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Syed Irshad Ali (Ph.D Scholar) General Manager of Public Sector Manufacturing Factory, Pakistan firstname.lastname@example.org
Abstract Performance measurement is of vital importance to a manufacturing organization to compete and make profits over time. An organization that is not able to efficiently utilize its resources in creating value for its customers will not survive in the competitive business global environment of today. Several key-factors found to affect the performance of a manufacturing company but chief among them is quality and Total Quality Model (TQM). Quality has been used as key performance indicator to achieve excellence in work organization. which ultimately specifying the concept of Total Quality Model. The implementation phase of quality concepts sorted and suggested in the environment of manufacturing company. The manufacturing industry comprises of two basic types of performance measures those that relates to results (competitiveness, financial performance) and those that focus on the determinants of the results (Quality, speed, dependability, flexibility, cost, innovation)later is also known as key performance indicator(KPI). In this paper quality is used according to the manufacturing-based approach, that is free of errors and conform precisely to their design specification. The firms have sought to enhance their competitiveness by employing total quality management (TQM), which means continuous improvement system on all operations Performance and quality has direct correlation with each other e.g. there is a range of expectations (All quality issues) of customer according to attributes (KPI). The theme and main concern of this paper will be that, how does TQM relate to performance measurement of manufacturing organization. Quality could only be improved at the expense of performance and vice versa.
TQM (Total Quality Management) is a technology for achieving the transformation of manufacturing organizations from their existing forms into a form which is capable of dealing with new changing global environment. Many factors contribute to the excellence of manufacturing companies; chief among them is higher performance through minimum defects in their process and products, which is not possible without higher rate of quality. Performance and quality are two major keys to competitive advantage. Without sound performance no company can think of achieving excellence. Higher rate of performance is rather a key ingredient for improving quality and reducing defects, increasing profitability and decreasing costs. Companies that continuously produce high-quality products are most productive. They should have lower costs, higher profit margins, and capture a larger and larger share of the market. The lessons from recognized quality leaders (Deming, kaizen, J.M. Juran) provide a general framework for making improvement efforts successful. They provide general guidelines, not rigid rules. Dr W. Edwards Deming: 1900-1993) is considered to be the Father of Modern Quality Aspects. Dr. Deming preached that to achieve the highest level of performance requires more than a good philosophy. Thus, when the tools and techniques associated with Total Quality Management are adopted without changing the fundamental infrastructure, Total Quality results will not be achieved. The changes required to obtain a Total Quality Management organization, and to make effective associated performance measurement techniques, practices and advanced manufacturing technology, are all based on certain principles of systems. The phenomenon of "performance and performance" is a combination of higher rate of production regulation. The role of a "Performance Measurement System" is therefore twofold: Not only must it set the parameters of the target function to be regulated, it must also architect the interactions among system elements so that the system will tend to behave as desired, moving in a coordinated way toward the identified goal. TQM activities, often focus on “A comprehensive, organization-wide effort to improve the quality of products and services, applicable to all organizations” In the last twenty years, the rate of technological change has been enormous, particularly in the areas of robotics, computer science, and electronics. This technological change has permeated the manufacturing arena in consumer goods, from automobiles to home entertainment technology, and the defense industry, as well as the technology and information systems used in the manufacturing process itself.
