Service Operations Management – Lecture 3
QUALITY MANAGEMENT
WHAT IS QUALITY?

Ability to satisfy needs of customers (British
Standard 4778, 1987)

An abstract concept that is difficult to define
(Garvin 1984, 1987, Sweetney & Soutar, 1995, Zeithaml
1988)

Referred to perceived quality (Bolton & Drew 1991:
Jacoby& Olson, 1985)
QUALITY GURUS
Dr. W. Edward Demings
 Dr. Joseph Juran
 Philip Bayard Crossby
 Armand V Feigenbaum
 Dr. Kaoru Ishikawa
 Walter Shewart
 Dr. Genichi Taguchi

QUALITY GURUS
Dr Walter A Shewart
 Uses statistics to explain process variability
 Developed the control chart as well as the PDCA
or PDSA
Dr Edwards Demings
 Argued that higher quality leads to higher
productivity, hence leading to long term
competitive advantage.
QUALITY GURUS
Philip Bayard Crosby
 argued about basic theories of quality
 Quality means conformance to requirements
 The system of causing quality is prevention
 The performance standard must be zero defects
 The measurement of quality is the price of nonconformance.
QUALITY GURUS
Dr Joseph Juran
 Used to establish a traditional quality system
 Includes quality trilogy & quality roadmap
Dr Kaoru Ishikawa
 Is considered as the father of quality circle
movement
 He promoted the quality circle to:
 support improvement
 Respect human relationships in workplaces
 Increase job satisfaction
 More fully recognize employees capabilities &
utilize their ideas
OTHER QUALITY GURUS
Dr Genichi Taguchi
 Frederick Taylor
 Dr H James Harrighton, among others
They have all contributed in improving organisations
around the
world.

DIMENSIONS OF QUALITY
SERVICE
Features
Courtesy
Reliability
Consistency
Conformance
Accuracy
Durability
Accessibility
Safety
Responsiveness
Perceptions
Completeness
Time
Total Quality Management
MANUFACTURED
PRODUCTS
Performance
SERVICE SECTOR

TIME- waiting time

RESPONSIVENESS- problem solving

ACCESSIBILITY- easy access to service
Total Quality Management
COURTESY- customer care
 CONSISTENCY- same level of service
 ACCURACY- spontaneous service

TQM (TOTAL QUALITY MANAGEMENT)
 Total
Therefore, TQM is the art of managing
the
whole to achieve excellence.
Total Quality Management
- made up of the whole
 Quality - degree of excellence a
product or service provides
 Management - act, art or manner of
planning, controlling, directing,….
WHAT’S THE GOAL OF TQM?
Total Quality Management
“Do the right things right the
first time, every time.”
PRINCIPLES OF TQM
 Total
Total Quality Management
employee involvement
 Continuous improvement
 Continuous training
 Teamwork
 Empowerment
 Top mgt commitment & support
 Customer/citizen satisfaction
COST OF QUALITY
WHAT IS COST OF QUALITY?
“… costs related to actions taken to get the service
right from the start, auditing that it is correctly
delivered and the expenses of responding to any
failure.” (Lockyer and Oakland, 1981)
COST OF QUALITY
The reworking of a manufactured item
 The retesting of an assembly
 The rebuilding of a tool
 The correction of a bank statement
 The reworking of a service sector, such as
replacement of a food order in a restaurant

COST OF QUALITY
Costs
Examples
Failure costs
Errors, correction, checking, dealing with customer
complaints, the costs of getting it wrong
Appraisal costs
Checking, inspection, quality audits, checking that it is
right
Prevention costs
Planning training, good procedures, getting it right
first time
Lockyer and Oakland
(1981)
FAILURE COSTS (COST OF POOR QUALITY)
The costs resulting from products or services not
conforming to requirements or customer/user
needs. Failure costs can divided into
 Internal and
 External failure categories.
INTERNAL FAILURE COSTS (COST OF NONCONFORMANCE)

Scrap costs - The labor, material, and (usually) overhead
on defective product that cannot economically be repaired.
The titles are numerous—scrap, spoilage, defectives, etc.

