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Chapter2QualityManagement.ppt

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Quality Management

Chapter 2

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Learning Objectives

Define the meaning of quality.

Explain why it is necessary to improve the quality of goods and services.

Define the components of quality in goods and services.

Summarize the history of quality management.

Summarize the teachings of quality gurus.

Describe commonly used quality management approaches.

Describe the Six Sigma quality management approach and the steps in implementing it.

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American Express (AMEX)
provides a variety of services
to its customers such as:

Credit cards

Travelers’ cheques

Other financial services

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American Express

To ensure that AMEX delivers high quality service to its customers, a number of quality improvement processes, policies, and procedures are in place.

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What kinds of services?

Each application for a credit card goes through a structured review process.
The AMEX factory produces a custom credit card with customer’s name and account number.
The customer is instructed to call a specified toll-free phone number to activate the card. Now it’s usable!

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AMEX Reliable Services:

All aspects of the processes must be executed perfectly, millions of times every few minutes.
AMEX’s information systems and the entire world wide financial services network must have accurate information. Why? The card could be denied, resulting in a very angry customer.

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Meeting Customer Expectations

Source: © Image Source/Corbis

American Express has to ensure that the quality of its goods (the credit cards) and services (provided by the telephone call center) both meet customer expectations.

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Quality

In the global business environment, quality is no longer considered a nice-to-have luxury but is acknowledged as a necessary requirement for successfully competing and surviving in the marketplace.

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Defining Quality

Quality: the ability of a product (a good or a service) to consistently meet or exceed customer expectations
Ability: the competence, either native or acquired, that enables one to do something well
Consistently: refers to a reliable or steady pattern of performance
Expectations: a state of anticipation about a future outcome

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Ritz-Carlton

Ritz-Carlton, a two-time winner of the Malcolm Baldrige National Quality Award is internationally known for its commitment to the highest level of quality and service.
Its quality management practices are quite accurately captured in is motto, credo, and three steps to service.

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Ritz-Carlton

The company’s 20 rules were replaced by 12 “service values” that provide broad guidance to employees rather than specific instructions. These values include statements such as:

“I am always responsive to the expressed and unexpressed wishes and needs of our guests.”

“I own and immediately resolve guest problems.”

“I have the opportunity to continuously learn and grow.”

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Why Firms Improve Quality

To achieve multiple goals such as:

Cost reduction

Customer satisfaction enhancement

Increased customer loyalty

Increase in profitability and market share

Source: © Image Source/Corbis

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Cost Reduction

In 1979, Philip B. Crosby authored the book Quality Is Free, which emphasized that doing things right the first time adds nothing to the cost of a product or a service.
Dr. W. Edwards Deming also emphasized that improving quality means reducing the cost of rejects and rework, warranty expenses, and loss of goodwill.

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Costs Associated
With Quality Improvement

Internal failure costs
External failure costs
Assurance costs
Prevention costs

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Figure 2.1: The Costs of Quality

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What is Customer Satisfaction?

The quality of products and services can have a big impact on customer satisfaction, which is an indication of the long-term profitability of a company.

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Customer Loyalty, Word of Mouth, and Enhancement of the Firm’s Reputation

Research has shown that it is less costly to continue serving existing customers than to increase market share.
Companies that continue to provide high quality products and services realize high customer loyalty.
A customer who is satisfied and more loyal to a company is also likely to spread positive word of mouth and create additional goodwill in the marketplace.

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Increase in
Profitability and Market Share

Companies that produce higher quality products and services are also rewarded by enhanced financial performance.

Example: Honda and Toyota

Two of the world’s leading automobile manufacturers that have consistently ranked higher than other competitors in various quality ratings over the last several years.

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The Impact of
Quality Improvement Programs

Many scholars have analyzed the impact of quality improvement programs on a firm’s profitability.
Research has shown that the long-term profitability of companies are significantly higher compared to other firms in the same industry.

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Determinants of Quality

Determining the underlying components of quality can be difficult because customers often think of many different characteristics of a good or a service when they think about quality.
Therefore, product (goods and service) quality is considered to have several dimensions.

