QUALITY MANAGEMENT

HISTORY OF QUALITY
MANAGEMENT
Rooted in Post-World war II Japan
Japanese in an effort to build their nation adopted
the US manufacturing practices

Embraced and supported the work of two

American researchers: Joseph Juran (1904-2008)
and W Edwards Deming (1900-1993)
Juran blamed the culture of the firm and
management for poor quality
Deming developed SPC for industries
Japanese industry leaders embraced the idea that
efforts to improve quality can actually reduce costs

HISTORY OF QUALITY
MANAGEMENT
By 1970s and 1980s, US market was invaded by
Japanese electronic and automobile products
Toyota was already using advanced quality
management system, and TPS became the
international superstar of manufacturing practice
In late 1980s, Motorola developed the Six Sigma
(SS) approach, others (GE, Seagate, AlliedSignal)
adopted SS
TQM, another well-known method adopted by
industry

PERFORMANCE AND
CONFORMANCE
Successful quality management requires
managers to understand what constitutes quality
for the customer
Firms need to identifying the needs of the
customers and provide a product or service that
will satisfy or exceed their expectations

WHAT IS QUALITY?
Degree to which performance of a product
or service meets or exceeds customers
needs and expectations

DIMENSIONS OF QUALITY:
MANUFACTURED PRODUCTS
Product quality is often judged on eight dimensions:
Performance primary product characteristics
Features secondary characteristics
Reliability How often does the product fail?
Consistency of performance
Conformance to standards meeting design
specifications
Durability How long the product lasts; its life span
before replacement
Serviceability ease of repair, speed of repair
Aesthetics sensory characteristics (sound, feel, look)
Perceived Quality past performance, reputation,
recognition

ARTICLE KEY
POINTS
Eight dimensions of quality
Companies need not pursue all eight dimensions
If pursued, products become very costly
Companies need to scan the environment and find
what dimensions customers care for and work on
those dimensions

Proper market research is key

WHAT IS QUALITY
MANAGEMENT?
Set of activities that an organization
performs to maintain and improve the
quality of its products and services

PERFORMANCE AND
CONFORMANCE QUALITY
Different kinds of quality
Performance quality
Refers to the ability of the product to excel along
one or more performance dimensions
(attributes)
Conformance quality
Because of inherent variability in production
processes, nothing is produced exactly
according to specifications. The degree of
match between specifications and the actual
product or service is what we call as
conformance quality

SOME QUALITY ISSUES IN RECENT

TIMES INDIAN COMPANIES
Safety features in Indian made passenger
vehicles
Five Indian made hatchbacks failed in New Car Assessment
Program (NCAP) Test.
Scored 0 on a scale of 1-5 (1=least safe)

Banning of Indian drugs in US for some

Indian pharmaceutical companies for poor
manufacturing practices
Ranbaxy, Wockhardt, RPG Life Sciences and many

KEY CONTRIBUTORS TO
QUALITY MANAGEMENT
Shewart

Control Charts

Deming

14 points, special vs. common

cause variation

Juran

Quality is fitness-for-use

Feigenbaum

Customer defines quality

Crosby

Quality is free, zero defects

Ishikawa

Cause-and-effect diagrams

Taguchi

Taguchi loss function

Ohno and Shingo

Continuous improvement

MODERN DEFINITION
OF QUALITY
Quality is inversely proportional to variability
Reduction of variability is the fundamental idea in
quality control.

DESCRIBING VARIABILITY
Measures of variability (or spread out)
Range
Variance and the standard deviation
Coefficient of variation

QUALITY IMPROVEMENT
Quality improvement is the reduction of
variability in processes and products

COEFFICIENT OF
VARIATION
Coefficient of Variation, c = /
Where = standard deviation
= mean
If c<0.75 , low variability

