Chapter 1

Quality Management and Assurance

 Lecture Outline

 Introduction  Major Factors which

 Basic Concepts of Determine Quality of
quality Purchased goods and
 Cost of Quality services
 Statistical Control Charts
 Role of Procurement in
Quality Management  Inspection and Quality
Control
 Chapter objectives

Upon completion of this unit, students should be

able to
 Define quality and understand the quality definition
dimensions
 Understand quality management systems
 Describe the roles of procurement in quality
management
 Identify the major factors which determine the quality
of purchased goods and services
 Understand the roles of SPC techniques and
inspection to assure quality
 1.1 Introduction

 Quality, or lack of quality, impacts the

entire organization

Achieving a 99% level of quality

means

accepting a 1% error rate

 Introduction (cont.)
In France a 1% error rate
would mean everyday
 14 minutes without water or electricity
 50,000 parcels lost by postal services
 22 newborns falling from
midwives’ hands
 600,000 lunches contaminated
by bacteria
 3 bad landings at Orly Paris airport
Result: 1% failure
 Introduction (cont.)

 Ultimate goals of quality:

 win customer
 improve profitability
 Introduction (cont.)
 Improved quality affects profitability in two ways:

 Sales Gains via

 Improved response
 Flexible pricing
Improved
Quality  Improved reputation Increased
 Profits
Reduced Costs via
 Increased productivity
 Lower rework and scrap costs
 Lower warranty costs
 Introduction (cont.)

 Productivity
 ratio of output to input
 Quality impact on productivity
 fewer defects increase output, and
 quality improvement reduces inputs
 Introduction (cont.)

 Increase in productivity with improved quality

Before Improvement After improvement –

Item – 10% 5% nonconforming
nonconforming
Relative total costs of 20 units 1.00 1.00

Conforming units 18 19
Relative cost of non-conforming 0.10 0.05
units
Productivity increase ?
Capacity increase ?
Profit increase ?
 Introduction (cont.)

Before Improvement After improvement –

Item – 10% 5% nonconforming
nonconforming
Relative total costs of 20 units 1.00 1.00

Conforming units 18 19
Relative cost of non-conforming 0.10 0.05
units
Productivity increase 1/18(100)=5.6%
Capacity increase 1/18(100)=5.6%
Profit increase 1/18(100)=5.6%
 1.2 Basic Concepts of Quality

 What is quality?
 Basic dimensions of quality
 Quality Management
 Quality Management Systems
 1.2.1 What Is Quality?

 In technical usage, the word quality is

widely accepted to have two meanings

A characteristic of a product or service
that bears on its ability to satisfy stated or
implied needs, and

A product or service free from deficiencies
 Definitions of Quality (cont.)
 Transcendent definition: excellence
 Product-based definition: product
attributes/capabilities
 User-based definition: fitness for
intended use
 Manufacturing-based definition:
conformance to specifications
 Definitions of Quality (cont.)

 How is customer satisfaction achieved?

 Two dimensions: Product features and Freedom from
deficiencies.
 Product features – Refers to quality of
design.
 Examples in manufacturing industry:
Performance, Reliability, Durability, Ease of
use, Esthetics, Safety etc.
 Examples in service industry: Accuracy,
Timeliness, Friendliness, Courtesy, Knowledge
of server etc.
 Definitions of Quality (cont.)

 Freedom from deficiencies – Refers to

quality of conformance- (This is related to
free from defects.).
 Higher conformance means fewer complaints
and increased customer satisfaction.
 1.2.2 Quality Management
and QMS
 Quality management comprises:
 all coordinated activities to direct and control
an organization with regard to quality
 all activities in an organization that are
required to
plan for quality, and
satisfy quality objectives.
Reporting Patient/Client Prep
Sample Collection
Personnel Competency
Test Evaluations
Data &
Laboratory
Management
Safety
Sample Receipt and
Customer
Accessioning
Service

Record Keeping

Sample Transport
Quality Control
Testing
 Quality Management (cont.)

 Quality management comprises four elements

 Quality Management(cont.)

 Quality planning:
 refers to activities that are performed to:
 Establish quality objectives
 Identify quality requirements

 Plan for a Quality Management System

 Plan for process execution (in accordance with

the QMS)
 Quality Management(cont.)

 Quality control:
 comprises activities executed to fulfill
requirements for quality such as:
 activities to monitor a process to ensure its output is
of required quality; and
 activities to correct discrepancies when they occur
Quality Management(cont.)
 Quality Management(cont.)

