Divine Word College of Bangued

Bangued, Abra
Business Administration Department

Module in Operations Management (TQM) for Midterms

I. Title: The Basics of Operations Management

II. Introduction

Weather forecasts are one of the many forecasts used by some business organizations. Although some
businesses simply rely on publicly available weather forecasts, others turn to firms that specialize in weather-related
forecasts. For example, public transport operators, clothing companies, supermarkets, and utility companies use
such firms to help them take weather factors into account for estimating demand.
Many new car buyers have a thing or two in common. One they make the decision to buy a new car, they
want it soon as possible. They usually don’t want to order it and then have to wait six weeks or more for delivery. If
the car dealer they visit doesn’t have the car they want, they’ll look elsewhere. Hence, it is important for a dealer to
anticipate buyer wants and to have those models, with the necessary options, in stock. The dealer who can
correctly forecast buyer wants, and have those car available, is going to be much successful than a competitor who
guesses instead of forecasting – and guesses wrong – and gets stuck with cars customers don’t want. So how does
the dealer know how many cars of each type to stock? The answer is, the dealer doesn’t know, for sure, but by
analyzing previous buying patterns, and perhaps making allowances for current conditions, the dealer can come up
with a reasonable approximation of what buyers will want.
Planning is an integral part of a manager’s job. If uncertainties cloud the planning horizon, managers will
find it difficult to plan effectively. Forecasts help managers by reducing some of the uncertainty, thereby enabling
them to develop more meaningful plans. A forecast is a statement about the future value of a variable such as
demand. That is, forecasts are predictions about the future. The better those predictions, the more informed
decisions can be. Some forecasts are long-range, covering several years or more. Long-range forecasts are
especially important for decisions that will have long-term consequences for an organization or for a town, city,
country, state, or nation. One example is deciding on the right capacity for a planned power plant that will operate
for the next 20 years. Other forecasts are used to determine if there is a profit potential for a new service or a new
product: Will there be sufficient demand to make the innovation worthwhile? Many forecasts are short-term,
covering a day or week. These are especially helpful in planning and scheduling a day-to-day operations. This
module provides a survey of business forecasting. It describes the elements of good forecasts, the necessary
steps in preparing a forecast, basic forecasting techniques, and how to monitor a forecast.
People make and use forecasts all the time, both in their jobs and in everyday life. In everyday life, they
forecast answers to questions and then make decisions based on their forecasts. Typical questions they may ask
are: “Can I make it across the street before that car comes?” “How much food and drink will I need for the party?”
“Will I get the job?” “When should I leave to make it to class, the station, the bank, the interview, … on time?” To
make these forecasts, they make take into account two kinds of information. One is current factors or conditions.
The other is past experience in a similar situation. Sometime they will rely more relevant at the time.
Forecasting for business purposes involves similar approaches. In business, however, more formal
methods are used to make forecasts and to assess forecast accuracy. Forecasts are the basis for budgeting,
planning capacity, sales, production and inventory, personnel, purchasing and more. Forecasts play an important
role in the planning process because they enable managers to anticipate the future so they can plan accordingly.

III. Course Profile

Course Code: BM 2/ CBME 1
Course Title: Operations Management (TQM)
BM 2/ CBME 1: Operations Management (TQM) 1
This module is a property and is exclusively used by the DWCB College Department. Any duplication and reproduction, storing in any retrieval system, distribution, posting or uploading online
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 Divine Word College of Bangued
Bangued, Abra
Business Administration Department

Unit Credit: 3 Units

Contact Hours/Week: 3 Hours
Prerequisite: None
Instructor: Donna B. Baesa, MBA
E-mail address: [email protected]
Cellphone Number: 09562634858

V. Learning Objectives:
After completing this module, the student is shall be able to:
1. Enough comprehension about forecasting;
2. Discuss the strategic importance of forecasting;
3. List the elements of a good forecast;
4. Outline the steps in the forecasting process;
5. Describe the different forecasting approaches and techniques;
6. Define quality;
7. Describe the dimensions of quality;
8. Understand the evolution of quality through the contributions of several quality gurus;
9. Define basic terms used in TQM;
10. Discuss Deming’s 14 Points for Management; and
11. Enumerate and discuss the ten strategies for top management.

VI. Presentation of the Lesson

THE STRATEGIC IMPORTANCE OF FORECASTING

Good forecasts are of critical importance in all aspects of a business: the forecast is the only estimate of
demand until actual demand becomes known. Forecasts of demand therefore drive decisions in many areas. Let's
look at the impact of product forecasts on three activities: (1) human resources, (2) capacity, and (3) supply chain
management.

Human Resources
Hiring, training, and laying off workers all depend on anticipated demand. If the human resources
department must hire additional workers without warning, the amount of training declines and the quality of the
workforce suffers. A large Louisiana chemical firm almost lost it's biggest customer when a quick expansion to
around the clock shifts led to a total breakdown in quality control on the second and third shifts.

Capacity
When capacity is inadequate, the resulting shortages can mean undependable delivery, loss of customers,
and loss of market share. This is exactly what happened to Nabisco when it underestimated the huge demand for
it's new low fat Snackwell Devil's Food Cookies. Even with production lines working overtime, Nabisco could not
keep up with demand, and it lost customers. When excess capacity is built, on the other hand, costs can skyrocket.

Supply Chain Management

Good supplier relations and the ensuing price advantages for materials and parts depend on accurate
forecasts. For example, auto manufactures who want TRW Corp. to guarantee sufficient airbag capacity must
provide accurate forecasts to justify TRW plant expansions. In the global marketplace, where expensive
components for Boeng 787 jets are manufactured in dozens of countries, coordination driven by forecasts is
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Business Administration Department

critical. Scheduling transportation to Seattle for final assembly at the lowest possible cost means no last minute
surprises that can harm already low profit margins.
Every day, managers like those at Disney make decisions without knowing what will happen in the future.
They order inventory without knowing what sales will be, purchase new equipment despite uncertainty about
demand for products, and make investments without knowing what profits will be. Managers are always trying to
make better estimates of what will happen in the future in the face of uncertainty. Making good estimates is the
main purpose of forecasting.
In this module, we examine different types of forecasts and present a variety of forecasting models. Our
purpose is to show that there are many ways for managers to forecast. We also provide an overview of business
sales forecasting and describe how to prepare, monitor, and judge the accuracy of a forecast. Good forecasts are
an essential part of efficient service and manufacturing operations.
Forecasts affect decisions and activities throughout an organization, in accounting, finance, human
resources, marketing and management information systems (MIS), as well as in operations and other parts of an
organization. Here are some examples of forecasts in business organizations:
Accounting. New product/process cost estimates, profit projections, cash management.
Finance. Equipment/equipment replacement needs, timing and amount of funding/ borrowing needs
Marketing. Pricing and promotion, e-business strategies, global competition strategies.
MIS. New/ revised information systems, internet services.
Operations. Schedules, capacity planning, work assignments and workloads, inventory planning, make or
buy decisions, outsourcing, project management.
Product/service design. Revision of current features, design of new products or services.
In most of these uses of forecasts, decisions in one area have consequences in other areas. Therefore, it is
important for managers in different areas to coordinate decisions. For example, marketing decisions on pricing and
promotion after demand, which in turn will generate requirements for operations.
Forecasting is also an important component of yield management, which relates to the percentage of
capacity being used. Accurate forecasts can help managers plan tactics (e.g., offer discounts, don’t offer discounts)
to match capacity with demand, thereby achieving high yield levels.
There are two uses for forecasts. One is to help managers plan the system, and the other is to help them
plan the use of the system. Planning the system generally involves long-range plans about the types of products
and services to offer, what facilities and equipment to have, where to locate, and so on. Planning the use of the
system refers to short-range and intermediate-range planning, which involve tasks such as planning inventory and
workforce levels, planning purchasing and production, budgeting and scheduling.
Business forecasting pertains to more than predicting demand. Forecasts are also used to predict profits,
revenues, costs, productivity changes, prices and availability of energy and raw materials, interest rates,
movements of key economic indicators (e.g., gross domestic product, inflation, government borrowing) and prices
of stocks and bonds. For the sake of simplicity, this module will focus on the forecasting of demand. Keep in mind
however, that the concepts and techniques apply equally well to the other variables.
In spite of its use of computers and sophisticated mathematical models, forecasting is not an exact science.
Instead, successful forecasting often requires a skillful blending of art and science. Experience, judgement and
technical expertise all play a role in developing useful forecasts. Along with these, a certain amount of luck and a
dash of humility can be helpful, because the worst forecasters occasionally produce a very good forecast and
even the best forecasters sometimes miss completely. Current forecasting techniques range from the mundane to
the exotic. Some work better than others, but no single techniques works all the time.

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Bangued, Abra
Business Administration Department

Generally speaking, the responsibility for preparing demand forecasts in business organizations lies with
marketing or sales rather than operations. Operations-generated forecasts often have to do with inventory
requirements, resource needs, time requirements, and the like.

WHAT IS FORECASTING?
Forecasting is the art and science of predicting future events. Forecasting may involve taking historical data
and projecting them into the future with some sort of mathematical model. It may be a subjective or intuitive
prediction. Or it may involve a combination of these - that is, a mathematical model adjusted by a manager's good
judgement.
As we introduce different forecasting techniques in this module, you will see that there is seldom one
superior method. What works best in one firm under one set of conditions may be a complete disaster in another
organizations, or even in a different department of the same firm. In addition, you will see that there are limits as to
what can be expected from forecasts. They are seldom, if ever, perfect. They are also costly and time consuming to
prepare and monitor.
Few businesses, however, can afford to avoid the process of forecasting by just waiting to see what
happens and then taking their chances. Effective planning in both the short run and long run depends on a forecast
of demand for the company's products.

Forecasting Time Horizons

A forecast is usually classified by the future time horizon that it covers. Time horizons fall into three
categories:
1. Short range forecast: this forecast has a time span of up to 1 year but is generally less than three
months. It is used for planning purchasing, job scheduling, workforce levels, job assignments, and production
levels.
2. Medium range forecast: A medium range, or intermediate, forecast generally spans from 3 months to 3
years. It is useful in sales planning, production planning and budgeting, cash budgeting, and analysis of various
operating plans.
3. Long range forecast: Generally 3 years or more in time span, long range forecasts are used in planning
for new products, capital expenditures, facility location or expansion, and research and development.

Medium and long range forecasts are distinguished from short range forecasts by three features:
1.First, intermediate and long run forecasts deal with more comprehensive issues and support
management decisions regarding planning and products, plants, and processes. Implementing some facility
decisions, such as GM's decision to open a new Brazilian manufacturing plant, can take 5 to 8 years from
inception to completion.
2. Second, short term forecasting usually employs different methodologies than longer term forecasting.
Mathematical techniques, such as moving averages, exponential smoothing, and trend extrapolation ( all of
which we shall examine shortly), are common to short run projections. Broader, less quantitative methods
are useful in predicting such issues as weather a new product, like the optical disk recorder, should be
introduced into a company's product line.
3.Finally, as you would expect, short range forecasts tend to be more accurate than longer range
forecasts. Factors that influence demand change every day. Thus, as the time horizon lengthens, it is likely
that forecast accuracy will diminish. It almost goes without saying, then, that sales forecasts must be

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Business Administration Department

updated regularly to maintain their value and integrity. After each sales period, forecasts should be
reviewed and revised.

SEVEN STEPS IN THE FORECASTING SYSTEM

Forecasting follows seven basic steps. We use Disney World, the focus of this chapter's Global Company
Profile, as an example of each step:
1. Determine the use of the forecast: Disney uses park attendance forecasts to drive staffing, opening
times, ride availability, and food supplies.
2. Select the items to be forecasted : For Disney World, there are six main parks. A forecasts of daily
attendance at each is the main number that determines labor, maintenance, and scheduling.
3. Determine the time horizon of the forecasts: Is it short, medium, or long term? Disney develops daily,
weekly, monthly, annual, and 5- year forecasts.
4. Select the forecasting model(s) : Disney uses a variety of statistical models that we shall discuss,
including moving averages, econometrics, and regression analysis. It also employs judgmental, or no
quantitative, models.
5. Gather the data needed to make the forecast: Disney's forecasting team employs 35 analysts and 70
field personnel to survey 1 million people/ businesses every year. It also uses a firm called Global Insights
for travel industry forecasts and gathers data on exchange rates, arrivals into the U. S., airline specials,
Wall Street trends, and school vacation schedules.
6.Make the forecast.
7. Validate and implement the results: At Disney, forecasts are reviewed daily at the highest levels to make
sure that the model, assumptions, and data are valid. Error measures are applied; then the forecasts are
used to schedule personnel down to 15 minute intervals.

