iscom/361 week 5

QUALITY MANAGEMENT TOOLS AND TECHNIQUES

The question of how to assure quality is important for all three roles played by an organization: customer, converter, or supplier of goods or services. This section addresses tools and techniques for assuring quality, including lean thinking; total quality management (TQM); continuous improvement or kaizen; quality function deployment (QFD); Six Sigma; statistical process control (SPC); sampling; inspection and testing; and supplier certification.

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Lean Enterprise

Lean thinking is a management philosophy focused on maximizing customer value while minimizing waste, typically in the form of overproduction, waiting, transportation, nonvalue-adding processes, inventory, motion, and costs of quality (scrap, rework, and inspection). Lean was first used to describe Toyota’s Production System in the late 1980s and has also been called just-in-time (JIT) manufacturing. Today, lean principles and practices are applied in all industries and services, including health care and government.

The goal is to optimize the flow of products and services through value streams that flow internally across technologies, assets, and departments to customers and externally with supply chain partners. The product or service flows when pulled by the next downstream step. A value stream is a series of steps executed in the right way and at the right time to create value for the customer. Each step in a value stream must be valuable to the customer, capable, available, adequate, and flexible. A step is capable if it gets the exact same result every time, available if it can be performed whenever it is needed, adequate if there is capacity to perform it exactly when it is needed, and flexible if it can respond rapidly to changing customer desires without creating inefficiencies.

Lean supply networks require advanced modeling tools that consider all costs and provide optimized strategies across a network of distribution centers, plants, contract manufacturers, sourcing options, and logistical lanes. Demand variability drives waste into the network. Therefore, lean enterprises use tools such as IT solutions that solve complex optimization problems yet are easy to use and deploy, capable of responding to real-time information, and integrate and align internal and external supply chain partners globally.

Honda’s strategy is to move production as close to customers as possible to minimize lead times and inventories and to move design close to production to maximize information flow while minimizing response time. Honda’s lean enterprise includes designing and making high-volume products for each world region entirely within the region and cross-trading niche products between regions to capture scale economies.

Total Quality Management (TQM)

Total quality management (TQM) is a philosophy and system of management focused on long-term success through customer satisfaction. It was developed in Japan after W. Edwards Deming taught statistical quality control to the Union of Japanese Scientists and Engineers (JUSE) in 1950. Total quality control (TQC) was reimported to the United States in the 1980s and contributed to the revitalization of U.S. industries. It is known internationally as total quality management (TQM).

In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work. Top management develops the vision for total quality and provides the commitment and support, including progress reviews, to realize this vision. The customer can be internal or external and is anyone in the supply chain who receives materials from a previous step in the chain. The methods for implementing this approach come from the teachings of such quality leaders as Philip B. Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa, and Joseph M. Juran.

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Deming’s 14 Points

A core concept in implementing TQM is Deming’s 14 points, a set of management practices to help companies increase their quality and productivity. These are:2

1. Create constancy of purpose for improving products and services.

2. Adopt the new philosophy.

3. Cease dependence on inspection to achieve quality.

4. End the practice of awarding business on price alone; instead, minimize total cost by working with a single supplier.

5. Improve constantly and forever every process for planning, production, and service.

6. Institute training on the job.

7. Adopt and institute leadership.

8. Drive out fear.

9. Break down barriers between staff areas.

10. Eliminate slogans, exhortations, and targets for the workforce.

11. Eliminate numerical quotas for the workforce and numerical goals for management.

12. Remove barriers that rob people of pride of workmanship, and eliminate the annual rating or merit system.

13. Institute a vigorous program of education and self-improvement for everyone.

14. Put everybody in the company to work accomplishing the transformation.

From this list, four important features of TQM emerge:

1. Quality must be integrated throughout the organization’s activities.

2. There must be employee commitment to continuous improvement.

3. The goal of customer satisfaction and the systematic and continuous research process related to customer satisfaction drive TQM systems.

4. Suppliers are partners in the TQM process.

TQM stresses quality as the integrating force in the organization. For TQM to work, all stages in the production process must conform to specifications that are driven by the needs and wants of the end customer. All processes, those of the buyer and the suppliers, must be in control and possess minimal variation to reduce time and expense of inspection. This in turn reduces scrap and rework, increases productivity, and reduces total cost. TQM is more than a philosophy. It involves the use of several tools, such as continuous improvement or kaizen, quality function deployment (QFD), and statistical process control to achieve performance improvements.

The following sections describe how quality management techniques are used and how they apply to the supply function.

Continuous Improvement

Continuous improvement, sometimes called by its Japanese name, kaizen, refers to the relentless pursuit of product and process improvement through a series of small, progressive steps. It is an integral part of both just-in-time (JIT) and TQM. Continuous improvement

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should follow a well-defined and structured approach and incorporate problem-solving tools such as Pareto analysis, histograms, scatter diagrams, check sheets, fishbone diagrams, control charts, run charts, and process flow diagrams.

The plan–do–check–act cycle, sometimes called the Deming Wheel, provides a good model for conducting continuous improvement activities.

Plan: Collect data and set performance target.

Do: Implement countermeasures.

Check: Measure and evaluate the results of countermeasures.

Act: Standardize and apply improvement to other parts of the organization.

For example, at Thomas Jefferson University Hospitals in Philadelphia, operating room patient flow from preadmissions testing to the post-anesthesia unit was marked by inefficiencies, including delays and bottlenecks. By forming kaizen teams and executing events to identify and eliminate root causes, the hospital realized significant efficiencies.3

At Honda, the purchasing policy is “Best possible quality, cost, delivery, development, and environment (QCDDE): sensing worldwide, acting worldwide, creating worldwide.” The goal is to help achieve the company’s 2020 Vision of providing “good products that maximize the joy of customers with speed, affordability and low CO2 emissions.”4

Quality Function Deployment (QFD)

Quality function deployment (QFD) is an important aspect of TQM. It is a comprehensive quality system aimed specifically at satisfying the customer throughout the development and business process—end to end. It is a method for listening and effectively responding to the voice of the customer to develop higher-quality new products at less cost and in less time. The QFD method can be used for both tangible products and nontangible services across business sectors.5 It has been used successfully by companies, including Accenture, Boeing, Continental Rehabilitation Hospital, Ford, and the U.S. Department of Defense. Modern QFD addresses the four Ss of today’s lean business environment: speed, smart, slim and sustainable.

