212 PART 2 DESIGNING OPERATIONS CHAPTER 6 MANAGING QUALITY 213 The Japanese use the word kaizen to describe this ongoing process of unending improve- ment—the setting and achieving of ever-higher goals. In the U.S., TQM and zero defects are also used to describe continuous improvement efforts. But whether it's PDCA, kaizen, TQM, or zero defects, the operations manager is a key player in building a work culture that endorses continuous improvement. TABLE 6.2 Deming's 14 points for Implementing Quality Improvement 1. Create consistency of purpose. 2. Lead to promote change. 3. Build quality into the product; stop depending on inspections to catch problems. 4. Build long-term relationships based on performance instead of awarding business on the basis of price. 5. Continuously improve product, quality, and service. 6. Start training. 7. Emphasize leadership. 8. Drive out fear. 9. Break down barriers between departments. 10. Stop haranguing workers. 11. Support, help, and improve. 12. Remove barriers to pride in work. 13. Institute a vigorous program of education and self-improvement. 14. Put everybody in the company to work on the transformation Six Sigma A program to save time, improve quality, and lower costs. Source: Deming, W. Edwards. Out of the Crisis, pp. 23-24, © 2000 W. Edwards Deming Institute, published by The MIT Press. Reprinted by permission. LO3 Explain what Six Sigma is Total Quality Management Total quality management (TQM) Management of an entire organization so that it excels in all aspects of products and services that are important to the customer. Total quality management (TQM) refers to a quality emphasis that encompasses the entire organiza- tion, from supplier to customer. TQM stresses a commitment by management to have a con- tinuing companywide drive toward excellence in all aspects of products and services that are important to the customer. Each of the 10 decisions made by operations managers deals with some aspect of identifying and meeting customer expectations. Meeting those expectations requires an emphasis on TQM if a firm is to compete as a leader in world markets. Quality expert W. Edwards Deming used 14 points (see Table 6.2) to indicate how he implemented TQM. We develop these into seven concepts for an effective TQM program: (1) continuous improvement, (2) Six Sigma, (3) employee empowerment, (4) benchmarking, (5) just-in-time (JIT), (6) Taguchi concepts, and (7) knowledge of TQM tools. Six Sigma The term Six Sigma, popularized by Motorola, Honeywell, and General Electric, has two mean- ings in TQM. In a statistical sense, it describes a process, product, or service with an extremely high capability (99.9997% accuracy). For example, if 1 million passengers pass through the St. Louis Airport with checked baggage each month, a Six Sigma program for baggage handling will result in only 3.4 passengers with misplaced luggage. The more common three-sigma pro- gram (which we address in the supplement to this chapter) would result in 2,700 passengers with misplaced bags every month. See Figure 6.4. The second TQM definition of Six Sigma is a program designed to reduce defects to help lower costs, save time, and improve customer satisfaction. Six Sigma is a comprehensive sys- tem—a strategy, a discipline, and a set of tools—for achieving and sustaining business success: It is a strategy because it focuses on total customer satisfaction. It is a discipline because it follows the formal Six Sigma Improvement Model known as DMAIC. This five-step process improvement model (1) Defines the project's purpose, scope, and outputs and then identifies the required process information, keeping in mind the cus- tomer's definition of quality; (2) Measures the process and collects data; (3) Analyzes the data, ensuring repeatability (the results can be duplicated) and reproducibility (others get the same result); (4) Improves, by modifying or redesigning, existing processes and procedures; and (5) Controls the new process to make sure performance levels are maintained. It is a set of seven tools that we introduce shortly in this chapter: check sheets, scatter diagrams, cause-and-effect diagrams, Pareto charts, flowcharts, histograms, and statistical process control. Motorola developed Six Sigma in the 1980s, in response to customer complaints about its products and in response to stiff competition. The company first set a goal of reducing defects by 90%. Within one year, it had achieved such impressive results—through benchmarking competitors, soliciting new ideas from employees, changing reward plans, adding training, and revamping critical processes—that it documented the procedures into what it called Six Sigma. Although the concept was rooted in manufacturing, GE later expanded Six Sigma into services, including human resources, sales, customer services, and financial/credit services. The concept of wiping out defects turns out to be the same in both manufacturing and services. Implementing Six Sigma Implementing Six Sigma is a big commitment. Indeed, suc- cessful Six Sigma programs in every firm, from GE to Motorola to DuPont to Texas Instru- ments, require a major time commitment, especially from top management. These leaders have to formulate the plan, communicate their buy-in