Chapter 14 Quality Management To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.

What Is Quality? “The degree of excellence of a thing” (Webster’s Dictionary) “The totality of features and characteristics that satisfy needs” (ASQ) Fitness for use Quality of design

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Dimensions of Quality (Garvin) Performance Basic operating characteristics Features “Extra” items added to basic features Reliability Probability product will operate over time

Dimensions of Quality (Garvin) Conformance Meeting pre-established standards Durability Life span before replacement Serviceability Ease of getting repairs, speed & competence of repairs

Dimensions of Quality (Garvin) Aesthetics Look, feel, sound, smell or taste Safety Freedom from injury or harm Other perceptions Subjective perceptions based on brand name, advertising, etc

Service Quality Time & Timeliness Completeness Courtesy Customer waiting time, completed on time Completeness Customer gets all they asked for Courtesy Treatment by employees

Service Quality Consistency Accessibility & Convenience Accuracy Same level of service for all customers Accessibility & Convenience Ease of obtaining service Accuracy Performed right every time Responsiveness Reactions to unusual situations

Quality of Conformance Ensuring product or service produced according to design Depends on Design of production process Performance of machinery Materials Training

Producer’s Perspective Consumer’s Perspective The Meaning of Quality Fitness for Consumer Use Producer’s Perspective Consumer’s Perspective Quality of Conformance Conformance to specifications Cost Quality of Design Quality characteristics Price Marketing Production The Meaning of Quality Figure 14.1

Quality Philosophers Walter Shewhart W. Edwards Deming Joseph Juran Philip Crosby Armand Feigenbaum

Deming’s 14 Points Create constancy of purpose Adopt philosophy of prevention Cease mass inspection Select a few suppliers based on quality Constantly improve system and workers Institute worker training

Deming’s 14 Points Instill leadership among supervisors Eliminate fear among employees Eliminate barriers between departments Eliminate slogans Remove numerical quotas

Deming’s 14 Points Enhance worker pride Institute vigorous training and education programs Develop a commitment from top management to implement these 13 points

The Deming Wheel (or PDCA Cycle) 1. Plan Identify the problem and develop the plan for improvement. 2. Do Implement the plan on a test basis. 3. Study/Check Assess the plan; is it working? 4. Act Institutionalize improvement; continue the cycle. Figure 14.2

Total Quality Management Customer defined quality Top management leadership Quality as a strategic issue All employees responsible for quality Continuous improvement Shared problem solving Statistical quality control Training & education for all employees

TQM Throughout the Organization Marketing, sales, research Engineering Purchasing Human resources Management Packing, storing, shipping After-sale support Marketing, sales, R&D define what customer wants Engineering specifications, parts requirements, job design Purchasing acquire high quality parts & material Personnel hire qualified employees Management maintain smooth flow through processes Packing, storing, shipping prevent product damage Customer service install & provide instructions 15

TQM and External Suppliers Support of suppliers required to satisfy customer expectations Single-sourcing Partnering Suppliers may be required to adopt quality programs or meet specific standards

TQM and Customer Satisfaction Requires some form of measurement system Customer surveys widely used Total customer satisfaction is often an organization’s overriding objective

TQM and Information Technology Critical to monitoring and controlling quality in an organization IT systems must be structured to satisfy the requirements of TQM systems IT systems tie together all the organization's functions and processes IT systems must be able to apply appropriate tools to drive improvement It systems must be able to store and access relevant data for analysis

Strategic Implications of TQM Quality is key to effective strategy Clear strategic goal, vision, mission High quality goals Operational plans & policies Feedback mechanism Strong leadership

TQM in Service Companies Inputs similar to manufacturing Processes & outputs are different Services tend to be labor intensive Quality measurement is harder Timeliness is important measure TQM principles apply to services

Quality on the Web Internet creates new rules for doing business Key factors in differentiating firms B2B largest part of Internet business Direct sales more visible Internet removes the human dimension

Dimensions of Web Quality Ease of use Clarity of information and instructions Server reliability Speed of page loading Transaction time Aesthetics Privacy and security Domain name Human backup Transaction reliability

