Quality Management Chapter 15 “ Operations Management: Goods, Services, and Value Chains”, by D. A. Collier and J. R. Evans

Although Hyundai Motor Co. dominated the Korean car market, it had a poor reputation for quality overseas, with doors that didn’t fit properly, frames that rattled, and engines that delivered poor acceleration. In addition, the company was losing money.

Although Hyundai Motor Co. dominated the Korean car market, it had a poor reputation for quality overseas, with doors that didn’t fit properly, frames that rattled, and engines that delivered poor acceleration. In addition, the company was losing money.

When Chung Mong Koo became CEO in 1999, he visited Hyundai’s plant at Ulsan. To the shock of his employees, who hardly ever see a CEO, Chung walked onto the factory floor and looked under the hood of a Sonata sedan.

When Chung Mong Koo became CEO in 1999, he visited Hyundai’s plant at Ulsan. To the shock of his employees, who hardly ever see a CEO, Chung walked onto the factory floor and looked under the hood of a Sonata sedan.

He didn’t like what he saw: loose wires, tangled hoses, bolts painted four different colors—the kind of sloppiness that would never be seen in a Japanese car.

He didn’t like what he saw: loose wires, tangled hoses, bolts painted four different colors—the kind of sloppiness that would never be seen in a Japanese car.

On the spot, he instructed the plant chief to paint all bolts and screws black and ordered workers not to release a car unless all was orderly under the hood. “You’ve got to get back to basics. The only way we can survive is to raise our quality to Toyota’s level” he fumed.

On the spot, he instructed the plant chief to paint all bolts and screws black and ordered workers not to release a car unless all was orderly under the hood. “You’ve got to get back to basics. The only way we can survive is to raise our quality to Toyota’s level” he fumed.

The next year, U.S. sales rose by 42 percent, and in 2004, Hyundai tied with Honda as the second-best carmaker on the J.D. Powers Initial Quality ranking.

The next year, U.S. sales rose by 42 percent, and in 2004, Hyundai tied with Honda as the second-best carmaker on the J.D. Powers Initial Quality ranking.

Definitions Quality Management : systematic policies, methods, and procedures used to ensure that goods and services are produced with appropriate levels of quality meeting customer needs Quality : Fitness for use - the ability of a good or service to meet customer needs

Quality Management : systematic policies, methods, and procedures used to ensure that goods and services are produced with appropriate levels of quality meeting customer needs

Quality : Fitness for use - the ability of a good or service to meet customer needs

History of Quality Management Surely quality was always a priority in production and trade 1450 B.C. Egyptians used measuring devices to ensure high quality during pyramid construction Early 20th Century Mass Production creates the need for quality inspection of batches Interchangeable parts Specialization in Production Problem : Organization of production required that workers deal with quality and managers with supervision

Surely quality was always a priority in production and trade

1450 B.C. Egyptians used measuring devices to ensure high quality during pyramid construction

Early 20th Century

Mass Production creates the need for quality inspection of batches

Interchangeable parts

Specialization in Production

Problem : Organization of production required that workers deal with quality and managers with supervision

History of Quality Management 1940-50 During World War II the need for production efficiency required the dissemination of statistical quality control techniques Gradually quality control migrated to manufacturing industries Two US consultants, J. Juran and W. Edwards Deming, introduce statistical quality control to Japanese (importantly their target audience was executives) 1970-90 Japanese electronics and automobiles have world class quality and make fast inroads to US market. Total Quality Management (TQM)

1940-50

During World War II the need for production efficiency required the dissemination of statistical quality control techniques

Gradually quality control migrated to manufacturing industries

Two US consultants, J. Juran and W. Edwards Deming, introduce statistical quality control to Japanese (importantly their target audience was executives)

1970-90

Japanese electronics and automobiles have world class quality and make fast inroads to US market.

Total Quality Management (TQM)

History of Quality Management 1990-2000 Quality Costing Market-Driven Strategy 2000-present Quality an important priority among US car manufacturers and in US Health Care Industry Six-sigma

1990-2000

Quality Costing

Market-Driven Strategy

2000-present

Quality an important priority among US car manufacturers and in US Health Care Industry

Six-sigma

Understanding Quality Multiple Definitions for Quality perfection consistency eliminating waste speed of delivery compliance with policies and procedures providing a good, usable product doing it right the first time delighting or pleasing customers total customer service and satisfaction

Multiple Definitions for Quality

perfection

consistency

eliminating waste

speed of delivery

compliance with policies and procedures

providing a good, usable product

doing it right the first time

delighting or pleasing customers

total customer service and satisfaction

GAP Model

Quality in Operations Conformance Quality Meet specifications Quality Control Service Quality External Focus: Customer Expectations Internal Focus: Delivery Process Criteria TQM Principles Focus on customers / stakeholders Process focus: continuous improvement / learning Teamwork: Quality is everyone’s business

Conformance Quality

Meet specifications

Quality Control

Service Quality

External Focus: Customer Expectations

Internal Focus: Delivery Process Criteria

TQM Principles

Focus on customers / stakeholders

Process focus: continuous improvement / learning

Teamwork: Quality is everyone’s business

Continuous Improvement Process

Quality & Business Results Improved employee skills Improved productivity Improved customer satisfaction (Hendricks & Singhal, 1997) study Growth in operating income 8% improvement in return to sales 9% improvement in return to assets Quality Performers beat SP500 by 34% in 5 years

