1. Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Operations Management - 5 th Edition Chapter 3 Quality Management

2. Copyright 2006 John Wiley & Sons, Inc.3-2 Quality Gurus  Walter Shewart In 1920s, developed control charts In 1920s, developed control charts Introduced the term “quality assurance” Introduced the term “quality assurance”  W. Edwards Deming Developed courses during World War II to teach statistical quality-control techniques to engineers and executives of companies that were military suppliers Developed courses during World War II to teach statistical quality-control techniques to engineers and executives of companies that were military suppliers After the war, began teaching statistical quality control to Japanese companies After the war, began teaching statistical quality control to Japanese companies  Joseph M. Juran Followed Deming to Japan in 1954 Followed Deming to Japan in 1954 Focused on strategic quality planning Focused on strategic quality planning

3. Copyright 2006 John Wiley & Sons, Inc.3-3  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 the 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 Quality Gurus (cont.)

4. Copyright 2006 John Wiley & Sons, Inc.3-4 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

5. Copyright 2006 John Wiley & Sons, Inc.3-5  Institute worker training  Instill leadership among supervisors  Eliminate fear among employees  Eliminate barriers between departments  Eliminate slogans Deming’s 14 Points (cont.)

6. Copyright 2006 John Wiley & Sons, Inc.3-6  Remove numerical quotas  Enhance worker pride  Institute vigorous training and education programs  Develop a commitment from top management to implement above 13 points Deming’s 14 Points (cont.)

7. Copyright 2006 John Wiley & Sons, Inc.3-7 Deming Wheel: PDCA Cycle Deming Wheel: PDCA Cycle 1. Plan Identify problem and develop plan for improvement. 2. Do Implement plan on a test basis. 3. Study/Check Assess plan; is it working? 4. Act Institutionalize improvement; continue cycle.

8. Copyright 2006 John Wiley & Sons, Inc.3-8 TQM and…  … Partnering a relationship between a company and its supplier based on mutual quality standards a relationship between a company and its supplier based on mutual quality standards  … Customers system must measure customer satisfaction system must measure customer satisfaction  … Information Technology infrastructure of hardware, networks, and software necessary to support a quality program infrastructure of hardware, networks, and software necessary to support a quality program

9. Copyright 2006 John Wiley & Sons, Inc.3-9 Quality Improvement and Role of Employees  Participative problem solving employees involved in quality management employees involved in quality management every employee has undergone extensive training to provide quality service to Disney’s guests every employee has undergone extensive training to provide quality service to Disney’s guests

10. Copyright 2006 John Wiley & Sons, Inc.3-10 Presentation Implementation Monitoring Solution Problem results Problem Analysis Cause and effect Data collection and analysis Problem Identification List alternatives Consensus Brainstorming Training Group processes Data collection Problem analysis Organization 8-10 members Same area Supervisor/moderator Quality Circle

11. Copyright 2006 John Wiley & Sons, Inc.3-11 Strategic Implications of TQM  Strong leadership  Goals, vision, or mission  Operational plans and policies  Mechanism for feedback

12. Copyright 2006 John Wiley & Sons, Inc.3-12 Six Sigma  A process for developing and delivering near perfect products and services  Measure of how much a process deviates from perfection  3.4 defects per million opportunities  Champion an executive responsible for project success an executive responsible for project success

13. Six-Sigma Quality  “Six-sigma” is a philosophy which reflects the goal of eliminating defects in the products.  Seeks to reduce variation in the processes that lead to product defects  The name, “six sigma” refers to the variation that exists within plus or minus six standard deviations of the process outputs  Statistically speaking a process in “six-sigma” control limits will only produce 2 defects per billion units.

14. Six Sigma Quality: DMAIC Cycle  Define, Measure, Analyze, Improve, and Control  DMAIC  Developed by General Electric as a means of focusing effort on quality using a methodological approach  Firms striving to achieve six-sigma generally adopt DMAIC cycle.  DMAIC are the typical steps employed in “continuous improvement” (a.k.a. Kaizen) concept which seeks to continually improve all aspects of production (parts, machines, labor, processes, etc)  Overall focus of the methodology is to understand and achieve what the customer wants  A 6-sigma program seeks to reduce the variation in the processes that lead to these defects

15. Six Sigma Quality: DMAIC Cycle Cases/examples from classmates 1. Define (D) 2. Measure (M) 3. Analyze (A) 4. Improve (I) 5. Control (C) Customers and their priorities Process and its performance Causes of defects Remove causes of defects Maintain quality

16. Example to illustrate the process…  We are the maker of this cereal. Consumer Reports has just published an article that shows that we frequently have less than 15 ounces of cereal in a box.  What should we do?

17. Example to illustrate the process… Step 1: Define  What is the critical-to-quality characteristic?  The CTQ (critical-to-quality) characteristic in this case is the weight of the cereal in the box.

18. Step 2 - Measure  How would we measure to evaluate the extent of the problem?  What are acceptable limits on this measure?  Let’s assume that the government says that we must be within ± 5 percent of the weight advertised on the box.  Upper Tolerance Limit = 16 +.05(16) = 16.8 ounces  Lower Tolerance Limit = 16 –.05(16) = 15.2 ounces

19. Step 2 - Measure  We go out and randomly buy 1,000 boxes of cereal and find that they weight an average of 15.875 ounces with a standard deviation of 0.529 ounces.  What percentage of boxes are outside the tolerance limits?