These seven steps present a systematic way of initiating, designing, and implementing a forecasting
system. When the system is to be used to generate forecasts regularly over time., data must be routinely collected.
Then actual computations are usually made by computer.
Regardless of the system that firms like Disney use, each company faces several realities:
1. Forecasts are seldom perfect. This means that outside factors that we cannot predict or control often
impact the forecasts. Companies need to allow for this reality. Actual result usually differ from predicted
values. No one can predict precisely how an often large number of related factors will impinge upon the
variable in question; these along with the presence of randomness, precludes a perfect forecast.
Allowances shall be made for forecast errors.
2. Most forecasting techniques assume that there is some underlying stability in the system.
Consequently, some firms automate their predictions using computerized forecasting software, then closely
monitor only the product items whose demand is erratic.
Comment A manager cannot simply delegate forecasting to models or computers and then forget
about it, because unplanned occurrences can wreak havoc with forecasts. For instance, weather-related
events, tax increases or decreases, and changes in features and prices of competing products or services
can have a major impact on demand. Consequently, a manager must be alert to such occurrences and be
ready to override forecasts, which assume a stable causal system.
3. Both product family and aggregated forecasts are more accurate than individual product
forecasts. Disney, for example, aggregates daily attendance forecasts by park. This approach helps
balance the over and under predictions of each of the six attractions. Forecasts for group of items tend to

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be more accurate than forecasts for individual items because forecasting errors among items in a group
usually have a cancelling effect. Opportunities for grouping may arise if parts or raw materials are used for
multiple products or if a product or service is demanded by a number of independent sources.
4. Forecast accuracy decreases as the time period covered by the forecast – the time horizon –
increases. Generally speaking, short-range forecasts must contend with fewer uncertainties than long-
range forecasts, so they tend to be more accurate.
These four items are the four common features in all forecasts. An important consequence of the
last point is that flexible business organizations – those that can respond quickly to changes in demand –
require a shorter forecasting horizon, and hence, benefit from more accurate short-range forecasts than
competitors who are less flexible and who must therefore use longer forecast horizons.

ELEMENTS OF A GOOD FORECAST

A properly prepared forecast should fulfill certain requirements:
1. The forecast should be timely. Usually, a certain amount of time is needed to respond to the
information contained in a forecast. For example, capacity cannot be expanded overnight, nor can
inventory levels be changed immediately. Hence, the forecasting horizon must cover the time
necessary to implement possible changes.
2. The forecast should be accurate, and the degree of accuracy should be stated. This will enable users
to plan for possible errors and will provide a basis for comparing alternative forecasts.
3. The forecast should be reliable, it should work consistently. A technique that sometimes provides a
good forecast and sometimes a poor one will leave users with the uneasy feeling that they may get
burned every time a new forecast is issued.
4. The forecast should be expressed in meaningful units. Financial planners need to know how many
dollars will be needed, and schedulers need to know what machines and skills will be required. The
choice of units depends on users needs.
5. The forecast should be in writing. Although this will not guarantee that all concerned are using the
same information, it will at least increase the likelihood of it. In addition, a written forecast will permit
and objective basis for evaluating the forecast once actual results are in.
6. The forecasting technique should be simple to understand and use. Users often lack confidence in
forecasts based on sophisticated techniques; they do not understand either the circumstances in
which the techniques are appropriate or the limitations of the techniques. Misuse of techniques is an
obvious consequence. Not surprisingly, fairly simple forecasting techniques enjoy widespread
popularity because users are more comfortable working with them.
7. The forecast should be cost-effective. The benefits should outweigh the costs.

FORECASTING APPROACHES
There are two general approaches to forecasting, just as there are two ways to tackle all decision modeling.
One is a quantitative analysis; the other is a qualitative approach. Quantitative forecasts use a variety of
mathematical models that rely on historical data and / or casual variables to forecast demand. Subjective or
qualitative forecasts incorporate such factors as the decision maker's intuition, emotions, personal experiences,
and value system in reaching a forecast. Some firms use one approach and some use the other. In practice, a
combination of the two is usually most effective.
The following pages present a variety of forecasting techniques that are classified as judgmental, time-
series, or associative.
Judgmental forecasts rely on analysis of subjective inputs obtained from various sources, such as
consumer surveys, the sales staff, managers and executives, and panels of experts. Quite frequently, these
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sources provide insights that are not otherwise available. Time-series forecasts simply attempt to project past
experience into the future. These techniques use historical data with the assumption that the future will be like the
past. Some models merely attempt to smooth out random variations in historical data; others attempt to identify
specific patterns in the data and project or extrapolate those patterns into the future, without trying to identify
causes of the patterns.
Associative models use equations that consist of one or more explanatory variables that can be used to
predict demand. For example, demand for paint might be related to variables such as the price per gallon and the
amount spent on advertising, as well as to specific characteristics of the paint (e.g., drying time, ease of cleanup).

FORECASTS BASED ON JUDGMENT AND OPINION

In some situations, forecasters rely solely on judgment and opinion to make forecasts. If management must
have a forecast quickly, there may not be enough time to gather and analyze quantitative data. At other times,
especially when political and economic conditions are changing, available data may be obsolete and more up-to-
date information might not yet be available. Similarly, the introduction of new products and the redesign of existing
products or packaging suffer from the absence of historical data that would be useful in forecasting. In such
instances, forecasts are based on executive opinions, consumer surveys, opinions of the sales staff, and opinions
of experts.

Executive Opinions
A small group of upper-level managers (e.g., in marketing, operations, and finance) may meet and
collectively develop a forecast. This approach is often used as a part of long-range planning and new product
development. It has the advantage of bringing together the considerable knowledge and talents of various
managers. However, there is the risk that the view of one person will prevail, and the possibility that diffusing
responsibility for the forecast over the entire group may result in less pressure to produce a good forecast.

Salesforce Opinions
Members of the sales staff or the customer service staff are often good sources of information because of
their direct contact with consumers. They are often aware of any plans the customers may be considering for the
future. There are, however, several drawbacks to using salesforce opinions. One is that staff members may be
unable to distinguish between what customers would like to do and what they actually will do. Another is that these
people are sometimes overly influenced by recent experiences. Thus, after several periods of low sales, their
estimates may tend to become pessimistic. After several periods of good sales, they may tend to be too optimistic.
In addition, if forecasts are used to establish sales quotas, there will be a conflict of interest because it is to the
salesperson's advantage to provide low sales estimates.

Consumer Surveys
Because it is the consumers who ultimately determine demand, it seems natural to solicit input from them.
In some instances, every customer or potential customer can be contacted. However, usually there are too many
customers or there is no way to identify all potential customers. Therefore, organizations seeking consumer input
usually resort to consumer surveys, which enable them to sample consumer opinions. The obvious advantage of
consumer surveys is that they can tap information that might not be available elsewhere. On the other hand, a
considerable amount of knowledge and skill is required to construct a survey, administer it, and correctly interpret
the results for valid information. Surveys can be expensive and time-consuming. In addition, even under the best
conditions, surveys of the general public must contend with the possibility of irrational behavior patterns. For

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example, much of the consumer's thoughtful information gathering before purchasing a new car is often
undermined by the glitter of a new car showroom or a high-pressure sales pitch. Along the same lines, low
response rates to a mail survey should—but often don't make the results suspect. If these and similar pitfalls can be
avoided, surveys can produce useful information.

Other Approaches
A manager may solicit opinions from a number of other managers and staff people. Occasionally, outside
experts are needed to help with a forecast. Advice may be needed on political or economic conditions in China,
India or a foreign country, or some other aspect of importance with which an organization lacks familiarity. Another
approach is the Delphi method, an iterative process intended to achieve a consensus forecast. This method
involves circulating a series of questionnaires among individuals who possess the knowledge and ability to
contribute meaningfully. Responses are kept anonymous, which tends to encourage honest responses and reduces
the risk that one person's opinion will prevail. Each new questionnaire is developed using the information extracted
from the previous one, thus enlarging the scope of information on which participants can base their judgments.
The Delphi method has been applied to a variety of situations, not all of which involve forecasting. The
discussion here is limited to its use as a forecasting tool. As a forecasting tool, the Delphi method is useful for
technological forecasting, that is, for assessing changes in technology and their impact on an organization. Often
the goal is to predict when a certain event will occur. For instance, the goal of a Delphi forecast might be to predict
when video telephones might be installed in at least 50 percent of residential homes or when a vaccine for a
disease might be developed and ready for mass distribution. For the most part, these are long-term, single-time
forecasts, which usually have very little hard information to go by or data that are costly to obtain, so the problem
does not lend itself to analytical techniques, rather, judgments of experts or others who possess sufficient
knowledge to make predictions are used.

FORECASTS BASED ON TIME-SERIES DATA

A time series is a time-ordered sequence of observations taken at regular intervals (e.g., hourly, daily,
weekly, monthly, quarterly, annually). The data may be measurements of demand, earnings, profits, shipments,
accidents, output, precipitation, productivity, or the consumer price index. Forecasting techniques based on time-
series data are made on the assumption that future values of the series can be estimated from past values.
Although no attempt is made to identify variables that influence the series, these methods are widely used, often
with quite satisfactory results.
Analysis of time-series data requires the analyst to identify the underlying behavior of the series. This can often be
accomplished by merely plotting the data and visually examining the plot. One or more patterns might appear:
trends, seasonal variations, cycles, or variations around an average. In addition, there will be random and perhaps
irregular variations. These behaviors can be described as follows:
1. Trend refers to a long-term upward or downward movement in the data. Population shifts, changing
incomes, and cultural changes often account for such movements.
2. Seasonality refers to short-term, fairly regular variations generally related to factors such as the calendar
or time of day. Restaurants, supermarkets, and theaters experience weekly and even daily “seasonal”
variations.
3. Cycles are wavelike variations of more than one year's duration. These are often related to a variety of
economic, political, and even agricultural conditions.
4. Irregular variations are due to unusual circumstances such as severe weather conditions, strikes, or a
major change in a product or service. They do not reflect typical behavior, and their inclusion in the series
can distort the overall picture. Whenever possible, these should be identified and removed from the data.
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5. Random variations are residual variations that remain after all other behaviors have been accounted for.

Naive Methods
A simple but widely used approach to forecasting is the naive approach. A naive forecast uses a single
previous value of a time series as the basis of a forecast. The naive approach can be used with a stable series
(variations around an average), with seasonal variations, or with trend. With a stable series, the last data point
becomes the forecast for the next period. Thus, if demand for a product last week was 20 cases, the forecast for
this week is 20 cases. With seasonal variations, the forecast for this "season" is equal to the value of the series last
"season." For example, the forecast for demand for passes to Tokyo Disneyland this summer season is equal to
the demand for passes last summer; the forecast on the number of checks cashed at a bank on the first day of the
month next month is equal to the number of checks cashed on the first day of this month; the forecast for heavy
traffic volume last Friday. For data with trend, the forecast

Important note: There are different mathematical approaches to forecasting and shall be discussed
extensively in major subjects like project management and management science.

