Chapter Implementing Quality Concepts Questions In the global economy, consumers have more choices than ever in buying products To successfully position its products in this market, a company must maintain a reputation for delivering products of high quality and high perceived value Accordingly, quality and value have emerged as important competitive dimensions in many markets Competition based on these dimensions causes all competitors to strive to constantly deliver more value and higher quality at a lower price to maintain their share of the market It is unlikely that the quality movement will fade There is too much competition among firms that are individually stressing quality as a primary product or service feature To remain competitive, a company will have to meet the quality standards set by others, standards that are constantly being raised because of the increased recognition of the need for continuous improvement Quality refers to the dimensions or characteristics of a product or service that make it able to meet the stated or implied needs of the person acquiring it Quality can be viewed from the perspective of the production process or through the eyes of the consumer When viewed from the perspective of the production process, quality is often measured in terms of product life, failure rate, and durability The consumer's view of quality reflects how well the product or service meets specified needs Both views of quality are valuable The internal view of quality leads to greater process efficiency and better product design The external view of quality keeps the company focused on the needs of its customers and the relationship between internal processes and external value Such activities include reworking defective units, handling waste materials, repairing broken production machinery, replacing broken product components, and scrapping defective products or product components 193 194 Chapter Implementing Quality Concepts Managers can hold suppliers responsible for controlling the quality of their products Demanding high quality inputs will reduce the number of defective outputs Managers can also increase employee and managerial training, so that each employee monitors the quality of his/her efforts This action will reduce the need for rework, make employees more conscious of how their job tasks relate to quality output, and encourage employee teamwork A company can also upgrade production machinery to utilize new technology that can monitor output and reduce or eliminate mechanical mistakes Statistical process control techniques can be used to identify abnormal variations in a production process Every production process has normal and tolerable variation Statistical process controls can be used to identify when the variation in the process becomes abnormal, signaling that some aspect of the process needs to be corrected The eight characteristics are detailed in Exhibit 8-2, page 307 They are performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality The five characteristics of service quality are provided in Exhibit 8-3, page 307 They are reliability, assurance, tangibles, empathy, and responsiveness The majority of the product quality characteristics are objective, whereas the service quality characteristics are subjective Thus, a company’s product could be reliable but its customer service department might not be Product reliability can be tested against constant company specifications; service reliability is judged by individual customers As noted in the chapter, however, it is possible for services to be measured against characteristics, if the service is in fact defined as the “product” the company sells Each student will have a different answer No solution provided False Consumers will purchase only those goods and services that are perceived to be of value to them Regardless of how well a product is manufactured or how well it functions, it will only be in demand if it satisfies the needs of the market Chapter Implementing Quality Concepts 195 10 Each of you would probably have a different view of “high quality,” although both you and your parents may accept Gates’s definition In making a residence choice, each of you will assess residence characteristics based on the characteristics that each of you deems necessary, desirable, and affordable Thus, the “grade” level of your choice may reflect the need to be close to school because you have no car, the need for two bedrooms because you have a roommate, the desire to have a washer and dryer, and the price Your parents may put more weight on neighborhood, swimming pool, ease of commute, and price Bill Gates may emphasize size, technological gadgets, and privacy 11 Benchmarking refers to a process of investigating, comparing, and evaluating one company’s products or services against those of another Results benchmarking looks at the end product or service and its design, components, costs, and features Process benchmarking looks at how something is produced or delivered, focusing on effectiveness and efficiency 12 Each student will have a different answer provided 13 In benchmarking, management identifies a firm or set of firms that is perceived as being the best in some business aspect (e.g., eliminating unneeded inventory) Management then identifies ways to improve its own operations by embracing the practices of the benchmark