Lect 6

Paris Graduate School of Management (PGSM)
International Executive Master of Business Administration
Paris Graduate School of Management

École Supérieure de Gestion et Commerce International
INTERNATIONAL EXECUTIVE
MASTER OF BUSINESS ADMINISTRATION
IEMBA
Paris Graduate School of Management

École Supérieure de Gestion et Commerce International
INTERNATIONAL EXECUTIVE
MASTER OF BUSINESS ADMINISTRATION
Management Decision Making
January 2024
© 2024 International Executive MBA - Paris Graduate School of Management.

All rights reserved.
LECTURES 6
Chapter 20
Statistical Methods for Quality Control
n Statistical Process Control
n Acceptance Sampling
| | | | | | | | | | | | |
UCL
CL
LCL
| | | | | | | | | | | |

Quality Terminology
n Quality is “the totality of features and characteristics

of a product or service that bears on its ability to
satisfy given needs.”
Quality Terminology
n Quality assurance refers to the entire system of policies,
procedures, and guidelines established by an organization
to achieve and maintain quality.
n The objective of quality engineering is to include quality in
the design of products and processes and to identify
potential quality problems prior to production.
n Quality control consists of making a series of inspections
and measurements to determine whether quality
standards are being met.

Statistical Process Control (SPC)

n The goal of SPC is to determine whether the process can be
continued or whether it should be adjusted to achieve a
desired quality level.
n If the variation in the quality of the production output is
due to assignable causes (operator error, worn-out tooling,
bad raw material, . . . ) the process should be adjusted or
corrected as soon as possible.
n If the variation in output is due to common causes
(variation in materials, humidity, temperature, . . . ) which
the manager cannot control, the process does not need to
be adjusted.
SPC Hypotheses
n SPC procedures are based on hypothesis-testing
methodology.
n The null hypothesis H0 is formulated in terms of the
production process being in control.
n The alternative hypothesis Ha is formulated in terms of the
process being out of control.
n As with other hypothesis-testing procedures, both a Type I
error (adjusting an in-control process) and a Type II error
(allowing an out-of-control process to continue) are
possible.

Decisions and State of the Process

n Type I and Type II Errors
State of Production Process
H0 True Ha True
Decision In Control Out of Control
Continue Correct Type II Error
Allow out-of-control
Process Decision process to continue
Adjust Type I Error Correct
Adjust in-control
Process process Decision
Control Charts
n SPC uses graphical displays known as control charts
to monitor a production process.
n Control charts provide a basis for deciding whether
the variation in the output is due to common causes
(in control) or assignable causes (out of control).

Control Charts
n Two important lines on a control chart are the upper
control limit (UCL) and lower control limit (LCL).
n These lines are chosen so that when the process is in
control, there will be a high probability that the sample
finding will be between the two lines.
n Values outside of the control limits provide strong
evidence that the process is out of control.
Types of Control Charts

n An x chart is used if the quality of the output is measured in
terms of a variable such as length, weight, temperature, and
so on.
n x represents the mean value found in a sample of the output.
n An R chart is used to monitor the range of the measurements
in the sample.
n A p chart is used to monitor the proportion defective in the
sample.
n An np chart is used to monitor the number of defective items
in the sample.

x Chart Structure
x
UCL
Center Line Process Mean
When in Control
LCL
Time
Control Limits for an x Chart

n Process Mean and Standard Deviation Known
UCL =   3 x
LCL =   3 x

Example: Granite Rock Co.

n Control Limits for an x Chart: Process Mean
and Standard Deviation Known
The weight of bags of cement filled by Granite’s
packaging process is normally distributed with a mean
of 50 pounds and a standard deviation of 1.5 pounds.
What should be the control limits for samples of 9
bags?
n Control Limits for an x Chart: Process Mean

and Standard Deviation Known
 x = 
 50,n  =1.1.5,
5 n=
 9
0.5
9
UCL = 50 + 3(.5) = 51.5

