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Methods of Forecasting Demands

Production planning is the planning of production and manufacturing modules in a company or industry.
It utilizes the resource allocation of activities of employees, materials and production capacity, in order to
serve different customers.

The administrative process that takes place within a manufacturing business and which involves making
sure that sufficient raw materials, staff and other necessary items are procured and ready to create finished
products according to the schedule specified.

Production Planning is concerned with the determination, acquisition and arrangement of all facilities
necessary for future operations.

Form & Length of Forecast

Short-range (to mid-range) forecasts are typically for daily, weekly, or monthly sales demand
for up to approximately two years into the future, depending on the company and the type of industry.
They are primarily used to determine production and delivery schedules and to establish inventory levels.

Long-range forecast is usually for a period longer than two years into the future. A long-range
forecast is normally used for strategic planning--to establish long-term goals, plan new products for
changing markets, enter new markets, develop new facilities, develop technology, design the supply
chain, and implement strategic programs such as TQM.

Demand Behavior; Demand sometimes behaves in a random, irregular way. Three types of
demand behavior are trends, cycles, and seasonal patterns. Trend is a gradual, long-term up or down
movement of demand. Random variations are movements that are not predictable and follow no pattern
(and thus are virtually unpredictable). Cycle is an up-and-down movement in demand that repeats itself
over a lengthy time span (i.e., more than a year). Seasonal pattern is an oscillating movement in demand
that occurs periodically (in the short run) and is repetitive. Seasonality is often weather related.

Collective Opining Method

Sales personnel are closest to the customers and have an intimate feel of the market. Thus they are most
suited to assess consumer’s reaction to company's products. Here each salesperson makes an estimate of
the expected sales in their area, territory, state and/or region, These estimates are collated, reviewed and
revised. Taking in to account product design, features and price is decided and made. Thus, "collective
opinion survey forms the basis of market Analysis and demand forecasting.

Although this method is simple, direct, first hand and most acceptable, it suffers from following

 demand estimates by individual salespersons to obtain total demand of the country may be risky
as each person has knowledge about a small portion of market only
 Salesperson may not prepare the demand estimation with the seriousness and care
 limited experience in their employment, salesperson may not have the required knowledge and

Delphi Method

A procedure for acquiring informed judgments and opinions from knowledgeable individuals using a
series of questionnaires to develop a consensus forecast about what will occur in the future.

The Delphi technique was developed at RAND Corporation in the 1950s. Delphi method is a group
(members) process and aims at achieving a `single opinion of the members on the subject. Herein experts
in the field of marketing research and demand forecasting are engaged in

analyzing economic conditions

carrying out sample surveys of market
conducting opinion polls

Based on the above, demand forecast is worked out in following steps:

1. Administrator sends out a set of questions in writing to all the experts on the panel, who are
requested to write back a brief predication.
2. Written predictions of experts are collected and combined, edited and summarized together by the
3. Based on the summary, administrator designs a new set of questions and gives them to the same
experts who answer back again in writing.
4. Administrator repeats the process of collecting, combining, editing and summarizing the
5. Steps 3 and 4 are repeated by the administrator to experts with diverse backgrounds until they
come to one single opinion.

If there is divergence of opinions and hence conclusions, administrator has to sort it out through mutual
discussions. Administrator has to have the necessary experience and background as he plays a key role in
designing structured 'questionnaires and synthesizing the data.

Economic Indicators

An economic indicator is a statistic about an economic activity. Economic indicators allow analysis of
economic performance and predictions of future performance. One application of economic indicators is
the study of business cycles.

This method has its base for demand forecasting on few economic indicators.

(a) Construction contracts:

For demand towards building materials sanctioned for Cement.

(b) Personal Income:

Towards demand of consumer goods.
(c) Agricultural Income:
Towards demand of agricultural imports instruments, fertilisers, manner etc.

(d) Automobiles Registration:

Towards demand of car parts and petrol.

These and other economic indicators are given by specialized organization. The analyst should establish
relationship between the sale of the product and the economic indicators to project the correct sales and to
measure as to what extent these indicators affect the sales. To establish relationship is not an easy task
especially in case of New Product where there are no past records.

