Graeme Warren Page 1

Management of Quality
Graeme Warren
1. Purpose

This chapter is about quality management. We will:

define categories and determinants of quality,
explain the benefits, costs and consequences of poor quality,
discuss total quality management (TQM),
describe the quality risks of global supply chains and
describe process improvement and quality tools

2. Introduction

Quality management has a chequered history, with improvement efforts often driven by high-profile
recalls, scrapped products, lawsuits, and loss of brand reputation. Quality management is important
because customers have enduring psychological impressions about imputed product/service quality are
enduring. Recovery of a reputation may be very difficult once the impression is tarnished.

Quality management is difficult because supply chains used to deliver goods and services are global,
often involving numerous supply chain partners, possibly in far-flung locations. Responsibility for quality
management must therefore be shared. Quality management is not an occasional activity performed by
somebody in a lab coat. Quality management is continuous, and involves everyone in the supply chain.

3. Insights

In this section we will define quality, identify the costs and benefits associated with quality, recognize the
consequences of poor quality, and recognize the need for ethical behavior with regard to quality of
goods/services.

The class text defines quality as the ability of a product or service to consistently meet or exceed
customer expectations. These expectations can be categorized conceptually in various dimensions:

For products (eight dimensions): performance, aesthetics, special features, conformance to
specifications, reliability, durability, perceived quality (e.g., reputation), serviceability
(maintainability). See Table 9.1 for a simple example.
For services: convenience, reliability, responsiveness (willingness to deal with unusual
situations), time, assurance (e.g., knowledge, ability to instill confidence and a sense of security,
professionalism, etc.), courtesy, tangibles, consistency. See Table 9.2 for a simple example. The
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SERVQUAL model
1
is sometimes used to rate service quality. It focuses on a subset of these
categories.

These conceptual categories are basically an attempt by the class text to enumerate the majority of
consumer value categories. Whats missing? One obvious thing is sex appeal. Another is drama
2
. There
may be other contextual cues that impact our quality assessments we define quality as we go. Even with
an expanded category list we still need detailed measures/interpretations of each conceptual category to
provide a deeper account of quality criteria in specific situations. Also, note that firms will typically
focus on just a few of the quality categories in their competitive priorities.

The primary drivers (determinants) of quality are:

design,
conformance of the product/service to the design,
ease of use, and
service after delivery.

We have previously discussed product/service design. Let us recall that manufacturability of product
designs can have a significant impact on quality: matching designs to company capabilities is essential.
This observation leads naturally into a discussion of the need for conformance of the product/service to
the design specifications. Equipment capability, adequate worker training, production incentives, and
appropriate monitoring processes are essential to ensure that quality of goods and serviced produced meet
design specs.

Ease of use is important because it minimizes knowledge requirements and time commitments on the part
of the consumer. This issue goes beyond obvious safety and liability issues. Ease of use allows consumers
to achieve the normal operating lifetime of a product, and, perhaps more importantly, frees up their time
to pursue value-adding activities and minimizing the need to read instructions and operating manuals.
Serviceability and maintainability of a product/service is important. Easy replacement, repair, or
refurbishment options add value to the customer because they minimize downtime and frustration.

2. Responsibility, Benefits, Costs, and Ethics

Who is responsible for quality management? The short answer, in world-class manufacturing, is:
everyone! Roles in quality management will vary:
Top management must assume overall responsibility for quality management by instituting and
sustaining quality management programs like TQM (Total Quality Management)
Designers must build quality into product/service offerings and business process designers like
industrial engineers have to ensure the quality of the firms processes.
Procurement officers have to select quality suppliers, and ensure that the products/services
delivered meet quality expectations.

