Chapter Seven

7-1

Chapter 7

QUALITY MANAGEMENT

7-2 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Evolution of Quality Management

• Prior to the 1980s, the gurus of quality influenced corporate disciples

• These disciples in turn influenced corporate philosophies that increased the importance of quality management

• The corporate philosophy has essentially driven the selection of a management system» In the 1980s TQM was favored» In the 1990s the focus shifted to Six Sigma

• Today, quality has become a “hygiene factor”» Quality capability has evolved to the point where it has

become engrained and expected


Evolution of Quality ManagementDeming

Juran

Imai

Crosby

Taguchi

Total QualityManagement

Six Sigma

ContinuousImprovement

Zero Defects

Tools andMethodologies

•Pareto analysis•cause and effect diagrams•quality function deployment

•histograms•brainstorming•process charts•process diagrams•flow charts•control charts•run charts•benchmarking•affinity diagrams•moments of truth•interrelationship digraphs•matrix diagrams•matrix data analysis•process decision chart•Deming cycle•costs of quality analysis•statistical process control•quality circles•etc.

Quality MgtSystem

Figure is not in text


Six Sigma

• A broad and comprehensive system for building and sustaining business performance, success, and leadership

• The key focus is on processes• Measurement of both processes and

products is critical to Six Sigma success» Statistical six sigma goal is near-perfection» 3.4 defects per million opportunities (DPMO)

• The lofty goal is used as a driver of organizational change


Sigma Quality Levels and Corresponding Yields

Sigma Corresponding Yield DPMO 1 30.9 % 690,0002 69.2% 308,0003 93.3% 66,8004 99.4% 6,2105 99.98% 3206 99.9997% 3.4

Figure 7-2Figure 7-2


Six Sigma Measurement Benefits

• Six Sigma starts with the customer • Six Sigma provides a consistent metric • Six Sigma links the effort to an ambitious

goal


Six Sigma

• DMAIC Cycle» Define, Measure, Analyze, Improve, and Control

• Six Sigma Design• Six Sigma Blackbelts

» At GE, blackbelts receive three weeks of training, with follow-up exams and continued learning through conference and other forums

» A Greenbelt at GE is the lowest commitment, which is training for a minimum of two weeks in Six Sigma

» At GE, every management employee is required to at least become a Greenbelt in Six Sigma


Cause and Effect Diagram

Method Manpower

Material Machinery

Scratched

Glass

Handling

No TrainingSequence

Broken Conveyer

Poor Maintenance

ManagementOther

To get to root cause: “Ask Why 5 (or more ) Times”


Costs of Quality Categories

• Prevention costs» Costs to prevent poor quality in products or

services» Examples: maintenance, process capability

evaluations, quality improvement team meetings, quality education

• Appraisal costs» Costs associated with assuring conformance» Examples: inspections, tests, service audits,

calibration of test equipment


Costs of Quality Categories

• Failure costs» Result from products or services not

conforming to requirements of customer» Two categories are internal and external» Internal examples: scrap, disposing of scrap,

rework, redoing inspection, redoing testing, material review, and down grading

» External examples: processing customer complaints, customer returns, warranty claims, and product recalls


Traditional Cost of Quality Model

Cos

t

Qualityt1 t2 t3

Failures

Prevention & Appraisal

Total Costs

Note: the figure is for presenting the COQ concept. It is not dimensionally correct

100% Quality


Comparison of Quality and Capability


Statistical Process Control (SPC)

• Statistical technique used to ensure process is making product to standard

• All process are subject to variability» Natural causes: Random variations» Assignable causes: Correctable problems

– Machine wear, unskilled workers, poor material

• Objective: Identify assignable causes• Uses process control charts


Control Charts

Plot of Sample Data Over Time

0

20

40

60

80

1 5 9 13 17 21

Time

Sam

ple

Val

ue

SampleValue

UCL

Average

LCL


Interpreting Patterns in Control Charts

• General rules for examining a process to determine if it is in control:» No points are outside control limits» The number of points above and below the

center line is about the same» The points seem to fall randomly above and

below the center line» Most points, but not all, are near the center

line, and only a few are close to the control limits


Supplier Quality Analysis

• Proposal Analysis» What is the firm's basic quality policy» What is the general attitude toward quality?» Does the prospective supplier use statistical methods?» What is the supplier's ability with this type of work?» Is the production equipment capable?» Exactly how is the firm organized to control quality?» What specific quality measurement techniques and test

equipment does the prospective supplier employ?» Is statistical process control utilized effectively?


Supplier Development

• Certification » Qualification» Education» The certification performance process

• Qualification • Education • The Certification Performance Process

7-18 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.


