1. Management of Quality Chapter 9
MIS 373: Basic Operations Management
Additional content from L. Beril Toktay and Jeff Heyl

2. Learning Objectives After this lecture, students will be able to
Define the term quality as it relates to products and as it relates to services.
Identify the determinants of quality.
Explain why quality is important and the consequences of poor quality.
Describe TQM.
Describe and use various quality tools.
MIS 373: Basic Operations Management

3. What is quality?

4. What is quality in the context of
Banking?
Mobile Communication?
Cars?
Healthcare?

5. Quality Defining Quality Different Views
The totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs (American Society for Quality)
Different Views
User-based: better performance, more features
Manufacturing-based: conformance to standards, making it right the first time
Product-based: specific and measurable attributes of the product
MIS 373: Basic Operations Management

6. Quality Management Quality
The ability of a product or service to consistently meet or exceed customer expectations
For a decade or so, quality was an important focal point in business. After a while, this emphasis began to fade as other concerns took precedence
There has been a recent resurgence in attention to quality given recent experiences with the costs and adverse attention associated with highly visible quality failures:
Auto recalls
Toys
Produce
Dog food
Pharmaceuticals
MIS 373: Basic Operations Management

7. Two Ways Quality Improves Profitability
Improved response
Flexible pricing
Improved reputation
Sales Gains via
Improved Quality
Increased Profits
Increased productivity
Lower rework and scrap costs
Lower warranty costs
Reduced Costs via
MIS 373: Basic Operations Management

8. Dimensions of Product Quality
Performance—main characteristics of the product
Aesthetics—appearance, feel, smell, taste
Special features—extra characteristics
Conformance—how well the product conforms to design specifications
Reliability—consistency of performance
Durability—the useful life of the product
Perceived quality—indirect evaluation of quality
Servicebility—handling of complaints or repairs
Consistency—quality doesn't vary.
MIS 373: Basic Operations Management

9. Dimensions of Service Quality
Convenience—the availability and accessibility of the service
Reliability—ability to perform a service dependably, consistently, and accurately
Responsiveness—willingness to help customers in unusual situations and to deal with problems
Time—the speed with which the service is delivered
Assurance—knowledge exhibited by personnel and their ability to convey trust and confidence
Courtesy—the way customers are treated by employees
Tangibles—the physical appearance of facilities, equipment, personnel, and communication materials
Consistency—the ability to provide the same level of good quality repeatedly
Expectations—Meet (or exceed) customer expectations.
MIS 373: Basic Operations Management

10. Service Quality Model Customer Provider
Parasuraman, A., Zeithaml, V. A., and Berry, L. L A Conceptual Model of Service Quality and Its Implications for Future Research. Journal of Marketing 49(4) 41–50.
Word-of-Mouth Communications
Personal Needs
Past Experience
Expected Service
Gap 5
Customer
Perceived Service
External Communications to Customers
Gap 1
Gap 4
Service Delivery
Gap 3
Service Quality
Specifications
Provider
Gap 2
Management Perceptions of Customer Expectations
MIS 373: Basic Operations Management

11. Service Quality Model Gap Problem Cause(s)
1. Consumer expectation – mgmt. perception
The service features offered don’t meet customer needs
Lack of marketing research; inadequate upward communication; too many levels between contact personnel and management
2. Management perception – service quality specification
The service specifications defined do not meet management’s perceptions of customer expectations
Resource constraints; management indifference; poor service design
3. Service quality specification – service delivery
Specifications for service meet customer needs but service delivery is not consistent with those specifications
Employee performance is not standardized; customer perceptions are not uniform
4. Service delivery – external communication
The service does not meet customer expectations, which have been influenced by external communication
Marketing message is not consistent with actual service offering; promising more than can be delivered
5. Expected service – perceived service
Customer judgments of high/low quality based on expectations vs. actual service
A function of the magnitude and direction of the gap between expected service and perceived service
MIS 373: Basic Operations Management

12. Service Quality Model
Consider a service operation (e.g., restaurant, hospital, education, banking, tailor, etc.) and give an example on each of the five gaps in the service quality model.
Word-of-Mouth Communications
Personal Needs
Past Experience
Expected Service
Gap 5
Customer
Perceived Service
External Communications to Customers
Gap 1
Gap 4
Service Delivery
Gap 3
Service Quality
Specifications
Provider
Gap 2
Management Perceptions of Customer Expectations

13. Benefits of Good Quality
Enhanced reputation for quality
Ability to command premium prices
Increased market share
Greater customer loyalty
Lower liability costs
Fewer production or service problems
Lower production costs
Higher profits
MIS 373: Basic Operations Management

14. The Consequences of Poor Quality
Loss of business
Liability
Productivity
Costs (e.g., repair, replacement)
MIS 373: Basic Operations Management