and the firm's objectives, and take a visible role in setting the example for others. STUDENT TIP ☆ Here are 7 concepts that make up the heart of an effective TQM program. Continuous Improvement Total quality management requires a never-ending process of continuous improvement that covers people, equipment, suppliers, materials, and procedures. The basis of the philosophy is that every aspect of an operation can be improved. The end goal is perfection, which is never achieved but always sought. PDCA A continuous improvement model of plan, do, check. act. Plan-Do-Check-Act Walter Shewhart, another pioneer in quality management, devel- oped a circular model known as PDCA (plan, do, check, act) as his version of continuous im- provement. Deming later took this concept to Japan during his work there after World War II. The PDCA cycle (also called a Deming circle or a Shewhart circle) is shown in Figure 6.3 as a circle to stress the continuous nature of the improvement process. Lower limits Upper limits Figure 6.4 Defects per Million for 30 vs. +60 Figure 6.3 PDCA Cycle 4. Act 2,700 defects/million Implement the plan, document. 1. Plan Identify the problem and make a plan 3.4 defects/million 3. Check Is the plan working? 2. Do Test the plan. Mean +30 ☆ STUDENT TIP Recall that +30 provides 99.73% accuracy, while + 6 is 99.9997% +6σ 214 PART 2 DESIGNING OPERATIONS CHAPTER 6 MANAGING QUALITY 215 Successful Six Sigma projects are clearly related to the strategic direction of a company. It is a management-directed, team-based, and expert-led approach.? TABLE 6.3 Best Practices for Resolving Customer Complaints BEST PRACTICE Make it easy for clients to complain. Respond quickly to complaints. Resolve complaints on the first contact. Use computers to manage complaints. Recruit the best for customer service jobs. JUSTIFICATION It is free market research. It adds customers and loyalty. It reduces cost. Discover trends, share them, and align your services. It should be part of formal training and career advancement. Employee empowerment Enlarging employee jobs so that the added responsibility and authority is moved to the lowest level possible in the organization. Source: Based on Canadian Government Guide on Complaint Mechanism. Employee Empowerment Employee empowerment means involving employees in every step of the production process. Consistently, research suggests that some 85% of quality problems have to do with materials and processes, not with employee performance. Therefore, the task is to design equipment and processes that produce the desired quality. This is best done with a high degree of involvement by those who understand the shortcomings of the system. Those dealing with the system on a daily basis understand it better than anyone else. One study indicated that TQM programs that delegate responsibility for quality to shop-floor employees tend to be twice as likely to succeed as those implemented with “top-down” directives. When nonconformance occurs, the worker is seldom wrong. Either the product was de- signed wrong, the system that makes the product was designed wrong, or the employee was im- properly trained. Although the employee may be able to help solve the problem, the employee rarely causes it. Techniques for building employee empowerment include(1) building communication networks that include employees; (2) developing open, supportive supervisors; (3) moving responsibility from both managers and staff to production employees; (4) building high-morale organizations; and (5) creating such formal organization structures as teams and quality circles. Teams can be built to address a variety of issues. One popular focus of teams is quality. Such teams are often known as quality circles. A quality circle is a group of employees who meet regularly to solve work-related problems. The members receive training in group planning, problem solving, and statistical quality control. They generally meet once a week (usually after work but sometimes on company time). Although the members are not rewarded financially, they do receive recognition from the firm. A specially trained team member, called the facilita- tor, usually helps train the members and keeps the meetings running smoothly. Teams with a quality focus have proven to be a cost-effective way to increase productivity as well as quality. LO4 Explain how benchmarking is used in TQM Quality circle A group of employees meeting regularly with a facilitator to solve work-related problems in their work area develop a target at which to shoot and then to develop a standard or benchmark against which to compare your performance. The steps for developing benchmarks are: 1. Determine what to benchmark. 2. Form a benchmark team. 3. Identify benchmarking partners. 4. Collect and analyze benchmarking information. 