Vba Tool For SPC

I N F O R M S
Transactions on Education
Vol. 5, No. 3, May 2005, pp. 1932
issn1532-0545 05 0503 0019
informs
doi 10.1287/ited.5.3.19
2005 INFORMS
An Interactive VBA Tool for Teaching
Statistical Process Control (SPC) and
Process Management Issues
Jaydeep Balakrishnan, Sherry L. Oh
Operations Management Area, Haskayne School of Business, University of Calgary, Calgary,
Alberta T2N 1N4, Canada {Jaydeep.Balakrishnan@haskayne.ucalgary.ca, Sherry.Oh@haskayne.ucalgary.ca}
W
ith a global emphasis on improved quality, Statistical Process Control (SPC) is an important process man-
agement tool with renewed signicance. In order to address this issue, we have developed an interactive
VBA Tool for teaching SPC and process management issues. Students can experiment with the tool to inter-
actively examine the various issues that affect SPC and gain insight into the important issues in managing a
process. The graphical nature of the interface should allow students to visually see the effect of changes in
process parameters. A detailed Instructors Manual and a Student Lab Manual accompany the software.
1. Introduction
With a renewed emphasis on managing processes in
Operations Management (OM), discussion of Statis-
tical Process Control (SPC) is often included as an
integral part of the OM course. Also, what was once
thought of as a statistical tool used mainly for produc-
tion control in manufacturing has now achieved main-
stream status in an increasing number of Fortune-500
companies (including service-based).
To assist in the teaching of SPC and business process
management, we have developed an Excel VBA tool
that can be used in class. The following concepts are
explored through guided use of the teaching model:
1. False out-of-control and false in-control
indications
2. The role of reduced variability on improved pro-
cess control
3. Process capability
4. The role of reduced variation in ensuring better
process capability
5. Six Sigma
6. Understanding the role and differences between
control and specication limits
7. Information from control charts
As we discuss in the next section, this VBA tool can
be more than an SPC teaching tool, it can also help
demonstrate process management principles.
2. Rationale
With a global emphasis on improved quality, SPC
has become a process management tool with renewed
importance. Many current business philosophies make
specic use of SPC. For example, Just-In-Time (JIT)
concepts have become pervasive in business world-
wide. JIT espouses SPC as a form of defect prevention.
Further, SPC as well as process capability are crucial
to the concept of Six Sigma quality programs at
global corporations such as GE and Motorola. SPC is
also seen as integral to the Total Quality Management
(TQM) philosophy and the ISO quality standards.
Increasingly, managers must think in terms of pro-
cesses rather than functions, and a thorough under-
standing of SPC will be valuable for future managers
of processes.
At the same time, in our experience, SPC is also one
of the more difcult concepts for students to compre-
hend. The theory behind SPC is based on probability
and statistics, topics many business students are not
known to excel in, or have great interest in. Thus,
concepts such as process control limits and process
capability, often taught back-to-back, are frequently
confusing for many students. Similarly, explaining the
effect of different z values on errors and the interpre-
tation of sample statistics is difcult without simulat-
ing actual process measures. While the issues can be
discussed with classical visual aids such as a board
or overhead, an interactive computer tool teaches the
desired concepts more effectively and quickly.
The SPC tool rst evolved from an Excel-based
demonstration of how to create statistical process
control charts to a VBA-enabled spreadsheet model
representing situations of Type I/II errors, and then to
19
Balakrishnan and Oh: An Interactive VBA Tool for Teaching SPC and Process Management Issues
20 INFORMS Transactions on Education 5(3), pp. 1932, 2005 INFORMS
its current format demonstrating both process control
and capability concepts. The choice of using VBA was
natural as the mathematical calculations are handled
easily and it allows modications to be made quickly
by anyone with access to Excel on their computer. The
graphical demonstration could have been attained
with a package such as Macromedia FLASH, but the
interactive nature of the tool would have been more
difcult to achieve as so much of the graphics are
based on user inputs and subsequent calculations.
Many statistical packages, such as Minitab, have
the ability to produce a wide array of control charts
quickly and easily. While the mechanics of creating a
control chart are straight forward, it is important for
students to recognize that implementing SPC requires
the understanding of the theory behind control charts
and the practical implications of that theory. We
believe that an interactive visual tool will be much
more effective in understanding this concept that
relies on a knowledge of probability theory. This tool
can also be used to link theory to managerial practice.
3. Previous Work
While interactive exercises in quality control have
existed for some time (see Heineke and Meile 1995,
for examples), the use of computer software in
teaching is becoming more popular as students
access to software and hardware increases. Many OM
textbooks now include a CD ROM with software that
can be used to solve problems in a variety of topics
and often with graphical and simulation capabilities.
Excel-based software is one of the more popular for-
mats because of the ease of use and the availability
of Excel. Of interest to this paper are the previous
interactive software programs that have appeared in
the elds of statistics, decision analysis, and opera-
tions management as SPC and process improvement
fall under these elds of study.
The topic of SPC is generally dealt with in Oper-
ations Management, Decision Analysis, and Business
Statistics textbooks. SPC is not usually a topic covered
in general-purpose (not business-oriented) statistics
textbooks. While textbooks in these three areas cover
the basics of preparing and interpreting control charts,
only a few (one example is Krajewski and Ritzman
2002) explain aspects such as the relationship of vari-
ance and control limit spread to Type I and Type II
errors and other managerial issues. Operations Man-
agement textbooks also generally explain process
capability through the index formula; however, they
do not relate the notion of process capability back
to managing the process through process control.
In general, the software available with textbooks in
the three categories is limited to basic plotting of pro-
cess control charts.
Advanced quality management and control text-
books often deal with the more sophisticated concepts
described above, but these textbooks tend not to
include any interactive software. One text that did
include a CD-ROM (Summers 2003) had a limited
version of a commercial product with excellent graph-
ics capabilities which allows students to generate
various reports. However, it is not well-suited to
in-class, hands-on demonstration. For example, it does
not generate data to demonstrate in-control or out-
of control points (the data set has to be created), nor
does it create two overlapping distributions in case of
a mean shift to illustrate Type II error or the magni-
tude of the shift. Thus, the focus is not on the basic
principles of SPC and its managerial implications but
rather, on control chart preparation and interpretation.
