Chapter 2

Quality Management

Russell & Taylor

Operations Management, 9th Edition
 Lecture Outline
• What Is Quality? – Slide 5
• Quality Management Systems – Slide 11
• Quality Tools – Slide 18
• TQM and QMS – Slide 13
• Focus of Quality Management – Slide 27
• Role of Employees in Quality Improvement – Slide 31
• Quality in Services – Slide 33
• Six Sigma – Slide 34
• Cost of Quality – Slide 43
• Effect of Quality Management on Productivity – Slide 53
• Quality Awards – Slide 64
• ISO 9000 – Slide 65

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 Learning Objectives
• Discuss and define the dimensions of quality.
• Articulate the benefits and costs of good quality, and the
costs of poor quality
• Understand how quality management systems have
evolved and be able to assess the stage of quality
evolution a particular company exhibits.
• Utilize quality tools and the DMAIC methodology in
problem solving
• Explain the philosophy and magnitude of six sigma
quality
• Recognize quality awards and ISO certifications

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What is Quality? Quality from a Customer’s
Perspective
• Oxford American • Fitness for use
Dictionary
• a degree or level of • how well product or service
excellence does what it is supposed to
• American Society for • Quality of design
Quality • designing quality
• totality of features and
characteristics that satisfy characteristics into a
needs without deficiencies product or service
• Consumer’s and • A Mercedes and a Ford are
producer’s perspective equally “fit for use,” but with
different design dimensions.

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 Dimensions of Quality for Manufactured Products
• Performance
• basic operating characteristics of a product; how well a car handles or its gas
mileage
• Features
• “extra” items added to basic features, such as a stereo CD or a leather interior in a
car
• Reliability
• probability that a product will operate properly within an expected time frame; that
is, a TV will work without repair for about seven years
• Conformance
• degree to which a product meets pre–established standards
• Durability
• how long product lasts before replacement; with care, L. L. Bean boots may last a
lifetime
• Serviceability
• ease of getting repairs, speed of repairs, courtesy and competence of repair person
• Aesthetics
• how a product looks, feels, sounds, smells, or tastes
• Safety
• assurance that customer will not suffer injury or harm from a product; an especially
important consideration for automobiles
• Perceptions
• subjective perceptions based on brand name, advertising, etc.

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 Dimensions of Quality: Services
• Time and timeliness
• how long must a customer wait for service, and is it completed on time?
• is an overnight package delivered overnight?
• Completeness:
• is everything customer asked for provided?
• is a mail order from a catalog company complete when delivered?
• Courtesy:
• how are customers treated by employees?
• are catalog phone operators nice and are their voices pleasant?
• Consistency
• is same level of service provided to each customer each time?
• is your newspaper delivered on time every morning?
• Accessibility and convenience
• how easy is it to obtain service?
• does service representative answer your calls quickly?
• Accuracy
• is service performed right every time?
• is your bank or credit card statement correct every month?
• Responsiveness
• how well does company react to unusual situations?
• how well is a telephone operator able to respond to a customer’s questions?
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 What Is Quality:
Producer’s Perspective
• Quality of conformance
• making sure product or service is produced
according to design
• if new tires do not conform to specifications, they
wobble
• if a hotel room is not clean when a guest checks
in, hotel is not functioning according to
specifications of its design

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 The Meaning of Quality

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 A Final Perspective on Quality

• Customer’s and producer’s perspectives

depend on each other
• Producer’s perspective:
• production process and COST
• Customer’s perspective:
• fitness for use and PRICE
• Customer’s view must dominate

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Evolution of Quality Management: Quality Gurus

• Walter Shewhart
• In 1920s, developed control charts
• Introduced term “quality assurance”
• W. Edwards Deming
• Developed courses during WW II to teach statistical quality-
control techniques to engineers and executives of military
suppliers
• After war, began teaching statistical quality control to Japanese
companies
• Joseph M. Juran
• Followed Deming to Japan in 1954
• Focused on strategic quality planning
• Quality improvement achieved by focusing on projects to solve
problems and securing breakthrough solutions

