MIS302 Ch. 6: Managing Quality

Quality and Strategy
Managing quality helps build successful strategies of differentiation, low cost, and response
– improving quality helps firms increase sales and reduce costs, both of which can increase profitability
Achieving Total Quality Management (TQM)
(1) begins with an organizational culture that fosters equality
(2) understanding of the principles of quality
(3) engaging employees in the necessary activities to implement quality

*An operations manager’s objective is to build a total quality management system that identifies and satisfies customer needs*

the totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs
Quality (User based definition)
quality “lies in the eyes of the beholder”
– liked by customers and marketers
– higher quality means better performance, nicer features, and other (sometimes costly) improvements
Quality (Manufacturing Based)
means conforming to standards and “making it right the first time”
– liked by production managers
Quality (product based)
a precise and measurable variable

Ex: really good ice cream has high butter fat levels

Three (other) reasons why quality is important
(1) Company reputation: an organization can expect its reputation for quality-be it good or bad-to follow it

(2) Product liability: Courts increasingly hold organizations that design, produce, or distribute faulty products or services liable for damages or injuries resulting from their use

(3) Global Implications: for a company and a country to compete effectively in the global economy, products must meet global quality, design, and price expectations

Malcolm Baldrige National Quality Award
Annual award given by the U.S. government to recognize quality achievements in U.S. companies

Purpose: to stimulate efforts to improve quality; to recognize quality achievements and to publicize successful programs

ISO9000 International Quality Standards
quality standard with international recognition

– focus is to enhance the success through eight quality management principles:
(1) top management leadership
(2) customer focus
(3) continual improvement
(4) involvement of people
(5) process approach
(6) system approach to management
(7) use of a factual approach to decision making
(8) mutually beneficial supplier relationships

ISO 9004: 2009, emphasized how an organization can use quality management approach to achieve sustained success
– encourages organizations to plan for their economic survival through continuing and systematic improvement in performance, efficiency, and effectiveness

Cost of Quality
the costs associated with avoiding poor quality of those incurred as a result of poor quality

Four major categories
(1) Prevention Costs
(2) Appraisal costs
(3) Internal failure costs
(4) External failure costs

Prevention costs – cost of quality
costs associated with reducing the potential for defective parts or services
Ex: training, quality improvement programs
Appraisal costs – cost of quality
costs related to evaluating products, processes, parts, and services
Ex: testing, labs, inspectors
Internal failure costs – cost of quality
costs that result from production of defective parts or services before delivery to consumers
Ex: rework, scrap, downtime
External failure costs – cost of quality
costs that occur after delivery of defective parts or services
Ex: rework, returned goods, liabilities, lost goodwill, costs to society
*very hard to quantify*
Consequences of poor quality
– Loss of business
– Liability
– Productivity
– Costs
Total Quality Management (TQM)
refers to a quality emphasis that encompasses the entire organization, from supplier to customer
– stresses a commitment by management to have a continuing companywide drive toward excellence in all aspects of products and services that are important to the customer
Seven concepts of an effective TQM program
(1) continuous improvement
(2) Six Sigma
(3) Employee empowerment
(4) benchmarking
(5) just-in-time (JIT)
(6) Taguchi concepts
(7) knowledge of TQM tools
continuous improvement – effective TQM program
____ requires a never-ending process of continuous improvement that covers people, equipment, suppliers, materials, and procedures

Plan – Do – Check – Act by Walter Shewhart used to depict continuous improvement
(1) Plan – identify problem and make a plan
(2) Do – test the plan
(3) Check – Is the plan working?
(4) Act – Implement the plan and document

(2) Six Sigma – effective TQM program
Statistical sense: describes a process, product, or service with an extremely high capability (99.9997% accuracy)
– results in 3.4 errors/million

Program definition: a program designed to reduce defects to help lower costs, save time, and improve customer satisfaction

*Strategy because it focuses on total customer satisfaction*
*Discipline because it follows the formal ________ Improvement model known as DMAIC

(1) Define: identify customer’s and their priorities
(2) Measure: determine how to measure the process and how it is performing
(3) Analysis: determine the most likely causes of defects
(4) Improve: identify means to remove the causes of defects
(5) Control: Determine how to maintain the improvements

Six Sigma DPMO (Defects Per Million Opportunities)
(Number of defects/(Number of opportunities for error)(Number of Units)) x 1,000,000
(3) Employee Empowerment – effective TQM program
means involving employees in every step of the production process

Techniques for building employee empowerment:
(1) building communication networks that include employees
(2) developing open, supportive supervisors
(3) moving responsibility from both managers and staff to production employees
(4) building high-morale organizations
(5) creating such formal organization structures as teams and quality circles

