MANAGEMENT OF BUSINESS - UNIT 2

Module 1 - Production and Operations Management

Topic 8: Lean Production and Quality Management

IMPORTANCE OF QUALITY

Quality is defined by ISO8402–94 as the set of characteristics of an entity that give that
entity the ability to satisfy expressed and implicit needs. Generally speaking, quality
measures the degree to which a product meets or exceeds the desire of the consumer.
Quality is normally measured in terms of performance, reliability and durability. It should be
the desire of every firm to maintain quality at all times, since defective products can quickly ruin
a firm’s reputation. Firms that maintain quality can also gain a competitive edge over their
competitors. Customers often become loyal to any product that they believe give them the
highest quality. With these in mind, firms should ensure that quality is always maintained within
the firm.

DIMENSIONS OF QUALITY

This concept was developed by David A Gavin, a professor at Harvard Business School, in the
late 1980s. He proposed that there were EIGHT DISTINCTIVE DIMENSIONS OF
QUALITY.

1. Performance – this dimension deals with the primary operating characteristics of the
product. It is what the product was created for. For example, the primary operating
characteristics of a cellular phone is to make and receive calls. If the phone cannot make
or receive calls, then it would not fulfil this dimension. Performance is assessed by using
measurable attributes so that each brand can be ranked objectively.
2. Features – this dimension includes the secondary aspects of the product’s performance.
The feature are the characteristics of the product that are used to supplement its basic
functioning or performance. Going back to the example of the cellular phone, its features
might include a camera, Wi-Fi technology, and voice dialing among others. Consumers
should be able to use the features of the product to make judgements of quality and not
just base these on their individual prejudice.
3. Reliability – A product’s reliability is judged against the possibility of it malfunctioning
or breaking down within a specified period of time. The three most common measures
of reliability are the average time of the first failure; the average time between failures;
and the failure rate per unit produced. It is important to note that this measure would
only be plausible for consumer durable goods which will be used over time, as opposed
to services which are consumed instantly. As for the cellular phone in our example, the
manufacturer would have to measure the average time that it will take before it starts
malfunctioning.
4. Conformance – this measures the extent to which the product’s design and operating
characteristics adhere to the established standards. Conformance is usually measured
against the defect rates in the factory and frequency of service calls after the product is
sold. In measuring conformance, deviations from the standards on matters such as labels
with incorrect spelling or inferior construction, which do not result in service or repair,
are not considered.
5. Durability – Durability is a measure of the expected lifespan of the product. It measures
the product’s life in terms of economic and technical dimensions. Technical durability
refers to the amount of use the consumer gets from the product before it deteriorates. It
may also be defined as the amount of use the consumer gets from the product before it
breaks down and has to be replaced instead of repaired. For example, when you purchase
a pair of shoes, you may replace the tips or reinforce the soles but there comes a time
when you have to replace them. Upon purchase you would have expected that the shoes
should last for a particular period of time – that is, its durability.
6. Serviceability – This measures the speed, courtesy, capability and ease of repair of the
product. Most consumers are aware that the product will break down at some time but a
greater concern should whether or not it can be repaired and the length of time it will
take. Serviceability also includes the quality of the service personnel, the manner in
which service appointments are kept and whether or not servicing corrects the problem.
The consumer wants to know that, having spent hard earned cash on a product, it will be
able to be repaired or serviced should something goes wrong with it.

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7. Aesthetics – this dimension is subjective in nature and relates to how the product looks,
feels, sounds, tastes, smells. Unlike the other measurable dimensions, aesthetics is based
on the judgements and preferences of the individual consumer. Therefore, it may be
difficult to please everyone in terms of this dimension of quality, for example. What you
like in a car may not be the same as what someone else likes.
8. Perceived quality – this is the perception of the consumer at the initial contact with the
product, that is, what comes to mind the first time the product is seen. At this stage, the
consumer usually has insufficient information about the product’s attributes and so
quality may be inferred from its various tangible or intangible aspects. Consumers at
times depend on images, advertising and brand names to judge the product’s quality.

