Module-6 Quality Systems

ISO: ISO role; Functions of ISO, Quality System Family Series ISO 9000; ISO 14000;
ISO21000.
Six Sigma: Features of Six Sigma, Goals of Six Sigma, DMAIC, Six Sigma implementation.
Supply Chain and Operations: Supply Chain “KEIRETSU”, Core Competency, Relationship of
Operations and Supply Chain; Relationship of Purchasing and Supply Chain; Sources, Service
Quality and Supply Chain

ISO (International Organization for Standardization)

What is the ISO?
ISO (International Organization for Standardization) is a worldwide federation of
national standards bodies.
ISO is a nongovernmental organization that comprises standards bodies from more than 160
countries, with one standards body representing each member country. For example,
the American National Standards Institute represents the United States.
ISO members are national standards organizations that collaborate in the development and
promotion of international standards for technology, scientific testing processes, working
conditions, societal issues and more. ISO and its members then sell documents detailing these
standards.
The ISO's General Assembly is its decision-making body. It consists of representatives from the
members and elected leaders called principal officers. The organization has its headquarters in
Geneva, Switzerland, where a central secretariat oversees operations.

How are ISO standards developed?

The International Organization for Standardization has a six-stage process for developing
standards. The stages include the following:
 Proposal stage. The first step in developing a new standard starts when industry associations
or consumer groups make a request. The relevant ISO committee determines whether a new
standard is indeed required.
 Preparatory stage. A working group is set up to prepare a working draft of the new
standard. The working group is composed of subject matter experts and industry
stakeholders; when the draft is deemed satisfactory, the working group's parent committee
decides which stage occurs next.
 Committee stage. This is an optional stage during which members of the parent committee
review and comment on the draft standard. When the committee reaches consensus on the
technical content of the draft, it can move to the next stage.
 Enquiry stage. The draft standard at this stage is called a Draft International Standard (DIS).
It is distributed to ISO members for comments and, ultimately, a vote. If the DIS is approved
at this stage without any technical changes, ISO publishes it as a standard. If not, it moves to
the approval stage.
 Approval stage. The draft standard is submitted as a Final Draft International Standard
(FDIS) to ISO members. They vote to approve the new standard.
 Publication stage. If ISO members approve the new standard, the FDIS is published as an
official international standard.
ISO participating members vote on standards approvals. A standard must receive affirmative
votes from at least two-thirds of participating members and negative votes from no more than
one fourth of participating members.

What is ISO certification?

As it relates to ISO standards, certification is a certifying body's assurance that a service, product
or system meets the requirements of the standard. While ISO develops the standards, third-party
certification bodies certify conformity with those standards.
According to the ISO, the phrase "ISO certification" should never be used to indicate that a
product or system has been certified by a certification body as conforming to an ISO standard.
Instead, ISO suggests referring to certified products or systems using the full identification of the
ISO standard.
For example, instead of "ISO certified", ISO recommends using the phrase "ISO 9001:2015
certified." This fully identifies the standard being certified, including the version -- in this case,
the version of ISO 9001 released in 2015.
While ISO does not do certifications, its Committee on Conformity Assessment works on
standards related to the certification process.

Role of ISO
The ISO plays an important role in facilitating world trade by providing common standards
among different countries. These standards are intended to ensure that products and services are
safe, reliable, and of good quality.
Functions of ISO
It serves as a safety guard for the customer.
They make trade between the two countries.
They provide the technology to the government for health, safety.
They helps in transferring technology to developing countries.
They also helps in development, manufacturing, supply

ISO 9000 Series

 ISO 9000 Quality management systems – Fundamentals and Vocabulary, referenced in all
ISO 9000 Standards.
 ISO 9001 Quality management systems – Requirements, contains the requirements an
organization must comply with to become ISO 9001 certified.
 ISO 9002 – Guidelines for the application of ISO 9001:2015
 ISO 9004 – Managing for the sustained success of an organization, provides guidelines for
sustaining QMS success through evaluation and performance improvement

There is often confusion around the family of ISO 9000 standards which are a series of
documents that define requirements and guidelines for a quality management
system (QMS): ISO 9000 (Guidelines), ISO 9001 (requirements), ISO 9002 (Guidelines), etc.
But an organization can only achieve certification to ISO 9001.

