2-C-1 Develop/implement a material and/or service standardization program

1) General issues in standardization and simplification

A) Advantages and disadvantages - Standardization in materials, processes and layouts can lead to efficiencies and cost savings. The objective of standardization and simplification is to reduce the complexity and number of required parts, operations, SKU's, specifications, work instructions, suppliers and processes that an organization requires to produce its products and services and conduct business with its customers. Standardization can result in reducing non value-added activities and decrease the total cost" of ownership. Some of the other advantages of standardization and simplification are increased profitability, decreased cycle time, improved quality, lower maintenance costs and n1ore consistency. The interchangeability of specific products or services leads to broader utilization across the enterprise. Standardization may allow an organization to' deal with fewer suppliers, purchase in larger quantities, lower inventory cost and reduce training costs.

There are some disadvantages to standardization and simplification. Reliance on fewer suppliers may limit competition, customer choices and opportunities for new products and services. The introduction of the standardized part or process may require a new contract and new relationship with suppliers. There may be costs of introduction, training, installation, and development of instructions, procedures and processes associated with the change to standardized parts or processes as well• as testing procedures to ensure quality. Supply management professionals should strike a balance between immediate cost savings and total cost of ownership issues. Time and development costs, and any cost effects on other parts of the business should be carefully analyzed.

B) Procedures/ steps in applying standardization and simplification.

1.0 Standardization committees -When an organization embarks on a standardization progran1, a committee should be appointed to administer the program, develop the standards, evaluate requests for standardization and for exceptions to standardization, set policy and participate with suppliers. A standardization committee should involve a cross-functional team that includes members from supply management, engineering, sales, operations, finance and other appropriate representatives, including suppliers and customers. The objectives of the committee are simplification of design and reduction of total cost of ownership, which includes the purchase price of a good or service and additional costs incurred before or after product or service delivery.

The team should have a sponsor or a champion to manage the milestone timing and the return on investment. The committee should always keep the objectives of their task in the forefront. Spending numerous hours and funding with little or no results will not read; the objective desired. The sponsor/ champion can also help facilitate decisions for which the team has reached an impasse, and will be responsible for removing any obstacles in the project reporting progress to senior management.

2.0 Involvement of other departments - In a manufacturing environment, engineering and supply management will likely be the drivers of the process and others will be primary stakeholders. In service environments, the project may be driven by supply management, a specific line of business or business unit, or staff support functions such as human resources or marketing. Finance will make key contributions related to costs, inventory or asset management. Some of the best ideas can come from end users working with the parts, or from members of the team not as closely vested in the product or service. All stakeholders that have interest or are affected by standardization and simplification programs should have an opportunity to contribute to the process.

3.0 Effects on production methods/operations - In manufacturing, standardizing will almost always produce improvements in reducing setup time and create longer production runs, which can result in improvements in efficiency and lower operating cost per component part.

In non manufacturing or service environments, supply management has equally beneficial reasons to implement these programs. Even without a product, significant productivity gains can be achieved in processes and procedures that could have a positive cascading effect for the business. Standardization and simplification have the capacity to reduce non-added value activity to the overall operations.

4.0 Effects of global operations- It is important to take global requirements into consideration in any standardization and simplification program. In manufacturing, if the same part is manufactured at multiple locations around the globe, it is important to factor those considerations into the decision...,making process. It may be difficult to ship certain standardized parts to a particular location. Perhaps there are local content laws or buying requirements that would negatively impact the overall benefits of the simplification in certain areas of the world.

In non manufacturing, failure to take global requirements into consideration can have major implications for the business. Minor variations to a product or service in differing countries may serve cultural purposes, or have a specific local reason for existence. The cross-functional team should include global members, and bring into consideration the ideas, opinions and requirements of the global business.

