2 Copyright 2011 John Wiley & Sons, Inc. Lecture OutlineWhat Is Quality?Evolution of Quality ManagementQuality ToolsTQM and QMSFocus of Quality Management—CustomersRole of Employees in Quality ImprovementQuality in Service CompaniesSix SigmaCost of QualityEffect of Quality Management on ProductivityQuality AwardsISO 9000Copyright 2011 John Wiley & Sons, Inc.
3 Copyright 2011 John Wiley & Sons, Inc. What Is Quality?Oxford American Dictionarya degree or level of excellenceAmerican Society for Qualitytotality of features and characteristics that satisfy needs without deficienciesConsumer’s and producer’s perspectiveCopyright 2011 John Wiley & Sons, Inc.
4 What Is Quality: Customer’s Perspective Fitness for usehow well product or service does what it is supposed toQuality of designdesigning quality characteristics into a product or serviceA Mercedes and a Ford are equally “fit for use,” but with different design dimensions.Copyright 2011 John Wiley & Sons, Inc.
5 Dimensions of Quality: Manufactured Products Performancebasic operating characteristics of a product; how well a car handles or its gas mileageFeatures“extra” items added to basic features, such as a stereo CD or a leather interior in a carReliabilityprobability that a product will operate properly within an expected time frame; that is, a TV will work without repair for about seven yearsCopyright 2011 John Wiley & Sons, Inc.
6 Dimensions of Quality: Manufactured Products Conformancedegree to which a product meets pre–established standardsDurabilityhow long product lasts before replacement; with care, L. L. Bean boots may last a lifetimeServiceabilityease of getting repairs, speed of repairs, courtesy and competence of repair personCopyright 2011 John Wiley & Sons, Inc.
7 Dimensions of Quality: Manufactured Products Aestheticshow a product looks, feels, sounds, smells, or tastesSafetyassurance that customer will not suffer injury or harm from a product; an especially important consideration for automobilesPerceptionssubjective perceptions based on brand name, advertising, etc.Copyright 2011 John Wiley & Sons, Inc.
8 Dimensions of Quality: Services Time and timelinesshow long must a customer wait for service, and is it completed on time?is an overnight package delivered overnight?Completeness:is everything customer asked for provided?is a mail order from a catalogue company complete when delivered?Copyright 2011 John Wiley & Sons, Inc.
9 Dimensions of Quality: Service Courtesy:how are customers treated by employees?are catalogue phone operators nice and are their voices pleasant?Consistencyis same level of service provided to each customer each time?is your newspaper delivered on time every morning?Copyright 2011 John Wiley & Sons, Inc.
10 Dimensions of Quality: Service Accessibility and conveniencehow easy is it to obtain service?does service representative answer you calls quickly?Accuracyis service performed right every time?is your bank or credit card statement correct every month?Responsivenesshow well does company react to unusual situations?how well is a telephone operator able to respond to a customer’s questions?Copyright 2011 John Wiley & Sons, Inc.
11 What Is Quality: Producer’s Perspective Quality of conformancemaking sure product or service is produced according to designif new tires do not conform to specifications, they wobbleif a hotel room is not clean when a guest checks in, hotel is not functioning according to specifications of its designCopyright 2011 John Wiley & Sons, Inc.
12 Copyright 2011 John Wiley & Sons, Inc. Meaning of QualityCopyright 2011 John Wiley & Sons, Inc.
13 What Is Quality: A Final Perspective Customer’s and producer’s perspectives depend on each otherProducer’s perspective:production process and COSTCustomer’s perspective:fitness for use and PRICECustomer’s view must dominateCopyright 2011 John Wiley & Sons, Inc.
14 Evolution of Quality Management: Quality Gurus Walter ShewhartIn 1920s, developed control chartsIntroduced term “quality assurance”W. Edwards DemingDeveloped courses during WW II to teach statistical quality-control techniques to engineers and executives of military suppliersAfter war, began teaching statistical quality control to Japanese companiesJoseph M. JuranFollowed Deming to Japan in 1954Focused on strategic quality planningQuality improvement achieved by focusing on projects to solve problems and securing breakthrough solutionsCopyright 2011 John Wiley & Sons, Inc.
