 12 15 1000 0.015 13 12 1000 0.012 14 14 1000 0.014 15 10 1000 0.01 16 30 1000 0.03 17 4 1000 0.004 18 20 1000 0.02 19 6 1000 0.006 20 30 1000 0.03 SUM: 300 20000 300 p(1−p) .015(1−.015) p= = .015 Sp = = = .00384 Process is out of statistical control. Specifically, three areas outside of UCL warrant further investigation into the excessive crime rate, and four areas below LCL warrant investigation for causes of the low crime rates. 13. Sample number 1 5 Mean Range .481 .494 .030 2 .499 .506 .516 .494 .529 .509 .035 3 .496 .500 .515 .488 .521 .504 .033 4 .495 .506 .483 .487 .489 .492 .023 5 .472 .502 .526 .469 .481 .490 .057 6 .473 .495 .507 .493 .506 .495 .034 7 .495 .512 .490 .471 .504 .494 .041 8 .525 .501 .498 .474 .485 .497 .051 9 .497 .501 .517 .506 .516 .507 .020 10 .495 .505 .516 .511 .497 .505 .021 11 .495 .482 .468 .492 .492 .486 .027 12 .483 .459 .526 .506 .522 .499 .067 13 .521 .512 .493 .525 .510 .512 .032 14 .487 .521 .507 .501 .500 .503 .034 15 .493 .516 .499 .511 .513 .506 .023 16 .473 .506 .479 .480 .523 .492 .050 17 .477 .485 .513 .484 .496 .491 .036 18 .515 .493 .493 .485 .475 .492 .040 19 .511 .536 .486 .497 .491 .504 .050 20 .509 .490 .470 .504 .512 .497 .042 X= .499, R = .037 Control limits for X-bar chart: UCL, LCL = X+A2R, = ..499 + .58(.037) = .520, .478 Process appears to be in statistical control, though there is a run of five below the center line in the X-bar chart. 14. a. AQL = .03, LTPD = .10 LTPD/AQL = .10/.03 = 3.333 From Exhibit 13.10, c = 5. Also from this Exhibit, n (AQL) = 2.613 2.613 2.613 n= = = 87.1, round up to 88 AQL .03 b. Allow up to 5 defective components 15. a. AQL = .15, LTPD = .40 LTPD/AQL = .40/.15 = 2.667 From Exhibit 13.10, c = 8. Also from this Exhibit, n(AQL) = 4.695 4.695 4.695 n= = = 31.3, round up to 32 AQL .15 b. Randomly sample 32 chips, reject the lot if more than 8 defective Case: Quality Management – Toyota – Quality Control Analytics 1. If the specification is such that no washer should be greater than 2.4 millimeters, assuming that the thicknesses are distributed normally, what fraction of the output is expected to be greater than this thickness? The average thickness in the sample is 1.9625 and the standard deviation is .209624. The probability that the thickness is greater than 2.4 is Z = (2.4 – 1.9625)/.209624 = 2.087068 1 - NORMSDIST(2.087068) = .018441 fraction defective, so 1.8441 percent of the washers are expected to have a thickness greater than 2.4. 2. What if there is an upper and lower specification, where the upper thickness limit is 2.4 and the lower thickness limit 1.4, what fraction of the output is expected to be out of tolerance? The upper limit is given in a. The lower limit is 1.4 so Z = (1.4 – 1.9625)/.209624 = -2.68337. NORMSDIST(-2.68337) = .003644 fraction defective, so .3644 percent of the washers are expected to have a thickness lower than 1.4. The total expected fraction defective would be .018441 + .003644 = .022085 or about 2.2085 percent of the washers would be expected to be out of tolerance 3. What is the Cpk for the process? Cpk = minUTL−X , X−LTL= min.5625,.4375= min.8944, .6957= 0.6957  3 3  .6289 .6289 4. What would be the Cpk for the process if it were centered (assume the process standard deviation is the same)? The center of the specification limits is 1.9, which is used for X-bar in the following: Cpk = minUTL−X , X−LTL= min .5 , .5 = min..795, .795= 0.795  3 3  .6289 .6289 5. What percentage of output would be expected to be out of tolerance if the process were centered? Z = (2.4 – 1.9)/.209624 = 2.385221 Fraction defective would be 2 x (1-NORMSDIST(2.385221)) = 2 x .008534 = .017069, about 1.7 percent. 6. Setup X-bar and Range control charts for the current process. Assume the operators will take samples of 10 washers at a time. Observation Sample 1 2 3 4 5 6 7 8 9 10 X-bar R 1 1.9 2 1.9 1.8 2.2 1.7 2 1.9 1.7 1.8 1.89 0.5 2 1.8 2.2 2.1 2.2 1.9 1.8 2.1 1.6 1.8 1.6 1.91 0.6 3 2.1 2.4 2.2 2.1 2.1 2 1.8 1.7 1.9 1.9 2.02 0.7 4 2.1 2 2.4 1.7 2.2 2 1.6 2 2.1 2.2 2.03 0.8 Mean : 1.9625 0.65 From Exhibit 10.13, with sample size of 10, A2 = .31, D3 = .22 and D4 = 1.78 The upper control limit for the X-bar chart = 1.9625 + .31 x .65 = 2.164 The lower control limit for the X-bar chart = 1.9625 - .31 x .65 = 1.761 The upper control limit for the Range chart = 1.78 x .65 = 1.157 The lower control limit for the Range chart = .22 x .65 = .143 7. Plot the data on your control charts. Does the current process appear to be in control? With respect to the control limits, the process appears to be in control, though it should be noted that it is difficult to have confidence in that conclusion based on just four samples. Students should also point out that there appears to be a positive trend, both in process mean and variability. Again, it would be difficult to say so with much confidence based on just four samples. 