Steps: Following steps may be remembered:

(a) If there is any relationship between the demand for a product and certain economic indicator.

(b) Make the relationship by the method of least squares and derive the regression equation. Supposing
the relationship is Linear the equation will be of the form y = α + bx. There can be curvilinear relationship

(c) Once the regression equation is obtained any value of X (economic indicator) can be applied to
forecast the value of Y (demand).

(d) Past relationship may not recur. Therefore, need for value judgments are felt. Other new factors may
also have to be taken into consideration.

Limitations: The limitations of economic indicators are as follows:

(1) It is difficult to find out an appropriate economic indicator.

(2) For few products it is not good, as no past data are available.

(3) This method of forecasting is best suited where relationship of demand with a particular indicator is
characterized by a Time Lag, such as construction contracts will give consequence to demand for building
materials with some amount of Time Lag.

But where the demand does not Lag behind the particular economic index, the utility is restricted because
forecast may have to be based on projected economic index itself that may not result true.

Simple/Multiple Regression Analysis or Regression Methods

Regression is used for forecasting by establishing a mathematical relationship between two or more
variables. We are interested in identifying relationships between variables and demand. If we know that
something has caused demand to behave in a certain way in the past, we would like to identify that
relationship so if the same thing happens again in the future, we can predict what demand will be.

Linear regression is a mathematical technique that relates one variable, called an independent
variable, to another, the dependent variable, in the form of an equation for a straight line. A linear
equation has the following general form:

Because we want to use linear regression as a forecasting model for demand, the dependent
variable, y, represents demand, and x is an independent variable that causes demand to behave in a linear

To develop the linear equation, the slope, b, and the intercept, a must first be computed using the
following least squares formulas:

The State University athletic department wants to develop its budget for the coming year using a forecast
for football attendance. Football attendance accounts for the largest portion of its revenues, and the
athletic director believes attendance is directly related to the number of wins by the team. The business
manager has accumulated total annual attendance figures for the past eight years:

Given the number of returning starters and the strength of the schedule, the athletic director believes the
team will win at least seven games next year. Develop a simple regression equation for this data to
forecast attendance for this level of success.

The computations necessary to compute a and b using the least squares formulas are summarized in the
accompanying table. (Note that y is given in 1,000s to make manual computation easier.)

Substituting these values for a and b into the linear equation line, we have

Thus, for x = 7 (wins), the forecast for attendance is

The data points with the regression line are shown in the figure. Observing the regression line relative to
the data points, it would appear that the data follow a distinct upward linear trend, which would indicate
that the forecast should be relatively accurate. In fact, the MAD value for this forecasting model is 1.41,
which suggests an accurate forecast.
Multiple Regression

Another causal method of forecasting is multiple regression, a more powerful extension of linear
regression. Linear regression relates demand to one other independent variable, whereas multiple
regression reflects the relationship between a dependent variable and two or more independent variables.
A multiple regression model has the following general form:

For example, the demand for new housing (y) in a region might be a function of several independent
variables, including interest rates, population, housing prices, and personal income. Development and
computation of the multiple regression equation, including the compilation of data, is more complex than
linear regression. The only means for forecasting using multiple regression is with a computer.

To demonstrate the capability to solve multiple regression problems with Excel spreadsheets we will
expand our State University athletic department example for forecasting attendance at football games that
we used to demonstrate linear regression. Instead of attempting to predict attendance based on only one
variable, wins, we will include a second variable for advertising and promotional expenditures as follows:
We will use the "Data Analysis" option (add-in) from the Tools menu at the top of the spreadsheet that we
used in the previous section to develop our linear regression equation, and then the "Regression" option
from the "Data Analysis" menu. The resulting spreadsheet with the multiple regression statistics is shown
inExhibit 10.12

Note that the data must be set up on the spreadsheet so that the two x variables are in adjacent columns (in
this case A and B). Then we enter the "Input X Range" as A4:B12 as shown in Exhibit 10.13.

