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16 (1&2), 2008
RE-ENGINEERING OPERATIONAL PRACTICES AND PROCESSES TO IMPROVE THE CUSTOMER FOCUS OF A MARKETING ORGANIZATION
Mahmoud M. Yasin, Andrew J. Czuchry, Rani A. Kady
The objective of this field study is to examine the applicability and potential advantages of pull operational practices in a mid-size manufacturing organization. The results derived based on this field study point to both operational gains and customer-related benefits which can be attributed to pull operational practices. Keywords: Re-engineering, Pull Practices, Mid-size Manufacturing, Marketing
The framework depicted in Figure 1 was used to examine the current operational practices in a mid-size, welded stainless steel pipe firm. It was also used to identify areas of improvement in the existing operational system. Concepts related to the Theory of Constraints (TOC) and Business Re-engineering (BR) were used to modify the existing system. The modified system is designed to enhance operational efficiencies as well as the customer orientation of the firm. The studied firm (XYZ Company) has been in business for more than 50 years. The Company is currently using a push operational system to produce products for inventory. The purpose of this study was to determine the overall benefits to XYZ Company resulting from re-engineering its operational system from traditional manufacturing system to a pull system, driven by customer demand. In the process, the impact of changes in customer requirements on the production line was evaluated. Finally, the TOC principles were used to determine the potential of a competitive advantage to XYZ Company due to the modified operational system.
BACKGROUND Traditional concepts of effective manufacturing are based on mass production and are often referred to as a push system. In many such manufacturing environments when the output of a product doubles, the real value-added unit cost of manufacturing that product is reduced by a constant percentage (Pearson & Wisner, 1993). This improvement is often called a learning curve, or more precisely a price improvement curve. The objective of the push system is to efficiently use production resources. Such orientation, works well in industries where there is predictable high customer demand and quick product turnaround times such as electrical and automobiles industries. Altiok and Ranjan (1995) note that in a push system, the production schedules are generally based on the demand
it is relatively easy to determine which operations are running at full capacity. and Vernon (2000) studied the performance of a flexible manufacturing line. it is really a liability because the operation must incur costs to carry the work-in process. Under a push system. Suri.ACR Vol. In a push system. Modify Existing System Pull System (Proposed System) Krishnamurthy. each stage runs at maximum capacity pushing material downstream. 48 . Kenward (1992) recognizes that a traditional push system is based on maximizing not only capacity. Buffer stocks are often used to account for uncertainty in customers’ demand and supply variations. but also labor efficiency. Although this work-in-process appears as an asset on the balance sheet.16 (1&2). FIGURE 1 Study Framework Operational System Customer Orientation and Marketing Analysis of Existing System: Push System (Existing System) -Subsystems -Processes -System Constraints -Inputs -Outputs -Products Identify Areas of Improvemet Performance Comparison Utilize Business Re-engineering and Theory of Constraints. 2008 forecast. They compared the throughput and average inventory characteristics under a pure push system with other manufacturing strategies.