Design of Study:
In this paper the concept of performance measurement system and total quality management issues are mainly seen from a manufacturing company’s perspective, but it is important to point out that all elements of society gains are from performance improvement. Other important key factor for achieving excellence is establishing quality culture environment. No business, organization or person can dream of excellence without total commitment without adhering two facts “To be quality conscious and performance conscious”. So to inspire people to achieve excellence we have to first establish team of quality and performance oriented persons I would say that one line manager or middle manager is better than having many non-quality/performance conscious persons. This paper will be streamline in following sections a. Total Quality Management System b. Performance Measurement System c. Conceptual Model d. Relationship between Performance Measurement System and Total Quality Management e. Analysis of Total Quality Management System and Performance Measurement System through Balance Scorecard f. Conclusion
Total Quality Management
What is quality? Dictionary has many definitions: “Essential characteristic,” “Superior,” etc. Some definitions that have gained wide acceptance in various organizations: “Quality is customer satisfaction,” “Quality is Fitness for Use.” The American National Standards Institute (ANSI) and the American Society for Quality (ASQ) define quality as: “The totality of features and characteristics of a product or service that bears on its ability to satisfy given needs.” Why Quality? Reasons for quality becoming a priority for most manufacturing organizations: a. Competition – Today’s market demand high quality products at low cost. Having `high quality’ reputation is not enough! Internal cost of maintaining the reputation should be less. b. Changing customer – The new customer is not only commanding priority based on volume but is more demanding about the “quality system.” c. Changing product mix – The shift from low volume, high price to high volume, low price have resulted in a need to reduce the internal cost of poor quality. d. Higher levels of customer satisfaction – Higher customers expectations are increasing competition. Relatively simpler approaches to quality viz. product inspection for quality control and incorporation of internal cost of poor quality into the selling price, might not work for today’s complex market environment. Everyone defines Quality based on their own perspective of it. Typical responses about the definition of quality would include: 1. Perfection 2. Consistency 3. Eliminating waste 4. Speed of delivery 5. Compliance with policies and procedures 6. Doing it right the first time 7. Delighting or pleasing customers 8. Total customer satisfaction and service
Evolution of Quality Management
1. Quality Inspection Salvaging, sorting, investigating, corrective actions, identifying sources of non conformance and dealing with them. 2. Quality Planning Developing quality manuals, producing process performance data, planning for quality. 3. Quality Management Statistical process control, third party approval, quality system audit, use of quality costs, involvement of non-production operations What is TQM? “A comprehensive, organization-wide effort to improve the quality of products and services, applicable to all organizations”
TQM As a Continuous Improvement Process In Manufacturing Organization
The issuance of TQM is continuous improvement through collaborative efforts across functional boundaries and between organizational levels with the ultimate goal of providing customer satisfaction. Total Quality Management incorporates the features like: products that meet customer needs, control of processes to ensure their ability to meet design requirements and quality improvements the continued enhancement of quality. The sales of the product clearly generate the hard currency, one must also recognize that customer satisfaction is derived from ancillary services associated with product and the sensitivity and timeliness with which the problems are handled. Quality system should possess a sound behavioral as well as technical perspective. To develop such a quality system, the management should research the customer preferences, train employees to be sensitive to customer needs and reward employees for making customer satisfaction a primary objective. Total quality management is based on the premise that any production and/or service can be improved and that successful organization must consciously seek out and exploit improvement.
TQM-Concept And Philosophy
In a Deming's wheel as shown in figure no.1, the plan defines the process, which ensures documentation and sets measurable objectives against it. The "Do" executes the process and collects the information required. The CHECK analyses the information in suitable format. The ACT obtains corrective action using TQM techniques and methods and assesses future plans. At the end of each cycle the process is either standardized or targets are adjusted based on the analysis and the cycle continuous.
Figure no.1 PDCA Cycle
The TQM approach is both a practical working process and a quality philosophy for the organisations committed to growth and survival. TQM approach starts with a vision that a concentrated management action can improve the quality of service and products of the organisation at a very competitive cost satisfying customer's need and increasing the market share. This increased market share will be stable because it has been earned with the help of solid customer’s goodwill and not by gimmickry advertising. The Juran philosophy, Pursue quality on two levels: “The mission of the firm as a whole is to achieve high product quality. The mission of each individual department is to achieve high production quality”.
Stages Of Implementation Of TQM
The process of implementing TQM in an organisation can be organised in the following four stages: (i) Identification and Preparation This stage is concerned with identifying and collecting information about the organisation in the prime areas where improvement will have most impact on the organisation's performance and preparing the detailed basic work for the improvement of the organisation's activities. (ii) Scheme for Improvement
This stage is concerned with identifying quality issues and affects a resolution of them by management led improvement activities. To develop quality improvement scheme, it is necessary to identify the quality problems in each division, in each department and throughout the whole organisation. A scheme of training for improvement can be established after the realization of the following aspects of the organisation. They are: • Purpose of the department • Customer's and suppliers relationship • Meeting customer needs • Problem causes and best solutions • Prevention of recurring problems • Customer satisfaction
Customer satisfaction is the focus of TQM as shown in flow diagram no 1. Basically, the customer satisfaction depends upon the gap between the expected and actual quality of products offered to the customer. When the customer's expectations of product/service quality balance the actual product quality offered by the company, the customer satisfaction results. If the customer's expectation exceed the actual results in customer delight. TQM aims at customer delight going one step ahead of mere satisfaction of customers. The delighted customer will become the loyal customer and have a complete trust in the offering of the company's products and services. The quality of the product results in higher reliability of which in turn helps to attain the retention of loyal customer base.
