Costs of Poor Process Performance

Defects: Any instance when a process fails to satisfy its customer.

Prevention costs are associated with preventing defects before they happen.

Appraisal costs are incurred when the firm assesses the performance level of its processes.

Internal failure costs result from defects that are discovered during production of services or products.

External failure costs arise when a defect is discovered after the customer receives the service or product.

Total Quality Management

Quality: A term used by customers to describe their general satisfaction with a service or product.

Total quality management (TQM) is a philosophy that stresses three principles for achieving high levels of process performance and quality:

Customer satisfaction

Employee involvement

Continuous improvement in performance

TQM Wheel

Customer Satisfaction

Customers, internal or external, are satisfied when their expectations regarding a service or product have been met or exceeded.

Conformance: How a service or product conforms to performance specifications.

Value: How well the service or product serves its intended purpose at a price customers are willing to pay.

Fitness for use: How well a service or product performs its intended purpose.

Support: Support provided by the company after a service or product has been purchased.

Psychological impressions: atmosphere, image, or aesthetics

Employee Involvement

One of the important elements of TQM is employee involvement.

Quality at the source is a philosophy whereby defects are caught and corrected where they were created.

Teams: Small groups of people who have a common purpose, set their own performance goals and approaches, and hold themselves accountable for success.

Employee empowerment is an approach to teamwork that moves responsibility for decisions further down the organizational chart to the level of the employee actually doing the job.

Team Approaches

Quality circles: Another name for problem-solving teams; small groups of supervisors and employees who meet to identify, analyze, and solve process and quality problems.

Special-purpose teams: Groups that address issues of paramount concern to management, labor, or both.

Self-managed team: A small group of employees who work together to produce a major portion, or sometimes all, of a service or product.

Continuous Improvement

Continuous improvement is the philosophy of continually seeking ways to improve processes based on a Japanese concept called kaizen.

Train employees in the methods of statistical process control (SPC) and other tools.

Make SPC methods a normal aspect of operations.

Build work teams and encourage employee involvement.

Utilize problem-solving tools within the work teams.

Develop a sense of operator ownership in the process.

Statistical Process Control

Statistical process control is the application of statistical techniques to determine whether a process is delivering what the customer wants.

Acceptance sampling is the application of statistical techniques to determine whether a quantity of material should be accepted or rejected based on the inspection or test of a sample.

Variables: Service or product characteristics that can be measured, such as weight, length, volume, or time.

Attributes: Service or product characteristics that can be quickly counted for acceptable performance.

Sampling

Sampling plan: A plan that specifies a sample size, the time between successive samples, and decision rules that determine when action should be taken.

Sample size: A quantity of randomly selected observations of process outputs.

Process Distributions

A process distribution can be characterized by its location, spread, and shape.

Location is measured by the mean of the distribution and spread is measured by the range or standard deviation.

The shape of process distributions can be characterized as either symmetric or skewed.

A symmetric distribution has the same number of observations above and below the mean.

A skewed distribution has a greater number of observations either above or below the mean.

Causes of Variation

Two basic categories of variation in output include common causes and assignable causes.

Common causes are the purely random, unidentifiable sources of variation that are unavoidable with the current process.

If process variability results solely from common causes of variation, a typical assumption is that the distribution is symmetric, with most observations near the center.

Assignable causes of variation are any variation-causing factors that can be identified and eliminated, such as a machine needing repair.

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