Strategic Capacity Planning
Capacity – upper limit on the load that an operating unit can handle
- Design: Maximum obtainable output under ideal conditions
- Effective: Max capacity given current product mix
Actual output: rate of output actually achieved – often less than the effective capacity
Efficiency = Actual Output/ Effective Capacity
Utilization = Actual Output / Design Capacity
Factors Influencing Capacity
- Facilities and Machines – Floor Space, Layout, machine maintenance
- Products/Services – The larger the # of products, increase changeover times, lower effective capacity
- Human – Training, Skills, Experience
- Planning & Operational - # of shifts per day, bottlenecks, inventory decisions, quality control, procedures, late deliveries, defective purchased material
- External – Products standards (Quality & Performance), pollution standards, paper work required by government agencies
Strategic Capacity Planning – deals with long term overall capacity levels
- Process: Forecast demand 1-5 years ahead -> Determine capacity requirements -> Measure the capacity now and decide how to bridge the gap: (A) Generate feasible alternatives (b) Evaluate alternatives considering economic and non-economic aspects (c) choose best alternative & implement
- Growth Patterns: Growth, Decline, Cyclical, Stable
- Math – Calculate Annual Capacity, Total Processing Time needed/ Annual Capacity Break Even Analysis
- P=TR-TC=Q*r-(FC+Q*v)
- Q = (P+FC)/(R-v) – BEP is when P=0
Choosing Between Two Systems
- Q(BEP) = [FC(1)-FC(2)] / [v(2)-v(1)], less = 1, greater = 2

Management of Quality
Quality – the ability of a good or service to consistently meet or exceed customer expectations
Quality Control – Monitoring, testing, and correcting quality problems after they occur
Quality Assurance – Providing confidence that a product’s quality will be good by preventing defects before they occur
Continuous improvement – never-ending improvements to key processes as part of total quality management
Dimensions of Quality of Goods- performance, aesthetics, special features, safety, reliability, durability, perceived quality, service after sale, and latent
Dimensions of Quality of Service – Tangibles, Convenience, Reliability, Responsiveness, Time, Assurance, Courtesy
Determinants of Quality
(1) Product Design
(2) Process design
(3) Production
Costs of Quality
(1) Internal Failure Cost – Failures discovered during production
(2) External Failure Cost – Failures discovered after delivery to the customer
(3) Appraisal (detection) Cost – costs of inspecting and testing
(4) Prevention Costs – Costs of preventing defects from occurring
ISO 9001
- The international standard for a quality management system, critical to international businesses
- Elements – General Management system requirements, Management responsibilities, resource management, product realization, measurement, analysis, and improvement
Hazard Analysis Critical Control Point (HACCP)
- quality management system designed for food processes
- Main steps: Hazard Analysis, Determination of the Critical Control Points, Creation of the HACCP Plan
CAE (Canada Awards for Excellence)
- Foundation, Transformation, Role Model, World class
NQI (National Quality Institute)
TQM (Total Quality Management) – An approach to quality management that involves everyone in an organization in quality management and continual effort to improve quality and customer satisfaction. Steps are Find out what the customer wants, design a product/service that meet/exceeds expectations, design processes that do the job right the first time, keep track of results, extend these concepts to suppliers
Continuous Improvement: Reduce inventory levels to reveal problems so they can be solved. Steps: Define problems and establish improvement goals, define measures and collect data, analyze the problem, generate potential solutions, choose a solution, implement the chosen solution, Monitor solution to see if goals are accomplished
Deming Cycle (PDSA Plan, Do, Study, Act) – problem solving and quality improvement methodology used in the continuous improvement
Six Sigma – A more sophisticated statistical approach to problem solving and quality improvement than used in the PDSA cycle of the continuous improvement (Define, Measure, Analyze, Improve, Control DMAIC)

Quality Tools
Process Flow Diagram – A diagram of the steps in a process
Check Sheet – a tool for organizing and collecting data; a tally of problems or other events by category
Histogram – A chart that shows an empirical frequency distribution
Pareto Chart – chart that arranges categories from highest to lowest frequency of occurrence
Scatter diagram – graph that shows the degree and direction of the relationship between two variables
Control Chart – A line plot of time-ordered values of a sample statistic (e.g. Sample mean) with control limits
Cause and effect diagram – diagram used to organize the cause of a problem
Run Charts – a time plot that can be used to track the values of a variable over time