TECHNIQUES FOR IMPROVING QUALITY

1. Quality control and quality assurance

Quality control is the process of ensuring that the product meets its established
quality standards. The main objective of quality control is to ensure that products being
produced are sold free of defects. The lower the defect rate, the lower will be the cost
incurred in correcting the problem or destroying the product. High quality products will
help the firm to gain the trust and loyalty of consumes who will be satisfied after their
usage. A good quality control system is one that involves regular inspection of the
product and correction of any defects found. The following concepts are integral to
quality control

 Zero defects – this concept involves the production of products that are free
from faults and which adhere to their standards. It is usually used to
encourage quality in the work of employees, who would be rewarded if quality
products were produced.

 Quality assurance – this is the guarantee to maintain an agreed or established

set of quality standards. In doing this, the firms’ suppliers must also be
involved, since poor quality raw materials lead to poor products. Unlike quality
control, which focuses on detecting defects once they have occurred, quality
assurance emphasizes that the necessary steps be taken to prevent the occurrence
of the defects. It therefore attempts to build quality into the system from the very
outset.

 Quality standards – these are standards that are established by independent

organizations to ensure that the interests of consumers are protected – for
example, the Bureau of Standards in Jamaica. Some of these standards are
explored below.

2. Benchmarking

No one company knows it all and so it is always good to learn the best practice of others.
Benchmarking is another method for improving quality. It is the process whereby a
firm identifies the best practices of another firm then implements them to improve
its own product. It can be a very good source of quality improvement, as the strategies
used by other firms in the industry or other industries have been tested and proven. It
must be pointed out, however, that the aim of benchmarking is not to copy other firms’
products but rather to access their production methods or processes.

The objectives of the firm in using benchmarking may include:

 Improve delivery time and frequency

 Proper waste management and disposal
 Inventory control management
 Improving consumer service
 Cost reduction
 Eliminating waste in the production process

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 The main steps involved in benchmarking are:

a. Identify the area for improvement

The firm must examine its operations carefully and identify the areas that need
improvement. It will then decide which of these areas will be improved through
benchmarking. In identifying the area of the business that needs improvement the
firm may gather information from sources such as consumers and workers. It
could carry out extensive market research or use consumer feedback cards or
suggestion boxes.

b. Choose the right company

Once the areas for benchmarking have been identified, the firm next step is to
procure a company that will be studied and assessed. The company under study
must be contacted and the relevant parameters established, for example, sensitive
information such as trade secrets and pricing policy are not normally disclosed.
Instead the focus should be on best practices in terms of maintenance of standards
and quality and strategies used to improve performance.

c. Gather information
The next step is to gather information from the company to be benchmarked.
This information can be gathered through the use of questionnaires, interviews or
observation. The firm should ensure that the information collected is relevant to
the areas that need improvement and is also credible.

d. Analyze the information gathered

The information collected is of little help unless it is carefully analyzed and
decisions made regarding variances between both firms. A comparison should be
done between what the firm is doing and what the benchmark company is doing.
The analysis will help the firm to identify the areas of the benchmark findings to
implement.

e. Implement and
f. evaluate the finding
Finally, the firm must now implement the findings of the benchmarking exercise.
In addition, it should reassess its operations over time to ascertain whether or not
the policies that were implemented as a result of benchmarking are working.

Benefits of using benchmarking

 Brings faster awareness of important innovations and how to implement them

successfully.
 Usually much cheaper than some of the other methods that are used to improve quality.
 Proper implementation will help to reduce waste and improve productivity.
 Can improve the competitiveness of the firm both locally and internationally.
 Facilitates team building and employee involvement in the decision making process
 Gives the firm a better understanding of its customers and how to keep them satisfied.

Limitations of benchmarking

 The search for a suitable firm to benchmark can be a very tedious process, as not all firms
want to share information.
 While possible, what works for one firm may not necessarily work for another.
 Needs qualified experts to make comparison that will be meaningful. This can be a very
costly exercise.
 Implementing new policies within the company could be stalled by resistance to change
and the necessary resources.

