Beni Asllani University of Tennessee at Chattanooga Chapter 2 Quality Management Operations Management - 6th Edition Roberta Russell & Bernard W. Taylor, III Beni Asllani University of Tennessee at Chattanooga Copyright 2009 John Wiley & Sons, Inc.

Lecture Outline Some slides have notes beneath them. What Is Quality? The Deming Wheel and Quality Tools TQM and QMS Focus of Quality Management—Customers Role of Employees in Quality Improvement Six Sigma Cost of Quality Baldrige Award ISO 9000 CE Mark Some slides have notes beneath them. Copyright 2009 John Wiley & Sons, Inc.

What is Quality? General definitions Fitness for use and quality of design Dimensions of quality for goods and services Measuring service quality Product specifications and conformance quality What is quality? – A final perspective Copyright 2009 John Wiley & Sons, Inc.

What Is Quality? Oxford American Dictionary: a degree or level of excellence American Society for Quality: the totality of features and characteristics that satisfy [customer] needs without deficiencies Customer’s and producer’s perspective In Operations, a customer is any organization or person that purchases your company's goods or services, either directly or through an intermediary, such as a retailer or distributor. Some manufacturers sell only to business customers, such as other manufacturers, retailers, distributors, and service companies. When the final customer is a consumer, then the perspectives of consumers and intermediaries are both important. Copyright 2009 John Wiley & Sons, Inc.

What Is Quality: Customer’s Perspective Fitness for use: how well a product or service does what it is supposed to Quality of design: designing quality characteristics into a product or service – first step in quality assurance Goods and services with the highest design quality offer better performance and features. A Mercedes and a Ford are equally “fit for use,” but with different design requirements. What does "fitness for use" mean in your doctor's office? at a fine dining restaurant? at McDonalds? Copyright 2009 John Wiley & Sons, Inc.

Dimensions of Quality for Goods Performance Features Reliability Conformance to specifications Durability Serviceability and quality of service Aesthetics Safety Customer perceptions As you study each characteristic, try to think of an industry in which that characteristic is particularly important. Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 3-6

Dimensions of Service Quality Time and timeliness Completeness Courtesy Consistency Accessibility and convenience Accuracy Responsiveness As you study each characteristic, try to think of an industry in which that characteristic is particularly important. Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 3-7

Measuring Service Quality Absolute measures are based on a fixed standard and can be measured numerically Waiting time and service time % of transactions without errors. Web site availability Perceptual measures are based on customers’ opinions. How important was this characteristic to the customer? How satisfied was the customer? Copyright 2009 John Wiley & Sons, Inc. 3-8

Product or Service Specification Characteristics of the product or service which will be measured to determine quality Target values for each characteristic Should be based on customer expectations If a product or service consistently meets specifications, it has conformance quality. A company's operations function is expected to produce goods or services with conformance quality. Copyright 2009 John Wiley & Sons, Inc. 3-9

Producer – Based Quality (Conformance quality) Conformance to specifications. Specifications must be based on customer expectations or requirements Initial specifications are set when the product is designed Specifications may change over time as technology and customer requirements change Copyright 2009 John Wiley & Sons, Inc. 3-10

Achieving Conformance Quality Conformance quality depends on most of the things we do in Operations Management Product or service design Process technology and equipment Purchasing and materials management Planning and scheduling Hiring, training, and supervision Measurement and control EJR 2006 Copyright 2009 John Wiley & Sons, Inc. 3-11

Customer Requirements Product launch activities: Revise periodically Product Specifications Process Specifications Statistical Process Control: Measure & monitor quality Meets Specifications? Ongoing Activities Fix process or inputs No Yes Conformance Quality EJR 2006

Meaning of Quality Copyright 2009 John Wiley & Sons, Inc.

What Is Quality: A Final Perspective Customer’s and producer’s perspectives depend on each other Producer’s perspective: production process and COST Customer’s perspective: fitness for use and PRICE Customer’s view must dominate Copyright 2009 John Wiley & Sons, Inc.