Rework costs - Correcting defectives in physical
products or errors in service products.

Failure analysis - Analyzing nonconforming goods or
services to determine causes

Process downtime costs – Costs of shutting down
productive process to fix problems

Price-downgrading costs - The difference between
the normal selling price and the reduced price due to
quality reasons.
EXTERNAL FAILURE COSTS
External Failure costs are costs associated with
deficiencies that are found after product is
received by the customer.
External Failure Costs included are lost
opportunities for sales revenue. These costs also
would disappear if there were no deficiencies.
EXTERNAL FAILURE COSTS

Warranty charges - The costs involved in replacing or making
repairs to products that are still within the warranty period.

Complaint adjustment - The costs of investigation and
adjustment of justified complaints attributable to defective
product or installation.

Returned Materials - The costs associated with receipt and
replacement of defective product received from the field.

New customers lost because of quality - Profit on
potential customers lost because of poor quality.

Allowances - The costs of concessions made to customers due to
substandard products accepted by the customer as is or to
conforming product that does not meet customer needs.
APPRAISAL COSTS

Final inspection and test - Evaluation of conformance
to requirements for product acceptance.

Maintaining accuracy of test equipment - Keeping
measuring instruments and equipment in calibration.

Evaluation of stocks - Testing products in field storage
or in stock to evaluate degradation.
PREVENTION COST

Process
planning
-

Training - Preparing and conducting quality-related
Process capability studies,
inspection planning, and other activities associated with
the manufacturing and service processes.
training programs.

Quality
planning
–

Quality audits - Evaluating the execution of activities in
cost of developing
implementing quality management program
and
the overall quality plan

New Product Review - Reliability engineering and
other quality-related activities associated with the
launching of new design.
MEASURING COST OF QUALITY

Index Numbers
 Labor

ratio of quality cost to labor hours
 Cost

index
Ratio of quality cost to manufacturing cost
 Sales

index
index production index
Ratio of quality cost to sales
 Production

index
Ratio of quality cost to units of final products
QUALITY/COST RELATIONSHIP

Cost of Quality
Difference between price of nonconformance and
conformance
 Cost of doing things wrong
 20% to 35% of revenues
 Cost of doing things right
 3% to 4% of revenues
 Profitability in the long run, quality is free

QUALITY MANAGEMENT
DEFINITION OF QUALITY MANAGEMENT

Quality management is an organization-wide approach
to understanding precisely what customers need and
consistently delivering accurate solutions within
budget, on time and with the minimum loss to society.
COMPONENTS OF QUALITY MANAGEMENT

Quality management can be considered to have three
main components:
quality control,
 quality assurance
 quality improvement

QUALITY ASSURANCE & QUALITY
CONTROL
 Quality assurance or QA, is concerned with making sure that
quality is designed into the service package and remains as it
is produced and given to the customer.

Quality control is a process employed to ensure a certain
level of quality in a product or service. The basic goal of
quality control is to ensure that the products, services and
processes provided meet specific requirements and
satisfactory
QUALITY ASSURANCE
Steps to implement QA in Service Industry:
Identify The Expectations Of The Customers
 Determine The Standards
 Measure And Compare Performance
 Analyze
 Plan

STEPS OF QUALITY ASSURANCE

1st step: Identify The Expectations Of The Customers
Knowing what customer expect is the first and
possibly most critical step in delivering quality
service.
STEPS OF QUALITY ASSURANCE

2nd Step : Determine standards
Depending on the feedback and expectations
that organization can determine its quality
standards.
STEPS OF QUALITY ASSURANCE

3rd step: Measure and Compare
Current performance should be measured
or can also be compared with target
quality standards to find gap.
STEPS OF QUALITY ASSURANCE

4th step: Analyze
Find the cause and gap. The entire
workforce should be encouraged to
participate in the process.
STEPS OF QUALITY ASSURANCE

5th step: Plan
Depending upon the gap and the problems ,
organization should plan to achieve its set
quality goals.
QUALITY CONTROL
Maintain the quality consistently by covering the
following :



