Chapter 5 Quality and Performance A Quality and Performance and Across the Organization Why should process performance and quality be everyone s concern The challenge for businesses today is for businesses to satisfy customers through exceptional performance of their processes customers want good quality through good performance of processes and businesses want to exceed customer s expectations want exceptional quality and performance of processes Costs of quality range from 20 30 of gross sales B Costs of Quality Define a defect any instance when a process fails to satisfy its customer Four major categories of costs are associated with process performance gaps costs of quality 1 Prevention costs costs associated with preventing defects before they happen costs of redesigning process to remove causes of poor performance redesigning the service or product to make it simpler to produce training employees in methods of continuous improvement working with suppliers to increase the quality of purchased items or contracted services 2 Appraisal costs costs incurred when the firm assesses the performance level of its processes as the costs of prevention increase and performance improves appraisal costs decrease because fewer resources are needed for quality inspections 3 Internal failure costs costs resulting from defects that are discovered during the production of a service or product a Rework incurred if some aspect of a service must be performed again or if a defective item must be rerouted to some previous operations to correct the defect b Scrap incurred if the defective item is unfit for further processing Copyright 2013 Pearson Education Inc Publishing as Prentice Hall 349 350 Chapter 5 Quality and Performance 4 External failure costs costs that arise when a defect is discovered after the customer receives the service or product dissatisfied customer talk about bad service and word spreads erode market share and profits encountering defects and correcting them after the product is in the customers hands is costly a Include warranty costs and litigation written guarantee that the producer will replace or repair defective parts of perform the service to the customer s satisfaction usually for a specified period these costs must be considered in the design of news services or products C Ethics and Quality What are ethical considerations There is a greater societal effect that must be factored into decision making involving the production of services or products which often involves balancing the traditional measures of quality performance and the overall benefits to society ex Health care industry might want to have 0 complications in cardiac surgery but this comes at the cost of turning down high risk patients Three elements of a deceptive practice 1 The conduct of the provider is intentional and motivated by a desire to exploit customers 2 The provider conceals the truth based upon what is actually known to the provider 3 The transaction is intended to generate a disproportionate economic benefit to the provider at the expense of the customer Copyright 2013 Pearson Education Inc Publishing as Prentice Hall Chapter 5 Quality and Performance 351 D Total Quality Management Define total quality management TQM a philosophy that stresses three principles for achieving high levels of process performance and quality Quality term used by customers to describe their general satisfaction with a service or product Difficult to measure accurately Does not mean 100 satisfaction of ALL current and potential customers Does mean 100 satisfaction of ALL current and potential customers who should be retained A prerequisite but not a guarantee of customer loyalty need high customer satisfaction to even have a chance to get the customer to return but there is no guarantee Principles for high customer service Sequence stick the dismount give bad news first before good news Duration distract segment pleasure and combine pain Rationalization let customer choose among bad options Describe the three principles for achieving high levels of process quality and performance 1 Customer satisfaction customers are satisfied when their expectations have been met or exceeded often customers use the term quality to describe their level of satisfaction quality has several dimensions a Conformance to specifications process failure would be the process s inability to meet certain advertised or implied performance standards conformance to specifications may relate to consistent quality on time delivery or delivery speed Copyright 2013 Pearson Education Inc Publishing as Prentice Hall 352 Chapter 5 Quality and Performance b Value how well the service or product serves it intended purpose at a price customers are willing to pay the service product development process must be balanced with the firm s competitive priorities to produce value for the customer how much value a product or service has in the mind of the customer is dependent on the customer s expectations before purchasing it c Fitness for use convenience of a service mechanical features of a product or others aspects such as appearance style durability reliability craftsmanship and serviceability may define quality of an entertainment center by how easy it was to assemble and its appearance styling d Support support is often as important as the quality of the product service itself good support once the sale has been made can reduce the consequences of quality failures e Psychological impressions atmosphere image or aesthetics appearance and actions of provider nicely dresses and courteous employees a business s success depends on the accuracy of its perceptions of consumer expectations and its ability to bridge the gap between those expectations and operating capabilities 2 Employee involvement a Cultural change one of the main challenges in developing the proper culture for TQM is to define the term customer internal and external employees with little contact with external customers may have difficulty seeing how their job contribute to the whole effort it is helpful to point out that each employee also has an internal customer employees in the firm who rely on their output all employees must do a good job of satisfying internal customers in order for external customers to be satisfied enhances cross functional coordination Copyright 2013 Pearson Education Inc Publishing as Prentice Hall Chapter 5 Quality and Performance 353 Quality at the source a