Chapter 4 – Managing quality

4.1 – Quality defined

Quality can be defined in two ways: the value prespective and conformance
prespective
1. Value prespective: the charectaristics of a product/service that bears
on its ability to satisfy stated or implied needs
2. Conformance prespective: A product or service free of deficies

Value presepctive: it is a quality presepctive that must be judged, in part, by how

well the charectarisitcs of a particular product or service align with the needs of a
specific user. …fitness for use…

Quality can vary in many situations, there are 8 dimensions in genereal which users
evaluate the quality of a product/service

1. Performance: basic operating charectaristics of a product/service?

2. Features: what are some extra charectaristics the product/service has apart
from the standard ?
3. Reliability: how long can a product last without repairing etc…
4. Durability: what is the useful life for the product ? how will it hold under
extreme use ?
5. Conformance: was the product made under the specifications mentioned ?
6. Aesthetics: how well does the product/service appeal to the senses?
7. Serviceability: how easy is it to repair, maintain, or support the
product/service?
8. Percieved quality: what is the reputation/image of the product/service?

Conformance perspective: it is a quality perespective that focuses on wheter or not a

product was made or a service was performed as intended(errors?). This is evaluated
by measuring the actual product/service against some preestablished standards

Using these two perspectives on quality, in order for a firm to product high-quality
products/services they then must:

1. Understand what dimesnsions of quality are most important to users

2. Develop products/services that will meet the user’s requirments
3. Put in a place business processes capable of meeting the specifications
driven by users’ requirments
4. Verify that the business processes are indeed meeting the specifications

4.2 – Total cost of quality

There are four quality-related costs to take in account: internal failure costs, external
failure costs, appraisal costs, and prevention costs

1. Internal failure costs: these are costs caused by defects that

occur prior to delivery to the customer, including money spent on
 repairing or reqorking defective products, as well as time wasted
oon these activities
2. External failure costs: these are costs incurred by defects that are
not detected until a product/service reaches the customer
3. Appraisal costs: costs a company incurs to asses its quality levels
e.x inspections
4. Prevention costs: these are the costs an organization incurs to
actually prevent defect occuring to begin with

/!\ book has slight different graph!

Total cost of quality curve: a curve that suggests there is some optimal quality level
Q*. this curve is caluclated by adding costs of internal and external failures,
prevention costs, and appraisal costs
- for defect levels higher than this level, exponentially increasing
failure costs cause quality costs to raise
- for defect levels below Q*, increases in prevention costs outstrip
decreases in failure costs

TCQC (zero deffects): graphs to come

TCQC (Quality costs improvments overtime): graphs to come

4.3 – Total quality management

Again… the in order to address both the value and the conformance perspective
quality a firm must:

1. Understand what dimesnsions of quality are most important to users

2. Develop products/services that will meet the user’s requirments
3. Put in a place business processes capable of meeting the specifications
driven by users’ requirments
 4. Verify that the business processes are indeed meeting the specifications

To accomplish this all individuals withing an organization must adress quality within
all of an organization’s business processes… from design  purchasing,
manufacturing, and distribution

The approach mentioned above is called TQM (total quality management)

Total quality management (TQM): it is a managerial approach in which the entire

organization is managed so that it excels in all quality dimensions that are important
to customers. There are seven principles around this method:

1. Customer focus – looking at something from the customer point of view

2. Leadership involvment – if a company is serious about implement TQM
there are 14 point to follow…
3. Continous improvement: this means thinking there will allways be room
fro imporvment, no matter how well an organization is doing
4. Employee empowerment: about giving employees the responsibility,
authority, training, and tools necessary to manage quality
5. Quality assurance: this refers to specific actions firms take to ensure that
their products, services, and processes meet the quality requirments of
their customers. This normally take place throughout the Orgz:
a. E.x During design phase  quality function deployment (QFD)
is used: a technique used to translate customer requirments into
technical requirments for each stage of product development and
production
b. Statistical quality control (SQC): the application of statistical
techniques to quality control.
6. Supplier partnerships: to include supply chain partners into TQM for
ensured performance…
7. Strategic quality plan: it is an organizational plan which provides the
vision, guidance, and measurments to drive the quality effort forward and
shift the organization’s course when necessary. Every quarter it should be
reviewed, by process owners: which is a team or individual who has the
authority and responsibility for improving the organization’s busiess
processes and who is rewarded accordingly

