Chapter 5 – Part 2
The TQM Philosophy
Cost of Quality

“Cost of quality” is misleading.

There are some costs associated with
monitoring and improving quality:
Prevention costs
 Appraisal costs


Other, far greater, costs are associated, not
with quality, but with a lack of quality:

Internal failure costs
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

Rework
Scrap
External failure costs
Costs of Monitoring and Improving
Quality

Prevention Costs

Cost of designing and implementing a
quality plan.



Cost of implementing process controls
designed to provide early feedback on quality
performance of process,
Cost of worker training,
Appraisal Costs

Costs of evaluating how well prevention
activities are working.
Cost of Poor Quality

Internal Failure Costs


Costs incurred to fix problems that are
detected before the product/service is
delivered to the customer.
External Failure Costs

All costs incurred to fix problems that are
detected after the product/service is delivered
to the customer.



Repairs
Returns
Recalls
Cost of Poor Quality

Which is more costly—internal or external
failure costs?
 Why?
Consequences of Poor Quality

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Loss of market share
Loss of goodwill
Lawsuits
Lower productivity
Higher cost
Poor morale
Quality Gurus
Deming’s 14 Points
1. Create constancy of purpose
 Don’t switch course –e.g., from output
this month, quality next month
2. Adopt philosophy of defect prevention
and continuous improvement
 Can only work if management
understand the causes of the company’s
defects:
Deming’s 14 Points
 80% to 85% of problems that cause defects
are due to faults inherent in the company’s
systems.
 Bad parts and materials
 Outdated machines
 Too many non-value added steps in a process
which reduce cycle time
 Poor lighting on factory floor
15% to 20% are caused by the workers.
Deming’s 14 Points
 Since management, not the workers, is
responsible for designing the company’s
systems and since most of the problems are
caused by the systems, the majority of the
problems are caused by management, not the
workers.
 It follows that most of the problems
encountered by workers are system
problems, which cannot be fixed by the
workers.
 They must be fixed by management.
Deming’s 14 Points
 Therefore, defect prevention and
continuous improvement can only be
achieved if management understands that
the worker “works in the system” and that it
must “work on the system.”

“Work on the system” means that to
continually improve the system.
 But how can management improve the
company’s systems when it is far removed
from the day-to-day operation of the
systems?
Deming’s 14 Points
3. Cease dependence on mass inspection
 Reactive, not proactive
 Focus should be on fixing process, not
product.
 Cannot inspect quality into a product.
 Adds to cost of producing product
 Not 100% effective
Deming’s 14 Points
4. Select suppliers based on quality, not
price. Look at total cost.
 Total cost = Purchase price + Cost of
using part
 Cost of using part = Cost of rework +
Cost of scrap
Deming’s 14 Points
5. Constantly improve system by finding and
eliminating problems and by reducing
variation by using

SPC and

“Plan, Do, Study, Act Cycle” (PDSA).

A diagram that describes the steps that
need to be performed to continuously
improve a process.
PDSA Details

Plan

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Do

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Implement the pilot version of improvement plan
Study

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Evaluate current process
Identify problems
Develop an improvement plan
Develop metrics to measure improvement
Collect data, study data and evaluate plan
Act

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If successful, implement plan
If not, revised plan and implement revised plan
Repeat Step 1
PDSA
Deming’s 14 Points
6. Continually improve the workers
 Conduct frequent training programs to
upgrade their skills.
7. Instill leadership among supervisors
 Supervision ( punitive) - point out what’s
wrong
 Leadership (Inspirational) - coach, help
workers improve
Deming’s 14 Points
8. Eliminate fear among employees


Fear of being blamed if you report problems
“Where there is fear, there will be wrong
numbers.”
9. Eliminate barriers between departments
 Most problems cross department lines
 Cross functional teams are needed to solve
these problems

Can’t be done if there are barriers between
departments
Deming’s 14 Points
10. Eliminate slogans

“Do it right the first time.”

Slogans imply that workers cause most of
defects when most are caused by the
system.
Deming’s 14 Points
11. Remove numerical quotas
 Stress quantity, not quality
 Why exceed it?
 Often set beyond capability of system
 Performance evaluation-- base it on
statistically significant improvement,
not random variation.
12. Enhance worker pride
 Give workers tools, equipment
needed to do their job.
Deming’s 14 Points
13. Select a few (one or two) suppliers for each
part and/or material and develop LT,
partnership relationship.

To many suppliers per part increases
administrative cost.

May miss opportunities for quantity
discounts.
Mixing parts from different suppliers
increases variability.

14. Develop a commitment from top
management to implement these points.
Six Sigma – GE
1. Overview of Six Sigma - Read
http://www.ge.com/annual97/sixsigma/index.htm
2. Letter to shareholders by Jack Welsh
and senior management - Read
http://www.ge.com/annual97/share/index.htm
3. Lots of additional material on Six Sigma
http://www.ge.com/search/index.jsp
Six Sigma



Developed by Motorola, Texas Instruments
Largely responsible for success of GE under
CEO Jack Welsh.
Jack Welsh talk at MIT:
"If you run a company like GE, you don't
know much in the way of details about the
businesses .... In the CEO's world," he told
them, "it's the people you need to focus on.
The CEO of GE puts the right people in the
right jobs, gives them the resources they
make a case for, and gets out of their way."
What is Six Sigma?


