Operations and Production Management

Zoubida SAMLAL - MBA , CFA Member, PHD candidate for HBS program

2

Chapter Topics

Chapter 1 Operation Management in Business

Chapter 2 Operation Strategy

Chapter 3 Process strategy

Chapter 4-5 Process Performance and Quality

Outline

OPERATIONS MANAGEMENT IN BUSINESS

Chapter 1

FedEx

• Why are they successful?

– Fast

– On-time deliveries

– Relatively low cost

– Technology in shipment tracking

How Operations As a Competitive Weapon fits the Operations Management Philosophy

Operations As a Competitive

Weapon

Operations Strategy

Project Management Process Strategy

Process Analysis

Process Performance and Quality

Constraint Management

Process Layout

Lean Systems

Supply Chain Strategy

Location

Inventory Management

Forecasting

Sales and Operations Planning

Resource Planning Scheduling

Inputs Transformation Processes

(Adding value) Outputs

Operations Management is…

“The systematic design, direction and control of processes that transform inputs into services and products for internal, as well as external, customers.”

Operations Management as a Function

Processes

• Processes should add value.

• Processes can be broken down into sub

processes, which in turn can be broken down

further.

• Any process that is part of a larger process is

considered a “nested process.”

• Each process and each nested process has inputs

and outputs.

Process View of an Ad Agency

Accounting process

Production process • Prepare ad for publication

and deliver to media outlets

Advertisement design and planning process

• Create the ad to the needs of the client and prepare a plan for media exposure

Output interface process • Communicate with client,

get needs, and coordinate progress In

pu

ts Ou

tpu

ts

Exercise

Please design the process of a

consulting firm?

External vs. Internal Customers

• External Customers are those who purchase the goods and services.

• Internal Customers are those who receive the output of others within the firm. They are part of the transformation process.

Inputs from other processes

Transformation Processes (Adding value)

Outputs to Internal or to External customers

Service Processes and Manufacturing Processes

Manufacturing processes change materials in one or more of the following dimensions:

– Physical properties

– Shape

– Fixed dimensions

– Surface finish

– Joining parts and materials

If a process isn’t doing at least one of these, then it is a service (non-manufacturing) process.

Manufacturing and Service

Goods Production • Tangible

• Can be inventoried

• Low customer contact

• Capital Intensive

• Quality easily measured

Service Production

• Intangible

• Can’t be inventoried

• High customer contact

• Labor Intensive

• Quality hard to measure

Most firms provide both goods and services.

Value Chains

• Value chains are an interrelated series of processes that produce a service or product to the satisfaction of customers.

– Value chains may have core processes or support processes.

• Core processes deliver value to external customers.

• Support processes provide vital inputs for the core processes.

Core Processes

1. Customer relationship processes – Identify, attract, and build relationships with external

customers and facilitate the placement of orders.

2. New service/product development processes – Design and develop new services or products from inputs

received from external customer specifications.

3. Order fulfillment processes – The activities required to produce and deliver the service or

product to the external customers.

4. Supplier relationship processes – Select suppliers of services, materials and information and

facilitate the timely and efficient flow of these items into the firm.

Support Processes

Internal Value-Chain Linkages

Firms have many processes that support the core processes.

Exte

rna

l su

pp

liers

Externa

l custo

mers

Support processes

Supplier relationship process

Order fulfillment process

New service/ product development process

Customer relationship process

Operations as a Set of Decisions

(1) Recognize and clearly define the problem.

(2) Collect the information needed to analyze

possible alternatives.

(3) Choose the most attractive alternative.

(4) Implement the chosen alternative.

Basic Decision-making Steps

Operations as a Set of Decisions

Strategic Decisions Tactical Decisions

• Development of new capabilities

• Maintenance of existing capabilities

• Design of new processes • Development and

organization of value chains

• Key performance measures

Process improvement and performance measures

Management and planning of projects

Generation of production and staffing plans

Inventory management Resource scheduling

Productivity

• Productivity is the value of outputs (services and products) produced, divided by the value of input resources(wages, costs of equipment, etc.)

