Chapter 5 – Part 2

1. Chapter 5 – Part 2 The TQM Philosophy

2. Cost of Quality • “Cost of quality” is misleading. • There are some costs associated with monitoring and improving quality: • Prevention costs • Appraisal costs • Other, far greater, costs are associated, not with quality, but with a lack of quality: • Internal failure costs • Rework • Scrap • External failure costs

3. Costs of Monitoring and Improving Quality • Prevention Costs • Cost of designing and implementing a quality plan. • Cost of implementing process controls designed to provide early feedback on quality performance of process, • Cost of worker training, • Appraisal Costs • Costs of evaluating how well prevention activities are working.

4. Cost of Poor Quality • Internal Failure Costs • Costs incurred to fix problems that are detected before the product/service is delivered to the customer. • External Failure Costs • All costs incurred to fix problems that are detected after the product/service is delivered to the customer. • Repairs • Returns • Recalls

5. Cost of Poor Quality • Which is more costly—internal or external failure costs? • Why?

6. Consequences of Poor Quality • Loss of market share • Loss of goodwill • Lawsuits • Lower productivity • Higher cost • Poor morale

7. Quality Gurus

8. Deming’s 14 Points • Create constancy of purpose • Don’t switch course –e.g., from output this month, quality next month • Adopt philosophy of defect prevention and continuous improvement • Can only work if management understand the causes of the company’s defects:

9. Deming’s 14 Points • 80% to 85% of problems that cause defects are due to faults inherent in the company’s systems. • Bad parts and materials • Outdated machines • Too many non-value added steps in a process which reduce cycle time • Poor lighting on factory floor • 15% to 20% are caused by the workers.

10. Deming’s 14 Points • Since management, not the workers, is responsible for designing the company’s systems and since most of the problems are caused by the systems, the majority of the problems are caused by management, not the workers. • It follows that most of the problems encountered by workers are system problems, which cannot be fixed by the workers. • They must be fixed by management.

11. Deming’s 14 Points • Therefore, defect prevention and continuous improvement can only be achieved if management understands that the worker “works in the system” and that it must “work on the system.” • “Work on the system” means that to continually improve the system. • But how can management improve the company’s systems when it is far removed from the day-to-day operation of the systems?

12. Deming’s 14 Points • Cease dependence on mass inspection • Reactive, not proactive • Focus should be on fixing process, not product. • Cannot inspect quality into a product. • Adds to cost of producing product • Not 100% effective

13. Deming’s 14 Points • Select suppliers based on quality, not price. Look at total cost. • Total cost = Purchase price + Cost of using part • Cost of using part = Cost of rework + Cost of scrap

14. Deming’s 14 Points • Constantly improve system by finding and eliminating problems and by reducing variation by using • SPC and • “Plan, Do, Study, Act Cycle” (PDSA). • A diagram that describes the steps that need to be performed to continuously improve a process.

15. PDSA Details • Plan • Evaluate current process • Identify problems • Develop an improvement plan • Develop metrics to measure improvement • Do • Implement the pilot version of improvement plan • Study • Collect data, study data and evaluate plan • Act • If successful, implement plan • If not, revised plan and implement revised plan • Repeat Step 1

16. PDSA

17. Deming’s 14 Points • Continually improve the workers • Conduct frequent training programs to upgrade their skills. 7. Instill leadership among supervisors • Supervision ( punitive) - point out what’s wrong • Leadership (Inspirational) - coach, help workers improve

18. Deming’s 14 Points • Eliminate fear among employees • Fear of being blamed if you report problems • “Where there is fear, there will be wrong numbers.” • Eliminate barriers between departments • Most problems cross department lines • Cross functional teams are needed to solve these problems • Can’t be done if there are barriers between departments

19. Deming’s 14 Points • Eliminate slogans • “Do it right the first time.” • Slogans imply that workers cause most of defects when most are caused by the system.

20. Deming’s 14 Points • Remove numerical quotas • Stress quantity, not quality • Why exceed it? • Often set beyond capability of system • Performance evaluation-- base it on statistically significant improvement, not random variation. • Enhance worker pride • Give workers tools, equipment needed to do their job.

21. Deming’s 14 Points • Select a few (one or two) suppliers for each part and/or material and develop LT, partnership relationship. • To many suppliers per part increases administrative cost. • May miss opportunities for quantity discounts. • Mixing parts from different suppliers increases variability. • Develop a commitment from top management to implement these points.

22. 1. Overview of Six Sigma - Read http://www.ge.com/annual97/sixsigma/index.htm 2. Letter to shareholders by Jack Welsh and senior management - Read http://www.ge.com/annual97/share/index.htm 3. Lots of additional material on Six Sigma http://www.ge.com/search/index.jsp Six Sigma – GE

24. Six Sigma • Developed by Motorola, Texas Instruments • Largely responsible for success of GE under CEO Jack Welsh. • Jack Welsh talk at MIT: "If you run a company like GE, you don't know much in the way of details about the businesses .... In the CEO's world," he told them, "it's the people you need to focus on. The CEO of GE puts the right people in the right jobs, gives them the resources they make a case for, and gets out of their way."

