Chapter 6 - Managing Quality

Managing Quality
6
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 6-1
Outline
► Global Company Profile:
Arnold Palmer Hospital
► Quality and Strategy
► Defining Quality
► Total Quality Management
► Tools of TQM
► The Role of Inspection
► TQM in Services
© 2014 Pearson Education, Inc. 6-2
Learning Objectives
When you complete this chapter you
should be able to:
1. Define quality and TQM
2. Describe the ISO international quality
standards
3. Explain what Six Sigma is
4. Explain how benchmarking is used in TQM
5. Explain quality robust products and
Taguchi concepts
6. Use the seven tools of TQM
Managing Quality Provides a
Competitive Advantage
Aga Khan University Hospital
► The hospital provides high quality of
patient care in a broad range of
secondary and tertiary services to over
50,000 hospitalized patients and to
600,000 outpatients annually.
► Continuous improvement
► Employee empowerment
► Benchmarking
► Just-in-time
© 2014
© 2014
Pearson
Pearson
Quality tools
Education,
Education,
► Inc.Inc. 6-4
Quality and Strategy
► Managing quality supports
differentiation, low cost, and
response strategies
► Quality helps firms increase sales
and reduce costs (it can lead to fewer defects,
errors, and rework, which reduces waste and lowers
production costs. The high quality often translates to
greater efficiency in processes and operations, resulting in
lower operating expenses)
► Building a quality organization is a
demanding task
Two Ways Quality
Improves Profitability
Figure 6.1
by increasing Sales Gains via

• Improved response
• Flexible pricing
• Improved reputation
Improved Increased
Quality Profits
by Reduced Costs via
• Increased productivity
• Lower rework and scrap costs
• Lower warranty costs

•Improved Response: Better quality helps a business react
quickly to customer needs and market changes.
•Flexible Pricing: High quality allows a business to offer
competitive pricing options.
•Improved Reputation: Consistently high quality enhances
the company's reputation, attracting more customers.
•Increased Productivity: Better quality leads to more

efficient work processes, allowing more to be produced in less
time.
•Lower Rework and Scrap Costs: High quality means fewer
mistakes, reducing the need to fix errors or discard defective
products.
•Lower Warranty Costs: Fewer defects result in fewer
returns and repairs, saving money on warranty claims.

Is it possible?
▶ Can we increase profitability
by increasing sale and
reducing cost at the same
time?
▶ Increasing Sales: By improving product quality,
customer satisfaction, and market reputation, you can
attract more customers and boost sales.
▶ Reducing Costs: By reducing defects, errors, and
waste, you lower production and operating costs.

Profitability
► Increasing Sales
By focusing on sales growth strategies
such as expanding market reach,
improving marketing effectiveness,
introducing new products or services,
and enhancing customer satisfaction, a
company can boost its revenue
Increased sales contribute directly to
higher profitability by generating more
revenue without necessarily increasing
costs proportionally
Profitability
► Reducing Costs
Implementing cost reduction measures such
as improving operational efficiency,
streamlining processes, negotiating better
supplier contracts, optimizing inventory
management, and reducing waste can
lower the company's expenses
Lower costs mean that each unit of product
or service sold generates higher profit
margins
© 2014 Pearson Education, Inc. 6 - 10
The Flow of Activities
Organizational Practices
Leadership, Mission statement, Effective operating
procedures, Staff support, Training
Yields: What is important and what is to be
accomplished
Quality Principles
Customer focus, Continuous improvement, Benchmarking,
Just-in-time, Tools of TQM
Yields: How to do what is important and to be
accomplished
Employee Fulfillment
Empowerment, Organizational commitment
Yields: Employee attitudes that can
accomplish
what is important
Customer Satisfaction
Winning orders, Repeat customers
Figure 6.2 Yields: An effective
organization with
a competitive
advantage
•Leadership: Leaders inspire and guide the •Customer Focus: Putting customers at
team, making sure everyone is working the center of everything, making sure
towards common goals. products or services meet their needs and
•Mission Statement: This is like the expectations.
organization's roadmap. It tells everyone why •Continuous Improvement: Always
the organization exists and what it wants to looking for ways to make things better,
accomplish. whether it's processes, products, or
•Effective Operating Procedures: These are services.
like the instructions for how to do things right. •Benchmarking: Comparing your
They help ensure tasks are completed performance to the best in your industry
efficiently and consistently. or market to identify areas for
improvement.
•Just-in-Time: Delivering products or
•Empowerment: Giving employees the services exactly when they are needed,
authority and resources to make decisions minimizing waste and excess inventory.
and take action in their work.
•Organizational Commitment: Employees
feeling a strong connection and loyalty to
the organization, its goals, and its values.

