Chapter 6: Six Sigma Quality
Total Quality Management
• Total Quality Management – managing the entire organization so that it excels on all
dimensions of products and services that are important to the customer.
• Three Americans Gurus of Quality
o Crosby – 14 points philosophy, continuous improvement
o Deming – 14-step quality improvement program, Goal: Zero defects
o Juran – 10 steps to quality improvement, fitness for use (satisfy customer needs),
quality trilogy: planning, control, and improvement
• Three Gurus: Common Messages (Mostly achieved Training, training, and training)
o Quality leadership from senior management
o Customer focus
o Total involvement of workforce: “Empowerment”
o Continuous improvement
o Based on rigorous analysis of processes
• Design quality: Inherent value of the product in the marketplace
• Dimensions include:
o Performance – primary characteristic
o Features – extra or secondary characteristic
o Reliability/Durability – consistency, failure rate, useful life
o Serviceability – Ease of repair
o Aesthetics – sensory characteristics, i.e. sound, feel, look, and so
o Perceived Quality – past performance and reputation
• Conformance quality: Degree to which the product or service design specifications are met
• Quality at the source means worker takes responsibility for making sure that his or her
output meets specifications.
• Cost of Quality
o Appraisal costs
o Prevention costs
o Internal Failure costs
o External Failure costs
Six Sigma Quality
• Six sigma quality – a philosophy and set of methods companies use to eliminate defects in
their products and processes.
• It seeks to reduce variation in the processes that lead to product defects.
• The variation is 3 sigma (standard deviation) of the left and 3 sigma of the right of the
• It descript process performance by DPMO (defects per million opportunities) Types of Statistical Sampling
• Attribute (Go or no-go information)
o Defectives refers to the acceptability of product across a range of characteristics.
o Defects refers to the number of defects per unit which may be higher than the
number of defectives.
o p-chart application
• Variable (Continuous)
o Usually measured by the mean and the standard deviation.
o X-bar and R chart applications
o Chance (Common) variation – caused by randomly occurring events in the process
o Assignable variation – caused by events or factors that can usually be identified or
• Type I Error (α) : Reject H0when H is0true
• Type II Error (β = 1 – α): Do not reject H0when H is0false
• H0: Process is under control
• HA: Process is out of control
• Compared the graphs in page 160, Reject H or0support H whilA poor performance
o One spot out above or below the control limit
o Two spots near upper or lower control limit
o Five spots run sustained above or below center
o Trends in either direction five plots (up or down)
o Erratic behavior
o Sudden change in level
• If support HA(i.e. process is out of control), stop process and correct the problems.
• α is the level of significance of test of hypothesis
o Rejecting H at 0 = 5% Test is significance
o Rejecting H at 0 = 1% Test is “highly” significance
• Use 3σ control limits or 1σ control limits is depend on situation or significance, so either
one is correct. 1σ control has narrower limit than 3σ control. It is used when we cannot
afford causing error during the process, for example, 1σ for making unclear bomb while 3σ
for normal service or electronic device.
• Smaller z values ⇒ more narrow control limits ⇒ chart more sensitive to changes in
distribution of process output.
o z = 3.0 ⇔ normal probability of 99.74%
o z = 3.0 is standard (“3s control limits”)
o Tradeoff: sensitivity vs. erroneously concluding process to be out of control Chapter 11: Aggregate Sales and Operations Planning
• Sales and Operations Planning is the process that helps firm create a balance between
demands and supply.
• Long-range planning – E.g., strategic capacity planning, Greater than one year planning
horizon, Usually performed in annual increments
• Medium-range planning – E.g., sales and operations planning, 3 to 18 months, Usually
with monthly or quarterly increments
• Short-range planning – E.g., order scheduling; daily workforce scheduling; vehicle
dispatching, One day to less than six months, Usually with weekly or daily increments
The Aggregate Operations Plan
• The aggregate operation plan is concern with setting production rates by Product group or
family of products (Aggregation), and this planning is done over an intermediate-range
horizon of 3 to18 months.
• The main purpose of the aggregate operations plan is to specify the optimal combination of
production rate (units completed per unit of time), workforce level (number of workers),
inventory on hand (inventory carried over from previous period)
• Production = production rate × workforce level
Production Planning Strategies for Meeting Demand
• Chase Strategy – Match the production rate to the order rate by hiring and laying off
employees as the order rte varies.
o Pros: Lower inventory carrying cost or stockout cost
o Cons: Higher hiring and lay off cost, and higher investment in plant and equipment
to meet peak demand, worker may fear of being laid off when demand low.
• Level Strategy – Maintain a stable workforce working at a constant output rate.
o Pros: Constant workforce level (except for natural attribute), low hiring and layoff
cost, relative lower capacity required in term of plant and equipment investment.
o Cons: Lead to either excess inventory or stockout (no stock to meet demand) , higher
inventory carrying costs or stockout costs
• Stable Workforce-variable work hours– Vary the output by varying the number of hours
worked through flexible work schedules or overtime. When production cannot meet
demand, overtime or subcontract can be used.
• Pure strategy – use only one of above. Mixed strategy – combine two or more of above
• Relevant Cost – Basic production costs, costs associated with changes in the production rate
(hiring, training, and layoff costs), inventory holding costs (carrying cost such as storing,
insurance, spoilage), and Backordering costs (stockout costs such penalties cost, lost of
goodwill or opportunities cost, i.e. lost revenue)
• Cut-and-Try Method or Trial-and-Error – set up various decision alternatives (‘what if’
scenarios), Determine total relevant cost associated with each alternative, Select a plan that
seems to best address cost minimization and relevant considerations.
• Yield Management – the process of allocating the right types of capacity to the right type
of customers at the right price and time to maximize revenue or yield. It works better when: 1) demand can be segmented by customer, 2) high fixed cost and low variable cost, 3)
inventory is perishable,4) product can be sold in advance, 5) demand is highly variable.
Chapter 12: Inventory Control
• Inventory is the stock of any item or resource used in an organization.
• Manufacturing Inventory is items that contribute to or become part of a firm’s product
output, such as Raw materials, Finished products, Component parts, Work in process, and
Maintenance, repair & operating (MRO) supplies.
• Inventory System is the set of policies and controls for monitoring levels of inventory and
determining 1) what levels should be maintained, 2) when stock should be replenished, and
3) how large orders should be.
• Purposes of Inventory
1. To maintain independence of operations
2. To meet variation in product demand
3. To allow flexibility in production scheduling
4. To provide a safeguard for variation in raw material delivery time
5. To take advantage of economic purchase-order size (‘quantity discounts’)
• Inventory Costs
o In Textbook: 1) Holding or carrying cost, 2) Setup or Production change cost, 3)
Ordering Cost, and 4) Shortage cost
o In Slide: