OPERATIONS

MANAGEMENT

MANAGING QUALITY

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WHAT IS QUALITY ?
 The ability of a product or service to meet customer needs.

 “The totality of features and characteristics of a product

or service that bears on its ability to satisfy stated or
implied needs”

 The operations manager’s objective is to build a total quality

management system that identifies and satisfies customer
needs

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TWO WAYS QUALITY IMPROVES PROFITABILITY

 Quality helps firms increase sales and reduce costs

Sales Gains via

• Flexible pricing
• Improved reputation
Improved Increased
Quality Profits
Reduced Costs via
• Increased productivity
• Lower rework and scrap
costs 3
• Lower warranty costs
 EIGHT DIMENSIONS OF QUALITY
 Performance : A performance characteristic describes a product's essential
function.
 Features: "the bells and whistles" of products and services
 Reliability: ability of a product or service to perform as expected over time

 Durability: measurement of product life

 Conformance: degree to which a product conforms to its specification.

 Aesthetics: appearance of a product or service

 Serviceability: ease at which a user can repair a faulty product or get it fixed

 Perceived Quality: overall opinion of the customers towards the product

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QUALITY DIMENSION
EXAMPLES
COSTS OF QUALITY

 Prevention costs - reducing the potential for defects e.g.

training, QI programs
 Appraisal costs - evaluating products & processes e.g.
testing, labs, inspectors
 Internal failure - producing defective parts or service
before delivery to customers e.g. rework, scrap,
downtime, etc
 External costs - occur after delivery of defective parts
e.g. rework, returned goods, lost goodwill, etc
 COSTS OF QUALITY

Total Total Cost

Cost
External Failure

Internal Failure

Quality Improvement 7
CLASSROOM DISCUSSION
 Does cost of quality always decrease with Quality
Improvement ?

 Is there a optimum level of quality ?

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COSTS OF QUALITY: ALTERNATIVE
PERSPECTIVE

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TOTAL QUALITY MANAGEMENT

Total Quality Management -

A managerial approach in which an organization is managed so
that it excels in all quality dimensions that are important to
customers.

►Encompasses entire organization from supplier to customer

►Stresses a commitment by management to have a continuing

companywide drive toward excellence in all aspects of products

and services that are important to the customer

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 SEVEN TOOLS OF TQM

 Tools for Generating Ideas

 Check sheets
 Scatter diagrams
 Cause and effect diagrams
 Tools to Organize the Data
 Pareto charts
 Flow charts
 Tools for Identifying Problems
 Histogram
 Statistical process control
SEVEN CONCEPTS OF TQM

 Continuous improvement (Kaizen)

 Six Sigma
 Employee empowerment
 Benchmarking
 Just-in-time (JIT)
 Taguchi concepts
 Knowledge of TQM tools

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MANAGING QUALITY PROVIDES A
COMPETITIVE ADVANTAGE

Arnold Palmer Hospital

► Deliver over 12,000 babies annually
► Virtually every type of quality tool is
employed
► Continuous improvement
► Employee empowerment
► Benchmarking
► Just-in-time
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► Quality tools
► [Link]
CLASSROOM DISCUSSION
1. Why is it important for Arnold Palmer Hospital to get a
patient’s assessment of health care quality? Does the patient
have the expertise to judge the health care she receives?

2. How would you build a culture of quality in an

organization such as Arnold Palmer Hospital?

3. What techniques does Arnold Palmer Hospital practice in

its drive for quality and continuous improvement?

