CIMA E1 Official Learning System - Enterprise Operations Aug 2009

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higher unit cost per item. They also propose to work more closely with YO’s designers to

maximise production of the type of clothing that they feel their customers want.

If these talks are unsuccessful MX will use one of their other suppliers when the existing

contract expires. (YO is aware that MX has experimented by using a few trusted overseas

suppliers who have managed to achieving both relatively low price and superior quality

through the adoption of total quality management (TQM) techniques).

Anxious to maintain their relationship with MX, YO recognises that it must change

from its present focus on price to one that includes quality considerations.

Requirements

(a) Evaluate the way in which MX is proposing to manage its suppliers as part of a value

system or network. (10 marks)

(b) Explain the term ‘total quality’ and the requirements of achieving it within YO.

(10 marks)

(Total ⴝ 20 marks)

Question 3

The divisional managing director of the organisation that you work for has proposed a total

quality management (TQM) programme to help change prevailing attitudes and improve

results. You have been asked to prepare a report for the next management board meeting as a

basis for constructive discussion as to how the TQM programme should be implemented.

Requirements

(a) Explain the critical success factors for the implementation of a programme of total

quality management. (7 marks)

(b) Explain the categorisation of quality costs and how such a categorisation could be of

assistance in the establishment of a TQM programme. (6 marks)

(Total ⴝ 13 marks)

Question 4

4.1 Quality management thinker J. M. Juran once suggested that 85% of the organisa-

tion’s quality problems are

(A) a result of ineffective control by supervisors and managers

(B) a result of ineffective systems

(D) a result of ineffective incentive bonus schemes (2 marks)

4.2 The ﬁ ve S (5-S) practice is a technique aimed at

(A) effective investment of resources in training and recruitment

(B) standardised procedures to improve the physical and thinking organisational

environments

(D) diversity of activity and independence of thought in order to achieve closeness

to the customer (2 marks)

REVISION QUESTIONS E1

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Each of the sub-questions below require a brief written response. This response can be

in note form and should not exceed 50 words. Each of these sub-questions are worth 4

marks each.

4.3 Explain the relationship between a JIT system and cash ﬂ ow management. (4 marks)

4.4 Explain how computer software can assist in achieving quality in a manufacturing

organisation. (4 marks)

4.5 Distinguish quality control from quality circles. (4 marks)

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Solutions to

Revision Questions

Solution 1

1.1 (D)

1.2 (A)

1.3

Both:

●

Associated with quality

●

Aim for beneﬁ cial change and enhanced performance

●

Customer-focused

●

Involve learning.

Kaizen BPR

Continuous improvement One-off exercise

Small incremental steps Radical changes

Longer term Short term

Providing workforce with tools & techniques About business processes and structures

& creative use of IT

Solution 2

(a) Evaluate the way in which MX is proposing to manage its suppliers as part of a value

system or network.

Most products arise through several organisations combining and trading with one

another from sourcing raw materials, to design, development, manufacture and then

bringing the ﬁ nal product to market. In these circumstances relationships between sev-

eral organisations combine to create a value network comprising of a series of value

chains.

Both MX and YO form part of a wider value network with YO undertaking the

design and manufacture stages. In this example YO represents the supplier value chain

whilst MX’s own value chain interacts with the ﬁ nal customer. (YO presumably also

has a supplier or suppliers of cloth that it makes designs for and then manufactures

clothing from).

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Michael Porter’s work in this area stresses the need for good management of the

value network in order to gain competitive advantage and ‘create and sustain superior

performance’.

In Porter’s terms relationships between the ﬁ rms in the value system matter. The

overall value system describes the position of a ﬁ rm relative to the ﬁ rms upstream and

downstream of it:

●

MX is upstream (nearer the ultimate customer) of YO

●

YO along with MX’s other suppliers are downstream of MX

●

YO’s suppliers of cloth are downstream of YO.

When viewing supply strategically the nature of relationships with suppliers becomes

key. When relationships are based on driving down price they can be quite adversar-

ial. Alternatively, more collaborative arrangements operate where there is a joint quest

to reduce costs and a sharing of technology and innovations (known as ‘partnership

sourcing’).

The way an organisation manages its supply process is known as its ‘sourcing strate-

gies’ and the success of these clearly has strategic implications. MX in the past appeared

to favour a traditional strategy known as the ‘multiple’ option. Here MX as the buyer

chooses several sources of supply (both home and abroad). Individual suppliers under

this arrangement become less powerful and prices can be driven down as a result. It is

fairly obvious that YO is far more dependent upon MX (as its number one customer

with 80% of its sales) than MX is on YO. MX seems to have realised however that this

may not be necessarily conducive to good working relationships. Meaningful supplier

relationships and reliance on trusted suppliers is necessary in order to achieve a quality

product. In the past MX have relied on low prices in order to make sales but now it

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

quality clothing range, which it believes its customers will be prepared to pay a little

more for.

