© 2006 Prentice Hall, Inc.6 – 1 Operations Management Chapter 6 – Managing Quality © 2006 Prentice Hall, Inc. PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e

© 2006 Prentice Hall, Inc.6 – 2 Outline  Global Company Profile: Arnold Palmer Hospital  Quality And Strategy  Defining Quality  Implications of Quality  Malcolm Baldrige National Quality Award  Cost of Quality (COQ)

© 2006 Prentice Hall, Inc.6 – 3 Outline – Continued  Ethics and Quality Management  International Quality Standards  ISO 9000  ISO14000

© 2006 Prentice Hall, Inc.6 – 4 Outline – Continued  Total Quality Management  Continuous Improvement  Six Sigma  Employee Empowerment  Benchmarking  Just-in-Time (JIT)  Taguchi Concepts  Knowledge of TQM Tools

© 2006 Prentice Hall, Inc.6 – 5 Outline – Continued  Tools Of TQM  Check Sheets  Scatter Diagrams  Cause-and-Effect Diagram  Pareto Charts  Flow Charts  Histograms  Statistical Process Control (SPC)

© 2006 Prentice Hall, Inc.6 – 6 Outline – Continued  The Role Of Inspection  When and Where to Inspect  Source Inspection  Service Industry Inspection  Inspection of Attributes versus Variables  TQM In Services

© 2006 Prentice Hall, Inc.6 – 7 Learning Objectives When you complete this chapter, you should be able to: Identify or Define:  Quality  Malcolm Baldrige National Quality Award  ISO International Quality Standards  Taguchi Concepts

© 2006 Prentice Hall, Inc.6 – 8 Learning Objectives When you complete this chapter, you should be able to: Explain:  Why quality is important  Total Quality Management (TQM)  Seven tools of TQM  Quality robust products  Deming, Juran, Feigenbaum, and Crosby’s ideas

© 2006 Prentice Hall, Inc.6 – 9 Managing Quality Provides a Competitive Advantage Arnold Palmer Hospital  Deliver over 10,000 babies annually  Virtually every type of quality tool is employed  Continuous improvement  Employee empowerment  Benchmarking  Just-in-time  Quality tools

© 2006 Prentice Hall, Inc.6 – 10 Quality and Strategy  Managing quality supports differentiation, low cost, and response strategies  Quality helps firms increase sales and reduce costs  Building a quality organization is a demanding task

© 2006 Prentice Hall, Inc.6 – 11 Ways Quality Improves Productivity Improved Quality Increased Profits  Increased productivity  Lower rework and scrap costs  Lower warranty costs Reduced Costs  Improved response  Higher Prices  Improved reputation Sales Gains Figure 6.1

© 2006 Prentice Hall, Inc.6 – 12 The Flow of Activities Organizational Practices Leadership, Mission statement, Effective operating procedures, Staff support, Training Yields: What is important and what is to be accomplished Quality Principles Customer focus, Continuous improvement, Benchmarking, Just-in-time, Tools of TQM Yields: How to do what is important and to be accomplished Employee Fulfillment Empowerment, Organizational commitment Yields: Employee attitudes that can accomplish what is important Customer Satisfaction Winning orders, Repeat customers Yields: An effective organization with a competitive advantage Figure 6.2

© 2006 Prentice Hall, Inc.6 – 13 Defining Quality The totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs American Society for Quality

© 2006 Prentice Hall, Inc.6 – 14 Different Views  User-based – better performance, more features  Manufacturing-based – conformance to standards, making it right the first time  Product-based – specific and measurable attributes of the product

© 2006 Prentice Hall, Inc.6 – 15 Implications of Quality 1.Company reputation  Perception of new products  Employment practices  Supplier relations 2.Product liability  Reduce risk 3.Global implications  Improved ability to compete

© 2006 Prentice Hall, Inc.6 – 16 Malcom Baldrige National Quality Award  Established in 1988 by the U.S. government  Designed to promote TQM practices  Recent winners  The Bama Companies, Kenneth W. Monfort College of Business, Caterpillar Financial Services, Baptist Hospital, Clarke American Checks, Los Alamos National Bank

© 2006 Prentice Hall, Inc.6 – 17 Takumi A Japanese character that symbolizes a broader dimension than quality, a deeper process than education, and a more perfect method than persistence

