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					Quality management - introduction

One of the most important issues that businesses have focused on in the last 20-30 years has been quality. As markets
have become much more competitive - quality has become widely regarded as a key ingredient for success in business.
In this revision note, we introduce what is meant by quality by focusing on the key terms you will come up against.


What is quality? You will comes across several terms that all seem to relate to the concept of quality. It can be quite
confusing working out what the difference is between them. We've defined the key terms that you need to know
below:

Term                     Description
Quality                  Quality is first and foremost about meeting the needs and expectations of customers. It is
                         important to understand that quality is about more than a product simply "working properly".

                         Think about your needs and expectations as a customer when you buy a product or service.
                         These may include performance, appearance, availability, delivery, reliability,
                         maintainability, cost effectiveness and price.

                         Think of quality as representing all the features of a product or service that affect its ability
                         to meet customer needs. If the product or service meets all those needs - then it passes the
                         quality test. If it doesn't, then it is sub-standard.




Quality management       Producing products of the required quality does not happen by accident. There has to be a
                         production process which is properly managed. Ensuring satisfactory quality is a vital part of
                         the production process.

                         Quality management is concerned with controlling activities with the aim of ensuring that
                         products and services are fit for their purpose and meets the specifications. There are two
                         main parts to quality management

                         (1) Quality assurance

                         (2) Quality control



Quality assurance        Quality assurance is about how a business can design the way a product of service is produced
                         or delivered to minimize the chances that output will be sub-standard. The focus of quality
                         assurance is, therefore on the product design/development stage.

                         Why focus on these stages? The idea is that - if the processes and procedures used to produce
                         a product or service are tightly controlled - then quality will be "built-in". This will make the
                         production process much more reliable, so there will be less need to inspect production
                         output (quality control).

                         Quality assurance involves developing close relationships with customers and suppliers. A
                         business will want to make sure that the suppliers to its production process understand
                         exactly what is required - and deliver!




Quality control          Quality control is the traditional way of managing quality. A further revision note (see the list
                         on the right) deals with this in more detail.

                         Quality control is concerned with checking and reviewing work that has been done. For



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                        example, this would include lots of inspection, testing and sampling.

                        Quality control is mainly about "detecting" defective output - rather than preventing it.
                        Quality control can also be a very expensive process. Hence, in recent years, businesses have
                        focused on quality management and quality assurance.
Total quality           Total quality management (usually shortened to "TQM") is a modern form of quality
management              management. In essence, it is about a kind of business philosophy which emphasizes the need
                        for all parts of a business to continuously look for ways to improve quality. We cover this
                        important concept in further revision notes.

Introduction to production and operations management

Definition

Production and Operations Management ("POM") is about the transformation of production and operational inputs into
"outputs" that, when distributed, meet the needs of customers.




The process in the above diagram is often referred to as the "Conversion Process". There are several different
methods of handling the conversion or production process - Job, Batch, Flow and Group

POM incorporates many tasks that are interdependent, but which can be grouped under five main headings:

PRODUCT

Marketers in a business must ensure that a business sells products that meet customer needs and wants. The role of
Production and Operations is to ensure that the business actually makes the required products in accordance with the
plan. The role of PRODUCT in POM therefore concerns areas such as:

- Performance
- Aesthetics
- Quality
- Reliability
- Quantity
- Production costs
- Delivery dates

PLANT

To make PRODUCT, PLANT of some kind is needed. This will comprise the bulk of the fixed assets of the business. In
determining which PLANT to use, management must consider areas such as:



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- Future demand (volume, timing)
- Design and layout of factory, equipment, offices
- Productivity and reliability of equipment
- Need for (and costs of) maintenance
- Heath and safety (particularly the operation of equipment)
- Environmental issues (e.g. creation of waste products)

PROCESSES

There are many different ways of producing a product. Management must choose the best process, or series of
processes. They will consider:

- Available capacity
- Available skills
- Type of production
- Layout of plant and equipment
- Safety
- Production costs
- Maintenance requirements

PROGRAMMES

The production PROGRAM concerns the dates and times of the products that are to be produced and supplied to
customers. The decisions made about program will be influenced by factors such as:

- Purchasing patterns (e.g. lead time)
- Cash flow
- Need for / availability of storage
- Transportation

PEOPLE

Production depends on PEOPLE, whose skills, experience and motivation vary. Key people-related decisions will
consider the following areas:

- Wages and salaries
- Safety and training
- Work conditions
- Leadership and motivation
- Communication

Economics - factors of production

Factors of production are the resources of LAND, LABOUR, CAPITAL and ENTERPRISE used to produce goods and
services.


