SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND …...Kaizen Costing: Lean manufacturing is founded on the idea of Kaizen Costing and is highly used by Japanese organizations as a mechanism

SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION

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Table of Content Lean System and Innovation ........................................................................................... 3

Introduction to Lean System: .................................................................................. 3

Features of Lean Manufacturing: ........................................................................... 3

Just-In-Time (JIT): ................................................................................................. 4

Features of Just-In-Time: ..................................................................................... 4

Benefits of Just-In-Time: ...................................................................................... 5

Pre-requisites of Just-In-Time: .............................................................................. 5

Desirable factor of Just-In-Time: ........................................................................... 5

Impact of using Just-In-Time in Inventory Control: .................................................. 5

Just-In-Time as a tool to improve an organization’s profitability: ................................ 5

Just-In-Time and overhead costs: .......................................................................... 6

Back-flushing in a Just-In-Time System:................................................................. 6

Kaizen Costing:...................................................................................................... 6

Kaizen Costing Principle: ...................................................................................... 7

5 S: ..................................................................................................................... 7

Total Productive Maintenance (TPM): ........................................................................ 8

Introduction of TPM in an Organization: .................................................................. 8

Eight Pillars of TPM: ............................................................................................. 8

Performance Measurement in TPM: ...................................................................... 10

Cellular Manufacturing/ One-Piece Flow Production Systems: ..................................... 10

Implementation Process: .................................................................................... 11

Difficulties in creating flow:................................................................................. 11

Benefits of Cell Manufacturing: ............................................................................ 12

Limitations of Cell Manufacturing: ........................................................................ 12

Six Sigma: .......................................................................................................... 12

Numerical Concept of Six Sigma: ......................................................................... 12

Implementation of Six Sigma: ............................................................................. 13

Similarities between DMAIC and DMADV:.............................................................. 14

Difference between DMAIC and DMADV: ............................................................... 14

Quality Management Tools: ................................................................................ 14

Limitation of Six Sigma: ..................................................................................... 15

Lean Six Sigma: ................................................................................................ 15

Process Innovation (PI) and Business Process Re-engineering (BPR) .................................... 15

Process Innovation: .............................................................................................. 15

Business Process Re-engineering (BPR): .................................................................. 16

Principles of Business Process Re-engineering (BPR): ............................................. 16

Main Stage of Business Process Re-engineering (BPR): ........................................... 17



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Lean System and Innovation

Introduction to Lean System: A lean system can be described as an organized method for the elimination of waste in a manufacturing process without compromising on productivity. The implementation of lean

emphasizes on the importance of workflow through strategic operational procedures while minimizing waste and being adaptable. Here, a waste means any step or action in a

manufacturing process that is not needed to complete the manufacturing successfully and is often called Non-Value Adding step. On removing this step, the manufacturing steps that are

required (called as Value Adding) remain in the process. Thus, it systematically helps to discover and act upon opportunities to improve.

Waste can be divided into the following 7 types: 1. Overproduction, wherein, the production is happening even before the demand arises

2. Inventory, wherein, the company has more inventory (including end-product) than it actually

requires at any given point in the process

3. Waiting, which includes products waiting at the next production step

4. Motion, wherein, people or equipment are moving or walking more than what is required to

perform the process

5. Transportation, wherein, products that are not required to perform the process are actually

moved

6. Rework from defect, where the product produced is not correct in the first instance

7. Over-processing, which includes unnecessary work elements, such as non-value added

activities

There are a few companies such as Toyota and General Motors are already into lean

manufacturing, as it involves a shift in traditional thinking, from batch and queue to product-aligned pull production. In the case of lean manufacturing, the focus is on different types of

operations conducted adjacent to each other in a continuous flow and not on producing a lot of parts at one go. A few techniques used in lean manufacturing are given below: • Just-In-Time (JIT)

• Kaizen Costing

• 5 S

• Total Productive Maintenance (TPM)