ISO 9000:2015 Quality management systems – Fundamentals and vocabulary is part of that

series. It explains the basics of quality management systems and provides definitions for the
terminology used in the 9000 series. It does not contain any requirements therefore, an
organization cannot be ISO 9000 certified.

ISO 9001
Clause 1 Scope is the first clause in the ISO 9001:2015 standard. This clause is only
informational and does not in fact have any requirement that needs to be met.  The first clause
covers the QMS requirements. In all, the standard has ten sections, the first three are purely
informational. The requirements an organization needs to meet to achieve certification are
contained within clauses 4-10. To learn more about this requirements see:
 4: Context of the organization
 5: Leadership
 6: Planning
 7: Support
 8: Operation
 9: Performance evaluation
 10: Improvement
Section 1 states that organizations needs to demonstrate its ability to consistently provide
products that meet both the requirements set forth by the customer and by statutory and
regulatory requirements AND that organizations must aim to enhance customer satisfaction
through effectively using the standard to by using processes for improvement of the QMS.

ISO 9001 is a generic standard aimed to be applicable to any organization regardless of size,
sector or products and services it provides.

ISO 9001:2015 specifies requirements for a quality management system when an organization:
a) Needs to demonstrate its ability to consistently provide products and services that meet
customer and applicable statutory and regulatory requirements, and
b) aims to enhance customer satisfaction through the effective application of the system,
including processes for improvement of the system and the assurance of conformity to customer
and applicable statutory and regulatory requirements.
All the requirements of ISO 9001:2015 are generic and are intended to be applicable to any
organization, regardless of its type or size, or the products and services it provides.

ISO 9002:1994
The three standards (ISO 9001:1994, ISO 9002:1994, and ISO 9003:1994) were combined into
ISO 9001 in the year 2000 revision (ISO 9001:2000) which was replaced by ISO 9001:2008 and
subsequently ISO 9001:2015. So if you are searching for that particular standard, you may wish
instead to investigate the revised standard’s requirements here, or look at a more general
definition of what is ISO certification and what it means.
In reference to ISO 9002, it was last revised in 1994 and was titled: Model for quality assurance
in production, installation, and servicing had basically the same material as ISO 9001 but
without covering the creation of new products. It was very applicable for contract manufacturing.
Organizations now use ISO 9001 standard and take exception to certain clauses of the standard
which involve the design of products and/or service. So there is no longer a need for
ISO9002:1994.

ISO 9003 is obsolete. 

The standards ISO 9001, ISO 9002, and ISO 9003 were combined into ISO 9001 in the year
2000 (ISO 9001:2000) which was replaced by ISO 9001:2008 and ISO 9001:2008 replaced
by ISO 9001:2015. You may wish to investigate the revised standard’s requirements here, or
look at a more general definition of ISO certification means.

ISO 9004:2018,
“Quality management – Quality of an organization – Guidance to achieve sustained success”,
gives guidelines for enhancing an organization’s ability to achieve sustained success. This
guidance is consistent with the quality management principles given in ISO 9001:2015. ISO
9004:2018 is applicable to any organization, regardless of its size, type, and activity.
ISO 9001 provides a framework for an organization to manage their processes in an
effective Quality Management System. ISO 9001 Section 10  “Improving the 9001 Quality
Management System” discusses ongoing opportunities to enhance customer satisfaction such as
improvements to products or services. Ultimately, improving the effectiveness of the QMS will
help meet your customers’ requirements.
The 4th edition of ISO 9004 provides guidance for organizations to achieve sustained success in
an ever-changing environment, with reference to the seven quality management
principles described in ISO 9001:2015.

