UNIT 1 OVERVIEW OF “WORLD CLASS MANUFACTURING”

Objectives

After studying this unit, you will be able to:

• Assess the views of the Business Leaders about what qualifies an organization to be termed
as WCM
• Determine how the concept of WCM emerged
• Study important steps the organization has to take to become WCM organization
• Explain what the organization will have to do to remain World Class in future
• Analyze two cases of acknowledged World Class organizations.

Structure

1.1 Introduction
1.2 Common characteristics of WCM
1.3 World Class Organization of Future
1.4 What it takes to stay World Class?
1.5 Emergence of “World Class” Concept
1.6 Summary
1.7 Key words

1.1 INTRODUCTION
The concepts of manufacturing excellence have changed drastically in recent years, thanks to
pioneering the work done by Japanese industry in this field. To remain profitable in an intensely
competitive environment, American philosophy of late fifties of “Economy of Scale” and mass
production is no longer valid.

Contents of this unit will give you some basic concepts about “World Class Manufacturing”, how the
concept was introduced and evolved, features of WCM, step by step approach to attain world class
and features of two representative Indian organizations, which can claim to be world class in their
respective fields.
As product and process quality are the core of WCM, it can help to get better understanding of WCM,
if works of Joseph Juran, Korau Ishikawa and Dr. Deming are studied in some details.

1.2 COMMON CHARACTERISTICS OF WCM

A famous Productivity research institute invited opinions from a cross section of Business Leaders to
share their definitions for a "High-Performing, World class Organization" From the answers they
received, overall, five categories emerged as the most common characteristics of a “World Class
Organization”:

• Employee focus
• Customer focus
• Leadership
• Profit
• Process

Let us dwell a bit more on the above characteristics:

Employee Focus

Some of the key phrases that respondents mention includes:

• A continuing investment in educating employees

• Well-informed, self-motivated, highly trained employees
• Employees who are proud of their organization

Organizations that focus on their employees create invigorating environments where employee
participation and development are keys. This category, which significantly outweighed the other
issues in the survey, illustrates the emphasis organizations are placing on cultivating and
maintaining happy employees. Some of the points, which World Class Organizations consider
formulating their Human Relation’s policy are:

• Better you treat your people; harder they work, give better quality work, take more initiative,
are more accountable, are not afraid of change and are more cooperative with colleagues.
• Happy employees are productive employees
 • No one likes to be manipulated.
• People feel uncomfortable when being micromanaged
• Motivate with trust and not fear
• For motivating with trust; show interest in their work, be transparent, show appreciation for
a good job done and be nice
• Turn work into fun.
• Communicate openly and honestly
• Be visible and accessible
• Show support for new ideas

Research shows that senior management’s genuine interest in employee well-being, has the
largest impact on the discretionary efforts by the employees.

The term "happy employee" became a recurring idea, expressed in many definitions from
respondents. Organizations are experimenting with the right mix of training, benefits,
empowerment, and alternate measures (such as flextime and childcare), necessary to attract and
retain the best employees. Unfortunately, some organizations give lip service to the concept that
"employees are their greatest asset." Organizations that can communicate this message through
their action, will be the ones to effectively achieve world-class levels in this area. As one
respondent so aptly described- "A world class organization always recognizes employees as
essential to its success."

Customer Focus

A vast majority of respondents mention "customer", somewhere in their definition of a world-

class, mature, quality organization. Customer focus is not new for many organizations. Today it's
just more outwardly expressed as a key focus. People are realizing that without customers,
organizations can't exist.

A world-class organization delivers what customers want, when they want it, with an appearance
that enhances the customers' perception of the product/service. This is accomplished by an
organization that is continually focused on the customer and on continuous improvement in all
aspects of the organization.
 Customer focus can only be effective, if the organization decides to truly listen to the customer.
Employees who project that they know the customers' wants better than the customer, will never
survive in a customer-focused environment.

Other definitions focus on, partnering with customers as an effective way to define customers'
needs. Until organizations communicate with customers, they cannot be certain, they are meeting
or exceeding their customers` needs. Organizations first must understand their customers' needs,
translate those needs into new products or services, and create new levels for service
expectations.

However, Value that the ‘external customer’ gets, is the sum total of the value added at every
function within the organization.

It is now quite clear that, to survive and flourish in a competitive environment, any organization
will have to find ways and means to keep on improving the value addition at every stage or in
other words, every function must strive to give its ‘internal customer’ full satisfaction by providing
‘what he wants, when he wants and the way he wants by incurring least costs’. This can be
achieved only through well-directed and sustained efforts divided into following three logical
steps.

Step1 – Know exactly what the internal customer wants

The first requirement for this is the effective communication between the interfacing functions.
Communication needs to be formal as well as informal. Formal communication opens the channels
for collecting the relevant data and establishing feedback mechanisms, which are necessary for
measuring performance and initiating corrective and preventive actions when problems arise.
Informal communication is necessary to build relationships and creating trust, which can contribute
to healthy work environment and teamwork. Communication also has to be continuous, so that any
change in requirements is conveyed promptly.

Data collected through formal communication, has to be arranged and then analyzed to map the
entire set of needs of the next function.

Step 2 – Organizing for delivering the requirements of the internal customer

Organizing involves harnessing the existing resources to their optimum potential. For this, it is
necessary to keep the technological, human and administrative factors under control through
‘Systems approach’, which brings consistency in the output of the processes within the function.
Organization can develop its own systems or follow certain standards like ISO 9000

Step 3 – Embark on the path of improvements

Step no. 3 is responsible for bringing stability to performance of the organization, but this stability
should not be stretched so much that it would lead to stagnation. The organization can withstand the
competition only if it strives to improve its performance in terms of customer satisfaction and
reduction of costs on an ongoing basis. There can be a two-pronged approach for this:
• Innovations in the areas of products, technology, processes, services and alternate materials.
• Continuous improvement in small doses in processes, methods and human skills.

The first approach can give quantum jump in the performance of the organization but may not be a
routine or daily phenomenon and was largely a prerogative of experts till recently. Second approach
can be used by any organization and should have participation of every employee. Their cumulative
and sustained efforts can make a significant positive impact on the performance of the organization
in the long range.

Visionary Leadership

Without inspiring leadership, organizations have a difficult stretch to reaching world class.
Respondents quote several phrases in the leadership category. A world-class organization has top
leadership that provides, communicates, and demonstrates vision, direction, and a sense of
teamwork. All of these verbs – provides, communicates, and demonstrates – are key terms that are
essential for a world-class organization. All three words go hand in hand. If a leader provides a
direction for an organization but does not "communicate" or "demonstrate" its message, the message
is lost. It boils down to that overused, but often overlooked, phrase-"walking the talk." Employees are
proud when they can say their organization's leader uses actions to support its verbiage about quality.

To remain competitive, any organization requires an ongoing change process in existing ways and
doing things, which are radically different. Essentially, it calls for a change of culture of the
organization. It is obvious that this kind of a change can be initiated, nurtured and sustained only by
the top management. The change has to start at top and then driven down to the last level in a planned
and systematic way. It is necessary for the top management to change the way it thinks, behaves and
acts. This is possible only when management has vision and propensity to change with environment
and if possible, try and change environment to suit organization’s needs.

Visionary leadership is the ability of Management to establish, practice and lead a long-term vision.
For this the management must change from its autocratic style to coaching style, empower employees
rather than control them and provide for planning and implementation of change.

Leaders of world-class, quality organizations must be visionary to move the organization in the right
direction. It is an organization whose leaders create the future vision, dedicate themselves to
delighting their customers, and anticipate their future needs. Leaders need to possess such an
instinctive nature to know the organization's needs.

Profit

Without profit, organizations cannot survive for the long term. But to be world class, organizations
cannot allow profits to be the focal point. A balance must exist between profits/employees/customer
satisfactions. If a focus on profits, tramples the customer focus, the organization will make decisions
for the wrong reason-strictly financial, rather than customer oriented.

World-class organizations return rewards to their owners in the form of increased value, year after
year.

Process

To give customers what they want and that too at least cost becomes a reality only when the
organization has processes that make this possible. Quality has to be built into a product by adding
value at every step through series of processes which are full proof and cost effective.

Organizations that understand their processes can more effectively produce their products and/or
give superior customer service. Without this basic knowledge, anything can go wrong at any time in
the process. A world-class organization is a clearly focused, agile learning organization that
understands its work processes.

Processes are one of the hidden secrets of successful organizations. If something is not functioning
correctly, it usually translates into a faulty process.
1.3 WORLD CLASS ORGANIZATION OF FUTURE

Benchmarks for world class are consistently moving higher and higher as customers expect and receive
more special services from organizations.

While there are many ways to get closer to customers, enhanced information systems will become a
key instrument in the strengthening of customer relationships in the future. New ways of organizing
and utilizing customer information will help keep companies closely aligned with their customers.

Organizations will be harnessing Emerging Technologies to their advantage by bringing more alert to
the trends in technological developments in the International Arena.

Organizations also will form stronger bonds with their employees. With the lean work force of the
future, to be world class, most companies must change how they currently manage their employees.

Organizations have made some progress in creating a more friendly and appealing environment for
the employees. Worker empowerment is a hot issue as companies explore the benefits of putting
authority in the hands of those, who do the work of the organization. Flextime is gaining acceptance,
and childcare issues are being explored by countless organizations. As these trends continue to
develop, new ones will emerge.

While the customer and employee may seem to benefit most from the trends mentioned above, the
organization as a whole is the main beneficiary. The outcome will be a more flexible organization,
often referred to as a "learning" organization. These organizations change quicker; they can see the
future with more than enough time to spare. Being flexible enough to predict and adapt instantly to
changing environment.

1.4 WHAT IT TAKES TO STAY WORLD CLASS?

When we think of truly "world-class" organizations in International Arena, chances are widely admired
companies such as General Electric, Microsoft, British Airways, Hewlett-Packard, Coca-Cola and Disney
spring to mind. So what are the common features which elevate these and other companies from
merely "successful" to the more desired status of "world-class? A closer look at the "best of the best"
reveals several shared characteristics. Besides being the premier organization in their industries,
world-class companies have talented people, the latest technology, the best products and services,
consistent high-quality, a high stock price, and a truckload of awards and accolades acknowledging
their greatness. But most important of all, communication is practiced as a strategic process within
these companies that's woven into their business planning, decision-making and organization-wide
priorities. It defines their cultures by encouraging dialogue, feedback, interpretation and
understanding.

The ability to define and articulate what it is that makes people care about you is critical for any
company striving to become a world-class organization. The challenge for leaders, managers and
communicators is defining that quality, consistently delivering on it, communicating it in all that is said
and done, and then, never losing sight of it.

Management should start by answering the question, why should someone care about your company?
Should people care about you because you make the best-tasting, safest, fastest or least expensive
product? Should they care about you because you make them feel good when they use your product
or service? Should people care about you because you stand for the same things they stand for quality,
safety or value?

Several noteworthy examples of companies were world-class organizations, yet for one reason or
another, took their eyes off the ball, lost their focus, and forgot to give people something to care
about. Their fall from world class was both quick and shocking.

In their relentless pursuit of growth, many companies forget to give their own employees something
to care about. Even more tragic, many forget how employees are the only difference between success
and failure. Once companies forget about why people care about them, the dangerous downward
spiral continues, as everyone from the CEO to the receptionist loses sight of what they were doing to
make the company respected, successful and enduring.

It's interesting to note that world-class organizations are not built overnight, yet by most people's
definition, world-class companies are enduring. They are able to withstand - and even capitalize on -
the vagaries of the marketplace and the whims of consumers. They've made an impact on the world
we live in, and they've withstood multiple product or service life cycles. An underlying spirit in
everything they say and do conveys their world-class status. It is this quality that separates them from
the pack of successful companies and catapults them into the company of the "best of the best."
1.5 EMERGENCE OF “WORLD CLASS” CONCEPT

The term "world-class manufacturer" is popularly used to denote a standard of excellence: the best of
the best manufacturers at the international level. It came into prominence following the 1986
publication of World Class Manufacturing: The Lessons of Simplicity Applied by Richard J. Schonberger,
which was his follow-up to Japanese Management Techniques: Nine Hidden Lessons in Simplicity.

World marketplace events during the 1970s and 1980s caused competition to grow to such an intense
level that many firms were forced to re-examine their concept of manufacturing strategy, especially
in terms of the tradeoffs among the four competitive priorities: cost, quality, delivery/service, and
flexibility. Managers began to realize that they no longer had to make these tradeoffs but could
instead compete on several competencies.

Some of those excited by the concept describe it as capturing the breadth and the essence of the
fundamental changes taking place in larger industrial enterprises, with their overriding goal and
underlying mindset of continual and rapid improvement. Others describe it as the culmination of the
relentless pursuit of competitive excellence. Richard Schonberger states that the emphasis on world-
class manufacturing may someday be chronicled as the third major event in the history of
manufacturing management, following the use of standard methods and times espoused by Frederick
Taylor and Frank Gilbreth, and the findings of the Hawthorne experiments at Western Electric, which
held that motivation, to a significant degree, comes from recognition. A simple way to describe a
world-class manufacturer is: A company that is able to compete effectively in a global market.

Clearly, there are some demands placed on individuals and organizations that desire world-class
status. Peter Stonebreaker and Keong Leong presented a hierarchy of steps that lead to world-class
operations. This series of steps will be used to describe the characteristics of world-class
manufacturers.

Step 6 WORLD-CLASS MANUFACTURING

Step 5 CUSTOMER SERVICE

 Step 4 QUALITY

Step 3 INFORMATION SYSTEMS, MANAGEMENT DIRECTION,

AND OPERATIONS CAPABILITIES

Step 2 ORGANIZATION DESIGN, HUMAN RESOURCES,

TECHNOLOGY, AND PERFORMANCE MEASUREMENT

VISION, MISSION, VALUES

Step 1 BUSINESS AND MANUFACTURING STRATEGY

Flowchart

Step 1 – Vision, Mission, Values, Business and Manufacturing Strategy

Organization's vision is for the future the organization wants to create, for the community it
wishes to impact. Vision is what the organization wants to become. It doesn’t predict the future –
it creates it. If used well, Vision promotes change in the desired direction.

To be effective – the vision must be imaginable, desirable, feasible, focused, flexible,

communicable and challenging. Organization’s systems, structures, everybody’s daily behaviors,
etc., must be aligned with the vision.

A Mission Statement defines the organization's purpose and primary objectives. Its prime function
is internal – to define the key measure or measures of the organization's success – and its prime
audience is the leadership team and stockholders.

All world-class manufacturers have an explicit, formal manufacturing mission. Within this mission
is the operating goal to become world class. They use competitive information to establish
organizational goals and objectives, which they communicate to all members of the enterprise.
They regularly assess the appropriateness of these objectives to attaining and maintaining world-
class status.
 The only way the organization can create an amazing future for the communities is to perform in
a way that reflects universally shared values. This ensures that the time and community goodwill
is not squandered. A Values Statement provides the tools for the organization to accomplish this.
First, the Values Statement will look outside the organization, to the visionary outcome’s
organization wants to create for the community.

World-class manufacturing requires an overall willingness to establish closer connections with

everyone, from suppliers to workers. It requires an unwavering commitment to self-analysis and
improvement. It requires an aggressive approach to technology that can turn visionary strategies
into reality. All of these must be reflected in the firm's business and operations strategy if world-
class status is to be attained.

Step 2 – Organization Design, Human Resource, Technology and Performance Measurement

Organization Design:

World-class manufacturers integrate all elements of the manufacturing system in such a way
that the needs and wants of its customers are satisfied in an effective, timely manner. This
requires the commitment and the expenditure of efforts and resources by all elements within
the system to ensure their proper integration. This commitment extends to outside elements
as well, as the world-class manufacturer encourages and motivates its suppliers and vendors
to become co-equals with the other elements of the manufacturing system.

World-class manufacturers work to eliminate organizational barriers to communication and

to organize the firm in such a way that the core values need to reach world-class status take
precedence. In fact, most companies that have succeeded in implementing many of the world-
class tools—such as just-in-time production (JIT), total quality management (TQM),
manufacturing resource planning (MRP II) and total productive maintenance (TPM)—already
had the core values well in place. Companies that are already world class are able to quickly
absorb other world-class manufacturing concepts as they are developed and publicized.

Human Resources

World-class manufacturers recognize that employee involvement and empowerment are

critical to achieving continuous improvement in all elements of the manufacturing system.
The continuity of organizational development and renewal comes primarily through the
involvement of the employee. World-class companies invest comparatively more in their
 relationships with their workers, providing significantly more training than their competitors.
An Industry Week survey found that firms approaching world-class status were three to five
times more likely to report "highly effective" human-resources programs than other firms.
Some analysts note that combining lean manufacturing principles with employee participation
can help firms become world-class manufacturers.

Technology

A great deal of emphasis is placed on technology, equipment, and processes by those trying
to attain world-class status. World-class manufacturers view technology as a strategic tool for
achieving and maintaining their world-class status. A high priority is placed on the discovery,
development, and timely implementation of the most relevant technology available and the
identification and support of those who can communicate and implement this technology.
The most highly competitive firms have made significantly more progress than others in
implementing TQM, reengineering, simultaneous engineering, group technology, computer-
assisted manufacturing (CAM), material resources planning (MRP), and the use of local area
networks (LANs).

Performance Measurement

World-class manufacturers recognize the importance of measurement in defining the goals

and performance expectations for their organization. They routinely adopt or develop the
appropriate performance measurements needed to interpret and quantitatively describe the
criteria used to measure the effectiveness of their manufacturing system and its interrelated
components.

Use of the proper measurements allows world-class manufacturers to assess their

performance against themselves (internal benchmarking), their competitors (competitive
benchmarking), and against other world-class manufacturing firms that are not competitors
(generic and functional benchmarking). World-class status is achieved through a relentless
commitment to continuous improvement, which cannot be achieved without measurement.

Step 3 – Information Systems, Management Direction and Operations Capabilities

Information Systems
 World-class manufacturers require world-class information systems for collecting, processing,
and disseminating data and for providing the feedback mechanism that is necessary for
meeting their objectives. Information systems are fully integrated into the business processes
of firms that adhere to continuous improvement and TQM strategies. Capturing and analyzing
customer feedback and designing, manufacturing, and delivering world-class quality products
and services are rooted in superior information systems. Richard Schonberger states that
functions within a world-class firm all have a common language and signaling system. World-
class firms embrace computerized maintenance management and computer-integrated
manufacturing. Additionally, organizational commitment to continuous improvement is
supported by the strategic use of information systems.

Management Directions

Management is responsible for directing the manufacturing organization's journey to world-

class status and for creating an organizational culture committed to all that is necessary for
achieving continuous improvement. Corporate culture and values are the foundation for
superior manufacturing, which in turn reflects and is reflected by the caliber of corporate
management. This implies that personal commitment, involvement, and a sense of direction
by management are critical to the success of world-class firms.

The manufacturing excellence needed for world-class status is nurtured by direction from
superior management, which must penetrate the manufacturing function, viewing and
managing it as an integral, indivisible part of the firm. It cannot tolerate mediocrity or even
average manufacturing performance.

Management must seek to describe and understand the interdependency of the multiple
elements of their manufacturing system, to discover new relationships, to explore the
consequences of alternative decisions, and communicate unambiguously within the
organization and with the firm's customers and suppliers. Stimulating and accommodating
continuous change forces management to experiment and assess outcomes. They must be
able to translate knowledge acquired in this way into some sort of direction, framework, or
model that leads to improved operational decision making, while incorporating a learning
process into their fundamental operating philosophy. The objective of world-class status tests
management's ability to learn, adapt, and innovate faster in the face of an intensely
competitive global market.
 Operations Capabilities

World-class manufacturers are concerned with whether their operations systems have the
ability to meet design specifications, rather than with evaluating the quality and quantity of
products after the fact. In order to attain world-class status, the manufacturing firm has to be
given the proper resources. With these resources, the firm must have the capability to
produce the right quantity, the right quality, at the right time (often just in time), and at the
right price. The proper technology must be on hand or readily attainable. In addition, the firm
must have the necessary managerial capabilities to compete successfully on a global basis. For
many firms, the necessary operational capability involves the ability to provide customers with
a large degree of flexibility of either product or volume, or exceptional response time to
orders, changes in orders, or new product development.

Beyond the firm itself, operations capability implies a superior interactive relationship with all
vendors and suppliers. World-class firms have extensively implemented JIT, are heavily
involved with programs that contractually commit suppliers to annual cost cuts and are
making efforts to involve the supplier early in the new product development process.

Step 4 – Quality

World-class manufacturers place an emphasis on quality. Firms in this category are usually in an
advanced state of TQM implementation, continually seeking to enhance their business. All quality
costs (prevention costs, appraisal costs, and cost of defects—both internal and external) are
evaluated and held to the lowest reasonable sum. "Zero defects" is the goal of the world-class
manufacturer. In order to achieve zero defects, the world-class firm is educated in and has fully
implemented statistical quality control (SQC), sometimes called statistical process control (SPC) or
quality at the source. Hence, quality is maintained and elevated through quality planning, quality
control, and quality improvement. In conjunction with this effort to improve processes and
products, world-class firms utilize an activity called benchmarking. This involves comparing the
firm's performance, either overall or in a functional area, with that of other world-class
organizations. The use of TQM techniques, according to some analysts, is the most striking
differentiator between world-class and non-world-class firms. Quality has also been found to be
the most important competitive differentiator in the eyes of the customer.

Step 5 – Customer Service

 World-class manufacturers instill within their organization and constantly reinforce the idea that
all who are a part of the organization must know their customers and must seek to satisfy the
wants and needs of not only the customers, but also all other stakeholders. The goal of satisfaction
is pursued in regard to the product, order processing, delivery, quick response to changes, and
service after the sale. After all, the goal of continuous improvement is to improve processes and
add value to products and services in such a way as to increase customer satisfaction and loyalty
and ensure long-term profitability.

Step 6 – World Class Manufacturing

While world-class manufacturing may be difficult for manufacturers to define, many say they
know it when they see it. Whatever it is, it must be from the customer's vantage point. An Industry
Week survey found that, among factories approaching world-class status, a higher percentage
were likely to belong to public companies; have corporate parents with revenues greater than $1
billion; participate in an automotive industry value chain; and employ 250 or more people at the
location. These firms reported large cost reductions over the previous three years, as well as
increased revenues, higher capacity utilization, higher sales per employee, and returns on
invested capital (ROIC) that exceeded that of other manufacturers. Daniel F. Baldwin states that
truly world-class firms are always examining their business processes and continuously seeking
solutions to improve in key areas, such as lead time reduction, cost cutting, exceeding customer
expectations, streamlining processes, shortening time to market for new products, and managing
the global operation.

World-class manufacturers are the ones that possess the knowledge and technology to provide
products and services of continually improving quality. It is what separates practitioners of the
new paradigm from the industrialist dinosaurs.

Each one of these six steps is discussed in more details in the subsequent chapters.

1.7 SUMMARY

In this unit we have found out the views of business leaders about five common features of WCM,
which are employee focus, customer focus, visionary leadership, profit and process.
We also had a brief look at how a WCM look in the future and what the organization will have to do
to remain a WCM.

The concept of WCM was first introduced by Fredric Schoenberger but Peter Stonebreaker and Keong
Leong chalked out a five-step approach for WCM.

