1 © The McGraw-Hill Companies, Inc., 2004 Chapter 7 Quality Management.

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Chapter 7

Quality Management

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• Total Quality Management Defined

• Quality Specifications and Costs

• Six Sigma Quality and Tools

• ISO 9000

• External Benchmarking

• Service Quality Measurement

OBJECTIVES

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Total Quality Management (TQM)

Defined

• Total quality management is defined as managing the entire organization so that it excels on all dimensions of products and services that are important to the customer

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Total Quality Management (TQM)

• The TQM culture follows the Deming approach:— Cultural environment for SPC— Training employees in the TQM concept— Problem solving— Design of experiments

• TQM is customer (external/internal) driven

• TQM is company-wide not QC departments only

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Culture of TQM

• Participative management:— Create proper cultural environment— Promote team concepts— Change of attitude (management and labor)— Company versus individual goals— Have a long-term focus

• TQM is based on an integrated whole— All departments— All functions— All people in the company

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TQM Concepts

• Interest mostly due to:— Consumer interest in quality—more for their

money— Foreign competition— The trade deficit

• The goal is customer satisfaction

• TQM integrates all function/processes in the company

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Malcolm Baldrige National Quality Award

• Initiated in 1987 to promote quality

• Foreign competition was rationale

• Award set national standards for quality

• Designed to promote awareness:— Awareness of quality as competitive weapon— Requirements for quality excellence— Benchmarking: information sharing

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Quality Specifications

• Design quality:— Inherent value of the product in the marketplace— Strategic decision for the firm— Dimensions include:

Performance, Features, Reliability, Durability,Serviceability, Response, Aesthetics, andReputation.

• Conformance quality:— Degree to which the product or service design

specifications are met

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Costs of Quality

External Failure Costs

Appraisal Costs

Prevention Costs

Internal FailureCosts

Costs ofQuality

Failures arecaused

Prevention ischeaper

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Costs of Quality

• Appraisal costs:— Inspection and testing of purchased materials— Inspection and testing of products

• Prevention costs:— Training of employees in quality— Quality planning activities

• Internal failure costs:— Costs of scrap and rework— Costs of analyzing failures

• External failure costs:— Costs of warrantees— Costs of liabilities

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Six Sigma Quality

• A philosophy and set of methods companies use to eliminate defects in their products and processes

• Seeks to reduce variation in the processes that lead to product defects

• The name, “six sigma” refers to the variation that exists within plus or minus three standard deviations of the process outputs

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Six Sigma Quality (Continued)

• Six Sigma allows managers to readily describe process performance using a common metric: Defects Per Million Opportunities (DPMO)

1,000,000 x

units of No. x

unit per error for

iesopportunit ofNumber

defects ofNumber

DPMO 1,000,000 x

units of No. x

unit per error for

iesopportunit ofNumber

defects ofNumber

DPMO

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Six Sigma Quality (Continued)

Example of Defects Per Million Opportunities (DPMO) calculation. Suppose we observe 200 letters delivered incorrectly to the wrong addresses in a small city during a single day when a total of 200,000 letters were delivered. What is the DPMO in this situation?

Example of Defects Per Million Opportunities (DPMO) calculation. Suppose we observe 200 letters delivered incorrectly to the wrong addresses in a small city during a single day when a total of 200,000 letters were delivered. What is the DPMO in this situation?

000,1 1,000,000 x

200,000 x 1

200DPMO

000,1 1,000,000 x

200,000 x 1

200DPMO

So, for every one million letters delivered this city’s postal managers can expect to have 1,000 letters incorrectly sent to the wrong address.

So, for every one million letters delivered this city’s postal managers can expect to have 1,000 letters incorrectly sent to the wrong address.

Cost of Quality: What might that DPMO mean in terms of over-time employment to correct the errors?

Cost of Quality: What might that DPMO mean in terms of over-time employment to correct the errors?

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Six Sigma Quality: DMAIC Cycle

• Define, Measure, Analyze, Improve, and Control (DMAIC)

• Developed by General Electric as a means of focusing effort on quality using a methodological approach

• Overall focus of the methodology is to understand and achieve what the customer wants

• DMAIC consists of five steps….

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Six Sigma Quality: DMAIC Cycle (Continued)

1. Define (D)

2. Measure (M)

3. Analyze (A)

4. Improve (I)

5. Control (C)

Customers and their priorities

Process and its performance

Causes of defects

Remove causes of defects

Maintain quality

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Analytical Tools for Six Sigma and Continuous Improvement: Flow Chart

No, Continue…

Material Received

from Supplier

Inspect Material for

Defects

Defects found?

Return to Supplier for Credit

Yes

Can be used to find quality problems

Can be used to find quality problems

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Analytical Tools for Six Sigma and Continuous Improvement: Run Chart

Can be used to identify when equipment or processes are not behaving according to specifications

Can be used to identify when equipment or processes are not behaving according to specifications

0.440.460.48

0.50.520.540.560.58

1 2 3 4 5 6 7 8 9 10 11 12Time (Hours)

Dia

me

ter

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Analytical Tools for Six Sigma and Continuous Improvement: Pareto

Analysis

Can be used to find when 80% of the problems may be attributed to 20% of the causes

Can be used to find when 80% of the problems may be attributed to 20% of the causes

Assy.Instruct

.

