Management of Business UNIT 2

Topic: Lean Production and Quality Management

What is Lean Production?

Lean production is an approach to manufacturing and operations management focused on

minimizing waste while maximizing value to the customer. It emphasizes efficiency, quality, and
continuous improvement.

Key Principles of Lean Production

Eliminate Waste: Reduce waste in time, inventory, and processes.

Continuous Improvement (Kaizen): Regularly improve processes and systems.

Just-in-Time (JIT): Produce only what is needed, when it is needed.

Focus on Quality: Ensure high-quality outputs by embedding quality in every process.

Respect for Employees: Involve employees in decision-making and improvement processes.

Link Between Inventory Management, Quality, and Capacity:

Inventory Management:

- Lean production uses Just-in-Time (JIT) to keep inventory levels low.

- Efficient inventory management reduces holding costs and waste.
- Fewer inventories mean better focus on producing quality goods.

Quality:

- Lean production focuses on “Right First Time” to minimize defects.

- Continuous monitoring of quality reduces rework and waste, ensuring customer
satisfaction.

Capacity:

- Lean systems aim to make the best use of production capacity by reducing idle time and
bottlenecks.
- Aligning production capacity with demand avoids overproduction or underutilization.

Employees’ Role in Lean Production:

- Problem Solvers: Employees identify and resolve inefficiencies in processes.

- Kaizen Participants: Workers contribute ideas for continuous improvement.
- Quality Controllers: Employees take responsibility for producing defect-free products.
 - Cross-Functional Roles: Employees are often trained in multiple tasks to enhance
flexibility and efficiency.

Benefits of Lean Production

- Cost Savings: Reduced waste lowers operational costs.

- Improved Quality: Focus on defect prevention ensures better products.
- Increased Efficiency: Streamlined processes improve production flow.
- Employee Satisfaction: Involvement and respect boost morale and productivity.

Quality Management
Quality measures the degree to which a product meets or exceeds the desire of the consumer.
It is also seen as the ‘standard of something as measured against things of a similar kind’ or the
‘degree of excellence of something’.

Importance of Managing Quality

Managing quality is important for ensuring that products or services meet customer expectations
and organizational standards.

Reasons for Managing Quality

Customer Satisfaction

- High-quality products/services meet or exceed customer expectations.

- Satisfied customers are more likely to return and recommend the business.

Reputation and Brand Loyalty

- Consistent quality builds trust and enhances a company’s reputation.

- A strong reputation builds customer loyalty and market competitiveness.

Cost Reduction

- Preventing defects reduces costs associated with rework, waste, and returns.
- Avoids penalties or losses due to non-compliance with quality standards.

Compliance with Standards and Regulations

- Managing quality ensures adherence to industry standards and legal requirements.

- Non-compliance can result in fines, legal action, or reputational damage.

Market Competitiveness

- Superior quality differentiates a company from competitors.

 - Quality certifications (e.g., ISO 9001) boost credibility in the marketplace.

Employee Morale

- A focus on quality fosters pride and ownership in employees’ work.

- Employees are motivated when they see their work contributing to success.

Dimensions of Quality
This concept was developed by David A. Garvin, a professor at Harvard Business School, in the
late 1980s. He proposed that there are eight (8) dimensions of quality.
He believed that quality is normally measured in terms of:
- Performance: the primary operating characteristics of the product, ie, what the product
was created for. What are the primary operating characteristics of a cellular phone?
- Features: this includes the secondary aspects of the product’s performance. The
characteristics of the product that are used to supplement its basic functioning. What
features does a cellular phone have?
- Reliability: a product’s reliability is judged against the possibility of it malfunctioning or
breaking down within a specified period of time. How long before it starts
malfunctioning?
- Conformance: this measures the extent to which the product’s design and operating
characteristics adhere to established standards. In addition to the company’s own
established standards, there are international standards that may have to be met.
Organisations such as the International Standards Organisation (ISO 9001). Read on the
role of the ISO.
- Durability: the expected lifespan of the product. It measures the product’s life in terms of
the amount of use the consumer gets from the product before it deteriorates.
- Serviceability: this measures the speed, courtesy, capability and ease of repair of the
product. Most consumers are aware that the product will break down at some point but a
greater concern would be whether or not it can be repaired and the length of time it will
take.
- Aesthetics: how the product looks, feels, sounds, tastes and smells. This dimension is
based on individual judgements and preferences consumer.
- Perceived quality: this is the perception of the consumer at the initial contact with the
product, ie, what comes to mind the first time the product is seen. Consumers at times
depend on images, advertising and brand names to judge the product’s quality.

Techniques for Improving Quality

Quality Control: the process of ensuring that the product meet its established quality standards.
The main objective of quality control is to ensure that products being produced and sold are free
of defects. High quality products will help the firm gain the trust and loyalty of consumers who
will be satisfied after their usage. A good quality control system is one that involves regular
inspection of the product and correction of any defects found. The following concepts are
important to quality control:
- Zero defects: production of goods that are free of faults and which adhere to the
standards.
- Quality assurance: a guarantee to maintain an agreed of established set of quality
standards. In doing this, the firm’s suppliers must also be involved, since poor quality
raw materials lead to poor products. Unlike quality control, which focuses on detecting
defects once they have occurred, quality assurance emphasizes that the necessary steps be
taken to prevent the occurrence of defects. It therefore attempts to build quality into the
system from the very outset.
- Quality standards: these are standards that are established by independent organizations
to ensure that the interests of consumers are protected, for example, the Bureau of
Standards of Jamaica.