15 Evolution of Quality Management: Quality Gurus Armand V. FeigenbaumIn 1951, introduced concepts of total quality control and continuous quality improvementPhilip CrosbyIn 1979, emphasized that costs of poor quality far outweigh cost of preventing poor qualityIn 1984, defined absolutes of quality management—conformance to requirements, prevention, and “zero defects”Kaoru IshikawaPromoted use of quality circlesDeveloped “fishbone” diagramEmphasized importance of internal customerCopyright 2011 John Wiley & Sons, Inc.
16 Copyright 2011 John Wiley & Sons, Inc. Deming’s 14 PointsCreate constancy of purposeAdopt philosophy of preventionCease mass inspectionSelect a few suppliers based on qualityConstantly improve system and workersCopyright 2011 John Wiley & Sons, Inc.
17 Copyright 2011 John Wiley & Sons, Inc. Deming’s 14 PointsInstitute worker trainingInstill leadership among supervisorsEliminate fear among employeesEliminate barriers between departmentsEliminate slogansCopyright 2011 John Wiley & Sons, Inc.
18 Copyright 2011 John Wiley & Sons, Inc. Deming’s 14 PointsEliminate numerical quotasEnhance worker prideInstitute vigorous training and education programsDevelop a commitment from top management to implement above 13 pointsCopyright 2011 John Wiley & Sons, Inc.
19 Deming Wheel: PDCA Cycle Copyright 2011 John Wiley & Sons, Inc.
20 Copyright 2011 John Wiley & Sons, Inc. Quality ToolsProcess Flow ChartCause-and-Effect DiagramCheck SheetPareto AnalysisHistogramScatter DiagramStatistical ProcessControl ChartCopyright 2011 John Wiley & Sons, Inc.
21 Copyright 2011 John Wiley & Sons, Inc. Flow ChartA diagram of the steps in a processHelps focus on location of problem in a processCopyright 2011 John Wiley & Sons, Inc.
22 Cause-and-Effect Diagram Cause-and-effect diagram (“fishbone” diagram)chart showing different categories of problem causesCopyright 2011 John Wiley & Sons, Inc.
23 Cause-and-Effect Matrix grid used to prioritize causes of quality problemsCopyright 2011 John Wiley & Sons, Inc.
24 Check Sheets and Histograms Tally number of defects from a list of causesFrequency diagram of data for quality problemCopyright 2011 John Wiley & Sons, Inc.
25 Copyright 2011 John Wiley & Sons, Inc. Pareto AnalysisPareto analysismost quality problems result from a few causesCopyright 2011 John Wiley & Sons, Inc.
26 Copyright 2011 John Wiley & Sons, Inc. Pareto ChartCopyright 2011 John Wiley & Sons, Inc.
27 Copyright 2011 John Wiley & Sons, Inc. Scatter DiagramGraph showing relationship between 2 variables in a processIdentifies pattern that may cause a quality problemCopyright 2011 John Wiley & Sons, Inc.
28 Copyright 2011 John Wiley & Sons, Inc. Control ChartA chart with statistical upper and lower limitsIf sample statistics remain between these limits we assume the process is in controlCopyright 2011 John Wiley & Sons, Inc.
29 Copyright 2011 John Wiley & Sons, Inc. TQM and QMSTotal Quality Management (TQM)customer-oriented, leadership, strategic planning, employee responsibility, continuous improvement, cooperation, statistical methods, and training and educationQuality Management System (QMS)system to achieve customer satisfaction that complements other company systemsCopyright 2011 John Wiley & Sons, Inc.
30 Focus of Quality Management— Customers TQM and QMSsserve to achieve customer satisfactionSatisfied customers are less likely to switch to a competitorIt costs 5-6 times more to attract new customers as to keep an existing one94-96% of dissatisfied customers don’t complainSmall increases in customer retention mean large increases in profitsCopyright 2011 John Wiley & Sons, Inc.
31 Quality Management in the Supply Chain Companies need support of their suppliers to satisfy their customersReduce the number of suppliersPartneringa relationship between a company and its supplier based on mutual quality standardsCopyright 2011 John Wiley & Sons, Inc.
32 Measuring Customer Satisfaction An important component of any QMSUse customer surveys to hear “Voice of the Customer”American Customer Satisfaction Index (ACSI)Copyright 2011 John Wiley & Sons, Inc.
33 Role of Employees in Quality Improvement Participative problem solvingemployees involved in quality-managementevery employee has undergone extensive training to provide quality service to Disney’s guestsKaizeninvolves everyone in process of continuous improvementemployees determining solutions to their own problemsCopyright 2011 John Wiley & Sons, Inc.
