Group Assignment 2 1

Group Assignment 2
Group 30
Chau To - N01316979
Thi Bich Loan Nguyen - N01323650
Tri Nhan Nguyen - N01251472
Operations Management - MGMT-2500-RLC
Professor Marcos Cavenaghi
December 1, 2020
Group Assignment 2 2

Table of Contents

Executive Summary 3

Labour, Material, and Total Production 3

Line Paragraph 4

Figure comparison 2014 - 2015 4

Review of manufacturing strategy 5

The role of inspection 6

Higher quality increases productivity 7

Six Sigma 8

References 10
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EXECUTIVE SUMMARY

Supreme is an American skateboarding lifestyle brand established in New

York City in 1994. Recently, the company has allocated changes in the
manufacturing area, aiming to improve the current situation of its profitability.
Supreme has managed to execute a successful improvement-driven
manufacturing strategy according to the given data and the analysis of productivity
indices.
It is recommended that Supreme should concentrate on continuously
improving and ensuring different manufacturing factors including quality, human
capital, supply resources, inspection process, and technology in order to increase
profit and elevate profit margins.

2. Labour, Material, and Total Production

Labour Material Total
Period Productivity Productivity Productivity
Jan
2014 3,97 2,4 1,08
Feb 4,06 2,47 1,1
Mar 4,03 2,54 1,13
April 3,98 2,4 1,08
May 3,98 2,55 1,13
June 3,91 2,6 1,13
July 3,9 2,6 1,13
Aug 3,97 2,43 1,09
Sept 3,68 2,37 1,05
Oct 3,45 2,38 1,04
Nov. 3,49 2,3 1,02
Dec 3,48 2,23 1,00
Jan
2015 5 1,64 0,94
Feb 5,64 1,77 1,02
Mar 7,86 1,85 1,11
April 9,35 2,01 1,21
May 9,47 1,95 1,19
June 9,23 1,95 1,18
July 10,17 1,99 1,22
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Aug 10,07 1,97 1,22

Sept 9,71 2,00 1,22

3. Line Paragraph

4. Compare the 3 average productivity indices for the whole of 2014 (12
months) with the 3 average indices of July-September (only 3 months) of 2015
a)
Average of Average of
Labour Material Average of total
Productivity Productivity Productivity
Period ($ '000's) ($ '000's) ($ '000's)
2014 3,83 2,44 1,08
(July - Sep)
2015 9,98 1,99 1,22

9,98−3,83
● % change of average labour productivity = = 161
3,83
=> % change of average labour productivity of 2014 increased 161% in 2015

2,44−1,99
● % change of average material productivity = = 18
2,44
=> % change of average material productivity of 2014 decreased 18% in 2015
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1,22−1,08
● % change of average total productivity = = 13
1,08
=> % change of average total productivity of 2014 increased 13% in 2015

b) Why do we use only 3 late months in 2015?

We use only 3 late months instead because
- we do not have enough 12 months (data) in 2015
- we want to see the difference after a long time changing to a new strategy
- they are current period

5. Did the change in manufacturing strategy deliver improvements?

Yes it did because the total productivity after using the strategy did increase.
● The labour productivity of 2015 increased 161% compared to the labour
productivity of 2014. After changing the strategy to buy most of the
subassemblies instead of making them in-house, the company did cut down
the number of employees who take responsibility for making these materials
or who was not necessary anymore for their new strategy. By this way, the
number of laborers almost decreased every month even though the amount of
sales increased. This led to an increase in labour productivity because the
company was able to keep the amount of sales remaining or increasing
without spending too much money on labour cost.
● The material productivity of 2015 decreased 18% compared to the material
productivity of 2014. When the company decided to buy most of the
subassemblies from outside, it means the cost for materials increased every
month. However, the amount of sales remained or increased so the material
productivity decreased as a result.
● The total productivity of 2015 increased 13% compared to total productivity of
2014 because the cost for labour decreased, the amount of sales increased,
other costs did not change much and the cost for material increased just a
little.

A productivity went up when:

- Output produced increased without increasing the input
- Output produced remained with less input
A productivity went down when:
- Output produced decreased without decreasing the input
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- Output produced remained with more input

6. The role of Inspection

a) In general
It is crucial for a company to maintain the quality of the products in order to
achieve continuous improvement, gain consumers’ satisfaction, and build a concrete
foundation for the further success of the company. An inspection is an indispensable
tool of the modern production process. It assists the organization in controlling
quality, reducing manufacturing costs, and mitigating scrap losses and unpredictable
fraud leading to defective work. Inspection and testing techniques are used to
measure the quality level of the products as well as to eliminate assigned variation
that happened during the manufacturing process. These activities ensure the
products meet the requirements specified in the established standards and
specifications.
Inspection is the most common method of ensuring standardization,
uniformity, and quality of workmanship, which controls the quality of the product by
comparing with the specified standards. Its purpose is to concentrate on the
appearance, construction, and basic function of the product. The role of the
inspection involves measurement, tasting, touching, weighing, or testing of the
product. This process is carried out by the authorized inspector who is properly
qualified and has the authority to perform inspection. During the process of
manufacturing, products that are found disqualified will get rejected and production
managers are responsible for detecting the defective stage of the process.
Inspection procedures are usually taken before, during, and after the product
manufacturing process to certify the quality level of the product.
Inspection occurs outside a laboratory, usually at a manufacturing plant where
the products are fabricated. This is called source inspection which enables the
company to control and monitor at the point of production or purchase at the source.
In order to enhance the effectiveness of source inspection, a foolproof device or
technique called poka-yoke is used to ensure the production of good units every
time. It detects errors and provides brief feedback on the issues. Another type of
poka-yoke technique is checklists assisting in ensuring consistency and
completeness in launching a task.
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b) When and where should Supreme inspect?

