- Funciones del Director de Colegio

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Solutions to

Revision Questions 3

Solution 1

1.1 (D) 1.2 (A) 1.3

Both:

● Associated with quality

● Aim for benefi cial change and enhanced performance

● Customer-focused

● Involve learning.

Kaizen BPR

Continuous improvement One-off exercise

Small incremental steps Radical changes

Longer term Short term

Providing workforce with tools & techniques About business processes and structures & creative use of IT

Solution 2

(a) Evaluate the way in which MX is proposing to manage its suppliers as part of a value system or network.

Most products arise through several organisations combining and trading with one another from sourcing raw materials, to design, development, manufacture and then bringing the fi nal product to market. In these circumstances relationships between sev-eral organisations combine to create a value network comprising of a series of value chains.

Both MX and YO form part of a wider value network with YO undertaking the design and manufacture stages. In this example YO represents the supplier value chain whilst MX’s own value chain interacts with the fi nal customer. (YO presumably also has a supplier or suppliers of cloth that it makes designs for and then manufactures clothing from).

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Michael Porter’s work in this area stresses the need for good management of the value network in order to gain competitive advantage and ‘create and sustain superior performance’.

In Porter’s terms relationships between the fi rms in the value system matter. The overall value system describes the position of a fi rm relative to the fi rms upstream and downstream of it:

● MX is upstream (nearer the ultimate customer) of YO

● YO along with MX’s other suppliers are downstream of MX

● YO’s suppliers of cloth are downstream of YO.

When viewing supply strategically the nature of relationships with suppliers becomes key. When relationships are based on driving down price they can be quite adversar-ial. Alternatively, more collaborative arrangements operate where there is a joint quest to reduce costs and a sharing of technology and innovations (known as ‘partnership sourcing’).

The way an organisation manages its supply process is known as its ‘sourcing strate-gies’ and the success of these clearly has strategic implications. MX in the past appeared to favour a traditional strategy known as the ‘multiple’ option. Here MX as the buyer chooses several sources of supply (both home and abroad). Individual suppliers under this arrangement become less powerful and prices can be driven down as a result. It is fairly obvious that YO is far more dependent upon MX (as its number one customer with 80% of its sales) than MX is on YO. MX seems to have realised however that this may not be necessarily conducive to good working relationships. Meaningful supplier relationships and reliance on trusted suppliers is necessary in order to achieve a quality product. In the past MX have relied on low prices in order to make sales but now it is rethinking its strategy and wishes to move more ‘up market’ by introducing a better quality clothing range, which it believes its customers will be prepared to pay a little more for.

MX propose to work more closely with YO’s designers to maximise production of the type of clothing that they feel their customers want. Both organisations have a long-standing relationship with one another, and assuming that YO is prepared to change its approach to one more akin to TQM it will become one of MX’s preferred suppliers. This means that with less suppliers MX will be able to concentrate on devel-oping their relationship more fully.

Consistent with Porter’s thinking both MX and YO as fi rms in the value system now have an opportunity to collaborate more fully in order to increase total value. (By increasing the ability of the fi nal product to generate maximum customer satisfaction).

In this case it will be through making a better quality product including taking more care to ensure that the design is ‘right’ (appropriate). Competitive advantage through linkages between the organisation and its value system components is being attempted in this case by applying TQM principles.

(b) Explain the term ‘total quality’ and the requirements of achieving it within YO.

The underlying concepts of quality

Organisations that compete on the basis of price must ensure low-cost operations to be successful. Cost containment in material sourcing, production, and distribution is important. Resultant cost savings from these activities can (in part) be passed on to their

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customers. These organisations believe that their customers value the relatively low cost of the product (commensurate with a certain level of quality). By comparison, a com-pany competing on the basis of quality will try to achieve a better quality product that will appeal to less price-sensitive consumers. In these circumstances quality rather than price will be the key consideration in bringing goods to the market. It is apparent that MX is altering its view of what it believes its customers value most (namely improved quality rather than low cost). This is unsurprising, as quality is increasingly being recog-nised as a critical issue for modern organisations operating in sometimes hostile environ-ments with intense competition and demanding customers.

MX is said to want to move more ‘up market’ by introducing an altogether better quality clothing range. This change in strategy will require less of an emphasis on price in favour of approaches that achieve quality. The need to satisfy customers’ needs is central to most understandings of quality. Quality should in fact be best understood from the perspective of the customer, including their expectations and specifi c require-ments. MX is by far YO’s biggest customer with in excess of 80% of total sales and has made their requirements quite clearly. Given its dependence on MX, YO has little option but to adopt a quality approach in order to satisfy its major customer.

‘Total quality’

There are many defi nitions of quality. Quality guru Philip P Crosby is known for his emphasis on achieving Zero Defects (no faulty products) and maintaining that Quality is Free. He explained quality as meaning getting everyone to deliver what he or she has agreed and getting it right the fi rst time.

There are a number of approaches to ensuring total quality, most popularly TQM.

MX’s overseas suppliers apparently are able to achieve relatively low prices and supe-rior quality through the adoption of TQM. This involves developing an organisational culture founded on a belief in quality so that:

● Everyone (including customers and suppliers) is involved in this continuous process.

