CHAPTER 3.

DESIGN OF GOODS AND SERVICES

TOPICS
1. Goods and Service Selection
2. Product Development
3. Techniques for Product Design
4. Time-Based Competition
5. Defining the Product
6. Documents for Production
7. Service Design

LEARNING OUTCOMES
At the end of the lesson, student should be able to:
1. Identify or define product life cycle, product development team,
manufacturability and value engineering, robust design, time-
based competition, modular design, computer-aided design,
value analysis, group technology and configuration management.
2. Explain alliances, concurrent engineering, product-by-value
analysis and product documentation

GOODS AND SERVICES SELECTION

Product decisions are those that must be made regarding the product or service
that a firm wants to market. The decisions cover a wide range of product aspects, such as
quality, design, and features. A successful product strategy connects product decisions to
investment, market share, and the product life cycle, as well as defining the breadth of
the product range. The objective of the product decision is to develop and implement a
product strategy that meets the demands of the marketplace with a competitive
advantage. As one of the 10 decisions of OM, product strategy may focus on developing
a competitive advantage via differentiation, low cost, rapid response or a combination of
these.

Selection of goods and services, which is choosing the good or service to provide
customers or clients, is related to product decision. For instance, modern protective
industry or security industry specialize in various types of clients and various type of
security services. Personnel-based services may be divided into seven categories: security
guard services, central station services, private investigation services, armored car
services, consultant and other services, electronic security equipment and systems and
mechanical security hardware.

Product decisions are fundamental to an organization’s strategy and have major

implications throughout the operations functions.

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Generation of New Product Opportunities

Product selection and design take place on a continuing basis because so many
new product opportunities exist. Five factors influencing market opportunities are:
1. Economic change, which brings increasing levels of affluence in the long run but
economic cycles and price changes in the short run. In the long run, for instance,
more and more people can afford automobiles, but in the short run, a recession
may weaken the demand for automobiles.
2. Sociological and demographic change, which may appear in such factors as
decreasing family size. This trend alters the size preference for homes,
apartments and automobiles.
3. Technological change, which makes possible everything from home computers
to artificial hearts.
4. Political/legal change, which brings about new trade agreements, tariffs and
government contract requirements.
5. Other changes, which may be brought about through market practice,
professional standards, suppliers and distributors.

Operations managers must be aware of these factors and be able to anticipate

changes in product opportunities, the products themselves, product volume and product
mix. The OM in Action box, “Stryker’s Product ideas Come from Its Customers,” discusses
how Stryker maintains its flow of new ideas.

Product Life Cycles

Product are born. They live and they die. They are cast aside by a changing society.
It may be helpful to think of a product’s life as divided into four phases. These phases –
introduction, growth, maturity and decline – are illustrated for several products in Figure
3.1. That figure also reveals the relative position of four products.

FIGURE 3.1. Products in Various Stages of Life Cycle

Source: http://productleaders.org/posts/what-is-a-product-life-cycle-curve-its-stages/

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 Product life cycles may be a matter of a few hours (a newspaper), months
(seasonal fashions and personal computers, years (Betamax video recorders), or decades
(Volkswagen Beetle). Regardless of the length of the cycle, the task for the operations
manager is the same: to design a system that helps introduce new products successfully.
If the operations function cannot perform effectively at this stage, the firm may be
saddled with losers – products that cannot be produced efficiently and perhaps not at all.

Strategies Based on Life Cycles

Just as operation managers must be prepared to develop new products, they must
also be prepared to develop strategies for new and existing products. Periodic
examination of products is appropriate because strategies change as products moves
through their life cycle. Successful product strategies require determining the best
strategy for each product based on its position in its life cycle. A firm, therefore, identifies
products or families of products and their position in the life cycle. Let us review some
strategy options as products move through their life cycles.

Introductory Phase. Because products in the introductory phase are still being
“fine-tuned” for the market, as are their production techniques, they may warrant
unusual expenditure for research, product development, process modification and
enhancement and supplier development. For example, when cellular phones were first
introduced, the features desired by the public were still being determined. At the same
time, operations managers were still groping for the best manufacturing techniques.

Growth Phase. In the growth phase, product has begun to stabilize, and effective
forecasting of capacity requirements is necessary. Adding capacity or enhancing existing
capacity to accommodate the increase in product demand may be necessary.

Maturity Phase. By the time a product is mature, competitors are established. So

high-volume, innovative production may be appropriate. Improved cost control,
reduction in options and a paring down of the product line may be effective or necessary
for profitability and market share.

Decline Phase. Management may need to be ruthless with those products whose
life cycle is at end. Dying products are typically poor products in which to invest resources
and managerial talent. Unless dying products make some unique contribution to the
firm’s reputation or its product line or can be sold with an unusually high contribution,
their production should be terminated.

Product-by-Value Analysis

The effective operations manager selects items that show the greatest promise.
This is the Pareto principle (i.e., focus on the critical few, not the trivial many) applied to
product mix: Resources are to be invested in the critical few and not the trivial many.
Product-by-value analysis lists products in descending order of their individual dollar
contribution to the firm. It also lists the total annual dollar contribution of the product.
Low contribution on a per-unit basis by a particular product may look substantially
different if it represents a large portion of the company’s sales.

A product-by-value report allows management to evaluate possible strategies for

each product. These might include increasing cash flow (for example, increasing
contribution by raising selling price or lowering cost), increasing market penetration

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(improving quality and/or reducing cost or price), or reducing costs (improving the
production process). The report may also tell management which product offerings
should be eliminated and which fail to justify further investment in research and
development or capital equipment. The report focuses management’s attention on the
strategic direction for each product.

Figure 3.2 shows the four life cycle stages and the relationship of product sales,
cost, and profit over the life cycle of a product. Note that typically a firm has a negative
cash flow while it develops a product. When the product is successful, those losses may
be recovered. Eventually, the successful product may yield a profit prior to its decline.
However, the profit is fleeting.

FIGURE 3.2. Product Life Cycle, Sales, Cost and Profit

Source:
https://mobacommunity.com/modules/boonex/blogs/blogs.php?action=show_member_post&
postUri=From-start-to-end-the-life-of-a-product&skin=alt

PRODUCT DEVELOPMENT

Product Development System

An effective product strategy links products decisions with cash flow, market
dynamics, product life cycle, and the organization’s capabilities. A firm must have the cash
for product development, understand the changes constantly taking place in the market
place, and have the necessary talents and resources available. The product development
system may well determine not only the product success but also the firm’s future. Figure
3.3 shows the stages of product development. In this system, product options go through
a series of steps, starting with ideas that may come from either internal or external
sources and ending with the evaluation of new products.

Two tools that are particularly helpful in the early stages of product development
are creativity and identifying customer wants. We can address the former via creative,
open organizations and brainstorming and the second with quality function development.

