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ADMS 3351 Study Guide - Final Guide: Total Quality Management, Six Sigma, Operations Plan

Administrative Studies
Course Code
ADMS 3351
Humayun Chaudhary
Study Guide

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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
oCrosby – 14 points philosophy, continuous improvement
oDeming – 14-step quality improvement program, Goal: Zero defects
oJuran – 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)
oQuality leadership from senior management
oCustomer focus
oTotal involvement of workforce: “Empowerment”
oContinuous improvement
oBased on rigorous analysis of processes
Quality Specifications
Design quality: Inherent value of the product in the marketplace
Dimensions include:
oPerformance – primary characteristic
oFeatures – extra or secondary characteristic
oReliability/Durability – consistency, failure rate, useful life
oServiceability – Ease of repair
oAesthetics – sensory characteristics, i.e. sound, feel, look, and so
oPerceived 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
oAppraisal costs
oPrevention costs
oInternal Failure costs
oExternal 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
process outputs.
It descript process performance by DPMO (defects per million opportunities)

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Types of Statistical Sampling
Attribute (Go or no-go information)
oDefectives refers to the acceptability of product across a range of characteristics.
oDefects refers to the number of defects per unit which may be higher than the
number of defectives.
op-chart application
Variable (Continuous)
oUsually measured by the mean and the standard deviation.
oX-bar and R chart applications
oChance (Common) variation – caused by randomly occurring events in the process
oAssignable variation – caused by events or factors that can usually be identified or
Process Variation
Type I Error (α) : Reject H0 when H0 is true
Type II Error (β = 1 – α): Do not reject H0 when H0 is false
H0: Process is under control
HA: Process is out of control
Compared the graphs in page 160, Reject H0 or support HA while poor performance
determine by:
oOne spot out above or below the control limit
oTwo spots near upper or lower control limit
oFive spots run sustained above or below center
oTrends in either direction five plots (up or down)
oErratic behavior
oSudden 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
oRejecting H0 at α = 5% Test is significance
oRejecting H0 at α = 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.
oz = 3.0 normal probability of 99.74%
oz = 3.0 is standard (“3s control limits”)
oTradeoff: sensitivity vs. erroneously concluding process to be out of control

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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.
oPros: Lower inventory carrying cost or stockout cost
oCons: 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.
oPros: Constant workforce level (except for natural attribute), low hiring and layoff
cost, relative lower capacity required in term of plant and equipment investment.
oCons: 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:
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