LAND

Land is the natural resources on the planet. It includes space on the ground, hills, seas, oceans, air etc

LABOR

Labor is the human input (workers, managers etc) into the production process.

Each individual has a different level of skills, qualities and qualifications. This is known as there HUMAN CAPITAL.

CAPITAL

Man made physical goods used to produce other goods and services.


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Examples include machines, computers, tools, factories, roads etc.

Increases in the level of capital are called INVESTMENT

ENTERPRISE

The entrepreneur provides the initial ideas.

They risk their own resources in business ventures. They also organize the other 3 factors of production.


    ACTION

A Think about your school. What evidence is there of the 4 factors of production land, labor, capital and enterprise?

B Now does the same for a business that you know something about.

C What qualities are needed in an effective entrepreneur?

D Think about your own human capital. What skills and qualities do you have?


    SMART THINKING

E Is it possible to improve the factors of production e.g. makes labor or capital better?

F What do you think is meant by capital intensive production or labor intensive production?

Economics - types of production

The factors of production are combined to make goods and services. Choices have to be made over what to produce
and how to produce.

The value of total production in an economy is known as TOTAL OUTPUT.


Types of Industry

(1) PRIMARY INDUSTRY

Industry that extracts raw materials from the earth, such as coal, fish and wheat. Raw materials are mined, collected,
grown or cut down.

Examples coal mining, agriculture, oil extraction

(2) SECONDARY INDUSTRY

Industry that processes primary products into manufactured goods.

Examples car production, making tables

(3) TERTIARY INDUSTRY

Businesses that provide a service, either to individuals or to other businesses

Examples hairdressing, banking or solicitors

De-industrialization


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This refers to the change in the balance of the economy between the outputs of different types of industry.

Introduction to break-even analysis

Introduction

Break-even analysis is a technique widely used by production management and management accountants. It is based
on categorizing production costs between those which are "variable" (costs that change when the production output
changes) and those that are "fixed" (costs not directly related to the volume of production).

Total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales
value or production at which the business makes neither a profit nor a loss (the "break-even point").

The Break-Even Chart

In its simplest form, the break-even chart is a graphical representation of costs at various levels of activity shown on
the same chart as the variation of income (or sales, revenue) with the same variation in activity. The point at which
neither profit nor loss is made is known as the "break-even point" and is represented on the chart below by




                                                                   the intersection of the two lines:




In the diagram above, the line OA represents the variation of income at varying levels of production activity ("output").
OB represents the total fixed costs in the business. As output increases, variable costs are incurred, meaning that total
costs (fixed + variable) also increase. At low levels of output, Costs are greater than Income. At the point of
intersection, P, costs are exactly equal to income, and hence neither profit nor loss is made.

Fixed Costs

Fixed costs are those business costs that are not directly related to the level of production or output. In other words,
even if the business has a zero output or high output, the level of fixed costs will remain broadly the same. In the long
term fixed costs can alter - perhaps as a result of investment in production capacity (e.g. adding a new factory unit) or
through the growth in overheads required to support a larger, more complex business.

Examples of fixed costs:
- Rent and rates
- Depreciation
- Research and development
- Marketing costs (non- revenue related)
- Administration costs




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Variable Costs

Variable costs are those costs which vary directly with the level of output. They represent payment output-related
inputs such as raw materials, direct labor, fuel and revenue-related costs such as commission.

A distinction is often made between "Direct" variable costs and "Indirect" variable costs.

Direct variable costs are those which can be directly attributable to the production of a particular product or service
and allocated to a particular cost centre. Raw materials and the wages those working on the production line are good
examples.

Indirect variable costs cannot be directly attributable to production but they do vary with output. These include
depreciation (where it is calculated related to output - e.g. machine hours), maintenance and certain labor costs.

