Chapter 2 Understanding Quality Management 2025 PDF

TOTAL QUALITY MANAGEMENT CHAPTER 2 Understanding Quality Management LECTURE NOTES DR. AMIRA OMAR Why Quality Management? I. Tangible Benefits Tangible benefits are items that hold a direct monetary value or can be monetized. For instance, if a custom...

TOTAL QUALITY MANAGEMENT CHAPTER 2 Understanding Quality Management LECTURE NOTES DR. AMIRA OMAR Why Quality Management? I. Tangible Benefits Tangible benefits are items that hold a direct monetary value or can be monetized. For instance, if a customer who spends $50,000 a month stops doing business due to quality issues, the company would lose $600,000 annually. However, if performance improvements bring the customer back, the tangible benefit would be a gain of $600,000 annually. The basic idea is that improved quality brings improved financial performance. Deming’s Chain Reaction may best illustrate this simple idea. Deming’s Chain Reaction Unlike other management gurus and consultants, Deming stated that a product or a service possesses quality if it helps somebody and enjoys a good and sustainable market. In Deming's view, variation is the main reason for poor quality. For example, variations from specifications for part dimensions in mechanical assemblies lead to inconsistent performance and failure—likewise, inconsistencies in human behavior frustrate customers and damage companies' reputations. Deming advocated a never-ending cycle of continuous improvement supported by statistical analysis to reduce variation. The Deming philosophy focuses on continuous product and service quality improvements by reducing uncertainty and variability in design manufacturing and service processes, driven by top management leadership. Deming also suggested that higher quality leads to higher productivity and long-term competitive strength. The Deming Chain Reaction theory summarizes this view. Quality improvements result in lower costs, less rework, fewer mistakes, fewer delays and snags, and better use of time and materials. TOTAL QUALITY MANAGEMENT/CHAPTER 2 2 Lower costs, in turn, lead to productivity improvements. With better quality and lower prices, a firm can achieve a higher market share and thus stay in business, creating more jobs. Cost of Quality The cost of quality concept emerged in the 1950s. To implement a cost-of-quality strategy, it is necessary to identify the activities that produce these costs, measure them, present them useful for managers, and analyze them to pinpoint areas that require improvement. Quality costs can be classified into four primary categories: prevention costs, appraisal costs, internal failure costs, and external failure costs. 1- Prevention costs Prevention costs are investments made to keep nonconforming products from occurring and reaching the customer, including the following specific costs: Quality planning costs include salaries for individuals associated with quality planning and problem-solving teams, the development of new procedures, and the design of new equipment. Control costs include costs spent analyzing production processes and implementing process control plans. Information systems cost expended to develop data requirements and measurements. Training and general management costs, including internal and external training programs, clerical staff expenses, and miscellaneous supplies. 2- Appraisal costs Various costs are associated with ensuring that specific requirements are met, typically involving measuring and analyzing data to identify nonconformances. These are known as appraisal costs and can be categorized as follows: Test and inspection costs for incoming materials, work-in-progress, and finished goods, including equipment expenses and employee salaries. Process measurement and control costs involve workers spending time collecting and analyzing quality measurements. TOTAL QUALITY MANAGEMENT/CHAPTER 2 3 3- Internal failure costs Costs due to internal failures arise when a product fails to meet the customer's expectations before its delivery. These costs can include several factors, such as: - Expenses incurred in scrapping and reworking products include material, labor, and overhead costs. - Costs involved in taking corrective actions, which require identifying the root cause of the failure and correcting production issues. - Decreased revenue due to lowering the product's price when it fails to meet the specified criteria. - Process failures, such as unplanned machine downtime or equipment repairs. 4- External failure costs When poor-quality products reach the customer, external failure costs arise. These include expenses related to customer complaints and returns, such as reworking returned items and canceled orders. Costs associated with product recalls and warranty claims, such as repair or replacement costs, administrative expenses, and product liability costs resulting from legal actions. Estimating costs such as service effort, product design, remedial engineering effort, rework, in-process inspection, and engineering change losses typically requires special efforts. Some external failure costs, such as customer dissatisfaction and future lost revenues, are impossible to estimate accurately. While prevention costs are the most vital, appraisal, internal, and external failure costs (in that order) are usually easier to collect. Cost Area Cost of Control Cost of Failure of Control (Cost of Conformance) (Cost of Non-Conformance) Sub-Category Prevention Costs Appraisal Costs Internal Failure Costs External Failure Costs Description Arise from efforts to Arise from detecting Arise from defects caught Arise from defects that keep defects from defects via test, audit, internally and dealt with reach the finalcustomer. occurring at all inspection by discarding or repairing the affected items Examples Quality planning Test and inspection of Rework costs Warranty costs purchased materials. Statistical Process Management of rework Out-of-warranty Control Inspection systems complaints Quality training Testing Rejection paperwork Product recall and workforce development Quality audit Product liability claims Product design Loss of customer goodwill verification Market research Cost of Quality types and examples (adapted from Feigenbaum, 1991) TOTAL QUALITY MANAGEMENT/CHAPTER 2 4 Regardless of the categorization approach used, the reasoning behind it is that even a minor increase in expenditure on preventive measures can result in a significant decrease in appraisal and failure costs. This is specifically what Crosby's book title, "Quality is Free," and his statement suggests. The concept is graphically represented below. Waste Using Cost of Quality models can be beneficial for encouraging progress in quality improvement efforts. However, it is important to recognize that these models only provide a limited perspective on the economic advantages. By only focusing on failure, they tend to ignore the waste associated with poor flow and efficiency rather than just accuracy. The concept of waste is generic and has been around for a long time. Many organizations refer to ‘non-value-added activities’ and ‘process waste.’ However, these are rather broad terms, and while it is easy to agree that waste is harmful and should be removed (or at least reduced), it does not much help in the improvement process. Ohno identified the Seven Wastes as part of the Toyota Production System (Ohno, 1988) and has since been widely applied to process improvement, becoming particularly associated with lean manufacturing principles. Muda is a Japanese word meaning “wastefulness” and is a key concept in lean process thinking. Muda is any constraint or barrier that causes waste to occur. Seven Types of Waste (MUDA) Waiting: Whenever the product is not in transportation or being processed, it is waiting (typically in a queue). A typical example of this waste is dealing with components or paperwork in batches. The first item in a batch has to wait for the remainder to complete that operation before the whole batch can move on to successive operations. This has a significant effect on increasing lead times. Defects: Discarding or reworking a product due to earlier defective TOTAL QUALITY MANAGEMENT/CHAPTER 2 5  work or components results in additional costs and delays. Simply, this refers to the waste that arises from not achieving a 'first' approach to work. The need to redo or discard components or paperwork incurs extra processing expenses and causes delays that impact lead time. Over-production: Many companies tend to produce more than necessary, thinking they are saving time on set-up. However, they fail to consider the additional expenses related to working capital, storage space, and the impact on subsequent tasks due to excess production. Making more of a product than is required results in several forms of waste, typically caused by production in large batches. Over-Processing: Doing more to a product than the end customer requires takes longer and costs more to produce. A good example of this form of waste is where additional operations are performed that do not add any value for the customer. Transportation: Every time a product is touched or moved unnecessarily, it risks damage, loss, delay, etc. Transportation is the movement of materials, components, or paperwork around a business so that various value-adding operations can be performed. Inventory: Whether in raw materials, work-in-progress (WIP), or finished goods, represents a capital outlay that cannot yet produce an income. This limits the availability of working capital, increases storage expenses, and restricts the business's ability to introduce new products. Motion: Motion refers to the damage and costs inflicted on what creates the product. This can include wear and tear for equipment, repetitive strain injuries for workers, or unnecessary downtime. Poor comfort design can cause employees to make unnecessary movements while performing their tasks. This can be due to poorly positioned equipment and materials in relation to the workplace. TOTAL QUALITY MANAGEMENT/CHAPTER 2 6 The financial effects of various types of waste The table below displays the potential financial effects of different types of waste. Type of Waste Potential Associated Costs Waiting The labor cost is associated with unused time. Cost of late delivery if overall process time affected. Defects Rework cost (direct and overhead if applicable). Cost of delays (as above). Inspection costs. Disposal costs if correction is not possible. Paperwork system costs. Storage costs Over-Production Extra material costs if excess cannot be sold. Deterioration costs. Over- Processing Additional processing costs. Transportation The additional cost of the unnecessary transportation system. Cost of late delivery if overall process time affected. Damage costs. Inventory Storage costs. Deterioration. Obsolescence costs. Motion Additional labor costs (including absenteeism). Types of waste and associated costs This approach enables a detailed identification of potential cost savings while providing opportunities for improvement and suggestions on how to modify waste management practices. II. Intangible Benefits Several benefits cannot be measured financially, yet they are crucial to enhancing an organization's competitiveness. 1- Increased Customer Satisfaction Fewer defects, more reliable products, reduced lead times, and products better matched to customer requirements should all be the natural consequences of an effective Quality Management system. This should, in turn, lead to more satisfied customers. Satisfied customers are more likely to buy from the organization again, pay more for their products, and recommend the organization to others. It is known that dissatisfied customers tend to spread negative feedback more than satisfied customers share positive feedback. It is estimated that unhappy customers will tell around ten people about their negative experiences, while happy customers may only share with two people. TOTAL QUALITY MANAGEMENT/CHAPTER 2 7 2- Increased Workforce Satisfaction and Motivation According to Deming (1990), individuals simply desire the opportunity to excel at their jobs and receive recognition for their achievements. Taking pride in one's work is now considered a critical aspect of employee motivation, and quality improvement initiatives play a significant role in this. Motivated employees tend to be more productive and capable of delivering high-quality service, enhancing customer satisfaction. Richard Branson is quoted as saying: “If you look after your internal customers, you don’t have to worry about your external customers.” Additional benefits from a happier workforce will include better teamwork, lower absenteeism rates, and more flexibility in difficult times. 3- Improved Environmental Impact Reducing waste can help organizations positively impact the environment and enhance their reputation. This approach reduces material and energy usage costs and promotes responsible corporate behavior. KAIZEN KAIZEN is a philosophy of continuous improvement, a belief that all aspects of life should be constantly improved. In Japan, where the concept originated, KAIZEN applies to all aspects of life, not just the workplace. The KAIZEN approach emphasizes continuous and gradual improvement that involves all stakeholders. Over time, these small enhancements create changes that are as significant as those achieved through "big project" methods. All employees are responsible for two quality aspects: process improvement and process control. Managing a process involves maintaining a desired state by taking corrective action when deviations occur. To ensure the process remains on track, established standard operating procedures (SOPs) are followed in the absence of any indications of deviation. On the other hand, improving the process involves experimenting with innovative ideas and utilizing KAIZEN to produce better results. Once an improvement has been identified, the SOPs are updated to reflect the new approach. TOTAL QUALITY MANAGEMENT/CHAPTER 2 8