Brainstorming is a technique in which a diverse group of people share, without

criticism, ideas on a particular topic. The goal in this application is to generate an open
discussion that will yield creative ideas about people products and product
improvements.
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FIGURE 3.3 Product Development Stages
Source: https://www.chegg.com/flashcards/chapter-5-product-development-af7bbe8f-14c7-
4821-b90b-e8e010a15707/deck

*** Product concepts are developed from a variety of sources, both external and internal
to the firm. Concepts that survive the product-idea stage progress through various stages,
with nearly constant review in a highly participative environment to minimize failure.

Quality function deployment (QFD) refers to both determining what will satisfy
the customer and translating those customer desires into the target design. The idea is to
capture a rich understanding of customer wants and to identify alternative process
solutions. This information is then integrated into the evolving product design. QFD is
used early in the design process to help determine what will satisfy the customer and
where to deploy quality efforts.

TECHNIQUES FOR PRODUCT DESIGN

In addition to developing and effective system and organization structure for

product development, several techniques are important to the design of a product. We
will now review five of these:

Robust Design. It is a method, also called the Taguchi Method, pioneered by Dr.
Genichi Taguchi, greatly improves engineering productivity. It is defined as reducing
variation in various product characteristics. In other words, making the product or process
insensitive to variation. This variation (sometimes called noise) can come from a variety
factors. For example, an old Toyota Hilux could be characterized as a robust product as it
will work day & night, even though exposed to dust, mud, wear & tear – even demolition.

Modular Design. A modular design is an approach for product designing which is

used to produce a complete product by integrating or combining smaller parts that are
independent of each other. With the modular design approach, a complex product (for
example, a car) can be broken down or divided into smaller and simpler components that
are independently designed and manufactured. Each of these components is then
integrated (or assembled) to form the final product. It offers flexibility to both production

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and marketing. Modularity is often beneficial to the manufacturing department since it
simplifies product development, production, and future revisions. Furthermore,
marketing may favor modularity since it allows consumers to customize their experiences
by allowing them to mix and match according to their preferences, adding flexibility to
the ways customers can be satisfied.

Computer-Aided Design (CAD). It is the use of computers to interactively design

and document products. Increasingly, manufactures products are being developed
through CAD, which greatly enhances the speed and integrity of product design.

When CAD is used, a design engineer starts by developing a rough sketch or,
conceivably, just an idea. The designer then uses a graphic display as a drafting board to
construct the geometry of a design. As a geometric definition is completed, a
sophisticated CAD system allows the designer to determine various kinds of engineering
data, such as strength or heat transfer. CAD also allows the designer to ensure that parts
fit together so there will be no interferences when parts are subsequently assembled.
Thus, if the designer is sketching the fender for an automobile, the brackets and related
panels are changed as the fender is changed. Analysis of both existing and new designs
can be done expediently and economically.

Once the designer is satisfied with the design, it becomes part of a drawing
database on electric media. Through a library of symbols, the CAD system helps to ensure
adherence to drafting standards. Additionally, because CAD data are available for
subsequent use by others, tool-design personnel and programmers of numerically
controlled machines find CAD technology helpful. They can now proceed to design tooling
and programs with confidence that they have the latest accurate engineering data and
drawings.

Value Analysis. Although value engineering focuses on preproduction design

improvement, value analysis, a related technique, takes place during the production
process, when it is clear that a new product is a success. Value analysis seeks
improvements that lead to either a better product or a product made more economically.
The techniques and advantages for value analysis are the same as for value engineering,
although minor changes in implementation may be necessary because value analysis is
taking place while the product is being produced.

Environmentally Friendly Designs. One of the operations manager’s most

environmentally sound activities is to enhance productivity. Planet earth is finite;
managers who squeeze more out of its resources are its heroes. Good operations
managers can drive down costs while preserving those resources. DuPont, for example
designs its polyester film stronger and thinner so it uses less material and costs less to
make. Also, because the film performs better, customers are willing to pay more for it.

2 Ways to Achieve Environmentally Friendly Designs

• Environmental Teams. One way to accomplish programs like these is to assign an

environmental charge to the value engineering ad value analysis teams. With
employees from different functional areas working together, a wider range of
environmental issues can be addressed. These teams should consider two issues.
First, they should view the impact of product design from a “systems” perspective,
that is, view the product in terms of its impact on the entire economy. For example,
between Styrofoam or paper containers, which one is really “best” and by what
criteria? We may know which is most economical for the firm, but is that one also
most economical for society? Second, the teams should consider the life cycle of the
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 product, from raw material, to installation, to use, to disposal. The goal is to reduce
the environmental impact of a product throughout its life. The benefits of such a
strategy include:

1. Developing safe and more environmentally sound products.

2. Minimizing waste of raw materials and energy.
3. Differentiating products from the competition.
4. Reducing environmental liabilities.
5. Increasing cost-effectiveness of complying with environmental
regulations.
6. Being recognized as a good corporate citizen.

• Green Manufacturing. The concept of green manufacturing – this is, making

environmentally sound products through efficient processes – can be good business.
Companies can show their sensitivity to green manufacturing in product and process
design in several ways.

1. Make products recyclable. Germany, a leader in the “green movement,”

has passed a packaging ordinance requiring beer brewers to use refillable
bottles.
2. Use recycled materials. Scotch-Brite soap pads at 3M are designed to use
recycled plastics, as are the park benches and other products at Plastic
Recycling Corporation.
3. Use less harmful ingredients. Standard Register, like most of the printing
industry, has replaced environmentally dangerous inks with soy-based inks
that reduce air and water pollution.
4. Use lighter components. The auto industry continues to expand the use of
aluminum and plastic components to reduce weight. This change in
material, while expensive, makes autos more environmentally friendly by
improving mileage.
5. Use less energy. While the auto industry is redesigning autos to improve
mileage. General Electric is redesigning a new generation of refrigerators
that require substantially less electricity during their lifetime. DuPont is so
good at energy efficiency that it has turned its expertise into a consulting
business.
6. Use less material. Most companies waste material – in the plant and in the
packaging. An employee team at a Sony semiconductor plant achieved a
50% reduction in the amount of chemicals used in the silicon wafer etching
process. This and similar successes reduce both production costs and
environmental concerns. To conserve packaging, Boston’s Park Pizza Hotel
eliminated bars of soap and bottles of shampoo by installing pump
dispensers in its bathrooms. This saved the need for 1 million plastic
containers a year.

Green manufacturing is appreciated by the public, and it can save money,

materials and the environment we live in. These are the kind of win-win situations that
operations managers seek.

TIME-BASED COMPETTION

It is a competitive strategy that emphasizes on time by finding the fastest ways in

proposing, developing, manufacturing, marketing and delivering the company’s product.

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For instance, as product life cycles shorten, the need for faster product development
increases. Additionally, as technological sophistication of new products increases, so do
the expense and risk. Thus, operations managers who know the art of product
development continually outperform slower product developers. They immediately gain
a competitive edge.
Time-based competition appears in two different forms: fast to produce and fast
to market. Often, the first company into production may have its products adopted for
use in a variety of applications that will generate sales of years. It may become the
“standard.” Consequently, there is often more concern with getting the product to
market than with optimum product design or process efficiency. Even so, rapid
introduction to the market may be good management because until competition begins
to introduce copies or improved versions, the product can sometimes be priced high
enough to justify somewhat inefficient production design and methods. For example,
Motorola’s innovative pocket-size cellular telephone was 50% smaller than any
competitor’s and sold for twice the price.

