Manufacturing & Operations

Management
Mr. Mohammed Abdul Awal
Contents
1. What is Operations Management (OM)?
2. Importance of OM .
3. OM decisions.
4. OM's contributions to society.
5. OM of Service & Manufacturing organizations
6. The ever-changing world of OM
7. Make or Buy decision
8. Manufacturing Strategy
9. Manufacturing and Process Selection and Design
10. Measuring process performance
11. Quality Management
 What is Operations Management?
The collection of people, technology, and systems
within a company that has primary responsibility for providing the
organization’s products or services.

The management of the direct resources that are required to produce and
deliver an organization's Goods and Services.

A discipline and profession that studies and practices the process of

planning, designing, and operating production systems and
subsystems to achieve the goals of the organization.

The management of the conversion process that transforms inputs into

outputs in the form of finished goods and services.
What is Operations Management?
Operations management is the set of activities that c r e a t e
v a l u e in the form of goods and services by transforming inputs
into outputs
Value added is the net increase between output product value and
input material value (The value of the outputs is greater than the
value of the inputs, resulting in the profit or the benefit for
government or non-profit organizations)
All types of organizations, manufacturing or service, large or
small, transform inputs into outputs.
Every organization has OM function, since all organizations
provide products or services, but the function may be formal or
informal (In many smaller organizations operations management
may be done by people who perform many other types of task
such as marketing and accounting)
Operations/Production
The processes and methods used to transform tangible
inputs (raw materials, semi-finished goods,
subassemblies) and intangible inputs (ideas,
information, knowledge) into goods or services.
Resources are used in this process to create an output
that is suitable for use or has exchange value.
OPERATIONS MANAGEMENT DEFINED
Operations management is defined as the process of designing,
operating, and controlling a productive system capable of
transforming physical resources and human talent into needed
goods and services.
THE PRODUCTION SYSTEM AND ITS
ENVIRONMENT
Operations as a transformation
process

INPUTS
•Material
•Machines OUTPUTS
•Labor TRANSFORMATION •Goods
•Management PROCESS •Services
•Capital
- Customer

Feedback
Inputs and Outputs of a production
system
Inputs
External:
Legal, Economic, Social, Technological
Market:
Competition, Customer Desires, Product Info.
Primary Resources:
Materials, Personnel, Capital, Utilities

Outputs
Direct
Products and Services
Indirect
Waste Pollution
Technological Advances
The transformation process
within OM
Examples of Conversion Process
Input: Through put Output:
in
Patient Patient
Conversion receiving
process: Medical
service
Patient

Input-Output in a Dental Clinic

Input: Through put in
Output:
Bread, Conversion
meat, Burgers
process:
mayonnaise
Items being
cooked

Input-Output in a fast-food Shop

Operations Systems
Random fluctuations:
Late deliveries, Recessions, labor turnover

Inputs:
Outputs:
Land, Labor,
building, Serviced
equipment, customer with
merchandise, Conversion desired
store managers process merchandise

Feedback: inventory levels, labor

efficiency, sales volume

Operations systems for a Department store

Operations Systems
Random fluctuations:
Weather, inflation, govt. controls,
equipment breakdown

Inputs:
Land, farmer labor, Outputs:
building, equipment,
tractors, plows, etc. Grain, beef,
Conversion milk, etc.
process

Feedback: observation of soil and

crop conditions, prices received

Operations systems for a farm

Input- transformation- output
relationships for typical systems
Responsibilities of OM
Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
 OPERATIONS MANAGEMENT ACTIVITIES

Periodic Continual

Operating–
Selecting Designing Updating Controlling
Involves the Involves the Involves the revision of Is concerned with
design of the productive system in setting production
selection
products, light of new products and levels, scheduling
of products, processes, process, technological production and
processes, equipment, breakthroughs, shifts in work force,
equipment, jobs, methods demand, new managerial inventory
work force & wage techniques, research management and
payment, findings, failures in the quality assurance
operating & existing products,
control processes or operating
system and control systems
Process Technology
1. Job shop technology is a process technology suitable for a variety of custom-
designed products in small volume, e.g., tailor shop, Consulting firm.

2. Batch technology is a process technology suitable for a variety of products in

varying volumes, e.g., Bakery.

3. Assembly line is a process technology suitable for a narrow range of standardized

products in high volumes, e.g., Ready made garments manufacturing.

4. Continuous flow technology is a process technology suitable for producing a

continuous flow of products, e.g., Beverage.

