SCMA 331 Chapter 6 Notes PDF

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SCMA CHAPTER 6: MANAGING QUALITY Managing Quality Provides a Competitive Advantage ● Arnold Palmer Hospital -- delivers over 12,000 babies annually ● Virtually every type of quality tool is employed ○ Continuous improvement ○ Employee empowerment ○ Benchmarking ○ Just-in-time ○ Quality tools Quality and Strategy ● Managing quality helps build successful strategies of differentiation, low cost, and response ● Improvements in quality helps firms increase sales and reduce costs, both of which can increase profitability ○ Increase in sales = improved response, flexible pricing, and improved reputation ○ Reduced costs = increased productivity, lower rework and scrap costs, and lower warranty costs ● Study found companies with highest quality were 5 times as productive ● Quality, or lack of quality, affects the entire organization from supplier to customer and product design to maintenance ● Successful quality strategy begins with organizational practices (leadership, mission statement, effective operating procedures, staff support, training) then… quality principles (customer focus, continuous improvement, benchmarking, just-in-time, tools of TQM) then… employee fulfillment (empowerment, organizational commitment) then… customer satisfaction (winning orders and repeat customers) Defining Quality ● Quality: ability of a product or service to meet customer needs -- the totality of features and characteristics of a product or service that bears on its ability to satisfy state or implied needs (video definition) ● The operations manager’s objective is to build a total quality management system that identifies and satisfies customer needs ● Some believe quality is defined into several categories ○ User based -- quality lies in the eyes of the beholder -- marketers and customers like this approach -- means better performance, nicer features, and other (sometimes costly) improvements ○ Manufacturing based -- production managers believe quality means conforming to standards and “making it right the first time” ○ Product based -- quality as a precise and measurable variable ● A product that ignores any one of these steps will not result in a quality product Implications of Quality 1. Company reputation: organization can expect its reputation for quality - to be good or bad - 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: courts increasingly hold organizations accountable that design, produce, or distribute faulty products or services liable for damages or injuries resulting from their use -- Consumer Product Safety Act sets and enforces product standards -- it all can lead to large legal expenses, settlements or losses, and terrible publicity 3. Global implications: quality is an international, as well as OM concern -- products must meet global quality, design, and price expectations -- inferior products harm a firm’s profitability and a nation’s balance of payments Malcolm Baldrige National Quality Award ● Established in 1988 by the US government ● Designed to promote TQM practices ● Recent winners include … (page 218) ● Applicants are evaluation on … leadership, strategic planning, customer focus, measurement, analysis, and knowledge management, workforce focus, operations focus, results ISO 9000 International Quality Standards ● Management principles ○ Top management leadership ○ Customer satisfaction ○ Continual improvement ○ Involvement of people ○ Process analysis ○ Use of data-driven decision making ○ A systems approach to management ○ Mutually beneficial supplier relationships ● Encourages the establishment of quality management procedures, detailed documentation, work instructions, and recordkeeping ● Critical for firm to have and be certified and listed in the ISO directory for global business Cost of Quality ● Four major categories of costs are associated with quality -- cost of quality (COQ): cost of doing things wrong - this is, the price of nonconformance ○ Prevention costs: associated w/ reducing the potential for defective parts and services (eg training, quality improvement programs) ○ Appraisal costs: relate to evaluating products, processes parts, and services (eg testing, labs, inspectors) ○ Internal failure costs: result from production of defective parts or services before delivery to customers (eg rework, scrap, downtime) ○ External failure costs: occur after delivery of defective parts or service (eg rework, returned goods, lost goodwill, costs to society) ● First 3 can be reasonably estimated but external costs are hard to quantify ● Phillip Crosby says “quality is free -- what costs money are the unquality things, all the actions that involve not doing it right the first time” ● Leaders in quality ○ W. Edwards 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 implements quality improvement are in this chapter ○ Joseph M Juran -- pioneer in teaching the japanese how to improve quality -strongly believed in top management commitment, support, and involvement in the quality effort and should continually seek to raise standards -- he varies from deming in focusing on the customer and defining quality as fitness for use, not written specifications ○ Armand Feigenbaum -- book 1961 total quality control laid out 40 steps to quality improvement processes -- view quality as a set of tools but as a total field that integrated the processes of a company -- worked in how people learn from each other’s successes led to the field of cross-functional teamwork ○ Phillip B Crosby -- quality is free, his book from 1979 -- believed in the traditional trade off between the cost of improving quality and the cost of poor quality, the cost of poor quality is understated -- 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 ● For op managers, one of most important jobs is to deliver healthy, safe, and quality products and services to customer -- a manufacturer must accept responsibility for any poor quality product released to the public -- as a matter of ethics, management must ask if stakeholders are being wronged Total Quality Management ● Total quality management (TQM): management of an entire organization so that it excels in all aspects of products and services that are important to the customer ● Deming’s Fourteen Points ○ Crate consistency of purpose ○ Lead to promote change ○ Build quality into the product, stop depending on inspections to catch problems ○ Build long term relationships based on performance instead of awarding businesses on price ○ Continuously improve product, quality, and service ○ Start training ○ Emphasize leadership ○ Drive out fear ○ Break down barriers between departments ○ Stop haranguing workers ○ Support, help, and improve ○ Remove barriers to pride in work ○ Institute a vigorous program of education and self improvement ○ Put everybody in the company to work on the transformations ●