Defining Quality
An operations manager’s objective

is to build a total quality
management system that identifies
and satisfies customer needs

Defining Quality
The totality of features and

characteristics of a product or service
that bears on its ability to satisfy stated
or implied needs
American Society for Quality

Different Views
► User-based: better performance,
more features
► Manufacturing-based: conformance
to standards, making it right the first
time
► Product-based: specific and
measurable attributes of the product

Effects of Quality
1. Company reputation
► Perception of new products
► Employment practices
► Supplier relations
2. Product liability
► Reduce risk
3. Global implications
► Improved ability to compete
Malcolm Baldrige National
Quality Award
► Malcolm Baldrige was Secretary of
Commerce appointed in 1981 to 1987
► During his tenure, Baldrige played a major
role in developing and carrying out
Administration trade policy
► He took the lead in resolving difficulties in
technology transfers with China and India
► Baldrige held the first Cabinet-level talks with
the Soviet Union in seven years which paved
the way for increased access for U.S. firms to
the Soviet market
Quality Award
► Malcolm Baldrige was highly regarded by the
world's most pre-eminent leaders
► Baldrige's award-winning managerial

excellence contributed to long-term
improvement in economy, efficiency, and
effectiveness in government. Within the
Commerce Department, Baldrige reduced the
budget by more than 30% and administrative
personnel by 25%
Quality Award
► The award was established in 1987 by the
U.S. Congress to promote awareness of
quality management and recognize
companies that achieve exceptional results
through quality improvement initiatives
► It was named after Malcolm Baldrige Jr., who
served as the Secretary of Commerce from
1981 until his death in 1987

Quality Award
► The award is based on a set of criteria that
assess various aspects of organizational
performance, including leadership, strategic
planning, customer focus, measurement,
analysis and knowledge management,
workforce focus, operations focus, and
results
► These criteria provide a framework for
organizations to evaluate their processes and
practices and identify opportunities for
improvement
Quality Award
► Established in 1988 by the U.S.
Government
► Designed to promote TQM practices
► Recent winners include

• Midway USA 2021 (Services)
• The Charter School of San Diego 2021 (Education)
• Mid-America Transplant 2021
• GBMC HealthCare, Inc. (Healthcare)
• Elevations Credit Union 2020 (NGO)
Baldrige Criteria
Applicants are evaluated on:
CATEGORIES POINTS
Leadership 120
Strategic Planning 85
Customer Focus 85
Measurement, Analysis, and Knowledge 90
Management
Workforce Focus 85
Operations Focus 85
Results 450

ISO 9000 International Quality
Standards
► International recognition
► Encourages quality management
procedures, detailed documentation, work
instructions, and recordkeeping
► 2009 revision emphasized sustained
success
► Over one million certifications in 178
countries
► Critical for global business
Costs of Quality
► Prevention costs - reducing the
potential for defects
► Appraisal costs - evaluating products,
parts, and services
► Internal failure costs - producing
defective parts or service before
delivery
► External failure costs - defects
discovered after delivery
Costs of Quality
Total Total Cost

Cost
External Failure
Internal Failure
Quality Improvement

Leaders in Quality
TABLE 6.1 Leaders in the Field of Quality Management
LEADER PHILOSOPHY/CONTRIBUTION
W. Edwards Deming Deming insisted management accept responsibility for building
good systems. The employee cannot produce products that on
average exceed the quality of what the process is capable of
producing. His 14 points for implementing quality improvement
are presented in this chapter.
Joseph M. Juran A pioneer in teaching the Japanese how to improve quality,
Juran believed strongly in top-management commitment,
support, and involvement in the quality effort. He was also a
believer in teams that continually seek to raise quality standards.
Juran varies from Deming somewhat in focusing on the
customer and defining quality as fitness for use, not necessarily
the written specifications.

Leaders in Quality
TABLE 6.1 Leaders in the Field of Quality Management
LEADER PHILOSOPHY/CONTRIBUTION
Amarnd Feigenbaum His 1961 book Total Quality Control laid out 40 steps to quality
improvement processes. He viewed quality not as a set of tools
but as a total field that integrated the processes of a company.
His work in how people learn from each other’s successes led to
the field of cross-functional teamwork.
Philip B. Crosby Quality Is Free was Crosby’s attention-getting book published in
1979. Crosby believed that in the traditional trade-off between
the cost of improving quality and the cost of poor quality, the cost
of poor quality is understated. The cost of poor quality should
include all of the things that are involved in not doing the job right
the first time. Crosby coined the term zero defects and stated,
“There is absolutely no reason for having errors or defects in any
product or service.”

