IMPORTANT SUPPLY CHAIN &

OPERATIONS CONCEPTS HANDBOOK

S.NO NAME OF THE TOPIC
1 Concurrent Planning, Strategic Planning, Master Scheduling
2 Material Requirement Planning (MRP)
3 25 Lean Manufacturing Techniques
4 JIT & Kanban Systems
5 DMAIC Six Sigma
6 Root Cause Analysis, CAPA
7 Kraljic Matrix
8 SC Collaboration, Partnership, Strategic Sourcing
9 Agile Supply Chain
10 Sustainable Supply Chain
11 Cold Supply Chain
12 Cross Docking
13 Reverse Logistics
14 Forecasting Techniques, Forecasting Errors
15 Inventories Management, Economic Order Quantity, Models, Re-order
point, fixed interval model, single period model

16 Total Productive Maintenance (TPM)

17 Vendor Management Inventories (VMI)
18 Basics of Queue Management
19 7 QC Tools
20 KPIs (Like OEE, OR, TRFR, CCFOT, DPMU, CPT)
 CONCURRENT PLANNING
Introduction
Concurrent Planning optimizes orders, inventory, and transport at the same time and in one plan.
Rather than sub-optimizing a siloed operation, it optimizes the entire enterprise. Concurrent
optimization models enable changing objectives as a dynamic parameter, resulting in a more agile
technology that can adjust to the changing business needs. Goal Programming optimizes for more
than one goal at a time and constructs solutions by addressing multiple goals for the best overall
result. The company follows the market dynamics and adjust their short- and medium-term objectives
to have a competitive advantage against their competitors.
Concurrent optimization –
1. Combines each of company’s objectives under one overarching objective and reflects
them to individual KPI’s
2. Enables changing objectives as a dynamic parameter, resulting in a more agile
technology that can adjust to the changing business needs
3. Optimizes for more than one goal at a time and constructs solutions by addressing
multiple goals for the best overall result
4. Increases competitive advantage by easily adjusting to short-term and medium-term
objectives across functions

AGGREGATE PLANNING
Introduction
An organization can finalize its business plans on the recommendation of demand forecast. Once
business plans are ready, an organization can do backward work from the final sales unit to raw
materials required. Thus, annual and quarterly plans are broken down into labor, raw material,
working capital, etc. requirements over a medium-range period (6 months to 18 months). This process
of working out production requirements for a medium range is called aggregate planning.
Aggregate planning is an operational activity critical to the organization as it looks to balance long-
term strategic planning with short term production success.

Inputs required for aggregate planning

▪ An aggregate demand forecast for the relevant period

▪ Evaluation of all the available means to manage capacity planning like sub-contracting,
outsourcing, etc.
▪ Existing operational status of workforce (number, skill set, etc.), inventory level and
production efficiency

Aggregate Planning as an Operational tool

Aggregate planning helps achieve balance between operation goal, financial goal and overall strategic
objective of the organization. It serves as a platform to manage capacity and demand planning.

In a scenario where demand is not matching the capacity, an organization can try to balance both by
pricing, promotion, order management and new demand creation.
In scenario where capacity is not matching demand, an organization can try to balance the both by
various alternatives such as.

▪ Laying off/hiring excess/inadequate excess/inadequate excess/inadequate workforce until

demand decrease/increase.
▪ Including overtime as part of scheduling there by creating additional capacity.
▪ Hiring a temporary workforce for a fix period or outsourcing activity to a sub-contractor.

Importance of Aggregate Planning

Aggregate planning plays an important part in achieving long-term objectives of the organization.
Aggregate planning helps in:

▪ Achieving financial goals by reducing overall variable cost and improving the bottom line
▪ Maximum utilization of the available production facility
▪ Provide customer delight by matching demand and reducing wait time for customers
▪ Reduce investment in inventory stocking

Aggregate Planning Strategies

There are three types of aggregate planning strategies available for organization to choose from. They
are as follows.

1. Level Strategy looks to maintain a steady production rate and workforce level. In this
strategy, organization requires a robust forecast demand as to increase or decrease production
in anticipation of lower or higher customer demand. Advantage of level strategy is steady
workforce. Disadvantage of level strategy is high inventory and increase back logs.
2. Chase Strategy looks to dynamically match demand with production. Advantage of chase
strategy is lower inventory levels and back logs. Disadvantage is lower productivity, quality
and depressed work force.
3. Hybrid Strategy looks to balance between level strategy and chase strategy.

MASTER PRODUCTION SCHEDULING

Introduction
Master Production Scheduling is the process that helps manufacturers plan which products and related
quantities to produce during certain periods. MPS is proactive in that it drives the production process
in terms of what is manufactured and what materials are procured.
As the name implies, the MPS decides what products are manufactured and when. The required raw
materials are then identified by the finished goods BOM, the data from which is then integrated with
current inventory data to create the MRP for raw materials procurement.
The Master Production Schedule forms the basis of communication between sales and manufacturing.
Using the MPS as a contract between sales and production means that sales can make valid order
promises. the MPS is not a rigid plan. MPS is a dynamic plan and can be changed when there are
changes in demand or capacity.
Functions of MPS
The MPS strives to form a detailed plan that fulfils the following objectives:

● Achieve desired customer service levels

● Make the most efficient use of resources
● Maintain a desirable level of inventory

The MPS in operations management must balance the demand identified by sales and marketing with
the availability of resources.

Different MPS techniques

Supply-Demand Options MPS Focus
Make-to-Stock (MTS) Schedule finished goods
Make-to-Order (MTO) Schedule raw goods
Available-to-Order (ATO) Schedule module production

Benefits of MPS
● Ability to make adjustments to fluctuations in demand while minimizing waste
● Prevents shortages and scheduling mishaps
● Improves efficiency in the location of production resources
● Provides more effective cost controls and more accurate estimates of material requirements
and delivery dates
● Reduces lead times throughout the year
● Provides an effective communication conduit with the sales team for planning purposes

Common MPS Output Reports

● Available-to-Promise –Presents the available-to-promise quantities for each MPS line item.
The report is time-phased, usually into weekly or monthly “buckets.”
● Demand Tracking Report – Provides historical data on actual shipments and order bookings
as compared to management forecasts
● Forecast Data Report – Summary of historical demand activity, which indicates the
significance of errors between forecast and actual and provides a statistical summary
● Period Summary Forecast – Forecast by line item within a product group for each period
through the future 12 periods, with summaries by period for the group and yearly for line
items
● Item Demand and Forecast – Presents several years of historical data (user-specified) and
the next 12 months of forecast demand for each item. Typical data elements can include YTD
totals, total yearly demand and quarterly totals, with comparisons by percent between items
and their total product group
● Build Schedule Report – Reports the build schedule for one or all assemblies
● Schedule vs. Actual Output – Reports the actual output compared with the scheduled output
at a particular work center
● Where Used Report – Lists all parts/tools used at each work center/machine
 MATERIALS REQUIREMENT PLANNING (MRP)
Introduction
Material requirements planning (MRP) is a system for calculating the materials and components
needed to manufacture a product. It consists of three primary steps: taking inventory of the materials
and components on hand, identifying which additional ones are needed and then scheduling their
production or purchase.
MRP is one of the most widely used systems for harnessing computer power to automate the
manufacturing process.
IBM engineer Joseph Orlicky developed MRP in 1964 after he studied the Toyota Production System,
which was the model for the lean production methodology. Power tool maker Black & Decker built
the first computerized MRP system that same year, according to several sources.

Orlicky explains the purpose of MRP which is to streamline 3 main processes within a manufacturing
unit:

1. Minimize lead times

2. Optimize inventory levels
3. Maximize service levels to boost business efficiency

MRP is considered a "push" system -- inventory needs are determined in advance, and goods
produced to meet the forecasted need -- while lean is a "pull" system in which nothing is made or
purchased without evidence of actual -- not forecasted -- demand.
MRP uses information from the bill of materials (a list of all the materials, subassemblies and other
components needed to make a product, along with their quantities), inventory data and the master
production schedule to calculate the required materials and when they will be needed during the
manufacturing process.
MRP is useful in both discrete manufacturing, in which the final products are distinct items that can
be counted -- such as bolts, subassemblies or automobiles -- and process manufacturing, which results
in bulk products -- such as chemicals, soft drinks and detergent -- that can't be separately counted or
broken down into their constituent parts.

MRP vs. ERP

An extension of MRP, developed by management expert Oliver Wight in 1983 and called
manufacturing resource planning (MRP II), broadened the planning process to include other resources
in the company, such as financials and added processes for product design, capacity planning, cost
management, shop-floor control and sales and operations planning, among many others.
In 1990, the analyst firm Gartner coined the term enterprise resource planning (ERP) to denote a still
more expanded and generalized type of MRP II that took into account other major functions of a
business, such as accounting, human resources and supply chain management, all of it managed in a
centralized database. Both MRP and MRP II are considered direct predecessors of ERP.
ERP quickly expanded to other industries, including services, banking and retail, that did not need an
MRP component. However, MRP is still an important part of the ERP software used by
manufacturers.

Objectives of MRP
Material requirements planning has two major objectives: determine requirements and keep priorities
current.
Determine requirements. The main objective of any manufacturing planning and control system is
to have the right materials in the right quantities available at the right time to meet the demand for the
firm’s products. The material requirements plan’s objective is to determine what components are
needed to meet the master production schedule and, based on lead time, to calculate the periods when
the components must be available. It must determine the following:
● What to order
● How much to order
● When to order
● When to schedule delivery
Keep priorities current. The demand for, and supply of, components changes daily. Customers enter
or change orders. Components get used up, suppliers are late with delivery, scrap occurs, orders are
completed, and machines break down. In this ever-changing world, a material requirements plan must
be able to reorganize priorities to keep plans current. It must be able to add and delete, expedite,
delay, and change orders.
Inputs to the Material Requirements Planning System
There are three inputs to MRP systems:
1. Master production schedule.
2. Inventory records.
3. Bills of material.
Master production schedule - The master production schedule is a statement of which end items are
to be produced, the quantity of each, and the dates they are to be completed. It drives the MRP system
by providing the initial input for the items needed.
Inventory records - A major input to the MRP system is inventory. When a calculation is made to find
out how many are needed, the quantities available must be considered. There are two kinds of
information needed. The first is called planning factors and includes information such as order
quantities, lead times, safety stock, and scrap. This information does not change often; however, it is
needed to plan what quantities to order and when to order for timely deliveries. The second kind of
information necessary is on the status of each item. The MRP system needs to know how much is
available, how much is allocated, and how much is available for future demand. This type of information
is dynamic and changes with every transaction that takes place. These data are maintained in an
inventory record file, also called a part master file or item master file. Each item has a record, and all
the records together form the file.
Bills of material - The bill of material is one of the most important documents in a manufacturing
company. The Association for Operations Management (APICS) defines a bill of material as “a listing
of all the subassemblies, intermediates, parts, and raw materials that go into making the parent assembly
showing the quantities of each required to make an assembly.”
Bills of Material Structure - Bills of material structure refers to the overall design for the arrangement
of bills of material files. Different departments in a company use bills of material for a variety of
purposes. Although each user has individual preferences for the way the bill should be structured, there
must be only one structure, and it should be designed to satisfy most needs. However, there can be
several formats, or ways, to present the bill. Following are some important formats for bills
• Product tree

• Multilevel bill - Multilevel bills are formed as logical groupings of parts into subassemblies
based on the way the product is assembled. For example, a frame, chassis, doors, windows, and
engine are required to construct an automobile. Each of these forms a logical group of
components and parts and, in turn, has its own bill of material.

• Multiple bill - A multiple bill is used when companies usually make more than one product,
and the same components are often used in several products. This is particularly true with
families of products.

• Single-level bill - A single-level bill of material contains only the parent and its immediate
components, which is why it is called a single-level bill.
 • Indented bill - A multilevel bill of material can also be shown as an indented bill of
material. This bill uses indentations as a way of identifying parents from components.

• Planning bill - A major use of bills of material is to plan production. Planning bills are an
artificial grouping of components for planning purposes. They are used to simplify
forecasting, master production scheduling, and material requirements planning. They do not
represent buildable products but an average product.

Where-Used and Pegging Reports

1.Where-used report - Where-used reports give the same information as a bill of material, but the
where-used report gives the parents for a component whereas the bill gives the components for a parent.
A component may be used in making several parents. Wheels on an automobile, for example, might be
used on several models of cars. A listing of all the parents in which a component is used is called a
where-used report. This has several uses, such as in implementing an engineering change, or when
materials are scarce, or in costing a product.
2.Pegging report - A pegging report is similar to a where-used report. However, the pegging report
shows only those parents for which there is an existing requirement, whereas the where-used report
shows all parents for a component. The pegging report shows the parents creating the demand for the
components, the quantities needed, and when they are needed. Pegging keeps track of the origin of the
demand. Below figure shows an example of a product tree in which part C is used twice and a pegging
report.

Uses for Bills of Material

The bill of material is one of the most widely used documents in a manufacturing company. Some major
uses are as follows:
• Product definition - The bill specifies the components needed to make the product.
• Engineering change control - Product design engineers sometimes change the design of a
product and the components used. These changes must be recorded and controlled. The bill
provides the method for doing so.
• Service parts - Replacement parts needed to repair a broken component are determined
from the bill of material.
• Planning - Bills of material define what materials have to be scheduled to make the end
product. They define what components have to be purchased or made to satisfy the master
production schedule.
• Order entry -When a product has a very large number of options (e.g., cars), the order-entry
system very often configures the end product bill of materials. The bill can also be used to
price the product.
• Manufacturing - The bill provides a list of the parts needed to make or assemble a product.
• Costing - Product cost is usually broken down into direct material, direct labor, and
overhead. The bill provides not only a method of determining direct material but also a
structure for recording direct labor and distributing overhead.

