The value chain – TQM

The value chain – TQM

Continuous improvement 

This is a change from the traditional perspective to achieve predetermined standards and strive for continuous improvements. Target costing , Kaizen costing could be seen as examples

Kaizen costing

Kaizen costing is concerned about reducing costs incurred in the production process through increased efficiency and lower waste.

Because most of the products cost is determined in the designing stage the cost reductions achievable in production stage (Kaizen) would be comparatively smaller

Value analysis

Value analysis is the process of identifying the actual value of features in their products to the customers.

Functional analysis

Company would breakdown its product into the separate functionalists it provides, then the analyze the amount customers are willing to pay for that function.  If providing the function costs more than that amount appropriate measures should be taken to either reduce the cost or to eliminate the function entirely.

 Value chain

Just in time concept

Just in time is a philosophy of having nearly zero inventory by purchasing only when material is needed for production and producing only when the products are requested by the customers. Hence JIT could be, just in time production or just in time purchases

This is there for a pull system as opposed to the traditional push system

For a successful JIT implementation

-          Versatile and multidisciplinary workforce

-          Strong supplier relations to get the suppliers supplying regularly and to have the quality of the supplies be checked by the supplier.

-          Good communication between teams in the organization

-          Get it right the first time – zero defects approach

-          If some problem occurs in one part of the production line up the whole production would stop, this could be seen as a problem of the JIT system, but since this happens the whole company would then forces on getting the proper solution to the problem

Total Quality Management

The main idea here is that, Quality is the main attribute for gaining competitive advantage.

There are measurable costs concerning quality

External costs

-          Loss of customer goodwill

-          Manufacturing costs of failed goods

-          Repair costs

-          Liability claims

Internal costs

-          Costs of scrap

-          Reworking costs

-          Manufacturing and process engineering required to correct the failures 

Appraisal costs

            These are costs associated with checking the products to confirm they are in the required standard

Prevention costs

            These are costs associated in making sure that defects don’t happen in the first place

Criticism of TQM, the main issue of TQM is that it is not a well defined set of instructions. It is rather a philosophy of culture within the organization. Many companies have failed trying to use TQM as a quick fix to their problems.

Business process re-engineering

Business process re-engineering involves inspecting a business process and making radical changes to that system in order gain reduced cost benefits improve quality and value of products.

Gain sharing arrangements

When a company doesn’t have the capital requirement to venture on a business, it may go for a gain sharing arrangement, where  two or more companies contribute for the business and the gain is shared amongst them.

Some problems firms may encounter when proceeding with a gain sharing arrangement are,

-          Agreeing the base line to measure gains

-          Agreeing on a way to proceed in the project

-          Sharing the gain

-          Measuring the gain reliably

-          Allowing other firms sensitive information