© 2005 Wiley1 Total Quality Management Chapter 5

Operations and Operations Strategy Designing an Operations System Managing an Operations System Done We are here Overview of Management 326

Designing an Operations System Project management: A design tool Product design Process design Quality system Lean systems Capacity planning Facility location Facility layout Work design Done Quality management Statistical quality control We are here

© 2005 Wiley4 Why Quality is Important Increases value of products to customers Reduces expensive mistakes Increases profits  Shareholder value

© 2005 Wiley5 Total Quality Management (TQM) Customer-defined quality: Meeting quality expectations as defined by the customer Integrated organizational effort designed to improve quality on all quality characteristics that are important to customers (core product and anything else that affects customers) Requires a coordinated effort All levels of the organization All functions (departments) in the organization Work with suppliers and listen to customers

© 2005 Wiley6 Quality Definitions Fitness for use: product performs its intended function Intended function depends on customer requirements in the target market Value: product is superior to others in the same price range (getting more for your money) Psychological (perceived quality): the quality that the customer thinks he/she got Conformance quality: product performs at targeted levels, as defined in the product specification

© 2005 Wiley7 Manufacturing Quality vs. Service Quality Manufacturing quality focuses on tangible product features Conformance, performance, reliability, features Service organizations produce intangible products that must be experienced Quality often defined by perceptional factors like courtesy, friendliness, promptness, waiting time, consistency

© 2005 Wiley8 Quality Measurement in Services Qualitative measures are based on customer perceptions Customer satisfaction surveys Teacher evaluations Quantitative measures are based on numerical data Waiting time Number of errors

© 2005 Wiley9 Cost of Quality – 4 Categories Early detection/prevention is less costly May be less by a factor of 10

© 2005 Wiley10 Quality–Cost Relationship Cost of quality Difference between price of nonconformance and conformance Cost of doing things wrong 20 to 35% of revenues Cost of doing things right 3 to 4% of revenues Profitability In the long run, quality is free

© 2005 Wiley11 Evolution of TQM – New Focus

© 2005 Wiley12 TQM Philosophy Focus on Customer Identify and meet customer needs Stay tuned to changing needs, e.g. fashion styles Continuous Improvement Continuous learning and problem solving Quality at the Source Inspection vs. prevention & problem solving Employee Empowerment Empower all employees; serve external and internal customers

© 2005 Wiley13 TQM Philosophy ( continued ) Understanding Quality Tools Ongoing training on analysis, assessment, and correction, & implementation tools Team Approach Teams formed around processes – 8 to 10 people Meet regularly to analyze and solve problems Benchmarking Studying practices at “best in class” companies Managing Supplier Quality Certify suppliers and eliminate receiving inspection

© 2005 Wiley14 Plan-Do-Study-Act (PDSA) Plan Evaluate current process Collect procedures, data, identify problems Develop an improvement plan, performance objectives Do Implement the plan – trial basis Study Collect data and evaluate against objectives Act Communicate the results from trial If successful, implement new process After Act phase, go back and Plan the next quality project

© 2005 Wiley15 PDSA (continued) Cycle is repeated After act phase, start planning and repeat process See Figure 5-6, p. 148

© 2005 Wiley16 Seven Problem Solving Tools Cause-and-Effect Diagrams Flowcharts Checksheet Control Charts Scatter Diagrams Pareto Analysis Histograms Tools shown in Figure 5-7, p. 151

Cause-and-Effect Diagrams Used to identify the cause of a quality problem Followup: Collect data to verify the cause and develop a plan to eliminate the cause.

Flowchart Used to document the detailed steps in a process Often the first step in Process Re-Engineering

Checksheet Tool Used to Collect Data for Analysis

Control Chart Set confidence intervals for the mean and range of a process (usual behavior) LCL = lower control limit, UCL = upper control limit Is process in control (predictable)? Does process have conformance quality?

Scatter Diagrams A graph that shows how two variables are related to one another Data can be used in a regression analysis to establish equation for the relationship

Pareto Analysis Used to Prioritize Problems Most important problems should be solved first Prioritize by number of defects or $ cost of defects Often called the Rule: Most quality problems are the result of only a few causes. Example: 80% of the problems caused by 20% of causes

Histogram A chart that shows the frequency distribution of observed values of a variable like service time at a bank drive-up window Displays whether the distribution is symmetrical (normal) or skewed

© 2005 Wiley24 Quality in Product Design Quality function deployment (QFD) Used by product design teams Used to translate customer preferences into specific technical requirements The technical requirements are used to develop the product specification Operations is responsible for making the product to specifications Products that meet specifications have conformance quality Objective is to satisfy customers Principal tool is House of Quality (pages ) See Figure 5-9, p. 154, & 5-10, p. 156

© 2005 Wiley25 Quality Award and Certifications Malcolm Baldrige National Quality Award ISO 9000 Certification ISO Certifications

© 2005 Wiley26 Baldrige Award Competitive quality award presented by U. S. government 5 award categories: Manufacturing, services, small business, health care, education All written applications are reviewed by trained examiners Site visits to leading candidates Maximum of 2 awards per category

Baldrige Award Criteria Framework A Systems Perspective Organizational Profile Measurement, analysis, & knowledge management (90 pts) Leadership (120 pts) Customer & Market Focus (85 pts) Strategic Planning (85 pts) Human Resource Development & Mgmt. (85 pts) Process Mgmt. (85 pts) Business Results (450 pts) Total = 1,000 pts

© 2005 Wiley28 Baldrige Award - Business Results Customer-focused results Product and service performance Financial and market results Human resource results

© 2005 Wiley29 ISO 9000 Standards International quality certification program guided by the International Standards Organization (ISO) Any firm that passes an ISO standards audit will be certified. U. S. participates in the development of these standards: American National Standards Institute (ANSI) American Society for Quality (ASQ) Professional organizations

© 2005 Wiley30 ISO 9000 ISO 9000 standards audits must be performed by a registrar, a firm that is certified to do ISO 9000 audits Some companies require their suppliers to be certified Be sure that your registrar is acceptable to your customers Firms must be re-certified periodically.

© 2005 Wiley31 ISO A certification program in environmental management Standard-setting and certification procedures are similar to ISO 9000

© 2005 Wiley32 Why TQM Efforts Fail Lack of top management support and commitment Lack of a genuine quality culture Continuous improvement Teamwork Training Employee empowerment Recognition and rewards (team or individual) Under-reliance or over-reliance on statistical process control (SPC) SPC is an essential tool for identifying problems and monitoring quality It is important to solve the problems (PDSA, 7 quality tools)