Hilton Maher Selto Chapter 7 - Glendale Community College

Hilton Maher Selto Chapter 7 - Glendale Community College

7 Managing Quality and Time to Create Value McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reser 7-2 Importance of Quality Poor quality Lost customers Poor Reputation Lower Profits 7-3 Learning Objective 1 7-4 Costs of Improving Quality Which is more important? 7-5

Total Quality Management (TQM) Customerswill will Customers seekout outthe the seek highestquality quality highest product. product. Therefore, Therefore, quality is is quality free. free. Improving quality quality more more Improving thanpays paysits itsown own way wayby by than

creatinghigher higherprofits. profits. creating 7-6 Total Quality Management (TQM) W. W.Edwards EdwardsDeming Deming proposed proposedthat that improving improving quality qualityreduces reducescost cost and and improves improvesprofitability. profitability. Quality Qualitycan canbe beand and should should be be improved

improved continuously. continuously. Revenues Max Profit Cost Max Quality 7-7 Return on Quality (ROQ) There is a trade-off between the costs and benefits of quality. The Profit Theoptimum optimum quality qualitylevel level is is Profit is ismaximized maximized always at alwaysachieved achievedbefore beforethe the at the the optimum optimum maximum

quality maximum quality qualitylevel level is isreached. reached. qualitylevel. level. Cost Revenues Max Profit Optimum Quality 7-8 Return on Quality (ROQ) Striving for higher quality levels at ever higher costs is a case of diminishing returns. The higher costs to attain higher quality levels may be more than the customer is willing to pay. Cost Revenues Max Profit Optimum Quality 7-9 Improving Quality vis--vis Other Business Dimensions

Customers may not be willing to pay for the additional quality received. Many companies that have won awards for their commitment to quality have been unable to sustain profitability in later years. The other value-chain activities cannot be neglected. 7-10 Dimensions of Quality Product Product or or Service Service Attributes Attributes Tangible Tangible Performance Performance Adherence Adherence to to specifications specifications Functionality Functionality Intangible

Intangible Reputation Reputation Appearance Appearance Appeal Appeal Customer Customer service service before before and and after after the the sale sale Prompt Prompt and and accurate accurate responses responses to to customer customer inquires inquires Proper Proper treatment treatment of of customers

customers by by salespeople salespeople On-time On-time deliveries deliveries Customer Customer follow-up follow-up after after the the sale sale Timely Timely and and accurate accurate resolution resolution of of customer customer concerns concerns Good Good warranty warranty and and repair repair services services 7-11

Learning Objective 2 7-12 Measuring Quality To ensure that a company meets or exceeds its customers expectations. Measures should: indicate customers evaluations of product and service quality. estimate customers satisfaction with services received. provide warning signals about any deterioration in product or service quality. Lead Indicators of Quality Variation Variation indicates indicates poor poor quality. quality. To To measure

measure variation, variation, there there are are several several tools tools that that can can be be used: used: Histograms Histograms Run Run Charts Charts Control Control Charts Charts 90 80 AAgraphical graphicaldisplay displayof of the the frequency frequencydistribution distributionof of

attributes. attributes. Defects 7-13 70 60 50 40 30 20 10 0 Mon. Tues Wed. Thur. Fri. Lead Indicators of Quality Variation Variation indicates indicates poor poor quality. quality. To To

measure measure variation, variation, there there are are several several tools tools that that can can be be used: used: Histograms Histograms Run Run Charts Charts AAgraph graphshowing showingtrends trends in invariation variationover overtime. time. Defects 7-14

100 80 60 40 20 0 Control Control Charts Charts Lead Indicators of Quality Variation Variation indicates indicates poor poor quality. quality. To To measure measure variation, variation, there there are are several several tools tools that that can can be be used: used: Histograms Histograms

Defects 7-15 100 80 UCL 60 40 20 LCL 0 Run Run Charts Charts Control Control Charts Charts Notice AArun that with process upper Notice run chart chart thatthis this with process upper

and seems lower control be limits. of and seems lowerto to control beout out limits. of control controlon onFridays. Fridays. 7-16 Diagnostic Information While While lead lead indicators indicators tell tell us us that that there there IS

IS aa problem, problem, diagnostic diagnostic tools tools help help determine determine WHAT WHAT the the problem problem is. is. Cause-andCause-andEffect Effect Diagrams Diagrams Flow FlowCharts Charts Scatter Scatter Diagrams Diagrams Pareto ParetoCharts Charts 7-17 Cause-and-Effect Diagrams Other