• Cellular Manufacturing / One Piece Flow Production Systems

• Six Sigma

Features of Lean Manufacturing:

The following are the features of lean manufacturing: 1. There is zero waiting time

2. There is zero inventory

3. It follows pull processing, i.e. makes to order technique, wherein production is based on the

actual demand only

4. There is a continuous flow of production

5. There is a continuous finding of ways of reducing process time



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Just-In-Time (JIT): Just-In-Time or JIT is a collection of ideas which streamlines a company’s production process activities to an extent that all kind of wastages such as time, material, and labor, is

systematically driven out of the process. JIT is a pull system, which means that the product is produced only when there is an actual demand.

Just-in-time (JIT) manufacturing is also known as the Toyota Production System (TPS) because the car manufacturer Toyota adopted the system in the 1970s. Just-In-Time Production or JIT Production is a manufacturing system, wherein, each

component in a production line is produced only when needed by the next step in the production line. In a JIT production line, manufacturing activity at any particular workstation

is promoted by the need for that station’s output at the following station. Just-In-Time Purchasing or JIT Purchasing, is a purchasing system wherein material purchases

are contracted in such a way that the receipt and usage of it coincide to the maximum extent possible.

In demand-pull features, JIT production systems achieve close coordination among

workstations. It smoothens the flow of goods, despite having low inventory. Further, JIT production systems aim to simultaneously • meet customer demand in a timely way

• with high-quality products and

• at the lowest possible total cost

A JIT Production system has the following five main features: 1. It organizes production in manufacturing cells, a grouping of all the different types of

equipment used to make a given product. Here, the materials move from one machine to

another where various operations are performed in sequence and therefore, the materials

handling costs are minimized

2. It assists in hiring and retaining workers who are multi-skilled so that they can perform a

variety of operations and tasks. These tasks may include minor repairs and routine

maintenance of equipment. Hence, the labour idle time gets reduced

3. Aggressively pursue total quality management (TQM) to eliminate defects. Since there are tight

link stages in a production line, and the minimum inventories at each stage, defect arising at

one stage may quickly affect the other stages. Hence, JIT creates an urgency for solving

problems immediately and eliminating the root cause of defects as quickly as possible

4. It emphasizes reducing setup time. Reducing setup time makes production in smaller batches

economical which in turn reduces inventory levels. Further, reducing manufacturing lead time

enables a company to respond faster to changes in customer demand.

5. Suppliers who are capable of delivering good quality materials at the shop floor in a timely

manner are carefully selected, i.e. high-quality goods and making frequent deliveries of the

exact quantities specified on a timely basis. This leads to a reduction in the material receipt

time

Features of Just-In-Time:

A JIT has the following features: • Low or Zero inventories; emphasis on the operation from source to customer

• JIT emphasis on customer service and timing

• Short of operations

• Flexibility of operations

• Efficient flow during the production process

• Use of Kanban and Visibility



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Benefits of Just-In-Time:

A JIT has the following benefits: 1. Reduce inventories and Work-in-Progress

2. Reduce space requirements and set-up time

3. Shorter throughput times required

4. More employee involvement, participation, and motivation

5. Smooth workforce

6. Helps in increasing the productivity

7. Improved product/service quality

8. Improved customer service and smaller batch sizes

9. More uniform loading of facilities.

Pre-requisites of Just-In-Time:

The following are the essential pre-requisites of JIT: 1. Low variety of goods

2. Demand stability

3. Vendor reliability

4. Defect-free materials

5. Good communication

6. Preventive maintenance

7. Total quality control

Desirable factor of Just-In-Time:

The following are the desirable factors of JIT: 1. Management commitment

2. Employee investment

3. Employee flexibility

Impact of using Just-In-Time in Inventory Control:

Using JIT has the following impact on Inventory Control: 1. It helps save cost due to lead time

2. It helps save costs due to holding inventory like insurance, spoilage, obsolescence, etc.

3. It does away with locking up of funds in inventory

4. It helps in working capital management

Just-In-Time as a tool to improve an organization’s profitability:

JIT approach can help in the reduction of costs &/or increase sale prices as follows: 1. It helps the organization in the immediate detection of defective goods being manufactured so

that early correction is ensured with least scrapping

2. It helps to eliminate/reduce work-in-progress between machines within the working cell

3. It helps in the reduction of overhead costs in the form of rentals for inventory, insurance,

maintenance costs, etc.