LCL = 50 - 3(.5) = 48.5

Control Limits for an x Chart

n Process Mean and Standard Deviation Unknown
UCL = x  A2 R
LCL = x  A2 R
where: =_
x = overall sample mean
R = average range
A2 = a constant that depends on n; taken from
“Factors for Control Charts” table
Factors for x and R Control Charts

n Factors Table (Partial)
n d2 A2 d3 D3 D4
5 2.326 0.577 0.864 0 2.114
6 2.534 0.483 0.848 0 2.004
7 2.704 0.419 0.833 0.076 1.924
8 2.847 0.373 0.820 0.136 1.864
9 2.970 0.337 0.808 0.184 1.816
10 3.078 0.308 0.797 0.223 1.777
. . . . . .
. . . . . .

Control Limits for an R Chart

_
UCL = RD_ 4
LCL = RD3
_
where:
R = average range
D3, D4 = constants that depend on n; found
in “Factors for Control Charts” table
Factors for x and R Control Charts

n Factors Table (Partial)
n d2 A2 d3 D3 D4
5 2.326 0.577 0.864 0 2.114
6 2.534 0.483 0.848 0 2.004
7 2.704 0.419 0.833 0.076 1.924
8 2.847 0.373 0.820 0.136 1.864
9 2.970 0.337 0.808 0.184 1.816
10 3.078 0.308 0.797 0.223 1.777
. . . . . .
. . . . . .


n Control Limits for x and R Charts: Process Mean
and Standard Deviation Unknown
Suppose Granite does not know the true mean
and standard deviation for its bag filling process. It
wants to develop x and R charts based on twenty
samples of 5 bags each.
The twenty samples resulted in an overall sample
mean of 50.01 pounds and an average range of .322
pounds.

n Control Limits for R Chart: Process Mean
_
=
x = 50.01,
_ R = .322, n = 5
_
UCL = RD4 = .322(2.114) = .681
LCL = RD3 = .322(0) = 0


n R Chart
A RB C
Chart for Granite D
Rock Co. E F
0.80
0.70
Sample Range R
UCL
0.60
0.50
0.40
0.30
0.20
0.10
LCL
0.00
0 5 10 15 20
Sam ple Num ber

n Control Limits for x Chart: Process Mean
=
=
x = 50.01, R = .322, n = 5
=
UCL = x + A2R = 50.01 + .577(.322) = 50.196
LCL = x - A2R = 50.01 - .577(.322) = 49.824


n x Chart
x Chart for Granite Rock Co.
50.3
UCL
50.2
50.1
Sample
Mean
50.0
49.9
49.8
LCL
49.7
0 5 10 15 20
Sample Number
Control Limits for a p Chart

UCL = p  3 p
LCL = p  3 p
where:  p p( 1  p )

n
assuming:
np > 5
n(1-p) > 5
Note: If computed LCL is negative, set LCL = 0

Example: Norwest Bank

Every check cashed or deposited at Norwest Bank
must be encoded with the amount of the check before it
can begin the Federal Reserve clearing process. The
accuracy of the check encoding process is of upmost
importance. If there is any discrepancy between the
amount a check is made out for and the encoded
amount, the check is defective.

Twenty samples, each consisting of 250 checks, were
selected and examined when the encoding process was
known to be operating correctly. The number of
defective checks found in the samples follow.
4 1 5 3 2 7 4 5 2 3
2 8 5 3 6 4 2 5 3 6


n Control Limits for a p Chart
Suppose Norwest does not know the proportion of
defective checks, p, for the encoding process when it is
in control.
We will treat the data (20 samples) collected as
one large sample and compute the average number of
defective checks for all the data. That value can then be
used to estimate p.
n Control Limits for a p Chart
Estimated p = 80/((20)(250)) = 80/5000 = .016

p(1  p ) .016(1  .016) .015744
p     .007936
n 250 250
UCL = p  3 p  .016  3(.007936)  .039808
LCL = p  3 p  .016  3(.007936)  -.007808  0


n p Chart
p Chart for Norwest Bank
0.045
0.040
UCL
0.035
Sample Proportion p
0.030
0.025
0.020
0.015
0.010
0.005
LCL
0.000
0 5 10 15 20
Sample Number
Control Limits for an np Chart
UCL = np  3 np( 1  p)
LCL = np  3 np( 1  p)
assuming:
np > 5
n(1-p) > 5
Note: If computed LCL is negative, set LCL = 0