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TOTAL QUALITY MANAGEMENT (TQM)

Total Quality Management (TQM) is customer oriented management philosophy and strategy. It is centered
on quality so as to result in customer delight. The word "Total" implies that all members of the organization make
consistent efforts to achieve the objective of customer delight through systematic efforts for improvement of the
organization.
The TQM philosophy evolved in Japan after World War II. Edwards Deming, an American quality expert
helped the Japanese to apply concepts of TQM. They concentrated on customer satisfaction and focused on
understanding customer needs and expectations. However, the American industry ignored this development as it
was still riding high because of lack of competition. During the 1980s they were forced to look for new ways to
survive in an environment of deregulation, a growing trade deficit, low productivity, recession, downsizing and
increasing consumer awakening. Ford Motor Company lost more than US $3 billion during 1980-82. The US market
share of Xerox Corporation which had pioneered the photocopier, dropped from 93 per cent in 1971 to 40 per cent
in 1981. The American industry now realized the importance of Deming's teachings and started applying them. This
helped Xerox to regain market share from the
Japanese, Ford to come out of the red, Florida Light and Power, USA reduced customer complaints by 60 per cent
in 1983. In 1985, the American Navy coined the term TQM to represent broadly the Japanese way of quality
management.
The need for quality was felt, during World War II, due to the unprecedented need for manufactured goods.
From then on, methodologies for assuring quality in products and services evolved continuously, finally leading to
TQM. Experts from many countries spearheaded this evolution, with Deming playing an important role. They are
popularly called the Quality Gurus. Since TQM is the culmination of the teachings of the Quality Gurus,
understanding the teachings of the gurus will give the right perspective for TQM.
This module will therefore highlight the contributions of the Quality Gurus for the evolution of quality control
techniques and finally TQM. TQM addresses the concepts of product quality, process control, quality assurance
and quality improvement, all of which are aimed at customer delight. Therefore, it is important to get the right
meaning, interpretation and understanding of the term quality and related terms. This will provide a strong
foundation for TQM. We will discuss various dimensions of quality in the following paragraphs.

DEFINITION OF QUALITY
Juran, one of the quality gurus, defined quality as fitness for use. A very concise definition indeed, for a
term that has so many dimensions! Quality of a product or service in simple terms is its suitability for use by the
customer. Quality has to be perceived by the customer. Perception of the supplier is also important, but the
customer experience of quality of a product or service is more important. Quality does not mean an expensive
product; on the contrary, it is fitness for use of the customer.
International Organization for Standardization (ISO), the world body for standards formulation was founded
in the year 1946 and has its headquarters in Geneva, Switzerland. Most countries in the world are members of ISO.

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The national standardization bodies of various countries represent their countries in ISO. ISO is known all over the
world because of its path breaking standard ISO 9000, released for the first time in the year 1987. The definition of
quality as per the ISO 9000 standard is: "The totality of features and characteristics of a product or service, that
bear on its ability to satisfy a given or implied need".
Thus, the standard definition of quality is common both to products and services. It is essentially satisfying
the customer needs, both stated and unstated (implied). The latter is more dominant in a service. When there is a
contract for supply of a product or service, the needs will be specified clearly. In other situations, it is the
responsibility of the supplier to identify and define them.
In the case of computer software, which is a unique service, the quality of the product can be
defined as “the ability to deliver the product within the time schedule, within budget and with the least
number of defects".

CHAIN REACTION
The importance of quality will be clear from the chain reaction on account of quality envisaged in Japan in
the 1950s. The 'chain reaction' is depicted in Fig. 1.1 as follows: Quality improvement results in improved
productivity, as is clear from Fig. 1.1. By eliminating defects, non-value adding activities and rework, additional
resource capacity is created. Improved quality also reduces the production cycle time and machine time. Less
material is required due to reduction of scrap and rework. All this leads to improved productivity and increased
capacity. If this is used to expand markets with lower prices, the company prospers and stays in business. Deming
noted that this chain reaction was on the black board of every board meeting in Japan from July 1950 onwards. The
Japanese success is the best case study for TQM. Understanding the chain reaction transformed them from a
shattered economy to a successful nation challenging the USA after World War II.

Improve Quality

Costs decrease due to fewer defects, lesser

rework, fewer delays and better use of men,
machine and materials

Improved Productivity

Capture market with better market quality and

lower prices

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Stay in business

Provide more jobs

Japanese Chain Reaction

Figure 1.1

DIMENSIONS OF QUALITY
Quality has many dimensions. The dimensions of quality are nothing, but the various features of a product
or service. We will discuss some of them briefly:

Product Quality
1. Functionality. Functionality refers to the core features and characteristics of a product. The definition of
functionality as per ISO/IEC 9126: 1991: “A set of attributes that bear on the existence of a set of functions
and their specified properties. The functions are those that satisfy stated or implied needs”. For instance, a
car has to have a seating capacity for five persons; a steering wheel, an accelerator, a break, a clutch,
head lights, gears, four wheels, etc. The functionality of a car represents each of the functions mentioned
above and many others not listed above. Thus, functionality refers to those functions that will satisfy a
customer.

2. Reliability A car should not breakdown often. This is the reliability attribute to quality.
Reliability is measured by mean (average) time between failures (MTBF). Reliability is an indicator of
durability of products. For instance, the MTBF of a car can be specified as 1000 hours of running or 10000
kilometers.

3. Usability A product should be easily usable. The customer should be able to use the product easily
without the help of experts. For instance, repairing a car may need the help of a mechanic, but the car can
be driven by the owner himself, it he is trained accordingly. Thus, each product should be made so that a
person can use it with minimum training. Usability can also be measured by the time taken for training an
operator for error-free operation of a system.

4. Maintainability Maintainability refers to the ease with which a product can be maintained in the original
condition. Products may become defective while in use or in transit. It should be repairable so as to retain
the original quality of the product at the lowest cost at the earliest possible time. This applies to software,
automobiles, household items such as refrigerator, air conditioners, personal computer, etc. For instance,
when we use a Walkman we may need to change the batteries periodically. For software, maintainability is
defined in the Standard ISO 9126:1991 as "A set of attributes that bear on the effort needed to make

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specified modifications". Maintainability is measured as Mean Time To Repair (MTTR). For instance, the
MTTR of a street light controller is 15 minutes.

5. Efficiency This is applicable to most products. Efficiency is the ratio of output to input. If a car gives a
mileage of 20 kms per litre of gasoline and another car with identical features gives 15 kms per litre, then
the former is more efficient than the latter. Another example is the brightness of a lamp at a given input
voltage.

6. Portability This is more important in the context of software. Portability is defined as a set of attributes
that bear on the ability of software to be transferred from one environment to another. The environment
may be organizational, hardware or software environment. Any program purchased, such as an accounting
software, should be usable in many different machines without any problem. This is portability. This feature
is applicable even to consumer goods such as bulbs, razors, etc.

Service Quality
Unlike products, every service is made to order. Therefore, the service quality has additional features. In
availing a service, the customer interacts more with the service provider. The quality of service depends to an large
extent on understanding the correct requirements of the customer through such interactions. Each service has to be
designed specifically for the customer. Hence, quality of service design is an important feature. Service delivery is
another feature of service quality. Thus, the additional features of service quality are:
• Quality of customer service
• Quality of service design
• Quality of service delivery
Each one of the above may have further dimensions. For instance, quality of service delivery includes
timeliness of service and the number of defects on delivery.

1. Quality of Customer Service Customer service is important in every business. In a service industry,
meeting customers and finding out their implied requirements is more challenging. Therefore, ability to
satisfy customer depends on the quality of customer service. This includes but is not limited to:
• How well the customer is received?
• How well the implied requirements are elucidated?
• How well the customer is treated/handled satisfied?

2. Quality of Service Design Since services are usually made to order, it is important that the service is
designed as per the requirements of the specific customer. For instance, a software product developed for
a specific bank takes into account the unique requirements of the bank. Quality of service design in turn
depends on the quality of customer service.

3. Quality of Delivery Quality of delivery is important in any sector, but more crucial in case of services.
Defects on delivery should be zero to satisfy the customers. Additional attributes of quality, which are
applicable to both products and services, are given below:

a. Timeliness Delivery on schedule as per requirements of the customer is a must both in the product
sector as well as in service sector. No customer likes waiting. Any anticipated delay in schedule should
be communicated to customer well in advance. Timeliness is critical for many products and services.
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Delay in arrival of aircrafts or trains are instances of poor quality of the services encountered in day-to-
day life.

b. Aesthetics A product or service should not only perform well but also appear attractive. Therefore,
aesthetics is an important element of quality. Aesthetics may include, but not limited to the appearance
of the product, the finish, color, etc. Customers will buy only those refrigerators or TV receivers or
music systems, which look good.

c. Regulatory Requirements Regulatory requirements as stipulated by the local and federal

governments should be fulfilled by the product or service. For instance, an automobile has to meet
Euro II Standards in respect of emission to minimize environmental pollution. Similarly, there are
regulatory requirements in respect of safety of electro-medical products.

d. Requirements of Society The products should fulfill both the stated and implied requirements
imposed by society. The customer requirement should not violate society or regulatory requirements.
Thus to satisfy a customer, a product cannot be built in such a way as to violate the requirements of
society of a safe and healthy product. For instance, providing belts for persons sitting in the front seat
in a car is a requirement of the society. Hence, the car manufacturers should provide belts for the
passengers travelling in the front seat.

e. Conformance to Standards Product or service should conform to the stated and implied requirements
of customers. Where applicable, they should conform to applicable standards such as national
standards, international standards and industry standards. For instance, Electro-Magnetic Interference
(EMI) from a PC should be within the limits prescribed by the corresponding standard.

QUALITY PAYS
Look at a news item.
Toyota zips past ford to be new No.2
Group Sold 6.78 m Vehicles In 2003, 60,000 More Than The Ford Family, Riding On Asian Push Chang-
Ran Kim & Justin Hyde Tokyo/Detroit 26 January, The Economic Times

Ford, General Motors & Chrysler were considered to be "Big Three" in the automobile sector for
decades. Toyota has unseated Ford Motors as the world's second biggest automaker. It is reported that
Toyota is steadily marching towards its goal of grabbing 15% of the global car market some time in the
next decade from about 11% now. This achievement will make Toyota as No.1 automaker in the world.
The market capitalization of Toyota is $ 120 billion; a measure of how much investors believe a company
is worth. This is more than four times that of Ford and bigger than the combined stock values of Ford,
General Motors and Chrysler. By profitability too, Toyota is way ahead of pack. Its bottom line profit
came to around US $ 7 billion last business year, by far the highest in the industry.

The above story is a testimony of success of Toyota's quality initiative for decades. Toyota Motors for years
has been practicing TOM, Just in Time (JIT) and Zero Defect. The Kaizen, meaning continual improvement, was
also initiated by Toyota three decades ago. Thus, it is no wonder that quality pays!

EVOLUTION OF QUALITY

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Quality has been evolving for decades. The contribution of American Quality Gurus to this evolution is quite
impressive. The concepts were initially experimented successfully in Japan by the American Quality Gurus is quite
impressive. The concepts were initially experimented successfully in Japan by the American Quality Gurus. In this
section, we will look at the contributions of some of them.

1. Dr Walter A Shewhart (1891-1967) worked in Western Electric Company and AT&T, USA. He advocated
Statistical Quality Control (SQC) and Acceptable Quality Level (AQL). AQL is the foundation of today's Six
Sigma. He is considered to be the father figure of SQC, who developed control charts for quality
assessment and improvement. Dr. Shewhart also developed the Plan, Do, Check, Act (PDCA) cycle for
continuous improvement, which is in use even today. He is the author of the following books:
• Economic Control of Quality of Manufactured Products
• Statistical Method from the View Point of Quality Control

2. Deming W. Edwards (1900-1993) An associate of Shewhart, , worked in Western Electric Company as a

statistician. He was invited to Japan to lead the quality movement. He modified PDCA cycle of Shewhart to
the Plan, Do, Study and Act (PDSA) cycle. He also advocated extensive use of statistics and control charts
and focused on product improvement and service conformance by reducing variations in the process. He
joined the US Census Bureau in the year 1939 and proved that quality control methods could lower costs
even in an exclusive service organization. During the 1950s, Deming visited Japan 18 times, held seminars
and worked with Japanese Union of Scientists and Engineers (JUSE). An extract from Deming’s speech on
November 23, 1980 in Paris is given below:

“I don’t know if I mentioned what happened in Japan with the top management in 1950 and in the
18 visit;s that I made since. They listened to my talks about how management can make use of statistical
methods in industry all the way from incoming materials to consumer research. I emphasized that the
two ends of the line are important points: incoming materials and the consumer. Without the consumer
we don’t have any production. The whole world knows how they have done it. Innovations, new
products, and improvement of all the products; it’s fantastic.
Japanese management uses difficult methods, everywhere. On reception of incoming materials,
they do not accept defective materials. They teach vendors quality control. Japanese manufacturers also
learned something that is very useful in production, namely to share their manufacturing concerns with
all the others, so the entire industry improves. I taught top management in all my visits, 18 in all, and
their eagerness to learn how to use statistical techniques was very great.