 Quality assurance
 comprises:
 allthe planned and systematic activities
implemented within the quality system that can be
demonstrated to provide confidence that a product
or service will fulfill requirements for quality
 Two primary parties that have a need for quality
assurance
 Management
 Customers
 Quality Management(cont.)

 Quality assurance and quality control collectively

encompass:

achievement of quality requirements has to be
planned;

adequate means to achieve quality requirements
have to be provided and deployed throughout the
organization; and

achievement of quality requirements has to be
monitored continually(and appropriate action taken,
when necessary).
 Quality Management(cont.)
 Quality improvement:
 Involves enhancement in the
 effectiveness and efficiency of processes; and

 extent to which a product satisfies applicable

requirements (including quality requirements).

 Efficiency:
 refers to savings in time, money, and effort expended to
accomplish a task.
 Effectiveness:
 refers to the goodness or quality of an accomplished
task
 Quality Management(cont.)

 An effective quality improvement process

 Quality Management(cont.)

 Quality Management System (QMS)

 consists of the organizational structure,
procedures, processes, and resources
needed to implement quality management
 is the means by which quality management
practices are made an integral part of an
organization
 Quality Management(cont.)

 QMS has
 a structure, a defined scope,
responsibilities, necessary content (in terms
of defined processes and supporting QMS
documentation), and
 required resources to accomplish quality
planning, quality control, quality assurance,
and continuous quality improvement
activities.
Benefits of QMS Implementation
 1.2.3 Evolution of Quality
Management (Reading Assignment)
 Time line showing the differences between old and
new concepts of quality
 Evolution of Quality
Management(cont.)
 Philosophies of the Quality Gurus
 Walter A. Shewhart
 W. Edwards Deming
 Joseph M. Juran
 Philip B. Crosby
 Genichi Taguchi
 Masaaki Imai
 Management Approaches to Quality
Management
 “same wine, different bottles.”
 Evolution of Quality
Management(cont.)
 The major management approaches/systems that
contribute to the improvement and maintenance of
quality internally in companies and across supply
chains:
 Total Quality Management (TQM),

 Six Sigma,

 Zero defects,
 1.3 Cost of Quality
 Total Cost of Quality includes
 cost of meeting quality requirements
 Prevention costs
 Detection/Appraisal costs

 cost of not meeting requirements (cost of poor

quality)
 Failurecosts
 Internal failure costs
 External failure costs
Cost of Quality (cont.)
 Cost of Quality (cont.)

A. Prevention Costs
 Quality planning costs  Training costs

costs of developing and
 costs of developing and
implementing quality putting on quality training
management program programs for employees
 Product-design costs and management

costs of designing  Information costs
products with quality  costs of acquiring
characteristics and maintaining data
 Process costs related to quality, and

costs expended to make development and
sure productive process analysis of reports on
conforms to quality quality performance
specifications
 Cost of Quality (cont.)

B. Appraisal Costs
 Inspection and testing

costs of testing and inspecting materials, parts, and
product at various stages and at end of process
 Test equipment costs

costs of maintaining equipment used in testing
quality characteristics of products
 Operator costs

costs of time spent by operators to gather data for
testing product quality, to make equipment
adjustments to maintain quality, and to stop work to
assess quality
 Cost of Quality (cont.)
C. Failure costs: Costs of producing poor quality
Internal Failure Costs
 Scrap costs

costs of poor-quality  Process downtime costs
products that must be
discarded, including labor,  costs of shutting down
material, and indirect costs productive process to fix
 Rework costs problem

costs of fixing defective  Price-downgrading costs
products to conform to
quality specifications  costs of discounting poor-
 Process failure costs quality products—that is,

costs of determining why selling products as
production process is “seconds”
producing poor-quality
products
 Cost of Quality (cont.)

External Failure Costs

 Product liability costs
 Customer complaint costs  litigation costs

costs of investigating and resulting from product
satisfactorily responding to a liability and customer
customer complaint resulting injury
from a poor-quality product
 Product return costs  Lost sales costs

costs of handling and replacing
 costs incurred
poor-quality products returned because customers
by customer are dissatisfied with
 Warranty claims costs poor-quality products
and do not make

costs of complying with additional purchases
product warranties
Cost of Quality (cont.)
Cost of Quality (cont.)

“It costs a lot to produce a bad product.”

 1-10-100 Rule
“One dollar spent on prevention will save $10 on
appraisal and $100 on failure costs.”

