TOTAL QUALITY MANAGEMENT

Transcription

1 SEMESTER - IV TOTAL QUALITY MANAGEMENT COURSE MATERIAL CII Institute of Logistics 1

2 CONTENT DEVELOPED BY P K Vishwanathan All rights reserved. No part of this work may be reproduced in any form, without the permission in writing from CII INSTITUTE OF LOGISTICS. Material adopted from the reading material prepared for the Post Graduate Diploma in Supply Chain Management, CII Institute of Logistics for the specific requirements of the course PG Diploma in Logistics Management offered for the Post Graduate students of MIM, Chennai. No part of this material could be shared by the intended readers with others. Further information about the course offered by CII INSTITUTE OF LOGISTICS may be obtained from the CII INSTITUTE OF LOGISTICS (Southern Regional Headquarters) at Velacherry Main Road, Guindy, Chennai For restricted circulation only. CII Institute of Logistics 2

3 Course Content Module 1 1. Introduction 2. Approaches & Philosophies in TQM 3. Quality & Competitiveness 4. Enhancing Customer value through TQM 5. Strategic Planning for Quality Module 2 6. Implementation 7. Leadership 8. Teambuilding & Teamwork 9. Employee empowerment Module Tools for Quality Improvement 11. Quality Function Deployment 12. Statistical Process Control 13. Continuous Improvement Module Benchmarking 15. JIT 16. Si Sigma 17. ISO Standards & Quality Management 18. Quality Management & Ethics CII Institute of Logistics 3

4 Total Quality Management 1.1 Introduction Total Quality Management (TQM) a sound methodology for continuous improvement has established itself very well over the years. It is deep rooted in the philosophy that status quo is painful and indeed going backwards. In-built in the minds of all of us is a strong desire to improve. TQM has evolved as a system, which can facilitate improvement-efforts within organizations. We are not merely talking about increased profits but more importantly interested in relentless improvement programs where ecellence in service and product quality is paramount. Some organizations may begin their TQM journey from a position of financial strength or quality reputation. Others may begin from a position of survival in which there are two alternatives namely get smarter or go out of eistence. In a lighter vein, Dr. Deming said, Survival is not compulsory. In this present challenging and changing world, remaining static is a definite passport for eistence. [ standing still is a definite recipe for going out of eistence]. The climate today is such that any progressive organization that wants not only to survive but also to grow and prosper on a long-term time horizon must be able to cope with rising customer epectations, higher standards in product and service quality, and intense competition both in the domestic and international marketplace. In addition, the other important factors namely government policies and legislations, demographic changes, customer choices and tastes, and eternal environmental pressures will compulsorily kindle the desire to improve. TQM is a long-term strategy. It is not simply a matter of conformance to customer s specifications. If developed and implemented correctly, TQM will positively impact the hearts and minds of all people in an organization who are involved in various tasks. CII Institute of Logistics 4

5 Historical Perspective of TQM In the 1920s, W.A. Shewhart developed control charts for reducing and stabilizing process variation using statistical methods. Thus, he paved the way for what we call statistical process control (SPC). In the 1930s, Dr. W. Edward Deming and Dr. Joseph M. Juran started to develop best approaches to quality control and assurance. While Dr. Deming was focusing on the philosophical foundations of quality, Dr. Juran adopted a full systems approach to quality. In 1948, Deming went to Japan and conducted his first seminar having found virtually no acceptance for his ideas in USA, which was giving more importance to quantity than quality. Japanese Standards Association was formed in 1950 and in the following year the Deming Award Scheme was announced. The 1950s saw Japan consolidating its home market, adding value to product and copying ideas from the rest of the world. The low cost structure of the 1960s enabled Japan to eport globally, continuously adapting and eploiting markets. Yet, the western perception about Japan was still one of poor-quality goods. In the following twenty years, in a dramatic manner, the perception about Japanese goods and services has changed from shoddy quality to reliability, and good value for money, with the result that the economic balance of power has shifted from the West to Japan and the East in industries that include motor vehicles, shipbuilding, consumer goods, electronic components, tetiles, banking and financial services, photography, video and watch making among the many. In the mid 1060s, United States pointed to a slow development of conventional quality control techniques coupled with Quality Circles. During the same period, Philip B. Crosby introduced the concept of zero defects as a performance yardstick within the conceptual framework of his quality absolutes. At the end of the 1970s, the first CII Institute of Logistics 5

6 Fortune 500 companies started adopting the organization wide quality management processes and Tom Peters rejuvenated Total Quality Management movement through his famous book In Search of Ecellence. In the United Kingdom in the year 1963, the National Productivity Council made pioneering efforts in quality management movement through its far-seeing film Right First Time, but with little success. The year 1966 was National Quality and Reliability Year, which raised awareness of the value of quality followed by Productivity Year in 1967??. In 1978, the National Strategy for Quality was formed by the government, based on the belief or assumptions that enormous money was being wasted every year on account of bad quality. The campaign went out with the Labor Government in 1979, and was replaced four years later by The National Quality Campaign, which continues to this day to be the most sustained program in UK history. 1.2 What is Total Quality Management? Total Quality Management popularly known as TQM was pioneered initially by the quality Guru Dr. Edward Deming and further strengthened by Dr. Juran, and Philip Crosby. These three luminaries can be considered to be the triple pillars of TQM who spread the TQM movement like a current of air. The following definition succinctly brings out the essence of TQM. TQM Definition TQM involves continuous improvement in quality to meet or eceed customer norms at the lowest cost by releasing the potential of employees of the concerned organization. If we read some of the Quality Policy Statements of the world s leading organizations we will see words similar to those above recurring regularly. For the eperienced TQM CII Institute of Logistics 6

7 practitioner there are probably four elements in the definition, which stand out as being important. Please note that they are highlighted in bold. 1) Continuous Improvement in Quality implies that TQM is not a short-term program but a long-term strategy focusing on the right way of operating for all time. 2 )Customers are both internal and eternal, and in order to meet the requirements it is essential to articulate in a clear fashion what needs to be done so that all assumptions between the customers and suppliers have been eliminated. 3) Lowest Cost means building quality into the products and services in every stage. This includes preventing defectives from being manufactured in the first place thus eliminating financial loss. Lowest cost implies lowest in relation to competition in the marketplace. 4) Employees are concerned with reducing fear and creating a climate where ideas are encouraged, recognized, rewarded, and acted upon so that the full potential of the employees is realized. TQM Definition-Point to Ponder Each of the four elements is vitally important. However, their strength lies in their collective synergy. Organizations that would like to achieve long-term success cannot do so by choosing one or two of the elements and ignoring the rest; they have to vigorously pursue each of them without any compromise. There is no room for saying sorry. CII Institute of Logistics 7

8 1.3 Approaches and Philosophies in TQM Deming s Philosophy The Deming philosophy focuses on continual improvements in product and service quality by reducing uncertainty and variability in design, manufacturing and service processes, driven by the leadership of top management. Deming Chain Reaction Model The Deming "chain reaction" model is based on the conviction that, the only way to decrease cost is to improve quality of products and services. It states that by (a) improving quality, a firm can (b) decrease costs because of less rework, fewer mistakes, delays, and snags, and better use of time and materials, thus (c) improving productivity. The firm will therefore be able to (d) capture the ma rket with better quality at lower prices, and thus, not only (e) stay in business, but also (f) provide and create more jobs. (See Fig 1) CII Institute of Logistics 8

9 Deming s System of Profound Knowledge Deming's System of Profound Knowledge consists of four interrelated parts: (1) appreciation for a system; (2) understanding of variation; (3) theory of knowledge; and (4) psychology. Appreciating a system involves understanding how each component of the system works to produce the end product or service, and understanding how the system may be optimized for better or smoother performance. Understanding of variation involves knowing and anticipating factors (i.e. increasing personnel, the wearing out of tools) that may cause the system to change, for better or worse. Theory of knowledge involves understanding the system and current and possible variations within, to the point where past and present events and performances can suggest possible outcomes of future courses of action within the system. Psychology involves the understanding of what motivates people, including the facts such as, people must enjoy their work, be treated with respect, work within a system that promotes dignity and self-esteem, receive adequate recognition, not for just financial remuneration, and feel that they are part of a winning, high quality team that makes a difference. Deming s 14 Points-Principles for Transformation These famous 14 points are the basis for transformation of any industry into the TQM philosophy. It will not suffice merely to solve problems, big or little. Adoption and action on the 14 points are a signal that the management intends to stay in business and aim to protect investors and jobs. Such a system formed the basis for lessons for top management in Japan in 1950 and in subsequent years. The 14 point principles apply to all organizations irrespective of its size [small and large] and type [service industry and manufacturing]. They also apply to a division within a company. CII Institute of Logistics 9

10 Deming s 14 Points 1. Create constancy of purpose towards improvement of product and service, with the aim to become competitive; to stay in business; and to provide jobs. 2. Adopt the new philosophy. We are in a new economic age. Modern management must awaken to the challenge, must learn their responsibilities and take on leadership for change. 3. Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place. 4. End the practice of awarding business on the basis of price tag alone. Instead, minimize total cost. Move toward a single supplier for any one item. On a long-term relationship of loyalty and trust. 5. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs. 6. Institute training on the job. 7. Institute leadership. The aim of supervision should be to help people, machines and gadgets to do a better job. 8. Drive out fear, so that everyone may work effectively for the company. 9. Break down barriers between departments. People in research, design, sales and production must work as a team to foresee problems of production and in use that may be encountered with the product or service. 10. Eliminate slogans, ehortations and targets for the work force asking for zero defects and new levels of productivity. Such ehortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force. 11. Eliminate work standards (quotas) on the factory floor. Substitute leadership. Eliminate management by objectives. Eliminate management by numbers and numerical goals. Substitute leadership. 12. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer CII Institute of Logistics 10

11 numbers to quality. Remove barriers that rob people in management and in engineering of their right to pride of workmanship. 13. Institute a vigorous program of education and self-improvement. 14. Put everybody in the company to work to accomplish to transformation. The transformation is everybody s job. Adapted from Out of the Crisis -Dr. Deming Connection between 14 Points of Deming and his Systems of Profound Knowledge Under appreciation for a system, points 1, 2, 4, 5, 9, 13, and 14 are most oriented towards systems. Numbers 1 and 2, relating to vision, commitment, and development of a new philosophy of leadership require a big picture view of the organization and its place in business and society. Number 4 relates to the requirement that total costs, not incremental costs, must be optimized throughout an organizational system. Number 5 is a call to make improvements continuously throughout the system. Number 9 requires the development of teamwork and breaking down of artificial barriers between departments and organizational units. Number 13 relates to broad education to benefit both the organization and society, in the long run. Point 14 calls for a major cultural change within the organization, and is similar to point 2. To understand variation, Deming established points 3, 5, 10, and 11. Point 3 requires that everyone understand inspection and use it to understand variation by avoiding mass inspection. Point 5 advises to improve constantly and forever, thus eliminating the causes of ecessive variation and waste. Number 10 suggests that improvement does not take place by ehorting workers to do a better job, but by understanding the cause of poor quality and eliminating them. Point 11 makes a similar point that quotas and management by objectives are approaches that do not encourage improvement, but instead, create fear. When people don t understand the theory of knowledge, they don t know how to plan, accomplish learning, improve, change, or solve problems, despite their best efforts. Thus points 1, 2, 5, 6, and 13 may be seen as falling under theory of knowledge CII Institute of Logistics 11

12 category. Deming s concept in points 1 and 2 of constancy of purpose and learning his new philosophy are needed in order to effectively plan, learn and change. Point 5 relating to constant improvement is also essential to knowledge, as is point 6 on instituting training, so that workers will be able to understand their work processes, predict the result of changes, and actively participate in problem solving and improvement. Point 13 is related in that it advises that education and self-improvement will assist the organization in learning, changing, improving and reaching organizational goals. An understanding and appreciation of psychology is a requirement for points 7 through 13. Each of these has leadership and motivational characteristics that are essential to Deming s new philosophy and to improved quality and productivity. Numbers 7 and 11 are related to improving leadership; points 8, 9, 10, 11, and 12 advise removing barriers that keep workers from doing their best, most effective work; and number 13 advises that workers should be educated, not just trained. 1.4 Dr. Juran s Philosophy Juran's "Quality Trilogy," like most trilogies these days, consists of three parts: Quality planning--the process for preparing to meet quality goals; quality control--the process for meeting quality goals during operations; and quality improvement--the process for breaking through to unprecedented levels of performance. Quality planning begins with identifying customers, both eternal and internal, determining their needs, and developing product features that respond to customer needs. Quality goals are then established that meet the needs of customers and suppliers alike, and do so at a minimum combined cost. Quality control involves determining what to control, establishing units of measurement so that data may be objectively evaluated, establishing standards of performance, CII Institute of Logistics 12

13 measuring actual performance, interpreting the difference between actual performance and the standard, and taking action on the difference. Juran specifies a program for quality improvement which involves proving the need for improvement, identifying specific projects for improvement, organizing guidance for the projects, diagnosing the causes, providing remedies for the causes, proving that the remedies are effective under operating conditions, and providing control to maintain improvements. Like Deming, Juran advocated company-wide quality management, with a neverending process of quality improvement, involving such activities as market research, product development, production process control, inspection and testing, and customer feedback. He emphasized the need for management commitment to quality improvement, and the need for training of all employees in quality techniques. Juran also asked workers to get to know their eternal and internal customers, and to identify and reduce causes of variation by determining the difference between standard and actual performance and taking action on the difference. Unlike Deming, Juran did not propose major cultural changes in the organization, but sought to improve quality within the system familiar to U.S. managers. His detailed plan was based on identifying areas for improvement and acting accordingly. Juran also recognized the different "languages," or trains of thought, which occupy different levels of an organization, and advocated communication between these "languages," where Deming proposed that statistics should be shared as a common language. CII Institute of Logistics 13

14 1.5 Philip Crosby s Philosophy The Central Idea of Crosby Quality is free. It s not a gift, but it is free. What costs money are the unquality things -- all the actions that involve not doing jobs right the first time. The famous absolutes of quality management enunciated by Crosby are delineated below: (1) Quality means conformance to requirements, not elegance. Crosby sees requirements as being ironclad; they are communication devices which must be clearly stated so that they cannot be misunderstood. Once this is done, a company can take measurements to determine conformance to those requirements. (2) Crosby maintains there is no such thing as a quality problem. Those individuals or departments that cause them, so there are accounting problems, manufacturing problems, logic problems, etc, must identify problems. (3) There is no such thing as the economics of quality; it is always cheaper to do the job right the first time. Most of us will remember this one as a frequent and sometime annoying aiom, used by our mothers every time we had to perform some complicated chore. Crosby supports the premise that "economics of quality" has no meaning. Quality is free. What costs money are all actions that involve not doing jobs right the first time. (4) The only performance measurement is the cost of quality. The cost of quality is the epense of nonconformance. Crosby's program calls for measuring and publicizing the cost of poor quality. (5) The only performance standard is "Zero Defects." Zero Defects is a performance standard, NOT a motivational program. The idea behind ZD is to do it right the first time, to concentrate on preventing defects rather than just finding and fiing them. Please remember that you should do the right thing right, first time every time. CII Institute of Logistics 14

