Managing Quality

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 2 Chapter Objectives Be able to:  Discuss the various definitions and dimensions of quality and why quality is important to operations and supply chains.  Describe the different costs of quality, including internal and external failure, appraisal, and prevention costs.  Know what TQM is, along with its seven core principles.  Calculate process capability ratios and indices and set up control charts for monitoring continuous variables and attributes.  Describe the key issues associated with acceptance sampling, as well as the use of OC curves.  Distinguish between Taguchi’s quality loss function and the traditional view of quality.

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 3 Managing Quality Quality defined Total cost of quality Total quality management (TQM) Statistical quality control Managing quality across the supply chain.

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 4 Definitions of Quality ASQ: –The characteristics of a product or service that bear on its ability to satisfy stated or implied needs –Fitness for use (value perspective) –Free from defects (conformance perspective) How would you evaluate the quality of the following? –Software package –Hand-held vacuum cleaner –No-frills air flight

Strategic Quality Quality as a Competitive Advantage

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 6 Dimensions of Quality Performance Features Reliability Durability Conformance Aesthetics Serviceability Perceived Quality Which dimensions do you think are directly affected by Operations and Supply Chain activities?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 7 Quality Dimension Examples DimensionNew CarTax Preparation Performance Tow capability; gas mileageCost and time to prepare taxes Features Accessories; extended warrantyAdvance on refund check; E- filing Reliability Miles between required serviceNot applicable Durability Expected useful life of the engine, transmission, body Not applicable Conformance Number of defects in the carNumber of mistakes on the tax return Aesthetics Styling, interior appearanceNeatness of the return Serviceability Qualified mechanics in the area? Maintenance time and cost? Will the tax preparation firm talk with the IRS in case of an audit? Perceived Quality How do prices for used vehicles hold up? What is the reputation of the firm?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 8 Defensive Quality Quality analyzed in economic terms  Total Cost of Quality: $ Failure Costs $ Appraisal Costs $ Prevention Costs

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 9 Total Cost of Quality — Traditional View

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 10 Zero Defects View The total costs of quality fall as defect levels decrease

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 11 Total Quality Management (TQM) Managing the entire organization so that it excels in all dimensions important to the customer.  Product development  Marketing  Operations  Supply chain  Support services

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 12 TQM Principles Customer focus Leadership involvement Continuous improvement Employee empowerment Quality assurance (including SQC or SPC) Strategic partnerships Strategic quality plan

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 13 TQM Principles Expanded Customer focus  Each employee has a customer whether internal or external to the company Leadership involvement  Must be ‘top’ down, throughout the company  If not, major cause of TQM failures Continuous improvement  Supports other core principles

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 14 Continuous Improvement (CI) versus “Leaps” Forward Performance Time

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 15 TQM Principles Expanded Employee empowerment  Key to success  Lack of empowerment major cause of TQM/SPC failures Quality assurance  Quality Function Deployment (QFD) discussed in Chapter 6  Statistical quality control (SQC), also called statistical process control (SPC)  Acceptance sampling (OC curve)

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 16 Switching Focus... TQM to Quality Assurance “Did we do it right?”

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 17 We Noted That Organizations Must... Understand which quality dimensions are important Develop products and services that will meet users’ quality needs Put in place business processes capable of meeting these needs Verify that business processes are meeting the specifications

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 18 Process Capability Answers the Question: Can the process provide acceptable quality consistently?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 19 Process Capability Ratio (C p ) Upper Tolerance Limit – Lower Tolerance Limit 6σ6σ Where σ is the estimated standard deviation for the individual observations

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 20 Shown Graphically: Process Capability ratio of 1 (99.7% within tolerance range)

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 21 “Six Sigma Quality” When a process operates with  6σ variation centered between the tolerance limits, only 2 parts out of a billion will be unacceptable.

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 22 Process Capability Index (C pk ) Used when the process is not precisely centered between the tolerance limits.

