CAPE

MANAGEMENT OF
BUSINESS
UNIT 2
Production and
operation management
LEAN PRODUCTION
AND QUALITY
MANAGEMENT

Unit 2
Module One
LEARNING OBJECTIVES
■ analyse the importance of lean production to
competitive businesses
■ evaluate the main lean production techniques
■ explain the concept of quality
■ understand the difference between quality control and
quality assurance
■ explain the importance of businesses establishing
quality-assurance systems
■ evaluate the effectiveness of total quality
management
■ assess the costs and benefits of managing quality
■ explain how managing quality effectively can improve
the competitiveness of business.
LEAN PRODUCTION:
This is the use of resources as efficiently as possible to
minimise waste and improve quality. It involves the
introduction of new processes and technology to reduce
waste and inefficiency in production. Lean production
tries to reduce the time taken to develop a product and to
make it available to consumers. Lean production also
removes any activity which do not adds value to the
product or service. A business achieves this by examining
all of its activities and processes and finding ways in
which to improve on the methods employed.

The overall objective of this production method is to

produce quality output with fewer resources that is, less
waste, less duplication and elimination of non-added
value activities.
LEAN PRODUCTION:
The seven main sources of waste in industry are:
1 Excessive transportation of components and products.
2 Excessive inventory holding.
3 Too much movement by working people, e.g. to get
supplies of components.
4 Waiting time – delays in the production process.
5 Overproduction – producing ahead of demand.
6 Over-processing – making goods that are too complex
as they could have been designed more simply.
7 Defects – products that do not come up to quality
standards and have to be rejected or corrected.
LEAN PRODUCTION FOCUSES ON THE FOLLOWING
PROCESSES:
1. Inventory control: if there is too much stock more
space will be used up hindering efficient production of
other goods
2. Employee roles: if they can be developed and
improved the whole process can be more efficient
3. Defects: any fault requires the goods to be fixed and
time will be wasted inspecting the goods
4. Utilisation of resources: resources should not be
wasted
5. Time factor: machines and workers must not be
unnecessarily moved. Movement is a waste of time.
6. Capacity management: capacity must not be
underutilised or over utilised.
ADVANTAGES OF LEAN PRODUCTION
1. Less storage costs of raw material, components and
finished goods. The firm will only keep the required
stock
2. No defects or need for replacement. All goods
produced will be defect free. This will increase
customer satisfaction
3. Less money is tied in inventory. Only few stocks will
be held, hence only less money is kept in stock
4. Time is saved. This is because unnecessary processes
have been removed. All processes that do not add
value are removed.
5. Few accidents at work place. This result in improved
worker health and safety. This is because of few
movement in machinery and workers in the factory
BENEFITS OF LEAN PRODUCTION
Benefits to customers
a. The customer will get a better quality product that
means value for money.
b. The firm is better able to cater to the needs of the
consumers.
Benefits to the economy
a. Resources are used more efficiently. Cost of production
will fall. Selling price will fall.
b. The effect on the domestic economy is tremendous:
i. Demand for the firm’s output will increase.
ii. Employment levels will rise in the domestic
economy.
iii. If output is exported, the firm will be able to
compete on the external markets.
iv. The effect of this is an inflow of foreign exchange.
v. It could also lead to an improvement in the balance
of payments account.
vi. There will be an inflow of foreign investment.
vii. Increase in tax revenue for the government.
viii. Finally, national income will rise and there will be
an improvement in people’s standard of living.
CHARACTERISTICS OF LEAN PRODUCTION
a. Uses multi-skilled workers.
b. The goal is to bring the operation as close as possible to
perfection.
c. It focuses on a ‘pull system’.
d. Produces volumes of goods.
e. It uses less of everything in comparison with mass
production.
f. Uses machines that are flexible.
g. Employees have a great deal of responsibility, which can
motivate them. Sometimes it can create excess stress.
Employees
a. Employees should be multi-skilled.
b. They should be committed to producing goods and services of
high quality.
c. They should be flexible to respond to consumers demands.
d. Employees must produce what consumers want and when
they want it.
e. It imposes heavy demands on management.
f. It imposes responsibilities on shop floor workers who have to
contribute to quality assurance schemes.
g. Workers may need additional training as they adapt to
quality circles and flexible ways of working.
Training
a. For lean production to be successful, workers must be
highly trained. Both workers and management will
have new roles and responsibilities.
b. Workers must be constantly looking for new ways to
improve production.
c. Lean production also requires the use of quality circles,
job rotation and job enlargement. This means workers
must be able to respond to any necessary change in the
workplace.
d. This means that workers must be well-trained to
function efficiently in any area of the business. There
must be continuous training for all workers.
LEAN PRODUCTION METHODS
Kaizen Effect: a Japanese word that means that a
business should seek continuous improvements. The
basic idea is that the employees of an organisation are
the best people to know how a task should be
undertaken. The Kaizen idea is that employees should be
given the responsibility of working out how their jobs can
be changed so that efficiency and quality can be
improved. It is achieved through new processing ideas
from workers. Small groups of workers meet regularly to
discuss processing problems and possible solutions to the
problems. Kaizen eliminates waste by removing
unnecessary movement at the work place and by
improving factory layout. This increase factory space and
free employees from unnecessary jobs.
FEATURES OF KAIZEN OR CONTINUOUS IMPROVEMENTS