Because time-based competition is so important, instead of developing new

products from scratch a number of other strategies can be used. Figure 3.4 shows a
continuum that goes from new, internally developed products (on the lower left) to
“alliances.” That continuum includes enhancements and migrations. These two use the
organization’s existing product strengths for innovation and therefore are typically faster,
while at the same time being less risky than developing entirely new products.
Enhancements may be modest changes in color, size, weight, or features, such as are
taking place in cellular phones, or even changes in commercial aircraft. Boeing’s approach
to enhancements of the 737 is described on the OM in Action box. However, Boeing also
uses its engineering prowess to migrate from one model to the next, as it has done when
moving from the 757 to the 767. These approaches allow Boeing to speed development
while reducing both cost and risk for new designs.

FIGURE 3.4

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 The product development strategies on the lower left of Figure 3.5 are internal
development strategies, while the three approaches we now introduce can be thought of
as external development strategies. Firms use both. The external strategies are:

Purchasing Technology by Acquiring Firm. Microsoft and Cisco Systems are

examples of companies on the cutting edge of technology that often speed development
by acquiring entrepreneurial firms that have already developed the technology that fits
their mission. The issue then becomes fitting the purchased organization, its technology,
and its product lines into the buying firm, rather than a product development issue.

Establishing Joint Ventures. Joint ventures are combined ownership, usually

between just two firms, to form a new entity. Ownership can be fifty-fifty or one owner
can assume a larger portion to ensure tighter control. Joint ventures are often appropriate
to exploit specific product opportunities that may not be central to the firm’s mission.
Such ventures are more likely to work when the risks are known and can be equitably
shared.

Developing Alliances. Alliances are cooperative agreements that allow firms to

remain independent, but use complementing strengths to pursue strategies consistent
with their individual missions. When new products are central to the mission, but
substantial resources are required and sizeable risk is present, then alliances may be a
good strategy for product development. Alliances are particularly beneficial when the
products to be developed also have technologies that are in ferment. Additionally, if the
boundaries between firms will be difficult to specify, alliances may be the best strategy.
For example, Microsoft is pursuing a number of alliances with a variety of companies to
deal with the convergence of computing, the Internet, and television broadcasting.
Alliances in this case are appropriate because the technological unknowns, capital
demands, and risks are significant. Similarly, three firms, DaimlerChrysler, Ford Motor,
and Ballard Power Systems, have formed an alliance to develop “green” cars powered by
fuel cells by the year 2004. However, alliances are more difficult to achieve and maintain
than joint ventures because of the ambiguities associated with them. It may be helpful to
think of an alliance as an incomplete contract between the firms. The firms remain
separate.
Enhancement, migration, acquisitions, joint ventures and alliances are all
strategies for speeding product development. Moreover, they typically reduce the risk
associated with product development while enhancing the human and capital resources
available.

DEFINING THE PRODUCT

Once new goods or services are selected for introduction, they must be defined.
First, a good or service is defined in terms of its functions – that is, what a product does.
The product is then designed: That is, the firm determines how the functions are to be
achieved. Management typically has a variety of options as to how a product should
achieve its functional purpose. For instance, when an alarm clock is produced, aspects of
design such as the color, size or location of buttons may make substantially differences in
ease of manufacture, quality, and market acceptance.

Rigorous specifications of a product are necessary to assure efficient production.

Equipment, layout, and human resources cannot be determined until the product is
defined, designed, and documented. Therefore, every organization needs documents to

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define its products. A written specification is typical. Indeed, written specifications or standard
grades exist and provide the definition for many products.

Make-or-Buy Decisions

For many components of products, firms have the option of producing the
components themselves or purchasing them from outside sources. Choosing between
these options is known as the make-or-buy decisions. The make-or-buy decision
distinguishes between what the firm wants to produce and what it wants to purchase.
Because of variations in quality, cost, and delivery schedules, the make-or-buy decision is
critical to product definition. May items can be purchased as a “standard item” produced
by someone else. Such a standard item does not require its own bill of material or
engineering drawing because its specification as a standard item is adequate. Examples
are the standard bolts listed on the bill of material shown in Figure 3.10, for which there
will be SAE (Society of Automotive Engineers) specifications. Therefore, they typically is
no need for the firm to duplicate this specification in another document.

DOCUMENTS FOR PRODUCTION

Once a product is selected and designed, its production is assisted by a variety of

documents. We will briefly review some of these.

An assembly drawing simply shows an exploded view of the product. An assembly

drawing is usually a three-dimensional drawing, known as an isometric drawing

The assembly chart shows in schematic form how a product is assembled.

Manufactured components, purchased components, or a combination of both may be
shown on an assembly chart. The assembly chart identifies the point of production at
which components flow into subassemblies and ultimately into a final product.

The route sheet lists the operations (including assembly and inspection) necessary
to produce the component with the material specified in the bill of material. The route
sheet for an item will have one entry for each operation to be performed on the item.
When route sheets include specific methods of operation and labor standards, they are
often known as process sheets.

The work order is an instruction to make a given quantity of a particular item,

usually to a given schedule. The ticket that a waiter writes in your favorite restaurant is a
work order. In a hospital or factory, the work order is a more formal document that
provides authorization to draw various pharmaceuticals or items from inventory, to
perform various functions, and to assign personnel to perform those functions.

Engineering change notices (ECNs) change some aspect of the product’s

definition or documentation, such an engineering drawing or a bill of material. For a
complex product that has a long manufacturing cycle, such as Boeing 777, the changes
may be so numerous that no two 777s are built exactly alike – which is indeed the case.
Such dynamic design change has fostered the development of a discipline known as
configuration management, which is concerned with product identification, control and
documentation. Configuration management is the system by which a product’s planned
and changing configurations are accurately identified and for which control and
accountability of change are maintained.

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SERVICE DESIGN

Much of our discussion so far has focused on what we can call tangible products,
that is, goods. On the other side of the product coin are, of course, service. Service
industries include banking, finance, insurance, transportation, security and
communications. The products offered by service firms range from a medical procedure
that leaves only the tiniest scar after an appendectomy, to a shampoo and cut at a hair
salon, to a great movie.

Designing services is challenging because they often have unique characteristics.

One reason productivity improvements in services are so low is because both the design
and delivery of service products include customer interaction. When the customer
participates in the design process, the service supplier may have a menu of services from
which the customer selects options (see Figure 3.5 [a]). At this point, the customer may
even participate in the design of the service. Design specifications may take the form of
contract or narrative description with photos (such as for cosmetic surgery or a hairstyle).
Similarly, the customer may be involved in the delivery of a service (see Figure 3.5 [b]) or
in both design and delivery, a situation that maximizes the product-design challenge (see
Figure 3.5 [c]).