Another advanced quality management textbook by
Evans and Lindsay (2002) includes only Excel based
charts to plot control data.
Statistics textbooks are also available in online or
CD-ROM format. Visual Statistics 2.0 (Doane et al.
2001) is an example. Again, the focus in this text is on
control chart plotting and interpretation rather than
on the illustration of basic principles such the inter-
relationships between variation, control limit spread
and errors, and process improvement.
The student-run website, http://www.freequality.
org/, has a variety of useful software programs and
quality tools aimed at professionals looking for assis-
tance in solving quality and process management
problems. These programs would not be effective
in the interactive demonstration of SPC and process
management.
A search of the Journal of Statistics Education did
not reveal any article that described software that
does what we propose to do in this article. Further,
a survey paper by Mills (2002) in this journal catego-
rized the computer simulation methods used to teach
statistics. They included areas such as the central limit
theorem, t-distribution, and condence intervals but
none on SPC.
Pappas et al. (1982) describe a computer-based SPC
teaching tool developed and used in 1980 with their
3rd year mechanical engineering students. They illus-
trate a teaching tool called PEPEVO that generates
process attributes from a normal distribution as well
as either gradual or sudden shifts in the process mean.
The student can then apply different process chart
rules that give an out-of-control indication, such as
one point outside the limit or seven successive points
on one side on the mean and so on. The user also
has the ability to specify other parameters such as the
sampling frequency and sample size. The objective is
to nd the testing procedure that minimizes the cost
of the system, including those of sampling, stopping,
INFORMS Transactions on Education 5(3), pp. 1932, 2005 INFORMS 21
and resetting the machine and the undetected defec-
tives, for the set process parameters.
The focus of PEPEVO is on the design of the sam-
pling system and its implications. Its output includes
rudimentary graphics in the form of control charts,
but it does not report nearly the same level of inter-
action as our software. PEPEVOs design is modular
and it requires students have the ability to modify
the code in order to create new testing procedures
and specify processes parameters before running the
simulation to view outputs. The authors suggest that
its optimal use requires approximately 12 hours of
classroom time. The level of technical skill and time
required to implement PEPEVO would preclude this
tool from use in most introductory Operations Man-
agement courses.
In summary, it appears that while software-based
SPC teaching tools exist, the focus has generally been
on plotting and interpreting control charts. Our focus
is unique in that we aim to link control chart issues
with their managerial implications. Through this tool,
we hope students will attain a better understanding
of issues such as:
How does increasing the z-value impact the
frequency of unnecessary process stoppages or the
amount of time out-of-control processes remain
undetected?
How does focusing on training employees and
better equipment improve the control of the process?
What is the difference between a control limit
and a specication limit?
We believe that the advantage of our software is that
these and other SPC managerial issues can be inves-
tigated using a single, interactive teaching tool that is
simple enough for students to use on their own, or as
a guided classroom activity.
4. Learning
An effective teaching tool will help transform busi-
ness questions into a theoretical framework and then
link that theory back into practice. For example, con-
sider the question: Why does the Type II error decrease
with greater shifts in the process mean? With the click
of a button using this VBA tool, students can see
that the overlap between the distributions decreases,
thus understanding why there is a decreased prob-
ability that a sample reading from one distribution
will be mistakenly assumed to be from the other. This
is the theory, how do we link it to practice? Going
back a step, one might ask, why is discussing the
value of the shift in the mean important? Consider a
call centre manager who wants to control the mean
time that a customer is put on hold. For such a
manager, small shifts in the mean and the associated
high Type II error may be inconsequential. However,
a large shift in the mean implies that customer service
has dropped considerably and thus, the magnitude of
the Type II error becomes an important consideration
when making process control decisions.
Similarly, the tool can be used to emphasize the
managerial tradeoffs that exist in process control and
process capability. Graphically, is it is easy to see that
increasing the sample size results in less distribu-
tion spread. Thus the overlap between the sampling
distributions is decreased and detecting shifts in the
process becomes easier. This strategy however would
increase sampling time and costs, and would have no
benecial effect on process capability. Alternatively,
a reduction in process variance will also increase the
ability to detect shifts in the process while at the same
time, improve process capability. Through manipula-
tion of process variables, students will appreciate the
positive managerial implications of reduced variance
and recognize for themselves how it may be a less
expensive long-term option than increased sampling.
In practice, reduced variance implies more consis-
tency in the process (process improvement) achieved
through employee training, less system breakdowns,
fewer mistakes that need to be xed, advanced tech-
nology and the like. This links the theory to practice.
Within the JIT context, you have reduced waste and
variance.
Consider our call centre manager who wants to
ensure that no customer waits more than a certain
time. With a graphical tool presenting the process dis-
tribution and the waiting time specication limit, it
can easily be demonstrated that for a given mean,
higher variance/process inconsistency increases the
probability of violating this waiting time limit. To
ensure that performance goals are met, the process
manager could lower the mean waiting time by hiring
extra staff, resulting in waste through lower staff uti-
lization. The graphics can also be used to discuss a
better option, namely the concept of Six Sigma and
how a Six Sigma process is less wasteful and less vul-
nerable to small changes in process mean.
Thus, we believe that in addition to being a simple
quality control teaching tool, the interactive VBA tool
also allows the instructor to discuss more general pro-
cess management principles. Managing processes and
their improvement straddles different functional areas
such as human resources (employee training), infor-
mation systems (technology), and accounting (audit).
Given that this tool can foster a discussion of process
management issues over a wide spectrum of func-
tional areas, its greatest contribution may be made
with a more mature audience. We see it as being
most effective at the MBA level (it has been tried at
the Executive MBA level with good results) or in an
elective class on quality management. At the intro-
ductory undergraduate level, students may nd this
a useful tool for them to grasp the more abstract con-
cepts of process distribution versus distribution of
sample means, Type I versus Type II error, and pro-
cess capability.