MX propose to work more closely with YO’s designers to maximise production of

the type of clothing that they feel their customers want. Both organisations have a

long-standing relationship with one another, and assuming that YO is prepared to

change its approach to one more akin to TQM it will become one of MX’s preferred

suppliers. This means that with less suppliers MX will be able to concentrate on devel-

oping their relationship more fully.

Consistent with Porter’s thinking both MX and YO as ﬁ rms in the value system

now have an opportunity to collaborate more fully in order to increase total value. (By

increasing the ability of the ﬁ nal product to generate maximum customer satisfaction).

In this case it will be through making a better quality product including taking more

care to ensure that the design is ‘right’ (appropriate). Competitive advantage through

linkages between the organisation and its value system components is being attempted

in this case by applying TQM principles.

(b) Explain the term ‘total quality’ and the requirements of achieving it within YO.

The underlying concepts of quality

Organisations that compete on the basis of price must ensure low-cost operations to

be successful. Cost containment in material sourcing, production, and distribution is

important. Resultant cost savings from these activities can (in part) be passed on to their

SOLUTIONS TO REVISION QUESTIONS E1

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customers. These organisations believe that their customers value the relatively low cost

of the product (commensurate with a certain level of quality). By comparison, a com-

pany competing on the basis of quality will try to achieve a better quality product that

will appeal to less price-sensitive consumers. In these circumstances quality rather than

price will be the key consideration in bringing goods to the market. It is apparent that

MX is altering its view of what it believes its customers value most (namely improved

quality rather than low cost). This is unsurprising, as quality is increasingly being recog-

nised as a critical issue for modern organisations operating in sometimes hostile environ-

ments with intense competition and demanding customers.

MX is said to want to move more ‘up market’ by introducing an altogether better

quality clothing range. This change in strategy will require less of an emphasis on price

in favour of approaches that achieve quality. The need to satisfy customers’ needs is

central to most understandings of quality. Quality should in fact be best understood

from the perspective of the customer, including their expectations and speciﬁ c require-

ments. MX is by far YO’s biggest customer with in excess of 80% of total sales and

has made their requirements quite clearly. Given its dependence on MX, YO has little

option but to adopt a quality approach in order to satisfy its major customer.

‘Total quality’

There are many deﬁ nitions of quality. Quality guru Philip P Crosby is known for his

emphasis on achieving Zero Defects (no faulty products) and maintaining that Quality

is Free. He explained quality as meaning getting everyone to deliver what he or she has

agreed and getting it right the ﬁ rst time.

There are a number of approaches to ensuring total quality, most popularly TQM.

MX’s overseas suppliers apparently are able to achieve relatively low prices and supe-

rior quality through the adoption of TQM. This involves developing an organisational

culture founded on a belief in quality so that:

●

Everyone (including customers and suppliers) is involved in this continuous process.

●

The quality requirements of customers are central.

●

There is the full commitment of senior management.

Requirements for achieving quality in YO

There are certain fundamental concepts that any organisation wishing to establish a

quality ethos must adhere to including:

●

Commitment from the top. If management is not fully committed, it is unlikely that

customer requirements of quality will be met. (In YO’s case the commitment is

obvious: M is its most signiﬁ cant customer and it must change in order to survive at

its present level of operation.)

●

Competence. Quality is achieved through competence in whatever activity is under-

taken. Competence can only be gained through continuous training, skill devel-

opment and experience. YO needs to commit funds to training, recruitment and

people development, etc.

●

Communication. The importance of quality must be effectively communicated

throughout the organisation in order to improve understanding of its purpose and

beneﬁ ts. YO needs to develop a communication strategy that includes brieﬁ ngs,

written reminders and visible symbols. The key message for YO is to change practice

in order to retain its most important customer: MX.

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●

Continuous improvement. The Kaizen philosophy will involve the continual analy-

sis of processes to allow continued improvement in performance and quality. YO

will need to develop a non-threatening culture, possibly involving quality circles and

training facilitators to ensure that this takes place.

Solution 3

(a) Total quality management (TQM) is deﬁ ned by CIMA (Ofﬁ cial Terminology, 2000):

An integrated and comprehensive system of planning and controlling all business functions so that

products or services are produced which meet or exceed customer expectations. TQM is a philosophy of

business behaviour, embracing principles such as employee involvement, continuous improvement at all

levels and customer focus, as well as being a collection of related techniques aimed at improving quality

such as full documentation of activities, clear goalsetting and performance measurement from the cus-

tomer perspective.

