Copyright 2006 John Wiley & Sons, Inc. Quality Management Chapter 3

Copyright 2006 John Wiley & Sons, Inc.2-2 What is quality in the eye of beholder? What are the different quality characteristics you (as a consumer) would expect to find in the following three products: a DVD player, a pizza, running shoes? Conduct threaded discussion on each selected product.

Copyright 2006 John Wiley & Sons, Inc.2-3 The Meaning of Quality 1.Quality from the Consumer’s Perspective a. Dimensions of Quality: Manufactured Products (what do you look at ?)  Performance  Features  Reliability  Conformance  Durability  Serviceability  Aesthetics  Safety

Copyright 2006 John Wiley & Sons, Inc.2-4 b. b.Dimensions of Quality: Services   Time and timeliness   Completeness   Courtesy   Consistency   Accessibility   Convenient   Accuracy   Responsiveness

Copyright 2006 John Wiley & Sons, Inc.2-5   Quality from the Producer’s Perspective “Quality of Conformance” How effectively the production process is able to conform to the specifications required by the design.

Copyright 2006 John Wiley & Sons, Inc.2-6 The Meaning of Quality: A Final Perspective The combination of both perspectives

Copyright 2006 John Wiley & Sons, Inc.2-7 Total Quality Management 1.The Evolution of Total Quality Management a. W. Edwards Deming b. Deming's Fourteen Points (Table 3.2) and Plan-Do-Study-Act Cycle (Figure 3.2) 2.Principles of Total Quality Management (pg:86) 3.TQM and Business Partners Suppliers as business partner (conformance to quality standards) eg: Whirlpool corporation

Copyright 2006 John Wiley & Sons, Inc TQM and Customers Continuous customer satisfaction survey 5.TQM and Information Technology eg: Ritz Carlton Hotel systematically enter customer data into a database, which holds millions of files. When the same customer check into one of its hotel around the world, it can customized its service specifically to meet its customer need and preference

Copyright 2006 John Wiley & Sons, Inc.2-9 Quality Improvement and the Role of Employees 1.Kaizen and Continuous Improvement Kaizen: Japanese term for continuous improvements Involving everyone in the process of quality improvement. eg: Samsung (propose – accepted- implemented ideas got reward) 2.Quality Circles (small meeting on Q, staff from the same area) 3.Process Improvement Teams – Involving people from several department (eg: dist., Pack., Mfg.) to improves a certain process (eg: customer service)

Copyright 2006 John Wiley & Sons, Inc.2-10 Six Sigma 1.The Six Sigma Goal – 3.4 DPMO 2.Improvement Projects ( champions paid with bonus tied to the successful of the project) 3.The Breakthrough Strategy: DMAIC 4.Black Belts ( project leader) and Green Belts ( project team member) Measure of how much a process deviates from perfection (Zero defects)

Copyright 2006 John Wiley & Sons, Inc.2-11 The Cost of Achieving good Quality 1.The Cost of Achieving Good Quality a.Prevention Costs b.Appraisal Costs

Copyright 2006 John Wiley & Sons, Inc.2-12 The Cost of Achieving good Quality  Prevention Costs ( Cost of trying to prevent poor- quality from reaching the customer)  Quality planning costs: The cost of developing and implementing quality management program  Product-Design costs: The costs of designing products with quality characteristics.  Process costs: The cost expended to make sure the productive process conforms to quality specification  Training costs: The cost to train employee  Information costs: The cost of acquiring and maintaining (typically on computers) data related to quality, and the development and analysis of reports on quality performance

Copyright 2006 John Wiley & Sons, Inc.2-13 The Cost of Achieving good Quality b.Appraisal Costs ( Costs of measuring, testing, and analyzing materials, parts, products, and the productive process to ensure product-quality specifications are being met)  Inspection and testing cost  Test equipment costs  Operator costs

Copyright 2006 John Wiley & Sons, Inc.2-14 The Cost of Poor Quality (The cost of nonconformance) Normally accounts for 70% -90% of total quality cost. a.Internal Failure Costs b.External Failure Costs

Copyright 2006 John Wiley & Sons, Inc.2-15 The Cost of Poor Quality a.Internal Failure Costs: Costs incurred when poor quality products are discovered before they are delivered to the customer (eg)  Scrap costs  Rework costs  Price- downgrading costs

Copyright 2006 John Wiley & Sons, Inc.2-16 The Cost of Poor Quality b.External Failure Costs : Costs incurred after the customer has received a poor-quality products and primarily related to customer service. Eg:  Product return cost  Lost sale cost: customer dissatisfied with poor quality product and do not make future purchase.

