QCD – Quality, Cost and Delivery

27 05 2010

The QCD approach was originally developed to help companies within the British automobile sector. Using QCD can clarify the priorities for improving the production processes in a company. The tools in the QCD approach can be used to assess the results of changes in production processes. They can be used as an instrument for rapid feedback which provides the actual facts and figures for the management to make meaningful decisions. With the gathered data it is furthermore possible to set goals for the future and fulfill continuous reports.

To analyse the business processes of a company with the target of increasing the profitability there are seven steps which have to be considered. These seven key measurements offer a clear structure for continuous improvement, raising levels of customer satisfaction and improve the management of the whole production processes. They can be applied to improve production performance throughout manufacturing industry from the auto-industry to electronics, aerospace, telecommunications, textiles, building products, food and chemicals processing.

· Step 1: Not Right First Time (NRFT)

NRFT studies the quality of products. How often achieves the company the
customer’s specifications. NRFT can be put into numbers, by measuring the
number of “defective parts per million”. The number of the defect products
has to be divided by the total quantity of finished products. This figure has to
be multiplied by 10^6 to get the number of parts per million.

Measuring Not Right First Time
There are two possibilities to measure NRFT: before (internally) or after
reaching the customer (externally). If a company produces four defective
parts on every thousand, this transforms into 4.000 parts per million.

· Step 2: Delivery Schedule Achievement

Delivery Schedule Achievement analyses how well a supplier delivers what
the customers need and when they need it. The goal is 100% on-time
delivery of correct products. This goal has to be achieved as cost efficient as
possible and therefore expensive special deliveries or payments for overtime
should be avoided.
Measuring Delivery Schedule Achievement
A company makes 100 deliveries per week, of those eight are late and five
are of incorrect quantities. The ratio of correct and incorrect deliveries has to
be worked out for measuring how well the company delivers what the
customers need.

Incorrect deliveries include late and as well early deliveries and also
deliveries of the wrong quantity (too many, too few).

· Step 3: People Productivity

People Productivity (PP) is measured by looking at how long it takes (in staff
hours) to produce a good in a satisfying quality. To fulfill the PP
measurement it is necessary to take the number of good units and divide it
by the total number of direct operator hours. Direct operators are the staff
who is fundamental to the production process. The measure of PP helps to
focus on a major product cost, the staff salaries.

To reach a high value for PP it is absolutely necessary that most of the
employee’s work is adding value to the product. The non-value adding
activities should be minimised.
· Step 4: Stock Turns
Stock Turns (ST) is defined as the ratio of current stocks to finished goods.
The more quickly a company converts raw materials into finished products
and sells them, the more quickly they receive valuable sales revenues. The
ST ratio reveals how effectively the company is using funds.

The higher the number the better for the company. A low stock turn means
that the money is tied up in stock, and therefore the company has fewer
funds to invest in other parts of its business.

· Step 5: Overall Equipment Effectiveness
Overall Equipment Effectiveness (OEE) says how well the company is using
its equipment and staff. The three inputs for the calculation are the
availability, performance efficiency and quality rate.

Measuring Overall Equipment Effectiveness
There are three key points to look at: availability, performance and quality.
1. To work out availability for a machine, it is necessary to have the
amount of unplanned downtime. If it is planned that a machine should
run 100 hours a week, but actually runs only 50 hours, the availability
is 50%.
2. Performance compares the actual output with the ideal output. If a
process is assumed to take 10 minutes, but instead takes 20 minutes
then the performance is running by 50%.
3. To display the quality of goods, it is required to compare the number
of good parts produced with the total. If a company produces 50 parts
in an hour and only 25 of them are with saleable standard, this means
quality is running at 50%.

· Step 6: Value Added Per Person
Value Added Per Person (VAPP) shows how efficient people are deployed
to transform raw materials into finished products. The inputs for the VAPP
calculation are the price of the finished product and the costs of the needed
raw materials. Furthermore it is essential to know the number of direct
employees, those who are vital to the production process.
Measuring Value Added Per Person
In this working example a company produces MP3-Players and sells a unit
of them for 60 €, the components cost 10 € per unit and 20 employees are
required to assemble one MP3-Player.

A high VAPP highlights many value added to the product by a single
· Step 7: Floor Space Utilisation
Floor Space Utilisation (FSU) measures the sales revenue generated per
square metre of factory or office floor. The office and the factory floor space
represent expensive fixed costs. FSU can be used to look for the respective
revenue of an individual area or for the whole factory/office floor space. In
order to increase the revenue per square metre it is common to reduce the
amount of floor space used. Layout changes are necessary, for example
eliminating inventory to reduce storage areas. If the company succeeds in
reducing the amount of used space they would be able to expand without
the expense of acquiring or leasing new buildings.
Measuring Floor Space Utilisation
In the working example, given below, a company owns 2000m2 factory
space. The sales turnover is 10.000 € per month. To calculate the FSU it is
necessary to divide the turnover by the amount of space which is used.

