EE2063

Chapter 2

Quality and Quality

Management

Lecture Outline
What Is Quality?
Evolution of Quality
Management
Quality Tools
TQM and QMS
Focus of Quality
Management
Customers
Role of Employees in
Quality Improvement

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Quality in Service
Companies
Six Sigma
Cost of Quality
Effect of Quality
Management on
Productivity
Quality Awards
ISO 9000

What is QUALITY?
Quality management is an organisation-wide
approach to understanding precisely what
customers need and consistently delivering
accurate solutions within budget, on time and
with the minimum loss to society.

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Adapted from 2011

What is QUALITY?
Oxford American Dictionary
a degree or level of excellence
American Society for Quality
totality of features and characteristics
that satisfy needs without deficiencies
Consumers and producers perspective

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What Is Quality?
Customers Perspective
Fitness for use
how well product or service
does what it is supposed to

Quality of design
designing quality characteristics
into a product or service

A Mercedes and a Ford are

equally fit for use, but with
different design dimensions.
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What Is Quality?
Producers Perspective
Quality of conformance
making sure product or service is produced according to
design
if new tires do not conform to specifications, they
wobble
if a hotel room is not clean when a guest checks in,
hotel is not functioning according to specifications of
its design
Achieving quality of conformance depends on:
design of production process
machinery, material, trained employees, SQC
Acceptable cost to achieve conformance
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 1912 - produced the first product, Maine Hunting shoe, by

founder Leon Leonwood Bean
Sold 100 pairs to sportsman through mail, but 90 pairs
returned due to the stitching gave way.
Money returned and started with an improved boot.
His belief Sell good merchandise at a reasonable profit,
treat customers like human being and they will always
come back for more.
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Meaning of Quality

Production

Producers Perspective

Consumers Perspective

Quality of Conformance

Quality of Design

Conformance to
specifications
Cost

Quality characteristics
Price

Fitness for
Consumer Use

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Marketing

What Is Quality?
A Final Perspective
Customers and producers perspectives depend
on each other
Producers perspective:
production process and COST
Customers perspective:
fitness for use and PRICE
Customers view must dominate since they make
the final judgment regarding quality.
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Dimensions of Quality:
Manufactured Products
Performance (Will the product do the intended
job)
basic operating characteristics of a product; how
well a car handles or its gas mileage

Features (What does the product do?)

extra items added to basic features, such as a
stereo CD or a leather interior in a car

Reliability(How often does the product fail?)

probability that a product will operate properly within
an expected time frame; that is, a TV will work
without repair for about seven years
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Dimensions of Quality:
Manufactured Products
Conformance (Is the product made exactly as the
designer intended?)
degree to which a product meets preestablished
standards

Durability (How long the product last?)

how long product lasts before replacement; with care, L.
L. Bean boots may last a lifetime

Serviceability (How easy is it to repair the product?)

ease of getting repairs, speed of repairs, courtesy and
competence of repair person

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Dimensions of Quality:
Manufactured Products
Aesthetics (What does the product look like?)
how a product looks, feels, sounds, smells, or tastes

Safety
assurance that customer will not suffer injury or harm
from a product; an especially important consideration
for automobiles

Perceptions (What is the reputation of the

company or its product?)
subjective perceptions based on brand name,
advertising, etc.

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Dimensions of Quality:
Services
Time and timeliness
how long must a customer wait for service, and
is it completed on time?
is an overnight package delivered overnight?

Completeness
is everything customer asked for provided?
is a mail order from a catalogue company
complete when delivered?

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Dimensions of Quality:
Service

Courtesy

how are customers treated by employees?

are catalogue phone operators nice and are their
voices pleasant?

Consistency
is same level of service provided to each
customer each time?
is your newspaper delivered on time every
morning?

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Dimensions of Quality:
Service
Accessibility and convenience
how easy is it to obtain service?
does service representative answer you calls quickly?

Accuracy
is service performed right every time?
is your bank or credit card statement correct every month?

