The backwoods american company in problem 2 1

Assignment 1: Discussion—Process Design

Chapter 2 Quality Management

Russell. Operations Management: Creating Value Along the Supply Chain, 7th Edition. John Wiley & Sons.

Quality Management AT MARS

Mars produces its chocolate candy products according to five principles that define a philosophy of its values that lead and guide the company. First among these principles is quality. At Mars “the consumer is the boss; quality is the work; and value is the goal.” Their commitment to quality guides their approach to delivering products that “delight their customers” while meeting uncompromising safety standards.

The Mars Quality Management Process (QMP) is applied to all aspects of its supply chain, from acquiring high-quality ingredients, to their manufacturing processes, to product distribution, and to measuring customer satisfaction. Mars QMP is maintained at the leading edge of quality management practices by benchmarking against the highest quality and food safety standards and best practices throughout the food industry. Continuous improvement is the foundation of Mars QMP and drives the company to continually raise its standards and learn how to do things more effectively and efficiently to bring value to its customers.

In effect, quality is an obsession at Mars. All Mars employees are committed to quality, are provided the technical skills to deliver quality excellence, and are accountable for providing their customers with the highest possible quality. An example is their fear of “incremental degradation,” a term they use to describe what can happen by using cheaper ingredients. Rather than replace a high-priced ingredient with a cheaper one, even if taste tests show that the customer wouldn't notice the difference, Mars will forego the extra profit to avoid risking incremental degradation in product quality. In spotlessly clean Mars plants, employees are constantly tasting products to make sure they are being made properly, and an entire production run of Snickers may be thrown out because of barely noticeable nicks in the chocolate coating. A Mars salesman at a supermarket will throw out a whole product display if it's getting too close to its freshness date. Mars considers each individual sale its most important one, and their goal is to build life-long relationships with its customers. They believe if they forget this they risk resting on their past and ignoring their future.

In this chapter we will discuss how other quality-conscious companies like Mars develop effective quality management [QM] programs.

Source: Mars Web site at www.mars.com; and Craig J. Cantoni, “Manager's Journal: Quality Control from Mars,” Wall Street Journal, January 27, 1992, pg. A12.

WHAT IS QUALITY?

Asked “What is quality?” one of our students replied “getting what you pay for.” Another student added that to her, quality was “getting more than you paid for!” The Oxford American Dictionary defines quality as “a degree or level of excellence.”

What is quality in the eye of the beholder?

The American Society for Quality (ASQ) defines quality as “a subjective term for which each person has his or her own definition. In technical usage, quality can have two meanings: (1) The characteristics of a product or service that bear on its ability to satisfy stated or implied needs and (2) A product or service free of deficiencies.” Obviously, quality can be defined in many ways, depending on who is defining it and the product or service it refers to. In this section we provide a perspective on what quality means to customers and companies.

QUALITY FROM THE CUSTOMER'S PERSPECTIVE

A business organization produces goods and services to meet its customers' needs. Customers want value and quality has become a major factor in the value of products and service. Customers know that certain companies produce better-quality products than others, and they buy accordingly. That means a firm must consider how the consumer defines quality. The customer can be a manufacturer purchasing raw materials or parts, a store owner or retailer purchasing products to sell, or someone who purchases retail products or services over the Internet. W. Edwards Deming, author and consultant on quality, says that “The consumer is the most important part of the production line. Quality should be aimed at the needs of the consumer, present and future.” From this perspective, product and service quality is determined by what the customer wants and is willing to pay for. Since customers have different product needs, they will have different quality expectations. This results in a commonly used definition of quality as a service's or product's fitness for its intended use, or fitness for use; how well does it do what the customer or user thinks it is supposed to do and wants it to do?

Fitness for use:

is how well the product or service does what it is supposed to.

Products and services are designed with intentional differences in quality to meet the different wants and needs of individual consumers. A Mercedes and a Ford truck are equally “fit for use,” in the sense that they both provide automobile transportation for the consumer, and each may meet the quality standards of its individual purchaser. However, the two products have obviously been designed differently for different types of consumers. This is commonly referred to as the quality of design—the degree to which quality characteristics are designed into the product. Although designed for the same use, the Mercedes and Ford differ in their performance, features, size, and various other quality characteristics.

Quality of design:

involves designing quality characteristics into a product or service.

DIMENSIONS OF QUALITY FOR MANUFACTURED PRODUCTS

The dimensions of quality for manufactured products a consumer looks for include the following1:

Dimensions of manufactured quality for which a consumer looks.

1. Performance : The basic operating characteristics of a product: for example, how well a car handles or its gas mileage.

2. Features : The “extra” items added to the basic features, such as a stereo CD or a leather interior in a car.

3. Reliability : The probability that a product will operate properly within an expected time frame: that is, a TV will work without repair for about seven years.

