Process Performance

and Quality

Chapter 6
&7

© 2007 Pearson Education

 How Process Performance and Quality
fits the Operations Management
Philosophy

Operations As a Competitive
Weapon
Operations Strategy
Project Management Process Strategy
Process Analysis
Process Performance and Quality
Constraint Management
Process Layout Supply Chain Strategy
Lean Systems Location
Inventory Management
Forecasting
Sales and Operations Planning
Resource Planning
Scheduling

© 2007 Pearson Education

 Quality at
Crowne Plaza Christchurch
 The Crowne Plaza is a luxury hotel with 298 guest
rooms three restaurants, two lounges and 260
employees to serve 2,250 guests each week.
 Customers have many opportunities to evaluate
the quality of services they receive.
 Prior to the guest’s arrival, the reservation staff
gathers a considerable amount of information
about each guest’s preferences.
 Guest preferences are shared with housekeeping
and other staff to customize service for each guest.
 Employees are empowered to take preventative,
and if necessary, corrective action.
© 2007 Pearson Education
 Costs of Poor
Process Performance
 Defects: Any instance when a process fails to
satisfy its customer.
 Prevention costs are associated with
preventing defects before they happen.
 Appraisal costs are incurred when the firm
assesses the performance level of its processes.
 Internal failure costs result from defects that
are discovered during production of services or
products.
 External failure costs arise when a defect is
discovered after the customer receives the
service or product.
© 2007 Pearson Education
 Total Quality Management

 Quality: A term used by customers to describe

their general satisfaction with a service or
product.
 Total quality management (TQM) is a
philosophy that stresses three principles for
achieving high levels of process performance
and quality:
1. Customer satisfaction
2. Employee involvement
3. Continuous improvement in performance

© 2007 Pearson Education

 TQM Wheel

Customer
satisfaction

© 2007 Pearson Education

 Customer Satisfaction

 Customers, internal or external, are satisfied when

their expectations regarding a service or product
have been met or exceeded.
 Conformance: How a service or product conforms
to performance specifications.
 Value: How well the service or product serves its
intended purpose at a price customers are willing
to pay.
 Fitness for use: How well a service or product
performs its intended purpose.
 Support: Support provided by the company after a
service or product has been purchased.
 Psychological impressions: atmosphere, image, or
aesthetics
© 2007 Pearson Education
 Employee Involvement

 One of the important elements of TQM is employee

involvement.
 Quality at the source is a philosophy whereby
defects are caught and corrected where they were
created.
 Teams: Small groups of people who have a
common purpose, set their own performance goals
and approaches, and hold themselves accountable
for success.
 Employee empowerment is an approach to
teamwork that moves responsibility for decisions
further down the organizational chart to the level of
the employee actually doing the job.
© 2007 Pearson Education
 Team Approaches

 Quality circles: Another name for problem-solving

teams; small groups of supervisors and employees
who meet to identify, analyze, and solve process
and quality problems.
 Special-purpose teams: Groups that address
issues of paramount concern to management,
labor, or both.
 Self-managed team: A small group of employees
who work together to produce a major portion, or
sometimes all, of a service or product.

© 2007 Pearson Education

 Continuous Improvement
 Continuous improvement is the philosophy of
continually seeking ways to improve processes
based on a Japanese concept called kaizen.
1. Train employees in the methods of statistical
process control (SPC) and other tools.
2. Make SPC methods a normal aspect of
operations.
3. Build work teams and encourage employee
involvement.
4. Utilize problem-solving tools within the work
teams.
5. Develop a sense of operator ownership in the
process.
© 2007 Pearson Education
 The Deming Wheel
Plan-Do-Check-Act Cycle

Plan

Act Do

Check
© 2007 Pearson Education
 Statistical
Process Control
 Statistical process control is the application of
statistical techniques to determine whether a process
is delivering what the customer wants.

 Acceptance sampling is the application of statistical

techniques to determine whether a quantity of material
should be accepted or rejected based on the
inspection or test of a sample.

