Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Operations Management - 6 th Edition Chapter 2 Roberta Russell & Bernard W. Taylor, III Quality Management

Copyright 2006 John Wiley & Sons, Inc.3-2 Lecture Outline  Meaning of Quality  Total Quality Management  TQM in Service Companies  Cost of Quality  Quality Management and Productivity  Identifying Quality Problems and Causes

Copyright 2006 John Wiley & Sons, Inc.3-3 Meaning of Quality  Webster’s Dictionary  degree of excellence of a thing  American Society for Quality  totality of features and characteristics that satisfy needs  Consumer’s and Producer’s Perspective

Copyright 2006 John Wiley & Sons, Inc.3-4 Meaning of Quality: Consumer’s Perspective  Fitness for use  how well product or service does what it is supposed to  Quality of design  designing quality characteristics into a product or service  A Mercedes and a Ford are equally “fit for use,” but with different design dimensions

Copyright 2006 John Wiley & Sons, Inc.3-5 Dimensions of Quality: Manufactured Products  Performance  basic operating characteristics of a product; how well a car is handled or its gas mileage  Features  “extra” items added to basic features, such as a stereo CD or a leather interior in a car  Reliability  probability that a product will operate properly within an expected time frame; that is, a TV will work without repair for about seven years

Copyright 2006 John Wiley & Sons, Inc.3-6  Conformance  degree to which a product meets pre–established standards  Durability  how long product lasts before replacement  Serviceability  ease of getting repairs, speed of repairs, courtesy and competence of repair person Dimensions of Quality: Manufactured Products (cont.)

Copyright 2006 John Wiley & Sons, Inc.3-7  Aesthetics  how a product looks, feels, sounds, smells, or tastes  Safety  assurance that customer will not suffer injury or harm from a product; an especially important consideration for automobiles  Perceptions  subjective perceptions based on brand name, advertising, and the like Dimensions of Quality: Manufactured Products (cont.)

Copyright 2006 John Wiley & Sons, Inc.3-8 Dimensions of Quality: Service  Time and Timeliness  How long must a customer wait for service, and is it completed on time?  Is an overnight package delivered overnight?  Completeness:  Is everything customer asked for provided?  Is a mail order from a catalogue company complete when delivered?

Copyright 2006 John Wiley & Sons, Inc.3-9 Dimensions of Quality: Service (cont.)  Courtesy:  How are customers treated by employees?  Are catalogue phone operators nice and are their voices pleasant?  Consistency  Is the same level of service provided to each customer each time?  Is your newspaper delivered on time every morning?

Copyright 2006 John Wiley & Sons, Inc.3-10  Accessibility and convenience  How easy is it to obtain service?  Does a service representative answer you calls quickly?  Accuracy  Is the service performed right every time?  Is your bank or credit card statement correct every month?  Responsiveness  How well does the company react to unusual situations?  How well is a telephone operator able to respond to a customer’s questions? Dimensions of Quality: Service (cont.)

Copyright 2006 John Wiley & Sons, Inc.3-11 Fitness for Consumer Use Fitness for Consumer Use Producer’s Perspective Consumer’s Perspective Quality of Conformance Conformance to specifications Cost Quality of Design Quality characteristics Price Marketing Production Meaning of Quality

Copyright 2009 John Wiley & Sons, Inc.2-12 Deming’s 14 Points 1.Create constancy of purpose 2.Adopt philosophy of prevention 3.Cease mass inspection 4.Select a few suppliers based on quality 5.Constantly improve system and workers

Copyright 2009 John Wiley & Sons, Inc.2-13  Institute worker training  Instill leadership among supervisors  Eliminate fear among employees  Eliminate barriers between departments  Eliminate slogans Deming’s 14 Points (cont.)

Copyright 2009 John Wiley & Sons, Inc.2-14  Remove numerical quotas  Enhance worker pride  Institute vigorous training and education programs  Develop a commitment from top management to implement above 13 points Deming’s 14 Points (cont.)

Copyright 2006 John Wiley & Sons, Inc.3-15 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.3-16 TQM and…  … Partnering a relationship between a company and its supplier based on mutual quality standards a relationship between a company and its supplier based on mutual quality standards  … Customers system must measure customer satisfaction system must measure customer satisfaction  … Information Technology infrastructure of hardware, networks, and software necessary to support a quality program infrastructure of hardware, networks, and software necessary to support a quality program

Copyright 2006 John Wiley & Sons, Inc.3-17 TQM in Service Companies  Principles of TQM apply equally well to services and manufacturing  Services and manufacturing companies have similar inputs but different processes and outputs  Services tend to be labor intensive  Service defects are not always easy to measure because service output is not usually a tangible item

Copyright 2006 John Wiley & Sons, Inc.3-18 Quality Attributes in Service  Benchmark “best” level of quality achievement one company or companies seek to achieve “best” level of quality achievement one company or companies seek to achieve  Timeliness how quickly a service is provided how quickly a service is provided “quickest, friendliest, most accurate service available.”

