5.

3 Lean
Production and
Quality
Management
Higher Level Only
Starter Reading
Learning Outcomes
The learning outcomes (or assessment objectives) for this section of the HL IB Business Management syllabus are:

• The following features of lean production (AO1):

• less waste
• greater efficiency

• The following methods of lean production (AO2):

• continuous improvement (kaizen)
• just-in-time (JIT)
• kanban
• andon

• Features of cradle to cradle design and manufacturing (AO2)

• Features of quality control and quality assurance (AO1)

Learning Outcomes

• The following methods of managing quality (AO2):

• quality circle
• benchmarking
• total quality management (TQM)

• The impact of lean production and TQM on an organization (AO3)

• The importance of national and international quality standards (AO2)

Lean Production

Lean production is a philosophy or organizational culture about streamlining production

processes in order to increase efficiency and reduce waste. Quality means that a product
is fit for purpose, i.e. the good or service meets or exceeds the needs of its customers. It
is about achieving customer satisfaction. Approaches to quality management include
quality control (QC) and quality assurance (QA).

Consider the case study below and discuss the likely impact such product recalls are likely
to have on the company in question.
Case Study - Apple recalls Beats speakers
due to fire risk
In June 2015, Apple called for its customers of its Beats loud speaker system to stop using the device
and to return these for inspection due to potential fire risks. The speakers sell for around $380 but the
batteries were prone to overheating. Reports included a burn to a consumer's finger and damage to
another consumer’s desk. The product recall included over 230,000 units of Beats speakers sold in
the USA.

The US Consumer Product Safety Commission reported that "Apple has received eight reports of
incidents of the speakers overheating, including one with a burn to a consumer's finger and one with
damage to a consumer's desk."

Apple offered to fully reimburse customers upon proof of purchase. The company bought Beats
Electronics for $3 billion a year earlier in 2014.
What is lean production?
• Waste (muda) - research
• Reduction of waste in the
production process. Waste can be
in many forms (OTHER):
• Over-processing
• Time
• Human Effort
• Energy
• Resources and materials
Features of Lean Production

Lean production is a philosophy or organizational culture about streamlining production

processes in order to increase efficiency and reduce waste. It is the deliberate approach to
management that focuses on eliminating waste without compromising quality. This approach
can be applied to all aspects of a business, including its functional areas (human resource
management, marketing, finance and accounts, and operations management). Lean
production aims to minimize costs by making the organization more efficient and more
responsive to changing market needs. There are two features of lean production:

• Less waste, and

• Greater efficiency
 Less Waste (expand with examples)
Less waste 
Lean production originated in Japanese manufacturing, in its strive to cut out all sources of waste and to achieve efficiency gains. It
requires getting things done correctly, the first time round, and using fewer resources or using them more effectively to achieve the
same output.
The 7 sources of waste (or ‘muda’ in Japanese) can be remembered by the acronym WOMDOTS:
• Waiting times – 
• Overproduction – 
• Motion –
• Defects –
• Over-processing – 
• Transportation – 
• Stockpiling (excess inventories) – 
Progress Check
Identify four examples of waste (muda)
resulting from the production of fresh
carrot cakes.  [4 marks]
Progress Check
• Overproduction – the firm might produce more carrot cakes than the orders being
placed by their customers

• Defective products – the cakes are not made to the required specifications (such as the
size, texture, and taste), which then requires more time and money for the defects to be
corrected

• Damaged products – the poor handling, packaging or transportation of the cakes (that
spoil easily), would lead to dissatisfied customers who demand refunds or compensation

• Excess stock – the firm could hold too much stock (inventory) of ingredients (such as
flower, sugar and carrots), all of which are perishable for the fresh cakes manufacturer;
this is both wasteful and is detrimental to the firm’s liquidity position.
Greater Efficiency

Efficiency means using resources more productively in order to generate output. There is greater
efficiency if an organization can produce more goods and/or services (increasing its output) by
using the same or fewer resources (its inputs). Efficiency can be measured in a number of
ways, depending on the context of the business organization. Some examples include:

• Sales per person

• Output per worker

• Output per machine hour

• Average costs per unit of output

Greater Eficiency

Greater efficiency can be achieved in a number of ways, such as:

• Improved level of motivation in the workplace

• Improved technologies and capital equipment

• Improved provision of training and development for all employees

Greater efficiency

Lean production aims to increase resource flexibility, e.g. through developing a multi-
skilled workforce. It also aims to improve efficiency by eliminating production
processes that do not add any value to output. Finally, lean production involves
managing the supply chain in order to improve operational efficiency (and eliminate
waste in the process).

