Competing with Quality Leeds School of Business University of Colorado Boulder, CO 80309-0419 Professor Stephen Lawrence.

Competing with Competing with QualityQualityLeeds School of BusinessLeeds School of BusinessUniversity of ColoradoUniversity of ColoradoBoulder, CO 80309-0419Boulder, CO 80309-0419

Professor Stephen Lawrence

ObjectivesObjectives

Why Quality is Why Quality is ImportantImportant

Dimensions of QualityDimensions of Quality Service QualityService Quality Quality CostsQuality Costs Quality Pioneers and Quality Pioneers and

GurusGurus

Total Quality Total Quality Management (TQM)Management (TQM)

Recent Quality ProgressRecent Quality Progress Six SigmaSix Sigma Other Quality ProgramsOther Quality Programs Quality StrategyQuality Strategy

Why Quality is CriticalWhy Quality is Critical Quality:Quality: Quality is the single most important thing you Quality is the single most important thing you

can work on to improve the effectiveness of your can work on to improve the effectiveness of your company. It's as simple as that. Things just cascade when company. It's as simple as that. Things just cascade when you get control of your quality. you get control of your quality. John Young, CEO Hewlett PackardJohn Young, CEO Hewlett Packard

Micro-economic interpretation:Micro-economic interpretation:

Quantity

Price

The CompetitionThe Competition The Japanese are headed for world quality The Japanese are headed for world quality

leadership and will attain it in the next two leadership and will attain it in the next two decades because no one else is moving there at decades because no one else is moving there at the same pace.the same pace.

J.M Juran, 1967J.M Juran, 1967

IBM decided to have some parts manufactured IBM decided to have some parts manufactured in Japan as a trial project. In the in Japan as a trial project. In the specifications, they set the limit of defective specifications, they set the limit of defective parts at three units per 10,000. When the parts at three units per 10,000. When the shipment arrived from Japan, it included this shipment arrived from Japan, it included this letter:letter:

Eight Dimensions of QualityEight Dimensions of Quality

1. Performance1. Performancethe primary operating characteristics of the product or service.the primary operating characteristics of the product or service.

2. Features2. Featuresthe characteristics that supplement the basic functioning of the the characteristics that supplement the basic functioning of the

product or service.product or service.

3. Reliability3. Reliabilityprobability of the product or service failing within a specified probability of the product or service failing within a specified

period of time.period of time.

4. Conformance4. Conformancethe degree to which a product or service meets acknowledged the degree to which a product or service meets acknowledged

standardsstandards

Quality is not uni-dimensional, but has a numberof important dimensions:

David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

Eight Dimensions of QualityEight Dimensions of Quality

5. Durability5. Durabilitya measure of product life (both technical and economic).a measure of product life (both technical and economic).

6. Serviceability6. Serviceabilitythe speed, courtesy, competence, and ease of repair or recovery.the speed, courtesy, competence, and ease of repair or recovery.

7. Aesthetics7. Aestheticshow a product or service looks, feels, sounds, tastes, or smells.how a product or service looks, feels, sounds, tastes, or smells.

8. Perceived Quality8. Perceived Qualityvarious tangible and intangible aspects of the product from which various tangible and intangible aspects of the product from which

quality is inferred.quality is inferred.

Quality is not uni-dimensional, but has a numberof important dimensions:

David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

Quality CostsQuality Costs

Prevention costsPrevention costs: : process/product design, process/product design, training, vendor relations;training, vendor relations;

Appraisal costsAppraisal costs: : quality audits, statistical quality audits, statistical quality control;quality control;

Correction costs (internal failure)Correction costs (internal failure): : yield yield losses, rework charges;losses, rework charges;

Recovery costs (external failure)Recovery costs (external failure): : returns, returns, repairs, lost business.repairs, lost business.