are often selected using Pareto Analysis by focusing on the resource with the most unscheduled down time. For companies that employ skilled workers and for many service organizations. Hancock and Zayko (1998) note that the implementation of JIT in the U. Yasin. procedures. Wafa and Yasin (1998) examined the effective implementation of JIT philosophy in manufacturing environments. Using an empirical study. Preventive maintenance programs. Maximizing the throughput of individual manufacturing subprocesses often creates large work-inprocess inventories throughout the plant. the analysis should be revised conducted on a total system basis. produced results that exceeded expectations. it has to be an organizational-wide philosophy where open communication between management and workers is the norm rather than the exception. in many cases. If this is possible. and organizational culture. However. The authors concluded that this family of alternatives could help corporate managers evaluate new business practices that are best suited to their business models. people.S. and organizational effectiveness of public sector organizations. Once the constraint is identified. However. A physicist by education. It is important to note that specific practices have varying results depending on the nature of the business. The TOC has been also applied in a 49 . Although JIT is often implemented in manufacturing under the name of a pull system. They also suggest that for JIT to be successful. and Small (2001) examined the effectiveness of JIT in the U.ACR Vol. Many researchers and managers have applied the TOC to a wide range of industries and products. Wafa. The TOC and ABC can also be used together to identify the best short-term and long-term product mixes. and ABC. the time available on a certain machine or process. The study did not focus on reducing the cost like many other improvement programs but instead on increasing the level of manufacturing.16 (1&2). which leads the reader through scheduling concepts based upon the TOC. Holmen (1995) underlined eight assumptions to implement the TOC. wrote The Goal. Draman and Salhus (1998) significantly improved the production processes at a paint factory by implementing the TOC. They also concluded that the use of the TOC as a management philosophy is a dynamic process. and reduces delivery time. Kupanhy (1995) states that practical implementation of JIT can be fruitful when implementation steps are reduced as may be the case when resources are limited. They investigated the relationships between organizational modification efforts prior to JIT implementation. Chakravorty and Atwater (1994) used the TOC to direct preventive maintenance. 2008 Results indicated that the pure push strategy has a higher throughput for a given level of inventory than other strategies. electronic data interchange (EDI).S. some other factors may become new constraints. the push system advantages in terms of operational efficiency may be at the expense of the customer focus. Results support the finding that JIT has the potential to increase the operational efficiency. but not always. total quality management (TQM). However. Implementation of Just-inTime (JIT) techniques have been reported in the literature. Since the first step in applying the TOC is to identify the constraint. increases productivity. Ogan and Heitger (1999) studied the TOC in combination with JIT. Bushong and Talbott (1999) studied several manufacturing systems in applying the TOC. the constraint is often. Manufacturing practices using The Goal have. 1999). like many continuous improvement projects. JIT improves quality. and JIT success. service quality. The researchers concluded that although the TOC is a tactical cost management technique and the ABC is a strategic-oriented method. Such factors are technology. both methods are complementary. management should examine whether it can be relaxed or removed. Eliyahu Goldratt. They identified factors that hinder JIT success. The objective of the pull system is to link the production process to customer demands and to enable manufacturing firms to meet changes in demand with minimal production costs and minimal waste. Ruhl (1997) provided a detailed explanation of the TOC as well as a simple example of how profit can be maximized in a manufacturing environment by following the TOC principles. problems encountered during implementation. the constraint is often the time of one or a few key employees. public sector. cost management techniques. Activity based costing (ABC) and TOC were integrated in order to analyze a manufacturing system (Cooper & Slagmulder. computer integrated manufacturing (CIM). Therefore. They found that for manufacturing concerns. is proceeding slowly.
