I ns t i t ut eofManage me nt & Te c hni c alSt udi e s To t a l Qua l i t yMa na g e me nt
500
To t a l Qua l i t yMa na g e me nt www. i mt s i n s t i t u t e . c o m
IMTS (ISO 9001-2008 Internationally Certified)
TOTAL QUALITY MANAGEMENT
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CONTENTS:
UNIT 1 INTRODUCTION: BASIC CONCEPfES AND
01-25
APPROACH
Introduction,Why Quality Management?,Understanding Some Basic Concepts,Concept of Quality,Concept of a Process And its Networking,Stakeholders and Their Expectations,Quality
Control
And
Quality
Assurance,Standardisation,Quality
Vocabulary,TQM: An Overview,Summary,Self-Assessment Questions,Further Readings
UNIT-II Quality Management: Leading MANS
26-52
Introduction,Historical Evolution of Quality Approaches,The Crosby School,Crosby's View
of
Quality,Crosby's
Quality
Management
Maturity
Grid,The
Deming
Philosophy,The Quality Crisis,Defiing's Fourteen Points,The Juran Trilogy,A National Quality Crisis,Quality Improvement
Breakthrough Sequence,Feigenbaum,Japanese
Quality Gurus,lshikawa,Shingo,Taguchi,Critical Conlments,Cornparative Assessment of American Quality Gurus,Final Word on Japanese Quality Gums,Summary,Key Words,Self-Assessment Questions,Further Readings .,References
Unit-III Building Blocks of TQM
53-74
Introduction,Total Quality Management Cornerstones,Total Quality Management Beliefs -1Y,What Stumbling Blocks Should the TQM Manager Know,About!,Why Has TQM Become So-Popular?,Key.Success Factors -What We Need To Make TQM Work.,The PDCA
Cycle,Kaizen,Conclusion,Key
Words,Self-Assessment
Questions,Further
Reading,References FOR MORE DETAILS VISIT US ON WWW.IMTSINSTITUTE.COM OR CALL ON +91-9999554621
Unit 窶的V TQM and Business Strategy
75-97
Introduction: Quality and Business Strategy,TQM and Corporate Strategic Process,Total Quality and Customer Value Strategy,Customer Satisfac_ation and Delight,Competetive Strategy and Customer,.High Quality and Low Cost,Total Quality, Cost Leadership and Differentiation,Customer Value: An Elaboration,Value Realized, Value Sacrificed and Net Value,TQM and Stakeholders,Buyers or Customers,ShareholderslOwners,Total Quality
and
Corporate
Strategic
Alternatives,Related
Versus
Unrelated
Diversification,Quality Business Plan,Why Quality Strategy or Programmes Fail?,How can
Quality
Strategy
Succeed?,Summary,Key
Words,Self-assessment
Questions,Further Readings
Unit-V QUALITY CENTERED STRATEGIC PLANNING Quality-Centered
Strategic
Planning,Introduction,Role
98-117 and
Functions
of
Toy
Management in Quality Improvement,Strategic Quality Management,Quality Planning Roadmap,Companywide Quality Management (CWQM),Deployment of Strategic Quality Goals Planning for Strategic Quality Control and Improvement,,Listening to the Voice of the Customer,Achieving Customer Orientation,Quality-Centered Strategic Planning,How does
an
Organisation
Planning,Strategic
Planning
Relate
to
Quality,Quality
Process,Summary,Key
and Strategic
Words,Self-Assessment
Questions,Further Readings
Unit 6 Economics of Quality
118-141
Introduction:Economics of Quality,Qualit y-related Benefits,Quality-related Costs,Life Cycle Costs,Quality and Productivity,Views onlApproaches to Quality Costs,Quality Costing and Cost System,Uses of Quality Cost Information,Summary,Key Words,SelfAssessment Questions,Further Readings,Reference
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UNIT 1 INTRODUCTION: BASIC CONCEPfES AND APPROACH Objectives In the first unit of this course, we shall explain to you the basic concepts on which the TQM approach is based and the main ingredients of this approach. After reading this unit, you should be able to:
+ explain the factors that have influenced organisations all over the world to adopt TQM approach; + understand and be familiar with some of the basic concepts on which TQM approach is based; + communicate in TQM language after learning its vocabulary; and + describe the essential ingredients of TQM and it's principles. TQM has become the buzz word today.
structure 1.1 Introduction 1.2 Why Quality Management? 1.3 Understanding Some Basic Concepts 1.3.1 Concept of Quality 1.3.2 Concept of a Process And its Networking 1.3.3 Stakeholders and Their Expectations 1.3.4 Quality Control And Quality Assurance 1.3.5 Standardisation 1.4 Quality Vocabulary 1.5 TQM: An Overview , 1.6 Summary 1.7 Self-Assessment Questions 1.8 Further Readings
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1.1 Introduction Total Quality Management ( TQM ) has; become a buzzword in the business management field all over the world. Its philosophy and approach seem to have caught the imqination oforganisational managers who find themselves in the midst of intense competition and are thus concerned with their survival. The concept, however, has not appeared overnight but has evolved over a period of time. In this unit, we address ourselves to several issues related to the philosophy and approach of TQM. Fist, we attempt an answer to the basic question as to why there is a need for quality management, and why organisations ail over the world find it essentig to look to this approach as a panacea to their problems ? After getting convinced about the need for adopting a strategic approach in the form of TQM, we then pmceed to understand the basic concepts on which the TQM approach is based. You will also learn the necessary vocabulary so that you can communicate in the language of TQM. Equipped with this basic knowledgh, we will finally discuss the important ingredients of the TQM philosophy, its approach and it's principles.
1.2 Why Quality Mwement Total Quality Management (TQM) in its various forms appears to dominate business life now a days. In the earlier days before the emergence of the Industrial Revolution, quality did not pose any problem as the emphasis was on individual craftsmanship, workmanship and skills. The era of mass production initiated the industrial revolution and quality started getting attention. From then on, quality has been a problem addressed for a long time and has proaressed from stages of playing a purely reactive role (inspection) to its present prominence in shaping the competitive strategy of business. Figure 1.1 depicts this evolution. The development of quality management through phases involved the work of pioneers such as Juran, Feingenbaum, Deming, Crosby, Ishikawa and many others. We will learn more about the work of these quality Gurus in the next unit as we go along. The quality movement has thus progressed until the present day when quality has taken a central place in determining the organisational objectives and competitive positives. It seems hat, besides the Japanese, ijhe rest of the world has suddenly woken up from a long sleep with eagerness and a sense of urgency to be updated on all the potential benefits of quality which is being adopted as a way of conducting business. Let us now look briefly at some of the important factors, which caused this realization. They are:
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1. Question of survival in an intense competitive environme1.t. The industrial development in any societylcounrry takes place in phase$. In the initial phase, subseqt:nt to idcniifying a need, one or few suppliers emerge to provide the pmduct/service to satisfy the .need of cusru1,iers. This near-monopoly situation dominated by the suppliet/s creates a seller's market Lalabling the suppliers to provide a
MANAGEMENT OF QUALITY PROCESS UNDER POORPRODUCT DURING MANUFACTURE -CONTROL DESIGN MANAGEMENT OF DESIGN AND QUALITY POOR EVACUATION OF QUALITY DURING DESIGN MANUFACTURE: OK STILL NOT OK CUSTOMER NEEDS MANAGEMENT OF QUALITY ENCOMPASSING DESIGN, MANUFACTURE 8 DEPLOYMENT PHASE MANAGEMENT OF QUALITY THROUGH COMPANY-WIDE QUALITY MANAGEMENT SYSTEM
product service of the quality they are capable of providing without bothering whether their products satisfy the need or not. However, soon in the later phase, more and more suppliers looking for business opportunities emerge on the scene creating a buyer's market enabling the customers to choose a supplier. As you must have observed, over the last 10 years or so, phenomenal changes have taken place in the economic scenario all over the world. By now, we are sure, you are familiar with the terms "globalisation and "liberalization". Economic barriers, which existed in many world economies, have broken down and the whole world, economy-wise, has shrunk as one big market allowing almost free exchange of goods and services. Suppliers now not only face competition from domestic suppliers but also from the international ones. All the suppliers try their best to retain and possibly increase their market share. We are in the era of intense competition, and for suppliers all over the world it has become a question of survival. Just conforming to specifications and satisfying the needs of the customer is no more enough. The emphasis now is on delighting and winning over customers. The earlier concepts of quality management have been found inadequate to meet this objective, giving rise to the present concept of total quality management. Increasing customer consciousness. Customers all over the world are becoming increasingly conscious about getting more than just value for the money paid for products and services they buy. Backed by government laws and regulations, a number of agencies (governmental and non-governmental) have emerged which are working for protection of consumer's interests. The needs of the customers also keep on changing fast. Unless the suppliers are fast enough and are capable of satisfying the changed needs, they just lose the customers, ultimately resulting in a reduction in their market share. -
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3. Need for earning profit instead of making profit. All business organisations have to be profitoriented as profits are essential for the very survival of the organisation-and are also needed for its DESPATCH growth. In the earlier economic situation of seller's market, organisations used to make profit through the age-old equation of cost price (CP) + Profit (P) = Sales price (SP). The selling price used to be ftved in such a way that it autoaatically ensured making of as much profit as desired by the supplier organisation. In the present pevailing competitive buyer-dominated situation, this equation is no more valid as the market forces now determine the selling price. Therefore, if the supplier organisation has to achieve the profit objective, it has now to earn profit by controlling the cost price. As yol: are aware, some of the major components which make up cost price are costs of material, energy and human resources. You are also aware how all the three costs keep on rising and the supplier organisation has no control on the cost of these inputs. So, for controlling the cost price, the oniy major way in the hands of the supplier is to reduce what is known as 'quality cost' i.e. cost incurred by an organisation for making nonconforming products. The cost of repair, reprocessing, regrading andlor scrapping non-conforming products form a big chunk of the total sales turnover - as much as 20 to 30% as revealed by way of case studies. You will learn more about quality cost as you go along. To reduce the Quality Cost, the objective of the supplier should, therefore, be to make things right first time and every time - a TQM approach. 4. Organisational issues pointing to the need to focus on TQM: That Leadership plays a very c~uciarlo le in the total business performance of the organisation has now been realized. The quality of ah organisation is largely influenced by the quality of its leader. And, therefore, it has to be a major ingredient of quality management. . Human resource management is one issue that is receiving increasing attention in organisations all , over the world. In fact, it has been a major factor for many Japanese organisations to become world leaders. Though not considered important enough earlier, it now forms another major component of quality management .
Importance of Human Resource Management This is what Japanese Industrialist, Konosuke Matsuhita said to a group of American Executives: We will win and you will 1ose.You cannot do anything about it because your failure is an internal disease. You firmly believe that good management means executives on one side and workers on the other. On one side, men who think, and on the other side, men who can only work for you, management is the art of smoothly transferring the executives' ideas to the workers hand. The advent of revolution in infbrmation technology:This has an impact on the total quality performance of the organisation in following ways: -
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It intensifies the need for everyone in the organisation to be computer literate. The distribution of power relating to technical, problems solving, and decision-making abilities in the organisation through computer networks. The speed, directness and immediacy of information exchange, both within the organisation at all leveIs and between organisamions and key external stakeholders (suppliers and customers), is
1.3 UnderstandingSomeBasicConcepts
1.3.1 Concept of Quality
a) Definition of "quality" The word 'quality' is the most commonly used word by all of us. At the same time, it is one of the most difficult words to define properly. It is a perception of what you are looking for in a product or service and therefore varies from individual to individual. i t is akin to another word 'beauty' about which it is said, "beauty lies in the beholder's eyes". In the context of quality management also, there are as may definitions of quality as there are books, authors and protagonists. Some of them, spelt out by very prominent Gurus and widely accepted, are as follows: i) Quality is a predictable degree of uniformity and dependability, at low cost and suited to the market (Deming) ii) Quality is fitness for use (Juran) iii) Quality is conformance to requirements (Crosbyj iv) Quality is the (minimum) loss imparted by a product to society from the time the product is shipped (Taguchi) v) Quality is, in its essence, a way of managing the organisation (Feigenbaum) vi) Quality is correcting and preventing loss, not living with loss (Hoshin) Each of the above definitions (and several others by various authors) holds a strong but limited vision of quality. The universally accepted definition of 'quality', which is provided to us by IS9 is as follows:
"Quality is the totality of characteristics of an entity that bear on its ability to satisfy stated and implied needs ': This one sentence definition, though it appears simple enough, conveys a lot of meaning about requirements of quality. The second part of the sentence is crucial as it emphasises the ability of the entity to satisfy stated and iniplied needs of a customer. An entity nlay be agrocess, a product or an organisation. Needs or requirements may be stated in the form of a specification by the customer or they may be unstated but implied either by convention, customers' expectations or by statutory requirements of society. The implied
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needs are expected to be identified by the supplier.
b) Definition of "Product" It is important that you understand what the term 'product' means in terms of quality management. A 'product' is the result of activities oi processes, and includes service, hardware, processed materials, software or a combination ther~ofI.t Can again be a tangible (e.g. assemblies or processed materials) or intangible (e.g. knowledge 6r concepts) or a combination thereof.
c) Dimensions of Quality Based on the stated and implied needs of the customer, the product to be provided by the supplier has to have certain characteristics and features and ultimately it is the customers who determine whether of not quality has been achieved. Standah (please refer to 1.3.4 - concept of Standardisation) have, therefore, to be established enabling the chadcteristics to be measured either by determinants or by subjective criteria or a combination of both. The Wious dimensions of quality, which the customers look for in a product in order to satisfy their needs, determine the characteristics of the product (See Box 1.2).
I. For Manufactured Product Performance : Product's primary operating characteristics Features: Secondary characteristics that supplement the produci's basic functioning. Reliability: The probability of aproduct's surviving over a specified period of time under stated conQitiDns of use. Conformity: The degree to whith physical and perfornance characteristics of a product match pre-established standards. Durability: The amount of use one gets from a product before it physically deteriorates or until replacement is prefe~able. Serviceability: The ability to reyair a product quickly and easily. Aesthetics: How a product lookb, feels, tastes or smells. Perceived Quality: Subjective assessment resulting from image, advertising or brand name.
2. For a Service Time: How much time must a oustomer wait? Timeliness: Will a service be parformed when promised? Completeness: Are all items in the order included?, Courtesy: Do front-line employees greet each customer cheerfully and politely? w ~onsis>nc~ :r e services delivtjred in the same fashion for every customer and every time for the
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same customer? Accessibility and Convenience: Is the service easy to obtain? Accuracy: Are the services perf~rmedri ght the first time? Responsiveness: Can the service personnel react quickly and resolve unexpected problems?
Introduction: Basic Concepts and Approach d) Facets of Quality For the supplier, the following are the four facets of quality, which cover most of the quality dimensions that are key contributors to product quality: i) Quality due to definition of needs for the product: The first facet of quality is due to the extent and completeness of defining and updating the produc! needs to meet market places requirements and opportunities. ii) Quality due to product design: The second facet of quality is due to designing into the praduct the characteristics (based on quality dimensions) that enable it to meet marketplace requirements and opportunities, and to provide value to customers and other stakeholders. .- . iii) Quality due to conformity to product design: The third facet of quality is due to maintaining daytoday consistency in conforming to product design and in providing the designed characteristics and values for customers and other stakeholders. iv) Quality due to product support: The fourth facet is quality due to furnishing product support throughout it9 life cycle, as needed, to provide the designed characteristics and values for customers ar,d other stakeholders. 1.3. Concept of a process and its networking In any organisation, all work is accomplished by a process. According to the definition provided by ISO, a process is a set of inter-related resources and activities, which transform inputs into outputs. The resources may include personnel, finance, facilities, equipment, techniques and methods. Every process, therefore, has to have inputs and, after value addition, results into outputs. The output of a process, for example, may be an invoice, computing software, liquid fuel, a clinical device, a banking service or an intermediate product. The absence of a dearly defined process makes the activity subject to an arbitrary mode of execution and its outcome or output subject to unpredictable performance. In order to "do it right the first time" and "do the right things right", processes must be effectively managed. When processes are not adequately managed, quality may regress to mediocrity.
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EXTERNAL INTERNAL CUSTOMER : EXTERNAL SUPPLIER : - SUPPLIERS CUSTOMER
EVERYONE'S ACTIVITIES I "ADD VALUE" Every organisation exists to accomplish value-addition work. The work is accomplished through a network of processes and sub processes. An external customer is affected by any one or more processes at any i~iventi me, Every process has internal customers (those who depend on it or affected by i.) and internal Suppliers (those who provide the necessary input for that process). Consequently, everyone in the organisation serves a customer or serves someone who is serving a customer. This supplier-customer chain is formed by all the processes subprocesses and persons operating them right up to the time the external customer receives the product or land service. The quality of the work of a person or a process, which serves as a link in the chain decides the quality of the product provided to the customer as per the saying ' The strength of the chain is determined by its weakest link." Fig.l.2 describes the value addition in the process network.
1.3.3 Stokeholdem and their expectations Stakeholder(s) is an individual or group of individuals with a common interest in the performance of the supplier organisation and the environm'ent in which it operates. Every or-g anisation as a supplier has five ~rincipagl roups of stakeholders. The supplier should meet the expectations and needs.of all its stakeholders. See Table 1.1 for details. Suppliers stakeholdem mica1 expectations or needs 1. Customers Product quality 2. Employees Careerlwork satisfaction 3. Owners Investment performance 4. Sub-suppliers Continuing business opportunities 5. Society Responsible Stewardship
1.3.4 QtdQr control and Cjuality Assurance a) Quality Control As per the definition provided by ISO, Quality control means 311 those operational techniques and activities that are used to fulfill requirements for quality." The activities and the techniques used, therefore, have the following objectives: i) to ensure true expression/correct translation of stated and implied needs of the customer(both internal and external) in the form of standards specifying quantitative and qualitative measuratte
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characteristics. ii) to monitor the process for realiztltion of tfie product at various stages of its operation and elim- . inating causes of unsatisfactory performance at all stages of quality IoopJrrfer to point 25 of - - - --_. 1.4) in order to achieve economiteffectiveness. iii) Inspection (ref.12 of 1.4) of the product/service package to determine conformance to customer needs. - iv) to provide a feedback of data for bringing about improvements wherever possible. 'b) Quality Assurance As per the definition provided by ISO, Quality assurance means " all the planned and systematic activities, implemented within the organisation for quality management, to provide
DiWUdnotibn: Bash Connepte and Approach . adequate confidence that a product or service will satisfy given ncquirenlents for quality." . Essentially, quality assurance is a preventive activity and is, therefore, required to be systematically planned in advance. The activity includes identification and planning of the checks,.inspection and control of process as a part of quality control. Quality assurance also means establishment of a quality system (ref 31 of 1.4) which can demonstrate, if required, the capability of the organisation to satisfy the requirements of the customer. Quality assurance provides confidence internally to the management and external, ' ly to the customer. ~
1.3.5 Standardbation a) The concept and its evolution The concept of standardisation is as old as nature itself. In its broader sense, the standardisation has furnished the base on which nature has created the universe. The various natural phenomena which have been taking place for millions of years like the movements of pl~netsc, hanging seasons on the earth, living beings reproducing themseljhs and maintaining their features, all reflect a definitive pattern of things. Perhaps the most striking exalnple of standardisation in the early history of human civilization is establishing language as a means of communication enabling the early humans to convey their thoughts, feelings and messages to each other. Another example of standards consciously and deliberately developed by the ancients, is that of weights and measures which formed the basis of all measurements. With the onset of industrial revolution caused by the concept of mass production, through interchangeability of parts, necessitated the development of modern standardisation. By the time the First World War broke out, standardisation had been well recognized as an industrial process capable of ensuring productivity through interchangeability, not only within a given factory but also from
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' one factory to another, and the importance of creating industry-wise standards and national stan. dards slowly began to be realized. Where the experience of the First World War revealed the potentialities of standardisation, it was the Second World War, which brought even more pointed urgency for national and international standardisation. The supply and maintenance facilities of the Allies . were severely strained because of differences in standards, which prevented interchangeable use of tools and even of common engineering items like bolts, nuts and sdrews. Supply management during the War also re-emphasized the importance of standardisatio? and reduction in variety of materials and products, and brought about evolution'of many new techniques, including operational resource, value analysis linear programming, statistical quality control and so on. Another factor, which gave aspirit to the standardisation movement after the Second World War, was the creation of United Nations Standards Co-ordinating Committee for bringing together the existing national 'standards bodies into an international forum. Standardisation now is recognized as a vital ingredient of industrial efficiency and a pre-requisite for quality management systems. It is firmly believed at efficient and effective standardisation techniques, correctly interpreted and properly applied in almost all functional areas of the organisation, form the essential requirement of successful quality management systems. Standardisation and quality management go hand-in- hand.
b) Definition of Terms Standardisation: ~ccorditno~ th e IS0 definition "Standardisation is the process of formulating and applying rules for an orderly approach to a specific activity for the benefit and with the cooperation of all concerned, and in particular for the promotion of optimum overall economy, taking due account of functional conditibns and safety requirements. The process is based on the consolidated , results of science, techniques, and experience. It determines not only the basis for the present but also for future development and it should keep pace with progress." Notes 2 i) The dcfinition implies that the process is for both formulating the standard and its implementation. ii) The emphasis is on cooperation of all concerned and on achieving consensus (agreement). iii) The standardisation proceBs is dynamic as it keeps pace with progress. iv) The process of standardidation, as the defi~itionre quires, is quite an involved process. It calls for pooling together of allknowledge, expertise and experience of all those who are concerned. The approach, tlieiefore, iovolves setting up groups well represented by the major players in the activity like the supplier, the customer, the statutory authorities etc. The process tries to achieve maximum consensus through circulation of draft standards. The process of formulation of Indian Standards described in Fig.l.3 depicts a typical procedure followed all over the world. v) Some particular applications of Standardisation are: I, Units of measurement I, Terminology and symbalic representations
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Products and Procedures e Safety of persons and gqods Standard: According to the IS0 definition, 'Standard' is the result of a particular standardisation effort, approved by a recognized authority. It may take the form of: I, a document containing a set of conditions to be fulfilled; e a fundamental unit or physical conbtant (example : absolute zero); e an object for physical comparison [example : metre). It may be noted that i) As the standard is the result of standardisation, it is established with the cooperation of all concerned. ii) It is a living dynamic document liable to continual change through amendments/revisions due to the fallowing: - Technology upgradation; - Change in the needs of consumers; - Improved methods of quality evaluation; and - Changelupgradation of materials used. COMMITTEE INVESTIGATIMI DIVISION COUNCIL CONFERENCE A STANDARD IS BORN INTERNATIONAL STANDARDS (ISOIIEC) NATIONAL STANDARDS
STANDARDS APPROVED BY -1 THE NATIONAL STANDARDS BODY
iii) As a standard has to be approved by a recognized authority, following categories of standards are prevalent (See Fig : 1.4 & Box 1.3) - International standard - Standard that is adopted by an international organisation. (example: IS0 9000 Standards of ISO). - Regional Standard - Standard that is adopted by a regional organisation; (example: EN standard adopted by European Committee for Standardisation). -National Standard - Standard adopted by a National Standards organisation - (example: Standard of Bureau of Indian Standards). - Company Standard: Standard adopted by an organisation for its own use only. iv) Depending on the contents of the document, a standard could be broadly categorized as follows: - Basic Standard Standard that has a wide-ranging coverage or contains general provisions for one particular field (example: IS 626 - Code for Engg. drawings). - TerminologylVocabulary Standard: Standard that is concerned with terms, usually accompanied by their definitions and, sometimes, by explanatory notes, illustrations, examples etc. - Testing Standard: Standard that is concerned with test methods, sometimes supplemented with other provisions related to testing, such as sampling, use of statistical methods,
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sequence of test etc. - - Product Standard: Standard that specifies requirements to be-fulfilled by a product or a group of products, to establish its fitness for purpose. - Process Standard: Standard that specifies requirements to be fulfilled by a process, to establish fitness for purpose. - Service Standard : Standard that specifies requirements to be fulfilled by a service to establish its fitness for purpose.
1. Standardisation at International Level: a) The International Electrotechnid Commission (IEC) established in the year 1904. The first organisation to undertake standardisation at the International level. The objectives of IEC are to facilitate the coordination and unification of national electrotechnid starndds and to coordinate the activities of other international organisations in the field. b) The International organisation for Stan-ion (ISO) was established and started functioning in June 1947.The objective of IS0 is to provide the development of standards in the world with aview to facilitate international exchange of goods and se~ceasn d to develop mutual cooperation in the sphere of intellectual, scientific, techndogid and economic activity. It functions from Geneva in Switzerland. The National Standard Organisations of around 120 countries are rnemkn of ISB, Tile actual work of standardisation by IS0 as well as by IEC is carried out by the various Technical Committees. c) Some other prominent organisations are : - International Telecommunication Union (ITU) - International Conference on Weights and Measures (CGPM) - Codex Alimentarious Commission of the FA0 and WHO (CAC) for unification of fodd standards. - International Labour Organisation (ILO) del with standard codes of practice for safety bf personnel. 2. Standardisation at the National level. The work of National level Standdisation is dealt with by national organisations established in her I 120 countries around the world. All of these are members of ISO. The National Standards organisation of India was established as a registered society in the year 1947 as Indian Standards Instituti~n (ISI). It acquired a statutory recognition through enactment of BIS Act 1986 by the Indian Parliament and from 1 April 1987 came to be known as Bureau of Indian Standards (BIS). The main functions of BIS are: - to formulate Indian Standards q~pdro mote their implementation; - to operate product certification; , - to operate quality system certification; - to kta~ishm, aintain and recognize laboratories for the purpose of standardisation and Guality
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control; - to undertake research for the formulation of Indian Standards; and - to participate in international standardisation work. c) Standardisation Space In order to get a correct perspective on the aiins and functions of standardifation, it is important first of all to examine the inter-relationship of the various attributes of standards. This could be done conveniently by considering what may be called "Standardisation Spacen depicted in Fig, 1.5 with 'subject', 'aspect' and 'level' constituting the three axes of reference. Firstly, corresponding to the subject matter of a standard, or rather the product or process covered by it, ycmay assign a point on' the X-axis of the space. Secondly,standards differ in form and type depending on the particular aspect of a subject that may be cavered. For example, a standard on any engineering subject may cover any one or more aspects categorized on the Y-axis of the space. Further, the space has a third, Z-axis with points depending on the level of standardisation. For example, a standard on any engineering subject covering any one aspect may be a national or international standard.
INTERNATIONAL NATIONAL NOMENULATURE, SYMBOLS SUBJECT SAMPLING &I INSPECTION CODE OF PRACTICE, BVELAWS PACKAGING & LABELING
The aims of standardisation in general, applicable to all the levels, individually and collectively, may be listed as follows: i) To achieve maximum overall economy in terms of: (i) cost; (ii) human effort; and (iii) conservation of essential materials as opposed to more readily available materials. This involves judicious choice of raw materials and the adoption of production and handling practices known or expected to be most economical. Some examples of material conservation are given below: While preparing the specification for Portland cement (IS 269) the indigenous considerations were kept in mind and accordingly magnesia upto 6% was permitted compared to 1% laid down in foreign specifications. This relaxation in the constituents of cement did not &ect the Functional and strength characteristics. 8 A standard has also been recently prepared for refined lubricating oil(IS 9048:1979). By recyclingthe waste raw material and obtaining product of prime quality acceptable to users, enormous savings have been effected. Further, recycling the waste raw inaterial and obtaining product of prime quality acceptable to users solves many problems.
ii) To ensure maximum convenience in use It is this objective of standardisation that leads to simplification, rationalization, interchangeability of parts and freezing of dimensions of components. Increased productivity, elimhation of
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unnecessary waste, and shortening of inventories are the conseq~entiabl enefits. One example of rationalizationlvariety reduction and one of interchangeability is given below: 156 Varieties of steels covered in IS 1570:1%1 represent the minimum number required to meet the need for all economic sectors concerned. Thus a basis is available to regulate the demand of the users, and this would automatically lead to rationalized production in the country. Examples of Interchangeability: Through standardisation of dimensional aspects of complimentary items, 'interchangeability has been achieved in items like razors and blades (IS 7370 and IS 7371), plugs and sockets (IS 1293), Fire fighting hoses and nozzles (IS 2410 and IS 903), Fasteners (IS1367), etc.
iii) To adopt the best possible solutions to recurring problems consistent with (i) and (ii) above and taking into account all the available scientific knowledge and up-to-date technological developments. This objective of standardisation is to facilitate the design process and to provide guidance in the formulation of research and development programmes. It involves standardisation of basic terminologies, codes of practices, model forms of contract and so on. For example, the Code for engineering drawings (IS 626) has enabled unificition of practices, wnventions, symbols etc. resulting in effective communication between design office and the shop floor.The International standardisation work in the Electrotechnical field (IEC) started with the standardisation of basic terms in this field.
iv) To define requisite levels of quality in a manner such that practical evaluation of quality and its attainment are consistent with (i) and (ii) above. This aim leads to the standardisation of sampling procedures, test methods, grading schemes, and quality specifications in general. Aims under (ii), (iii) and (iv) have the effect of providing a common medium of communication between contracting parties which result in the elimination of disputes, and if they arise, in their speedy settlement, thus contributing to the achievement of the objective under (i). For example, !A About 60% of the standards formulated by BIS cover product specifications, laying down requirements connected with the quality and performance of products.
v) Benefits of Standardisation Standardisation is an effective management tool for achieving cost reduction, productivity, quality control, interchangeability, consumer protection, etc. Its implementation in industry leads to substantial benefits in one or more of the followEdg ways: - Standards set the recognized level of quality, the basis for building domestic and export mGkets, and develop goodwill and prestigk for manufacturers. - Standards provide a framework for increasing productivity through mass production, variety rationalization, and simplification of production processes.
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- Standards facilitate interchangeability of components or equipmentby the specification of critical dimensional requirements. . - Standards incorporate the latest result of research and development and therefore provide the latest technology. - Standards lower the cost of proddction and bring more profits by optimum utilization of scarce resources and waste materials.
Identify the internal suppliers and internal customers in the organisaqon where you are working. What are your expectations from your suppliers and to what extent are you s'atisfied? Similarly, state your customers' expectations and the extent to whidh you are satisfying them. d
1.4 Quality Vocabulary [key terms)
Having understood the basic concepts on which the TQM approach is based, let us now be familiar with definitions of some of the terms commonly us$d while discussing the subject of TQM. Apart. from providing the clarity required, the understanding of these definitions will enable you to communicate with others for mutual advantage. Fof the sake of convenienue the definitions are listed in alphabetical orders. (Ref: ISIISO 8402 :I994 Quality Management and Quality Assurance-- Vocabulary) 1. Benchmarking: An improvement pnocess in which an organisation measures its performance against that of the best-in-the class organisations. It determines how such organisations achieved their performance levels and then uses the information to improve its own performance. Some subjects for benchmarkmg include: strategies, operations, processes and procedures. 2 Brainstorming: A te~h~iquusee d by a team to generate ideas on a particular subject. 3. Calibration: Comparison of a measurement instrument or system of unverified accuracy to a measurement instrument or system of a known and better accuracy to detect any variation. 4. Conformity: Fulfillment of specified requirements. 5. Corrective action: Action taken to eli~inateth e cause of existing nonconformity, defect or other undesirable situation in order to prevedt recurrence. 6. Customers: Recipient of a product provided by the supplier. I Notes: i) In a contractual situation, the customer is called the "Purchaser". ii) The customer, for example, may be the ultimate consuriler, user, beneficiary or purchaser. ,
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iii) A customer may be : External customer: a person (or organisation) who receives a product, a service, or illformation but is not a part of the organisation supplying it. e Internal customer: The recipient (person or department) of another person's or dep?g.tment's output (product, service or information) within an organisation. 7. Customer delight: The result of delivering a product or service that ~xceedsc ustomerexPec ments.
8. Customer Satisfacaon: The result of delivering of a product or service that meets customer quire-
9. Defe& Non-fulfillment of an intended usage requirement or reasonable expectation, including one concerned with safety.
10. Dependability: A collective term used to describe the availability or performance of ~roducotr service. The influencing factors include: reliability performance, maintainability performance and maintenance support performance.
1 1. Grade: Category or rank given to a product, service, process or an organisation having the same functional use but different requirements for quality. The difference in quality is planned or recognized and the emphasis is on functional use and cost relationship. 12. Inspection: Activities such as measuring, examining, testing or gauging one or more characteristics of a product, service, process of an organisation and comparing the results with specified requirements in order to establish whether conformity is achieved for each characteristic. 13. Mean Time Between Failures (MTBF): The average time interval between failures for repairable product for a defined unit of measure (e.g. operating hours, cycles, Km)
14. Nonconformity: Nonfulfilment of a specified requirement.
15. Organisational Structure: Responsibilities, authorities and relationships, arranged in a pattern, through which an organisation performs its functions. 16. Preventive Action: Action taken to eliminate the causes of a potential nonconformity, defect or other undesirable situation in order to prevent its occurrence.