15. If quality is so important, why some (if not most) companies are reluctant to pursue high(er) quality?

16. Costs of Quality Prevention Costs Appraisal Costs Failure Costs
Cost of preventing defects from occurring
Planning, administration, working with vendors, training, quality assurance, design and production.
Appraisal Costs
Costs of activities designed to ensure quality or uncover defects
Inspectors, testing, test equipment, labs, quality audits, quality control, field testing
Failure Costs
Costs incurred by defective parts/products or faulty services.
Internal Failure Costs
Costs incurred to fix problems that are detected before the product/service is delivered to the customer.
External Failure Costs
All costs incurred to fix problems that are detected after the product/service is delivered to the customer
MIS 373: Basic Operations Management

17. Costs of Quality Specific examples
Source:
MIS 373: Basic Operations Management

18. Costs of Quality External Failure Internal Failure Prevention
Total Cost
Quality Improvement
Total Cost
External Failure
Internal Failure
Prevention
Appraisal
MIS 373: Basic Operations Management

19. Responsibility for Quality
Everyone in the organization has some responsibility for quality, but certain areas of the organization are involved in activities that make them key areas of responsibility.
Top management
Design
Procurement
Production/operations
Quality assurance
Packaging and shipping
Marketing and sales
Customer service
MIS 373: Basic Operations Management

20. Ethics and Quality Substandard work
Defective products
Substandard service
Poor designs
Shoddy workmanship
Substandard parts and materials
Having knowledge of this and failing to correct
and report it in a timely manner is unethical.
MIS 373: Basic Operations Management

21. Case
Toyota settles with government for $1.2 billion in recall probe (washingtonpost.com 3/19/14)
In 2009, the driver of a borrowed Lexus — made by Toyota — was unable to stop the vehicle as it careened off the highway at 120 miles per hour, killing three people. “There’s no brakes…Hold on and pray,” one of the passengers said to a 911 operator.
Toyota Motor Corp. has agreed to a $1.2 billion settlement to end a U.S. Justice Department criminal probe into its handling of safety problems, Attorney General Eric Holder announced.
“The $1.2 billion payment represents the largest criminal penalty imposed on a car company in U.S. history,” Holder said in a statement. “This is appropriate given the extent of the deception carried out by Toyota in this case. Put simply, Toyota’s conduct was shameful,” Holder said.

22. Quality Contributors Contributor Key Contributions Shewart
Control charts; variance reduction
Deming
14 points; special vs. common causes of variation
Juran
Quality is fitness-for-use; quality trilogy
Feigenbaum
Quality is a total field; the customer defines quality
Crosby
Quality is free; zero defects
Ishikawa
Cause-and-effect diagrams; quality circles
Taguchi
Taguchi loss function
Ohno and Shingo
Continuous improvement
MIS 373: Basic Operations Management

23. Quotes Team exercise Please come forward to draw a card and a quote
Instructions
Find your teammates who have the same card as yours
Take a few minutes and think about the meaning of the quote you got
Share the quote with your teammates and discuss:
The essence of the quote (some may seem counterintuitive)
Examples that support or against the quote
The implications to operations management

24. Quotes "Quality means doing it right when no one is looking."
— Henry Ford
"Mere allocation of huge sums of money for quality will not bring quality."
— Edwards Deming
"Measure what is measurable and make measurable what is not."
— Galileo Galilei
"When we stop improving, we start to slip backward."
— H. James Harrington
"Be a yardstick of quality. Some people aren't used to an environment where excellence is expected."
— Steve Jobs
"Quality has to be caused, not controlled."
— Philip Crosby
"Quality is remembered long after the price is forgotten."
— Gucci Family Slogan
"It's quality! It's creating brand recognition and going after market share!"
– Bill Gates
"Quality in a service or product is not what you put into it. It is what the client or customer gets out of it."
– Peter Drucker
"Our aim was to insure repeat business based on the system's reputation rather than on the quality of a single store or operator."
– Ray Kroc
"Quality is Free"
"Quality is not an act, it is a habit."
— Aristotle
"Plans are nothing. Planning is everything."
— Dwight Eisenhower
“If it's worth doing, it's worth documenting.”
– Unknown

25. the Baldrige Award Benefits of the Baldrige Competition
Winners achieve financial success
Winners share their knowledge
The process motivates employees
The process requires obtaining data
The process provides feedback
Award Categories
Education
Healthcare
Manufacturing
Nonprofit/Government
Service
Small Business
CATEGORIES
POINTS
Leadership
120
Measurement, Analysis, and Knowledge Mgmt. 90
Strategic Planning 85
Customer Focus
Workforce Focus
Operations Focus
Results
450
More info:
MIS 373: Basic Operations Management

26. ISO 9000 series standards
International Organization for Standardization
ISO 9000
International recognition
Encourages quality management procedures, detailed documentation, work instructions, and recordkeeping
Applies to any organization regardless of size or industry
Over one million certifications in 178 countries
Critical for global business
Includes ISO 9000:2005 (definitions), ISO 9001:2008 (requirements) and ISO 9004:2009 (continuous improvement)
MIS 373: Basic Operations Management

27. ISO 9000 series standards Management principles
Top management leadership
Customer satisfaction
Continual improvement
Involvement of people
Process analysis
Use of data-driven decision making
A systems approach to management
Mutually beneficial supplier relationships
MIS 373: Basic Operations Management

