1. Managing Quality and Time to Create Value7
Managing Quality and Time to Create Value

2. Importance of Quality Poor quality Lost customers Poor Reputation
Lower Profits

3. Costs of Improving Quality
Which is more important?
Total Quality Management?
Return on Quality?

4. Total Quality Management (TQM)
Customers will seek out the highest quality product.
Improving quality more than pays its own way by creating higher profits.
Therefore, quality is “free”.

5. Total Quality Management (TQM)
W. Edwards Deming proposed that improving quality reduces cost and improves profitability.
Quality can be and should be improved continuously.
Revenues
Max Profit
Cost
Max Quality

6. Return on Quality (ROQ)
There is a trade-off between the costs and benefits of quality.
Profit is maximized at the optimum quality level.
The optimum quality level is always achieved before maximum quality level is reached.
Cost
Revenues
Max Profit
Optimum Quality

7. Return on Quality (ROQ)
Striving for higher quality levels at ever higher costs is a case of diminishing returns. The higher costs to attain higher quality levels may be more than the customer is willing to pay.
Cost
Revenues
Max Profit
Optimum Quality

8. TQM vs. ROQ
Conflict between TQM and ROQ exists only at very high levels of quality.
Most organizations operate below the optimum quality level in the ROQ model, so improving quality results in higher profits just as in the TQM model.

9. Dimensions of Quality  Customer service before and after the sale
 Product or Service Attributes
Tangible
Performance
Adherence to specifications
Functionality
Intangible
Reputation
Appearance
Appeal
Prompt and accurate responses to customer inquires.
Proper treatment of customers by salespeople
On-time deliveries.
Customer follow-up after the sale.
Timely and accurate resolution of customer concerns.
Good warranty and repair services.

10. Measuring Quality Customers define quality.
Some will accept lower quality if price is lower.
Others demand higher quality and are willing to pay for it.
Identify indicators of customer-defined quality.
Develop measures of the quality indicators that will either confirm high quality or suggest problems and possible solutions.

11. Lead Indicators of Quality
Variation indicates poor quality. To measure variation, there are several tools that can be used:
A graphical display of the frequency distribution of attributes.
Histograms
Histograms
Run Charts
Control Charts
Defects

12. Lead Indicators of Quality
Variation indicates poor quality. To measure variation, there are several tools that can be used:
Histograms
Run Charts
Control Charts
A graph showing trends in variation over time.
Defects

13. Lead Indicators of Quality
Variation indicates poor quality. To measure variation, there are several tools that can be used:
Histograms
Run Charts
Control Charts
Defects
UCL
Notice that this process seems to be out of control on Fridays.
A run chart with upper and lower control limits.
LCL

14. Diagnostic Information
While lead indicators tell us that there IS a problem, diagnostic tools help determine WHAT the problem is.
Flow Charts
Scatter Diagrams
Pareto Charts
Cause-and-Effect Diagrams

15. Cause-and-Effect Diagrams
Defect = Late Deliveries
Trucks
Breakdown
Flat Tire
Drivers
Don’t know the route
Too slow
Poorly Trained
Other
Road Conditions
Rain or snow
Ice
Road Work
Wrong directions from customer
Sometimes called “fishbone” or Ishikawa diagrams

16. This pattern indicates a causal relationship.
Scatter Diagrams
A plot of two variables that might be related. Patterns often indicate a causal relationship.
This pattern indicates a causal relationship.

17. Flowcharts
A graphical illustration of sequential linkages among process activities.
Standardized symbols are used to represent decisions, actions, documents, and storage devices.

18. Frequency of Complaint
Pareto Charts
A histogram of causes of errors or errors arranged in order of frequency or size. Helps in prioritizing actions to address problems.
Frequency of Complaint

19. Customer Satisfaction
Common tools for measuring customer satisfaction
Phone Surveys
Questionnaires
Focus Groups
# of Customer Complaints
“Phantom” Shoppers
The degree to which expectations of product attributes, customer service, and price have been met or exceeded.