If 0.75 <= c <=1.33, moderate variability

If c >= 1.33, High variability

WHEN IN THE PROCESS TO

INSPECT?
Raw materials and purchased parts
Finished products

Before a costly operation or where

significant value is added to the product
Before an irreversible process

Before a covering process

HOW MUCH TO INSPECT AND

HOW OFTEN?
The amount of inspection can range from no
inspection whatsoever to inspection of each item.
Low cost, high volume items require less
inspection
High-cost, low volume items require intensive
inspection
Majority of the quality control applications lie
somewhere between the two
Most require some inspection, but it is neither possible nor
economically feasible to critically examine every part of a product
for control purposes
As a rule, operations with high proportion of human involvement necessitate
more inspection than mechanical operations

COSTS OF QUALITY
1. Appraisal Costs
2. Prevention costs

3. Internal failure costs

4. External failure costs

COSTS OF QUALITY
Appraisal Costs (assessing the condition of
materials and processes at various points in
process)

Inspection and testing of incoming materials

Product inspection and test at various stages
Maintaining accuracy of test equipment (calibration)
Laboratory testing
Physical test
Chemical test

Costs of quality estimated to be between 15%-20% of sales at most companies

Crosby

COSTS OF QUALITY
Prevention Costs (costs associated with tasks
intended to prevent defects from occurring)

Quality Planning
Process monitoring
Training
Purchasing better equipment that produces less variation
Working with vendors to increase the quality of input materials
Process redesign to reduce errors
Quality data acquisition and analysis
Quality improvement projects

COST OF QUALITY
Internal failure costs (defects discovered before shipment)
Scrap
Rework
Process downtime
Retest
Failure analysis
Disposition
External failure costs (defects discovered after shipment)
Customer complaint
Warranty charges
Liability costs
Returned product/material

External and internal failure costs together accounted for 50%-80% of COQ
Juran

THE COSTS OF
QUALITY

QUALITY COST TREND PREDICTION

AS A FUNCTION OF TIME

COST OF QUALITY
Ce + Ci + Ca + Cp
Cost of Quality= -------------------------------------Cb + Ce + Ci + Ca + Cp
Ce = External failure cost
Ci = Internal failure cost

Ca = appraisal cost
Cp = prevention cost
Cb = measured base production cost ( no costs for
quality)

REPORTING QUALITY COSTS

A motor company produces small motors
for use in lawn mowers and garden
equipment. The company instituted a
quality management program in 2006 and
has recorded the cost data and accounting
measures for four years

AN EVALUATION OF
QUALITY COSTS
2006

2007

2008

2009

--Prevention

$27,000

41,500

74,600

112,300

--Appraisal

$155,000

122,500

113,400

107,000

--Internal
failure costs

$386,400

469,200

347,800

219,100

--External
failure Costs

$242,000

196,000

103,500

106,000

TOTAL

$810,400

$829,200

$639,300

$544,400

--Sales

$4,360,000

4,450,000

5,050,000

5,190,000

--Mfg. costs

$1,760,000

1,810,000

1,880,000

1,890,000

QUALITY
COSTS

ACCOUNTING
MEASURES

QUALITY INDEX
NUMBER
Year

Quality Sales Index

Quality Mfg. Cost Index

2006

18.58

46.04

2007

18.63

45.18

2008

12.66

34.00

2009

10.49

28.80

Quality Index = (Total quality costs / Base)100

COST OF QUALITY

It is estimated that the cost to fix a problem at the customer end is about 5 times the
cost to fix a problem at the design stage

CONSEQUENCES OF POOR
QUALITY
Loss of business
Liability

Productivity
Costs

7 BASIC QUALITY TOOLS USED IN

PROCESS IMPROVEMENT
1. Check Sheet
2. Scatter diagram
3. Histogram
4. Pareto Chart
5. Flow Chart

6. Run chart
7. Fish-bone diagram or Cause-and Effect
diagram

CHECK SHEET (AIRLINES)

Causes

January

February

March

April

Lost Luggage

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Departure
Delay

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Mechanical

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Overbooked

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EXAMPLE SUMMARIZED DATA

(AIRLINES PERFORMANCE)

PARETO CHART

HISTOGRAM

RUN CHART

SCATTER DIAGRAM

FISHBONE DIAGRAM

FLOW CHART