Managing Quality and Time to Create Value

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Managing Quality and Time to Create Value

• Chapter 7

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How much quality is enough?

• Total quality management (TQM)
• Continuous improvement toward perfection
• Assumes customers seek high quality and will pay
  for it
• Return on quality (ROQ)
• Tradeoff between costs and benefits of quality
• Maximize profit instead of quality

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Costs of quality

• Prevention costs
• Cost incurred to prevent a problem
• Design, process improvement, training, etc.
• Appraisal costs
• Cost incurred to identify problems
• Inspection, testing, evaluations, etc.

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Costs of quality

• Internal failure costs
• Costs incurred to correct problems while still in
  the companys control
• Rework, scrap, retesting, delays, etc.
• External failure costs
• Costs incurred to correct problems after the
  problem leaves the companys control
• Warranty repairs, replacement, recalls, lawsuits,
  damage to reputation, lost sales, etc.

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Costs of quality

• In theory
• Spending on prevention reduces appraisal and
  failure costs
• Spending on appraisal reduces external failure
  costs
• ROQ is maximized where combined cost is minimized

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Tracking quality

• Indicators
• Frequency distributions
• Run chart
• Control chart
• Diagnostics
• Scatter diagrams
• Cause and effect diagrams/flowcharts
• Pareto charts

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Time matters

• Time is the one resource you cannot buy
• Speed is a competitive advantage
• Product/service development time
• Customer response time
• Receipt of order to delivery
• Production cycle time
• Start to completion of production process

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Time/efficiency measures

• Productivity
• Outputs / inputs
• Cycle time
• Total processing time / good output produced
• Throughput efficiency
• Value-added time / Total processing time

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Measuring capacity

• Theoretical (rated) capacity
• -- Planned downtime
• Practical capacity
• -- Capacity used to meet demand
• Excess capacity

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Time-based ABC

• Simpler version of traditional ABC
• Time used as driver base
• Calculation of driver rate
• Cost of capacity to provide service
• Time available to complete service
• Cost time required driver rate

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Just-in-time systems

• Traditional push system
• Results in mismatch between supply and demand
• Excess inventory or lost sales

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Just-in-time systems

• JIT pull system
• Better match between supply and demand
• Less inventory
• Possibly slower response

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Just-in-time systems

• Requirements of JIT
• Flexible capacity and workforce
• Smooth production flow
• Short cycle times and processing times
• Reliable suppliers
• Commitment to quality