4. Higher product quality ensured by the JIT approach, which leads to a higher premium in the

selling price



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5. It helps in detecting problem areas due to better production/scrap reporting/labour tracing and

inventory accuracy lead to a reduction in costs by improvement

Just-In-Time and overhead costs:

1. It helps in reducing the material handling, facilities, and quality inspection costs

2. It also helps to reduce the inventory storage costs as the inventory is reduced

3. Here, costs shift from overhead cost pool to direct costs when machine cells are introduced. It

is a more reliable allocation of costs to products and therefore more accurate analysis for

decision making

4. With the JIT system in place, the general overhead pool can be better allocated due to the

availability of more information regarding the most appropriate cost drivers

Back-flushing in a Just-In-Time System:

A back-flushing requires no data entry of any kind until a finished product is completed. Once this is done, the total amount finished is entered into the computer system, which multiplies

it by all the components listed in the bill of materials for each item produced. This yields a lengthy list of components that should have been used in the production process and which is

subtracted from the beginning inventory balance to arrive at the amount of inventory that should now be left on hand. However, the below-mentioned problems should be corrected

before it will properly work:

Production reporting: The total production figure entered into the system must be absolutely correct and in case of any error, there may be a possibility that the wrong

component types and quantities get subtracted from the inventory. This problem may arise because of high turnover or a low level of training provided to the production staff that records these types of transactions, which in turn will lead to an error.

Scrap reporting: Tracking abnormal scrap and recording it correctly is important, else these

materials will fall outside the back-flushing system and will not get charged to the inventory. Here also this problem may arise because of high turnover or a low level of training provided

to the employee.

Lot tracing: Lot tracking is not possible under the back-flushing system. A lot of tracing may be required when a manufacturer needs to keep a record of the production lots that were used

to create a product in case all the items in a lot are recalled. This can be done only through Picking System, which is generally present on high-end systems.

Inventory accuracy: It may be the case that the inventory turnover is very high every time

because the back-flushing transaction that relieves the inventory generally do that once a day, during which time the other inventories are sent to the production process. Hence, this makes it slightly difficult to maintain an accurate set of inventory records in the warehouse.

Kaizen Costing: Lean manufacturing is founded on the idea of Kaizen Costing and is highly used by Japanese organizations as a mechanism for reducing and managing costs. Kaizen, a Japanese word,

means making improvements to a process through small incremental amounts, rather than through large innovations.

A leader in the fields of continuous process improvement and operational excellence, Shigeo

Shingo taught thousands of engineers at Toyota the Toyota Production System, influenced the creation of Kaizen.



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The main aim of Kaizen is to reduce the cost of components and products by a pre-specified amount and relied heavily on employee empowerment. The emphasis on the empowerment

of employees is on the notion that they have superior knowledge about how any processes can be improved because they are close to the manufacturing processes and customers and

are likely to have greater insights into how costs can be reduced.

Activities in the Kaizen Costing methodology include the elimination of waste in the production, assembly and distribution processes, along with the elimination of work steps in any of these

areas. Although the value engineering phase of target costing include these points, but then the initial value of the engineering might not discover all the possible cost savings. Hence, in

the case of a Kaizen Costing, several value engineering steps are repeated for as long as the product is produced by constantly refining the process and thereby reducing the extra cost.

Even though the cost reduction as a result of using Kaizen Costing may be low as compared to the value engineering but are still worth it as the product prices may come down in future

owing to the competitive forces and so any cost saving would still allow the company to achieve its target profit margin while reducing the cost.