*Quality circles: a group of employees who meet regularly to solve work related problems*

(4) Benchmarking – effective TQM program
involves selecting a demonstrated standard of products, services, costs or practices that represent the very best performance for processes or activities very similar to your own

Steps for developing benchmarks:
(1) Determine what to benchmark
(2) Form a benchmark team
(3) Identify benchmarking partners
(4) Collect and analyze benchmarking information
(5) Take action to match or exceed the benchmark

*often take the form of best practices found in other firms and in other divisions*

Internal benchmark: used when an organization is large enough to have many divisions or business units

(5) Just-in-time (JIT) – effective TQM program
designed to produce or deliver goods just as they are needed

relates to quality in three ways:
(1) cuts the cost of quality (less inventory on hand)
(2) improves quality (keeps evidence of errors fresh and limits the number of potential sources of error)
(3) better quality means less inventory and a better, easier-to-employ JIT system

(6) Taguchi Concepts – effective TQM program
(1) Quality robustness: products that can be produced uniformly and consistently in adverse manufacturing and environmental conditions
– remove the effects of adverse conditions instead of removing causes (cheaper and more effective)

(2) Quality loss function: identifies all costs connected with poor quality and shows how these costs increase as the product moves away from being exactly what the customer wants
– includes customer dissatisfaction, warranty and service costs, internal inspection, repair, and scrap costs, costs to society

L = D^2C
L – loss to society
D^2 – square of distance from the target value
C – cost of the deviation at the specification limit

*the smaller the loss the more desirable the product*

(3) Target-oriented quality: strives to keep the product at the desired specification, producing more (and better) units near the target

(7) Knowledge of TQM tools – effective TQM program
to empower employees and implement TQM as a continuing effort, everyone in the organization must be trained in the techniques of TQM
Tools of TQM
(1) Check Sheets
(2) Scatter Diagrams
(3) Cause-and-effect diagrams
(4) Pareto charts
(5) flowcharts
(6) histograms
(7) Control Chart
(1) Check sheet – TQM tool
any kind of form that is designed for recording data
– help analysts find the facts or patterns that may aid in subsequent analysis

Ex: a drawing that shows a tally of the areas where defects are occurring or a check sheet showing the type of customer complaints

(2) Scatter Diagrams – TQM tool
show the relationship between two measurements
– if the two items are closely related, the data points will form a tight band

Ex: the positive relationship between the length of a service call and the number of trips a repair person makes back to the truck for parts

(3) Cause-and-effect diagrams – TQM tool
Also known as the fish-bone chart
– each bone represents a possible source for error

Starts with four categories (*causes*):
1 – Material
2 – Machinery/equipment
3 – manpower
4 – methods

Individual causes associated with each category are tied in as separate bones along that branch, often through a brainstorming process

(4) Pareto Charts – TQM tool
a method of organizing errors, problems, or defects to help focus on problem-solving efforts
(remember 80/20 rule: 80% of a firms problems are a result of only 20% of the causes)

– indicates which problems may yield the greatest payoff

(5) Flow charts – TQM tool
graphically present a process or system using annotated boxes and interconnected lines
(6) Histograms – TQM tool
show the range of values of a measurement and the frequency with which each value occurs
– show the most frequently occurring readings as well as the variations in the measurements
(7) Control Chart – TQM tool
graphic presentations of data over time that show upper and lower limits for the process we want to control

Statistical Process Control: monitors standards, makes measurements, and takes corrective action as a product or service is being produced
– if outputs fall outside certain specific ranges, the process stops and is deemed out of control

involves measurement, tasting, touching, weighing, or testing of the product
– goal is to detect a bad process immediately

*only finds deficiencies and defects; does NOT correct them*
– expensive and do not add value

Problems with inspection
– workers become bored and tired
– inspection equipment has variability (measurement error)

*good processes, employee empowerment, and source control are a better solution*

Source Inspection: doing the job properly with the operator ensuring that this is so (no inspection is needed)
– consistent with employee empowerment where workers check their own work

Attribute Inspection
classifies items as being either good or defective
– does not address the degree of failure
Variable inspection
measures such dimensions as weight, speed, size, or strength to see if an items falls within an acceptable range
TWM in Services
the personal component of services is more difficult to measure that the quality of the tangible component (goods)

Service quality perceptions depend on:
(1) intangible differences between products
(2) the intangible expectations customers have of those products

Operations Manager must recognize:
– the tangible component of many services is important
– the service process is important
– the service is judged against the customer’s expectations
(service quality is judged on the basis of whether it meets expectations)
– exceptions will occur
(quality control system must have a set of alternative plans for less-than-optimal operating conditions)