1.8 KEYWORDS

• Employee Focus: Creating an invigorating environment where employee participation and

development are key.
• Customer Focus: Delivering what customers want, when they want it, with an appearance that
enhances the customers' perception of the product/service,"
• Leadership: Management that provides, communicates, and demonstrates vision, direction,
and a sense of teamwork."
• Processes: Activities, which convert inputs into the desired outputs
• Information System: System for collecting, processing, and disseminating data and for
providing the feedback mechanism that is necessary for meeting organization’s objectives.
• Management Direction: Directing the manufacturing organization's journey to world-class
status and for creating an organizational culture committed to all that is necessary for
achieving continuous improvement.
• Manufacturing Philosophy: Developing manufacturing capabilities to support the entire
company in gaining a sustained competitive advantage over its competitors in such areas as
cost, quality, delivery, flexibility, and innovation.
• Quality: Meeting and exceeding customer expectations.
• Operational Strategy: Manufacturing strategy, which explicitly supports organization’s
business strategy, which in turn is aimed at remaining competitive.
Operational Capabilities: operations systems, which have the ability to meet design specifications
with superior interactive relationship with all vendors and suppliers.
UNIT 2 VISION, MISSION, VALUES, BUSINESS & MANUFACTURING
STRATEGIES

Objectives

After studying this unit, you will be able to:

• Determine how mission and vision are necessary to lay the foundation of WCM;
• Analyze the role of value system of organization in forming a healthy organizational
Culture;
• Establish interrelationship between Business Strategy and Operational Strategy;
• Explain how this first step is the starting point for the organization to become World Class.

Structure
2.1 Introduction
2.2 Mission Statement
2.3 Vision Statement
2.4 Values
2.5 Interrelationship between values, mission and vision
2.6 Strategy
2.7 Vision, Mission, Competitive Advantage:
2.8 Business strategy
2.9 Manufacturing strategy
2.10 Current issues
2.11 Summary
2.12 Key Words

2.1 INTRODUCTION

A Mission Statement defines the organization's purpose and primary objectives and it is basically
meant for creating the platform for the leadership team, from which it can build a World Class
organization. Within this mission is the operating goal to become world class.
Organization's vision is for the future the organization wants to create for the community it wishes to
impact. Organization’s systems, structures, everybody’s daily behaviours, etc., must be aligned with
the vision.

The only way the organization can create an amazing future for the communities, is to perform in a
way that reflects universally shared values

All of these must be reflected in the firm's business and operations strategy, if world-class status is to
be attained.

This unit will help you in understanding the starting point for any organization, which aspires to be
World Class.

2.2 MISSION STATEMENT

Mission Statement of the organization describes what business the organization is in, and who its
customers are. It captures the very essence of the enterprise and its relationship with its customer.

Developing the mission statement is the step, which moves strategic planning process, from the
present to the future. The mission statement must “work” not only today, but for the intended life of
strategic plan, of which the mission statement is a part. So, intent of being World Class should be
evident in the mission statement.

Focus of the organization is a primary benefit of the mission statement. It should be broad enough to
allow for the diversity (new products, new services, new markets) required for the changing scenario
of business. And it will also be specific enough to provide the focus necessary to the success of the
business.

Example of a mission statement:

“Ameren's mission is to generate electricity, deliver electricity and distribute natural gas in a safe,
reliable, efficient and environmentally sound manner. Our vision is to be the recognized
performance leader of the U.S. electric and gas utility industry. Being a performance leader means
we will achieve operational excellence, industry-leading customer satisfaction and superior
financial performance.”
 Note that this mission statement has both, an internal and an external dimension. Internally, it
describes the products which the company offers - generate electricity, deliver electricity and
distribute natural gas - And it also lists the functions the company performs: “generate and
distribute.” The mission statement also includes the necessary external dimensions. It identifies
the customer: “U.S. electric and gas utility industry”. And it cites the company’s “market position”
– as the performance leader and also sets the goals as regards customer satisfaction and financial
performance.

Basic guidelines in writing a mission statement:

• The mission statement is about company, and its ideals. Read other companies’ mission
statements but write a statement that is about your company and not some other company.
Make sure you actually believe in what you’re writing; your customers and your employees will
soon spot a lie.
• Your mission statement should be able to withstand the changes that come up over time In your
product or service offerings, or customer base. A cardboard box company isn’t in the business
of making cardboard boxes; it’s in the business of providing protection for items that need to be
stored or shipped. The broader understanding helps them see the big picture.
• Keep it short. The best mission statements tend to be three to four sentences long.
• Ask for input. Run your mission statement draft by your employees. Is it clear and easily
understood, or does it sound like something from the “Dilbert Mission Statement Generator?”
• Aim for substance, not superlatives. Avoid saying how great you are, what great quality and
what great service you provide.
• The mission statement should be a clear and succinct representation of the enterprise's purpose
for existence. It should incorporate socially meaningful and measurable criteria addressing
concepts, such as the moral/ethical position of the enterprise, public image, the target market,
products/services, the geographic domain and expectations of growth and profitability.
• The intent of the Mission Statement should be the first consideration for any employee who is
evaluating a strategic decision. The statement can range from a very simple to a very complex
set of ideas.
• In short the Mission Statement should represent:

• The moral/ethical position of the enterprise

• The desired public image
• The key strategic influence for the business
 • A description of the target market
• A description of the products/services
• The geographic domain
• Expectations of growth and profitability

A company's mission statement is a constant reminder to its employees of why the company exists
and what the founders envisioned when they put their fame and fortune at risk to breathe life into
their dreams. Company that loses sight of its Mission Statement, takes the first step on the slippery
slope to failure.

2.3 VISION STATEMENT

Vision is not true in the present, but only in the future. The strategy team will need to develop a
compelling vision of the future, a vision which the employees will enthusiastically embrace - because
the vision is worthy, and because it challenges them to grow.

In order to get employees passionate about the vision, it has to be compelling. It has to matter… not
just to the management team, but also to everybody in the organization. “To triple sales revenue next
year,” may make a difference for the owners but “To make a difference to customers, to the
community, to the world” matters to everyone.

The vision should project a compelling story about the future. When Steve Jobs said, “An Apple on
every desk,” well there wasn’t then an Apple on every desk. In fact, there won’t ever be an Apple on
every desk. That’s OK. The vision can be figurative, rather than literal.

It’s also important for management not just to speak the vision, but also to live the vision. Apple
Computer did this. Signatures of the entire design team of the original 128K Macintosh were molded
into the computer case? Now that’s making employees, part of the vision.

It is important to communicate vision to employees. How to, continue to nurture and support that
vision every day, in every way and to empower employees to fulfill that vision.

A vision statement is sometimes called a picture of the company in the future but it’s so much more
than that. Vision statement provides inspiration and the framework for strategic planning.
A vision statement may apply to an entire company or to a single division of that company. Whether
for all or part of an organization, the vision statement answers the question, "Where do we want to
go?"

Vision statement articulates dreams and hopes for organization’s business. It reminds the concerned
people of what the organization is trying to build.

While a vision statement doesn't tell how to get there, it does set the direction for the business
planning. That's why it's important when crafting a vision statement to let imagination run wild in
order to capture everyone’s passion.

Unlike the mission statement, a vision statement is for everyone in the company, not for customers
or clients.

Statement Guidelines:

• The best vision statements for result areas describe outcomes that are five to ten years away,
although some look even further out.
• For projects and goals, the vision statement should focus on the desired outcome of the
project/goal at its completion date.
• Summarize Your Vision in a Powerful Phrase. If possible, try to summarize your vision using a
powerful phrase in the first paragraph of your vision statement. Capturing the essence of your
vision using a simple memorable phrase can greatly enhance the effectiveness of your vision
statement. This phrase will serve as a trigger to the rest of the vision in the mind of everyone
that reads it.

Take for instance Microsoft's vision of "A personal computer in every home running Microsoft
software." This simple yet very powerful phrase can be used throughout the organization
(hallways, internal web pages, plaques, etc.), to remind everyone of the vision.

• Take as Much Space as You Need. Vision statements can be much longer than mission
statements. The purpose is to create a mental picture charged with emotion that can serve to
energize and inspire you and your team. Take as much space as you need to accomplish this
goal.
• Your Vision Statement Should Describe the Best Possible Outcome. In fact, you might want to
envision something even better than what you consider to be the best possible outcome.
Remember that the purpose of the vision statement is to inspire, energize, motivate, and
 stimulate your creativity, not to serve as a measuring stick for success; that is the job of your
objectives and goals.
• The quality of your vision determines the creativity, quality and originality of your ideas and
solutions. A powerful vision statement should stretch expectations and aspirations helping you
jump out of your comfort zone.
• Remember that the purpose of the vision statement is, not to serve as a "real" target that you
are going to measure against to determine if you have succeeded or failed. You should use your
goals and objectives to do that. Instead, the purpose of the vision statement is to open your
eyes to what is possible.
• Describe your Vision Statement in the present tense, as if you were reporting what you actually
see, hear, think and feel after your ideal outcome was realized.
• Make your Vision Statement Emotional. Your vision statement should describe how you will feel
when the outcome is realized. Including an emotional payoff in your vision statement infuses it
with passion and will make it even more compelling, inspiring, and energizing.
• Add sensory details to your Vision Statement. The more sensory details you can provide, the
more powerful your statement becomes. Describe the scenes, colors, sounds, and shapes.
Describe who is there and what everyone is doing. These sensory details will help you build a
more complete and powerful mental image of your ideal outcome.

Examples of Vision Statements:

1. DuPont

The vision of DuPont is to be the world's most dynamic science company, creating sustainable
solutions essential to a better, safer and healthier life for people everywhere.

2. General Motors

GM’s vision is to be the world leader in transportation products and related services. We will earn
our customers’ enthusiasm through continuous improvement driven by the integrity, teamwork,
and innovation of GM people
2.4 VALUES

Core Values

The core values are a few values (not more than five or so) that are central to the firm. Core values
reflect the deeply held values of the organization, and are independent of the current industry
environment and management fads.

The core values your organization and its key people, subscribe to define its character and the
substance of your business, management, operations, products and services. What core values
would sustain organizational development and organizational development solutions for high
performance in your business?

One way to determine whether a value is a core value is, to ask whether it would continue to be
supported if circumstances changed and caused, it to be seen as a liability. If the answer is that it
would be kept, then it is core value. Another way to determine which values are core is to imagine
the firm moving into a totally different industry. The values that would be carried with it, into the
new industry, are the core values of the firm.

Core values will not change even if the industry in which the company operates changes. If the
industry changes such that the core values are not appreciated, then the firm should seek new
markets where its core values are viewed as an asset.

For example, if innovation is a core value but then 10 years down the road innovation is no longer
valued by the current customers, rather than change its values the firm should seek new markets
where innovation is advantageous.

The following are a few examples of values that some firms have chosen to be in their core:

• Accountability- Responsibility of our actions that influence the lives of our customers and
fellow workers.
• Balance- Maintaining Healthy life and work balance for workers.
• Collaboration-Collaborating within and outside the company to give the best.
• Commitment-Commitment to roll great product, service and other initiatives that impact lives
both within and outside the organization.
 • Community- A sense of responsibility and contribution to society that define our existence.
• Consistency-Be consistent in offering the best for wonderful experience.
• Diversity- Respecting the diversity and giving the best of the composition.
• Efficiency- Being efficient and effective in our approach to give best solution each time.
• Empowerment- Empowering the employees to take initiative and give the best.
• Fun- Having fun and celebrating small successes in our journey to achieve big.
• Innovation- To come out with new creative ideas that have the potential to change the world.
• Integrity-To act with honesty and integrity without compromising the truth.
• Leadership- The courage to lead from front and shape future.
• Ownership- Taking ownership of the company and customer success.
• Passion-Putting the heart and mind in the work to get the best.
• Quality-Giving the best and unmatched results for all round satisfaction.
• Respect-Giving due respect to self and others and maintain the environment of team work
and growth.
• Risk Taking- Encouraging self and others to take risk for a bright future.
• Safety- Ensuring the safety of people and making sure to give them trouble free experience.
• Service Excellence- Giving the best and world class service and achieving excellence each
passing day.

Utility of Values in Business:

• Values release energy because they motivate people.

• Values motivate people to work together collectively.
• Values are like ever-receding or never-ending goals. The higher the values, the more the
energy and effort required to achieve and sustain them. The more you pursue them, the
greater the energy they release and put into action.
• Quality of performance on every job, every activity, and every act can be accurately assessed
in terms of values.
• Companies which rated their implementation of key corporate values the highest, also
reported the highest levels of revenue growth and profitability in their respective industries.
• Improving corporate performance on a single value can virtually transform the way a company
functions.
• Values are the most powerful way to release and harness the company's latent, unutilized
energies for growth. (MSS)
2.5 INTERRELATIONSHIP BETWEEN VALUES, MISSION AND VISION

Both the Mission Statement and Vision Statement “reside in a sea of values.” That’s because
company’s values influence “everything.” For example, for any statement, whether mission or vision,
to be embraced and acted upon, it must reflect the values of the organization.

Values describe what the management team really cares about. What it holds dear. What “makes
them tick.” How would the managers respond to a trade-off between product quality and profit?
That’s really a question of value.

The mission statement should be a concise statement of business strategy and developed from the
customer's perspective and it should fit with the vision for the business. The mission should answer
three questions:

1. What do we do?
2. How do we do it?
3. For whom do we do it?

What do we do? This question should not be answered in terms of what is physically delivered to
customers, but by the real and/or psychological needs that are fulfilled when customers buy your
products or services. Customers make purchase decisions for many reasons, including economical,
logistical, and emotional factors.

How do we do it? This question captures the more technical elements of the business. Your answer
should encompass the physical product or service and how it is sold and delivered to customers
and it should fit with the need that the customer fulfills with its purchase.

For whom do we do it? The answer to this question is also vital as it will help you focus your marketing
efforts. Though many small business owners would like to believe otherwise, not everyone is a
potential customer, as customers will almost always have both demographic and geographic
limitations. When starting out, it is generally a good idea to define the demographic characteristics
(age, income, etc.) of customers who are likely to buy and then define a geographic area in which
your business can gain a presence. As you grow, you can add new customer groups and expand
your geographic focus.
An additional consideration with mission statements is that most businesses will have multiple
customer groups that purchase for different reasons. In these cases, one mission statement can be
written to answer each of the three questions for each customer group or multiple mission statements
can be developed. Also, as a final thought, remember that your vision and mission statements are
meant to help guide the business, not to lock you into a particular direction. As your company grows
and as the competitive environment changes, your mission may require change to include additional
or different needs fulfilled, delivery systems, or customer groups. With this in mind, your vision and
mission should be revisited periodically to determine whether modifications are desirable.

2.6 STRATEGY

Strategy has been defined as:

“Determination of the basic long-term goals and the objectives of an enterprise, and the adoption of
courses of action and the allocation of resources necessary for carrying out these goals"

Some more definitions of strategy are:

• The broad program of defining and achieving the organization’s goals and implementing its
mission – Evert.
• Determination and evaluation of alternative paths to achieve organization’s goals and
objectives and eventually a choice of alternatives to be adopted – Wheelan & Hunger.
• Process of continuous information gathering and awareness where analysis, choice,
implementation together with feedback mechanisms work together to position the enterprise
at its most competitive standpoint.

Such broad definitions of strategy cover a multitude of decisions from "What business should we be
in?" to "How can manufacturing contribute to the competitive advantage of this business?"

Recognizing this has led to the idea of following hierarchy of strategies

• Corporate Strategy
• Business Strategy
• Functional Strategy
Manufacturing strategy is one such functional strategy. The concept of manufacturing strategy is often
traced to Skinner's 1969 Harvard Business Review article, "Manufacturing- Missing Link in Corporate
Strategy". Skinner suggested a top-down approach to manufacturing. Manufacturing objectives
should be derived from business objectives, and then manufacturing policies developed to address
these objectives.

Manufacturing objectives cover such things as cost, quality, delivery and flexibility and usually there
are trade-offs between them. Trade-off decisions are also required in a number of key areas in order
to support the manufacturing objectives. Skinner identified five decision areas:

• Plant and equipment

• Production planning and control
• Labor and staffing
• Product design / engineering
• Organization and management

These basic ideas (trade-offs and consistency of objectives/policies) have formed the foundation from
which the current understanding of manufacturing strategy has developed.

Before going into further details about Manufacturing strategy, it is necessary to fully understand the
meaning of Strategy and also something about corporate and business strategies, which provide the
guiding principles for manufacturing strategy.

Characteristics of Strategy

• Long-term impact
• Formed by Top Management
• Focus on Mission
• Availability of options

Key points for successful Strategy

• Choice of Area of concentration

• Preparedness for retaliation
• Keeping away from dangerous areas
 • Involvement of everyone
• Correct timing
• Right choice of Alliances

Interactive elements of Strategy:

1. Analysis – Resource awareness, Environmental audit, Appreciation of Corporate

expectations.

2. Choice – Generating, evaluating and choosing options.

3. Implementation – Organizational restructuring & planning resources.

Analysis

Choice Implementation

Macro factors affecting Strategy

• PEST (Political, Economic, Social, Technological) factors

• Demographics
• Labor
• Ecology
• Competitors
• Government
• Balance of power between buyer and supplier
• General economic growth
• Inflation
• Unemployment
• Disposable incomes

Hunger and Wheelan’s Strategy formulation model

• Evaluation of Organization’s current performance

• Examination and Evaluation of current Mission, Objectives and Policies
 • A scan of internal environment (Strengths and Weaknesses)
• A scan of external environment (Threats and Opportunities)
• Analysis of strategic factors and revision of Mission and Objectives
• Generation, evaluation and selection of the best strategy
• Implementation
• Monitoring the results and installing controls

Setting of strategy

Strategy

Mission Goals Management Operations

Policy

Fig 2.2

Corporate Strategy

Corporate strategy will ask you to answer fundamental questions such as "Why are you in business?"
and "Why are you in this particular business?". This may appear to be a strange starting point but
unless you can answer these types of questions your Corporate Strategy cannot produce vision
statements and mission statements that have any real meaning.

2.7 VISION, MISSION, COMPETITIVE ADVANTAGE

The first critical strategy element is Vision, Mission and Competitive Advantage, which describe the
business a company is in, it's current and long term market objectives and the manner in which it
differentiates itself from the competition.

Focused Purpose

• Clearly defining short-term purpose

 • Ensuring mission is realistic
• Serving the best interests of all stakeholders
• Defining a point of differentiation

Future Perspective

• Clearly defining long-term outlook

• Appealing to the long-term interests of the company's stakeholders
• Providing a foundation for decision-making

Strategic Advantage

• Competitive advantage is a key driver to forming an organizational strategy

• Competitive advantage is clearly understood by all stakeholders
• Employees clearly understand how their role supports the company's organizational
strategy

External Assessment:

A second key strategy element is External Assessment, which reflects an organization's approach to
gathering and analyzing essential market data. Included in this data are developing competitive
profiles, studying macro and micro economic information, identifying industry opportunities and
threats, and understanding what it takes to be successful in a given market. Factors affecting external
assessment are:

Customer Profile

• Clearly defining reasons why customers buy products or services

• Clearly defining benefits that customers seek
• Clearly defining reasons why customers would not buy products or services
• Assessing customer bargaining power
• Knowing customer preferred choice of distribution channel

Industry and Competitive Analysis

• Identifying primary competitors

• Identifying potential and indirect competitors
 • Clearly defining strengths, weaknesses and strategies of competitors
• Assessing the threat of substitute products or services or new entrants into the
marketplace
• Understanding what it takes to be successful in a given market
• Comparing customer growth rate with industry standards
• Ongoing market evaluation process

Environmental Assessment

• Defining and clarifying regulatory requirements

• Assessing vulnerability to adverse business cycles
• Summarizing opportunities and threats due to:

Economic conditions

• New technology
• Demographic structure
• Legal or political events
• The natural environment
• Socio-cultural norms

Key Success Factors Are Identified With a Critical Thinking Process

• Implementing a critical thinking process

• Clearly measuring competitive intensity
• Clearly defining product or service demand within your market
• Clearly defining drivers to success within your industry
• Consistently monitoring key influences within your industry

Internal Assessment

Internal Assessment is the third key strategy element that reflects the company's ability to objectively
evaluate its own strengths and weaknesses. This would include evaluating the company's
management processes and how effectively it utilizes a "value chain" analysis approach. (Value Chain
components are Research & Development, Production, Marketing, Sales and Customer Service).

Finance
• Adequate funding of key initiatives
• Utilizing a comprehensive pricing model
• Consistently performing within a range of financial goals
• Having a targeted long-range financial plan
• Employing a "Cost / Benefit" approach to resource allocation
• Financial plan allowing for economic or environmental disruption
• Financial plan allowing for flexibility
• Employing the "If / Then" model when forming organizational strategy

Research and Development

• Fully integrating all appropriate departments with R&D

• Maintaining a creative and innovative process
• Ensuring R&D has all required resources to successfully fulfill its function

Production

• Fully integrating all departments to support production

• Strategic partners consistently fulfilling production commitments
• Making Production process cost-effective
• Ensuring Production process is flexible, fast and responsive

Marketing

• Coordinating all departments to support marketing

• Having a clearly defined marketing plan
• Branding plays a critical role
• Utilizing a marketing system or database to track customer and market information
• Employing an effective product / service management process
• "Competitive advantage" is a key driver for all marketing decisions
• Employees taking pride in the ability to promote products and services
• Monitoring the ROI of all marketing campaigns

Sales / Distribution

• Consistently achieving sales goals

• Ensuring that sales teams / channels possess required skills to achieve plan
 • Ensuring that sales teams / channels are provided with the necessary information to achieve
their goals
• Employing a well-defined sales management process
• Coordinating all departments to support our sales process
• Tracking sales activity from lead generation through close

Customer Service

• Clearly defining customer service standards

• Meeting or exceeding customer expectations
• Measuring customer satisfaction
• Managers and employees sharing a high commitment to achieving customer loyalty

• Maintaining a customer relationship management system that provides critical service

information to make the best decision
• Maintaining a high rate of repeat business, customer loyalty and referrals

Objectives, Initiatives and Goals

Company should have ability to articulate what it wants to accomplish, how it will do it, and when it
will be achieved. Included in this process are defining direction, aligning financial and human
resources, instilling accountability and determining critical measurements.

Direction

• Identifying key strategic objectives

• Prioritizing action items by their importance to strategic intent
• Ensuring objectives are quantifiable and measurable
• Those responsible for implementation participate in the strategic planning process
• Plans must specify how each area will contribute to achieving strategic plan

Resource Alignment

• Allocating sufficient resources to achieve strategic intent

• Clearly defining resources necessary for each objective
• Evaluating individual or group capacity prior to assigning workload
 Organization Accountabilities

• Ensuring that employees understand how their roles and responsibilities relate to
strategic objectives
• Holding individuals accountable for their work
• Employee goals reflecting accountabilities and timeliness
• Employing an internal system to routinely review the status of key objectives
• Measuring key financial indicators
• Utilizing a uniform format to measure and report performance

2.8 BUSINESS STRATEGY

For chalking out the business it is first necessary to find out the current status of the business by asking
a question:

Where is business? (Three aspects):

• Stage of growth: - Start-up, consolidation, internationalization, professionalization of

management, vertical integration, diversification.
• Assessment of Technological environment.
• Comparison with competitors.

Business strategy describes how a particular business intends to succeed in its chosen market place
against its competitors. It therefore represents the best attempt that the management can make at
defining and securing the future of that business. A business strategy should provide clear answers to
the questions:
• What is the scope of the business (or offering) to which this strategy applies?
• What are the current and future needs of customers and potential customers of this business?
• What are the distinctive capabilities or unique competence that will give us competitive
advantage in meeting these needs now and in the future?
• What in broad terms needs to be done to secure the future of our business?

A good business strategy will meet six tests of quality:

• It will be correctly scoped.

• It will be appropriately documented.
 • It will address real customer needs.
• It will exploit genuine competencies.
• It will contribute to competitive advantage.
• It will lay the ground for implementation.