Material Requirements Planning Process

The purpose of material requirements planning is to determine the components needed, quantities, and
due dates so items in the master production schedule are made on time. These techniques are:
• Exploding and Offsetting
• Gross and Net Requirements
• Releasing Orders
• Capacity Requirements Planning
• Low-Level Coding and Netting
• Multiple Bills of Material
The people who manage the material requirements planning system are planners. They are responsible
for making detailed decisions that keep the flow of material moving into, though, and out of the
factory. In many companies where there are thousands of parts to manage, planners are usually
organized into logical groupings based on the similarity of parts or supply. The basic responsibilities
of a planner are to:
1. Launch (release) orders to purchasing or manufacturing.
2. Reschedule due dates of open (existing) orders as required.
3. Reconcile errors and try to find their cause.
4. Solve critical material shortages by expediting or re-planning.
5. Coordinate with other planners, master production schedulers, production activity control, and
purchasing to resolve problems.
The planner receives feedback from many sources such as:

• Suppliers’ actions through purchasing.

• Changes to open orders in the factory such as early or late completions or differing quantities.
• Management action such as changing the master production schedule. The planner must
evaluate this feedback and take corrective action if necessary. The planner must consider
three important factors in managing the material requirements plan.

15 LEAN MANUFACTURING TECHNIQUES

S.N Technique Description How does it help

O
1 1. 5S: 5S is a system for organizing spaces so Eliminates waste that results from a
work can be performed efficiently, effectively, poorly organized work area (e.g. wasting
and safely. The term 5S comes from five time looking for a tool)
Japanese words:
● Sort (eliminate that which is not
needed)
● Set in Order (organize remaining items)
● Shine (clean and inspect work area)
● Standardize (write standards for above)
● Sustain (regularly apply the standards)

2 Andon: Visual feedback system for the plant Acts as a real-time communication tool
floor that indicates production status, alerts for the plant floor that brings immediate
when assistance is needed, and empowers attention to problems as they occur – so
operators to stop the production process. they can be instantly addressed.

3 Bottleneck Analysis: Identify which part of the Improves throughput by strengthening the
manufacturing process limits the overall weakest link in the manufacturing
throughput and improve the performance of that process.
part of the process.
4 Continuous Flow: Manufacturing where work- Eliminates many forms of waste (e.g.
in-process smoothly flows through production inventory, waiting time, and transport).
with minimal (or no) buffers between steps of
the manufacturing process.
5 Gemba (The Real Place): A philosophy that Promotes a deep and thorough
reminds us to get out of our offices and spend understanding of real-world
time on the plant floor – the place where real manufacturing issues – by first-hand
action occurs. observation and by talking with plant
floor employees.
6 Heijunka (Level Scheduling): A form of Reduces lead times (since each product or
production scheduling that purposely variant is manufactured more frequently)
manufactures in much smaller batches by and inventory (since batches are smaller).
sequencing (mixing) product variants within the
same process.
7 Hoshin Kanri (Policy Deployment): Align the Ensures that progress towards strategic
goals of the company (Strategy), with the plans goals is consistent and thorough –
of middle management (Tactics) and the work eliminating the waste that comes from
performed on the plant floor (Action). poor communication and inconsistent
direction.

8 Just-In-Time (JIT): Pull parts through Highly effective in reducing inventory

production based on customer demand instead levels. Improves cash flow and reduces
of pushing parts through production based on space requirements.
projected demand. Relies on many lean tools,
such as Continuous Flow, Heijunka, Kanban,
Standardized Work and Takt Time.
9 Kaizen (Continuous Improvement): A Combines the collective talents of a
strategy where employees work together company to create an engine for
proactively to achieve regular, incremental continually eliminating waste from
improvements in the manufacturing process. manufacturing processes.

10 Kanban (Pull System): A method of regulating Eliminates waste from inventory and
the flow of goods both within the factory and overproduction. Can eliminate the need
with outside suppliers and customers. Based on for physical inventories (instead relying
automatic replenishment through signal cards on signal cards to indicate when more
that indicate when more goods are needed. goods need to be ordered).

11 Overall Equipment Effectiveness (OEE): Provides a benchmark/baseline and a

Framework for measuring productivity loss for means to track progress in eliminating
a given manufacturing process. Three categories waste from a manufacturing process.
of loss are tracked: 100% OEE means perfect production
(manufacturing only good parts, as fast as
possible, with no downtime).

12 PDCA (Plan, Do, Check, Act): An iterative Applies a scientific approach to making
methodology for implementing improvements: improvements:
● Plan (establish plan and expected
results) ● Plan (develop a hypothesis)
● Do (implement plan) ● Do (run experiment)
● Check (verify expected results ● Check (evaluate results)
achieved) ● Act (refine your experiment; try
● Act (review and assess; do it again) again)
● Poka-Yoke (Error Proofing)
13 Poka-Yoke (Error Proofing): Design error It is difficult (and expensive) to find all
detection and prevention into production defects through inspection, and correcting
processes with the goal of achieving zero defects typically gets significantly more
defects. expensive at each stage of production.
 14 Root Cause Analysis: A problem solving Helps to ensure that a problem is truly
methodology that focuses on resolving the eliminated by applying corrective action
underlying problem instead of applying quick to the “root cause” of the problem.
fixes that only treat immediate symptoms of the
problem. A common approach is to ask why
five times – each time moving a step closer to
discovering the true underlying problem.

15 Total Productive Maintenance (TPM): A Creates a shared responsibility for

holistic approach to maintenance that focuses on equipment that encourages greater
proactive and preventative maintenance to involvement by plant floor workers. In the
maximize the operational time of equipment. right environment this can be very
TPM blurs the distinction between maintenance effective in improving productivity
and production by placing a strong emphasis on (increasing up time, reducing cycle times,
empowering operators to help maintain their and eliminating defects).
equipment.

JUST IN TIME (JIT) INVENTORY

Introduction

The Just-In-Time (JIT) inventory system is a management strategy that minimizes inventory and
increases efficiency. It is a production model in which items are created to meet demand, not created in
surplus or in advance of need. It is also known as the Toyota Production System (TPS) because the car
manufacturer Toyota adopted the system in the 1970s. The success of the JIT production process relies
on steady production, high-quality workmanship, no machine breakdowns, and reliable suppliers.

The principle behind JIT is to produce only the necessary products at the necessary time and in the
necessary quantity. It aims at eliminating waste of all kinds by producing and supplying only when
needed and not earlier. Adopting JIT allowed TPS to do away with inventory in the stores and thereby
cutting out the corresponding costs. Henceforth, JIT as a strategy helps companies increase their
efficiency level with minimizing the waste. This method requires that producers are able to accurately
forecast demand.

Advantages:
● Reduces costs by minimizing warehouse needs.
● Reduction in handling equipment and other costs
● Lead time reductions; one of the most significantly impacted areas is that of the time it takes for
products to flow through the process.
● Productivity increases; to achieve JIT there are many hurdles that must be overcome with regards
to how the process will flow.
● Improved Quality; the removal of large batch manufacturing and reduction in handling often
results in significant quality improvements

Disadvantages:
● It involves potential disruptions in the supply chain.
● If a raw materials supplier has a breakdown and cannot deliver the goods in a timely manner, this
could conceivably stall the entire production process.
 ● A sudden unexpected order for goods may delay the delivery of finished products to end clients.

Requirements for implementing Just in Time

● Reliable Equipment and Machines; if your machinery is always breaking down or giving you
quality problems then it will frequently manifest in big issues with any JIT flow.
● Quality Improvements; an empowered workforce that is tasked with tackling their own quality
problems with all of the support that they need is another vital part of any lean and JIT
implementation.
● Standardized Operations; only if you know how each operation is going to be performed can you
be sure what the reliable outcome will be.
● Pull Production; Just in time does not push raw materials in at the front end to create inventory
(push production), it seeks to pull production through the process according to customer demand.
● Single piece Flow; the ideal situation is one in which you will produce a single product as ordered
by the customer. This for some industries is not immediately possible but should always be your
end goal.
● Flow at the beat of the customer; the demand of your customer is often referred to as your Takt
time. You need to ensure that your cells and processes are organized, balanced and planned to
achieve the pull of the customer.

KANBAN SYSTEMS
Introduction

Kanban is a visual system for managing work as it moves through a process. Kanban visualizes both
the process (the workflow) and the actual work passing through that process. It normally consists of a
card or ticket that has information on the item and the quantity to be produced. The goal of Kanban is
to identify potential bottlenecks in your process and fix them so work can flow through it cost-
effectively at an optimal speed or throughput.

The Kanban Method follows a set of principles and practices for managing and improving the flow of
work. It is an evolutionary, non-disruptive method that promotes gradual improvements to an
organization’s processes. This method will improve flow, reduce cycle time, increase value to the
customer, with greater predictability.

Kanban is a Japanese scheduling system that's often used in conjunction with lean manufacturing and
JIT. It was developed by Taiichi Ohno, an industrial engineer at Toyota, and takes its name from the
coloured cards that track production and order new shipments of parts or materials as they run out.

The four foundational principles:

1. Start with what you are doing now – Don’t make any changes to your existing setup/ process right
away. Kanban must be applied directly to current workflow. Any changes needed can occur
gradually over a period of time at a pace the team is comfortable with.
2. Agree to pursue incremental, evolutionary change - Kanban encourages you to make small
incremental changes rather than making radical changes that might lead to resistance within the team
and organization.
3. Initially, respect current roles, responsibilities and job-titles - Kanban does not impose any
organizational changes by itself. So, it is not necessary to make changes to your existing roles and
 functions which may be performing well. The team will collaboratively identify and implement any
changes needed.
4. Encourage acts of leadership at all levels - People at all levels can provide ideas and show
leadership to implement changes to continually improve the way they deliver their products and
services.

6 Core Practices of the Kanban Method:

1. Visualize the flow of work - People at all levels can provide ideas and show leadership to implement
changes to continually improve the way they deliver their products and services.
2. Limit WIP (Work in Progress) - People at all levels can provide ideas and show leadership to
implement changes to continually improve the way they deliver their products and services.
3. Manage Flow - People at all levels can provide ideas and show leadership to implement changes to
continually improve the way they deliver their products and services.
4. Make Process Policies Explicit - you create a common basis for all participants to understand how
to do any type of work in the system. The policies can be at the board level, at a swim lane level and
for each column.
5. Implement Feedback Loops - The method encourages and helps you implement feedback loops of
various kinds – review stages in your Kanban board workflow, metrics and reports and a range of
visual cues that provide you continuous feedback on work progress – or the lack of it – in your
system.
6. Improve Collaboratively, Evolve Experimentally - adopt small changes and improve gradually at
a pace and size that your team can handle easily.

In a classic Kanban board model, there are three columns:

● “To Do”: This column lists the tasks that are not yet started. (“backlog” can also be used)
● “Doing”: Consists of the tasks that are in progress.
● “Done”: Consists of the tasks that are completed.

Applications
● The Kanban system can be used easily within a factory, but it can also be applied to purchasing for
inventory from external suppliers.
● The Kanban system creates extraordinary visibility to both suppliers and buyers.
● The main goal is to limit the build-up of excess inventory at any point on the production line.
● It limits on the number of items waiting at supply points are established and then reduced as
inefficiencies are identified and removed.
● Whenever a limit of inventory is exceeded, it points to an inefficiency that needs to be addressed.

DMAIC SIX SIGMA

Introduction

Six Sigma is a fact-based, data-driven philosophy of improvement that values defect prevention over
defect detection. It drives customer satisfaction and bottom-line results by reducing variation, waste,
and cycle time, while promoting the use of work standardization and flow, thereby creating a
competitive advantage. It applies anywhere variation and waste exist, and every employee should be
involved.
Key Components of Six Sigma
Delighting Customers:
⮚ Customers are the centre of Business: In Six Sigma, customer focus is a top priority.
⮚ Six Sigma approach- Improve performance, reliability, competitive prices, on-time delivery,
service, clear and correct transaction processing.

Process Improvement:
⮚ To achieve success, Quality is accuracy. Quality Needs us to look at our business from the
customer's perception.
⮚ customer satisfaction is a must.
⮚ The idea is to achieve command over process like designing, improving efficiency and
enhancing customer satisfaction.

Leadership Commitment:
⮚ Organizations with Six Sigma approach needs to shift to one that includes a methodical
approach to problem-solving and a pro-active attitude among employees.
⮚ Successful Six Sigma programs also contribute to the overall sense of self-importance of the
organization’s employees.
⮚ The organization is committed to providing opportunities and incentives for employees to focus
their talents and energies on satisfying customers.

Essential Elements of Six Sigma

There are three primary elements of the Six Sigma system, which are:

1. 1.Process Improvement: Process improvement is used to eliminate root causes of deficiencies

in the organization.
2. 2.Process Design (or re-design): Creating entirely new processes or re-designing existing
processes that do not work properly and are beyond the scope of simple process improvement.
3. 3.Process Management: This element consists of tasks such as defining processes, measuring
performance, analyzing data, and more.

Six Sigma Methodology

The two main Six Sigma methodologies are DMAIC and DMADV.
DMAIC is a data-driven method, used to improve existing products or services for better customer
satisfaction.
1.Define Phase: Critical to Quality, or CTQ, is a very important tool when designing a new
product or service for your business. It is done by

⮚ Identify who your customers are

⮚ Collect VOC (Voice of the Customer) data
⮚ Analyze the VOC data that you collected

Kano Model

The Kano Model is used to visually model the customer provided characteristics versus the
level of satisfaction each characteristic deliver. It is a product development and customer
satisfaction tool that categorizes customer preferences. This tool is used after gathering
the Voice of the Customer (VOC) phase. It helps define where the product, process, or service
is relative to the customer and the competition.

SIPOC Model
Project Charter

Affinity Diagram

2.Measure Phase

Process Capability
Box Plot diagram

3.Analyse Phase:

(i)Pareto Chart: A Pareto chart is a vertical bar graph in which values are plotted in decreasing order
of relative frequency from left to right. Pareto charts are extremely useful for analyzing what problems
need attention first because the taller bars on the chart, which represent frequency, clearly illustrate
which variables have the greatest cumulative effect on a given system. Often called the 80-20 rule, the
Pareto Principle is a common ‘rule of thumb’ that 80% of the effects of something can be attributed to
20% of the drivers.