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 Evolution of Quality Management: Quality
Gurus
• Armand V. Feigenbaum
• In 1951, introduced concepts of total quality control and
continuous quality improvement
• Philip Crosby
• In 1979, emphasized that costs of poor quality far outweigh cost
of preventing poor quality
• In 1984, defined absolutes of quality management—
conformance to requirements, prevention, and “zero defects”
• Kaoru Ishikawa
• Promoted use of quality circles
• Developed “fishbone” diagram
• Emphasized importance of internal customer

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 TQM and QMS
• Total Quality Management (TQM)
• customer-oriented, leadership, strategic
planning, employee responsibility, continuous
improvement, cooperation, statistical methods,
and training and education
• Quality Management System (QMS)
• system to achieve customer satisfaction that
complements other company systems

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 Deming’s 14 Points

1. Create constancy of purpose

2. Adopt philosophy of prevention
3. Cease mass inspection
4. Select a few suppliers based on quality
5. Constantly improve system and workers
6. Institute worker training
7. Instill leadership among supervisors

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 Deming’s 14 Points
11. Eliminate fear among employees
12. Eliminate barriers between departments
13. Eliminate slogans
14. Eliminate numerical quotas
15. Enhance worker pride
16. Institute vigorous training and education
programs
17. Develop a commitment from top management
to implement above 13 points

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 The Deming Wheel: PDCA Cycle

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 TQM Principles
• Quality can and muse be managed
• The customer defines quality
• Management must be involved and provide
leadership
• Continuous quality improvements is “the”
strategic goal
• Quality problems are found in processes
• The quality standard is “no defects”
• Quality must be measured

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 Quality Tools
• Process Flow Chart • Histogram
• Cause-and-Effect • Scatter Diagram
Diagram • Statistical Process
• Check Sheet Control Chart
• Pareto Analysis

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 Flow Chart

• A diagram of the steps in a process

• Helps focus on location of problem in a process

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 Cause-and-Effect Diagram
- chart showing different categories of problem
causes

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 Cause-and-Effect Matrix
– grid used to prioritize causes of quality problems

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 Check Sheets and Histograms

• Tally number of defects

from a list of causes

• Frequency diagram of
data for quality problem

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 Pareto Analysis
• Pareto analysis
– most quality problems result from a few causes

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 Pareto Chart

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 Scatter Diagram
• Graph showing relationship between 2 variables
in a process
• Identifies pattern that may cause a quality
problem

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 Control Chart
• A chart with statistical upper and lower limits
• If sample statistics remain between these limits we
assume the process is in control

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 Focus of Quality Management—
Customers
• TQM and QMSs
• serve to achieve customer satisfaction
• Satisfied customers are less likely to switch to a
competitor
• It costs 5-6 times more to attract new customers as
to keep an existing one
• 94-96% of dissatisfied customers don’t complain
• Small increases in customer retention mean large
increases in profits

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• Quality Management in the Supply Chain
• Companies need support of their suppliers to
satisfy their customers
• Reduce the number of suppliers
• Partnering
• a relationship between a company and its supplier
based on mutual quality standards
• Measuring Customer Satisfaction
• An important component of any QMS
• Use customer surveys to hear “Voice of the
Customer”
• American Customer Satisfaction Index (ACSI)

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 Customer Satisfaction

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 Customer Satisfaction

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 The Role of Employees in Quality Improvement

• Participative problem solving

• employees involved in quality-management
• every employee has undergone extensive training to
provide quality service to Disney’s guests
• Kaizen
• involves everyone in process of continuous
improvement
• employees determining solutions to their own
problems

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 Quality Circles

• Voluntary group of Organization

workers and 8-10 members
Same area
Supervisor/moderator
supervisors from same
area who address Presentation
Implementation
Training
Group processes
Data collection
quality problems Monitoring Problem analysis

Problem
Solution Identification
Problem results List alternatives
Consensus
Problem Brainstorming
Analysis
Cause and effect
Data collection
and analysis