ISO 9004:2018 offers guidelines for success by considering the quality of an organization, which
it defines as the degree to which the characteristics of the organization fulfill the needs and
expectations of its customers and other interested parties.
ISO 9004:2018 addresses the improvement of the organization’s overall performance. It includes
the planning, implementation, analysis, evaluation, and improvement of an effective and efficient
management system.
ISO 9004:2018 recommends the involvement of top management for understanding the context
of the organization, and considering external and internal issues. Top management’s focus on the
organization’s ability to meet the needs and expectations of customers and other relevant
interested parties, and provides confidence in achieving sustained success.

Benefits of ISO 9000

 Higher perceived quality of customer service;
 Improved customer satisfaction;
 Competitive edge over non-certified competitors;
 Increased market share;
 Greater quality awareness;
 Improved employee morale;
 Better documentation.

ISO 14000
The ISO 14000 series of environmental management standards are intended to assist
organizations manage the environmental effect of their business practices. The ISO 14000
series is similar to the ISO 9000 series published in 1987.
ISO 14001:2015 specifies the requirements for an environmental management system that an
organization can use to enhance its environmental performance. ISO 14001:2015 is intended for
use by an organization seeking to manage its environmental responsibilities in a systematic
manner that contributes to the environmental pillar of sustainability.
ISO 14001:2015 helps an organization achieve the intended outcomes of its environmental
management system, which provide value for the environment, the organization itself and
interested parties. Consistent with the organization's environmental policy, the intended
outcomes of an environmental management system include:
 Enhancement of environmental performance;
 Fulfillment of compliance obligations;
 Achievement of environmental objectives.
ISO 14001:2015 is applicable to any organization, regardless of size, type and nature, and
applies to the environmental aspects of its activities, products and services that the organization
determines it can either control or influence considering a life cycle perspective. ISO 14001:2015
does not state specific environmental performance criteria.
ISO 14001:2015 can be used in whole or in part to systematically improve environmental
management. Claims of conformity to ISO 14001:2015, however, are not acceptable unless all its
requirements are incorporated into an organization's environmental management system and
fulfilled without exclusion.
ISO 14004:2016 provides guidance for an organization on the establishment, implementation,
maintenance and improvement of a robust, credible and reliable environmental management
system. The guidance provided is intended for an organization seeking to manage its
environmental responsibilities in a systematic manner that contributes to the environmental pillar
of sustainability.
This International Standard helps an organization achieve the intended outcomes of its
environmental management system, which provides value for the environment, the organization
itself and interested parties. Consistent with the organization's environmental policy, the intended
outcomes of an environmental management system include:
- Enhancement of environmental performance;
- Fulfillment of compliance obligations;
- Achievement of environmental objectives.
The guidance in this International Standard can help an organization to enhance its
environmental performance, and enables the elements of the environmental management system
to be integrated into its core business process.
NOTE While the environmental management system is not intended to manage occupational
health and safety issues, these can be included when an organization seeks to implement an
integrated environmental and occupational health and safety management system.
ISO 14004:2016 is applicable to any organization, regardless of size, type and nature, and
applies to the environmental aspects of its activities, products and services that the organization
determines it can either control or influence, considering a life cycle perspective.
The guidance in this International Standard can be used in whole or in part to systematically
improve environmental management. It serves to provide additional explanation of the concepts
and requirements.

ISO 14001
ISO 14005:2019
This document gives guidelines for a phased approach to establish, implement, maintain and
improve an environmental management system (EMS) that organizations, including small and
medium-sized enterprises (SMEs), can adopt to enhance their environmental performance.
The phased approach provides flexibility that allows organizations to develop their EMS at their
own pace, over a number of phases, according to their own circumstances. Each phase consists
of six consecutive stages. The system's maturity at the end of each phase can be characterized
using the five-level maturity matrix provided in Annex A.
This document is applicable to any organization regardless of their current environmental
performance, the nature of the activities undertaken or the locations at which they occur.
The phased approach enables an organization to develop a system that ultimately satisfies the
requirements of ISO 14001.
The guidance does not cover those elements of specific systems that go beyond ISO 14001 and it
is not intended to provide interpretations of the requirements of ISO 14001.