Classification of Business Strategies. (Three types)

Initiative based
• Research & Development: - Development of new/innovative products/processes
• Entrepreneurial: Managerial initiatives to improve quality, productivity, market share and
reduce costs
• Acquisitions: - Acquiring competitor’s or related businesses to establish market leadership.
Market based
• Responding: - Responding positively to new products/processes/technology available in the
market
• Customer requests: - Specific request from the customers for product modifications,
updating or improvements.
• Imitative: - Imitating competitors’ products to fill up the demand gap or adopting
processes/technologies successfully deployed by others
• Competitor influenced: - Based on actions/decisions taken by the competitor, which may
adversely affect company’s business.
• “Second but better type”: - Unable to beat the best in the market but still the next best.
Defensive
• To protect market share: - When competition is fierce
• For survival: In adverse market conditions, which may arise due to recession, natural
calamities etc.

Types of strategic change

• Diversification: Opting for different type of products/business

• Expansion: - Expand existing facilities or create new facilities to cater to increasing demand
• Transformation: - Re-invent the organization through new technology or new managerial
initiatives like JIT, Business process reengineering etc.
• Adoption: - Adopt to changes in market, customer perceptions, competitor’s initiatives etc.
• Abandonment: - When nothing succeeds, give up and quit.
2.9 MANUFACTURING STRATEGY

Manufacturing strategy can be defined as a set of coordinated objectives and action programs applied
to a firm's manufacturing function and aimed at securing medium and long term, sustainable
advantage over that firm's competitors. The manufacturing function requires a strategy to ensure a
match, or congruence, between the company's markets and the existing and future abilities of the
production system. Manufacturing strategy generally addresses issues including:

• Manufacturing capacity
• Production facilities
• Use of technology
• Vertical integration
• Quality
• Production planning/materials control
• Organization
• Personnel

Although it has not always been the case, it is now generally accepted that the health of the
manufacturing function in a company is at the heart of its success, and that having a manufacturing
strategy which aligns with overall business strategy and other functional strategies in an organization
is essential.

In practice, having a manufacturing strategy which shapes the structure, infrastructure and
capabilities of a firm's manufacturing function does not ensure the success of a business. The strategic
approach must be combined with a pragmatic approach to continuous improvement at an operational
level if a company is to produce products at the rate, quality and cost that ensure competitiveness in
their chosen markets.

Threefold approach to Manufacturing Strategy.

Strategically oriented

• To be formulated at top level

• Should have long time horizon
• Exploit opportunities to get competitive advantage
Focused
• Targeted market segment
• Customer requirements
• Dedicated capacities of the Plant

Holistic
• Involve all functions in decision-making
• Give consideration to all Stakeholders
• Support overall organizational goals
• Have same time frame as Corporate and Marketing strategies

Why Manufacturing Strategy?

• Of the five ‘P’s of Marketing (Price, Place, Product, Pace and Promotion), first four depend on
‘Manufacturing’ capabilities
• Manufacturing utilizes 80% of Assets
• Account for 80% of costs
• Uses substantial part of Human Resources

Manufacturing is generally perceived in wrong way at Top Management, managed in the wrong way
at Plant and taught in the wrong way in Business Schools – Skinner.

Problems of past attitudes to Manufacturing

• Exclusion from Corporate level decisions

• Perceived lack of strategic importance to Manufacturing
• Emphasis on Marketing and Finance at the expense of Manufacturing / Technological
resources
• Problem of image of Manufacturing within the organization

Reasons for low image of manufacturing

• Traditional view of Manufacturing in a reactive role

• Exclusion of Manufacturing from Corporate debates on long term planning
 • Lack of shared language between Manufacturing and other functions

Attributes of competitiveness for the Organization

• Product quality
• Process quality
• Delivery speed and reliability
• Flexibility
• Rapid product innovation and new product development
• Managing ‘Waste’
• Other Market specific requirements

Formulation of Manufacturing Strategy

Areas for consideration

• Capacity – Capabilities and volume

• Facilities – Size, location, specialization
• Technology – Equipment, automation
• Vertical integration
• Workforce – Remuneration, training, motivation
• Quality – Customer orientation
• Production Planning / Material control – MRP, JIT
• Organization – Culture, climate, structure

Determining Manufacturing’s current phase

• Reactive – Respond to demands, keep costs under control

• Supportive – Support organization’s Corporate strategy
• Proactive – Play an important role in sustaining competitive advantage

Process Model for Manufacturing Strategy

• Analyze environment
• Make internal appraisals
• Formulate corporate strategy
• Determine implications for operations
 • Examine financial and technological limitations
• Design operation systems
• Plan operations
• Manage and control operations

Competitive profiling for Manufacturing Strategy

Competitive grid is created for following factors:

Costs, Quality, Technology, Total lead time, Manufacturing lead time, Delivery reliability, Delivery
flexibility, Design flexibility, Volume flexibility

Each factor is scored on 1-9 scale with following consideration:

Score: 1 – Consistently better than competitor.

5 – Same as the competitor.

9 – Consistently worse than the competitor.

2.10 CURRENT ISSUES

Low Cost Countries (LCCs)

A key part of a manufacturing strategy is the definition of whether products are to be

manufactured at the traditional manufacturing sites of an organization or if the cost benefits
offered make it beneficial to set up manufacturing in geographic areas with a low cost base (e.g.
Eastern Europe, South America, China). Although it may often look appealing to set-up in low
cost base areas, full account needs to be taken of the practical and logistical difficulties and the
full financial implications of setting up and operating facilities in remote, underdeveloped
countries.

Outsourcing manufacturing

With the advent of e-commerce and the relative ease with which suppliers across the world can
be identified and contracted to manufacture parts or complete products, many companies are
 including outsourcing of manufacturing in their strategy. Again, this can look appealing if part
or product cost is the only factor considered but great care needs to be taken to ensure that
product quality issues are properly addressed in the outsourcing exercise and the requirement
for active management and control of outsourced manufacture needs to be recognized.

Mass customization

It is accepted wisdom that a route to achieving reduced costs and improving profitability in a
company is to focus its activities on a limited range of technologies, volumes, products and
markets.

However, customers are becoming ever more demanding about the cost, quality and
performance of the products that they buy and expect more variety and product customization
rather than less. An example of this is in the automotive sector. Customers now expect to be
able to choose from a long list of vehicle options and thus to specify a vehicle which best suits
their requirements. In other industry sectors, there is similar customer pressure for products
that are truly optimized for their specified end use.

In the future, companies will need to adopt manufacturing strategies and production
technologies (programmable automation, flexible robotics, etc), which will allow increased
manufacturing flexibility and the capability to respond quickly and cost effectively to demands
for product variants or truly customized products.

2.12 SUMMARY

In this unit we have gone through the first step recommended by Peter Stonebreaker and Keong Leong
that leads to world-class operations and how spelling out Mission and Vision of the organization, which
are based on value system lay the foundation of WCM.

Developing the mission statement is the step which moves strategic planning process from the present
to the future. Focus of the organization is a primary benefit of the mission statement The strategy
team will need to develop a compelling vision of the future. It’s also important for management not
just to speak the vision, but also to live the vision. It is important to communicate vision to employees.
Vision statement articulates dreams and hopes for organization’s business.
Values reflect the deeply held beliefs of the management. The core values the organization and its
key people subscribe to define its character and the substance of the business, management,
operations, products and services. Both the Mission Statement and Vision Statement “reside in a sea
of values

Mission and vision are to be supported by a hierarchy of strategies starting with Corporate Strategy.
Corporate strategy will ask you to answer fundamental questions such as "Why are you in business?"
and "Why are you in this particular business?"

Business strategy describes how a particular business intends to succeed in its chosen market place
against its competitors.

Manufacturing strategy can be defined as a set of coordinated objectives and action programs applied
to a firm's manufacturing function and aimed at securing medium and long term, sustainable
advantage over that firm's competitors.

2.13 KEYWORDS

▪ Vision – Time bound plan of where the organization wants to be in future

• Mission – Purpose of the organization and the path to achieve the purpose
• Values – Principles and the ethics organization wants to follow
• Core Values – values (no more than five or so) that are central to the firm. Core values reflect
the deeply held values of the organization and are independent of the current industry
environment and management fads.
• Strategy – Determination of the basic long-term goals and the objectives of an enterprise, and
the adoption of courses of action and the allocation of resources necessary for carrying
out these goals.
• Corporate Strategy – General Plan of the Management for achieving the mission and vision
the organization.
Business Strategy – Plan of how a particular business intends to succeed in its chosen
marketplace against its competitors
Manufacturing Strategy – Set of coordinated objectives and action programs applied to a firm's
manufacturing function and aimed at securing medium and long term, sustainable advantage over
that firm's competitors
UNIT 3 ORGANIZATION DESIGN, HUMAN RESOURCES,
TECHNOLOGY, AND PERFORMANCE MEASUREMENT

Objectives

After going through this unit, you will be able to:

• Determine how organizational design influences WCM;

• Analyze how important is the role of human resources in the organization;
• Find out how technology can be harnessed to become WCM;
• Why performance measurement is necessary to optimize utilization of employees;
• The way this second step lays the foundation for the organization to become World Class.

Structure
3.1 Introduction
3.2 Organization Design
3.3 Human Resource
3.4 Technology
3.5 Performance Measurement
3.6 Summary
3.7 Key Words

3.1 INTRODUCTION

World-class manufacturers have an organization structure, that eliminates barriers to communication

and create an atmosphere, where the core values needed to reach world-class status take precedence.

World-class manufacturers recognize that, employee involvement and empowerment are critical to
achieving continuous improvement in all elements of the manufacturing system. The continuity of
organizational development and renewal comes primarily through the involvement of employees.

World-class manufacturers view technology as a strategic tool, for achieving and maintaining their
world-class status.

World-class status is achieved through a relentless commitment to continuous improvement, which

cannot be achieved without performance measurement.
3.2 ORGANIZATION DESIGN

Let us first understand what organization is. The most apt definition of organization is:

“A social unit of people, systematically structured and managed to meet a need or to pursue collective
goals on a continuing basis”.

The very definition of Organization implies that organization has to have a systematic structure which
determines relationships between functions and positions, and subdivides and delegates roles,
responsibilities, and authority to carry out defined tasks.

Organization is an open system that affects and is affected by the environment beyond its boundaries.

Six critical parts of organizational structure

It is necessary to have a template for organizational structure that answers to certain traditional values
yet stays modern enough to be viable for WCM. The model must answer tough questions and
concerns. There are at least six dimensions of the template that the structure must support:

Control

Allow management, who is ultimately responsible, to have some form of control over the
business processes and the expected results.

Accountability

Someone must ultimately be accountable. Don’t say teams, because that just doesn’t happen.
Empowerment can be used for the mass of employees, but eventually a single manager must be
held accountable to the system.

Rapid Response

Long lead times are not acceptable. Organizations must become accustomed to playing by the rule
of first on the scene with the most value wins the medal.

High Performance

There will always be low-, medium-, and high-performing companies. That’s the nature of
statistics and the law of averages. If you want to be a world-class organization, your structure must
be designed to deliver above and beyond the norm. It must be geared to high performance.

Correct Decision Taking

A future structure must permit all levels of people to make decisions at points in time necessary
for the situations. Decentralized decisions become the norm of the day.
 Accurate Analysis

A business case or competitive analysis that must work its way from the bottom of an
organization to the top, survive multiple political edits, and be influenced by managers with
vested interests in the findings is no longer acceptable in real time. Managers must be able to
access information, sort the load, and do impeccable analysis of their business situations. To have
lag time because of systems or structural reporting causes an organization to be noncompetitive.

Types of Organizational Structures

Broadly speaking, there are three types of major organizational structures, and it is vital for any
company to choose carefully and adopt the structure–or combination of structures–that best suits
their needs and goals in the longer term.

The Functional Structure

This type of organizational structure is founded on the functions or jobs an employee performs
for the business. The best example is the “secretarial pool” that used to be a common
phenomenon in older firms. All the secretaries of the company who were not assigned
“personal” or “private” roles, would sit in a common area and the shorthand, typing and
correspondence jobs of the entire company would be allocated to individuals in this pool by
their supervisor. In this type of structure, departments are based on what employees do.

The major advantage of such a structure is that the efficiency of specific functions can be
optimized. When a pool of secretaries or a group of engineers or accountants sit together and
form a department, they can share the work, support and help each other with their loads or
problems. People doing the same job have the opportunity to bond closely with each other
and in the long run, the company saves capital, because it has experience, expertise and
numbers working and cooperating in close quarters.

The biggest disadvantage of the functional structure is the isolation of roles, which makes
coordination between departments a nightmare. Clannishness, inter-departmental
complaints, one-upmanship and competitiveness might lead to low employee morale and
hinder the realization of the business’ goals. Intra-department competition and infighting may
also cause problems and unhealthy ego-clashes that hamper the smooth operation of the
business.

The Divisional Structure

The divisional segmentation of employees may be decided by the product, the geographical
location, or the target market.

A multinational company manufacturing detergents, shampoos and toothpastes, each

product would have its own “division” and would function like a mini company within the
larger corporation. Each division would have individual resources without reference to other
divisions.
 Divisions may also be created for different regions (Asia-pacific, Europe, South America etc)
or markets (rural, urban, Japanese, and Indian), served by a company.

One obvious advantage of the divisional structure is the fact that each division is also a profit-
center. Also, the decentralized allocation of resources, and the lack of dependence between
divisions, makes the company more flexible and able to react faster to changes. It also
encourages innovation and allows divisions to follow different strategies and policies within
the overall company guidelines.

On the other hand, the divisional structure results in unnecessary waste, as many otherwise
common resources and roles need to be separately procured and allocated to different
divisions. Also, the divisions do not cooperate with each other or interact with each other on
a daily basis, and this leads to a false sense of competition and self-sufficiency, where the
larger structure of the company is not taken into consideration.

The Matrix Structure

This type of organizational structure combines both, the functional and the divisional and is
ideal for corporations that operate out of various parts of the world and produce multiple
goods or services.

The matrix structure works wonderfully for large corporations, because it allows the mixing
and matching of employees according to need. It would not be so suitable for smaller
organizations and is difficult to execute efficiently because essentially, employees would have
to answer to two centers of authority.

Case Study – Organizational Structure of Boeing

As an organization that uses the matrix structure of management, communication is the key to
success. The lines of communication flow more freely and allow for more accountability both from
project teams and project manager.

Each department has a Senior Vice President as head of that function. Different individuals in
different units perform specific tasks.

The firm is overseen by its executive staff and Board of Directors, they use integration to run the
organization. The integration brings the Executive Council, Capital Corporation, Commercial
Airplanes, Engineering, Operations and Technology, Integrated Defense System and Shared
Service Group together via Senior Vice Presidents to make decisions about how to stay
competitive and increase revenue.

Boeing’s span of control is wide – 163,851 employees in 70 countries. Boeing is a centralized

organization. High level Executives make most of the decisions and pass them down for
implementation.

Vertical structure has hierarchy levels where top Supervisors make decisions. The Organization is
composed of many different units that work on different kinds of tasks, using different skills and
 work methods. The differentiated units are put back together so that the work is coordinated into
an overall product. Authority tickles down the organization from top to bottom.

Horizontally, the organization is divided into smaller units or departments. Each department has
a Department Head who oversees the overall working of that department. He reports to CEO, CFO
or COO. This structure works to create individual and specific divisions that are responsible for
specific functions.

Vertical and Horizontal structures work synonymously. Vertical structure authorizes top
supervisors to take decisions about how to run the organization. Horizontal structure breaks down
the organization into smaller divisions headed by departmental Heads who report to top
supervisors. Vertical structure dictates how authority is delegated while Horizontal structure
dictates how each division is integrated into the organization.

At Boeing, each organizational function has its own purpose and place in the management of the
company. Continuous improvement is the essence of every division. Management realizes that
strength comes from all employees and company must support many ongoing efforts by its teams.

Boeing’s culture values Leadership integrity, Quality, Customer satisfaction and enhancing
shareholder value.

Different divisions run independently due to diversity of Boeing’s products. There are constant
changes in Technology, which means that collaboration amongst divisions is essential to success.
Boeing is a network organization with independent, single function firms that collaborate on
goods or services. Resource utilization is efficient because key resources are shared across several
important programs or products at the same time.

Boeing values skills, strengths and perspectives of its diverse teams. The company fosters
participatory workplace that enables people to get involved making decisions about their work
resulting in furthering common business objectives.

The Final Analysis

You should consider the different types of organizational structures available to you, before you
decide on the one that fits your company’s needs. Whatever structure you employ should give
you the results that you desire.

You will know you’ve made the right choice if your decision-making is flexible and smooth, your
operative and problem-solving reactions are quick and appropriate to the situation, your company
is capable of producing innovations in answer to market requirements, and your employees are
motivated and productive.
3.3 HUMAN RESOURCE

Obliviously, the most important of all the resources is the human resource as this resource controls
and utilizes all other resources. World-class manufacturers recognize that employee involvement and
empowerment are critical to achieving continuous improvement in all elements of the manufacturing
system. The continuity of organizational development and renewal comes primarily through the
involvement of the employee. World-class companies invest comparatively more in their relationships
with their workers, providing significantly more training than their competitors. An Industry Week
survey found that firms approaching world-class status were three to five times more likely to report
"highly effective" human-resources programs than other firms. Some analysts note that combining
lean manufacturing principles with employee participation can help firms become world-class
manufacturers.

In a competitive environment if the organization is striving to be World Class, Human resources have
to be flexible and the flexibility can come through Multi Skilling.

Why Flexible Workforce

One major ‘waste’ that is seen in any organization practically every day, is the ‘waiting time’. At any
given moment of the day somewhere in the organization, both tasks are waiting for availability of the
right persons, and at the same time people are kept waiting as the tasks for which they are trained
for, are not in the schedule. Thus, there is a paradoxical situation that both people and tasks are
‘waiting’ as a proper matching of these two cannot be done. Effective implementation of ‘5 – S’ can
bring discipline and workplace organization but it cannot entirely eliminate the waste due to ‘waiting
time’. This major cause of ‘waste’ can be minimized and even completely eliminated if organization
has as many people as possible who, besides their own area of expertise, can perform variety of tasks
with reasonable amount of skill/knowledge. In other words, the organization should have a ‘flexible
workforce’, which will not keep any task waiting for the ‘right man’ while ensuring that the total
employee strength is kept at the optimum so that there is no ‘waiting time’ for any person.
For the organization to have a ‘flexible workforce’, maximum number of employees needs to be ‘multi-
skilled’. A multi-skilled employee is the one who possesses or acquires a range of skills/knowledge and
can apply these voluntarily to work tasks that may fall outside the traditional boundaries of his regular
work. The person may not possess high level of skill/knowledge in every task but can be an effective
and productive contributor in multiple areas.
This multi-skilling needs to be practiced at every level of the organization. At lower level a multi-skilled
worker may be able to handle different types of machines with reasonable skill and efficiency, perform
allied tasks like inspection, machine maintenance etc. during his idle time or operate multiple
machines for optimum utilization of his available time. At supervisory and managerial levels, people
should possess adequate knowledge about the allied areas of operations so that they can understand
and can contribute positively in solving problems of others and also fill in the gaps caused by variety
of reasons like absenteeism, separation or sudden increase in work load in some operational area.
Advantages of Flexible Workforce

• Advantages of a ‘Flexible Workforce’ can be summarized as:

• Brings down the total processing time by reducing the waiting time, which in turn results
in:
• Better utilization of equipment and men.
• Timely deliveries as time required for processing can be predicted with much better
accuracy.
• Better customer satisfaction.
• Reduction in processing costs.
• Removes monotony of work by allowing people to practice variety of skills.
• Enhances employee’s self-esteem as his capabilities cover a wider sphere of operations,
leads to job enrichment and eventually to job satisfaction.
• Improves communication as everyone has working knowledge of allied areas of
operations.
• Employees from different areas of operations can come together to solve each other’s
problems, which leads to effective teamwork.
• Increased knowledge and skills coupled with better job satisfaction can bring out
innovative spirit of employees in solving chronic problems and suggesting better methods.
• Employment security increases as employee can be used in different area if his traditional
work becomes redundant.
• Management functions like planning, organizing, delegating and motivating become
easier and senior managers can spare more time for improvements.
• Administrative costs are reduced.
• Organization becomes more resilient and can manage ‘change’ effectively.
• Efficiency and effectiveness of the organization improves making it more competitive.

Though flexible workforce is a very competent tool for any organization to be efficient and effective,
creating such a workforce is not an easy job and needs sustained efforts, perseverance and total
commitment of the senior management. The first perquisite for this is creating conducive
‘organizational climate’, which results in a supportive ‘organizational culture’. And this is the job of
top management.

‘Organizational climate’ is the human environment arising from interpersonal relationships. It

influences motivation, performance and job satisfaction of the employees. It is only at the initiative of
the top management that a favorable climate, which fosters healthy interpersonal relationships,
based on trust and respect for each other can be created.

Organizational culture, which is a by-product of organizational climate, can be defined as

“conventionalized behavior of employees as a group arising from a pattern of shared assumptions and
perceptions of their social surroundings”. Organizational culture influences the way employees
interpret their experiences, make decisions and ultimately guide actions. The ideal organizational
culture is the one where employees are:

• Open and receptive.

 • Having respect for each other.
• Prepared to analyze their actions and behavior and are able to improve.
• Able to take initiative and show results.
• Committed to the progress of the organization
• Totally involved in their job
• Able to understand problems of others and prepared to render help in solving these.
• Able to enjoy their work.

Deming Philosophy

For creating this type of organizational culture, at macro level, a favorable climate has to be created
and towards this, following two points from the famous 14 points of Dr. Deming may serve as a
guideline.

“Drive out fear from the organization so that everyone can work effectively for the company”

Atmosphere of ‘fear’ in the organization results from one or more of the following factors:

• Autocratic leadership style where boss-subordinate relations are based on “I order, you
obey” method.
• Too many controls introduced in the system due to lack of trust in processes and people.
• Activity based appraisals rather than performance-based ones.
• ‘Divide and rule’ methods followed by bosses.
• Lack of two-way communication.
• Reluctance to address genuine problems of subordinates.
• Unrealistic targets and undue pressure for achieving these.
• Multi-layered hierarchical structure leading to unhealthy competition at senior levels.
• Over reliance on negative reinforcements and punitive actions.
• ‘Quick to blame and slow to praise’ attitude of seniors.
• Tendency of seniors to ‘nurse their egos’.

It is easy to observe that origin of most of the above-mentioned factors is the behavior pattern of the
senior managers, which progressively gets reflected in the behavior of the juniors. If organization
culture has to change for the better, it has to start changing at the top levels. Senior managers need
to take following actions for this:

Improve communication: -

A famous management expert has said:

Quote – “There are three secrets behind any successful organization, and these are 1)
Communicate 2) Communicate and 3) Communicate” – unquote

Effective communication has to be two-way. Juniors must be encouraged to ask questions and
seniors should be prepared to explain ‘Why’ for any action. A good communicator has to be first
a good listener. More details on communication are available in chapter no. 4.1
Refrain from practicing following:

- “I order, you obey”

- “Do it and don’t ask questions”
- Divide and rule

• Do not reprimand or insult anybody, especially in presence of others.

• Identify weak points of every subordinate and take remedial actions by giving positive
reinforcements.
• Show a positive attitude towards mistakes. Remember, only those who work can commit
mistakes.
• Encourage teamwork rather than individual efforts. This can be achieved through tools like
Quality Circles, Cross-functional Teams, Task Teams etc.
• Provide adequate time and resources for completing any task.
• Use punitive action only as a last resort.
• Open adequate channels for career advancement for the deserving.
• Do not demand respect from subordinates, command it.
• Appreciate good work done and help the laggards to improve.
• *Act more like a ‘service provider’ and less like a ‘controller’ for your subordinates.

* [Desired results from any employee can be expected only when he is provided with the inputs
necessary to perform the job entrusted to him. These inputs are basically in two forms:

• Tangible inputs like material, equipment, tools etc. and

• Intangible inputs like proper information, congenial work environment, encouragement,

appreciation etc.