Output Productivity = Input

Global Competition

• Businesses accept the fact that, to prosper, they must view customers, suppliers, facility locations, and competitors in global terms.

• Most products today are composites of materials and services from all over the world.

•Forces that created increased global competition: – Improved Transportation and Information Technologies

– Loosened regulations on Financial Institutions

– Increased Demand for Imported Services and Goods

– Reduced Import Quotas and other Trade Barriers

– Comparative Cost Advantages

Global Competition Disadvantages

• May have to relinquish proprietary technology.

• Political risks.

• Alienate U.S. customers by sending jobs overseas.

• Lower skill levels in some areas.

• Difficulty with cross-functional coordination.

• Harder to produce products and services that can compete.

Other Challenges in Operations Management

• Rapid technological change

• Ethical issues across cultures

• Increasing diversity of the workforce

• Environmental impact issues

Exercise II

The company WIZA achieves a sales revenue of $100 000 for a total cost of

production of $ 80 000. The finance costs attain $ 6000. Taxes are fixed at a

constant rate of 25%. Admitting that WIZA has 3 options to increase its profit:

1-Marketing option : Increase sales revenue by 50%

2-Finance option : Reduce finance costs by 50%

3-Operations option : Reduce production costs by 20 % Which option provides the most important contribution?

Indication : To answer this question , you will need to calculate for each of

these three options : The gross margin and the net profit

Operation Strategy

Chapter 2

How Operations Strategy fits the Operations Management Philosophy

Operations As a Competitive

Weapon

Operations Strategy

Project Management

Process Strategy

Process Analysis

Process Performance and Quality

Constraint Management

Process Layout

Lean Systems

Supply Chain Strategy

Location

Inventory Management

Forecasting

Sales and Operations Planning

Resource Planning Scheduling

Starbucks

• If someone says, “Lets go out for coffee,” Starbucks often comes to mind.

• Entrepreneur Howard Schultz had an operations strategy in mind in 1990 when he bought the 17-store Seattle chain and turned it into a global success.

• Service strategy was key.

– Offering a variety of specialized products and services, such as Internet access, phone ahead ordering, and CD burning, all in a socially interactive atmosphere.

Operations Strategy

• Operations strategy is the means by which operations implements the firm’s corporate strategy and helps to build a customer-driven firm.

• It links long-term and short-term operations decisions to corporate strategy.

• It is the core of managing processes and value chains.

Customer-Driven Operations Strategy

• Corporate strategy views the organization as a system of interconnected parts, each working with the others to achieve desired goals.

• Operations Strategy supports the corporate strategy and requires continuous cross-functional interaction.

• The operations strategy should be customer driven.

Developing a Corporate Strategy

• Developing a corporate strategy involves three considerations:

1. Monitoring and adapting to the environment

2. Identifying and developing core competencies

3. Developing the firm’s core processes

• Adapting requires environmental scanning to monitor trends for opportunities and threats.

• Core Competencies are the unique resources and strengths an organization possesses.

Core Competencies

• Core competencies include… – A well-trained and flexible Workforce

– Having well-located & flexible Facilities

– Having Market and Financial Know-How.

– Expertise in Systems and Technology.

• The core competencies should determine the firm’s core processes. – These can include customer relations, new

service/product development, order fulfillment, and supplier relationships.

– A firm may have all of these or focus on a subset of them, as determined by its core competencies.

Global Strategies

• A global strategy may include buying foreign services or parts and entering or expanding foreign markets.

• Two effective global strategies are:

1. Strategic Alliances

a) Collaborative efforts

b) Joint ventures

c) Technology licensing

2. Locating abroad

Market Analysis

• A Market Analysis is one key to developing a customer-driven strategy, and is accomplished in two parts.

– Market Segmentation, which identifies groups of customers with enough in common to warrant developing services and/or products for them.

