Needles Finman Irm Ch27

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CHAPTER 27
Quality Management and Measurement
PLANNING MATRIX
Enhancing Your
Building Your Basic Knowledge Knowledge, Skills, and
Learning Objective and Skills Critical Thinking
1. Describe a management SE 1, 2 E1 C1
information system, and explain
how it enhances management
decision making.
2. Define total quality management SE 3, 4, 5, E 2, 3, 4, 5, 6, P 1, 2, 3, C2
(TQM), and identify financial and 6, 7 7, 8, 9, 10, 4, 5, 6, 7, C3
nonfinancial measures of quality. 11, 12 8
3. Use measures of quality to SE 7 E 5, 6, 12 P 2, 4, 6, C2
evaluate operating performance. 8 C3
4. Discuss the evolving concept of SE 8, 9 E 13, 14 C4
quality. C5
5. Recognize the awards and SE 10 E 15
organizations that promote
quality.
MEMORANDA:
SE: Short Exercises
E: Exercises
P: Problems (Each problem has a User Insight question.)
C: Cases
All questions are in the text with related Learning Objectives (Stop, Think, and Apply).
SUGGESTED INSTRUCTIONAL STRATEGY

Output Skills Developed:
Technical, Communication, Interpersonal
Related Learning Objective:

1
Instructional Strategies
Learning activity: Discussion, group task
Learning environment: Modified lecture or active; in-class
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 27: Quality Management and Measurement 329
Learning tool: Textbook assignment Case 1
Steps to Implement
1. Assign Case 1 at least one week before introducing this learning activity in class. Students are to
work on Case 1 individually.
2. Prepare an in-class group assignment that includes the following tasks:
a. The groups are to discuss Carns’s options and reach an agreement on the course of action
that Carns should follow.
b. Each group is to write a summary that outlines Carns’s options and the course of action that
the group recommends.
3. In class, form groups of four to six students. Distribute the assignment and allow the groups about
10 minutes to complete it.
4. Have a representative of each group use the chalkboard, overhead projector, or flip charts to
present the group’s findings to the class.
5. Discuss the findings of all groups with the class. Allow 10 to 15 minutes to complete steps 5
and 6.
6. Ask students to identify the benefits of each option.
7. Take a class vote on each option.
Assessment
Technical skills: Grade the homework and in-class assignments. Ask a related question on the next
examination.
Communication skills: Instructor or students can informally grade the group representatives based on
the content, format, and style of the presentation. Feedback of this information can help students
improve their presentation skills.
Interpersonal skills: Ask the students one or more of the following questions: How well did your group
interact? How many in the group were prepared for the assignment? How many were fully involved?
What could the group do to improve its performance next time?
RESOURCE MATERIALS AND OUTLINES

OBJECTIVE 1: Describe a management information system, and explain how it enhances
management decision making.
Summary Statement
The primary focus of a management information system (MIS) is on the management of activities to
improve business processes, eliminate waste, identify cost drivers, plan operations, and set business
strategies. An enterprise resource planning (ERP) system is an integrated information system that
manages all of an organization’s major business functions through an easy-to-access, centralized data
warehouse.
By focusing on activities, an MIS provides managers with improved knowledge of the processes under
their control. The MIS pinpoints resource usage for each activity and fosters management decisions that
lead to continuous improvement throughout the organization.
330 Chapter 27: Quality Management and Measurement
A management information system supplies managers with relevant and reliable information
throughout the management cycle. During the planning stage, the MIS database provides managers with
the information they need to prepare budgets, make forecasts, and formulate strategic plans. During the
executing stage, managers use the MIS database as they implement decisions that will minimize waste
and improve the quality of products or services. During the reviewing stage, as managers identify and
track financial and nonfinancial performance measures to evaluate all major business functions, the
MIS database allows them to reward performance promptly, take speedy corrective actions, and analyze
and revise performance measurement plans. Finally, during the reporting stage, managers are able to
generate customized performance reports that are useful for decision making.
New Concepts and Terminology

management information system (MIS); enterprise resource planning (ERP) system
Related Text Illustrations

