Competing with Quality Leeds School of Business University of Colorado Boulder, CO 80309-0419

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

2. Price Quantity Why Quality is Critical • Quality:Quality is the single most important thing you can work on to improve the effectiveness of your company. It's as simple as that. Things just cascade when you get control of your quality. John Young, CEO Hewlett Packard • Micro-economic interpretation: Demand Supply

3. Eight Dimensions of Quality Quality is not uni-dimensional, but has a number of important dimensions: 1. Performance 2. Features 3. Reliability 4. Conformance

4. Eight Dimensions of Quality Quality is not uni-dimensional, but has a number of important dimensions: 5. Durability 6. Serviceability 7. Aesthetics 8. Perceived Quality

5. Quality Costs Costs associated with quality: • Prevention costs: • Appraisal costs: • Correction costs (internal failure): • Recovery costs (external failure):

6. Quality Costs • Quality costs escalate as value is added to product or service: Cost of finding and correcting a defective component Supplier Inspection 0.003 Incoming Inspection 0.03 Fabrication Inspection 0.30 $3 Subproduct Test Final Product Test $30 $300 Field Service

7. TQM Pioneers • Early American Industry Pioneers • Walter Shewhart–Control Charts • Dodge & Romig–Acceptance Sampling • Arnold Feigenbaum–Total Quality Management • Post W.W.II/JapaneseTQM • W. Edwards Deming–Total Quality Management • Joseph Juran–The cost of quality • Philip B. Crosby–Quality is free • Masaaki Imai–Kaizen • Kaoru Ishikawa–TQM-Japanese style

8. Quality Masters • W. Edwards Deming • The basic cause of sickness in American industry and resulting unemployment is failure of top management to manage. • Began consulting with Japanese in 1950 • Japanese Deming Prize • Joseph M. Juran • “Fitness of Use” • Runs the Juran Institute • Large impact on Japanese quality • Phillip B. Crosby • Started as an industrial inspector • Runs the Crosby Quality College • “Zero Defects”

9. W. Edwards Deming • 1900 to 1993 • Trained as a physicist • Master of Science -- CU • Taught SQC during World War II • Went to Japan in 1946 • Brought SQC to Japan • Enthusiastically adopted by Japanese

10. Deming Improvement Cycle Act Plan Check Do

11. Deming’s Theory of Quality & Economics Costs decrease because of less rework, fewer mistakes, fewer delays, snags; better use of machine-time and materials Productivity Improves Improve Quality Capture the market with better quality and lower price Stay in business Provide jobs and more jobs Deming, Out of the Crisis, 1986

12. Japanese Deming Prize • Established 1951 • Annual prize • Awarded for • development of quality tools, or • quality improvement programs • Created by JUSA(Union of Japanese Scientists and Engineers

13. Total 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

14. Total Quality Management TQM

15. Malcolm Baldridge Award U.S. Quality Award (patterned after Deming award) • Stimulate companies to attain excellence • Recognize outstanding companies • Disseminate information and experience • Establish guidelines for quality assessment • Gather “how to” information from winners

16. Management responsibility Quality system Contract review Design control Document Control Purcasing Traceability Process control Inspection / testing Reject control Handling Quality records Internal audits Training Statistical techniques ISO 9000 International standards for business quality and control

17. ISO 14000 • International standard • Strengthen environmental mgmt systems • Control environmental impacts • Commitment to environmental targets • regulators • insurance interests • stakeholders • public

18. 6s Six Sigma • “Invented” by Motorala • Championed by GE and Jack Welch • Goal of parts-per-million process defects • Four steps • Measure – new metrics; measure all processes • Analyze – determine performance objectives • Improve – wholesale changes, focus on results • Control – monitor processes to maintain control

19. What “Six Sigma” Means 1 s = 690,000 defects per million 2 s = 308,000 defects per million 3 s = 66,800 defects per million 4 s = 6,210 defects per million 5 s = 230 defects per million 6 s = 3.4 defects per million

20. Does Quality Matter? • Quality and price • lack a consistent association. • Quality and advertising • positively correlated in some product categories, and negatively correlated in others • Quality and market share • positively correlated in some studies, negatively correlated in others. Garvin, Managing Quality, The Free Press, 1988

21. Does Quality Matter? • Quality and total quality cost • negatively correlated. • Quality and productivity • positively correlated. • Quality and profitability • positively associated. Garvin, Managing Quality, The Free Press, 1988