CHAPTER 1

Introduction to Quality

Chapter 1 Overview and Key Objective

The first chapter provides an overview of the importance of quality in a rapidly changing business
environment. Actually, that has become a cliché. Perhaps we should use the phrase: “a chaotic
business environment.” Students at both the undergraduate and graduate level are likely to be
taking this course as an elective, so you may have a tendency to assume that they are "self-
motivated" by simply being there. This is not necessarily the case. As business and industry
evolves, the terms “performance management” and “performance excellence” have begun to be
used as synonyms for older terms, such as TQM and total quality. Whatever the vocabulary, you
should try to "hook" your students on the excitement of quality and performance excellence by
using a variety of teaching methods and media.

This chapter also introduces the concept of quality in production and service systems and develops
the idea that quality is central to effective operation of these systems. Students should be
encouraged to develop an understanding of the fact that quality is not an "add-on" to organizational
processes, but that it is "a way of doing business."

Key objectives for Chapter 1 should include:

 To emphasize that of the three important concepts of performance excellence –

productivity, cost, and quality – the most significant factor in determining the long-run
success or failure of any organization is quality.

 To focus on the multi-faceted definitions of quality. Definitions include transcendent

(judgmental) quality, product- and value-based quality, fitness for use (user-based),
conformance to specifications (manufacturing-based), and customer perspectives.

 To understand that the user-based perspective requires a definition of customers and

related terms. Thus, customers also include consumers, who ultimately use a product;
external customers, who may be intermediaries between the producer and the consumer;
and internal customers, who are the recipients of goods and services from suppliers
within the producing firm.

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 To define specifications, which are key to the manufacturing perspective, as targets and
tolerances determined by designers of products and services.

 To review the evolution of quality from the 12th Century B.C. Zou Dynasty in China,
through the Craftsmanship era in the 1700’s, through the Japanese post-World War II
challenge brought on by attention to quality and international competitiveness, to the
“Quality revolution” in the U.S. and elsewhere in the 1980’s through the early 21st Century.
The “revolution” came about as a result of consumer pressures, technological change,
outmoded managerial thinking, and competitive pressures that changed the way that U.S.
and managers around the world viewed the role of quality.

 To introduce the concept of quality assurance -- providing consumers with goods and
services of appropriate quality, as a point of reference. Statistical quality control (SQC)
is the application of statistical methods for controlling quality. SQC was vital to military
production during World War II, and grew rapidly in application in the following years.
These definitions are often how the average person thinks of quality, but it requires pointing
out its limitations, as technical, rather than managerial, approaches.

 To provide a framework for understanding that the quality movement has influenced not
only product and service improvements, but the way in which organizations are
managed, leading to the concepts of Big Q – managing for quality in all organizational
processes as opposed to simply in manufacturing, referred to as Little Q. In addition,
total quality management (TQM), or simply total quality (TQ), developed as a total,
company-wide effort--through full involvement of the entire workforce and a focus on
continuous improvement – that companies use to achieve customer satisfaction. TQ
evolved from earlier concepts of total quality control and companywide quality control
as practiced in Japan. Additionally, these concepts are supported by the organizational
infrastructure that includes: customer relationship management, leadership and strategic
planning, human resources management, process management, and data and information
management, as well as a set of management practices and tools.

 To show how aligning and integrating quality principles into all fundamental business
activities underlies the concept of performance excellence, characterized by delivery of
ever-improving value to customers and stakeholders, contributing to organizational
sustainability, improvement of overall organizational effectiveness and capabilities, and
organizational and personal learning.

 To explore the failures in quality initiatives, usually resulting from managerial mistakes,
and how the Six Sigma approach, supported by traditional lean tools from the Toyota
production system, is revitalizing the focus on quality in the 21st century.
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 To study the role that quality plays in each component of a manufacturing firm’s
production and business support systems and to show how they are linked together as a
system of processes to support organizational objectives.

 To develop the view of a production and service systems that focuses on lateral
relationships, as opposed to the traditional hierarchical view of organizations.

 To differentiate between production and service organizations, as well as their similarities,

and to highlight the differences in service organizations that must be addressed when
designing and implementing quality assurance systems.

 To show that quality in manufacturing and quality in services must be approached

differently in terms of employees' responsibilities and type and use of technology.

 To investigate the future of quality and reinforce the concept that managers must better
prepare and train employees in the philosophy and tools of quality management, and that
business leaders must also take responsibility and be held accountable for quality
outcomes.

 To provide quality definitions and terminology to be used throughout the text, including
term such as: specifications, customers and consumers, total quality, processes, continuous
improvement, learning cycles, infrastructure, practices, quality tools.

 To introduce the concept of competitive advantage, which denotes a firm’s ability to

achieve market superiority over its competitors. Quality is a key source of competitive
advantage, and studies have shown that quality is positively related to increased market
share and profitability.