Focus on Business Practice: How Do Health Care Professionals Measure Success?
Lecture Outline
I. A management information system is a reporting system that identifies, monitors, and maintains
continuous, detailed analyses of a company’s activities and provides managers with timely
measures of operating results.
II. Enterprise resource planning systems
A. A fully integrated database system
B. Combines the management of all major business activities with support activities to form
one easy-to-access, centralized data warehouse.
C. An ERP system not only fosters communication within an organization; it can also
communicate with other businesses’ databases.
III. Managers’ use of MIS
A. Enhances the management cycle
1. Planning
2. Performing
3. Evaluating
4. Communicating
Teaching Strategy
Use Case 1 as an in-class group activity to discuss the advantages of an MIS and the difficulties often
encountered in implementing a new MIS.
OBJECTIVE 2: Define total quality management (TQM), and identify financial and
nonfinancial measures of quality.
Summary Statement
Total quality management (TQM) is an organizational environment in which all business functions
work together to build quality into a firm’s products or services. The first step in creating a TQM
environment is to identify and manage the financial measures of quality, or the costs of quality. The
second step is to analyze performance using nonfinancial measures.
Quality is the result of an operating environment in which a company’s product or service meets customer
specifications the first time it is produced or delivered. The costs of quality are costs associated with the
achievement or nonachievement of product or service quality. The costs of quality have two components:
the costs of conformance and the costs of nonconformance.
1. The costs of conformance are the costs incurred to produce a quality product or service. They
include prevention costs and appraisal costs.
2. The costs of nonconformance are the costs incurred to correct the defects and failures in a product
or service. They include internal failure costs and external failure costs.
An organization’s objective is to reduce or eliminate the costs of nonconformance—the internal and
external failure costs that cause customer dissatisfaction. To this end, management can justify high
initial costs of conformance if they minimize the total costs of quality over the product’s or service’s
life cycle.
Nonfinancial measures of quality help managers determine the degree of quality that is being achieved.
They include measures of product design, vendor performance, production performance, delivery cycle
time, and customer satisfaction.
To improve the quality of product design, many businesses use computer-aided design (CAD). CAD is
essentially a computer-based engineering system that detects product design flaws; its purpose is to
identify faulty parts or processes before production begins. Computer-integrated manufacturing (CIM)
systems reduce waste by using computers to coordinate manufacturing operations.
Companies judge their responsiveness to customers by the length of the delivery cycle time—the time
between acceptance of an order and final delivery of the product. The delivery cycle time consists of
the purchase order lead time (the time it takes for materials to be ordered and received so that
production can begin), production cycle time (the time it takes to make a product), and delivery time
(the time between product completion and the customer’s receipt of the item).
Many of the costs-of-quality categories and several of the nonfinancial measures of quality apply
directly to services and can be used by any type of service organization.

total quality management (TQM); quality; costs of quality; costs of conformance; costs of
nonconformance; prevention costs; appraisal costs; internal failure costs; external failure costs;
computer-aided design (CAD); computer-integrated manufacturing (CIM) systems; delivery cycle time;
purchase order lead time; production cycle time; delivery time

Table 1: Financial Measures of Quality
Table 2: Nonfinancial Measures of Quality
Lecture Outline
I. In a total quality management (TQM) environment, all business functions work together to build
quality into a firm’s products or services.
A. Quality is the result of an operating environment in which a company’s product or service
meets customer specifications the first time it is produced or delivered.
B. Costs of quality exist when quality is achieved and when it is not achieved.
1. The costs of conformance include prevention costs and appraisal costs.
2. The costs of nonconformance include internal failure costs and external failure costs.
II. Nonfinancial measures help managers determine the degree of quality that is being achieved.
They include the following:
A. Measures of product design quality
B. Measures of vendor performance
C. Measures of production performance
D. Measures of delivery cycle time
E. Measures of customer satisfaction

III. Many of the costs-of-quality categories and several of the nonfinancial measures of quality apply
directly to services and can be used by any type of service organization.
Teaching Strategy
Point out that while the costs of quality usually can be measured directly, they may also involve costs
that cannot be measured directly, such as the loss of goodwill or a potential loss of business resulting
from poor quality. Problem 1 provides a good basis for discussion of the costs of quality. Short Exercise
5, 6, and 7 and Exercises 12 and 13 pertain to nonfinancial measures of quality.
OBJECTIVE 3: Use measures of quality to evaluate operating performance.

Summary Statement
In analyzing the costs of quality, managers examine the costs of conformance to customer standards,
including prevention costs and appraisal costs, and the costs of nonconformance to customer standards,
including internal failure costs and external failure costs. By analyzing the costs of quality, as well as
nonfinancial measures of quality like those cited in the preceding learning objective, managers help a
firm meet its goal of continuously improving product or service quality and the production process.