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17. Procedure: Specified way to perform an activity. Notes:i) When a procedure is documented, the term "documented procedure" is frequently used. ii) A documented procedure usually contains the purpose and scope of an activity, what shall be done and by whom, when, where and how it shall be done, what materials, equipment and documents shall be used and how it shall be controlled and recorded. 18. Process capability: Statistical measure of the inherent process variability for a given characteristic. 19. Product ~iabilityG: eneric term used to describe the onus on a producer or others to make restitution for loss related to personal injury, property damage or other harm caused by a product. 20. Purchaser: Customer in a contractual situation. Sometimes referred to as the "business second partyw. 21. Quality~ uditS: ystematic and indephnhenr examination to determine wliether quality activitis and related results compIy with planned drrmgements and whether these arrangements are implemented effectively and are suitable to ach;eve\objectives. 22. ~ualityci rcles ~ualityim provemendlor self-imPmement study groups composed of a small number of employees (10 or fewer) and their bupervisor. Quality circles originated in Japan, where they are called Quality control circles. 23. Quality Cost: The costs associated with providing poor-quality products or services. It comprises of four components - internal failure costs, external failure costs, appraisal costs and prevention cost. Also called cost of quality or cost of poar quality. 24. Quality improvement: Actions taken throughout the organisation to increase the effectiveness and efficiency of activities and processes in arder to provide added benefits to both the organisation and its customers. 25, Quality loop: Conceptual model of inteecting activities that influence quality at the various stages ranging from the identification of needs to the assessment of whether these needs have been satisfied. The quality spiral is a similar concept.
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Marketing and market research Design specification engineering and product develprnent Technical assistance and maintenance Pmcess planning and Customer/ Producer1 consumer supplier Installation and operation Production Packing and storage lnstalla Inspection, testing Sales and distribution and examination
6. Quality Management: A11 activities of the overall management function that determine the Quality Policy, Objectives and responsibilities, and implement them through the quality system by the following means: Quality planning; a Quality Control; a Quality assurance; and Quality improvement. It may be noted that (a) Quality Management is the responsibility of all lev& of management but must be led by top management. Its implementation invdlves all members of the organisation; (b) In quality management, consideration is given to economic aspects. Quality Manual: Document stating the quality policy and describing the quality system of an organisation. It may be noted that a) A quality manual may relate to the totality of an orgaaisation's activities or only to a part of it; b) A quality manual can vary in depth and format to suit the needs of an organisation. Quality Plan: Document setting out specific quality practices, resources and sequence of activities relevant to a particular product, project or contract. Quality Policy: Overall intentions and direction of an organisation with regard to quality, as formally expressed by top management Quality Surveillance: Continual monitoring and verification of the status of a product or organisatLn and analysis of records to ensure that specified requirements are being fulmed. Quality System: Organisational structure, procedures, processes and the resources needed to implement quality management.
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Requirements of Society: Obligations resulting from laws, regulations, rules, codes, statutes and other considerations. The other considerations should include, notably, protection of the environment, health, safety, security, consenation of energy and natural resources. All requirements of society should be taken into account when defining the requirements of quality. Record: Document which furnishes objective evidence of activities performed or results achieved. A quality record provides objective evidence of the extent of fulfillment of the requirements of quality. Some of the purposes of quality records are demonstration, traceability and preventive and corrective actions. A record can be written or stored on any data medium. Reliability: The probability of a product performing its intended function under stated conditions without failure for a given period of time. Supplier: The organisation that provides a product and service to the customer. The supplier may be, for example, the producer, distributor, importer, assembler or service organisation. The supplier call be either external or internal to the oganisation (internal person or a department). Sub-contractor: Organisation that provides a product or service to the supplier. Statistical Process Control ( SPC ) : The application of statistical techniques to control a process. Often the term Statistical Quality Control (SQC) is used interchangeably with Statistical Process Control. World-class Quality: A term used to indicate a standard of excellence; the best of the best.
1.8 Total Qualitty Mdiagement: An Overview
1.8.1 general NOW that at you are familiar with some of the basic concept; on which the TQM philosophy is based, it will be easier for you to understand its ingredients and approach. Let us look again a re-look at the following definition of TQM provided by KO: %td Quality Management is the mmagernetrt approach of an organisation, entered on quality, based on the portleipation of all its members and aiming at long-term success through customer satisfaction, and benefit~ to dl members of the organisation and to society'. . TQM by the Total Quality Form of USA, conveys the same meaning, but provides further elaboration of ideas implied in the IS0 definition. It is. as follows: TQM is a people - focussed management system that aims at continual increase in customer satisfaction at continually lower cost TQM is a total system approach (not a separate area or programme), and an integral part of high-level strategy. It works horizontally across functions and departments, involving all
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employees, top to bottom, and exceeds backwards and forwards to include the supply chain and the customer chain." Let us now discuss some of the important ingredients of the TQM philosophy. While we do so, you should keep in the back of your mind the undqrstanding you have achieved about the basic concepts and terms we have learnt earlier.
1.6 Loahmhip hademhip is perhaps the m04 important ingredient As the very definition says, TQM is a management approach, the responsibility f& quality management is managerial. It is not, therefore, just a question of achieving standards but one of survival and being strong all the time. TQM is an organisational concern which is not restricted to the specialists or specific functions; it has to be led by the management. The role of a leader who manages the organisation is comparable to that of a captain of a ship. The following points highlight the role of a leader in the context of TQM: provide unquestioned leadership; focus on customer results; train all employees; achieve and recognize employee participation; communicate about quality both interndly and externally; and a provide a quality ptocess and quality tools. Involvement of and leadership by top management are, therefore, essential for creating the necessary culture of commitment to quality. As Armiknd YFeigenbaum said:%etting quality results is not a short. term, instant-pudding way to improve competitiveness; implementing total quality management requires hands-on, continuous leadershipn.
1.6.8 Partidpatory A-ob The "total" in TQM is total in three senses. It covers a every process a every job \ every person First, the earlier emphasis on just he madufacturing function for building quality into product is no more valid. Quality is ultimately decided by all the processes which get included in the quality loop (refer to 25 of 1.4). Second, total quality is total in that it covers every job, not just those involved in making the
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product. Secretaries are expected not to make typing errors, accountants not to make posting errors and . . Chief Executive Officers not to make strategic errors. Third, total quality recognizes that each person is responsible for the quality of his or her work and for the work of the group (refer to 1.3.2). While discussing the concept of a process and the network (refer to 1.3.2), we have seen how an organisation works through a network of processes with an interactive network of communication and control. All organisations operate at different hierarchical levels, they are characterized by their own attributes and are vertically integrated to form a whole organisation with different properties at different levels. Quality management must ensure that horizontal integration across networks and vertical integration through hierarchies is achieved. Any total quality approach must look at an organisation as a whole in this way. Failure to achieve either horizontal or vertical integration accordingly will limit the success of establishing a quality organlsation. The information interchange and shared commitment to product quality are what mikes total.quality work. Teaching all employees how to apply coqol aud improvement techniques makes them party to their own dealing and enables them to achieve their fullbt potential.
1.5.4 SyseemS approach
Another approach of TQM is to integrate the various aspects of the organisation's activities and produce a total mass driven by the same commitment, beliefs and objectives. Thus, the overall effectiveness of the system is higher than the sum of the individual outputs from the sub-systems, Management of quality through a quality system (refer to 31 of 1.4) requires the management to establish an organisation struc; ture, provide resources, processes and provide documented procedures for carrying out various activities from receiving inputs from it's suppliers to provide products to it's customers. The models of quality system made available by IS0 through IS0 9000 family of standards enable an organisation to demonstrate establishment, implementation and maintenance of quality system and hence its capability to satisfy their customers. Through a third party certification they can also get universal recognition. Implementation of quality system is the proper mechanism for quality assirance'(~ef.l.3.4(b)).
TQM is a philosophy based on the quest for progms and impr&ement: 1n this sense TQM looks for continual
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improvement in the following areas: * Cost; Reliability; Quality; * Innovation; + Efficiency; and Business effectiveness. To achieve this objective, systematic analysis, pre-planning and execution of plans are essential ' requirements. Further, these activities should become habitual and driven by the culture of the organisation and not enforced by external pressures. Adopting the total quality philosophy commits the cpmpany to the belief that there is always a better way of doing things, way to make better use of the company's total quality resources, a way to be more productive. In this sense, total quality relies heavily upon value analysis as a method of developing better products and operations in order to maximize value to the stakeholders (Ref 1.3.3).
1.5.6 Total Customer match As per the very definition of TQM, an organisation should aim at long-term success through customer satisfaction. It is also implied that this satisfaction should be on a continually increasing basis at a continually lower cost. If you refer to t!e definition of the basic term 'quality' and the notes appended to it (Ref 1.3.la), the product/ service/ prdcesst organisation should have the capability of satisfying the customers' stated and implied needs. The needs of the customer have to be identified by the supplier and given features and characteristics in conformity with the various dimensional requirements specified/implied by the customer. The resultant product must have the capability to satisfy the identified and agreed needs. This activity essentially requires establi4ment of standards, which reflect the agreed requirements (Ref 1.3.5). The activity of quality control (Ref 1.3.4 a ) ensures meeting cust6mer requirements. It is important to note that both the needs of the customer and the capability of the supplier (in terms of change in materials and technology, skill upgradation etc.) keep on changing and therefore quality becomes a dynamic phenomenon. The satisfaction has to be provided on a continuous basis. Successful organisations place high priority on proactive end systematic understanding and respond to current and future
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external customer needs. The "customer satisfactionn approachis applicable to the external as well as the internal customer of an organisation (Ref 6 of 1.4). Internd customers all work for the same company. The ultimate competitive advantage is established when an organisation develops a culture that supports its internal customers. Successful organisations seek to proactively ~nsdys tematicady understand and respond to current and future internal qustomer needs.
1.5.7 Key Objectives of an organisation In the context of the above, an organisation should: a) achieve, maintain, and continuously improve the quality of its products in relationship to the requirements for quality (Ref 1.3.1); b) improve the quality of its own operations, so as to meet continually all the customer and other stakeholders' stated or implied needs; c) provide confidence to its internal management and other employees that the requirements for quality are being fulfilled and maintained, and that quality improvement takes place; and d) provide confidence to the customer ~ndoth er stakeholders (Ref 1.3.3) that the~quirementsfo r quality are being, or will be, achieved in thk delivered product.
1.5.8 Principles of TQM The main principles of TQM can now be drawn and stated briefly out of the philosophy and concept you have learnt. They are as follows: 1. There must be agreed requirements, fold both internal and external customers. 2. Customers' requirements must be met the first time, every time. 3. Quality improvement must reduce waste and total cost.
4. Role of Quality Inspection, Troubleshooting Quality Goal setting Professionals sorting, & application of measurement education, counting & statistical planning, training and 4 grading techniques programme consultation. design 5. Whohas Inspection Manufacturing All Everyone in the responsibility Department Enginnering Departments organisation for qua..l ity? Departments and Leadership
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from senior management. 6. Orientation and Inspects in Controls in Builds in Manages in and approach quality quality quality quality 80utve: Ztllrl, Mobsmad, 1903, meal @a&y Mana@mant for EZI@IWMJ, Oulf FWLf~hingU, SA. Total Quality Management (TQM) appears to dominate the business life now-a-days, as managements of organisations all over the world have realized the potential benefits of the TQM approach. Following are some of the important reasons, which have caused this realization : a) It has become a question of survival in the intense competitive environment; b) Customers all over are increasingly becoming conscious about getting more than just value for money; c) Need for earning profit; d) Crucial role played by organisational issues, such as leadership, human resource, revolution in information technology etc., in quality management. The very definition of "Quality" emphasizes he capability of products/ processed organisation to satisfy stated and implied needs. Customer satisfaction becomes the ultimate objective. For this purpose, measurement of various characteristics, depending on the dimensions of quality identified as per customer requirements, and establishment of standards become very essential. The 'total' in TQM is total in the sense that it covers every process, every job and every person. This is essenslity beccaus an organisation works through a network of processes with an interactive network of communication and control. Quality management must ensure that horizontal integration across networks and vertical integration through hierarchies is achieved. The information interchange and shared commitment to product quality are what make total quality work. TQM is a management approach and hence has to be led by management. The management must provide a unquestioned leadership, must have a focus on customer satisfaction, train all employees, achieve and recognize employee satisfaction, communicate about quality internally and externally and provide quality processes and tools. TQM is a philosophy based on the quest for progress and continuous improvement. To achieve this objective, systematic analysis, pre-planning and execution of plans are essential requirements. These activities
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Introduction: Basic Concepts and Approach should become a matter of habit and should be driven by the culture of the organisation and not enforced by external requirements. 1.7 Self-Assessment Questions
1. Describe how increased market share and profitability can result from improved quality. 2. "Total quality is too important to take a second place to any other goals. Specifically, it should not be subsidiary to profit or productivity". Do you agree with this assertion? Why or why not? 3. Explain why quality should be better in following the TQM concept than in a system that depends on final inspection. 4. What are the significant differences between the two concepts ' Quality control 'and, ' Quality assurance'? 5. Among the various stakeholders of an organisation, which one, you feel, is the most crucial? Why? 6. A ball pen manufacturer supplies a gold-plated pen and also a plastic pen. Which one of them, you think, is a quality product? Why? 7. Explain with examples the difference between stated needs and implied needs . 8. ' Standards discourage creativity ' Do you agree or disagree? Why? 9. How do" International Standards " facilitate international trade? Give one example of international standard which has achieved universal implementation. 10. Explain with examples the difference between proactive action and reactive action in the context of TQM.
1.8 Further Readings Drummond, Helga, 1992, The quality movement, what total quality movement is all about, Kogan Page, London. Lal, H. 1990 Total Quality Management: A practical approach, Wiey, New Delhi. Sundara Raju, S. M., 1995 Total Quality Management: A Primer, New Delhi.
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UNIT-II Quality Management: Leading MANS
Objectives After reading this unit, you should be able to: * comprehend the historical evolution of quaiiy approaches; & & understand the basic ideas and concepts of the leading quality management experts; and WI? Cmsb Denzing, lumn, & assess and compare the quality management approaches of thesegurus. strum
2.1 Introduction 2.2 A Historical Evolution of Quality Approaches 2.3 The Crosby School 2.3.1 Crosby's View of Quality 2.3.2 Crosby's Quality Management Maturity Grid 2.4 The Deming Philosophy 2.4.1 The Quality Crisis 2.4.2 Defiing's Fourteen Points 2.5 The Juran Trilogy 2.5.1 A National Quality Crisis 2.5.2 Quality Improvement 1 Breakthrough Sequence 2.6 Feigenbaum 2.7 Japanese Quality Gurus 2.7.1 lshikawa 2.7.2 Shingo 2.7.3 Taguchi 2.8 Critical Conlments 2.8.1 Cornparative Assessment of American Quality Gurus 2.8.7 Final Word on Japanese Quality Gums 2.9 Summary 2.10 Key Words 2.1 1 Self-Assessment Questions 2.12 Further Readings . References
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8.1 Introduction In the first unit of this block we talked about the basic concepts and principles of quality management. We explained the common terms and gave an overview of the subject. We also familiarized you with the stan, In this unit we provide a brief outline of how the control of quality has evolved &%ting in the 19& and 2om centuries. Later, we introduce the basic ideas and concepts of the leading quality management experts. Towards the end, we offer critical comments on their contribution. Do not assume that a single best method should, or does, exist. The challenge facing India's business executives in the new millennium is not simply to decide whether to adopt any quality'management programme, but to adopt one that best fits their specific competitiv! business environment.
2.2 A Historical Phtolution of Quality Approaches provides a brief outline bf how the control of quality has evolved starting in the 19' and 20" centuries. Before the 20a century, production was not as organized and as massive an activity as it has grown to be with the beginning of the industrial revolution. Before that time, production was an art and quality a measure of this art. Each unit produced was 'special', in the sense that no twn i~nitws ere rzalIy the same. Further, for items, demand outstripped production capacity so much that quality was of not a necessary concern. At the beginning of the 20Ih century, when the industrial revolution was ushered in by Fredetick Taylor and his co-workers, production lines were used, and an increased need for rationalization, the division of labour and standardization became evident. Such needs led not only to another organisation of work, to newly defined principles for 'good management', but also to 'depersonzlization' of work and the work content of products. Production was no longer an art but a process. Products were the outcome or the consequence of such a process. The notion of 'art' was no longer relevant but counter-productive to the operation of the production line. Inventiveness, creativity, improvements and learning were in fact (if not in words) discouraged. Rather, uniformity, the assurance'of product uniformity, consistency, repetitivity and the control of statistical variations became necessary. However, it was only in the 1930s following the seminal papers of Shewart, that the use of statistical principles for the control of product uniformity and process controls became accepted. In this senseinfe modern approach to quality control really started with Shewart. Since then the field of quality control has matured and grown very quickly. To this day, Shewart's and R. A. Fisher's work on the design of statistical experiments are the classical tools of quality control, appearing under various names such as SQC (Statistical Quality Control), SPC (Statistical Process Control), and Experimental and Robust Design. These approaches dominated the field of quality management, until attempts to control and deal with ihe whole rather than just the parts were made. During all these years,
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this field has remained unscathed by technology or by innovation. the procedures to follow which, it was deemed, were needed to maintain such standards. Further, even if quality control procedures were known, they were rarely viewed as an ixftegral part of the pmduction precess. Industry did nbt always implement ,the quality topls needed to ensure the proper control of, Bvents I to management resulting in rationalization of 1900s work and its breakdown leads to greater need for standardization, inspection and supervision. Shewart Statistical beginnings knd study of quality control. In 'parallel, studies I 1930s I by R.A.Fisher on experimerital design; the beginning of control charts at Western Electric in I U.S.A. Late -Quality standards and approaches are introduced in France (Darrnois) 1930s and Japan. Beginnings of SQC, reliability and maintenance engineering. 1 1942 Seminal work by Derning at be Ministry of War in U.S.A. on quality control & sampling. Working group set up by Juran and Dodge on SQC in U.S. Army. I Concepts of Acceptance Samdring devised. 1944 Dodge and Deming carried obt seminal research on Acceptance Sampling. 1945 Founding of the Japan Standatd Association. 1946 Founding of the ASQC (~mericanS ociety for Quality Control). 1950 %sit of Deming in Japan at the invitation of K.Ishikawa. 1951 Quality Assurance increasingly accepted. 1954 TQC in Japan (Feigenbaum and Juran); book published 1956. 1957 Founding of European organisbtion for the control of quality (France-AFCIQ, Germany, Italy Holland, England).
After the 1960s
1961 The Mgtin (Marietta) Co. in U.S.A. introduces the zero-defects'approach' while developing and prodtRÂśhg Bershing Missiles (Cfosby). Quality motivdtion is starting in the U.S. and integrated programmes begun. 1962 Quality Circles are started in Japan.
1964 Ishikawa publishes book on Qudity Management.
1970 Ishikawa publishes the book on dhe basics of Qudity Circles and the concept of Total Quality is affirmed and devised in Japanesiz industries.Just in Time and Quality become crucial for competitiveness. A larqe number of U.S. and European corporations are beginning to appreciate the advance of Japan's industries. Taguchi popularises the use of environmental design to design robust systems and products. Facing the rising sun ~hallengein lquality management. Development and intr,)duction of 1FMSs and greater dependence on supplier contracts.Growth of economit ba5ed cpalir)l control, information software packages. -
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processes and even less design the production system and implement management procedures which are needed to maintain quality. Thus, until recently, the field of production management has been concerned primarily with the management of physical quantities and not quality. A great effort was initiated during World War 11, essentially due to the awesome procurement problems and the amount of materials and equipment needed for allied forces. Deming, Dodge, Juran and others, which are standard names today in quality control and management, began their career in such-an environment. In 1942, the concept of acceptance sampling was devised: a battery of tests, which appear under MILSTDXXXX in U.S.A., meaning Military Standard no. XL, were required by suppliers to the army, and a broad range of mathematical-statistical tools required to test the acceptance of productioii kta xclr devisea. After World War II, the expertise gained in production began to be taken for granted. Corporate efforts were diverted to marketing, the age of affluence was rising and corporate managers invested their efforts in convincing consumers to consume ever more. Post-war rebuilding, baby booms and no competition from Europe and the Far East,as their economies were reduced to shambles, induced the American industrial apparatus into a state of over-confidence. There was no challenge to industries in America. In this environment, American industry, equipped with an over-confidence gained out of the ashes of World War and the comparative advantage itobtained while the rest of the world's industries were in shambles, saw its 'House of ~ualityg' radually deteriorate relative to other countries. This was not only true for car manufacturing, but also other productsCameras once produced by Bell and Howell in U.S.A., began to be produced by Canon in Japan. Mass pfbduction of motorbikes was almost completely takbover by firms such as Honda and Kawasaki. Attempts by the quality gurus like Deming, Juran and others to create a greater awareness of such problems in industry did not succeed in the United States, but they were heeded in Japan. Quality control wasviewed as a production, or at best, an engineering problem which, from a managerial viewpoint, was taken for granted. These were. non-problems! At this time, while Japan was attempting to re-enter the industrial world and gain recognition for its consumer products, Deming, Juran and others found a 'crowd' willing to listen, learn and improve. Japanese manufacturers also understood that quality and its control transcended the mere problem of process control or product assurance. They recognized the need for quality not only in terms of assurance, but 'true' quality, which is inherent in the design, production and overall operations of a firm. Japan became the country,'where quality really matters'l, becaus'f it was recognized as more important than just assurance and product standardization. While US firm concentrated their efforts on thereduction of product variability (i.e. producing products that were as 4if orm as p5ssibIe), fapanese man- ufacturers focused on product quality improvement through a 'total'effo t for quality control. In a sense, the
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Japanese, equipped with 20c~ent ury technology and tools, returned to the concept of quality which pre- . vailed at the beginning of the century and refurbished it. Quality has again become the measure of the art 1990+ The Management of Quality has become a necessity that is recognized at all levels of management. Increasing importance is given to off-line quality management for the design of robust manufacturing processes and products. The growth of process optimization. of production, but in a more structured way. Quality and its control became Total Quality Control (T~C),and its management became Total Quality Management (TQM). Quality became everybody's business: the supplier, the distributor, each worker, and management. A meeting point was needed, communications were opened, mechanisms to redirect inventiveness were created and production processes were improved continuously. A wide variety of approaches were then devised, Quality circles, in various forms, were used; 'Zero-Defect'goals were stated and, in the process, the basic approaches to the management of production were altered. The need for quality prod\u ion was both fuelled and fuelling this tremendous transformation of the production process in almost every rndustrial and service sector. For example, technology, robotics, automation and flexible manufacturing must be appreciiiEifboth for how they have transformed the potential for quality and, at the same time, how they have become a by-product of the need for quality. Technology has amplified the need for quality and its control. The complexity of manufacturing processes and the potential for higher levels of precision and integrated controls have created an environment which has not been appreciated to its full extent by production management. In such an environment, quality management transcends the traditional statistical ippmach, and is embedded in an emerging philosophy, which recognizes quality and its management as a central part of the process of management. In this sense, quality becomes strategic. The application of Just in Time concepts, their intolerance to breakdowns and reworks . and their structured and controlled production environment, have also led to a production practice which is much more sensitive to the effects of non-quality production. By the same token, Flexible Manufacturing Systems (FMS), which mnsist of manufacturing cells linked by AGVs (Automated Guided Vehicles),or some other mechanisms for routing parts between machines and cells, and computer systems have greatly increiyed the complexity of production. As a result, the problems of non-quality have become much greater. Finally, Just in Time as well as an economicenvironment in which contracts are used to ensure quality, are also creating the need for other novel approaches to the management of quality. Franchises, subcontracting, distributors and intermediaries of various sorts, and in general decentralization of the workplace, require controls which are sensitive to the conflicting environment within which business is operating. The freedom by employees, salesmen and firms to choose and follow a policy which is best for them has to be recognized and accounted for in devising incentive schemes which will induce the delivery of quality and quality performance. In this environment, the suppliers'and producer~contextsc an be understood and control schemes
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devised to respond to an ever-increasing number of problems which are encountered when operational and service functions essential to the business process are contracted out. . I I The globaiization of businesses increased competition and techn~logy,f eeding and fed by the process of ' ,, management in all its facets, have also led to the emergence of quality as a variable to rkckon with. Quality has thus come of age. It has become an importlnt topic to study and manage. Quality has thus become strategic. –
Activity 1 Make a chart, showing the evolution of quality management and control in your plant/company. , 2.3; The Crosby School Philip Crosby's quality management ideas followed a long corporate career. Rising through managerial management should adopt a quality management style, not because it is the right thing to do, but becauseit is "freeVand good for the bottom line. The problem organisation. Crosby believes "the problem organisation" will benefit most from his quality management programme. In his book, Quality Without Tears, Crosby identifies a problem organisation by upon requirements. , a The company has an extensive field service or dealer network skilled in rework and corrective action to keep the customer satisfied. a Management does not provide a dear performance standard ?r definition of quality, so the employees each develop his or her own. Management does not know the price of nonconformance. Product companies spend 20 percent or more of their sales dollars doing things wrong and doing them over again. Service companies spend 35 percent or more of their operating costs doing things wrong and doing them over. Management denies that it is the cause of the problem. In other words, virtuallv everv business fum. bv Crosbv's definition. is a "~mhlem ntcmnicntinn" Whv? I - XI grammes for the lowest levels of the organisation, and makespeeches with impressive sounding words. It is not until all theproblems arepuled together,particularly thefinancial ones, that theseriousness of the situation is exposed."
2.5.1 Crosbys View Of Qualiy The real meaning of quality, Crosby asserts in Quality Is Free, suffers from several erroneous assumptions. ~ntan~ibltehe, refore not measurable. Unaffordable. a Originated by the workers. Something that originates in the quality department. a Quality is conformance to requirements; nonguality is nonconformance.
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tion, he cautions the quality-bound executive, "The process of instilling quality improvement is a jorum that never end. Changing a culture so that it never slips back is not something that is accomplished quickly." Faru. absalutes of view The distillation of Crosby's ideas into what he judged to be the fundamental nature of quality (the 'absolutes') was formulated in Quality Mthout Tears. His absolutes were: I. The definition of quality is conformance to requirements, which are established by management. 2. Quality is reached through preventiod It is therefore necessary to understand the process and eliminate all opportunities to make errors. It is recommended that quality control tools such as control charts and other tools (that we shall study in lattes units) be used. 3. The performance standard is zero. Thds, even if we do not reach it, it is important to strive towards zero defects. 4. The measurement of quality is the prick of non-conformance. For this reason, data is important so that attention is focussed on the true magnitude of the cost of non-conformance. Crosby also recommends an unending Me. The basic tenets of this cycle are that a Quality improvement is an everlasting process. a Quality education and its philosophy begin at the top. a Quality control departments should believe in zero defects. a Quality education and training should be excellent. a Management is patient and never ceases its concern for quality.
Q. Mr. Crosby, 15 years after you first propounded it, your fundamental tenet - Quality is Free - still fires the imagination. And it,remains a rather intriguing proposition ... A. Quality is Free is an expression that came from my CEO at IIT, Harold Geneen. As we discussed the subject, I explained that quality was nok goodness; that it was doing what we said we would do. companies must price their product or sedice based on doing everything right the first time rather than merely having acceptable levels of quality, Quality itself then costs no more; it is free. What costs you is doing things over and servicing w&t has been delivered. Management must create clear requirements describing the product or service and, then, help people understand their job in creating it. The key to this is that quality is actuaPy defined - conformance to requirements - rather than , being just dealt with as a good feeling. You preach what you call the Four Absolutes of Quality. How did they evolve? My concepts on qualiv were developed thpugh 27 years ofhands-on responsibility for quality in organisations. When I was a quality inspectori I realised that everyone has his own definition of quality That results in inconsistent operations and wide swings in output. I,therefore, insist that we should agree on the requirements and, then, meet them. So, the first Absolute: quality is conformance to 1 requirements. I
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In the early days, the basis of quality control was detection. The idea of quality control is to find nonconfor,mances as early as possible and cdrrect them. The use of statistical tools soon leads everyone to believe that error is an inevitable part of business. I objected to that. My education had been medical and I was used to working on preventing problems. So, I said, quality is caused by prevention. The standard in quality control is acceptable quality levels. Managers took this as meaning that nothing could ever be correct all the time. So, they would negotiate acceptable levels with suppliers and their own workstations. My Third Absolute is: quality has a performance standard of zero defects. That's a way of saying: do it right the fxst time. My purpose in this concept was to eliminate the idea that errors were inevitable. For instance, the semiconductor industry has adopted what they call six-sigma as a standard. This refers to standard deviation; it means that they accept 3.4 deviations per million. Intel's current problems reflect the result of this kind of thinking; customers want everything to be correct. We are not permitted to sail through 3.4 stop-signs per million; if we were, there would be disaster on the highway. And the Fourth Absolute is: quality should be measured by the price of nonconformance. Everything managers do is financially-based - except for quality. They do that by indices and other means which require no action. When we count the cost of repair, reprocessing customer service, overdue receivables, and high inventory, we are dealing with 25 per cent, and more, of an organisation's revenues. It is not possible to be competitive if you manage this way. You have argued against quality control (QC), and even total quality management (TQM).
Actually, I am not against QC; it has a valuable place in manufacturing operations. However, it is not quality management. QC is about detection; quality management is about prevention. TQM is a set of initials that covers a lot of activity-based events - such as team-building, empowerment, benchmarking, quality circles - that have little definition or a long range role in a company's plan. It is just a way to hand the responsibility for quality from management to some other group., I am not against these activities, but they are not a substitute for running the place properly. I think quality control needs to be understood for what it is. And to me, TQM means Tivialising Quality Management. But what about the Japanese model ... 7 The Japanese quality model exists mostly in the imagination of the media. They are just like everyone else in that they struggle hard to learn how to get the right thing done right the first time. And they work harder at it than most others. The media has an embedded idea that there is some system that, if properly applied, will cause quality to happen. This is why there is so much emphasis on the Japanese model, TQM, IS9 Kaizen, and
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such. Eut the reality of managerial life is that there is no system for anyting in business management. No or.? would discuss such thoughts with regard to finance or marketing or human resources; each requires policy, education and thought. I have over 40 years of quality management experience and I would not dream of offering one standard system for all companies to use. Why is it felt that quality alone is something that can be laid on like a blanket to warm the organisation? One recent definition of quality decribes it as delighting the customer. Doesn't that go against your Four Absolutes? Definitions of quality that are not measurable by some agreements that everyone can understand are worthvss. Those who come up with them have never had to produce quality for a living. Most writers about quality management have never actually been employed to make it happen. Customers just want what they have been promised; delighting refers to quality being goodness and is, therefore, vague and undefinable. We can't manage that way. Do you think a country's quality oriefitation depends as much on its social culture as on its industrial environmenrt? I have been in most countries in the world; in each, I see successful enterprises sitting next door to unsuccessful ones. Every nation has cultural advantages and disadvantages. In the U.S., as in India, there are many cultures woven together. Neither is one ubiquitous group. Just as we as individuals learn to strengthen our weak points and take advantage of our strong ones, so too must nations learn to do that. If we agree that our culture keeps us from competing, then it becomes a self-fulfilling prophecy. Adaptedfrom Business Today,J anuary 7-21,1995p. p. 109-1 13 Phillip Crosby is considered to be one of the Holy Trinity of Quality, the other two being the late W. Edward's Deming and Joesph M. Juran. The seventy three dd Crosby believes that quality means getting it right the first' time rather than merely laying down acceptable levels of quality. The matter in box 2.1 is based on his responses to Business Today in the course of a conversation. The first step for an organisation moving toward a quality management profile is to determine its current level of'lmanagement maturity". Crosby's Quality Management Maturity Grid depictefl in Table 2.2 is used for this purpose. Along the left-hand margin are six measures of the sophistication of an organisation's management style, including how the organisation handles problems, the attitude of the top management, and the cost of quality to the hrm. Across the top are five levels, or stages, of quality management maturity. These range from "Uncertainty" in Stage 1 in which an organisation is characterized by the statement, "We don't know why we have quality problems", to Stage S,"Certainty", reserved for organisations in which the top management can proclaim, "We know why we don't have quality problems". 0nc'e a firm has located its current maturity stage on the grid, it then implements a quality management
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Coet of Reported: Reported:S% Reported: 8% Repotted: Reported & . quality as % unknown. Actual:l8% Actual. 12% 6.5% actual: 2.5% ofanla Actd209b Actlaal: 8% Quality No organized Activities are Implements Continues the Quality imp imp- activities motivational the 14-step 14-step ~ovwnenits mat W short term programme programme a ngular and actions with full continuing unerstanding activity Summary We don't "Must we "BBcause of ma- "We %know of bw why we ahvays have nagemcnt &n- routinely why m don't Company havequality quality mitmentand prevent haw quality quality problems? problems?" quality impove- defects from problemsP sohring our quaprogramme based on Crosby's Fourteen Steps of Quality Improvement (delineated in Table 2.3). Each step is designed as a building block to move the organisation's management style towards the right-hand side of the management grid, passing through progressively higher level maturity stages - titled "Awakening", "Enlightenment", and"Wisdomn - and ultimately to Stage 5. Only at this final stage is conformance to the firm's stated quality requirements assured. A zero-defects culture - a set of beliefs held throughout the organisation that says in effect,"Do it right the first timen - is established and the cost of quality is reduced to the lowest poqible level. The Orosby Quality College A mood of intellectual progress established by the labels Crosby has given to each stage on his management maturity grid -"awakening", "enlightenment", and "wisdomn, -reinforces the role of organisational learning in his "do it right the first timenapproach to quality management. Wishful thinking will not work. Only constant, top-level effort will move an organisation toward the right-hand side of the grid. To make sure this happens, the Crosby Quality College offers a Quality Management Grid and his Fourteen Step Programme.