Deming stressed on the importance of suppliers and customers for the business development and
improvement. He believed that people do their best and it is the system that must change to improve
quality. His 14 points formed the basis for his advise to Japanese top management. The 14 points are
applicable to every industry in product and service sector.

3. Joseph M. Juran (1904) Juran also joined Western Electric Company and developed Western Electric
Statistical Quality Control Handbook. JUSE invited him to Japan in 1954. He identified fitness of quality and
popularized the same.

Juran’s Fitness of Quality

1. Quality of design- through market research, product and concept.
2. Quality of conformance- through management, manpower, technology.

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3. Availability- through reliability, maintainability, logistic support.

4. Full service- through promptness, competence and integrity.

Juran’s Quality planning roadmap consists of the following:

• Identify your customers
• Determine their needs
• Translate them into your language
• Develop a product that can respond to the needs
• Develop processes, which are able to produce those product features
• Prove that the process can produce the product
• Transfer the resulting plans to the operating forces.

4. Philip B. Crosby (1926) Crosby was Vice President of International Telephone and Telegraph (ITT). His
four absolutes of Quality are very relevant to TQM.
a. Quality is conformance to requiremments, nothing more or nothing less and certainly not goodness or
elegance.
b. Quality has to be achieved by prevention and not by appraisal.
c. The performance standard must be zero defect and not something close to it.
d. The measurement of quality is the price of non-conformance, i.e. how much the defects in design,
manufacture, installation and service cost the company. It is not indexes, grade one or grade two.

5. Armand V. Feigenbaum He was President of American Society of Quality Control (1961-1963). He said,
“quality is in its essence a way of managing the organization”. He suggested the following methodology for
cycle time reduction.
a. Define process.
b. List all activities.
c. Flowchart the process.
d. List the elapsed time for each activity.
e. Identify non-value adding tasks.
f. Eliminate all possible non-value adding tasks.

6. Kaoru Ishoikawa (1915-1989) A quality guru form Japan, he strongly advocated the use of cause and
effect diagrams to provide a true presentation of the organizational impacts and procedures. He developed
fishbone or Ishikawa diagram for cause and effect analysis.
Other quality gurus include James Harrington, Taguchi and Shingo.

As a student, you should be familiar with some of the basic terms related to quality to understand
TQM.

QUALITY CONTROL (QC)

Quality Control or QC may be defined as: The operational techniques and activities that are used to fulfill
the requirements for quality. Juran' gives 3 steps of QC:
1. Evaluate actual operating performance
2. Compare actual performance to goals
3. Act on the difference

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In simple terms, QC is inspection or appraisal of products and services to ensure that the stated
requirements are fulfilled. This was the only technique practiced during World War II. Since it was found that QC
was essential but not sufficient, Quality Assurance techniques were developed after the war.

QUALITY ASSURANCE (QA)

The definition of quality assurance is: All the planned and systematic activities implemented within the
quality system, and demonstrated as needed, to provide adequate confidence that an entity will fulfill the
requirements for quality.
The purpose of QA is to fulfill the quality requirements of an entity, i.e. product or service, with adequate
confidence by the supplier. This requires implementation of all the activities planned for building quality into
the product. Such planned activities are to be implemented systematically within the purview of a
documented quality system. Building quality into the products requires the following :
• Quality of Design
• Quality of Conformance
• Quality of Performance
• Quality of Service

Quality of Design
It refers to how well the product or service has been designed to meet the current and future
requirements of customers and add value to all the stakeholders. The stakeholders for any organization
are:
• Customers
• Employees
• Suppliers
• Owners
• Society
Quality of design involves all activities that will result in a successful design. It necessarily includes
finding out the customer's requirements.

Quality of Conformance
This indicates the consistency in delivering the designed product. Product quality in turn depends
on the quality of all processes in the organization. Therefore, it involves all activities that will ensure the
conformance of the products to its requirements consistently.

Quality of Performance
It is an indicator of the performance of the end product. This in turn depends on the quality of
design (including the reliability of the product) and quality of conformance.

Quality of Service
Selling a product is not the end of the business. It is the quality of associated services rendered
that adds value to the product. Quality of service involves all activities that will enable the customer to
procure and use the product without any hassles.
Thus Quality Assurance, is much more involved activity than mere inspection or QC. In fact
QC is one of the activities of QA.

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QUALITY PLANNING (QP)

In order to consistently meet customer requirements, the quality of 4 Ms namely -- Man, Machine, Material
and Methods need to be ensured. The requirements of the 4 Ms are to be identified in the form of quality objectives.
The objectives should be established for all the functions. The functions include suppliers purchase, product design,
engineering, production, in process inspection, final inspection, after sales service, etc. Quality planning refers to
the activities that establish the objectives and requirements for quality. QP involves planning for the following with
regard to a product or service or project or a contract:
• Quality objectives to be met
• Specific of QA/QC practices
• Resources needed
• Sequence of QA/QC activities.
The QC activities include testing, inspection, examination and audit at various stages of product or service
life cycle. Therefore, quality has to be planned for every product or service and documented in the form of a quality
plan.

QUALITY IMPROVEMENT
This process aims at attaining unprecedented' levels of performance, which are significantly better than the
past level.

STRATEGIC PLANNING
Strategic planning is important for any business. It involves making plans for the following, in particular:
• Business value
• Investment in machinery and equipment
• Manpower to be hired
• Budget
• Product diversification
• Markets to be served
• Strategies for improving profits, etc.
Strategic planning is carried out generally at annual intervals and is carried out using a formal structured
approach. The strategic planning is kept confidential due to obvious reasons. Usually organizations treat strategic
planning and quality planning as separate and isolated activities. However, Malcolm Baldrige National Quality
Awards (MBNQA) -- the prestigious quality award in USA- calls for the integration of both. It means that quality
planning and improvement planning should be carried out as part of strategic planning. The quality improvement
planning should focus on the needs of current and future customers and support the strategic and business goals of
the organization.

QUALITY MANAGEMENT (QM)

According to ISO 9000 standards, Quality management comprises "All activities of the overall
management function that determine the quality policy, objectives and responsibilities and implement them
by means such as quality planning, quality control, quality assurance and quality improvement within the
quality system.
The quality system consists of the organizational structure, procedures, processes and resources needed
to implement quality management. The above brings out the following:

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• The company must have an objective and policy for quality of the products and services.
• The organization should plan for meeting the objective.
• The plan should include QA, QC and methodology for improvement.
• There must be a clear organizational structure for building quality into the products and services
with necessary resources.
• The management should be implemented formally with well-defined processes and procedures and trained
resources.
The strategy for quality evolved with time is given in Fig.1.2:

Inspection
`
Pre-World War II
QC

¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯

QA

Post-World War II
QM

TQM

Evolution of Quality
Figure 1.2

TOTAL QUALITY MANAGEMENT (TQM)

It was Feigenbaum who coined the phrase "Total Quality Control". The concept is known in Japan as
Company Wide Quality Control (CWQC). In 1985, the Americans came up with the term Total Quality Management
(TQM) to represent essentially the Japanese way of Quality Management.

Just-In-Time (JIT)
Tai-ichi Ohno of Toyota motors refined an idea for Just-In-Time. This means that at no stage of
manufacturing nobody or nothing waits for anything. This is to ensure that there is no wastage of machinery,
materials and manpower. JIT focuses on right scheduling so as to keep inventory as low as possible. This requires
a perfect partnership between supplier and customer.

ISO 9000 Standards

ISO 9000 Standards were released for the first time in the year 1987 to bring in system for quality in every
organization. The standard was revised in 1994 and later in the year 2000. The standard in the latest version
advocates TQM and continuous process improvement.
Total Quality Management is a way of managing an organization with the objective of carrying out right jobs
right—the first time and every time. In quality management, there is a thumb rule called 85/15 Rule. It means that
the root causes of 85 per cent of the problems in the organization are due to faulty systems and 15 per cent are a
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result of the behavior of employee. The top management is responsible for the faulty systems. Therefore, the most
important agent for correcting a faulty system and enabling TQM is the top management. The leaders, who broke
away from the traditional style and adopted TQM-based style of management, have been well rewarded. The TQM
based leadership put companies far ahead of their competitors in terms of sales, profits and employee morale.
Effective leadership for TQM involves everyone in the organization in value adding activities.
The most important prerequisite to practice TQM is that the senior management should firmly believe that
TQM is the only way to do business and manage the organization and that TQM would lead the organization to
prosperity in the long run. Unless the top management believes in TQM, there is no way to implement TQM in an
organization. In addition, the top management should also have faith in the following to build quality values in the
organization:
• Customers are the only reason for being in business and hence they should be delighted
• Zero defect is possible to achieve
• Teamwork results in a win-win situation
• CEO has to lead the quality movement
• Proper communication is essential
• Continuous improvement is needed in processes.
TQM is the right model to manage organizations since it assures the highest return on investment. At the
same time, organizations should venture into TQM after a thorough analysis of the pros and cons. TQM calls for
hard work on the part of management. Above all, the management should be prepared to run a transparent
organization. Therefore, before presenting this idea to the employees, the top management should be
understanding, discussing, consulting, analyzing and exploring all the actions needed before deciding whether to
practice TQM or not. If the top management has the slightest inclination not to get into TQM then it’s not the right
time to get into TQM. Only those organizations where the top management is ready for organizational change and
personal change will be successful. TQM is the modernization concept and is the only road to consistent growth of
organization as well as survival in a competitive environment, since all the other options have failed.
In this module, we will discuss the principles and strategies to be adopted by the top management to
provide effective leadership for TQM.

DEFINITION OF TQM
The International Standard, ISO 9000, defines Total Quality Management (TQM) as “a management
approach of an organization, centered on quality, based on the participation of all its members and aiming
at long term success through customer satisfaction and benefits to the members of the organization and to
the society".
A detailed analysis of the definition of TQM is essential to avoid misunderstanding. TQM is a management
approach for the entire organization led by the Chief Executive Officer (CEO) of the organization. Involvement of all
the employees in the continuous process improvement is one of its goals. Every member of the organization should
understand and practice TQM. TQM, unlike other concepts, which are centered on profit-making, is centered on
quality. TQM means long-term success, which is achieved through customer satisfaction and benefits the
employees and society . The benefits of TQM include not only the profits but also the success of the organization in
term of satisfaction of the customers and hence more business, and goodwill of the society at large towards the
organization. The standard also stipulates that a strong and persistent leadership of top management and training
of all the members of the organization is essential for the success of this approach. TQM should be the basis of all
the activities in the organization as it aids in achieving the organization's objectives and goals. TQM aims at

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continuous improvement of the current practices so that the customer satisfaction and employee satisfaction
improve day by day. TQM is also called Total Quality Control (TQC) or CWQC.
There is a standard on TQM issued by British Standards Institution (BSI), UK, entitled TQM part I, Guide to
Management principles BS 7850:part I: 1992. It provides another definition for TQM, which is reproduced below:
"Management philosophy and organization practices that aim to harness the human and material resources of an
organization in the most effective way to achieve the objectives of the organization”. Thus, TQM represents
management philosophy and organization practices. The philosophy and practices should aim at purposeful and
effective utilization of human and material resources of the organization. It means that every machinery, material
and men should be effectively utilized to fulfill the objectives of the organization. The note following the definition
adds that the objectives may include customer satisfaction, business objectives such as growth, profit or market
position or the provision of services to the community. Therefore, TQM is applicable to all the organizations both
government and non-government, either engaged in commercial activities or service oriented activities which are
non-commercial. The standard also says that there are so many other names, which are used essentially to
represent TQM as given below:
• Continuous quality improvement
• Total quality
• Total business management
• Organization wide quality management
• Cost effective quality management
TQM is an umbrella concept and it encompasses all these and represents the new management philosophy,
which will enable the growth of the organization based on total quality. Total quality means, quality in every activity
of the organization. To put it in simple terms, it helps to improve the productivity on account of quality in everything
an organization does. In the foreword of the standard it is said, "the application of TQM primarily involves
investment in time for people to move forward into new and different organization cultures”. The crux of the problem
in implementing TQM is the inability of the senior personnel in investing time on people. The time invested is going
to bring in many benefits to the organization later. It also hints that it takes time to change people from the
traditional work culture to modern work culture. It also says that the important investments for TQM to happen are
time and employees.