It is essentially the responsibility of the superiors to provide these inputs in adequate quantity, of
proper quality and at the right time. In this sense, every superior is the service provider to his
subordinate. Thus, role of a superior becomes that of a supplier with subordinate as his customer.
Most superiors do not understand this role and instead feel that their role is to control and boss
over their subordinates. Fear from the minds of the employees can be banished only when every
superior has a proper perspective of his role as a service provider.

Break down barriers between departments

For any organization there is a central or main function, which has the responsibility of converting
the known customer requirements into the delivery of customer satisfiers. In smaller organization
this main activity and its allied activities are carried out by a small group of people with every
person in the group taking on multiple responsibilities. However, as the organizations grow,
specialized functions are created and converted into service departments such as materials,
finance, human resources, administration, quality assurance and so on. Strictly speaking, these
departments are created to provide adequate services to the main function so that personnel in
the main function can concentrate on fully satisfying present and future customer requirements.
In practice however, these departments start assuming the role of controlling the services and set
 their own objectives, which may not be in line with the overall objectives of the organization and
sometimes may even be contradictory in nature. Just as an example, purchase department may
set an objective of paying the suppliers within 15 days of delivery of the material but at the same
time, accounts department may have an objective of extending the credit period to 60 days and
strictly speaking, both these objectives are in direct conflict with each other and have little to do
with the main objective of getting the right material, at the right time and in the right quantity. In
larger organizations, the experts who head these specialized functions have their own personal
ambitions and are keen to increase their own clout in the organization. Many a times, this leads
to unhealthy rivalry amongst the seniors, this ultimately creates tensions between departments.
People in every department start working to the personal agenda of their bosses. Obviously, all
this creates mistrust and lack of respect for each other and teamwork suffers.

Solution for this malady can be drastic restructuring by cutting down service departments and
creating self-sufficient teams to handle each product/customer. Every individual in the team is
expected to handle multiple responsibilities and also compensate for weaknesses of other
colleagues in the team. This solution can give very good results but is very difficult to implement
and the chances of total failure and chaos are more.

A more sober solution is to form cross-functional teams at all levels, not only to handle routine
activities in effective and efficient manner but also to accomplish improvements in every business
process on ongoing basis. Success of cross-functional teams will depend on following factors:

• Top man should initiate the process by dealing through teams and not through individuals.

• Cooperation between seniors should be made visible to the juniors.

• Objectives of every function should be supportive of overall objectives of the organization and
complimentary to the objectives of related functions.
• Objectives of every function should be SMART i.e. Specific, Measurable, Achievable, Realistic,
Time bound.
• Performance of every team should be reviewed at regular intervals against the set objectives.
• Better performing teams should be suitably rewarded and the lagging teams should be given
proper inputs to enable them to improve.
Tools for multi-skilling

Organizational culture where inter-personal relationships are based on trust and mutual respect
for each other and where teamwork is more valued than individual efforts, serves as good
platform for creating a flexible workforce. People in the organizations with such a work culture
have a sense of belonging for the organization and are keen to accept challenges and emerge
successful. They are eager to assimilate new techniques and knowledge and put these to use for
their own and organization’s betterment. Once such a culture is developed, the next step for the
senior management will be to create openings and provide means for people to become multi-
skilled. Some popular methods used for this are:
Job rotation: -
 This method works better for staff functions and supervisory personnel. In this method, the
employees are transferred from one function to another at regular, predetermined intervals.
Following are some of the prerequisites for this method to succeed and give desired results.
It is necessary to bring the employee in the right frame of mind to accept the transfer to the new
function by properly explaining him the reasons for the transfer and allying his misgivings, fears and
insecurities if any.

Rotation should be well planned and should be preceded by proper training for the new responsibility.

Responsibility transfer in the new position should not be abrupt. It should be properly phased so that
the employee gets time to stabilize in the new environment.

Well established and effective operating systems with appropriate written procedures in every
function will make the job rotation easier.

Job rotation should be viewed by the employee as an incentive and betterment of his carrier rather
than as a punishment or an effort of side-tracking.

People should ‘want to rotate’ and not ‘forced to rotate’.

Some of the ‘advantages’ of job rotation are:

• Implemented properly, the method can serve as a great motivating factor.
• New person can bring a new perspective and fresh ideas in the function.
• Removes the monotony of working in the same function year after year, which can
stagnate the employees and reduce their efficiency.
• Makes organization more flexible and resilient.
• Helps in identifying future leaders.

Special schemes: (Case Study of TELCO – Now known as Tata Motors)

Job rotation for workers sometimes becomes difficult due to a feeling of insecurity and
resistance from workers’ union. Management will have to create a win-win situation to
overcome this resistance and make workers accept rotation wholeheartedly. One such
arrangement successfully implemented many years back by TELCO (now known as Tata
Motors) is worth discussing here. TELCO had introduced two schemes, which gave the workers
additional benefits besides their annual increments and regular wage revisions. Brief outline
of both the schemes is given below.
Skill up-gradation: Workers of the company were classified in different trades as per their
qualification/training and experience. Each trade had a number of skill levels. For lower skilled trades
like ‘Drilling’, there were only three skill levels, but for higher skilled trades like ‘Jig boring’, there were
as many as seven skill levels. At the time of employment, the worker was placed in the skill level based
on his experience and performance during the practical trade test given to him. After completing three
years in the existing skill level, he would become eligible for applying for the next higher skill level if
he had the confidence of possessing the necessary skill and knowledge. His application was then
scrutinized by his departmental head for desired level of productivity, proper behavior and previous
record. If recommended, the worker was interviewed for his trade knowledge and attitude by a panel
consisting representatives from his department, personnel department and training division. If
cleared by the panel, the worker was given trade test in the training division workshop. Successful
candidate was then placed in the higher skill level with two additional increments.

Versatility benefit: This was a unique scheme, which was designed to encourage workers to
voluntarily seek proficiency in other trade than their own. Any worker, who had spent minimum two
years in his existing trade and skill level, could apply for ‘Versatility’ in a trade other than his own
provided that the trade applied for was of the same or higher sills. Thus, a grinder was not eligible for
‘versatility’ of a driller but a driller in skill level of III could opt to apply for ‘versatility’ as a grinder of
the skill level II. If the worker so desired, he was offered the facility of practicing on the machines in
the training division after his working hours. He was also given opportunity by his own department to
work on the machines of his choice with a condition that regular work should not suffer. Selection
criteria further on was the same as for the up gradation but the successful worker was given three
increments in his salary.

Up-gradation along with versatility benefit opened almost unlimited opportunities of growth for
company’s workers and wiser amongst them reaped full advantages of both the schemes. These
unique schemes added a new dimension to worker-management relationship. This also helped the
company to create a versatile workforce, which could be deployed as per needs of the hour. Of course,
every organization need not blindly follow these schemes. What needs to be done is a careful analysis
and matching of company’s needs and aspirations of employees and come up with a scheme, which
ensures a win-win situation for both.
Self-managed Teams
These are workgroups, which are formed by management initiative but with voluntary
participation of its members who work together for a common cause with full freedom to operate
within the agreed boundaries. For the success of self-managed teams, the team members will
have to:

• Agree upon the objectives of the team and split these into individual targets.
• Organize themselves on two issues: a) Who is responsible for what b) How the agreed
responsibility will be carried out.
• Take a new and unprejudiced look at the existing methods and make improvements.
• Take full responsibility for achieving the agreed goals.
• Decide upon resources required including the skills and knowledge of people involved and
take necessary steps to acquire them.
• Use modern tools to solve the problems.
• Assess performance at regular intervals and take corrective actions if necessary.
These teams can be formed in any area. The team has freedom to take and implement the
decisions necessary for achieving its goal. However, the decisions taken should be within the
agreed boundaries. Management will retain the necessary controls on the process, but members
of the team will get the necessary freedom to operate within the agreed boundaries. ‘Quality
Circles’ is a classic example of self-managed teams and is discussed in greater details in the next
chapter.
Empowering people
Empowerment can be defined as: “Creating autonomy for others by sharing responsibility and
authority”.
Autonomy in the job means:

• Allowing the employee to use his discretion while performing his task.
• Giving him reasonable freedom on taking decisions on matters, which affect his work.
• Allowing him to participate in formulating policies for his work area.
• Making him feel an important part of the organization and
• Inducing in him a sense of accountability.
People must be developed to make them fit for empowerment. Empowered people are expected
to take initiative, make appropriate decisions and innovate in area of their operation in order to
achieve total customer satisfaction. At operating levels, there are two phases of empowerment,
individual empowerment and team empowerment.
People cannot be empowered in haste. First, the organization will have to prepare the ground for
empowerment by considering following points:
* Creation of favorable climate: -This has been discussed in greater details in the preceding
paragraphs. However, following points need to be stressed more:
• Friendly and open inter-relationships at all levels
• Goal oriented approach
• Respect and concern for each other
• Desire to help others

Core values: These are the things, which give a distinct identity to the organization and are
collectively known as ‘OCTAPACE’ i.e.
Openness, Confronting problems squarely, Trust, Authenticity, Pro-action, Autonomy,
Collaboration and Experimentation.
Organizational structure: A rigidly hierarchical structure with many levels, is not suitable for
empowerment. A flat structure with minimum possible levels of hierarchy is conducive to
empowerment. There should be smooth merging of allotted authorities and assigned
responsibilities from one level to the next level.
Systems: - Without properly laid down systems, empowerment is difficult. Systems should be
transparent, easy to understand and convenient to operate. Systems should also be conducive for
cross- functional cooperation. Systems should be people oriented in the sense that people should
‘want’ to use them and not subvert them.
Once the above things are in place, the next step will be to prepare people for empowerment. People
are to be prepared by giving them continuous inputs in the form of training and feedback on their
performance. Actions also need to be taken to overcome shortcomings of individuals. Following points
need to be considered while preparing people.
Personal qualities: -Inculcating following qualities in every individual is necessary.
• Person should have high self-esteem without being an egoist.
 • He should be willing to accept and adapt to change.
• He should be competent, mature, trustworthy and an optimist.
• He should possess good analytical skills and should take initiative in solving problems.
• He should be goal oriented.
• He should be a team man

Understanding one’s role: Every person has a role to play in the organization. He can play it to the
advantage of the organization if he has:
• Role clarity i.e. matching his concepts of the requirements of the role with its actual demands.
• Proactive attitude.
• Ability to face problems squarely and overcome them.
• Understanding of how his role affects that of others in order to overcome potential conflicts.
• Perception that his role is important, and he can make a positive contribution to the overall
goals of the organization.

Avoiding stress at the workplace: If people feel stress in performing their job, empowerment will not
be possible. Following situations can cause job stress and should be avoided.
• Conflicting or unrealistic expectations from those who matter.
• Overlapping of responsibilities, which can cause conflicts and ill-feelings amongst the
colleagues.
• Feeling of inadequate abilities to perform the job.
• Inadequate communication.
• Insufficient and low-quality resources.
• Too many roles to play at the same time.

Only when the above three points are fully addressed by the senior management of the
organization, it will be worthwhile to go in for empowerment of employees, otherwise it can cause
more problems than the benefits.
Case Study – Toyota Way
The best example of the flexible workforce can be that of Toyota Motor Company which is
discussed in some details below.
Toyota Beliefs:

• We do not just build cars, we build people.

• Making things is about making people.
• Developing exceptional people is Toyota’s number one priority.
• You cannot separate People Development from Production System Development.
• Great people supported by a System that mandates the need for such People.
• Merely installing new technique without appropriate development of skills and abilities will
produce limited results.
• Every Manager in Toyota must be a Teacher.
• If Student has not “Learnt”, the Teacher has not “Taught”.
 • Only 10% is inherent talent, 90% is learnt through efforts and repeated practice.

Toyota has fourteen ‘Guiding Principles’ six of which are focused on Human Resources.

• Basic Management decisions should focus on long term philosophy (refer to Toyota Beliefs
stated above) even at the expense of short-term financial goals.
• Standardized processes are the foundation for continuous improvements. Processes are
standardized and operated by competent people who are trained to do that.
• Grow Leaders, who thoroughly understand work, who live the philosophy and teach these to
others.
• Develop exceptional people and teams who follow Company’s philosophy.
• Respect your suppliers by challenging and helping them to improve continuously.
• Become a ‘Learning Organization’ through relentless reflection and continuous improvement.
People selection at Toyota is based on person’s desire and capacity to learn. Toyota has recognized
the realities of human behavior and limitations and has created systems that minimize these
limitations and take advantage of human desire. Equal balance is struck between rewards and
punishments in order to encourage desired behavior.
Once the process is standardized, Toyota relies heavily on “Job Instructions” to ensure
repeatability of the process and eliminate variation. Four step method is followed for Job
Instructions.
• Prepare the Student
• Explain the Operation
• Tryout performance
• Follow up
First three steps are carried out in specially designed training environment for every operation
and the person is put on the actual job only after getting the desired performance in step three.
This ensures that there is no loss of either quantity or quality even when a new man is assigned
to a regular operation.
At Toyota, ‘Product Value Stream’ is supported by a ‘People Value Stream’, which is briefly
outlined below.
Organizational Supporting Systems

Inputs People Value Stream PDCA Outputs

People Supporting Systems

Inputs: - 1. Organizational Philosophy 2. Organizational Value System

3. Production System Principles. 4. Key Competencies.
5. Eligible Human Resources.
People Value Stream Steps:
 • Attract Trainable people through Recruitment, Selection and Orientation.
• Develop Abilities by training/coaching, on the job development and assigning
adequate Role.
• Engage developed people to follow standards, improve standards, solve problems and
work in teams to get continuous Improvements.
• Enroll commitment of people by sharing success, creating opportunities for career
development and working for the Company.
The above steps are continuously repeated through famous Deming Cycle of Plan – DO – Check –
Act (PDCA).
Organizational Support Systems: -
• Stable Employment and Manpower Management

• Fair and Consistent HR Policies and Practices.

• Recognition and Corrective Actions.

• Hoshin Kanri (Policy Deployment). (See chapter V of section 2 for more details).
People Supporting Systems: - 1. Teamwork. 2. Clean and Safe Workplace. 3. Two – Way
Communication 4. Toyota Way Leadership.
Outputs: - Culture of Quality People producing High Quality, Low Cost, On Time Products.

3.4 TECHNOLOGY

A great deal of emphasis is placed on technology, equipment, and processes by those trying to attain
world-class status. World-class manufacturers view technology as a strategic tool for achieving and
maintaining their world-class status. A high priority is placed on the discovery, development, and
timely implementation of the most relevant technology available and the identification and support
of those who can communicate and implement this technology. The most highly competitive firms
have made significantly more progress than others in implementing TQM, reengineering,
simultaneous engineering, group technology, computer-assisted manufacturing (CAM), material
resources planning (MRP), and the use of local area networks (LANs).

Corporate Technology strategy

Specifies within given horizon, target for development of Technological advances as well as the
acquisition and exploitation of new Technologies. It has to integrate with overall corporate plans
and deal with human, financial and physical resources, requires clear vision, perspective flexibility
and commitment to change by the management. Strategy emerges from the demand generation
and mobilization of power around the demand. Corporate Technology strategy deals with
development, adaptation and use of Technologies to maximize competitive advantage of the
business. It is not only the choice but the level at which it is pitched is important. Sophistication
not valued by market will be useless. Adoption of emerging Technologies will have to be at
corporate level. Technology opportunities are availed off through Technological capabilities,
 which are outcome of strategic decisions. Technology is basis of profitability and hence the
necessity of linking it with corporate strategy.

Formulating Technological strategy

Logical steps involved are:

• Identify Technologies used by business
• Identify potentially relevant Technologies in other industries.
• Determine which of these can prove to be key Technologies for the company.
• Determine which ones can give distinct competitive advantage.
• Assess own capabilities and costs.
• Select the proper match.

Technological strategy requires plans, projects and allocation of resources. This is done by:
1. Resource matrix – Required tasks and scientific disciplines are put in one dimension and
resources (men, machines and money), as other dimension. Projects are then aggregated to
show the resource implications for the proposed strategy.
2. Multiple contingency concept – Integrates T forecasts into business plans.
Formulation of Technological strategy has to be followed by corresponding task programs
together with authorized budget and allocation of resources for implementation of Technological
strategy.

Feature of Competitive Technology

• Maximizes added value.

• Enhances competitive advantage.
• User friendly.
• Reliable.
• Has limited life.
• Need not be the highest-level T.

Different Categories of Technology

• Core Technology – vital for business.

• Shared Technology – shared with supplier or customer.
• Proprietary Technology – acquired from a patent.
• Base Technology – common Technology used by many.
• Key Technology – Gives competitive advantage by reducing costs and increasing flexibility.
• Pacing Technology – Developing Technology, which may give distinct advantage in near
future.

No company can be World Class without the use of diversified Technologies and their proper
integration.
 Core Technology, life of which can be several decades forms the base for the competitiveness.
Progress in core Technology depends on achievements in a range of Technologies and managing
their inter-linkages effectively. Technological leadership is achieved through continuing quality of
Technology, enough funding, proper timing of the product launches and constant updating.

3.5 PERFORMANCE MEASUREMENT

Performance measurement is a process for collecting and reporting information regarding the
performance of an individual, group or organizations. It can involve looking at process/strategies in
place, as well as whether outcomes are in line with what was intended or should have been achieved.

Good performance is the criterion whereby an organization determines its capability to prevail.
Performance measurement estimates the parameters under which programs, investments, and
acquisitions are reaching the targeted results. However, a model for performance set faulty may depict
a disadvantageous situation which does not support the organization nor the thriving to the set aims.

All process of measuring performance requires the use of statistical modeling to determine results. A
full scope copy of the performance of an organization can never be obtained, as generally some of the
parameters cannot be measured directly but must be estimated via indirect observation and as a
complete set of records never delivers an assessment without compression to key figures.

Why Measure Business Performance?

Fundamental purpose behind measures is to improve performance. Measures that are not directly
connected to improving performance (like measures that are directed at communicating better with
the public to build trust) are measures that are means to achieving that ultimate purpose.

Eight reasons for adopting performance measurements:

To Evaluate
How well a public agency is performing? To evaluate performance, managers need to
determine what an agency is supposed to accomplish, (Kravchuk & Schack 1996) to formulate
a clear, coherent mission, strategy, and objective. Then based on this information choose how
you will measure those activities. (You first need to find out what are you looking for).

Evaluation processes consist of two variables: organizational performance data and a

benchmark that creates a framework for analyzing that data. For organizational information,
focus on the outcomes of the agency’s performance, but also including input/ environment/
process/ output- to have a comparative framework for analysis. It is helpful to ask 4 essential
questions in determining organizational data:
 • Outcomes should be directly related to the public purpose of the organization.
Effectiveness Q: did they produce required results (determined by outcomes).
• Cost-effective: efficiency Q (outcome divided by input).
• Impact Q: what value organization provides.
• Best-practice Q: evaluating internal operations (compare core process performance to
most effective and efficient process in the industry).

As in order for organization to evaluate performance it requires standards (benchmark) to

compare its actual performance against past performance/ from performance of similar
agencies/ industry standard/political expectations.

To Control

How can managers ensure their subordinates are doing the right thing?

Today managers do not control their workforce mechanically (measurement of time-and-

motion for control as during Taylor). However, managers still use measures to control, while
allowing some space for freedom in the workforce. (Robert Kaplan & David Norton) Business
has control bias. Because traditional measurement system sprung from finance function, the
system has a control bias.

Organizations create measurement systems that specify particular actions they want execute-
for branch employees to take a particular way to execute what they want- branch to spend
money. Then they want to measure to see whether the employees have in fact taken those
actions. Need to measure input by individual into organization and process. Officials need to
measure behavior of individuals then compare this performance with requirements to check
who has and has not complied.

Often such requirements are described only as guidelines. Do not be fooled. These guidelines
are really requirements and those requirements are designed to control. The measurement
of compliance with these requirements is the mechanism of control.

To Budget

Budgets are crude tools in improving performance. Poor performance not always may change
after applying budgets cuts as a disciplinary action. Sometimes budgets increase could be the
answer to improving performance. Like purchasing better technology because the current
ones are outdated and harm operational processes. So, for decisions highly influenced by
circumstance, you need measures to better understand the situation.

At the macro level, elected officials deciding which purpose of government actions are primary
or secondary. Political priorities drive macro budgetary choices. Once elected officials have
established macro political priorities, those responsible for micro decisions may seek to invest
their limited allocation of resources in the most cost-effective units and activities.
 In allocating budgets, managers, in response to macro budget allocations (driven by political
objectives), determine allocations at the micro level by using measures of efficiency of various
activities, which programs or organizations are more efficient at achieving the political
objectives. Why spend limited funds on programs that do not guarantee exceptional
performance?

Efficiency is determined by observing performance- output and outcome achieved

considering number of people involved in the process (productivity per person) and cost-data
(capturing direct cost as well as indirect)

To Motivate

By giving people significant goals to achieve and then use performance measures- including
interim targets- to focus people’s thinking and work, and to provide periodic sense of
accomplishment.

Performance targets may also encourage creativity in developing better ways to achieve the
goal Thus measure to motivate improvements may also motivate learning.

Almost-real-time output (faster, the better) compared with production targets. Quick
response required to provide fast feed-back so workforce could improve and adapt.

Also, it is able to provide how workforce currently performing.

Primary aim behind the measures should be output, managers cannot motivate people to
affect something over which they have little or no influence.

Once an agency’s leaders have motivated significant improvements using output targets, they
can create some outcomes targets.

• “Output”- focuses on improving internal process.

• “Outcome”- motivate people to look outside the agency (to seek way to collaborate with
individuals & organizations may affect the outcome produced by the agency)

To Celebrate

Organizations need to commemorate their accomplishments- such ritual tie their people
together, give them a sense of their individual and collective relevance. Moreover, by
achieving specific goals, people gain sense of personal accomplishment and self-worth (Locke
& Latham 1984).

Links from measurement to celebration to improvement is indirect, because it has to work

through one of the likes- motivation, learning...

Celebration helps to improve performance because it brings attention to the agency, and thus
promotes its competence- it attracts resources.
 • Dedicated people who want to work for successful agency.
• Potential collaborators.
• Learning-sharing between people about their accomplishments and how they achieved it.

Significant performance targets that provide sense of personal and collective

accomplishment. Targets could ones used to motivate. In order for celebration to be a
success and benefits to be a reality manager need to ensure that celebration creates
motivation and thus improvements.

• By leading the celebration.

To Promote

How can public managers convince political superiors, legislators, stakeholders, journalists,
and citizens that their agency is doing a good job?

(National Academy of Public Administration’s center for improving government performance-

NAPA 1999) performance measures can be used to: validate success; justifying additional
resources; earn customers, stakeholder, and staff loyalty by showing results; and win
recognition inside and outside the organization.

Indirectly promote competence and value of government in general.

To convince citizens their agency is doing good, managers need easily understood measures
of those aspects of performance about which many citizens personally care.

(“National Academy of Public Administration-NAPA” in its study of early performance-

measurement plans under the government performance and results Act) most plans
recognized the need to communicate performance evaluation results to higher level officials,
but did not show clear recognition that the form and level of data for these needs would be
different than that for operating managers. Different needs: Department head/ Executive
Office of President/ Congress. NAPA suggested for those needs to be more explicitly defined-
(Kaplan & Nortan 1994) stress that different customers have different concerns (1992).

To Learn

Learning is involved with some process, of analysis information provided from evaluating
corporate performance (identifying what works and what does not). By analyzing that
information, corporation able to learn reasons behind its poor or good performance.

However, if there are too many performance measures, managers might not be able to learn
anything. (Neves of National Academy of Public Administration 1986)

• Because of rapid increase of performance measures there is more confusion or “noise”

than useful data.
 • Managers lack time or simply find it too difficult to try to identify good signals from mass
of numbers.

