2014

Operations
SUMMARY & NOTES FOR GEST-D-482
DAMIEN DRAIME

Table des matires

Bloc 1: Introduction & General Issues ................................................................................................................................. 4

Logistics: A backward and a forward look ........................................................................... 4

Bloc 2: Plan ............................................................................................................................................................................ 6

Introduction to Plan .................................................................................................................. 6

Key issues about Demand Forecasting ................................................................................. 6
The Process of Demand Forecasting ..................................................................................... 7
Forecasting Models .................................................................................................................. 8
Bloc 3: Source ....................................................................................................................................................................... 9

Introduction to Source ............................................................................................................. 9

Mission & Operational Objectives ........................................................................................ 10
The Portfolio ............................................................................................................................. 10
Purchasing Strategy................................................................................................................ 11
Sourcing and Elaboration of the Suppliers Panel ............................................................... 13
Company-Suppliers Relationships ........................................................................................ 14
Bloc 4: Deliver...................................................................................................................................................................... 16

Introduction ............................................................................................................................. 16
Role of warehousing, functions and types of warehouses ............................................... 16
A particular function: Cross-docking ................................................................................... 19
A particular type: the Platform ............................................................................................. 19
Warehouse management ..................................................................................................... 20
Basic questions and challenges ........................................................................................ 20
Basic equipment, receiving, storage and picking activities ......................................... 20
Capacity optimization........................................................................................................ 20
Key Performance Indicators .............................................................................................. 21
Conclusion ............................................................................................................................... 21
Bloc 5: Inventory Management......................................................................................................................................... 22
Bloc 6: Deliver (Distribution & Transport) ........................................................................................................................... 23

Introduction ............................................................................................................................. 23
Basic structures of a distribution network ............................................................................ 23
Direct delivery ...................................................................................................................... 23
One-level structure.............................................................................................................. 23
Two-levels structure ............................................................................................................. 24

Optimization of a distribution network ................................................................................. 24

Transport ................................................................................................................................... 25
Bloc 7: Integration and Supply Chain Management ...................................................................................................... 27

Supply Chain integration & maturity levels ......................................................................... 27

Designing a Performance Measurement System ............................................................... 28
Auditing Supply Chain performances ................................................................................. 30
Conclusion ............................................................................................................................... 30
Bloc 8: Quality Management ............................................................................................................................................ 31

Introduction ............................................................................................................................. 31
Understanding the concept of Quality ........................................................................ 31
Reasons behind the deterioration of Quality .............................................................. 31
Quality issues from customers perspective ................................................................. 31
The Quality Loop .............................................................................................................. 32
Tentative definition of the concept of Quality ............................................................ 33
The five fundamental principles of Quality Management ............................................... 33
About the cost of Quality ...................................................................................................... 34
ISO Certification ...................................................................................................................... 34
Bloc 9: Quality Control ....................................................................................................................................................... 36

Classical Industrial Approach................................................................................................ 36

Introduction .......................................................................................................................... 36
Basic Quality Control technics .......................................................................................... 36
Statistical Control: issues, effectiveness and risks ............................................................ 36
Organization of Quality Control ........................................................................................ 37
Preventive Approach in the industrial sector...................................................................... 38
From products control to process control ....................................................................... 38
Poka-Yoke and other default preventing devices ......................................................... 38
Quality in the design phase ............................................................................................... 39
Quality of sourced materials.............................................................................................. 39
Quality Control: The case of the services sector ............................................................... 39
Key characteristics .............................................................................................................. 39
Quality loop in the sector of services ............................................................................... 40
Expected versus Perceived Quality: The Reference Model ......................................... 40
Conclusion ............................................................................................................................... 41

Bloc 10: Total Quality Management models .................................................................................................................... 42

Introduction ............................................................................................................................. 42
The Kaizen Methods ............................................................................................................... 42
Definition............................................................................................................................... 42
Simple Suggestion System .................................................................................................. 43
Other Total Quality Management Methods ....................................................................... 45
5S ........................................................................................................................................... 45
6 Sigma ................................................................................................................................. 45
Autonomous teams ............................................................................................................ 46
Conclusion ............................................................................................................................... 46
Bloc 11: Conclusions ........................................................................................................................................................... 46

Bloc 1: Introduction &

General Issues
Logistics: A backward and a forward look
Logistics and planning affect every days life, its viability and smooth functioning.
Logistics / Supply Chain Management is the management of the flows of goods or materials from point of origin
to point of consumption, and in some cases even to the point of disposal.
There are 3 main steps in this chain of operations:

Raw material supply

Production, internal
and inter-plants
flows management

Physical distribution
of the finished good

F IGURE 1 - A CHAIN OF INTERRELATED FLOWS & OPERATIONS TIGHTLY LINKED TO THE OTHER COMPANY FUNCTIONS
However, there can be a fourth step which is Recycling / Re-use of the products.
4
Taylor: a scientific approach to labour management in manufacturing. His goal was to increase
the productivity. For that purpose, he used unskilled labour force who has to perform simple tasks:
horizontal division of operations into successive simple tasks. This required new tasks such as quality
control, maintenance and planning. The second principle was the vertical division: separation
management and execution tasks. Taylorism (or Scientific management) has some advantages
such as Easy training labour force, high productivity and low wages. But it has also drawbacks
such as lack of motivation and removing of all sense of workers responsibility.

F IGURE 2 - F REDERICK
T AYLOR

Ford: assembly lines and standardization. Fordism was implemented to cope with growing
demand. Henry Ford invented the concept of assembly line. In order to reduce production costs,
Ford establishes the principle of standardization. This system of mass production privileges quantity
over quality and does not cope with the diversification of industrial products.

F IGURE 3 - H ENRY
FORD

In which markets can we apply Fordism / Taylorism? In

markets which need quantity rather than quality. For

example in emerging countries. Fordism and Taylorism is thus only

implementable in push markets (when producers push products to
customers: mainly driven by internal research and development activities)
not for pull markets (when customers ask what they want: production is
directly linked with consumers demand).

What is the difference between logistics and supply chain management?

Supply chain management refers more to strategy (not based only on value). It is the link between the different
blocs of operation. How to manage the different activities in order to optimize them via tradeoffs?
Each operation bloc is a logistics operation. Logistics focus on each part of the supply chain separately but the
supply chain refers to the whole value chain

Bloc 2: Plan
Introduction to Plan
How can we manage this chain of operations? How can we be sure that each operation (Source, Make and
Deliver) reaches the customer? How can we be sure
that the customers will be delivered in time, that they
will be satisfied? For all of this, we need to forecast the
market, we need to meet the needs of customers, we
need to understand your customers, and we need to
plan it. Do we need to wait for customers demand and
then produce or do we need to forecast the demand
and based on that produce in advance?
We can plan a lot of things. For example, the market
demand, the

quantities

of

finished

goods, the

distribution systems, profit, etc.

The key challenges of planning are numerous. On the
one hand, regulations are tougher and tougher and on
the other hand, consumers habits are constantly

changing. Moreover unexpected events can arise 1 .

Companies need also to anticipate risks and uncertainties. They need also to take into account the variability of
input materials costs.