a) Small improvements are made continuously, unlike a

major overhaul or improvement that is done when
using research and development
b) The workforce is regarded as being talented, skilled
and usually knows more about the product therefore
they are able to suggest improvements to be made
c) Suggestions are usually easier to implement since
they come from the workforce
d) Small improvements are less likely to require major
capital investments
e) Teamwork is often used to solicit suggestions for
improvement and to maintain quality.
The following conditions are necessary for
kaizen to operate:
■ Management culture must be directed towards
involving staff and giving their views and ideas
importance − managers must accept that, in many
areas of the business, work experience will count for as
much as theoretical knowledge.
■ Team-working – suggesting and discussing new ideas
to improve quality or productivity is best done in
groups. These kaizen groups are likely to be drawn
from the work team or cell – operating in the place of
work. Each kaizen group should meet regularly – and
this requires management to provide the time and
necessary training – to discuss problems that they have
identified. Recommendations for change could then be
put forward to managers, or each group may be
empowered to put their own ideas into practice.
■ Empowerment – by giving each kaizen group the power
to take decisions regarding workplace improvements,
this will allow speedier introduction of new ideas and
motivate employees to come up with even more ideas.
■ All employees should be involved.
LIMITATIONS OF KAIZEN OR CONTINUOUS
IMPROVEMENTS
1. Some of the changes that are required cannot be done
incrementally
2. The firm may incur short-term costs on a regular
basis as it implements changes
3. Its success is heavily dependent on the culture of the
organisation and leadership style of management
4. Employees may feel pressurised into continuously
coming up with new ideas
5. There is little room for stability since things are
always changing.
QUALITY CONTROL TECHNIQUES/ METHODS OF
QUALITY CONTROL
1. JIT(Just In Time)
2. Quality at source
3. Inspection
4. SQC (Stastical Quality Control)
5. QC (Quality Circle)
6. TQM (Total Quality Management)
7. Control Charts
8. Acceptance Sampling
9. ISO (International Standardization for Organization)
QUALITY CONTROL AND ASSURANCE
What is meant by ‘quality’?
 A quality product does not necessarily have to be the
‘best possible’.
 Refers to fitness of a product or service for its purpose

