Management of Quality

1. Management of Quality Chapter 9 MIS 373: Basic Operations Management Additional content from L. BerilToktay and Jeff Heyl

2. Learning Objectives • After this lecture, students will be able to • Define the term quality as it relates to products and as it relates to services. • Identify the determinants of quality. • Explain why quality is important and the consequences of poor quality. • Describe TQM. • Describe and use various quality tools. MIS 373: Basic Operations Management

3. What is quality?

4. What is quality in the context of Banking? Mobile Communication? Cars? Healthcare?

5. Quality • Defining Quality • The totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs (American Society for Quality) • Different Views • User-based: better performance, more features • Manufacturing-based: conformance to standards, making it right the first time • Product-based: specific and measurable attributes of the product MIS 373: Basic Operations Management

6. Quality Management • Quality • The ability of a product or service to consistently meet or exceed customer expectations • For a decade or so, quality was an important focal point in business. After a while, this emphasis began to fade as other concerns took precedence • There has been a recent resurgence in attention to quality given recent experiences with the costs and adverse attention associated with highly visible quality failures: • Auto recalls • Toys • Produce • Dog food • Pharmaceuticals MIS 373: Basic Operations Management

7. Sales Gains via • Improved response • Flexible pricing • Improved reputation Improved Quality Increased Profits Reduced Costs via • Increased productivity • Lower rework and scrap costs • Lower warranty costs Two Ways Quality Improves Profitability MIS 373: Basic Operations Management

8. Dimensions of Product Quality • Performance—main characteristics of the product • Aesthetics—appearance, feel, smell, taste • Special features—extra characteristics • Conformance—how well the product conforms to design specifications • Reliability—consistency of performance • Durability—the useful life of the product • Perceived quality—indirect evaluation of quality • Servicebility—handling of complaints or repairs • Consistency—quality doesn't vary. MIS 373: Basic Operations Management

9. Dimensions of Service Quality • Convenience—the availability and accessibility of the service • Reliability—ability to perform a service dependably, consistently, and accurately • Responsiveness—willingness to help customers in unusual situations and to deal with problems • Time—the speed with which the service is delivered • Assurance—knowledge exhibited by personnel and their ability to convey trust and confidence • Courtesy—the way customers are treated by employees • Tangibles—the physical appearance of facilities, equipment, personnel, and communication materials • Consistency—the ability to provide the same level of good quality repeatedly • Expectations—Meet (or exceed) customer expectations. MIS 373: Basic Operations Management

10. Service Quality Model • Parasuraman, A., Zeithaml, V. A., and Berry, L. L. 1985. A Conceptual Model of Service Quality and Its Implications for Future Research. Journal of Marketing49(4) 41–50. Past Experience Personal Needs Word-of-Mouth Communications Expected Service Gap 5 Customer Perceived Service External Communicationsto Customers Gap 4 Gap 1 Service Delivery Gap 3 Service Quality Specifications Provider Gap 2 Management Perceptions ofCustomer Expectations MIS 373: Basic Operations Management

11. Service Quality Model MIS 373: Basic Operations Management

12. Service Quality Model • Consider a service operation (e.g., restaurant, hospital, education, banking, tailor, etc.) and give an example on each of the five gaps in the service quality model. Past Experience Personal Needs Word-of-Mouth Communications Expected Service Gap 5 Customer Perceived Service External Communicationsto Customers Gap 4 Gap 1 Service Delivery Gap 3 Service Quality Specifications Provider Gap 2 Management Perceptions ofCustomer Expectations

13. Benefits of Good Quality • Enhanced reputation for quality • Ability to command premium prices • Increased market share • Greater customer loyalty • Lower liability costs • Fewer production or service problems • Lower production costs • Higher profits MIS 373: Basic Operations Management

14. The Consequences of Poor Quality • Loss of business • Liability • Productivity • Costs (e.g., repair, replacement) MIS 373: Basic Operations Management

15. If quality is so important, why some (if not most) companies are reluctant to pursue high(er) quality?

16. Costs of Quality • Prevention Costs • Cost of preventing defects from occurring • Planning, administration, working with vendors, training, quality assurance, design and production. • Appraisal Costs • Costs of activities designed to ensure quality or uncover defects • Inspectors, testing, test equipment, labs, quality audits, quality control, field testing • Failure Costs • Costs incurred by defective parts/products or faulty services. • Internal Failure Costs • Costs incurred to fix problems that are detected before the product/service is delivered to the customer. • External Failure Costs • All costs incurred to fix problems that are detected after the product/service is delivered to the customer MIS 373: Basic Operations Management

