Operation Management

Statistical Quality Control

Dr. Yousaf Ali Khan
Department of Management Sciences and Humanities
GIK Institute of Engineering Sciences and Technology
 Three SQC Categories
• Statistical quality control (SQC) is the term used to describe the set of
statistical tools used by quality professionals
• SQC encompasses three broad categories of;
– Descriptive statistics
• e.g. the mean, standard deviation, and range
– Statistical process control (SPC)
• Involves inspecting the output from a process
• Quality characteristics are measured and charted
• Helpful in identifying in-process variations
– Acceptance sampling used to randomly inspect a batch of goods to determine
acceptance/rejection
• Does not help to catch in-process problems
 Sources of Variation
• Variation exists in all processes.
• Variation can be categorized as either;
– Common or Random causes of variation, or
• Random causes that we cannot identify
• Unavoidable
• e.g. slight differences in process variables like diameter, weight, service time,
temperature

– Assignable causes of variation

• Causes can be identified and eliminated
• e.g. poor employee training, worn tool, machine needing repair
 Traditional Statistical Tools
• Descriptive Statistics include
– The Mean- measure of central
tendency n

x i

– The Range- difference between x i 1

largest/smallest observations in a set of
data
n

 x 
– Standard Deviation measures the n
2
amount of data dispersion around mean
– Distribution of Data shape i X
• Normal or bell shaped or σ i 1
• Skewed n 1
 Distribution of Data

• Normal distributions • Skewed distribution

 SPC Methods-Control Charts
• Control Charts show sample data plotted on a graph with CL, UCL, and
LCL
• Control chart for variables are used to monitor characteristics that can
be measured, e.g. length, weight, diameter, time
• Control charts for attributes are used to monitor characteristics that
have discrete values and can be counted, e.g. % defective, number of
flaws in a shirt, number of broken eggs in a box

© Wiley 2010
 Setting Control Limits

• Percentage of values under • Control limits balance

normal curve
risks like Type I error
 Control Charts for Variables

• Use x-bar and R-bar

charts together
• Used to monitor different
variables
• X-bar & R-bar Charts
reveal different problems
• In statistical control on
one chart, out of control
on the other chart? OK?
 Control Charts for Variables
• Use x-bar charts to monitor the changes in the
mean of a process (central tendencies)
• Use R-bar charts to monitor the dispersion or
variability of the process
• System can show acceptable central tendencies
but unacceptable variability or
• System can show acceptable variability but
unacceptable central tendencies
 Constructing a X-bar Chart: A quality control inspector at the Cocoa Fizz soft
drink company has taken three samples with four observations each of the
volume of bottles filled. If the standard deviation of the bottling operation is .2
ounces, use the below data to develop control charts with limits of 3 standard
deviations for the 16 oz. bottling operation.

observ 1 observ 2 observ 3 observ 4 mean range

samp 1 15.8 16 15.8 15.9 15.88 0.2
samp 2 16.1 16 15.8 15.9 15.95 0.3
samp 3 16 15.9 15.9 15.8 15.90 0.2

x 1  x 2  ...x n σ
x , σx 
k n
• Center line and control limit
where (k ) is the # of sample means and (n)
formulas
is the # of observations w/in each sample
UCL x  x  zσ x

LCL x  x  zσ x
Solution and Control Chart (x-bar)

• Center line (x-double bar):

15.875  15.975  15.9

x  15.92
3
• Control limits for±3σ limits:
 .2 
UCL x  x  zσ x  15.92  3   16.22
 4
 .2 
LCL x  x  zσ x  15.92  3   15.62
 4
X-Bar Control Chart
 3 Sigma
• Statistics were first applied to quality control by Walter Shewhart whose work
formed the foundation of modern Six Sigma programs. Perhaps less known
than the concept of Six Sigma is that of Three Sigma. Here we consider 3
Sigma vs. 6 Sigma and identify key differentials between the two terms.
1 Sigma: 690K errors per million (31% accuracy).
2 Sigma: 308K errors per million (69% accuracy).
3 Sigma: 66.8K errors per million (93.3% accuracy).
4 Sigma: 6.2K errors per million (99.4% accuracy).
5 Sigma: 233 errors per million (99.97% accuracy).
6 Sigma: 3.4 errors per million (99.999997% accuracy).
• One of the major differences between 3 Sigma vs. 6 Sigma is the tolerance for
defects. Walter Shewhart considered Three Sigma as the demarcation point that
divides the ordinary from the extraordinary; the predictable from the
unpredictable. Most companies would consider a Three Sigma performance as
unacceptable
 Control Chart for Range (R)