The key factors in the success of TQM:

●

There is a concentration on continuous improvement. This means that small

improvements are as important as large leaps in technology. Such improvements may

be changes in production ﬂ ow, product speciﬁ cation or manufacturing methods.

●

There needs to be widespread commitment to improvement in quality. All those

involved in the company are part of the TQM environment: from board to shop ﬂ oor.

●

TQM should focus on the customer, not on just a single area of a business. This cus-

tomer focus means the perspective of the company changes from its present obvious

production/sales/research one. Within the company, all sections may see themselves

as potential customers of other sections and potential suppliers to other sections.

This refocussing is vital in this company.

●

TQM is about designing quality into the product and the production process. This

means there must be a close working relationship between sales, production, distri-

bution and research.

●

Concentration on short-term proﬁ t needs to be abandoned in favour of long-term

quality improvement, which will itself lead to long-term proﬁ t improvement. This

implies being prepared to invest in changes for the future.

●

There is a need for a fundamental culture change. Management, in particular, needs

to use feedback and appraisal to ﬁ nd better ways of doing things. Failure to meet tar-

gets is probably inevitable, but needs to be met with positive, rather than negative,

comment.

●

There needs to be a clear willingness to discuss and measure quality. This may

involve setting standards and gathering information that perhaps has previously

been ignored. Feedback information, which need not be quantitative or ﬁ nancial,

must be fed back quickly and in an intelligible way.

●

Reward systems need to be reorganised to enable and encourage quality, rather than

to prevent it happening. Thus, incentive schemes based on improvement suggestions

would be a very rapid way of improving quality.

Other factors that might have been identiﬁ ed, though these are by no means always

vital:

●

Training in areas where the company is felt to be weak. The TQM programme

should identify these. Training possibly needs to be external.

SOLUTIONS TO REVISION QUESTIONS E1

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●

The establishment of project teams to change procedures.

●

The establishment of quality circles.

●

The establishment of regular reporting of key indicators of quality.

It is difﬁ cult to select factors that are more crucial than others: the particular ones

of importance will depend on the company and the areas of shortfall. The most cru-

cial overall area, especially in the company quoted, appears to be the building up of

teamwork.

(b) Quality cost is normally deﬁ ned as the ‘cost of ensuring and assuring quality, as well

as the loss incurred when quality is not achieved’ and may be measured in four ways.

These four methods have often been called the ‘cost of not achieving quality’:

1. Prevention cost: The cost of ensuring that poor quality does not happen, e.g. train-

ing, planning and administration, checking design is adequate and so on.

2. Appraisal cost: The cost of discovering poor-quality items. This would include qual-

ity control, inspections, etc.

3. Internal failure cost: The cost, internal to the company, caused by poor quality.

Costs include rework costs, scrap, re-engineering, retooling, etc.

4. External failure cost: The cost of poor quality incurred outside the company: this

includes direct costs, such as warranties, repair and after-sales service, and indirect

costs such as lost customer goodwill.

These costs are very difﬁ cult to isolate and judge. In each area, there is often a need

to apportion costs (e.g. training, planning and administration) and there are many

areas, especially the external failure cost, where costs cannot be calculated, for example,

the opportunity cost of lost sales as a result of poor-quality service.

Nevertheless, striving towards measuring quality costs keeps this issue on the man-

agement’s agenda. The presence of multiple measures of quality can be helpful in pre-

senting a balanced approach to control and the identiﬁ cation of the key areas for an

individual organisation.

Some writers regard the cost of quality as zero, because if TQM is achieved, then

none of the costs above will be incurred and so cost is actually reduced. Others see

the above costs of quality as being avoidable non-value-adding and therefore costs that

might be reduced. This latter view is central to the understanding of how the cost of

quality can assist TQM: discovering the cost of wasted resources we have been using to

meet current customer standards. It is these costs that need to be reduced and doing so

is central to a programme of cost reduction.

Solution 4

4.1 (B)

4.2 (B)

4.3 JIT system:

●

purchase and production of goods only when needed

●

aim to eliminate unnecessary stock of material/parts.

As less money is tied up in stock, organisational cash ﬂ ow should improve.

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4.4 Software such as computer-aided design (CAD) and computer-aided manufacturing

(CAM):

●

Provide ﬂ exibility to meet customer requirements more fully

●

Eliminate mistakes

●

Reduce material wastage.

These advances work towards world class manufacturing performance.

4.5

Quality control Quality circles

Traditionally western approach to production Associated with Japanese production

Involves inspection of work by third party Involves collaborative effort

Rejects defective work that is sampled Allows idea sharing, problem solving

and ongoing quality improvement

SOLUTIONS TO REVISION QUESTIONS E1

Marketing