Not only is lean production good for economic sustainability (and hence profits), it is

also good for ecological sustainability.
Case Study - Japan's lean
production trains 
How’s this for an example of lean
production? Japanese rail
company apologizes after train
leaves 20 seconds early(!)

Read the article here from The

Guardian
Progress Check
Methods of Lean Production

Lean production is about eliminating waste in the production process. The use of lean production methods
helps to prevent or minimize the chances of a business from incurring waste as a result of not detecting
quality issues during the production process.

In detail, outline each in your notes with advantages and disadvantages. I will then provide case studies and
notes.

• Continuous improvement (Kaizen)

• Just-in-time (JIT)

• Kanban

• Andon
Continuous improvement (Kaizen)
Kaizen is the Japanese process and philosophy of lean production that involves the process of making continuous small,
incremental improvements to various production processes in order to achieve greater efficiency. The word means to
‘change for the better’. Kaizen is therefore about developing an organizational culture of continuous improvement.

Effective implementation of Kaizen depends on whether senior management are willing to delegate and empower their
staff to be involved in the decision-making process. This means that employee empowerment is a key requirement for
Kaizen to occur, as employees are given the responsibility to provide suggestions about what improvements can be
made. This may involve regular, scheduled meetings where employees are invited to share their opinions, feedback
and suggest areas for improvement.

Of course, not all the ideas presented are necessarily feasible or can be adopted, but the aim is that some of the
suggestions for improvement will be of value to the organization. This approach also has a positive impact on
staff motivation and labour productivity, as workers feel respected and valued by the employer.
Continuous improvement (Kaizen)
Kaizen is also advantageous because employees are usually more receptive to small and
incremental changes, rather than highly disruptive or unsettling changes. However,
embedding Kaizen into the organizational culture is likely to be both time consuming and
expensive, such as the scheduling of meetings and the costs of staff training and upskilling.
For Kaizen to work, all staff members are required to believe in the approach, and put in the
necessary effort and commitment to eliminate waste and to make efficiency gains. Staff may
resent the use of their time in this way (which could be counter-productive) and feel that it
is the role and responsibility of managers to make such decisions (they are, after all, paid to
do so!)
Just-in-time (JIT)

Holding large volumes of stock (inventory) can be very costly and wasteful. Just-in-time (JIT) is a
lean method of stock control whereby materials and components are scheduled to arrive precisely
when they are needed in the production process. Hence, JIT aims to eliminate buffer stock
requirements by ensuring raw materials and components are received just before they are needed.

By contrast, a just-in-case (JIC) stock control system requires businesses (such as Coca-Cola) to

have large quantities of stock in the event that it is needed for an unexpected order or in case there
is a problem with the supply chain (such as a late delivery of stock). However, this stock control
system is not lean, because of the high costs of storage and potential waste if the stocks become
damaged or go out of date. Purchasing large volumes of stock just in case it is needed also requires
large amounts of money, which can harm a firm’s cash (or liquidity) position.
Just-in-time
(JIT)
JIT works on the principle of firms placing regular orders
with their suppliers, rather than relying on large, irregular
orders. For example, many of the world’s largest
supermarkets use fully automated JIT delivery systems.
They depend on computerised systems such as scanners at
the checkouts that link to their stock control and ordering
systems, which automatically place orders with suppliers.
This helps to ensure the supermarkets are adequately
stocked, as empty shelves would mean lost sales and
unhappy customers.
Just-in-time (JIT)

The advantages of just-in-time (JIT) as a method of lean production include:

• Buffer stocks are not required, so this reduces the costs of stock management and waste.