(ii)Fish bone Diagram: A fishbone diagram, also called a cause and effect diagram or Ishikawa
diagram, is a visualization tool for categorizing the potential causes of a problem in order to identify its
root causes.
A cause and effect diagram can be created in six steps...
⮚ Draw Problem Statement
⮚ Draw Major Cause Categories
⮚ Brainstorm Causes
⮚ Categorize Causes
⮚ Determine Deeper Causes
⮚ Identify Root Causes

Other Techniques
⮚ 5 Why’s
⮚ Histogram
⮚ Statistical Analysis
⮚ Regression Analysis

4.Improve Phase:
Design of Experiments: Design of experiments (DOE) is a systematic method to determine the
relationship between factors affecting a process and the output of that process. In other words, it is used
to find cause-and-effect relationships. This information is needed to manage process inputs in order to
optimize the output.
The terminology used in DOE are
 ⮚ Factor – This is an independent variable, or a variable you have control over. In DOE, factors
are deliberately modified to determine the point of optimal performance.
⮚ Level – This is a measurement of how much a factor has been modified. Levels can be discrete
or numeric.
⮚ Run – An experiment typically done at two or three levels for every factor; each separate level
constitutes an experimental run.
⮚ Response – The outcome of the run.
⮚ Replication – Refers to multiple sets of experimental runs. Replication provides even more
data and greater confidence in evaluating the results.

Quality Function Deployment: Quality Function Deployment (QFD) is a process for planning
products and services. It starts with the Voice of the Customer (VOC) which becomes the basis
for setting requirements. From that, the organization identifies the what’s – the most important
needs of the VOC. From there, a team will identify the how’s-- those areas of process focus
that address each of these identified requirements.

Failure Mode Effective Analysis: Failure Mode and Effects Analysis (FMEA) is a
structured approach to discovering potential failures that may exist within the design of a
product or process. Failure modes are the ways in which a process can fail. Effects are the
ways that these failures can lead to waste, defects or harmful outcomes for the customer.

5.Control Phase:
(i)Control Charts: A Six Sigma control chart is a simple yet powerful tool for evaluating the
stability of a process or operation over time. Creating a control chart requires a graph that
covers a period of time, a central line that shows the results of a process during that time, and
upper and lower control limits that indicate whether process variation is within an accepted
range.
DMADV is a part of the Design for Six Sigma (DFSS) process, used to design or redesign
different processes of product manufacturing or service delivery.

Types of wastes Lean Six Sigma

References
1. https://blog.masterofproject.com/six-sigma-statistics/
2. https://asq.org/quality-resources/six-sigma#Lean%20Six%20Sigma
3. https://www.creativesafetysupply.com/articles/six-sigma/
4. https://www.simplilearn.com/what-is-six-sigma-a-complete-overview-article
5. https://www.processexam.com/six-sigma-key-components
6. https://www.6sigma.us/six-sigma-articles/critical-quality-six-sigma-dna/
7. https://4squareviews.com/2012/12/06/six-sigma-green-belt-management-tool-1-affinity-
diagrams/
8. https://www.villanovau.com/resources/six-sigma/design-of-
experiments/#targetText=Design%20of%20Experiments%20Terminology,product
ion%20and%20analyzes%20each%20one.&targetText=In%20DOE%2C%20facto
rs%20are%20deliberately,the%20point%20of%20optimal%20performance.
9. https://www.isixsigma.com/new-to-six-sigma/dmaic/six-sigma-dmaic-roadmap

ROOT CAUSE ANALYSIS (RCA)

Introduction
Root cause analysis (RCA) is a method of problem solving used for identifying the root causes of faults
or problems. It is widely used in IT operations, telecommunications, industrial process control, accident
analysis (e.g., in aviation, rail transport, or nuclear plants), medicine (for medical diagnosis), healthcare
industry (e.g., for epidemiology), etc.
RCA can be decomposed into four steps:
● Identification and description: Effective problem statements and event descriptions (as failures,
for example) are helpful and usually required to ensure the execution of appropriate root cause
analyses.
● Chronology: RCA should establish a sequence of events or timeline for understanding the
relationships between contributory (causal) factors, the root cause, and the problem under
investigation.
● Differentiation: By correlating this sequence of events with the nature, the magnitude, the
location, and the timing of the problem, and possibly also with a library of previously analyzed
problems, RCA should enable the investigator(s) to distinguish between the root cause, causal
factors, and non-causal factors. One way to trace down root causes consists in using hierarchical
clustering and data-mining solutions (such as graph-theory-based data mining). Another
consists in comparing the situation under investigation with past situations stored in case
libraries, using case-based reasoning tools.
● Causal graphing: Finally, the investigator should be able to extract from the sequences of events
a subsequence of key events that explain the problem, and convert it into a causal graph.
 CORRECTIVE AND PREVENTIVE ACTION (CAPA)

Introduction
Corrective and preventive action (CAPA) consists of improvements to an organization's processes taken
to eliminate causes of non-conformities or other undesirable situations. It is usually a set of actions that
laws, or regulations require an organization to take in manufacturing, documentation, procedures, or
systems to rectify and eliminate recurring non-performance. Non-conformance is identified after
systematic evaluation and analysis of the root cause of the non-conformance. Non-conformance may
be a market complaint or customer complaint or a failure of a machinery or a quality management
system, or misinterpretation of written instructions to carry out a work. The corrective and preventive
action is designed by a team that includes quality assurance personnel and personnel involved in the
actual observation point of nonconformance. It must be systematically implemented and observed for
its ability to eliminate further recurrence of such non-conformation.

● Corrective action: Action taken to eliminate causes of non-conformities or other undesirable

situations.

● Preventive action: Action taken to prevent further reoccurrence of such non-conformities.

CAPA is used to bring about improvements to an organization's processes and is often undertaken to
eliminate causes of non-conformities or other undesirable situations. CAPA is a concept within good
manufacturing practice (GMP), Hazard Analysis and Critical Control Points/Hazard Analysis and Risk-
based Preventive Controls (HACCP/HARPC) and numerous ISO business standards. It focuses on the
systematic investigation of the root causes of identified problems or identified risks in an attempt to
prevent their recurrence (for corrective action) or to prevent occurrence (for preventive action).

Corrective actions are implemented in response to customer complaints, unacceptable levels of product
non-conformance, issues identified during an internal audit, as well as adverse or unstable trends in
product and process monitoring such as would be identified by statistical process control (SPC).
Preventive actions are implemented in response to the identification of potential sources of non-
conformity.

KRALJIC MATRIX
Introduction
A key part of supply chain management is segmenting the vendor base. From there, organizations can
match design supplier relationship management strategies against this map of suppliers. The Kraljic
Matrix is one of the most effective ways to deliver accurate supplier segmentation.
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, he
argued that supply items should be mapped against two key dimensions: risk and profitability. Risk
relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance,
in important areas of spend, such as tire suppliers for an automotive are business critical, and should a
disruption occur, the auto company is likely itself to face substantial problems.
The supplier suffers from a range of risks depending on its geographic location, business model and
supply chain length. If the vendor is based in Switzerland, it is unlikely that political uncertainty or
logistical delay will impact upon operations. On the other hand, facilities based in the developing world
may be subject to legislative risk, political upheaval and unreliable transportation routes. All such risk
factors have a bearing upon the buying company.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such
as stationery, supplies have only a negligible effect on profits. In other categories, a single source of
supply can make or break a business. For Apple, a large proportion of its profits are determined by
Foxconn’s ability to manufacture the scale of products required to a precise specification. Putting these
two dimensions together yields a classic two-by-two matrix.

Each of these boxes represent a different buyer-supplier relationship type and suggests a set of distinct
sourcing strategies.

Non-critical items
These items are low risk and have a low impact upon organizational profitability. The most commonly
used example in this segment is office stationery. Although important for employees to perform their
duties, pens and paper do not have a significant impact upon the business, nor does their absence
represent a serious threat. For buyers, stationery is a nuisance. It clogs up time with peripheral concerns.
As such, the sourcing strategies deployed here focus on efficiency and reducing administrative burden.
Techniques such as e-auctioning and catalogs are an excellent means to redirect responsibilities either
directly to suppliers or to internal customers that are requisitioning the goods.

Leverage items
Where items have a high profitability, but a low risk factor, buyers possess the balance of power in the
relationship and leverage this strength to obtain greater returns. Traditionally, procurement
professionals have exploited this status to lower prices, but increasingly more advanced companies are
looking to unlock the innovative potential of their suppliers. The market dynamics of this relationship
rest upon an abundance of highly commodified parts. Suppliers can be easily substituted as their
offerings are much the same. The only limitation for buyers is perhaps over-playing their hand and
forcing a low-profit margin vendor into insolvency.

Bottleneck items
The flip side of leverage: risk is high, but profitability is low. Here, the strength is in the hands of the
supplier. The market consists of few suppliers that can behave oligo-politically to force prices upward.
Procurement Leaders found that these suppliers absorb more of buyers’ time compared to any other
segment. The supplier relationship is demanding, even though they have a limited impact upon company
profitability. The market structure forces buyers to accept an unfavorable deal. The main strategy rests
upon damage limitation. Procurement must recognize that few opportunities will arise from this
category. More creative buyers will seek to alter the terms of trade. Innovative internal activities can
redevelop product requirements such that the material can be replaced with another and preferably
sourced from a leverage supplier.

Strategic items
Lastly, high supplier risk and high profit impact items cover strategic suppliers. These are critical to the
business. These items only represent a handful of suppliers, but ensuring an effective and predictable
supplier relationship is key to the future of the buying company. Managing such suppliers requires a
diverse array of skills and can subsume a significant proportion of executive time in sponsoring and
directing the relationship. Unlike the non-critical items, each contract is unique and focuses upon the
shared gains that equal partners enjoy in a collaborative relationship. Strategic partners should look to
innovative both product and process innovation and in return they can expect long-term commitment
from the buyer as well as proactive development.

Getting segmentation right

Although the Kraljic Matrix may appear simple to many procurement professionals, it is often
inaccurately applied, and this leads to misfiring supplier relationship management programs. Individual
buyers invariably believe that their suppliers are truly strategic (in contract to the business-wise reality).
This miscategorization creates expensive and resource-intensive relationship that have little genuinely
impact upon profitability. Conversely, companies that treat their strategic suppliers as non-critical, have
the potential to lose substantial profit. Over time, these may affect the viability of the business. Peter
Kraljic’s basic insight was to urge the buyer community to manage their resources in a more intelligent
fashion. Even though he first argued for this in 1983, his argument is just as relevant in corporate
purchasing as ever

SUPPLY CHAIN COLLABORATION (SC)

Introduction
Supply chain collaboration, as defined by Simatupang & Sridharan (2002), is an interaction
between "two or more chain members working together to create a competitive advantage
through sharing information, making joint decisions, and sharing benefits which result from
greater profitability of satisfying end customer.
Steps to implement Supply Chain Collaboration successfully:
1. Collaborate in areas where you have a solid footing.
Companies are often tempted to use collaboration as a way to fill gaps in their own
capabilities. In practice, the most successful collaborations build on strengths rather than
compensating for weaknesses.
2. Turn win-lose situations into win-win opportunities with the right benefit-sharing
model.
A retailer and a manufacturer were able to reduce overall logistics costs between factory and
store by cutting out the manufacturer’s distribution centers and treating the retailer’s
distribution network as one integrated supply chain, from manufacturing plant to store shelf.
However, the retailer’s supply chain executives struggled to gain acceptance for the idea from
their leadership because it resulted in the retailer carrying a far larger fraction of the logistics
cost. Hence, smart companies can make them work by agreeing on more sophisticated
benefit-sharing models
3. Select partners based on capability, strategic goals, and value potential.
 The biggest potential partner might not be the best one. Many companies aim to collaborate
with their largest suppliers or customers because they assume that the greatest value is to be
found there. In many cases, however, this turns out not to be true. Collaboration may be of
more interest to a smaller partner, which might invest more time and effort in the program
than a very large one that is already juggling dozens of similar initiatives.
4. Invest in the right infrastructure and people.
Both manufacturers and retailers that participated in our research cited a lack of dedicated
resources as one of the top three reasons for the failure of collaboration efforts. Companies
frequently underestimate the resources required to make collaborations work, assuming that
staff in various functions can do what’s required in addition to their other responsibilities.
5. Establish a joint performance-management system.
An effective performance-management system helps a company to ensure that any long-term
project is on track and delivering the results it should. In supply chain collaboration efforts,
both participants should use the same performance-management system. By building common
metrics and targets—and jointly monitoring progress
6. Collaborate for the long term
The final vital ingredient of a successful collaboration is stamina. It may take time and effort
to overcome the initial hurdles and make a new collaboration work. Both parties need to
recognize this and build an appropriate long-term perspective into their goals and
expectations.

Levels of Collaboration
Level 1: Transaction integration. This involves the automation of business processes and transactions,
using EDI, the Internet, or proprietary tools. At the execution level, you and your partners exchange
transactional data such as:
▪ Purchase orders, work orders and sales orders
▪ POS information
▪ Invoices
▪ Credit and debit notes
▪ Payments
Level 2: Supply chain management information sharing. EDI, the Internet, or proprietary tools are
used at this level to give partners information that helps them make the best decisions. Types of
information being shared include:
▪ Production or component forecasts
▪ Production and transportation plans and capacities
▪ Bills of material (BOMs)
▪ Orders
▪ Product descriptions
▪ Prices and promotions
▪ Inventory
▪ Allocations
▪ Product and material availability
▪ Service levels
▪ Contract terms, such as supply capacity, inventory, and services
Level 3: Strategic collaboration. At this level you and your partners are taking part in joint planning,
process redesign, as well as sharing some level of risk and reward. You will be making collaborative
decisions on issues like:
● Improving the accuracy of forecasts
● Strengthening strategic supply chain relationships and profitability
● Enhancing sales and operations planning
● Accelerating and managing demand plans, direct material procurement and fulfilment
throughout the supply chain
● Resolving critical supply chain events
● Production capacities
● Production facility and fulfilment network expansion
● Pricing plans

Constraints of SC Collaboration:
▪ Data extraction and analysis is happening in siloes. Each department is taking a vertical
approach to reporting, where the focus is on individual functional metrics, instead of the
health of the entirety of the supply chain network.
▪ Processes and functions have conflicting goals. Managers across the organization are
responsible for one specific department, one set of priorities. Oftentimes they’re unaware of
what other departments are doing. There’s an absence of communication between
departments and business units.
▪ Globally distributed teams. There’s nothing wrong with having teams spread out over vast
geographies, but there needs to be effective and continual communication. Without it,
decisions are made with little understanding of cross-functional impact, causing minor speed
bumps to become road closures.