17. Costs of Quality • Specific examples Source: http://www.accountingformanagement.org/costs-of-quality-or-quality-costs/ MIS 373: Basic Operations Management

18. Total Cost Total Cost External Failure Internal Failure Prevention Appraisal Quality Improvement Costs of Quality MIS 373: Basic Operations Management

19. Responsibility for Quality • Everyone in the organization has some responsibility for quality, but certain areas of the organization are involved in activities that make them key areas of responsibility. • Top management • Design • Procurement • Production/operations • Quality assurance • Packaging and shipping • Marketing and sales • Customer service MIS 373: Basic Operations Management

20. Ethics and Quality • Substandard work • Defective products • Substandard service • Poor designs • Shoddy workmanship • Substandard parts and materials Having knowledge of this and failing to correct and report it in a timely manner is unethical. MIS 373: Basic Operations Management

21. Case • Toyota settles with government for $1.2 billion in recall probe (washingtonpost.com 3/19/14) • In 2009, the driver of a borrowed Lexus — made by Toyota — was unable to stop the vehicle as it careened off the highway at 120 miles per hour, killing three people. “There’s no brakes…Hold on and pray,” one of the passengers said to a 911 operator. • Toyota Motor Corp. has agreed to a $1.2 billion settlement to end a U.S. Justice Department criminal probe into its handling of safety problems, Attorney General Eric Holder announced. • “The $1.2 billion payment represents the largest criminal penalty imposed on a car company in U.S. history,” Holder said in a statement. “This is appropriate given the extent of the deception carried out by Toyota in this case. Put simply, Toyota’s conduct was shameful,” Holder said.

22. Quality Contributors MIS 373: Basic Operations Management

23. Quotes • Team exercise • Please come forward to draw a card and a quote • Instructions • Find your teammates who have the same card as yours • Take a few minutes and think about the meaning of the quote you got • Share the quote with your teammates and discuss: • The essence of the quote (some may seem counterintuitive) • Examples that support or against the quote • The implications to operations management

24. Quotes

25. the BaldrigeAward • Benefits of the Baldrige Competition • Winners achieve financial success • Winners share their knowledge • The process motivates employees • The process requires obtaining data • The process provides feedback • Award Categories • Education • Healthcare • Manufacturing • Nonprofit/Government • Service • Small Business More info: http://en.wikipedia.org/wiki/Malcolm_Baldrige_National_Quality_Award MIS 373: Basic Operations Management

26. ISO 9000 series standards International Organization for Standardization • ISO 9000 • International recognition • Encourages quality management procedures, detailed documentation, work instructions, and recordkeeping • Applies to any organization regardless of size or industry • Over one million certifications in 178 countries • Critical for global business • Includes ISO 9000:2005 (definitions), ISO 9001:2008 (requirements) and ISO 9004:2009 (continuous improvement) MIS 373: Basic Operations Management

27. ISO 9000 series standards • Management principles • Top management leadership • Customer satisfaction • Continual improvement • Involvement of people • Process analysis • Use of data-driven decision making • A systems approach to management • Mutually beneficial supplier relationships MIS 373: Basic Operations Management

28. American Customer Satisfaction Index • Measures customer satisfaction • Established in 1994 • Web site: http://www.theacsi.org • Examples (in 2014) • Amazon.com scored 88 (highest in Internet Retail) • Mercedes-Benz (Daimler) scored 88 (highest in Automobiles) • Google scored 77 (highest in Internet Portals and Search Engines) • FOXNews.com scored 82 (highest in Internet News and Information) MIS 373: Basic Operations Management

29. Total Quality Management • A philosophy that involves everyone in an organization in a continual effort to improve quality and achieve customer satisfaction. • The methods for implementing this approach come from the teachings of such quality leaders as Philip B. Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa, and Joseph M. Juran. MIS 373: Basic Operations Management

30. Total Quality Management • The Primary Elements of TQM • Customer-focused • Total employee involvement • Process-centered • Integrated system • Strategic and systematic approach • Continual improvement • Fact-based decision making • Communications MIS 373: Basic Operations Management

