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Chapter 2

Quality Management
Lecture Outline
• What Is Quality?                        • Quality in Service
• Evolution of Quality                      Companies
  Management                              • Six Sigma
• Quality Tools                           • Cost of Quality
• TQM and QMS                             • Effect of Quality
• Focus of Quality                          Management on
  Management—                               Productivity
  Customers                               • Quality Awards
• Role of Employees in                    • ISO 9000
  Quality Improvement



Copyright 2011 John Wiley & Sons, Inc.                           2-2
What Is Quality?

• Oxford American Dictionary
  • a degree or level of excellence
• American Society for Quality
  • totality of features and characteristics that
    satisfy needs without deficiencies
• Consumer’s and producer’s perspective




Copyright 2011 John Wiley & Sons, Inc.              2-3
What Is Quality:
                      Customer’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 2011 John Wiley & Sons, Inc.                                  2-4
Dimensions of Quality:
                       Manufactured Products
• Performance
      • basic operating characteristics of a product; how
        well a car handles 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 2011 John Wiley & Sons, Inc.                      2-5
Dimensions of Quality:
                       Manufactured Products
• Conformance
      • degree to which a product meets pre–established
        standards
• Durability
      • how long product lasts before replacement; with
        care, L. L. Bean boots may last a lifetime
• Serviceability
      • ease of getting repairs, speed of repairs, courtesy
        and competence of repair person




Copyright 2011 John Wiley & Sons, Inc.                        2-6
Dimensions of Quality:
                       Manufactured Products
• 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, etc.




Copyright 2011 John Wiley & Sons, Inc.                          2-7
Dimensions of Quality: Services
• 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 2011 John Wiley & Sons, Inc.                2-8
Dimensions of Quality: Service

• Courtesy:
      • how are customers treated by employees?
      • are catalogue phone operators nice and are their
        voices pleasant?
• Consistency
      • is same level of service provided to each customer
        each time?
      • is your newspaper delivered on time every morning?




Copyright 2011 John Wiley & Sons, Inc.                       2-9
Dimensions of Quality: Service

• Accessibility and convenience
      • how easy is it to obtain service?
      • does service representative answer you calls quickly?
• Accuracy
      • is service performed right every time?
      • is your bank or credit card statement correct every
        month?
• Responsiveness
      • how well does company react to unusual situations?
      • how well is a telephone operator able to respond to a
        customer’s questions?


Copyright 2011 John Wiley & Sons, Inc.                        2-10
What Is Quality:
                       Producer’s Perspective
• Quality of conformance
  • making sure product or service is produced
    according to design
            • if new tires do not conform to specifications, they
              wobble
            • if a hotel room is not clean when a guest checks
              in, hotel is not functioning according to
              specifications of its design




Copyright 2011 John Wiley & Sons, Inc.                              2-11
Meaning of Quality




Copyright 2011 John Wiley & Sons, Inc.            2-12
What Is Quality:
                            A Final Perspective
• Customer’s and producer’s perspectives
  depend on each other
• Producer’s perspective:
     • production process and COST
• Customer’s perspective:
     • fitness for use and PRICE
• Customer’s view must dominate




Copyright 2011 John Wiley & Sons, Inc.            2-13
Evolution of Quality Management:
                  Quality Gurus
• Walter Shewhart
      • In 1920s, developed control charts
      • Introduced term ―quality assurance”
• W. Edwards Deming
      • Developed courses during WW II to teach statistical quality-
        control techniques to engineers and executives of military
        suppliers
      • After war, began teaching statistical quality control to Japanese
        companies
• Joseph M. Juran
      • Followed Deming to Japan in 1954
      • Focused on strategic quality planning
      • Quality improvement achieved by focusing on projects to solve
        problems and securing breakthrough solutions


Copyright 2011 John Wiley & Sons, Inc.                                  2-14
Evolution of Quality Management:
                  Quality Gurus
• Armand V. Feigenbaum
      • In 1951, introduced concepts of total quality control and
        continuous quality improvement
• Philip Crosby
      • In 1979, emphasized that costs of poor quality far outweigh cost
        of preventing poor quality
      • In 1984, defined absolutes of quality management—
        conformance to requirements, prevention, and ―zero defects‖
• Kaoru Ishikawa
      • Promoted use of quality circles
      • Developed ―fishbone‖ diagram
      • Emphasized importance of internal customer




Copyright 2011 John Wiley & Sons, Inc.                                2-15
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 2011 John Wiley & Sons, Inc.                  2-16
Deming’s 14 Points

    6.        Institute worker training
    7.        Instill leadership among supervisors
    8.        Eliminate fear among employees
    9.        Eliminate barriers between departments
    10.       Eliminate slogans




Copyright 2011 John Wiley & Sons, Inc.                 2-17
Deming’s 14 Points

    11. Eliminate numerical quotas
    12. Enhance worker pride
    13. Institute vigorous training and education
        programs
    14. Develop a commitment from top management
        to implement above 13 points




Copyright 2011 John Wiley & Sons, Inc.           2-18
Deming Wheel: PDCA Cycle




Copyright 2011 John Wiley & Sons, Inc.     2-19
Quality Tools

• Process Flow Chart                            • Histogram
• Cause-and-Effect                              • Scatter Diagram
  Diagram                                       • Statistical Process
• Check Sheet                                     Control Chart
• Pareto Analysis




Copyright 2011 John Wiley & Sons, Inc.                                  2-20
Flow Chart

• A diagram of the steps in a process
• Helps focus on location of problem in a process




Copyright 2011 John Wiley & Sons, Inc.                2-21
Cause-and-Effect Diagram
• Cause-and-effect diagram (―fishbone‖ diagram)
  – chart showing different categories of problem
    causes




Copyright 2011 John Wiley & Sons, Inc.              2-22
Cause-and-Effect Matrix

• Cause-and-effect matrix
      – grid used to prioritize causes of quality problems