3. ISO quality standards

The International Organization for Standardization (ISO) was established in 1947 with a mandate
to publish international standards relating to businesses worldwide. The ISO is a network of

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national standards organizations around the world. A number of CARICOM member states,
if not all, are members of the ISO.
The organization has developed a number of ISO quality standards that relate to a number of
different things. However, for the purposes of this course, the focus will be on ISO 9000, which
deals with Quality Management. ISO 9000 is a group of standards that address different aspects
of quality management. For example, ISO 9001:2008 focuses on requirements of a quality
management system, while ISO 9004:2009 focuses on how to improve efficiency and
effectiveness of quality management systems.

The ISO 9000 guidelines that firms should employ to improve their levels of efficiency and
customer satisfaction. The main goals of ISO 9000 are to increase productivity, minimize costs
and improve the quality of processes and products. The ISO proposed the following principles of
ISO 9000:

 Focus on customers – they should be the primary focus of the business. Organizations
should attempt to respond to the needs of their customers so as to improve customer
satisfaction, resource allocation and efficiency.
 Good leadership – firms should ensure that a good team of managers are employed who
have the requisite skills and ability to motivate their subordinates and minimize
miscommunication.
 Involvement of people – leadership should employ a team working strategy, as this
would improve the morale of employees and improve the quality of work.
 Process approach to quality management – it is suggested that activities and resources
should be managed together. The ISO believes that this will lower costs as a result of
better use of resources, personnel and time.
 Continual improvement – this is closely related to Kaizen.
 Factual approach to decision making – decisions should be based on analysis and
interpretation of data. This will enable the firm to make informed and statically sound
decisions.
 Supplier relationship – good supplier relationships will help to improve the quality of
raw materials.

Benefits of ISO quality standards

 High levels of consistency in performance

 Reduction in costs
 Improvement in customer satisfaction
 Higher productivity levels and in improvement in efficiency
 Improvement in the morale of employees

4. Outsourcing

As firms face the economic crunch and seek to reduce operational costs, the concept of
outsourcing is becoming more and more popular. For many businesses, labour cost takes up
significant portion of the budget and finding cheaper labour with the requisite skills is always of
interest. The term outsourcing refers to the process whereby firms subcontract some of
their operations to independent suppliers of services. When a firm outsources these
operations it can concentrate resources on its core product. A common trend today is to
outsource some of the firm’s services to call centres, catering companies, cleaning firms and
security firms. The firm may also outsource some of its stages of production or the production of
some of its products. As mentioned above, a firm in its search for cheaper labour may outsource
the manufacture of its products to countries with lower labour costs, such as China.

A number of businesses in the United States have been using this policy over the years.
Countries such as China and India have been beneficiaries of US business outsourcing. While
firms can rack up significant cost savings as a result of outsourcing, it may lead to low
motivation and job insecurity in their own workforces. Firms should also consider the cost of
outsourcing as compared with the present situation before embarking on this approach. A
number of Caribbean countries have been positioning themselves to be beneficiaries of global
outsourcing. This has been made possible with the development of Information and
Communications Technology (ICT). It should be pointed out, however, that outsourcing can be

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done within the country. A firm may choose to subcontract the services of another firm because
it is more efficient in its delivery of the service or production of the product.
Benefits of outsourcing

 The firm’s focus can be on its core products

 Usually results in costs savings, including labour costs
 Improvement in efficiency and quality
 Can boost productivity and competitiveness
 Usually leads to greater customer satisfaction

Drawbacks of outsourcing

 The firm’s financial success may be tied to that of another company

 It might be more difficult for the firm to maintain quality, since it is not involved in the
production of some its products. This is especially possible where proper quality
standards are not in place.
 Can be a potential source of conflict, as the firm’s own workers may be laid off with the
outsourcing of aspects of the business
 Loss of managerial control, since the outsource firm has its own management.

