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Chapter 6
Operations As a Competitive
Weapon
Operations Strategy
Project Management
Process Strategy
Process Analysis
Process Performance and Quality
Constraint Management
Process Layout
Lean Systems
Quality at
Crowne Plaza Christchurch
The Crowne Plaza is a luxury hotel with 298 guest
rooms three restaurants, two lounges and 260
employees to serve 2,250 guests each week.
Customers have many opportunities to evaluate the
quality of services they receive.
Prior to the guests arrival, the reservation staff
gathers a considerable amount of information about
each guests preferences.
Guest preferences are shared with housekeeping
and other staff to customize service for each guest.
Employees are empowered to take preventative,
and if necessary, corrective action.
Costs of Poor
Process Performance
Defects: Any instance when a process fails to
satisfy its customer.
Prevention costs are associated with
preventing defects before they happen.
Appraisal costs are incurred when the firm
assesses the performance level of its processes.
Internal failure costs result from defects that
are discovered during production of services or
products.
External failure costs arise when a defect is
discovered after the customer receives the
service or product.
2007 Pearson Education
TQM Wheel
Customer
satisfaction
Customer Satisfaction
Customers, internal or external, are satisfied when
their expectations regarding a service or product
have been met or exceeded.
Conformance: How a service or product conforms
to performance specifications.
Value: How well the service or product serves its
intended purpose at a price customers are willing
to pay.
Fitness for use: How well a service or product
performs its intended purpose.
Support: Support provided by the company after a
service or product has been purchased.
Psychological impressions: atmosphere, image, or
aesthetics
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Employee Involvement
One of the important elements of TQM is employee
involvement.
Quality at the source is a philosophy whereby
defects are caught and corrected where they were
created.
Teams: Small groups of people who have a
common purpose, set their own performance goals
and approaches, and hold themselves accountable
for success.
Employee empowerment is an approach to
teamwork that moves responsibility for decisions
further down the organizational chart to the level of
the employee actually doing the job.
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Team Approaches
Quality circles: Another name for problem-solving
teams; small groups of supervisors and employees
who meet to identify, analyze, and solve process
and quality problems.
Special-purpose teams: Groups that address
issues of paramount concern to management,
labor, or both.
Self-managed team: A small group of employees
who work together to produce a major portion, or
sometimes all, of a service or product.
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Continuous Improvement
Continuous improvement is the philosophy of
continually seeking ways to improve processes
based on a Japanese concept called kaizen.
1. Train employees in the methods of statistical
process control (SPC) and other tools.
2. Make SPC methods a normal aspect of
operations.
3. Build work teams and encourage employee
involvement.
4. Utilize problem-solving tools within the work
teams.
5. Develop a sense of operator ownership in the
process.
Plan
Act
Do
Check
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Statistical
Process Control
Statistical process control is the application of
statistical techniques to determine whether a process is
delivering what the customer wants.
Acceptance sampling is the application of statistical
techniques to determine whether a quantity of material
should be accepted or rejected based on the inspection
or test of a sample.
Variables: Service or product characteristics that can
be measured, such as weight, length, volume, or time.
Attributes: Service or product characteristics that can
be quickly counted for acceptable performance.
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Sampling
Sampling plan: A plan that specifies a
sample size, the time between successive
samples, and decision rules that determine
when action should be taken.
Sample size: A quantity of randomly
selected observations of process outputs.
Sampling Distributions
A sample mean is the sum of the observations
divided by the total number of observations.
Sample Mean
n
i 1
where
xi = observations of a quality
characteristic such as time.
n = total number of observations
x = mean
Sample Range
The range is the difference between the largest
observation in a sample and the smallest.
The standard deviation is the square root of the
variance of a distribution.
where
x x
i
n 1
Process Distributions
A process distribution can be characterized by its
location, spread, and shape.
Location is measured by the mean of the
distribution and spread is measured by the range or
standard deviation.
The shape of process distributions can be
characterized as either symmetric or skewed.
A symmetric distribution has the same number of
observations above and below the mean.
A skewed distribution has a greater number of
observations either above or below the mean.
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Causes of Variation
Two basic categories of variation in output include
common causes and assignable causes.
Common causes are the purely random,
unidentifiable sources of variation that are
unavoidable with the current process.
If process variability results solely from common causes
of variation, a typical assumption is that the distribution is
symmetric, with most observations near the center.
Assignable causes of variation are any variationcausing factors that can be identified and eliminated,
such as a machine needing repair.
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Assignable Causes
The red distribution line below indicates that the process produced a
preponderance of the tests in less than average time. Such a distribution
is skewed, or no longer symmetric to the average value.