Levels of Quality Improvement Incremental: many small improvements add up to major improvements at modest cost Uses Plan-Do-Check-Act cycle and quality tools Breakthrough improvements: large improvements required to meet business objectives Re-engineer the process Six Sigma is often used New technology is often needed EJR 2006 Copyright 2009 John Wiley & Sons, Inc. 3-15

Deming Wheel: PDCA Cycle Copyright 2009 John Wiley & Sons, Inc.

Quality Tools Process Flow Chart Cause-and-Effect Diagram Check Sheet Pareto Analysis Histogram Scatter Diagram Statistical Process Control Chart Copyright 2009 John Wiley & Sons, Inc.

Flow Chart We will discuss flowcharts in Chapter 6. Copyright 2009 John Wiley & Sons, Inc.

Cause-and-Effect Diagram Cause-and-effect diagram (“fishbone” diagram) chart showing different categories of problem causes The major categories (yellow boxes) in this diagram apply to most quality problems. The cause-and effect diagram is usually generated through a brainstorming session. The diagram is a good way to organize the data. Copyright 2009 John Wiley & Sons, Inc.

Check Sheets and Histograms Copyright 2009 John Wiley & Sons, Inc.

Pareto Analysis Most quality problems result from a few causes Sort data from largest to smallest Copyright 2009 John Wiley & Sons, Inc.

Pareto Chart In most situations, the problem that occurs most often should be solved first. Continuous improvement is the long-term goal, and other problems should not be ignored. Copyright 2009 John Wiley & Sons, Inc.

Pareto Analysis and Cumulative Sums Starting with the most common problem, which problems must be solved to eliminate 80% of the defects? Copyright 2009 John Wiley & Sons, Inc.

Scatter Diagram The cause is the independent variable (x-axis). The effect or problem is the dependent variable (y-axis). Copyright 2009 John Wiley & Sons, Inc.

Control Chart We will discuss control charts in Chapter 3. Copyright 2009 John Wiley & Sons, Inc.

Total Quality Management (TQM) A commitment to quality throughout an organization Includes anything that is important to customers Customer-oriented Requires leadership Requires strategic planning Every employee is responsible for quality Requires cooperation The quality standard is zero defects. Requires training Quality is measured Statistical process control and quality tools are used to improve. Copyright 2009 John Wiley & Sons, Inc.

Quality Management System Quality Management System (QMS) a company-wide system to achieve customer satisfaction that complements other company systems Describes the policies and procedures that are necessary to improve and control specific processes, leading to improved business performance Examples: Baldrige Award criteria, Six Sigma Copyright 2009 John Wiley & Sons, Inc.

Focus of Quality Management— Customers TQM and QMS serve to achieve customer satisfaction Partnering a relationship between a company and its supplier based on mutual quality standards Measuring customer satisfaction important component of any QMS customer surveys, telephone interviews used to identify product or service characteristics that should be improved Copyright 2009 John Wiley & Sons, Inc.

Role of Employees in Quality Improvement Participative problem solving employees involved in quality-management every employee has undergone extensive training to provide quality service to Disney’s guests Kaizen involves everyone in process of continuous improvement Copyright 2009 John Wiley & Sons, Inc.

Quality Circles and QITs 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 Quality circle group of workers and supervisors from same area who address quality problems Process/Quality improvement teams (QITs) focus attention on business processes rather than separate company functions Copyright 2009 John Wiley & Sons, Inc.

Six Sigma A process for developing and delivering virtually perfect products and services Measure of how much a process deviates from perfection 3.4 defects per million opportunities Champion an executive responsible for project success Copyright 2009 John Wiley & Sons, Inc.

Six Sigma: Breakthrough Strategy—DMAIC DEFINE MEASURE ANALYZE IMPROVE CONTROL 3.4 DPMO 67,000 DPMO cost = 25% of sales Copyright 2009 John Wiley & Sons, Inc.

Six Sigma: Black Belts and Green Belts project leader Master Black Belt a teacher and mentor for Black Belts Green Belts project team members Copyright 2009 John Wiley & Sons, Inc.