Copyright 2011 John Wiley & Sons, Inc.                       2-23
Check Sheets and Histograms

• Tally number of defects
  from a list of causes




• Frequency diagram of
  data for quality problem




Copyright 2011 John Wiley & Sons, Inc.    2-24
Pareto Analysis

• Pareto analysis
      – most quality problems result from a few causes




Copyright 2011 John Wiley & Sons, Inc.                   2-25
Pareto Chart




Copyright 2011 John Wiley & Sons, Inc.                  2-26
Scatter Diagram

• Graph showing relationship between 2 variables
  in a process
• Identifies pattern that may cause a quality
  problem




Copyright 2011 John Wiley & Sons, Inc.             2-27
Control Chart
• A chart with statistical upper and lower limits
• If sample statistics remain between these limits we
  assume the process is in control




Copyright 2011 John Wiley & Sons, Inc.               2-28
TQM and QMS

• Total Quality Management (TQM)
   • customer-oriented, leadership, strategic
     planning, employee responsibility, continuous
     improvement, cooperation, statistical methods,
     and training and education
• Quality Management System (QMS)
   • system to achieve customer satisfaction that
     complements other company systems




Copyright 2011 John Wiley & Sons, Inc.           2-29
Focus of Quality Management—
                    Customers
• TQM and QMSs
   • serve to achieve customer satisfaction
• Satisfied customers are less likely to switch to a
  competitor
• It costs 5-6 times more to attract new customers as
  to keep an existing one
• 94-96% of dissatisfied customers don’t complain
• Small increases in customer retention mean large
  increases in profits

Copyright 2011 John Wiley & Sons, Inc.          2-30
Quality Management in the
                         Supply Chain
• Companies need support of their suppliers to
  satisfy their customers
• Reduce the number of suppliers
• Partnering
   • a relationship between a company and its
     supplier based on mutual quality standards




Copyright 2011 John Wiley & Sons, Inc.            2-31
Measuring Customer Satisfaction

• An important component of any QMS
• Use customer surveys to hear ―Voice of the
  Customer‖
• American Customer Satisfaction Index (ACSI)




Copyright 2011 John Wiley & Sons, Inc.          2-32
Role of Employees in Quality
                       Improvement
• Participative problem solving
      • employees involved in quality-management
      • every employee has undergone extensive training to
        provide quality service to Disney’s guests
• Kaizen
      • involves everyone in process of continuous
        improvement
      • employees determining solutions to their own
        problems




Copyright 2011 John Wiley & Sons, Inc.                   2-33
Quality Circles

• Voluntary group of                                           Organization
  workers and                                                  8-10 members
                                                                 Same area
                                                            Supervisor/moderator
  supervisors from same
                                                                                      Training
  area who address       Presentation
                        Implementation
                                                                                   Group processes
                                                                                    Data collection
  quality problems        Monitoring                                               Problem analysis




                                                                                      Problem
                                            Solution                                Identification
                                          Problem results                          List alternatives
                                                                                     Consensus
                                                                 Problem            Brainstorming
                                                                 Analysis
                                                              Cause and effect
                                                               Data collection
                                                                and analysis



Copyright 2011 John Wiley & Sons, Inc.                                                     2-34
Process (Quality) Improvement Teams

• Focus attention on business processes rather
  than separate company functions
• Includes members from the interrelated
  departments which make up a process
• Important to understand the process the team
  is addressing
• Process flowcharts are key tools




Copyright 2011 John Wiley & Sons, Inc.           2-35
Quality in Services

• Service defects are not always easy to measure
  because service output is not usually a tangible
  item
• Services tend to be labor intensive
• Services and manufacturing companies have
  similar inputs but different processes and outputs




Copyright 2011 John Wiley & Sons, Inc.             2-36
Quality Attributes in Services

• Principles of TQM apply equally well to services
  and manufacturing
• Timeliness is an important dimension
  • how quickly a service is provided
• Benchmark
  • ―best‖ level of quality achievement in one company
    that other companies seek to achieve




                                                         2-37
Six Sigma

• A process for developing and delivering virtually
  perfect products and services
• Six Sigma is a measure of how much a process
  deviates from perfection
• Goal: 3.4 defects per million opportunities (DPMO)




Copyright 2011 John Wiley & Sons, Inc.               2-38
Six Sigma Process

    1. Align
       • executives create balanced scorecard
    2. Mobilize
       • project teams formed and empowered to act
    3. Accelerate
       • black and green belts execute project
    4. Govern
          • monitor and review projects
    • Champion
          • an executive responsible for project success

Copyright 2011 John Wiley & Sons, Inc.                     2-39
Breakthrough Strategy: DMAIC

• Define
      • problem is defined
• Measure
      • process measured, data collected
• Analyze
      • data analysis to find cause of problem
• Improve
      • develop solutions to problem
• Control
      • ensure improvement is continued

Copyright 2011 John Wiley & Sons, Inc.           2-40
Six Sigma Process
 DEFINE                MEASURE           ANALYZE   IMPROVE   CONTROL




                                                               3.4 DPMO




                              67,000 DPMO
                            cost = 25% of sales


Copyright 2011 John Wiley & Sons, Inc.                              2-41
Black Belts and Green Belts
• Black Belt
      • project leader
• Master Black Belt
      • a teacher and mentor for Black Belts
• Green Belts
      • project team members




Copyright 2011 John Wiley & Sons, Inc.         2-42
Six Sigma Tools (1-3)
• Quality Function Deployment (QFD)
  • capture the ―voice of the customer‖
• Cause & Effect Matrix
      • identify and prioritize causes of a problem
• Failure Modes and Affects Analysis (FMEA)
      • analyze potential problems before they occur




