Chapter 3 Quality Management Operations Management

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Lecture Outline (cont. ) w TQM in Service Companies w Cost of Quality w Quality Management and Productivity w Identifying Quality Problems and Causes w Quality Awards and Setting Quality Standards w ISO 9000 Copyright 2006 John Wiley & Sons, Inc. 4

Meaning of Quality § Webster’s Dictionary § degree of excellence of a thing § American Society for Quality § totality of features and characteristics that satisfy needs § Consumer’s and Producer’s Perspective Copyright 2006 John Wiley & Sons, Inc. 5

The Meaning of Quality Producer’s Perspective Consumer’s Perspective Quality of Conformance Production Quality of Design • Conformance to specifications • Cost • Quality characteristics • Price Figure 14. 1 Copyright 2006 John Wiley & Sons, Inc. Marketing Fitness for Consumer Use 6

Meaning of Quality: Consumer’s Perspective § Fitness for use § how well product or service does what it is supposed to § Quality of designing quality characteristics into a product or service § A Mercedes and a Ford are equally “fit for use, ” but with different design dimensions § Copyright 2006 John Wiley & Sons, Inc. 7

Dimensions of Quality: Manufactured Products § Performance § basic operating characteristics of a product; how well a car handles, its gas mileage or its standing quarter-mile time § Features § “extra” items added to basic features, such as a stereo CD or a leather interior in a car § Reliability § probability that a product will operate properly within an expected time frame; that is, a TV will work without repair for about seven years Copyright 2006 John Wiley & Sons, Inc. 8

Dimensions of Quality: Manufactured Products (cont. ) § Conformance § § degree to which a product meets pre–established standards Durability § § how long product lasts before replacement Serviceability § ease of getting repairs, speed of repairs, courtesy and competence of repair person Copyright 2006 John Wiley & Sons, Inc. 9

Quality Gurus w Walter Shewart n n In 1920 s, developed control charts Introduced the term “quality assurance” w W. Edwards Deming n n Developed courses during World War II to teach statistical quality-control techniques to engineers and executives of companies that were military suppliers After the war, he began teaching statistical quality control to Japanese companies w Joseph M. Juran n n Followed Deming to Japan in 1954 Focused on strategic quality planning Copyright 2006 John Wiley & Sons, Inc. 11

Quality Gurus (cont. ) § Armand V. Feigenbaum § In 1951, introduced concepts of total quality control and continuous quality improvement § Philip Crosby § § In 1979, emphasized that costs of poor quality far outweigh the cost of preventing poor quality In 1984, defined absolutes of quality management— conformance to requirements, prevention, and “zero defects” § Kaoru Ishikawa § § § Promoted use of quality circles Developed “fishbone” diagram Emphasized importance of internal customer Copyright 2006 John Wiley & Sons, Inc. 12

Deming’s 14 Points 1. 2. 3. 4. Create constancy of purpose Adopt philosophy of prevention Cease mass inspection Select a few suppliers based on quality 5. Constantly improve system and workers Copyright 2006 John Wiley & Sons, Inc. 13

Deming’s 14 Points (cont. ) 6. Institute worker training 7. Instill leadership among supervisors 8. Eliminate fear among employees 9. Eliminate barriers between departments 10. Eliminate slogans Copyright 2006 John Wiley & Sons, Inc. 14

Deming’s 14 Points (cont. ) 11. Remove numerical quotas 12. Enhance worker pride 13. Institute vigorous training and education programs 14. Develop a commitment from top management to implement above 13 points Copyright 2006 John Wiley & Sons, Inc. 15

Deming Wheel: PDCA Cycle 4. Act Institutionalize improvement; continue cycle. 1. Plan Identify problem and develop plan for improvement. 3. Study/Check 2. Do Assess plan; is it working? Implement plan on a test basis. Copyright 2006 John Wiley & Sons, Inc. 16

TQM and… w … Partnering n a relationship between a company and its supplier based on mutual quality standards w … Customers n system must measure customer satisfaction w … Information Technology n infrastructure of hardware, networks, and software necessary to support a quality program Copyright 2006 John Wiley & Sons, Inc. 17