Copyright 2006 John Wiley & Sons, Inc.3-19 Cost of Quality  Cost of Achieving Good Quality Prevention costs Prevention costs costs incurred during product design costs incurred during product design Appraisal costs Appraisal costs costs of measuring, testing, and analyzing costs of measuring, testing, and analyzing  Cost of Poor Quality Internal failure costs Internal failure costs include scrap, rework, process failure, downtime, and price reductions include scrap, rework, process failure, downtime, and price reductions External failure costs External failure costs include complaints, returns, warranty claims, liability, and lost sales include complaints, returns, warranty claims, liability, and lost sales

Copyright 2006 John Wiley & Sons, Inc.3-20 Prevention Costs  Quality planning costs costs of developing and implementing quality management program costs of developing and implementing quality management program  Product-design costs costs of designing products with quality characteristics costs of designing products with quality characteristics  Process costs costs expended to make sure productive process conforms to quality specifications costs expended to make sure productive process conforms to quality specifications  Training costs costs of developing and putting on quality training programs for employees and management costs of developing and putting on quality training programs for employees and management  Information costs costs of acquiring and maintaining data related to quality, and development of reports on quality performance costs of acquiring and maintaining data related to quality, and development of reports on quality performance

Copyright 2006 John Wiley & Sons, Inc.3-21 Appraisal Costs  Inspection and testing costs of testing and inspecting materials, parts, and product at various stages and at the end of a process costs of testing and inspecting materials, parts, and product at various stages and at the end of a process  Test equipment costs costs of maintaining equipment used in testing quality characteristics of products costs of maintaining equipment used in testing quality characteristics of products  Operator costs costs of time spent by operators to gar data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality costs of time spent by operators to gar data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality

Copyright 2006 John Wiley & Sons, Inc.3-22 Internal Failure Costs  Scrap costs costs of poor-quality products that must be discarded, including labor, material, and indirect 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 costs of fixing defective products to conform to quality specifications  Process failure costs costs of determining why production process is producing poor-quality products costs of determining why production process is producing poor-quality products  Process downtime costs costs of shutting down productive process to fix problem costs of shutting down productive process to fix problem  Price-downgrading costs costs of discounting poor- quality products—that is, selling products as “seconds” costs of discounting poor- quality products—that is, selling products as “seconds”

Copyright 2006 John Wiley & Sons, Inc.3-23 External Failure Costs  Customer complaint costs costs of investigating and satisfactorily responding to a customer complaint resulting from a poor-quality product 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 costs of handling and replacing poor-quality products returned by customer  Warranty claims costs costs of complying with product warranties costs of complying with product warranties  Product liability costs litigation costs resulting from product liability and customer injury 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 costs incurred because customers are dissatisfied with poor quality products and do not make additional purchases

Copyright 2006 John Wiley & Sons, Inc.3-24 Measuring and Reporting Quality Costs  Index numbers ratios that measure quality costs against a base value ratios that measure quality costs against a base value labor index labor index ratio of quality cost to labor hours ratio of quality cost to labor hours cost index cost index ratio of quality cost to manufacturing cost ratio of quality cost to manufacturing cost sales index sales index ratio of quality cost to sales ratio of quality cost to sales production index production index ratio of quality cost to units of final product ratio of quality cost to units of final product

Copyright 2006 John Wiley & Sons, Inc.3-25 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.3-26 Quality Costs and Index YEAR Quality Costs Prevention$ 27,00041,50074,600112,300 Appraisal155,000122,500113,400107,000 Internal failure386,400469,200347,800219,100 External failure242,000196,000103,500106,000 Total$ 810,400829,200639,300544,400 Accounting Measures Sales$ 4,360,0004,450,0005,050,0005,190,000 Mfg costs1,760,0001,810,0001,880,0001,890,000

Copyright 2006 John Wiley & Sons, Inc.3-27 Quality Costs and Index Quality index = (100) total quality costs base Quality cost per sale = = $810,400(100) 4,360,000 QUALITYQUALITY MANUFACTURING YEARSALES INDEXCOST INDEX

Copyright 2006 John Wiley & Sons, Inc.3-28 Quality–Cost Relationship Increased prevention costs lead to decreased failure costs Increased prevention costs lead to decreased failure costs Improved quality leads to increased sales and market share Improved quality leads to increased sales and market share Quality improvement at the design stage Quality improvement at the design stage Higher quality products can command higher prices Higher quality products can command higher prices

Copyright 2006 John Wiley & Sons, Inc.3-29 Quality and Productivity Quality improvement reduces inputs Quality improvement reduces inputs Fewer defects increase output Fewer defects increase output Productivity = Productivity =outputinput

Copyright 2006 John Wiley & Sons, Inc.3-30 Quality Management and Productivity  Productivity ratio of output to input ratio of output to input  Yield: a measure of productivity Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked) orY=(I)(%G)+(I)(1-%G)(%R) Y=(I)(%G)+(I)(1-%G)(%R)

Copyright 2006 John Wiley & Sons, Inc.3-31 Product Yield Start 100 motors per day 80% are good 50% of poor quality units can be reworked Yield= (I)(%G) + (I)(1 - %G)(%R) Y= 100(0.80) + 100( )(0.50) = 90 motors Y= 100(0.90) + 100( )(0.50) = 95 motors If product quality is increased to 90% good,