1
See http://en.wikipedia.org/wiki/SERVQUAL
2
See, for e.g., http://www.youtube.com/watch?v=BewknNW2b8Y
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Production, packaging, and shipping employees have to ensure that all operations are carried out
in accordance with quality specifications.
Marketing and sales have to determine the quality needs of customers and to create an effective
feedback loop to the rest of the business if customers quality needs are not being met.
Customer service employees have to communicate customer complaints about quality for
resolution.

The benefits of good quality are fairly obvious: enhanced reputations, the ability to charge a premium for
products/services offered, higher profits, significant brand equity, repeat business, and lower/fewer
warranty claims/liability claims/product recalls.

The consequences of poor quality are similarly obvious: loss sales, lost customers, high liability and
warranty costs, product recalls, and loss of productivity (if products have to be reworked in the factory).
The class text identifies the following costs associated with quality management:

Appraisal costs: this includes the cost of inspection and testing equipment and inspectors.
Prevention costs: these include training and the cost of defect-prevention activities in design,
supply-chain interactions, business-process design, and production.
Failure costs. There are two types:
o Internal failure costs: costs associated with scrap, rework, production disruptions,
injuries, etc. before the product/service reaches the customer.
o External failure costs: costs associated with repair or replacement of products, costs of
reputational damage after the product has reached the customer.

Appraisal and prevention costs are investments in good quality while failure costs are associated with
poor quality. There are some tradeoffs in deciding where and how much to spend on prevention. Balance
is necessary. Prevention investments can substantially reduce appraisal and failure costs, but prudence is
necessary. The return on equity measure mentioned in the class text is often hard to calculate.

Most students taking this class are well aware of the costs and consequences of turning a blind eye to
quality problem. Confronting quality issues systematically (and disclosing them to customers when
hazardous) is sound business sense. Some ethical questions and tradeoffs arise. For example, it is
sometimes not clear whether there really is a safety concern in the early stages when there are only a few
reported complaints. There are few substitutes for due diligence in quality matters: rapid response, paying
close attention to the facts, and a reasonable response will usually win customer hearts.

3. Evolution of Quality Management

Prior to the Industrial Revolution, goods were produced by skilled craftspeople who were responsible for
high quality work. Lengthy training periods, in the form of apprenticeships, allowed for the transfer of
skills. Quality became a haphazard affair due to the division of labor in the Industrial Revolution.
Workers were no longer responsible for the overall product and the emphasis on training was greatly
diminished.

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Early efforts on quality management included focus on product design, and inspection and gauging
strategies. Statistical sampling procedures (and associated control charts) were introduced and developed
in the period from the mid-1920s through the Second World War. Sampling procedures represented a
significant innovation (relief from the expense of 100% inspection). Sampling procedures allow for the
exploitation of a variance-reduction effect that does not arise when one is inspecting every product. Well
examine this issue in Chapter 10.

The focus in the 1950s expanded (from the manufacturing process) to the quality of raw materials and
parts from suppliers, design considerations, and the involvement of upper management. In the 60s the
focus shifted again, to worker motivation issues, zero defect drives, and the expectation of perfection
from employees. The 1973 oil crisis
3
resulted in significant gains in market share for the Japanese
automakers, and a renewed emphasis on quality of US automakers in the 80s as their struggled to keep up
with the likes of the Toyotas and Hondas. Globalization (and the decline of communism) in the 90s and
beyond has opened up markets to increased competition. In addition, the Internet has allowed consumers
to become much more aware of product/service quality, and to shop comparatively. The resulting pressure
on quality expectations is expected to continue as consumer behaviors become more refined.