The regression coefficients for our x variables, wins and promotion, are shown in cells B27 and B28.
Thus the multiple regression equation is formulated as

This equation can now be used to forecast attendance based on both projected football wins and
promotional expenditure. For example, if the athletic department expects the team to win seven games
and plans to spend $60,000 on promotion and advertising, the forecasted attendance is

If the promotional expenditure is held constant, every win will increase attendance by 3,560.99, whereas
if the wins are held constant, every $1,000 of advertising spent will increase attendance by 36.8 fans. This
would seem to suggest that the number of wins has a more significant impact on attendance than
promotional expenditures.

r2, the coefficient of determination, shown in cell B19 is .900, which suggests that 90% of the amount of
variation in attendance can be attributed to the number of wins and the promotional expenditures.
However, as we have already noted, the number of wins would appear to probably account for a larger
part of the variation in attendance.

Coefficient of Correlation

Correlation in a linear regression equation is a measure of the strength of the relationship between the
independent and dependent variables. The formula for the correlation coefficient is

The value of r varies between -1.00 and +1.00, with a value of +1.00 indicating a strong linear
relationship between the variables. If r = 1.00, then an increase in the independent variable will result in a
corresponding linear increase in the dependent variable. If r = -1.00, an increase in the dependent variable
will result in a linear decrease in the dependent variable. A value of r near zero implies that there is little
or no linear relationship between variables.

We can determine the correlation coefficient for the linear regression equation determined in Example
10.9 by substituting most of the terms calculated for the least squares formula (except for y2) into the
formula for r:
This value for the correlation coefficient is very close to 1.00, indicating a strong linear relationship
between the number of wins and home attendance.

Another measure of the strength of the relationship between the variables in a linear regression equation is
the coefficient of determination. It is computed by squaring the value of r. It indicates the percentage of
the variation in the dependent variable that is a result of the behavior of the independent variable. For our
example, r = 0.947; thus, the coefficient of determination is

This value for the coefficient of determination means that 89.7 percent of the amount of variation in
attendance can be attributed to the number of wins by the team (with the remaining 10.3 percent due to
other unexplained factors, such as weather, a good or poor start, or publicity). A value of 1.00 (or 100
percent) would indicate that attendance depends totally on wins. However, since 10.3 percent of the
variation is a result of other factors, some amount of forecast error can be expected.

Time Series Analysis comprises methods for analyzing time series data in order to extract meaningful
statistics and other characteristics of the data.

Time series methods are statistical techniques that use historical demand data to predict future demand.
Regression (or causal) forecasting methods attempt to develop a mathematical relationship (in the form of
a regression model) between demand and factors that cause it to behave the way it does.

Curvilinear Relationships ?

Exponential Smoothing

 A type of weighted moving averaging model

 Part of many forecasting packages; ideal for developing forecasts of lots of smaller items

 Needs only three numbers:

Ft-1 = Forecast for the period before

current time period t

At-1 = Actual demand for the period

before current time period t

a = Weight between 0 and 1

 Formula

 As a gets closer to 1, the more weight put on the most recent demand number

h2. Exponential Smoothing Forecaset with a = .3

Revision of Forecasts?

Capacity Requirements Planning

CRP is the process of determining what personnel and equipment (Times) are needed to meet the
production objectives embodied in the master schedule and the material requirements plan.

MRP focuses upon the priorities of materials while CRP focuses primarily upon time.

Factors of production is an economic term that describes the inputs that are used in the production of
goods or services in order to make an economic profit. The factors of production include land, labor,
capital and entrepreneurship.
Determination of Component-part Requirements

Dependent demand items are components of finished goods—such as raw materials, component parts,
and subassemblies—for which the amount of inventory needed depends on the level of production of the
final product. For example, in a plant that manufactured bicycles, dependent demand inventory items
might include aluminum, tires, seats, and bike chains.

Bill of Materials is a listing of all components (subassemblies and materials) that go into an assembled
item. It frequently includes the parts number and quantity required per assembly.

Adjustment for Defective Output and Labor Efficiency

Learning Curves A learning curve is a graphical representation of how an increase in learning (measured
on the vertical axis) comes from greater experience (the horizontal axis); or how the more someone (or
thing) does something, the better they get at it.