Since 1946. 2000). 2008 small business that requires skilled workers. detailed design. The intake process was analyzed systematically to identify process-related problems.S. and Norris (2000) examined the applicability of process re-engineering in a healthcare operational environment. Root cause analysis has also been implemented in the service industry. production control. McCloud (1994) introduced a business-reengineering program to improve throughput. These key phases are orientation.16 (1&2). and make recommendations for improvements. if not all. and well-designed analysis procedures. quality. 50 . and implementation. This study was conducted by a team of qualified engineers using innovation techniques. The technical tools of TOC.A. draw conclusions. the systematic redesign of the intake process resulted in performance improvements in terms of cost. and timing. In their study. overall planning. Business Re-engineering was also implemented in a supply chain management approach. Eli (2001) applied root cause analysis in a petrochemical industry. customer relations and productivity. The Company’s operations consist of several departments that work together to turn raw material in form of coils and sheets into welded pipes to be used in different applications. the more profitable the product. of the items required for regular orders which represent about 80 % of the total orders. Yasin. In this study. XYZ has produced welded stainless steel pipe for use in the chemical. the problem was clearly defined and was focused on the need to re-engineer the operational system to become more customer oriented. The production process starts at the sales and customer satisfaction department where orders are received. established performance. as well as to reduce operational costs. On the other hand. Business Process Re-engineering has also been used to re-engineer manufacturing and service operational systems. Cause-and-effect analysis (root cause analysis) uses diagramming techniques to identify the relationship between an effect and its causes. manufacturing. purchasing. pickling. These departments are sales and customer satisfaction. XYZ Company has become America's leader in stainless steel piping. Study Setting Dedicated to being a world-class producer of welded stainless steel pipe. length. FIELD STUDY The business research conducted at XYZ Company falls under the category of applied research. paper. The Company is considered the largest producer of stainless steel welded pipe in the U. Orders are classified as regular or special. petro-chemical. Bushhong and Talbott (1999) added a quality aspect to the analysis. Czuchry. and cause-and-effect analysis were used to conduct the analyses. Root cause analysis has been applied in different industries. inventory and shipping. The main goal of applied research is to answer questions about specific problems or to make decisions about a particular course of action or policy decision (Zikmund. or x-ray test. wall thickness. the inventory has most. In their study. quality control. Kerzner (1998) established six-step process to perform a cause-and-effect diagram. The authors listed four key phases Business Re-engineering will pass through. Root cause analysis was used as a framework for analyzing financial and business performance (Grundy. special orders need special raw material. Beyea and Nicoll (1999) applied cause root analysis in healthcare. BR. The results of their study provided information that could significantly contribute to the clinical decision-making process. It has been found that the faster the production process.ACR Vol. Figure 2 illustrates the production process in further detail. Cause-and-effect diagrams are also known as fishbone diagrams. size. Hales and Savoie (1994) suggested a foundation for successful Business Process Re-engineering. and food processing industries as well as other industries requiring corrosion resistant piping. service. 1997).
the batch will be sent to the x-ray department where the pipes are tested. size.ACR Vol. The manufacturing process starts with loading metal sheets in the mills that roll and shape them to the desired size.16 (1&2). Pipes that pass the quality inspection are transferred to the marking process so that important parameters such as. an inspector checks length. 2008 FIGURE 2 Production Process Flow Chart Sales and Customer Satisfaction Raw material available Yes Production Control Welding No No Purchasing Design requirement for x-ray Yes Holding Finishing No Straightening Annealing Finishing Rework X-Ray Pass Plasma cut Yes Pass No Rework Grinding Shipping Final Inspection No Visual Sizing Beveling Yes Hand Welding Inventory Marking Yes Pass Eddy Test Pickling Raw material that is not available for a specific production job is requested through the purchasing department. pipes are cleaned chemically in the pickling area where a final inspection is also run. and heat number. Then. Pipes that fail final inspection are sent back to the rework area or welding depending on the type of defect identified. type of raw material. In the visual test. Then the reworked material is sent back to the x-ray department. The non-destructive electrical eddy test. plasma cutting. and cut to the required length. After the finishing process. pipes will be inspected by two different tests. The production department also sets up the production lines based on the customer specifications such as length and diameter. wall thickness. sizing. which is only run on six-inch diameter pipe or less. off-line annealing. When defects are detected in the welded part. If required. and beveling are performed. annealed. can be 51 . Pipes that pass the x-ray test are moved to the finishing unit where different operations such as straightening. the pipes are welded. Under high temperature. and material type. length. size. heat number. the pipe is forwarded to the rework area where grinding and hand welding processes are performed. examines the internal quality of the welds. the production department schedules and manages every production job according to the due date which is usually determined by the customer.