5. Project technology is a unique & not repetitious activity with a well defined
objective that cuts across many organizational and functional lines involving cost
& time, e.g., Padma Bridge project.
Product Life Cycle
 Batch Continuous flow
Technology

Manufacturing Cost/ unit

Assembly Line
Job Shop

Start up Rapid Maturation

Commodity
Growth
Time →

Figure: Process Costing

Importance of OM
1. Operations is an important part of every organization
2. We should know how goods and services are produced (All managers should
have an understanding the main principles and tools of OM)
3. It is responsible for the customer fulfillment aspects of an organization. Thus,
it manages customer satisfaction.
4. OM is a costly part of an organization. (For most organizations it absorbs a
huge percentage of required capital)
5. Companies need to have e f f i c i e n t o p e r a t i o n s t o s u r v ive . To succeed,
a firm must have a s t r o n g o p e r a t i o n s f u n c t i o n teaming with the
other organization functions.
6. OM is responsible to increase productivity and profitability.
7. Increasing overall productivity leads to economic growth and a higher
standard of living.
8. Operational decision-making requires a long- term perspective and
requires inputs from all business functions.
 In brief…..

OM plays an important, although not always

obvious, role in societies in which we live.
It is responsible for the food we eat and even
the table on eat it; it provides us with the
clothing we wear, with vehicles we use for
transportation, and with the "toys" we use
for recreation, from baseballs and bats to
computer games.
In other words, operations management affects
nearly all aspects of our day-to-day activities.
Product/Service

• Products or things are outputs converted from inputs that

satisfy consumer needs & offers benefits to customers in forms
of financial, medical, legal, educational, etc.
• A product can be either a good (i.e., a physical object) or it may
be a service (i.e., an intangible product).
• In operational terms, goods are produced/ manufactured and
services are generated.
Characteristic Differences between Goods & Services

Characteristics Goods Services

1. Output Tangible Intangible

2. Customer contact Low High

3. Uniformity of input High Low

4. Labor content Low High

5. Measurement of productivity Easy Difficult

6. to correct quality problems High Low

7. Input variability Lower Greater

8. Perishable Character Less More

9. Response time Short Long

Some definitions
Productivity:
The ration of what is produced by an operation or process to what is
required to produced it, that is ,the output from the operations divided
by the input to the input operation (ratio of output to input)
Efficiency:
Producing something at the lowest possible cost
Effectiveness:
Doing the right things to create the most value for the firm

Competitive Advantage:
Competitive advantage is an advantage over competitors gained by offering
consumers greater value, either by means of lower prices or by providing
greater benefits and service that justifies higher prices.
 OM decisions
Operations managers must make decisions on three levels:
 Main operational decisions
Where should we locate our facility
How much capacity do we need
What should we make, what should we buy
What technology should we use
How do we insure appropriate quality
Who should we use as vendors
How much inventory do we need
How should we schedule our resources
 Critical decisions of OM
Product & service design.
Quality management.
Process design.
Capacity & location of facilities.
Layout of facilities.
Human resource & Job design.
Supply-chain management.
Inventory management.
Scheduling.
Maintenance.
 Strategic decisions
Senior management responsibility
More broad and longer horizon in
nature
Determine the success of an organization's strategy.
Have significant long - term impact.

Examples:
How will we make the product?
Where do we locate the facility?
How much capacity do we need?
When should we add more capacity?
 Tactical decisions
Medium- range decisions focus on resource needs,
schedules, & quantities to produce
Tactical decisions are frequent, must align with
strategic decisions.
Involves resource allocation and utilization.
Involves a moderate degree of uncertainty and risk..
They are the link between lower and high level
management
Examples:
How many workers do we need?
When do we need them?
Should we work overtime or put on a second sift?
When should we have material delivered?
Should we have a finished goods inventory?
 Operational decisions

Involves ashort time horizon.

Like weekly horizon or 3 months horizon.
Involves verylittleuncertaintyandrisk.
Examples :
What jobs do weworkon today or this week?
To whom do we assign what task?
What jobs have priority?
 OM decisions
Strategic Tactical Operating
Longer term Medium term Shorter term
decisions decisions decisions
Responsibility of Responsibility of Responsibility of
Characteristics the senior middle and middle and lower
management senior managers management levels

High capital
investment
Broad in nature Narrow in scope These decisions
concern the day-to-
day activities of
workers
Operations management's contributions to society

OM's contributions to society:-

(A)- Higher Standard of Living
(B) - Better Quality Goods and Services
(C)- Concern for the Environment
(D)- Improved Working Conditions
 (A)- Higher standard of living

A major factor in raising the standard of living in a society is the

ability to increase its productivity.
Higher productivity is the result of increased efficiency in
operations, which in turn translates into lower cost goods
and services.
Thus, higher productivity provides
consumers with more discretionary
income, which contributes to their
higher standard of living.
 Higher standard
of living
1-Improve productivity