Also, there is an issue of “black box” enigma (data can reveal that organization is performing
well or poorly, but they don’t necessarily reveal why). Performance measures can describe
what is coming out of “black box” as well as what is going in, but they do not reveal what is
happening inside. How are various inputs interacting to produce the output? What more
complex is outcome with “black box” being all value chain?

Benchmarking is a traditional form of performance measurement which facilitates learning by

providing assessment of organizational performance and identifying possible solutions for
improvements.

Benchmarking can facilitate transfer of knowhow from benchmarked organizations. (Kouzmin

et al. 1999)

Identifying core process in organization and measuring their performance is basic to

benchmarking. Those actions probably provide answer to issue presented in purpose section
of the learning.

Measurements that are used for learning act as indicators for managers to consider analysis
of performance in measurement’s related areas by revealing irregularities and deviations from
expected data results.

What to measure aiming at learning? (the unexpected- what to aim for?)

Learning occurs when organization meets problems in operations or failures. Then

corporations improve by analyzing those faults and looking for solutions. In public sector
especially, failure usually punished severely- therefore corporations and individuals hide it.

To Improve

What exactly should who- do differently to improve performance? In order for corporation to
measure what it wants to improve it first need to identify what it will improve and develop
processes to accomplish that.

Also, you need to have a feedback loop to assess compliance with plans to achieve
improvements and to determine if those processes created forecasted results
(improvements).

Improvement process also is related to learning process in identifying places that need
improvements.

Develop understanding of relationships inside the “black box”, that connect changes in
operations to changes in output and outcome.
 Understanding “black box” processes and their interactions

• How to influence/ control workforce that creates output.

• How to influence citizens/ customers that turn that output to outcome (and all related
suppliers)

They need to observe how actions they can take will influence operations, environment,
workforce and which eventually has an impact on outcome.

After that they need to identify actions they can take, that will give them improvements they
look for and how organization will react to those actions ex. How might various leadership
activities ripple through the “black box”?

Looking at the firm as a complex organism seeking to survive or thrive in its competitive
environment, performance measurement systems serve as a key contributor to the
perceptual and coordination/control capabilities of the firm. Firms use BPM systems to help,
monitor and control specific activities; to predict future internal and external states; to
monitor state and behavior related to its goals; to make decisions within needed time, frames;
and to alter the firm’s overall orientation and/or behavior.

Business Performance Measurement (BPM)

Business Performance Measurement (BPM) systems have grown in use and popularity over the
past twenty years. Firms adopt BPM systems for a variety of reasons, but chiefly to improve
control over the firm in ways that traditional accounting systems have not allowed. Several
approaches or frameworks, for building and managing BPM systems have evolved with the
balanced scorecard as the dominant framework in use today. Despite the growing use of BPM
systems in organizations of all kinds, significant problems cause firms to have trouble in
implementing BPM systems. The problems range across a variety of topics: excessive diversity in
the field of study, data quality and information system integration problems, lack of linkage to
strategy, fundamental differences in how a strategy is formulated and executed in the firm, ill-
defined metrics identification processes, high levels of change in BPM systems, analytical skills
challenges, knowledge as a social and non-deterministic phenomenon, judgment and decision
biases (from prospect theory literature) and organizational defenses that can undermine
successful BPM systems use.

In order to survive and succeed, firms need to set strategic directions, establish goals, execute
decisions and monitor their state and behavior, as they move towards their goal. Once a firm
becomes large enough that a single manager cannot sense the firm’s current state and cannot
control its behavior alone, the firm must use performance measurement and control systems to
replace the eyes and ears of the beleaguered manager. Over the past few decades, firms have
used information technology to provide this “sense and control” capability. Several dozen
vendors provide business performance measurement information technology solutions. These
tools have leveraged the latest advancements in data and application integration approaches,
 web-based charting and reporting, statistical analysis, artificial intelligence, machine learning and
expert system technology.

Specifically, business performance measurement and control systems are the formal, information-
based routines and procedures managers use to maintain or alter patterns in organizational
activities. A typical performance measurement helps businesses in periodically setting business
goals and then providing feedback to managers on progress towards those goals. The time horizon
for these goals can typically be about a year or less for short-term goals or span several years for
long-term goals. Since a BPM system measures performance, it is important to define what
performance is. Definition of performance is “doing today what will lead to measured value
outcomes tomorrow.” BPM then is concerned with measuring this performance relative to some
benchmark, be it a competitor’s performance or a preset target.

Measurement systems are comprised of multiple measures. A measure (or metric) is a

quantitative value that can be used for purposes of comparison (Simmons 2000). A specific
measure can be compared to itself over time, compared with a preset target or evaluated along
with other measures. Since a measure is used for the purpose of comparison, it need not represent
an absolute value. For example, in measuring customer profitability, knowing the relative distance
in profitability between two customers may be as valuable (and more easily gotten) than knowing
the absolute value for a customer’s profitability. Moreover, many BPM systems normalize a
measure into a value that promotes comparison not just with itself, but also with other measures.

Principles of performance measurement

All significant work activity must be measured.

• Work that is not measured or assessed cannot be managed because there is no objective
information to determine its value. Therefore, it is assumed that this work is inherently
valuable regardless of its outcomes. The best that can be accomplished with this type of
activity is to supervise a level of effort.
• Unmeasured work should be minimized or eliminated.
• Desired performance outcomes must be established for all measured work.
• Outcomes provide the basis for establishing accountability for results rather than just
requiring a level of effort.
• Desired outcomes are necessary for work evaluation and meaningful performance appraisal.
• Defining performance in terms of desired results is how managers and supervisors make their
work assignments operational.
• Performance reporting and variance analyses must be accomplished frequently.
• Frequent reporting enables timely corrective action.
• Timely corrective action is needed for effective management control.

Reasons for Performance Measurement

How do you know when to improve?

How do you know where to allocate or re-allocate money and people?

 • How do you know how you compare with others?
• How do you know whether you are improving or declining?
• How do you know whether or which programs, methods, or employees are producing results
that are cost effective and efficient?

Common problems with measurement systems that limit their usefulness:

• Heavy reliance on summary data that emphasizes averages and discounts outliers.
• Heavy reliance on historical patterns and reluctance to accept new structural changes (or re-
design of processes) that are capable of generating different outcomes, like measuring the
time it takes them to do a task.
• Heavy reliance on gross aggregates that tend to understate or ignore distributional
contributions and consequences.
• Heavy reliance on static, e.g., equilibrium, analysis and slight attention to time-based and
growth ones, such as value-added measures.

International Standards for Performance Measurement

The Deming Prize

The Deming Prize is Japan’s national quality award for industry. It was established in 1951 by the
Japanese Union of Scientists and engineers (JUSE) and it was named after W. Edwards Deming. He
brought statistical quality control methodology to Japan after [Link]. The Deming Prize is the
world’s oldest and most prestigious of such awards. Its principles are a national competition to
seek out and commend those organizations making the greatest strides each year in quality, or
more specifically, TQC. The prize has three award categories. They are Individual person, the
Deming Application Prizes, and the Quality Control Award for factory. The Deming Application
prizes are awarded to private or public organizations and are subdivided into small enterprises,
divisions of large corporations, and overseas companies. There are 143 companies who won the
prize. The first non-Japanese company to get this award was: Florida Power and Light in 1989.
There are a number of Indian Companies who have won this award in recent times.

Check list of application for Deming Award:

Item Particulars Item Particulars

1. Policy 1. Policies pursued for 6. 1. Systematization of standards

management quality, and Standardizatio 2. Method of establishing, revising,
quality control n and abolishing standards
2. Method of establishing 3. Outcome of the establishment,
policies revision, or abolition of
3. Justifiability and consistency standards
of policies 4. Contents of the standards
4. Utilization of statistical 5. Utilization of statistical methods
methods 6. Accumulation of technology
7. Utilization of standards
 5. Transmission and diffusion of
policies
6. Review of policies and the
results achieved
7. Relationship between policies
and long- and short-term
planning
2. Organization 1. Explicitness of the scopes of 7. Control 1. Systems for the control of quality
and its authority and responsibility and such related matters as cost
Management 2. Appropriateness of and quantity
delegations of authority 2. Control items and control points
3. Interdivisional cooperation 3. Utilization of such statistical
4. Committees and their control methods as control
activities charts and other statistical
5. Utilization of staff concepts
6. Utilization of QC Circle 4. Contribution to performance of
activities QC circle activities
7. Quality control diagnosis 5. Actual conditions of control
activities
6. State of maters under control
3. Education 1. Education programs and 8. Quality 1. Procedure for the development
and results Assurance of new products and services
Dissemination 2. Quality- and control- (analysis and upgrading of
consciousness, degrees of quality, checking of design,
understanding of quality reliability, and other properties)
control 2. Safety and immunity from
3. Teaching of statistical product liability
concepts and methods, and 3. Customer satisfaction
the extent of their 4. Process design, process analysis,
dissemination and process control and
4. Grasp of the effectiveness of improvement
quality control 5. Process capability
5. Education of related company 6. Instrumentation, gauging,
(particularly those in the same testing, and inspecting
group, sub-contractors, 7. Equipment maintenance, and
consignees, and distributers) control of subcontracting,
6. QC circle activities purchasing, and services
7. System of suggesting ways of 8. Quality assurance system and its
improvements and its actual audit
conditions 9. Utilization of statistical methods
10. Evaluation and audit of quality
11. Actual state of quality
assurance
4. Collection, 1. Collection of external 9. Results 1. Measurements of results
Dissemination information 2. Substantive results in quality,
and Use of 2. Transmission of information services, delivery time, cost,
Information of between divisions profits, safety, environments,
Quality etc.
3. Intangible results
 3. Speed of information 4. Measures for overcoming
transmission (use of defects
computers)
4. 4. Data processing statistical
analysis of information and
utilization of the results
5. Analysis 1. Selection of key problems and 10. Planning 1. Grasp of the present state of
themes for the affairs and the concreteness of
2. Propriety of the analytical Future the plan
approach 2. Measures for overcoming
3. Utilization of statistical defects
methods 3. Plans for further advances
4. Linkage with proper 4. Linkage with the long-term plans
technology
5. Quality analysis, process
analysis
6. Utilization of analytical results
7. Assertiveness of
improvement suggestions

Baldrige Award
The Baldrige Award was established in 1987 to promote quality awareness, understand the
requirements for quality excellence, and share information about successful quality strategies and
benefits. There are three eligibility categories: manufacturing, services, and small firms. Unlike the
Deming Prize, public or not-for-profit organizations are not qualified. Also, there is no category in
which all applicants that satisfy a given level of performance receive a quality prize. According to
its principles, the role of quality data collection and analysis as the basis for managerial decisions
is paramount. Furthermore, quality efforts should not concentrate only on the elimination of
defects but also encompass creative activities that will influence customer satisfaction.

Eight Critical Factors

A plan to keep improving all operations continuously
A system for measuring these improvements accurately
A strategic plan based on benchmarks that compare the company’s performance with the world’s
best
A close partnership with suppliers and customers that feeds improvements back into operations
A deep understanding of the customers so that their wants can be translated into products
A long-lasting relationship with customers, going beyond the delivery of the product to include
sales, service, and ease of maintenance
A focus on preventing mistakes rather than merely correcting them
A commitment to improving quality that runs from the top of the organization to the bottom

Check list of application for Malcom Baldrige National Quality Award

Maximum score Percentage
of sub-total
1.0 Leadership 150 15%
1.1 Leadership of top-ranking managers 50
1.2 Policy 30
1.3 Management control system and quality improvement process 30
1.4 Allocation and utilization of resources 20
1.5 Responsibility to society 10
1.6 Unique and creative leadership technique 10
2.0 Information and analysis 75 7.5%
2.1 Utilization of analysis technique or system 15
2.2 utilization of information about product quality and servicing quality 10
2.3 Customer data and analysis 20
2.4 Analysis of quality and data of subcontractor 10
2.5 Analysis of quality and data of distributor or sales agent 10
2.6 Employee-related data and analysis 5
2.7 Unique and innovative analysis of information 5
3.0 Quality of strategy planning 75 7.5%
3.1 Operation target and strategy target 20
3.2 Function of planning 20
3.3 Quality improvement plan 30
3.4 Unique and innovative planning for strategy 5
4.0 Utilization of human resources 150 15%
4.1 Control and operation 30
4.2 Quality-consciousness and participation of employees 50
4.3 Training and education concerning quality 30
4.4 Personnel assessment, motivation, award system 30
4.5 Unique and innovative strategy concerning utilization of human resource 10
5.0 Quality assurance of product and servicing 150 15%
5.1 Reflection of customer’s opinion on product and servicing 20
5.2 Development of new product and new servicing 20
5.3 Design of new product and new servicing 30
5.4 measurement, standardization, data system 10
5.5 Engineering 10
5.6 Audit 15
5.7 Recording 10
5.8 Safety, health and sanitation, environment 10
5.9 Assurance/effectiveness 15
5.10 Unique and innovative approach to quality assurance of product and
servicing 10
6.0 Result of quality assurance of product and servicing 100 10%
6.1 Reliability and achievement of product and servicing 25
6.2 Reduction of scrap, rework, rejection concerning product and servicing 20
6.3 Reduction of complaint and claim suit concerning quality 25
 6.4 Reduction of assurance- or site-related assistance operation 20
6.5 Innovative index and economic gain for quality improvement 10
7.0 Customer satisfaction 300 30%
7.1 Quality of product and servicing from customer’s viewpoint 100
7.2 Comparison of competitiveness of product and servicing 50
7.3 Customer servicing and countermeasure for complaint 75
7.4 Assurance from customer’s viewpoint 50
7.5 Unique (or innovative) technique to grasp customer satisfaction 25
Total 1000 100%

3.6 SUMMARY

Foundation of a World Class Manufacturing Organization is laid on a well-designed Organizational

structure that allows free communication and nurtures teamwork. A matrix type of structure is best
suited in competitive environment. However, every organization must choose a structure which is
best suited for itself.

Human resource is the most critical resource to make any organization World Class. A flexible
workforce, which can quickly adapt to fast changing environment and requirements is need of the
hour. To create such a workforce, it is necessary to have a culture which allows freedom of expression
and barrier fewer working conditions.

Unless organization has the propensity to efficiently and effectively harness, the latest relevant
Technology, it has little chance to become World Class.

Firms adopt Business Performance Measuring systems for a variety of reasons, but chiefly to improve
control over the firm in ways that traditional accounting systems have not allowed. Examples of such
systems are Malcom Baldridge and Deming Awards.

3.7 KEYWORDS

• Organization – A social unit of people, systematically structured and managed to meet a need or
to pursue collective goals on a continuing basis.
• Flexible Workforce – A workforce where every employee can handle more than one type of a job
• Multi skilling – Employees possessing or acquiring a range of skills/knowledge and applying these
voluntarily to work tasks that may fall outside the traditional boundaries of their regular work.
• 4. Organizational Climate – Human environment arising from interpersonal relationships
• Organizational culture – Conventionalized behavior of employees as a group arising from a pattern
of shared assumptions and perceptions of their social surroundings
• Job Rotation – Moving employees from one type of job to another in a planned manner
• Self-managed Teams – Workgroups, which are formed by management initiative but with
voluntary participation of its members who work together for a common cause with full freedom
to operate within the agreed boundaries
• Empowerment – Creating autonomy for others by sharing responsibility and authority.
• Performance Measurement – Process for collecting and reporting information regarding the
performance of an individual, group or organization.
Unit 4 INFORMATION SYSTEMS, MANAGEMENT DIRECTION,
AND OPERATIONS CAPABILITIES

Objectives

After studying this unit, you will be able to:

• Assess importance of information systems for collecting, processing, and disseminating data
and for providing the feedback mechanism that is necessary for meeting the objectives to be
World Class;
• Appreciate the role of Management in directing the manufacturing organization's journey to
world-class status and for creating an organizational culture committed to all that is necessary
for achieving continuous improvement;
• Design operations systems that have the ability to meet design specifications and customer
requirements at least costs.

Structure

4.1 Introduction
4.2 Information Systems
4.3 Management Direction
4.4 Operating Model
4.5 Operating Capabilities
4.6 Summary
4.7 Key Words
4.1 INTRODUCTION

Unit three discussed the foundation on which the WCM organization is built. This unit will describe
the infrastructure, which is to be created on this foundation

Success of the organization to a large extent depends on the effectiveness of its data generation,
dissemination, analyzing and feedback systems. Organizational commitment to continuous
improvement is supported by the strategic use of information systems.

Personal commitment, involvement, and a sense of direction by management are critical to the
success of world-class firms. Management's ability to learn, adapt, and innovate faster in the face of
an intensely competitive global market is vital for driving organization to World Class status.

With proper resources, the firm must have the capability to produce the right quantity, the right
quality, at the right time (often just in time), and at the right price. This is possible only with properly
installed Operational Capabilities.

4.2 INFORMATION SYSTEMS

Information systems are implemented within an organization for the purpose of improving the
effectiveness and efficiency of that organization. Capabilities of the information system and
characteristics of the organization, its work systems, its people, and its development and
implementation methodologies together determine the extent to which that purpose is achieved.

Modern business organizations become more and more dependent on their information systems to
deal with the complexity and changeability of the context (markets) in which they operate and
consequently their internal organization structures. Up-to-date, complete and accurate information
has become a necessity to survive in an increasingly competitive world. Developments like dynamic
cooperation networks, mass customization of products and services, and end-to-end process control
require automated means to control operational business processes, for the simple reason that
humans cannot oversee the entire operation in an efficient and effective way anymore. Consequently,
business requirements to information systems increase at a dazzling pace.
On the other hand, the rapid developments in information technology give way to application types
that simply were not feasible just a few years ago. These developments range from basic computing
technology via communication technology and a broad spectrum of data and process management
technology to complete frameworks for enterprise information systems and e-business systems.
Consequently, technology push forces have a major influence on current developments. The
Information Systems department focuses on systems to (re)design and support operational business
processes in this tension field between business requirements pull and technology push.

In a broad scope, the term Information Systems (IS) is a scientific field of study that addresses the
range of strategic, managerial and operational activities involved in the gathering, processing, storing,
distributing and use of information, and its associated technologies, in society and organizations.

An information system is not only the technology an organization uses, but also the way in which the
organizations interact with the technology and the way in which the technology works with the
organization’s business processes.

Types of organizational information systems

• Data warehouses
• Enterprise resource planning – Discussed in more details below (see 4.2.3)
• Enterprise systems
• Expert systems
• Office automation

Information systems differ in their business needs. Also depending upon different levels in
organization information systems differ. Three major information systems are:

• Transaction processing systems

• Management information systems
• Decision support systems

Figure below shows relation of information system to the levels of organization. The information
needs are different at different organizational levels. Accordingly, the information can be
categorized as: strategic information, managerial information and operational information.

Strategic information is the information needed by topmost management for decision making. For
example, the trends in revenues earned by the organization are required by the top management
for setting the policies of the organization. This information is not required by the lower levels in
the organization. The information systems that provide these kinds of information are known as
Decision Support Systems.

Relation of information systems to levels of organization

The second category of information required by the middle management is known as managerial
information. The information required at this level is used for making short term decisions and
plans for the organization. Information like sales analysis for the past quarter or yearly production
details etc. fall under this category. Management information system (MIS) caters to such
information needs of the organization. Due to its capabilities to fulfill the managerial information
needs of the organization, Management Information Systems have become a necessity for all big
organizations. And due to its vastness, most of the big organizations have separate MIS
departments to look into the related issues and proper functioning of the system.

The third category of information is relating to the daily or short-term information needs, of the
organization such as attendance records of the employees. This kind of information is required at
the operational level for carrying out the day-to-day operational activities. Due to its capabilities
to provide information for processing transaction of the organization, the information system is
known as Transaction Processing System or Data Processing System. Some examples of
information provided by such systems are processing of orders, posting of entries in bank,
evaluating overdue purchaser orders etc.
Transaction Processing Systems

TPS processes business transaction of the organization. Transaction can be any activity of the
organization. Transactions differ from organization to organization. For example, take a railway
reservation system. Booking, canceling, etc. are all transactions. Any query made to it is a
transaction. However, there are some transactions, which are common to almost all
organizations. Like employee new employee, maintaining their leave status, maintaining
employee's accounts, etc.

This provides high speed and accurate processing of record keeping of basic operational
processes. These include calculation, storage and retrieval.

Transaction processing systems provide speed and accuracy and can be programmed to follow
routines functions of the organization.

Management Information Systems

These systems assist lower management in problem solving and making decisions. They use the
results of transaction processing and some other information also. It is a set of information
processing functions. It should handle queries as quickly as they arrive. An important element of
MIS is database.

A database is a non-redundant collection of interrelated data items that can be processed through
application programs and available to many users.

Decision Support Systems

These systems assist higher management to make long term decisions. These types of systems
handle unstructured or semi structured decisions. A decision is considered unstructured if there
are no clear procedures for making the decision and if not all the factors to be considered in the
decision can be readily identified in advance.

These are not of recurring nature. Some recur infrequently or occur only once. A decision support
system must very flexible. The user should be able to produce customized reports by giving
particular data and format specific to particular situations.
Information Systems Development

Information System development is done in stages which include:

• Problem recognition and specification

• Information gathering
• Requirements specification for the new system
• System design
• System construction
• System implementation
• Review and maintenance

Enterprise Resource Planning

Enterprise resource planning (ERP) is an enterprise-wide information system designed to

coordinate all the resources, information, and activities needed to complete business processes
such as order fulfillment or billing.

An ERP solution is characterized by supporting a variety of business functions such as

manufacturing, supply chain management, financials, projects, human resources and customer
relationship management from a shared data store.

An ERP system is based on a common database and a modular software design.

The common database can allow every department of a business to store and retrieve information
in real-time.

The information should be reliable, accessible, and easily shared.

The modular software design should mean a business can select the modules they need, mix and
match modules from different vendors, and add new modules of their own to improve business
performance.

Ideally, the data for the various business functions are integrated.

In practice the ERP system may comprise a set of discrete applications, each maintaining a discrete
data store within one physical database.
Schematic diagram for ERP
 ERP delivers a single database that contains all data for the software modules, which would
include:

Manufacturing

Engineering, bills of material, scheduling, capacity, workflow management, quality control,

cost management, manufacturing process, manufacturing projects, manufacturing flow.

Supply chain management

Order to cash, inventory, order entry, purchasing, product configuration, supply chain
planning, supplier scheduling, inspection of goods, claim processing and commission
calculation.

Financials

General ledger, cash management, accounts payable, accounts receivable, fixed assets.

Projects.

Costing, billing, time and expense, activity management

Human resources

Human resources, payroll, training, time and attendance rostering, benefits.

Customer relationship management

Sales and marketing, commissions, service, customer contact and call center support

Best practices

Best practices are incorporated into most ERP vendor's software packages. When implementing
an ERP system, organizations can choose between customizing the software or modifying their
business processes to the "best practice" function delivered in the "out-of-the-box" version of the
software.

Implementation of ERP

Because of their wide scope of application within a business, ERP software systems are typically
complex and usually impose significant changes on staff work practices
 Implementing ERP software is typically not an "in-house" skill, so even smaller projects are more
cost effective if specialist ERP implementation consultants are employed.

The length of time to implement an ERP system depends on the size of the business, the scope of
the change and willingness of the customer to take ownership for the project.

Requirements remain a priority during implementation.

