6 Managing Quality PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh Edition Principles of Operations Management, Ninth Edition PowerPoint slides by Jeff Heyl © 2014 Pearson Education, Inc.

Outline Defining Quality Total Quality Management Tools of TQM

Defining quality Malcolm Baldrige National Quality Award ISO 9000 Cost of Quality

Defining Quality An operations manager’s objective is to build a total quality management system that identifies and satisfies customer needs

Different Views User-based: better performance, more features Manufacturing-based: conformance to standards, making it right the first time Product-based: specific and measurable attributes of the product

Malcolm Baldrige National Quality Award President Ronald Regan signed legislation mandating a nationwide study of productivity in 1982. The final recommendation was that “a national quality award be presented annually to those firms that successfully challenge and meet the award requirements”. Established in 1987 by Department of Commerce Goal is to help companies review and structure their quality programs 6

Malcolm Baldrige National Quality Award Four Key Characteristics Focuses on business results Nonprescriptive and adaptable Supports company-wide alignment of goals and processes Permits goal-based diagnosis

Baldrige Criteria Applicants are evaluated on: CATEGORIES POINTS Leadership 120 Strategic Planning 85 Customer Focus Measurement, Analysis, and Knowledge Management 90 Workforce Focus Operations Focus Results 450

ISO 9000 International Quality Standards International recognition A prerequisite for global competition Series of standards by the International Organization for Standardization (ISO) Adopted in 1987 Over one million certifications in 178 countries First-time registration fee ranges from $0.25~$1 million Process takes from 3~24 months

ISO 9000 International Quality Standards ISO 9000 directs you to "document what you do and then do as you documented” Encourages quality management procedures, detailed documentation, work instructions, and recordkeeping Example: Du Pont Increase on-time delivery from 70% to 90% Decrease cycle time from 15 days to 1.5 days Increase first-pass yields from 72% to 92%

ISO 9000:2008 International Quality Standards Focus is for companies to document their quality systems in a series of manuals to facilitate trade through supplier conformance Standards are very broad and nonspecific, so they can be adapted to many different industries and cultures Recognized international quality standard that businesses can follow

ISO 9000 International Quality Standards Management principles Top management leadership Customer satisfaction Continual improvement Involvement of people Process analysis Use of data-driven decision making A systems approach to management Mutually beneficial supplier relationships

Costs of Quality Prevention Costs Appraisal Costs Costs associated with preventing defects and limiting failure and appraisal costs (e.g., training, improvement projects, data gathering, analysis) Prevention Costs Appraisal Costs Costs resulting from inspection used to assess quality levels (e.g. material inspection, inspection staff salaries, development of test procedure.) Internal Failure Costs Costs from defects found before delivery to the customer (e.g., rework, scrapped material, etc.) External Failure Costs Costs associated with defects found after delivery to customer (e.g., warranty, recall, etc.)

Decision Question 1 1. Sanford Corp. bought new technological systems to inspect the quality of products as they come off the production line. The expense of operating these systems would be an example of which of the following types of quality-related costs?  A. Internal failure cost B. Appraisal cost C. External failure cost D. Prevention cost

Discussion Question 2 2. Xanadu Inc. decided to increase the training received by new employees. The expense of this training is an example of which of the following costs of quality:   A. Appraisal costs B. External failure costs C. Internal failure costs D. Prevention costs E. Quality control costs

Discussion Question 3 3. All of the following represent external failure cost except the cost of:  A. Scrapping defective raw material B. Repairing items covered by warranty C. Replacing defective items found by customers D. Loss of goodwill and reputation

Total quality management Plan-Do-Check-Act Six Sigma Employee Empowerment Benchmarking

Total Quality Management (TQM) An integrated business management strategy aimed at embedding awareness of quality in all organizational processes Developed by Edwards Deming, Joseph Juran and Armand Feigenbaum in the 1950s Become popular in the 1980s Encompasses entire organization from supplier to customer. Quality is customer-driven.

Continuous Improvement Never-ending process of continual improvement Covers people, equipment, materials, procedures Every operation can be improved

Plan-Do-Check-Act Originally called Shewhart cycle Renamed by Japanese in 1950 Plan-do-check-act cycle (Deming wheel or cycle): sequence to solve problems and improve over time Plan: identify problem and actions for improvement Do: implement formulated plan Check: monitor results Act: take corrective action Act Plan Check Do

Six Sigma Introduction Video Six Sigma at Caterpillar

Six Sigma Key players Master black belt: Black belt Green belt Highest level Ensuring consistent application of Six Sigma across various functions and departments Black belt Operate under Master Black Belts to specific projects Green belt Lowest level Part-time job on Six Sigma; devote the rest of time on regular duties

Six Sigma Quality improvement through elimination of defects and variation Developed by Bill Smith, a reliability engineer in Motorola, Inc., in 1987 Applied by General Electric, Ford Motor Company, Citibank, Xerox, Bank of America, Caterpillar, Raytheon Standard deviation: statistical measure of variation Sigma Level Defects per Million 2σ 308,537 3σ 66,807 4σ 6,210 5σ 233 6σ 3.4

