Productivity and Quality Management Lecture 20

THE PHILOSOPHIES OF QUALITY LAST LECTURE

Summary The Quality Management Philosophies Deming’s System of Profound Knowledge – Appreciation for a system – Understanding variation – Theory of knowledge – Psychology Perspectives on Profound Knowledge

W. Edward Deming Received a Ph.D. in physics and trained as a statistician Was trained as statistician and worked for Western Electric during its pioneering era of statistical quality control development in the 1920s and 1930s. After World War II helped Japan implement his statistical quality control Credited with having the greatest influence on quality management Quality philosophy focused on reducing uncertainty and variability

Deming Chain Reaction Improve quality Costs decrease because of less rework and mistakes Productivity improves Capture market with better quality and lower price Stay in business and provide more jobs

9 Deming’s System of Profound Knowledge Appreciation for a system Understanding variation Theory of knowledge Psychology

THE QUALITY GURUS

Slide 3.2 Leaders in the Quality Revolution W. Edwards Deming Joseph M. Juran Philip B. Crosby Shingo Ishikawa Genichi Taguchi Peter Drucker Tom Peters

Deming’s Background Main architect for introducing Total Quality into Japan Born 1900 Graduated in Electrical Engineering PhD in mathematical physics Became statistician for US govt. Sent by US govt. to Japan after WWII to advise on Japanese census.

Deming’s Philosophy Quality is about people, not products Suggested quality concept for designing product Management need to understand nature of variation and how to interpret statistical data Promoted importance of leadership 85% of production faults responsibility of management, not workers Enumerated a 14-point management philosophy

Product Development Cycle 1.Design the product. 2.Make it. 3.Try to sell it. 4.Do consumer research and test the product’s uses. 5.Redesign – start the cycle all over again.

Achieving Quality Companies should direct efforts towards: – Innovation of products – Innovation of processes – Improvement of existing products – Improvement of existing processes

Quality Approach in Context Quality Costs Prices Productivity Market Share Stay in business

Attributes of a Leader Coaches – not judges Strives to understand variation and its causes Strives to remove obstacles within the organization Responds to all customer forces Adopts consistency of purpose Places and emphasis on improving processes

Attributes of a Leader Recognizes that people are not ‘assets’; they are ‘jewels’ Strives to recognize those who need help and the gives help Creates and atmosphere of trust Knows the work he supervises Does not place an over-reliance on figures Encourages education and continuous improvement of each person

Analysis Vs Synthesis Analysis has been the essence of classical science. The scientific method assumes that the whole is nothing but the sum of the parts, and thus understanding the structure is both necessary and sufficient to understanding the whole.

Analysis Vs Synthesis Synthesis has been the main instrument of the functional approach. By defining a system by its outcome, synthesis puts the subject in the context of the larger system of which it is a part, and then studies the effects it produces in its environment.

Deming’s 14-point Management Philosophy 1.Create constancy of purpose for continual improvement of products – Create constancy of purpose for improvement of systems, products and services, with the aim to become excellent, satisfy customers, and provide jobs. Reduced defects and cost of development.

Deming’s 14-point Management Philosophy 2.Adopt a commitment to seek continual improvements Constantly and forever improve the system development processes, to improve quality and productivity, and thus constantly decrease the time and cost of systems. Improving quality is not a one time effort.

Deming’s 14-point Management Philosophy 3.Switch from defect detection to defect prevention Cease dependencies on mass inspection (especially testing) to achieve quality. Reduce the need for inspection on a mass basis by building quality into the system in the first place. Inspection is not the answer. It is too late and unreliable – it does not produce quality.

Deming’s 14-point Management Philosophy 4.In dealing with suppliers one should end the practice of awarding business on price. Move towards quality of product, reliability of delivery and willingness to cooperate and improve. Build partnerships. Minimize total cost. Move towards a single supplier for any one item or service, making them a partner in a long-term relationship of loyalty and trust.

Deming’s 14-point Management Philosophy 5.Improvement is not confined to products and their direct processes but to all supporting services and activities All functions in an organization need to become quality conscious to deliver a quality product.

Deming’s 14-point Management Philosophy 6.Train a modern way. Institute training on the job. Everyone must be trained, as knowledge is essential for improvement.

Deming’s 14-point Management Philosophy 7.Supervision must change from chasing, to coaching and support. Institute leadership. It is a manger’s job to help their people and their systems do a better job.

