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MANAGEMENT OF
QUALITY
Chapter 9
MIS 373: Basic Operations Management
Additional content from L. Beril Toktay and Jeff Heyl
LEARNING OBJECTIVES
• After this lecture, students will be able to
1. Define the term quality as it relates to products and as it relates to
services.
2. Identify the determinants of quality.
3. Explain why quality is important and the consequences of poor
quality.
4. Describe TQM.
5. Describe and use various quality tools.
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What is quality?
What is quality in the context of
Banking?
Mobile Communication?
Cars?
Healthcare?
QUALITY
• Defining Quality
• The totality of features and characteristics of a product or service
that bears on its ability to satisfy stated or implied needs (American
Society for Quality)
• Different Views
• User-based: better performance, more features
• Manufacturing-based: conformance to standards, making it right the
first time
• Product-based: specific and measurable attributes of the product
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QUALITY MANAGEMENT
 Quality
 The ability of a product or service to consistently meet or exceed
customer expectations
 For a decade or so, quality was an important focal point in business. After
a while, this emphasis began to fade as other concerns took precedence
 There has been a recent resurgence in attention to quality given recent
experiences with the costs and adverse attention associated with highly
visible quality failures:
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Auto recalls
Toys
Produce
Dog food
Pharmaceuticals
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TWO WAYS QUALITY
IMPROVES PROFITABILITY
Sales Gains via
• Improved response
• Flexible pricing
• Improved reputation
Improved
Quality
Reduced Costs via
Increased
Profits
• Increased productivity
• Lower rework and scrap costs
• Lower warranty costs
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DIMENSIONS OF PRODUCT
QUALITY
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Performance—main characteristics of the product
Aesthetics—appearance, feel, smell, taste
Special features—extra characteristics
Conformance—how well the product conforms to design
specifications
Reliability—consistency of performance
Durability—the useful life of the product
Perceived quality—indirect evaluation of quality
Servicebility—handling of complaints or repairs
Consistency—quality doesn't vary.
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DIMENSIONS OF SERVICE
QUALITY
• Convenience—the availability and accessibility of the service
• Reliability—ability to perform a service dependably, consistently,
and accurately
• Responsiveness—willingness to help customers in unusual
situations and to deal with problems
• Time—the speed with which the service is delivered
• Assurance—knowledge exhibited by personnel and their ability to
convey trust and confidence
• Courtesy—the way customers are treated by employees
• Tangibles—the physical appearance of facilities, equipment,
personnel, and communication materials
• Consistency—the ability to provide the same level of good quality
repeatedly
• Expectations—Meet (or exceed) customer expectations.
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SERVICE QUALITY MODEL
• Parasuraman, A., Zeithaml, V. A., and Berry, L. L. 1985. A Conceptual Model of Service
Quality and Its Implications for Future Research. Journal of Marketing 49(4) 41–50.
Past Experience
Personal Needs
Word-of-Mouth Communications
Expected Service
Gap 5
Customer
Perceived Service
Gap 1
Service Delivery
Gap 4
Gap 3
Provider
External
Communications
to Customers
Service Quality
Specifications
Gap 2
Management Perceptions of
Customer Expectations
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SERVICE QUALITY MODEL
Gap
Problem
Cause(s)
1. Consumer
expectation – mgmt.
perception
The service features offered don’t meet
customer needs
Lack of marketing research; inadequate
upward communication; too many levels
between contact personnel and management
2. Management
perception – service
quality specification
The service specifications defined do not Resource constraints; management
meet management’s perceptions of
indifference; poor service design
customer expectations
3. Service quality
specification – service
delivery
Specifications for service meet customer
needs but service delivery is not
consistent with those specifications
Employee performance is not standardized;
customer perceptions are not uniform
4. Service delivery –
external communication
The service does not meet customer
expectations, which have been
influenced by external communication
Marketing message is not consistent with
actual service offering; promising more than
can be delivered
5. Expected service –
perceived service
Customer judgments of high/low quality
based on expectations vs. actual service
A function of the magnitude and direction of the
gap between expected service and perceived
service
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SERVICE QUALITY MODEL
• Consider a service operation (e.g., restaurant, hospital, education,
banking, tailor, etc.) and give an example on each of the five gaps in the
service quality model.