© 2006 Prentice Hall, Inc.6 – 18 Costs of Quality  Prevention costs - reducing the potential for defects  Appraisal costs - evaluating products, parts, and services  Internal failure - producing defective parts or service before delivery  External costs - defects discovered after delivery

© 2006 Prentice Hall, Inc.6 – 19 External Failure Internal Failure Prevention Costs of Quality Appraisal Total Cost Quality Improvement Total Cost

© 2006 Prentice Hall, Inc.6 – 20 International Quality Standards  Industrial Standard Z (Japan)  Specification for TQM  ISO 9000 series (Europe/EC)  Common quality standards for products sold in Europe (even if made in U.S.)  2000 update places greater emphasis on leadership and customer satisfaction  ISO series (Europe/EC)

© 2006 Prentice Hall, Inc.6 – 21 ISO Environmental Standard Core Elements:  Environmental management  Auditing  Performance evaluation  Labeling  Life-cycle assessment

© 2006 Prentice Hall, Inc.6 – 22 Leaders in Quality W. Edwards Deming14 Points for Management Joseph M. JuranTop management commitment, fitness for use Armand FeigenbaumTotal Quality Control Philip B. CrosbyQuality is Free

© 2006 Prentice Hall, Inc.6 – 23 Ethics and Quality Management  Operations managers must deliver healthy, safe, quality products and services  Poor quality risks injuries, lawsuits, recalls, and regulation  Organizations are judged by how they respond to problems

© 2006 Prentice Hall, Inc.6 – 24 TQM Encompasses entire organization, from supplier to customer Stresses a commitment by management to have a continuing, companywide drive toward excellence in all aspects of products and services that are important to the customer

© 2006 Prentice Hall, Inc.6 – 25 Deming’s Fourteen Points 1.Create consistency of purpose 2.Lead to promote change 3.Build quality into the product; stop depending on inspection 4.Build long term relationships based on performance, not price 5.Continuously improve product, quality, and service 6.Start training 7.Emphasize leadership Table 6.1

© 2006 Prentice Hall, Inc.6 – 26 Deming’s Fourteen Points 8.Drive out fear 9.Break down barriers between departments 10.Stop haranguing workers 11.Support, help, improve 12.Remove barriers to pride in work 13.Institute a vigorous program of education and self-improvement 14.Put everybody in the company to work on the transformation Table 6.1

© 2006 Prentice Hall, Inc.6 – 27 Seven Concepts of TQM  Continuous improvement  Six Sigma  Employee empowerment  Benchmarking  Just-in-time (JIT)  Taguchi concepts  Knowledge of TQM tools

© 2006 Prentice Hall, Inc.6 – 28 Continuous Improvement  Represents continual improvement of all processes  Involves all operations and work centers including suppliers and customers  People, Equipment, Materials, Procedures

© 2006 Prentice Hall, Inc.6 – Do Test the plan 3. Check Is the plan working? 4. Act Implement the plan 1.Plan Identify the improvement and make a plan Shewhart’s PDCA Model Figure 6.3

© 2006 Prentice Hall, Inc.6 – 30 Six Sigma  Originally developed by Motorola, Six Sigma refers to an extremely high measure of process capability  A Six Sigma capable process will return no more than 3.4 defects per million operations (DPMO)  Highly structured approach to process improvement

© 2006 Prentice Hall, Inc.6 – 31 Six Sigma 1.Define critical outputs and identify gaps for improvement 2.Measure the work and collect process data 3.Analyze the data 4.Improve the process 5.Control the new process to make sure new performance is maintained DMAIC Approach

© 2006 Prentice Hall, Inc.6 – 32 Six Sigma Implementation  Emphasize DPMO as a standard metric  Provide extensive training  Focus on corporate sponsor support (Champions)  Create qualified process improvement experts (Black Belts, Green Belts, etc.)  Set stretch objectives This cannot be accomplished without a major commitment from top level management

© 2006 Prentice Hall, Inc.6 – 33 Employee Empowerment  Getting employees involved in product and process improvements  85% of quality problems are due to process and material  Techniques  Build communication networks that include employees  Develop open, supportive supervisors  Move responsibility to employees  Build a high-morale organization  Create formal team structures

© 2006 Prentice Hall, Inc.6 – 34 Quality Circles  Group of employees who meet regularly to solve problems  Trained in planning, problem solving, and statistical methods  Often led by a facilitator  Very effective when done properly