Interpretation of Control Charts

n The location and pattern of points in a control chart enable
us to determine, with a small probability of error, whether a
process is in statistical control.
n A primary indication that a process may be out of control is a
data point outside the control limits.
n Certain patterns of points within the control limits can be
warning signals of quality problems:
• Large number of points on one side of center line.
• Six or seven points in a row that indicate either an
increasing or decreasing trend.
• . . . and other patterns.
Acceptance Sampling
n Acceptance sampling is a statistical method that
enables us to base the accept-reject decision on the
inspection of a sample of items from the lot.
n Acceptance sampling has advantages over 100%
inspection including: less expensive, less product
damage, fewer people involved, . . . and more.

Acceptance Sampling Procedure

Lot received
Sample selected
Sampled items
inspected for quality
Results compared with Quality is not
Quality is
specified quality characteristics
satisfactory satisfactory
Accept the lot Reject the lot
Send to production Decide on disposition
or customer of the lot
Acceptance Sampling
n Acceptance sampling is based on hypothesis-testing
methodology.
n The hypothesis are:
H0: Good-quality lot
Ha: Poor-quality lot

The Outcomes of Acceptance Sampling

n Type I and Type II Errors
State of the Lot H0 True Ha True

Good-Quality Lot Poor-Quality Lot
Accept H0 Correct Type II Error
Decision
Accept the Lot Decision Consumer’s Risk
Reject H0 Type I Error Correct

Reject the Lot Producer’s Risk Decision
Probability of Accepting a Lot

n Binomial Probability Function for Acceptance Sampling
n!
f ( x)  p x ( 1  p)(n x )
x !(n  x)!
where:
n = sample size
p = proportion of defective items in lot
x = number of defective items in sample
f(x) = probability of x defective items in sample

Example: Acceptance Sampling

An inspector takes a sample of 20 items from a lot. Her policy is to
accept a lot if no more than 2 defective items are found in the
sample.
Assuming that 5 percent of a lot is defective, what is the
probability that she will accept a lot? Reject a lot?
n = 20, c = 2, and p = .05
P(Accept Lot) = f(0) + f(1) + f(2)
= .3585 + .3774 + .1887
= .9246
P(Reject Lot) = 1 - .9246
= .0754
Example: Acceptance Sampling

n Using the Tables of Binomial Probabilities
p
n x .05 .10 .15 .20 .25 .30 .35 .40 .45 .50
20 0 .3585 .1216 .0388 .0115 .0032 .0008 .0002 .0000 .0000 .0000
1 .3774 .2702 .1368 .0576 .0211 .0068 .0020 .0005 .0001 .0000
2 .1887 .2852 .2293 .1369 .0669 .0278 .0100 .0031 .0008 .0002
3 .0596 .1901 .2428 .2054 .1339 .0716 .0323 .0123 .0040 .0011
4 .0133 .0898 .1821 .2182 .1897 .1304 .0738 .0350 .0139 .0046
5 .0022 .0319 .1028 .1746 .2023 .1789 .1272 .0746 .0365 .0148
6 .0003 .0089 .0454 .1091 .1686 .1916 .1712 .1244 .0746 .0370
7 .0000 .0020 .0160 .0545 .1124 .1643 .1844 .1659 .1221 .0739
8 .0000 .0004 .0046 .0222 .0609 .1144 .1614 .1797 .1623 .1201
9 .0000 .0001 .0011 .0074 .0271 .0654 .1158 .1597 .1771 .1602

Selecting an Acceptance Sampling Plan

n In formulating a plan, managers must specify two
values for the fraction defective in the lot.
• a = the probability that a lot with p0 defectives will
be rejected.
• b = the probability that a lot with p1 defectives will
be accepted.
n Then, the values of n and c are selected that result in an
acceptance sampling plan that comes closest to
meeting both the a and b requirements specified.
Operating Characteristic Curve

