QUALITY MANAGEMENT CHAPTER 15 DAVID A. COLLIER AND JAMES R. EVANS

15-1 Explain the concepts and definitions of quality. 15-2 Describe the quality philosophies and principles of Deming, Juran, and Crosby. 15-3 Explain the GAP model and its importance. 15-4 Describe the concepts and philosophy of ISO 9000:2000. 15-5 Describe the philosophy and methods of Six Sigma. 15-6 Explain the categories of cost-of-quality measurement. 15-7 Describe how to apply the 7 QC Tools. 15-8 Explain the concepts of kaizen and poka-yoke.

The importance of quality often makes headlines when things go wrong, especially when it involves consumer safety. A major news story in 2009 was the case of Peanut Corporation of America. At least 677 people were sickened and 9 died after eating salmonella-contaminated products made from peanut butter paste from the Peanut Corporation of America. It was found that at least 12 times, when one of the company’s products tested positive for salmonella, the company shopped around for new tests until a laboratory certified that the product was clean. The company shipped the products and continued to use the same equipment, processes, and global suppliers. Inspectors found roaches, mold, and a leaking roof in one of the company’s factories. The salmonella outbreak led to more than 2,000 product recalls, one of the largest in U.S. history. On March 12, 2009, the company issued the following statement: “As you may know, certain recent events have made it necessary for Peanut Corporation of America to seek protection under the U.S. Bankruptcy Code. Effective immediately, all corporate operations will cease.”

What do you think? What quality issues have you personally encountered or heard about regarding food?

Quality management refers to systematic policies, methods, and procedures used to ensure that goods and services are produced with appropriate levels of quality to meet the needs of customers. Quality management deals with key issues relating to how goods and services are designed, created, and delivered to meet customer expectations.

Understanding Quality The Industrial Revolution led to quality control and the dependence on inspection, and reduced the workers’ responsibility for quality. Dr. Joseph Juran and Dr. W. Edwards Deming introduced quality to the Japanese after World War II. Using their ideas, Japanese quality eventually exceeded that of Western manufacturers and created a renewed interest in quality in the U.S. Today, quality is still important and the major focus of Six Sigma – a customer-focused and results-oriented approach to business improvement.

Understanding Quality Quality means different things to different people: Perfection Consistency 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

Understanding Quality Fitness for use is the ability of a good or service to meet customer needs. Quality of conformance is the extent to which a process is able to deliver output that confirms to design specifications. Specifications are targets and tolerances determined by designers of goods and services.

Understanding Quality Service Quality is consistently meeting or exceeding customer expectations (external focus) and service delivery system performance criteria (internal focus) during all service encounters. Consistent delivery of a clearly defined customer benefit package and associated process and service encounters, defined by internal and external standards of performance.

Understanding Quality Five Dimensions of Service Quality Tangibles are what the customer sees, such as physical facilities, equipment, and the appearance of service employees. Reliability is the ability to provide what was promised, dependably and accurately. Responsiveness is the willingness to help customers and provide prompt service. Assurance is the knowledge and courtesy of service providers and their ability to convey trust and confidence. Empathy is caring, individual attention the firm provides its customers.

Understanding Quality Principles of Total Quality A focus on customers and stakeholders, A process focus supported by continuous improvement and learning, and Participation and teamwork by everyone in the organization.

Influential Leaders in Modern Quality Management W. Edwards Deming Focused on bringing about improvements in product and service quality by reducing uncertainty and variability in goods and services design. Higher quality leads to higher productivity and lower costs, which leads to improved market share and long- term competitive strength. “14 Points” management philosophy. Deming Cycle for improvement– Plan, Do, Study, Act.

Influential Leaders in Modern Quality Management Deming’s 14 Points Point 1: Create a Vision and Demonstrate Commitment Point 2: Learn the Philosophy Point 3: Understand Inspection Point 4: Stop Making Decisions Purely on the Basis of Cost Point 5: Improve Constantly and Forever Point 6: Institute Training Point 7: Institute Leadership

Influential Leaders in Modern Quality Management Deming’s 14 Points Point 8: Drive Out Fear Point 9: Optimize the Efforts of Teams Point 10: Eliminate Exhortations Point 11: Eliminate Numerical Quotas Point 12: Remove Barriers to Pride in Work Point 13: Encourage Education and Self-Improvement Point 14: Take Action

Exhibit Extra The Deming Cycle Plan: study current situation Do: implement plan on trial basis Study: determine if trial is working correctly Act: standardize improvements

Influential Leaders in Modern Quality Management Joseph Juran Defined quality as “fitness for use.” Advocated use of quality cost measurement. Quality Trilogy: quality planning, quality control, and quality improvement. Focused on defect elimination using statistical tools.