4. Conformance : The degree to which a product meets preestablished standards.

5. Durability : How long the product lasts; its life span before replacement. A pair of L.L. Bean boots, with care, might be expected to last a lifetime.

6. Serviceability : The ease of getting repairs, the speed of repairs, and the courtesy and competence of the repair person.

7. Aesthetics : How a product looks, feels, sounds, smells, or tastes.

8. Safety : Assurance that the customer will not suffer injury or harm from a product: an especially important consideration for automobiles.

9. Other perceptions : Subjective perceptions based on brand name, advertising, and the like.

These quality characteristics are weighed by the customer relative to the cost of the product. In general, customers will pay for the level of quality they can afford. If they feel they are getting what they paid for (or more), then they tend to be satisfied with the quality of the product.

DIMENSIONS OF QUALITY FOR SERVICES

The dimensions of quality for a service differ somewhat from those of a manufactured product. Service quality is more directly related to time, and the interaction between employees and the customer. Evans and Lindsay2 identify the following dimensions of service quality.

Dimensions of service quality.

1. Time and timeliness : How long must a customer wait for service, and is it completed on time? For example, is an overnight package delivered overnight?

2. Completeness : Is everything the customer asked for provided? For example, is a mail order from a catalogue company complete when delivered?

3. Courtesy : How are customers treated by employees? For example, are catalogue phone operators at L.L. Bean nice and are their voices pleasant?

4. Consistency : Is the same level of service provided to each customer each time? Is your newspaper delivered on time every morning?

5. Accessibility and convenience : How easy is it to obtain the service? For example, when you call L.L. Bean does the service representative answer quickly?

6. Accuracy : Is the service performed right every time? Is your bank or credit card statement correct every month?

7. Responsiveness : How well does the company react to unusual situations, which can happen frequently in a service company? For example, how well is a telephone operator at L.L. Bean able to respond to a customer's questions about a catalogue item not fully described in the catalogue?

A Mercedes and a Ford pickup truck are equally “fit for use,” but with different design dimensions for different customer markets that result in significantly different purchase prices.

1 Adapted from D. A. Garvin. “What Does Quality Really Mean?” Sloan Management Review 26(1: 1984). pp. 25-43.

2 J. R. Evans and W. M. Lindsay, The Management and Control of Quality, 3rd ed. (St. Paul, MN: West, 1996).

QUALITY FROM THE PRODUCER'S PERSPECTIVE

Now we need to look at quality the way a producer or service provider sees it: how value is created. We already know that product development is a function of the quality characteristics (i.e the product's fitness for use) the customer wants, needs, and can afford. Product or service design results in design specifications that should achieve the desired quality. However, once the product design has been determined, the producer perceives quality to be how effectively the production process is able to conform to the specifications required by the design referred to as the quality of conformance . What this means is quality during production focuses on making sure that the product meets the specifications required by the design.

Quality of conformance:

is making sure the product or service is produced according to design.

Achieving quality of conformance involves design, materials and equipment, training, supervision, and control.

Examples of the quality of conformance: If new tires do not conform to specifications, they wobble. If a hotel room is not clean when a guest checks in, the hotel is not functioning according to the specifications of its design; it is a faulty service. From this producer's perspective, good-quality products conform to specifications—they are well made; poor-quality products are not made well—they do not conform to specifications.

Achieving quality of conformance depends on a number of factors, including the design of the production process (distinct from product design), the performance level of machinery, equipment and technology, the materials used, the training and supervision of employees, and the degree to which statistical quality-control techniques are used. When equipment fails or is maladjusted, when employees make mistakes, when material and parts are defective, and when supervision is lax, design specifications are generally not met. Key personnel in achieving conformance to specifications include the engineering staff, supervisors and managers, and, most important, employees.

An important consideration from the customer's perspective of product quality is product or service price. From the producer's perspective, an important consideration is achieving quality of conformance at an acceptable cost. Product cost is also an important design specification. If products or services cannot be produced at a cost that results in a competitive price, then the final product will not have acceptable value—the price is more than the consumer is willing to pay given the product's quality characteristics. Thus, the quality characteristics included in the product design must be balanced against production costs.

L.L. Bean's first product was the Maine Hunting shoe, developed in 1912 by company founder, Leon Leonwood Bean, a Maine outdoorsman. He initially sold 100 pairs to fellow sportsmen through the mail, but 90 pairs were sent back when the stitching gave way. However, true to his word L.L. Sean returned their money and started over with an improved boot. In years to come L.L. Bean operated his business according to the following belief: “Sell good merchandise at a reasonable profit, treat your customers like human beings, and they will always come back for more.” L.L. Bean also guarantees their products to “give 100% satisfaction in every way,” If they don't, L.L. Bean will replace the item or refund the purchase price “at any time.”