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SEVEN CONCEPTS FOR EFFECTIVE TQM

 Continuous improvement (Kaizen)

 Six Sigma
 Employee empowerment
 Benchmarking
 Just-in-time (JIT)
 Taguchi concepts
 Knowledge of TQM tools

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CONTINUOUS IMPROVEMENT

 Never-ending process of continual improvement

 Covers people, equipment, materials, procedures
 Every operation can be improved
 Represents continual improvement of process & customer
satisfaction
 zero defects is the quality goal that will minimize total
quality costs
 Other names
 Kaizen (Japanese)
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 Zero-defects
PDCA MODEL

4. Act 1. Plan
Implemen Identify the
t the plan, pattern and
document make a plan

3. Check 2. Do
Is the plan Test the
working? plan

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CONTINUOUS IMPROVEMENT

► Kaizen describes the ongoing process of unending

improvement

► TQM and zero defects also used to describe continuous

improvement

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SEVEN CONCEPTS OF TQM

 Continuous improvement (Kaizen)

 Six Sigma
 Employee empowerment
 Benchmarking
 Just-in-time (JIT)
 Taguchi concepts
 Knowledge of TQM tools

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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
 Popularized by Motorola, GM, Honeywell
 Defect-focused. Looks for causes of defects and, where
appropriate, amends processes
 A comprehensive system for achieving and sustaining
business success 20
SIX SIGMA
► Two meanings
Lower limits Upper limits
► 2,700 defects/million
Statistical definition of a process that is
99.9997% capable, 3.4 defects per
3.4 defects/million
million opportunities (DPMO)
► A program designed to reduce defects,
lower costs, save time, and improve
customer satisfaction Mean
► A comprehensive system±3for
 achieving
and sustaining business±6
success

Figure 6.4
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SIX SIGMA
1. Defines the project’s purpose, scope, and outputs,
identifies the required process information keeping
in mind the customer’s definition of quality
2. Measures the process and collects data
3. Analyzes the data ensuring
repeatability and reproducibility DMAIC Approach
4. Improves by modifying or
redesigning existing
processes and procedures
5. Controls the new process
to make sure performance
levels are maintained 22
SIX SIGMA
Process average OK; Process variability OK;
too much variation process off target
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SEVEN CONCEPTS OF TQM

 Continuous improvement (Kaizen)

 Six Sigma
 Employee empowerment
 Benchmarking
 Just-in-time (JIT)
 Taguchi concepts
 Knowledge of TQM tools

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EMPLOYEE EMPOWERMENT
► Getting employees involved in product and process
improvements
► 85% of quality problems are due
to process and material
► Those dealing with the system on a daily basis
understand it better than anyone else.
► Techniques
1) Build communication networks
that include employees
2) Develop open, supportive supervisors
3) Move responsibility to employees
4) Build a high-morale organization
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5) Create formal team structures
EMPLOYEE EMPOWERMENT
Quality Circles
► Group of employees who meet regularly to solve problems
►Trained in planning, problem solving, and statistical
methods
► Often led by a facilitator
► Very effective when done properly

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BENCHMARKING
 Benchmarking is the process of measuring an organization’s
performance on a key customer requirement against the best in
the industry, or against the best in any industry.
 Steps:
► Determine what to benchmark
► Form a benchmark team
► Identify benchmarking partners
► Collect and analyze benchmarking information
► Take action to match or exceed the benchmark

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► Airlines: What to benchmark ?
JUST-IN-TIME (JIT)
Relationship to quality:
► JIT cuts the cost of quality
► JIT improves quality
► Better quality means less inventory and better, easier-to-employ JIT
system

 Do you agree ? Why

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TAGUCHI CONCEPTS
► Engineering and experimental design methods to
improve product and process design
► Identify key component and process variables affecting
product variation
► Taguchi Concepts
► Quality robustness
► Quality loss function
► Target-oriented quality

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QUALITY ROBUSTNESS

► Ability to produce products uniformly in adverse

manufacturing and environmental conditions
► Remove the effects of adverse conditions
► Small variations in materials and process do not
destroy product quality
QUALITY LOSS FUNCTION
► Shows that costs increase as the product moves
away from what the customer wants
► Costs include customer dissatisfaction, warranty
and service, internal scrap and repair, and costs to
society
► Traditional conformance specifications are too
simplistic