3. Quality Gurus, Awards, and Certifications

Some of the prominent names in quality management are:

Walter Shewhart
4
: the father of statistical quality control; introduced control chart theory.
W. Edwards Deming
5
: philosophical contributions including his System of Profound
Knowledge
6
(and his 14 points); his focus on variance reduction; and his targeting of
assignable-cause versus common-cause variation worked extensively with the Japanese.
Demings 14 points are
7
:
1. Create constancy of purpose toward improvement of product and service, with the aim
to become competitive, stay in business and to provide jobs.
2. Adopt the new philosophy. We are in a new economic age. Western management must
awaken to the challenge, must learn their responsibilities, and take on leadership for
change.
3. Cease dependence on inspection to achieve quality. Eliminate the need for massive
inspection by building quality into the product in the first place.
4. End the practice of awarding business on the basis of a price tag. Instead, minimize
total cost. Move towards a single supplier for any one item, on a long-term relationship of
loyalty and trust.
5. Improve constantly and forever the system of production and service, to improve
quality and productivity, and thus constantly decrease costs.

3
See http://en.wikipedia.org/wiki/1973_oil_crisis
4
See http://en.wikipedia.org/wiki/Walter_A._Shewhart
55
See http://en.wikipedia.org/wiki/W._Edwards_Deming
6
See http://deming.org/index.cfm?content=66
7
http://en.wikipedia.org/wiki/W._Edwards_Deming
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6. Institute training on the job. Institute leadership (see Point 12 and Ch. 8 of "Out of the
Crisis"). The aim of supervision should be to help people and machines and gadgets do a
better job. Supervision of management is in need of overhaul, as well as supervision of
production workers.
8. Drive out fear, so that everyone may work effectively for the company. (See Ch. 3 of
"Out of the Crisis")
9. Break down barriers between departments. People in research, design, sales, and
production must work as a team, in order to foresee problems of production and usage
that may be encountered with the product or service.
10. Eliminate slogans, exhortations, and targets for the work force asking for zero defects
and new levels of productivity. Such exhortations only create adversarial relationships, as
the bulk of the causes of low quality and low productivity belong to the system and thus
lie beyond the power of the work force.
11a. Eliminate work standards (quotas) on the factory floor. Substitute with leadership.
Eliminate management by objective.
11b. Eliminate management by numbers and numerical goals. Instead substitute with
leadership.
12a. Remove barriers that rob the hourly worker of his right to pride of workmanship.
The responsibility of supervisors must be changed from sheer numbers to quality.
12b. Remove barriers that rob people in management and in engineering of their right to
pride of workmanship. This means, inter alia, abolishment of the annual or merit rating
and of management by objectives (See Ch. 3 of "Out of the Crisis").
13. Institute a vigorous program of education and self-improvement.
14. Put everybody in the company to work to accomplish the transformation. The
transformation is everybody's job. "Massive training is required to instill the courage to
break with tradition. Every activity and every job is a part of the process."
Joseph M. Juran: contributions include continuous improvement programs, capability analysis,
and his view of quality as fitness-for use; worked closely with the Japanese.
Armand Feigenbaum
8
: developed Total Quality Control, the forerunner of Total Quality
Management (TQM), which we will discuss in this chapter.
Philip B. Crosby
9
: responsible for the idea of Zero Defects and for promoting do it right first
time.
Kaoru Ishikawa
10
: responsible for fishbone diagrams (cause-and-effect diagrams).

8
See http://en.wikipedia.org/wiki/Armand_V._Feigenbaum
9
See http://en.wikipedia.org/wiki/Philip_B._Crosby
10
See http://en.wikipedia.org/wiki/Kaoru_Ishikawa
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Figure 1 Fishbone Diagram. By FabianLange at de.wikipedia [GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons
Genichi Taguchi
11
: known for the loss function, which is used to measure the cost of poor quality.
Taiichi Ohno
12
and Shigeo Shingo
13
: responsible for developing the Toyota Production System
(TPS) and the concept of kaizen (continuous improvement; kai=change; zen=good).

Various quality awards have been established. In some cases the award is given on the basis of a
competition. This is the case of the Baldrige award. The competition affords companies a formal process
within which to improve and have their quality management evaluated. Japan has a similar award, called
the Japan Prize. Other awards include the European Quality Award and the Deming Prize. FPL won the
Deming Prize in 1989.