5-Higher standard of living

2- Result of increased
efficiency in operations
4- More income
3- Lower cost of goods & services
(B) - Better quality of goods and services

One of the many consumer benefits of increased

competition is the higher-quality products that are
available today.
Quality standards are continually increasing.
Many companies today have established Six-Sigma
quality standards (pioneered by Motorola in the late
1980s), resulting in no more than 3.4 defects per
million opportunities.
Such high quality standards were once considered not
only prohibitively expensive but also virtually
impossible to achieve even if cost wasn't a
consideration.
Today we know that such high quality is not only very
possible, but also results in lower costs, because
firms can reduce their waste and rework.
 (C)- Concern for the environment

Many companies today are taking up the

challenge to produce environmentally
friendly products with environmentally
friendly processes, all of which falls under
the purview of operations management.
Recycling and concern for air and water
quality
(D)-Improved working conditions

Managers recognize the benefits of providing workers with

better working conditions.
This includes not only the work environment but also the
design of the jobs themselves.
Workers are now encouraged to participate in improving
operations through suggestions.
After all, who would know better how to do a particular
operation than that person who does it every day.
Managers also have learned that there is a very clear
relationship between satisfied workers and satisfied
customers, especially in service operations.
(Empowerment :The concept of encouraging and
authorizing workers to take the initiative to improve
operations, reduce costs, and improve product quality
and customer service.)
OM of service and manufacturing organizations

Initially, operations management concepts

focused almost entirely on manufacturing.
As countries become more developed,
services continue to represent a larger
percentage of their economies.
Now Less than 20% of all jobs are in
manufacturing (and they are declining)
Almost 80% of jobs are in the service sector
(and they are increasing)
 Manufacturing vs. Service

1 Customer contact:
Service, by nature, involves a much high degree of customer contact than
manufacturing.
The performance of service often occurs at the point of consumption.
Manufacturing allows a separation between production and consumption, so
that manufacturing can occur away from the consumer.
Customer are sometimes apart of the system (self-service operations-shopping
+gas stations) so t i g h t c o n t r o l on p r o c e s s is imp o s s ib le
2 Uniformity of input:
Service operations are subject to greater variability of input than typical
manufacturing operations.
Each patient, each client and each auto repair p r e s e n t s a s p e c i f i c
p r o b l e m that often must be diagnosed before it can be remedied
Manufacturing operations often have the ability to carefully control the
amount of variability of input and thus achieve low variability in outputs.
Job requirements for manufacturing are generally more uniform than those for
service
 Manufacturing vs. service

3 Labor content of jobs:

• Many services involve a higher labor content than
manufacturing operations
4 Uniformity of output
• Because high mechanization generates products with low variability ,
manufacturing tends to be smooth and efficient , service activities
sometimes appear to be slow and awkward and
• output is more variable. Automated services are exception to this
5 Measurement of productivity
•Measurement of productivity is more straightforward in
manufacturing due to the high degree of uniformity of most
manufacturing items.
•In service operations , variations in demand intensity and in
requirements from job to job make productivity measurement more difficult
Service and Manufacturing similarities

All use technology

Both have quality, productivity, &
response issues
All must forecast demand
Each will have capacity, layout, and
location issues
All have customers and suppliers
All have scheduling and staffing issues
 Manufacturing vs. Service

Characteristic Manufacturing Service

Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High
 Goods vs. Services
•At t r ibut e s of
GOODS
Tangible product
- Product can be inventoried.
- Some aspect of quality are
measurable.
-Selling is distinct from
production.
- Site of facility is important for
cost.
- Often easy to automate.
- Revenue is generated
primarily from the tangible
product.
Capital intensive
•At t r ibut e s of SERV I CES
• Intangible Products
- Many services cannot be inventoried.
-Many aspects of quality are difficult to
measure.
- Selling is often a part of the service.
Provider, not product, is often
transportable.
Site of facility is important for customer
contact.
Service is often difficult to automate.
Revenue is generated primarily from the
intangible service.
Labor intensive

C
6- The ever - changing world of OM
Increased global competition
Advances in technology
Linking OM to customers and suppliers
 The ever-changing world of
OM
Operations management is continuously
changing to meet the new and exciting
challenges of today's business world.
This ever-changing world is characterized by
increasing global competition and advances in
technology. Emphasis is also shifting within the
operations function to link it more closely with both
customers and suppliers.
Here we will consider these issues:
 (A)- Increased global competition

