CHAPTER 4-5 PROCESS PERFORMANCE AND QUALITY

1. CHAPTER 4-5 PROCESS PERFORMANCE AND QUALITY Zoubida SAMLAL - MBA , CFA Member, PHD candidate for HBS program

2. How Process Performance and Quality fits the Operations Management Philosophy Operations As a Competitive Weapon Operations Strategy Project Management Process Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean Systems Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling

3. Quality at Crowne Plaza Christchurch • The Crowne Plaza is a luxury hotel with 298 guest rooms three restaurants, two lounges and 260 employees to serve 2,250 guests each week. • Customers have many opportunities to evaluate the quality of services they receive. • Prior to the guest’s arrival, the reservation staff gathers a considerable amount of information about each guest’s preferences. • Guest preferences are shared with housekeeping and other staff to customize service for each guest. • Employees are empowered to take preventative, and if necessary, corrective action.

4. Costs of Poor Process Performance • Defects: Any instance when a process fails to satisfy its customer. • Prevention costs are associated with preventing defects before they happen. • Appraisal costs are incurred when the firm assesses the performance level of its processes. • Internal failurecosts result from defects that are discovered during production of services or products. • External failurecosts arise when a defect is discovered after the customer receives the service or product.

5. Total Quality Management • Quality: A term used by customers to describe their general satisfaction with a service or product. • Total quality management (TQM) is a philosophy that stresses three principles for achieving high levels of process performance and quality: • Customer satisfaction • Employee involvement • Continuous improvement in performance

6. Service/product design Process design Continuous improvement Employee involvement Customer satisfaction Problem-solving tools Purchasing Benchmarking TQM Wheel

7. Customer Satisfaction • Customers, internal or external, are satisfied when their expectations regarding a service or product have been met or exceeded. • Conformance: How a service or product conforms to performance specifications. • Value: How well the service or product serves its intended purpose at a price customers are willing to pay. • Fitness for use: How well a service or product performs its intended purpose. • Support: Support provided by the company after a service or product has been purchased. • Psychological impressions: atmosphere, image, or aesthetics

8. Employee Involvement • One of the important elements of TQM is employee involvement. • Quality at the source is a philosophy whereby defects are caught and corrected where they were created. • Teams: Small groups of people who have a common purpose, set their own performance goals and approaches, and hold themselves accountable for success. • Employee empowerment is an approach to teamwork that moves responsibility for decisions further down the organizational chart to the level of the employee actually doing the job.

9. Team Approaches • Quality circles: Another name for problem-solving teams; small groups of supervisors and employees who meet to identify, analyze, and solve process and quality problems. • Special-purpose teams: Groups that address issues of paramount concern to management, labor, or both. • Self-managed team: A small group of employees who work together to produce a major portion, or sometimes all, of a service or product.

10. Continuous Improvement • Continuous improvement is the philosophy of continually seeking ways to improve processes based on a Japanese concept called kaizen. • Train employees in the methods of statistical process control and other tools. • Make methods a normal aspect of operations. • Build work teams and encourage employee involvement. • Utilize problem-solving tools within the work teams. • Develop a sense of operator ownership in the process.

11. Plan Act Do Check The Deming WheelPlan-Do-Check-Act Cycle

12. Statistical Process Control • Statistical process control is the application of statistical techniques to determine whether a process is delivering what the customer wants. • Acceptance sampling is the application of statistical techniques to determine whether a quantity of material should be accepted or rejected based on the inspection or test of a sample. • Variables: Service or product characteristics that can be measured, such as weight, length, volume, or time. • Attributes: Service or product characteristics that can be quickly counted for acceptable performance.

13. Sampling • Sampling plan: A plan that specifies a sample size, the time between successive samples, and decision rules that determine when action should be taken. • Sample size: A quantity of randomly selected observations of process outputs.

14. Sample Means andthe Process Distribution Sample statistics have their own distribution, which we call a sampling distribution.

15. where xi = observations of a quality characteristic such as time. n = total number of observations x = mean Sample Mean Sampling Distributions A sample mean is the sum of the observations divided by the total number of observations. The distribution of sample means can be approximated by the normal distribution.

16. where  = standard deviation of a sample n = total number of observations xi = observations of a quality characteristic x = mean Sample Range The range is the difference between the largest observation in a sample and the smallest. The standard deviation is the square root of the variance of a distribution.