ELEMENTS OF TQM
TQM is application of a number of activities with perfect synergy. The various important elements of TQM
are illustrated in Fig. 3. I as follows.

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Constancy of
purpose/
long-term
commitment
Focus on
Training process

Total Quantitative
employee methods
involvement /

TQM
teamwork

Continuous
Leadership process
improvement

Customer Supplier
focus partnership

Figure 1. TQM Elements

LEADERSHIP FOR TQM

In this lesson, we will look at only one of the elements of TQM namely, leadership for TQM. The other
elements for implementing TQM will be discussed in the remaining lessons. When we peruse the teachings of the
quality gurus, we gather that the higher echelons of management has an important role to play for TQM to be
implemented. In fact, the management is solely responsible for the success of TQM as it is responsible for selecting
people, forming teams, providing resources and establishing the system in the organization. As Crosby says senior
management is 100 per cent responsible for the problem of quality and its continuance. According to Harrington,
between 70 and 85 per cent of all errors can only be corrected by management. Thus, it is important that top
management understands TQM and leads the organization through the TQM journey.

DEMING'S 14 POINTS FOR TOP MANAGEMENT

Deming is the father figure of Japanese quality movement. Deming addressed the Japanese top managers several
times in the 1950s. He gave the 14 points for top management. These initiatives of Deming transformed the nation.
The results are there for every one to see. Let us identify the role of top management for TQM to happen from the
14 points given by Deming.

1. Create Constancy of Purpose for Improvement of Products and Services

The top management must believe that their business will continue for 100 years. Such a
confidence will motivate them to aim long-term success. It will infuse a constant quest for innovation,
improvement of processes, products and services. They will invest in research to innovate new products
and will train their employees without the fear of losing them. If the employees understand that the
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company is interested in long-term success, then the employees will follow suit. Therefore, it is the role of
the top management to create constancy of purpose for improvement of products and services, which is
essential for TQM. They have to constantly reiterate their intention to practice TQM and improve products
and services.

2. Adapt the new philosophy.

The new philosophy is to practice the Japanese CWQC, which was renamed as TQM much later.
The new philosophy means elimination of wastes, delays and radically changing the work culture. The new
philosophy means, Just-In-Time (JIT) manufacturing is possible with zero defects. All the 14 points of
Deming should to be adopted by the top management to result in long-term success through the
implementation of TQM in the organization.

3. Cease Dependence on Mass Inspection.

Doing things right and doing it right the first time would reduce the dependence on inspection, in
fact it would be eliminated. TQM is aimed at eliminating inspection in the long run through prevention.

4. End the Practice of Awarding Business on the Basis of Price Tag Alone
This point addresses supplier partnership. The supplier should be selected on the basis of the
following 4 parameters:
• Quality
• Price
• Delivery
• Service
Therefore price alone should not be the criterion for selection of supplier.

5. Constantly Improve the System of Production and Services

The processes in the organization need continuous improvement, Kaizen in
Japanese. TQM is aimed at continuous improvement of processes so that the quality of products and
services improve continuously. The very purpose of TQM is the constant improvement of the system for
production and services.

6. Institute Training
The abilities of employees should be improved and harnessed only through training. Deming
advocates, "Management needs training to learn about the organization, all the way from incoming material
to the customer." Today every Japanese employee receives six weeks of training every year. This is the
proof of Deming's teachings and the adoption of his concepts by the Japanese.

7. Adopt and Institute Leadership

Deming urges that the senior employees must conduct themselves as leaders rather than
managers. The difference between the characteristics of managers and leaders are given in Table 3.1 as
follows:
Table 3.1 Leader and Manager
Leader Manager
Proactive Reactive
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Coaches Finds fault

Understands process Doesn't care to understand
Moves around Sits in his chair
Improves process Maintains process
Communicates frequently Communicates rarely
Seeks suggestions Questions
Thus the senior employees should be trained on leadership qualities.

8. Drive Out Fear

Employees should be encouraged to suggest improvements and new ideas, ask questions about
the existing process, etc. If freedom to express new ideas is curtailed, then the employees will continue to
do what they are doing. This will stunt improvement. Fear is detrimental to improvement of processes.

9. Break Down Barriers Between Staff Areas

Quite often, the various teams in the organization stop communicating with each other. The teams,
over the years become watertight compartments. Every team may prove that it is the best. But organization
as a whole may be doing poorly due to lack of communications between the teams. TQM dictates removal
of barriers between the departments.

10. Eliminate Slogans, Exhortations and Targets for the Work Force
Here Deming talks about slogans and targets for increasing productivity. He says that barriers to
quality and productivity exist within the organization itself. Hence, to achieve higher productivity, the system
has to be improved for which, management is responsible. The posters are directed at the wrong people,
namely the workers. They only generate "frustration and resentment" among workers. The best strategy for
improvement is to correct defects in the system, not slogans or posters.

11. (a) Eliminate Numerical Quota for the Work Force

Setting a target for production, say producing 1000 bolts per shift, etc. may affect the quality of
workmanship. This forces the worker to ignore quality and concentrate on quantity. This is detrimental to
the organization. On the contrary, standards for quality workmanship, etc. could be prescribed. Numeric
quota is given assuming that the worker may be idling. That is not the right approach.
(b) Eliminate Numerical Goals for People in Management
Setting goals without the necessary wherewithal does not work. Goals such as growth of business
by 15 per cent or reduction of quality cost by 5 per cent given in a New Year day will end like New Year
promises. Such improvements should arise out of improving processes and not by passage of time.

12. Remove Barriers that Rob People of Pride of Workmanship

The organization should establish the right processes and a proper system for quality
management. This will lead to carrying out jobs correctly. If the work is carried out correctly, it gives pride to
those who did. Any barrier that robs the managers or workers their pride of workmanship should be
removed. Every employee should be encouraged to work as much as he can. Removing the obstacles to
this pursuit is the responsibility of the top management.

13. Encourage education and self-improvement for Every One

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Employees should be encouraged to pursue higher education and training while in service, for
improving the skills and updating knowledge. If an employee undergoes education or training, it will
improve his ability, which will be beneficial to the organization. Hence, employees should be motivated and
encouraged to improve their knowledge and skills through various channels.

14. Take Action to Accomplish the Transformation

The top management should understand the above 13 points and then enable their employees to
understand them. They should interpret the 13 points properly and educate their employees appropriately.
They should have the courage to break the status quo and improve their employees, processes, system
and thereby their products continually. They should identify all the processes in the organization and
improve each one of them using PDSA cycle. Therefore the final point is about implementation of the 13
points, which in essence are the TQM principles and strategies.
Thus the 14 points formulated for Japanese management by Deming are relevant even today. He
emphasized the same points to the American industry during the 1980s when they looked for his guidance.

TEN STRATEGIES FOR TOP MANAGEMENT

We will now look at some of the strategies advocated by experts to be adopted by the CEO and the top
management to lead the organization on TQM principles. The author in guiding the organization, of which he is the
head, adopted these strategies for the success of the organization in its TQM journey. Thus, they are very practical.
Some of the strategies are:
1. Proactive management
2. Adventurous and bold change management
3. Do It Right First Time (DIRFT)
4. Continuous preventive action
5. Care for little things and accumulate gains
6. Ensure economic performance
7. Practice manage by walking around
8. Measure success
9. Never rest on laurels, continue to improve
10. Build a virtual organization

1. Proactive Management
The leaders have to be proactive. They have to foresee what will happen in the future and take advance
action to prevent the occurrence of the problems as prevention is always better than cure. If the management is
actively engaged in managing the organization, then they will be able to foresee the problems. They should be able
to nip the problems in the bud, so that the problem will not recur. This is proactive management.

Proactive Management Needs Proper System

Proactive management needs a proper system in the organization. The problem can be identified
before occurring, only if there is a proper system in the organization. Unless a system is in order, the roles
and responsibilities are clear, the organizational structure is in place, the procedures set and the system of
recording everything laid out, it will be extremely difficult to think of prevention. If these measures are not
taken then, it will only be fire fighting, which is reactive management. Firefighting does not add value.

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Unless timely action is taken to prevent problems, it may lead to losses in terms of revenue, reputation and
employee morale. Thus, proactive management calls for establishment of proper system for quality as well
as the operations.

TQM Calls for Proactive Management

In spite of best efforts, if an error has occurred, then corrective action has to be taken after an
analysis so that such errors are not repeated. TQM envisages taking preventive actions so that mistakes do
not occur. Quality can be improved only through preventive actions. The corrective action resulting out of
failure is only a post-mortem. The failure is going to affect someone, it could be an external or an internal
customer or an employee. But, preventive action enables achieving the organization's goals without hurting
anybody. Therefore, one should take preventive action and save the organization from disaster. Such
concepts should be inculcated even among the vendors, so that they supply only quality materials.
According to Deming, the dependence on inspections is a bad sign. A level should be attained when the
inspection of materials is not required. By controlling the processes and by improving the skills of the
employees, the organization should be able to manufacture an item or deliver a defect free service. This is
the role of proactive management.

2. Adventurous and Bold Change Management

Nobody likes Change
Human beings by their very nature resist change. Even if a change is going to make them much
more comfortable, they may not agree to it straightaway. They cannot visualize that the changes are in fact
for their good. They resist change as they feel they may have to work more or learn new techniques. Each
employee develops unique attitudes and values and they are strongly wedded to them. Anything different is
unacceptable. Therefore changing anything in an organization is a difficult task and requires tactful
handling. Even, if the people concerned are consulted before change and explained in detail how the
proposed change is going to be beneficial, they may not see the merit. However, the resistance to change
will reduce. Quite often, the processes have to be changed proactively by the top management in an
adventurous manner. The initial results of change might not be positive. But if persisted, the subsequent
results would convince the employees that the change was for good.

Change is Essential
An organization cannot progress without change. It has to continuously change for better. There
should be an on-going rethinking and restructuring of the organization, so that the organization is receptive
to the needs of the customers. The management should look at every process without any bias. Each
employee looks at his or her activity from their own angle. Sometimes they do not understand the problems
faced by the organization. In their own small shells they feel uncomfortable about change. But, the
management should not give in because of the reluctance on the part of the employees. Changes are
required in a number of activities such as in the process, machinery, materials, inventory control, methods
of carrying out an activity, inspection, and so on. The executives should check at periodic intervals whether
the process is carried out efficiently. If not, they should try to change it. Change management is an
important activity in TQM environment and is crucial for continuous improvement of processes and the
organization. The essential requirements of change and change management are:
Be Adventurous Successful people are those who have taken the challenges and grown beyond
expectations. This calls for adventurous decision-making and high self-esteem among the senior

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management persons. They should visualize the improvements needed and make every effort to
achieve it. Any improvement is not going to be easy. If the organization wants to maintain status
quo, it will not improve. In fact, most successful executives should be dreamers with the necessary
drive. They should aim high and make every effort to achieve it. Those who have aimed high have
reached high. They should feel that the impossible is within reach. It is important that if an
executive wants to grow, he should be ambitious as far as the organization's improvement is
concerned. Only ambition can lead to success. Therefore, one should develop an adventurous
attitude for the larger good of the organization. Business Process Reengineering (BPR) concept
calls for adventurous decisions.
Be Bold The other prequisite for change management are boldness, self-confidence or self-
esteem.
Boldness is very essential for making bold decisions for improvement, based upon the study and
analysis of the current practices and system in the organization. Such boldness may be required
for many purposes from fighting lethargy among employees to guarding against vested interests.
Therefore, boldness is the basic requirement for making an efficient organization.