Key issues about Demand Forecasting

Forecasts need to be done because it has a major impact on the logistics performance of a company. Thus
demand forecast is a key issue. Forecasting and planning are basis for all strategic decision in supply chain
management because they influence directly or indirectly every function in a company.
Demand forecasting ensures the implementation of the necessary resources at the right time. It is the link
between business strategies and flows management in the supply chain.
When we plan, we dont have to stick to our current production, our current equipment. We have to see the
potential evolution of our products. We need to plan for the long run.

Demand
Forecasting

Manufacturing
and Sales Plan
General
planning
Time horizon:
years

Master Production
Schedule
Detailed
planning
Time horizon:
weeks

Distribution
Resource Planning
Detailed
planning
Time horizon:
weeks

Manufacturing
Resource Planning

Excution and
Control

Detailed
planning
Time horizon:
weeks

F IGURE 4 - F ROM D EMAND FORECASTING TO E XECUTION AND CONTROL

Unexpected events can be political events. If we can produce a product only in one country
and that this country is on war, it will harm our business. We need to plan a plan B. We also need
to attach a level of risk for each unexpected event.
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The Process of Demand Forecasting

The process to forecast the consumers demand requires to follow 6 steps:

1. Problem definition:
Purpose of forecast

First we need to know what do we want to forecast and thus define the scope of
our problem. Moreover we need to select the time horizon for the forecast. Then we
need to select the period of forecast. We also need to decide the level of details
we want to include2.

2. Data Selection

Then we need to select the data we will use. We have to be sure that the data are
reliable, accurate, adequate with the time horizon and relevant. We must also

3. Forecast Method
Selection

4. Data Collection /
Correction

5. Apply forecast
method

select the types of data. It is also very important to assess the external factors
(weather, political situation, etc.) that can affect our forecast need to be taken into
account.
There are two types of methods: qualitative and quantitative methods.
Qualitative methods are based on experiences, observations. Quantitative
methods are based on mathematical techniques. Both methods can be
combined.
We need a model to the future. This model must give us a
range of forecast for the future. If I know the room of the
maneuver then Im fine because I know where I go and how

6. Forecast Error
Analysis

to mitigate the risks. Plus you will be able to know how to plan
your human resources. The forecast doesnt need to be too
precise.

FIGURE 5 - THE PROCESS OF

DEMAND FORECASTING

The collection of data is based on steps 2 and 3. It is often difficult and time
consuming. The emergence of IT is an opportunity to collect more data more easily.
But the data are rapidly obsolete because the situation change quickly.

Collaborative forecasting between different departments is crucial.

Then we will have to apply our forecast method. This forecast can be applied by specialists who have nothing to
do with the firm because it can be beneficial. It will provide a new external view of the business. However, to do
forecasts on strategic elements we may want to ask to a forecasting committee (with people from different
horizons) to apply the forecast. We need experts from inside and/or outside the firm.
Can we share our planning exercise with one competitor? Yes we can share to the extent that we dont create
a monopoly. We must not shift the competition. We must not disturb free (spirit of) market competition. We can
face fines from commission and we can go bankrupt.
Do we have to plan for every products? No because forecasting is time and money
consuming. We have to focus on the core product use the Pareto principle to select the
products on which we will do forecast: 80% of sales come from 20% of our products focus
primarily on these
Finally we will have to measure the performance and the quality of the forecast. Based on that we will chose
whether we reject or accept the forecast. We need control to improve our planning.

To select the level of details, it will depend of opportunities, there is no rule.

Forecasting Models
Based on observations, we will build a model to forecast the future demand, sales, etc. Our model will have to
reflect the real world as good as possible. It will be very difficult because of fast changing habits.
We will have to find the relation between the
demand and the different variables (how this
variable will affect your demand in the future). But
we must take into account all the variable
because they can have an impact in the future
even if until now they have not affected the
demand.
What we are sure is that we will always have trend,
cycles, seasonality and random. We need to
decompose the observations into those three
(trend, cycle, seasonality) to create the model.
FIGURE 6 DATA ANALYSIS & DECOMPOSITION

However the randomness component make it

harder for our model to replicate the observations
and predict the future with accuracy.

We can also chose to decompose the observation for each component. We will have a model for trend, one other
for cycle, etc. This method is called the disaggregated model.
The aggregated model will regroup trend, cycle and seasonality in one model.
To assess the random factor we can see if the random variable is under the gaussienne distribution or any other
statistical distribution. And then adapt our model to this statistical distribution.
Each model has an explained part (trend, cycle and seasonality) and a non-explained part (random). To assess
the relevance of our model we will use the ratio (non-explained part/explained part) and see if your model can
replicate correctly the reality. If the random variable affect too much the reality, the model will not be viable. If
randomness accounts for 25% then we must not use this model but rather try to find the factors that can explain
why this randomness is so structural.
It is not always the most complex methods that provide the best results.

Bloc 3: Source
Introduction to Source
When it comes to source here are questions that every
company should ask itself: How will we have the raw
materials? Do I produce in just in time? Do I use
warehouses? How to control the quality of input
materials because from it depends the final quality of
the product? If there is a risk of non-quality, can we
share it with suppliers: common control? How to select
the supplier and on which basis?
If we want to use the just in time strategy, the
relationship with the suppliers are very important.
The notion of source gathers input materials/flows,
storage of input materials, unexpected events, quality
of input materials, timing of arrivals of input materials
and variability of input materials costs.
The key challenges in sourcing are:
-

Identification and selection of the suppliers: it is always good to work with suppliers who have a good
knowledge of the final product and are innovators. Because they will maybe provide the next jump of the
market.

Quality control: we have to share this risk with the suppliers if possible.

Integration of suppliers constraints

Collaboration with the suppliers: collaboration with suppliers can be valuable too. For retailers it is important
to not have empty shelves. If it happens the customer will go elsewhere. In this case there is a need for
collaboration to share the risk.

Partnership with suppliers

Source is closely linked with the function Supply and Purchasing. Purchases and supplies are needed to acquire
the necessary inputs in order to manufacture finished products or provide services. Moreover, the function Supply
and Purchasing has a great impact on the level of competitiveness of a company and at least 50% of the
companies income statements is attributable to that function. So, knowing how to optimize the Source can
generate or save a lot of money.
There is a distinction to be made between purchasing and supply. Purchasing is about selecting the appropriate
suppliers. But the planning must be completed (quantities and types of inputs required and date of availability are
known). Supply refers to the purchase order to suppliers, order tracking, receipt of order & quality control, and
transfer to the warehouses. However, the function Purchasing is more strategic because it is about selecting the
right suppliers. Supply comes after, once we know the suppliers. This function is more operational.

Mission & Operational Objectives

There are seven key objectives for the function Source. Those are:
1)

Find and acquire the necessary inputs according to clear and precise specifications

2)

Target an objective quality level from the supplier: because the quality of the input materials will directly
affect the satisfaction of the consumers.

3)

Ensure the flexibility of the supplier: we need to have suppliers that can response to short delays, that
can provide us an unforeseen demand due to rapid change in habits from consumers.

4)

Guarantee the level of services expected by internal customers

5)

Ensure a full control of related upstream risks: upstream risks are risks that can occur before the
production. To deal with those risks the company may want to establish a collaboration with the supplier.

