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Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ 07458. All Rights Reserved. 1 Quality Management.

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Presentation on theme: "Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ 07458. All Rights Reserved. 1 Quality Management."— Presentation transcript:

1 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 1 Quality Management for Organizational Excellence By: Dr. David L. Goetsch and Stanley Davis Based on the book Quality Management for Organizational Excellence (Sixth Edition)

2 2 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Instructor Info. Dr. Mohammed A. Nasseef Website: Contact Number: ( SMS and whatsApp) note: mobile number is for urgent calls, please if you call consider a appropriate time.

3 3 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Grading Policy case study Project 20 Quiz 1 10 Quiz 2 10 Class Participation 10 Final Exam 50 ________________ TOTAL 100

4 4 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. MAJOR TOPICS Quality Evolution What is Quality? The Total Quality Approach Defined Two Views of Quality Key Elements of Total Quality Total Quality Pioneers One: The Total Quality Approach to Quality Management

5 5 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Quality Evolution

6 6 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Evolution of Quality I  Finding mistakes/errors  External assessment/control  Culture of mistrust  Inspecting the past

7 7 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Evolution of Quality II  Looking into the past and plan for the future  avoid mistakes  personal responsibility / ownership  culture of trust

8 8 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Evolution of Quality III  Systematic fulfillment of customer requirements

9 9 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Evolution of Quality IV  Participation of all members of an organization

10 10 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Quality is Everywhere people deal with the issue of quality continually in their daily lives We all apply a number of criteria when making a purchase To understand quality as a consumer-driven concept How will you judge the quality of the restaurant? Service Response time Food preparation Atmosphere Price Selection

11 11 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. What is Quality * Quality must be defined comprehensively. It is not enough to say the product is of high quality; we must focus attention on the quality of every facet of the organization. * Consumers' needs and requirements change. Therefore, the definition of quality is ever changing. shikawa's

12 12 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. What is Quality Fred Smith. CEO of FedEx defines quality as “ performance to the standard expected by customer “ Boeing “ providing our customer with products and services that consistently meet their needs and expectations”

13 13 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. So Quality Is … Although there is no universally accepted definition of quality. There are some similarity among among quality definition: Quality involves meeting or exceeding customer expectations. Quality applies to products, services, people, processes, and environments. Quality is ever changing state (i.e., what consider quality today may not good enough to be considered quality tomorrow).

14 14 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. WhyTQM? Why TQM? Ford Motor Company had operating losses of $3.3 billion between 1980 and Xerox market share dropped from 93% in 1971 to 40% in Attention to quality was seen as a way to combat the competition.

15 15 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. TQM Total Total - made up of the whole Quality Quality - degree of excellence a product or service provides Management Management - act, art or manner of planning, controlling, directing,…. Therefore, TQM is the art of managing the whole to achieve excellence.

16 16 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. What does TQM mean? Total Quality Management means that the organization's culture is defined by and supports the constant attainment of customer satisfaction through an integrated system of tools, techniques, and training. This involves the continuous improvement of organizational processes, resulting in high quality products and services.

17 17 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. What’s the goal of TQM? “Do the right things right the first time, every time.”

18 18 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Anotherway to put it Another way to put it At it’s simplest, TQM is all managers leading and facilitating all contributors in everyone’s two main objectives: 4(1) total client satisfaction through quality products and services; and processes, systems, people, suppliers, partners, products, and services. 4(2) continuous improvements to processes, systems, people, suppliers, partners, products, and services.

19 19 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Basic belief of TQM 1. The customer makes the ultimate determination of quality. 2. Top management must provide leadership and support for all quality initiatives. 3. Preventing variability is the key to producing high quality. 4. Quality goals are a moving target, thereby requiring a commitment toward continuous improvement. 5. Improving quality requires the establishment of effective metrics. We must speak with data and facts not just opinions.

20 20 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. The three aspects of TQM CountingCustomersCultureCountingCustomersCulture Tools, techniques, and training in their use for analyzing, understanding, and solving quality problems Quality for the customer as a driving force and central concern. Shared values and beliefs, expressed by leaders, that define and support quality.

21 21 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Total Quality Management and Continuous Improvement TQM is the management process used to make continuous improvements to all functions. TQM represents an ongoing, continuous commitment to improvement. The foundation of total quality is a management philosophy that supports meeting customer requirements through continuous improvement.

