Learning Objectives
1. What is quality, and from whose viewpoint should it be evaluated?
2. What is benchmarking, and why do companies engage in it?
3. What constitutes the total quality management philosophy?
4. How is the Baldrige Award related to quality?
5. What are the types of quality costs, and how are those types related?
6. How is cost of quality measured?
quality in an organization?
8. How is quality instilled as part of an organization’s culture?
9. (Appendix) What international quality standards exist?
IMPLEMENTING QUALITY CONCEPTS
CHAPTER
17
Chapter 17: Implementing Quality Costs IM 2
Terminology
Appraisal cost: a quality control cost incurred to monitor and compensate for mistakes not eliminated
through prevention activities
Benchmarking: the process of investigating, comparing and evaluating a company’s products,
Cost of compliance: the sum of prevention and appraisal costs; compliance costs are incurred to reduce
or eliminate the present and future costs of failure; thus, they are proactive expenditures
Cost of noncompliance: the sum of internal failure costs and external failure costs, resulting from
production imperfections
Internal benchmarking: benchmarking practice that directs its focus on how and why one organizational
unit is performing better than another
Internal failure costs: quality control costs, such as scrap or rework, incurred to remedy defective units
before they are shipped to customers
Process benchmarking: benchmarks against companies that are the best in a specific characteristic
rather than just the best in a specific industry
Quality: the summation of all the characteristics of a product or service that influences its ability to meet
the stated or implied needs of the buyer
Chapter 17: Implementing Quality Costs IM 3
publicly accessible website, in whole or in part.
Results benchmarking: benchmarking practice in which an end product or service is examined using a
process called reverse engineering; the focus is on product/service specifications and performance
results
Reverse engineering: refers to disassembling the product to determine how it was designed and how it
operates – generally so as to duplicate or enhance the product.
Total quality management (TQM): a management approach centered on quality, based on the
participation of all its members, and aiming at long-term success through customer satisfaction and
benefits to all members of the organization and society
Chapter 17: Implementing Quality Costs IM 4
publicly accessible website, in whole or in part.
Lecture Outline
LO.1: What is quality, and from whose viewpoint should it be evaluated?
A. Introduction
for competing in a global economy.
2. Consumers desire a wide variety of product choices but companies have resource
of delivery.
3. This chapter discusses the issues of quality, benchmarking, total quality management, quality
B. What is Quality?
1. General
a. After the Industrial Revolution, quality was defined as conformity to designated specifications.
allows the user rather than the producer to judge quality.
d. Currently, the following definition has general acceptance: Quality is the summation of all the
needs of the person acquiring it.
e. Quality should be viewed as both a production issue and a profitability and longevity issue.
f. All organizational processes (production, procurement, distribution, finance, and promotion)
2. Production view of quality
a. Productivity is measured by the quantity of good outputs generated during a time period and
any factor that either slows or stops a production process, or causes unnecessary work
reduces productivity.
added.
Chapter 17: Implementing Quality Costs IM 5
publicly accessible website, in whole or in part.
i. A value-added activity is an activity that increases the worth of the product or service to
value.
iii. Text Exhibit 17.1 (p. 686) lists some non-value-added activities and how they can be
reduced to achieve the specified benefits.
c. Many companies focus on a six sigma production view of quality, which means that a
process should produce no more than 3.4 defects per million “opportunities” (chances for
failure or not meeting required specifications).
maker or provider.
e. Statistical process control (SPC) includes techniques to identify fluctuations or variations
that occur in a process; SPC is based on the theory that a process has natural (common
cause) variations over time and that these variables can cause “errors,” resulting in defective
goods or poor service.
of computer-integrated manufacturing systems.
ii. A control chart can be used to analyze process variations. A control chart is a graphical
presentation of the results of a specified activity that indicates the upper and lower control
limits and when those results are out of control. (See text Exhibit 17.2 on p. 687.)