6)

Design and control companys supply and purchasing policy: now suppliers (until the final consumers)
are part of the supply chain. It is like they are members of the company.

7)

Contribute to the innovation policy of the company through a good knowledge of upstream (suppliers)
innovations: because they will maybe provide the next jump of the market.

The Portfolio
The portfolio is by definition all goods, services and facilities purchased by the company and clustered according
to a given logic. The number of clusters we will chose will depend on the company/business. There is also a tradeoff when we chose the number of clusters. Having too many clusters can make the management difficult because
we wont be able to know which clusters are important. The same goes with too few clusters because they will
gather too much information. We must use the Pareto Principle to concentrate your budget on principal clusters.
Here are some possible clusters: purchase of energy, purchase of overheads3, purchase of outsourced services4,
purchase of direct production materials, etc.

3
4

Evrything else that is related to operation but on which we cant put a name
Can be cleaning services or R&D services outsourced

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Purchasing Strategy
There are four major steps for the Purchasing Strategy:

Clustering of the purchasing Portfolio into homogeneous segments

On each segment:

Identification of the economical stakes

Identicifaction of the various associated risks
Idenification of the priority and specific leverages

For each segment, definition of an operational action plan

Definition of a performance measurement system for each segment

and for all the segments

We cant afford to have a sourcing strategy for every part of the portfolio. Thats why we must focus on the sections
of the portfolio that requires a lot of money. Thus for the first step we have to regroup sections of portfolio into
homogeneous segments and use the Pareto Principle to focus on major parts.
The third step will define the operational action plan and thus will allow companies to select right suppliers.
Every strategy must finish with a performance measurement system to be sure that everything goes according to
plan. A Purchasing Strategy that does not have such performance measurement system worth nothing.
Note that is it also very important to communicate on the project. It is a crucial element that must be done at any
stage (see below).
Lets now focus on the second step. There can be an infinite number of risks. But we have to
manage/reduce/control them. For that purpose we can use Pareto or share them with suppliers and/or customers.
We will segment and analyze risks according to three main axis. The first one will be according to economic stakes
(annual revenues of purchases). The second axis will be associated with suppliers and associated risks. And the last
one is according to product features and related internal risks, recurrence of purchase, etc.

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If the risk related to the supplier low: we can find easily a new supplier in case of trouble with the current one. If the
risk related to the product is very low: commodity. If both are true simultaneously, then we are in a competitive
market of standard products. In this case, we dont need a detailed strategy. We dont need to have a clear
understanding of our relationships with our suppliers because they are not unique.
High tech products with competitive market are typically smartphones. In this segment, the company can play the
king. If it goes not well with one supplier it can select another one. But the company has to pay more attention to
the suppliers than in commodity.
In the segment characterized with monopoly and high tech products, we find products such as products from
space area, airplane, etc. In Monopoly, suppliers have more power than in the competitive market.
For commodity + monopoly, companies need to have a good strategy with our only supplier. If we fail the
supplier will fail too. So need to have a strong relationship.

For each quadrant we need a specific strategy

One thing to keep in mind too is that everything is now global: competition is global, transport is global, risks are
global, etc.
The risk factors can be related to politics, currency, logistics, environmental, etc.

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Sourcing and Elaboration of the Suppliers Panel

In this stage, we need to identify suppliers that can meet the needs of the company in terms of cost, time,
innovation and quality. There are 4 major steps:

Market, Risk
and Change
Analysis

Assessment
and approval
of suppliers

Selection of
the Suppliers
Panel

Management
of the
Suppliers
Panel

For the first step, the company needs to benchmark itself from suppliers. It needs to look at market trends and at
what competitors do in order to assess potential future changes. The company needs to achieve a risks analysis.
To assess the suppliers we can take a look at the reactivity and the additional services provided by suppliers, at
their level of competitiveness, at terms/conditions of delivery, at their flexibility and logistics organization, etc. The
pre-assessment helps us to preselect the suppliers and know which suppliers we will not work with fast benchmark
For the selection of the Suppliers Panel, we must use a multi-criteria analysis. But it is only worth doing a multi-criteria
analysis when the company is active in a competitive market. It makes no sense to do one in a monopoly. Moreover
the process of the constitution of the Suppliers Panel should include disqualifying criteria based on costs, legal
conditions5, etc. (but not quality). Only the suppliers who doesnt meet the disqualifying criteria should access to
the Approval Suppliers Panel. After that the company should conduct audits, strategical analysis and internal
monitoring with the Approval Suppliers Panel to finally have a final choice.
In the fourth step, we continue to manage the Suppliers Panel to be sure that if follows the tracks we wanted. In
other words, the panel should not be frozen. The company should thus define a set of indicators to monitor suppliers
performance. The company could also create a subset of suppliers especially for riskier purchases. To sum up, the
company should not hesitate to kick off suppliers that do not respect our conditions. It is not because the contract
is done that we need to stay with them forever because the future of our company is in stake.
Moreover, we should pay particular attention to new suppliers (for example: Wal*Mart).
The company should also set a Total Quality Management Plan with each supplier.
The graph below highlights the fact when a company reduce its number of suppliers, it tries to increase the number
of heart suppliers (i.e. suppliers that are perfect, respect our conditions, etc.) while reducing the pool of potential
suppliers and eliminating bad suppliers.

For example ; does the supplier work with children?

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Company-Suppliers Relationships
As we have seen so far, a very good management of company-suppliers relationships is critical for several
reasons:
-

It makes more effective business links between a company and its suppliers

It contributes to the decrease of production costs

It contributes to the increase of the quality of raw materials supplied

It increases the quality of services from suppliers

There are 3 types of relationships.

The traditional relationships have only one simple goal: increase profits through the control of costs of purchases.
They are characterized by open contracts6. Those relationships often take place when reliable forecasts of supply
needs are possible.
The collaborative relationships focus not only on controlling the costs of purchases. This relationship is needed when
forecasts of the future sales of the product are not so reliable (i.e. : more complex services). This kind of relationship
requires real-time exchange of operational information between the company and the supplier
Partnership is needed for Monopoly and/or high tech products. Partnership is needed to face new business
challenges such as rapid changes, short time-to-market, etc. This relationship is suitable in the case of high level of
risk or fast-changing technologies such as IT, aeronautics, defense, etc. It requires standardization of data and
exchange systems with full transparency integration of the supplier in the supply chain activities. They do not only
try to control the cost but they try to get a competitive advantage on the other couple of supplier-company. Thus

Suppliers just send what the company wants

14

Partnership requires communication. Suppliers and the company will share everything; risks, profit, etc. It is even
possible that there is a joint R&D.

15

Bloc 4: Deliver
Introduction
Deliver is an important function in the supply chain. It is the interface between producer and customer. Its quality is
critical since it shapes the first customers impression. It often requires a physical distribution network (nodes and
links) and often involves a warehouse.
Whatever the quality of your product, if the quality of the function of Deliver is bad, consumers will not be satisfied
because it is the first thing they see.