Products/ services
Process
People
QUALITY IMPROVEMENT
QUALITY IMPROVEMENT
•
•
•
To support and develop a process of continuous
improvement in Quality-selection of quality tools
and techniques.
Peter(1987) suggested if customer perception of
service is “excellent” and it consistently meets
their needs, the organization will establish a
reputation .
For example , Ritz hotel and Disneyland.
QUALITY IMPROVEMENT [CONT’D]
Crosby’s fourteen step quality improvement program:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Management commitment
Quality improvement team
Quality measurement
Cost of quality evaluation
Quality awareness
Corrective action
Establish an ad hoc committee for the zero defect programme
Supervisor training
Zero defects day
Goal setting
Error cause removal
Recognition
Quality councils
Do it over again

Quality is managed by 3 interrelated processes:
Quality planning
Quality control
Quality Improvement


Knowing what customer needs help to make continuous improvement
The approach towards quality improvement is not new, it was already
advocated by Quality Gurus(Deming 1986,Juran 1988a)

Some examples of quality improvement are:

Kaizen

Total Quality Management

Quality circle
ROLE OF EMPLOYEES



The quality of service and the level of customer
satisfaction will be highly dependant upon the
employee who interacts with the guest
Employee involvement and empowerment can improve
decision making in the service industry
Training
QUALITY CIRCLE
3-15 of
volunteers
Implementation
Problem
Analysis
monitoring
Problem
identification
suggestions
QUALITY AWARDS



Quality awards are the formal recognition of quality
achievements given to organizations by quality bodies.
Quality awards used by organizations for self
assessment purposes
International Awards such as:
Malcom Bridge National Quality Award(MBNQA)
 European Quality Award(EQA)

QUALITY AWARDS [CONT’D]
o




Deming Prize
The Deming Prize is the oldest
quality award dating back to 1951.
It is regarded as extremely
prestigious award in Japan.
Applicants are judged in 10 aspects
of quality management:
policy and objectives
o


Malcom Baldrige National
Award
Inspired by the Deming Prize, the
MBNQA was introduced in 1987
The assessment process is similar
to Deming Prize but used 9
criteria:

Leadership

Information and Analysis

Organization and its operation

Strategic planning

Education and its extension

Customer and market focus

Assembly and dissemination of information

Information analysis

Human Resource

focus

Process management

Business results

Customer and market focus

analysis

Standardization

Control

Quality assurance

Results

Effects and the future plans
ISO 9000

ISO 9000 is a generic standard. It can be applied to any organization that intends to
set up a quality management.

ISO is a worldwide federation of national standards and the ISO 9000 is a series of
internationally accepted guidelines.

The ISO 9000 series define and set out a list of features and characteristics which
should be present in an organization’s documented policies, manual and procedures.

The term “isos” is a Greek word meaning equal, homogenous or uniform.

This is precisely the idea behind ISO 9000 which is an attempt to bring in uniformity in
the quality standards prevailing.

Aim-systematic quality assurance and control

General terms which are defined in the standards and not the specific methods by
which control can be achieved.

Hotels are different: use of ISO for contract purposes
ISO 9000[CONT’D]

Why standard matter?
The standard have 2 main functions: the first one is an introduction to series
and this identifies the aspects to be covered by organization’s quality system

Standards ensure desirable characteristics of product and services such as
quality , environmental friendliness, safety

In the absence of standards we soon notice it.

ISO STANDARDS
•
•
•
Make the development, manufacturing and supply of products and services more
efficient, safer and cleaner.
Provide governments with a technical base for health, safety and environmental
legislation and conformity assessment.
Safeguard consumers
ISO 9001:2000



In 2000,the ISO-9000 was revised
ISO-9001:2000-applies to all organizations including
services, manufacturing and govt.
Purpose-is to establish a management system that
provides confidence to producing org
ISO-9004:2000-gives guidelines for performance
improvements
EXAMPLES OF ISO 9001:2000

Air Mauritius

Naiade Resorts