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 Process Improvement Teams
• Focus attention on business processes rather
than separate company functions
• Includes members from the interrelated
departments which make up a process
• Important to understand the process the team
is addressing
• Process flowcharts are key tools

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• Quality in Services
• Service defects are not always easy to measure
because service output is not usually a tangible
item
• Services tend to be labor intensive
• Services and manufacturing companies have
similar inputs but different processes and outputs
• Quality Attributes in Services
• Principles of TQM apply equally well to services
and manufacturing
• Timeliness is an important dimension
• how quickly a service is provided
• Benchmark
• “best” level of quality achievement in one company that other
companies seek to achieve
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 Six Sigma
• A process for developing and delivering virtually perfect products and
services
• Six Sigma is a measure of how much a process deviates from perfection
• Goal: 3.4 defects per million opportunities (DPMO)
• Process
• Align
• executives create balanced scorecard
• Mobilize
• project teams formed and empowered to act
• Accelerate
• black and green belts execute project
• Govern
• monitor and review projects
• Champion
• an executive responsible for project success

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 Breakthrough Strategy: DMAIC
• Define
• problem is defined
• Measure
• process measured, data collected
• Analyze
• data analysis to find cause of problem
• Improve
• develop solutions to problem
• Control
• ensure improvement is continued

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 Six Sigma Process
DEFINE MEASURE ANALYZE IMPROVE CONTROL

3.4 DPMO

67,000 DPMO
cost = 25% of sales

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 Black Belts and Green Belts
• Black Belt
• project leader
• Master Black Belt
• a teacher and mentor for Black Belts
• Green Belts
• project team members

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 Six Sigma Tools
• Quality Function Deployment (QFD)
• capture the “voice of the customer”
• Cause & Effect Matrix
• identify and prioritize causes of a problem
• Failure Modes and Affects Analysis (FMEA)
• analyze potential problems before they occur
• t-Test
• test for differences between groups
• Statistical Process Control (SPC) Chart
• monitor a process over time for variations
• Design of Experiments (DOE)
• determining relationships between factors affecting inputs
and outputs of a process
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 Design for Six Sigma (DFSS)
• A systematic approach to designing products
and processes that will achieve Six Sigma
• Uses same basic approach as breakthrough
strategy
• Employs the strategy up front in the design
and development phases
• A more effective and less expensive way to
achieve Six Sigma

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 Lean Six Sigma
• Integrate Six Sigma and “lean systems” (Ch 16)
• Lean seeks to optimize process flows
• Lean extends earlier efforts in efficiency
• Lean process improvement steps
1. determine what creates value for customers
2. identify “value stream”
3. remove waste in the value stream
4. make process responsive to customer needs
5. continually repeat attempts to remove waste
• Six Sigma and Lean seek
• process improvements
• increased value to customers
• They approach the goals in different, complementary ways
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 Profitability
• The typical criterion for selecting Six Sigma
projects
• One of the factors distinguishing Six Sigma from
TQM
• “Quality is not only free, it is an honest-to-
everything profit maker.”
• Quality improvements reduce costs of poor quality

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 Cost Impact of Six Sigma

Medtek Company implements Six Sigma to reduce defects

from 10% to 0%. Then spend $120,000 for more change.
After Six
Original After Changes Sigma Costs
Sales $1,000,000 1,000,000 1,000,000
Variable cost 600,000 540,054 540,054
Fixed cost 350,000 350,000 360,000
Profit 50,000 109,946 99,946
Doubled 33.3% return

Return on 120,000 = 100*(49,946-10,000)/120,000 = 33.3%

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Cost of Quality Prevention Costs
• Cost of Achieving Good • Quality planning costs
Quality • costs of developing and
– Prevention costs implementing quality
• costs incurred during management program
product design • Product-design costs
– Appraisal costs • costs of designing products
with quality characteristics
• costs of measuring, • Process costs
testing, and analyzing • costs expended to make sure
• Cost of Poor Quality productive process conforms to
– Internal failure costs quality specifications
• include scrap, rework, • Training costs
process failure, • costs of developing and putting
downtime, and price on quality training programs for
reductions employees and management
– External failure costs • Information costs
• include complaints, • costs of acquiring and
returns, warranty maintaining data related to
claims, liability, and lost quality, and development and
sales analysis of reports on quality
performance

