the mcgraw-hill companies, inc. 2006mcgraw-hill/irwin 7 managing quality and time to create value
TRANSCRIPT
The McGraw-Hill Companies, Inc. 2006McGraw-Hill/Irwin
7Managing Quality and Time to Create Value
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Importance of Quality
Poor quality
Lost customers
Poor Reputation
Lower Profits
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Costs of Improving Quality
Which is more
important?
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Customers will seek out the
highest quality product.
Customers will seek out the
highest quality product.
Improving quality more than pays its own way by creating higher profits.
Improving quality more than pays its own way by creating higher profits.
Therefore, quality is
“free”.
Therefore, quality is
“free”.
Total Quality Management (TQM)
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W. Edwards Deming proposed that improving quality reduces cost and
improves profitability.
W. Edwards Deming proposed that improving quality reduces cost and
improves profitability.
Quality can be and should be improved
continuously.
Quality can be and should be improved
continuously.
Revenues
Cost
Max Profit
Max Quality
Total Quality Management (TQM)
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Return on Quality (ROQ)
Profit is maximized at the optimum
quality level.
Profit is maximized at the optimum
quality level.
The optimum quality level is always achieved before maximum
quality level is reached.
The optimum quality level is always achieved before maximum
quality level is reached.
Revenues
Cost
Max Profit
Optimum Quality
There is a trade-off between the costs and benefits of quality.
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Return on Quality (ROQ)
Revenues
Cost
Max Profit
Optimum Quality
Striving for higher quality levels at ever higher costsis a case of diminishing returns. The higher costs
to attain higher quality levels may be more than thecustomer is willing to pay.
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TQM vs. ROQ
Conflict between TQM and ROQ exists only at very high levels of quality.
Most organizations operate below the optimum quality level in the ROQ model, so improving quality results in higher profits just as in the TQM model.
Conflict between TQM and ROQ exists only at very high levels of quality.
Most organizations operate below the optimum quality level in the ROQ model, so improving quality results in higher profits just as in the TQM model.
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Dimensions of Quality
Product or Service Attributes Product or Service Attributes
Customer service before and after the sale Customer service before and after the sale
Tangible• Performance• Adherence to specifications• FunctionalityIntangible• Reputation• Appearance• Appeal
Tangible• Performance• Adherence to specifications• FunctionalityIntangible• Reputation• Appearance• Appeal
• Prompt and accurate responses to customer inquires.• Proper treatment of customers by salespeople• On-time deliveries.• Customer follow-up after the sale.• Timely and accurate resolution of customer concerns.• Good warranty and repair services.
• Prompt and accurate responses to customer inquires.• Proper treatment of customers by salespeople• On-time deliveries.• Customer follow-up after the sale.• Timely and accurate resolution of customer concerns.• Good warranty and repair services.
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Measuring Quality
Customers define quality.
Some will accept lower quality if price is lower.
Others demand higher quality and are willing to pay for it.
Identify indicators of customer-defined quality.
Develop measures of the quality indicators that will either confirm high quality or suggest problems and possible solutions.
Customers define quality.
Some will accept lower quality if price is lower.
Others demand higher quality and are willing to pay for it.
Identify indicators of customer-defined quality.
Develop measures of the quality indicators that will either confirm high quality or suggest problems and possible solutions.
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Lead Indicators of Quality
Variation indicates poor quality. To measure variation, there are several tools
that can be used:
Variation indicates poor quality. To measure variation, there are several tools
that can be used:
HistogramsHistograms Run ChartsRun Charts Control ChartsControl Charts
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Mon. Tues Wed. Thur. Fri.
Def
ects
A graphical display of the frequency distribution of
attributes.
A graphical display of the frequency distribution of
attributes.
HistogramsHistograms
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Lead Indicators of Quality
Variation indicates poor quality. To measure variation, there are several tools
that can be used:
Variation indicates poor quality. To measure variation, there are several tools
that can be used:
HistogramsHistograms Run ChartsRun Charts Control ChartsControl Charts
A graph showing trends in variation over time.
A graph showing trends in variation over time. 0
20406080
100
Def
ects
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020406080
100
Def
ects
Lead Indicators of Quality
Variation indicates poor quality. To measure variation, there are several tools
that can be used:
Variation indicates poor quality. To measure variation, there are several tools
that can be used:
HistogramsHistograms Run ChartsRun Charts
A run chart with upper and lower control limits.
