Hilton • Maher • Selto

Managing Quality and Time to

Create Value 7
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
7-3

Quality At Any Cost?

Which is
more
important?
7-4

Total Quality Management (TQM)

Customers will
Customers will Improvedquality
qualitythat
that
Improved
seekout
seek outthe
the exceedscustomer
customer
exceeds
highestquality
highest quality expectationswill
will
expectations
product.
product. generate more
morerevenues
revenues
generate
that exceed
that exceed the
thecost
cost of
of
quality.
quality.

Therefore,
Therefore,
quality is
quality is
“free”.
“free”.
7-5

Total Quality Management (TQM)

W.
W.Edwards
EdwardsDeming
Deming Quality
Qualitycan
canbe
beand
and
proposed
proposedthat
that improving
improving should
shouldbe beimproved
improved
quality
qualityreduces
reducescost
cost and
and continuously.
continuously.
improves
improvesprofitability.
profitability.
Revenues

Max Profit
Cost

Max Quality
7-6

Return on Quality (ROQ)

Profit
Profit is
ismaximized
maximized The
Theoptimum
optimum quality
qualitylevel
level is
is
at
at the
the optimum
optimum always
alwaysachieved
achievedbefore
before maximum
maximum
quality
qualitylevel.
level. attainable
attainableprofit
profit is
is reached.
reached.
Cost

Revenues
Max Profit

Optimum Quality
7-7

Lead Indicators of Quality

Variation
Variation indicates
indicates poor
poor quality.
quality. To
To
measure
measure variation,
variation, there
there are
are several
several tools
tools
that
that can
can be
be used:
used:

Histograms
Histograms Run
Run Charts
Charts Control
Control Charts
Charts
90
80
70

Defects
60
AAgraphical
graphicaldisplay
displayofof the
the 50
40
frequency
frequencydistribution
distributionof of 30
20
attributes.
attributes. 10
0
Mon. Tues Wed. Thur. Fri.
7-8

Lead Indicators of Quality

Variation
Variation indicates
indicates poor
poor quality.
quality. To
To
measure
measure variation,
variation, there
there are
are several
several tools
tools
that
that can
can be
be used:
used:

Histograms
Histograms Run
Run Charts
Charts Control
Control Charts
Charts

100
80
60
AAgraph Defects
graphshowing
showingtrends
trends 40
20
in
invariation
variationover
overtime.
time. 0
.
es

i.
.
on

ur
ed

Fr
Tu

Th
M
7-9

Lead Indicators of Quality

Variation
Variation indicates
indicates poor
poor quality.
quality. To
To
measure
measure variation,
variation, there
there are
are several
several tools
tools
that
that can
can be
be used:
used:

Histograms
Histograms Run
Run Charts
Charts Control
Control Charts
Charts

100
80
60
Defects

40 Notice
AArun
runchart
Notice that
thatthis
chart with
this process
with upper
process
upper
20
0 and
andseems
lower
lowerto
seems control
to be
beout
control limits.
out of
limits.
of
control
controlon onFridays.
Fridays.
.
es

i.
.
on

ed

ur

Fr
Tu

Th
M
7-10

Diagnostic Information

While
While lead
lead indicators
indicators tell
tell that
that there
there IS
IS aa
problem,
problem, diagnostic
diagnostic tools
tools help
help determine
determine
WHAT
WHAT thethe problem
problem is. is.

Cause-and-
Cause-and- Scatter
Scatter
Effect
Effect Diagrams
Diagrams Diagrams
Diagrams

Flow
FlowCharts
Charts Pareto
ParetoCharts
Charts
7-11

Cause-and-Effect Diagrams
Other

Wrong Trucks
directions Flat Tire
from customer Breakdown
Defect
Defect ==
Late
Late
Ice Deliveries
Deliveries
Rain or Too slow
Road snow
Don’t know
Work Poorly the route
Trained
Road Drivers Sometimes
Sometimescalled
called “fishbone”
“fishbone”
Conditions
or
or Ishikawa
Ishikawadiagrams
diagrams
7-12

Scatter Diagrams

A
A plot
plot of
of two
two variables
variables that
that might
might be
be related.
related. A
A
Patterns
Patterns often
often indicates
indicates aa causal
causal relationship.
relationship.