QFD is a comprehensive quality system that:

• Seeks both spoken and unspoken customer needs.

• Maximizes “positive” quality (such as ease of use, fun, luxury) that creates value.

• Translates these into actions and designs by using transparent analytic and prioritization methods.

• Empowers organizations to exceed normal expectations.

• Provides a level of unanticipated excitement that generates value.

QFD is based on teamwork and customer involvement. It integrates marketing, design, engineering development, manufacturing, production, and supply in new product development from the conception stage through final delivery. Through coordination and integration, rather than the traditional sequential development approach, QFD allows the end customer’s needs and wants to be communicated at the product development stage and then drive the

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design and production stages. More time is spent up front in product development, but by accurately defining customer needs and wants, the total time spent on the design cycle is reduced because fewer design changes are made in later stages of the process.

The four integrated stages of the QFD process are:

1. Product or service planning, to determine design requirements.

2. Parts deployment, to determine parts characteristics for manufactured goods.

3. Process planning, to determine manufacturing requirements or service process elements.

4. Production or action planning, to determine production requirements or service action plans.

Buyer and supplier integration into the process can benefit the organization by:

1. Reducing or eliminating engineering or service design changes during product or service development.

2. Reducing product or process development cycle time.

3. Reducing start-up cycle time.

4. Minimizing product or service failures and repair or service replacement costs over the product or service life.

5. Creating product or service uniformity and reliability during production or service delivery.

From the perspective of supply management, well-functioning buyer–supplier relationships are a key contribution that purchasers and supply managers can make to the organizations’ TQM and QFD efforts. Supply-base rationalization (determining the optimum number of suppliers to meet business needs) and closer relationships with key suppliers through partnering arrangements or strategic alliances go hand in hand with quality initiatives (see Chapter 13). The importance of matching supply performance measures to the strategic initiatives of the organization is also important if TQM and QFD are to be successful. For example, if supply’s performance is measured by a reduction in the prices of materials and improved operating efficiency rather than the quality of supplier relationships, then purchasers may buy on the basis of price alone. This will undermine the quality initiatives of the firm. Integration of functions and processes throughout the firm, and with key suppliers, is a critical component of global competitiveness.

Six Sigma

A Six Sigma (6s) approach to quality focuses on preventing defects by using data to reduce variation and waste. This quality initiative was developed by GE and Motorola and has been adopted by many organizations. Six Sigma quality means there are no more than 3.4 defects per million opportunities. Technically, 6s or six standard deviations are very close to zero defects and correspond to a Cpk value (discussed later in this chapter) of 2.0. Six Sigma initiatives have measurable goals such as cost reduction or profit increase through improvements in cycle time, delivery, safety, and so on.

Six Sigma methods may also be adapted to service processes. First, categorize service processes as highly customized, mass customized, or standard. While opportunities may exist in any category, the greatest occur in standardized services such as credit card

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account services, fast-food, benefits processing, and payroll or accounts payable. The next step is defining a service defect. A service defect is a flaw in a process that results in a lower level of customer satisfaction or a lost customer. Easily quantified measures are lost customers, customer satisfaction ratings, and service turnaround times. After identifying a service defect, conduct root cause analysis, then develop and implement improvement action plans.

According to Kubiak and Benbow, writing for the ASQ, Six Sigma is defined in several ways:

1. It is a philosophy based on the view that all work is processes that can be defined, measured, analyzed, improved, and controlled. Processes require inputs (x) and produce outputs (y). If you control the inputs, you will control the outputs.

2. It is a set of tools, including statistical process control (SPC), control charts, failure mode and effects analysis, and flowcharting. These are qualitative and quantitative techniques to drive process improvement.

3. It is a methodology with five steps: define, measure, analyze, improve, and control (DMAIC). This is the most widely adopted and recognized Six Sigma methodology.6

The common elements of Six Sigma initiatives are:

• A management environment that supports the initiatives as business strategy. Organizational support is provided by designated executives and champions who set the direction for project selection and deployment.

• Well-defined projects with bottom-line impact.

• Teams whose members have statistical training. Levels include black belt, master black, green, yellow, and white belts. Each level has specific roles and project responsibilities.

• Emphasis on the DMAIC approach.

Statistical Process Control (SPC)

Dr. W. Edwards Deming, the well-known American quality control specialist, assisted Japanese manufacturers in instituting statistical quality control (SQC) beginning in the 1950s. Dr. Deming showed that most processes tend to behave in a statistical manner and that understanding how the process behaves without operator interference is necessary before controls can be instituted. Managing quality using SQC techniques involves sampling processes and using the data and statistical analysis to establish performance criteria and monitor processes. Statistical process control (SPC) is a technique that involves testing a random sample of output from a process in order to detect if nonrandom, assignable changes in the process are occurring. Because almost all output results from a manufacturing or transformation process of some sort, process control is the preferred approach to controlling product quality.

The first step in quality assurance is making sure that the supplier’s process capability and the buyer’s acceptable quality range mesh. If the natural range of the supplier’s process is wider than the range of the buyer’s quality requirements, then the buyer

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must negotiate with the supplier to have the supplier narrow the natural range through process improvements such as operator training or machine improvements. If it is not economically feasible or the supplier is unable or unwilling to make improvements for some reason, then the buyer may seek another supplier rather than incur the extra cost of inspection, rework, and scrap.

From the buyer’s perspective, the basic steps in assuring quality through statistical process control are:

1. Buyer establishes required quality specifications.

2. Supplier determines process capability.

a. Identify common or chance causes of variation.

b. Identify special or assignable causes of variation.

c. Eliminate special causes.