What are the benefits of getting ISO 14000 Certified?

Following are the benefits of getting the ISO 14000 certification:
 1. It identifies and controls the environmental impact of its activities, product or services.
2. Continuously improve its environmental performance
3. Helps in implementing a systematic approach to setting environmental objectives to
achieving these and to demonstrating that they have been achieved.
4. Ensuring legal compliance.
Apart from this, there are several other benefits also which is categorized under Internal benefits
and External benefits:
Internal Benefits:
 Assurance to the management: It is in the control of the organizational procedures and
activities having an impact on the environment.
 Assure employees: It assures the employees that they are working for an
environmentally responsible organization.
External Benefits:
 It provides assurance on environmental issues to the external stakeholders such as
customers, community and regulatory agencies.
 Comply with the regulations of the environment.
 Claims and communication: It supports the organization’s claims and communication
about its own environmental policies, plans, and actions by gaining its EMS certificate.
 Demonstrate conformity: It provides a framework for the demonstration conformity via
suppliers’ declarations of conformity, assessment of conformity by an external
stakeholder such as business client and for certification of conformity by an independent
certification body.

ISO 21000
ISO 21001:2018 specifies requirements for a management system for educational
organizations (EOMS) when such an organization:
a) needs to demonstrate its ability to support the acquisition and development of competence
through teaching, learning or research;
b) aims to enhance satisfaction of learners, other beneficiaries and staff through the effective
application of its EOMS, including processes for improvement of the system and assurance of
conformity to the requirements of learners and other beneficiaries.
All requirements of ISO 21001:2018 are generic and intended to be applicable to any
organization that uses a curriculum to support the development of competence through teaching,
learning or research, regardless of the type, size or method of delivery.
ISO 21001:2018 can be applied to educational organizations within larger organizations whose
core business is not education, such as professional training departments.
ISO 21001:2018 does not apply to organizations that only produce or manufacture educational
products.

Benefits of ISO 21000

Benefits of ISO 21001 Educational Organizations Management
By becoming PECB ISO 21001 certified, you will be able to:
 Improve your education system
 Enhance the reputation of your educational institution
 Promote equal opportunities for all students regardless of their religious background,
ethnic or cultural origin, gender, ability/disability
 Provide personalized training and effective response to all learners
 Stimulate excellence and innovation
 Make education more accessible (physical or online settings)

Six Sigma:
Six Sigma (6σ) is a set of techniques and tools for process improvement. It was introduced by
American engineer Bill Smith while working at Motorola in 1986. A six sigma process is one in
which 99.99966% of all opportunities to produce some feature of a part are statistically expected
to be free of defects.
Six Sigma strategies seek to improve manufacturing quality by identifying and removing the
causes of defects and minimizing variability in manufacturing and business processes. This is
done by using empirical and statistical quality management methods and by hiring people who
serve as Six Sigma experts. Each Six Sigma project follows a defined methodology and has
specific value targets, such as reducing pollution or increasing customer satisfaction.
The term Six Sigma originates from statistical modeling of manufacturing processes. The
maturity of a manufacturing process can be described by a sigma rating indicating its yield or the
percentage of defect-free products it creates—specifically, to within how many standard
deviations of a normal distribution the fraction of defect-free outcomes corresponds.