31. BMW Quality Management Can we identify the TQM elements from this video? • Customer-focused • Total employee involvement • Process-centered • Integrated system • Strategic and systematic approach • Continual improvement • Fact-based decision making • Communications

32. Total Quality Management • Implementing a Total Quality Management System • Top management learns about and decides to commit to TQM. TQM is identified as one of the organization’s strategies. • The organization assessescurrent culture, customer satisfaction, and quality management systems. • Top management identifies core values and principles to be used, and communicates them. • A TQM master plan is developed on the basis of steps 1, 2, and 3. • The organization identifies and prioritizes customer demands and aligns products and services to meet those demands. • Management maps the critical processes through which the organization meets its customers’ needs. • Management oversees the formation of teams for process improvement efforts. • The momentum of the TQM effort is managed by the steering committee. • Managers contribute individually to the effort through planning, training, coaching, or other methods. • Daily process management and standardization take place. • Progress is evaluatedand the plan is revisedas needed. • Constant employee awareness and feedback on status are provided and a reward/recognition process is established. MIS 373: Basic Operations Management

33. Lower limits Upper limits 2,700 defects/million 3.4 defects/million Mean 6 ±3 ±6 Six Sigma • Two meanings • Statistical definition of a process that is 99.9997% capable, 3.4 defects per million opportunities (DPMO) • A program designed to reduce defects, lower costs, save time, and improve customer satisfaction • A comprehensive system for achieving and sustaining business success MIS 373: Basic Operations Management

34. PDSA Cycle • Plan-Do-Study-Act (PDSA) Cycle • Plan • Begin by studying and documenting the current process. • Collect data on the process or problem • Analyze the data and develop a plan for improvement • Specify measures for evaluating the plan • Do • Implement the plan, document any changes made, collect data for analysis • Study • Evaluate the data collection during the do phase • Check results against goals formulated during the plan phase • Act • If the results are successful, standardize the new method and communicate it to the relevant personnel • Implement training for the new method • If unsuccessful, revise the plan and repeat the process MIS 373: Basic Operations Management

35. Continuous Improvement Continuous Improvement Quality Traditional Time MIS 373: Basic Operations Management

36. Basic Quality Tools • Flowcharts. A flowchart is a visual representation of a process. As a problem-solving tool, a flowchart can help investigators in identifying possible points in a process where problems occur. • Check Sheets. A check sheet is a simple tool frequently used for problem identification. Check sheets provide a format that enables users to record and organize data in a way that facilitates collection and analysis. • Histograms. A histogram can be useful in getting a sense of the distribution of observed values. • Pareto Analysis. Pareto analysis is a technique for focusing attention on the most important problem areas. • Scatter Diagrams. A scatter diagram can be useful in deciding if there is a correlation between the values of two variables. • Cause-and-Effect Diagrams. A cause-and-effect diagram offers a structured approach to the search for the possible cause(s) of a problem. • Run Charts. A run chart can be used to track the values of a variable over time. This can aid in identifying trends or other patterns that may be occurring. • Control Charts. A control chart can be used to monitor a process to see if the process output is random. It can help detect the presence of correctable causes of variation. MIS 373: Basic Operations Management

37. Basic Quality Tools MIS 373: Basic Operations Management

38. Basic Quality Tools Pareto Diagram (the 80/20 rule) Check Sheet 14 10 5 2 1 MIS 373: Basic Operations Management

39. Basic Quality Tools Cause-and-Effect Diagram Scatter Diagram MIS 373: Basic Operations Management

40. Basic Quality Tools • Run Charts. A run chart can be used to track the values of a variable over time. This can aid in identifying trends or other patterns that may be occurring. MIS 373: Basic Operations Management

41. Basic Quality Tools • Control Charts. A control chart can be used to monitor a process to see if the process output is random. It can help detect the presence of correctable causes of variation. MIS 373: Basic Operations Management

42. Key Points • Price and quality are the two primary considerations in every buying transaction, so quality is extremely important. • Quality gurus have made important contributions to the way business organizations view quality and achieve quality. • Quality certification and quality awards are important because they can provide some degree of assurance to customers about quality. • Many simple-to-use tools are available for problem solving and process improvement. MIS 373: Basic Operations Management