A process is said to be in statistical control when the location, spread,
or shape of its distribution does not change over time.
After the process is in statistical control, managers use SPC procedures
to detect the onset of assignable causes so that they can be eliminated.
Location
Spread
Shape
Control Charts
Control chart: A time-ordered diagram that is used to
determine whether observed variations are abnormal.
A sample statistic that falls between the UCL and the LCL indicates that the process
is exhibiting common causes of variation; a statistic that falls outside the control
limits indicates that the process is exhibiting assignable causes of variation.
Statistical Process
Control Methods
Control Charts for variables are used to monitor the
mean and variability of the process distribution.
R-chart (Range Chart) is used to monitor process
variability.
x-chart is used to see whether the process is
generating output, on average, consistent with a
target value set by management for the process or
whether its current performance, with respect to the
average of the performance measure, is consistent
with past performance.
If the standard deviation of the process is known, we can
place UCL and LCL at z standard deviations from the
mean at the desired confidence level.
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Control Limits
The control limits for the x-chart are:
UCLx = =x + A2R and LCLx= x=- A2R
Where
=
X = central line of the chart, which can be either the average of past
sample means or a target value set for the process.
A2 = constant to provide three-sigma limits for the sample mean.
The control limits for the R-chart are UCLR = D4R and LCLR = D3R
where
R = average of several past R values and the central line of the chart.
D3,D4 = constants that provide 3 standard deviations (three-sigma)
limits for
a given sample size.
2007 Pearson
Education
Calculating
Three-Sigma Limits
Table 6.1
1
0.5014
0.5021
0.5018
0.5008
0.5041
Sample
2
3
0.5022 0.5009
0.5041 0.5024
0.5026 0.5035
0.5034 0.5024
0.5056 0.5034
4
0.5027
0.5020
0.5023
0.5015
0.5039
R
0.0018
x
0.5018
(0.5014 + 0.5022 +
0.5009 + 0.5027)/4 = 0.5018
1
0.5014
0.5021
0.5018
0.5008
0.5041
Sample
2
3
0.5022 0.5009
0.5041 0.5024
0.5026 0.5035
0.5034 0.5024
0.5056 0.5034
4
0.5027
0.5020
0.5023
0.5015
0.5047
R=
R
0.0018
0.0021
0.0017
0.0026
0.0022
0.0021
x= =
x
0.5018
0.5027
0.5026
0.5020
0.5045
0.5027
Factor for
LCL for
x-Charts
R-Charts
(A2)
(D3)
2
1.880
0
3.267
3
1.023
0
R = 0.0021
2.575
4
0.729
0
D4 = 2.282
2.282
5
0.577
0
UCLR = D4R = 2.282 (0.0021) = 0.00479 in.
D3 = 0
2.115
LCLR = D3R 0.483
0 (0.0021) = 0 in.
0
2007 Pearson Education 6
2.004
UCL
R(D4)
Factor for
LCL for
x-Charts
R-Charts
(A2)
(D3)
2
1.880
0
3.267
3
1.023
0
R = 0.0021 A2 = 0.729 =x = 0.5027
2.575
0.729+ 0.729 (0.0021) 0= 0.5042 in.
UCLx4= x= + A2R = 0.5027
2.282 =
LCLx 5= x - A2R = 0.5027
0.577 0.729 (0.0021) =0 0.5012 in.
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2.115
UCL
R(D4)
Application 6.1
Application 6.1
Application 6.1
Sunny Dale Bank management determined the mean time to process a customer is 5
minutes, with a standard deviation of 1.5 minutes. Management wants to monitor mean
time to process a customer by periodically using a sample size of six customers.
Design an x-chart that has a type I error of 5 percent. That is, set the control limits
so that there is a 2.5 percent chance a sample result will fall below the LCL and a
2.5 percent chance that a sample result will fall above the UCL.
x = / n
6 = 3.80 min
After several weeks of sampling, two successive samples came in at 3.70 and
3.68 minutes, respectively. Is the customer service process in statistical control?
Control Charts
for Attributes
p-chart: A chart used for controlling the
proportion of defective services or products
generated by the process.
p =
p(1 p)/n
Where
n = sample size
p = central line on the chart, which can be either the historical
average population proportion defective or a target value.
and LCL = pz
Control limits are: UCLp = p+z
p
p
p
z = normal deviate (number of standard deviations from the average)
2007 Pearson Education
Hometown Bank
Example 6.3
The operations manager of the booking services department of
Hometown Bank is concerned about the number of wrong customer
account numbers recorded by Hometown personnel.
Each week a random sample of 2,500 deposits is taken, and the number
of incorrect account numbers is recorded. The results for the past 12
weeks are shown in the following table.
