quality management, 6 th ed. goetsch and davis © 2010 pearson higher education, upper saddle river,...
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Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.1
Quality Managementfor Organizational Excellence
By:Dr. David L. Goetsch and Stanley Davis
Based on the book Quality Management for Organizational Excellence (Sixth Edition)
2Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Instructor Info.Dr. Mohammed A. Nasseef
Email:
[email protected] Website:
www.nasseef.infoContact Number:
0540627773 ( SMS and whatsApp)
note: mobile number is for urgent calls, please if you call consider a appropriate time.
3Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Grading Policy
case study Project 20
Quiz 1 10
Quiz 2 10
Class Participation 10
Final Exam 50________________
TOTAL 100
4Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
MAJOR TOPICS
Quality Evolution What is Quality? The Total Quality Approach Defined Two Views of Quality Key Elements of Total Quality Total Quality Pioneers
One:The Total Quality Approach to
Quality Management
5Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Quality Evolution
6Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Evolution of Quality I
Finding mistakes/errors
External assessment/control
Culture of mistrust
Inspecting the past
7Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Evolution of Quality II
Looking into
the past and
plan for the future
avoid mistakes
personal responsibility / ownership
culture of trust
8Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Evolution of Quality III
Systematic fulfillment of customer requirements
9Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Evolution of Quality IV
Participation of all members of an organization
10Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Quality is Everywhere Quality is Everywhere
people deal with the issue of quality continually in their daily lives
We all apply a number of criteria when making a purchase
To understand quality as a consumer-driven concept
How will you judge the quality of the restaurant?
ServiceResponse time
Food preparation Atmosphere
PriceSelection
11Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
What is QualityWhat is Quality* Quality must be defined
comprehensively. It is not enough to say
the product is of high quality; we must
focus attention on the quality of every
facet of the organization.
* Consumers' needs and requirements
change. Therefore, the definition
of quality is ever changing.
shikawa's
12Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
What is QualityWhat is Quality Fred Smith. CEO of FedEx
defines quality as “ performance to the standard expected by customer “
Boeing “ providing our customer with products and services that consistently meet their needs and expectations”
13Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
So Quality Is …So Quality Is … Although there is no universally accepted
definition of quality. There are some similarity among among quality definition:
Quality involves meeting or exceeding customer expectations.
Quality applies to products, services, people, processes, and environments.
Quality is ever changing state (i.e., what consider quality today may not good enough to be considered quality tomorrow).
14Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
WhyWhy TQM?TQM?
Ford Motor Company had operating losses of $3.3 billion between 1980 and 1982.
Xerox market share dropped from 93% in 1971 to 40% in 1981.
Attention to quality was seen as a way to combat the competition.
15Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
TQMTQM TotalTotal - made up of the whole
QualityQuality - degree of excellence a product or service provides
ManagementManagement - act, art or manner of planning, controlling, directing,….
Therefore, TQM is the art of managing Therefore, TQM is the art of managing the whole to achieve excellence.the whole to achieve excellence.
16Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
What does TQM mean?What does TQM mean?
Total Quality Management means that the organization's culture is defined by and supports the constant attainment of customer satisfaction through an integrated system of tools, techniques, and training. This involves the continuous improvement of organizational processes, resulting in high quality products and services.
17Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
What’s the goal of TQM?What’s the goal of TQM?What’s the goal of TQM?What’s the goal of TQM?
“Do the right things right the first time, every time.”
18Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
AnotherAnother way to put itway to put itAnotherAnother way to put itway to put it
At it’s simplest, TQM is all managers leading and facilitating all contributors in everyone’s two main objectives:
(1) total client satisfaction through quality products and services; and
(2) continuous improvements to processes, systems, people, suppliers, processes, systems, people, suppliers, partners, products, and services.partners, products, and services.
19Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Basic belief of TQMBasic belief of TQM 1. The customer makes the ultimate
determination of quality. 2. Top management must provide
leadership and support for all quality initiatives.
