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You should be able to: 1. Define the term quality as it relates to products and as it

relates to services 2. Identify the determinants of quality 3. Explain why quality is important and the consequences of

poor quality 4. Distinguish the costs associated with quality 5. Discuss the importance of ethics in managing quality 6. Discuss quality certification and its importance 7. Describe TQM 8. Describe the six sigma methodology 9. Describe and use various quality tools

9-2

Quality The ability of a product or service to consistently meet or exceed

customer expectations For a decade or so, quality was an important focal point in business.

After a while, this emphasis began to fade as other concerns took precedence

There has been a recent resurgence in attention to quality given recent experiences with the costs and adverse attention associated with highly visible quality failures: Auto recalls (Toyota brakes, GM ignition switch, Ford airbag switch)

Talking about quality is ‘cheap’ (i.e. lip service), but recalls aren’t!! Toys (produced in overseas with lead paint!) Produce (“mad cow” disease; tainted lettuce) Dog food Pharmaceuticals

Many of the above types of issues leads to multi-million/billion $

lawsuits How does that impact Customer Perception? Financial Statements?

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Tier-1 OEM automobile parts manufacturer specializing in braking and suspension systems (critical to safety)

If ‘suspect’ parts are found at auto assembly plant (ex. Ford, Chrysler, etc.), the SUPPLIER is called in to sort (100%) of all existing components, as well as pay for the inspection of any cars already assembled Supplier must also pay for employees to go to assembly

plant and do the sorting (hotel, airfare, food, etc.)

Supplier must expedite (typically air shipments) 100% inspected replacement parts to the assembly plant

Supplier must pay for any line stoppage at auto assembly plant (typically $35,000+/hour)

Supplier is also (at least particularly) responsible for ‘footing the bill’ for any recalls (i.e. when you take your car into the dealership for inspection)

Supplier is then put on (at minimum) probation which jeopardize future business

Lives can be lost. Families can be destroyed. Due to a lack of focus on ensuring Quality…

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1. Performance – main characteristics of the product

2. Aesthetics – appearance, feel, smell, taste

3. Special features – extra characteristics

4. Conformance – how well the product conforms to design specifications

5. Reliability – consistency of performance

6. Durability – the useful life of the product

7. Perceived quality – indirect evaluation of quality

8. Serviceability – handling of complaints or repairs

9. Consistency – quality doesn’t vary

“one size does NOT fit all” Individuals view the above dimensions differently… ex. is Wal-Mart is a high quality retailer (products)?

9-5

1. Convenience – the availability and accessibility of the service 2. Reliability – ability to perform a service dependably, consistently, and

accurately 3. Responsiveness – willingness to help customers in unusual situations and

to deal with problems 4. Time – the speed with which the service is delivered 5. Assurance – knowledge exhibited by personnel and their ability to convey

trust and confidence 6. Courtesy – the way customers are treated by employees 7. Tangibles – the physical appearance of facilities, equipment, personnel,

and communication materials 8. Consistency – the ability to provide the same level of good quality

repeatedly 9. Expectancy – meet (or exceed) customer expectations

See Table 9.2 as excellent reference for Service / auto repair shop.

“moment of truth” when service quality is judged instantly (often one element overriding the other dimensions).

9-6

1. Quality of design Intention of designers to include or exclude features in a product or service

2. Quality of conformance

The degree to which goods or services conform to the intent of the designers

3. Ease-of-Use and user instructions

Increase the likelihood that a product will be used for its intended purpose and in such a way that it will continue to function properly and safely

4. After-the-sale service

Taking care of issues and problems that arise after the sale

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Top management Design

Procurement

Production/operations Quality assurance Packaging and shipping Marketing and sales Customer service

Everyone in the organization has some responsibility for Quality, but certain areas (ex Quality Dept. & Operations) of the organization are involved in activities that make them key areas of responsibility.

9-8

Enhanced reputation for quality Ability to command premium prices (always a good thing) Increased market share Greater customer loyalty Lower liability costs Fewer production or service problems Lower production costs Higher profits

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Loss of business: lower market share, lower sales, lower selling price = lower profit margin = threat to long-term viability of the firm

Liability: damages resulting from faulty design or poor workmanship (recall the example I used earlier with Tier-1 auto/brake supplier)

Productivity: poor quality can adversely affect production if existing parts have to be reworked/sorted/scrapped

Costs: the cost to fix a problem (reactively) at the customer is estimated to be minimum 5x the cost to have avoided (proactive) the problem to begin with!