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". ..............................................................
". ...........................................". .
........................." . ........... Management Commitment Top management must become convinced of the need for quality improvement and must make its commitment clear to the entire company. This should be accompanied by a written quality policy, stating that each person is expected to perform exactly like the requirement, or cause the requirement to be officially changed to what we and the customers really need s~
a.
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............................. eaalfts Improwmeat Team : M .',-ent must form a team of departmental heads (or those who can speak for their departments) to oversee quality improvement. The team's role is to see that needed actions take place in its departments and in the company as a whole. $!&m3. ........................................................................................................................................................................ ... Quality Me.eurement Quality measures that are appropriate to every activity must be established to identify areas needing improvement. In accounting, for example, one measure might be the percentage of late reports; in engineering, the accuracy of drawings; in purchasing, kjections due to incomplete descriptions; in plant eQineering, time lost because of equipment failures. STJgP
4.
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............................................................................................................................................................. aboeut of Quality mutation The controller's ofice should make an estimate of the costs of quality to identify areas where quality improvements would be profitable. 8TBp
8.
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........................................"...... muty Equality awareness must be raised Gong employees. They must understand the importance of product conformance and the costs of non:conformance These messages should be carried by supervi-. sors (after they have been trained) and through such media as films, booklets, and posters. 6. ...................................................................................................... ........................................." . ......:. ..... .... ........ Correetiw Action Opportunities for correction are generated by Steps 3 and 4, as well as by discussions among employees.
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These ideas should be brought to the supervisory level and resolved there, if possible. They should.be pushed up further if that is necessary to get action. STBP 7. ........................ r.....;... ................... ". .........................................................." ............. ".... ................. Zel'o-Defeaea Pladng An ad hoc defects committee should be formed from members of the quality improvement team. This. committee should start planning a zero defects programme appropriate to the cdmpany ahd its culture. STeP
8.
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..................w......................................m...w........................................... mpe-rg TrW Early in the process, all levels of management must be trained to implement their part of the quality improvement programme. . . STEP 9. .................... ". ......................................................................................................... ". ......." . ................. .............. " B~)-DefmDttasy A Zero-Defects Day should be scheduled to signal to employees that the company has a new performance standard step 10.
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............................................"... .." – To turn commitments into action, individuals must establish improvement goals for themselves and the,r groups. Supervisors should meet with their people and ask them to set goals that are specific and measurable. Goal lines should be posted in each area and meetings held to discussprogriss. 1 STEP
11.
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................................................ lrrors Caws Bemwal Employees should be encouraged to inform management of any problems that prevent them from performing error-free work. Employees need not do anything about these problems themselves; they should simply report them. Reported problems must then be acknowledged by management within 24 hours Public, non-financial appreciation must be given to those who meet their quality goas or perform outstandingly. .
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DoIt AUOmtr Again To emphasize'the never-ending process of quality, the programme (Steps 1-13) must be repeated. This renews the commitment of old employees and brings new ones into the process. no-nonsense environment that reinforces again and again dne basic theme: zerodefect management is possible. In Quality without Tears, Crosby says, ' "The main problem of quality as a management concern is that it is not taught in management schools. It is not considered to be a management function, but rather a technical one. Howevet, with the pressure on quality erupting worldwide and the dz~cultiyn getting senior management to do something about it, it becomes apparent that a new management is needed for qualip. The . best measurement for this subject is the same asfor any other - money." The Crosby Quality College does not educate individuals per se. According to Crosby, "The College deals with whole companies, not individuals." While at this college, every action taken by the student, from the mgner in which he registers at the hotel upon arrival to ownership of problems in class, is designed to reinforce the central message: Conformance to requirements - the definition of quality - is both beyond compromise and financially wise. Despite having developed his views about achieving quality in a practical industrial environment, ' Orurngwwm=kIsrdin(Crosby's books do not deal in any depth with specialist quality assurance techniques. His main concern is the meaning of quality and its attributes, and how by coming to a common undrbtanding of what quality is, people can work together to achieve it rather than disrupt each other's efforts through misunderstanding. Crosby, perhaps more than Derning and Juran, emphasizes the need for a corporate cultural change, so that it can embed the values of quality and its improvement in the organisational process. Furthermore, Crosby emphasizes zero defects and preventive measures to attain it.
Born in 1900, and recipient of a Ph,D. in mathematics and physics from Yale University, W. Edwards Deming was introduced to the basic tenets of traditional management principles in the late 1920s, as a summer employee at Western Electric's famous Hawthorne plant in Chicago. Here the revolutionary human relation studies of Harvard University Professor Elton Mayo began to raise a fundamental question: How can a firm best motivate workers? Deming found the traditional motivation system in use at that time to be degrading and economically unproductive. Under that system, worker incentives were linked to piecework to maximize worker output, followed by an inspection process in which defective items were subtracted from the worker's piecework credits. The virtues of an equalitarian workplace are an enduring
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theme found throughout Deming's philosophy. During the 1930s, Deming's collaboration with Walter A. Shewhart, a statistician working at Bell Tdephone Laboratories, led to his conviction that traditional management methods should be replaced with statistical control techniques. Deming recognimi that a statistically controlled management process gave the manager a new-found capacity to systematically determine when to intervene and, equally important, when to leave an industrial process alone. During World War 11, Derning got his first opportunity to demonstrate to government managers how Shewhart's statistical-quality-control methods could be taught to engineers and workers and put into practice in busy war production plants. Following the war, Deming left government service and set up a private consulting practice. The State Depaitment, one of his early clients, sent him to Japan in 1947 to help prepare a national census in that devastated country. While American managers soon forgot their wartime quality-control lessons - and continued their pre-war love aff& with traditional management practices, which prized produc$ion over quality - Deming's evolving quality-control methods received a warm reception in Japan. In fact, the Japanese now credit much of their post-war industrial renaissance to Deming's statistical process control (SPC), based philosophy of quality. Each year in his name, the Union of Japanese Scientists and Engineers awards the Deming Prize to companies that have demonstrated outstanding contributions 7 product quality and dependability. In addition, in 1960 the Japanese Emperor awarded Deming with JapanJ Second Order Medal of the Sacred Treasure, a tribute rarely paid to a foreigner. Deming's prestige in his own country had to some extent wait for American industry to experience the impact of Japanese quality and investigate its sources. His own works have been supplemented and inter' preted by other writers, e-g. The Deming Route to Quality and Productivity by W.W.Scherk.e. n bach and Right Every Time by Frank Price. Having taught SPC to the Japanese, Dr. Deming turned to advising American businesses how to resist Japanese competitors more effectively. To a degree this also stressed the effective use of SPC techniques, but he was also critical of US managerial practice. He said: "The basic cause of sickness in Americun industry is failure of top management to manage. Loss qf market, and resulting unemployment, are notforeordained. They are not inevitable. They are not .?cceptable. The day is past when people in management teed not know anything about manogement - by which I mean to include problems ofproduction, supervision and training." In his book Out ofthe Crisis, Deming holds American managers responsible for causing a society-wide quality crisis: *Western style of management must change to halt the decline of Western indusfry, and to turn it
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upward -- There must be an awakening to the crisis,followed by action, managemeni's job. - . - Man can only accomplish the transformation, hardware (computen, gadgets, automation, or new machinery) cannot. A Company cannot buy its way into quality." Deming's philosophy is prone to put quality in human terms. When a firm's workforce is committed to doing a good job, and has a solid managerial process in which to act,quality will flow naturally. A more practical, composite definition of quality might read: Quality is a predictable degree of uniformity and depend ability at low cost, and suited to the market. Since Japan adopted statistical-based control techniques in the early 1950s,it has had a 30-year head start'on the United States. Deming estimated it would take American managers another 30 years to achieve the advacced level of statistical control now in wide practice in Japan. Whiie Western managers have focused on outcome and practised "retroactive management", such as management by objectives, the Japanese have perfected quality. In 1985, as quoted in The Deming Management Method, by Mary Walton, Deming summed up his indictment this,way: "Failure to understand people is the devastation of Western Management." The American quality crisis is being prolonged by what Deming calls the Seven on long-term changes that are necessary I Deadly Diseases (see Table 2.4) associated with traditional management practices. This is equally applicable to the Indian situation. I
8.4.2. Demjng's Fourteen Points
To eliminate these underlying managerial diseases, Deming prescribes his fourteen-point cure, found in Table 2.5. Both the philosophical foundation for Deming's managerial transformation, and the role assigned to statistical quality control in the execution of that philosophy, are present in his fourteen-point programme of quality management. These points are so central to his approach that Deming will not accept a new company client until its president has promised to faithfully implement all fourteen points. Halfway measures will not do. If a company is unwilling to change its management philosophy 100 percent to the Deming way, Deming passes that client by. Why? Because Deming is convinced that about 85 percent of all quality problems are caused by harmful management practices. Consequently, a CEO intent on changing the way production workers perform - without changing the obsolete management system - will, at best, address only 15 percent of the problems. 's role: Rather than expensive. In effect, a company is paying workers to make defects and then to correct them. Quality comes not from in&tion but from improvement of
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departments customarily operate on orders to seek the lowest price vendor. Frequently, thil~ea ds to supplies of low quality. Instead, buyers should seek the best quality in a long-term relationship with a single supplier for worker who was nevier trained properly. They are forced to follow unintelliible instructions. ney can't do their jobs well because no one tells them they do not understand what their job is or what is right or wrong. They will continue to do things the wrong way, or not do them at all. The ecodomic losses from fear are appalling. To ensure better They do not work as a team, so they cannot solve or foresee problems. Worse, one department's goals may cause trouble for another. 1 0 Eliminate slogans, exhortations, and targets fm the workforce. These never helped anybody do a good jub. Let workers formulate their own slogans. 1 1 Efimimte numerical quotas. Quotas take into account only numbers, not quality or methods. They are usually a guarantee of inefficiency and high cost. A person, to hold a job, meets a quota at any cost, without regard to damage to the company. 1 2 Remove barrim topride of workmanship. People are eager to do a good job and distressed when they cannot. Tw often, misguided supervisors, faulty equipment, and defective materials stand in th8 wapf good performance. These barriers must be removed. 1 3 Institute a vigorous program of education and trainin8 Both manage* ment and the workforce will have to be educated ia 9c iicw methods, including teamwork and statistical techniques. 1 4 Take action to accomplish the tranrfonnation It will require a special top management team with a plan of action to carry out the quality mission. Workers cannot do it on their own, nor can managers. A critical mass of people in the company must understand the Fourteen Points, and the Seven Deadly Diseases. sta~Prooeru,Control Identifying the Problem The rnethodol(~ica1co re of Deming's quality management approach is the use of simple statistical techniques to mntlnuously improve a firm's management processes. Only through statistical verification, according to Deming, can the manager 1) know that he has a problem, and 2) find the cause of the problem.
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Deming uses quality-control charts, like the one shown in Figure 2.1, to identify the absence or presence of a quality problem. Sinse all human activity contains unavoidable variations - that is,every product or service is slightly different from ob- a n acceptable range of "random variations" must be e~tabliishefto~r eveIy product or service. Once measurable upper and lower control limits have been set for a product or service, and a control chart prepared to reflect these limits, the workers perfarming the activity periodidly plot actual measurements on the chart. When these measurements fall outside those of the acceptable,"randorn variationn range, the worker immediately knows a "non-random" quality problem exists. Classifying the Problem's Cause I The next step is to identify the cause behind the problem. Two possibilities exist. The cause could be aUcommon cause" - one rooted in the basic management system in use and, therefore, a problem that is potentially company-wide in scope.Alternatively, the problem could be the result of a "special cause", or one that stems from a more isolated source, a few poorly trained workers in one department, for example.
Deming recommends using several additional charting methods to learn more about the factors causing the quality problems exposed in a control chart. Mary Walton, in DemingManagementAt Work sums up the crucial role of statistics this way: "Managers pride themselves on hunches and intuition. When thq, succeed, they take credit. When theyfail, theyfind someone to blame. But quality transformation rests on a dzfment set of assumptiom decisiolrs must be bhsed on facts.. ...[a nd]. . ... it is helpful to display information graphicalb" Figure 2.2 summarises the full array of Deming's chart', g techniques. Correcting the Problem The final step in the quality -management cycle is for the manager and the workers to eliminate the cause of the quality problem by taking the necessary actions contained in the fourteen points. These actions may range from redesign of a faulty manufacturing assembly line, to a one-day training course for workers to learn how to operate a new machine or how to better serve a new type of customer. Control Chart
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It provides you with an indication of stability in the process. It is a graph with limit lines to show the acceptable range of quality production.It is very helpful for spotting abnormal situations in standard manufacturA
ing processes. Control charts are used ~KI plot over time the observed output or status of a process around the mean and be&en;'pper and lower control limits. In Figure . . ..., the process condition has crossed the upper control limit. Pareto Chart At any given time there are many kinds of problems around us. It may not be practical to attack all those problem- at the same time. Therefore, arrange the problems in order of importance and attack the bigger problems first. A bar graph that shows the biggest problem on the left followed by the lesser problems is called a Pareto chart. It focusses on the vital few effects or causes. The chart is named after Vilfred Pareto :1848-1923), an Italian social economist who invented the diagram to show the distribution of wealth in a society. Histogram We produce a large quantity of products with a kieat number of parts and materials. Each of these proddcts and parts cannot have the same quality but always has some amount of dispersion or variati0n.A histogram is a graph that shows dispersion of the data. From this graph, we can analyze the characteristics of the data and the cause of dispersion. Typically, a histogram is a bar graph showing the statistical distribution over equal intervals of some measures of quality, such as defects. Histograms are used ir. analysis for stratification to create hypotheses for why defects are occurring. Flowchart It provides an example of how various factors may be interrelated in an assembly process. It provides the basis for understanding the standard process procedures, the relationships between the people, and the work to be done. When constructed accurately and analyzed properly, a flowchart can help users understand and identify process bottlenecks. (e.g., delays, excessive transportation, waiting time, and queuing time). It also identifies essential customers~uppliersa, nd process owners by operational work unit; performance level;
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quality level; and productivity at each process point. Flowcharting can also identify sources of errors, waste, non-value-added operafions, and initial steps for new products and processes. Run(trend) chart %is is the most common of all charts. It is used to plot things as they happen. The Figure shows how it might look after one day. It is very plain to see when things get out of control. A cumulative trend, usually consisting of seven or more consecutive points, indicates that the process is drifting. The pattern may be a gradual rise or fall to either portion of the cohtrol chart. The possible cause of the trend may be tool wear, lack of reagent, or a decline in human efficiedcy owing to fatigue. Scatter ~ia~r&n This technique helps to establish the relationship between two quantities. If one feels that there may be a possibility of relationship between the two quantities, it is useful to plot a scatter diagram. The variable, which is to be controlled, is called dependent variable (no. 2 in the Fig.) and variable that exercises influence on dependent variables is called independent variable (no. 1 in Fig.). A diagram such as this is often very useful because it illustrates patterns of data that are not otherwise obvious. Cause-and-effect Diagram To solve a problem, it is important to know the real causes and the interrelations among causes.You can then identify the major causes to identify the prob1em.A cause-and-effect diagram is used to guide data collection and analysis to find the root cause of a prob1em.A cause-and-effect diagram shows an effect at the right and the main causes of that effect off the horizontal axis. These main causes in turn have subcauses. and so on. . . - . --- -- ---, down the many levels. This is not basically a statistical tool; it enumerates the variety of causes rather than the frequency of events. However, it is a useful tool for noting the frequency of events, once you have the data. Professor Kaoru Ishikawa of the University of Tokyo first developed cause-and-effect diagram in the early Fifties. Since the final form looked like a fish, some people called it "fishbone diagramn; it is also referred to as the Ishikawa diagram. Boo~tingPesf0~
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While finding and curing quality problems keep a firm's activities within established quality limits, there is another way Deming uses control charts to actually boost a firm's peiformance. By narrowing the established range between the upper and lower random variation limits for an activitba firm will, in effect,artificially and deliberately, cteate, and thin solve, self-inflicted quality problems. The result is an increase in the firm's attainable level of quality. In this way, managers can plan for and implement a long-range qualityimprovement programme to stay ahead of the competition. (a) Make a :ist of problems you are facing in your plantlsegment of the organisation and use one or more charts from Fig.2.2 to identify the main causes.You may also like to involve your colleagues. (b) Once you have identified the main causes of plant problems, can you segregate them into some common causes and a specialzause? Are those related in anyway? 2.8 The &ran Trilogy Joseph M: Juran is probably the most celebrated U.S. expert on quality assurance. He is well known for: 1. His monumental, nearly 1900 page textbook, Qualify Control Handbook, and other writings. 2. His contribution to the quality achievements of Japanese industry. 3. His lectures and training courses conducted by the1Juran Institute' throughout the world. Joseph M. Juran was educated during the first quarter of this century in engineering and law. His outlook, in general, reflects a rational, matter-of-fact approach to business organisation, and one that is heavily dependent on sophisticated "shop-floor" planning, and quality control processes. The focal point of Juran's quality management phlosophy is the firm's individual product or service, not the organisation per se. By making sure the building blocks - each individual product or service - meet the customers' requirements, a company-wide quality programme emerges. Like Deming, Juran also played a significant role in rebuilding Japan after World War 11, and he also received the Second Class of the Order of the Sacred Treasure for "the development of Quality Control in Japan and the facilitation of U.S. and Japanese friendship". His search for underlying principles of the management process led to his focus on quality as the ultimate goal. Before becoming a quality management consultant and lecturer, Juran worked in both government and business organisations. He is now over 85 years old. 2.5.1 A National Quality Crisis The basic society-wide problem, according to Juran, is that industry is today caught up in a quality crisis.
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And while many managers agree with him on the existence of crisis, too few understand how to end it. Juran identifies two widely held but wrong assumptions that are preventing managers from finding solutions to The first error in thinking is that many managers have no: yet accepted the fact that they, and not the workers, must shoulder most of the responsibility for the performance of their companies. Juran's conclusion is that, until the top management redirects its energies toward planning quality into their products - rather than actually planning a lack of quality into them, as is presently the case - the quality crisis will continue. Complementing the first erroneous assumption is the fact that managers also fail to realize the great financial gains to be made once quality becomes their top priority. The result of this obsolete mindset is summarized in Juran's book,Juran on Planningfor Quality 0 Many companies are facing serious losses and wastes that have their main origin in deficiencies in quality planning process: 0 Loss of sales due to competition in quality. 0 Costs of poor quality, including customer complaints, product liability law suits, redoing defective work, scrapping of products, and so on. 0 The threats to society. . ...[ since the ability of] the products of an industrial society.. . ..to lengthen the human span; relieve people of drudgery; provide opportunities for education, culture, and entertainment.. ... depend absolutely on the continuing and proper performance of those products, that is, on their quality. Juran's QualITY The challenge facing managers, according to Juran, is to abandon the trditional approach to planning, which carelessly introduces quality flaws into the product's original design. The traditional approach depends on an inspection-and-rejection process to find and correct quality problems in individual products, without ever redesigning the planning process itself. Adoption of Juran's quality trilogy requires that a firm, once and for all, redesigns its product and service pldning and control systems and then, through an onzoing improvement programme, ensures that the basic QUALITY Management: Leading causes of quality flaws are permanently eliminated. This means a firm's planning system should contain a single, universal thought process that supersedes the particular processes used in the production of an individual product. It also requires the adoption of Juran's definitions of quality presented in ]wan on
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Which of these criteria would you identify as the most important? First, senior managers must personally take charge of leading the change relative to quality. If they try to delegate that, they will not get good i result. The second important factor is the training of the management hierarchy on how to manage for quality. Then, there is the idea of undertaking to improve quality on a revolutionary basis. Firms aroudd the world have developed processes for control of quality, fotstabiiiing things, preventing adverse change. But none ofthem has developed processes for creating beneficial change for improvements. Of course, in one sense, many companies have long had improvements - product development - which, in other words, means increasing sales. So, that has Men a strong area, especialy in companies that have an entrepreneurial element about them. But in the sehse of reducing costs and Improving processes - so that we do not take dngto meet customer needs -we have been derelict. There is a big opportunity there which has, as yet, not taken hold in the West. What are the most common mistakes that quality practitioners usually make?
go back to my first point. If you don't have leadership from the top, it must come hm the middle. That is very difficult as the major quallty problems are all multi-functional and not one function can solve them. If the symptom of a proble@ shows up in Department A, and the cause may be Department A,B,and C, it takes a special kind of coordination to solve that. Failing that, someone in those departments needs to take the leadership, but he lacks the authority. In other words, there is no legitimacy for one fdnction to go to the others. And say that we have this problem, let's put together a task-force to solve this. Because each of the other functions may say that this is something we are not responsible for. 0;rhat we are very busy. So, the volunteer who tries to do something is' forced to beg, borrow, or steal. It is made very difficult for him. That's why, often, it doesn't succeed. But if the leadership comes from the top, indicating that we are going to introduce annual quality improvements and all of us will have to include an docation for spending time on improvement. And we are going to identify what needs improving and that will become part of the company's business plan in the various divisions. It will be the duty of individuals to do so. It won't be a matter of volunteerism; it will be mandated.
Does TQM allow individual innovation? Or are the two mutually contradictory because of TQM's emphasis on systems? b First, innovation is not a matter of allowing in TQM, it is mandated that it be done. There you have a problem that is not well understood. In the West, they define jobs - what are the responsibilities' what are the duties - which is part of the rewards system. There is an annual review of the performance of individuals at which they look sideways at the description of the responsibilities of the job. Did he do
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other things that are set out in the job-description? This means that we have to enlarge the jobdescription to include improvemenis in quality. It has never been there before and must be induded so that it has a legitimate status and is not just left to volunteers. How does a company achieve, perpetuate!, and institutionalise total quality? One of the ways is to see to it that business plans are changed and opened to include annual quality goals. That, OF course, means that those goals become part of the company's business, and it must be determined how they are going to be met. Those goals are just a wish-list until convered into,deeds. And that is what follows when quality goals are put into the business plan. Adapted fbm Busfnass Rxiqy, January 7-21, 1 QQS, pp. 78-79
2.7 Japanese Quality Gurus We have seen how Deming and Juran visited and lectured in Japan at a crucial point in Japanese postwar reconstruction and how their ideas were adopted increasingly as their effectiveness became evident. Cmsby's ideas were also explored and followed by Japanese businesspersons. A; time went on, Japanese industry began to make its own contribution, until the tide turned and the businesspersons in industrialized countries began to pay attention to the tenets of Japanese thought leaders. We are going to look briefly at the work of three people -Ishikawa, Shingo and Taguchi. Each of them is now well known in the world. 2.7.1 Ishikawa Kaoru Ishikawa was a very influential person in the development of Japanese attitudes and practices in relation to quality. @e is acknowledged as the father of quality circles. He was editor of the journal QC for Supervisors when, in an editorial article, it pmposed the introduction of the 'quality control circles' in which supervisors and their workers could study and try out the statistical techniques being taught in the journal. Me remained very much involved in the QC movement. His name is probably best known in relation to the 'Ishikawa Diagram', more descriptively known as the 'Fishbone Diagram'. This was a visual problemsolving tool, designed by Ishikawa to help quality circles to formulate and examine all possible causes of the problems they were addressing. Please see Figure 2.2 for the Ishikawa Diagmm. Ishikawa was also seminal in developing the idea that bad quality, meaning wastage, had an effect not only on the business creating the waste but also on its customers and on society as a whole. This is the concept
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that Taguchi attempted to quantify in his 'Loss function'. Shigeo Shingo's background was in industrial engineering, and it is in the field of manufacturing quality that his interests and prestige lie. Several books written by him have been published in English translation, and the material presented here is based on one of them -- Zero Quality Control: Source Inspection and the Poka-Yoke System. Shingo first came to prominence in Japan through his achievement of 'SMED' (SingleMinute Exchange of Cie) in the Japanese motor industry. At that time the US auto industry would take approximately two hours, if there were no hitches, to change the die in a press for pressing out steel panels. This was also accepted as the norm in Japan. Because of the delay, inflexibility, and disincentive entailed in doing short runs of particular models, it was seen as a serious barrier to efficiency. Encouraged on learning that a similar operation only took 30 minutes in Germany, Shingo set himself to study the process and refine it as much as he could with the intent of decreasing changeover time. SMED, his final solution, was almost instantaneous. It involved a modular design of press where the die and the associated parts of the press whose alignment was critical were adjusted off-line and then replaced as a unit. lapanese technical approaches to quality in engineering, following Deming are heavily committed to statistical process control (SPC) techniques. Unusually, Shingo is scathing of overdependence on SPC. His concept of zero quality control is zero defect philosophy based on: 1. Finding where in the process, and what kind of defects are liable to be generated; 2. Utilizing 100% in-process inspection aimed at the particular anticipated fault; 3, Devising methods that prevent operator errors from occurring. It is this last aspect, which Shingo refers to as Poka-Yoke (mistake proofing). For example, if it b possible for an operator to position an item in a jig the wrong way round, Shingo would alter the shape of the jig (and, if necessary the item itself) so that disorientation became impossible. The cited book illustrates numerous examples of Poka-Yoke devices with which Shingo has been involved. In the great majority of cases they are concerned with manually loaded or fully manual assembly operations, and make use of sensors such as load cells, photoelectric cells and microswitches to detect if an operation has been prepared incorrectly.
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Genichi Taguchi is perhaps the best known, and currently the most fashionable of the Japanese personalities. The 'Taguchi Methods' of applying statistical theory to manufacturing problems have raised a controversy; their attraction for many people as an engineering tool is being counter-balanced by statisticians critical of their validity. Here we do propose to p into the technical aspects. The controversy relates to Taguchi's procedures for the statistical design of experiments in furtherance of process optimization; the objectors claim lack of rigour, lack of originality, lack of accuracy and lack of efficiency. Against this should be put the fact that many more engineers have been trained in and use Taguchi methods than ever exploit=A the techniques when taught in the t~aditionawl ay. More relevant here is what Taguchi says about the wider implications of quality assurance: I. Total loss to society: An important dimension of the quality of a manufactured product is the total loss to society generated by the shortcomings of that product. Taguchi's definition of quality is 'the loss imparted to society from the time a product is shipped'. In Taguchi's view loss can be one of two things: either loss caused by variability of function (of the product), or loss caused by harmful side effects. This is an unusual definition, first, in that it defines quality in a negative sense -- lack of quality. Second, that it only measures the impact of the finished product Taguchi does not include avoidable costs, wastage, and pollution occurring within the manufacturing plant and passed on to the consumer. How does Tquchi visualize the loss to society? His measure of quality is essentially its cost. An illustration from one of his books provides a simple illustration. Taguchi draws on the example of an imaginary crease-resistant shirt. Suppose, says Taguchi, sending a shirt to the laundry costs 250 Yen, and the shirt is washed 80 times during its lifetime, then the lifetime laundry costs for the shirt are 20,000 Yen. If a new kind of shirt could have been made that soiled and wrinkled only half as fast, the buyer would save 10,000 Yen on laundry bills. If the new shirt cost 1,000 Yen more to produce and sold for 2,000 Yen more than an ordinary shirt, the manufacturer would gain 1,000 Yen and the consumer 8,000 Yen, from this saving in quality costs to society of 9,000 Yen. Not only that, hto mit/ting half the laundering w~oducaen e nvironmental benefit to the society in terms of less quantifiable but real savings in energy to heat the water, reduced release of detergents, and less noise. There are clearly problems in applying Taguchi's approach as a basis for decisions. The environmental. benefits wo~ldb e hard to quantify, and who decides what is the appropriate 'profit-sharing'between shirt manufacturers and the society as a whole? Should the manufacturer set the price difference between the
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standard and improved shirt at 1,500 Yen and so offer society a saving of 8,500 Yen? Or would the market accept a premium of 4,000 Yen; the consumer would still save 5,000 Yen over the life of the shirt, and the extra profit would encourage research into additional 'environmentally friendly' products. Taguchi's definition is nevertheless a very helpful way of looking at an organisation's responsibilities towards society, and how it can express its environmental policy. 2. Staying in business In a comparative economy, continuous quality improvement and cost reduction are necessary for staying in business. A quotation from a Japanese businessman forms an apt commentary: A business should quick& stand on its own feet, based on the service it provides to society. P@ should not be a ref2ection of corporategreed but a vote of confldencefrom society that what is offered by thefirm is valued. When a businessfails to make profits it should die - it is a wacte of resources to society. (A.Takahashi, Matsushita) 3. Incessant reduction in variation: A contiwous quality improvement programme includes incessant 4. The customer^ loss The customer's loss due to a product's performance variation is often appimately proportional to the square of the deviation athe performahce characteristic from its target value. Traditional inspection: acaptance of product within the specification tolerance, rejection of product outside the tolerance, encourages us to think of quality as an all-or-nothing thing. You have it, or you don't have it; pass or hi]. Taguchi's approach follows on from his point 3: the closer an item is to its design value _the better it will work regardless of where we put the specification limits; and the more closely we control &variation the more we can improve the product. 5. DcJign and mam&tum The final quality and cost of a manufactured article are determined to a large extent by the engineering design of the product and it's manufacturing process. Product design and process design play crucial roles in the success of the product. The dominance of just a few companies in high-technology fields is due to their successful combination of product engineering and process engineering: designing for manufacturability. 6. Reducrion of petfonnance variation: Exploiting the non-linear eqects 01 the product (or process) parameters on the performance characteristics can reduce a product's (or process's) performance variation. An illustration of this is the non-linear performance characteristic of a transistor. Designing a circuit to operate at one part of the characteristic will produce a much more stable output than operating at another (Figure 2.7). 7. StuMcallypfunned experiments: Statistically planned experiments can be used to identify the set-
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9ullcr-t:Lrayreduction in the variation of product performance characteristics approximating to their target value. A high qudity product performs near the target wlue cons'istentlylthroughoutt he product's life and under all different operating conditions. parameter-.Setting tings of (ad process) parameters that reduce performance variationTagu&i has developed an original approach to setting Up statistically planned practical to optimize product or process design. 2.8 Critical Comments 2.8.1 Comparative Assessment Of American ww Before comparihg the specific quality management approaches of ~rosbyD, eming and Juran, let's first lace the ideas of these innovators into their larger, societal framework. As a group, they are all advocates of the need for a greater commitment to quality in the workplace. But each holds a somewhat different view of what causes the quality vacuum. Table 2.7 attempts to identify the genesis or the root causes of the quality challenge facing the world. Of the three, Crosby tends to locate the roots of the problem within the firm itself. Juran and Deming, on the other hand, seem to trace company-based quality problems back to the values found in the general, post-World War I1 society. Common Ground:I n many respects, the variousCQualityF irst' approaches of these leading thinkers are far more alike than they are different from one another. Each approach: Requires a very strong top-management commitment. Shows that quality management practices will save, not cost, money. Places the responsibility for achieving quality primarily on the managers and the systems they control; not the workers. Stresses that 'Quality First! is a never-ending, continuous impro.fement process. Assumes a shiff from an old to a new organisational culture. 1s founded on building a strong managementlworker problem-solving team. Nevertheless, the differences do matter. The differences among the approaches, then, will most influence a manager's to adopt portions of One Over the other. Lefi Compare and contrast Crosby, ~~~i~~ and Juran on a number of key issues in terms of balancing the strengths and weaknesses of each approach.
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Unit-III Building Blocks of TQM Objective After reading this unit, you should be able to: 6 comprehend the cornerstottes of TQM; e understand the belie$ of TQM; 9 explain why TQM has become so popular; + observe the stumbling blocks of TQM; + appreciate the key success factors - that we need to mak TQM work; and + examine the two important building blocks - PDCA and Kaizen Btrum
3.1 Introduction 3.2 Total Quality Management Cornerstones 3.3 Total Quality Management Beliefs -1Y 3.4 What Stumbling Blocks Should the TQM Manager Know About! 3.5 Why Has TQM Become So-Popular? 3.6 Key.Success Factors -What We Need To Make TQM Work. 3.7 The PDCA Cycle 3.8 Kaizen 3.9 Conclusion 3.10 Key Words 3.1 1 Self-Assessment Questions 3.12 Further Reading References
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3.1 Introduction Changing an organisation from a functional type to a process improvement one is indeed a significant event. For years,organisations were designed around functions. In fact, as an organisation grdws,more and more functions are created. Organisation structure based on functions leads to a very comfortable work environment where challenges to improve tend to be ignored. Once the functions are outlined, rules are developed, and policies are implemented, there is little need for creative thinking. Attempt to untap the brains of front-line workers is one of the most difficult challenges facing today's organisations. The question is: how do we get people involved in making continual improvements in the processes that they manage on a daily basis? In the first two units of this part we familiarise you with basic concepts and approach of TQM. In this unit, we intend to gutline the foundations, the beliefs, and the key factors that are critical to the successful implementation of TQM. The stumbling blocks to TQM are also identified. Why has TQM become so popular is explored. Later, the two important building blocks of TQM i.e. PDCA and Kaizen principles, are explained.