Various International Standards Organization (ISO) standards need to be mentioned:
ISO 9000
14
is widely recognized in Europe. It focuses on the quality of a firms business
processes. ISO 9000-certified companies can be generally regarded as world class.
ISO 14000
15
addresses the environmental impact of a firms business processes.
ISO 24700
16
addresses the quality and performance of office equipment that contains reused/
refurbished components.

4. Quality and the Supply Chain

Supply chains are global. Differentials in quality awareness and practices world-wide can result in
significant problems and supply chain risk. Collaborative relationships with vendors, suppliers, and
distribution network partners, adequate training, the use of assurance techniques, and a thorough
understanding by all parties of quality expectations are crucial.

5. TQM

This is a crucial topic in the chapter.

11
See http://en.wikipedia.org/wiki/Genichi_Taguchi
12
See http://en.wikipedia.org/wiki/Taiichi_Ohno
13
See http://en.wikipedia.org/wiki/Shigeo_Shingo
14
See http://www.iso.org/iso/iso_9000_essentials and http://en.wikipedia.org/wiki/ISO_9000
15
See http://www.iso.org/iso/iso_14000_essentials and http://en.wikipedia.org/wiki/ISO_14000
16
See http://www.iso.org/iso/iso_catalogue/catalogue_tc/catalogue_detail.htm?csnumber=34909
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Total quality management is a philosophy based upon three pillars (some texts argue for 5 pillars; we will
remain loyal to the class text on this one):
Continuous improvement,
Involvement of everyone, and, most importantly,
Achievement of customer satisfaction.

The final pillar, achievement of customer satisfaction, makes TQM real. If it doesnt contribute to
customer satisfaction in some way, lose it! The customer satisfaction pillar creates product, service, and
business process design objectives for the first pillar - continuous improvement, for everyone in the
organization.

A TQM program is a hallmark of a world-class firm. TQM programs gather information about customers
wants, needs (via data mining, surveys, product trials, pilot studies, marketing studies, etc.) which is used
to design easy-to-use products, and services that meet or exceed customer expectations, and which can be
easily manufactured or delivered in the correct manner the first time using mistake-proof businesses
processes and product/service designs. Process and market performance data is used, along with research
and other innovations, to continually improve, and these strategies are applied across the supply chain.

Team members are responsible for doing things right the first time. While product, process, and product
designs are designed to limit mistakes and defects (the Japanese term for this ex ante prevention strategy
is pokayoke), defects and process problems will occur. It is the responsibility of team members to stop the
process when they occur.

TQM is a philosophy and a culture. Simply enumerating some of the elements of a TQM system does not
do it justice. But its all we have for now:
Continuous improvement programs strive to continually find ways of improving products,
services and especially the business processes. This includes finding ways to incorporate
technology innovations, refining procedures, improving team-member training, finding higher-
quality suppliers and supplies, etc.
Competitive benchmarking involves identifying best-practice methods, and how the best-of-
breed does it.
Employee empowerment puts decision-making authority in the hands of team members. The
idea behind this is to assign decisions responsibilities to those who are functionally involved with
the decision and can best assess what the course of action should be. This gives team members
better control of their jobs and serves to motivate them.
Using a team approach to exploit group synergies and creates a sense of collaboration,
cooperation, and hopefully a sense of shared success.
Decisions are based upon facts rather than opinions. Decisions should be based upon data and
observation, by the people directly involved (who are also responsible for the decision).
Team members should be trained in the use of statistical and other quality control tools.
Supplier quality programs must be integrated with the firms quality program. Timely delivery
of quality parts and materials is the goal.
TQM champions promote TQM and initiate new quality projects.
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Quality at the source is the idea that each employee will do their work right the first time. Each
person is responsible for the quality of their work and for not allowing defects to pass through
their hands. Quality at the source is often focused upon the quality of the production/service
process rather than upon individual product or service quality.
Collaborative and cooperative relationships with suppliers are encouraged.