5. Take action to match or exceed the benchmark. Typical performance measures used in benchmarking include percentage of defects, cost per unit or per order, processing time per unit, service response time, return on investment, customer satisfaction rates, and customer retention rates. In the ideal situation, you find one or more similar organizations that are leaders in the particular areas you want to study. Then you compare yourself (benchmark yourself) against them. The company need not be in your industry. Indeed, to establish world-class standards, it may be best to look outside your industry. If one industry has learned how to compete via rapid product development while yours has not, it does no good to study your industry. This is exactly what Xerox and Mercedes-Benz did when they went to L.L. Bean for order- filling and warehousing benchmarks. Xerox noticed that L.L. Bean was able to “pick” orders three times as fast as it could. After benchmarking, Xerox was immediately able to pare ware- house costs by 10%. Mercedes-Benz observed that L.L. Bean warehouse employees used flow- charts to spot wasted motions. The auto giant followed suit and now relies more on problem solving at the worker level. Benchmarks often take the form of “best practices” found in other firms or in other divi- sions. Table 6.3 illustrates best practices for resolving customer complaints. Likewise, Britain's Great Ormond Street Hospital benchmarked the Ferrari Racing Team's pit stops to improve one aspect of medical care. (See the OM in Action box "A Hospital Bench- marks Against the Ferrari Racing Team?") Benchmarking Selecting a demonstrated standard of performance that represents the very best performance for a process or an activity Benchmarking Benchmarking is another ingredient in an organization's TQM program. Benchmarking involves selecting a demonstrated standard of products, services, costs, or practices that represent the very best performance for processes or activities very similar to your own. The idea is to Workers at this TRW airbag manufacturing plant in Marshall, Illinois, are their own inspectors. Empowerment is an essential part of TQM. This man is checking the quality of a crash sensor he built. Internal Benchmarking When an organization is large enough to have many divisions or business units, a natural approach is the internal benchmark. Data are usually much more accessible than from outside firms. Typically, one internal unit has superior performance worth learning from. Xerox's almost religious belief in benchmarking has paid off not only by looking outward to L.L. Bean but by examining the operations of its various country divisions. For example, Xerox Europe, a $6 billion subsidiary of Xerox Corp., formed teams to see how better sales could result through internal benchmarking. Somehow, France sold five times as many color copiers as did other divisions in Europe. By copying France's approach, namely, better sales training and use of dealer channels to supplement direct sales, Norway increased sales by 152%, Holland by 300%, and Switzerland by 328%! Benchmarks can and should be established in a variety of areas. Total quality management requires no less. Copyright by TRW ?To train employees in how to improve quality and its relationship to customers, there are three other key players in the Six Sigma program: Master Black Belts, Black Belts, and Green Belts. 3*The Straining of Quality,” The Economist (January 14, 1995): 55. We also see that this is one of the strengths of Southwest Airlines, which offers bare-bones domestic service but whose friendly and humor- ous employees help it obtain number-one ranking for quality. (See Fortune [March 6, 2006): 65–69.) Note that benchmarking is good for evaluating how well you are doing the thing you are doing compared with the industry, but the more imaginative approach to process improvement is to ask, Should we be doing this at all? Comparing your warehousing operations to the marvelous job that L.L. Bean does is fine, but maybe you should be outsourcing the warehousing function. 216 PART 2 DESIGNING OPERATIONS CHAPTER 6 MANAGING QUALITY 217 High loss OM in Action A Hospital Benchmarks Against the Ferrari Racing Team? Quality Loss Function (a) Unacceptable Poor ZUeiIV Loss (to producing organization, customer, and society) Figure 6.5 (a) Quality Loss Function and (b) Distribution of Products Produced Taguchi aims for the target because products produced near the upper and lower acceptable specifications result in higher quality loss function. Fair Good Target-oriented quality yields more product in the "best" category. Best Low loss After surgeons successfully completed a 6-hour operation to fix a hole in a 3-year-old boy's heart, Dr. Angus McEwan supervised one of the most dangerous phases of the procedure: the boy's transfer from surgery to the intensive care unit. Thousands of such "handoffs" occur in hospitals every day, and devastating mistakes can happen during them. In fact, at least 35% of preventable hospital mishaps take place because of handoff problems. Risks come from many sources: using temporary nursing staff, frequent shift changes for interns, surgeons working in larger teams, and an ever-growing tangle of wires and tubes connected to patients. Using an unlikely benchmark, Britain's largest children's hospital turned to Italy's Formula One Ferrari racing team for help in revamping patient handoff techniques. Armed with videos and slides, the racing team described how they analyze pit crew performance. It also explained how its system for recording errors stressed the small ones that go unnoticed in pit-stop handoffs. To move forward, Ferrari invited a team of doctors to