3.1 Total Quality Management Cornerstones The thoughtful (approach) on total quality management covers the following cornerstones': 1. A TQM system of management must begin and end with its customers. 2. Management decisions should be based on facts. Accurate and meaningful data can lead to appropriate decisions. 3. Thinking about improving processes should become a thing of daily life. 4. Partnerships with suppliers, customers, and other organisations should be encouraged and worked out. 5. Empowerment i.e., the authority to improve the processes, should be granted to the workers. Some organisations may not be willing to focus on meeting or exceeding customer expectations. Some others may not be willing to gather, analyse, and make decisions on accurate data. Some companies may not be recognised to accept process improvement (no matter how small) as something that is important or not willing to develop partnerships and linkages with their processes. They may be willing to empowsr frontline workers to improve the processes. Total Quality Management will not work in such organisations. On the other hand, there are companies that actord high priority to meeting or exceeding customer expectations. They let data dominate decisions. They believe in making incremental changes, and in i \ developing partnerships with those who in some way are linked with the organisation and its processes.
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They further believe in people empowerment? Such companies are most likely to use TQM approach. We shall now examine the management credos that are essential for TQM to take root in an organisation. 3.3 Total Quality Management Belief A belief is a habit of mind that implies placing trust or confidence in something. Vital to Total Quality ~managements a set of beliefs that should be developed if an organisation decides to adopt and implement Total Quality Management. An organisation considering TQM should first examine the fundamental tenets underlying TQM. If management does not embrace these beliefs, then it is difficult to implement a successful TQM initiative. Many organisations that attempt to implement TQM fail because management fails to adopt a new set of beliefs. It is practically impossible to make TQM work when management hangs on to old top-down, meet-the-quota-or-else mentality, and believes that the best way to make production quotas is to tell everyone what to do and if they dori't do it, find someone who will do what they are told. The TQM initiative is built upon the following beliefs: Belief rOo. 1: People Are Untapped Beacnmas People who work in an organisation ap the organisation's most valuable resource. Traditional organisations have often stated that people are its grbtest resource, but believe that "If people would just do what they are told to"; the organisation would be effdctive. In the 1950s through the 1970s, many organisations in the West relied on technology for advancement. The goal was to have technology replace the worker. Technology can replace workers who are hired just to 40 one task. For example, there used to be manyebrain dead" jobs in industry. For eight hours a day, a persoq would move just one part, e.g., a piece of sheet metal or a door handle or a fender, from one place to the other. No thinking was required. Obviously, it would not be long before technology would replace this person because of the simplistic nature of the job. Today, because of the advancement Qf technology and the advancement of modern management systems, workers are seldom hired just to do one specific task. Rather, people are asked to work in teams to use their brains to make improvements in the process. Rather than treating workers like robots, management must find ways to untap their braiqs so that individual abilities and skills can be maximized. TQM is a management system that allows people\ to use their brains to improve organisational processes. If managers believe that the utilization of brains belongs only to top management, then they should not adopt TQM. If however, they believe thatlall employees, no matter at what level of the organisation, can make a significant contribution, then TQM is an excellent management system. It is our experience that
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most workers, even with a lack of financial incentive, appreciate the opportunity to use their brains. Belief IQo. 8: Peopk Who Do the Work Are in the Best Poeitdafi to 1mI)m organhtioPP1 Processes For years,management thinking was that tHe empioyees were just meant to work. It was management's job to figure out how to improve the system. Coqsequently, managers would spend their time planning, organizing, directing, and controlling their employees. Managers spent most of their time trying to control people. They believed that if they controlled peogle, then they were successful managers. On the other hand, in Total Quality Management, the manager's coocern is supposed to be with the process, and not controlling people. In fact, there is less need for managers' traditional role in a TQM organisation because workers let the data derived from the process control theit actions. Who knows the job better than the individual doing it? Who else sees problems or potential problems better? The workers, and not their supervisors, or top executive far away, are in the best position to iinprove work. If a team, formed with members who are clos*to and work on the process, are allowed tq meet an hour a week to make improvements, the process would run far more effectively. For a team to be effective, however, they must have accurate data based on the quality indicators that are measured. If managers can tap the brains of the people closest to the wdrk, then the processes will be successful. Belief Ie. 8: Continual Improaement Traditional management in western culture is largely focussed on innovation, or in today's language, "reengineeringmo r "reinvention". ~dvocateso f innovation management speak of dramatic large step innovations. In TQM we respect this way of thinking; we believe that the most effective way for an organisation to improve is to make continual improvements. We advocate incremental changes, small steps over time which are rewarding for the organisation. We believe that if an organisation would incorporate its customers as the driving force and focus on continual improvement of its processes to meet or exceed customers' expectations, a quality organisation would evolve. The top management provides the vision, the mission, and the guiding principles. The workers, through continual improvement of their processes, meet or exceed customer expectations.
Belief No. 4: Values Drive Behavim Values are what ought to exist in the workplace. Values are concepts that have relative worth and importance to each individual. For society to live cohesivelyltogether, people must share values. When people
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have conflicts, they often result from a difference in values. We believe that an effective organisation shares similar values. We believe that these values should be published, role-modeled, and used to select people who are entering the organisation. For example, a government organisation values in general diversification of its workforce. If an individual does not value diversification, he should understand that working in a government organisation may not be suitable from the view point of his background and preferences. Values serve to notify all employees of proper behaviour. Therefore, managers themselves have to role model the desired values and not spend their time controlling other people's behaviour by coming up with their own set of values. Traditional management allows the manager to set values as to what is impo~tant so that he may use these to control others. For an organisation to be effective, a set of values must serve as guiding principles. Though the primary set of values adopted by an organisation directs behaviour in the organisation, employee may add their own to this. Some managers reject the concept of organisational values because they like to control people using their personal value system. Organisations should not tolerate such managers who violate the values of the organisation. For "total" quality management, some core values are necessary. Managers should not be allowed to impose their own personal values as those of the organisation. People working in the organisation including everyone from the top executive to the front-line worker are expected to share and respect a common set of values.
Belief No. 5: Prevention As Oppo6eU To Detection In TQM, it is believed that the best investment is the one thatprevents problems rather than detects mistakes. Too many organisations have quality control divisions whose job is to inspect end-quality. The quality department may send defects back to the'manufacturing department, (which usually complains that if it had been designed right, it could be built right) or the quality department itself repairs the defects. Errors are frequent in organisations. Sometimes customers detect these errors, and sometimes these errors are found out interna1ly.According to Deming and Juran, 85 percent of errors are system errors and On\y fi percent can be attributed to worker error. The focus of Total Quality Management is on preven-
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tiou, and we believe that if an organisation improves its management systems, it can prevent mistakes in the system. Belief No. 6: Organisation-Wide Involvement and Comdtment From top to bottom, everyone in the organisation must be involved in Total Quality Management-Not only the top management but everybody should believe in the TQM initiative. It should be everyone's responsibility to work for making contin~~iamlp rovements in the processes of an organisation. In a TQM organisation, you don't leave your brains on the door while you enter the workplace, rather it is brought to work along with you and is required to be used. TQM is not a management method that can be selected for use by specific managers. It is an organisation-wide commitment that is required. For years, managers required loyalty as their primary value. They wanted people who were only loyal to them. Since so many things in organisations were done secretly, loy'alty was required. Managers did not share data, but rather kept it to themselves, interpreted it, and took action. The subordinates were supposed to make the manager look good and, in turn, the manager would give them raises. Managers built their own teams and expected loyalty. The managers in turn worked on similar lines. In a TQM organisation, loyalty is to the organisation and not to a specific manager. Organisation-wide values drive behaviour, and the system is an open system vhere data flows openly and each worker has access to the data. I,eaders must nwalk the talkn and demand that quality be the most important component of all work. Managers and supervisors have to embrace the above six principles of TQM and only then can they persuade employees to accept the TQM techniques or motivate them to actually use them. Is it likely that the history of not having been forced to compete may have created a mindset in Indian companies that is opposed to embracing quality practices? How significant a hurdle I could such a mindset present? I Miadset is.a very difficult thing to change. I think the official name is cultural resistance. And that's a very powerful force. It relates to the way people are brought up as children. In a place like India, you have a culture that, in many respects, has sharp differences with the West; to the point where many are absolutely mystified by some of them. They think they are superstitions. But they don't realise that some of the things that they do look like superstitions to people from India. And, in some respects, the superstitions of the West are greater than the superstitions of the East. That applies fully to trying to introduce change in a company where you have numerous cultures. Product development engineers have a culture different from that of the finance people and the like. Each of them has been subjected to brain-washing, if you want to call it that. Each of them develops what anthropologists call a pattern of culture: a selection of beliefs and habits and practices, things
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they must do - the rituals - and the things they must not do - the taboos. Those elements of a culture are developed fop logical reasons to'create law and order, to explain . mysterious things, to defend society from adverse ideas. And because those elements have value, they are perpetuated. So, the new children born in the village, or the new recruits in this department, are taught that this is the way we do things. And if they don't accommociate them, thing get very unpleasant for them. So, when new ideas are offered to that culture, even those benefits and ideas are going to be examined to see how much damage they do the culture, what price has to be paid in cultural values to accept these benefits. This is not understood well by managers. You see, the school curriculum that managets attend - whether they are engineers to business school graduates or financial graduates - does not expose them to this concept of culture, which they will discover after they get out and try to introduce change in actual people. What can India do about the perception that the quality of its products are shoddy? The Japanese had exactly that reputation over here prior to World War 11. Japanese products were regarded as shoddy and, of course, our people would not buy them. Actually, their weaponry was competitive with the West's, but their civilian goods, which they exported to the West, were not competitive. So, after the War, when Japanese companies tried to convert to civilian products and tried to sell them, they discovered that they were handicapped because of their national reputation for shoddy goods. When companies cannot sell products, that message goes directly msenior managers. So, they took charge for the purpose of making it possible to sell their products globally. So, is it possible to change perceptions about quality? Absolutely. But many Indian companies have already achieved top quality. Yes, several Indian companies have got ISO-9000 certification.. . . Wait a minute. That is an entirely different issue. Certification for ISQ-9000 does not mean that a company has become a world-class company.. .. It has merit, but what it tries to do is to define a system for control, not for improvement. Those are two very different things, and you need both. Control is avoiding adverse change and improvement is creating beneficial change.. . . Are you suggesting that ISO-9000 can hamper quality? Is it actually doing that? It is, it is.. ... That's exactly the danger and not just in India. In Europe, there has been clever selling done by the standards organisations. As I mentioned, ISO-9000 has some benefits to ii. And the system is a sensible system and some very competent people were on the committee that produced that system. But it is limited to control. I It has reached the point where as a marketing matter,you have to get certified. You see, there is no legal requirement that you must be certified. It is purely a marketing requirement. So, the Europeans are all going to get certified. But that, by itself, wiil not bring them quality leadership. And I think that
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by thd end of decade, they are all going to have a big letdown.
at do you tell CEOs about 190-9000? I tell them,okay,go ahead,andget that certification. And now that you have solved that marketing Adapted from $usiness Today, January 7-211, 1995, pp. 79-81 Activity 1 You arv a supervisor or manager in an industry or service organisation. Examine the beliefs that are missing ambng your colleagues and how it is aqfecting their efficiency. Sl~ggest steps that should be taken to inculcate them and enumerste the benefits.
What Stumbling Bloeks Should a TQM Manager Know About? LikeTnost other management approaches, TQM works better in some places than others; it looks right to some people and wrong to others. It has failed Cn many organisations. To be realistic, therefore,one should be aware of when and where things can go wrong. The following are the major obstacles to be avoided: Overselling TQM •
Setting mediocre expectatiow
•
Poorly or inadequately diagnoshs the situation
•
Failing to train personnel I
•
Making continuous improvement too compldx and unnatural
•
Failing to recognise and celebrate successes
•
Some other stumbling blocks are also worth keeping in mind: failure to make organized labour a partner
•
in the pursuit of TQM, lack of clarity about why the organisation is going in a particular direction, mixed
signals from the top management, failure of some teams to "jell", and many others, some of wh~chm ay be out of one's control. We will now briefly examine the more common problems. Overselling TQM It is easy to get excited about TQM; there are greak stories to tell about how this approach to management has transformed some organisations. When you hear these success stories in a congenial group, it is natural to catch some of the enthusiasm. There is somkthing very appealing about a fresh approach in a work
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setting that has become dull and routine. When we are enthusiastic and our colleagues or subordinates are skeptical, there is a strong temptation to overseu - to minimize the effort required, to exaggeGte the benefits, and underestimate the time required to get the system working. Even if we succeed in allaying their doubts, we pay a high price in terms of credibility when our predictions fall short.
Setting M&ocre Brpeotations This is the other side of the coin: introducing change so gradually that it almost seems like business as usual. If you ask me to increase my productivity by 10 per cent, I can probably do that by working harder. However, if you double my goals, I have to reexamine my procedure and create a new one. One essential objective of TQM is to encourage people to take a fresh look at the systems they are using and to develop better ones. Poorly or inadequately aiagnoeing The Present Situation TQM would not work everywhere and the landscape is littered with what some people euphemistically call "false starts". Since TQM is a major cultural change, the decision to go with it should be carefully considered. The most critical element, of course, is the solid commitment of top management. TQM requires vision and the confidence that an initial investment in planning and training will pay off in the long run, if not immediately. In addition to having support from the top, you will want to ask some questions from your own team: How do they react to change? How much confidence do they have in your organisation's leadership? Which aspecis of TQM will make the most sense to them and which will be the most puzzling and threatening? What particular competencies will they have to learn? Bailing To Train In some organisations TQM has been launched so rapidly that the training programme has been started only after people have experienced failure. If workers are expected to behave differently, they have to be trained.-They have to feel comfortable with new procedures and understand their significance. We all like to feel competent and confident, on top of oar jobs. It is na'ive to assume that even bright workers know how to solve problems systematically, or function effectively in groups. Making Conthuoue Improvement Too Complex And Unnatural Although continuous improvement (Kaizen) is a new phrase in the management lexicon, in some sense it just represents a philosophy that good organisations have always followed. The elements of a continuous improvement culture already exist. TQM managers simply highlight and sharpen this process so that it has more power to shape behaviour. They set measurable goals and plot their progress for meeting these goals. Behaving Inwnsbtently Most of the TQM wotds and concepts make sense: empowerment, quality, and teamwork. However, people in organisations have heard golden words before and too often they have been disillusioned. Zxecutive sometimes use these words in speeches and newsletters to inspire the employees and glamorize what may
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be a drab and routine experience. In most organisations, however, those who are not executives take the words with a grain of salt and watch for actions. The slogan "walk your talk" has been popularized in the recent past. Words and deeds must match. Failing to check on whether a target has been reached, ignoring a worker's sug~estiono, r handling a customer's complaiht in a cavalier manner - any of these will undermine confidence in the whole process. Failing To Beco and Celebrate Successes Few things are more discouraging than to have one four special efforts ignored or taken for granted. If we are responsible employees we do the best job we can. We do not usua!ly expect or demand anything more than a pay check, buf when we da get more recognition, it energizes us, It makes us feel differently abw ourselves and the organisatiqn we serve. On the other hand, if we or our team succeed in solving a problem or setting a new record ofproduaivity and the effort goes unnoticed, we think twice about putting ourselves out again. The disappointment is deepened, of course, if someone else gets the credit for what we have done. Successful TQM managers make a special point of letting their colleagues know how much they appreciate the goals that are met and the breakthraughs that are received. One of the besttested principles of psychology states: "Behaviour that is reinforced tends to be repeatedl'when people do the right thing, let them know it - and let them also know how valued they are! The biggest reason why the imprbvement techniques developed so far have not readily taken root in the workplace is encapsulated by the comment of one manager, who lamented,"~e understand them, but for some reason or other,we can't do them."This mmment arisek from the mistaken notion that if you understand something, you ought to be able to do it. Understanding a technique intellectually, however, is very different from actually being able to apply it. We can understand something by reading about it or listening to a lecture on it, but we must approach it in a totally different way if we actually want to practice it. When we watch a cricket match on TV, we might be able to understand how Tendulkar can score a sixer, but this would not mean that we could immediately go out and do it ourselves. Before we could do it, we would have to put in an awful lot oftpractice. It is the same with manufacturing or service improvement techniques-to cqiablish them in the workplace, you have to get people to practice them as well as understand them.
Activity 8 What ire the obstades to implement~ngTQMin your organisation? How do you propose to tackle them?
3.5 Why has TQM Become so Popular? New managemeput a;,proac?~es are often greeted with a combination of hope and scepticism. As management
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becotnes more complex, we are all looking for some system t?lat will suddenly illuminate our confusing world and show us t?le way to get things under control. In the early years of the Industrial Revolution~'~scic~~timfiacn agement" offered a precise systematic way to increase efficiency and productiv. ity. Then "human relations" and "democratic leadership" seemed to be the approach to enlist the cooperation of workers. Management by objectives promised to ensure a better understanding between a boss and his subordinates and to elicit greater worker commitment to do the job right. Now it is TQM that is in the spotlight. e executive who does not know about TQM is just not with it. Seminars, books, journals, and it in front of us. It has highly enthusiastic proponents and many vocal critics and cynics. It is regarded by some as the only route to organisational survival and by others as just the latest fad in management. When experienced managers tell us that they are enthusiastic about TQM, they generally cite one or more of these reasons: a It has a proven track in some very successful organisations. a It combines and integrates many management approaches with which we are familiar. a It is consistent with values we admire. Let us examine each of these briefly.
Many Indian companies have adopted TQM as their mode of operat~on- Larsen &Toubro Lt&, Bhilai Steel Plant, WIPRO, ITC, Vikram Cement, TISCO - to name just a few. Some of these comyaniesbgan to take TQM seriously when they saw that they would lose significant market share in the European countries unless they go for IS0 9000. The creation of the Rajiv Gandhi National Quality Award in 1992 gave further impetus to the quality movement. In the U.S.A., this had happened in a big way. In May 1991, the U.S. General Accounting OfSce undertook a study of companies using TQM. Their report' conduded,"Companies that adopted quality managecg
LN./aneTwJ< -L> eadership Scientific Management
ment practices experienced an overall improvement in corporate performance. In nearly all cases, companies that used total quality managemebt practices achieved better employee relations, higher productivity, greater customer satisfaction, increase! market share, and improved pr~fitability.~
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TQM Is Consisteat With Values We Admfre Perhaps one of the most attractive aspects of TQM is that it is based on a very humanistic set of values. It begins with the mandate that our responsibility is to serve the customer as fully as possible. To do that, we must listen to, and understand, the customer's needs.TQM then encourages us to work collaboratively with I others - to be good team members. It asks us to set goals and systematically assess our progress toward them, and then to keep on improving! It also transforms problems into learning opportunities. Who can quarrel with any of these? It almost seems as if TQM demands that we behave on the job in an idealistic fashion. We may not always be able to live up to these expectations, but it is hard to argue with them. We believe that these underlying values and beliefs are part of the power that makes TQM so attractive to many executives, managers, and workers.You can argue about its realism and practicality, but you cannot argue with its guiding values! In this section, we have examined why TQM has become so popular these days in India.The reception of Indian goods and services in world markets is critical to the wellbeing of the Indian industrial enterprise. Process improvement and innovation enhance a positive reception, which are achieved through the improvement of quality. Some Indian industries have already realized considerable success through practising TQM. Many management principles have culminated together in this. In addition, the values we admire are found in TQM practices. ' Activity 3 Enumerate the reasons why you are interested in the study of TQM:'
3.6 Key Success Factors-,What we need to make TQ1V)t Work? We have outlined the foundations and beliefs that are critical to the successful implementation of Total Quality Management. We have also examined some of the obstacles in TQM and the reasons for its yopularity. However, TQM does not come with a guarantee. The Rajiv Gandhi National Quality Award for industries and service organisations identifies some of the outstanding successes of TQM. In some organisations where TQM efforts have fallen short of the expectations, it has been abandoned. What factors seem to make the difference? We have dealt with some of them previously in our discussion of stumbling blocks. The key success factors f~TrQM are listed below and then discussed briefly: Clear Aims and Objectives of TQM Support and Commitment of Top Management Suficient Time to be Devoted to TQM - Resources for TQM ,.sonal Qualities. Careful Analysis and Planning A Steering Group to Manage Change Adoption of an Ethical Apptoach
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Clear dinu and Qbjeativer of TQM You should know your goal. Why do you need to change? Do you want to empower staff, reduce defects or improve customer loyalty? If you know what you are seeking, you can organize the TQM programme to achieve your aim. Without a goal, your programme will lack direction. BtrUaind--ofw Support and Commitment of Top Management This ia an essential condition for TQM success. TQM is a major strategic process that must come from the top of the organisation. Before people in the middle or at the bottom can be convinced of change, they have to be certain that this is a serious transformation. It is not the kind of programme that the CEO can launch with a single speech and then delegate to a junior, while concentrating on the test of the organisation's bu,*' mess. Senior managers who have risen in the organisation because of their particular style of management are not likely to abandon that style unless the top person makes it absolutely clear that TQM is to be the defining guideline. Where this support from the top is lacking or perceived to be only token, the effort is likely to fail.
what might be to become a TOM faults
Courage To stick to a difficult task aarefulAnaly8i#
mbPlurnfne careful job of assessing the organisation's r4adiness to accept and embrace TQM is necessary. The top management sMask itself several quedtiqns before launching the TQM venture. They should begin with very basic questions: What are our values3 What is our mission? Who are our customerk? Who are the stakeholders in our orghnisation, i.e., the people who are affected by what we do and who have an impact upon us? What are our strengths and weaknessts? Who are our competitors? What kind of organisation do we want to become? Careful, thoughtful preparation will significantly increase the chances of building a rota1 Quality Organisation.
Btesring QmptoManage -0 Successful TQM change efforts involve a team o( top executives in planning and guidance.The existence of such a steering group will reassure people thrdughout the organisation that this is noi just another yrogramme, but a serious permanent change of direction. It will also be the best vehicle for assessing the pace ~f the change effort and deciding what resourcds can be devoted to it. With this kind of steady guidance, the chances Mr successful organisational changd are significantly increased. -
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You will need a structure like the one shown in(Figure 3.4.This has a number of elements,with the quality facilitator being one of the most important. The person will have day-to-day responsibility of TQM. He will not 'manage' it, because each individual must make his own contribution. Above all, the departmental managers must create an atmosphere of total quality in their own areas. So the facilitator (sometimes known as the coordinator) will simply remind, advise and encourage staff about TQM. He will also guide the project teams. The facilitator needs to have sufficient seniority to persuade others to adopt TQM. A formal job description should be written,outlining his authority. In a small organisation the facilitator will report tovhe chief executive. In larger organisations, he might report to an~therm ember of the board. Whoever has responsibility must be committed to the success of the project, and must be at the company's top level of management. Otherwise, the TQM programme will not receive the resources and authority it needs.
Adopt on Ethical Approaah TQM is based on fairness. It requires the firm to satisfy its customers, and to be honest and open with its employees. That means the firm has to be ethical. Every firm, like every human, has moral failings. Before a TQM programme starts, the company should carry out an ethics audit, and draw up an ethics policy. The ethics audit should cover relationships with the government, customers, suppliers, staff, and the environment. It may relate to tax evasion, bribes, and forming cartels. Policies on offensive advertising and environmental management might need to be formulated. In this section, the eight determinants of success of TQM in an organisation are considered. Top management should have clear objectives. They should give full support with time and resources and have personal qualities, A steering group has to be formed to plan the activities. Above all, TQM is not a tool, but a philosophy of worklife, requiring an ethical approach. rnfvity 4 You are appointed as the Coordinator of the Steering Committee in your organisation to introduce TQM. What are the factors you should look for succeeding in this new position? 3.7 The PDCA Cycle The basic Plan-Do-Check-Act (PDCA) cycle was developed by Shewhart and then modified by Deming. This is a continuous improvement chart that is widely used in Japan to describe the cycle of control (Figure 3.5). Proper control starts with 'planning', 'does' what is .planned, 'checks' (studies) the results, and then applies any necessary corrective action. The cycle represents these four stages - Plan-Do-Check (Dr.Deming later replaced "Check" with "Studyn)-Act - arranged in circular fashion to show a continuing cycle. Thus a never-ending circular management process is envisioned. The elements of the control cycle are:
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P: establishing a plan or standard for achieving your goal. D: enacting the plan or doing. C: measuring and analysing the results, i.e., checking. A: implementing the necessary reforms when the results are not as originally planned. rhese four steps - plan, do, check, act (PDCA) - make up the control process. None of these individual steps alone is control, and-control is rather the linking of these steps into a continuous procedure. Each step of the PDCA cycle must be gone through carefully for effective control: 1. First of all, a' reasonable plan for achieving your goal must be set up. This should be done dth the understanding that your very first plan is unlikely to prove the most effective and will probably have to be revised later. 2. The next step is to carry out the plan. 3. This is followed by a review of what has been done. The important thing here is to clarify what results
will be measured, how they will be measured, and what standards they will be compared with. These decisions to set up what are called control items are essential for effective control. 4. Finally, changes and improvements ate made based on the results achieved in the preceding step. Improvements should only be made within the limits of the authority (which implies that your job parameters be clearly defined). Any major changes or improvements that can only be made outside your own job. A major change in manufacturing procedure, should be reported to someone who is in a better position to see that this change is implemented. Likewise, failure to implement required changes that are within your authority is a failure to fulfil your own job responsibility. Effective control requires that responsibilities and authority be clearly defined, and that there be enough flexibility to change plans and standards as necessary. Repetition of the PDCA circle leads to more effective planning and more efficient control. Juran further divides the PDCA control steps into seven sub-steps as follows: 1. Choosing the control subject, i.e., selecting what is to be regulated. 2. Choosing a unit of measure. 3. Setting a standard value, i.e., specifying the quality characteristic. 4. Creating a sensing device, which can measure the characteristic in terms of the unit of measure. 5. Conducting actual measurement. 6. Interpreting the difference between actlsal and standard. 7. Decision making and acting on the difference. Juran stresses the need at the planning stage to set standard values and clarify the methodology that will be used to detect and compare these values. It is also important how the CA, control and action, processes are to be carried out. It is always important to clarify which of the 5-Ws and 1-H (who, what, where, when,
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why, and how) will be the control standards in any specific case. Please see Table No. 3.1. These are called control items and the chart listing them is called a control chart. Control items within each job type are called job-specific control items. In addition to defining the control items peculiar to your job, you should decide which control items yon will use to check on whether your subordinates have understood your directives correctly and are carryihg them out effectively. This is something that should be discussed in detail with both superiors and subordinates for thorough and effective control. Too often, employees do not know what is expected of them or what they should be reporting on because top management has failed to specify its control items. It is also common for top management to issue directives without having thought them through thoroughly, which can cause confusion and makes it impossible to act in a real emergency. Control standards should be made explicit. The planning in the PDCA cycle is not something abstract that you do in your head. The first step is to identify problems, look for their causes, and devise means of rectifying them. This is planning. In this context, the PDCA circle should more properly be called the CAPD circle, since the first step is that of looking for problems and identifying their causes, in other words, checking. Of course, planning is much more than simply eliminating current problems. It also involves foreseeing likely future problems that mav be created bv a chaneine environment and devising wavs of staving them off before thev occur. The action in the PDCA circle is action to correct causes, not effects. For example, in one plant it was found that a certain synthetic material was abnormally hard. After the problem was traced back to an incorrect combination of raw materials, the correct proportions were restored and the problem solved. This is what is meant by action. In another example, a certain process has maximum and minimum temperatures. Adjustment, in other words control, is required to ensure that the process temperature stays within these limits. It is simple to correct deviations automatically with a rheostat or a pressure valve without ever investigating what caused the temperature abnormality in the first place. The ease of this kind of automatic control does
, mean that control management i$ unnecessary. Even though adjustments are made to keep the temperature within the acceptable limits, the cause of the problem may also cause other problems and it needs to be investigated and corrected. This is the CA of the PDCA circle. From another angle, the PDCA cycl$ can be seen like this: At the requirement stage, the cuqtomer is given priority. The customer asked for his nee&/wants, so that they can be incorporated at this initial stage. A specification is detailed, then designed and finally implemented. There is scope to return constantly to the documented requirements, indeed to the customers themselves, to ensure that the requirements
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have been met. This focuse, the design by doiag it right-first-tim~ so that re-design at a later stage does not become necessary because the organisatlion has become divorced from the actual needs of the customer. The revised lifecycle is shown i4 Figure 3.6. ACTION ,// C\Y maintenance - 1 = specification 2 = design 3 = implementation verification CHECK validation of
The PDCA cycle is an invaluable tool for management because it allows attention to be focused on the job in hand and also simultaneously on forward planning. The robustness of PDCA cycle means that once each stage has been accomplished, ta$ks are assignable to individuals. This also helps to encourage ownership and responsibility, so that task fdilure is less likely. PDCA is ubiquitous within tt.ie TQM framework. It can be used For data gathering through use of the seven statistical tools (these are already discussed in the earlier unit No. 2). For formulating the best way to implement improvements. To meawe the extent to whibh improvement has occurred. Then to iniroduce a new staddard which provides a reference point for the next phase of improvement. Building Blocks of TQM Activity 8 Select one common problem and apply the PDCA cycle to solve it. 1 3.8 Kben Kaizen (meaning literally 'continuous improvement') is a Japanese word for the philosophy that. defines management's role in continuously encouraging and implementing small improvements involving everyone. It is the process of continuous improvements in small increments that make the process more efficient, effective, controllable, and adequate. Improvements are usually accomplished at little or no expense without sophisticated techniques or expensive equipment. It focuses on simplification by breaking down complex processes into their sub-processes and then improving them. The three main objectives of Kaizen are: A4an,1gcri;ll practices, which must broaden its perspectives, whilst increasing its involvement.
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Shifting values which are socially and culturally adrift as far as quality is concerned.
Continuous Improvement rather than innovation
Innovation is equivalent to the great-leap forward. It is abrupt, challenging, and dramatic. It is rarely long lasting. The ephemeral nature of innovation is comparable to bullding a sandcastle - glorious for the moment, greatly applauded, but unable to stand the ravages of time and tide. Kaizen,in comparison, thrives on an atmosphere of stability, because of the strong inherent foundations that already exist and which can be relid upon as a basis for improvement. Innovation is a creative experience because it can inject freshness into stagnant.areas, but by itself, it becomes a bunch of straw. Vast injections of cash and technology are no substitute to altering behaviour and ideals in the minds of the employee. Only the latter can ensure long-term growth, because they can maintain the momentum for change. Inhovation steadily deteriorates over time unless the implication of change is amended, maintained, improved. There is no such thing as static constant. Thus innovation must be succeeded by a Kaizen strategy, if the effects of that great-leap-forward are to be compounded into some solid long-term objectives. Please see Figure 3.8, which compares Kaizen and innovation over time.
Reducing waste Waste can be a subtle form of lnss or it can be a major haemorrhage depending on how inefficiently an organisation is run. Even before continuous improvement can begin, the problem of waste has to be addressed. Factors such as quality, cost and scheduling are all areas in which waste can occur, but the human factor is no less important. Waste of resources, of talent, is probably the most self-destructive of all. In order to reduce waste, one must first identify it. The most common checkpoints a6 listed below: 1. Waste of work force through inadequate training and development (MAN). 2. Waste in the way that things are done: non-value-adding tasks (METHODS). 3. Waste in unused or underutilised machinery; waste of the machinery if it is not properly maintained (MACHINES). 4. Waste in materials, from paper and other stationery, to waste of raw materials through inventory and stockpiling. Waste when goods have to be warehoused, waste when these deteriorate over time (MATERIALS). 5. General waste through lack of measurements, thus being unaware whether targets are arbitrary or not (MEASUREMENT). 6. Finally, waste in each phase of the work-in-progress, when quality has not been built in, but relies on 101
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1. HUMAN ERROR Forgetfulness Misunderstanding Wrong identification Inexperience Absent-mindedness Ignoring rules Delay Standads unavailable Surprises due to malfunction . Sabotage 8. MACHINE ERRORS 8. METHODS USED 4. MATERIALS 5. INFORMATION (or lad of it) ~Block of TQM Poka-Yoke and Zero defects Inspections are customary in many areas of industry. They are costly and painstaking. Eventually, they do not contribute greatly to reducing the error rate in production. The problem is addressed after it has arisen - even 100 percent inspection will not mean that defectives are rooted out from the system. The real way to address the problem of erro;- and error will a the outset. Hence the concept ofpoku -yoke, or yi idea is to identify areas in which errors are likely to occur, then introduce a number of devices that are a fail-safe mechanism for preventing the error in the first place. This ties with the theme of Kaizrri that advocates prevention rather than cure. Defects are not tolerated, nor are defectiks passed down to the next person dealing with the product. Thus, instead of sampling and all its itinerant inaccuracies, self-inspection is promoted, and following that. the person next in the-receiving line also checks the item before working on it. This is a dualmethod of eliminating the inspection role from people who are not directly responsible forthe manufacture of the item, and passing on the responsibility and ownership of it to the people concerned. zerodefects are achieved via a multiplicity of means: Source inspection, concentrating on the cause of error, not the effect. e Hundred percent inspection using mistake-proofing devices. e Immediate action to stop the mi~fakfer om continuing further into the system. The usefulness of Poka-Yoke lies in that it reduces waste in time due to less rework in materials due to less scrap being produced, and in manpower as more time is spent productively.