5. Quality circles

In maintaining quality, a firm must be aware that its employees are a very important part of the
process. They are the ones who manufacture and interact with the product on a daily basis. To
this end, they should be a part of the quality process. One way in which firms ensure that their
employees are a part of the quality process is by setting up quality circles. These are groups of
lower-level workers who meet regularly to analyze and critically review the design and
production of a product. The team may also discuss production problems and develop
solutions to these problems. They are normally charged with the mandate to improve the quality
of the firm’s product offering. In most situations, members are given some training to assist
them in the group’s work. The group may consist of workers from a wide cross section of the
firm who work collectively to improve the product’s quality where possible.

Objectives of quality circles

 Promotion of employee’s involvement

 Fostering effective teamwork
 Engendering good leadership qualities
 Fostering effective teamwork
 Allowing workers to develop their problem-solving capabilities
 Improving productivity

Features of quality circles

 Decisions are made by consensus rather than a majority rule approach

 Groups are usually small in size consisting of just a few employees.
 Members are not chosen but opt to volunteer their services
 It uses a bottom up approach
 Regular meetings are held to discuss issues

Quality circles can be effective in maintaining quality but it takes great effort on the part of all
the stakeholders. For them to be successful and reap their potential benefits, quality circles have
to be supported by management and the people who are a part of these teams must be committed
to the tasks to be done. The use of this type of quality improvement method will also be
dependent on the leadership style of management, as it needs a more participative approach.
Management also needs to facilitate and train both the quality circle leader and the members.
Quality circles should not be used as an avenue to deal with grievance or personal problems.

If quality circles are utilized properly it can help to:

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  Improve motivation in the workplace
 Promote continuous improvement
 Develop good leadership qualities among their members.
 Improve communication between management and subordinates
 Reduce defect rates as employees become more aware of the maintenance of quality.
 Promote team working among employees

6. Kaizen or continuous improvement

Kaizen is the Japanese concept of continuous improvement. The approach is based on the
notion that the improvement of a product should be a never-ending process. As a result,
improvements should be made on a small and gradual basis over the life of the product. A firm
using this method of improving quality will seek to continually improve its machinery,
production method, raw material and labour, among other things. The concept of Kaizen was
developed by the car manufacturer Nissan and has been used in its manufacturing process to
improve efficiency and quality.

A major assumption of this approach is that the employees play a critical role in the maintenance
of quality. Since they interact with the product, they are able to identify areas of the production
process or the product itself that need improvement. This approach is at times used in
conjunction with quality circles or teamwork. The group will review and assess production
regularly and make suggestions for improvements.

The main features of Kaizen or continuous improvements are:

 Small improvements are made continuously unlike a major overhaul or improvement that
is done when using research and development.
 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.
 Suggestions are usually easier to implement since they come from the workforce.
 Small improvements are less likely to require major capital investments
 Teamwork is often used to solicit suggestions for improvement and to maintain quality.

The Kaizen approach can be an effective one but its level of success is dependent on the
organizational culture and leadership style being used. Management and workers must be
committed to the culture of on-going change. The leadership style employed by management
should be one that involves the workforce in the decision making process. An organization
where workers are not given the opportunity to share their inputs or team work is not encouraged
is less likely to reap success from Kaizen. The lines of communication must be open both ways
and workers should be given their autonomy to make certain decisions. Continuous
improvements also requires that the necessary resources are available to make the changes that
are identified to improve quality.

Limitations of Kaizen or continuous improvement

 Some of the changes that are required cannot be done incrementally

 The firm may incur short-term costs on a regular basis as it implements changes.
 Its success is heavily dependent on the culture of the organization and leadership style of
management.
 Employees may feel pressured into continuously coming up with new ideas
 There is little room for stability since things are always changing

7. Research and Development

Large companies sometimes spend millions of dollars on their research and development
programs. In order to improve quality and satisfy their consumers, firms must endeavor to
produce the best quality products. This is done through conducting constant research and
developing the products based on the findings of the research. Research and development
involves steps taken by a firm to improve either the product itself or the way in which is

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made. This is particularly important in an industry that is very competitive, as firms must
improve or develop new products in order to remain competitive.