It is necessary for Supreme to perform inspection on the whole manufacturing
process including the pre-production inspection, in-line inspection, and final
inspection. Detecting problems at the pre-production phase avoids unwanted frauds
and defects on the materials and enables auditors to address all issues before the
production phase begins. Inspection at this phase prevents the organization, brands,
and retailers from unanticipated costs and delays.
In-line inspections are crucial to monitor the manufacturing process and
ensure the products meet up with the requirements specified in the established
standards and specifications before release. When quality issues are not detected
and corrected during the production process, it could generate larger problems in
later stages
The last chance for auditors to address quality issues is the final inspection
before the products are dispatched to retailers and customers. During the final audit,
products are examined for particular performance requirements, overall appearance,
and sizing. Brands and retailers often neglect in-line inspections and only perform
final inspections when the products are received at the ultimate destination. That is
to say, all poor quality products being caught at this stage will be discarded and
result in a grand manufacturing waste and expenses.
Therefore, Supreme needs to perform inspections in all production cycle
sections in order to have a continuous and effective production process.

7. Does higher quality increase productivity?

Higher quality does improve productivity, lower manufacturing costs, greater

satisfaction, and greater profitability. Companies can build a reputation for quality by
getting accreditation with its recognized quality standard. Quality reflects customers’
perceptions of the firm’s new products, employment practices, and supplier relations.
With a reputation for manufacturing high-quality products, firms can gain customers’
loyalty and competitive advantage against components. Quality can lead to an
emotional connection with consumers’ intention to buy. Customers are willing to pay
a premium for products that are believed to be “well-designed, well-crafted, and well-
engineered”, and for products that contain emotional attachment and connection
with. Furthermore, ensuring high quality can prevent the company from product
liability. Firms can be held liable for designing, manufacturing, or distributing
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defective products or services resulting from damages or injuries for consumers by

the use of them. This could lead to product recall which is a process of retrieving and
replacing defective goods, the company is responsible for absorbing the cost of
replacing and fixing defective products as well as reimbursing affected consumers.
Recalls can tarnish a company’s reputation, result in heavy marketing costs, and
lead to multi-billion dollars in losses for compensation. Besides, ensuring quality
products satisfying established standards and specifications assists the company in
reaching the international markets and competing effectively in the global economy.
Products must meet strict conditions of global quality, design, and expectations to be
distributed in the international markets.

8. Six Sigma
a) Companies using Six Sigma
1. Amazon: https://www.amazon.ca/
2. Ford: https://corporate.ford.com/about.html

b) Six Sigma is the operational excellence program designed to reduce the causes of
defects and improve the quality of process outputs. Six Sigma targets three main
areas including improving customer satisfaction, reducing process cycle time, and
reducing defects.

Six Sigma has been rooted in Amazon’s culture. Amazon is well-known to have
excellent customer service and experience. With the practice of Six Sigma, Amazon
has made rapid progress in becoming one of the world’s largest online retailers.

Data and Metrics

With the data-driven nature derived from the six standard deviations
practitioners for keeping defects in check, Six Sigma provides all necessary data for
Amazon. From the types of purchases that customers make online to how they
should develop their technology. Amazon also uses a wide range of metrics to
accumulate data in improving and giving opportunities for expansion.

Operational Excellence
With around 2,000 items ordered online every sixty seconds, Amazon is
required to maintain its best standards. Therefore, in 1999, the company launched a
program of Operational Excellence aimed at improving company processes. The
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program implies two goals of “delivering continuous improvement in customer

experience and driving productivity, margin, efficiency, and asset velocity across all
our businesses” (Amazon Annual Report, 1999).

Hiring the “best and brightest” employees

Amazon managed to only recruit the best and brightest employees from top
schools such as LFM program at MIT, Carnegie-Mellon, and the University of
Chicago to take the vacancy of business thinkers. They take one step further by
training employees as Six Sigma Black Belts

Six Sigma methods

Amazon was able to mitigate variation by actively detecting it using DMAIC,
Root Cause Analysis, and similar tools. With this practice, they diminished waste by
eliminating non-value adding process stages, cutting manufacturing spending, and
cultivate a Kaizen-based company culture

Outcome
Amazon gained advantages in performing the Six Sigma method including
improvement in delivery time, reduction of logistics cost, minor inventory cost, and
improvement in the final production process.
The impact of implying the Six Sigma method has increased a significant
improvement in the revenue performance of Amazon for the last decade. The data
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given below indicated the growth of Amazon’s revenue:

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REFERENCES

Amazon Annual Report. (1999). (PDF) A STUDY ON AMAZON: INFORMATION

SYSTEMS, BUSINESS STRATEGIES AND e-CRM. Retrieved 2 December
2020, from
https://www.researchgate.net/publication/261440748_A_STUDY_ON_AMAZ
ON_INFORMATION_SYSTEMS_BUSINESS_STRATEGIES_AND_e-CRM

Satyendra. (2016). Role of Inspection and Testing in maintaining Product Quality –

IspatGuru. Retrieved 2 December 2020, from https://www.ispatguru.com/role-
of-inspection-and-testing-in-maintaining-product-quality/#:~:text=Inspection
%20and%20testing%20measure%20and%20determine%20the%20quality
%20level%20of%20the%20products.&text=Inspection%20and%20testing
%20are%20indispensable,the%20production%20of%20defective%20product.

Sharma, P. (2017). Retrieved 2 December 2020, from

http://indusedu.org/pdfs/IJRMEC/IJRMEC_1319_88258.pdf