• It avoids the opportunity costs of stockpiling, such as the costs of storage, insurance,
maintenance or security, damaged stocks, and obsolete (out of date) inventory.

• The above points can also improve the firm’s cash (liquidity) position.

• JIT fosters lean production as workers need to be more careful and ensure things are
done right, first time round as there are no spare stocks.
Just-in-time (JIT)

The disadvantages of a just-in-time (JIT) stock management system include:

• As orders are placed in smaller quantities at regular intervals, administrative and implementation costs of JIT
can be relatively high.

• Similarly, JIT stock control does not enable firms to enjoy bulk buying economies of scale as raw materials
and/or component parts are only ordered as and when they are needed for production.

• There is the risk of running out of stock if demand is higher than expected.

• JIT is inflexible, which puts the organization at greater risks and unforeseen circumstances.

• There is total reliance on third party suppliers to deliver the right products, at the right time. Having direct and
easy access to local and reliable suppliers is not always possible, even though it is essential for a JIT system.
Just-in-time (JIT)

The advantages of just-in-time (JIT) as a method of lean production include:

• Buffer stocks are not required, so this reduces the costs of stock management and waste.

• It avoids the opportunity costs of stockpiling, such as the costs of storage, insurance,
maintenance or security, damaged stocks, and obsolete (out of date) inventory.

• The above points can also improve the firm’s cash (liquidity) position.

• JIT fosters lean production as workers need to be more careful and ensure things are
done right, first time round as there are no spare stocks.
Just-in-time (JIT)
Watch this CNN coverage of the Ever
Green 400 metre super cargo ship that
caused major delays to deliveries across
the world as it got stuck for almost a
week in Egypt's Suez Canal (which is
less than 300 metres wide). The event
highlighted the importance of supply
chain logistics and the limitations of
relying on a just-in-time delivery
system. https://youtu.be/AfjTti1VPFU
Kanban (AO2)

Kanban, which in Japanese means ‘billboard sign’, is a method of lean production that relies on
cards are used to indicate what needs to be produced, quantities of resources required, and
production deadlines. It was developed by Toyota in the 1950s to help manage workflow
processes by classifying new tasks, work-in-progress, activities undergoing testing, and
completed projects.

Kanban systems are also popular in the restaurant industry. For example, the waiting staff take
customers’ orders and pass these on to the kitchen staff and chefs. The system relies on the
waiters (servers) to get the food orders correct, first time, in order for the chefs and cooks to
prepare the right meals for the customers. The chef also rely on a Kanban system to ensure the
different parts of a meal are cooked and served in a timely manner.
Kanban (AO2) Kanban enables workers to be aware of any bottlenecks, work
at a steadier pace, and ensure smoother workflow. Kanban
therefore prevents underproduction (which is inefficient) and
overproduction (which is wasteful).

As a method of lean production, Kanban shares similar

advantages and disadvantages as just-in-time systems.
However, a major drawback is that worker mistakes are
likely to stop the entire production process, as replacement
inventory is unlikely to be available. Hence, a Kanban
system helps to maintain an efficient flow of production.

Watch this video clip which explains Kanban is under 4

minutes: https://youtu.be/jf0tlbt9lx0
Andon (AO2) Andon is the method of lean production that uses audio-visual
control and warning systems to indicate the status of particular
aspects of the production process. In the same way that traffic
lights are used to control the flow and speed of traffic, an Andon
system helps firms to achieve greater efficiency. In the context of
production, a traffic light system can be used to indicate the status
and progress of different tasks in the production process:

• A green light indicates everything is progressing normally

• An amber or yellow light may indicate potential bottlenecks or

production issues, and

• A red light may indicate a major issue that requires immediate

attention.
Andon (AO2)

Sensors and lighting systems are installed in various parts of a production line or process
in order to detect problems such as broken or malfunctioning parts or machinery. In such
an event, staff can stop the production process by pressing an emergency button.