PERFORMANCE AND SERVICE QUALITY • Reliability • On time delivery People Involvement For continuous CUSTOMER SATISFACTION • Attracting and retaining customers
QUALITY SYSTEM • Process quality management • Bench marking • Process performance
• Market standing • Customer preference • Profit
ORGANIZATIONAL GAINS • Costs • Employee turnover • Cycle time • Creativity and innovations • Employee satisfaction Quality usually have different meanings to different people, however, in this thesis quality is used according to the manufacturing-based approach discussed by Slack et al (2001). This approach relate to quality as the making of products that are free of errors and conform precisely to their
Flow diagram no. 1 Total Quality Management Model Performance Measurement System
A performance measure is defined as a metric used to quantify the efficiency or effectiveness of an action. Performance Measurement System (PMS) is defined as the set of metrics used to quantify the efficiency and effectiveness of action. Performance is the relationship of outputs of goods and services
in real physical volume to inputs of the basic labour and nonhuman resources used in the production process, also measured in physical units such as hours worked, machine hours, and so forth. If output is related to all the inputs (which I think is the most desirable kind of measure), output per unit of total input is basically the performance formula: O/I. “Companies need to realize that gains in
performance are one of their major weapons to achieve cost and quality advantages over their competition. If you include all of the inputs, this measure will get at the net saving of cost elements or inputs per unit of output achieved over time as a result of technological change and the other factors that make it possible to increase production with a given volume of resources. Since this input is a composite measure, including human and nonhuman resources, you can look at it as a weighted. Now a days firms are using new terminology (CIF) Continuous Improvement Firm. Performance is conceptually defined with respect to its ‘Key Performance Indicators’ (KPI) e.g. lead time, cost, quality, efficiency, effectiveness and dependability, to be a function of independent concepts. This has been explained in this paper as ‘Performance Performance Model’. Performance at the manufacturing company level is the key to profitability. Competitive system produces very real incentives for performance improvements. We can go ahead and, as we have done for the last 200 years, continue to make those improvements and innovations at the company level to achieve excellence and increase outputs of goods and services that people want in relation to the resources that are used in their production. Performance And Its Improvement What is Continuous Improvement Firm (CIF)?
CIF is a firm continuously improving on customer value due to improvements in performance initiated by the members of the general work force to get cutting edge. Performance in CIF is broadly defined to include all facets of product quality as well as output per worker. A basic operating principle of the CIF is that improvements in product quality often produce simultaneous reductions in costs to achieve excellence. In this discussion the performance is mainly seen from a manufacturing company’s perspective, At the company level, performance is fundamental to profitability and survival. Companies with higher performance than the industry average tend to have higher profit margins. Conversely, below-average levels and rates of growth of performance will ultimately lead to bankruptcy
However, with the pressure of an increasingly global economy, and a business environment characterized by complexity, competition, change and uncertainty, performance must take place at all levels within a company, from individual level to the organization and company level. Unfortunately, this is not always the case. An intimidating observation is that, even though performance improvement is seen as one of the most vital activities affecting a company’s competitiveness, it is often relegated to second rank, and neglected or ignored by those who influence production processes. Manufacturing is in this paper defined as a subset of the production system. Manufacturing can, in more detail, be described as the arrangement and operation of elements (machines, tools, materials, people and information) to produce a value-added physical, informational or service product. The initiators of the research presented in this paper, Kinnander and Gröndahl (1999), also support this statement and argue that there are many signs that indicate that performance development within manufacturing industry is not carried out in a rational manner. First, there have during the last years been many examples where companies are solely focusing on the input factor of the performance ratio. Such behavior can result in that a company becomes ‘non progressive’ (Radnor and Boaden, 2004). In other words, there is a risk that the continuous cost cutting activities that are deployed for profitability reasons eventually lead to those companies starve themselves to death. Second, we have witnessed many a time increasing trend of outsourcing activities of production functions to low-wage countries. This trend may be an indication that many developed nation
companies do not consider improvement of performance as a natural way to confront profitability problems in manufacturing functions. Instead they believe that it is easier to use low-wage labour as a solution.