3. Compare buyer’s quality requirements to supplier’s process capability.

4. Make adjustments, if necessary.

a. Negotiate with supplier for process improvements.

b. Seek an alternate supplier.

Causes of Variation

Since no process can produce the same exact results each time the activity is performed, it is important to establish what kind of variation is occurring and eliminate as much as possible. A process capability study identifies two types of variation: (1) common causes or random variation and (2) special or assignable causes of variation.

Common or chance causes of variation. These causes are intrinsic to the process and will always be there unless the process is changed. They may be related to machine, people, material, method, environment, or measurement. For instance, machine lubrication, tool wear, or operator technique would be common causes that result in inconsistent output. If too many defects occur because of common causes, then the process must be changed.

Special or assignable causes of variation. These causes are outside, nonrandom problems such as breakdown of machinery, material variation, or human error. These must be identified and eliminated. Otherwise, the output will fall outside the acceptable quality range. Statistical process control procedures are primarily concerned with detecting and eliminating assignable or special causes.

Process capability

A process is capable when there are no special or assignable causes of variation, only common or chance causes. It is capable of meeting specifications consistently. The process is said to be in statistical control or stable and predictable. If a process is capable, then the probability of a process meeting customer specifications can be predicted. The process averages a set number of standard deviations within the specifications.

In determining whether or not a process is stable, the supplier must determine what the natural capability of the process is and whether or not the upper and lower capability limits meet the specifications of the buyer. When a process is “in control,” the supplier can predict the future distributions about the mean. For a process to be capable and in control, all the special causes of variation in output have been eliminated, and the variation from common

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causes has been reduced to a level that falls within the acceptable quality range specified by the buyer.

Design engineers establish the upper and lower specification limits based on a specific design function.

Upper specification limit (USL). The USL is the maximum acceptable level of output.

Lower specification limit (LSL). The LSL is the minimum acceptable level of output. The USL and the LSL are related to a specific product specification; they are independent of any process. The allowable difference between a physical feature and its intended design is the tolerance. For example, design engineering writes a specification for a rod to have a diameter of 2 inches with a tolerance of ± .005 inches. The LSL is 1.995 inches, and the USL is 2.005 inches. Any rods produced within this range are within tolerance.

Process Capability Index (Cp). This index combines process spread and tolerance into one index and indicates whether process variation is satisfactory. The higher the Cp, the more capable the process is of producing parts that are consistently within specification. This index assumes the process is centered between the USL and the LSL and that processes are 6 sigma wide, representing 99.7 percent of the output of a normal process.

A process with a Cp of less than 1.0 is generally considered not capable. If the capability index is greater than 1.0 the process is capable of producing 99.7 percent of parts within tolerance. The Cp is calculated as:

Cp = USL − LSL6σCp = USL − LSL6σ

For example, if the tolerance is 2.000 inches ± .0005 inches and the standard deviation of the process (σ) was .0016 inch.

Cp = 2.005 – 1.9956×.0016=1.04Cp = 2.005 – 1.9956×.0016=1.04

A Cp of 1.33 has become a standard of process capability. Purchasers can specify process capability expectations. Some organizations require a higher value of 2.0. A higher value means fewer defects and greater quality.

Cpk Index. This index adjusts the Cp for the effect of noncentered distribution. Cpk is defined as the lower of either of the following:

Upper tolerance limit − ¯¯¯XProcess spread or ¯¯¯X − Lower tolerance limitProcess spreadUpper tolerance limit − X¯Process spread or X¯ − Lower tolerance limitProcess spread

X̅ is the process mean, and the process spread is equal to three standard deviations of the output values, or the spread on one side of the process average. A process with a Cpk of

1. Less than 1.0—unacceptable because part of the process distribution is out of specification.

2. Between 1 and 1.33—marginal because the process distribution is barely within specification.

3. Greater than 1.33—acceptable because the process distribution is well within the specification.

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Process Control

Process control is a key aspect of TQM. It is a method of monitoring a process to prevent defects. Both the center and the variation around the center are measured. Quality control charts are the primary tool.

Quality control charts. In processes using repetitive operations, the quality control chart is invaluable. The output can be measured by tracking a mean and dispersion. The X-bar chart is useful for charting the population means and the R chart the dispersion.

Upper and lower control limits. Upper (UCL) and lower (LCL) control limits can be set so that operator action is required only when the process or machine starts to fall outside of its normal desirable operating range. The UCL represents an upward shift of 3 × σ from the mean value of a variable. The LCL represents a similar downward shift. For a normally distributed output, 99.7 percent should fall between the UCL and the LCL. The process is stable as long as output falls within the established limits.

Figure 7–5 illustrates this “wandering” type of behavior at a steel mill. The rolling operation controls the thickness of the steel. Each hour the operator collects thickness data and enters on the chart the means of samples taken from the process. An R chart is the plot of the range within each of the samples. If the mean or range falls outside its acceptable limits, the process is stopped. Action is then taken to determine the cause for the shift so that corrections can be made.

FIGURE 7–5 Control Chart

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The control chart uses random sampling techniques (discussed in the next section). It is well suited to most manufacturing and service operations producing large output where it is not necessary to screen every item produced: for example, stamping steel parts or processing applications in an insurance office.

Sampling, Inspection, and Testing

As discussed earlier in this chapter, each organization is a customer, a converter, and a supplier. Therefore, there are three opportunities for each organization to experience poor quality: as a supplier whose goods or services fail to meet customers’ quality specifications, as a converter whose process fails to produce to customers’ quality specifications, and as a customer who receives goods or services that fail to meet its quality specifications.

The high cost of correcting poor-quality products and services drives the focus on building in quality rather than inspecting it after production or delivery. Building it right the first time is the primary goal of the quality management programs discussed in this chapter. Managing the costs of quality is also an important part of the quality management process. Decisions about sampling, testing, and inspection drive costs into the process and ultimately into the final product or service. These decisions are cost-benefit decisions wherein the goal is to balance the cost of sampling, testing, and inspection against the risk of either accepting a lot with more than an acceptable level of defects or of rejecting a good lot. Lowering either risk requires a larger sample size, and this leads to higher costs.

