Professional Documents
Culture Documents
Operations Management
by
Roberta Russell & Bernard W. Taylor, III
Lecture Outline
What is quality?
Evolution of quality management
Quality tools
TQM and QMS
Focus on quality management - customers
Role of employees in quality improvement
Quality in service companies
Six Sigma
The cost of quality
Lecture Outline (cont.)
Effects of quality management on productivity
Quality Awards
ISO 9000
What is Quality?
According to the Oxford American Dictionary,
quality is a degree or level of excellence
Black Belt
Project leader
Master Black belt
A teacher and mentor for
Black Belts
Green Belts
Project team members
Design for Six Sigma (DFSS)
Design for Six Sigma (DFSS):
An important element of the Six Sigma system.
A systematic methodology for designing products and
processes that meet customer expectations and can be
produced at Six Sigma quality levels.
Also known as DMADV (Define, Measure, Analyze, Design,
and Verify)
A more effective and less expensive way to achieve the Six
Sigma goal than fixing problems after the product or process
is already developed and in place.
Lean Six Sigma
Lean Six Sigma:
A recent trend in quality management which integrates Six
Sigma and ‘lean systems’.
Attempts to combine the best features of lean and Six Sigma.
Lean Six Sigma
The lean approach to process improvement includes
five steps:
First, it is determined what creates value, i.e. quality from the
customer’s perspective
Second, the sequence of activities(in the process) that create
value, called value stream is identified and activities that do
not add value to the production process are eliminated.
Third, waste (such as inventory or long process times) along
the value stream is removed through process improvements.
Fourth, the process is made responsive to customer’s needs
(making the product or service available when the customer
needs it).
Finally, lean continually repeats the attempt to remove waste
and improve flow.
The Bottom Line - Profitability
The criterion for selecting Six Sigma projects by executives
is typically based on the financial impact of the
improvement expected from the project (how it will affect
the bottom line)
Focusing on profitability for initiating quality improvement
projects is one of the factors that distinguishes Six Sigma
from TQM.
Quality improvement and profitability are closely related:
As quality improves, the costs associated with poor quality decline
As the quality of a company’s products or services improves, the
company becomes more competitive and its market share
increases.
Cost of Quality
Cost of achieving good quality
Prevention costs
Costs incurred during product design
Appraisal costs
Costs of measuring, testing, and analyzing
Cost of Quality
Cost of poor quality (COPQ):
Is the difference between what it actually costs to produce a
product or deliver a service and what it would cost if there
were no defects.
Is generally the largest cost category in a company and is
also where the greatest cost improvement is possible.
Internal failure costs
Include scrap, rework, process failure, downtime, and price reductions
External failure costs
Include customer complaints, returns, warranty claims, liability, and lost
sales.
Prevention Costs
Quality planning costs
Costs of developing and implementing quality management
program
Product design costs
Costs of designing products with quality characteristics
Process costs
Costs expended to make sure productive process conforms to
quality specifications
Training costs
Costs of developing and putting on quality training programs
for employees and management
Information costs
Costs of acquiring and maintaining data related to quality, and
development and analysis of reports on quality performance.
Appraisal Costs
Inspection and testing
Costs of testing and inspecting materials, parts, and products
at various stages and at the end of process
Test equipment costs
Costs of maintaining equipment used in testing quality
characteristics of products
Operator costs
Costs of time spent by operators to gather data for testing
product quality, to make equipment adjustments to maintain
quality, and to stop work to assess quality
Internal Failure Costs
Scrap costs
Costs of poor quality products that must be discarded including
labor, materials, and indirect costs.
Rework costs
Costs of fixing defective products to conform to quality
specifications.
Process failure costs
Costs of determining why production process is producing
poor-quality products.
Process downtime costs
Costs of shutting down productive process to fix problems.
Price-downgrading costs
Costs of discounting poor-quality products that’s selling
products as “seconds”
External Failure Costs
Customer complaint costs
Costs of investigating and satisfactorily responding to a
customer complaint resulting from a poor-quality product.
Product return costs
Costs of handling and replacing poor-quality products returned
by customers
Warranty claim costs
Costs of complying with product warranties
Product liability costs
Litigation costs resulting from product liability and customer
injury
Lost sales costs
Costs incurred because customers are dissatisfied with poor-
quality products and do not make additional purchases.
Measuring and Reporting Quality
Costs
Index numbers
Ratios that measure quality costs against a base value
Labor index
Ratio of quality cost to direct labor hours
Cost index
Ratio of quality cost to manufacturing cost (direct and indirect)
Sales index
Ratio of quality cost to sales
Production index
Ratio of quality cost to units of final product
Measuring and Reporting Quality
Costs: Example
The H & S Motor Company produces small motors for use
in lawnmowers and garden equipment. The company
instituted a quality management program in 2011 and has
recorded the following quality cost data and accounting
measures for four years.
Year
2011 2012 2013 2014
Quality Costs
Prevention $27,000 41,500 74,600 112,300
Appraisal 155,000 122,500 113,400 107,000
Internal failure 386,400 469,200 347,800 219,100
External failure 242,000 196,000 103,500 106,000
Total $810,400 829,200 639,300 544,400
Accounting Measures
Sales $4,360,000 4,450,000 5,050,000 5,190,000
Manufacturing costs 1,760,000 1,810,000 1,880,000 1,890,000
Measuring and Reporting Quality
Costs: Example
The company wants to assess its quality management
program and develop quality index numbers using sales
and manufacturing cost bases for the four-year period.
Measuring and Reporting Quality
Costs: Example
Y = (I)(%g1)(%g2)(%g3)(%g4)
= (100)(0.93)(0.95)(0.97)(0.92)
= 78.8 motors