A FINAL PERSPECTIVE ON QUALITY

We approached quality from two perspectives, the customer's and the producer's. These two perspectives are dependent on each other as shown in Figure 2.1. Although product design is customer-motivated, it cannot be achieved without the coordination and participation of the production process. When a product or service is designed without considering how it will be produced, it may be impossible for the production process to meet design specifications or it may be so costly to do so that the product or service must be priced prohibitively high.

Figure 2.1 depicts the meaning of quality from the producer's and consumer's perspectives. The final determination of quality is fitness for use, which is the customer's view of quality. It is the consumer who makes the final judgment regarding quality, and so it is the customer's view that must dominate.

Figure 2.1 The Meaning of Quality

QUALITY MANAGEMENT SYSTEM

To make sure that products and services have the quality they have been designed for, strategy to achieve quality throughout the organization is required. This approach to the management of quality throughout the entire organization has evolved into what is generally referred to as a quality management system (QMS).

THE EVOLUTION OF QUALITY MANAGEMENT

A handful of prominent individuals summarized in Table 2.1 have had a dramatic impact on the importance of quality in the United States, Japan, and other countries. Of these “quality gurus” W. Edwards Deming has been the most prominent.

In the 1940s Deming worked at the Census Bureau, where he introduced the use of statistical process control to monitor the mammoth operation of key punching data from census questionnaires onto millions of punch cards. During World War II, Deming developed a national program of 8- and 10-day courses to teach statistical quality-control techniques to over 10.000 engineers at companies that were suppliers to the military during the war. By the end of World War II he had an international reputation.

In 1950 Deming began teaching statistical quality control to Japanese companies. As a consultant to Japanese industries and as a teacher, he was able to convince them of the benefits of statistical quality control. He is a major figure in the Japanese quality movement, and in Japan he is frequently referred to as the father of quality control

In the 1950s, W. E. Deming began teaching quality control in Japan.

Table 2.1 Quality Gurus

Quality Guru

Contribution

Walter Shewhart

Working at Bell Laboratories in the 1920s. he developed the technical tools such as control charts that formed the basis of statistical quality control; he and his colleagues at Bell Labs introduced the term quality assurance for their program to improve quality through the use of statistical control methods.

W. Edwards Deming

A disciple of Shewart, he developed courses during World War II to teach statistical quality-control techniques to engineers and executives of companies that were military suppliers; after the war he began teaching statistical quality control to Japanese companies, initiating their quality movement.

Joseph M. Juran

An author and consultant, he followed Deming to Japan in 1954; he focused on strategic quality planning within an annual qualify program, setting goals for product quality and designing processes to achieve those goals: quality improvement is achieved by focusing on projects to solve problems and securing breakthrough solutions.

Armand V. Feigenbaum

In his 1951 book, Quality Control: Principles, Practices and Administration, he introduced the concept of total quality control and continuous quality improvement as a companywide strategic commitment requiring the involvement of all functions in the quality process, not just manufacturing; discovered by Japanese in the 1950s at about the same time as Juran's visit: from 1958 to 1968 he was director of manufacturing operations and quality control at GE.

Philip Crosby

In his 1979 book, Quality Is Free, he emphasized that the costs of poor quality (including lost labor and equipment time, scrap, downtime and lost sales) far outweigh the cost of preventing poor quality: in his 1984 book, Quality Without Tears, he defined absolutes of quality management—quality is defined as conformance to requirements, quality results from prevention, the performance standard is “zero defects.”

Kaoru Ishikawa

This Tokyo University professor promoted use of quality circles and developed the ‘fishbone’ (cause and effect) diagram to diagnose quality problems; he emphasized the importance of the internal customer, that is, that a quality organization is first necessary in order to produce quality products or services.

• Inernet Exercises

Deming's approach to quality management advocated contineous improvement of the production process to achieve conformance to specifications and reduce variability. He identified two primary sources of process improvement: eliminating common causes of quality problems, such as poor product design and insufficient employee training, and eliminating special causes, such as specific equipment or an operator. Deming emphasized the use of statistical quality-control techniques to reduce variability in the production process. He dismissed the then widely-used approach of final product inspection as a means of ensuring good quality as coming too late to reduce product defects. Primary responsibility for quality improvement, he said, was employees' and management's. He promoted extensive employee involvement in a quality improvement program, and he recommended training for workers in quality-control techniques and methods.

Deming's overall philosophy for achieving improvement is embodied in his 14 points, summarized in Table 2.2.

Deming is also credited for development of the Deming Wheel, or plan-do-check-act (PDCA) cycle, although it was originally formulated by Walter Shewhart and renamed by the Japanese.

W. E. Deming is the most famous of all “quality gurus.” He introduced statistical quality control to the Japanese, which served as the catalyst for a worldwide quality movement. His “14 points” were the foundation for modem TQM and QMS processes.

The Deming Wheel—plan, do. check, act.

Table 2.2 W.E. Deming's 14 points

1. Create a constancy of purpose toward product improvement to achieve long-term organizational goals.

2. Adopt a philosophy of preventing poor-quality products instead of acceptable levels of poor quality as necessary to compete internationally.

