Implementing Quality Concepts

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Chapter 16

Chapter 16

Implementing Quality Concepts

Questions

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Chapter 16

1.Quality refers to the dimensions or characteristics of a product or service that make it able to meet the stated or implied needs of the person acquiring it.

Quality can be viewed from the perspective of the production process or through the eyes of the consumer. When viewed from the perspective of the production process, quality is often measured in terms of product life, failure rate, and durability. The consumer's view of quality reflects how well the product or service meets specified needs.

Both views of quality are valuable. The internal view of quality leads to greater process efficiency and better product design. The external view of quality keeps the company focused on the needs of its customers and the relationship between internal processes and external value.

2.Such activities include reworking defective units, handling waste materials, repairing broken production machinery, replacing broken product components, and scrapping defective products or product components.

3.The eight characteristics are detailed in Exhibit 16-2. They are performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived value.

The three characteristics of service quality are assurance, tangibles and empathy.

The majority of the product quality characteristics are objective, whereas the service quality characteristics are subjective. Thus, a company’s product could be reliable but its customer service department might not be. Product reliability can be tested against constant company specifications; service reliability is judged by individual customers. As noted in the chapter, however, it is possible for services to be measured against characteristics, if the service is in fact defined as the “product” the company sells.

4.Each student will have a different answer. No solution provided.

5.Benchmarking refers to a process of investigating, comparing, and evaluating one company’s product or services against those of another. Results benchmarking looks at the end product or service and its design, components, costs, and features. Process benchmarking looks at how something is produced or delivered and focuses on effectiveness and efficiency. Strategic benchmarking seeks to identify strategies of successful and high performing companies in the business world that may not be in the same industry as the benchmarking company.

The remaining part of the answer will differ with each student.

6.Total quality management is an organization-wide effort to seek continuous improvement in all aspects of operations. The four tenets are:

1.TQM necessitates an internal managerial system of planning, controlling, and decision making.

2.It requires participation by everyone in the organization.

3.It focuses on improving goods and services from the customer's point of view.

4.It values long-term partnerships with suppliers.

The Malcolm Baldrige National Quality Award is a competition for U.S. businesses. The award is based on an evaluation of management systems, processes, and customer satisfaction.

There are five categories of entrants for the Baldrige Award: manufacturing, service, small business, education, and health care organizations.

The award criteria categories are (see Exhibit 16-5): leadership, strategic planning, customer and market focus, measurement analysis and knowledge management, human resource focus, process management, and business results.

7.The four time phases are before production, during production, after production, and after sale. There are interdependencies in which the costs of each phase are inversely related to costs incurred in the subsequent and prior phases. For example, higher spending on quality considerations before production will lead to a decrease in spending in the later stages. Similarly, higher spending during production will reduce quality-related expenditures after production and after sale.

8.Pareto analysis helps identify the areas in which managers should focus their quality enhancement/cost reduction efforts so as to have the greatest impact. Managers can then allocate their time such that the amount of time invested in improving operations can be proportional to the benefits achieved.

9.Strategic cost management links information to corporate strategies by allowing managers to set and communicate organizational goals and objectives throughout the company; establish, implement, and monitor techniques and processes; accumulate and process measurement activities in a variety of ways based on the needs of users; and assess activities on a cost – benefit basis for both short-term and long-term decision models.

10.The continuum is depicted in Exhibit 16-14. At the low end of the continuum, a company merely meets internal inspection standards. At the next level is ISO 9000, followed by the Malcolm Baldrige award.

At the high end of the continuum is TQM.

11.Standards are issued for a variety of reasons. Two primary reasons are to ensure compatibility across systems (e.g., electrical plugs will be compatible with electrical outlets) and to protect consumers. In the global marketplace, quality may vary among the competitors in a specific market. A given country's standards ensure a minimal level of quality for all firms serving markets in that country.

A common set of global standards levels the playing field for all companies and should result in lower costs to all consumers. Companies will no longer have to incur the costs associated with complying with a variety of country-specific standards. The cost savings resulting from the lower compliance costs can be passed along to consumers.

12.A quality audit involves a review of product design activities, manufacturing processes and controls, quality documentation and records, and management quality policy and philosophy. It is often performed in connection with the ISO 9000 registration process.

13.The EFQM Excellence Model differs from the Malcolm Baldrige National Quality Award Criteria in that it is a European rather that a U.S. framework for quality improvement. Further, the EFQM Model does not provide a prescriptive roadmap to organizational excellence, but helps indicate the gap between where companies are and where they want to be.

