Sudheer Chauhan

The Process Door and Data Door

In DMAIC process, analysis phase is very important phase to analysis the data and there are many tools & techniques which are used for analysing data however some challenges to use right tool & techniques in right situation.

Process door and data door are useful to divide the analysis phase into two section which is useful to get the actual analysis.

Process Door

Process door apply to a section of tools & technique that help to understand and get a clue from process directly. below tools generally use in process door

1.     Process mapping technique

2.     Seven wastes

3.     Measles charts

4.     Root cause analysis tool (brainstorming, Fishbone diagram ,5 whys)

5.     FMEA

Data Door

Data door apply to a section of tools & technique that help to understand process from the data itself and below tools generally use in Data door

1.     Graphical Analysis tool (Histograms, run chart, Box chart, Scatter Plots, Dot plots)

2.     Statistical Analysis tool (Confidence interval, hypothesis testing, corelation & recreation, Normality testing)

Bullwhip Effect
Every supply chain has a distribution chain from retailer to manufacture. Goods move from raw materials suppliers to retailer for meeting the customer demand in the distribution chain. Continuous flow of product is important and play a vital role in growing the business in competitive era where many alternative products are available in the market and customer has many choices.
Bullwhip effect in supply chain occurs when order of more goods or product than actual demand. The Bullwhip effect follows up in the supply chain its start from retailer, wholesaler, distributer, Manufacture and raw material supplier. It is found those company in which demands of product depends on forecasting rather than actual consumer demand.
Examples:
A retailer store 70 pack of one soap brand in stock. If it is normally sells 20 packs per day, it would order to distributer for this quantity. But one day retailer sells 50 packs and assume increase the customer demand of product and order for 70pack to distributer to meet the higher forecasted customer demand
In same pattern distributer also assume that product demand will increase in future and distributer order 140 packs of same soap brand to the manufacture and manufacture produce 240 packs to be safe side, at the product demand increased from 50 pack at the customer level to 240 pack at the manufacture. This phenomenon called the bullwhip effect.
Customer demand (Unit)
Retailer demand
(Unit)
Distributer demand
(Unit)
Manufacturer manufacturing (unit)
Raw material inventory increased for (unit)
50
70
140
240
300
 
Impact of Bullwhip effect on supply chain
Bullwhip impact is always costly for business. It is very difficult and costly to maintain excessive inventory. It increases a waste in the system. Excessive or lack of inventory both situations can generate due to bullwhip impact and both situations are not favorable to the company. Over inventory is costly if customer demand decrease .it may be results to waste resources & raw material, in other hand low inventory lead to not fulfillment the customer demand and sale loss. These mistakes impacted the reputation & profit of organization.
Some time Quality of product affected in manufacturing a large volume with limited resources
Cause of Bullwhip effect: -
 Some main causes of the Bullwhip effect are below
Order Batching
Some time retailer or distributer round off the demand numbers in increasing pattern as per production or transportation feasibility. It is one of the causes for bullwhip effects 
Price fluctuations 
Cost changing, or some special discount may affect the buying pattern some time, all customers want to take the advantage of discounts which results irregular production
 Demand information
It is necessary to trust on past demand to estimate the current or future demand. We should not take a sudden fluctuation in the account to estimate the future demand.
Lack of Communication
Lack of the communication between each link of supply chain is one of the reason of bullwhip effect for example if manger take the product demand differently with different sources and supply different quantity
Free Return Policy
Free return policy some time become a cause of Bullwhip effect because customer give the extra demand and cancel it later without and penalty and for fulfill the customer demand retailer give the extra demand and cancel it later resulting it excess materials.
Apart above caused we can also divide the on major two part 1. Behavioral cause and 2. Operational Cause
Behavioral cause
1. Misuse of stock policy
2. Misperception of feedback
3. Panic for ordering
Operational Cause
Error in forecasting
Lead time variability
Lot sizing
Forward buying
Anticipation of shortage
Minimize the Bullwhip effect
a. Improve communication and better forecasting
We can minimize the bullwhip effect through better information and better forecasting. Improved communication accurse the distribution chain can reduce the effect.
b. Eliminate Delays
 Eliminate delay is another way to reduce the Bullwhip effect, if we can cut the time of delivery from manufacturer to customer then it will give the confidence to customer or retailer and they would not increase the order due to fear of shortfall. As per one study if we can cut the order to delivery time by half then we can cut the supply chain fluctuation by 80%.
Lean manufacturing plays a very important role in reducing of manufacturing time of product. we can use below tools and techniques to reduce the lead time or cycle time in all distribution chain
1. SMED (Single Minutes exchange of Die)- Reducing the change over time in the manufacturing.
2. Optimize the number of raw materials- If we optimize the number of raw materials in the series of product then it will make the process flexible and reduce the change over time and inventory
3. Switch the continuous manufacturing from batch manufacturing: - Supply as per demand is a new concept of supply chain .in continuous manufacturing factories are free to make any quantity as per order and not bound with batch size.
4. Use Just in time: - Implement JIT in the manufacturing and distribution chain too
5. Make VMP of end to end distribution chain: - We should make a VMP of the process to find out at where we should work for reducing the total lead time and should take a project on those problems
 
 

Net present Value (NPV):-
NPV is a difference between the present value of cash inflow and the present value of cash outflow after a period. To calculate the NPV we should know time period of project and discount rate (required rate of return).it is very useful to check profitability of particular project. Some time we use NPV to compare more then one project and find out best among them. It helps us to take a decision either we should do the investment or not.
NPV is positive
Investment will give benefit to company
We should do the project
NPV is negative
Investment will give negative impact/loss to company
We should not do the project
NPV = 0
Nether gain nor lose
No Profit – We should not do the Project or consider other factors
 
Limitation of NVP: - NPV depends on discount rate. NPV method is difficult to apply when comparing a project that have different investment and different time period.
Formula for NPV :-
NPV = CF0 + CF1/(1+r)1 + CF2/(1+r)2................ CFT/(1+r)T
Where
CFT=Cash flow at the time of T and r = discount rate or company required rate of return
 Internal Rate of Return (IRR):-
Internal Rate of return (IRR) is equal to discount rate in which net present value (NPV) of project is zero.in other word we can say that IRR is compound rate of interest which can be made on investment.  We use IRR to find out the right project or good investment. It is used when a company wants investment in new projects. IRR is also used in the comparison of many project and find out profitable project like NPV.
 IRR>company required rate of return
Investment will give benefit to company
We should do the project
IRR<company required rate of return
Investment will give negative impact/loss to company
We should not do the project
 
Formula for IRR
IRR = lower discount rate + (NPV at lower % rate / distance between 2 NPV) × (Higher % rate - Lower % rate)
Limitation of IRR –
Disadvantage to use IRR instead of NPV .it is very significant risk in companies where the return on investment is greater than the weighted average Cost of capital(WACC) that company will not invest in projects expected to earn greater than WACC, But less than the return of existing cost
IRR is true project’s annual return of investment only when project does not generate interim cash flows.
 
Return of investment (ROI):-
ROI is most common and popular technique to used for measuring the amount of return on an investment. To calculate the ROI, the Net profit is divided by cost of investment. The result is come in % and ratio. In other word we can say it s a ratio of net profit and costs of investament.it is a very simply financial matrix to evaluate the efficiency of investment.
ROI is used for personal financial decision, compare company profitability, and compare the efficiency of different investment
Limitation of ROI – Satisfactory definition of profit and investment are difficult to find
Formula for ROI:-
 ROI%= (Net profit /Costs of investment) * 100