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scmch5.pptSCM 304 Principles of Supply Chain Management
Chapter 5
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Managing Quality
You will learn
Various definitions and dimensions of quality and why quality is important to operations and supply chains.
The different costs of quality, including internal and external failure, appraisal, and prevention costs.
What TQM is, along with its seven core principles.
Some of the important issues associated with managing quality across the supply chain.
2
Quality Defined (1 of 6)
Quality – The characteristics of a product or service that bear on its ability to satisfy stated or implied needs; a product or service that is free of deficiencies.
Value perspective – A quality perspective that holds that quality must be judged, in part, by how well the characteristics of a particular product or service align with the needs of a specific user.
Example: Fast-food meal
Did you get what you thought you would get?
How long does it take to get served?
Was the food fresh?
Was the price reasonable for the food?
Source: mirror.co.uk
Quality Defined (2 of 6)
Quality – The characteristics of a product or service that bear on its ability to satisfy stated or implied needs; a product or service that is free of deficiencies.
Value perspective – A quality perspective that holds that quality must be judged, in part, by how well the characteristics of a particular product or service align with the needs of a specific user.
Conformance perspective – A quality perspective that focuses on whether or not a product was made or a service was performed as intended.
Quality Defined (3 of 6)
Eight dimensions on which users evaluate the quality of a product or service:
Performance: What are the basic operating characteristics of the product or service?
Features: What extra characteristics does the product or service have, beyond the basic performance operating characteristics?
Reliability: How long can a product go between failures or the need for maintenance?
Durability: What is the useful life for a product? How will the product hold up under extended or extreme use?
Quality Defined (4 of 6)
Eight dimensions on which users evaluate the quality of a product or service:
5. Conformance: Was the product made or service performed to specifications?
6. Aesthetics: How well does the product or service appeal to the senses?
7. Serviceability: How easy is it to repair, maintain, or support the product or service?
8. Perceived quality: What is the reputation or image of the product or service?
Quality Defined (5 of 6)
Table 5.1 Dimensions of Quality for a Good and a Service
| Quality Dimension | New Car | Tax Preparation Service |
| Performance | Tow capacity; maximum number of passengers | Cost and time to prepare taxes |
| Features | Accessories; extended warranty | Advance on refund check; automatic filing |
| Reliability | Miles between required major service visits | Not applicable |
| Durability | Expected useful life of the engine, transmission, body | Not applicable |
| Conformance | Number of defects in the car | Number of mistakes on the tax return |
| Aesthetics | Styling, interior appearance, look and feel of instrumentation | Neatness of the return; manner of presentation to the customer |
| Serviceability | Are there qualified mechanics in the area? What are the times and costs for typical maintenance procedures? | Will the tax preparation firm talk with the IRS in case of an audit? |
| Perceived quality | How do prices for used vehicles hold up? | What is the reputation of the firm? |
Quality Defined (6 of 6)
Steps an organization must do to provide high-quality products and services to users:
Understand what dimensions of quality are most important to users.
Develop products and services that will meet the users’ requirements.
Put in place business processes capable of meeting the specifications driven by the users’ requirements.
Verify that the business processes are indeed meeting the specifications.
Case Study: Decatur Trust Bank
The manger decided to keep the bank open on Saturdays and offering a wide range of customer services
One Saturday morning, Steve arrived at the bank, wanted to
(1) cash in a $2,000 CD, (2) withdraw $1,000 from his checking account; and (3) roll the combined $3,000 into an IRA.
No sign in the bank to show who can help! Waited for 10 minutes in a wrong line.
Finally a staff is assigned to help him. He didn’t know how to open an IRA!
Understand what dimensions of quality are most important to users.
Develop products and services that will meet the users’ requirements.
3. Put in place business processes capable of meeting the specifications driven by the users’ requirements.
4. Verify that the business processes are indeed meeting the specifications.
Total Cost of Quality (1 of 7)
Internal failure costs:
Costs caused by defects that occur prior to delivery to the customer.
Including money spent on repairing or reworking defective products (or scrapping them if they are completely ruined), as well as time wasted on these activities.
Typical American factory spent 20% to 50% of its operating budget on finding and fixing mistakes -BusinessWeek
Total Cost of Quality (2 of 7)
External failure costs:
Costs incurred by defects that are not detected until a product or service reaches the customer.
