© 2008 Prentice Hall, Inc.6 – 1 Operations Management Lecture 4 – Managing Quality PowerPoint presentation to accompanyPowerPoint presentation to accompanyHeizer/Render Principles of Operations Management, 7e Operations Management, 9e CASE MaterialCASE Material Reference

© 2008 Prentice Hall, Inc.6 – 2 Recap Competitiveness Competitiveness Dimension of Competitiveness Dimension of Competitiveness Basic Concepts Basic Concepts Strategy Strategy Elements of StrategyElements of Strategy Competitive advantage Competitive advantage OM contribution to strategy OM contribution to strategy Operations Strategy Operations Strategy

© 2008 Prentice Hall, Inc.6 – 3 Lecture Outline  Defining Quality  What is Quality  Basic Quality function  Quality Assessment Criteria  Principles dimensions of quality  Quality and Strategy  Implications of Quality  Quality Control, assurance and Management

© 2008 Prentice Hall, Inc.6 – 4 Outline – Continued  Cost of Quality  Leaders in Quality  Ethics and Quality Management  International Quality Standards  ISO 9000  ISO14000

© 2008 Prentice Hall, Inc.6 – 5 Learning Objectives When you complete this chapter you should be able to:  Define quality and Dimensions  Assessing quality-criteria  Implications of Quality  Implications of cost of quality  Describe the ISO international quality standards

© 2008 Prentice Hall, Inc.6 – 6 INTRODUCTION TO QUALITY Productivity, Cost of Operations & Quality all contribute to ProfitabilityProductivity, Cost of Operations & Quality all contribute to Profitability Most important determinant of a company’s long-term success or failure is QUALITYMost important determinant of a company’s long-term success or failure is QUALITY

© 2008 Prentice Hall, Inc.6 – 7 What is Quality? “The totality of characteristics of an entity that bear on its ability to satisfy stated & implied needs.”“The totality of characteristics of an entity that bear on its ability to satisfy stated & implied needs.” Meeting or exceeding customer satisfactionMeeting or exceeding customer satisfaction

© 2008 Prentice Hall, Inc.6 – 8 Basic Quality Function 1.DEFECTS / REJECTS 2.COMPLAINTS 3.CONSISTENCY 4.PRECISION 5.ACCURACY 6.VARIATION

© 2008 Prentice Hall, Inc.6 – 9 Quality Assessment Criteria Judgmental CriteriaJudgmental Criteria Product based criteriaProduct based criteria Manufacturing based criteriaManufacturing based criteria Value based criteriaValue based criteria

© 2008 Prentice Hall, Inc.6 – 10 PRINCIPAL QUALITY DIMENSIONS 1.Performance 2.Features 3.Reliability 4.Conformance 5.Durability 6.Serviceability 7.Aesthetics 8.Perceived quality

© 2008 Prentice Hall, Inc.6 – 11 PRINCIPAL QUALITY DIMENSIONS Performance: primary operating characteristics. Example: A car’s acceleration, braking distance, steering and handlingPerformance: primary operating characteristics. Example: A car’s acceleration, braking distance, steering and handling

© 2008 Prentice Hall, Inc.6 – 12 PRINCIPAL QUALITY DIMENSIONS Features: the “bells and whistles” of a product. A car may have power options, a tape or CD deck, antilock brakes, and reclining seatsFeatures: the “bells and whistles” of a product. A car may have power options, a tape or CD deck, antilock brakes, and reclining seats

© 2008 Prentice Hall, Inc.6 – 13 PRINCIPAL QUALITY DIMENSIONS Reliability: the probability of a product’s consistent performance. A car’s ability to start on cold days and frequency of failures are reliability factorsReliability: the probability of a product’s consistent performance. A car’s ability to start on cold days and frequency of failures are reliability factors

© 2008 Prentice Hall, Inc.6 – 14 PRINCIPAL QUALITY DIMENSIONS Conformance: the degree to which physical and performance characteristics of a product match pre-established standards.Conformance: the degree to which physical and performance characteristics of a product match pre-established standards. car’s fit/finish, freedom from noises can reflect this.car’s fit/finish, freedom from noises can reflect this.

© 2008 Prentice Hall, Inc.6 – 15 PRINCIPAL QUALITY DIMENSIONS Durability: the amount of use one gets from a product before it physically deteriorates or until replacement is preferable.Durability: the amount of use one gets from a product before it physically deteriorates or until replacement is preferable. For car - corrosion resistance & long wear of upholstery fabricFor car - corrosion resistance & long wear of upholstery fabric

© 2008 Prentice Hall, Inc.6 – 16 PRINCIPAL QUALITY DIMENSIONS Serviceability:Serviceability: speed, courtesy, competence of repair work.speed, courtesy, competence of repair work. auto owner -access to spare parts.auto owner -access to spare parts.