8. If the process could be improved so that the standard deviation was only about .10 millimeters, what would be the best that could be expected with the processes relative to fraction defective? The best that could be done is for the process to be centered at 1.9, and given a standard deviation of .10, then Z = (2.4-1.9)/.1 = 5. The fraction defective = 2 x (1 – NORMSDIST(5)) = 5.73303E-07 which would only be about 573 defects per billion washers. CHAPTER 14 LEAN SUPPLY CHAINS Discussion Questions 1. Is it possible to achieve zero inventories? Why or why not? In reality, zero inventories are a challenging, if not impossible, goal for most organizations. The concept is theoretical because the ideal production unit is one. Nothing is made until the customer expresses an unmet need for the product. In reality, inventories will always exist due to the timing between the expressed need and the actual delivery of the completed unit(s). Nevertheless, this goal aids in understanding of the lean concepts, and remains a reference point to continually remember in the on-going improvement process. 2. One way to help achieve lean production systems is to employ flexible automated manufacturing equipment and automated material handling systems. A natural result of such a move is that fewer people are required in the process, an issue addressed regularly in negotiations with labor unions. Do you think there is a conflict between such a move and the principle of Respect for People in the Toyota Production System? Student answers will vary, and could make for lively class discussion. Some students will maintain that by eliminating worker positions there is an inherent disconnect between system automation and the “respect for people” principle. Counter arguments might include that automating systems can eliminate some of the more mundane menial tasks currently performed by workers, freeing them up for more responsible and fulfilling positions. Also, if such a move is needed to remain viable in a competitive market it may result in a firm surviving instead of going out of business, thus maintaining employment for the company’s employees. 3. Can a supply chain become too lean? Explain your answer – use examples if possible. Answers will vary but many should deal with the risks inherent in ultra-lean supply chains. The 2011 tsunami in Japan and its domino effect should be one example students take away from the chapter. Variability in the supplier and distribution networks may also be brought up. 4. Why must lean have a stable schedule? Because any changes in the final product schedule are magnified backward along the line, a stable schedule is necessary. This schedule must be frozen at some point. Also, because suppliers and vendors are delivering in small batches just as materials are needed, they need accurate information about the build schedule so they can plan their corresponding deliveries. 5. Which objections might a marketing manager have against uniform plant loading? Uniform plant loading might upset a marketing manager who is planning a special promotional campaign for a specific product. If production did not make enough of the units during the promotional period, backorders or lost sales might result. Also because some products have different life cycles and sales patterns, this smoothing might hinder the marketing activities. 6. What are the implications for cost accounting of lean production? Cost accounting can benefit lean analysis, but outdated measures tied to labor rates and productivity no longer apply. Overhead is the key variable to measure under lean. Labor is only a small part of the entire production dollar. Also labor and machinery may be idle under lean because goods are only produced as needed. Labor and machinery variances may not reflect the lean philosophy. 7. What are the roles of suppliers and customers in a lean system? Lean involves customers and suppliers as an integral part of the process. Customers provide product enhancement, modification, and usage data. Suppliers work with the manufacturing organization to coordinate delivery and raw material or other input production. Both groups may sit on lean teams and participate in improvement activities, as all groups will benefit from changes. 