Today, Andon systems use digital displays, to communicate the status of production in the
manufacturing process. The combination of audio and visual systems provides an
efficient warning system for workers to help them manage the progress of different
tasks, thereby making efficiency gains.
 Car manufacturers use Andon notification systems to alert and warn drivers
of potential problems, such as:
Andon (AO2) • Battery status

• Fuel gauge (including warning systems when the fuel level is low)

• Oil / petrol gauge (including notifications when the engine oil needs
replacing)

• Seat belt warning system

• Speed of the vehicle (including speed warning systems)

• Temperature of engine (including temperature warning systems)

• Tyre pressure (including warning systems to notify the driver of

low tyre pressure).
Andon

Watch this 3-minute video clip about how Toyota uses an Andon system in its production
process. The video is a somewhat dated, but still worth seeing: 
https://youtu.be/r_-Pw49ecEU

Here is a more modern video about how a manufacturer in Finland uses an Andon service
station as part of its production process: https://youtu.be/Yi46P5E4D60
 Past paper questions
The case study for Henri’s MBA contains additional information on TM:

• TM’s competitive advantage is achieved through its innovative computerized kanban system. This enables TM to achieve many
efficiencies. TM aims to operate on a just-in-time (JIT) basis.

• TM uses many suppliers. TM has taken advantage of China’s move towards a market economy and now many of TM’s suppliers are
located in China. This helps TM to maintain competitive advantage through lower prices, but makes it more difficult to achieve
effective quality control. It also outsources production to other low-cost countries. This helps TM to establish new markets and identify
new products to develop.

Henri studies the TM case study further. He is outraged by what he reads:

• TM’s Chief Executive Officer (CEO) earns 250 times more, per year, than a salesperson.

• Financial rewards for senior management are very high: in addition to shares, they are
given profit-related pay, performance-related pay (PRP) and fringe payments (perks). Despite being one of the most profitable
businesses in the world, most employees at TM have not had a pay rise for three years despite increasing sales.

• Shareholders made significant returns on investments.

Explain two reasons why just-in-time (JIT) lean production might be useful to TM. (4 marks)
Features of Cradle-to-Cradle design
manufacturing (C2C)
Cradle to cradle (C2C) design and manufacturing refers to a sustainable, waste-free production model in
which all material inputs can be recycled or reused, or are consumable or compostable. This sustainable
approach to operations management helps to minimise the negative impacts of production on the natural
environment. C2C requires design and manufacturing that minimises waste and the impact of
manufacturing on the planet. For example, this could include reducing excess packaging, using recycled
materials, making goods more durable (so there is less of a need to replace them so frequently), and using
sustainable and environmentally friendly production methods (which help to reduce waste and pollution).

Examples of products using a C2C manufacturing process include manufacturers of recyclable glass bottles
for water and wine. The glass is totally recyclable, so can be reused, thereby minimising the impact on the
environmental. By contrast, single-use plastic water bottles and plastic carrier bags are a major source of
non-biodegradable waste and pollution, thus have a major negative impact on the environmental.
Cradle-to-Cradle
design manufacturing
(C2C)
C2C focuses on the 5 Rs: Refuse, Reduce, Reuse,
Recycle, and Rot (biodegradable). C2C products are
made using environmentally friendly and sustainable
materials, which can then be stripped down and reused
after the original product is no longer required (such as
textiles and glass products).

C2C is commonly used in making glass products

Cradle-to-
Cradle design manufactu
ring (C2C)
ATL Activity - C2C t-shirts

Read this article from GreenBiz.com that

details how C&A, the Dutch
multinational retailer of clothes,
launched T-shirts using the C2C
standard.
Cradle-to-Cradle design manufacturing (C2C)

Apart from being green and lean, C2C can also help to improve a firm’s corporate image. It
requires consideration of the ethics of decision-making, and can provide a firm with a
unique selling point.

However, C2C design and manufacturing is likely to incur higher costs, thus leading to
higher priced products.