Principles of Six Sigma

Success of Six Sigma implementation is based upon five main principles:
1. Concentrating on customer requirements
2. Using accurate measurements to do error-less statistical analysis to understand
improvement opportunities for building a solution for identification of root cause of
problems (variations)
3. Being efficient and capable to eliminate variation to continually improve the process.
4. Involving manpower in Six Sigma cross-functional teams.
5. Being thorough and being flexible
Features of Six Sigma
1. Six Sigma is designed to avoid waste and in efficiency, thereby increasing customer
satisfaction by delivering what the customer is really expecting.
2. Six Sigma is strictly structured and disciplined methodology, which is very specific for
the particular participants.
3. Six Sigma is statistical data driven methodology which requires accurate or error-less
data to perfectly analyse the process.
4. Six Sigma is not just about the improving quality and increase the sale; it’s about
changing results in the financial statements also.
5. By applying Six Sigma in your business you can successfully achieve the below
milestones -also known as business success facts:
o Improving Process
o Lowering Defects
o Increased Profit
o Increased Customer Satisfaction
o Reducing Costs
o Reducing Process Variability
Six Sigma Methodologies totally revolves around one main cycle called DMAIC
Goals of Six Sigma
Six Sigma seeks to:
 Find and eliminate causes of defects and errors
 Reduce cycle times and cost of operations
 Improve productivity
 Better meet customer expectations
 Achieve higher asset utilization
 Provided an improved return on investment

DMAIC
DMAIC is a data driven quality strategy used to identify opportunities in the process to make
improvements and reduce the errors and defects

D - Define-(Defining the problem, opportunities, business objectives, customer demands)

Here you define what opportunity are you looking for or we can say what problem you are trying
to fix or simply what new business objective or customer demand you are trying to complete.
M - Measure performance
 This is the crucial step for professional who are seeking out any opportunity to improve the
service, process or product. Measurement is critical in the step and it must be accurate because
you are trying to build solution on the basis of that measurement. In this process the
measurement team has to focus on the process and what customer actually cares about.
A - Analyze opportunities
In this step the team has to analyze what is causing the problem and where there will be the
opportunity to improve the process or service quality or cost or product. In this step team spend
their time on finding root causes of problem and building the solution depending upon the
results.
In this step mostly experienced and Six Sigma Green belt certified person analyze. The teams
have to develop hypothesis according to finding and results and then define then work to prove
or disprove the hypothesis.
I – Improve Performance
After implementing solution into process the teams have to concentrating on the factors which
are crucial for improving the process or service or product. In this step the team have to collects
data to check if there is measurable improvement or not if yes then the team will follow these
process as a core process than pilot process and then finally improve the baseline ultimately it
leads to improve the service quality or product quality which finally meets the customer
satisfaction.
C - Control performance
This is the step in which team have to control the process and sustain the changes and
improvement they made in the process or service. This is one of the most important activity
required by the business because sustaining the improved process is very important to hold the
service quality or product quality ultimately to hold the customer.