– Needs Assessment identifies the needs of each market segment. Needs include such things as: • Service or product needs

• Delivery system needs

• Volume needs

Competitive priorities • cost • quality • time • flexibility

Market analysis • segmentation • needs analysis

Arriving at the Competitive Priorities

Corporate Strategy • environmental scanning • core competencies • core processes • global strategies

Competitive Priorities

Cost 1. Low-cost operations Quality 2. Top quality 3. Consistent quality Time 4. Delivery speed 5. On-time delivery 6. Development speed Flexibility 7. Customization 8. Variety 9. Volume flexibility

Competitive Capabilities

• The Competitive Capabilities are the cost, quality, time and flexibility dimensions of competitive priorities that a process or value chain actually possesses and is able to deliver.

– Low Cost means delivering a service or product at the lowest possible cost to the satisfaction of the customer.

• Top Quality: Delivering an outstanding service or product.

– Considerable interaction with the customers may be required to determine what that means.

• Consistent Quality: Producing services or products that meet design specifications on a consistent basis.

Quality as a Competitive Capability

Time as a Competitive Capability

• Delivery Speed is quickly filling a customer’s order. – Lead Time is the time between receipt of an order

and filling the order.

• On-Time Delivery means meeting the delivery time promises.

• Development Speed is quickly introducing a new service or product.

• Time-Based Competition is a strategy that focuses on development speed and delivery speed.

• Customization means satisfying the unique needs of each customer by changing the service or product designs.

• Variety involves handling a wide assortment of services or products efficiently.

• Volume Flexibility requires accelerating or decelerating the rate of production quickly to handle large fluctuations in demand.

Flexibility as a Competitive Capability

Order Winners and Order Qualifiers

• These are criteria used by customers in service or product selection.

• Order Winners are criteria for differentiating services or products of one firm from those of another.

– Price, quality, time, flexibility, after sales support, reputation, etc.

• Order Qualifiers are demonstrated levels of performance required to do business in a

particular market segment.

Service or Product Development Strategies

1. Product Variety: Offering a wide assortment.

2. Design: Ease of use and desirable features.

3. Innovation: Translate new technology into new products.

4. Service: Products with services added.

5. Market Positioning – Leader: Being first to introduce new services and/or products.

– Middle of the Road: Wait for the leaders to introduce new services and/or products.

– Laggard: Wait to see if the leader’s new services and/or products catch on in the market.

Service Package

A Service Package is a collection of goods and services provided by a service process to its customers. It consists of four features:

1. Supporting Facility: The physical resources that must be in place before a service can be offered.

2. Facilitating Goods: The materials purchased or consumed by the customer or the items provided by the customer to receive a service.

3. Explicit Services: The readily observable benefits.

4. Implicit Services: Psychological benefits.

Quality Function Deployment (QDF)

• Quality Function Deployment (QDF) is a means of translating

customer requirements into the appropriate technical requirements for service or product development. Questions it seeks to answer are…

1. What do our customers want?

2. How well are we doing relative to our competition?

3. What technical measures relate to our customers’ needs?

4. What are the relationships between what our customers want and the technical measures?

5. How does our service or product performance compare to the competition?

6. What are the potential technical trade-offs?

Quality Function Deployment

Voice of the Customer

Competitive Analysis

Voice of the Engineer

Correlations

Technical Comparison

“House of Quality”

Product/ Service Development Process

Service or product not profitable

Need to rethink the idea.

Post-launch review

Design

Specifications are developed for new services or products

Analysis

A critical review of how it will be produced, resource requirements and capabilities.

Development

Cross-functional coordination, process design. Full Launch

Sales & promotion

Concurrent Engineering

• Concurrent Engineering brings product engineers, process engineers, marketers, buyers, information specialists, quality specialists, and suppliers together to design a product and the processes that will meet customer expectations.

– This is an essential cross-functional effort during the service and/or product development phase to insure a timely and well-coordinated process that brings value to the customer.

Corporate Strategy and Key Operations Management Decisions

Capabilities

Performance Gap?