15 (6) People are conditioned to believe that error is inevitable; thus they not only accept error, they anticipate it. Each of us has limits within which we can accept errors. Eventually we reach a point where the errors are unacceptable. This usually occurs when the errors affect us personally, such as when you discover that your bank has made a $100 error in your account, in their favor. Crosby's Basic Elements of Improvement include determination, education, and implementation. According to Crosby, most human error is caused by lack of attention rather than lack of knowledge. Lack of attention is created when we assume that error is inevitable. By determination, Crosby means that top management must be serious about quality improvement. Everyone must understand the Absolutes; this can be accomplished only through education. Finally, every member of the management team must understand the implementation process. Like Deming, Crosby advocated interior searches by individual departments (i.e. manufacturing, accounting) within a firm for sources of negative variation and acting to reduce these. He also advocated the policy of doing the job right the first time. Unlike Deming, Crosby's plan focuses on managerial thinking, calling for change within the current system, holding employees, as well as management accountable for reducing defects, and not requiring a complete organizational overhaul. 1.6 Philosophy and Frameworks of Other Key People A.V. Feigenbaum is primarily known for three contributions to quality -- his international promotion of the quality ethic, his development of the concept of total quality control, and his development of the quality cost classification. Kaoru Ishikawa was instrumental in the development of the broad outlines of Japanese quality strategy, the concept of CWQC, the audit process used for determining whether CII Institute of Logistics 15

16 a company will be selected to receive the Deming award, the quality control circle, and cause-and-effect diagrams--a principle tool for quality management. Taguchi s contributions were centered on eplaining the economic value of reducing variation. He maintained that the manufacturing-based definition of quality as conformance to specification limits is inherently flawed. He also contributed to improving engineering approaches to product design. By designing a product that is insensitive to variation in manufacture, specification limits become meaningless. Taguchi advocated certain techniques of eperimental design to identify the most important design variables in order to minimize the effects of uncontrollable factors on product variation. Thus, his approaches attacked quality problems early in the design stage rather than react to problems that might arise later in production. Taguchi measured quality as the variation from the target value of a design specification, and then translated that variation into an economic "loss function" that epresses the cost of variation in monetary terms. In doing this, Taguchi offered a method of measuring the monetary loss resulting from creation of products or services that do not conform to quality standards. This method was used by Deming to compare the decreased costs of producing products or services with quality values closer to those of standard quality specifications. CII Institute of Logistics 16

17 1.7 Quality and Competitiveness Attempt to Define and Delineate Quality Webster's definition of quality is vague and simplistic. "(Quality is) that which makes something what it is; characteristic element." The ANSI/ASQ definition states quality is "the totality of features and characteristics of a product or service that bears on its ability to satisfy given needs." No single definition is adequate because customer needs are constantly changing and because quality is "situational" -- e.g. a good design for one purpose, and in the eyes of one set of customers, may represent a poor design for another use or another set of customers. Reliance on a single definition of quality is frequently a source of problems. Formal definitions of quality followed by distilled practitioners are given in the following table: Popular Quality Definitions Transcendent definition: Ecellence Product-based definition: Quantities of product attributes User-based definition: Fitness for intended use Value-based definition: Quality vs. price Manufacturing-based definition: Conformance to specifications Quality definitions, such as the user-based, value-based, and even manufacturingbased concepts are applicable both to products and services. For eample, in a university setting, fitness for intended use may be seen by the eample of a small liberal-arts college that provides an outstanding science curriculum for people who CII Institute of Logistics 17

18 wish to go to work in industry. This eample also can be related to the user-based definition, based on how well the product performs its intended function. Someone who chooses a respected regional university rather than attending an epensive nationally known private university, would be seen as applying the value-based definition, based on how well the selected university provides performance at an acceptable price or conformance to perceived quality standards at an acceptable cost. The manufacturing-based definition measures quality by the product's "conformance to specifications;" in other words, how much does the product resemble the perfected prototype when it rolls off the assembly line? Students may look at the catalog description or course syllabus, when doing a course evaluation, and make a judgment as to whether the resulting course conformed to specifications given in these documents. Quality Definition for a Hospital A particular hospital may like to differentiate itself by advertising its rating in a specialty, such as cardiac care, with an implied guarantee of better results, which is product-based claim. If the intended use for a patient were simply to treat a badly upset stomach, then a low-cost local emergency care clinic would be satisfactory. However, if the intended use is to have the best possible care, a person may want to go to the number one hospital in terms of the state of the art facilities. Money is no consideration. Quality of treatment is important. This is a classic value-based scenario. Finally, a manufacturing-based healthcare eperience would be one that conformed to specifications. Typically this would mean a general hospital with an emergency room that will take care of any sort of trauma injury, from automobile accidents to gunshot wounds, quickly and efficiently. CII Institute of Logistics 18

19 1.8 Competitiveness A firm's competitive advantage lies in its ability to achieve market superiority. It is a) driven by customer wants and needs; b) makes a significant contribution to the success of the organization; c) matches the organization s unique resources with opportunities in the environment; d) is durable, lasting, and difficult for competitors to copy; e) provides a basis for further improvement; and f) provides direction and motivation to the entire organization. Quality supports a firm's competitive advantage by providing for more efficient use of resources and production methods within the company, thus producing products or services that are superior to those of competitors. Point to Ponder Quality is not a Competitive Edge. It is the Competitive Edge! It is worth remembering Dr. Deming s chain reaction model, which emphatically declares that improvement in quality alone, will decrease the cost and that in turn will make a firm competitive in the market place. 1.9 Enhancing Customer Value through TQM CRM is the Key A firm that is market driven would ehibit several customer-focused characteristics that a marketing driven compa ny might not have. In fact, it would be rare for a marketing driven firm to pay much attention to developing a customer relationship management (CRM) system. This attention to customer needs would be more typical of a market driven firm. A CRM system requires that an organization establish effective strategies for listening to, and learning from, customers, as well as developing approaches to measure satisfaction relative to competitors. The system must also be designed to build relationships, in order to understand present and future customer needs, and keep pace with changing markets. The marketing driven firm may be CII Institute of Logistics 19

20 much more focused on selling the customer a product that may or may not meet the customer s needs. Quality is directly related to market share and to profitability. Quite a few studies have shown that people are willing to pay more for products that they perceive as having high quality. Thus, without high quality, good marketing of products and services would appear to be impossible, since salespeople would have little to sell that would meet the needs of their customer. However, without good marketing, where salespeople listen and respond to the needs of customers, even the best-designed products will remain unsold. CRM at Amazon.com Amazon s CRM software helps in multiple ways to gain market share and maintain competitive advantage over their rivals. The list of the characteristics that make up their vision of customer service points to numerous features that are hard to duplicate in conventional websites or store chains. For instance, Amazon: has deep selection that is unconstrained by shelf space. turns their inventory 19 times in a year. personalizes the store for every customer. trades real estate for technology displays customer reviews critical of their products. allows customers can make a purchase with a few seconds and one click. puts used products net to new ones so customers can choose. shares their prime real estate, their product detail pages, with third parties, and, if they can offer better value, they let them adopts leading-edge technology for the company s website has served customer needs by being one of the early pioneers to develop software for collaborative filtering of customer data Advantages of CRM Approach to Amazon Segmenting markets based on demographic and behavioral characteristics, Tracking sales trends and advertising effectiveness by customer and market segment, CII Institute of Logistics 20

21 Identifying which customers should be the focus of targeted marketing initiatives with predicted high customer response rates, Forecasting customer retention (and defection) rates and provides feedback as to why customers leave a company, Studying which goods and services are purchased together, leading to good ways to bundle them, and Studying and predicting what Web characteristics are most attractive to customers and how the Web site might be improved. The capabilities of its high-tech warehouses, such as its nearly perfect process for sorting multiple item orders Customer Focus Delineations The Importance of Customers Organizations only continue to eist because of their ability to meet their eternal customer requirement. The needs of eternal customers must drive all the internal processes within the organization. It is no good continuously improving the effectiveness of the internal processes if, at the end of the day, they are not producing the outputs which the customer requires. It is essential that organizations understand: i. Who are their eternal customers and what are their requirements? ii. Who are the internal processes, which produce the service or product required by the eternal customer? iii. Their customers perceptions of current performance iv. How performance can be improved? When implementing a Quality Improvement Program [QIP], it is easy to fall into the trap of becoming focused internally; concentrating resource on improving internal CII Institute of Logistics 21

22 processes and reducing costs at the epense of the needs of eternal customers. Understanding customer requirements is an essential part of any QIP. Understanding the Customer It is essential that a comprehensive picture of customer requirements is determined. This is not restricted to the product or service delivered to the customer, but covers the total service required from the organization as a supplier. There may be a number of different customers to consider, even within the same organization. The person who places the order has requirements; the receiving department where goods are delivered has requirements; the person who pays the invoice has requirements. A company, which wishes to succeed, must be aware of all these requirements and constantly improve its ability to meet them. There are a number of sources of information on customer requirements. Eamples include: Customer surveys Trade surveys Working with selected customers Competitor analysis Focus groups Benchmarking Customer complaints Legal and guideline standards (for eample, ISO 9000) Informal customer, or potential customer comments received from sources such as: the sales force after customer visits; feedback from other employees and comments heard at conferences, training courses and trade ehibitions Every contact with an eisting, or potential, customer at any level in the organization is an opportunity to learn more about their requirements. It is important that this CII Institute of Logistics 22

23 information is tapped and used to improve the ability of the business to meet customer requirements. Internal Processes An eternal customer requirement can only be met if internal processes within an organization are set up effectively to deliver the requirement. A breakdown in the internal supply chain often results in failure to meet eternal customer requirements. An important part of Quality Improvement is the analysis of the whole organization to ensure that it is set up effectively to meet the requirements of its customers. The following steps are useful guide to achieve this: Identify the basic purpose and objectives of the business. What customer requirements does it eist to fulfill? Identify eisting and potential future customers of the business. Tap as many sources as possible to ensure their requirements are understood. This includes understanding why potential customers are not actual customers! Identify the overall role each department plays in meeting customer requirements and business objectives. This may reveal that changes are required in the roles of departments within the organization Identify the internal processes, which link together to meet the eternal customer requirements. Ensure the eternal customer requirements flow back through the supply chain to determine the customer requirements for each internal process. Only by doing this at each stage in the supply chain can the eternal customer requirements are met? Measure overall performance for each process Introduce improvements to each process to improve performance CII Institute of Logistics 23

24 Customer Service Dimensions 1) Tangibles Appearance of physical facilities, equipment, personnel, and communication materials. Eamples of Specific Questions Raised by Customers Are the bank's facilities attractive? Is my stockbroker dressed appropriately? Is my credit card statement easy to understand? Do the tools used by the repair person look modern? 2) Reliability Ability to perform the promised service dependably and accurately Eamples of Specific Questions Raised by Customers When a loan officer says she will call me back in 15 minutes, does she do so? Does the stockbroker follow my eact instructions to buy or sell? Is my credit card statement free of errors? Is my washing machine repaired right the first time? 3) Responsiveness Willingness to help customers and provide prompt service Eamples of Specific Questions Raised by Customers When there is a problem with my bank statement, does the bank resolve the problem quickly? Is my stockbroker willing to answer my questions? Are charges for returned merchandise credited to my account promptly? Is the repair firm willing to give me a specific time when the repair person will show up? CII Institute of Logistics 24

25 4) Competence Possession of the required skills and knowledge to perform the service Eamples of Specific Questions Raised by Customers Is the bank teller able to process my transactions without fumbling around? Does my brokerage firm have the research capabilities to accurately track market developments? When I call my credit card company, is the person at the other end able to answer my questions? Does the repairperson appear to know what he is doing? 5) Courtesy Politeness, respect, consideration, and friendliness of contact-personnel Eamples of Specific Questions Raised by Customers Does the bank teller have a pleasant demeanor? Does my broker refrain from acting busy or being rude when I ask questions? Are the telephone operators in the credit card company consistently polite when answering my calls? Does the repairperson take off his muddy shoes before stepping on my carpet? 6) Credibility Trustworthiness, believability, honesty of the service provider Eamples of Specific Questions Raised by Customers Does the bank have a good reputation? Does the broker refrain from pressuring me to buy? Are the interest rates/fees charged by my credit card company consistent with the services provided? Does the repair firm guarantee its services? CII Institute of Logistics 25

26 7) Security Freedom from danger, risks, or doubt Eamples of Specific Questions Raised by Customers Is it safe for me to use the bank's automatic teller machine? Does my brokerage firm know where my stock certificate is? Is my credit card safe from unauthorized use? Can I be confident that the repair job was done properly? 8) Access Approachability and ease of contact Eamples of Specific Questions Raised by Customers How easy is it for me to talk to senior bank officials when I have a problem? Is it easy to get through to my broker over the telephone? Does the credit card company have a 24-hour, toll-free telephone number? Is the repair service facility conveniently located? 9) Communication Keeping customers informed in language they can understand and listening to them Eamples of Specific Questions Raised by Customers Can the loan officer eplain clearly the various charges related to the mortgage loan? Does my broker avoid using technical jargon? When I call my credit card company, are they willing to listen to me? Does the repair firm call when they are unable to keep a scheduled repair appointment? 10) Understanding the Customer Making the effort to know customers and their needs Eamples of Specific Questions Raised by Customers CII Institute of Logistics 26

27 Does someone in my bank recognize me as a regular customer? Does my broker try to determine what my specific financial objectives are? Is the credit limit set by my credit card company consistent with what I can afford (i.e., neither too high nor too low)? Is the repair firm willing to be fleible enough to accommodate my schedule? The ultimate five dimensions of service quality are Reliability, Responsiveness, Assurance, Empathy, and Tangibles in the order of importance. The contribution made by these five dimensions is succinctly given in the following visual (Fig 2). Fig 2: Contribution By ServQual Dimensions 11% 16% 19% 22% 32% Reliabilty Responsiveness Assurance Empathy Tangibles Please note that Reliability, Responsiveness, and Tangibles are independent dimensions. Assurance is obtained by collapsing Competence, Courtesy, Credibility, and Security of the original Servqual dimensions. Likewise, Empathy is an amalgamation of Access, Communication, and Understanding the Customer of the original Servqual dimensions. (Source: Delivering Quality Service by Dr. Parasuraman) CII Institute of Logistics 27

28 1.11 Strategic Planning for Quality Strategy A strategy is a pattern or plan that integrates an organization's major goals, policies and action sequences into a cohesive whole. Formal strategies contain three elements: 1. Goals to be achieved. 2. Policies that guide or limit action. 3. Action sequences, or programs, that accomplish the goals. The leading practices for firms that do effective strategic planning include: Both top management and employees actively participate in the planning process. They use customer wants and needs to drive the strategy. They involve suppliers in the strategic planning process. They have well-established feedback systems for continuous measurement and re-evaluation of the planning process. Steps in Strategic Planning The steps in the strategic planning process are shown in Figure 3. Once the company's mission, vision, and guiding principles have been determined, the organization must assess the gap as to where it is now, and where it wants to be as described in its vision. Using this assessment, it must then develop goals, strategies, and objectives that will enable it to bridge this gap. CII Institute of Logistics 28