Target-
or ien t ed
qu al it y
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 QUALITY LOSS FUNCTION
High loss L = D2C
Unacceptable where
Loss (to L = loss to society
producing Poor
organization, D2 = square of
customer, Fair the distance from
and society) target value
Good
C = cost of
Best deviation
Low loss Target-oriented quality
yields more product in
the “best” category
Target-oriented quality
brings product toward
Frequency the target value
Conformance-oriented
quality keeps products
within 3 standard
deviations
Lower Target Upper 32
Specification Figure 6.5
KNOWLEDGE OF TQM TOOLS

► Check Sheet
► Scatter Diagram
► Cause-and-Effect Diagram
► Pareto Chart
► Flowchart (Process Diagram)
► Histogram
► Statistical Process Control Chart

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CHECK SHEET
 An organized method of recording data
 Help analysts find the facts or patterns that may aid
subsequent analysis.

Hour

Defect 1 2 3 4 5 6 7 8

A /// / / / / /// /
B // / / / // ///

C / // // ////

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 What pattern did you find here ?
SCATTER DIAGRAM
 Show the relationship between two measurements
 If the two items are closely related, the data points will form a tight
band.
 If a random pattern results, the items are unrelated.

 Scatter diagram showing close relationships

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SCATTER DIAGRAM
 Management is concerned that workers create more product defects at the
very beginning and end of a work shift than at other times of their eight
hour workday. Construct a scatter diagram with the following data, collected
last week. Is management justified in its belief?

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SCATTER DIAGRAM

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CAUSE-AND-EFFECT DIAGRAM
 Tool that identifies process elements (causes) that might
effect an outcome
 Also called fish-bone chart or Ishikawa diagram

 This tool is often used after brainstorming sessions to

organize the ideas generated and also for root cause analysis

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CAUSE-AND-EFFECT DIAGRAM

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CLASSROOM LEARNING
 Construct a cause-and-effect diagram showing why a
student might be dissatisfied with the cafeteria.

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CLASSROOM LEARNING
 Fish-bone chart detailing reasons why an airline
customer might be dissatisfied.

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 What else can be added in manpower and machinery ?
CLASSROOM LEARNING
 Create Fishbone diagram for why youngster are leaving
Nepal ?
 Draw a fish-bone chart showing reasons why you might
arrive late in the Morning at your class .

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PARETO CHART
 A graph to identify and plot problems or defects in descending order
of frequency
 The idea is to classify the cases according to degree of importance
and focus on resolving the most important, leaving the less important
Frequency

Percent
A B C D E 43
CLASSROOM LEARNING

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CHECK SHEET

PARETO DIAGRAM

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CLASSROOM LEARNING
 The Hard Rock Hotel in Bali has just collected the data
from 75 complaint calls to the general manager during
the month of October. The manager wants to prepare an
analysis of the complaints. The data provided are
 room service, 54;
 check-in delays, 12;
 hours the pool is open, 4;
 minibar prices, 3; &
 miscellaneous, 2.

 Prepare a Pareto Diagram

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CLASSROOM LEARNING

Data for October

– 100
70 – – 93
– 88
60 –
54
Frequency (number)

Cumulative percent
– 72
50 –
40 –
Number of
30 – occurrences
20 –
10 –
12
4 3 2
0 –
Room svc Check-in Pool hours Minibar Misc.
72% 16% 5% 4% 3%
Causes and percent of the total
FLOWCHART
 A chart that describes the steps in a process
 The diamond shapes in the flowchart represent decision
points in the process, and the rectangular shapes denote
procedures.
 The arrows show the direction of “flow” of the steps in
the process

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FLOWCHART

 Flowchart for catalog telephone

orders in which potential failure
points are highlighted.

