CHAPTER 6

MANAGING QUALITY

Dr. Le Hoang Oanh

Division of management accounting
School of accounting - UEH
MANAGING QUALITY

1 7 TOOLS OF TOTAL
MEANING OF QUALITY 4
QUALITY MANAGMENT

QUALITY USING SIX SIGMA FOR

2 5
MEASUREMENT QUALITY IMPROVEMENT

TOTAL QUALITY QUALITY

3 6
MANAGEMENT & ACCREDITATION
QUALITY CULTURE
2
MEANING OF QUALITY
MEANING OF QUALITY

Webster’’s Dictionary:
degree of excellence of a thing

American Society for Quality

Totality of features and characteristics that satisfy needs

Consumer’s and Producer’s Perspective

MEANING OF QUALITY: Consumer’s
Perspective

§ Fitness for use

§ how well product or
service does what it is
supposed to
§ Quality of design
§ The degree to which the
product’s design
characteristics meet
customers’ expectations.

A Mercedes and a Ford are

equally “fit for use,” but with
different design dimensions

3-5
MEANING OF QUALITY: Producer’s
Perspective
§ Quality of Conformance
§ The degree to which the product meets its design
specifications
§ if new tires do not conform to specifications, they
wobble
§ if a hotel room is not clean when a guest checks
in, the hotel is not functioning according to
specifications of its design

3-6
MEANING OF QUALITY

Meaning of Quality

Producer’s Perspective Consumer’s Perspective

Quality of Conformance Quality of Design

Production • Conformance to • Quality characteristics Marketing

specifications • Price
• Cost

Fitness for
Consumer Use
MEANING OF QUALITY

Products and services provided to meet the needs

and expectations of customers

Understanding customer value will provide high

quality products

Value of a product's
characteristics that
customers desires
MEASURING QUALITY
MEASURING QUALITY

Warranty claims
Customer’s
Customer complaints
Perspective
On-time delivery
Defect rates
Yield waste Internal
business
Scrap process
perspective
rework rates
THE COST OF QUALITY
PREVENTION AND APPRAISAL COSTS

The costs incurred in

Prevention
preventing defects & in
costs minimizing appraisal activities

The costs of determining

Appraisal costs whether defects exists
INTERNAL AND EXTERNAL FAILURE COSTS

The costs incurred when

Internal failure defective products are
costs defected before leaving the
business

The costs incurred

External failure because defective
costs products are provided to
customers
 QUALITY COSTS - EXAMPLES
Prevention costs
• Quality engineering
• Quality planning
• Employee training
• Quality improvement plans
• Quality reporting
Internal failure costs
• Scrap
• Spoilage
• Rework
• Downtime
• Material disposals
• Lost contribution margin from
scrapped products
Appraisal costs
• Monitoring
• Inspecting materials
• Inspecting work in process
• Inspecting finished goods
• Testing equipment
External failure costs
• Sales return
• Warranty claims
• Processing customer
complaints.
• Legal fees
• Service callouts
• Lost contribution margin
from current & future sales
 COST OF QUALITY REPORT

AUSTRALIAN CD PLAYERS PTY LTD

Current month’s %
costs
Internal failure costs
Scrap in production 2,000 4.55
Scrapped finished goods 3,000 6.82
Rework 2,000 4.55
Downtime 1,000 2.27
Total failure costs 8,000 18.18
 COST OF QUALITY REPORT
Current month’s %
costs
External failure costs
Warranty costs 7,000 15.91
Out-of-warranty repairs and 3,000 6.82
replacement
Servicing customer complaints 1,000 2.27
Transportation losses 2,000 4.55
Total external failure costs 13,000 29.55
 COST OF QUALITY REPORT

Current month’s %
costs
Appraisal costs
Materials inspection 3,000 6.82
In-process inspection 2,000 4.55
Finished goods inspection 2,000 4.55
Laboratory testing 4,000 9.09
Total appraisal costs 11,000 25.00
 COST OF QUALITY REPORT