8. Explain how cards are used in a Kanban system. Cards in a kanban system represent a visual work order. As material is moved from the line to the customer, the last operator in the process goes to the next workstation up the line and pulls a bin of work for further processing. This employee removes a card from the bin and leaves it at the previous station. This card represents a work order for this station to make or process more products. This sequence continues in a backward fashion through the line and back to the suppliers. 9. In which ways, if any, are the following systems analogous to Kanban: returning empty bottles to the supermarket and picking up filled one; running a hot dog stand at lunchtime; withdrawing money from a checking account; raking leaves into bags? All the systems represent work orders when the empty containers are returned. The empty bottles at the supermarket will be picked up by the soda bottler and represent a need to clean and refill the bottles and return them to customers. A hot dog stand at lunchtime has hungry customers as work orders to process. The customers in line represent needs for the hot dogs. Withdrawing money from a checking account serves as a receipt and also a tickler to the individual to deposit more money in the account at the next pay period. Raking leaves into bags is also a kanban. Once a bag is filled, the individual pulls an empty bag from the box and continues to fill bags until the yard is free of leaves or no empty bags remain. 10. Why is lean so hard to implement in practice? A key implementation difficulty is the lack of emphasis on lean on an on-going basis. The lean improvements are slow, take time, and are never ending. Initial enthusiasm may wane over time. Other problems in implementation include poor supplier quality, a lack of employee commitment, and problems in reducing machine set up times. 11. Explain the relationship between quality and productivity under the lean philosophy. Under JIT, quality and productivity are key and equal partners. As quality improves, so does productivity, as only good units are assembled. No work is wasted on preparing inferior quality items. Both are necessary in the lean philosophy. 12. Stopping waste is a vital part of lean. Identify some sources of waste in your home or dorm and discuss how they may be eliminated. Waste can include work in process, raw materials, and finished goods that are not being directly worked on or being shipped to the customer. Any processes or procedures not needed to complete the product or deliver the service are wastes. Material sitting in stores and queues are also sources of waste as is excess or inefficiencies. Through applications of lean principles of streamlining flows and only performing work as it is needed, these wastes can be reduced and possibly eliminated. Answers will vary to this question, but some obvious choices can be found in the refrigerator, with bills waiting to be paid, and, of course, laundry. For example, if laundry were done in small lots on a regular basis, fewer clothes would be needed. Of course, many people might not consider this an improvement. 13. How would you show a pull system in VSM Symbols between the blanking and CNC stages of the bolt manufacturing solved problems? 14. What is value stream mapping? Basically it is a specialized flowcharting tool that focuses on mapping the flow of material and information through a process. VSM identifies all of the steps that material and information go through in the process, identifying which are value-added and which are non-value-added steps. By identifying non-value-added steps, VSM is helpful in making processes more lean. 15. What is the purpose of value stream mapping? How can this be achieved? This could be worded several ways, but essentially the purpose of VSM is to make processes more efficient. This is done by identifying non-value-added activities in the process and working to reduce or eliminate them. Sometimes this may have an effect on the value-added activities as well. The suggestion to change the production lot size in Exhibit 14.10 is an example of this. It could also be used to discover value-added activities that are bottlenecks in the system, leading to redesign of that part of the system. 16. Will lean work in service environments? Why or why not? Lean is already achieving successes in a number of service environments. As services identify their components that resemble an assembly line and are repetitive in nature, the concepts will work. Also, the philosophy of reducing waste and streamlining flows to eliminate waste can work in any setting. 