• Center Line and Control Limit • Factors for three sigma control limits
formulas:

0.2  0.3  0.2

R  .233
3

UCLR  D4 R  2.28(.233)  .53

LCLR  D3 R  0.0(.233)  0.0
R-Bar Control Chart
Second Method for the X-bar Chart Using
R-bar and the A2 Factor

• Use this method when sigma for the process

distribution is not know
• Control limits solution:
0.2  0.3  0.2
R  .233
3

UCL x  x  A 2 R  15.92  0.73.233  16.09

LCL x  x  A 2 R  15.92  0.73.233  15.75

 Control Charts for Attributes i.e. discrete events

 Use a P-Chart for yes/no or good/bad decisions in which defective

items are clearly identified
• Use a C-Chart for more general counting when there can be more
than one defect per unit
• Number of flaws or stains in a carpet sample cut from a
production run
• Number of complaints per customer at a hotel
 P-Chart Example: A Production manager for a tire company has inspected the
number of defective tires in five random samples with 20 tires in each sample.
The table below shows the number of defective tires in each sample of 20 tires.
Calculate the control limits.

Sample Number Number of Proportion

of Tires in Defective
• Solution:
Defective each
Tires Sample
1 3 20 .15 # Defectives 9
CL  p    .09
2 2 20 .10 Total Inspected 100
3 1 20 .05 p(1  p) (.09)(.91)
σp    0.64
4 2 20 .10 n 20
5 1 20 .05 UCLp  p  zσ p   .09  3(0.64)  .282

Total 9 100 .09 LCLp  p  zσ p   .09  3(0.64)  .102  0

P- Control Chart
 C-Chart Example: The number of weekly customer
complaints are monitored in a large hotel using a
c-chart. Develop three sigma control limits using the data
table below.

Week Number of • Solution:

Complaints
1 3
2 2 # complaints 22
3 3
CL  c    2.2
# of samples 10
4 1
5 3 UCLc  c  z c  2.2  3 2.2  6.65
6 3
LCLc  c  z c  2.2  3 2.2  2.25  0
7 2
8 1
9 3
10 1
Total 22
C- Control Chart
Process Control
Process Capability
 Out of control conditions indicated by:

Skewed distribution
Data Point out of limits
 Process Capability
• Process capability refers to the ability of a process to
produce products or provide services capable of
meeting the specifications set by the customer or
designer.
• Process capability compares the output of an in-control
process to the specification limits.
• The comparison is made by forming the ratio of the
spread between the process specifications (the
specification "width") to the spread of the process
values, as measured by process standard deviation.
• A capable process is one where almost all the
measurements fall inside the specification limits.
Graphical Representation
 Percent Out of Specifications
• Based on the normal distribution, the percent of product that would fall
out of specification can be calculated. • This is best explained using an
example.
• Assume we have a process with mean = 50, standard deviation = 4, USL =
58 and LSL = 46.
• We divide this problem into two parts. First the percent out of specification
on the high end (greater than the USL) and then the percent out on the low
end (less than the LSL).

• The normal distribution is:

• Z is the number of standard deviations that the specification is from the

mean.
• Normal probability tables give you the percent of the distribution that
would exceed the specification limit for a given z value
• Remember that 68.3% of the data is within ±1S (therefore 31.7% is outside
of ±1S).
Out of Specification Calculations
 Process Capability
• “Natural Tolerance” (process spread) of a process is the
given range that the process can maintain during ordinary
operation without the action of any person in making process
adjustments.
• Normally 3 Limits (6 sigma)
How Do We Know a Process is Capable?
CP and CPK statistical process indexes

• These indexes tell if the process is capable of producing

features within the engineering tolerances.
• This is essentially a grade for the process where the higher
number is better.
Cpk
 Relationship between Process
Variability and Specification Width
• Possible ranges for Cp

– Cp < 1, as in Fig. (b), process not

capable of producing within
specifications

– Cp ≥ 1, as in Fig. (c), process

exceeds minimal specifications

• One shortcoming, Cp assumes that the

process is centered on the specification
range

• Cp=Cpk when process is centered

We say that a process is accurate if its mean is close to
the target T.