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Quality of Goods

Determined by:

Performance

Special Features

Reliability

Conformance

Durability

Serviceability

Aesthetics

Brand Equity or Reputation

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Service Quality

Determined by:

Reliability

Responsiveness

Competence

Access

Courtesy

Communication

Credibility

Security

Understanding/knowing the Customer

Tangibles

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Customer Expectations

Customer Expectations are influenced by many different factors such as:

Personal needs

Word of mouth

Reputation of the company

A customer compares the objective quality of a product with his or her expectations, and the perceived quality is thought to be higher or lower than expectations.

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Figure 2.4: Objective and Perceived
Quality Compared to Customer Expectations

Source: Adapted from Parasuraman, Zeithaml, and Berry (1985).

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History of Quality Management

Humans have always sought to improve the outcome of their efforts, whether in agricultural production or modern industrial and service-based economies.
Products with consistent quality became more difficult as production volume grew during the twentieth century.

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Quality Inspections

Since it is impossible to check each individual product to ensure that it meets the specifications, companies began using:
Sampling: selecting a few products from the production line for inspection. If the sample met established specifications, the entire production batch was assumed to have met acceptable quality.

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Statistical Process Control

W. Edwards Deming, statistician: went to Japan after World War II and taught the concepts of continuous improvement and statistical process control techniques
Dr. Joseph M. Juran, quality guru: taught with Deming in Japan
The teachings of Deming and Juran were followed rigorously by Japanese companies, making “Made in Japan” a mark of excellence.

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Malcolm Baldrige
National Quality Award

This award was created by the US government in 1987 to help improve the quality and competitiveness of American companies by recognizing the highest-performing organizations in the manufacturing, service, healthcare, education, and small-business categories.

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ISO 9000 and ISO 4000

ISO 9000: standard created to certify companies based on their adherence to quality management principles
ISO 4000: developed to certify companies based on their commitment to environmental quality management

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Teachings of Quality Gurus

W. Edwards Deming

considered the father of modern quality management.

He emphasized the philosophy of continuous improvement: that the quest for quality is a never-ending journey.
Deming summarizes it with: Plan, Do, Check and Act.

This slide covers continuous improvement philosophy, but doesn’t treat it as a key term. And I’m not sure if the last bullet point is still accurate: I added the “it” because it was confusing. No mention of the 14 Points? Also, the other gurus get there own slide: I’d recommend listing them all on this slide and then giving Deming his own, like the others.

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Philip Crosby

Most widely known for his easy-to-read management book: Quality Is Free.
He proposed that if management does not create a system in which zero defects are the objective, then employees are not to blame when things go wrong and defects occur.
The benefit? A dramatic decrease in wasted resources and time spent producing goods that consumers do not want.

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Philip Crosby

Defined quality as containing four absolutes:

Quality is defined as conformance to requirements.

The system for causing quality is prevention, not appraisal.

The performance standard must be zero defects.

The measurement of quality is the price of nonconformance, not indices.

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Armand Feigenbaum

Author of a book on quality control published in 1951.
He developed the concept of total quality control (TQC), which later evolved as part of total quality management (TQM).
Feigenbaum believed that the management of a company must always strive for quality excellence.

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Kaoru Ishikawa

Created a cause and effect diagram to find the root cause of process imperfections.
Explored and popularized the concept of quality circles—a small group of employees who are responsible for similar or related work functions.

These are two key terms and should be treated as such. I put them in bold, but the definitions don’t match.

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Joseph M. Juran

Wrote Quality Control Handbook: a reference work for quality engineers.
Revolutionized the Japanese practice of quality management and helped shape that country’s economy into an industrial leader.
One of the first to incorporate the human aspect of quality management.

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Quality Planning

Includes activities such as:
identifying the customer.
determining customer needs.
translating customer needs into production language.
Optimizing product features to meet customer needs.

With this set-up, attribution to Juran is lost. Hierarchy is missing and hey terms are missing: quality planning, quality improvement, quality control.

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Genichi Taguchi

Created the quality loss function: a mathematical formula for determining the cost of poor quality
Developed principles of robust quality: an experimental design and statistical analysis approach for identifying the optimum product design configuration

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Walter Shewhart

Known as the grandfather of quality management. The earliest notions of quality and continuous improvement principles can be traced back to this former Bell Telephone employee.

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Quality Management Frameworks

Total Quality Management is an umbrella term used to describe a quality management system that addresses all areas and employees of an organization, emphasizes customer satisfaction, and uses continuous improvement tools and techniques.