Kaizen Costing Principle:

The following are the principle of Kaizen Costing: 1. It seeks gradual improvement in the existing situation, at an acceptable cost

2. It encourages collective decision making and application of knowledge

3. There exists no limit to the amount of improvement that can be implemented

4. This system involves setting a standard first and thereafter continuously strive to improve

these standards to achieve long-term sustainable improvements

5. Kaizen Costing focuses on eliminating waste, improving systems and increasing productivity

6. It involves all the employees and all the areas of the business

5 S: A name of a workplace organization method that uses a list of five Japanese words, listed

below. IT explains how a workplace should be organized for efficiency and effectiveness by identifying and storing the items used, maintaining the area and items, and sustaining the

new order. Hence, it helps to eliminate the waste and makes the habit of keeping everything in its place, ensuring quality consciousness among the people working in a quality workplace

adopting quality process/system and producing quality products/services.

Seiri: Sort (i.e. sorting and disposing of the unwanted items). It focuses on eliminating waste or unwanted things, else the waste will mess up with the needed things and will make the

work more complicated, thus reducing the efficiency of work. It also prevents in accumulation of unnecessary things.

Siton: Set in Order (i.e. based on function and frequency of use). It arranges the necessary

things in such a way that it can be identified easily and avoid confusion which may lead to



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stress. Seiton says “A place for everything and everything in its place”. It ensures a FIFO basis so that it is easy to find and pick up necessary things.

Seiso: Shine (i.e. periodical maintenance in terms of cleaning and polishing). It focuses on

maintaining things in a dust-free condition. In other words, the ‘third S’ makes people care about things. It also states that in an unfamiliar environment, people should be able to detect

any problem within 50 feet.

Seiketsu: Standardize (i.e. labeling and making identification easier). It makes sure that the above ‘3S’ are maintained and are followed, besides following the best practices. It states that

maintaining a high standard, orderliness, everything in order and as per standards is important to have. Further, the ‘fourth S’ gives a systematic approach to handle the above

‘3S’.

Shitsuke: Sustain (i.e. training for continuous implementation). It makes the habit of keeping things in an orderly and neat way. This should be done by giving proper training and with

every individual’s commitment.

Total Productive Maintenance (TPM): TPM is a system of maintaining and improving the integrity of production and quality system

and is done with the help of machines, equipment, processes, and employees that add to the value in a Business Organization. Further, TPM can also help in keeping all the equipment in

good working condition so as to avoid/minimize the breakdown and delays in manufacturing processes.

Introduction of TPM in an Organization:

There are four main phases that an organization should follow to introduce TPM: 1. Preparation Stage, wherein, the organization need to establish a suitable environment and

conduct program awareness

2. Introduction Stage, wherein, the organization should initialize the TPM, provide information to

the suppliers, customers, and other stakeholders

3. Implementation Stage, wherein, the organization, by following the below mentioned eight

activities or eight pillars of TPM implements this system

4. Institutionalizing Stage, which is nothing but the stage of getting the TPM reward

Eight Pillars of TPM:

Pillar What Is It? How Does It Help?

Pillar 1:

Autonomous

Maintenance

It places

responsibility for

routine maintenance,

such as cleaning,

lubricating, and

inspection, in the

hands of operators.

• It gives the operators greater “ownership” of

their equipment • It helps in increasing the operators’ knowledge

of their equipment.

• It ensures equipment is well-cleaned and lubricated

• Identifies emergent issues before they become failures

• It releases the maintenance personnel for higher-level tasks



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Pillar 2:

Planned

Maintenance

It schedules the

maintenance tasks

based on predicted

and/or measured

failure rates

• It significantly reduces instances of unplanned

stop time • It enables most maintenance to be planned for

the times when equipment is not scheduled for

production • It also helps reduce the inventory through

better control of wear-prone and failure-prone parts

Pillar 3:

Quality

Maintenance

It designs an error

detection and

prevention into the

production processes

and applies the Root

Cause Analysis to

eliminate the

recurring sources of

quality defects

• It specifically targets quality issues with improvement projects focused on removing root sources of defects