Fre

quen

cy

Design Purch. Training Other

80%

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Analytical Tools for Six Sigma and Continuous Improvement: Checksheet

Billing Errors

Wrong Account

Wrong Amount

A/R Errors

Wrong Account

Wrong Amount

MondayCan be used to keep track of defects or used to make sure people collect data in a correct manner

Can be used to keep track of defects or used to make sure people collect data in a correct manner

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Analytical Tools for Six Sigma and Continuous Improvement: Histogram

Nu

mb

er o

f L

ots

Data Ranges

Defectsin lot

0 1 2 3 4

Can be used to identify the frequency of quality defect occurrence and display quality performance

Can be used to identify the frequency of quality defect occurrence and display quality performance

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Analytical Tools for Six Sigma and Continuous Improvement: Cause & Effect

Diagram

Effect

ManMachine

MaterialMethod

Environment

Possible causes:Possible causes:The results or effect

The results or effect

Can be used to systematically track backwards to find a possible cause of a quality problem (or effect)

Can be used to systematically track backwards to find a possible cause of a quality problem (or effect)

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Analytical Tools for Six Sigma and Continuous Improvement: Control Charts

Can be used to monitor ongoing production process quality and quality conformance to stated standards of quality

Can be used to monitor ongoing production process quality and quality conformance to stated standards of quality

970

980

990

1000

1010

1020

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

LCL

UCL

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Other Six Sigma Tools

• Opportunity Flow Diagram used to graphically show those activities that add value from those that are performed (and maybe could be reduced or removed) that do not add value to the finished product

• Failure Mode and Effect Analysis (DMEA) is a structured approach to identify, estimate, prioritize, and evaluate risk of possible failures at each stage in the process

• Design of Experiments (DOE) a statistical test to determine cause-and-effect relationships between process variables and output

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Six Sigma Roles and Responsibilities

1. Executive leaders must champion the process of improvement

2. Corporation-wide training in Six Sigma concepts and tools

3. Setting stretch objectives for improvement

4. Continuous reinforcement and rewards

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The Shingo System: Fail-Safe Design

• Shingo’s argument:— SQC methods do not prevent defects

— They provide information about defects but after the fact

— Errors can best be prevented by strategic placement of controls within the process

— Defects arise when people make errors

— Defects can be prevented by providing workers with feedback on errors

— Might require 100% inspection at all times

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Poka-Yoke

• Fail-safe procedures or devices that:

— Include checklists

— Prevent the worker from making an error that leads to a defect before starting a process, or

— Give rapid feedback of abnormalities in the process to the worker in time to correct it

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ISO 9000

• Series of standards agreed upon by the International Organization for Standardization (ISO)

• Adopted in 1987

• More than 100 countries

• A prerequisite for global competition?

• ISO 9000 directs you to "document what you do and then do as you documented"

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ISO 9000 Series

• 9001— Model for Quality Assurance in Design,

Production Installation, and Servicing

• 9002— Model for Quality Assurance in Production

and Installation

• 9003— Model for Quality Assurance in Final

Inspection and Test

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Guidelines for Use

• 9000— Quality Management and Quality Assurance

Standards: Guidelines for Selection and Use

• 9004— Quality Management and Quality Systems

Elements—Guidelines

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Three Forms of ISO Certification

1. First party: A firm audits itself against ISO 9000 standards

2. Second party: A customer audits its supplier

3. Third party: A "qualified" national or international standards or certifying agency serves as auditor

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More About ISO 9000

• They are not award programs

• They just provide criteria for measuring quality systems

• They are quite flexible

• Applies to all industries

• It is a worldwide standard

• Offers opportunity for global competition

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External Benchmarking Steps

1. Identify those processes needing improvement

2. Identify a firm that is the world leader in performing the process

3. Contact the managers of that company and make a personal visit to interview managers and workers

4. Analyze data

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Steps to Benchmarking

• Align benchmark goals to organizational goals

• Develop methods of measuring performance

• Undertake benchmark improvement activities

• Measure performance

• Repeat the process and continue to improve

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Benefits of Benchmarking

• Cultural change— Allows firm to set realistic goals— Engenders cultural change: compare oneself

• Performance improvement— Forces firm to define and identify gaps— Provides way for improvement

• Human resource benefits— Recognizes the importance of people— Provides for training and make them part of

problem-solving process

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Pitfalls of Benchmarking

• It is not a panacea— Will not work if the culture is lacking

— Could be counterproductive

• Potential pitfalls— Failure to involve/empower employees

— Failure to define/understand own process first

— Failure to take action on results

— Failure to set realistic goals

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Service Quality Measurement:Servqual

• A perceived service quality questionnaire survey methodology

• Examines “Dimensions of Service Quality” including: Reliability, Responsiveness, Assurance, Empathy, and Tangibles (e.g., appearance of physical facilities, equipment, etc.)

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Service Quality Measurement: Servqual (Continued)

• New version of this methodology is called “e-Service Quality” dealing service on the Internet

• Dimensions of Service Quality on the e-Service methodology include:

— Reliability, Responsiveness, Access, Flexibility, Ease of Navigation, Efficiency, Assurance/Trust, Security/Privacy, Price Knowledge, Site Aesthetics, and Customization/Personalization