Operations & Productions

Management
Department of Business Studies
Bahria University – Karachi Campus

Lecture: 5
What is Quality
 Quality is the ability of a product or service to consistently
meet or exceed customer expectations (Stevenson, 2015)
 A term used by customers to describe their general satisfaction
with a service or product. (Krajewsky, Malhotra, & Ritzman, 2016)

 Quality Assurance vs. Strategic Approach (Stevenson, 2015)

 Quality Assurance
 Emphasis on finding and correcting defects before
reaching market
 Strategic Approach
 Proactive, focusing on preventing mistakes from
occurring
 Greater emphasis on customer satisfaction

(Stevenson, 2015)
(Krajewsky, Malhotra, & Ritzman, 2016)

Costs of Quality
 Defect
 Any instance when a process fails to satisfy its customer.
The
costs of quality range from 20 to 30
percent of gross sales!
 Cost of Quality
1. Prevention Costs
2. Appraisal Costs
3. Internal Failure Costs
4. External Failure Costs
5. Ethical Failure Cost
Cost of Quality
 Prevention Costs
 Costs associated with preventing defects before they happen
 costs of redesigning the process to remove the causes
 make it simpler to produce
 training employees in the methods of continuous
improvement
 Working with suppliers to increase the quality of
purchased items
 Appraisal Costs
 Costs incurred when the firm assess the performance level of its
processes
 Internal Failure Costs
 Costs resulting from defects that are discovered during the
production of a service or product.
 (1) rework
 (2) scrap
Cost of Quality
 External Failure Costs
 Costs that arise when a defect is discovered after the
customer receives the service or product
 Bad word of mouth (WOM) –
 eWOM
 warranty service and litigation costs
 Ethical failure costs
 Societal and monetary costs associated with
deceptively passing defective services or products to
internal or external customers such that it jeopardizes
the well being of stockholders, customers, employees,
partners, and creditors.
Total Quality Management and Six Sigma
 Total Quality Management (TQM)
 A philosophy that stresses three principles for achieving high levels of process
performance and quality:
 (1) customer satisfaction,
 (2) employee involvement, and
 (3) continuous improvement in performance

 TQM is an integrated organizational effort

 Designed to improve quality at every level
TQM
 Customer Satisfaction
 Conformance to 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
 Psychological Impressions - atmosphere, image, or aesthetics
TQM
 Employee Involvement
 Cultural Change – the main challenge to define
customer for each employee.
 Internal and external customers
 Teams
 Small groups of people who have a common
purpose, set their own performance goals and
approaches, and hold themselves accountable
for success.
 Quality at the source
 A philosophy whereby defects are caught and
corrected where they were created.
TQM
 Continuous Improvement
 The philosophy of continually seeking ways to improve
processes based on a Japanese concept called kaizen.
 Identifying benchmarks of excellent practice and
instilling a sense of employee ownership in the
process.
 plan-do-study-act cycle
 A cycle, also called the Deming Wheel, used by firms
actively engaged in continuous improvement to train
their work teams in problem solving’
The PDSA Cycle
The Six Sigma
 Six sigma: A business process for improving
quality, reducing costs, and increasing
customer satisfaction
 Statistically
 Having no more than 3.4 defects per million
 Conceptually
 Program designed to reduce defects
 Requires the use of certain tools and techniques
Six Sigma Programs
 Six Sigma programs
 Improve quality
 Save time
 Cut costs
 Employed in
 Design
 Production
 Service
 Inventory management
 Delivery
Six Sigma Programs
 Six Sigma programs
 Improve quality
 Save time
 Cut costs
 Employed in
 Design
 Production
 Service
 Inventory management
 Delivery
Six Sigma Management
 Providing strong leadership
 Defining performance metrics
 Selecting projects likely to succeed
 Selecting and training appropriate people

 Improving process performance

 Reducing variation
 Utilizing statistical models
 Designing a structured improvement strategy
Probability of defects of different sigma levels
Sigma Level (Process Capability) DPM Opportunities

2 308,537

3 66,807

4 6,210

5 233

6 3.4