Quality Improvement and Role of Employees w Participative problem solving n n employees involved in quality management every employee has undergone extensive training to provide quality service to Disney’s guests Copyright 2006 John Wiley & Sons, Inc. 18

Quality Circle Organization 8 -10 members Same area Supervisor/moderator Training Presentation Implementation Monitoring Group processes Data collection Problem analysis Solution Problem Identification Problem results Problem Analysis List alternatives Consensus Brainstorming Cause and effect Data collection and analysis Copyright 2006 John Wiley & Sons, Inc. 19

Six Sigma w A process for developing and delivering near perfect products and services w Measure of how much a process deviates from perfection w 3. 4 defects per million opportunities w Champion n an executive responsible for project success Copyright 2006 John Wiley & Sons, Inc. 21

TQM in Service Companies w Principles of TQM apply equally well to services and manufacturing w Services and manufacturing companies have similar inputs but different processes and outputs w Services tend to be labor intensive w Service defects are not always easy to measure because service output is not usually a tangible item Copyright 2006 John Wiley & Sons, Inc. 24

Quality Attributes in Service w Benchmark n “best” level of quality achievement one company or companies seek to achieve w Timeliness n how quickly a service is provided Copyright 2006 John Wiley & Sons, Inc. “quickest, friendliest, most accurate service available. ” 25

Cost of Quality w Cost of Achieving Good Quality n Prevention costs l n costs incurred during product design Appraisal costs of measuring, testing, and analyzing w Cost of Poor Quality n Internal failure costs l n include scrap, rework, process failure, downtime, and price reductions External failure costs l include complaints, returns, warranty claims, liability, and lost sales Copyright 2006 John Wiley & Sons, Inc. 26

Prevention Costs w Quality planning costs n costs of developing and implementing quality management program w Training costs n w Product-design costs of designing products with quality characteristics w Process-design costs expended to make sure productive process conforms to quality specifications Copyright 2006 John Wiley & Sons, Inc. costs of developing and putting on quality training programs for employees and management w Information costs of acquiring and maintaining data related to quality, and development of reports on quality performance 27

Appraisal Costs w Inspection and testing n costs of testing and inspecting materials, parts, and product at various stages and at the end of a process w Test equipment costs n costs of maintaining equipment used in testing quality characteristics of products w Operator costs n costs of time spent by operators to gar data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality Copyright 2006 John Wiley & Sons, Inc. 28

Internal Failure Costs w Scrap costs n costs of poor-quality products that must be discarded, including labor, material, and indirect costs w Rework costs n costs of fixing defective products to conform to quality specifications w Process failure costs n costs of determining why production process is producing poor-quality products Copyright 2006 John Wiley & Sons, Inc. w Process downtime costs n costs of shutting down productive process to fix problem w Price-downgrading costs n costs of discounting poorquality products—that is, selling products as “seconds” 29

External Failure Costs w Customer complaint costs n costs of investigating and satisfactorily responding to a customer complaint resulting from a poor-quality product w Product return costs of handling and replacing poor-quality products returned by customer w Warranty claims costs n costs of complying with product warranties Copyright 2006 John Wiley & Sons, Inc. w Product liability costs n litigation costs resulting from product liability and customer injury w Lost sales costs n costs incurred because customers are dissatisfied with poor quality products and do not make additional purchases 30

Measuring and Reporting Quality Costs w Index numbers n n ratios that measure quality costs against a base value labor index l n cost index l n ratio of quality cost to manufacturing cost sales index l n ratio of quality cost to labor hours ratio of quality cost to sales production index l ratio of quality cost to units of final product Copyright 2006 John Wiley & Sons, Inc. 31

Quality–Cost Relationship w Cost of quality n n Difference between price of nonconformance and conformance Cost of doing things wrong l n Cost of doing things right l n 20 to 35% of revenues 3 to 4% of revenues Profitability l In the long run, quality is free Copyright 2006 John Wiley & Sons, Inc. 32