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What are the costs? The greatest cost of Kaizen is TIME. Time is needed for all the different ideas to be explained, to adopt, then to establish them as normal practice in the workplace. Management needs time to teach itself and then to sell the idea of continuous improvement to its employees. A Kaizen programme must not have definable time limits set on it from the beginning. The other cost of Kaizen is commitment. Without the drive, the ambition to improve, any effort will ultimately become half-hearted. People must be shown the benefits that can be derived from the Kaizen way of thinking by putting it in sharp juxtaposition to the practices currently in vogue. The potential costs of not using bizen are varied and far-reaching. They affect such internal aspects of job failure as rework. External cost$ are connected to repair and guarantee claims; the useless expenditure on inspections and audits which still fail to ensure quality at the beginning of the
3.10 Keywords Commitment: A responsibility or promise to follow certain beliefs or a certain course of action. Commitment to quality has to begin at th$ very top of the organisation. Continuous iniprovement: The principle of continually seeking an improved performance. Cross-functional teams: Teams similar to quality teams but whose members are from several work units that interface with one another. These teams are particularly useful when work units are dependent upon one another for materials, information, etc. Empowerment: Giving staff the power to make decisoins. Goal: A statement of attainmentlachievement that one proposes to accomplish or attain with an implication of sustained effort and energy directed to it over a long term. Input: Materials, energy, or information required to complete the activities necessary to produce a specified output (work product). Measurement: The act or process of measuring and comparing results with requirements. A quantitative estimate of performance. Mission: The particular work which one believes is one's duty. It clearly establishes the course of an organisation - its reason for existing. Need: A lack of something required, desired, or useful; a condition requiring provision or relief. Usually expressed by users and customers. Objective: A statement of the desired result to be achieved within a specified time. By definition, an objective
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always has an associated schedule. Output: The .specified end result. Required by the recipient. Outputs Material or information provided to others (internal or external customers). Process control: The set of activities employed to detect and remove special causes of variation in order to maintain or restore stability (statistical control). Process improvement: The set of activities employed to detect and remove common cases of variation in order to improve process capability. Process improvement leads to quality improvement. Process management: Management approach comprising quality management and process optimization. Process owner: A designated person within the process, who has authority to manage the process and responsibiity for its overall performance. Process review: An objective assessment of how well the methodology has been applied to your pbcess. Emphasizes the potential for long-term process results rather than the actual results achieved. I Quality teams Also referred to as Performance Action Teams or Quality Improvement Teams, may be composed of volunteers who meet regularly to review progress toward goal attainment for planning for change for deciding upon corrective actions, etc. Members are usually from the same work unit. Requirement: A formal statement of a need, and the expected manner in which it is to be met. Requirements: What is expected in providing a product or service. The "it? in "do it right the first timesn Specific and measurable customer needs with an associated performance standard. Sample: A finite number of items taken from a population. I Strategy: A broad course of action, ch~senfr om a number of alternatives, to accomplish a stated goal in the face of uncertainty. Variable: A data item which takes 04 value within some range with a certain frequency or pattern. Variables may be discrete, that is, limited ia value to integer quantities (for example, the number of bolts produced in a manufacturing process). Discrqte variables relate to attribute data.Variables may also be continuous, that is, measured to any desired deg*e of accuracy (for example, the diameter of a shaft). Continuous variables relate to variable data. I
3.1 1. Self-Assessment 3.18. Further Readings I 1. What are the Total Quality Management cornerstones? 2. List the set of beliefs that a TQM practitioner must have. 3. What are the key success factors that make TQM work? 4. What are the obstacles to implementing TQM? 5. Give an example of the use of the POCA cycle in your personal life. 6. What are the advantages of Kaizen?
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7. List various techniques for continuous improvement. 8. Why are Indian industries not adopting Kaizen principles? Conti,Tito (1993) Building Total ~ualit~G:uhid ef or Management; London: Chapman & Hall. Koehler, @rgW. & Pankowski, Joseph M. (1996) Qualify Government: Designing, Developing and Implementing TQM; Florida: St. Lucie PresS. Sadgrove, Kit (1995) Making TQM Work; London: Kogan Press. Besterfleld, Dale H. et al(1999) Total Qulolity Management, New Jersey: Prentice Hall Inc. sferences 1. Kochler, Jerry W. & Pankowski, Jogeph M. (1996) Quality Government: Designing Developing and Implementing TQM. Florida: St. Lucie Vss, p. 24. 2. U. S. General Accounting Office (1991) Management Practices: US. Companies Improve Peformances through Quality Efforts. I 3. Schmidt, Warren H. & Finnigan, Jetbme R (1993) TQ Manager A Practical Guide for Managing in a Total Qualify Organisation. San Franci$co: Jossey-Ban Publishers, p. 23. 4. lbid. p. 25. 5. Sadgrove, Kit (1995) Making TQM Work. London: Kogan Page, p.29. 6. Ibid, p. 30. 7. Huda, F. (1994) Kaizen: The Understanding and Application of Contitruous Improvement. U.K.: Stanley Thornes, p. 8. 8 Ibid,p. 8. 9. Ibid, p. lo. 10. Imai, Massaki (1986) Kaizen. Tokyo: The Kaizen Institute. 1 1. Imai, Massaki (1991) Kaizen: The Key to Japan's Competitive Success. New York McGraw-Hill Inc. 12. Huda, F. op. cit. p. 17. 13. Ibid p. 18. 14. Ibid p. 20.
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Unit -IV TQM and Business Strategy Objectives After reading this unit you should be able to appreciatelunderstand: + the relationship between Total Quality and business strategy; + the meaning of customer value strategy, and its significance, and the need for customer value determination systems; + theshift in thinking about buyers and suppliers required in TQM + the kind of corporate strategies which TQM seems to be influencing; + the elements of quality business plan; and + the reasons behind failure of quality strategylprogrammes and the factors that can lead to the success of quality programmes. Structure 4.1 Introduction: Quality and Business Strategy 4.2 TQM and Corporate Strategic Process 4.3 Total Quality and Customer Value Strategy 4.3.1 Customer Satisfac_ation and Delight 4.3.2 Competetive Strategy and Customer 4.3.3 High Quality and Low Cost 4.4 Total Quality, Cost Leadership and Differentiation 4.5 Customer Value: An Elaboration 4.5.1 Value Realized, Value Sacrificed and Net Value 4.6 Customer Value Determination Systems 4.7 TQM and Stakeholders 4.7.1 Buyers or Customers 4.7.2 Suppliers or Partners 4.7.3 ShareholderslOwners 4.8 Total Quality and Corporate Strategic Alternatives 4.8.1 Related Versus Unrelated Diversification 4.9 Quality Business Plan 4.10 Why Quality Strategy or Programmes Fail? 4.11 How can Quality Strategy Succeed? 4.12 Summary 4.13 Key Words 4.14 Self-assessment Questions 4.15 Further Readings References
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4.1 Introduction: Quality and Business Strategy Total Quality Management (TQM) is a systems approach to management with the aim of continuously improving the value to customers by designing and continuously improving organisational processes and systems. A variety of external forces, including the policy of liberalization pursued by many countries of the world and establishment of WTO with consequent reduction in trade barriers, increased foreign competition, increasing demands by worldwide customers have paved the way for quality management. These forces have awakened many a company management to the potential of competitiveness provided by quality. Firms producing consistently high quality products and services and offering them at competitive prices have a strong advantage. They can do better at the competitive market place. Firms which can offer high quality products at reasonable prices have the final word on how well a product fulfils the need and expectations of the customers/users. The satisfaction about a product is always related to competitive offerings. The relatively deregulated global competition has enabled choice for the customers in many industries. For example, only a decade ago the only relevant choice that a customer of automobile within the country had was limited between Ambassador, Fiat and Standard brands. Now so many passenger cars of Indian and foreign makes are available. Lie automobiles, the choice is available to customers in a wide range of products and services. The choices, as a matter of fact, seem to have no end. In such an environment, customers demand high quality, new technology, low price, among many other things. The international competition has taught the companies in many countries that they must deliver superior value to customers in order to retain them. In the summary of a recent international quality study, the American Quality Foundation made the following broad statement concerning the importance of quality as a business strategy: Quality improvement is the fundamental business strategy of 1990s. No business without it will survive in the quality market place. TQM involves all employees and extends backwards and forwards to include the supply chain and customer chain. Governments and businesses in a number of countries have understood the importance of quality as a business strategy and have instituted annual quality awards e.g. Baldridge National Quality Award, USA; Deming Prize, Japan; European Quality Award, Europe; CII-Exim Award, India to recognize outstanding accomplishments in total quality.
The globally competitive environment forces managements to choose strategies with a customer focus. Before the advent of the present intense global competition, managements had little regard for customer value, and most of the strategy models were based upon maximizing the return for shareholders as the primary criterion. In the intense globally competitive environment the strategies which focus on the customer value are more likely to succeed. In this unit we deal with several aspects of strategic management of quality. We will discuss the relationship
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between TQM and Corporate Strategic Process, Customer Value Strategy, TQM and the new thinking about buyers and suppliers, Total Quality and Corporate Strategic Alternatives, Quality Business Plan, etc. 4.2 TQM and Corporate Strategic Process You might be aware corporate that strategy consists of two key phases. The first phase is the strategic formulation
TQM and Business Sttrategs which necessitates defining the mission of the organization, and this remains unchanged over a fairly long period 1 of time. In this phase the strategic options are also defined and the optimum option is chosen. The result of this phase is the strategic plan. The second phase is the strategic implementation which is mainly concerned with operations management. It also defines the short-term plan for the organization. A question may be asked: Where does TQM fit into the corporate strategy? There may be different answers to this question. Most people I TQM should be linked to operations management. This is by no means a coincidence because before pe Japan thesaet developed TQM, they started with industrial engineering, quality control, company wide quality control (QWQC), and value engineering. Unfortunately, it is not always obvious that during the evolution of TQM, the concept of quality has filtered up the organization hierarchy. Today, the Japanese managers and directors are so concerned about quality that it has long become their mission. Consequently, in their strategic formulation process, they use quality as their key mission statement and as an integral element of strategy. The relationship between TQM and Corporate strategy is illustrated in Figure 4.1. The TQM approach adds totality to quality, as it is communicated throughout the organization and all members of the organization are involved in the quality process.
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4.3 Total Quality and Customer Value Strategy In the context of Total Quality, business strategy, as we have stressed earlier, should be seen as being synonymous with customer value strategy. How should the firm provide value to customers in its chosen busi- ' ness? This question warrants serious attention as it is associated with corporate-level strategy concerning the choice of business. It has been argued that to be successful today companies should enter and invest only in businesses where they can be quality and value leaders'
4.3.1 Customer Satisfaction and Delight Total Quality (TQ) as a business strategy focuses primarily on customers by consistently improving value to customers, and thereby delighting them. Unlike competitive strategy whose focus is on competitors, the focus under TQ (or customer value strategy) is on customer. The firm attempts to retain current customers and attracts new ones by delivering best customer value. It thus aims at growth in market shares. Customer is at the core of the definition of TQ and customer focus is one of the critical factors in TQ implementation in all types of activities, whether manufacturing or service, whether in public or private sectors. In services, especially in government services or utilities, customers are often taken for granted because they are always there. This approach is fraught with dangers. They must listen to their clients and should be customer led. To inculcate customer orientation, government service providers need to train their employees and lay down service standards. Organizations like Xerox, Motorola, P&G, etc. have understood the centrality of customers to their success and describe total customer satisfaction as their foremost goal. They are committed to quality, value, and customer satisfaction. What is customers satisfaction? Customer satisfaction is concerned with the customers' positive or negative feelings about the value received from a firm's products or services. Meeting customers requirements and satisfying customers is one level of customer commitment. However, the point to be noted is that striving to satisfy customers by meeting their expectations implies a reactive mode to provide them what they expect of the firm. Total customer satisfaction and customer delight by exceeding customers expectations is different from the earlier reactive mode. It is more proactive and goes beyond what customer demands today so as to keep him as customer tomorrow. It may cost a company several times (may be four or five times) as much to attract a new customer than to retain an old one. Such a commitment may mean providing better value to customers than other competitors.
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Whirlpool, whose vision is to achieve global leadership in the appliance industry and the related businesses in Empire and other countries, has assiduously followed this policy. In different countries increasing number of firms are using information on customer satisfaction as a criterion in their strategic planning process.
4,3,2Competitive Strategy and Customer
Competitive strategy is an important component of strategic management and involves in-depth study of competitors and their strategies, their products and operations. Competitors are at the heart of Porter's generic competitive strategies and are at the center of Porter's Five Forces Model. Let us examine the model in the perspective of TQM. Competitors or Customers It has to be appreciated that a preoccupation with the competitors should not be at the expense of concentrating on the customers needed under TQM. The best competitive strategy in today's environment is a customer value strategy. By concentrating on exceeding customers' expectations in the TQM mode the firm will be in a better position than its competitors to retain current customers and win new ones. If a firm concentrates on current products or services of its competitors, it may unwittingly result in the firm's pursuing a 'follower' mentality. Such followership may result in imitation rather than innovation. By concentrating principally on competitors, the firm may easily lose sight of customers. If a firm merely imitates the competition it cannot be an early market entrant with new product or service. In the present scenario when the customers are constantly demanding new products or services with latest technology, late market entrants, by ignoring customers, have to pay a high penalty. This, however, does not mean that the firm should not benchmark competitors' best processes and systems. A firm should develop new products or services by a thorough examination and understanding of the market (and this includes competitors' products) as well as customers' future requirements. Understanding the competitors'current products may not necessarily be the key to the design of new products or services. Customers may be more important for design of new products while competitors may be more important for improving processes or system design.
Let us now understand how high quality and low cost can go together.
4.3.3 Quality and Low Cost In the previous part of this course you have read the contributions of Crossby, Deming, Feigenbaum, Ishikawa and Juran. Crossby popularized the idea that quality was free in his book of the same title i.e. Quality is FreP. Historically, high quality has been associated with high cost. But it need not be that way. Look at the
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logic portrayed in Figure 4.2 which shows how quality can lead to lower costs. To sustain this logic, quality mas a strategy must permeate throughout the organization in all its activities; it should not just be limited to inspections at the end of production process. "Cease dependence on inspection to achieve quality. Eliminate the need for inspection on mass basis by building quality into the product in the first place"'.
Costs decrease because of less Improve quality rework, fewer mistakes, fewer delays or snags, and better use of machine time and materials Provide jobs and Capture the market Stay in business with better quality and lower price
As noted in Unit 7, the cost of quality includes all those costs that are incurred due to producing poor quality products and services. Such a cost includes costs of scrap, rework, warranty repair, inspection and quality related maintenance, etc.. The cost of quality, expressed as a percentage of cost of goods sold, may be as high as 20 to 30%. Experience shows that firms implementing TQM programmes have been able to reduce the cost of quality by 90% and even more. Through relentless drive to improve critical cross-functional processes, some firms have been able to &most eliminate cost of quality (i.e. they have reached zero defect stage). Such firms have demonstrated that high quality and lower costs is a realisable goal. The firms can provide more value to customers as their prime business level strategy.
BOE 4.1 Capsugel, a division of Warner-Lambert, makes hard gelatin capsules for the worldwide pharmaceuti-' cal industry. The firm has plants in Belgium, China, France, Japan, the UK and the USA. Capsugel has been lowering their cost of quality by one-half every five years. It does this primarily by qualifying suppliers, continuous process improvement, and eliminating inspection after production. In an earlier process, the firm employed over 100 inspectors per plant to inspect the product twice. Redesign of the systems, including selection of a few suppliers based on quality, continuous process improvement, ' training of new behaviour, and attention to customer requirements, helped them accomplish the reduction in the cost of aualitv.
Total quality attempts to closely link strategies and systems. The systems and processes require a primary focus on external customers, and cross-functional horizontal spans'. Cross-functional systems are activities and resources that span at least two functions of design, production, marketing and finance. Such systems are associated with horizontal structures and flatter organizations with fewer levels of management, less direct supervision, cross-functional teams, and employee training.
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Activity 1 In the context of the organization you are associated with, examine whether quality is an integral part of the strategic process. Give reasons for whatever your answer is. 4.4 Total Quality, Cost Leadership and Dif'ferentiation Contrary to achieving just one of the strategies implied in the Porter's generic Competitive Strategy model a firm can achieve both cost leadership and differentiation simultaneously. Both these strategies, in fact, may be required to achieve sustained competitive advantage in the industry. High quality, innovation, learning effects, and economies of scale have been mentioned in the literature as sources of the conditions for achieving both generic competitive strategies5. Mintzberg has offered an alternative to Porter's three generic competitive strategies which include "differentiation by quality" as a generic strategy. Some other generic strategies included are: image, design, price and support. Several writers have contended that flawless quality, and the systems that produce it are the principal ways to simultaneously achieve both low costs and differentiation. "Cost leadership is associated with low cost of quality, high work force productivity, flat organisatioin structure, and short response times. Differentiation is associated with a dedication to providing flawless quality and value to customers". Many Japanese firms in several industries, induding consumer electronics and automobiles, have successfully employed quality strategy. Some other firms which have used quality to achieve both low cots and differentiation include P&G, T&T Express (a British firm which won first U.K. Quality Award in 1994), Texas Instruments Europe, Xerox, and Warner-Lambert. The list continues to grow. T&T, a logistics and transport company, started its total quality initiative in 1989. It achieved increase in its profits every year; profit margin increased from 5.3% in 1989 to 9.7%; and unit cost per shipment decreased by 20%. T&T has been the first choice carrier among U.K. businesses every year since 1991; on-time deliveries rose from 94 to 97.8%; and the customer based expanded from 62000 in 1989 to 105,OO in 1995. 4.8 Customer Value: An Elaboration When we say that the primary objective of quality is to give value to customers, it does not simply mean elimination of defects. Customer value has many dimensions which must be systematically reflected in the firm's produds and services. Customer value determination and new product development are in fact the two most important systems of a business oragnisation. A strong linkage between the two systems will enable the delivery of superior value to customers and sustained competitive advantage to the firm. Quality Gurus have shown the business world that it could delivery high quality and low price to the customer simultaneously, as we have examined earlier. Quality just does not mean that the product has very few defects or no defects or that the product adheres to internal engineering specifications. Quality
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means ddivering value to customers as per their expectations. Quality is thus multi-dimensional. Garvin has listed eight dimensions of quality as under: Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived Quality
Schonberger has added the following four more dimensions to the list making a total of twelve: 1. Quick Response 2. Quick-change response 3. Humanity 4. Value
4.8.1 Value Realized, Value Sacrificed and Net Value Value has two aspects: one aspect relates to value realid, and the oth& relates to value sacrificed. Realized Value is the value that the customer receives which may include comfort, image, ease of use, reliability, consistency, enjoyment, and a host of other characteristics. All these, in fact, relates to the various dimensions of quality. Sacrificed value is the value that customer gives up. It may include money, time, energy, worry, frustration, etc.. Customer value is the customer perception of what has happened to him in relation to the product or service obtained in order to accomplish a desired goal. The difference between value realized and value sacrificed is the net value gained or lost. Net value may thus be either positive or negative. If the value realized is more than the value sacrificed, the net value will be positive and the customer will stand to gain. This may be reflected in repeated purchases. While a satisfied customer may tell other potential customers and share his satisfaction with them, a dissatisfied customer may do just the opposite. It is, therefore important fo managers to pay attention to the value sacrificed by customers as it could lead to dissatisfaction.
4.6 Customer Value Determination Systems If providing best value to the customer is the quality objective of a firm, then the firm must pay particular attention to determining customer requirements. Mangers in several functions must fully grasp the concept of value realized and value sacrificed. A workable cross-functional system needs to be formalized.
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some of the key steps in the customer value determination process. Data has to be collected through large scale surveys and interviews with customers (present and potential) for determining customer requirements and for measuring satisfaction (present customers). Similarly in-depth interviews have to be conducted with small number of customers (or focused groups) for exploring groblems. Sometimes customers are impressed just because the fm has cared enough to ask if they were satisfied. The mangers may be held accountable on the basis of customer satisfaction data. The data helps to continuously improve the product and the manufacturing processes to yield even greater value to customers. Select target customers tam value dimensions
Explore causes of value delivery problems / Predict change in
Concurrent product development by cross-functional teams, with which sometimes even large customers are associated, is a useful method of designing and developing products and services that would satisfy customers, another useful method is QFD (Quality Function Deployment, discussed in Unit 8) which is meant to ensure that the design of new product or service is based on customer criteria. QFD starts with customer criteria, translates them into product or service requirements, and then translates them into product or setvice requirement measures. It is customer driven design system that attempts to get early coupling between the requirements of customer, marketing, and design engineering. For example, in the design of the personal computer (PC), customer requirements might be expressed as ease of use, portability, quality of graphics, affordability, and speed. The product requirements might then be expressed as menu-driven commands, open architecture, compact size, hq$ resolution screen, medium price, and fast micro chip. The product requirement measures might then be expressed as light weight (say less than 4.5 kg), compact size (say 50x40 cms), and medium price (say R~.25,00040,000)~.
4.7 TQM and Stakeholders Let us now consider how TQM affects the perception about some stakeholders, and how it affects the owners.
,-
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4.7.1 Buyers or Customer The customer today should not be seen as a mere buyer, a term which connotes adversarial ex- change. T.he. about exceeding or even satisfying customer requirements. 4.7.8 Suppliers or Partners In today's competitive environment which demands zero-defect production and delivery, many frrms have recognized the importance of suppliers and regard them as partners in their systems. The idea of supplier power envisaged or implied in Five Forces model again connotes adversarial mentality. Japanese firms have excelled in forging partnership with their vendorslsuppliers and have set an example for others to follow. A commitment to continuous quality improvement cannot be translated into reality without treating the suppliers as partners.
Supplier Partnering Japanese concept of Keirestu has led many organizations to rethink about their relationships with suppliers. The central point in Keirestu is developing long term relaiionships with a few key sui$ers rather than having short term relationship with many suppliers. Long term relationship is important since it has been widely reclowest bidder, encouraged suppliers to cut down on quality. This system of contracting resulted in large number of suppliers, with hi&tumover of supplier relationships. Many firms today find virtue in developing long term partnering relationships with suppliers and work with them for long term cost reduction and quality enhancement. The partnering may even include training of the supplier's staff by the customer firm,especially in improving quality management systems. Several firms have dramatically cut down on the number j of suppliers (some have even cut down by 90%). Based upon a relationship of trust and long term mutual interest, many customer firms are now willing to invest in a few key suppliers rather than requiring several suppliers to constantly bid against each other. The yearly lowbid contracting system requires the customer firm to inspect incoming shipments from the supplier for defects (quality being the concern of the buyer). Acceptance sampling has to be used to make a decision to accept or reject a shipment based on the number of defects found in an inspected sample. Today, the customer firms believe in the certification of the operational processes and systems of the supplier. Once the suppliers processes have been certified, the customer can eliminate incoming inspection. This facilitates just-in-time (JIT) system in which the incoming material, parts, etc. get immediately integrated into the customer operations. In a JIT inventory system (Japanese Kanban or Zero inventory system), materials arrive at the point of use exactly when they are needed. The inventory level practically reaches zero level, and the inventory holding costs approach zero. Obviously, a JIT system would work only where processes are in control, mangers know exactly when to order, and the orders arrive as scheduled without any variance. Such a finely-tuned system, like clock work, can work only when all parts are coordinated. If one part of the system creates a variance,
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the whole system may shut down quickly.JIT system may cover not only external suppliers but also internal suppliers and customers. It is a demand pull system because each station or worker produces the output only when the next work station or worker up the line is ready to receive more input. This is in contrast to the push inventory system in which parts and components are made irrespective of whether the next work station is ready to use them.
Does the primacy given to customers come in conflict with the interest of the owners? Does the focus on customers stand in the way of maximization the wealth of the shareholders, usually regarded as the objective of financial management?
A growing body of evidence shows that TQM, with its focus on customers, is the way in the present day globally competitive market place to produce superior long term financial value for owners7. According to Business Wwk, winners of the Baldridge National Quality Award outperformed the stock market by nearly three to one during 1988-93. Over that time, the average Baldridge winners yielded a cumulative gain of 89%, whereas Standards and Poors 500 (General) stock index showed improvement of 33%. According to one report:"Companies that adopted quality management practices experienced an overall improvement in corporate performance in nearly all cases. Companies that used TQM practices achieved better employee relations, higher productivity, greater customer satisfaction, increased market share, and improved profitability"". According to other study, performance measured by profit margin, return on assets, asset use efficiency, and excess stock returns was far better for the firms that adopted TQM. For firms with more advanced TQM systems, the irnprovement in financial ~erformancwe as notably and consistentlys tronger'. Yet another study indicated that higher the ,quality, the higher was the profitability. Return on sales and return on investment were found to be higherlo. Having made a case that the shareholders gain by a policy that focuses on customers, let us now further probe the concept of customer value. 4.8 Total Quality and Corporate Strategic Alternatives TQM seems to go well with certain strategic options alternatives. Certain factors which have emerged on the Horizon over the recent past combined with TQM have influenced management to follow specific strategic Courses and abandon some others. Let us examine this aspect.
4.8.1 Related Versus Unrelated Diversification In a widely diversified firm, it is difficult, if not impossible, to provide superior value to customers and to continually improve that value in each of the different markets. It is therefore being increasingly felt that corporate strategies that emphasise concentration or related diversification are more likely to succeed in the era of
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global competition and TQM. In contrast, conglomerate or unrelated diversification is likely to be deemphasized in such an environment. It would be interesting to note that America's 10 most admired corporations that consistently have showed up in Fortune magazine are the firms that have been pursuing concentration or related diversification strategies. Firms like Merck, AT&T, Wal-Mart, Levi Strauss, Coca-Cola, 3M, Pepsi Coke and P&G repeatedly appear in the lists. These firms concentrate on certain selective products and markets. Similarly, the firms that won the European Quality Award in 90s (e.g. Rank Xerox, Texas Instruments) are those that concentrate on certain products and markets. Each of these firms became world class at providing superior value to customers in specific markets. Sustained competitive advantage is more likely if the company is committed to a particular kind competitive strategy throughout its operations. Firms are more likely to succeed in businesses whet~he y have the chance of becoming quality and value leaders since such leadership only can provide sustained competitive advantage. An example of firms having sustained competitive advantage is the Wal-Mart corporation. The concept of low-cost operations with low cost and low prices, which permeates throughout the organization, has given it a sustained competitive advantage. Wal-Mart is regarded as the world's largest discount retail
To sum up, it can be said that in addition to international competition, strategic fit, core competency and some others factors, the concepts of TQM seem to support concentration or related devesification as corporate business strategy. Concentration strategies include both simiiar productslservices and narrow market focus. Firms with this kind of strategy stay closest to their specialized (or core) competence. Partly due to intense international competition, a wave of corporate restructuring has been observed all over the world in the 1980s and 1990s, and India is no exception to this. The guiding spirit in all these , restructuring exercises has often been " What we can do best." Corporate slimming downsizing, divestiture~, etc. are strategies that can help a firm to refocus and increase the prospects of higher profitability by shedding business units unrelated to its core competence. The ultimate and logical result of strategic formulation in the context of quality is a quantity oriented strategic business plan. Let us discuss in the next section the essential elements of a Quality Business Plan.
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activity 9 Describe (i) how your orgnisation defines'value to the customer' (ii) how it determines the value being provided to the customer. Does it have any formally laid down process; and (iii) how it views various stakeholders in the context of TQM.
4.9 Quality Business Plan Quality has emerged as an integral part of doing business these days. Quality and business, therefore, are one and indivisible. Quality will not happen just because the top management states that it has to happen. There has to be an .effective business plan to provide clear view of the road ahead. The quality business plan will define the destination for its members, the strategies and the organisation needed to complete the journey. The business plan must establish a sound and stable base to ensure that the journey will be kept on contemplated course. It should provide firm guidelines for those who are responsible for implementation of the quality plan. This is essential for building the climate of commitment and communication. A well established organisation for quality is sine quo none for implementing the quality plan. The organisation for quality should fit with the structure and nature of the business. The organisation may include a steering committee, a number of teams (TQM teams) and task forces to be decided by the chief executive officer (CEO), with support provided by TQM coordinator and the external consultant. One of the members of the team may become the quality champion for a particular unit or function of the organsiation. The quality champions are facilitators and assist the teams to implement the process of change. The facilitators, who are provided specialised education at the commencement of the planning phase, have to work closely with the coordinator and consultant to develop the detailed plan for submission to the Quality Steering Committee. The quality business plan may be developed, in association with the external consultant, if necessary, and may include the following elements: Quality mission of the organisation Quality strategy, policies to be adopted by the organistaion Principles and values to be shared by the whole organisation Organisation and the processes Education plan to involve all employees Tactical plans for implementation of the process Resources required to implement the plan Quality goals and criteria for measurement
The Quality Mission: The quality mission should be a part of the overall mission of the organisation, rather than separate and distinct. The company mission will embrace quality, apart from other things. As you know the mission is the purpose of the company's existence. The mission will change only when the organisation decides to pursue a completely new industry, a new market, or the same market in a completely different way.
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The quality, being an integral part of the business objectives, must be stated. It should be seen that the mission encompasses the new direction the company has envisaged regarding quality. The Quality Strategy and Policy: A total quality strategy may embrace many objectives. Improving service to the customers Improving business reliability and operating efficiency Improving or developing people involvement and commitment Improving company-employee communications Establishing clear departmental goals Facilitating an open style management and team building Achieving the accreditation to IS0 9000.
The important elements of a quality strategy are: leadership, people management, and processes. The behaviours of all managers must drive the organsiation towards total quality. A total quality approach should demonstrate: visible improvement in leading towards total quality recognition and appreciation of the efforts and successes of individuals and teams support of total quality by provision of appropriate resources and assistance involvement with customers and suppliers. The organisational processes consisting of value adding activities are also important to the quality strategy. The processes that are critical to the success of the organisation should be identified. Such processes should be systematically managed. The processes should be periodically reviewed for effecting necessary improvements. The individualâ&#x20AC;&#x2122;s reactivity in process improvement should be stimulated. The quality policy must be communicated throughout the company. In a large company it may be appropriate to develop divisional or sub-unit quality policies. The quality policy commits the organisational members to a certain way of doing things. The divisional policies must be complimentary to (and should in no way conflict with) the corporate policy. Some examples of quality policies are given in Box 4.1. However, the main point is that the quality policy a company adopts must be its own policy, based on its own genius, capabilities and resources. A quality policy without a sense of commitment on the part of the organisation has no meaning. The whole exercise may just fail.
We believe that our total commitment to continuous improvement will guarantee the future of this company by fulfilling the needs and expectations of our customers and employees in a responsible, professional and more profitable way. Our objectives are: 1. To introduce and maintain a company-wide quality improvement programme. 2. To achieve the total commitment of all employees. 3. To achieve accreditation to BS 5750 4. To meet the needs and expectations of our internal and external customers.
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5. To improve communication between our company and its customers.
Customer relationships policy We believe that we will enjoy successful relationships with our customers by continuously meeting their needs and expectations through our policy of quality and reliability. Our objectives are: 1. To target those customers with whom we wish to develop a mutually profitable business relationships. 2. Continuously to develop and promote our reputation as a quality company 3. To develop honest and trusting relationships through interactive communications. 4. To develop a customer-satisfaction measurement mechanism which will help to ensure that customers' needs and expectations are met.
Employee relationships policy We believe in providing secure and satisfying employment to all employees in an environment where ability and commitment are recognised and rewarded. Our objective are: 1. To convince each employee that their whole-hearted participation in the company-wide quality improvement programme is vital to its continuing success 2. To develop and maintain effective and open communication with all employees. 3. To identify training needs. 4. To provide opportunities for the development of all employees through specific training. 5. To create an environment in which ability, commitment and quality of performance are recognised and rewarded. 6. To provide a safe working environment 7. To ensure that company procedures and safe working practices are understood and adhered to. 8. To continue to provide all employees with the resources necessary to ensure the success of the company.
