DON HONORIO VENTURA STATE UNIVERSITY UNIVERSITY

CBME 11
OPERATIONS MANAGEMENT AND TQM

Prepared by:

Hail D. Malabanan, MM
Ma. Jenalyn G. Flores, MBA
Eduardo Paulino, MBA
Jomar B. Torres, MBA
 DON HONORIO VENTURA STATE UNIVERSITY UNIVERSITY

CHAPTER 4: MANAGEMENT OF QUALITY

Chapter Objectives:
1. Define the term quality as it relates to products and as it relates to services.
2. Discuss the philosophies of quality gurus.
3. Explain why quality is important and the consequences of poor quality.
4. Describe and give examples of the costs associated with quality.
5. Compare the quality awards.
6. Discuss quality certification and its importance.

INTRODUCTION
Broadly defined, quality refers to the ability of a product or service to consistently meet or exceed
customer requirements or expectations. However, different customers will have different
requirements, so a working definition of quality is customer-dependent.

For a decade or so, quality was an important focal point in business. But after a while, the emphasis
on quality began to fade, and quality took a backseat to other concerns. However, there has been an
upsurge recently in the need for attention to quality. Much of this has been driven by recent
experience with costs and adverse publicity associated with wide ranging recalls that have included
automobiles, ground meat, toys, produce, dog food, and pharmaceuticals.

APPROACHES TO QUALITY DEFINITION

1. Transcendent - According to the transcendent view, quality is synonymous with “innate
excellence.” It is both absolute and universally recognizable, a mark of uncompromising standards
and high achievement. Nevertheless, proponents of this view claim that quality cannot be defined
precisely; rather, it is a simple, unanalyzable property that we learn to recognize only through
experience. This definition borrows heavily from Plato’s discussion of beauty. In the Symposium,
he argues that beauty is one of the “platonic forms,” and, therefore, a term that cannot be defined.
Like other such terms that philosophers consider to be “logically primitive,” beauty (and perhaps
quality as well) can be understood only after one is exposed to a succession of objects that display
its characteristics.
2. Product-based – Quality is observed as quantifiable or measurable characteristic or attribute. For
instance, durability or reliability can be measured and the engineer can draw to that yardstick.
Quality is concluded objectively. Although this approach has many benefits, it has limitations as
well. The yardstick for measurement may be deceptive where quality is founded on individual taste
or preference.
3. User-based - User-based definitions start from the opposite premise that quality “lies in the eyes
of the beholder.” Individual consumers are assumed to have different wants or needs, and those
goods that best satisfy their preferences are those that they regard as having the highest quality.
4. Manufacturing-based - Focus on the supply side of the equation, and are primarily concerned with
engineering and manufacturing practice. Virtually all manufacturing-based definitions identify
quality as “conformance to requirements.” Once a design or a specification has been established,
any deviation implies a reduction in quality. Excellence is equated with meeting specifications, and
with “making it right the first time.”
5. Value-based - They actually define quality in terms of costs and prices. According to this view, a
quality product is one that provides performance at an acceptable price or conformance at an
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acceptable cost. Under this approach, a $500 running shoe, no matter how well constructed, could
not be a quality product, for it would find few buyers.