Difficult to estimate - but large since they include not only the cost of fixing the problem, but also the costs of lost future business.
Cost of mishandling a single bag by the airlines carriers is $100.
Total Cost of Quality (3 of 7)
Appraisal costs:
Costs a company incurs for assessing its quality levels.
Costs for inspections, the sampling of products or services, and customer surveys.
Unless the manufacturer improves the processes defect levels will not change.
Prevention costs:
Costs an organization incurs to actually prevent defects from occurring to begin with.
Costs for employee training, supplier certification efforts, investment in new processes, and equipment maintenance
Total Cost of Quality (4 of 7)
Figure 5.2 Total Cost of Quality (Traditional View)
Total Cost of Quality (5 of 7)
In Figure 5.2:
The level of defects is reduced from 100% to 0%
Internal and external failure costs fall to zero
Prevention costs rise exponentially
Reason: as the defect level drops, it becomes even harder to find and resolve the remaining quality problems
Appraisal costs are flat across the various defect levels
There is no direct relationship between appraising quality and defect levels
Appraisal by itself will not improve quality
Total Cost of Quality (6 of 7)
Figure 5.3 Total Cost of Quality (Zero Defects View)
Total Cost of Quality (7 of 7)
In Figure 5.3:
If a business’s processes is improved and defect level became zero
The cost of appraisal fell: No need to inspect
Prevention costs held steady (or even decreased) as managers and employees became more skillful at identifying and resolving problems.
The lowest total cost of quality occurs at the 0% defects level.
To achieve that:
All individuals within an organization must address quality within all of an organization’s business processes
Quality Defined (Reminder)
Steps an organization must do to provide high-quality products and services to users:
Understand what dimensions of quality are most important to users.
Develop products and services that will meet the users’ requirements.
Put in place business processes capable of meeting the specifications driven by the users’ requirements.
Verify that the business processes are indeed meeting the specifications.
Total Quality Management (1 of 4)
Total Quality Management – A managerial approach in which an entire organization is managed so that it excels in all quality dimensions that are important to customers.
TQM, as a business philosophy, centered around seven core principles:
Customer focus
Leadership involvement
Continuous improvement
Employee empowerment
Quality assurance
Strategic partnerships
Strategic quality plan
Total Quality Management (2 of 4)
Customer focus
Employees are willing to place themselves in the customers’ shoes to understand how customers really feel about a product or service
Every employee has a customer whose expectations must be met whether internal or external to the company.
Leadership involvement
Change must begin at the top to adopt a TQM mind-set
Managers should carry the message that quality counts to everyone in the company.
Continuous improvement
There will always be room for improvement no matter how well an organization is doing.
Total Quality Management (3 of 4)
Employee empowerment
In a TQM organization, quality is everybody’s job, from the CEO to the entry-level employees.
Giving employees the responsibility, authority, training, and tools necessary to manage quality.
Quality assurance
The specific actions firms take to ensure that their products, services, and processes meet the quality requirements of their customers.
Quality Function Deployment (QFD)- during product design phase
Statistical Quality Control (SQC)- uses statistics to measure quality levels
Total Quality Management (4 of 4)
Supplier Partnerships
The commitment between companies and supply chain partners must be the same.
Suppliers’ materials and services ultimately become part of the company’s product or service – Quality should be assured
Strategic Quality Plan
An organizational plan that provides the vision, guidance, and measurements to drive the quality effort forward and shift the organization’s course when necessary.
Quality Defined (Reminder)
Steps an organization should must do to provide high-quality products and services to users:
Understand what dimensions of quality are most important to users.
Develop products and services that will meet the users’ requirements.
Put in place business processes capable of meeting the specifications driven by the users’ requirements.
Verify that the business processes are indeed meeting the specifications.
Statistical Quality Control (1 of 15)
Statistical Quality Control (SQC):
The application of statistical techniques to quality control.
Makes sure that a business’s current processes are meeting the specifications
Statistical Quality Control (2 of 15)
Popular SQC applications:
Process Capability
How does an organization know whether or not its business processes are capable of meeting certain quality standards?
Comparing the requirements placed on a process to the actual outputs of the process
Measuring the process capability by process capability ratio (Cp):
Statistical Quality Control (3 of 15)
Figure 5.4 Normal Distribution
Suppose that the output values of a process are normally distributed.
Statistical theory says that individual observations should fall within of the process mean, 99.7% of the time.