Exhibit 1: Analysis of the Costs of Quality
Exhibit 2: Analysis of Nonfinancial Measures of Quality
Figure 1: Comparison of Costs of Quality: Conformance Versus Nonconformance
Lecture Outline
I. By analyzing the costs of quality, as well as nonfinancial measures of quality, managers help a
firm meet its goal of continuously improving product or service quality and the production
process.
II. Evaluating the Costs of Quality
A. Key quality performance questions
1. Which company is most likely to succeed in the competitive marketplace?
2. Which company has serious problems with its products’ quality?
3. What do you think will happen to the total costs of quality for each company over the
next five years? Why?
III. Nonfinancial measures of quality can be used to evaluate a company’s experience in pursuing
total quality management.
Teaching Strategy
Assign Problem 4 or Case 3 to give students practice in interpreting measures of quality. To give them
additional practice in analyzing nonfinancial measures of quality, assign Problem 6 or 8.
OBJECTIVE 4: Discuss the evolving concept of quality.

Summary Statement
Over the years, to fulfill customers’ needs and expectations and to meet the demands of a changing business
environment, the concept of quality has been constantly changing. By the end of the 1980s, application of
management concepts and philosophies that emphasize product quality, such as TQM, return on quality
(ROQ), and kaizen, had enabled companies to achieve high levels of product reliability. Managers then
expanded their focus to include more than just product quality and reliability; the new focus included
measuring the quality of nonmanufacturing processes. Two techniques, benchmarking and process mapping,
allowed managers to measure quality improvements. Benchmarking is the measurement of the gap between
the quality of a company’s process and the quality of a parallel process at the best-in-class-company.
Process mapping is a method of diagramming process inputs, outputs, constraints, and flows to help
managers identify unnecessary efforts and inefficiencies in a business process.
The evolving concept of quality means more than having zero product or service defects; it means doing
everything possible to have zero defections of customers.

return on quality (ROQ); kaizen; benchmarking; process mapping
Lecture Outline
I. Concept of quality has changed over the years.
A. Before the advent of TQM over 20 years ago, managers assumed that there was a trade-off
between the costs and the benefits of improving quality.
B. By the end of the 1980s, application of management concepts and philosophies that
emphasize product quality had enabled companies to achieve high levels of product
reliability
1. Return on quality (ROQ)— when the marginal revenues possible from a higher-quality
good or service exceed the marginal costs of providing that higher quality
2. TQM—a method of using a flow diagram to indicate process inputs, outputs,
constraints, and flows to help managers identify unnecessary efforts and inefficiencies
in a business process.
3. Kaizen—the gradual and ongoing improvement of products and processes while
reducing costs.
4. Motorola’s Six Sigma Quality standard
a. Benchmarking—the measurement of the gap between the quality of a company’s
process and the quality of a parallel process at the best-in-class company.
b. Process mapping—a method of using a flow diagram to indicate process inputs,
outputs, constraints, and flows to help managers identify unnecessary efforts and
inefficiencies in a business process.
Teaching Strategy
To introduce the evolving concept of quality, divide the class into small groups. Ask each group to
develop a checklist of features they believe are essential for a great company web site. Assign Exercise 14
and ask the groups to use their checklists to evaluate the ecommerce sites.
OBJECTIVE 5: Recognize the awards and organizations that promote quality.

Summary Statement
The importance of quality has been acknowledged worldwide through the granting of numerous awards,
certificates, and prizes for quality. Three of the most prestigious awards are the Deming prizes, EFQM
Excellence Award, and the Malcolm Baldrige Quality Award. The International Organization for
Standardization promotes quality management and quality assurance through ISO 9000, a set of
guidelines for standardizing the production and delivery of goods and services. The ISO 14000 series
provides an environmental management framework to minimize the harmful environmental effects
of business activities and continually improve environmental performance. Many organizations do
business only with ISO-certified companies.

Deming prizes; EFQM Excellence Award; Malcolm Baldrige Quality Award; ISO 14000; ISO 9000
Lecture Outline
I. Three most prestigious awards
A. Deming Application Prize
1. Established in 1951 by the Japanese Union of Scientists and Engineers
2. Honors individuals or groups who have contributed to the development and
dissemination of total quality control.
3. Originally limited to Japanese companies but due to great interest, expanded to
companies outside Japan.
B. EFQM Excellence Award
1. European Foundation for Quality Management since the 1990s
2. Awarded to businesses and organizations operating in Europe.
3. EFQM Excellence Model
a. Define their vision and measurable goals.
b. Understand business systems and their causal relationships and links.
c. Identify and promote successful internal and external customer experiences.
d. Self-assess their current organizational health.
C. Malcolm Baldrige Quality Award
1. Established in 1987 by U.S. Congress
2. Recognizes U.S. organizations
3. Standards divided into seven categories
a. Leadership
b. Strategic planning
c. Customer and market focus
d. Measurement, analysis, and knowledge management
e. Work force focus
f. Process management
g. Results
II. International Organization for Standardization (ISO)
A. ISO 14000 standards—environmental management framework to minimize the harmful
environmental effects of business activities and continually improve environmental
performance.
B. ISO 9000 standards— covers the design, development, production, final inspection and
testing, installation, and servicing of products, processes, and services
Teaching Strategy
Use Exercise 15 to compare quality awards. Have students learn more about winners of the Malcolm
Baldrige Quality Award by assigning Short Exercise 10.
REVIEW QUIZ
True-False
1. T F The primary focus of a management information system is not on the management of
costs but on the management of activities.
2. T F A management information system is designed to support just-in-time operations,
activity-based costing, activity-based management, and total quality management.
3. T F In a management information system, cost cutting is accomplished by slashing the