Quality Management and Productivity w Productivity n ratio of output to input w Yield: a measure of productivity Yield=(total input)(% good units) + (total input)(1 -%good units)(% reworked) or Y=(I)(%G)+(I)(1 -%G)(%R) Copyright 2006 John Wiley & Sons, Inc. 33

Computing Product Yield for Multistage Processes Y = (I)(%g 1)(%g 2) … (%gn) where: I = input of items to the production process that will result in finished products gi = good-quality, work-in-process products at stage i Copyright 2006 John Wiley & Sons, Inc. 35

Quality–Productivity Ratio QPR n productivity index that includes productivity and quality costs (non-defective units) QPR = (input) (processing cost) + (defective units) (reworked cost) Copyright 2006 John Wiley & Sons, Inc. 36

Pareto Analysis CAUSE NUMBER OF DEFECTS Poor design Wrong part dimensions Defective parts Incorrect machine calibration Operator errors Defective material Surface abrasions PERCENTAGE 64 % 13 10 6 3 2 2 125 Copyright 2006 John Wiley & Sons, Inc. 80 16 12 7 4 3 3 100 % 38

Po or De si gn di m en De si fe on ct s iv e M pa ac rts hi ne ca O pe libr at ra io to ns re rr De or fe s ct iv e Su m at rfa er ce ia ls ab ra si on s W ro ng Percent from each cause 70 (64) 60 20 10 Pareto Chart 50 40 30 (13) (10) Copyright 2006 John Wiley & Sons, Inc. (6) (3) (2) 0 Causes of poor quality 39

Check Sheet COMPONENTS REPLACED BY LAB TIME PERIOD: 22 Feb to 27 Feb 2002 REPAIR TECHNICIAN: Bob TV SET MODEL 1013 Integrated Circuits Capacitors Resistors Transformers Commands CRT Copyright 2006 John Wiley & Sons, Inc. |||| |||| |||| | 41

Cause-and-Effect Diagram Measurement Faulty testing equipment Inadequate training Environment Old / worn Quality Problem Defective from vendor Not to specifications Dust and Dirt Tooling problems Lack of concentration Improper methods Machines Out of adjustment Poor supervision Incorrect specifications Inaccurate temperature control Human Materialhandling problems Materials Copyright 2006 John Wiley & Sons, Inc. Poor process design Ineffective quality management Deficiencies in product design Process 45

Baldrige Award w Created in 1987 to stimulate growth of quality management in the United States w Categories n n n n Leadership Information and analysis Strategic planning Human resource Focus Process management Business results Customer and market focus Copyright 2006 John Wiley & Sons, Inc. 46

Other Awards for Quality w National individual awards n n n Armand V. Feigenbaum Medal Deming Medal E. Jack Lancaster Medal Edwards Medal Shewart Medal Ishikawa Medal Copyright 2006 John Wiley & Sons, Inc. w International awards n n European Quality Award Canadian Quality Award Australian Business Excellence Award Deming Prize from Japan 47

American Customer Satisfaction Index (ACSI) w Measures customer satisfaction w Established in 1994 w Web site: www. acsi. org n Examples (in 2003) Amazon. com scored 88 (highest in service) l Dell scored of 78 (highest in computer industry) l Cadillac scored 87 (highest in car industry) l Copyright 2006 John Wiley & Sons, Inc. 48

ISO 9000 w A set of procedures and policies for international quality certification of suppliers w Standards n ISO 9000: 2000 l l Quality Management Systems—Fundamentals and Vocabulary defines fundamental terms and definitions used in ISO 9000 family Copyright 2006 John Wiley & Sons, Inc. w ISO 9001: 2000 n n Quality Management Systems —Requirements standard to assess ability to achieve customer satisfaction w ISO 9004: 2000 n n Quality Management Systems —Guidelines for Performance Improvements guidance to a company for continual improvement of its quality-management system 49

Implications of ISO 9000 for U. S. Companies w Many overseas companies will not do business with a supplier unless it has ISO 9000 certification w ISO 9000 accreditation w ISO registrars w A total commitment to quality is required throughout an organization Copyright 2006 John Wiley & Sons, Inc. 50

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