Understanding Total Quality Management - II

Cost of Quality

The reason quality has gained such prominence is that organizations have gained an understanding of the high cost of poor quality. Quality affects all aspects of the organization and has dramatic cost implications. The most obvious consequence occurs when poor quality creates dissatisfied customers and eventually leads to loss of business. However, quality has many other costs, which can be divided into two categories. The first category consists of costs necessary for achieving high quality, which are called quality control costs. These are of two types: prevention costs and appraisal costs. The second category consists of the cost consequences of poor quality, which are called quality failure costs. These include external failure costs and internal failure costs. The first two costs are incurred in the hope of preventing the second two.

Prevention costs are all costs incurred in the process of preventing poor quality from occurring. They include quality planning costs, such as the costs of developing and implementing a quality plan. Also included are the costs of product and process design, from collecting customer information to designing processes that achieve conformance to specifications. Employee training in quality measurement is included as part of this cost, as well as the costs of maintaining records of information and data related to quality. Appraisal costs are incurred in the process of uncovering defects. They include the cost of quality inspections, product testing, and performing audits to make sure that quality standards are being met. Also included in this category are the costs of worker time spent measuring quality and the cost of equipment used for quality appraisal.

Internal failure costs are associated with discovering poor product quality before the product reaches the customer site. One type of internal failure cost is rework, which is the cost of correcting the defective item. Sometimes the item is so defective that it cannot be corrected and must be thrown away. This is called scrap, and its costs include all the material, labor, and machine cost spent in producing the defective product. Other types of internal failure costs include the cost of machine downtime due to failures in the process and the costs of discounting defective items for salvage value.

External failure costs are associated with quality problems that occur at the customer site. These costs can be particularly damaging because customer faith and loyalty can be difficult to regain. They include everything from customer complaints, product returns, and repairs, to warranty claims, recalls, and even litigation costs resulting from product liability issues. A final component of this cost is lost sales and lost customers. For example, manufacturers of lunch meats and hot dogs whose products have been recalled due to bacterial contamination have had to struggle to regain consumer confidence. Other examples include auto manufacturers whose products have been recalled due to major malfunctions such as problematic braking systems and airlines that have experienced a crash with many fatalities. External failure can sometimes put a company out of business almost overnight. Companies that consider quality important invest heavily in prevention and appraisal costs in order to prevent internal and external failure costs. The earlier defects are found, the less costly they are to correct. For example, detecting and correcting defects during product design and product production is considerably less expensive than when the defects are found at the customer site.

External failure costs tend to be particularly high for service organizations. The reason is that with a service the customer spends much time in the service delivery system, and there are fewer opportunities to correct defects than there are in manufacturing. Examples of external failure in services include an airline that has overbooked flights, long delays in airline service, and lost luggage. Now let’s look at two approaches that can help companies with continuous improvement: the Plan – Do – Check– Act (PDCA) cycle and benchmarking.

The Plan– Do–Check– Act Cycle

The plan – do – check – act (PDCA) cycle describes the activities a organization’s needs to perform in order to incorporate continuous improvement in its operation. This cycle is also referred to as the Shewhart cycle or the Deming wheel. The circular nature of this cycle shows that continuous improvement is a never ending process. Let’s look at the specific steps in the cycle.

Plan

The first step in the PDSA cycle is to plan. Managers must evaluate the current process and make plans based on any problems they find. They need to document all current procedures, collect data, and identify problems. This information should then be studied and used to develop a plan for improvement as well as specific measures to evaluate performance.

Do

The next step in the cycle is implementing the plan (do). During the implementation process managers should document all changes made and collect data for evaluation.

Study

The third step is to study the data collected in the previous phase. The data are evaluated to see whether the plan is achieving the goals established in the plan phase.

Act

The last phase of the cycle is to act on the basis of the results of the first three phases. The best way to accomplish this is to communicate the results to other members in the company and then implement the new procedure if it has been successful. Note that this is a cycle; the next step is to plan again. After we have acted, we need to continue evaluating the process, planning, and repeating the cycle again.

Benchmarking

Organizations implement continuous improvement by studying business practices of organizations considered “best in class.” This is called bench marking. The ability to learn and study how others do things is an important part of continuous improvement. The bench mark organization does not have to be in the same business, as long as it excels at something that the organization doing  he study wishes to emulate. For example, many companies have used Lands’ End  to benchmark catalog distribution and order filling, because Lands’ End is considered a leader in this area. Similarly, many organizations have used American Express to benchmark conflict resolution.

