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  • ISBN-10 ‏ : ‎ 0132968363
  • ISBN-13 ‏ : ‎ 978-0132968362

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Chapter 6
Managing Quality


This chapter contains almost no quantitative material (most is reserved for Supplement 6). Nevertheless, any introductory operations management course absolutely must cover this content. Total quality management has become institutionalized in many firms around the world. If we quit teaching it, though, the perceived importance of the concepts will fade over time.

The evolution of quality management practices in business has a fascinating history. The ideas have been around since World War II, but western firms did not pay any attention to them at the beginning. In fact, there’s an old black and white British film called, “Right First Time,” that contains many of the concepts that still appear today in modern books about quality management. Having not had much luck with U.S. companies, W. Edwards Deming took his quality philosophies to Japan, which was devastated in the aftermath of World War II. Hungry for survival and growth, Japanese firms latched onto his ideas and added some of their own. By the 1970s, in relative obscurity, Japanese firms in numerous industries began producing products with higher quality than their western counterparts. Finally in the 1980s, western firms woke up to the fact that they were in trouble and finally started to look at the Japanese philosophies and the work of Deming and others. Now as we progress into the 21st century, high quality has become an order qualifier in many industries, and quality management programs have finally become ingrained in most top organizations around the world. The requirement of ISO 9000 certification to be even considered a supplier for numerous customers worldwide is one example of this quality evolution. Nowadays, buzzwords like “JIT,” “lean operations,” “six-sigma programs,” and “Toyota production system” (see Chapter 16)—have numerous similarities with, and roots derived, from the total quality management philosophies developed decades ago.

It seems important when discussing Chapter 6 to award due credit to the Japanese for essentially forcing the rest of the world to adopt total quality management programs to survive. There’s an old story from the Toronto Sun that can be summarized as follows: “IBM decided to have some parts manufactured in Japan as a trial project. In the specifications, they set the limit of defective parts at three units per 10,000. When the shipment arrived from Japan, it included this letter: ‘We Japanese have hard time understanding North American business practices. But the three defective parts per 10,000 have been included and are wrapped separately. Hope this pleases.’” Clearly, this story gets to the heart of the “zero defects” philosophy championed by the Japanese, as compared to an “acceptable quality level,” which has been historically common in U.S. firms. Another very important concept (which is easy to talk about but difficult to implement) attributable to the Japanese and Deming is the idea that defects, when they do exist, represent an opportunity for problem solving as opposed to a mistake that should be hidden. Deming believed that 80-85% of quality problems are caused by management, not the workers, so the identification of a defect is an opportunity for management to fool-proof that system in the future. A third concept attributable to the quality pioneers is the idea that it can be possible to have high quality and low cost at the same time. Spending more money on prevention is assumed to save even more than that on failure costs; therefore, “quality is free” (Crosby), and firms should strive to make it “right the first time.”

Class Discussion Ideas

1. To many people, high quality is synonymous with high price or high cost. Pick two functionally similar products that compete in very different markets and have the students discuss the relative quality of each. One possible pair is a Toyota Corolla and a Rolls Royce. This is a good way to demonstrate that cost is often a function of the market requirements and high quality can be achieved at any cost point.

2. An effective way to begin this lecture can be to ask the simple question: “What is quality?” As quality means different things to different people for different products and services, within about 10 minutes students will usually develop a list that includes most or all of Garvin’s eight dimensions of quality: Performance, Features, Reliability, Conformance, Durability, Serviceability, Aesthetics, and Perceived Quality (and later researchers added a 9th dimension: Safety).

3. The importance of effective service recovery cannot be overstated. Disney World finds that customers who had a negative experience (e.g., spilling ice cream on a new shirt) but were subsequently treated well by Disney staff rate their experiences at the park higher than do customers who never had a problem in the first place. Student experiences with service recovery (both good and bad) can generate excellent class discussions. Mistakes happen, but often it’s how the firm deals with those mistakes that really makes the difference with consumers.

4. An effective way to end this lecture can be to ask the question: “How can a university control the quality of its output (that is, its graduates)?” This exercise allows the students to vent a little bit (sometimes the instructor needs a thick skin if the comments hit too close to home). Students typically bring up some interesting points, though, and blame gets spread around to faculty, staff, and the students themselves. Interestingly, most of the recommendations would create a financial burden (in the form of higher cost or lost revenue), which makes the choice of which ones to implement a difficult one for university administration. Improving quality at a university does not seem to be as straightforward as it might be for a manufacturing firm.

