E1 Organisational Management

Module: 16

Managing Quality

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1. Quality

What is quality?

The quality of goods and services has become one of the most important

factors in western culture and business. Goods have become so widespread

and affordable that merely being able to offer them will no longer suffice.

To start this chapter on quality, let's use the example of a real car manufacturing

company, General Motors. Based in Detroit, USA, GM sold more cars than any

other manufacturer globally for throughout much of the 20th century.

The story of General Motors is infamous in management circles as a lesson in “what

not to do” when it comes to managing a business in a changing environment. The

world changed, and GM did not anticipate this and change with it. Eventually, this

led to GM losing its place as the number 1 car manufacturer globally and losing

billions of dollars. In 2009 at the height of the financial crisis, the US government

spent $50 billion bailing out GM after it went bankrupt. Since the bailout, GM have

partially recovered and are now a profitable company once more, but they are no

longer the dominance they once were.

At its largest, in 1979, General Motors employed over 600,000 people in the USA

and operated 150 assembly plants. Above all else, it was the sheer size of GM that

led to its decline. There were several attempts by the owners of GM to try and

change the philosophy and culture in the organisation and although these new

ways of working were successfully introduced to a few of its manufacturing plants

the new ideas failed to take hold over the entire company.

A key barrier for implementing change at GM were the workers unions. The

unions at GM were so powerful and had so many members that any attempt to

introduce policies that were perceived as a threat to the work force, such as

training each employee to be able to perform a number of different tasks on the

production line (seen as possible threat to specialist workers by unions), were

effectively shot down by the unions with the threat of strike action.

The rise of Japanese car manufacturers in the 1970s meant GM could not rest on

its laurels. The oil crisis in 1973 led to soaring fuel prices so smaller and more

efficient cars became increasingly popular. This was bad news for GM whose best-

selling cars were large, powerful and less fuel efficient.

GM began to feel the pinch as sales of smaller, affordable and high-quality cars

made by other manufacturers started to overtake the sales of their own

cars. By 1986, GM started to shut down plants and lay off workers. Until this point in

its history, GM had enjoyed steady growth.

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Another major factor that General Motors largely failed to address was the

idea of putting quality first. The cars produced by GM were often large and

luxurious but also unreliable and poorly made. U.S. customers started to see

imported Japanese cars of superior quality and reliability so when it came to be

choosing the make/brand of car customers were going to buy, quality became the

key word. It was quality that GM found so difficult to build into its cars. Conversely,

Toyota and other foreign competitors were producing vast numbers of cars at

unseen levels of quality and reliability.

To this day, “the Toyota way” is used across thousands of organisations in an effort

towards high quality and customer satisfaction.

The practices used by Toyota were built around several simple goals. These were:

Cost reduction

By creating a manufacturing process that was very efficient and created zero waste,

Toyota were able to produce products at minimal cost which meant it could sell its

cars for substantially lower prices than GM whilst remaining profitable.

Customer focus

Famously, GM dismissed the rising trend of small cars as a “fad” whilst Toyota

capitalised on the fact that oil was becoming increasingly expensive and its

customers would want to buy a car that was cheaper to run. More recently, the

Toyota Prius was the first mass produced hybrid-vehicle (electricity and petrol

powered) and met the needs of environmentally aware customers that wanted a

fuel-efficient car.

Flexibility

Unlike General Motors, where change was historically difficult to implement,

Toyota adapted and adopted new processes as part of its continuous

improvement. We'll discuss continuous improvement later on in this section.

Employee participation

At GM, there was a notorious lack of respect amongst employees for both the

management and the customer. This was largely due to a culture of

superiority/inferiority amongst managers and employees. Motivation and productivity

suffered as a result and so the cars that came off the production line were full of

problems.

At Toyota, small teams of workers would perform tasks together and were

encouraged to communicate with one another to solve problems. By taking more

individual responsibility, defects were virtually eliminated as the employees were

more careful. Under this philosophy managers were less important and so the

traditional promotion-based schemes were redundant. For GM employees, this

culture of employee participation and team-work never took hold. This was because

managers did not want to relinquish their power and workers did not want to give up

their dream of one day being promoted to a more important managerial role.