Today’s customers demand and expect high quality where organizations do not make quality a priority risk long run survival. World class organizations such as General Electric and Motorola attribute their success to having one of the best quality management programs in the world. These organizations were some of the first to implement a quality program called, Six Sigma, where the level of defects is reduced to approximately 3.4 parts per million. To achieve this, everyone in the company is trained in quality. For example, individuals highly trained in quality improvement principles and techniques receive a designation called “Black Belt.” The full time job of Black Belts is to identify and solve quality problems. In fact, Motorola was one of the first companies to win the prestigious Malcolm Baldrige National Quality Award in 1988, due to its high focus on quality. Both GE and Motorola have had a primary goal to achieve total customer satisfaction. To this end, the efforts of these organizations have included eliminating almost all defects from products, processes, and transactions. Both organizations consider quality to be the critical factor that has resulted in significant increases in sales and market share, as well as cost savings in the range of millions of dollars.

Employee Empowerment

Part of the TQM philosophy is to empower all employees to seek out quality problems and correct them. With the old concept of quality, employees were afraid to identify problems for fear that they would be reprimanded. Often poor quality was passed on to someone else, in order to make it “someone else’s problem.” The new concept of quality, TQM, provides incentives for employees to identify quality problems. Employees are rewarded for uncovering quality problems, not punished. In TQM, the role of employees is very different from what it was in traditional systems. Workers are empowered to make decisions relative to quality in the production process. They are considered a vital element of the effort to achieve high quality. Their contributions are highly valued, and their suggestions are implemented. In order to perform this function, employees are given continual and extensive training in quality measurement tools.

To further stress the role of employees in quality, TQM differentiates between external and internal customers. External customers are those that purchase the company’s goods and services. Internal customers are employees of the organization who receive goods or services from others in the company. For example, the packaging department of an organization is an internal customer of the assembly department. Just as a defective item would not be passed to an external customer, a defective item should not be passed to an internal customer.

Team Approach

TQM stresses that the quality is an organizational team effort. To facilitate the solving of quality problems, it places great emphasis on teamwork. The use of teams is based on the old adage that “two heads are better than one.” Using techniques such as brainstorming, discussion, and quality control tools, teams work regularly to correct problems. The contributions of teams are considered vital to the success of the company. For this reason, organizations set aside time in the workday for team meetings. Teams vary in their degree of structure and formality, and different types of teams solve different types of problems. One of the most common types of teams is the quality circle, a team of volunteer production employees and their supervisors whose purpose is to solve quality problems. The circle is usually composed of eight to ten members, and decisions are made through group consensus. The teams usually meet weekly during work hours in a place designated for this purpose. They follow a preset process for analyzing and solving quality problems. Open discussion is promoted, and criticism is not allowed. Although the functioning of quality circles is friendly and casual, it is serious business. Quality circles are not mere “gab sessions.” Rather, they do important work for the company and have been very successful in many firms.

The importance of exceptional quality is demonstrated by The Walt Disney Company in operating its theme parks. The focus of the parks is customer satisfaction. This is accomplished through meticulous attention to every detail, with particular focus on the role of employees in service delivery. Employees are viewed as the most important organizational resource and great care is taken in employee hiring and training. All employees are called “cast members,” regardless of whether they are janitors or performers. Employees are extensively trained in customer service, communication and quality awareness. Continual monitoring of quality is considered important and employees meet regularly in teams to evaluate their effectiveness. All employees are shown how the quality of their individual jobs contributes to the success of the park.

Understanding Total Quality Management

Total Quality Management

Total quality management (TQM) consists of organization-wide efforts to install and make permanent a climate in which an organization continuously improves its ability to deliver high quality products and services to customers. While there is no widely agreed upon approach, TQM efforts typically draw heavily on the previously developed tools and techniques of quality control. TQM enjoyed widespread attention during the late 1980s and early 1990s before being overshadowed by ISO 9001, Lean manufacturing, and Six Sigma.