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 CLASSROOM LEARNING
A process improvement staffer observed a number of patients and followed
them (and information flow) from start to end. Here are the 11 steps:
1. Physician schedules MRI after examining patient (START).
2. Patient taken from the examination room to the MRI lab with test order and
copy of medical records.
3. Patient signs in, completes required paperwork.
4. Patient is prepped by technician for scan. if the patient’s blood pressure is
over 200/120 when being prepped for the MRI, she is taken back to her room
for 2 hours and the process returns to Step 2.
5. Technician carries out the MRI scan.
6. Technician inspects film for clarity.
7. If MRI not satisfactory (20% of time), Steps 5 and 6 are repeated.
8. Patient taken back to hospital room.
9. MRI is read by radiologist and report is prepared.
10. MRI and report are transferred electronically to physician.
11. Patient and physician discuss report (END). 50
FLOWCHART

Good

Not Satisfactory

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CLASSROOM LEARNING
 Create a flowchart of buying things online from daraz.

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 HISTOGRAM
A distribution showing the frequency of
occurrences of a variable
Distribution
Frequency

Repair time (minutes) 53

STATISTICAL PROCESS CONTROL
CHART
 Constructed from historical data, the purpose of control
charts is to help distinguish between natural variations and
variations due to assignable causes
 Commonly used control chart
 Mean Chart
 Range Chart
 Percent Chart
 Count chart

Upper control limit

Target value

Lower control limit

54

Time
ATTRIBUTES VERSUS VARIABLES
► Attributes
► Items are either good or bad, acceptable
or unacceptable
► Does not address degree of failure
► Variables
► Measures dimensions such as weight,
speed, height, or strength
► Falls within an acceptable range
► Use different statistical techniques
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STATISTICAL PROCESS CONTROL (SPC)
o Uses statistics and control charts to tell when to
take corrective action
o Drives process improvement
o Four key steps
 Measure the process
 When a change is indicated, find the assignable cause
 Eliminate or incorporate the cause
 Restart the revised process

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CONTROL CHARTS

Plot the percent of free throws missed

Upper control limit

40%
Coach’s target value

20%
| | | | | | | | | Lower control limit
1 2 3 4 5 6 7 8 9
Game number 57
0%
CENTRAL LIMIT THEOREM
 Regardless of the distribution of the population, the
distribution of sample means drawn from the population
will tend to follow a normal curve
 The mean of the sampling distribution (x) will be the
same as the population mean m x=
 The standard deviation of the sampling distribution (sx)
will equal the population standard deviation (s) divided
by the square root of the sample size, n 
x =
n

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MEAN CHART

For x-Charts when we know 

Upper control limit (UCL) = x + zx
Lower control limit (LCL) = x - zx
where x =mean of the sample means or a
target value set for the process
z =number of normal standard
deviations
x =standard deviation of the
sample means
=/ n
 =population standard deviation
 CLASSROOM LEARNING
 The weights of boxes of Oat Flakes within a large production lot are
sampled each hour. Sample size = 9. Hourly data are given below. Set
control limits using mean chart, that include 99.73% of the sample means
if population (process) standard deviation is known to be 1 ounce.
HOUR 1 2 3 4 5 6 7 8 9 10 11 12

(AVG. OF 9 16.1 16.8 15.5 16.5 16.5 16.4 15.2 16.4 16.3 14.8 14.2 17.3
BOXES )

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61
 MEAN AND RANGE CHARTS
(a)
These sampling (Sampling mean is shifting
distributions upward but range is
result in the consistent)
charts below

UCL
(x-chart detects shift
x-chart in central tendency)

LCL
UCL
(R-chart does not
R-chart detect change in mean)

LCL
MEAN AND RANGE CHARTS
(b)
These sampling
(Sampling mean is
distributions
constant but
result in the
dispersion is
charts below
increasing)

UCL
(x-chart does not detect
x-chart the increase in
dispersion)
LCL
UCL
(R-chart detects
R-chart increase in dispersion)

LCL
PATTERNS IN CONTROL CHARTS

Upper control limit

Target

Lower control limit

One plot out above (or below).
Investigate for cause. Process
is “out of control.”
PATTERNS IN CONTROL CHARTS

Upper control limit

Target

Lower control limit

Trends in either direction, 5
plots. Investigate for cause of
progressive change.
PATTERNS IN CONTROL CHARTS