25. What is Six Sigma? • Six Sigma is a highly disciplined process that helps us focus on developing and delivering near-perfect products and services. • Why "Sigma"? The word is a statistical term that measures how far a given process deviates from perfection.

26. What is Six Sigma? • The central idea behind Six Sigma is that if you can measure how many "defects" you have in a process, you can systematically figure out how to eliminate them and get as close to "zero defects" as possible. • To achieve Six Sigma Quality, a process must produce no more than 3.4 defects per million opportunities. • What does this mean in terms of LSL and USL?

27. Key Concepts of Six Sigma • Critical to Quality: Attributes most important to the customer • Defect: Failing to deliver what the customer wants • Process Capability: What your process can deliver

28. Key Concepts of Six Sigma • Variation: What the customer sees and feels • Stable Operations: Ensuring consistent, predictable processes to improve what the customer sees and feels • Design for Six Sigma: Designing to meet customer needs and process capability

29. Six Sigma - GE • Six Sigma project work consists of five basic activities: • Define, • Measure, • Analyze, • Improve and then • Control processes • . DMAIC

30. Our Customers Feel the Variance, Not the Mean • Customers don't judge us on averages, they feel the variance in each transaction, each product we ship. • Six Sigma focuses first on reducing process variation and then on improving the process capability. • Customers value consistent, predictable business processes that deliver world-class levels of quality.

31. Six Sigma at GE • Superabrasives — our industrial diamond business — described how Six Sigma quadrupled its return on investment and, by improving yields, and thus providing a full decade’s worth of capacity despite growing volume — without spending a nickel on plant and equipment capacity.

32. Six Sigma at GE • GE bank customers are more competitive because their processes--credit card and mortgage application processes--are more streamlined and their inventory level are reduced.

33. Six Sigma at GE • In the language of Six Sigma, terms like “CTQ’s” (critical to quality characteristics) or “DPMO’s” (defects per million opportunities) or “SPC” (statistical process control) have exactly the same meaning at every GE operation from Tokyo to Delhi and from Budapest to Cleveland and Shanghai.

34. Six Sigma at GE • Six Sigma training is now an ironclad prerequisite for promotion to any professional or managerial position in the Company — and a requirement for any award of stock options. • Senior executive compensation is now heavily weighted toward Six Sigma commitment and success • There are now nearly 4,000 full-time, fully trained Black Belts and Master Black Belts: Six Sigma instructors, mentors and project leaders.

35. Six Sigma at GE • There are more than 60,000 Green Belt part-time project leaders who have completed at least one Six Sigma project. • Already, Black Belts and Master Black Belts who are finishing Six Sigma assignments have become the most sought-after candidates for senior leadership jobs in the Company, including vice presidents and chief financial officers at some of our businesses.

36. Six Sigma at GE • Already, Black Belts and Master Black Belts who are finishing Six Sigma assignments have become the most sought-after candidates for senior leadership jobs in the Company, including vice presidents and chief financial officers at some of our businesses.

37. Six Sigma at GE • DFSS (Design for Six Sigma) - A systematic methodology utilizing tools, training and measurements to enable us to design products and processes that meet customer expectations and can be produced at Six Sigma Quality levels. • DMAIC (Define, Measure, Analyze, Improve and Control) - A process for continued improvement. It is systematic, scientific and fact based. This closed-loop process eliminates unproductive steps, often focuses on new measurements, and applies technology for improvement. • Six Sigma -A vision of quality, which equates with only 3.4 defects per million opportunities for each product or service transaction. Strives for perfection.

38. Quality Tools • Control Chart - Monitors variance in a process over time and alerts the business to unexpected variance which may cause defects. • Defect Measurement - Accounting for the number or frequency of defects that cause lapses in product or service quality. • Pareto Diagram - Focuses on efforts or the problems that have the greatest potential for improvement by showing relative frequency and/or size in a descending bar graph. Based on the proven Pareto principle: 20% of the sources cause 80% of any problems.

39. Quality Terms • Black Belt - Leaders of teams responsible for measuring, analyzing, improving and controlling key processes that influence customer satisfaction and/or productivity growth. Black Belts are full-time positions. • Control - The state of stability, normal variation and predictability. Process of regulating and guiding operations and processes using quantitative data. • CTQ: Critical to Quality (Critical "Y") - Element of a process or practice which has a direct impact on its perceived quality. • Customer Needs, Expectations - Needs, as defined by customers, which meet their basic requirements and standards.