Deming’s 14-point Management Philosophy 8.Drive out fear and encourage two-way communication. Drive out fear, so that everyone may work effectively. Management should be held responsible for the faults of the organization and environment.

Deming’s 14-point Management Philosophy 9.Remove barriers between departments Break down barriers between areas. People must work as a team. They must foresee and prevent problems during systems development and use.

Deming’s 14-point Management Philosophy 10.Do not have unrealistic targets Set realistic targets. Do not place people under unnecessary pressure by asking them to do things which are not achievable. Eliminate slogans, exhortations, and targets that ask for zero defects, and new levels of productivity. Slogans do not build quality systems.

Deming’s 14-point Management Philosophy 11.Eliminate quotas and numerical targets Eliminate numerical quotas and goals. Substitute it with leadership. Quotas and goals (such as schedule) address numbers - not quality and methods.

Deming’s 14-point Management Philosophy 12.Remove barriers that prevent employees having pride in the work that they perform Remove barriers to pride of workmanship. The responsibility of project managers must change from schedules to quality.

Deming’s 14-point Management Philosophy 13.Encourage education and self-improvement for everyone Institute and vigorous program of education and self- improvement for everyone. There must be a continuing commitment to training and educating software managers and professional staff.

Deming’s 14-point Management Philosophy 14.Publish top management’s permanent commitment to continuous improvement of quality and productivity

Slide 3.15 Deming Prize Instituted 1951 by Union of Japanese Scientists and Engineers (JUSE) in Japan Several categories including prizes for individuals, factories, small companies, and Deming application prize American company winners – Florida Power & Light (first U.S. winner)

Deming Quotes “94% of the outcome of any organization comes from the processes used, not the people”. “A fault in the interpretation of observations, seen everywhere, is to suppose that every event is attributable to someone (usually the one closest at hand), or is related to some special event. The fact is that most troubles with service and production lie in the system and not the people”.

Juran

Joseph Juran Industrial Engineer Joined Western Electric in the 1920s Authored The Quality Control Handbook which often referred to as the quality bible Believed quality improvement should be achieved through projects Focused on three major quality processes, called the Quality Trilogy Slide 3.16

Slide 3.17 Juran’s Quality Trilogy Quality planning – Preparing to meet quality goals Quality control – Meeting quality goals during operations Quality improvement – Reaching unprecedented levels of performanceQ.PQ.C.Q.I.

Key Idea Juran proposed a simple definition of quality: “fitness for use.” This definition of quality suggests that it should be viewed from both external and internal perspectives; that is, quality is related to (1) product performance that results in customer satisfaction; (2) freedom from product deficiencies, which avoids customer dissatisfaction.”

Juran’s 10-point Program 1.Identify customers 2.Determine customer needs 3.Translate 4.Establishment units of measurement 5.Establish measurements 6.Develop product 7.Optimize product design 8.Develop process 9.Optimize process capability 10.Transfer

Cost of Poor Quality

Cost of Poor Quality 43.PPT Managers and workers speak the language of things but Senior leaders speak the language of money... …COPQ allows us to translate the things into money.

Cost of Poor Quality 44.PPT Cost of Poor Quality  Prevention Cost of Attaining Quality  Appraisal: Prediction Audit  Appraisal: Detection Cost of Poor Quality  Failure: Internal External

Cost of Poor Quality 45.PPT Components Non-Conformance $ Conformance $ $ Quality Costs

Cost of Poor Quality 46.PPT I want my money back! Cost of Quality (COQ) Prevention Appraisal Internal Failure Internal Failure External Failure $ $ Total Quality Cost

COPQ Overview Definitions  All activities and processes that do not meet agreed performance and/or expected outcomes  Costs that would disappear if every task were always performed without deficiency  Actual Cost - Minimum Cost = COPQ

Traditional Cost of Poor Quality (4-5% of Sales) When quality costs are initially determined, the categories included are the visible ones as depicted in the iceberg below. Waste Testing Costs Rework Customer Returns Inspection Costs Rejects Recalls