Data migration is one of the most important activities in determining the success of an ERP
implementation.
Steps in identifying the data to be migrated

• Determining the timing of data migration

• Generating the data templates
• Freezing the tools for data migration
• Deciding on migration related setups
• Deciding on data archiving

Advantages of ERP

In the absence of an ERP system, a large manufacturer may find itself with many software
applications that neither talk to each other nor interface effectively. Tasks that need to interface
with one another may involve:

• Integration among different functional areas to ensure proper communication, productivity

and efficiency
• Design engineering (how to best make the product)
• Order tracking, from acceptance through fulfillment
• The revenue cycle, from invoice through cash receipt
• Managing inter-dependencies of complex processes bill of materials
• Tracking the three-way match between purchase orders (what was ordered), inventory
receipts (what arrived), and costing (what the vendor invoiced)
• The accounting for all of these tasks: tracking the revenue, cost and profit at a granular level.
 • ERP Systems centralize the data in one place, example customer, financial data. This
eliminates the problem of synchronizing changes and can reduce the risk of loss of sensitive
data by consolidating multiple permissions and security models into a single structure.
• Security features are included within an ERP system to protect against both outsider crime,
such as industrial espionage, and insider crime, such as embezzlement.

Disadvantages of ERP

• Customization of the ERP software is limited.

• Re-engineering of business processes to fit the "industry standard" prescribed by the ERP
system may lead to a loss of competitive advantage.
• ERP systems can be very expensive (This has led to a new category of "ERP light" solutions)
• ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business
process of some companies—this is cited as one of the main causes of their failure.
• Many of the integrated links need high accuracy in other applications to work effectively. A
company can achieve minimum standards, then over time "dirty data" will reduce the
reliability of some applications.
• Once a system is established, switching costs are very high for any one of the partners
(reducing flexibility and strategic control at the corporate level).
• The blurring of company boundaries can cause problems in accountability, lines of
responsibility, and employee morale.
• Resistance in sharing sensitive internal information between departments can reduce the
effectiveness of the software.
• Some large organizations may have multiple departments with separate, independent
resources, missions, chains-of-command, etc., and consolidation into a single enterprise may
yield limited benefits.
• The system may be too complex measured against the actual needs of the customers.
• ERP Systems centralize the data in one place, example customer, financial data. This can
increase the risk of loss of sensitive info, if there is any security breach
4.3 MANAGEMENT DIRECTION

The purpose of any commercial organization, whether big or small, is to create benefits for its five
‘Stake Holders’. Every stakeholder has a different perception of the benefits the organization must
generate. The stakeholders and their respective expectations can be briefly summarized as follows:

Stakeholder Expectations

• The Owners / Shareholders: Maximization of profits / dividends.

• Customers: Full conformance to the requirements as regards price, quality, delivery and
service.

• Employees: Maximum salaries/facilities, congenial working conditions,

fair treatment and respect and job continuity.

• Suppliers: Maximum prices and business share, timely payment, help

in need.

• Society: Good corporate citizenship by paying legitimate taxes,

protecting environment, generating employment,
contributing to social schemes.

There is however a major conflict between the outcome of expectations of the first stakeholder and
the remaining ones. Management generally perceives that fulfilling expectations of the four other
stakeholders add to the costs, which eventually lower the profits for the first stakeholder. The main
task for the management of any organization is to balance these conflicting requirements in such a
way that it will keep all the stakeholders reasonably satisfied. Perfection with which this balancing act
is done, decides the success of the organization. This intricate task is initiated by the Management
Direction.

Management should establish and clearly communicate high standards of performance and promote
a climate of professionalism for the conduct of all maintenance activities. Standards of performance
and a professional climate should be fostered by leadership within the maintenance organization as
opposed to external forces or influences.

Managers should provide leadership by example. Important actions that can contribute to the
achievement of excellence include the following:
• Encouraging teamwork at all levels of the organization
• Instilling an attitude of healthy skepticism
• Fostering open communications within the organization
• Recognizing excellent individual performance, particularly as it contributes to the team effort
• Developing a sense of ownership within work groups
• Management policies and directives covering the conduct of all functions should reflect
desired high standards.
• Goals and objectives that focus on areas in need of improvement and that promote excellence
in operations

Policies, Directives, and Procedures

• Management policies and directives should provide clear guidance for the conduct of all
functions.
• Management-approved procedures for the performance of detailed and important activities
should be prepared on the basis of these policies and directives.
• All personnel should be held accountable for strict adherence to policies, directives, and
procedures.
• Management should actively promote adherence to policies, directives, and procedures
through coaching, through monitoring of all functions and by example

Importance of Management Direction

Direction initiates actions. Organization is the sum-total of human and non-human resources. These
resources should be handled in a certain way to get the desired results. Through direction,
management conveys and motivates individuals in the organization to function in the desired way
to get organizational objectives. Without direction, other managerial activities like planning,
organizing and staffing become ineffective.
Direction integrates employees’ efforts. For achieving organizational objectives, individuals need not
only to be efficient, but effective also. Their actions are interrelated in such a way that each
individual's efforts need to be integrated so that organization achieves its objectives in the most
efficient manner, and this is possible through direction only.

Direction attempts to get maximum out of individuals. Every individual in the organization has some
potentiality and capability which, in the absence of proper motivation, leadership, and
communication-all element of direction-may not be utilized fully. Direction provides the way to
utilize these capabilities and also it helps in increasing these capabilities.

Direction facilitates changes in the organization. Organization exists in the society and any change in
the society changes organizational process to keep organization ready to face environmental
changes. Moreover, there are changes in organization structure and in individuals. To incorporate
and implement these changes, management should motivate individuals affected by these
changes, which is an essential part of direction.

Direction provides stability and balance in the organization. Effective leadership, communication and
motivation, provide stability in the organization and maintain balances in the different part of the
organization. Thus, organization exists for a long period and its parts work in a harmonious way.

Considering the importance of direction in management process, Marshall Dimock has called it the
heart administration. He finds high correlation between direction and work performance.

Main features of Management Direction

Directing is a process in which the managers instruct, guide and oversee the performance of their
subordinates to achieve predetermined goals. Directing is said to be the heart of management
process. Planning, organizing, staffing have little importance if direction function does not take
place.

Directing initiates action and it is from here actual work starts. Direction is said to be consisting of
human factors. In simple words, it can be described as providing guidance to workers is doing
work. In field of management, direction is said to be all those activities which are designed to
encourage the subordinates to work effectively and efficiently. According to Human, “Directing
consists of process or technique by which instruction can be issued and operations can be carried
 out as originally planned” Therefore, Directing is the function of guiding, inspiring, overseeing and
instructing people towards accomplishment of organizational goals.

Direction has got following features:

Pervasive Function - Directing is required at all levels of organization. Every manager provides
guidance and inspiration to his subordinates.

Continuous Activity - Direction is a continuous activity as it continuous throughout the life of

organization.

Human Factor - Directing function is related to subordinates and therefore it is related to

human factor. Since human factor is complex and behaviour is unpredictable, direction
function becomes important.

Creative Activity - Direction function helps in converting plans into performance. Without this
function, people become inactive and physical resources are meaningless.

Executive Function - Direction function is carried out by all managers and executives at all
levels throughout the working of an enterprise, a subordinate receives instructions from his
superior only.

Delegate Function - Direction is supposed to be a function dealing with human beings. Human
behavior is unpredictable by nature and conditioning the people’s behavior towards the goals
of the enterprise is what the executive does in this function. Therefore, it is termed as having
delicacy in it to tackle human behavior.

Case Study – Management Directions of Fijitsu Company

Basic Management Policy

Through our constant pursuit of innovation, the Fujitsu Group aims to contribute to the
creation of a networked society that is rewarding and secure, bringing about a prosperous
future that fulfills the dreams of people throughout the world. To achieve this vision, the Fujitsu
Group strives for sustainable profitability and growth, while continually enhancing its corporate
value.
 The Fujitsu Group is dedicated to contributing to the success of its customers and seeks to grow
with its customers as their valued and trusted partner.

Medium-Term Business Strategy, Target Management Index, and Priority Tasks

With the advance of globalization and the growth of emerging markets, the global economy is
undergoing significant changes, transforming in a variety of ways both the corporate
competitive landscape and social life. In the midst of these changes, information and
communication technologies (ICT) support the activities of global corporations and are
expected to perform a new role in supporting management decision-making by analyzing the
continuously growing amount of data. In the daily lives of people, as well, the role of ICT in
creating a prosperous and secure society is expanding. Whether by supporting progress in
medicine, enabling breakthroughs in advanced research fields such as space exploration, or by
helping to resolve the biggest challenges of the 21st century, such as environmental
sustainability and energy issues, there are new expectations regarding the promise of ICT.
Attempting to meet these expectations presents the ICT industry with a new set of challenges,
but at the same time, in Fujitsu's view, it also presents a foundation for achieving future
earnings and growth.

The Fujitsu Group is pursuing new growth opportunities through the global expansion of its
business by supporting customers' businesses in every regions of the world, and by promoting
ever more sophisticated uses of ICT in society. In addition, the Group seeks to continue to
enhance its profitability by generating further efficiencies throughout its business portfolio.

Technology Solutions

In the Technology Solutions segment, the Fujitsu Group is focusing on providing ICT services
backed by highly reliable products and advanced technologies. While enhancing the
organizational structure to support the global expansion of its customers, the Group will
continue to deliver solutions to improve the business of customers in a variety of industries.

With respect to cloud computing, which enables the flexible use of ICT resources, the Group is
enhancing its organizational structure both inside and outside Japan in order to deliver highly
reliable services, while also pursuing the development of superior platforms. In addition, we
will support the transformation of our customers' businesses by helping them grasp the status
of their operations and make informed decisions through the analysis of accumulated data. At
 the same time, the Group is also pursuing the creation of convergent services that combine
solutions in innovative ways for a wide range of industries. Moreover, the Group will continue
to develop and deliver high-performance computers to support advanced product
development, medicine, and cutting-edge scientific research. By enabling these types of
advanced uses of ICT, we seek to contribute to the lives of people and society as a whole and
make the creation of a prosperous society a reality.

The Group will also further enhance the efficiency of its businesses. We are promoting unified
worldwide product development and procurement in order to reduce the cost of our products.
In addition, while promoting the standardization and automation of our services in order to
improve quality and reduce costs, we will continue to thoroughly manage risks in our systems
integration business. Moreover, in recognition of the importance of overall quality assurance
for ICT systems, including systems operations, the Group continues to take comprehensive
measures to ensure the stable operation of the systems that support the crucial infrastructures
of businesses and society at large.

Ubiquitous Product Solutions

In the Ubiquitous Product Solutions segment, the Fujitsu Group continuously pursues cost
reductions and the creation of added value in order to sustain profitability. In the PC business,
the Group is unifying its product brands worldwide and expanding its portfolio of higher value-
added products while raising cost competitiveness through improved global supply chain
management. In the mobile phones business, we view the terminals as a nexus for wireless and
other cutting-edge technologies and as key devices underpinning the advanced use of ICT in
the future. The Group will pursue an enhanced growth strategy that leverages the anticipated
convergence of mobile phones and PCs and also aim to expand this business to global markets
on the basis of key technologies developed for the Japan market.

Device Solutions

In the Device Solutions business, in order to enhance profitability, the Fujitsu Group has shifted
to a fab-lite business model, transformed its cost structure to primarily reduce its fixed costs,
and revamped its product portfolio. While pursuing growth over the medium- and long-term
by developing applications in new fields, such as electric vehicles, alternative energy, and smart
 grids, the Group will enhance its efforts to generate synergies between Device Solutions and
other Fujitsu businesses.

Corporate Initiatives

In addition to the measures described above, while strengthening its global organizational
structure and fostering the development of its human resources, the Fujitsu Group will
continue to make use of alliances with other companies.

In addition, we will continuously transform our business in order to raise the specialized
capabilities of Group companies and enhance the overall value of the Fujitsu Group.

Moreover, positioning the sustainability of the Earth's environment as an important

management priority, the Group will seek to reduce ICT's burden on the environment, while
using ICT to help reduce the burden placed on the environment by customers and society as a
whole.

As it strives to meet the challenges discussed above through focused daily effort, the Fujitsu
Group will further pursue the transformation of its operations in order to continue to earn the
confidence of customers and society as a global enterprise contributing to the creation of a
rewarding and secure networked society.

4.4 OPERATING MODEL

Operating Model is a term that is used in many contexts. An operating model is the abstract
representation of how an organization operates across process, organization, technology domains in
order to deliver value defined by the organization in scope.

Any organization is a complex system consisting of several different interlinked logical components.
An operating model breaks this "complex machinery” down into its logical components and deploys
the appropriate analysis and design techniques for each component in order to deliver better value.

An operating model can be used as a framework for formulating operations strategy – explicit choices
about the best deployment of organization’s elements to achieve the business goals. It is usually
informed by the business model. In some cases, an operating model can become the source of
competitive advantage and can inform the business model.

The operating model can be a vehicle to describe how the organization does business today - the "as-
is" operating model. This can be the foundation for an organization that wants to transform its
business. New business drivers can be translated into requirements that can lead to a new "to-be" or
"target" operating model. The target operating model represents the high-level requirements that
drive the future business and IT architecture design.

Operating model in context

Several related terms are often used interchangeably to describe a business but are actually quite
different.

• A business model describes the rationale of how an organization creates, delivers, and
captures economic, social, or other forms of value. The process of Business Model design is
part of business strategy.
• An operating model describes the necessary level of business process integration and data
standardization in the business and among trading partners and guides the underlying
business and technical architecture to effectively and efficiently realize its business model.
The process of operating model design is also part of business strategy.
• A capability model describes the capabilities necessary to execute the Operating Model. The
process of Capability Model design is part of operations planning.

Operating model defined

An Operating Model for a business is a strategic schematic which illustrates the relationships
among the operating units and trading partners and provides a set of guidelines for both the
business architecture and technology infrastructure that enable a company to grow its business
either organically or through acquisitions.

• Strategic: an operating model is a strategic choice as to the extent of process standardization

and data integration desired to achieve business results.
• Relationships: refers to the degree of cooperation across business units including customers,
suppliers and trading partners, required for efficiency or leverage.
• Guidelines: clarify what is important for the organization today and the rationale for
investments so that leaders are aligned. When the operating model is changed, the "to-be"
 model sheds light on the transformations required for future success and the decision process
for investments among the units.

History of operating model development

Operating model as defined here is similar to corporate strategy: "the relationships among the
businesses in the corporation's portfolio and the process by which investments will be determined
among them."

Corporate strategy grew out of the research of Harvard Business School professor Bruce Scott who
developed a model of the stages of corporate development." This model traced the evolution of
a firm from a Stage I firm with a single product (or line of products) to a Stage 3 business with
multiple lines of business, markets and channels. Following on this work, Leonard Wrigley" and
Richard Rumelt." developed ways of classifying company structures and comparing their
strategies. They identified four different operating models." (1) a single line of business where
most of its revenue coming from a single business; (2) related businesses where diversification is
achieved by adding related businesses, (3) a dominant business firm, diversified to a degree with
unrelated businesses such as an oil company with a fertilizer business and (4) unrelated business
firm or conglomerates - diversification is achieved without regard to the current business
portfolio.

These basic operating models have evolved somewhat in nomenclature but carry the same
meaning:

• Integrated: single business, requiring a single business strategy for competitive advantage.
Important business issues are formulated centrally and tailored for local needs to optimize
the entire business. Success is measured by adding up the global numbers (e.g., McDonalds
or Harley Davidson).

• Allied-Related: each business contains the core work required to create advantage
autonomously. Issues of common interest are identified and worked among businesses.
Support organizations develop uniform policies and practices across geographies, tailor them
to meet the needs of each business and help achieve synergies across businesses where
desired (e.g., access to customer, product files, needs to have own accounting tied to
corporate). Some support work may be shared across businesses (e.g., Canon or Procter &
Gamble)
 • Allied-unrelated: each business contains the core work required to create advantage
autonomously. Some customer may be shared. Issues of common interest are identified and
worked among businesses such as capabilities/enabling processes that can be shared for
efficiency. In some cases, capabilities that are unique, valuable and portable to other
businesses are shared for leverage. (e.g., Avery Dennison has pressure-sensitive technology
and self-adhesive base technologies that are used in Roll Materials and in its Medical group
for single-use medical products).

• Holding company made up of many different businesses, with many different business
strategies, related or not." Each business has wholly self-contained brands/businesses with
dedicated core and support work. The businesses are tied together only by a common funding
source and financial requirements (e.g., Tyco International)

This "large grain" view informs many decisions about how to design and build the capabilities that
make up the organization. For example, the first choice for a holding company such as Tyco
Industries would not be to try to run all of the companies in its portfolio on a single configuration
of the same financial management business applications. However, the "large grain" view
insufficiently informs decisions within each model. For example, the Allied model suggests
common IT systems. However, it is common that the corporate/home office company shares little
with its divisional companies. MIT's Center for Information Systems Research presents a useful
model which provides a way of thinking about the need for multiple operating models for a given
corporate strategy.

4.5 OPERATIONAL CAPABILITY

Operational capability is the ability to align critical processes, resources and technologies according to
the overall guiding vision and customer focused value propositions coupled with the ability to deliver
these processes effectively and efficiently. Indicators of operational capability include process
management and performance measurement.

Capability management aims to balance economy in meeting current operational requirements, with
the sustainable use of current capabilities, and the development of future capabilities, to meet the
sometimes competing strategic and current operational objectives of an enterprise. Accordingly,
effective capability management:
 • Assists organizations to better understand, and effectively integrate, re-align and apply the
total enterprise ability or capacity to achieve strategic and current operational objectives; and

• Develops and provides innovative solutions that focus on the holistic management of the
defined array of interlinking functions and activities in the enterprise's strategic and current
operational contexts.

Capability

Capability is the quality of being capable; to have the capacity or ability to do something, achieve
specific effects or declared goals and objectives. Enterprises in essence consist of a portfolio or
matrix of capabilities that are used in various combinations to achieve outcomes. Within that
portfolio, a capability will be transient unless managed and maintained over time. Therefore, a
typical capability lifecycle spans needs, requirements, acquisition, in-service and
obsolescence/disposal phases.

Capability management considerations

Due to the complexities of system-of-systems integration, interoperability, and the dynamic

nature of operations, capability management is greatly assisted by modeling and simulating
realistic strategic scenarios and contexts, in order to inform business cases and decision-making.
Through those considerations and practices, the enterprise and its performance can be
continuously assessed and projected into the future. Well executed capability management
therefore clearly informs strategic and operational decisions, and aids in the development of
diverse but well-considered strategic and operational options, so they are readily available off-
the-shelf. This should also endow significant agility to an enterprise, providing enhanced
"contingency capital" and risk mitigation.

Capability management therefore centers on:

• Strategic and operational appreciations and analyses

• Capability conceptualization, definition and development
• Operations research and analysis
• Context or scenario-based capability modeling and simulation
• Capability costing
• Capital project business cases and management
• Decision making and decision support
Capability management in business

A business capability is what a company needs to be able to do to execute its business strategy
(e.g., Enable e-payments, tailor solutions at point of sale, demonstrate product concepts with
customers, combine elastic and non-elastic materials side by side, etc.).

Another way to think about capabilities is they are a collection or container of people, process and
technology that is addressable for a specific purpose. Capability management is an approach that
uses the organization's customer value proposition to establish performance goals for capabilities
based on value contribution. It helps drive out inefficiencies in capabilities that contribute low
customer impact and focus efficiencies in areas with high financial leverage; while preserving or
investing in capabilities for growth.

Capability management topics

Capability vs. process

A process is HOW the capability is executed. Much of the reengineering revolution or Business
Process Reengineering focused on HOW to redesign business processes.

Business vs. organizational capability

An organization capability refers to the way people in the organization work together to get
things done. The way leaders foster shared mindset, orchestrate talent, encourage speed of
change, collaboration across boundaries, learn and hold each other accountable – define the
company's culture and leadership edge.

Capability vs. competency

Although often used interchangeably, "capability" and "competency" are quite different. A
distinction between capabilities and competencies: individuals have competencies while
organizations have capabilities. Both competencies and capabilities have technical and social
elements.
 Individual Organization

Technical Functional Competencies Business Capabilities

Social Leadership Competencies Organizational Capabilities

At the individual-technical intersection, employees in the firm bring functional skills and
competencies such as C++ programming, cost accounting, electrical engineering, etc. At the
individual-social intersection, leaders also have a set of competencies or skills such as setting
the strategic agenda, championing change and building relationships. Moving to the
intersection of organizational and technical, are business capabilities. In short, they are the
technical things or what the firm must know how to do, to execute strategy. For example, a
financial service firm must know how to manage risk and design innovative products. Finally,
we have organization capabilities such a talent management, collaboration, and
accountability. According to Ulrich, they are the underlying DNA, culture, and personality of
the firm. They integrate all the other parts of the firm and bring it together. When a group of
leaders have mastered certain competencies, organization capabilities become visible. For
example, when a group of leader’s master "turning vision in to action" and "aligning the
organization," the organization a whole shows more "accountability."

History of capability modeling in business

Capability management's earlier ancestors include the value chain, also known as value chain
analysis, first described and popularized by Michael Porter in his 1985 best-seller, Competitive
Advantage: Creating and Sustaining Superior Performance. In 1990 the core competencies of the
corporation defined core competency as a cluster of extraordinary abilities or related 'excellences'
that a firm acquires from its founders, after consistent striving over the years, and which cannot
be easily imitated. Core competencies (also called core capabilities) are what give a company one
or more competitive advantages in creating and delivering value to its customers in its chosen
field.

Lee Perry, Randall Stott and Norm Smallwood added to the capabilities body of work the concepts
of strategic options based on Customer Value Proposition and Business Focus and Types of Work
which characterized work as either:
 • Unit of competitive advantage (UCA) – the work and capabilities that create distinctiveness
for the business in the marketplace

• Value-added support work – the work and capabilities that facilitate the UCA

• Essential support work – the work that doesn't support UCA or facilitate it but must be done
to operate the business

Building on earlier themes, the concept of dynamic capabilities was introduced in 2000. The
basic assumption of the dynamic capabilities’ framework is that in fast changing markets, firms
need to respond quickly and innovatively.

Around the same time, Richard Lynch, John Diezemann and James Dowling extended the concepts
above in The Capable Company: Building the capabilities that make strategy work. Key additions
to the body of work were tools to translate strategic shifts to new sets of capabilities required
whether these were core competencies or not. Building on the Types of Work ideas, the authors
added performance target setting based on the capability value contribution. When compared to
actual performance, the method outlined an approach to identify capability gaps and priorities.
They also laid out a framework to continually align capabilities based on strategy shifts and
external changes through the project agenda. The first full Capability Model was built by the
authors in 2001 as the framework for the demerger of Intercontinental Hotels Group (then known
as Six Continents) from the parent Six Continents PLC (formerly Bass & Co Brewery). The model
included thee levels of capabilities, value contribution, performance targets, capability gaps,
recommended actions and sourcing decisions.

Capability management frameworks

A complete picture of the capabilities is the enterprise capability model. It is a blueprint for the
business expressed in terms of the capabilities necessary to execute strategy including delivery of
services. Capabilities are described in levels of abstraction; usually three levels of details.

• Family of capabilities; often shown as chevrons

• Groups of capabilities; illustrated in the health care provider diagram
• Specific capabilities; the level of detail to assess capabilities

At the higher level, are the attributes of ownership, location, and project road maps. The lower
level is where the action is and where performance targets are set, performance assessed, and
 gaps noted. It is at this level sourcing decisions are made, or projects established to close gaps.
The framework includes strategic, core and enabling capabilities.

• Strategic capabilities: capabilities in organizational planning, strategy, and investment

• Core capabilities: the inventory of business capabilities that are identified as delivering the
products and services that an organization offers to its market.
• Enabling capabilities: the inventory of business capabilities that are required to support the
but not sold or offered to the market

Strategic planning

Companies like Harvard Pilgrim Health Care and Intercontinental Hotels Group have used
capabilities to focus, on where to take out costs and outsource non-strategic capabilities while
improving service and adding brands.