Semi-Variable Costs

Whilst the distinction between fixed and variable costs is a convenient way of categorizing business costs, in reality
there are some costs which are fixed in nature but which increase when output reaches certain levels. These are
largely related to the overall "scale" and/or complexity of the business. For example, when a business has relatively
low levels of output or sales, it may not require costs associated with functions such as human resource management
or a fully-resourced finance department. However, as the scale of the business grows (e.g. output, number people
employed, number and complexity of transactions) then more resources are required. If production rises suddenly then
some short-term increase in warehousing and/or transport may be required. In these circumstances, we say that part
of the cost is variable and part fixed

Quality control

Quality control is the more traditional way that businesses have used to manage quality. Quality control is concerned
with checking and reviewing work that has been done. But is this the best way for a business to manage quality?


Under traditional quality control, inspection of products and services (checking to make sure that what's being
produced is meeting the required standard) takes place during and at the end of the operations process.

There are three main points during the production process when inspection is performed:

1    When raw materials are received prior to entering production

2    Whilst products are going through the production process

3    When products are finished - inspection or testing takes place before products are dispatched to customers

The problem with this sort of inspection is that it doesn't work very well!

There are several problems with inspection under traditional quality control:

1    The inspection process does not add any "value". If there were any guarantees that no defective output would be
     produced, then there would be no need for an inspection process in the first place!
2    Inspection is costly, in terms of both tangible and intangible costs. For example, materials, labor, time, employee
     morale, customer goodwill, lost sales

3    It is sometimes done too late in the production process. This often results in defective or non-acceptable goods
     actually being received by the customer

4    It is usually done by the wrong people - e.g. by a separate "quality control inspection team" rather than by the
     workers themselves

5    Inspection is often not compatible with more modern production techniques (e.g. "Just in Time Manufacturing")
     which do not allow time for much (if any) inspection.




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6    Working capital is tied up in stocks which cannot be sold

7    There is often disagreement as to what constitutes a "quality product". For example, to meet quotas, inspectors
     may approve goods that don't meet 100% conformance, giving the message to workers that it doesn't matter if
     their work is a bit sloppy. Or one quality control inspector may follow different procedures from another, or use
     different measurements.



As a result of the above problems, many businesses have focused their efforts on improving quality by implementing
quality management techniques - which emphasize the role of quality assurance. As Deming (a "quality guru") wrote:

"Inspection with the aim of finding the bad ones and throwing them out is too late, ineffective, and costly. Quality
comes not from inspection but from improvement of the process

Total quality management - TQM

Total quality management is a popular "quality management" concept. However, it is about much more than just
assuring product or service quality. TQM is a business philosophy - a way of doing business. It describes ways to
managing people and business processes to ensure complete customer satisfaction at every stage. TQM is often
associated with the phrase - "doing the right things right, first time". This revision note summarizes the main features
of TQM.


Like most quality management concepts, TQM views "quality" entirely from the point of view of "the customer".

All businesses have many types of customer. A customer can be someone "internal" to the business (e.g. a production
employee working at the end of the production line is the "customer" of the employees involved earlier in the
production process).

A customer can also be "external to the business. This is the kind of customer you will be familiar with. When you fly
with an airline you are their customer. When Tesco's buys products from food manufacturers, it is a customer.

TQM recognizes that all businesses require "processes" that enable customer requirements to be met. TQM focuses on
the ways in which these processes can be managed - with two key objectives:

1       100% customer satisfaction
2       Zero defects

The Importance of Customer - Supplier Relationships - "Quality Chains"

TQM focuses strongly on the importance of the relationship between customers (internal and external) and supplier.
These are known as the "quality chains” and they can be broken at any point by one person or one piece of equipment
not meeting the requirements of the customer. Failure to meet the requirements in any part of a quality chain has a
way of multiplying, and failure in one part of the system creates problems elsewhere, leading to yet more failure and
problems, and so the situation is exacerbated.