The production department determines order quantities to maintain inventory at certain levels. a dramatic increase in inventory level occurred. Customer satisfaction is measured only by delivery date with production providing information to all other departments. These data were also compared with initial results after the production system was modified to reflect the recommended improvements. often negative. The Vice President of Manufacturing at XYZ Company. information flow. that are tested in final inspection. many orders have been shipped late or even canceled resulting in a decrease in customer satisfaction and delivery credibility. Currently. inventory level is high. length. Delivery and Inventory Practices The baseline production principle strives to minimize the production cost by running high volumes that will be sold or sent to inventory. Analysis of this process flow reveals that the x-ray process. Scheduling is also based on the same strategy. Although the production flow starts at sales. 1) the welded area examined by the x-ray process. and asset value. heat number. Because the production decision is based on productivity and instant customer orders. Due to the high volume production. loaded on trucks. states. 2) and other specifications such as size. XYZ Company currently makes pipes to fulfill customer orders.” The x-ray process is part of the quality control department that examines pipes in two main categories. or to replace nonconforming parts for previous orders. and straightness. raw material is ordered in pounds rather than units. impact on delivery date. which cannot keep up with other production processes. and design requirements.16 (1&2). production. and shipped to the customer. As a result of running near production capacities. Sales and Customer Satisfaction The current push system has a significant. Under the current push system. XYZ Company’s current information does not provide customer satisfaction feedback for analysis or corrective action. Products are made to fill customer orders or to stock in inventory. Although schedule changes. and machines cycling are less frequent. Many orders have been shipped after their delivery date mainly because of production delays. small size pipes require 4 to 8 hours and 1 or 2 workers to change over. Findings regarding raw material. while large size pipes need 24 to 48 hours and 3 to 5 workers. The root cause of these increases in inventory levels can be traced to the metrics of pounds run per man-hour which governs the current production strategy. scheduling. they are time consuming. changes in customer requirements often cause production disruptions. The production flow chart in Figure 2 shows a holding area between the welding and the x-ray processes. tooling changes. and inventory were discussed with management. Shipping depends directly on the availability of specified orders. “About 10 percent of our production requires x-ray. The major steel producers in the United States are important suppliers to XYZ Company. Based upon these reviews with management collected data were determined to be accurate and representative of XYZ Company’s production system. Finally. The inventory is divided into two main areas.ACR Vol. The current production system at XYZ Company is a traditional push system as shown in Figure 2. becomes the first bottleneck (constraint) in the system. to maintain the inventory level. In spite of the huge volume of raw material. sales and customer satisfaction. applications. Each department or work station receives its load work directly from the preceding station. pipes are stored in the inventory and classified according to certain categories. The x-ray process data were collected and analyzed resulting in Tables 1 and 2. based upon small and large pipe sizes. Three main factors that are relevant to the x-ray department are customer requirements. Inventory is annually evaluated in order to measure several factors such as turn over for small and large size products. Historical data reflecting the business results for the push system were analyzed. 2008 marked on the pipe. 52 . inventory level.
$ 35/hr.87% Crack 0 0. 2008 TABLE 1 X-Ray Rejection in Footage per Defect Total footage x-rayed between April and August: 42100’ Type of defect Rejection (ft) % of total Incomplete penetration 106 0./ft. 0.035’ 9.85% Total 4. the modified system will be more customer oriented linking production to customer demands thereby meeting changes in demand with minimal production cost.5 min.59% TABLE 2 Cost and Productivity for the X-Ray Department Cost Labor cost Material cost Maintenance cost Productivity X-ray time Set up time Handling time 0. The concepts of the pull system in conjunction with TOC and BR were used to evaluate and compare findings. meetings were held with company management. Figure 3 presents the information 53 . Then the results of this study were used to design and recommend an improved production system. 1. collected data were analyzed in terms of cost and productivity. Simplified scheduling also results. Anticipated benefits of the improved system include those discussed briefly below.06% Lack of fusion 113 0.00% Holes 0 0./ft. inventory and shipping. Study results are summarized below. The purpose of this new department is to link several departments together and to follow up on future plans in terms of investment and marketing.91% Slag 158 0. The entire system was studied and analyzed.ACR Vol. scheduling and production. Since the philosophy of JIT is to produce what is needed when it is needed.25 min.16 (1&2)./ft. During the course of these investigations XYZ Company recognized the need for improved communication between departments and created a new department called marketing and strategic planning to partially fill this need. The operational efficiency of other departments improves leading to a positive impact on the performance of the entire system.25% Porosity 365 0.27% Other 1.38% Burn through 27 0. Production constraints were studied using cause-and-effect analysis.068 4. $ 19000 To modify the current production system.198 2.00% Undercut 2. $ 1.30/ft. The department of marketing and strategic planning has developed a forecasting production model that integrates raw material.1 min. sales. RESULTS Guided by the Framework shown in Figure 1.