© 2008 Prentice Hall, Inc.6 – 17 PRINCIPAL QUALITY DIMENSIONS Aesthetics:Aesthetics: how a product looks, feels, sounds, tastes, or smells. how a product looks, feels, sounds, tastes, or smells. car’s color, instrument panel design and “feel of road” –car’s color, instrument panel design and “feel of road” – make aesthetically pleasingmake aesthetically pleasing

© 2008 Prentice Hall, Inc.6 – 18 PRINCIPAL QUALITY DIMENSIONS Perceived quality:Perceived quality: Subjective assessment of quality resulting from image, advertising, or brand names.Subjective assessment of quality resulting from image, advertising, or brand names. car, - shaped by magazine reviews- manufacturers’ brochurescar, - shaped by magazine reviews- manufacturers’ brochures

© 2008 Prentice Hall, Inc.6 – 19 Quality and Strategy  Managing quality supports differentiation, low cost, and response strategies  Quality helps firms increase sales and reduce costs  Building a quality organization is a demanding task

© 2008 Prentice Hall, Inc.6 – 20 Two Ways Quality Improves Profitability Improved Quality Increased Profits  Increased productivity  Lower rework and scrap costs  Lower warranty costs Reduced Costs via  Improved response  Flexible pricing  Improved reputation Sales Gains via Figure 6.1

© 2008 Prentice Hall, Inc.6 – 21 Implications of Quality 1.Company reputation  Perception of new products  Improved productivity and profits  Employment practices  Supplier relations 2.Product liability  Reduce risk 3.Global implications  Improved ability to compete

© 2008 Prentice Hall, Inc.6 – 22 Quality Control Quality Control include efforts to ensure quality through inspection by acceptance or rejection Quality Control include efforts to ensure quality through inspection by acceptance or rejection Review quality of all factors involved in productionReview quality of all factors involved in production

© 2008 Prentice Hall, Inc.6 – 23 Quality Assurance “Quality assurance includes “all planned & systematic activities implemented within the quality system, & demonstrated as needed, to provide adequate confidence that an entity will fulfill requirements for quality”. Confidence level of Operations Manager that quality products are produced.

© 2008 Prentice Hall, Inc.6 – 24 Quality Management All activities of the overall management function that determine the quality policy, objectives and responsibilities and implement planning, quality control, quality assurance and quality improvement within the quality system” (ISO 840)All activities of the overall management function that determine the quality policy, objectives and responsibilities and implement planning, quality control, quality assurance and quality improvement within the quality system” (ISO 840)

© 2008 Prentice Hall, Inc.6 – 25 What is Cost of Quality?????? “Quality is measured by the cost of quality which is the expense of of non conformance– the cost of doing things wrong.” Vs

© 2008 Prentice Hall, Inc.6 – 26 These Two Main Areas Can Be Split Further As Shown Below:

© 2008 Prentice Hall, Inc.6 – 27 four segments of quality costs: A. PREVENTION. covers avoiding defects planning, Quality training, Quality circles, training, preventative maintenance & evaluation. B. APPRAISAL. area covers finding defects by inspection, audit, test & measurement. C. INTERNAL FAILURE. Cost incurred prior to the shipment of the product or the delivery of the service. These costs are associated with defects that are found prior to customer delivery. covers costs borne by organization itself such as scrap, rework, redesign,. D. EXTERNAL FAILURE. These are the costs of discovered defects after product shipment or service delivery. covers costs borne by customer such as warranty, administrative cost in dealing with failure & loss of goodwill.

© 2008 Prentice Hall, Inc.6 – 28 Cost of Quality Prevention costsPrevention costs –build it right the first time Appraisal costsAppraisal costs –inspection and testing Internal failure costsInternal failure costs –scrap and rework External failure costsExternal failure costs –warranty claims, recalls, lost business

© 2008 Prentice Hall, Inc.6 – 29 Total cost of quality Total Quality cost, is a combination of prevention, appraisal & failure. Reducing any of these reduces total. key to minimum cost, is striking correct balance b/w three. Clearly prevention reduces both appraisal and failure costs, -eventually cost of prevention itself starts to increase total cost & so must be controlled & set at an effective level.Clearly prevention reduces both appraisal and failure costs, -eventually cost of prevention itself starts to increase total cost & so must be controlled & set at an effective level.

© 2008 Prentice Hall, Inc.6 – 30 $ Mostcostly The customer finds defects in delivered parts/ services $ Less costly costly The manufacturer Or service org. Finds & corrects defects internally $ Leastcostly The company’s quality management system is designated, planned, designated, planned, & organized for defect prevention & defect prevention & continuous quality continuous quality improvement. improvement. COMPARATIVE COST OF QUALITY

© 2008 Prentice Hall, Inc.6 – 31 A Manager Who Fails To Provide Resources And Time For Prevention Activities Is Practicing False Economy Concentrate on Prevention, Not Correction Prevention has more leverage when improving quality Prevention Correction Quality

© 2008 Prentice Hall, Inc.6 – 32 Leaders in Quality W. Edwards Deming14 Points for Management Joseph M. JuranTop management commitment, fitness for use Armand FeigenbaumTotal Quality Control Philip B. Crosbyzero defects

© 2008 Prentice Hall, Inc.6 – 33 Ethics and Quality Management  Operations managers must deliver healthy, safe, quality products and services  Poor quality risks injuries, lawsuits, recalls, and regulation  Organizations are judged by how they respond to problems  All stakeholders must be considered

© 2008 Prentice Hall, Inc.6 – 34 International Quality Standards  ISO 9000 series  Common quality standards for products  2000 update places greater emphasis on leadership and customer satisfaction  ISO series

© 2008 Prentice Hall, Inc.6 – 35 ISO Environmental Standard Core Elements:  Environmental management  Auditing  Minimizing how their operations negatively effect the environment

© 2008 Prentice Hall, Inc.6 – 36 Forthcoming lecture- Managing Quality (TQM, Deming 14 points, Quality Tools, Quality in Service)