Sampling, testing, and inspection are quality management tools that may be used at three different stages in the acquisition process.

1. Before a purchase commitment is made to a supplier. It may be necessary to test samples to see if they are adequate for the intended purpose. Similarly, comparison testing may be done to determine which product is better from several different sources. Also, historical quality control data may be used in the supplier evaluation process to determine a supplier’s quality capability relative to the buyer’s quality specifications.

2. During the commitment to a supplier. Sampling or inspection is performed to ensure that the conversion process is in control and that defects are minimal.

3. After a purchase commitment has been made. Inspection may be required to ensure that the items delivered conform to the original description.

There are basically two major types of quality checks on tangible output. One is sampling and the other is 100 percent inspection or screening.

Sampling

A sample is a small number of items selected from a larger group or population of items. The goal is to secure a sample that is representative of the total population being tested. The results of testing or inspecting the sample are used to accept or reject the entire batch or lot. How a sample is taken will vary with the product and process. Random sampling is one commonly used technique.

Random Sampling. A random sample is one in which every element in the population has an equal chance of being selected. The method of taking a random sample will depend on the characteristics of the product to be inspected. If all products received in a shipment can be thoroughly mixed together, then the selection of a sample from any part of the total

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of the mixed products will represent a valid random sample. For example, if a shipment of 1,000 balls of supposedly identical characteristics is thoroughly mixed together and a random sample of 50 balls is picked from the lot and inspected and five are found to be defective, it is probable that 10 percent of the shipment is defective.

If the product has characteristics that make it difficult or impractical to mix together thoroughly, then consecutive numbers can be assigned to each product, and tables or computer programs of random numbers can be used to draw a sample for detailed inspection. The general rule of statisticians when drawing a random sample is: Adopt a method of selection that will give every unit of the product to be inspected an equal chance of being drawn.

Sequential Sampling. Sequential sampling may be used to reduce the number of items inspected in accept–reject decisions without loss of accuracy. It is based on the cumulative effect of information that every additional item in the sample adds as it is inspected. After each individual item’s inspection, three decisions are possible: accept, reject, or sample another item. A. Wald, one of the pioneers of sequential sampling development, estimated that, using his plan, the average sample size could be reduced to one-half, as compared to a single sampling plan.

In a simple version of sequential sampling, 10 percent of the lot is inspected, and the whole lot is accepted if the sample is acceptable. If the sample is not acceptable, an additional 10 percent may be inspected if the decision to reject cannot be made on the basis of the first sample. These methods reduce the cost of quality.

100 Percent Inspection or Screening

It is often held that 100 percent inspection, or screening, is the most desirable inspection method available. This is not true. Experience shows that 100 percent inspection seldom accomplishes a completely satisfactory job of separating the acceptable from the nonacceptable or measuring the variables properly. Actually, 200 or 300 percent inspection or even higher may have to be done to accomplish this objective.

Depending on the severity of a mistake, an error of discarding a perfectly good part may be more acceptable than passing a faulty part. In some applications, the use of such extreme testing may increase the cost of a part enormously. For example, in certain high-technology applications, individual parts must be accompanied by their own individual test “pedigrees.” Thus, a part that for a commercial application might cost $0.75 may well end up costing $50.00 or more and perform the identical function.

One of the many contributions of Shigeo Shingo in Japan was the development of foolproof, simple “poka yoke” devices that permit inexpensive, rapid 100 percent inspection to ensure zero defects. A simple example is the three-prong power cable connector that can only be inserted in the proper manner.

Testing

Testing products may be necessary before a commitment is made to purchase. The original selection of a given item may be based on either a specific test or a preliminary trial.

When suppliers offer samples for testing, the general rule followed by purchasers is to accept only samples that have some reasonable chance of being used. Buyers are more likely to accept samples than to reject them, since they are always on the lookout for items

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that may prove superior to those in current use. For various reasons, however, care has to be exercised. The samples cost the seller something and the buyer will not wish to raise false hopes on the part of the salesperson. Sometimes, too, the buyer lacks adequate facilities for testing or testing may be costly to the buyer. To meet these objections, some organizations insist on paying for all samples accepted for testing, partly because they believe that a more representative sample is obtained when it is purchased through the ordinary trade channels and partly because the buyer is less likely to feel under any obligation to the seller. Some organizations pay for the sample only when the value is substantial; some follow the rule of allowing whoever initiates the test to pay for the item tested; some pay for it only when the outcome of the test is satisfactory. The general rule, however, is for sellers to pay for samples on the theory that, if sellers really want the business and have confidence in their products, they will be willing to bear the expense of providing free samples.

Use and Laboratory Tests. The type of test varies, depending on such factors as the attitude of the buyer toward the value of specific types of tests, the type of item in question, its comparative importance, and the buyer’s facilities for testing.

A use test alone may be considered sufficient, as with paint and floor wax. One advantage of a use test is that the item can be tested for the particular purpose for which it is intended and under the particular conditions in which it will be used. However, there is a risk that failure may be costly or interrupt performance.

A laboratory test alone may be adequate and may be conducted by a commercial testing laboratory or in the organization’s own quality control facility. For retailers, a test may be given in one or more stores to establish whether consumer demand is sufficient to carry the product.

Commercial Testing Labs and Services. The type of inspection required may be so complicated or expensive that it cannot be performed satisfactorily in the buyer’s or seller’s own organization. The services of commercial testing laboratories may be used, particularly for new processes or materials or for aid in setting specifications. Also, the use of an unbiased testing organization may lend credibility to the results. For example, air, water, and soil samples are often sent to commercial labs to test for compliance with EPA standards.

Furthermore, standard testing reports of commonly used items are available from several commercial testing laboratories. They are the commercial equivalent of consumer’s reports and can be a valuable aid.