 To point out that today, organizations are asking employees to take more responsibility
for acting as the point of contact between the organization and the customer, to be team
players, and to provide better customer service. Unless quality is internalized at the
personal level, it will never become rooted in the culture of an organization.

Definitions of terms:

a. quality assurance - any planned and systematic activity directed toward providing
consumers with products (goods and services) of appropriate quality, along with the
confidence that products meet consumers’ requirements.
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b. total quality – the concept of total quality includes the three fundamental principles of:
a focus on customers; participation and teamwork; and continuous improvement and
learning. This requires that organizations strive to understand the needs and wants of both
intermediate customers and final consumers, to seek input of ideas and solutions to
problems from employees at every level, and to continuously look for, test, implement,
and evaluate new ways to perform organizational processes, better.

c. performance excellence - an integrated approach to organizational performance

management that results in:

1. Delivery of ever-improving value to customers and stakeholders, contributing to

organizational sustainability,
2. Improvement of overall organizational effectiveness and capabilities, and
3. Organizational and personal learning.

d. competitive advantage – a concept that denotes a firm’s ability to achieve market

superiority. A strong competitive advantage provides customer value, leads to financial
success and business sustainability, and is difficult for competitors to copy. High quality
is itself an important source of competitive advantage.

Quality concerns of each major function within a manufacturing system vary. Thus,
each major function contributes to total quality in various ways, as follows:

Marketing and Sales - Effective market research and solicitation of customer feedback
are necessary for developing quality products.

Product Design and Process Engineering – Here, designers and technicians must make
sure products are not over- or under-engineered. Over-engineering results in ineffective
use of a firm’s resources and products. Under-engineered products poor process designs
result in lower quality as well.

Purchasing and Receiving - The purchasing department must ensure that purchased
parts meet the quality requirements specified by product design and engineering.
Receiving must ensure that the purchased items that are delivered are of the quality that
was contracted for by purchasing and that defective parts are not received.

Production Planning and Scheduling - The correct material, tools, and equipment must
be available at the proper time and in the proper places to maintain a smooth flow of
production.

Manufacturing and Assembly - Quality must be built into a product; it cannot be

inspected into it. Proper control of labor, materials, and equipment is necessary to
achieve high quality.
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Tool Engineering--Tools used in manufacturing and inspection must be designed and

maintained for continual production of a quality product. Tool performance should be
consistently monitored so that worn or defective tools can be identified and replaced.

Industrial Engineering and Process Design – Team members from these areas must
work with product design engineers to develop realistic specifications of quality. In
addition, they must select appropriate technology, equipment, and work methods that will
produce quality products.

Finished Goods Inspection and Tests - If quality is built into the product properly and
rigorously, inspection should be unnecessary. However, in a less than perfect system,
some inspection based on random sampling, or 100 percent inspection of critical
components, is still necessary to ensure that no defective items reach the customer.

Packaging, Shipping, and Warehousing - Logistical activities take place in these

locations which are designed to protect quality after goods are produced.

Installation and Service – These personnel must ensure that users understand the
product and have adequate instructions for proper installation and operation.

Service is defined as: "any primary or complementary activity that does not directly
produce a physical product -- that is, the nongoods part of the transaction between buyer
(customer) and seller (provider).” Service firms are organizations in industries and
sectors including: hotels and lodging places, and establishments providing personal,
business, repair, and amusement services; health, legal, engineering and other
professional services; membership organizations. Real estate, financial services, retailers,
transportation, and public utility organizations are generally considered service firms.
Basically, they include all nonmanufacturing organizations except such industries as
agriculture, mining, and construction.

Quality in services is important in today’s business environment because poor service

often leads to lost customers (up to 35% per year) and therefore lost income. Retaining
customers can mean a profit increase because it is more cost effective to retain them than
to acquire new customers. Companies with long-time customers can financially
outperform competitors with higher customer turnover even when their unit costs are
higher and their market share is smaller. Quality has moved beyond technical issues such
as reliability, inspection, and quality control in manufacturing, because of changes in the
economy and in society. Some of these concerns center on the increasing focus of
businesses on service and knowledge creation and management.

Differences between manufacturing and service organizations are significant, yet both
types have activities that fall into manufacturing and service categories. The contrasts
between service and manufacturing quality include:
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 Customer needs and performance standards are difficult to quantify in services.

 The production of services often requires a high degree of customization.
 The output of many services is intangible, unlike manufactured goods.
 Services are produced and consumed simultaneously.
 Customers must often be involved and present during the performance of the service
process.
 Services are more labor intensive, where manufacturing is more capital intensive.
 Many service organizations handle large numbers of transactions.