Used Reference:


Value Stream Map

27 05 2010

Another important method used during our project is Value Stream Mapping (VSM). It is a tool which was implemented in the Japanese automotive industry and is commonly used in lean continous improvement programs. It helps to understand and improve the material and information flows within firms. The main aims of creating and discussing VSM’s is to eliminate waste along the value chain and improve the understanding of the different production steps by visualising.

Waste is defined by the 7 kinds of waste according to Taiichi Ohno:

VSM is an important tool for companies in order to become lean and it presents the whole production process of a product from ramp to ramp. It could imply attributes associated with the steps of the process like the size of batches, the amount of queue time and wait time, the processing rate, the scrap or yield rate and the cumulative processing time.

By creating the current state map in the company operations along the value chain have to be divided into 3 different types:

o Value-adding activities
o Non-value-adding activities (but necessary)
o Waiting(no activity) / Non-value-adding (not necessary)

A Value Stream Map consists of facile, various symbols which are advancing the impression of the concerning production process. Some relevant symbols for constructing a VSM are given below:

It’s usually created with the Microsoft application MSVisio 2007.

A video explaining VSM:

Used Literature:

Chase, Aquilano, Robert Jacobs (2005), Operations Management for Competitive Advantage,p.473.

Novak (2006), The small manufacturer’s toolkit, p.135.

Lunau, Roenpage, Staudter, Meran, John, Beernaert (2006), Six Sigma + Lean Toolset,p.147.

Spaghetti diagram / Layout diagram

25 05 2010

As said in the post ABC-Analysis, i am going to provide you with useful methods in the as-analysis phase of layout improvements.

Spaghetti diagrams are used to improve the performance of processes by identifying and minimising non-value-adding activities. Value is defined as aspects of a product the customer is willing to pay for.

To create a Spaghetti diagram the performance of a number of workers, products and lifts is recorded and measured. Every actual movement and every step of their work will be displayed in the general map of the production area.

The highest priority by accomplishing a Spaghetti diagram is that the actual process flow gets visualised instead of how it should be. Furthermore it is a snapshot in time so it does not include every possible scenario.

Approach to Spaghetti diagrams:

  1. Locate or design a diagram of the workspace
  2. Mark the location where the first step of the process takes places and draw an arrow from there to where the second step happens. Continue until you have mapped all process steps
  3. Discuss the final diagram with a goal towards improving the workflow
  • A complicated diagram with many lines indicates opportunities to simplify the process
  • If the lines cross each other, explore the possibility of restructuring the workspace to create a smarter flow
  • If lines repeatedly come back to one location, see if the work performed there can be combined and performed at the same time

A example for creating a Spaghetti diagram on the easily understandable example of the kitchen:

Used Literature:

Lunau, Roenpage, Staudter, Meran, John, Beernaert (2006), Six Sigma + Lean Toolset, p.138.

The Bullwhip – Effect

21 05 2010

Characteristics of the bullwhip effect:

When each member of a group in a supply chain tries to maximize his or her own benefit without regard to the impact of other members of the group, the overall effectiveness may suffer. Such inefficiencies often creep in when rational members of supply optimize individually instead of coordinating their efforts. A well known example of such inefficiency in staged supply chains is the bullwhip effect. This effect refers to the tendency of replenishment orders to increase in variability as one moves up the supply chain from retailer to manufacturer. A lack of coordination may even outweigh the benefits from specialization and economics of scale. Therefore it can be said that the bullwhip effect is the key example for supply chain inefficiency. So the bullwhip effect is near-hand term for a dynamical phenomenon in supply chains.

An example may clarify what the bullwhip effect is all about:

The Barilla company, a major pasta producer located in Italy provides a demonstrative of issues resulting from the bullwhip effect. Barilla offered special discounts to their customer who ordered full truckload of their goods. Such marketing deals created customer demand-patterns were highly peaked and volatile. The supply chain costs were so high that they outstripped the benefits from full truckload transportation. The Barilla case was one of the first published cases that empirically supported the bullwhip phenomenon.