3. Preventing variability is the key to producing high quality.
4. Quality goals are a moving target, thereby requiring a commitment toward continuous improvement.
5. Improving quality requires the establishment of effective metrics. We must speak with data and facts not just opinions.
20Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
The three aspects of TQMThe three aspects of TQM
CountingCounting
CustomersCustomers
CultureCulture
CountingCounting
CustomersCustomers
CultureCulture
Tools, techniques, and training in their use for analyzing, understanding, and solving quality problems
Quality for the customer as a driving force and central concern.
Shared values and beliefs, expressed by leaders, that define and support quality.
21Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Total Quality ManagementTotal Quality Managementand Continuous and Continuous ImprovementImprovement
TQM is the management process used to make continuous improvements to all functions.
TQM represents an ongoing, continuous commitment to improvement.
The foundation of total quality is a management philosophy that supports meeting customer requirements through continuous improvement.
22Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Continuous Improvement versus Continuous Improvement versus Traditional ApproachTraditional Approach
Market-share focus Individuals Focus on ‘who” and
“why” Short-term focus Status quo focus Product focus Innovation Fire fighting
Customer focus Cross-functional teams Focus on “what” and
“how” Long-term focus Continuous improvement Process improvement
focus Incremental
improvements Problem solving
Traditional Approach Continuous ImprovementContinuous ImprovementContinuous ImprovementContinuous Improvement
23Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Quality ThroughoutQuality Throughout “A Customer’s impression of quality begins
with the initial contact with the company and continues through the life of the product.” Customers look to the total package - sales,
service during the sale, packaging, deliver, and service after the sale.
Quality extends to how the receptionist answers the phone, how managers treat subordinates, how courteous sales and repair people are, and how the product is serviced after the sale.
“All departments of the company must strive to improve the quality of their operations.”
24Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Value-based ApproachValue-based Approach Manufacturing
Dimensions Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived quality
Service Dimensions Reliability Responsiveness Assurance Empathy Tangibles
25Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
The TQM SystemThe TQM System
CustomerFocus
ProcessImprovement
TotalInvolvement
LeadershipEducation and Training Supportive structureCommunications Reward and recognitionMeasurement
ContinuousImprovement
Objective
Principles
Elements
26Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Trends affecting the future of quality management include demanding global customers, shifting customer expectations, and opposing economic pressures
The Total Quality Approach toThe Total Quality Approach toQuality ManagementQuality Management
27Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
W. Edwards Deming Born on October 14,
1900 Was an American
statistician, professor, author, lecturer, and consultant
Widely credited with improving production in the United States during the Cold War
Best known for work in Japan
Taught top management (1950 onwards)
Total Quality Pioneers:
28Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
W. Edwards Deming
Quality keys:
Understanding customer needs
Process improvement
Statistical analysis Expertise of workers PDCA cycle
29Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
DEMING 14 POINTS
1. Create constancy of purpose2. Adopt a new philosophy3. Stop dependence on inspection4. Don’t focus on price tag5. Improve constantly & forever
30Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
DEMING 14 POINTS
6. Institute training7. Institute leadership8. Drive out fear9. Break down barriers10. Eliminate slogans, exhortations
31Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
DEMING 14 POINTS
11. Eliminate quotas; use leadership
12. Remove barriers to workmanship
13. strong education program14. Involve everybody
32Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
The Deming cycle, or PDSA cycle, is a continuous quality improvement model consisting of a logical sequence of four repetitive steps for continuous improvement and learning:
Plan, Do, Study (Check) and Act.
It is also known as the Deming circle/cycle/wheel, Shewhartcycle, control circle/cycle, or plan–do–study–act (PDSA)
33Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
W. Edwards Deming in the 1950's proposed that business processes should be analyzed and measured to identify sources of variations that cause products to deviate from customer requirements.
He recommended that business processes be placed in a continuous feedback loop so that managers can identify and change the parts of the process that need improvements.
34Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Example : At Toyota this is also known as "Building
people before building cars.“ Toyota and other Lean companies propose
that an engaged, problem solving workforce, using PDCA, is better able to innovate and stay ahead of the competition through rigorous problem solving and the subsequent innovations. This also creates a culture of problem solvers using PDCA and creating a culture of critical thinkers.
35Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
35
Foundations of the PDCA CycleThe foundations of the PDCA cycle and Deming’s teachings consist of the following three principles:
1.Customer Satisfaction: Satisfying customers’ needs should be paramount for all workers in the organization.
2.Management by Fact. Decision making must be made on data collected from operations and analyzed using statistical tools. Decision makers must practice and encourage a scientific approach to problem solving.
3.Respect for People. A sustainable problem solving and continuous improvement approach should be based on the belief that employees are self-motivated and are capable of coming up with effective and creative ideas.
36Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
36
Steps of PDCA: The Plan step Recognize the problem and establish priorities.
Form the problem solving team.Interdisciplinary teams of individuals close to the problem are best.
Define the problem and its scope clearly.Who,What,Where and When.Pareto Analysis can be useful in defining the problem.
Analyze the problem/process. Process flowcharts can be useful a useful tool.
Determine possible causes.Cause-and-effect diagrams are helpful in identifying root causes of a problem. Data from the diagrams can be organized using check sheets, scatter diagrams, histograms, and run charts.
Identify possible solutions.Brainstorm to find solutions. Avoid the temptation to propose quick, immediate fixes. Goals should be specific, measurable, achievable, and realistic.
Evaluate potential solutions. Focus on solutions that address root causes and prevention of problem occurrence. Solutions should be cost-effective; achieving group consensus is important.
37Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
37
Steps of PDCA (continued)
The Do step Implement the solution or process change Monitor results and collect data
The Check step Review and evaluate the result of the change Measure progress against milestones Check for any unforeseen consequences
The Act step If successful,
Standardize process changes Communicate to all involved Provide training in new methods
38Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
38
Problem Solving Tools
1. Check Sheet. A simple tool for collecting data about problems or complaints.
Example 1.Appliance Department Complaints
Late Wrong Faulty Total Units %Month delivery appliance installation installed Complaints
January 2 3 3 8 800 1.00%February 4 3 4 11 900 1.22%March 1 4 3 8 750 1.07%April 4 5 2 11 1050 1.05%May 3 5 5 13 1400 0.93%June 2 6 3 11 980 1.12%July 3 4 4 11 1030 1.07%August 5 6 6 17 1500 1.13%September 3 5 5 13 1330 0.98%October 4 6 6 16 1500 1.07%November 3 7 5 15 1320 1.14%December 3 8 6 17 1550 1.10%
39Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
39
Problem Solving Tools (continued)
2. Histogram. A graph which presents the collected data as a frequency distribution in bar-chart form. Example 1
Complaint Type
0
1
2
3
4
5
6
7
8
9
Month
Freq
uen
cy
Late
Wrong
Faulty
40Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
40
Problem Solving Tools (continued)
3. Pareto Chart. Orders problems by their relative frequency in decreasing order. Focus and priority should be given to problems that offer the largest potential improvement.
0
10
20
30
40
50
60
70
Wrong appliance Faulty installation Late delivery
Nu
mb
er o
f co
mp
lain
ts
Complaint category
Pareto Chart for complaints
41Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
41
Problem Solving Tools (continued)
4. Scatter Diagram. A graphical tool to check if two relationships exist between two variables.
0
20
40
60
80
100
120
140
160
180
0 1 2 3 4 5 6 7
Num
ber
of in
sta
llation
s per
cre
w
Number of faulty installations
Scatter Diagram for faulty installations
42Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
42
Problem Solving Tools (continued)
5. Flowchart. A visual representation of a process which can help in identifying points where failures may occur and intervention is useful. Example 2
43Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
43
Problem Solving Tools (continued)
6. Cause-and-effect diagram (fishbone diagram). Offers a structured approach for identifying all possible causes of a problem. The classic diagram is as shown:
In retail, a better representation is the 5S (Pal & Byron 2003):
44Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Any serious attempt to improve quality must take into account the costs associated with achieving quality since the objective of continuous improvement programs is not only to meet customer requirements, but also to do it at the lowest cost.