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 Appraisal Costs
• Inspection and testing
• costs of testing and inspecting materials, parts, and
product at various stages and at end of process
• Test equipment costs
• costs of maintaining equipment used in testing quality
characteristics of products
• Operator costs
• costs of time spent by operators to gather data for
testing product quality, to make equipment adjustments
to maintain quality, and to stop work to assess quality

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Internal Failure Costs External Failure Costs
• Scrap costs • Customer complaint costs
• costs of poor-quality products that • costs of investigating and
satisfactorily responding to a
must be discarded, including labor,
customer complaint resulting from a
material, and indirect costs poor-quality product
• Rework costs • Product return costs
• costs of fixing defective products • costs of handling and replacing
to conform to quality specifications poor-quality products returned by
customer
• Process failure costs
• Warranty claims costs
• costs of determining why
• costs of complying with product
production process is producing
warranties
poor-quality products
• Product liability costs
• Process downtime costs • litigation costs resulting from product
• costs of shutting down productive liability and customer injury
process to fix problem • Lost sales costs
• Price-downgrading costs • costs incurred because customers
• costs of discounting poor-quality are dissatisfied with poor-quality
products—that is, selling products products and do not make additional
as “seconds” purchases
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Measuring and Reporting Quality Costs
• Index numbers
• ratios that measure quality costs against a base value
• labor index
• ratio of quality cost to labor hours
• cost index
• ratio of quality cost to manufacturing cost
• sales index
• ratio of quality cost to sales
• production index
• ratio of quality cost to units of final product

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 Cost of Quality
Year
2009 2011 20122010
Quality Costs
Prevention 27,000 41,500 74,600 112,300
Appraisal 155,000 122,500 113,400 107,000
Internal failure 386,400 469,200 347,800
219,100
External failure 242,000 196,000 103,500
106,000
Total 810,400 829,200 639,300 544,400
Accounting Measures
Sales 4,360,000 4,450,000 5,050,000 5,190,000
Manufacturing costs 1,760,000 1,810,000 1,880,000
1,890,000

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 Cost of Quality
Quality index = total quality costs/base * 100
209 quality cost per sale

Quality Quality Manufacturing

Year Sales Index Cost Index
2009
2010
2011
2012

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 Cost of Quality
Quality index = total quality costs/base * 100
2006 quality cost per sale
810,400 * 100 / 4,360,000 = 18.58

Quality Quality Manufacturing

Year Sales Index Cost Index
2009 18.58 46.04
2010 18.63 45.18
2011 12.66 34.00
2012 10.49 28.80

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 Quality–Cost Relationship
• Cost of quality
• difference between price of nonconformance
and conformance
• cost of doing things wrong
• 20 to 35% of revenues
• cost of doing things right
• 3 to 4% of revenues

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 Measuring Product Yield
and Productivity
Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked)

Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked)

or

Y = (I)(% G )+ (I)(1 -% G )(% R )

or
Y=(I)(%G)+(I)(1-%G)(%R)
where
I = initial quantity started in production
%G = percentage of good units produced
%R = percentage of defective units that are successfully reworked

where
I = initial quantity started in production
%G = percentage of good units produced
%R = percentage of defective units that are successfully reworked

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 Computing Product Yield
• Motor manufacturer
• Starts a batch of 100 motors.
• 80 % are good when produced
• 50 % of the defective motors can be reworked
Y =(I)(%G)+(I)(1-%G)(%R)
= 100(.80) + 100(1-.80)(.50) = 90 motors

Increase quality to 90% good

Y =100(.90) + 100(1-.90)(.50) = 95 motors

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 Effect of Quality Management
on Productivity
• Productivity = output / input
• Quality impact on productivity
• fewer defects increase output, and quality
improvement reduces inputs
• Yield
• a measure of productivity