Role of warehousing, functions and types of warehouses

The warehouses can be implemented between Source and Make, but also inside the factory (i.e. Make) and also
between Make and Deliver. Thus warehouses can be located upstream (sourcing-suppliers) or/and downstream
(end-consumers).
Warehouses are can be used in the distribution system because the company needs to group products from
different producers/suppliers, to have an intermediaire storage, to save space in the manufacturing plant, to ensure
delivery at the right time. Inventory management is thus really important. Moreover, warehouses can belong to the
company or to a third party.
Is it interesting for a company to own its warehouses?
You will get a better control of the products inside the warehouse. But if we can get rid of a non-core activity, we
must outsource it. E.g.: for a car manufacturer, the core business is to produce cars not to stock them. So he can
outsource the warehouse management. Moreover warehouse management cost a lot of money.
Thus the role of a warehouse is to store items used to support production (raw materials, etc.) or finished goods to
be delivered. And the challenge is to reduce inventory costs.
The more we store, the more we lose money. But we need stock. So what is the right level to have in stock.
Here is a schema highlighting the main functions of the warehouse:

16

All the products that enter the warehouse will not always follow all the main functions.
There are 4 types of warehouses.
-

Manufacturing support

All the products from suppliers are first all stored in a warehouse before being send to the plant. It is more an
upstream type of warehouse.

Product mixing

A customer does not receive all the products from suppliers. More downstream and inside the Make.

17

Consolidation

Each customer will receive a package of parts from plants A, B and C than product mixing where they only get
some parts. It is a way to make money. It can be up-/down-stream. Customers have no choice, they will receive
parts A, B and C

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Breakbulk

We receive and then break the product into small pieces. And then we send them to customers.

A particular function: Cross-docking

The principle of the Cross-docking is the reception at
the platform of pallets from multiple suppliers. Then
there is a fragmentation of pallets, sorting and
repacking. Thus each package may contain products
from multiple suppliers. Finally you will ship packages
to customers. Thanks to Cross-docking you will not
store the products from suppliers.
Cross-docking can be a source of money, source of
new services, etc. The key element of the crossdocking is that you create an added value by
reassembling the products of pallets.
The more you store a product the more you lose
money.

Cross dock center is used as a buffer. We dont have

to allocate rooms to store the products. Before cross
docking we had to have some rooms to store every
parts of the product.
Example: you receive the product from one supplier, the user-guide from one other
supplier, the packaging from one other we repack everything, add value and then
directly ship to the customers.
The benefits of cross-docking is the reduction of inventory costs in the central warehouse.
It will also reduce the storage points. Moreover the frequency of products delivery will
be greater and thus the products availability will increase.
The disadvantages of cross-docking are that you will need an adequate transport fleet
to operate a cross-docking. Moreover a computerized logistics system is needed.
Furthermore, additional freight handling can lead to product damage.

A particular type: the Platform

A Platform is an intermediate physical entity in the distribution process which allows unloading, repackaging and
shipping of goods. It is not intended to store goods. So it is not a warehouse. A platform aims to facilitate transfers
between means of transport. Thus the product arrive and leave (i.e. no storage) with different means of transport.
It is highly recommended to build a partnership with the two different means of transport. So that once the
product is delivered by the truck, it wont go back empty.
Example: Ikea.
Adding value can be either indirect (there is no direct link with the final product. E.g.: after sales services,
centre to gather complains of customers) or direct (adding a feature).

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Warehouse management
Basic questions and challenges
When it comes to warehouse management, several questions will raise such as where the warehouse should be
located? What should be the picking system?
The 2 main issues is to know when to order and in what quantity?
The order point depends on safety stock,
lead

times,

average

demand,

and

acceptable threshold. The Lead time is the

time between the order and the delivery. We
should however never go below our safety
stock. When a company knows its safety
stock and the lead time of the suppliers, it will
easier to know when to order.
We must also take into account the fact
ordering for small quantities will cost us
relatively more than ordering a large quantities.
Calculation of economic quantity order: it is an optimal order quantity
considering inventory cost and ordering cost.
The key aspect is thus to have the right product at the right time. It highlights
the importance of Sourcing, good relationships with suppliers, real-time
exchange of operational information between the company and the
suppliers and, finally, the standardization of data.

Basic equipment, receiving, storage and picking activities

There are three possibilities to assign a location to a product in the warehouse. It can be random, dedicated or
mixed. The challenge is to optimize the allocation of space. Pareto approach could be helpful for that purpose.
According to the importance of flows and turnovers: fast-moving products should be located close to the
shipping area.
Orders can be prepared in different ways:
-

Pick and pack

Pick then pack

Pick and sort then pack

Optimization of this operation can both increase productivity and improve the quality of service.

Capacity optimization
Every company that has a warehouse should determine the needed storage capacity. For that it will use forecasts
of quantity of products to be received, stored, delivered, etc. Once the optimization problem solved, the company

20

will know the storage space required the building dimensions, the technical resources needed, the necessary
investments, etc.
Fill rate of the warehouse: if the warehouse is never filled with for example more than 70% it means that maybe we
dont need so much space.

Key Performance Indicators

KPIs can be related to the productivity, to the human resources or the financial issues. KPIs are useful as indicators
that we perform well (i.e. when we are below a certain threshold we know that we are out of tracks and we need
to adjust it).

Conclusion
The key issue is to reduce the inventory costs while keeping it at the minimum level possible.

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Bloc 5: Inventory
Management
General questions at the exam
IM is part of the Delivery. Ho to be sure the final pro

22

Bloc 6: Deliver (Distribution

& Transport)
Introduction
The idea of the distribution network is to have the lowest possible costs but the highest (i.e. shorter and flexible) level
of service delivery in order to cope with the variability the demand, transport (traffic jams), raw materials. This is the
main objective of a distribution network. The successful achievement of this objective will depends on the type of
distribution networks, the number and location of customers to be served, characteristics of transport networks, etc.
If we have a warehouse located near the customers then we will be able to may be avoid transport constrains.

Basic structures of a distribution network

There are different structures possible for the network of distribution.

Direct delivery
23

There is no intermediary.
One key drawback of this is that you take the full risk of the delivery. Moreover you create on demand. The main
advantage is that it is straight to the customers, because there is no intermediary and transfers.

One-level structure

We can whether have a central warehouse or a network of local stores.

Central warehouse

Advantages
Close to the
customers
Possibility to
consolidate
-

Disadvantages
Number of
transfers
Breaking of
loads
-

Network of local stores

Advantages
Faster delivery

Disadvantages
Inventory level
increased
Difficulty to
consolidate
-

Two-levels structure
Once again there is two structure for those kind of distribution network.
Central warehouse with a network of regional
stores
Plants supply warehouse that supply local stores
that deliver to customers.
Mostly used for intercontinental purposes

Advantages
Possibility to
consolidate
Close to
consumers
-

Disadvantages
High inventory
costs
Two levels of
inventory
management

Network of local stores

Orders are prepared in the central warehouse then
disaggregated in and distributed from the platforms.
Surely used for intercontinental purposes.

Advantages
There are no
inventory since we
use platforms
which help the
central warehouse

Disadvantages
Time to deliver
Transport can be
a constrain

Optimization of a distribution network

What are the variables that can impact the optimization of our distribution network? There are a lot of them but
lets focus on five: transport from warehouse to customers, transport from suppliers to warehouses, inventory costs,
storage handling and information processing. If those are not assessed and controlled it will be useless to go look
at the other.

