Chapter 6 FARE 3310.docx

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Food Agricultural and Resource Economics
FARE 3310
Getu Hailu

Chapter 6 Operations Management Managing Quality Quality & Strategy  Managing quality helps build successful strategies of differentiation, low cost & response  Improvements in quality help firms increase sales & reduce costs which can both increase profitability  Increase in sales is usually in response to firms speed response, lower selling prices, and improve reputation or quality of products Defining Quality  Total quality management takes care of the customer Quality: The ability of a product to meet consumer needs  Marketing people & customers lie the approach that quality = lies in the eyes of the beholder  To production managers, quality is manufacturing based  Another view is product based which views quality as precise, measurable & variable Implications of Quality 3 reasons quality is important… 1. Company reputation 2. Product liability: Consume product & safety act sets & enforce product standards by banning products that don't reach those standards 3. Global Implications: In global economy, products must meet global quality, design & price expectations The cost of quality 4 major categories of costs are associated w/ quality: 1. Prevention costs: Costs associated w/ reducing the potential for defective parts or services (training, quality improvement programs) 2. Appraisal Costs: Costs related to evaluating products, processes, parts & services (testing, labs etc.) 3. Internal failure: Costs resulting from defective parts before delivery to customers (scrap, rework etc.) 4. External Costs: Occur after delivery of defective parts & services (returned goods, liabilities etc.)  Very hard to quantify Ethics in Quality Management  For operations mangers the most important jobs is to deliver healthy, safe & quality products & services to customers  Poor quality can lead to injuries, lawsuits & increased government regulation  A manufacturer must accept responsibility for any poor-quality product released to the public International Quality Standards ISO 9000 ISO 9000: A set of quality standards developed by the international organization for standardization  Quality is so important globally that the world is uniting around a single quality standard  In 1987, 91 member nations published a series of quality assurance standards  The focus of the standards is to establish quality management procedures, through leadership, detailed documentation, work instructions & record keeping  To become ISO 9000 certified, organizations go through a 9-18 month process that involves documenting quality procedures, an on-site assessment and an ongoing series of audits of their products r services  Critical for organizations who want to do business globally ISO 14000 ISO 14000: A series of environmental management standards established by the International Organization for standardization 5 Core Elements… 1. Environmental management 2. Auditing 3. Performance evaluation 4. Labeling 5. Life Cycle Assessment The new standard could have several advantages…  Positive public image and reduced exposure to liability  Good systematic approach to pollution prevention through the minimization of ecological impact of products and activities  Compliance w/ regulatory requirements & opportunities for competitive advantage  Reduction in the need for multiple audits Total Quality Management Total Quality Management: Management of an entire organization so that it excels in all aspects of products & services that are important to the customer Continuous Improvement  Total quality management requires a never ending process of continuous improvement that covers people, equipment =, suppliers, materials & procedures Plan-Do-Check-Act: Walter Shewhart’s model to stress the continuous nature of the improvement process Six Sigma Six Sigma: A program to save time, improve quality and lower costs  Has 2 meanings in TQM: 1. In a statistical sense describes a process, product or service w/ an extremely high capability (99.99% accuracy) 2. A program designed to reduce defects, help lower costs, save time & improve customer satisfaction Six Sigma follows a 5 step improvement model called DMAIC 1. Defines the projects purpose, scope & outputs. Then identifies the required process info, keeping in mind customers definition of quality 2. Measures the process & collects data 3. Analyzes the data 4. Improves by modifying & redesigning existing processes & procedures 5. Controls the new process to make sure performance levels are maintained  It’s a set of 7 tools: check sheets, scatter diagrams, cause-and-effect diagrams, Pareto Charts, flowcharts, histograms and statistical process control Employee Empowerment  Involving employees in every step of the production process  85% of quality problems have to do w/ materials & processes not employee performance  Techniques of building employee empowerment include (1) building communication networks that include employees (2) supportive & open supervisors (3) moving responsibility to production employees (4) high morale (5) formal org. structures like teams & quality circles Quality Circle: A group of employees meeting regularly w/ a facilitator to solve work-related problems in their work area  Generally meet once a week usually after work  No financial reward just recognition Benchmarking Benchmarking: Selecting a demonstrated standard of performance that represents the very bests performance for an activity or process  Develop a target to shoot to and then develop a standard/benchmark against which you will compare 1. Determine what to benchmark 2. Form benchmark team 3. Identify benchmarking partners 4. Collect & analyze benchmark info 5. Take action to match or exceed benchmark  T
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