St.

Ferdinand College
Ilagan, Isabela
College of Business Education
2nd Semester SY 2019-2020

OPERATIONS
MANAGEMEN
T with TQM

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 COURSE HAND OUT

CHAPTER 1
INTRODUCTION TO OPERATIONS
MANAGEMENT

INTRODUCTION
o Operation is that part of an organization, which is concerned with the
transformation of a range of inputs into the required output (services)
having the requisite quality level.
o Management is the process which combines and transforms various
resources used in the operations subsystem of the organization into
value added services in a controlled manner as per the policies of the
organization.

The set of interrelated management activities, which are involved in

manufacturing certain products, is called as production management. If
the same concept is extended to services management, then the
corresponding set of management activities is called as operations
management.

HISTORICAL DEVELOPMENT
The traditional view of manufacturing management began in
eighteenth century when Adam Smith recognized the economic benefits of
specialization of labour. He recommended breaking of jobs down into
subtasks and recognizes workers to specialized tasks in which they would
become highly skilled and efficient.
In the early twentieth century, F.W. Taylor implemented Smith’s
theories and developed scientific management. From then till 1930, many
techniques were developed prevailing the traditional view.

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 TABLE 1.1 Historical summary of operations management

Date Contribution Contributor

1776 Specialization of labour in manufacturing Adam Smith
1799 Interchangeable parts, cost accounting Eli Whitney and others
1832 Division of labour by skill; assignment of jobs by skill;
basics of time study Charles Babbage
1900 Scientific management time study and work study
developed; dividing planning and doing of work Frederick W. Taylor
1900 Motion of study of jobs Frank B. Gilbreth
1901 Scheduling techniques for employees, machines jobs in
Manufacturing Henry L. Gantt
1915 Economic lot sizes for inventory control F.W. Harris
1927 Human relations; the Hawthorne studies Elton Mayo
1931 Statistical inference applied to product quality: quality
control charts W.A. Shewart
1935 Statistical sampling applied to quality control: inspection
sampling plans H.F. Dodge & H.G. Roming
1940 Operations research applications in World War II P.M. Blacker and others.
1946 Digital computer John Mauchlly and
J.P. Eckert
1947 Linear programming G.B. Dantzig, Williams &
others
1950 Mathematical programming, on-linear and stochastic A. Charnes, W.W. Cooper
Processes & others
1951 Commercial digital computer: large-scale computations
available. Sperry Univac
1960 Organizational behaviour: continued study of people
at work L. Cummings, L. Porter
1970 Integrating operations into overall strategy and policy, W. Skinner J. Orlicky and
Computer applications to manufacturing, Scheduling G. Wright
and control, Material requirement planning (MRP)
1980 Quality and productivity applications from Japan: W.E. Deming and
robotics, CAD-CAM J. Juran.

Production Management becomes the acceptable term from 1930s

to 1950s. As F.W. Taylor’s works become more widely known, managers
developed techniques that focused on economic efficiency in manufacturing.
Workers were studied in great detail to eliminate wasteful efforts and
achieve greater efficiency.
At the same time, psychologists, socialists and other social scientists
began to study people and human behaviour in the working environment. In
addition, economists, mathematicians, and computer socialists contributed
newer, more sophisticated analytical approaches. With the 1970s emerge
two distinct changes in our views.
The most obvious of these, reflected in the new name Operations
Management was a shift in the service and manufacturing sectors of the
economy. As service sector became more prominent, the change from
‘production’ to ‘operations’ emphasized the broadening of our field to service

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organizations. The second, more suitable change was the beginning of an
emphasis on synthesis, rather than just analysis, in management practices.

CONCEPT OF PRODUCTION

Production function is ‘the part of an organization, which is concerned

with the transformation of a range of inputs into the required outputs
(products) having the requisite quality level’.
 Production is defined as ‘the step-by-step conversion of one form of
material into another form through chemical or mechanical process to
create or enhance the utility of the product to the user’. Thus
production is a value addition process. At each stage of processing,
there will be value addition.

Edwood Buffa defines production as “a process by which goods and

services are created”.

PRODUCTION SYSTEM

The production system is ‘that part of an organisation, which produces

products of an organisation. It is that activity whereby resources, flowing
within a defined system, are combined and transformed in a controlled
manner to add value in accordance with the policies communicated by
management’.

A simplified production system is shown below:

Inputs; Transformation Process; Outputs;

Men Product design Products
Materials Process planning Services
Machines Production control
Information Maintenance
Capital

Control;
Inventory
Quality
Cost

Figure 1.1 Schematic Production System

The production system has the following characteristics:

1. Production is an organized activity, so every production system has an
objective.
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2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control
and improve system performance.

CLASSIFICATION OF PRODUCTION SYSTEM

Production systems can be classified as Job-shop, Batch, Mass and

Continuous production systems.

JOB-SHOP PRODUCTION

 Job-shop production are characterised by manufacturing one or few

quantity of products designed and produced as per the specification of
customers within prefixed time and cost. The distinguishing feature of
this is low volume and high variety of products.
 A job-shop comprises of general-purpose machines arranged into
different departments. Each job demands unique technological
requirements, demands processing on machines in a certain sequence.

Job-shop Production is characterised by;

1. High variety of products and low volume.

2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because
of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each
product, capacities for each work centre and order priorities.

Following are the advantages of Job-shop Production:

1. Because of general purpose machines and facilities variety of products

can be produced.
2. Operators will become more skilled and competent, as each job gives
them learning opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for Creative methods and innovative ideas.

Following are the limitations of Job-shop Production:

1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements

BATCH PRODUCTION

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 American Production and Inventory Control Society (APICS) defines
Batch Production as a form of manufacturing in which the job pass through
the functional departments in lots or batches and each lot may have a
different routing. It is characterised by the manufacture of limited number of
products produced at regular intervals and stocked awaiting sales.

Batch Production is characterised by;

1. Shorter production runs.

2. Plant and machinery are flexible.
3. Plant and machinery set up is used for the production of item in a batch
and change of set up is required for processing the next batch.
4. Manufacturing lead-time and cost are lower as compared to job order
production.

Following are the advantages of Batch Production:

1. Better utilisation of plant and machinery.

2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.

Following are the limitations of Batch Production:

1. Material handling is complex because of irregular and longer flows.

2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.

MASS PRODUCTION

Manufacture of discrete parts or assemblies using a continuous process are

called Mass Production.
This production system is justified by very large volume of production. The
machines are arranged in a line or product layout. Product and process
standardisation exists and all outputs follow the same path.