EVOLUTION AND DEVELOPMENT OF QUALITY MANAGEMENT

1. Quality Control - Quality control is basically concerned with complying with requirements by
inspecting the products and eliminating nonconforming items. It does not address the root causes
of nonconforming. This type of control was developed during World War II to ensure the
consistency of ammunition being produced.
2. Quality Assurance - Similar to quality control, quality assurance originated from the military's
need for consistency of military hardware. The success of Japanese manufacturers during the
1960s and 1970s shifted the focus from quality control to quality assurance. In comparison to
quality control though, quality assurance focuses on the procedure of compliance and product
conformity to specification through activities such as vendor appraisal, line or shop floor trouble
shooting, laboratory work, field problems and method development in the production process.
However, quality assurance is still basically an inspection process, though it checks more than just
the product.
3. Total Quality Control - Total quality control is an expansion of quality control from manufacturing
to other areas of an organization. The concept was introduced by the American scholar Dr
Armand Feigenbaum in the late 1950s. The Japanese adopted this concept and renamed it as
companywide quality control (CWQC). It tries to look for long term solutions rather than
responding to short term variations. It focuses on pursuit of quality through elimination of waste
and non-value-added process. Also, the concept is to expand quality control beyond the
production department. Quality control should be covered all the other departments of an
organization such as marketing, design, accounting, human resources, logistics and customer
services. Quality is not just the responsibility of production.
4. Total Quality Management - Total quality management (TQM) evolved from the Japanese after
World War II with the inspiration from quality experts like Juran and Deming. As it evolved, it
changed from process driven by external controls to a customer oriented process. Quality is
achieved through prevention rather than inspection. It shifts the main concept from control to
management. No matter how stringent the control there is still a chance to have mistakes or
defectives. The concept of management is to have a strategic plan starting from identifying
customer requirements to after-sales services to producing product meetings or exceeding the
customer requirements. TQM will be discussed in more detail in the next module (Chapter 5).

QUALITY TYPES
There are three types of quality which are:
1. Quality of Design – Is all about set characteristics that the product or service must minimally have
to satisfy the requirements of the customer based on market research. Thus, the product or
service must be designed in such a way so as to meet at least minimally the needs of the
consumer at a given cost.
2. Quality of Conformance – Is basically meeting the standards or user-based characteristics defined
in the design phase after the product is manufactured or while the service is delivered. It refers
to the extent in which the firm and its suppliers are able to manufacture products with expected
level of reliability and uniformity at a specified cost with quality requirements based on the study
made on the quality design. This phase is also concerned about quality control starting from raw
material to the finished product.
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3. Quality of Performance – Is how sound the product functions or service performs when put to
use. It measures the degree to which the product or service pleases the customer from the angle
of quality of design together with the quality of conformance. Meeting customer expectation is
the focus of quality of performance.

THE FOUNDATIONS OF MODERN QUALITY MANAGEMENT: THE GURUS

1. Walter Shewhart. Walter Shewhart was a genuine pioneer in the field of quality control, and he
became known as the “father of statistical quality control.” He developed control charts for
analyzing the output of processes to determine when corrective action was necessary.
2. W. Edwards Deming. Deming compiled a famous list of 14 points he believed were the
prescription needed to achieve quality in an organization. His message was that the cause of
inefficiency and poor quality is the system, not the employees. Deming felt that it was
management’s responsibility to correct the system to achieve the desired results. In addition to
the 14 points, Deming stressed the need to reduce variation in output (deviation from a
standard), which can be accomplished by distinguishing between special causes of variation (i.e.,
correctable) and common causes of variation.

Figure 4.1: Deming's 14 points

3. Joseph M. Juran. Juran viewed quality as fitness-for-use. He also believed that roughly 80
percent
of quality defects are management controllable; thus, management has the responsibility to
correct this deficiency. He described quality management in terms of a trilogy consisting of
quality
planning, quality control, and quality improvement. Juran is credited as one of the first to
measure the cost of quality, and he demonstrated the potential for increased profits that would
result if the costs of poor quality could be reduced.
4. Armand Feigenbaum. Feigenbaum was instrumental in advancing the “cost of nonconformance”
approach as a reason for management to commit to quality. He recognized that quality was not
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simply a collection of tools and techniques, but a “total field.” According to Feigenbaum, it is the
customer who defines quality.
5. Philip B. Crosby. Crosby developed the concept of zero defects and popularized the phrase “Do
it right the first time.” He stressed prevention, and he argued against the idea that “there will
always be some level of defectives.”
6. Kaoru Ishikawa. Among his key contributions were the development of the cause-and-effect
diagram (also known as a fishbone diagram) for problem solving and the implementation of
quality circles, which involve workers in quality improvement. He was the first quality expert to
call attention to the internal customer —the next person in the process, the next operation,
within the organization.
7. Genichi Taguchi. Taguchi is best known for the Taguchi loss function, which involves a formula
for determining the cost of poor quality. The idea is that the deviation of a part from a standard
causes a loss, and the combined effect of deviations of all parts from their standards can be large,
even though each individual deviation is small.
8. Taiichi Ohno and Shigeo Shingo. Taiichi Ohno and Shigeo Shingo both developed the philosophy
and methods of kaizen, a Japanese term for continuous improvement at Toyota. Continuous
improvement is one of the hallmarks of successful quality management.