Influential Leaders in Modern Quality Management Philip B. Crosby Wrote Quality is Free in 1979, which brought quality to the attention of top corporate managers in the U.S. Absolutes of Quality Management: Quality means conformance to requirements, not elegance. There is no such thing as a quality problem. There is no such thing as the economics of quality; doing the job right the first time is always cheaper. The only performance measurement is the cost of quality, which is the expense of nonconformance. The only performance standard is Zero Defects (ZD).

The GAP Model People view quality by comparing features and characteristics of goods and services to a set of expectations. The GAP model recognizes that there are several ways to mismanage the creation and delivery of high levels of quality.

The Gap Model of Quality Exhibit 15.1 The Gap Model of Quality Source: Paraguraman, A., V.A. Zeithami, and L.L. Berry. “A Conceptual Model of Service Quality and its Implecations for Future Research,” Journal of Marketing, (Fall 1985), pp. 41-50. Reprinted with permission from the American Marketing Association.

The GAP Model Gap 1 is the discrepancy between customer expectations and management perceptions of those expectations. Gap 2 is the discrepancy between management perceptions of what features constitute a target level of quality and the task of translating these perceptions into executable specifications. Gap 3 is the discrepancy between quality specifications documented in operating and training manuals and plans and their implementation. Gap 4 is the discrepancy between actual manufacturing and service delivery system performance and external communications to the customers. Gap 5 is the difference between the customer's expectations and perceptions.

ISO 9000:2000 Quality standards created in 1987 and revised in 1994 and 2000 to improve product quality, improve the quality of operation’s processes, and provide confidence to organizations and customers that quality system requirements are fulfilled. Internationally recognized (and sometimes required to do business in certain countries). Standardizes key terms in quality and provides a set of basic principles for initiating quality management systems.

ISO 9000:2000 Based on eight principles: Customer-Focused Organization Leadership Involvement of People Process Approach System Approach to Management Continual Improvement Factual Approach to Decision Making Mutually Beneficial Supplier Relationships

Six Sigma Six Sigma is a business improvement approach that seeks to find and eliminate causes of defects and errors in manufacturing and service processes by focusing on outputs that are critical to customers and results in a clear financial return for the organization. Used by companies including Motorola, Allied Signal, Texas Instruments, and General Electric.

Six Sigma A defect (nonconformance) is any mistake or error that is passed on to the customer. A unit of work is the output of a process or an individual process step. Defects per unit (DPU)= Number of defects discovered Number of units produced [15.1]

Six Sigma The Six Sigma quantifies quality performance by defects per million opportunities (dpmo) : dpmo = (Number of defects discovered/ opportunities for error) X 1,000,000 [15.2] In service applications, we often use the term errors per million opportunities—epmo.

Six Sigma A "six sigma" quality level corresponds to a dpmo or epmo equal to 3.4, which represents almost perfect quality. Calculating sigma level using Excel: =NORMSINV(1 – Number of Defects/Number of Opportunities) + 1.5 or =NORMSINV(1 – dpmo/1,000,000) + 1.5 [15.3] A 3-sigma process has a dpmo of 66,807, a 4-sigma process has dpmo = 6,210, and a 5-sigma process has dpmo = 233.

Solved Problem Suppose that the average number of bags checked by airline passengers is 1.6, and the airline recorded three lost bags for 8,000 passengers in one month. What is epmo, and at what sigma level is this process operating?

Solution The average number of bags checked = (8,000 passengers × 1.6 bags/passenger) = 12,800. The number of defects per unit (lost bags per bags checked): DPU = 3/12,800 = 0.000234375. Calculate epmo: epmo = (Number of errors discovered/opportunities for error) X 1,000,000 = (3/12,800) X 1,000,000= 234.375. Using the Excel formula, the sigma level is =NORMSINV(1 – 234.375/1000000) + 1.5 = 4.99828

Exhibit 15.2 Excel Six Sigma Template

Implementing Six Sigma Key concepts: Emphasizing dpmo or epmo as a standard metric that can be applied to all parts of an organization. Providing extensive training followed by project team deployment. Focusing on corporate sponsors responsible for supporting team activities. Creating highly qualified process improvement experts. Ensuring that appropriate metrics are identified early in the process and that they focus on business results. Setting stretch objectives for improvement.

Implementing Six Sigma DMAIC Process Define: identify customers and their priorities; identify and define a suitable project; identify CTQs (critical-to- quality characteristics). Measure: determine how to measure the process and how it is performing; identify key internal processes that influence CTQs and measure current defects. Analyze: determine likely causes of defects and understand why defects are generated by identifying key variables that cause process variation.