Mass Production is characterised by;

1. Standardisation of product and process sequence.

2. Dedicated special purpose machines having higher production capacities
and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.

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6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any
back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.

Following are the advantages of Mass Production:

1. Higher rate of production with reduced cycle time.

2. Higher capacity utilisation due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.

Following are the limitations of Mass Production:

1. Breakdown of one machine will stop an entire production line.

2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.

CONTINOUS PRODUCTION

Production facilities are arranged as per the sequence of production

operations from the first operations to the finished product. The items are
made to flow through the sequence of operations through material handling
devices such as conveyors, transfer devices, etc.

Continuous Production is characterised by;

1. Dedicated plant and equipment with zero flexibility.

2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.

Following are the advantages of Continuous Production:

1. Standardisation of product and process sequence.

2. Higher rate of production with reduced cycle time.
3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely
automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.

Following are the limitations of Continuous Production:

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1. Flexibility to accommodate and process number of products does not
exist.
2. Very high investment for setting flow lines

PRODUCTION MANAGEMENT

 Production management is ‘a process of planning, organising, directing

and controlling the activities of the production function. It combines
and transforms various resources used in the production subsystem of
the organization into value added product in a controlled manner as
per the policies of the organization’.
 E.S.Buffa defines production management as follows: ‘Production
management deals with decision-making related to production
processes so that the resulting goods or services are produced
according to specifications, in the amount and by the schedule
demanded and out of minimum cost’.

Objectives of Production Management

The objective of the production management is ‘to produce goods and

services of Right Quality and Quantity at the Right time and Right
manufacturing cost’.

1. Right Quality: The quality of product is established based upon the

customers need. The right quality is not necessarily being the best quality.
2. Right Quantity: The manufacturing organisation should produce the
products in right number.
3. Right Time: Timeliness of delivery is one of the important parameter to
judge the effectiveness of production department.
4. Right Manufacturing Cost: Manufacturing costs are established before
the product is actually manufactured. Hence, all attempts should be made to
produce the products at pre-established cost, so as to reduce the variation
between actual and the standard (pre-established) cost.

CHAPTER 2
OPERATIONS MANAGEMENT CONCEPT

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OPERATIONS SYSTEM

An operation was defined in terms of the mission it serves for the

organisation, technology it employs and the human and managerial
processes it involves. Operations in an organisation can be categorised into
Manufacturing Operations and Service Operations. Manufacturing Operations
is a conversion process that includes manufacturing yields a tangible output:
a product, whereas, a conversion process that includes service yields an
intangible output: a deed, a performance, an effort.

Operations system converts inputs in order to provide outputs, which are

required by a customer. It converts physical resources into outputs, the
function of which is to satisfy customer wants.
 Everett E. Adam & Ronald J. Ebert defines as ‘An operating system is
the part of an organisation that produces the organistion’s physical
goods and services’.
 Ray Wild defines operations system as ‘a configuration of resources
combined for the provision of goods or services’.

A FRAMEWORK OF MANAGING OPERATIONS

Operation managers are concerned with planning, organising, and controlling

the activities, which affect human behaviour through models.
1. Planning is the activity that establishes a course of action and guide
future decision-making. The operations manager defines the objectives
for the operations subsystem of the organisation, and the policies, and
procedures for achieving the objectives. This stage includes clarifying
the role and focus of operations in the organization’s overall strategy.
It also involves product planning, facility designing and using the
conversion process.
2. Organizing is the activities that establish a structure of tasks and
authority. Operation managers establish a structure of roles and the
flow of information within the operations subsystem. They determine
the activities 11required to achieve the goals and assign authority and
responsibility for carrying them out.
3. Controlling is the activities that assure the actual performance in
accordance with planned performance. To ensure that the plans for the
operations subsystems are accomplished, the operations manager must
exercise control by measuring actual outputs and comparing them to
planned operations management.

 Controlling costs, quality, and schedules are the important functions

here. 1. Behaviour: Operations managers are concerned with the
activities, which affect human behaviour through models. They want to
know the behaviour of subordinates, which affects managerial
activities. Their main interest lies in the decision-making behaviour.

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 2. Models: Models represents schematic representation of the
situation, which will be used as a tool for decision-making.

OPERATIONS MANAGEMENT

Joseph G.Monks defines Operations Management as the process whereby

resources, flowing within a defined system, are combined and
transformed by a controlled manner to add value in accordance with
policies communicated by management.

The operations managers have the prime responsibility for processing

inputs into outputs. They must bring together under production plan that
effectively uses the materials, capacity and knowledge available in the
production facility.

The definition of the operations Management contains following keywords:

Resources, Systems, transformation and Value addition Activities.

RESOURCES - Resources are the human, material and capital inputs to

the production process. Human resources are the key assets of an
organization.

SYSTEMS - Systems are the arrangement of components designed to

achieve objectives according to the plan. The business systems are
subsystem of large social systems. In turn, it contains subsystem such as
personnel, engineering, finance and operations, which will function for the
good of the organisation.

TRANSFORMATION AND VALUE ADDING ACTIVITIES - The objective

of combining resources under controlled conditions is to transform them
into goods and services having a higher value than the original inputs.

OPERATIONS MANAGEMENT OBJECTIVES

CUSTOMER SERVICE The first objective of operating systems is to utilize

resources for the satisfaction of customer wants. Therefore, customer
service is a key objective of operations management. The operating
system must provide something to a specification, which can satisfy the
customer in terms of cost and timing. Thus, providing the ‘right thing at a
right price at the right time’ can satisfy primary objective.

RESOURCE UTILISATION Another major objective of operating systems

is to utilize resources for the satisfaction of customer wants effectively.
Customer service must be provided with the achievement of effective
operations through efficient use of resources. Inefficient use of resources
or inadequate customer service leads to commercial failure of an
operating system.

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 THE STRATEGIC ROLE OF OPERATIONS

Primary goals of the organisations are related market opportunities.

Economy and efficiency of conversion operations are the secondary goals,
which will be predominant with the study and practice of operations
management.

After assessing the potential within an industry, an overall

organizational strategy must be developed, including some basic choices
of the primary basis for competing. In doing so, priorities are established
among the following four characteristics:
• Quality (product performance).
• Cost efficiency (low product price).
• Dependability (reliable, timely delivery of orders to customers).
• Flexibility (responding rapidly with new products or changes in
volume).