firm, adapting those practices to fit the adopting firm’s characteristics, and may evaluate its progress in that business aspect using the benchmark firm’s practice outcomes as measurement standards 14 The steps are detailed in Exhibit 8-4, page 310 They are summarized below Determine the area in which improvements are needed Select the quality characteristics which will measure quality performance Identify the benchmark companies Ask for cooperation from the benchmark companies Collect information Analyze the performance gap - differences between the firm undergoing self-examination and the benchmark firms Identify and implement improvements Strive for continuous improvement No solution 196 Chapter Implementing Quality Concepts 15 Total quality management is an organization wide effort to seek continuous improvement in all aspects of operations The three tenets are: TQM necessitates an internal managerial system of planning, controlling, and decision making It requires participation by everyone in the organization It focuses on improving goods and services from the customer's point of view 16 TQM is significant because it is a valuable managerial tool that can influence business longevity and profitability A company that invests in TQM will produce goods or provide services that meet customers’ expectations Making TQM work requires participation of everyone in the organization TQM requires investments in both training and technology as well as a culture adjustment toward “doing the right things right.” 17 No answer provided However, most of the costs that the students should discuss will be external failure costs (because these will probably be the readily obtainable) 18 The Malcolm Baldrige National Quality Award is a competition for U.S businesses The award is based on an evaluation of management systems, processes, and customer satisfaction There are five categories of entrants for the Baldrige Award: manufacturing, service, small business, education, and health care The award criteria categories are (see Exhibit 8-5, page 314): leadership, strategic planning, customer and market focus, information and analysis, human resource focus, process management, and business results 19 The two types of costs are costs of quality compliance and costs of quality failure or noncompliance Costs of compliance include prevention and appraisal costs Costs of failure or noncompliance include internal failure costs and external failure costs Quality is never free Significant costs are going to be incurred to prevent, assess, or respond to product failure A low failure rate may be obtained with high levels of spending on compliance costs, and a high failure rate will result in high spending levels on noncompliance costs See Exhibit 8-7, page 316, for a graphical display of these relationships However, the financial benefits generated by high quality often offset the actual costs of having that level of quality, thereby, making high quality more profitable than low quality Chapter Implementing Quality Concepts 197 20 Management can use the information generated from internal and external failures to reevaluate company processes and make decisions about future courses of action Management may decide to invest in new technology, additional training, or a higher level of research and development Employees may also be more empowered so that, should they see a defect occur or a way to improve a process, they may use their own judgment and skills to handle the problem or help redesign the process 21 Information on quality can be obtained from quality inspection reports, statistical control charts, customer returns and allowances, customer complaints, and accounting records (e.g., warranty expense) 22 The four time phases of quality in the production-sales cycle are before production, during production, after production, and after sale There are interdependencies in which the costs of each phase are inversely related to costs incurred in the subsequent and prior phases For example, higher spending on quality considerations before production will lead to a decrease in spending in the later stages Similarly, higher spending during production will reduce quality-related expenditures after production and after sale 23 Pareto analysis helps identify the areas in which managers should focus their quality enhancement/cost reduction efforts so as to have the greatest impact Managers can then allocate their time such that the amount of time invested in improving operations can be proportional to the benefits achieved 24 Exhibit 8-9, page 319, displays four accounts that can be used to capture the effects of quality control efforts Those accounts would fall under prevention costs (e.g., training, market research), appraisal costs (e.g., quality inspections, verifying procedures), internal failure costs (e.g., scrap and waste, reprocessing), and external failure costs (e.g., complaints handling, warranty handling) 25 Strategic cost management links information to corporate strategies by allowing managers to set and communicate organizational goals and objectives throughout the company; establish, implement, and monitor techniques and processes; accumulate and process measurement activities in a variety of ways based on the needs of users; and assess activities on a cost – benefit basis for both short-term and long-term decision models 26 No solution