17. Discuss ways to use lean to improve one of the following: a pizza restaurant, a hospital, or an auto dealership. Any number of answers would be correct. For example, in a pizza restaurant, streamlining the pizza preparation and baking operations would speed the product to the customer. Fast and efficient customer ordering and payment would allow the system to process more customers. Possibly letting customers refill their own drinks or serve themselves would speed processing. In a hospital or automobile dealership, procedures can be streamlined and altered to serve the customer. Objective Questions 1. What phrase refers to the idea that every step in supply chain processes that deliver goods and services to the customer should create value? Value chain 2. What term refers to the optimization of value-adding activities and elimination of non-value adding activities that are part of a value stream? Waste reduction 3. List at least four of the seven prominent types of waste that should be eliminated from the supply chain. Waste from overproduction, waste of waiting time, transportation waste, inventory waste, processing waste, waste of motion, waste from product defects 4. What lean concept relates to eliminating non-value-added steps and waste in product storage processes? Lean warehousing 5. What term refers to a schedule that pulls material into final assembly at a constant rate? Level schedule 6. The periodic inspection and repair of equipment designed to keep the equipment reliable, thus eliminating unplanned downtime due to malfunctions is called _______________________. Preventive maintenance 7. What term refers to the concept of doing things right the first time, and when problems occur, stopping the process to fix the source of the problem? Quality at the source 8. In some JIT systems, marked spaces on a table or the floor identify where material should be stored. Supplying operations are signaled to produce more when the space is empty. What are these spaces called? Kanban squares 9. Under a kanban approach to lean manufacturing, order quantities should be as small as possible. For a part that is manufactured in-house, what part of its manufacturing process needs to be reduced to reduce the optimal order quantity for an item? Setup time 10. D = 10 gauges per hour L = 2 hours S = .20 C = 5 gauges K = DL(1+S)/C K = 10(2)(1+0.20) / 5 = 4.8  5 Kanban card sets 11. D = 4 transmissions per hour L = 1 hour S = .50 C = 4 transmissions K = DL(1+S)/C K = 4(1)(1+0.50) / 4 = 1.50  2 Kanban card sets 12. D = 2,400 bottles/2 hours = 1200/60 minutes = 20 per minute L = 40 minutes S = .10 C = 120 bottles K = DL(1+S)/C K = 2(40)(1+0.10) / 120 = 7.33  8 Kanban cards 13. D = 16 catalytic converters per hour L = 2 hours S =.125 C = 10 catalytic converters K = DL(1+S)/C K = 16(2)(1+0.125) / 10 = 3.6  4 Kanban cards 14. D = 32 catalytic converters per hour L = 1 hour S =.125 C = 8 catalytic converters K = DL(1+S)/C K = 32(1)(1+0.125) / 8 = 4.5  5 Kanban cards 15. In value stream mapping, what does an arrow in the shape of a lightning bolt mean? Transmission of electronic information 16. What does an inverted triangle represent in a value stream map? Storage of material 17. In a data box on a value stream map, what do the abbreviations CT and C/O mean? Cycle time, changeover time 18. What is used to indicate suggested changes in a process that may lead to improvements in a value stream? Kaizen burst 19. Compared to manufacturing systems, what is it about the environment of service operations that make them much harder to control? Uncertainty and variability 20. The chapter presents multiple techniques that service firms can use to make their processes leaner. Which technique is demonstrated by a restaurant that offers special discounts mid-week to attract more demand during a traditionally slow period? Level the facility load CASE: Quality Parts Company 1. Which of the changes being considered by the manager of Quality Parts Company go counter to the JIT philosophy? Almost all of the recommended changes run counter JIT principles: Using MRP to “keep the skids filled” implies the use of inventory as a motivator to push production. Adding external inspectors is counter the JIT practice of in-process inspection. Setting up a rework line only institutionalizes the acceptance of rework. Labor and machine utilization are not objectives of JIT. The focus should be more on flexibility and reducing the waste of overproduction. The installation of high rise shelving indicates an acceptance of wasteful inventory. 