No

Yes

Operations strategy

Decisions • Managing Processes • Managing Value Chains

New Service/ Product Development

Market analysis

Competitive priorities

Corporate strategy

Process Strategy

Chapter 3

How Process Strategy fits the Operations Management Philosophy

Operations As a Competitive

Weapon

Operations Strategy

Project Management

Process Strategy

Process Analysis

Process Performance and Quality

Constraint Management

Process Layout

Lean Systems

Supply Chain Strategy

Location

Inventory Management

Forecasting

Sales and Operations Planning

Resource Planning Scheduling

48

Process Strategy

• Process strategy is the pattern of decisions made in managing processes so that they will achieve their competitive priorities.

• A process involves the use of an organization’s resources to provide something of value.

• Major process decisions include:

– Process Structure

– Customer Involvement

– Resource Flexibility

– Capital Intensity

49

Major Process Decisions

• Process Structure determines how processes are designed relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics.

• Customer Involvement refers to the ways in which customers become part of the process and the extent of their participation.

• Resource flexibility is the ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions.

• Capital intensity is the mix of equipment and human skills in a process.

50

Major Decisions for Effective Process Design

51

© 2007 Pearson Education

A good process strategy for a service process depends first and foremost on the type and amount of customer contact.

Customer contact is the extent to which the customer is present, is actively involved, and receives personal attention during the process.

People What is processed Possessions

Active, visible Contact intensity Passive, out of sight

Personal Personal attention Impersonal

Face-to-face Method of delivery Regular mail

Present Physical presence Absent

High Contact Dimension Low Contact

Process Structures in Services

52

Customer Contact and Process Elements

Active Contact: The customer is very much part of the creation of the service and affects the service process itself.

Passive Contact: The customer is not involved in tailoring the process to meet special needs or in how the process is performed.

Process Complexity: The number and intricacy of the steps required to perform the process.

Process Divergence: The extent to which the process is highly customized with considerable latitude as to how it is performed.

53

Process Flows

• Flexible flow: The customers, materials, or information move in diverse ways, with the path of one customer or job often crisscrossing the path that the next one will take.

• Line Flow: The customers, materials or information move linearly from one operation to the next, according to a fixed sequence.

54

Service Process Structuring

• Front office: A process with high customer contact where the service provider interacts directly with the internal or external customer.

• Hybrid office: A process with moderate levels of customer contact and standard services with some options available.

• Back office: A process with low customer contact and little service customization.

55

© 2007 Pearson Education

Customer-Contact Matrix for Service Processes

Less Customer Contact and Customization

Service Package

Front office

Hybrid office

Back office

(1) (2) (3) High interaction with Some interaction with Low interaction with customers, highly customers, standard customers, standardized customized service services with some options services

Process Characteristics

(1) Flexible flows, complex work with many exceptions

(2) Flexible flows with some dominant paths, moderate job complexity with some exceptions

(3) Line flows, routine work easily understood by employees Le

ss C

om

ple

xity

, Les

s D

iver

gen

ce,

Mo

re L

ine

Flo

ws

56

Process choice: A way of structuring the process by organizing resources around the process or organizing them around the products.

•Job Process: A process with the flexibility needed to produce a wide variety of products in significant quantities, with considerable complexity and divergence in the steps performed.

•Batch process: A process that differs from the job process with respect to volume, variety and quantity.

Process Structuring in Manufacturing

57

• Line process: A process that lies between the batch and continuous processes on the continuum; volumes are high and products are standardized, which allows resources to be organized around particular products.

• Continuous flow: The extreme end of high-volume, standardized production and rigid line flows, with production not starting and stopping for long time intervals.

Process Structuring in Manufacturing

58

© 2007 Pearson Education

Product-Process Matrix for Processes

(1) (2) (3) (4) Low-volume Multiple products with low Few major High volume, high products, made to moderate volume products standardization, to customer higher Continuous Flow order volume

Process Characteristics

(1)

Complex and highly customized process, unique sequence of tasks

(2)

Disconnected line flows, moderately complex work

(3)

Connected line, , highly repetitive work

(4)

Continuous flows

Less

Co

mp

lexi

ty, L

ess

Div

erg

ence

, Mo

re L

ine

Flo

ws

Less Customization and Higher Volume

Product Design

Continuous process

Job process

Line process

Large batch process

Small batch process

59

Production and Inventory Strategies

• Make-to-order strategy: A strategy used by manufactures that make products to customer specifications in low volume.

