CIMA E1 Official Learning System - Enterprise Operations Aug 2009

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of the Quality Circle (QC). QCs are small groups of staff that meet on a regular basis to

identify quality issues and attempt to formulate solutions. QCs are normally multidisci-

plinary, and are given a brief to work as a team to identify, investigate, analyse and solve

work-related problems or tasks. The basic concept is that QCs form part of an organisa-

tion-wide quality control activity.

QCs can help the quality process in a number of ways by:

●

using interdisciplinary quality teams to help staff gain a better perspective of the whole

organisation and their part within it

●

strengthening linkages between functional areas

●

devolving authority and responsibility for quality down to the operational level

●

fostering commitment and ownership of problems.

Kaizen involves continuous improvement by small incremental steps over a long period.

This Japanese concept emphasises providing the workforce with the tools and techniques

for improving operations. Maurer (2005) stresses Kaizen’s impact in setting and achieving

higher standards, and the value of Kaizen events in:

●

bringing people together to face up to technical and quality challenges

●

encouraging stakeholder involvement and interaction

●

allowing participants to leave with a plan in hand.

Some of the most commonly used kaizen tools are reﬂ ected in Table 3.12.

Table 3.12 Kaizen tools

Tool Explanation Use

PDCA Use of a plan-do-check-act operating

sequence.

A cycle that encourages the

key stages to continuous

improvement.

The ﬁ shbone diagram A cause and effect diagram used to

analyse all contributory causes (or

inputs) that result in a single effect

(or output). For example, lost sales

because of temporarily stock outs

would frustrate quality. The cause,

however, might be difﬁ cult to pin

down and may not be due to a single

reason. A line is drawn indicating a

route to continuous improvement

and off this line ‘ﬁ sh bones’ will

splinter indicating problems that

may be encountered. Causes can be

arranged into categories (typically

systems, technology, people and

resources).

A map in the form of a ﬁ shbone

illustrates all the difﬁ culties and

so focusses effort.

The Pareto rule Vilfredo Pareto identiﬁ ed that 80%

of the country’s wealth was held by

20% of the population. Similarly

80/20 classiﬁ cations occurred

regularly in most other areas.

The ‘rule’ encourages a focus of

effort on the important 20% in

order to be effective.

The ﬁ ve why process Examine issues by constantly asking

‘why’ until the real issue is identiﬁ ed.

First developed at Toyota; it

encourages employee problem

solving.

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5-S practice is a technique used to improve both the physical and the thinking environment

of the organisation. It encourages standardisation of procedures, and is devised to improve

the clarity of management processes. 5-S is based upon ﬁ ve Japanese terms ‘seiri, seiton,

seiso, seiktsu and shitsuke’ or ‘organisation, neatness, cleanliness, standardised cleanup and

discipline’ (interpreted below):

S-word Meaning Example

Structurise Organise Delete old information, throw away unwanted items

Systematise Neatness Clear organisation of documents and ﬁ ling system

Sanitise Cleanliness Individual responsibility for own tidiness and cleaning

Standardise Standardise Transparency of storage and ﬁ ling systems

Self-discipline Discipline Do the above daily

Six Sigma reduces variation in a product offering. It is a methodology that strives for near

perfection. It is a data-driven approach for eliminating defects (aiming towards six stand-

ard deviations between the mean and the nearest speciﬁ cation limit) in any process. To

achieve Six Sigma, a process must not exceed 3.4 defects per million opportunities (where

a defect is anything outside of customer speciﬁ cations).

Exercise 3.11

What does an organisation need to adopt the Six Sigma philosophy?

Solution

According to The British Quality Foundation an organisation needs:

●

the tools

●

the methodology

●

training

●

metrics

●

total commitment from executive level

●

signiﬁ cant culture change.

3.8 Planning quality programmes

The British Quality Foundation (2005) observe that:

Successful programmes require tenacity and dedication to the pursuit of perfection

Lynch (1999) reﬂ ecting on organisational difﬁ culties in getting quality initiatives success-

fully implemented observes that:

Quality is a symptom, an expression of healthy management in an organisation, a reﬂ ection of personal respon-

sibility taken by staff. If staff think too much about their delivery of quality, they may ignore the customer –

consequently it is not important to ‘think quality’. Staff need to ‘think customer’ and as a result ‘be quality’.

Lynch’s argument is that generally organisations exist to provide a consistency of goods or

services to their customers or clients. Achieving consistency means setting customer expec-

tations at an achievable level, and comprises delivery at the right time, meeting expecta-

tions of the customer and differentiating the organisation from competitors.

