COMMERCE 4OB3 Chapter Notes - Chapter 6,6s,11,11s: Offshoring, Fax, E-Procurement

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31 Mar 2015

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Quality and Strategy
Improvements in quality help firms increase sales and reduce costs
Both can increase profitability
Flow of activities needed to achieve TQM:
1. Organizational practices
2. Quality principles
3. Employee fulfillment
4. Customer satisfaction
Defining Quality
Quality: the ability of a product/service to meet customer needs
Two ways to improve quality:
1. Sales gains via:
oImproved response
oFlexible pricing
oImproved reputation
2. Reduced costs via:
oIncreased productivity
oLower rework and scrap costs
oLower warrantee costs
Different definitions of quality:
oUser based: higher quality means better performance, nicer features
oManufacturing based: quality means conforming to standards and making
it right the first time
oProduct based: quality is a precise and measurable variable
Implications of Quality
1. Company reputation:
oReputation for quality will follow an organization (good or bad)
oQuality will show up in perceptions of new products, employment
practices, supplier relations
2. Product liability:
oCourts hold organizations that make faulty products/services liable for
oConsumer Product Safety Act sets and enforces product standards
3. Global implications: products must meet global quality, design and price
Cost of Quality (COQ)
Prevention costs: costs associated with reducing potential for defective
parts/services (training)
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Appraisal costs: costs related to evaluating products, processes, parts, services
(testing, labs, inspectors)
Internal failure: costs that result from production of defective parts/services before
delivery to customers (rework, scrap, downtime)
External costs: costs after delivery of defective parts/services (rework, returned
goods, liabilities, lost goodwill)
International Quality Standards
ISO 9000
ISO 9000: set of quality standards developed by the International Organization for
Standardization (ISO)
Only quality standard with international recognition
Procedures deal entirely with standards to be followed (say nothing about actual
quality of product)
ISO 9001: 2008
oLeadership by top management and customer requirements/satisfaction
play a much larger role
oDocumented procedures receive less emphasis
ISO 14000
Series of environmental management standards
Five core elements:
(1) Environmental management
(2) Auditing
(3) Performance evaluation
(4) Labeling
(5) Life cycle assessment
ISO 24700 reflects business worlds current approach to reusing recovered
components from other products
Total Quality Management
TQM: management of entire organization so it excels in all aspects of
products/services that are important to customer
Continuous Improvement
Every aspect of operation can be improved
End goal is perfection
Keep going around the Plan-Do-Check-Act (PDCA) circle
Six Sigma
Program to save time, improve quality and lower costs
Statistical definition: process, product, service with an extremely high capacity
(99.9997% accuracy)
Strategy because focuses on total customer satisfaction
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Discipline because it follows the Six Sigma Improvement Model (DMAIC):
1. Defines the project’s purpose
2. Measures process and collects data
3. Analyzes data ensuring repeatability
4. Improves by modifying or redesigning processes
5. Controls new process
Implementing Six Sigma: management must spend upward of 15% of their time
on Six Sigma (large time commitment)
Employee Empowerment
Involving employees in every step of the production process
Employees work with systems every day so know what needs to be improved
Techniques to build employee empowerment:
oBuild communication networks that include employees
oDevelop open supportive supervisors
oMove responsibility form managers to production employees
oBuild high-morale organizations
oCreate formal organization structures (teams, quality circles)
Quality circle: group of employees that meets regularly to solve work-related
Select performance standards that represent very best performance for a
Steps for developing a benchmark:
1. Determine what to benchmark
2. Form benchmark team
3. Identify benchmarking partners
4. Collect and analyze benchmark info
5. Take action to match/exceed benchmark
May take organizations that are leaders and compare yourself to them
Company does not need to be in the same industry
Internal Benchmarking:
oUsed when organization is large enough to have many divisions/business
oOne unit may have superior performance worth learning from
Just-in-Time (JIT)
JIT cuts cost of quality:
oDamage costs related to inventory on hand are eliminated
oJIT immediately exposes quality whereas inventory hides it
JIT improves quality:
oLimits number of potential sources of error
oCreates an early warning system for quality problems
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