Lecture-1 Introduction to QOM — Fall PART 2 (1)

Quality & Operations Management
Lecturer: Sitora Inoyatova ([e-mail]) Lecture 1: Intro
Lecture 1
Introduction to Quality & Operations Management
Part II

Agenda
Recap
”Gap” Model of Quality
Quality Costs
Topology of operations (Four Vs)
Assignment Task

Module Learning Outcomes
By the end of the module the student will be able to:
Discuss quality management practices in organizations and how quality management facilitate organisational effectiveness.
Evaluate the importance of product and service design decisions and its impact on other design decisions and operations.
Apply principles of various planning activities including capacity planning, aggregate planning, project planning and scheduling.
Analyse contemporary supply chain management and inventory management activities and their relation to organisational effectiveness.

Views on Quality
According to operation’s view, quality is defined as consistent conformance to customers’ expectations. (Slack et al. 2010)
Conformance
Consistence
Customer expectations
According to customer’s view, quality is how customer understands and individually perceives a service or product in different ways.
Operations Principle: Quality is multi-faceted; its individual elements differ for different operations.

“ Gap “ Model of Quality
Source: Adapted from Parasuraman, A. et al. (1985) A conceptual model of service quality and implications for future research, Journal of Marketing, vol. 49, Fall.

Gap 1
The customer’s specification-operation’s specification gap
Perceived quality could be poor because there may be a mismatch between the organization’s own internal quality specification and the specification which is expected by the customer.
A car may be designed to need servicing every 10,000 kilometers but the customer may expect 15,000 kilometer service intervals

Gap 2
The concept-specification gap
Perceived quality could be poor because there is a mismatch between the service or product concept and they way the organization has specified quality internally.
The concept of a car might have been for an inexpensive, energy-efficient means of transportation, but the inclusion of a climate control system may have both added to its cost and made it less-energy efficient.

Gap 3
The quality specification-actual quality gap
Perceived quality could be poor because there is a mismatch between actual quality and the internal specification
(often called conformance to specification).
The internal quality specification for a car may be that the gap between its doors and body, when closed, must not exceed 7 mm. However, because of inadequate equipment, the gap in reality is 9mm

Gap 4
The actual quality-communicated image gap
Perceived quality could be poor because there is a gap between the organization’s external communications or market image and the actual quality delivered to the customer.
An advertising campaign for an airline might show a cabin attendant offering to replace a customer’s shirt on which food or drink has been spilt, whereas such a service may not in fact be available should this happen

Costs of quality

1.Preventing Costs
Preventing are those costs incurred in trying to prevent problems, failures and errors, from occurring in the first place. They include such things as:
identifying potential problems and putting the process right before poor quality occurs;
designing and improving the design of products and services and processes to reduce quality problems;
training and development of personnel in the best way to perform their jobs;
process control.

2.Appraisal costs
Appraisal costs are those costs associated with controlling quality to check to see if problems or errors have occurred during and after the creation of the service or product.
the setting up of statistical acceptance sampling plans;
the time and effort required to inspect inputs, processes and outputs;
obtaining processing inspection and test data;
investigating quality problems and providing quality reports;
conducting customer surveys and quality audits.

3.Internal failure costs
Internal failure costs are failure costs associated with errors which are dealt with inside the operation. These costs might include such things as:
the cost of scrapped parts and materials;
reworked parts and materials;
the lost production time as a result of coping with errors;
lack of concentration due to time spent troubleshooting rather than improvements.

4.External failure costs
External failure costs are those which are associated with an error going out of the operation to a customer. These costs include such things as:
loss of customer goodwill affecting future business;
aggrieved customers who may take up time;
litigation;
guarantee and warranty costs;
the cost to the company of providing excessive capability (too much coffee in the pack or too much information to a client).

The Four Vs

The Four Vs
The volume of processes’ output
The variety of the output
The variation in demand for the output
The degree of visibility which customers have of the creation of output
Operations Principle: The way in which processes need to be managed is influenced by VOLUME, VARIETY, VARIATION AND VISIBILITY.
The implications of the four Vs predetermine the way how the operations are to be organized.

Volume Dimension
The volume and frequency of the processes. If there is high-volume production (for instance, Fast Food restaurant or assembly line) it becomes vital to standardize the processes.
When there is high volume – the processes are mostly repeatable. By systemizing and standardizing low unit costs may be achieved.
Contrast these two examples:
A Burger from EVOS
A Burger from Cafeteria
Ingredients prepared in advance
Time for preparation is short
Expected quality
Low unit cost (ingredients bought in bulk)
No ingredients prepared in advance
Time for preparation is long
Quality-wise might be better
High unit cost (rarely ordered, therefore no procurement made)

Variety Dimension
There are companies offering different varieties of products or services.
VS
Picks up the customer from any place
Drops off almost everywhere
Change of the route is possible
Picks up the customer from the station
Drops off only at the station
Change of the route is rarely possible
Which has lower costs?

Variation in Demand Dimension
There are companies changing capacities according to the variation of the demand in the market.
Hotel located by the winter resort
Hotel located in city center
Seasonal demand
Hard to predict
Extra costs
Stable demand
Easier to forecast
No extra costs

Visibility Dimension
This dimension means how much of the operation’s activities its customers experience, or how much the operation is exposed to its customers.
(Restaurant service or fast food business focuses on customer-processing operations).

A Topology of Operations
IMPLICATIONS
IMPLICATIONS
High
Low
Visibility
High
Low
Variation in demand
High
Low
Variety
Low
High
Volume
Changing capacity
Anticipation
Flexibility
In touch with demand
High unit cost
Flexible
Complex
Match customer needs
High unit cost
Low repetition
Each staff member performs more of job
Less systemization
High unit costs
Stable
Routine
Predictable
High utilization
Low unit costs
Well defined
Routine
Standardized
Regular
Low unit costs
High repeatability
Specialization
Systemization
Capital intensive
Low unit cost
Short waiting tolerance
Satisfaction governed by customer perception
Customer contact skills needed
Received variety is high
High unit cost
Time lag between production and consumption
Standardized
Low contact skills
High staff utilization
Centralization
Low unit costs
Low cost

A Topology of Operations
Important to understand how different operations are positioned on the 4V’s.
Is there position where they want to be?
Do they understand the strategic implications?
Volume
Variety
Variation
Visibility
Low
High
High
High
High
Low
Low
Low
Company A
Company B

Subway Example

Four Vs at Subway
Volume
Variety
Variation
Visibility
Low
High
High
High
High
Low
Low
Low
Volume is high – customer traffic is constant
Variety is high – customer can assemble a sandwich out of numerous breads, vegetables, sauces
Variation in demand is low – there are no seasonal fluctuations
Visibility is high – sandwiches are prepared in front of the customer and the feedback is instant, any changes can be done (mistakes fixed) without extra cost for customer and the store

Input-Transformation-Output Process
INPUT
Subway Sandwich
TRANSFORMATION PROCESS
OUTPUT

Conclusion
Operations processes have mainly four (4Vs) characteristics:
The volume dimension
The variety dimension
The variation dimension
The visibility dimension
Quality costs include:
- Prevention costs
- Appraisal costs
- Internal costs
- External costs