CHAPTER 7

Chapter 7
Managing Quality and Time to Create Value
ANSWERS TO REVIEW QUESTIONS 7.1 Refer to the list of key terms at the end of the chapter and the
glossary. 7.2 Several decades ago, high quality was a means of establishing a
competitive advantage. However, now high quality is considered to be a
competitive necessity. Quality does not just happen; it is the result
of conscious management decisions. Just like cost, measuring and
evaluating quality is necessary to ensure that high quality is being
maintained. 7.3 Some feel that now managing time is at the same stage as managing
quality was 10 to 20 years ago - soon it will be a competitive
necessity, but it may be a source of competitive advantage now.
Organizations that are able to meet customer needs more quickly (and
with high quality) may have an advantage, but superior time
performance does not just happen. It, too, is the result of applying
management focus and techniques. 7.4 TQM advocates believe that investments in improved quality will
always pay off because customers will prefer to buy from a quality
supplier and they should be willing to pay premium prices. 7.5 ROQ advocates believe there is an optimum level of quality, beyond
which the costs of achieving higher quality exceed the benefits
(higher prices) of higher quality. According to ROQ, organizations
should seek to maximize profitability, not quality. TQM, on the other
hand, presumes that increases in quality always increases
profitability. 7.6 Quality dimensions are (1) product or service attributes and (2)
customer service before and after the sale. 7.7 Perhaps the major difference between tangible and intangible product
features are the ease and reliability with which organizations can
measure achievement of those features. 7.8 High degrees in variation of performance of process activities
usually leads to variation in product attributes, which are important
contributors to quality. High variation itself usually means that
there is a greater chance of product attributes being well below
expectations.
7.9 Lead indicators of quality reflect current process activities
that the organization believes will affect the quality of products and
services as perceived by customers. Diagnostic information about
quality may be lead indicators of quality, but also may measure
customer perceptions about quality that has resulted. Diagnostic
information identifies or helps identify causes of poor quality. 7.10 Customer satisfaction and quality are closely related because high
degrees of quality, as defined by the customer, could result in high
customer satisfaction. Customer satisfaction also considers the degree
to which products and services meet customers' expectations about
price. 7.11 COQ, particularly preventive activity costs, may be a lead indicator
of quality if it is computed frequently. More often, COQ is used as
diagnostic information, which identifies causes of poor quality
performance (e.g., external failures). 7.12 Organizations should evaluate whether increased preventive activities
result in fewer internal and external failure activities. Most
organizations feel there is a favorable tradeoff, but there is not
much evidence that organizations have formalized the tradeoff; that
is, measuring by how much spending a certain amount on preventive
activities will reduce external failure costs. 7.13 COQ could be used by either TQM or ROQ advocates. TQM advocates could
point to an imbalance between preventive activity costs and the other
COQ categories and claim that the organization should shift its
efforts from inspection, and correcting failures to prevention of poor
quality. ROQ advocates could use COQ information to try to quantify
the tradeoffs among types of quality activities. 7.14 Improvements in time performance, while maintaining customer value,
usually are not possible without improvements in quality. Likewise,
improvements in quality usually result in improved time performance
because time for inspections and correcting failures is reduced. 7.15 JIT in its complete form is not possible without high quality
processes. Low quality processes mean that sufficient inventories of
parts must be purchased or built to compensate for the inevitable
defective parts that result from low quality processes. Maintaining
high levels of inventory for these purposes is not value-added and is
wasteful of scarce resources. 7.16 Several types of productivity measures include individual factor
productivity, such as sales per employee, and total factor
productivity, which measures total output achieved by all resources
employed.
7.17 Cycle time is the elapsed time between when a product or service
is begun and when that product or service is completed and ready for
delivery to the customer. Average cycle time should be measured by the
time for working on all units, whether they are completed without
error or reworked, divided by the total good units completed. 7.18 Throughput efficiency depends on how much time a process spends
adding value to a product or service compared to the total time the
product or service is in process. It is measured by the throughput
time ratio, which is the time spent adding value by active processing
divided by total cycle time. 7.19 Process capacity is the ability of an organization to transform
inputs into outputs. The chapter uses an example of traffic on the
highway to identify the process of cars entering and parking in a
city. The process capacity is the rate at which cars can enter and
park within the city. 7.20 Theoretical capacity is the maximum rate of transformation of inputs
into outputs if a process were fully used. Practical capacity is a
more realistic rate of transformation considering such items as
reserve capacity, maintenance, and planned downtime. One reason an
organization might operate at practical capacity is that planned
downtime is often necessary to keep equipment maintained and running.
Another is that demand for the process output may be less than
theoretical capacity. Also, running at theoretical capacity may cause
breakdowns and delays, which could severely hamper the throughput of
the organization. ANSWERS to CRITICAL ANALYSIS 7.21 These views can be conflicting, but they may reinforce each other. At
one time, an example of the difference in views was the contrasting
implementation of quality by BMW and Lexus. BMW prided itself on
building "driving machines," which epitomized faultless driving
performance (speed, handling, etc.). Lexus, however, focused on
providing comfort, luxury, and reliability because it assessed that
there was a larger market of people willing to buy expensive autos who
defined quality this way - people who in an earlier generation perhaps
would have bought Cadillacs. It is interesting to see that both BMW
and Lexus apparently are adopting some of each other's definitions of
quality, perhaps to offer broader quality and appeal to all of the
upscale auto market. 7.22 Though quality no longer may be a way to achieve competitive
advantage, it would be shortsighted to say that quality is now less
important. Failing to provide high quality cannot be offset by
developing new products more quickly. It is fair to say that new
product development time is crucial now, but high quality must be
maintained. 7.23 While we have not reviewed the bankruptcy court proceedings for this
case, we may speculate that this company overspent on achieving high
quality. One of the criticisms of the Malcolm Baldrige award is that
it focuses too much on achieving high quality processes and not enough
on successfully providing customer value competitively. 7.24 FedEx seems to be saying that it will invest in quality up to the
point of just improving customer value - this is the ROQ approach to
quality. Hewlett Packard seems to be saying, however, that quality
improvement is an inextricable part of the company's culture - this is
the TQM approach. Both may be successful, but the ROQ approach seems
more consistent with economic decision-making. At some point, one
suspects that even Hewlett Packard would judge a quality improvement
more costly than could be recovered by higher prices. 7.25 This may be a touchy question, particularly if this chapter is
covered around registration time for the next semester or quarter.
Students have a strong interest in registering quickly and for the
classes they want and need. A fair measure of average registration
time should include time spent reworking schedules, which may involve
standing in long lines to reregister if the initial registration was
not successful. 7.26 All of these factors may be dimensions of quality as perceived by
customers. You would expect each airline to stress its most favorable
qualities, while