Current Lecture Lecture 12Chapter 8- Process Management- PART 1 Lean and Six Sigma in the Supply ChainSCM 3301 1st EditionOutline of Previous Lecture Lectures 11&12Economic Order Quantity ModelEOQ Goal: Minimize total annual costs whiles allowing the organization to continuously serve customersEOQ Model Variables- Annual Demand- Purchase Price- Ordering Costs- Holding Costs- Order QuantityEX: As ordering costs go down, the holding costs go up and vise versaREFER TO: Figure 7.5Assumptions of the EOQ ModelSCM 3301 1st Edition- Demand is known and constant- Delivery time is known and constant- Replenishment is instantaneous- Price is constant- Holding cost is known and constant- Order cost is known and constant- Stock-outs are not allowedRadio Frequency Identification (RFID)Inventory Review Systems- Continuous Review System- Difficult to achieve for all inventory items- Requires less safety stock- Periodic Review System- Physical inventory is reviewed at regular intervals (ABC)o Weeklyo Monthlyo Quarterlyo Annually- Requires safety stock to protect against inventory system errorsCurrent Lecture Lecture 12Chapter 8- Process Management- PART 1 Lean and Six Sigma in the Supply ChainProcess Management: Three Key ViewpointsSCM 3301 1st Edition- Lean (Toyota Production System)o Requires a specific management perspectiveo Easily grasped by most people in an organizationo Establishes a culture of continuous improvement- Six Sigmao Includes statistical tools used to address specific problemso Utilizes individuals trained in process improvement techniques- Theory of Constraints (TOC)o Methodology that defines where improvement beginsComplimentary & CoexistingThree Key Lean Perspectives- Workforce Commitment (Empowerment)o Process owners are responsible for improvement NOT process Improvement experts- Process Improvemento Process design causes most organizational problems NOT bad workers- Waste Reduction- Customer Focuso Value Added- Direct Transformation of Inputs -> Outputso Non-Value Added [The Seven Wastes] Walking, moving things, looking for tools, making errors, rework, making more or less than is neededBasic Elements of Lean- Visual Management (5S Program)o Process steps are visually obviouso There is a place for everything and everything has a placeo It becomes easier to do the right thing than make a mistake- Continuous Improvement- River and Rockso Inventory “buffer stock” hides problemso Reducing inventory makes problems visibleo Visible problems are an opportunity to eliminate a root