Steps in Six Sigma implementation

Step 1: Create a Burning Platform
Organizations must have a compelling reason for implementing Lean Six Sigma. Some examples
of a burning platform message:
 “We are suffering huge quality losses. They account for more than 45 percent of our costs.”
 “Our competitors are gaining our market by 12 percent every quarter.”
 Without a burning platform, there is seldom a motivation to implement
a continuous improvement initiative. Company leadership should become familiar with the
burning platform, and understand how Lean Six Sigma can address the problems in the platform
statement.
Step 2: Put Resources in Place
Do not hesitate to hire the right resource at right price. This is applicable to any resource, be it
employees, material or technology. But resources alone do not ensure that a deployment will be
successful. They must be able to work together as a team, and be empowered to carry out
initiatives.
It is important to know what to look for in a potential resource. One example: My organization
had finalized a candidate for a Black Belt position in our customer service process. During an
interview, I asked him, “What was the most wonderful experience in your life?” He replied, “The
six months I spent working in a farm with no people, no telephone and no tension.”
Here is a candidate who was saying he wanted no connectivity – and we were considering him
for a customer service role. I ran to my boss and told him the candidate might not fit in.
Resources must be able to commit to implementing a shared vision, and this candidate would not
be right for that role.
Step 3: Teach the Methodology
As the saying goes, if I give a man a fish, he can only survive a day. But if I teach the person to
catch the fish, he can live for a lifetime.
For Lean Six Sigma to survive for a lifetime, organizations need to train their team members to
be powerful change agents. Yellow Belt, Green Belt and Black Belt training, along with skilled
mentors, can help increase organizational awareness. The employees identified for training
should share the organization’s vision.
Step 4: Prioritize Activities
Once resources and training are in place, a number of opportunities may present themselves.
Organizations must make it a priority to:
 Listen to the customer
 Identify critical-to-quality criteria
 Ensure Lean Six Sigma efforts are linked to business goals
It is important to learn what to overlook and where to take risks. Activities must be assessed to
ensure they are meeting the expectations of the organization’s goals.
Step 5: Establish Ownership
It must be clear who owns the Lean Six Sigma initiative. This may involve appointing a
committee to find out who is responsible for the entire team.
With ownership come empowerment and a sense of pride, and team members who are more
committed, accountable and engaged.
Step 6: Take the Right Measurements
What cannot be measured cannot be improved. By creating a measurement system, practitioners
can determine baseline performance and use the data in objective decision making and analysis
of variation.
The key for measurement is to get the cost of quality right. The following example, which took
place while I was working as a trainee engineer in an engineering firm, helps illustrate this
premise. I was posted to a field warehouse to take stock of all the nuts, bolts and other parts as
part of an annual inventory exercise. I realized that if I were to start counting each and every
part, I would be spending weeks doing this – it would not be the right way to measure.
Therefore, I devised a way to count the nuts and bolts by working on a system of weighing the
parts in large batches and converting them into units. It took a fraction of the time to count the
parts than other methods used in the past.
Organizations also must find a way to measure process performance to ensure they receive data
at a fast pace. Having too many items on a scorecard may shift practitioners’ attention from the
critical few metrics. They need to identify and measure the key leading indicators instead of
measuring the many lagging indicators.
Step 7: Govern the Program
A proper governance structure can help a program sustain momentum. Poor governance or too
much governance can lead to the vision falling apart. For instance, establishing a business quality
council can help to clear any hurdles that may slow a project, allowing the project to adhere to
timelines.
Proper governance also helps practitioners create a best practice sharing forum, which helps
projects to be replicated and can highlight common challenges. Without regularly scheduled,
productive meetings or review sessions, the program can veer off course and employees may
lack guidance.
Step 8: Recognize Contributions
Rewards and recognition play a valuable role in making sure team members remain satisfied in
their roles. They can help build enthusiasm for the program from a top-down and grassroots
level. Rewards and recognition also can help drive innovation throughout the organization.
Another example from my experience: During my days as a quality engineer, we got a note from
one of our biggest customers, an automobile manufacturer that we supplied springs to. The note
was to reduce the price of our springs by 10 percent. We were in a fix – we did everything
possible to make improvements across the company. The changes made it possible for us to
reduce prices by around 7 percent, but we still needed a 3 percent reduction. Then my boss, who
was a quality expert, asked me to go to one of our suppliers, who provided the spring wires, and
work with them to reduce the cost of making wires

Benefits of Six Sigma

1. Helps to protect your organization to Avoid Errors:
If you are working in organization which needs improvement then your certification and skills
gained during Six Sigma certification will help your organization to make better product or serve
better service with minimum errors.
With Six Sigma certification and skills, you will be able to improvise the process and increase
the profit of your organization. It will ultimately lead you to become an important asset for the
company.
2. Higher Salary:
As per the survey on Payscale.com, you can see that Six Sigma certified professionals are getting
highest salary and working in some of the top multinational companies.
3. Increase your managerial and leadership ability:
When you are working as a Six Sigma professional in an organization then you have to
undertake all the factors like finance, manpower, resources before taking any decision or before
implementing any changes in any process or service or product.
Those who are achieved with Six Sigma Black Belt Certification are work as a Change Agent in
their organization they have better understanding and knowledge about process and how to make
it make it better.
To work as a leader in Six Sigma field you must have knowledge and understanding of financial
management and risk assessment to perform a job without a error.
4. Large scope for Six Sigma across all the Industries:
Many individuals thinks that Six Sigma is only beneficial to manufacturing industry but actually
six sigma is applicable to all types of industry. Service industry like IT, healthcare, hospitality
needs to improve their service to provide 100% satisfaction to customers with completing their
business objectives so all the service sector needs six sigma professionals to improve their
overall business process and to complete business objectives.
5. Increase your productivity and capability:
After completing six sigma certification you are completing responsibility by doing less effort so
the ultimate result will be increased productivity and capacity to handle large projects easily with
sustainability.