Active Classroom Learning Exercises

1. Five, five-station assembly lines using students could be created that produce, say, a product built out of legos. The dreaded yellow lego might represent a defective component. Inspection points could be set up at a different station on all five lines. The defective component is not detected until it reaches the inspector. Any product with a defect must be either scrapped or sent back to the first station for repair and replacement of the component. The metric to compare the assembly lines might be raw material costs (where fewer raw materials are wasted when inspection occurs after the first station) or productivity (where more final products make it through when inspection occurs after the first station). The phenomenon will be exacerbated if units are made in lots of 10 units before passed on to the next station (particularly if the defect is introduced to each unit in the lot). Instructors can be creative with this exercise. The main point, of course, is that catching a defect at its source is much less costly than catching it later on, especially if it reaches the final customer without being noticed.

2. Split the class into small groups. Assign each group a company that is not the industry leader (with each group working on a different industry). The task is to improve quality for each company, and one of the tools to achieve that will be benchmarking. Have each group identify recommended items to benchmark and the companies or industries to obtain that information (it is important for students to recognize that benchmarking does not have to look only at other firms in the same industry). How will all of the data be obtained? Have each student group report its ideas to the whole class.

3. Have the students look at the OM in Action box: “Richey International’s Spies” at the end of Chapter 6. Ask them to count the number of occurrences of the letter “e” in the box—this is a surrogate for 100% inspection. Offer $5.00 to the first student to provide the correct number (only one attempt per student), and produce a distribution on the board as each student yells out the answer. It is unlikely that anyone will get the correct answer.

Company Videos

1. The Culture of Quality at Arnold Palmer Hospital (10:18)
Arnold Palmer Hospital emphasizes two quality tools in particular: Pareto charts and flow charts. The hospital has several process improvement teams in place, and it seems to take quality extremely seriously. A detailed questionnaire is mailed to every patient two weeks after her stay. The most important question for the hospital is, “Would you recommend this hospital to family and friends?” Survey results drive new quality initiatives and process change, when indicated. The hospital consistently performs in the top 10% nationwide on patient satisfaction. And, as an obviously crucial measure of quality for any hospital, Arnold Palmer Hospital has one of the highest survival rates for at-risk babies. The hospital employs two rather unique quality initiatives. First, employees are empowered to offer gifts up as much as $200 to patients that appear to have a legitimate concern about the quality of care that they have received, whether it be medical, food-related, custodial, etc. Second, patients have access to a 24-hour hotline that connects them to hospital staff specifically on call to address any type of patient concern.

Prior to showing the video, instructors might ask the students to write down any memorable service level experiences that they or their families or friends have had at hospitals. Discussion following the video could first cover some of these. For negative experiences, in particular, the instructor might ask if the hospital had any of the quality programs that Arnold Palmer Hospital does, or what else those hospitals might have done, if anything, to address the patient concerns. Two other discussion streams could emerge. First, what do students think of the $200 service recovery gift program? How closely should such a program be micro-managed? Is it a good idea to empower all staff members to award the gifts? Would training be necessary to help employees know what level of gift is appropriate? Second, why should such a large and high-demand hospital care so much about quality? Is high quality affecting its profit in the short run? In the long run? What might be some ramifications of focusing more on cost control and less on patient satisfaction?

2. Quality at the Ritz-Carlton Hotel Company (7:34)
The Ritz-Carlton has a goal of 100% customer satisfaction. The company won the Malcolm Baldrige National Quality Award in 1992, and quality has been the center of everything that the hotel does ever since. The process improvements implemented during the time leading up to the Baldrige award led to numerous positive ramifications. There are 20 Ritz-Carlton “basics,” which are instilled in every employee. One of those basics is “MRBIV,” which stands for mistakes, rework, breakdowns, inefficiencies, and variation. MRBIV visits each hotel in the chain from time to time, and employees strive to create programs that respond effectively to MRBIV and that keep MRBIV from arriving in the first place. The company collects a large amount of data every day, emanating from customer surveys, employee reports, and financial measures. Lists of top defects are compiled from the daily quality production reports, and then initiatives are developed to keep those defects from occurring again. Hourly employees are trained in TQM tools, and the hotel uses a lot of self-directed work teams, which perform some traditional management tasks such as scheduling workers. The firm has found that the employee empowerment created by these self-directed teams has helped its quality efforts tremendously. Employee ideas are encouraged, and a cost-benefit analysis is employed to determine the viability of those ideas.