Learning curves graphically portray the costs and benefits of experience when performing routine or
repetitive tasks. Also known as experience curves, cost curves, efficiency curves, and productivity curves,
they illustrate how the cost per unit of output decreases over time as the result of accumulated workforce
learning and experience. That is, as cumulative output increases, learning and experience cause the cost
per unit to decrease. Experience and learning curves are used by businesses in production planning, cost
forecasting, and setting delivery schedules, among other applications.

Waiting Lines or Queues

Waiting lines form because people or things arrive at the servicing function, or server, faster than they can
be served. This does not mean that the service operation is understaffed or does not have the capacity to
handle the influx of customers. Most businesses and organizations have sufficient serving capacity
available to handle its customers in the long run. Waiting lines result because customers do not arrive at a
constant, evenly paced rate, nor are they all served in an equal amount of time. Customers arrive at
random times, and the time required to serve each individually is not the same. A waiting line is
continually increasing and decreasing in length (and is sometimes empty) and in the long run approaches
an average rate of customer arrivals and an average time to serve the customer.

Queueing theory is the mathematical study of waiting lines, or queues. A queueing model is constructed
so that queue lengths and waiting time can be predicted

The Poisson distribution is a discrete probability distribution for the counts of events that occur
randomly in a given interval of time (or space). If we let X = The number of events in a given interval,
Then, if the mean number of events per interval is λ The probability of observing x events in a given
interval is given by P(X = x) = e −λ λ x x! x = 0, 1, 2, 3, 4, . . . Note e is a mathematical constant. e ≈
2.718282. There should be a button on your calculator e x that calculates powers of e. If the
probabilities of X are distributed in this way, we write X∼Po(λ) λ is the parameter of the distribution. We
say X follows a Poisson distribution with parameter λ Note A Poisson random variable can take on any
positive integer value. In contrast, the Binomial distribution always has a finite upper limit
Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot
easily be predicted due to the intervention of random variables. It is a technique used to understand the
impact of risk and uncertainty in prediction and forecasting models.

Material Requirements Planning (MRP) is a computer-based inventory management system designed

to assist production managers in scheduling and placing orders for items of dependent demand.

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 ... 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.

Inventory Management (Economic Order of Quantity)

Inventory management is the management of inventory and stock. As an element of supply chain
management, inventory management includes aspects such as controlling and overseeing ordering
inventory, storage of inventory, and controlling the amount of product for sale.

Inventory Control & Order Size

Inventory control, also known as stock control, involves regulating and maximising your company's
inventory. The goal of inventory control is to maximise profits with minimum inventory investment,
without impacting customer satisfaction levels.

An inventory control system is a system that encompasses all aspects of managing a

company's inventories; purchasing, shipping, receiving, tracking, warehousing and storage,
turnover, and reordering.

Inventory Classification Systems

ABC Analysis
This analysis categorizes items based on their annual consumption value, sometimes Inventory Managers can
use Pareto’s Principle for classification.

Pareto’s Principle classifies the important items in a certain group that usually constitute a small portion of the
total items in the group. The majority of the items, as a whole, will seem to be of minor significance.

Here is how ABC Analysis looks like:

- CLASS A: 10% of total inventories contributing towards 70% of total consumption value.
- CLASS B: 20% of total inventories, which account for about 20% of total consumption value.
- CLASS C: 70% of total inventories, which account for only 10% of total consumption value.
FSN Analysis
This analysis classifies inventory based on quantity, rate of consumption and frequency of issues and uses.
Here is the basic depiction of FSN Analysis:
F stands for Fast moving, S for Slow moving and N for Nonmoving items.

- Fast Moving (F) = Items that are frequently issued/used

- Slow Moving (S) = Items that are issued/used less for certain period of time
- Non-Moving (N) = Items that are not issued/used for more than certain duration
VED Analysis
This is an analysis whose classification is dependent on the user’s experience and perception. This analysis
classifies inventory according to the relative importance of certain items to other items, like in spare parts.

In VED Analysis, the items are classified into three categories which are:

- Vital – inventory that consistently needs to be kept in stock.