Key Concepts

• Evolution of quality management» Many pathways, same destination

• Philosophies of the gurus» Edward Deming» Philip Crosby» Masaaki Imai» Genechi Taguchi» Joseph Juran

• Management approaches» Total Quality Management» Continuous improvement» Six Sigma» Quality Management System


Key Concepts

• Tools and methodologies» Common tools» Costs of quality» Loss to society» Process capability analysis» Statistical process control

• Quality movement support» Organizations» Standards» Awards


Key Concepts

• Supply management issues» Requirements development» Supplier quality analysis» Inspection dependence» Supplier development» Supplier certification


Quality and WCSM

• Supply professionals that plan to guide their organization and chain to World Class Supply ManagementSM must understand how to evaluate the management of quality both within their own facilities and those of their suppliers.

• Evaluation of the underlying philosophy, management system, facilitating tools and methodologies of a supplier is the first step;…

• …however, World Class Supply ManagementSM calls for going beyond mere evaluation to aiding in the development and improvement of supplier quality.


Philosophies of the Gurus

• Many people have impacted quality over the years, of particular note are the following individuals:» Edward Deming» Philip Crosby» Masaaki Imai» Genechi Taguchi» Joseph Juran


Deming’s Fourteen Points

• Point 1: Create constancy of purpose for continual improvement of product and service

• Point 2: Adopt the new philosophy for economic stability

• Point 3: Cease dependence on inspection to achieve quality

• Point 4: End the practice of awarding business on price tag alone



• Point 5: Improve constantly and forever the system of production and service

• Point 6: Institute training on the job • Point 7: Adopt and institute modern

methods of supervision and leadership • Point 8: Drive out fear • Point 9: Break down barriers between

departments and individuals



• Point 10: Eliminate the use of slogans, posters and exhortations

• Point 11: Eliminate work standards and numerical quotas

• Point 12: Remove barriers that rob the hourly worker of the right to pride in workmanship

• Point 13: Institute a vigorous program of education and retraining

• Point 14: Define top management’s permanent commitment to ever-improving quality and productivity


Philip Crosby

• Quality is Free• Quality without Tears • Zero Defects

» ‘Do it right the first time.’

• The Goalpost Philosophy


Masaaki Imai

• Author of Kaizen» Continuous Improvement» Calls for everyone to work for constant and

gradual improvement in every process

• Strong supporter of just in time philosophy

• Kaizen and Supply Management» Focus is on becoming flexible to meet

fluctuating demand by reducing and even eliminating waste



• Genechi Taguchi» Believes the goalpost philosophy

underestimates the costs of poor quality» Advocates a Loss to Society model

– Quadratic loss function is a more accurate model– As the level of conformance moves out towards the

upper and lower limits, there is a quadratic increase in costs

» Focus should be on robust designs– Identifying target values for design parameters and

producing robust designs using statistical experimentation



• Joseph Juran» Quality Control Handbook » Results focused formula

1. Establish specific goals to be reached

2. Establish plans for reaching goals

3. Assign clear responsibility

4. Base the rewards on results achieved

» Approach received widespread acceptance due to the clear setting of responsibility and detailed focus on planning


Management Approaches

• Total Quality Management• Zero Defects• Continuous Improvement• Six Sigma• Quality Management System


Total Quality Management Key Elements

• Recognition that quality is everyone's responsibility

• Commitment by everyone in the organization

• Active participation by everyone in the organization

• Continuous improvement of quality• Satisfaction of the customer


Total Quality Management

• Step 1: Establish TQM Management and Cultural Environment

• Step 2: Define Mission of Each Component of the Organization

• Step 3: Set Performance Improvement Opportunities, Goals and Priorities

• Step 4: Establish Improvement Projects• Step 5: Implement Projects Using

Improved Methodologies• Step 6: Evaluate• Step 7: Review and Recycle

Based on Figure 7-2Based on Figure 7-2


Continuous Improvement

• Kaizen is synonymous with continuous improvement

• Continuous improvement is often discussed within a just-in-time implementation framework

• Just-in-time’s Two major tenets:1. Respect for people

2. Elimination of waste– Wasteful activities do not add value to fulfilling the

needs of the customer


Value Added

• Generally companies have three categories:» Unnecessary and not value added» Necessary, but not value added» Value added

• Two primary approaches are:» Value Analysis/Value Engineering

– What design features add value?

» Process Value Analysis– What process steps add value?


Characteristics of JIT Suppliers

• Few, nearby suppliers• Long-term contract agreements• Steady supply rate• Frequent deliveries in small lots• Buying firm helps suppliers meet quality• Suppliers use process control charts• Buying firm schedules inbound freight


Seven Wastes

1. Overproduction

2. Unneeded motion

3. Unneeded transportation

4. Needless processing

5. Needless machine time

6. Holding excessive inventory

7. Defects


Plan, Do, Check, Act Cycle

• P-D-C-A describes the basic logic for data-driven continuous process improvement» Plan

– Review current performance

– Identify and target root causes of problems.