Role of CEO for Adventurous and Bold Change Management

Like many other aspects, the adventurous and the bold chane management depends on the
personal qualities of the CEO. The CEO, in addition to his own bold initiatives, should support innovative
change management initiated by his employees. He should motivate and encourage his colleagues to
change the unproductive ways of the organization. Therefore, the primary responsibility for adventurous
and bold change management lies with the CEO. He should give them the confidence and support till the
successful completion of the initiative. Such a confidence bestowed by the CEO will help them in achieving
adventurous and bold changes. As Tom Peters says, knowing when to retreat is as important as knowing
when to advance. The CEO should be monitoring what is happening and ensure that it is in the right
direction.

3. DIRFT-Do it Right First Time

Take Right Decisions
In every organization a number of decisions have to be taken by the CEOs, managers and
supervisors. They are the leaders in the organizations. Before making every business decision, the leaders
should carry out the following sequence of activities:
• Plan the decision-weigh the pros and cons
• Foresee the impact of the decision on the organization
• Take opinion of the right people
• Involve the concerned (employees who will be affected by the decision)
• Implement the decision
• Persist

Why People don't Do it Right the First Time? Do It Right First Time (DIRFT) concept was advocated by
Philip Crosby. This is a time-tested concept and employees and organizations should adopt DIRFT. The question is
why people do things wrong and do it and over again? It could be due to some of the reasons as given below:
Why Things are Done Wrong?
1. The employee does not know what to do clearly, leave alone how to do!

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2. If he knows how to do, he is not motivated enough to do it right the first time
3. He may not have the right tools to do a good job
4. He does not have the necessary education or training to know how to DIRFT
5. Probably his seniors have trained him to do the wrong way
6. He is not proud of the job he is doing
7. He does not get appreciated when he does it right
Not doing it right first time is going to cause hassles to every stakeholder. Therefore, it is important
to know how to make DIRFT happen.
Problems of not Doing it Right
1. In some cases, not doing it right the first time may result in not doing it right ever, thereafter
2. Leads to unnecessary expenditure
3. Increases the failure costs
4. Demotivates employees
5. Causes hassles to employees and customers
6. Brings down the reputation of the organization
7. Leads to schedule slippages.
8. Increases scraps leading to more cost on account of storage, accounting, disposal, etc.
9. Forces the organizations to buy additional components to take care of defects in the process.
10. The productivity gets affected due to holding up of the process to correct the defective product
shunting from place to place for fault diagnosis, altercation between employees as to who or which
machine caused the defect, wastage of supervisor's time and the top management's time in
resolving disputes.
Therefore, one should do things right the first time, rather than doing it wrong and trying to
correct it
later which causes wasteful expenditure.

Basic Requirements for DIRFT

Philip Crosby has suggested three simple requirements for DIRFT to happen which are given below:
The top management should carry out the following for DIRFT to become a reality in the
organization. The top management should
1. Define the requirement for each employees
2. Provide the wherewithal to achieve the requirement and
3. Keep on motivating and encouraging the employees.

Right the First Time and Every Time

The "It” refers to every activity in the organization. It is not only the making of the final product or
service, but also many things done by the employees in their organization on a daily basis. They should do
only the right things right first time and every time. Therefore, the management cannot just define the
requirements once and forget about it in the fond hope that things will always be done perfectly. They have
to consistently look for improvements, find out the aspects overlooked earlier and correct them. They
should always be preventing errors, defects, hassles, demotivation of employees and the like. Such a
determination is not only applicable to the management, but also to the employees in the organization.
They should always strive to rise to the occasion.

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Set Right Goals

It is essential for every organization to set the right objectives towards which the organization
should be moving. As part of the TQM journey, an organization has to arrive at a vision, mission, and the
goals. The statement containing the goals should be concise but from that, the goals for each employees or
each team should be deducible, Formulating goals is an important activity and it is a difficult task. The goals
of each employee/team/section in the organization should be set to match with the goals of the
organization. Every employee should be clearly informed of the goals of the organization, their team goals
and the goals of their internal customers and suppliers. The goals should be appropriate so that the whole
company prospers. If the goals are logically incorrect, it will send wrong signals to the employees. The
general human tendency is to question the wisdom of the management. Therefore, if the goals are not very
clear, then the response of employees to achieve the goals will not be encouraging. Hence, it is important
that right goals are set and communicated to the employees in the most appropriate manner.

Select Right Personnel

The whole process of recruitment starting from advertisement, conducting interviews, etc. should
aim at selecting the right personnel for the right job. If a person is not suitable for the Job-in-hand, then
definitely it is going to be counter-productive. One bad employee will spoil the rest. Therefore, it is important
that the right personnel is selected first time and every time. The situation with regard to the employees is
similar to cultivating a good crop. No doubt, each crop needs watering and care, but, if the seed itself is
defective, no one can expect to get a right tree whatever may be the further investments. Therefore
selecting the right employees is essential.

Establish Right Processes

Organizations should establish a right process, which is very essential. If the right process is not
selected, how can we expect the right products? Therefore, the company has to necessarily invest time,
energy, money and right team of employees for identifying, establishing and commissioning the right
process. Within the organizations, the supervisors should train the new employees in the process. It is
essential that the management establish the proper guidelines and train the employees to perform
accordingly. Simple and appropriate methods should be developed in an organization for getting the
desired results. Therefore, the right methods should be identified and deployed for each one of the work
operations. Documentation has many advantages such as building memory into the organization, helping
the organization to update the methods based on experience and serving as a basis for further
improvements, and quality auditing. Therefore, the right methodology should be identified and documented.

Choose Durable Raw Materials

Materials can be converted into products only through the right process. Therefore, without the
proper raw materials, expecting quality would be farce. Therefore, right materials should be selected from
the right vendors. It should be ensured that the vendors supply good quality raw materials which doesn't
call for an inspection.

Choose Right Machinery

The process consists of people, machinery, material and methods, out of which machinery
generally is very expensive. Therefore, machinery should be selected properly so that the production can
start from day one. There are many important considerations for selecting the right machinery including

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formulating specifications, calling for competitive bids, arriving at a criteria for objective assessment of bids,
getting a demo organized and thereafter placement of orders. A right method should be adopted and
implemented so that there are no glitches later on. Along with the machinery, the required accessories and
spare parts are also to be procured so that the equipment can be used effectively.

4. Continuous Preventive Action

Read the news item given below to understand the importance of Preventive Action.
Chrysler to recall three million cars
Detroit
14th January
DAIMLER CHRYSLER'S Chrysler division said on Tuesday it was recalling nearly three million cars to fix
a gear shift problem that could allow the vehicles to roll out of parking positions inadvertently.
Vehicles affected by the recall include the 1955-1999 Chrysler Cirrus, and 1993-1999 Chrysler 300 m, the
automaker said. Federal safety regulations had upgraded an investigation into the gearshift problem last July -
Reuters.
The Economic Times, Thursday 15 January 2004, Chennai.

Corrective Action is a Post-mortem

What is corrective action? When a product or service is delivered, if the customer finds defects or
faces problems. Then the deficiencies are registered and corrected by the organization. It would only be a
post-mortem of the process. It does not satisfy the customer, in fact the customer is frustrated. However, a
corrective action is better than no action at all when a defect is found, Corrective actions were identified
and acted upon in a systematic manner only after ISO 9001 standards were set. When there is absolutely
no concern for quality in an organization, corrective actions should be the first logical step to improve
quality. Rightly, the revised ISO 9001 standard released in the year 1994 (and subsequently in the year
2000), has revised the clause as “corrective and preventive action”. Therefore, one has to foresee the
problems and prevent its occurrence. If they have not been successful in prevention then they should take
corrective action in the machinery, material, methods and the men (employees), so that the problem never
recurs.

Prevention is Better than Cure

There are two ways of handling a problem, one is to cure it and the other to prevent it. All of us give
full justification as why a problem could not be prevented early enough. Not preventing a problem is a
reactive approach. However a manager cannot be reactive, if he wants to practice TQM. He has, to be
proactive, i.e. should carry out all his tasks as per standards and foresee if any problem is going to arise
and prevent it. Being proactive may be considered to be an in-born quality, But it can be developed by
anybody who is willing to put in that extra effort.

One Shot Prevention is not Good Enough

Like other TQM principles and practices, preventive actions have to be continuous and should cut
across all sections in the organization. No organization can afford to stop after taking one or two preventive
actions. If they do so, the quality of the product would decline and no amount of corrective action will help.
The organization will earn a bad reputation. Therefore, preventive actions should be taken at periodic
intervals.
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5. Care for Little Things and Accumulate Gains

TQM is a continuous process improvement program and aims at one step at a time. Therefore, the
management should aim at scaling greater heights through small and continuous improvement in every process.
For instance, when materials are received, if a label indicating the details such as date of receipt, quantity,
inspection details are written and attached either to the item or to its container, will help in saving a lot of time later.

Caring for Small Things

While efforts will be made to maintain sophisticated and expensive machinery and equipment, the
same care may not be taken of small things such as accessories, jigs and tools. Every tool used, should be
maintained properly, calibrated at periodic intervals and handled properly. If that is not done, the weakest
link is going to break the chain. Therefore, every employee should take care to maintain every tool
whatever may be its cost or importance.

Communicate with Junior Employees

No doubt, overall economic performance, strategies, quality council meetings, visit of customers
are all-important, but at the same time, the junior most employees are also equally important in an
organization. Hence, the senior management should establish a channel of communication with the junior
employees in the organization. For instance, there will be field sales employees, who know the customer
reactions directly and immediately. It is, therefore essential to hold meetings with the sales persons at
periodic intervals and get their views on how the customers react to the company's services. This
information will be much more useful than surveys conducted by the organizations either in formal or
informal manner. The field employees will be able to give a true feedback if they are motivated and
encouraged to do so. Adopting techniques of Tom Peter's MBWA will help the management to know the
real customer reaction with regard to quality and other matters. Hence, the management should allocate
time to communicate with the junior employees.

Keep on Accumulating
Small gains accrued due to conscious initiatives by the management should be accumulated.
These small rewards will be more permanent than the bigger gains attained all of a sudden. Once a major
initiative is taken, many small improvements will take place side by side. They should not be ignored and
such side effects should be given the official seal of approval and made part of the regular system. The
management should consider little things and improve everything in the organization. The CEO should take
care to improve even simple process aids. Since the TQM journey is continuous such small gains accrued
will give substantial benefit to the organization. Many times, simple problems may be the cause for major
failure of processes. The CEO should also communicate with junior employees as part of his MBWA.
Accumulation of small gains needs unending enthusiasm of every employee in the organization.

6. Ensure Economic Performance

Importance of Economic Performance
While marching on the TQM path, the CEO should not lose track of economic performance of the
organization. All TQM activities should lead to better economic performance in the long run. If an
organization is implementing TQM correctly, then the bottom line will improve automatically. In spite of
other goals like satisfying one's aspirations, serving society, providing employment, etc., the primary

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purpose of a business is to earn profits. Similarly, the primary goal of an employee is to earn higher
salaries. The goal of an organization should be higher Return on Investment (ROI), as economic
performance is one of the key measures of success of every organization on their journey towards TQM. A
service organization engaged in testing and calibration adopted TQM. It was able to consistently maintain
about 40 per cent growth rate every year. This was achieved with the same manpower. Thus, the
organization could grow only due to application of TQM.

Quality should Increase Productivity Also

The objective of continuous quality improvements is to satisfy the customers. Improving quality for
customer satisfaction should definitely lead to increase in overall productivity. This not only satisfies
external customers, but also the internal customers. Satisfied internal customers all over the organization
will deliver more, thus improving productivity. Improved quality leads to improved productivity due to
reduction in scrap, rework and associated hassles. When the executives aim at improved quality, it should
also result in improved productivity. The establishment of quality system leading to ISO 9000 certification,
following TQM principles, establishing strategies for TQM implementation, all should lead to reduced
defects, reduced rework, reduced hassles, improved clarity in operations, thereby improving and increasing
productivity and profitability. This point should be clearly understood, not only by the CEO, but also by
every employee in an organization.