provided Chapter Implementing Quality Concepts 198 27 The continuum is depicted in Exhibit 8-12, page 324 At the low end of the continuum, a company merely meets internal inspection standards At the next level is ISO 9000, followed by the Malcolm Baldrige award At the high end of the continuum is TQM 28 Standards are issued for a variety of reasons Two primary reasons are to ensure compatibility across systems (e.g., electrical plugs will be compatible with electrical outlets) and to protect consumers In the global marketplace, quality may vary among the competitors in a specific market A given country's standards ensure a minimal level of quality for all firms serving markets in that country A common set of global standards levels the playing field for all companies and should result in lower costs to all consumers Companies will no longer have to incur the costs associated with complying with a variety of country-specific standards The cost savings resulting from the lower compliance costs can be passed along to consumers 29 The role of this organization is to develop a set of global quality standards The best known of these standards are the ISO 9000 series which are detailed in Exhibit 8-13, page 327 30 A quality audit involves a review of product design activities, manufacturing processes and controls, quality documentation and records, and management quality policy and philosophy It is often performed in connection with the ISO 9000 registration process Exercises 31 a b c d e f g h i j 10 32 a False b False Traditional accounts have quality costs imbedded in a variety of accounts They are generally not separately identifiable c True This definition fails to include appraisal costs Chapter Implementing Quality Concepts 33 199 d False As the number of defective products produced rises, both internal and external failure costs can be expected to rise e False Higher quality typically leads to lower costs and greater profits in the long run f False Total quality management requires quality to be viewed from the perspective of the customer g False Benchmarking can utilize comparisons to firms in any industry h False SPC charts are used to plot the variation in a process so that out-of-control conditions can be recognized i True j False Spending on quality is unavoidable and is never free Firms simply have a choice to either spend on quality compliance or quality noncompliance a Control Chart N u m b e r 46 44 42 40 o 38 f 36 34 s l 32 i 30 c 28 e s 12 16 20 24 28 Observation number 32 36 40 Chapter Implementing Quality Concepts 200 b The control chart demonstrates that there is substantial variation in the number of pepperoni slices per pizza Although the number of slices per pizza is concentrated around the mid-thirties area, many of the pizzas have more than 40 slices If the objective is to stay in the range of 34 to 38 slices per pizza, this objective is not being achieved It is also evident that the tendency is to err in the direction of putting more than the specified number of slices on the pizzas Service Characteristics Reliability Assurance Tangibles Empathy Responsiveness Performance X X X X Product Features X X X X CharacteristicsReliability X X Conformance X X X Durability X Serviceability X Aesthetics X X X Perceived quality X X X X 34 The oral presentation should discuss the extent to which the dimensions of quality in product production and delivery and service provision are similar Both have quality dimensions concerned with the product or service being delivered as promised, being pleasing to the senses, having a rigorous production process, and being defined from the user’s point of view 35 a Each party would value different characteristics of the automobiles The valued characteristics would depend on the unique circumstances of each buyer Each buyer would place different weights on the various features associated with alternative vehicles and the various dimensions of quality such as size, economy, safety, and reliability b All of the buyers would be interested in initial cost, safety, reliability, and operating costs The young college student is probably also interested in style, performance, and sound systems The young married couple would be interested in seating capacity (possibly a built-in baby seat), trunk storage, safety (including features like air bags), and warranty The elderly couple is probably more interested in how easy the vehicles are to get into and out of, comfort (including features like air conditioning), ease of maintenance, and service and warranty provisions Chapter Implementing Quality Concepts 36 a b 201 2002 Defect Prevention costs Quality training $ 9,000 Quality technology 7,500 Quality production design 4,000 Total $20,500 $10,500 10,000 9,000 $29,500 External failure costs Warranty handling $15,000 Customer reimbursements 11,000 Customer returns handling 7,000 $33,000 $10,000 7,200 4,000 $21,200 - 33% 35% 43% 36% Total $50,700 - 5% $53,500 2003 % change 17% 33% 125% 44% The pattern of change in quality costs appears to be very favorable Total expenditures for quality costs declined from 2002 to 2003 Perhaps most importantly, the internal quality compliance costs rose and the noncompliance costs declined This pattern of change should allow the perception of quality by customers in the firm’s products to rise Customers will detect fewer defective products and