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Chapter 16

Exercises

14. a.Students will discover great diversity in definitions of quality. It should be evident that the definition varies with perspective. For example, an engineer may define quality in terms of conformance with specification, durability, longevity, and design characteristics. Marketing specialists will define quality in terms of user demands such as the features offered and customer service and warranty characteristics. Accountants may define quality in terms of financial characteristics such as quality prevention costs relative to internal and external failure costs. Industries may also define quality uniquely. For example, raw materials may be defined in terms of their purity (water) or protein content (corn).

b.A copy store may define quality in terms of customer satisfaction. Some important dimensions of customer satisfaction that could be measured include lead time (time elapsing between the customer entering the store and being served), number of customer complaints, percentage of repeat customers, number of items returned as defective copies, and responses to customer surveys.

A blender manufacturer produces a longer lived product than a copy store and probably sells to chains or wholesalers rather than to the ultimate customer. Accordingly, quality concerns need to address both the ultimate customer and the initial customer. The initial customer is concerned about product marketability and the firm’s ability to deliver non-defective products efficiently and in the styles, quantities, and grades requested. The ultimate customer is concerned about the durability, features, warranty coverage, and customer service offered by the manufacturer.

The definitions students develop should lead to (a) identification of the important dimensions of quality for each firm and (b) performance measures for each dimension.

15.a. False. This definition fails to include appraisal costs.

b. False. Traditional accounts have quality costs imbedded in a variety of accounts. They are generally not separately identifiable.

c. True.

d. False. As the number of defective products produced rises, both internal and external failure costs can be expected to rise.

e.False. Higher quality typically leads to lower costs and greater profits in the long run.

f.False. Total quality management requires quality to be viewed from the perspective of the customer.

g.False. Results benchmarking can utilize comparisons to firms in any industry.

h.False. SPC charts are used to plot the variation in a process so that out-of-control conditions can be recognized.

i. True.

j.False. Spending on quality is unavoidable and is never free. Firms simply have a choice to either spend on quality compliance or quality noncompliance.

1. Western Digital produces hard drives--enterprise, external, desktop and mobile hard drives--computer accessories—e.g. adapter card or connect cable--and data storage for internet and broadband management solutions.

Western Digital uses statistical process control (SPC) to alert operations management when a process has gone out of control.

For online use, Western Digital has implemented SPC by collecting data at each workstation using a work code to identify each sample. This data is transmitted to the SPC software which produces control charts. If the process becomes out of control, the program alerts the operator and records it. The system them produces a detailed script of how to respond to the out-of-control incident.

For off line use, about once an hour, data is sent to an external server regarding all local data files. Engineers then analyze the data on this external server to identify problems and suggest improvements that might reduce process irregularities.

17.a.

b.The control chart demonstrates that there is substantial variation in the number of pepperoni slices per pizza. Although the number of slices per pizza is concentrated around the mid-thirties area, many of the pizzas have more than 40 slices. If the objective is to stay in the range of 34 to 38 slices per pizza, this objective is not being achieved. It is also evident that the tendency is to err in the direction of putting more than the specified number of slices on the pizzas.

18.Each student will have a different answer. However, the response should present the extent to which the dimensions of overall quality and service provision are similar. Both have quality dimensions concerned with the product or service being delivered as promised and being defined from the user’s point of view.

19. a.Each person would value different characteristics of the automobiles. The valued characteristics would depend on the unique circumstances of each buyer. Each buyer would place different weights on the various features associated with alternative vehicles and the various dimensions of quality such as size, economy, safety, and reliability.

b.All of the buyers would be interested in initial cost, safety, reliability, and operating costs. The young college student is probably also interested in style, performance, and sound systems. The young married couple would be interested in seating capacity (possibly a built-in baby seat), trunk storage, safety (including features like air bags), and warranty. The elderly couple is probably more interested in how easy the vehicles are to get into and out of, comfort (including features like air conditioning), ease of maintenance, and service and warranty provisions.

20.a. 2006 2007 % Change

Defect Prevention costs

Quality training $ 9,000 $10,500 17%

Quality technology 7,500 10,000 33%

Quality production design 4,000 9,000 125%

Total $20,500 $29,500 44%

External failure costs

Warranty handling $15,000 $10,000 - 33%

Customer reimbursements 11,000 7,200 - 35%

Customer returns handling 7,000 4,000 - 43%

$33,000 $21,200 - 36%

Total $53,500 $50,700 - 5%

b.The pattern of change in quality costs appears to be very favorable. Total expenditures for quality costs declined from 2006 to 2007. Perhaps most importantly, the internal quality compliance costs rose and the noncompliance costs declined. This pattern of change should allow the perception of quality by customers in the firm’s products to rise. Customers will detect fewer defective products and require fewer repair and replacement services.

21.a. b.

Compliance Costs 2006 2007 %Change

1. Fitting machines $ 18,800 $ 27,600 +47%

2. Supply-line management 16,000 20,000+25%

3. Quality training 56,000 60,000+ 7%

$ 90,800 $107,600+19%

Noncompliance Costs

4. Disposal of waste$ 88,000 $ 72,000 -18%

5. Customer refunds for poor quality 48,000 36,000 -25%

6. Litigation claims 144,000 112,000 -22%

280,000 $220,000 -21%

Total$370,800 $327,60012%

c.A 19% increase in compliance cost was accompanied by a 21% decrease in noncompliance cost and an overall reduction in the costs of quality. Management seems to be effectively managing costs of quality. The pattern of change is consistent with quality-conscious management. The costs incurred for compliance have increased from 2006 to 2007 creating a favorable effect: a decrease in the costs of noncompliance. Thus, the company is spending more to prevent quality problems and spending less to treat quality problems.