Zero waste and C2C design and manufacturing is becoming very popular in the fashion
industry. Watch this short video clip about Daniel Silverstein, founder of “Zero Waste
Daniel” (ZWD), who turns fabric scraps into unique pieces of clothing: 
https://youtu.be/2qqiKNzwHMg
Cradle-to-
Cradle design manufacturing (C2C)
This is a fascinating Tedx Talk about zero
waste in our everyday lives. Bea Johnson
talks about how her family of four produces
just a small jar of waste each year. She
covers the importance of the 5Rs for zero
waste: Refuse, Reduce, Reuse, Recycle,
and Rot: https://youtu.be/Cg3OA1s8-SI
Features of quality
control and quality
assurance
Quality means that a product is fit for purpose, i.e. the good
or service meets or exceeds the needs of its customers. It is
about achieving customer satisfaction. For example, quality
service in a restaurant could mean a combination of:

• Polite, welcoming and knowledgeable waiting staff

• Timely delivery of food and drinks

• Meals that are cooked and served well.

Features of quality control and quality
assurance
Quality is important because of two main reasons: reputation and ability to control costs. For example, substandard output
of goods and services may require reworking - which occurs when staff have to re-do a particular task or job due to
errors or faults with the output. This is also time consuming and could damage the corporate reputation of the business.

The quality of a product can be determined by factors such as:

• How well a product serves its purpose

• Customer service

• After-sales services

• Reliability

• Durability
Quality Control

Quality control (QC) refers to the most traditional form of quality management in which
a supervisor or inspector periodically checks and examines output for possible defects,
usually at the end of the production process. Quality controllers aim to ensure the
products comply with quality standards. They are specialist inspectors, so are hired to
maintain quality standards. For mass produced products, QC is usually conducted in a
systematic way, such as once every hour or every 100th unit of output. For highly
expensive products, such as a Ferrari or Bugatti, each one is checked to ensure quality
standards are met.

Please outline three advantages and three disadvantages of QC.

Quality assurance (QA) 

Quality assurance (QA) is a lean approach to quality management as it involves all

employees in the quality process. QA focusses on empowering all staff to check their own
work throughout the production process, rather than relying on quality controllers to
inspect the final output. This approach to quality management considers quality in every
operations decision in order to prevent mistakes, from product design to the level of
customer service and timely distribution to customers.

Please outline three advantages and three disadvantages of QA

 Exam Practice Question 

 Exam Practice Question 

Distinguish between quality assurance (QA) and quality control (QC).  [4 marks]

Progress Check
Measuring Quality
• Reject rates

• Level of product returns

• Product recalls

• Customer satisfaction

• Customer Loyalty 

• Market share
Methods of managing quality (30 – 40 minutes)

Students need understand the following three methods of managing quality in

an organization:

• Quality circles
• Benchmarking
• Total quality management (TQM)

Outline the above in your notes with examples along with advantages and disadvantages
I will then provide notes and questions
Quality Circles

Quality circles are small groups of employees who meet on a regular basis to assess quality issues and
make recommendations to improve quality standards. It is common for the members of a quality
circle to be from different departments in the organization, in order to get different perspectives and a
range of views and suggestions. For example, it is important to hear from representative of the
finance, marketing and human resources departments even though the issues being discussed are
primarily related to operations management. Members of quality circles are typically volunteers.

Professor W. Edwards Deming (1900 – 1993), a notable figure in the field of quality management,
argued that employees should have most of the responsibility for quality management in an
organization. Not only is this empowering for staff, and hence boosts productivity, it also yields
better results than if the responsibility was held by only a few senior managers.
Quality Circles

Advantages of quality circles

The advantages of quality circles include the following points:

• They promote team working (a form of non-financial motivator) and boost team
cohesiveness. This can therefore help to improve employee morale, as staff feel more
valued.

• Almost any organization, in any industry, can use quality circles to improve quality
standards.
Quality Circles

Disadvantages of quality circles

The disadvantages of quality circles include:

• Quality circles are not necessarily cost-effective, as employees have to be suitable qualified and trained
in the process of identifying problems and making feasible suggestions.

