Operations Management Part II

The Value Equation

Why Quality is Critical Quality: Quality is the single most important thing you can work on to improve the effectiveness of your company. It's as simple as that. Things just cascade when you get control of your quality. John Young, CEO Hewlett Packard

Eight Dimensions of Quality 1. Performance The primary operating characteristics of the product or service. 2. Features The characteristics that supplement the basic functioning of the product or service. 3. Reliability Probability of the product or service failing within a specified period of time. 4. Conformance The degree to which a product or service meets acknowledged standards David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

Eight Dimensions of Quality 5. Durability A measure of product life (both technical and economic). 6. Serviceability The speed, courtesy, competence, and ease of repair or recovery. 7. Aesthetics How a product or service looks, feels, sounds, tastes, or smells. 8. Perceived Quality Various tangible and intangible aspects of the product from which quality is inferred. David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

Quality Costs Prevention costs: process/product design, training, vendor relations; Appraisal costs: quality audits, statistical quality control; Correction costs (internal failure): yield losses, rework charges; Recovery costs (external failure): returns, repairs, lost business.

Quality costs escalate as value is added to product or service: Cost of finding and correcting a defective component Supplier Inspection 0.003 Incoming Inspection 0.03 Fabrication Inspection 0.30 Subproduct Test $3 Final Product Test $30 $300 Field Service David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

Deming’s Theory of Quality & Economics Costs decrease because of less rework, fewer mistakes, fewer delays, snags; better use of machine-time and materials Improve Quality Productivity Improves Capture the market with better quality and lower price Provide jobs and more jobs Stay in business Deming, Out of the Crisis, 1986

Six Sigma 6s Developed by Motorola in the 1980s Adopted and expanded by GE

What is Six Sigma? A measure of quality that strives for near perfection. Disciplined, data-driven approach to eliminating defects Scope From manufacturing to transactions From products to services Constantly striving for improvement Or else, loose ground to your competitors http://www.isixsigma.com/

Six Sigma Defined A process must not produce more than 3.4 defects per million opportunities A defect is defined as anything outside of customer specifications 99.99976% meeting specification http://www.isixsigma.com/

Benefits of Six Sigma When Properly Applied General Electric Reduce costs Increase revenues Develop your work force Provide a common corporate language and methodology General Electric Estimates benefits of ~$10 billion during first five years of implementation

Implementing Six Sigma Determine which processes are the best candidates Define what you mean by a service defect and how you intend to measure it Probe relentlessly for root causes Remember, this is a long-term commitment