Kinney8e PPT Ch17-TQM

Total Quality
Management
and
Just-in-Time Production
System
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accessible website, in whole or in part.
QUALITY
 The sum of all of the characteristics of a
product or service that influence its ability to
meet the stated or implied needs of the person
acquiring it
 Totality of internal processes that generate a

product or service
 Customer satisfaction with that product or

service
QUALITY
 Its ultimate test:
 whether the product or service meets or
exceeds customers’ expectations.
Total Quality (Management) – the unyielding

and continually improving effort by everyone in
an organization to understand, meet and exceed
the expectation of customers.
Core Principles of TQM
 Focus on satisfying the customers
 Strive for continuous improvement
 Involve fully the entire workforce
 Support and involve top management actively
 Use clear and measurable objective
 Recognize quality achievements in a timely
manner
 Provide training on TQM continuously
Total Quality Management
 cannot be fully implemented overnight
 YEAR One – Preparation and Planning

 YEAR Two – Training and Implementation
 YEAR Three – Assessment, Review and
Revise
Types of Conformance
 Quality involves conformance with
specifications.
 Goalpost Conformance (zero-defects

conformance)
 Absolute quality conformance (robust quality

approach)
TQM Tenets
 Dictate continuous improvement for an internal
managerial system (plan, control, make
decisions)
 Require participation by everyone in the
organization
 Focus on improving goods and services from
the customer’s point of view
 Value long-term partnerships with suppliers
Characteristics of Product Quality
 Objective  Subjective
 Performance  Aesthetics
 Features  Perceived value
 Reliability
 Conformance
 Durability
 Serviceability and
responsiveness
Sloan Management Review

Characteristics of Service Quality
 All the characteristics of product quality

plus:
 Assurance
 Tangibles
 Empathy
Evaluating Quality
 Grade  Value
 The quality level that a  Meets the highest number of
product or service has needs at the lowest possible
relative to the inclusion or cost (purchase price plus
exclusion of characteristics operating, maintenance, and
to satisfy customer needs, disposal costs)
especially price
It’s too
expensive
Benchmarking
 Studying organizations that are among the
best in the world at performing a particular
task.
Reasons to Benchmark (slide 1 of 2)
 Increase awareness of the competition
 Understand competitors’ production and
performance methods as well as cost structures
 Identify areas of competitors’ internal strengths
and weaknesses
 Identify external and internal threats and
opportunities
 Justify and accelerate a plan for continuous
process improvement and change
Reasons to Benchmark (slide 2 of 2)
 Create a framework for program and process
assessment and evaluation
 Establish a focus for mission, goals, and
objectives
 Establish performance improvement targets
 Understand customers’ needs and expectations
 Encourage creative thinking
 Identify state-of-the-art business practices and
new technologies
Costs of Quality
 Costs of Conformance or Compliance –
incurred to ensure that products and services
meet customer’s expectations.
 Costs of Nonconformance or Noncompliance

– costs incurred and opportunity costs
because of rejection of products or services.
Cost of Quality = Conformance costs +

Nonconformance costs
Costs of Quality
 Cost of Compliance or Conformance
 Preventive costs—prevent product defects
 costs incurred to avoid poor-quality goods or services or
reduce the number of defects in products or services.
 Systems development
 Quality engineering, Quality training, Quality circles
 Statistical process control activities
 Supervision of prevention activities
 Quality data gathering, analysis and reporting
 Quality improvement projects
 Technical support provided to suppliers
 Audits of the effectiveness of the quality systems
Costs of Quality
 Cost of Compliance or Conformance
 Appraisal costs—monitor and compensate when
prevention fails
 also called inspection costs, are incurred to identify products
before the products are shipped to customers.
 Test and inspection of incoming materials
 Test and inspection of in-process goods
 Finished product testing and inspection
 Supplies used in testing and inspection
 Supervision of testing and inspection activities
 Depreciation of test equipment
 Plant utilities in the inspection area
 Field testing and appraisal at customer site
Costs of Quality
 Cost of Noncompliance or Nonconformance
 Failure costs
 Internal losses—scrap, rework
 or internal failure costs, result from identification of defects
during the appraisal process
 Net cost of scrap or spoilage
 Rework labor and overhead
 Reinspection of reworked products
 Retesting of reworked products
 Downtime caused by quality problems
 Disposal of defective products
 Analysis of the cause of defects in production
 Re-entering data because of keying errors
 Debugging of software errors
Costs of Quality
 Cost of Noncompliance or Nonconformance
 Failure costs
 External losses—warranty work, customer
complaint departments, litigation, product recalls
 incurred when poor-quality goods or services are
detected after delivery to customers.
 Cost of field servicing and handling complaints
 Warranty repairs and replacements
 Repairs and replacements beyond the warranty period
 Product recalls
 Liability arising from defective products
 Returns and allowances arising from quality problems
 Lost sales arising from a reputation for poor quality
Calculating the Total Quality Cost
Total
Prevention Appraisal Failure
Quality = Cost
+ Cost
+ Cost
Cost
T=K+A+F
Just-in-Time (JIT) Production System
 also called lean production, is a demand-pull
manufacturing system because each
component in a production line is produced as
soon as and only when needed by the next
step in the production line.
 It smooths the flow of goods, despite low or no