THE DIMENSIONS OF QUALITY

➢ PRODUCT QUALITY
David Garvin (1988) has defined eight dimensions that can be used at a strategic level to analyze
the quality of characteristics. Some of the dimensions are mutually reinforcing, whereas others
are not; improvement in one may be at the expense of another or others. These eight
dimensions are especially useful for understanding customers' expectations of product quality.
Understanding the trade-offs desired by customers among these dimensions can help build a
competitive advantage. The eight dimensions are as follows:

1. Performance —refers to a product's primary operating characteristics. Performance is

measurable, so different brands of the same product can be ranked objectively based on
individual aspects of performance. Examples of these primary performance characteristics
can be seen below:
➢ Automobiles
✓ Acceleration
✓ Braking distance
✓ Steering
➢ Television
✓ Sound
✓ picture quality
✓ colour
✓ reception
➢ Internet service provider
✓ data transmission rate
2. Aesthetics —reflect how a product looks, feels, tastes or smells. These things are measured
based on personal judgments and individual preferences. It is impossible to please everyone
on this dimension of quality.
3. Features — are a secondary aspect of performance and are another dimension of perceived
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quality. They are often the 'bells and whistles' of products which supplement their basic
functioning. Features often involve objective and measurable performance attributes
reflecting objective individual needs (not prejudices) which can affect the customers in
determining quality differences. A flexible approach in developing product features can be
used as an advantage to increase customer satisfaction. We'll use the same set of examples
we used to show performance aspects to illustrate this secondary aspect of quality.
➢ Automobiles
✓ entertainment system
✓ antilock brakes
✓ reclining seats
➢ Television
✓ automatic tuners
✓ multi-system capability
✓ ease of handling remote control
➢ Internet service provider
✓ free outdoor Wi-Fi services
4. Conformance — is the degree by which the design and operating characteristics of a product
meet the established standards. When a product is developed, specifications are set for all
parts and materials in the design as well as in the manufacturing (or delivery) phases.
5. Reliability —reflects the probability that a product will malfunction or fail within a specific
period of time. The reliability can be measured as the mean time to failure (MTTF), or the
mean time between failures (MTBF), or the failure rate per unit of time. Reliability is
normally important to customers in that the costs of maintenance and downtime become
expensive. These costs can be used to determine the quality differences among products.
6. Durability —is defined as the amount of use one gets from a product before it breaks down,
and replacement is preferable to continued repair. This has two implications.
➢ First, durability is closely linked with reliability. A product that often fails is most likely
to be scrapped earlier than one that is more reliable. Consequently, repair costs will be
correspondingly higher and the purchase of a competitor's brand is more likely.
➢ Second, durability figures should be interpreted with care. An increase in product life
may not be the result of technical improvements, or the use of longer-life materials;
rather, it is a result of the underlying economic environment.
7. Perceived quality —indirect evaluation of quality (e.g., reputation).
8. Serviceability —reflects the speed, courtesy, competence, and ease of repair. Customers
are concerned not only about a product breaking down but also about the time before the
service is restored, the speed with which the service appointments are kept, the nature of
dealings with the service personnel, and the frequency with which the service calls or repairs
fail to correct outstanding problems. Serviceability can usually be measured by the mean
time to repair (MTTR), or the number of calls made to correct a particular problem, or the
number of calls made during a specified time period. These standards are measured
objectively, whereas the measurement of courtesy or standards of professional behavior
are more subjective.
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TABLE 4.1 EXAMPLES OF PRODUCT QUALITY DIMENSIONS FOR A CAR

➢ SERVICE QUALITY
The dimensions of product quality don’t adequately describe service quality. Instead, service
quality is often described using the following dimensions:

