Chapter 5 Managing Quality SCM 301

acceptance sampling

"the process of sampling a portion of goods for inspection rather than examining the entire lot. The entire lot may be accepted or rejected based on the sample even though the specific units in the lot are better or worse than the sample."

W. Edwards Deming is known in quality circles for his

14 points for management

Supplier Partnerships

As you would expect, companies must extend their TQM efforts to include supply chain partners. If members of the supply chain do not share the same commitment to TQM, quality will suffer because suppliers' materials and services ultimately become part of the company's product or service. To ensure that suppliers are willing to meet expectations, managers must monitor their performance carefully and take steps to ensure improvement, when necessary.

The operations manager made sure that all processes were producing output exactly the way the design engineers had drawn it up. Which view of quality is in​ evidence? A. the performance perspective B. the perceived quality perspective C. the conformance perspective D. the value perspective

C. the conformance perspective

Acceptance Sampling at Chapman Industries

Chapman Industries has received a shipment of 5,000 parts, each of which can be categorized as "good" or "defective." Rather than inspect all 5,000 parts, Chapman would like to make a decision based on a randomly selected sample of 10 parts. If more than 1 part is found to be defective, Chapman will reject the entire lot. In addition, Chapman would like to accept all lots with a defect rate %. This is known as the acceptable quality level (AQL). However, because Chapman will be making its decision based on a small sample of parts, there is always the possibility that the company will accidentally accept a lot with a much higher defect level. After much debate, management has agreed to risk accepting lots with defect levels as high as 30%. This upper limit is referred to as the lot tolerance percent defective (LTPD). Using random samples to make decisions about an entire lot has risks. On the one hand, Chapman may accept a lot that is even worse than the LTPD level. The probability of this occurring is called the consumer's risk (β). On the other hand, Chapman may actually reject a lot that meets its AQL. The probability of this outcome is known as the producer's risk (α). Pg.128 Figures 5.9 and 5.10 illustrate these concepts. Under 100% inspection, the probability of accepting a "good" lot (defect level of 5% or less) is 100%, while the probability of accepting a bad lot is 0%. In contrast, the operating characteristics (OC) curve in Figure 5.9 shows the probability of accepting a lot, given the actual fraction defective in the entire lot and the sampling plan being used. It is important to note that different n and c values will result in differently shaped curves.

External Failures in the Supply Chain

Even with the best quality programs, companies still need to put in place processes to catch defective products once they have left the organization and entered the supply chain. How quickly and effectively companies handle this can have a great impact on the resulting external failure costs. Tracking systems, lot identification numbers, and explicit procedures for returning or destroying defective (and potentially harmful) goods are all examples of solutions that are used to deal with such problems.

Total quality management​ (TQM) and Six Sigma are​ equivalent, the latter is simply the latest name for the same set of techniques pioneered by W Edwards Deming.

False

ISO 9000 Family

ISO 9000 is a family of standards that represents an international consensus on good management practices. ISO 9000 seeks to help organizations deliver products or services that simultaneously: - Meet the customer's quality requirements. - Satisfy regulatory requirements, while aiming to Enhance customer satisfaction. - Achieve continual improvement of the organization's performance in pursuit of these objectives. Unlike traditional standards, ISO 9000 focuses more on practices than outcomes. Companies following ISO 9000 standards will often have independent auditors "certify" that their business processes are ISO 9000 compliant. In some industries, certification is a requirement for doing business, and industry-specific standards may also apply. In others, ISO 9000 may simply signal potential supply chain partners that an organization has quality systems in place.

Leadership Involvement

If companies are serious about adopting a TQM mind-set, then change must begin at the top. Managers should carry the message that quality counts to everyone in the company. To inspire and guide managers, W. Edwards Deming presented "Fourteen Points for Management," a set of guidelines for managers to follow if they are serious about improving quality: 1. Demonstrate consistency of purpose toward product improvement. 2. Adopt the new philosophy [of continuous improvement]. 3. Cease dependence on mass inspection; use statistical methods instead. 4. End the practice of awarding business on the basis of price tag. 5. Find and work continually on problems. 6. Institute modern methods of training. 7. Institute modern methods of supervision. 8. Drive out fear—promote a company-oriented attitude. 9. Break down barriers between departments. 10. Eliminate numerical goals asking for new levels of productivity without providing methods. 11. Eliminate standards prescribing numerical quotas. 12. Remove barriers that stand between the hourly worker and his right to pride of workmanship. 13. Institute a program of education and retraining. 14. Create a corporate and management structure that will promote the above 13 points. In promoting his ideas, Deming stressed that managers bear the ultimate responsibility for quality problems. To succeed, they must focus on the entire organization to excel in all dimensions that are important to the customer.

External failure cost

If defects are not detected until a product or service reaches the customer, the organization incurs an external failure cost. These costs are difficult to estimate, but they are inevitably large, for they include not only the cost of fixing the problem, but also the costs of lost future business and, in some cases, costly litigation. Consider the opening case for this chapter, which estimated the cost of mishandling a single bag at $100.