Ethics and Quality
Management
► Operations managers must deliver
healthy, safe, quality products and
services
► Poor quality risks injuries, lawsuits,
recalls, and regulation
► Ethical conduct must dictate response
to problems
► All stakeholders must be considered

Poor Quality Risks:
•Poor quality can lead to various risks,
including injuries to consumers, lawsuits from
dissatisfied customers, costly recalls of
defective products, and regulatory penalties for
non-compliance.
Ethical Response to Quality Problems:

•When a company faces quality issues, it's
important to handle them with honesty,
transparency, and accountability. This means
being straightforward about mistakes and
fixing them responsibly.
Consideration of Stakeholders:
•All stakeholders, including customers,
employees, shareholders, suppliers, and
the community, should be taken into
account when addressing quality issues.
Their interests and well-being should be
considered in decision-making and
problem-solving processes.
Total Quality Management
► A core definition of total quality
management (TQM) describes a
management approach to long-term
success through customer satisfaction
► In a TQM effort, all members of an
organization participate in improving
processes, products, services, and the
culture in which they work

Total Quality Management
► Encompasses entire organization from
supplier to customer
► 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

Seven Concepts of TQM
1. Continuous improvement
2. Six Sigma
3. Employee empowerment
4. Benchmarking
5. Just-in-time (JIT)
6. Taguchi concepts
7. Knowledge of TQM tools

Continuous Improvement
► Never-ending process of continual
improvement
► Covers people, equipment, materials,
procedures
► Every operation can be improved

Shewhart’s PDCA Model
Figure 6.3
4. Act 1. Plan
Implement Identify the
the plan, problem and
document make a plan
3. Check 2. Do
Is the plan Test the
working? plan

When to Use PDCA Model
• Starting a new improvement project
• Developing a new or improved design
of a process, product, or service
• Defining a repetitive work process
• Planning data collection and analysis
in order to verify and prioritize
problems or root causes
• Implementing any change
• Working toward continuous
improvement
PDCA Model
1.Plan: Recognize an opportunity and plan a
change.
2.Do: Test the change. Carry out a small-scale
study.
3.Check: Review the test, analyze the results, and
identify what you’ve learned.
4.Act: Take action based on what you learned in
the study step. If the change did not work, go
through the cycle again with a different plan. If you
were successful, incorporate what you learned
from the test into wider changes. Use what you
learned to plan new improvements, beginning the
cycle again.
Continuous Improvement
► Kaizen describes the ongoing process
of unending improvement
► TQM and zero defects also used to
describe continuous improvement

Six Sigma
► Two meanings
► Statistical definition of a process that is
99.9997% capable, 3.4 defects per
million opportunities (DPMO)
► A program designed to reduce defects,
lower costs, save time, and improve
customer satisfaction
► A comprehensive system for achieving
and sustaining business success

Six Sigma
► Two meanings
Lower limits Upper limits
2,700 defects/million
► Statistical definition of a process that is
3.499.9997%
defects/million capable, 3.4 defects per
million opportunities (DPMO)
► A program designed to reduce defects,
lower costs, save time, and improve
customer satisfaction Mean
► A comprehensive system±3for achieving
and sustaining business ±6success

Figure 6.4

Six Sigma Program
► Originally developed by Motorola,
adopted and enhanced by Honeywell
and GE
► Highly structured approach to process
improvement
6
► A strategy
► A discipline – DMAIC

Six Sigma
1. Defines the project’s purpose, scope, and outputs,
identifies the required process information keeping
in mind the customer’s definition of quality
2. Measures the process and collects data
3. Analyzes the data ensuring
repeatability and reproducibility DMAIC Approach
4. Improves by modifying or
redesigning existing
processes and procedures
5. Controls the new process
to make sure performance
levels are maintained

Employee Empowerment
► Getting employees involved in product and
process improvements
► 85% of quality problems are due
to process and material
► Techniques
1) Build communication networks
that include employees
2) Develop open, supportive supervisors
3) Move responsibility to employees
4) Build a high-morale organization
5) Create formal team structures
Quality Circles
► Group of employees who meet
regularly to solve problems
► Trained in planning, problem
solving, and statistical methods
► Often led by a facilitator
► Very effective when done properly