3. Eliminate the need for inspection to achieve quality by relying instead on statistical quality control to improve product and process design.

4. Select a few suppliers or vendors based on quality commitment rather than competitive prices.

5. Constantly improve the production process by focusing on the two primary sources of quality problems, the system and employees, thus increasing productivity and reducing costs.

6. Institute worker training that focuses on the prevention of quality problems and the use of statistical quality-control techniques.

7. Instill leadership among supervisors to help employees perform better.

8. Encourage employee involvement by eliminating the fear of reprisal for asking questions or identifying quality problems.

9. Eliminate barriers between departments, and promote cooperation and a team approach for working together.

10. Eliminate slogans and numerical targets that urge employees to achieve higher performance levels without first showing them how to do it.

11. Eliminate numerical quotas that employees attempt to meet at any cost without regard for quality.

12. Enhance worker pride, artisanry, and self-esteem by improving supervision and the production process so that employees can perform to their capabilities.

13. Institute vigorous education and training programs in methods of quality improvement throughout the organization, from top management down, so that continuous improvement can occur.

14. Develop a commitment from top management to implement the previous 13 points.

The Deming Wheel is a four-stage process for continuous quality improvement that complements Deming's 14 points, as shown in Figure 2.2.

Deming's approach to quality embodied in his 14 points and PDCA cycle are the foundation for today's quality management systems employed by many successful companies.

Figure 2.2 The Deming Wheel (PDCA Cycle)

ALONG THE SUPPLY CHAIN Applying Deming's PDCA Cycle in Baldrige Award-Winning Schools and Hospitals

Jenks Public Schools (JPS), a 2005 recipient of the prestigious Malcolm Baldrige National Quality Award, serves 9,400 students with nine schools in the city of Jenks and portions of Tulsa, Oklahoma. The school district's continuous quality improvement model is based on the work of W. E. Deming, and a central part of its model was its application of Deming's PDCA cycle to procedures related to key performance measures, such as improving test scores. All staff members participate in the district's goal setting process and incorporate the PDCA cycle into their plans for achieving these goals. The PDCA process provided a systematic approach for continuous improvement in teaching, learning, student achievement, and student and faculty well-being. It also supported process efficiency and effectiveness. As a result of its improvement efforts its teacher turnover rate for 2004 was 6% as compared to the national average of 20%; its academic performance scores exceeded state and national levels; 37% of the district's class of 2004 earned an AP test score of 3 or better compared to 13% nationally and 21 percent in the state; and its dropout rate was only slightly over 1%.

Baptist Hospital. Inc. (BHI), which includes hospitals in Pensacola and Gulf Breeze, Florida with 2.270 employees, was a recipient of the 2003 Malcolm Baldrige Award. One of the primary quality improvement tools used by BHI was Deming's PDCA cycle. BHI used several metrics to determine if hospital processes were maintaining organizational value. If any of the metrics fell below target values, a PDCA team made up of physicians and front-line employees was quickly initiated to address the deficiencies using the PDCA process. In various surveys and health databases BHI's patient care, patient satisfaction, emergency department and ambulatory surgery, as well as other health-related areas, ranked well ahead of benchmarked programs.

Iredell-Statesville Schools located in southwestern North Carolina with 21,000 students in 35 schools was a 2008 Baldrige Award Winner. Despite ranking 107 out of 115 school systems in North Carolina in per pupil expenditures, it ranked in the top 10 in the state in academic achievement; its average SAT scores ranked seventh in the state and were better than the national average; its graduation rate was 81%; its attendance rate of 96% ranked third in the state; and its teacher turnover rate was well below the state average. As part of its continuous quality improvement program called the “Model to Raise Achievement and Close Gaps (RACG).” it establishes targets in key classroom learning categories. When student performance does not meet the targets in a school the gap is addressed using the PDCA cycle to develop and implement improvements, which are then shared with other schools in the district.

Mercy Health System, a 2007 Baldrige Award recipient, includes three hospitals, a network of 64 facilities, and nearly 4,000 employees serving six counties in southern Wisconsin and northern Illinois. The PDCA cycle is used in all quality improvement projects at Mercy. In one specific project, customer satisfaction with the emergency department at its hospital in Janesville. Wisconsin, fell below 93%, and a group was created to develop an action plan for improvement. The drop in satisfaction was determined to be caused by an increase in patient volume resulting from intermingling urgent care and emergency room patients. This resulted in a misperception that patients who came in later were seeing medical staff sooner than those already waiting, when, in fact, they were from two different groups; some were urgent care patients and others were emergency room patients. The quick solution was to move urgent care out of the emergency room, which required a capital expenditure. In addition it was determined that urgent care patients expect to be seen within 30 minutes, so this was established as a service goal and a tracking mechanism was established to make sure it was being met. PDCA was considered to be such a valuable tool in this process because it wasn't overwhelming or mysterious to the physicians, nurses, and managers involved in improvement projects.