We say that a process is consistent if its standard deviation

is low.
Capability Index (Cpk)

X = 10 and σ = 0.5
LTL = 9
UTL = 11

LTL X UTL

 10  9 11 10 
C pk  min  or   0.667
 3 0.5 3 0.5 
Capability Index (Cpk)

X = 9.5 and σ = 0.5

LTL = 9
UTL = 11

LTL X UTL
Capability Index (Cpk)

X = 10 and σ = 2
LTL = 9
UTL = 11

LTL X UTL
 Solution
LTL = 55 UTL = 65 =2
X  61
X  LTL UTL  X
C pk  min( , )
3 3
61  55 65  61
C pk  min( , )  min( 1,0.6667 )  0.6667
6 6
No, the process is not capable at the 3 level.
P(defect) = P(X<55) + P(X>65)
=P(X<55) + 1 – P(X<65)
=P(Z<(55-61)/2) + 1 – P(Z<(65-61)/2)
=P(Z<-3) + 1 – P(Z<2)
=G(-3)+1-G(2)
=0.00135 + 1 – 0.97725 (from standard normal table)
= 0.0241

2.4% of the cans are defective.

Example
Consider the capability of a process that puts pressurized grease in an
aerosol can. The design specs call for an average of 60 pounds per
square inch (psi) of pressure in each can with an upper tolerance limit
of 65psi and a lower tolerance limit of 55psi. A sample is taken from
production and it is found that the cans average 61psi with a standard
deviation of 2psi.

1. Is the process capable at the 3 level?

2. What is the probability of producing a defect?

Suppose another process has a sample mean of 60.5 and

a standard deviation of 3.

Which process is more accurate? This one.

Which process is more consistent? The other one.
 Computing the Cp Value at Cocoa Fizz: three bottling machines are being
evaluated for possible use at the Fizz plant. The machines must be capable of
meeting the design specification of 15.8-16.2 oz. with at least a process
capability index of 1.0 (Cp≥1)

• The table below shows the information gathered • Solution:

from production runs on each machine. Are
they all acceptable? – Machine A
USL  LSL .4
Cp   1.33
6σ 6(.05)
Machine σ USL-LSL 6σ
– Machine B
A .05 .4 .3 USL  LSL .4
Cp   0.67
6σ 6(.1)
B .1 .4 .6 – Machine C

C .2 .4 1.2 USL  LSL .4

Cp   0.33
6σ 6(.2)
Computing the Cpk Value at Cocoa Fizz

• Design specifications call for a target

value of 16.0 ±0.2 OZ.
(USL = 16.2 & LSL = 15.8)
• Observed process output has now
shifted and has a µ of 15.9 and a
σ of 0.1 oz.
 16.2  15.9 15.9  15.8 
Cpk  min  , 
 3(.1) 3(.1) 
.1
Cpk   .33
.3
• Cpk is less than 1, revealing that the
process is not capable
 Difference B/W Cp and Cpk
• Cp = is done to measure the process on both sided specifications
• Cpk measures the variations between T (target) and one specification
• Cp=Potential capability index describes what a process is potentially capable of
performing at
• Cpk=Process performance index at a given instant of time

example

• Cp= Gayle is capable of hitting a half century in every match

• Cpk= Gayle has got out for duck in the past 3 matches

• that meand even though we know that Gayle is a capable person but due to some reasons
his performance was not up to the mark in some matches

• Hence Cpk is always less than CP

Watch the Video for more interpretation
 Effects of Reducing
Variability on Process Capability

Nominal value
Six sigma

Four sigma

Two sigma

Lower Upper
specification specification

Mean
 Example
The intensive care unit lab process has an average turnaround time of
26.2 minutes and a standard deviation of 1.35 minutes.
The nominal value for this service is 25 minutes with an upper
specification limit of 30 minutes and a lower specification limit of 20
minutes.
The administrator of the lab wants to have three-sigma performance
for her lab. Is the lab process capable of this level of performance?