Benchmarking
Selecting best practices to use as a
standard for performance
1. Determine what to benchmark
2. Form a benchmark team
3. Identify benchmarking partners
4. Collect and analyze benchmarking
information
5. Take action to match or exceed the
benchmark

Best Practices for Resolving
Customer Complaints
Table 6.3
BEST PRACTICE JUSTIFICATION

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

Internal Benchmarking
▶ When the organization is large enough
▶ Data more accessible
▶ Can and should be established in a
variety of areas

Just-in-Time (JIT)
The "just-in-time" method is an inventory
strategy where materials are only ordered
and received as they are needed in the
production process
The goal of this method is to reduce costs by
saving money on overhead inventory
expenses
The company must be able to accurately
forecast demand for goods and services
for the just-in-time method to be effective
Just-in-Time (JIT)
Relationship to quality:
► JIT cuts the cost of quality
► JIT improves quality
► Better quality means less
inventory and better, easier-to-
employ JIT system

Just-in-Time (JIT)
Advantages
► funds that were tied up in
inventory costs can be used
elsewhere
► areas devoted to storing inventory
are now free
► High Profits

Taguchi Concepts
► Engineering and experimental design
methods to improve product and
process design
► Identify key component and process
variables affecting product variation
► Taguchi Concepts
► Quality robustness
► Quality loss function
► Target-oriented quality

Quality Robustness
► Ability to produce products uniformly in

adverse manufacturing and
environmental conditions
► Remove the effects of adverse
conditions
► Small variations in materials and
process do not destroy product quality

Quality Loss Function
► Shows that costs increase as the
product moves away from what the
customer wants
Target-
► Costs include customer or ien t ed
dissatisfaction, warranty qu al it y
and service, internal
scrap and repair, and costs to
society
► Traditional conformance
specifications are too simplistic
Quality Loss Function
High loss
L = D2C
Unacceptable where
Loss (to L = loss to society
producing Poor
organization, D2 = square of
customer, Fair the distance from
and society) target value
Good
C = cost of
Best deviation
Low loss Target-oriented quality
yields more product in
the “best” category
Target-oriented quality
brings product toward
Frequency the target value
Conformance-oriented
quality keeps products
within 3 standard
deviations
Lower Target Upper
Specification Figure 6.5
TQM Tools
► Tools for Generating Ideas
► Check Sheet
► Scatter Diagram
► Cause-and-Effect Diagram
► Tools to Organize the Data
► Pareto Chart
► Flowchart (Process Diagram)

TQM Tools
► Tools for Identifying Problems
► Histogram
► Statistical Process Control Chart

Seven Tools of TQM
(a) Check Sheet: An organized
method of recording data
Hour
Defect 1 2 3 4 5 6 7 8
A /// / / / / /// /
B // / / / // ///
C / // // ////
Figure 6.6

Seven Tools of TQM
(b) Scatter Diagram: A graph of the
value of one variable vs. another
variable
Productivity
Absenteeism
Figure 6.6

Seven Tools of TQM
(c) Cause-and-Effect Diagram: A tool
that identifies process elements
(causes) that might effect an outcome
Cause
Materials Methods
Effect
Manpower Machinery
Figure 6.6

Seven Tools of TQM
(d) Pareto Chart: A graph to identify and
plot problems or defects in descending
order of frequency
Frequency
Percent
A B C D E
Figure 6.6

Seven Tools of TQM
(e) Flowchart (Process Diagram): A chart
that describes the steps in a process
Figure 6.6

Seven Tools of TQM
(f) Histogram: A distribution showing the
frequency of occurrences of a variable
Distribution
Frequency
Repair time (minutes) Figure 6.6

Seven Tools of TQM
(g) Statistical Process Control Chart: A chart
with time on the horizontal axis to plot
values of a statistic
Upper control limit
Target value
Lower control limit
Time
Figure 6.6

Cause-and-Effect Diagrams
Material Method
(ball) (shooting process)
Grain/Feel Aiming point
(grip)
Size of ball
Air pressure Bend knees
Hand position
Balance
Lopsidedness
Follow-through
Missed
Training
free-throws
Rim size
Conditioning Motivation Rim height
Consistency Rim alignment Backboard

stability
Concentration
Machine
Manpower (hoop &
(shooter) Figure 6.7
backboard)

Pareto Charts
Data for October
– 100
70 – – 93
– 88
60 – 54
Frequency (number)
Cumulative percent
– 72
50 –
40 –
Number of
30 – occurrences
20 –
12
10 –
4 3 2
0 –
Room svc Check-in Pool hours Minibar Misc.
72% 16% 5% 4% 3%
Causes and percent of the total