Preventio 1
n
$ 1
Correctio $
0
n $ $ 10
Failur $ 0
$
e $
$
$
$
 Quality Cost of Quality (cont.)

Quality Cost Management shows that

increased Prevention Costs reduce the Total Quality Costs.
as the prevention efforts are increased, the costs for
inspection, internal failures and external failures drop.
 1.4 Role of Procurement in Quality
Management

 Quality in absolute term has no meaning

in the procurement vocabulary
 For supply managers’, quality is defined
as:
 relative to a need (suitability)
 conformance with stated requirements
(specifications)
 Role of Procurement in
Quality Management (cont.)
 Procurement’s responsibilities (roles)
to quality management mainly lie on
ensuring that
 quality is adequately defined for every
commodity of product to be purchased;
 the purchasing department knows just what is
required;
 the specification enables the supplier to build
quality in to the product;
Role of Procurement in
Quality Management (cont.)
 the purchase order or contract is made out
with a proper description of what is wanted;
 the supplier is fully informed of the buyer’s
quality requirements; and
 suitable means of inspecting and testing are
in place
 1.5 Factors which Affect Quality of
Purchased Materials

4 Key Factors:
 Materials specifications
 Selection of suppliers
 Understanding and motivation of
suppliers
 Measurement of suppliers quality/cost
performance (Control)
 1.5.1 Materials Specifications

 Materials specification is about

 How quality is determined?
 How quality is described?
 How quality is determined?
 Technical
considerations of suitability
 Economic considerations of cost and availability
 Materials Specification (cont.)
 How quality is described?
 Materials Specification (cont.)

 Purposes of quality description

 Three purposes of quality descriptions of
purchased items:
 make it possible to describe the items listed
in purchase orders
 let the supplier know precisely what the
buyer wants
 permit inspection by specified measurement
of test
 1.5.2 Selection of Suppliers

 Procurement should support through:

 Selection of capable, competent and
cooperative suppliers
 Three methods of evaluating suppliers’
quality capability
 product testing,
 proposal analysis, and
 capability survey
 Selection of Suppliers (cont)
i. Product Testing
 Purpose:
 to determine that a potential supplier’s
quality level is commensurate with the
buyer’s quality needs
 to compare quality levels of several different
suppliers
 Can be done in two ways;
 engineering (laboratory) tests or
 use test
 Selection of Suppliers (cont)

ii. Proposal Analysis

 Bidders indicate in their proposals, either
directly or indirectly, how they intend to
comply with the quality requirements of
the purchase
 Technical proposals
 Financial proposals
 Selection of Suppliers (cont)
iii. Capability Survey
 Capability survey is a process which
involves:
 an onsite evaluation of quality capabilities of
suppliers.
 inspecting a bidder’s facilities and records,
 talking with management and operating personnel

 finding answers to questions such as

 What is the firm’s basic policy with respect to product quality
and quality control?
Selection of Suppliers (cont)

 What is the general attitude of operators and

supervisors toward quality?
 What are the bidder’s engineering / production
experience and ability with respect to the type of
work?
 Is the bidder’s production equipment capable of
consistently producing the quality of work required?
 Exactly how is the bidder organized to control
quality, and to what extent does the quality
assurance organization receive management
support?
Selection of Suppliers (cont)

 What specific quality control progress,

techniques, and test equipment does the
bidder employ? Is SPC utilized effectively?
 1.5.3 Development of a realistic understanding with
suppliers of quality requirements and creation of the
motivation to perform accordingly.

 Motivation of suppliers
 ensuring suppliers have common understanding on
quality requirements
 cooperatively develop defect prevention system
 training by the buying firm of suppliers’ personnel
 follow-on business in a longer term continuing
relationship
 public recognition of exceptional supplier quality
performance
 1.5.4 Monitoring of suppliers’ quality
performance—and exercise of appropriate
control.