29 Fig 3 The purpose, or mission, of the organization is a statement of "why the organization is in business" In the past, the purpose of the organization was frequently stated in terms of products or services produced or profitability to stockholders. TQ-focused firms are now stating their purpose in terms of their customer focus and their commitment to strive for higher levels of quality. The vision statement is a statement of guiding values, principles, and direction of epected growth of an organization or some segment of it, and is generally developed by key managers and others who are responsible for planning and carrying out that vision. Vision statements may be developed at any level within the organizational hierarchy from top to bottom. This is a worthwhile activity, as long as the statements are coordinated so as to fit with those of the net higher level and the overall organization's vision. Values, or guiding principles, guide the journey to that vision by defining attitudes and policies for all employees, that are reinforced through conscious and subconscious CII Institute of Logistics 29

30 behavior at all levels of the organization. The mission, vision, and guiding principles serve as the foundation for strategic planning. Top management and others who lead, especially the CEO, must articulate them. They also have to be transmitted, practiced, and reinforced through symbolic and real action before they become "real" to the employees, and the people, groups, and organizations in the eternal environment that do business with the firm. Hoshin kanri, known as policy deployment or management by planning in the U.S.A., is the Japanese process of deploying management strategy. Various companies have various definitions for policy deployment. In all cases, it emphasizes organization-wide planning and setting of priorities, provides resources to meet objectives, and measures performance as a basis for improving performance. Essentially, it is a TQ-based approach to eecuting a strategy. Catchball is the term for the negotiating process used within an organization to determine long- and short-term quality objectives. Leaders communicate mid-term objectives and measures to middle managers who develop short-term objectives and recommend necessary resources, targets, and roles/responsibilities. Catchball is not an autocratic, top-down management style. It marshals the collective epertise of the whole organization and results in realistic and achievable objectives that do not conflict. Policy deployment is a planning and implementation method that ties improvement activities to long-term strategies of the organization. It is driven by data, supported by documentation, emphasizes company-wide planning, and includes setting of priorities for improvement. It is somewhat similar to MBO, but has a different focus. First, MBO focuses on the performance of the individual employee, while policy deployment focuses on the organization as a whole. Objectives in MBO are tied to performance evaluation and rewards. Second, MBO objectives do not support the company's objectives, but are set independently. Third, the focus of MBO is as a control CII Institute of Logistics 30

31 mechanism between supervisors and subordinates. Fourth, MBO objectives usually are not emphasized in daily work, but are brought out only at performance review time. Key business factors in the environmental assessment include: the nature of a company's products and services, its principal customers, major markets, and key customer quality requirements position in market and competitive environment facilities and technologies suppliers other factors, such as the regulatory environment, industry changes, etc. Strategic plans must be consistent with the important business factors of the company. For eample, plans for a company in a highly competitive, fast-changing market might include fast cycle time and more attention to understanding emerging customer needs than plans for a company with a low-cost focus on a mature market The Seven Management Planning Tools 1. Affinity diagrams--this is a tool for organizing a large number of ideas, opinions, and facts relating to a broad problem or subject area, i.e. a vision statement. 2. Interrelationship digraphs--identifies and eplores casual relationships among related concepts or ideas. It shows that every idea can be logically linked with more than one idea at a time, and allows for "lateral thinking" rather than "linear thinking." 3. Tree diagram--maps out the paths and tasks necessary to complete a specific project or reach a specified goal. 4. Matri diagrams--these are "spreadsheets" that graphically display relationships between ideas, activities, or other dimensions in such a way as to provide logical connecting points between each item. 5. Matri data analysis--takes data and arranges it to display quantitative relationships among variables to make them more easily understood and analyzed. CII Institute of Logistics 31

32 6. Process decision program chart--a method for mapping out every conceivable event and contingency that can occur when moving from a problem statement to possible solutions. 7 Arrow diagrams-- Arrow diagrams are another name for PERT/CPM project planning diagrams. Students who have had a basic operations management course may be familiar with the term network diagram 1.12 Structure and Strategy The implications for quality are that the quality philosophy, systems, procedures, and people must be aligned with the organization structure and vice-versa. It has been said that structure follows strategy, so, the quality strategy will ideally drive the development of a structure in order to carry it out. In reality, structures that have been in place for a long time are often difficult to change when the strategy changes, which creates significant misalignment and organizational stress. For eample, when a highly regulated industry, such as telecommunications or electric power is deregulated, then the need for customer focus, increased service quality, and organizational structural change becomes painfully apparent, but difficult to accomplish. Many variations of organization structure eist, but they are commonly based on one of the following three forms: 1) line organization, 2) line and staff organization, or 3) matri organization forms. The line organization is a simple form that is most successful in small firms. It is not generally used in large organizations, where the line and staff structure is most prevalent. Neither the pure line organization nor line and staff organization works very well where the environment of the firm and its industry is changing very rapidly. That is because these types of organizations tend to be rigidly structured. The matri organizational form is better suited to rapidly changing environments, but it is more difficult to develop effective control of outcomes in order to meet goals using this form of organization. CII Institute of Logistics 32

33 TQ focused organizations are often taking a process view of organization. Therefore, they are increasingly structuring their organization around functional or crossfunctional teams. To carry out the work, high performance teams that focus on core processes, quality improvement or other targets are often formed. These are frequently coordinated through cross-functional coordinating committees, management (or quality management) councils, etc. to overcome the problems of lack of control and accountability inherent in such matri-form organizations. Essence of Strategic Planning Strategic Planning focuses on drivers of customer satisfaction, customer retention, and market share that lead to higher competitiveness, profitability, and business success. The category is divided into two sections, labeled as Strategy Development and Strategy Deployment. Strategy Development requires applicants to outline how they create a view of the future that takes into account the market factors in which they compete and the process of how they compete. Strategy Deployment seeks information about specific action plans that a company develops, how they are deployed, and a projection of performance. The Strategic Planning category requirements are intended to encourage strategic thinking and action, but do not imply that formalized plans or planning systems must be developed. CII Institute of Logistics 33

34 TQM Themes Introduction A Process such as TQM requires guidelines, which serve as a framework, upon which practitioners of the process may start their understanding. The more we learn, the more we come back to these central and fundamental themes. This module succinctly brings out the key themes that are the cornerstones of TQM 2.1 Everyone has suppliers and customers Every task undertaken, every responsibility held and every process of which we are part, there is, or should be, somebody, somewhere who is dependent on the quality of the work carried out. TQM eamines process and the customer / supplier interaction at each state within the process (Figure 2.1). Understanding the needs is a prerequisite to customer satisfaction. Fig 2.1 CII Institute of Logistics 34

35 Every process, which flows through an organization, is made up of customer supplier chains, whether it is a manufacturing process, a sales ordering process or a management reporting process (Figure 2.2). Fig People make quality People make quality, but Deming suggests that over 85% of failures are created by management systems, which have unclear requirements, inadequate training, inappropriate equipment, poor communications or no leadership. The responsibility for developing people to become committed to Total Quality rests with all managers. This includes understanding and agreeing the requirements of the job, knowing how to do the job and why it is being done, having the necessary materials, tools and information, being able to measure improvements and knowing what to do when things go wrong are also fundamental to this development. CII Institute of Logistics 35

36 2.3 Teamwork Total Quality Management emphasizes that teamwork is essential for success. Teams can be as broad as a business or as narrow as two or three people working together in a department. Working in teams brings benefits that individuals cannot necessarily achieve and maimizes the use of skills resulting in better decisions. Lading commercial companies have found that cross-functional teams provide 80% plus of the benefits. This is not unreasonable as the major processes in an organization usually involve more than one function. 2.4 Effective Communication The possibility of misinterpretation from the sender to the receiver is substantial in any communication. We all have the need to communicate with each other to eplain our requirements to give feedback, to suggest ideas, to raise problems and so on. Effective communication requires sufficient forethought in order to eliminate assumptions on both sides. The two-dimensional model of communication, up and down, must be etended to include communication across the organization thus breaking down artificial boundaries (see Figure 2.3). Requirements, plans, changes, goals and objectives, progress, should all be considered within the scope of effective communication. CII Institute of Logistics 36 Fig 2.3

37 Effectiveness implies doing the right things. The key elements of effectiveness improvement include: Statement of a vision: how an organization sees itself in the future; this, together with a mission, focuses the whole organization on a clear direction. Identification of key processes: for delivering the mission and challenging the need to continue with processes, which do not add value. Identification of customer/supplier relationships: deciding who is the customer and their requirements. Measurement of performance: develops the understanding of how services will be measured leading to internal contracts. Clarity of authority and responsibility: establishes who are owners and who are contributors to a process and identifies weaknesses in the roles and responsibilities contet. Improving effectiveness is a way of focusing effort and resources on providing customers with a product or service that meets their requirements. 2.5 Departmental Purpose Analysis Departmental Purpose Analysis (DPA) is a technique giving a practical approach to improving effectiveness (Figure 2.4). The first part of this is a structural review defining the role and responsibilities of each function in relation to the mission. The second part looks at the customer/supplier relationship and identifies value-added processes or opportunities for quality improvement. The third and fourth stages quantify the cost of quality opportunities and an action plan to gain measurable improvement. It can be argued that all activities should add value to an organization. If they do not, why do them? Thus each person in the supply chain should add value to the process. The benefits associated with these activities may be financially quantifiable. In most cases, the benefits will be very much more subjective. CII Institute of Logistics 37

38 Fig 2.4 At the same time as looking inwards for effectiveness, the outside world is changing all the time through product and service innovation, thereby becoming more competitive. Figure 2.5 encapsulates the process of attaining quality improvement in terms of a time frame. CII Institute of Logistics 38 Fig 2.5

39 2. 6 Benchmarking How can we measure our organization s effectiveness compared to eternal organizations? One structured approach is benchmarking where current products, services and practices are measure against those competitors or organizations, which are recognized as leaders in their field, with the purpose that superior performance is realized. The process is dependent upon involvement, openness and commitment to make it work; also it requires a detailed understanding of what is happening internally through operating procedures, DPA and documented standards. See Figure 2.6 Fig 2.6 CII Institute of Logistics 39

40 There are four basic types of benchmarking. Internal benchmarking is essentially a comparison within the organization, although it could be on different sites or between countries. Competitive benchmarking looks at direct competition and data is usually more difficult to obtain. Functional leader benchmarking is comparing a function or specific process, which occurs across services or industries, e.g. filling bottles with liquids. Generic benchmarking is taking a wider view where functions or processes are the same regardless of dissimilarities of industries. Order processing, billing, etc., are eamples, which are common to all businesses. It is the possibility of uncovering readily transferable proven ideas with little or no adjustment, which is the breakthrough attraction. 2.7 A Change of Culture An aspect of TQM that is less often considered is that this process of change undoubtedly impacts the way we do things or the way we want things done, but what, therefore, are the requirements? Openness: Reflects on the ability of an organization to share and communicate information, which is contrary to the view that information is power and power should be retained by the few. Openness is about mutual trust, where only commercially sensitive or national interest type information cannot be disclosed. Involvement: Involvement is linked to openness on the basis of trust in people and where employees work as a true team, knowing that in the long run it is simply in their mutual best interest. Involvement is for all not just for the selected few. CII Institute of Logistics 40

41 2.8 Key Requirements of Quality Management The idea that prevention is better than cure is a truism that has been with us for a long time. It is based on the idea that it takes less effort, causes less pain and is undoubtedly less epensive in the long run. The concept of never having time to do something properly, but always having time to do it twice, is challenged. Resources applied to activities that help prevent error are eplored. This requires an understanding of root causes of problems. Prevention is about knowing the requirements and the standards, having the skills and resources in place, monitoring or measuring performance, and taking ownership of the activity. Do we stop to think about whether we are doing something for a second time, which should not be necessary? Are we checking an on-line process to make sure it does not go wrong? Are we building-in activities that will prevent the process going wrong in the first place? Performance: is assessed by looking at the time and money being used under three headings: Prevention Activities, which are designed to ensure that work is done right first time (e.g. Training, Planning, Standards Specifications, Operating Procedures) Appraisal Activities, which are designed to see whether work has been done right first time (e.g. Checking, Inspecting, Surveillance, Audit) Failure Activities, which are made necessary by failure to do work right, first time (e.g. Reworking, Downtime, Chasing, Apologizing!) CII Institute of Logistics 41

42 If we measure the relative time and resources dedicated to each, it may be a surprise as to how little attention we pay to prevention. We are used to dealing with complaints procedure, rework, managing wastage, shortages, grievances, etc. How much time, on the other hand, do we devote to planning, preparation, eliminating, assumptions, etc? The shift in culture of any organization not only lies with how much we think about prevention, but also what we should do and what we actually do about it. Cost of quality is the summation of prevention, appraisal and failure. The target is to reduce failure and appraisal activities and increase preventive measures over a period of time. Leading manufacturers no longer measure percentage defects, but have improved to a position where they measure defects in parts per million or even billion! Keeping Promises: No longer is it acceptable to promise delivery on the 21st only to deliver the goods on the 22nd or the 20th. The pursuit of pinpoint accuracy by the customer has forced Just in Time (JIT) activities on suppliers, who in turn are required to develop internal disciplines to keep the promise. It is not just a matter of on-time delivery, because suppliers should be trying to keep the promise on all seven critical dimensions of quality: Performance Reliability Conformance Durability Serviceability Features Aesthetics Some or all of these may be important to the customer; TQM requires that the quality promise related to each must be fulfilled. There is an eighth dimension of quality, which is the Perception of the Customer. This is the consumer s impression of a product or service formed by images, conversations and past eperiences. Customer surveys have discovered that only 4 out of every 100 dissatisfied customer will complain. Each dissatisfied customer will tell ten other consumers, but only one in ten dissatisfied will continue to buy. It costs at least five time as much to attract new customers as it does to keep an eisting one. CII Institute of Logistics 42

43 Values: Values are the shared beliefs, which guide the actions and decisions towards the vision. From living the values and constantly referring to them, this determines in part the culture of the organization. Culture may be comprised of many components such as respect, honesty, integrity, profit, people, commitment, risk-taking initiative, mutuality, recognition and many others. Values qualify how the mission might be achieved. At the heart of the McKinsey 7-S Framework is shared values, which represents the conduct of how business will be transacted (Figure 2.7). Fig 2.7 Values need to be developed at the same time as a mission statement and communicated to everyone in the organization. Above all, values are those unwritten rules of the way we want things done. Listening there is an old saying, which goes along the lines. CII Institute of Logistics 43

44 If I am listening, I have the advantage If I am talking, others have it The culture change for management is to be actively seen listening to work place problems and responding appropriately. No longer is it sufficient to respond with such phrases as I hear what you say and then do nothing about it. Ownership TQM requires that employees are able to feel a sense of ownership of the organization. There are different ways of achieving this and there is no one formula. TQM sets out to create an ecellence environment in which participation, on a voluntary basis, becomes the accepted norm. Ownership of problem requires managers and supervisors to think through their role more closely. Taking responsibility for decisions, willingness to take balanced risk and discovering information could be cultural shift. Upwards or downwards delegation or assuming other people will carry out the task or function are no longer the only options. Eliminating the over the wall mentality is a culture change of significant proportions in many organizations. The required ethic is that of me first in taking up responsibility. CII Institute of Logistics 44

