Chapter 12: Increasing Productivity and Quality The Productivity ...
Chapter 12: Increasing Productivity and Quality The Productivity-Quality Connection ● productivity: a measure of efficiency that compares how much is produced with the resources used to produce it. - the more we are able to produce the right things while using fewer resources, the more productivity grows and everyone benefits (businesses, workers, economy) ● Quality: a products's fitness for sue in terms of offering the features that customers want - when one country is more productive that another, it will accumulate more wealth (productivity going down standard of living going down) - quality is defined in terms of value to a customer, so companies should have more customer-oriented focus - quality improvement involves customers, quality, productivity and profits ● Labour Productivity: partial productivity ratio calculated by dividing gross domestic product by total number of workers < measure productivity - divides output by the labour aspect of resources, instead of capital or energy because records of employment and hours worked are accurate and easy to access (Canada's productivity fell 0.4% from 2002 to 2003) ● Organization for Economic Cooperation and Development (OECD) reports productivity levels in 23 countries; differences in productivity among countries can be credited to human skills, economic policies, natural resources, traditions - domestic productivity is important because its improvement means a wealthier population (GDP) ● level of productivity: the dollar value of goods and services produced by each worker - highest levels of productivity: US- 65 900, Belgium- 64 200, Italy- 61 700 ● currently manufacturing productivity his higher than service productivity ● Industry productivity: agriculture is more productive in Canada than other countries because of technology - Canfor Corp created the system Genus to determine logging plans that reflect demand and government policies, this increases productivity ● Company Productivity: high productivity means lower costs, thus increasing profits, higher wages and/or without raising prices - employee profit-sharing plans are a good incentive for employees to increase productivity Total Quality Management (TQM) ● businesses must take quality into account when measuring productivity - After WWII, consultant W. Edward Deming advised North American companies to increase quality, they didn't but the Japanese did making “Made In Japan” into a sign of quality and durability - Joseph Juran's Quality Trilogy: quality planning, quality control, quality improvement; first qualitymanagement model ● Fishbone diagram: cause and effect model that helps employees investigate and track down causes of quality problems- the model focuses on equipment, personnel, materials, procedures, other (weather, traffic) ● Total quality management: A concept that emphasizes that no defects are tolerable and that all employees are responsible for maintaining quality standards - At the Toyota Cambridge plant, employees can press a button to stop the production line if something is not up to the required standards - Standard Aero reduced the number of times a gearbox was handled by 84% as it moved through the repair process through weeks of analysis ● Performance quality: the overall degree of quality; how well the features of a product meet consumers' needs and how well the product performs - Maytag can charge a high price for its washers and dryers because it is perceived to have a higher quality and better features ● quality reliability: the consistency of quality from unit to unit of a product - Toyota has a reputation for producing very few “lemons” ● producing quality goods and services requires effort from all parts organization, charmain to janitor - At Germany's Messerchmitt-Boelkow-Blohm aerospace company, all employees are responsible for inspecting their own work ● Quality ownership: the concept that quality belongs to each employee who creates or destroys it in producing a good or service; the idea that all workers must take responsibility for producing a quality product - managers must motivate employees throughout the company to achieve quality goals
- General Electric Co set up a system where managers would have to become “Black Belts” in quality improvement Tools for Total Quality Management ● competitive product analysis: process by which a company analyzes a competitor's products to identify desirable improvements - Toshiba will take apart a Xerox photocopier and determine which Toshiba parts are satisfactory in terms of the competition ● value added analysis: the evaluation of all work activities, material flows, and paperwork to determine the value they add for customers ● statistical process control: statistical analysis techniques that allow managers to analyze variations in production data and to detect when adjustments are needed to create products with high quality reliability ● Process Variation: any change in employees, materials, work method, or equipment that affects output quality - Honey Nuggets cereal has a box filling operation that may require changing every now and then for amount of cereal dispensed ● Control Chart: a statistical process control method in which results of test sampling of a product are plotted on a diagram that reveals when a process is beginning to depart from normal operating conditions ● Quality/Cost studies: a method if improving product quality by assessing a firm's current quality related costs and identifying areas with the greatest cost-saving potential - quality costs are associated with making, finding, repairing, or preventing defective goods and sercivices ● Internal failures: expenses incurred during production and before bad product leaves the plant ● External failures: allowing defective products to leave the factory and get into consumers' hands ● Quality Improvement Teams: TGM tool in which groups of employees work together to improve quality - Motoral has company-wide team competitions to emphasize the value of the team approach, to recognize outstanding team performance, and to recognize the teams role in the continual improvement of the companys culture; teams get higher markets for dealing with Motorola's