Quality Management and Standards

Quality

• People and machines are imperfect
• Machines rely on people
• Quality is meeting product standards
• Quality means consistently meeting standards
• Firms want to meet customer demands, but there are constraints

Implications of Not Meeting Standards

• Inability to meet standards means product failure susceptibility
• It may cause loss of life or customer base losses
• Meeting or exceeding standards requires quality control
• Standards can only be raised if the current ones are met
• Quality focuses on prevention
• Predicting quality issues is an essential discussion
• Quality supports operational strategies

Costs of Quality

• Include prevention, appraisal, internal failure, and external costs
• Costs decrease as quality improves
• Prevention costs prevent defects
• Appraisal assesses evaluations
• Internal failures are pre-delivery reject costs
• External failures happen after a customer receives it
• An example of external failure cost is the Toyota Raize ECU recall, which impacted quality performance
• This is the most impactful type of failure for a business

Quality Management

• Involves understanding the situation with data, and using strategies to improve quality
• Key management process is Kaizen, involving 10 steps

10 Steps of Kaizen

• Define the problem
• Define the goal
• Define the baseline
• Define the process
• Define possible sources of variation
• Identify corrective actions to eliminate waste, variation, or errors
• Develop an action plan
• Review results
• Replicate and make additional improvements
• Celebrate

Basic Quality Control Tools

• Focus on idea generation, data organization, and problem identification
• Check sheets, scatter diagrams, and cause-and-effect diagrams (fishbone) generate ideas
• Pareto and process flow charts organize data
• Histograms/frequency distribution and statistical process control charts identify problems

TQM (Total Quality Management)

• Is a program involving the whole organization, its partners, suppliers and customers
• Centers on striving for excellence across everything that matters to the customer
• A long-term approach to consumer satisfaction integrating quality into company culture

Principles of TQM

• Customer focus, grasp customer's current and future needs
• Leadership aligns purposes and provides direction
• Involvement of people engages individuals at every level
• Process approach means processes are being managed to achieve something
• System approach treats processes as interrelated
• Continual improvement is an organizational must
• Basing decision making on data and information
• Mutually beneficial supplier relations to build greater value

Ways of TQM

• Statistical thinking
• Quality management system
• Continual improvement
• Employee empowerment
• Benchmarking
• Just-in-time
• Taguchi concepts
• Quality inspection

Statistical Thinking

• Involves using statistics and control charts to identify corrective action
• Includes measuring, identifying the cause of change, eliminating or incorporating the cause, and restarting the revised process

Quality Management Systems

• Involve a collection of quality-related items like policy, manuals, and audits

Continual Improvement

• Implement the PDCA method
• Plan (identify the improvement and make a plan)
• Do (do a test plan)
• Check (evaluate)
• Act (act on the evaluations)

Employee Empowerment

• Engages employees to improve product and processes

Just-in-Time

• Produce only what is needed to improve quality and to cut costs

Taguchi Concepts

• Use engineering and experimental design methods to improve product and process design
• Identify the details affecting product variation

Six Sigma

• A systematic process to measure, analyze, control, improve, and define
• "Measure" is assessing how things are relative to standards
• DMAIC improves existing products: define, measure, analyze, improve, control
• DMADV creates new products

Lean Management

• Identifies, removes, and minimizes wastage across 8 categories

Supply Chain Management

• A collection of suppliers, logistics, and warehouses
• A sequence of organizations involved in producing, manufacturing, and delivering goods/services, from raw materials to the end consumer.
• It's more than a straight line in reality
• Includes warehouses+delivery/ managing to strategically combine organization functions and supply chain members with guidance

Importance of SCM

• Includes demand and supply management and a point of market competition

Logistics

• The method by which goods, services, cash, and information move across supply chains
• It is the foundation of supply chain management, which has a wider scope of organizations
• Can be mapped by working backward from the finished product
• Understanding how costs are included for products

COGS

• The cost of goods sold reflects raw materials and logistics
• Natural disasters can impact business costs
• Gross profit is a function of COGS
• Policies are established through Make or Buy and Outsourcing

Make or Buy

• Deciding if activities are within or outside the firm
• Purchasing from others makes them a supplier

Outsourcing

• Transfers activities to other firms, who become suppliers

Supply Chain Management

• Designs the supply chain to (1) optimize the firm's competitive advantage and (2) serve final customer
• Aims for COGS reduction
• Looks at the inventory of all suppliers

Sourcing Strategies

• Involve multiple suppliers, few suppliers, vertical integration, or keiretsu to source materials
• Multiple suppliers cause competition, forming transactional relationships
• Few suppliers entail dedicated suppliers forming long-term relationships
• Vertical integration is internalizing parts of the supply chain with limits
• Keiretsu create business networks, and can involve multiple tiers of suppliers
• Joint ventures born from supplier cooperation

Virtual Companies

• Have virtual connections, and connections depend on needs or projects

Supply Chain Management Issues

• Are inclusive of supplier risk, supply chain design, processes, and ethics

Supply Chain Risks

• Include failure to deliver, failure in quality, outsourcing, delays/damages, distribution, information loss, social elements, natural catastrophes, and theft

Risk Mitigation

• Mitigate failures to deliver by using multiple suppliers
• Mitigate failure and quality with quality control
• Have control over the outsourced process
• Implement redundancy systems to avoid delays or damages
• Implement careful selection, monitoring, contracts and penalties when selecting distribution channels
• Create resilient IT systems and training supply chain partners

Key Components

• Integrated supply chain: the firm and supply chain make decisions together
• Process Issues include logistics and distribution concerns
• Sustainability/ethics are rooted in the firm's product/service responsibility
• Just-in-time involves having enough supply to minimize inventory
• The bullwhip effect happens when supply chain partners overreact to firm behavior

Volume Demand

• What guides the supply chain using a pull strategy to match ideal demand.

