BCOR2050- First Day of Class

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Competing with Quality Leeds School of
Business University of Colorado Boulder, CO
80309-0419
Professor Stephen Lawrence
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Why Quality is Critical

• Quality Quality is the single most important
  thing you can work on to improve the
  effectiveness of your company. It's as simple as
  that. Things just cascade when you get control
  of your quality. John Young, CEO Hewlett
  Packard
• Micro-economic interpretation

Demand
Supply
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Eight Dimensions of Quality
Quality is not uni-dimensional, but has a
number of important dimensions

• 1. Performance
• 2. Features
• 3. Reliability
• 4. Conformance

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Eight Dimensions of Quality
Quality is not uni-dimensional, but has a
number of important dimensions

• 5. Durability
• 6. Serviceability
• 7. Aesthetics
• 8. Perceived Quality

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Quality Costs
Costs associated with quality

• Prevention costs
• Appraisal costs
• Correction costs (internal failure)
• Recovery costs (external failure)

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Quality Costs

• Quality costs escalate as value is added to
  product or service

Cost of finding and correcting a defective
component
Supplier Inspection
0.003
Incoming Inspection
0.03
Fabrication Inspection
0.30
3
Subproduct Test
Final Product Test
30
300
Field Service
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TQM Pioneers

• Early American Industry Pioneers
• Walter ShewhartControl Charts
• Dodge RomigAcceptance Sampling
• Arnold FeigenbaumTotal Quality Management
• Post W.W.II / Japanese TQM
• W. Edwards DemingTotal Quality Management
• Joseph JuranThe cost of quality
• Philip B. CrosbyQuality is free
• Masaaki ImaiKaizen
• Kaoru IshikawaTQM-Japanese style

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Quality Masters

• W. Edwards Deming
• The basic cause of sickness in American industry
  and resulting unemployment is failure of top
  management to manage.
• Began consulting with Japanese in 1950
• Japanese Deming Prize
• Joseph M. Juran
• Fitness of Use
• Runs the Juran Institute
• Large impact on Japanese quality
• Phillip B. Crosby
• Started as an industrial inspector
• Runs the Crosby Quality College
• Zero Defects

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W. Edwards Deming

• 1900 to 1993
• Trained as a physicist
• Master of Science -- CU
• Taught SQC during World War II
• Went to Japan in 1946
• Brought SQC to Japan
• Enthusiastically adopted by Japanese

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Deming Improvement Cycle
Act
Plan
Do
Check
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Demings Theory of Quality Economics
Costs decrease because of less rework, fewer
mistakes, fewer delays, snags better use of
machine-time and materials
Improve Quality
Productivity Improves
Capture the market with better quality and lower
price
Stay in business
Provide jobs and more jobs
Deming, Out of the Crisis, 1986
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Japanese Deming Prize

• Established 1951
• Annual prize
• Awarded for
• development of quality tools, or
• quality improvement programs
• Created by JUSA(Union of Japanese Scientists and
  Engineers

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Total Quality Management

• A program to focus all organizational activities
  on enhancing quality for customers
• Its four components are
• a commitment to make quality product for
  customers
• a commitment to continuous improvement
• a total involvement in the quality undertaking
• extensive use of scientific tools, technologies
  and methods

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Total Quality Management
TQM
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Malcolm Baldridge Award
U.S. Quality Award (patterned after Deming award)

• Stimulate companies to attain excellence
• Recognize outstanding companies
• Disseminate information and experience
• Establish guidelines for quality assessment
• Gather how to information from winners

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ISO 9000
International standards for business quality and
control

• Management responsibility
• Quality system
• Contract review
• Design control
• Document Control
• Purcasing
• Traceability

• Process control
• Inspection / testing
• Reject control
• Handling
• Quality records
• Internal audits
• Training
• Statistical techniques

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ISO 14000

• International standard
• Strengthen environmental mgmt systems
• Control environmental impacts
• Commitment to environmental targets
• regulators
• insurance interests
• stakeholders
• public

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Six Sigma
6s

• Invented by Motorala
• Championed by GE and Jack Welch
• Goal of parts-per-million process defects
• Four steps
• Measure new metrics measure all processes
• Analyze determine performance objectives
• Improve wholesale changes, focus on results
• Control monitor processes to maintain control

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What Six Sigma Means

• 1 s 690,000 defects per million
• 2 s 308,000 defects per million
• 3 s 66,800 defects per million
• 4 s 6,210 defects per million
• 5 s 230 defects per million
• 6 s 3.4 defects per million

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Does Quality Matter?

• Quality and price
• lack a consistent association.
• Quality and advertising
• positively correlated in some product categories,
  and negatively correlated in others
• Quality and market share
• positively correlated in some studies, negatively
  correlated in others.

Garvin, Managing Quality, The Free Press, 1988
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Does Quality Matter?

• Quality and total quality cost
• negatively correlated.
• Quality and productivity
• positively correlated.
• Quality and profitability
• positively associated.

Garvin, Managing Quality, The Free Press, 1988