• Assemble-to-order strategy: A strategy for producing a wide variety of products from relatively few assemblies and components after the customer orders are received.

• Make-to-stock strategy: A strategy that involves holding items in stock for immediate delivery, thereby minimizing customer delivery times.

• Mass production: A term sometimes used in the popular press for a line process that uses the make-to-stock strategy.

60

© 2007 Pearson Education

Links of Competitive Priorities with Manufacturing Strategy

61

Customer Involvement Good or Bad?

• Improved Competitive Capabilities: More customer involvement can mean better quality, faster delivery, greater flexibility, and even lower cost.

– Customers can come face-to-face with the service providers, where they can ask questions, make special requests on the spot and provide additional information.

– Self-service is the choice of many retailers.

• However customer involvement can be disruptive and make the process less efficient.

– Greater interpersonal skills are required.

– Quality measurement becomes more difficult.

• Emerging Technologies: Companies can now engage in an active dialogue with customers and make them partners in creating value.

62

Resource Flexibility

• Flexible workforce: A workforce whose members are capable of doing many tasks, either at their own workstations or as they move from one workstation to another. – Worker flexibility can be one of the best ways to achieve reliable

customer service and alleviate capacity bottlenecks.

– This comes at a cost, requiring greater skills and thus more training and education.

• Flexible equipment: Low volumes mean that process designers should select flexible, general-purpose equipment.

63

Capital Intensity

Capital Intensity is the mix of equipment and human skills in the process; the greater the relative cost of equipment, the greater is the capital intensity.

•Automation is a system, process, or piece of equipment that is self-acting and self-regulating.

•Fixed automation is a manufacturing process that produces one type of part or product in a fixed sequence of simple operations.

•Flexible (or programmable) automation is a manufacturing process that can be changed easily to handle various products.

64

Economies of Scope

• In certain types of manufacturing, such as machining and assembly, programmable automation breaks the inverse relationship between resource flexibility and capital intensity.

• Economies of scope are economies that reflect the ability to produce multiple products more cheaply in combination than separately.

• With economies of scope, the often conflicting competitive priorities of customization and low price become more compatible.

• Taking advantage of economies of scope requires that a family of parts or products have enough collective volume to fully utilize equipment.

65

Focus by Process Segment

• A facility’s process often can neither be characterized nor actually designed for one set of competitive priorities and one process choice. – At a services facility, some parts of the process might seem like a front

office and other parts like a back office.

• Plants within plants (PWPs) are different operations within a facility with individualized competitive priorities, processes, and workforces under the same roof.

• Focused factories are the result of a firm’s splitting large plants that produce all the company’s products into several specialized smaller plants.

66

Strategies for Change

• Process Reengineering is a fundamental rethinking and radical redesign of processes to improve performance dramatically in terms of cost, quality, service, and speed.

• Process improvement is the systematic study of the activities and flows of each process to improve it.

67

PROCESS PERFORMANCE AND QUALITY

Chapter 4-5

How Process Performance and Quality fits the Operations Management Philosophy

Operations As a Competitive

Weapon

Operations Strategy

Project Management

Process Strategy

Process Analysis

Process Performance and Quality

Constraint Management

Process Layout

Lean Systems

Supply Chain Strategy

Location

Inventory Management

Forecasting

Sales and Operations Planning

Resource Planning Scheduling

Quality at Crowne Plaza Christchurch

• The Crowne Plaza is a luxury hotel with 298 guest rooms three restaurants, two lounges and 260 employees to serve 2,250 guests each week.

• Customers have many opportunities to evaluate the quality of services they receive.

• Prior to the guest’s arrival, the reservation staff gathers a considerable amount of information about each guest’s preferences.

• Guest preferences are shared with housekeeping and other staff to customize service for each guest.