Improved employee skills

Improved productivity

Improved customer satisfaction

(Hendricks & Singhal, 1997) study

Growth in operating income

8% improvement in return to sales

9% improvement in return to assets

Quality Performers beat SP500 by 34% in 5 years

Quality Guru: W. Edwards Deming Prof. of Quality Control Taught QC in effort to revive world economy after WWII in many countries including Japan Quality cannot be the responsibility of specialists only Executives should understand quality Quality defects can be our friends if used to spot and fix root causes of bad quality Drive out fear: facilitate problem finding

Prof. of Quality Control

Taught QC in effort to revive world economy after WWII in many countries including Japan

Quality cannot be the responsibility of specialists only

Executives should understand quality

Quality defects can be our friends if used to spot and fix root causes of bad quality

Drive out fear: facilitate problem finding

Quality Guru: Joseph Juran Not an academic, many years of experience with Western Electric Also taught QC after WWII in Japan Quality is “fitness for use” Like Deming advocated Continuous Improvement Cost of Poor Quality

Not an academic, many years of experience with Western Electric

Also taught QC after WWII in Japan

Quality is “fitness for use”

Like Deming advocated Continuous Improvement

Cost of Poor Quality

Quality Management Programs ISO 9000 Standardizes Quality Management Practices Self assessment based Six Sigma Requires all critical processes to conform to 6-sigma standard (3.4 defects / million) Pioneered by Motorola in 1980s Results Oriented

ISO 9000

Standardizes Quality Management Practices

Self assessment based

Six Sigma

Requires all critical processes to conform to 6-sigma standard (3.4 defects / million)

Pioneered by Motorola in 1980s

Results Oriented

Six Sigma (Not Exactly) 6  Defect Level : 3.4 / million Probability Theory : 2 / billion

6  Defect Level : 3.4 / million

Probability Theory : 2 / billion

Six Sigma DMAIC approach Define (D) Identify customers and their priorities. Identify a project suitable for Six Sigma efforts. Identify CTQs (critical to quality characteristics). Measure (M) Determine how to measure the process and how is it performing. Identify the key internal processes that influence CTQs. Analyze (A) Determine the most likely causes of defects. Understand why defects are generated Improve (I) Remove causes of the defects. Confirm the key variables and quantify CTQ effects. Identify maximum acceptable ranges. Modify the process to stay within the acceptable range. Control (C) Maintain the improvements. Ensure key variables remain within ranges

Define (D)

Identify customers and their priorities.

Identify a project suitable for Six Sigma efforts.

Identify CTQs (critical to quality characteristics).

Measure (M)

Determine how to measure the process and how is it performing.

Identify the key internal processes that influence CTQs.

Analyze (A)

Determine the most likely causes of defects.

Understand why defects are generated

Improve (I)

Remove causes of the defects.

Confirm the key variables and quantify CTQ effects.

Identify maximum acceptable ranges.

Modify the process to stay within the acceptable range.

Control (C)

Maintain the improvements.

Ensure key variables remain within ranges

Six Sigma Education Champions Senior Level Managers - Rainmakers Master Black Belts Major Initiatives - Strategy - Mentoring Black Belts Lead Major Projects - Mentoring Green Belts Lead Small Projects - Support Black Belts Team Members

Champions

Senior Level Managers - Rainmakers

Master Black Belts

Major Initiatives - Strategy - Mentoring

Black Belts

Lead Major Projects - Mentoring

Green Belts

Lead Small Projects - Support Black Belts

Team Members

Quality Cost Classification Prevention Costs Appraisal Costs Internal-Failure costs External-Failure Example

Prevention Costs

Appraisal Costs

Internal-Failure costs

External-Failure

The “Seven QC Tools” Flowcharts Control charts Checksheets Histograms Pareto analysis Cause-and-effect (fishbone) diagrams Scatter diagrams

Flowcharts

Control charts

Checksheets

Histograms

Pareto analysis

Cause-and-effect (fishbone) diagrams

Scatter diagrams

Check Sheet

Control Chart

Pareto Diagrams

Cause-and-effect Diagram

The Deming Cycle

Six Sigma Applications in Services Reducing the average and variation of days outstanding of accounts receivable Closing the books faster Improving the accuracy and speed of the audit process Reducing variation in cash flow Improving the accuracy of journal entry (most businesses have a 3–4 percent error rate) Improving the accuracy and cycle time of standard financial reports

Reducing the average and variation of days outstanding of accounts receivable

Closing the books faster

Improving the accuracy and speed of the audit process

Reducing variation in cash flow

Improving the accuracy of journal entry (most businesses have a 3–4 percent error rate)

Improving the accuracy and cycle time of standard financial reports

Quality Guru: Philip B. Crosby Learned quality at International Telephone and Telegraph (ITT) Quality is free Quality: conformance to requirements not elegance Doing the job right the first time QM target: Zero Defects http://www.pages.drexel.edu/~isp22/pom300/ch15.ppt#18

Learned quality at International Telephone and Telegraph (ITT)

Quality is free

Quality: conformance to requirements not elegance

Doing the job right the first time

QM target: Zero Defects

http://www.pages.drexel.edu/~isp22/pom300/ch15.ppt#18