 The ability of a product or service to meet customer

expectations
 Quality does not mean producing a high quality
product. Quality is meeting customer’s expectations.
Quality is determined by consumer expectation. Thus it
is in the interests of all businesses to know the quality
levels that customers expect and to have systems in
place to minimise the risk of customers being
dissatisfied with the quality that they receive. To
achieve quality, managers must therefore set targets
based on customer needs and then make sure that the
targets are being achieved.
QUALITY DIMENSIONS
PERFORMANCE: This refers to a product’s primary
operating characteristics.
FEATURES: This refer to a product’s secondary product
characteristics (i.e., the “bells & whistles”). They
supplement the product’s basic functioning
characteristic(s).
CONFORMANCE TO SPECIFICATIONS
Conformance refers to the degree to which a product’s
design & operating characteristics meet prior established
standards. Conformance to specifications focuses attention
on the internal & operating view of quality. It is the basic
subject matter of statistical quality control (SQC). SQC is
a body of knowledge that allows tools & measurement
standards to be developed in a continuous & economical
way. Objectives are to find & eliminate “assignable
causes” leading to defective products prior to the
realization of any actual nonconforming conditions.
RELIABILITY: Reliability refers to the likelihood of a
product failure (malfunction) with a specified time period.
Reliability must be “designed” into a product. If a product,
as designed, is inherently unreliable, nothing can be done
in the manufacturing process (es) to improve it.
DURABILITY: Refers to the length of life of a product. Take a light
bulb, for example: After so many hours of use, the filament burns up
& the bulb must be replaced. Repair is impossible. There is a high
correlation between reliability & durability when products can be
repaired. A product with a high failure rate (lack of reliability) is
scrapped earlier than more reliable products.
SERVICEABILITY: Serviceability refers to speed, courtesy &
competence of repair. Consumers are concerned, not only about a
product’s break-down, but also about the elapsed time before service is
restored, the timelines with which service appointments are kept, the
nature of their dealings with service personnel & with the frequency
with which service calls or repairs fail to correct outstanding problems
& specific customer issues.
PERCEIVED QUALITY: This refers to what customers think they
are buying, rather than what they are actually buying. A $95 facial
crème does not belong, & will not sell in a discount drug store. It must
be sold through an upscale department store or specialty boutique.
Perceived quality extends beyond what is put into the package.
Packing, distributive channels, pricing, advertising themes,
reputation, etc. create the notion of what is termed perceived quality.
AESTHETICS: Aesthetics refers to “how a product looks, feels, tastes
or smells”. Aesthetics is an abstraction, but there are approaches for
measuring & dealing with it. “Hotel appearance” is certainly a quality
feature, but it also seems like an abstraction. However, digging in &
identifying the specifics of what collectively constitutes appearance, -
“the condition of the carpet, lavatory, linens, windows, ash trays & so
on”, one can begin to develop a baseline standard.
BENEFITS OF IMPROVED QUALITY
1. The product establishes a good brand image.
Customers prefer to buy brands that are of high
quality and this will increase sales
2. It builds brand loyalty. Customers will be loyal to the
company’s products that they will not be willing to buy
competitor’s products
3. Higher prices can be charged. Customers are willing to
pay more for quality products. This may boost business
profits.
4. Less legal cases from customers. Satisfied
customers will not sue the company.
The business can benefit from positive publicity from its
customers. Customers will only say good things about the
company.
Reduces the cost or reworking the product.
POSSIBLE COSTS INVOLVED IN IMPROVING QUALITY
Market research must be done to establish customer
expectations
Inspection may be expensive in a quality control system
Workers must be trained which may increase costs
Production may need to be stopped to trace and correct
faults