This can only happen by reducing the costs needed to achieve quality, and the reduction of these costs is only possible if they are identified and measured.
Therefore, measuring and reporting the cost of quality
(CoQ) should be considered an important issue for managers.
COST OF QUALITY (COQ)
45Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
DEFINITION
There is no general agreement on a single broad definition of quality costs (Machowski and Dale, 1998). However, CoQ is usually understood as the sum of conformance plus non-conformance costs, where cost of conformance is the price paid for prevention of poor quality (for example, inspection and quality appraisal) and cost of non-conformance is the cost of poor quality caused by product and service failure(for example, rework and returns).
46Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
(COQ) CONTINUE
It was Armand Feigenbaum, who in 1943 first devised a quality costing analysis when he and his team developed a dollar-based reporting system.
later proposed the now widely accepted quality cost categorization of prevention, appraisal and failure (internal and external) costs
47Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
(COQ) CONTINUE
Many business executive adopt the attitude that ensuring quality is good thing to do until hard times set in and cost cutting is necessary.
48Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
GENERIC COQ MODELS
Feigenbaum ModelP-A-F models Prevention + appraisal + failure
Crosby’s modelConformance + non-conformanceOpportunity or intangible cost models Prevention + appraisal + + failure opportunityConformance + - +non conformance opportunity
ABC models Value-added + non-value-added
49Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Cost of Quality
Cost of Achieving Good Quality Prevention costs
costs incurred during product design Appraisal costs
costs of measuring, testing, and analyzing Cost of Poor Quality
Internal failure costs include scrap, rework, process failure,
downtime, and price reductions External failure costs
include complaints, returns, warranty claims, liability, and lost sales
50Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Prevention Costs
Quality planning costs
costs of developing and implementing quality management program
Product-design costs costs of designing
products with quality characteristics
Process costs costs expended to
make sure productive process conforms to quality specifications
Training costs costs of developing
and putting on quality training programs for employees and management
Information costs costs of acquiring and
maintaining data related to quality, and development of reports on quality performance
51Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Appraisal Costs
Inspection and testing costs of testing and inspecting materials,
parts, and product at various stages and at the end of a process
Test equipment costs costs of maintaining equipment used in
testing quality characteristics of products Operator costs
costs of time spent by operators to gar data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality
52Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Internal Failure Costs
Scrap costs costs of poor-quality
products that must be discarded, including labor, material, and indirect costs
Rework costs costs of fixing defective
products to conform to quality specifications
Process failure costs costs of determining why
production process is producing poor-quality products
Process downtime costs
costs of shutting down productive process to fix problem
Price-downgrading costs
costs of discounting poor-quality products—that is, selling products as “seconds”
53Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
External Failure Costs
Customer complaint costs costs of investigating and
satisfactorily responding to a customer complaint resulting from a poor-quality product
Product return costs costs of handling and
replacing poor-quality products returned by customer
Warranty claims costs costs of complying with
product warranties
Product liability costs
litigation costs resulting from product liability and customer injury
Lost sales costs costs incurred
because customers are dissatisfied with poor quality products and do not make additional purchases
54Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality
Prevention costs Appraisal costs
Internal failure costs External failure costs
55Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality Example
Vegas Photo Corporation made 10,000photocopying machines last year.
Vegas Photo determines the costs of qualityof its photocopying machines using a 7-step
activity-based costing approach.
56Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Steps 1 and 2)
Identify cost objects.
10,000 photocopying machines
Identify the direct costsof quality of the products.
No direct costs of quality
Step 1 Step 2
57Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 3)
Select the cost-allocation bases to use forallocating indirect costs of quality to the products.
• Prevention• Appraisal• Internal failure• External failure
Step 3
Information on the totalquantities of each of thesecost-allocation bases usedin all of Vegas operations
is not provided.
58Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 4)
Identify the indirect costs of qualityassociated with each cost-allocation base.
Step 4
Information about total (fixed and variable)costs is not provided.
59Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 5)
calculate therate per unit.
Step 5
Inspection hours is onecost-allocation base.
60Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 5)
Prevention costs:Design engineering (R&D) $80 per hourProcess engineering (R&D) $60 per hour
Appraisal costs:Inspection (Manufacturing) $40 per hour
61Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 5)
Internal failure costs:Rework (Manufacturing) $100 per hour
External failure costs:Customer support (Marketing) $ 50 per hour
Transportation (Distribution) $240 per loadWarranty repair (Customer Service)$110 per hour
62Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 6)
Step 6
calculate the indirect costs of qualityallocated to the product.
63Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 6)
Prevention costs:Design engineering (R&D) 20,000 hours
Process engineering (R&D) 22,500 hours
Appraisal costs:Inspection (Manufacturing) 120,000 hours
64Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 6)
Internal failure costs:Rework (Manufacturing) 50,000 hours
External failure costs:Customer support (Marketing) 6,000 hours
Transportation (Distribution) 1,500 loadsWarranty repair (Customer Service) 60,000 hours
65Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 6)
What is the total cost for design engineering?
20,000 hours × $80 = $1,600,000
What is the total cost for inspection?
120,000 hours × $40 = $4,800,000
66Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 6)
Cost of Quality andValue Chain Category Total Costs
Prevention costs:Design engineering (R&D) $1,600,000Process engineering (R&D) 1,350,000Total $2,950,000
Appraisal costs:Inspection $4,800,000
67Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 6)
Cost of Quality andValue Chain Category Total Costs
Internal failure costs:Rework (Manufacturing) $5,000,000
68Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 6)
Cost of Quality andValue Chain Category Total Costs
External failure costs:Customer support (Marketing) $ 300,000Transportation (Distribution) 360,000Warranty repair (Customer Service) 6,600,000Total $7,260,000
69Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Costs of Quality (Step 7)
Step 7
Compute the total costs of quality of the product.
Prevention costs $ 2,950,000Appraisal costs 4,800,000
Internal failure costs 5,000,000External failure costs 7,260,000Total $20,010,000
70Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Traditional Cost of Poor Quality
(4-5% of Sales)
When quality costs are initially determined, the categories included are the visible ones as
depicted in the iceberg below.
Waste
Testing Costs
Rework
Customer Returns
Inspection CostsRejects
Recalls
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Cost of Poor QualityAs an organization gains a broader definition of poor quality,the hidden portion of the iceberg becomes apparent.
Late Paperwork High CostsPricing orBilling Errors
ExcessiveServices Expenses
Incorrectly CompletedSales OrderLack of Follow-up
on Current ProgramsExcessiveEmployee Turnover
Planning Delays
late delivery
ComplaintHandling
Unused Capacity
Time withDissatisfied Customer
Excessive Overtime
Waste
Testing Costs
Rework
Customer Returns
Inspection CostsRejects
Recalls
Development Cost of Failed ProductHidden COPQ: The costs incurred to deal with these chronic problems
Premium cargo Costs
Customer Allowances
COPQ rangesfrom 15-25% of Sales
72Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Malcolm Baldrige National Malcolm Baldrige National Quality AwardQuality Award
73Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
MBNQA In the 1980s, many industry and government
leaders saw that a renewed emphasis on quality was no longer an option for American organisations, rather, it was a necessity for doing business in an ever expanding, and more demanding competitive global market. The Baldrige Award was therefore envisaged as a standard of excellence that would help US organisations achieve world-class quality
74Quality Management, 6th ed.Goetsch and Davis
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Malcolm Baldrige
1981-87 secretary of Commerce. supporter of quality management as
key to US economic survival Helped draft early version of quality
act Resolved technology transfer
differences with China and India First Cabinet-level meetings with
Soviet Union in 7 years Paved way for increased access for US
firms
75Quality Management, 6th ed.Goetsch and Davis
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Champion Roper
National Cowboy Hall of Fame July 25, 1987 N. California
rodeo Horse threw him, fell on him,
and crushed him
76Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
WHY Baldrige ?
