7-1 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.

7-2

Chapter 7

QUALITY MANAGEMENT

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

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.

7-7 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

7-8 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-9 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-10 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-11 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Deming’s Fourteen Points

• 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

7-12 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Deming’s Fourteen Points

• 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

7-13 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Philip Crosby

• Quality is Free• Quality without Tears • Zero Defects

» ‘Do it right the first time.’

• The Goalpost Philosophy

7-14 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-15 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Philosophies of the Gurus

• 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

7-17 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Management Approaches

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

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

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

7-19 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-21 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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?

7-22 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

requirements*• Suppliers use process control charts• Buying firm schedules inbound freight

7-23 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Seven Wastes

1. Overproduction

2. Unneeded motion

3. Unneeded transportation

4. Needless processing

5. Needless machine time

6. Holding excessive inventory

7. Defects

7-25 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-26 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-27 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-30 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-39 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-40 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-41 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-44 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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.

7-45 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-51 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-55 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-56 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-57 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-58 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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 competition among potential suppliers.

» Determine whether existing suppliers can build the desired quality

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

7-59 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Supplier Quality Analysis

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

7-60 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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?

7-61 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-62 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-66 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-67 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-68 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7-72 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Supplier Development

• Certification • Qualification • Education • The Certification Performance Process