This
Thispattern
patternindicates
indicates
aacausal
causal relationship.
relationship.
7-13

Flowcharts

AA graphical
graphical
illustration
illustration of
of
sequential
sequential linkages
linkages
among
among process
process
activities.
activities.
Standardized
Standardized
symbols
symbols are
are used
used to
to
represent
represent decisions,
decisions,
actions,
actions, documents,
documents,
and
and storage
storage devices.
devices.
7-14

Pareto Charts
AAhistogram
histogramof ofcauses
causesofof errors
errorsor
orerrors
errorsarranged
arrangedinin
order
orderof
offrequency
frequencyororsize.
size. Helps
Helpsininprioritizing
prioritizing
actions
actionsto
toaddress
addressproblems.
problems.
80

70
Frequency of Complaint

60

50

40

30

20

10

0
Late Delivery Defective Incorrect Bill Backorders Wrong Item
Produce
7-15

Customer Satisfaction

Common
Commontools tools for
for
The
The degree
degree toto measuring
measuringcustomer
customer
which satisfaction
satisfaction
which
expectations  Phone
PhoneSurveys
expectations of of Surveys
product  Questionnaires
product attributes,
attributes, Questionnaires
customer  Focus
FocusGroups
customer service,
service, Groups
and
and price
price have
have
 ##of
of Customer
Customer
been Complaints
Complaints
been met
met oror
exceeded.  “Phantom”
“Phantom” Shoppers
Shoppers
exceeded.
7-16

Cost of Quality (COQ)

Out-of-pocket
Out-of-pocket costs
costs associated
associated with
with quality
quality
generally
generally fall
fall into
into two
two categories:
categories:

Costs
Costsassociated
associated with
with
activities
activitiesto
tocorrect
correct
failure
failureto
tocontrol
control
quality.
quality.

Costs
Costsassociated
associated with
with
controlling
controllingquality.
quality.
7-17

Cost to Control Quality

Prevention
Prevention Appraisal
Appraisal
Activities
Activities that
thatseek
seektoto Activities
Activities for
forinspecting
inspecting
prevent
prevent defects
defectsin
inthe
the inputs
inputsandandattributes
attributesof
of
products
productsor orservices
services individual
individualunits
unitsof
of
being
beingproduced.
produced. product
productand
andservice.
service.
••Certifying
CertifyingSuppliers
Suppliers ••Inspecting
InspectingMaterials
Materials
••Designing
Designing for
for ••Inspecting
InspectingMachines
Machines
Manufacturability
Manufacturability ••Inspecting
InspectingProcesses
Processes
••Quality
Quality Training
Training ••Statistical
Statistical Process
Process
••Quality
QualityEvaluations
Evaluations Control
Control
••Process
ProcessImprovements
Improvements ••Sampling
Samplingand andTesting
Testing
7-18

Costs of Failing to Control

Quality
Internal
Internal Failure
Failure External
External Failure
Failure
Costs
Costsassociated
associatedwith
with Costs
Costsassociated
associatedwith
with
defects
defectsin inprocesses
processes defects
defectsin in processes
processes
and
andproducts
productsthat
thatare
are and
andproducts
productsthat
that are
are
found
foundprior
priorto
todelivery
delivery detected
detected after
after delivery
delivery
to
tocustomers.
customers. to
tocustomers.
customers.
••Disposing
Disposingof ofScrap
Scrap ••Warranty
WarrantyRepairs
Repairs
••Rework
Rework ••Field
FieldReplacements
Replacements
••Reinspecting/Retesting
Reinspecting/Retesting ••Product
ProductLiability
Liability
••Delaying
Delaying Processes
Processes ••Restoring
Restoringreputation
reputation
••Lost
LostSales
Sales
7-19

Costs of Quality (COQ)

ItIt is
iseasier
easier to
to COQ
COQ is isnot
not
MEASURE
MEASURE required
required toto
the
theCOQ
COQ inin be
bereported
reported
organizations
organizations in
inthe
the
that
thatuse useABC
ABC financial
financial
and
andABM.
ABM. statements.
statements.

When
WhenCOQ COQis isreported,
reported,
itit is
isusually
usuallyexpressed
expressed
as
asaa%
%ofof sales.
sales.
7-20

Quality Awards and

Certificates

European
Japan Community
7-21

Managing Time in a
Competitive Environment

We need to
reduce . . .