Benefits of Supply Chain Collaboration

Supply chain collaboration enhances sharing of information leads to enhanced knowledge across the
chain that allows you to achieve:

⮚ Lower inventory levels and higher inventory turns

⮚ Lower transportation and warehousing costs
⮚ Lower out-of-stock levels & Shorter lead times
⮚ Improved customer service metrics
⮚ Visibility into customer demand and supplier performance
⮚ Earlier and quicker decision-making

STATREGIC PARTNERSHIP
Introduction
A strategic partnership is an agreed-upon collaboration between businesses with common
missions. Although partnerships can take on a number of objectives and levels of formality
depending upon the nature of the agreement, the overall goal of strategic partnerships is to
share resources in a way that promotes growth for all partners.
Below find Partnerships can such as take place between businesses in the same industry or
even across industries.
Types of Strategic Partnerships
Type Function

Horizontal Businesses in the same area (i.e. competitors) agree to collaborate in a way that will
improve their market position.

Vertical A business collaborates with companies in its supply chain (its suppliers and/or
distributors). Vertical partnerships often allow businesses to minimize risk in the
supply chain and obtain lower prices in exchange for a long-term commitment.
Also known as channel partnerships [LINK] or supply chain partnerships.

Intersectional Businesses from different areas agree to share their special knowledge for the
advancement of all partners.

Joint Venture Two or more businesses form a new company. The new company is its own legal
entity, and its profits are split according to terms spelled out in a formal contract.

Equity A company acquires a minor equity stake in another business in exchange for a
monetary investment. Such exchanges can accompany other types of collaboration
and, to a certain extent, agreed-upon access to decision making.

Strategic Partnerships According to Purpose

Whether initiated between businesses in the same industry segment or businesses in completely
different industries, partnerships can also be classified according to their purpose. Below find a few
examples.
Development Partnership
Conducting research toward new or improved products and services requires monetary investment,
time, worker capacity and, in some cases, specialized equipment. By nature, R&D is a risky but
potentially advantageous undertaking with unpredictable results. To conserve resources and therefore
mitigate the risks associated with R&D investments, some businesses choose to partner around shared
research objectives.
Development partnerships can take on many forms; here are a few examples:

● Joint research & development departments

● Co-application to government research grants
● A financially secure company offering funding to an organization with specialized research
capabilities in exchange for intellectual property [LINK] rights
Strategic Integration and Referral Partnerships

Strategic integration and referral partnerships generate passive channels of customer acquisition.
Through such arrangements, businesses agree to refer customers to their preferred partners. In many
cases, especially today in the digital age, these partnerships are accompanied by integrations that
allow customers to transfer their information between the business’s offerings.
Examples of such partnerships:

● Computers shipping with pre-installed third-party software

● Discounted airport transfers offered by airlines
● A customer relationship management software offering integrated access to a conference
calling service
● A movie theater offering popcorn and refreshments branded by their integration partner

Cobranding

Through cobranding, two or more manufacturers or sponsors produce an original product or service
that is then offered under all of the partners’ names. Cobranding allows businesses to expand their
brand recognition to new customers while offering existing customers a new way to experience their
products or services, hopefully deepening their dedication to the brand.
Examples of cobranding:

● Dual-branded Betty Crocker-Hershey’s cake mixes

● Corporate event sponsors
● The Chase/United MileagePlus Explorer credit card

Strategic Sales Partnerships

Similar to referral partnerships, strategic sales partnerships exist between manufacturers and
businesses with the capacity to resell goods and services. What differentiates strategic sales
partnerships from referral partnerships is that a resell partner receives payment in exchange for their
referrals, typically as a percent of the revenues generated or on a flat, per item sold basis.

Supply Chain and Channel Partnerships

Supply chain partnerships, also known as channel partnerships, occur between buyers and sellers at
every level of the supply chain. Participants in supply chain partnerships include manufacturers,
distributors, retailers, raw goods suppliers and more.
Through channel partnerships, businesses move their relationships beyond one-off buying and selling
transactions and develop methods of collaboration to create more stable and efficient supply chains
that lead to increased sales. Channel partnership agreements allow for the open sharing of sales
information, pricing data and best sales strategies. For example, just in time inventory allows retailers
to communicate in real-time with their suppliers to maintain an inventory of hot items.

Types of Supply Chain Partnerships

Lambert et al. (1998) classify supply chain partners into two distinctive types: primary and
secondary partners. In general, primary partners (focal companies) are autonomous channel captains
or strategic business units that actually perform operational and/or managerial activities designed to
create a specific product or service for a particular customer or market. These primary partners can be
manufacturers such as Dell or mass-merchants such as Walmart and Target. In contrast, supporting
partners are companies that simply provide resources (e.g., assets, application software, real-estate
property), knowledge, and utility for the supply chain. These supporting partners can be transportation
carriers, consulting firms, third-party logistics providers, IT service providers, online brokers, and
educational institutions. The categories are not exclusive, however, because a firm can be both a
primary partner and a supportive partner of the supply chain, performing primary activities related to
one process and support activities related to another process.
1.STRATEGIC SOURCING: Strategic sourcing refers to the process of identifying the spend
profile of an organization and its supplier base to ensure their business requirements are aligned with
the suppliers
DIFFERENCE BETWEEN TACTICAL SOURCING AND STRATEGIC SOURCING
● STRATEGIC SOURCING

Strategic sourcing involves developing a proactive, holistic, and continuous evaluation and re-
evaluation of the sourcing activities in an organization. Strategic sourcing aims to achieve the lowest
Total Cost of Ownership (TCO) along with minimal supply chain risk. Hence, it reflects the
organization’s relationship with its sourcing partners as a loop instead of a one-way process—an in-
depth profile of the suppliers and their core capabilities is developed and periodically aligned to the
sourcing requirements of the organization. Strategic sourcing views suppliers as crucial value partners
and aims to building sustained, collaborative relations. The customer-supplier loop is assessed at
every stage of its lifecycle in order to ensure that the needs of the organizations are continuously and
efficiently met
● TACTICAL SOURCING
In contrast, tactical sourcing involves a short-term and traditionally reactive approach towards
managing the sourcing activities of an organization. It aims to achieve the lowest possible cost
without considering other factors like supplier relationship management, supply chain risk mitigation,
etc. Consequently, the focus on building long-term relationships with suppliers and understanding
how their core capabilities can meet the organization is minimal as communication with suppliers
only occurs when problems arise. While tactical sourcing can bring gains in the short-term, it
prohibits sustained optimization of its sourcing activities

STEPS TO IMPLEMENT STRATEGIC SOURCING

• Identification and Categorization of Spend Profiles: To initiate the strategic sourcing
process, identify the spend areas existent across all the business areas in the organization
and categorize it on the basis of how critical/non-critical the spend area is. Categorization
will help prioritize the sourcing activities for each spends area.
• Building a Sourcing Strategy: The second step includes building a strategy on how each
categorized spend area will be approached. This involves identifying the requirements of
the business units that necessitate spending and defining goals, objectives, and
corresponding timelines to fulfill the requirements.
• Analysis of the Supplier Market: The third step is to execute an in-depth analysis of the
current and future suppliers to understand and evaluate relevant supplier profiles. This
includes analyzing the revenue or market share of suppliers to understand their market
standing and industrial performance along with the risks and opportunities surrounding the
supplier market.
• Request for Supplier Information and Identification of Selection Criteria: Once the
supplier market research is completed, the fourth step is to request RFIs/RFPs/RFQs from
suppliers. It is important to communicate the exact requirements of the organization as well
as the end-goals and performance expectations so that the suppliers have a clear
understanding of what the organization needs. This is important so that they provide an
accurate roadmap and develop strategies to fulfill the business’s objectives.
 • Selection of Suppliers and Execution of Contracting Process: After the selection criteria
are identified, the fifth step is to choose the suppliers that can offer the highest level of cost
savings along with delivering quality. After supplier selection for the relevant spend areas,
the contracting process starts to on-board the suppliers.
• Measurement and Periodic Tracking of Supplier Performance: The process of strategic
sourcing doesn’t end at choosing a supplier. The sixth step is to effectively measure how
suppliers perform vis-à-vis the requirements and objectives of the organization. It is
important to engage in periodic tracking of supplier performance and identify areas for
improvement. This can significantly help organizations understand supplier risks and
design strategies to mitigate all possible supply chain disruptions.
• Implementation of Supplier Relationship Management (SRM): The seventh step is
factoring Supplier Relationship Management (SRM) in the strategic sourcing process
which makes the relationship between the organization and suppliers a loop instead of a
one-way process. SRM enhances the level of collaboration between an organization and its
suppliers by transforming a mere customer-buyer relationship into strategic value partners.
Both parties participate in building propositions and innovative strategies that optimize the
sourcing needs of the organization.

Benefits of Strategic Sourcing

● Increased Level of Cost Savings
● Better Alignment of Sourcing and Business Objectives
● Optimization of Ideal Suppliers
● Long-term Relationship Building with Suppliers

AGILE SUPPLY CHAIN

Introduction
The modern supply chain grows increasingly complex with each passing day. The digitization, focusing
on fundamentals and change, augmented reality, artificial intelligence, and many other factors are
transforming how the supply chain functions. Once, the lean supply chain was considered to be the most
effective form of manufacturing and supply chain management. However, a new concept in supply
chain processes, the agile supply chain, is quickly growing to replace the often-overused term.

What Is the Agile Supply Chain?

The agile supply chain basically refers to the use of responsiveness, competency, flexibility, and
quickness to manage how well a supply chain entity operates on a daily basis. Unlike the lean supply
chain, the agile supply chain uses real-time data and updated information to leverage current operations
and real-time data against demand forecast, which helps to improve the overall efficiency and
productivity of the given entity.

Another key benefit of agility in the supply chain is focusing on avoiding potential shortages
and eliminating excessively stocked inventory. In a sense, overstocking inventory was a typical
response of lean concept. Since lean concept focuses on making processes more effective and efficient,
many supply chain entities often ended up with a huge stock of merchandise. Unfortunately, changes
in the economic market, consumer demand, and the growing customization of goods has led lost costs
as inventory was incapable or became unwanted over time.
In a report by McKinsey & Company, up to 94 percent of companies that had implemented supply chain
practices with other solutions, are able to deliver on time and in full, without keeping inventory in excess
of 85 days. Similarly, companies that did not implement agile practices often had inventory levels
remain in the warehouse for more than 108 eight days, and only 87 percent of deliveries were on-time.
This does not even consider how many deliveries may not have been fulfilled, such as delays in shipping
processes, customization, or errors in order picking processes.

Agile supply chain framework is based on four major constituents that are as follows:

How Is Agility Fundamentally Different from Lean Concepts?

The aforementioned information provides insight into how lean concepts in the supply chain differ from
an agile supply chain. However, a true understanding of agility in the supply chain must address how
lean concepts are applied to the agile supply chain.
For supply chain entities who has used or implemented lean concepts in supply change management,
the company has removed extra costs along the way.

For example, the use of a computerized system to automatically generate orders and robotics to pick
these orders would refer to leaving concepts in the supply chain.

However, the fallacy in the lean supply chain rests on the fact that this information that has garnered
from that lean supply chain is not used to make a predictive, quantitative analysis of what will be needed
in the future. As a result, the supply chain often has overstocking issues and is incapable of delivering
a near perfect degree of visibility.

Additionally, the agile supply chain is able to adapt to rapidly changing environments, such as the
economy, customization, trends, and customer demands, among many other factors. By making a
supply chain able to respond to such issues immediately, supply chain entities can successfully navigate
the turmoil that may arrive and present itself throughout the course of manufacturing, shipping, and the
reverse logistics supply chain.

Why Does Agility Benefit of Supply Chain?

Agility practices enable the supply chain to change how processes operate. With the use of lean
concepts, the supply chain may have improved the workflow of individual employees.
Yet implementing agile supply chain solutions with real-time data modular and raw material reserve
formulations need to be placed close as possible to the end-product. Furthermore, agility allows supply
chain partners to work together to produce the amount of product that is needed daily, not based on
quarterly, monthly, or yearly forecasts. Essentially, agile solutions are a means of taking the lean supply
chain and improving it to respond and foster supplier-to-customer-to-manufacturer relationships.

Agility also provides other benefits to the supply chain industry. By maintaining agility, supply chain
entities can adapt to high variety, sudden changes in volume. Unfortunately, this implies the supply
chain may not be able to produce a high volume of goods if certain materials are available. As a result,
supply chain entities who have implemented agile supply chain solutions understand that real-time data
means the sudden change in demand could occur without warning, which could undermine the
relationship between suppliers. Therefore, these entities have sought to find ways to still arrive at the
same finished product, but at a customized result for each order.

For example, a supply chain entity in fashion or textile printing may not print the actual materials until
those materials have already been ordered by a consumer. However, this implies the printing on the
materials would not be able to take place until an order has been created, and subsequently, the printing
processes would need to take place as close as possible to the area where the order would be
fulfilled. Ultimately, this critical point in the agile supply chain goes back to breaking down
organizational silos and rigid structures to better meet the demands on a local level.
Key Performance Indicators

Agile supply chain will also need a set of its own unique key performance indicators (KPI). The
commonly used KPI in predominantly lean supply chain operating environment will not fit and often
misguide the management. On top of the most frequently used KPI for agile supply chains are:

● Design to market time

● Customer satisfaction and delight
● Production throughput
● Delivery lead-time
● Product availability in the market
● Capacity synchronization and optimization
● Cost-to-serve
● Frequency of product up-grading
● Service innovation and flexibility

Putting It All Together

Agility in the supply chain is rapidly changing how supply chain entities operate, but executives and
supply chain management solutions’ providers need to understand how agility and lean concepts must
work together to produce a more efficient, demand-driven supply chain. Failure to employ both agility
and lean concepts in tandem could result in severe delays for a given supply chain entity.