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 Computing Product Cost per Unit

( K d )( I )  ( K r )( R )
Product Cost 
Y
where:
Kd = direct manufacturing cost per unit
I = input
Kr = rework cost per unit
R = reworked units
Y = yield

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 Cost per Unit
Direct cost = $30 Rework cost = $12
80% good 50% can be reworked

( K d )( I )  ( K r )( R ) $30*100 + $12*10 =
= $34.67/motor
Y 90 motors

Increase quality to 90% good

= $30*100 + $12*5 = $32.21/motor

95 motors

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 Computing Product Yield
for Multistage Processes

Y = (I)(%g1)(%g2) … (%gn)

where:
I = input of items to the production process that will
result in finished products
gi = good-quality, work-in-process products at stage i

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 Multistage Yield
Average
Percentage
Stage Good Quality
1 0.93
2 0.95
3 0.97
4 0.92

Y = (I)(%g1)(%g2) … (%gn)

= 100 * .93 * .95 * .97 * .92 = 78.8 motors

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 Initial Batch Size For 100 Motors
Y
I=
(%g1)(%g2) … (%gn)

100
= = 126.88  127
100 * .93 * .95 * .97 * .92

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 Quality–Productivity Ratio

QPR
• productivity index that includes productivity and
quality costs

(good-quality units)
QPR = (100)
(input) (processing cost) + (reworked units) (rework cost)

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 Quality Productivity Ratio
Direct cost = $30 Rework cost = $12
80% good 50% can be reworked
Initial batch size = 100

Base Case

QPR =

Case 1: Increase I to 200

QPR =

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 Quality Productivity Ratio
Case 2: Reduce direct cost to $26 and rework cost to $10

QPR =

Case 3: Increase %G to 95%

QPR =

Case 4: Decrease costs and increase %G

QPR =

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 Quality Productivity Ratio
Direct cost = $30 Rework cost = $12
80% good 50% can be reworked
Initial batch size = 100

Base Case
80 + 10
QPR = (100) = 2.89
100 * $30 + 10 * $12

Case 1: Increase I to 200

160 + 20
QPR = (100) = 2.89 – NO CHANGE
200 * $30 + 20 * $12

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 Quality Productivity Ratio
Case 2: Reduce direct cost to $26 and rework cost to $10
80 + 10
QPR = (100) = 3.33
100 * $26 + 10 * $10

Case 3: Increase %G to 95%

95 + 2.5
QPR = (100) = 3.22
100 * $30 + 2.5 * $12

Case 4: Decrease costs and increase %G

95 + 2.5
QPR = (100) = 3.71
100 * $26 + 2.5 * $10

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 Quality Awards
• Baldrige Award
• Deming Prize
• Provide guidelines for quality management
• Benchmarks to emulate
• Malcolm Baldrige Award - Created in 1987 to stimulate growth of quality
management in United States
• Categories
• Leadership
• Information and analysis
• Strategic planning
• Human resource focus
• Process management
• Business results
• Customer and market focus
• Other awards for quality:
• National individual awards: Armand V. Feigenbaum Medal, Deming Medal, E.
Jack Lancaster Medal, Edwards Medal, Shewhart Medal, Ishikawa Medal
• International awards: European Quality Award, Quality Award, Australian
Business Excellence Award, Deming Prize from Japan
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 ISO 9000
• Procedures and policies for international quality certification
• ISO 9000:2008
• Quality Management Systems—Fundamentals and Vocabulary
• defines fundamental terms and definitions used in ISO 9000 family
• ISO 9001:2008
• Quality Management Systems—Requirements
• standard to assess ability to achieve customer satisfaction
• ISO 9004:2008
• Quality Management Systems—Guidelines for Performance Improvements
• guidance to a company for continual improvement of its quality-management
system
• ISO 9000 Certification, Implications, and Registrars
• ISO 9001:2008—only standard that carries third-party certification
• Many overseas companies will not do business with a supplier unless it has
ISO 9000 certification
• ISO 9000 accreditation
• ISO registrars
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