require fewer repair and replacement services 37 a b Compliance Costs Fitting machines for mistake-proof operations Supply-line management Quality training Noncompliance Costs Customer refunds for poor product quality Disposal of waste Litigation claims Total c 2002 $ 9,400 8,000 28,000 $45,400 24,000 $ 44,000 72,000 $140,000 $185,400 2003 $13,800 10,000 30,000 $53,800 18,000 $36,000 56,000 $110,000 $163,800 %Change +47% +25% + 7% +20% -25% -18% -22% -21% -12% A 20% increase in compliance cost was accompanied by a 21% decrease in noncompliance cost and an overall reduction in the costs of quality Management seems to be effectively managing costs of quality The pattern of change is consistent with quality-conscious management The costs incurred for compliance have increased from 2002 to 2003 creating a favorable effect: a decrease in the costs of noncompliance Thus, the company is spending more to prevent quality problems and spending less to treat quality problems Chapter Implementing Quality Concepts 202 38 39 40 a Profits lost by selling defective units (3,000 - 600) × ($30 - $20) = 2,400 × $10 = $24,000 b Profits lost by selling defective units Rework costs (600 × $6) Cost of warranty work Cost of customer returns (200 × $5) Total costs of failure $24,000 3,600 2,500 1,000 $31,100 c Total costs of failure Prevention costs Appraisal costs Total quality costs $31,100 25,000 6,800 $62,900 a Cost to rework b Lost profit from not reworking all defective units (290 - 190) × ($28 - $10) = 100 × $10 = $1,800 c Cost of customer returns 50 × $5 = $250 d Total failure costs are the sum of the answers to a, b, and c $1,520 + $1,800 + $250 = $3,570 e Total failure costs Prevention costs Appraisal costs Total quality cost a The prevention costs would increase because that category would reflect the depreciation and operating costs of the equipment However, both the internal and external failure costs would decline because of a lower level of defective output Appraisal costs might also decline if the company can place greater confidence in output quality because of the new machine and thereby conduct fewer quality inspections Additionally, the machine may be capable of conducting some tests of output quality 190 × $8 = $1,520 $ 3,570 12,000 6,000 $21,570 Chapter Implementing Quality Concepts 41 203 b There are several reasons why the company might rationally elect to spend $40,000 on prevention rather than $25,000 on appraisal One reason is that the impact on external failure costs (60% reduction) may be a multiperiod benefit, but only if the cost is for prevention rather than appraisal There could also be benefits from spending on prevention that are felt in the appraisal and internal failure cost categories An expenditure on appraisal activities is unlikely to generate such benefits in the other categories Spending on appraisal activities will only have the effect of decreasing the level of external failure costs as the level of internal failure costs rises a Compliance costs are generally more susceptible to control than the costs of noncompliance Particularly difficult to control are the costs of external failure Further, the perception of quality may be more tightly linked to this category than the other three b There is a directional effect: Increasing prevention costs and appraisal costs should drive spending down in the other two categories, or, decreasing spending on prevention and appraisal should result in an increase in spending in the other two categories Conversely, simply spending more on internal and external failure costs will not necessarily have an effect on prevention and appraisal costs c Prevention cost is the most likely target category The rationale is simple: By spending more on prevention, all three of the other categories should be favorably affected Such benefits cannot be achieved by increasing spending in any other single category Also, the benefits of spending in the prevention cost category could carry over for many periods A final point: Only by increasing spending on prevention can cuts be achieved in the largest noncompliance category, internal failure costs d TQM would focus efforts on components that are within an objective of continuous costs of product failure concentrated on prevention prevention and appraisal cost the purview of management with improvement in reducing the Much more effort would be than appraisal Chapter Implementing Quality Concepts 204 42 The first step in designing a more quality-sensitive information system would be to redesign the chart of accounts Additional accounts could be added to capture costs of quality assurance (prevention and assessment) and quality nonconformance (internal and external failure) By adding these accounts, the firm would be better able to track its internal quality-related costs The firm should also develop information systems that track quality levels of competitors and systems to evaluate quality from the customers’ points of view These systems will provide the firm with information about how its quality levels conform with expectations of customers and with the levels of quality achieved by competitors Even with the new accounts there will be challenges in capturing and measuring internal quality-related costs For example, a newly acquired machine may have quality benefits However, how much of the machine’s cost should be charged