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1. Appraisal Costs

2. Prevention Costs

3. Internal failure costs

4. External failure costs

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Appraisal Costs Costs of activities designed to ensure quality or uncover

defects Ex. Inspectors, testing, lab equipment, quality audits, field testing, etc.

Prevention Costs

All TQ training, TQ planning, customer assessment, process control, and quality improvement costs to prevent defects from occurring Ex. planning and administration systems, working with vendors,

training, quality control procedures, etc.

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Failure Costs - costs incurred by defective parts/products or faulty services.

Internal Failure Costs

Costs incurred to fix problems that are detected before the product/service is delivered to the customer.

External Failure Costs

All costs incurred to fix problems that are detected after the product/service is delivered to the customer

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Walter Shewart “father of statistical quality control” Control charts Variance reduction

W. Edwards Deming

Special vs. common cause variation The 14 points

Joseph Juran

Quality Control Handbook, 1951 Viewed quality as fitness-for-use Quality trilogy– quality planning,

quality control, quality improvement

Armand Feigenbaum Quality is a “total field” The customer defines quality

Philip B. Crosby

Zero defects Quality is Free, 1979

Kaoru Ishikawa

Cause-and-effect diagram Quality circles Recognized the internal customer

Genichi Taguchi

Taguchi loss function

Taiichi Ohno and Shigeo Shingo Developed philosophy and methods

of kaizen

9-14

Baldrige Award

Deming Prize

European Foundation for Quality Model (EFQM) Excellence Award

Firms highly covet these types of awards as it affirms/confirms internally (within the firm—employees)

and externally (suppliers, competitors, existing customers, potential customers, investors, etc.) that the

firm provides Quality products and/or services.

9-15

The International Organization for Standards (ISO) was formed after World War II

ISO 9000—International Quality Standard First one established in 1994 Currently transitioning to ISO 9000:2008

ISO 14000—International Environmental Standard

First one established in 1998 Current one is ISO 14001:2004

Many firms will not ‘buy’ from a manufacturer that

is not ISO-certified. Why?

ISO certification (International Standards Organization) Global quality benchmark Refine and upgrade quality to meet ISO standards Ensures a firm is following their documented procedures Not necessarily that the documented procedures are good, but

rather that they’re being followed Do what you say/say what you do

Discussion Point: ISO audits

1st Question: What is your Quality Policy?

2nd Question: Who is your firm’s Management Representative for Quality

3rd Question: Who has responsibility for ensuing Quality (answer: everyone)

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Total Quality is the guiding principle of Corning's business life. It requires each of us, individually and in teams, to understand, anticipate, and surpass the expectations of our customers. Total Quality demands continuous improvement in all our processes, products, and services. Our success depends on our ability to learn from experience, to embrace change, and to achieve the full involvement of all our employees. Total Quality Policy: It is the policy of Corning Incorporated to achieve Total Quality through Performance Excellence. Performance Excellence is Quality in Action --Values, Collaboration, Execution, and Improvements. This means each of us, individually and in teams, will understand, anticipate and surpass the expectations of customers and markets without error, on time, every time. Quality Principles • Meet Customer Requirements: Establish and measure the customer's Critical to

Quality (CTQ) characteristics • Error-Free Work: Establish and measure performance standards based on 6

Sigma: 99.9997% or 3.4 defects per million • Design in Quality: Build quality into products and processes at the start or

manage by prevention • Measure & Improve Performance: Prioritize corrective action, measure progress,

and improve performance based on the cost of Quality

Corning Incorporated’s Quality Policy (example)

9-18

Business leaders are increasingly recognizing the importance of their supply chains in achieving their quality goals Requires:

Focus on the overall Total Cost of inputs vs focusing mainly on unit purchase price

Measuring customer perceptions of quality Identifying problem areas Correcting these problems

Supply chain quality management can benefit from a

collaborative relationship with suppliers Helping suppliers with quality assurance efforts Information sharing on quality-related matters