Upper specification = 30 minutes

Lower specification = 20 minutes
Average service = 26.2 minutes
 = 1.35 minutes
Six Sigma Quality
 6
• A philosophy and set of methods companies use to
eliminate defects in their products and processes
• Seeks to reduce variation in the processes that lead to
product defects
• The name “six sigma” refers to the variation that
exists within plus or minus six standard deviations of
the process outputs
Six Sigma Quality
 ±6 Sigma versus ± 3 Sigma

• Motorola coined “six-sigma” to • PPM Defective for ±3σ versus

describe their higher quality efforts ±6σ quality
back in 1980’s
– Ordinary quality standard requiring
mean±3σ to be within tolerances
implies that 99.74% of production is
between LSL and USL
– Six sigma is much stricter: mean ±6σ
must be within tolerances implying
that 99.99966% production between
LSL and USL
– same proportions apply to control
limits in control charts
• Six-sigma quality standard is now a
benchmark in many industries
 Six Sigma as a Metric

2
   ( xi  x )
=
Sigma =  = Deviation n 1
( Square root of variance )

Axis graduated in Sigma

-7
-6
-5
-4
-3
-2
-1

1
2
3

5
6
7
0

4
between + / - 1 68.27 % result: 317300 ppm outside
(deviation)
between + / - 2 95.45 % 45500 ppm

between + / - 3 99.73 % 2700 ppm

between + / - 4 99.9937 % 63 ppm

between + / - 5 99.999943 % 0.57 ppm

between + / - 6 99.9999998 % 0.002 ppm

 Six Sigma Education
• Green Belt: An employee who achieved the first level of training in a Six Sigma
program and spends part of his or her time teaching and helping teams with their projects.

• Black Belt: An employee who reached the highest level of training in a Six Sigma
• program and spends all of his or her time teaching and leading teams involved in Six Sigma
projects.
• Master Black Belt: Full-time teachers and mentors to several black belts.

Six Sigma Champions: Six Sigma Master Black Belts:

Project sponsors
Full-time program managers,
and mentors
PMO heads and educators

Six Sigma Black Belts: Six Sigma Green Belts:

Full-time project
Part time project
managers
coordinators and
assistants
 Acceptance Sampling
• Definition: the third branch of SQC refers to the process of randomly
inspecting a certain number of items from a lot or batch in order to
decide whether to accept or reject the entire batch
• Different from SPC because acceptance sampling is performed either
before or after the process rather than during
– Sampling before typically is done to supplier material
– Sampling after involves sampling finished items before shipment or finished
components prior to assembly
• Used where inspection is expensive, volume is high, or inspection is
destructive
 Acceptance Sampling Plans
• Goal of Acceptance Sampling plans is to determine the criteria for
acceptance or rejection based on:
– Size of the lot (N)
– Size of the sample (n)
– Number of defects above which a lot will be rejected (c)
– Level of confidence we wish to attain
• There are single, double, and multiple sampling plans
– Which one to use is based on cost involved, time consumed, and cost of
passing on a defective item
• Can be used on either variable or attribute measures, but more
commonly used for attributes
 Implications for Managers
• How much and how often to inspect?
– Consider product cost and product volume
– Consider process stability
– Consider lot size
• Where to inspect?
– Inbound materials
– Finished products
– Prior to costly processing
• Which tools to use?
– Control charts are best used for in-process production
– Acceptance sampling is best used for inbound/outbound
 SQC in Services
• Service Organizations have lagged behind manufacturers in the use of
statistical quality control
• Statistical measurements are required and it is more difficult to
measure the quality of a service
– Services produce more intangible products
– Perceptions of quality are highly subjective
• A way to deal with service quality is to devise quantifiable
measurements of the service element
– Check-in time at a hotel
– Number of complaints received per month at a restaurant
– Number of telephone rings before a call is answered
– Acceptable control limits can be developed and charted
 SQC Across the Organization
• SQC requires input from other organizational functions,
influences their success, and are actually used in designing and
evaluating their tasks
– Marketing – provides information on current and future quality
standards
– Finance – responsible for placing financial values on SQC efforts
– Human resources – the role of workers change with SQC
implementation. Requires workers with right skills
– Information systems – makes SQC information accessible for all.
OPERATIONS MANAGEMENT