Responsiveness
how well does company react to unusual situations?
how well is a telephone operator able to respond to a
customers questions?
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Evolution of Quality
Management: Quality Gurus
Walter Shewhart
Worked in Bell lab in 1920s, developed control charts
Introduced term quality assurance

W. Edwards Deming
Developed courses during WW II to teach statistical qualitycontrol techniques to engineers and executives of military
suppliers
After war, began teaching statistical quality control to
Japanese companies

Joseph M. Juran
Followed Deming to Japan in 1954
Focused on strategic quality planning
Quality improvement achieved by focusing on projects to solve
problems and securing breakthrough solutions

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Evolution of Quality Management:

Quality Gurus

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Armand V. Feigenbaum
In 1951, introduced concepts of total quality control
and continuous quality improvement (CQI)
Company wide commitment and not just
manufacturing
Philip Crosby
In 1979, emphasised that costs of poor quality far
outweigh cost of preventing poor quality
In 1984, defined absolutes of quality
managementconformance to requirements,
prevention, and zero defects
Kaoru Ishikawa
Promoted use of quality circles
Developed fishbone diagram
Emphasised importance of internal customer

Demings 14 Points
1.
2.
3.
4.
5.
6.
7.
8.
9.

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Create constancy of purpose

Adopt philosophy of prevention
Cease mass inspection
Select a few suppliers based on quality
Constantly improve system and workers
Institute worker training
Instill leadership among supervisors
Eliminate fear among employees
Eliminate barriers between departments

Demings 14 Points
10. Eliminate slogans of high achievement
without first showing how to do it.
11. Eliminate numerical quotas
12. Enhance worker pride
13. Institute vigorous training & education
programs
14. Develop a commitment from top
management to implement above 13 points

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Deming Wheel: PDCA Cycle

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Quality Tools
Process Flow
Chart
Cause-and-Effect
Diagram (Fishbone)
Check Sheet
Histogram

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Pareto Analysis
Scatter Diagram
Statistical Process
Control Chart

Flow Chart
A diagram of the steps in a process
Helps focus on location of problem in a
process

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Cause-and-Effect Diagram
"Fishbone" diagram categories of problem causes

(Hospital Bed
Turnaround
Time)

Check Sheets and Histograms

Check Sheet - Tally
number of defects
from a list of causes
Histogram Frequency diagram of
data for quality
problem

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Pareto Analysis
Pareto analysis - most quality problems result
from a few causes

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Pareto Chart

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Scatter Diagram
Graph showing
relationship
between 2 variables
in a process
Identifies pattern
that may cause a
quality problem

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Control Chart
A chart with statistical upper and lower limits
If sample statistics remain between these
limits we assume the process is in control

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TQM and QMS

Total Quality Management (TQM)

Describes as a management approach to longterm
success through customer satisfaction. In a TQM
effort, all members of an organization participate in
improving processes, products, services, and the
culture in which they work.
started in 80s as a Japanese style mgmt, popular in
90s
customer-oriented, leadership, strategic planning,
employee responsibility, continuous improvement,
cooperation, statistical methods, and training and
education

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Quality Management System (QMS)

A quality management system (QMS) is a
collection of business processes focused on
achieving your quality policy and quality
objectives i.e. what your customer wants and
needs.
It is expressed as the organizational structure,
policies, procedures, processes and resources
needed to implement quality management.
system to achieve customer satisfaction that
complements other company systems
Evolved out of the ISO certification process

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Focus of Quality Management:

Customers
TQM and QMSs
serve to achieve customer satisfaction
Some general facts about customer satisfaction
Satisfied customers are less likely to switch to a competitor
It costs 5-6 times more to attract new customers as to keep
an existing one
94-96% of dissatisfied customers dont complain. They just
walk away. 91% don't come back.
Small increases in customer retention mean large
increases in profits

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Quality Management in the

Supply Chain
Companies need support of their suppliers
to satisfy their customers
Reduce the number of suppliers to have
more direct influence in their quality
Partnering
a relationship between a company and its
supplier based on mutual quality standards
Request supplier to adopt QMS

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Measuring Customer Satisfaction

An important component of any QMS
Use customer surveys to hear Voice of the
Customer
American Customer Satisfaction Index (ACSI)
established in 1994 - partnership of Uni. of Michigan Business
School, ASQ and consultancy firm CFI.
The ASCI report scores on a 0-100 scale which is based on
data obtained from customer through telephone interviews
with customer.
In 2008: Amazon.com 86, Apple 85.

