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BA 339 – OM – Chapter 6. Managing Quality Quality & Strategy Defining Quality - Product & Services Quality Standards & Assessment Approaches – ISO, ASQ, QA, MBNQA TQM – continuous improvement, empowerment, benchmarking, JIT, 6-sigma, PDCA cycle, cause-effect, Pareto, Cost of Quality

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BA 339 – OM – Chapter 6

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BA 339 – OM – Chapter 6

  • Managing Quality

    • Quality & Strategy

    • Defining Quality - Product & Services

    • Quality Standards & Assessment Approaches – ISO, ASQ, QA, MBNQA

    • TQM – continuous improvement, empowerment, benchmarking, JIT, 6-sigma, PDCA cycle, cause-effect, Pareto,

    • Cost of Quality

    • Quality Tools

    • Statistical Process Control (SPC)


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BA 339 – OM – Chapter 6

  • Quality & Strategy

    • Included (implicitly or explicitly) in mission statement & strategy > Yields how to do what is important and to be accomplished

      • Lower cost (productivity) > improved quality (reputation, product liability) > market gains > profitability

    • Quality principles:

      • Employee empowerment – builds organizational commitment & capability; Yields employee attitude that they can accomplish what is important & to be accomplished.

        • Includes changing organizational culture (internal/external customer focus), individual development, and awards & incentives


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BA 339 – OM – Chapter 6

  • Quality & Strategy

    • Quality principles

      • Customer focus – wins business & repeat customers; Yields an effective organization with a competitive advantage

      • Continuous improvement – develops responsiveness at all levels of the organization; Yield competitive advantage in the marketplace

      • Benchmarking – fosters an attitude of looking for better ways of doing business; Yields culture of continuous improvement

      • Just-in-time – provides a consistent focus for reducing waste; Yields a daily focus on efficient performance and competitiveness


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BA 339 – OM – Chapter 6

  • Quality & Strategy

    • Customers, Quality, & Costs

      • Customers will tell twice as many people about bad experiences as good experiences

      • A dissatisfied customer will tell 8-10 people about the bad experience

      • 70% of upset customers will remain your customer if you resolve the complaint satisfactorily

      • It’s easier to get customers to repeat than it is to find new business

      • Service firms rely on repeat customers for 85% - 95% of their business

      • 80% of new product/service ideas come from customer ideas

      • Cost of keeping an existing customer is 1/6 of the cost of attracting a new customer


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BA 339 – OM – Chapter 6

  • Defining Quality – Garvin’s 8 Product Quality Dimensions

    • Performance – efficiency with which a product achieves its intended purpose. Ex. Fuel efficiency, return on a mutual fund

    • Features – product attributes that supplement the product’s performance. Ex. Surround sound or HDTV of a TV, retail store carrying TVs in a $200 - $12,000 price range

    • Reliability – propensity for a product to perform consistently over it useful design life. Ex. Refrigerator w/ 98% reliability = 2% chance of failure during useful 10 year life

    • Conformance – ability of a product to perform within allowable ranges of tolerances for any number of dimensions. Ex. No. of ounces of pulp in a gallon of pulp-free OJ (spec. driven, easily quantified)


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  • Defining Quality – Garvin’s 8 Product Quality Dimensions

    • Durability – degree to which a product tolerates stress or trauma without failing. Ex. Trash can vs. light bulb.

    • Serviceability – ease of repair for a product. Ex. Products requiring service technician > rapid, courteous, competent service considered serviceable

    • Aesthetics – subjective sensory characteristics (taste, feel, sound, look, smell). Ex. Leather vs. vinyl car interiors

    • Perceived quality – based on customer opinion, entirely perception-based. Ex. College football polls, brand image & recognition (Ex., Mercedes – viewed as workhorse by European countries and a status symbol in U.S.)


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  • Defining Quality – Parasuraman, Zeithamel & Berry’s Service Quality Dimensions

    • Tangibles – Physical appearance of the service facility, equipment & personnel. Ex. Stylishly dressed hairstylists

    • Service reliability – dependability & accuracy relative to promised service.

    • Responsiveness – willingness of service provider to be helpful & prompt. Ex. Credit card service

    • Assurance – refers to knowledge and courtesy of employees and their ability to inspire trust and confidence. Ex. Professional services (medical, consulting; restaurant)


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BA 339 – OM – Chapter 6

  • Defining Quality – Parasuraman, Zeithamel & Berry’s Service Quality Dimensions

    • Empathy – customer feeling that service is personalized. Ex. Restaurant service

    • Availability – ease of access to services and service provider

    • Professionalism – characteristics include organized, knowledgeable, competent, customer focused

    • Timeliness – ability of the service to meet time commitments; includes prompt, quick delivery

    • Completeness – ability to provide full, comprehensive service in single session

