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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Chapter 19

Quality Management and Quality Management and the Operations Processthe Operations Process

In the Spotlight:Carmelo’s Italian RestaurantIn the Spotlight:Carmelo’s Italian Restaurant

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Learning Objectives: Chapter 191. Explain the key elements of total quality management (TQM)

programs.

2. Discuss the nature of the operations process for both products and services.

3. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive.

4. Discuss the importance of purchasing and the nature of key purchasing policies.

5. Describe ways to control inventory and minimize inventory costs.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

A Definition of Quality

The American Society for Quality defines qualityas “the totality of features and characteristics of aproduct or service that bears on its ability to satisfystated or implied needs.”

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Essential Elements of Successful Quality Management

Appropriate Tools and

Techniques

Supportive Organizational

Culture

Focus on Customers

Successful Quality

Management

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Tools and Techniques of TotalQuality Management

• Work teams• Empowerment of employees• Quality circle• Attribute inspection• Variable inspection• Acceptance sampling• Statistical process control• Control chart

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Factors That Positively Influence Customers’ Perceptions of Service Quality

1. Being on target. Set and meet the customer’s expectations.

2. Care and concern. Be empathetic.

3. Spontaneity. Empower service providers to think and respond quickly.

4. Problem solving. Train and encourage service providers to be problem solvers.

5. Follow-up. Follow-up captures customers’ attention.

6. Recovery. Making things right quickly is a powerful factor in creating an enduring image of high-quality service.

Source: Ken Myers and Jim Buckman, “Beyond the Smile: Improving Service Quality at the Roots,” Quality Progress, Vol. 25, No. 12 (December 1992), p. 57.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

A Definition of ISO 9000

The standards governing internationalcertification of a firm’s quality management procedures.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Designing Processing Treating Storing AdvisingFabricating Refining Assembling Shipping Instructing

The Operations ProcessInputs

Money Raw Materials Labor Equipment Information Energy

Operations

Outputs

ProductsExamples:ClothingBaked goodsPaint

ServicesExamples:Dry cleaningAppliance repairAutomobile painting

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Types of Manufacturing Operations

1. Job shops

2. Repetitive manufacturing

3. Batch manufacturing

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Two Types of Maintenance

Corrective Maintenance

• Involves major repairs and minor repairs

• Disrupts production

Preventive Maintenance

• Involves inspection of equipment, cleaning and lubricating, and replacing worn parts

• Sustains production

• Minimizes corrective maintenance

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

The Nature of Reengineering

• Emphasizes restructuring rather than fine tuning.

• Examines basic processes.

• Questions all traditional patterns.

• Directs attention to activities that create value

for the customer.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Make-or-Buy Trade-Offs

Make1. Use idle capacity.2. Assure supply.3. Protect secret design.4. Save transportation

expense.5. Permit close control

of production.6. Assure high quality.

Buy1. Use supplier’s

know-how.2. Avoid additional hiring

and borrowing.3. Use present

management.4. Provide production

flexibility.5. Concentrate on

specialty.6. Reduce risk of

equipment obsolescence.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Kinds of Activities Outsourced

Taxes/accounting/auditingEquipment maintenance/janitorial servicesPayroll/benefits administrationManufacturing/processing/assemblingMarketing or sales

50%44%37%29%

6%

Activity Percentage of Respondents

Note: Respondents were allowed to check more than one activity.Source: “Poll Results: Reader’s Views on Outsourcing,” Nation’s Business, Vol. 84, No. 5 (May 1996), p. 85.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Considerations in Selecting a Supplier

Quality

Price

Reliability

Location

Other services (credit, repair)

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Ways to Build Good Supplier Relationships

• Pay bills promptly.• Give sales representatives a prompt, courteous hearing.• Avoid abrupt cancellation of orders.• Avoid attempts to browbeat the supplier into special

concessions.• Make suggestions for product improvement and/or

cost reduction, whenever possible.• Provide explanations when rejecting bids. • Make fair adjustments in the case of disputes.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Objectives of Inventory Management

Ensuring Continuous Operations

Maximizing Sales

Protecting Assets

Minimizing Inventory

Investment

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Graphic Portrayal of Economic Order Quantity (EOQ)

Cos

t ($

)

Order Quantity (Units)

Total Costs

CarryingCosts

Order Costs

EOQ

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000South-Western College Publishing

Just-in-Time Inventory System

Purchase in small quantities, only when needed. For best reliability, work with one supplier.

Pros:• Lower carrying costs• Less warehouse space needed• Risk shifted to suppliers

Cons:• Risk of stockouts• Loss of quantity discounts• Higher paperwork costs