The principles and values create the environment in which everyone in the organisation is enabled to work together to meet the company mission and the quality strategy. These are basic to the creation of an organisation culture. If the company wants to change its culture, it may have to modify its existing principles and values. The management should examine the principles and values e.g., delighting the customer and seeking continuous improvement from the standpoint of its culture. The key question is how the company will act towards its customers, its suppliers, and its employees. In today's business environment, the principles and values of a company should also include its responsibliity to the community at large,and in the case of a public company its responsibility to all the stakeholders (including shareholders). Once the mission, the quality strategy and policy, the principles and values have been determined, they should be included as an integrate part of the quality awareness programme as educational material.
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Organisation and Processes: The management of organisational people is a critical element in quality* management. How the skills and capabilities of people are developed and managed through recruitment, training and actual progression is critical to the success of quality strategy. The quality targets must be agreed to by the people and the performance continuously reviewed. The people should be involved in continuous improvement for which they should be empowered to take appropriate action. What would be the organisation strategy for TQM will depend on the size, structure and nature of the business. TQM organisation is meant to be a facilitating process i.e. a process meant to assist for taking ownership of quality. It is meant to generate a process in which the concept of improvement becomes ingrained in each individual. The TQM organisational process should provide for education, systems and tools so that all can take responsibility for quality. The TQM organisation is not simply the responsibility for quality or quality improvement, it is more in the nature of a facilitating process. TQM process itarts with senior management and is cascaded down the organisation. The Quality Steering Committee (QSC) is formed to focus senior management attention on the development of a strategy and plan for implementation. The organisational processes may start with the appointment of TQM coordinator who is responsible to the QSC for its success. The post requires the same level of authority as for all other senior operating executives. The title used for this position should fit the particular situation or culture of the organisation.Vice President, or Director of Quality or Quality Manager are some typical titles. ' The central organisation for TQM should be kept as small as possible.Any tendency to create a quality management empire should be resisted, otherwise it may alienate the line management and throttle the The leaders must work through normal lines of the organisation. The ideal approach perhaps may be for the coordinator to have a small secretariat. From time to time, a number of specialists may be added to the Quality Secretariat on permanentlad hoc basis. The facilitators and others assisting the coordinator should generally retain their normal direct reporting lines within divisions, units or departments, with reporting via the TQM team organisation to the coordinator. The teams thus are the normal essential management teams focusing separately on quality. A typical central organisation for TQM.
Educational Ph The education plan is the heart of the TQM process. This part of the business plan must define the curricula and broad schedule of education and training required for each level of the organisation. This is applicable not only for a company establishing quality programme for the first time but also for a company which has been having quality programmes on an ongoing basis. The education-cum-training is meant to make the employees fully aware of the need for quality improvement and their role in the improvement process. The aims of the educational plan are to develop a common platform, to evolve a common language on quality, and inculcate shared values and principles. The perception of need and the ability to absorb new quality concepts may differ from level to level but the result must be a common
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commitment to continuous improvement. The training aspect of the plan is directed specifically at the individual's role in the company or in the management of TQM process. Most training courses will contain both education and training elements. The education plan may include a number of phases. Phase 1 may provide the executives and facilitatorswith sufficient knowledge about the plan embodying the improvement of process. Phase I1 may involve preparations for implementation. Members of TQM teams and task forces may attend process management courses. The senior and middle managers are usually concerned with this phase. Phase I11 may deal with the preparations for general education. A number of in-house instructors may be selected to teach the TQM course which is a central core of the companywide education process. All managers1 supervisors and specialised workers (e-g. engineers, software experts, etc. may be required to attend a series of weekly two hours sessions). Communication will be strengthened if the instructors are drawn from management. This is usually not a full time role: instructors could.teach one or two sessions per week. The objective of this course is to equip peopleto manage quality in their day to day operations. Phase IV may be concerned with educating the people i.e. workers at the floor level or clerical staff. This may be handled by the supervisors who had earlier attended the course in the previous phase (i.e., short supervisory workshops to prepare them for this role).
Tactical plans for implementation: The Quality Secretariat and the unit TQM teams may develop tactical plans for implementation of the quality strategylpolicy. The tactical plans will be useful for monitoring the progress of the quality business plan and for maintaining the focus on team action.
Resources: The management should ensure that the resources required at eacli stage of the improvement process are identified, provided and properly utilised. The resources, may include financial resources and time; financial resources through external assistance, education and training etc., and time for individuals at each level of the organisation. It should be made clear as to what resources will be supplied centrally and what from departmental operating budgets.
Quality Goals and Criteria: We have earlier emphasised that the quality plan should be viewed as integral part of the overall corporate business plan which establishes general business objectives and performance goals. Quality goals and criteria should be closely linked to the overall business goals. Two types of performance goals may be ~stablishedin the initial phases of quality improvement. These can be defined as those designed to improve the quality performance of the company and those designed to measure how well irllplernentation of the improvement process is proceeding. Quality performance goals, as far as possible, should be quantitative. They could relate to the reduction of the cost of quality at stated periods, the defect levels rate and other ratios. Qualitative and quantitative criteria for measuring the success of quality will be derived from the quality policy and goals. The criteria
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would include goals for the completion of educational phases and periodical surveys and employees attitude. 4.10 Why Quality Strategy/Progr?rmmes Fail? The Quality Strategy of a any company fail. The reasons behind this may just be the same as those that cause corporate strategies to fail. Often corporate and quality strategies may come in each other's way. The organisation may simply not be in a position to internalise the new strategy and therefore may fail to implement it on day to day basis. The concept of quality has to be firmly embedded in a flexible, fast learning, high performance organisation. In the context of emerging competition the corporate strategic considerations, for example, may be reduced to two key questions: how do we want to compete and where do we want to compete? The relevant related questions could be: should our competitive difference be based on cost leadership or superior product concepts? Should we remain component suppliers or perhaps become a sub-supplier to a system supplier, or should we include more value added stages or development work in our business and market ourselves as a system supplier. The right quality strategy is absolutely an essential prerequisite for a successful business strategy. Deciding merely to take action in one area may be of little use unless the organisation is in a position to tackle and take action on all matters. Many companies after having initiated or worked quality improvement programme abandon it later for one or the other reason. They are often not satisfied with the results achieved. The failures can be traced to one or more of the following main reasons: .
The quality improvement programme in Xerox Corporat~o~(Ul SA) did not make much headway because the top ~nanagen~enwta s removed from the qualily improvement process. Without top management, the company stood liltle chdnce of succeeding over the longer term. Senior management recognisecl this need and convened a series of meetlogs for 25 of the top company managers. Leading qualily experts were also invited to present their views. Eventually a consensus emerged that Xerox needed to institu~ea company-wide quality control process, anchoring it in a clear statement of philosophy and goals. The group then developed the Xerox quality policy:
Qualify improvement is die job ojcvery Xerox employer. - .Lack of education and training: The quality programmable in all probability will fail if employees have not mastered the quality improvement tools. The improvement in quality under such circumstances may either be unrealistic or difficult to sustain. Over-bureaucratic setup An ovr.rburcaucratic srlup creates organisational barriers. Even highly motivated
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staff may lose its enthusiasm in the jungle of a bureaucratic organisation. Change processes often fail because of an excess of hierarchy and functional interfaces which make decision paths too long. Even in a decentralised organisation, barriers come to be created because the so called highly decentralised quality management function niay administer the quality management programme in almost a commando style. The successful TQM companies overcome the above problcms. They move the traditional functional organisations forward in three dimensions: [hey set stimulating quality objectives t3p down; and they nlobilise the will and skills of employees towards conlinuous inlprovements bottom-up. With simple targeted structure and processes, they create organisational conditions for flexibility and independent initiative. Activity 3 Describe the elements of the quality business plan of the organizatio~y~ou are assoiiated with. In the ligl~ro f 4.1 1 How can a Quality Strategy Succeed?
In order that a quality strategy succeeds, a number of things need to be done.
Top management support: A quality strategy will be realised only after the corporate management gives its explicit support. A quality programme cannot be left solely to the mercy of the quality coordinatodquality assurance manager. The top management's involvement in the formulation of quality strategy and in its subsequent implementation is crucial to its success. The top managements in quality companies are much more involved in developing the quality strategy. They play a more active role in its implementation. In quality companies the top managements gives more than moral support. They take part in working sessions to keep abreast of individual topics and contribute to concrete solutions. After quality strategy has been formulated it is important to communicate it to all the segments of the organisation and the people who have to work with it. High level of aspirations, dear tasks and time scales: In quality companies the top managements endeavour to create a climate of high achievement. Such companies are often guided by global best practices and set targets based on them. They make an effective use of benchmarking. Clear tasks and time scales are laid down. Medium term objectives are laid down for the entire company, which are further broken down into concrete sub-objectives for each function/department/subunit. How these objectives are met should be systematically tracked. Right from the top manager through the shop floor workers, each individual knows exactly what target (dearly measurable) he has to achieve and by when, how this target fits into the overriding objectives and where he stands at present.
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Tracking progress Percy Barnevik of ABB is credited with the statement 'only things that are measured actually get done'. If targets are long term, then milestones must be set over the period in question. This particularly applies to R&D which often h~,vaery long term horizon. ~obilisi~i m~lo~e~eusal:i tyco mpdes have carefully planned programmes that strengthen the "willnand uskill" of employees. They arouse enthLskm of employees and improve their skills. Staff training for quality is of utmost importance. In addition to intensive training in quality tools, informal approaches which further develop the quality and cost awareness of employees play an important role. It may not be necessary to impart training on all conceivable tools of quality. Training may be limited to those tools which are really relevant to a group of employees. If the workers know the techniques and accept them, they will have a sense of achievement when they see that consistent application of the techniques is producing better results. The quality companies intensively train some selected employees who later function as missionaries or know-how centres. It is also necessary to increase the cost consciousness of employees. Some companies confront their staff with customers' reactions to quality. Sometimes, complaints may be put on the notice boards of workstations. Good companies also put up on the notice board comments of praise from the customers. One tyre manufacturer in Germany uses the reverse side of wage slips to inform employees reearly about current quality issues and company's position in this respect. It is important to recognise the contribution of employees. Recognition acts as the strongest performance and perceived acknowledgement are the fundamental incentives for making improvements. Some ; hotels and hospitals have the practice of showing on the notice boards most enthusiastic or 'friendly employ-',
selection of such employees. Appropriate Organisation Structure: A hierarchical structure is often not found suitable for an effective implemention of quality pmgramme. The feedback system in a hierarchical organisation is typically too long and too sequential. The decision making power is too fragmented. A flat organisation is more meaningful for a quality programme. Team organisation should take place at all the levels. The organisation structure may have to be changed from the traditional functional structure to cost and profit centre based structure. In quality conscious companies there is more emphasis on the horizontal structuring rather than vertical structuring. There is emphasis on the core processes in the company being generated by one source. The single source may be a group of people which produces a whole bundle of services. It takes full responsibility for the core process, for example, the entire manufacturing process from the receipt of raw material to delivery of finished products to customers. However, what a core process consists of may differ from company to company. For example, in a company the R&D and production may be the two core processes.
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Activity 4 Examine assess the reasons for success/failure of quality strategylprogramme in the organization you are presently associated with. What could be done to make the strategylprogramrne a success if the experience has not been encouraging?
4.18 summary
a Strategic quality management implies that corporate management mgnises the importance of quality and regads it as a key strategic issue. Strategic quality management means aligning the organisation and relating it to its environment and customers. a Customer satisfaction is the customer's positive or negative kling about the value rgeived from using a 6mis product or services. The primacy given to the customer in no way conflicts with the needs of the shareholders or owners. A growing body of evidence shows that TQM, with its focus on customers, is the way to produce superior long term financial value for owners in a globally competitive market-place. From 1998 to 1993 winners of Baldrige National Award (USA) outperformed at the stock market compared to companies which had not won the awards. Such companies had given fat better return to its shareholders. a The business strategy of'total quality' shows managers how to operate a business by focusing primarily on customers. The ktan d foremost focus of total quality is on consistently improving value to customers and thereby delighting them. The primary focus is the customer, and not the cobpetitor as in competitive strategy. A distinction must be made between customer value strategy implied in TQM and competitive strategy. A firm guided by customer value strategy attempts to retain current customers as well as attract new customers by delivering best value to them. By doing so the firm tries to increase its market share. In addition some other factors, TQM seems to be supporting the corporate strategy of concentration or related diversification. Many of the corporate restructuring exercises have been influenced by the strategy of related diversification. TQM implies a radical change in the thinking about customers and suppliers. Customers are not mere buyers. A long term relationship between the firm and the suppliers is conducive for business growth. Shareholderslowners stand to gain from TQM programmes in the long run as such programmes enhance the value of the firm and have a salutary effect on the market share and stock prices. Since customer value is central to TQM approach,a firm must establish customer value determination system Customer feedback on what value the firm is giving to customers should be collected in a systematic way. The organisation for quality should fit with the structure and the nature of business. A quality business plan may include quality mission, strategies and policies, principles and values, organisational processes and communication, educational plan, tactical plans for implementation, resources to implement plans, and goals and criteria for measurement.
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The main reasons for failure of quality strategylprogrammes have been found to be lack of top management's direction, lack of education and training, and over bureaucratic set-up. It is therefore imperative that the top management supports the TQM programme evolves clear tasks and time scales, tracks the progress continuously and mobilises the employees, and evolves an appropriate organisation structure.
4.13 Keywords Customer Delight: It can be created by exceeding the customer expectations. Customer Satisfaction: The positive feeling about value received from using a firm's goods or services. The Customer Value Strategy-. A strategy that concentrates on exceeding the customer satisfaction, a strategy that recognises the centrality of customers. 4.14 Self-Assessment Questions 1. Discuss the forces that have brought TQM in sharp focus over the past decade or so. 2. Can high quality and low costs go together? Illustrate your answer with examples. 3. What could happen if a firm concentrates on competitors at the expense of customers? How can it bring about a balance between the two sets of groups? 4. Can a firm pursue both the generic strategies of Cost Leadership and Differentiation simultaneously? Explain with examples.
5. What is meant by customer value? Explain the concepts of Value Redised, Value Sacrificed, and Net Value.
6. How can you determine customers satisfaction? Explain. 7. "TQM requires a shift in thinking about customers, suppliers and shareholderslowners". Explain and cite any research evidence. 8. What kind of strategy or strategic focus the TQM approach seems to be favouring or supporting and why? Give examples. 9. What elements a quality business plan may include? Explain briefly. 10. Explain the reasons for failure of quality strategylprogrammes. Cite exampleslcase studies in support of your answer. 11. Discuss the imperatives for success of a quality strategy.
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4.15 Further Readings I Garvin, D.A., 1988, Managing Quality: The Strategic and Competitive Edge, The Free Press, New York Stahl, M.J., and Bounds, G.M., Competing Globally Through Customer Value Woodruff R. and Gardial S., 1996, Know Your Customer, Blackwell, Oxford, U.K. Deming, E.W., 1986, Out of Crisis, MIT, Centre for Advanced Engineering Study, Cambridge, MA Schonberger, R.J., 6 (August, 1992), '7s Strategy Strategic? Impact of Total Quality Management on Strategy;" Academy of Management Executive, pp.88-7 References Gale, B., 1994, Managing Customer Value, Free Press, New York, p.18 Crosby, Philip, 1979, Quality is Free, New American Library, New York Deming, W.E., 1986, Out of Crisis, Cambridge, MA, MIT Press, p.23 Garvin, D.A., 1988, Managing Quality: The Strategic and Competitive Edge, The Free Press, New York, p.49 Hill C., 1988,"DifferentiationVersus Low Cost or Differentiation and Low Cost"Academy of Management Review, p.401. Band, W.A., 1991, Creating Value for Customers, John Wiley and Sons, New York, pp.168-169lAka0, Y., 1990, Quality Function Deployment: Integrating Customer Requirements into Product Design, Productivity Press, Cambridge, MA Copulsky, W., Nov.-Dec 1991, Balancing the Needs of Customers and Shareholders, Journal of Business Strategy, pp.44-47 Cited in Stah,M.J. and Grigsby, D.W., 1997, Strategic Management: Total Quality and Global Competition, Blackwell, U.K., p.166 Easton, G., and Jarrell, S., 1996, The Effect of Total Quality Management on Corporate Performance: An Empirical Investigation, Journal of Business. Buzzell, R.D. and Gale, B.T., 1987, The PJMS Principles, The Free Press, New York, p.107
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Unit-V Quality-Centered Strategic Planning Objectives After reading this unit you should be able to : +explain the interrelationship between quality and strategic planning; +comprehend the concept of strategic quality management; +understand the documrntation systems and procedures regarding quality improvement; +have a brief idea about the quality planning road map; +appreciate why it is imperative to achieve customer orientation; and + omprehend the quality-centred strategic planning process.
structure 5.1 Introduction Role and Functions of Toy Management in Quality Improvement Strategic Quality Management 5.2.1 Quality Planning Roadmap 5.2.2 Companywide Quality Management (CWQM) 5.2.3 Deployment of Strategic Quality Goals 5.2.4 Planning for Strategic Quality Control and Improvement Listening to the Voice of the Customer 5.4.1 Achieving Customer Orientation Quality-Centered Strategic Planning 5.5.1 How does an Organisation Relate to Quality 5.5.2 Quality and Strategic Planning Strategic Planning Process Summary Key Words Self-Assessment Questions Further Readings
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8-1 introduction In the previous unit of this part you have already known about the link that exists between otal Quality J Management and Business Strategy. It was also noted that in the wake of increased globalisatio efforts quality has emerged as a strategic competitive weapon. Even established business organisations these dsys are mbecoming prone to extinction due to stiff competition. In today's fiercely competitive world only companies musing the best practices can survive and prosper. Earlier, quality was confined only to the manufacturing processes of the organisation. With the advent of TQM quality has become all pervasive in many organisations.It has been felt that top management of an organisation should proactively participate in managing and improving quality. Hence quality needs to be integrated well with the strategy formulation and strategic planning processes of the organisation. Quality is defined by the customer. Successful organisations attune themselves to the voice of the customer. Mere customer satisfaction is not sufficient. Business organisations must strive to achieve customer delight and ecstasy.Towards the end of the unit we attempt to blend quality with strategic planning to highlight the important role quality plays in strategic decision-making. In this unit we address ourselves to several issues, in relation to quality and strategic planning, such as: How are quality and strategic planning related?, What role (proactive) is played by top management in quality improvement at the corporate level?, What road map is followed by an organisation in its quality planning efforts?, How to achieve customer orientation and deploy quality at various levels in an organisation?,H Oto~ blend quality with strategic planning process of an organisation? Comprehension of these aspects shall put you in good stead in coping with the working situations. If you are working at the middle or junior level managerial position, such knowledge will still prove to be useful in gaining perspective on the role of top management in achieving quality focus in strategic decisionmaking. 5-2.3 Bole and Functions of Top Management in Quality Improvement Dr. W.E. Deming, the father of the quality movement strongly advocates that the quality concerns should be applied to management practice as a whole rather than simply considering them a domain of action of the quality engineer. He developed the concepts of : Managenlent Responsibility; and,lqrinsic motivation of workers. According to Dr. Denling 85 % of all defects are caused by the faulty management system and workers are responsible only for the remaining 15% of defects. Dr. Deming's most widely referred and quoted "14 principles of quality management" call for 'Elimination of numerical quota'. He further advocates that management should shoulder the responsibility of quality improvement and should develop an organisational climate in which workers can derive intrinsic motivation and satisfaction from the job well done.
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Top management commitment is a commitment of corporate resources.'rhe chief executive is expected to provide hislher own time to the continuous improvement process. Most of the time the top management spends in defining the organisation's vision statement, detailing corporate goals, outlining policy and planning for quality efforts and initiatives. The top management should createand lead the corporate level quality council in order to remove the barriers in the way of implementing quality in the organisation. He should vocally support the total quality management movement in an organisation. The top management must lead by example in demonstrating to others that quality is the top priority. The top management participation is defined in the following way: "Which specific decisions are to be made by top managers?" "Which specific actions are to be taken by the top management?" Top management's personal participation in achieving quality improvement in all departments of the organisation requires the following decisions and actions to be taken by it. 1. Establish a quality concept : The council works for directing and coordinating the organisation's efforts to manage for quality. It establishes quality goals, providing the means against such goals and so on. In fact, strategic quality management is an extension of business planning by the top management. In large organisations quality sub-councils are established at the functional or divisional level. The task of top management is to coordinate the work of these sub-councils. 2 Serve on the quality council: The functioning of the quality council is severely affected if the members lack decision-making. Hence the top management should endeavour to serve on the quality council as that will send a right message to the other members of the organisation regarding the priority accorded to quality by the top management. 3. Establish quality poliaes: Policies are guidelines to managerial actions. They need the approval of the top management. The top management has to participate in establishing quality policies in the following ways: Identifying the need for quality policies. Assigning responsibility for preparing a draft of quality policy. Reading, revising and approving the quality policy. 4. Establish quality goals The quality goals at the top management level are very broad. Quality goal should be specific, quantifiable and time bound. At the top management level, the goal should be resultoriented rather than toolltechnique-oriented. 5. Deploy quality goals: Deployment means allocating the responsibility of accomplishing goals to lower levels of the organisation.The lower level managers outline the specific actions to be taken to meet these quality goals and also the requirement of resources. 6. Provide Resources: It is very essential to provide resources for carrying out quality goals. Failure to provide adequate resources sends a wrong signal down the hierarchy throughout the organisation that the quality is not a high priority area. 7. Provide Team Oriented Training: Training is a special type of resource which the top management is
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generally willing to provide. But the top management should be actively involved in identifying the needs for training in the field of quality in order to make it more effective and focused. 8. Review Progress : The top management should take upon themselves the task of periodically reviewing progress against the broad quality goals. This practice sends the right message regarding the priority given to it by the top management. The review can be done in the following two ways: By receiving the summarised reports on actual quality performance (executive report on quality) By auditing the processes of attaining quality (executive quality $udits). As a result of the review if the actual performance falls short of the goals the quality manager should cover and eliminate the root causes. 9. Institutionalise Recognition and Reward System : The top management should initiate action in institutionalising a suitable recognition and rewards system.The top management should recognise and give rewards to meritorious individuals and groups for their excellent performance in the field of quality. They should organise and participate in ceremonial functions in which such awards are distributed and the specific employees' contribution in quality improvement is publically recognised. Similarly the top management may decide to offer rewards in monetary terms or nan-monetary terms.
activity 1 ' In the light of discussions in the preceding section, please describe what role the top management of your organisation is playing in bringing about quality improvement at all levels in your organisation with partic-, ular reference to strategic planning and decision-making. (Briefly name and describe your organisation). 9.3 Strategic Quality Management While attempting to map the evolution of the quality movement in the United States of America, Garvin has described the lbllowing four distinct quality eras: Inspection \ Statistical quality control Quality assurance Strategic quality management
First three stages were necessi~ted mainly because of operational considerations. The fourth one which is the most recent one implies a new emerging vision: "It embodies a dramatic shift in perspective.For the first time top managers at the levels of presidents and CEOs have expressed an interest in quality. They have linked it with profitability, defined it from the customers'point of view and required it's inclusion in the strategic planning process. In the most radical departure of all many have insisted that quality be viewed as an aggressive, competitive weapon".
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Quality is no longer conforniance to requirements. Quality is that which enlivens the sense, instils wellbeing, fulfils even the unexpected and unanticipated customer wishes. Zero customer omp plaints is an old paradigm.The new paradigm isL'Zero customer loyalty to other companies/su~plierS'. Quality is to be treated as a strategic issue requiring priority and utmost attention to details. Quality is coupled with reliability to surpass customer satisfaction. A systematic and methodological approach towards quality improvement shall help in installing a culture that promotes excellence in all endeavours. A fundamental step in establishment of strategic quality management is that it should be very integrated with the strategic planning of an organisation.The following Box Proactive culture (Philosophy): Early detection and counter measures of all the abnormalities. Top down and bottom up approach: It develops an employer-employee relationship where all are equal and part of a team focusing attention on development. Scale every responsibility for quality: Making people responsible for quality is less effective than creating a climate in which people are willing and able to take responsibility themselves. Measure Cost of quality: Cost of quality is measured by three factors: (a) Prevention (b) Appraisal Prevention cost is the cost of getting things right the first time. Appraisal cost is the cost of checking and inspecting whether the things are done right. Failure cost is the cost of not doing it right. Standards right first time : It is costly to compromise on quality. Right first time is the standard by which quality standard is evaluated. Scope : Scope of strategic quality management is companys wide. Quality improvement should be brought about in every functional area and department in the organisation. It should not be confined to only the manufacturing department. Theme of Continuous Improvement: The business organisati ns should continually strive to achieve excellent levels in quality. P As is mentioned in the previous section quality objectives set out certain fundamentals and exhibit wide variations in nature and scope. Quality objectives may be required either for control or for the purpose of achieving some breakthrough in quality. Quality can be set companywide or for departments. In Table 5.1 gives the more usually established quality objectives and the corresponding types of quality plans. These quality plans have been developed in response to the various objectives.
Objectives p&s~ci~efdo rio f quality Establish self-control Triple-role concept; feedback loop Matain quality for repetitive activities 9u;lity manual; feedback loop Launch numerous s mall changes Multiusep\oiedures; quality manual Launch major changes, programme Central quality planning; programme management; quality planning road map Review execution versus plans Quality reports; quality audits Eliminate existing chronic quality problems Project-by-project improvement
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Avoid creation of new chronic quality Quality planning road map Attain quality for new major products Central quality planning; programme management; quality planning road map Establish and meet broad corporate SQM: Strategic quality planning as quality goals part of business plan It is clear from the above table that as the scope of quality objective goes on widening, quality plans are required to be developed for higher and higher levels. For example, when the objective is to establish and meet broad corporate quality goals. The organisation needs to prepare a quality plan k~owna s strategic quality plan. 8.3.1 QuaUty Plannin& roadMap All types of quality plans are inter-related. Quality planning attempts to meet the quality needs of the customers. In order to meet these customer needs a quality planning road may can be prepared which is depicted The road may consists of structured and sequential steps.Outyut ofeach preceding activity or step becomes the inyut for the next step and so on. This road map is universal in nature as it is applicable to quality planning throughout the economy, to all industries in both the manufacturing and service sectors. It is applicable at all levels in an organisation, such as
corporate,division,department,job
and
in
all
functional
areas
such
as
marketingtinance,
productionloperations and human resources. The quality planning road map can be applied at the following levels: a) Supervisory and worker level b) Functional level c) Multifunctional systems d) Major programmes
a) Supervisory and Worker Levels: Each employee is assigned a job. Large number of jobs require quality planning as well as replanning as the job may be dynamic. In some cases the employees themselves are given training to plan their jobs. Some of the concepts and tools which are used for quality planning at this stage are: (i) Self-control concept: A yerson is said to be in the state of self-control, when workljob is organised in such a manner so that the person can have full control as well as mastery over the attainment of planned results. Such a person can be held responsible for the performance results. In order that a person can aihieve self-control he should be provided with:
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knowledge of what he is supposed to do; knowledge of what others are doing; and means for regulating either of the two above if the failure to meet the objective results. (ii) The triple role concept: Each emyloyee holding a job should be able to carry out the following three roles: As a customer As a processor As a suyplier This concept is depicted in Figure 5.2. Using this concept natural progression of quality planning can be achieved.
b) Functional Level Functional managers in charge of different areas undertake quality planning to manage their performance a better way. For example, planning for the marketing function places major emphasis on the defined role of quality planning in marketing department. In most cases the functional managers are not trained professionals in the field of quality. Hence, either they can receive help and guidance from quality specialist or they themselves can be trained in quality issues to become quality professional. Training may be given in the field of skills and tools of planning for quality.
EXISTING PRODUCT AND PROCESS LIST OF CUSTOMERS CUSTOMERS' NEEDS
C) Multifunctional Systems Some systems such as Management Information Systems (MIS), Human Resources and New Products Developnlent are all pervasive.These systems have spread their tentacles in many functional areas as they receive inputs from all major functional areas. Inadequate quality plahning niay jeopardize the working of the systems. Central quality planning is highly useful in achieving coordination among all the functional areas involved.Various methods are available for achieving central planning with emphasis on quality: a A team (or committee) of functional managers. a A team (or committee) of functional managers, with the assistance of quality syecialists. A project management department. The quality assurance department. d) Major Programmes The term major programnies is used here in the context of costly projects such as nuclear power plants, development of a new weapon systen1,launching a satellite into spaceetc. Each of these projects are so complex
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and unique that they require specific quality planning for thc major programmes in question. In these programmes it is common for clients to specify the quality plans and also the yroductlproject perl'orniance syecitications. For meeting these specifications the orgariisational structure used by the contractors (i.e. suppliers of these programmeslyrojects) should be the matrix type. Moreover, the conlractor should provide assurance to the client that all the specilications have been met as per the contract. The docu~nentation part of the contract niay be very intensive. In addition to achieving the quality assurance, it may be helpful in the event of legal battles.
8.3.2 Companywide Quality Management (CWQM) The major application of quality planning concept is in Strategic Quality Management (CWQM). CWQM is an extension of company's business planning to include quality planning. The sequence of activities to be performed in strategic business planning are as follows: 1. Establish vision :That is the dream of the top management team regarding where the organisation will be a few years from now. 2. Set up mission statement: The purpose of existence of an organisation. 3. Determine the objectives/goals 4. Identify the strategic alternatives 5. Choicelselection of strategic mix 6. Implementation of strategy by allocating resources. 7. Evaluation of the strategy (periodic evaluation based on interim performance results). In CWQM the same sequence applies to managing for quality which takes the following form: Establish broad business ggals Determine the deeds needed to meet the goals Organize and assign a clear responsibility for meeting goals Provide the resources needed to meet those responsibilities Provide the needed training Establish the means to evaluate actual performance against goals Establish a process for periodic preview of performance against goals Establish a reward system which relates rewards to performance The CWQM requires special organisation design, skills, tools and training etc. The most important facet of CWQM is the top management involvement in quality control. Purpose of planning for quality is very important to be achieved. Planning for quality has been delegated to the functional departments who in turn are responsible for establishing and meeting quality goals specifically set for the respective functional areas. Due to lack of coordination among various functional departments this approach has not succeed in many organisations. The application of CWQM has not only contributed in the betterment of quality but has also resulted in improved performance in many organisations. The advocates of CWQM point out that by implementing it, the concept of quality can be extended to all business processes of the organisation beyond the manufacturing department, thus leading to total quality management. A more cohesive and well-knit team results due to the application of CWQM
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because the harmony between top management and the functional manager increases. However, the adoption of CWQM leads to increase in the workload of top managers who are already very busy. The functional managers may perceive the CWQM initiatives as the invasion on their autonomy. This problem is more than compensated for by the fact that, due to CWQM, valid and viable quality plans of the functional managers receive adequate resources from the top management as they themselves are involved in the quality initiatives and possess a better understanding of quality-related issues.
8.3.3 Deployment of Strategic Quality Goals
It was earlier stressed that the concept of strategic business planning should be enlarged to include Strategic Quality Planning (SQP). In SQP broad quality objectives are established to cover the whole Spectrum of an organisation. These quality objectives should then be deployed to lower levels of management who in turn set up functional level quality plans to identify the actions needed to achieve the quality objectives and also the resources required. The methodology of SQP starts with a focus on the 'driving forces' to establish strategic quality objectives (or goals). These driving forces have a significant impact on quality. These forces are the external environmental factors such as technological, social, political and economic factors. Other factors of the-relevant environment such as competition, suppliers, specific technology issues (state-of-the-art technology) and internal corporate factors such as core con~petencies in the areas of critical success factors. The list is endless. The toy managers should evaluate these forces and their possible impact on quality by collecting suitable data and analyzing it to yield meaningful information.
implementation Broad and strategic quality objectives should be deployed to lower levels of management. Such deployment requires both upward and downward communication. Strategic quality goals may be established and proposed by the top management. The lower level (generally divisionallfunctional level) managers identify the deeds (or action plans) which will achieve these goals and they also submit the resource requirement plans to the top management. Both the top managers and functional managers negotiate to arrive at an optimum balance for achieving the quality goals as well as the cost of doing so. Strategic goals are often established as a result of nomination from the lower level managers. They may identify quality-related needs for which the strategic quality planning is required as the top managers support is essential due to: (i) extensive resource requirement; (ii) its impact on multiple divisionslfunctions; and for setting major precedents which are required. It is essential that business organisations should have a synergistic combination of both strategic and operational planning. The matrix in Figure 5.3 describes the quality dimensions of both strategic and
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operational planning. It is abundantly clear from this Figure that an organisation should achieve high levels of quality in both these aspects to ensure sustained success. 8.3.4 Planning for Strategic Quality Contro1 and Improvement Planing precedes all control activities. The operating personnel attempt to achieve and exceed the established quality objectives. A planned system of quality control is used to ensure that the organisation has not lost track of the original objectives. The quality control process consists of the following steps: Choosing the control subjects. Choosing a unit of measure. Establishing quality goals for operating performance. Creating a sensor (a means of evaluating actual performance in terms of units of measure). Evaluating actual performance. Interpreting the difference between actual performance and quality goals. Taking corrective actions on the difference. The above steps take place within a system called feedback loop. The loop starts from the control subjects (i.e. process) which is to be regulated. A sensor measures the actual performance while goal is established as the desired level of the control subject. The collator's task is to compare goals with the performance and if significant difference persists the actuator is used for making adjustments in the process, or sometimes the goals themselves may have to be adjusted in order to achieve parity of performance with the goa1s:rhus a closed feedback loop results.Modern production/operations departments make use of computerised online systems of quality control. Quality improvement is directed largely at creating beneficial change. Planning hr quality improvement can take the following two major forms: (i) Improvement in product features to provide customer satisfaction. It can be achieved by applying the quality planning road map. The quality improvement results from replanning (if necessary) about qualityrelated issues. (i~)lm proven~e~tiot achieve defect free production to minimise the wastages and increase in the productivity. 8.4 Listening to the voice of the customer It is very important to become attuned to not only what the customer demands oftoday's products and services but also what the custonler will want in future. One of the corner-stones of the quality approach is to identify. and meet customer need. Customer, in its broadest sense, encompasses both internal and external, consumerand industrial, products and services purchaser and user, intermediary and final. Consumer, in other words the customer includes everyone impacted by the productlprocesses. Listening to the customer is the term most often used in quality discussion. k includes formal research (both qualitative alld quantitative) and less formal techniques of obtaining customer feedback.