Past Experience
Personal Needs
Word-of-Mouth Communications
Expected Service
Gap 5
Customer
Perceived Service
Gap 1
Service Delivery
Gap 4
Gap 3
Provider
Service Quality
Specifications
Gap 2
Management Perceptions of
Customer Expectations
External
Communications
to Customers
BENEFITS OF GOOD QUALITY
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Enhanced reputation for quality
Ability to command premium prices
Increased market share
Greater customer loyalty
Lower liability costs
Fewer production or service problems
Lower production costs
Higher profits
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THE CONSEQUENCES OF
POOR QUALITY
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Loss of business
Liability
Productivity
Costs (e.g., repair, replacement)
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If quality is so important, why
some (if not most) companies are
reluctant to pursue high(er)
quality?
COSTS OF QUALITY
• Prevention Costs
• Cost of preventing defects from occurring
• Planning, administration, working with vendors, training, quality
assurance, design and production.
• Appraisal Costs
• Costs of activities designed to ensure quality or uncover defects
• Inspectors, testing, test equipment, labs, quality audits, quality control,
field testing
• Failure Costs
• Costs incurred by defective parts/products or faulty services.
• Internal Failure Costs
• Costs incurred to fix problems that are detected before the
product/service is delivered to the customer.
• External Failure Costs
• All costs incurred to fix problems that are detected after the
product/service is delivered to the customer
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COSTS OF QUALITY
• Specific examples
MIS 373: Basic Operations Management
Source: http://www.accountingformanagement.org/costs-ofquality-or-quality-costs/
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COSTS OF QUALITY
Total
Cost
Total Cost
External Failure
Internal Failure
Prevention
Appraisal
Quality Improvement
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RESPONSIBILITY FOR QUALITY
• Everyone in the
organization has some
responsibility for quality, but
certain areas of the
organization are involved in
activities that make them
key areas of responsibility.
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Top management
Design
Procurement
Production/operations
Quality assurance
Packaging and shipping
Marketing and sales
Customer service
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ETHICS AND QUALITY
• Substandard work
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Defective products
Substandard service
Poor designs
Shoddy workmanship
Substandard parts and materials
Having knowledge of this and failing to correct
and report it in a timely manner is unethical.
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CASE
• Toyota settles with government for $1.2 billion in recall probe
(washingtonpost.com 3/19/14)
• In 2009, the driver of a borrowed Lexus — made by Toyota — was
unable to stop the vehicle as it careened off the highway at 120 miles
per hour, killing three people. “There’s no brakes…Hold on and pray,”
one of the passengers said to a 911 operator.
• Toyota Motor Corp. has agreed to a $1.2 billion settlement to end a
U.S. Justice Department criminal probe into its handling of safety
problems, Attorney General Eric Holder announced.
• “The $1.2 billion payment represents the largest criminal penalty
imposed on a car company in U.S. history,” Holder said in a
statement. “This is appropriate given the extent of the deception
carried out by Toyota in this case. Put simply, Toyota’s conduct
was shameful,” Holder said.
QUALITY CONTRIBUTORS
Contributor
Key Contributions
Shewart
Control charts; variance reduction
Deming
14 points; special vs. common causes of variation
Juran
Quality is fitness-for-use; quality trilogy
Feigenbaum
Quality is a total field; the customer defines quality
Crosby
Quality is free; zero defects
Ishikawa
Cause-and-effect diagrams; quality circles
Taguchi
Taguchi loss function
Ohno and Shingo
Continuous improvement
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QUOTES
• Team exercise
• Please come forward to draw a card and a quote
• Instructions
• Find your teammates who have the same card as yours
• Take a few minutes and think about the meaning of the quote you got
• Share the quote with your teammates and discuss:
• The essence of the quote (some may seem counterintuitive)
• Examples that support or against the quote
• The implications to operations management
QUOTES
"Quality means doing it right when no one is looking."
