Griff 6e Ch12 Stu

CHAPTER 12
Increasing Productivity
and Quality
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
12-2
Learning Objectives
Describe the connection between productivity and quality.
Understand the importance of increasing productivity.
Identify the activities involved in total quality management
and describe six tools that companies can use to achieve it.
Identify three trends in productivity and quality
management, including supply chain management.
Explain how a supply chain strategy differs from traditional
strategies for coordinating operations among firms
Discuss four strategies that companies use to improve
productivity and quality.
12-3
Productivity and Quality
Measure of efficiency
Compares how much is produced with the
resources used to produce it
 grows if an organization can produce more of the right
things with less resources
Considers both amounts and quality
Quality = A product’s fitness for use in terms
of offering the features that consumers want
12-4
Measuring Productivity
Productivity is measured as a ratio of outputs to inputs

Often use labour for input because data easily available
Compared across firms, industries and countries
 firms that compete internationally have more incentive to be
more productive
Labour
Productivity = Gross Domestic Product (GDP)
Total Number of Workers
12-5
Domestic Productivity
Productivity affects standard of living

 Countries with greater domestic productivity
 have greater wealth for all citizens
 Countries with declines in productivity
 can only allocate limited wealth to their citizens
 can only increase an individual’s wealth at the expense of
others in the economic system
r owth
Affects uc t
g
ivity ers.
s prod n oth tion
 employees (wages) da ’ s th a va
Cana een les ize inno d
 investors (profits) b has sticate
has m p
ed to e e sophi te
 customers (prices) - ne nd mor o compe
a
d ucts t
pro
12-6
Industry Productivity
Service Productivity
 is less than manufacturing productivity
 some have gains from modern information technology
Industry Productivity
 differs widely
 agriculture, computer, steel have gained from new technology
 affects:
 labour union negotiations
 investors’ and suppliers’ choices
12-7
Company Productivity
High productivity gives a competitive edge

 lower costs allow:
 lower prices
 more profit
 or higher wages
Affects:
 Investors buying stock
 employee profit-sharing plans based on productivity
improvement
 Managers plans for new products, facilities and funding
12-8
Total Quality Management (TQM)
TQM is a philosophy of management

 from Deming, Juran and Ishikawa
 includes all activities and parts of the business
(customers, suppliers, employees)
 leadership and customer focus are key
 continuous improvement
 all employees are responsible for maintaining quality
standards
Requires
v e l o f c omm itment
high le
bers
from all mem
12-9
Quality Assurance and TQM
Activities necessary to get quality goods

and services into the marketplace
planning
organizing Managing
leading Quality
controlling
Efforts
12-10
Planning for Quality
Quality planning begins before goods are

designed, or redesigned
Performance quality
 How well the features of the product meet consumers’
needs
 How well the product performs
Quality reliability
 The consistency of quality from unit to unit of a product
12-11
Organizing for Quality
Producing quality products requires a

commitment from every employee
 Quality control cannot be effective as an isolated
department
 Specific aspects of total quality management can be
assigned to specific jobs and departments
 quality improvement developments
 quality control monitoring
12-12
Leading for Quality
Managers must inspire and motivate

employees to achieve quality goals
training
encouraging
tying wages to product quality
Quality ownership
quality belongs to each employee
12-13
Controlling for Quality
1. Establish specific quality standards and

measurements
2. Monitor results using quality assurance
tools
3. Detect mistakes and make corrections
12-14
Quality Assurance Tools
Value-added analysis
Statistical process control
Control charts
Quality/cost studies
Quality circles
Benchmarking
Getting closer to the
customer
ISO 9000 and ISO 14000
Re-engineering
Adding value through
supply chains
12-15
Value-Added Analysis
evaluation process to determine the value

added by
all work activities
material flows
paperwork
reveal and eliminate wasteful activities
12-16
Statistical Process Control
SPC methods enable managers to

 analyze variations in production data
 detect when adjustments are needed to create products
with high quality reliability
Process variation
 Change in employees, materials, work methods, or
equipment that affects output quality
 some variation is acceptable
 variation outside of the acceptable range
must be detected and eliminated
12-17
Process Capability Study
Process variation is detected by analyzing a