Copyright 2006 John Wiley & Sons, Inc.3-32 Product Cost where: K d = direct manufacturing cost per unit I = input K r = rework cost per unit R = reworked units Y = yield

Copyright 2006 John Wiley & Sons, Inc.3-33 Product Cost Direct mfg cost = $30, Rework cost = $ motors started, 20% defective 50% of defective motors can be reworked Product cost = (K d )(I) + (K r )(R) Y Product cost = = $34.67 per motor ($30)(100) + ($12)(10) 90 motors The manufacturing cost after quality improvement is Product cost = = $32.21 per motor ($30)(100) + ($12)(5) 95 motors

Copyright 2006 John Wiley & Sons, Inc.3-34 Multistage Product Yield Y = (I) (%g 1 )(%g 2 )...(%g n ) where I= input batch size %g i = percent good at stage i

Copyright 2006 John Wiley & Sons, Inc.3-35 Multistage Process Yield Start with 100 motors AVERAGE PERCENTAGE STAGE GOOD QUALITY Y= (I) (%g 1 )(%g 2 )...(%g n ) = (100)(0.93)(0.95)(0.97)(0.92) Y= 78.8 motors Solve for I I = = = motors Y (%g 1 )(%g 2 )...(%g n ) 100(0.93)(0.95)(0.97)(0.92)

Copyright 2006 John Wiley & Sons, Inc.3-36 Quality Productivity Ratio (QPR) Includes productivity and quality costs Includes productivity and quality costs Increases Increases if processing or rework costs decrease if processing or rework costs decrease if process yield increases if process yield increases QPR = (100) Good-quality units (input)(processing cost) + (defective units)(rework cost)

Copyright 2006 John Wiley & Sons, Inc.3-37 QPR Example Direct cost = $30/unit Rework cost = $12/unit Start with 100 motors per day 80% are good, 50% of defective units can be reworked Company studies 4 changes 1. Increase production to 200 units/day 2. Cut processing cost to $26 & rework cost to $10 3. Increase yield to 95% 4. Combine 2 and 3

Copyright 2006 John Wiley & Sons, Inc.3-38 QPR Example Direct cost = $30/unit Rework cost = $12/unit Start with 100 motors per day 80% are good, 50% of defective units can be reworked Base case: QPR = (100) = (100)($30) + (10)($12) Case 1: Increase input to capacity of 200 units QPR = (100) = (200)($30) + (20)($12)

Copyright 2006 John Wiley & Sons, Inc.3-39 QPR Example Case 3: Increase initial good-quality to 95% QPR = (100) = (100)($30) + (2.5)($12) Case 4: Decrease costs and increase initial good-quality QPR = (100) = (100)($26) + (2.5)($10) Case 2: Reduce processing cost to $26 and rework to $10 QPR = (100) = (100)($26) + (10)($10)

Copyright 2006 John Wiley & Sons, Inc.3-40 Seven Quality Control Tools  Pareto Analysis  Flow Chart  Check Sheet  Histogram  Scatter Diagram  SPC Chart  Cause-and-Effect Diagram

Copyright 2006 John Wiley & Sons, Inc.3-41 NUMBER OF CAUSEDEFECTSPERCENTAGE Poor design8064% Wrong part dimensions1613 Defective parts1210 Incorrect machine calibration76 Operator errors43 Defective material32 Surface abrasions % Pareto Analysis

Copyright 2006 John Wiley & Sons, Inc.3-42 Percent from each cause Causes of poor quality Machine calibrations Defective parts Wrong dimensions Poor Design Operator errors Defective materials Surface abrasions (64) (13) (10) (6) (3) (2)(2) Pareto Chart

Copyright 2006 John Wiley & Sons, Inc.3-43 Flow Chart Operation Decision Start/ Finish Operation Decision

Copyright 2006 John Wiley & Sons, Inc.3-44 Check Sheet COMPONENTS REPLACED BY LAB TIME PERIOD: 22 Feb to 27 Feb 2002 REPAIR TECHNICIAN: Bob TV SET MODEL 1013 Integrated Circuits |||| Capacitors |||| |||| |||| |||| |||| || Resistors || Transformers |||| Commands CRT |

Copyright 2006 John Wiley & Sons, Inc.3-45 Histogram

Copyright 2006 John Wiley & Sons, Inc.3-46 Scatter Diagram Y X

Copyright 2006 John Wiley & Sons, Inc.3-47 Control Chart Sample number Number of defects UCL = LCL = 1.99 c = 12.67

Copyright 2006 John Wiley & Sons, Inc.3-48 Cause-and-Effect Diagram Quality Problem Quality Problem Out of adjustment Tooling problems Old / worn Machines Faulty testing equipment testing equipment Incorrect specifications Improper methods Measurement Poor supervision Lack of concentration Inadequate training Human Deficiencies in product design Ineffective quality management Poor process design Process Inaccuratetemperaturecontrol Dust and Dirt Environment Defective from vendor Not to specifications Material- handling problems Materials