Performance measurement in manufacturing organization
Considering the important role that performance plays for a manufacturing company, a question that immediately comes to mind is how a company should work to be able to improve its performance in an effective and sustainable way. Performance improvement is a multidisciplinary issue and must therefore be addressed from several different angles at the same time. From a holistic point of view it is easy to come across many different means that can be used for this work. One way to improve performance in a company could, for example, be to focus on the reduction of waste and implement strategies like Just-In-Time (JIT) or Lean Production, which makes it possible to use resources more efficiently. Another way could be to introduce new Advanced Manufacturing Technologies (AMT), which enables a company to manufacture its products faster and more effective. Further, due to the more than ever changing market conditions a company’s performance is also highly dependent on having an effective and responsive supply chain. In other words, methods such as Supply Chain Management (SCM) are necessary to support the improvement of logistics. In addition, a company cannot as well forget the importance of producing. The term AMT is here used in a broader sense and includes numerous of new technologies, such as high speed machining, laser welding and hydromechanic forming of sheet metals. ”Performance means how much and how well we produce from the resources used. If we produce more or better goods from the same resources, we increase performance. Or if we produce the same goods from lesser resources, we also increase performance. By ‘resources’, we mean all human and physical resources, i.e. the people who produce the goods or provide the services, and the assets with which the people can produce the goods or provide the services. The resources that people use include the land and buildings, fixed and moving machines and equipment, tools, raw materials, inventories and other current asset.”
The three conceptual relationship of performance
• • • The technological concept: the relationship between ratios of outputs to the inputs used in its production. The engineering concept: the relationship between the actual and the potential output of a process. The economist concept: the efficiency of resource allocation.
The conceptual model shown in figure no. 2 down below, describes how individual performance characteristics enhance the overall performance and performance of the factory unit. This model evolved by Stack et al (2001) has been interpreted by the author. The product should always be delivered on time in a dependable manner. The shortest lead time should be required to obtain the necessary inputs and materials for production. Enough lead time should be given so that production can proceed in a timely manner and can even be speeded up if required. In turn the shortest possible delivery time will result in reliable operations. Alternatively, we can speed up operations. So maximum output can be produced at a given cost or a given output can be produced at least cost to achieve efficiency. Conceptually, effectiveness focuses on new products obtained through new technology or innovative ideas, which leads to a wide range of products and reflects a firms ability to respond to a changing and dynamic environment. When low cost operations are conducted according to specifications with no compromise on quality, and aiming at high total performance of the product, this is known as an improvement in performance.
Figure no. 2 Performance objectives influences performance (Slack et al, 2001) Benefits from Performance
Always there is a misunderstanding about performance in the minds of the workforce. To the workers, higher performance means higher work load, higher efforts, more profits to owners and unemployment and threat to security. These are not the correct observations. Performance integrates the objectives of owners and workers. Performance contributes towards increase in production through efficient utilization of resources and inputs rather than making workers to work hard. Performance strives to minimize human hazards and human efforts with view to utilize them to those areas where they can contribute maximum to the output. Infact dynamism is achieved through performance in any organization and path towards excellence is achievable.
Relationship Between Total Quality Management And Performance Measurement System
How does quality relate to performance? Do these performance variables reinforce each other or are they mutually exclusive? Must improved quality come at the expense of performance? January 18, 1992 @ 2:05 am · Filed under Industrial Engineering Management traditionally has viewed quality and performance essentially as tradeoffs. To achieve significant improvements in one, some degradation in the other must be accepted. Quality could only be improved at the expense of performance and vice versa. Yet many firms today operate under the philosophy that improved quality results in improved performance. If quality is viewed in an absolute sense—improved quality equating with absolute goodness or tighter tolerances—it may indeed be difficult to improve quality without added cost. If on the other hand quality is viewed as conformance to specifications, a relationship to performance becomes more apparent. If the product is produced with defects, then it must be reworked, reprocessed, or reproduced. The result is more resources—people, material, and equipment. This leads to the concept of process quality, which has a clear and direct correlation with performance. While our finished products may ultimately conform to specifications, the quality of the process that produced those products can vary widely and will have a major bearing on the performance of the organization.