How ZARA implements Agile Supply chain?

● 15 days from idea to end customer

● Very low quantities in each store
● Strict order deadline (Twice a week)
● Only work 1 shift at production to ensure extra capacity if needed
● Treating fashion industry like the grocery industry
● You need to have five fingers touching the factory and five touching the customers

How AMAZON implements Agile Supply chain?

https://youtu.be/ESBJ_oxNC_Y
 SUSTAINABLE SUPPLY CHAIN

Introduction

Supply chain sustainability (SCS) is a holistic view of supply chain processes, logistics and
technologies that addresses the environmental, social, economic and legal aspects of a supply chain's
components. Factors that affect SCS include amount of waste, carbon footprint and emissions, air
pollution, labor violations, deforestation and the health and safety of workers. SCS is based on the
principle that socially responsible products and practices are not only good for the planet and the people
who live here, they are also good for building positive brand awareness, minimizing environmental
impact and improving long-term profitability.

An organization's supply chain connects inputs to outputs, outlining the process of producing and
delivering consumer goods. Focusing on the supply chain is one aspect of achieving business
sustainability as it covers a range of areas for improvement. This could include identifying the source
of raw materials or surveying the conditions of workers involved in every process.

Historically, supply chain was simply about logistics and knowing when and where goods were moving,
but the rise of the digital supply chain and accompanying visibility and analytics tools has provided
companies with the ability to gather data about how well each component in the supply chain
demonstrates corporate social responsibility. This transparency has promoted the concept of responsible
sourcing and encouraged supply chain partners to develop and share best practices for green
operations and logistics. It has also allowed prospective partners to demonstrate compliance with
industry best standards for worker safety, environmental protection and business ethics.

In large companies, the task of demonstrating supply chain sustainability may be given to a supply chain
analyst or sustainability officer. In addition to developing and implementing programs and processes in
support of sustainability, the job may also involve qualifying new suppliers, ensuring delivery and
quality performance targets are achieved and supporting supplier diversity policies.
Why a sustainable supply chain matter?

As the provider of a product, manufacturers rely on a close relationship with their suppliers. It probably
won’t come as a surprise that manufacturing plays a major role in the impact on the environment,
whether it’s through transport, equipment running and maintenance, assembly lines, or farming
practices. As these sustainability issues come to light, there is growing consumer support for the
improvement of sustainability within supply chains. There are four main dimensions of sustainability
that are important in business strategy – innovation, brand enhancement, strategy and stockholder value,
and the impact on costs. As a manufacturer, following the push to become environmentally and socially
sustainable can not only improve your carbon footprint, but entice customers and strengthen relations
with employees, ultimately benefiting you, your workers, and your customers.

1.Innovation: When it comes to your manufacturing inventory, the supply chain is the first aspect that
will lead your business to a more sustainable production future. In supply chain management programs
and other academic training, sustainability is being woven into the curriculum, highlighting the push
for responsible production in all aspects of business. In terms of innovation, manufacturers are creating
new ways to manage and track sustainable practices, whether that be in the supply chain, the
manufacturing process, or the sales and marketing techniques. Customers are becoming increasingly
active in supporting sustainability measures and combining sustainable products with innovative ideas
is an attractive way to draw in new buyers.
2.Brand Enhancement: Not only does sustainability improve the quality of your product, it also has
the opportunity to improve consumer relations. When considering manufacturing inventory, you don’t
want to solely focus on cost. The quality of a product is just as important to consumers, who become
loyal to brands they share ethical values with. Customers aren’t just making buying decisions based on
the product function any more, but also on the brand commitment to sustainability. Because of this
increased concern with environmental impact, brands are recognizing the need to invest in sustainable
practices to retain customers and keep up with the changes in our globalized world. An outline of the
five steps to building a sustainable supply chain ranks manufacturer in the categories of ‘basic’,
‘improving’, ‘established’, ‘mature’, and ‘leading’. Surveys suggest that most successful businesses are
sitting in the ‘improving’ or ‘established’ categories, showing that there is a push for increased
sustainability awareness in the corporate sector.
3.Strategy and Stockholder Value: Regarding the appeal of a manufacturer to investors, it is
important to ensure a stable long-term brand image that can keep up with the competitiveness of the
industry. When it comes to your manufacturing inventory, the strategic continuity of supply, use of raw
materials, and emphasis on natural resources is attractive to both investors and consumers because it
shows business prospects for the future.
A key tool for drawing in investors is to be as transparent as possible about supply chain and
manufacturing practices and holding accountability for your own sustainability. Enabling trust to be
formed between manufacturers and clients leads to more successful company performance. While
focusing on product quality is important, it is just as important to show investors their importance to
the company in order to retain valuable relationships.
4.Cost Control: While transitioning to a sustainable supply chain model may be costly initially, it has
been proven through other companies that greater sustainability brings greater efficiency. This
significant decrease in expenses in the long term is attractive to manufacturers and customers alike, and
with the benefit to the environment, all parties gain something from this move towards a sustainable
business.
5.Social Responsibility: Although sustainability tends to be thought of as solely environmentally
impactful, there are social responsibilities that are just as important. Issues around human rights, fair
labor practices, environmental protection, and anti-corruption measures all play a role in creating a
sustainable business. Regarding human rights, ensuring your supply chain promotes equality and
fairness is essential in becoming sustainable. Similarly, ensuring adequate working conditions, hours,
and appropriate wages to avoid worker exploitation is key to developing a sustainable supply and
manufacturing chain. Without prioritizing the empowerment of workers, environmental progress
through recycling, limited packaging, and optimization of resources is redundant. Most of this involves
sturdy management from those in power, meaning that anti-corruption measures need to be in place to
ensure businesses are running efficiently and transparently. While corruption benefits the individuals
that are exploiting the money and resources in the short term, it hinders the economic and social
development on a wider scale and inevitably leads to irreparable reputation damage that leads to the
downfall of businesses.

How to improve supply chain sustainability?

Companies should take the following measures in order to achieve a more sustainable supply chain:

1. Identify critical issues and areas of improvement within the entire supply chain. The
environmental impact of a supply chain is a culmination of each step in the production and
operation process. Therefore, companies should understand where the most emissions and risks
are located in order to improve.
2. Use supply chain management and measurement tools to help track progress and find
weaknesses. Organizations such as The Sustainability Consortium, World Wildlife Fund and
The Sustainability Accounting Standards Board have created guidelines and key performance
indicators (KPIs) that can help consumer businesses move towards their environmental goals.
3. Set supply chain sustainability goals that reflect global sustainability goals. Companies should
model efforts around scientific recommendations and government regulations to contribute the
greatest impact to the global sustainability agenda and move towards being carbon neutral.
4. Choose and collaborate with other sustainable suppliers. The practice of collaboration and
combination of resources between manufacturers can help organizations reduce waste, cost and
environmental risks. For example, sharing modes of delivery can reduce pollution by ensuring
multiple half-empty vehicles are not sent out in the same direction.
5. Maintain accountability throughout the process. Processes that can be put in place to ensure
liability are routine audits, implementation of sustainability programs and teams, software tools
that track impact and customer-facing goals and progress reports.
6. Purchase carbon offsets. Organizations that have less control over supply chain or want to begin
making an immediate impact can also look into buying carbon offsets. These are credits that
help negate an organization's carbon emissions by investing in environmentally-friendly
initiatives.

Nova Novartis’s Sustainable Supply Chain

Novo Nordisk’s Responsible Sourcing program aims to ensure that their Triple Bottom Line principle
is used throughout the supply chain.
The Triple Bottom Line is anchored in the company's Articles of Association (bylaws) and the Novo
Nordisk Way as the way we do business. It is applied to ensure that business decisions balance
 financial, social and environmental considerations, always keeping in mind the best interests of the
patients we serve.

Novo Nordisk’s ambition is to be a sustainable business. By this we mean:

● creating long-term value for patients, employees, partners and shareholders by developing innovative
and competitive solutions to patients’ unmet needs
● doing business in a financially, environmentally and socially responsible way
● anticipating, adapting to and creating new business opportunities from changes in our business
environment.

COLD SUPPLY CHAIN

Introduction
The cold chain involves the transportation of temperature sensitive products along a supply chain
through thermal and refrigerated packaging methods and the logistical planning to protect the integrity
of these shipments. There are several means in which cold chain products can be transported,
including refrigerated trucks and railcars, refrigerated cargo ships, reefers as well as by air cargo.

It is a process since a series of tasks must be performed to prepare, store, transport and monitor
temperature sensitive products. The main elements of a cold chain involve:

● Cooling systems. Bringing commodities such as food to the appropriate temperature for
processing, storage and transportation.
● Cold storage. Providing facilities for the storage of goods over a period of time, either
waiting to be ship to a distant market, at an intermediary location for processing and
distribution and close to market for distribution.
● Cold transport. Having conveyances available to move goods while maintaining stable
temperature and humidity conditions as well as protecting their integrity.
● Cold processing and distribution. Providing facilities for the transformation and processing
of goods as well as ensuring sanitary conditions. Consolidating and deconsolidating loads
(crates, boxes, pallets) for distribution.
From an economic development perspective, the cold chain enables many developing countries to
take part in the global perishable products market either as producers or as consumers.

From a geographical perspective, the cold chain has the following impacts:

● Global. Specialization of agricultural functions permitting the transport of temperature

sensitive food products to distant markets. Enables the distribution of vaccines and other
pharmaceutical or biological products from single large facilities to any market around the
world.
● Regional. Can support the specialization of production and economies of scale in distribution.
This could involve large cold storage facilities servicing regional grocery markets or
specialized laboratories exchanging temperature sensitive components.
● Local. Timely distribution to the final consumer of perishables, namely grocery stores and
restaurants.

Some domestic or transnational supply chains may only require one transportation mode, but many
times ground shipments are only one link in a combination of transport modes. This makes intermodal
transfers critical for the cold chain. Intermodal shipments typically use either 20- or 40-foot
refrigerated containers that are capable of holding up to 26 tons of food. The container makes loading
and unloading periods shorter and less susceptible to damage both on the container and its cargo. The
environments in these containers are controlled electronically by either plugging into a generator or
power source on the ship or truck. The efficiency of cold chain logistics permitted the consolidation of
cold storage facilities to service large market areas.

Providing Temperature Controlled Environments

The industry has responded with the setting of temperature standards that accommodate the majority
of products. The most common temperature standards are “banana” (13 °C), “chill” (2 °C),
“frozen” (-18 °C) and “deep frozen” (-29 °C), each related to specific product groups. Staying within
this temperature range is vital to the integrity of a shipment along the supply chain and for perishables
it enables to insure an optimal shelf life. Any divergence can result in irrevocable and expensive
damage; a product can simply lose any market value or utility.

The major cold chain technologies in providing a temperature-controlled environment during

transport involve:

● Dry ice. Solid carbon dioxide, is about -80°C and is capable of keeping a shipment frozen for
an extended period of time. It is particularly used for the shipping of pharmaceuticals,
dangerous goods and foodstuffs and in refrigerated unit load devices for air cargo. Dry ice
does not melt, instead it sublimates when it comes in contact with air.
● Gel packs. Large shares of pharmaceutical and medicinal shipments are classified as chilled
products, which means they must be stored in a temperature range between 2 and 8°C. The
common method to provide this temperature is to use gel packs, or packages that contain
phase changing substances that can go from solid to liquid and vice versa to control an
environment. Depending on the shipping requirements, these packs can either start off in a
frozen or refrigerated state. Along the transit process they melt to liquids, while at the same
time capturing escaping energy and maintaining an internal temperature.
● Eutectic plates. Also known as “cold plates”. The principle is similar to gel packs. Instead,
plates are filled with a liquid and can be reused many times. Eutectic plates have a wide range
of applications, such as maintaining cold temperature for rolling refrigerated units. They can
also be used in delivery vehicles to keep temperature constant for short periods of time, a
process that can be suitable for deliveries in noise sensitive areas or for night deliveries.
 ● Liquid nitrogen. An especially cold substance, of about -196°C, used to keep packages
frozen over a long period of time. Mainly used to transport biological cargo such as tissues
and organs. It is considered as an hazardous substance for the purpose of transportation.
● Quilts. Insulated pieces that are placed over or around freight to act as buffer in temperature
variations and to maintain the temperature relatively constant. Thus, frozen freight will
remain frozen for a longer time period, often long enough not to justify the usage of more
expensive refrigeration devices. Quilts can also be used to keep temperature sensitive freight
at room temperature while outside conditions can substantially vary (e.g. during the summer
or the winter).
● Reefers. Generic name for a temperature-controlled transport unit, which can be a van, small
truck, a semi-trailer or a standard ISO container. These units, which are insulated, are
specially designed to allow temperature-controlled air circulation maintained by an attached
and independent refrigeration plant. A reefer is therefore able to keep the cargo temperature
cool and even warm. The term reefer increasingly applies to refrigerated forty-foot ISO
containers with the dominant size being 40 high-cube footers (45R1 being the size and type
code).

Refrigerated Containers

Refrigerated containers, reefers, account for a growing share of the refrigerated cargo being
transported around the world. The structure of global maritime shipping is thus adapting to service the
reefer trade implying a shift away from specialized ports, or specialized terminals within ports, to
standard container terminals. The reefer has become a common temperature-controlled transport unit
used to ensure load integrity since it can accommodate a wide range of temperature settings and
accordingly a wide range of temperature sensitive products. Also, it is a versatile unit able to carry
around 20 to 25 tons of refrigerated or temperature sensitive cargo and is fully compatible with the
global intermodal transport system, which implies a high level of accessibility to markets around the
world. A wide variety of cargoes can be carried in reefers including and on occasion a reefer is used
to carry a regular container cargo load if repositioned or if there is a shortage of standard containers.