The ability to meet customers’ (external and internal) requirements is vital. To achieve quality throughout a business,
every person in the quality chain must be trained to ask the following questions about every customer-supplier chain:

Customers
• who are my customers?
• What are their real needs and expectations?
• How can I measure my ability to meet their needs and expectations?
• Do I have the capability to meet their needs and expectations? (If not, what must I do to improve this capability?)
• Do I continually meet their needs and expectations? (If not, what prevents this from happening when the capability
exists?)
• How do I monitor changes in their needs and expectations?

Suppliers:
• Who are my internal suppliers?

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•   What are my true needs and expectations?
•   How do I communicate my needs and expectations to my suppliers?
•   Do my suppliers have the capability to measure and meet these needs and expectations?
•   How do I inform them of changes in my needs and expectations?

Main Principles of TQM

The main principles that underlie TQM are summarized below:

Prevention                      Prevention is better than cure. In the long run, it is cheaper to stop products defects
                                than trying to find them

Zero defects                    The ultimate aim is no (zero) defects - or exceptionally low defect levels if a product or
                                service is complicated
Getting things right first time Better not to produce at all than produce something defective


Quality involves everyone       Quality is not just the concern of the production or operations department - it involves
                                everyone, including marketing, finance and human resources

Continuous improvement          Businesses should always be looking for ways to improve processes to help quality


Employee involvement            Those involved in production and operations have a vital role to play in spotting
                                improvement opportunities for quality and in identifying quality problems

Introducing TQM into a Business

TQM is not an easy concept to introduce into businesses - particularly those that have not traditionally concerned
themselves too much with understanding customer needs and business processes. In fact - many attempts to introduce
TQM fail!

One of the reasons for the challenge of introducing TQM is that it has significant implications for the whole business.

For example, it requires that management give employees a say in the production processes that they are involved in.
In a culture of continuous improvement, workforce views are invaluable. The problem is - many businesses have
barriers to involvement. For example, middle managers may feel that their authority is being challenged.

So "empowerment" is a crucial part of TQM. The key to success is to identify the management culture before
attempting to install TQM and to take steps to change towards the management style required for it. Since culture is
not the first thing that managers think about, this step has often been missed or ignored with resultant failure of a
TQM strategy.

TQM also focuses the business on the activities of the business that are closest to the customer - e.g. the production
department, the employees facing the customer. This can cause resentment amongst departments that previously
considered themselves "above" the shop floor.

Production - types of production method

Definition

In our introduction to production and operations management ("POM") we suggested that there are several different
methods of handling the conversion or production process - Job, Batch, Flow and Group. This revision note explains
these methods in more detail.

Introduction

The various methods of production are not associated with a particular volume of production. Similarly, several
methods may be used at different stages of the overall production process.


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Job Method

With Job production, the complete task is handled by a single worker or group of workers. Jobs can be small-
scale/low technology as well as complex/high technology.

Low technology jobs: here the organization of production is extremely simply, with the required skills and equipment
easily obtainable. This method enables customer's specific requirements to be included, often as the job progresses.
Examples include: hairdressers; tailoring

High technology jobs: high technology jobs involve much greater complexity - and therefore present greater
management challenge. The important ingredient in high-technology job production is project management, or
project control. The essential features of good project control for a job are:

- Clear definitions of objectives - how should the job progress (milestones, dates, stages)
- Decision-making process - how are decisions taking about the needs of each process in the job, labor and other
resources

Examples of high technology / complex jobs: film production; large construction projects (e.g. the Millennium Dome)

Batch Method

As businesses grow and production volumes increase, it is not unusual to see the production process organized so that
"Batch methods" can be used.

Batch methods require that the work for any task is divided into parts or operations. Each operation is completed
through the whole batch before the next operation is performed. By using the batch method, it is possible to achieve
specialization of labor. Capital expenditure can also be kept lower although careful planning is required to ensure that
production equipment is not idle. The main aims of the batch method are, therefore, to:

-                            Concentrate                              skills                            (specialization)
- Achieve high equipment utilization

This technique is probably the most commonly used method for organizing manufacture. A good example is the
production of electronic instruments.

Batch methods are not without their problems. There is a high probability of poor work flow, particularly if the
batches are not of the optimal size or if there is a significant difference in productivity by each operation in the
process. Batch methods often result in the build up of significant "work in progress" or stocks (i.e. completed batches
waiting for their turn to be worked on in the next operation).

