Outline: Total Quality Management (TQM) Defined Quality Specifications and Costs Six Sigma Quality and Tools External Be

1. Chapter 8. Quality Management Outline: • Total Quality Management (TQM) Defined • Quality Specifications and Costs • Six Sigma Quality and Tools • External Benchmarking • ISO 9000 • Service Quality Measurement

2. 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 • Two fundamental operational goals: • Careful design of product or service • Ensure consistent production of product or service

3. Philosophical Leaders of the Quality Movement • Philip Crosby • W. Edwards Deming • Joseph M. Juran • Each has slightly different definitions of what quality is and how to achieve it (see Exhibit 8.1), but they all had the same general message: • To achieve outstanding quality requires: • quality leadership from senior management, • a customer focus, • total involvement of the workforce, and • continuous improvement based upon rigorous analysis of processes.

4. Quality Specifications • Design quality - Inherent value of the product in the marketplace • Conformance quality - Degree to which the product or service design specifications are met • Products can have high design quality but low conformance quality, and vice versa • Quality at the source • Related to conformance quality • Means the person who does the work takes responsibility for making sure output meets specifications • Both design quality and conformance quality should provide products that meet customer objectives • This is often termed fitness for use • Entails identifying the dimensions of product (or service) that the customer wants i.e., the voice of the customer • Developing a quality control program

5. Dimensions of Quality • Performance • Primary product or service characteristic • Features • Added touches, bells and whistles, secondary characteristics • Reliability • Consistency of performance over time, probability of failing • Durability • Useful life • Serviceability • Ease of repair • Response • Characteristics of the human-to-human interface (speed, courtesy, competence) • Aesthetics • Sensory characteristics (sound, feel, look, and so on) • Perceived quality (reputation) • Past performance and other intangibles (perceived quality)

6. Dimensions of Quality Examples

7. Appraisal Costs Costs of Quality External Failure Costs Prevention Costs Internal FailureCosts Costs of Quality (COQ) Costs of inspection, testing, and other tasks to ensure that the product or process is acceptable sum of all costs to prevent defects Costs for defects that pass through the system Costs for defects incurred within the system: scrap, rework, repair

8. Costs of Quality • No matter what the quality is, it will cost$... • So, the assumptions of cost of quality • Failures are caused • Prevention is cheaper • Performance can be measured • Discuss the "internal" and "external failure costs" for a high end coffee house (e.g., Starbucks)

9. Six-Sigma Quality • “Six-sigma” is a philosophy which reflects the goal of eliminating defects in the products. • 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 six standard deviations of the process outputs • Statistically speaking a process in “six-sigma” control limits will only produce 2 defects per billion units.

10. 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 • Firms striving to achieve six-sigma generally adopt DMAIC cycle. • DMAIC are the typical steps employed in “continuous improvement” (a.k.a. Kaizen) concept which seeks to continuallyimprove all aspects of production (parts, machines, labor, processes, etc) • Overall focus of the methodology is to understand and achieve what the customer wants • A 6-sigma program seeks to reduce the variation in the processes that lead to these defects

11. Six Sigma Quality: DMAIC CycleCases/examples from classmates 1. Define (D) Customers and their priorities 2. Measure (M) Process and its performance 3. Analyze (A) Causes of defects 4. Improve (I) Remove causes of defects 5. Control (C) Maintain quality

12. Example to illustrate the process… • We are the maker of this cereal. Consumer Reports has just published an article that shows that we frequently have less than 15 ounces of cereal in a box. • What should we do? • Step 1: Define • What is the critical-to-quality characteristic? • The CTQ (critical-to-quality) characteristic in this case is the weight of the cereal in the box.

13. Step 2 - Measure • How would we measure to evaluate the extent of the problem? • What are acceptable limits on this measure? • Let’s assume that the government says that we must be within ± 5 percent of the weight advertised on the box. • Upper Tolerance Limit = 16 + .05(16) = 16.8 ounces • Lower Tolerance Limit = 16 – .05(16) = 15.2 ounces • We go out and randomly buy 1,000 boxes of cereal and find that they weight an average of 15.875 ounces with a standard deviation of 0.529 ounces. • What percentage of boxes are outside the tolerance limits?