In these examples the PDCA cycle is used in four service organizations; can you think of specific processes in a service organization you are familiar with that the PDCA cycle might be applied to, perhaps even your own university?

Sources: S. Daniels, “Oklahoma School District Goes Over the Top.” Quality Progress 39 (5; May 2006). pp. 51-59: K. Johnson. “Two Hospitals Improve Performance.” Quality Progress 37 (9: September 2004), pp. 46-55; S. Daniels, “Eyes on the Dashboard at Mercy Health System,” Quality Progress 41 (4; April 2008), pp. 42-44; and National Quality Program at the National Institute of Standards and Technology Web site http://www.quality.nist.gov.

QUALITY TOOLS

The seven well-known tools for identifying quality problems and their causes are sometimes called the “magnificent seven.”

A major cornerstone of the commitment to quality improvement prescribed by Deming and the other early quality gurus is the need to identity and prevent the causes of quality problems, or defects. These individuals prescribed a number of “tools” to identify the causes of quality problems that are still widely used today, including Pareto charts, process flowcharts, checksheets, histograms, scatter diagrams, statistical process control charts and cause-and-effect diagrams. In fact, as noted previously. Deming traveled to Japan primarily to teach statistical process control techniques. These popular tools became the basis for the quality management programs developed by many companies. In this section we will briefly describe some of these tools, which are summarized in Figure 2.3.

Figure 2.3 Quality Tools

• Inernet Exercises

A flowchart is a diagram of a job operation or process.

PROCESS FLOWCHARTS

A process flowchart is a diagram of the steps in a job, operation, or process. It enables everyone involved in identifying and solving quality problems to have a clear picture of how a specific operation works and a common frame of reference. It also enables a process improvement team to understand the interrelationship of the departments and functions that constitute a process. This helps focus on where problems might occur and if the process itself needs fixing. Development of the flowchart can help identify quality problems by helping the problem solvers better understand the process. Flowcharts are described in greater detail in Chapter 6 (“Processes and Technology”) and Chapter 8 (“Human Resources”).

process flowchart:

a diagram of the steps in a job, operation, or process.

CAUSE-AND-EFFECT DIAGRAMS

A cause-and-effect diagram, also called a fishbone or Ishikawa diagram, is a graphical description of the elements of a specific quality problem and the relationship between those elements. It is used to identify the causes of a quality problem so it can be corrected. Cause-and-effect diagrams are usually developed as part of brainstorming to help a quality team of employees and managers identify causes of quality problems.

Cause-and-effect diagram or fishbone diagram:

a chart showing the different categories of problem causes.

Figure 2.4 is a cause-and-effect diagram for a Six Sigma project at a hospital to reduce delays in patient bed turnaround time, which creates a patient flow problem throughout the hospital. The primary cause of the problem is suspected to be related to the “bed tracking system” (BTS), an electronic system that indicates the status of each bed to the registered nurse (RN) who admits patients and assigns them to a room. (See the “Along the Supply Chain” box for the North Shore University Hospital on page 79.)

The “effect” box at the end of the diagram is the quality problem that needs correction. A center line connects the effect box to the major categories of possible problem causes, displayed as branches off of the center line. The box at the end of each branch (or fishbone) describes the cause category. The diagram starts out in this form with only the major categories at the end of each branch. Individual causes associated with each category are attached as separate lines along the length of the branch during the brainstorming process. Sometimes the causes are rank-ordered along the branches in order to identify those that are most likely to affect the problem. The cause-and-effect diagram is a means for thinking through a problem and recording the possible causes in an organized and easily interpretable manner.

Figure 2.4 A Cause-and-Effect Diagram

Figure 2.5 A Cause-and-Effect Matrix

A complementary tool related to the fishbone diagram is the cause-and-effect matrix, which is used to prioritize the potential causes of quality problems in a process that might first be identified using a cause-and-effect diagram. The output (or Y) variables are listed along the top of the matrix. These are also referred to as CTQs or CTQCs. (i.e., “critical-to-quality characteristics”) and they are measurable characteristics that express the key requirements defined by a customer. CTQCs are what the customer expects from a product, and accordingly they have a significant impact on customer satisfaction. The input (or X) variables that might affect the outcome of process, (i.e., the potential causes of an outcome) are listed along the left side of the matrix (or grid). The CTQCs are ranked or weighted in terms of importance to the customer; then, the relationship between causes and effects (CTQs) are weighted or ranked; and finally, an overall score is calculated for the causes (or X variables). The causes with the highest score should be addressed first in improvement efforts because they will have the largest impact on customer satisfaction. Figure 2.5 shows a cause-and-effect matrix for the hospital bed turnaround time example. Note that staff communication has the highest score, and thus, the greatest impact on how satisfied the customers are with the overall process.