Implementing Six Sigma DMAIC Process Improve: identify means to remove causes of defects; confirm key variables; modify the process to stay within acceptable range. Control: determine how to maintain improvements; put tools in place to ensure that key variables remain within acceptable ranges under the modified process.

Implementing Six Sigma

Implementing Six Sigma Concepts and Methods Elementary statistical tools (basic statistics, statistical thinking, hypothesis testing, correlation, simple regression); Advanced statistical tools (design of experiments, analysis of variance, multiple regression); Product design and reliability (quality function deployment, reliability analysis, failure mode and effects analysis); Measurement (cost of quality, process capability, measurement systems analysis); Process control (control plans, statistical process control, reducing variation); Process improvement (process improvement planning, process mapping, mistake-proofing); Implementation and teamwork (organizational effectiveness, team assessment, facilitation tools, team development).

Cost of Quality Measurement The cost of quality refers to the costs associated with avoiding poor quality or those incurred as a result of poor quality. Applications: Better communication between operations managers and senior-level managers Identify and justify major improvement opportunities Evaluate the importance of quality and improvement in operations

Cost of Quality Measurement Prevention costs are those expended to keep nonconforming goods and services from being made and reaching the customer. Appraisal costs are those expended on ascertaining quality levels through measurement and analysis of data to detect and correct problems. Internal-failure costs are costs incurred as a result of unsatisfactory quality that is found before delivery of good or service to the customer. External-failure costs are incurred after poor- quality goods or services reach the customer.

The Cost of Poor Quality

The “Seven QC Tools” Flowcharts: process mapping to identify the sequence of activities or flow of materials/ information in a process. Run Charts and Control Charts: a run chart is a line graph with data plotted over time; control charts include control limits. Checksheets: simple tools for data collection, ensure completeness. Histograms: graphically represent frequency of values within a specified group.

The “Seven QC Tools” Pareto Diagrams: separate the vital few from the trivial many causes; provide direction for selecting projects for improvement. Cause-and-Effect Diagrams: represent chain of relationships; often called a fishbone diagram. Scatter Diagrams: graphical component of regression analysis.

Exhibit 15.3 The Structure of a Control Chart

Defective Item Checksheet Exhibit 15.4 Defective Item Checksheet Source: K. Ishikawa, Guide to Quality Control (Tokyo: Asian Productivity Organization, 1982), p. 33. Reprinted with permission.

Exhibit 15.5 Pareto Diagram of Defective Items

Exhibit 15.6 Cost of Quality Excel Template

Exhibit 15.7 Cause-and-Effect Diagram for Hospital Emergency Admission

Root Cause Analysis The root cause is a term used to designate the source of a problem. 5-Why Technique This approach forces one to redefine a problem statement as a chain of causes and effects to identify the source of the symptoms by asking why, ideally five times.

Use of Pareto Diagrams for Root Cause Analysis Exhibit 15.8 Use of Pareto Diagrams for Root Cause Analysis Source: Small Business Guidebook to Quality Management, Office of the Secretary of Defense, Quality Management Office, Washington, DC (1988).

Other Quality Improvement Strategies Kaizen focuses on small, gradual, and frequent improvements over the long term with minimum financial investment and with participation by everyone in the organization. A kaizen blitz is an intense and rapid improvement process in which a team or a department throws all its resources into an improvement project over a short time period, as opposed to traditional kaizen applications, which are performed on a part-time basis. Poka-yoke (mistake-proofing) is an approach for mistake-proofing processes using automatic devices or methods to avoid simple human error.

Other Quality Improvement Strategies Poka-Yoke Examples A device on a drill counts the number of holes drilled in a workpiece; a buzzer sounds if the workpiece is removed before the correct number of holes has been drilled. Fast food restaurants use automated french-frying machines that can be operated in only one way; the french fries are prepackaged and the equipment automated to reduce the chance of human error. A flash drive can be inserted only one way, preventing damage to the drive and the data.

Sunshine Enterprises Case Study Draw a cause-and-effect diagram for the possible causes of the $25 tip service upset. Select one possible root cause from your diagram and explain how you would investigate and fix it. What is the average value of a loyal customer (VLC) at Abby’s restaurants (see Chapter 3)? What is the best way to increase revenue given your VLC analysis? Critique the current quality control system. What changes and improvements do you recommend if Sunshine expands to 20 restaurants? What are your short- and long-term recommendations? Explain your rationale for these recommendations.