- Essential – keeping a minimum stock of this inventory is enough.
- Desirable – operations can run with or without this, optional.
HML Analysis
HML Analysis classifies inventory based on how much a product costs/its unit price. The classification is as

- High Cost (H) = Item with a high unit value.

- Medium Cost (M) = Item with a medium unit value.
- Low Cost (L) = Item with a low unit value.
SDE Analysis
This analysis classifies inventory based on how freely available an item or scarce an item is, or the length of its
lead time. This is how the inventory is classified:

- Scarce (S) = Items which are imported and require longer lead time.
- Difficult (D) = Items which require more than a fortnight to be available, but less than 6 months’ lead
- Easily available (E) = Items which are easily available

Fixed-Order vs. Fixed-Interval Systems

A fixed order quantity system is the arrangement in which the inventory level is continuously
monitored and replenishment stock is ordered in previously-fixed quantities whenever at-hand
stock falls to the established re-order point. In other words it is an Inventory Control Systems.

Inventory control system where stock level is reviewed regularly at fixed intervals(not
continuously), and whenever it falls below a certain level, an order to replenish it to the required
level is placed.

Quantity Discounts
A quantity discount is an incentive offered to a buyer that results in a decreased cost per unit
of goods or materials when purchased in greater numbers. A quantity discount is often offered
by sellers to entice buyers to purchase in largerquantities.

Rule of Thumb Selection under Certainty & Uncertainty

Service Levels represents the expected probability of not hitting a stock-out. This percentage is required
to compute the safety stock. Intuitively, the service level represents a trade-off between the cost of
inventory and the cost of stock-outs (which incur missed sales, lost opportunities and client frustration
among others). In this article, we detail how to optimize the service level value. Then, the analysis is
refined for the special case of perishable food.

Profit and Cost Comparison under Risk or Expected Net Profit Value

Expected value is defined as the difference between expected profits and expected costs. Expected profit
is the probability of receiving a certain profit times the profit, and expected cost is the probability that a
certain cost will be incurred times the cost.

Functions of Inventory

1. To Develop Policies, Plans and Standards Required

2. Effective Running of Stores
3. Technological Responsibility for the State of Different Materials
4. Stock Control System
5. To Ensure the Timely Availability

Inventory Management and Models

Economic Ordering Quantity, Safety Stock Analysis, Fill Rates, and Cycle Service Levels.

All models are classified into two major types:

(i) Deterministic Models, and

(ii) Probabilistic Models.

In brief, the deterministic models are built on the assumption that there is no uncertainty associated with
demand and replenishment of inventories. On the contrary, the probabilistic models take cognizance of
the fact that there is always some degree of uncertainty associated with the demand pattern and lead time
of inventories

Just in Time (JIT) Systems

Just-in-time (JIT) inventory management, also know as lean manufacturing and sometimes referred to as
the Toyota production system (TPS), is the process of ordering and receiving inventory for production
and customer sales only as it is needed and not before. This means that the company does not hold safety
stock and operates with low inventory levels. This strategy helps companies lower their inventory
carrying costs by increasing efficiency and decreasing waste.
JIT Layout

JIT in Services

Inseparable production & consumption, Intangibility, Perishability and Heterogeneity

Supply Chain Management

Supply Chain Management the management of the flow of goods and services, involves the movement
and storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to
point of consumption.

Supply Chain Strategies defines the connection and combination of activities and functions throughout the value
chain, in order to fulfill the business value proposal to customers in a marketplace.

Four main elements, the industry framework (the marketplace); the organization's unique value proposal
(its competitive positioning); its internal processes (supply chain processes); and its managerial focus (the
linkage among supply chain processes and business strategy).

Vendor Selection Selecting an ideal vendor is one of the most important decisions a business can make.
It is not as simple as choosing a vendor who is nearby or is providing services at a low cost, since the
ideal vendor should meet all the vendor selection criteria and methods.

Purchasing and supply chain management focuses on the fundamental aspects of

the supply/valuechain, including methods to improve how organizations find the materials and
services needed to make a product or service and deliver it to customers.
Managing the Supply Chain

Supply chain management (SCM) is the active streamlining of a business' supply-side activities to
maximize customer value and gain a competitive advantage in the marketplace. SCM represents an effort
by suppliers to develop and implement supply chains that are as efficient and economical as possible.

