Basic Business Statistics

(9th Edition)

Chapter 18
Statistical Applications in
Quality and Productivity
Management
2004 Prentice-Hall, Inc.

Chap 18-1

Chapter Topics

Total Quality Management (TQM)

Theory of Management (Demings

Fourteen Points)

Six Sigma Management Approach

The Theory of Control Charts

Common-cause variation versus specialcause variation

Control Charts for the Proportion of

Nonconforming Items
Chap 18-2

Chapter Topics

(continued)

Process Variability

The c Chart

Control Charts for the Mean and the

Range

Process Capability

Chap 18-3

Themes of Quality
Management
1. Primary Focus on Process Improvement
2. Most Variation in Process Due to System
3. Teamwork is Integral to Quality
Management
4. Customer Satisfaction is a Primary Goal
5. Organizational Transformation Necessary
6. Remove Fear
7. Higher Quality Costs Less
Chap 18-4

Demings 14 Points:
Point 1:
Point 1. Create Constancy of Purpose
Act

Plan

Study

Do

The Shewhart-Deming Cycle

Focuses on Constant Improvement

Chap 18-5

Demings 14 Points:
Points 2 and 3
Point 2. Adopt New Philosophy
Better to be proactive and change before
crisis occurs.
Point 3. Cease Dependence on Mass
Inspection to Achieve Quality
Any inspection whose
purpose is to improve
quality is too late.
Chap 18-6

Demings 14 Points:
Points 4 and 5
Point 4. End the Practice of Awarding Business on the
Basis of Price Tag Alone
Develop long term relationship between
purchaser and supplier.
Point 5. Improve Constantly and Forever
Reinforce the importance of the
Shewhart-Deming cycle.

Chap 18-7

Demings 14 Points:
Points 6 and 7
Point 6. Institute Training
Especially important for managers to understand
the difference between special causes and
common causes.
Point 7. Adopt and Institute Leadership
Differentiate between leadership and supervision.
Leadership is to improve the system and achieve
greater consistency of performance.

Chap 18-8

Demings 14 Points:
Points 8 to 12
8. Drive Out Fear
9. Break Down Barriers between Staff Areas
10. Eliminate Slogans
11. Eliminate Numerical Quotas for Workforce
and Numerical Goals for Management
12. Remove Barriers to Pride of
Workmanship

300

Chap 18-9

Demings 14 Points:
Points 13 and 14
Point 13. Encourage Education and Self-Improvement
for Everyone
Quality is
important

Improved knowledge of people

will improve the assets of
the organization.

Point 14. Take Action to Accomplish Transformation

Continually strive toward improvement.

Chap 18-10

Six Sigma Management

A Managerial Approach Designed to

Create Processes that Result in No More
Than 3.4 Defects Per Million
A Method for Breaking Processes into a
Series of Steps in Order to Eliminate
Defects and Produce Near Perfect Results

(1) Define: Define the problem along with

costs, benefits and the impact on customers
(2) Measure:
Measure Develop operational definitions
for each Critical-to-Quality characteristic and
verify measurement procedure to achieve
consistency over repeated measurements
Chap 18-11

Six Sigma Management

(continued)

(3) Analyze:
Analyze Use control charts to monitor
defects and determine the root causes of
defects
(4) Improve:
Improve Study the importance of each
process variable on the Critical-to-Quality
characteristic to determine and maintain the
best level for each variable in the long term
(5) Control:
Control Avoid potential problems that
occur when a process is changed and
maintain the gains that have been made in
the long term
Chap 18-12

Control Charts

Monitor Variation in Data

Exhibit trend - make correction before

process is out of control

A Process - A Repeatable Series of Steps

Leading to a Specific Goal

Chap 18-13

Control Charts

(continued)

Show When Changes in Data are Due to:

Special or assignable causes

Fluctuations not inherent to a process

Represent problems to be corrected
Data outside control limits or trend

Chance or common causes

Inherent random variations

Consist of numerous small causes of random
variability

Chap 18-14

Process Control Chart

Graph of sample data plotted over
time
Special
Cause
Variation

Common
Cause
Variation

80
60
40
20
0

X
UCL

Mean
LCL

Process
Average

1 2 3 4 5 6 7 8 9 101112
Time

Chap 18-15

Control Limits
UCL = Process Average + 3 Standard
Deviations
LCL
X = Process Average - 3 Standard
UCL
Deviations
+ 3

Process
Average

- 3

LCL
TIME

Chap 18-16

Types of Error

First Type:

Belief that observed value represents special

cause when, in fact, it is due to common
cause

Second Type:

Treating special cause variation as if it is

common cause variation

Chap 18-17

Comparing Control Chart

Patterns
X

Common Cause
Variation: No Points
Outside Control
Limits

Special Cause
Variation: 2 Points
Outside Control
Limits

Downward Pattern:
No Points Outside
Control Limits but
Trend Exists
Chap 18-18

When to Take Corrective

Action

Corrective Action Should Be Taken When

Observing Points Outside the Control
Limits or when a Trend Has Been
Detected

Eight consecutive points above the center

line (or eight below)
Eight consecutive points that are increasing
(decreasing)

Chap 18-19

Out-of-Control Processes

If the Control Chart Indicates an Out-ofControl Condition (a Point Outside the

Control Limits or Exhibiting Trend)

Contains both common causes of variation

and assignable causes of variation
The assignable causes of variation must be
identified

If detrimental to quality, assignable causes of

variation must be removed
If increases quality, assignable causes must be
incorporated into the process design

Chap 18-20

In-Control Process

If the Control Chart is Not Indicating Any

Out-of-Control Condition, then

Only common causes of variation exist

It is sometimes said to be in a state of
statistical control

If the common-cause variation is small, then

control chart can be used to monitor the
process
If the common-cause variation is too large,
the process needs to be altered

Chap 18-21

p Chart

Control Chart for Proportions

Is an attribute chart

Shows Proportion of Nonconforming Items

E.g., Count # of nonconforming chairs & divide

by
total chairs inspected

Chair is either conforming or nonconforming

Used with Equal or Unequal Sample Sizes

Over Time

Unequal sizes should not differ by more than

25% from average sample size
Chap 18-22

p Chart
Control Limits
p (1 p )
LCLp p 3
n
Average Group Size
k

n
i 1

# of Samples

p (1 p )
UCL p p 3
n
Average Proportion of
Nonconforming Items
k
# Defective
Items in
Xi
Sample i
i 1

n
i 1

Size of
Sample i
Chap 18-23

p Chart
Example
Youre manager of a
500-room hotel.
You want to achieve
the highest level of
service. For 7 days,
you collect data on
the readiness of
200 rooms. Is the
process in control?
Chap 18-24

p Chart
Hotel Data
Day
1
2
3
4
5
6
7

# Rooms
200
200
200
200
200
200
200

# Not
Ready Proportion
16
0.080
7
0.035
21
0.105
17
0.085
25
0.125
19
0.095
16
0.080
Chap 18-25

p Chart
Control Limits Solution
n

n
i 1

16 + 7 +...+ 16

1400

200
7

X
i 1
k

n
i 1

121

.0864
1400

.0864 3

.0864 1 .0864
p3
200
n
.0864 .0596 or .0268,.1460
p 1 p

Chap 18-26

p Chart
Control Chart Solution
0.15

UCL

0.10

Mean p

0.05

LCL

0.00
1

3
4
Day

Individual points are distributed around

without any
p
pattern. Any improvement in the process must come
from reduction of common-cause variation, which is the
responsibility of the management.
Chap 18-27

p Chart in PHStat

PHStat | Control Charts | p Chart

Excel Spreadsheet for the Hotel Room

Example

Micros oft Excel

Works heet

Chap 18-28

Variability:
Red Bead Example
Four workers (A, B, C, D) spend 3 days to collect
beads, at 50 beads per day. The expected
number of red beads to be collected per day per
worker is 10 or 20%.

Worker

Day 1

Day 2

Day 3

9 (18%)

11 (12%)

6 (12%)

26 (17.33%)

12 (24%)

12 (24%)

8 (16%)

32 (21.33%)

13 (26%)

6 (12%)

12 (24%)

31(20.67%)

7 (14%)

9 (18%)

8 (16%)

24 (16.0%)

Totals

41

38

34

All Days

113
Chap 18-29

Variability:
Example Calculations
Average

Day 1

Day 2

Day 3

10.25

9.5

8.5

9.42

20.5%

19%

17%

18.83%

113
p
.1883
50(12)

All Days

p (1 p )
.1883(1 .1883)
p 3
.1883 3
n
50
.1883 .1659

LCL .1883 .1659 .0224

UCL .1883 +.1659 .3542
Chap 18-30

Variability:
Example Control Chart
UCL
.30

.20
.10

LCL
0

A1

B1

C1

D1 A2

B 2 C2

D2

A3

B3

C3

D3

Chap 18-31

Morals of the Example

Variation is an inherent part
of any process.
The system is primarily
responsible for worker
performance.
Only management can change the system.
Some workers will always be above
average,
and some will be below.

Chap 18-32

The c Chart

Control Chart for Number of

Nonconformities (Occurrences) in a Unit
(an Area of Opportunity)

Shows Total Number of Nonconforming

Items in a Unit

Is an attribute chart

E.g., Count # of defective chairs manufactured

per day

Assume that the Size of Each Subgroup

Unit Remains Constant
Chap 18-33

c Chart Control Limits

LCLc c 3 c

UCLc c 3 c

Average Number of
Occurrences
k

c
i 1

# of Occurrences in Sample i

# of Samples
Chap 18-34

c Chart: Example
Youre manager of a
500-room hotel.
You want to achieve
the highest level of
service. For 7 days,
you collect data on
the readiness of
200 rooms. Is the
process in control?
Chap 18-35

c Chart: Hotel Data

Day
1
2
3
4
5
6
7

# Rooms
200
200
200
200
200
200
200

# Not
Ready
16
7
21
17
25
19
16
Chap 18-36

c Chart:
Control Limits Solution
k

c
i 1

16 7 L 19 16

17.286
7

LCLc c 3 c 17.286 3 17.285 4.813

UCLc c 3 c 29.759

Chap 18-37

c Chart:
Control Chart Solution
30

UCL

20

10

LCL

0
1

3
4
Day

Individual points are distributed around

without any
pattern. Any improvement in the process must come
from reduction of common-cause variation, which is the
responsibility of the management.
Chap 18-38

Variables Control Charts:

R Chart

Monitors Variability in Process

Characteristic of interest is measured on

numerical scale
Is a variables control chart

Shows Sample Range Over Time

Difference between smallest & largest values

in inspection sample
E.g., Amount of time required for luggage to
be delivered to hotel room
Chap 18-39

R Chart
Control Limits

UCLR D4 R

From
Table

LCLR D3 R
k

R
i 1

Sample Range at
Time i or Sample i
# Samples
Chap 18-40

R Chart
Example
Youre manager of a
500-room hotel.
You want to analyze
the time it takes to
deliver luggage to
the room. For 7
days, you collect
data on 5 deliveries
per day. Is the
process in control?

Chap 18-41

R Chart and Mean Chart

Hotel Data
Day
1
2
3
4
5
6
7

Sample
Average
5.32
6.59
4.88
5.70
4.07
7.34
6.79

Sample
Range
3.85
4.27
3.28
2.99
3.61
5.04
4.22
Chap 18-42

R Chart
Control Limits Solution
k

R
i 1

3.85 4.27 L 4.22

3.894
7

UCLR D4 R 2.114
3.894 8.232
LCLR D3 R 0
3.894 0

From Table
(n = 5)

Chap 18-43

R Chart
Control Chart Solution
Minutes
8
6
4
2
0
1
2

UCL

_
R
LCL

4
Day

Chap 18-44

Variables Control Charts:

X
Mean Chart (The
Chart)

Shows Sample Means Over Time

Compute mean of inspection sample over

time
E.g., Average luggage delivery time in hotel

Monitors Process Average

Must be preceded by examination of the R

chart to make sure that the process is in
control

Chap 18-45

Mean Chart
UCLX X A2 R
LCLX X A2 R
k

X
i 1

Computed
From
Table
Sample
Mean at
Time i
k

and R

R
i 1

Sample
Range
at Time i
# Samples
Chap 18-46

Mean Chart Example

Youre manager of a
500-room hotel. You
want to analyze the
time it takes to deliver
luggage to the room.
For 7 days, you collect
data on 5 deliveries
per day. Is the process
in control?
Chap 18-47

R Chart and Mean Chart

Hotel Data
Day
1
2
3
4
5
6
7

Sample
Average
5.32
6.59
4.88
5.70
4.07
7.34
6.79

Sample
Range
3.85
4.27
3.28
2.99
3.61
5.04
4.22
Chap 18-48

Mean Chart
Control Limits Solution
k

X
i 1

k
k

R
i 1

5.32 6.59 L 6.79

5.813
7
From

3.85 4.27 L 4.22

3.894
7

Table E.9
(n = 5)

UCLX X A2 R 5.813 0.577

3.894 8.060
LCLX X A2 R 5.813 0.577
3.894 3.566
Chap 18-49

Mean Chart
Control Chart Solution
Minutes
8
6
4
2
0
1
2

UCL

__
X

LCL

4
Day

Chap 18-50

R Chart and Mean Chart

in PHStat

PHStat | Control Charts | R & Xbar

Charts

Excel Spreadsheet for the Hotel Room

Example
Micros oft Excel
Works heet

Chap 18-51

Process Capability

Process Capability is the Ability of a Process

to Consistently Meet Specified CustomerDriven Requirements
Specification Limits are Set by Management
in Response to Customers Expectations
The Upper Specification Limit (USL) is the
Largest Value that Can Be Obtained and
Still Conform to Customers Expectation
The Lower Specification Limit (LSL) is the
Smallest Value that is Still Conforming
Chap 18-52