3. Consumer view of quality
a. Every customer who acquires a product or service receives a set of characteristics and a set
of organizational characteristics:
i. Product/service characteristics include features, warranty, packaging, and price
(purchase and after-purchase).
service, reputation, and credit availability.
b. From a customer’s perspective, quality relates to both performance and value.
characteristics apply to service organizations:
Chapter 17: Implementing Quality Costs IM 6
publicly accessible website, in whole or in part.
i. assurance, in that customers expect employees to be knowledgeable, courteous, and
trustworthy;
of personnel; and
iii. empathy, in that customers expect a high degree of caring and attention from employees.
d. Grade (of a product or service) refers to the addition or removal of product or service
characteristics or features in order to satisfy additional customer needs such as price.
e. Value is the characteristic of meeting the highest number of customer needs at the lowest
possible price.
LO.2: What is benchmarking, and why do companies engage in it?
C. Benchmarking
1. Benchmarking is the process of investigating, comparing, and evaluating a company’s products,
methods is gained which allows the benchmarking company to identify its own strengths and
weaknesses.
2. As indicated in text Exhibit 17.5 (p. 690), four basic types of benchmarking exist: internal, results,
process, and strategic.
performing better than another.
i. The primary difficulty with internal benchmarking is that none of the organizational units
may be performing on a quality level attained by external parties.
results.
i. However, if benchmarking leads to making an exact replica of another’s product, serious
ethical and legal considerations exist.
specific industry.
c. Process benchmarking focuses on best practices and how the best-in-class companies
achieved distinction.
Chapter 17: Implementing Quality Costs IM 7
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publicly accessible website, in whole or in part.
d. Strategic benchmarking is non-industry specific and focuses on how companies compete
and on the winning strategies that have enabled high performing companies to be successful
in their marketplaces.
3. Benchmarking steps are detailed in text Exhibit 17.6 (p. 692).
LO.3: What constitutes the total quality management philosophy?
D. Total Quality Management
1. General
b. TQM embodies four important tenets:
i. To dictate continuous improvement for an internal managerial system of planning,
controlling, and decision making for continuous improvement;
2. Quality System
a. Effective quality management requires the implementation of a system that provides
information on the organization’s quality processes so management can plan, control,
reasonable number of defects.
ii. The new way: Design quality in, prevent defects from occurring, and strive for continuous
improvement.
d. The new way of viewing quality produces these end results:
and
Chapter 17: Implementing Quality Costs IM 8
publicly accessible website, in whole or in part.
iii. Increased teamwork and movement of organizational attitude from product inspection
and defect correction to proactive quality assurance.
3. Employee involvement
part of the process of success.
c. Encouraging employees to make quality suggestions and training them to perform multiple
job functions will help improve efficiency and quality.
4. Product/service improvement
a. TQM focuses management’s attention on the relationship between the internal
evidence of success.
b. Companies must recognize that they may need to stop serving some groups of customers
based on the results of cost-benefit analyses. First, however, attempts should be made to
make “non–performing” customers profitable.
e. “Good” service is an intangible but most customers agree that good service reflects the
interaction between themselves and organizational employees.
5. Long-term supplier relationships
a. Adopting a TQM philosophy encourages companies to review their entire supply chain and
establish long-term relationships with preferred suppliers.
satisfaction.
i. Many of these relationships will result in single sourcing or certification of suppliers.
Chapter 17: Implementing Quality Costs IM 9
publicly accessible website, in whole or in part.
17.7 on p. 695).
LO.4: How is the Baldrige Award related to quality?
E. The Baldrige Award
health care.
c. To win the Baldrige Award, applicants must demonstrate excellence in seven categories:
leadership; strategic planning; customer and market focus; measurement, analysis, and
knowledge management; workforce focus; process management; and results.
i. Text Exhibit 17.8 (p. 697) illustrates the relationships among the criteria performance
categories.
improvement.
d. Putting TQM into practice in an organization can be very costly given the length of time
needed to introduce and teach the philosophy and concepts throughout the company.
i. One survey found that it takes about five years for a company to implement TQM and
another five years before its benefits are fully realized.
was won.
ii. Although the Baldrige Award and the Deming Prize are both designed to recognize
quality achievements and increase awareness of TQM, the Baldrige Award is more
focused on results and the importance of sharing information.