34 Quality CirclesVoluntary group of workers and supervisors from same area who address quality problemsPresentationImplementationMonitoringSolutionProblem resultsProblem AnalysisCause and effectData collection and analysisProblem IdentificationList alternativesConsensusBrainstormingTrainingGroup processesData collectionProblem analysisOrganization8-10 membersSame areaSupervisor/moderatorCopyright 2011 John Wiley & Sons, Inc.
35 Process (Quality) Improvement Teams Focus attention on business processes rather than separate company functionsIncludes members from the interrelated departments which make up a processImportant to understand the process the team is addressingProcess flowcharts are key toolsCopyright 2011 John Wiley & Sons, Inc.
36 Copyright 2011 John Wiley & Sons, Inc. Quality in ServicesService defects are not always easy to measure because service output is not usually a tangible itemServices tend to be labor intensiveServices and manufacturing companies have similar inputs but different processes and outputsCopyright 2011 John Wiley & Sons, Inc.
37 Quality Attributes in Services Principles of TQM apply equally well to services and manufacturingTimeliness is an important dimensionhow quickly a service is providedBenchmark“best” level of quality achievement in one company that other companies seek to achieve
38 Copyright 2011 John Wiley & Sons, Inc. Six SigmaA process for developing and delivering virtually perfect products and servicesSix Sigma is a measure of how much a process deviates from perfectionGoal: 3.4 defects per million opportunities (DPMO)Copyright 2011 John Wiley & Sons, Inc.
39 Copyright 2011 John Wiley & Sons, Inc. Six Sigma ProcessAlignexecutives create balanced scorecardMobilizeproject teams formed and empowered to actAccelerateblack and green belts execute projectGovernmonitor and review projectsChampionan executive responsible for project successCopyright 2011 John Wiley & Sons, Inc.
40 Breakthrough Strategy: DMAIC Defineproblem is definedMeasureprocess measured, data collectedAnalyzedata analysis to find cause of problemImprovedevelop solutions to problemControlensure improvement is continuedCopyright 2011 John Wiley & Sons, Inc.
41 Copyright 2011 John Wiley & Sons, Inc. Six Sigma Process3.4 DPMO67,000 DPMOcost = 25% of salesDEFINECONTROLIMPROVEANALYZEMEASURECopyright 2011 John Wiley & Sons, Inc.
42 Black Belts and Green Belts project leaderMaster Black Belta teacher and mentor for Black BeltsGreen Beltsproject team membersCopyright 2011 John Wiley & Sons, Inc.
43 Copyright 2011 John Wiley & Sons, Inc. Six Sigma Tools (1-3)Quality Function Deployment (QFD)capture the “voice of the customer”Cause & Effect Matrixidentify and prioritize causes of a problemFailure Modes and Affects Analysis (FMEA)analyze potential problems before they occurCopyright 2011 John Wiley & Sons, Inc.
44 Copyright 2011 John Wiley & Sons, Inc. Six Sigma Tools (4-6)t-Testtest for differences between groupsStatistical Process Control (SPC) Chartmonitor a process over time for variationsDesign of Experiments (DOE)determining relationships between factors affecting inputs and outputs of a processCopyright 2011 John Wiley & Sons, Inc.
45 Design for Six Sigma (DFSS) A systematic approach to designing products and processes that will achieve Six SigmaUses same basic approach as breakthrough strategyEmploys the strategy up front in the design and development phasesA more effective and less expensive way to achieve Six SigmaCopyright 2011 John Wiley & Sons, Inc.
46 Copyright 2011 John Wiley & Sons, Inc. Lean Six SigmaIntegrate Six Sigma and “lean systems” (Ch 16)Lean seeks to optimize process flowsLean extends earlier efforts in efficiencyLean process improvement stepsdetermine what creates value for customersidentify “value stream”remove waste in the value streammake process responsive to customer needscontinually repeat attempts to remove wasteCopyright 2011 John Wiley & Sons, Inc.
47 Copyright 2011 John Wiley & Sons, Inc. Lean Six SigmaSix Sigma and Lean seekprocess improvementsIncreased value to customersThey approach the goals in different, complementary waysCopyright 2011 John Wiley & Sons, Inc.
48 Copyright 2011 John Wiley & Sons, Inc. ProfitabilityThe typical criterion for selecting Six Sigma projectsOne of the factors distinguishing Six Sigma from TQM“Quality is not only free, it is an honest-to-everything profit maker”Quality improvements reduce costs of poor qualityCopyright 2011 John Wiley & Sons, Inc.