Three Elements of Quality

1. Quality control
2. Quality assurance
3. Total Quality Management (TQM)
 TECHNIQUES FOR IMPROVING QUALITY:
QUALITY CONTROL
Quality control: This is based on inspection of the
product or a sample of products. Quality control involve
making sure a product reaches a certain quality standard.
The main objective of quality control is to ensure that
products being produced and sold are free of defects. The
lower the defect rate, the lower will be the cost incurred in
correcting the problem
METHODS OF QUALITY CONTROL
Preventive Control: This is the control maintained on
inputs to ensure that raw materials are defects free. All
inputs are checked for quality before use. When the
product is designed the designers should take into account
the customers’ quality requirements. Processes (such as
manufacturing, providing a service) should be designed to
achieve this level of quality.
Concurrent Control/Pro-active control: This is the
monitoring of the on-going production process. Quality
checking will be done while the process is running.
Products are regularly inspected/ tested to see if quality
standards have been meet.
Feedback Control/ Post action control: This is the
checking of outputs for errors so that the next production
process can be corrected or free from defect. Faulty
products/ service need to be corrected and design or
processes adjusted to ensure that the problem is not
repeated.
LIMITATIONS OF QUALITY CONTROL
1. It finds problems only after they have happened
2. It is difficult to identify the process that will be
causing problems
3. Quality control process relies on the skills of those
involved in the inspection process.
QUALITY ASSURANCE
Quality assurance: a system of agreeing and meeting
quality standards at each stage of production to ensure
consumer satisfaction.
A system for making sure agreed standards are met at
each stage of a process in order to ensure customer
satisfaction. Thus, it is the checking of products or
services to see if they meet minimum quality standards
throughout the production process. Quality assurance put
more emphasis on preventing mistakes. An important
part of this approach is that employees check their own
work rather than relying on someone else to check it for
them at the end of the process. It stresses the need for
employees to get it right first time. The purpose of quality
assurance is to make sure that the customers are
satisfied. This will increase sales, increase value addition
and profits.
ADVANTAGES OF QUALITY ASSURANCE
Quality assurance has the following claimed advantages over
quality-control systems based on final inspection:
1. Problems should be identified before the end of the process
thereby saving costs of putting things right
2. There is little need for final inspection thus saving the costs
of an inspectorate
3. When there are problems it should be easier to trace back
to where the fault is occurring in the processes, saving
future costs or problems
4. Improves accountability since employees are responsible for
quality at every stage of production
5. There are greater opportunities for employees to take pride
in their work thus improving motivation
6. The business can get industry or government awards which
improves the reputation of the business
7. It makes everyone responsible for quality – this can be a
form of job enrichment.
8. Self-checking and making efforts to improve quality
increase motivation.
9. The system can be used to ‘trace back’ quality problems to
the stage of the production process where a problem might
have been occurring.
WHY IS IT IMPORTANT FOR BUSINESSES TO ESTABLISH
QUALITY-ASSURANCE SYSTEMS?
There are several reasons for this:
■ To involve all staff , and this can promote teamwork and
a sense of belonging, which aids motivation.
■ To set quality standards for all stages of production so
that all materials and all production phases are checked
before it is too late and the whole product has been
completed.
■ To reduce costs of final inspection as this should become
less necessary as all stages and subsections of the
process have been judged against quality standards.
■ To reduce total quality costs − by instilling in the whole
organisation a culture of quality, it is possible for
quality assurance to lead to reduced costs of wastage
and faulty products.
■ To gain accreditation for quality awards. These can give
a business real status or kudos. The most widely
recognised quality award within the European Union is
ISO 9000.
INTERNATIONAL ORGANISATION FOR
STANDARDISATION (ISO)
The ISO is an international body that develops
international standards that cover most areas of
technology and business. A standard is a document that
provides requirements and specifications against which
processes, goods, services and materials are measured to
ensure good quality
Examples of ISO standards
ISO 9 000: quality management
ISO 14 000 : environmental management
ISO 22 000 : food safety management
ISO 26 000 : Social responsibility
ISO 9000: This an internationally recognised certificate
that acknowledge the existence of quality procedure that
meet certain conditions
ISO 9000
This award is given to firms that can demonstrate that
they have a quality-assurance system in place that allows
for quality to be regularly measured and for corrective
action to be taken if quality falls below these levels. Th is
award does not prove that every good produced or service
provided by the business is of good quality. It is an
indication that a business has a system of quality in place
that has relevant targets set and activities ready to deal
with a quality problem.