• Employees are empowered to take preventative, and if necessary, corrective action.

Costs of Poor Process Performance

• Defects: Any instance when a process fails to satisfy its customer.

• Prevention costs are associated with preventing defects before they happen.

• Appraisal costs are incurred when the firm assesses the performance level of its processes.

• Internal failure costs result from defects that are discovered during production of services or products.

• External failure costs arise when a defect is discovered after the customer receives the service or product.

Total Quality Management

• Quality: A term used by customers to describe their general satisfaction with a service or product.

• Total quality management (TQM) is a philosophy that stresses three principles for achieving high levels of process performance and quality:

1. Customer satisfaction

2. Employee involvement

3. Continuous improvement in performance

Customer satisfaction

TQM Wheel

Customer Satisfaction

• Customers, internal or external, are satisfied when their expectations regarding a service or product have been met or exceeded.

• Conformance: How a service or product conforms to performance specifications.

• Value: How well the service or product serves its intended purpose at a price customers are willing to pay.

• Fitness for use: How well a service or product performs its intended purpose.

• Support: Support provided by the company after a service or product has been purchased.

• Psychological impressions: atmosphere, image, or aesthetics

Employee Involvement

• One of the important elements of TQM is employee involvement.

• Quality at the source is a philosophy whereby defects are caught and corrected where they were created.

• Teams: Small groups of people who have a common purpose, set their own performance goals and approaches, and hold themselves accountable for success.

• Employee empowerment is an approach to teamwork that moves responsibility for decisions further down the organizational chart to the level of the employee actually doing the job.

• Quality circles: Another name for problem-solving teams; small groups of supervisors and employees who meet to identify, analyze, and solve process and quality problems.

• Special-purpose teams: Groups that address issues of paramount concern to management, labor, or both.

• Self-managed team: A small group of employees who work together to produce a major portion, or sometimes all, of a service or product.

Team Approaches

Continuous Improvement

• Continuous improvement is the philosophy of continually seeking ways to improve processes based on a Japanese concept called kaizen.

1. Train employees in the methods of statistical process control and other tools.

2. Make methods a normal aspect of operations. 3. Build work teams and encourage employee

involvement. 4. Utilize problem-solving tools within the work

teams. 5. Develop a sense of operator ownership in the

process.

Plan

Do

Check

Act

The Deming Wheel Plan-Do-Check-Act Cycle

Statistical Process Control

• Statistical process control is the application of statistical techniques to determine whether a process is delivering what the customer wants.

• Acceptance sampling is the application of statistical techniques to determine whether a quantity of material should be accepted or rejected based on the inspection or test of a sample.

• Variables: Service or product characteristics that can be measured, such as weight, length, volume, or time.

• Attributes: Service or product characteristics that can be quickly counted for acceptable performance.

Sampling

• Sampling plan: A plan that specifies a sample size, the time between successive samples, and decision rules that determine when action should be taken.

• Sample size: A quantity of randomly selected observations of process outputs.

Sample Means and the Process Distribution

Sample statistics have their own distribution, which we call a sampling distribution.

Sampling Distributions

x

xi

i1

n

n

Sample Mean

A sample mean is the sum of the observations divided by the total number of observations.

where

xi = observations of a quality characteristic such as time.

n = total number of observations

x = mean

The distribution of sample means can be approximated by the normal distribution.

Sample Range

1

2

n

xxi

The range is the difference between the largest observation in a sample and the smallest.

The standard deviation is the square root of the variance of a distribution.

where

= standard deviation of a sample

n = total number of observations

xi = observations of a quality characteristic

x = mean

Process Distributions

A process distribution can be characterized by its location, spread, and shape.

Location is measured by the mean of the distribution and spread is measured by the range or standard deviation.

The shape of process distributions can be characterized as either symmetric or skewed.

A symmetric distribution has the same number of observations above and below the mean.

A skewed distribution has a greater number of observations either above or below the mean.

Causes of Variation

• Two basic categories of variation in output include common causes and assignable causes.