quantities of inventory.
 It aims to simultaneously:
 meet customers demand in a timely way,
 with high-quality products, and
 at the lowest possible total cost.
 Key Features:
 Maintaining a limited number of suppliers
 Improving plant layout
 Reducing setup time
 Improving production scheduling
 Targeting zero defects
 Maintaining flexible workforce
 Financial benefits:
 Greater transparency in the production process
 Heightened emphasis on eliminating the specific
causes of rework, scrap, and waste

 Lower manufacturing lead times
ILLUSTRATION
The Corporation, a manufacturer of copper fittings, is considering
implementing a JIT production system. The following data are gathered:
1. P100,000 annual tooling costs to reduce setup times must be
incurred.
2. Average inventory will be reduced by P500,000.
3. Relevant costs of insurance, storage, materials handling, and setup
will be declined by P30,000 per year.
4. Required rate of return on inventory investments is 10% per year.
5. Quality will be improved and rework will be reduced on 500 units per
year, resulting in savings of P50 per unit.
6. Better quality and faster delivery will enable the company to charge
P2 more per unit on the 20,000 units it sells each year.
Question: Should the corporation implement the JIT system?
ANSWER 
Total annual relevant benefits and cost savings
Carrying costs [(10% x P500,000)+30,000] P 80,000
Rework savings (500 units x P50) 25,000
P105,000
Incremental contribution margin (20,000 x P2) 40,000
Total Benefits P145,000
Less: Additional annual tooling costs (P100,000)

Net Benefits P 45,000
Given the following computation, it shows that the total

benefits exceeds the costs. Hence, the company should implement a
JIT production system.
Performance Measures & Control in JIT
Production
 Financial performance measures
 inventory turn-over ratio is expected to increase
 Nonfinancial performance measures of time, inventory and

quality
 Manufacturing lead time - expected to decrease
 Units produced per hour - expected to increase
 Number of days of inventory on hand - expected to decrease
 Total setup time for machines/ Total manufacturing time –

expected to decrease
 Rework or Scrap/ Total number of units started & completed
– expected to decrease
JIT effects on Costing System
 reduces overhead costs through the reduction of
materials handling, warehousing and inspection
costs.
 facilitates direct tracing of some costs usually

classified as indirect.

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Total Quality

 Totality of internal processes that generate a

 Customer satisfaction with that product or

Total Quality (Management) – the unyielding

 YEAR One – Preparation and Planning

 Goalpost Conformance (zero-defects

 Absolute quality conformance (robust quality

Sloan Management Review

 All the characteristics of product quality

 Costs of Nonconformance or Noncompliance

Cost of Quality = Conformance costs +

 Quality engineering, Quality training, Quality circles

 Statistical process control activities

 Supervision of prevention activities

 Quality data gathering, analysis and reporting

 Quality improvement projects

 Technical support provided to suppliers

 Audits of the effectiveness of the quality systems

 Test and inspection of in-process goods

 Finished product testing and inspection

 Supplies used in testing and inspection

 Supervision of testing and inspection activities

 Depreciation of test equipment

 Plant utilities in the inspection area

 Field testing and appraisal at customer site

 It smooths the flow of goods, despite low or no

 with high-quality products, and

 at the lowest possible total cost.

 Improving plant layout

 Reducing setup time

 Improving production scheduling

 Targeting zero defects

 Maintaining flexible workforce

 Heightened emphasis on eliminating the specific

causes of rework, scrap, and waste

Question: Should the corporation implement the JIT system?

Less: Additional annual tooling costs (P100,000)

Given the following computation, it shows that the total

 Nonfinancial performance measures of time, inventory and

 Total setup time for machines/ Total manufacturing time –

 facilitates direct tracing of some costs usually

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