However, like goods, a large part of cost and quality of service is defined at the
design stage. Also, like goods, a number of techniques can both reduce costs and enhance
the product. One technique is to design the product so that customization is delayed as
late in the process possible. This is the way a hair salon operates: Although shampoo and
rinse are done in a standard way with lower-cost labor, the tint and styling (customizing)
are done last. It is also the way most restaurants operate: “How would you like that
cooked?” “Which dressing would you prefer with your salad?”

FIGURE 3.5. Customer Participation in the Design of Services

Source: https://slidetodoc.com/5-design-of-goods-and-services-power-point/

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 The second approach is to modularize the product so that customization takes the
form of changing modules. This strategy allows modules to be designed as “fixed,”
standard entities. The modular approach to product design has applications in both
manufacturing and service. Just as modular design allows you to buy a Harley-Davidson
motorcycle or a high-fidelity stereo with just the features you want, modular flexibility
also lets you buy meals, clothes, and insurance on a mix-and-match (modular) basis.
Similarly, investment portfolios are put together on a modular basis. Certainly college
curricula are another example of how the modular approach can be used to customize a
service (in this case, education).

A third approach to the design of services is to divide the service into small parts
and identify those parts that lend themselves to automation or reduced customer
interaction. For instance, by isolating check-cashing activity via ATM machines, banks
have been very effective at designing a product that both increases customer service and
reduces costs. Similarly, airlines are moving to ticketless service. Because airlines spend
$15 to $30 to produce a single ticket (including labor, printing, and travel agent’s
commission), ticketless systems save the industry a billion dollars a year. Reducing both
costs and lines at airports – and thereby increasing customer satisfaction – provides a
win-win “product” design.

Because of the high customer interaction in many service industries, a fourth

technique is to focus design on the so-called moment-of-truth. Jan Carlzon, former
president of Scandinavian Airways, believes that in the service industry there is a
moment-of-truth when the relationship between the provider and the customer is crucial.
At that moment, the customer’s satisfaction with the service is defined. The moment-of-
truth is the moment that exemplifies, enhances, or detracts from the customer’s
expectations. That moment may be as simple as a smile or having the checkout clerk focus
on you rather than talking over his shoulder to the clerk at the next counter. Moment-of-
truth can occur when you order at McDonald’s, get a haircut, or register for college
course. Figure 3.6 shows a moment-of-truth analysis for a computer company’s customer
service hotline. The operations manager’s task is to identify moments-of-truth and design
operations that meet or exceed the customer’s expectations.

FIGURE 3.6. Moment-of-Truth: The Customer Contacts the Service Hotline at a

Computer Company
Source: https://slideplayer.com/slide/6996191/

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DOCUMENTS FOR SERVICES

Because of high customer interaction of most services, the documents for moving
the product to production are different from those used in goods-producing operations.
The documentation for a service will often take the form of explicit job interactions that
specify what is to happen at the moment-of-truth. For instance, regardless of how good
a bank’s products may be in terms of checking, savings, trusts, loans, mortgages and so
forth, if the moment-of-truth is not done well, the product may be poorly received.

Evaluate Whether to Make or Buy Lid.

Direction. The class will be divided into two groups, one for “making decision” and the
other for “buying decision”.

Bento Lunch Box Company (BLBC) produces a variety of personal lunch boxes. Thermo
Lunch Box, its most insulated lunch box, maintains the temperature of the food inside for
6 hours. BLBC has created a new premium material lid for the Thermo Lunch Box. The cost
to produce the new lid is $3.00:

Direct Material $1.00

Direct Labor .70
Fixed Cost .80
Variable Cost .50
Total Unit Cost $3.00

Stainless Steel approached Bento and offered to supply the 150,000 lids required for their
current manufacturing of their Thermo Lunch Box at $2.50 each. Is this a good deal?
Should Bento purchase the lids from Stainless Steel rather than manufacture them?
However, more information about the relevant costs is necessary to determine whether
the offer by Stainless Steel is the better offer. Remember that all of the variable costs of
making the lid exist only if the lid is manufactured by Bento; hence, the variable costs
(direct materials, direct labor, and variable overhead) are all relevant costs that will differ
between the alternatives. What about the fixed costs? Assume that $0.40 of the $0.80 in
fixed costs per unit of the lid is linked with interest and insurance expenditures and hence
avoidable if the lid is purchased externally rather than produced internally.

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 CHAPTER 4. MANAGING QUALITY

TOPICS
1. Defining Quality
2. Quality and Strategy
3. International Quality Standards
4. Total Quality Management
5. Tools of TQM
6. The Role of Inspection
7. TQM in Services

LEARNING OUTCOMES
At the end of the lesson, student should be able to:
1. Identify or define quality, Malcolm Bridge National Quality Award,
Deming, Juran and Crosby, Taguchi concepts

2. Describe or explain why quality is important, total quality

management (TQM), Pareto Charts, Process Charts, Quality
Robust Products and Inspection

DEFINING QUALITY

Total quality management systems are driven by identifying and satisfying

customer needs. Total quality management takes care of the customer. Consequently, we
accept the definition of quality as adopted by the American Society for Quality: “The
totality of features and characteristics of a product or service that bears on its ability to
satisfy stated or implied needs.

However, others believe that definitions of quality fall into several categories.
Some definitions are user-based. They propose that quality “lies in the eyes of the
beholder.” Marketing people like this approach and so do customers. To them, higher
quality means better performance, nicer features and other (sometimes costly)
improvements. To production managers, quality is manufacturing-based. They believe
that quality means conforming to standards and “making it right the first time.” Yet a third
approach is product-based, which views quality as a precise and measurable variable. In
this view, for example, really good ice cream has high butterfat levels.

This text develops approaches and techniques to address all three categories of
quality. The characteristics that connote quality must first be identified through research
(a user-based approach to quality). These characteristics are then translated into specific
product attributes (a product-based approach to quality). Then the manufacturing
process is organized to ensure that products are made precisely to specifications (a
manufacturing-based approach to quality). A process that ignores any one of these steps
will not result in a quality product.

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Implications of Quality

In addition to being a critical element in operations, quality has other implications.

Here are three other reasons why quality is important:

1. Company reputation. An organization can expect its reputation for quality – be it

good or bad – to follow it. Quality will show up in perceptions about the firm’s
new products, employment practices, and supplier relations. Self-promotion is not
a substitute for quality products.
2. Product liability. The courts increasingly hold organizations that design, produce,
or distribute faulty products or services liable for damages or injuries resulting
from their use. The Consumer Product Safety Act of 1972 sets and enforces
product standards by banning products that do not reach those standards. Impure
foods that cause illness, nightgowns that burn, or auto fuel tanks that explode
upon impact can all lead to huge legal expenses, large settlements or losses, and
terrible publicity.
3. Global implications. In this technological age, quality is an international, as well as
OM, concern. For both a company and a country to compete effectively in the
global economy, products must meet global quality, design and price
expectations. As the Yugoslavian Yugo demonstrated, inferior products harm a
firm’s profitability and a nation’s balance of payments.