C) Applications to

1.0 High-use or high-volume items- High-volume items are good candidates for standardization. Also, parts and components that have a great deal of commonality should be considered for standardization. Since organizations generally implement contracted buying programs for high-use or high-volume parts, it is important to examine all contracts for any parts being considered for elimination or change to ensure that the terms and conditions of the •agreement and the forward buying plans are not negatively impacted by the decisions of the team.

2.0 Procurement of facilities -Many organizations in the service and manufacturing sectors have standardized their facilities, so that the footprint or external shape of the facility is the same no matter where it is located. Others have standards regarding exterior and interior layout, requirements for certain safety and security standards, and number and placements of entrances and exits, as well as other requirements. When facilities or land for facilities are leased or purchased, it is incumbent upon supply management professionals to see that the standards can be implemented with the property or facility under consideration. Standardization of facilities can reduce overall costs of design, construction and training, among other costs.

3.0 Procurement of maintenance, repair and operating (MRO) items -Purchasing of maintenance, repair and operating (MRO) •supplies is a good starting place for any standardization program. Many of the items purchased for MRO are standardized by their very nature and therefore could be further reviewed to identify where further standardization would be effective.

4.0 Procurement of services - Both service and manufacturing organizations purchase services from other .organizations on a regular basis. These purchased services may include consulting, legal, accounting, catering, custodial, building and equipment maintenance, transportation, landscaping, snow removal and uniform-cleaning services, among others. A review of the total amount spent with each of these services may reveal that several business units within the organization are purchasing similar services from the same supplier, often at different rates for essentially the same service. One area of standardization involves the combination of contracts to receive the same rates throughout the organization, generate higher volume with the supplier, and increase the supplier's awareness of the importance of the organization as their customer.

In addition, since these purchased services are generally not the core competencies of the organization, it is often a cost advantage to standardize the process of acquiring these services from one supplier, thus eliminating non-value-added activities. Organizations may consider standardizing the outsourcing of services to one organization to simplify the invoicing and payment processes, and to reduce the number of contacts and communication issues.•

Organizations may purchase certain services that are a subset of the services provided by the organization in delivery of products and services to their ultimate customers. Transportation is a typical example, but the services purchased can be anything. In addition, the number and complexity of the types of service offerings purchased may involve many single-source or sole-source providers that cannot be standardized or sin1plified. In undertaking a standardization program, the team will need to do a thorough review of the types of services being purchased and how that service fits into the delivery of its own service to the ultimate customer.

D) Brand names versus generic names- One of the higher-level objectives for standardization and simplification programs is interchangeable. parts. This is beneficial to the supplier, distributor and ultimately the purchaser of that part.

Specifications sometimes state a requirement for a brand name or equivalent. If the requirement states the specification in this manner, then a component can be substituted for items that are equal to or better than the brand-nan1ed item. It must be able to perform in the same "fit, form or function" that the brand-named iten1 would.

E) Cost-benefit analysis pertaining to standardization - The cost-benefit analysis should be one of the first steps conducted before pursuing any standardization project. A return on investment (ROI) model is typically used to review the cost associated with the cost avoidance and cost saving that are expected to be gained by pursuing the project. A total cost of ownership analysis may be a good way to determine whether the benefits outweigh the costs of a standardization project. If the benefits are greater than the costs, and the resources are available, then the project or program is worth the pursuing.

2) Sources of standards

There are many sources for identifying appropriate standardization goals for a project. The following list is by no means an exhaustive • compilation of available resources to r:esearch:

A) Internal organization - Internal work instructions, procedures and policies are sources that the organization may use to assure that the product is produced to a standard specification set by the business. In manufacturing environments, a quality manual is another document that will be available for review. Service industries frequently have standards for dress, behavior, communication with clients and customers, manner of delivery, products that may be used in-conjunction with providing the service, and care of facilities and equipment . Employee empowerment can be a powerful standardization tool. Letting the employee who is producing the product have input and ownership into the quality process has produced very successful results in the last decade. An example is the American Airlines maintenance hub in Tulsa, OK. Operations were revamped based on the collaboration of management with the workers. The facility is not only doing American's maintenance more cost effectively, but also bringing in outside business. This is close to becoming a profit center for American Airlines.