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Role of Employees in Quality

Improvement
Participative problem solving
employees involved in quality-management
every employee has undergone extensive training to
provide quality service to Disneys guests

Kaizen
Japanese term for continuous improvement not only in
workplace but in personal life, home life and social life.
involves everyone in process of continuous improvement
employees determining solutions to their own problems
Small individual changes has cumulative effect.

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Quality Circles
Voluntary
group of
workers and
supervisors
from same
area who
address
quality
problems

Organisation
8-10 members
Same area
Supervisor/moderator

Training

Presentation
Implementation
Monitoring

Group processes
Data collection
Problem analysis

Solution

Problem
Identification

Problem results

Problem
Analysis
Cause & effect
Data collection
and analysis
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Brainstorming
List alternatives
Consensus

Process (Quality) Improvement

Teams
Focus attention on business processes
rather than separate company functions
Includes members from the interrelated
departments which make up a process
Important to understand the process the
team is addressing
Process flowcharts are key tools

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Quality in Services
Service defects not always easy to measure
because service output is not usually tangible
Services tend to be labour intensive while
manufacturing more capital intensive.
Services and manufacturing companies have
similar inputs but different processes and
outputs
e.g. hotel, law, education, banks, health care

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Quality Attributes in Services

Principles of TQM apply equally well to
services and manufacturing
Timeliness is an important dimension
how quickly a service is provided

Benchmark
best level of quality achievement in one company
that other companies seek to achieve

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Six Sigma
First developed in Motorola in 1985
Six Sigma seeks to improve the quality of process outputs by
identifying and removing the causes of defects (errors) and
minimizing variability in manufacturing and business processes.
It uses a set of quality management methods, including
statistical methods, and creates a special infrastructure of
people within the organization ("Champions", "Black Belts",
"Green Belts", "Orange Belts", etc.) who are experts in these
very complex methods.
Each Six Sigma project carried out within an organization
follows a defined sequence of steps and has quantified value
targets, for example; process cycle time reduction, customer
satisfaction, reduction in pollution, cost reduction and/or profit
increase
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Six Sigma
Credited for billions of dollars in cost savings
and increased profit.
Project related methodology provides
businesses with the tools & expertise to
improve processes.
A process for developing and delivering
virtually perfect products and services
Six Sigma is a measure of how much a
process deviates from perfection
Goal: 3.4 defects per million opportunities
(DPMO)
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Adapted from 2011

Six Sigma identifies several key roles for its

successful implementation.
Executive Leadership includes the CEO and other members of top management.
They are responsible for setting up a vision for Six Sigma implementation. They also
empower the other role holders with the freedom and resources to explore new
ideas for breakthrough improvements.
Champions take responsibility for Six Sigma implementation across the
organization in an integrated manner. The Executive Leadership draws them from
upper management. Champions also act as mentors to Black Belts.
Master Black Belts, identified by champions, act as in-house coaches on Six
Sigma. They devote 100% of their time to Six Sigma. They assist champions and
guide Black Belts and Green Belts. Apart from statistical tasks, they spend their time
on ensuring consistent application of Six Sigma across various functions and
departments.
Black Belts operate under Master Black Belts to apply Six Sigma methodology to
specific projects. They devote 100% of their time to Six Sigma. They primarily focus
on Six Sigma project execution, whereas Champions and Master Black Belts focus
on identifying projects/functions for Six Sigma.
Green Belts are the employees who take up Six Sigma implementation along with
their other job responsibilities, operating under the guidance of Black Belts.
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Adapted from 2011

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Breakthrough Strategy: DMAIC

Define - problem is defined
Measure
- process measured, data collected
Analyse
- data analysis to find cause of problem