Wrong directions from customer Ice Road Work Road Conditions Trucks Flat Tire Breakdown Rain or snow Poorly Trained Drivers Too slow Defect Defect == Late Late Deliveries Deliveries Dont know the route

Sometimes Sometimescalled called fishbone fishbone or or Ishikawa Ishikawadiagrams diagrams 7-18 Scatter Diagrams A A plot plot of of two two variables variables that that might might be be related. related. Patterns Patterns often often indicate indicate aa causal causal relationship. relationship. This Thispattern patternindicates indicates

aacausal causal relationship. relationship. 7-19 Flowcharts A A graphical graphical illustration illustration of of sequential sequential linkages linkages among among process process activities. activities. Standardized Standardized symbols symbols are are used used to to represent represent decisions, decisions, actions,

actions, documents, documents, and and storage storage devices. devices. Pareto Charts AAhistogram histogram of of causes causes of of an anerror error or orerrors errorsarranged arranged in inorder orderof of frequency frequencyor or size. size. Helps Helpsin in prioritizing prioritizing actions actionsto toaddress addressproblems. problems.

80 70 Frequency of Complaint 7-20 60 50 40 30 20 10 0 Late Delivery Defective Produce Incorrect Bill Backorders Wrong Item 7-21 Customer Satisfaction The The degree degree to to which

which expectations expectations of of product product attributes, attributes, customer customer service, service, and and price price have have been been met met or or exceeded. exceeded. Common

Common tools tools for for measuring measuring customer customer satisfaction satisfaction Phone Phone Surveys Surveys Questionnaires Questionnaires Focus Focus Groups Groups ## of of Customer Customer Complaints Complaints Phantom Phantom Shoppers Shoppers 7-22 Cost of Quality (COQ) Out-of-pocket Out-of-pocket costs costs associated associated with with quality

quality generally generally fall fall into into two two categories: categories: Costs Costsof ofcorrective corrective measures measurestaken taken because becauseof of aafailure failureto to control control quality. quality. Costs Costsof ofactivities activities designed designedto tocontrol control quality. quality.

7-23 Cost to Control Quality Prevention Prevention Appraisal Appraisal Activities Activities that thatseek seekto to prevent prevent defects defectsin inthe the products productsor orservices services being beingproduced. produced. Certifying CertifyingSuppliers Suppliers Activities Activities for forinspecting

inspecting inputs inputsand andattributes attributesof of individual individualunits unitsof of product productand andservice. service. Inspecting InspectingMaterials Materials Designing Designingfor for Manufacturability Manufacturability Quality Quality Training Training Inspecting InspectingMachines Machines Inspecting InspectingProcesses Processes

Quality QualityEvaluations Evaluations Process ProcessImprovements Improvements Value-Added Statistical Statistical Process Process Control Control Sampling Samplingand andTesting Testing Non-Value-Added 7-24 Cost to Control Quality Prevention Prevention Activities Activities that thatseek seekto to prevent prevent defects defectsin

inthe the products productsor orservices services being beingproduced. produced. Certifying CertifyingSuppliers Suppliers Designing Designingfor for Manufacturability Manufacturability Quality Quality Training Training Quality QualityEvaluations Evaluations Process ProcessImprovements Improvements Value-Added Companies with the highest quality levels tend to have most of their quality expenditures

in this area. 7-25 Costs of Failing to Control Quality Internal Internal Failure Failure External External Failure Failure Costs Costsassociated associatedwith with defects defectsin inprocesses processes and andproducts productsthat thatare are found found prior priorto todelivery delivery to tocustomers.

customers. Disposing Disposingof ofScrap Scrap Costs Costsassociated associatedwith with defects defectsin in processes processes and and products productsthat that are are detected detected after after delivery delivery to to customers. customers. Warranty WarrantyRepairs Repairs Field FieldReplacements Replacements Product

ProductLiability Liability Customer Customer Complaints Complaints Restoring Restoringreputation reputation Lost LostSales Sales Rework Rework Reinspecting/Retesting Reinspecting/Retesting Delaying Delaying Processes Processes Non-Value-Added Non-Value-Added 7-26 Measuring and Reporting Costs of Quality ItIt is iseasier easier to to measure measurethe

the COQ COQin in organizations organizations that thatuse useABC ABC and andABM. ABM. COQ COQis is reported reported within within organizations organizations rather rather than than in in external external financial financial statements. statements.

