logging in or signing up Quality Management aSGuest40377 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 741 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: March 12, 2010 This Presentation is Public Favorites: 3 Presentation Description No description available. Comments Posting comment... Premium member Presentation Transcript Quality Management : Copyright 2006 John Wiley & Sons, Inc. Beni AsllaniUniversity of Tennessee at Chattanooga Operations Management - 5th Edition Chapter 3 Roberta Russell & Bernard W. Taylor, III Quality Management Lecture Outline : Copyright 2006 John Wiley & Sons, Inc. 3-2 Lecture Outline Meaning of Quality Total Quality Management Quality Improvement and Role of Employees Strategic Implications of TQM Six Sigma Lecture Outline (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-3 Lecture Outline (cont.) TQM in Service Companies Cost of Quality Quality Management and Productivity Identifying Quality Problems and Causes Quality Awards and Setting Quality Standards ISO 9000 Meaning of Quality : Copyright 2006 John Wiley & Sons, Inc. 3-4 Meaning of Quality Webster’s Dictionary degree of excellence of a thing American Society for Quality totality of features and characteristics that satisfy needs Consumer’s and Producer’s Perspective Meaning of Quality:Consumer’s Perspective : Copyright 2006 John Wiley & Sons, Inc. 3-5 Meaning of Quality:Consumer’s 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 Dimensions of Quality:Manufactured Products : Copyright 2006 John Wiley & Sons, Inc. 3-6 Dimensions of Quality:Manufactured Products Performance basic operating characteristics of a product; how well a car is handled or its gas mileage Features “extra” items added to basic features, such as a stereo CD or a leather interior in a car Reliability probability that a product will operate properly within an expected time frame; that is, a TV will work without repair for about seven years Dimensions of Quality:Manufactured Products (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-7 Conformance degree to which a product meets pre–established standards Durability how long product lasts before replacement Serviceability ease of getting repairs, speed of repairs, courtesy and competence of repair person Dimensions of Quality:Manufactured Products (cont.) Dimensions of Quality:Manufactured Products (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-8 Aesthetics 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 subjective perceptions based on brand name, advertising, and the like Dimensions of Quality:Manufactured Products (cont.) Dimensions of Quality:Service : Copyright 2006 John Wiley & Sons, Inc. 3-9 Dimensions of Quality:Service 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? Dimensions of Quality:Service (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-10 Dimensions of Quality:Service (cont.) Courtesy: How are customers treated by employees? Are catalogue phone operators nice and are their voices pleasant? Consistency Is the same level of service provided to each customer each time? Is your newspaper delivered on time every morning? Dimensions of Quality:Service (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-11 Accessibility and convenience How easy is it to obtain service? Does a service representative answer you calls quickly? Accuracy Is the service performed right every time? Is your bank or credit card statement correct every month? Responsiveness How well does the company react to unusual situations? How well is a telephone operator able to respond to a customer’s questions? Dimensions of Quality:Service (cont.) Meaning of Quality:Producer’s Perspective : Copyright 2006 John Wiley & Sons, Inc. 3-12 Meaning of Quality:Producer’s Perspective Quality of Conformance Making sure a 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, the hotel is not functioning according to specifications of its design Meaning of Quality:A Final Perspective : Copyright 2006 John Wiley & Sons, Inc. 3-13 Meaning of Quality:A Final Perspective Consumer’s and producer’s perspectives depend on each other Consumer’s perspective: PRICE Producer’s perspective: COST Consumer’s view must dominate Meaning of Quality : Copyright 2006 John Wiley & Sons, Inc. 3-14 Meaning of Quality Total Quality Management : Copyright 2006 John Wiley & Sons, Inc. 3-15 Total Quality Management Commitment to quality throughout organization Principles of TQM Customer-oriented Leadership Strategic planning Employee responsibility Continuous improvement Cooperation Statistical methods Training and education Quality Gurus : Copyright 2006 John Wiley & Sons, Inc. 3-16 Quality Gurus Walter Shewart In 1920s, developed control charts Introduced the term “quality assurance” W. Edwards Deming Developed courses during World