Module 1
Module 1
Module 1
MBA Semester 3
Course – OM2: Quality Toolkit for Managers
Topics Covered
1. Dimensions of Quality
2. Cost of Quality
3. Quality philosophies
4. Quality systems
5. Contribution of Quality gurus
1. Dimensions of Quality
Introduction to Quality Concepts: It is widely recognized that consumers only buy the goods
with good quality, desired functions, and accepted price. Therefore, industries always adopt
several management practices, or even develop some management systems to design and
produce the products so as to meet customers’ needs and expectations showcasing good
quality and lower costs. But the management practices or systems adopted by the industries
are always changed due to the changes of the quality concepts as time goes by. This occurs as
several quality gurus give the pragmatic definitions of “quality” over different time periods,
thus causing industries to implement different practices or systems to control overall product
quality.
In the first three decades of the last century, quality was defined as “conforming to the
standards and specifications of a product”. Thus, the commonly adopted quality practices by
industries were the standardization of quality, inspection, and rework.
Dimensions of Quality: The most fundamental definition of a quality product are one that
meets the expectations of the customer. However, even this definition is too high level to be
considered adequate. In order to develop a more complete definition of quality, we must
consider some of the key dimensions of a quality product or service.
Dimension 1: Performance
Does the product or service do what it is supposed to do, within its defined tolerances?
Dimension 2: Features
Does the product or services possess all of the features specified, or required for its intended
purpose?
While this dimension may seem obvious, performance specifications rarely define the
features required in a product. Thus, it’s important that suppliers designing product or
services from performance specifications are familiar with its intended uses, and maintain
close relationships with the end-users.
Dimension 3: Reliability
Reliability may be closely related to performance. For instance, a product specification may
Dimension 4: Conformance
Dimension 5: Durability
How long will the product perform or last, and under what conditions?
Durability is closely related to warranty. Requirements for product durability are often
included within procurement contracts and specifications.
For instance, fighter aircraft procured to operate from aircraft carriers include design criteria
intended to improve their durability in the demanding naval environment.
Dimension 6: Serviceability
As end users become more focused on Total Cost of Ownership than simple procurement
costs, serviceability (as well as reliability) is becoming an increasingly important dimension
of quality and criteria for product selection.
Dimension 7: Aesthetics
The way a product looks is important to end-users. The aesthetic properties of a product
contribute to a company’s or brand’s identity. Faults or defects in a product that diminish its
aesthetic properties, even those that do not reduce or alter other dimensions of quality, are
often cause for rejection.
Dimension 8: Perception
Perception is reality. The product or service may possess adequate or even superior
dimensions of quality, but still fall victim to negative customer or public perceptions.
As an example, a high-quality product may get the reputation for being low quality based on
poor service by installation or field technicians. If the product is not installed or maintained
properly, and fails as a result, the failure is often associated with the product’s quality rather
than the quality of the service it receives.
2. Cost of Quality
Cost of poor quality (COPQ) is defined as the costs associated with providing poor quality
products or services. There are three categories:
2. Internal failure costs are costs associated with defects found before the customer
receives the product or service.
3. External failure costs are costs associated with defects found after the customer
receives the product or service.
Quality-related activities that incur costs may be divided into prevention costs, appraisal
costs, and internal and external failure costs.
Appraisal costs
Appraisal costs are associated with measuring and monitoring activities related to quality.
These costs are associated with the suppliers’ and customers’ evaluation of purchased
materials, processes, products, and services to ensure that they conform to specifications.
They could include:
• Verification: Checking of incoming material, process setup, and products against agreed
specifications
Internal failure costs are incurred to remedy defects discovered before the product or service
is delivered to the customer. These costs occur when the results of work fail to reach design
quality standards and are detected before they are transferred to the customer. They could
include:
• Failure analysis: Activity required to establish the causes of internal product or service
failure.
External failure costs are incurred to remedy defects discovered by customers. These costs
occur when products or services that fail to reach design quality standards are not detected
until after transfer to the customer. They could include:
Repairs and servicing: of both returned products and those in the field
Warranty claims: Failed products that are replaced or services that are re-performed
under a guarantee.
Complaints: All work and costs associated with handling and servicing customers’
complaints.
Prevention Costs
Prevention costs are incurred to prevent or avoid quality problems. These costs are associated
with the design, implementation, and maintenance of the Quality Management System. They
are planned and incurred before actual operation, and they could include:
• Quality planning: Creation of plans for quality, reliability, operations, production, and
inspection
The costs of doing a quality job, conducting quality improvements, and achieving goals must
be carefully managed so that the long-term effect of quality on the organization is a desirable
one.