Costs associated with quality:Costs associated with quality:

Quality CostsQuality Costs

Quality costs escalate as value is added to Quality costs escalate as value is added to product or service:product or service:

Supplier Inspection

Incoming Inspection

Fabrication Inspection

Subproduct Test

Final Product Test

Field Service

0.003

0.03

0.30

$3

$30

$300

Cost of finding and correcting a defective component

Process Control ToolsProcess Control Tools

Process toolsProcess tools assess conditions in existing assess conditions in existing processes to detect problems that require processes to detect problems that require intervention in order to regain lost control.intervention in order to regain lost control.

Check sheetsCheck sheets Pareto analysis Pareto analysis

Run chartsRun charts Scatterplots Scatterplots

HistogramsHistograms Control charts Control charts

Cause & effect diagramsCause & effect diagrams

Check SheetsCheck sheets explore what and where

an event of interest is occurring.

Attribute Check Sheet

27 15 19 20 28

Order Types 7am-9am 9am-11am 11am-1pm 1pm-3pm 3pm-5-pm

Emergency

Nonemergency

Rework

Safety Stock

Prototype Order

Other

Run ChartsRun Charts

time

mea

sure

men

t

SCATTERPLOTSV

aria

ble

A

Variable B

x x x x x x xx x x x x xx x x x x x xx x xx x x x x xx x x x x x xx x x x xx xxx x x x x xx xx x x x x xx x x x xxx xx x x x x xxx x x xx x x xx xx x x x x x xx x x xxx xx xx xxx x x xx xxx x x x x x x xx x x x x x x xx x x xx x x xx x x x

Larger values of variable A appear to be associated with larger values of variable B.

HISTOGRAMSA statistical tool used to show the extent and type of variance within the system.

Fre

qu

ency

of

Occ

urr

ence

s

Outcome

PARETO ANALYSISA method for identifying and separating

the vital few from the trivial many. P

erce

nta

ge o

f O

ccu

rren

ces

Factor

AB

CD

E F G IH J

CAUSE & EFFECT DIAGRAMS

Employees

Proceduresand Methods

TrainingSpeed Maintenance

Equipment

Condition

ClassificationError

Inspection

BADCPU

Pins notAssigned

DefectivePins

ReceivedDefective

Damagedin storage

CPU Chip

Process Control ChartsProcess Control Charts

EstablishEstablish capabilitycapability of process under of process under normalnormal conditionsconditions

Use normal process as benchmark to Use normal process as benchmark to statistically identify statistically identify abnormalabnormal process process behaviorbehavior

CorrectCorrect process when signs of abnormal process when signs of abnormal performance first begin to appearperformance first begin to appear

Control the process rather than inspect the Control the process rather than inspect the product!product!

Statistical technique for tracking a process anddetermining if it is going “out to control”

Upper Control Limit

Lower Control Limit

6

3

Target Spec

Process Control ChartsProcess Control Charts

Upper Spec Limit

Lower Spec Limit

UCL

Target

LCL

Time

Process Control ChartsProcess Control Charts

When to Take ActionWhen to Take Action

A single point goes beyond control limits A single point goes beyond control limits (above or below)(above or below)

Two consecutive points are near the same limit Two consecutive points are near the same limit (above or below)(above or below)

A run of 5 points above or below the process meanA run of 5 points above or below the process mean Five or more points trending toward either limitFive or more points trending toward either limit A sharp change in levelA sharp change in level Other erratic behaviorOther erratic behavior

TQM PioneersTQM PioneersTQM PioneersTQM Pioneers

Early American Industry PioneersEarly American Industry Pioneers– Walter Shewhart–Control ChartsWalter Shewhart–Control Charts– Dodge & Romig–Acceptance SamplingDodge & Romig–Acceptance Sampling– Arnold Feigenbaum–Total Quality ManagementArnold Feigenbaum–Total Quality Management

Post Post W.W.IIW.W.II // JapaneseJapanese TQMTQM– W. Edwards Deming–Total Quality ManagementW. Edwards Deming–Total Quality Management– Joseph Juran–The cost of qualityJoseph Juran–The cost of quality– Philip B. Crosby–Quality is freePhilip B. Crosby–Quality is free– Masaaki Imai–KaizenMasaaki Imai–Kaizen– Kaoru Ishikawa–TQM-Japanese styleKaoru Ishikawa–TQM-Japanese style