1. Convenience —the availability and accessibility of the service.

2. Reliability —the ability to perform a service dependably, consistently, and accurately.
3. Responsiveness— the willingness of service providers to help customers in unusual
situations and to deal with problems.
4. Time —the speed with which service is delivered.
5. Assurance —the knowledge exhibited by personnel who come into contact with a
customer and their ability to convey trust and confidence.
6. Courtesy —the way customers are treated by employees who come into contact with
them.
7. Tangibles —the physical appearance of facilities, equipment, personnel, and
communication materials.
8. Consistency —The ability to provide the same level of good quality repeatedly.
9. Expectations —Meet (or exceed) customer expectations.
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TABLE 4.2 EXAMPLES OF SERVICE QUALITY DIMENSIONS FOR HAVING A CAR REPAIRED

RESPONSIBILITY FOR QUALITY

It is true that all members of an organization have some responsibility for quality, but certain parts of
the
organization are key areas of responsibility:

➢ Top management. Top management has the ultimate responsibility for quality. While establishing
strategies for quality, top management must institute programs to improve quality; guide, direct,
and motivate managers and workers; and set an example by being involved in quality initiatives.
Examples include taking training in quality, issuing periodic reports on quality, and attending
meetings on quality.
➢ Design. Quality products and services begin with design. This includes not only features of the
product or service; it also includes attention to the processes that will be required to produce the
products and/or the services that will be required to deliver the service to customers.
➢ Procurement. The procurement department has responsibility for obtaining goods and services
that will not detract from the quality of the organization’s goods and services.
Production/operations.
➢ Production/operations has responsibility to ensure that processes yield products and services
that conform to design specifications. Monitoring processes and finding and correcting root
causes of problems are important aspects of this responsibility.
➢ Quality assurance. Quality assurance is responsible for gathering and analyzing data on problems
and working with operations to solve problems.
➢ Packaging and shipping. This department must ensure that goods are not damaged in transit,
that
packages are clearly labeled, that instructions are included, that all parts are included, and that
shipping occurs in a timely manner.
➢ Marketing and sales. This department has the responsibility to determine customer needs and to
communicate them to appropriate areas of the organization. In addition, it has the responsibility
to report any problems with products or services.
➢ Customer service. Customer service is often the first department to learn of problems. It has the
responsibility to communicate that information to appropriate departments, deal in a reasonable
manner with customers, work to resolve problems, and follow up to confirm that the situation
has been effectively remedied.
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BENEFITS OF GOOD QUALITY

Business organizations with good or excellent quality typically benefit in a variety of ways:
➢ an enhanced reputation for quality,
➢ the ability to command premium prices,
➢ an increased market share,
➢ greater customer loyalty,
➢ lower liability costs, and
➢ fewer production or service problems—which yields higher productivity, fewer complaints
from
customers, lower production costs, and higher profits.

THE CONSEQUENCES OF POOR QUALITY

1. Loss of business - Poor designs or defective products or services can result in loss of business.
Failure to devote adequate attention to quality can damage a profit-oriented organization’s
reputation and lead to a decreased share of the market, or it can lead to increased criticism
and/or
controls for a government agency or nonprofit organization.
2. Liability - Organizations must pay special attention to their potential liability due to damages or
injuries resulting from either faulty design or poor workmanship. This applies to both products
and services. Thus, a poorly designed steering arm on a car might cause the driver to lose control
of the car, but so could improper assembly of the steering arm.
3. Productivity - Productivity and quality are often closely related. Poor quality can adversely affect
productivity during the manufacturing process if parts are defective and have to be reworked or
if an assembler has to try a number of parts before finding one that fits properly. Also, poor
quality
in tools and equipment can lead to injuries and defective output, which must be reworked or
scrapped, thereby reducing the amount of usable output for a given amount of input. Similarly,
poor service can mean having to redo the service and reduce service productivity.
4. Costs - Cost to remedy a problem is a major consideration in quality management. The earlier a
problem is identified in the process, the cheaper the cost to fix it. The cost to fix a problem at the
customer end has been estimated at about five times the cost to fix a problem at the design or
production stages.