QUALITY AND STARTEGY

As Motorola and many other firms have found, quality is a wonderful tonic for
improving operations. Managing quality helps build successful strategies of
differentiation, low cost, and response. For instance defining customer quality
expectations has helped Bose Corp. successfully differentiate its stereo speakers as
among the best in the world. Nucor has learned to produce quality steel at low cost by
developing efficient processes that produce consistent quality. And Dell Computers
rapidly responds to customer orders because quality systems, with little rework, have
allowed it to achieve rapid throughput in its plants. Indeed, quality may be the critical
success factor for these firms just as it is at Motorola.

As Figure 4.1 suggests, improvements in quality help firms increase sales and
reduce costs, both of which can increase profitability. Increases in sales often occur as
firms speed response, lower selling prices as a result of economies of scale (cost
reductions that occur when companies increase production), and improve their
reputation for quality products. Similarly, improved quality allows costs to drop as firms
increase productivity and lower rework, scrap, and warranty costs.

15
 One analysis of air conditioner manufacturers has documented that quality and
productivity are positively related. In that study, companies with the highest quality were
five times as productive (as measured by units produced per labor-hour) as companies
with the poorest quality. Indeed, when the implications of an organization’s long-term
costs and the potential for increased sales are considered, total costs may well be at a
minimum when 100% of the goods or services are perfect and defect-free.

Quality, or the lack of quality, impacts the entire organization from supplier to
customer and from product design to maintenance. However, perhaps more importantly,
building an organization that can achieve quality also affects the entire organization – and
it is a demanding task. Figure 4.2 lays out the flow of activities for an organization to use
to achieve total quality management (TQM). A successful set of activities begins with an
organizational environment that fosters quality, followed by an understanding the
principles of quality, and then an effort to engage employees in the necessary activities
to implement quality. When these things are done well, the organization typically satisfies
its customers and obtains a competitive advantage. The ultimate goal is to win customers.
Because quality causes so many other good things to happen, it is a great place to start.

16
Malcolm Baldrige National Quality Award

The global implications of quality are so important that the U.S. has established
the Malcolm Bridge National Quality Award for quality achievement. The award is named
for former Secretary of Commerce Malcolm Baldrige. Winners include such firms as
Motorola, Milliken, Xerox, Federal Express, Ritz-Carlton Hotels, AT & T, Cadillac and Texas
Instruments.

The Japanese have a similar award, the Deming Prize, named after an American,
Dr. W. Edwards Deming.

Cost of Quality

Four major categories of costs are associated with quality. They are:
• Prevention costs – costs associated with reducing the potential for
defective parts or services (e.g., training, quality improvement programs)
• Appraisal costs – costs related to evaluating products, processes, parts and
services (e.g., testing, labs, and inspectors).
• Internal failure – costs that result from production of defective parts of
services before delivery to customers (e.g., rework, scrap, downtime).
• External costs – costs that occur after delivery of defective parts or services
(e.g., rework, returned goods, liabilities, lost goodwill, costs to society).

The first three costs above can be reasonably estimated, but external costs are
very hard to quantify. This leads to the belief by many TQM experts that the cost of poor
quality is consistently underestimated. Observers of quality management, including Philip
Crosby and Genichi Taguchi, believe that, on balance, the cost of quality products is only
a fraction of the benefits. They think the real losers are organizations that fail to work
aggressively at TQM. For instance, Philip Crosby believes that quality is free. “It is not a
gift, but it is free. What costs money are the unquality things – all the actions that involve
not doing it right the first time.”

INTERNATIONAL QUALITY STANDARDS

Quality is so important globally that the world is uniting around a single standard.
That standard in ISO 9000. ISO 9000 is the only quality standard with international
recognition. In 1987, 91 member nations (including the U.S.) published a series of five
quality assurance standards, known collectively as ISO 9000. The U.S., through the
American National Standards Institute, has adopted the ISO 9000 series verbatim as the
ANSI/ASQC Q90 series. The focus of the standards is to establish quality management
procedures, through detailed documentation, work instructions and recordkeeping.
These procedures, we should note, say nothing about the actual quality of the product –
they deal entirely with standards to be followed. Because it is not oriented toward
leadership or the product, ISO 9000 is not without critics. Philip Crosby, for example,
states: “It is a delusion that sound management can be replaced by an information
format. It is like putting a Bible in every hotel room with the thought that occupants will
act according to its content.”

ISO 1400. The continuing internalization of quality is evident with the

development of ISO 14000. ISO 14000 is a new environmental management standard that
contains five core elements: environmental management, auditing, performance

17
evaluation, labeling and life-cycle assessment. The new standard could have several
advantages:

• Positive public image and reduced exposure to liability.

• Good systematic approach to pollution prevention through the minimization of
ecological impact of products and activities.
• Compliance with regulatory requirements and opportunities for competitive
advantage.
• Reduction in need for multiple audits.

TOTAL QUALITY MANAGEMENT

Total quality management (TQM) refers to quality emphasis that encompasses the
entire organization, from supplier to customer. TQM stresses a commitment by
management to have a continuing companywide drive toward excellence in all aspects of
products and services that are important to the customer.

TQM is important because quality decisions influence each of the 10 decisions

made by operations managers. Each of those 10 decisions deals with some aspect of
identifying and meeting customer expectations. Meeting those expectations requires an
emphasis on TQM if a firm is to compete as a leader in world markets.

Quality expert W. Edwards Deming used 14 points (see Table 4.1) to indicate how
he implemented TQM. We develop these into six concepts for an effective TQM program:
1) continuous improvement, 2) employee improvement, 3) benchmarking, 4) just-in-time,
5) Taguchi concepts and 6) knowledge of TQM tools.

TABLE 4.1. Demoing’s 14 Point for Implementing Quality Improvement

1. Create consistency of purpose.
2. Lead to promote change.
3. Build quality into the product; stop depending on inspections to catch problems.
4. Build long-term relationships based on performance instead of awarding business
on the basis of price.
5. Continuously improve product, quality, and service.
6. Start raining.
7. Emphasize leadership.
8. Drive out fear.
9. Break down barriers between departments.
10. Stop haranguing workers.
11. Support, help, and improve.
12. Remove barriers to pride in work.
13. Institute a vigorous program of education and self-improvement.
14. Put everybody in the company to work on the transformation.
Source: Deming revised his 14 points a number of times over the years. See W. Edward Deming,
“Philosophy Continues to Flourish,” APICS – The Performance Advantage 1, no 4 (October
1991):20

Continuous improvement. Total quality management requires a never-ending

process of continuous improvement that covers people, equipment, suppliers, materials
and procedures. The basis of the philosophy is that every aspect of an operation can be
improved. The goal is perfection, which is never achieved but always sought.

