Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Operations Management - 5 th Edition Chapter 3 Roberta Russell & Bernard W. Taylor, III Quality Management

Copyright 2006 John Wiley & Sons, Inc.3-2 Outline  Meaning of Quality Dimensions of quality Dimensions of quality  Specifications and conformance quality  Cost of quality  Levels of quality improvement  Total quality management (TQM)

Copyright 2006 John Wiley & Sons, Inc.3-3 Outline (2)  Quality management approaches Six sigma Six sigma Baldrige Award Baldrige Award ISO 9000 ISO 9000 Plan-do-check-act cycle (part 2 handout) Plan-do-check-act cycle (part 2 handout) Quality tools Quality tools

Copyright 2006 John Wiley & Sons, Inc.3-4 Meaning of Quality  American Society for Quality: Quality is "the totality of features and characteristics that satisfy customer needs"  Customer-based quality: meeting customer expectations or requirements  Affected by product positioning  Different for different target markets  Different for different customers in the same target market

Copyright 2006 John Wiley & Sons, Inc.3-5 Meaning of Quality (2)  Fitness for use: the product or service performs as intended  Features: extra items added to basic characteristics  Quality of design: the degree to which quality characteristics are designed into a good or service  Value: Product or service is superior to competitors with similar prices.

Copyright 2006 John Wiley & Sons, Inc.3-6 Meaning of Quality (3)  Perceived quality: the quality that the customer thinks she got Differs by customer Differs by customer  Producer-based quality: conformance to specifications. Specifications must be based on customer expectations or requirements Specifications must be based on customer expectations or requirements Specifications will change over time Specifications will change over time

Copyright 2006 John Wiley & Sons, Inc.3-7 Dimensions of Product Quality (Garvin – page 80)  Performance  Features  Reliability  Conformance to specifications  Durability  Serviceability and quality of service  Aesthetics  Safety  Other perceptions

Copyright 2006 John Wiley & Sons, Inc.3-8 Dimensions of Service Quality (pages 81-82)  Time and timeliness  Completeness  Courtesy  Consistency  Accessibility and convenience  Accuracy  Responsiveness  Physical elements of the service

Fitness for Use Fitness for Use Producer’s Perspective Consumer’s Perspective Quality of Conformance Conformance to specifications Cost Quality of Design Quality characteristics Price Value Marketing Production Meaning of Quality Meaning of Quality (3)

Copyright 2006 John Wiley & Sons, Inc.3-10 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  Should meet any legal requirements If a product or service consistently meets specifications, it has conformance quality. If a product or service consistently meets specifications, it has conformance quality.

Copyright 2006 John Wiley & Sons, Inc.3-11 Measuring Service Quality  Absolute measures are based on a fixed standard. Timeliness Timeliness % of transactions without errors. % of transactions without errors.  Perceptual measures are based on customers’ opinions. How important was this characteristic to the customer? How important was this characteristic to the customer? How satisfied was the customer ? How satisfied was the customer ?

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

Copyright 2006 John Wiley & Sons, Inc.3-13 Achieving Conformance Quality  Product or service design  Process technology and equipment  Purchasing and materials management  Planning and scheduling  Hiring, training, and supervision  Measurement and control

Copyright 2006 John Wiley & Sons, Inc.3-14 Cost of Quality  Cost of good quality Prevention costs Prevention costs Appraisal costs Appraisal costs  Cost of poor quality Internal failure costs Internal failure costs External failure costs External failure costs  See pages

Copyright 2006 John Wiley & Sons, Inc.3-15 Quality–Cost Relationship Quality–Cost Relationship  Cost of quality Difference between price of nonconformance and conformance Difference between price of nonconformance and conformance Cost of doing things wrong Cost of doing things wrong 20 to 35% of revenues 20 to 35% of revenues Cost of doing things right Cost of doing things right 3 to 4% of revenues 3 to 4% of revenues Profitability Profitability In the long run, quality is free In the long run, quality is free