    • Pleasantness – deals with attitude of service personnel and their interaction with customers


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BA 339 – OM – Chapter 6

  • Quality Perspectives – functional, based on role/function we perform in the organization

    • Engineering – product design, concurrent, reliability, redundancy, SPC

    • Operations – systems perspective, process oriented, inputs/outputs, planning/organizing/controlling

    • Strategic – mission, core values, strategy process, alignment, plan/do/check/act

    • Marketing – relationship management, customer identification/management, systems

    • Financial – ROI (marginal, diminishing), quantifiable, result-oriented

    • Human Resources – job analysis, selection, evaluations, training/development, horizontal & vertical deployment

  • Contingency Perspective – context is critical


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BA 339 – OM – Chapter 6

  • Quality Standards

    • Global importance of quality has resulted in acceptance of common standards

    • European standards

      • ISO 9000 series (updated, ISO 9001-2000)

        • ANSI/ASQ Q90 – same as ISO

        • QS9000 – auto industry standard

      • ISO 14001 – Environmental Management Systems

      • ISO – Greek for “uniform” or “equal”

      • ISO – International Organization for Standardization

    • U.S standards

      • Malcolm Baldrige National Quality Award – 7 criteria can be used as standards/guide

    • Japanese standards

      • Deming Prize – 10 categories

      • Total Quality Control – Deming’s 14 points (p. 175) + visibility, in-process inspection, N=2, total workforce involvement, 5 S’s, quality circles, preventive maintenance


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  • ISO 9001:2000

    • Movement away from procedure-focused approach to process-focus

    • Organized around 8 quality management principles:

      • Customer-focused organization

      • Leadership

      • Involvement of people

      • Process approach

      • System approach to management

      • Continual improvement

      • Factual approach to decision-making

      • Mutually beneficial supplier relationships


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  • Malcolm Baldrige National Quality Award

    • 7 Criteria include:

      • Leadership – values, expectations, public responsibilities

      • Strategic Planning – planning, deployment, performance

      • Customer & Market Focused – requirements & satisfaction

      • Information Analysis – system effectiveness & success

      • Human Resource Focus – workforce potential & performance results

      • Process Management – systems/process & quality

      • Business Results – benchmarking in customer satisfaction, financials, HR, suppliers, & operations

    • Considerable overlap with ISO 9001:2000


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  • ISO Certification

    • Costly to Implement – Example: Manufacturing firm of 3000 might expend $200K in employee time alone

    • External benefits

      • Potential sales advantage (preferred over non-certified company)

      • Registered companies have avg. of 48% increased profitability and 76% improvement in marketing

    • Internal benefits (jump starts TQM programs)

      • ISO certified companies are consistently more profitable

      • Registered companies have 10% improvement in costs of production (result of quality improvement)

      • Example: DuPont – Improved on-time delivery from 70% to 90%; decreased product cycle time from 15 to 1.5 days; decrease in nonconforming product from 500 ppm to 150 ppm; reduction in test methods from 3200 to 1100; first pass yield ^ from 72% to 92%


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BA 339 – OM – Chapter 6

  • Total Quality Management (TQM)

    • Deming’s 14 Points (p. 175)

    • 6 Quality concepts

      • Continuous improvement

      • Employee empowerment

      • Benchmarking

      • Just-in-time (JIT)

      • Taguchi concepts

      • Knowledge of TQM tools


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  • TQM

    • Continuous improvement

      • Based on Japanese concept of “kaizen” (philosophy of continually seeking ways to improve operation)

      • Applies to process improvement

        • Rooted in process management approach – Identify > Define > Measure > Manage > Improve

      • Involves identifying benchmarks of excellent practices & instilling employee ownership in the process

      • Also known by: 6-sigma, Zero-defects

      • Utilizes the Plan-Do-Check-Act cycle for problem solving

        • Plan – select process, documents process, sets goals, develops a plan w/ quantifiable measures

        • Do – implement plan and monitor progress (document)

        • Check – analyze data/results, compare results with plan

        • Act – document revised process > becomes standard for all


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  • TQM

    • Continuous improvement

      • Steps essential to success:

        • Train employees in SPC methods and other quality tools

        • Make SPC and other quality methods a normal part of daily operations

        • Thorough understanding of process management – Identify > Define > Measure > Manage > Improve

        • Build work teams and employee involvement

        • Utilize problem-solving tools within the work teams

        • Develop a sense of ownership in the process


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  • TQM

    • Employee empowerment

      • Involve employees in:

        • Product/service design, process design (85% of quality problems are due to process/material problems)

      • Techniques:

        • Build communication networks that include employees

        • Develop open, supportive supervisors

        • Move responsibilities to production workers

        • Build high-morale organizations

        • Build teams and quality circles (vertically and horizontally in the organization)