TQM is a major heading on its own; this slide is misleading. (Also, the definition doesn’t exactly match the book’s.)

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The Essential Elements of TQM

Top management commitment (TQM)
Employee participation
Customer focus
Management by fact
Continuous improvement

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Figure 2.6: Components of TQM

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ISO 9000 and ISO 14000 Standards

ISO (International Organization for Standardization) is a non-governmental organization encompassing the national standards institutes of 157 countries.
ANSI (American National Standards Institute) represents the U.S. government, businesses, and consumers within the ISO.
ISO acts as a bridging organization in which a consensus can be reached on standards that meet the requirements of different segments of the society.

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ISO

The ISO develops standards that have technical, economic and social impact around the world.
The objective of the ISO standards is to make the development, manufacturing, and supply of products and services more efficient, safer, and cleaner.

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ISO Standards

According to the ISO, its standards help different segments of society in the following manner:

For businesses

For customers

For government

For trade officials

For developing countries

For consumers

For everyone

For the planet we inhabit

This is a summary of Table 2.2 without any of the content. Either list the segments or list the how like the slide suggests. Given the amount of content, I’d recommend truncating the sentence after the word society and getting rid of all the “for..”

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Table 2.3: Examples of ISO Standards

Source: http://www.iso.org/iso/en/commcentre/isocafe/index.html

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Figure 2.7: The Basis
of ISO 9000 Standards

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Baldrige Framework
for Performance Excellence

The Malcolm Baldrige National Quality Award (MBNQA) is an annual award given to high-performing organizations within the United States.
The MBNQA recognizes the highest performing organizations in six categories: manufacturing, service, small business, health care, education and not-for-profit.

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Figure 2.8: Malcolm Baldrige
Award: Core Values and Concepts

Source: The figure is based on information included within the 2007 Criteria for Performance Excellence (http://www.baldrige.gov/).

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Figure 2.9: Framework for the Malcolm Baldrige National Quality Award

Source: 2007 Criteria for Performance Excellence (http://www.baldrige.gov/).

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Six Sigma

Six Sigma: an approach based heavily on the statistical and fact-based data and tools

The dominant quality management framework used in manufacturing and service organizations

Based on the philosophies of gurus (Deming, Juran, and others)

Has aspects in common with TQM and the Baldrige Framework

Originally developed as a framework for implementing quality improvement approaches at Motorola

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Six Sigma

The Six Sigma way of thinking is organized around DMAIC (Define, Measure, Analyze, Improve and Control).
The number six refers to the objective that no measure should be less than six standard deviations from the desired standard to achieve almost perfection (99.9997 percent error-free products).

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The Conceptual
Framework of Six Sigma

The Six Sigma approach can be summarized as:

Understanding the needs and preferences of the customer
Management by fact is a requirement.
The unit of analysis within a Six Sigma approach is a process.
Six Sigma emphasizes the need for a proactive management style.
Active cooperation and collaboration between employees to achieve teamwork
Six Sigma strives for perfection. (The term Six Sigma itself refers to a statistical term meaning 3.4 million defects in a million opportunities).

*I did a little rewriting here to include all of the italic words in the text, which seem to imply a level of emphasis. Also, only complete sentences have periods; I didn’t try to convert the phrases into sentences.

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Figure 2.10: Percent of Area Under
the Normal Distribution Curve Based
on a 1, 2, and 3 Distance from the Mean

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Upper and Lower Tolerance Limits

Sigma level of a process can be calculating by dividing the distance from the tolerance limits (either LTL or UTL) to the mean by standard deviation.

Process Sigma = UTL-Mean or Mean-LTL

0 0

Acceptable quality range is a key term that is missing, and Upper and Lower tolerance limits are key terms that are missing definitions that match the text. Also the numbers in the equation are wrong, they shouldn’t be zero, which is what I see: They need to be some sort of special character, may need MathType or something similar?

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Figure 2.13: Six Sigma
and Tolerance Limits

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Implementing Six Sigma

DMAIC defines the steps that a Six Sigma practitioner is expected to follow, starting with identifying the problem and ending with the implementation of longlasting solutions

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DMAIC

Define a problem or improvement opportunity.
Measure process performance.
Analyze the process to determine the root causes of poor performance.
Improve the process by attacking the root causes.
Control the improved process to hold the gains.

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Figure 2.16: The DMAIC Methodology