Copyright 2011 John Wiley & Sons, Inc.                 2-43
Six Sigma Tools (4-6)

• t-Test
      • test for differences between groups
• Statistical Process Control (SPC) Chart
      • monitor a process over time for variations
• Design of Experiments (DOE)
      • determining relationships between factors affecting
        inputs and outputs of a process




Copyright 2011 John Wiley & Sons, Inc.                        2-44
Design for Six Sigma (DFSS)

• A systematic approach to designing products
  and processes that will achieve Six Sigma
• Uses same basic approach as breakthrough
  strategy
• Employs the strategy up front in the design
  and development phases
• A more effective and less expensive way to
  achieve Six Sigma



Copyright 2011 John Wiley & Sons, Inc.          2-45
Lean Six Sigma

•   Integrate Six Sigma and ―lean systems‖ (Ch 16)
•   Lean seeks to optimize process flows
•   Lean extends earlier efforts in efficiency
•   Lean process improvement steps
      1.     determine what creates value for customers
      2.     identify ―value stream‖
      3.     remove waste in the value stream
      4.     make process responsive to customer needs
      5.     continually repeat attempts to remove waste



Copyright 2011 John Wiley & Sons, Inc.                     2-46
Lean Six Sigma

• Six Sigma and Lean seek
   • process improvements
   • Increased value to customers
• They approach the goals in different,
  complementary ways




Copyright 2011 John Wiley & Sons, Inc.             2-47
Profitability

• The typical criterion for selecting Six Sigma
  projects
• One of the factors distinguishing Six Sigma from
  TQM
• ―Quality is not only free, it is an honest-to-
  everything profit maker‖
• Quality improvements reduce costs of poor quality




Copyright 2011 John Wiley & Sons, Inc.                   2-48
Cost Impact of Six Sigma
Medtek Company implements Six Sigma to reduce defects from
   10% to 0 %. Then spend $120,000 for more change.
                                                After Six
                 Original   After Changes      Sigma Costs
Sales         $1,000,000       1,000,000         1,000,000
Variable cost    600,000         540,054           540,054
Fixed cost       350,000         350,000           360,000
Profit            50,000         109,946            99,946
                                  Doubled       33.3% return

Return on 120,000 = 100*(49,946-10,000)/120,000 = 33.3%


Copyright 2011 John Wiley & Sons, Inc.                    2-49
Cost of Quality
• Cost of Achieving Good Quality
     • Prevention costs
           • costs incurred during product design
     • Appraisal costs
           • costs of measuring, testing, and analyzing
• Cost of Poor Quality
     • Internal failure costs
           • include scrap, rework, process failure, downtime, and price
             reductions
     • External failure costs
           • include complaints, returns, warranty claims, liability, and
             lost sales




Copyright 2011 John Wiley & Sons, Inc.                                      2-50
Prevention Costs
• Quality planning costs                 • Training costs
      • costs of developing and             • costs of developing and
        implementing quality                  putting on quality training
        management program
                                              programs for employees
• Product-design costs                        and management
      • costs of designing products      • Information costs
        with quality characteristics
                                            • costs of acquiring and
• Process costs                               maintaining data related to
      • costs expended to make                quality, and development
        sure productive process
        conforms to quality                   and analysis of reports on
        specifications                        quality performance




Copyright 2011 John Wiley & Sons, Inc.                                  2-51
Appraisal Costs

• Inspection and testing
      • costs of testing and inspecting materials, parts, and
        product at various stages and at end of process
• Test equipment costs
      • costs of maintaining equipment used in testing quality
        characteristics of products
• Operator costs
      • costs of time spent by operators to gather data for
        testing product quality, to make equipment adjustments
        to maintain quality, and to stop work to assess quality




Copyright 2011 John Wiley & Sons, Inc.                          2-52
Internal Failure Costs
• Scrap costs                            • Process downtime costs
   • costs of poor-quality products    • costs of shutting down
     that must be discarded,             productive process to fix
     including labor, material, and      problem
     indirect costs                 • Price-downgrading costs
• Rework costs                         • costs of discounting poor-
   • costs of fixing defective           quality products—that is,
     products to conform to quality      selling products as
     specifications                      ―seconds‖
• Process failure costs
      • costs of determining why
        production process is
        producing poor-quality
        products



Copyright 2011 John Wiley & Sons, Inc.                              2-53
External Failure Costs

• Customer complaint costs                  • Product liability costs
      • costs of investigating and             • litigation costs resulting
        satisfactorily responding to a           from product liability and
        customer complaint resulting from        customer injury
        a poor-quality product
• Product return costs                      • Lost sales costs
      • costs of handling and replacing        • costs incurred because
        poor-quality products returned by        customers are
        customer                                 dissatisfied with poor-
• Warranty claims costs                          quality products and do
      • costs of complying with product          not make additional
        warranties                               purchases




Copyright 2011 John Wiley & Sons, Inc.                                  2-54
Measuring and Reporting Quality Costs

• Index numbers
   • ratios that measure quality costs against a base value
   • labor index
       • ratio of quality cost to labor hours
   • cost index
       • ratio of quality cost to manufacturing cost
   • sales index
       • ratio of quality cost to sales
   • production index
       • ratio of quality cost to units of final product




Copyright 2011 John Wiley & Sons, Inc.                   2-55
Cost of Quality
                                                Year
                                         2006          2007      2008        2009
Quality Costs
 Prevention             27,000    41,500                        74,600     112,300
 Appraisal             155,000   122,500                       113,400     107,000
 Internal failure      386,400   469,200                       347,800     219,100
 External failure      242,000   196,000                       103,500     106,000
Total                  810,400   829,200                       639,300     544,400
Accounting Measures
 Sales               4,360,000 4,450,000                      5,050,000   5,190,000
 Manufacturing costs 1,760,000 1,810,000                      1,880,000   1,890,000