• For quality circles to work well, staff must be fully supported by senior management. If their
recommendations are rejected or not adequately funded, members of the quality circle will lose any
motivation to continue.

• Some staff members may be unable or uncomfortable to take on such level of responsibility, arguing
that senior managers are the people paid to problem solve and resolve quality issues.
Benchmarking

Benchmarking is the routine process of an organization comparing its products, processes (operations) and
performance to that of its competitors or its own historical standards. For example, an accounting firm may
consider its employees’ professional examination pass rate with those of its competitors to assess the quality
of the training they provide. An IB World School will compare its own examination results and pass rates
with those of rival schools and its own historical performance. Such benchmark assessments enable the
organization to determine the quality of teaching and learning in the school.

Benchmarking is a form of managing quality in an organization as it explores areas within the business where
quality and performance can be improved. It involves firms learning from their rivals in order to gain
insights into ways to improve their own performance. Hence, benchmarking plays an important role in
quality improvement.
 Benchmarking
Advantages of benchmarking

The advantages of using benchmarking include:

• Almost any aspect of an organization’s operations can be benchmarked, so long as it is

measurable, such as: wages or salary rates, budgets, sales revenue, profit, reject (defect
rates) market share, or labour turnover

• Benchmarking encourages organizations to continually learn from their competitors, in an

attempt to improve their processes, performance and overall quality.

• It enables an organization to determine its strengths and weaknesses in comparison to its

competitors.

• Effective benchmarking helps an organization to improve its performance and competitiveness.

Benchmarking

Disadvantages of benchmarking

However, the potential drawbacks of using benchmarking include:

• Benchmarking only enables a business to identify the areas that need improving. It does not
determine to how the business should solve the performance and quality issues. 

• Benchmarking is not always done in a meaningful or objective way, such as perceptions of

customer feedback.

• It can be expensive to benchmark best practice in an industry, as time and money are needed
to ensure adequate comparisons are made
Total Quality Management (TQM)

As a form of quality management, total quality management (TQM) involves all workers

having responsibility for maintaining quality standards throughout the production process.
TQM aims to achieve zero defects by preventing mistakes being made in the first place.
Instead, it focuses on getting things done right, first time round. It therefore requires the
empowerment of all workers so that they can take responsibility for quality issues in all aspects
of the firm’s operations. In reality, total quality management encompasses other aspects of lean
production, such as continuous improvement (Kaizen), benchmarking of all business
operations, and quality circles.

By making quality the key focus, TQM applies to all aspects of an organization’s operations,
including improvements in its products, processes, productivity and performance.
Total Quality Management (TQM)

Advantages of total quality management

The benefits of total quality management include the following points:

• TQM aims to reduce the reject rate to zero, thereby reducing reworking costs by doing everything
right the first time. As a result, production costs are likely to fall as wastage declines or disappears.

• The corporate image is likely to improve as the organization has a “right first time” approach to
production, so defects are minimal if at all existent.

• Staff morale increases because they feel more valued and empowered being part of the total
quality process and culture.
Total Quality Management (TQM)

Disadvantages of total quality management

However, there are drawback to using TQM. These limitations include:

• TQM is highly expensive because of the significant costs required to train staff and to ensure
they uphold the philosophy of total quality management.

• There is a time lag between when the TQM approach is implemented and when its benefits
are experienced.

• TQM only works if every employee is fully committed to the approach. This may be far
more difficulty to achieve in reality than in theory.
The impact of lean production and TQM on an
organization
Lean production and TQM are interrelated approaches to quality management. Lean production focuses on eliminating waste
and achieving greater efficiency. Total quality management (TQM) focuses on quality assurance and quality improvements.

Advantages of lean production and TQM

The positive impacts of lean production and TQM on an organization include the following arguments:

• Lean production and TQM help to improve the quality of an organization’s goods and services.

• Having a clear focus on lean production and quality can help to improve the firm’s competitiveness.

• It encourages closer working relationships with suppliers (for lean production), and customers and employees (TQM).