The actual procedure for handling samples need not be outlined here. It is important to make and keep complete records concerning each individual sample accepted. These records should describe the type of test, the conditions under which it was given, the results, and any representations made about it by the seller. It is sound practice to discuss the results of such tests with supplier representatives so that they know their samples have received a fair evaluation.

Inspection upon Receipt

The ideal situation is one in which no receiving inspection is necessary because the joint buyer–supplier quality assurance effort has resulted in outstanding quality performance with reliable supplier-generated records. However, not all organizations have reached this enviable goal. The type of inspection, its frequency, and its thoroughness vary with circumstances. In the final analysis, this is a matter of comparative costs. How much must be spent to ensure compliance with specifications?

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The purpose of inspection upon receipt is to assure the buyer that the supplier has delivered an item that corresponds to the description furnished. Receiving inspection may be used initially for products or services of new suppliers. If quality is consistently within specification, then the level of inspection may decrease. Unfortunately, production or service delivery methods and skills, even of established suppliers, change from time to time; operators or service providers become careless; errors are made; and occasionally a seller may try to reduce production costs to the point where quality suffers. Good supply policy may lead to an increase in inspection while cause and remedy are determined. While the goal is to eliminate the need for inspection by building in quality, inspection is used in some situations.

In setting specifications, it is desirable to include the procedure for inspection and testing as protection for both buyer and seller. The supplier cannot refuse to accept rejected goods on the ground that the type of inspection to which the goods would be subjected was not known or that the inspection was unduly rigid. Supplier and purchaser need to work out both the procedure for sampling and the nature of the test to be conducted. This way both supplier and purchaser should achieve identical test results, no matter which party conducts the test. Whereas in some situations purchasers may be more sophisticated in quality control and, in others, the suppliers are more sophisticated, it is sensible for both sides to cooperate on this issue.

Adjustments and Returns

The supply department, aided by the using, inspection, or legal department, is responsible for prompt action on adjustments and returns. Any nonconforming product, material, or equipment must be secured to avoid the possibility of inadvertent processing, pilferage, or additional damage while its disposition is being deliberated. Some organizations use a material review board to decide how to deal with specific nonconforming materials.

The actual decision about what can or should be done with material that does not meet specifications is both an engineering and a procurement question. Nonconforming material can be rejected and returned at the supplier’s expense or held for disposition instructions. In either case, the buyer must inform the supplier if the shipment is to be replaced with acceptable material or if other alternatives are being considered. Frequently, a material may be used for another purpose or substituted for some other grade. One alternative is to rework the material and deduct the additional processing cost from the purchase price. Also, the supplier may send a technical representative to the buyer’s organization to provide complete satisfaction, particularly in the case of new types of equipment or new material.

The costs incurred when materials are rejected may be divided into three major classes: (1) transportation costs, (2) testing cost, and (3) contingent expense. The buyer and seller must decide how to allocate these costs between them. This is partially affected by the kind of material rejected, trade customs, the essential economies of the situation, the buyer’s cost accounting procedure, and the positions of strength of each organization. Typically, transportation costs both to and from the rejection point are charged back to the supplier. Inspection or testing costs are ordinarily borne by the buyer and are considered a part of purchasing or inspection costs.

Contracts or trade customs often provide that the supplier will not be responsible for contingent expense. This is, however, perhaps the greatest risk and the most costly item of all from the buyer’s standpoint. Incoming materials that are not of proper quality may seriously interrupt production; their rejection may cause a shortage of supply that may result

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in customer penalties, delay or actual stoppage of production, extra handling, and other expense. Labor and/or equipment time may be expended in good faith on material later found to be unusable. It is, in general, however, not the practice of buyers to allocate such contingent costs to the supplier. Some buyers, however, insist on agreements with their suppliers to recover labor, equipment, or other costs expended on the material before discovery of its defective character.

The frequency of defective materials or services decreases drastically when there is a buyer–supplier partnership or a joint quality program. The resolution of difficulties from defective or late deliveries is usually handled in a highly professional and efficient manner, avoiding the nastiness of blame, avoidance, and litigation threats.

The Quality Assurance and Quality Control Group

The primary responsibilities of a quality assurance and quality control department or function are to establish and maintain effective controls for monitoring processes and equipment and supporting efforts to help suppliers and their suppliers to design, implement, and monitor continuous quality improvement programs. Additionally, their responsibilities include the technical task of inspecting incoming material or monitoring in-house production. The group also plays a key role in supplier certification; initiates materials studies; and inspects samples provided by suppliers. Frequently it must investigate claims and errors, related both to incoming items and to outgoing or finished products. It may examine material returned to stores to determine its suitability for reissue. Similarly, it may be called on to examine salvage material and to make a recommendation about its disposition.

The structure and location of the quality assurance function constitute a relevant problem of administration. In most cases, the work of inspection is performed by a separate department whose work may be divided into three main parts: the inspection of incoming materials, the inspection of materials in the process of manufacture, and the inspection of the finished product. The assignment of this work to a separate department is supported partly on the ground that if the inspectors of materials in process and of the finished product report to the executive in charge of operations, there may be occasions when inspection standards are relaxed in order to cover up defects in production. In some organizations, the quality assurance function reports to the supply manager.

Many quality control software programs are available. They have resolved the tedium of extensive calculations and charts and provide a range of applications. Standard programs, for example, select sampling plans, calculate sample statistics and plot histograms, produce random selection of parts, plot operating characteristics (OC) curves, and determine confidence limits.

Assuring the Quality of Purchased Services

As addressed in Chapter 6, “Need Identification,” services fall along a continuum of highly tangible to highly intangible, and intangibles cannot be inventoried. These two aspects of service can create special quality measurement difficulties.

Parasuraman, Zeithaml, and Berry defined service quality as “the degree of discrepancy between customers’ normative expectations for the service and their perceptions of the service performance.” They defined “desired service” as the level of service representing a blend of what customers believe “can be” and “should be” provided and “adequate service” as the minimum level of service customers are willing to accept.