24

The cost of transport from suppliers to warehouses will increase with the number of warehouses because we will
need a lot of transport to fill all the warehouses.
The sixth case is the aggregation giving the total cost.

Transport
Now we assume that we have selected our distribution network. We then need to be sure that our final product
arrive in time to customers. Transportation is very important since it shapes the first impression of the customers. You
can have a good product and inventory management, if your transport is a mess, customers will not be satisfied.
Hence its quality is a key component of overall service quality.
Transport is thus the connection between the levels of the distribution network.
There are different transport modes such as road, rail waterways, maritime, air, etc. It is worth noting that during the
last year there was a great increase in containerization because everything can be store and shipped in them.
To undertake a transportation system we need :

1. Space

2. Truck, train,
plane, boat,
etc. + Energy

4. Infrastructure
(road, rail, etc.)

3. Work force
and
operational
rules

5. Demand

The combination of the first fourth creates a transportation mode (e.g. not bus but public transport system, not train
but railroads transport system, etc.).
The combination of infrastructure and operational rules give a transport network (e.g. roads network).
We can cluster all of that. We can separate into two groups: 1 to 4 is the Supply and 5 is the Demand. We cant
have one without the other. S+D is called a system and that system is evolving and has interrelations. S and D are
not statics. There is an equilibrium where everything that is supplied is demanded/used but there are variations
around this equilibrium. Therefore a manager should also have the 3 following questions in mind:
1st question: What is the maximum amplitude of variation of D and S that we can accept? Assessing the amplitude
is key to know how much you will have to invest. It is a budgeting question. We will have to invest more if the
amplitude is great and that we want to always provide transport.

25

2nd question: At with speed the disequilibrium occur. If fast we will need additional means to slow down the
system.
3rd question: How long will it take to go back to the equilibrium point? Is there a cycle? If there is any what is its
length?

Transport costs have increased because the road have increased

so much. The reason is the flexibility of the transport that the
consumers ask. While rail have decreased because they lack
capacity (no new railroads have been built). However boats
increased too because they can also be seen as a moving
warehouse.

There are different kind of transport:

Intermodal
Transport of freights by usinig two or more transport modes with
the same loading unit or the same vehicle without handling of
the goods while changing modes.
Requires collaboration
Example: containers

Multimodal
Same but with handling and chang of loading unit.

Combined transportation
Where the major distances are covered by rail, inland
navigation or maritime navigation and the departure and
arrival sections by road.
The main problem of transport is what we call the last miles: cities are congested. How can we manage that?
Need for an urban logistics.
The critical issues of transportation are multiple: increasing environmental constraints, globalization, need for
transport, transport fleet needed, route optimization, we cannot act on total demand.
However, risks can be spread during the transport.

26

Bloc 7: Integration and

Supply Chain
Management
Supply Chain integration & maturity levels
Lack of integration between business and logistics. We need to move from a fragmented push logistics to an
integrated Supply Chain process with a pull logistics.
The objective of the Supply-Chain Integration is the conception and pilotage of an integrated and coordinated
system where the priority is given to the overall optimal performance and not to the local optima. We need to focus
on overall performance. And it will not be achieved by improvements on local performance, because an overall
optimal performance is not the addition of local optima.
There are 4 levels of maturity corresponding to 4 types of Supply Chain Integration:
Level 1
Focus per function &
activity
Clustered
Vertical
functions such as R&D,
Production, Marketing

Level 2
Integrated Company

Level 3
Extended Company

Level 4
Client Oriented Network

Clustered
functions
grouped

Client
oriented
organization,
internal
integration, supply chain
manager

Cooperative Approach,
external integration from
the supplier to the final
client/customer

but
are

some
now

More and more use of IT systems

Increase of sharing information
Increase of level of performance

27

Target
Product cost

Parameter:

Target
Parameters:
Product cost and product
quality

Disadvantages:
Quality is not a
concern
Cannot
work
under
a
Pull
model
Not sustainable
Silo Syndrome

Advantages:
More
people
work together

Target Parameters: cost,

quality and respect of
promises made to the
client
Advantages:
Even
more
efficient
than
level 2
Data
and
knowledge are
exchanged
between
departments

Target Parameters: build a

strong
competitive
advantage
Advantages:
Highest level of
integration
Customers
are
now part of the
supply chain as
well as suppliers

28

We need to know where we are? At which level ? And what it takes to go to the next level? However, it is not
because it is possible for your company to reach the next level that you have to do it.
Furthermore, we need to design a performance measurement system to know at which level of Supply Chain
Integration we are.

Designing a Performance Measurement System

We need to find measures, tools to assess our performance and thus know where we are on the integration model.
There are different dimensions that can be taken into account. For examples, we can use the external reference
values/targets (i.e. related to the sector, about mean outcomes), the internal reference values/targets (Are we far
from what we have planned?) or efficiency tool, etc.

But to be sure that a measure is well an indicator of overall performance, we must check if the measure has the
following characteristics:

Pertinence

Quantifiable

Perennity

Realy related to the

objective, the
targeted item

From the abailable

information/data

In time

Unchallengeable

Sensibility

Unbiased

Unconstestable

To cope with the

level of detail
defined

No possibility of
multiple
interpretations

If a measure has all those characteristics, it can be seen has an indicator of performance.

We can also compare our performance internally or externally:

Internal Benchmarking
Multi Business Units Groups: objective is to lift the BU's performances to the level of
the best performing BU.
Conditions: BU's should operate on similar markets and under similar conditions.

External Benchmarking
Objective is to lift the Company's performances to the level of the best performing
company within the sector.
Conditions: Comapanies should operate within the same industrial or services
sector.
Benchmarking is always a win-win situation unless you create a conglomerate (conferatur Bloc 2).
External benchmark: should we fill the gap or should we overtake the best in class? The risk linked with the fact of
overtaken the best in class: we will be well exposed to risks. Every change in the market will affect us badly. Sometimes
it is better to stay the follower. We must also know how much it will cost us.
When designing a Performance Measurement System, we should keep in mind that the final target/aim of any
Supply Chain (i.e. Sourcing, Delivery, etc.) is to satisfy the final customer. Hence, to have an Efficient Consumer
Response ECR. This means provide:

to the Right
Client

with the Right Overall

Carbon Footprint

the Right
Product

in the Right
Quantity

at the Right
Place

at the Right
Price

at the Right
Conditions

at the Right
Time

29

At the right conditions: shouldnt be broken, well packed, etc.

Customers are more and more concerned about environmental issues, thats why we improved the ECR with the
last requirement (i.e. with the right overall carbon footprint). Hence the ECR became the ECR+.
Is it possible to have a global measurement tool? Yes it is possible but we need to get all the information.
Indicators should belong to one of the dimension.

Auditing Supply Chain performances

All these tools/indicators are used to know where we are and at which level, by assessing the performances of our
companys functions? And thus our competitive advantage. It will determine the level of maturity of the companys
supply chain. But it is also beneficial to know what I need to do to get to the next level.
By evaluating the attribute we are able to spot the potentials of progress.
We must have plan to know how to perform the steps that we will have to achieve to reach the next level of
integration. Determine the decisions/plans to be put into place in order to reach a higher integrated level (move
to the progress zone).