To obtain the ISO 9000 certificate the firm has to

demonstrate that it has:
■ Staff training and appraisal methods
■ Methods for checking on suppliers
■ Quality standards in all areas of the business
■ Procedures for dealing with defective products and
quality failures
■ After-sales service.
BENEFITS OF ISO:9000
1. It provides for competitive edge in the domestic as well
as international market.
It helps in achieving consistency, economy & cost
effectiveness through
standardisation of operations.
It increases customer’s confidence in the supplier through
quality system
transparency.
It is a versatile marketing tool in today’s international
scenario.
It provides the way for TQM since it ensures continuous
quality improvement to
meet the requirement of customers
It reduces the need for inspection by the buyers.
In India some concessions for import have been given as
Export & Import Policy
to the companies adopting ISO:9000 standard.
The ISO:9000 certification by a company is a source of
motivation to its
employees. The employees feel proud in achieving excellence.
LIMITATIONS OF ISO:9000
1. Time consuming
2. Expensive
3. Unless carefully interpreted & planned, the system can
become burdensome quite often obstructing normal
operations.
4. Resistance to change
QUALITY STANDARDS
These are standards that are established by independent
organisations to ensure that the interests of consumers
are protected – for example, the Bureau of Standards in
Jamaica.
ADVANTAGES OF QUALITY STANDARD
The advantages of producing quality products and services
are:
■ Easier to create customer loyalty
■ Saves on the costs associated with customer
complaints, for example compensation, replacing
defective products and loss of consumer goodwill
■ longer life cycles
■ Less advertising may be necessary as the brand will
establish a quality image through the performance of
the products
■ A higher price – a price premium – could be charged
for such goods and services. Quality can, therefore, be
profitable.
TOTAL QUALITY MANAGEMENT (TQM)
This is a specific approach to quality assurance that aims
to develop a quality culture throughout the firm. In TQM,
organisations consist of ‘quality chains’ in which each
person or team treats the receiver of their work as if they
were an external customer and adopts a target of ‘right
first time’ or zero defects.
Although the philosophy was developed by Japanese
companies, it was originally put forward by an American,
Edward Deming whose 14-point plan applies to
management in general, but is especially useful in respect
of quality.
FEATURES OF TQM
a) Quality Chains
b) Control
c) Company policy and accountability
d) Monitoring the process
e) Teamwork
f) Consumer views
g) Zero defects

To be successful TQM requires:

a) Involvement and consultation with customers

b) Overcome internal obstacles
c) Possible investment
d) Management by objectives and targets
e) Implementation of systems and procedures
BENEFITS OF TQM:
i) Focus clearly on the needs of customers and
relationship between suppliers and customers.
ii) Find improvements and develop measures of
performances
iii) Achieve quality in all aspect of business, not just
product or service quality
iv) Develop a team approach to problem solving
v) The system builds in control mechanisms and
accountability
vi) The emphasis is on continuous improvement
vii) Team members feel that they have ownership over
the improvement process.
viii) To develop effective procedures for communication
and acknowledgement of work
ix) All operations and activities are thoroughly
scrutinised on an ongoing basis to identify scope for
improvement.
x) TQM can lead to motivation of all concerned.
POSSIBLE LIMITATIONS OF TQM
a. Implementation cost might be exorbitant
b. To be successful, it needs the involvement of the entire
business
c. Management may have unrealistic expectations for
success which cannot materialise
d. If not handled properly it may lead to labour
management problems.
QUALITY CIRCLES:
This refers to groups of employees who meet regularly to
discuss work-related issues and problems and to identify
potential improvements. These groups are empowered to
put their ideas into practice, making improvements at
their stage in the quality chain. They usually meet to
discuss ways in which they can improve the quality of
their work and cut out waste.
MAIN OBJECTIVES OF QUALITY CIRCLES ARE:
1. Promotion of employees’ involvement
2. Fostering better communication
3. Engendering good leadership qualities
4. Fostering effective teamwork
5. Allowing workers to develop their problem-solving
capabilities
6. Improving productivity.

Some of the main features of quality circles are

given below:
a. Decisions are made by consensus rather than a
‘majority rule’ approach
b. Groups are usually small in size, consisting of just a
few employees
c. Members are not chosen but opt to volunteer their
services
d. It uses a ‘bottom-up’ approach

e. Regular meetings are held to discuss issues.