Flow Charts
MRI Flowchart
1. Physician schedules MRI 7. If unsatisfactory, repeat
2. Patient taken to MRI 8. Patient taken back to room
3. Patient signs in 9. MRI read by radiologist
4. Patient is prepped 10. MRI report transferred to
5. Technician carries out MRI physician
6. Technician inspects film 11. Patient and physician
discuss
8
80%
1 2 3 4 5 6 7 11
9 10
20%

Statistical Process Control
(SPC)
► Uses statistics and control charts to tell
when to take corrective action
► Drives process improvement
► Four key steps
► Measure the process
► When a change is indicated, find the
assignable cause
► Eliminate or incorporate the cause
► Restart the revised process
Control Charts
Figure 6.8
Plot the percent of free throws missed
Upper control limit

40%
Coach’s target value

20%
| | | | | | | | | Lower control limit

0% 1 2 3 4 5 6 7 8 9
Game number

Inspection
► Involves examining items to see if an
item is good or defective
► Detect a defective product
► Does not correct deficiencies in
process or product
► It is expensive
► Issues
► When to inspect
► Where in process to inspect

When and Where to Inspect
1. At the 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 to your customer
7. At the point of customer contact

Inspection
► Many problems
► Worker fatigue
► Measurement error
► Process variability
► Cannot inspect quality into a product
► Robust design, empowered
employees, and sound processes
are better solutions

Source Inspection
► Also known as source control
► The next step in the process is your
customer
► Ensure perfect
product to your
customer

Source Inspection
► Poka-yoke is the concept of
foolproof devices or techniques
designed to pass only acceptable
product
► Checklists ensure
consistency and
completeness

Service Industry Inspection
TABLE 6.4 Examples of Inspection in Services
ORGANIZATION WHAT IS INSPECTED STANDARD
Jones Law Office Receptionist performance Phone answered by the
second ring
Billing Accurate, timely, and correct
format
Attorney Promptness in returning calls
Hard Rock Hotel Reception desk Use customer’s name
Doorman Greet guest in less than 30
seconds
Room All lights working, spotless
bathroom
Minibar Restocked and charges
accurately posted to bill

Arnold Palmer Hospital Billing Accurate, timely, and correct
format
Pharmacy Prescription accuracy,
inventory accuracy
Lab Audit for lab-test accuracy
Nurses Charts immediately updated
Data entered correctly and
Admissions completely
Olive Garden Busboy Serves water and bread within
Restaurant 1 minute
Busboy Clears all entrée items and
crumbs prior to dessert
Waiter Knows and suggest specials,
desserts

Nordstrom Department Display areas Attractive, well-organized,
Store stocked, good lighting
Stockrooms Rotation of goods, organized,
clean
Salesclerks Neat, courteous, very
knowledgeable

Attributes Versus Variables
► Attributes
► Items are either good or bad, acceptable
or unacceptable
► Does not address degree of failure
► Variables
► Measures dimensions such as weight,
speed, height, or strength
► Falls within an acceptable range

TQM In Services
► Service quality is more difficult to
measure than the quality of goods
► Service quality perceptions depend on
1) Intangible differences between
products
2) Intangible expectations customers
have of those products

Service Quality
The Operations Manager must
recognize:
► The tangible component of services
is important
► The service process is important
► The service is judged against the
customer’s expectations
► Exceptions will occur

Service Specifications

Determinants of Service
Quality
Table 6.5
Reliability involves consistency of performance and dependability
Responsiveness concerns the willingness or readiness of employees to provide 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
Communication means keeping customers informed and listening to them
Credibility involves trustworthiness, believability, and honesty
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

Service Recovery Strategy
► Managers should have a plan for
when services fail
► Marriott’s LEARN routine
► Listen
► Empathize
► Apologize
► React
► Notify

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Managing Quality

PowerPoint slides by Jeff Heyl

by increasing Sales Gains via

© 2014 Pearson Education, Inc. 6-6

•Increased Productivity: Better quality leads to more

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An operations manager’s objective

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The totality of features and

American Society for Quality

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► Baldrige's award-winning managerial

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► Recent winners include

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Total Total Cost

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Ethical Response to Quality Problems:

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BEST PRACTICE JUSTIFICATION

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► Ability to produce products uniformly in

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Repair time (minutes) Figure 6.6

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Upper control limit

Lower control limit

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Conditioning Motivation Rim height

Consistency Rim alignment Backboard

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