          • Facilitator trains and helps with meetings


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  • TQM

    • Benchmarking

      • Select best practice to use as a standard for performance

        • Determine what to benchmark

        • Form a benchmark team

        • Identify benchmarking partners

        • Collect & analyze benchmarking information

        • Take action to match or exceed the benchmark

      • Process benchmarking requires process definition (mapping) and measurement, gap analysis, and assessment of organizational capabilitiess

      • Example: Resolving customer complaints

        • Make it easy for clients to complain; Respond quickly to complaints; resolve complaints on the first contact; use computers to manage complaints; recruit the best for customer service jobs


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BA 339 – OM – Chapter 6

  • TQM

    • Just-in-time (JIT)

      • “Pull” system of production/purchasing > driven by customer order/need

      • Goal is to reduce waste and inventory levels

        • Inventory hides process & material problems

        • Reduced inventory identifies problems to be addressed

      • Improves process and product quality

      • Involves “vendor partnership programs” to improve quality of purchased items

      • Cuts cost of quality

      • Better quality means less inventory and a better JIT system

      • Basis for lean manufacturing


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  • Cost of Quality

    • Losses from poor quality estimated @ 20-30% of gross sales for defective or unsatisfactory products. Example: Power surges on GM computer-driven robots shut down assembly line – source > utility’s faulty underground wiring cost $500K/hr.

    • Four major categories:

      • Prevention costs – costs associated with preventing defects before they happen. Include re-design, employee training, improving supplier quality

      • Appraisal costs – incurred in assessing the level of quality attained. Helps identify quality problems. Decrease as quality improves.

      • Internal failure costs – include yield losses (scrap) and re-work losses

      • External failure costs – include lost customers, warranty costs, and litigation costs

    • Cost of Quality Calculation Exercise


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  • Quality Tools

    • Quality Function Deployment (QFD – House of Quality)

    • Taguchi concepts

      • Quality loss function

    • Tools for generating ideas

      • Check sheet, scatter diagram, cause-and–effect diagram

    • Tools for organizing data

      • Pareto chart, flowchart

    • Tools for identifying problems

      • Histogram, SPC chart, 5 Why’s


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  • Quality Function Deployment (QFD) – aka, House of Quality

    • Use to determine customer needs and translate those needs into a product design

    • 6 Steps

      • Determine the customer wants

      • Identify how the product/service satisfies customer’s wants

      • Relate customer wants to product hows

      • Identify relationship between firm’s hows

      • Develop importance ratings (between customer and firm’s importance ratings)

      • Evaluate competing products

    • Example: Customer requirements > design characteristics > specific components > production process > quality plan


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BA 339 – OM – Chapter 6

  • Taguchi Concepts

    • Designed to improve product and process quality

      • Quality robustness – products and services that can be produced uniformly & consistently in adverse conditions. Focus on removing the effects of adverse conditions vs. removing the cause.

      • Quality loss function – identifies all costs connected with poor quality and shows how these costs increase as the product/service moves away from being exactly what the customer wants.

        • Includes warranty costs, customer dissatisfaction, scrap, repair, and inspection

        • Function (costs) increases at an increasing rate as product moves away from target value (see p. 179)

      • Target-oriented quality – focus of quality is to keep product exactly on spec., not within tolerance limits


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BA 339 – OM – Chapter 6

  • Tools for Generating Ideas

    • Check sheets – tallies data in simple matrix form

      • Example: Defects by hour, meals by hour, etc.

    • Scatter diagram – graphs values by comparing one variable to another

      • Example: Productivity vs. absenteeism

    • Cause-and-effect (Ishikawa) diagram – identifies process elements (causes) and their impact upon on an outcome (effect)

      • Example: Materials, methods, manpower, other impacts on broken fiber board


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  • Tools for Organizing Data

    • Pareto analysis

      • Vilfredo Pareto (19th century Italian scientist)

      • Pareto principle:

        • Majority of an activity is caused by relatively few factors

        • Also known as the 80/20 rule; 80% of quality problems are caused by 20% of the factors (the “vital few”)

      • Pareto chart:

        • Bar chart that plots factors in decreasing order of frequency along the horizontal axis

        • Two vertical axis – left show frequency (e.g., histogram) while the right shows cumulative percentage of frequency

    • Flowchart – chart that describes steps in a process (AKA process map); multiple types (see handout)


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BA 339 – OM – Chapter 6

  • Tools for Identifying Problems

    • Histogram

      • Distribution of showing the frequency of occurrences of a variable

      • Advantage:

        • Illustrates distribution and spread of occurrences

        • Can be used to conduct statistical analysis (mean, standard deviation)

    • SPC Chart (Control chart)

      • Chart with time on the horizontal axis used to plot values of a statistic

      • Utilize upper and lower control limits to illustrate out of tolerance processes/products and patterns within data

    • 5 Why’s


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BA 339 – OM – Chapter 6


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