Supply Chain and Operations

Operations and Supply Chain Management (OSCM) includes a broad area that covers both
manufacturing and service industries, involving the functions of sourcing, materials
management, operations planning, distribution, logistics, retail, demand forecasting, order
fulfillment, and more.

Meaning of supply chain management

Supply chain management is the handling of the entire production flow of a good or service —
starting from the raw components all the way to delivering the final product to the consumer. A
company creates a network of suppliers (“links” in the chain) that move the product along from
the suppliers of raw materials to those organizations that deal directly with users.
Supply Chain “KEIRETSU”
Keiretsu is a business network composed of manufacturers, supply chain partners, distributors
and financiers who remain financially independent but work closely together to ensure each
other’s success.
In Japanese, the word keiretsu means “group.” In business, the word is often used as a synonym
for partnership, alliance or extended enterprise. The formation of a keiretsu allows a
manufacturer to establish stable, long-term partnerships, which in turn helps them to
stay lean and focus on core business requirements.

Origins of the Keiretsu

The keiretsu originated in Japan during the post-World War II period. The creation of keiretsu
came after the collapse of family-controlled vertical monopoly. A monopoly is a market with a
single seller (called the monopolist) but with many buyers. In a perfectly competitive market,
this comprises groups called the zaibatsu. The zaibatsu flourished during the Meiji government,
where they received government support, such as lucrative government contracts and subsidies.
The big four zaibatsus were Mitsui, Mitsubishi, Sumitomo, and Yasuda.
After the defeat of Japan in World War II, the United States realized that they needed an
economically stronger Japan to be present in the East. Hence, they decided to stop the process of
dissolving the zaibatsu. Some disbanded zaibatsus were re-established. The zaibatsu alliances
were grouped around big banks and were permitted to hold shares in each other.
However, the influence of families under zaibatsu later disappeared, and the new companies that
emerged no longer depended on holding companies Holding Company A holding company is a
company that doesn’t conduct any operations, ventures, or other active tasks for itself. Instead, it
exists for the purpose of owning; instead, they became independent entities. The new
conglomerates changed their identity and were now called keiretsu.

Types of Keiretsu
Keiretsu are categorized into two types – horizontal and vertical keiretsu. A description of each
is provided below:
 Horizontal Keiretsu
A horizontal keiretsu consists of large independent companies that are in different industry
sectors making up the group. There is usually no holding company leading a horizontal keiretsu.
However, there are large companies with an influence that directs activities of the keiretsu.
Normally, there is a bank and a trading company in the group that exert influence in terms of
decision making and overall direction of the grouping. In addition, a horizontal keiretsu will
include an insurance company and a large manufacturer. The financier, trading company,
insurance company, and large manufacturer are the fulcrum of the group and provide an identity
for the keiretsu. The Mitsubishi keiretsu is one example of a horizontal keiretsu with the above
features.
In a horizontal keiretsu, the bank plays a key role in the grouping. The bank is the chief financier
of the keiretsu, as it facilitates the largest advances to companies in the grouping. However,
members in the group are free to get funding from other banks and the lead bank acts as the
guarantor for loans extended by outside banks.
The relationship between the companies and the bank is usually cordial given the cross-
shareholding that exists between them. The trading company plays a crucial role, which includes
coordinating trade within the group, as well as among other keiretsu, independent organizations,
and foreign entities.
As highlighted above, Mitsubishi is a horizontal keiretsu, where at the center is The Bank of
Tokyo Mitsubishi. Other influential companies include Mitsubishi Motors, Mitsubishi Trust and
Banking, Meiji Mutual Life Insurance Company, and Mitsubishi Shoji is the trading company.
 