45 Implementation of TQM Introduction Before a Quality Improvement Program (QIP) can be successfully implemented, senior management must recognize the need for Quality Improvement and must understand the total commitment required from them if it is to succeed. Having committed themselves to implement Quality Improvement, they then need to put together a detailed plan to guide the implementation of the Program. 3.1 Management Commitment and Involvement Having recognized the need for Quality Improvement, the first objective it to ensure management commitment to the new company culture, focusing on preventing errors, rather then merely fiing them once they have arisen. The commitment required from management to a QIP is absolute if the Program is to succeed. It is then necessary to gain the support and commitment of the entire workforce. The attitudes and actions of employees are generally determined by what they believe management wants of them. It is therefore essential that management defines clearly and unambiguously its requirements in relation to Quality. This is recorded formally in the Quality Policy of the Company. The Quality Policy is an important statement of management s intention as regard Quality. But it is the demonstration by every manager in their day-to-day work that they are never prepared to compromise their commitment to the Quality Policy that will make a Quality Improvement Program succeed. Gaining the support and commitment of senior management is not easy and is one of the major reasons for the failure of a Quality Improvement Program. The go-ahead to implement a Program may be relatively easy to attain. It is the personal commitment and CII Institute of Logistics 45

46 involvement from every manager that is difficult. Gaining this commitment requires persuasion, practical eamples, reports on the benefits of a QIP and continuous effort! Any and every means possible should be used. They may include: estimate of the cost of non-conformance. This demonstrates the cost of not committing to continuous improvement. obtain customer input on current performance and how well their requirements are being met. describe accounts of other companies eperiences and the benefits they have realized. consider using videos, articles and press clippings on Quality Improvement to reinforce the message. training and seminars a pilot run in a department committed to Quality Improvement to demonstrate the benefits Although management commitment may be difficult to attain, it generally gets easier as the Program develops and the benefits of success begin to be realized. The publication and celebration of early successes is an essential part of increasing the momentum of a Quality Improvement Program. 3.2 Quality Improvement Structure In most companies, significant changes are required when implementing a Quality Improvement Program (QIP). In order to plan and pilot the implementation of the Program most companies form a Quality Improvement Team (QIT). The team should be composed of a chairman, an administrator and a representative of each department. Selection of the chairman and administrator is important since they will become deeply involved in the Program and will direct the running of the QIT. CII Institute of Logistics 46

47 3.3 The Importance of Customers This area focuses on customers, how their requirements are identified and how these requirements are communicated throughout the business. Organizations only continue to eist because of their ability to meet their eternal customer requirement. The needs of eternal customers must drive all the internal processes within the organization. It is no good continuously improving the effectiveness of the internal processes if, at the end of the day, they are not producing the outputs which the customer requires. It is essential that organizations understand: v. Who are their eternal customers and what are their requirements? vi. Who are the internal processes, which produce the service or product required by the eternal customer? vii. Their customers perceptions of current performance viii. How performance can be improved? When implementing a Quality Improvement Program, it is easy to fall into the trap of becoming focused internally; concentrating resource on improving internal processes and reducing costs at the epense of the needs of eternal customers. Understanding customer requirements is an essential part of any QIP. Understanding the Customer It is essential that a comprehensive picture of customer requirements is determined. This is not restricted to the product or service delivered to the customer, but covers the total service required from the organization as a supplier. There may be a number of different customers to consider, even within the same organization. The person who places the order has requirements; the receiving department where goods are delivered has requirements; the person who pays the invoice has requirements. A company, which wishes to succeed, must be aware of all these requirements and constantly improve it s ability to meet them. CII Institute of Logistics 47

48 There are a number of sources of information on customer requirements. Eamples include: Customer survey s and trials Trade surveys and trials Working with selected customers Competitor analysis Focus groups Benchmarking Customer complaints Legal and guideline standards (for eample, ISO 9000) Informal customer, or potential customer comments received from sources such as: the sales force after customer visits; feedback from other employees and comments heard at conferences, training courses and trade ehibitions Every contact with an eisting, or potential, customer at any level in the organization is an opportunity to learn more about their requirements. It is important that this information is tapped and used to improve the ability of the business to meet customer requirements. Internal Processes An eternal customer requirement can only be met if internal processes within an organization are set up effectively to deliver the requirement. A breakdown in the internal supply chain often results in failure to meet eternal customer requirements. An important part of Quality Improvement is the analysis of the whole organization to ensure it is set up effectively to meet the requirements of its customers. The following steps are useful guide to achieving this: CII Institute of Logistics 48

49 Identify the basic purpose and objectives of the business. What customer requirements does it eist to fulfill? Identify eisting and potential future customers of the business. Tap as many sources as possible to ensure their requirements are understood. This includes understanding why potential customers are not actual customers! Identify the overall role each department plays in meeting customer requirements and business objectives. This may reveal that changes are required in the roles of departments within the organization Identify the internal processes, which link together to meet the eternal customer requirements. Ensure the eternal customer requirements flow back through the supply chain to determine the customer requirements for each internal process. Only by doing this at each stage in the supply chain can the eternal customer requirements be met? Measure performance overall, and for each process Introduce improvements to each process to improve performance 3.4 Identifying quality costs The objective of the Quality Improvement Program is to develop an approach, which ensures goods, and services are produced which meet customer requirements for the minimum cost. The objective is to eliminate the costs associated with not getting this right the first time, the cost of non-conformance (CONC). The Importance of Identifying the CONC Recognizing the amount of money devoted to the CONC at the beginning of a QIP frequently underlines the strategic necessity of introducing the program. Findings from a number of businesses suggest that the CONC can amount to as much as 25 per cent of CII Institute of Logistics 49

50 turnover in both manufacturing and in service industries. This is certainly a figure, which grabs management attention. Monitoring the CONC can provide a measure of the success of the QIP. However, it should be recognized that when a QIP is introduced the CONC frequently appears to rise initially. This is because people become more aware of non-conformance and its associated costs as they become able to identify them. Consequently costs become included which would not initially have been thought of as non-conformance costs. Knowing the CONC associated with individual activities can be used to help priorities corrective actions, focusing attention on the highest priority areas. Being aware of the cost associated with error helps every department and individual in their commitment to perform every task right first time. Calculating the Quality Related Costs One of the most useful ways of classifying Quality related costs is to distinguish between the costs of conformance and the costs of non-conformance. Costs of non-conformance are all the costs incurred because failure occurs; if there were no failures there would be no requirement for the activity. Costs of conformance are all the costs associated with preventing non-conformance arising. Cost of Non-Conformance (CONC) The most obvious element of CONC are the costs associated with failure to achieve conformance to requirements the failure costs. Failure costs occur in all areas of the company. They are often accepted as pat of the normal course of events and so are easily overlooked. CII Institute of Logistics 50

51 The fact that failure costs eist is generally well recognized in industry. In order to minimize failure costs many companies operate systems to find failures. There are inevitably costs associated with finding these errors. These are the Appraisal Costs Today many of us epect failures to happen and so we need appraisal activities to find them. If failure were eliminated the vast majority of appraisal activities would also no longer be necessary. Cost of Conformance To reduce the CONC we need to invest in prevention activities. Prevention activities inevitably result in some costs. These are prevention costs. Investing in the prevention of failure enables failure and associated appraisal costs to be minimized. This is the fundamental principle underlying Quality Improvement. The key feature of a QIP environment is that failures are not accepted as a normal occurrence. The root causes of any failures are identified and eliminated by the introduction of prevention activities. Failure is an eceptional occurrence rather than the norm. In this environment we do not need vast appraisal activity, we only need a small audit activity to ensure our prevention system is working correctly. So after focusing on reducing failure costs we can then look at reducing appraisal costs. The Role of the Quality Improvement Team The role of the QIT is to devise a method for identifying the Total Quality related costs across the company. It is important that all Quality related costs are included at this stage and not just the obvious costs associated with manufacturing. This analysis can then be used as a basis for measuring progress as the QIP is implemented. It can also be used to reinforce the need for implementing the Improvement Program when communicating with management and employees. The measurement of quality costs provides valuable CII Institute of Logistics 51

52 management information and will require the active participation of every manager and supervisor if it is to be a meaningful measure of current business performance. The objective of the QIP is to eliminate the CONC by investing in prevention. 3.5 Quality awareness This module eplains the importance of involving everyone in the Quality Improvement Program and describes effective means for achieving this objective. The Individual Commitment to Quality To be successful, a Quality Improvement program often requires a complete change in the way an organization is run: i. All employees require a greater understanding of customer requirements and the internal processes required to meet these requirements ii. It will no longer be acceptable to reply on finding and fiing errors. The organization will have to become committed to investing resources in preventing errors arising and iii. Individuals should be empowered to take actions to improve the Quality of output from their own work areas To achieve these changes requires the commitment of every employee within the company. The required level of personal commitment is only likely to be achieved if every individual understands the aims and benefits of the Program, the role they can play, and how they can implement improvement in a successful QIP. A number of activities can help achieve this personal commitment to Quality Improvement: i. Education, Individuals need to understand the reasons for change, what it will mean to them and how they are equipped to contribute. The training CII Institute of Logistics 52

53 ii. iii. must be relevant, interesting and enable people to understand and participate in Quality Improvement. Communication. A constant flow of information is necessary, describing progress made by the QIP, how and when individuals will be involved and the successes achieved. Recognition. A system to recognize and publicly reward those who make an outstanding contribution to Quality Improvement can play an important part in encouraging employee commitment. 3.6 Measurements and targets for improvement This section eplains the importance of introducing objective measurements in all departments throughout the organization, and then setting targets for the improvement of performance. Objectives of Performance Measurement Accurate measurement of the quality of all process is the cornerstone to improvement until we know where we are today, we cannot improve. Objective measurements enable management and employees to focus attention on areas of weakness and to monitor progress. Since all departments are involved in meeting customer requirements and in generating and fiing errors, all departments should be involved in the Quality Improvement Program and all departments need to introduce appropriate measures to enable performance to be monitored. Measurements can be used to highlight opportunities for improvement and also to monitor the success of the Program. It is important that all measurements, which are introduced, fulfill two primary objectives: CII Institute of Logistics 53

54 i. They should be meaningful to the business. Improvements in these areas should lead to improved business performance ii. The measurements should be owned by individuals or work groups It is often difficult to define measurements, which meet both these objectives. As a result, the introduction of measurement is often best approached from two angles: i. From the top down. These are the initial measurements introduced and owned by managers and their dependents. They are key functional measures where improvements will result in direct, tangible benefits to the business. These measurements effectively define the big picture into which the other measurements will fit. ii. From the bottom up. These are measurements introduced directly by individuals and work groups as the program progresses and individuals become involved in the program. They are often measurements of smaller, more personal activities which are often more meaningful to the individuals than the big picture measurements. With any Improvement Program it is important to have both types of measurements; one without the other reduces the benefits of the Improvement Program. Bottom up measures on their own can trivialize the Program as the benefits to the business may be relatively small. Top down measurements on their own can limit the etent to which individuals become involved in Quality Improvement. This can prevent individuals from realizing they have an important role to play. Fundamentals of Top Down Measurements Before introducing new measurements at the beginning of QIP, it is essential to focus attention on those areas, which have a real impact on the business. This helps set the scene for a forward looking Program, which individuals can recognize is driven by CII Institute of Logistics 54

55 business needs. Once the Program has been running for a while, individuals and groups will begin to introduce measurements of their own. The following sequence has been found in practice to provide an effective way to identify appropriate measures: i. Identify the basic purpose of the business and its objective. The whole management team will need to be involved at this point. The results of this analysis should then be interpreted for each department. Functional analysis is a key technique to use at this stage. ii. Identify the key measure of performance for each department. For eample, one of the key measures for the personnel department might be to ensure that each of the other departments has its full quota of staff. The appropriate measure in this case might be variances from target head count. iii. Each department then establishes a number of functional measures. Functional measures reflect the major activities of each department to meet the key objectives for the department. For the personal department one of the functional measures might be the time taken to agree the job specification once the vacancy has been identified. Improvement in these functional measures can be monitored. Progress in the functional measures supports the department s over all business objectives. iv. As the program cascades through the organization these measurement will be developed and added to until everyone has establishes performance indicators within his own work area. v. These measurements should be reviewed as part of the annual business planning cycle to ensure they continue to reflect the overall business objectives. Each measurement should be agreed and owned by the department being measured. Only then is the department likely to take the measurement seriously. CII Institute of Logistics 55

56 Measurement is only effective if it produces information, which people can easily understand and use. Data must therefore, be accurate and the operating and reporting methods must be straightforward. Once accepted by the departments concerned, all measurements should be prominently displayed for everyone to see. This ensures commitment to the measurements by the department being measured, and allows an opportunity for everyone interested to participate in the improvement program. Measurements are not just for managers, they are for everyone interested to participate in the improvement program. Measurements are not just for managers, they are everyone involved in the process. Measurements should be made regularly. The frequency depends on the specific measurement being made. 3.8 The Measurement of Quality in Practice Most companies operates systems to measure performance within manufacturing divisions but have difficulty in deciding on measures to use within other areas. The following are eamples of measures, which may be appropriate within other areas: Engineering : Number of engineering changes Software bugs reported in released software Number of weeks projects slip Sales : Time to respond to request for quotations Percentage of orders incorrectly entered Comparison of actual orders against forecast Service : Turn-around time for repairs Warranty claims after service Ecessive service spares inventory CII Institute of Logistics 56

57 Accounts : Incorrect invoices raised Debtor days outstanding Personnel : Time to fill vacancies Staff turnover rates Administration : Number of items returned due to typing errors Number of hours late producing the typed copy Time taken to pass messages to the recipient One of the most useful ways to display measurements is by the use of trend charts. These charts should be posted on a regular basis (daily, weekly, monthly) to record progress over time. The charts, however, only record status and progress. It is the action taken as a result of the information on the charts, which results in improvement. 3.9 Prevention This section focuses attention on the need to adopt prevention as the system for Quality Improvement throughout the organization. It eplains the Zero Defects Concept, and the importance of introducing effective corrective action systems to eliminate the causes of non-conformance and prevent their recurrence. The Zero Defects Concept The implementation of a successful Quality Improvement Program requires a company to adopt prevention as the system for managing Quality. Prevention requires everyone within the company to believe that errors are not an inevitable part of working life; that correct systems, training, equipment, materials and above all, personal attitudes, can CII Institute of Logistics 57

58 prevent errors occurring. This belief is summarized in the Zero Defects concept. There is some question as to who first propounded the Zero Defects concept, but it is most closely associated with Philip Crosby, and has been etensively used by him, and his consultancy organization, in implementing Quality Improvements in many organizations world-wide. The fundamental principal underlying the Zero Defects concept is that it is possible to do all operations right the first time. Zero Defects does not mean that everything has to be gold plated or the place has to be crawling with inspectors. It simply means that each and every one of us has to believe it is possible to carry out activities without error. Errors are not inevitable. We should not anticipate errors and then build up massive systems to find and correct them. If we ecept errors to occur and build systems to deal with them, they will happen. We are then effectively saying that errors do not matter. We will find and fi them. This is a very costly path to tread. If errors are not epected to occur, and preventive actions are introduced to eliminate problems, the errors will not happen. The new attitude is that errors are not tolerated. A big fi-it outfit should not be available, just waiting for errors to happen. Everyone will be more careful and will work to eliminate the causes of errors so that eventually they will no longer occur. In our personal life we do not epect to put on odd shoes in the morning on a given number of days in a year. If we did epect this to happen then we could ask our partner to check our shoes every morning before going out and then rectify any errors found! This would prove very costly in terms of our partner s time and patience. We do not, however, epect this to happen because we implement a preventive action such as putting our shoes in pairs when we take them off. The Zero Defects philosophy requires us to apply our personal standards to our work and asks everyone else in the company to do the same. CII Institute of Logistics 58