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Exercise 3.12

What suggestions can you give to a car manufacturer that wants to begin thinking about

how to improve its quality?

Solution

The ﬁ rst step for an organisation wishing to move towards the Japanese concept of quality

management is to clarify the meaning of ‘quality’ in its particular sphere of operations. It

might be looked at in terms of ‘ﬁ tness for purpose’ from the viewpoint of the customers.

The focus of quality is to satisfy customer expectations and anticipate their needs. From

this viewpoint, there can be no automatic assumption that a luxury car, such as a Rolls-

Royce, is better than a mass-produced vehicle. The issue of respective quality has to be

deﬁ ned in terms of customer expectations of the product and its price.

3.8.1 Implementing TQM

Total Quality Management should involve embedding shared beliefs and standards perma-

nently. It should not be considered a one-off, quick-ﬁ x exercise, as implementation requires

thorough planning and a clear implementation strategy if it is to succeed. The decision to

implement a TQM programme is a long-term commitment for an organisation and early

TQM pioneers expected it to take up to 20 years before the full beneﬁ ts were realised.

(Current thinking suggests that the quest for quality may never be ﬁ nished but it is still a

worthwhile journey.)

One of the ﬁ rst stages of a quality implementation programme is education and train-

ing. In order for staff to understand the processes and beneﬁ ts of a TQM approach, it

is important to consult and communicate organisational objectives of introducing TQM.

This may involve the following phases:

●

Senior management consultancy. Senior managers must ﬁ rst be trained at the strategic

level, in order to be able to lead and drive the quality programme.

●

Establishment of a quality steering committee/council. Team members should be drawn

from all levels of the organisation, and all disciplines. The quality team/council must

also be trained in the TQM philosophy so that they can participate in the training pro-

gramme as it is cascaded through the organisation.

●

Carry out organisation-wide presentations/training sessions. This will be general training

in the quality philosophy and its long-term beneﬁ ts, followed by more speciﬁ c qual-

ity-training sessions on an ongoing basis. It is critical that clear communication of the

quality message is carried out at an early stage and is then reinforced on a regular basis.

As already stated, poor communication will lead to lack of understanding of the purpose

and beneﬁ ts, mistrust and poor feedback.

●

Establish quality circles. The next stage is to get key personnel actively involved in the

process. This will involve establishing a number of quality circles and training in prob-

lem-solving and quality-related data collection.

●

Documentation. It is important that the processes, procedures and activities undertaken

throughout the implementation of a quality programme is thoroughly and clearly docu-

mented and evidenced. This will help to ensure continuity as the programme develops,

and from an important aspect of quality auditing. It will also aid communication of

quality procedures and successes.

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●

Monitor and report back. Feedback is also crucial. Quality targets need to be set and

actual results monitored against these targets and standards on a regular basis. The suc-

cesses (and failures) of the approach must be reported.

The successful implementation of TQM is a long-term process and problems are almost

inevitable at some points because of the radical nature of the changes involved. In some

ways managing the introduction of TQM is like any major organisational change, but

common reasons for failure in TQM programmes include:

●

Tail-off. After an initial burst of enthusiasm, top management fails to maintain interest

and support.

●

Deﬂ ection. Other initiatives or problems deﬂ ect attention from TQM.

●

Lack of buy-in. Management pays only lip service to the principle of worker involvement

and open communication.

●

Rejection. TQM is not compatible with the organisation’s wider culture and ways of

doing things. For example the cultural emphasis does not change from punishing mis-

takes to encouragement and rewards.

3.9 Supplier relationships

Three key factors contributing to world-class manufacturing in the Japanese organisations

seemed to be:

1. operations processes being highly integrated so that parts travel the minimum distance

and the production ﬂ ow is free of interruptions

2. team leaders involving employees, maintaining concern for quality and developing

problem-solving skills

3. the existence of tightly integrated value chains.

Relationships between the ﬁ rms in the value system matter. A ﬁ rm might maximise returns

by striking good deals with suppliers (low prices) and customers (high prices) to take

as much of the available ‘value’ (difference between the revenue received and costs) for

itself. Alternatively, the ﬁ rm might collaborate with others in the system to increase total

value. This would involve increasing the ability of the ﬁ nal product to generate satisfac-

tion (reﬂ ected in the price) by working together to reduce the total costs in the value sys-

tem. Critically, the role of the supply chain and strategic supply networks could be key in

gaining competitive advantage, including the development and maintenance of supplier

relationships. Viewed in this way, supply chain management assumes the signiﬁ cance of a

strategic process.