OPERATIONS OBJECTIVES The overall objective of the operations

subsystem is to provide conversion capabilities for meeting the
organization’s goals and strategy. The sub-goals of the operations
subsystem, must specify the following: 1. Product/service characteristics.
2. Process characteristics.
3. Product/service quality.
4. Efficiency
 Effective employee relations and cost control of labour.
 Cost control of material.
 Cost control in facility utilization.
5. Customer service (schedule)
 Producing quantities to meet expected demand.
 Meeting the required delivery date for goods or services.
6. Adaptability for future survival.

STRATEGIC PLANNING

Strategic planning is the process of thinking through the current

mission of the organization and the current environmental conditions facing
it, then setting forth a guide for tomorrow’s decisions and results. Strategic
planning is built on fundamental concepts: that current decisions are based
on future conditions and results

o Strategic Planning for Production and Operations - In the production or

operations function, strategic planning is the broad, overall planning
that precedes the more detailed operational planning. Executives who
head the production and operations function are actively involved in
strategic planning, developing plans that are consistent with the firm’s
overall strategies as well as such functions as marketing, finance
accounting and engineering. Production and operations strategic plans

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 are the basis for (1) operational planning of facilities (design) and (2)
operational planning for the use of these facilities.
o Strategic Planning Approaches for Production/Operations - There are
many approaches to strategic planning. The key point is that
operations strategies must be consistent with the overall strategies of
the firm. Operations typically utilize the overall corporate approach to
strategic planning, with special modifications and a focus upon
operations issues and opportunities.
o A Strategic Planning Operations Model - A low-cost, high productivity
operation makes efficiency possible. Minimum use of scarce resources
while sustaining high outputs is the key to productivity. Effectiveness is
how well a company is able to meet specific criteria such as delivery
schedules and technical capability. Quality is the degree to which the
product or services meets customer and organisation expectations.

PRODUCTIVITY

Productivity is defined in terms of utilization of resources, like material

and labour. In simple terms, productivity is the ratio of output to input. For
example, productivity of labour can be measured as units produced per
labour hour worked. Productivity is closely linked with quality, technology
and profitability. Hence, there is a strong stress on productivity improvement
in competitive business environment. Productivity can be improved by;
(a) Controlling inputs,
(b) Improving process so that the same input yields higher output, and
(c) By improvement of technology.

PRODUCTIVITY ANALYSIS

For the purposes of studies of productivity for improvement purposes,

following types of analysis can be carried out:
1. Trend analysis: Studying productivity changes for the firm over a period of
time.
2. Horizontal analysis: Studying productivity in comparison with other firms
of same size and engaged in similar business.
3. Vertical analysis: Studying productivity in comparison with other industries
and other firms of different sizes in the same industry.
4. Budgetary analysis: Setting up a norm for productivity for a future period
as budget, based on studies as above, and planning strategies to achieve it.

FACTORS AFFECTING PRODUCTIVITY

Economists site a variety of reasons for changes in productivity. However

some of the principle factors influencing productivity rate are:

1. Capital/labour ratio: It is a measure of whether enough investment is

being made in plant, machinery, and tools to make effective use of labour
hours.

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2. Scarcity of some resources: Resources such as energy, water and number
of metals will create productivity problems.
3. Work-force changes: Change in work-force effect productivity to a larger
extent, because of the labour turnover.
4. Innovations and technology: This is the major cause of increasing
productivity. 5. Regulatory effects: These impose substantial constraints
on some firms, which lead to change in productivity.
6. Bargaining power: Bargaining power of organized labour to command
wage increases excess of output increases has had a detrimental effect on
productivity.
7. Managerial factors: Managerial factors are the ways an organization
benefits from the unique planning and managerial skills of its manager.
8. Quality of work life: It is a term that describes the organizational
culture, and the extent to which it motivates and satisfies employees.

SCOPE OF OPERATIONS MANAGEMENT

Following are the activities, which are listed under Production and Operations
Management functions:

1. Location of facilities.
2. Plant layouts and Material Handling.
3. Product Design.
4. Process Design.
5. Production and Planning Control.
6. Quality Control.
7. Materials Management.
8. Maintenance Management.

CHAPTER 3
COMPETITIVENESS, STRATEGY AND
PRODUCTIVITY

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 Companies must be competitive to sell their goods and services in the
marketplace. Competitiveness is an important factor in determining whether
a company prospers, barely gets by, or fails. Marketing influences
competitiveness in several ways, including;

1. Identifying consumer wants and/or needs is a basic input in an

organization’s decision-making process, and central to
competitiveness.
2. Pricing is usually a key factor in consumer buying decisions. It is
important to understand the trade-off decision consumers make
between price and other aspects of a product.
3. Advertising and promotion are ways organizations can inform potential
customers about features of their products or services, and attract
buyers.

Operations have a major influence on competitiveness through;

 Product and service design

 Cost
 Location
 Quality
 Quick response
 Flexibility
 Inventory management
 Supply chain management
 Service
 Managers and workers

Why some organizations fail?

 Neglecting operations strategy

 Failing to take advantage of strengths/opportunities, and/or failing to
recognize competitive threats
 Putting too much emphasis on short-term financial performance at the
expense of research and development
 Placing too much emphasis on product and service design and not
enough on process design and improvement
 Neglecting investments in capital and human resources
 Failing to consider customer wants and needs

MISSION AND STRATEGIES

An organization’s mission is the reason for its existence. It is

expressed in its’ mission statement, which state the purpose of an
organization. A mission statement serves as the basis for organizational
goals, which provide more detail and describe the scope of the mission.

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Goals serve as a foundation for the development of organizational
strategies.

Strategies are plans for achieving organizational goals. Strategies can

be long term, intermediate term, or short term. To be effective, strategies
must be designed to support the organization’s mission and its
organizational goals.

STRATEGIES AND TACTICS

Strategies provide focus for decision making. Generally speaking

organizations have overall strategies called organizational strategies, which
relate to the entire organization. They also have functional strategies, which
relate to each of the functional areas of the organization.

Tactics are the methods and actions used to accomplish strategies.

They are more specific than strategies, and they provide guidance and
direction for carrying out actual operations, which need the most specific and
detailed plans and decision making in an organization.

STRATEGY FORMULATION

In formulating a successful strategy, organizations must take into

account both order qualifiers and order winners.