20. Upper Tolerance = 16.8 Lower Tolerance = 15.2 Process Mean = 15.875 Std. Dev. =.529 What percentage of boxes are defective (i.e. less than 15.2 oz)? Z = (x – Mean)/Std. Dev. = (15.2 – 15.875)/.529 = -1.276 NORMSDIST(Z) = NORMSDIST(-1.276) = 0.100978 Approximately, 10 percent of the boxes have less than 15.2 Ounces of cereal in them!

21. Step 3 - Analyze - How can we improve the capability of our cereal box filling process?  Decrease Variation Line vibration impacts scale Line vibration impacts scale Random delays in nozzle open/close Random delays in nozzle open/close  Center the Process  Increase Specifications

22. Step 4 – Improve – How good is good enough? Motorola’s “Six Sigma”  Calibrate the equipment more frequently, upgrade process  6-sigma minimum from process center to nearest spec

23. Step 5 – Control  Statistical Process Control (SPC)  Use data from the actual process  Estimate distributions  Look at capability - is good quality possible  Statistically monitor the process over time

24. Copyright 2006 John Wiley & Sons, Inc.3-24 3.4 DPMO 67,000 DPMO cost = 25% of sales 67,000 DPMO cost = 25% of sales DEFINE CONTROL IMPROVE ANALYZE MEASURE Six Sigma: DMAIC

25. Copyright 2006 John Wiley & Sons, Inc.3-25 TQM in Service Companies  Principles of TQM apply equally well to services and manufacturing  Services and manufacturing companies have similar inputs but different processes and outputs  Services tend to be labor intensive  Service defects are not always easy to measure because service output is not usually a tangible item

26. Copyright 2006 John Wiley & Sons, Inc.3-26 Quality Attributes in Service  Benchmark “best” level of quality achievement one company or companies seek to achieve “best” level of quality achievement one company or companies seek to achieve  Timeliness how quickly a service is provided how quickly a service is provided “quickest, friendliest, most accurate service available.”

27. Copyright 2006 John Wiley & Sons, Inc.3-27 Cost of Quality  Cost of Achieving Good Quality Prevention costs Prevention costs costs incurred during product design costs incurred during product design Appraisal costs Appraisal costs costs of measuring, testing, and analyzing costs of measuring, testing, and analyzing  Cost of Poor Quality Internal failure costs Internal failure costs include scrap, rework, process failure, downtime, and price reductions include scrap, rework, process failure, downtime, and price reductions External failure costs External failure costs include complaints, returns, warranty claims, liability, and lost sales include complaints, returns, warranty claims, liability, and lost sales

28. Copyright 2006 John Wiley & Sons, Inc.3-28 Prevention Costs  Quality planning costs costs of developing and implementing quality management program costs of developing and implementing quality management program  Product-design costs costs of designing products with quality characteristics costs of designing products with quality characteristics  Process costs costs expended to make sure productive process conforms to quality specifications 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 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 costs of acquiring and maintaining data related to quality, and development of reports on quality performance

29. Copyright 2006 John Wiley & Sons, Inc.3-29 Appraisal Costs  Inspection and testing costs of testing and inspecting materials, parts, and product at various stages and at the end of a process 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 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 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

30. Copyright 2006 John Wiley & Sons, Inc.3-30 Internal Failure Costs  Scrap costs costs of poor-quality products that must be discarded, including labor, material, and indirect 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 costs of fixing defective products to conform to quality specifications  Process failure costs costs of determining why production process is producing poor-quality products costs of determining why production process is producing poor-quality products  Process downtime costs costs of shutting down productive process to fix problem costs of shutting down productive process to fix problem  Price-downgrading costs costs of discounting poor- quality products—that is, selling products as “seconds” costs of discounting poor- quality products—that is, selling products as “seconds”

31. Copyright 2006 John Wiley & Sons, Inc.3-31 External Failure Costs  Customer complaint costs costs of investigating and satisfactorily responding to a customer complaint resulting from a poor-quality product 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 costs of handling and replacing poor-quality products returned by customer  Warranty claims costs costs of complying with product warranties costs of complying with product warranties  Product liability costs litigation costs resulting from product liability and customer injury 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 costs incurred because customers are dissatisfied with poor quality products and do not make additional purchases

32. Copyright 2006 John Wiley & Sons, Inc.3-32 Measuring and Reporting Quality Costs  Index numbers ratios that measure quality costs against a base value ratios that measure quality costs against a base value labor index labor index ratio of quality cost to labor hours ratio of quality cost to labor hours cost index cost index ratio of quality cost to manufacturing cost ratio of quality cost to manufacturing cost sales index sales index ratio of quality cost to sales ratio of quality cost to sales production index production index ratio of quality cost to units of final product ratio of quality cost to units of final product