Cost of Quality Cost of achieving good quality Prevention Appraisal Planning, Product design, Process, Training, Information Appraisal Inspection and testing, Test equipment, Operator Cost of achieving good quality Prevention quality planning, product design process, training information Appraisal inspection & testing test equipment operator Cost of poor quality Internal failure costs scrap, rework process failure & downtime downgrading products External failure costs customer complaints returns, warranty product liability, lost sales 18

Cost of Quality Cost of poor quality Internal failure costs Scrap, Rework, Process failure, Process downtime, Price-downgrading External failure costs Customer complaints, Product return, Warranty, Product liability, Lost sales Cost of achieving good quality Prevention quality planning, product design process, training information Appraisal inspection & testing test equipment operator Cost of poor quality Internal failure costs scrap, rework process failure & downtime downgrading products External failure costs customer complaints returns, warranty product liability, lost sales 18

Measuring and Reporting Quality Labor index Quality cost / labor hours Cost index Quality cost / manufacturing cost Sales index Quality cost / sales Production index Quality cost / units produced

Quality Costs and Index YEAR 1999 2000 2001 2002 Quality Costs Prevention $ 27,000 41,500 74,600 112,300 Appraisal 155,000 122,500 113,400 107,000 Internal failure 386,400 469,200 347,800 219,100 External failure 242,000 196,000 103,500 106,000 Total $ 810,400 829,200 639,300 544,400 Accounting Measures Sales $ 4,360,000 4,450,000 5,050,000 5,190,000 Mfg costs 1,760,000 1,810,000 1,880,000 1,890,000

Quality Costs and Index Quality index = (100) total quality costs base Quality cost per sale = = 18.58 $810,400(100) 4,360,000 QUALITY QUALITY MANUFACTURING YEAR SALES INDEX COST INDEX 1999 18.58 46.04 2000 18.63 45.18 2001 12.66 34.00 2002 10.49 28.80

Quality–Cost Relationship Increased prevention costs lead to decreased failure costs Improved quality leads to increased sales and market share Quality improvement at the design stage Higher quality products can command higher prices

Profitability Deming Prize winners showed higher than average results on financial performance indicators Baldrige Award winners consistently exceed industry averages on financial performance Quality leads to improved profitability and ROI “Quality is ... a profit--maker” In the long run, quality and profitability are closely related

Quality and Productivity output input Fewer defects increase output Quality improvement reduces inputs

Measuring Yield and Productivity Yield = (total input) (% good units) + (total input)(1 - % good units)(% reworked) Y = (I)(%G) + (I)(1 - %G)(%R) where Y = yield I = number units started in production % G = percentage good units % R = percentage of defective units reworked

Product Yield Start 100 motors per day 80% are good 50% of poor quality units can be reworked Yield = (I)(%G) + (I)(1 - %G)(%R) Y = 100(0.80) + 100(1 - 0.80)(0.50) = 90 motors Y = 100(0.90) + 100(1 - 0.90)(0.50) = 95 motors If product quality is increased to 90% good, Example 14.2

Product Cost (Kd)(I) + (Kr)(R) Y (direct manufacturing cost per unit)(input) + (rework cost per unit)(reworked units) yield Product cost = (Kd)(I) + (Kr)(R) Y where Kd = direct manufacturing cost per unit I = input Kr = rework cost per unit R = reworked units Y = yield

Product Cost Direct mfg cost = $30, Rework cost = $12 100 motors started, 20% defective 50% of defective motors can be reworked Product cost = (Kd)(I) + (Kr)(R) Y Product cost = = $34.67 per motor ($30)(100) + ($12)(10) 90 motors The manufacturing cost after quality improvement is Product cost = = $32.21 per motor ($30)(100) + ($12)(5) 95 motors Example 14.3

Multistage Product Yield Y = (I) (%g1)(%g2)...(%gn) where I = input batch size %gi = percent good at stage i

Multistage Process Yield AVERAGE PERCENTAGE STAGE GOOD QUALITY 1 0.93 2 0.95 3 0.97 4 0.92 Start with 100 motors Y = (I) (%g1)(%g2)...(%gn) = (100)(0.93)(0.95)(0.97)(0.92) Y = 78.8 motors Solve for I I = = = 126.8 motors Y (%g1)(%g2)...(%gn) 100 (0.93)(0.95)(0.97)(0.92) Example 14.4