Seven Concepts of TQM ○ Continuous improvement ○ Six sigma

○ Employee empowerment ○ Benchmarking ○ Just in time (JIT) ○ Taguchi concepts ○ Knowledge of TQM tools Continuous Improvement ● Never-ending process of improvement that covers people, equipment, suppliers, materials, and procedures -- basis of the philosophy is that every aspect of operation can be improved -- end goal is perfection which is never achieved but always sought ● Plan-do-check-act -- walter Shewhart, another quality management pioneer, developed a circular model known as PDCA: continuous improvement model of ○ Plan (identify the problem and make a plan) ○ Do (test the plan) ○ Check (is the plan working??) ○ Act (implement the plan, document) Six sigma ● Program to save time, improve quality, and lower costs ● In statistical sense -- described as a process, product, or service with an extremely high capability (99.9997% accuracy) ● Program sense -- designed to reduce defects to help lower costs, save time, and improve customer satisfaction ● It is a strategy because it focuses on total customer satisfaction ● A discipline bc it follows the form six sigma improvement model known as DMAIC ○ Defines -- the projects purpose, scope, and outputs and then identifies the required process information, keeping in mind the customer’s definition of quality ○ Measures -- the process and collects data ○ Analyzes -- the data, ensuring repeatability (results can be duplicated) and reproducibility (others get same result) ○ Improves -- by modifying or redesigning, existing processes and procedures ○ Controls -- the new process to make sure performance levels are maintained ● Implementing sigma is a big commitment, require major time commitment from top management -- these leaders have roles in formulating the plan, communicate their buy in and the firm’s objectives, and take a visible role in setting the example for others Employee empowerment ● Enlarging employee jobs so that the added responsibility and authority is moved to the lowest level possible in the organization ● Getting employees involved in product and process improvements ○ 85% of quality problems are due to materials and process

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Techniques ○ Build communication networks that include employees ○ Develop open, supportive supervisors ○ Move responsibility to employees

○ Build high morale organization ○ 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 a demonstrated standard of performance that represents the very best performance for a process or an activity ● Steps for developing ○ Determine what to benchmark ○ Form a benchmark team ○ Identify benchmarking partners ○ Collect and analyze benchmarking information ○ Take action to match or exceed the benchmark ● Typical performance measures -- percentage of defects, cost/unit or /order, processing time/unit, services response time, ROI, customer satisfaction rates, and customer retention rates Internal benchmarking ● Used when a large enough organization has many divisions or business units ● Data are usually much more accessible than from outside firms -- typically one unit has superior performance worth learning from ● Benchmarks can and should be established in a variety of areas -- TQM requires no less Just in Time (JIT) ● “Pull” system of production scheduling including supply management ○ Production only when signaled ● Allows reduce inventory levels ○ Inventory costs money and hides process and material problems ● Encourages improved process and product quality ● Relationship to quality ○ Cuts the cost of quality -- occurs bc scrap rework, inventory investment, and damage costs are directly related to inventory on hand -- bc there is less inventory on hand, costs are lower -- and inventory hides bad quality, JIT exposes bad quality ○ Improves quality -- shrinks lead time, it keeps evidence of errors fresh and limits the number of potential sources of error -- creates an early warning system for quality problems, both within the firm and vendors ○ Better quality means less inventory and better, easier to employ JIT system -- often purpose of keeping inventory is to protect against poor production performance resulting from unreliable quality but if it's consistent JIT allows firms to reduce all costs associated with inventory

Taguchi Concepts ● Engineering and experimental design methods to improve product and process design ● Taguchi concepts ○ Quality robustness -- products that are consistently built to meet customer need despite adverse conditions in the production process -- he suggests removing the effects of adverse conditions instead of removing the causes and that its often cheater and more effective ■ US factories were confirmative oriented meaning they accepted anything within the specifications but when its on a lower or higher end it can cause problems in the whole resulting product -- it’s why consumers preferred the japan made tv that was exactly the same ○ Target-oriented quality -- philosophy of continuous improvement to bring a product exactly on target ○ Quality loss function -- mathematical function that identifies all costs connected w/ poor quality and shows how these costs increase as output moves away from the target value -- good way to estimate quality costs of different processes -helps managers determine if the added cost is worthwhile (figure 6.5 pg 225) Knowledge of TWM Tools ● To empower employees to implement TQM every in the organization must be trained in the techniques Tools of TQM Check Sheets ● An organized method of recording data -- help analysts find the facts or patterns that may aid subsequent analysis -- ex. Drawing that shows a tally of areas where defects occurring or a check sheet showing type of customer complaints Scatter Diagrams ● Show the relationship between two measurements -- ex. Positive relationship between the length of a service call and the number of trips a repair person makes back to the truck for parts, or plot of productivity and absenteeism -- if two items are closely related, the data points will form a tight band, if random pattern then unrelated