18
 Walter Shewhart, a pioneer in quality management, developed a circular model
known as PDCA (plan, do, check, act) as his version of continuous improvement. Deeming
later took this concept to Japan during his work there after World War II. The PDCA cycle
is shown in Figure 4.3 as circle to stress the continuous nature of the improvement
process.

FIGURE 4.3

The Japanese use the word kaizen to describe this ongoing process of unending
improvement – the setting and achieving of ever-higher goals. In the U.S., TQM, zero
defects and six sigma are also used to describe continuous improvement efforts.
Whatever word or phrase is used, operations managers are key players in building a work
culture that endorses continuous improvement.

Employee empowerment. It means involving employees in every step of the

production process. Consistently, business literature suggests that some 85% of quality
problems have to with materials and processes, not with employee performance.
Therefore, the task is to design equipment and processes that produce the desired
quality. This is best done with a higher degree involvement hose who understand the
shortcomings of the system. Those dealing with the system on a daily basis understand it better
than anyone else. One study indicated that TQM programs that delegate responsibility for quality
to shop-floor employees tend to be twice as likely to succeed as those implemented with “top-
down” directives.

When nonconformance occurs, the worker is seldom wrong. Either the product was
designed wrong, the system that makes the product was designed wrong, or the employee was
improperly trained. Although the employee may be able to help solve the problem, the employee
rarely causes it.

Techniques for building employee empowerment include 1) building communication

networks that include employees; 2) developing open, supportive supervisors, 3) moving
responsibility from both managers and staff to production employees, 4) building high morale
organizations; and 5) creating formal organization structures as teams and quality circles.

Teams can be built to address a variety of issues. One popular focus of teams is quality.
Such teams are often known as quality circles. A quality circles is a group of employees who meet
regularly to solve work-related problems. The members receive training in group planning,
problem solving and statistical quality control. They generally meet once a week (usually after
work but sometimes on company time). Although members are not rewarded financially, they do
receive recognition from the firm. A specially trained team member, called facilitator, usually

19
helps train the members and keeps the meetings running smoothly. Teams with a quality focus
have proven to be a cost-effective way to increase as well as quality.

Benchmarking. It is another ingredient in an organization’s TQM program.

Benchmarking involves selecting a demonstrated standard of products, services, costs or
practices that represent the very best performance for processes or activities very similar
to your own. The idea is to develop a target at which to shoot and then to develop a
standard or benchmark against which to compare your performance. The steps for
developing benchmarks are:

• Determine what to benchmark.

• Form a benchmark team.
• Identify benchmarking partners.
• Collect and analyze benchmarking information.
• Take action to match or exceed the benchmark.

In the ideal situation, you find one or more similar organizations that are leaders
in the particular areas you want to study. Then you compare yourself (benchmark
yourself) against them. The company need not be in your industry. Indeed, to establish
word-class standards, it may be the best to look outside of your industry. If one industry
has learned how to compete via rapid product development while yours has not, it does
no good to study your industry. As discussed in the OM in Action box, “L.L. Bean’s
Reputation Makes It a Benchmark Favorites,” this is exactly what Xerox and Daimler
Chrysler did when they went to L.L. Bean for order-filling and warehousing benchmarks.
Benchmarks often take the form of “best practices “found in other firms. Table 3.2
illustrates best practices for resolving customer complaints.

Benchmarks can and should be established in a variety of areas. Total quality

management requires no less.

TABLE 4.2. Best Practices for Resolving Customer Complaints

• Make it easy for clients to complain: It is free market research.
• Respond quickly to complaints: It adds customers and loyalty
• Resolve complaints on the first contact: It reduces cost.
• Use computers to manage complaints: Discover trends, share them and align
your services.
• Recruit the best for customer service jobs: It should be part of formal training
and career advancement.
Source: Canadian Government Guide on Complaint Mechanism

Just-in-Time (JIT). The philosophy behind just-in-time is one of continuing

improvement and enforced problem solving. JIT systems are designed to produce or
deliver goods just as they are needed. JIT is related to quality in three ways.

• JIT cuts the costs of quality. This occurs because scrap, rework, inventory
investment, and damage costs are directly related to inventory on hand.
Because there is less inventory on hand with JIT, costs are lower. Additionally,
inventory hides bad quality whereas JIT immediately exposes bad quality.
• JIT improves quality. As JIT shrinks lead time, it keeps evidence of errors fresh
and limits the number of potential sources of error. JIT creates, in effect, an
early warning system for quality problems, both with the firm and with
vendors.

20
 • Better quality means less inventory and a better, easier-to-employ JIT system.
Often the purpose of keeping inventory is to protect against poor production
performance resulting from unreliable quality. If consistent quality exists, JIT
allows firms to reduce all the costs associated with inventory.

Taguchi Concepts. Most quality problems are the result of poor product and
process design. Genichi Taguchi has provided us with three concepts aimed at improving
both product and process quality. They are: quality robustness, quality loss function, and
target-oriented quality.

Quality robust products are products that can be produced uniformly and
consistently in adverse manufacturing and environmental conditions. Taguchi’s idea is to
remove the effects of adverse conditions instead of removing the causes. Taguchi
suggests that removing the effects is often cheaper than removing the causes and more
effective in producing a robust product. In this way, small variations in materials and
process do not destroy product quality.

A quality loss function (QLF) identifies all costs connected with poor quality and
shows how these costs increase as the product moves away from being exactly what the
customer wants. These costs include not only customer dissatisfaction but also warranty
and service costs; internal inspection, repair, and scrap costs; and costs that can best be
described as costs to society. Notice that Figure 4.4 (a) shows the quality loss function as
a curve that increases at an increasing rate. It takes the general form of a simple quadratic
formula:

All the losses to society due to poor performances are included in the loss
function. The smaller the loss, the more desirable the product. The farther the product is
from the target value, the more severe the loss.

Taguchi observed that traditional conformance-oriented specifications (that is,

the product is good as long as it falls within the tolerance limits) are too simplistic. As
shown in Figure 4.4 (b), conformance-oriented quality accepts all products that fall within
the tolerance limits, producing more units farther from the target. Therefore, the loss
(cost) is higher in terms of customer satisfaction and benefits to society. Target-oriented
quality, on the other hand, strives to keep the product at the desired specification,
producing more (and better) units near the target. Target-oriented quality is a philosophy
of continuous improvement to bring the product exactly on target.

FIGURE 4.4. (a) Quality Loss Function; (b) Distribution of Products Produced
Source: https://www.ijicc.net/images/Vol_14/Iss_7/14708_Khalaf_2020_E_R.pdf

***Taguchi aims for the target, because products produced near the upper and lower acceptable
specifications result in higher quality loss function.

21
 Knowledge of TQM Tools. To empower employees and implement TQM as a
continuing effort, everyone in the organization must be trained in the techniques of TQM.
In the following section, we focus on some of the diverse and expanding tools that are
used in the TQM crusade.

TOOLS OF TQM

Seven tools that are particularly helpful in the TQM effort are shown in Figure 3.5.
We will now introduce these tools.