• Aims to reduce the number of defects • It also tries to reduce cost by catching defects

early

Pillar 4:

Focused

Improvement

It refers to having

small groups of

employees working

together proactively

to achieve regular,

and incremental

improvements in the

equipment operation

• It helps in identifying any recurring problems and then resolve it with the help of cross-functional teams

• It combines the collective talents of a company to create an engine for continuous improvement

Pillar 5: Early

Equipment

Management

It directs practical

knowledge and

understanding of the

manufacturing

equipment gained

through TPM towards

improving the design

of new equipment

• It ensures that the new equipment reaches planned performance levels much faster due to

fewer start-up issues • Ensures maintenance is easier and more robust

because of practical review and employee involvement before installation

Pillar 6:

Training and

Education

It fills in the

knowledge gaps

necessary to achieve

the TPM goals. It

applies to operators,

maintenance

personnel and

managers.

• It helps the operators to develop skills to

routinely maintain equipment and identify emerging problems

• Enables maintenance personnel to learn techniques for proactive and preventative maintenance

• It also trains the managers on TPM principles as well as on employee coaching and development

Pillar 7:

Safety, Health,

Environment

It maintains a safe

and healthy working

environment

• It helps to eliminate potential health and safety risks, thus making the workplace safer

• It specifically targets the goal of an accident-

free workplace



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Pillar 8: TPM in

Administration

It applies the TPM

techniques to

administrative

functions

• It extends the TPM benefits beyond the plant

floor by addressing waste in administrative functions as well

• It also supports production through improved

administrative operations, such as order processing, procurement, and scheduling

Performance Measurement in TPM:

The organization may follow the Overall Equipment Effectiveness (OEE) approach to measure the performance of TPM. The computation of OEE measures requires the identification of “six

big losses” such as:

1. Equipment failure/breakdown

2. Set-up/Adjustment

3. Idling and Minor Stoppages

4. Reduced Speed

5. Reduced Yield

6. Quality Defects and Rework

The first two, i.e. Equipment failure/breakdown and Set-up/Adjustment, refer to the time losses and are used to find out the availability of the equipment. The third and fourth, i.e.

Idling and Minor Stoppages and Reduced Speed determines the performance efficiency of the equipment, while the last two, i.e. Reduced Yield and Quality Defects and Rework, are

considered as a quality loss. Hence,

Performance x Availability x Quality = OEE %

The OEE method can be applied to both individual assets and a process, and because it is highly unlikely that any process will run at 100% OEE, Dat et al (2000) and Nakajima (1998) suggested that the ideal values of OEE component measures should be:

Availability > 90%

Performance > 95%

Quality > 99%

Cellular Manufacturing/ One-Piece Flow Production Systems: It is a subsection of JIT and Lean System, which encompasses a group of technology, having the following goals: • To move as quickly as possible

• Make a wide variety of similar products

• Make as little waste as possible



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Cellular manufacturing consists of a series of product-focused workgroups or cells that houses all the operations to manufacture a family of products. These cells are dedicated to

manufacturing those products that require similar operations. This system of manufacturing operates like a series of plants within a plant, wherein all the operations in the cells are

performed at one go, i.e. from starting with raw materials and ending with finished products. Further, machines in the manufacturing cells should be located in close proximity so that

product transportation can be minimized and also ensure continuous flow with zero inventory

between operations. These manufacturing cells are operated by a team empowered, multi‐skilled operators having complete responsibility for quality and delivery performance within their respective cells.

Implementation Process:

For implementing a Cellular Manufacturing, the following steps need to be followed:

First, the parts that are required to be made should be grouped into families by similarities,

such as design or manufacturing requirements

Second, a systematic analysis of each of the family should be performed. This is generally in the form of a production flow analysis (PFA) for manufacturing families, or in the examination

of design/product data for design families. Although this process can be both times consuming and costly, this is required to be performed because a cell needs to be created for each family of parts. One can even take the help of a mathematical model and algorithm to plan a cellular

manufacturing center. These models generally take into account variables such as multiple plant location, multi-market allocation with production planning and various part mix.