 Control of suppliers quality performance

through:
 Defect Detection System (Acceptance
Sampling)
 Defect Prevention System
 Monitoring of suppliers’ quality
performance

i. Defect Detection System

 Is a system of controlling supplier’s
quality performance which
 use inspection to identify items produced in a
batch that do not meet the design specification.
 Monitoring of suppliers’
quality performance
 Two kinds of inspection
 Receiving Inspection
 Technical Inspection
 Receiving Inspection
 Focuses on overall checking
 Involves comparison of documents such as:

 Purchase order
 Delivery note
 Packing list
 Produces Goods Receiving Note (GRN)
 Monitoring of suppliers’
quality performance
 Technical Inspection:
 is the process of doing detailed testing on the
quality of incoming materials
 is needed when materials that are described by
performance, detail specification, and sample
 Process:
 Take sample from a batch of production
 Inspect the sample and analyze

 Make the decision to accept or reject the batch

based on the result of sample inspection

 Monitoring of suppliers’
quality performance
 Alternative courses of action if materials
are found to be defective:
 Return the material to the supplier
 Keep some of the more acceptable material
and return the rest
 Keep all the material and rework it to the
point where it is acceptable
 Monitoring of suppliers’ quality
performance

 Basic limitations:
 duplication of inspection activity
 a very large number of items are inspected
 defective items are found only after they are
finished (or semi-finished)
 Monitoring of suppliers’ quality
performance

ii. Defect Prevention System

 It is a system of quality control which:
 focuses on detecting the operation (process)
problems that produce defective items before many
defectives are produced
 monitors the output of a process as it occurs
and identifies unacceptable process
changes soon after they occur
 uses statistical process control (SPC) to
detect such process changes
Monitoring of suppliers’ quality
performance
 1.6 Quality Control Concepts

 Quality control
 is a process that measures output relative to a standard
and takes corrective action when output does not meet
standards.
 Understanding variations
 Use tools such as:
 Process Capability Analysis
 Process Capability Index
 Statistical Process Control
 Acceptance sampling
 1.6.1 Process Capability Analysis

Process capability analysis :

 Is the process of evaluating the ability of
a production process to meet or exceed
preset specifications of a buyer.
 Compares
 a buyer’s desired range of quality, and
 natural tolerance range of a potential
supplier’s production process
 Process Capability Analysis
Buyer’s Range of Design Specification

(a) Natural variation

exceeds design
specifications; process
is not capable of
meeting specifications
all the time.
Process

Buyer’s Range of Design Specification

(b) Design specifications

and natural variation the
same; process is capable
of meeting specifications
most of the time.

Process
 Process Capability Analysis
Buyer’s Range of Design Specification

(c) Design specifications

greater than natural
variation; process is
capable of always
conforming to
specifications.
Process

Buyer’s Range of Design Specification

(d) Specifications greater

than natural variation, but
process off center;
capable but some output
will not meet upper
specification.
Process
 Process Capability Analysis

Example 1:
 Assume that a buyer wants to purchase
100,000 metal shafts 1 inch in diameter, with a
tolerance of + 0.005 inch. Assume further that
the supplier has studied its process, stabilized
it, and knows its natural capability for this type
of job to be 1 inch + 0.004.
 Is the supplier acceptable to the buyer’s
requirement?
Process Capability Analysis
 Process Capability Analysis

Example 2:
 Assume now that the buyer wants to purchase
100,000 shafts 1 inch in diameter, with a
tolerance of + 0.003 inch. Assume further that
the supplier has studied its process, stabilize it,
and knows its natural capability for this type of
job to be 1 inch + 0.004.
 Is the supplier acceptable to the buyer’s
requirement?
Process Capability Analysis
 Process Capability Analysis

 A capable buyer, before selecting a

supplier, must determine:
 whether the potential supplier in fact knows what
the natural capability range for its production
process is
 if so, whether the buyer’s desired range of quality is
compatible with the supplier’s natural capability
range; and
 if so, how the supplier plans to monitor the process
to ensure that it stays in control so that it will
consistently produce satisfactory output.
 1.6.2 Process Capability Index

 Another way of expressing a process’s

capability relative to a buyer’s specific
design requirements is by means of a
process capability index (PCI).
 Process Capability Index

Process Capability Index

Buyer’s tolerance range

PCI =
Supplier’s natural process capability range

upper specification limit -

lower specification limit
= Supplier’s natural process capability range
 Process Capability Index

 A PCI value of
 1 indicates that the capability range of the
process matches exactly that quality range
required by the buyer.
 more than 1 reveals excess process quality
capability, and
 less than 1 indicates insufficient process
capability.
 Process Capability Index

Consider figure a and b below and determine the PCI

for both

a) b)
 Process Capability Index

PCI (a)

PCI (b)

 In case (a), the PCI = 1.25, indicating that the

quality capability of the process exceeds the
buyer’s requirement.
 In case (b), the PCI = 0.75, showing clearly that the
process is not capable of satisfying the buyer’s
quality requirement