FIGURE 4.5. Seven Tools of TQM

Source: https://studylib.net/doc/5442416/qualitytools

Check Sheets. A check sheet is any kind of form that is designed for recording data.
In many cases, the recording is done so the patterns are easily seen while the data are
being taken (see Figure 3.5a). Check sheets help analysts find the facts or patterns that
may aid subsequent analysis. An example might be a drawing that shows a tally of the
areas where defeats are occurring or a check sheet showing the type of customer
complaints.

Scatter Diagrams. It shows the relationship between two measurements. An

example is the positive relationship between length of a service call and the number of
trips the repair-person makes back to the truck for parts (as discussed in the OM in Action
box, “TQM Improves Copier Service”. Another example might be a plot of productivity

22
and absenteeism as shown in Figure 3.5b. If the two items are closely related, the data
points will form a tight band. If a random pattern results, the items are unrelated.

Cause-and-Effect Diagrams. Another tool for identifying quality issues and

inspection points is the cause-and-effect diagram, also known as an Ishikawa diagram or
a fish-bone chart. Figure 3.6 illustrates a chart (note the shape resembling the bones of a
fish) for an everyday quality control problem – a dissatisfied airline customer. Each “bone”
represents a possible source of error.

FIGURE 4.6. Fish-Bone Chart (or Cause-and –Effect Diagram) for Problems with Airline
Customer Service
Source: https://slideplayer.com/slide/2303815/

The operations manager starts with four categories: material,

machinery/equipment, manpower and methods. These four Ms are the “causes.” They
provide a good checklist for initial analysis. Individual causes associated with each
category are tied in as separate bones along that branch, often through a brainstorming
process. For example, the machinery branch in Figure 3.6 has problems caused by deicing
equipment, mechanical delays, and broken carousels. When a fish-bone chart is
systematically developed, possible quality problems and inspection points are
highlighted.

Pareto Charts. This a method of organizing errors, problems or defects to help

focus on problem-solving efforts. They are based on the work of Vilfredo Pareto, a
nineteenth-century economist. Joseph M. Juran popularized Pareto’s work when he
suggested that 80% of a firm’s problems are a result of only 20% of the causes.

Example 1 indicates that of the five types of defects identified, the vast majority
were of one type, scratches.

23
 Example 1. Custom Wine Glasses of Leadville, Colorado, has just collected the data from
75 defects from the day’s production. The boss decides to prepare a Pareto analysis of
the defects. The data provided are scratches, 54; porosity, 12; nicks, 4; contamination,
3; and miscellaneous, 2.

The Pareto chart shown indicates that 72% of the defects were the result of one cause
scratches. The majority of defects will be eliminated when this one cause is corrected.

Pareto analysis indicates which problems may yield the greatest payoff. Pacific Bel
discovered this when it tried to find a way to reduce damage to buried phone cable, the
number-one cause of phone outages. Pareto analysis showed that 41% of cable damage
was caused by construction work. Armed with this information. Pacific Bell was able to
devise a plan to reduce cable cuts by 24% in one year, saving $6million.

Flow Charts. It graphically present a process or system using annotated boxes and
interconnected lines. They are a simple, but great tool for trying to make sense of a
process or explain a process. Example 2 uses a flow chart to show the process in the
Packing and Shipping Department of a chicken processing plant.

Example 2. The WJC Chicken Processing in Little Rock, Arkansas, would like its new
employee to understand more about the packing and shipping process. They have
prepared the following chart to aid the new employee training program.

Quick
Packing Sealing
freeze Storage Shopping
station weighting
storage (60 4 to 6 hrs. dock
labeling
minutes)

24
 Histograms. It shows the range of values of a measurement and the frequency
with each value occurs (see Figure 3.5f). They show the most frequently occurring
readings as well as the variations in the measurements. Descriptive statistics, such as the
average and standard deviation, maybe calculated to describe the distribution. However,
the data should always be plotted so the shape of the distribution can be “seen.” A visual
presentation of the distribution may provide insight into the cause of the variation.

Statistical Process Control (SPC). It monitors standards, makes measurements, and takes
corrective action as a product or service is being produced. Samples of process outputs
are examined; if they are within acceptable limits, the process is permitted to continue.
If they fall outside certain specific ranges, the process is stopped and typically the
assignable cause located and removed.

Control Charts are graphic presentations of data over time that show upper and
lower limits for the process we want to control (see Figure 6.5g). Control charts are
constructed in such a way that new data can be quickly compared to past performance
data. We take samples of the process output and plot the average of these samples on a
chart that has the limits on it. The upper and lower limits in a control chart can be in units
of temperature, pressure, weighty, length, and so on.

Figure 4.7 shows the plot of percentages of a sample in a control chart. When the
average of the samples falls within the upper and lower control limits and o desirable
patterns is present, the process is said to be in control with only natural variation present.
Otherwise, the process is out of control or out of adjustment.

The supplement to this chapter details how control charts of different types are
developed. It also deals with the statistical foundation underlying the use of this
important tool.

FIGURE 4.7. Control Chart for Percentage of Free Throws Missed by the Orlando Magic
in Their First Nine Games of the New Season.
Source: https://slideplayer.com/slide/4924786/

THE ROLE OF INSPECTION

To make sure a system is producing at the expected quality level, control of the
process is needed. The best processes have little variation from the standard expected.
The operations manager’s task is to build such systems and to verify, often by inspection,

25
that they are performing to standard. The inspection can involve measurement, tasting,
touching, weighing, or testing of the product (sometimes even destroying it when doing
so). Its goal is to detect a bad process immediately. Inspection does not correct
deficiencies in the system or defects in the products; nor does it change a product or
increase its value. Inspection only finds deficiencies and defects, and it is expensive.

Inspection should be thought of as an audit. Audits do not ass value to the

product. However, operations managers, like financial managers, need audits, and they
need to know when and where to audit. So there are two basic issues relating to
inspection: 1) when to inspect and 2) where to inspect.

When and Where to Inspect

Deciding when and where to inspect depends on the type of process and the value
added at each stage. Inspection (audits) can take place at any of the following points:

1. At your supplier’s plant while the supplier is producing.

2. At your facility upon receipt of goods from your supplier.
3. Before costly or irreversible processes.
4. During the step-by-step production process.
5. When production or service is complete.
6. Before delivery from your facility.
7. At the point of customer contact.

The seven tools of TQM discussed in the previous section aid in this “when and
where to inspect” decision. However, inspection is not a substitute for a robust product
produced by well-trained employees in a good process. In one well-known experiment
conducted by an independent research firm, 100 defective pieces were added to a
“perfect” lot of items and then subjected to 100% inspection. The inspectors found only
68 of the defective pieces in their first inspection. It took another three passes by the
inspectors to find the next 30 defects. The last two defects were never found. So the
bottom line is that there is variability in the inspection process. Additionally, inspectors
are only human: They become bored, they become tires, and the inspection equipment
itself has variability. Even with 100% inspection, inspectors cannot guarantee perfection.
Therefore, good processes and employee empowerment are usually a better solution
than trying to find defects by inspection.