These costs must be a true measure of the quality effort, and they are best determined from
an analysis of the costs of quality. Such an analysis provides a method of assessing the
effectiveness of the management of quality and a means of determining problem areas,
opportunities, savings, and action priorities.
Cost of quality is also an important communication tool. Philip Crosby demonstrated what a
powerful tool it could be to raise awareness of the importance of quality. He referred to the
measure as the "price of nonconformance" and argued that organizations choose to pay for
poor quality.
Many organizations will have true quality-related costs as high as 15-20% of sales revenue,
some going as high as 40% of total operations. A general rule of thumb is that costs of poor
quality in a thriving company will be about 10-15% of operations. Effective quality
improvement programs can reduce this substantially, thus making a direct contribution to
profits.
The quality cost system, once established, should become dynamic and have a positive impact
on the achievement of the organization’s mission, goals, and objectives.
3. Quality Philosophies
The philosophy of Quality has traditionally focused upon the development and
implementation of a corporate wide culture that emphasizes a customer focus, continuous
improvement, employee empowerment, and data driven decision making. The drivers of this
philosophy are rooted in the alignment of product and service systems design with customer
expectations, along with the focusing on quality during all phases of development, production,
and delivery. The philosophy is process centric and emphasizes the reduction of variability as
well as a continuous improvement in the functionality of the final product or service.
It is widely recognized that quality cannot be inspected into a product or service; it needs to
be planned for and design into the product or service system. If this exercise is performed
incorrectly, a quality result cannot be achieved. In an investigation of the relationships
between Total Quality Management (TQM) practices, plant performance, and customer
satisfaction there was found a strong direct linkage between quality management practices
and customer satisfaction. They also found that a good design helps the firm to develop and
produce new products more quickly, while simultaneously minimizing engineering changes
and costs.
Frederick W. Taylor was the first to advocate that the most efficient method for the
accomplishment of work was to standardize work methods, He also espoused that
management was responsible for the design of the processes and methods used by the firm to
produce its products and services. In 1939, Walter Shewhart advanced the importance of
understanding variation and the usage of the scientific method for performance improvement.
Many others introduced tools and methodologies based upon these principles. All of which
lead to many firms within the USA to improve efficiencies and higher productivity.
After World War II, the USA was virtually the only country with a developed and intact
industrial base. Because of this situation, businesses had few worries about competitive
pressures, and focused their innovative efforts on optimizing internal operations. Quality was
not a paramount issue. But, by the middle 1980’s, the paradigm had shifted towards an
organizational wide, team based, customer focused philosophy. This change was driven by the
blending of western industrial management tools and methodologies, with Japanese
innovative production techniques developed during the post-world war II rebuilding.
After the end of World War II, the Japanese industry base recovered much of their industrial
base. However, Japanese industry not only recovered but was extremely competitive in the
international marketplace. Soon, the Japanese over took the United States by offering products
that were more reliable and of higher quality. The result was that U.S. companies started
losing market share. What really confused U.S. managers was that not only were the Japanese
products smaller (or had fewer features), they were also higher priced.
How did this happen? After the war, the U. S. sent industry experts to Japan to educate their
industry leaders on tools and principles of management used in Western industry. What
transpired was a blending of those tools and principles with the cultural philosophies of
Japanese society. The result was a new management philosophy that was based upon such
principles as respect for individuals, teamwork, extensive planning before execution. The
overall result of this blending was a new management philosophy focused on customer needs
and quality product and services that meet those needs. Even with the successes of Japanese
companies in the world markets, the philosophy originally remained specific isolated to Japan.
Deming espoused that higher quality leads to higher levels of productivity, which in turn leads
to increased long-term competitiveness. The main components of Deming’s philosophy on
total quality management were his chain reaction theory, the fourteen-points of TQM, and the
theory of profound knowledge. Though Deming’s original audience was the manufacturing
industries, the principles of total quality management soon transcend industry boundaries:
reaching into services, health care, government, and more.
The application of Deming’s chain reaction theory implies two basic sets of reactions. The first
reaction is that as a company improved its transformation processing quality, work would
increasingly be performed correctly on the first pass, resulting in lower costs because of less
scrap, rework and warranty costs, fewer delays and snags in material flows, and an overall
better use of time and materials. This, in turn, would result in increased productivity. As the
company’s cost structure decreased, its profit margins would increase, leading to greater
market shares. The second reaction is that as the company improved the quality of its
products and services, its customers would perceive a greater value proposition that would
increase market demand allowing the company to increase its pricing. Both these factors
would lead to higher market share. Thus, the company could be more competitive within its
sector and continuously extend its life and thus provide a steady stream of employment
opportunities.