22 22 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Continuous Improvement versus Traditional Approach Market-share focus Individuals Focus on ‘who” and “why” Short-term focus Status quo focus Product focus Innovation Fire fighting Customer focus Cross-functional teams Focus on “what” and “how” Long-term focus Continuous improvement Process improvement focus Incremental improvements Problem solving Traditional Approach Continuous Improvement

23 23 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Quality Throughout “A Customer’s impression of quality begins with the initial contact with the company and continues through the life of the product.” Customers look to the total package - sales, service during the sale, packaging, deliver, and service after the sale. Quality extends to how the receptionist answers the phone, how managers treat subordinates, how courteous sales and repair people are, and how the product is serviced after the sale. “All departments of the company must strive to improve the quality of their operations.”

24 24 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Value-based Approach Manufacturing Dimensions Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived quality Service Dimensions Reliability Responsiveness Assurance Empathy Tangibles

25 25 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. The TQM System Customer Focus Process Improvement Total Involvement Leadership Education and Training Supportive structure Communications Reward and recognition Measurement Continuous Improvement Objective Principles Elements

26 26 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Trends affecting the future of quality management include demanding global customers, shifting customer expectations, and opposing economic pressures The Total Quality Approach to Quality Management The Total Quality Approach to Quality Management

27 27 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. W. Edwards Deming Born on October 14, 1900 Was an American statistician, professor, author, lecturer, and consultant Widely credited with improving production in the United States during the Cold War Best known for work in Japan Taught top management (1950 onwards) Total Quality Pioneers:

28 28 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. W. Edwards Deming Quality keys: Understanding customer needs Process improvement Statistical analysis Expertise of workers PDCA cycle

29 29 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. DEMING 14 POINTS 1. Create constancy of purpose 2. Adopt a new philosophy 3. Stop dependence on inspection 4. Don’t focus on price tag 5. Improve constantly & forever

30 30 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. DEMING 14 POINTS 6. Institute training 7. Institute leadership 8. Drive out fear 9. Break down barriers 10. Eliminate slogans, exhortations

31 31 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. DEMING 14 POINTS 11. Eliminate quotas; use leadership 12. Remove barriers to workmanship 13. strong education program 14. Involve everybody

32 32 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. The Deming cycle, or PDSA cycle, is a continuous quality improvement model consisting of a logical sequence of four repetitive steps for continuous improvement and learning: Plan, Do, Study (Check) and Act. It is also known as the Deming circle/cycle/whe el, Shewhartcycle, control circle/cycle, or plan–do– study–act (PDSA)

33 33 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. W. Edwards Deming in the 1950's proposed that business processes should be analyzed and measured to identify sources of variations that cause products to deviate from customer requirements. He recommended that business processes be placed in a continuous feedback loop so that managers can identify and change the parts of the process that need improvements.

34 34 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Example : At Toyota this is also known as "Building people before building cars.“ Toyota and other Lean companies propose that an engaged, problem solving workforce, using PDCA, is better able to innovate and stay ahead of the competition through rigorous problem solving and the subsequent innovations. This also creates a culture of problem solvers using PDCA and creating a culture of critical thinkers.

35 35 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 35 Foundations of the PDCA Cycle The foundations of the PDCA cycle and Deming’s teachings consist of the following three principles: 1.Customer Satisfaction: Satisfying customers’ needs should be paramount for all workers in the organization. 2.Management by Fact. Decision making must be made on data collected from operations and analyzed using statistical tools. Decision makers must practice and encourage a scientific approach to problem solving. 3.Respect for People. A sustainable problem solving and continuous improvement approach should be based on the belief that employees are self-motivated and are capable of coming up with effective and creative ideas.

36 36 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 36 Steps of PDCA: The Plan step Recognize the problem and establish priorities. Form the problem solving team. Interdisciplinary teams of individuals close to the problem are best. Define the problem and its scope clearly. Who,What,Where and When. Pareto Analysis can be useful in defining the problem. Analyze the problem/process. Process flowcharts can be useful a useful tool. Determine possible causes. Cause-and-effect diagrams are helpful in identifying root causes of a problem. Data from the diagrams can be organized using check sheets, scatter diagrams, histograms, and run charts. Identify possible solutions. Brainstorm to find solutions. Avoid the temptation to propose quick, immediate fixes. Goals should be specific, measurable, achievable, and realistic. Evaluate potential solutions. Focus on solutions that address root causes and prevention of problem occurrence. Solutions should be cost-effective; achieving group consensus is important.