Flow Methods

Flow methods are similar to batch methods - except that the problem of rest/idle production/batch queuing is
eliminated.

Flow has been defined as a "method of production organization where the task is worked on continuously or where the
processing of material is continuous and progressive,"

The aims of flow methods are:

- Improved work & material flow
- Reduced need for labor skills
- Added value / completed work faster

Flow methods mean that as work on a task at a particular stage is complete, it must be passed directly to the next
stage for processing without waiting for the remaining tasks in the "batch". When it arrives at the next stage, work
must start immediately on the next process. In order for the flow to be smooth, the times that each task requires on
each stage must be of equal length and there should be no movement off the flow production line. In theory,
therefore, any fault or error at a particular stage




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In order that flow methods can work well, several requirements must be met:

(1) There must be substantially constant demand

If demand is unpredictable or irregular, then the flow production line can lead to a substantial build up of stocks and
possibility storage difficulties. Many businesses using flow methods get round this problem by "building for stock" - i.e.
keeping the flow line working during quiet periods of demand so that output can be produced efficiently.

(2) The product and/or production tasks must be standardized

Flow methods are inflexible - they cannot deal effectively with variations in the product (although some "variety" can
be accomplished through applying different finishes, decorations etc at the end of the production line).

(3) Materials used in production must be to specification and delivered on time

Since the flow production line is working continuously, it is not a good idea to use materials that vary in style, form or
quality. Similarly, if the required materials are not available, then the whole production line will come to a close -
with potentially serious cost consequences.

(4) Each operation in the production flow must be carefully defined - and recorded in detail

(5) The output from each stage of the flow must conform to quality standards

Since the output from each stage moves forward continuously, there is no room for sub-standard output to be "re-
worked" (compare this with job or batch production where it is possible to compensate for a lack of quality by doing
some extra work on the job or the batch before it is completed).

The achievement of a successful production flow line requires considerable planning, particularly in ensuring that the
correct production materials are delivered on time and that operations in the flow are of equal duration.

Common examples where flow methods are used are the manufacture of motor cars, chocolates and televisions.

Quality circles and kaizen teams

Business studies students often come across the concept of quality circles, or "Kaizen". What does this mean and
what are the practicalities of using Kaizen in a quality management system?


We saw in our revision note on total quality management that a key principle of quality management is that of
"continuous improvement".

Continuous improvement means just what it says. It is a philosophy that encourages all employees in an organization so
that they perform their tasks a little better every day. It starts from the assumption that business processes (e.g.
production methods, purchasing, and recruitment) can always be improved.

So why the use of the term Kaizen? Kaizen is a system for generating and implementing employee ideas developed in
Japan. The Kaizen suggestion scheme helped many Japanese companies improve quality and productivity, which
allowed them to offer better products at lower prices and therefore increase their market share.

Much of the success of Kaizen came about because the system encouraged many small-scale suggestions that were
cheap and quick to implement. They also came from shop-floor employees - who had a detailed appreciation of the
benefit each change might make to the process concerned. By implementing many small improvements, the overall
effect was substantial.

One of the most publicized aspects of the Japanese approach to quality management is the idea of Quality Circles or
Kaizen teams.

Professor John Oakland (a leading authority on quality) defines a Quality Circle/Kaizen Team as a group of workers
who do similar work and who meet:



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-   Voluntarily
-   Regularly
-   In normal working time
-   Under the leadership of their supervisor
-   To identify, analyze and solve "work-related" problems
-   To recommend solutions to management

Evidence of successful Quality Circles suggests that there are no formal rules about how to organize them. However,
the following guidelines are often suggested:

    The circle should not get too large - otherwise it becomes difficult for some circle team members to contribute
-
    effectively
-   Meetings should be help away from the work area - so that team members are free from distraction
    The length and frequency of quality circle meetings will vary - but when a new circle is formed, it is advised to
-   meet for about one hour, once per week. Thereafter, the nature of the quality problems to be solved should
    determine how often the circle needs to meet
-   Quality circles should make sure that each meeting has a clear agenda and objective
-   The circle should not be afraid to call on outside or expert help if needed




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