Conclusion
30
As a manager, always asks yourself: Do we reach what the customers wanted?

Bloc 8: Quality
Management
Introduction
Understanding the concept of Quality
Quality will be addressed differently if we are in the manufacturing sector, services sector, etc. Quality principles
and rules have a strong impact on performance. But quality is not a matter of good or bad will of people but rather
quality has something to do with good or bad underlying management.

Reasons behind the deterioration of Quality

In the production, often the reasons behind the deterioration of products quality is the ambiguity of product
specifications and working rules. Indeed each actor can have its own interpretation.
It can be also related to machines which are often out of order.
31
Lack of communication between the different actors is also one of the main reason.
Moreover, it is better to have preventive measures rather than fight and react only when the problem appear. It is
not after an accident that we need to enhance control after the event, it is before.
It can happen that work stations are poorly organized.
There is a need to set up/formalize in the company, a sound and continuous improvement plan.

Quality issues from customers perspective

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.
Thus a RolIs Royce is not necessarily a better car than Toyota. It depends on the level of quality/satisfaction that
you target. We should not stick to the quality of the product itself but we should assess it on the side of the
customer/user: what he is expecting. Hence, the quality of a product or service is its ability to meet the needs of
the users/clients. Hence, 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.
There is no need to overinvest if the user is already satisfied.

Quality is a complex process in an industrial organization. This process is defined by a two-steps mechanism. On the
one hand, there is the specification of the customers needs, and on the other hand, the production in accordance
with the specifications. There is often a gap between those two steps. But the manager must try to reduce it. The
more the gap is reduced, the more the customers will be satisfied. If the specification of needs meets the production
in accordance with the specifications then we have a perfect fit: the customer will be satisfied.

The Quality Loop

We have marketing to assess the difference between potential needs of the consumers and their expressed needs.
The one who does a marketing is not always the one who designs the product. Hence, the gap between the
expressed needs of the consumers and the specified pattern can be material. But the gap should be reduced. If
the gap is too high the reason comes from a lack of communication between the two departments (Marketing
and Design). Again there can be a gap between the specified pattern and the manufactured product.
As long as my company is in
business, this quality loop
does never end. It does not
stop.
How can we make the
different departments work
together: IT systems, sharing
data

systems,

always

32

communication!
If seen as the internal supply
chain then the actors are
also members of the internal
supply chain.
A manager should know if
there is a gap in Marketing,
thus

between

potential

needs and expressed needs.

He

must

have

those

following questions in mind: what is the uncertainty related to this gap? Could who face this gap? Could we reduce
it?
There are 3 main difficulty in the Quality Loop:
Difficulty 1: Numerous entities and persons are involved
in the production process. There is thus a high probability

Number of
players in the
process

of occurrence of errors. It is related to communication

Combinatorial

Induced cost

between those players.

Productivity is additive but quality is not additive. It
means that low-quality in a point of the process cannot
be compensated by over-quality in another point of the

process. As a manager we know thus it will be useless to overinvest in a point of the process if there is a no-quality
in the process. Quality is disjunctive.
Difficulty 2: The more the process is complex, the more the quality will be difficult to obtain. The solution is to share
the risk with the suppliers. The target should be zero-defect. The test about the quality of the component should not
be tested in our company but by the suppliers. If a supplier cannot assure a zero defect then we should not work
with him.
Difficulty 3: Who is willing to pay a (promised) default less car five times more expensive than the normal market
price? Do not put quality under a cost constraint. Do not try to cut on quality to reduce your costs. But on the other
hand, you should not overinvest in it. You should just meet the needs of the customer. Quality should be a concern
applied at all stages. To sum up: Ensuring product quality = yes, but not at the expense of very high induced costs.

Tentative definition of the concept of Quality

The quality of a product or service is its ability to meet the customers needs. This quality doesnt not depend on
the good/bad will of people but it results from a good/bad management. Quality sets a real company culture
with values and principles. Finally quality must always be defined by a client-product relation.

The five fundamental principles of Quality Management

We should meet those five principles in order to have quality. Do never bargain those principles.

Meet customers expectations

Zero Defect/Fault/Failure
Preventive Approach
Objective monitoring method QM
Permanent Progress
Lets focus more in details now on each principle:
Principle 1: Must be applied to all levels of the company. Over-quality should not occur.

33

Principle 2: There is only one acceptable standard target: zero defect. And no target such as close to 100%.
Principle 3: Better to be safe than sorry. We must anticipate upstream on the supply chain and drive your suppliers
to adopt the same approach. Investigate systematically the causes of the phenomena and treat them rather
than addressing the effects (conferatur Blocs 9&10). It costs a lot to repair a defect but less to implement a
preventive approach.

Principle 4: Need to meet two conditions:

-

Have an objective measurement system with clear and indisputable indicators

Formalizes rules for training of employees, communication

Need to develop and maintain a Quality Handbook.

What do we need to do with the quality handbook? We should update it is often as necessary. A manager
should have a good knowledge of it. It needs to target the expected satisfaction of the customer.
Principle 5: We want the quality loop to continue. For the loop to continue, we need a permanent progress. If the
loop doesnt continue it means that there is no repurchase. Quality is thus a long and continuous process of
learning and progress.
We must also keep in mind that employees can be reluctant to change.

About the cost of Quality

Find the best economic balance between costs related to compliance and costs of no-compliance (no-quality).
These two types of costs vary inversely.
Compliance costs: costs of prevention + costs of quality control.
Costs of no-compliance: costs of internal failures.

ISO Certification
Certification doesnt mean necessarily that you have quality. Its not guarantee, it just means that all conditions are
met to provide quality work.
But certification needs effort and money. It can change our way of working. Certification should be very clear and
transparent.

34

7 keys of the certification process:

Have a strong and

motivated commitment
from the Management
Board

Choose the ISO model

that fits best the sector
in which we operate

Select a Leader of the

operation

Define a Quality
Dashboard to measure
progress

Improve and complete

the company's Quality
System to guarantee its
compiance with the
requirements set by the
selected ISO model

Make a thorough
assessment of existing
company procedures
and processes

Mobilize staff through

adequate training and
indicate clearly the
place, role and
responsibility of every
single employee

35

Bloc 9: Quality Control

This bloc will highlights the quality control in the manufacturing & services sector

Classical Industrial Approach

Introduction
If the defect is not seen at the beginning we can see that the cost of the defect
will dramatically increase if the defect is embedded in other components. So
we need to detect the defect before they are embedded in other
components. Need a zero-defect strategy. We need quality control.

Basic Quality Control technics

There are different quality control technics. Moreover those technics can be done together.
Quality Control Technics
Control by measure

Description
Used when it is possible to quantify
exactly
the
feature
to be
evaluated: weight, size, thickness,
etc.
Used when the characteristic is
qualitative and is assessed on a all
or nothing basis: bad or good
wine, etc.

Advantages/Disadvantages

36
-

+
-

Control by attribute

Systematically control all products

Control per unit

Determines the characteristics of a

batch of products by controlling a
small sample of these
Statistical control

Statistical Control: issues, effectiveness and risks

Lets now focus on the last Quality Control Technic: Statistical Control.