A run chart with upper and lower control limits.
Control ChartsControl Charts
Notice that this process seems to be out of control on Fridays.
Notice that this process seems to be out of control on Fridays.
UCL
LCL
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Diagnostic Information
While lead indicators tell us that thereIS a problem, diagnostic tools help
determine WHAT the problem is.
While lead indicators tell us that thereIS a problem, diagnostic tools help
determine WHAT the problem is.
Cause-and-Effect Diagrams
Cause-and-Effect Diagrams
Scatter Diagrams
Scatter Diagrams
Flow ChartsFlow Charts Pareto ChartsPareto Charts
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Cause-and-Effect Diagrams
Defect = Late
Deliveries
Defect = Late
Deliveries
Trucks
BreakdownFlat Tire
Drivers
Don’t know the route
Too slow
Poorly Trained
Other
Road Conditions
Rain or snow
Ice
Road Work
Wrong directions
from customer
Sometimes called “fishbone” or Ishikawa diagrams
Sometimes called “fishbone” or Ishikawa diagrams
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Scatter Diagrams
A plot of two variables that might be related. Patterns often indicate a causal relationship.
A plot of two variables that might be related. Patterns often indicate a causal relationship.
This pattern indicates a causal relationship.
This pattern indicates a causal relationship.
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Flowcharts
A graphical illustration of
sequential linkages among process
activities.
Standardized symbols are used to represent decisions, actions, documents, and storage devices.
A graphical illustration of
sequential linkages among process
activities.
Standardized symbols are used to represent decisions, actions, documents, and storage devices.
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Pareto Charts
A histogram of causes of errors or errors arranged in order of frequency or size. Helps in prioritizing
actions to address problems.
A histogram of causes of errors or errors arranged in order of frequency or size. Helps in prioritizing
actions to address problems.
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Late Delivery DefectiveProduce
Incorrect Bill Backorders Wrong Item
Freq
uenc
y of
Com
plai
nt
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Customer Satisfaction
The degree to which
expectations of product attributes, customer service,
and price have been met or exceeded.
The degree to which
expectations of product attributes, customer service,
and price have been met or exceeded.
Common tools for measuring customer
satisfaction Phone Surveys Questionnaires Focus Groups # of Customer
Complaints “Phantom” Shoppers
Common tools for measuring customer
satisfaction Phone Surveys Questionnaires Focus Groups # of Customer
Complaints “Phantom” Shoppers
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Cost of Quality (COQ)
Costs associated with controlling quality.
Costs associated with controlling quality.
Costs associated with activities to correct
failure to control quality.
Costs associated with activities to correct
failure to control quality.
Out-of-pocket costs associated with quality generally fall into two categories:
Out-of-pocket costs associated with quality generally fall into two categories:
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Cost to Control Quality
PreventionActivities that seek to prevent defects in the products or services
being produced.
•Certifying Suppliers
•Designing for Manufacturability
•Quality Training
•Quality Evaluations
•Process Improvements
PreventionActivities that seek to prevent defects in the products or services
being produced.
•Certifying Suppliers
•Designing for Manufacturability
•Quality Training
•Quality Evaluations
•Process Improvements
AppraisalActivities for inspecting inputs and attributes of
individual units of product and service.
•Inspecting Materials
•Inspecting Machines
•Inspecting Processes
•Statistical Process Control
•Sampling and Testing
AppraisalActivities for inspecting inputs and attributes of
individual units of product and service.
•Inspecting Materials
•Inspecting Machines
•Inspecting Processes
•Statistical Process Control
•Sampling and Testing
Value Added Non-Value Added
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Cost to Control Quality
PreventionActivities that seek to prevent defects in the products or services
being produced.
•Certifying Suppliers
•Designing for Manufacturability
•Quality Training
•Quality Evaluations
•Process Improvements
PreventionActivities that seek to prevent defects in the products or services
being produced.
•Certifying Suppliers
•Designing for Manufacturability
•Quality Training
•Quality Evaluations
•Process Improvements
Value Added
Companies withthe highest quality
levels tend tohave most of their
quality expendituresin this area.
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Costs of Failing to Control Quality
Internal FailureCosts associated with defects in processes and products that are found prior to delivery
to customers.
•Disposing of Scrap
•Rework
•Reinspecting/Retesting
•Delaying Processes
Internal FailureCosts associated with defects in processes and products that are found prior to delivery
to customers.