59 By adopting the Zero Defects concept, employees underline their commitment to the attitude and belief that errors are not inevitable. Errors can be avoided by applying prevention techniques. The Fundamental Importance of Effective Corrective Action Systems The fundamental objective of corrective action is to ensure that having identified a problem the action taken ensures it does not recur. The corrective action should be designed to prevent the same type of error from happening again, not just today but forever. Although at the start of a Quality Improvement Program it is important to focus attention on major problems, in the long run no error is too small to require corrective action. We have already discussed the need to introduce measurements of performance in all areas of the company. These provide raw data to enable us to identify and evaluate the impact of problems. The correct use of effective measurements enables us to monitor the progress resulting from corrective actions taken to eliminate problems. However, it must be stressed that measurements only provide information. It is the action taken as a result of this information, which produce the necessary improvements. We therefore need to make sure that an adequate system is in place to ensure that effective corrective actions are taken when a problem is identified. The Failure of Typical Eisting Correction Action Systems Most companies already operate corrective action systems. The resolution of audit deficiencies and meetings with suppliers to review the reasons for reject components and improve performance are two typical eamples. However, eisting systems in many companies fail to succeed for three main reasons: CII Institute of Logistics 59

60 i. The action taken as a result of problems are often not really preventive actions. They may fi today s problem but generally do not introduce the long-run improvements necessary to prevent the problem recurring in the future. ii. Many companies do not operate a mechanism for collecting details of the day-to-day problems faced by employees. This can be countered by introducing an Error Cause Removal (ECR) system. iii. The typical approach to resolving problems in many companies is to form a team of managers and supervisors. These teams are formed on an ad hoc basis and meet to try and resolve significant problems as they are identified. By only using managers and supervisors in these teams we restrict the number of problems which can be tackled and frequently do not get the benefit of the practical eperience of the people actually doing the job on a day-to-day basis. Features of Effective Corrective Action System To be effective it is important that corrective actions are properly planned and carefully designed to result in the elimination of the problem concerned, once and for all. The following features typically need to be present in order for a corrective action system to be effective. i. An effective mechanism must eist to identify the problems to be solved. It is important systematically to analyze the features of a business and eamine whether processes could be carried out more effectively. It is also important to establish a mechanism to identify practical problems facing the workforce (the ECR system). ii. Once a problem has been identified it is important to involve all the people concerned with the problem in developing corrective actions (corrective action groups). CII Institute of Logistics 60

61 iii. Someone within each group, frequently the supervisor, needs to have some knowledge of problem solving methods. iv. The outcome from these meetings should be reported to team members regularly. v. Corrective actions should be carefully assessed to ensure they are the most effective means to eliminate the problem once and for all. Once introduced, the results of the corrective action must be monitored to ensure they achieve the objectives set for them. vi. Management must support the activity and demonstrate their commitment by taking an interest in the progress made. Corrective Action Groups In addition to improving the eisting corrective action system, it is generally necessary to consider introducing formal problem solving groups. He two most important types of group are: i. Progress Groups (also known as Quality Circles): A progress group is generally a small group of individuals from within one department who carry out similar work. The group meets regularly to identify, implement and monitor the progress of corrective actions for problems arising within their work area. ii. Corrective Action Task Force: Comple problems frequently arise during the course of a Quality Improvement Program. A Corrective Action Task Force is an interdepartmental group with a member from each department affected by the problem. CII Institute of Logistics 61

62 The Error Cause Removal System An important feature of a successful Quality Improvement Program is the introduction of a simple method, which allows any individual to bring out into the open problems, which prevent him performing error-free work. These problems can then be targeted by management with the objectives of finding a solution. This is the error cause removal (ECR) system. This type of system differs from a suggestion scheme because in this case, the employee need only identify the problem. In a suggestion scheme an individual is only asked to contribute if he can also propose a solution. In this way a whole host of problems go unidentified and unresolved. Many companies already operate an ECR system. In some cases this has fallen into disrepute because there is no real management commitment to solving the problems identified. As a result, individuals have to wait a long time for what is often an unsatisfactory answer. Eventually, the system is no longer used. Like quality circles, an ECR system is only likely to be successful as part of a Quality Improvement Program. In this case management actively wants to know about problems and is committed to effecting solutions. Fundamentals of an ECR System The following features should be present for an ECR system to work effectively: i. The ECR system should be introduced early in the Quality Improvement Program, so it is available for individual to use as they become involved in the Program. ii. The forms should be short, simple to complete and readily available. iii. ECRs should initially be submitted to the individual s supervisor. An ECR should be acknowledged within two days of receipt. iv. If the problem cannot be resolved by the supervisor, then the form should be sent to the department responsible for the problem. The individual should receive a reply from the department within two weeks. This should give CII Institute of Logistics 62

63 details of the decision or a report on the actions taken so far together with an estimated completion date. v. Whenever it is decided to do nothing about an ECR this should be cleared with al least the net level of management. The individual must be given a clear eplanation of why no action is being taken. vi. Every ECR should be taken seriously. No one should be criticized for raising an ECR. vii. All corrective actions introduced must resolve the problem permanently through preventive action. They should not just fi the problem in the short term. viii. The system should ensure that each ECR is resolved at the lowest possible level of supervision. Of all ECRs raised, eperience has shown that 85 per cent can frequently be resolved by the first level of supervision, 13 per cent at the net level and 2 per cent might need to be referred to the department head or the QIT. i. The efficiency of the system should be monitored by the QIT. They should look particularly at the response time and the actions taken. If either of these is unsatisfactory, individuals will cease to use the system and the Improvement Program will lose its credibility Education and training After the management team agrees on the need for Quality Improvement and accepts the Program in principle, the QIT should attend an intensive training course. This course should eplain their responsibilities for implementing the Quality Improvement Program and ensure they thoroughly understand how it can be implemented. This course may be run internally or by an eternal trainer depending on the level of eisting epertise within the company. Having been trained, the QIT should plan the education Program for the rest of workforce. It is important that the whole workforce is included in the training Program. Everyone has their part to play in a company. A receptionist may help to gain or lose a CII Institute of Logistics 63

64 customer as easily as a manager. If a message is not passed on quickly, the customer may choose to look elsewhere for his need. Production line staffs are likely to know more about the things that are wrong where they work than their managers and supervisors. They have probably been living with the problem and fiing things for a number of years. Eperience has shown that the most effective approach to training within a company is to cascade the learning process from the manager to the supervisors and then to individual employees. The duration and content of the education Program depends on the individuals being trained. But they should all understand why the Program is required and their personal involvement in the drive for Improvement. At each stage the supervisor should be actively involved in the training. This ensures that the supervisor fully understands the Program and how it affects his area of the business. It also provides an important opportunity to demonstrate his commitment to the Program to his team. This approach has the added advantage of helping to develop a team approach in all areas of a company. This can result in a dramatic improvement in performance as people become personally committed to their team. Once teams form and begin looking at areas requiring improvement they will need training in how to analyze and resolve problems. It is no good asking people to make improvements if they have not been given the tools to enable them to do so. The training Program should be designed to enable them to use the essential problem solving tools. The techniques taught will depend on the business, but may include functional analysis, data gathering, Pareto analysis, brainstorming, fishbone diagrams and process control. In view of the time and eperience required to produce training material, many organizations use eternally generated training materials. If eternal material is used it must be adapted to ensure it is relevant to the organization and to the individuals being trained. CII Institute of Logistics 64

65 Statistical and Problem Solving Techniques 4. 1 Basic Principles WIDELY USED TERMS IN SQC Frequency Distribution Normal distribution curve Fishbone diagram Chance causes or system causes Assignable causes or special causes Stable process Histogram Process spread Standard deviation Sigma () Control limits Variables chart Attribute Chart Average and range chart Average X Range R Upper control limit Lower control limit Out of control In control Percent defective chart Management solvable problem Floor solvable problem Have you ever been sick enough to be confined to a hospital bed, with a nurse coming around and taking your temperature, your pulse and your blood pressure? If you have, you already know something about statistical quality control. The readings that the nurse records on a chart are like the readings you will record on charts on your job. When you are sick, the doctor wants to know what is normal about you and what is not. With this information he will take the right steps to make you well. Jobs can get sick, just like people. Like the doctor, you need a picture of how the job is performing. You need a running record of what is happening on your job to tell when it is sick and when you must take action to make it well. CII Institute of Logistics 65

66 Just as the doctor uses temperature and pulse charts to keep track of your condition, you will use control charts to monitor the condition of your job. When properly used, control charts will tell you three things: 1. When you're doing something you shouldn't 2. When you're not doing something you should 3. When you're doing things right In short, control charts will indicate how "well" your job is. They'll show you: 1. When the job is running satisfactorily Or 2. When something has gone wrong which needs correction Control charts will provide you with "stop" and "go" signals. They'll enable you to "point with pride" or "view with alarm" (and look for the cause of the trouble!). To use these statistical tools effectively and profitably, you must understand some of the basic principles underlying statistical quality control techniques. You may be one of the many people who feel uncomfortable when the world "statistics" is mentioned, but in using statistical quality control techniques, you don't need to get deeply involved in mathematics. All you need to do is learn a few basic principles. An understanding of these principles will make it easier for you to understand and use the control chart techniques presented in this program. CII Institute of Logistics 66

67 All the ideas and techniques in this program are based on si principles. The first principle is: 1. No two things are eactly alike Eperience has shown that things are never eactly alike. When two things seem to be alike, we often say that they're "like two peas in a pod". But when we open a pea pod and take a close look at the peas, we see slight differences. The peas are different in size, shape or freedom from blemish. If you're concerned with manufacturing parts, you know that no two manufactured parts are eactly alike either. In one way or another, the parts will be slightly different in size, shape or finish. We often want to make parts interchangeable. To do this, we want to make them identical, but no two things are eactly alike. Therefore, we want to keep the variation between parts as small as possible. To help ourselves do this, we use a second basic principle. 2. Variation in a product or process can be measured Some variation is normal to your job, and this variation tends to increase. If you make no effort to measure or monitor the variation normally epected in your job, you could find yourself in a lot of trouble. That is, all processes that are not monitored "go downhill". Therefore, it's necessary to measure the output of any process or operation to know when trouble is brewing. When you check the output of process or operation, you will quickly notice one feature. This feature provides a basis for the third principle. CII Institute of Logistics 67

68 3. Things vary according to a definite pattern If you want to see this pattern take shape, all you need to do is record the measurements of a dimension on parts from one of your operations on your job. If you record them in tally form, you will see a pattern begin to form after you have measured and recorded several parts. An easy way to demonstrate this principle is to roll a pair of dice fifty or more times and record the total number of spots that come up in each throw. After a while you will see a pattern begin to form. This pattern sometimes called a frequency distribution, and is shown in Figure X Figure 4.1 Frequency Distribution A frequency distribution curve is formed by enclosing the tally marks in a curved line. This curve shows that there are more measurements or numbers in the middle and fewer as you go away from the middle. As you can see, the curve is shaped like a bell (see Figure 4.2) CII Institute of Logistics 68

69 X Figure 4.2 Bell-Shaped Curve A frequency distribution curve will repeat itself whenever you take groups of measurements. This fact leads to the fourth basic principle. 4. Whenever things of same kind are measured, a large group of the measurements will tend to cluster around the middle Most measurements fall close to the middle. In fact, mathematicians can make a fairly accurate prediction of the percentage of measurements in various sections of the frequency distribution curve. This prediction is shown in Figure 1.3. Figure 4.3 Approimate Percentages of Different Measurements Within the Normal Distribution Curve CII Institute of Logistics 69

70 How can we understand this curve in a practical way? If we measure each piece that comes from a machine or operation and make a tally of the measurements, we will eventually have a curve similar to the one in Figure 4.3 If we don't measure, each piece, but merely reach into a tote pan, grab a handful of pieces and measure them, the chances are that 68 out of 100 measures (34 % + 34%) will fall within the two middle sections of the graph in Figure 4.3. The chance are that 28 out of 100 pieces (14% + 14%) will fall into the net two sections, one on each sides of the middle sections. Finally, the chances are that 4 out of 100 of the pieces (2% + 2%) will fall into the two outside sections. This may sound a little complicated, but don't worry about it. Just remember that measures do tend to cluster around the middle, as shown by the bell shape of the curve. This particular curve is known as the normal distribution curve. All of this brings us to the fifth basic principle. 5. It's possible to determine the shape of the distribution curve for parts produced by any process By making a tally or frequency distribution of the pieces produced by a process, we can compare it to the blueprint specification for that dimension. In this way we can learn what the process is doing, as compared to what we want it to do. If we don't like the comparison, we may have to change the process or the blueprint. CII Institute of Logistics 70

71 CAUSES OF VARIATION The source of variation in a process can be found in one or more of five areas. These are the materials, the machines, the methods, the environment and the operators. All variation in a product is caused by variation in these five areas, as illustrated in Figure 4.4 Figure 4.4 Fishbone Diagram The diagram in Figure 4.4 is sometimes called a fishbone diagram, which is very useful for searching out causes of trouble in a process. The variation seen when measuring pieces from a process is the result of two types of causes. In this book we will call them chance causes and assign causes. (Some people call them system causes and special causes). Chance causes are those we can normally do nothing about; they are continuously active in the process and are built in as part of the process. Assignable causes are those we can do something about. They can be detected because they are not always active in the process. If the variations in the product (caused by materials, machines, methods, environment and operators) are due to chance causes alone, the product will vary in a normal, predictable manner. The process is said to be stable. We want to know how the product CII Institute of Logistics 71

72 varies under normal, state conditions - that is, when only chance causes are contributing to the variations. Then, if any unusual change occurs, we can see this change in our normal distribution curve. We can say that it's the result of an assignable cause and not due to chance causes alone. When assignable causes are present, the curve will be distorted and lose its normal bell shape. Figure 4.5 shows some typical distortions to the normal distribution curve. Figure 4.5 Distortions to the Normal Curve Normal Distribution Measurements tail off to the right Measurements from two different groups Measurements from two different Groups that overlap Measurements tail off to the left Tails of the distribution are chopped off. Parts were probably sorted. This brings us to the sith basic principle. 6. Variations due to assignable causes tend to distort the normal distribution curve A frequency distribution is a tally of measurements that shows the number of times each measurement is included in the tally. The tally you saw in Figure 4.1, which was made by rolling dice, is a frequency distribution. A frequency distribution helps us determine whether chance causes alone eist in a process or whether an assignable cause is also present. (We have statistical techniques that can detect when an assignable cause is present. Frequency distributions are a very CII Institute of Logistics 72

73 good quality control tool because of their simplicity and they are a very good way to illustrate the si basic principles. These basic principles are the foundation stones upon which entire tools of quality have been built. Let's take another look at them before we move on. 1. No two things are eactly alike. 2. Variation in a product or process can be measured. 3. Things vary according to a definite pattern. 4. Whenever many things of the same kind are measured, a large group of the measurements will tend to cluster around the middle. 5. It's possible to determine the shape of the distribution curve for parts produced by any process. 6. Variation due to assignable causes tends to distort the normal distribution curve. 4.2 TOOLS OF QUALITY- AN OVERVIEW To improve the quality of our products or to maintain current quality, your must have stable processes. The si basic principles we have discussed are the basis for the statistical techniques you will use to answer these questions: Are we doing something we shouldn't? Are we failing to do something we should? Is the process operating satisfactorily, or has something gone wrong which needs correction? The techniques we will discuss in this program can be used on a one-time basis to solve specific quality problems, but their greatest value comes from using them everyday to control quality. They must become a way of life in your workplace. CII Institute of Logistics 73

74 Your goal should be to demonstrate that your job is operating in a stable manner. When the assignable causes have all been corrected, the variation in your products is due only to chance causes. When your operation is stable, then - and only then - can you know with confidence what your quality level is. When your operation is stable, your productivity and quality are the best they can be with your process. Statistical methods of quality control give you a way to picture and control quality through the use of these "tools of quality". 1. The histogram or frequency distribution 2. The control chart THE HISTOGRAM OR FREQUENCY DISTRIBUTION In many families it is a custom to have a picture taken each year. Just as a family picture is a snapshot of a group of people, the histogram is a "snapshot" of a group of parts from a manufacturing operation. It shows how a process is operating at a given time. A histogram is simple to construct. It is nothing more than a frequency distribution put into block form. Let's just say we want a picture of the diameters of 100 bushings being machined on a lathe. By the end of our check, the frequency distribution might be as it is shown in Figure 4.6. Putting this distribution into graphic form produces the histogram shown in Figure 4.7. Like the family picture, each histogram has a story to tell. SPE C. CII Institute of Logistics 74

75 CII Institute of Logistics 75 Figure 4.6 Frequency Distribution Three questions can be answered by a quick look at the pattern of the histogram: 1. Is the process producing parts to the bell-shaped curve? 2. Where is the process centered? 3. Is the process capable of meeting the engineering specification?