ACR Vol. and in a closed loop starting in shipping and ending in sales. Customers and suppliers now have a significant impact on strategic effectiveness. The modified production flow chart is illustrated in Figure 4. 54 . The modified production flow chart suggests that material flow is stimulated when a customer order pulls finished products from inventory. FIGURE 3 Information Flow Chart in the Modified System S u p p lie r R a w M a te ria l S c h e d u lin g P r o d u c tio n ( M a n u fa c tu rin g ) S a le s M a rk e tin g a n d S tr a te g ic P la n n in g (F o re c a s tin g M o d e l) X -R a y S h ip p in g In v e n to ry M a rk in g P ic k lin g C u s to m e r FIGURE 4 The Modified Production Flow Chart W e ld in g M a rk e tin g a n d S tra te g ic P la n n in g S a le s a n d C u s to m e r S a tis fa c tio n Y es R a w m a te ria l a v a ila b le P ro d u c tio n C o n tro l No D e s ig n re q u ire m e n t fo r x -ra y Y es H o ld in g F in is h in g No No S tra ig h te n in g P u rc h a s in g A n n e a lin g F in is h in g R e w o rk X -R a y P ass P la s m a c u t Y es P ass No R e w o rk G rin d in g S h ip p in g F in a l In s p e c tio n No V is u a l S iz in g B e v e lin g Y es H and W e ld in g In v e n to ry M a rk in g Y es P ass Eddy T est P ic k lin g The improved system adds supplier and customer information to the current system. Information flows backward. All departments are now linked through the forecasting model that manages the production process.16 (1&2). forward. communication between departments is improved and tracking customer. It also pulls workload upstream to produce more units and the process continues. supplier and business information is simplified. As a result. 2008 flow chart in the modified system which shows the improved interface between departments.
XYZ Company provides a two-week scheduling plan which helps suppliers adjust their schedule accordingly. Using this analysis as a guide. scheduling. and adds more cost and reduces profitability. Operational goals have been established to reduce small size pipes inventory to about half its current level and to eliminate the inventory for large size pipes. These modifications have already been implemented in raw material. Cost and productivity analysis for defective pipes were also conducted.ACR Vol. the field study. the quantity ordered has dropped significantly. however. Although raw material is still ordered in pounds. Many causes can affect the productivity of the x-ray process. The rework cost analysis indicated that most of the rework cost is traceable to poor welding quality. production. The sales department is now able to coordinate with customers to better forecast future customer requirements. The modified system has been partially implemented in the sales department. The two-week schedule plan accommodates more frequent schedule changes. The improved measurement system captures turn over. The modified system and database allows the production department to measure additional parameters that help to evaluate production efficiency. slows the x-ray productivity. Through improved communication with raw material suppliers. tooling changes. suggestions have been made to gather other measures of customer satisfaction and to identify improved methods for anticipating future customer requirements. welding speed efficiency. which have both theoretical and practical implications. These parameters are calendar asset utilization. The six-step process established by Kerzner (1998) was used to analyze the causes of the x-ray process. the following conclusions. and asset value. 55 . The organization has enjoyed improved operational efficiency. and production is based on kanban cards. and the results of this study. The high ratio of the rejected pipes reduces the throughput. This field study provided operational and customer related benefits. Information flow between raw material. Therefore. Results of these improvements are beginning to be quantified. and inventory. Figure 7 addresses some of the causes of the welding quality in a cause-and-effect diagram. operational asset utilization. and scheduling and production have become more responsive to customers requirements. and machines cycles. CONCLUSIONS AND RECOMMENDATIONS Based on the literature review. productivity and percent of scrap. are suggested: 1. management was able to take appropriate corrective action and implement process changes to improve welding quality and process throughout. Figure 5 represents the cause-and-effect diagram for the x-ray process. The cost analysis for the tracked production job fits into Figure 6 which breaks down the costs of poor quality into re-x-ray and scratch films. The productivity analysis of the x-ray department for the period under study indicates that the efficiency of the xray process for that period is about 36. The result of these two inputs makes the raw material department more efficient in fulfilling customer requirements. One of the main internal causes in delaying schedules is developing scratched films. Table 3 summarizes comparisons between historical information and results obtained after implementing the modified system. Inventory level has dramatically declined resulting in reduced costs of having unnecessary inventoried items.1 percent. 2008 Production is always triggered by demand from the next workstation.16 (1&2). Another input to the raw material plan comes from customers who now provide XYZ Company with improved forecasts of their needs. the welding process was analyzed further. scheduling. The quantity of raw material ordered has been reduced. The welding process is the main cause that affects the x-ray process. Based on the literature review and feedback from management. inventory level. Customer satisfaction is still measured using delivery date. Production is now designed to fulfill customer requirements and target inventory.