This tool can be used after the concepts of varia-
tion and control limits are introduced. An exercise to
demonstrate the concept of variation (the coin-and-
tube exercise) can be found in Heineke and Meile
(1995). The proposed hands-on activity also assumes
a basic understanding of probability distributions
and sampling. The interface of the VBA tool invites
hands-on exploration of the concepts; its use would
be best suited to a lab or classroom with enough com-
puters so that the students can experiment along with
the instructor.
5. Using the Tool
Exhibit 1 is a screen print of what the user sees
upon opening the VBA spreadsheet. The software
allows the user to specify a situation requiring pro-
cess control. The example shown is from a call centre
where the average time a customer is put on hold is
measured, but any process parameter may be used
by changing the value in the process parameter text
box. The screen allows the user to specify two sets
of process parameters (both normally distributed for
simplicity) through the j and u. The software graphs
the distributions automatically. The process, as it was
designed and set up, is called the Planned Process.
The second distribution, called the Current Process,
represents the process as it is actually working. If
the process is working as planned (in control), the
Planned Process and the Current Process are shown to
be identical (same j and u). The TAB key is used to
move between controls as is the ENTER key. Exhibit 2
is a screen print of the Process Control Sheet and
Exhibit 3 is used for Process Capability issues. The
title in Exhibit 1 and Exhibit 2 will state Distribu-
tion of Individual Observations or Distribution of
Sample Means depending on whether the sample
size is 1 or greater.
Exhibit 1 Process Parameter Sheet
Exhibit 4 Annotated Student Lab Manual
Set n =1, z =1. Click the Generate Sample button. This generates a
sample and calculates the sample mean. Since the sample size is 1,
the mean is just the individual value. This value is shown on the
bottom right of the chart and it is represented as a green dot if
within the UCL and LCL and as a red square if outside the UCL
and LCL. (Note: A sample size of one would usually not be used for SPC
in practice, but required for the purpose of this demonstration).
Click it a few more times until you get a red square. In practice,
if you were managing this process what would you do when you
get a red square?
You would stop the process to investigate the cause of a sample
mean outside the UCL/LCL.
Does the call on hold violate company guidelines (defective)?
Probably not . . . a red square is displayed if the generated value
exceeds 11.5, while it would need to exceed 15 minutes in order to
be defective
The tool actually consists of three parts: this doc-
ument for the instructor, a Student Lab Manual for
students to work through, and the software. The
instructor document explains the software and the
concepts that can be taught through its use. It is
expected that the instructor would be projecting the
software image on a screen in the classroom. The Stu-
dent Lab Manual (Exhibit 4 shows a part of the
annotated instructor version) is a detailed step-by-
step series of exercises that the students can follow
through with the instructor, with space for them to
take notes about the results of each exercise and class
discussion. The manual and the software may be
posted on websites so that students can download
and work through them outside the classroom, if nec-
essary. The instructor version of Student Lab Manual
has also been prepared where the space for student
notes has been lled in with expected results and
suggested discussion (shown in bold in Exhibit 4).
Since all the documents accompanying the software
are in MS Word, they can easily be modied should
the instructor choose another example (rather than
Exhibit 2 Process Control Sheet
Exhibit 3 Process Specication (Capability) Sheet
the call centre) to discuss the process management
concepts.
5.1. Process Control Issues
After clicking on the control tab, the z dropdown
listbox in Exhibit 2 is used to set z to 1, 2, or 3. The
Lower Control Limit (LCL) and Upper Control Limit
(UCL) vertical lines are automatically generated and
shown in orange. Sample size (n) may be specied
in the given textbox and defaults to 1 if contents are
non-numeric or non-positive. If the n is 1, the software
uses Distribution of Individual Observations as the
screen title whereas if n is greater that 1, the title
Distribution of Sample Means is used. This serves
to emphasize that SPC generally uses the sampling
distribution. The Generate Sample from Current Pro-
cess button is used to generate a sample mean from
the current process. If the value generated (displayed
on bottom right of chart) is within the LCL and
UCL, a green dot is correctly placed along the hor-
izontal axis, indicating an in-control reading. If the
value generated is outside these limits, a red square
is placed, indicating an out-of-control reading. The
total number of values generated and the number
of these values outside the limits are tallied in the
total and out textboxes respectively. By clicking
the Generate Sample from Current Process button
and then keeping the Enter key pressed down, up
to one hundred samples can be generated. This pro-
cess can also be rapidly simulated by pressing the
Generate 100 Samples button. The Reset button
clears tallies to re-start the sampling process.
5.1.1. False Out-of-Control Indication (a or
Type I Error). Assuming that the process is in con-
trol, a false out-of-control indication occurs when the
sample mean falls outside of the control limits (indi-
cated by the red square). It can be seen that this will
occur about 33% of the time when z = 1. Changing
z to 2 and then 3 will clearly show that we can reduce
the Type I error by increasing z. Students can be asked
to repeat the process with various values of n to con-
rm that larger samples will not help to lower the
false out-of-control indication. Thus, adjusting z is the
only way to reduce the frequency of Type I errors.
5.1.2. False In-Control Indication (b or Type II
Error). A false in-control indication occurs when the
Current Process is no longer the same as the Planned
Process, but the sample indicates that the process
is still working as planned. To demonstrate this, set
n =10, z = 3 and make a minor change in j for the
Current Process. With the process now out-of-control,
the sampling would correctly indicate this with a red
square, representing the mean, falling outside of the
control limits. It can be seen that since the Planned
and Current distributions overlap considerably, most
readings will fall within the control limits, resulting in
green dots (now a false in-control indicator). In fact,
with z =3, running a simulation of 100 samples will
show that the error rate is almost 100%.
The next step would be to discuss how this error
may be controlled. The VBA teaching tool can demon-
strate it in three ways:
1. Reduce z. This will lower the probability of false
in-control. However this will also increase the proba-
bility of a false out-of-control (Type I error).
2. Increase sample size, n. Since increased n reduces
sample variance, students will note the narrowing of
the distributions and the resulting decrease in the
overlap between the Current and Planned distribu-
tions. The control limits will also narrow as a result
and the probability of a false in-control indication
will decrease. Since n has no effect on false out-of-
control (Type I error), this is a good option. How-
ever, it comes at the cost of increased sampling and
as mentioned previously, has no benet with respect
to process capability.