The 5 major reasons leading to the bullwhip effect according to Lee:

  • Demand signal processing is the is the practice of decision makers adjusting the parameters of the inventory replenishment rule. Target stock levels, safety stocks and demand forecasts are updated in view of information or deviations from targets.
  • Another major cause of the bullwhip problem is the lead-time, which is caused by two components. The physical delays and also delays in cause of information. The lead-time is a key parameter to calculate safety stocks.
  • The third bullwhip creator is the practice of order batching. Economies of scale in ordering, production set-ups or transportation will quite clearly increase order variability.
  • The fourth major cause of bullwhip is highlighted by Lee has to do with price fluctuations. Price discounts and quantity discounts are often offered by retailers. So the retailers buy goods in advance and quantities and store them. This do not reflect their immediate needs.
  • The fifth cause of bullwhip is connected with rationing and shortage gaming. Inflated orders placed by supply chain occupants during shortage periods tend to boost the bullwhip effect.

Possibilities to minimize the bullwhip effect (in order to avoid costs):

  • improve communication in the supply chain
  • simultaneousness of actions (therefore time delays and reaction times can be avoided)
  • centralization of disposition
  • establish strategic alliances
  • reduce the variability

A video explaining the Bullwhip Effect:

Werner, Hartmut (2008), “Supply Chain Management”, Gabler.

Disney, Steven M.; Lambrecht Marc R. (2007), “On Replenishment Rules, Forecasting, and the Bullwhip Effect in Supply Chains”, Publishers Inc.

Fleet Management

30 04 2010

Definition: Fleet management comprises the target-orientated, optimal planning, supervision and control of the fleet operations based on the available resources, considering internal and external influencing factors.  A special focus is on the integration of organizational processes with modern information systems.

Field of applications:

  • Object track (vehicle tracking)
  • Health and safety tracking
  • Fuel and speed management
  • Sales order transmission
  • Route planning
  • Driver management
  • Vehicle diagnostics

Route-Planning-Definition: Route-Planning serve to arrange different transport orders to tours of a vehicle fleet

TSP = Travelling Salesman Problem -> find the shortest way of a circular tour that is as cost effective as possible and that visits a certrain amount of customers exactly once.

VRP = Vehicle routing problem -> the VRP is an extension of the TSP in which various vehicles areconsidered

PDP = pick up and delivery problem -> inPDP consignments are picked up at at one place and transported to their destination

the PDP is an amplified VRP

Kinds of Route Planning:

Static Route Planning: You have static theoretical data used ( not how it is in reality) -> More time to verify and decide

Dynamic Route Planning: Contains real/new data (like weather, traffic jams etc.) -> You have little time to verify a decision


  • Improves efficiency & productivity
  • reduce operating costs
  • speed up logistics activities
  • transparency of all the transport events
  • automatical data transfer from the order entry system
  • optimal order distribution to the tours (cost-, time and customer optimal)

Advantech Fleet Management Solutions

Further information:

PDF concerning the topic

Fleet management in former times was more about buying/selling/repairing of cars. You didn’T buy a car BRAND-new but buying it when it had 20.000 km for example because it’s more cheaper then. There were different policies how/when (in which step of the product lifecycle) you buy your “fleet”.

Incoterms 2000 – Rules at the core of world trade

30 04 2010

What are Incoterms:

  • Abbreviation of International Commerce Terms (Incoterms)
  • Published by International Chamber of Commerce since 1936
  • Define key elemnts of international contracts of sale
  • Reflect the parties agreement to divide costs and risks between parties
  • Provide the buyer and seller instructions regarding the carriage and delivery of goods
  • Can be used for purchasing parts both within the EU and outside the EU
  • Agreement by both parties to use a particular Incoterm does have implications in other parts of the contract (e.g. payments and the use of documentary credits, duty payments in the country of importation)


  • Any mode of transport(EXW, FCA, CPT, CIP, DAF, DDU, DDP)

-> Necessary due to the fact that international transportation is a risky business (standards got defined to handle different cases [who is taking the risk, who is the owner]). These standards defining different cases are called Incoterms, set some ground rules for international transactions and get revised every 10 years.

Usefull Links:
International Chamber of Commerce

Unit load

7 04 2010
What is unit load about?

Most of the products sold to private and corporate consumer nowadays move along the supply chain packed in unit load. The idea of unit load was to combine many items into one bigger single “unit”. This “unit” can for example be a single container or if we think more simple just a cardboard box which contains six packs of milk.

So as you can see the advantages of unit load are enormous: It facilitates the charging and discharging of transportation vehicles (lorry, ship, plane, train) because with unit load you only have to unload some bigger units instead of many small ones. Furthermore the unit load items like containers are build extremely space-saving and can be stacked easily, this saves place and therefore also money. It is also responsible for protecting the transported goods against damage.

Summing up we can say that unit load makes handling, storage, and distribution of googds more efficient. It’s not just a logistic tool, it furthermore helps to save money!

The “bigger units” in which the smaller items get packed are called Unit Load Devices (ULD) like for example paletts and containers.

Now you should have an overview about the topic unit load. If you are more interested in this topic click this link for additional useful information concerning this topic.