Upper control limit

Target

Lower control limit

Two plots very near lower (or
upper) control. Investigate for
cause.
PATTERNS IN CONTROL CHARTS

Upper control limit

Target

Lower control limit

Run of 5 above (or below)
central line. Investigate for
cause.
PATTERNS IN CONTROL CHARTS

Upper control limit

Target

Lower control limit

Erratic behavior. Investigate.
INSPECTION
► Involves examining items to see if an
item is good or defective
► Detect a defective product
► Does not correct deficiencies in
process or product
► It is expensive
► Issues
► When to inspect
► Where in process to inspect
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WHEN AND WHERE TO INSPECT

1. At the supplier’s plant while the supplier is

producing
2. At your facility upon receipt of goods from your
supplier
3. Before costly or irreversible processes
4. During the step-by-step production process
5. When production or service is complete
6. Before delivery to your customer
7. At the point of customer contact
70
INSPECTION
► Many problems
► Worker fatigue
► Measurement error
► Process variability
► Cannot inspect quality into a product
► Robust design, empowered
employees, and sound processes
are better solutions
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SOURCE INSPECTION

► Also known as source control

► The next step in the process is your
customer
► Ensure perfect
product to your
customer

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SOURCE INSPECTION

► Poka-yoke or mistake proofing is

the concept of foolproof devices or
techniques designed to pass only
acceptable product
► Checklists ensure
consistency and
completeness

73
 SERVICE INDUSTRY INSPECTION
Examples of Inspection in Services
ORGANIZATION WHAT IS INSPECTED STANDARD
Jones Law Office Receptionist performance Phone answered by the
second ring
Billing Accurate, timely, and correct
format
Attorney Promptness in returning calls
Hard Rock Hotel Reception desk Use customer’s name
Doorman Greet guest in less than 30
seconds
Room All lights working, spotless
bathroom
Minibar Restocked and charges
accurately posted to bill

74
 SERVICE INDUSTRY INSPECTION
Examples of Inspection in Services
ORGANIZATION WHAT IS INSPECTED STANDARD
Arnold Palmer Hospital Billing Accurate, timely, and correct
format
Pharmacy Prescription accuracy,
inventory accuracy
Lab Audit for lab-test accuracy
Nurses Charts immediately updated
Data entered correctly and
Admissions completely
Olive Garden Busboy Serves water and bread within
Restaurant 1 minute
Busboy Clears all entrée items and
crumbs prior to dessert
Waiter Knows and suggest specials,
desserts
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 SERVICE INDUSTRY INSPECTION
Examples of Inspection in Services
ORGANIZATION WHAT IS INSPECTED STANDARD
Nordstrom Department Display areas Attractive, well-organized,
Store stocked, good lighting
Stockrooms Rotation of goods, organized,
clean
Salesclerks Neat, courteous, very
knowledgeable

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CLASSROOM DISCUSSION
 What is inspected at Bhatbhateni ?
 What is inspected at Ace Institute of Management ?

77
TQM IN SERVICES

► Service quality is more difficult to

measure than the quality of goods
► Service quality perceptions depend on
1) Intangible differences between
products
2) Intangible expectations customers
have of those products

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SERVICE QUALITY
The Operations Manager must
recognize:
► The tangible component of services
is important
► The service process is important
► The service is judged against the
customer’s expectations
► Exceptions will occur
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SERVICE SPECIFICATIONS

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 DETERMINANTS OF SERVICE QUALITY
Table 6.5
Reliability involves consistency of performance and dependability
Responsiveness concerns the willingness or readiness of employees to provide service
Competence means possession of the required skills and knowledge to perform the
service
Access involves approachability and ease of contact
Courtesy involves politeness, respect, consideration, and friendliness
Communication means keeping customers informed and listening to them
Credibility involves trustworthiness, believability, and honesty
Security is the freedom from danger, risk, or doubt
Understanding/knowing the customer involves making the effort to understand the
customer’s needs
Tangibles include the physical evidence of the service
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THANK YOU

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