Global (economy, village, and landscape): are terms used to describe

how the world is becoming smaller, and countries
are becoming more dependent on each other.
The world is rapidly transforming itself into a single global economy,
which referred to as a global village or global landscape.
Markets once dominated by local or national companies are now
vulnerable to c o m p e t i t i o n from literally all corners of the world.
For example, in the 1960s, only 7 percent of the firms in the United
States exposed to foreign competition; by the late 1980s,
This figure exceeded 70 percent, and that percentage has
continued to grow.
Consequently, as companies expand their business to include
foreign markets, so too must the operations management f u n c t i o n
t a k e a m o r e g l o b a l p e r s p e c t i v e in o r d e r f o r c o m p a n i e s
t o r e ma i n competitive.
To prosper in such a global marketplace companies m u s t e x c e l
in m o r e t h a n o n e dimension, which previously was the norm.
Ford’s Global Network to Support the Manufacturing of the Escort
 (B)- Advances in technology

Advance in technology in recent years have had a

significant effect on the OM function:
IT+ automation + Internet
Competition
Product life cycle
New jobs
Robots
E-Technology ( IoT, Machine Learning, AI)
(C )- Linking OM to customers and suppliers

In the past, most manufacturing organizations viewed

operations strictly as an internal function that had to be
b u f f e r e d from t h e e x t e r n a l environment by o t h e r
o r g a n i z a t i o n a l functions.
Orders were generated by the marketing function; supplies and
• raw materials were obtained through the purchasing function; capital for
equipment purchases came from the finance function; the labor force was
obtained through the human resources function; and the product was delivere
the distribution function
Now more and more firms are recognizing the competitive
advantage achieved when the transformation process is not
isolated, as when customers are invited to view their
operating facilities firsthand
(C )- Linking OM to customers and suppliers
companies are working more closely with suppliers.

Firms like Toyota, have suppliers deliver product directly to

the factory floor, eliminating need for a stockroom.
• The relationship between the transformation processes of suppliers and
customer often referred to as a p r o d u c t ' s v a l u e c h a i n .
• ( steps an organization requires to produce a good or service, regardless of where the are performed)
•A value chain consists of all the steps actually add value to the product.
This concept helps managers to eliminate all non
(company whose boundaries are not clearly defined due to the integration of
customers and suppliers)
added steps (such as inspections and inventory ) and
consequently results in a higher of dependence among the value-
added functions within the chain.
This integration of both suppliers and customers into the
transformation process to blur the boundaries between what were
previously totally independent organizations (Virtual enterprises)
 Make or buy?
Many organizations buy parts or contract out services,
for a variety of reasons. Among those factors are:
1- Available capacity:
If an organization has available the equipment,
necessary skills, and time, it often make sense to
produce an item or perform a service in-house.
The additional costs would be relatively small compared
with required to buy items or subcontract services.
2- Expertise:
If a firm lacks the expertise to do a job satisfactorily,
buying might be a reasonable alternative.
 Make or buy?
3 Quality consideration:
Firms that specialize can usually offer high quality than an
organization can attain itself.
Conversely, unique quality requirements or the desire to closely
monitor quality may cause an organization to perform a job itself.
4 The nature of demand:
When demand for an item is high and steady, the organization is
often better off doing the work itself.
However, wide fluctuations in demand or small orders are
usually better handled by specializations who are able to combine
orders from multiple sources, which results in a higher
volume and tends to offset individual buyer fluctuations.
 Make or buy?
5- Cost:
A n y c o s t s a v i n g s a c h i e v e d fro m buying o r making must b e w e i g h t e d
a g a i n s t t he preceding f a c t o r s .
Cost saving might come from the item itself or from transportation cost savings.
If there are fixed costs associated with making an item that cannot be reallocated if the service or
product is outsourced , that has to be recognized in the analysis.
Conversely, outsourcing may help a firm avoid incurring fixed costs.
6- Risk:
Outsourcing may involve certain risks. one is loss of control operations.
Another is the need to disclose propriety information.
In some cases , a firm might choose to perform part of the job itself and let
others handle the rest in order to maintain flexibility and to
hedge against loss of a subcontractor .
If part or all the work will be done “ in-house”, capacity alternatives will
need to developed
8.Manufacturing Strategy
SAMPLE MANUFACTURING STRATEGY TEXT
MANUFACTURING VISION
MANUFACTURE WORLD-CLASS QUALITY AUTO COMPONENTS
IN THE PRESCRIBED VOLUMES, ON SCHEDULE, AT THE LOWEST
COST
MANUFACTURING MISSION
ACHIEVE WORLD-CLASS STATUS (BYTHE YEAR 20xx) IN
QUALITY COST, TIME, AND FLEXIBILITY WITH PEOPLE WHO
HAVE A SHARED VISION AND OBJECTIVES THAT ARE BASED ON
A CULTURE OF CONTINUOUS PROCESS IMPROVEMENT
PERFORMANCE METRICS
1. QUALITY: PRODUCT& PROCESS
2. COST/PRODUCTIVITY
3. TIME
4. FLEXIBILITY
SAMPLE MANUFACTURING STRATEGY FRAMEWORK (CONTINUED)
PROCESSES PEOPLE
-TECHNOLOGY -SKILLS, TRAINING, HIRING PRACTICES
-CAPABILITY -KNOWLEDGE, EXPERTISE, EMPOWERMENT
-CONTROL -PARTNERSHIP W/ ACCOUNTABILITY
-FLEXIBILITY -FLEXIBILITY
-STD. OPER. PROCS. -ENVIRONMENT