— Henry Ford
"Mere allocation of huge sums of money for quality will
not bring quality."
— Edwards Deming
"Measure what is measurable and make measurable
what is not."
— Galileo Galilei
"When we stop improving, we start to slip backward."
— H. James Harrington
"Be a yardstick of quality. Some people aren't used to
an environment where excellence is expected."
— Steve Jobs
"Quality has to be caused, not controlled."
— Philip Crosby
"Quality is remembered long after the price is
forgotten."
— Gucci Family Slogan
"It's quality! It's creating brand recognition and going
after market share!"
– Bill Gates
"Quality in a service or product is not what you put into "Our aim was to insure repeat business based on the
it. It is what the client or customer gets out of it."
system's reputation rather than on the quality of a
– Peter Drucker
single store or operator."
– Ray Kroc
"Quality is Free"
— Philip Crosby
"Quality is not an act, it is a habit."
— Aristotle
"Plans are nothing. Planning is everything."
— Dwight Eisenhower
“If it's worth doing, it's worth documenting.”
– Unknown
THE BALDRIGE AWARD
• Benefits of the Baldrige
Competition
1. Winners achieve financial
success
2. Winners share their
knowledge
3. The process motivates
employees
4. The process requires
obtaining data
5. The process provides
feedback
More info:
http://en.wikipedia.org/wiki/Malcolm_Baldrige_N
ational_Quality_Award
MIS 373: Basic Operations Management
• Award Categories
1.
2.
3.
4.
5.
6.
Education
Healthcare
Manufacturing
Nonprofit/Government
Service
Small Business
CATEGORIES
POINTS
Leadership
120
Measurement, Analysis, and Knowledge Mgmt.
90
Strategic Planning
85
Customer Focus
85
Workforce Focus
85
Operations Focus
85
Results
450
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ISO 9000 SERIES STANDARDS
International Organization for Standardization
• ISO 9000
• International recognition
• Encourages quality management procedures, detailed
documentation, work instructions, and recordkeeping
• Applies to any organization regardless of size or industry
• Over one million certifications in 178 countries
• Critical for global business
• Includes ISO 9000:2005 (definitions), ISO 9001:2008 (requirements)
and ISO 9004:2009 (continuous improvement)
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ISO 9000 SERIES STANDARDS
• Management principles
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Top management leadership
Customer satisfaction
Continual improvement
Involvement of people
Process analysis
Use of data-driven decision making
A systems approach to management
Mutually beneficial supplier relationships
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AMERICAN CUSTOMER
SATISFACTION INDEX
• Measures customer satisfaction
• Established in 1994
• Web site: http://www.theacsi.org
• Examples (in 2014)
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Amazon.com scored 88 (highest in Internet Retail)
Mercedes-Benz (Daimler) scored 88 (highest in Automobiles)
Google scored 77 (highest in Internet Portals and Search Engines)
FOXNews.com scored 82 (highest in Internet News and Information)
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TOTAL QUALITY MANAGEMENT
• A philosophy that involves everyone in an organization in a
continual effort to improve quality and achieve customer
satisfaction.
• The methods for implementing this approach come from the
teachings of such quality leaders as Philip B. Crosby, W.
Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa,
and Joseph M. Juran.
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TOTAL QUALITY MANAGEMENT
• The Primary Elements of TQM
1.
2.
3.
4.
5.
6.
7.
8.
Customer-focused
Total employee involvement
Process-centered
Integrated system
Strategic and systematic approach
Continual improvement
Fact-based decision making
Communications
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BMW QUALITY MANAGEMENT
Can we identify the TQM elements from this video?
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Customer-focused
Total employee involvement
Process-centered
Integrated system
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Strategic and systematic approach
Continual improvement
Fact-based decision making
Communications
TOTAL QUALITY MANAGEMENT
• Implementing a Total Quality Management System
1.