Talk about Success in Economic Performance

There is no harm in managers taking about their achievements and feeling proud of it. Therefore,
the CEO should talk about economic performance. It will help him to motivate the employees and
customers alike. There is no end for improvement in economic performance. By its very nature, the
business will block the improvement of economic performance continuously. Year after year, the
organization will face different problems not only from the customers, but also, from the employees,
shareholders, society and the suppliers. If the management is not careful, the expenditure will increase
without any corresponding increase in the organization's economic output. Therefore, TQM should be
implemented, with a view to reduce the blocks and overcome the barriers to success. TQM should help the
organizations to climb up the ladder of economic performance. It is therefore important that a sound
foundation for quality is laid through proper education, training and determination of the employees. The
aim should be to improve quality and productivity, thereby keeping the flag of the organization flying high.

Stakeholders will Understand Economics Better

The motivation of employees depends upon many factors like their personal development,
happiness, sense of fulfillment, security, achievement, etc. Motivation goes up, when they find that the
organization is performing well. The employees will be proud to work with an organization, which continues
to make profits and sustains improvement over growth rates and growth of profits and whose share price is
on the rise. Even certifying bodies will be enthusiastic to certify winning organizations.
Economic performance is a clear indicator of the health of the organization. Thus, it motivates the
customers to do business with the organization, which is doing well. The suppliers too would like to supply
only to those firms, which are economically sound, irrespective of the quality of the product or service. The
shareholders or the proprietors would like to see the profits. They are also interested in the long-term
benefits to the organization. Similarly, every country should look forward to better performance of its

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organizations, so that it is able to achieve social goals. Thus, all the stakeholders will equally gain on the
best economic performance of the organizations. Therefore, every organization should make efforts to see
that the organization is performing well, with regard to quality, employee motivation, satisfaction of the
customers as well as in the economic front.

7. Management By Walking Around (MBWA)

The Concept of Management By Wandering Around' was postulated by Tom Peters. In the author's opinion
Management By Walking Around (also abbreviated as MBWA) is one of the most effective tools of management
and leadership for the growth of the organization. But, the supervisors have to be convinced that MBWA will not
affect their authority. They will be convinced only when their authority has not eroded in reality. Their apprehension
has to be removed to make MBWA successful.
MBWA can be defined as the unannounced visit of the CEO to the various work spots for getting direct and
first hand information, from the employees, the customers and the suppliers. MBWA is not a “State" visit. To quote
Tom Peters, "State visit is an announced visit by the CEO accompanied by all the deputies in line and is a formal
visit”. O In State visits, the employees or customers or suppliers may not reveal the absolute truth and will try to
play safe. Therefore, this unannounced visit to the factory floor has to be carried out at random. The CEO goes to
various work spots and talks to the employees about what they are doing, how they are doing, what are their
problems, what help they require and so on. The CEO has to make the employees comfortable to make them speak
freely and frankly. In fact, Tom Peters advocates that the CEOs should spend more than 25 per cent of their time in
MBWA.

What is to be Done during MBWA?

The three major activities done together simultaneously during MBWA are listening, teaching and
facilitating. While on MBWA, the CEO should listen to the problems, then guide the employees in
overcoming the problem. During an MBWA, suppose it may be found that the employees do not have a
simple tool or funds for the procurement of some accessory, etc. During MBWA, the top management
should instantly agree to fulfill such requirements. As soon as he gets back, he must arrange for providing
them after convincing their supervisors. This will also keep the middle managers happy. MBWA means
“necessarily also questioning why the activity is being done in a particular manner". It is not to just for
questioning but also to make them think about the alternate design and development, engineering or
manufacturing methodology. Such questions are very helpful both for the employees and the organization.
Successful people who have practiced MBWA are knowledgeable and are able to frame the right questions
during the process. At the same time, the CEO should not give an impression that he is taking over the
project from the employees or their supervisors. He must give all possible suggestions and guide the
employees towards the right course of action. This way, the project will not get transferred from the
employee to the CEO. He should be a stimulator, motivator and a logical thinker and should help the
employees to overcome their bottlenecks instantly. The CEO should show concern about personal welfare
of the employees, however most part of MBWA should be dedicated to the official work. The CEO should
use the session for coaching the employees to shed their inhibitions, to overcome their inertia and break
barriers of the bureaucracy in getting things done. The CEO should realize that his innocent questions can
be presumed to be a command from the CEO. Hence, he should be very careful during an MBWA. The
CEO should convey that he trusts the ability of the employees and their supervisors and that his
expectations from them are the highest. This will automatically motivate the employees and their
supervisors to do better.

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Barriers to Practicing MBWA

The problem occurs mainly because MBWA appears to violate the chain of command. The first line
supervisors feel agitated about the idea that information directly reaches the CEO. They feel that they are
loosing their authority. The first line managers should accept this concept and cooperate with the CEO, in
his MBWA in the larger interest of the organization. The CEO, while he can obtain information and promise
action within the stipulated time, should ensure that the action is taken through the chain of command. This
way, the problem could be solved fast, without making the first line supervisors feel too unhappy. However,
in an appropriate manner the CEO should also make attempts to convince the first line supervisors that he
is not going to destroy the chain of command.

Advantages of MBWA
MBWA helps the organizations to consolidate the talents, wisdom of all the employees, customers
and suppliers. The process helps the CEOs to remain in touch with the people, customers and suppliers. It
also gives the message to the customers, employees and suppliers that they are important to the
organization. It helps in attracting more business, improving the quality of suppliers, workmanship in the
organization and customer relationship.

8. Measure for Success

Measuring for success primarily involves, looking for, measuring and analyzing the feedback from
customers, either internal or external. An organization marching towards Total Quality Management (TQM) has to
make efforts to measure how well the organization is performing in terms of fulfilling the customers needs and
expectations. The management should help employees to know how well they are doing. Employees should be
helped to measure and report performance. Each employee should be helped to measure his own performance.
Thus, measurement should be part of routine work.

Measure 3 Ps
In a TQM environment, the measurements have to encompass the total system, starting from the
submission of bids till collecting the charges after delivery. The entire quality system should be measured.
Successful implementation of any process means higher profits, improved productivity, efficiency and
above all improved morale of the employees and satisfaction of all other stakeholders. Therefore, the
measuring of success has to encompass all the phases and all characteristics of the business. The
measures should be formulated for measuring the performance of each one of the parameters, which has
an impact on the stakeholders. The measurement should cut across 3 Ps, i.e. Process, Personnel and
Product as shown in Figure 2 given below:

Product Process

Personnel
Figure 2 Measure for Success
The measure should be such that it brings out the quality of the 3 Ps

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PDSA for Measurement

PDSA Cycle popularized by Deming, is an important tool for any activity. It is more so for
measuring success, since it is a tricky affair and if not carried out systematically wrong conclusions and
costly mistakes.

Plan for Measuring Success

In the planning stage, the organization should identify the various measures for success. It is very
difficult to identify the measures in a service organization. If it is a manufacturing organization, it may be
concluded, for instance, that quality of the final product is the most important measure. But in a service
organization, it is difficult to measure the quality of the end product objectively. For instance, how to
measure the quality of any food item in a hotel clearly and unambiguously? Even if efforts were made to
measure the quality of the food item, it would turn out to be subjective. Therefore, formulation of measures
for service industry is quite a difficult task, at the same time, an interesting job. It calls for innovation by
organization's employees for identifying the right measures.
The service organization has to first identify what measures could be adopted to determine the
quality of service delivered. All such measures need not be totally objective, some of them could also be
subjective in a service organization. Experienced personnel in the field would be able to suggest
appropriate measures. The employees themselves could identify measures so that it would find easy
acceptance by the employees later at the time of measurements as well as analyzing and concluding.
Employees may also be awarded for suggesting good measures. The organization may also solicit ideas
for measures from its customers, suppliers and even consultants. This is due to the difficulty in finding
appropriate measures in a service industry. Such measures identified should be placed before the quality
council for a thorough discussion. The quality council could also nominate, if necessary, a set of employees
to carry out brainstorming of the ideas and prioritize the same. Thereafter the quality council can finalize the
measures for success in the organization. Some of the common measures for service industries are:
1. Planned delivery time and actual delivery time.
2. Repeat customers
3. Perception of the customers about quality
4. Perception amongst customers about competitors
5. Productivity
6. Revenue generated per employee
7. Revenue vs. expenditure ratio
8. Return on investment
9. Customer complaints
10. Rejects in process
11. Rejects at customers site
12. Rework
13. Reminders given by customers
14. Errors in invoices
15. Under payment/over payment
16. Result of field survey, etc.

Too many measures will complicate the measurement process and may lead to unnecessary
expenditure. Therefore, the management should identify a few vital measures which when measured will

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indicate the successful conduct of business in the entire organization. A Pareto analysis may also be
helpful in identifying a few vital measures. Once such measures have been identified, each measure has to
be described in clear terms and approved by the quality council. The quality council should therefore
finalize the measures to be made and how to carry out the measurement at the planning stage itself.

The Do Phase of Measuring

The next step is the do phase. At this stage, the identified measurements should be carried out on
trial basis with direction from the quality council. The senior executives should educate the junior
employees about the intent of the measures. Generally, no employee would accept assessment of his work
by a third party. Such inhibitions and insecurity should be eradicated from the minds of the employees in
the interest of the organization and employees themselves. This is also essential for the success of the
measurement program as well as the TQM program. If the employees are not convinced about the need to
measure, then there is no way that the measurements could be carried out in the organization for
determining success. Hence, educating employees is important. Senior management should make efforts
to see that the employees accept the steps to measure. The involvement of employees in the identification
and describing the measures is thus helpful to overcome resistance from employees.

Study Phase of Measurement

The organization should experiment with the proposed measures for about two to three months. At
the end of three months, the quality council should meet again to take stock of the situation, they should
discuss and see whether they need to carry out any changes in the measures, e.g. add new measures,
drop originally identified measures or modify them. In this phase, the quality council could check the
effectiveness of the measure, the methods of measurement and the relationships of the measures with
actual customer satisfaction achieved. The result of measurement may be indicating that the organization is
doing extremely well, but the organization may be going through financial cash flow crunch to the extent
that they are unable to pay salaries. If this is the situation, then there is something wrong either with the
method of measurement or the measures themselves. The management will know approximately 80 per
cent of the status with regard to the business and hence by intuition can decide whether the results of
measurement match the real situation. Therefore, the correctness of measure identified and the
measurement process should be analyzed independently and objectively, in the study phase. Quite often,
people in the field of measurement may look for perfection. Some non-starters or disinterested parties may
seek perfection. They use perfection as a lame excuse for not carrying out the task. Perfection is definitely
right. But, the drive for perfection cannot stall innovative idea. Therefore, there is nothing wrong in making a
start in the measurement process and do corrections as experience is gained. The organization should
start the measurement process in the do phase and once the results of measurements are available, they
should be analyzed by the quality council in the study phase to find out if some more measures are
required or some are to be dropped or modified and so on. This way an organization would be able to come
out with clear, objective oriented and perfect measures.

The Act Phase of Measurement

In this phase the measures and methods of measurements are confirmed. The organization starts
making measurements. Measure for success is a continuing activity. However, results of the
measurements of various parameters could be studied at regular intervals, analyzed and communicated to
the employees. It is essential that the results of measurements be communicated to the employees at

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regular intervals, as it will motivate the employees to do better than before. If the results are extremely
good, the employees will be motivated to do better, if such results are coupled with awards for the worthy
teams. Even when there is no change in the performance between two consecutive measurements, the
status quo will make the employees feel shy and motivate them to do better next time. Depending on the
results, the management should also initiate improvement actions to keep up the tempo in the organization
and further improve. They should strive continuously to be better than before. Therefore, displaying results
will not demoralize the employees when the going is not good and will not make the employees complacent
when the going is good, if the management is active.

9. Never Rest on Past Laurels, Continue to Improve

The Tale of Tortoise and Rabbit
The tale of tortoise and rabbit teaches us the lesson that one should never rest on past laurels, but
continue to improve. Slow and steady wins the race and over-confidence can lead to failure. It is important
to learn from the story that since rabbit was resting on its laurels and past glory, it relaxed and lost the race.
No organization can afford to lose by resting on its past laurels.