THE COSTS OF QUALITY

Cost of quality is a method that permits an organization to decide on the level to which its resources
are used for activities that avoid poor quality, that assess the quality of the organization’s products or
services, and that result from internal and external failures. Quality-related activities that incur costs
may be divided into appraisal cost, prevention cost and internal and external failure costs.

1. Appraisal costs – are associated with measuring and monitoring activities related to quality
standards and performance requirements. These costs take place from spotting defects rather
than prevention. These costs are associated with the suppliers’ and customers’ evaluation of
purchased materials, processes, products and services to ensure that they conform to
specifications. They could include:
a. Verification – checking of inward bound material, process setup, and products against
contracted specifications.
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b. Quality Audits – confirmation that the quality system is operating properly.

c. Supplier Rating – appraisal and endorsement of suppliers of products and service.

2. Prevention costs – these are incurred to prevent or avoid failure problems. Prevention
activities
lead to reduce of failure and appraisal cost. These costs are associated with the design,
implementation, and maintenance of the quality management system. They are planned and
incurred before actual operation, and they could include:
a. Product or service requirements – establishment of qualifications for inward bound
materials, processes, finished products and services.
b. Quality planning – drawing of plans for quality, reliability, operations, production and
inspection.
c. Quality assurance - planning and continuance of the quality system.
d. Training - development, preparation and continuance of programs.

3. Failure costs are incurred by defective parts or products or by faulty services.

a. Internal failures – are acquired to treat defects revealed earlier when the product or
service is delivered to the customer. These costs happen when the results of work fail to
attain design quality standards and are notices before they are transferred to the
customer. They could include:
➢ Waste – performance of needless work or holding of stock as an outcome of
errors, poor organization, or communication.
➢ Scrap – faulty product or material that cannot be repaired, used or sold.
➢ Rework or rectification – improvement of flawed material or errors.
➢ Failure analysis – activity necessary to ascertain the reasons of internal product
or service failure.
b. External failures are costs obtained to treat defects exposed by customers. These costs
occur when products or services that fail to attain design quality standards are not
discovered until after transfer to the customer. They could include:
➢Repairs and servicing – of both returned products and those in the field.
➢ Warranty claims – failed products that are replaced or services that are reperformed under
a guarantee.
➢ Complaints – all work and costs connected with handling and servicing customers’
complaints.
➢ Returns – handling and investigation of discarded or recalled products, including transport
costs.
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TABLE 4.3 SUMMARY OF QUALITY COST

QUALITY AWARDS
Quality awards have been established to generate improvement in quality. The Malcolm Baldrige
Award,
the European Quality Award, and the Deming Prize are well-known awards given annually to recognize
firms that have integrated quality management into their operations.
➢ The Baldrige Award - Named after the late Malcolm Baldrige, an industrialist and former
secretary of commerce, the annual Baldrige Award is administered by the National Institute of
Standards and Technology. The purpose of the award competition is to stimulate efforts to
improve quality, to recognize quality achievements, and to publicize successful programs.
When the award was first presented in 1988, the award categories were manufacturing and
small business. A few years later a service category was added, and then categories for
education and health care were added a few years after that. The earliest winners included
Motorola, Globe Metallurgical, Xerox Corporation, and Milliken & Company. Since then, many
companies have been added to the list.
Applicants are evaluated in seven main areas:
✓ leadership,
✓ information and analysis,
✓ strategic planning,
✓ human resource management,
✓ customer and market focus,
✓ process management, and
✓ business results.
Examiners check the extent to which top management incorporates quality values in
daily management; whether products or services are at least as good as those of
competitors; whether employees receive training in quality techniques; if the business
works with suppliers to improve quality; and if customers are satisfied. Even
organizations that don’t win benefit from applying for the award: All applicants receive
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a written summary of the strengths and weaknesses of their quality management and
suggestions for improvement. Most states have quality award programs based on the
Baldrige criteria. These award programs can serve as an entry point for organizations
that want to eventually apply for the national award.

➢ The European Quality Award - The European Quality Award is Europe’s most prestigious
award for organizational excellence. The European Quality Award sits at the top of regional
and national quality awards, and applicants have often won one or more of those awards prior
to applying for the European Quality Award.