17. Process Distributions • A processdistribution can be characterized by its location, spread, and shape. • Location is measured by the mean of the distribution and spread is measured by the range or standard deviation. • The shape of process distributions can be characterized as either symmetric or skewed. • A symmetricdistribution has the same number of observations above and below the mean. • A skeweddistribution has a greater number of observations either above or below the mean.

18. Causes of Variation • Two basic categories of variation in output include common causes and assignable causes. • Commoncauses are the purely random, unidentifiable sources of variation that are unavoidable with the current process. • If processvariability results solely from common causes of variation, a typical assumption is that the distribution is symmetric, with most observations near the center. • Assignablecauses of variation are any variation-causing factors that can be identified and eliminated, such as a machine needing repair.

19. Type I and II Errors • Control charts are not perfect tools for detecting shifts in the process distribution because they are based on sampling distributions. Two types of error are possible with the use of control charts. • Type I error occurs when the employee concludes that the process is out of control based on a sample result that falls outside the control limits, when in fact it was due to pure randomness. • Type II error occurs when the employee concludes that the process is in control and only randomness is present, when actually the process is out of statistical control.

20. Statistical ProcessControl Methods • Control Charts for variables are used to monitor the mean and variability of the process distribution. • R-chart (Range Chart) is used to monitor process variability. • x-chart is used to see whether the process is generating output, on average, consistent with a target value set by management for the process or whether its current performance, with respect to the average of the performance measure, is consistent with past performance. • If the standard deviation of the process is known, we can place UCL and LCL at “z” standard deviations from the mean at the desired confidence level.

21. Process Capability • Process capability is the ability of the process to meet the design specifications for a service or product. • Nominal value is a target for design specifications. • Tolerance is an allowance above or below the nominal value.

22. Nominal value Process distribution Lower specification Upper specification Minutes 20 25 30 Process Capability Process is capable

23. Using Continuous Improvement to Determine Process Capability • Step 1: Collect data on the process output; calculate mean and standard deviation of the distribution. • Step 2: Use data from the process distribution to compute process control charts. • Step 3: Take a series of random samples from the process and plot results on the control charts. • Step 4: Calculate the process capability index, Cpk, and the process capability ratio, Cp, if necessary. If results are acceptable, document any changes made to the process and continue to monitor output. If the results are unacceptable, further explore assignable causes.

24. Quality Engineering • Quality engineering is an approach originated by Genichi Taguchi that involves combining engineering and statistical methods to reduce costs and improve quality by optimizing product design and manufacturing processes. • Quality loss function is the rationale that a service or product that barely conforms to the specifications is more like a defective service or product than a perfect one. • Quality loss function is optimum (zero) when the product’s quality measure is exactly on the target measure.

25. Loss (dollars) Lower Nominal Upper specification value specification Taguchi's Quality Loss Function

26. Six Sigma • Six Sigma is a comprehensive and flexible system for achieving, sustaining, and maximizing business success by minimizing defects and variability in processes. • It relies heavily on the principles and tools of TQM. • It is driven by a close understanding of customer needs; the disciplined use of facts, data, and statistical analysis; and diligent attention to managing, improving, and reinventing business processes.

27. Six Sigma Improvement Model Define Determine the current process characteristics critical to customer satisfaction and identify any gaps. Measure Quantify the work the process does that affects the gap. Analyze Use data on measures to perform process analysis. Improve Modify or redesign existing methods to meet the new performance objectives. Control Monitor the process to make sure high performance levels are maintained.

28. Six Sigma Implementation • Top Down Commitment from corporate leaders. • Measurement Systems to Track Progress • Tough Goal Setting through benchmarking best-in-class companies. • Education: Employees must be trained in the “whys” and “how-tos” of quality. • Communication: Successes are as important to understanding as failures. • Customer Priorities: Never lose sight of the customer’s priorities.

29. Six Sigma Education • Green Belt: An employee who achieved the first level of training in a Six Sigma program and spends part of his or her time teaching and helping teams with their projects. • Black Belt: An employee who reached the highest level of training in a Six Sigma program and spends all of his or her time teaching and leading teams involved in Six Sigma projects. • Master Black Belt: Full-time teachers and mentors to several black belts.

30. ISO 9000 A set of standards governing documentation of a quality program. Documentation standards that require participating companies to keep track of their raw materials use and their generation, treatment, and disposal of hazardous wastes. ISO 14000 International Quality Documentation Standards