Cost of Poor Quality As an organization gains a broader definition of poor quality, the hidden portion of the iceberg becomes apparent. Late Paperwork High Costs Pricing or Billing Errors Excessive Field Services Expenses Incorrectly Completed Sales Order Lack of Follow-up on Current Programs Excessive Employee Turnover Planning Delays Excess Inventory Excessive System Costs Overdue Receivables Complaint Handling Unused Capacity Time with Dissatisfied Customer Excessive Overtime Waste Testing Costs Rework Customer Returns Inspection Costs Rejects Recalls Development Cost of Failed Product Hidden COPQ: The costs incurred to deal with these chronic problems Premium Freight Costs Customer Allowances COPQ ranges from 15-25% of Sales

Sigma 6 sigma 5 sigma 4 sigma 3 sigma 2 sigma Cost <10% of sales 10-15% of sales 15-20% of sales 20-30% of sales 30-40% of sales Quantifying the Potential Benefit

The ratio of the individual category costs to total costs varies widely. Many companies exhibit ratios which look like the following: Quality Cost CategoryPercent of Total Internal Failure25 to 40 External Failure25 to 40 Appraisal10 to 50 Prevention.05 to 5 What's Wrong With This Picture? What Does Reality Look Like?

Cost of Poor Quality 52.PPT Examples of Prevention Expense  Quality Planning  Training and Education  Process Definition  Customer Surveys  Preproduction Reviews  Technical Manuals  Detailed Product Engineering  Early Approval of Product  Specifications  Purchase Cost Targets  Process Capability  Studies  Preventive Maintenance  Supplier Qualification  Job Descriptions  Housekeeping  Zero-Defect Program

Cost of Poor Quality 53.PPT  Supplier Certification  Employee Surveys  Security Checks  Safety Checks  Reviews: – Operating Expenditures – Product Costs – Financial Reports – Capital Expenditures Examples of Appraisal Expense  Test  Inspection  Process Controls  Train QA Personnel  Product Audits  Quality Systems Audits  Customer Satisfaction  Surveys and Audits  Prototype Inspection  Accumulating Cost Data

Cost of Poor Quality 54.PPT  Supplier Problems – Scrap and rework – Late deliveries – Excess inventory  Equipment Downtime  Accidents, Injuries  Absenteeism  Unused Reports  Missed Schedule Cost  Lost Sales (any cause) Examples of Internal Failure Costs  Substandard Product  Scrap or Rework  Re-inspection  Redesign/Engineering Change  Process Modifications  Payroll Errors  All Expediting Costs  Off-Spec/Waiver  Abandoned Programs

Cost of Poor Quality 55.PPT Examples of External Failure Costs  Product Recall  Handling Complaints  Customer Service Caused by Errors  Products Returned  Analysis of Returns  Evaluation of Field Stock  Late Payments and Bad Debts  Lawsuits  Reports – Sales and service – Returns and allowances – Failure Lost Sales Because of Customer Dissatisfaction!

Cost of Poor Quality 56.PPT Non-value Added Work Common activities that provide no benefit to customers. – Some result from internal or external failure – Some are unnecessary inspection  Examples – Rarely used information systems – Memos never read – Financial reports not used – Irrelevant procedures – Meetings with no objectives or outcomes Definition

Cost of Poor Quality 57.PPT The Hidden Organization “Theoretical Cycle Time: The back-to-back process time required for a single unit to complete all stages of a task without waiting, stopping, or setups.” Product Step 1 Step 2 Floor Space Value Added Non-Value Added Philip R. Thomas, Competitiveness Through Total Cycle Time. McGraw-Hill (1990) The Hidden Factory Analyze Fix Test Analyze Fix Test

Cost of Poor Quality 58.PPT Why Cost of Poor Quality? Reporting Tool – Comparisons – Trends Analytical Tool – Priorities – Tradeoffs Investment Tool – ROI

Cost of Poor Quality 59.PPT Focus of COPQ Efforts  Identify and Quantify Quality Costs  Expose the “Hidden Factory”  Ongoing Measurement System  Breakthrough Improvement

Cost of Poor Quality 60.PPT Advantages of Using Quality Costs for Management Advantages  Reducing the cost of poor quality is one of the best ways to increase a company's profit.  Provides manageable entity and a single overview of quality.  Aligns quality and goals.  Prioritizes problems and provides a means to measure change/improvement.  Provides a means to correctly distribute controllable quality cost for maximum profits.  Promotes the effective use of resources.  Provides incentives for doing the job right every time.

Summary Quality Gurus – Deming Philosophy Product development cycle Deming’s 14 points – Juran’s Quality Trilogy Cost of poor quality

Improving Productivity