Cause and Effect Diagrams ● Tool that identifies process elements (causes) that may effect an outcome ● Aka Ishikawa diagram or fish-bone chart ● Operations manager starts with 4 categories: material, machinery/equipment, manpower, and methods (these are the causes) -- they provide good checklist for initial analysis -- individual causes associated w/ each category are tied in as seperate bones along the branch, forming a brainstorming process Pareto Charts

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Graphic way of classifying problems by their level of importance often referred to as the 80-20 rule ● Organizing errors, problems, or defects to help focus on problem solving efforts -- based on work of Vilfredo Pareto -- and Joseph Juran suggested that 80% of a firm’s problems are a result of only 20% of the causes Flowcharts ● Chart that describes the steps in a process -- great tool for trying to make sense of a process or explain a process Histograms ● Show a range of values of a measurement and the frequency with which each value occurs -- show most frequent occurring readings as well as the variations in measurement Statistical Process Control (SPC) ● A chart with time on the horizontal axis to plot values of a statistic -- monitors standards, makes measurements, and takes corrective action as a product or service is being produced -- if within acceptable limits, process is permitted to continue -- if they fall outside then process is stopped, w/ the assignable cause located and removed Control chart: ● Graphic presentation of process data over time, w/ predetermined control limits -shows upper and lower limits for the process we want to control -- constructed in ways that new data can quickly be compared to past performance -- upper and lower limits can be units of temp, pressure, weight, length, and so on The Role of Inspection ● To make sure a system is producing as expected, control of the process is needed -- so inspections need to be performed to ensure that processes are performing to standard ● 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 -- it does not correct deficiencies in the system or defects in the product, nor does it change a product or increase its value -- only finds them ● Aka inspections are expensive and do NOT add value to the product ● Should be thought of as a vehicle for improving system -- operations managers need to know when to inspect and where to inspect

When and Where to Inspect ● Inspections can take place at any of the following points: ○ At supplier’s plant while the supplier is producing ○ At your facility upon receipt of goods from your supplier ○ Before costly or irreversible processes ○ During the step by step production process ○ When production or service is completed ○ Before delivery to customer ○ At point of customer contact

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The 7 tools of TQM aid the 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 ● Even w/ 100% inspection, defects can still be missed bc of human error -- therefore, good processes, employee empowerment, and source control are better solution than trying to find defects by inspection Source Inspection ● (or source control) doing the job properly w/ the operator ensuring that this is so -- and is consistent w/ the concept of employee empowerment, where individual employees self check their own work ● Idea that each supplier, process, and employee treats the next step in the process as the customer -- assisted w/ use of checklists, and controls such as fail safe device called poka-yoke ● Poka-yoke: foolproof device or technique that ensures production of good units every time -- avoids errors and provide quick feedback of problems -- like how a diesel gas pump won’t fit an unleaded gas tank opening -- or prepackaged surgical coverings contain exactly the items needed for a medical procedure Service Industry Inspection ● Can be assigned to a wide range of locations -- operations manager must decide where inspections are justified and may find 7 TQM tools useful for making these judgements ● Table 6.4 pg 233 has examples Inspection of Attributes versus Variables ● Attribute inspection: classifies items as being either good or defective -- doesn’t address degree of failure -- ex. Lightbulb burns or it doesn’t ● Variable inspection: measures dimensions as weight, speed, size, or strength to see if an item falls within an acceptable range -- ex. If wire is supposed to be .01 in diameter, a micrometer can be used to see if the product is close enough to pass inspection TQM in Services ● More difficult to measure than the quality of the tangible component -- generally, user of a service, 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 makes someone superior -- this approach to product comparison differs little between goods and services ● What is different about the selection of services is poor definition of the intangible differences between products and intangible expectations customers have of those products ● Operations managers plays a significant role in addressing several major aspects of service quality -- how well the service is designed and produced does make a difference - ex. how warm food is at Taco Bell or how well car runs after picking up from repair shop ● Second, aspect of service and service quality is the process -- 9 of 10 determinants are related to this -- like reliability and courtesy ((table 6.5 pg 234 has more examples) ● Third, operations managers should realize customer’s expectations are the standard against which service is judged -- their perception results from the comparison of their

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“before service expectations” with their “actual service experience” -- aka if they meet their expectations -- don’t promise more than you can deliver Fourth, manager must expect exceptions -- there is a standard quality level at which the regular service is delivered -- quality control system must recognize and have a set of alternative plants for less than optimal operating conditions Well run companies have service recovery strategies (training and empowering frontline workers to solve a problem immediately) -- marriott hotels have LEARN (listen, empathize, apologize, react, notify) Managers at service firms may find servqual (popular measurement scale for service quality that compares service exp...