Top management learns about and decides to commit to TQM. TQM is identified
as one of the organization’s strategies.
2. The organization assesses current culture, customer satisfaction, and quality
management systems.
3. Top management identifies core values and principles to be used, and
communicates them.
4. A TQM master plan is developed on the basis of steps 1, 2, and 3.
5. The organization identifies and prioritizes customer demands and aligns
products and services to meet those demands.
6. Management maps the critical processes through which the organization meets
its customers’ needs.
7. Management oversees the formation of teams for process improvement efforts.
8. The momentum of the TQM effort is managed by the steering committee.
9. Managers contribute individually to the effort through planning, training, coaching,
or other methods.
10. Daily process management and standardization take place.
11. Progress is evaluated and the plan is revised as needed.
12. Constant employee awareness and feedback on status are provided and a
reward/recognition process is established.
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SIX SIGMA
• Two meanings
• Statistical definition of a process that is 99.9997% capable, 3.4
defects per million opportunities (DPMO)
• A program designed to reduce defects, lower costs, save time, and
improve customer satisfaction
• A comprehensive system for achieving and sustaining
business success
Lower limits
2,700 defects/million
6
Upper limits
3.4 defects/million
Mean
±3
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±6
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PDSA CYCLE
• Plan-Do-Study-Act (PDSA) Cycle
• Plan
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• Do
Act
Begin by studying and documenting the current process.
Collect data on the process or problem
Analyze the data and develop a plan for improvement
Specify measures for evaluating the plan
Study
Plan
Do
• Implement the plan, document any changes made, collect data for analysis
• Study
• Evaluate the data collection during the do phase
• Check results against goals formulated during the plan phase
• Act
• If the results are successful, standardize the new method and communicate
it to the relevant personnel
• Implement training for the new method
• If unsuccessful, revise the plan and repeat the process
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Quality
CONTINUOUS IMPROVEMENT
Traditional
Time
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BASIC QUALITY TOOLS
• Flowcharts. A flowchart is a visual representation of a process. As a
problem-solving tool, a flowchart can help investigators in identifying
possible points in a process where problems occur.
• Check Sheets. A check sheet is a simple tool frequently used for
problem identification. Check sheets provide a format that enables users
to record and organize data in a way that facilitates collection and
analysis.
• Histograms. A histogram can be useful in getting a sense of the
distribution of observed values.
• Pareto Analysis. Pareto analysis is a technique for focusing attention
on the most important problem areas.
• Scatter Diagrams. A scatter diagram can be useful in deciding if there is
a correlation between the values of two variables.
• Cause-and-Effect Diagrams. A cause-and-effect diagram offers a
structured approach to the search for the possible cause(s) of a problem.
• Run Charts. A run chart can be used to track the values of a variable
over time. This can aid in identifying trends or other patterns that may be
occurring.
• Control Charts. A control chart can be used to monitor a process to see
if the process output is random. It can help detect the presence of
correctable causes of variation.
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MIS 373: Basic Operations Management
BASIC QUALITY TOOLS
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BASIC QUALITY TOOLS
Check Sheet
Pareto Diagram
(the 80/20 rule)
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10
5
2
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BASIC QUALITY TOOLS
Scatter Diagram
MIS 373: Basic Operations Management
Cause-and-Effect Diagram
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BASIC QUALITY TOOLS
• Run Charts. A run chart can be used to track the values of a
variable over time. This can aid in identifying trends or other
patterns that may be occurring.
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BASIC QUALITY TOOLS
• Control Charts. A control chart can be used to monitor a
process to see if the process output is random. It can help
detect the presence of correctable causes of variation.
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KEY POINTS
• Price and quality are the two primary considerations in every
buying transaction, so quality is extremely important.
• Quality gurus have made important contributions to the way
business organizations view quality and achieve quality.
• Quality certification and quality awards are important
because they can provide some degree of assurance to
customers about quality.
• Many simple-to-use tools are available for problem solving
and process improvement.
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