•Disposing of Scrap
•Rework
•Reinspecting/Retesting
•Delaying Processes
External FailureCosts associated with defects in processes and products that are detected after delivery
to customers.•Warranty Repairs
•Field Replacements•Product Liability
•Customer Complaints•Restoring reputation
•Lost Sales
External FailureCosts associated with defects in processes and products that are detected after delivery
to customers.•Warranty Repairs
•Field Replacements•Product Liability
•Customer Complaints•Restoring reputation
•Lost Sales
Non-Value AddedNon-Value Added
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Measuring and Reporting Costs of Quality
It is easier to Measure the
COQ in organizations that use ABC
and ABM.
It is easier to Measure the
COQ in organizations that use ABC
and ABM.
COQ is not required to be reported
in the financial
statements.
COQ is not required to be reported
in the financial
statements.
When COQ is reported, it is usually expressed
as a % of sales.
When COQ is reported, it is usually expressed
as a % of sales.
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Quality Awards and Certificates
JapanEuropean
Community
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Managing Time in a Competitive Environment
Less time means quicker response to changing customer needs and to changing conditions of the marketplace.
Less time means quicker response to changing customer needs and to changing conditions of the marketplace.
We need to reduce . . .
Product development time
Customer response time
Production cycle time
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Management of Process Productivity and Efficiency
Process efficiencyThe ability to transform inputs into
outputs at lowest cost.
Process efficiencyThe ability to transform inputs into
outputs at lowest cost.
ProductivityRatio of outcomes of a process divided
by inputs necessary to complete the process.
ProductivityRatio of outcomes of a process divided
by inputs necessary to complete the process.
Cycle timeElapsed time between starting and
finishing a process.
Cycle timeElapsed time between starting and
finishing a process.
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High productivity
High productivity
High quality
High quality
Low cycle time
Low cycle time
High throughput
High throughput
Management of Process Productivity and Efficiency
Throughput is the amount of goods and servicesdelivered to customers during a period of time.
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Measuring Productivity
Specific productivity measures compare:Specific productivity measures compare:
Example: Sales per employee
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Measuring Cycle Time
Average cycle time is the average time necessary to complete and deliver all good units and dispose of units that have to be reworked or scrapped because of defects.
Average cycle time is the average time necessary to complete and deliver all good units and dispose of units that have to be reworked or scrapped because of defects.
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Measuring Throughput Efficiency
A measure of the amount of time spent adding value compared to the total process time.
A measure of the amount of time spent adding value compared to the total process time.
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Managing Process Capacity
Theoretical Capacity
Practical Capacity
Demand for Output
}Planned orunavoidable
downtime
} ExcessCapacity
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Managing Quality + Time + Productivity + Capacity = JIT
The objective of JIT is to . . .
•purchase materials
• produce products
•and deliver products
. . . just when they are needed.
The objective of JIT is to . . .
•purchase materials
• produce products
•and deliver products
. . . just when they are needed.
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Managing Quality + Time + Productivity + Capacity = JIT
The goal is to manage costs so that the savings associated with JIT exceed the cost of implementing JIT
The goal is to manage costs so that the savings associated with JIT exceed the cost of implementing JIT
Advantages:
•Inventory savings of space, insurance, capital, personnel
•More emphasis on quality
•Rapid response to customer needs
Advantages:
•Inventory savings of space, insurance, capital, personnel
•More emphasis on quality
•Rapid response to customer needs
Implementation costs:
•Employee retraining
•Technology improvement
•Exposure to work stoppage risks.
Implementation costs:
•Employee retraining
•Technology improvement
•Exposure to work stoppage risks.
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Traditional “Push” Manufacturing - Example
Forecast Sales Order components
Prepare Production Schedule
Begin Production in Anticipation of Sales
Make sales from finished
goods inventory
Store Inventory
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JIT “Pull” Manufacturing - Example
Customer places an order
Create Production Order
Generate component requirements
Production begins as parts arrive
Goods delivered just in time
Components are ordered
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JIT Success Factors
1. Commitment
to quality.
1. Commitment
to quality.
2. Flexible Capacity.
2. Flexible Capacity.
3. Reliable Supplier
Relations.
3. Reliable Supplier
Relations.4. Smooth Productio
n Flow.
4. Smooth Productio
n Flow.
5. Well-trained
workforce.
5. Well-trained
workforce.
6. Reduced cycle and response
times.
6. Reduced cycle and response
times.
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End of Chapter 7