Copyright 2011 John Wiley & Sons, Inc.                                          2-56
Cost of Quality
    Quality index = total quality costs/base * 100
    2006 quality cost per sale
    810,400 * 100 / 4,360,000 = 18.58

                                 Quality     Quality Manufacturing
     Year                      Sales Index         Cost Index
     2006                         18.58                46.04
     2007                         18.63                45.18
     2008                         12.66                34.00
     2009                         10.49                28.80


Copyright 2011 John Wiley & Sons, Inc.                               2-57
Quality–Cost Relationship

• Cost of quality
  • difference between price of nonconformance
    and conformance
  • cost of doing things wrong
            • 20 to 35% of revenues
      • cost of doing things right
            • 3 to 4% of revenues




Copyright 2011 John Wiley & Sons, Inc.          2-58
Effect of Quality Management
                      on Productivity
• Productivity = output / input
• Quality impact on productivity
      • fewer defects increase output, and quality
        improvement reduces inputs
• Yield
      • a measure of productivity




Copyright 2011 John Wiley & Sons, Inc.               2-59
Measuring Product Yield
                        and Productivity
    Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked)


                                         or
                               Y=(I)(%G)+(I)(1-%G)(%R)


 where
 I = initial quantity started in production
 %G = percentage of good units produced
 %R = percentage of defective units that are successfully reworked


Copyright 2011 John Wiley & Sons, Inc.                                       2-60
Computing Product Yield
•   Motor manufacturer
•   Starts a batch of 100 motors.
•   80 % are good when produced
•   50 % of the defective motors can be reworked
          Y =(I)(%G)+(I)(1-%G)(%R)
               = 100(.80) + 100(1-.80)(.50) = 90 motors

          Increase quality to 90% good
          Y =100(.90) + 100(1-.90)(.50) = 95 motors


Copyright 2011 John Wiley & Sons, Inc.                    2-61
Computing Product Cost per Unit

                                         ( K d )( I ) ( K r )( R)
                    Product Cost
                                                     Y
                     where:
                     Kd = direct manufacturing cost per unit
                     I = input
                     Kr = rework cost per unit
                     R = reworked units
                     Y = yield




Copyright 2011 John Wiley & Sons, Inc.                              2-62
Cost per Unit

    Direct cost = $30                           Rework cost = $12
    80% good                                    50% can be reworked

  ( Kd )( I ) ( Kr )(R)   $30*100 + $12*10 =
                        =                    $34.67/motor
             Y               90 motors

      Increase quality to 90% good
                                          $30*100 + $12*5   = $32.21/motor
                                   =
                                             95 motors



Copyright 2011 John Wiley & Sons, Inc.                                   2-63
Computing Product Yield
                     for Multistage Processes

                           Y = (I)(%g1)(%g2) … (%gn)

              where:
              I = input of items to the production process that will
              result in finished products
              gi = good-quality, work-in-process products at stage i




Copyright 2011 John Wiley & Sons, Inc.                                 2-64
Multistage Yield
                                         Average Percentage
                           Stage            Good Quality
                             1                  0.93
                             2                  0.95
                             3                  0.97
                             4                  0.92

                              Y = (I)(%g1)(%g2) … (%gn)

                                  = 100 * .93 * .95 * .97 * .92 = 78.8 motors



Copyright 2011 John Wiley & Sons, Inc.                                    2-65
Initial Batch Size For 100 Motors
                         Y
      I=
                 (%g1)(%g2) … (%gn)


                      100
         =                             = 126.88  127
           100 * .93 * .95 * .97 * .92




Copyright 2011 John Wiley & Sons, Inc.            2-66
Quality–Productivity Ratio

    QPR
           • productivity index that includes productivity and
             quality costs


                                         (good-quality units)
QPR =                                                                       (100)
               (input) (processing cost) + (reworked units) (rework cost)




Copyright 2011 John Wiley & Sons, Inc.                                        2-67
Quality Productivity Ratio
    Direct cost = $30                        Rework cost = $12
    80% good                                 50% can be reworked
    Initial batch size = 100

       Base Case
                                 80 + 10
       QPR =                                 (100) = 2.89
                      100 * $30 + 10 * $12


       Case 1: Increase I to 200
                                160 + 20
       QPR =                                 (100) = 2.89 – NO CHANGE
                      200 * $30 + 20 * $12


Copyright 2011 John Wiley & Sons, Inc.                                  2-68
Quality Productivity Ratio
    Case 2: Reduce direct cost to $26 and rework cost to $10
                      80 + 10
    QPR =                                (100) = 3.33
                 100 * $26 + 10 * $10

    Case 3: Increase %G to 95%
                      95 + 2.5
    QPR =                                (100) = 3.22
                 100 * $30 + 2.5 * $12

    Case 4: Decrease costs and increase %G
                      95 + 2.5
    QPR =                                (100) = 3.71
                 100 * $26 + 2.5 * $10


Copyright 2011 John Wiley & Sons, Inc.                         2-69
Malcolm Baldrige Award

• Created in 1987 to stimulate growth of quality
  management in United States
• Categories
      •   Leadership
      •   Information and analysis
      •   Strategic planning
      •   Human resource focus
      •   Process management
      •   Business results
      •   Customer and market focus



Copyright 2011 John Wiley & Sons, Inc.             2-70
Other Awards for Quality

• National individual                    • International awards
  awards                                   • European Quality Award
      • Armand V. Feigenbaum               • Canadian Quality Award
        Medal                              • Australian Business
      • Deming Medal                         Excellence Award
      • E. Jack Lancaster Medal            • Deming Prize from Japan
      • Edwards Medal
      • Shewhart Medal
      • Ishikawa Medal