Work Scheduling Scheduling involves taking decisions regarding the allocation of available capacity or
resources (equipment, labor and space) to jobs, activities, tasks or customers over time. Scheduling thus
results in a time-phased plan, or schedule of activities. The schedule indicates what is to be done, when,
by whom and with what equipment. Scheduling seeks to achieve several conflicting objectives: high
efficiency, low inventories and good customer service. Scheduling can be classified by the type of
process: line, batch and project.


Gantt chart is a common and very useful technique to monitor the progress of a project. ...Gantt
charts are not only a useful tool in the field of project management but also in every field where
processes have be monitored because Gantt charts are a very vivid way of structuring sequence
depended activities.

Work Measurement Techniques

Work measurement is the application of techniques designed to establish the time for
an average worker to carry out a specified manufacturing task at a defined level of

Standard, Actual and Normal Times

Standard Time is the total time a job should be completed, Actual time (observed time)

Stopwatch Time Study

Methods of Timing

Performance Rating Method

Performance rating is the step in the work measurement in which the analyst observes the worker's
performance and records a value representing that performance relative to the analyst's concept of
standard performance.[1]
Performance rating helps people do their jobs better, identifies training and education needs,
assigns people to work they can excel in, and maintains fairness in salaries, benefits, promotion,
hiring, and firing. Most workers want to know how they are doing on the job. Workers need
performance feedback to work effectively. Accessing an employee timely, accurate, constructive
feedback is key to effective performance.[2] Motivational strategies such as goal setting depend upon
regular performance updates. While there are many sources of error with performance ratings, error
can be reduced through rater training and through the use of behaviorally anchored rating scales.
In industrial and organizational psychology such scales are used to clearly define the behaviors that
constitute poor, average, and superior performance.
Allowance Factor and Production Studies

Work Sampling or Ratio-Delay Studies

Standard Time and Data

Standard time is the total time in which a job should be completed at standard performance i.e. work
content, contingency allowance for delay, unoccupied time and interference allowance, where applicable.

Standard Time Data is a compilation of standard time value for each element of a task, used as a basis
for establishing standard time for similar tasks without making actual time studies.

Calculating Employee Efficiency

You can measure employee productivity with the laborproductivity equation: total output /
total input. Let's say your company generated $80,000 worth of goods or services (output)
utilizing 1,500 labor hours (input). Tocalculate your company's labor productivity, you would
divide 80,000 by 1,500, which equals

Work Standard Based on Judgment

Managing Quality

Quality refers to the ability of product or service to consistently meet or exceed customer expectations.
Quality means getting what you pay for.

International quality standards are criteria or rules set up by organizations that help determine
compliance across national borders.

Total Quality Management (TQM) and its Tools Total quality management can be summarized as a
management system for a customer-focused organization that involves all employees in continual
improvement. It uses strategy, data, and effective communications to integrate the quality discipline
into the culture and activities of the organization. Many of these concepts are present in
modern Quality Management Systems, the successor to TQM.

1. Customer-focused

The customer ultimately determines the level of quality. No matter what an organization does to foster
quality improvement—training employees, integrating quality into the design process, upgrading
computers or software, or buying new measuring tools—the customer determines whether the efforts
were worthwhile.

2. Total employee involvement

All employees participate in working toward common goals. Total employee commitment can only be
obtained after fear has been driven from the workplace, when empowerment has occurred, and
management has provided the proper environment. High-performance work systems integrate continuous
improvement efforts with normal business operations. Self-managed work teams are one form of

3. Process-centered

A fundamental part of TQM is a focus on process thinking. A process is a series of steps that take inputs
from suppliers (internal or external) and transforms them into outputs that are delivered to customers
(again, either internal or external). The steps required to carry out the process are defined, and
performance measures are continuously monitored in order to detect unexpected variation.

4. Integrated system

Although an organization may consist of many different functional specialties often organized into
vertically structured departments, it is the horizontal processes interconnecting these functions that are the
focus of TQM.