Estimating Process
Capability

Must Have an In-Control Process First

Estimate the Percentage of Product or

Service Within Specification

Assume the Population of X Values is

Approximately Normally Distributed with
Mean Estimated
X by and Standard
Deviation Estimated
by
R / d2
Chap 18-53

Estimating Process
Capability

(continued)

For a Characteristic with an LSL and a

USL
P(an outcome will be within specification)

P(LSL X USL)
LSL X
USL X

= P
Z
R / d2

R
/
d
2

where Z is a standardized normal random

variable
Chap 18-54

Estimating Process
Capability

(continued)

For a Characteristic with Only a LSL

P(an outcome will be within specification)

P(LSL X )
LSL X

= P
Z
R / d2

where Z is a standardized normal random

variable
Chap 18-55

Estimating Process
Capability

(continued)

For a Characteristic with Only a USL

P(an outcome will be within specification)

P(X USL)

USL X

= P Z

R
/
d
2

where Z is a standardized normal random

variable
Chap 18-56

Process Capability Example

Youre manager of a
500-room hotel. You
have instituted a policy
that 99% of all luggage
deliveries must be
completed within 10
minutes or less. For 7
days, you collect data
on 5 deliveries per day.
Is the process capable?
Chap 18-57

Process Capability:
Hotel Data
Day
1
2
3
4
5
6
7

Sample
Average
5.32
6.59
4.88
5.70
4.07
7.34
6.79

Sample
Range
3.85
4.27
3.28
2.99
3.61
5.04
4.22
Chap 18-58

Process Capability:
Hotel Example Solution
n5

X 5.813

R 3.894 and d 2 2.326

P(A delivery is made within specification)
= P(X 10)
10 5.813
= P Z

3.894 / 2.326

= P( Z 2.50) .9938

Therefore, we estimate that 99.38% of

the luggage deliveries will be made
within the 10 minutes or less
specification. The process is capable of
Chap 18-59

Capability Indices

Aggregate Measures of a Process Ability

to Meet Specification Limits

The larger (>1) the values, the more capable

a process is of meeting requirements

Measure of Process Potential Performance

USL LSL specification spread

Cp

process spread
6 R / d2

Cp>1 implies that a process has the potential

of having more than 99.73% of outcomes
within specifications
Chap 18-60

Capability Indices

(continued)

Measures of Actual Process Performance

For one-sided specification limits

X LSL
CPL
3 R / d2

USL X
CPU
3 R / d2
CPL (CPU) >1 implies that the process mean is
more than 3 standard deviations away from
the lower (upper) specification limit

Chap 18-61

Capability Indices

(continued)

For two-sided specification limits

C pk min CPL, CPU

Cpk = 1 indicates that the process average is 3

standard deviations away from the closest
specification limit
Larger Cpk indicates larger capability of
meeting the requirements

Chap 18-62

Process Capability Example

Youre manager of a 500room hotel. You have
instituted a policy that all
luggage deliveries must
be completed within 10
minutes or less. For 7
days, you collect data on
5 deliveries per day.
Compute an appropriate
capability index for the
delivery process.
Chap 18-63

Process Capability:
Hotel Data
Day
1
2
3
4
5
6
7

Sample
Average
5.32
6.59
4.88
5.70
4.07
7.34
6.79

Sample
Range
3.85
4.27
3.28
2.99
3.61
5.04
4.22
Chap 18-64

Process Capability:
Hotel Example Solution
n5

X 5.813

R 3.894

and d 2 2.326

USL X
10 5.813
CPU

0.833672
3 R / d 2 3 3.894 / 2.326
Since there is only the upper specification limit,
we need to only compute CPU. The capability
index for the luggage delivery process is .8337,
which is less than 1. The upper specification
limit is less than 3 standard deviations above
Chap 18-65
the mean.

Chapter Summary

Described Total Quality Management

(TQM)
Addressed the Theory of Management

Demings 14 Points

Described the Six Sigma Management

Approach
Discussed the Theory of Control Charts

Common-cause variation versus specialcause

variation
Chap 18-66

Chapter Summary

(continued)

Computed Control Charts for the

Proportion of Nonconforming Items
Described Process Variability
Described c Chart
Computed Control Charts for the Mean
and the Range
Discussed Process Capability

Chap 18-67