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According to the 2013 ASQ Global State of Quality Research: Analysis, Trends, and Opportunities, manufacturing-based organizations are nearly twice as likely as service-focused organizations to use quality measures to drive higher performance by promoting challenging goals as part of variable performance compensation, and to support predictive analytics.7

In highly tangible services such as construction, quality control can be geared heavily toward the measurement of the tangible, in ways similar to standard quality assurance and control. However, all aspects of the ability of the actual service provider(s) (people) to consistently perform the service at the desired quality level are vital to the performance evaluation process. This means the quality of the intangibles must also be assessed. Intangibles such as “Were the supplier’s personnel sufficiently courteous when dealing with the purchaser’s employees?” may be measured by a survey or by the number of complaints received. But it is important to recognize that any standard, at best, will be imprecise.

Because the nature of many services prevents storage, delivery tends to be instantaneous. In other words, quality control will have to be performed while the service delivery is in progress, or afterward. And it may be difficult to interrupt the process, even if simultaneous quality control is possible. Therefore, the quality risk in services may be relatively high compared to the purchase of products. In cases of quality failure, it may not be possible to return the services for a full refund.

Postservice evaluation is an essential component in effective service acquisition. The same checklist that was used in sourcing may also be used for postservice evaluation.

Informal Evaluation

At the very least, an informal evaluation might suffice. In the case of consulting services, this might include two questions:

1. Did your problem or issue get resolved to your satisfaction?

2. Would you rehire this consultant in the future for another problem or issue?

Additional questions regarding conformance to expectations of quality, timeliness, and cost are appropriate, as well as feedback on the professionalism and service orientation of the consultant personnel.

Quality risk avoidance may be achieved by certifying service providers, doing business with service suppliers found to be satisfactory in the past, avoiding repeat business with suppliers who did not do a good job, carefully checking suppliers beforehand with other users with similar needs, and using carefully worded preservice delivery communications with the supplier and service users to ensure common understanding of requirements and expectations.

Formal Evaluation

A formal service quality evaluation process developed by Parasuraman, Zeithaml, and Berry identifies five quality dimensions:

Reliability: ability to perform the promised service dependably and accurately.

Responsiveness: willingness to help customers and provide prompt service.

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Assurance: knowledge and courtesy of employees and their ability to inspire trust and confidence.

Empathy: caring, individualized attention the firm provides its customers.

Tangibles: physical facilities, equipment, and appearance of personnel.8

The survey process measures the gap between service expectations along each dimension and the perceptions of actual service performance. In a refinement of SERVQUAL, the authors added three questions to strengthen the validity of the assessment: (1) Have you experienced a recent service problem with the company? (2) If so, was it resolved to your satisfaction? (3) Would you recommend the service firm to a friend?9

Ultimately, the goal of effective acquisition of services is to obtain best value. In this sense there is no difference between the acquisition of services and goods. And the best buy in services represents the appropriate trade-off between quality, quantity, delivery, price/cost, and other relevant factors. In the assessment of quality of purchased services, the following characteristics might be considered: value, repetitiveness, tangibility, direction, production, nature of demand, nature of delivery, degree of customization, and the skills required for producing the service. Each of these will be discussed in turn.

Value of the Service

One broad cut at services would be to classify services as high, medium, or low value. This could be done in the typical ABC/Pareto analysis or portfolio analysis that looks at both value and risk to acquire. ABC classification would focus quality attention on high-spend services. Portfolio analysis would focus more quality attention on services with potential high impact on the organization. For example, the improper removal of asbestos from a building may make the whole building unusable. A consultant to assist in the long-term strategic planning of the organization may have a very significant, long-term impact. Quality assurance and quality control efforts might be organized according to classification.

Degree of Repetitiveness

For the acquisition of repetitive services, it may be possible to develop a standard quality assessment tool and gather quality information on a regular basis. The quality of unique service requirements may be more difficult because the quality is assessed as the service is delivered. Electronic sourcing tools that are used to acquire repetitive services that are easily standardized and low risk to acquire may also be used to collect quality feedback from users.

Degree of Tangibility

By definition, every service tends to have an intangible dimension, such as the conviviality dimension in the hospitality industry. Even so, some services can be seen as more tangible than others. For example, an architect will produce a drawing or a design that can be examined by others and that ultimately will result in a physical structure. Although the structural features of the physical representation of the design can be examined for quality purposes,

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the aesthetic features of the design are much more difficult to evaluate and subject to a wide variety of responses.

On the other hand, the advice from a consultant on a new marketing strategy may be almost totally intangible. The development of quality standards in any contract for services is difficult. For services where there is no accompanying good, qualifications for the people or equipment providing the service may be used as quality markers. For example, the number of personnel in the organization who have appropriate training in the particular discipline, and the capability of the various pieces of equipment, can be specified ahead of time and measured against in the quality assessment. Unfortunately, many segments of the service sector are plagued by high personnel turnover, and the addition or loss of a few key people can make a significant difference in the quality provided.

Expressions of levels of satisfaction or dissatisfaction by various users or experts may be used. For example, how many complaints are received about the cleanliness of the building? Or how many experts believe the software program to be acceptable? It should be recognized that the selection of experts or evaluators represents a statistical quality problem. Some people may be more eager than others to express their opinions, and their views may not be representative of the whole group. Relying solely on complaints may give a biased response.

Direction of the Service

Another aspect of service deals with whether or not it is directed at people. For example, food services are for people; maintenance services may be for buildings or equipment. When services are directed at people, it is important to recognize the special needs of the persons who will be most affected by the service. The ultimate user likely will play a major role in both the specification of the service and the assessment of quality received. If services directed at people have an important intangible component, assessment may require a period of exposure of both supplier and purchaser personnel to each other to determine compatibility.

