Assembly Line to See If Their New Anti-Lock Braking System Works

A car manufacturer tests the first 1,000 cars coming off the

assembly line to see if their new anti-lock braking system works

correctly. Use the typical values for control limits. What percentage

would be an expected outcome in a sample mean that is within ±3

standard deviations of the distribution mean?

A sampling distribution serves as the theoretical basis for distinguishing between random and nonrandom values of a sampling statistic. Very simply, limits are selected within which most values of a sample statistic should fall if its variations are random. The limits are stated in terms of number of standard deviations from the distribution mean. Typical limits are ± 2 standard deviations or ± 3 standard deviations. Figure 10.5 illustrates these possible limits and the probability that a sample statistic would fall within those limits if only random variations are present. Conversely, if the value of a sample statistic falls outside those limits, there is only a small probability (1 − 99.74 = .0026 for ± 3 limits, and 1 − 95.44 = .0456 for ± 2 limits) that the value reflects randomness. Instead, such a value would suggest nonrandomness.

A manager is concerned about process variation as it

pertains to employees' use of time. Which loss in this

situation results from excessive process variation?

Process Variation

Variation occurs in all business processes. It can be due to variety or variability. For example, random variability is inherent in every process; it is always present. In addition, variation can occur as the result of deliberate management choices to offer customers variety.

There are four basic sources of variation:

1.The variety of goods or services being offered. The greater the variety of goods and services, the greater the variation in production or service requirements.
2.Structuralvariation in demand. These variations, which include trends and seasonal variations, are generally predictable. They are particularly important for capacity planning.
3.Randomvariation. This natural variability is present to some extent in all processes, as well as in demand for services and products, and it cannot generally be influenced by managers.
4.Assignablevariation. These variations are caused by defective inputs, incorrect work methods, out-of-adjustment equipment, and so on. This type of variation can be reduced or eliminated by analysis and corrective action.

A manager likes to consider alternatives and tends

to scrutinize every element of a situation. What

decision style will this manager most likely use?

Directive

People with a directive style have a low tolerance for ambiguity and are oriented toward task and technical concerns when making decisions. They are efficient, logical, practical, and systematic in their approach to solving problems. People with this style are action oriented and decisive and like to focus on facts. In their pursuit of speed and results, however, these individuals tend to be autocratic, exercise power and control, and focus on the short run.

Interestingly, a directive style seems well suited for an air-traffic controller.

Analytical

This style has a much higher tolerance for ambiguity and is characterized by the tendency to overanalyze a situation. People with this style like to consider more information and alternatives than do directives. Analytic individuals are careful decision makers who take longer to make decisions but who also respond well to new or uncertain situations. They can often be autocratic.

Conceptual

People with a conceptual style have a high tolerance for ambiguity and tend to focus on the people or social aspects of a work situation. They take a broad perspective to problem solving and like to consider many options and future possibilities. Conceptual types adopt a long-term perspective and rely on intuition and discussions with others to acquire information. They also are willing to take risks and are good at finding creative solutions to problems. On the downside, however, a conceptual style can foster an idealistic and indecisive approach to decision making. Howard Stringer, Sony Corporation’s first foreign-born CEO, possesses characteristics of a conceptual style.

Behavioral

This style is the most people oriented of the four styles. People with this style work well with others and enjoy social interactions in which opinions are openly exchanged. Behavioral types are supportive, receptive to suggestions, show warmth, and prefer verbal to written information. Although they like to hold meetings, people with this style have a tendency to avoid conflict and to be too concerned about others. This can lead behavioral types to adopt a wishywashy approach to decision making and to have a hard time saying no to others and to have difficulty making difficult decisions.

A manufacturer wants to record the number of bad

headlights in the cars coming off an assembly line.

What type of chart or diagram is appropriate for the

task?

There are four commonly used control charts. Two are used for variables, and two are used for attributes. Attribute data are counted (e.g., the number of defective parts in a sample, the number of calls per day); variables data are measured, usually on a continuous scale (e.g., amount of time needed to complete a task, length or width of a part).

Variables

Generate data that are measured.

Attributes

Generate data that are counted.

A staff member addresses problem-solving situations by first

describing the problem and its effects, then introducing a solution

and describing its benefits. This allows the staff member to gain

the cooperation of others involved in the decision-making process.

What type of problem solver is this staff member?

A task force has been formed to find a solution to the problem of

low customer satisfaction. The task force distributes meeting

minutes to the entire organization every week. What challenge to

problem solving implementation is overcome by distributing the

minutes of the task force meetings?

Affinity Diagram - An affinity diagram is a widely used tool for organizing data (ideas, issues, problems) developed by a group of participants into logical categories for further analysis. It facilitates generating a large number of responses and developing meaningful groups of ideas from the responses. The structured involvement creates a sense of ownership and accomplishment.