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 23 Inspect every item Expensive to do Testing can be destructive, should be simply unnecessary Statistical techniques Statistical process control (SPC) Acceptance Sampling Discovering “problems”

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 24 Statistical Process Control “Representative” samples are measured –good, but not perfect, picture of process Sampling by Variable (continuous values — length, weight, area, volume, etc.) Sampling by Attribute (good, bad, # defects/unit, %)

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 25 Example: Fabric Dyeing Rolls of fabric go through dyeing process Target temperature of 140 degrees Too low... ? Too high... ? Temperature must be “monitored” and action taken when something is “unusual” Is temperature a “variable” or an “attribute”?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 26 Step 1: Sampling the Process Things should be working OK when we do this... Sample Observation

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 27 Step 2: Calculate the Mean and Range for Each Sample SampleXR X = 139.8° R = 5.3°

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 28 Step 3A: Use These Values to Set Up X and R charts Upper control limit for X chart: UCL X = X+ A2 × R = Lower control limit for X chart: LCL X = X – A2 × R = 136.7

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 29 Step 3B: Use These Values to Set Up X and R charts (cont’d) Upper control limit for R chart: UCL R = D4 × R = 11.2 Lower control limit for R chart: LCL R = D3 × R = 0

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 30 Use the Charts to Plot the Following Data... SampleXR Out of Contro l Sampl e

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 31 What is the process capability ratio for our dyeing example? What conclusions can you draw? σ = 2.41 from sample data

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 32 What would  need to be for us to have “  ” quality ? σ = 16/12 = σ = UTL – LTL = 148 – 132

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 33 Sampling by Attribute Gonzo Pizza is interested in tracking the proportion (%) of late deliveries Like before, you take several samples of say, 50 observations each when things are “typical” For each sample, you calculate the proportion of late deliveries and call this value p. For example: p = (8 late)/(50 deliveries) = 0.16

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 34 For all samples, calculate the average p: Gonzo Pizza (cont’d) p = 0.10

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 35 Gonzo Pizza (cont’d) Calculate standard deviation for the p-chart as follows: Where n = size of each sample = 50

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 36 Gonzo Pizza (cont’d) And the control limits are: UCL p = p + z × S p = LCL p = p – z × S p = – 0.026, or zero Here z is 3, but can be chosen as other values to increase the sensitivity of the chart to changes in the process.

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 37 Gonzo Pizza Although text says to go ahead with control charts, consider that it is probably too early to develop them since the process is not yet in control (i.e., late deliveries are too high a percentage at present). A more practical approach would be: –First, fix the more obvious problem(s) –Then take new samples –Then put in place control charts

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 38 Acceptance Sampling Some definitions Acceptable quality level (AQL) – Maximum defect level for 100% customer acceptance Lot tolerance percent defective (LTPD) – Highest defect level customer will tolerate Consumer’s risk,  – Probability of accepting a bad lot Producer’s risk,  – Probability of rejecting a good lot Operating characteristics (OC) curve – Probability of accepting a lot given the actual fraction defective in the entire lot and the sampling plan being used.

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 39 Putting the terms together OC Curve

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 40 The Big Picture So how do TQM, continuous improvement, and all these statistical techniques “fit” together?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 41 3 Lines of Defense 1)PREVENT defects from occurring  TQM and continuous improvement 2)DISCOVER problems early  Process control charts 3)CATCH DEFECTS before used or shipped  inspection / acceptance sampling

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 42 Traditional View of the Cost of Variability Low Spec High Spec Target Spec Cost of Bad Quality $

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 43 Taguchi’s Quality Loss Function An alternative perspective on the cost of quality

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 44 Consider Big Bob’s Axles... Axles have slightly larger or smaller diameter than target value Wheels have slightly larger or smaller holes than target value ( What are the possible outcomes?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 45 Taguchi’s view of the cost of variability What are the managerial implications? (HINT: think continuous improvement) Low Spec High Spec Target Spec Cost of Bad Quality $

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 4, Slide 46 TQM Principles Expanded Strategic partnerships  Value of good suppliers and distributors i.e., GIGO (garbage in, garbage out)  Quality consistent throughout supply chain Strategic quality plan  ISO 9000 family of quality standards,  American Society for Quality,

Managing Quality Case Study Dittenhoefer’s Fine China