For example, at Velcro Industries, as in many organizations, quality was view=d by

machine operators as the job “those quality people.” Inspections were based on random
sampling, and if a part showed up bad, it was thrown out. The company decided to pay
more attention to operators, machine repair and design, measurement methods,
communications and responsibilities, and to invest more money in training. Over time as
defects declined, Velcro was able to pull half its quality control people out of the process.

Source Inspection

The best inspection can be thought of as no inspection at all; this “inspection” is

always done at the source – it is just doing the job properly with the operator ensuring
that this is so. This may be called source inspection (or source control) and is consistent
with the concept of employee empowerment, where individual employee treats the next
step in the process as the customer, ensuring perfect product to the next “customer.” This

26
inspection may be assisted by the use of checklists and controls such as a fail-safe device
called a poka-yoke, a name borrowed from the Japanese.

A poka-yoke is a foolproof device or technique that ensures production of good

units every time. These special devices avoid errors and provide quick feedback of
problems. A simple example of a poka-yoke device is the diesel or leaded gas pump nozzle
that will not fit into the “unleaded” gas task opening on your car. In McDonald’s, the
French-fry scoop and standard-sized bag used to measure the correct quantity are poka-
yokes. Similarly, in a hospital, the prepackaged surgical coverings that contain exactly
items needed for a medical procedure are poka-yokes. Checklists are another type of
poka-yoke. The idea of source inspection and poka-yokes is to ensure that 100% good
product or service is provided at each step in the process.

Service Industry Inspection

In service-oriented organization, inspection points can be assigned at a wide range

of locations, as illustrated in Table 4.3. Again, the operation manager must decide where
inspections are justified and may find the seven tools of TQM useful when making these
judgements.

TABLE 4.3. Examples of Inspection in Services

Jones Law3 Offices Receptionist performance Is phone answered by the second ring
Billing Accurate, timely, and correct format
Attorney Promptness in returning calls

Intercontinental Hotel Reception desk Use customer’s name

Doorman Greet guest in less than 30 seconds
Room All light working, spotless bathroom
Minibar Restocked and charges accurately posted to
bill

Community Hospital Billing Accurate, timely and correct format

Pharmacy Prescription accuracy, inventory accuracy
Lab Audit for lab-test accuracy
Nurses Charts immediately updated
Admissions Data entered correctly and completely

Black Angus Steak House Busboy Serves water and bread within 1 minute
Busboy Clears all entrée items and crumbs prior to
dessert
Waiter Knows and suggests specials, desserts

Nordstrom’s Dept. Store Display areas Attractive, well-organized, stocked, good

lightning
Stockrooms Rotation of goods, organized, clean
Salesclerks Neat, courteous, very knowledgeable

Inspection of Attributes vs. Variables

When inspections take place, quality characteristics may be measured as either

attributes or variables. Attribute inspection classifies items as being either good or
defective. It does not address the degree of failure. For example, the lightbulb burns or it
does not. Variable inspection measures such dimensions as weight, speed, height or
strength to see if an item falls within an acceptable range. If a piece of electrical wire is
supposed to be 0.01 inch in diameter, a micrometer can be used to see if the product is
close enough to pass inspection.

27
 Knowing whether attributes or variables are being inspected helps us decide
which statistical quality control approach to take, as we will see in the supplement to this
chapter.

TQM IN SERVICES

The personal component of services is more difficult to measure than the quality
of the tangible component. Generally, the user of a service, like the user of a good, has
features in mind that form a basis for comparison among alternatives. Lack of any one
feature may eliminate the service from further consideration. Quality also may be
perceived as a bundle of attributes in which many lesser characteristics are superior to
those of competitors. This approach to product comparison differs little between goods
and services. However, what is very different about the selection of services is the poor
definition of the 1) intangible differences between products and 2) the intangible
expectations customers have of those products. Indeed, the intangible attributes may not
be defined at all. They are often unspoken images in the purchase’s mind. This is why all
of those marketing issues such as advertising, image, and promotion can make a
difference.

The operations manager plays a significant role in addressing several major

aspects of service quality. First, the tangible component of many services is important.
How well the service is designed and produced does make a difference. This might be how
accurate, clear, and complete your checkout bill at the hotel is, how warm the food is at
Taco Bell, or how well your car runs after you pick it up at the repair shop.

Secondly, another aspect of service and service quality is the process. Notice in
Table 4.4 that 9 out of 10 of the Determinants of Service Quality are related to the service
process. Such things as reliability and courtesy are part of the process. The operations
manager can design processes (service products) that have these attributes and can
ensure their quality through the TQM techniques discussed in this chapter.

TABLE 4.4. Determinants of Service Quality

Reliability involves consistency of performance and dependability. It means that the firm
performs the service right the first and that the firm honours its promises
Responsiveness concerns the willingness or readiness of employees to provide service. It
involves timeliness of service.
Competence means possession of the required skills and knowledge to perform the service.
Access involves approachability and ease of contact.
Courtesy involves politeness, respect, consideration and friendliness of contact personnel
(including receptionists, telephone operators, etc.).
Communication means keeping customers informed in language they can understand and
listening to them. It may mean that the company has to adjust its language for different
consumers – increasing the level of sophistication with a well-educated customer and speaking
simply and plainly with a novice.
Credibility involves trustworthiness, believability, and honesty. It involves having the
customer’s best interests at heart.
Security is the freedom from danger, risk, or doubt.
Understanding /knowing the customer involves making the effort to understand the
customer’s needs.
Tangibles include the physical evidence of the service.
Source: Excerpted with permission from Journal of Marketing, published by the American Marketing
Association, from A. Parasuranam, Valerie A. Zeithamil and Leonard L. Berry (fall 1985):44.

28
 Third, the operations manager should realize that the customer’s expectations are
the standard against which the service is judged. Customers’ perceptions of service
quality result from a comparison of their before-service expectations with their actual
service experience. In other words, service quality is judged on the basis of whether it
meets expectations. The manager may be able to influence both the quality of the service
and the expectation. Don’t promise more than you can deliver.

Fourth, the manager must expect exceptions. There is a standards quality level at
which the regular service is delivered, such as the bank teller’s handling of a transaction.
However, there are “exceptions” or “problems” initiated by the customer or by less than
optimal operating conditions (for example, the computer “crushed”). This implies that the
quality control system must recognize and have a set of alternate plans for less than
optimal operating conditions.

Evaluate the Quality of Service

SERVICE NAME OF BUSINESS REASON

Vulcanizing Shop
Delivery
Haircuts
Copying
Restaurants

***The compiler does not own any of the contents of this learning module. Due credits and
acknowledgment are given to the authors, internet sources, and researchers listed on the
reference page. Such sources are reserved to further explain concepts and cannot be credited
to the compiler and the school. All diagrams, charts, and images are used for educational
purposes only. The sole objective of this instructional material is to facilitate independent
learning and not for monetary gains because this is NOT FOR SALE. ***

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