Copyright 2011 John Wiley & Sons, Inc.                             2-71
ISO 9000

• Procedures and policies for international quality
  certification
• ISO 9000:2008
      • Quality Management Systems—Fundamentals and
        Vocabulary
      • defines fundamental terms and definitions used in ISO
        9000 family
• ISO 9001:2008
      • Quality Management Systems—Requirements
      • standard to assess ability to achieve customer
        satisfaction

Copyright 2011 John Wiley & Sons, Inc.                    2-72
ISO 9000

• ISO 9004:2008
      • Quality Management Systems—Guidelines for
        Performance Improvements
      • guidance to a company for continual improvement of
        its quality-management system




Copyright 2011 John Wiley & Sons, Inc.                  2-73
ISO 9000 Certification,
        Implications, and Registrars
• ISO 9001:2008—only standard that carries third-party
  certification
• Many overseas companies will not do business with a
  supplier unless it has ISO 9000 certification
• ISO 9000 accreditation
• ISO registrars




                                                         2-74
Copyright 2009 John Wiley & Sons, Inc.
      All rights reserved. Reproduction or translation of this
      work beyond that permitted in section 117 of the 1976
      United States Copyright Act without express permission
      of the copyright owner is unlawful. Request for further
      information should be addressed to the Permission
      Department, John Wiley & Sons, Inc. The purchaser
      may make back-up copies for his/her own use only and
      not for distribution or resale. The Publisher assumes no
      responsibility for errors, omissions, or damages caused
      by the use of these programs or from the use of the
      information herein.