Third, after these variables have been determined with a given level of uncertainty,

optimization can be performed to minimize factors such as total cost of holding, inter-cell material handling, external transportation, fixed cost of producing each part in each plant,

machine and labour salaries.

Difficulties in creating flow:

While creating an efficient flow in cellular manufacturing, the following difficulties need to be addressed: • Exceptional Elements

• Machine Distances

• Bottleneck Machines and Parts

• Machine Location and Relocation

• Part Routing

• Call Load Variation

• Inter and Intracellular Material Transferring

• Cell Reconfiguring

• Dynamic Parts Demands

• Operation and Completion Times



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Benefits of Cell Manufacturing:

The following are the benefits of Cellular Manufacturing: 1. The distance that a part or a product has to move is shortened through cells, thereby reducing

the material handling costs, and allowing for quicker feedback on potential quality problems.

It also helps to reduce the work‐in‐process inventories, permits easier scheduling, and

reduction in throughput time

2. The cells help to organize the locating of materials at the point of use, thus making it easy to

see the work ahead

3. The cell teams can better understand the whole process of making the parts or assemblies.

Further, the workers can see the problems or the possible improvements within their own cells

and may feel self-motivated to propose changes

4. This cell structure improves the group cohesiveness among the employees, which in turn help

to scale the manufacturing process down to a more manageable level for the workers

Limitations of Cell Manufacturing:

The following are the limitations of Cellular Manufacturing: 1. There is a possibility that cell manufacturing may lead to a decrease in production flexibility

2. The cells are typically designed to maintain a specific flow volume of parts being produced

3. In case of a reduction in quantity or fall in demand, the cell may have to be realigned to match

the requirements. This can be costly and one that is typically not required in other

manufacturing set-ups.

Six Sigma: Six Sigma (6σ) is a set of techniques and tools for process improvement. It was introduced

by American engineer Bill Smith while working at Motorola in 1986. Jack Welch made it central to his business strategy at General Electric in 1995. Six Sigma can be defined as a disciplined,

data-driven approach and methodology that helps in eliminating defects (i.e. driving toward six standard deviations between the mean and the nearest specification limit) in any process, ranging from manufacturing to transactional and from product to service. Thus, with the help

of Six Sigma continuous improvement can be brought into the organizational culture by introducing continuously changing and planned targets. One such target can be achieving six

sigma accuracy, which means the process is 99.999998% accurate, i.e. the process will/can produce only 0.002 defects per million. The primary focus of Six Sigma is on the following: • Improved customer satisfaction

• Decision-based on data-driven facts

• Improved process flow

• Proactive management team

• Collaboration within the business

• Goal for perfection

Numerical Concept of Six Sigma:

Sigma, being a statistical term, measures how far a process deviates from perfection. The

higher the number of sigma, the closer the process is to perfection. The structural meaning of six sigma is to achieve 99.99966% accurate or only 0.002 defects per million. However, in quality practice, 6σ means 3.4 parts per million. The value of the defect percentage under

various sigma levels:

Sigma Level

Defects per million

opportunities (DPMO)

Percentage Defective

(%)

Percentage

Yield (%) Quality/Profitability



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1σ 6,91,462 69 31 Loss

2σ 3,08,538 31 69 Non-competitive

3σ 66,807 6.7 93.3 Average Industries

4σ 6,210 0.62 99.38 Above average

5σ 233 0.023 99.977 Below Maximum

Productivity

6σ 3.4 0.0034 99.99966 Near Perfection

Implementation of Six Sigma:

There are two methodologies to implement Six Sigma:

DMAIC:

It is a robust method that intends to improve the existing business process and has the

following five phases: • Define, wherein, the problems, project goals, and customer requirements are defined

• Measure the process to determine current performance

• Analyse the process to find out the root causes of variation and poor performance