Affinity diagram

A tool used to organize data into logical categories.

At what point should quality

improvement expenditures cease? An important issue in quality management is the value received from expenditures on prevention. There are two schools of thought on this. One is that prevention costs will be outweighed by savings in appraisal and failure costs. This is espoused by such people as Crosby and Juran. They believe that as the costs of defect prevention are increased, the costs of appraisal and failure decrease by much more. What this means, if true, is that the net result is lower total costs, and, thus, as Crosby suggests, quality is free. On the other hand, some managers believe that attempting to go beyond a certain point, such expenditures on quality reduce the funds available for other objectives such as reducing product development times and upgrading technology. The return on quality (ROQ) approach focuses on the economics of quality efforts. In this approach, quality improvement projects are viewed as investments, and, as such, they are evaluated like any other investment, using metrics related to return on investment (ROI).

Return on quality

An approach that evaluates the financial return of investments in quality.

Baldridge Award - The Baldrige Award

In 1987, Congress passed the Malcolm Baldrige National Quality Improvement Act. This legislation was designed to inspire increased efforts on the part of organizations located in the United States to improve the quality of their products and services. Named after the late Malcolm Baldrige, an industrialist and former secretary of commerce, the annual Baldrige Award is administered by the National Institute of Standards and Technology. The purpose of the award competition is to stimulate efforts to improve quality, to recognize quality achievements, and to publicize successful programs.

Baldrige Award

Annual award given by the U.S. government to recognize quality achievements of U.S. companies.

10.Benchmarking - Benchmarking.

Benchmarking is an approach that can inject new energy into improvement efforts. Summarized in Table 9.9, benchmarking is the process of measuring an organization’s performance on a key customer requirement against the best in the industry, or against the best in any industry. Its purpose is to establish a standard against which performance is judged, and to identify a model for learning how to improve. A benchmark demonstrates the degree to which customers of other organizations are satisfied. Once a benchmark has been identified, the goal is to meet or exceed that standard through improvements in appropriate processes.

TABLE 9.9: The benchmarking approach

Benchmarking

Process of measuring performance against the best in the same or another industry.

Cause and Effect Diagram - A diagram used to organize the search for

the cause of a problem (also know as a

fish bone diagram)

Check Sheet - A tool for organizing or collecting data; A

tally of problems or other events by

category.

Control Chart - A statistical chart of time ordered values

of a sample statistic (e.g. sample means)

Deming Prize - named in honor of the late W. Edwards Deming, is

Japan's highly coveted award recognizing successful

quality efforts. It is given annually to any company

that meets the award's standards.

- DMAIC - A six-sigma process: define, measure,

analyze, improve, and control.

Flowchart - A diagram/ visual representation

of steps in a process.

Histogram - A chart that shows an empirical

frequency distribution.

How do inventories influence

aggregate planning? - The use of finished-goods inventories allows firms to produce goods in one period and sell or ship them in another period, although this involves holding or carrying those goods as inventory until they are needed. The cost includes not only storage costs and the cost of money tied up that could be invested elsewhere, but also the cost of insurance, obsolescence, deterioration, spoilage, breakage, and so on. In essence, inventories can be built up during periods when production capacity exceeds demand and drawn down in periods when demand exceeds production capacity.

This method is more amenable to manufacturing than to service industries since manufactured goods can be stored whereas services generally cannot. However, an analogous approach used by services is to make efforts to streamline services (e.g., standard forms) or otherwise do a portion of the service during slack periods (e.g., organize the workplace). In spite of these possibilities, services tend not to make much use of inventories to alter capacity requirements.

How does carrying cost affect

inventory management? Three basic costs are associated with inventories: holding, transaction (ordering), and shortage costs.

Holding, or carrying, costs relate to physically having items in storage. Costs include interest, insurance, taxes (in some states), depreciation, obsolescence, deterioration, spoilage, pilferage, breakage, and warehousing costs (heat, light, rent, security). They also include opportunity costs associated with having funds that could be used elsewhere tied up in inventory. Note that it is the variable portion of these costs that is pertinent.

Holding (carrying) cost

Cost to carry an item in inventory for a length of time, usually a year.

The significance of the various components of holding cost depends on the type of item involved, although taxes, interest, and insurance are generally based on the dollar value of an inventory. Items that are easily concealed (e.g., pocket cameras, transistor radios, calculators) or fairly expensive (cars, TVs) are prone to theft. Fresh seafood, meats and poultry, produce, and baked goods are subject to rapid deterioration and spoilage. Dairy products, salad dressings, medicines, batteries, and film also have limited shelf lives.