 Order qualifiers are those characteristics that potential customers

perceive as minimum standards of acceptability for a product to be
considered for purchase.
 Order winners are those characteristics of an organization’s goods or
services that cause them to be perceived as better than the
competition.

ENVIRONMENTAL SCANNING is the considering of events and trends that

present either threats or opportunities for the organization. Generally these
include competitors’ activities; changing consumer needs; legal, economic,
political, and environmental issues; the potential for new markets; and the
like.

QUALITY AND TIME STRATEGIES

QUALITY-BASED STRATEGIES focus on maintaining or improving the

quality of an organization’s product or services.
TIME-BASED STRATEGIES focus on reducing the time required to
accomplish various activities. By doing so, organizations seek to improve
service to the customer and to gain a competitive advantage over rivals who
take more time to accomplish the same task.

Organizations have achieved time reduction in some of the following;

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 1. Planning time – the time needed to react to a competitive threat
2. Product/service design time – the time needed to develop and market
nee or redesigned products or services
3. Processing time – the time needed to produce goods or provide
services
4. Changeover time – the time needed to change from producing one
type of product or service to another
5. Delivery time – the time needed to fill orders
6. Response time for complaints – these might be customer complaints
about quality, timing of deliveries, and incorrect shipments.

PRODUCTIVITY

One of the primary responsibilities of a manager is to achieve

productive use of an organization’s resources. The term productivity is used
to describe this. Productivity is an index that measures output (goods and
services) relative to the input (labor, materials, energy and other resources)
used to produce it.

Product = Output
Input

A productivity ratio can be computed for a single operation, a

department, an organization or an entire country. In business organizations,
productivity ratios are used in planning workforce, scheduling equipment,
financial analysis, and other important tasks.

Productivity Growth = Current productivity – Previous productivity x 100

Previous productivity

FACTORS THAT AFFECT PRODUCTIVITY

Numerous factors affect productivity. Generally they are;

 Methods
 Capital
 Quality
 Technology
 Management

CHAPTER 4
FORECASTING

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INTRODUCTION

FORECAST –. A statement about the future value of a variable of interest

Forecast are a basic input in the decision making processes of operations
management because they provide information on future demand.

 The importance of forecasting to operations management cannot be

overstated. The primary goal of operations management is to match
supply to demand.
 Having a forecast of demand is essential for determining how much
capacity or supply will be needed to meet demand.
 Forecast 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.

Two Aspects of Forecast

1. The expected level of demand can be a function of some structural

variations, such as a trend or seasonal variation.
2. The degree of accuracy that can be assigned to forecast. Forecast
accuracy is a function of the ability of forecasters to correctly model
demand, random variation, and sometimes unforeseen events.

 SHORT-TERM FORECAST – pertain to ongoing operations. The time

horizon maybe fairly short or somewhat longer.
 LONG RANGE FORECAST – pertain to new product or services, new
equipment, new facilities, or something else that require a somewhat
long lead time to develop, construct, or otherwise implement.

Here are some examples of uses of forecasts in business organizations;

1. ACCOUNTING – new product/process cost estimates, profit projections,

cash management.
2. FINANCE – equipment/equipment replacement need, timing and
amount of funding/borrowing needs.
3. HUMAN RESOURCES – hiring activities, including recruitment,
interviewing, training, layoff planning, including outplacement
counseling.
4. MARKETING – pricing and promotion, e-business strategies, global
competition strategies.
5. MIS – new/revised information systems, internet services
6. OPERATIONS – schedules, capacity planning, work assignments and
workloads, inventory planning, make-or-buy decisions, outsourcing,
project management.
7. PRODUCT/SERVICE DESIGN – revision of current features, design of
new products or services.

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 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 to match capacity with demand, thereby
achieving high yield levels.

TWO USES FOR FORECASTS:

o One is to help managers plan the system. Planning the system

generally involves long range plans about the types of products and
services to offer, what facilitates and equipment to have, where to
locate, and so on.
o To help them plan the use of the system. Planning the use of the
systems 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.

FEATURES COMMON TO ALL FORECASTS

A wide variety of forecasting techniques are in use. In many respects,

they are quite different from each other, as you shall soon discover.
Nonetheless, certain features are common to all, and it is important to
recognize them.

1. Forecasting techniques generally assume that the same underlying

casual system that existed in the past will continue to exist in the
future.
2. Forecasts are not perfect; actual results usually differ from predicted
values; the presence of randomness precludes a perfect forecast.
3. Forecast for groups of items tend to be more accurate that forecasts
for individual items because forecasting errors among items in a group
usually have a canceling effect.
4. Forecast accuracy decreases as the time period covered by the
forecast – the time horizon increases.

ELEMENTS OF A GOOD FORECAST

1. The forecast should be timely

2. The forecast should be reliable
3. The forecast should be expressed in meaningful units
4. The forecast should be in writing
5. The forecast should be simple to understand and use
6. The forecast should be cost-effective

STEPS IN FORECASTING PROCESS

1. Determine the purpose of the forecast

2. Establish time horizon
3. Select a forecasting techniques

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 4. Obtain, clean, and analyze appropriate data
5. Make the forecast
6. Monitor the forecast

FORECAST ACCURACY

Accuracy and control forecasts are a vital aspect for forecasting, so

forecasters want to minimize forecast errors.

Forecast errors is the difference between the value that occurs and the
value that was predicted for a given time period. Hence, Error = Actual –
Forecast:

et = At – Ft
o Positive errors results when the forecast is too low, negative errors
when the forecast is too high.
o Forecast errors influence decisions in two somewhat different ways.
o One is making a choice between various alternatives;
o Evaluating the success or failure of a technique in use

APPROACHES TO FORECASTING

There are two general approaches in forecasting: qualitative and

quantitative.

 QUALITATIVE – methods is consist mainly of subjective inputs, which

is often defy precise numerical description.
 QUANTITATIVE – methods involves either the projection of historical
data or the development of associate models that attempt to utilize
casual (explanatory) variables to make a forecast.

The following pages present a variety of forecasting techniques that

are classified as judgmental, time-series or associative.

- Judgmental forecast – this are forecast that use subjective inputs

such as opinion from consumer surveys, sales staff, managers,
executives, and experts.
 Executive opinions – a small group of upper-level managers
may meet and collectively develop a forecast. This approach is
often used as a part of long-range planning and new product
development.
 Sales force 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 customer may be considering for the
future.