37 37 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 37 Steps of PDCA (continued) The Do step Implement the solution or process change Monitor results and collect data The Check step Review and evaluate the result of the change Measure progress against milestones Check for any unforeseen consequences The Act step If successful, Standardize process changes Communicate to all involved Provide training in new methods

38 38 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 38 Problem Solving Tools 1.Check Sheet. A simple tool for collecting data about problems or complaints. Example 1.

39 39 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 39 Problem Solving Tools (continued) 2. Histogram. A graph which presents the collected data as a frequency distribution in bar-chart form. Example 1

40 40 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 40 Problem Solving Tools (continued) 3.Pareto Chart. Orders problems by their relative frequency in decreasing order. Focus and priority should be given to problems that offer the largest potential improvement.

41 41 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 41 Problem Solving Tools (continued) 4. Scatter Diagram. A graphical tool to check if two relationships exist between two variables.

42 42 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 42 Problem Solving Tools (continued) 5. Flowchart. A visual representation of a process which can help in identifying points where failures may occur and intervention is useful. Example 2

43 43 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 43 Problem Solving Tools (continued) 6. Cause-and-effect diagram (fishbone diagram). Offers a structured approach for identifying all possible causes of a problem. The classic diagram is as shown: In retail, a better representation is the 5S (Pal & Byron 2003):

44 44 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Any serious attempt to improve quality must take into account the costs associated with achieving quality since the objective of continuous improvement programs is not only to meet customer requirements, but also to do it at the lowest cost. This can only happen by reducing the costs needed to achieve quality, and the reduction of these costs is only possible if they are identified and measured. Therefore, measuring and reporting the cost of quality (CoQ) should be considered an important issue for managers. COST OF QUALITY (COQ)

45 45 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. DEFINITION There is no general agreement on a single broad definition of quality costs (Machowski and Dale, 1998). However, CoQ is usually understood as the sum of conformance plus non-conformance costs, where cost of conformance is the price paid for prevention of poor quality (for example, inspection and quality appraisal) and cost of non-conformance is the cost of poor quality caused by product and service failure(for example, rework and returns).

46 46 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. (COQ) CONTINUE It was Armand Feigenbaum, who in 1943 first devised a quality costing analysis when he and his team developed a dollar-based reporting system. later proposed the now widely accepted quality cost categorization of prevention, appraisal and failure (internal and external) costs

47 47 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. (COQ) CONTINUE Many business executive adopt the attitude that ensuring quality is good thing to do until hard times set in and cost cutting is necessary.

48 48 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. GENERIC COQ MODELS Feigenbaum Model P-A-F models Prevention ‏+ appraisal ‏+ failure Crosby’s model Conformance ‏+ non-conformance Opportunity or intangible cost models Prevention +‏ appraisal ‏+ failure + ‏opportunity Conformance +‏ non-conformance +‏ opportunity ABC models Value-added +‏ non-value-added

49 49 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. 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

50 50 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Prevention Costs Quality planning costs costs of developing and implementing quality management program Product-design costs costs of designing products with quality characteristics Process costs costs expended to make sure productive process conforms to quality specifications Training costs costs of developing and putting on quality training programs for employees and management Information costs costs of acquiring and maintaining data related to quality, and development of reports on quality performance

51 51 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Appraisal Costs Inspection and testing costs of testing and inspecting materials, parts, and product at various stages and at the end of a process Test equipment costs costs of maintaining equipment used in testing quality characteristics of products Operator costs costs of time spent by operators to gar data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality

52 52 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Internal Failure Costs Scrap costs costs of poor-quality products that must be discarded, including labor, material, and indirect costs Rework costs costs of fixing defective products to conform to quality specifications Process failure costs costs of determining why production process is producing poor-quality products Process downtime costs costs of shutting down productive process to fix problem Price-downgrading costs costs of discounting poor-quality products— that is, selling products as “seconds”

53 53 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. External Failure Costs Customer complaint costs costs of investigating and satisfactorily responding to a customer complaint resulting from a poor-quality product Product return costs costs of handling and replacing poor-quality products returned by customer Warranty claims costs costs of complying with product warranties Product liability costs litigation costs resulting from product liability and customer injury Lost sales costs costs incurred because customers are dissatisfied with poor quality products and do not make additional purchases

54 54 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Prevention costsAppraisal costs Internal failure costsExternal failure costs

55 55 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Example Vegas Photo Corporation made 10,000 photocopying machines last year. Vegas Photo determines the costs of quality of its photocopying machines using a 7-step activity-based costing approach.