IT–business alignment

Microsoft is using capability models to enter into conversations with clients to identify
capability and process pain points to better align IT solutions to the business.

New growth platforms

Capabilities are also being used in new growth platform development. Platforms are a
foundation that spawns multiple products and/or services that, by themselves, are eventually
the size of a business unit. These innovations result from identifying new domains created at
the intersection of enablers or "unstoppable trends" and customer dynamics, linked to an
essential set of core capabilities called the platform logic: those capabilities that are unique,
valuable, and portable.

Capability value contribution

Building of the earlier type of work logic, there is a distinction in assessment of the capabilities
necessary to operate the business by examining the financial impact as well as the customer
impact.

Some capabilities directly contribute to the customer value proposition and have a high impact on
company financials. Value contribution is assured when performance is among the best in peer
organizations at acceptable cost. Strategic support capabilities have high contribution in direct
 support of advantage capabilities. Value contribution is assured when performed above industry
parity at competitive cost. Other capabilities, which are essential, may not be visible to the
customer but contribute to company's business focus and have a big impact on the bottom line.
Focus on efficiency improvement; especially in high volume work. Value contribution is assured
when performed at industry parity performance below competitors' cost. Other capabilities are
"business necessity." Value contribution is assured when performed at industry parity
performance below competitors' cost. They can be candidates for alternate sourcing.

Gap analysis and heat maps

A capability gap assessment can be portrayed in a “Heat map”.

• A heat map is a visualization of which capabilities required attention.

• A heat index is calculated using effectiveness and efficiency scores and the gap between
targeted and actual performance; high heat (red/orange) in the gap column suggests
investment.

Capability value contribution helps stack rank investments, for example advantage capabilities
with high heat move to the top of the agenda, followed by business essential capabilities with
large inefficiencies.

Variants and alternatives

• Value chain
• Strategy maps
• The MODAF StV-1 Provides a standard way to represent capability planning over time for an
enterprise

4.6 SUMMARY

Information systems are implemented within an organization for the purpose of improving the
effectiveness and efficiency of that organization.

Information systems differ in their business needs. Also depending upon different levels in
organization information systems differ. Three major information systems are
 • Transaction processing systems
• Management information systems
• Decision support systems

Enterprise resource planning (ERP) is an enterprise-wide information system designed to coordinate

all the resources, information, and activities needed to complete business processes such as order
fulfillment or billing.

Directing is a process in which the managers instruct, guide and oversee the performance of

their subordinates to achieve predetermined goals. Directing is said to be the heart of

management process. Planning, organizing, staffing have little importance if direction function

does not take place. Directing initiates action and it is from here actual work starts.

Operational capability is the ability to align critical processes, resources and technologies according to
the overall guiding vision and customer focused value propositions coupled with the ability to deliver
these processes effectively and efficiently. Indicators of operational capability include process
management and performance measurement.

Operating Model is a term that is used in many contexts. An operating model is the abstract
representation of how an organization operates across process, organization, technology domains in
order to deliver value defined by the organization in scope.

A business capability is what a company needs to be able to do to execute its business strategy
Capability management is an approach that uses the organization's customer value proposition to
establish performance goals for capabilities based on value contribution. It helps drive out
inefficiencies in capabilities that contribute low customer impact and focus efficiencies in areas with
high financial leverage; while preserving or investing in capabilities for growth.

4.7 KEYWORDS

• Information Systems – Scientific field of study that addresses the range of strategic,
managerial and operational activities involved in the gathering, processing, storing,
distributing and use of information, and its associated technologies, in society and
organizations.
• Transaction Process System – System that processes business transaction of the organization.
• Management Information system – systems that assist lower management in problem solving
and making decisions
• Decision Support System – systems that assists higher management to make long term
decisions.
• Enterprise Resource Planning – Enterprise-wide information system designed to coordinate
all the resources, information, and activities needed to complete business processes such as
order fulfillment or billing.
• Stake Holder – An individual or group, that benefits from the operations of the company
• Capability – Quality of being capable; to have the capacity or ability to do something, achieve
specific effects or declared goals and objectives.
• Operating Model – Abstract representation of how an organization operates across process,
organization, technology domains in order to deliver value defined by the organization in
scope.
• Heat Maps – Visualization of which capabilities required attention.
• Value Chain – A sequence of value adding activities of the organization
• Capability Management – An approach that uses the organization's customer value
proposition to establish performance goals for capabilities based on value contribution.
• Core Competency – Competency that gives a company one or more competitive advantages
in creating and delivering value to its customers in its chosen field.
UNIT 5 QUALITY

Objective

After reading this unit, you will be able to:

• Grasp the concept of Total Quality Management (TQM);

• Attempt at “Zero” defect through Statistical Process Control;
• Practice Juran trilogy of Quality Planning, Quality Control and Quality Improvements;
• State various techniques used by WCM to attain World Class Quality.

Structure

5.1 Introduction
5.2 ‘Quality’
5.3 Total Quality Control
5.4 Quality Planning
5.5 Quality Control
5.6 Quality Improvements
5.7 Total Quality Management (TQM)
5.8 Summary
5.9 Key Words

5.1 INTRODUCTION

WCM Firms are usually in an advanced state of TQM implementation, continually seeking to enhance
their business. All quality costs (prevention costs, appraisal costs, and cost of defects—both internal
and external) are evaluated and held to the lowest reasonable sum.

"Zero defects" is the goal of the world-class manufacturer. In order to achieve zero defects, the world-
class firm is educated in and has fully implemented statistical quality control (SQC),

Quality is maintained and elevated through quality planning, quality control, and quality
improvement. In conjunction with this effort to improve processes and products, world-class firms
utilize an activity called benchmarking. This involves comparing the firm's performance, either overall
or in a functional area, with that of other world-class organizations.

Quality has also been found to be the most important competitive differentiator in the eyes of the
customer.

5.2 ‘QUALITY’

Concept of quality is not new to the mankind but the way it is understood and practiced has
progressively changed over the years. Perhaps the famous Greek philosopher Pluto offered the first
recorded definition of quality. He equated ‘quality’ to excellence. For him quality was:

“A mark of uncompromising standards and high achievements, which is both absolute and universally
understood”

Of course, Pluto had not visualized the present era of mass or repetitive production and his
‘standalone’ definition of quality had to be diluted to “Affordable excellence” by quality experts like
Fiegenbaum and Deming through their ‘value based’ definitions. For Fiegenbaum, it was the optimum
balance between ‘use factor’ and ‘price factor’. He said:

“Quality is something which is best for certain customer conditions made up of two elements: a) Actual
use. b) Selling price”

Deming tried to bring in, the concept of repeatability in his definition and said:

“Quality is predictable degree of uniformity and dependability at low cost and suited to market”

Though these definitions fairly describe the concept of quality, for practical applications, people
needed some standard against which the product could be compared and its quality established.
Shewhart, who first introduced the concept of statistics in quality control, defined quality as:

“Conformance to specifications”

‘Specifications’ are outputs of design activity and mistakes or deficiencies of design will affect the
quality adversely even if conformance to specification is achieved. Crosby removed this lacuna of
design mistakes and said:
“Quality is conformance to (customer) requirements”.

In the modern era of customer-dominant markets, only customer-focused definitions of quality need
to be understood and practiced. Some of the more popular definitions are:

“Quality is fitness for (intended) use”. ------------- Juran

“Meeting and exceeding customer requirements is quality”. ------------ Granroose

“Quality is totality of features and characteristics of product/service that bears on its ability to satisfy
the given and implied needs of the customer”. ----------ISO 9000.

All said and done, in fiercely competitive markets, only those organizations who understand that
“QUALITY IS WHATEVER CUSTOMERS SAY IT IS”, can survive and flourish.

5.3 TOTAL QUALITY CONTROL

Meaning of Total

In a more practical sense, “Quality is conformance to entire customer requirements” and customer is
defined as not only the buyer of company’s products but everybody, an insider or outsider, who is at
the receiving end of material, service or information.

If requirements of the buyers of company’s products are to be fully satisfied, it is quite obvious that
somebody has to gather correct information about what these requirements are and then
progressively pass these on to the next functions within the organization who are responsible for
ensuring that the product is built in such a way that these requirements are fully satisfied. In a small
organization, the entire sequence of activities from understanding the requirements of the customer
to dispatch of the product can be handled by a small group of people but in a bigger and complex
organization, a number of functions a.k.a. departments from marketing to final dispatch of the
product are created for achieving this. Naturally, unless each one of these departments understands
the needs of the next function and strives to satisfy these in totality, requirements of the external
customer may not get fully satisfied. This is where the word ‘Total’ gets its significance. It is only
through the coordinated efforts of every function and every individual working in these functions that
the full satisfaction of the external customer can be attained. Thus it is the ‘total’ effort of all those
working in the organization, which will attain the total satisfaction of the external customer. In short,
every individual in the organization has a role to play in attaining the desired quality and he must play
it to perfection.

Meaning of Control

In a complex organization it is necessary to coordinate and canalize the efforts of the individuals and
departments to attain the customer satisfaction in an efficient and effective way. This is achieved
through ‘controls’.
Control is a management tool with four elements:
• Setting standards for the activity
• Appraising performance of the activity to confirm whether it is conforming
to the set standards
• Taking actions when performance deviates from the standard
• Striving for improvement in the existing standards

Thus, Total Quality Control (TQC) can be defined as:

“An effective system for integrating the quality planning, quality control and quality improvement
efforts of all individuals and functions in the organization so as to attain the full and continued
satisfaction of buyers of company’s products”.
It can be seen that there are three main activities in TQC:
• Quality planning
• Quality control
• Quality improvement

J.M. Juran, The world famous expert on quality, has combined these three activities in what is known
as “Juran Trilogy”.

Juran explains that company’s current level of “cost of poor quality” is due to two types of wastes: 1.
Chronic waste, which is the result of “random” causes. Random causes are the causes, which are
inherent part of the existing process and 2. Sporadic waste which happens occasionally due to
“external” causes which creep in and disturb the process thereby causing a sudden spike in waste

First step in improving quality and thereby reducing the waste is to eliminate all possibilities of
external causes, causing the sporadic spike of waste. When this happens, the process is said to be
under “Statistical Control”. Once this is done, then improvement projects must be undertaken to
reduce/control random causes so that “chronic waste” is brought down to a new level. This is the
“Quality Improvement” phase. The feedback of the lessons learnt from this phase is given to further
consolidate ‘Quality Planning:

The concept is represented as a schematic diagram below:

Fig 5.1 Schematic Diagram of “Juran Trilogy”

5.4 QUALITY PLANNING

Quality planning is an activity, which determines the needs of both internal and external customers
and develops the processes and their outputs to meet the entire set of these needs in a cost effective
way.

Steps in quality planning

Step no.1:- Identify, who the customers are:

 It is relatively easy to identify the external customers, but neglecting internal customers is a
common shortcoming of most organizations. A carefully prepared process flow diagram is a
powerful tool to identify internal customers and their interrelationships. Identified customers
can then be grouped into “vital few’ and ‘useful many’ through Pareto analysis. Needs of the
‘vital few’ are to be given more attention while doing further planning but at the same time,
needs of the ‘useful many’ cannot be entirely neglected.

Step no.2:- Determine the needs of every customer.

Needs of the customers are many and these can be categorized as:

• Stated needs – The needs which are clearly stated by the customer through drawings,
specifications, purchase orders or verbally.
• Implied needs – The needs which are not stated clearly but are taken for granted by the
customer such as good service, prompt response etc.
• Perceived needs – These are the needs, which are individualistic and arise from customer
mind set, hear-say, advertisements, brand image etc.
• Unintended use needs – Customer is likely to use the product in a different manner than
that intended by the supplier e.g. a three-seater rickshaw carrying 12 school children.
• Cultural needs – These are predominantly present in internal customers and are the result
of the prevalent organizational culture e.g. trust, respect, appreciation, job security etc.

Identification of the customer needs should be a continuous process as needs do not remain
static and keep on changing depending on the surrounding factors.

Step no. 3:- Translate the customer needs into a language which is clearly understood by those
who have the responsibility of satisfying these.

For example, information gathered by the marketing department from the market about the
needs of the customers is analyzed and converted into a ‘product brief’, which is easily
understood by the designers. Designers then use this information as the input and convert it
into drawings and specification, which is the language understood by the production people
and the chain continues.

Step no. 4:- Develop products which can optimally satisfy the needs of the customer.

Product development is an activity that decides characteristics and features of the product, which
will:
 • Satisfy needs of the external customer.
• Satisfy needs of the internal customer.
• Make the product better than that of the competitor’s.
• Minimize ‘costs of manufacture’ for the supplier and ‘use costs’ of the customer.

The main activity in the product development is the product design. The designer has to strive for
a design, which is:

• Saleable:- It should not only satisfy the needs of the customer but do it in a way that the
customer will prefer the product over equivalent product of the competitor.
• Procurable:- Materials and parts used in the product should be easily and competitively
available in the market.
• Manufacturable:- It should be possible to manufacture the product with the available
capabilities of men and machines. Needs of automation and costs of manufacture should
be of prime concern.
• Verifiable:- Product features, which have a significant impact on quality, should be easily
and economically verifiable to ensure that no defective products are either made or
shipped.

Some powerful tools, which will help in product development, are:

• Quality planning matrix, which is also known as Quality Function Deployment (QFD) or
Quality planning spread sheet.
• Design reviews.
• Life cycle costing.
• Design validation.
• Failure Mode and Effect Analysis (FMEA).
• Fault tree analysis.
• Reliability studies.

Step no.5. : - Develop processes that are able to build the required product characteristics and
features into the product at lowest costs.

“Process” is defined as “A systematic series of actions directed at achieving the set goals”.
 Developing a good process needs attention to human factors, technology and information
regarding the process parameters, controls and maintenance. A major tool used in developing a
process is ‘Process capability study’.

A well-developed process should be:

• Simple and ‘user’ friendly. ‘User’ is the one who operates the process.
• Economic in terms of the costs incurred.
• Speedy – It should not be a source of bottleneck.
• Error-proof.
• Flexible – Should be able to easily cope up with varying requirements.
• Safe and environment friendly.
• Able to achieve desired results.

Step no.6:- Transfer the process to operations.

The developed process can be transferred to the operating department for regular operations,
only after proving that it can achieve desired results in a sustained manner. Methods used for this
are:

Dry run – Process is run on the designed parameters for limited output, which is thoroughly
scrutinized for the desired results. The trial output is not passed on for regular use.

Pilot test – Process is operated for limited output under close scrutiny. Output is passed on to
the next operations to find its suitability.

Acceptance tests – This is a third party test under scientifically laid down operating conditions,
inputs and checks. Judgment on the suitability or otherwise of the process is given by a
competent authority.

Simulations – A real life situation is artificially created either in laboratory or on computer to

study effects of variations in different process parameters on the process output. This can
help in identifying critical parameters and control these closely.

Depending on the degree of impact of the process on overall operations, the transfer of the
process is done from a highly structured, formal transfer to a routine informal transfer.
5.5 QUALITY CONTROL.

Any process tends to deviate from the set norms during the operation due to various factors and
interventions. Through established controls it is possible to notice these deviations before the output
of the process gets damaged. Suitable actions can then be taken to bring back the process to its set
norms. This activity is known as ‘Quality Control’.

Quality Control can be defined as - “ An activity for evaluating the actual performance, comparing it
with the set norms and taking action on the deviations”.

Three basic aspects of Quality Control are:

• Evaluating the actual performance

• Comparing the actual performance with the set standards
• Taking suitable action if the actual performance falls short of the requirements

Thus, Quality Control is essentially an activity to hold the ‘Status-quo’ of any process.

Quality Control is normally done though ‘Feed-back loop’ where:

• A ‘Sensor’ evaluates the actual performance.

• ‘Sensor’ sends the report to a ‘Judge’.
• The ‘Judge’ who is already in possession of the information regarding the required
performance standard, compares the report sent by the sensor with the standard and if
the difference requires any action the same is passed on to the ‘Executor’
• ‘Executor’ takes the necessary action to bring back the ‘status-quo’ and reports back to
the ‘Judge’.
• If satisfied, ‘Judge’ authorizes continuation of the process.

This ‘Feed-back loop’, which forms the essence of ‘Quality Control’, can be exercised through:

Automation - Human element is eliminated by installing sensor, judge and executor as integral
part of the machine i.e. imparting ‘intelligence’ to the machine.
Self control – The operator is given the responsibility and commensurate authority to act
whenever the performance deviates from the required standards. For success of this method,
the operator will have to be trained for following aspects:
 • Full knowledge of the product and the process involved.
• Requirements of the internal and external customers.
• Ability to interpret the drawings and work instructions.
• Ability to use the verification Instruments/equipment.
• Ability to differentiate between conforming and non-conforming output.
• Consequences of non-conformance i.e. cost of poor quality.

In this method, operator performs the functions of ‘Judge’ and the ‘executor’.

External controls – Independent agency is created to monitor process performance at regular

intervals and report deviations to the operating personnel for suitable action. If performance
does not meet the required standards, process is stopped till the necessary corrections are
made and performance is restored to its set norms. In a manufacturing set up this can take
the form of set-up inspection, in-process inspection, stage inspection, audit inspection and
final inspection. An independent department like ‘Quality Control’ is entrusted with the
function of the judge and ‘Production’ department performs the function of executor.
A major managerial tool used for ‘Quality Control’ is ‘Statistical Quality Control (SQC)’,

5.6 QUALITY IMPROVEMENTS

Whereas Quality Control is the activity for maintaining ‘status-quo’, Quality Improvements is the
activity for changing the ‘status-quo’ for better performance. It is an effort to change the historical
level of performance of the process to a better level through a systematic and well-directed activity.
For example, if historical level of defectives from a process averages 1500 ppm (parts per million),
actions taken to bring this down to average of 500 ppm will amount to ‘Quality Improvement’.

Quality Improvement can take three basic forms:

• Develop new products with better features to replace the old ones.
• Adopt new technology.
• Revise the existing processes to reduce the defectives.
A structured Quality Improvement program consists of following elements:

Establishing a steering committee

This is a committee of senior managers who have the authority to allocate resources and take strategic
decisions. The committee is responsible for launching, coordinating and institutionalizing the annual
quality improvement targets. Specific responsibilities of the committee are:

• Creating a supportive structure in every operational area for Quality Improvement effort.
• Formulating policies and providing guidelines for the Quality Improvements.
• Setting annual improvement goals.
• Approving and providing resources like training, time, funds, equipment etc.
• Approving undertaking of the improvement projects.
• Coordinating the projects undertaken simultaneously in different operational areas.
• Monitoring the progress of every project and initiating corrective actions wherever necessary.
• Formulating the reward system.

Selection of improvement ‘Projects’

‘Project’ is defined as a problem scheduled for solution. The problem need not be only related to the
product or the manufacturing process but can be from any of the business processes either directly
or indirectly connected with the manufacturing process. Some examples are:

• Making sales forecasts more precise.

• Reducing ‘Time to Market’ for the new products. (Time to market is the time span from
concept stage of the new product to its commercially viable marketing stage).
• Reducing transactional errors between related processes.
• Reducing customer complaints.
• Upgrading all the vendors to A+ category
• Reducing attrition rate of employees.

Steps involved in Project selection are:

Getting recommendations for improvement projects

Recommendations for improvement projects should come from all the functions/departments across
the organization. It will be the responsibility of the steering committee to create conducing
environment and suitable supportive machinery for getting recommendations. Some well tried out
avenues for this are:

• Quality Circles.
 • Suggestion box and special suggestion schemes dedicated to a theme e.g. for an
automobile industry it can be “Reduction in overall weight of the vehicle”.
• Task teams.
• Market research and evaluation of competitor’s quality.
• Reporting mechanisms for field failures and customer satisfaction.
• Accounting data on ‘costs of poor quality’.

Selecting the project

Evidently, all the recommended projects cannot be taken up simultaneously. Steering committee will
have to pick and choose. The choice is based on following factors.

Criteria for the initial projects:

Initial projects should be comparatively easy to tackle and sure shot winners as improvement teams
will be in a learning stage and early success can boost their morale and motivate them to take up
bigger and more difficult projects in future. It will be better to tackle ‘quick hit’ projects, which require
lesser efforts and can give reasonable benefits in a short span of time. Three essentials for the initial
projects are:
• Projects should be feasible.
• Projects should be significant i.e. Projects should be widely visible.
• Results obtained should be measurable.

Criteria for the subsequent projects:

Essentially the choice is a tradeoff decision, comparing ‘value delivered’ with ‘efforts expended’. Value
delivered can be measured in terms of strategic fit, revenue growth, capital avoidance, cost
reductions, customer satisfaction. Measurement parameters for efforts expended can be man hours,
time span of the project, project costs and opportunity costs.
Other parameters involved in the selection are:
• Return on investments.
• Managerial judgment.
• Amount of potential improvement.
• Urgency.
• Availability of the required technology, funds and skills.
• Health of the product. (Priority for the products with higher contribution)
• Probable resistance to change.
Formation of the team to take up the Project

Formation of the ‘Project team’ will be the responsibility of the Steering Committee. Following factors
need to be considered:

Representation from following departments is necessary

• Department where the problem exists

• Department(s), which may be contributing to the problem
• Departments, which can provide remedies
• Departments, which can help in analysis of symptoms and diagnosis of causes

Selection of the individuals working on the project, is to be done in consultation with the concerned
departmental heads.

Criteria for selection should be

• Ability to work in a team

• Diagnostic skills
• Ability to have an overall perspective
• Good communication skills
• Expertise in the area of operations
• Patience and perseverance to stick to the task till its final conclusion
• Innovative skills

Creating a structure

Following points are to be taken into consideration:

• Appointment of the Team Leader

• Allocating the responsibilities to the individual team members
• Providing a facilitator who will assist in training of individuals, arrange communication
with other teams, arrange for required resources and make independent report of the
team’s progress to the Steering Committee/Management
• Providing a high level ‘Contact Person’ who can arrange access to the top management as
and when required
Working of the Team

For achieving the desired results, the team will have to work in systematic and structured manner.
Logical sequence of the activities to be undertaken will be:

• Prepare the project mission statement which will provide overall guideline, time frame and
expected results from the project.
• Analyze the ‘symptoms’ – Symptoms are manifestations of the problem and not the cause(s)
of the problem.
• Search for as many as possible causes for the manifested symptoms. A powerful tool for this
is the ‘Ishikawa Diagram’, which is explained in more details in section 2, Chapter II.
• Test for each of the causes and establish the real cause(s)
• Find the remedies for the established cause(s).
• Test extensively each of the remedies under operating conditions.
• Implement the remedy (solution).
• Monitor the results to ensure that the problem is conclusively solved.
Quality Planning, Quality Control and Quality Improvements together help in eliminating all the
existing and future quality related problems and achieve a defect-free production.

5.7 TOTAL QUALITY MANAGEMENT (TQM)

Total Quality Management is an approach to the art of management that originated in Japanese
industry in the 1950s resulting from the teachings of the famous quality Guru Dr. Deming who was
invited by Japanese Union of Scientists and Engineers (JUSE) to deliver a series of lectures on ‘Quality’.
Though Deming’s approach to quality was based on extensive use of statistics, he also came up with
now famous “14 Principles”, which are the building blocks for TQM. These points are already
elaborated in the previous chapter.

When it comes to practicing TQM, different people think differently about what TQM really is. For
some, getting a Quality Standards certification such as ISO 9000 is TQM or to some it may be getting
a ‘Deming Award’. Normally people associate the word ‘Quality’ with product quality but in TQM the
central word ‘Quality’ stands for quality of every activity in the organization whether directly or
indirectly related to the main activity of converting the customer requirements in to deliverable
customer satisfiers. Above all, it is the “Quality of Management” and not only “Management of
Quality”. J.M. Juran has a last word on what TQM is:
“TQM is anything and everything that an organization has to do to achieve and then retain number
one position in the market” – Juran.

