THE SERVICE MANAGER’S PRIMER TO QUALITY The Taguchi Method: THE SERVICE MANAGER’S PRIMER TO QUALITY

GENICHI TAGUCHI Born in Japan, 1924 Electrical Engineer Worked during 1950’s to improve Japan’s post-WWII telephone communication system Father of the “Taguchi Method” and “Robust Engineering”

Don’t run away! Not a mathematician? You can still successfully apply Taguchi Method concepts to your service business. Basic concepts are simple. Just keep reading. Robust Engineering is an excellent way to build high quality into the design of your product. Increasingly being applied successfully to the service. Engineers and mathematicians can study and understand the methodology. But what if you are a manager in a service company, trying to improve services? DON’T GET SCARED OFF BY THE FORMULAS! If you understand the basics, you can apply Robust Engineering to your service and measure its success.

Competitive Edge 101: “In the next century, the capability of developing robust technology will be essential to the competitiveness of any manufacturing enterprise.” (Tsai) (Taguchi: p xi) Substitute “robust services” and “service enterprise.” You need this.

Competitive Edge 102: “To compete successfully in the global marketplace, organizations must have the ability to produce a variety of high-quality, low-cost products that fully satisfy customers’ needs.” (Robust Engineering; p. xiii)

Quality Defined “Any engineered system reaches its ‘ideal function’ when all of its applied energy (input) is transformed efficiently into creating desired output energy.” (Robust p. 6) Employee energy = input Customer satisfied = output

Basic Ideas: CUSTOMER SATISFACTION Design to the highest standards early in the process to eliminate all non-random errors Quality Loss = Loss to Society quantified through “Quality Loss Function” Variation (+/-) from optimal measure results in a loss. For best results, GET HELP. Measure service quality through customer satisfaction By designing your product or service to the highest standards, you will eliminate the need to correct problems later in the process. “Quality cannot be inspected into a product or a process.” i.e. it happens in the design. (Taguchi: p. ix). Quality loss can be quantified through a formula called the “Quality Loss Function.” All variation from the optimal standard measure results in a loss to society through either under or over appropriation of resources. When quality must be your priority to compete, invest in consulting help to design a Taguchi experiment. The results will be to identify those areas needing attention first.

Resources Expended on Quality Problem Solving at different stages of service delivery. If the problem is corrected in the design phase, less resources are expended than if the problem is corrected post-delivery.

Customer Satisfaction Ways to measure service: 1. Returning customers 2. Number of complaints (1:10) 3. Number of compliments 4. Employee attitude How do you know if you are meeting the needs of your customers? Take a good look at you customer base. How many are return customers? Find out why they come back, or don’t come back. How many complaints do you receive? Remember for every complaint you hear, there are TEN you don’t hear. How many customers take the time to compliment your service? You employees must be happy with what they do.

Design Equipment – No breakdowns Specific jobs defined – Need to know responsibilities Policies and Procedures – What do you want, anyway? Taguchi Method experiment To provide excellent customer service, the equipment used must also be of excellent quality. Do this by managing your suppliers. How does your equipment supplier manage their quality. Demand the best. Your telephones and computers can not break down. If they do, there is loss of customer service Every job assignment must be clearly defined. A service employee who doesn’t know exactly what and how to perform the service will deviate from the best way. Provide well-thought out procedures whenever possible. Be sure your policies are clear. For very high quality management, hire a consultant to perform a Taguchi experiment. This investment will save money later by starting with a superior design of your service.

Quality Loss Concept Deviation from target results in loss. Lower than target Greater than target Both lose Whenever a product or service misses its intended quality mark, a loss to society occurs. Whether it is too little service or too much service, resources are lost.

Next slide contains math formulas Quality Loss Function Quantify the Loss Warning: Next slide contains math formulas But give it a try!

Quality Loss Function II L(y) = k(y-m)2 L(y) = Loss k = constant = cost to correct tolerance2 y = reported value m = mean value (average) (Taguchi On Robust Technology p. 22)

Example: Company C received an average of 10 complaints per month last year. In November they received 15 complaints (y). Management sets an acceptable level at 2 (tolerance). It costs the company $50 directly per complaint to correct the problems. They determined the cost in lost sales to be $100. Total cost per complaint: $150

Example continued: k = $150/22 = $37.50 L(y) = 37.50 (15-10)2 = 37.50 (5)2 = 37.50 (25) = $937.50 is loss for the month of November

MATH DONE!

Taguchi Experiment – Steps According to Dr. Foster: (OM Review p Managers’ job: Identify the Problems Brainstorm Contribute to experiment design Facilitator’s job: Design experiment Run experiment Analyze results Confirm experiment While a Ph.D. candidate, Dr. S. Thomas Foster wrote an article describing the process for performing a Taguchi experiment within a service enterprise. In that paper he summarized these steps. To initiate a Taguchi process, managers must perform three steps. They are 1) Problem Identification 2)Brainstorming and 3) Experimental Design The rest of the experiment can be performed by a consulting facilitator for best results.

Step 1: Problem Identification What do managers and/or employees see that need improvement?

Step 2: Brainstorming Identify critical variables in the service that affect quality. Open and honest discourse with all people involved. Decide which factors are controllable and which are not. Controllable factors include: Procedures Room environment Uncontrollable Factors: Number of public contacts

Step 3: Experiment Design Using results from brainstorming session, facilitator will design an experiment. Management must understand this part, and needs to fully support the resources needed for it.

Step 4: Experiment Use of ANOVA requires managers understand its use. Facilitator, although in charge of the experiment, must assure management’s understanding of the process.

Step 5: Analysis Factors closest to target specification identified. Means to reduce controllable variation produced.

Step 6: Confirm Experiment Set up new system using data from experiment. Test and validate results.

Conclusion: Best improvement is early in the process. Use expert consulting help for full experiment and implementation. Successfully used in airlines, insurance, hotels and restaurants. Quality is a major feature that sets a service apart from the rest. The earlier in the process you build in quality, the more it will help, and the less it will cost. Don’t try to do this without the help of a very knowledgeable consultant. It will cost less to do this right once, than wrong twice. Insurance offices, airlines, CPA offices, fine hotels and restaurants have successfully applied the Taguchi Method to their businesses. Quality is one of the features that sets a business apart from the rest. The new global competitive market brings new dimensions to business.

Citations: Foster, S. Thomas Jr. Ph. D.: “Designing and Initiating A Taguchi Experiment in a Services Setting” OM Review – Refereed: Volume 9, No. 3. Taguchi, Genichi: Taguchi on Robust Technology Development: Bringing Quality Engineering Upstream; Asme Press, New York, 1993 Taguchi, Chowdhury, Taguchi: Robust Engineering: Learn how to boost quality while reducing costs and time to market; McGraw-Hill, New York, 2000

Recommended Reading: In addition to cited works: Visit American Supply Institute (ASI) website at www.amsup.com