 Variables: Service or product characteristics that can

be measured, such as weight, length, volume, or time.
 Attributes: Service or product characteristics that can
be quickly counted for acceptable performance.
© 2007 Pearson Education
 Sampling

 Sampling plan: A plan that specifies a

sample size, the time between successive
samples, and decision rules that determine
when action should be taken.

 Sample size: A quantity of randomly

selected observations of process outputs.

© 2007 Pearson Education

 Sample Means and
the Process Distribution
Sample statistics have their own distribution, which
we call a sampling distribution.

© 2007 Pearson Education

 Sampling Distributions

A sample mean is the sum of the observations

divided by the total number of observations.

Sample Mean where

n xi = observations of a quality

x i
characteristic such as time.
n = total number of observations
x i 1
x = mean
n
The distribution of sample means can be
approximated by the normal distribution.
© 2007 Pearson Education
 Sample Range

The range is the difference between the largest

observation in a sample and the smallest.
The standard deviation is the square root of the
variance of a distribution.

where
 = standard deviation of a sample
 x  x 
2
n = total number of observations
 i

n 1 xi = observations of a quality characteristic

x = mean

© 2007 Pearson Education

 Process Distributions
A process distribution can be characterized by its
location, spread, and shape.
Location is measured by the mean of the
distribution and spread is measured by the range or
standard deviation.
The shape of process distributions can be
characterized as either symmetric or skewed.
A symmetric distribution has the same number of
observations above and below the mean.
A skewed distribution has a greater number of
observations either above or below the mean.
© 2007 Pearson Education
 Causes of Variation

 Two basic categories of variation in output include

common causes and assignable causes.

 Common causes are the purely random,

unidentifiable sources of variation that are
unavoidable with the current process.
 If process variability results solely from common causes
of variation, a typical assumption is that the distribution is
symmetric, with most observations near the center.

 Assignable causes of variation are any variation-

causing factors that can be identified and
eliminated, such as a machine needing repair.
© 2007 Pearson Education
 Assignable Causes

 The red distribution line below indicates that the process produced a
preponderance of the tests in less than average time. Such a distribution
is skewed, or no longer symmetric to the average value.
 A process is said to be in statistical control when the location, spread,
or shape of its distribution does not change over time.
 After the process is in statistical control, managers use SPC procedures
to detect the onset of assignable causes so that they can be eliminated.

Location Spread Shape

© 2007 Pearson Education

© 2007 Pearson Education
 Control Charts
 Control chart: A time-ordered diagram that is used to
determine whether observed variations are abnormal.

A sample statistic that falls between the UCL and the LCL indicates that the process
is exhibiting common causes of variation; a statistic that falls outside the control
limits indicates that the process is exhibiting assignable causes of variation.

© 2007 Pearson Education

 Control Chart Examples

© 2007 Pearson Education

 Type I and II Errors

 Control charts are not perfect tools for detecting

shifts in the process distribution because they are
based on sampling distributions. Two types of error
are possible with the use of control charts.
 Type I error occurs when the employee concludes
that the process is out of control based on a sample
result that falls outside the control limits, when in
fact it was due to pure randomness.
 Type II error occurs when the employee concludes
that the process is in control and only randomness
is present, when actually the process is out of
statistical control.
© 2007 Pearson Education
 Statistical Process
Control Methods
 Control Charts for variables are used to monitor the
mean and variability of the process distribution.
 R-chart (Range Chart) is used to monitor process
variability.
 x-chart is used to see whether the process is
generating output, on average, consistent with a
target value set by management for the process or
whether its current performance, with respect to the
average of the performance measure, is consistent
with past performance.
 If the standard deviation of the process is known, we can
place UCL and LCL at “z” standard deviations from the
mean at the desired confidence level.
© 2007 Pearson Education
 Control Limits

The control limits for the x-chart are:

UCL–x = =
x + A2R and LCLx– = x=- A2R
Where
=
X = central line of the chart, which can be either the average of
past sample means or a target value set for the process.
A2 = constant to provide three-sigma limits for the sample mean.