14. Process Mean = 15.875 Std. Dev. = .529 Upper Tolerance = 16.8 Lower Tolerance = 15.2 What percentage of boxes are defective (i.e. less than 15.2 oz)? Z = (x – Mean)/Std. Dev. = (15.2 – 15.875)/.529 = -1.276 NORMSDIST(Z) = NORMSDIST(-1.276) = 0.100978 Approximately, 10 percent of the boxes have less than 15.2 Ounces of cereal in them!

15. Step 3 - Analyze - How can we improve the capability of our cereal box filling process? • Decrease Variation • Line vibration impacts scale • Random delays in nozzle open/close • Center the Process • Increase Specifications

16. Step 4 – Improve – How good is good enough?Motorola’s “Six Sigma” • Calibrate the equipment more frequently, upgrade process • 6-sigma minimum from process center to nearest spec

17. Step 5 – Control • Statistical Process Control (SPC) • Use data from the actual process • Estimate distributions • Look at capability - is good quality possible • Statistically monitor the process over time

18. Analytical Tools for Six Sigma and Continuous Improvement: Flowchart

19. 0.58 0.56 Diameter 0.54 0.52 0.5 0.48 0.46 0.44 1 2 3 4 5 6 7 8 9 10 11 12 Time (Hours) Analytical Tools for Six Sigma and Continuous Improvement: Runchart Can be used to identify when equipment or processes are not behaving according to specifications MEASURE

20. Monday • Billing Errors • Wrong Account • Wrong Amount • A/R Errors • Wrong Account • Wrong Amount Analytical Tools for Six Sigma and Continuous Improvement: Checksheet Can be used to keep track of defects or used to make sure people collect data in a correct manner (MEASURE)

21. 80% Frequency Design Assy. Instruct. Purch. Training Other 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 (MEASURE)

22. Number of Lots 0 1 2 3 4 Defectsin lot Data Ranges Analytical Tools for Six Sigma and Continuous Improvement: Histogram Can be used to identify the frequency of quality defect occurrence and display quality performance (MEASURE)

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

24. Analytical Tools for Six Sigma and Continuous Improvement: Opportunity Flow Diagram Value added activities (Vertical steps) vs. Non-value added activities (horizontal steps) IMPROVE

25. 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

26. Other Six Sigma Tools • Failure Mode and Effect Analysis (FMEA) 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 • a.k.a. multivariate analysis (testing) • i.e., testing multiple independent variables (X’s) with respect to a dependent variable (Y)

27. The Shingo System: Fail-Safe Design • Shingo’s argument: • SQC methods do not prevent defects • Defects arise when people make errors • Defects can be prevented by providing workers with feedback on errors • Poka-Yoke includes: • Checklists • Special tooling that • prevents workers from making errors • Gives rapid feedback of abnormalities to worker in time to correct them

28. The Shingo System: Example Exhibit 8.10 Poka-Yoke Example (Placing labels on parts coming down a conveyor)

29. 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." • First party: A firm audits itself against ISO 9000 standards • Second party: A customer audits its supplier • Third party: A "qualified" national or international standards or certifying agency serves as auditor • Is it important for small or medium sized businesses to have ISO 9000 certification?

30. External Benchmarking Steps • Identify those processes needing improvement • Identify a firm that is the world leader in performing the process • Obviously not a direct competitor • Possibly from another industry • Contact the managers of that company and make a personal visit to interview managers and workers • Analyze data • Compare the processes • Compare the results (performance of the processes)

31. Mini Case • This exercise will be confidential not to be shared with anyone outside the class. • Each group pick a product with a quality problem • ideally one that is from group members present or past experience (disguise the firm or the product if necessary) • Discuss and document the DMAIC cycle • one slide for each step • A couple of groups will present their cases. • Another case, time permitting…