Cause-and-effect matrix:

grid used to prioritize causes of quality problems.

CHECKSHEETS AND HISTOGRAMS

Checksheets are frequently used in conjunction with histograms, as well as with Pareto diagrams. A checksheet is a fact-finding tool used to collect data about quality problems. A typical check sheet for quality defects tallies the number of defects for a variety of previously identified problem causes. When the check sheet is completed, the total tally of defects for each cause can be used to create a histogram or a Pareto chart, as shown in Figure 2.6.

A check sheer is a list of causes of quality problems with the number of defects resulting front each cause used to develop a bar chart called a histogram.

PARETO ANALYSIS

Pareto analysis is a method of identifying the causes of poor quality. It was devised in the early 1950s by the quality expert Joseph Juran. He named this method after a nineteenth-century Italian economist, Vilfredo Pareto, who determined that a small percentage of the people accounted for most of the wealth. Pareto analysis is based on Juran's finding that most quality problems and costs result from only a few causes. For example, he discovered in a textile mill that almost 75% of all defective cloth was caused by only a few weavers, and in a paper mill he studied, more than 60% of the cost of poor quality was attributable to a single category of defects. Correcting the few major causes of most of the quality problems will result in the greatest cost impact.

Pareto analysis:

most quality problems result from a few causes.

Pareto analysis can be applied by tallying the number of defects for each of the different possible causes of poor quality in a product or service and then developing a frequency distribution from the data. This frequency distribution, referred to as a Pareto diagram, is a useful visual aid for focusing on major quality problems.

Figure 2.6 Pareto Chart

The quality problem for hospital bed turnaround time described in the previous section on cause-and-effect diagrams (Figure 2.4) in this case a defect is anytime the turnaround time exceeds 150 minutes for a patient out of a sample of 195 patients. Some of the causes of this problem are as follows.

Cause

Number of Defects

Percentage

Staff communication

83

64%

BTS system

17

13

Room cleaning

13

10

Beepers

7

6

Laundry

4

3

Patients

3

2

Family

3

2

130

100%

For each cause of poor quality, the number of defects attributed to that cause has been tallied. This information is then converted into the Pareto chart shown in Figure 2.6 above.

This Pareto chart identifies the major cause of poor quality to be poor staff communication. Correcting the problem will result in the greatest quality improvement. However, the other problems should not be ignored. Continual quality improvement is the long-term goal. The Pareto diagram simply identifies the quality problems that will result in the greatest immediate impact on quality improvement.

A scatter diagram is a graph showing how two process variables relate to each other.

SCATTER DIAGRAMS

Scatter diagrams graphically show the relationship between two variables, such as the brittleness of a piece of material and the temperature at which it is baked. One temperature reading should result in a specific degree of brittleness representing one point on the diagram. Many such points on the diagram visually show a pattern between the two variables and a relationship or lack of one. This diagram could be used to identify a particular quality problem associated with the baking process.

PROCESS CONTROL CHARTS AND STATISTICAL QUALITY CONTROL

We discuss control charts and other statistical quality-control methods in Chapter 3, “Statistical Process Control.” For now, it is sufficient to say that a control chart is a means for measuring if a process is doing what it is supposed to do, like a thermostat monitoring room temperature. It is constructed with a horizontal line through the middle of a chart representing the process average or norm. It also has a line below this center line representing a lower control limit and a line above it for the upper control limit. Samples from the process are taken over time and measured according to some attribute. In its simplest form, if the measurement is within the upper and lower control limits, the process is said to be in control and there is no quality problem, but if the measurement is outside the limits, then a problem probably exists and should be investigated and corrected.

Process control involves monitoring a production or service process using statistical quality-control methods.

Statistical quality-control methods such as the process control chart are important tools for quality improvement. Employees who are provided with extensive training in statistical quality-control methods, are able to identify quality problems and their causes and to make suggestions for improvement. (See the “Along the Supply Chain” box on page 79 to see how a control chart is used to monitor hospital bed turnaround times).

TQM AND QMS

Total quality management (TQM) has been the most prominent and visible approach to quality to evolve from the work of Deming and the early quality gurus. TQM originated in the 1980s as a Japanese-style management approach to quality improvement, and became very popular during the 1990s, being adopted by thousands of companies. Although it has taken on many meanings, it was (and still is) a philosophy for managing an organization centered on quality and customer satisfaction as “the” strategy for achieving long-term success. It requires the active involvement, participation and cooperation of everyone in the organization, and encompasses virtually all of its activities and processes. To achieve and sustain this pervasive focus on quality requires a significant long-term commitment on the part of the organization's leadership. Deming's 14 points and the philosophies and teachings of the early quality gurus are clearly embodied in the basic principles of TQM:

Total Quality Management (TQM):

customer-oriented, leadership, strategic planning, employee responsibility, continuous improvement, cooperation, statistical methods, and training and education.