The control limits for the R-chart are UCLR = D4R and LCLR = D3R
where

R = average of several past R values and the central line of the chart.
D3,D4 = constants that provide 3 standard deviations (three-sigma)
limits for
© 2007 Pearson a given sample size.
Education
 Calculating
Three-Sigma Limits
Table 6.1

© 2007 Pearson Education

 West Allis Industries
Example 6.1
West Allis is concerned about their production of a special
metal screw used by their largest customers. The diameter of
the screw is critical. Data from five samples is shown in the table
below. Sample size is 4. Is the process in statistical control?

© 2007 Pearson Education

 West Allis Industries
Control Chart Development
Example 6.1 0.5027 – 0.5009 = 0.0018
Special Metal Screw
Sample Sample
_
Number 1 2 3 4 R x
1 0.5014 0.5022 0.5009 0.5027 0.0018 0.5018
2 0.5021 0.5041 0.5024 0.5020
3 0.5018 0.5026 0.5035 0.5023
4 0.5008 0.5034 0.5024 0.5015
5 0.5041 0.5056 0.5034 0.5039

(0.5014 + 0.5022 +
0.5009 + 0.5027)/4 = 0.5018
© 2007 Pearson Education
 West Allis Industries
Completed Control Chart Data
Example 6.1
Special Metal Screw
Sample Sample
_
Number 1 2 3 4 R x
1 0.5014 0.5022 0.5009 0.5027 0.0018 0.5018
2 0.5021 0.5041 0.5024 0.5020 0.0021 0.5027
3 0.5018 0.5026 0.5035 0.5023 0.0017 0.5026
4 0.5008 0.5034 0.5024 0.5015 0.0026 0.5020
5 0.5041 0.5056 0.5034 0.5047 0.0022 0.5045
R= 0.0021
x= = 0.5027

© 2007 Pearson Education

 West Allis Industries
R-chart Control Chart Factors
Example 6.1
Factor for UCL Factor for
Factor
Size of and LCL for LCL for UCL
for
Sample x-Charts R-Charts R-
Charts
(n) (A2) (D3) (D4)
2 1.880 0
3.267
3 1.023 0
R = 0.0021
2.575
4 0.729 0
D4 = 2.282
2.282
5 0.577 0
D3 = 0 UCLR = D4R = 2.282 (0.0021) = 0.00479 in.
2.115
LCLR = D3R 0.483
0 (0.0021) = 0 in.
© 2007 Pearson Education 6 0
2.004
 West Allis Industries
Range Chart
Example 6.1

© 2007 Pearson Education

 West Allis Industries
x-chart Control Chart Factor
Example 6.1

Factor for UCL Factor for

Factor
Size of and LCL for LCL for UCL
for
Sample x-Charts R-Charts R-
Charts
(n) (A2) (D3) (D4)
2 1.880 0
3.267
3 1.023 0
R = 0.0021 A2 = 0.729 =x = 0.5027
2.575
UCLx4= x= + A2R = 0.5027
0.729+ 0.729 (0.0021) 0= 0.5042 in.
2.282 =
LCLx 5= x - A2R = 0.5027
0.577– 0.729 (0.0021) =0 0.5012 in.
© 2007 Pearson Education
2.115
 West Allis Industries
x-Chart
Example 6.1
Sample the process Find the assignable cause
Eliminate the problem Repeat the cycle

© 2007 Pearson Education

 Application 6.1

© 2007 Pearson Education

 Application 6.1

UCLR  D4 R  1.864(0.38)  0.708

LCLR  D3 R  0.136(0.38)  0.052

© 2007 Pearson Education

 Application 6.1

© 2007 Pearson Education

 Sunny Dale Bank
Example 6.2
Sunny Dale Bank management determined the mean time to process a customer is 5
minutes, with a standard deviation of 1.5 minutes. Management wants to monitor mean
time to process a customer by periodically using a sample size of six customers.
Design an x-chart that has a type I error of 5 percent. That is, set the control limits
so that there is a 2.5 percent chance a sample result will fall below the LCL and a
2.5 percent chance that a sample result will fall above the UCL.

