Operations Management and TQM

Reviewer – Midterms

Chapter 4 – Strategic Capacity

 Strategic capacity planning aims to achieve an optimal balance where production capabilities
align seamlessly with demand. Capacity requirements encompass diverse elements, including
equipment, physical space, and skilled workforce.
 Effective capacity planning ensures operational efficiency and contributes to organizational
competitiveness, customer satisfaction, and long-term sustainability. By proactively aligning
capacity with demand, organizations can mitigate risks, optimize resource utilization, and
position themselves for growth and success in dynamic market environments.

Organizational Impact of Capacity Decisions

 Managers must be cognizant of the broader organizational effects of such decisions and their
potential to influence various aspects of the business. Capacity strategies are not merely
operational choices but strategic levers that can shape an organization’s competitive position
and long-term trajectory.

Importance of Strategic Decision

1. Impact ability to meet future demands

2. Affects operating costs
3. Major determinants of initial costs
4. Involves long term commitment
5. Affects competitiveness
6. Affects ease of management
7. Globalization adds complexity
8. Impacts long range planning

Capacity

 Capacity is the upper limit or ceiling on the load that an operating unit can handle.

3 Aspects of Capacity

1. Design Capacity - This represents the maximum theoretical output rate or capacity as
envisioned by the system’s design specifications. It is a benchmark for the absolute upper limit
of production capabilities under ideal conditions.
2. Effective Capacity - On the other hand, is a more pragmatic measure that accounts for real-
world constraints and allowances. It is derived by subtracting factors such as planned downtime,
maintenance, and other operational inefficiencies from the design capacity. Effective capacity
provides a more realistic estimate of the achievable output rate, given the practical limitations of
the production environment.
3. Actual Capacity - Rate of output actually achieved – cannot exceed effective capacity.
Among the commonly employed capacity strategies are:

 Following Capacity Strategy - In contrast, this reactive strategy only expands capacity after
increased demand. Organizations adopting this approach prioritize minimizing excess capacity
and associated costs, opting to scale up operations once demand patterns justify capacity
expansions.
 Tracking Capacity Strategy - This incremental approach involves gradually adding capacity over
time to align with evolving demand patterns. Organizations employing this strategy seek to
maintain a dynamic equilibrium between capacity and demand, adjusting capacity in measured
increments as market conditions evolve.

The Capacity Planning Process: A Systematic Approach

 Effective capacity planning is a systematic process involving several key steps to ensure
alignment between an organization’s production capabilities and strategic objectives.

The Capacity Planning Process can be outlined as follows:

The Sequential Processes and The Bottleneck

 Sequential processes are characterized by a series of steps performed in a specific order, where
the output of one step becomes the input for the subsequent step.
 In sequential processes, achieving a balanced cycle time across all steps is crucial. In other
words, there should be minimal variation in the time required for different steps to process one
unit of product.
 For instance, if step 1, step 2, and step 3 take 3, 10, and 5 minutes, respectively, to process one
unit of product, two major issues can arise during production:
1. Inventory Accumulation - Since step 1 is significantly faster than step 2, products that
have already been processed in step 1 will accumulate before step 2, waiting for their
 turn to be processed. This leads to a buildup of work-in-process inventory, which can be
costly due to inventory holding costs and potential quality issues.
2. Resource Idleness - Step 3 will consistently need to wait for step 2 for an additional 5
minutes. This is because step 3 completes its work on the current unit in 5 minutes, but
step 2 requires 10 minutes to finish its task and feed the output to step 3. As a result,
step 3 experiences prolonged periods of idleness, which is costly for the company.
Despite paying the staff assigned to step 3 for the entire duration, their productive
output is reduced due to the slow input rate from step 2.