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8.4.1 Achieving Customer Orientation Theodore Levitt (1975) was the first one to argue that an industry was a'customer satisfying process, not a goods producing process'. Being customer-oriented is critical to the success of any buslness or industry. Customer orientation, first dnd foremost, is a business philosophy which focuses outwards and demantls a genuine commitment to satisfy customer needs and wants. Without such outlook, focus and even obsession; the customer orientation cannot be achieved. In Box 5.2 the importance of satisfying customers is highlighted in an oblique manner. Customer Complaint and Feedback Management System : One of the strongest signs of a bad or declining relationship is the absence of complaints from the customer. Nobody is ever that satisfied, especially not over an extended period of time. The customer is either not being candid or not being contacted (- Theodore Levitt) The High Cost of Losing a Customer: - In the average business, for every customer who bothers to complain, there are 26 others who remain silent. - The average "wronged" customer will tell 8 to 16 people. (Over 10 per cent tell more than 20 people). - 91 percent of unhappy customers will never purchase goods or services from ywain. - If you make an effort to remedy customers' complaints, 82 to 95 percent of them will stay on with you. - It costs 5 times as much to attract a new customer as it costs to keep an old one.
Adaptedfrom Costin, Harry, 1996. 'Readings in TQM', The Dryden Press, Harcourt Bruce College Publishers New York pp. 15-1 7. The process of achieving customer orientation is briefly described below. It is necessary to instil customer orientation where it does not exist. It is recognised as a process of organisational change which has to be introduced in a planned manner. Figure 5.5 is a fishbone model that specifies the steps to achieve customer orientation. The process begins with: (i) Management commitment and actions. (ii) Training and customer research. (iii) Establishment of benchmarks and standards. (iv) Employee empowerment. (v) resources/technology
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(vi) Rewards and recognition.
(i) Management commitment and actions: The top management should be genuinely committed and demonstrate it by their actions that they assign the highest priority to achieving customer orientation. They should be actively involved in developing an appropriate customer complaint system which will obtain customer feedback in future. The top manager should ensure that information about customers is available and is being used in decision-making.
(ii) Training and customer research: The employee should be trained in customer research techniques in addition to training in group dynamics and problem-solving techniques. Some sophisticated techniques such as quantitative analysis of customer databases require help from the quality specialists. Some selected middle-level managers may be imparted these skills through training. Customer research should be conducted to identify customer needs and wants. It is a perplexing problem to ident'ify future customer wants as the future technology may not yet have been unfolded. In these situations 'Insight generating techniques' and their creative applications are more helpful than mere quantitative analysis. (iii) ~stabfishmento f benchmarks and standards: Benchmarking performance against be* practices is a powerful stimulus for improvement. It can be applied to the area of customer gievanck handling mechanism of an organisation. Standards are objectives that are established on the basis of customer expectations and behaviour. Standards can be set only when the customer expectations have been measured. It is left to the wisdom of management to decide whether they should simply satisfy customer expectations or they should strive to exceed customer expectations to achieve customer delight.
(iv) Employee empowerment: Empowerment implies pushing decision-making down to the lowest possible level. It means giving teamstindividuals power to make decisions which may satisfy customers. It is difficult to practice as it implies relinquishment of decision-making power by management which all along has been their prerogative.
(v) Resources/technology: Employee empowerment alone is not sufficient. They should have other organisational resources which may involve the use of the latest technology to satisfy the customers. However technology alone cannot solve a customer's problems. It requires a human intervention to show concern and judgement while serving customers.
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(vi) Rewards and recognition: Rewards and recognition should be used to acknowledge both increased productivity and also success (less measurable) in satisfying customers. Each and every employee involved in the quality process should be publically recognised in celebrations in which the top management should also take keen interest. The recognition can take any of these forms: a certificate, a commendation letter, a training offer, or something more creative. Quality planning should~rearte wards and recognition as important strategic issues. These are the necessary activities to achieve customer orientation. The customer should always be at the centre of both planning and execution. It has amply been stressed that becoming and remaining customer- oriented requires an organisation-wide commitment. The entire organisation right from the top management down to the organisational hierarchy upto frontline personnel (who are in direct contact with the customers) must recognise the importance of keeping customer satisfaction and delight as a central focus. More importantly their actions must consistently put customer satisfaction first. Then only can an organisation truly become customeroriented. Activity 3 Do you know who are your external customers? In what ways has your performance a bearing on satisfying and delighting your external customers.
Activity 4 If the concept of internal customers is practised in your organisation, what conscious efforts are taken by you to satisfy your internal customers in the organisation?
: 8.8 QualityAn organisation needs a vision and a strategic plan that embraces quality as its foundation. The increasing quality consciousness gives rise to the following philosophical and practical issues for the organisations : Is quality a means for achieving the organisation's mission or is quality an integral part of the mission itself? Why should quality be integrated into the organisation's overall strategic planning process? It is not possible to separate quality from the organisation's core mission and purpose. It is a wrong notion to treat it separately just as a strategy for achieving the mission. No organisation can survive for long without placing score emphasis on quality. Malcom Baldrige National Quality Awards include in its list of criteria the concept of having a strategic plan to implement the quality process of an organisation. Without strategic vision and plan, an organisation would not be able to implement its efforts in quality improvement. 1.M. Juran advocated the increased participation of senior management to proactively plan and manage for
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quality. He suggested that the top management should have a strong focus on quality as their core responsibility. The organisations today need a process for strategic thinking and planning that embraces quality as the organisation's core value. As a result of this understanding of tbundational role of quality in strategy formulation, the term strategic quality planning was changed to strategic planning in Malcom Baldrige National Quality Awards in the year 1996. It indicates that the quality should blend well with the organisation's philosophy and actions. A11 organisations establish objectives (or major goals) which must be achieved in order to accomplish the mission. Enabling actions are strategiesand tactics that an organisation employs to achieve its objectives. For example, an organisation's mission may be to provide high quality health care services. It can have the objective to always provide the right medicines to the right patient. For achieving this objective,an enabling action will have to be a quality control programme which will support the mission of the organisation. Specitic quality tools such as auditslcontrol charts are some of the enabling actions which can be thought of as a means (strategies) to an elid (objectiveslmission). It is clear that a strategic plan is a planning document, developed through a specific process, that orients an organisation towards its mission by placing its central focus on the objectives. It enables actions that impact qua1ity.A~ strategic planning is concerned with future it is essential to know what is the style of thinking prevalent in an organisation about the future. Figure 5.6 shows this continuum. Numb Reactive Proactive We can't influence it. We're ready for next week. We intluence what's coming. It's coming too fast. We're ready for next year.
It is important for an organisation to break out of the numbness and reactive thinking and adopt a proactive approach'that the organisation is what people make of it, and future is what people want it to become'. 8.5.1 How does an Organisation Relate to Quality The point of view an organisation has about quality will influence the manner in which it relates to the strategic planning process. There are five perceptions about quality which are shown in the Figure 5.7 while the first three do not include quality as an important component of the strategic vision The last two treat quality as an essential ingredient. Conformance Assurance Intagible to requirements and control essence Corrective actions Continuous improvement
8.7: Continuum of Pexwptionr About Quality The first three ap~oachetso quality are based on reactive thinking styles about the future and the last two approaches namely, continuous improvement and intangible essence are proactive strategies. We shall briefly discuss the last two approaches to quality:
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Quality as Continuous Improvement Quality is a continuous improvement process. Using this approach improvement is brought about in every system of the organisation by removing errors and achieving breakthroughs in performance. Juran is credited with the origin of this concept, in which teams and individuals focus on specific opportunities to achieve a breakthrough. This concept helps in aligning the quality functions with the strategic planning process. Continuous improvement in quality helps in shaping the destiny and influences the future of the organisat ion.
Quality as Intangible Essence In this approach quality is viewed as an intangible essence rather than being a quantifiable ingredient. Quality is being seen as a standard of excellence which is difficult to define. "I can't define it but I know it when I see it",is the basic philosophy of this approach. The perception of quality as an intangible essence can impact the strategic planning process of an organisation. This approach means that there is an unquantifiable spirit or commitment to excellence in an organisation. 8.5. Quality and Strategic Planning the dynamic link that exists between perceptions of the future and the perceptions of qualityThey are shown on a scale which ranges from reactive to proactive. As a result of various combinations four possibilities emerge:
(a) Fad of the Month If organisation is proactive in quality but has reactive perceptions about the future they will introduce one fad after another to practice the latest quality tools but with little effectiveness. (b) Frustration A reactive approach to quality when combined with th eproactive approach to the future leads to high frustration. The organisation may have great plans for quality but they don't find an opportunity to implement the same as they are involved in fire-fighting or managing one crisis after another.
(c) Extinct A combination of reactive quality as well as future may endanger the very survival of that organisation which may become extinct.
(d) High Energy High Success . An organisation can become dynamic and thrill its customers (also capture the market share) if it combines a proactive approach to quality with proactive thinking about the future. This combination leads to a kind of a fission reaction in which when two highly potent masses are placed together a lot of organisational
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power is unleashed to generate high energy which will lead the organisation to achieve high levels of success. In the light of the discussion in this section, what suggestions would you give to the top management of your organisation, if asked by them, in achieving quality orientation in the strategic planning and management of the organisation?
8.6 Strategic Planning Process In order to integrate quality with the strategic planning process a systematic and sequential procedure has to be adopted. The following in broad steps comprise the 'strategic planning process'. 1. Listen to the customer's needs. 2. Plan how you will meet the customers' needs. 3. Be aware of your values and align your organisation to serve the customers. 4. Be aware of the forces that will influence you. 5. Develop specific quality objectives. 6. Consider various scenarios. 7. Plan to close the gaps. 8. Take actions to achieve the objectives. 9. Revaluate and renew efforts. 1. Weston to the Customerâ&#x20AC;&#x2122;s lee& The basis of strategic planning is the identification of customers and their wants and needs. An organisation must seek its customers' requirements, expectations and assess future trends before developing a strategic Customer requirements include pries customers are likely to pay in addition to reliability and performance. Frequent listening to the voice of the customer shall provide the organisation much useful customer feedback. Viewpoint is to treat customers as stakeholders in the organisation. The quality policy should be relevant to the expectations and needs of its customers.
2. Plan How You will Meet the Customers* lee& Next, the organisation must determine its positioning with regards to its customers.Various alternatives such as whether the organisation should give up, maintain or expand market position in some or the other product categories which should be considered. An organisation in order to become successful should concentrate and consolidate its position .in the areas of excellence to be able to provide high quality productsl services to its customers in the most profitable manner. This can be achieved by formulating the mission statement of the organisation which will guide it in delighting the customers and clients. The mission statement with emphasis on quality provides legitimacy to the quality in the organisation. Employees are encouraged to
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believe that quality improvement is a core part of their jobs.The focus on quality in its mission statement will help an organisation to come closer to meeting and exceeding the customer expectations. 3. Be Aware of Your Values and Align Your Organisation to Serve the Customers The next step is to develop the internal vision of the organisation after the organisation's positioning with its customers have been clarified by developing a mission statement with strong emphasis on quality. Sometimes the organisational restructuring has to be attempted to achieve the desired outcome. Once the mission statement is preparedldeveloped the organisation need to invest some more time in reflecting on their vision and values before developing a strategic plan. The strategic plan provides the path for achieving the vision and mission of the organisation. The value statement provides guidelines for work ethic and the behaviour of employees. The values define what people in the organisation believe. For a successful strategic plan the following core values are essential: 1. Drive out fear. 2. Participative leadership. 3. Use of data and management science techniques. 4. Continuous improvement. 5. Commitment to learning. The vision statement (or a set of value statements) describes where the organisation wants to be in terms of "overall performance and competitive leadership". This is the core of the quality-centred strategic planning.
4 Comddm Variow Scenario8 In this step various *arias are considered which can be envisioned on the basis of three possibilities: (i) Events going well for the organisation (ii) Events going very badly (iii) Events going in a manner that is most likely to happen. Using multiple scenarios offers many advantages. Based on the mindsets of the strategic planners and thinkers either the optimistic, pessimistic or middle-of-the-road scenarios can be developed. It enables an organisation to prepare itself to be flexible in adapting to any of the above scenarios. It will also help in identifying gaps that exist between where the organisation presently stands and where it needs to be. ~f
5.oClOB8theGkrp8 The strategic planning team identifies and establishes goals which will assure high quality in their endeavours. They should perform gap analysis to find the difference between current situation and the goals. Quality , improvement is not possible without a specific plan to close the gaps. Assessing the relative importance and
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relative difficulty of each gap enables strategic planners to direct their energy in dosing the gaps.This may also be termed as process improvement. Organisation should embrace quality as an essential ingredient in their vision, mission and objectives. They should also increasingly use specific statistical quality tools to achieve their quality objectives. Figure 5.1 1 highlights some such tools. It is necessary to use the right tools to help the organisation close the quality gaps. The strategic planners must take some steps to dose the gap between the vision and current reality.
8.7 Summary At the beginning of this unit a conceptual framework was developed for briefly introducing the concepts of strategy and strategic planning. Taking a cue from Deming's philosophy the roles and responsibilities of top management in planning and controlling strategic quality management have been outlined. The top management plays a crucial role in strategic decision-making and without its conviction it is practically impossible to achieve the quality centred strategic planning focus in any business organisation. Top management should take a keen interest in developing the quality policy and objectives and should provide adequate guidelines to the quality managers to help them in preparing quality manuals. These documents are corner-stones of quality management system of an organisation. As the success of an organisation inachieving accreditationlcertification from any agency (be it International Standards Organisation (ISO) or Malcolm Baldridge National Quality Awards Committee) hinges on their accuracy and adequacy. In order to accomplish the milestone of Total Quality Management an organisation has to plan its journey according to the quality planning road map which is applicable at all levels In an organisation. The concept of Strategic Quality Management (SQM) as advocated by Juran was briefly explained. The process of setting up strategic quality goals and their deployment upto the lower level of an organisation has been discussed. The role of planning in exercising quality control and through it quality improvement has also been outlined. 'Delighting the customers' continuously is the aim of many business organisations. It requires carefully listening to the voice of the customer and acting accordingly. A fish- bone model was described which specifies the steps to achieve customer orientation. It can be used to carry the voice of customers to all parts of the organisation with the help of cross-functional teams. The last section of the unit, devoted to the issue of quality centred strategic planning, emphasise the need for following proactive styles of thinking about future. Flom the organisation's point of view thereare five perceptions of quality, out of which last two i.e. quality as continuous improvement, and quality as intangible essence are based on proactive strategies. These two perceptions were briefly discussed. In order to better understand the dynamic link that exists between the styles of thinking about the future and perceptions of quality, the two have been plotted together in a graphical manner to yield four possible strategic alternative courses of action. Finally, the nine steps strategic planning process with quality as its core focus have been described in detail.
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5.8 Key Words Customer delight: Exceeding the expectations of the customer by providing very high levels of quality and pleasantly surprising the customer. Quality centred strategic planning: A strategic planning process in which quality is embedded in each and every step. Quality function deployment : A structured process that carries the voice of the customer to all parts and processes of the business organisation. Quality manuals : Elaborately thought out, formally approved and authorised written document in the published form. Quality objectives : ' Aimed-at-quality' targets. Quality policy: A well-documented policy statement clarifying the role and importance accorded to quality in an organisation. Strategic planning : It is concerned with direction and focus of future activities in a planned manner. Strategic quality management : Embodies a dramatic shift in perspective, where quality is treated as the essential ingredient of the strategic management process.
Strategy : The broad programme for defining and achieving an organisation's objectives and implementing its mission.
5.9 Self -Assessment Questions 1. Are quality and strategy inter-related? Discuss the role of quality in strategic business planning process of a business organisation. 2. What are the roles and responsibility of top management of an organisation in achieving quality centred strategic planning focus for an organisation? 3. Briefly describe various sections of a quality manual. How can it be used to achieve quality improvement? 4. What do you mean by quality planning road map? Can it be applied to the major programmes at corporate level? If yes, then how. 5. How can strategic quality goals be deployed at various levels in an organisation? 6. "Quality is consistently achieving customer delight". Please comment. 7. What is Quality Function Deployment? How can it be used to translate the voice of customer for various business processes of an organisation ? 8. What does the "Quality centred strategic planning process" mean? Briefly describe the nine-stepprocedure of strategic planning.
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5.10 Further Readings Costin, Harry, 1996. 'Readings in TQM', The Dryden Press, Harcourt Bruce College Publishers, New York. Dew, John R., 1997. ' Quality Centred Strategic P1anning:A Step by Step Guide', Quality Resources,New York. Handscombe, R. and Norman, P., 1993. Strategic Leadership: Managing the Missing Links', McGraw Hill Book Company, London. Jablonski, Joseph R 1997. 'Implementing TQM-Competing in the 1990s through TQM', Vision Books, New Delhi. #. Juran, J.M. and Gryna, EM., 1988. 'Juran's Quality Control Handbook', McGraw Hill Book Company, New York. Kinlaw, Dennis C., 1995. 'Continuous Improvement and Measurement for Total Quality A Team-based Approach, Vision Books, New Delhi. Oakland, John S., 1989. ' Total Quality Management', Butterworth Heinemann, Oxford. Soin, Sarv Singh, 1992. ' TQC Essentials', McGraw Hill Inc., New York.
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Unit 6 Economics of Quality Objectives After reading this unit you should be able to develop an understanding andlor appreciation of: + the ben&ts and costs of quality; + various types of quality-related costs; + the need for a quality cost system; + the link between quality andproductivity; + some of the usefl techniques of budgeting, control and reporting of quality costs; + the viewdperspectives on quality costs; and + the uses of quality cost information.
Structure 6.1 Introduction: Economics of Quality 6.2 Qualit y-related Benefits 6.3 Quality-related Costs 6.4 Life Cycle Costs 6.5 Quality and Productivity 6.6 Views onlApproaches to Quality Costs 6.7 Quality Costing and Cost System 6.8 Uses of Quality Cost Information 6.9 Summary 6.10 Key Words 6.11 Self-Assessment Questions 6.12 Further Readings References
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6.1 Introduction The first two units of this part dealt with several questions relating to TQM and Business Strategy, and Quality-centred Planning. In this unit we take up another strategic aspect that relates to 'economics of quality'. Whenever we talk about economics of quality, two things come to our mind i.e. what ire the benefits, mand what are the costs of quality? In other words, what are the benefits and costs involved in introducing, adopting or implementing a quality system. We shall discuss the benefits of a quality system briefly as they have been already covered, particularly in the units of Part I. Hence,'cost of quality' is the main focus of this unit. Nevertheless, we shall begin with a recapitulation of benefits of quality. We will discuss the various types of quality costs. We will explore the relationship between quality and productivity and also highlight the need for quality cost system. Thereafter we will deal with the budgeting, control and reporting of quality costs, and discuss some of the techniques that could be useful in this context. mToward the end we shall explain some of the uses of quality cost information.
6.2 . Quality-related Benefits That quality leads to several benefits for the organisation is no longer a matter of dispute. You will recall that we had discussed the benefits of quality in Part 1. However, benefit aspects of quality need reiterationlrecapitulation. If the customers perceive that the product of a particular company is relatively of better quality than the products of the competitors, this in itself is a single most important point that may affect the long-term performance of the company. While there are several benefits which can be quantified, there are several others which are hard to quantify. However, it is generally concluded that'quality-related benefits' reachfar beyond those which are calculable from immediate data relating to success or failure in conformance to specific quality criteria. Many studies have been done examining the relationship between quality, productivity and market ,share. The unequivocal conclusion of the studies is that quality drives market share. When superior quality and market share are both present, profitability is virtually guaranteed'. There is a strong relationship between perceived quality and profitability. Quality pushes growth. It can reduce costs which provides a competitive edge. There are two types of quality: customer-driven (or external) quality, and conformance (or internal specification) quality. The latter relates to appropriate product specifications and service standards that lead to cost reduction. There is an inverse relationship between internal or conformance quality and costs. That is why perhaps Crosby coined the phrase "Quality is free". As quality improves, the cost of the conformance improves, resulting in improved market share and hence profitability and growth. This,in turn,provides a stimulus for further investment in quality improvement areas such as research and development. The cycle thus goes on. In short, improving both internal (conformance) quality and external ,(customer perceived) quality not only lowers the cost of poor quality or no quality, but also serves as a driver for growth, market share and profitability. The rewards of higher quality have been found to be positive, substantive and pervasive'. The following organisational benefits are often attributed to a quality
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improvement programme: a Increased market share a Greater customer loyalty i.e. customer retention Higher (stock market) oj$hare prices Higher prices for produ~tlservices Greater productivity Accelerated development of new products and their introduction in the market Enhanced employee morale and retention Cost-effective. use of resources (cost reduction) lmproved profitability If TQM programmes do not make significant impact on or are not followed by tangible results in terms of the competitiveness of the firm, the fault must lie somewhere else, and not with the-programme per se. An important fact to recognise is that in general the benefits do not and cannot happen overnight. Evidence suggests that achieving success is a slow process. Japanese companies such as Honda,NiSsan and Toyota, which are acknowledged leaders in quality management, have had a long experience (of nearly years or so) in implementing quality approach. Employee empowerment is one of the characteristics of a successful TQM programme. Giving power down the line to the employee level means taking powers away somewhere else in the organisation which is not easy to come by. A survey of UK companies with fewer than 500 employees showed that almost a half had increased their profitability as a result of registration to BS5750 (A Survey of Quality
Consultancy Scheme Plans 1989-90)'. That quality-related benefits arise from consumer-based transactions is well-known. However, benefits may also flow from transactions between organisations, and from transactions within an organiation. According to the transactional model, where buyer and seller are involved in a transaction, quality is a subject of bargaining process in which the other parameters are delivery and cost. This process forms a part of what has been described as an 'adversarial' relationship between buyer and seller, a process in which competitive tendering on pricing and dealing at arm's length with more than one (rather many) suppliers is often a feature. But changing times have necessitated a reappraisal of this traditional model. Gradually, a realisation has dawned on the companies that they cannot be competitive if the components and parts that they buy from suppliers are of inferior quality or are steeped in unreliable supply, even though they may be priced competitively. This has the effect of creating a net cost disadvantage rather than an advantage. Experience has convinced many companies in Japan that they need to develop a closer relationship with their suppliers, which should be characterised by a greater degree of trust and freer exchang'e of information (both technical and commercial). Obviously, the more collaborative relationship cannot be maintained easily with several competing companies because of the (i) costs and efforts involved in establishing such a relationship, and (ii) the costs and efforts of sustaining that relationship in the long run.
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6.3 Quality-related Costs Having briefly explained the benefits, we now turn our attention to quality costs or quality-related cobts. I Quality-related costs are costs incurred by an organisation to ensure that the products or services it provides conform to customer requirements. In others words, quality costs are the sum of money spent on ensuring that customer requirements are met and also the costs wasted through failing to achieve the desired level of quality. Quality cost is thus the cost of not meeting the customers' requirement i.e. the cost of doing things wrong. At 3M quality cost equals actual cost minus no failure cost. That is, the cost of quality is the differnce between the actual cost of making and selling products and services and the cost if there were no failures during manufacture or use and no possibility of failure. TQM philosophy adherents have defined quality costs as costs incurred in excess of those that would have been incurred if the product was built or service performed exactly right the first time. Costs would include not only those that are direct, but also those that result from lost customers, lost market share and the many hidden costs and foregone opportunities hot identified by the cost accounting system. Faigenbaum is attributed with having developed the quality cost measurement while working in the General Electric Company in the 1950s. He proposed a system of6Quality Cost Reporting'whereby all rel. evant costs were categorised into four major areas: Prevention costs Appraisal costs Internal failure costs External failure costs Prevention costs relate to efforts to prevent failures. These are the costs that are incurred on preventing a quality problem from arising. The cost of planning, introduction and maintenance of a quality system, and costs of any action taken to investigate, prevent or reduce non-conformities or defects would be included in this category. It is expected, and reasonably so, that expenditure incurred on prevention would reduce all other costs.
Appraisal costs relate to testing, execution and examination to assess whether specified quality is being maintained. These are the costs that are incurred in assessing that the products or service conform to the requirements. This category would include costs incurred on testing of raw materials, parts and components and other goods received on purchase from outsiders, and all inspection and testing during production. Appraised costs can be contained or reduced when there is emphasis on quality improvement.
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Internal failure costs (or losses) arise due to internal failures. Such costs result from a product or service failing to meet the quality requirement prior to delivery. These costs arise within the organisation because of the failure to achieve the specified quality, before transfer of ownership to the customer. Such costs are incurred because something was not done right first time. In theory such costs would disappear if there were no internal defects such as scrap, or there was no need for rectification or redesign, or there were no delays in the production process due to non-conformance and nonconformance generated shortages. Internal failure costs are the most easy ones to identify and examine for quality cost reduction. However, the management need not overreact on the inspection failures as they might be counter productive. What is required is a systematic and proactive approacb (see Box 6.1). Overreaction to Inspection lrailures Inspection of parts, components or products can never be 100% foolproof. At noted times they may escape inspection or there may be inspection failures. It should be that any over-reaction to it may be counterproductive. This is similar to over-reaction of production management to an inventory . stockout. Typically a defective item that has escaped detect by inspection leads to a tightening of all process control, additional test procedures and more intensive a1 inspection. Most of the time these added costs are appeasements rather than a hard-nosed, pro "9 equal quality decision. It is neither appropriate to look for scapegoats nor to add unnecessary costs. \
External failure costs arise from the rejection of the products or services by the customers due to poor quality. These are the costs that arise outside the organisation, i.e. after the transfer of ownership to the customer,because of failure to achieve the quality specified. Such costs would not appear if there were no external defects, warranty claims, replacement costs, etc. While estimatinglcalculating such costs, one must be a little cautious as quantification may not reflect the full story. There are losses such as customer goodwill or future loss of sales which are difficult to estimate and can easily escape from being quantified (the later type of costs are also known as indirect costs which are further explained a little later). External failure cost can be reduced by more rigorous checkinglinspectionltesting, which might increase internal failure costs as more failures are detected in-house. Recognition of the relative importance of external failure costs has caused progressive companies to broaden their perspective from product quality to total customer satisfaction as the key quality goal. Box 6.2 lists the source of items of costs that fall in each category.
Prevention Costs DesignIReview Quality and reliability training Quality planning including vendor quality planning Design, development and installation of quality measurement and test equipment Calibration and maintenance of quality measurement and test equipments Quality auditing Acquisition analysis and reporting of quality data
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Quality improvement pbgrammes and quality engineering (preparation of quality manual, quality plans, standards, and procedures) Appraisal Costs Test and inspection (or lab. acceptance testing, installation testing, also installation and commissioning in high-tech environment) Maintenance and calibration Test equipment depreciation Analysis and reporting of tests and inspection results Line quality engineering Vendor rejects
Internal failure costs Faulty goods or scraplrejects (as a result of tests and inspection) Rework and repair Design changes Trouble-shooting or defect failure analysis Re-inspection and retesting Downgrading Downtime
External failure costs Complaints Dealers'lcustomers' rejectslreturns Commissioning failures Warranty claims Product reliability compensation (voluntary or legal) Concessions Loss of sales Recall costs
The analogy is a good one because the visible 10 per cent is comprised of such items as scrap, rework, inspection, returns under warranty, etc.. For many companies these comprise what they believe to be the total costs when the hidden costs of quality are computed, controlled and reduced. A firm can achieve the benefits Prevention of costs, therefore, should receive greater attention at the hands of management because it is much less costly to prevent a defect than to correct it. The principle is similar to the traditional medical axiom: "An ounce of prevention is worth a pound of cure". The relationship between these costs is interesting to observe and is reflected in that 1- 10-100 rule. One rupee spent on prevention will save Rs.10 on appraisal, and Rs.100 on failure costs. As one moves along the stream of events from design to delivery, tion becomes greater. Computer system analysts are aware of this and understand that an hour spent on
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better programming or design can save upto ten hours of system retrofit and redesign. One general manager of Hewlett-Packard's computer system division observed: The earlier you detect and prevent a defect the more you can save. If you catch a two cent resistor before you use it and throw it away, you lose two cents. If you don't find it until it has been soldered into a computer component, it may cost $10 to repair the part. If you don't catch the componen! until it is in the computer user's hands, the repair will cost hundreds of dollars. Indeed, if a $5000 cornputer has to be repaired in the field, the expense may exceed the manufacturing cost. Of the cbsts explained above, only prevention costs are thus justifiable elements of the quality costs although appraisal may be justi$ed in industries where safety is an important issue. Since, in theory at least, the costs incurred in appraisal activities and failures are totally avoidable, they are jointly described - as the cost of poor quality (COP ) which, typically, may range 15-40 per cent in industry. You may ask a question: if COPQ is that imp0 f tant or significant, why do firms not take any action to reduce it. The answer is that many companieslfail to identify the causes or drivers of such costs and even if some companies do identify such costs, they consider them inevitable, e.g., over-ordering of material to allow for scrap, redrawing excess inventory levels, penalties for late deliveries, etc. One survey of 94 corporate controllers (in USA) found that only 31 per cent of the firms regularly measured costs of quality. Not surprisingly, the major reason for failure to measure these costs was lack of top management commitment5. If such costs are to be reduced then they must be identified and their causes known. Besides, they should also be reported to management. This calls for a method of classification and
collection, or a system of quality costing and reporting.
A distinction must be made between External Failure Costs and Externd Assurance Quality Costs. The latter are costs that relate to demonstration and proof required as objective-evidence by a customer, including particular and additional quality assurance provisions, procedures, data, administration tests and assumptions (e.g. the cost of testing for specific safety characteristics by recognised independent testing bodies). Such a practice is common with high technology products, using computer-based emulations and simulations to mimic the real world accurately in the test environment. Independent testing is considered vital for establishing the credentials of any product which, if it failed, could have product liability implications for its producer. External assurance costs would also include cost incurred by a firm for engaging an independent assessment organisation to perform a detailed (or in-depth) study of all areas of a company's activity which could affect the quality of its products or services. A distinction should also made between capital costs and revenue or recurring costs of quality. Unless otherwise stated, we are more concerned here with revenue or recurring costs of quality. While the first two types of costs i.e. prevention costs and appraisal costs are known as operatingquality costs as they are incurred by a business to attain or ensure specified quality levels. (This would also
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You will note that as the controllable costs of prevention and appraisal increase, the uncontrollable costs of internal and external failure decrease. At some point, the cost of preventing and appraising defective products exceed the cost of correcting for product failure. This point represents the optimum operating quality cost.
Indirect (quality) costs can be divided into three categories:
1. Customer-incurred quality costs: These include costs to the customer due to equipment downfime, repairing costs after warranty period and transportation costs. 2. Customer dissatisfaction costs: Such costs arise because of customer dissatisfaction and as such are of attribute type. Such costs are high when defect levels are high and low when the defect levels are low. 3. Loss of reputation costs: These costs are related to the attitude of customers toward the company. Because of lowering of a compaliy' image or esteem in the perception of the customers, future sales are adversely affected. Hence, such costs are the costs arising from foregone opportunities due to loss of reputation. The indirect costs are mostly intangible and are difficult to measure. However, they do affect the quality cost curve. The influence becomes apparent when indirect quality costs are added to direct cost curve as shown in Figure 6.3. You may note that optimum point is moved to the right which indicates the need for a lower defect level, and this can be attained by increasing the prevention and appraisal costs. Prevention and appraisal costs will lower the external failure costs. A lower external failure cost has a desirable influence on indirect costs. Though the measurement of actual indirect costs may be difficult, the concept is still valid. A knowledge that such costs do exist can be useful in economic analysis.
