Competing with Quality Leeds School of Business University of Colorado Boulder, CO 80309-0419

1. Competing with Quality Leeds School of Business University of Colorado Boulder, CO 80309-0419 Professor Stephen Lawrence

2. The Art of Quality Vehicle Inspection Quality Inspection In 1946 Ford Motor Company Limited commissioned Terence Cuneo to record, on canvas, six images featuring post war Dagenham vehicle production.

3. Objectives • Define Quality • Understand the importance Quality • Define the dimensions of Quality • Identify costs associated with Quality

4. The Value Equation Q

5. Price Quantity 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 Quality affects both!

6. Why Quality is Critical

7. The Competition • The Japanese are headed for world quality leadership and will attain it in the next two decades because no one else is moving there at the same pace. J.M Juran, 1967 • IBM decided to have some parts manufactured in Japan as a trial project. In the specifications, they set the limit of defective parts at three units per 10,000. When the shipment arrived from Japan, it included this letter: “We Japanese have hard time understanding North American business practices. But the three defective parts per 10,000 have been included and are wrapped separately. Hope this pleases.” Toronto Sun

8. Eight Dimensions of Quality Quality is not uni-dimensional, but has a number of important dimensions: 1. Performance the primary operating characteristics of the product or service. 2. Features the characteristics that supplement the basic functioning of the product or service. 3. Reliability probability of the product or service failing within a specified period of time. 4. Conformance the degree to which a product or service meets acknowledged standards David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

9. Eight Dimensions of Quality Quality is not uni-dimensional, but has a number of important dimensions: 5. Durability a measure of product life (both technical and economic). 6. Serviceability the speed, courtesy, competence, and ease of repair or recovery. 7. Aesthetics how a product or service looks, feels, sounds, tastes, or smells. 8. Perceived Quality various tangible and intangible aspects of the product from which quality is inferred. David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

10. Changing Quality Dimensions

11. Quality Costs Costs associated with quality: • Prevention costs: process/product design, training, vendor relations; • Appraisal costs: quality audits, statistical quality control; • Correction costs (internal failure): yield losses, rework charges; • Recovery costs (external failure): returns, repairs, lost business.

12. Quality Costs • Quality costs escalate as value is added to product or service: General Electric: estimated cost per defect per product Supplier Inspection 0.003 Incoming Inspection 0.03 Fabrication Inspection 0.30 $3 Subproduct Test Final Product Test $30 $300 Field Service Garvin, Managing Quality, Free Press, 1988, page 80

13. TQM Pioneers • Early American Industry Pioneers • Walter Shewhart–Control Charts • Dodge & Romig–Acceptance Sampling • Arnold Feigenbaum–Total Quality Management • Post W.W.II/JapaneseTQM • W. Edwards Deming–Total Quality Management • Joseph Juran–The cost of quality • Philip B. Crosby–Quality is free • Masaaki Imai–Kaizen • Kaoru Ishikawa–TQM-Japanese style

14. 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”

15. Deming

16. 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

17. Deming Improvement Cycle Act Plan Check Do

18. Act Act Act Plan Plan Plan Check Check Check Do Do Do Deming Improvement Cycle Continuous Improvement

19. Deming’s Theory of Quality & Economics Costs decrease because of less rework, fewer mistakes, fewer delays, snags; better use of machine-time and materials Productivity Improves Improve Quality Capture the market with better quality and lower price Stay in business Provide jobs and more jobs Deming, Out of the Crisis, 1986

20. Dr. Deming in Person

21. 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

22. Article:“K2 quality pursuit reverses downhill skid”

23. 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

24. Total Involvement Commitment to Quality Scientific Tools and Techniques Continuous Improvement Total Quality Management TQM

25. 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

26. 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 ISO 9000 International standards for business quality and control

27. 6s Six Sigma • “Invented” by Motorala • Championed by GE and Jack Welch • “Six Sigma can be seen as: a vision; a philosophy; a symbol; a metric; a goal; a methodology."Geoff Tennant • Four steps • Measure – new metrics; measure all processes • Analyze – determine performance objectives • Improve – wholesale changes, focus on results • Control – monitor processes to maintain control

28. 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

29. GE Six Sigma Success GE Annual report, Letter to Our Shareholders, February 12, 1999

30. 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

31. 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

32. Competing with Quality Leeds School of Business University of Colorado Boulder, CO 80309-0419 Professor Stephen Lawrence