War II to teach statistical quality-control techniques to engineers and executives of companies that were military suppliers After the war, began teaching statistical quality control to Japanese companies Joseph M. Juran Followed Deming to Japan in 1954 Focused on strategic quality planning Quality Gurus (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-17 Armand V. Feigenbaum In 1951, introduced concepts of total quality control and continuous quality improvement Philip Crosby In 1979, emphasized that costs of poor quality far outweigh the cost of preventing poor quality In 1984, defined absolutes of quality management—conformance to requirements, prevention, and “zero defects” Kaoru Ishikawa Promoted use of quality circles Developed “fishbone” diagram Emphasized importance of internal customer Quality Gurus (cont.) Deming’s 14 Points : Copyright 2006 John Wiley & Sons, Inc. 3-18 Deming’s 14 Points Create constancy of purpose Adopt philosophy of prevention Cease mass inspection Select a few suppliers based on quality Constantly improve system and workers Deming’s 14 Points (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-19 Institute worker training Instill leadership among supervisors Eliminate fear among employees Eliminate barriers between departments Eliminate slogans Deming’s 14 Points (cont.) Deming’s 14 Points (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-20 Remove numerical quotas Enhance worker pride Institute vigorous training and education programs Develop a commitment from top management to implement above 13 points Deming’s 14 Points (cont.) Deming Wheel: PDCA Cycle : Copyright 2006 John Wiley & Sons, Inc. 3-21 Deming Wheel: PDCA Cycle TQM and… : Copyright 2006 John Wiley & Sons, Inc. 3-22 TQM and… … Partnering a relationship between a company and its supplier based on mutual quality standards … Customers system must measure customer satisfaction … Information Technology infrastructure of hardware, networks, and software necessary to support a quality program Quality Improvement and Role of Employees : Copyright 2006 John Wiley & Sons, Inc. 3-23 Quality Improvement and Role of Employees Participative problem solving employees involved in quality management every employee has undergone extensive training to provide quality service to Disney’s guests Quality Circle : Copyright 2006 John Wiley & Sons, Inc. 3-24 Quality Circle Strategic Implications of TQM : Copyright 2006 John Wiley & Sons, Inc. 3-25 Strategic Implications of TQM Strong leadership Goals, vision, or mission Operational plans and policies Mechanism for feedback Six Sigma : Copyright 2006 John Wiley & Sons, Inc. 3-26 Six Sigma A process for developing and delivering near perfect products and services Measure of how much a process deviates from perfection 3.4 defects per million opportunities Champion an executive responsible for project success Black Belts and Green Belts : Copyright 2006 John Wiley & Sons, Inc. 3-27 Black Belts and Green Belts Black Belt project leader Master Black Belt a teacher and mentor for Black Belts Green Belts project team members Six Sigma: DMAIC : Copyright 2006 John Wiley & Sons, Inc. 3-28 3.4 DPMO 67,000 DPMO cost = 25% of sales Six Sigma: DMAIC TQM in Service Companies : Copyright 2006 John Wiley & Sons, Inc. 3-29 TQM in Service Companies Principles of TQM apply equally well to services and manufacturing Services and manufacturing companies have similar inputs but different processes and outputs Services tend to be labor intensive Service defects are not always easy to measure because service output is not usually a tangible item Quality Attributes in Service : Copyright 2006 John Wiley & Sons, Inc. 3-30 Quality Attributes in Service Benchmark “best” level of quality achievement one company or companies seek to achieve Timeliness how quickly a service is provided Cost of Quality : Copyright 2006 John Wiley & Sons, Inc. 3-31 Cost of Quality Cost of Achieving Good Quality Prevention costs costs incurred during product design Appraisal costs costs of measuring, testing, and analyzing 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 Prevention Costs : Copyright 2006 John Wiley & Sons, Inc. 3-32 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 productive process conforms to quality specifications 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 of reports on quality performance Appraisal Costs : Copyright 2006 John Wiley & Sons, Inc. 3-33 Appraisal Costs Inspection and testing costs of testing and inspecting materials, parts, and product at various stages and at the end of a process Test equipment costs costs of maintaining equipment used in testing quality characteristics of products Operator costs costs of time spent by operators to gar data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality Internal Failure Costs : Copyright 2006 John Wiley & Sons, Inc. 3-34 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 Process downtime costs costs of shutting down productive process to fix problem Price-downgrading costs costs of discounting poor-quality products—that is, selling products as “seconds” External Failure Costs : Copyright 2006 John Wiley & Sons, Inc. 3-35 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 Product liability costs litigation costs resulting from product liability and customer injury Lost sales costs costs incurred because customers are dissatisfied with poor quality products and do not make additional purchases Measuring and Reporting Quality Costs : Copyright 2006 John Wiley & Sons, Inc. 3-36 Measuring and Reporting Quality Costs Index numbers ratios that measure quality costs against a base value labor index ratio of quality cost to labor 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 Quality–Cost Relationship : Copyright 2006 John Wiley & Sons, Inc. 3-37 Quality–Cost Relationship Cost of quality Difference between price of nonconformance and conformance Cost of doing things wrong 20 to 35% of revenues Cost of doing things right 3 to 4% of revenues Profitability In the long run, quality is free Quality Management and Productivity : Copyright 2006 John Wiley & Sons, Inc. 3-38 Quality Management and Productivity Productivity ratio of output to input Yield: a measure of productivity Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked) or Y=(I)(%G)+(I)(1-%G)(%R) Product Cost : Copyright 2006 John Wiley & Sons, Inc. 3-39 Product Cost Computing ProductYield for Multistage Processes : Copyright 2006 John Wiley & Sons, Inc. 3-40 Computing ProductYield for Multistage Processes Quality–Productivity Ratio : Copyright 2006 John Wiley & Sons, Inc. 3-41 Quality–Productivity Ratio QPR productivity index that includes productivity and quality costs Seven Quality Control Tools : Copyright 2006 John Wiley & Sons, Inc. 3-42 Seven Quality Control Tools Pareto Analysis Flow Chart Check Sheet Histogram Scatter Diagram SPC Chart Cause-and-Effect Diagram Pareto Analysis : Copyright 2006 John Wiley & Sons, Inc. 3-43 Pareto Analysis Pareto Chart : Copyright 2006 John Wiley & Sons, Inc. 3-44 Pareto Chart Flow Chart : Copyright 2006 John Wiley & Sons, Inc. 3-45 Flow Chart Check Sheet : Copyright 2006 John Wiley & Sons, Inc. 3-46 Check Sheet Histogram : Copyright 2006 John Wiley & Sons, Inc. 3-47 Histogram Scatter Diagram : Copyright 2006 John Wiley & Sons, Inc. 3-48 Scatter Diagram Control Chart : Copyright 2006 John Wiley & Sons, Inc. 3-49 Control Chart Cause-and-Effect Diagram : Copyright 2006 John Wiley & Sons, Inc. 3-50 Cause-and-Effect Diagram Baldrige Award : Copyright 2006 John Wiley & Sons, Inc. 3-51 Baldrige Award Created in 1987 to stimulate growth of quality management in the United States Categories Leadership Information and analysis Strategic planning Human resource Focus Process management Business results Customer and market focus Other Awards for Quality : Copyright 2006 John Wiley & Sons, Inc. 3-52 Other Awards for Quality National individual awards Armand V. Feigenbaum Medal Deming Medal E. Jack Lancaster Medal Edwards Medal Shewart Medal Ishikawa Medal International awards European Quality Award Canadian Quality Award Australian Business Excellence Award Deming Prize from Japan American Customer Satisfaction Index (ACSI) : Copyright 2006 John Wiley & Sons, Inc. 3-53 American Customer Satisfaction Index (ACSI) Measures customer satisfaction Established in 1994 Web site: www.acsi.org Examples (in 2003) Amazon.com scored 88 (highest in service) Dell scored of 78 (highest in computer industry) Cadillac scored 87 (highest in car industry) ISO 9000 : Copyright 2006 John Wiley & Sons, Inc. 3-54 ISO 9000 A set of procedures and policies for international quality certification of suppliers Standards ISO 9000:2000 Quality Management Systems—Fundamentals and Vocabulary defines fundamental terms and definitions used in ISO 9000 family ISO 9001:2000 Quality Management Systems—Requirements standard to assess ability to achieve customer satisfaction ISO 9004:2000 Quality Management Systems—Guidelines for Performance Improvements guidance to a company for continual improvement of its quality-management system Implications of ISO 9000 for U.S. Companies : Copyright 2006 John Wiley & Sons, Inc. 3-55 Implications of ISO 9000 for U.S. Companies Many overseas companies will not do business with a supplier unless it has ISO 9000 certification ISO 9000 accreditation ISO registrars A total commitment to quality is required throughout an organization Slide 56: Copyright 2006 John Wiley & Sons, Inc. 3-56 Copyright 2006 John Wiley & Sons, Inc.All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein. You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