Sunny Dale Bank

x= = 5.0 minutes  = 1.5 minutes n = 6 customers z = 1.96
= + z Control Limits
UCLx = x x
= – z UCLx = 5.0 + 1.96(1.5)/ 6 = 6.20 min
LCL = x
x x

x = /n LCLx = 5.0 – 1.96(1.5)/ 6 = 3.80 min

After several weeks of sampling, two successive samples came in at 3.70 and
3.68 minutes, respectively. Is the customer service process in statistical control?
© 2007 Pearson Education
 Control Charts
for Attributes
 p-chart: A chart used for controlling the
proportion of defective services or products
generated by the process.

p = p(1 – p)/n
Where
n = sample size
p = central line on the chart, which can be either the historical
average population proportion defective or a target value.
–  and LCL = p−z
Control limits are: UCLp = p+z – 
p p p

z = normal deviate (number of standard deviations from the average)

© 2007 Pearson Education
 Hometown Bank
Example 6.3
The operations manager of the booking services department of
Hometown Bank is concerned about the number of wrong customer
account numbers recorded by Hometown personnel.
Each week a random sample of 2,500 deposits is taken, and the number
of incorrect account numbers is recorded. The results for the past 12
weeks are shown in the following table.

Is the booking process out of statistical control? Use three-sigma control limits.
© 2007 Pearson Education
 Hometown Bank
Using a p-Chart to monitor a process

n = 2500 Sample Wrong Proportion

147 Number Account # Defective
p= = 0.0049
12(2500) 1 15 0.006
2 12 0.0048
p = p(1 – p)/n 3 19 0.0076
4 2 0.0008
p = 0.0049(1 – 0.0049)/2500 5 19 0.0076
6 4 0.0016
7 24 0.0096
p = 0.0014
8 7 0.0028
UCLp = 0.0049 + 3(0.0014) 9 10 0.004
10 17 0.0068
= 0.0049
0.0091 – 3(0.0014) 11 15 0.006
LCLp =
12 3 0.0012
= 0.0007
© 2007 Pearson Education Total 147
 Hometown Bank
Using a p-Chart to monitor a process

Example 6.3

© 2007 Pearson Education

 Application 6.2

© 2007 Pearson Education

 Application 6.2

Total number of leaky tubes 72

p   0.025
Total number of tubes 20144

p 

p 1 p
0.0251  0.025
 0.01301
n 144

UCL p  p  z p  0.025  30.01301  0.06403

LCL p  p  z p  0.025  30.01301  0.01403

LCL p  0
© 2007 Pearson Education
 c-Charts

 c-chart: A chart used for controlling the number of defects when

more than one defect can be present in a service or product.
 The underlying sampling distribution for a c-chart is the Poisson
distribution.
 The mean of the distribution is c
 The standard deviation is c
 A useful tactic is to use the normal approximation to the Poisson
so that the central line of the chart is c and the control limits are

UCLc = c+z c and LCLc = c−z c

© 2007 Pearson Education

 Woodland Paper Company
Example 6.4

In the Woodland Paper Company’s final step in their paper

production process, the paper passes through a machine that
measures various product quality characteristics. When the
paper production process is in control, it averages 20 defects
per roll.

a) Set up a control chart for the number of defects per roll. Use two-
sigma control limits.
b) Five rolls had the following number of defects: 16, 21, 17, 22, and 24,
respectively. The sixth roll, using pulp from a different supplier, had 5
defects. Is the paper production process in control?

c = 20 UCLc = c+z c = 20 + 2 20 = 28.94

z=2 LCLc = c−z c = 20 - 2 20 = 11.06

© 2007 Pearson Education
 Woodland Paper Company
Using a c-Chart to monitor a process
Example 6.4

Solver - c-Charts
Number of Defects

Sample Number

© 2007 Pearson Education

 Application 6.3

6  5  0  4  6  4 1 6  5  0  9  2 c  4  2
c 4
12

UCLc  c  z c  4  22  8 LCLc  c  z c  4  22  0

© 2007 Pearson Education
 Process Capability

 Process capability is the ability of the

process to meet the design specifications
for a service or product.
 Nominal value is a target for design
specifications.
 Tolerance is an allowance above or below
the nominal value.