Employees need information technology as a tool for providing quality service in today’s
fast-moving business environment. Information technology is essential in modern service
organizations because of the high volumes of information they must process and because
customers demand service at ever-increasing speeds. Intelligent use of information
technology improves quality and productivity, and also leads to competitive advantage,
especially when technology is used to better serve the customer. At the Ritz-Carlton Hotel
Company, L.L.C., a corporate-wide database is used to record customer preferences,
previous difficulties, personal interests, and preferred credit cards of each of more than
800,000 customers. Thus, front-desk employees can determine that a customer needs a
non-smoking room, prefers non-scented soap, and often travels with a small child who will
need a crib.

Business support activities must aid in quality production in their own separate ways, but
still remain aligned with the organizations purpose, objectives, goals, and plans. Support
activities help to provide for specialized handling of non-core processes. Thus, team
members in the core activities can focus on quality issues in their own areas. Key business
support activities play a role in sustaining quality as follows:

- Financial studies can help expose the costs of poor quality and ways of reducing it.
Accounting data are useful for identifying areas for quality improvement and tracking the
progress of quality improvement. Financial and accounting personnel can also apply
quality improvement techniques to improve their own operations.

- Human Resource Management--Human resource managers must ensure that employees

have the proper skills, training, and motivation to do quality work, and that they are
recognized and rewarded for such. They must also be given the authority and responsibility
to make critical quality decisions when necessary.

- Quality Assurance specialists in “quality assurance departments” assist managers by

performing tasks such as statistical tests or data analyses, special statistical studies and
analyses, and may be assigned to work with any of the manufacturing or business support
functions. It must be remembered that a firm’s quality assurance department cannot
guarantee quality. Its proper role is to provide guidance and support for the firm’s total
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effort toward this goal.

- Legal Services personnel in the legal department attempt to guarantee that the firm
complies with laws and regulations regarding such things as product labeling, packaging,
safety, and transportation; design and word warranties properly; ensure that the firm
satisfies its contractual requirements; and develop proper procedures and documentation
for use in the event of liability claims against it. The rapid increase in liability suits has
made legal services an important aspect of quality assurance.

A firm's competitive advantage lies in its ability to achieve market superiority. It is a)

driven by customer wants and needs; b) makes a significant contribution to the success of
the organization; c) matches the organization’s unique resources with opportunities in the
environment; d) is durable, lasting, and difficult for competitors to copy; e) provides a basis
for further improvement; and f) provides direction and motivation to the entire
organization. Quality supports a firm's competitive advantage by providing for more
efficient use of resources and production methods within the company, thus producing
products or services that are superior to those of competitors.

The late Philip Crosby made the point that "quality is free" because he wanted to emphasize
the savings and benefits that have since been more fully (see answer to question 15, below)
documented, in terms of design and conformance quality. Money saved by avoiding scrap,
rework, and a poor reputation for quality shows up in the "bottom line" as higher profits.
Although it costs money to start and maintain a quality process, it is a proven fact that
quality "pays" in the long run.

A product's value in the marketplace, and hence, its profitability, is influenced by the
quality of its design. Improvements in performance, features, and reliability within the
product will differentiate it from its competitors, improving the firm's quality reputation
and the perceived value of the product, and allowing the company to command higher
prices and achieve a greater market share. This leads to increased revenues, which offset
the costs of improving the design. Improved conformance to quality standards in
production also saves rework, scrap, and warranty expenses, thus decreasing
manufacturing and service costs.

The evidence to counter the claim that “quality does not pay” is mounting. For example,
the Department of Commerce studies of Malcolm Baldrige Award winners through 2002
showed that an investment in common stock of the winners would have produced a 3.8 to
1 advantage over a similar investment in the S&P 500. However, in 2003, for the first time
since the Baldrige Index was established, the S&P outperformed the index, primarily
because of the depressed stocks of a number of high-tech companies that have won the
Baldrige. The Hendricks and Singhal study (see text reference) of 600 publicly traded firms
that have won quality awards showed significant differences in performance measures
versus their control groups. Quality-focused companies have frequently attained
outstanding operational and financial results. These have been extensively illustrated in
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this and succeeding chapters in the quality profiles of such firms as Pal’s Sudden Service,
Robert W. Monfort College of Business, Texas Nameplate, Boeing Airlift and Tanker,
Bronson Methodist Hospital, etc. In addition, various studies done by associations and
government agencies such as the GAO study, Commerce Department studies, and the
documentation required from Baldrige Award applicants and winners all provide evidence
that quality delivery and improvement "pay".

Personal quality is an often-neglected area, which, if emphasized, can have a significant

impact on individuals and organizations. Simply by recording defects in specific
categories, the number of defects can often be reduced. In addition, this approach can make
individual employees in an organization aware of how the quality process works, give them
an appreciation of the power of quality tools, and help them realize how their own quality
actions may impact the firm.