2. Make recommendations for JIT improvements in such areas as scheduling, layout, Kanban, task groupings, and inventory. Use quantitative data as much as possible; state necessary assumptions. Answers will vary. The students might be encouraged to use the Lotfi and Pegels software to develop layouts. Machines and operations might be located in U-shaped layouts according to the assembly line balance. 3. Sketch the operation of a pull system for quality for Quality Parts Company’s current system. Answers will vary. The U-shaped layout is a useful tool. Machining cells might also be utilized. 4. Outline a plan for the introduction of JIT at Quality Parts Company. The plan will depend on the specific recommendations. Likely steps include acceptance of recommendations, development of an implementation schedule, training, team development, waste reduction, retooling, reallocation of workspace, and implementation of workflows. Top down direction in the change should be emphasized. Shigeo Shingo estimates that most companies will need five years to implement JIT. Case: Value Stream Mapping 1. Eliminating the queue of work dramatically quickens the time it takes a part to flow through the system. What are the disadvantages of removing those queues? The big consideration is whether or not these machines should operate independently or not. The buffers allow the machines to be scheduled, at least to some extent, independently of one another. Totally eliminating the buffers and moving to “one-piece flow” is like setting up an assembly line in this area. 2. How do you think the machine operators would react to the change? No doubt they would not like the change since they probably enjoyed the independence that they before. 3. What would you do to ensure that the operators were kept busy? This is a major issue since the cycle time for the first machine is only .5 minutes and the second machine is 1.2 minutes. Probably you could just assign one worker to both machines. CASE: Pro Fishing Boats 1. Create a value stream map of this supply chain. What other information is needed? Here is a simplified map. Currently, we do not know about the components using by Manufacturing Inc. All we know is that there are 12 weeks’ worth of one component and 4 weeks’ worth of the other. There is about a 27.3 weeks cumulative lead time from arrival of the raw materials to Manufacturing Inc. to the Pro Fishing Warehouse. Most of this is transportation time and waiting delay. If we add the component shipped from the US to China this cumulative lead time may be double this time. The lead time analysis may not be very accurate. It might be good to actually track some components and product through the network to see what the actual time is and how much variability there is in the flow time. This could reveal much about how the network actually operates. 2. Where is there risk for supply chain disruptions or stoppages to the flow of materials? Of course, there are many all along this supply chain. The supply of parts coming from the US could be disrupted. The plant in China could experience a problem. The complex port operations in Shanghai and LA could be delayed. In a sense, it is surprising that they can get away with only 6 weeks of inventory in the Pro Fishing warehouse. 3. Where do opportunities reside in improving supply chain operations and how has VSM helped to reveal these? There may be some significant opportunities to reduce cost in this supply chain. Pro Fishing could analyze the total cost of the network, not just the cost of parts quoted by Manufacturing, Inc. They should also look at the efficiency (cost) of the 2nd tier suppliers in the network. CHAPTER 15 LOGISTICS, DISTRIBUTION, AND TRANSPORTATION Discussion Questions 1. What motivations typically cause firms to initiate a facilities location or relocation project? There are a variety of reasons, both positive and negative. Firms may wish to move closer to markets or sources of supply. Cost reduction is another major reason. A company might need an educated work force, and therefore move near a major university. On the negative side, firms relocate to avoid costly regulation or unionization. Students should be able to cite a large number of reasons. 