56 56 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Steps 1 and 2) Identify cost objects. 10,000 photocopying machines Identify the direct costs of quality of the products. No direct costs of quality Step 1Step 2

57 57 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 3) Select the cost-allocation bases to use for allocating indirect costs of quality to the products. Prevention Appraisal Internal failure External failure Step 3 Information on the total quantities of each of these cost-allocation bases used in all of Vegas operations is not provided.

58 58 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 4) Identify the indirect costs of quality associated with each cost-allocation base. Step 4 Information about total (fixed and variable) costs is not provided.

59 59 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 5) calculate the rate per unit. Step 5 Inspection hours is one cost-allocation base.

60 60 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 5) Prevention costs: Design engineering (R&D)$80 per hour Process engineering (R&D)$60 per hour Appraisal costs: Inspection (Manufacturing) $40 per hour

61 61 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 5) Internal failure costs: Rework (Manufacturing)$100 per hour External failure costs: Customer support (Marketing)$ 50 per hour Transportation (Distribution)$240 per load Warranty repair (Customer Service)$110 per hour

62 62 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 6) Step 6 calculate the indirect costs of quality allocated to the product.

63 63 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 6) Prevention costs: Design engineering (R&D) 20,000 hours Process engineering (R&D) 22,500 hours Appraisal costs: Inspection (Manufacturing)120,000 hours

64 64 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 6) Internal failure costs: Rework (Manufacturing)50,000 hours External failure costs: Customer support (Marketing) 6,000 hours Transportation (Distribution) 1,500 loads Warranty repair (Customer Service)60,000 hours

65 65 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 6) What is the total cost for design engineering? 20,000 hours × $80 = $1,600,000 What is the total cost for inspection? 120,000 hours × $40 = $4,800,000

66 66 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 6) Cost of Quality and Value Chain CategoryTotal Costs Prevention costs: Design engineering (R&D)$1,600,000 Process engineering (R&D) 1,350,000 Total$2,950,000 Appraisal costs: Inspection$4,800,000

67 67 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 6) Cost of Quality and Value Chain CategoryTotal Costs Internal failure costs: Rework (Manufacturing)$5,000,000

68 68 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 6) Cost of Quality and Value Chain CategoryTotal Costs External failure costs: Customer support (Marketing)$ 300,000 Transportation (Distribution) 360,000 Warranty repair (Customer Service) 6,600,000 Total$7,260,000

69 69 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality (Step 7) Step 7 Compute the total costs of quality of the product. Prevention costs $ 2,950,000 Appraisal costs 4,800,000 Internal failure costs 5,000,000 External failure costs 7,260,000 Total$20,010,000

70 70 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Traditional Cost of Poor Quality (4-5% of Sales) When quality costs are initially determined, the categories included are the visible ones as depicted in the iceberg below. Waste Testing Costs Rework Customer Returns Inspection Costs Rejects Recalls

71 71 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Cost of Poor Quality As an organization gains a broader definition of poor quality, the hidden portion of the iceberg becomes apparent. Late Paperwork High Costs Pricing or Billing Errors Excessive Services Expenses Incorrectly Completed Sales Order Lack of Follow-up on Current Programs Excessive Employee Turnover Planning Delays late delivery Complaint Handling Unused Capacity Time with Dissatisfied Customer Excessive Overtime Waste Testing Costs Rework Customer Returns Inspection Costs Rejects Recalls Development Cost of Failed Product Hidden COPQ: The costs incurred to deal with these chronic problems Premium cargo Costs Customer Allowances COPQ ranges from 15-25% of Sales

72 72 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Malcolm Baldrige National Quality Award