20. Costs associated with controlling quality.
Cost of Quality (COQ)
Out-of-pocket costs associated with quality generally fall into two categories:
Costs associated with activities to correct failure to control quality.
Costs associated with controlling quality.

21. Cost to Control Quality
Prevention
Activities that seek to prevent defects in the products or services being produced.
Certifying Suppliers
Designing for Manufacturability
Quality Training
Quality Evaluations
Process Improvements
Appraisal
Activities for inspecting inputs and attributes of individual units of product and service.
Inspecting Materials
Inspecting Machines
Inspecting Processes
Statistical Process Control
Sampling and Testing
Value Added
Non-Value Added

22. Cost to Control Quality
Prevention
Activities that seek to prevent defects in the products or services being produced.
Certifying Suppliers
Designing for Manufacturability
Quality Training
Quality Evaluations
Process Improvements
Companies with the highest quality levels tend to have most of their
quality expenditures
in this area.
Value Added

23. Costs of Failing to Control Quality
Internal Failure
Costs associated with defects in processes and products that are found prior to delivery to customers.
Disposing of Scrap
Rework
Reinspecting/Retesting
Delaying Processes
External Failure
Costs associated with defects in processes and products that are detected after delivery to customers.
Warranty Repairs
Field Replacements
Product Liability
Customer Complaints
Restoring reputation
Lost Sales
Non-Value Added
Non-Value Added

24. Measuring and Reporting Costs of Quality
It is easier to Measure the COQ in organizations that use ABC and ABM.
COQ is not required to be reported in the financial statements.
When COQ is reported, it is usually expressed as a % of sales.

25. Quality Awards and Certificates
Malcolm Baldrige National Quality Award
The Deming Prize
ISO 9000
European Community
Japan

26. Managing Time in a Competitive Environment
Product development time
We need to reduce . . .
Customer response time
Production cycle time
Less time means quicker response to changing customer needs and to changing conditions of the marketplace.

27. Management of Process Productivity and Efficiency
Process efficiency
The ability to transform inputs into outputs at lowest cost.
Productivity
Ratio of outcomes of a process divided by inputs necessary to complete the process.
Cycle time
Elapsed time between starting and finishing a process.

28. Management of Process Productivity and Efficiency
High quality
Low cycle time
High throughput
High productivity
Throughput is the amount of goods and services delivered to customers during a period of time.

29. Measuring Productivity
Specific productivity measures compare:
Example: Sales per employee

30. Measuring Cycle Time
Average cycle time is the average time necessary to complete and deliver all good units and dispose of units that have to be reworked or scrapped because of defects.

31. Measuring Throughput Efficiency
A measure of the amount of time spent adding value compared to the total process time.

32. Managing Process Capacity}
Theoretical Capacity
Planned or unavoidable downtime }
Practical Capacity
Excess
Capacity
Demand for Output

33. Managing Quality + Time + Productivity + Capacity = JIT
The objective of JIT is to . . .
purchase materials
produce products
and deliver products
. . . just when they are needed.

34. Managing Quality + Time + Productivity + Capacity = JIT
The goal is to manage costs so that the savings associated with JIT exceed the cost of implementing JIT
Advantages:
Inventory savings of space, insurance, capital, personnel
More emphasis on quality
Rapid response to customer needs
Implementation costs:
Employee retraining
Technology improvement
Exposure to work stoppage risks.

35. Traditional “Push” Manufacturing - Example
Forecast Sales
Store Inventory
Order components
Prepare Production Schedule
Make sales from finished goods inventory
Begin Production in Anticipation of Sales

36. JIT “Pull” Manufacturing - Example
Customer places an order
Create Production Order
Generate component requirements
Production begins as parts arrive
Goods delivered just in time
Components are ordered

37. JIT Success Factors 2. Flexible Capacity. 1. Commitment to quality.
3. Reliable Supplier Relations.
4. Smooth Production Flow.
5. Well-trained workforce.
6. Reduced cycle and response times.

38. End of Chapter 7