initiatives; these teams have increased cellular phone production by 50% and cut electronic-circuit defects by 85% (1-year savings of 1.8 million) ● Benchmarking: comparing the quality of a firm's output with the quality of output of the industry's leaders - internal benchmarking: a firm tracks its own performance over time to evaluate its progress and to set goals for improvement - external benchmarking: begins with a critical review of competitors to determine which goods or services perform the best - Ford, DaimlerChrysler and General Motors executives frequently tour Toyota plants to figure out how they make cars so efficiently ● Getting close to customers: customers are the driving force of all business activity - Greyhound marketing and operations vice president demanded that washrooms be clean enough to eat in, within weeks regional managers sent in pictures of them eating in their clean washrooms Trends In Productivity and Quality Management ● ISO 9000: program certifying that a factory, laboratory, or office has met the quality management standards of the International Organization for Standardization - more than 140 countries have adopted ISO 9000 as a national standard- more than 400 000 certificates have been issued in 160 countries - ISO 9000:2000: a revision of the old system that includes allowing firms to show that they follow documented procedures for testing products, training workers, keeping records, fixing defects; to become certified, companies must document procedures followed by workers at every stage in the production process< purpose is to ensure that practices will remain the same ● ISO 14000: certification program attesting to the fact that a factory, laboratory, or office has improved environmental performance ● Business Process Re-engineering: redesigning of business processes to improve performance, quality and productivity - GTE found that its over-the-phone services were not user friendly so GTE re-engineered the entire process by improving equipment, retraining employees, connecting software to formerly inaccessibly corporate databases ● Re-engineering process: 1. state a case for action (vision)
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2. identify activity that will be changed (process flow analysis) 3. evaluate information and human resources to see if they can meet the requirements for (information technology) 4. diagnose current process to identify strengths and weaknesses (process analysis skills) 5. create new process design (teamwork, customer focus) 6. implement design (leadership, teamwork) supply chain: flow of information, material and services that starts with raw-materials suppliers and continues through other stages in the operations process until the product reaches the end customer - ex farmer – co-op grain storage – flour miller – baking company – distributor – grocery stores – consumers Supply Chain Management (SCM): principle of looking at the chain as a whole tom improve the overall flow through the system - Dell shares long term production plans with suppliers via the internet - smooth flow of accurate information along the chain reduces unwanted inventories, avoids delays and cuts supply times, materials move faster to business customer and individual customers
Productivity and Quality as Competitive Tools ● a company's ability to compete by improving productivity and quality depends on participation by all parts of the firm ● Invest in innovation and technology: Steinway and Sons is concerned about maintaining quality but it has implemented new technology that allows the woodworkers to do their jobs more efficiently and precisely ● Continuous Improvement: the ongoing commitment to improve products and processes, step by step, in pursuit of ever-increasing customer satisfaction < Long Run Perspective - Motorala began using production monitoring software and changed its 3.4 defects per million parts to 2 defects per billion parts ● Emphasize quality of work life: companies enhance workers' physical and mental health through recreational facilities, counselling services, and other programs ● Employee empowerment: principle that all employees are valuable contributors to a firm's business and should be entrusted with decisions regarding their work - The Hampton Inns allowed workers to grant refunds; this increased customer satisfaction ● Training: a key method of preparing employees for productivity-improvement programs - American Management Association found a direct relationship between training and greater production profitability; firms that increased training were 66% more likely to report improved productivity and three times more likely to report increased profits ● Improve the Service Sector: employee attitudes are crucial to service production because employees are the service ● Judging Service Quality: 1. Reliability: perform the service as promised, accurately and on time 2. Responsiveness: be willing to help customers promptly 3. Assurance: maintain knowledgeable and courteous employees who will earn the trust and confidence of customers ● 4. Empathy: provide caring, individualized attention to customers ● Tangibles: Maintain a pleasing appearance of personnel, materials and facilities
- General Electric Co set up a system where managers would have to become “Black Belts” in quality improvement Tools for Total Quality Management ● competitive product analysis: process by which a company analyzes a competitor's products to identify desirable improvements - Toshiba will take apart a Xerox photocopier and determine which Toshiba parts are satisfactory in terms of the competition ● value added analysis: the evaluation of all work activities, material flows, and paperwork to determine the value they add for customers ● statistical process control: statistical analysis techniques that allow managers to analyze variations in production data and to detect when adjustments are needed to create products with high quality reliability ● Process Variation: any change in employees, materials, work method, or equipment that affects output quality - Honey Nuggets cereal has a box filling operation that may require changing every now and then for amount of cereal dispensed ● Control Chart: a statistical process