1

MANAGEMENT OF QUALITYChapter 9

MIS 373: Basic Operations Management

Additional content from L. Beril Toktay and Jeff Heyl

MIS 373: Basic Operations Management 2

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.

What is quality?

What is quality in the context ofBanking?

Mobile Communication?Cars?

Healthcare?

MIS 373: Basic Operations Management 5

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

MIS 373: Basic Operations Management 6

QUALITY MANAGEMENT

QualityThe ability of a product or service to consistently meet or exceed

customer expectationsFor a decade or so, quality was an important focal point in business. After

a while, this emphasis began to fade as other concerns took precedenceThere has been a recent resurgence in attention to quality given recent

experiences with the costs and adverse attention associated with highly visible quality failures:• Auto recalls• Toys• Produce• Dog food• Pharmaceuticals

MIS 373: Basic Operations Management 7

TWO WAYS QUALITY IMPROVES PROFITABILITY

Improved Quality

Increased Profits

• Increased productivity

• Lower rework and scrap costs

• Lower warranty costs

Reduced Costs via

• Improved response

• Flexible pricing

• Improved reputation

Sales Gains via

MIS 373: Basic Operations Management 8

DIMENSIONS OF PRODUCT QUALITY

• 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.

MIS 373: Basic Operations Management 9

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.

MIS 373: Basic Operations Management 10

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.

Personal Needs

Service QualitySpecifications

Management Perceptions ofCustomer Expectations

Expected Service

Past Experience

External Communications

to Customers

Perceived Service

Service Delivery

Word-of-Mouth Communications

Customer

Provider

Gap 1

Gap 5

Gap 4

Gap 3

Gap 2

MIS 373: Basic Operations Management 11

SERVICE QUALITY MODELGap 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 meet management’s perceptions of customer expectations

Resource constraints; management indifference; poor service design

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

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.

Personal Needs

Service QualitySpecifications

Management Perceptions ofCustomer Expectations

Expected Service

Past Experience

External Communications

to Customers

Perceived Service

Service Delivery

Word-of-Mouth Communications

Customer

Provider

Gap 1

Gap 5

Gap 4

Gap 3

Gap 2

MIS 373: Basic Operations Management 13

BENEFITS OF GOOD QUALITY

• 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

MIS 373: Basic Operations Management 14

THE CONSEQUENCES OF POOR QUALITY

• Loss of business

• Liability

• Productivity

• Costs (e.g., repair, replacement)

If quality is so important, why some (if not most) companies are

reluctant to pursue high(er) quality?

MIS 373: Basic Operations Management 16

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

MIS 373: Basic Operations Management 17

COSTS OF QUALITY• Specific examples

Source: http://www.accountingformanagement.org/costs-of-quality-or-quality-costs/

MIS 373: Basic Operations Management 18

COSTS OF QUALITY

External Failure

Internal Failure

Prevention

Appraisal

Total Cost

Quality Improvement

Total Cost

MIS 373: Basic Operations Management 19

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.

• Top management

• Design

• Procurement

• Production/operations

• Quality assurance

• Packaging and shipping

• Marketing and sales

• Customer service

MIS 373: Basic Operations Management 20

ETHICS AND QUALITY

• Substandard work• Defective products• Substandard service• Poor designs• Shoddy workmanship• Substandard parts and materials

Having knowledge of this and failing to correctand report it in a timely manner is unethical.

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.

MIS 373: Basic Operations Management 22

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

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 it. It is what the client or customer gets out of it."– Peter Drucker

"Our aim was to insure repeat business based on the system's reputation rather than on the quality of a 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

MIS 373: Basic Operations Management 25

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

• Award Categories1. Education2. Healthcare3. Manufacturing4. Nonprofit/Government5. Service6. Small Business

CATEGORIES POINTSLeadership 120Measurement, Analysis, and Knowledge Mgmt. 90Strategic Planning 85Customer Focus 85Workforce Focus 85Operations Focus 85Results 450

More info: http://en.wikipedia.org/wiki/Malcolm_Baldrige_National_Quality_Award

MIS 373: Basic Operations Management 26

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)

MIS 373: Basic Operations Management 27

ISO 9000 SERIES STANDARDS

• Management principles• 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

MIS 373: Basic Operations Management 28

AMERICAN CUSTOMER SATISFACTION INDEX

• Measures customer satisfaction

• Established in 1994

• Web site: http://www.theacsi.org • Examples (in 2014)

• 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)

MIS 373: Basic Operations Management 29

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.

MIS 373: Basic Operations Management 30

TOTAL QUALITY MANAGEMENT

• The Primary Elements of TQM1. Customer-focused2. Total employee involvement3. Process-centered4. Integrated system5. Strategic and systematic approach6. Continual improvement7. Fact-based decision making8. Communications

BMW QUALITY MANAGEMENT

Can we identify the TQM elements from this video?• Strategic and systematic approach• Continual improvement• Fact-based decision making• Communications

• Customer-focused• Total employee involvement• Process-centered• Integrated system

MIS 373: Basic Operations Management 32

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.

MIS 373: Basic Operations Management 33

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

Mean

Lower limits Upper limits

3.4 defects/million

±6

2,700 defects/million

±3

6

MIS 373: Basic Operations Management 34

PDSA CYCLE• Plan-Do-Study-Act (PDSA) Cycle

• Plan• 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

• 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

Plan

DoStudy

Act

MIS 373: Basic Operations Management 35

CONTINUOUS IMPROVEMENT

Traditional

Continuous Improvement

Time

Qua

lity

36

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.MIS 373: Basic Operations Management

MIS 373: Basic Operations Management 37

BASIC QUALITY TOOLS

MIS 373: Basic Operations Management 38

BASIC QUALITY TOOLS

Check SheetPareto Diagram

(the 80/20 rule)

14

5

10

21

MIS 373: Basic Operations Management 39

BASIC QUALITY TOOLS

Scatter Diagram Cause-and-Effect Diagram

MIS 373: Basic Operations Management 40

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.

MIS 373: Basic Operations Management 41

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.

MIS 373: Basic Operations Management 42

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.