22. a.Reducing spending on quality assurance and inspection programs would automatically lower the average quality of goods leaving the plants. Also, a reduction in spending for managerial and employee training programs would lower quality in the long run as would reduced spending on machinery and equipment, and repairs and maintenance.

b.The directional effect is that improvements in quality drive costs down; the reverse is not necessarily true. An improvement in quality has predictable effects on costs, e.g., lower warranty expense, less scrap, less waste fewer defects, and fewer units to rework. Alternatively, a reduction in costs may result in a reduction in those activities that enhance quality and, consequently, quality suffers because the costs are cut.

c.Yes. If costs are cut because a process is simplified, quality can be enhanced as a result of the cost cutting measures. However, in this circumstance one could argue that costs went down because quality went up. Normally, one should be conscious of the fact that quality is a direct determinant of costs. A change in cost, on the other hand, may have an effect on quality that is difficult to predict because cost is not a direct determinant of quality.

23.a.Profits lost by selling defective units: (6,000 - 1,200) × ($60 - $40) = $96,000

b.Profits lost by selling defective units $ 96,000

Rework costs (1,200 × $12) 14,400

Cost of warranty work 5,000

Cost of customer returns (400 × $10) 4,000

Total costs of failure $119,400

c.Total costs of failure $119,400

Prevention costs 50,000

Appraisal costs 13,600

Total quality costs $183,000

24.a.Cost to rework: 380 x $16 = $6,080

b.Lost profit from not reworking all defective units:

(580 - 380) x ($56 - $20) = $7,200

c.Cost of customer returns: 100 × $10 = $1,000

d.Total failure costs are the sum of the answers to a, b, and c.

$6,080 + $7,200 + $1,000 = $14,280

e.Total failure costs $14,280

Prevention costs 24,000

Appraisal costs 12,000

Total quality cost $50,280

25.a.Different functional areas of the university would have different customers. The internal customers would include students (graduate and undergraduate), faculty, and administrators. The internal customers of faculty are students. The internal customers of staff employees are faculty and administrators.

The external customers include society, prospective employers, academics, and potential students. Because society supports public higher education with tax dollars, it expects to benefit through a higher standard of living and future participants in a productive workforce. Prospective employers are customers because they hire graduates (one of the outputs of a university). Other academics, as well as society, consume the research output produced by faculty. Potential students (and their families) are external customers because they evaluate the outputs of the university in making choices of where to attend school.

b.Students might define the quality of the university in terms of faculty credentials, student/faculty ratios, support services (e.g., computer facilities, health facilities, housing), historical success in placing graduates, and/or the athletic teams’ success rates. Faculty would define the quality of the university in terms of the credentials of faculty colleagues, quality of students, and availability and effectiveness of important support services in the teaching and research missions (highly trained staff, computer resources, and office facilities). Administrators would define quality in terms of the resources and personnel available to execute teaching, research, and support missions.

Society would define quality in terms of the efficiency and effectiveness of educating students and success in the research mission. Prospective employers would define quality in terms of the extent to which graduates fill their needs, facilities available for interviewing and evaluating students, and responsiveness of the university to changing needs of employers. Other academics would define the quality of other institutions relative to perceived quality of students, rates of publication in quality journals, and contributions to public service. Potential students would use many of the same criteria as existing students.

c.Both internal and external customers are important to a university. Only by serving the internal customers well will the external customers be served well. For example, if faculty fails to receive the necessary support from staff and administrators to execute effective teaching and research, prospective employers will be disappointed with the quality of the graduating students and society will not receive the benefits it expects.

26.Many advances in production technology have resulted in the displacement of workers. The public’s perception of the significance of the displacements is influenced largely by the way management treats the displaced workers. If management retrains the workers for other positions, as opposed to simply dismissing them, the changeover in technology will be viewed much more favorably. Furthermore, if management has a policy of firing displaced workers, internal morale is likely to be low which would tend to counter any quality initiatives offered by managers.

If managers strive to retain all displaced workers, the consumer will be more inclined to support the improvements in the process. Also, when advances in technology impact worker positions, those workers will be allowed to remain with the company and will be offered opportunities to advance their work skills.

27. a.The prevention costs would rise because that category would reflect the depreciation and operating costs of the equipment. However, both the internal and external failure costs would decline because of a lower level of defective output. Appraisal costs might also decline if the company can place greater confidence in output quality because of the new machine and thereby conduct fewer quality inspections. Additionally, the machine may be capable of conducting some tests of output quality.