Employee Empowerment

Prior to TQM, the traditional business view has been that the executives at the top of a company do the thinking, the middle managers do the supervising, and the remaining employees are paid to work, not to think. However, in a TQM organization, quality is everybody's job, from the CEO to the entry-level employees. Employee empowerment means giving employees the responsibility, authority, training, and tools necessary to manage quality. An excellent example of this is training employees in the Six Sigma methodology and continuous improvement tools

Total Quality Management (TQM) and Six Sigma Methodology

Some practitioners and researchers have even gone as far as to say that TQM is passé and has been replaced by Six Sigma. But this is misleading; the fundamental principles behind TQM took decades to develop and are still valid today. The main differences are: 1. TQM is a managerial approach in which the entire organization is managed so that it excels in all quality dimensions that are important to customers. The "seven core principles" of TQM and Deming's 14 points illustrate the approach. 2. The Six Sigma methodology builds on TQM and makes use of both the TQM philosophy and continuous improvement tools. Six Sigma includes specific processes for guiding process improvement and new process/product development efforts. The first of these, DMAIC (Define-Measure-Analyze-Improve-Control), outlines the steps that should be followed to improve existing business processes. The second, DMADV (Define-Measure-Analyze-Design-Verify), outlines the steps needed to create completely new business processes or products. 3. Six Sigma defines specific organizational roles and career paths. We discussed five of them in Chapter 4: champions, master black belts, black belts, green belts, and team members. Six Sigma has an expanded tool kit that includes computer simulation, optimization modeling, data mining, and other advanced analytical techniques. Typically, master black belts and black belts provide teams with the expertise required to use these tools. Put another way, TQM encapsulates the managerial vision behind quality management; Six Sigma builds on this to provide organizations with the processes, people, and tools required to carry out this vision.

Strategic Quality Plan

TQM cannot be achieved without significant, sustained efforts over time. A well-developed strategic quality plan provides the vision, guidance, and measurements to drive the quality effort forward and shift the organization's course when necessary. Such a plan generally extends several years into the future and stipulates a broad set of objectives. However, it should also establish measurable quarterly (three-month) goals for the short term. Every quarter, executives should review the company's quality performance against its goals and take action to sustain successes and remedy failures. Cross-functional teams consisting of process owners then implement their action plans. Process owners are held responsible for achieving specific goals by certain dates, and at every team meeting, members measure their progress against preestablished measures and deadlines.

Customer Focus

TQM starts with employees who are willing to place themselves in the customers' shoes. If employees do not understand how customers really feel about a product or service, they risk alienating customers. In some cases, an employee might not have direct contact with an external customer. But every employee has a "customer" whose expectations must be met, even if that customer is internal to the organization.

Taguchi's quality loss function

Taguchi's quality loss function, shown in Figure 5.13 (pg. 130), reflects the idea that any deviation from the target value results in some failure cost. The parabolic shape suggests that these costs start to accrue as soon as there is any deviation from the target and that they grow exponentially as actual results drift even farther away.

Quality

The characteristics of a product or service that bear on its ability to satisfy stated or implied needs [the value perspective] A product or service that is free of deficiencies [the conformance perspective]

Six Sigma Quality

The idea behind Six Sigma quality is to reduce the variability of a process to such a point that the process capability ratio is greater than or equal to 2. Notice that this is the same as squeezing 12 or more standard deviations between the tolerance limits. For a perfectly centered process with normally distributed output, this translates into around 2 defects per billion. In reality, most processes are not perfectly centered, resulting in a higher number of observations falling outside the tolerance limits. Practitioners, therefore, use a working definition of Six Sigma quality that allows for a possible shift in the process mean of standard deviations. The effect is to increase the allowable defect level to 3.4 defects per million. Either way, you can begin to see why many firms like the term: Six Sigma quality levels serve as a quantifiable, if far-reaching, objective for many organizations.

Sampling

The idea behind sampling is that businesses do not have to examine every process outcome to assess how well a process is doing. Instead, they can use carefully selected samples to get a fairly good idea of how well a process is working. In fact, control charts are based on samples. 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.

Process capability, process capability ratio, process capability index

all on study sheet

The florist checked over the arrangement just prior to loading the vase in the delivery van. It was​ fortunate, because he noticed that lilacs had been included in the arrangement. The customer specifically requested​ "no lilacs," so the florist was able to remove them and make the order right before it left the office for the customer. This scenario is an example of

an internal failure cost

In the Dittenhoefer fine china​ case, workers visually inspected finished items for defects such as chips or cracks. The time and labor cost associated with this inspection resulted in which of the following type of quality​ costs?

appraisal

Balanced against failure costs are

appraisal and prevention costs

Appraisal costs

are costs a company incurs for assessing its quality levels. Typical appraisal costs are the costs for inspections, the sampling of products or services, and customer surveys. Note that appraising quality is not the same as preventing defects. For example, a manufacturer might inspect goods before they are shipped, but unless it takes steps to improve the production process, defect levels will not change. In contrast, prevention costs refer to the costs an organization incurs to actually prevent defects from occurring in the first place.

Internal failure costs

are 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. As you might have guessed, this cost is not small. A BusinessWeek study5 once found that the typical American factory spent 20% to 50% of its operating budget on finding and fixing mistakes. In fact, as many as one out of four factory employees didn't produce anything new that year because they were too busy reworking units not done right the first time.