• Being efficient and being responsible for producing quality goods and services can help to motivate employees.

• Efficiency gains, higher productivity, and reduced waste all help to reduce costs for the organization, at least in the long run.

• Being lean (high efficiency and low or no waste) and offering high-quality products can enhance the reputation of the
business. It then becomes easier for businesses to attract and retain customers, as they trust the organization, its products and
brands.
The impact of lean production and TQM on an
organization
Disadvantages of lean production and TQM

The drawbacks, or negative impacts, to organizations that pursue lean production and TQM include the following:

• The necessary costs of staff training and development in order to achieve greater efficiency, lower waste and
improved quality.

• There are also fees that need to be paid to third-party accreditation authorities, such as the International
Organization for Standardization (ISO) for quality assurance.

• Waste management costs have to be considered. For many businesses, the costs of recycling are higher than using
less environmentally friendly production processes.

• Ultimately, lean production and a culture of TQM can only work if employees are truly devoted to the philosophy.
Some workers may not want to take on extra responsibilities, and it can create stress or conflict which harms
working relationships.

• It can take time to change a corporate culture to embrace TQM and lean production.
The importance of national and international
quality standards
Substandard output of goods and services can be highly costly to a business. For example, reworking occurs when staff
have to re-do a task or job due to errors or faults with the output. This is time consuming and can also damage the firm's
reputation.

By contrast, national and international quality standards provide certification or recognisable mark of quality assurance
that the product has met certain minimum standards to meet the needs of customers. These quality standards provide a
framework or benchmark for organizations. For example, all IB World Schools are subject to a 5-year evaluation visit
from the IBO, to ensure that their quality standards and practices are met. Schools must meet the IBO’s set of
predetermined criteria for standards and practices, in order to be awarded certification.

The most internationally recognised quality awards are from the International Organization for Standardization (ISO). For
example, ISO 9000 is awarded to organizations that maintain an efficient quality system to ensure their customers
receive goods and services that satisfy statutory and regulatory requirements. This helps to ensure that quality standards
meet the needs of customers and other stakeholder groups, such as suppliers, the government or regulatory authorities.
The importance of national and international
quality standards
An important point to note is that quality standards can vary between different countries. Even if
an organization meets the national quality standards, it could fail these in overseas markets.

The advantages and disadvantages of meeting quality standards are the same as the 
benefits and drawbacks of producing or providing quality products. For example, gaining
certification for nationally and internationally recognised quality standards can provide the
organization with major marketing advantages. It can help to appeal to new customers, retain
existing customers, and attract new recruits to the organization. However, the costs of complying
with national and/or international quality standards can be extremely high, such as the costs of
on-going training and obtaining certification and licenses for quality management.
Review your understanding of lean production by
watching this 9-minute video:
https://youtu.be/PEZGGsi_dDE
JP
JP produces electric guitars. It is a cooperative owned by a committed workforce who share in the management and success (or failure) of the company and its profits.
Workers enjoy having control over the workplace and are productive. However, JP’s continued success is threatened by insufficient finance, which prevents them from
spending more on traditional promotional methods.

JP’s guitars are expensive relative to the competition but are known for their quality. Its customers are very brand loyal. The use of social media marketing by many
famous musicians influences JP’s brand loyalty and awareness. Unfortunately for JP, one especially famous musician using a JP guitar on social media recently
received negative publicity about his private life.

JP follows strict quality procedures that include quality circles. JP’s management believe that teams of workers employed on the production line know the production
process best and are in the best position to make any necessary improvements. Staff turnover at JP is very low.

XYZ, a large company known for its kitchen appliances, is considering moving into the musical instrument market as part of a growth strategy – they want the high gross
profit margins on guitars (compared to the low profit margins on kitchen appliances). XYZ wants to take over JP. XYZ has a strong balance sheet and large cash
reserves and is an expert at marketing.

