1. Managing Quality and Time to Create Value
Chapter 7

2. How much quality is enough?
Total quality management (TQM)
Continuous improvement toward perfection
Assumes customers seek high quality and will pay for it
Return on quality (ROQ)
Tradeoff between costs and benefits of quality
Maximize profit instead of quality

3. Costs of quality Prevention costs Appraisal costs
Cost incurred to prevent a problem
Design, process improvement, training, etc.
Appraisal costs
Cost incurred to identify problems
Inspection, testing, evaluations, etc.

4. Costs of quality Internal failure costs External failure costs
Costs incurred to correct problems while still in the company’s control
Rework, scrap, retesting, delays, etc.
External failure costs
Costs incurred to correct problems after the problem leaves the company’s control
Warranty repairs, replacement, recalls, lawsuits, damage to reputation, lost sales, etc.

5. Costs of quality In theory:
Spending on prevention reduces appraisal and failure costs
Spending on appraisal reduces external failure costs
ROQ is maximized where combined cost is minimized

7. Tracking quality Indicators Diagnostics Frequency distributions
Run chart
Control chart
Diagnostics
Scatter diagrams
Cause and effect diagrams/flowcharts
Pareto charts

8. Time matters Time is the one resource you cannot buy
Speed is a competitive advantage
Product/service development time
Customer response time
Receipt of order to delivery
Production cycle time
Start to completion of production process

9. Time/efficiency measures
Productivity
Outputs / inputs
Cycle time
Total processing time / good output produced
Throughput efficiency
Value-added time / Total processing time

10. Measuring capacity Theoretical (rated) capacity -- Planned downtime
= Practical capacity
-- Capacity used to meet demand
= Excess capacity

11. Time-based ABC Simpler version of traditional ABC
Time used as driver base
Calculation of driver rate
Cost of capacity to provide service
Time available to complete service
Cost = time required * driver rate

12. Just-in-time systems Traditional “push” system
Results in mismatch between supply and demand
Excess inventory or lost sales

13. Just-in-time systems JIT “pull” system
Better match between supply and demand
Less inventory
Possibly slower response

14. Just-in-time systems Requirements of JIT
Flexible capacity and workforce
Smooth production flow
Short cycle times and processing times
Reliable suppliers
Commitment to quality