Copyright 2006 John Wiley & Sons, Inc.2-17 Measuring and Reporting Quality Costs  Example H & S Motor Company (pg: 101)

Copyright 2006 John Wiley & Sons, Inc.2-18 The Effect of Quality Management on Productivity 1.Productivity 2.Measuring Product Yield and Productivity 3.The Quality-Productivity Ratio

Copyright 2006 John Wiley & Sons, Inc.2-19 Measuring Product Yield and Productivity The UMRO Company starts production for a special sport bag. The production process begins with 100 bags each day. The percentage of good bags produced each averages to 80% and the percentage of poor-quality bags that can be reworked is 50%.  What is the company’s daily product yield?  If the percentage of good-quality bags increased to 90%, what is the effect on productivity?

Copyright 2006 John Wiley & Sons, Inc.2-20 Computing product cost per unit The UMRO company has a direct manufacturing cost per unit of RM30, and bags that are inferior quality can be reworked for RM12 per unit. 100 bags are produced daily, 80% are good quality and 20% are defective. Of the defective bags, half can be reworked to yield good- quality products. Through its quality management program, the company has discovered a problem in its production process that, when corrected (at a minimum cost), will increase the good-quality product to 90%. What is the direct impact on the direct cost per unit of improvement in product quality?

Copyright 2006 John Wiley & Sons, Inc.2-21 Computing product yield for a multi stage process At UMRO Company, bags are produced in a four- stage process. Bags are inspected following in each stage, with percentage yield (on average) of good- quality work-in-process units as follows.  What is the daily product yield for product input of 100 units per day ?  How many input units it would have to start with each day to result in a final daily yield of 100 goof-quality units?

Copyright 2006 John Wiley & Sons, Inc.2-22 Computing the Quality- Productivity Ratio (QPR) UMRO Company produces bags at processing cost of RM30 per unit. Defective bags can be reworked for RM12 per unit. 100 bags are produced daily, 80% are good quality, resulting in 20% defects, 50% of which can be reworked prior to shipping to customers. The company wants to examine the effects of:  Increasing the production rate to 200 bags per day  Reducing the processing cost to RM26 and the rework cost to RM10  Increasing, through quality improvement, the product yield of good-quality products to 95%  The combination of 2 and 3

Copyright 2006 John Wiley & Sons, Inc.2-23 Tools to Identify Quality Problems and Causes 1.Pareto Analysis 2.Process Flow charts 3.Check Sheets and Histograms 4.Scatter Diagrams 5.Process Control Charts and Statistical Process Control 6.Cause-and-Effect Diagrams

Copyright 2006 John Wiley & Sons, Inc.2-24 In class exercise 1 A company has a direct manufacturing cost per unit of $50, with a rework cost of $30 per unit. Daily input to the process is 500 units. The process averages 85% good units produced with the percentage of bad units that can be reworked averaging 40%. The manufacturing cost per good unit produced for this company is ?

Copyright 2006 John Wiley & Sons, Inc.2-25 In class exercise 2 A company has a direct manufacturing cost per unit of $50, with a rework cost of $20 per unit. Daily input to the process is 250 units. The process averages 80% good units produced with 60% of the bad quality units able to be reworked. If the company can improve its process average from 80% to 90% for good quality products then the impact on the direct cost per unit will be ?

Copyright 2006 John Wiley & Sons, Inc.2-26 In class exercise 3 A company produces a product with a processing cost of $50 per unit. Defective units can be reworked at a cost of $20 per unit. The company produces 100 units per day and averages 90% good-quality production, resulting in 10% defects, 40% of which can be reworked before being shipped. What is this company’s quality productivity ratio (QPR)?