Current month’s %
costs
Prevention costs
Quality training 4,000 9.09
Quality planning 1,000 2.27
Quality reporting 2,000 4.55
Quality systems development 5,000 11.36
Total prevention costs 12,000 27.27

Total quality costs 44,000 100.00

COST OF QUALITY REPORT – ACDP PTY
LTD
COMMENTS
1 2

- Internal & external

failure costs do not - These hidden costs of
include the opportunity quality amount to “at least
costs associated with
3 times & up to 10 times
scrapped products and
lost sales (due to: difficult the visible cost of
to estimate à only quality”
consider quantitively
when making decisions
USING COST OF QUALITY INFORMATION

2 VIEWS: How these cost

interacts

Include the possible interactions

between the costs in the four
categories

To reduce costs & improve quality

Prevention costs à Appraisal costs à

Internal & external failure Internal failure costs +
costs + appraisal costs external failure costs
TRADITIONAL VIEW

There is some optimal level of quality

(as measured by percentage of defects)

beyond which as any

further improvement
will cause the total cost
of quality to increase
TRADITIONAL VIEW
TRADITIONAL VIEW

This view point is not driven by customer

value; rather, it is concerned with optimizing
resources
TRADITIONAL VIEW – BENEFITS FROM
COST OF QUALITY INFORMATION
It helps managers see the
financial significance of
defects
It helps managers identify
the relative importance of
the quality problems faced
by the company
1.It helps managers see whether their
quality costs are poorly distributed. In
general, costs should be distributed more
toward prevention and to a lesser extent
appraisal than toward failures.
 TRADITIONAL VIEW – LIMITATION OF
QUALITY COST INFORMATION
Simply measuring and reporting
quality cost problems does not solve
quality problems.

Results usually lag behind quality

improvement programs. Initially,
prevention and appraisal cost
increases may not be offset by
decreases in failure costs.
The most important quality cost, lost
sales arising from customer goodwill,
is often omitted from quality cost
reports because it is difficult to
estimate.
CURRENT VIEW

Enterprises should reduce the level of defects

to 0 instead of accepting
Optimal level of quality .
CURRENT VIEW

IF LEVEL OF DEFECT IS ZERO

Cost Failure
costs

0
Percentage of defects 100%
CURRENT VIEW

Quality (minimum
Many businesses underestimates
level of defects) is
the cost of failure, particularly the
what customers
more nebulous costs of external
desire first
à The optimal level of defects will
be much lower than that estimated

Increase prevention & appraisal

costs à failure costs reduce à
reduce prevention & appraisal
costs (traditional view: does not hold)
àQuality costs move towards
Zero as the level of defects is
driven towards zero
4 KEY CONCEPTS ABOUT THE RELATIONSHIP
BETWEEN THE FOUR TYPES OF QUALITY
COSTS.
1.When the quality of conformance is low, total
quality cost is high and most of this cost
consists of internal and external failure costs.

2. Total quality costs drop rapidly as the quality

of conformance increases.

3. Companies reduce their total quality costs by

focusing their efforts on prevention and appraisal
because the cost savings from reduced defects
usually overwhelm the costs of additional
prevention and appraisal.

4. Total quality costs are minimized when the quality

of conformance is slightly less than 100%. This is a
debatable point in the sense that some experts believe
that total quality costs are not minimized until the
quality of conformance is 100%.
CURRENT VIEW
QUALITY COST GRAPH WITH ZERO LEVEL OF DEFECTS
CURRENT VIEW

Tracking costs is not an appropriate way to manage quality

TOTAL QUALITY MANAGEMENT
AND A QUALITY CULTURE
TOTAL QUALITY MANAGEMENT

TQM is a comprehensive structured approach to

achieving continuous improvement in processes to meet
customers’ expectations.
TQC & TQM
According to Feigenbaum (1951), TQC is defined as
followings:

Effective system for integrating quality development,

quality maintenance, and quality improvement efforts
of the various groups in an organization to enable
production and service at the most economical levels
which allow full customer satisfaction.