Reefer stacking areas usually rely on three approaches:

● Wheeled storage. A conventional method where reefers are placed on chassis which are
moved to a parking area where each parking slot has a electric reefer plug. This tend to be
associated with lower operating expenses, but consumes more space. Only regular trucks are
required for operations.
● Stacked storage. Using yard equipment such as reach stackers to stack reefers up to three in
height. It allows for higher densities, but requires more equipment and labor.
● Rack storage. An emerging method taking place at high throughput terminals where land can
be scarce. The reefers are stored and stacked into rack systems that can hold between 20 and
30 reefers. Reefer racks have a common power supply and where each reefer can be accessed
and monitored through platforms. Such a storage system has higher capital costs but requires
a much-reduced terminal footprint; 4 to 6 times.

Cold Chains Operations

Moving a shipment across the supply chain without suffering any setbacks or temperature anomalies
requires the establishment of a comprehensive logistical process to maintain the shipment integrity.
This process concerns several phases ranging from the preparation of the shipments to final
verification of the integrity of the shipment at the delivery point:

● Shipment preparation. When a temperature sensitive product is being moved, it is vital to

first assess its characteristics. A key issue concerns the temperature conditioning and the
packaging of the shipment, which should already be at the desired temperature. Cold chain
 devices are commonly designed to keep a temperature constant, but not to bring a shipment to
this temperature, so they would be unable to perform adequately if a shipment is not prepared
and conditioned. A notable exception concerns banana which are transported around a
temperature of 13o Celsius, for which is possible to use a reefer to cool down the shipment.
Other concerns include the destination of the shipment and the weather conditions for those
regions, such as if the shipment will be exposed to extreme cold or heat along the transport
route. Using a reefer with its own power unit usually mitigates such concerns. The load unit
carrying the temperature sensitive cargo must also be prepared. For instance, a refrigerated
container must be steam cleaned to remove the risk of bacterial contamination and brought to
the specified conditions of the shipper, namely temperature and humidity. Another issue
concerns atmospheric control, which is maintaining appropriate oxygen and carbon dioxide
levels, helping control (delay) the ripening. This control can apply to the whole conveyance
(reefer), but commonly involves wrapping products in polyethylene bags, which controls how
gases permeate during transport.
● Modal choice. Several key factors play into how the shipment will be moved. Distance
between the origin and the final destination (which often includes a set of intermediary
locations), the size and weight of the shipment, the required exterior temperature environment
and any time restrictions (perishability) of the product all effect the available transportation
options. Short distances can be handled with a van or a truck, while a longer trip may require
an airplane or a container ship. In this case, the cost / perishability ratio becomes a factor in
modal choice.
● Custom procedures. If the freight crosses boundaries, custom procedures can become very
important, since cold chain products tend to be time sensitive and more subject to inspection
than regular freight (e.g. produce, pharmaceuticals and biological samples). The difficulty of
this task differs depending on the nation (or economic bloc) and the gateway since there are
variations in procedures and delays. A common issue relates to sanitary inspection that may
require fumigation. Customs issues are commonly identified as the most crucial in
establishing reliable international cold chains.

● The “Last Mile”. The last stage is the actual delivery of the shipment to its destination,
which in logistics is often known as the “last mile”. Key considerations when arranging a
final delivery concern not only the destination, but the timing of the delivery so the critical
labor and warehousing space is available. Trucks and vans, the primary modes of
transportation for this stage, must meet the specifications necessary to transfer the cold chain
shipment. Since many deliveries of cold chain products, particularly groceries, are taking
place in an urban setting, they are impeded by congestion and parking difficulties Also
important is the final transfer of the shipment into the cold storage facilities as there is
potential for a breach of integrity and damages to fragile goods such as produce.
● Integrity and quality assurance. After the shipment has been delivered, any temperature
recording devices or known temperature anomalies must be recorded and made known. This
is the step of the logistical process that creates trust and accountability, particularly if liability
for a damaged shipment is incurred. If problems or anomalies that compromise a shipment do
occur, an effort must be made to identify the source and find corrective actions. This is
particularly relevant to the high value of cold chain goods. While a standard container load
can have a value between $50,000 and $100,000, a reefer load can reach $1 million. For the
case of pharmaceuticals, the value of the cargo can reach $50 million.
 CROSS DOCKING
Introduction
Cross docking is a logistics procedure where products from a supplier or manufacturing plant are
distributed directly to a customer or retail chain with marginal to no handling or storage time. Cross
docking takes place in a distribution docking terminal; usually consisting of trucks and dock doors on
two (inbound and outbound) sides with minimal storage space. The name ‘cross docking’ explains
the process of receiving products through an inbound dock and then transferring them across the dock
to the outbound transportation dock.

Products Suitable for Cross-Docking

There are materials that are better suited to cross-docking than others. The list below shows a number
of types of material that are more suited to cross-docking.
● Perishable items that require immediate shipment
● High-quality items that do not require quality inspections during goods receipt
● Products that are pre-tagged (barcodes, RFID), pre-ticketed, and ready for sale
● Promotional items and items that are being launched
● Staple retail products with a constant-demand or low-demand variance
● Pre-picked, pre-packaged customer orders from another production plant or warehouse

Benefits
Many companies have benefitted from using cross-docking. Some of the benefits include:
1. Reduction in labour costs, as the products no longer require picking and putting away in the
warehouse
2. Reduction in the time from production to the customer, which helps improve customer
satisfaction
3. Reduction in the need for warehouse space, as there is no requirement to store the products

REVERSE LOGISTICS
Introduction
Reverse logistics stands for all operations related to the reuse of products and materials. It is “the process
of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process
inventory, finished goods and related information from the point of consumption to the point of origin
for the purpose of recapturing value or proper disposal. It also refers to monitoring the life-cycle of your
products after they arrive at the end consumer. This could include how your product could potentially
be reused, how it should be properly disposed of after use, and any other way where your expired
product can create value.

Reverse logistics is sometimes called aftermarket supply chain, aftermarket logistics or retrogistics.
The aftermarket processes that a product can undergo in reverse logistics are numerous and include:
● Remanufacturing - rebuilding the product with reused, repaired or new parts
● Refurbishment - resale of a returned product that has been repaired or verified to be in good
condition
● Servicing - a broad category that includes customer service, field service and product returns,
such as issuance of return merchandise authorizations
● Returns management
● Recycling and waste management
● Warranty management
● Warehouse management

Types of Reverse Logistics

Reverse logistics covers a broad range of items and activities and can include:
● Movement of capital items and equipment to the next emergency response.
● Removal of containers and packaging from response area.
● Destruction of spoiled food commodities and out of date pharmaceuticals.
● Return of rejected goods to the suppliers.
● Movement of excess or over-supplied goods to other programs or organizations.

Benefits of Reverse Logistics Process Management

⮚ Reduced costs. By planning ahead for returns and making the return order right, you can reduce
related costs (administration, shipping, transportation, tech support, QA, etc.)
⮚ Faster service. This refers to the original shipping of goods and the return / reimbursement of
goods. Quickly refunding or replacing goods can help restore a customer’s faith in a brand.
⮚ Customer retention. Dealing with errors is just as important as making sales. If a customer
had a bad experience with your product, you have to make it right. Fulfilment blunders can
create educational opportunities. Learn how to keep your customers happy and engaged with
your company - even after you’ve made a mistake.
⮚ Reduced losses and unplanned profits. Recover the loss of investment in your failed product
by fixing and restocking the unit, scrapping it for parts, or repurposing it in a secondary market.
With a good reverse logistics program in place, you don’t have to leave money on the table.
 Take a product that would otherwise just cost your company money and turn it into an
unforeseen asset.

Monitoring the Flow of Reverse Logistics in Your Supply Chain

There are four key supply chain analytics that can help you understand the flow of returned products
entering your supply chain. They are as follows:

⮚ Volume - Are the same items being returned over and over? Is this happening in large volumes?
Answer yes to either of these questions and you’ve probably got a larger problem than just a
few faulty units. You may need to consider a recall or an overhaul of your production process.
⮚ Percent of Sales - What percentage of your sales are lost to product returns? And how many
of these products can be reincorporated into your supply chain via reverse logistics? What can
you do to minimize these losses of revenue? How can you turn a profit on a loose?

Condition the Product is Returned In - Is the product failing after a specific operation? Can you
determine any patterns of failure among the returned product? This is where quality assurance (QA)
and error reproduction are important. You want to figure out what went wrong so you can adapt
and correct the problem before it happens again.
⮚ Financial Value - Without monitoring and managing your reverse logistics, your company
could be losing millions of dollars in potential value. The companies manage to turn product
failure into new profits by utilizing reverse logistics.

Third party logistics(3PL) in Reverse Logistics

A 3PL can help to streamline the returns process in five key ways.
● Convenient facilities – With a strategic network of locations, 3PLs can offer a convenient,
centralized hub for handling returns. With facilities close to the end customer, they can
process returns and get saleable products back into stock faster.
● Scalable resources – Return rates often increase or spike. A third-party provider has
flexible space and staffing to scale to handle fluctuations in return volume.
● Robust technology – With a sophisticated order management system (OMS), a 3PL can
manage returns and get products back in inventory more efficiently and cost effectively.
● Parcel management – As demand grows for free returns, it is particularly important to
control transportation expenses. 3PL’s negotiated rates with parcel and freight providers
can help to minimize return shipping costs.
 ● Quality control – An experienced provider can carefully inspect incoming products and
determine if they should be put back in inventory. They may also have the ability to
refurbish or repackage items if necessary

Barriers of Reverse Logistics

⮚ Legal issues: Under Indian regulations excise paid goods once sold by the manufacturer cannot
be brought back to the plant without proper documentation and declaration to excise authorities.
This is very cumbersome & time-consuming process and non-compliance may mean that the
manufacturer will have to face legal action.
⮚ Many organizations term Reverse Goods as “JUNK” and they dint want to waste their resources
on these “JUNKS”
⮚ The goods are considered unworthy of any investment

References
1. https://cerasis.com/what-is-reverse-logistics/
2. https://dlca.logcluster.org/display/LOG/Reverse+Logistics
3. https://searcherp.techtarget.com/definition/reverse-
logistics#targetText=Reverse%20logistics%20is%20the%20set,for%20servicing%2C
%20refurbishment%20or%20recycling.
4. https://cerasis.com/reverse-logistics-process/
5. https://www.newcastlesys.com/blog/the-importance-of-reverse-logistics-in-your-
supply-chain
6. https://www.sclogistics.com/resource-center/blog-posts/5-reasons-3pl-manage-reverse-
logistics/

FORECASTING TECHNIQUES & FORECASTING ERRORS

Forecasting Techniques
Links for Forecasting Techniques:
1. Theory Part - https://www.academia.edu/6465224/Forecasting_in_Operations_Management
2. Link for Excel Implementation of Forecasting methods -
https://corporatefinanceinstitute.com/resources/knowledge/modeling/forecasting-methods/
3. Advanced Forecasting Techniques- https://otexts.com/fpp2/advanced.html
DOCUMENT FOR FIRST LINK

Forecasting Errors
Common types of Forecasting Errors:
1. Anchoring and adjusting – When making an estimate people often start with an initial value – the
anchor – and then adjust from this. But estimates tend to be too close to the anchor, even if it is an
implausible value. Anchoring can cause people to underestimate upward trends because they stay too
close to the most recent value, which can be particularly severe for exponential trends.
Solution: Use statistical methods, rather than judgment, to forecast trends.
2. Seeing patterns in randomness – Human beings have a tendency to see systematic patterns even
where there are none. People love storytelling and are brilliant at inventing explanation for random
movements in graphs.
Solution: Don’t believe that you can do a better job than your forecasting system.
3. Putting your calling card on the forecast – People tend to make many small adjustments and only
a few large adjustments to their forecasts. But small adjustments to software’s forecasts waste time
and often reduce accuracy.
Solution: Only adjust for important reasons, and document the reasons.
4. Attaching too much weight to judgment relative to statistical forecasts – Even though evidence
shows judgment is less accurate than statistical forecasts people continue to rely on their judgment.
Solutions: Have more confidence in statistical methods and adjust them only when you are sure it is
absolutely necessary. Or, take a simple average of the statistical forecast and your independent
judgmental forecast so they are equally weighed.
5. Recency bias – Companies often don’t want to use data that goes more than a few years back
because the trends were different. But statistical methods embedded in software need plenty of data to
give reliable forecasts.
Solution: Give your software a chance, then you might not need to adjust its forecasts. Many
statistical methods are designed to adapt to changes in trends, and they are far less likely than human
judges to see false new trends in recent data.
6. Optimism bias – People have an innate bias toward optimism, psychologists say. Even though
optimism bias is a sign of good mental health, negative (downward) adjustments are more successful
than positive.
Solutions: Break complex judgments into smaller parts, for example adjust for price reduction,
promotion and new customers separately instead of making a total adjustment. And consider keeping
a database of estimated effects of past special events like sales promotions.
7. Political bias – Adjustment to forecasts based on internal political bias can make marketing
managers look good when they provide overly optimistic forecasts.
Solutions: Require adjustments to be documented and review their effect on accuracy. Argue for
relying on statistical methods for forecasts unless very special circumstances apply.
8. Confusing forecasts with decisions – A forecast is a best estimate of what will happen in the
future: “I think we’ll sell 200 units.” A decision is a number designed to achieve one or more
objectives: “I think we should produce 250 units in case demand is unexpectedly high, to balance the
possibility of lost sales with the costs of holding more stock.”
Solution: Separate the forecast from the decision. Obtain your forecast first, label it as a forecast and
then use it as a basis for your decision.
9. Group biases – Having statistical forecasts adjusted by a group of people can be dangerous as most
people don’t feel comfortable going against group decisions.
Solution: Use the Delphi Method, in which panelists provide forecasts individually and privately. The
results of the polling are then tallied and statistics fed back. Re-polling takes place and the process is
repeated until consensus emerges. Median estimate is then used as the forecast.
 INVENTORY MANAGEMENT
Introduction
Inventory Management is a business process which is responsible for managing, storing, moving,
sorting, arranging, counting and maintaining the inventory i.e. goods, components, parts etc.
Inventory management ensures that the right inventory is available as per the demand at low costs.
Inventory Management makes sure that the core processes of a business keep running efficiently by
optimizing the availability of inventory.
Inventory Management includes managing and controlling raw materials, stocks, finished goods,
warehousing, storage and other aspects which help reach the product from production to distributor or
retailer. Each organization regularly strives on efficient inventory management to uphold optimum
inventory to be able to meet its necessities and avoid over or under inventory that can impact the
monetary statistics of the firm.
Inventory is forever dynamic. A prerequisite of inventory management is steady and vigilant
assessment of exterior and interior factors and control via planning and evaluation. Most of the
businesses have an individual department of inventory planners who incessantly observe, control and
evaluate inventory and interface with manufacturing, procurement and finance sections of the firm.
Inventory management techniques –
1. Just in Time (JIT) production
2. Materials Requirement Planning (MRP)

Economic Order Quantity

Economic order quantity (EOQ) is the ideal order quantity a company should purchase for its
inventory given a set cost of production, a certain demand rate, and other variables. This is done to
minimize inventory holding costs and order-related costs.
Key Takeaways:

● The EOQ is a company's optimal order quantity that minimizes its total costs related to
ordering, receiving and holding the inventory.
● The EOQ formula is best used in situations where demand, ordering, and holding costs
remain constant over time.