Research is concerned with the discovering and uncovering of new principles and ways to do
things, while development deals with the transformation of the research findings into the actual
improvement of the product or production process. Process development deals with the
improvement of machines in the layout of the plant. On the other hand, product development
involves the improvement or creation of different products. These products must be tested and
evaluated before the firm goes into their full production.

It is important to note that companies can either undertake their own research and development
programs or they can purchase the ideas generated by other institutions such as universities. A
good research and development program should result in innovations and product development.
Outside of this, the firm would have underutilized and wasted the large sums of funds that were
invested.

Benefits of Research and development

 May help to boost sales

 Extends the firm’s reach into new markets.
 Can improve the firm’s reputation and brand
 Improvements in quality
 The company can gain a competitive edge over rivals
 Improvements in the product and the value received by consumers,
 Reduction in costs over time.

The extent to which a firm invests in research and development may be dependent on:

 The amount of financial resources it has - R & D can be very expensive and if the firm
does not possess the requisite funds, it may not be done.
 The desire for long-term competitiveness as opposed to short-term success – R & D
requires investments to bring about long-term success and competitiveness. Firms must
be aware that an investment made now may not pay off until some years later.
 The level of innovation in the industry – an industry where firms are innovated will force
other firms in the industry to be innovative.
 Objectives of the firm

LEAN PRODUCTION

This method of production is credited to the Japanese car manufacturer, Toyota. Lean
production was developed to reduce wastage of resources by using a few resources as
possible in production. To this end, the company is expected to save time, money, materials
and human effort while improving quality and productivity. Lean production’s overall aim is to
cuts costs while increasing efficiency. In order for this to be done, the firm will need to ensure
that quality is a maintained at all times throughout the organization. A key aspect or feature of
lean production would be Total Quality Management,

Total Quality Management (TQM)

The success of the firm is dependent on whether or it can provide quality goods and services to
its customers. In order for this to be accomplished, quality has to the concern of every person
who has an impact on the organization. Efforts by management to maintain quality can prove
futile if all stakeholders are not attempting to maintain quality themselves. The aim is to achieve
quality in all spheres of the business has given rise to the philosophy of Total Quality
management. TQM is a management philosophy which ensures that quality is maintained
in all areas of the organization in order to meet customers’ expectations. It is people
focused and aims to satisfy the firm’s customers continually. One of the main objectives of
TQM is customer satisfaction. The firm aims to satisfy the firm’s customers by building quality
into its products and every aspect of the business.

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Other objectives of TQM include:

 The enhancement of performance in terms of quality, speed of response and flexibility

 To foster a customer focused organization instead of one focused on functions
 Improvement in the business’s flexibility and ability to adapt to the changing
environment.
 To create an organization that is people focused and involves stakeholders in all its
activities.
 To empower workers to work in teams focused on improving quality
 To produce a product with zero defects

Once we examine TQM, we must make mention of W. Edwards Deming, who contributed a lot
to the study of quality improvement in the mid-1900s. In his work he proposed 14 principles that
can improve quality namely:

1. Creation of a consistency of purpose with a view to improving quality and customer

satisfaction
2. Adopting a philosophy of leadership to promote change
3. Cease using inspection as a means to achieve quality and instead build quality into the
product from the beginning,
4. Establishing long-term relationships with suppliers. These should be based on their
performance and not price.
5. Constantly improving quality, production and service provision, with the aim of
reducing costs.
6. Implementing on the job training
7. Changing the focus of leadership to one that promotes quality as opposed to production
numbers. The view here is that quality improvement will result in improvements in
productivity.
8. Driving fear out of employees so that can work effectively and therefore increase
productivity.
9. Breaking down barriers that exist among departments. This will encourage teamwork
and synergy while possibly reducing conflict among departments.
10. Eliminating criticism of workers and unrealistic targets and slogans that are not
supported by the relevant resources to accomplish them.
11. Eliminating work standards such as quota for factory workers and numerical objectives
for people in management,
12. Removing barriers in the work place which prevent workers from taking pride in their
work. These barriers may include performance appraisal, where workers are assessed
based on their output.
13. Educating workers and encouraging self improvement. A skilled labour force is always
an asset to a firm. Therefore, to improve quality the work force must be encouraged to
improve their educational level and knowledge.
14. Encouraging everyone in the organization to work on the transformation process. In
order for the transformation to be smooth and successful, it has to be the imitative of
top management and filtered to other workers.