amount of resources that a department can use to make a product.
4. T F Management information systems focus on product information and are not designed to
analyze the profitability of sales to individual customers.
5. T F In a TQM environment, all functions of a business operate independently to maximize
the quality of output in individual operating units.
6. T F Costs of quality include only costs of poor quality.
7. T F Controlling the costs of quality can have a sizable impact on profitability.
Multiple Choice
8. Costs of conformance include
a. prevention costs.
b. appraisal costs.
c. internal failure costs.
d. external failure costs.
e. both prevention and appraisal costs.
9. Costs incurred after the delivery of a defective product or service are called
b. appraisal costs.
e. none of the above.
10. If a company devotes money to the costs of a product or service’s conformance to customer
standards, the costs of nonconformance should
a. decrease.
b. remain unchanged.
c. increase.
d. decrease initially and then increase.
e. do none of the above.
11. Costs of activities that measure, evaluate, or audit products, processes, or services to ensure
conformance to quality standards are called
b. appraisal costs.
12. Loss of potential orders due to poor quality is an example of

a. a prevention cost.
b. an appraisal cost.
c. an internal failure cost.
d. an external failure cost.
13. Which of the following is a nonfinancial measure of production quality?

a. Number of parts ordered
b. Number of warranty claims
c. Number of customer complaints
d. Quality of materials received from vendors
e. Defective parts per million (by product line)
14. Which of the following is a nonfinancial measure of production performance?

a. Delivery time
b. Inventory turnover rate
c. Equipment utilization rate
d. Vendor quality
e. Number of warranty claims
15. When companies use computer-integrated manufacturing (CIM) systems,

a. most direct labor hours are replaced by machine hours.
b. most machine hours are replaced by direct labor hours.
c. contribution margins become more meaningful.
d. contribution margins become smaller.
e. none of the above are accomplished.
16. The time between acceptance of a customer’s order and final delivery of the product to a customer
is called
a. delivery cycle time.
b. purchase order lead time.
c. production cycle time.
d. delivery time.
17. Awards and organizations that promote quality include the

a. Deming Application Prize.
b. Malcolm Baldrige Quality Award.
c. International Organization for Standardization.
d. all of the above.
ANSWERS TO REVIEW QUIZ
True-False Multiple Choice

1. T 8. e
2. T 9. d
3. F 10. a
4. F 11. b
5. F 12. d
6. F 13. e
7. T 14. c
15. a
16. a
17. d

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ً ‫ صفحة الباحث العلوي هجانا‬Alaa.aliasrei@gmail.

com ‫@ عالء هحسن شحن‬Aliasrei ‫تلكرام‬

SUGGESTED INSTRUCTIONAL STRATEGY

Related Learning Objective:

Learning tool: Textbook assignment Case 1

RESOURCE MATERIALS AND OUTLINES

New Concepts and Terminology

Related Text Illustrations

New Concepts and Terminology

Related Text Illustrations

E. Measures of customer satisfaction

OBJECTIVE 3: Use measures of quality to evaluate operating performance.

Related Text Illustrations

OBJECTIVE 4: Discuss the evolving concept of quality.

New Concepts and Terminology

OBJECTIVE 5: Recognize the awards and organizations that promote quality.

New Concepts and Terminology

3. T F In a management information system, cost cutting is accomplished by slashing the

12. Loss of potential orders due to poor quality is an example of

13. Which of the following is a nonfinancial measure of production quality?

14. Which of the following is a nonfinancial measure of production performance?

15. When companies use computer-integrated manufacturing (CIM) systems,

17. Awards and organizations that promote quality include the

ANSWERS TO REVIEW QUIZ

True-False Multiple Choice

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