Prior to showing the video, instructors might ask the students to write down any memorable service level experiences that they or their families or friends have had at hotels or motels. Discussion following the video could first cover some of these. For the negative experiences, in particular, how did the staff respond? Did it seem that providing a high-quality service was the top priority of staff members at that hotel? Two different discussion streams about the Ritz-Carlton quality program might emerge. First, the instructor might ask the students about potential downsides of using self-directed work teams? Will they work in every company or industry? If not, what might be some pre-conditions that would make them successful? Second, using cost-benefit analysis in a service business might be more difficult than it sounds. For example, if a new idea makes customers happier but costs $5 more per customer, how do we measure the benefit of “happiness?”

Cinematic Ticklers

1. Gung Ho, (Michael Keaton and Gedde Watanabe), Paramount Pictures, 1986
If not shown with Chapter 2, scenes from this movie highlight the Japanese “zero-defect” policy and other Japanese business practices.

Jay and Barry’s OM Blog

1. OM in the News: Toyota and “The Cost of Quality”
In October 2012, Toyota announced the recall of 7.4 million vehicles worldwide, including 2.5 million in the US, to repair power-window switches that can break down and start a fire. This is a great example of the cost of quality.

2. OM in the News: Quality Control in Intensive Care Units
The WSJ (Sept. 11, 2012) article on the use of checklists in hospital intensive care units provides an example of how the tools of OM can result in major improvements in the health care field.

3. OM in the News: Pink Slime and Lean Hospitals
US hospitals are places where people have good reason to be scared and to demand change. The tools of OM can be applied to help reduce different types of preventable errors.

4. OM in the News: Building a Reputation for Quality No Easy Task for Chrysler
Chrysler is a great example of regaining a quality reputation. It may take five to ten years to rebuild it a damaged reputation.

Presentation Slides

INTRODUCTION (6-1 through 6-4)
Slide 4: Arnold Palmer hospital does so much more than just “going through the motions” with these quality tools. The hospital really ingrains a culture of quality in all of its employees. Patient satisfaction is truly the number one priority. The results clearly reflect this culture: (1) the hospital typically scores in the top 10% nationally in benchmark patient satisfaction surveys, and (2) it boasts one of the highest neonatal intensive care survival rates in the U.S.

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QUALITY AND STRATEGY (6-5 through 6-7)
Slide 5: Right away the instructor can emphasize that “high quality” is not an exclusive strategy unto itself. On the contrary, the pursuit of high quality can actually support other strategies discussed in Chapter 2 by satisfying customer needs or making things run more smoothly or cheaply. It is possible to have high quality and low cost at the same time! The third bullet on the slide is something that all of the quality gurus recognize. A successful quality management system must have top management support, and it involves so much more than implementing a tool or memorizing a list of concepts or Deming’s 14 points.
Slide 6: Studies have shown that high quality products are positively correlated with profitability, so the impacts illustrated in this slide (Figure 6.1) are really happening.
Slide 7: This flow of activities shown in this slide (Figure 6.2) will go nowhere without top management support and an organization that emphasizes a true culture of quality.

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DEFINING QUALITY (6-8 through 6-21)
Slides 8-11: Quality means different things to different people for different products and services under different circumstances. It all begins with a good understanding of what the customers expect. Slide 11 is particularly important to emphasize. High quality does so much more than just reduce rework costs. The reputation implications can have a huge impact on profitability, and it is so difficult to recover from bad publicity about quality. Furthermore, several firms over the past few years have gone bankrupt due to liability stemming from product defects.
Slides 12-13: Instructors can spend several minutes on the Baldrige Award if they want to. Video clips of awards presentations can be shown, which usually include a U.S. President or Vice President. Also, the web site ( contains a lot more information about the award, and it can be interesting to look at all the past winners—some are well known while many others are not. It can be useful to emphasize that some firms apply for the award with no intention of winning it—they want the comprehensive quality audit to identify needed areas of improvement.
Slides 14-15: ISO 9000 continues to be an important standard around the world, and increasingly in the United States. Many overseas companies will not purchase from suppliers who are not ISO 9000 certified. It used to be easier to make jokes about ISO 9000, because the original standards focused on documentation and consistency, with little stated about quality itself. However, recent updates to the standards have emphasized more features similar to the Baldrige criteria. An important advantage of a certification like ISO 9000 is that firms can rely on such a certification as an outside validation of quality—this frees firms from having to audit each potential supplier for themselves.
Slides 16-17: Here’s where the concept of making it “right the first time” can be emphasized. Spending more on prevention usually leads to bigger savings in failure costs and potentially even appraisal costs. In particular, external failure costs may exceed the price of the final product itself and can be devastating in terms of company reputation. The old carpenter’s quote applies here: “Measure twice and cut once.”
Slides 19-20: These slides describe some of the pioneers of quality management. Deming was probably the most influential. In fact, the Japanese honor Deming by naming their top national quality prize after him (an American). An interesting film about Deming was produced that shows him in action later in life. Both he and Juran were not particularly charismatic. Crosby, on the other hand, displayed his charisma like an infomercial professional (in a generally positive way). Crosby definitely focused less on the quantitative aspects of TQM than the other pioneers did. One important way that Juran differed was with the idea of choosing a defect level (which could be less than 1%) that minimized the “cost of quality” (finding the balance between prevention and failure costs). Deming and Crosby, on the other hand, preached about striving for and attaining zero defects.
Slide 21: The point about responding to problems is particularly important. Mistakes happen, but how does an ethical company respond and make it right?