The equation for EOQ takes into account inventory holding costs such as storage, ordering costs and
shortage costs. The formula assumes that demand, ordering, and holding costs all remain constant.
Importance of EOQ
The goal of the EOQ formula is to identify the optimal number of product units to order so that a
company can minimize its costs related to buying, taking delivery of and storing the units. The
economic order quantity (EOQ) formula can be modified to determine different production levels or
order interval lengths, and corporations with large supply chains and high variable costs use an
algorithm in their computer software to determine EOQ.
EOQ is an important cash flow tool for management to minimize the cost of inventory and the amount
of cash tied up in the inventory balance. For many companies, inventory is the largest asset owned by
the company, and these businesses must carry sufficient inventory to meet the needs of customers. If
EOQ can help minimize the level of inventory, the cash savings can be used for some other business
purpose or investment.
The EOQ formula can be used to calculate a company's inventory reorder point, which is a specific
level of inventory that triggers the need to place an order for more units. By determining a reorder point,
the business avoids running out of inventory and is able to fill all customer orders.

Re-order Level
Reorder level (or reorder point) is the inventory level at which a company would place a new order or
start a new manufacturing run.
Reorder level depends on a company’s work-order lead time and its demand during that time and
whether the company maintain a safety stock. Work-order lead time is the time the company’s
suppliers take in manufacturing and delivering the ordered units.
Identifying the correct reorder level is important. If a company places a new order too soon, it may
receive the ordered units earlier than expected and it would have to bear additional carrying costs in
the form of warehousing rent, opportunity cost, etc. However, if the company places an order too late,
it would result in stock-out costs, for example lost sales, etc.

Formula
Reorder level depends on whether a safety stock is maintained.
If there is no safety stock, reorder level can be worked out using the following formula:
Both demand and lead time must be in the same unit of time i.e. both should in in days or weeks, etc.
If a company maintains a safety stock, reorder level calculation changes are follows:

Reorder Level = Average Demand × Lead Time

 Reorder Level = Average Demand × Lead Time + Safety Stock

Fixed Order Interval model

Fixed Order Interval System is a method of inventory control system. It is also known as fixed reorder
cycle inventory model. In this, a fixed interval is developed by keeping a check on the demand of the
product. It is used in managing the supply of the raw material.

In fixed order interval system, the stock levels are evaluated and a periodic schedule of fixed order is
developed. This operation is developed on the basis of time. Stock levels refer to the inventory or the
stock kept in the warehouse of the organization.

Fixed order interval system involves a regular check of the inventory so as to develop an interval of
reordering. It is important for the efficient and effective operations of the organization. Through this,
there will be no surplus inventory kept in the warehouse. Thus, the cost of storing inventory is
reduced.

The supplier of the raw material mostly accepts this method of inventory system as there is no
uncertainty of changing the orders. Suppliers know the quantity and the time period of reordering. So,
the inventory is not kept idle in the warehouse. It is delivered as per the time of its requirement. Thus,
the supplier is secured as there are fewer chances of switching the supplier.
The quantity of the order is determined by the three factors:

1. The daily usage which is anticipated. It is developed by analyzing the inventory regularly.

2. The time period which occurs between the analyses of the inventory.

3. The quantity of inventory available and the demand for the product.
Single Period Inventory Model
A single period inventory model is a business scenario faced by companies that order seasonal or one-
time items. There is only one chance to get the quantity right when ordering, as the product has no
value after the time it is needed. There are costs to both ordering too much or too little, and the
company's managers must try to get the order right the first time to minimize the chance of loss.

The single-period model is designed for products that share the following characteristics:

● They are sold at their regular price only during a single time period.
● Demand for these products is highly variable but follows a known probability distribution.
● Salvage value of these products is less than their original cost, so you lose money when they
are sold for their salvage value.

Marginal Analysis Approach

The marginal analysis approach is one way to find the order quantity for this model. The cost
of ordering one more unit is compared to the profit gained of ordering another unit.
Quantitative analysis is used to determine the economic order quantity based on expected
demand and the costs of getting it wrong. Complex calculations are often used to come up
with a statistically sound order quantity.
 TOTAL PRODUCTIVE MAINTENANCE (TPM)
Introduction
In industry, Total Productive Maintenance (TPM) is a system of maintaining and improving the
integrity of production, safety and quality systems through the machines, equipment, processes, and
employees that add business value to an organization.
TPM focuses on keeping all equipment in top working condition to avoid breakdowns and delays in
manufacturing processes.
The goal of TPM is the continuous improvement of equipment effectiveness through engaging those
that impact on it in small group improvement activities. Total quality management (TQM) and total
productive maintenance (TPM) are considered as the key operational activities of the quality
management system. In order for TPM to be effective, the full support of the total workforce is required.
This should result in accomplishing the goal of TPM: "Enhance the volume of the production, employee
morale and job satisfaction."
The main objective of TPM is to increase the Overall Equipment Effectiveness (OEE) of plant
equipment. TPM addresses the causes for accelerated deterioration while creating the correct
environment between operators and equipment to create ownership.
OEE has three factors which are multiplied to give one measure called OEE
Performance x Availability x Quality = OEE
Each factor has two associated losses making 6 in total, these 6 losses are as follows:
Performance = (1) running at reduced speed – (2) Minor Stops
Availability = (3) Breakdowns – (4) Product changeover
Quality = (5) Startup rejects – (6) Running rejects
The objective finally is to identify then prioritize and eliminate the causes of the losses. This is done by
self-managing teams that solve problem. Employing consultants to create this culture is common
practice. In addition, TPM values a safe working environment.
The traditional approach to TPM was developed in the 1960s and consists of 5S as a foundation and
eight supporting activities (sometimes referred to as pillars).

The traditional TPM model consists of a 5S foundation (Sort, Set in Order, Shine, Standardize, and
Sustain) and eight supporting activities.
The goal of 5S is to create a work environment that is clean and well-organized. It consists of five
elements:
 ● Sort (eliminate anything that is not truly needed in the work area)
● Set in Order (organize the remaining items)
● Shine (clean and inspect the work area)
● Standardize (create standards for performing the above three activities)
● Sustain (ensure the standards are regularly applied)
It should be reasonably intuitive how 5S creates a foundation for well-running equipment. For example,
in a clean and well-organized work environment, tools and parts are much easier to find, and it is much
easier to spot emerging issues such as fluid leaks, material spills, metal shavings from unexpected wear,
hairline cracks in mechanisms, etc.
The eight pillars of TPM are mostly focused on proactive and preventative techniques for improving
equipment reliability.

Pillar What is it? How does it help?

Autonomous maintenance Places responsibility for ● Gives operators greater

routine maintenance, such as “ownership” of their
cleaning, lubricating, and equipment.
inspection, in the hands of
● Increases operators’
operators.
knowledge of their equipment.
● Ensures equipment is well-
cleaned and lubricated.
● Identifies emergent issues
before they become failures.
● Frees maintenance personnel
for higher-level tasks.
● Significantly reduces
Planned Maintenance Schedules maintenance tasks
instances of unplanned stop
based on predicted or
time.
measured failure rates.
● Enables most maintenance to
be planned for times when
equipment is not scheduled
for production.
● Reduces inventory through
better control of wear-prone
and failure-prone parts.
● Specifically targets quality
Quality Maintenance Design error detection and
issues with improvement
prevention into production
projects focused on removing
processes. Apply Root Cause
root sources of defects.
Analysis to eliminate recurring
sources of quality defects. ● Reduces number of defects.
● Reduces cost by finding
defects early (it is expensive
and unreliable to find defects
through inspection).
 ● Recurring problems are
Focused Improvement Have small groups of
identified and resolved by
employees work together
cross-functional teams.
proactively to achieve regular,
incremental improvements in ● Combines the collective
equipment operation. talents of a company to create
an engine for continuous
improvement.
● New equipment reaches
Early Equipment Directs practical knowledge
planned performance levels
Management and understanding of
much faster due to fewer
manufacturing equipment
startup issues.
gained through TPM towards
improving the design of new ● Maintenance is simpler and
equipment. more robust due to practical
review and employee
involvement prior to
installation.
● Operators develop skills to
Training and Education Fill in knowledge gaps
routinely maintain equipment
necessary to achieve TPM
and identify emerging
goals. Applies to operators,
problems.
maintenance personnel and
managers. ● Maintenance personnel learn
techniques for proactive and
preventative maintenance.
● Managers are trained on TPM
principles as well as on
employee coaching and
development.
● Eliminates potential health
Safety, Health, Environment Maintain a safe and healthy
and safety risks, resulting in a
working environment.
safer workplace.
● Specifically targets the goal of
an accident-free workplace.
● Extends TPM benefits beyond
TPM in Administration Apply TPM techniques to
the plant floor by addressing
administrative functions.
waste in administrative
functions.
● Supports production through
improved administrative
operations (e.g. order
processing, procurement, and
scheduling).
 VENDOR MANAGED INVENTORIES (VMI)
Introduction
Vendor Managed Inventory (VMI) is a streamlined approach to inventory management and order
fulfillment. VMI involves collaboration between suppliers and their customers (e.g., distributor,
retailer, OEM, or product end-user) which changes the traditional ordering process.
VMI is a system in which a seller takes responsibility for an uninterrupted supply of their product to a
retailer so that the retailer will not run out of stock.

Types Of VMI
● The vendor is on-site: Employee positioned full time at a customer facility
● Physically replenish inventory on a visit: Bring inventory on a visit and replenish the stock
(Eg: Kirana Shops)
● The vendor has access to the customer’s inventory system: The vendors have access to the
customer’s inventory system such as ERP/MRP
● Barcode: The vendor will compute the stock requirement based on the barcode printed on
remaining stock at customer place
● Vendor rent-out space next to customer place/inside customer place: The proximity of
vendor inventory helps him to fill customer’s inventory instantaneously

Benefits
● Protects against lost sales cost of inventory
● Guaranteed to remain an incumbent supplier
● To serve the customer who can’t plan

Constraints
● Inventory carrying cost
● Risk management costs such as damage control and observations cost

QUEUE MANAGEMENT
Definition
Queue management is a set of principles aimed at controlling customer flow and streamlining the
queuing experience. As queues became more widespread, people started tackling it as a theoretical
concept. The current mathematical formulas we use for modeling a queue are greatly influenced by
probability distributions.
Types of Queue Management
There are two main parameters of queue management, which are the number of channels (or servers)
and the number of phases of service.
Each parameter can take two values: Single (one), or Multi (several). Different combinations of
channels and phases give us four distinct types of queue management:
1. Single Channel, Single Phase: A single-channel, single-phase business has only one server.
As soon as a customer is attended to, they receive full service. Example: an automated car
wash
2. Single Channel, Multi Phase: A single-channel, multi-phase business has one server and a
multi-step servicing process. Example: retail banking, with different counters for withdrawals,
deposits, new accounts, etc.
3. Multi-Channel, Single Phase: A multi-channel, single-phase business has several servers
and a one-step servicing process. Example: airline ticket counter with separate queues for
business class and economy class passengers
4. Multi-Channel, Multi Phase: A multi-channel, multi-phase business has several servers and
a multi-step servicing process. Example: a laundromat with several washers and dryers

Queue Management System (QMS)

Queue Management System platform is a collection of different modules designed to efficiently
handle and manage customer requests. The platform intelligently routes the customer to a skilled
representative to respond to respective tokens.
Types of Queues:
1. Structured Queue: people form a queue in a fixed, predictable position, such as at
supermarket checkouts, and other retail locations such as banks or airport security.
2. Unstructured Queue: Where people form a queue in unpredictable and varying locations and
directions. This is often the case in some forms of retail, taxi queues.
3. Kiosk Based Queue: People come and select the service and feed in the basic information
about themselves. The information is organized and presented to service representative to
allow for faster customer service response. Kiosk based systems also include an information
tracking system for the business to report on statistics such as wait times, volume of traffic
and staff performance. Often used for medical, banking, telecom etc.
4. Mobile Queues: Mobile based queuing system allow customers to use their mobile phone to
view real-time queue data and select a reason that they want to visit your branch/service
centre. Mobile queues require the customer to install queue management apps to their phone
before getting into the queue.
Working of QMS