● The quality requirements of customers are central.

● There is the full commitment of senior management.

Requirements for achieving quality in YO

There are certain fundamental concepts that any organisation wishing to establish a quality ethos must adhere to including:

● Commitment from the top. If management is not fully committed, it is unlikely that customer requirements of quality will be met. (In YO’s case the commitment is obvious: M is its most signifi cant customer and it must change in order to survive at its present level of operation.)

● Competence. Quality is achieved through competence in whatever activity is under-taken. Competence can only be gained through continuous training, skill devel-opment and experience. YO needs to commit funds to training, recruitment and people development, etc.

● Communication. The importance of quality must be effectively communicated throughout the organisation in order to improve understanding of its purpose and benefi ts. YO needs to develop a communication strategy that includes briefi ngs, written reminders and visible symbols. The key message for YO is to change practice in order to retain its most important customer: MX.

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● Continuous improvement. The Kaizen philosophy will involve the continual analy-sis of processes to allow continued improvement in performance and quality. YO will need to develop a non-threatening culture, possibly involving quality circles and training facilitators to ensure that this takes place.

Solution 3

(a) Total quality management (TQM) is defi ned by CIMA (Offi cial Terminology, 2000):

An integrated and comprehensive system of planning and controlling all business functions so that products or services are produced which meet or exceed customer expectations. TQM is a philosophy of business behaviour, embracing principles such as employee involvement, continuous improvement at all levels and customer focus, as well as being a collection of related techniques aimed at improving quality such as full documentation of activities, clear goalsetting and performance measurement from the cus-tomer perspective.

The key factors in the success of TQM:

● There is a concentration on continuous improvement. This means that small improvements are as important as large leaps in technology. Such improvements may be changes in production fl ow, product specifi cation or manufacturing methods.

● There needs to be widespread commitment to improvement in quality. All those involved in the company are part of the TQM environment: from board to shop fl oor.

● TQM should focus on the customer, not on just a single area of a business. This cus-tomer focus means the perspective of the company changes from its present obvious production/sales/research one. Within the company, all sections may see themselves as potential customers of other sections and potential suppliers to other sections.

This refocussing is vital in this company.

● TQM is about designing quality into the product and the production process. This means there must be a close working relationship between sales, production, distri-bution and research.

● Concentration on short-term profi t needs to be abandoned in favour of long-term quality improvement, which will itself lead to long-term profi t improvement. This implies being prepared to invest in changes for the future.

● There is a need for a fundamental culture change. Management, in particular, needs to use feedback and appraisal to fi nd better ways of doing things. Failure to meet tar-gets is probably inevitable, but needs to be met with positive, rather than negative, comment.

● There needs to be a clear willingness to discuss and measure quality. This may involve setting standards and gathering information that perhaps has previously been ignored. Feedback information, which need not be quantitative or fi nancial, must be fed back quickly and in an intelligible way.

● Reward systems need to be reorganised to enable and encourage quality, rather than to prevent it happening. Thus, incentive schemes based on improvement suggestions would be a very rapid way of improving quality.

Other factors that might have been identifi ed, though these are by no means always vital:

● Training in areas where the company is felt to be weak. The TQM programme should identify these. Training possibly needs to be external.

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● The establishment of project teams to change procedures.

● The establishment of quality circles.

● The establishment of regular reporting of key indicators of quality.

It is diffi cult to select factors that are more crucial than others: the particular ones of importance will depend on the company and the areas of shortfall. The most cru-cial overall area, especru-cially in the company quoted, appears to be the building up of teamwork.

(b) Quality cost is normally defi ned as the ‘cost of ensuring and assuring quality, as well as the loss incurred when quality is not achieved’ and may be measured in four ways.

These four methods have often been called the ‘cost of not achieving quality’:

1. Prevention cost: The cost of ensuring that poor quality does not happen, e.g. train-ing, planning and administration, checking design is adequate and so on.

2. Appraisal cost: The cost of discovering poor-quality items. This would include qual-ity control, inspections, etc.

3. Internal failure cost: The cost, internal to the company, caused by poor quality.

Costs include rework costs, scrap, re-engineering, retooling, etc.

4. External failure cost: The cost of poor quality incurred outside the company: this includes direct costs, such as warranties, repair and after-sales service, and indirect costs such as lost customer goodwill.

These costs are very diffi cult to isolate and judge. In each area, there is often a need to apportion costs (e.g. training, planning and administration) and there are many areas, especially the external failure cost, where costs cannot be calculated, for example, the opportunity cost of lost sales as a result of poor-quality service.

Nevertheless, striving towards measuring quality costs keeps this issue on the man-agement’s agenda. The presence of multiple measures of quality can be helpful in pre-senting a balanced approach to control and the identifi cation of the key areas for an individual organisation.

Some writers regard the cost of quality as zero, because if TQM is achieved, then none of the costs above will be incurred and so cost is actually reduced. Others see the above costs of quality as being avoidable non-value-adding and therefore costs that might be reduced. This latter view is central to the understanding of how the cost of quality can assist TQM: discovering the cost of wasted resources we have been using to meet current customer standards. It is these costs that need to be reduced and doing so is central to a programme of cost reduction.

Solution 4

4.1 (B) 4.2 (B)