73 73 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. MBNQA In the 1980s, many industry and government leaders saw that a renewed emphasis on quality was no longer an option for American organisations, rather, it was a necessity for doing business in an ever expanding, and more demanding competitive global market. The Baldrige Award was therefore envisaged as a standard of excellence that would help US organisations achieve world-class quality

74 74 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Malcolm Baldrige secretary of Commerce. supporter of quality management as key to US economic survival Helped draft early version of quality act Resolved technology transfer differences with China and India First Cabinet-level meetings with Soviet Union in 7 years Paved way for increased access for US firms

75 75 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Champion Roper National Cowboy Hall of Fame July 25, 1987 N. California rodeo Horse threw him, fell on him, and crushed him

76 76 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. WHY Baldrige ? Purpose of MBNQA to enhance US competitivenes Promotes quality awareness, recognizes achievements of US companies Vehicle for sharing success strategies ISO covers less than 10 percent of the Baldrige award criteria Many apply, few are selected MBNQA not required for business

77 77 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved.

78 78 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Each category has several items (18 total), and each item has several “areas to address”

79 79 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved.

80 80 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Point Values

81 81 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. ADLI = Approach, Deployment, Learning, Integration

82 82 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Categories Manufacturing Service Small Business Education (added 1999) Health Care (added 1999) Nonprofit (2005)

83 83 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Leadership Examines how senior executives guide the company and how the company addresses its responsibilities to the public and practices good citizenship. 1.1 Organizational Leadership 1.2 Social Responsibility

84 84 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Strategic planning Examines how the company sets strategic directions and how it determines key action plans. 2.1Strategy Development 2.2 Strategy Deployment

85 85 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Customer and market focus Examines how the company determines requirements and expectations of customers and markets. 3.1Customer and Market Knowledge 3.2 Customer Relationships and Satisfaction

86 86 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Information and analysis Examines the management, effective use, and analysis of data and information to support key company processes and the company’s performance management system. 4.1Measurement and Analysis of Organizational Performance 4.2 Information and Knowledge Management

87 87 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Human resource focus Examines how the company enables its workforce to develop its full potential and how the workforce is aligned with the company’s objectives. 5.1 Work Systems 5.2 Employee Learning and Motivation 5.3 Employee Well-Being and Satisfaction

88 88 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Process management Examines aspects of how key production/delivery and support processes are designed, managed, and improved. 6.1V alue Creation Processes 6.2 Support Processes

89 89 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Business results Examines the company’s performance and improvement in its key business areas: customer satisfaction, financial and marketplace performance, human resources, supplier and partner performance, and operational performance. The category also examines how the company performs relative to competitors. better market performance, gains in market share, and customer retention and satisfaction

90 90 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Baldrige Award Recipients Group project

91 91 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved.

92 92 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. MidwayUSA, a 2009 Baldrige Award winner in the small business category, utilizes a customer-first culture and many customer-focused approaches to building trust, confidence, and loyalty at all stages of the customer relationship. MidwayUSA’s commitment to the customer is hard- wired into the company’s vision, purpose, mission, and values; Company Goals; and Code of Conduct. The vision itself says it all: “To be the best-run business in America for the benefit of our Customers.” — MIDWAYUSA - customer focus

93 93 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. This customer-focused philosophy is carried out in many different approaches, including the following: - All salaried employees (including senior leaders) spend at least one hour each week on the phone taking orders and answering customer requests. - Employees are selected for leadership development based on their support of the company’s core value of “Customer-Driven Excellence” in addition to other performance-based criteria. Employees also are encouraged to participate in industry-related events. MIDWAYUSA - customer focus cont.

94 94 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. - Employees’ performance reviews are aligned with key customer requirements. For example, customer service representatives are evaluated on their performance in relation to the requirement for “Friendly, Courteous, Respectful, and Ethical Service.” - Direct access is provided to the company’s founder and CEO, Larry Potterfield, via the Larry Line. Potterfield also role-models the customer-first philosophy by being very visible and accessible (“The Face of MidwayUSA”) to customers at industry and other public events. MIDWAYUSA - customer focus cont.

95 95 Quality Management, 6 th ed. Goetsch and Davis © 2010 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. C ustomer input on improving operations is solicited via the company’s Web site by regularly featuring online surveys, posting customer reviews of the company’s products, and providing an “I’m Having Trouble Finding” option so customers can suggest additions to product lines. MIDWAYUSA - customer focus cont.


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