TQM and the Six Sigma methodology

TQM and Six sigma are quite similar methods, however they have some major
differences:

1. TQM is a mangerial approach where the entire organization is managed so

it excels in all quality dimensions that are important to customers. (e.x
“seven core prinicples”and 14 points of denning)
2. The Six sigma approach is made up of TWM nad makes use of the TWM
philosophy and continous improvement tools
3. Six Sigma includes specific processes for guding process improvement
and new process/product development efforts. The first DMAIC (chapter
3), and the second DMADV (chapter 6)
 4. The SIX sigma approach defines specific organizational roles and career
paths...: champions, master black belts, black belts, green belts, and team
members
5. Six Sgima has an expanded tool kit providing: computer simulation,
optimization modeling, data mining and other techniques. (Master black
belts and black belts provide teams with the expertse the required tools)

4.4 – Statisitcal Quality Control

Regarding back to the start of the chapter, Statistical quality control (SQC) aims at
“Verifying that the business processes are indeed meeting the specifications” of the
four point and organization must do to adress quality and costs issues.

Process Capability

A way a business can know wheter or not its business processes are capable of
meeting certain quality standards is through the process capability ratio (Cp).

Process capability ratio (Cp): this is a mathematical determination of a process's

capability to meet certain quality standards → Cp >= 1 means the process meets the
standards being measured

Cp = UTL – LTL/ 6*

UTL = upper tolarence limit

LTL = Lower tolerance limit
* = process standard devitation for the variable of interest

Upper tolerance (UTL): this is the highest acceptable value for some measure of
interest (e.x weight, temperature, or time)
Lower tolerance limit (LTL): This is the lowest acceptable value for some measure
of interest

How to calculate *

*=
√ ∑ x mean− xi 2
n−1

x mean = sample mean

xi = value for the i th combination
n = sample size

A wider tolerance limits or/ smaller values of * = Higher Cp values (more capable
process)
A narrower tolerance limits or/ larger values of * = Lower Cp values

In order to graphically state it, use knowledge of both QM1 And QM2 from normal
distribution section
Six Sigma Quality

Six Sigma Quality: this term indicates that a process is well controlled. e.x usgin the
tolerance limits. The main point is to reduce the variability of a process so that 12
standard deviations can be narrowd in between tolerance limits. This can be expressed
in the following way:

UTL −LTL
Six Sigma Cp =
12 ×deviation >= 1

UTL = upper tolerance limit

LTL = lower tolerance limit
Deviation (*) = Standard deviation

A perfectly cnetered proces (=1) makes up fro 2 defects per billion. However in realty
this is not possible, which results in a higher number of observations falling outside
tolerance limits. By shifting the process mean of +- 1.5 standard deviations, this
increases the defect level to 3.4 defects per million (working definition of Six Sigma)

Control Charts

Control charts: These are specialized run charts that helps an organization track
changes in key measure. Using control charts an organization is able to quickly
determine wheter a process is “in control” and take action if its not.

