Quality Management and Measurement 13

The Role of Management Information Systems in Quality Management OBJECTIVE 1: Describe a management information system, and explain how it enhances management decision making.

The Role of Management Information Systems in Quality Management A management information system is a reporting system that identifies, monitors, and maintains continuous, detailed analyses of a company’s activities and provides managers with timely measures of operating results.

The Role of Management Information Systems in Quality Management Enterprise resource planning systems –A fully integrated database system –Combines the management of all major business activities with support activities to form one easy- to-access, centralized data warehouse. –An ERP system not only fosters communication within an organization; it can also communicate with other businesses’ databases.

The Role of Management Information Systems in Quality Management Managers’ use of MIS –Enhances the management cycle Planning Performing Evaluating Communicating

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Financial and Nonfinancial Measures of Quality OBJECTIVE 2: Define total quality management (TQM), and identify financial and nonfinancial measures of quality.

Table 1: Financial Measures of Quality

Table 2: Nonfinancial Measures of Quality

Financial and Nonfinancial Measures of Quality In a total quality management (TQM) environment, all business functions work together to build quality into a firm’s products or services. –Quality is the result of an operating environment in which a company’s product or service meets customer specifications the first time it is produced or delivered. –Costs of quality exist when quality is achieved and when it is not achieved. The costs of conformance include prevention costs and appraisal costs. The costs of nonconformance include internal failure costs and external failure costs.

Financial and Nonfinancial Measures of Quality Nonfinancial measures help managers determine the degree of quality that is being achieved. They include the following: –Measures of product design quality –Measures of vendor performance –Measures of production performance –Measures of delivery cycle time –Measures of customer satisfaction

Financial and Nonfinancial Measures of Quality Many of the costs-of-quality categories and several of the nonfinancial measures of quality apply directly to services and can be used by any type of service organization.

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Measuring Quality: An Illustration OBJECTIVE 3: Use measures of quality to evaluate operating performance.

Exhibit 1: Analysis of the Costs of Quality

Exhibit 2: Analysis of Nonfinancial Measures of Quality

Figure 1: Comparison of Costs of Quality: Conformance Versus Nonconformance

Measuring Quality: An Illustration By analyzing the costs of quality, as well as nonfinancial measures of quality, managers help a firm meet its goal of continuously improving product or service quality and the production process.

Measuring Quality: An Illustration Evaluating the Costs of Quality –Key quality performance questions Which company is most likely to succeed in the competitive marketplace? Which company has serious problems with its products’ quality? What do you think will happen to the total costs of quality for each company over the next five years? Why?

Measuring Quality: An Illustration Nonfinancial measures of quality can be used to evaluate a company’s experience in pursuing total quality management.

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The Evolving Concept of Quality OBJECTIVE 4: Discuss the evolving concept of quality.

The Evolving Concept of Quality Concept of quality has changed over the years. –Before the advent of TQM over 20 years ago, managers assumed that there was a trade-off between the costs and the benefits of improving quality. –By the end of the 1980s, application of management concepts and philosophies that emphasize product quality had enabled companies to achieve high levels of product reliability

The Evolving Concept of Quality –Return on quality (ROQ) when the marginal revenues possible from a higher- quality good or service exceed the marginal costs of providing that higher quality –TQM— a method of using a flow diagram to indicate process inputs, outputs, constraints, and flows to help managers identify unnecessary efforts and inefficiencies in a business process. –Kaizen— the gradual and ongoing improvement of products and processes while reducing costs.

The Evolving Concept of Quality –Motorola’s Six Sigma Quality standard Benchmarking—the measurement of the gap between the quality of a company’s process and the quality of a parallel process at the best-in-class company. Process mapping—a method of using a flow diagram to indicate process inputs, outputs, constraints, and flows to help managers identify unnecessary efforts and inefficiencies in a business process.

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Recognition of Quality OBJECTIVE 5: Recognize the awards and organizations that promote quality.

Recognition of Quality Three most prestigious awards –Deming Application Prize Established in 1951 by the Japanese Union of Scientists and Engineers Honors individuals or groups who have contributed to the development and dissemination of total quality control. Originally limited to Japanese companies but due to great interest, expanded to companies outside Japan.

Recognition of Quality –EFQM Excellence Award European Foundation for Quality Management since the 1990s Awarded to businesses and organizations operating in Europe. EFQM Excellence Model –Define their vision and measurable goals. –Understand business systems and their causal relationships and links. –Identify and promote successful internal and external customer experiences. –Self-assess their current organizational health.

Recognition of Quality –Malcolm Baldrige Quality Award Established in 1987 by U.S. Congress Recognizes U.S. organizations Standards divided into seven categories –Leadership –Strategic planning –Customer and market focus –Measurement, analysis, and knowledge management –Work force focus –Process management –Results

Recognition of Quality International Organization for Standardization (ISO) –ISO standards—environmental management framework to minimize the harmful environmental effects of business activities and continually improve environmental performance. –ISO 9000 standards— covers the design, development, production, final inspection and testing, installation, and servicing of products, processes, and services

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