2. List five major reasons why a new electronic components manufacturing firm should move into your city or town? Answers will vary depending upon the location. Possibilities include quality of education, tax advantages, proximity of supply, proximity of markets, or favorable quality of life. 3. Recent figures show that almost 60% of the volume of freight movements in the United States ship by truck. Rail is far more fuel efficient on a ton-mile basis – CSX advertises they can move a ton of freight 468 miles on a gallon of fuel.* Why is it that rail does not have a greater share of the freight market in the United States. Limitations on rail such as limited pickup/delivery points, longer and more variable transit times, and volume requirements, among others. 4. What is required to make cross-docking a viable solution for a logistics provider? A high volume of inbound and outbound shipments to keep the flow of trucks moving and prevent bottlenecks at the docks. Proper facilities and information management systems are also needed. 5. What are the pro and cons of relocating a small or midsized manufacturing firm (that makes mature products) from the United States to China? According to the product life cycle concept, mature products require more of a cost orientation due to price competition and low product differentiation. In such industries, many firms are evaluating the cost/benefit trade-offs associated with moving operations to China. Labor costs are significantly lower in China. Land is relatively cheap and there is less regulation. The low cost of producing goods in China is the primary reason for the boom in Chinese manufacturing. In many cases, this reduced cost more than offsets the problems that companies can face when moving operations to China. These issues include a less-educated workforce, quality problems, higher logistics costs, longer transportation times, and an extended supply chain to manage. 6. How do facility location decisions differ for service facilities and manufacturing plants? In many ways, the decisions are similar. However, since the customer is often involved in the production of the service, proximity to the customer is of greater importance. Services often utilize multiple sites to remain close to the customer. Market needs impact services location decisions. Alternatively, resource considerations have much more impact on manufacturing. In addition, the cost of establishing a service facility is relatively low when compared to manufacturing. Manufacturing decisions are often based on cost minimization while service decisions are based on profit maximization. 7. If you could locate your new software development company anywhere in the world, which place would you choose, and why? Answers will vary depending upon preferences. However, student should provide sound business reasons for their responses. Objective Questions 1. Some manufacturing firms contract with an outside company to manage the firm’s logistics functions. What is the general term for a firm that provides such services? Third-party logistics (3PL) company 2. Logistics accounts for about what percent of the U.S. gross domestic product? About 8-9 percent 3. What mode of transportation is involved in the movement of the greatest number of products? Highway (truck). 4. What mode of transportation is limited to specialized products such as liquids and gases? Pipeline 5. A manufacturer has decided to locate a new factory in the northwest U.S. to serve growing demand in that market. They have narrowed the potential sites down to two finalists, City A and City B. They have developed a list of important factors to consider in selecting a site, and rated each as shown in the following table. Utility rates 100 115 Availability of skilled labor 78 75 Tax rates 40 35 Transportation 46 38 Proximity to suppliers 35 34 Quality of life 19 16 Factor City A City B Based on this data, which city appears to be the better choice? Summing up the factor ratings for each city shows that City A has a slight edge, 318 – 313, over City B. City A is the better choice. 6. Logistics Consultants Inc. (LCI) provides various logistics analysis services to other firms, including facility location decisions. They have just completed a project for a major customer, but on the eve of their presentation they discovered a computer malfunction partially deleted some of their data. One file that was impacted contains the final factor rating results. Following are the partial results they were able to recover. As you’ll notice, some ratings are missing. Ratings Availability of labor 150 130 123 Availability of utilities 130 122 110 Transportation infrastructure 80 73 Warehousing availability/costs 75 70 63 Proximity to customers 65 59 Business climate 40 30 24 Taxation structure 30 15 Quality of life 25 22 17 Factor Max Points City X City Y If you were the project manager for LCI, what would you do given that they you missing some crucial data? Adding up the factor ratings that we have in the table, City X currently has 506 points and City Y has 352 points. If City Y received the maximum points for the missing ratings that would add 80 + 65 points for a total of 497 points, which is less than what City X has with its one missing rating. There is no way that City Y would have been rated higher than City X. City X is the best choice. 