to quality? If a training seminar stresses both quality issues and safety issues, how much of the seminar’s cost should be charged to quality? However, the biggest challenge will be to design the external-oriented systems Capturing information on customers and competitors is difficult because new methods will have to be devised to gather required data Furthermore, decisions about what types of data are needed must be made And, decisions must be made regarding the sources and means of capturing the data 43 a Toyota wants to convey the message that it is totally dedicated to providing quality products and actively seeks quality innovations It wants to convey the message that improvement of quality requires a team effort that must include a firm's suppliers One intent of placing the ad is to bring favorable public recognition to the efforts of its suppliers A second intended effect of the ad is probably to publicly affirm the commitment that its suppliers have made to quality improvements In other words, the ad serves to remind the suppliers of their quality obligations and to increase their level of commitment b Yes, there would be positive benefits for Toyota A further intent and benefit of the ad is to create the image that Toyota is a quality-oriented firm and is employing state-of-the-art technologies and philosophies to enhance quality, e.g., TQM So, while no specific products were touted in the ad, the ad addressed a significant characteristic of all of its products, quality Chapter Implementing Quality Concepts 44 205 a In a pharmaceutical company, an external failure can mean loss of life, permanent injury, or unnecessary suffering Further, through malpractice damages, the cost of an external failure can be extraordinarily high For these reasons, one would expect relatively high spending for prevention and appraisal and relatively low (expected) expenditures for internal and external failure b A department store’s concern for quality will be partly dependent on the segment of the market in which it competes At the low price end, consumers will expect and tolerate some quality problems Accordingly, the pattern of spending may be very close to the typical company At department stores that compete in the higher end markets, more funds will be committed to quality prevention and appraisal and less will be spent on noncompliance c A computer manufacturer may pursue a strategy of competing on the basis of price or quality Consumers will be more tolerant of quality problems for those firms that compete on the basis of price Accordingly, such firms may spend their quality budgets in proportions similar to the typical company Firms competing on the basis of quality will spend substantially more on prevention The focus will be on eliminating errors in production The result will be less spending on appraisal and failure costs d In the used car retailing environment, consumers may have some difficulty discriminating between high and low quality automobiles There is likely to be little spent by used car retailers for internal failure or appraisal Alternatively, used car retailers may spend heavily on prevention and external failure costs To protect a reputation for high quality, some retailers may spend more on prevention and appraisal than other retailers e Lawn service has significantly different external risks relative to health care Also, the production technology is very low-tech relative to technology in health care For lawn service, firms could rely to a relatively greater extent on appraisal and internal failure expenditures Prevention expenditures would be somewhat less important, and one would expect relatively low levels of external failure costs due to the nature of the service Chapter Implementing Quality Concepts 206 Problems 45 a Model CPU Internal Drive External Drive Desktop $ 7,000 $ 6,000 $12,000 Laptop 8,000 7,000 5,000 Mini 3,000 1,000 8,000 Total $18,000 $14,000 $25,000 Model Desktop Laptop Mini Dollars $30,000 23,000 15,000 Percent of Total 44 34 22 All Other Total $ 5,000 $30,000 3,000 23,000 3,000 15,000 $11,000 $68,000 Cumulative Percent of Total 44 78 100 b The Desktop and Laptop collectively account for about 78 percent of all failure costs c Failure Type External Drive CPU Internal Drive All Other Total d The first area to address is the external drives, followed by the CPU problems and the internal drives This answer reflects the concept of leverage in that it identifies the area of improvement that would bring the most immediate benefit from the effort exerted to correct a single problem Dollars $17,000 15,000 13,000 8,000 $53,000 Percent of Total 32 28 25 15 100 Cumulative Percent of Total 32 60 85 100 46 a Model Elegant 92,000 Chic 72,000 All others 38,000 Total $202,000 Model Elegant Chic All others b Electrical $28,000 Motor $32,000 Structural $26,000 Mechanical $ 6,000 25,000 27,000 15,000 5,000 8,000 15,000 6,000 9,000 $61,000 $74,000 $47,000 $20,000 Dollars $92,000 72,000 38,000 Percent of Total 46 36 18 Dollars $ Cumulative Percent of Total 46 82 100 Elegant and Chic account for 82% of the total failure cost Chapter Implementing Quality Concepts c 207 The following is an arrangement of the types of defects within the Elegant and Chic product lines: Percent Cumulative Dollars of Total Percent of Total Motor $ 59,000 36 36 Electrical 53,000 32 68 Structural 41,000 25 93 Mechanical 