3. Only be concerned about larger shifts in the mean. By
making the Current Process mean signicantly differ-
ently from the Planned Process mean, it can be shown
that the probability of a false in-control depends on
how much out-of-control the process actually is.
A combined strategy using the latter two approaches
can also be presenteddetermine how much of a shift
(given the particular example) is enough to cause con-
cern and then choose a sufciently large sample to
reduce the probability of a false in-control reading
to an acceptable level. What if the resulting n is too
large? The next section answers this.
5.1.3. Reduced Process Variability. The role of
reduced variability in improved process control can
be demonstrated using the same settings described
in the previous section. With the process out-of-
control, the u can be reduced for both the Planned
and Current Process, preferably with an explanation
about achieving lower u through better training, more
advanced technology, better management, and the
like. If one used the coin-and-tube game previously
mentioned, one could relate back to this by asking the
students to think about how variability could have
been reduced, perhaps by using a narrower tube or
placing the tube much closer to the target. Students
will observe that the two resulting distributions will
overlap less and as a result, the probability of the false
in-control decreases. Thus, a reduction in variability
has the same positive effect on Type II error without
the ongoing cost of more sizeable sampling.
It is probably during the discussion of the effects
of z on the probability of a Type I or Type II error
that the instructor can help students avoid a common
misconception. We have often found that when stu-
dents are asked during exams about the choice of z,
they often erroneously state use z =3 instead of z =2
because it implies better quality control since more
sample means will fall within the limits. It is our
hope that through hands-on experimentation, most
students will avoid this mistake.
5.2. Process Capability
The issue of process capability can be explained by
using the Specication sheet (Exhibit 3) where the
control limits are not shown and n defaults to 1,
because process capability is by denition based on
individual units. From a customers perspective, it
is the possibility of receiving a defective good or
service. The j, u, and specication limits can be set by
entering appropriate values on the process parameter
and specication sheets. While generating units of the
product or service, a green dot would indicate a good
unit, whereas a red square would denote a defective
unit. Initially, u, the Upper Specication Limit (USL)
and the Lower Specication Limit (LSL) can be set
such that process capability is low, for example where
15% of the units are defective. By simulating 100 units
or observations, students will observe a large propor-
tion of the units will fall outside the USL/LSL. Such
a process with high defectives is not generally viable
in practice.
Students will also be able to graphically see the neg-
ative effect of shifts in the process mean on process
capability. As seen in the Process Specication sheet
(Exhibit 3), the distribution displayed can be set to the
Current Process using the Planned Process/Current
Process toggle button. For a given USL/LSL, a shift
in the Current Process mean results in the distribu-
tion graphically moving closer to the USL or LSL
and more units falling outside one of the specication
limits.
One method of reducing the defect rate would be
to move the LSL/USL farther away from the mean.
Students will quickly point out that this does not
really solve the problem as it implies lower quality
standards. Assuming that the customer is not willing
to accept lower quality, how can the situation be
improved?
5.2.1. Reduced Process Variability, Revisited.
The effect of reduced variability on the defect rate can
be demonstrated by going to the process parameter
sheet and reducing u so that the specication limits
are close to 3 standard deviations away from the pro-
cess mean. A few 100-unit simulations will show that
less than 1% of units will be defective since almost the
entire distribution falls within the USL/LSL. It should
be noted that this solution is superior; specication
limits have not been changed (implying the same
level of quality). Also in many cases, the customer or
regulatory bodies determine specications limits and
thus these cannot be allowed to deteriorate.
By reducing the u further to make the USL/LSL
6u away from the mean, the concept of Six Sigma
can be explained by showing that the USLj=6u.
One could run a few 100-unit simulations to show
that there is virtually no chance of a defective product
(even with minor shifts in the mean). It might be
useful to point out two aspects of Six Sigma as
practiced by organizations. The term Six Sigma as
originally coined by Motorola has a slightly different
statistical interpretation than 6u as it allows for 1.5u
shifts in the mean before calculating the probability of
an error, which results in 3.4 defects per million. Sec-
ondly, it is important to emphasize that Six Sigma in
organizations is a process improvement philosophy of
which statistical methods are just one aspect (Chase
et al. 2004 is an introductory Operations Management
text has a detailed section on Six Sigma methodology).
To quote former GE CEO Jack Welch (2001), The big
myth is that Six Sigma is about quality control and
statistics. It is thatbut its much more. Ultimately, it
drives leadership to be better by providing tools to
think through tough issues.
5.3. Differentiating Between USL/LSL and
UCL/LCL
This tool also helps to differentiate between the
USL/LSL and UCL/LCL, which is often confusing
to students. On the control limits screen, if the n
is set to 1, the distribution shown is for individual
observations and the option to show the USL/LSL (in
blue) on the same graph becomes available. Setting
n >1 results in the removal of the specication limits,
demonstrating that they are not relevant when sample
averages are plotted. A discussion of the differences
between the two types of limits (control versus speci-
cation) as well as the effect of customer requirements
on USL/LSL would be appropriate at this time.
To demonstrate the differences, start with a process
that is in control (Current Process j and u to be the
same as that of the Planned Process) set z =3, n =1,
and on the specication screen, adjust the specica-
tion limits so that they are approximately 1u from
the mean. The instructor should point out that a sam-
ple size of one would NOT typically be used for SPC
in practice, but is required for the purpose of this
demonstration only. Returning to the control limits
screen and selecting show specication limits, one
can demonstrate how an individual measure can fall
within control limits, but still not meet specications
(is defective) since the UCL is outside the USL. Nat-
urally, this situation is not desirable in practice, as it
will result in defective products left undetected.
A highly desirable system is one in which the SPC
mechanism detects an out of control process long
before defectives, as designated by the specication
limits, are produced. How can this achieved? This is
a good place to reemphasize the attractiveness of Six
Sigma. Through process improvement, assume that
the u has been reduced enough such that the USL is
6u away from the target. When the show specica-
tion limits is selected in the Control sheet, the USL
will fall outside the UCL, which is desirable. To show
why this is desirable, shift the current process mean
slightly away from the planned process mean. When
samples (n =1) are generated, indications to stop and
correct the process (red squares) should occur before
actual defective products are observed, i.e., a warn-
ing system. Under a Six Sigma Quality system, it is
uncommon for moderate shifts in the mean to result
in defective product, and furthermore, these shifts
should trigger the SPC mechanism to detect and ini-
tiate measures to correct the process.