1. Appointment- In this stage customer seeks their appointment either by coming down directly
to the branch or by booking there tickets online via web or through mobile app.
● Customers are notified about the wait time via Push-in texts, SMS
● When they arrive in the premise a notification alert is sent to the service teller
2. Allocation & Direction- The advance stage after appointment is allocation and direction, in
this stage customers enter the queue either by taking a token from ticketing kiosks or activate
their virtual tickets.
● Dedicated Queuing Machines/ Token Machines are installed at the strategic points where
customers walks-in and gets a token for the service they want to seek teller’s assistance
● Virtual tokens are activated once they arrive
● Customer’s then generates a hard ticket where in all the information pertaining to their
wait is printed
3. Wait time & Communication- After generating a ticket, customers heads to waiting area.
Once there turn comes up the message is displayed over the screen.
● Digital signage systems are placed in the waiting area, where all the promotional videos
are played along with the information about the current serving tokens.
● Customers are informed about critical changes in the queues via SMS and push in
messages or on queue management system app.
4. Call/ Reception- In this stage the customers/visitors are called for their service by the service
tellers. The calling is done via a software installed at the teller systems.
● Customers can be called out of turn or re-direction is made.
● There are multiple call forward windows (cash, desks), a LED or video screen installed at
the head of the queue displays and the number is called with a directional arrow.
5. Data Management- The branch managers or the cluster heads have access to the data
generated by the queue management system. The data generated are in the form of statistical
reports equipped with tables-graphs, a complete information about time periods, waiting
times, service times, reason for customer visit, teller performance is presented in the reports.
These reports are generated on a real time basis and helps branch managers to understand
overall functioning of their branch.
Benefits of Queue Management System
Effective Queue Management is very crucial and technology plays a vital role in this regard. It equips
businesses to manage customers effectively even during rush hour and peak season. Therefore, these
are some of the benefits of the queue management system:
1. Faster Processing
2. Improved Productivity & Operational Effectiveness
3. Enhanced Customer Experience
4. Higher Engagement
5. Reduced Wait-time
6. Real time performance monitoring

Data Gathering and Analytics in Queue Management System

With abundance of data collected by an effective queue management system, the main task now is to
deduce logical inferences out of these accumulated data. Management can decide upon the best and
worst performing branches and take adequate measures.
There are three major heads where we can account these data-
● Average number of customer’s waiting in the queue
● Average wait time
● Average service time
Link for formulae related to Queue Management System:
http://web.mst.edu/~gosavia/queuing_formulas.pdf

Reference Sites:
1. QMS - https://ace.aurionpro.com/what-is-queue-management-system/
2. QMS - https://www.qminder.com/what-is-queue-management-system/
3. Digital Queue: https://leater.com/en/services/digital-queuing-system.html
4. Skiplino – Cloud based QMS - https://skiplino.com/

QC TOOLS
The Seven Basic Tools of Quality (also known as 7 QC Tools) originated in Japan. These tools which
comprised of simple graphical and statistical techniques were helpful in solving critical quality related
issues.

7 QC tools can be applied across any industry starting from product development phase till delivery.
7QC tools even today owns the same popularity and is extensively used in various phases of Six Sigma
(DMAIC), in continuous improvement process (PDCA- Plan Do Check Act cycle) and Lean
management (removing wastes from process).

The seven tools are:

1. Check sheet
2. Control chart
3. Stratification (alternatively, Process flow chart or run chart)
4. Pareto chart
 5. Histogram
6. Cause-and-effect diagram (also known as the "fishbone diagram" or Ishikawa diagram)
7. Scatter diagram

1.Check sheet: The check sheet is a form (document) used to collect quantitative or qualitative data in
real time at the location where the data is generated. When the information is quantitative, the check
sheet is sometimes called a tally sheet

Check sheets typically employ a heading that answers the Five Ws: Who filled out the check sheet,
What was collected (what each check represents), Where the collection took place, When the collection
took place, Why the data were collected.
Five uses for check sheets in quality control:
· To check the shape of the probability distribution of a process
· To quantify defects by type
· To quantify defects by location
· To quantify defects by cause (machine, worker)
· To keep track of the completion of steps in a multistep procedure (in other words, as a checklist)

2.Control chart: Control charts, also known as Shewhart charts (after Walter A. Shewhart) or process-
behavior charts, are a statistical process control tool used to determine if a manufacturing or business
process is in a state of control.
A control chart consists of:
·Points representing a statistic (e.g., a mean, range, proportion) of measurements of a quality
characteristic in samples taken from the process at different times (i.e., the data)
·The mean of this statistic using all the samples is calculated (e.g., the mean of the means, mean of
the ranges, mean of the proportions)
· A center line is drawn at the value of the mean of the statistic
·The standard deviation (e.g., sqrt(variance) of the mean) of the statistic is also calculated using all
the samples
·Upper and lower control limits (sometimes called "natural process limits") that indicate the
threshold at which the process output is considered statistically 'unlikely' and are drawn typically
at 3 standard deviations from the center line
3. Stratification: Stratification is the process of dividing members of the population into homogeneous
subgroups before sampling. The strata should define a partition of the population. That is, it should be
collectively exhaustive and mutually exclusive: every element in the population must be assigned to
one and only one stratum. Then simple random sampling or systematic sampling is applied within each
stratum. The objective is to improve the precision of the sample by reducing sampling error. It can
produce a weighted mean that has less variability than the arithmetic mean of a simple random sample
of the population. Stratified sampling is not useful when the population cannot be exhaustively
partitioned into disjoint subgroups.

4.Pareto Chart: A Pareto chart is a type of chart that contains both bars and a line graph, where the
line represents the integral along the horizontal axis of the piecewise continuous function represented
by the sequence of bars. The chart is named for the Pareto principle, which, in turn, derives its name
from Vilfredo Pareto, a noted Italian economist.
The left vertical axis is the frequency of occurrence. The right vertical axis is the cumulative percentage
of the total number of occurrences. Because the values are in decreasing order, the cumulative function
is a concave function.
The purpose of the Pareto chart is to highlight the most important among a (typically large) set of
factors. In quality control, it often represents the most common sources of defects, the highest occurring
type of defect, or the most frequent reasons for customer complaints, and so on.

5.Histogram: A histogram is an accurate representation of the distribution of numerical data. It is an

estimate of the probability distribution of a continuous variable and was first introduced by Karl
Pearson. It differs from a bar graph, in the sense that a bar graph relates two variables, but a histogram
relates only one. To construct a histogram, the first step is to "bin" (or "bucket") the range of values—
that is, divide the entire range of values into a series of intervals—and then count how many values fall
into each interval. The bins are usually specified as consecutive, non-overlapping intervals of a variable.
The bins (intervals) must be adjacent, and are often (but not required to be) of equal size.
Histograms give a rough sense of the density of the underlying distribution of the data, and often for
density estimation: estimating the probability density function of the underlying variable. The total area
of a histogram used for probability density is always normalized to 1.
6.Cause-and-effect diagram: Ishikawa diagrams (also called fishbone diagrams, herringbone
diagrams, cause-and-effect diagrams) are causal diagrams created by Kaoru Ishikawa that show the
causes of a specific event.
The defect is shown as the fish's head, facing to the right, with the causes extending to the left as
fishbones; the ribs branch off the backbone for major causes, with sub-branches for root-causes, to as
many levels as required. It is known as a fishbone diagram because of its shape, similar to the side view
of a fish skeleton.
Advantages
· Highly visual brainstorming tool which can spark further examples of root causes
· Quickly identify if the root cause is found multiple times in the same or different causal tree
· Allows one to see all causes simultaneously
· Good visualization for presenting issues to stakeholders
Disadvantages
· Complex defects might yield a lot of causes which might become visually cluttering
· Interrelationships between causes are not easily identifiable
Originating with lean manufacturing and the Toyota Production System, the 5 Ms is one of
the most common frameworks for root-cause analysis:
· Man / mind power (physical or knowledge work, includes: kaizens, suggestions)
· Machine (equipment, technology)
· Material (includes raw material, consumables, and information)
· Method (process)
· Measurement / medium (inspection, environment)

7. Scatter diagram: A scatter plot (also called a scatterplot, scatter graph, scatter chart, scattergram, or
scatter diagram) is a type of plot or mathematical diagram using Cartesian coordinates to display values
for typically two variables for a set of data. If the points are coded (color/shape/size), one additional
variable can be displayed. The data are displayed as a collection of points, each having the value of one
variable determining the position on the horizontal axis and the value of the other variable determining
the position on the vertical axis. A scatter plot can suggest various kinds of correlations between
variables with a certain confidence interval.

KPI’s

Key Performance Indicator (KPI)

This is the consolidation into one Indicator of several PPIs. E.g. OEE; Conformance; and Conversion
Cost.

Process Performance Indicator (PPI)

Several Activities together can be combined into an intermediate result between a KAI and a KPI.
E.g. Quality defects; Unplanned Stoppages etc.

Key Activity Indicators (KAI)

At this level of Indicator, the aim is to measure how well an activity in a Factory is being performed.
The more standardised a process is, the more stable it is and the easier to improve. E.g. Attainment of
changeover standard procedure; Compliance
With cleaning effectiveness; Lubrication etc.
1. Safety KPI TRFR (Total Recordable frequency rate)
TRFR is expressed as a rate of Loss Time Accident (LTA), Restricted Work Case (RWC) and
Medical Treatment Case (MTC) per million hours worked, e.g. all workplace accidents, excluding
those that require simple first aid treatment

TRFR = (LTA+MTC+RWC) *1000000/ (hours

worked)
2. Productivity KPI’s

2.1 Raw material Waste (RMW) and Packing material Waste (PMW)
Raw Material Waste (RMW) is waste related to raw materials and ingredients incorporated in the
product sold during a given period. It must relate to the product in the form it leaves production. Zero-
based RM cost is taken directly from the Bill of Material (BoM); no material wastage allowance is
included

RMW= (Actual RM cost –Zero based RM cost) * 100 / (Zero based RM

cost)
2.2 OEE (Overall Equipment Effectiveness)-
Overall Equipment Effectiveness measures the operational performance of the production line taking
into account Manufacturing Performance losses and Process Driven losses. It reflects how effectively
the Loading Time is being used to produce Good Volume.

OEE= Value operating time / Loading time

3. Cost KPI Conversion Cost

Conversion Cost measures the cost of transforming Raw and Packaging Materials into finished
products.

Conversion cost= (Production cost + Buying &Planning cost + Supply support) /

(Production Volume)

Production Costs include factory operations from receipt of materials up to and including
Palletisation or bagging of finished products, and including the costs of factory services
Management and other production-related costs.
Buying & Planning Costs include raw and packaging material buying, bought-in products and
Other services buying, technical buying, production and supply planning, sales demand
Forecasting and NPI buying.
Supply Support Costs include the cost of supply chain management; the cost of quality assurance and
control for raw materials, packaging materials and suppliers, for work in progress and finished
products, excluding the costs of analysing competitors’ products, costs of personnel engaged in
quality inspection, and control at the point of processing;
• Elements of the following functions for which supply chain management is responsible:
Facilities, Finance, Human Resources, Information Technology;
• Other supply chain costs (such as supply chain insurance) not included elsewhere;
• European packaging recovery environmental charges (‘green charges’)

4. Delivery KPI Output Reliability (OR)

Output Reliability (OR) measures the reliability of a Factory to deliver an agreed Production Plan,
which has to be frozen from the first production confirmation of a pallet or unit to a production or
process order

OR = (Plan- Absolute (Plan –Actual)) / (plan)

5. Customer Service KPI customer case fill on time (CCFOT)

Good Customer Service is key to collaborative partnerships with our customers and an important step
towards ensuring our products are on the shelf, in store, for consumers to purchase

CCFOT = (Total Cases accepted by customer on time) /

(Final customer expected order quantity)

WORLD CLASS MANUFACTURING (WCM)

Introduction
World Class Manufacturing (WCM) is a structured and integrated production system that involves all
manufacturing processes in the site and entire organization from the leadership to the people on the
shop floor. WCM targets to continuously improve the site’s performance by eliminating waste &
losses.

7 WCM Tools

1. Prioritisation
Prioritisation should be performed in all areas of the factory: safety, quality, cost, customer service,
skills gaps, environmental issues, inventory and new projects. For each area however, WCM uses
different prioritisation tools:
• Losses translated into money based on Cost Deployment
• Pareto diagram
• Stratification
• QP Matrix
• Machine breakdown map
• Safety incidents/accidents by area etc.

2. Systematic, logical and detailed deployment

Systematic, logical and detailed deployment of objectives into right means and right solutions, and the
measurement of the results against the objectives and targets, is the method WCM uses to improve
site performance.

3. Problem description with sketches

Sketching is a powerful tool to describe the problems. All sites should demonstrate problem solving
capabilities at every level of organisation, arranging proper training and campaigns, as well as
supporting a sketching culture as a way to effectively improve information sharing.

4. 5W + 1H with the 5G principles

To collect facts and figures it is necessary to go to the shop floor where the problems, losses and
waste happen and collect information in a structured way. To do it uses

5W+1H
What- What thing or product did you see the problem on?
When- When did the problem occur?
Where- Where on the work or material did you see the problem?
Who- Is the problem related to skill?
Which- Is the trend random or is there a pattern?
How- How is the state different from normal condition?

5G tools.
• Gemba = Go to the spot. Go to the place where the problem occurs.
• Gembutsu = examine the object. View the actual objects involved in the problem.
• Genjitsu = check facts and figures. Confirm an accurate and quantified description of the problem.
• Genri = refer to the theory. Mechanical and physical principles which govern the operation.
• Gensoku = follow the operation standard.

5. Root cause analysis

Few of the basic tools used are 4M (Man, Machine, Method, Material) and Why-Why analysis.

6. Phenomena description with sketches

To really understand a problem we need to understand the phenomena behind it. A good phenomena
description can reduce the time to find the real root cause of a problem and this is usually resulting in
reducing time to solve it. This is the reason why a good understanding of the phenomena through
sketches is so important, it makes the problem-solving process more effective and efficient.

7. TWTTP (The Way to Teach People) + HERCA (Human Error Root Cause Analysis)
TWTTP is a tool to understand the root causes of human errors. It has a simple set of questions that
drive the analysis of the problem based on an interview with the operator who made the error.
1. How do you do this work?
2. How do you know you are doing this work correctly?
3. How do you know that the outcome is free of defects?
4. What do you do if you have a problem?
The aim is to understand why the problem happened and positively involve operators and not just
finding responsible.
We use TWTTP to:
• Check the knowledge and competency of the operator.
• Understand if there is a lack of attention or negligence.
• Get improvement proposals for not repeating the mistake.
• Have other suggestions.
• Effective tool for ZERO mistakes.
Combined with the outcome of TWTTP, HERCA is guiding to find proper countermeasures against
the identified cause