Less
Lesstime
timemeans
means quicker
quicker response
response to
to changing
changing customer
customer
needs
needsand
andto
tochanging
changingconditions
conditionsofofthe
themarketplace.
marketplace.
7-22

Measuring Results: Process

Efficiency

Process
Process efficiency
efficiency
 The
Theability
abilityto
totransform
transforminputs
inputsinto
intooutputs
outputsat
at
lowest
lowestcost.
cost.

Production
Productionprocesses
processes
 Result
Resultdirectly
directlyininthe
theproduction
productionof
ofproducts
products
or
orservices
servicesprovided
providedto toexternal
externalcustomers.
customers.

Business
Businessprocess
process
 Support
Supportor
orenable
enableproduction
productionprocesses.
processes.
7-23
Measuring Results: Process
Efficiency

Low
Low cycle
cycle
time
time
High
High High
High
quality
quality productivity
productivity
High
High
throughput
throughput
7-24

Measuring Productivity

Specific
Specificproductivity
productivitymeasures
measurescompare:
compare:
7-25

Measuring Cycle Time

The
The average
average time
time necessary
necessary to to complete
complete and
and
deliver
deliver all
all good
good units
units and
and dispose
dispose of
of units
units that
that
have
have toto be
be reworked
reworked or or scrapped
scrapped because
because of of
defects.
defects.
7-26

Measuring Throughput
Efficiency
A
A measure
measure of
of the
the amount
amount ofof time
time spent
spent adding
adding
value
value compared
compared to to the
the total
total cycle
cycle time.
time.
7-27

Measures of Capacity

Process It is possible
Process
Capacity for “capacity
Capacity
AAmeasure
measureof of Practica
Practica demand” to
exceed
aaprocess’s
process’s
ability
abilityto
transform
to ll practical
capacity.
transform
resources
resources
into
intovalued
valued
Capacit
Capacit
products
productsand
services.
services.
and
yy
7-28

Measures of Capacity

Used
Used Capacity
Capacity In some
is
isthe
theamount
amount cases, “used
of
ofthe
the capacity” can
practical
practical actually
capacity
capacitythat
that exceed
is
isactually
actually “practical
used.
used. capacity.”
Used
Used
Capacity
Capacity
7-29

Managing Quality + Time +

Productivity + Capacity = JIT

The
The objective
objective of
of JIT
JIT is
is to
to .. .. ..
••purchase
purchase materials
materials
•• produce
produce products
products
••and
and deliver
deliver products
products
.. .. .. just
just when
when they
they are
are needed.
needed.
7-30

Managing Quality + Time +

Productivity + Capacity = JIT
The
Thegoal
goal is
isto
tomanage
managecosts
costsso
sothat
thatthe
thesavings
savings
associated
associatedwithwithJIT
JITexceed
exceedthe
thecost
costof
of
implementing
implementing JIT
JIT

Cost
Cost savings:
savings: Implementation
Implementation costs:
costs:
••Inventory
Inventorywarehouse
warehouserent
rent ••Employee
Employeeretraining
retraining
or
or cost
cost ••Technology
Technology improvement
improvement
••Inventory
Inventorymanagers
managersand
and ••Exposure
personnel Exposuretotowork
work
personnel stoppage
stoppagerisks.
risks.
••Less
Lesswarranty
warrantycost
cost
7-31

Traditional “Push”
Manufacturing - Example
Computer Manufacturer

Forecast Sales Order components Store Inventory

Make sales Prepare

Begin Production in
from finished Production
Anticipation of Sales
goods inventory Schedule
7-32

JIT “Pull” Manufacturing -

Example
Computer Manufacturer

Customer Create Production Generate component

places an order Order requirements

Goods delivered Production begins Components

just in time as parts arrive are ordered
7-33

JIT Success Factors

1. 2.
2. Flexible
Flexible
1.
Commitment Capacity.
Capacity.
Commitment
to
toquality.
quality.
3.
3.Reliable
Reliable
Supplier
Supplier
4.
4.Smooth
Smooth Relations.
Relations.
Productio
Productio
nnFlow.
Flow.
5. 6.
6.Reduced
Reduced
5.Well-
Well-
trained cycle
cycleand
and
trained
workforce. response
response
workforce.
times.
times.
7-34

End of Chapter 7

Uh, Boss?
My luggage
was Just-in-
Time, but I
wasn’t!