Six Sigma Two meanings Statistical definition of a process that is 99.9997% capable, 3.4 defects per million opportunities (DPMO) A program designed to reduce defects, lower costs, save time, and improve customer satisfaction A comprehensive system for achieving and sustaining business success

Six Sigma: DMAIC Approach Five-step Process Improvement Model Defines the project’s purpose, scope, and outputs, identifies the required process information keeping in mind the customer’s definition of quality Measures the process and collects data Analyzes the data ensuring repeatability and reproducibility Improves by modifying or redesigning existing processes and procedures Controls the new process to make sure performance levels are maintained

Employee Empowerment Add responsibility and authority to the lowest level employees 85% of quality problems are due to process and material Techniques Build communication networks that include employees Develop open, supportive supervisors Move responsibility to employees Build a high-morale organization Create formal team structures

Benchmarking A Benchmark is an organization recognized for its exemplary operational performance. Why? The worst thing for a business is a weak competitor. Openness provides an impetus to continual improvement Openness can create psychological barriers to competition.

Benchmarking Benchmarking is defined as OR Measuring your performance against that of best-in-class companies Determining how the best-in-class achieve those performance levels Using the information as a basis for you own company’s targets, strategies and implementation. OR The search of industry best practices that lead to superior performance

Benchmarking Do not benchmark only within your industry! Xerox uses many benchmarks: Employee involvement: Procter & Gamble Quality process: Florida Power and light, Toyota High-volume production: Kodak, Canon Billing collection: American Express Research and development: AT&T, Hewlett-Packard Distribution: L.L. Bean, Hershey Foods Daily scheduling: Cummins Engine

Best Practices for Resolving Customer Complaints Table 6.3 BEST PRACTICE JUSTIFICATION Make it easy for clients to complain It is free market research Respond quickly to complaints It adds customers and loyalty Resolve complaints on first contact It reduces cost Use computers to manage complaints Discover trends, share them, and align your services Recruit the best for customer service jobs It should be part of formal training and career advancement

Benchmarking Selecting best practices to use as a standard for performance Determine what to benchmark Form a benchmark team Identify benchmarking partners Collect and analyze benchmarking information Take action to match or exceed the benchmark

Benchmarking Purposes of Benchmarking Learning from success Borrowing ideas Best-in-firm Beating industry standards Best-in-class National leadership Best-in-world

Benchmarking Benchmarking Purpose and Quality Maturity

Discussion Question 4 Although benchmarking is a popular management technique, many firms are not engaged in the benchmarking process. Why do you think that some firms avoid benchmarking? Are any of the reasons valid? Why or why not?

Video: Culture of Quality at Arnold Palmer Hospital Why is it important for hospital to get a patient’s assessment of health care quality? Does the patient have the expertise to judge the health care she receives? How could you build a culture of quality in an organization, such as Arnold Palmer Hospital? What techniques does APH practice in its drive for quality and continuous improvement?

Tools of tqm Check Sheets Scatter Diagrams Cause-and-effect Diagrams Pareto charts Flowcharts Histograms Statistical process control (SPC)

TQM Tools Tools for Generating Ideas Tools to Organize the Data Check Sheet Scatter Diagram Cause-and-Effect Diagram Tools to Organize the Data Pareto Chart Flowchart (Process Diagram) Tools for Identifying Problems Histogram Statistical Process Control Chart

Seven Tools of TQM (a) Check Sheet: Tool for collecting, organizing and displaying data to uncover patterns Hour Defect 1 2 3 4 5 6 7 8 A B C / / / / Figure 6.6

Seven Tools of TQM (b) Scatter Diagram: Used to examine the relationship between variables Scatter plot of the relationship between conformance data and prevention and appraisal quality related costs

Seven Tools of TQM (c) Cause-and-Effect Diagram: A tool that identifies process elements (causes) that might effect an outcome Cause Materials Methods Manpower Machinery Effect Figure 6.6

Discussion Question 5 Prepare a fish-bone chart explaining how a pizza delivery can arrive late on a Friday or Saturday

Seven Tools of TQM (d) Pareto Analysis: Separates the critical few form the trivial many Indentify categories about which to collect data Gather data and calculate frequency of observations Sort into descending order by percentage 4. Graph and identify the few areas that account for most of the variation Frequency Percent A B C D E

Seven Tools of TQM

Seven Tools of TQM (e) Flowchart (Process Diagram): A chart that describes the steps in a process Figure 6.6

Seven Tools of TQM (f) Histogram: A distribution showing the frequency of occurrences of a variable A representation of data in a bar chart format Also used to observe the shape of data. “How are the data distributed?”

Example: The Big City Cafeteria wants to determine the distribution of its sales during lunch time. On a given day the manager randomly selects 40 sales from the sales register receipt. The following table shows the sales (in dollars). Develop a histogram of the sales. 4.51 0.79 4.19 2.29 5.96 3.49 2.25 3.45 2.24 5.25 5.36 1.15 7.28 4.29 3.96 6.79 4.66 3.56 8.22 2.56 3.33 5.55 8.95 2.49 2.26 4.11 6.11 4.56 2.21

Seven Tools of TQM (g) Statistical Process Control Chart: A chart with time on the horizontal axis to plot values of a statistic Upper control limit Target value Lower control limit Time Figure 6.6