It can also be demonstrated that control limits are
automatically adjusted when one or more of z, n, j,
or u are changed, while specication limits are exter-
nally set and thus are not affected by the process
parameters. Students should be asked how the speci-
cation limits would be setin our call centre example,
it may be set by management beliefs based on cus-
tomer preferences. Students will then be able to more
clearly see differences between the two types of limits
and how each are quite independent of one another.
In summary, the UCL/LCL is used to manage the pro-
cess while the USL/LSL is used to determine whether
the product is defective or nottwo separate issues.
6. Conclusions
We have presented an Excel VBA tool that can be
used to enhance students understanding of manage-
rial issues in Statistical Process Control (SPC), process
variability and Six Sigma. We believe that its ease of
use, combined with its graphical interface, make it an
effective classroom teaching tool.
The development of the software and manual has
been iterative over the past few years and has been
based on student and instructor feedback. Colleagues
who have used all or part of the SPC tool have felt
that it was effective in improving instruction.
Acknowledgments
The authors wish to thank their colleague Janice
Bodnarchuk Eliasson, Tom Grossman of the University of
San Francisco, the anonymous reviewers, and the Associate
Editor for their valuable comments on this article. Financial
support was provided by the Natural Sciences and Engi-
neering Research Council (NSERC) of Canada.
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McGraw Hill, New York.
Evans, J. R., W. M. Lindsay. 2002. The Management and Control of
Quality. Southwestern, Cincinnati.
Heineke, J. H., L. C. Meile. 1995. Games and Exercise for Operations
Management. Prentice Hall, Englewood Cliffs, NJ.
Krajewski, L. J., L. P. Ritzman. 2002. Operations Management: Strategy
and Analysis. Prentice Hall, Upper Saddle River, NJ.
Mills, J. D. 2002. Using computer simulation methods to teach
statistics. J. Statist. Ed. 10(1).
Pappas, I. A., K. Maniatopoulos, S. Protosigelos, A. Vakalapoulos.
1982. A tool for teaching Monte-Carlo simulation without
really meaning it. Eur. J. Oper. Res. 11(2) 217211.
Summers, D. C. S. 2003. Quality. Prentice Hall, Upper Saddle
River, NJ.
Welch, J. 2001. Straight from the Gut. Warner Business Books,
New York, 330.
LAB MANUAL http://archive.ite.
journal.informs.org/Vol5No3/
BalakrishnanOh/lab_manual_nov05_
instr.doc
An Interactive VBA Tool for Teaching
Statistical Process Control (SPC) Issues
The following are the concepts covered in this
exercise:
1. Process capability.
2. The role of reduced variation in ensuring better
process capability.
3. Upper Specication Limit (USL) and Lower
Specication Limit (LSL) and differentiating these
from Upper Control Limit (UCL) and Lower Control
Limit (LCL).
4. False out of control and false in control
indications.
5. The role of z in the Type I and II error.
6. The role of sample size in Type I and II error.
7. The role of reduced variability on improved pro-
cess control.
8. Six Sigma.
9. Managerial trade-offs.
10. Detecting process shifts.
Note to Instructors:
The lab manual contains the correct responses to
various questions asked of the students as they fol-
low the exercise. The responses are formatted using
hidden text that can be displayed (or not) when
printed by using the appropriate setting under:
Tools Options Print Include with docu-
ment [x] Hidden Text.
The hidden text can be viewed on the screen by:
Tools Options View Formatting marks [x]
Hidden Text.
1. Software Set-Up http://archive.ite.
journal.informs.org/Vol5No3/
BalakrishnanOh/ControlLimitDemo
_v1_nov05.xls
Exhibit 1 is a screen print of what the user sees upon
opening the VBA spreadsheet. The example shown
is from a call center where the average time a cus-
tomer is put on hold is measured, though this can
be changed to suit the situation in the Process sheet,
(Exhibit 1). The Process sheet screen also allows one to
specify two processes (both normally distributed for
simplicity) through the j and u. The software graphs
the distributions automatically. The process, as it was
designed and set up, is called the Planned Process. The
second distribution, called the Current Process, repre-
sents the process as it is actually working. If the pro-
cess is working as planned (in control) the Planned
Process and the Current Process are shown to be iden-
tical (same j and u). The TAB key is used to move
between buttons and as an ENTER key.
Notice that you have There are two other sheets
you can use: Control and Spec (Specication). Exhibit 2
shows the Control sheet where you can specify the
SPC parameters such as the z value (1, 2, or 3), and
Exhibit 1 VBA Sheet (Process)
Exhibit 2 Process Control Sheet
sample size (n). The UCL/LCL will always be shown.
If n =1, the chart will plot individual observations
as indicated in the title. If n >1, then sample averages
are plotted. The sample mean will be displayed at the
bottom right of the screen, as shown in Exhibit 2. You
can superimpose the USL/LSL in the Control sheet
by selecting the Show Specication Limit button, but
ONLY if the sample size (n) is set to 1.
Exhibit 3 shows the Spec sheet. In the Spec sheet
you can specify (by entering it directly or by using
the increase/decrease buttons) the specication limit
up to +, 50%. This represents the maximum accept-
able deviation from the planned process mean. You
can also toggle the specication limits to be either one
or two sided, as well as determine whether the actual
current or planned process is displayed by clicking
on the toggle buttons below the Simulation Stats dis-
play. In the situation of a call center, time on hold
would generally have just a single-sided USL. In our
example, the Generate Single Observation button gener-
ates a normally distributed call on hold time and a
corresponding marker along the x-axis of the graph.
If the marker is a green circle, it means that that the
caller was on hold for a time less than the USL. If it
Exhibit 3 Specication Sheet
is a red square, it indicates that the caller was put on
hold for more than the USL, i.e. a violation of the call
center guidelines;a defective service!