When WhenCOQ COQis isreported, reported,itit is isusually usuallyexpressed expressedas asaa percentage percentageof ofsales. sales. 7-27 Quality Awards and Certificates Japan European Community 7-28 Learning Objective 3 7-29 Managing Time in a Competitive Environment

Product development time We need to reduce . . . Customer response time Production cycle time Less Less time time means means quicker quicker response response to to changing changing customer customer needs needs and and to to changing changing conditions conditions in in the the marketplace. marketplace. 7-30 Time-based ABC and ABM

ABC and ABM are costly to implement. A single more economical measure of the cost-driver rate is proposed: The total cost of supplying capacity to complete certain types of activities divided by the total time available to complete them. This approach allows: The combining of various activities carried out by individual employees or a single department, to obtain a single time total. The study of groups of activities in an integrated way, Intervention and modification of activities. 7-31 Learning Objective 4 7-32 Management of Process Efficiency Production Processes (goods and

services for customers) Business Processes (supporting activities) Cycle time Productivity Throughput time ratio 7-33 Management of Process Efficiency Low Low cycle cycle time time High High quality quality High High productivity productivity High High throughput

throughput Throughput is the amount of goods and services delivered to customers during a period of time. 7-34 Measuring Productivity Specific Specificproductivity productivitymeasures measurescompare: compare: Example: Historical trend of sales per employee 7-35 Measuring Cycle Time This This measure measure is is most most useful useful when when itit includes: includes: the the value-added value-added time time (spent

(spent on on good good units) units) the the non-value-added non-value-added time time (spent (spent on on reworking reworking or or disposal disposal of of defective defective units). units). 7-36 Measuring Throughput Efficiency An An estimate estimate of of the the percentage percentage of of cycle cycle time time that that was

was really really spent spent in in adding adding value value to to goods goods and and services. services. 7-37 Managing Process Capacity Theoretical capacity (100%) Planned or unavoidable downtime Practical capacity Demand for output Excess capacity 7-38 Learning Objective 5

7-39 Managing Quality + Time + Productivity + Capacity = JIT The The objective objective of of JIT JIT is is to to .. .. .. purchase purchase materials materials produce produce products products deliver deliver products products .. .. .. just just when when they they are are needed. needed. 7-40 Managing Quality + Time + Productivity + Capacity = JIT The

Thegoal goalis isto tomanage managecosts costsso sothat that the thesavings savings associated associatedwith withJIT JITexceed exceed the thecost costof ofimplementing implementing JIT JIT Advantages: Advantages: Inventory Inventorysavings savingsof of space, space,insurance, insurance, capital capital and andpersonnel

personnel More Moreemphasis emphasison on quality quality Rapid Rapidresponse responseto to customer customerneeds needs Implementation Implementationcosts: costs: Employee Employeeretraining retraining Technology Technology improvement improvement Exposure Exposureto towork work stoppage stoppagerisks risks 7-41

Traditional Push Manufacturing - Example Forecast Sales Make sales from finished goods inventory Order components Store Inventory Begin Production in Anticipation of Sales Prepare Production Schedule 7-42 JIT Pull Manufacturing Example Customer places an order Create Production Order Generate component requirements

Goods delivered just in time Production begins as parts arrive Components are ordered 7-43 JIT Success Factors 1. 1. Commitment Commitment to toquality. quality. 2. 2. Flexible Flexible capacity. capacity. 4. 4.Smooth Smooth production production flow.

flow. 5. 5.WellWelltrained trained workforce. workforce. 3. 3. Reliable Reliable supplier supplier relations. relations. 6. 6.Reduced Reduced cycle cycleand and response response times. times. 7-44 Learning Objective 6 Construction and Use of Control Charts Control charts are used for:

Process control Assurance sampling Inspection activities Defects 7-45 100 80 60 40 20 0 Benefits of control charts: Employees learn to monitor their work Defects can be detected quickly Objective communications 7-46 Types of Control Charts Statistical

control Overall mean Standard deviation Confidence range Target control Target mean Target upper limit Target lower limit Patterns of variation Runs, spikes, jumps Cyclical behavior Possible causes 7-47 End of Chapter 7

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