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Shorter product life cycles

As discussed under the customer focus heading, manufacturing cars that were

suited to the current economic climate was hugely advantageous to Toyota. GM

were slower to release “modern” cars and instead stuck with their historically

successful trucks and SUVs which became less desirable as fuel prices increased.

Emphasis on quality

Toyota became the flagship car company in terms of quality and it achieved

this status through its culture of continuous improvement. If an issue was

discovered, the production line would come to a halt and the problem would be

solved before the product reached the end of the production line; leading to a

flawless final product and virtually no waste/scrap.

On the other hand, the production lines in General Motors' plants were often full of

problems and poor workmanship but the production line would not stop. Managers

were given incentives (bonuses) based on the volume of production which led to a

lack of quality in the final product.

For Toyota, producing a product of high quality was the overriding focus. The

management of quality is known under various names and forms, which we will look

at in more detail.

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2. Quality management techniques

Quality is not just about expensively produced products, achieving quality is a complicated process that has to be managed. Quality management refers to the

overall process of managing the quality within an organisation ultimately to

ensure high quality products and services are produced.

Quality management can typically take one of 3 forms:

• Quality control

• Quality assurance

• Total Quality Management

We will take a look at each of these in the following sections.

Quality control

Quality control is the process of ensuring that the quality of goods meets set

standards. The following process is usually used:

It is imperative that a company changes the process if products are consistently

below quality standards.

Statistical process control

Statistical process control (often abbreviated as SPC) is a method of quality control

using the application of statistical methods in order to monitor and control a

process, ensuring it runs at full potential. Each element of the process is

regularly measured and variations which are outside of statistically calculated

norms are then reviewed and remedial action taken if found to be an ongoing

control problem.

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Quality assurance

Quality assurance aims to reduce the amount of quality checking that occurs

by having good internal processes and procedures which guarantee the

quality of the final products. This might for instance include:

• Using machinery that is of a high quality.

• Employing skilled staff and contractors.

• Training staff to a high level.

• Using high quality materials.

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3. Total Quality Management (TQM)

TQM is the principle of a culture of quality throughout the whole

organisation. Quality is a key strategic focus. Essentially a successful TQM

programme should mean that problems are avoided in the first instance, rather

than solved. This affects inventory levels as less stock needs to be carried because

there is less waste. This is the method of quality management which was the focus

for Toyota.

TQM has a number of key principles, including:

Errors and defects should be prevented, the costs of prevention being less

than the costs of correction. The aim is to achieve no defects.

Continuous improvement.

Customer focus.

Quality should be a concern of the whole organisation, not just production.

To achieve this, TQM programmes require full commitment to TQM from all

staff including the managing director and entire management team. This means

motivating and training staff to take up the ethos of quality.

In TQM, a commitment to quality is not only demanded from the work-force but also

from an organisation's suppliers. Internal customer/supplier relationships where

internal customers demand high quality from their internal suppliers are an

essential part of Total Quality Management. Going back to the example of GM –

General Motors had a history of buying out its suppliers which led to a reduction in

quality of the parts put in its cars. An external supplier would risk losing business if

the quality of their product dipped, but without this risk GM's internal suppliers

focussed on low cost instead of high quality.

Communication is also an essential part of TQM and mechanisms are put in place to

encourage the sharing of ideas. From these new ideas, processes are redesigned

for quality.

TQM and cost management

In the modern business environment, there is a high cost associated with poor

quality. The loss in revenue caused by failures in quality can cost a significant

proportion of the total sales revenue for the average company.

A real example to remember is the 2014 General Motors recall where a total of 29

million cars were recalled after hundreds of fatal crashes were caused by an issue

where the ignition switch turned off the engine of moving cars. This fault was due

to a number of failures in the initial production. In the months following the recall,

GM were fined $35 million for their slow response in recalling the cars and wiped

an estimated $3 billion from their shareholder value.