Contemporary developments reﬂ ect a strategic redeﬁ nition of the boundaries of organi-

sations. Some organisations are rethinking what should be researched, designed, made

or assembled under direct control which in turn involves long-term alliances in a supply

chain.

Networks have been described as a link between supplier and purchaser in the supply

chain but a more accurate and useful division is between different suppliers, and the co-

ordination methods employed within the ﬁ rms. Savings based on mutual learning and

experience can become a competitive advantage. Ody (2000) observed:

The supply chain used to be simple, serial and linear, with raw materials moving slowly through manufactur-

ing production and onward via the distribution system to retailers and end-consumers.

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Today, talk is of ‘supply networks’, ‘parallel chains’, ‘enhanced concurrent activities’, and ‘synchronised

supply models’, with information technology set to cut both inventory and lead times throughout the pipe-

line still further.

The new supply chain model demands seamless integration of software and systems and ‘visibility’ through-

out the network so that all trading partners are singing from the same ‘available-to-promise’ song sheet.

Information sharing is crucial to gaining mutual advantages with suppliers through outlin-

ing future requirements so allowing the supplier to plan ahead or collaborating with part-

ners for example to develop improvements in packaging design by sharing knowledge of

the latest technologies available (Goldsmith and Samson, 2004).

It is important that quality implementation is monitored and audited on a regular basis,

in order to continually assess and improve processes. A quality audit should be a system-

atic inspection to appraise whether quality activities achieve the planned objectives, and

whether the activities have been carried out effectively.

3.9.1 Supply chain management

Supply chain management, and hence supplier relationships, are often explained with refer-

ence to Porter’s value chain and value systems (see earlier). According to Christopher (2005):

The supply chain is the network of organisations that are involved, through upstream and downstream link-

ages, in the different processes and activities that produce value in the form of products and services in the

hands of the ultimate consumer.

Supply chain management is the entire chain leading to the end customer in which the

ﬁ rm concerned will be only one link.

Logistics management is most well known in its military application: the development

of procurement, storage and supply lines to support battleﬁ eld troops. Both Napoleon and

Hitler lost armies and eventually campaigns when their logistic chains into Russia became

too long to maintain and defend. However, very similar concerns face burger bars, retail

stores, car manufacturers and airlines as they attempt geographical expansion. Logistics

management deals with issues such as:

●

procurement management

●

materials movement and storage

●

ﬁ nished inventory

●

moving of ﬁ nished goods through distribution channels.

Supply chain management considers logistics but also relationships between members of

the supply chain, identiﬁ cation of end-customer beneﬁ t and the organisational conse-

quences of greater inter-ﬁ rm integration to form ‘network organisations’. According to

Christopher (2005), several forces have led to this radical rethink:

The customer service explosion. Customers have come to expect service excellence and will

leave any ﬁ rm that does not provide it. This increasingly means reliable availability

and on-time delivery of the ﬁ nal product. This demands that all links in the supply

chain can provide the same to their downstream customers.

Time compression. Short product life cycles and rapid new product development are

the norm. Thus the supply pipeline must be short to avoid slow response and lots of

obsolete product and inventory.

Globalisation of industry. Many organisations operate globally and depend on a complex

web of international transfers of materials, components and ﬁ nished product. Many

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seek to use logistics to combine the beneﬁ ts of the economies of scale from volume

production with the potential to customise products to the needs of local markets.

Organisational integration. Classical organisation theory believed in chopping businesses

up into departments and divisions. This puts barriers up to the sorts of communica-

tion and information ﬂ ows that are essential to meet the fast-changing needs of cus-

tomers and challenges of competition. Consequently teams are the norm, backed up

by partnerships between suppliers and their customers.

Supply chain management has three themes:

1. Responsiveness. Firms must be able to supply their customers quickly. This has led sys-

tems such as JIT.

2. Reliability. These deliveries must be reliable. This means that there must be transpar-

ency in the supply chain such that upstream ﬁ rms can ‘see the order coming’ from the

customer well in advance.

3. Relationships. Responsiveness demands that members of the supply chain develop a high

degree of mutual understanding of each other’s methods and trust in each other’s ability

to supply. This cannot be sustained if the former confrontational model of customer/

supplier relations is used where each constantly looks for better deals elsewhere. Single

sourcing and long-term contracts are the norm in modern supply chain management.

Effective supply chain management can be achieved through:

●

Creating a logistics vision. This is deciding how relative strengths can be used to deliver

customer value. It will require the ﬁ rm to identify which activities it excels at and which

it should contract out. For example, a national retail and wholesale newsagents found

that it excelled at the shop and warehouse elements of the supply chain from publisher

to reader. However, its attempts to manage a delivery company and lorry ﬂ eet were

abandoned and contracted out. Trying to do it all leaves the entire supply chain only as

good as its weakest link, which may not be good enough in a competitive world.