Production of the Service

Services can be produced by people or equipment, or a combination of both. Services of low labor intensity may have a high capital or asset component. Typical examples would include real estate and equipment rentals, computer processing, transportation, and communication services, as well as custom processing of a machine-intensive nature. In the specification stage, understanding the underlying technology or asset base is important partly because it drives the quality delivered. During the acquisition stage, potential suppliers can be assessed on the basis of their asset capacity and availability as well as the state of their technology. These factors then become part of the quality assessment. The delivery of this kind of service is more likely at the location of the supplier’s premises or of its equipment, although hookup may be directly to the purchaser’s site. Quality monitoring and evaluation may be process oriented, with emphasis on the performance of the underlying capital asset.

Services with high labor intensity include activities like hand harvesting, installation and maintenance, education, health support, and security, as well as the full range of professional activities like consulting, engineering, accounting, medical, and architectural services. Here the quality of the “people component” is the primary concern.

Services involving largely lower- to medium-skilled people may focus more on cost minimization and efficiency. Services requiring highly skilled individuals may require the

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purchaser to distinguish between levels of professional skill and may require extensive ongoing communication between requisitioner and supply manager through all phases of the acquisition process to accurately assess quality delivered.

Nature of the Demand

The demand for a particular service may be continuous, periodic, or discrete.

The typical example of a continuous service may be insurance or a 24-hour, around-the-clock security service. Periodic service may be regular, such as once a week or once a month, as with regular inspections, or it may vary with need, as in repair services. It may be possible to monitor the quality of a continuous or periodic service and make alterations as information about the quality of service becomes evident. However, this may be more difficult if the person(s) actually providing the service is (are) different each time the service is provided. Some of this type of variation may be reduced by specifying the actual people who will perform a service and requiring that no personnel changes can be made without prior approval.

A discrete or one-shot service may be the acquisition of an interior decorator to suggest a new color scheme for an office complex. The quality monitoring capability may have to be shifted to the various stages in the delivery process, if this is possible. The problem may be that by the time the service is delivered, it is too late to make significant quality improvements.

Nature of Service Delivery

The nature and place of service delivery may have significant acquisition repercussions. For example, if the delivery of the service occurs on the premises of the purchaser, the contract agreement may have to address a number of provisions. For example, in construction or installation services, questions of security; access; nature of dress; hours of work; applicability of various codes for health, security, and safety; what working days and hours are applicable; and what equipment and materials are to be provided by whom are all issues that need to be addressed as part of the contract. It is vital to determine which issues are related to the quality of the service and how to write these terms clearly.

On the other hand, when the service is provided on the supplier’s premises or elsewhere, many of these concerns may not arise, provided the service is not directed at personnel of the purchaser.

Degree of Standardization

It makes a substantial difference whether a service is standard or customized specifically for the purchaser. Generally speaking, the less the consumer contact, the more standard the service becomes, and, probably, the less the importance of intangibles. Quality assessments may be easier because suppliers can be prequalified or certified and a standard type of supplier evaluation exists.

With highly customized services, the specification process may become more difficult and the options more difficult to understand. The involvement of the end consumers in this specification process then becomes more important. The acquisition process itself may be less definite, since various suppliers may offer substantially different options. Evaluation of supplier performance may have to recognize the purchaser’s share of responsibility for quality at the point of delivery.

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Skills Required for the Service

The production of a service may require a full range of skills, from unskilled on the one extreme to highly skilled on the other. In services requiring relatively unskilled labor, such as grass cutting and other simple maintenance tasks, price emphasis is likely to be high and ease of entry into (and exit from) the service also may be high. Quality may be monitored primarily through user feedback.

As discussed earlier, the acquisition of highly skilled services may focus far more on qualifications of the skilled persons, concern over the specific persons who will be performing the service, and recommendations from other skilled persons and users. Frequently, in highly professional services, the cost of the professional service may be relatively low compared to the benefit expected. For example, a good design may increase sales substantially; a good architect may be able to design a low-cost, but effective structure; and a good consulting recommendation may turn around a whole organization. It often is difficult to deal with this trade-off between the estimated costs for the job and the estimated benefits. If the buyer wants to link outcome to quality, then there must be some means of assessing cause and effect to determine if high (or low) quality was due to the services provided by the service provider or actions within the buying organization.

Supplier Certification

Supplier certification is a process of evaluating and recognizing the quality performance of an organization’s suppliers. Standards are established for quality, and often delivery and productivity performance as well. Suppliers that consistently meet these standards are certified. Suppliers benefit from systematic improvements that may increase their profitability; they typically are considered first for new business; and they are often publically recognized by the buying organization. Buying organizations benefit by consistently receiving required quality and delivery levels and enjoying systematic improvements over time. Continuing involvement with suppliers may lead to common quality standards and agreement on inspection methods and ways of improving quality while decreasing inspection and overall cost.

Purchasers often conduct a quality capability or quality assurance survey on the supplier’s premises either before a new supplier is given an order or before a supplier is allowed to quote. This is to ensure that the supplier is capable of meeting the specifications and quality standards required. The practice is common in many types of organizations including high-technology areas and most larger organizations.

The survey is normally conducted by relevant departments such as engineering, manufacturing, supply, and quality control personnel for goods or user group, purchasing, and quality control for services. It examines the supplier’s equipment, facilities, and personnel as well as quality control systems and processes. The supplier’s supply chain management initiatives are also examined. These include the supplier’s efforts to seek cooperation and compliance in quality standards from its suppliers and its suppliers’ suppliers and the supplier’s commitment to ongoing quality improvement. Managing quality through tiers of suppliers is an ongoing challenge, especially with global supply networks.

The decision to purchase only from certified suppliers extends beyond quality considerations. In organizations pursuing partnerships with suppliers, quality certification is usually the first category of interorganizational alignment. In many industries, a minimum level of quality capability is a standard requirement for any supplier and corporate survival may depend on it.

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The quality target is to have the right quality by making it right the first time, rather than inspecting in quality. It is this pressure to create quality at its source that is behind all quality improvement programs. The same philosophy also should apply to the supply department itself and the purchaser’s own organization. It is very difficult for a purchaser to insist that suppliers meet stringent quality requirements when it is obvious to the suppliers that the supply organization itself shows no sign of a similar commitment. Any supply department wishing to start a quality drive may want to apply quality standards to its own performance on all of the phases in the acquisition cycle. Not only will this create familiarity with statistical quality control and quality standards in the supply department itself, but it also gives supply the right to ask for similar commitment by others.