The cooperative has refused to consider the takeover bid from XYZ. The cooperative has argued that the culture of XYZ is too different to JP’s. XYZ’s management are
viewed as too controlling. However, increased price competition has led to falling sales, forcing JP to make redundancies. Some cooperative members argue that
unless JP accepts XYZ’s bid, additional jobs will be lost.

Explain two benefits to JP of using quality circles. (4 marks)

Explain two benefits to JP of using quality
circles. (4 marks)
The benefits to JP of using quality circles revolve around the motivational/productivity/teamwork/cooperation/possible empowerment benefits gained from
participation. The fact that JP is a cooperative also implies that quality circles will align with the culture of the organization (supportive, common goals).
Meeting together to find better methods of production/ practices creates high quality products/ guitars. JP established a Unique Selling Point based on
quality which creates brand loyalty.
Empowered staff are more motivated and therefore staff turnover is also very low which reduces recruitment costs and training as well as increased
efficiency when the higher levels of needs/ the motivators of employees are met. There is evidence in the case study that JP workers are productive and
take pride in their work.

Accept any other relevant benefit.

Mark as 2 + 2.

• For an identification or a description of one benefit with or without application [1].

• For explanation of one benefit with no application [1].

• For explanation of one benefit and application [2].

Application must refer to the benefits to JP of using quality circles.

KA

KA is a public limited company that designs, manufactures and sells air conditioners. KA’s unionized employees are motivated and efficient despite not being
involved in any decision making. However, they are resistant to change.

The market and competition for air conditioners are growing rapidly. KA operates at full capacity but stock turnover has slowed.

Primary market research revealed that:

• consumers do not differentiate KA air conditioners from those of its competitors. All products are perceived as medium price and medium quality

• KA’s customer service is rated as poor

• customers demand energy-efficient products using ecologically sustainable production methods.

To exploit opportunities and overcome weaknesses and threats, KA’s management has decided to redesign its products so that they are energy efficient. KA is
considering two options:

• Option 1: Implement lean production methods, which includes investing in ecologically sustainable machines that will increase capacity by 10 %. Total quality
management (TQM) will also be implemented. However, the financial manager is worried about KA’s ability to meet high initial costs. The forecasted payback
period is three years and average rate of return (ARR) is 4 %.

• Option 2: Outsource the production to QS, a company known for its reliability and high capacity to produce excellent quality air conditioners using cradle to
cradle manufacturing principles. However, QS refuses to sign an exclusive long-term contract with KA, insisting instead on renegotiating the contract every two
years. KA will have to close its production facility and will use the cost savings to improve customer service and to reposition and differentiate its air
conditioners.

Employees have heard rumours of both options and fear for their jobs. Strike action is being considered.

With reference to QS, explain two features of cradle to cradle manufacturing. (4 marks)

With reference to QS, explain two features
of cradle to cradle manufacturing. (4 marks)
Cradle to cradle is a sustainable form of manufacturing. QS seeks to create manufacturing principles that attempt to use production techniques that are efficient but also
sustainable and waste free. Two features of using cradle to cradle with reference to QS are as follows:

As its name suggests, QS will design and produce its air conditioners in such a way that most, if not all, of the materials used are recyclable. These materials (like
glass, metal, plastic) that form parts of the air conditioners will be recyclable and used again for the production of future models. This will minimise waste.

Cradle to cradle manufacturing with also allow QS to reuse some of the ready components of the old air conditions in the new models instead of disposing of those
parts. QS might have to offer some financial incentives for the customers to return their old/outdated air conditioners.

The air conditioners will also be built with biodegradable materials if QS cannot recycle the materials: for example, the carton for packaging of the air conditioners.
This aspect will allow QS to reduce the environmental impact of its air conditioners.

Accept any other relevant examples and explanation.

Application here is very difficult – all of the stimulus info is about KA and gives no real links to QS – hence I believe to avoid generic responses, candidates should at
least make reference to ‘air-conditioners” ie if responses just refer to QS and this could be replaced with any other company – then this is generic and only [1].

Mark as 2 + 2.

Award [1] for each relevant feature explained and [1] for appropriate application to the organization/type of products to a maximum of [2].