The Need to Improve Continuously

An organization should aim at doubling the turnover every two ears, without additional manpower
or machinery. Many organizations have achieved such growth rates. Such a growth rate is achievable
primarily due to two factors
1. Cutting down the costs by doing right things, right the first time
2. A higher output of the motivated employees through extensive training.
Both factors are further expandable. The quality level can reach zero defect level. Even at that
stage, the productivity of the employees can further grow due to improvement in the following:
 Improved system in the organization due to management based on TQM
 Gaining more confidence due to achieving success
 Accumulation of the right experience and hence cutting down lead time for jobs
 Enhanced productivity due to improvement in teamwork
 Empowered employees expanding output due to enthusiasm and motivation
Thus, an individual or organization should never be resting on past success or laurel. They should
strive towards continuous success.
Success Stories
There are many success stories to illustrate that one should not rest on past laurels, but, continue to
improve, whether it is quality improvement, or productivity improvement, or profit improvement, or
diversification leading to new products. For instance, Bill Gates of Microsoft, one of the richest persons in
the world is a living example of the philosophy. He started with operating system MS-DOS and kept on
updating it. He was continuously trying to innovate, found strategic partners. His success is mainly due to
the fact that he was not trying to make a product for the existing market; rather he tried to create markets
as per his vision. He ventured in operating systems, which give Graphical User Interface. This way, he
made Windows, a popular software. His success in Windows based operating system is another milestone,
not only in the history of Microsoft, but also, also in the IT industry. He thought ahead and started making
efforts for an information highway, years ago, before others could think of it. He could have comfortably
stopped his innovation with MS-DOS, but he continued his innovation, leading to the success of not only his
organization, but also the entire mankind.

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There are similar success stories created by two men even when they were young, i.e. Hewlett and
Packard, the founders of the giant multinational organization Hewlett Packard. Apple Computer is another
success story. In India, there are so many success stories. For instance, when people thought, that training
in computer will not catch up, few organizations created history, notable among them is NIIT. In the
computer hardware sector, the success of HCL and WIPRO are similar in nature. In the software sector,
the success of Infosys, TCS, WIPRO and the like are well known. All these organizations and their CEOs
were always worrying what should they do next. They never relaxed even for a little while. Improvement is
thus never ending.

10. Build a Virtual Organization

Gone are the days when vertical integration was a preferred strategy. But the situation has changed now. A
smarter way of doing business is to create a near virtual corporation. Here, the core part is manufactured and the
rest bought from qualified vendors. This has been found to be highly effective and profitable.

Vertical Integration
There are two extremes of manufacturing. In the first extreme, everything, from the raw materials to
the final product is manufactured under one roof. The other extreme is buying everything from others and
putting them together and selling the assembled product. The right way is to be selective in manufacturing
and buying the non-critical items from the market. Vertical integration means that whatever sub-units,
components/materials, fixtures, etc. needed for manufacturing a product are all manufactured by the same
organization. Materials available in the market are not used. Efforts are made to manufacture all that is
needed in-house. They don't look at aspects such as the cost effectiveness, specialization, etc. In this
method, they have to spend more for manufacturing non-critical items available, with better quality and at a
lower cost from other sources. The pride of ownership of everything overtakes other considerations. This
led organizations to waste their efforts in manufacturing standard parts, which could have been easily
bought from others who were specializing and selling at much lower costs and with the right quality. This
type of vertical integration practiced in the 1970s failed to deliver and gave way to virtual enterprise or
virtual organization.

Requirement for Virtual Enterprise

The following steps are involved in running a virtual enterprise:
(a) Identify the most critical part/s
(b) Identify the other parts
(c) Develop/identify vendors for the other parts
(d) Continuously increase sub-contracting.
These requirements are discussed briefly in the following paragraphs:

(a) Identify the most critical part/s

The first task is to identify the most critical parts of a system to be manufactured. The critical parts
should be vital few from the many trivial parts, which are the core or the nucleus for the product or service.
It is easy to identify the critical parts in each system. For instance, the motherboard in case of a PC system
is the critical part. In case of motorcars, it is the engine, which is the key part. Thus, the critical part is the
one in which others are not specializing. The strength of the organization should lie in developing and
manufacturing the critical part, in the most competitive manner. In a business environment, cost and quality

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are the major considerations for selling. Therefore, the organization should have the best engineers, who
specialize in designing and manufacturing critical parts. Since only bulk production will bring in more profits,
everybody should try to concentrate and manufacture in large numbers. Therefore, the organization has to
identify their core product. The core product is in turn the critical product or crucial product. The core
product will fetch more revenue compared to the secondary products or materials of sub-assemblies since
there are so many others who are specializing in making them. The organization should identify its primary
product or service and put in all efforts in manufacturing them more efficiently.

(b) Identify the other parts

The next task is to identify all other items or materials, which will enable delivering a product or
service. The organization should then formulate specifications for all the secondary items. It should do a
market survey and identify all those suppliers who can deliver them with quality and at competitive prices
and schedules.

(c) Develop/identify vendors for the other parts

It is very important to concentrate on developing good vendors, rather than trying to carry out
vertical integration. Developing vendors and buying from vendors is definitely cheaper than making them all
under one roof, due to their specialization and bulk manufacture and thereby reduced costs. Therefore, the
task of the organization is to identify good vendors and enter into agreements or contracts, so that they will
be able to get the materials of the right specifications, just in time and with zero defects.

(d) Continuously increase sub-contracting

Times have changed and it is the day of virtual corporations. Therefore, the organization should try
to sub-contract more and more items, retaining the core of the system for its own manufacturing. The aim is
to sub-contract as much as possible. This will reduce the time, energy, money and infrastructure to do
better in business, day by day. Therefore, the aim of virtual corporations is to shed the unnecessary
manufacturing activity for earning more profits. The same strategy may not work in all the organizations in
the same manner. Therefore, strategies are to be selected or tailored to suit the unique nature of the
organization.

Enhancement Activities:

Activity 5. Essay
1. What is forecasting? ( 10 points)
2. Discuss the strategic importance of forecasting.(20 points)
3. List the elements of a good forecast. Explain each briefly. (30 points)
4. Outline the steps in the forecasting process. (20 points)
5. Describe the different forecasting approaches and techniques. (30 points)

Activity 6. Video Presentation (50 points)

Record yourself while you narrate your personal experience in terms of forecasting. What specific
forecasting practices do you do? Was/ were your forecast/s helpful? Explain in details.

Activity 7.Essay
1. Define quality. (10 points)
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2. Describe the dimensions of quality. (20 points)

3. Discuss the evolution quality of by citing contributions of several quality gurus. (50 points)

Activity 8. Definition and Enumeration.

4. Define the following terms used in TQM: ( 3 points each)
5. Discuss Deming’s 14 Points for Management. (50 points)
6. Enumerate and discuss the ten strategies for top management. (50 points)

References:
Crosby, P. (1986), Quality Without Tears, McGraw-Hill Book Company, Singapore.

Heizer, J. (2008), Operations Management, Pearson Education, Inc., New York, NY

Ramasamy, S. (2009) Total Quality Management, McGraw-Hill International Publishing Company Limited

Stevenson, W., et. Al. (2014), Operations Management, McGraw-Hill Education, Singapore

Taylor, B. et. al. (2003), Operations Management, Pearson Education, Inc., 2003

Midterm Exam in Operations Management (TQM)

Name:________________________________ Permit Number:_______________

I. Choose the most appropriate answer. Write your answers in a short bond paper.
1. TQM is
(a) Cost effective quality management (c) Continuous quality improvement
(b) Preventive quality management (d) All the above
2. Elements of TQM include MI
(a) Quantitative methods (c) Leadership
(b) Focus on process (d) All the above
3. Deming's 14 points include
(a) Giving quantitative targets to workers (c) Institute training
(b) Depend on inspection (d) None of the above
4. For TQM to happen, top management must
(a) Be proactive (c) Maintain processes
(b) Communicate rarely (d) All the above
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5. Quality values include

(a) Productivity first (c) Top management believes in continuous improvement
(b) Quality Assurance manager leads (d) None of the above
6. Change is
(a) Liked by everybody (c) Comfortable
(b) Essential (d) A and B
7. Some of the measures of TQM could be
(a) Customer perception about quality (c) Quantum of rework
(b) Productivity (d) All the above
8. TQM gives benefit to
(a) Customers (c) Society
(b) Employees (d) All the above
9. Building virtual organization leads to
(a) More employees (c) Improved quality management
(b) More trouble (d) None of the above
10. In a TQM environment, changes will be
(a) Frequent (c) Few
(b) once in a year (d) all of the above
11. Right decision calls for
(a) Fast action (c) Involving concerned employees
(b) breaking teams (d) all of the above
12. Doing Right Things include
(a) Reducing wages (c) Choosing right methods
(b) choosing right methods (d) none of the above
13. Why things go wrong? Because
(a) Requirements are not defined correctly (c) Lot of motivation to do the job
(b) Once in a year (d) All the above
14. Foreseeing what will happen and taking advanced action is
(a) forecasting (c) Proactive management
(b) Reactive management (d) management
15. A leader is
(a) proactive and coaches (c)improves process and seeks suggestions
(b) understands process and moves around (d) all of the above
16. Quality is
(a) excellence (c) conformity to requirements
(b) meeting our own requirements (d) all of the above
17. Quality includes
(a) functionality (c) customer service
(b) delivery quality (d) all of the above
18. Quality control includes
(a) QA (c) QP
(b) QM (d) all of the above
19.QM includes
(a) QA (c) QP

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(b) QM (d) all of the above

20. Quality planning roadmap was evolved by
(a) Deming (c) Ishikawa
(b) Juran (d) none of the above

II. True or False

___________1. Before taking a right decision results should be foreseen.
___________2. Employees should not be involved in decision making.
___________3. Persistence is important for implementing decision.
___________4. Required accessories for each machinery can be purchased later.
___________5. Employee gets demotivated if things are done wrong.
___________6. Wherewithal should be provided by management.
___________7. Decision making is a process.
___________8. Doing right first time does not call for any special efforts.
___________9. Virtual organization has no relationship to TQM.
__________10. TQM is never ending.
__________11. PDSA cannot be applied for implementing measures.
__________12. MBWA disrupts peace in the organization.
__________13. Stakeholders will understand economics better.
__________14. CEO should care for obscure things.
__________15. TQM calls for reactive management.
__________16. Deming calls for break-down of barriers between staff areas.
__________17. Constancy of purpose of CEO is quite important for TQM to happen.
__________18. Responsibility for quality problems lies with top management.
__________19. Preventive action is not a one time activity,
__________20. Training is a waste.
__________21. New philosophy is Quality Control.
__________22. Depend on mass inspection.
__________23. Vendors should be selected on the basis of price alone.
__________24. Create fear in the organization for TQM.
__________25. Increase barriers between staff areas.
__________26. Slogans lead to TQM.
__________27. Give numeric targets for productivity.
__________28. Employees should not have pride of workmanship.
__________29. Encourage education and self improvement of employees.
__________30. Everyone likes change.

III. Choose six from the list and explain each briefly. ( Five points each)
1. 9 elements of TQM.
2. Deming's 14 points for management.
3. Quality values for TQM.
4. Proactive management.
5. Continuous preventive action.
6. MBWA.

BM 2/ CBME 1: Operations Management (TQM) 42

This module is a property and is exclusively used by the DWCB College Department. Any duplication and reproduction, storing in any retrieval system, distribution, posting or uploading online
as well as transmitting in any form or means (photocopying& electronic sharing) of any part, without prior written permission from the owner is strictly prohibited.
 Divine Word College of Bangued
Bangued, Abra
Business Administration Department

7. Measure for success.

8. Common thread in the 10 strategies for TQM implementation for top management.
9. Change and TQM.
10. DIRFT.
11. Right decision making.
12. Do right things.
13. Why top management leadership is essential for TQM?.
14. Advantages of virtual organization.
15. Dimensions of quality

BM 2/ CBME 1: Operations Management (TQM) 43

This module is a property and is exclusively used by the DWCB College Department. Any duplication and reproduction, storing in any retrieval system, distribution, posting or uploading online
as well as transmitting in any form or means (photocopying& electronic sharing) of any part, without prior written permission from the owner is strictly prohibited.