Probability of Accepting the Lot
1.00
.90
.80 a
.70 n = 15, c = 0
.60 p0 = .03, p1 = .15
.50 a = .3667, b = .0874
.40
.30 (1 - a)
.20 p0 p1
.10
b
0 5 10 15 20 25
Percent Defective in the Lot

Multiple Sampling Plans

n A multiple sampling plan uses two or more stages of
sampling.
n At each stage the decision possibilities are:
• stop sampling and accept the lot,
• stop sampling and reject the lot, or
• continue sampling.
n Multiple sampling plans often result in a smaller total
sample size than single-sample plans with the same
Type I error and Type II error probabilities.
A Two-Stage Acceptance Sampling Plan

Inspect n1 items
Find x1 defective items in this sample
Yes Accept
x1 < c1 ?
the lot
No
Reject Yes x 1 > c2 ?
the lot
No
Inspect n2 additional items
Find x2 defective items in this sample
No x 1 + x 2 < c3 ? Yes

End of Chapter


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Paris Graduate School of Management (PGSM)

International Executive Master of Business Administration

Paris Graduate School of Management

Paris Graduate School of Management

© 2024 International Executive MBA - Paris Graduate School of Management.

International Executive Master of Business Administration

© 2024 International Executive MBA - Paris Graduate School of Management.

n Quality is “the totality of features and characteristics

© 2024 International Executive MBA - Paris Graduate School of Management.

Statistical Process Control (SPC)

© 2024 International Executive MBA - Paris Graduate School of Management.

Decisions and State of the Process

© 2024 International Executive MBA - Paris Graduate School of Management.

Types of Control Charts

© 2024 International Executive MBA - Paris Graduate School of Management.

Control Limits for an x Chart

© 2024 International Executive MBA - Paris Graduate School of Management.

Example: Granite Rock Co.

Example: Granite Rock Co.

n Control Limits for an x Chart: Process Mean

UCL = 50 + 3(.5) = 51.5

© 2024 International Executive MBA - Paris Graduate School of Management.

Control Limits for an x Chart

Factors for x and R Control Charts

© 2024 International Executive MBA - Paris Graduate School of Management.

Control Limits for an R Chart

Factors for x and R Control Charts

© 2024 International Executive MBA - Paris Graduate School of Management.

Example: Granite Rock Co.

Example: Granite Rock Co.

© 2024 International Executive MBA - Paris Graduate School of Management.

Example: Granite Rock Co.

Example: Granite Rock Co.

© 2024 International Executive MBA - Paris Graduate School of Management.

Example: Granite Rock Co.

Control Limits for a p Chart

© 2024 International Executive MBA - Paris Graduate School of Management.

Example: Norwest Bank

Example: Norwest Bank

© 2024 International Executive MBA - Paris Graduate School of Management.

Example: Norwest Bank

Example: Norwest Bank

n Control Limits for a p Chart

Estimated p = 80/((20)(250)) = 80/5000 = .016

LCL = p  3 p  .016  3(.007936)  -.007808  0

© 2024 International Executive MBA - Paris Graduate School of Management.

Example: Norwest Bank

Control Limits for an np Chart

© 2024 International Executive MBA - Paris Graduate School of Management.

Interpretation of Control Charts

© 2024 International Executive MBA - Paris Graduate School of Management.

Acceptance Sampling Procedure

© 2024 International Executive MBA - Paris Graduate School of Management.

The Outcomes of Acceptance Sampling

State of the Lot H0 True Ha True

Reject H0 Type I Error Correct

Probability of Accepting a Lot

© 2024 International Executive MBA - Paris Graduate School of Management.

Example: Acceptance Sampling

Example: Acceptance Sampling

© 2024 International Executive MBA - Paris Graduate School of Management.

Selecting an Acceptance Sampling Plan

Operating Characteristic Curve