In the Spec sheet, the Simulation Stats display gives
the number of total calls and the number of defec-
tive calls (in red). In the Control sheet, the Simula-
tion Stat buttons gives the number of total samples
taken and the number of sample means (in red) out-
side the LCL and UCL. On either sheet, you also
have the option of generating 100 samples or observa-
tions to see the statistics displayed instantly. The title
in Exhibit 1 and Exhibit 2 will state Distribution of
Individual Observations or Distribution of Sample
Means depending on whether the sample size is 1 or
greater.
Note:
1. Hit Tab or Enter after any changes in values to
ensure that it is recognized
2. After nishing a sampling experiment, use the
Simulation Stat Reset button before proceeding.
2. Process Capability
Consider the following example. You are in charge
of a call center for the Internet division of a major
bank. Historically, the mean time (j) that a caller has
been placed on hold is 10 minutes and the standard
deviation (u) has been 5 minutes. Top management
dictates that all calls have to be elded within 15 min-
utes, (i.e., cannot be put on hold for longer that that).
This is your USL. Your call center would be consid-
ered capable if there was very little chance of a call
exceeding this time. Now consider whether the fol-
lowing cases are capable:
Case I
Is the call center currently capable? To answer this,
in the Process sheet set the Planned Process j to 10
minutes and u to 5. Select the Process in Control but-
ton to ensure that the process is in control. Only one
normal distribution will be seen. As the variability is
fairly high relative to the mean, the distribution will
be truncated on the left-hand side, and any simu-
lated calls with negative call times will be counted as
having a wait time equal to zero.
In the Spec sheet, increase the specication limit to
+, 50%. For a j of 10, it means that the USL is 50%
greater (15 minutes). Since management considers
only long waits as defective, click the two-sided
toggle button to switch to a one-sided test. This will
make it correspond to the call center example. Now
click the Generate Single Observation button to gener-
ate a normally distributed call on hold time along
the x-axis of the graph. If the marker is a green dot,
it means that that the caller was on hold for a time
less than the USL of 15 minutes. If it is a red square,
it indicates that the caller was put on hold for more
than the USL of 15 minutes, i.e. a violation of the call
center guidelinesa defective service!
Click Run 100 iterations to generate 100 calls. Based
on the results displayed in the Simulation Stat box,
how many calls took more than 15 minutes to
answer?
Approximately 16%
This can also be calculated mathematically using
the properties of the normal distribution. For a given
j and u, the z value corresponding to the probability
that a value greater than X will be generated is given
by Equation (1).
z =
(X j)
u
(1)
Therefore, if X=15, j=10 minutes, and u =5 min-
utes, what is the value of z?
z =
(X j)
u
=
(15 10)
5
=1 z =1
Given this z, using a normal distribution table, what
is the probability that X>15?
Pr(X > 1.0) = 1 0.8413 @ 16%. This value should
be approximately the same as that obtained through
simulating the 100 calls.
Is this likely acceptable (i.e. is the call centre
capable)?
No, with 16% of calls exceeding the USL, probably
not.
The value of z indicates how many us the spec-
ication limit (maximum allowed wait) is from the
process mean, j. We refer to this as the u level of the
process and it is shown near the USL on the chart dis-
played with the Spec sheet (Exhibit 3). The higher the
u level, the less likely that we will get an observation
outside the limit.
What is the level of this process?
Case IIReduced Variability
Assume that the mean on hold time is still 10 min-
utes, but by installing more user friendly software
and better employee training, the variation in the time
required to help customers is reduced. Thus the on
hold standard deviation u has also been reduced. The
new u is 1.5 minutes. With these improvements, the
process is now more consistent, but is the process now
more capable?
To answer this, set the u of the Planned Process in
the Process sheet to 1.5 minutes and switching to the
Spec sheet, observe the USL. Is there any change in
the area of the curve that is above the specication
limit compared to Case I? (You may need to switch
back to u =5 to verify) What does this imply for the
likelihood of a defective product?
When less of the process distribution curve is above
the USL it implies that there is a lower probability of
defectives.
Tables of the Normal Distribution
Click Run 100 iterations in the Spec sheet to gener-
ate 100 calls. Based on the results displayed in the
Simulation Stat box, how many calls took more than
15 minutes to answer?
Close to 0%.
Calculate the probability of defects mathemati-
cally using Equation (1) and the Normal Distribution
table given below. What is the level? Is the process
more capable?
Case IIIShift in the Mean
For some reason, the mean on hold time has
recently risen to 13 minutes. The u is still 1.5 minutes.
Is the process still capable? To answer this, in the Pro-
cess sheet, unselect the Process in Control button and
change j of Current Process to 13. This means that the
process has shifted and people on average are put on
hold for 13 minutes (though as a manager, you may
not detect this until you take a sample).
Observe in the Spec sheet the new distribution with
j=13. Make sure that you are viewing the current
process by clicking on the process toggle button so
that it displays the current process.Would you expect
more defects when compared to Case II? Why?
Yes. There is a signicant portion of the distribution
curve above 15 minutes.
Click Run 100 iterations to generate 100 calls from
the Current process distribution. What is the defective
rate?
Close to 10%.
cally using Equation (1). What is the level? Is the
process capable?
Case IV
You have instituted process improvement measures
such that the mean on hold time is back to 10 min-
utes and the u has been reduced to 0.8 minutes. Is
the planned process capable? To answer this, in the
Current Process in the Process sheet, change the j back
to 10 and u to 0.8, and select the Process in Control
button. This implies that the process is very consis-
tent. Click Process in Control and return to the Spec
Sheet to view the planned process distribution.
Would you expect more or less defects when com-
pared to Cases I, II, and III? Why?
Fewer. There is hardly any portion of the distribu-
tion above 15 minutes.
Click Run 100 iterations to generate 100 calls from
the Planned process distribution. What is the defective
rate?
Should be 0%.
cally using Equation (1). What is the u level? Is the
process capable?
z =
(X j)
u
=
(15 10)
0.8
=6.25
u level =Pr(X>6.25) -9.866 10
10
so
YES, the process is very capable.
What does 6 imply for process accuracy and
capability?
