1. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. U N I T. 2 RESOURCE PLANNING WORKFORCE CUSTOMER RELATIONSHIPS CAPACITY FACILITIES INVENTORY MANAGING RESOURCES TO CREATE VALUE three four JUST-IN-TIME MANAGEMENT TOTAL QUALITY MANAGEMENT SUPPLY CHAIN MANAGEMENT CONSTRAINT MANAGEMENT INTEGRATIVE MANAGEMENT FRAMEWORKS one FOUNDATIONS FOR SUCCESS Introduction PROFITABILITY VALUE STRATEGY 1 2 3 4 9 10 11 12 13 14 15 16 17 18 PROCESSES & CAPABILITIES COST QUALITY TIMELINESS COMPONENTS OF VALUE two 5 6 7 8

2. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. C H A P T E R 7 Quality L E A R N I N G O B J E C T I V E S ▬ Define quality from a customer’s perspective. ▬ Describe the relationships between quality and value as well as quality and profitability. ▬ Compare proactive and reactive approaches to quality management. ▬ Describe the costs of quality. ▬ Explain the function of the general-purpose quality analysis tools. ▬ Describe an make computations for process capability. ▬ Describe how acceptance sampling works and the role of the operating characteristics curve. ▬ Understand the Kano model. ▬ Explain how six sigma quality relates to process capability. ▬ Describe serve quality applications, including service blueprinting and moment-of-truth analysis. ▬ Describe how “recovery” applies to quality failures.

3. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Product and Service Quality Defined  Quality is defined by the customer.  Quality has a key role in customer perception of value. Exhibit 7.1 The Role of Quality in The Resource/ Profit Model

4. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Dimensions of Quality  Dimensions of product quality

5. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Dimensions of Quality  Dimensions of Service Quality

6. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Service and Quality Dimensions Combined Exhibit 7.4 Dimensions of Service and Product Quality Combined Reel Operations 7.1

7. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Proactive versus Reactive Quality Management  Prevention of defects reduces costs. Reel Operations 7.2

8. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Cost of Quality  All of the costs associated with maintaining the quality of goods and services.  External failure costs (including recovery costs).  Internal failure costs  Appraisal costs (inspection and testing)  Prevention costs Exhibit 7.5 Cost of Quality as a Company Moves from External Failures toward Prevention

9. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Quality Tools  Flowcharts Exhibit 7.6 Flowchart

10. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Quality Tools  Run Charts Exhibit 7.7 Run Chart

11. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Quality Tools  Cause and Effect Diagrams Exhibit 7.8 Cause and Effect Diagram

12. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Quality Tools  Pareto Charts Exhibit 7.9 Pareto Chart

13. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.1 Pareto Analysis  Complete a Pareto analysis on the following data.

14. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.1 Pareto Analysis  Solution Excel Tutor 7.1

15. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.1 Pareto Analysis  Solution (continued) Exhibit 7.12 Pareto Chart for Complaints by Room Area

16. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.1 Pareto Analysis  Solution (continued) Exhibit 7.13 Pareto Chart for Complaints by Type

17. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Quality Tools  Check Sheets Exhibit 7.15 Check Sheet

18. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Quality Tools  Scatter Diagrams Exhibit 7.16 Scatter Diagram

19. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Quality Tools Reel Operations 7.3  Control Charts  Distinguishing between random fluctuation and fluctuation due to an assignable cause.  X-bar chart  Upper and lower control limits. Exhibit 7.17 Process Control Chart Data Gathering Process

20. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Statistical Process Control Exhibit 7.18 Process Control Chart for Soft Drink Can

21. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Statistical Process Control  Capability Index: quantifying the relationship between control limits and customer specifications  C p and C pk Interactive Model 1.2

22. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.2 Capability Index Calculation  Customer specification:.375 + or – 0.002  NTRU process mean is.375 with a standard deviation of.0024  Is the NTRU process capable of meeting customer’s specifications?  Solution:  C p = 0.377 – 0.373 = 0.27778 6(0.0024)  No, the process is not capable of meeting customer specifications Excel Tutor 7.2

23. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Statistical Process Control  C pk Capability Index  For shifting process means Exhibit 7.19 Process Shifted Downward From Center

24. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.3: C pk Calculation  Customer specification:.375 + or -.002  Standard deviation of process at 0.0003  Customer specification limits at.373 and.377  Solution: Cpk = min[ 0.376 – 0.373, 0.377 – 0.376 ] 0.0009 0.0009 = min [3.333, 1.111] = 1.111 The process is still capable. Excel Tutor 7.3

25. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. R-charts  Provide monitoring of variability within the sample.  Always paired with X-bar charts. Interactive Model 7.1

26. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.4 X-bar and R-chart Construction  Using the data in Exhibit 7.21, construct X-bar and R-charts.

27. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.4 X-bar and R-chart Construction  Solution:  =- UCL = X + A 2 R =1,000 + (0.577)(8.8) =1,005.078 =- LCL = X - A 2 R =1,000 - (0.577)(8.8) =994.9224

28. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.4 X-bar and R-chart Construction  Solution: Exhibit 7.22 X-bar Chart for Example 7.3

29. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.4 X-bar and R-chart Construction  R-chart control limits _ UCL = D 4 R = 2.114 (8.8) = 18.6032 _ LCL = D 3 R = 0(8.8) = 0

30. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 7.4 X-bar and R-chart Construction Exhibit 7.23 R-Chart for Example 7.3 Excel Tutor 7.4

31. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Nonrandom Patterns on Control Charts

32. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Acceptance Sampling  Acceptable Quality Level (AQL)  Lot tolerance percent defective (LTPD)  Producer’s risk  Consumer’s risk  Operating Characteristics Curve Exhibit 7.25 Operating Characteristics Curve

33. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Moving Beyond Customer Satisfaction  The Kano Model  Six Sigma Quality Exhibit 7.26 Process Capability for Three Sigma Quality

34. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Six Sigma Quality Exhibit 7.27 Process Capability for Six Sigma Quality

35. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Service-oriented Quality Improvement  Service Blueprinting  Moment-of-Truth Analysis  Enhancers, standard expectations, detractors.  Customer Relationship Management

36. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Service Blueprinting  Fail Points  Wait Points  Line of Visibility Exhibit 7.28 Service Blueprint of Oil Change Service

37. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Recovery  A plan to save a customer from defecting when a failure takes place.

38. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Total Quality Management  A culture of doing it right the first time.  Includes internal and external customers.