Benchmarking
This is another method for improving quality. It is the process in which a firm identifies the best
practices of another firm then implements them to improve its own product. The aim of
benchmarking, however, is not to copy other firms’ products but rather to assess their production
methods or processes.
The objectives of benchmarking may include:
- Improving delivery time and frequency.
- Proper waste management and disposal.
- Inventory control management.
- Improving customer service.
- Cost reduction.
- Eliminating waste in the production process.
The main steps involved in benchmarking are:
1. Identify area for improvement.
2. Choose the right company.
3. Gather information.
4. Analyse the information gathered.
5. Implement and evaluate the finding.
Benefits of using Benchmarking
- Brings about faster awareness of important innovations and how to implement them
successfully.
- Usually much cheaper that some of the other methods that are used to improve quality.
- Proper implementation will help to reduce waste and improve productivity.
- Can improve the competitiveness of the firm both locally and internationally.
- Facilitates team building and employee involvement in the decision-making process.
 - Gives the firm a better understanding of its consumers and how to keep them satisfied.
Limitations of Benchmarking
- The search for a suitable firm to benchmark can be a very difficult task, as not all firms
will want to share information.
- While possible, what works for one firm may not necessarily work for another.
- Needs qualified experts to make comparisons that will be meaningful. This can be very
costly.
- Implementing new policies within the company could be stalled by resistance to change
and the necessary resources.

Outsourcing
This refers to the process whereby firms sub-contract some of their operations to independent
suppliers of services. A common trend today is to outsource some of the firm’s services to call
centres, catering companies, cleaning firms and security firms. The firm may outsource some of
its stages of production or the production of some of its products. This is usually done to reduce
operational costs and the firm can concentrate resources on its core product.
Benefits of Outsourcing
- The firm’s focus can be on its core products.
- Usually results in cost saving, including labour costs.
- Improvement in efficiency and quality.
- Usually leads to greater customer satisfaction.
Drawbacks of Outsourcing
- The firm’s financial success may be tied to that of another company.
- It might be more difficult for the firm to maintain quality since it is not involved in the
production of some of its products.
- Can be a potential source of conflict, as the firm’s own workers may be laid off with the
outsourcing of aspects of the business.
- Loss of managerial control, since the outsource firm has its own management.

Quality Circles
Quality circles are groups of lower-level workers who meet regularly to analyse and critically
review the design and production of a product. The team may also discuss production problems
and develop possible solutions to these problems.
Main features of a quality circle:
- Decisions are made by consensus rather than a majority rule approach.
- Groups are usually small in size.
- Members are not chosen but rather volunteer their services.
- It uses a ‘bottom up’ approach.
 - Regular meetings are held to discuss issues.
Some of the main objectives of a quality circle are:
- Promotion of employees’ involvement.
- Fostering better communication and teamwork.
- Allowing workers to develop their problem -solving capabilities.
- Improving productivity.
Benefits of Quality Circles
- Improve motivation in the workplace.
- Promote continuous improvement.
- Develop good leadership qualities among their members.
- Improve communication between management and subordinates.
- Reduce defect rates as employees become more aware of the maintenance of quality.
- Promote team working among employees.
Kaizen or Continuous Improvement
This is a Japanese concept of continuous improvement. The approach is based on the idea that
the improvement of a product should be never-ending process. As a result, improvements should
be made on a small and gradual basis over the life of the product. A firm using this method will
seek to continually improve its machinery, production method, raw materials and labour.
This approach is usually used with quality circles or teamwork, as it is believed that employees
play an important role in the maintenance of quality since they interact with the product and are
better able to identify areas of the product or the process that needs improvement. The main
features of Kaizen are:
- Small improvements are made continuously.
- The workforce is regarded as being talented, skilled and usually knows more about the
product and are able to suggest improvements to be made.
- Suggestions are usually easier to implement since they come from the workforce.
- Small improvements are less likely to require major capital investments.
Limitations of the Kaizen or Continuous Improvement Approach
- Some of the changes that are required cannot be done incrementally.
- The firm may incur short-term costs on a regular basis as it implements changes.
- Its success is heavily dependent on the culture of the organization and leadership style of
management.
- Employees may feel pressured into continuously coming up with new ideas.
- There is little room for stability since things are always changing.
Research and Development (R and D)
A lot of firms invest millions of dollars in constantly discovering new principles and ways of
doing things, then transforming the findings of the research into the actual improvement of the
product or production process.
Process Development: deals with the improvement of machines and the layout of the plant.
Product Development: involves the improvement or creation of different products. These
products must be tested and evaluated before the firm goes into their full production.
Investment in research and development is dependent on the following:
- The amount of financial resources it has.
- The desire for long-term competitiveness as opposed to short-term success. R and D
requires investments to bring about long-term success and competitiveness. Firms must
be aware that an investment made now may not pay off until some years later.
- The level of innovation in the industry. An industry where firms are very innovative will
force other firms in the industry to be innovative.
- Objectives of the firm.
Benefits of Research and Development
- Boost sales.
- Extends the firm’s reach into new markets.
- Can improve the firm’s reputation and brand.
- Improvements in quality.
- The company can gain a competitive edge over rivals.
- Improvements in the product and the value received by consumers.