Poor quality performance increases the inputs required to produce a given amount of good output. Rework certainly increases the amount of labor required and probably increases the capital, material, and energy inputs as well. Waste and scrap increases the need for tighter inspection and controls, which of course require added resources. With poor quality a substantial amount of organization’s resources must be devoted to correcting defects and handling wastes rather than producing goods. As quality improves, the resources required to produce a given amount of output decreases, and that translates to improved performance. Quality cannot be inspected into the product. According to Edward Deming, “You don’t get ahead by making products and separating the good from the bad, because that is wasteful.” The concept of conducting extensive inspection activities in order to catch the defective items is becoming outdated. Today’s emphasis is on the prevention of defects rather than inspection. This requires the collective effort of the employees and the management. Quality is everyone’s job. Accountability for quality should lie with those doing the work. The role of quality professional is shifting from an enforcer to a facilitator—one who educates, trains, and advises. He is the person who should establish a culture for quality improvement in the organization. Just as performance improvement must be an explicit responsibility of everyone in the organization, so must quality improvement. It should be an integral part of everyone’s job. Kaizen (Technical Newsletter of Pond’s (India) Ltd., January 18th 1992.
Quality Criteria for Performance Measures Have you ”screened? your measures against criteria for good performance measures? A Screening Tool For Quality Considerations
Developing Performance Measures for Sustainable Development Strategies also calls for assessing the CONTENT of measures with regard to their impact on human and ecosystem well-being. As shown in table no. 1
Table no. 1 Screening Tool for Quality Considerations
The Quality Check The following questions serve as a checklist to determine the quality of the performance measures that have been defined: (see also table no. 2) • Is the measurement objectively measurable? • Does the measurement include a clear statement of the end results expected? • Does the measure support customer requirements, including compliance issues where appropriate? • Does the measure focus on the effectiveness and/or efficiency of the system being measured? • Does the measure allow for meaningful trend or statistical analysis? • Have appropriate industry or other external standards been applied?
Does the measure include milestones and or indicators to express qualitative criteria? • Are the measures challenging, but, at the same time, attainable? • Are assumptions and definitions specified for what constitutes satisfactory performance? • Have those who are responsible for the performance being measured been fully involved in the development of this measure? • Has the measure been mutually agreed upon by you and your customers? Of performance measures that are suitable for tracking performance toward specified objectives. Table no. 2 Quality Criteria for Performance Measures
Attribute Meaningful Explanation Understandable • Clear (clearly and consistently defined) • Context (explained) • Concrete (measurable) • Lack of ambiguity in direction Relevant • Relates to objectives • Significant and useful to the users • Attributable to activities Comparable • Allows comparison over time or with other organizations, activities • or standards • • • • •
Accurately represents what is being measured (valid, free from bias) Data required can be replicated (verifiable) Data and analysis are free from error Not susceptible to manipulation Balances (complements) other measures Feasible financially Feasible to get timely data
Quality and its usage as Key Performance Indicator.
The quality excellence can be achieved if specifications are being followed religiously with minimum process error this is only possible when product at every stage is checked and whole process of that product is monitored very closely by all line manager and shift in charge according to the drawing and given sample. The concept of quality is often used in a very wide context, which means that it concerns both processes and products as well as it includes both tangible and intangible factors. Quality usually have different meanings to different people, however, in this paper quality issues according to the manufacturing-based approach discussed by Slack et al (2001). This approach relate to quality as the making of products that are free of errors and conform precisely to their design specification. It is, of course, not appropriate to consider faulty products as output of a manufacturing process when measuring performance. However, improvements in quality, besides in that more products are being correctly manufactured, ought not to be included in the concept of performance. Quality and performance often come hand in hand, but they are two separate concepts. Performance = (Output / Input) * Quality = Efficiency * Utilisation * Quality (Al-Darrab, 2000). In turn, this has led to that performance objectives, especially quality, are seen as a part of the concept of performance by some researchers (see for example Al-Darrab, 2000). This is not always a true assumption.
Competitiveness is the keyword being used in every field of economy. The unique and innovative ideas are immediately materialized by smart organizations. At the same time customers is no more buyer of previous century, his demands and expectations are on the rise. These facts have created a great challenge for creator and manufacturer to produce best quality at right time and with minimum cost to be competitive in this aggressive market era. These demands on increase productive efficiency of the organization. The excellence can only be achieved by increasing the performance. Various key performance indicator (KPI) are used to analyze and improve the work method and achieve total quality management. To improve process it is necessary to eliminate waste and utilization of resources is essential. A company that is not able to efficiently utilize its resources in creating value for its customers will not survive in the competitive business environment of today.
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