11,000 100 Total $164,000 100 Leverage dictates concentrating on solving the causes of Motors and Electrical problems first 47 48 a Price for defective units: $12,000 ÷ 300 = $40 Price for good units: $270,000 ÷ $2,700 = $100 Revenues lost: 300 × ($100 - $40) = $18,000 b From selling defective units Rework costs Total failure costs $18,000 22,000 $40,000 c Total failure costs Prevention and appraisal Total quality costs $40,000 45,000 $85,000 d The firm appears to be dedicated to the production of high quality products as evidenced by the relatively high spending for prevention and appraisal and the comparably low failure costs Further, there were apparently no external failure costs a Price for reworked units = $21,000 ÷ $300 = $70 Price for good units = $1,970,000 ÷ 19,700 = $100 Revenue lost (300 units × ($100 - $70)) $ 9,000 b Revenue lost Less avoided rework cost on “seconds” (300 units × $10 unit rework cost) Profit lost Rework cost incurred Total failure cost $ 9,000 c Total failure cost Prevention and appraisal cost Total quality cost $ 8,000 43,000 $51,000 d The company is spending more to reduce or eliminate defects; and this results in lower failure costs in the current year Prevention costs are an investment that is expected to yield fewer failure costs not only in the current period but also in future periods (3,000) $ 6,000 2,000 $ 8,000 Chapter Implementing Quality Concepts 208 49 a Lost profits Lost profits from selling defective units (250 × $80) Rework costs Scrap and waste Waste disposal Warranty handling Customer reimbursements/returns Total failure costs 250 × $80 = $20,000 Prevention costs Quality training Quality technology Quality circles Appraisal costs Quality inspections Test equipment Procedure verifications Total failure costs Total quality costs b $15,000 50,000 32,000 $18,000 14,000 9,000 $20,000 6,000 6,500 2,100 9,500 7,600 $51,700 $ 97,000 41,000 51,700 $189,700 If no additional costs were incurred in the prevention category, one would simply expect the external failure costs to rise In particular, one would expect warranty expense to rise However, because the warranty is a valuable product characteristic to many buyers, sales may rise enough to justify the increased quality costs 50 a 84,000 1,200 units scrapped × 70 = $84,000 Lost profits from scrapping 1,200 units $ Internal failure costs ($4,500 + $1,400 + add’l rework $4,000) 9,900 External failure costs ($6,400 + $5,100) 11,500 Total failure costs $105,400 Total failure costs $105,400 Prevention costs ($10,000 + $30,000 + $22,000) 62,000 Appraisal costs ($12,000 + $9,000 + $6,000) 27,000 Total quality costs $194,400 b Management should expect an increase in warranty costs (external failure) as an immediate result of the policy change If management also accompanies the change in the warranty policy with increased preventive measures, one can expect an increase in prevention costs but a Chapter Implementing Quality Concepts 209 resulting drop in appraisal costs and in both internal and external failures However, management may also step up appraisal efforts to reduce warranty claims and these appraisal efforts will, per se, increase appraisal costs Chapter Implementing Quality Concepts 210 Reality Check 51 a Students will discover great diversity in definitions of quality It should be evident that the definition varies with perspective For example, an engineer may define quality in terms of conformance with specification, durability, longevity, and design characteristics Marketing specialists will define quality in terms of user demands such as the features offered and customer service and warranty characteristics Accountants may define quality in terms of financial characteristics such as quality prevention costs relative to internal and external failure costs Industries may also define quality uniquely For example, raw materials may be defined in terms of their purity (water) or protein content (corn) b A copy store may define quality in terms of customer satisfaction Some important dimensions of customer satisfaction that could be measured include lead time (time elapsing between the customer entering the store and being served), number of customer complaints, percentage of repeat customers, number of items returned as defective copies, and responses to customer surveys A blender manufacturer produces a longer lived product than a copy store and probably sells to chains or wholesalers rather than to the ultimate customer Accordingly, quality concerns need to address both the ultimate customer and the initial customer The initial customer is concerned about product marketability and the firm’s ability to deliver nondefective products efficiently and in the styles, quantities, and grades requested The ultimate customer is concerned about the durability, features, warranty coverage, and customer service offered by the manufacturer The definitions students develop should lead to (a) identification of the important dimensions of quality for each firm and (b) performance measures for each dimension Chapter Implementing Quality Concepts 52 211 a Different functional areas of the university would have different customers The internal customers would include students (graduate and undergraduate), faculty, and administrators The internal customers of faculty are students The internal customers of staff employees are faculty