• Common causes are the purely random, unidentifiable sources of variation that are unavoidable with the current process.

– If process variability results solely from common causes of variation, a typical assumption is that the distribution is symmetric, with most observations near the center.

• Assignable causes of variation are any variation-causing factors that can be identified and eliminated, such as a machine needing repair.

Type I and II Errors

Control charts are not perfect tools for detecting shifts in the process distribution because they are based on sampling distributions. Two types of error are possible with the use of control charts.

Type I error occurs when the employee concludes that the process is out of control based on a sample result that falls outside the control limits, when in fact it was due to pure randomness.

Type II error occurs when the employee concludes that the process is in control and only randomness is present, when actually the process is out of statistical control.

Statistical Process Control Methods

• Control Charts for variables are used to monitor the mean and variability of the process distribution.

• R-chart (Range Chart) is used to monitor process variability.

• x-chart is used to see whether the process is generating output, on average, consistent with a target value set by management for the process or whether its current performance, with respect to the average of the performance measure, is consistent with past performance.

– If the standard deviation of the process is known, we can place UCL and LCL at “z” standard deviations from the mean at the desired confidence level.

Process Capability

• Process capability is the ability of the process to meet the design specifications for a service or product.

• Nominal value is a target for design specifications.

• Tolerance is an allowance above or below the nominal value.

20 25 30 Minutes

Upper specification

Lower specification

Nominal value

Process Capability

Process is capable

Process distribution

Using Continuous Improvement to Determine Process Capability

• Step 1: Collect data on the process output; calculate mean and standard deviation of the distribution.

• Step 2: Use data from the process distribution to compute process control charts.

• Step 3: Take a series of random samples from the process and plot results on the control charts.

• Step 4: Calculate the process capability index, Cpk, and the process capability ratio, Cp, if necessary. If results are acceptable, document any changes made to the process and continue to monitor output. If the results are unacceptable, further explore assignable causes.

Quality Engineering

• Quality engineering is an approach originated by Genichi Taguchi that involves combining engineering and statistical methods to reduce costs and improve quality by optimizing product design and manufacturing processes.

• Quality loss function is the rationale that a service or product that barely conforms to the specifications is more like a defective service or product than a perfect one. – Quality loss function is optimum (zero) when

the product’s quality measure is exactly on the target measure.

Taguchi's Quality Loss Function

Loss

(d

olla

rs)

Lower Nominal Upper specification value specification

Six Sigma

• Six Sigma is a comprehensive and flexible system for achieving, sustaining, and maximizing business success by minimizing defects and variability in processes.

• It relies heavily on the principles and tools of TQM.

• It is driven by a close understanding of customer needs; the disciplined use of facts, data, and statistical analysis; and diligent attention to managing, improving, and reinventing business processes.

Six Sigma Improvement Model

1. Define Determine the current process characteristics critical to customer satisfaction and identify any gaps.

2. Measure Quantify the work the process does that affects the gap.

3. Analyze Use data on measures to perform process analysis.

4. Improve Modify or redesign existing methods to meet the new performance objectives.

5. Control Monitor the process to make sure high performance levels are maintained.

Six Sigma Implementation

Top Down Commitment from corporate leaders.

Measurement Systems to Track Progress

Tough Goal Setting through benchmarking best-in-class companies.

Education: Employees must be trained in the “whys” and “how-tos” of quality.

Communication: Successes are as important to understanding as failures.

Customer Priorities: Never lose sight of the customer’s priorities.

Six Sigma Education

• Green Belt: An employee who achieved the first level of training in a Six Sigma program and spends part of his or her time teaching and helping teams with their projects.

• Black Belt: An employee who reached the highest level of training in a Six Sigma program and spends all of his or her time teaching and leading teams involved in Six Sigma projects.

• Master Black Belt: Full-time teachers and mentors to several black belts.

International Quality Documentation Standards

ISO 9000

A set of standards governing documentation

of a quality program.

ISO 14000

Documentation standards that require participating companies to keep track of their raw materials use and their generation, treatment, and disposal of hazardous wastes.