Copyright 2011 John Wiley & Sons, Inc.                      2-75

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C02

  • 2. Lecture Outline • What Is Quality? • Quality in Service • Evolution of Quality Companies Management • Six Sigma • Quality Tools • Cost of Quality • TQM and QMS • Effect of Quality • Focus of Quality Management on Management— Productivity Customers • Quality Awards • Role of Employees in • ISO 9000 Quality Improvement Copyright 2011 John Wiley & Sons, Inc. 2-2
  • 3. What Is Quality? • Oxford American Dictionary • a degree or level of excellence • American Society for Quality • totality of features and characteristics that satisfy needs without deficiencies • Consumer’s and producer’s perspective Copyright 2011 John Wiley & Sons, Inc. 2-3
  • 4. What Is Quality: Customer’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 2011 John Wiley & Sons, Inc. 2-4
  • 5. Dimensions of Quality: Manufactured Products • Performance • basic operating characteristics of a product; how well a car handles 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 2011 John Wiley & Sons, Inc. 2-5
  • 6. Dimensions of Quality: Manufactured Products • Conformance • degree to which a product meets pre–established standards • Durability • how long product lasts before replacement; with care, L. L. Bean boots may last a lifetime • Serviceability • ease of getting repairs, speed of repairs, courtesy and competence of repair person Copyright 2011 John Wiley & Sons, Inc. 2-6
  • 7. Dimensions of Quality: Manufactured Products • 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, etc. Copyright 2011 John Wiley & Sons, Inc. 2-7
  • 8. Dimensions of Quality: Services • 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 2011 John Wiley & Sons, Inc. 2-8
  • 9. Dimensions of Quality: Service • Courtesy: • how are customers treated by employees? • are catalogue phone operators nice and are their voices pleasant? • Consistency • is same level of service provided to each customer each time? • is your newspaper delivered on time every morning? Copyright 2011 John Wiley & Sons, Inc. 2-9
  • 10. Dimensions of Quality: Service • Accessibility and convenience • how easy is it to obtain service? • does service representative answer you calls quickly? • Accuracy • is service performed right every time? • is your bank or credit card statement correct every month? • Responsiveness • how well does company react to unusual situations? • how well is a telephone operator able to respond to a customer’s questions? Copyright 2011 John Wiley & Sons, Inc. 2-10
  • 11. What Is Quality: Producer’s Perspective • Quality of conformance • making sure product or service is produced according to design • if new tires do not conform to specifications, they wobble • if a hotel room is not clean when a guest checks in, hotel is not functioning according to specifications of its design Copyright 2011 John Wiley & Sons, Inc. 2-11
  • 12. Meaning of Quality Copyright 2011 John Wiley & Sons, Inc. 2-12
  • 13. What Is Quality: A Final Perspective • Customer’s and producer’s perspectives depend on each other • Producer’s perspective: • production process and COST • Customer’s perspective: • fitness for use and PRICE • Customer’s view must dominate Copyright 2011 John Wiley & Sons, Inc. 2-13
  • 14. Evolution of Quality Management: Quality Gurus • Walter Shewhart • In 1920s, developed control charts • Introduced term ―quality assurance” • W. Edwards Deming • Developed courses during WW II to teach statistical quality- control techniques to engineers and executives of military suppliers • After war, began teaching statistical quality control to Japanese companies • Joseph M. Juran • Followed Deming to Japan in 1954 • Focused on strategic quality planning • Quality improvement achieved by focusing on projects to solve problems and securing breakthrough solutions Copyright 2011 John Wiley & Sons, Inc. 2-14
  • 15. Evolution of Quality Management: Quality Gurus • Armand V. Feigenbaum • In 1951, introduced concepts of total quality control and continuous quality improvement • Philip Crosby • In 1979, emphasized that costs of poor quality far outweigh cost of preventing poor quality • In 1984, defined absolutes of quality management— conformance to requirements, prevention, and ―zero defects‖ • Kaoru Ishikawa • Promoted use of quality circles • Developed ―fishbone‖ diagram • Emphasized importance of internal customer Copyright 2011 John Wiley & Sons, Inc. 2-15
  • 16. 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 2011 John Wiley & Sons, Inc. 2-16
  • 17. Deming’s 14 Points 6. Institute worker training 7. Instill leadership among supervisors 8. Eliminate fear among employees 9. Eliminate barriers between departments 10. Eliminate slogans Copyright 2011 John Wiley & Sons, Inc. 2-17
  • 18. Deming’s 14 Points 11. Eliminate numerical quotas 12. Enhance worker pride 13. Institute vigorous training and education programs 14. Develop a commitment from top management to implement above 13 points Copyright 2011 John Wiley & Sons, Inc. 2-18
  • 19. Deming Wheel: PDCA Cycle Copyright 2011 John Wiley & Sons, Inc. 2-19
  • 20. Quality Tools • Process Flow Chart • Histogram • Cause-and-Effect • Scatter Diagram Diagram • Statistical Process • Check Sheet Control Chart • Pareto Analysis Copyright 2011 John Wiley & Sons, Inc. 2-20
  • 21. Flow Chart • A diagram of the steps in a process • Helps focus on location of problem in a process Copyright 2011 John Wiley & Sons, Inc. 2-21
  • 22. Cause-and-Effect Diagram • Cause-and-effect diagram (―fishbone‖ diagram) – chart showing different categories of problem causes Copyright 2011 John Wiley & Sons, Inc. 2-22
  • 23. Cause-and-Effect Matrix • Cause-and-effect matrix – grid used to prioritize causes of quality problems Copyright 2011 John Wiley & Sons, Inc. 2-23
  • 24. Check Sheets and Histograms • Tally number of defects from a list of causes • Frequency diagram of data for quality problem Copyright 2011 John Wiley & Sons, Inc. 2-24
  • 25. Pareto Analysis • Pareto analysis – most quality problems result from a few causes Copyright 2011 John Wiley & Sons, Inc. 2-25
  • 26. Pareto Chart Copyright 2011 John Wiley & Sons, Inc. 2-26
  • 27. Scatter Diagram • Graph showing relationship between 2 variables in a process • Identifies pattern that may cause a quality problem Copyright 2011 John Wiley & Sons, Inc. 2-27
  • 28. Control Chart • A chart with statistical upper and lower limits • If sample statistics remain between these limits we assume the process is in control Copyright 2011 John Wiley & Sons, Inc. 2-28
  • 29. TQM and QMS • Total Quality Management (TQM) • customer-oriented, leadership, strategic planning, employee responsibility, continuous improvement, cooperation, statistical methods, and training and education • Quality Management System (QMS) • system to achieve customer satisfaction that complements other company systems Copyright 2011 John Wiley & Sons, Inc. 2-29
  • 30. Focus of Quality Management— Customers • TQM and QMSs • serve to achieve customer satisfaction • Satisfied customers are less likely to switch to a competitor • It costs 5-6 times more to attract new customers as to keep an existing one • 94-96% of dissatisfied customers don’t complain • Small increases in customer retention mean large increases in profits Copyright 2011 John Wiley & Sons, Inc. 2-30