Copyright 2006 John Wiley & Sons, Inc.3-16 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 Uses Plan-Do-Check-Act cycle and quality tools  Breakthrough improvements: large improvements required to meet business objectives Re-engineer the process Re-engineer the process Six Sigma is often used Six Sigma is often used New technology is often needed New technology is often needed

Copyright 2006 John Wiley & Sons, Inc.3-17 Total Quality Management  Commitment to quality throughout organization  Principles of TQM Customer-oriented Customer-oriented Leadership Leadership Strategic planning Strategic planning Employee responsibility Employee responsibility Continuous improvement Continuous improvement Cooperation Cooperation Statistical methods Statistical methods Training and education Training and education

Copyright 2006 John Wiley & Sons, Inc.3-18 Six Sigma(1)  A process for developing and delivering near perfect products and services Measure of how much a process deviates from perfection Measure of how much a process deviates from perfection Maximum allowed defects: 3.4 defects per million opportunities Maximum allowed defects: 3.4 defects per million opportunities

Copyright 2006 John Wiley & Sons, Inc.3-19 Six Sigma(2)  Six Sigma is a business improvement methodology that focuses an organization on: Understanding and managing customer requirements Understanding and managing customer requirements Aligning key business processes to achieve those requirements Aligning key business processes to achieve those requirements Utilizing rigorous data analysis to minimize variation in those processes Utilizing rigorous data analysis to minimize variation in those processes Driving rapid and sustainable improvement to business processes Driving rapid and sustainable improvement to business processes

Copyright 2006 John Wiley & Sons, Inc.3-20 Six Sigma(3)  A high performance management system that helps an organization Align their business strategy to critical improvement efforts Align their business strategy to critical improvement efforts Mobilize teams to attack high impact projects Mobilize teams to attack high impact projects Accelerate improved business results Accelerate improved business results Govern efforts to ensure improvements are sustained Govern efforts to ensure improvements are sustained

Copyright 2006 John Wiley & Sons, Inc.3-21 DMAIC  A process improvement strategy used in six sigma Define opportunity Define opportunity Measure performance Measure performance Analyze opportunity Analyze opportunity Improve performance Improve performance Control performance Control performance

Copyright 2006 John Wiley & Sons, Inc.3-22 Design for Six Sigma (DFSS)  A proactive approach for designing Six Sigma quality into a product, service, or process

Black Belts and Green Belts  Black Belt project leader project leader  Master Black Belt a teacher and mentor for Black Belts a teacher and mentor for Black Belts  Green Belts project team members project team members

3.4 DPMO 67,000 DPMO cost = 25% of sales 67,000 DPMO cost = 25% of sales DEFINE CONTROL IMPROVE ANALYZE MEASURE Six Sigma: DMAIC

Copyright 2006 John Wiley & Sons, Inc.3-25 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

Baldrige Award Criteria Framework A Systems Perspective Organizational Profile Measurement, analysis, & knowledge management (90 pts) Leadership (120 pts) Customer & Market Focus (85 pts) Strategic Planning (85 pts) Human Resource Development & Mgmt. (85 pts) Process Mgmt. (85 pts) Business Results (450 pts) Total = 1,000 pts

Copyright 2006 John Wiley & Sons, Inc.3-27 Baldrige Award - Business Results  Customer-focused results  Product and service performance  Financial and market results  Human resource results

Copyright 2006 John Wiley & Sons, Inc.3-28 ISO 9000 Standards  International quality certification program guided by the International Standards Organization (ISO) Any firm that passes an ISO standards audit will be certified. Any firm that passes an ISO standards audit will be certified.  U. S. participates in the development of these standards: American National Standards Institute (ANSI) American National Standards Institute (ANSI) American Society for Quality (ASQ) American Society for Quality (ASQ) Professional organizations Professional organizations

Copyright 2006 John Wiley & Sons, Inc.3-29 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 certified Be sure that your registrar is acceptable to your customers Be sure that your registrar is acceptable to your customers  Firms must be re-certified periodically.