Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Total Quality Management
Part 0: What is Quality?
Part 1: Economics of Quality
Part 2: TQM: Principles and Managerial Methods
Part 3: TQM: Improvement Tools
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Principal objectives of the lecture
What is quality?
The economics of quality:
What is the relationship of:
Quality and Cost
Quality and Productivity
Quality and Profitability
What is total quality management?
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
What is Quality?
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Five definitions of quality
-Garvin
Transcendent
Product-based
User-based
Manufacturing-based
Value-based
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Transcendent
“Quality is neither mind nor matter, but a third entity independent of the two … Even though quality cannot be defined, you know what it is.”
-Robert M. Pirsig
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Product-based
“Differences in quality amount to differences in the quantity of some desired ingredient or attribute.”
-Lawrence Abbot
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
User-based
“Quality is fitness for use.”
-Joseph M. Juran
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Manufacturing-based
“Quality is the degree to which a specific product conforms to a design or specification.”
-Harold L. Gilmore
“Quality is product uniformity around the target.”
-Genichi Taguchi
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Value-based
“Quality is the degree of excellence at an acceptable price and the control of variability at an acceptable cost.”
-Robert A. Broh
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Dimensions of quality
Performance (primary product characteristics)
Features (“bells and whistles”)
Reliability (frequency of field failures)
Conformance (match with specifications)
Durability (product life)
Serviceability (speed, courtesy, or competence of repair)
Aesthetics (“fits and finishes”)
Perceived quality (reputation and intangibles)
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Dimension Product Example: Service Example:
Stereo Amplifier Checking Account at Bank
Performance Signal-to-noise ratio,power Time to process customer requests
Features Remote control Automatic bill paying
Reliability Mean time-to failure Variability of time to process requests
Durability Useful life (with repair) Keeping pace with industry trends
Serviceability Ease of repair Resolution of errors
Courtesy of dealer Courtesy of teller
Esthetics Oak-finished cabinet Appearance of bank lobby
Reputation Consumer Reports ranking Advice of friends, years in business
Source: Modified from Paul E. Plsek, “Defining Quality at the Marketing/Development Interface.” Quality Progress, June 1987, pp. 28-36.
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Quality Specifications
Design quality
inherent value of the product or service in the marketplace
Conformance quality
degree to which the product or service design specifications are met
Design Quality
Conformance
Quality
Fitness of Use
Fitness of use
degree to which the final product or service meets the customer’s objectives
Design quality is a strategic decision for the firm
Execution of the activities involved in achieving conformance are of a tactical day-to-day nature.
It should be evident that a product or service can have high design quality but low conformance quality, and vice versa.
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Economics of Quality
Quality
Cost
Productivity
Profitability
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Traditional cost/quality tradeoff
Cost
Quality
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Quality and cost
Unavoidable costs
(Price of Conformance = POC)
Appraisal
Prevention
Avoidable costs
(Price of Nonconformance = PONC)
Internal failure
External failure
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Appraisal costs
Test and inspection materials and services
Wages of inspection personnel
Product quality audits
Maintenance of test equipment
Customer satisfaction audits
Supplier appraisals
Employee surveys
Mystery shopper program
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Prevention costs
Quality planning
Process control
Education and training
Preventive maintenance
Supplier training/certification
Failure analysis
Customer relationship management
Quality systems development
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Internal failure costs
Scrap
Rework
Downtime/overtime
Downgrading/disposition
Analysis of scrap/rework
Accidents/injuries
Employee turnover
Loss of morale
Handling grievances
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
External failure costs
Complaints processing
Warranty
Product recall
Product liability
Field service
Repair
Administrative costs
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
PONC estimates
COMPANY YEAR PONC as percentage of sales
IBM 1980 15-40
Motorola 1986 13
Heinz 1989 ($350-400 Million)
Motorola 1989 8 ($800 Million)
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
General electric estimates
STAGE Cost per defect per product
Supplier inspection cost $0.003
Incoming inspection cost $0.03
Fabrication inspection cost $0.30
Subproduct test cost $3.00
Final product test cost $30.00
Product service cost $300.00
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Traditional processes
Cost
Conformance Quality
0%
100%
Total cost
PONC
POC
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Emerging processes
Cost
Conformance Quality
0%
100%
Total cost
PONC
POC
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Quality and productivity
Common roots:
Design for manufacturability
Simplicity
Improved equipment
Better maintenance
Less downtime
Worker motivation
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Quality and profitability
Profit = Revenue - Cost
= (Price) (Sales) - Cost
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Quality and profitability
1) Market Gains
Higher Quality
-Garvin
Improved Reputation
Higher Market Share
Experience-based economies
Higher Prices
Higher Profits
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Quality and Profitability (cont.)
2) Cost
Higher Quality
Lower per unit Cost
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
What is total quality management?
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
The total quality management triangle
Bedrock
principles
Managerial
methods
Improvement
tools
T
Q M
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Bedrock principles
Customer focus
Continuous improvement
Total employee involvement
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Customer focus
“A customer is the most important person even in the office … in person or by mail. A customer is not an interruption of our work … he is the purpose of it.”
-L. L. Bean
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Customer focus
Know thy customers
Who they are
What their requirements are
Only the customer can define customer satisfaction
Quality is what the customer says it is!
Organizational self-assessment
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Continuous improvement
Continuous improvement of all processes - forever
RESULT
……..
Process
Process: The way everyone thinks, behaves, and acts every day
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
The quality incline
QUALITY
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Total employee involvement
Inside every individual is infinite creative potential
Involvement is getting people’s ideas, and respecting those ideas
Management has to ask for ideas
Let them make their workplace better for themselves
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Total employee involvement (cont.)
In a service organization customer relations are a reflection of employee relations
Quality is a state of mind
No other resource improves with age
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Total employee involvement
TQM is not a spectator sport
I hear and I forget
I see and I remember
I do and I understand
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Managerial methods
Governance
Organization
Decision making
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Managerial methods
“The people work in a system. The job of the manager is to work on the system to improve it, constantly, with their help.”
-Myron Tribus
Management by fact
Prevention based
Process-oriented
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Managerial methods
Push Power Up
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Managerial methods
Macho
Manager
Benevolent
Manager
Participative
Manager
TQM Leader
Manager
Do to
Do for
Do with
Facilitate Enable
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Process-oriented management
RESULT
……..
Discipline
Time management
Personal development
Participation
Morale
Communication
Teamwork
PEOPLE
Performance
Check with the result, not by the result
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Relationship management
“The customer usually doesn’t know what he’s getting until he doesn’t.”
-Ted Levitt
Selling
Marketing
Relationship management
Provider
Provider
Customer
Customer
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
What TQM is not
It is not a program
It is not a gift
It is not delegating responsibility for quality
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
Dr. Deming’s visit to Ford
“We wanted to talk to him about quality. He wanted to talk to us about management.
We wanted to talk about quality improvement tools we could use. He wanted to talk to us about culture change.
We wanted to know what programs would work. He wanted to know senior management’s vision for the company.”
-John A. Betti Under Secretary of Defense
Olin School of Business
Washington University
Panos Kouvelis
Manufacturing Management
*
What we have learned this lecture:
What is quality?
The economics of quality:
What is the relationship of:
Quality and Cost
Quality and Productivity
Quality and Profitability
What is total quality management?
Quality “experts” and the quality improvement programs.
Design quality is a strategic decision for the firm
Execution of the activities involved in achieving conformance are of a tactical day-to-day nature.
It should be evident that a product or service can have high design quality but low conformance quality, and vice versa.
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