Quality Management aSGuest40377 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 741 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: March 12, 2010 This Presentation is Public Favorites: 3 Presentation Description No description available. Comments Posting comment... Premium member Presentation Transcript Quality Management : Copyright 2006 John Wiley & Sons, Inc. Beni AsllaniUniversity of Tennessee at Chattanooga Operations Management - 5th Edition Chapter 3 Roberta Russell & Bernard W. Taylor, III Quality Management Lecture Outline : Copyright 2006 John Wiley & Sons, Inc. 3-2 Lecture Outline Meaning of Quality Total Quality Management Quality Improvement and Role of Employees Strategic Implications of TQM Six Sigma Lecture Outline (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-3 Lecture Outline (cont.) TQM in Service Companies Cost of Quality Quality Management and Productivity Identifying Quality Problems and Causes Quality Awards and Setting Quality Standards ISO 9000 Meaning of Quality : Copyright 2006 John Wiley & Sons, Inc. 3-4 Meaning of Quality Webster’s Dictionary degree of excellence of a thing American Society for Quality totality of features and characteristics that satisfy needs Consumer’s and Producer’s Perspective Meaning of Quality:Consumer’s Perspective : Copyright 2006 John Wiley & Sons, Inc. 3-5 Meaning of Quality:Consumer’s 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 Dimensions of Quality:Manufactured Products : Copyright 2006 John Wiley & Sons, Inc. 3-6 Dimensions of Quality:Manufactured Products Performance basic operating characteristics of a product; how well a car is handled or its gas mileage Features “extra” items added to basic features, such as a stereo CD or a leather interior in a car Reliability probability that a product will operate properly within an expected time frame; that is, a TV will work without repair for about seven years Dimensions of Quality:Manufactured Products (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-7 Conformance degree to which a product meets pre–established standards Durability how long product lasts before replacement Serviceability ease of getting repairs, speed of repairs, courtesy and competence of repair person Dimensions of Quality:Manufactured Products (cont.) Dimensions of Quality:Manufactured Products (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-8 Aesthetics 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 subjective perceptions based on brand name, advertising, and the like Dimensions of Quality:Manufactured Products (cont.) Dimensions of Quality:Service : Copyright 2006 John Wiley & Sons, Inc. 3-9 Dimensions of Quality:Service 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? Dimensions of Quality:Service (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-10 Dimensions of Quality:Service (cont.) Courtesy: How are customers treated by employees? Are catalogue phone operators nice and are their voices pleasant? Consistency Is the same level of service provided to each customer each time? Is your newspaper delivered on time every morning? Dimensions of Quality:Service (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-11 Accessibility and convenience How easy is it to obtain service? Does a service representative answer you calls quickly? Accuracy Is the service performed right every time? Is your bank or credit card statement correct every month? Responsiveness How well does the company react to unusual situations? How well is a telephone operator able to respond to a customer’s questions? Dimensions of Quality:Service (cont.) Meaning of Quality:Producer’s Perspective : Copyright 2006 John Wiley & Sons, Inc. 3-12 Meaning of Quality:Producer’s Perspective Quality of Conformance Making sure a 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, the hotel is not functioning according to specifications of its design Meaning of Quality:A Final Perspective : Copyright 2006 John Wiley & Sons, Inc. 3-13 Meaning of Quality:A Final Perspective Consumer’s and producer’s perspectives depend on each other Consumer’s perspective: PRICE Producer’s perspective: COST Consumer’s view must dominate Meaning of Quality : Copyright 2006 John Wiley & Sons, Inc. 3-14 Meaning of Quality Total Quality Management : Copyright 2006 John Wiley & Sons, Inc. 3-15 Total Quality Management Commitment to quality throughout organization Principles of TQM Customer-oriented Leadership Strategic planning Employee responsibility Continuous improvement Cooperation Statistical methods Training and education Quality Gurus : Copyright 2006 John Wiley & Sons, Inc. 3-16 Quality Gurus Walter Shewart In 1920s, developed control charts Introduced the term “quality assurance” W. Edwards Deming Developed