sample and measuring the conformity of output
Specification limits provide the acceptable range
of variation around the required standard
Example
 Cereal boxes may be required to have about 400 grams
 more would be wasteful
 less does not deliver customer satisfaction
 acceptable range = 390 to 410 grams pabl
e”
is “ca
oc es s s u res
P r
e n me fications
a
wh s pe ci
e w ithin
ar
12-18
Control Charts
Control limits
are noted on a graph to depict Pro
the acceptable range of variation ces
wh s is “
are en in c
wit m o
Results of test samples are graphed hin easu ntrol”
con res
Results outside the control limits trol
lim
are easily spotted its
Cause is investigated
Problem corrected
to restore process to normal
12-19 An Example: Process Control Chart
for Filling Cereal Boxes
12-20
Quality/Cost Studies
Assessing quality-related costs

and identifying areas with cost-saving potential
Quality costs are associated with making, finding,
repairing or preventing product defects
Requires determining the costs of
 internal failures
 expenses of bad products incurred during production
 overfilling, sorting, rework, monitoring
 external failures
 costs of correcting defective products that get to the consumer
 refunds, transportation, lawsuits, recalls
12-21
Quality Improvement Teams
Groups of employees from various areas meet

to
 define,
 analyze, and
 solve quality problems
Goal is to improve work methods and products
May involve brainstorming, discussion, and
the use of quality/cost study
12-22
Benchmarking
Compares the quality of a firm’s output

with the quality of the output of the
industry’s leaders
internal – compare to past performance
external – compare to competitors’
best practices
12-23
Getting Close to the Customer
Customers are “economic assets”

Firms need to stay close to their
customers
Successful firms have an
understanding of customer needs and
wants
12-24
ISO 9000
Program certifying that a company meets the

rigorous quality standards of the International
Organization for Standardization (ISO)
To earn the rating firms are measured by
qualified consultants
 product testing
 employee training
 record-keeping
 correcting defects
12-25
ISO 14000
Certification program
attesting that a company
has improved
environmental performance
need an environmental management system
plan to improve resource use and manage pollution
covers practices in environmental labelling
assesses total impact
of firm’s products
12-26
Re-engineering Process
Identify
Ra
the business activity dic
to change fro al re
to m de
Evaluate information
i of s cra sign
and human resources’ m p
pro roce tch
ve s
capacity for change
pe ses
Identify rfo
rm
strengths or weaknesses an
of current process
ce
Create the
new process design
Implement
the new design
12-27
Supply Chain Management
Supply chain = group of companies and stream of

activities involved in getting the product from raw
materials to end consumer.
 Members of the chain work with each other in a
coordinated system rather than as adversaries
Supply chain management looks at the chain as a
whole to improve overall flow
 Improved coordination
 Enhanced communication
 Reduced inefficiencies
 Minimized costs
12-28 Productivity and Quality as
Competitive Tools
Getting closer to understanding customer needs

Invest in innovation and technology
Adopt a long-run perspective through
continuous improvement
Emphasize quality-of-work-life
Empower employees
Train employees
12-29
Service Quality Criteria
Reliability Empathy
 accurate and timely  caring & individualized
service
attention
Responsiveness
 prompt and helpful
Tangibles
customer service  pleasing atmosphere,
Assurance appearance, facilities,
 employees who are materials
knowledgeable,
trustworthy, and
courteous

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CHAPTER 12

Productivity and Quality

Productivity is measured as a ratio of outputs to inputs

Productivity affects standard of living

High productivity gives a competitive edge

Total Quality Management (TQM)

TQM is a philosophy of management

Quality Assurance and TQM

Activities necessary to get quality goods

Planning for Quality

Quality planning begins before goods are

Organizing for Quality

Producing quality products requires a

Leading for Quality

Managers must inspire and motivate

Controlling for Quality

1. Establish specific quality standards and

Quality Assurance Tools

evaluation process to determine the value

Statistical Process Control

SPC methods enable managers to

Process Capability Study

Process variation is detected by analyzing a

Assessing quality-related costs

Quality Improvement Teams

Groups of employees from various areas meet

Compares the quality of a firm’s output

Getting Close to the Customer

Customers are “economic assets”

Program certifying that a company meets the

Supply Chain Management

Supply chain = group of companies and stream of

Getting closer to understanding customer needs

Service Quality Criteria

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