  • 31. Quality Management in the Supply Chain • Companies need support of their suppliers to satisfy their customers • Reduce the number of suppliers • Partnering • a relationship between a company and its supplier based on mutual quality standards Copyright 2011 John Wiley & Sons, Inc. 2-31
  • 32. Measuring Customer Satisfaction • An important component of any QMS • Use customer surveys to hear ―Voice of the Customer‖ • American Customer Satisfaction Index (ACSI) Copyright 2011 John Wiley & Sons, Inc. 2-32
  • 33. Role of Employees in Quality Improvement • Participative problem solving • employees involved in quality-management • every employee has undergone extensive training to provide quality service to Disney’s guests • Kaizen • involves everyone in process of continuous improvement • employees determining solutions to their own problems Copyright 2011 John Wiley & Sons, Inc. 2-33
  • 34. Quality Circles • Voluntary group of Organization workers and 8-10 members Same area Supervisor/moderator supervisors from same Training area who address Presentation Implementation Group processes Data collection quality problems Monitoring Problem analysis Problem Solution Identification Problem results List alternatives Consensus Problem Brainstorming Analysis Cause and effect Data collection and analysis Copyright 2011 John Wiley & Sons, Inc. 2-34
  • 35. Process (Quality) Improvement Teams • Focus attention on business processes rather than separate company functions • Includes members from the interrelated departments which make up a process • Important to understand the process the team is addressing • Process flowcharts are key tools Copyright 2011 John Wiley & Sons, Inc. 2-35
  • 36. Quality in Services • Service defects are not always easy to measure because service output is not usually a tangible item • Services tend to be labor intensive • Services and manufacturing companies have similar inputs but different processes and outputs Copyright 2011 John Wiley & Sons, Inc. 2-36
  • 37. Quality Attributes in Services • Principles of TQM apply equally well to services and manufacturing • Timeliness is an important dimension • how quickly a service is provided • Benchmark • ―best‖ level of quality achievement in one company that other companies seek to achieve 2-37
  • 38. Six Sigma • A process for developing and delivering virtually perfect products and services • Six Sigma is a measure of how much a process deviates from perfection • Goal: 3.4 defects per million opportunities (DPMO) Copyright 2011 John Wiley & Sons, Inc. 2-38
  • 39. Six Sigma Process 1. Align • executives create balanced scorecard 2. Mobilize • project teams formed and empowered to act 3. Accelerate • black and green belts execute project 4. Govern • monitor and review projects • Champion • an executive responsible for project success Copyright 2011 John Wiley & Sons, Inc. 2-39
  • 40. Breakthrough Strategy: DMAIC • Define • problem is defined • Measure • process measured, data collected • Analyze • data analysis to find cause of problem • Improve • develop solutions to problem • Control • ensure improvement is continued Copyright 2011 John Wiley & Sons, Inc. 2-40
  • 41. Six Sigma Process DEFINE MEASURE ANALYZE IMPROVE CONTROL 3.4 DPMO 67,000 DPMO cost = 25% of sales Copyright 2011 John Wiley & Sons, Inc. 2-41
  • 42. Black Belts and Green Belts • Black Belt • project leader • Master Black Belt • a teacher and mentor for Black Belts • Green Belts • project team members Copyright 2011 John Wiley & Sons, Inc. 2-42
  • 43. Six Sigma Tools (1-3) • Quality Function Deployment (QFD) • capture the ―voice of the customer‖ • Cause & Effect Matrix • identify and prioritize causes of a problem • Failure Modes and Affects Analysis (FMEA) • analyze potential problems before they occur Copyright 2011 John Wiley & Sons, Inc. 2-43
  • 44. Six Sigma Tools (4-6) • t-Test • test for differences between groups • Statistical Process Control (SPC) Chart • monitor a process over time for variations • Design of Experiments (DOE) • determining relationships between factors affecting inputs and outputs of a process Copyright 2011 John Wiley & Sons, Inc. 2-44
  • 45. Design for Six Sigma (DFSS) • A systematic approach to designing products and processes that will achieve Six Sigma • Uses same basic approach as breakthrough strategy • Employs the strategy up front in the design and development phases • A more effective and less expensive way to achieve Six Sigma Copyright 2011 John Wiley & Sons, Inc. 2-45
  • 46. Lean Six Sigma • Integrate Six Sigma and ―lean systems‖ (Ch 16) • Lean seeks to optimize process flows • Lean extends earlier efforts in efficiency • Lean process improvement steps 1. determine what creates value for customers 2. identify ―value stream‖ 3. remove waste in the value stream 4. make process responsive to customer needs 5. continually repeat attempts to remove waste Copyright 2011 John Wiley & Sons, Inc. 2-46
  • 47. Lean Six Sigma • Six Sigma and Lean seek • process improvements • Increased value to customers • They approach the goals in different, complementary ways Copyright 2011 John Wiley & Sons, Inc. 2-47
  • 48. Profitability • The typical criterion for selecting Six Sigma projects • One of the factors distinguishing Six Sigma from TQM • ―Quality is not only free, it is an honest-to- everything profit maker‖ • Quality improvements reduce costs of poor quality Copyright 2011 John Wiley & Sons, Inc. 2-48
  • 49. Cost Impact of Six Sigma Medtek Company implements Six Sigma to reduce defects from 10% to 0 %. Then spend $120,000 for more change. After Six Original After Changes Sigma Costs Sales $1,000,000 1,000,000 1,000,000 Variable cost 600,000 540,054 540,054 Fixed cost 350,000 350,000 360,000 Profit 50,000 109,946 99,946 Doubled 33.3% return Return on 120,000 = 100*(49,946-10,000)/120,000 = 33.3% Copyright 2011 John Wiley & Sons, Inc. 2-49
  • 50. Cost of Quality • Cost of Achieving Good Quality • Prevention costs • costs incurred during product design • Appraisal costs • costs of measuring, testing, and analyzing • Cost of Poor Quality • Internal failure costs • include scrap, rework, process failure, downtime, and price reductions • External failure costs • include complaints, returns, warranty claims, liability, and lost sales Copyright 2011 John Wiley & Sons, Inc. 2-50
  • 51. Prevention Costs • Quality planning costs • Training costs • costs of developing and • costs of developing and implementing quality putting on quality training management program programs for employees • Product-design costs and management • costs of designing products • Information costs with quality characteristics • costs of acquiring and • Process costs maintaining data related to • costs expended to make quality, and development sure productive process conforms to quality and analysis of reports on specifications quality performance Copyright 2011 John Wiley & Sons, Inc. 2-51
  • 52. Appraisal Costs • Inspection and testing • costs of testing and inspecting materials, parts, and product at various stages and at end of process • Test equipment costs • costs of maintaining equipment used in testing quality characteristics of products • Operator costs • costs of time spent by operators to gather data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality Copyright 2011 John Wiley & Sons, Inc. 2-52