➢ The Deming Prize - named in honor of the late W. Edwards Deming, is Japan’s highly coveted
award recognizing successful quality efforts. It is given annually to any company that meets the
award’s standards. Although typically given to Japanese firms, in 1989, Florida Power and Light
became the first U.S. company to win the award. The major focus of the judging is on statistical
quality control, making it much narrower in scope than the Baldrige Award, which focuses
more on customer satisfaction. Companies that win the Deming Prize tend to have quality
programs that are detailed and well-communicated throughout the company. Their quality
improvement programs also reflect the involvement of senior management and employees,
customer satisfaction, and training.

QUALITY CERTIFICATION
Many firms that do business internationally recognize the importance of quality certification. ISO
9000, 14000, and 24700.

The International Organization for Standardization (ISO) promotes worldwide standards for the
improvement of quality, productivity, and operating efficiency through a series of standards and
guidelines. Used by industrial and business organizations, regulatory agencies, governments, and
trade organizations, the standards have important economic and social benefits. Not only are they
tremendously important for designers, manufacturers, suppliers, service providers, and customers,
but the standards make a tremendous contribution to society in general: They increase the levels of
quality and reliability, productivity, and safety, while making products and services affordable. The
standards help facilitate international trade. They provide governments with a basis for health, safety,
and environmental legislation. And they aid in transferring technology to developing countries.

TWO OF THE MOST WELL-KNOWN OF THESE ARE ISO 9000 AND ISO 14000.
➢ ISO 9000 pertains to quality management. It concerns what an organization does to ensure
that
its products or services conform to its customers’ requirements.
➢ ISO 14000 concerns what an organization does to minimize harmful effects to the environment
caused by its operations.

Both ISO 9000 and ISO 14000 relate to an organization’s processes rather than its products and
services, and both stress continual improvement. Moreover, the standards are meant to be generic;
no matter what the organization’s business, if it wants to establish a quality management system or
an environmental management system, the system must have the essential elements contained in ISO
9000 or in ISO 14000. The ISO 9000 standards are critical for companies doing business
internationally, particularly in Europe. They must go through a process that involves documenting
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quality procedures and on-site assessment. The process often takes 12 to 18 months. With
certification comes registration in an ISO directory that companies seeking suppliers can refer to for a
list of certified companies. They are generally given preference over unregistered companies. More
than 40,000 companies are registered worldwide; three-fourths of them are located in Europe.

A key requirement for registration is that a company review, refine, and map functions such as
process control, inspection, purchasing, training, packaging, and delivery. Similar to the Baldrige
Award, the review process involves considerable self-appraisal, resulting in problem identification and
improvement. Unlike the Baldrige Award, registered companies face an ongoing series of audits, and
they must be reregistered every three years.

In addition to the obvious benefits of certification for companies that want to deal with the European
Union, the ISO 9000 certification and registration process is particularly helpful for companies that do
not currently have a quality management system; it provides guidelines for establishing the system
and making it effective.

EIGHT QUALITY MANAGEMENT PRINCIPLES FORM THE BASIS OF THE LATEST VERSION OF ISO 9000:
1. A customer focus.
2. Leadership.
3. Involvement of people.
4. A process approach.
5. A system approach to management.
6. Continual improvement.
7. Use of a factual approach to decision making.
8. Mutually beneficial supplier relationships.

THE STANDARDS FOR ISO 14000 CERTIFICATION BEAR UPON THREE MAJOR AREAS:

➢ Management systems —systems development and integration of environmental

responsibilities
into business planning.
➢ Operations —consumption of natural resources and energy.
➢ Environmental systems —measuring, assessing, and managing emissions, effluents, and other
waste streams.

ISO 24700 pertains to the quality and performance of office equipment that contains reused
components. ISO/IEC 24700 specifies product characteristics for use in an original equipment
manufacturer’s or authorized third-party’s declaration of conformity to demonstrate that a marketed
product that contains reused components performs equivalent to new, meeting equivalent-to-new
component specifications and performance criteria, and continues to meet all the safety and
environmental criteria required by responsibly built products. It is relevant to marketed products
whose manufacturing and recovery processes result in the reuse of components.