Activity 8 A manufacturer has collected the following quality cost data. Assign the figures to the four cost categories and present your findings as a percentage of the total. Rs. Scrap 150000 Rework and repair 160000 Warranty costs 42000 Downgrading 62000 Final Inspection 130000 Returned material rectification 1 10000 In-process Inspection 66000 Goods inwards inspection 54000 Retesting 56000
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Customer complaints handling 38000 Quality Planning 38000 Product liability claims 144000 Vendor quality assurance 44000 Quality system audits 26000 Calibration and maintenance of test Equipment 14000 Quality improvement programme 92000 Quality training 16000
6.8 Quality and Productivity When we talk about quality and productivity, some important questions arise. Are productivity and quality related? Are they two sides of the same coin? Can a firm have productivit'y as well as quality? The answer to all these questions is, yes. A growing body of evidence indicates that there is a positive correlation between productivity and quality. Despite this, there are still misconceptions and apprehensions in several minds that productivity and costs have to be sacrificed if quality is to be improved. From the market point of view, however, it has been clearly established that only when productivity and quality are considered together can competitiveness be enhanced7. Those who believe that increased quality means decreased productivity argue that a programme to improve quality causes disruption and delays that result in reduced output. While in some cases it may be true in the short run, it is not so in the longer term. Such an argument fails if costs associated with poor quality are considered. That there is a positive relationship between quality and productivity was strongly advocated by Deming. He forcefully argued that reduced productivity was caused by quality defects, rework and scrap. He concluded that "improvement of quality transfers waste of man hours and machine-time into manufacture of quality products and better service"! Feigenbaum maintained that a certain 'hidden' and non-productive plant exists to rework and repair defects and returns, and if quality is improved, this hidden plant would be available for increased productivity. It will be seen that these arguments are straightforward. Any quality improvement that reduces defects is,by definition,an improvement in productivity. The cost of quality improvement rarely exceeds the savings from increased productivity. ~ow&er, it may be seen that building a case for or against quality improvement based on output or defect reduction alone may be oversimplifying the matter. A more convincing case can be built on bases of proven benefits of TQM. When the broader picture is considered it can be shown that increasing quality also increases productivity, and the two are mutually reinforcing9. Productivity has come to mean more output for the same or less cost. TQM embraces a broader concept and can be considered to include the benefits of productivity when properly implemented. Greater productivity can also be through attained cost reduction,greater efficiency, better use of resources and organisational restructuring,TQM goes a step
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further; it is a longer term and more comprehensive approach and is concerned with cultural change by creating vision, mission and values. Role of Technology The relationship between advanced technology and productivity has been a matter of great debate and dicussion. Japanese success is mainly attributed to advanced technology. However, it is a mistake to consider technology to be the only answer to improvement in quality and productivity. It is not merely labour replacement which leads to more productivity, it is rather improvement in processes which is important and causes an upward thrust in productivity. Many people think of technology as automation, mechanisation, machines and computers but the term has a much broader meaning. It is a means of transforming inputs into outputs. Technology thus includes methods, procedures, and techniques which enable this transformation. It includes both machines and methods. The latter improves processes which improve the outputlinput ratio. Many firms have achieved remarkable increases in both quality and productivity with little or no investment in the hardware side of technology. This is however not to discount the use of hardware to improve both quality and productivity. However, automation and machines require capital investment, whereas management systems do nat demandlrequire that much capital and may be equally or more effective. The solution in several cases may lie in improving the systems and processes rather than in introducing new technology. Honda was able to market a more competitive car than General Motors' Saturn by controlling cycle time and processes. Honda took half as long General Motors took (eight years). The tendency is to focus on technology to reduce labour costs and to overlook the improvement in quality that can be achieved through improvement in related processes and tapping the potential of the workforce. Good companies buy technology to improve procesds, reduce leads time, boost quality and increase flexibility. Experience has shown that frontline supervisors and employees have a wealth of innovative ideas for productivity and quality improvement. What a firm requires is proper systems,procedures and a right climate to harness their talent. The historical focus of cost reduction in the present context may not be adequate. In today's context capital outlay decisions must be based on overall productivity, improving the quality, cutting cycle time, redesigning inventory and adding flexibility. Activity analysis, and activity based costing (ABC) can be useful tools in improving management systems. We shall turn to these tools in a subsequent section.
6.6 Views on/Approaches to Quality Cost Historically speaking there are two broad views on quality costs.' One view is that higher quality means higher costs. According to this view quality attributes such as performance and features cost more in terms of material, design, etc. The additional benefits from improved quality do not compensate for additional expense'.
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The other view is that the cost of improving quality is less than the resulting savings. Juloan examined the economics of quality and concluded that benefits outweigh costs (though this view was originally promoted by Deming and is widely held by Japanese manufacturers). The savings result from less rework, scrap and other direct expenses relating to defects. This is said to account for increased focus on continuous process improvement in Japanese firms.
Feigenbaum introduced "total quality control" and developed the principle that quality is everybody's job,thus expanding the notion of quality costs beyond the manufacturing f~nction'~In. 1979 Crosby introduced the now popular concept that "quality isfree". This view is held by those who adhere to TQM philosophy. Costs include not only those that are direct, but also those resulting from lost customers, lost market share and the many hidden costs and opportunities not identified by modern cost accounting system (please refer to Section 6.3). If the products are manufactured or services are performed exactly rigbt the first time, many costs are avoided. Philip Crosby is of the opinion that Zero defects should be the absolute performance standard and the cost of quality is the price of non-conformance against that standard. His concept is catching on as more companies set goals such as parts per million, 6-Sigma, and zero defects. Crosby suggested that the cost standard (for defects) calculated in terms of percentage of sales should be reduced to about 2 to 3%.
Approaches to Quality Costs Intuitively, the argument that improvement in process and product quality comes without costs may not appeal to those who are conditioned to the conventional mode of thinking. Let us examine the question of quality costs from two perspectives1 approaches. The first one is &st-Benefit Analysis approach, and the second is Deming-Kaizen approach. Let us take up the first approach first. Cost-Benefit Analysis Approach Under this approach, any improvement in the quality of the product or process is supposed to involve some cost to the producer. For example, greater conformance to quality standards could be obtained through such devices as more inspection, better matetials, more maintenance, training etc., each of which requires a financial outlay. On the other hand, improved conformance to standards could reduce certain costs associated with poor quality, for example, scrap, rework, repair under warranty, and the cost of litigation. According to Juran and Gyrna," firms taking the cost-benefit approach will invest in improved quality so long as the additional benefits (cost reduction due to improved conformance) are greater than the addiEconomics of WQr tional expenditure required to improve conformance. Fig. 6.4 captures the economics of th~asp proach. Line A in the above figure represents the marginal cost of improved quality, and line B represents the commensurate marginal reduction in costs that are derived from reduction in scrap, rework, repair etc.. It
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may be noted that initiakefforts to reduce defects are relatively easy (i.e. they have low marginal costs and result in high marginal savings). As the defect rate is reduced and the zero level approached, marginal costs increase significantly while incremental savings become minimal. It follows that in a competitive market the firm utilising cost-benefit approach would operate where the marginal costs of quality equal marginal savings (represented by Q*). In theory, decisions about the level of product quality and the size of production facility are made simultaneously so that the short run cost function incorporates quality decision. Thereafter, any short-term decision to change quality would result in upward shift of that cost function. Please attempt to understand the significance of the graoh thoroughly.
The Deming-Kaizen Approach Not agreeing with the Cost-Benefit approach, Deming and others argue that a downward shift in the cost occurs hand-in-hand with improved product quality." For example, when internally generated improvements in production result in a higher percentage of throughput meeting engineering specifications, scrap. rework, repair rates etc. will be lower and the requirements for in-process inventories and inspection will be reduced as well. The crucial point to note here is that a firm believing in continuous improvement
(Kaizen) of product and processes is able to achieve cost reduction or economies as part of the day to'day operations. The firm has not to incur special expenditure on implementing improvements to achieve the economies. Put in terms of Figure 6.4, such a firm achieves benefits through cost reductions similar to those represented by Line B without increasing costs represented by Line A.
Let us take an example of an intermediate product say paper which is used by most other industrial firms for their finished products. From the buyer's (or customer's) point of view, quality will be conceived in terms of tansile strength, consistency of finish, width of the roll, thickness of paper, total weight of the roll, etc. Any variations in any of the properties of paper, as spelt out in specifications, can become a source of problem for the buyer in the conversion process. With optimal paper (i.e. paper with optimal properties), the conversion time would be minimal. However, with variations in any of the propertieslattributes of the paper, actual time taken by the conversion process would be more. For example, if paper is thinner than what it should be, the speed of conversion line per force has to be slower to prevent tears in the paper. In the event of the tear, the line must be stopped and the paper restrung. To prevent any unsatisfactory rolls of paper (with thinner, underweight,etc.) being received at his factory,the buyer has to establish some screeninglinspection process for incoming shipments and thus entail costs, for example, in terms of space, equipment, personnel, etc. As such he may refuse to acceptltake rolls which underweigh or have some other defect (i.e. variations from specifications). Sooner or later, the refusal decision would push the
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cost of inspection back to the producer of paper rolls. Thus, the refusal to accept paper has a cost implication for the producerlseller. The question of variations, you must note, is a very important one from the quality of point. Variations on both sides of the spectrum (e..g. underweight vs. overweight, thinner vs. thicker) beyond the acceptable level means rejection which in turn means higher costs (scrap, rework, higher transportation costs, higher inventory, etc.) for the supplier and the buyer. A reduction in variations is tantamount to improvement in quality as it eliminates some of the costs associated with poor quality. In a Kaizen firm, the employees/workers work under a broader framework. They are rotated quite frequently across a number of jobs. They are promoted across departments and hence have a more comprehensive perspective. Apart from being more productive, they have an in-depth understanding of worklproduct processes that encompass many functional specialities, from start to finish. Individual members of the firm would understand how each speciality fits into the bigger picture. An employeelworker is an informed generalist specialising in a number of jobs and can communicate across functions unlike the isolated specialist in a traditional firm. The gains from improvement from this approach are likely to outweigh the sacrifices of economics of specialisation." A Kaizen firm organises and manages itself in such a way that improvements happen in the normal day-to-day operations.
6.7 Quality Costing and Cost System Every organisation, more so a business organisation (whether manufacturing or service), should be aware of the cost of quality. The senior management must see to it that quality costs are identified and measured as part of the organisation- wide policy, failing which the organisation may fail to perform competitively. Increasing consumer protectionism has been reinforcing social and individual pressures to meet the requirements of quality. A company needs to establish a quality cost system which may be limited to the costs incurred by it as a manufacturer or supplier of product and services or it may extend to the users'operational failure costs. The latter approach (life cycle cost approach) attempts to collect costs according to the whole life cycle of the product or service and gives total cost of quality across all activities of the company and its clients.
Only when management knows the total cost of quality can it have an appreciation that the cost of improving quality works out to be much smaller compared to the cost of not having a quality cost system. With this realisation may come the allocation of more resources and better trained personnel for quality related activities. It is not only desirable but rather necessary that quality costs are regularly monitored and reported to the management for appropriate decisions and actions. Although the need for quality costing cannot be overemphasised it will not solve quality problems by itself. It must be used as part of a wider total quality management approach, where problem areas are identified and prioritised, using quality cost data and initiating improvement activity. Quality costs are usually incurred across departmental lines and involve all activities of the company -
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purchasing, manufacturing, design, and service, to name a few. Some costs such as inspection, inst% mentation and quality personnel salaries are readily identifiable. Other costs, such as those associated with scrap and rework, are not that easy to identify and allocate. There are costs related to customer dissatisfaction and loss of reputation which are difficult, if not impossible, to measure. Only by knowing the points (in terms of time or place) where costs are incurred can management know the magnitude of such costs and monitor and control them. Quality costs must be collected and recorded separately otherwise they get absorbed and concealed in numerous overheads: Many companies attempt to measure quality costs and compile the information and statistics outside their accounting system. An effective cost of quality planning and control system should be directed towards the basic reason for quality failure1 improvement. Activities and functions are not independent. They form a system of interdependencies that are connected by linkages and relationships. For example, purchasing from a low quality supplier may lead to redesign, rework, scrap, etc. These linkages 2re difficult to recognise and are often overlooked. The conventional accounting system is generally no' equipped to separate the cost of quality in these linked activities. Virtually all accounting classifications nup activities along functional lines and the reporting of quality costs is done into several general expens, categories such as salaries, training costs, etc. As one of the steps in the des~gno f planning and control system it is useful to identify those activities and linkages between activities where costs occur. Some form of Ili . ir 01 matrix oganisation chart or table could be useful for this purpose. Departments or activities are listeu acroes the top and costs of quality down the left-hand side. Regular financial reports to management are vital and li :part visibility to quality related costs. Quality costs can be related to other costs or measures (e.g. ratios call be calculated) such as sales turnover, added value, etc.: (i) to evaluate the adequacy and effectiveness of
system; (ii) to identify additional areas requiring attention, and (iii) to esta:dish q~alityan d cost objectives. Budgeting, Control and Reporting of Quality Costs
Like any other activity, quality costs should be budgeted and controlled. Mechanisms of control should be established. Actual costs on various items falling in various categories should be compared with budget amounts and variances computed. Only when regular financial reports are available can management be in a position to identify critical quality-related cost areas. A Pareto analysis of the vital few from trhial among quality-related cost areas will enable management to rationally allocate its resources and decide priorities. When the various types of quality costs (as discussed in section 6.3) have been identified, the collection of data against them can begin. The following steps have been suggested (See Table 6.2):
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Step 1: Calculate those costs which are directly attributable to the quality function Step 2: Identify costs which are not directly the responsiblity of quality function (e.g. training cdsts) but it should be included as part of the total quality cost of the company. Step 3: Identify internal evaluation costs for which budgets were allocated e.g. planned over- ! 1 production runs where failures were anticipated. I 3 Step 4: Identify internal failure costs for unplanned failures, e.g. reworks, scrap etc. I step 5: Identify the cost of failures after the change of ownerihip e.g. warranty, claims, i.e. I external failure costs Some Useful Techniques for Budgeting, Control and Reporting Some of the tools and techniques which can be helpful in budgeting control and reporting of quality costs are discussed here under. Operating Quality Cost Repoit The basic quality cost instrument is the operating cost report which is i usually issued by the accounting department. Provision is made in the report for monthly cost information and year-to-date cost information by cost category. A column is included for reporting variances from 4 budgeted or planned quality costs. There is a tendency to analyse only unfavourable variances. This practice can be a mistake since the analysis of substantial favourable variances may provide information leading to formulation of programmes that would continue this happy state of affairs. 3
Trend Analysis Trend analysis can provide information for long range planning, particularly where monthly quality cost reports are prepared which are essentially based on short range perspective.'~rend analysis can be done based on cost category or sub-category, by product, by measurement base, by plant within a company or by a work centre. Trend analysis is an effective tool provided it is recognised that some period-to-period fluctuations may be only normal variations. Ratios Ratios are the most commonly used management tool for monitoring and evaluating performance. Some useful ratios for evaluating the efficacy of the quality programme are given in Box 6.3. Qualify costs to sales turnover This,ratio gives an overall view of the magnitude of quality costs and hence is indicative of the efforts to control them. Quality costs to added value This ratio enables a more focused attention on quality of the value contributed by the firm. Quality cont).ol costs to production cost of sales. . This ratio is particularly useful in detecting intermediate to long-term cost trends. Inspection to assembly direct labour. This ratio is fairly stable but can be misleading if there are significant changes in product mix, makelbuy policy, or degree of automation. A typical figure in the electronics industry would be in the 1:10 to 1:15 range.
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Warranty as percent of sales. Very useful, but use carefully if you are introducing an unusual number of new products. Direct to indirect labour ratio. Indirect quality staffers should always be viewed with a critical eye. Incoming inspection as apercent of material inspected. An excellent tool for budgeting and controlling incoming inspection or PQC. Watch our for distortions caused by the receipt ofhigh-value 1 items such as computers or peripherals.
Percentage increase on QC costs divided by increase in sales. Inflation should tend to cancel so that a ratio of greater than 1.0 needs reassessment. This ratio is, however, unreliable if product inventory fluctuates significantly.
A firm must decide on what ratios would be useful for it. Care should also be exercised in interpreting ratios. Zero Based Budgeting The concept of Zero based budgeting (ZBB) which provides an analytical framework for evaluating projects and activities in terms of overall objectives,goals and policies can be gainfully used for quality cost control. ZBB requires the involvement of all levels in the budgeting process and provides a credible rationale for allocating/reallocating resources. (For a detailed discussion of ZBB, look into course material for MS-4 or MS-43).
Pareto Analysis Pareto distribution is an effective tool for cost analysis. The crux of the Pareto pinciple is "concentrate on few" as it increases cost effectiveness. In ~rdetro apply the Pareto principle, management must first identify the potential quality problems or problem areas, and then identify the vital few problems or defects e.g. scarce material, critical items requiring extensive quality assur- . ance, high-tech parts, large capital equipment projects, computer software sub-contracts, items recently switched from a make to a buy, etc. Pareto principle may be applied in physical or quantity (number) terms, or it may be applied in financial terms. It may be desirable that losses are translated into financial terms, and non-recurring costs and time factor are considered. Only then the clear picture would emerge. The past can guide a firm in preparing the Pareto distribution. The items may be analysed in order of frequency of occurrence and identified by letters such as A, B,C etc. It may be found, for example, that only three defects, viz. A, B, C are responsible for 80% of all defects that occur. These defects are the vital few. The question is: should the firm attack these three defects A, B, and C? The answer may be yes, but only if the firm's objective is to reduce the total number of defects (or the average number of defects per unit). Attacking defects A, B, and C may not really help the firm if they have a minor impact on quality in monetary terms. It may therefore make more sense for the firm to assign a monetary value to each of these defects to make a truer picture of the cost of defects. On doing this, for example, it may be found
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that some other defects, say E, G and K account for nearly 80% of quality defects in monetary terms. Therefore, it may be more desirable to concentrate on defects E, G and K. Further, the nature of some defects, say defect G for example, may be such that it may take several years to remove the defect. For example, a machining operation may have to be, critically redesigned. Which defect should receive more attention of the management would also depend upon the latter's time orientation. Activity Based Costng (ABC) Activity Based Costing attempts to collect information on financial and operational performance and traces the significant activities of a firm to process, product and quality costs. ABC can prove to be a highly suitable technique for TQM because it encourages management to, analyse activities and determine their value to the customer. It may be said that costs are not incurred or allocated, they are caused. The mere collection of data is of little use unless the data can help identify the drivers of quality costs so that problem identification can lead to problem solution. It is in this context that ABC can be extremely useful and helpful. lfthe cost driver relates to an activity which does not add value, it can be eliminated or reduced. One can do this by examining the cause and effect relationship. Cost drivers are the agents that create or drive the need for an activity and hence cause resources to be consumed. It is estimated that 50% or more of the activities in ' most businesses are cost added rather than value added. The basic concept of ABC is that costs or products and quality should be traced to the drivers of activities that consume resources and cause these costs. Many companies often fail to compile the many costs relating prevention, appraisal, internal failure, and external failure that are hidden until identified by a quality cost (management) system. If the costs are not identified there is little chance of tracing them to the processes or activities that are causing them. Only the "visible" rework, scrap and repairlservice costs are complied by most of the companies, whereas all costs, visible and non-visible should be compiled or assessed. Value AnalysislValue Engineering Value analysislvalue engineering can be useful techniques in quality cost control. Value analysis involves examining a product or operation to eliminate any cost elements that are not essential to the effectiveness, utility or marketability of a product or operation. In the case of a product, this involves simplifying the design, substituting with lower cost material, improving reliability or durab~lity( particularly where a company is subject to warranty costs) or eliminating unneeded parts. The purpose of value analysis is to provide the required funcrions at a minimum cost, without sacrificing the required performance or quality (of the productlservice) i.e. without affecting the value of the product or service to the customer. When applied to quality confrol operations, value analysis can provide ways to eliminate unneeded or expensive steps that do not contribute worthwhile benefits. -
Can you share test equipment with other departments, divisions, or local firms?
Can you reduce the number of reports produced and distributed?
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Can you reduce document storage costs by microfilming, using a low-cost document centre, or renting a remote or inexpensive storage building? Can you reduce personnel turnover bjr some relatively inexpensive technique,such as more recognition of good work performed and attention to people's feelings? Can you simplify or use surplus parts and materials to fabricate special test and inspection fuctures?
Do you have on-line video displays for frequent and immediate access of design, status, yield, or cost information? Do you use part-time help or to do routine work and reduce overhead expenses?
Do you have an active campaign to obtain quality cost reduction ideas from the staff?
Do you have a file of standard QC write-ups for use in new proposals so that they don't have to be rewritten? Do you set up mutually agreed-to objectives with your staff?
Can you utilise commercially available computer software packages for reliability or other analyses? Are inspection points located to maximise the return on money spent for inspection?
Are inspection stations and methods engineered for the most efficient work accomplishment? Could inspection and test record and data reporting functions be more efficiently performed using the computer or other modern data-handling devices? Can nomographs, charts, or tables be used to reduce administrative burden on inspectors?
Do you use flexible work schedules to reduce turnover, absenteeism, and tardiness? Can a technical consultant be beneficially employed for certain special problems? Do you constantly evaluate new measuring equipment to determine whether it is faster and more economical than existing equipment?
Can you rearrange measuring equipment to allow one inspector to utilise two or more machines or perform off-line tasks? Could statistical quality control techniques be profitably used? I w Could tests now being performed by outside laboratories be performed at less cost in-house or I vice-versa?
Could some tasks now being performed by highly paid inspectors or technicians be performed by ( lower-classification employees?
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Can available training films be used to reduce quality control training msts?
6.8 Uses of Quality Cost Information The potential uses of the information contained in quality cost reports are numerous but may be grouped into three broad categories. First, quality cost may be used to promote quality as business parameter. Second, it may also serve the motivational purpose. Third, it provides the means for planning and controlling future quality. Quality as a Business Parameter Information of this type aims at gaining the attention of higher management by using the language of finance. This allows quality to be treated as a business parameter like any other activity. Quality cost information giving rise to performance measures is usually expressed as absolute or relative costs i.e. indexes or ratios to other business costs. These cost measures may be used for these purposes: (a) comparison with other parts of business or with other busiriesses; (b) decision-making. The current performance may be compared against past performance. It is important that both these sets of cost data should be arrived at on the same basis. This apart, quality costs can also be used to learn more about the economics of investment in prevention activities. The use of quality costs for decisionmaking refers to its use in helping managers to identify major opportunities for cost reduction.
Quality for Motivational purpose: The use of quality costs for motivational purposes include displays to shop floor workers of scrap costs arising within their centres and to middle managers for their department's contribution to total quality costs. Quality costs for planning and controlling: The use of quality cost as a means of planning and controlling indude establishing quality cost budgets for the purpose of cost control. More specifically quality cost information can be used in a number of ways as follows: To identify profit opportunities (every dollar saved goes to the bottom line) To make capital budgeting and other investment decisions (quality, as opposed to payback, is the driver of decisions to purchase new equipment or dispose of unneeded ones; equipment for rework is not needed if the rework is eliminated or reduced) To improve purchasing and supplier-related costs To identify waste in overhead caused by activities not required by the customer To identify redundant systems To determine whether quality costs are properly distributed To establish goals for budgets and profit planning To identify quality problems
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As a management tool for comparative measures of input-output relationships (e.g., the cost of a reliability efbrt versus warranty costs) As a tool of Pareto analysis to distinguish between theuvital few" and theutrivial manyn As a strategic management tool to allocate resources for strategy formulation and implementation As an objective performance appraisal measure Some companies e.g. General Electric's quality cost system emphasise non-product features such as inquiry responsiveness, delivery times and billing accuracy. The emphasis is on root cause analysis an$ process improvement: simplification of procedures and reducing cycle time and pushing down in quality costs while improving customer satisfaction.
Ecmomica of Quality Activity 3 Design a quality cost reporting format suitable for use in your own organisation. Discuss the information, collection and analys~sr equirements with your management accountant and prepare an initial quality cost report. Economics of quality i.e. costs and benefits of quality are an important subject in TQM. If a firm enjoys a reputation in the market for quality products, this in itself becomes a source of competitive advantage. Besides, benefits like increased market share, greater customer loyalty, higher share prices, greater productivity, enhanced employee morale, improved productivity etc. are some other tangible benefits that are likely to occur to the firm. The quality-related costs can be classified into four categories: Prevention costs, Appraisal costs, Internal Failure costs, External Failure costs. Prevention costs should get the most emphasis as it is much less costlier to prevent a defect than to correct it. Quality costs can be further divided into direct costs and indirect costs. While prevention and appraisal costs are considered controllable, failure costs, whether internal or external, are regarded as uncontrollable. Quality costs or cost of non quality are estimated to range between 25-40% in India. Life cycle costs take into account all the costs from cradle to grave i.e. through the entire product life cycle. That there is a strong relationship between quality and productivity has been stressed by quality gurus, particularly by Deming and Feigenbaum. A quality improvement programme that reduces defects in itself is an improvement in productivity. Technology has an important role in raising productivity, In its broader interpretation, and being concerend with transformation of inputs into outputs, technology includes both machines and methods. The latter is the softer side of technology, and many firms have achieved remarkable increases in both quality and productivity by strengtheninglimproving methods and processe~~~atthhearn
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investing heavily in hardware. Broadly speaking, there are two views on quality costs. The traditional view is that qualit$ means higher costs. The other view is that benefits of or saving from quality are much higher than the co$t. According to cost benefit approach, firms will continue to invest in improvement in quality so long as additional benefits are greater than additional expenditure required to improve conformance. Contrary to this approach the Deming-Kaizen approach postulate$ that a downward shift in cost of quality occurs handin-hand with improved product quality. For realising full benefits of quality policy and programme, an organisation needs to have a quality cost system whereby quality costs are systematically identified and measured. Further, an organisation needs to have a budgetary system on a continuous basis for computation of variances to trigger appropriate reporting and action for future. Zero Based Budgeting, Ratio Analysis,Value Analysis and Engineering,Activity Based Costing, Quality Cost Reports, Trend Analysis, and Pareto Analysis can be useful devices in this context. Quality cost information can have several uses. It can he used: as a business parameter for decisionmaking purposes, foiplanning and controlling costs, and for motivational purposes.
6.10 Key Words Quality Engineering costs: Cost of prevention activities associated with the creation of overall quality plan (i.e. implementation, maintenance and auditing inspection plan, reliability plan, data system and other special plans). Design and development of equipment: Cost of personnel engaged in planning and measurement of quality control equipment. One of the prevention costs. Appraisal cost or Product Quality Audit: Expenses involved in performing quality audits on in-process or finished products Scrap: An Internal Failure cost equal to net loss of labour, material and overheads resulting from economically non-saleableinon-reparable defective products Rework: Cost of correcting defective units so that they meet specifications. An internal failure cost. Failure Analysis: Costs incurred to determine the cause of product failure Reinspection: Costs of reinspection or retests of products that have been reworked. An internal failure cost. Fault of supplier: Unrecovered losses due to failure of suppliers material. An item of internal failure cost. Downgrading: Costs involved in price differential between normal selling price and the reduced price due to inferiority 3f the product in meeting specifications. An item of internal failure cost. Rejected and returned: External failures costs associated with handling and replacement of returned products Warranty Charges: Costs of replacing failures within the warranty period. An item of external failure costs.
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Liability: Costs incurred as a result of liability litigation. An external failure cost. Quality Assurance: It embraces all activities and functions concerned with attainment of quality Quality System: A system that embodiek the structure, responsibility, procedures, processes and resources for implementing quality managemellt. Prevention Costs: Costs incurred to prevent failure (internal and external) i.e. costs incurred in preventing quality problem from arising. Appraisal Costs: Cost incurred on testing, execution and examination to assess whether specified quality is being maintained. Internal Failure Costs: Cost arising from internal failure i.e. productsiservices failing to meet quality requirements prior to delivery. External Failure Costs: Costs arising from rejection of products or services by customers due to poor quality occuring after delivery. External Assurance Costs: Costs relating to demonstration and proof required as objective evidence by customer, particularly in thecase of high tech, high risk or critical products. Economics of Qualitgr. Direct Quality Costs: Costs directly measurable in monetary terms arising from poor quality of products or services. Prevention, appraisal, internal failure and some of the external failure costs are direct quality costs and can be measured without much dificulty. Indirect Quality Costs: Costs not directly measurable in monetary terms due quality being below the expected levels. Such costs include customer incurred costs, customer dissatisfaction cost and cost arising from loss of reputation. These are difficult to measure. Life Cycle Costs: Costs of non-quality throughout the product life cycle i.e. cost incurred before and after change of ownership. Cost-Benefit Approach: A purely economically oriented approach under which a firm is supposed to continue to invest in improving quality as long as the additional benefits from improved conformance are greater than additional expenditure. Deming-Kaizen Approach: A quality-oriented approach which postulates that quality improvements in themselves generate benefitslsavings i.e.a downward shift in costs occur hand-in-hand with improved product quality. Quality Cost System: A system in which costs of quality (or non quality) are identified, measured and reported on a regular and systematic basis. Pareto Analysis: Analysis based on the principle that a few items are often the cause of most of the losses (i.e. 80:20 rule) and hence it is desirable to concentrate on these few. Value Analysis: An analysis undertaken to reduce cost of a product or service without reducing value to the customer. Activity Based Costing: A method of costing that traces the costs to the cost drivers (or activities) that cause
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them.
6.1 1 Self-Assessment Questions 1. What benefits is a quality conscious firm likely to derive from effectively implementing a quality programme? 2. Discuss the various types of quality costs. What kind of cost should a firm be more concerned with? 3. Why should prevention cost take precedence over the other three classifications? 4. What is the justification for Philip Crosby's claim that "Quality is Free"? 5. Examine the statement that "Quality is Free". Give reasons in support of your answer. 6. Discuss the meaning and significance of life cycle costs in connection with quality. 7. Are quality and productivity related with each other? Discuss fully, citing any examples of business firms which have been able to improve both quality and productivity. 8. Discuss and examine different views on costs and benefits of quality. Which of the views, do you think, you can support and why? 9. Why should a firm have a quality cost system? What uses has the quality cost information for the management of a business firm? 10. What are the benefits of a'eost of quality measuring system'? 1 1. Discuss some of the tools and techniques that can be useful in budgeting, control and reporting of quality costs. 12. Examine and comment on the following statements: (a) Expenditure rise to meet budget (b) If you need a piece of equipment but do not buy it, you pay for it even though you don't have it Henry Ford (c) Many organisations spend a good deal of time on doing effectively that which should not have been done at all. 6.18 Further Readings Crosby, Philip. 1979, Quality is Free, McGraw Hill, New York Godfrey, James T., and Pasewark, William R., March 1988, Controlling Quality Costs, Management Accounting The Conference Board, 1991, Global Perspectives on Total Quality, Conference Board Report (No. 958) Deming, W. Edwards, 1982, Quality, Productivity, and Competitive Position, MIT, Cambridge, MA Juran, Joseph,M.,and Frank M. Gryna, Jr., 1980, Quality Planning anddnalysis, 2"ded.,New York: McGraw Hill
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References 1. Buzzell, R.D. and Gale, B.T., 1987, The PIMS Principles: Linking Strategy to Performance, The Free Press, New York, p.87 2. Ross, Joel E. and Georgoff, Jan.-Feb. 1991,A Survey of Productivity and Quality Inns in Manufacturing: The State of the Industry, Industrial Management 3. A Survey of Quality Consultancy Scheme Clients, 1988-90, PERA International and Salford University Business Services, Salford 4. Anderson, Dong, 1991, How to Use Cost of Quality Data, in Global Perspectives on Total Quality, The Conference Board, New York, p.37 5. Tyson, Thomas N., Nov.1987, Quality and Profitability: Have Controllers Made the Connection? Management Accounting, pp38-42 6. Cited in Omachona, 1995, Vincent K and Joel E., Ross, Kogan Page, p.203 7. Institute of Industrial Engineers, Jan. 1990, Productivity and Quality in the USA Today, Management Services (UK), pp.27-3 1 8. Deming, E., Edwards, 1982, Quality, Productivity and Competitive Position, Centre for kdvanced Engineering Study, MIT, MA, pp. 1-2 9. Cited in Omachona, op cited, p.180 10. Feigenbaun, Armand V., 196 1, Total QOality Control, McGraw Hill, New York I 1. Juran J.M. and Gryna, Jr., EM., 1970, ~ualitPjl anning and Analysis, McGraw-Hill, New York, p.47 12. Deming, NE., 1986, Out of Crisis, MIT, Centre pf Advanced Engineering, Cambridge, MA 13. Aoki, Masahiko (ed.), 1990, Towards an Economic Model of the Japanese Firm, Journal of Economic Literature 28, pp. 1-27
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