VALUE CHAIN
INTERNAL EXTERNAL
-PROCUREMENT/SUPPLY -WORLD-CLASS BENCHMARKS
-ENGINEERING -CUSTOMERS & DEALERS
-MARKETING/SALES -SUPPLIERS
-DESIGN OFFICE -GOVERNMENT
-FINANCE -UNIVERSITIES
-LABOR RELATIONS
 Major Manufacturing Decision Categories
5. WORK FORCE AND MANAGEMENT
1. FACILITIES
• wage policies
• size
• security
• location
• skill levels
• focus
2. CAPACITY 6. LOGISTICS AND SUPPLY CHAIN
• amount • logistics facilities and methods
• timing • inventory policies
• type • vendor coordination
3. VERTICAL INTEGRATION AND • production planning
PARTNER MANAGEMENT 7. ORGANIZATIONAL AND
• direction INCENTIVES
• extent • structure
• interfaces • reporting levels
• degree of centralization
• collaboration
• role of staff
4. PRODUCTION TECHNOLOGIES • control/reward systems
AND PROCESSES
• costing systems
• equipment
8. BUSINESS PROCESSES: PRODUCT
• automation DEVELOPMENT, QUALITY
• interconnectedness INFRASTRUCTURE ETC.
• scale • interfaces and responsibilities
• flexibility • responsibilities
• vendor development
• monitoring and intervention
 • 9. Manufacturing and
Process Selection Design
 2

Types of Processes

Conversion (ex. Iron to steel)

Fabrication (ex. Cloth to clothes)

Assembly (ex. Parts to components)

Testing (ex. For quality of products)

 3

Process Flow Structures

• Job shop (ex. Copy center making a single copy of a

student term paper)

• Batch shop (ex. Copy center making 10,000 copies of

an ad piece for a business)

• Assembly Line (ex. Automobile

manufacturer)

• Continuous Flow (ex. Petroleum

manufacturer)
 Few High
Exhibit
Low Multiple Major Volume,
6.10
Volume, Products, Products, High
One of a Low Higher Standard-
Kind Volume Volume ization
I. Commercial Flexibility (High)
Job Printer Unit Cost (High)
Shop These are
the major
II. stages of
Heavy
Batch
Equipment product
III. and
Assembly Automobile process
Line Assembly life cycles
IV.
Continuous Sugar
Flexibility (Low)
Flow Refinery Unit Cost (Low)
 8

Manufacturing Process Flow Design

A process flow design can be defined

as a mapping of the specific processes
that raw materials, parts, and
subassemblies follow as they move
through a plant

The most common tools to conduct a

process flow design include assembly
drawings, assembly charts, and
operation and route sheets
 Example: Process Flow 10

Chart
No,
Material Inspect Continue…
Received
Material for
from
Supplier Defects Defects
found?

Yes

Return to
Supplier for
Credit
 Product qualities-
◦ low cast
◦ high quality
◦ good service and innovation.
◦ Product diversity
◦ Delivery time performance
◦ Reducing non value adding activities
 Manufacturing
lead time

Work in
Quality process

Performance Machine
Performability
Measures utilization

Flexibility Throughput

Capacity
 Total lead time- Time required from the instant at which
raw material is ordered until finished product is delivered.
 Manufacturing Lead time- It is time required to process
the product through manufacturing plant.
Setup
Time

Queue Manufacturing Proces

sing
Time Lead time Time

Move
Time
 It is amount of semi finished product currently
resident on the factory floor.
 The semi finished product is either being
processed or waiting for next processing
operation.
 Investment during WIP is by firm.
 Machine utilization affects the cost.
 High price machines should not remain idle.
 Manufacturing efficiency is measured in terms of
machine utilization.
 Effective resource utilization –
Right quantity
right things
At right time
 It is hourly or daily production rate.
 Reciprocal of throughput production time per unit
of product
 It is maximum possible output of the transformation
process the plant is able to produce over some
specified duration.
 It can be measured as machine hours available per
week or number of units produced per week and so
on..
  Ability of system to respond effectively to change.
Breakdown

Variability of
Internal changes processing time

Worker absenteeism
Changing
circumstances Quality problems

External Design
changes
Demand

Product-mix
 It is factor which influences system performance in
unscheduled downtime.
 It is essential for survival of a plant and depends on
the ratio of high productivity to high payback
 It depends on reliability and availability.
 Customer requirements and specifications.
 Quality at source- Errors should be caught &
corrected at the source.