1. Quality can and must be managed.

2. The customer defines quality, and customer satisfaction is the top goal: it is a requirement and is not negotiable.

3. Management must be involved and provide leadership.

4. Continuous quality improvement is “the” strategic goal, which requires planning and organization.

5. Quality improvement is the responsibility of every employee; all employees must be trained and educated to achieve quality improvement.

6. Quality problems are found in processes, and problems must be prevented, not solved.

7. The quality standard is “no defects.”

8. Quality must be measured; improvement requires the use of quality tools, and especially-statistical process control.

Quality Management System (QMS):

A system to to achieve customer satisfaction that complements other company systems.

TQM has been supplanted to a large extent by what is most commonly referred to as a quality management system (QMS) . This approach (or term) has evolved out of the ISO certification process that many companies around the world have gone through; essentially ISO certifies a company's “quality management system.” and much of the ISO's written materials refer directly to “quality management systems.” (ISO certification is discussed in greater detail in a separate section later in this chapter.) A QMS is not as much of a philosophy as TQM: rather, it is a system that complements a company's other systems and functions. It is a systematic approach to achieving quality and hence customer satisfaction, and while it suggests no less commitment to that goal than TQM, it maintains less of a core strategic focus that TQM. Further, since a QMS is not a “philosophy.” it more naturally is designed to meet the individual needs and circumstances of a particular company. It outlines the policies and procedures necessary to improve and control specific (but not all) processes that will lead to improved business performance. A QMS tends to focus more on individual projects that have a quantifiable impact (i.e., increased profitability). Some companies have adopted the Malcolm Baldrige National Quality Award criteria as its QMS; another well-known QMS is Six Sigma (which we will discuss in greater detail in a later section).

Regardless of the term a company uses to identify its approach to achieving quality improvement, and the possible differences between TQM and a QMS or other approaches, there are certain common characteristics of company-wide approaches to quality improvement, such as customer satisfaction and employee involvement, topics we will talk about next.

THE FOCUS OF QUALITY MANAGEMENT—CUSTOMERS

The main focus of Deming's 14 points, TQM and all QMSs is to achieve customer satisfaction. The reason is simple; customers who are very happy and delighted are less likely to switch to a competitor, which translates to profits. A high level of satisfaction creates an emotional bond instead of simply a rational preference. Research by companies has shown that there is a direct link between customer satisfaction and attrition rates, indicating that delighted customers are less likely to defect than dissatisfied customers. Figure 2.7 highlights some of the “facts” that are generally known to exist about customer satisfaction.

Figure 2.7 The Impact of Customer Satisfaction

QUALITY MANAGEMENT IN THE SUPPLY CHAIN

Most companies not only have customers they want to satisfy, but they are also customers of other companies, their suppliers, within a company's supply chain. Companies know that to satisfy its customers requires not only their own commitment to quality, but also the support and resources of its suppliers. This is especially true of companies that outsource many of their activities to suppliers. Companies and their suppliers joined together in a supply chain must work together to meet the needs of the company's customers. A partnership exists between the supplier and its customer wherein the supplier is expected to manage its own quality effectively so that the company it supplies can count on the quality of the materials, parts, and services it receives.

Many companies reduce their number of suppliers in order to have more direct influence over their suppliers' quality and delivery performance, which was one of Deming's 14 points. It is based on the notion that if a company has a major portion of a supplier's business, then the supplier is more willing to meet the customer's quality standards. The company and supplier enter into a business relationship referred to as partnering, in which the supplier agrees to meet the company's quality standards, and in return the company enters into a long-term purchasing agreement with the supplier that includes a stable order and delivery schedule.

In order to ensure that its supplier meets its quality standards, a company will often insist that the supplier adopt a QMS similar to its own, or a company's QMS will include its suppliers. Still other companies require that their suppliers achieve ISO 9000 certification (see page 95), an international quality standard that ensures a high industry standard of quality as its QMS; some companies require their suppliers to follow Baldrige National Quality Award guidelines or even enter the Baldrige Award competition as their QMS.

At the other end of a company's spectrum from its suppliers is its direct relationship with its own customers. An important component of any QMS is the company's ability to measure customer satisfaction; to “hear” what the customer wants. The company needs to know if its QMS is effective. Is the company meeting customer expectations? Are its products or services meeting their fitness for use definition? Is it what the customer wants, does the customer like it, does the customer need it, would the customer like it changed? A QMS requires that some form of measurement system be in place to answer these questions and provide data about the customer's level of satisfaction. It is a well-established fact of consumer behavior that unhappy customers will tell almost twice as many others about their quality problems as they will tell others about satisfactory products or services.

Partnering:

a relationship between a company and its supplier based on mutual quality standards.