Lean
& Six Sigma (“LSS”)
Dr. Yousaf Ali Khan
Department of Management Sciences and Humanities
GIK Institute of Engineering Sciences and Technology
 What Is Lean?
• Lean streamlines a process, resulting in increased revenue,
reduced costs, and improved customer satisfaction.
• A Lean Process:
• Is faster
• Is more efficient and economical
• Delivers satisfactory quality
 Background on Lean
• Lean comes out of the industrial engineering world
• Taiichi Ohno – Toyota Production System.
– 1940s-1950s company was on verge of bankruptcy
– Dynamics of industry were changing – moving from mass
production to more flexible, shorter, varied batch runs (people
wanted more colors, different features, more models, etc).
• Ohno was inspired by 3 observations on a trip to America
– Henry Ford’s assembly line inspired the principle of flow (keep
products moving because no value is added while it is sitting
still)
– The Indy 500 – Rapid Changeover
– The American Grocery Store – led to the Pull system – material
use signals when and how stock needs to be replenished
 Key Aspects of Lean
• Lean is Not New
– Popularized by Toyota more than 40-50 years ago.
– Many of its tools and concepts have been around for decades.
• Lean is Both Methodology and Philosophy
– Lean aims to eliminate ‘waste’ (in Japanese, “muda”) in every area of a
business, including production, customer relations, product design,
supplier networks, and factory and business administration.
– Its goal is to incorporate less effort, less inventory, less time to develop
products, and less space in order to become highly responsive to actual
customer demand and to produce top-quality product in the most
timely, efficient and economical manner possible.
• Lean Focuses on Customer-Defined Value
– A process step ‘adds value’ if the activity adds form, fit or function to
the product that is desired by the customer, and the customer is willing
to pay you to conduct that activity.
 Key Aspects of Lean, con’t
• Toyota Defines Seven Key Types of Muda (Waste)
– Overproduction: Producing more than demanded or before it is
needed, e.g., stored materials or inventories.
– Inventory or Work-in-Process (WIP): Material between operations
due to large lot sizes or long process cycle times.
– Transportation: Material movements, by definition, add no value to
products, as they do not affect form, fit or function.
– Processing Waste: Unnecessary or inefficient process steps simply add
cost and time.
– Motion: Effort to move workers and machinery or to transport
materials adds cost and delay.
– Waiting: Long changeover times, slow processing times, and materials
handling tasks limit opportunities to make on-time deliveries.
– Defective Products: Items that fail to meet customer specifications are
pure waste, e.g., returns, rework, scrap, and warranty costs.
 Path To Lean
Theory Waste is Deadly
Application 1. Define Value – act on what is
important to the customer
2. Identify Value Stream – understand
what steps in the process add value
and which don’t
3. Make it flow – keep the work moving
at all times and eliminate waste that
creates delay
4. Let customer pull -- Avoid making more
or ordering more inputs for customer
demand you don’t have
5. Pursue perfection -- there is no
optimum level of performance
Focus Flow Focused
Assumptions Non-Value added steps exit
Results Reduced cycle time
 Waste Defined
Wastes Healthcare Examples
Transport 1. Moving patients from room to room
2. Poor workplace layouts, for patient services
3. Moving equipment in and out of procedure room or operating room
Inventory 1. Overstocked medications on units/floors or in pharmacy
2. Physician orders building up to be entered
3. Unnecessary instruments contained in operating kits
Motion 1. Leaving patient rooms to:
• Get supplies or record
• Documents care provided
2. Large reach/walk distance to complete a process step
Waiting 1. Idle equipment/people
2. Early admissions for procedures later in the day
3. Waiting for internal transport between departments
Over-Production 1. Multiple signature requirements
2. Extra copies of forms
3. Multiple information systems entries
4. Printing hard copy of report when digital is sufficient
Over-Processing 1. Asking the patient the same questions multiple times
2. Unnecessary carbon copying
3. Batch printing patient labels
Defects 1. Hospital-acquired illness
2. Wrong-site surgeries
3. Medication errors
4. Dealing with service complaints
5. Illegible, handwritten information
6. Collection of incorrect patient information
Skills 1. Not using people’s mental, creative, and physical abilities
2. Staff not involved in redesigning processes in their workplace
3. Nurses and Doctors spending time locating equipment and supplies
4. Staff rework due to system failures
 Lean Methods
• Kaizen Events (or SCORE events)
– Planned and structured process that enables a small group of people to improve
some aspect of their business in a quick, focused manner.
• Select
• Clarify
• Organize
• Run
• Evaluate
• 5S – this methodology reduces waste through improved workplace
organization and visual management
• Japanese words: seiri, seiton, seiso, seiketsu, and shitsuke
– Sort, Set In Order, Shine, Standardize and Sustain
• Kanban – a Japanese term that can be translated as “signal,” “card,” or
“sign.”
– Most often a physical signal (paper card of plastic bin), that indicates when it is
time to order more, from whom, and in what quantity.
 Lean vs. Six Sigma
• Lean tends to be used for shorter, less complex problems. Often time
driven. Focus is on eliminating wasteful steps and practices.
• Some argue Lean moves the mean, SixSigma moves the variance. But they
are often used together and should not be viewed as having different
objectives.
– Waste elimination eliminates an opportunity to make a defect
– Less rework means faster cycle times
LSL USL LSL USL