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  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.
 Delphi method – It is 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.
- Time-series forecast – forecast that project patterns identified in
recent time-series observations.
 Trend – refers to a long-term upward or downward movement in
the data.
 Seasonality – refers to short-term, fairly regular variations
generally related to factors such as the calendar or time of the
day.
 Cycles – are wavelike variations of more than one year’s
duration.
 Irregular variation – are due to unusual circumstances such as
severe weather conditions, strikes, or a major change in a
product or service.
 Random variations – are residual variations that remain after
all other behaviors have been accounted for.
- Associative model – forecasting technique that uses explanatory
variables to predict future demand.

CHAPTER 5
PRODUCT AND SERVICE DESIGN

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WHAT DOES PRODUCT AND SERVICE DESIGN DO?

The various activities and responsibilities and service design include

the following (functional interactions are shown in parentheses):

1. Translate customer wants and needs into products and service

requirements. (marketing, operations)
2. Refine existing products and services. (marketing)
3. Develop new products and/or services. (marketing, operations)
4. Formulate quality goals. (marketing, operations)
5. Formulate cost targets. (accounting, finance, operations)
6. Construct and test prototypes. (operations, marketing, engineering)
7. Document specifications.
8. Translate product and service specifications into process specifications
(engineering, operations)

REASONS FOR PRODUCT AND SERVICE DESIGN OR REDESIGN

Product and service design has typically had strategic implications for
the success and prosperity of an organization. The main forces that initiate
design or redesign are market opportunities and threats. The factors that
give rise to market opportunities and threats can be one or more changes.

 Economic – (low demand, excessive warranty claims, the need to

reduce cost)
 Social and demographic – (aging baby boomers, population shifts)
 Political, liability, or legal – government changes, safety issues, new
regulations)
 Competitive – (new or changed products or services, new
advertising/promotions
 Cost or availability – (raw materials, components, labor)
 Technological – (in product components, processes)

LEGAL AND ETHICAL CONSIDERATIONS

 PRODUCT LIABILITY – the responsibility of a manufacturer for any

injuries or damages caused by faulty product.
 UNIFORM COMMERCIAL CODE – products carry an implication of
merchantability and fitness.

Organizations generally want designers to adhere to guidelines such as the

following;

 Produce designs that are consistent with the goals of the organization.
 Give customers the value they expect.
 Make health and safety a primary concern.

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SUSTAINABILITY

Product and service design is a focal point in the quest for

sustainability. Key aspects include life cycle assessment, reduction of costs
and materials used, reuse of parts of returned products, and recycling.

1. LIFE CYCLE ASSESSMENT (LCA) – also known as life cycle analysis,

is the assessment of the environmental impact of a product or service
throughout its useful life.
2. THE THREE Rs – REDUCE, REUSE AND RECYCLE – designers often
reflect on three particular aspects of potential cost saving and
reducing environmental impact: reducing the use of materials through
value analysis; refurbishing and then reselling returned goods that are
deemed to have additional useful life, which is referred to as
remanufacturing; and reclaiming parts of unusable products for
recycling.
3. REDUCE: VALUE ANALYSIS – value analysis refers to an examination
of the function parts and materials in an effort to reduce the cost
and/or improve the performance of a product.
4. REUSE: REMANUFACTURING – remanufacturing refers to
refurbishing used products by replacing worn-out or defective
components, and reselling products.
5. RECYCLE – recycling is sometimes consideration for designers.
Recycling means recovering materials for future use. Companies
recycle for a variety of reason including;
 Cost saving
 Environment concerns
 Environment regulation

The pressure to recycle has given rise to the term design for recycling
(DFR), referring to product design that takes into account the ability to
disassemble a used product to recover the recyclable parts.

RELIABILITY

Reliability is a measure of the ability of a product, a part, a service, or

an entire system to perform its intended function under a prescribed set of
conditions. The importance of reliability is underscored by its’ use by
prospective buyers in comparing alternatives and by sellers as one
determinant of price.

Failure is used to describe a situation in which an item does not

perform as intended. This includes not only instances in which an item does
not function at all, but also instances in which the item’s performance is
substandard or it functions in a way not intended.

Reliabilities are always specified with respect to certain conditions, called

normal operation conditions. This can include load, temperature and

22
humidity ranges as well as operating procedures and maintenance
schedules.

IMPROVING RELIABILTY

1. Improve component design

2. Improve production and/or assembly techniques
3. Improve testing
4. Use backups
5. Improve preventive maintenance procedures
6. Improve user education
7. Improve system design

PHASES IN PRODUCT DESIGN

1. IDEA GENERATION – product development begins with idea generation.

2. FEASIBILITY ANALYSIS – entails market analysis (demand), economic
analysis, (development cost and production cost, profit potential), and
technical analysis (capacity requirements and availability and the skills
needed)
3. PRODUCT SPECIFICATIONS – once product specification have been set,
attention turns to specification for the process that will be needed to
produce the product.
4. PROCESS SPECIFICATIONS – once product specifications have been set,
attention turns to specifications for the process that will be needed to
produce the product.
5. PROTOTYPE DEVELOPMENT – with product and process specifications
complete, one (or a few) units are made to see if there are any
problems with the product or process specification.
6. DESIGN REVIEW – make any necessary changes or abandon.
7. MARKET TEST – a market test is used to determine the extent of
consumer acceptance.
8. PRODUCT INTRODUCTION – promote the product
9. FOLLOW-UP EVALUATION – determine if changes are needed and
redefine forecasts.

DESIGNING FOR PRODUCTION

 Concurrent engineering – bringing design and manufacturing

engineering people together early in the design phase to
simultaneously develop the product and the process of creating the
product.
 Computer-aided design (CAD) – product design using computer
graphics

23
  Design for manufacturing (DFM) – the designing of products that are
compatible with an organization’s capabilities.
 Design for assembly (DFA) – design the focuses on reducing the
number of parts in a product and on assembly methods and sequence.
 Quality function deployment (QFD) – an approach that integrates the
“voice of the customer” into both products and service development.

SERVICE DESIGN

Service refers to an act, something that is done to or for a customer is

provided by a service delivery system, which includes the facilities,
processes, and skill needed to provide the service. Many services are not
pure services, but part of a product bundle – the combination of goods and
services provided to a customer.