TQC
Principles

Insistence 100%
Process Easy to see
on inspection
control quality
compliance
Quality Definition

✓ Quality can be confusing concepts

✓ People view quality subjectively
✓ The meaning of quality continues to evolve as the quality profession grows and matures
✓ Quality perception by managers of different firms
✓Perfection
✓Consistency
✓Eliminating waste
✓Speed of delivery
✓Compliance with policies and procedures
✓Providing a good, usable product
✓Doing it right first time
✓Delighting or pleasing customers
✓Total customer service and satisfaction
 Quality Perspectives

✓ Judgmental perspective
✓ Often used by consumers
✓ Synonymous with superiority or excellence
✓ Transcendent (to rise above or extend notably beyond ordinary level)
✓ Abstract and subjective and hence little practical value to managers
✓ E.g., Ritz-Carlton Hotel, Lexus automobile
✓ Product-based perspective
✓ Is a function of a specific, measurable variable & that differences in quality
reflect differences in quantity of some product attribute
✓ E.g., no of stitches per inch on a shirt or no of cylinders in an engine
✓ Higher increasing amount of product characteristics are equivalent to higher
quality
✓ Quality is often mistakenly assumed to be related to price
Quality Perspectives

✓ User-based perspective
✓ Quality is determined by customer wants/needs (Fitness for intended
use)
✓ Individuals have different wants/needs, & hence, different quality
standards
✓ E.g., Both Cadillac CTS and smart car are fit for use, for different needs and
different groups of customers
✓ Value-based perspective
✓ The relationship of usefulness or satisfaction to price (value)
✓ A quality product is one that is as useful as competing products but
sold at a lower price, or
✓ One that offers greater usefulness at as comparable price
✓ P & G (1990) instituted a concept called value pricing – offering a product
at a “everyday” low prices in an attempt to counter the common consumer
practice of buying whatever brand happens to be on special.
Quality Perspectives

✓ Manufacturing-based perspective
✓ desirable outcome of engineering and manufacturing practice, or
conformance to specification
✓ Specifications are targets and tolerances determined by designers of
products (0.236 ± 0.003 cm) or service (10:30 ± 15 min)
✓ Conformance to specifications establishes consistency to goods and
services
✓ E,g., Coca-Cola (with rigorous quality and packaging standards products will taste the same
anywhere in the world)
✓ Integrating perspectives on quality
✓ Quality perception depends on one’s position in the value chain
✓ E.g., designer, manufacturer, service provider, distributor, customer
Quality perspectives in the Value Chain

Customer Marketing
Needs
Transcendent quality & User-based quality
Product-based quality

Design
Value-based quality

Manufacturing
Manufacturing-based
quality
Distribution Legend:
Product & Services Information flow
Product flow
Customer-driven quality

ANSI & ASQC (1978)

The totality of features & characteristics of a product or service that bears on

its ability to satisfy given needs (also known as Fitness for use)

✓Draws heavily on product- & user-based approaches

✓Driven by the need to contribute value to customers
✓Influence satisfaction and preference

Progressive Organizations (1990s)

Quality is Meeting or Exceeding Customer Expectations

 Improving Products & Services

• Dissatisfiers: those needs that are expected in a product or service, such as a

compact disc player, air conditioner, & required safety features in an automobile.
Such items generally are not stated by customers but are assumed as given. If they
are not given, the customer is dissatisfied.
• Satisfiers: needs that customer say they want, such as a TV in a car. Fulfilling these
needs creates satisfaction.
• Delighters/Exciters: new or innovative features that customers do not expect. When
first introduced, antilock brakes (ABS) and air bags were examples of exciters.
Note:
• Satisfiers are easy to determine (through routine marketing research).
• Special effort is required to elicit customer perceptions about Dissatisfiers &
Delighters/ Exciters.
• Overtime Delighters/Exciters become Satisfiers as customers become used to them
& eventually Satisfiers become Dissatisfiers (if they are not provided).
N.B.: (concepts suggested by Japanese Professor Noriaki Kano)
Important Quality Dimensions in Manufacturing

• Performance: A product’s primary operating characteristics.