© 2006 Prentice Hall, Inc.6 – 35 Use internal benchmarking if you’re big enough Benchmarking Selecting best practices to use as a standard for performance  Determine what to benchmark  Form a benchmark team  Identify benchmarking partners  Collect and analyze benchmarking information  Take action to match or exceed the benchmark

© 2006 Prentice Hall, Inc.6 – 36 Best Practices for Resolving Customer Complaints  Make it easy for clients to complain  Respond quickly to complaints  Resolve complaints on first contact  Use computers to manage complaints  Recruit the best for customer service jobs

© 2006 Prentice Hall, Inc.6 – 37 Just-in-Time (JIT) Relationship to quality:  JIT cuts the cost of quality  JIT improves quality  Better quality means less inventory and better, easier-to- employ JIT system

© 2006 Prentice Hall, Inc.6 – 38 Just-in-Time (JIT)  ‘Pull’ system of production scheduling including supply management  Production only when signaled  Allows reduced inventory levels  Inventory costs money and hides process and material problems  Encourages improved process and product quality

© 2006 Prentice Hall, Inc.6 – 39 Just-In-Time (JIT) Example Scrap Unreliable Vendors Capacity Imbalances Work in process inventory level (hides problems)

© 2006 Prentice Hall, Inc.6 – 40 Just-In-Time (JIT) Example Reducing inventory reveals problems so they can be solved Scrap Unreliable Vendors Capacity Imbalances

© 2006 Prentice Hall, Inc.6 – 41 Taguchi Concepts  Experimental design methods to improve product and process design  Identify key component and process variables affecting product variation  Taguchi Concepts  Quality robustness  Quality loss function  Target-oriented quality

© 2006 Prentice Hall, Inc.6 – 42 Quality Robustness  Ability to produce products uniformly in adverse manufacturing and environmental conditions  Remove the effects of adverse conditions  Small variations in materials and process do not destroy product quality

© 2006 Prentice Hall, Inc.6 – 43 Quality Loss Function  Shows that costs increase as the product moves away from what the customer wants  Costs include customer dissatisfaction, warranty and service, internal scrap and repair, and costs to society  Traditional conformance specifications are too simplistic

© 2006 Prentice Hall, Inc.6 – 44 Unacceptable Poor Good Best Quality Loss Function High loss Loss (to producing organization, customer, and society) Low loss Frequency LowerTargetUpper Specification Target-oriented quality yields more product in the “best” category Target-oriented quality brings product toward the target value Conformance-oriented quality keeps products within 3 standard deviations Figure 6.4 L = D 2 C where L =loss to society D =distance from target value C =cost of deviation

© 2006 Prentice Hall, Inc.6 – 45 Tools of TQM  Tools for Generating Ideas  Check sheets  Scatter diagrams  Cause and effect diagrams  Tools to Organize the Data  Pareto charts  Flow charts  Tools for Identifying Problems  Histogram  Statistical process control chart

© 2006 Prentice Hall, Inc.6 – 46 //// ////// ///// ////// /// // / Hour Defect A B C / // / Seven Tools for TQM (a)Check Sheet: An organized method of recording data Figure 6.5

© 2006 Prentice Hall, Inc.6 – 47 Seven Tools for TQM (b)Scatter Diagram: A graph of the value of one variable vs. another variable Absenteeism Productivity Figure 6.5

© 2006 Prentice Hall, Inc.6 – 48 Seven Tools for TQM (c)Cause and Effect Diagram: A tool that identifies process elements (causes) that might effect an outcome Figure 6.5 CauseMaterialsMethods ManpowerMachinery Effect

© 2006 Prentice Hall, Inc.6 – 49 Seven Tools for TQM (d)Pareto Charts: A graph to identify and plot problems or defects in descending order of frequency Figure 6.5 Frequency Percent ABCDEABCDEABCDEABCDE

© 2006 Prentice Hall, Inc.6 – 50 Seven Tools for TQM (e)Flow Charts (Process Diagrams): A chart that describes the steps in a process Figure 6.5

© 2006 Prentice Hall, Inc.6 – 51 Seven Tools for TQM (f)Histogram: A distribution showing the frequency of occurrence of a variable Figure 6.5 Distribution Repair time (minutes) Frequency

© 2006 Prentice Hall, Inc.6 – 52 Seven Tools for TQM (g)Statistical Process Control Chart: A chart with time on the horizontal axis to plot values of a statistic Figure 6.5 Upper control limit Target value Lower control limit Time