6u implies that the process is very accurate and
i.e, most people are put on hold for about 10 min-
utes with very little variation. Thus hardly, hardly,
hardly anybody will be on hold for more that 15 min-
utes. Students can be asked to change the mean to
11 minutes and examine the defective rate. It will still
be zero, thus showing that with a Six Sigma process,
slight shifts in the mean will not cause defectives.
Note:
6u is similar in concept but not the same as Six
Sigma. The term Six Sigma as originally coined by
Motorola has a slightly different statistical interpre-
tation as it allows for 1.5u shifts in the mean before
calculating the probability of an error which results
in 3.4 defects per million. Secondly, it is important to
emphasize that Six Sigma in organizations is a process
improvement philosophy of which statistical methods
are just one aspect. To quote former GE CEO Jack
Welch (2001), The big myth is that Six Sigma is about
quality control and statistics. It is thatbut its much
more. Ultimately, it drives leadership to be better by
providing tools to think through tough issues.
3. Difference Between USL/LSL and
UCL/LCL
In the Process sheet, set j = 10 minutes and
u =1.5 minutes for the Planned Process and select the
Process in Control button. This means that process is
working as it should. In the Spec sheet, ensure that
USL/LSL is at 50%. In the Control sheet, set z to 1,
sample size (n) = 1 and select the Show Specication
Limits button. Note that the USL and LSL (in blue)
are seen and are different from the UCL and LCL
(in orange). The software is calculating the UCL/LCL
from the SPC formulae for variables (shown below
in Equations (2) and (3)) while the USL is company
policy.
UC|
j
=j+z
(2)
|C|
j
=jz
(3)
Click z = 2. What happens to UCL/LCL in terms
of spread?
As z increases, the control limits widen.
What happens to USL/LSL?
Nothing, the specications limits do not change.
What is the signicance?
The UCL/LCL can be controlled by z while
USL/LSL is externally set (company policy, govern-
ment safety, or consumer regulations etc).
Set z back to 1 and increase sample size (n) to 5.
What happens to the spread of UCL/LCL as the
sample size increases?
The spread between LCL & UCL narrows.
What happens to the specication USL/LSL?
Why?
The specication limits disappear and the show
specication limits button becomes grey because
process capability is based only on individual values.
It is also externally set (company policy, government
safety, or consumer regulations etc). So just as in the
case of z, the UCL/LCL can be controlled by sample
size.
Set n = 1, z = 1. Click the Generate Sample button.
This generates a sample and calculates the sample
mean. It also plots this mean along the x-axis of the
graph. It is represented as a green dot if within the
UCL and LCL and as a red square if outside the UCL
and LCL. The calculated mean value is shown on the
bottom right of the chart (Exhibit 2). Since the sam-
ple size is 1, the mean is just the individual value.
(Note: A sample size of one would usually not be used
for SPC in practice, but required for the purpose of this
demonstration).
Click it a few more times till you get a red square.
In practice, if you were managing this process what
would you do when you get a red square?
You would stop the process to investigate the cause
of a sample mean outside the UCL/LCL.
Does the call on hold violate company guidelines
if the red square was above the UCL? In other words
is the generated on hold time a defect?
Probably not . . . a red square is displayed if the gen-
erated value exceeds 11.5, while it would need to
exceed 15 minutes in order to be defective
Now, in the Control sheet, set z =3, n =1. In the Spec
sheet, adjust the specication limits so that they are
approximately 1u from the mean (corresponding to
16% in the Spec Limits). After returning to the Control
sheet, click the Generate Sample button till you get a
green dot that is above the USL but below the UCL.
What does this indicate? Is this a desirable
situation?
An individual reading can fall within control limits,
but still not meet specications (is defective) since the
UCL is outside the USL. Naturally, this is a situation
that is NOT desirable in practice as it will result in
defectives being undetected.
On the other hand, it is desirable is to have a system
where even when the process is out of control, defec-
tives will not be produced before the SPC mechanism
detects it. To illustrate the desired system, in the Pro-
cess sheet, unselect the Process in Control button, set j
of the Planned Process to 10 minutes and of the Cur-
rent Process to 11 minutes. Set u of both processes to
0.6 minute. In the Spec sheet, change USL to 50%. In
the Spec Sheet, what u level is this?
8.3u
In the Control sheet, select the Show Specication
Limits button. Click the Generate Sample button until
you get a red square. You would naturally stop the
process to investigate. How many clicks did you
need to get a red square? Is sample defective?
The UCL is 11.8, 3u away from the planned pro-
cess mean. The current process mean is 11, only 1.33u
away from the calculated UCL. This corresponds to
the situation in case III, where approximately 9% of
the samples indicate an out of control process and
on average, 11 clicks will be required to generate a
red square. In this case though, the sample is NOT
defective as samples fall well below the USL.
What is the probability that calls will be
defective?
Practically 0 as it is a 6u (similar to a Six Sigma)
process.
Why is this a desirable situation?
The USL is much farther out than the UCL. When
the process mean has shifted to 11 minutes, your SPC
limits will detect it soon. Better yet, hardly any call
violates the 15 minute limit. So the process will be
xed when needed and no defectives will be pro-
duced. This shows the attractiveness of 6u (similar to
Six Sigma)rarely producing a defect while helping
the SPC mechanism detect shifts in the mean.
How does this demonstrate differences between
Control and Specication Limits?
4. Managerial Issues in Process
Control
The Effect of z on Type I /Type II Error
A Type I error occurs when the process is in control
but the sample indicates that the process is out of
control. A Type II error occurs when the sample indi-
cates that the process is still in control while it fact it
is no longer in control. For this example, we want to
start with a process that is operating as planned. In
the Process sheet, set j =10 minutes and u =5 min-
utes for the Planned Process and select the Process in
Control box. In practice, SPC uses the statistics from
samples (n >1) gathered to evaluated the process and
in this example, we will assume a sample size of four
calls. In the Control sheet, set z =1, n =4 and unselect
the Show Specication Limits, if necessary. Remember
that the process is working as it should and the cor-
rect managerial decision is to NOT stop the process.
When samples are generated, green dots are the cor-
rect indicators while the red squares incorrectly indi-
cate that the process is out of control. You can try this
out by generating a few samples using the Generate
Sample button.