System design involves development or refinement of the overall service

package:

1. The physical resources needed

2. The accompanying goods that are purchased or consumed by the
customer, or provided with the service
3. Explicit services
4. Implicit services

DIFFERENCES BETWEEN SERVICE DESIGN AND PRODUCT DESIGN

1. Products are generally tangible; services are generally intangible

2. In many instances services are created and delivered at the same time
3. Services cannot be inventoried
4. Services are highly visible to consumers and must be designed with
that in mind
5. Some services have low barriers to entry and exit
6. Location is often important to service design, with convenience as a
major factor.
7. Service systems range from those with little or no customer contact to
those that have a very high degree of customer contact.
8. Demand variability alternately creates waiting lines or idle service
resources.

CHARACTERISTICS OF WELL-DESIGNED SERVICE SYSTEMS

 Being consistent with the organization mission

 Being user friendly
 Being robust id variability is a factor
 Being easy to sustain
 Being cost-effective
 Having value that is obvious to customers

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CHALLENGES OF SERVICE DESIGN

 Requirements are variable

 Services can be difficult to describe
 Customer contact is usually much higher in services
 Service design must take into account the service-customer encounter.

CHAPTER 6
MANAGEMENT OF QUALITY
QUALITY refers to the ability of a product or service to consistently meet or
exceed customer requirements or expectations.

THE FOUNDATIONS OF MODERN MANAGEMENT: THE GURUS

25
 1. Walter Shewhart – was a genuine pioneer in the field of quality
control, and he became known as the “father of statistical quality
control”. He developed methods for analyzing the output of industrial
processes to determine when corrective action was necessary.
2. W. Edwards Deming - Deming recognized the importance of viewing
management process statistically. Deming preached the importance of top
management leadership, customer/supplier partnerships, and continuous
improvement in product development and manufacturing processes.
Japanese managers embraced these ideas, and the rest they say is history.
3. Joseph Juran – he taught Japanese manufacturers how to improve the
quality of their goods, and he too, can be regarded as a major force in
Japan’s success in quality. Juran viewed quality as fitness-for-use.
4. Philip Crosby – he developed the concept of zero-defects and
popularized the phrase “Do it right the first time”. He stressed
prevention, and he argued against the idea that “there will always be
some level of defectives”.
5. Armand Feigenbaum – he was instrumental in advancing the ‘cost of
nonconformance’ approach as a reason for management to commit to
quality. He recognized that quality is was not simply a collection of
tools and techniques, but a “total field”.
6. Kaoru Ishikawa – among his key contributions were the development
of the cause-and-effect diagram (also known as a fishbone diagram) for
problem solving and the implementation of quality circles, which
involves workers in quality improvement.

INSIGHTS ON QUALITY MANAGEMENT

Product quality is often judged on eight dimensions of quality

1. Performance – main characteristics of the product or service

2. Aesthetics – appearance, feel, smell, taste
3. Special features – extra characteristics
4. Conformance – how well a product or service corresponds to design
specifications
5. Reliability – consistency of performance
6. Durability – the useful life of the product
7. Perceived quality – indirect evaluation of quality
8. Serviceability – handling of complaints or repairs.

Service quality is often described using the following dimensions

1. Convenience – the availability and accessibility of the service

2. Reliability – the ability to perform a service, dependably, consistently
and accurately
3. Responsiveness – the willingness of service providers to help
customers in unusual situation and to deal with problems
4. Time – the speed in which service us delivered

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 5. Assurance – the knowledge exhibited by personnel who come into
contact with a customer and their ability to convey trust and
confidence
6. Courtesy – the way customers are treated by employees who come
into contact with them
7. Tangibles – the physical appearance of facilities, equipment personnel
and communication materials.
8. Consistency – the ability to provide the same level of good quality
repeatedly.

THE DETERMINANTS OF QUALITY

The degree to which a product or service successfully satisfies its intended

purpose has four primary determinants:

1. Design
2. How well the product or service conforms to the design
3. Ease of use
4. Service after delivery

Quality of design – refers to the intention of designers to include or

exclude certain features in a product or service.

Quality of conformance – refers to the degree to which goods and services

conforms (i.e., achieve) the intent of the designer. This is affected by factors
such as the capability of the equipment used; the skills, training, and
motivation of workers; the extent to which the design lends itself to
production; and taking corrective action.

RESPONSIBILITY FOR QUALITY

 TOP MANAGEMENT – top management has the ultimate

responsibility for quality.
 DESIGN – quality products and service begin with design.
 PROCUREMENT – the procurement department has responsibility for
obtaining goods and services that will not detract from the quality of
the organization’s goods and services.
 PRODUCTION/OPERATIONS – production/operations has
responsibility to ensure that processes yield products and services that
conform to design specifications.
 QUALITY ASSURANCE – is responsible for gathering and analyzing
data on problems and working with operations to solve problems.
 PACKAGING AND SHIPPING – this department must ensure that
goods are not damages in transit, that packages are clearly labeled,
that instructions are included, that all parts are included, and shipping
occurs in a timely manner.

27
  MARKETING AND SALES – this department has the responsibility to
determine customers’ needs and to communicate them to appropriate
areas of the organization.
 CUSTOMER SERVICE – is often the first department to learn of
problems. It has the responsibility to communicate that information to
appropriate departments, deal in a reasonable manner with customers,
work to resolve problems and follow up to confirm that the situation
has been effectively remedied.

THE CONSEQUENCES OF POOR QUALITY

1. Loss of business – poor designs or defective products or services can

result in loss of business.
2. Liability – organizations must pay special attention to their potential
liability due to damages or injuries resulting from either faulty design
or poor workmanship.
3. Productivity – productivity and quality are often closely related. Poor
quality can adversely affect productivity during the manufacturing
process of parts are defective and have to be reworked.
4. Cost – cost to remedy a problem is a major consideration in quality
management. The earlier a problem is identified in the process, the
cheaper the cost to fix it.

THE COST OF QUALITY

 APPRAISAL COST - relate to inspection, testing, and other activities

intended to uncover defective products or services, or to assure there
are none.
 PREVENTION COST – relate to attempts to prevent defects from
occurring.
 FAILURE COST – are incurred by defective parts or products or by faulty
services.

CHAPTER 7
PHILOSOPHIES AND FRAMEWORKS
THE DEMING PHILOSOPHY

No individual has had more influence on quality management than Dr. W.

Edwards Deming (1900-1993). Deming received a Ph.D in physics and was trained
as a statistician; so much of his philosophy can be traced to these roots. He worked

28
for Western Electric during its pioneering era of statistical quality control in the
1920s and 1930s. Deming recognized the importance of viewing management
process statistically. Deming preached the importance of top management
leadership, customer/supplier partnerships, and continuous improvement in product
development and manufacturing processes. Japanese managers embraced these
ideas, and the rest they say is history.