© 2006 Prentice Hall, Inc.6 – 53 Cause-and-Effect Diagrams Material Machinery Methods Manpower Inadequate supply of magazines Inadequate special meals on-board Insufficient clean pillows & blankets on-board Broken luggage carousel Mechanical delay on plane Deicing equipment not available Overbooking policies Bumping policies Mistagged bags Poor check-in policies Understaffed ticket counters Understaffed crew Poorly trained attendants Dissatisfied Airline Customer Figure 6.6

© 2006 Prentice Hall, Inc.6 – 54 Pareto Charts Number of occurrences Room svcCheck-inPool hoursMinibarMisc. 72%16%5%4%3% – – – – – – – – – – – 0 0 – Frequency (number) Causes and percent Cumulative percent Data for October

© 2006 Prentice Hall, Inc.6 – 55 Shipping dock Storage (4 to 6 hrs) Quick freeze storage (60 Mins) Sealing Weighing Labeling Flow Charts Packing and shipping process Packing station

© 2006 Prentice Hall, Inc.6 – 56 Statistical Process Control (SPC)  Uses statistics and control charts to tell when to take corrective action  Drives process improvement  Four key steps  Measure the process  When a change is indicated, find the assignable cause  Eliminate or incorporate the cause  Restart the revised process

© 2006 Prentice Hall, Inc.6 – 57 An SPC Chart Upper control limit Coach’s target value Lower control limit Game number ||||||||| ||||||||| %10%0% Plots the percent of free throws missed Figure 6.7

© 2006 Prentice Hall, Inc.6 – 58 Inspection  Involves examining items to see if an item is good or defective  Detect a defective product  Does not correct deficiencies in process or product  It is expensive  Issues  When to inspect  Where in process to inspect

© 2006 Prentice Hall, Inc.6 – 59 When and Where to Inspect 1.At the supplier’s plant while the supplier is producing 2.At your facility upon receipt of goods from the supplier 3.Before costly or irreversible processes 4.During the step-by-step production processes 5.When production or service is complete 6.Before delivery from your facility 7.At the point of customer contact

© 2006 Prentice Hall, Inc.6 – 60 Service Industry Inspection Organization What is Inspected Standard Jones Law Office Receptionist performance BillingAttorney Is phone answered by the second ring Accurate, timely, and correct format Promptness in returning calls Table 6.4

© 2006 Prentice Hall, Inc.6 – 61 Service Industry Inspection Organization What is Inspected Standard Hard Rock Hotel Reception desk DoormanRoomMinibar Use customer’s name Greet guest in less than 30 seconds All lights working, spotless bathroom Restocked and charges accurately posted to bill Table 6.4

© 2006 Prentice Hall, Inc.6 – 62 Service Industry Inspection Organization What is Inspected Standard Arnold Palmer Hospital BillingPharmacyLabNursesAdmissions Accurate, timely, and correct format Prescription accuracy, inventory accuracy Audit for lab-test accuracy Charts immediately updated Data entered correctly and completely Table 6.4

© 2006 Prentice Hall, Inc.6 – 63 Service Industry Inspection Organization What is Inspected Standard Hard Rock Cafe BusboyBusboyWaiter Serves water and bread within 1 minute Clears all entrée items and crumbs prior to dessert Knows and suggest specials and desserts Table 6.4

© 2006 Prentice Hall, Inc.6 – 64 Service Industry Inspection Organization What is Inspected Standard Nordstrom’s Department Store Display areas StockroomsSalesclerks Attractive, well-organized, stocked, good lighting Rotation of goods, organized, clean Neat, courteous, very knowledgeable Table 6.4

© 2006 Prentice Hall, Inc.6 – 65 TQM In Services  Service quality is more difficult to measure than the quality of goods  Service quality perceptions depend on  Intangible differences between products  Intangible expectations customers have of those products

© 2006 Prentice Hall, Inc.6 – 66 Service Quality The Operations Manager must recognize: 1.The tangible component of services is important 2.The service process is important 3.The service is judged against the customer’s expectations 4.Exceptions will occur

© 2006 Prentice Hall, Inc.6 – 67 Service Specs at UPS

© 2006 Prentice Hall, Inc.6 – 68 Determinants of Service Quality  Reliability  Responsiveness  Competence  Access  Courtesy  Communication  Credibility  Security  Understanding/ knowing the customer  Tangibles