Using a control chart requires the concepts of sampling and variable types (Review):

Sampling: This is all about taking selected samples in order to determine an overal
view of how a process is doing

Variable types: Most measures fall into two types: continous variables or attributes

1. Continous variables: a variable that can be measured along a continous

scale, such as weight, length, height and temepratures. There are two key
measures:
a. Sample Average (X mean): a measure which represents the
central tendency of a measure of interest in specific sample. This is
used in conjuction with range (R)
b. Range (R): this measure represents the variation of a specific
sample group; this is used in conjuction with sample average (X
mean)
2. Attributes: it's a charectaristics of an outcome/item that is accounted for
by its presence or absence, such as “defective”vs. “good” or “late vs. on
time”

Sample average for a continous variable = X mean =

∑ Xi
n
n = number of observations in the sample
Xi = value of the i th observation
 Sample range for a continous variable = R = (highest value in the sample) – (lowest
value in the sample)

Proportion: a measure of the percent of the sample that does or does not have a
particular charectaristic. (P)

P=
∑ ai
n

n = number of observations in the sample

ai = 0 if the attribute is not present for the i th observation and 1 if it is

Control limits: this are the upper and lower limits of the control chart. They are
calculated in a way that if a sample result falls inside the control limits the process is
considered under control and vice versa

Finally the the process of setting up control charts:

1. Take m samples of size n each while the process is under control

2. Use the sample results to set up the control chart using the tables or
formulas provided
3. Continue to take samples of size n, and plot them against control charts
4. Interpret the results and take appropriate action

/!\ two points which should not be emphasized about control charts:

1. control charts should NOT be employed until the process is capable of

providing acceptable performance on a regular basis
2. control chart by themselves, will NOT result in improved quality levels

… in general control charts are used to catch problems early, or before they get out of
hand!

Qualitative defintion of the X mean, R, and P charts:

X mean and R charts (for continous variables):

 X mean chart: this is used to track average value for future samples
(equation above)
 R chart: this is used to track how much the individual observations within
each sample vary (equation above)
The p chart:

 P chart: this type of control chart for attributes is used to track sample
proportions . . . . finish

Acceptance Sampling

Acceptance sampling: the process of sampling a portion of goods for inspection

rather than examining the entire lot. There are several terms part of this:
  Acceptable quality level (AQL): a cutoff value, representing the
maximum defect level at which a consumer would allways accept a lot
 Lot tolerance percent defective (LTPD): this represents the highest
defect level a customer is willing to tolerate
 Consumer's risk (Beta): this term represents the probability of accepting
a lot with quality lower than LTPD level
 Producer's risk (alpha): this represents the probability of rejecting a lot
with quality equal or better than AQL level
 Operating charectaristics (OC) curve: this shows the probability of
accepting a lot, given the actual fraction defective in the entire lot and the
sampling plan being used. (different sampling plans will result in different
OC level)

Acceptence sampling allows for a less time consuming and cheaper process to
determine the quality of the goods. Organizations will accept or reject the production
of goods if a prefixed ratio of goods is faulty or non-faulty.

Taguchi's Quality Loss Function

 Failure costs are indicated as Loss; Taguchi's Quality loss function reflects
the idea that any deviation from the target value results in additional costs
 as displayed by the parabloic shape, losses grow exponentially in respect
to deviation from target value
Note: As long as there is variability in the process, there is room for improvement

4.5 – Managing quality across the supply chain

ISO 9000: A family of standards, supported by the International Organization for

Standardization, representing an international consensus on good quallity
management practices. ISO 9000 addresses business processes, rather than specific
outcomes

ISO 9000 seeks to help organizations deliver products or services that:

 meet the customer's qulity requirements

 applicable regulatory requirements, while aiming to
 enhance customer satisfaction and
 achieve continual improvement of their performance in pursuit of these
objectives

An ISO 9000 certificate is either required to run a specific business or indicates high
quality standards for potential supply chain partners

ISO 9000
(since 1987)

ISO 9001:2000 ISO 9004:2000

Companys that want to set up a
management system that provides
confidence in the conformance of their
products and services to established or
specified requirements
→ extended the benefits of ISO
9001:2000 to all parties who are
interested in or affected by a business's
operations

External failures in the supply chain

defective products in the supply chain: Quick reaction of the company is

needed to keep extra costs low

→ Examples of solutions that are employed: Tracking systems, lot identification

numbers, explicit procedures for returning or destroying defective goods