and administrators The external customers include society, prospective employers, academics, and potential students Because society supports public higher education with tax dollars, it expects to benefit through a higher standard of living and future participants in a productive workforce Prospective employers are customers because they hire graduates (one of the outputs of a university) Other academics, as well as society, consume the research output produced by faculty Potential students (and their families) are external customers because they evaluate the outputs of the university in making choices of where to attend school b Students might define the quality of the university in terms of faculty credentials, student/faculty ratios, support services (e.g., computer facilities, health facilities, housing), historical success in placing graduates, and/or the athletic teams’ success rates Faculty would define the quality of the university in terms of the credentials of faculty colleagues, quality of students, and availability and effectiveness of important support services in the teaching and research missions (highly trained staff, computer resources, office facilities) Administrators would define quality in terms of the resources and personnel available to execute teaching, research, and support missions Society would define quality in terms of the efficiency and effectiveness of educating students and success in the research mission Prospective employers would define quality in terms of the extent to which graduates fill their needs, facilities available for interviewing and evaluating students, and responsiveness of the university to changing needs of employers Other academics would define the quality of other institutions relative to perceived quality of students, rates of publication in quality journals, and contributions to public service Potential students would use many of the same criteria as existing students These views should not conflict However, some people have a perception of a conflict between research and teaching The perception is that high quality in research endeavors may be achieved at the expense of lower quality teaching Such a perception is often not valid Chapter Implementing Quality Concepts 212 c 53 Both internal and external customers are important to a university Only by serving the internal customers well will the external customers be served well For example, if faculty fail to receive the necessary support from staff and administrators to execute effective teaching and research, prospective employers will be disappointed with the quality of the graduating students and society will not receive the benefits it expects Many advances in production technology have resulted in the displacement of workers The public’s perception of the significance of these displacements is influenced largely by the way management treats the displaced workers If management retrains the workers for other positions, as opposed to simply dismissing them, the changeover in technology will be viewed much more favorably Furthermore, if management has a policy of firing displaced workers, internal morale is likely to be low which would tend to counter any quality initiatives offered by managers If managers strive to retain all displaced workers, the consumer will be more inclined to support the improvements in the process Also, when advances in technology impact worker positions, those workers will be allowed to remain with the company and will be offered opportunities to advance their work skills Chapter Implementing Quality Concepts 213 54 The ethics of the proposed changes are questionable In trimming the internal regulations governing the provision of counseling services, the agency is circumventing needed safeguards The agency is asking the employees to make judgments that will critically impact the extent and nature of services to be received by welfare families The counselors may not have been trained adequately to make such judgments Furthermore, by mandating that past decisions not be reviewed, there will be no opportunity to correct mistakes that are sure to be made A policy change that gives employees greater autonomy in making decisions, without adequate training or opportunities to review past decisions is ethically suspect Some positive benefits would result from the proposed changes Namely, the speed and efficiency of operations would be greatly enhanced In reducing the amount of red tape that must be complied with in each case, the social workers would be able to use their personal judgments to a greater extent in the counseling process The proposed changes would also have negative impacts By standardizing the treatment of constituents, the agency is ignoring the individual differences among cases that dictate whether a higher or lower level of services is warranted Likewise, the rule that mandates no reviews can be made of past judgments indicates that errors which have been made stand no chance of being corrected Furthermore, as counselors are allowed greater and greater freedom to make their own judgments about the merits of a given case, the quality of the services provided will tend to vary greatly across the counselors Some counselors will prove to be good decision makers; others will prove to have poor skills in making decisions 55 a Reducing spending on quality assurance and