The person responsible for the quality is not the

inspector but the workers, the delivers/receivers, …
etc., depending on each specific case.
TQC & TQM

TQM is the perfection of TQC with the following 6

key features
6 KEY FEATURES OF TQM

Total quality management is

organisation - wide

TQM is customer-driven

TQM involves empowerment

TQM has a process perspective

TQM is supported by a quality

management system.
TQM involves continuous
improvement
DEMING’S 14 POINTS

1. Create constancy of purpose

2. Adopt philosophy of prevention
3. Cease mass inspection
4. Select a few suppliers based on
quality
5. Constantly improve system and
workers

37
DEMING’S 14 POINTS (CONT.)

6. Institute worker training

7. Instill leadership among supervisors
8. Eliminate fear among employees
9. Eliminate barriers between departments
10. Eliminate slogans
DEMING’S 14 POINTS (CONT.)

11. Remove numerical quotas

12. Enhance worker pride
13. Institute vigorous training and education
programs
14. Develop a commitment from top
management to implement above 13 points
DEMING WHEEL: PDCA CYCLE

4. Act 1. Plan
Institutionalize Identify
improvement; problem and
continue develop plan
cycle. for
improvement.

3. Study/Check 2. Do
Assess plan; is it Implement
working? plan on a test
basis.

3-40
ELEMENTS OF TQM
Leadership
Top management vision, planning & support
Employment involvement
All employees assume responsibility for inspecting the
quality of their work.
Product/process excellence
Involves product design quality and monitor the process for
continuous improvement.
Poka-yokes are devices that prevent defects from being
produced.
ELEMENTS OF TQM

Continuous improvement
A concept that recognizes that quality improvement is
a journey with no end & that there is a need for continually
looking for new approaches for improving quality.

Customer focus (on “Fitness for Use”)

- Design quality
- Conformance quality
IMPLEMENTING TQM

SUCCESSFUL IMPLEMENT OF TQM

Requires total integration of TQM into day-to-day
operations.
CAUSES OF TQM IMPLEMENTATION FAILURES
Lack of focus on strategic planning & core
competencies.
Obsolete, outdated organizational cultures.
IMPLEMENTATION OF TQM

For TQM to be successful, the organization must

concentrate on the following key elements:

Integrity
Ethics
Trust
Training
Teamwork
Communication
Recognition
Leadership
IMPLEMENTATION OF TQM

The key elements of TQM can be divided into four groups

according to their function

Foundation: Integrity, Ethics, Trust

Building Bricks: Leadership, Teamwork, Training

Roof: Recognition (Motivation)

Binding Mortar: Communication

A QUALITY CULTURE

A TQM culture is essential for effective supply chain

management
7 QUALITY CONTROL TOOLS
7 QUALITY CONTROL TOOLS

With correct implementation of the seven TQM

tools 95% of quality related problems can be
solved
7 QUALITY CONTROL TOOLS

1. Check sheets
2. Histograms
3. Scatter graphs
4. Control charts
5. Run charts
6. Cause & effect diagram
7. Pareto Diagram
CHECK SHEETS

COMPONENTS REPLACED BY LAB

TIME PERIOD: 22 Feb to 27 Feb 2002
REPAIR TECHNICIAN: Bob

TV SET MODEL 1013

Integrated Circuits ||||
Capacitors |||| |||| |||| |||| |||| ||
Resistors ||
Transformers ||||
Commands
CRT |
CHECK SHEETS
HISTOGRAMS

20

15

10

0
1 2 6 13 10 16 19 17 12 16 2017 13 5 6 2 1
HISTOGRAMS
BiỂU ĐỒ HISTOGRAM
SCATTER GRAPHS

X
ĐỒ THỊ PHÂN TÁN - SCATTER GRAPHS
CONTROL CHARTS
CONTROL CHARTS

24
UCL = 23.35
21
Number of defects

18 c = 12.67

15

12

6
LCL = 1.99
3
2 4 6 8 10 12 14 16
Sample number
§ RUN CHARTS
§ RUN CHARTS
CAUSE-AND-EFFECT DIAGRAM

Measurement Human Machines

Faulty
testing equipment Poor supervision Out of adjustment

Incorrect specifications Lack of concentration Tooling problems

Improper methods Inadequate training Old / worn

Quality
Inaccurate Problem
temperature
control Defective from vendor Poor process design
Ineffective quality
Not to specifications management
Dust and Dirt Material- Deficiencies
handling problems in product design

