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BA 339 – OM – Chapter 6

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  1. 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)

  2. 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

  3. 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

  4. 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

  5. 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)

  6. BA 339 – OM – Chapter 6 • 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.)

  7. BA 339 – OM – Chapter 6 • 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)

  8. 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

  9. 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

  10. 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

  11. BA 339 – OM – Chapter 6 • 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

  12. BA 339 – OM – Chapter 6 • 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

  13. BA 339 – OM – Chapter 6 • 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%

  14. 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

  15. BA 339 – OM – Chapter 6 • 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

  16. BA 339 – OM – Chapter 6 • 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

  17. BA 339 – OM – Chapter 6 • 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

  18. BA 339 – OM – Chapter 6 • 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

  19. 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

  20. BA 339 – OM – Chapter 6 • 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

  21. BA 339 – OM – Chapter 6 • 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

  22. BA 339 – OM – Chapter 6 • 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

  23. 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

  24. 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

  25. BA 339 – OM – Chapter 6 • 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)

  26. 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

  27. BA 339 – OM – Chapter 6