Improve - develop solutions to problem

Control - ensure improvement is continued

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Six Sigma Process

DEFINE

MEASURE

ANALYSE

IMPROVE

CONTROL

3.4 DPMO

67,000 DPMO
cost = 25% of sales

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Black Belts and Green Belts

Black Belt
project leader

Master Black Belt

a teacher and mentor for Black
Belts

Green Belts
project team members

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Profitability
The typical criterion for selecting Six Sigma
projects
One of the factors distinguishing Six Sigma
from TQM
Quality is not only free, it is an honest-toeverything profit maker
Quality improvements reduce costs of poor
quality

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Cost of Quality
Cost of Achieving Good Quality
Prevention costs

costs incurred during product design

Appraisal costs

costs of measuring, testing, and analysing

Cost of Poor Quality

Internal failure costs

include scrap, rework, process failure, downtime,

and price reductions

External failure costs

include complaints, returns, warranty claims,

liability, and lost sales

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Prevention Costs
Quality planning costs
costs of developing
and implementing
quality management
program

Product-design costs
costs of designing
products with quality
characteristics

Process costs

costs expended to
make sure production
process conforms to
quality specifications

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Training costs
costs of developing
and putting on quality
training programs for
employees and
management

Information costs
costs of acquiring and
maintaining data
related to quality, and
development and
analysis of reports on
quality performance

Appraisal Costs
Inspection and testing

costs of testing and inspecting materials, parts, and product

at various stages and at end of process

Test equipment costs

costs of maintaining equipment used in testing quality

characteristics of products

Operator costs

costs of time spent by operators to gather data for testing

product quality, to make equipment adjustments to maintain
quality, and to stop work to assess quality

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Internal Failure Costs

Scrap costs
costs of poor-quality
products that must be
discarded, including labor,
material, and indirect costs
Rework costs
costs of fixing defective
products to conform to
quality specifications
Process failure costs
costs of determining why
production process is
producing poor-quality
products

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Process downtime
costs
costs of shutting
down productive
process to fix
problem
Price-downgrading
costs
costs of discounting
poor-quality
productsthat is,
selling products as
seconds

External Failure Costs

Customer complaint costs
costs of investigating and
satisfactorily responding to a
customer complaint resulting
from a poor-quality product
Product return costs
costs of handling and replacing
poor-quality products returned
by customer
Warranty claims costs
costs of complying with product
warranties

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Product liability costs

litigation costs
resulting from product
liability and customer
injury
Lost sales costs
costs incurred because
customers are
dissatisfied with poorquality products and
do not make additional
purchases

Measuring and Reporting Quality

Costs
Index numbers

ratios that measure quality costs against a base

value
labour index
ratio of quality cost to labour hours
cost index
ratio of quality cost to manufacturing cost
sales index
ratio of quality cost to sales
production index
ratio of quality cost to units of final product

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Cost of Quality
2006

Year
2007

Quality Costs
Prevention
27,000
41,500
Appraisal
155,000
122,500
Internal failure 386,400
469,200
External failure 242,000
196,000
Total
810,400
829,200
Accounting Measures
Sales
4,360,000 4,450,000
Manufacturing
costs
1,760,000 1,810,000

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2008

2009

74,600
113,400
347,800
103,500
639,300

112,300
107,000
219,100
106,000
544,400

5,050,000

5,190,000

1,880,000

1,890,000

Cost of Quality
Quality index = total quality costs / base * 100
For 2006, quality cost per sale
= 810,400 / 4,360,000 * 100 = 18.58

Year
2006
2007
2008
2009

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Quality
Sales Index
18.58
18.63
12.66
10.49

Quality Manufacturing
Cost Index
46.04
45.18
34.00
28.80

Effect of Quality Management

on Productivity
Productivity = output / input
output = final product, service or production
input = parts, material, labour, capital productivity measures
(labour productivity, machine productivity, etc.)