B) Government (for example, National Institute of Standards and Technology)- Governments, domestic or international, often create standards that are mandatory or voluntary based on perceived needs or expected outcon1es.

Organizations need to recognize these standards and make accommodations accordingly.

In the United States, the National Institute of Standards and Technology (NIST), founded in 1901, is a non-regulatory federal agency within the U.S. Commerce Department's Technology Administration. NIST's mission is to promote innovation and industrial competitiveness by advancing measurement science, standards and technology in ways that enhance economic security and improve our quality of life. NIST sees one of its core competencies as helping business to develop and use standards in manufacturing. For more information on NIST see http://www.nist.gov /.

In the United States, there are many other standards-setting and standards-enforcing agencies. Among them:

• Food and Drug Administration (http://www.fda.gov/).

• Federal Aviation Administration (http://www.faa.gov /).

• Nuclear Regulatory Commission (http://www.nrc.gov/).

• U.S. Department of Agriculture (http:/ /www.usda.gov/).

• Occupational Safety and Health Administration (http:// www.osha.gov /).

European Standards Organizations include the European Committee for Standardization (CEN,) European Committee for Electrotechnical Standardization (CENELEC) and the European Telecommunications Standards Institute (ETSI).

C) International (for example, International Organization of Standards [ISO]) -The United Nations is a good resource to locate information on international standards. The United Nations has established standards on such processes as transporting dangerous goods, coding of products, and trade and electronic business. The International Organization for Standardization has gained prominence with the increase of global outsourcing. ISO 9000 is a family of 12 standards related to quality. Some of the best known standards are:

• ISO 9000 - Fundamentals and vocabulary.

•ISO 9001- Quality management systems.

•ISO 9004 - Guidelines for performance improvements.

• ISO 19011 - Guidelines for auditing quality.

Mote than 100 member countries participate in the ISO organization. The primary objective is to demonstrate that an organization is capable of controlling variances in its processes. A third-party registrar audits and awards registration to applicants that meet very stringent requirements. Maintaining a well-managed, quality management system is the key to being awarded ISO status.

Standards are set each year by the governing body. One current objective is the demonstration of management's involvement in continuous improvement. Being I SO-registered shows a level of competency to customers that the organization is capable of delivering manufacturing items. A supplier that is ISO certified is a good candidate to become a certified supplier. Some organizations will do business with ISO certified suppliers only. Other organizations have their own ISO-like standards for a specific industry. An example is the automobile industry. ISO has released two environmental standards, ISO 14000 and 14001. A fairly new standard is ISO 17799, which establishes guidelines for implementing an information-security management system. ISO standard 17799 ensures the confidentiality and integrity of vital corporate and customer information. The ISO 28000 series is set of standards that address the potential security issues at all stages of the supply process, which target threats such as terrorism, fraud and piracy. See http:/ /www.iso101.com/ iso-9000.htm.

D) Industry/associations (for example,ANSI) -While it does not directly impact a standardization project, supply management professionals should be aware of the American National Standards Institute (ANSI) as the organization that facilitates the voluntary setting of consensus standards and oversees their integrity. For example, ANSI governs U.S. electronic data interchange standards. For more information see www.ansi.org/.

The standards are an agreement on definite characteristics of quality, design, performance, quantity or service. In the Internet world, a standard usually applies to an industry-wide agreement of code or hardware linkages such as a hypertext markup language (HTML) or ANSI-X12.

An organization that oversees the setting of standards in an international setting where cultures may differ significantly and language barriers exist, is UNESCO, the United Nations Educational, Scientific and Cultural Organization. For more information see http:/ /portal.unesco.org/.

The Institute for Supply Management™ and other professional organizations have ethical standards of practice and codes of conduct for their membership. They also promulgate best-practice standards for those in their profession. See Task 1-D-1 in Exam 1 for more information on ISM standards and guidelines.