“A product or a service possesses quality if it helps somebody and enjoys a good

and sustainable market”. – Dr. W. Edwards Deming

Improve quality

Costs decrease because of less

rework, fewer mistakes, fewer
delays and snags, and better use of
time and materials

Productivity improves

Capture the market with better

quality and lower price

Stay in business

Provide jobs and more jobs

Figure 2.1 The Deming Chain Reaction

Deming’s Profound Knowledge system consists of four interrelated parts:

1. Appreciation for a system – the components of any system must work

together if the system is to be effective. Traditional organizations typically
manage according to the functions in vertical organization charts. Deming
stressed that systems must be focused toward a purpose. System thinking
applies to managing people also. Optimizing the systems requires internal
cooperation.
2. Variation – the second part of Profound Knowledge is a basic understanding
of statistical theory and variation. Deming suggested that management first
understand, and then work to reduce variations through improvements in
technology, process design, and training.

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 3. Theory of Knowledge – the third part of Profound Knowledge is the “theory
of knowledge”, the branch of philosophy concerned with the nature and
scope of knowledge, its presuppositions and basis, and the general reliability
of claims to knowledge. Deming emphasized that knowledge is not possible
without theory, and experience alone does not establish a theory.
4. Psychology – psychology helps us understand people, interactions between
people and circumstances, interactions between leaders and employees, and
any system of management. Deming’s philosophy is based on understanding
human behavior and treating people fairly.

DEMING’S 14 POINTS

1. CREATE A VISION AND DEMONSTRATE COMMITMENT

2. LEARN THE NEW PHILOSOPHY
3. UNDERSTAND INSPECTION
4. STOP MAKING DECISIONS PURELY ON THE BASIS OF COST
5. IMPROVE CONSTANTLY AND FOREVER
6. INSTITUTE TRAINING
7. INSTITUTE LEADERSHIP
8. DRIVE OUT FEAR
9. OPTIMIZE THE EFFORTS OF TEAMS
10.ELIMINATE EXHORTATIONS
11.ELIMINATE NUMERICAL QUOTAS AND MANAGEMENT BY OBJECTIVE (MBO)
12.REMOVE BARRIERS TO PRIDE IN WORKMANSHIP
13.ENCOURAGES EDUCATION AND SELF-IMPROVEMENT
14.TAKE ACTION

THE JURAN PHILOSOPHY

Joseph Juran (1904) was born in Romania and came to the United States in
1912. Like Deming, Juran taught quality principles to the Japanese in the 1950s and
was a principal force in their quality reorganization. Unlike Deming, however, Juran
did not propose a major cultural change in the organization, but rather sought to
improve quality by working within the system familiar to managers.

Juran’s definition of quality suggests that it should be viewed from both

external and internal perspective; that is, quality is related to;

 Product performance that results in customer satisfaction

 Freedom from product deficiencies, which avoids customer
dissatisfaction.

The pursuit of quality is viewed on two levels:

 The mission of the firm as a whole is to achieve high design quality

 The mission of each department in the firm is to achieve a high
conformance quality.

QUALITY TRILOGY
30
 1. QUALITY PLANNING – the process of preparing to meet quality goals.
2. QUALITY CONTROL – the process of meeting quality goals during operations
3. QUALITY IMPROVEMENT – the process of breaking through unprecedented
levels of performance.

THE CROSBY PHILOSOPHY

Philip B. Crosby (1926-2001) was corporate vice president for quality at

International Telephone and Telegraph (ITT) for 14 years. The essence of Crosby’s
quality philosophy is embodied in what he calls the “Absolutes of Quality
Management” and the “Basic Elements of Improvement”. Crosby’s Absolutes of
Quality Management include the following points:

1. Quality means conformance to requirements, not elegance

2. There is no such thing as a quality problem
3. There is no such thing as the economics of quality; doing the job right the
first time is always cheaper
4. The only performance measurement is the cost of quality, which is the
expense of nonconformance
5. The only performance standard is “Zero Defects (ZD)”

Crosby’s Basic Elements of Improvement were;

 Determination
 Education
 implementation

OTHER QUALITY PHILOSOPHERS

A.V. FEIGENBAUM – he is best known for coining the phrase total quality control
which he defined as “an effective system for integrating the quality development,
quality maintenance, and quality improvement efforts of the various groups in an
organization so as to enable production and service at the most economical levels
which allows full customer satisfaction”.

Feigenbaum’s philosophy is summarized in his three steps to quality;

1. Quality leadership
2. Modern quality technology
3. Organizational commitment

KAORU ISHIKAWA – he build on Feigenbaum’s concept of total quality and

promoted greater involvement by all employees, from the top management to the
front line staff, by reducing reliance on quality professionals and quality
departments. He advocated collecting and analyzing factual data using simple
visual tools, statistical techniques, and teamwork as the foundations for
implementing total quality.

31
Some key elements of his philosophy are summarized here

1. Quality begins with education and ends with education

2. The first step in quality is to know the requirements of customers
3. The ideal state of quality control occurs when inspection is no longer
necessary.
4. Remove the root cause, not the symptoms.
5. Quality control is the responsibility of all workers and all divisions.
6. Do not confuse the means with the objectives.
7. Put quality first and set your sights on long-term profits.
8. Marketing is the entrance and exit of quality.
9. Top management must not show anger when facts are presented by
subordinates.
10.Ninety five percent of problems in a company can be solved with simple tools
for analysis and problem solving.
11.Data without dispersion information (i.e., variability) are false data.

ISO 9000:2000

As quality became a major focus of businesses throughout the world, various

organizations developed standards and guidelines. Term such as quality
management, quality system, and quality assurance acquired different, sometimes
conflicting meanings from country to country, within country, and even within an
industry.

The IOS took a unique approach in adopting the “IOS” prefix in naming the
standards. ISO is a scientific term for equal (as in isotherm lines on a weather map,
which show equal temperatures). Thus organizations certified under the ISO 9000
standard are assured to have quality equal to their peers. The standards have been
adopted in the United State by the American nationals standards Institute (ANSI)
with the endorsement and cooperation of the America Society for Quality (ASQ). The
standards are recognized by about 100 countries, including Japan.

The standards were created to meet five objectives.