●

Develop the logistics organisation. Traditional organisational structures are divisionalised

into separate business functions (marketing, production, sales, etc.), and each is arranged

hierarchically. This impedes information ﬂ ows and leads to inventory being built up at

the interfaces. This should be replaced with a ‘horizontal organisation’ that focusses the

key processes of supply chain management on the customer.

●

Increase integration. The organisation and its upstream and downstream partners should

be linked by information. This necessitates the following supply chain policies:

(a) Supply base rationalisation: That is, cut the number of suppliers and let each supply

more of the ﬁ nal assemblies or components. This enables closer relationships to be

built.

(b) Supplier development programmes: Cross-functional specialists work with supplier

organisations to improve quality and ensure process improvement.

ponents for the ﬁ nished product.

(d) Integrated information systems, replacing paper orders and instructions to suppliers

with information networks. For example, by using computer-aided design (CAD), sup-

pliers can have access to the ﬁ rm’s designs and so get working on designing components

quicker. Similarly, electronic data interchange (EDI) is much quicker and more accu-

rate than oral or paper orders. If these EDI orders originate from the point at which the

customer orders the product, then suppliers can ﬁ ne-tune their supply better.

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(e) Centralisation of inventory: The ﬁ nal sales point carries a minimum of inventory but

instead is able to gain access to the supply chain database to specify products on a

‘cook to order’ basis.

●

Manage the supply chain as a network. This replaces the ‘us and them’ mentality of the

conventional buyer/seller relationship with one based on collaboration and common

interest. Elements of this include:

(a) Collective strategy development: All members of the network share their strategic

thinking.

(b) Win-win thinking: An end to thinking that the only way to increase the ﬁ rm’s prof-

its is to strike harder bargains with upstream and downstream partners. All partners

come to believe they are better off by collaboration.

which cost data is shared with upstream and downstream partners to ensure that all

partners are paid reasonable fees and there are no suspicions of excessive proﬁ ts being

enjoyed by one member of the network.

3.9.2 The lean supply chain

The main objective of developing a lean supply chain is the complete removal of waste

in order to achieve a competitive advantage. That advantage can be achieved by both the

reduction of costs and the improvement of quality (whether product or service). Other

beneﬁ ts of lean supply are claimed to be:

●

reduced inventories (and thus improved cash ﬂ ow and proﬁ t)

●

shorter lead-times, and thus faster delivery to consumers

●

fewer bottlenecks, so better utilisation of resources, and further improvements to proﬁ t

●

fewer quality problems, so less re-work, lower costs of quality failure, and happier consumers.

These obvious advantages should to a degree be balanced against the possible disadvantages

of the lean chain approach, including the potential for large, powerful customers dominat-

ing lean supply chains. In addition, there may be a concentration on reducing cost rather

than improving quality. Any resulting savings may be kept as increased margins, rather

than being passed on to the customer. Too much concentration on cost reduction may, in

fact, worsen quality or at least increase the risk of quality failure.

3.10 Summary

This chapter has described the nature and signiﬁ cance of operations and demonstrated

how it supports other aspects of the organisation, both manufacturing and service. It

has then considered certain key dimensions of operations and its strategic importance.

The inﬂ uence of Japanese thinking on Western organisations to bring about fundamen-

tal changes in quality has been explored and concepts of quality and the accompanying

changes required to organisational approaches and systems have also been dealt with.

References and further reading

Bowhill, B. (2008) Business Planning and Control. Sussex: John Wiley & sons.

Brown, S., Blackmon, K., Cousins, P. and Maylor, H. (2001) Operations Management.

Policy, Practice and Performance Improvement. Butterworth-Heinemann.

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Christopher, M. (2005) Logistics and Supply Chain Management (3rd edn). London:

Harlow : Financial Times Prentice Hall.

CIMA (2005) CIMA Ofﬁ cial Terminology. CIMA publishing, Elsevier.

Coote, P. and Gould, S. (2006) Lean management. Financial Management, March, p.

31(3).

Cousins, P. D. (2000) An investigation into supply base restructuring. European Journal

Purchasing Supply Management, Vol. 5, No. 2, pp. 143–155.

Crosby, P. B. (1979) Quality is Free: The Art of Quality Certain. New York: McGraw-Hill.

Galloway, L. (1998) Principles of Operations Management (2nd edn). Thompson.

