Competing with Quality Leeds School of Business University of Colorado Boulder, CO Professor Stephen Lawrence

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  Micro-economic interpretation: Quantity Price DemandSupply

Eight Dimensions of Quality 1. Performance 2. Features 3. Reliability 4. Conformance Quality is not uni-dimensional, but has a number of important dimensions:

Eight Dimensions of Quality 5. Durability 6. Serviceability 7. Aesthetics 8. Perceived Quality Quality is not uni-dimensional, but has a number of important dimensions:

Quality Costs  Prevention costs:  Appraisal costs:  Correction costs (internal failure):  Recovery costs (external failure): Costs associated with quality:

Quality Costs  Quality costs escalate as value is added to product or service: Supplier Inspection Incoming Inspection Fabrication Inspection Subproduct Test Final Product Test Field Service $3 $30 $300 Cost of finding and correcting a defective component

TQM Pioneers  Early American Industry Pioneers –Walter Shewhart–Control Charts –Dodge & Romig–Acceptance Sampling –Arnold Feigenbaum–Total Quality Management  Post W.W.II / Japanese TQM –W. Edwards Deming–Total Quality Management –Joseph Juran–The cost of quality –Philip B. Crosby–Quality is free –Masaaki Imai–Kaizen –Kaoru Ishikawa–TQM-Japanese style

Quality Masters  W. Edwards Deming –The basic cause of sickness in American industry and resulting unemployment is failure of top management to manage. –Began consulting with Japanese in 1950 –Japanese Deming Prize  Joseph M. Juran –“Fitness of Use” –Runs the Juran Institute –Large impact on Japanese quality  Phillip B. Crosby –Started as an industrial inspector –Runs the Crosby Quality College –“Zero Defects”

W. Edwards Deming  1900 to 1993  Trained as a physicist  Master of Science -- CU  Taught SQC during World War II  Went to Japan in 1946  Brought SQC to Japan  Enthusiastically adopted by Japanese

Deming Improvement Cycle ActPlan DoCheck

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

Japanese Deming Prize  Established 1951  Annual prize  Awarded for –development of quality tools, or –quality improvement programs  Created by JUSA (Union of Japanese Scientists and Engineers

Total Quality Management   A program to focus all organizational activities on enhancing quality for customers   Its four components are: – –a commitment to make quality product for customers – –a commitment to continuous improvement – –a total involvement in the quality undertaking – –extensive use of scientific tools, technologies and methods

Total Quality Management TQM

Malcolm Baldridge Award  Stimulate companies to attain excellence  Recognize outstanding companies  Disseminate information and experience  Establish guidelines for quality assessment  Gather “how to” information from winners U.S. Quality Award (patterned after Deming award)

International standards for business quality and control ISO 9000  Management responsibility  Quality system  Contract review  Design control  Document Control  Purcasing  Traceability  Process control  Inspection / testing  Reject control  Handling  Quality records  Internal audits  Training  Statistical techniques

ISO  International standard  Strengthen environmental mgmt systems  Control environmental impacts  Commitment to environmental targets –regulators –insurance interests –stakeholders –public

Six Sigma  “Invented” by Motorala  Championed by GE and Jack Welch  Goal of parts-per-million process defects  Four steps 1.Measure – new metrics; measure all processes 2.Analyze – determine performance objectives 3.Improve – wholesale changes, focus on results 4.Control – monitor processes to maintain control 6666

What “Six Sigma” Means 1  = 690,000 defects per million 2  = 308,000 defects per million 3  = 66,800 defects per million 4  = 6,210 defects per million 5  = 230 defects per million 6  = 3.4 defects per million

Does Quality Matter?  Quality and price –lack a consistent association.  Quality and advertising –positively correlated in some product categories, and negatively correlated in others  Quality and market share –positively correlated in some studies, negatively correlated in others. Garvin, Managing Quality, The Free Press, 1988

Does Quality Matter?  Quality and total quality cost –negatively correlated.  Quality and productivity –positively correlated.  Quality and profitability –positively associated. Garvin, Managing Quality, The Free Press, 1988