Ch. 12: Quality Management
Running the whole organization in such a way that it performs excellently on every product and service dimension the customer cares about. There are two operational aims: (1) designing the product or service carefully and (2) making sure the organization's systems can deliver that design consistently.
In the 1980s TQM became a priority in the US as a reaction to the superior quality of Japanese products. The Malcolm Baldrige National Quality Award (1987, US Department of Commerce) honours companies with outstanding quality systems; applicants receive a score out of 1,000 points across seven categories (business results, leadership, process management, information and analysis, strategic planning, human resource focus, and customer and market focus), and every applicant gets useful feedback from the examiners.
The quality gurus
| Deming | Juran | Crosby | |
|---|---|---|---|
| How quality is defined | Uniform and dependable in a predictable way, cheap to achieve, and suited to the market | Fitness for use | Conformance to requirements |
| Standard for performance | Many scales; rely on statistics; rejects zero defects | Against campaigns aimed at perfect work | Zero defects |
| General approach | Lower variability through continuous improvement; stop mass inspection; 14 points | General management approach with attention to human elements; 10 steps | Prevention instead of inspection; 14 steps |
| Cost of quality | No optimum; keep improving continuously | Quality is not free; an optimum exists | Quality is free (the cost lies in nonconformance) |
Their shared message: outstanding quality needs leadership from senior management, customer focus, involvement of the whole workforce and continuous improvement based on rigorous process analysis.
Quality specifications
Design quality is the inherent value of the product in the marketplace, a strategic decision. Its dimensions:
| Quality dimension | What it covers |
|---|---|
| Aesthetics | How it looks, feels and sounds (sensory characteristics) |
| Serviceability | How easily it can be repaired |
| Performance | The main characteristics of the product or service |
| Perceived quality | Reputation and past performance |
| Features | Extras: secondary characteristics |
| Reliability/durability | Consistency over time, chance of failure, useful life |
Conformance quality is the degree to which design specifications are met; it is tactical and day to day. A product can have high design quality and low conformance quality, or the reverse. Quality at the source means the person doing the work is responsible for meeting specifications. Together, design and conformance quality should deliver fitness for use: meeting the dimensions the customer wants (the voice of the customer).
Cost of quality (COQ)
COQ is estimated at 15 to 20 percent of every sales dollar, while a well-run program should be under 2.5 percent. It rests on three assumptions: failures occur, prevention is cheaper, and performance can be measured.
| Category | Examples |
|---|---|
| Prevention costs | Finding and removing causes of defects, training, redesign, new equipment, quality planning |
| Appraisal costs | Inspection, testing, laboratory tests |
| Internal failure costs | Scrap, rework, repair, downtime (defects found inside the firm) |
| External failure costs | Warranty, complaints, product liability, lost customers and goodwill (defects that reach the customer) |
Prevention has the largest influence: a rule of thumb says every dollar spent on prevention saves $10 in failure and appraisal costs. Reducing COQ often raises productivity as a by-product (a bank's loan-processing productivity index rose by over 16 percent).
Six Sigma
Six Sigma is both a statistical goal (no more than 3.4 defects per million) and a philosophy and program for removing defects by reducing process variation, which is seen as the enemy of quality. A defect is anything outside the customer's specification limits.
DPMO = Number of defects / (Number of opportunities for error per unit x Number of units) x 1,000,000.
Example 12.1: 150 of 1,000 mortgage applications take more than 10 days (one opportunity per loan): DPMO = 150 / 1,000 x 1,000,000 = 150,000.
Six Sigma projects follow DMAIC:
- Define: identify customers and priorities, select a project, identify CTQs (critical-to-quality characteristics).
- Measure: determine how to measure the process and current defect levels.
- Analyze: find the most likely causes of defects and key variables creating variation.
- Improve: remove causes, quantify effects, set acceptable ranges, modify the process.
- Control: maintain the improvements with tools that keep key variables in range.
Analytical tools: flowcharts (including SIPOC: supplier, input, process, output, customer), run charts (trends over time), Pareto charts (a few causes explain most problems, for example 80 percent of complaints from late delivery), checksheets, cause-and-effect (fishbone) diagrams, opportunity flow diagrams (value-added versus non-value-added steps) and process control charts. Also FMEA (failure mode and effect analysis): for each failure mode a risk priority number (RPN) based on occurrence, severity and detection; the highest RPNs are tackled first. Design of experiments (DOE) tests many variables simultaneously to find cause-and-effect between inputs X and output Y.
Lean Six Sigma combines Six Sigma quality tools with the minimal-inventory concept of lean; low inventory requires predictable, low-variability processes. Roles: executive leaders and champions (own the processes), master black belts (in-depth statistical training, support several teams), black belts (lead teams) and green belts (participate in teams or small projects). Other elements: stretch objectives and proof of permanent fixes before savings are claimed.
The Shingo system: fail-safe design
Shigeo Shingo (co-developer of Toyota's JIT system, also known for SMED setup reduction) argued that statistical quality control only detects defects after the fact. Errors are inevitable, but defects can be prevented by immediate feedback and correction. Inspection should cover 100 percent of items and can be a successive check (by the next person), self-check (by the worker) or source inspection (the worker checks for the errors that cause defects). These rely on poka-yokes: fail-safe procedures or devices (checklists, special tooling, kitting parts) that prevent an error or give rapid feedback.
ISO 9000, ISO 14000 and benchmarking
ISO 9000 is the international standard for quality management systems; firms document and implement their quality system and are verified by an accredited third party. It rests on seven principles: customer focus, leadership, involvement of people, process approach, continual improvement, factual decision making and mutually beneficial supplier relationships. ISO 14000 covers environmental management (monitoring standards, an environmental management system, and environmental aspects in product design). ISO 26000 gives guidance on social responsibility. Certification can be first party (self-audit), second party (customer audits supplier) or third party (accredited agency), the last being the strongest and offering legal advantages in the EU. External benchmarking identifies a world leader in a process, often outside the industry, and analyzes the gaps in both process and performance.