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Quality costs can be divided into two categories:

Conformance costs

The costs of preventing, inspecting and improving to avoid future problems. These

can be split into:

Prevention costs – e.g. repairs to equipment, quality training.

Appraisal costs – e.g. inspections.

Non conformance costs

Costs that occur from inadequate quality. These can be split into:

Internal failure costs – e.g. costs of scrap, corrections and repairs to fix

products.

External failure costs – e.g. Loss of customer trust and goodwill,

compensation/replacement costs.

The level of quality desired must always be weighed up against the extra time

and cost involved in achieving that. The extra costs incurred also need to be

considered and weighed against the benefits gained from the additional accuracy.

Accountants may be required to play a role to examine costs vs. benefits of different

levels of quality. One way to represent this visually is in a quality/time/cost

triangle:

The triangle aims to demonstrate the three key elements which need to be balanced

in any production process and the play-off of any one element against the other.

The aim of TQM is to reduce internal failure costs to zero. It's often said that the

costs of internal failure to companies are so great that a TQM programme can be

paid for by the amount saved.

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TQM techniques

Quality circles

A quality circle is a group composed of employees under the supervision of a

manager or an elected team leader, trained to identify, analyse and solve work-

related problems and then pass these on to management in order to improve the

performance of the organisation, and motivate the employees by improving their

work life. When quality circles have reached their full maturity they often become

self-managing, having gained the confidence of management.

Quality circles present an opportunity for employees to voice and discuss their

opinions in a safe environment away from the rigidity of work and the autocracy of

hierarchy. As a result they can produce some truly effective and revolutionary

outcomes.

Kaizen

The Japanese art of Kaizen refers to philosophy or practices that focus upon continuous improvement of processes in manufacturing, engineering, and

business management. It extends beyond simply making the end product or service

better by seeking to improve all parts of the business; this can be anything from

supplier relations to improving the work environment for employees.

Kaizen seeks to create incremental changes regularly, therefore the business

never gets complacent as it is always trying to change and better itself. Also by

making little and often changes the company mitigates the chances of having to

undergo a revolutionary change down the road.

There are a range of tools which are commonly used for Kaizen:

• The five whys – helps to find underlying causes of an issue by asking ' Why

did that happen?' five times to get to the heart of the problem.

e.g. the delivery was late. Why? The lorry broke down. Why? It had not

been maintained? Why? No regular maintenance programme. Why? No

planning. Why? Poor management. We see that it's the management of the

department that are at fault and who need training, and also that regular

maintenance programmes are needed.

• Fishbone diagrams – help find the underlying cause of an issue in a graphical way (similar to the five whys).

• The pareto rule – this is a general saying that applied to issues would say

that 80% of issues would be caused by 20% of causes. If the 20% can be

found and rectified a significant number of issues will be avoided.

In our previous example we might find poor management of the despatch

department is the main cause of many issues and by training managers or

replacing them a whole range of problems can be rectified.

• Plan-Do-Check-Act – All activities follow these 4 elements – plan the activity,

do it, review how it went (check) and improve it (act). The goal is to continually learn and improve.

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The Five S’s

These are five (as the name would suggest!) techniques to improve the

organisation. The list describes how to organise a work space for efficiency and

effectively by looking at what is used in production, maintaining the area and items,

and then sustaining that new order. The decision-making process usually comes

from a dialogue about standardisation, which builds understanding among

employees of how they should do the work. Many commentators on the five S’s

summarise it as philosophy of ‘a place for everything and everything in its right

place’

The Five words are:

Seiri/Structure – Which tools are required in production and how should they

be organised? Ones that are unnecessary should be removed.

Seiton/Systemise – Arranging the work, workers, equipment, parts, and

instructions in an efficient way that eliminates waste.

Seiso/Sanitise – By keeping the workplace well maintained and clean a

company can ensure that the workstation is ready for the next employee and

this reduces delays during shift switchovers etc.