– Devise possible solutions and plan implementation

» Do – Pilot the planned solution

» Check (or study)– Measure the results of the test

» Act– Refine and expand the solution to make it permanent

• Restart cycle with next highest yield problem


Six Sigma Themes

• Theme 1: Genuine Focus on the Customer

• Theme 2: Data- and Fact-Driven• Theme 3: Process Focus• Theme 4: Proactive Management • Theme 5: Boundaryless Collaboration • Theme 6: Drive for Perfection


Quality Management System (QMS) Principles

• Customer focus • Leadership • Involvement of people • Process approach • System approach to management • Continual improvement • Factual approach to decision making • Mutually beneficial supplier relationships


Tools and Methodologies

• The term “tool” emerged from the use of the methodologies in small group improvement efforts, such as quality circles,…

• …wherein the group would focus on solving a problem by using a mix of the methodologies.


Common Tools

• Pareto Charts • Cause and Effect Diagrams • Process Flow Charts • Run Plots • Frequency Histograms • Scatter Diagrams • Control Charts


• Used to find problem sources/solutions• Other names

» Fish-bone diagram, Ishikawa diagram

• Steps» Identify problem to correct» Draw main causes for problem as ‘bones’

– Ask ‘What could have caused problems in these areas?’

» Develop branches to get to root cause» Develop additional diagrams as needed

Cause and Effect Diagram


Process Flow Chart

• Shows sequence of events in process• Depicts activity relationships• Has many uses

» Identify data collection points» Find problem sources» Identify places for improvement» Identify where travel distances can be reduced


Control Charts

• Most common form is Statistical Process Control or SPC charts

• Idea is to tell when to adjust process• Developed by Shewhart in 1920’s• Involves

» Creating standards (upper & lower limits)» Measuring sample output (e.g. mean wgt.)» Taking corrective action (if necessary)

• Used while product is being produced


Control Charts have Three Basic Applications

• To establish a state of statistical control• To monitor a process and signal when the

process is about to go out of control (note!)

• To determine process capability


Example Using the Tools

• Consider a supplier who has recently installed a new production process that is producing failures

1. Map the process stages using a flow chart2. Gather data at each of the inspection points3. Estimate the costs of the failures (costs of quality)4. Use a Pareto chart to identify greatest problem5. Use a fishbone diagram to identify root causes6. Identify primary root cause (using Pareto again) as

maintenance levels being too low7. Increase/improve maintenance levels8. To prevent the problem from occurring in the future,

implement statistical process control9. Document the changes10. Evaluate results of the changes at a predetermined

date


Loss to Society

• Suppose a certain quality characteristic has a specification of .05 + .02

• An analysis of company records reveals that if the value of the quality characteristic exceeds the target of .05 by the tolerance of .02 on either side, the product is likely to fail during the warranty period and costs $50 for repair

• In other words, $50 is the cost to society when the actual output of the process is either exactly at y = .03 or y = .07


Loss to Society

• Based on this information, the loss function is calculated as follows:» L(y)= k(y - T)2

» $50 = k(.03 - .05)2

» next, solve for k to get…» k = 50/0.0004 = 125,000

• Therefore, the loss function for a future measure is» L(y) = 125,000(y - T)2

• Thus, if the actual output is .040, then the estimated loss is» 125,000(.0400 - .0500)2 = $12.50 per unit


Process Capability Analysis

• Every process possesses some natural variability

• “Common” causes produce random variations

• Over time, this natural variability will produce a distribution around the mean quality level.


Process Capability Analysis

• In many cases this distribution approximates the normal distribution

• The difference between the two extremes of the curve is the natural tolerance range

• As long as the process is properly adjusted and is not affected by any outside nonrandom forces - the distribution it produces is predictable


Implications for Supply Management

• When the buying firm’s required quality range is narrower than the natural capability range of the process, the process is incapable

• In the case of a nonstandard item, a supply manager must determine:» Whether the potential supplier in fact knows the natural

capability range for its production process» If so, whether the buyer’s desired range of quality is

compatible with the supplier’s natural capability range» And how the supplier plans to monitor the process to

ensure that the process stays in control


Process Capability Index

• A way of expressing a process’s capability relative to a buyer’s specific design requirement