inspection programs would automatically lower the average quality of goods leaving the plants Also, a reduction in spending for managerial and employee training programs would lower quality in the long run as would reduced spending on machinery and equipment, and repairs and maintenance b The directional effect is that improvements in quality drive costs down; the reverse is not necessarily true An improvement in quality has predictable effects on costs, e.g., lower warranty expense, less scrap, less waste fewer defects, and fewer units to rework Alternatively, a reduction in costs may result in a reduction in those activities that enhance quality and, consequently, quality suffers because the costs are cut Chapter Implementing Quality Concepts 214 56 c Yes If costs are cut because a process is simplified, quality can be enhanced as a result of the cost cutting measures However, in this circumstance one could argue that costs went down because quality went up Normally, one should be conscious of the fact that quality is a direct determinant of costs A change in cost, on the other hand, may have an effect on quality that is difficult to predict because cost is not a direct determinant of quality a The quality standard is an efficient means for a firm to signal to its customers its concern for quality and its ability to provide high-quality production processes Accordingly, customers can use the quality registration as a screening tool to identify quality-conscious vendors It is also likely that selecting vendors who are ISO 9000 registered is one method of ensuring a firm that the quality of its inputs will not create quality problems in its output There may be other advantages such as a lower price if it is the case that higher quality operations lead to lower costs that, in turn, lead to lower prices for customers b No Meeting ISO 9000 standards simply means that the internal processes of a firm meet a quality standard The ISO 9000 registration provides for no evaluation of the firm’s products c Meeting the registration requirements would be necessary to keep pace with the industry and with competitors Those firms failing to meet registration requirements would be at a competitive disadvantage because potential customers may use the registration as a basis to select vendors d Complying with ISO 9000 registration standards would provide an internal quality standard that the firm must meet By striving to meet the standards, firms will identify ways to improve the quality of operations and reduce operating costs The improvement of quality may require the firm to consider new management methods such as benchmarking that provide a means to quality improvements These methods will lead to quality improvements that might otherwise not have been made, and lead to development of a more quality-conscious culture 57 Students will have different answers No solution provided 58 Students will have different answers No solution provided Chapter Implementing Quality Concepts 215 59 The credit union apparently changed its strategy from trying to build volume of loans through hyping members to make loans and by making indirect loans through car dealerships to a new strategy of educating members about the many considerations of car ownership and by placing loans directly with members rather than indirectly through car dealerships By increasing the range and quality of services to members, by providing web access to educational information, and by discontinuing the pressuring of members to borrow through the credit union, the credit union has experienced a rise in car loans and an increase in members’ trust 60 a Some of the advantages include more efficient operations for suppliers that provide services to all five manufacturers, greater confidence of consumers in the products, a more competitive position for the those relative to foreign automakers, and less oversight and intervention by governmental bodies that have an interest in quality assurance b The single industry quality standard reduces the costs consumers incur to seek out information about quality With a single quality standard, consumers need only know about the standard to understand many quality dimensions of all participants in the industry Another obvious benefit is the lower cost that accompanies higher quality, less regulation, and more standardization c The nation would benefit mainly through the effects of uniform quality throughout the industry and lower prices More uniform quality leads to benefits of greater consumer confidence, more favorable reputation, and reduced expenditures on government regulations that are created to address poor quality 61 Students will have different answers No solution provided 62 Students will have different answers No solution provided  ... generated by high quality often offset the actual costs of having that level of quality, thereby, making high quality more profitable than low quality Chapter Implementing Quality Concepts 197... noncompliance Costs of compliance include prevention and appraisal costs Costs of failure or noncompliance include internal failure costs and external failure costs Quality is never free Significant costs... customer and market focus, information and analysis, human resource focus, process management, and business results 19 The two types of costs are costs of quality compliance and costs of quality