Seiktsu/Standardise – Standardising promotes inter-changeability

throughout the organisation by getting employees following a standard

process. It also reduces the risk of occasions where an employee is sick/on

holiday but their work cannot be covered because they use a system no one

else is familiar with.

Shitsuke/Self-discipline – Making the five S’s part of the company’s culture.

Ensuring disciplined adherence to rules and procedures of the 5 S’s to

prevent backsliding.

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Six-Sigma

Six-Sigma seeks to improve the quality of process outputs by identifying and

removing the causes of defects (errors) and minimising variability in

manufacturing and business processes. Often a six sigma organisation will train

employees in six sigma practices with a view to them becoming a six sigma

consultant who then analyses the infrastructure of the business. The overall aim is

to reduce defects in business processes.

Total Productive Maintenance (TPM)

Under TPM, maintenance of all machinery and equipment is a key priority of the business. All staff are involved in regular maintenance programmes, and

enough funds are provided to enable staff training and regular machinery

checks. The aim is to avoid breakdowns and the negative consequences e.g.

stock not produced or products not delivered.

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4. Lean production

Lean production

Born out of competition between Japanese and Western countries; lean production

is essentially the act of cutting all non-value adding parts of the business from the

value chain; or in layman’s terms achieving the same outcome from less work and

cost. A lean production system will integrate all employees, managers and

suppliers together to work towards the same goal and will remove any

people, processes and parts that do not support that goal.

One element of lean production is the removal of waste. According to the Toyota

Production System there are seven key areas of waste:

Transport – When an item or machine is unnecessarily moved when this

movement plays no part in production. For example, a company builds its car bodies

in one room but attaches the wheels next door. The time to transport between

buildings adds no value to the product and so should be removed from the process.

Inventory – When raw materials, finished products or works in progress are

unnecessarily in stock; this should not happen under lean production as excess or

stationary inventory adds no value to the product. Lean production systems use a

Just-In-Time inventory system.

Motion – People or machines moving more than is/should be required; for

example, a mechanic works on a car production line and her job is to check and

correct any default in the engine. However, every default requires different tools

and the tools must be kept in another room, as a result at least once an hour she

has to make a two-minute round trip to the next room. This is an example of motion

that is not beneficial to the product and so is a waste. If this happened just once an

hour the mechanic would waste an hour and twenty minutes a week!

Waiting – Any time a product, person or machine is left waiting to complete their

task is not adding value to the product. To return to our car example, any time a

worker completes their task on a car, a new car should be rolling into their station. If

they have to wait for whatever reason that is wasted time, that employee's time

adds no value to the end product during that time and so steps will need to be taken

to ensure waiting time is reduced.

Over production – When more stock is produced than needed, the excess stock

will need space to occupy and it will tie up unnecessary capital. Our cars, unlike a

fine wine, will not appreciate in value by being stuck in a warehouse and as a

result this storage is not adding anything to the cars production and value,

therefore any over production needs to stop.

Over processing – Another perhaps slightly confusing waste, essentially it means

that more quality or extras added to a product do not necessarily mean consumers

will value it more.

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For example, if our car's target market only want a cheap little run around yet we

have spent time and money installing the most expensive branded tyres, in the

eyes of our consumers we have not added any value to the car; they will NOT be

willing to pay more for these tyres. Therefore the time and money these tyres cost

over standard non branded ones is a waste as they did not contribute value to the

customer.

Defects – Defects often cost far more than people think; in addition to the added

costs/time needed to repair the product (or scrap if necessary) we must also

include the materials that went into the product, the cost of the machines/personnel

who made it and the cost of the products that would have been made in its place.

Often the true cost of a defect can be up to 10 times what it appears to initially

have cost, particularly if it happens after the customer has received the product

where not only are there cost implications but reputation implications also.

Criticisms and limitations of lean production

As with most forms of production, there are several pitfalls to the seemingly ideal

notion of lean production.

Many critics of lean production cite management’s focus solely on the tools and

methodologies of lean, rather than the philosophy and culture. For example, if

a mechanic works on a production line where he is constantly being reprimanded

for waste that fall into the seven areas, but he has no idea why he is being

criticised, he would react negatively. That is why managers need to install a culture

of ‘lean’ within an organisation so that workers are aware of it and can attempt to

contribute to it.