BENEFITS/ADVANTAGES
1 It helps in bringing out several innovations & change in
work methods & products.
2 It is an valuable tool for increasing productivity,
improving quality & increasing workers’ job
satisfaction.
3. Participation of workers/employees encourages
commitment of the employees in producing quality
product.
4. It helps in the development of the participants as they
are encouraged to produce innovative ideas & learn the
ways to improve the product quality.
5. It provides opportunities for better understanding
among members.
6. It creates awareness of the potential of the workers.
QUALITY BENCHMARKING
Benchmarking is a general approach to business
improvement based on best practice in the industry, or in
another similar industry. Involves management
identifying the best firms in the industry and then
comparing the performance standards of these businesses
with those of their own business. The business will
investigate the product/ service or procedure. The
product/service or procedure is then compared with other
businesses in the same field of activity to identify ‘best
practice’ i.e better methods than those currently used.
Weaknesses can be identified, acted upon and new
standards and procedures can be set.
It can provide a useful quality improvement target for a
business. This can be a helpful approach for services as
well as for products – for example a fast food business
selling fish and chips could decide that it wanted to aim to
equal McDonalds’ speed of meeting customer orders for
takeaway food. A financial services firm might want its
call centre staff to answer 95% of telephone calls within
six rings, if this is the practice of the best in the industry.
In some cases, firms can use internal benchmarking in
which best practice may be set with reference to another
department, or by a similar factory in a different location.
The objectives of the firm in using benchmarking
may include:
1. Improving delivery time and frequency

2. Proper waste management and disposal

3. Inventory control management

4. Improving consumer service

5. Cost reduction

6. Eliminating waste in the production process.

STAGES IN THE BENCHMARKING PROCESS
1. Identify the aspects of the business to be benchmarked: ask
customers and find out what they consider to be most
important
2. Measure performance in these areas e.g reliability records;
delivery records and possibly the number of customer
complaints
3. Indentify the firm in an industry that are considered to be
the best: get information from management consultants or
government benchmarking schemes
4. Use comparative data from the best firms to establish the
main weaknesses in the business: obtain data from published
accounts; contacting suppliers or customers
5. Set standards for improvement: use or modify standards set
by the best firm
6. Change process to achieve the standards set: introduce a
new way of doing things
7. Re-measurement: The changes to the process need to be
checked to see if the new, higher standards are being reached.
BENEFITS OF BENCHMARKING
a. Encourages the generation of new ideas
b. If workforce is involved in the comparison exercise, then
employees may be motivated by their participation in the
program
c. It is a faster and cheaper way of solving problems
d. Increased market share when the identified problems are solved

Limitations of Benchmarking
1. It can be expensive when the firm fails to recover all the cost
incurred in the comparison exercise
2. The business is relying on copying ideas from other firms
which then discourages innovation
3. Benchmarking exercise may be misleading if the information
obtained is not relevant or up-to-date.
COST OF QUALITY SYSTEM
potential costs of quality systems The potential benefits of
quality systems
■ market research to establish expected customer
requirements
■ staff training costs to ensure that standards are
understood and the operations needed to check them can
be undertaken − this will be especially important with
TQM
■ material costs – rejecting below-standard materials and
components before they are used in the production
process will almost certainly lead to higher expectations
from suppliers
■ equipment costs for checking standards at each stage,
e.g. laser measuring machines for accuracy of panel fit
on a vehicle
■ inspection and checking costs
■ reworking of faulty products or rejection wastage costs –
the aim of quality assurance is to reduce these to an
absolute minimum – ‘right first time’
■ stopping production to trace and correct quality
problems will disrupt output
THE POTENTIAL BENEFITS OF QUALITY SYSTEMS

■ consumer satisfaction and repeat custom as there is

nothing like a good experience with the quality of a
product to encourage consumers to buy more – and to
tell their friends about it
■ good publicity, e.g. from consumer pressure groups and
consumer-oriented articles in the media
■ reputation for quality encourages retailers to stock the
firm’s products, so this will increase the distribution
outlets for a product
■ easier to establish new products in the market as
consumers will associate the business’s good reputation
with the new product
■ allows the brand to be built around a quality image,
and branding is an important form of non-price
differentiation for businesses
■ may allow a price premium to be charged over other
similar products in that market segment – quality can
be used as a USP or unique selling point and this would
be a clear demonstration that ‘quality pays’, as the
extra revenue