7. a. From/To New York Fort Worth San Diego Minneapolis Supply Boulder 7 11 8 13 100,000 Macon 20 17 12 10 100,000 Gary 8 18 13 16 150,000 Requirements 50,000 70,000 60,000 80,000 b. Boulder 7 11 8 13 100,000 Macon 20 17 12 10 100,000 Gary 8 18 13 16 150,000 Requirements 50,000 70,000 60,000 80,000 350,000 Boulder - - - 130,000 Macon Gary 1 ,000,0 00 - 850,000 360,000 780,000 - - 1,120,000 Total Profit Total Cost $ 4,240,000 Total profit = $4,240,000. Note that an alternate optimal solution exists that changes the shipping so that Fort Worth is supplied entirely by Gary (70,000 units, no units from Macon); San Diego receives 50,000 units from Macon and 10,000 units from Gary. New York and Minneapolis are supplied as shown above. Production should be: Boulder 10,000 units Macon 100,000 units Gary 150,000 units a. This is the optimal solution, with a total cost of $720. From/To D E F G Supply A 9 8 6 5 50 B 9 8 8 0 40 C 5 3 3 10 75 Requirements 50 60 25 30 165 Candidate Solution A 25 0 25 0 50 B 10 0 0 30 40 C 15 60 0 0 75 Total Shipped 50 60 25 30 165 Cost A 225 0 150 0 B 90 0 0 0 C 75 180 0 0 Total Costs $720 b. Place a sufficiently small cost into the A to D cell to force a shipment from A to D. The solver can provide the value that will cause shipments to go from A to D, and in this case, any cost less than $10 will cause cars to be sent that way. a. The key here is properly calculating the total cost per 1,000 pounds for each source and destination pair. Some students will convert the given capacity to the equivalent number per 1,000 lbs. Here it is left as given and the spreadsheet does the conversion. Maximum Capacity Prod. Costs Plant (100,000 lbs.) (1,000 lbs.) Philadelphia 7.5 $325.00 Atlanta 9 $275.00 St. Louis 12 $305.00 Salt Lake City 10.3 $250.00 Transport Costs per 1,000 lbs. From/To NYC Birmingham Terre Haute Dallas Spokane San Diego Philadelphia $45 $52 $56 $62 $78 $85 Atlanta $55 $42 $58 $59 $80 $82 St. Louis $57 $60 $50 $54 $65 $70 Salt Lake City $72 $71 $67 $57 $52 $60 Total Demand (x 1,000 lbs.) 525 415 925 600 325 400 Combined Costs per 1,000 lbs. From/To NYC Birmingham Terre Haute Dallas Spokane San Diego Philadelphia $370 $377 $381 $387 $403 $410 Atlanta $330 $317 $333 $334 $355 $357 St. Louis $362 $365 $355 $359 $370 $375 Salt Lake City $322 $321 $317 $307 $302 $310 Solution (x 1,000 lbs.) From/To NYC Birmingham Terre Haute Dallas Spokane San Diego Philadelphia 60 0 0 0 0 0 Atlanta 465 415 0 20 0 0 St. Louis 0 0 925 275 0 0 Salt Lake City 0 0 0 305 325 400 Received 525 415 925 600 325 400 Supplied (x 100,000) 0.6 9 12 10.3 Total Costs From/To NYC Birmingham Terre Haute Dallas Spokane San Diego Philadelphia $22,200 $0 $0 $0 $0 $0 Atlanta $153,450 $131,555 $0 $6,680 $0 $0 St. Louis $0 $0 $328,375 $98,725 $0 $0 Salt Lake City $0 $0 $0 $93,635 $98,150 $124,000 $1,056,770 TOTAL: b. We are using almost none of the supply from Philadelphia. If the Philadelphia capacity cannot be used to satisfy demand elsewhere, then we should consider closing Philadelphia and adding slightly to capacity at another plant to pick up the slack. 10. d1x = 300 d1y = 320 V1 = 4,000 d2x = 375 d2y = 470 V2 = 6,000 d3x = 470 d3y = 180 V3 = 3,000 Cx =dixVi == 373.8 Vi Cy =diyVi == 356.9 Vi 11. 𝐶𝑥 𝐶𝑦 Based on these coordinates it looks like a good location for the new warehouse is somewhere between Syracuse and Albany. 12. a. 