 The root cause of these issues is the presence of a bottleneck, which is the step with the longest
cycle time (in this case, step 2). The bottleneck effectively constrains the overall throughput of
the entire process, leading to inefficiencies such as inventory buildup and resource idleness.
Chapter 6 – Managing Quality

I. Introduction to Quality

 The Pursuit of Quality

- Businesses worldwide strive relentlessly to provide quality products and services to
consumers. A good quality product is considered a given by the consumer. The success of a
business depends on reading and understanding consumers’ perceptions regarding the
quality of the product or service provided by the company. The aim of the company is to
bridge any gap between the consumer’s expectations regarding the quality of a product and
its performance.
 Quality in Operations Management
- In the contemporary business landscape, quality can be broadly defined as the degree to
which a product or service meets or surpasses the customer’s expectations. This concept
holds significant importance in the field of operations management.
 Determinants of Product Quality
- For any product, the quality is determined by two primary factors: Design Quality and
Process Quality.
1. Design Quality - It can be described as the quality that a product has in terms of
the actual characteristics of the product. Think about the design of your favorite cell
phone. The decisions made by Marketing as well as the Design team will determine
the way your phone will operate, the quality of the sound, and the features it has,
not to mention the way it looks, feels and lasts.
Below are some facets of product quality (Garvin, 1987)

2. Process Quality - Process quality, on the other hand, focuses on the manufacturing
or service delivery processes involved in producing the product or service. It
involves ensuring that the processes are efficient, consistent, and capable of
meeting the design specifications. Factors such as process control, quality control
 measures, and continuous improvement efforts contribute to achieving high
process quality.
- Process quality refers to the ability of the organization to produce the good or
service having perfect quality at each stage of the process, or in other words,
manufacturing defect-free products.

 Measurement of service quality is more challenging. Each customer has a certain performance level
in mind from which to compare or evaluate a service. Here are some of the commonly accepted
elements by which customers evaluate service performance:

Below are some of the commonly accepted elements by which customers evaluate service performance.

II. Gurus of Quality

 Much of the field of Quality originated from several individuals who spent their careers
researching, teaching and developing the field of Quality.
 These individuals are Walter Shewhart, W. Edwards Deming, Joseph Juran, Philip Crosby, and
Armand Fiegenbaum.
  Walter Shewhart

Shewhart’s legacy includes the fundamental concepts of assignable and

common causes of variation.

Assignable variation arises from identifiable and addressable causes, such as

employee error, software malfunction, or equipment failure.

Common variation, also known as chance variation, is inherent to the process

and generally expected. Minimizing or eliminating either type of variation
directly translates to enhanced product quality.

 W. Edwards Deming (1900-1993): Champion of Quality Management

Arguably the most prominent figure among the “Quality Gurus,” Dr.
Deming was an American engineer, statistician, professor, and prolific
author. The Deming Cycle or Deming Wheel is also known as PDCA, or
“Plan, Do Check, Act.” It is a version of continuous improvement that
emphasizes the continuous nature of process improvement.

Edwards Deming’s “14 Points:”

1. Create constancy of purpose toward improvement of product and service, with the aim
to become competitive, to stay in business and to provide jobs.

2. Adopt the new philosophy. We are in a new economic age. Western management must
awaken to the challenge, learn their responsibilities, and take on leadership for change.

3. Cease dependence on inspection to achieve quality. Eliminate the need for massive
inspection by building quality into the product in the first place.

4. End the practice of awarding business on the basis of a price tag. Instead, minimize total
cost. Move towards a single supplier for any one item, on a long-term relationship of
loyalty and trust.

5. Improve constantly and forever the system of production and service to improve quality
and productivity, and thus constantly decrease costs.

6. Institute training on the job.

7. In Institute leadership, the aim of supervision should be to help people and machines
and gadgets do a better job. Supervision of management is in need of overhaul, as well
as supervision of production workers.

8. Drive out fear so that everyone may work effectively for the company.

9. Break down barriers between departments. People in research, design, sales, and
production must work as a team to foresee problems of production and usage that may
be encountered with the product or service.
 10. Eliminate slogans, exhortations, and targets for the workforce, asking for zero defects
and new levels of productivity. Such exhortations only create adversarial relationships,
as the bulk of the causes of low quality and low productivity belong to the system and
thus lie beyond the power of the workforce.

a. Eliminate work standards (quotas) on the factory floor. Substitute with

leadership.
b. Eliminate management by objective. Eliminate management by numbers and
numerical goals. Instead, substitute with leadership.