• Features: The “bells and whistles” of a product.
• Reliability: The probability of a product’s surviving over a specified
period of time under stated condition of use.
• Conformance: The degree to which physical and performance
characteristics of a product match pre-established standards.
• Durability: The amount of use one gets from a product before it
physically deteriorates or until replacement is preferable.
• Serviceability: The ability to repair a product quickly and easily.
• Aesthetics: How a product looks, feels, sounds, tastes, or smells.
• Perceived quality: Subjective assessment resulting from image,
advertising, or brand names.
Quality in Services

Statistics from a variety of studies

● The average company never hears from more than 90 percent of its unhappy
customers. For every complaint it receives, the company has at least 25
customers with problems, about one-fourth of which are serious.

● Of the customers who make a complaint, more than half will do business again
with that organization if their complaint is resolved. If the customer feels that
the complaint was resolved quickly, this figure jumps to about 95 percent.

● The average customer who has had a problem will tell 9 or 10 others about it.
Customers who have complaints resolved satisfactorily will only tell about 5
others.

● It costs six times more to get new customer than to keep a current customer.
 Important Quality Dimensions in service

• Time: How much time must a customer wait?

• Timeliness: Will a service be performed when promised?
• Completeness: Are all items in the order included?
• Courtesy: Do front- line employees greet each customer
cheerfully?
• Consistency: Are service delivered in the same fashion for every
customer, and every time for the same customer?
• Accessibility and Convenience: Is the service easy to obtain?
• Accuracy: Is the service performed right the first time?
• Responsiveness: Can service personnel react quickly and resolve
unexpected problems?
 PRINCIPLES OF TOTAL QUALITY MANAGEMENT

• Quality was often ensured too late in the production cycle – at final
assembly, rather than in the design & development stages.
• Customer needs & satisfaction were not well understood.
• Quality was not an important issue until it became a problem.
• Management seemed willing to sacrifice quality when costs or
scheduling conflicted.
• Operators were not sufficiently trained in their jobs & in quality
issues.
• Quality problems were experienced with vendors.
• Quality costs appeared high.

* Polaroid Internal Survey

PRINCIPLES OF TOTAL QUALITY MANAGEMENT (Cont.)

• These are not quality problems; they are

✓Design problems
✓Marketing problems
✓Manufacturing problems
✓Human resource problems
✓Supplier relations problems
✓Financial problems
• They encompass the management of operations throughout the firm
• Thus a comprehensive & integrated management strategy is required
centered on Quality

Today the term TQM conveys a total, company wide effort that includes all
employees, suppliers, and customers, and that seeks continuously to
improve the quality of products & processes to meet the needs and
expectations of customers
PRINCIPLES OF TOTAL QUALITY MANAGEMENT (Cont.)

• TQM has become the basic business strategy for firms that aspire
to meet the needs of their customers
• There probably are as many different approaches to quality as
there are businesses
• Although no program is ideal, successful programs share many
characteristics
• The basic attributes of TQM are
✓Customer Focus
✓Strategic Planning & Leadership
✓Continuous Improvement
✓Empowerment & Teamwork
PRINCIPLES OF TOTAL QUALITY MANAGEMENT (Cont.)

• CUSTOMER FOCUS
• The customer is the judge of quality. Quality system must address
attributes that provide value to customers and lead to customer
satisfaction and loyalty
• Factors that influence customers overall purchase, ownership, and service
experiences include the relationship between company and customer and
the trust and confidence in products
• The concept of quality not only includes product attributes but also
features that enhance the product and differentiate it from competing
offerings (known as service bundle/ service package)
• A company must remain close to customers by taking regular customer
opinion, focus group discussion by survey, toll-free telephone, etc.
• Customer’s job
• How the customers uses their product
• Customer requirements & value
PRINCIPLES OF TOTAL QUALITY MANAGEMENT (Cont.)

• CUSTOMER FOCUS (Cont.)

• Several companies require their sales & marketing executives to meet with
random groups of key customers on a regular basis
• Other companies bring customers & suppliers into internal product design
& development meetings
• Coca Cola is one example of good CRM
• If a customer does call with a complaint, Coca-Cola sends the customer a letter
apologizing for the problem, as well as coupons that allow the customer to
replace the unacceptable products
• In certain circumstances, the Coca-Cola bottler may also follow up with the
customer
• A Service Quality Survey (SQS) is mailed to the customer two weeks after the
initial contact asking
• To rate the quality of the response (Courtesy, professionalism, etc.)
• The quality of the phone agent & letter-writer
• Whether the customer will continue to purchase their products
• The survey shows that 90% of the customers are satisfied with complaint
handling but they aspire to achieve 100% satisfaction
PRINCIPLES OF TOTAL QUALITY MANAGEMENT (Cont.)