𝐶𝑥 𝐶𝑦 b. If you compare those coordinates to the problem data, you will see that the recommended location is about halfway between Tucson and Albuquerque. If you look on a map you’ll see that area is fairly isolated. Santa Cruz Bottling will likely have to search from there for locations with sufficient infrastructure to support their operations. Analytics Exercise: Distribution Center Location 1. Relative to the United States distribution network, calculate the cost associated with running the existing system. Assume that 40% of the volume arrives in Seattle and 60% in Los Angeles and the port processing fee at both locations is $5.00 per CBM. Assume that everything is transferred to the Kansas City distribution center by rail where it is unloaded and quality checked. Assume that all volume is then transferred by truck to the 9 existing warehouses in the United States. K.C Distribution Center Only Port to DC Costs Volume Port Distance K.C. Unload Total Pct CBM Processing to K.C. Rail Costs and Q.C. Costs Basic Data 190,000 $5.00 $0.0018 $3.00 Seattle Port 40% 76,000 $ 380,000 1,870 $ 255,816 $ 228,000 $ 863,816 L.A. Port 60% 114,000 $ 570,000 1,620 $ 332,424 $ 342,000 $ 1,244,424 DC to Warehouse Costs Truck Miles Freight Warehouse Demand from KC Costs $0.022 Kansas City 20900 0 $ - 11.0% Cleveland 17100 800 $ 300,960 9.0% New Jersey 24700 1200 $ 652,080 13.0% Jacksonville 15200 1150 $ 384,560 8.0% Chicago 22800 520 $ 260,832 12.0% Greenville 15200 940 $ 314,336 8.0% Memphis 17100 510 $ 191,862 9.0% Dallas 22800 500 $ 250,800 12.0% Los Angeles 34200 1620 $ 1,218,888 18.0% Total: 190000 $ 3,574,318 Total Cost of Current System: $ 5,682,558 $ 2,108,240 2. Consider the idea of upgrading the Los Angeles warehouse to include a distribution center capable of processing all the volume coming into the United States. Assume that containers coming into Seattle would be shipped by rail in their original containers to Los Angeles. All volume would be unloaded and quality checked in Los Angeles. 18% of the volume would then be kept in Los Angeles for distribution through that warehouse and the rest transshipped by rail to the Kansas City warehouse. The cost to transship to Kansas City would be $0.0018 per CBM. The material sent to Kansas City would not need to go through the “unload and quality check process,” and would be stored directly in the Kansas City distribution center. Assume that the remaining volume would be transferred by truck to the 8 remaining warehouses in the United States at a cost of $0.0220 per CBM. K.C and L.A. Distribution Centers $ 2,055,952 L.A. DC Operating Costs: $ 350,000 Total L.A. DC Costs: $ 2,405,952 Transshipment Costs to K.C. Volume Distance Pct CBM L.A. to K.C. Rail Cost 82% 155,800 1,620 $454,313 K.C. DC to Warehouse Costs Truck Miles Freight Warehouse Demand from KC Costs $0.022 Kansas City 20900 0 $ - Cleveland 17100 800 $ 300,960 New Jersey 24700 1200 $ 652,080 Jacksonville 15200 1150 $ 384,560 Chicago 22800 520 $ 260,832 Greenville 15200 940 $ 314,336 Memphis 17100 510 $ 191,862 Dallas 22800 500 $ 250,800 Los Angeles 0 1620 $ - Port to L.A. DC Costs Volume Port Distance L.A. Unload Total Pct CBM Processing to L.A.. Rail Costs and Q.C. Costs Basic Data 190,000 $5.00 $0.0018 $5.00 Seattle Port 40% 76,000 $ 380,000 1,140 $ 155,952 $ 380,000 $ 915,952 L.A. Port 60% 114,000 $ 570,000 0 $ - $ 570,000 $ 1,140,000 3. What should be done based on your analytics analysis of the United State distribution system? Should the new Los Angeles distribution center be added? Is there any obvious change that Grainger might do to make this option more attractive? Based on the economic analysis this looks attractive as the yearly $466,863 savings would defray the $1,500,000 investment to upgrade Los Angeles in 3.21 years (ignoring the time value of money). The obvious thing to do would be to ship everything to Los Angeles that is sourced in China/Taiwan. This would remove the cost of shipping from Seattle to Los Angeles which is $155,952. The total new savings is $622,815 and the new payback period is 2.41. 4. Is this strategically something that Grainger should do? What have they not considered that may be important? Rationalizing the network seems to make sense. One thing not considered in this analysis is the costs of the Seattle facility that would not be incurred under the new system. If the facility could be sold, or the lease terminated, the payback period would be less than calculated above. A possibly negative result of the new system would be the risk of utilizing a single inbound port. Any issues with the L.A. port would directly affect Grainger. Another thing is that is difficult to predict is how economic forces may change in the next 2 to 3 years. Shipping cost may be greatly impacted by increases in oil prices. Further, labor costs in China and Taiwan may increase significantly thus making using these areas less attractive for sourcing product. Since the returns have such long payback periods, it might be reasonable to just leave this part of the system as it is. Solution Manual for Operations and Supply Chain Management F. Robert Jacobs, Richard B. Chase 9780078024023, 9780077824921, 9781260238907, 9780077228934, 9781259666100