• Improve the process by addressing and eliminating the root causes

• Control, which means maintaining the improved process and future process performance

This method is generally used in the following situations: • Where a product or process exists

• Where the project is a part of an ongoing continuous improvement process

• Where only a single process needs to be altered

• Where competitor’s actions are stable

• Where customer behaviours are unchanging

• Where technology is stable

DMADV:

This method is used at creating a high-quality product while keeping in mind the customer’s requirements at every stage of the product. Hence, it is an improvement system that is used

to develop new processes or products at Six Sigma quality levels. This method also has five phases: • Define, wherein, the project goals and customer deliverables are defined

• Measure and determine the customer needs and specifications

• Analyse the process options to meet the customer needs

• Design the process in detailed to meet the customer needs

• Verify, wherein, the design performance and the ability to meet the customer needs are

verified

This method is generally used in the following situations: • Where a product or process is not in existence

• Where the existing process has not been optimized using either DMAIC or some other process

• Where the project is of strategic importance

• Where multiple processes need to be altered



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• Where the competitor’s performance is changing

• Where customer behaviours are changing

• Where technology is growing

Similarities between DMAIC and DMADV:

The followings are the similarities between DMAIC and DMADV: 1. Both aims at improving the quality of a product or a process, even though DMAIC deals with

improving some existing process to align it with customer’s needs while DMADC deals with new

design or redesign

2. Both are six sigma methodologies and are based on defects per million opportunities

3. Both use the same kind of six sigma quality management tools

4. Both consider customer’s needs as their basic parameter

Difference between DMAIC and DMADV:

The following is the difference between DMAIC and DMADV:

DMAIC DMADV

It reviews the existing processes and fixes problems

Emphasis is on the design of the product and processes

More reactive process It is a proactive process

Increase the capability Increase the capacity

Rupee benefits can be quickly quantified It is difficult to quantify the rupee benefits and tend to be much more long term

Examples of DMAIC problem-solving methods: • Reduction in cycle time to process a

patent • Reduction in the number of errors in the

sales list • Improvement in search time for critical

information

Examples of procedures that DMADV development method is designed to address:

• Addition of a new service • Creation of a real-time system

• Creation of a multiple-source lead tracking system

Quality Management Tools:

The following are a few of the quality management tools that are utilized by Six Sigma.

Control Chart: It is a statistical chart that monitors the variance in a process over a time

period and alerts the business in case there is any unexpected variance that may cause defects.

Histogram: It helps in prioritizing factors and identifying areas that may need urgent

attention of the management.

Pareto Diagram: It revolves around the concept of 80-20 rule, i.e. 80% of the defects in a process comes from the 20% causes. Hence, it focuses on a problem that will have great

potential for improvements.

Process Mapping: It refers to a workflow diagram of how things are done and help in reducing the cycle time and defects.

Root Cause Analysis: It is a factor that caused a non-conformance and should be permanently eliminated through process improvement.



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Statistical Process Control: Its purpose is to analyse data, study and monitor process capability and performance.

Tree Diagram: A tree diagram shows the key goals, their sub-goals, and key tasks in a

graphical format. Besides it also helps inspire team members to widen their thinking while creating any solution.

Cause and Effect Diagrams: It helps in identifying the various causes (or factors) of a given

effect (or problem).

Limitations of Six Sigma:

The following are the limitation of a Six Sigma: • It focuses on quality only

• It does not work well with intangible results

• Substantial infrastructure investment is needed to implement this

• It can be complicated for some activities

• It is not necessary that all products are required to meet the Six Sigma standards

• It focuses on the specific type of processes only

• There may be a number of real-time barriers which will be required to be resolved while

translating the theoretical concepts into practical applications

Lean Six Sigma:

Lean Six Sigma is the combination of Lean and Six Sigma which helps to achieve greater results that had not been achieved had Lean and Six Sigma would have been used individually.