control method in which results of test sampling of a product are plotted on a diagram that reveals when a process is beginning to depart from normal operating conditions ● Quality/Cost studies: a method if improving product quality by assessing a firm's current quality related costs and identifying areas with the greatest cost-saving potential - quality costs are associated with making, finding, repairing, or preventing defective goods and sercivices ● Internal failures: expenses incurred during production and before bad product leaves the plant ● External failures: allowing defective products to leave the factory and get into consumers' hands ● Quality Improvement Teams: TGM tool in which groups of employees work together to improve quality - Motoral has company-wide team competitions to emphasize the value of the team approach, to recognize outstanding team performance, and to recognize the teams role in the continual improvement of the companys culture; teams get higher markets for dealing with Motorola's initiatives; these teams have increased cellular phone production by 50% and cut electronic-circuit defects by 85% (1-year savings of 1.8 million) ● Benchmarking: comparing the quality of a firm's output with the quality of output of the industry's leaders - internal benchmarking: a firm tracks its own performance over time to evaluate its progress and to set goals for improvement - external benchmarking: begins with a critical review of competitors to determine which goods or services perform the best - Ford, DaimlerChrysler and General Motors executives frequently tour Toyota plants to figure out how they make cars so efficiently ● Getting close to customers: customers are the driving force of all business activity - Greyhound marketing and operations vice president demanded that washrooms be clean enough to eat in, within weeks regional managers sent in pictures of them eating in their clean washrooms Trends In Productivity and Quality Management ● ISO 9000: program certifying that a factory, laboratory, or office has met the quality management standards of the International Organization for Standardization - more than 140 countries have adopted ISO 9000 as a national standard- more than 400 000 certificates have been issued in 160 countries - ISO 9000:2000: a revision of the old system that includes allowing firms to show that they follow documented procedures for testing products, training workers, keeping records, fixing defects; to become certified, companies must document procedures followed by workers at every stage in the production process< purpose is to ensure that practices will remain the same ● ISO 14000: certification program attesting to the fact that a factory, laboratory, or office has improved environmental performance ● Business Process Re-engineering: redesigning of business processes to improve performance, quality and productivity - GTE found that its over-the-phone services were not user friendly so GTE re-engineered the entire process by improving equipment, retraining employees, connecting software to formerly inaccessibly corporate databases ● Re-engineering process: 1. state a case for action (vision)
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2. identify activity that will be changed (process flow analysis) 3. evaluate information and human resources to see if they can meet the requirements for (information technology) 4. diagnose current process to identify strengths and weaknesses (process analysis skills) 5. create new process design (teamwork, customer focus) 6. implement design (leadership, teamwork) supply chain: flow of information, material and services that starts with raw-materials suppliers and continues through other stages in the operations process until the product reaches the end customer - ex farmer – co-op grain storage – flour miller – baking company – distributor – grocery stores – consumers Supply Chain Management (SCM): principle of looking at the chain as a whole tom improve the overall flow through the system - Dell shares long term production plans with suppliers via the internet - smooth flow of accurate information along the chain reduces unwanted inventories, avoids delays and cuts supply times, materials move faster to business customer and individual customers
Productivity and Quality as Competitive Tools ● a company's ability to compete by improving productivity and quality depends on participation by all parts of the firm ● Invest in innovation and technology: Steinway and Sons is concerned about maintaining quality but it has implemented new technology that allows the woodworkers to do their jobs more efficiently and precisely ● Continuous Improvement: the ongoing commitment to improve products and processes, step by step, in pursuit of ever-increasing customer satisfaction < Long Run Perspective - Motorala began using production monitoring software and changed its 3.4 defects per million parts to 2 defects per billion parts ● Emphasize quality of work life: companies enhance workers' physical and mental health through recreational facilities, counselling services, and other programs ● Employee empowerment: principle that all employees are valuable contributors to a firm's business and should be entrusted with decisions regarding their work - The Hampton Inns allowed workers to grant refunds; this increased customer satisfaction ● Training: a key method of preparing employees for productivity-improvement programs - American Management Association found a direct relationship between training and greater production profitability; firms that increased training were 66% more likely to report improved productivity and three times more likely to report increased profits ● Improve the Service Sector: employee attitudes are crucial to service production because employees are the service ● Judging Service Quality: 1. Reliability: perform the service as promised, accurately and on time 2. Responsiveness: be willing to help customers promptly 3. Assurance: maintain knowledgeable and courteous employees who will earn the trust and confidence of customers ● 4. Empathy: provide caring, individualized attention to customers ● Tangibles: Maintain a pleasing appearance of personnel, materials and facilities