Now generate 100 samples. The number in red
in the Simulation Stats box indicates the number of
times the sample mean would have fallen outside the
LCL/UCL. Each time this happens we would have
stopped the process in ERROR (Type I error)
What is the approximate error rate (Type I) and is
it acceptable?
33%. Naturally, this would not be acceptable
because you would frequently investigate problems
that did not exist. The cost is wasted time and
resources.
Now set z =2 and generate 100 samples. Note the
Type I error compared to z =1.
Set z =3 and generate another 100 samples. What
is the effect of z on Type I error?
When z = 2, approximately 5% of the values will
fall outside the control limits. When z =3, no (or per-
haps 1) Type I errors occur. Larger z values reduce the
probability of a Type I error.
Next we examine the Type II error. In the Pro-
cess sheet, unselect the Process in Control button and
change j of the Current Process to 11. Note that the
process is now out of control and now you have two
distributions: one is the planned process and the other
the current, shifted process. Assume that we do not
know it has shifted and will be relying on samples to
decide whether it is in or out of control. This is the sit-
uation that process managers face when determining
whether or not the process is in control. You can try
this out by generating a few samples using the Gen-
erate Sample button.
In the Control sheet, with z =3 and n =4, generate
100 samples. Note that now a red square is the correct
indicator, i.e, we should be stopping the process. The
green dot is actually a Type II error. How often (%)
does a Type II error occur?
Usually 100%.
Repeat for z = 2 and z=1. Compare the Type II
errors. Which is better? Why?
The error rate is much higher for z =3, so smaller
z values are better from a Type II error perspec-
tive. Since the distributions overlap very much, z =3
covers both distributions and all points fall within the
LCL/UCL, thus incorrectly indicating that the process
is in control. With z =1, many points fall outside as
it covers less of the distribution, correctly indicating
a shift in the mean.
What is the dilemma that you observe with
respect to Type I and Type II error and the value
of z?
Increasing z to improve Type I error will result in
a higher Type II error and vice versa. In other words
z =3 DOES NOT mean that our quality control is bet-
ter than when z =1.
Given that many companies choose to use z=3,
there are generally two different methods to reduce
the possibility of a Type II error and ensure the accu-
racy of the monitoring:
Method A: Use a larger sample size by changing
n = 100. Set z = 3 and generate 100 samples. What
happens to the sampling distribution?
The distribution spread decreases.
Has the error probability decreased? How do
larger samples help?
Yes. Larger samples will reduce the spread in the
sampling distributions as shown in the Control sheet.
As a result, when the process mean shifts, there is
less overlap between the two distributions (planned
vs. current). With less overlap, there is a higher
probability that the samples from the shifted distribu-
tion will fall outside the limits based on the planned
process, reducing the probability of a Type II error.
What is the disadvantage of larger samples?
Larger samples will cost more money to implement,
especially if destructive testing is required. So what is
another approach?
Method B: Set n back to 4. In the Process sheet,
for both processes set u = 0.5 minute. This indicates
less variability through better equipment, training of
employees and so on. In the Control sheet, generate
100 samples. What is the Type II error probability?
What is the overlap between distributions?
Low error rate (about 13 to 20%) and low overlap
between distributions
How do both of these methods help to reduce
Type II error?
As with larger samples, lower process variance
reduces the spread in the sampling distributions.
When the process mean shifts, there is less overlap
between the two distributions, resulting in a higher
probability that the samples from the shifted distribu-
tion will fall outside the LCL/UCL. This CORRECTLY
indicates an out of control process and results in man-
agement stopping the process and taking corrective
action.
Both of these methods to reduce Type II error will
cost moneywhich is better?
Although reducing variability costs money initially,
over the long term it is better to have a more accurate
process than to spend more money indenitely with
larger samples to achieve the same low error rate.
No matter how accurate the process, there is always
a trade-off between Type I and Type II error. The issue
of how low the error rates should be is a managerial
decision based on the costs of allowing the error to
continue versus the costs to detect it.
Other Information from Control Charts
In the Process sheet, set j of the Planned Process to
10 minutes, set j of the Current Process to 11 minutes,
u of both to 1.5 minutes. In the Control sheet, set n =4,
and z =3. Reset the Simulation Statistics and generate
twelve samples from the current process. After gen-
erating each sample, roughly plot the sample mean
(as displayed in the bottom right corner of graph in
Exhibit 2) in Exhibit 4 below.
Are the plotted points randomly scattered above
and below the planned process mean of 10?
No, they are predominantly above the mean
What does this imply for managers looking for an
indication of an out of control process?
Exhibit 4
UCL
10
LCL
Mean of planned
process
It will be seen that most of the values are above the
mean indicating non-randomness and that we should
investigate. This implies that we need not wait for a
red square (sample mean above UCL); non-random
green dots are a sign that the process may not be in
control.
The Magnitude of the Shift
Ensure that I i n the Process sheet, set j of the
Planned Process to is 10 minutes, set j of the Current
Process to is 11 minutes, and set u of both to pro-
cesses is 1.5 minutes. In the Control sheet, ensure that
set n = 4, and z = 3, and now generate 100 samples.
Recall that since the process is out of control, a red
square is the correct indicator. What is the resulting
probability of a Type II error?
High
In the Process sheet change j of the Current Process
to 15. In the Control sheet generate 100 samples. What
is the Type II error compared to the previous case?
Close to zero
What does this imply for managers that are con-
cerned about type Type II error?
For the same n and z, the larger the shift, the more
likely you are to catch it. If a shift of the process mean
from 10 to 11 is not important to you (customers may
not notice), then you may not need to increase sam-
ple size or variance to reduce Type II error since the
effort and cost may not be worth the benet. You may
decide that a shift of 5 is very important to detect (cus-
tomers may start screaming!). In that case, you will
want to spend money increasing the sample size or
reducing variance so that you have a high probability
of detecting the shift.
Once again, it is a managerial decision as to
whether or not resources need to be deployed to
reduce the probability of a Type II error for small
shifts in the process. It may be adequate to allocate
resources only for large shifts in process mean. Man-
agers will need to understand the cost of process con-
trol versus the cost of not detecting process shifts.

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