+
-

It is often possible to
transform
control
by
measure into control by
attribute
Easy to implement
In case of statistical
control, it is less effective
and gives less information
about deviations in the
production process
Difficult and expensive in
case of mass production
Impossible to apply in case
of destructive control (e.g.
rupture tests)
Loss of precision in the
measurement of quality
Reduction of control costs
Need to be sure that the
sample
we
take
to
perform the test will
represent statistically the
set

We have said that the sample need to represent statistically the set. If the set is homogeneous and if we randomly
create a sample, this one will be homogeneous too. However it will not be the case if the pieces are mode from
different production lines (i.e. the set will no longer be statistically homogeneous). So pieces for different plants
need to be tested separately because they will have different characteristics.
How to select a good sample? This question can be separated
into two new ones:
-

How to select the sample? (depending on your luck you will

whether draw between 5 and 15 possible defect pieces)

-

What should be the size of the sample? It will depend on the

budget, etc.
The lower curve represents an unfavorable draw, meaning that
defective parts were unlikely drawn mostly at the end of the batch.
In this case, the sample overestimates the quality of the batch and
if it is accepted, the customer is penalized (i.e. customers risk).
The upper curve represents a favorable draw, meaning that defective parts were unlikely drawn mostly at the
beginning of the batch. In this case, the sample underestimates the quality of the batch and if rejected, the supplier
is penalized (i.e. suppliers risk).
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 in the same time the cost of control increases.
Risk for the supplier: we reject the batch because with the test we have found 15 defects rather than 10.
Risk for the customer: we accept the batch because, based on the sample, we overestimate the quality of the
batch.
If the point of view is inversed then the results will be too.
To conclude, we can say that there are risks attached to statistical test and we must be aware of it when we use
it.

Organization of Quality Control

Where to place the control points? Certainly not at the end.
The risk to do it at the very beginning is that it will slow down the production because we will have to perform the
test and thus not start the production. Thus by point the control point at the beginning, we reduce the pace of the
production line which is certainly not recommended. Theoretically it should be at the very beginning but practically
it is not done at this stage for the reason evoked. Instead we put the pressure upstream. The more we put the
pressure upstream the less you will slow down your production line. The more we can upstream to our suppliers, the
better. For certain sectors such as aeronautic, defense, etc. the tests are done upstream upstream. They can afford
it.
The reason behind doing so early is because 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. Moreover, 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.

37

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

The traditional industrial approach said to set an acceptable quality level by degree of severity of defects. But now
only one concept should prevail: zero defect.
How to organize it? Who should be in charge of the control?
There are two ways of responding to this question. On the one hand, the Classical School (Taylor approach) argues
the control tests should be made by a specialized and independent (from the process) controllers. In any case it
should be the task of a worker. This approach results in mistrust about the individual performing the work and a
technical inability of the worker to perform an objective measure. On the other hand, the Modern School argues
that we should train the workers and provide them the means necessary to control their production. The
advantages of the Modern School approach is the high speed rate of response (and since the workers are the
more able to know where a defect can happen and why. He can react preventively), the time savings and the
involvement of workers. However this leads to more responsibilities for the workers and thus higher wages.
The modern school is not to find someone to blame but to react preventively.
As manager you will have to navigate between the two schools.
However, we do not give up the quality control. We do not mean neither we give up any rule nor an independence
from the hierarchy! The modern school is not to find someone to blame but to react preventively.

Preventive Approach in the industrial sector

From products control to process control
If we see that there is kind of
continuous

decrease

towards the lower control

limit (or upper) then we
know

that

there

is

something that goes wrong

and

we

can

react

preventively and call the

maintenance to repair the
machine.

If

we

stay

between the two limits it is fine, given that we have a kind of sinusoidal. But if we have 5-6 points that show a
decrease or increase in the same direction must react.

Poka-Yoke and other default preventing devices

The idea is to act before the defect occurs. The idea is not the result of a theoretical work but the good sense and
pragmatism of users. There are simple systems or sophisticated.

38

Quality in the design phase

There is a risk that a focus on performance will lead to decrease in ease of production.
Some problems may arise in workshops from inadequate design of the product. A close collaboration between
designers, R&D and production services is necessary.

Quality of sourced materials

Communication is the cement of quality. At each stage there should be meetings, engineers feed-backs, etc.
Statistically correct is not more tolerated. Now we need the zero defect. Because buyers will not tolerate a delivery
with a certain percentage of defective parts.
The quality of the supplier is not only the quality of the product or of its deliveries but also the quality of the underlying
management. Quality is not only the quality of the final product but also the underlying management and
production scheme.
We cannot control all the set, we need a sample that statistically represents the set. We need to be sure that the
sample have the same characteristics that the set. Then there is the unfavorable draw (most of the defect are draw
at the end) or favorable draw, and risks are associated to each of them. Where do we have to do the control
point: the more upstream possible zero defect. There are two schools classical and modern to determine who
will perform the test. Then we have seen how to act before the defect occurs: poka-yoke, upper lower limit control,
etc. We have seen that communication is crucial: communication at each stage with people upstream and
downstream.

Quality Control: The case of the services sector

Key characteristics
A service is intangible and is not storable. Moreover, there is a direct contact between production and client.
Hence it is important to select and train appropriately the staff.
The service must be made where the customer is located. 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 (i.e. combining several basic services). It is critical to manage the interactions between
sub-services. Positive interaction should be put forward.

39

Quality loop in the sector of services

We can also have a quality loop in the sector of services.

Quality performance should be encouraged at the design stage (good understanding of customer expectations
and clear identification of the potential risks of non-quality).
Quality assurance must be made before production not after as it is the case with industrial activities.
Quality control is necessary during the process (i.e. 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.
What are the physical and psychological determinants of Quality for the customer? Listening to customer needs,
accessibility and helpfulness of staff are keys. Moreover, all must appear under control (i.e. the client hates to feel
as there is no pilot in the plane). Credibility is important too.

Expected versus Perceived Quality: The Reference Model

In the service sector, the expected quality is the result of
the potential need of the client, his previous experiences,
information

received

by

word-of-mouth

or

communication of actors such as consumer organizations

or rating agencies. There are also gaps in the quality loop
in the services sector.
Lets gather them into 5 gaps:
-

Gap potential need-expressed need

Gap expressed need-pattern (i.e. specif. service

to be provided)

40

Gap pattern-final service offered (i.e. rendered)

Gap service offered-customer satisfaction

Gap promise mad to the client-service provided

The quality of service is thus the resultant of these gaps. Moreover, if there is a gap at the beginning, it will be
amplified later on. The main gap in services sector is often the fifth. This one can destroy our business rapidly. Lets
see how to tackle those gaps.
For the first gap, we need to define clearly the service offered and define the target audience. For the second gap,
we need to specify all aspects of the service offered. For the third one, we need to monitor the implementation of
the service. For the fourth one, we must meet the expectations of customers. For the last gap, we must explain
clearly the promise to avoid misunderstanding. We only have to promise what we can offer.
We should develop a system for measuring the perceived quality.

