Chapter 6

• TQM (Total Quality Management)


  The unyielding and continually improving effort by everyone in an organization to understand, meet and exceed customer expectation
• Core Principles of TQM

  • Focus on the customer
  • Strive for continuous improvement (Kaizen)
  • Full involvement of entire workforce
  • Active support & involvement of top management
  • Use clear and measurable objectives
  • Timely recognition of quality achievement
  • Continuing education and training
• TQM Implementation and Guidelines

  1. Year 1 - Preparation: Create quality councils, conduct executive quality training, conduct quality audits, prepare gap analysis, develop quality improvement strategy

  2. Year 2 - Training Implementation: Conduct employee communication and training, establish quality teams, develop measurement system and set goals

  3. Year 3 - Assessment, Review, Revise: Revisit compensation/appraisal/recognition system, launch external initiatives with suppliers, review and revise
• Goal Post Conformance


  There is a specified range around the target that is the ideal or desired outcome of operation, with a small allowance for variation
• Absolute Quality Conformance


  All products or services must meet the target value exactly with no variation
• Benchmarking


  Tools used to study organizations among the best in the world performing a particular task
• Quality Cost


  Conformance cost + Non-conformance cost
• Types of Quality Costs

  • Prevention cost
  • Appraisal cost
  • Internal Failure cost
  • External Failure cost
• Quality cost report shows management the type and amount of quality costs being incurred and the trends
• Uses of Quality Cost Information

  • Basis for establishing budgets to reduce total cost
  • Help managers see financial significance of quality
  • Identify relative importance of quality problems faced
  • Help managers see when quality costs are poorly distributed
• Limitations of Quality Cost include: typically omitted from reports, simply measuring/reporting quality does not solve quality problems, and a lag may exist between quality improvement and results
• Purpose of Quality Cost Report

  Make management aware of the magnitude of quality costs and provide a baseline against which the impact of quality improvement activities could be measured
• Non-Financial Measures of Customer Satisfaction

  • On-time delivery rate
  • Delivery delays
  • Percentage of product fail soon or often
  • Number of customer complaints
  • Percentage of defective units shipped
• Non-Financial Measures of Internal Performance


  • Number of defects per product line
  • Employee turnover
  • Process yield
• Customer Response Time


  Duration from when a customer places an order to when the product/service is delivered
• Just-In-Time (JIT) Production System


  • Demand pull manufacturing system where each component is produced as soon as and only when needed by the next step in the production line
  • Aims to meet customer demand in a timely way, produce high quality products, and achieve lowest possible cost
• Key Features of JIT

  • Maintaining a limited number of reliable suppliers
  • Improving plant layout to minimize handling and throughput time
  • Reducing set-up time
  • Improving production scheduling
  • Targeting zero defects
  • Maintaining a flexible workforce
• Financial Benefits of JIT

  • Greater transparency of production process
  • Heightened emphasis on eliminating specific causes of rework
  • Lower manufacturing lead times
• Performance Measures and Control in JIT Production

  • Inventory turnover ratio
  • Units produced per hour
  • Manufacturing lead time
  • Days of inventory on hand
  • Total set-up time of machines
  • Rework or scrap as a percentage of total units started and completed
• JIT affects the costing system by reducing overhead costs, facilitating direct tracing of some costs, and allowing the cost of set-up, maintenance and quality inspection to be traced as direct costs due to the use of multi-skilled workers
• Timely meaningful feedback is critical as lack of inventory make it urgent to detect and solve problem quickly
• Time is a competitive tool
• Time is a driver strategy, need to measure and manage properly
• Customer response time a duration from time customer places an order from product/service is delivered
• 2 components of time:

  1. Manufacturing lead time - time order is received
  2. Delivery time - how long it takes to deliver it 


  On time performances - Situation when product/ services delivered by the scheduled time
• Known as

  Zero defects conformance
• Conformance Cost = prevention cost + appraisal cost 


  Non conformance Cost = Internal Failure Cost + External Failure Cost
• Quality an ultimate test of quality or product whether it meet or exceeda customer expectations
• Total Quality Management (TQM) - management approach focused on continuous improvement of all aspects of business operations
• External Customer - Ultimate recipients of firm product/services

  Internal Customer - Individuals or subunits within involved involved manufacturing product/ providing services
• Quality circle - small group of employees from same work area meet regularly to identify and solve problem work related
• IMA believed that typical organization take 3-5 years to make from traditional management to TQM
• Appraisal cost purpose is to inspect, identify product before it's shipped to customer
• External Failure Cost - cost incurred when poor quality goods/ services are detected after delivery to customer