28. American Customer Satisfaction Index
Measures customer satisfaction
Established in 1994
Web site:
Examples (in 2014)
Amazon.com scored 88 (highest in Internet Retail)
Mercedes-Benz (Daimler) scored 88 (highest in Automobiles)
Google scored 77 (highest in Internet Portals and Search Engines)
FOXNews.com scored 82 (highest in Internet News and Information)
MIS 373: Basic Operations Management

29. Total Quality Management
A philosophy that involves everyone in an organization in a continual effort to improve quality and achieve customer satisfaction.
The methods for implementing this approach come from the teachings of such quality leaders as Philip B. Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa, and Joseph M. Juran.
MIS 373: Basic Operations Management

30. Total Quality Management
The Primary Elements of TQM
Customer-focused
Total employee involvement
Process-centered
Integrated system
Strategic and systematic approach
Continual improvement
Fact-based decision making
Communications
MIS 373: Basic Operations Management

31. BMW Quality Management
Can we identify the TQM elements from this video?
Customer-focused
Total employee involvement
Process-centered
Integrated system
Strategic and systematic approach
Continual improvement
Fact-based decision making
Communications

32. Total Quality Management
Implementing a Total Quality Management System
Top management learns about and decides to commit to TQM. TQM is identified as one of the organization’s strategies.
The organization assesses current culture, customer satisfaction, and quality management systems.
Top management identifies core values and principles to be used, and communicates them.
A TQM master plan is developed on the basis of steps 1, 2, and 3.
The organization identifies and prioritizes customer demands and aligns products and services to meet those demands.
Management maps the critical processes through which the organization meets its customers’ needs.
Management oversees the formation of teams for process improvement efforts.
The momentum of the TQM effort is managed by the steering committee.
Managers contribute individually to the effort through planning, training, coaching, or other methods.
Daily process management and standardization take place.
Progress is evaluated and the plan is revised as needed.
Constant employee awareness and feedback on status are provided and a reward/recognition process is established.
MIS 373: Basic Operations Management

33. 6 Six Sigma Two meanings
Statistical definition of a process that is % capable, 3.4 defects per million opportunities (DPMO)
A program designed to reduce defects, lower costs, save time, and improve customer satisfaction
A comprehensive system for achieving and sustaining business success
Mean
Lower limits
Upper limits
3.4 defects/million
±6
2,700 defects/million
±3 6
MIS 373: Basic Operations Management

34. PDSA Cycle Plan-Do-Study-Act (PDSA) Cycle Plan Do Study Act Plan Do
Begin by studying and documenting the current process.
Collect data on the process or problem
Analyze the data and develop a plan for improvement
Specify measures for evaluating the plan Do
Implement the plan, document any changes made, collect data for analysis
Study
Evaluate the data collection during the do phase
Check results against goals formulated during the plan phase
Act
If the results are successful, standardize the new method and communicate it to the relevant personnel
Implement training for the new method
If unsuccessful, revise the plan and repeat the process
MIS 373: Basic Operations Management

35. Continuous Improvement
Quality
Traditional
Time
MIS 373: Basic Operations Management

36. Basic Quality Tools
Flowcharts. A flowchart is a visual representation of a process. As a problem-solving tool, a flowchart can help investigators in identifying possible points in a process where problems occur.
Check Sheets. A check sheet is a simple tool frequently used for problem identification. Check sheets provide a format that enables users to record and organize data in a way that facilitates collection and analysis.
Histograms. A histogram can be useful in getting a sense of the distribution of observed values.
Pareto Analysis. Pareto analysis is a technique for focusing attention on the most important problem areas.
Scatter Diagrams. A scatter diagram can be useful in deciding if there is a correlation between the values of two variables.
Cause-and-Effect Diagrams. A cause-and-effect diagram offers a structured approach to the search for the possible cause(s) of a problem.
Run Charts. A run chart can be used to track the values of a variable over time. This can aid in identifying trends or other patterns that may be occurring.
Control Charts. A control chart can be used to monitor a process to see if the process output is random. It can help detect the presence of correctable causes of variation.
MIS 373: Basic Operations Management

37. Basic Quality Tools
MIS 373: Basic Operations Management

38. Basic Quality Tools Pareto Diagram (the 80/20 rule) Check Sheet 14 105 2 1
MIS 373: Basic Operations Management

39. Cause-and-Effect Diagram
Basic Quality Tools
Scatter Diagram
Cause-and-Effect Diagram
MIS 373: Basic Operations Management

40. Basic Quality Tools
Run Charts. A run chart can be used to track the values of a variable over time. This can aid in identifying trends or other patterns that may be occurring.
MIS 373: Basic Operations Management

41. Basic Quality Tools
Control Charts. A control chart can be used to monitor a process to see if the process output is random. It can help detect the presence of correctable causes of variation.
MIS 373: Basic Operations Management

42. Key Points
Price and quality are the two primary considerations in every buying transaction, so quality is extremely important.
Quality gurus have made important contributions to the way business organizations view quality and achieve quality.
Quality certification and quality awards are important because they can provide some degree of assurance to customers about quality.
Many simple-to-use tools are available for problem solving and process improvement.
MIS 373: Basic Operations Management