Total Quality ManagementTotal Quality ManagementTotal Quality ManagementTotal Quality Management

TQMTQM

Commitmentto Quality

Commitmentto Quality

TotalInvolvement

TotalInvolvement

Scientific Toolsand TechniquesScientific Toolsand Techniques

ContinuousImprovementContinuous

Improvement

W. Edwards DemingW. Edwards Deming

1900 to 19931900 to 1993 Trained as a physicistTrained as a physicist Master of Science -- CUMaster of Science -- CU Taught SQC during World War IITaught SQC during World War II Went to Japan in 1946Went to Japan in 1946 Brought SQC to JapanBrought SQC to Japan Enthusiastically adopted by JapaneseEnthusiastically adopted by Japanese

Japanese Deming PrizeJapanese Deming Prize

Established 1951Established 1951 Annual prizeAnnual prize Awarded for Awarded for

– development of quality tools, ordevelopment of quality tools, or– quality improvement programsquality improvement programs

Created by JUSACreated by JUSA(Union of Japanese Scientists and Engineers(Union of Japanese Scientists and Engineers

Total Quality ManagementTotal Quality ManagementTotal Quality ManagementTotal Quality Management

A program to focus all organizational activities on enhancing quality for customers

Its four components are:– a commitment to make quality product for customers– a commitment to continuous improvement– a total involvement in the quality undertaking– extensive use of scientific tools, technologies and

methods

Malcolm Baldridge AwardMalcolm Baldridge Award

Stimulate companies to attain excellenceStimulate companies to attain excellence Recognize outstanding companiesRecognize outstanding companies Disseminate information and experienceDisseminate information and experience Establish guidelines for quality assessmentEstablish guidelines for quality assessment Gather “how to” information from winnersGather “how to” information from winners

U.S. Quality Award (patterned after Deming award)

International standards for business quality and control

ISO 9000ISO 9000

Management Management responsibilityresponsibility

Quality systemQuality system Contract reviewContract review Design controlDesign control Document ControlDocument Control PurcasingPurcasing TraceabilityTraceability

Process controlProcess control Inspection / testingInspection / testing Reject controlReject control HandlingHandling Quality recordsQuality records Internal auditsInternal audits Training Training Statistical techniquesStatistical techniques

ISO 14000ISO 14000

International standardInternational standard Strengthen environmental mgmt systemsStrengthen environmental mgmt systems Control environmental impactsControl environmental impacts Commitment to environmental targetsCommitment to environmental targets

– regulatorsregulators– insurance interestsinsurance interests– stakeholdersstakeholders– publicpublic

Six SigmaSix Sigma

““Invented” by MotoralaInvented” by Motorala Championed by GE and Jack WelchChampioned by GE and Jack Welch Goal of parts-per-million process defectsGoal of parts-per-million process defects Four stepsFour steps

1.1. MeasureMeasure – – new metrics; measure all processesnew metrics; measure all processes

2.2. AnalyzeAnalyze – – determine performance objectivesdetermine performance objectives

3.3. ImproveImprove – – wholesale changes, focus on resultswholesale changes, focus on results

4.4. ControlControl – – monitor processes to maintain controlmonitor processes to maintain control

66

What “Six Sigma” MeansWhat “Six Sigma” Means

1 1 = 690,000 defects per million = 690,000 defects per million

2 2 = 308,000 defects per million = 308,000 defects per million

3 3 = 66,800 defects per million = 66,800 defects per million

4 4 = 6,210 defects per million = 6,210 defects per million

5 5 = 230 defects per million = 230 defects per million

6 6 = 3.4 defects per million = 3.4 defects per million

Does Quality Matter?Does Quality Matter?

Quality and total quality costQuality and total quality cost– negatively correlated.negatively correlated.

Quality and productivityQuality and productivity– positively correlated.positively correlated.

Quality and profitabilityQuality and profitability– positively associated.positively associated.

Garvin, Managing Quality, The Free Press, 1988