Conclusion
Preventive approach through the permanent improvement process. We shouldnt be satisfied because we have
reach our target of quality, we should move on with permanent improvement process because clients will always
expect more from you.
Try to reduce the gaps!
Modern school control are done not to blame the worker but to improve the process.
41

Bloc 10: Total Quality

Management models
Introduction
We are moving from product to process. We have realized that the quality of the product will depend on the
underlying production process, the quality of the management and the quality of the human resources. In fact we
have gradually defined the field of Total Quality which includes customer focus, zero defect and joint action of all
stakeholders (i.e. everyone who has a direct or indirect link with the quality must participate to action, even the
cleaner).
We have observed a major shift from the Taylor concept to permanent progress or continuous improvement
concept. Preventive approach through the continuous improvement process based on the PDCA (Plan, Do, Check,
Act) concept/Wheel of Deming.
There are many methods to help companies to implement and manage an efficient and sustainable Total Quality
System. For instance, there are the Kaizen method, Six Sigma, 5S, Lean production7, Autonomous teams, etc.

42

The Kaizen Methods

Definition
Kaizen is a concept of continuous improvement: everyone must continuously make improvements on is
work/workplace.
The person the better placed to suggest improvements is the one who uses the device daily.
Fukuda argues that we can increase productivity from 20 to 25 % either
by an investment of about 7000$/pers./year or by increasing the
number of suggestions from 3.5 to 5.5 per person/year. Hence one
suggestion per person per year is equivalent to an investment of +/3500$.
Thus suggestions to improve the way of working will increase the quality of work and result in higher productivity.
Masaaki argues that performance increase always involves 2 components:
-

Structural modification in technology or organization (innovation)

All (nonstructural) improvements made continuously by the workers (i.e. Kaizen)

Lean Production: use only the exact resource we need to produce our product. No
redundancies of operation and no waste.
7

After a certain time productivity/performance will decrease if there is

no more improvement. The jumps are only due to improvement in
innovation.
However performance could still slightly increase between two
innovations if the Kaizen method is implemented. Thus it is better to have innovation + Kaizen. Better strategy
because implementing a system to have more suggestions (i.e. Kaizen) doesnt cost that much.

Simple Suggestion System

In order to improve the quality of the product we have to make suggestions based on observations. Simple
observations / suggestions can improve the quality. There are two main ways to do suggestions: Suggestion Box or
Kaizen.

Nature of idea

Characteristics
Motivation

Suggestion Box
Brainstorming, the financial support
of which is measurable
More elitist: rewarding one that
saves more money
Bonus is calculated from the cost of
the proposal

Management involvement

Low or zero

Results

0.1 to 1 idea per person per year

Kaizen
Brainstorming that simplify every
days job. How to make our work
easier while keeping the quality
Suggestions
for
improvements
involving more people
No bonus, but different modes of
recognition (e.g. employee of the
month)
Each manager is responsible of a
number
of
suggestions
implemented in his team
5 to 10 ideas per person per year

Some conditions are required for those methods to be successful. First we start from the assumption that all ideas
are interesting because even if they cannot be implemented, they reflect a problem to be solved. Then the
proposals must be discussed in team. The proposals must be shown and visible by all. Supervision and Support
Services must provide a help. The realization must be as fast as possible because it will enhance the motivation of
the other workers to make suggestions.
In some case, specific methods should be used in parallel. Here are the different specific methods we will see:
-

The Problem-Solving Group

The Hoshin Method

CEDAC

Ishikawa Fishbone Diagram

Problem-Solving Groups use a systematic approach to solve a given problem and made in consultation with
management. For this specific method you will need to have the support and the commitment of the management.
We can only state the problem if we can answer to also of those questions: who, what, where, when, why,how?
With the Hoshin Method you mobilize the entire team for a short time to reorganize the work tool. However, you will
only use this method if you are sure that this idea can increase your quality and performance. Otherwise do not
stop your production line.
CEDAC stands for Cause & Effect Diagram with the Addiction of Cards. It uses a large flipchart, located at the
place of work, dedicated to receive improvement ideas for a given problem. It is worth noting that everyone can
make a proposal even if he does not belong to the department concerned. This method doesnt cost too much

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to put it in place (i.e. no heavy investment). Condition of success: Workers need to be motivated and involved (i.e.
know what the other department does, etc.)

Ishikawa Fishbone Diagram classifies the possible causes of failure according to their origin. It is a powerful tool
because it helps both to decompose a complex problem and to avoid forgetting some important causes.
-

Step 1: Record of all defects observed whenever non quality occurs

Step 2: Pareto analysis on the previous data recorder: classify them, find out the critical ones and
address them in priority.

Step 3: The cause/origins of a defect are to be sought in the five categories (Materials, Man power
(worker does not have the skills required), Machine, Methods, Milieu)

Step 4: Elaborate the fishbone diagram. Find the possible causes for each M. Find the root-cause. Note
that it is formalized to 5 branches (for CEDAC it can be more or less: not standardized)

Step 5: Analyze the Fishbone Diagram. Focus primarily on the most important causes-effects.

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Other Total Quality Management Methods

5S
It illustrates the principles of Kaizen. 5S can be applied everywhere (i.e. offices, shops, stores, etc.). Mobilize all
employees to improve the cleanliness and spirit of the working environment. It is an extremely efficient and cost
effective process but it can be hard for a new manager to implement it if there are workers resistances to changes.
5S process:
-

Remove all that does not belong or is not necessary to the working place

Sort/ put in order

Keep it clean

Standardize, visualize, good practices

Respect rules

It 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. This is the minimum
required to improve our productivity. If you cant implement a 5S dont think about implementing a 6 sigma or
something else.

6 Sigma
The goal of the 6 sigma is to reduce the risk of defects to a few parts per million: percentage of non-compliant
products is less than what a normal probability distribution leaves beyond six standard deviations.
Six Sigma seeks to improve the quality of process outputs by identifying and
removing the causes of defects (errors) and minimizing variability in
manufacturing and business processes. It uses a set of quality management
methods, including statistical methods, and creates a special infrastructure
of people within the organization (Master Black Belt, "Champions", "Black
Belts", "Green Belts", "Yellow Belts", etc.) who are experts in these methods.
Six sigma is a very powerful and very demanding method for continuous
improvement.
6 Sigma aims at reducing the probability of defects to the surface value
located outside the 6 times the standard deviation area. The normal

The 6 sigma has a 5 steps methodology: Define, Measure, Analyze, Improve and Control. This method requires the
support from the management: sponsorship from the management.

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Autonomous teams
It is another approach to deploy continuous improvement and address the need for responsiveness, pro activeness
and adaptation. Autonomous team is a form of organization best suited to solve daily problems and improve
performance. The strengths of this method are: the work is done in teams, the team is autonomous for some
decisions and the team is responsible for its performance.
The work is done in teams. The team is autonomous (has a word of say) and is responsible for its performance. We
will have to change the organizational chart to a team organization. But there will be reluctance to changes

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. 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 organized process

Turned towards action not reaction

Bloc 11: Conclusions

Integrated supply chain modelling & assessment must be agile, adaptable, aligned, customer-centered, green,
lean, profitable SC

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