Environment Materials Process

3-61
PARETO DIAGRAM - 80/20

The Pareto principle is based on the "80-20" rule,

which means that 80% of the problem is caused by
20% of the main causes.

3-62
 ã ĐKT

DATA FOR DRAWINGS OF PARETO CHART

Types of Frequency Total

defects
Operator errors 7

Wrong 22
dimensions
Defective 11
materials
Poor design 37

Surface 3
abrasions
Total 80
63
DATA FOR DRAWINGS OF PARETO CHART
Types of Numbers Accumulated % each Accumulated
defects of defects defects type of %
defects
Poor design 37

Wrong 22
dimensions
Defective 11
materials
Operator 7
errors
Surface 3
abrasions
Total 80
64
DATA FOR DRAWINGS OF PARETO
CHART
Types of Numbers Accumulated % each type Accumulated
defects of defects defects of defects %

Poor design 37 37 46.3 46.3

Wrong 22 59 27.5 73.8

dimensions
Defective 11 70 13.8 87.5
materials
Operator 7 77 8.8 96.3
errors
Surface 3 80 3.8 100
abrasions
Total 80 100
65
 Numbers of
defects

0
20
40
60
80

Types of deffectives
PARETO

Po
or
de
sig
W n
ro
ng

37
di
m
en
sio

22
De ns
fec
titi
ve
Ma

11
ter
Op ial
er s
ato
re
rro
7
rs
Su
rfa
ce
ab
ra
3

sio
ns
0%
20%
40%
60%
80%
100%

Accumulate
d%
66
ã ĐKT
SIX SIGMA
SIX SIGMA

ü Focus on improving business processes, in particular by

identifying & eliminating defects.
ü A process for developing and delivering near perfect
products and services
ü Measure of how much a process deviates from
perfection
ü 3.4 defects per million opportunities
ü Developed by Motorola
 SIX SIGMA
2 different process improvement methodologies
ü For existing proceses
ü For new products & processes
Common Features
v Identify customer expectation
v Analyse the processes needed to meet these
expectations.
v Collect & analyse data
 SIX SIGMA

Main contents
ü Integrate key business processes and customer
requirements into strategic goals.
ü Champions: responsible for directing, leading,
sponsoring, and advising on the projects à project success
ü Building a suitable quality scale
ü Maintain extensive training.
ü Requires quality improvement experts
ü Constantly setting quality goals.
 SIX SIGMA

Main contents
ü Integrate key business processes and customer
requirements into strategic goals.
ü Champions: responsible for directing, leading,
sponsoring, and advising on the projects
ü Building a suitable quality scale
ü Maintain extensive training.
ü Requires quality improvement experts
ü Constantly setting quality goals.
 TQM & SIX SIGMA
Participants and responsible for quality issues
TQM: all employees.
6S: Champions.
Methods
TQM: simple tools to analyse data (variance analysis,
process mapping, cause & effect diagrams & statistic
process control)
6S: modern approaches to managing costs & quality
(structured & disciplined approach)
Team-based structure
TQM: no
6S: emphasize & unique.
Black Belts and Green
Belts
Champion
an executive
responsible for project
§ Black Belt success
§ project leader
§ Master Black Belt
§ a teacher and mentor
for Black Belts
§ Green Belts
§ project team
members

3-73
Six Sigma: DMAIC

DEFINE MEASURE ANALYZE IMPROVE CONTROL

67,000 DPMO
cost = 25% of
sales 3.4 DPMO

Copyright 2006 John 3-74

Wiley & Sons, Inc.
Thank you!