76 SPE C Figure 4.7 Histogram Let's review each of these questions in terms of the histogram in Figure Is the process producing parts to the bell-shaped curve? Because the histogram is roughly bell-shaped, then for practical applications we may say: a. The process appears "normal" and stable b. Variations are generally due to chance clauses. However when the histogram is not roughly bell-shaped: a. The process is not "normal" b. Assignable causes are influencing the variations. In special cases a frequency distribution or histogram of measurements from a stable process will not match the formal curve, but in most manufacturing operations, measurements from a stable process will make a good match to the normal curve. CII Institute of Logistics 76

77 2. Where is the process centered? The average of the histogram and the specification midpoint are close together; therefore, the process is well centered. When the average of the histogram and the specification midpoint are far apart, then the process setting needs some adjustment. 3. Is the process capable of meeting the engineering specification? The spread of the process falls within the specification limits; therefore, the process is estimated to be capable of meeting the engineering specification. Remember that the histogram is merely a snapshot of the process. If we take another set of data at another time, the picture may be different. However, the information we have on this process tells us that it is capable of meeting the engineering specification. People in manufacturing often form opinions about the quality of the parts they are making based on far less information than we had in the eample above. It is much wiser and safer to use a statistical technique, as we did, to see what the job is doing before we decide how good or how bad the parts are. Remember the old saying, "One picture is worth a thousand words". Few people can look at a set of jumbled-up data and see the same things they can see after the data have been organized in pictorial form. Once you begin to think statistically about your job, you will find that you naturally want to get factual data and plot it in the appropriate form. With this method, you will make good decisions based on facts instead of giving opinions based on measurements from only a few pieces. The process spread is determined by the curve it forms. When this curve is compared to the specification, we can tell when the process is making parts outside the specification. When the spread of the curve is wider than the specification or when one tail of the curve goes outside of the specification, we can estimate the number of pieces that fall outside the specification. CII Institute of Logistics 77

78 The curve in Figure 4.8 also shows standard deviations. The sections of the curve are labeled here with the symbol (sigma). This is the symbol for the standard deviation of the normal curve. The standard deviation is calculated mathematically and can be estimated in graphic form, but for now let's just say this is a number that describes how the measurements cluster around the middle of the normal curve. In Figure 4.8 a normal curve is compared to the specification; 2% of the pieces at each end or 4% will fall outside the specification. Specification 2% 14% 34% 34% 14% 2% _ X-3 X-2 X-1 X X+1 X+2 X+3 Figure 4.8 Normal Curve The frequency distribution and the histogram are used for the following purposes: Evaluating or checking processes Indicating the need to take corrective action Measuring the effects of corrective actions Comparing machine performances Comparing materials Comparing vendors The frequency distribution and histogram are like a snapshot or a picture of a process at a particular time. Because of the time required to gather and record measurements for a frequency distribution, it is not practical to make more than a few distributions per day. CII Institute of Logistics 78

79 Between distributions the process may change and many defective parts may be produced. Any action to correct the process after the defective parts have been produced is like locking the barn after the horse has been stolen. For this reason frequency distributions or histograms are a good statistical tools for the purpose listed above, but they are not very good for monitoring the quality level of an ongoing manufacturing process. To monitor an ongoing process we have another useful tool - the control chart. 4.3 THE CONTROL CHART If the frequency distribution is like a snapshot of process, then a control chart is like a movie - a continuous series of small pictures. A control chart is a record of the results of periodic small inspections. The control chart is a running record of the job - it tells us when the process is running smoothly and when it needs attention. You will find the control chart a very good tool to show when you have problem and when you have corrected the problem successfully. Some people think they can tell if a job is okay by looking at one or two pieces or by using some sort of mystical powers. Most of us find that we don't need mystical powers, but we do need control limits for our control charts. Control limits are the boundaries on a control chart within which we can operate safely. These limits are based on past performance and they show what we can epect from the process as long as nothing is changed. Each time we check the job, we compare the results to the control limits. If the results are within the limits - no problem. But if some of the points on a control chart fall outside the control limits, we know something has happened and the job is no longer operating normally. When this happens, we should take action to correct the situation. CII Institute of Logistics 79

80 In other words, control limits are warning sings that tell us: 1. When to take action 2. When to leave the job alone. This doesn't necessarily mean you don't have a problem. It just means you must take a different tack to identify the problem. There are two general types of control charts. 1. Variable chart: This type of chart is used where a dimension or characteristic is measured and the result is a number. 2. Attribute Chart: This type of chart is used where a dimension or characteristic is not measured in numbers, but is considered either "good" or "bad". VARIABLE CHARTS: _ Average and Range Chart ( X and R Chart) The average and range chart is the most commonly used of the variable charts. Several other variable charts can be used, but we will use the average and range chart for illustration. The eample shown here is taken from a bushing grinding operation. The diameter has been measured and the results of the measurements have been recorded on the control chart. (Se e Figure 4.9). The specified diameter for this bushing is inches ±.0003 inch. The chart shows that parts were measured and recorded hourly. The performance of this job is shown for an eight-hour period. Let's see how this chart was developed. The operator, or an inspector, checked the job hourly by taking five pieces in a row from the operation and measuring the diameter of each. CII Institute of Logistics 80

81 On the chart, where it says, "sample measurements", you will note that small numbers have been recorded. Obviously, these small numbers are not the whole measurement the operator read from the gauge. This job is a precision grinding operation, requiring measurements to one-tenth of a thousandth of an inch. _ VARIABLE CONTROL CHART (X& R) Part Name (Product): BUSHING OPERATOR MACHINE: GRINDER GAGE DATE: 8/4/99 TIME SAMPLE MEASUREMENTS SUM AVERAGE RANGE NOTES CII Institute of Logistics 81

82 UCL 1 0 AVERAGES -1-2 LCL UCL 6 RANGES Figure 4.9 The numbers are small because it isn't easy to write the full reading in the space allotted on the control chart. It would be a nuisance to have to add and divide the full measurement numbers. Instead, the operator has used a technique of coding the measurements. The first piece measured and recorded at 8.00 was.6249 inches. This is inch less than the specified diameter of , and so it was recorded -1. The measurements recorded on this control chart are all coded to show the bushing diameter in tenths of thousandths of an inch. When the measured diameter is , a zero is recorded. When the measured diameter is , a plus 1 (+ 1 or 1) is recorded. When the measured diameter is , a minus 2 ( -2) is recorded. This method greatly simplifies the arithmetic needed to use this chart. CII Institute of Logistics 82

83 This chart makes use of a five-piece sample each hour. After the five measurements are recorded, they are added together and this total is recorded in the "sum" line. Net, figure the average of the five measurements by dividing the total, or sum, of the measurements by the number of parts measured (five, in this case) and enters it in the "average" line. The average is plotted as one point on the chart. Another point to be plotted on the chart is the range. We find the range (or R, as it is called) by subtracting the smallest of the five readings from the largest of the readings. This number is recorded on the "range" line of the chart and plotted as one point on the range chart. As you can see, the average and range chart actually consists of two charts. We use the average to monitor how well the operation is centered on the specified dimension, and we use the range to monitor the spread of the dimension around the average. You can see lines on the chart that are marked UCL and LCL. These letters stand for upper control limit and lower control limit. The upper control limit (UCL) and the lower control limit (LCL) are the limits within which we epect the plotted points to stay. If a point falls outside one of these limits, the job is said to be "out of control". In our eample we can see that an average point fell outside the upper control limit at 11:00. This is a signal that something was distorting the normal distribution of the diameter of the bushing. A grinding wheel adjustment was made, and the job was back in control again. CII Institute of Logistics 83

84 ATTRIBUTE CHARTS We use attribute charts with "go / no go" or "good / bad" inspection results and we do this by finding ways to assign numbers to these results. When we can assign number to our information, we can use a statistical technique to monitor and control those numbers. While several different attribute charts are available, the widely used charts are the p- chart and the c-chart. Now, for a simple illustration, let's look at an attribute chart that was used to monitor an earlier operation on the bushing described above. This job was rough grinding operation, which prepared the bushing for the precision grinding operation. The diameter specified for bushing all this operation was inches ± inch, a much larger tolerance than the one allowed for the precision operation. It is not unusual in such an operation to use a "go" and "no-go" snap gauge. Such a gauge tells when the part is within the limits established for gauging and when it is not. It gives no actual dimensional readings. An average and range chart cannot be used when this type of information is available. Instead we use an attribute chart. One commonly used type of attribute chart is the percent defective chart, which is shown in simplified form in Figure CII Institute of Logistics 84

85 UCL LCL Date 8/4/ Time 8:05 9:00 9:50 10:30 11:30 11:15 % Defective 1:00 1:40 2:30 3:00 3:30 4:00 5:00 Figure 4.10 The points plotted on this chart were obtained by checking a sample of fifty pieces each time an inspection was called for. The operator or an inspector gauged the pieces, counted the number rejected by the gauge, and calculated the percent defective of the fifty-piece sample. The percentage value was then plotted on the percent defective chart. Here again, the points within the control limits indicate that everything is satisfactory, while the point outside the upper control limit (UCL) shows that something needs to be corrected. CII Institute of Logistics 85

86 SUMMARY You will have to learn how to develop these control charts and their control limits and how to interpret them, but for now you can see that they are statistical tools, which are based on a few easy-to-understand basic principles. The greatest use of control charts is to demonstrate that the process is operating in statistical control (that is, all points on the chart fall between the upper and lower control limits), but is till producing parts that are out of specification. When this happens, it is a waste of time to try to find a solution to the problem by adjusting the process. You can make this type of adjustment or take this kind of corrective action only when assignable causes are present. When a process is in statistical control, the only variation seen in the process is due to chance causes. Even those parts that fall outside the specification limits are made as a result of chance. You will not find an assignable cause for that variation. The only way to solve such a problem effectively is to make a basic change in the process. This is often called a management solvable problem. On the other hand, if the control chart indicates that the process is out of statistical control, it means that an assignable cause is present, and it can be found and corrected. This is often called a floor solvable problem, and it's the type of problem most of you face each day on the job. It is often said that 85% of all quality problems are management solvable and 15% are floor solvable. Statistical methods of quality control will help you detect the eistence of assignable or floor solvable causes, which you must identify and correct. Those who are uninformed in the use of statistical methods of quality control might say, "This is all well and good, but can I use it in my work area?". The answer can be given in one word: Yes! A control chart can be used on anything that can be assigned a number. CII Institute of Logistics 86

87 If you intend to use control charts to help maintain and improve the quality of your work and your products, you must learn to think statistically. All the statistical techniques you will encounter in the contet of quality have their foundation in the basic principles and an understanding of these principles will help you understand and use statistical control charts. 4.4 ACCEPTANCE SAMPLING The Design and the Inspection of Individual Products In Industry, it is everyday eperience that large items of (intermediary or finished) products or raw materials are inspected for their quality, for the purpose of arriving at a decision about their acceptance or rejection. This ACCEPTANCE may mean merely passing the intermediary products to the net stage of manufacture, or releasing the finished product to the market, or accepting the raw material for the purchase. In market purchases, if the product inspected is not satisfactory in quality, one may go elsewhere for the purchase; of course, the question of price of the product is interwoven with this decision of the acceptable quality. But it is perhaps easier and more scientific to make a decision about quality and consider the price acceptability separately. The Inspection Department in a factory, is usually charged with this specific function of declaring materials or product as acceptable (or otherwise) in quality at th e time of purchase or at suitable stages in manufacturing, including the last stage of actual shipping to the markets. The technological, engineering or chemical methods of testing are developed by the Inspection Department to suit each situation. Also, they have to have a clear notion about what is to be done when their verdict is "not to accept". Where every unit of product is inspected the procedure is said to be 100% inspection. In such cases, the accepted products are passed on to the net stage and the not accepted ones are suitably disposed off for re-work or as scrap. CII Institute of Logistics 87

88 In declaring a submitted product as acceptable or not acceptable, the Inspection Department has to keep in focus the specifications (or the blue print) given by the Design Department. It is a very healthy rule, that at every inspection stage, there should be precise specifications for the quality of the individual product inspected; this drawing up of the specifications for the product quality, is the responsibility of the Design department. When the specifications are clearly set out, the devising of acceptance procedures should be the concern of the Inspection department, if necessary in consultation with the other departments (e.g., the Design and the Product Departments). The acceptance procedures devised should aim at passing all products that satisfy the design specifications and rejecting all the others. This is the ideal. 100% Inspection Versus Sampling Inspection The inspection of every unit in mass produced articles may be uneconomical. For items like screws and bolts, 100 percent inspection method, even with gauges, may cost more than the cost of manufacture; also the 100 percent inspection may take considerable time. Added to these, the inspection fatigue may intervene in the case of large number of items and vitiate the quality assurance aimed at. Industrial eperience has demonstrated that in many cases where time and costs are important considerations, a suitable sampling plan is able to give a pre-assigned quality assurance more effectively than 100 percent inspection, because of improved efficiency in the inspection of an individual product. If the item is critical and no individual product not conforming to the design specification, is to be passed as accepted, there is no other way than to insist on 100 percent inspection and improve the reliability by fighting away the fatigue with increases in costs, time and personnel. But such critical items are very eceptional and may not be amenable to the economics of mass production. Even in such cases, if the procedure involves destructive tests, obviously 100 percent inspection cannot be resorted to. In practice, including highly critical items, suitable sample tests (perhaps very stringent) have to be used on practical considerations. CII Institute of Logistics 88

