Lesson 8: Quality Management and International Standards Study Notes

Quality and Strategy

• Operations Manager Objective: The primary goal is to build a Total Quality Management (TQM) system that identifies and satisfies customer needs.

• Strategic Support: Managing quality supports three main organizational strategies:

  • Differentiation Strategy: Distinguishing products or services based on quality features.

  • Low Cost Leadership Strategy: Reducing costs associated with waste and inefficiency.

  • Response Strategy: Improving the ability to react quickly to market demands.

• Economic Impact: Quality improvement helps firms increase sales and reduce overall costs. However, building a quality-focused organization is a demanding task.

• Profitability Paths: There are two distinct ways quality improves profitability:

  • Sales Gains: Achieved via improved response times, flexible pricing models, and an improved market reputation.

  • Reduced Costs: Achieved via increased productivity, lower rework and scrap costs, and lower warranty costs.

Definition and Implications of Quality

• Definition of Quality: The totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs.

• Implications of Quality:

  • Company Reputation: Quality influences the perception of new products, employment practices (how the company is viewed as an employer), and supplier relations.

  • Product Liability: High quality helps reduce the risk of legal action and liability claims.

  • Global Implications: High quality improves a firm's ability to compete in the global marketplace.

• The Four Costs of Quality (COQ):

  • Prevention Costs: Costs associated with reducing the potential for defective parts or services (e.g., training programs).

  • Appraisal Costs: Costs related to evaluating products, parts, and services (e.g., testing and inspection).

  • Internal Failure Costs: Costs resulting from producing defective parts or services before they are delivered to the customer (e.g., rework).

  • External Costs: Costs that occur after the delivery of defective parts or services (e.g., returned goods, warranty claims).

Ethics and International Standards

• Ethics in Quality Management:

  • Operations managers are responsible for delivering healthy, safe, and quality products/services.

  • Poor quality risks injuries, lawsuits, product recalls, and increased government regulation.

  • Organizations are judged by their response to problems; all stakeholders (customers, employees, suppliers, society) must be considered.

• ISO 9000 Series (Europe/EC):

  • Refers to common quality standards for products sold in Europe, regardless of where they are manufactured (including the U.S.).

  • Governed by the International Organization for Standardization.

  • The $2008$ update emphasizes leadership, customer requirements, and customer satisfaction.

  • Requires established quality procedures, detailed documentation, work instructions, and recordkeeping.

• ISO 14000 Series (Environmental Standard):

  • Focuses on environmental management, auditing, performance evaluation, labeling, and life cycle assessment.

  • Advantages:

    • Positive public image and reduced exposure to liability.

    • Systematic approach to pollution prevention.

    • Compliance with regulatory requirements.

    • Opportunities for competitive advantage and reduction in multiple audits.

Total Quality Management (TQM) and Deming's Fourteen Points

• TQM Definition: An approach that encompasses the entire organization, from supplier to customer. It stresses a management commitment to a continuing, companywide drive toward excellence in all aspects of products and services important to the customer.

• Deming’s Fourteen Points for Quality Management:

  1. Create consistency of purpose.

  2. Lead to promote change.

  3. Build quality into the product; stop depending on inspections.

  4. Build long-term relationships based on performance instead of awarding business on price.

  5. Continuously improve product, quality, and service.

  6. Start training.

  7. Emphasize leadership.

  8. Drive out fear.

  9. Break down barriers between departments.

  10. Stop haranguing workers.

  11. Support, help, and improve.

  12. Remove barriers.

  13. Institute education and self-improvement.

  14. Put everyone to work on the transformation.

The Seven Concepts of TQM

1. Continuous Improvement: Represents the continual improvement of all processes. Managers are involved in building a work culture that includes everyone (people, equipment, materials, procedures), including suppliers and customers.

   • Shewhart’s PDCA Model:

     • Plan: Identify the pattern and make a plan.

     • Do: Test the plan.

     • Check: Is the plan working?

     • Act: Implement the plan and document it.

2. Six Sigma:

   • Statistical Definition: A process, product, or service that is $99.9997\%$ capable, resulting in only $3.4\text{ defects per million opportunities (DPMO)}$.

   • Program Definition: A comprehensive system designed to reduce defects, lower costs, and improve customer satisfaction.

   • DMAIC Approach:

     1. Define: Critical outputs and identify gaps.

     2. Measure: Work and collect process data.

     3. Analyze: The data.

     4. Improve: The process.

     5. Control: The new process to maintain performance.

3. Employee Empowerment: Involving employees in product and process improvements. Since $85\%$ of quality problems are due to process and materials, techniques include building communication networks, developing supportive supervisors, moving responsibility to employees, and creating formal team structures.

   • Quality Circles: Groups of employees who meet regularly to solve problems; they are trained in planning, problem solving, and statistical methods, often led by a facilitator.

4. Benchmarking: Selecting best practices as a standard for performance.

   • Steps: Determine what to benchmark → Form a team → Identify partners → Collect/Analyze info → Take action.

5. Just-in-Time (JIT):

   • A ‘pull’ system of production scheduling and supply management.

   • Reduces inventory levels (which otherwise hide process and material problems).

   • Cuts the cost of quality and encourages improved processes.

6. Taguchi Concepts: Engineering and experimental design methods to improve product/process design.

   • Quality Robustness: Producing products uniformly despite adverse manufacturing or environmental conditions.

   • Quality Loss Function: Shows that costs (customer dissatisfaction, warranty, scrap, societal costs) increase as the product moves away from the customer's exact target.

   • Target-oriented Quality: Focusing on hitting the target precisely rather than just staying within traditional conformance specifications.

7. Knowledge of TQM Tools: Understanding the specific graphical and statistical tools used for quality improvement.

The Seven Tools of TQM

• Tools for Generating Ideas:

  • Check Sheets: An organized method of recording data.

  • Scatter Diagrams: A graph of one variable versus another to show relationships.

  • Cause-and-Effect Diagram: Also called a Fish-bone chart or Ishikawa diagram. It identifies causes (categorized by Materials, Methods, Manpower, and Machinery) that might affect an outcome.

• Tools for Organizing Data:

  • Pareto Charts: A graph used to identify and plot problems/defects in descending order of frequency. Example: Hotel complaints where Room Service (72%) and Check-in (16%) are the primary issues.

  • Flowcharts (Process Diagrams): Charts describing the steps in a process (e.g., an MRI flowchart from scheduling to physician discussion).

• Tools for Identifying Problems:

  • Histogram: A distribution showing the frequency of occurrences of a variable.

  • Statistical Process Control (SPC) Chart: A chart with time on the horizontal axis used to plot statistics against upper and lower control limits and a target value.

Inspection and Statistical Process Control (SPC)

• Inspection: Examining items to see if they are good or defective.

  • Limitations: It detects defects but does not correct them; it is expensive and subject to worker fatigue and measurement error. You cannot "inspect quality into a product."

  • Where to Inspect: At supplier plants, upon receipt of goods, before irreversible processes, during step-by-step production, when complete, before delivery, and at the point of customer contact.

• Statistical Process Control (SPC):

  • Uses statistics and control charts to determine when to take corrective action.

  • Four Key Steps:

    1. Measure the process.

    2. When a change is indicated, find the assignable cause.

    3. Eliminate or incorporate the cause.

    4. Restart the revised process.

• Control Charts: Purpose is to distinguish between natural variations and variations due to assignable causes using historical data.