Total Quality Management (TQM) is a philosophy focused on… 1. meeting customer expectations/specifications with respect to all needs

2. across all company functions

3. and recognizing all customers—both internal and external

TQM’s basic conceptual elements are:

1. Top Management commitment and support

2. Maintaining a customer focus in product, service and process performance

3. Integrated operations within and between organizations

4. A commitment to continuous improvement

9-20

1. Find out what the customer wants

2. Design a product or service that meets or exceeds customer wants

3. Design processes that facilitate doing the job right the first time

4. Keep track of results

5. Extend these concepts throughout the supply chain

6. Top management must be involved and committed

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1. Continuous improvement (kaizen): equipment, methods, materials, people. 2. Competitive benchmarking: studying other organizations to learn how to

improve one’s own organization 3. Employee empowerment: giving workers the responsibility to identify and

implement improvement ideas. 4. Team approach: the use of team problem solving and group synergies helps to

solve problems. 5. Decision based on fact, not opinion: the importance of data (we studied this

earlier in the semester) 6. Knowledge of tools: various tools available to help solve problems 7. Suppliers/supplier quality: suppliers must be includes in TQM as they provide

the ‘inputs’ which determine the Quality of the ‘outputs’ 8. Champion: promotes the value and importance of TQM throughout the

organization 9. Quality at the source: each worker (even internally) is responsible for the

quality of his/her product/service

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Obstacles include: 1. Perceived lack of support from top management 2. Lack of company-wide definition of quality 3. Lack of strategic plan for change 4. Lack of customer focus 5. Poor inter-organizational communication 6. Lack of employee involvement/empowerment 7. View of quality as a “quick fix” 8. Emphasis on short-term financial results 9. Inordinate presence of internal politics and “turf” issues 10. Lack of strong motivation 11. Lack of time to devote to quality initiatives

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Process Improvement A systematic approach to improving a process

Map the process Collect information about the process and identify each step in

the process Prepare a flowchart that accurately depicts the process

Analyze the process Ask critical questions about the process Ask specific questions about each step in the process

Redesign the process

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1. Identify a critical process that needs improvement

2. Identify an organization that excels in this process

3. Contact that organization

4. Analyze the data

5. Improve the critical process

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Six Sigma A business process for improving quality, reducing costs,

and increasing customer satisfaction

Statistically Having no more than 3.4 defects per million

Conceptually

Program designed to reduce defects Requires the use of certain tools and techniques

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Principles Reduction in variation is an important goal The methodology is data driven; it requires data validation Outputs are determined by inputs Only a critical few inputs have a significant impact on outputs

DMAIC Define: Set the context and objectives for improvement Measure: Determine the baseline performance and capability of

the process Analyze: Use data and tools to understand the cause-and-effect

relationships of the process Improve: Develop the modifications that lead to a validated

improvement of the process Control: Establish plans and procedures to ensure that

improvements are sustained

iDMAIC: smaller opportunities that can be done by individuals

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Basic Quality Tools

9-29

Quality is a strategic imperative for organizations Customers are very concerned with the quality of goods and services

they receive Quality products/services often entail a price premium (customers

willing to pay more) Lack of Quality can lead to lower market share, lower prices, lower

profitability, lower brand image…and consumers who can also be physically/emotionally harmed (faulty brakes example)

Quality is a never-ending journey (kaizen)

It is important that most organizational members understand and buy into this idea

Quality needs to be incorporated throughout the entire

organization, not just in Operations itself

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Supplemental Slides

9-31

Start Here

9-32

Plan-Do-Study-Act (PDSA) Cycle Plan

Begin by studying and documenting the current process. Collect data on the process or problem Analyze the data and develop a plan for improvement Specify measures for evaluating the plan

Do

Implement the plan, document any changes made, collect data for analysis

Plan

Do Study

Act

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Plan-Do-Study-Act (PDSA) Cycle Study

Evaluate the data collection during the do phase Check results against goals formulated during the plan phase

Act

If the results are successful, standardize the new method and communicate it to the relevant personnel

Implement training for the new method If unsuccessful, revise the plan and repeat the process

Plan

Do Study

Act