Capacity can often be an issue for companies using ‘lean production’ as they are often working at close to full capacity (every input utilised – anything less would

be a waste). However, by not having a surplus of materials, stock and personnel the

company can be left high and dry if a massive order comes in out of the blue or

there is suddenly a shortage of raw materials.

In other words, for lean production to work effectively, everything needs to

keep running smoothly, as there is little to no room for any contingencies.

Lean synchronisation

Lean synchronisation aims to achieve the flow of products and services which is

able to deliver exactly what customers want, in exact quantities, exactly when

needed, exactly where required, at the lowest possible cost.

It combines the use of TQM, lean production and Just-In-Time management

techniques.

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5. Process design

Layout and flow

Imagine you had a long thin kitchen which had the fridge at one end, the sink in the

middle and the cooker at the other end, while the food is stored in a cupboard which

is in the room next door. Cooking would be always be a challenge. Imagine you

were cooking and needed the butter. You would have to walk to the other end of

the room to get it, walk back to the cooker, and then walk back to the fridge to put

it away. The layout is inefficient and it makes your job harder and slower.

When organisations plan their production they have the same challenge and the

process will be designed in order to maximise the efficiency of the process

by minimising the movement of workers, work in progress and inventory

around the shop floor.

In assembly line production a product, such as a car, moves through a set of

production stages, with the staff typically staying in the same place

operating the same set of machinery and doing the same job. The aim is to

design the process so that movement of the product is minimised as it passes

through the production line by having each stage flow naturally on to the next.

A fixed position layout is where the product remains stationary and the

workers move to the product. Imagine the production of a large product such as

an aircraft – it is inefficient to move that aircraft to the different work groups every

time new work is required so the product tends to stay in the same place and new

teams moved to the product as required.

Cellular manufacturing involves the use of multiple "cells" in an assembly line

fashion. While in an assembly line the machines tend to be fixed and always

doing a certain job, in cellular manufacturing each cell contains machines that

can do a variety of different tasks and workers that are multi-skilled. This

provides a much greater flexibility to produce a wide range of different products in

the same factory, or to adapt products to individual customer needs.

Product design

During the product design stage it is important to consider not just the product's

design (for example how a product will look and the features it will have), but also

how that product will be produced. Having fewer parts will speed up the

manufacturing process for instance, while a simpler visual design may enable a

cheaper and quicker production process.

The type of production layout required will vary depending on the products that are

produced. A standard car which is the same each time might utilise an assembly line

approach. If each is tailored to customer needs then a cellular approach is needed,

while of the product is particularly large a fixed position approach is best. The best

production approach can be considered in the product design stage to ensure the

most efficient method is chosen.

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Process mapping

Imagine you have to complete a project at work. It would be wise to plan out the

steps involved first. One way to do this would be to use a process map, particularly

if that project is going to take place again and again. That way you can use those

same steps over and over, and hopefully improve them as you progress.

Process maps are designed as a way to clearly see which steps and

activities are involved in taking an activity through from start to finish.

Outline process map

The outline process map provides a complete overview of the entire process;

illustrating key points and relevant actions to be taken.

They can be used to illustrate individual processes or to relate to organisations as a

whole.

Here is an example of an expenses claims process:

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Deployment chart

A deployment chart follows along the same patterns as the outline process map but

with extra dimensions and functions added to help illustrate how the process flows

through the actual business, often by departments. Here is an example of a

deployment chart:

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Benefits of process maps

While you will not be required to draw these maps in the exam, you should

understand their purpose and benefits. Let's review these:

• Enables analysis of a process to identify problems and areas for improvement in a process.

• Help managers and staff understand their role and how it fits into the bigger picture of a wider process.

• Useful when new processes are developed or during process change

programmes (such as business process re-engineering), to give a visual

representation of the process to review with managers and staff.

• Used in design of IT systems, so the systems can be developed to match the process.