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The two dimensions of quality

There are two basic dimensions of quality: Performance quality measures to what extent a product or service meets the expectations of the customer. Conformance quality measures if processes are carried out the way they were intended to be carried out.

The root cause for quality problems is process variability. Were it not for process variability, every run through a process would result in the optimal output or in the very same error, which would then be easy to detect. However, due to process variability, some runs through a process result in optimal outcomes while others result in different kinds of errors. With some very basic statistical probability tools, we can assess the chances of such errors and defects occurring during a process. To calculate total error probabilities for an assembly line, one has to look at the error rate of each work step and calculate their yields (the percentage of error-free flow units the work step produces).

The yield of the process is defined as the percentage of error-free parts which are produced by the process – which of course depends on the yields of the various work steps. The total process yield is thereby simply the product of the individual yields:

process yield = yield 1 * …. * yield n

It is noteworthy, that even small defect probabilities can accumulate to a significant error rate, if there are many steps in a process. For example, if a process workflow consists of 10 steps with every step having a low defect probability of only 1%, the chances of an completely error-free product leaving this workflow are only 0,99^10 = 89,5%

The Swiss Cheese model explains, why defects or procedural errors sometimes do not get noticed, even if there are highly efficient quality checks in place: Since every slice of Swiss Cheese has some holes (defects) in it, there is a small probability that holes will line up in a way that creates a hole through a staple of cheese slices. This is then akin to multiple quality checks failing during the production of the same flow unit – though the chances of this happening might be low, it is bound to happen from time to time. This insight is also the main reason behind redundant checks, which means checking a quality attribute more than once to etch out all errors that might occur. With redundancy, a process hat to fail at multiple stations in order for the process yield to be affected.

These lecture notes were taken during 2013 installment of the MOOC “An Introduction to Operations Management” taught by Prof. Dr. Christian Terwiesch of the Wharton Business School of the University of Pennsylvania at

The four levels of performance

A look at various types of business operations – from a sandwich restaurant to a hospital – reveals, that the typical customer evaluates business processes based on four basic levels of performance.

(1) Cost

How efficiently can the business operation deliver goods and / or services?
(More efficient businesses can offer goods and / or services at lower prices)

(2) Variety

Can the business fulfil the specific wishes of their heterogenous customer base?
(Most customers do not care about variety itself, but want their wishes to be met)

(3) Quality

Performance quality = How good is the product and / or service offered?
Conformance quality = Is the product and / or service as good as advertised?

(4) Time / Responsiveness

How fast can the wishes of the customer be fulfilled?

There are trade-offs between the four dimensions of performance, e.g. the fastest service with the highest quality can usually not be offered at the lowest price in comparison to competitors. These trade-offs can be used by businesses to create unique business strategies (e.g. cost leadership) as well as to distinguish themselves from their competitors.

The tools of Operations Management can be used to help businesses to reach decisions about such trade-offs and to evaluate measures to overcome inefficiencies. One way to detect such inefficiencies is to compare your own business with those of your competitors – and especially those competitors, who are positioned on the efficiency frontier with no other company being pareto-dominant on a combination of two out of the four dimensions (e.g. no other company is cheaper and faster or faster and offering more variability).

These lecture notes were taken during 2013 installment of the MOOC “An Introduction to Operations Management” taught by Prof. Dr. Christian Terwiesch of the Wharton Business School of the University of Pennsylvania at
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