CHAPTER 12 Increasing Productivity and Quality Business Fifth

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. Discuss four ways in which companies can compete by improving productivity and quality. Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 2

Productivity Compares how much is produced with the resources used to produce it Productivity grows if an organization can produce more of an item with less resources than it could in the past All stakeholders (employees, business, economy) benefit from increased productivity Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 3

Quality A product’s fitness for use in terms of offering the features that consumers want Firms may be efficient but still lack the quality that consumers seek Quality and quantity are not the same quantity measures efficiency of production, not product quality Canada’s competitive problems are largely linked to focusing on quantity issues Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 4

National Productivity Affects Wealth Countries with greater domestic productivity have greater wealth for all citizens Countries with limited domestic productivity can only allocate limited wealth to their citizens an individual’s wealth can only increase at the expense of another individual investors, employees, business, and individuals are negatively affected Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 5

Productivity Industry Productivity the services sector is showing slower growth differences also exist within specific industries Improved company productivity leads to lower costs, competitive edge, improved stock prices Firms can offer employee profit-sharing plans based on productivity-improvement can rely on productivity-planning to maintain a longterm market advantage Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 6

Measuring Productivity is measured as a ratio of outputs to inputs Managers must choose which inputs or outputs they desire to use in the ratio Outputs may include sales in units or dollars Inputs may include labour, capital, materials, and energy required to produce the output Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 7

Productivity Ratios Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education

Labour Productivity GDP is the value of all of the goods and services produced

Total Quality Management (TQM) TQM requires attention to both efficiency (quantity produced) and quality (the ability of the product to deliver the consumers’ expectations) TQM recognizes that: no defects are tolerable all employees are responsible for maintaining quality standards Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 10

Quality Assurance and TQM Activities necessary to get quality goods and services into the marketplace • • planning organizing leading controlling Managing Quality Efforts Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 11

Planning for 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 product unit to product unit Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 12

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 different jobs and departments • quality improvement developments • quality control monitoring Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 13

Leading for Quality All workers share responsibility for producing quality Managers must inspire and motivate employees to impart the highest possible quality to their products, their jobs, and the firm May involve tying wages to product quality Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 14

Controlling for Quality Establish specific quality standards and measurements Compare results to standards using quality assurance tools Detect mistakes and make corrections Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 15

Quality Assurance Tools Benchmarking ISO 9000 Re-engineering Competitive product analysis Value-added analysis Statistical process control Quality/cost studies Quality circles Control charts Adding value through supply chains Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 16

Value-Added Analysis Value-added analysis is a process that evaluates all work activities material flows paperwork Goal to determine the value they add for customers uncover and eliminate wasteful activities improve quality Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 17

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 Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 18

Statistical Process Control Procedures Process variation Process capability study Specification limits Control charts Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 19

Process Variation Change in employees, materials, work methods, or equipment that affects output quality some variation is acceptable Any variation outside of the acceptable range must be detected and eliminated Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 20

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 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 Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 21

Control Charts A sample is tested and the results are displayed graphically Control limits are critical values that are noted on the graph to depict the acceptable range of the specification limits The point of production where results begin to deviate from the requirements can be spotted and remedied Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 22

An Example: Process Control Chart for Filling Cereal Boxes Business Fifth Canadian edition, Griffin,

Quality/Cost Studies Determining 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 and external failures through objective analysis Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 24

Internal Failures Internal failures expenses associated with substandard products identified before they leave the plant up to 50% of total costs is attributable to internal failures Individual costs of internal failures must be objectively determined Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 25

External Failures External failures expenses associated with substandard products that occur outside of the plant Include difficulties due to customer complaints and the cost of correcting the problem replacement/repair transportation legal costs Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 26

Quality Improvement Teams Employees are grouped into small teams quality circles Each group chooses a team leader and determines rules for discussion Each team must define, analyze, and solve quality and other process-related problems within their areas of responsibility May involve brainstorming, discussion, and the use of quality/cost study Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 27

Benchmarking Compares the quality of a firm’s output with the quality of the output of the industry’s leaders, or the output of one division with another Differences can be studied and remedied Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 28

Getting Close to the Customer Successful firms have an understanding of customer needs and wants Customers need and want good service Customers are “economic assets” Firms need to stay close to their customers Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 29

ISO 9000 A system developed by the International Standards Organization (ISO) to evaluate a firm’s quality To earn the rating firms are measured by qualified consultants product testing employee training record-keeping correcting defects A+ Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 30

Re-engineering Process Identify the business activity that will be changed Evaluate information and human resources to see if they can meet the requirements for change Diagnose the current process to identify its strengths or weaknesses Create the new process design Implement the new design Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 31

Supply Chain Strategy Members of the chain work with each other rather than as adversaries An effective supply chain system offers the following benefits Improved coordination Enhanced communication Reduced inefficiencies Costs can be minimized The members focus on the whole chain Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 32

Competing Through Productivity and Quality Getting closer to understanding customer needs Investing in innovation and technology Adopting a long-run perspective through continuous product improvement Emphasizing quality-of-work-life to empower employees Investing in employee training Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 33

Services Quality Issues Reliability Empathy accurate and timely service Responsiveness prompt and helpful customer service Assurance employees who are knowledgeable, trustworthy, and courteous caring & individualized attention Tangibles pleasing atmosphere, appearance, facilities, materials Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 34