© 2007 Pearson Education

 Process Capability

Nominal
value
Process distribution
Lower Upper
specification specification

20 25 30 Minutes

Process is capable
© 2007 Pearson Education
 Process Capability

Nominal
value
Process distribution
Lower Upper
specification specification

20 25 30 Minutes

Process is not capable

© 2007 Pearson Education
 Effects of Reducing
Variability on Process Capability
Nominal value
Six sigma

Four sigma

Two sigma
Lower Upper
specification specification

© 2007 Pearson Education

Mean
 Process Capability Index, Cpk

Process Capability Index, Cpk, is an index that measures the

potential for a process to generate defective outputs relative to
either upper or lower specifications.

x= – Lower specification Upper specification – x=

Cpk = Minimum of ,
3 3

We take the minimum of the two ratios because it gives the

worst-case situation.

© 2007 Pearson Education

 Process Capability Ratio, Cp

Process capability ratio, Cp, is the tolerance width

divided by 6 standard deviations (process variability).

Upper specification - Lower specification

Cp =
6

© 2007 Pearson Education

 Accuracy Vs.
Consistency

© 2007 Pearson Education

 Using Continuous Improvement
to Determine Process Capability
 Step 1: Collect data on the process output; calculate
mean and standard deviation of the distribution.
 Step 2: Use data from the process distribution to
compute process control charts.
 Step 3: Take a series of random samples from the
process and plot results on the control charts.
 Step 4: Calculate the process capability index, Cpk, and
the process capability ratio, Cp, if necessary. If
results are acceptable, document any changes made to
the process and continue to monitor output. If the
results are unacceptable, further explore assignable
causes.
© 2007 Pearson Education
 Intensive Care Lab
Example 6.5

The intensive care unit lab process has an average turnaround

time of 26.2 minutes and a standard deviation of 1.35 minutes.
The nominal value for this service is 25 minutes with an upper
specification limit of 30 minutes and a lower specification limit
of 20 minutes.
The administrator of the lab wants to have four-sigma
performance for her lab. Is the lab process capable of this level
of performance?

Upper specification = 30 minutes

Lower specification = 20 minutes
Average service = 26.2 minutes
 = 1.35 minutes
© 2007 Pearson Education
 Intensive Care Lab
Assessing Process Capability
Example 6.5 Upper specification = 30 minutes
Lower specification = 20 minutes
Average service = 26.2 minutes
 = 1.35 minutes

x= – Lower specification Upper specification – x=

Cpk = Minimum of ,
3 3

Cpk = Minimum of 26.2 – 20.0 30.0 – 26.2

3(1.35)
, 3(1.35)
Process
Cpk = Minimum of 1.53, 0.94 = 0.94 Capability
Index
© 2007 Pearson Education
 Intensive Care Lab
Assessing Process Capability
Example 6.5
Upper specification - Lower specification
Cpk =
30 - 20
6
Cp = = 1.23 Process Capability Ratio
6(1.35)
Does not meet 4 (1.33 Cp) target
Before Process Modification
Upper specification = 30.0 minutes Lower specification = 20.0 minutes
Average service = 26.2 minutes
 = 1.35 minutes Cpk = 0.94 Cp = 1.23

After Process Modification

Upper specification = 30.0 minutes Lower specification = 20.0 minutes
Average service = 26.1 minutes
© 2007 Pearson Education  = 1.2 minutes Cpk = 1.08 Cp = 1.39
 Application 6.4

