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Quality and the Customer
The Cost of Quality
SCM 440, Fall 2011
Rui Yin
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Strategic Quality Management:Defining Characteristic #1
Quality is defined from the customers
point of view.
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David Garvin's Eight Dimensions of Quality
Dimension Description
Performance A products primary operating characteristics
Features Secondary characteristics that supplement basicfunctions
Reliability Probability of a product failing within a specified period oftime
Conformance Degree to which a products design and operatingcharacteristics match pre-established standards
Durability Expected product life
Serviceability Speed, courtesy, and competence of repair
Aesthetics How a product looks, feels, sounds, tastes, or smells
Perceived Quality Images, advertising or brand names
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The Strategic Importance of QualityDimensions
Segmentation strategy: Compete on a niche dimension
Avoid quality errors: Tailor organization and operationsto meet specific needs
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Quality in Practice:L. L. Bean
The Best Strategy: Customer utilitymatrices
Disaggregate approach to quality: Product,service and communications
Compare against the competitors
Develop an internal group which operates as
a customer: Getting customers viewinternalized
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Quality in Practice:Baxter Healthcare
Internal survey: Quality profile
External market research
Qualitative Quantitative
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Customer Listening Posts
Comment cards andformal surveys
Focus groups
Direct customer contact Field intelligence
Complaint analysis
Internet monitoring
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Customer Relationship Management
Accessibility and commitments
Selecting and developing customer contactemployees
Relevant customer contact requirements
Effective complaint management
Strategic partnerships and alliances
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Quality in Practice:Pals Sudden Service
2001 Malcolm Baldrige National QualityAward in Small Business
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Case Discussions:Missing Reservation
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Strategic Quality Management:Defining Characteristic #2
Quality is linked with profitability on boththe market and the cost sides
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Quality and Cost
Prevent ProblemsReduce Defects
LowerMfg.
Costs
LowerServiceCosts
Increased Profits
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Escalation in Cost of ErrorsDown the Production Line
SupplierInspectionCosts
FinalProductTest
Costs
ProductServiceCosts
$ 0.003
$ 30
$ 300
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The Cost of Quality (COQ) Model
Purpose: Translates defects, errors, etc.into the language of money $$$
COQ the cost of avoiding poor quality, orincurred as a result of poor quality
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Quality Cost Classification
Internal failure costs Scrap and rework costs
Costs of correctiveactions
Downgrading costs
Process failures
External failure costs Costs due to customer
complaints or returns
Product recall costs andwarranty claims
Product liability costs
Prevention costs Quality planning costs Process control costs Information system
costs
Training and generalmanagement costs
Appraisal costs Test and inspection
costs
Instrumentmaintenance costs
Process measurementcosts
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Quality Cost Index
Relative index: current value / a base period value
Labor base index: current value / direct labor cost Sales base index: current value / total sales
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Pareto Analysis
Complaint Count Cumulative Count Cumulative Percentage
Delayed delivery 1200 1200 52.20%
Pizza not hot 600 1800 78.29%
Inadequate topping quantity 105 1905 82.86%
Damaged delivery 100 2005 87.21%Wrong size delivered 95 2100 91.34%
No or less seasoning 75 2175 94.61%
Incorrect billing 57 2232 97.09%
Inadequate cheese quantity 55 2287 99.48%
Not baked properly 12 2299 100.00%
Total 2299
Complaint Count
Pizza not hot 600
Inadequate topping quantity 105Inadequate cheese quantity 55
Not baked properly 12
No or less seasoning 75
Delayed delivery 1200
Damaged delivery 100
Incorrect billing 57Wrong size delivered 95
Example:Pizza Delivery
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Pareto Diagrams
Pareto Principle: 80-20 rule or rule of vital few(Dr. Juran: vital few vs. usefulmany )
0
200
400
600
800
1000
1200
1400
Delay
eddelivery
Pizza
notho
t
Inade
quate
topping
quantit
y
Dama
gedd
elivery
Wron
gsize
delivered
Noor
less
seas
oning
Incorr
ectbilling
Inade
quate
chee
sequantit
y
Notb
aked
properly
Complaint
Count
0%
20%
40%
60%80%
100%
120%
Cumulative
Percentage
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Quality and Profitability
Improved Quality
MoreMarket
Share
HigherPrices
Increased Profits
Improved Reputation