Total Quality Management (TQM)

This is a management philosophy which ensures that quality is maintained in all areas of the
organization in order to meet customers’ expectations. It is people-focused and aims to satisfy
the firm’s customers continually.
One of the main objectives of TQM is customer satisfaction. The business aims to satisfy it
customers by building quality into its products and every aspect of the business. Other
objectives of TQM would include:
- Improvement in quality, speed or response, cost and flexibility.
- To foster a customer-focused organization.
- To create an organization that is people focused and involves stakeholders in all its
activities.
- To empower workers to work in teams focused on improving quality.
- To produce a product with zero defects.
The main features of TQM are:
 - Consumer inputs: TQM requires the full commitment of firms to their customers.
Information must be gathered frequently about customers’ needs and expectations. When
this information is received the firm must adjust its products or processes to cater for the
desire of its customers.
- Zero defects
- Teamwork/quality circles: one of the most effective tools in TQM to solve problems.
Empowering workers can help to build trust and morale throughout the company, as
suggestions for fixing problems will come from the very people who produce the goods.
- Control strategies: TQM requires proper control strategies in place to monitor quality
and processes that are used.
- Company culture and policies: TQM needs to be apart of the culture of the
organization. It has to be fully supported by the entire organization. There should be a
culture of accountability among every individual in the organization.
- Quality chains: this refers to the relationship between suppliers and customers. Quality
chains can be broken at any point if a person or piece of equipment fails to produce goods
in line with the requirements of customers.
- Benchmarking
- Kaizen/Continuous Improvement
Role of the Customer in TQM
Since one of the main objectives of TQM is to satisfy customers, their role is a very important
one. Customers are expected to make suggestions through market research, to the firm on how to
improve quality to meet their needs. Customers complaints should be treated with care and a
desire to correct any problems. Consumer knowledge should be integrated with the objectives of
the firm so that quality goods or services can be produced.
The success of TQM is dependent on the following factors:
- Involvement of trade unions to the planning process. This could lead to greater
acceptance by workers of changes that may occur.
- There needs to be a strong sense of job security. This could make it easier for workers to
buy into the quality initiatives proposed by the firm.
- Constant training of employees.
- The financial resources of the firm. TQM initiatives tend to be expensive and quality
changes may come at a high cost.
- Involvement of employees in the decision- making process.
Benefits of TQM
- Promotes an improvement in quality and achievement of zero defects.
- Results in the continuous improvement of production of processes.
- Proper implementation can lead to greater customer satisfaction.
- Can improve the firm’s competitiveness.
- Helps companies to identify areas of waste and inefficiencies and to correct them.
Possible Limitations of TQM
- Implementation cost might be very high.
- To be successful, it needs the involvement of the entire business.
- Management may have unrealistic expectations for success.
- If not handled properly it may lead to labour management problems.

SERVQUAL Model

The SERVQUAL model is a widely used tool for measuring service quality by analyzing the gap
between customer expectations and their perceptions of the actual service delivered. It helps
businesses identify areas for improvement to enhance customer satisfaction.

Dimensions of SERVQUAL

Tangibles: Refers to the physical aspects of the service, such as appearance of facilities,
equipment, personnel, and communication materials. Example: Cleanliness of a restaurant or
professionalism of staff attire.

Reliability: The ability to deliver the promised service dependably and accurately. Example:
Delivering food on time or ensuring correct billing.

Responsiveness: Willingness and ability to assist customers promptly and address their needs.
Example: Quick resolution of customer complaints or prompt assistance in a store.

Assurance: The knowledge, courtesy, and ability of employees to convey trust and confidence.
Example: A bank teller providing clear and confident explanations about financial products.

Empathy: Providing caring, personalized attention to customers. Example: A doctor taking time
to understand a patient’s concerns and providing personalized care.

The SERVQUAL Gap Model

Gap 1: Customer Expectation vs. Management Perception

- Occurs when managers fail to accurately understand what customers want.

Gap 2: Management Perception vs. Service Design

- Happens when the service design does not align with customer expectations.

Gap 3: Service Design vs. Service Delivery

- Arises when the service is not delivered as designed.

Gap 4: Service Delivery vs. Customer Communication

 - Occurs when there is a mismatch between what is communicated to customers and what
is delivered.

Gap 5: Customer Expectation vs. Perception

- The core gap, representing the difference between what customers expect and what they
perceive they receive.

Importance of SERVQUAL

- Identifies gaps in service delivery.

- Provides actionable insights for improving customer satisfaction.
- Helps organizations prioritize resource allocation to areas needing improvement.
- Builds trust and loyalty by aligning services with customer expectations.