Purpose of MBNQA to enhance US competitivenes
Promotes quality awareness, recognizes achievements of US companies
Vehicle for sharing success strategies ISO covers less than 10 percent of the
Baldrige award criteria Many apply, few are selected MBNQA not required for business
77Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
78Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Each category has several items (18 total), and each item has several “areas to address”
79Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
80Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Point Values
81Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
ADLI = Approach, Deployment, Learning, Integration
82Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Categories
Manufacturing Service Small Business Education (added 1999) Health Care (added 1999) Nonprofit (2005)
83Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Leadership
Examines how senior executives guide the company and how the company addresses its responsibilities to the public and practices good citizenship.1.1 Organizational Leadership
1.2 Social Responsibility
84Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Strategic planning
Examines how the company sets strategic directions and how it determines key action plans.
2.1Strategy Development 2.2 Strategy Deployment
85Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Customer and market focus
Examines how the company determines requirements and expectations of customers and markets.
3.1Customer and Market Knowledge 3.2 Customer Relationships and Satisfaction
86Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Information and analysis
Examines the management, effective use, and analysis of data and information to support key company processes and the company’s performance management system.
4.1Measurement and Analysis of Organizational Performance
4.2 Information and Knowledge Management
87Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Human resource focus
Examines how the company enables its workforce to develop its full potential and how the workforce is aligned with the company’s objectives.
5.1 Work Systems 5.2 Employee Learning and Motivation 5.3 Employee Well-Being and Satisfaction
88Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Process management
Examines aspects of how key production/delivery and support processes are designed, managed, and improved.
6.1V alue Creation Processes 6.2 Support Processes
89Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Business results
Examines the company’s performance and improvement in its key business areas: customer satisfaction, financial and marketplace performance, human resources, supplier and partner performance, and operational performance.
The category also examines how the company performs relative to competitors. better market performance, gains in market share,
and customer retention and satisfaction
90Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Baldrige Award Recipients
http://www.baldrige.nist.gov/Contacts_Profiles.htm
Group project
91Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
92Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
• MidwayUSA, a 2009 Baldrige Award winner in the small business category, utilizes a customer-first culture and many customer-focused approaches to building trust, confidence, and loyalty at all stages of the customer relationship.
• MidwayUSA’s commitment to the customer is hard-wired into the company’s vision, purpose, mission, and values; Company Goals; and Code of Conduct . The vision itself says it all: “To be the best-run business in America for the benefit of our Customers.”
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MIDWAYUSA - customer focus
93Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
• This customer-focused philosophy is carried out in many different approaches, including the following:
- All salaried employees (including senior leaders) spend at least one hour each week on the phone taking orders and answering customer requests.
- Employees are selected for leadership development based on their support of the company’s core value of “Customer-Driven Excellence” in addition to other performance-based criteria. Employees also are encouraged to participate in industry-related events.
MIDWAYUSA - customer focus cont.
94Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
- Employees’ performance reviews are aligned with key customer requirements. For example, customer service representatives are evaluated on their performance in relation to the requirement for “Friendly, Courteous, Respectful, and Ethical Service.”
- Direct access is provided to the company’s founder and CEO, Larry Potterfield, via the Larry Line. Potterfield also role-models the customer-first philosophy by being very visible and accessible
(“The Face of MidwayUSA”) to customers at industry and other public events.
MIDWAYUSA - customer focus cont.
95Quality Management, 6th ed.Goetsch and Davis
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.
Customer input on improving operations is solicited via the company’s Web site by regularly featuring online surveys, posting customer reviews of the company’s products, and providing an “I’m Having Trouble Finding” option so customers can suggest additions to product lines.
MIDWAYUSA - customer focus cont.