11. Remove barriers that rob the hourly worker of his right to pride of workmanship. The
responsibility of supervisors must be changed from sheer numbers to quality.

12. Remove barriers that rob people in management and engineering of their right to pride
of workmanship.

13. Institute a vigorous program of education and self-improvement.

14. Put everybody in the company to work to accomplish the transformation. The
transformation is everybody’s job.

 Joseph M. Juran (1904-2008): Quality Management Authority

Juran championed a three-pronged approach to quality, known as the Juran

Trilogy: quality planning, quality control, and quality improvement.

Juran is credited with the concept of the cost of quality, a framework for
understanding and managing the financial implications of quality.

A prolific author, he contributed hundreds of papers and 12 books to the field.

Juran’s influence extends beyond his own contributions. He recognized the value of
Vilfredo Pareto’s (1848-1923) work and popularized the Pareto Principle, also
known as the 80/20 rule. This principle, originally an observation by Pareto that 80% of Italy’s land was
owned by 20% of the population, has become a cornerstone of problem-solving and continuous
improvement efforts in quality management. The principle suggests that a significant portion of
problems (around 80%) often stem from a relatively small number of root causes (around 20%). This
realization allows organizations to focus their improvement efforts on the most impactful areas.

The Pareto Principle finds numerous applications within quality management:

• Defect concentration: It’s widely accepted that 80% of defects can be traced back to a
small number (20%) of root causes. Firms benefit by prioritizing the identification and
rectification of these root causes.

• Profit distribution: In many companies, 80% of profits might be generated by just 20% of
the products or services offered. Identifying and nurturing these high-performing
offerings can significantly improve overall profitability.
 • Employee engagement: Sometimes, just 20% of employees might be responsible for
generating 80% of the continuous improvement ideas. Recognizing and encouraging
these valuable contributors can foster a culture of innovation within the organization.

 Philip Crosby (1926-2001): Champion of “Zero Defects”

Crosby, an American businessman and author, gained recognition for his 1979 book
Quality is Free. He challenged the prevailing notion that quality comes at a premium,
arguing instead that the true costs of quality are often significantly underestimated.
Crosby is credited with coining the term zero defects, a philosophy emphasizing the
elimination of errors from the outset. He maintained that preventing defects is far
more cost-effective than relying on extensive inspection, rework, and repairs after the
fact.

 Armand Feigenbaum (1920-2014): Architect of Total Quality Management

Dr. Feigenbaum, an American quality engineer and businessman, served as the

Director of Manufacturing Operations at General Electric from 1958 to 1968. He is
credited with pioneering the concept of total quality control, which later evolved into
the widely adopted total quality management (TQM) philosophy. Feigenbaum also
introduced the thought-provoking concept of the “hidden plant,” which refers to the
untapped productive capacity lost due to inefficiencies, defects, and rework. His
work highlighted the significant potential for improvement that lies within existing
operations.

III. Cost of Quality

 Organizations that deliver high-quality goods and services can achieve a competitive edge and
distinguish themselves in the marketplace. These companies often experience higher
profitability, as they incur minimal losses and additional expenses related to poor productivity,
rework, inspections, and scrap.
 The costs associated with maintaining and improving quality can be categorized into four main
types: prevention costs, appraisal costs, and failure costs – internal and external.
1. Prevention Costs - Prevention costs encompass all expenditures aimed at
proactively avoiding the occurrence of defects or non-conformities in products or
services. These costs are incurred through initiatives such as quality improvement
programs, employee training and development, equipment upgrades,
implementation of quality management systems, and proactive design
modifications.
2. Appraisal Costs - Appraisal costs refer to the resources dedicated to inspecting,
testing, and evaluating products or services during the production or delivery
process. These costs include wages for quality inspectors, expenses related to
testing laboratories and equipment, gauging and measurement activities, and
process control mechanisms. Appraisal activities aim to identify and eliminate
defects before they reach the customer, thereby preventing potential failure costs.
3. Internal Failure Costs - Internal failure costs arise when defects or non-conformities
are detected within the organization before the product or service is delivered to
 the customer. These costs encompass rework efforts to rectify identified defects and
the costs associated with scrapping or disposing of products that cannot be repaired
or reworked. Internal failure costs include potential disruptions to production
schedules, expedited manufacturing efforts to compensate for scrapped products,
and the associated opportunity costs.
4. External Failure Costs - External failure costs are incurred when defective products
or non-conforming services reach the customer. These costs can be substantial and
may include expenses related to product replacements, expedited shipping, product
recalls, potential legal liabilities, and the detrimental impact on customer
satisfaction and future business opportunities. External failure costs are often
challenging to quantify precisely due to the intangible nature of lost customer
goodwill and its long-term implications on an organization’s reputation and market
position.
OM AND TQM REVIEWER – MIDTERMS COVERAGE