FIGURE 5.5 Cp Values for Different Tolerance Limits
Statistical Quality Control (4 of 15)
Now suppose that the difference between the upper and lower tolerance limits (UTL - LTL) just happens to equal
Then, the process is capable of producing within the tolerance limits 99.7% of the time and Cp = 1.
Process Capability Example
Source: eschooltoday.com
Statistical Quality Control (5 of 15)
Popular SQC applications:
2. Six Sigma Quality
Reduce the variability of a process to such a point that the process capability ratio is greater than or equal to 2:
This translates into around 2 defects per billion.
Six Sigma Quality Example
Statistical Quality Control (6 of 15)
Popular SQC applications:
3. Control Charts
In contrast to the process capability ratio and index, control charts are specialized run charts that help organizations track changes in key measures over time.
By using control charts, an organization can quickly determine whether a process is “in control” and take action if it is not.
Statistical Quality Control (7 of 15)
Sampling – Using carefully selected samples to get a fairly good idea of how well a process is working.
In general, a good sample is one in which:
Every outcome has an equal chance of being selected into the sample. This is typically accomplished by taking a random sample from the entire population.
The sample size is large enough to not be unduly swayed by any single observation.
Continuous variables are variables that can be measured along a continuous scale, such as weight, length, height, or temperature.
Attributes refer to the presence or absence of a particular characteristic.
Example: a pizza delivery chain promises to deliver a “hot, 16-inch, thick crust pizza in 30 minutes or less.”
Statistical Quality Control (8 of 15)
Statistical Quality Control (9 of 15)
Control chart types:
X̅ chart – A specific type of control chart for a continuous variable that is used to track the average value for future samples.
R chart – A specific type of control chart for a continuous variable that is used to track how much the individual observations within each sample vary.
p chart – A specific type of control chart for attributes that is used to track sample proportions.
Source: asprova.jp
When firms take samples of a continuous variable, two key measures of interest are:
Sample average
The range of values
The sample average () and the range (R) for a continuous variable are defined as follows:
Statistical Quality Control (10 of 15)
Control Charts
Have a center line showing the expected value for a sample measure
Have upper and lower control limits
The process is considered “in control” if a sample result falls inside the control limits.
Statistical Quality Control (11 of 15)
Source: byjus.co
Control Charts
Should not be employed until the process is capable of providing acceptable performance on a regular basis.
By themselves will not result in improved quality levels.
Are used to catch quality problems early, before they get out of hand.
Use of control charts falls under the appraisal activities of a firm’s quality efforts.
Statistical Quality Control (12 of 15)
Statistical Quality Control (13 of 15)
Popular SQC applications:
4. Acceptance Sampling
The process of sampling a portion of goods for inspection rather than examining the entire lot.
Even under the best circumstances, defects can occur and be sent to the customers
Determine the quality levels is through 100% inspection (blood donations)
Expensive
Time-consuming
Impossible (Wooden matches)
Statistical Quality Control (14 of 15)
Acceptance Sampling
Acceptable quality level (AQL) – The maximum defect level at which a consumer would always accept a lot.
Lot tolerance percent defective (LTPD) – The highest defect level a consumer is willing to tolerate.
Consumer’s risk – The probability of accepting a lot with quality worse than the LTPD level.
Producer’s risk – The probability of rejecting a lot with quality better than the AQL level.
Operating characteristics (OC) curve – The probability of accepting a lot given the actual fraction defective in the entire lot and the sampling plan being used
Statistical Quality Control (15 of 15)
Figure 5.10 Producer’s and Consumer’s Risk
Managing Quality across the Supply Chain (1 of 2)
Quality management must extend beyond the four walls of an organization!
Organizations manage quality across the supply chain:
1. ISO 9000 – A family of standards supported by the International Organization for Standardization representing an international consensus on good quality management practices.
Goals:
Meet the customer’s quality requirements
Satisfy regulatory requirements
aiming to enhance customer satisfaction, and
Achieve continual improvement of their performance in pursuit of these objectives.
Managing Quality across the Supply Chain (2 of 2)
Since 1987, the ISO 9000 family of standards has been regularly updated to reflect developments in managerial thought
ISO9001:2015 – Establishing a quality management system that provides confidence in the conformance of their products and services to established or specified requirements
ISO9004:2009 – Extension of 9001 to all parties interested or affected by a particular business’s operations