Gargan, J. (2004) Hello, good buys. Financial Management, November.

Glass, N. M. (1991) Pro-active Management. New York: Continuum International

Publishing.

Goldsmith, S. and Samson, D. (2004) Sustainable Development and Business Success:

Reaching beyond the Rhetoric to Superior Performance Foundation for Sustainable

Economic Development in the Department of Management, University of Melbourne,

March, 2004.

Hammer, M. and Champy, J. (2001) Reengineering the Corporation: A Manifesto for

Business Revolution (3rd edn). London: Nicholas Brearley.

Kaplan, R. S. and D. P. Norton. (1996) The Balanced Scorecard: Translating Strategy into

Action. Boston: Harvard Business School Press.

Lynch, D. (1999) Focus on quality. Management Accounting, September.

McDonald, I. (2008) Organisational Management and Information Systems, study notes.

Financial Management, December, pp. 54–55.

Maurer, R. (2005) Stop me before I Kaizen again. Journal for Quality & Participation,

Summer, Vol. 28, No. 2, p. 37.

Mintzberg, H. (1990) The Structuring of Organisations: A Synthesis of the Research.

Englewood Cliffs, NJ: Prentice Hall International.

Mintzberg, H. (1983) Structures in Fives: Designing Effective Organizations. Englewood

Cliffs, NJ: Prentice Hall International.

Ody, P. (2000) Working towards a total, visible network. Financial Times Survey, October

25, Times Newspapers Limited, London.

Ouchi, W. (1982) Theory Z: How American Businesses can Meet the Japanese Challenge.

Reading, MA: Addison-Wesley Pub Co.

Parasuraman, A., Berry, L. and Zeithaml, V. A. (1988) SERVQUAL: A multiple-item scale

for measuring consumer perceptions of service quality, Journal of Retailing, 64(1) pp.

12–40.

Parasuraman, A., Berry, L. and Zeithaml, V. A., (1991) Reﬁ nement and reassessment of

the SERVQUAL scale. Journal of Retailing, pp. 420–450.

Porter, M. E. (1985) Competitive Advantage: Creating and Sustaining Superior’Performance.

London, New York: Free Press, Collier Macmillan.

Reck, R. F. and Long, B. G. (1988) Purchasing: a competitive weapon. International

Journal Purchasing Materials Manual, Fall, pp. 2–8.

Robbins Gentry, C. (2007) Back-room secrets. Chain Store Age, March, Vol. 83, No. 3,

p. 66.

Rudzki, R. A. (2006) World-class supply practices boost shareholder value. Financial

Executive 22.3, A

pril 2006,

Vol. 56, No. 3.

Womack, J. P., Jones, D. T. and Roos, D. (1990) The Machine that Changed the World.

New York: Simon & Schuster.

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Also:

Crown Prosecution Service

www.cps.gov.uk/Publications/ﬁ nance/process_mapping.html

Thames Valley Probation Service

www.thamesvalleyprobation.gov.uk/about/about_eem.html

The British Quality Foundation

www.quality-foundation.co.uk/pi_sixsigmaservice.htm

Revision Questions

Question 1

1.1 According to Porter’s value chain the ﬁ nal primary activity is referred to as

(A) Marketing and sales

(B) Outbound logistics

(D) Service (2 marks)

1.2 Approval of documentation, procedures manuals and work instructions are associ-

ated with

(A) registration under the standards required for quality certiﬁ cation

(B) total quality management (TQM)

(D) job evaluation (2 marks)

1.3 Compare and contrast Kaizen and Business Process Re-engineering (BPR) (50 word

limit) (4 marks)

Question 2

YO employs buyers, designers, machinists and tailors to produce coats, jackets, trousers,

dresses and skirts that its sales team sells. YO has a long-standing relationship with MX

which sells directly to the public from a chain of out-of-town stores. Over 80% of YO’s

sales are to MX whose approach has been to sell clothing in great volumes at lower prices

than the high street stores. It expects its suppliers (including YO) to ‘take account of’ new

fashion designs and manufacture its clothes at competitive prices.

MX is rethinking its strategy and wishes to move more ‘up market’ by introducing a

better quality clothing range, which it believes that its customers will be prepared to pay

a little more for. Already YO has noticed that MX has started to be more demanding and

has sent back any batches they feel are in the slightest way unsuitable.

MX want to work with fewer suppliers but develop a better relationship with each of

them. MX wants to renegotiate its contract with YO (which expires soon in any case). MX

are prepared to talk with YO about the need to improve the quality of their products and

has indicated that if it receives the right assurances it would be prepared to pay a slightly

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