Cp = buyer’s absolute design tolerance natural capability range of the

process

Cp (a) = 1.005 - 0.995 = 0.01 = 1.25 1.004 - 0.996 .008

Cp (b) = 1.003 - 0.997 = 0.006 = 0.75 1.004 - 0.996 0.008


Cpk Index for Uncentered Process Means


Cpk Index for Uncentered Process Means

Cpk = Cp(1-k)

where k = (buyer’s target value - process mean)

(buyer’s absolute design tolerance 2)

k = 1.000 - 0.999 = 0.001 = 0.2

(1.005 - 0.995)/2 0.005

Cpk = 1.25(1 - 0.2) = 1.25 X 0.8 = 1.0


Quality Movement Support

• Organizations» American Society for Quality

• Standards» International Organization for Standardization

– ISO 9000:2000– ISO 9001:2000 – ISO 9004:2000

» Additional ISO Standards » Impact on Supply Managers


Quality Movement Support

• Awards» Malcolm Baldrige Award

1. Large manufacturing companies or subsidiaries

2. Large service companies

3. Small manufacturing or service companies

» European Quality Award » Deming Prize


Supply Management Issues

• Four factors determine the long-run quality level of a firm’s purchased materials

1. Complete and appropriate specifications

2. Selection of suppliers

3. Realistic understanding of quality requirements

4. Monitoring of suppliers' performance


Requirements Development

• Quality can be defined in three ways: 1. In absolute terms

2. Relative to a perceived need

3. As conformance with stated requirements


Requirements Development

• Investigations with respect to quality:» Study the quality requirements» Ensure that they are completely and

unambiguously stated » Investigate their reasonableness, relative to

cost» Ensure that specifications are written in a

manner that permits competi tion among potential suppliers.

» Determine whether existing suppliers can build the desired quality

» Ensure the feasibility of the inspections and tests required to assure quality


Supplier Quality Analysis

• Product Testing Objectives » Determine potential supplier's quality level » Compare quality levels of several suppliers


Inspection Dependence

• Receiving and Inspection Procedure» Best situation is for inspection to not be

needed» If inspection is needed and a rejection occurs,

the options are:– Return the material to the supplier– Keep some of the acceptable material and return the

rest– Keep all the material and rework it


Technical Inspection

• Acceptance sampling is the most common form of inspection for incoming materials or finished goods

• Single sampling procedure1. Take one or more samples at random from a

lot

2. Inspect each of the items in the sample

3. Decide whether to reject the whole lot based on the inspection results

» The decision is usually based on a specific percentage of the failed units in the lot


What Is an Acceptance Plan?

• Set of procedures for inspecting incoming materials or finished goods

• Identifies» Type of sample» Sample size (n)» Criteria (c) used to reject or accept a lot

• Common Sampling Plan Types» Single» Double» Sequential


Double Sampling

Random sampleof n1 pieces

Inspect asecond sample

of n2 pieces

Number of defects falling between c1 and c2

Reject thelot

Number ofdefects > c2

Accept thelot

Number ofdefects < c1

Total defects

< c2> c2

Let c1 = 10%, c2 = 25%, n = 50 unitsSample 50 units, and find 10 (20%) are defective

For our 2nd sample 4/50, are defects.Which means 14/100, or 14% is the total!

SEQUENTIAL SAMPLING: extends this methodology with a different termination criteria for the second and subsequent samples


Sequential Sampling

• Sequential sampling continues the sample taking until the lot is either:» Fully inspected,» Rejected, or» Accepted

If the number of defects falls between c1 and c2 ,

take another sample

Reject thelot

Accept thelot

Total defects

> c2< c1


Traditional Inspection Points

• At the supplier’s plant• In the receiving area• Step-by-step in the production process• Before a costly process• Finished goods• Before shipment to the customer


Three Basic Problems with Inspection

• Duplication of inspection activity • Very large number of items are inspected • Defective items are found only after they

are finished


Common Truths About Inspection

• Does not correct system deficiencies• Does not correct product deficiencies• Does not change product• Does not add value• Does add cost


Defect Detection vs. Prevention Systems

Defectdetection concept

Defectprevention concept


Defect Detection System


Defect Prevention Systems


Concluding Remarks

• To contribute most effectively to the organizational effort, supply management’s role in the quality program should include:» (1) participation in the development of specifications» (2) participation in the selection of appropriate quality

control, inspection, and test requirements» (3) active involvement in analysis and development of

proactive prevention measures at the suppliers facility» (4) the selection and motivation of qualified suppliers» (5) the subsequent monitoring and nurturing of the

ongoing relationships between the buying and supplying firms


Concluding Remarks

• Quality management is a major component of supply management’s responsibility

• Supply management should participate creatively in the corporate quality management program and in the firm’s critical supplier quality efforts

• A WCSM firm views its quality system and the supplier's quality system as two parts of a single integrated system

Chapter Seven

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