Operations Management – Chapter 4: Quality & Performance
Learning Objectives
- Students should be able to:
- 4.1 Define the four major costs of quality and articulate how ethical behavior influences the total cost of delivering products & services.
- 4.2 Explain the core principles of Total Quality Management (TQM) and the Six Sigma system.
- 4.3 Describe the interface between acceptance sampling and on‐going process-performance approaches in a supply chain.
- 4.4 Construct and interpret process control charts in order to judge whether a process is in or out of statistical control.
- 4.5 Evaluate whether a process is capable of meeting design specifications.
- 4.6 Summarize the purpose and content of International Quality Documentation Standards (e.g., ISO 9001:2015) and the Baldrige Performance Excellence Program.
- 4.7 Discuss the systems approach to TQM—how all the elements integrate into one coherent philosophy.
Costs of Quality
- General points
- Companies invest heavily in systems, training, & organizational change to lift quality and process performance.
- A defect = any failure of a process to satisfy its customer.
- The four (text lists five when ethics is separated) classic cost categories:
- Prevention costs – \text{Cost incurred to avoid defects before they happen}. Examples: training, process engineering, quality planning.
- Appraisal costs – \text{Cost of assessing the performance level of processes}. Examples: inspections, audits, testing labs.
- Internal failure costs – \text{Cost of defects found before the product/service reaches the customer}. Examples: scrap, rework, re-inspection, downtime.
- External failure costs – \text{Cost of defects discovered after receipt by the customer}. Examples: warranty claims, returns, field service, recalls.
- Warranty = written guarantee to repair/replace or make-good on defective output.
- Ethical failure costs (spotlighted separately) – Societal & monetary losses tied to knowingly passing defective goods/services downstream, thereby endangering stakeholders (stockholders, customers, employees, partners, creditors, broader society).
- Ethics–quality connection: investing in higher internal costs (prevention/appraisal) is ethically preferable to risking external/ethical failures that damage trust, safety, and the firm’s reputation.
Total Quality Management (TQM) and Six Sigma
TQM Philosophy – built on three mutually reinforcing principles:
- Customer Satisfaction
- Conformance to Specifications – Does output meet explicit written specs?
- Value – Appropriate balance of price vs benefits/performance.
- Fitness for Use – Suitability of the product/service for the customer’s actual application.
- Support – Quality of after-sale service, installation, training, repair.
- Psychological Impressions – Intangibles (brand image, aesthetics, feel, courtesy, ambiance).
- Employee Involvement
- Cultural Change: “Quality at the Source” – everyone responsible for their own quality.
- Teams / Empowerment:
- Problem-solving teams – ad-hoc groups tackling specific issues.
- Special-purpose teams – cross-functional task forces.
- Self-managed teams – autonomous units owning a process segment.
- Continuous Improvement (Kaizen)
- Never-ending search for better methods, lower waste, improved consistency.
- Plan–Do–Check–Act (PDCA) Cycle – aka Deming Wheel:
- Plan – Identify gap, analyze root causes, devise remedies.
- Do – Implement change on a limited scale/pilot.
- Check – Measure results vs expectations.
- Act – Standardize successful change or begin new cycle.
TQM Wheel (Fig 4.1) – visual summary placing Customer at the hub, surrounded by Employee Involvement and Continuous Improvement, supported by the necessary hard & soft management practices.
Six Sigma System
- "Comprehensive & flexible" framework for achieving, sustaining, maximizing business success by minimizing defects & variability.
- Leverages TQM pillars but adds a stronger analytical/financial discipline.
- Goal: design processes whose mean is centered and whose natural variation (±3\sigma) sits well inside the specification limits, i.e. output lies six standard deviations (6\sigma) away from either design limit → ~~3.4 defects per million opportunities (DPMO).
- Uses data-driven DMAIC (Define–Measure–Analyze–Improve–Control) or DMADV for design.
- Focuses on both spread reduction and mean centering (Fig 4.3).
Acceptance Sampling
- Definition – use of statistical sampling to decide whether to accept or reject a lot received from a supplier.
- Key parameter: Acceptable Quality Level (AQL) – maximum % defective that the consumer is willing to tolerate on average.
- Interface (Fig 4.4) – acceptance sampling acts as a gate between supplier & buyer, complementing upstream process controls.
- Logic: Inspecting samples (instead of entire lot) trades off inspection cost vs risk of accepting bad lots or rejecting good ones.
Statistical Process Control (SPC)
- Core Idea – Apply statistics to verify a process is delivering what the customer wants while it is running.
- Variation of Outputs
- Because of many small influences, no two units are exactly identical.
- Performance Measures
- Variables data – measured on a continuous scale (e.g., length, time, temperature).
- Attributes data – counted as conforming/nonconforming (e.g., number of wrong orders).