Quality impact on productivity

fewer defects increase output, and quality improvement
reduces inputs

Yield
a measure of output used as an indicator of productivity

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Measuring Product Yield

and Productivity
Yield = (total input)(% good units)
+ (total input)(1-%good units)(% reworked)

Y = (I)(%G) + (I)(1-%G)(%R)
where
I
= initial quantity started in production
%G = percentage of good units produced
%R = percentage of defective units that are successfully
reworked

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Computing Product Yield

Motor manufacturer
Starts a batch of 100 motors.
80 % are good when produced
50 % of the defective motors can be reworked
Y =(I)(%G)+(I)(1-%G)(%R)
= 100(.80) + 100(1-.80)(.50) = 90 motors

Increase quality to 90% good

Y =100(.90) + 100(1-.90)(.50) = 95 motors
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Computing Product Cost per Unit

(
K
)(
I
)

(
K
)(
R
)
d
r
Product Cost
Y
where:
Kd = direct manufacturing cost per unit
I
= input
Kr = rework cost per unit
R = reworked units
Y = yield
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Cost per Unit

Direct cost = $30
80% good
(K
)(
I)
(K
R
)
d
r)(
=
Y

Rework cost = $12

50% can be reworked
$30*100 + $12*10 =
$34.67/motor
90 motors

Increase quality to 90% good

=

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$30*100 + $12*5
95 motors

= $32.21/motor

Computing Product Yield

for Multistage Processes
Y = (I)(%g1)(%g2) (%gn)
where:
I = input of items to the production process that
will result in finished products
gi = good-quality, work-in-process products at
stage i

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Multistage Yield
Stage
1
2
3
4

Average Percentage
Good Quality
0.93
0.95
0.97
0.92

Y = (I)(%g1)(%g2) (%gn)
= 100 * .93 * .95 * .97 * .92 = 78.8 motors

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Calculating Initial Batch Size

For Yield of 100 Motors
Y
I = (%g )(%g ) (%g )
1
2
n
=
100
.93 * .95 * .97 * .92

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= 126.88 127

Quality: Productivity Ratio

QPR
productivity index that includes productivity
and quality costs

QPR =

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(good-quality units)

(100)
(input) (processing cost) + (reworked units) (rework cost)

Quality: Productivity Ratio

Direct cost = $30
80% good
Initial batch size = 100

Rework cost = $12

50% can be reworked

Base Case
QPR =

80 + 10

(100) = 2.89

100 * $30 + 10 * $12

Case 1: Increase I to 200
QPR =

160 + 20

200 * $30 + 20 * $12

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(100) = 2.89 NO CHANGE

Quality: Productivity Ratio

Case 2: Reduce direct cost to $26 and rework cost to $10
QPR =

80 + 10

(100) = 3.33

100 * $26 + 10 * $10

Case 3: Increase %G to 95%
QPR =

95 + 2.5

(100) = 3.22

100 * $30 + 2.5 * $12

Case 4: Decrease costs and increase %G

QPR =

95 + 2.5
100 * $26 + 2.5 * $10

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(100) = 3.71

Malcolm Baldrige Award

Created in 1987 to stimulate growth of
quality management in United States
Categories

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Leadership
Information and analysis
Strategic planning
Human resource focus
Process management
Business results
Customer and market focus

Other Awards for Quality

National individual
awards
Armand V. Feigenbaum
Medal
Deming Medal
E. Jack Lancaster Medal
Edwards Medal
Shewhart Medal
Ishikawa Medal

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International
awards
European Quality
Award
Canadian Quality
Award
Australian Business
Excellence Award
Deming Prize from
Japan

ISO 9000
Procedures and policies for international
quality certification
Many overseas companies will not do
business with a supplier unless it has ISO
9000 certification
ISO 9000:2008
Quality Management SystemsFundamentals and
Vocabulary
defines fundamental terms and definitions used in ISO
9000 family
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 ISO 9001:2008
Quality Management SystemsRequirements
standard to assess ability to achieve customer
satisfaction
only standard that carries third-party certification

ISO 9004:2008
Quality Management SystemsGuidelines for
Performance Improvements

guidance to a company for continual improvement of

its quality-management system

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