  • 53. Internal Failure Costs • Scrap costs • Process downtime costs • costs of poor-quality products • costs of shutting down that must be discarded, productive process to fix including labor, material, and problem indirect costs • Price-downgrading costs • Rework costs • costs of discounting poor- • costs of fixing defective quality products—that is, products to conform to quality selling products as specifications ―seconds‖ • Process failure costs • costs of determining why production process is producing poor-quality products Copyright 2011 John Wiley & Sons, Inc. 2-53
  • 54. External Failure Costs • Customer complaint costs • Product liability costs • costs of investigating and • litigation costs resulting satisfactorily responding to a from product liability and customer complaint resulting from customer injury a poor-quality product • Product return costs • Lost sales costs • costs of handling and replacing • costs incurred because poor-quality products returned by customers are customer dissatisfied with poor- • Warranty claims costs quality products and do • costs of complying with product not make additional warranties purchases Copyright 2011 John Wiley & Sons, Inc. 2-54
  • 55. Measuring and Reporting Quality Costs • Index numbers • ratios that measure quality costs against a base value • labor index • ratio of quality cost to labor hours • cost index • ratio of quality cost to manufacturing cost • sales index • ratio of quality cost to sales • production index • ratio of quality cost to units of final product Copyright 2011 John Wiley & Sons, Inc. 2-55
  • 56. Cost of Quality Year 2006 2007 2008 2009 Quality Costs Prevention 27,000 41,500 74,600 112,300 Appraisal 155,000 122,500 113,400 107,000 Internal failure 386,400 469,200 347,800 219,100 External failure 242,000 196,000 103,500 106,000 Total 810,400 829,200 639,300 544,400 Accounting Measures Sales 4,360,000 4,450,000 5,050,000 5,190,000 Manufacturing costs 1,760,000 1,810,000 1,880,000 1,890,000 Copyright 2011 John Wiley & Sons, Inc. 2-56
  • 57. Cost of Quality Quality index = total quality costs/base * 100 2006 quality cost per sale 810,400 * 100 / 4,360,000 = 18.58 Quality Quality Manufacturing Year Sales Index Cost Index 2006 18.58 46.04 2007 18.63 45.18 2008 12.66 34.00 2009 10.49 28.80 Copyright 2011 John Wiley & Sons, Inc. 2-57
  • 58. Quality–Cost Relationship • Cost of quality • difference between price of nonconformance and conformance • cost of doing things wrong • 20 to 35% of revenues • cost of doing things right • 3 to 4% of revenues Copyright 2011 John Wiley & Sons, Inc. 2-58
  • 59. Effect of Quality Management on Productivity • Productivity = output / input • Quality impact on productivity • fewer defects increase output, and quality improvement reduces inputs • Yield • a measure of productivity Copyright 2011 John Wiley & Sons, Inc. 2-59
  • 60. Measuring Product Yield and Productivity Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked) or Y=(I)(%G)+(I)(1-%G)(%R) where I = initial quantity started in production %G = percentage of good units produced %R = percentage of defective units that are successfully reworked Copyright 2011 John Wiley & Sons, Inc. 2-60
  • 61. Computing Product Yield • Motor manufacturer • Starts a batch of 100 motors. • 80 % are good when produced • 50 % of the defective motors can be reworked Y =(I)(%G)+(I)(1-%G)(%R) = 100(.80) + 100(1-.80)(.50) = 90 motors Increase quality to 90% good Y =100(.90) + 100(1-.90)(.50) = 95 motors Copyright 2011 John Wiley & Sons, Inc. 2-61
  • 62. Computing Product Cost per Unit ( K d )( I ) ( K r )( R) Product Cost Y where: Kd = direct manufacturing cost per unit I = input Kr = rework cost per unit R = reworked units Y = yield Copyright 2011 John Wiley & Sons, Inc. 2-62
  • 63. Cost per Unit Direct cost = $30 Rework cost = $12 80% good 50% can be reworked ( Kd )( I ) ( Kr )(R) $30*100 + $12*10 = = $34.67/motor Y 90 motors Increase quality to 90% good $30*100 + $12*5 = $32.21/motor = 95 motors Copyright 2011 John Wiley & Sons, Inc. 2-63
  • 64. Computing Product Yield for Multistage Processes Y = (I)(%g1)(%g2) … (%gn) where: I = input of items to the production process that will result in finished products gi = good-quality, work-in-process products at stage i Copyright 2011 John Wiley & Sons, Inc. 2-64
  • 65. Multistage Yield Average Percentage Stage Good Quality 1 0.93 2 0.95 3 0.97 4 0.92 Y = (I)(%g1)(%g2) … (%gn) = 100 * .93 * .95 * .97 * .92 = 78.8 motors Copyright 2011 John Wiley & Sons, Inc. 2-65
  • 66. Initial Batch Size For 100 Motors Y I= (%g1)(%g2) … (%gn) 100 = = 126.88  127 100 * .93 * .95 * .97 * .92 Copyright 2011 John Wiley & Sons, Inc. 2-66
  • 67. Quality–Productivity Ratio QPR • productivity index that includes productivity and quality costs (good-quality units) QPR = (100) (input) (processing cost) + (reworked units) (rework cost) Copyright 2011 John Wiley & Sons, Inc. 2-67
  • 68. Quality Productivity Ratio Direct cost = $30 Rework cost = $12 80% good 50% can be reworked Initial batch size = 100 Base Case 80 + 10 QPR = (100) = 2.89 100 * $30 + 10 * $12 Case 1: Increase I to 200 160 + 20 QPR = (100) = 2.89 – NO CHANGE 200 * $30 + 20 * $12 Copyright 2011 John Wiley & Sons, Inc. 2-68
  • 69. Quality Productivity Ratio Case 2: Reduce direct cost to $26 and rework cost to $10 80 + 10 QPR = (100) = 3.33 100 * $26 + 10 * $10 Case 3: Increase %G to 95% 95 + 2.5 QPR = (100) = 3.22 100 * $30 + 2.5 * $12 Case 4: Decrease costs and increase %G 95 + 2.5 QPR = (100) = 3.71 100 * $26 + 2.5 * $10 Copyright 2011 John Wiley & Sons, Inc. 2-69
  • 70. Malcolm Baldrige Award • Created in 1987 to stimulate growth of quality management in United States • Categories • Leadership • Information and analysis • Strategic planning • Human resource focus • Process management • Business results • Customer and market focus Copyright 2011 John Wiley & Sons, Inc. 2-70
  • 71. Other Awards for Quality • National individual • International awards awards • European Quality Award • Armand V. Feigenbaum • Canadian Quality Award Medal • Australian Business • Deming Medal Excellence Award • E. Jack Lancaster Medal • Deming Prize from Japan • Edwards Medal • Shewhart Medal • Ishikawa Medal Copyright 2011 John Wiley & Sons, Inc. 2-71
  • 72. ISO 9000 • Procedures and policies for international quality certification • ISO 9000:2008 • Quality Management Systems—Fundamentals and Vocabulary • defines fundamental terms and definitions used in ISO 9000 family • ISO 9001:2008 • Quality Management Systems—Requirements • standard to assess ability to achieve customer satisfaction Copyright 2011 John Wiley & Sons, Inc. 2-72
  • 73. ISO 9000 • ISO 9004:2008 • Quality Management Systems—Guidelines for Performance Improvements • guidance to a company for continual improvement of its quality-management system Copyright 2011 John Wiley & Sons, Inc. 2-73
  • 74. ISO 9000 Certification, Implications, and Registrars • ISO 9001:2008—only standard that carries third-party certification • Many overseas companies will not do business with a supplier unless it has ISO 9000 certification • ISO 9000 accreditation • ISO registrars 2-74
  • 75. Copyright 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein. Copyright 2011 John Wiley & Sons, Inc. 2-75