49 Cost Impact of Six Sigma Medtek Company implements Six Sigma to reduce defects from 10% to 0 %. Then spend $120,000 for more change. After Six Original After Changes Sigma Costs Sales $1,000,000 1,000,000 1,000,000 Variable cost 600, , ,054 Fixed cost 350, , ,000 Profit 50, ,946 99,946 Doubled 33.3% return Return on 120,000 = 100*(49,946-10,000)/120,000 = 33.3%Copyright 2011 John Wiley & Sons, Inc.
50 Copyright 2011 John Wiley & Sons, Inc. Cost of QualityCost of Achieving Good QualityPrevention costscosts incurred during product designAppraisal costscosts of measuring, testing, and analyzingCost of Poor QualityInternal failure costsinclude scrap, rework, process failure, downtime, and price reductionsExternal failure costsinclude complaints, returns, warranty claims, liability, and lost salesCopyright 2011 John Wiley & Sons, Inc.
51 Copyright 2011 John Wiley & Sons, Inc. Prevention CostsQuality planning costscosts of developing and implementing quality management programProduct-design costscosts of designing products with quality characteristicsProcess costscosts expended to make sure productive process conforms to quality specificationsTraining costscosts of developing and putting on quality training programs for employees and managementInformation costscosts of acquiring and maintaining data related to quality, and development and analysis of reports on quality performanceCopyright 2011 John Wiley & Sons, Inc.
52 Copyright 2011 John Wiley & Sons, Inc. Appraisal CostsInspection and testingcosts of testing and inspecting materials, parts, and product at various stages and at end of processTest equipment costscosts of maintaining equipment used in testing quality characteristics of productsOperator costscosts of time spent by operators to gather data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess qualityCopyright 2011 John Wiley & Sons, Inc.
53 Internal Failure Costs Scrap costscosts of poor-quality products that must be discarded, including labor, material, and indirect costsRework costscosts of fixing defective products to conform to quality specificationsProcess failure costscosts of determining why production process is producing poor-quality productsProcess downtime costscosts of shutting down productive process to fix problemPrice-downgrading costscosts of discounting poor-quality products—that is, selling products as “seconds”Copyright 2011 John Wiley & Sons, Inc.
54 External Failure Costs Customer complaint costscosts of investigating and satisfactorily responding to a customer complaint resulting from a poor-quality productProduct return costscosts of handling and replacing poor-quality products returned by customerWarranty claims costscosts of complying with product warrantiesProduct liability costslitigation costs resulting from product liability and customer injuryLost sales costscosts incurred because customers are dissatisfied with poor-quality products and do not make additional purchasesCopyright 2011 John Wiley & Sons, Inc.
55 Measuring and Reporting Quality Costs Index numbersratios that measure quality costs against a base valuelabor indexratio of quality cost to labor hourscost indexratio of quality cost to manufacturing costsales indexratio of quality cost to salesproduction indexratio of quality cost to units of final productCopyright 2011 John Wiley & Sons, Inc.
56 Copyright 2011 John Wiley & Sons, Inc. Cost of QualityYear Quality Costs Prevention 27,000 41,500 74, ,300 Appraisal 155, , , ,000 Internal failure 386, , , ,100 External failure 242, , , ,000 Total 810, , , ,400 Accounting Measures Sales 4,360,000 4,450,000 5,050,000 5,190,000 Manufacturing costs 1,760,000 1,810,000 1,880,000 1,890,000Copyright 2011 John Wiley & Sons, Inc.
57 Copyright 2011 John Wiley & Sons, Inc. Cost of QualityQuality index = total quality costs/base * quality cost per sale 810,400 * 100 / 4,360,000 = 18.58Quality Quality ManufacturingYear Sales Index Cost IndexCopyright 2011 John Wiley & Sons, Inc.
58 Quality–Cost Relationship Cost of qualitydifference between price of nonconformance and conformancecost of doing things wrong20 to 35% of revenuescost of doing things right3 to 4% of revenuesCopyright 2011 John Wiley & Sons, Inc.
59 Effect of Quality Management on Productivity Productivity = output / inputQuality impact on productivityfewer defects increase output, and quality improvement reduces inputsYielda measure of productivity
60 Measuring Product Yield and Productivity Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked)orY=(I)(%G)+(I)(1-%G)(%R)whereI = initial quantity started in production%G = percentage of good units produced%R = percentage of defective units that are successfully reworkedCopyright 2011 John Wiley & Sons, Inc.