Is the booking process out of statistical control? Use three-sigma control limits.
2007 Pearson Education
Hometown Bank
Using a p-Chart to monitor a process
n = 2500
p=
p =
p =
147
= 0.0049
12(2500)
p(1 p)/n
0.0049(1 0.0049)/2500
p = 0.0014
UCLp = 0.0049 + 3(0.0014)
= 0.0049
0.0091 3(0.0014)
LCLp =
= 0.0007
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Sample
Number
Wrong
Account #
Proportion
Defective
1
2
3
4
5
6
7
8
9
10
11
12
15
12
19
2
19
4
24
7
10
17
15
3
0.006
0.0048
0.0076
0.0008
0.0076
0.0016
0.0096
0.0028
0.004
0.0068
0.006
0.0012
Total
147
Hometown Bank
Using a p-Chart to monitor a process
Example 6.3
Application 6.2
Application 6.2
p
0.025
Total number of tubes
20144
p 1 p
0.0251 0.025
0.01301
n
144
c-Charts
c-chart: A chart used for controlling the number of defects when
more than one defect can be present in a service or product.
The underlying sampling distribution for a c-chart is the Poisson
distribution.
The mean of the distribution is c
The standard deviation is c
A useful tactic is to use the normal approximation to the Poisson
so that the central line of the chart is c and the control limits are
UCLc = c+z c
and LCLc = cz
20 = 11.06
Number of Defects
Solver - c-Charts
Sample Number
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Application 6.3
6 5 0 4 6 4 1 6 5 0 9 2
4
12
UCLc c z c 4 2 2 8
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c 4 2
LCLc c z c 4 2 2 0
Process Capability
Process capability is the ability of the
process to meet the design specifications
for a service or product.
Nominal value is a target for design
specifications.
Tolerance is an allowance above or below
the nominal value.
Process Capability
Nominal
value
Process distribution
Upper
specification
Lower
specification
20
25
Process is capable
30
Minutes
Process Capability
Nominal
value
Process distribution
Upper
specification
Lower
specification
20
25
30
Minutes
Effects of Reducing
Variability on Process Capability
Nominal value
Six sigma
Four sigma
Two sigma
Lower
specification
Upper
specification
Mean
Cpk = Minimum of
x= Lower specification
3
Upper specification x=
3
Cp =
Cpk = Minimum of
Cpk =
Cpk =
x= Lower specification
Minimum of
26.2 20.0
3(1.35)
Minimum of
1.53, 0.94
Upper specification x=
3
30.0 26.2
3(1.35)
= 0.94
Process
Capability
Index
6
= 1.23 Process Capability Ratio
Application 6.4
Application 6.4
Quality Engineering
Quality engineering is an approach
originated by Genichi Taguchi that involves
combining engineering and statistical methods
to reduce costs and improve quality by
optimizing product design and manufacturing
processes.
Quality loss function is the rationale that a
service or product that barely conforms to the
specifications is more like a defective service
or product than a perfect one.
Quality loss function is optimum (zero) when the
products quality measure is exactly on the target
measure.
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Loss (dollars)
Taguchi's
Quality Loss Function
Lower
specification
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Nominal
value
Upper
specification
Six Sigma
Six Sigma is a comprehensive and flexible system
for achieving, sustaining, and maximizing business
success by minimizing defects and variability in
processes.
It relies heavily on the principles and tools of TQM.
It is driven by a close understanding of customer
needs; the disciplined use of facts, data, and
statistical analysis; and diligent attention to
managing, improving, and reinventing business
processes.
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Six Sigma
Improvement Model
1. Define Determine the current process
characteristics critical to customer
satisfaction and identify any gaps.
2. Measure Quantify the work the process
does that affects the gap.
3. Analyze Use data on measures to perform
process analysis.
4. Improve Modify or redesign existing
methods to meet the new performance
objectives.
5. Control Monitor the process to make sure
high performance levels are maintained.
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Six Sigma
Implementation
Top Down Commitment from corporate
leaders.
Measurement Systems to Track Progress
Tough Goal Setting through benchmarking
best-in-class companies.
Education: Employees must be trained in
the whys and how-tos of quality.
Communication: Successes are as
important to understanding as failures.
Customer Priorities: Never lose sight of
the customers priorities.
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International Quality
Documentation Standards
ISO
9000
ISO
14000
1.
2.
3.
4.
Category 1 Leadership
Category 2 Strategic Planning
Category 3 Customer and Market Focus
Category 4 Measurement, Analysis, and
Knowledge Management
5. Category 5 Human Resource Focus
6. Category 6 Process Management
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7. Category 7 Business Results
120 points
85 points
85 points
90 points
85 points
85 points
450 points