• STRATEGIC PLANNING & LEADERSHIP

• Achieving quality & market leadership requires a long range strategy
• Improvements do not happen overnight
• Planning & organizing improvement activities take time & requires major
commitments on the parts of all members of the organization
• Strategies, plans, & budget allocations need to reflect long-term
commitments to customers, employees, stockholders & suppliers
• Other things to be addressed are: training, employee development, supplier
development, technology evolution, etc., that bear upon quality
• Leadership for quality is the top management responsibility
• Senior management must create clear quality values & high expectations & build
them into the way the company operates by substantial personal commitment &
involvement
• If commitment to quality is not a priority (Lip service), any initiative is doomed to
failure & is the Kiss to Death
PRINCIPLES OF TOTAL QUALITY MANAGEMENT (Cont.)

• CONTINUOUS IMPROVEMENT
• Is part of the management of all systems & processes
• Achieving highest levels of quality & competitiveness requires a well
defined & well-executed approach to continuous improvement
• Improvements may be of several types
• Enhancing value to the customers through new & improved products & services
• Reducing errors, defects, & wastes
• Improving responsiveness & cycle time performance
• Improving productivity & effectiveness in the use of all resources
• Thus improvement is driven by not only the objectives to better quality, but
also by the need to be responsive and efficient
• Must contain regular cycles of planning, execution & evaluation
• Requires a basis, preferably a quantitative basis, for assessing progress &
for deriving information for future cycles of improvement (Quality must be
measured)
PRINCIPLES OF TOTAL QUALITY MANAGEMENT (Cont.)

• CONTINUOUS IMPROVEMENT (Cont.)

• Improving products & Services
• Careful research is required to determine the needs of customers, & those
needs must be reflected in the design of goods & services
• Three classes of customer needs: Dissatisfiers, Satisfiers, Delighters/Exciters
• Overtime Delighters/Exciters become satisfiers, & eventually satisfiers become
dissatisfiers
• Therefore, companies must innovate continually & study customer perceptions to
ensure that their needs are being met
• Designing & Improving Work Processes
• Quality excellence derives from well-designed & well-executed work processes
& administrative systems
• Improvements in quality of product design may lead to major reductions in
scrap & defects later in the production process &, hence, to lower costs
• Fast response to customers is a major quality attribute. Success in competitive
markets increasingly demands shorter product & service introduction cycles &
faster response to customers
PRINCIPLES OF TOTAL QUALITY MANAGEMENT (Cont.)

• CONTINUOUS IMPROVEMENT (Cont.)

• Designing & Improving Work Processes
• Reductions in cycle & response time can occur when work processes are
designed to meet both quality & response goals
• Response time reduction should be a major focus in all quality improvement
processes of work units
• Since response time improvements often drive simultaneous improvements in
quality & productivity, it is highly beneficial to consider response time, quality,
& productivity objectives together
• Measurement as a Basis for Improvement
• Meeting quality & performance goals of the company requires that process
management be based upon reliable information, data, & analysis
• The quality of products, internal processes, & customer satisfaction must be
measured
• Analyzing the costs of poor quality is one approach that many firms use
to identify improvement opportunities. Such costs include, inspection
costs, costs of scrap & rework, customer returns & warranty claims, etc.
PRINCIPLES OF TOTAL QUALITY MANAGEMENT (Cont.)

• EMPOWERMENT & TEAMWORK

• All functions at all levels of an organization must focus on quality to
achieve corporate goals
• Teamwork can be viewed in three ways
1) Vertical: teamwork between top management & lower-level employees.
Employees are empowered to make decisions that satisfy customers without a lot
of bureaucratic hassles, & barriers between levels are removed
2) Horizontal: Teamwork within work groups & across functional lines (cross-
functional teams). E.g., a product development team may consist of designers,
manufacturing personnel, suppliers, sales-people, & customers.
3) Inter-organizational
• Partnership must be created both internally & externally
• Companies should seek to build partnerships that mutual & larger community interests
• Partnership might include linkages with educational institutes, cooperation with
suppliers & customers, agreement with unions, etc.
• E.g., A company might develop specifications jointly with suppliers to take advantage of
the suppliers’ manufacturing capabilities
 Last word
“Paying attention to customers and knowing what they
want is a fundamental and important beginning.
However, given that several competing companies pay
attention to what customers want, the key to
competitiveness then becomes p r o d u c t i o n
c a p a b i l i t y . What differentiates winners from
losers is that winners are better able to consistently
pr o v ide pr o duc t s a nd s e r v ic e s t h a t a r e
competitive with r e g a r d t o q u a l i t y,
price, time and a g i l i t y
Questions?
Thank You