 Micro-processes add up to larger processes, and all processes aggregate into the business
processes required for defining and implementing strategy. Everyone must understand the vision,
mission, and guiding principles as well as the quality policies, objectives, and critical processes of
the organization. Business performance must be monitored and communicated continuously.

 An integrated business system may be modeled after the Baldrige National Quality
Program criteria and/or incorporate the ISO 9000 standards. Every organization has a unique
work culture, and it is virtually impossible to achieve excellence in its products and services
unless a good quality culture has been fostered. Thus, an integrated system connects business
improvement elements in an attempt to continually improve and exceed the expectations of
customers, employees, and other stakeholders.

5. Strategic and systematic approach

A critical part of the management of quality is the strategic and systematic approach to achieving an
organization’s vision, mission, and goals. This process, called strategic planning or strategic management,
includes the formulation of a strategic plan that integrates quality as a core component.

6. Continual improvement

A major thrust of TQM is continual process improvement. Continual improvement drives an organization
to be both analytical and creative in finding ways to become more competitive and more effective at
meeting stakeholder expectations.

7. Fact-based decision making

In order to know how well an organization is performing, data on performance measures are necessary.
TQM requires that an organization continually collect and analyze data in order to improve decision
making accuracy, achieve consensus, and allow prediction based on past history.

8. Communications
During times of organizational change, as well as part of day-to-day operation, effective communications
plays a large part in maintaining morale and in motivating employees at all levels. Communications
involve strategies, method, and timeliness.

Role of Inspection

Inspection and testing measure and determine the quality level of the products.

Inspection is an activity which generally occurs outside a laboratory, often at the place where the product
is being produced. Inspection is primarily focused on the appearance, construction, and basic function of
the product. It is the quality control function which is carried out, during the manufacturing of the product
by an authorized inspector. The function includes measuring, examining, testing, gauging or otherwise
comparing the findings with applicable requirements. The authorized inspector is an employee who is
properly qualified and has the authority to carry out the inspection.

TQM in Services

Total Quality Management is the key mantra for the manufacturing industry, but its benefits have been
better realized by intense customer- oriented service industries — be it fast moving consumer goods
(FMCG), retail, hospitality, telecom or banking. In service organisations, the TQM challenge lies in
establishing smooth connectivity between business processes so as to retain the customer. A quality
control approach to cover all processes would be beneficial to every Organisation.. Since in a service
industry every aspect of quality is associated with every employee, quality Control department has a key
and a very important role to play. Putting in place an effective TQM mechanism in a service industry
requires patience and commitment on the part of the management and the workforce to satisfy the

Control of Future Quality

Control Charts for Fraction Defective, Defects, Averages, and Ranges

CONTROL CHART A statistical tool to study the variation in the process over time. A control chart
always has a • central line for the average, • an upper line for the upper control limit and • a lower line for
the lower control limit. • These lines are determined from historical data. CONTROL CHART Purpose: •
Analyze the past data and determine the performance of the process • Measure control of the process
against standards

A unit that fails to meet acceptance criteria due to one or more defects. Defective data is used when a quality
characteristic of an item cannot be easily measured, but can be classified as conforming or non-conforming. It
involves the fraction, or percent of defectives in a sample, and are represented in either an np chart or an n chart.
A failure to meet one part of an acceptance criteria. Defect data is used when the quality of the item can be
determined by the number of defects in the item or by counting the number of occurrences of some event per unit of
time. The data can be shown in either the c chart or the u chart.
Statistical Process Control(SPC) Quality control is concerned with the quality of conformance of a
process. Managers use statistical process control to evaluate the output of a process to determine its
acceptability. They take periodic samples from the process and compare them with a predetermined
standard. If the sample results are not acceptable, they stop the process and take corrective action. If the
sample results are acceptable, they allow the process to continue.

Acceptance Sampling uses statistical sampling to determine whether to accept or reject a

production lot of material. It has been a common quality control technique used in industry. It is
usually done as products leaves the factory, or in some cases even within the factory.

Quality assurance programs have one major focus, assuring that an organization is adhering
to standards. Knowing how to build a quality assurance program is important as it is
continuous and systematically evaluates the adequacy and appropriateness of your company's
products and services.