© 2007 Pearson Education

 Application 6.4

© 2007 Pearson Education

 Quality Engineering

 Quality engineering is an approach

originated by Genichi Taguchi that involves
combining engineering and statistical methods
to reduce costs and improve quality by
optimizing product design and manufacturing
processes.
 Quality loss function is the rationale that a
service or product that barely conforms to the
specifications is more like a defective service
or product than a perfect one.
 Quality loss function is optimum (zero) when the
product’s quality measure is exactly on the target
measure.
© 2007 Pearson Education
 Taguchi's
Quality Loss Function
Loss (dollars)

Lower Nominal Upper

specification value specification
© 2007 Pearson Education
 Six Sigma

 Six Sigma is a comprehensive and flexible system

for achieving, sustaining, and maximizing business
success by minimizing defects and variability in
processes.
 It relies heavily on the principles and tools of TQM.

 It is driven by a close understanding of customer

needs; the disciplined use of facts, data, and
statistical analysis; and diligent attention to
managing, improving, and reinventing business
processes.

© 2007 Pearson Education

 Six Sigma
Improvement Model
1. Define Determine the current process
characteristics critical to customer
satisfaction and identify any gaps.
2. Measure Quantify the work the process
does that affects the gap.
3. Analyze Use data on measures to perform
process analysis.
4. Improve Modify or redesign existing
methods to meet the new performance
objectives.
5. Control Monitor the process to make sure
high performance levels are maintained.
© 2007 Pearson Education
 Six Sigma
Implementation
 Top Down Commitment from corporate
leaders.
 Measurement Systems to Track Progress
 Tough Goal Setting through benchmarking
best-in-class companies.
 Education: Employees must be trained in
the “whys” and “how-tos” of quality.
 Communication: Successes are as
important to understanding as failures.
 Customer Priorities: Never lose sight of
the customer’s priorities.
© 2007 Pearson Education
 Six Sigma Education

 Green Belt: An employee who achieved the first

level of training in a Six Sigma program and spends
part of his or her time teaching and helping teams
with their projects.

 Black Belt: An employee who reached the highest

level of training in a Six Sigma program and spends
all of his or her time teaching and leading teams
involved in Six Sigma projects.

 Master Black Belt: Full-time teachers and mentors

to several black belts.
© 2007 Pearson Education
 International Quality
Documentation Standards

ISO A set of standards governing

documentation of a quality
program.

9000
Documentation standards that
ISO require participating companies to
keep track of their raw materials use

14000
and their generation, treatment, and
disposal of hazardous wastes.
© 2007 Pearson Education
 Malcolm Baldrige National
Quality Award
Named after the late secretary of commerce, a strong
proponent of enhancing quality as a means of reducing the
trade deficit. The award promotes, recognizes, and publicizes
quality strategies and achievements.

1. Category 1 ─ Leadership

120 points
2. Category 2 ─ Strategic Planning

85 points
3. Category 3 ─ Customer and Market Focus

85 Education
© 2007 Pearson points
 Practice Questions

1. The Minnow County Highway Safety Department

monitors accidents at the intersection of Routes 123 and
14. Accidents at the intersection have averaged three per
month.
a.Which type of control chart should be used? Construct a
control chart with three-sigma control limits.
b.Last month, seven accidents occurred at the intersection.
Is this sufficient evidence to justify a claim that something
has changed at the intersection?
© 2007 Pearson Education
 Pioneer Chicken advertises “lite” chicken with 30 percent fewer
calories. (The pieces are 33 percent smaller.) The process average
distribution for “lite” chicken breasts is 420 calories, with a
standard deviation of the population of 25 calories. Pioneer
randomly takes samples of six chicken breasts to measure calorie
content.
a.Design an x-chart using the process standard deviation. Use
three-sigma limits.
b.The product design calls for the average chicken breast to
contain 400 { 100 calories. Calculate the process capability index
(target = 1.33) and the process capability ratio. Interpret the results.

© 2007 Pearson Education