1 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning QUALITY MANAGEMENT CHAPTER 15 DAVID A. COLLIER AND JAMES R. EVANS OM

2 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning LO1 Explain the concepts and definitions of quality. LO2 Describe the quality philosophies and principles of Deming, Juran, and Crosby. LO3 Explain the GAP model and its importance. LO4 Describe the concepts and philosophy of ISO 9000:2000. LO5 Describe the philosophy and methods of Six Sigma. LO6 Explain the categories of cost of quality measurement. LO7 Describe how to apply the 7 QC Tools. LO8 Explain the concepts of kaizen and poka-yoke. l e a r n i n g o u t c o m e s Chapter 15 Learning Outcomes

3 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning ow!” exclaimed Lauren when she saw the ski runs at Deer Valley Resort in Park City, Utah. Deer Valley has been called “The Ritz- Carlton” of ski resorts, and Lauren’s dad was expecting exceptional services and a superior ski vacation experience after all he had read in ski magazines. He wasn’t disappointed. When he drove up to the slopes, a curbside ski valet took their equipment from his car, parking lot attendants directed him to the closest available parking, and a shuttle transported them from the lot to Snow Park Lodge. From the shuttle, he and his daughter walked to the slopes on heated pavers that prevent freezing and assist in snow removal. Staff provided complimentary mountain tours to familiarize them with the slopes. At the end of the day, they were able to store their skis without charge at the lodge and easily retrieve them the next morning. The resort limits the number of skiers on the mountain to reduce lines and congestion. Everyone is committed to ensuring that each guest has a wonderful experience. Even the food is consistently rated number one by ski-enthusiast magazines. Chapter 15 Quality Management What do you think? What satisfying service experiences similar to the Deer Valley episode have you personally encountered?

4 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Quality management refers to systematic policies, methods, and procedures used to ensure that goods and services are produced with appropriate levels of quality to meet the needs of customers. Organizations today integrate quality principles into their management systems using tools such as Total Quality Management (TQM), Six Sigma, and Lean Operating Systems (Chapter 17). Chapter 15 Quality Management

5 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning A Brief History of Quality Management Historical uses of quality management include the precision involved in building of Egyptian pyramids, interchangeable parts during Industrial Revolution, and statistical tools used for quality control during World War II. Dr. Joseph Juran and Dr. W. Edwards Deming were pioneers in the field (more later on these two quality gurus). The Japanese integrated quality ideas and methods throughout their organizations and developed a culture of continuous improvement. Chapter 15 Quality Management

6 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Understanding Quality Quality can be a confusing concept, partly because people view quality in relation to differing criteria based on their individual roles in the value chain, such as:  perfection,  delighting or pleasing the customer,  eliminating waste,  doing it right the first time, and/or  consistency. Chapter 15 Quality Management

7 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Understanding Quality Fitness for use is the ability of a good or service to meet customer needs. Quality of conformance is the extent to which a process is able to deliver output that confirms to design specifications. Specifications are targets and tolerances determined by designers of goods and services. Chapter 15 Quality Management

8 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Understanding Quality Quality Control means ensuring consistency in processes to achieve conformance. Service Quality is consistently meeting or exceeding customer expectations (external focus) and service delivery system performance criteria (internal focus) during all service encounters. Chapter 15 Quality Management

9 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Understanding Quality Principles of Total Quality 1.A focus on customers and stakeholders, 2.A process focus supported by continuous improvement and learning, and 3.Participation and teamwork by everyone in the organization. Chapter 15 Quality Management

10 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning W. Edwards Deming Focus on bringing about improvements in product and service quality by reducing uncertainty and variability in goods and services design and associated processes (the beginning of his ideas in 1920s and 1930s). Higher quality leads to higher productivity and lower costs. “14 Points” management philosophy. Deming Cycle – Plan, Do, Study, and Act. Chapter 15 Influential Leaders in Quality Management

11 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning W. Edwards Deming 14 Points Point 1: Create a Vision and Demonstrate Commitment Point 2: Learn the Philosophy Point 3: Understand Inspection Point 4: Stop Making Decisions Purely on the Basis of Cost Point 5: Improve Constantly and Forever Point 6: Institute Training Point 7: Institute Leadership Chapter 15 Influential Leaders in Quality Management

12 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning W. Edwards Deming 14 Points Point 8: Drive Out Fear Point 9: Optimize the Efforts of Teams Point 10: Eliminate Exhortations Point 11: Eliminate Numerical Quotas Point 12: Remove Barriers to Pride in Work Point 13: Encourage Education and Self- Improvement Point 14: Take Action Chapter 15 Influential Leaders in Quality Management

13 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Exhibit Extra Plan: study current situation Do: implement plan on trial basis Study: determine if trial is working correctly Act: standardize improvements The Deming Cycle

14 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Joseph Juran Wrote Quality Control Handbook in 1951, a comprehensive quality manual. Defined quality as “fitness for use.” Advocated use of quality cost measurement. Quality Trilogy: quality planning, quality control, and quality improvement. Chapter 15 Influential Leaders in Quality Management

15 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Philip B. Crosby Wrote Quality is Free in 1979, which brought quality to the attention of top corporate managers in the U.S. Crosby’s Absolutes of Quality Management include:  Quality means conformance to requirements, not elegance.  There is no such thing as a quality problem.  There is no such thing as the economics of quality; doing the job right the first time is always cheaper.  The only performance measurement is the cost of quality, which is the expense of nonconformance.  The only performance standard is Zero Defects (ZD). Chapter 15 Influential Leaders in Quality Management

16 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning The GAP model recognizes that there are several ways to misspecify and mismanage the creation and delivery of high levels of quality. These “gaps” are shown in the model in Exhibit 15.2 and explained below. Gap 1 is the discrepancy between customer expectations and management perceptions of those expectations. Gap 2 is the discrepancy between management perceptions of what features constitute a target level of quality and the task of translating these perceptions into executable specifications. Chapter 15 The GAP Model

17 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Exhibit 15.2 Gap Model of Quality

18 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Gap 3 is the discrepancy between quality specifications documented in operating and training manuals and plans and their implementation. Gap 4 is the discrepancy between actual manufacturing and service delivery system performance and external communications to the customers. Gap 5 is the difference between the customer's expectations and perceptions. The fifth gap depends on the other four. Chapter 15 The GAP Model

19 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Exhibit 15.2 Gap Model of Quality

20 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning ISO 9000:2000 Quality standards were created in 1987 and revised in 1994 and 2000 to improve product quality, improve the quality of operation’s processes, and provide confidence to organizations and customers that quality system requirements are fulfilled. Internationally recognized (and sometimes required to do business in certain countries). Standardizes key terms in quality and provides a set of basic principles for initiating quality management systems. Chapter 15 Quality Management

21 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Six Sigma Six Sigma is a business improvement approach that seeks to find and eliminate causes of defects and errors in manufacturing and service processes by focusing on outputs that are critical to customers and results in a clear financial return for the organization. Used by companies including Motorola, Allied Signal, Texas Instruments, and General Electric. Chapter 15 Quality Management

22 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Six Sigma Defects are any mistakes or errors that are passed on to the customer (many people also use the term nonconformance). Defects per unit (DPU)=Number of defects discovered Number of units processed Chapter 15 Quality Management

23 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Six Sigma The Six Sigma concept characterizes quality performance by defects per million opportunities (dpmo), computed as DPU  1,000,000 opportunities for error (or, as is often used in services, errors per million opportunities – epmo). Chapter 15 Quality Management

24 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Six Sigma A DPU measure might be lost bags per customer. However, customers may have different numbers of bags; thus the number of opportunities for error is the average number of bags per customer. If the average number of bags per customer is 1.6, and the airline recorded 3 lost bags for 8,000 passengers in one month (note: 12,800 opportunities for error in one month), then epmo = (3/8,000 DPU)  1,000,000/1.6 = Chapter 15 Quality Management

25 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Six Sigma’s DMAIC Process 1.Define: identify customers and their priorities; identify and define a suitable project; identify CTQs (critical to quality characteristics). 2. Measure: determine how to measure the process and how it is performing; identify key internal processes that influence CTQs and measure current defects. 3. Analyze: determine likely causes of defects and understand why defects are generated by identifying key variables that cause process variation. Chapter 15 Quality Management

26 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Six Sigma’s DMAIC Process 4. Improve: identify means to remove causes of defects; confirm key variables; modify the process to stay within acceptable range. 5. Control: determine how to maintain improvements; put tools in place to ensure that key variables remain within acceptable ranges under the modified process. Chapter 15 Quality Management

27 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Cost of Quality Measurements The cost of quality refers to the costs associated with avoiding poor quality or those incurred as a result of poor quality. Prevention costs are those expended to keep nonconforming goods and services from being made and reaching the customer. Appraisal costs are those expended on ascertaining quality levels through measurement and analysis of data to detect and correct problems. Chapter 15 Quality Management

28 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Cost of Quality Measurements Internal-failure costs are costs incurred as a result of unsatisfactory quality that is found before delivery of good or service to the customer. External-failure costs are incurred after poor-quality goods or services reach the customer. Chapter 15 Quality Management

29 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning The “Seven QC Tools” 1.Flowcharts: process mapping to identify the sequence of activities or flow of materials/ information in a process. 2.Run Charts and Control Charts: a run chart is a line graph with data plotted over time; control charts include control limits. 3.Checksheets: simple tools for data collection, ensure completeness. 4.Histograms: graphically represent frequency of values within a specified group. Chapter 15 Seven Tools of Quality Management

30 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Exhibit 15.3 The Structure of a Control Chart

31 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Source: K. Ishikawa, Guide to Quality Control (Tokyo: Asian Productivity Organization, 1982), p. 33. Exhibit 15.4 Defective Item Checksheet

32 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning The “Seven QC Tools” 5.Pareto Diagrams: separate the vital few from the trivial many causes; provide direction for selecting projects for improvement. 6.Cause-and-Effect Diagrams: represent chain of relationships; often called a fishbone diagram. 7.Scatter Diagrams: graphical component of regression analysis. Chapter 15 Seven Tools of Quality Management

33 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Exhibit 15.5 Use of Pareto Diagrams for Progressive Analysis Source: Small Business Guidebook to Quality Management, Office of the Secretary of Defense, Quality Management Office, Washington, DC (1988).

34 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Exhibit 15.6 Cause-and-Effect Diagram for Hospital Emergency Admission

35 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Other Quality Improvement Strategies Kaizen focuses on small, gradual, and frequent improvements over the long term with minimum financial investment and with participation by everyone in the organization. Poka-yoke (mistake-proofing) is an approach for mistake-proofing processes using automatic devices or methods to avoid simple human error. Chapter 15 Quality Management

36 OM, Ch. 15 Quality Management ©2009 South-Western, a part of Cengage Learning Poka-Yoke Examples Machines have limit switches connected to warning lights that tell the operator when parts are positioned improperly on the machine. Fast food restaurants use automated french- frying machines that can only be operated one way; the french fries are prepackaged and the equipment automated to reduce the chance of human error. Chapter 15 Quality Management