61 Computing Product Yield Motor manufacturerStarts a batch of 100 motors.80 % are good when produced50 % of the defective motors can be reworkedY =(I)(%G)+(I)(1-%G)(%R)= 100(.80) + 100(1-.80)(.50) = 90 motorsIncrease quality to 90% goodY =100(.90) + 100(1-.90)(.50) = 95 motorsCopyright 2011 John Wiley & Sons, Inc.
62 Computing Product Cost per Unit where:Kd = direct manufacturing cost per unitI = inputKr = rework cost per unitR = reworked unitsY = yieldCopyright 2011 John Wiley & Sons, Inc.
63 Copyright 2011 John Wiley & Sons, Inc. Cost per UnitDirect cost = $30 Rework cost = $12 80% good 50% can be reworked=$30*100 + $12*1090 motors$34.67/motorIncrease quality to 90% good=$30*100 + $12*595 motors$32.21/motorCopyright 2011 John Wiley & Sons, Inc.
64 Computing Product Yield for Multistage Processes Y = (I)(%g1)(%g2) … (%gn)where:I = input of items to the production process that will result in finished productsgi = good-quality, work-in-process products at stage iCopyright 2011 John Wiley & Sons, Inc.
65 Copyright 2011 John Wiley & Sons, Inc. Multistage YieldAverage Percentage Stage Good QualityY = (I)(%g1)(%g2) … (%gn)= 100 * .93 * .95 * .97 * .92 = 78.8 motorsCopyright 2011 John Wiley & Sons, Inc.
66 Initial Batch Size For 100 Motors Y(%g1)(%g2) … (%gn)I =100100 * .93 * .95 * .97 * .92== 127Copyright 2011 John Wiley & Sons, Inc.
67 Quality–Productivity Ratio QPRproductivity index that includes productivity and quality costs(good-quality units)QPR =(100)(input) (processing cost) + (reworked units) (rework cost)Copyright 2011 John Wiley & Sons, Inc.
68 Quality Productivity Ratio Direct cost = $30 Rework cost = $12 80% good 50% can be reworked Initial batch size = 100QPR =100 * $ * $12(100) = 2.89200 * $ * $12(100) = 2.89 – NO CHANGEBase CaseCase 1: Increase I to 200Copyright 2011 John Wiley & Sons, Inc.
69 Quality Productivity Ratio Case 2: Reduce direct cost to $26 and rework cost to $10QPR =100 * $ * $10(100) = 3.33100 * $ * $12(100) = 3.22Case 3: Increase %G to 95%100 * $ * $10(100) = 3.71Case 4: Decrease costs and increase %GCopyright 2011 John Wiley & Sons, Inc.
70 Malcolm Baldrige Award Created in 1987 to stimulate growth of quality management in United StatesCategoriesLeadershipInformation and analysisStrategic planningHuman resource focusProcess managementBusiness resultsCustomer and market focusCopyright 2011 John Wiley & Sons, Inc.
71 Other Awards for Quality National individual awardsArmand V. Feigenbaum MedalDeming MedalE. Jack Lancaster MedalEdwards MedalShewhart MedalIshikawa MedalInternational awardsEuropean Quality AwardCanadian Quality AwardAustralian Business Excellence AwardDeming Prize from JapanCopyright 2011 John Wiley & Sons, Inc.
72 Copyright 2011 John Wiley & Sons, Inc. ISO 9000Procedures and policies for international quality certificationISO 9000:2008Quality Management Systems—Fundamentals and Vocabularydefines fundamental terms and definitions used in ISO 9000 familyISO 9001:2008Quality Management Systems—Requirementsstandard to assess ability to achieve customer satisfactionCopyright 2011 John Wiley & Sons, Inc.
73 Copyright 2011 John Wiley & Sons, Inc. ISO 9000ISO 9004:2008Quality Management Systems—Guidelines for Performance Improvementsguidance to a company for continual improvement of its quality-management systemCopyright 2011 John Wiley & Sons, Inc.
74 ISO 9000 Certification, Implications, and Registrars ISO 9001:2008—only standard that carries third-party certificationMany overseas companies will not do business with a supplier unless it has ISO 9000 certificationISO 9000 accreditationISO registrars
75 Copyright 2011 John Wiley & Sons, Inc. Copyright 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.Copyright 2011 John Wiley & Sons, Inc.