Vertical Keiretsu
A vertical keiretsu takes on a steeper structure compared to horizontal keiretsu. It is led by one
large entity that defines the whole grouping through its products, influence, and the dependence
of the other members on the large lead company. The other members are smaller and are usually
suppliers of the large firm. Vertical keiretsu are common in the automotive industry, electronics,
broadcasting, advertising, and other industries.
Vertical keiretsus are characterized by a pyramidal structure in which there are a few tiers of
suppliers involved. The first-tier suppliers are companies that supply items directly to the leading
firm. The second-tier suppliers are suppliers of products to the first-tier firms and the tiers go
down as far as is needed.
It is quite possible that the leading firm may not be aware that there are other smaller firms in the
hierarchy of the keiretsu. At the same time, it is also likely that some lower-tier firms may not be
aware that they are in the same keiretsu with the leading firm. A vertical keiretsu can be
notoriously big with many smaller firms in the hierarchy.
Pros of Keiretsu
An alliance built on long-term close business relationships ensures a stable and reliable supply
chain to ensure business continuity and protecting proprietary technology.
 Keiretsu members share business best practices and improve risk management by
reducing unknown variables.
 Reduction in costs of procurement through sourcing products from within the keiretsu
increases efficiency within the supply chain. This efficiency gave birth to the just-in-time
stock management system, which is a very efficient method.
 Keiretsu holds each other’s shares through cross-shareholding, which prevents the threat
of hostile takeovers.
 The sharing of information within the keiretsu has the potential to increase efficiency.
 
Cons of Keiretsu
The Keiretsu system reduces competition within the keiretsu, which can lead to inefficient
processes and service delivery.
 There is a risk of companies within the keiretsu to borrow beyond their means and
undertake risky strategies since capital is readily available from the lead bank.
 Because of the bigger size of the keiretsu, it is likely to be unable to respond swiftly to
changes in the market, culture, and technology.
 The keiretsu system can result in closed markets and monopolistic tendencies.
 Core Competency
A core competency is a concept in management theory introduced by C. K. Prahalad and Gary
Hamel It can be defined as "a harmonized combination of multiple resources and skills that
distinguish a firm in the marketplace" and therefore are the foundation of companies'
competitiveness
Core competencies fulfill three criteria
1. Provides potential access to a wide variety of markets.
 2. Should make a significant contribution to the perceived customer benefits of the end
product.
3. Difficult to imitate by competitors.
For example, a company's core competencies may include precision mechanics, fine optics, and
micro-electronics. These help it build cameras, but may also be useful in making other products
that require these competencies.
https://www.youtube.com/watch?v=wBZKdSUS8D8

Relationship of Operations and Supply Chain

The major difference between supply chain management and operations management is that the
supply chain is mainly concerned with what happens outside the company – obtaining
materials and delivering products – while operations management is concerned with what
happens inside the company.

Supply chain vs. operations management

The primary difference between supply chain management and operations management is that
the supply chain deals with materials that are received or sent from external places and
operations management is more involved with the internal processes. Some companies may have
a team for each area, an individual who handles each area or one person who handles both areas.
The two areas don't usually cover similar duties, but they do interact to cooperate to ensure
customers receive their orders on time, and the skill set required is fairly similar.
The business processes often pass back and forth between supply chain and operations
management. For instance, an operations manager may budget for a certain amount of supplies,
so the supply chain manger places the order and works with the supplier, in addition to receiving
the shipment when it arrives. Then the operations manager oversees the process of those supplies
being made into the product their business sells and the employees and equipment that are
involved. Once the products are manufactured, they go to the supply chain manager to be sent to
customers.