Methods for Generating Ideas and reaching consensus
Brainstorming – Technique for generating a free flow of ideas on finding causes, solutions, and implementing solutions in a group of people
Quality Circle – A group of workers who meet to discuss ways of improving the products or processes
Interviewing- Internal problems with employees, External with customers and suppliers
Benchmarking – Process of measuring an organization’s performance against the best in the same or another industry
5W2H Approach – Ask Who, what, where, when, why, How, how much
Reaching Consensus – List reduction, balance sheet, paired comparisons

Chapter 10: Statistical Quality Control
Statistical Quality Control – Use of statistical techniques and sampling in monitoring and testing of quality of goods and services
Acceptance Sampling – determines whether to accept or reject a product based on sampling/testing samples
Inspection – appraisal of a good or service against a standard
Statistical Process Control – determines if process is operating within acceptable limits based no inspecting samples
SPC Process
(1) Define the quality characteristic important to customers, and how much is measured
(2) For each characteristic,
a. Determine a Quality Control Point
b. Plan how inspection is to be done, how much to inspect, Onsite or offsite
c. Plan the corrective action
Statistical Process Control (SPC) – Statistical evaluation of the product in the production process
Variations in Processes
Random Variation – Natural variations in the output of a process, created by countless minor factors
Assignable variation – non-random variation in process output; a variation whose cause can be identified
Stable in Control processes exhibit only (small) random variations while unstable exhibit both random and assignable variations
Control Chart – A time-ordered plot of a sample statistic with limits
Control Limits – The dividing lines for the value of a sample statistic between concluding no process shift and a process shift, hence random and assignable variations
Type I Error – Product is rejected when it is acceptable, Producer’s Risk
Type II Error – Product is accepted but fails requirements, Consumer’s Risk

Choosing the Right Control Chart
Continuous, n=1 -> Individual units and moving range charts, n>=2 -> Sample mean and range charts
Discrete, 2 types of results can be counted -> p-chart, only occurrences can be counted -> c-chart

Sample Mean Chart (X bar chart)
- Test whether the process mean has undergone a shift (has changed due to unexpected causes of variation
- LCL & UCL = Grand Mean +- Sigma (# of control limit) * standard deviation / sqrt(sample size)
- UCL & LCL = Grand Mean + A(2) * Average of sample ranges
Sample Range Chart (R Chart)
- Test whether there is a shift in the process variation
- Recommend to use before X bar chart since it assumes process variation is stable
- UCL = D(4)R
- LCL = D(3)R
Individual Unit Chart (X Chart)
- When rate of production is low and testing is expensive, only one unit is used for testing
- UCL & LCL = X bar +- Sigma * Standard deviation
Moving Range Chart
- When only one unit is used for testing, there is one observation in the sample so there is no range. Instead the Moving range (MR) is calculated from the difference between consecutive observations
- UCL = D(4)R
- LCL = D(3)R p-Chart - Control Chart for sample proportion of defectives, used to monitor the proportion of defective items generated by a process
- Standard deviation = sqrt((p(1-p))/n)
- UCL & LCL = p +- sigma * standard deviation
- P = Total # of defectives/Total # of observations
C-Chart
- Control Chart for sample # of defects per unit product, used to monitor # of defects per unit product
- C = mean # of defects
- Standard deviation = sqrt(c)
- UCL & LCL = C +- Sigma * standard deviation

Patterns in Control Chart
- Trend: Sustained upward or downward movement
- Cycles: Wave Patterns
- Bias: Too many observations on one side of the center line
- Level Shift: A shift in the level
- Too much dispersion: The values are too spread out

Process Capability
Design Specification: Range of acceptable values established by engineering design or customer requirements
Process Variability: Actual variability in a process or a product
Process capability: The ability of a process to meet the design specification
Process Capability Ratio Cp = Design specification width / process width = (Upper – lower) / 6 stdv
- If process is not centered o Upper – Mean / 3 stdv & Lower – Mean / 3 stdv

Six Sigma Control Quality

Chapter 10 Supplement
Acceptance Sampling – A form of inspection applied to lots or batches of items before or after a process to judge conformance with predetermined standards
BEP = cost of inspection per item / cost of later repair due to a defective item
Let P = estimated proportion of defectives in the lot
If B =. BEP, use acceptance sampling
If P>BEP, use 100% sampling
If P