Six Sigma Design for Six Sigma (DFSS) Profitability a systematic approach to designing products and processes that will achieve Six Sigma Profitability typical criterion for selection Six Sigma project one of the factors distinguishing Six Sigma from some TQM programs Copyright 2009 John Wiley & Sons, Inc.

Cost of Quality Cost of Achieving Good Quality Cost of Poor Quality Prevention costs costs incurred during product design Appraisal costs costs of measuring, testing, and analyzing Cost of Poor Quality Internal failure costs include scrap, rework, process failure, downtime, and price reductions External failure costs include complaints, returns, warranty claims, liability, and lost sales If a company has not had a quality management system (QMS) in the past, then prevention costs will include the costs of developing and implementing a QMS. Copyright 2009 John Wiley & Sons, Inc.

Prevention Costs Quality planning costs Product-design costs costs of developing and implementing quality management program Product-design costs costs of designing products with quality characteristics Process costs costs expended to make sure production process conforms to quality specifications Training costs costs of developing and putting on quality training programs for employees, management, & suppliers Information costs costs of acquiring and maintaining data related to quality, and development and analysis of reports on quality performance Copyright 2009 John Wiley & Sons, Inc.

Appraisal Costs Inspection and testing Test equipment costs costs of testing and inspecting materials, parts, and product at various stages and at end of process Test equipment costs costs of maintaining equipment used in testing quality characteristics of products Operator costs costs of time spent by operators to gather data for testing product quality, to make equipment adjustments to maintain quality, and to assess quality Copyright 2009 John Wiley & Sons, Inc.

Internal Failure Costs Scrap costs costs of poor-quality products that must be discarded, including labor, material, and indirect costs Rework costs costs of fixing defective products to conform to quality specifications Process failure costs costs of determining why the production process is producing poor-quality products Process downtime costs costs of shutting down production process to fix a problem Price-downgrading costs costs of discounting poor-quality products—that is, selling products as “seconds” Copyright 2009 John Wiley & Sons, Inc.

External Failure Costs Customer complaint costs costs of investigating and satisfactorily responding to a customer complaint resulting from a poor-quality product Product return costs costs of handling and replacing poor-quality products returned by customer Warranty claims costs costs of complying with product warranties Product liability costs litigation costs resulting from product liability and customer injury Lost sales costs costs incurred because customers are dissatisfied with poor-quality products and do not make additional purchases Copyright 2009 John Wiley & Sons, Inc.

Quality–Cost Relationship The cost of quality is the difference between the cost of nonconformance and the cost of conformance cost of doing things wrong: 20 to 35% of revenues cost of doing things right: 3 to 4% of revenues Finalists for the Malcolm Baldrige National Quality Award have shown that corporate-wide quality improvement programs increase productivity, customer satisfaction, market share, and profitability. Copyright 2009 John Wiley & Sons, Inc.

Baldrige Award Competitive quality award presented by U. S. government 5 award categories: Manufacturing, services, small business, health care, education All written applications are reviewed by trained examiners Site visits to leading candidates Maximum of 2 awards per category per year EJR 2006 Copyright 2009 John Wiley & Sons, Inc. 3-41

Baldrige Award Criteria Leadership Information and analysis Strategic planning Human resource focus Process management Customer and market focus Business results (most important) Copyright 2009 John Wiley & Sons, Inc.

ISO 9000 Standards International quality certification program guided by the International Standards Organization (ISO) Any firm that passes an ISO 9000 standards audit will be certified. U. S. participates in the development of these standards: American National Standards Institute (ANSI) American Society for Quality (ASQ) Professional organizations EJR 2006 Copyright 2009 John Wiley & Sons, Inc. 3-43

ISO 9000 ISO 9000 standards audits must be performed by a registrar, a firm that is certified to do ISO 9000 audits Some companies require their suppliers to be ISO 9000 certified Be sure that your registrar is acceptable to your customers Firms must be re-certified periodically. EJR 2006 Copyright 2009 John Wiley & Sons, Inc. 3-44

CE Mark - Shows that a good meets the product standards of the European Union (EU) If the EU has a standard for a product, a company must earn the CE mark to sell that product in the EU. Many EU companies also require their suppliers to be ISO 9000 certified. Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 3-45

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