ENUMERATION

 3 Aspects of Capacity
- Design Capacity
- Effective Capacity
- Actual Capacity
 Commonly Employed Capacity Strategies
- Following Capacity Strategy
- Tracking Capacity Strategy
 Determinants of Product Quality
- Design Quality
- Process Quality
- Service Quality
 Gurus of Quality
- Walter Shewhart
- W. Edwards Demings
- Joseph M. Juran
- Philip Crosby
- Armand Fiegenbaum
 4 Main Types of Cost Quality
- Prevention Costs
- Appraisal Costs
- Internal Failure Costs
- External Failure Costs

IDENTIFICATION

 W. Edwards Deming - Champion of Quality Management, he proposed the 14 points.

 The Deming Cycle or The Deming Wheel - It is a version of continuous improvement that
emphasizes the continuous nature of process improvement, also known as Plan, Do, Check, Act
(PDCA).
 Joseph M. Juran - He championed a three-pronged approach to quality, known as the Juran
Trilogy: quality planning, quality control, and quality improvement.
 The Pareto Principle - also known as the 80/20 rule.
 Philip Crosby - Champion of Zero Defects
 Walter Shewhart - His legacy includes the fundamental concepts of assignable and common
causes of variation.
 Armand Feigenbaum - Architect of Total Quality Management
 Strategic Capacity Planning - aims to achieve an optimal balance where production capabilities
align seamlessly with demand.
 Effective Capacity Planning - ensures operational efficiency and contributes to organizational
competitiveness, customer satisfaction, and long-term sustainability.
 Capacity - is the upper limit or ceiling on the load that an operating unit can handle.

ESSAY
Give a behavior that you should have.

In operations management, effective leadership is crucial, and one behavior I should develop is
the ability to delegate tasks and trust my team. As someone who prefers to control everything, I often
struggle with collaboration, but true leadership means guiding others rather than doing everything
alone. I need to practice patience, active listening, and open communication to ensure that everyone
contributes their strengths. Instead of micromanaging, I should focus on setting clear expectations and
empowering others to take responsibility. A great leader inspires confidence and fosters teamwork,
which ultimately leads to better results. By learning to let go and trust the process, I can improve not
only my leadership skills but also my efficiency in handling operations.

What is the difference between Lean Manufacturing and Just in Time Production? (Give samples to
add points)

Lean Manufacturing is a broad philosophy focused on eliminating waste, improving efficiency,

and maximizing value for customers, while Just-In-Time (JIT) Production is a specific strategy under Lean
that ensures materials arrive only when needed to reduce inventory costs. For example, Toyota uses
Lean principles to streamline its entire production system, minimizing waste in processes, while its JIT
approach ensures car parts are delivered exactly when required to avoid overstocking. Lean can apply to
various aspects like employee productivity and workflow optimization, whereas JIT mainly targets
inventory management and supply chain efficiency. A bakery using Lean might improve oven scheduling
and reduce ingredient waste, while a JIT system ensures fresh ingredients arrive daily instead of being
stored in bulk. In short, JIT is a method within the broader Lean framework, both aiming for efficiency
but with different scopes.