89 The feeling that 100 percent inspection always eliminates all unsatisfactory products has not been confirmed by industrial eperiences. In many accepted aggregates or products after 100 percent inspections with their high costs and delay, certain amount of unsatisfactory (or non -conforming) products have been found, by properly designed sample checks. It would be more realistic to fi a limit to this proportion of nonconforming products among the accepted products and evaluate the quality assurance of 100 percent inspection versus a suitable sampling plan. This limit may be as low as desired on practical considerations. Of course, the ideal for this limit is zero. But the ideal is not always achieved in the practical world; there may be some inevitable margin of non-conforming products in the best-inspected and passed aggregates of products in the long run. It would be scientific and desirable to keep this point in mind, while devising acceptance procedures. To devise a suitable acceptance procedure, we have to eamine some preliminary concepts on decision making; for acceptance or rejection in this case. The Co-ordination The actual implementation of the acceptance procedures is the responsibility of the Inspection Department. But in the drawing up of the procedures, the other departments mainly the design and the production should play their due roles. It is advisable that the Design Department fully appreciates the acceptance specifications for the individual product and the aggregates so that the design specifications would be suitably reviewed to meet the performance of the product. All these departments should appreciate that the risk of a few non-confirming products escaping in accepted aggregates and the risk of a few conforming products being included in accepted aggregates, cannot altogether be removed. Even in very careful, slow and costly 100 percent inspection, these risks cannot be eliminated, but can be kept low and at any pre-assigned levels. These considerations bring us to face the difficult problem of making decisions with a some amount of risk, though the risk may be kept CII Institute of Logistics 89

90 small. Here, the theory of probability has given us certain results, which are of use in the consideration of our decision. Key Terms used in Sampling Inspection Operating Characteristic Curve (OC) This curve depicts the probability of acceptance for various values of proportion defective. A typical diagram is given below: PROBABILITY OF ACCEPTANCE PA PRODUCERS RISK CONSUMERS RISK 0 AQL INDIFFERENCE QUALITY Proportion Defective (p) Producer's Risk This is the probability of rejecting a lot whose proportion defective is equal to the AQL (Acceptance Quality Level). Generally AQL is define as the value of proportion defective for which the probability of acceptance is This implies that in practice, producer's risk is fied at 0.05 (5%). Consumer's Risk This is the probability of acceptance of a lot whose proportion defective is equal to the rejectable quality level (also known as Lot Tolerance Percent Defective - LTPD). It is generally fied at CII Institute of Logistics 90

91 Bird s Eye View of Si Sigma 5.1 Si Sigma In the last 25 years or more eecutives have been both eposed to and involved fairly etensively in the popular programs that include Quality Circles, Benchmarking, Zero Defects, Total Quality Management, Customer Satisfaction, Data Mining, and Business Process Reengineering. They are meant to provide answers to comple industry problems. Very often, in practice, the eecutives and staff in many enterprises view these training programs with trepidation, and they are confident that these will fade way as time passes. It seems the net wave of the quality revolution that is currently impacting us is Si Sigma! Now you won't be able to either do a presentation or conduct a program without using the term "Si Sigma" somewhere in the middle. One may wonder if this is yet another business term coined by management professionals and the elite corporate houses. No doubt a good degree of hype is associated with Si Sigma, as is generally encountered with every new management movement. It is in this contet, we have to eamine whether Si Sigma is a mere mantra or it is an effective action plan that can trigger a leapfrog jump in the corporate profitability. How Si Sigma is different from the rest? Is it a Breakthrough Strategy that can be likened to a renaissance in changing the mind set of the people in the organization? Is it entirely a new management tool or old wine in the new bottle? What distinguishes Si Sigma from the other methodologies of quality? In this section, an attempt is made to provide some kind of answers to these issues that are etremely important for any professional who is concerned with improving the bottom line as well as enhancing the quality image of his/her organization. CII Institute of Logistics 91

92 5.2 What is Si Sigma? Si Sigma is a statistical measure that says that in a well-managed process be it manufacturing or service, you encounter only 3.4 Defects Per Million Opportunities (DPMO). In the parlance of Si Sigma, any thing that inhibits the attainment of customer epectation and satisfaction is a defect. First, we compute the ratio between the actual defects and the total number of opportunities for the organization to make mistakes from the customers angle. If this ratio is multiplied by one million, you get the Sigma level achieved by your organization. This level may be far from Si Sigma. For eample, it may correspond to 2 Sigma, 3 Sigma or 3.5 Sigma. In the contet of Si Sigma, we are % confident that the product or service delivered by us is defect free. Only % of the times the product or service delivered are defect prone. When multiplied by one million, this becomes 3.4 DPMO. Si Sigma measure is based on the bell shaped normal distribution. Normal distribution is the foundation stone upon which the entire statistical inference is built. The following diagram succinctly captures the meaning of Si Sigma CII Institute of Logistics 92

93 Please note that 3.4 ppm is shown in the graduated scale corresponding to the number 6.0 in the graph above. This is same as saying that there are 3.4 defects per million opportunities. Si Sigma entirely focuses on PROCESS IMPROVEMENT. The idea is to achieve Si-Sigma process performance with the help of Statistical Techniques to measure, monitor and control the actual performance of a process. A Process is a sequence of activities that transforms inputs to produce value for the stakeholders. It is the fulcrum of business that needs to be professionally managed so as to make the business add value to the inputs. One distinguishing feature of Si Sigma is that it emphasizes on measurement much more than the other quality management tools. In fact, it is interwoven with statistical analysis tools in every conceivable process with a view to meeting customer specifications. Everything starts from customers perspective; then the process performance is aimed at Si Sigma level so that virtually you produce zero defects, which in the parlance of Si Sigma implies 3.4DPMO. Si Sigma practices can be applied to manufacturing as well as service sector. A Motivating Story Motorola the pioneer in Si Sigma, in the year 1979, articulated openly Our Quality Stinks and therefore started the journey of Si Sigma with a view to achieving ecellence in its products and services quality. At this point in time, many American firms believed that quality costs money. Motorola understood CII Institute of Logistics 93

94 that the only way to decrease cost is to improve the quality of products and services, a philosophy and theme propounded by Dr. Deming the father of quality revolution. After the World War II, a large number of American companies focused on quantity instead of quality for a very long while. Motorola found that it was spending as much as 15% of its sales revenue for correcting poor quality. In terms of money value, it was $800 million to $1000 million each year. CII Institute of Logistics 94

95 Motorola s quest to reduce cost of quality began formally and vigorously in The company pioneered an implementable Si Sigma methodology that focused on making continuous improvements in all operations within a given process rather than an orthodo TQM practice that would focus on continuous improvements in individual operations with unrelated processes. This indeed proved to be a breakthrough strategy producing a quantum leap in corporate profitability. By the year 1993, Motorola was operating at nearly Si Sigma in most of its manufacturing operations. In the net four years, the company could save as much as $2.2 billions entirely on account of a full-fledged Si Sigma operation. Figure 5.1 captures the significant reduction accomplished by Motorola over the years in Cost of Poor Quality. The results following the implementation of Si Sigma in a long journey of 11 years from 1986 to 1997 in Motorola are indeed astonishing. Table 5.1 succinctly captures the success story of this great organization. Figure 5.1 Motorola story staggers us by its outstanding results(refer table 5.1) that would not have been possible by traditional quality improvement plans, which lack a strong focus on the bottom line of an enterprise. The moral of this story is Si Sigma is a breakthrough strategy that requires real hard work involving a longer time horizon. CII Institute of Logistics 95

96 Please note that there are many organizations that are adopting Si Sigma Practices. The list includes among many the following: GE Kodak Allied Signal IBM ABB Teas Instruments Citibank Wipro CII Institute of Logistics 96

97 Table 5.1 Highlights of 11 Years Journey of Motorola( ) Culled out from the Company Records Financial Gains Sales (Up 5.05) $29.8 Billion in 1997 representing an Average Compound Growth Rate of 16.9% Per Year Profits (Up 6.03) $1.18 Billion in 1997 representing an Average Compound Growth Rate of 19.5% Per Year Stock (Up 7.0) representing an Average Compound Growth Rate of 21.3% Per Year Breakthrough in Quality Eliminated more than 99.7% of In-Process Defects Reduced Cost of Poor Quality more than 84% on a Per Unit Basis Cumulative Savings in Manufacturing Cost over $13 Billion Employee Productivity increased 3-Fold representing a 12 % Average Per Year Product Reliability in terms of Mean Time Between Two Failures (MBTF) increased 5-10 Fold CII Institute of Logistics 97

98 5.3 Si Sigma and Total Quality Management (TQM) If we combine the wisdom of Dr. Deming, Dr. Juran, and Crosby, TQM could be eplained as under: TQM involves continuous improvement in quality to meet or eceed customer norms at the lowest cost by releasing the potential of employees of the concerned organization. Let us ponder the epressions in bold. Continuous Improvement is based on the principle Standing Still is Going Backwards. This is very profoundly embedded in Si Sigma. Benchmarking Customer Satisfaction, Product, Process, and Service Quality are the corner stones upon which the entire Si Sigma is built. We also know that Benchmarking is an integral part of TQM. Customer Norms are the specifications and epectations of the customers. Si Sigma process starts from the voice of the customer and does everything to more than satisfy the customers. In fact, the cardinal principle of defects per million opportunities (DPMO) is deep rooted in the Si Sigma soil because anything that inhibits customer satisfaction is a defect. So, it focuses on opportunities to go wrong from the customers angle or perception. Metrics are built around Total Customer Satisfaction (TCS) in a very committed manner in Si Sigma. Cost of poor quality is an etremely important measure in Si Sigma. It is epressed as percentage to sales revenues. Please recall from the Motorola story, how reduction in cost of poor quality helped Motorola achieve a quantum jump in profit! This is a key area in Si Sigma that will produce results for the corporate. CII Institute of Logistics 98

99 Employees play a pivotal role in Si Sigma as much as in TQM. The concept of empowerment, autonomy, accountability, teamwork, training workshops, and leadership are as vital in Si Sigma as they are in TQM. Then what are the differences? 1. Si Sigma emphasizes much more on metrics and measurement than TQM and the feedback and control of information system is significantly more impeccable in Si Sigma than in TQM 2. There is a clear focus on Corporate Profit that permeates through out Si Sigma operations which is not the case in TQM operations. 3. Si Sigma is articulated and implemented as a breakthrough strategy that incorporates mind-boggling radical reforms in order to achieve significant improvements both in quality and in finance function. This is not the case in the orthodo TQM practices. 3. TQM focuses on continuous improvement in individual operations with unrelated processes whereas Si Sigma focuses on continuous improvement in all operations within a process. As a result of this difference in approach, Si Sigma can get a company to perform phenomenally in profit enhancement and in elimination of defects. It is interesting to note that a modified TQM that incorporates a strong measurement system interwoven with statistical analysis, continuous improvement in all operations within a process, and a focus on corporate profitability is indeed Si Sigma! CII Institute of Logistics 99

100 5.4 Important Si Sigma Themes 1) Focus on the Customer In a Tennis Tournament, if a player has an eye only on the scoreboard instead of the ball, he or she cannot win the game. The player must focus on the ball. Likewise, if a company has an eye only on the bottom line instead of the customer, it can neither attain market leadership nor can improve its corporate profit substantially. The company is the tennis player, the customer is the ball, and the bottom line (corporate profit) is the scoreboard. This is the cardinal principle of Si Sigma. Si Sigma is emphatic about the importance of achieving a quantum jump in profits by meticulously and sincerely implementing everything from the customers viewpoint. The interesting difference in this tennis tournament is that one player is playing with many opponents and is trying to win the game. The many opponents mentioned here are the competitors in the marketplace. Thus Si Sigma is indeed a corporate strategy that aims to achieve and sustain market leadership through ecellence in quality. 2) Data and Information Based Decision All decisions in the Si Sigma environment are based on data, facts, and information and not on intuition or guess work. Benchmarking key activities using well-defined metrics against the best in class is at the heart of Si Sigma process. Of course, even TQM uses Benchmarking as a theme but the etent of metrics used with a clear focus on profits by eliminating failures and defects from the customers angle is far greater in Si Sigma than in TQM. This in a way is responsible for very high hit rate of success (83%) where as hit rate of success in TQM companies is reported to be just in the vicinity of 25% to 40%. In the words of Motorola, the connection between quality and benchmarking is succinctly described as under: CII Institute of Logistics 100

101 Benchmarking Implies There are no secrets to quality. There are no Silver Bullets or short cuts to good quality. Quality doesn t take time, it saves time. It is not only free, it pays dividends. Average company spends close to 25% of its revenue on waste -- non-value added. Quality process applies to the administrative side of business as well. Service companies are not different from manufacturing. 3) DMAIC Define the goals of the improvement activity. Measure the eisting system. Analyze the system to identify ways to eliminate the gap between the current performance of the system or process and the desired goal. Improve the system. Control the new system. This acronym stands for Define Measure Analyze Improve Control. Each term is briefly discussed in the table below: If you carefully eamine each term in the table above, you will realize it is an adapted Deming s PDCA cycle. PDCA stands for Plan-Do-Check-Act. Define the goals of the improvement activity in a verifiable manner is part of Plan in the Deming s cycle. Measure the systems parameters using rigorous statistical formats amount to Do in the Deming s cycle. Analyze the system using statistical tools etensively to eliminate gaps between actual performance and the desired goal is nothing but Check in the Deming s cycle. Likewise, Improve and control the system is nothing but Act in the Deming s cycle. CII Institute of Logistics 101

102 4) Focus on Process and not on Outcome This is a very interesting and profoundly true theme that runs all through the Si Sigma operations within an enterprise. Outcomes or end results are determined by what happens during the process. When the organization over a period of time builds a better and robust process, it is in a position to eliminate opportunities for defects before they actually occur. Si Sigma simplifies systems, improves process capability, and in the end finds a way to optimize rather than automate the systems and processes so that defects and failures are eliminated and the concerned organization achieves the milestone of 3.4 Defects Per Million Opportunities (DPMO). Also the feedback and control mechanism implanted in the processes ensure sustainability of Si Sigma level (3.4DPMO) on a long-term time horizon. 5) Change Agents as Facilitators Eperts and Professional Mangers agree that change is difficult, pretty epensive, and is a major cause of error. So, why bother? Status quo is simply not possible. Organizations have to even embrace change in a proactive manner in view of Competition in the marketplace, Technological Advancement where new technologies make the eisting ones obsolete, Training Needs, Customer Demands, and Quality Related Programs such as ISO, and QSO. It is in this contet, the role of change agents looms large. A brief description of the important change agents is given below: Leadership David Kearns introduced the concept of Leadership Through Quality in Xero Corporation in the contet of a formal Benchmarking process for the first time in the US Industry to resurrect the company from the onslaught of the competitor -Canon Photocopier. Canon produced a machine that was as good in quality as one from Xero CII Institute of Logistics 102