attend practice sessions at the British Grand Prix in order to get closer looks at pit stops. Ferrari's technical director, Nigel Stepney, then watched a video of a hospital handoff. Stepney was not impressed. "In fact, he was amazed at how clumsy, chaotic, and informal the process appeared," said one hospital official. At that meeting, Stepney described how each Ferrari crew member Target-oriented quality brings products toward the target value. Conformance-oriented quality keeps products within 3 standard deviations. Frequency Associated Press Distribution of Specifications for Products Produced (b) Lower Upper is required to do a specific job, in a specific sequence, and in silence. The hospital handoff, in contrast, had several conversations going on at once, while different members of its team disconnected or reconnected patient equipment, but in no particular order. Results of the benchmarking process: handoff errors fell over 40%, with a bonus of faster handoff time. Target Specification Sources: The Wall Street Journal (December 3, 2007) and (November 14, 2006). Quality loss function (QLF) A mathematical function that iden- tifies all costs connected with poor quality and shows how these costs increase as product quality moves from what the customer wants. LO5 Explain quality robust products and Taguchi concepts Just-in-Time (JIT) The philosophy behind just-in-time (JIT) is one of continuing improvement and enforced problem solving. JIT systems are designed to produce or deliver goods just as they are needed. JIT is related to quality in three ways: JIT cuts the cost of quality: This occurs because scrap, rework, inventory investment, and damage costs are directly related to inventory on hand. Because there is less inventory on hand with JIT, costs are lower. In addition, inventory hides bad quality, whereas JIT imme- diately exposes bad quality. JIT improves quality: As JIT shrinks lead time, it keeps evidence of errors fresh and limits the number of potential sources of error. JIT creates, in effect, an early warning system for quality problems, both within the firm and with vendors. Better quality means less inventory and a better, easier-to-employ JIT system: Often the purpose of keeping inventory is to protect against poor production performance resulting from unreliable quality. If consistent quality exists, JIT allows firms to reduce all the costs associated with inventory. the effects is often cheaper than removing the causes and more effective in producing a robust product. In this way, small variations in materials and process do not destroy product quality. A quality loss function (QLF) identifies all costs connected with poor quality and shows how these costs increase as the product moves away from being exactly what the customer wants. These costs include not only customer dissatisfaction but also warranty and service costs; internal inspection, repair, and scrap costs; and costs that can best be described as costs to society. Notice that Figure 6.5(a) shows the quality loss function as a curve that increases at an increasing rate. It takes the general form of a simple quadratic formula: L = Dºc where L = loss to society D2 = square of the distance from the target value C = cost of the deviation at the specification limit All the losses to society due to poor performance are included in the loss function. The smaller the loss, the more desirable the product. The farther the product is from the target value, the more severe the loss. Taguchi observed that traditional conformance-oriented specifications (i.e., the product is good as long as it falls within the tolerance limits) are too simplistic. As shown in Figure 6.5(b), conformance-oriented quality accepts all products that fall within the tolerance limits, produc- ing more units farther from the target. Therefore, the loss (cost) is higher in terms of customer satisfaction and benefits to society. Target-oriented quality, on the other hand, strives to keep the product at the desired specification, producing more (and better) units near the target. Target-oriented quality is a philosophy of continuous improvement to bring the product exactly on target. Target-oriented quality A philosophy of continuous improvement to bring a product exactly on target Quality robust Products that are consistently built to meet customer needs in spite of adverse conditions in the produc- tion process. Taguchi Concepts Most quality problems are the result of poor product and process design. Genichi Taguchi has provided us with three concepts aimed at improving both product and process quality: quality robustness, quality loss function, and target-oriented quality. Quality robust products are products that can be produced uniformly and consistently in adverse manufacturing and environmental conditions. Taguchi's idea is to remove the effects of adverse conditions instead of removing the causes. Taguchi suggests that removing Knowledge of TQM Tools To empower employees and implement TQM as a continuing effort, everyone in the organiza- tion must be trained in the techniques of TQM. In the following section, we focus on some of the diverse and expanding tools that are used in the TQM crusade.
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