It helps in increasing the speed and effectiveness of any process in an organization. An organization can maximize upon its profits, build better teams, minimize costs and satisfy its

customers by using Lean Six Sigma.

Process Innovation (PI) and Business Process Re-

engineering (BPR) Process Innovation (PI) and Business Process Re-engineering (BPR) are almost similar

concepts that had emerged in the 1990s, wherein, BPR focuses on modifying existing processes, while PI intends to bring in new processes into the organization. Hence, PI seems

to be more radical than BPR as PI is bringing a change in the overall structure of an organization, whereas BPR streamlines the process that is already existing.

Process Innovation: As already mentioned, a Process Innovation (PI) brings about new processes into an

organization that significantly improves the production or delivery method. This new process may even include bringing about a significant change in techniques, equipment and/or

software. However, the following are not considered as PI: • Minor changes to the existing process

• Improvement of the existing process



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• Increase on product or service capability done by addition in manufacturing or logical system

• Ceasing to use a business

• Simple capital replacement or extension

• Any changes as a result of a change in factor price

• Any kind of customization

• Regular, seasonal or any other cyclical changes

• Trading of new or significantly improved products

The process of innovating a new solution may fall into one of the below-mentioned areas:

• Production, wherein, processes, equipment, and technology are used to enhance

manufacturing or production processes and may include software.

• Delivery, wherein, tools, techniques, and software solutions are used to improve the supply

chain and delivery system and may include barcodes, tracking systems, or shipping software.

• Support Services, wherein, innovation is brought about in areas such as purchasing,

maintenance, and accounting.

Business Process Re-engineering (BPR): A Business process reengineering (BPR) can be defined as an act of recreating a core business

process with the aim of improving the product output, quality, and/or reducing costs. It typically involves the analysis of company workflows and finding processes that are sub-par

or inefficient, and then figuring out ways either to get rid of them or change them. There are four key components, given below, that BPR follows:

• Fundamental Rethinking, wherein, the business processes require the management to

challenge the basic assumptions under which it operates. It focuses to answer questions such

as “Why do we do what we do?” and “What do we do it the way we do it?”

• Radical Redesign, wherein, a fresh start or a clean-slate approach is followed to examine the

organization business processes, with a goal to reinvent what is done and how it is done instead

of tinkering with the present system by making marginal, incremental, superficial

improvements to what’s already being done. It focuses to answer questions such as “If we

were a brand-new business, how would we operate our company?”

• Achieving Dramatic Improvements, which is related to the aforesaid two elements and

aims at performance measurements. Although the preceding two elements are aimed towards

making quantum leaps in performance, they still need to be measured. An improvement in

quality, speed and the like that is on the order of say 10% is not BPR as this may be achieved

even with marginal or incremental changes to the existing processes.

• End to End Business Processes, wherein, BPR focuses on end-to-end business processes

and not on the individual activities that comprise the processes.

Principles of Business Process Re-engineering (BPR):

The following are the principles of a successful BPR: 1. Organize around outcomes, not tasks

2. Identify all the processes in an organization and prioritize them in a redesign urgency order

3. Integrate information processing work into the real work that produces the information

4. Treat dispersed resources from various areas as though they were centralized



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5. Link activities that are parallel in the workflow, instead of just integrating their results

6. Make performance the ultimate decision point and build control into the process

7. Get information once and at the source

Main Stages of Business Process Re-engineering (BPR):

The following are the main stages of BPR: 1. Process Identification, i.e. each task performed that is to be re-engineered should be broken

down into a series of processes

2. Process Rationalisation, i.e. those processes which do not add any value should be discarded

3. Process Re-design, i.e. the remaining existing processes are re-designed

4. Process Reassembly, i.e. re-engineered process should be implemented in the most efficient

manner

Generally, Porter’s Value Chain is a widely used technique in BPR to identify and analyse the

processes that may be of strategic significance to the organization.



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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND …...Kaizen Costing: Lean manufacturing is founded on the idea of Kaizen Costing and is highly used by Japanese organizations as a mechanism

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