103 but amazingly could set its selling price equal to the manufacturing cost of Xero copier. This was possible for Canon because of superior quality management tools. More than 4000 people lost their jobs in Xero and its market share dwindled steeply. David Kearns emerged as a champion leader and turned around Xero in a span of 5 years using benchmarking process. Yet, the truth of the matter is that Xero benchmarked its key activities only when it was threatened and thus the company was reactive instead of proactive in its attitude. On the contrary, leadership is dynamic and proactive in Si Sigma. In fact, leadership and quality are the warp and woof of Si Sigma. Leadership is the foundation stone thorough which the organization s strategic goals are to be achieved. Si Sigma focuses on changing key business value channels that cut across organizational barriers. Si Sigma can be successfully implemented only from the top down. Lip service or lukewarm style of leadership is the major cause of failure of Si Sigma endeavors in certain organizations. It is also a rarity to find any one organization where leadership from the top fully embraced Si Sigma. It must be noted that because Si Sigma focuses on cross-functional and company-wide quality processes, leadership from the top down is the key for its success. Black Belt A Black Belt is a person who may have emerged from any discipline to start with but has a very sound knowledge in using advanced statistical techniques to systems and processes. Depending upon the nature of the problem, the tools may range all the way from simple descriptive statistics to sampling distributions, control charts, process capability analysis, correlation and regression, hypothesis testing, and design of eperiments. This individual should also be an epert in Si Sigma Strategies and Tools, and an Effective Leader capable of training, consulting, and mentoring subordinates. CII Institute of Logistics 103

104 Green Belt Green Belts are typically Si Sigma Project Leaders who are capable of taking the organization from the concept stage of projects to their successful completion. They are trained by Black Belts in statistical data analysis, quality management tools, problem solving, and project management. These people are the key persons who would successfully implement Si Sigma practices within the enterprise. Master Black Belt This is the highest level in the echelon of Technical Epertise. A Master Black Belt must possess very superior knowledge in the use of advanced statistical analysis, the subtle intricacies of the key processes of Si Sigma, deep understanding in project management, and above all, outstanding leadership qualities to drive the Si Sigma in every stage by inspiring the Green Belts, and other Black Belts. Master Black Belts perform the role of Mentors as well as the role of training the trainers (A Master Black Belt trains the other Black Belts who in turn train the Green Belts). CII Institute of Logistics 104

105 5.5 A Broad Picture of Si Sigma Process It is pertinent to point out here that a clear description of the process of Si Sigma is beautifully outlined by Motorola. The following diagram captures the si steps involved in the process. For an organization engaged in multi-products, you simply apply the rule (Pareto Analysis) that will help you identify key products. These key products will produce 80% of the profits, For each of these key products/services, identify the customers and their epectations/requirements, determine your needs and suppliers, define the process that will consist of individual operations, eliminate defect sources and optimize the process. Continuously improve the Si Sigma level is the last step in the diagram above. This envisages a feedback mechanism to take you back to the previous step of defect elimination and optimization until you attain the Si-Sigma level. It may be mentioned in the passing that Si Sigma level corresponds to a Cp level of 2 or more and simultaneously a Cpk level of 1.5 or more in the orthodo process capability analysis. Please note that in the worst case, there will be no more than 3.4 DPMO with specification limits 4.5 sigma on one side and 7.5 sigma on the other side of the bell CII Institute of Logistics 105

106 shaped normal distribution curve. The feedback loop also suggests that even after achieving a Si Sigma level, you have to keep on eliminating defects and keep on optimizing the process in order to sustain the magic number 3.4DPMO. 5.6 Golden Rules for Successfully Implementing Si Sigma It is imperative to have Top down Commitment and Involvement of Management all through the Si Sigma Process. Professional managers can set the eample by actively participating in the various stages of the process. The organization must have a strong measurement and monitoring system to keep a tag on the progress made. The measurement system will have to do both within and outside the organization. It would include for eample, a comprehensive marketing research and information system to track customer preferences and epectations. Within the enterprise, a strong information system should be in place to review and take actions when required on the process. In this regard, a host of techniques that would include SQC, SPC, Design of Eperiments, Supply Chain Optimization, Hypothesis Testing and so on will be used with an applied orientation. Tough and ambitious goals must be set on various critical to quality characteristics that impact the customer epectation and satisfaction. The company must take its people out of the comfort zone. Benchmarking process must be an integral part of the goal setting process wherein the targets on key dimensions are set based on what is being achieved by the best in class. Provide appropriate education and training that will pave the way for the attainment of the goals in the Si Sigma environment. The training modules will envisage a strong background in advanced statistical methods, resource optimization models, and analytical problem solving skills. The Si Sigma agents Master Black Belts, Black Belts, and Green Belts should be the champions and inspiring leaders in the entire gamut of the education and training programs to employees. CII Institute of Logistics 106

107 Communicate through out the organization, the success stories that may take place in certain projects. They may reveal reduction in defects, increase in profits, and productivity. In the initial stages, the improvements witnessed may not be very substantial. But, it points to the fact that the enterprise is positively progressing in the Si Sigma process and spreading success stories will create a winning attitude through out the organization. This in turn, will lay a strong foundation upon which the company will maimize customer satisfaction. Deployment process must focus on empowerment, accountability for quality improvement, and reward and recognition for good performance. 5.7 Concluding Remarks Making Si Sigma an Effective Action Plan No organization should become too intoicated with winning the metrics game. Just by applying a few out of the assorted Si Sigma methods, a company cannot be classified as a Si Sigma company. Likewise, a professionally managed company with a high degree of commitment and passion for quality may be classified as a Si Sigma company even if it has not achieved 3.4 DPMO! What is important to realize is that a cultural change required to transform an organization into a full-fledged Si Sigma organization is much more important than the mere metrics game. Customers priorities are paramount in Si Sigma. At no point in time, should a company become complacent and lose sight of the preferences and priorities of the customer. This is also the cardinal principle of marketing that is focused on the central theme Customer is the Foundation of Business. Organizations who are adopting Si Sigma will have to be careful in not allowing themselves to become supercilious once they reach the target. By benchmarking process and continuous improvement strategies, competitors can overtake you, if you remain status quo. This is also profoundly true in TQM practices. We are all aware that if CII Institute of Logistics 107

108 reaching the top is difficult, it is even more difficult to remain on top for a longer time horizon. So, the moral of the story is that continuous improvement to eliminate defects, to optimize process, and to improve profits substantially is a never-ending process. Si Sigma focuses emphatically on all these three aspects. Just like TQM, Si Sigma is a long journey towards ecellence in quality. It is not realistic to epect fantastic results within a very short time. Motorola took about 11 years to achieve Si Sigma level from scratch. Unlike other traditional quality tools, if you start the journey of Si Sigma with passion, involvement, and commitment, even in the short run say within three years you can have a reasonable jump in profits and there after, year after year you will start reporting phenomenal improvements in corporate profits. All factors considered, Si Sigma is not a mere mantra but an effective action plan that can pave the way for enhancing significantly the corporate profitability if implemented with total commitment. The results of Si Sigma practices will be far superior to other Quality Practices including TQM because of its focus on a breakthrough strategy that is highly radical in nature. Si Sigma strategy incorporates rigorous statistical measurement systems and powerful benchmarking metrics that are truly responsible for substantial improvements in performance in the twin elements of quality and profits. Si Sigma chases perfection and in the process catches ecellence in all dimensions of quality! CII Institute of Logistics 108

109 Bird s Eye View of ISO 9000 Standards 6.1 WHAT IS I. S. O? The International Organization for Standardization (ISO) is the specialized international agency for standardization, at present comprising of the national standards bodies of 91 countries including INDIA. ISO is made up of approimately 180 technical committees. Each Technical Committee is responsible for one of the many areas of specialization. The object of ISO is to promote the development of standardization and relate world activities with a view to facilitating international echange of goods and services and to develop co-operation in the sphere of intellectual, scientific, technological and economic activity. The results of ISO technical work are published as international standard. The standards discussed here are results of this process. 6.2 WHAT ARE THE ISO 9000 SERIES STANDARDS? With increased focus on quality issue worldwide, various standard-developing organizations prepared standards and guidelines in the quality field. Although there were similarities among the many standards, the quality picture became quite cloudy. Terms such as Quality Management, Quality Control, Quality Systems, Quality Assurance and Quality Policy, had acquired different and sometimes conflicting meaning from country to country, within a country and even within an industry. Standardization was needed at the international level. Work was initiated within the International Organization for Standardization (ISO) and in 1987 si standards (Known as the ISO 9000 series) which clarify the relation between different quality concepts and present three model for quality assurance systems. CII Institute of Logistics 109

110 ISO 9000 standard series tell suppliers and manufacturers what is required of a quality oriented system. It does not set out etra special requirements which only a very few firms can or need comply with, but is practical standard for quality systems which can be used by all Indian Organizations. The principles of ISO 9000 are applicable whether you employ 10 or 10,000 people. It defines the basic concepts and specifies the procedures and criteria to ensure, that what leaves your organization meets the customer requirement. 6.3 WHY THEY SHOULD BE USED? ISO 9000 is an opportunity and a challenge to developing nations. They can now know with agood degree of certainty the level of quality that purchases epect. They also can learn the pre-requisites and characteristics of good quality assurance and quality management. The challenge to developing nation is to motivate processors and manufacturers to adopt and implement these standards, and to establish a credible national quality registration scheme, which will be recognized by trading partners. In an increasing number of markets and industries, third party quality assessment and registration is becoming a prerequisite for doing business. ISO 9000 registration is considered the minimum acceptable level for a supplier, and those who cannot demonstrate this minimum level may not only have difficulty in selling in certain markets but also may be barred from those markets. A supplier without ISO 9000 registration can face higher insurance rates, or be denied insurance in some markets. The reason for this attitude by insurers is the new approach to product liability recently instituted by 12 countries of the European Community and Austria. Not only must a defendant be able to demonstrate that his product is well designed and conforms to all standards and regulations, but he must be able to demonstrate that the product is manufactured consistently within a system that conforms at least, to internationally accepted standards. CII Institute of Logistics 110

111 In addition ISO 9000 series standard also: Motivates eporters Sets a baseline Establishes reasonable standards for government procurement Sets General Market Procedure for regulating health and safety Reduce time-consuming audits by customers and regulators Improves their quality image Gives marketing advantage and EC92 positioning Raises levels of motivation, co-operation, workmanship and quality awareness Improves efficiency; reduces scrap and rework 6.4 HOW DOES THE SERIES WORK? The standards are designed to be user-friendly. They are generic in nature and follow a logical, easily understood format. However, each company is unique and there may be wide differences in companies readiness to implement the standards. ISO 9000 is the road map for the series. Its purpose is to provide the user with guidelines for selection and use of ISO series standards. Line diagram and table given below illustrates the same Definition of Concepts ISO 8402 Non-Contractual Situations Definition of Concepts Contractual Situations ISO 9000 Quality Management Quality systems ISO 9004 Three Quality ISO 9001 assurance ISO 9002 models ISO 9003 CII Institute of Logistics 111

112 EQUIVALENT QUALITY SYSTEM STANDARDS ISO IS EN Title (Indian Standards) (European Norms) Quality Management and Quality Assurance Standards Selection and Use Model for Quality Assurance in Design / Development, Production, Installation, and Servicing all elements Model for Quality Assurance in Production and Installation Model for Quality Assurance in Final Inspection and Tests Guidelines on development of Quality Management Systems to minimize costs and maimize benefits HOW MUCH WILL IT COST AND HOW LONG WILL IT TAKE TO IMPLEMENT THESE STANDARDS? Unfortunately there is no set answer. Each company is different. The answer really depends on how developed your present system is and the implementation strategy you adopt. CII Institute of Logistics 112

113 6.5 WHEN SHALL AN ORGANIZATION BE REQUIRED TO USE THESE STANDARDS? While the ISO 9000 quality standards were written to be used in voluntary or two party contractual situations, they are fast becoming pre-requisites for doing business in Europe and other regions. ISO 9000 is being incorporated into buyer / seller agreements, government regulations and certification procedures by many nations. The ISO 9000 quality management standards will have considerable impact on the markets throughout the world. WHERE DO I PURCHASE COPIES OF THE STANDARDS? ISO 9000 Series standards are available with the Bureau of Indian Standards and the Standards are known as IS to IS (BIS). They are available from their HQs in Delhi and branch offices all over India. You can address you enquiry to: Director Sales, Bureau of Indian Standards, Manak Bhavan, 9 Bahadur Zafar Marg, New Delhi WHAT DOES ISO 9000 REGISTRATION MEAN? 6.6 HOW TO ACHIEVE IT? ISO 9000 Registration-means the certification of Company Quality Systems by third Party through their mechanism of registration. Of all the questions about the ISO 9000 Series, this is probably the one that causes the most concern. Increasingly, European customers epect Indian companies to have their quality systems registered to ISO 9001, 9002 or This is generally done by having an accredited independent third CII Institute of Logistics 113

114 party on site audit of your company s operations against the requirements of the appropriate standard. Upon successful completion of this audit, your company will receive a registration certificate that identifies your quality systems as being in compliance with ISO 9001, 9002 or Your company will also be listed in a register maintained by the accredited third party registration organization. You may publicize your registration and use the third party register s certification mark on your advertising, letterheads and other publicity materials (but not on your products). At present BIS is available in India for Registration and also many other countries have established their registration bodies and are willing to etend the same to India. Invoking third party assessment and registration to ISO 9000 criteria is becoming a basic principle in the European Community to eliminate trade barriers within the world s largest market. This EC focus on quality and third party assessment has been a major (Possibly the major) stimulus to adoption of IO 9000 in the rest of the world. THE STANDARD IN SERVICES ISO 9004 PART II WHERE DOES IT APPLY? Catering Hotels Tourism Entertainment Media Air, Road, Rail and Sea Travel Telecommunications Postal Hospital Doctors Dentists, Opticians Public Services Legal and Education and many more CII Institute of Logistics 114

115 QUALITY IN SERVICES Service Requirements Delivery Requirements SERVICE REQUIREMENTS QUANTITATIVE Waiting Time Delivery Time Accuracy of Service Completeness of Service Accuracy of Billing QUALITATIVE Credibility Accessibility Security Responsiveness Courtesy Comfort Aesthetic Hygiene DELIVERY REQUIREMENTS QUANTITATIVE Service Capacity Quantity of Stores CII Institute of Logistics 115

116 No. of Personnel Process Times QUALITATIVE Competence Dependability Communication Service requirements are directly observable by THE CUSTOMER while service delivery requirements may not always be observable, but will, AFFECT THE SERVICE. THE EELEMENTS IN THE STANDARDS Policy and Objectives System Resources Documentation POLICY AND OBJECTIVES Commitment to a quality policy from the top The customers needs, stated or implied A system of preventative action Creation of collective will for quality service review An independent review of the effectiveness of the quality system in meeting the policy is DEMANDED CII Institute of Logistics 116

117 SYSTEM Market assessment what others offer Customer / Consumer epectation o o o o o o o Taste Quality Reliability Legislation Research Changing Market New Technology Service Brief Documented o o o o o o Continuous system of appraisal Feedback Supplier assessment Customer reaction Complaints Audits The system is also epected to yield opportunities for improvement and seeks out the following: The area where improvements would give the most benefits Changing market attributes which could affect service Missing controls Opportunities for greater productivity CII Institute of Logistics 117

118 RESOURCES The standard asks for a work environment, which will foster ecellence, stability and security. It also asks for Training, Education and Employee motivation. DOCUMENTATION Documentations is demanded, particularly a Quality Manual, Quality Plans and records of all of the relevant activities which require measurement. CII Institute of Logistics 118