©The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin Chapter 6 Quality: Meeting Customer Expectations

6-2 Learning Objectives State the contributions Shewhart, Deming, Juran, and Crosby made to quality management. Describe why customer loyalty is so important for profitability. Explain the importance of internal and external customers and the role each plays in TQM. Describe the three principles of TQM. Explain how the PDCA cycle is used to obtain continuous improvement. Describe the seven steps of the quality improvement story. Describe industry-focused and process-focused benchmarking. Describe how Six Sigma is used to enhance quality. Explain how certification programs can provide structure for quality improvement. State the criteria used for the Malcolm Baldrige National Quality Award.

6-3 Quality... What do we mean??? Quality is defined by the customer. Quality has a key role in customer perception of value. Quality = Conformance to customer specifications and expectations.

6-4 Dimensions of Product and Service Quality

6-5 Dimensions of Product Quality* Performance –What are the desirable characteristics of the product? Features –What additional characteristics of the product are possible? Reliability –Is the product dependable? Does it accomplish what it promises? Durability –How long will the product last? *Source: Garvin, D.A. (1984) and Pisek, P.E. (1987)

6-6 Dimensions of Product Quality* Serviceability –Can the product be easily and inexpensively repaired? Aesthetics –Does the product satisfy subjective requirements? Response –Is the interaction between the customer and the product provider pleasant and appropriate? Reputation –What does information on past performance say about the company? *Source: Garvin, D.A. (1984) and Pisek, P.E. (1987)

6-7 Dimensions of Service Quality Reliability –Does the business keep its promises? Responsiveness –Does it promptly respond to the needs of its customers? Assurance –Can the employees generate customer trust and confidence?

6-8 Dimensions of Service Quality Empathy –Are employees approachable and sensitive to individual customers? Tangibles –Do the physical facilities, equipment, and written materials show care and attention?

6-9 A Brief History of Quality Management Deming: Stressed that significant quality improvement only comes from changing the organization, and that responsibility rests with upper management. Deming’s 14 Points

6-10 A Brief History of Quality Management Crosby: Known for his influence on the education and attitudes of top management, not the development of techniques. Crosby also had 14 points

6-11 A Brief History of Quality Management Crosby also had 4 “absolutes.”

6-12 A Brief History of Quality Management Shewhart –Developed the use of statistical process control charts, which provide an opportunity to control the variability of processes Juran –Believed quality problems could be traced to ineffective management. –Created a framework for managing quality that consisted of three elements: quality planning, quality control, and quality improvement.

6-13 Cost of Quality All of the costs associated with maintaining the quality of goods and services. –Those costs are reduced as failures are moved closer to the firm and ultimately prevented.

6-14 Cost of Quality Categories Prevention costs –Investing in advanced technology and processes to promote good engine design. –Rule of Thumb  For every $1 spent here, you save more below Appraisal costs (inspection and testing) –Implementing worker self-inspection to capture and rework defective components on the assembly line Internal failure costs –Sending the engine to rework in the factory after a defect is detected in the final product External failure costs –Replacing the engine after it fails in the customer’s automobile

6-15 Customer Loyalty and Quality The cost of acquiring a new customer is much higher than the cost of retaining a current one. Customer retention results from the customer having good experiences. As the customer gains experiences, he/she becomes more loyal. As the customer becomes more loyal, retention costs less. A very loyal customer may become a company advocate.

6-16 Total Quality Management TQM devlops a culture of “doing it right the first time.” It is based on three principles: –Customer focus: The customer determines what quality is. –Continuous process improvement: Constantly trying to eliminate variability. –Total involvement: A commitment at all levels of the firm.

6-17 How TQM Accomplishes Its Principles TQM’s supportive approaches 3 Principles Of Quality

6-18 Total Quality Management’s Impact on Profitability Insert exhibit 6.9 (Impact on profitability)

6-19 Obtaining Continuous Improvement: The Plan-Do-Check-Act (PDCA) Cycle Check: See if things have improved. Plan : Identify the problem, understand it, and find its root cause. Do : Take action to fix the problem. Act : standardize the change throughout the business.

6-20 Six Sigma Quality A philosophy and set of methods companies use to eliminate defects in their products and processes –Evolution of “Total Quality Management” movement Adopted by General Electric, Motorola, etc., as a means of focusing effort on quality using a methodological approach Overall focus of the methodology is to understand and achieve what the customer wants Seeks to reduce variation in the processes that lead to product defects

Define (D)Customers and their priorities2. Measure (M)Process and its performance3. Analyze (A)Causes of defects4. Improve (I)Remove causes of defects5. Control (C)Maintain quality Six Sigma Quality: DMAIC Cycle for existing process/product improvement Define, Measure, Analyze, Improve, and Control (DMAIC)

Define (D)Customers and their priorities2. Measure (M)Process and its performance3. Analyze (A)Causes of defects 4. Design (D)Design the New Product or Service 5. Verify (V)Determine whether new design is effective Six Sigma Quality: DMADV Cycle for new service/product design Define, Measure, Analyze, Design, and Verify (DMADV)

6-23 Executive Leader –Executive who sponsors the overall Six Sigma Initiative Champion –Middle- or senior-level executive who sponsors a specific Six Sigma project, ensuring that resources are available and cross- functional issues are resolved Master Black Belt –Highly experienced and successful Black Belt who has managed several projects and is an expert in Six Sigma methods/tools –Responsible for coaching/mentoring/ training Black Belts and for helping the Six Sigma leader and Champions keep the initiative on track Six Sigma Hierarchy

6-24 Black Belt –Full-time professional who acts as a team leader on Six Sigma projects –Typically has four to five weeks of classroom training in methods, statistical tools, and (sometimes) team skills Green Belt –Part-time professional who participates on a Black Belt project team or leads smaller projects –Typically has two weeks of classroom training in methods and basic statistical tools Six Sigma Hierarchy

6-25 Industry-focused benchmarking is the identification of the best practices among competitors. Process-focused benchmarking focuses on similar processes of other companies, even if they are not competitors. Benchmarking

6-26 Benchmarking Industry Focused Process Focused

6-27 Quality Certification Programs: ISO

6-28 Quality Awards The Malcolm Baldrige National Quality Award, managed by the Department of Commerce, provides an excellent structure for developing a quality-driven organization. Insert exhibit 6.20