QUALITY STANDARDS AND AWARDS PROGRAMS

At the international level, the International Organization for Standardization (ISO) runs several quality-related programs. Organizations in various countries also offer quality awards. The following are discussed in this section: ISO 9000 Quality Standards, ISO 14000 Environmental Standards, The U.S. Malcolm Baldrige Award, and the Japanese Deming Award.

ISO 9000 Quality Standards 10

The International Organization for Standardization (ISO) in Geneva, Switzerland, provides common standards across the world. The American National Standards Institute (ANSI) and the Canadian Standards Association (CSA) are North American members. The ISO 9000 quality standards, which were first adopted in 1987 and revised in 1994, 2000, 2008, and are now being reviewed for a 2015 update.

According to the ISO, the ISO 9000 family of standards represents an international consensus on good quality management practices. It consists of standards and guidelines relating to quality management systems and related supporting standards. According to the 2013 ASQ Global State of Quality Research: Analysis, Trends and Opportunities, manufacturing organizations are 1.5 times more likely than service-focused organizations to use ISO as a quality framework.

ISO 9001:2008 is the standard that provides a set of standardized requirements for a quality management system, regardless of what the user organization does, its size, or whether it is in the private or public sector. It is the only standard in the family against which organizations can be certified—although certification is not a compulsory requirement of the standard. It provides a tested framework for a systematic approach to managing organizational processes to consistently deliver product that satisfies customers’ expectations. It defines the requirements a quality system must meet, but does not dictate how they should be met in any specific organization. This leaves scope and flexibility for implementation in different business sectors and business cultures, as well as in different national cultures.

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The other standards in the family cover specific aspects such as fundamentals and vocabulary, performance improvements, documentation, training, and financial and economic aspects.

Checking That It Works

1. The standard requires the organization itself to audit its ISO 9001:2008–based quality system to verify that it is managing its processes effectively, or, to put it another way, to check that it is fully in control of its activities.

2. In addition, the organization may invite its clients to audit the quality system in order to give them confidence that the organization is capable of delivering products or services that will meet their requirements.

3. Lastly, the organization may engage the services of an independent quality system certification body to obtain an ISO 9001:2008 certificate of conformity. This last option has proved extremely popular in the marketplace because of the perceived credibility of an independent assessment.

The organization may thus avoid multiple audits by its clients or reduce the frequency or duration of client audits. The certificate can also serve as a business reference between the organization and potential clients, especially when supplier and client are new to each other, or far removed geographically, as in an export context.

ISO 14000 Environmental Standards 11

ISO 14000, similar to ISO 9000 in management principles, focuses on environmental issues. ISO 14000 standards describe the basic elements of an effective environmental management system (EMS) and do not replace federal, state, and provincial environmental laws and regulations.

The ISO 14000 series consists of two standards related to EMS. ISO 14004:2004 provides guidelines on the elements of an environmental management system and its implementation and discusses principal issues involved. ISO 14001:2004 specifies the requirements for such an environmental management system. Fulfilling these requirements demands objective evidence that can be audited to demonstrate that the environmental management system is operating effectively in conformity to the standard. For example, with Honda’s encouragement and assistance, nearly 90 percent of Honda’s U.S. original equipment suppliers have achieved third-party ISO 14001 certification for environmentally sound production processes.

ISO 14006:2011 focuses on guidelines for incorporating ecodesign. ISO 14064-1:2006 Greenhouse gases—Part 1 is a specification with guidance at the organization level for quantification and reporting of greenhouse gas emissions and removals.

The Malcolm Baldrige National (U.S.) Quality Award

The annual Malcolm Baldrige National Quality Award is intended to recognize U.S. organizations in manufacturing, service, small business, health care, education, and nonprofit. The award recognizes excellence in quality achievement and quality management. The criteria are organized into seven categories: leadership; strategic planning; customer focus;

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measurement, analysis, and knowledge management; workforce focus; operations focus; and results. The criteria are designed to help organizations enhance their competitiveness by focusing on two goals: delivering ever-improving value to customers and improving overall organizational performance. It is also designed to motivate U.S. companies to improve quality and productivity, provide standardized quality guidelines and criteria for evaluating quality improvement efforts, and provide guidance to U.S. organizations striving to make improvements by describing how winning organizations were able to achieve their successes. The diffusion of TQM practices is one of the most important aspects of the Baldrige Award.

The Baldrige Award evaluates both quality management programs and achievement of results, with heavy emphasis on organizationwide financial performance. In its 2012 survey of the 100 top hospitals, Truven Analytics found that nearly 70 percent of teaching hospitals reported formal use of the Baldrige criteria to develop organizational goals and/or to process improvement initiatives.

Changes to the award criteria relative to suppliers and services contributed to the decline of applications from for-profit organizations and finally no applications from for-profits in 2013. A revision process may reinstate the relevance of the award in the perception of executives in for-profit organizations.

The Deming Prize

To commemorate Dr. Deming’s contribution and friendship and to promote the continued development of quality control in Japan, the Union of Japanese Scientists and Engineers (JUSE) created the Deming Prize. Established in 1950, it is given annually to domestic or overseas organizations that have implemented TQM suitable for their management philosophy, scope/type/scale of business, and management environment. The Deming Grand Prize is given to previous winners of the Deming Prize that have maintained and further enhanced the level of TQM for more than three years after winning the Deming Prize. The Deming Prize for Individuals is open only to Japanese candidates. In 2013, Komatsu Shantui Construction Machinery Co., Ltd (China) and SCG Logistics Management Company Limited (Thailand]) won the Deming Prize and Meidoh Co., Ltd (Japan) and Rane Brake Lining Limited (India) won the Deming Grand Prize. The Deming Prizes carry a tremendous amount of international prestige.