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TOTAL QUALITY MANAGEMENT (6-22 through 6-44)
Slide 22: It can be re-emphasized here that TQM programs are difficult to implement and represent a cultural change that must be supported in words and actions by top management.
Slides 23-24: Deming’s points represent one framework to think about implementing a TQM program.
Slide 25: This slide identifies the seven major concepts of TQM.
Slides 26-28: Continuous improvement is like a race with no finish line. The runner can celebrate and take a break now and then, but then she needs to get back on that road and keep going further. The most important feature of the PDCA cycle (Slide 27—Figure 6.3) is the arrow on top—showing that the cycle does not end with implementation but starts again with a new set of improvements.
Slides 29-33: In some ways, Six Sigma is modern re-wording of old TQM concepts. The Six Sigma certification program (black belts and green belts) has become highly valued for those that attain the certification. In some ways, it is quality management’s equivalent to the CPA in accounting or the CFA in finance. A nice feature of the certifications is that they involve not only passing exams, but also real-world experience in managing quality improvement projects.
Slides 34-35: Arguably, employee empowerment represents the most powerful means to improve quality in an organization. Often the people closest to the actual work know best how to improve it. A key feature for success is to properly reward employees for helping to improve quality.
Slide 36: Note that benchmarking does not have to examine only other firms in the industry. World-class organizations from other industries lead to some great ideas—and those companies might be more willing to share information.
Slide 37: This is a very nice slide (Table 6.3) to cover point-by-point. Proper complaint resolution has such a huge impact on company reputation.
Slide 38: Internal benchmarking can be more effective than external benchmarking when the organization is large enough to have multiple divisions or business units.
Slides 39-40: JIT receives much fuller treatment in Chapter 16. The issues here are that JIT in the form of “procrastination” has two main benefits: less inventory and identification of errors early before they are applied to many products.
Slides 41-42: Genichi Taguchi created systematic methods to design experiments that identify the variables affecting product variation (these are fractional factorial experiments). He also has provided us with the three important concepts identified in Slide 41. Slide 42 focuses on quality robustness, i.e., products whose quality is not hampered by variations in conditions. Taguchi suggests that focusing on removing the effects of variations can often be cheaper than attempting to eliminate the causes.
Slides 43-44: A study found that U.S. consumers preferred Sony TVs made in Japan to those made in the U.S. Both factories used the same designs and specifications. But the difference in quality goals led to the difference in consumer preferences. Specifically, the U.S. factory had output that was uniformly distributed between the upper and lower specification limits. The Japanese factory, however, had output centered around the target in the shape of a normal distribution. Thus, much more of its output was near the target (or the center of the upper and lower limits). Clearly, this target-oriented approach led to higher quality final products. Why? Imagine many slightly large bolts fitting into slightly small nuts (connections that are too tight) and other slightly small bolts fitting into slightly large nuts (connections that are too loose). Add all those up over many components in a TV, and more things will go wrong. With the quality loss function, it’s important to emphasize that those are not actual costs. A component produced within specs may indeed cost nothing. However, the function is estimating the costs of not hitting the target exactly, using the important assumption that the costs increase according to a quadratic function, that is, doubling the distance from the target will quadruple the estimated cost. One application of the quality loss function could be in determining whether or not to buy a new machine that produces output closer to the target. Even if both the new and old machines always produce within spec limits, presumably the accuracy provided by the new machine has some benefits, which can be quantified by using quality loss function estimates.

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