Both reaction chains are driven by top management focusing on the management of quality
throughout the organization. Deming’s fourteen points provide a checklist for this focus.
Though decision-making in both reaction chains are customer driven, the understanding of
customer needs and how to achieve satisfaction is greatest in the first reaction chain because
product/service design decisions must be governed by an understanding of how product
features and service attributes will be perceived by the customer.
• Adopt the new philosophy: Management must awaken to the challenges facing us in
today’s world. They must learn their responsibilities to the organization and the customer,
and undertake leadership for change.
• Plan for quality: Management must eliminate the need for mass inspection as the way
of life to achieve quality. Inspections are only good for sorting good output from bad, and for
collecting information. If the goal is to produce a quality output, it must be planned for and the
appropriate philosophy built into the product creating process.
• End the practice of awarding business based on price: Management’s focus should be on
the minimization of total cost and not on the lowest cost for a single item. When long-term
relationships are established between business partners several things happen. First, they
start working together towards mutual goals. Second, information is shared more readily,
resulting in a decrease in uncertainty. Third, work and processing activities can be aligned
between different partners to better leverage organizational capabilities leading to greater
value creation. The end result is that quality is continually improved while total costs are
decreased.
• Institutional training: People are at their most productive when they have the requisite
skills and knowledge for the performance of tasks they have been assigned. As processes and
methodologies are improved or changed, the workforce needs to be trained with the new
skills and knowledge. Additional training on skills and knowledge on tasks peripheral to their
primary tasks, makes workers more flexible and consequently improves the versatility of the
organization. The greater the versatility of the organization, the leaner it can run and still
deliver the products and services demanded by its customers in a cost-effective manner.
• Drive out fear: Management is responsibility for the design, monitoring and controlling
of the organizations processes, as well as the planning of future activities and organizing of
resources for the carrying out of those plans. The work force is responsible for the execution
of management’s plans. When problems occur, as first responders, the work force will be the
ones to first notice them and understand their implications. Without an organizational culture
that encourages workers to instantly recognize potential problems and elevate relevant is-
sues, management may never become aware of possible hitches, until it is too late to prevent
them from affecting the customer. Thus, management needs to encourage effective two-way
communication and other means of driving out fear throughout the organization so that
everybody may work effectively and more productively for the company.
• Break down barriers between functional areas: In today’s fast paced world companies
are being driven to making decisions and delivering products and service at an ever increase
rate. One of the best tools for analyzing and maturing decisions that meet requirements on the
first pass is cross- functional teams. In most organizations, knowledge is specific to managed
function related departments. Often bureaucratic barriers stifle the communications between
these departments. This impeding of the information flow degrades decision making, which
can result in unanticipated problems. Cross-functional teams (i.e.; people from different areas,
such as Leasing, Maintenance, Administration, and other departments) circumvent these
barriers by bringing all of the necessary people together to tackle problems that may be
encountered with products or service.
• Eliminate exhortations: The practices of using slogans, posters and exhortations for the
work force, demanding Zero Defects and new levels of productivity, without providing the
appropriate methods and re- sources frequently result in failed initiatives and lowered moral.
These methods of exhortation generally create adversarial relationships be- tween
management and its work force by solely focusing on meeting goals that were not realistically
set in the first place Deming believed that eighty-five percent of low quality and low
productivity problems were caused by poorly designed and managed systems (i.e., area of
management responsibilities), and thus are beyond the capabilities of the work force to fix.
• Eliminate quotas: Work standards that prescribe quotas for the work force and
numerical goals for people in management rarely result in the production of quality products
and services. If management has not designed its processes with the appropriate capacity
levels and quality- based capabilities, the work force will not be able to meet quotas or goals
the system’s parameters. Instead management needs to replace quotas and numerical goals
with aids and helpful leadership in order to achieve continual improvement of quality and
productivity.
• Remove barriers that rob people pride of workmanship: No one likes go to bed at night
knowing that the next day will be characterized by either unproductive boredom or
frustration. They would much prefer to go home at the end of the day feeling that they have
not just wasted eight hours of their life. Management can make this happen by re- moving the
barriers that rob hourly workers as well as and people in management of their right to pride
of workmanship.
• Everyone in the company must work to accomplish the transformation: Quality is a team
• Only top management can create a structure that will push every day on the preceding
13 Points, and take action in order to accomplish the transformation. Support this philosophy
is not enough, action is necessary!