MEASURING CUSTOMER SATISFACTION

For most companies, figuring out what satisfies customers (i.e., what they want and need) is easier said than done. It requires that a company somehow gather information on what the customer wants and needs, disseminate that information throughout the company, use that information to improve its products and processes and develop new products, and then monitor customer satisfaction to ensure that the customer's needs are being met. The primary means for garnering information from customers, and measuring customer satisfaction is the customer survey. The customer survey is a means for companies to listen to what is often referred to as the “voice of the customer (VoC).” Applicants for the Malcolm Baldrige National Quality Award are expected to provide measures of customer satisfaction typically through customer surveys. Motorola, a two-time Baldrige Award winner, contracts with an independent survey firm to conduct regularly scheduled surveys with its customers around the world to help Motorola determine how well it's meeting its customers' needs.

J.D. Power and Associates is an independent, third-party, company that provides companies in the automotive, energy/communications, travel, financial, and home-building industries with feed back from their customers based on surveys that they conduct. They also annually present awards to companies that have excelled in their industry based on independently financed consumer opinion studies. Award-winning companies are allowed to license the use of J.D. Power and Associates awards in advertising. For example, their 2006 automotive performance award winner for the “large car” was the Hyundai Azera: their 2006 award winner for the “highest guest satisfaction among mid-scale hotel chains” was Hampton Inns.

• Inernet Exercises

The American Customer Satisfaction Index (ACSI) was established in 1994 through a partnership of the University of Michigan Business School, the American Society for Quality (ASQ), and the international consulting firm, CFI Group. The ACSI is funded in part by corporate subscribers who receive industry benchmarking data and company-specific information about financial returns from improving customer satisfaction.

ACSI measures customer satisfaction with the goods and services of 7 economic sectors. 39 industries (including e-commerce and e-business), and more than 200 companies and 70 federal and local government agencies. The ACSI reports scores on a 0 to 100 scale, which are based on econometric modeling of data obtained from telephone interviews with customers. From random-digit-dial (RDD) telephone samples (and Internet samples for e-commerce and e-business), more than 65,000 consumers are identified and interviewed annually.

ACSI scores are posted on their Web site at www.theacsi.org. For example, in 2008 Amazon.com had an ACSI score of 86, one of the highest scores ever recorded in any service industry. Apple was the leading company in the computer industry with a score of 85. Lexus and BMW were the highest-scoring car companies at 87, followed by Toyota and Honda at 86.

ALONG THE SUPPLY CHAIN Measuring Customer Satisfaction with “Voice of the Customer [VoC]” at Two Baldrige Award Winners

The U.S. Army Armament Research, Development and Engineering Center (ARDEC), a 2007 recipient of the Baldrige National Quality Award, develops 90% of the Army's armaments and ammunition such as firearms, explosives, warheads, and advanced hi-tech weaponry. ARDEC, headquartered in Picatinny Arsenal, New Jersey, has nearly 3,000 employees and annual net revenues over $1 billion. In addition to serving the Army, its customers include the U.S. Special Operations Command and the Department of Homeland Security. It has been applying Baldrige criteria since the 1990s, and since 2005 it has used such practices as Lean Six Sigma and ISO 9000 to continually improve its processes and its products, which has resulted in a 91% increase in quality, a reduction in cost of 70%. improved scheduling of 67%, and overall cost avoidance of $3.22 billion. In addition, ARDEC's customer satisfaction ratings, a key Baldrige criterion, increased from 3.48 (on a 4-point scale) in 2000 to 3.75 in 2007. This increase is primarily a result of its “Voice of the Customer (VoC)” program.

Measuring customer satisfaction is literally a matter of life and death for an organization like ARDEC; the security of the United States and the safety of its soldiers depend on ARDEC's ability to continually improve and achieve the highest quality possible. ARDEC's VoC program includes a 400-person conference with soldiers just returned from the war zone who talk about what worked (and didn't work) for them in the field. The discussion also leads to possible innovations; products are designed for one thing, but soldiers get creative and often find out they work for something else. ARDEC's quick reaction task force (QRTF) also developed a formal process using a Web-based tracking tool that gathers questions and needs from soldiers in the field, and works quickly to develop quick answers and solutions. In a nine-month period in 2006-2007 responses to 80% of soldier inquiries were developed in less than 72 hours, which contributed to customer satisfaction ratings well above government best-in-class benchmarks. Other Web-based survey tools generate over 60 pages of comments every quarter that are immediately accessible to everyone in the organization.

Poudre Valley Health System (PVHS), a 2008 Baldrige Award recipient, also uses a VoC program to gauge customer satisfaction. PVHS is a not-for-profit health-care organization headquartered in Fort Collins, Colorado, serving Colorado, Nebraska, and Wyoming residents, with annual revenues over $330 million and a workforce of 4,000. According to various surveys, PVHS patient loyalty ranks in the top 1% of U.S. hospitals, overall physician satisfaction ranks in the 99th percentile in the nation, is consistently in the top 10% of national performance standards for treating heart failure and pneumonia, and consistently maintains lower health-care charges than its competitors.