Quality Productivity Ratio (QPR) Includes productivity and quality costs Increases if processing or rework costs decrease if process yield increases QPR = (100) Good-quality units (input)(processing cost) + (defective units)(rework cost)

QPR Example Direct cost = $30/unit Rework cost = $12/unit Start with 100 motors per day 80% are good, 50% of defective units can be reworked Company studies 4 changes Increase production to 200 units/day Cut processing cost to $26 & rework cost to $10 Increase yield to 95% Combine 2 and 3

QPR Example Direct cost = $30/unit Rework cost = $12/unit Start with 100 motors per day 80% are good, 50% of defective units can be reworked Base case: QPR = (100) = 2.89 80 + 10 (100)($30) + (10)($12) Case 1: Increase input to capacity of 200 units QPR = (100) = 2.89 160 + 10 (200)($30) + (20)($12)

QPR Example Case 2: Reduce processing cost to $26 and rework to $10 80 + 10 (100)($26) + (10)($10) Case 3: Increase initial good-quality to 95% QPR = (100) = 3.22 95 + 10 (100)($30) + (2.5)($12) Case 4: Decrease costs and increase initial good-quality QPR = (100) = 3.71 95 + 2.5 (100)($26) + (2.5)($10)

Employees and Quality Improvement Employee involvement Quality circles Process improvement teams Employee suggestions

The Quality Circle Process Presentation Implementation Monitoring Solution Problem results Problem Analysis Cause and effect Data collection and analysis Problem Identification List alternatives Consensus Brainstorming Training Group processes Data collection Problem analysis Organization 8-10 members Same area Supervisor/moderator Figure 14.3

Seven Quality Control Tools 1 2 3 4 Dirt Old Temp Fault x UCL LCL 5 Process Pareto Analysis Flow Chart Check Sheet Histogram Scatter Diagram SPC Chart Cause-and-Effect Diagram

Pareto Chart NUMBER OF CAUSE DEFECTS PERCENTAGE Poor design 80 64 % Wrong part dimensions 16 13 Defective parts 12 10 Incorrect machine calibration 7 6 Operator errors 4 3 Defective material 3 2 Surface abrasions 3 2 125 100 %

Percent from each cause Pareto Chart Percent from each cause Causes of poor quality Machine calibrations Defective parts Wrong dimensions Poor Design Operator errors Defective materials Surface abrasions 10 20 30 40 50 60 70 (64) (13) (10) (6) (3) (2)

Flow Chart Operation Decision Start/ Finish

Check Sheet Integrated Circuits |||| 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 |

Histogram 5 10 15 20 25 1 2 6 13 10 16 19 17 12 16 20 17 13 5 6 2 1

Scatter Diagram Y X

Control Chart Number of defects Sample number 18 12 6 3 9 15 21 24 27 10 14 16 Sample number Number of defects UCL = 23.35 LCL = 1.99 c = 12.67

Cause-and-Effect Diagram Quality Problem Out of adjustment Tooling problems Old / worn Machines Faulty testing equipment Incorrect specifications Improper methods Measurement Poor supervision Lack of concentration Inadequate training Human Deficiencies in product design Ineffective quality management Poor process design Process Inaccurate temperature control Dust and Dirt Environment Defective from vendor Not to specifications Material- handling problems Materials Figure 14.6

Quality Awards and Certifications The Malcolm Baldrige Award The Deming Prize RIT/USA Today Quality Cup European Quality Award President’s Quality Award Excellence in Productivity Improvement NASA

ISO 9000 Categories ISO 9001 ~ Suppliers and Designers ISO 9002 ~ Production ISO 9003 ~ Inspection and Test ISO 9004 ~ Quality Management

Implications Of ISO 9000 Truly international in scope Certification required by many foreign firms U.S. firms export more than $150 billion annually to Europe Adopted by U.S. Navy, DuPont, 3M, AT&T, and others

ISO Accreditation European registration 3rd party registrar assesses quality program European Conformity (CE) mark authorized United States 3rd party registrars American National Standards Institute (ANSI) American Society for Quality (ASQ) Registrar Accreditation Board (RAB)