33. Copyright 2006 John Wiley & Sons, Inc.3-33 Quality–Cost Relationship Quality–Cost Relationship  Cost of quality Difference between price of nonconformance and conformance Difference between price of nonconformance and conformance Cost of doing things wrong Cost of doing things wrong 20 to 35% of revenues 20 to 35% of revenues Cost of doing things right Cost of doing things right 3 to 4% of revenues 3 to 4% of revenues Profitability Profitability In the long run, quality is free In the long run, quality is free

34. Copyright 2006 John Wiley & Sons, Inc.3-34 Seven Quality Control Tools  Pareto Analysis  Flow Chart  Check Sheet  Histogram  Scatter Diagram  SPC Chart  Cause-and-Effect Diagram

35. Copyright 2006 John Wiley & Sons, Inc.3-35 NUMBER OF CAUSEDEFECTSPERCENTAGE Poor design8064% Wrong part dimensions1613 Defective parts1210 Incorrect machine calibration76 Operator errors43 Defective material32 Surface abrasions32 125100% Pareto Analysis

36. Copyright 2006 John Wiley & Sons, Inc.3-36 Percent from each cause Causes of poor quality Machine calibrations Defective parts Wrong dimensions Poor Design Operator errors Defective materials Surface abrasions 0 10 20 30 40 50 6070(64) (13) (10) (6) (3) (2)(2) Pareto Chart

37. Copyright 2006 John Wiley & Sons, Inc.3-37 Flow Chart Operation Decision Start/ Finish Operation Decision

38. Copyright 2006 John Wiley & Sons, Inc.3-38 Check Sheet COMPONENTS REPLACED BY LAB TIME PERIOD: 22 Feb to 27 Feb 2002 REPAIR TECHNICIAN: Bob TV SET MODEL 1013 Integrated Circuits |||| Capacitors |||| |||| |||| |||| |||| || Resistors || Transformers |||| Commands CRT |

39. Copyright 2006 John Wiley & Sons, Inc.3-39 Histogram 0 5 1010 15 20 1 2 6 13 10 16 19 17 12 16 2017 13 5 6 2 1

40. Copyright 2006 John Wiley & Sons, Inc.3-40 Scatter Diagram Y X

41. Copyright 2006 John Wiley & Sons, Inc.3-41 Control Chart 18 12 6 3 9 15 21 24 246810121416 Sample number Number of defects UCL = 23.35 LCL = 1.99 c = 12.67

42. Copyright 2006 John Wiley & Sons, Inc.3-42 Cause-and-Effect Diagram Quality Problem Quality Problem Out of adjustment Tooling problems Old / worn Machines Faulty testing equipment testing equipment Incorrect specifications Improper methods Measurement Poor supervision Lack of concentration Inadequate training Human Deficiencies in product design Ineffective quality management Poor process design Process Inaccuratetemperaturecontrol Dust and Dirt Environment Defective from vendor Not to specifications Material- handling problems Materials

43. Copyright 2006 John Wiley & Sons, Inc.3-43 Baldrige Award Baldrige Award  Created in 1987 to stimulate growth of quality management in the United States  Categories Leadership Leadership Information and analysis Information and analysis Strategic planning Strategic planning Human resource Human resource Focus Focus Process management Process management Business results Business results Customer and market focus Customer and market focus

44. Copyright 2006 John Wiley & Sons, Inc.3-44 Other Awards for Quality  National individual awards Armand V. Feigenbaum Medal Armand V. Feigenbaum Medal Deming Medal Deming Medal E. Jack Lancaster Medal E. Jack Lancaster Medal Edwards Medal Edwards Medal Shewart Medal Shewart Medal Ishikawa Medal Ishikawa Medal  International awards European Quality Award European Quality Award Canadian Quality Award Canadian Quality Award Australian Business Excellence Award Australian Business Excellence Award Deming Prize from Japan Deming Prize from Japan

45. Copyright 2006 John Wiley & Sons, Inc.3-45 American Customer Satisfaction Index (ACSI)  Measures customer satisfaction  Established in 1994  Web site: www.acsi.org www.acsi.org Examples (in 2003) Examples (in 2003) Amazon.com scored 88 (highest in service) Amazon.com scored 88 (highest in service) Dell scored of 78 (highest in computer industry) Dell scored of 78 (highest in computer industry) Cadillac scored 87 (highest in car industry) Cadillac scored 87 (highest in car industry)

46. Copyright 2006 John Wiley & Sons, Inc.3-46 ISO 9000  A set of procedures and policies for international quality certification of suppliers  Standards ISO 9000:2000 ISO 9000:2000 Quality Management Systems—Fundamentals and Vocabulary Quality Management Systems—Fundamentals and Vocabulary defines fundamental terms and definitions used in ISO 9000 family defines fundamental terms and definitions used in ISO 9000 family  ISO 9001:2000 Quality Management Systems—Requirements Quality Management Systems—Requirements standard to assess ability to achieve customer satisfaction standard to assess ability to achieve customer satisfaction  ISO 9004:2000 Quality Management Systems—Guidelines for Performance Improvements Quality Management Systems—Guidelines for Performance Improvements guidance to a company for continual improvement of its quality-management system guidance to a company for continual improvement of its quality-management system