Six Sigma is a highly disciplined process that
helps us focus on developing and delivering
near-perfect products and services.
Why "Sigma"? The word is a statistical term
that measures how far a given process
deviates from perfection.
What is Six Sigma?



The central idea behind Six Sigma is that if
you can measure how many "defects" you
have in a process, you can systematically
figure out how to eliminate them and get as
close to "zero defects" as possible.
To achieve Six Sigma Quality, a process must
produce no more than 3.4 defects per million
opportunities.
What does this mean in terms of LSL and
USL?
Key Concepts of Six Sigma
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Critical to Quality: Attributes most
important to the customer
Defect: Failing to deliver what the customer
wants
Process Capability: What your process can
deliver
Key Concepts of Six Sigma


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Variation: What the customer sees and feels
Stable Operations: Ensuring consistent,
predictable processes to improve what the
customer sees and feels
Design for Six Sigma: Designing to meet
customer needs and process capability
Six Sigma - GE
• Six Sigma project work consists of five
basic activities:

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Define,
Measure,
Analyze,
Improve and then
Control processes
•. DMAIC
Our Customers Feel the Variance,
Not the Mean
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Customers don't judge us on averages, they
feel the variance in each transaction, each
product we ship.
Six Sigma focuses first on reducing process
variation and then on improving the process
capability.
Customers value consistent, predictable
business processes that deliver world-class
levels of quality.
Six Sigma at GE

Superabrasives — our industrial diamond
business — described how Six Sigma
quadrupled its return on investment and, by
improving yields, and thus providing a full
decade’s worth of capacity despite growing
volume — without spending a nickel on plant
and equipment capacity.
Six Sigma at GE

GE bank customers are more competitive
because their processes--credit card and
mortgage application processes--are more
streamlined and their inventory level are
reduced.
Six Sigma at GE

In the language of Six Sigma, terms like
“CTQ’s” (critical to quality characteristics) or
“DPMO’s” (defects per million opportunities)
or “SPC” (statistical process control) have
exactly the same meaning at every GE
operation from Tokyo to Delhi and from
Budapest to Cleveland and Shanghai.
Six Sigma at GE

Six Sigma training is now an ironclad prerequisite
for promotion to any professional or managerial
position in the Company — and a requirement for
any award of stock options.
 Senior executive compensation is now heavily
weighted toward Six Sigma commitment and
success
 There are now nearly 4,000 full-time, fully trained
Black Belts and Master Black Belts: Six Sigma
instructors, mentors and project leaders.
Six Sigma at GE


There are more than 60,000 Green Belt part-time
project leaders who have completed at least one
Six Sigma project.
Already, Black Belts and Master Black Belts who
are finishing Six Sigma assignments have become
the most sought-after candidates for senior
leadership jobs in the Company, including vice
presidents and chief financial officers at some of
our businesses.
Six Sigma at GE

Already, Black Belts and Master Black Belts who
are finishing Six Sigma assignments have become
the most sought-after candidates for senior
leadership jobs in the Company, including vice
presidents and chief financial officers at some of
our businesses.
Six Sigma at GE
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
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DFSS (Design for Six Sigma) - A systematic
methodology utilizing tools, training and measurements to
enable us to design products and processes that meet
customer expectations and can be produced at Six Sigma
Quality levels.
DMAIC (Define, Measure, Analyze, Improve and
Control) - A process for continued improvement. It is
systematic, scientific and fact based. This closed-loop
process eliminates unproductive steps, often focuses on
new measurements, and applies technology for
improvement.
Six Sigma - A vision of quality, which equates with only
3.4 defects per million opportunities for each product or
service transaction. Strives for perfection.
Quality Tools

Control Chart - Monitors variance in a process
over time and alerts the business to unexpected
variance which may cause defects.
 Defect Measurement - Accounting for the number
or frequency of defects that cause lapses in product
or service quality.
 Pareto Diagram - Focuses on efforts or the
problems that have the greatest potential for
improvement by showing relative frequency and/or
size in a descending bar graph. Based on the proven
Pareto principle: 20% of the sources cause 80% of
any problems.
Quality Terms
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Black Belt - Leaders of teams responsible for measuring,
analyzing, improving and controlling key processes that
influence customer satisfaction and/or productivity
growth. Black Belts are full-time positions.
Control - The state of stability, normal variation and
predictability. Process of regulating and guiding
operations and processes using quantitative data.
CTQ: Critical to Quality (Critical "Y") - Element of a
process or practice which has a direct impact on its
perceived quality.
Customer Needs, Expectations - Needs, as defined by
customers, which meet their basic requirements and
standards.