• Variation: Every process has variances in output. The degree of variability is inherent to
the basic design of the process. Variability can also be incurred when factors outside the basic
design interact with the operations of the process. Excessive amounts of variability will make
predicting the process output increasingly more difficult. This will lead to more wastage and
also need the process to be reworked. Deming stressed that management must first
understand the process and the nature of variability, and then work to reducing variations in
process out- put through improvements in technology, process design, and training.
• Theory of Knowledge: Recognizing the works of Clarence Lewis, Deming stressed two
underlying facts about the creation of knowledge: 1) that knowledge was not possible without
theory, and 2) experience alone does not establish theory.
“Experience without theory teaches nothing. In fact, experience cannot even be recorded
unless there is some theory, however crude, that leads to a hypothesis and a system by which
to catalog observations”.
Joseph Juran
Is it better to continuously improve every process all of the time? What about in situations
when the cost of fixing a problem is significantly greater than the cost of reworking only the
specific faulty items that were produced? What if the problem is of lesser strategy value than
another problem and there are only enough resources available to fix one of the problems?
These situations are common in business, and if the goal of being in business is to make money
so you can stay in business, then decisions must be prioritized.
The center piece of Juran’s philosophy was that there was an optimal level of quality, based
upon a trade- off between quality costs. He believed that because of the nature of these costs,
this optimal level would be less than 100 percent product conformance to specification.
Juran’s perspective on the cost of quality is show in Figure 4-2
Juran’s model fails to account for the effects of technological innovations and competitive
pressures. Others have noted that costs tend to increase at a constant rate, or remain flat, or
even slightly decline in production environments where there is a strong learning curve,
automated inspections, and other new quality practices. Furthermore, Juran’s assumption
that appraisal and prevention costs could be combined has been questioned. It has been
observed that when prevention costs increase, defects will go down causing failure costs to
decrease and diminishing the need for investments in appraisal activities. Finally, it has been
noted that when appraisal cost increase, external failures can decline while internal failures
will typically increase. The new perspective for the cost of quality is show in Figure 4-3.
3. There is no such thing as the economics of quality; doing the job right the first time is
always cheaper.
4. The only performance measurement is the cost of quality, which is the expense of non-
conformance.
There have been several approaches to the measuring of. . Feigenbaum classified quality costs
into three main categories: prevention, appraisal, and failure. The basic premise of this P-A-F
model is that investments in prevention and appraisal activities will reduce failures, and that
continued investments in prevention activities will lead to reduction in appraisal costs. The
costs categories in the P-A-F model are generally described as follow;
Prevention costs are those costs associated with all activities designed to prevent poor
quality. Examples include;
• Quality planning
Appraisal costs are those costs associated with the measuring, evaluating or auditing to
assure conformance to quality standards and performance requirements. Examples include;
Internal failure costs are those costs resulting from not conforming to specifications. Here,
the defect is caught prior to delivery of the product, or the furnishing of a service, to the
customer. Examples include;
• Rework
• Re-inspection
• Re-testing
• Material review
External failure costs are those costs associated with the defect being caught after delivery
of the product. In these cases, an additional service has to be provided to the customer.
Examples include;
• Customer returns
• Warranty claims
• Product recalls
The British Standards Institute, in an effort to extend the concept of quality costing to all
functions of an enterprise and to non-manufacturing organizations, published a model
focused on process costs (BS 6143: Part 1, 1992). In this model, the CoQ’s are collected for a
specific process, supposed to the whole company. This model pursues a continuous
improvement approach to process management that is reflective of both the Kaizen approach
and to Deming’s (1986) Plan-Do-Check-Act (PDCA) cycle.
Armand Feigenbaum
Feigenbaum believed that TQM was the most effective method for integrating the various
quality activities of multiple groups in an organization while enabling production and services
to deliver customer satisfaction at its most economical level. Furthermore, he believed that in
the typical non- TQM manufacturing environment there was so much extra work being
performed in correcting mistakes that there was essentially a “hidden” plant within the
factory. Most importantly, he believed that quality was everyone’s job, and without upper
management actively and visibly involved, no one would do it.
Feigenbaum stressed that quality did not mean the best performing, or the best technical
Quality Toolkit for Managers (Module 1) – Compiled by Prof. Devendra Bisen 13
option. Instead, it means the best for the customer’s usage. In the system that he envisioned,
quality control was a four (4) step management tools involving: setting of quality standards,
appraising conformance to those standards, acting when standards were not meet or were
exceeded, and planning for improvements in the standards. The following tenets sum up the
essences of Feigenbaum’s system of TQM;
• For quality to work properly it must be implemented as a total system and involving
both customers and suppliers.