In the late 1970s and early 1980s, the developed countries of North America and Western Europe suffered economically in the face of stiff competition from Japan's ability to produce high quality goods at competitive cost. For the first time since the start of the Industrial Revolution, the United Kingdom became a net importer of finished goods. The United States undertook its own soul searching, expressed most pointedly in the television broadcast of If Japan Can... Why Can't We? Firms began reexamining the techniques of quality control invented over the past 50 years and how those techniques had been so successfully employed by the Japanese. It was in the midst of this economic turmoil that TQM took root.

The Quality

The definition of quality depends on the role of the people defining it. Most consumers have a difficult time defining quality, but they know it when they see it. For example, although you probably have an opinion as to which manufacturer of athletic shoes provides the highest quality; it would probably be difficult for you to define your quality standard in precise terms. Also, your friends may have different opinions regarding which French Fries are of highest quality. The difficulty in defining quality exists regardless of product, and this is true for both manufacturing and service organizations. Think about how difficult it may be to define quality for products such as airline services, child day-care facilities, college classes, or even textbooks. Further complicating the issue is that the meaning of quality has changed over time. Today, there is no single universal definition of quality. Some people view quality as “performance to standards.” Others view it as “meeting the customer’s needs” or “satisfying the customer.” Let’s look at some of the more common definitions of quality.

Conformance to specifications measures how well the product or service meets the targets and tolerances determined by its designers. For example, the dimensions of a machine part may be specified by its design engineers as 3 ±.05 inches. This would mean that the target dimension is 3 inches but the dimensions can vary between 2.95 and 3.05 inches. Similarly, the wait for hotel room service may be specified as 20 minutes, but there may be an acceptable delay of an additional 10 minutes. Also, consider the amount of light delivered by a 60 watt light bulb. If the bulb delivers 50 watts it does not conform to specifications and how about the 300ml of a Coke bottle which has ±5ml margin for accuracy. As these examples illustrate, conformance to specification is directly measurable, though it may not be directly related to the consumer’s idea of quality.

Fitness for use focuses on how well the product performs its intended function or use. For example, a Mercedes Benz and a Jeep Cherokee both meet a fitness for use definition if one considers transportation as the intended function. However, if the definition becomes more specific and assumes that the intended use is for transportation on mountain roads and carrying fishing gear, the Jeep Cherokee has a greater fitness for use. You can also see that fitness for use is a user based definition in that it is intended to meet the needs of a specific user group.

Value for price paid is a definition of quality that consumers often use for product or service usefulness. This is the only definition that combines economics with consumer criteria; it assumes that the definition of quality is price sensitive. For example, suppose that you wish to sign up for a personal finance seminar and discover that the same class is being taught at two different colleges at significantly different tuition rates. If you take the less expensive seminar, you will feel that you have received greater value for the price.

Support services provided are often how the quality of a product or service is judged. Quality does not apply only to the product or service itself; it also applies to the people, processes, and organizational environment associated with it. For example, the quality of a university is judged not only by the quality of staff and course offerings, but also by the efficiency and accuracy of processing paperwork.

Psychological criteria are a subjective definition that focuses on the judgmental evaluation of what constitutes product or service quality. Different factors contribute to the evaluation, such as the atmosphere of the environment or the perceived prestige of the product. For example, a hospital patient may receive average health care, but a very friendly staff may leave the impression of high quality. Similarly, we commonly associate certain products with excellence because of their reputation; Rolex watches and Mercedes-Benz automobiles are examples.

The Evolution

The concept of quality has existed for many years, though it’s meaning has changed and evolved over time. In the early twentieth century, quality management meant inspecting products to ensure that they met specifications. In the 1940s, during World War II, quality became more statistical in nature. Statistical sampling techniques were used to evaluate quality, and quality control charts were used to monitor the production process. In the 1960s, with the help of so called “quality gurus,” the concept took on a broader meaning. Quality began to be viewed as something that encompassed the entire organization, not only the production process. Since all functions were responsible for product quality and all shared the costs of poor quality, quality was seen as a concept that affected the entire organization.

The meaning of quality for businesses changed dramatically in the late 1970s. Before then quality was still viewed as something that needed to be inspected and corrected. However, in the 1970s and 1980s many U.S. industries lost market share to foreign competition. In the auto industry, manufacturers such as Toyota and Honda became major players. In the consumer goods market, companies such as Toshiba and Sony led the way. These foreign competitors were producing lower-priced products with considerably higher quality.