- Inspection Strategies
- Complete inspection – every unit checked; reserved for extremely critical operations or when cost of passing a defect >> cost of inspection.
- Sampling plan – defined by:
- Sample size (n)
- Sampling frequency / time between samples
- Decision rules (when to adjust, stop, investigate)
- Distribution relationships (Fig 4.5) – sampling distribution of means narrows (variance \sigma^2/n) relative to process distribution.
- Causes of Variation (Fig 4.6)
- Common (random) causes – natural, unavoidable, collectively create stable variation.
- Assignable causes – specific, identifiable, correctable factors (machine out of alignment, wrong material, operator error).
- Control Charts
- Graphical time-ordered plots with three horizontal lines:
- Center Line (CL) – process average target.
- Upper Control Limit (UCL) and Lower Control Limit (LCL) – decision thresholds, typically \pm 3\sigma of sampling distribution.
- Purpose: distinguish common-cause variation (stay inside limits, random pattern) from assignable-cause signals (rule violations, runs, trends, points outside limits).
- Fig 4.7 – relation between limits & sampling distribution.
- Fig 4.8 illustrates typical patterns:
- (a) Normal – no action.
- (b) Run (trend) – investigate.
- (c) Sudden shift – monitor closely.
- (d) Point exceeds limit – take corrective action.
Process Capability
- Concept – whether a stable process (i.e., in control) can meet design specifications consistently.
- Nominal value – design target.
- Tolerance – permitted deviation (USL & LSL).
- Graphical cases (Fig 4.13, 4.14):
- (a) Process capable – distribution entirely inside specs.
- (b) Process not capable – too much spread or mean off-center, some output outside specs.
- Reducing variability (smaller \sigma) increases capability even without changing the mean.
- Popular indices (not explicitly shown in slides but standard):
- Cp = \frac{USL - LSL}{6\sigma} – compares width of spec band to natural process spread.
- Cpk = \min \left(\frac{USL - \mu}{3\sigma},\frac{\mu - LSL}{3\sigma}\right) – also captures centering.
- Rule of thumb: Cp, Cpk \ge 1.33 often required; \ge 2.0 for Six Sigma design.
International Quality Documentation Standards
- ISO 9001:2015 (latest in ISO 9000 family)
- Specifies what a firm must document & do to meet customer and regulatory quality requirements, enhance satisfaction, and drive continual improvement.
- Focus areas: context of the organization, leadership commitment, process approach, risk-based thinking, knowledge management.
- Purpose – Encourage & recognize robust quality and performance excellence in U.S. organizations; share best practices.
- Benefits of applying
- Rigorous self-assessment → clarifies “what quality means” to the organization.
- Proven ROI: firms report higher productivity, market share, morale.
- Seven major criteria
- Leadership
- Strategic Planning
- Customer Focus
- Workforce Focus
- Operations Focus
- Measurement, Analysis, and Knowledge Management
- Results (financial, customer, workforce, process, leadership outcomes)
Systems Approach to TQM
- Figure 4.15 (Integrative View) depicts how all quality elements interrelate:
- Leadership & Strategy create vision and infrastructure.
- Customers & Markets define requirements.
- Workforce, Suppliers, Processes execute & improve.
- Information & Analysis supply feedback.
- Results feed the next planning cycle → closed-loop system aligning goals, processes, and performance.
- Emphasizes that piecemeal tools (control charts, teams, ISO certification, etc.) only succeed when embedded in this holistic framework.
Ethical, Philosophical & Practical Implications
- Ethical lapses (e.g., knowingly shipping defects) incur ethical failure costs that can dwarf all other categories via lawsuits, recalls, loss of life, and reputational damage.
- Quality is not merely a technical parameter but a social contract with customers & society.
- Continuous improvement & employee empowerment embody respect for people, fostering a culture of learning and accountability.
- Implementation must balance statistical rigor (SPC, Six Sigma) with human factors (training, teamwork, leadership).
Numerical / Statistical References & Key Equations
- Six Sigma target: defect rate ≈ 3.4 \text{ DPMO} (when mean centered and \sigma stable).
- Control limits for (\bar x)-chart: UCL = \mu + 3\left(\frac{\sigma}{\sqrt{n}}\right), LCL = \mu - 3\left(\frac{\sigma}{\sqrt{n}}\right).
- Capability indices (already shown above): Cp, Cpk.
- Relationship between sampling & process distributions: variance of sample mean = \sigma^2 / n$$.
Connection to Prior & Future Topics
- Builds on Process Analysis (Chapter 3): quality determines effectiveness of the mapped processes.
- SPC, capability, and ISO certification feed directly into Supply Chain Integration and Lean Systems (future chapters) by ensuring consistent, waste-free flows.
- Six Sigma tools merge with Design for Manufacturing & Service (product development) to create built-in quality.