1. Achieve, maintain, and seek to continuously improve product quality

(including services) in relationship to requirements.
2. Improve the quality of operations to continually meet customers’ and
stakeholders’ stated and implied needs.
3. Provide confidence to internal management and other employees that
quality requirements are being fulfilled and that improvement is taking
place.
4. Provide confidence to customers and other stakeholders that quality
requirements are being achieved in the delivered product.
5. Provide confidence that quality system requirements are fulfilled.

ISO 9000:2000 Quality Management Principles

32
Principle 1: Customer Focus – organizations depend on their customers and
therefore should understand current and future customer needs, should meet
customer requirements, and strive to exceed customer expectations.

Principle 2: Leadership – leaders establish unity of purpose and direction of the

organization. They should create and maintain the internal environment in which
people can become fully involved in achieving the organizations objectives.

Principle 3: Involvement of People – people at all levels are the essence of an

organization and their full involvement enable their abilities to be used for the
organization’s benefit.

Principle 4: Process Approach – a desired result is achieved more efficiently

when activities and related resources are managed as a process.

Principle 5: System Approach to Management – Identifying, understanding,

and managing interrelated processes as a system contributes to the organization’s
effectiveness and efficiency in achieving its objectives.

Principle 6: Continual Improvement – continual improvement of the

organizations overall performance should be a permanent objective of the
organization.

Principle 7: Factual Approach to Decision Making – effective decisions are

based on the analysis of data and information.

Principle 8: Mutually Beneficial Supplier Relationships – an organization and

its suppliers are interdependent and a mutually beneficial relationship enhances the
ability of both to create value.

CHAPTER 8
QUALITY IN ORGANIZATIONS

QUALITY AND SYSTEMS THINKING

A production system is composed of many smaller, interacting

subsystems. These subsystems are linked together as internal customers
and suppliers. Likewise, every organization is composed of many individual
functions, which are often seen as separate units on an organization chart.

33
However, managers need to view the organization as a whole and
concentrate on the important organizational linkages among these functions.

Russel Ackoff, a noted authority in systems thinking, explained the

importance of systems thinking in the following way; “a combination of the
best system taken separately does not yield the best system”. Ackoff
concluded that management should focus on the interactions of parts and of
the system with other systems, rather than the actions of parts taken
separately.

QUALITY IN MANUFACTURING

Well-developed quality assurance systems have existed in

manufacturing for some time. The transition to a customer-driven
organization has caused fundamental changes in manufacturing practices,
changes that are particularly evident in areas such as product design, human
resource management, and supplier relations.

 Product design activities now closely integrate marketing, engineering,

and manufacturing operations.
 Human resource practices concentrate on empowering workers to
collect and analyze data, make critical operations decisions, and take
responsibility for continuous improvements, thereby moving the
responsibility for quality from the quality control department onto the
factory floor.
 Suppliers have become partners in product design and manufacturing
efforts.

MANUFACTURING SYSTEMS

The following is a typical manufacturing system and the key

relationships among its functions. The quality concerns of each component of
the system as describe below.

1. Marketing and Sales – marketing and sales involve much more than
advertising and selling. Today, marketing and sales employees have
important responsibilities for quality. These responsibilities include
learning the products and product features that consumers want, and
knowing the prices that consumers are willing to pay for them. This
information enables a firm to define products that are fit for use and
capable of being produced within the technological and budgetary
constraints of the organization.
2. Product Design and Engineering – under engineered products will
fail in the marketplace because they will not meet customer needs.
Products that are over engineered those that exceed the customer
requirements, may not find profitable market.

34
 3. Purchasing and Receiving – the quality of purchased parts and
services and the timeliness of their delivery are critical. The
purchasing department can help a firm achieve quality by:
 Selecting quality-conscious suppliers
 Ensuring that purchase orders clearly define the quality
requirements specified by product design and engineering
 Establishing long term supplier relationships based on trust
 Providing quality improvement training to suppliers
 Informing suppliers of any problems encountered with goods
 Maintaining good communication with suppliers
4. Production Planning and Scheduling – a production plan specifies
long-term and short-term production requirements for filling customer
orders and meeting anticipated demand. The correct materials, tools,
and equipment must be available at the proper time and in the proper
places in order to maintain a smooth flow of production.
5. Manufacturing and Assembly – the role of manufacturing and
assembly in producing quality is to ensure that the product is made
correctly. Manufacturing cannot do its job without a good product
design and good process technology.
6. Tool Engineering – the tool engineering functions is responsible for
designing and maintaining the tool used in manufacturing and
inspection. Worn manufacturing tools result in defective parts and
improperly calibrated inspection gauges give misleading information.
7. Industrial Engineering and Process Design – the job of industrial
engineers and process designers is to work with product design
engineers to develop realistic specifications.
8. Finished Goods Inspection and Testing – if quality is built into the
product properly, inspection should be unnecessary except for
auditing purposes and functional testing. In any case, inspection
should be used as a means of gathering information that can be used
to improve quality, not simply to remove defective items.
9. Packaging, Shipping, and Warehousing – often termed logistic
activities – are the functions that protect quality after goods are
produced.
10. Installation and Service – products must be used correctly in
order to benefit the customer. User must understand a product and
have adequate instructions for proper installation and operation.

In addition to the functions directly related to manufacturing the product,

certain business support activities are necessary for achieving quality. Some
of the activities are discussed here;

 Finance and Accounting – the finance function is responsible for

obtaining funds, controlling their use, analyzing investment
opportunities, and ensuring that the firm operates cost-effectively and
ideally profitably.
 Quality Assurance – because some managers lack the technical
expertise required for performing needed statistical tests or data

35
 analyses, technical specialists, usually in the “quality assurance
department”-assist the managers in these tasks.
 Legal Services – a firm’s legal department attempts to guarantee
that the firm complies with laws and regulations regarding such things
as product labeling, packaging, safety, and transportation; design and
words its warranties properly; satisfies its contractual requirements;
and has proper procedures and documentation in place in the event of
liability claims against it.

QUALITY IN SERVICES

The definitions of quality that apply to manufactured products apply

equally to service products. The very nature of service implies that it must
respond to the needs of the customer, that is, the service must “meet or
exceed customer expectations”. These expectations must be translated into
performance standards and specifications similar to standards of
conformance that direct manufacturing activities.

COMPONENTS OF SERVICE SYSTEM QUALITY

 EMPLOYEES – Customers evaluate a service primarily by the quality

of the human contact.
 INFORMATION TECHNOLOGY – information technology incorporates
computing, communication, data processing, and various other means
of converting data into useful information.

36