The main features of Total Quality Management are

 Consumer inputs
TQM requires the full commitment of firms to their customers, as they are very important
to quality improvement. Information must be gathered frequently about customers’ needs
and expectations. When this information is received, the firm must adjust its product or
processes to cater for the desire of tis customers,

 Zero defects
The concept of zero defects is a very important feature of TQM. Since firms aim to
satisfy their customers totally. They have to produce a product that is free from defects.

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 For this to be achieved it will take tremendous effort and care on the part of every
stakeholder in the firm.

 Teamwork/quality circles
Teamwork has become the most effective method used in TQM to solve problems.
Empowering workers can help to build trust and morale throughout the organization.
Teamwork also helps to improve communication and cooperation between management
and subordinates. Teamwork is important to TQM since the suggestions for fixing
problems with quality will come from the very people who produce the product and have
day to day interaction with it.

 Control strategies
A good and efficient TQM system is one where there are proper control strategies in
place to monitor quality and the processes that are used. Total satisfaction of customers
will only be achieved if the business has control over the factors that influence the quality
of the product. Such factors may include the workforce, technology and materials. The
monitoring of quality and business processes can help the firm to identify areas that can
be improved.

 Company culture and policies

TQM is most likely to be successful where it is infused in the culture of the firm. It has
to be fully supported by top management and filtered down throughout the organization.
There must also a culture of accountability among every individual in the organization.

 Quality chains
This refers to the relationship between suppliers and customers – both internal and
external. Quality chains can be broken at any point if a person or piece of equipment
fails to produce goods in line with the requirements of customers. TQM places great
emphasis on this chain, as that is the only way quality will be maintained throughout the
organization.

 Benchmarking
See pages 2 and 3 above

 Continuous improvement
See page 6 above

The role of the customer in TQM

Since one of the main objectives of TQM is to satisfy customers, their role is a very important
one. The customers are the main purchaser of the products and their views should be considered
in quality management. The firm should continuously assess customers’ needs and seek to
satisfy these needs. Customers’ needs can be ascertained through regular market research.
Customers and consumers are able to make suggestions to the firm on how to improve quality to
meet their needs. Customers tend to purchase the product that they believe has the highest
quality and will give them value for money. With this in mind, they are the best judge of the
effectiveness of the firm’s product. Since TQM places so much emphasis on customer
satisfaction, complaints from customers should be treated with care and a desire to correct any
problems. Consumer knowledge should be integrated with the objectives of the firms in that a
quality good or service can be produced.

The success of TQM may depend on the following factors:

 Involvement in trade unions in the planning process – this could lead to greater
acceptance by workers of the wholesale changes that might occur,
 There needs to be a strong sense of job security – this could make it easier for workers
to buy into quality initiatives proposed by the firm,
 Constant training of employees – workers must be trained in the area of maintenance of
quality and teamwork. This is particularly important for firms that do not have a culture
of TQM.

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  The financial resources of the firm – TQM initiatives tend to be expensive and quality
changes may come at a high cost. Therefore, financial stability of the firm is needed for
the success of TQM.
 Involvement of employees in the decision making process – involving employees in the
plans to implement TQM may result in an easier transformation and acceptance.

Benefits of implementing TQM

 Promotes an improvement in quality and achievement of zero defects.

 Results in continuous improvement of production and processes
 Proper implementation can lead to greater customer satisfaction
 Can improve the firm’s competitiveness
 Helps companies to identify areas of waste and inefficiencies and to correct them.

Limitations of TQM

 Implementation cost might be exorbitant

 To be successful, it need the involvement of the entire business
 Management may have unrealistic expectations for success which cannot materialize
 If not handled properly it may lead to labour management problems.

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