especially of small to medium sized manufacturing organizations. 3. the results realized from this study suggest that other small to medium sized manufacturing businesses may benefit from a similar undertaking. cause effect analysis. training. 56 . Management. Applications of innovative managerial philosophies and tools such as Just-in-Time. Through out the implementation process. were found to be of practical value when used appropriately. A systematic approach to implementation is beneficial.16 (1&2). and principles of Theory of Constraints. Benchmarking and continuous improvement should be utilized to assess the performance of the implemented system to identify opportunities for additional learning and improvement. 1. a project management approach will prove to be very useful. and testing are underscored. processes. The findings of this study have several managerial implications that are discussed briefly below. A pull orientation for the operation system tends to enhance the customer focus of the organization. management should use proven change management techniques and philosophies. 4. Small to medium sized organizations may be especially venerable to this threat. the need for documentation. This approach capitalizes on the synergy that exists among the subsystems. Finally. and tasks of the proposed system while avoiding improvements in one area at the expense of reduced efficiency in another. and Theory of Constraints are not restricted to large firms. Additional applied research of this type may serve to bridge the gap between theory and practice of operational management with mutually beneficial outcomes for industry and academia. should analyze improvements in the context of the total system as opposed to piece-meal. 2008 2.ACR Vol. Business Reengineering. Business Re-engineering. The primary benefits in the cited field study were improved operational efficiency and enhanced strategic effectiveness as measured by customer satisfaction. 3. Small and mid-size firms can benefit from these applications without exhausting their resources. In order to prepare the organization for the new operational environment consistent with the proposed system. 2. 4. In this context.
2008 TABLE 3 A Comparison Between Current and Modified System Aspect Scheduling Push System Depends on production forecast Modified System Depends on information comes from different department Less stock Short Not available Not investigated Not investigated High More frequent High Short Forward.batch and queue Sampling Functional Low Less frequent Low Long Forward direction 30% in average Low High Very high Below standard Negative 57 .ACR Vol. and closed loop directions Less than 10% in average High Low Reduced Not changed Positive Production Lead time Batch size Inspection Layout Empowerment Inventory turns Flexibility Set-up time Information flow Percent of reject Productivity Scrap Inventory level Welding speed Working attitude Stock Long Large.16 (1&2). backward.
ACR Vol. 2008 FIGURE 5 Cause-and-Effect Diagram for the X-Ray Process Cause Machine Method Material Vendor set up time Film delivery time Defective films Vendor Broken down x-ray machine Poor maintenance Current Speed of x-ray machine Voltage Slow maintenance Set up the film Unclear specifications Reading the film Effect Developing scratched films Processor Humidity Poor training Weather Shortage in people Poor motivation Rain Delay in schedule Broken down door Handling Bad attitude Slow performance Tool Personnel Environment 58 .16 (1&2).
16 (1&2). 2008 FIGURE 6 Costs of Poor Quality C o s ts o f P o o r Q u a lity D e fe c tiv e P ip e s P o o r x -ra y s c h ra tc h e d film s C ost R e w o rk C o st R e -x ra y C o s t FIGURE 7 Cause-and-Effect Diagram for the Welding Process Machine Material Wleding Speed Voltage Gas Electrode Size Torch Wire Diameter Steel Supplier Current Torch Diameter Gas Gas Cup Size Wire Feed Speed The Welding Quality Scheduling Temperature Lack of Experience Humidity Personnel Environment 59 .ACR Vol.
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