Defects Defects Defects

Customer Target Customer Target

Prevent Defects by Prevent Defects by

Reducing Variation LSL USL Centering Process

Meet Customer
Customer Target Requirements
 Sigma Defects per
Capability Million % Yield
Opportunities

2 308,537 69.15%
3 66,807 93.32%
4 6,210 99.38%
5 233 99.98%
Voice of Customer 6 3.4 99.99966%

Voice of Process

The Voice of the Process is independent of

the Voice of the Customer
 What’s good enough?

99% Good (3.8 Sigma) 99.99966% Good (6 Sigma)

20,000 lost articles of mail per hour 7 articles lost per hour
(based on 2,000,000/hr)
Unsafe drinking water for almost 15 1 unsafe minute every 7 months
minutes each day
5,000 incorrect surgical operations per 1.7 incorrect operations per week
week
2 short or long landings daily at an 1 short or long landing every 5 years
airport with 200 flights/day
2,000,000 wrong drug prescriptions 680 wrong prescriptions per year
each year
No electricity for almost 7 hours each 1 hour without electricity every 34
month years
The Five Phases of Every LSS Project
• DEFINE
– Define opportunity, project scope, potential benefits and resource needs
• MEASURE
– Determine process map and metrics; Get baseline performance levels;
Define customer requirements for success; Display collected data
• ANALYZE
– Explore root causes of process variation, poor process flow and current
underperformance
• IMPROVE
– Brainstorm and prioritize potential solutions; Pilot-test selected
changes; Select and implement preferred solutions
• CONTROL
– Complete transition back to process owner; Confirm that new process
is stable; Document control plans; Identify and transfer best practices
 Define
• Define Scope of the Problem
– Document the Process
– Collect and Translate the Voice of the Customer
• Determine Project Objective and Benefits
– Define Metrics and Defects
– Establish Preliminary Baseline
– Develop Problem & Objective Statements
– Estimate Financial Benefit
• Create Project Charter
– Confirm Improvement Methodology
– Define Project Roles and Responsibilities
– Identify Risks
– Establish Timeline
– Managerial Buy-in
• Focus here is on the problem
 Measure
• Define “As Is” process
– Value stream map/process flow diagram
• Validate Measurement System for Outputs
– Don’t assume your measurements are accurate –
measuring system must accurately tell what is
happening
• Quantify Process Performance
– Collect data (Y’s)
– Examine process stability/capability analysis
 Analyze
• Identify Potential Causes (X’s)
• Investigate Significance of X’s
– Collect data on x’s
– Graphical/Quantitative analysis
• Pareto Chart
• Fishbone Diagram (cause and effect)
• Chi Square Test
• Regression Analysis
• Failure Mode Effects Analysis
• Identify Significant Causes to focus on (y=f(X))
– Evaluate the impact of x’s on y
• Here you identify the critical factors of a “good” output and
the root causes of defects or “bad” output.
 Improve
• Generate Potential Solutions
• Select & Test Solution
• Develop Implementation Plan
 Control
• Create Control & Monitoring Plan
– Mistake proof the process
– Determine the x’s to control and methods
– Determine Y’s to monitor
• Implement Full Scale Solution
– Revise/develop process
– Implement and evaluate solution
• Finalize Transition
– Develop transition plan
– Handoff process to owner