TQM represents a culture shift. Take a look at Table 9.6 in the class text for a contrast of traditional and
TQM approaches.

Six Sigma is used to describe a statistical defect rate (more on this in Chapter 10), and (our interest here)
a business process for eliminating waste, improving quality, and increasing customer satisfaction. Six
sigma programs employ concrete philosophical and statistical control best-practice methods to improve
quality, reduced costs, and better align a firms processes with its strategy.

Six sigma programs are implemented by team members trained in six-sigma methods. Black-belt and
master-black-belt training (and credentialing) is available from various training providers. Master black
belts are capable of serving as TQM champions, leading corporate-wide quality management programs,
and training black belts. Black belts have 4 to 6 weeks of training (depending upon the training provider)
and facilitate TQM programs by providing project leadership, applying tools and techniques, and
conveying quality management knowledge to team members.

There are links to lean manufacturing (which we will discuss in Chapter 14). A six-sigma (and TQM)
program functions best within a lean environment. There are some obvious tradeoffs between quality and
waste reduction (working too fast compromises quality an idea conveyed in the video Modern Chairs
A Total Quality Management Training Video).

TQM can be hard to implement and sustain. Reasons for this include:
Failure of top management to introduce TQM firm-wide, maintain a strategic long-term focus on
continuous improvement, encourage appropriate corporate communication, commit sufficient
time or resources to TQM, and general lack of leadership with respect to quality management.
Failure to plan the TQM implementation process appropriately.
Lack of customer focus and failure to tie TQM program activities to customer needs or business
results.
Failure to empower, motivate, or incentivize team members appropriately.
Focusing on short-term results and quick fixes.
Overzealous focus on quality to the detriment of other aspects of the business.

While TQM is challenging to implement and sustain, it is an essential initiative of any world-class firm.

6. Process Improvement

Process improvement is a systematic and holistic approach to improvement. Typical objectives of process
improvement include higher profit, improved customer satisfaction, reduced process waste, improved
productivity, etc. Process improvement requires that processes be documented. We will enumerate some
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typical process documentation graphing and analysis tools in this section. The process documentation
should capture the mechanics of the process, showing how the inputs (capital, labor, land, equipment,
energy, knowledge, etc.) result in outputs (goods, services). Analysis can proceed once we have the
process documented. Some changes (efficiencies) will suggest themselves. The key is to ensure that every
step contributed value (from the perspective of the customer) to the process, and that it does so as
efficiently as possible. Every small improvement has to be sought and achieved in the redesigned process.
Ideas for improvement may come from various sources:
Customers: via product trials, pilot studies, surveys, etc.
Competitors: close analysis and benchmarking of competitors products and processes is
common.
Suppliers: collaborative design and technology-sharing relationships that allow the R&D,
marketing, engineering, and other team members to interact can spawn many new ideas.
Research and engineering teams, quality circles (voluntary groups of workers who meet to
discuss ways of improving products or processes
17
), and continuous improvement teams
18
will
strive to continuously develop product, service, and process improvements.

Although the book at times tries, at times, to make a distinction between problem solving and process
improvement, the line is blurred. A formal analytical process is needed in both cases. Take a look at the
Plan-Do-Study-Act (PDSA) cycle described on p. 397 of the class text.

Some of the graphing and analysis tools that are used in quality control (see the class text for examples):
flowcharts and service blueprints (check here and here for info about service blueprints), process charts
(this one is not covered in the class text, so take a look here), check sheets, histograms, Pareto charts,
scatter diagrams, control charts (well discuss these in Chapter 10), cause-and-effect diagrams (also
known as fishbone diagrams), run charts, and mind maps
19
.

17
Per the class text.
18
Quality control teams have less authority to make process changes than continuous improvement teams.
19
See http://en.wikipedia.org/wiki/Mind_map
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Figure 2
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