Holding costs are stated in either of two ways: as a percentage of unit price or as a dollar amount per unit. Typical annual holding costs range from 20 percent to 40 percent of the value of an item. In other words, to hold a $100 item in inventory for one year could cost from $20 to $40.

20. Pareto Chart - Pareto Analysis.

Pareto analysis is a technique for focusing attention on the most important problem areas. The Pareto concept, named after the 19th-century Italian economist VilfredoPareto, is that a relatively few factors generally account for a large percentage of the total cases (e.g., complaints, defects, problems). The idea is to classify the cases according to degree of importance, and focus on resolving the most important, leaving the less important. Often referred to as the 80–20 rule, the Pareto concept states that approximately 80 percent of the problems come from 20 percent of the items. For instance, 80 percent of machine breakdowns come from 20 percent of the machines, and 80 percent of the product defects come from 20 percent of the causes of defects.

Pareto analysis

Technique for classifying problem areas according to degree of importance, and focusing on the most important.

Often, it is useful to prepare a chart that shows the number of occurrences by category, arranged in order of frequency. Figure 9.9 illustrates such a chart corresponding to the check sheet shown in Figure 9.6. The dominance of the problem with off-center labels becomes apparent. Presumably, the manager and employees would focus on trying to resolve this problem. Once they accomplished that, they could address the remaining defects in similar fashion; “smeared print” would be the next major category to be resolved, and so on. Additional check sheets would be used to collect data to verify that the defects in these categories have been eliminated or greatly reduced. Hence, in later Pareto diagrams, categories such as “off-center” may still appear but would be much less prominent.

21.Plan-do-study-act (PDSA) cycle - The Plan-Do-Study-Act Cycle

The plan-do-study-act (PDSA) cycle, also referred to as either the Shewhart cycle or the Deming wheel, is the conceptual basis for problem-solving activities. The cycle is illustrated in Figure 9.2. Representing the process with a circle underscores its continuing nature.

FIGURE 9.2: A. The PDSA cycle B. The PDSA cycle applied to problem solving

Plan-do-study-act (PDSA) cycle

A framework for problem solving and improvement activities.

There are four basic steps in the cycle:

Plan. Begin by studying the current process. Document that process. Then collect data on the process or problem. Next, analyze the data and develop a plan for improvement. Specify measures for evaluating the plan.Do. Implement the plan, on a small scale if possible. Document any changes made during this phase. Collect data systematically for evaluation.Study. Evaluate the data collection during the do phase. Check how closely the results match the original goals of the planphase.Act. If the results are successful, standardize the new method and communicate the new method to all people associated with the process. Implement training for the new method. If the results are unsuccessful, revise the plan and repeat the process or cease this project.

Quality at the source - 9. Quality at the source. Quality at the source refers to the philosophy of making each worker responsible for the quality of his or her work. This incorporates the notions of “Do it right” and “If it isn’t right, fix it.” Workers are expected to provide goods or services that meet specifications and to find and correct mistakes that occur. In effect, each worker becomes a quality inspector for his or her work. When the work is passed on to the next operation in the process (the internal customer) or, if that step is the last in the process, to the ultimate customer, the worker is “certifying” that it meets quality standards.

Quality at the source

The philosophy of making each worker responsible for the quality of his or her work.

This accomplishes a number of things: (1) it places direct responsibility for quality on the person(s) who directly affect it; (2) it removes the adversarial relationship that often exists between quality control inspectors and production workers; and (3) it motivates workers by giving them control over their work as well as pride in it.

23.Quality circles - Quality Circles.

One way companies have tapped employees for ideas concerning quality improvement is through quality circles. The circles comprise a number of workers who get together periodically to discuss ways of improving products and processes. Not only are quality circles a valuable source of worker input, they also can motivate workers, if handled properly, by demonstrating management interest in worker ideas. Quality circles are usually less structured and more informal than teams involved in continuous improvement, but in some organizations quality circles have evolved into continuous improvement teams. Perhaps a major distinction between quality circles and teams is the amount of authority given to the teams. Typically, quality circles have had very little authority to implement any but minor changes; continuous improvement teams are sometimes given a great deal of authority. Consequently, continuous improvement teams have the added motivation generated by empowerment.

Quality circles

Groups of workers who meet to discuss ways of improving products or processes.

Quality costs of failure after delivery to the customer. - External failure
Quality of conformance - Quality of conformance refers to the degree to which goods and services conform to (i.e., achieve) the intent of the designers. This is affected by factors such as the capability of equipment used; the skills, training, and motivation of workers; the extent to which the design lends itself to production; the monitoring process to assess conformance; and the taking of corrective action (e.g., through problem solving) when necessary. One important key to quality is reducing the variability in process outputs (i.e., reducing the degree to which individual items or individual service acts vary from one another). This will be discussed in detail in Chapter 10.

Quality of conformance