To survive, companies had to make major changes in their quality programs. Many hired consultants and instituted quality training programs for their employees. A new concept of quality was emerging. One result is that quality began to have a strategic meaning. Today, successful companies understand that quality provides a competitive advantage. They put the customer first and define quality as meeting or exceeding customer expectations.

Since the 1970s, competition based on quality has grown in importance and has generated tremendous interest, concern, and enthusiasm. Companies in every line of business are focusing on improving quality in order to be more competitive. In many industries quality excellence has become a standard for doing business. Companies that do not meet this standard simply will not survive. The importance of quality is demonstrated by many national quality awards and quality certifications that are coveted by businesses.

The term used for today’s new concept of quality is total quality management or TQM. Consider the imagination of the old and new concepts of quality. Indeed the difference is that the old concept is reactive, designed to correct quality problems after they occur. The new concept is proactive, designed to build quality into the product and process design.

The philosophy

What characterizes TQM is the focus on identifying root causes of quality problems and correcting them at the source, as opposed to inspecting the product after it has been made. Not only does TQM encompass the entire organization, but it stresses that quality is customer driven. TQM attempts to embed quality in every aspect of the organization. It is concerned with technical aspects of quality as well as the involvement of people in quality, such as customers, company employees, and suppliers. Let’s look at the specific concepts that make up the philosophy of TQM.

Customer Focus

The first, and overriding, feature of TQM is the company’s focus on its customers. Quality is defined as meeting or exceeding customer expectations. The goal is to first identify and then meet customer needs. TQM recognizes that a perfectly produced product has little value if it is not what the customer wants. Therefore, we can say that quality is customer driven. However, it is not always easy to determine what the customer wants, because tastes and preferences change. Also, customer expectations often vary from one customer to the next. For example, in the auto industry trends change relatively quickly, from small cars to sports utility vehicles and back to small cars. The same is true in the retail industry, where styles and fashion are short lived. Companies need to continually gather information by means of focus groups, market surveys, and customer interviews in order to stay in tune with what customers want. They must always remember that they would not be in business if it were not for their customers.

Continuous Improvement

Another concept of the TQM philosophy is the focus on continuous improvement. Traditional systems operated on the assumption that once a company achieved a certain level of quality, it was successful and needed no further improvements. We tend to think of improvement in terms of plateaus that are to be achieved, such as passing a certification test or reducing the number of defects to a certain level. Traditionally, change for American managers involves large magnitudes, such as major organizational restructuring. The Japanese, on the other hand, believe that the best and most lasting changes come from gradual improvements. To use an analogy, they believe that it is better to take frequent small doses of medicine than to take one large dose. Continuous improvement, called kaizen by the Japanese, re- quires that the company continually strive to be better through learning and problem solving. Because we can never achieve perfection, we must always evaluate our performance and take measures to improve it.

Quality starts with market research to establish the true requirements for the product or service and the true needs of the customers. However, for an organization to be really effective, quality must span all functions, all people, all departments and all activities and be a common language for improvement. The cooperation of everyone at every interface is necessary to achieve a total quality of an organization, in the same way that the Japanese achieve this with companywide quality control.

Customers and suppliers

There exists in each department, each office, every home, a series of customers, suppliers and customer supplier an interface. These are “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, internal or external. The failure usually finds its way to the interface between the organization and its external customer, or in the worst case, actually to the external 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 an organization, every person in the quality chain must be trained to ask the following questions about every customer-supplier interface:

Customers (internal and external)

Who are my customers?

What are their true needs and expectations?

How do, or can, I find out what these are?

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 (internal and external)

Who are my internal suppliers?

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?

As well as being fully aware of customers’ needs and expectations, each person must respect the needs and expectations of their suppliers. The ideal situation is an open partnership style relationship, where both parties share and benefit.

Poor Practices

To be able to become a total quality organization, some of the bad practices must be recognized and corrected. These may include:

Leaders do not give clear direction

Do not understand or ignore competitive positioning

Each department working only for itself

Trying to control people through systems

Confusing quality with grade

Accepting that a level of defects or errors is inevitable

Firefighting, reactive behaviour

The “It’s not my problem” attitude

How many of these behaviours do you recognize in your organization?