courses during World War II to teach statistical quality-control techniques to engineers and executives of companies that were military suppliers After the war, began teaching statistical quality control to Japanese companies Joseph M. Juran Followed Deming to Japan in 1954 Focused on strategic quality planning Quality Gurus (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-17 Armand V. Feigenbaum In 1951, introduced concepts of total quality control and continuous quality improvement Philip Crosby In 1979, emphasized that costs of poor quality far outweigh the cost of preventing poor quality In 1984, defined absolutes of quality management—conformance to requirements, prevention, and “zero defects” Kaoru Ishikawa Promoted use of quality circles Developed “fishbone” diagram Emphasized importance of internal customer Quality Gurus (cont.) Deming’s 14 Points : Copyright 2006 John Wiley & Sons, Inc. 3-18 Deming’s 14 Points Create constancy of purpose Adopt philosophy of prevention Cease mass inspection Select a few suppliers based on quality Constantly improve system and workers Deming’s 14 Points (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-19 Institute worker training Instill leadership among supervisors Eliminate fear among employees Eliminate barriers between departments Eliminate slogans Deming’s 14 Points (cont.) Deming’s 14 Points (cont.) : Copyright 2006 John Wiley & Sons, Inc. 3-20 Remove numerical quotas Enhance worker pride Institute vigorous training and education programs Develop a commitment from top management to implement above 13 points Deming’s 14 Points (cont.) Deming Wheel: PDCA Cycle : Copyright 2006 John Wiley & Sons, Inc. 3-21 Deming Wheel: PDCA Cycle TQM and… : Copyright 2006 John Wiley & Sons, Inc. 3-22 TQM and… … Partnering a relationship between a company and its supplier based on mutual quality standards … Customers system must measure customer satisfaction … Information Technology infrastructure of hardware, networks, and software necessary to support a quality program Quality Improvement and Role of Employees : Copyright 2006 John Wiley & Sons, Inc. 3-23 Quality Improvement and Role of Employees Participative problem solving employees involved in quality management every employee has undergone extensive training to provide quality service to Disney’s guests Quality Circle : Copyright 2006 John Wiley & Sons, Inc. 3-24 Quality Circle Strategic Implications of TQM : Copyright 2006 John Wiley & Sons, Inc. 3-25 Strategic Implications of TQM Strong leadership Goals, vision, or mission Operational plans and policies Mechanism for feedback Six Sigma : Copyright 2006 John Wiley & Sons, Inc. 3-26 Six Sigma A process for developing and delivering near perfect products and services Measure of how much a process deviates from perfection 3.4 defects per million opportunities Champion an executive responsible for project success Black Belts and Green Belts : Copyright 2006 John Wiley & Sons, Inc. 3-27 Black Belts and Green Belts Black Belt project leader Master Black Belt a teacher and mentor for Black Belts Green Belts project team members Six Sigma: DMAIC : Copyright 2006 John Wiley & Sons, Inc. 3-28 3.4 DPMO 67,000 DPMO cost = 25% of sales Six Sigma: DMAIC TQM in Service Companies : Copyright 2006 John Wiley & Sons, Inc. 3-29 TQM in Service Companies Principles of TQM apply equally well to services and manufacturing Services and manufacturing companies have similar inputs but different processes and outputs Services tend to be labor intensive Service defects are not always easy to measure because service output is not usually a tangible item Quality Attributes in Service : Copyright 2006 John Wiley & Sons, Inc. 3-30 Quality Attributes in Service Benchmark “best” level of quality achievement one company or companies seek to achieve Timeliness how quickly a service is provided Cost of Quality : Copyright 2006 John Wiley & Sons, Inc. 3-31 Cost of Quality Cost of Achieving Good Quality Prevention costs costs incurred during product design Appraisal costs costs of measuring, testing, and analyzing 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 Prevention Costs : Copyright 2006 John Wiley & Sons, Inc. 3-32 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 productive process conforms to quality specifications 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 of reports on quality performance Appraisal Costs : Copyright 2006 John Wiley & Sons, Inc. 3-33 Appraisal Costs Inspection and testing costs of testing and inspecting materials, parts, and product at various stages and at the end of a process Test equipment costs costs of maintaining equipment used in testing quality characteristics of products Operator costs costs of time spent by operators to gar data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality Internal Failure Costs : Copyright 2006 John Wiley & Sons, Inc. 3-34 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 Process downtime costs costs of shutting down productive process to fix problem Price-downgrading costs costs of discounting poor-quality products—that is, selling products as “seconds” External Failure Costs : Copyright 2006 John Wiley & Sons, Inc. 3-35 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 Product liability costs litigation costs resulting from product liability and customer injury Lost sales costs costs incurred because customers are dissatisfied with poor quality products and do not make additional purchases Measuring and Reporting Quality Costs : Copyright 2006 John Wiley & Sons, Inc. 3-36 Measuring and Reporting Quality Costs Index numbers ratios that measure quality costs against a base value labor index ratio of quality cost to labor 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 Quality–Cost Relationship : Copyright 2006 John Wiley & Sons, Inc. 3-37 Quality–Cost Relationship Cost of quality Difference between price of nonconformance and conformance Cost of doing things wrong 20 to 35% of revenues Cost of doing things right 3 to 4% of revenues Profitability In the long run, quality is free Quality Management and Productivity : Copyright 2006 John Wiley & Sons, Inc. 3-38 Quality Management and Productivity Productivity ratio of output to input Yield: a measure of productivity Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked) or Y=(I)(%G)+(I)(1-%G)(%R) Product Cost : Copyright 2006 John Wiley & Sons, Inc. 3-39 Product Cost Computing ProductYield for Multistage Processes : Copyright 2006 John Wiley & Sons, Inc. 3-40 Computing ProductYield for Multistage Processes Quality–Productivity Ratio : Copyright 2006 John Wiley & Sons, Inc. 3-41 Quality–Productivity Ratio QPR productivity index that includes productivity and quality costs Seven Quality Control Tools : Copyright 2006 John Wiley & Sons, Inc. 3-42 Seven Quality Control Tools Pareto Analysis Flow Chart Check Sheet Histogram Scatter Diagram SPC Chart Cause-and-Effect Diagram Pareto Analysis : Copyright 2006 John Wiley & Sons, Inc. 3-43 Pareto Analysis Pareto Chart : Copyright 2006 John Wiley & Sons, Inc. 3-44 Pareto Chart Flow Chart : Copyright 2006 John Wiley & Sons, Inc. 3-45 Flow Chart Check Sheet : Copyright 2006 John Wiley & Sons, Inc. 3-46 Check Sheet Histogram : Copyright 2006 John Wiley & Sons, Inc. 3-47 Histogram Scatter Diagram : Copyright 2006 John Wiley & Sons, Inc. 3-48 Scatter Diagram Control Chart : Copyright 2006 John Wiley & Sons, Inc. 3-49 Control Chart Cause-and-Effect Diagram : Copyright 2006 John Wiley & Sons, Inc. 3-50 Cause-and-Effect Diagram Baldrige Award : Copyright 2006 John Wiley & Sons, Inc. 3-51 Baldrige Award Created in 1987 to stimulate growth of quality management in the United States Categories Leadership Information and analysis Strategic planning Human resource Focus Process management Business results Customer and market focus Other Awards for Quality : Copyright 2006 John Wiley & Sons, Inc. 3-52 Other Awards for Quality National individual awards Armand V. Feigenbaum Medal Deming Medal E. Jack Lancaster Medal Edwards Medal Shewart Medal Ishikawa Medal International awards European Quality Award Canadian Quality Award Australian Business Excellence Award Deming Prize from Japan American Customer Satisfaction Index (ACSI) : Copyright 2006 John Wiley & Sons, Inc. 3-53 American Customer Satisfaction Index (ACSI) Measures customer satisfaction Established in 1994 Web site: www.acsi.org Examples (in 2003) Amazon.com scored 88 (highest in service) Dell scored of 78 (highest in computer industry) Cadillac scored 87 (highest in car industry) ISO 9000 : Copyright 2006 John Wiley & Sons, Inc. 3-54 ISO 9000 A set of procedures and policies for international quality certification of suppliers Standards ISO 9000:2000 Quality Management Systems—Fundamentals and Vocabulary defines fundamental terms and definitions used in ISO 9000 family ISO 9001:2000 Quality Management Systems—Requirements standard to assess ability to achieve customer satisfaction ISO 9004:2000 Quality Management Systems—Guidelines for Performance Improvements guidance to a company for continual improvement of its quality-management system Implications of ISO 9000 for U.S. Companies : Copyright 2006 John Wiley & Sons, Inc. 3-55 Implications of ISO 9000 for U.S. Companies Many overseas companies will not do business with a supplier unless it has ISO 9000 certification ISO 9000 accreditation ISO registrars A total commitment to quality is required throughout an organization Slide 56: Copyright 2006 John Wiley & Sons, Inc. 3-56 Copyright 2006 John Wiley & Sons, Inc.All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.