Inventory Holding

• Reduced through large order sizes which reduce number of deliveries

Supply Base Building

• May be done through supplier evaluation, supplier development, negotiation, and contracting
• Supplier evaluation assesses capacity and trains suppliers to meet certain requirements

Supplier Selection

• Can be done through lowest bid selection or techniques weighing factor

Development

• Can integrate the supplier into the system by adding requirements, schedules, and other information

Negotiations

• Includes cost-based, market-based and common pricing

Purchasing

• Reduces task duplication and promotes standardization

Performance Indicators

• Percentage in inventory, inventory turnover, and weeks of supply
• Inventory turnover is how often it is is bought+sold in a year
• formula available

Weeks of Supply

• How long inventory lasts without needing new supply
• A formula is available
• Disruptions may be assessed to calculate the probability suppliers can't satisfy a firm's orders
• Costs maintain supplier relationships
• Expected monetary value: The product of probability and cost
• Probabilities graphed with a decision tree
• This decision tree shows expected values, whose multiplier is EMV and this represents expected cost

Inventory Management

• Coordinates with customers whenever they order
• Aims to balance investment for inventory and customer service

Inventories

• Provide goods selection, separate parts of the production process, allow for quantity discounts, and hedge against inflation
• Can engage with demand increases while keeping existing production levels
• Can separate parts of production process from suppliers
• Can supply bottlenecks to keep production running

Types of Inventory

• Raw material
• Work in Progress (WIP)
• Maintenance/Repair/Operating (MRO)
• Finished goods
• Decoupling processes means bottlenecks shouldn't interrupt productivity

Importance of MRO

• MRO keeps production processes going
• Recording is essential to managing it
• Garbage in, garbage out is a risk with bad data

Inventory Recording Methods

• Done through periodic or perpetual systems
• Periodic systems use regular checks
• Two-bin systems have inventory ready to replace as backup from the main
• Perpetual inventory systems continuously track all ins and outs

Independent Demand

• Demand dependent on customers

Dependent Demand

• Based on the amount of finished goods a firm makes
• Includes raw materials and WIP

Costs of Inventory

• Holding
• Ordering
• Setup
• These costs inform order size

Warehouse and workstation Costs

• Holding costs for MRO and finished goods in a warehouse that can include rent and security
• The costs are a percentage amount of the total inventory value

Ordering Costs

• The cost of placing an order and receiving one

Setup Costs

• The cost of preparing machines and processes for an order

EOQ (Economic Order Quantity) Model

• Helps determine optimal inventory to minimize total costs

EOQ Calculations

• Has assumptions
• Demand is known and independent
• Lead time is known
• Receipt is instant and complete
• No quantity discounts
• VC setup and holding costs are used
• Stockups avoided
• Formula included

EOQ Placeholder

• Maximun inventory level has the highest point
• Q is higher for less frequent orders
• Formula gives level to the lowest total cost
• Slope depletes demand
• Vertical lines represent replenishment
• Replenishment stops when inventory is zero, while reorders are a point below average inventory

Inventory Minimization

• Average inventory on hand affects holding costs and is achieved when (1) holding cost = (2) ordering/ setup cost
• Formula available
• Formula contains variable which determines costs per order

Quantity Discount Model

• Defines optimal quantity based on holding, setup costs, and price with bulk discounts
• Holding cost has one variable, price
• There are constraints
• Must check is the total is the sum of setup, holding, and the product being made
• The option total lowest cost is chosen
• Optimal quantity, meanwhile is categorize according to prices+discount

ABC Analysis

• Classifies inventory by (1) high annual dollar volume/high monetary Class A, (2) medium annual dollar volume, Class B, and (3) low annual dollar volume - Class C
• Class A gets most checks, because a lost A inventory is costly. The inventories should be secured accordingly

Value of Class A

• Gives value in inventory and must be insured since their cost is big, and relates to stock keeping units

Inventory Management

• Cycles counting gives inventory for the time allotted, which allows detection of error
• Fixed Period-Counting only happening one period, which allows restocking

Techniques

• The most important techniques have selecting disciplined employees by controlling items going out plus keeping incoming item counts right, and quantity

Production Management

• Involves producing the inventory over time

Maintenance Management

• Aims to keep the system up and can have far-reaching consequences affecting operations, reputation+profit and many outcomes

Key to Reliability

• Has to be 90 to 99 per cent, and a redundancy of component increases overall
• How often you maintain is your most important decision

Maintenance Service

• Preventive is important, as well that data regarding amount breakdown
• Formula includes cost of each preventive item
• It is more reliable to hire to service than do nothing with formula and it helps add backup for system parts
• This backup increases ability of part to be used