Chapter 19 Quality Management and the Operations Process

Chapter 19 Quality Management and the Operations Process In the Spotlight: Carmelo’s Italian Restaurant Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -1

Learning Objectives: Chapter 19 1. Explain the key elements of total quality management (TQM) programs. 2. Discuss the nature of the operations process for both products and services. 3. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive. 4. Discuss the importance of purchasing and the nature of key purchasing policies. 5. Describe ways to control inventory and minimize inventory costs. Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -2

A Definition of Quality The American Society for Quality defines quality as “the totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs. ” Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -3

Essential Elements of Successful Quality Management Appropriate Tools and Techniques Successful Quality Management Supportive Organizational Culture Focus on Customers Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -4

Tools and Techniques of Total Quality Management • • Work teams Empowerment of employees Quality circle Attribute inspection Variable inspection Acceptance sampling Statistical process control Control chart Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -5

Factors That Positively Influence Customers’ Perceptions of Service Quality 1. Being on target. Set and meet the customer’s expectations. 2. Care and concern. Be empathetic. 3. Spontaneity. Empower service providers to think and respond quickly. 4. Problem solving. Train and encourage service providers to be problem solvers. 5. Follow-up captures customers’ attention. 6. Recovery. Making things right quickly is a powerful factor in creating an enduring image of high-quality service. Source: Ken Myers and Jim Buckman, “Beyond the Smile: Improving Service Quality at the Roots, ” Quality Progress, Vol. 25, No. 12 (December 1992), p. 57. Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -6

A Definition of ISO 9000 The standards governing international certification of a firm’s quality management procedures. Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -7

The Operations Process Inputs Money Raw Materials Labor Equipment Information Energy Operations Designing Fabricating Processing Refining Treating Assembling Storing Shipping Advising Instructing Outputs Products Examples: Clothing Baked goods Paint Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Services Examples: Dry cleaning Appliance repair Automobile painting 19 -8

Types of Manufacturing Operations 1. Job shops 2. Repetitive manufacturing 3. Batch manufacturing Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -9

Two Types of Maintenance Preventive Maintenance • Involves inspection of equipment, cleaning and lubricating, and replacing worn parts • Sustains production • Minimizes corrective maintenance Corrective Maintenance • Involves major repairs and minor repairs • Disrupts production Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -10

The Nature of Reengineering • Emphasizes restructuring rather than fine tuning. • Examines basic processes. • Questions all traditional patterns. • Directs attention to activities that create value for the customer. Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -11

Make-or-Buy Trade-Offs Make Buy 1. 2. 3. 4. 1. Use supplier’s know-how. 2. Avoid additional hiring and borrowing. 3. Use present management. 4. Provide production flexibility. 5. Concentrate on specialty. 6. Reduce risk of equipment obsolescence. Use idle capacity. Assure supply. Protect secret design. Save transportation expense. 5. Permit close control of production. 6. Assure high quality. Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -12

Kinds of Activities Outsourced Activity Percentage of Respondents Taxes/accounting/auditing Equipment maintenance/janitorial services Payroll/benefits administration Manufacturing/processing/assembling Marketing or sales 50% 44% 37% 29% 6% Note: Respondents were allowed to check more than one activity. Source: “Poll Results: Reader’s Views on Outsourcing, ” Nation’s Business, Vol. 84, No. 5 (May 1996), p. 85. Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -13

Considerations in Selecting a Supplier Quality Price Reliability Location Other services (credit, repair) Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -14

Ways to Build Good Supplier Relationships • Pay bills promptly. • Give sales representatives a prompt, courteous hearing. • Avoid abrupt cancellation of orders. • Avoid attempts to browbeat the supplier into special concessions. • Make suggestions for product improvement and/or cost reduction, whenever possible. • Provide explanations when rejecting bids. • Make fair adjustments in the case of disputes. Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -15

Objectives of Inventory Management Ensuring Continuous Operations Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Maximizing Sales Protecting Assets Minimizing Inventory Investment 19 -16

Graphic Portrayal of Economic Order Quantity (EOQ) EOQ Total Costs Cost ($) Carrying Costs Order Quantity (Units) Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 19 -17

Just-in-Time Inventory System Purchase in small quantities, only when needed. For best reliability, work with one supplier. Pros: • Lower carrying costs • Less warehouse space needed • Risk shifted to suppliers Small Business Management, 11 th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Cons: • Risk of stockouts • Loss of quantity discounts • Higher paperwork costs 19 -18