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. A control chart has a center line showing the expected value for a sample measure, as well as upper and lower control limits. Control limits are derived using statistical techniques. They are calculated so that if a sample result falls inside the control limits, the process is considered "in control." If a sample result falls outside the control limits, the process is considered "out of control."

Continuous variables

are variables that can be measured along a continuous scale, such as weight, length, height, or temperature

The American Society for Quality has a two part definition of quality. One perspective on quality is​ "a product or service free from​ deficiencies; the product performs as​ intended." This is the​ ____________ perspective on quality.

conformance

Which of the following is a principle of TQM that assumes there will always be room for​ improvement, no matter how well an organization is​ doing?

continuous improvement

In the Dittenhoefer Fine China​ case, a worker found that the plates had around 2.4 microns of coating applied. Manufacturing was able to correct the problem and save these​ plates, but no one knew how many plates had been shipped before the problem was discovered. The plates that were already shipped before the problem was corrected resulted in which of the following type of quality​ costs?

external failure

__________ is the dimension of quality that addresses the additional characteristics of the product or service beyond the base operating features.

features

Conformance Perspective

focuses on whether or not a product was made or a service was performed as intended. Conformance quality is typically evaluated by measuring the actual product or service against some preestablished standards. "Number of defects in the car" and "number of mistakes on the tax return" are two measures of conformance quality. A defect or mistake, by definition, means that the product or service failed to meet specifications.

Total Cost of Quality

four quality-related costs: internal failure costs, external failure costs, appraisal costs, and prevention costs.

Value Perspective

holds that quality must be judged, in part, on how well the characteristics of a particular product or service align with the needs of a specific user. This is consistent with the views of noted quality expert Joseph Juran, who defined quality as "fitness for use."

In the Dittenhoefer fine china​ case, a worker set the polymer coating machine to 190 degrees to clean the machine and forgot to reset the temperature for production. Dittenhoefer destroyed the​ 2,400 defective plates prior to delivery to the customer. The destruction of​ 2,400 plates resulted in which of the following type of quality​ costs?

internal failure

ISO 9000

is a highly successful program that has helped spread quality management practices worldwide. Companies seek ISO 9000 certification both as a way to proactively address quality issues and as a way to signal to potential supply chain partners that they are serious about managing quality. Then we consider how companies deal with external failures in the supply chain.

Statistical quality control (SQC)

is directly aimed at making sure that a business's current processes are meeting the specifications. Simply put, SQC is the application of statistical techniques to quality control. Process capability and all statistical measures are detailed on study sheet

Total Quality Management (TQM)

is the management of an entire organization so that it excels in all quality dimensions that are important to customers. TQM is such a broad concept that students often have a hard time understanding what it is. Indeed, one way to think about TQM is as a business philosophy centered around seven core ideas, or principles: 1. Customer focus 2. Leadership involvement 3. Continuous improvement 4. Employee empowerment 5. Quality assurance 6. Supplier partnerships 7. Strategic quality plan

R chart

is used to track how much the individual observations within each sample vary

X-bar chart

is used to track the average value for future samples

Continuous Improvement

means never being content with the status quo but assuming that there will always be room for improvement, no matter how well an organization is doing. Think again about the opening case: While the number of mishandled bags on U.S. domestic flights has improved dramatically over the last 10 years, there were still 1.7 million bags lost or mishandled in 2016. With failure costs at $100 per bag, that's $170 million in lost value to the airlines.

Companies focused on improving quality hire Six Sigma Black Belts to work on identifying the root cause of problems and implementing solutions. Hiring Black Belts to keep defects from occurring to begin with results in which of the following type of quality​ costs?

prevention

Prevention costs

refer to the costs an organization incurs to actually prevent defects from occurring in the first place. Examples include the costs for employee training, supplier certification efforts, and investment in new processes, not to mention equipment maintenance expenditures.

Attributes

refer to the presence or absence of a particular characteristic.

Quality Assurance

refers to the specific actions a firm takes to ensure that its products, services, and processes meet the quality requirements of its customers. Quality assurance activities take place throughout the organization. For example, during the product design phase, many companies use a technique called quality function deployment (QFD) to translate customer requirements into technical requirements for each stage of product development and production. Another approach that falls under the quality assurance banner is statistical quality control (SQC), which we will describe in detail later in the chapter. SQC uses basic statistics to help organizations measure quality levels. Other quality assurance efforts can include "error-proofing," which is the deliberate design of a process to eliminate the possibility of an error, and quality auditing of suppliers by carefully trained teams.

Two distinct, yet mutually dependent, perspectives on quality:

the value perspective and the conformance perspective

"Managing the entire organization so that it excels in all dimensions important to the​ customer, including product​ development, marketing and supply​ chain" is the definition of

total quality management

The American Society for Quality has a two part definition of quality. One perspective on quality is​ "the characteristics of a product or service that bear on its ability to satisfy stated or implied needs of the​ customer, also known as fitness for​ use." This is the​ ____________ perspective on quality.

value