Kaoru Ishikawa
Even though Deming, Joseph Juran, and Phillip Crosby are the most famous of the quality
gurus, it was Kaoru Ishikawa that laid the foundations of TQM by initiating a company-wide
quality control (CWQC) system. His vision for CWQC held that quality was not just about the
conformance/performance of the product, but also included after sales service, quality of
management, the company itself and human life. He believed that quality improvement was a
continuous process that could always be taken one step further. He emphasized that quality
was important throughout the product’s life cycle.
Ishikawa felt that the creation of standards was important, but did not believe that they were
the ultimate source of decision making; customer satisfaction was. Thus, he endorsed that
standards should be constantly evaluated and changed to ensure customer satisfaction.
Ishikawa is most noted for his contributions in simplifying statistical techniques for quality
control through the development of simple tools for the application of statistics such as
control charts, run charts, histograms, scatter diagrams, Pareto diagrams, and flowcharts. In
addition to these tools, he invented quality circles, and created the cause-and-effect diagram.
4. Quality Systems
1. Customer Focus
This almost goes without saying. An organization that doesn’t focus on customers won’t be
around for long. Although a customer focus is critical, many times this can be lost in the
priorities of a quality system and the various processes involved.
The focus should include current—and future—customers. Besides continuously meeting or
exceeding customer expectations, companies should measure customer satisfaction.
Conversely, failing to meet customer expectations should also be tracked. Every function and
department should be involved.
2. Leadership
As with any quality idea, support must start at the top. Without good leadership, an
organization will suffer. Leaders should set a vision and goals for the company. Think back to
an inspiring leader you’ve met. Perhaps this was at work or even at a quality event.
3. Engagement of People
An engaged workforce is one that you want to have. This means the abilities of the staff are
used and valued. It also enables continuous improvement, learning, and discussion of any
issues. With an engaged workforce, staff are held accountable for their actions. Rather being
seen as a passive place to clock in every morning, the job requires everyone in the
organization to be active and engaged in their work.
4. Process Approach
As with so many things in quality, a process approach outlines the steps for success.
This means activities are managed as processes, measured, and connections between
activities are identified. Opportunities for improvement are tracked. Quality doesn’t just
5. Improvement
A strong quality system requires change. Without improvement, companies will eventually be
outshined by the competition. Aiming to maintain the status quo does not inspire anyone.
This means the company’s performance and capabilities should be developed on an ongoing
basis. These improvement activities should align with goals, and staff should be encouraged
and empowered to make improvements. When improvements are made, these should be
measured. And finally, celebrated! When things go well, it’s important to acknowledge it.
Quality isn’t all stressful audits and data analysis. Sometimes it’s formal recognition and
praise.
As you may have guessed, gut feelings are not the way forward. Rather, data is king. Of course,
this should be no surprise to the quality professional. Organizations should make sure data is
accessible, accurate, and reliable. It should be analyzed and decisions made based on it. Still,
data analysis should be balanced with practical experience. The numbers tell the story, but it
is important not to discount experience as well.
7. Relationship management
Finally, the people are the important part of any organization, and the relationships between
suppliers and other partners are critical. Suppliers should be selected carefully based on the
ability to create value as well as manage costs. Partners should be aware of plans and
information that would help them in their work. A spirit of collaboration should be the goal.
Coordinating improvement activities can help both parties. Recognizing supplier successes
will also go a long way to maintaining a strong relationship.
Philip Crosby:
Dr. EdwardsDeming
• Shewhart’s control charts are widely used to monitor processes. Problems are framed in
terms of special cause (assignable cause) and common cause (chance-cause).
• The Shewhart Cycle – PDCA Problem Solving Process:
• Plan – what changes are desirable? What data is needed?
• Do – carry out the change or test decided upon
• Check – observe the effects of the change or the test
• Act – what we learned from the change should lead to improvement or activity
• Referred to as the “Father of Statistical Quality Control”
• The lack of quality should be measured as function of deviation from the nominal value of
the quality characteristic. Thus, quality is best achieved by minimizing thedeviation from target
(minimizing variation).
• Quality should be designed into the product and not inspected into it. The productshould
be so designed that it is immune to causes of variation.
Taguchi recommends a three-stage design process:
System Design (Stage 1):
• Development of a basic functional prototype design.
• Determination of materials, parts and assembly system.
• Termination of the manufacturing process involved.
Parameter Design (Stage 2):
• Selecting the nominal’s of the system by running statistically planned experiments
(DFSS/DOE)
Tolerance Design (Stage 3):
• Deals with tightening tolerances and upgrading materials.