Thus TQM is not a tool but an “Organizational Philosophy”, which calls for:

Customer-driven quality

TQM has a customer-first orientation. The customer comes first, not internal activities and constraints.
Customer satisfaction is seen as the company's highest priority. The company believes it will only be
successful if customers are satisfied. The TQM company is sensitive to customer requirements and
responds rapidly to them. In the TQM context, `being sensitive to customer requirements' goes
beyond defect and error reduction, and merely meeting specifications or reducing customer
complaints. The concept of requirements is expanded to take in not only product and service
attributes that meet basic requirements, but also those that enhance and differentiate them for
competitive advantage. Each part of the company is involved in Total Quality, operating as a customer
to some functions and as a supplier to others. The Engineering Department is a supplier to
downstream functions such as Manufacturing and Field Service, and has to treat these internal
customers with the same sensitivity and responsiveness as it would treat the external customers.

Employee participation
A successful TQM environment requires a committed and well-trained work force that participates
fully in quality improvement activities. Such participation is reinforced by reward and recognition
systems which emphasize the achievement of quality objectives. On-going education and training of
all employees supports the drive for quality. Employees are encouraged to take more responsibility,
communicate more effectively, act creatively, and innovate. As people behave the way they are
measured and remunerated, TQM links remuneration to customer satisfaction metrics.

Employees have to be made to feel that they are responsible for customer satisfaction. They are not
going to feel this if they are excluded from the development of visions, strategies, and plans. It's
important they participate in these activities. They are unlikely to behave in a responsible way if they
see management behaving irresponsibly - saying one thing and doing the opposite.

TQM Culture

A TQM culture is not easy to introduce. An open, cooperative culture has to be created by
management.

Continuous improvement
Continuous improvement of all operations and activities is at the heart of TQM. Once it is recognized
that customer satisfaction can only be obtained by providing a high-quality product, continuous
improvement of the quality of the product is seen as the only way to maintain a high level of customer
satisfaction. As well as recognizing the link between product quality and customer satisfaction, TQM
also recognizes that product quality is the result of process quality. As a result, there is a focus on
continuous improvement of the company's processes. This will lead to an improvement in process
quality. In turn this will lead to an improvement in product quality, and to an increase in customer
satisfaction.

Improvement cycles are encouraged for all the company's activities such as product development, use
of EDM/PDM, and the way customer relationships are managed. This implies that all activities include
measurement and monitoring of cycle time and responsiveness as a basis for seeking opportunities
for improvement. Elimination of waste is a major component of the continuous improvement
approach. There is also a strong emphasis on prevention rather than detection, and an emphasis on
quality at the design stage. The customer-driven approach helps to prevent errors and achieve defect-
free production. When problems do occur within the product development process, they are generally
discovered and resolved before they can get to the next internal customer.

Fast response
To achieve customer satisfaction, the company has to respond rapidly to customer needs. This implies
short product and service introduction cycles. These can be achieved with customer-driven and
process-oriented product development because the resulting simplicity and efficiency greatly reduce
the time involved. Simplicity is gained through concurrent product and process development.
Efficiencies are realized from the elimination of non-value-adding effort such as re-design. The result
is a dramatic improvement in the elapsed time from product concept to first shipment (Also known as
Time-to-Market).

Actions based on facts

The statistical analysis of engineering and manufacturing facts is an important part of TQM. Facts and
analysis provide the basis for planning, review and performance tracking, improvement of operations,
and comparison of performance with competitors. The TQM approach is based on the use of objective
data, and provides a rational rather than an emotional basis for decision making. The statistical
approach to process management in both engineering and manufacturing recognizes that most
problems are system-related, and are not caused by particular employees. In practice, data is collected
and put in the hands of the people who are in the best position to analyze it and then take the
appropriate action to reduce costs and prevent non-conformance. Usually these people are not
managers but workers in the process. If the right information is not available, then the analysis,
whether it be of shop floor data, or engineering test results, can't take place, errors can't be identified,
and so errors can't be corrected.

Leadership from top management

TQM is a way of life for a company. It has to be introduced and led by top management. This is a key
point. Attempts to implement TQM often fail because top management doesn't lead and get
committed. Instead it delegates and pays lip service. Commitment and personal involvement is
required from top management in creating and deploying clear quality values and goals consistent
with the objectives of the company, and in creating and deploying well defined systems, methods and
performance measures for achieving those goals. These systems and methods guide all quality
activities and encourage participation by all employees. The development and use of performance
indicators is linked, directly or indirectly, to customer requirements and satisfaction, and to
management and employee remuneration.

We are living in a dynamic world where the most popular statement made now a days is: “Only thing
which is constant is Change”. When everything around is changing at ever increasing pace, the
organization has to be alert and the last thing it can afford to do is to sit on its laurels. Naturally
practicing TQM has to be a continuous journey and cannot be treated as one time effort to reach a
destination.

For practicing TQM everyone in the organization has to change the way one thinks, behaves and acts.
Thus essence of TQM is “Change of Culture”.

Two basic essentials for TQM

Two basic essentials for TQM are:

A coherent philosophical position that specifies the core values of the organization
The meaning of core values and some examples of organizational core values are given below:

Values are deeply ingrained principles that guide all organizational actions. Values are also enduring
beliefs that a specific mode of conduct or end-state of existence is personally and socially preferable
to alternative modes of conduct and/or end-states. They are the generalized beliefs and motives
about what is or isn’t desirable in terms of how individuals should behave within an organization.

Some Examples:
 • Accountability- Responsibility for our actions, that influence the lives of our customers and
fellow workers.
• Balance- Maintaining Healthy life and work balance for workers.
• Collaboration-Collaborating within and outside the company to give the best.
• Commitment-Commitment to roll great product, service and other initiatives that
• impact lives both within and outside the organization.
• Community- A sense of responsibility and contribution to society that define our
• existence.
• Consistency-Be consistent in offering the best for wonderful experience.
• Diversity- Respecting the diversity and giving the best of the composition.
• Efficiency- Being efficient and effective in our approach to give best solution each
• time.
• Empowerment- Empowering the employees to take initiative and give their best.
• Fun- Having fun and celebrating small successes in our journey to achieve big
• Innovation- To come out with new creative ideas that have the potential to change
• the world
• Integrity-To act with honesty and integrity without compromising the truth.
• Leadership- The courage to lead from front and shape future.
• Ownership- Taking ownership of the company and customer success.
• Passion-Putting the heart and mind in the work to get the best.
• Quality-Giving the best and unmatched results for all round satisfaction.
• Respect-Giving due respect to self and others and maintain the environment of
• team work and growth
• Risk Taking- Encouraging self and others to take risk for a bright future.
• Safety- Ensuring the safety of people and making sure to give them trouble free
experience.
• Service Excellence- Giving the best and world class service and achieving
excellence each passing day.

A distinctive set of interventions (Structures, systems, work practices) to promote these values. These
interventions are:

• Explicit identification and measurement of customer requirements.

• Creation of supplier partnership
 • Use of cross functional teams to identify and solve quality problems.
• Use of scientific methods to monitor performance and to identify points of high
• leverage for performance improvements.
• Use of step by step process management approach to enhance team effectiveness

When the organization starts on TQM journey it has to start with certain assumptions, which may be
contradictory to the current conditions. Without creating a firm belief in these assumptions one
cannot have TQM. These assumptions are:
• Costs of poor quality are far greater than the costs incurred in developing processes that give
high quality
• Employees naturally care about the quality of work that they do and will take initiative to
improve it, provided they are given the tools and training that one needs to improve quality.
• Organizations are systems of highly inter-dependent parts which must cooperate to produce
quality.
• Quality is ultimately and inescapably the responsibility of the top management.
•
Having discussed the basics of TQM, we are now in a position to define TQM with some accuracy.

Definition of TQM

TQM is a strategic, integrated management philosophy based on the concept of achieving ever higher
levels of customer satisfaction through emphasis on process approach, total employee and supplier
involvement and use of statistical methods.

TQM Principles

• Emphasis on process more than the product

• Qualities focus on every activity, whether minor or major.
• Measurement of key parameters.
• Efficient use of technologies
• Continuous learning and improvements.
• Self-managing teams.
• Customer and competitor driven decisions.
• Cross functional teams
• Building trust
• Whole workforce deployment.
 • Use of scientific methods.
• Benchmarking
• Encouraging and managing change.
• Compensating for weaknesses.
• Establishing effective communication channels.
• Customer focus on every activity.
For practicing these principles, organizations can choose from a variety of tools and techniques
available. Many of these are already discussed in previous chapters like: JIT, Kaizen, TPM, Quality
Circles, SPC, Self-Managing Teams, Cross Functional Teams, Robust Design, QFD, Quality Improvement
Tools etc. Some more tools and techniques are discussed below.

Tools and Techniques for TQM

High Technology Applications

Using latest developments in Information Technology and increasing organizational effectiveness

through expert systems to:

• Command and control outsourced operations

• Enable transformation to Lean and agile supply networks
• Manage and grow a profitable service business
• Improve sales-channel visibility and collaboration
• Ensure financial and environmental regulation compliance
• Establish and sustain profitable innovation

Automation Deployment

Automating already laid down quality processes so that these can be performed with very little
attention and employees can concentrate on improvements.

New Technology Deployment

Using new technologies before the existing one becomes obsolete. Deployment of new technologies
requires extensive evaluation and characterization of new materials and processes as well as
demonstration of reliability. Sometimes, although new technology is available, the infrastructure
required to implement that technology lags behind, impacting manufacturers' ability to bring new
products to market. Often, new technologies require significant investments in equipment, and
suppliers are reluctant to make those investments until they are sure they have a market for their
products. At the same time, OEMs and EMS providers are reluctant to commit to suppliers that do not
have proven production capability or the capacity to quickly revamp to volume production. Business
practices can be as important as technology in determining a company's ultimate success. Standards
can help ensure the rapid acceptance of new techniques by industry. By agreeing to - and formalizing
- standardized solutions, industry makes it easier for manufacturers and their suppliers to create
products that are easy to integrate and provide a low-risk migration path for future improvements. In
this way, markets can be expanded for the benefit of the entire industry. Sometimes, the greatest
stumbling block in implementing a new technology or new business practice is the absence of
standards.

Policy Deployment (Hoshin Kanri)

The concept of Policy Deployment has its origin in the Japanese technique known as Hoshin kanri. It
is a step-by-step planning, implementation, and review of process for managing change. It is a systems
approach to the management of change in critical business processes.

Hoshin Kanri (or Policy Deployment) manages to change the status quo and makes a major
performance improvement by analyzing current problems and finding solutions.

Top management vision, policies and targets are driven down the hierarchy. At each function and
level, these are translated into a set of coherent, consistent and understandable policies, targets and
actions for the next level. Exercise of this translation activity is done with participation of the
employees involved. Measures for performance standards for the targets are also set. When these
actions and policies are applied, they result in the vision of management becoming reality.

Regular reviews take place to identify progress and problems, and to initiate corrective action. Policy
Deployment ensures that everyone in the company is made aware of the overall vision and targets,
and the way that these are translated into specific requirements for their own behavior and activities.

Hoshin Kanri operates at two levels:

• The strategic planning level

• The daily management level, where it addresses the more routine aspects of business operations

Hoshin Kanri is based on Deming's Plan-Do-Check-Act (PDCA) cycle to the management process. The
PDCA cycle represents a generic approach to continuous improvement of activities and processes. In
the 'plan' step, a plan of action is developed to address a problem. Corresponding control points and
control parameters are created. The plan is reviewed and agreed. In the 'do' step, the plan is
implemented. In the 'check' step, information is collected on the control parameters. The actual
results are compared to the expected results. In the 'act' step, the results are analyzed. Causes of any
differences between expected and actual results are identified, discussed and agreed. Corrective
action is identified.

Hoshin Kanri provides an opportunity to improve performance continuously by disseminating and

deploying the vision, direction, targets and plans of corporate management to top management and
to all employees so that people at all job levels can continually act on the plans, and evaluate, study,
and feedback results as a part of a continuous improvement process.

Process Architecting

It is re-founding business on flow basis, with customer directing the flow and the competitors the
process capabilities. Organization has to take a fresh look at every business process, drop the
unnecessary ones and modify the necessary ones on a flow basis. Continuous improvement also must
be treated as a business process. The processes must be founded on cross functional, cross level and
cross organizational basis

Kansei Engineering

“Approximately 80% of all new products and services fail within the first six months or fall significantly
short of forecasted profits” – Peter Drucker

In a competitive environment customer has a wide choice for choosing from amongst products or
services which have similar functional and quality features and customer is unable to make a decision
based on logic alone. His purchasing decision depend largely on instinct and emotion i.e. the consumer
simply picks the product/service that ‘appeals’ to him provided the product/service meets his baseline
requirements of cost, quality, delivery and functionality. Companies have now become adept with the
technique of ‘voice of customer’ data to satisfy these basic requirements. However, even with all of
the functional and quality features present, a company may still not achieve its desired or predicted
market share unless these emotional needs are satisfied. Kansei Engineering is simply a methodology
for ensuring that product or service evokes desirable emotional responses. The process allows
organization to model customer’s instantaneous feelings and emotions and subsequently translates
them into design parameters.
Designing and developing new products and services is a difficult business, with many more
failures than successes. Kansei Engineering greatly reduces the risks inherent in new product and
service development. As well as ensuring products and services are developed with "built-
in" emotional appeal, the approach also reduces time to market, provides breakthrough market
share capture and increases product and service lifespan.

What is Kansei engineering?

Kansei is a Japanese term which means psychological feeling or image of a product. Kansei
engineering refers to the translation of consumers' psychological feeling about a product into
perceptual design elements. Kansei engineering is also sometimes referred to as "sensory
engineering" or "emotional usability." This technique involves determining which sensory
attributes elicit particular subjective responses from people, and then designing a product using
the attributes which elicit the desired responses.
The Instinctive Choice Modeling tool based on the Kansei Engineering methodology can be used
to achieve this product differentiation on an instinctive level. Kansei Engineering originated in
Japan; there is no direct translation for ‘Kansei’ into English however the creator of the
methodology describes Kansei as “the consumer’s psychological feeling” towards a product.
Kansei Engineering maps individual features of a product, service or brand to customers’
subjective responses. This information can be used to create a new design which deliberately
induces a chosen set of positive instinctive responses.

Kansei Engineering is based upon the analysis of product semantics, in this case, the subjective
words and phrases used to describe a product or service. Kansei words are generally adjectives
(stylish, elegant, exciting etc.) but may also be verbs and nouns. Hundreds of words may be
associated with a single product or service and statistical methods are used to reduce these to a
representative set. The aim of the methodology is to map these Kansei words back to specific and
changeable elements within the product or service.

Collection of customer data is a key component of Kansei Engineering. Consumers from a selected
market segment evaluate a set of product or service designs to decide how much a design evokes
each Kansei word. For example, how exciting is design A on a scale of 1 – 7. Multivariate statistical
techniques are used to analyze the resulting customer data and investigate the relationships
between the Kansei words and design elements. The analysis provides valuable insight with direct
consequences to the design process. For example, analysis will reveal:
 • How respondents have subconsciously grouped and interpreted the Kansei words.
• Whether conflicts exist between words, e.g. will an increase in ‘modernity’ be coupled
with a decrease in feeling of ‘trust’
• Which design elements are most influential in how the product or service is perceived?
• Which design element ‘levels’ combine to ensure that the product or service evokes each
of the desired positive emotions
• Which design element combinations provoke negative emotions and should be avoided?
• How will changing a design element from one ‘level’ to another effect perception of the
product on key emotions.
• How significant a factor is brand identity for the target market?

Kansei Engineering brings the voice of the customer directly into the front end of the design process.
The technique uses sound statistical techniques in the analysis to provide valuable insight that can
guide the design process. Through careful application of this methodology, products and services can
be designed that appeal on a subjective, instinctive level to the consumer.

To start on Kansei path, organization has to first recognize its internal dynamics and be sensitive to
the feelings and aspirations of its own employees. It needs to extend the personal touch to every
employee to facilitate unhindered value addition to every transaction.

Cognitive quality of Employees

Cognitive quality is the ability of employees to apply their knowledge, perceptions and competence
to think, learn, invent and act in terms of customer requirements Cognitive skills are any mental skills
that are used in the process of acquiring knowledge; these skills include reasoning, perception, and
intuition. Cognitive Learning is a term that is often used in the academic arena but more recently it
has started to pop up in the business world.
Essentially what 'cognition' means is 'to know' gaining knowledge through thought or perception.
Cognitive learning is about enabling people to learn by using their reason, intuition and perception.
This technique is often used to change peoples' behavior. People's behavior is influenced by many
factors such as culture, upbringing, education and motivation. Therefore cognitive learning involves
understanding how these factors influence behavior and then using this information to develop
learning programs, which will improve following skills of employees:
 • General Problem solving skills:- Identifying, defining and organizing problem elements in
order to generate effective solutions.
• Solution Construction Skills :- Ability to understand parameters, characteristics and
constraints of a problem that can lead to a likely solution.
• Planning and Implementation Skills:- Effectiveness in selecting, ordering, and prioritizing
of strategic processes that result in problem resolution.
• Solution Evaluation Skills:- Using convergent thinking processes to evaluate the viability
and appropriateness of each solution relative to other solutions.
• Social Judgment Skills:- Understanding and monitoring of social dynamics within the
problem-solving situation.

These skills are referred to as “Meta-cognitive” skills.

Meta-cognitive Process:- Refers to how individuals apply specific meta-cognitive skills in solving
problems related to leadership in organizations. The meta-cognitive process measure provides an
evaluation of the extent to which an individual demonstrates awareness of his prior understanding to
reevaluate his understandings over time in the light of new information. The skill facilitates flexibility
in creative problem solving, particularly in how information is used and in the selection of solution
strategies that correspond to different types of problems

Middle-up-down Management

Two traditional Western management styles, "top-down" and "bottom-up," fail to utilize the full
potential of middle level managers. This is the level in organization, which is the link that transfers the
vision of top management about “What should be” to the operating levels in a realistic sense of “What
is”

Simply put, knowledge is created by middle managers, who are often leaders of a team or task force,
through a communication process involving both the top and the operating people. The process puts
middle managers at the intersection of the vertical and horizontal flows of information within the
company.

Operating levels are most immersed in the day-to-day operational aspects of the various
organizational processes and may not have the advantage of the 'bigger picture' or may not be
equipped to communicate the importance of their insights even if they are organizationally relevant.
In this situation, middle managers facilitate this unstructured profusion of insights toward
(organizationally) purposeful knowledge creation by providing the subordinates with a conceptual
framework to make sense of their own experiences.

In the middle-up-down model, top management creates a vision or a dream, while middle
management develops more concrete concepts that frontline employees can understand and
implement. Middle managers try to solve the contradiction between what top management hopes to
create and what actually exists in the real world.

In a knowledge-creating company, everyone is a knowledge creator - including all the hierarchical

levels. A new knowledge based classification of the employees can be made as follows:

• Knowledge practitioners: Employees responsible for accumulating and generating both

tacit and explicit knowledge. Those who interface primarily with tacit knowledge are
"knowledge operators," while those who interface primarily with explicit knowledge are
"knowledge specialists."
• Knowledge engineers: Employees responsible for converting tacit knowledge into explicit
and vice versa.
• Knowledge officers: Employees responsible for managing the overall organizational
knowledge- creation process at the corporate level.

To become knowledge-creating companies, Management should:

• Create a knowledge vision

• Develop knowledge teams
• Build Collaboration fields
• Adopt middle-up-down management
• Construct external knowledge network with the outside world (stakeholders, partners and
customers).

Example of Middle-up-down Management (Development of Honda City)

In 1978, the management of Honda Motors was worried that the company was losing its vitality. Its
basic models, such as the Civic and the Accord, had reached “middle age” at a time of major
generational shift in the Japanese market. For the first time, Japanese born after World War II
outnumbered those born before and during the war. Honda’s top management decided to let the
younger design engineers develop something for their own generation. The project began with the
catchphrase, Boken o yatte miyo—literally, “Let’s make an adventure.”
The youngest people on Honda’s design staff were selected as members of the City development
team. Their average age was only twenty-seven. Former president Kiyoshi Kawashima and other top
managers promised there would be no interference with the team’s operation. One of the team
members recalls, “It was surprising and wonderful that the company dared to entrust younger staff
like us with the design and development of a new model.” Even so, the company did not just abandon
them, but rather sought to impress them with a high degree of responsibility. The success of this team
is already a legend in management practices.

5.8 SUMMARY

A major differentiating point between WCM and normal manufacturing is the emphasis on attaining
quality through process control.

Quality is maintained and elevated through quality planning, quality control, and quality
improvement.

“QUALITY IS WHATEVER CUSTOMER SAYS IT IS”,

“Quality is conformance to entire customer requirements” and customer is defined as not only the
buyer of company’s products but everybody, an insider or outsider, who is at the receiving end of
material, service or information.

Total Quality Control (TQC) can be defined as:

“An effective system for integrating the quality planning, quality control and quality improvement
efforts of all individuals and functions in the organization so as to attain the full and continued
satisfaction of buyers of company’s products”.

J.M. Juran, the world famous expert on quality, has identified Quality Planning, Quality Control and
Quality Improvements as three basic activities for attaining World Class Quality and combined them
in what is known as “Juran Trilogy”.

Quality planning is an activity, which determines the needs of both internal and external customers
and develops the processes and their outputs to meet the entire set of these needs in a cost effective
way.
Quality Control can be defined as - “ An activity for evaluating the actual performance, comparing it
with the set norms and taking action on the deviations”.

Quality Improvements is the activity for changing the ‘status-quo’ for better performance.

“TQM is anything and everything that an organization has to do to achieve and then retain number
one position in the market” TQM has a customer-first orientation. A TQM culture is not easy to
introduce. An open, cooperative culture has to be created by management. Continuous improvement
of all operations and activities is at the heart of TQM. Once it is. To achieve customer satisfaction, the
company has to respond rapidly to customer needs. Facts and analysis provide the basis for planning,
review and performance tracking, improvement of operations, and comparison of performance with
competitors. TQM is a way of life for a company. It has to be introduced and led by top management.

Two basic essentials for TQM are:

• A coherent philosophical position that specifies the core values of the organization
• A distinctive set of interventions (Structures, systems, work practices) to promote these
values.

TQM is a strategic, integrated management philosophy based on the concept of achieving ever higher
levels of customer satisfaction through emphasis on process approach, total employee and supplier
involvement and use of statistical methods.

Tools and Techniques for TQM include:

• High Technology Applications

• Automation Deployment
• New Technology Deployment
• Policy Deployment (Hoshin Kanri)
• Process Architecting
• Kansei Engineering
• Cognitive quality of Employees
• Middle-up-down Management
5.9 KEYWORDS

▪ Quality Control – An activity for evaluating the actual performance, comparing it with the set
norms and taking action on the deviations
▪ Quality Planning – An activity, which determines the needs of both internal and external
customers and develops the processes and their outputs to meet the entire set of these needs in
a cost effective way.
▪ Quality Improvement – The activity for changing the ‘status-quo’ for better performance.
▪ Specifications – Outputs of design activity
▪ TQC (Total Quality Control) – An effective system for integrating the quality planning, quality
control and quality improvement efforts of all individuals and functions in the organization so as
to attain the full and continued satisfaction of buyers of company’s products
▪ Process – A systematic series of actions directed at achieving the set goals
▪ SQC (Statistical Quality Control) – Quality control by using statistical techniques.
▪ Project – A problem scheduled for solution.
▪ Time to Market – Time elapsed between concept stage to commercial production of a new
product
▪ Policy Deployment – It is a systems approach to the management of change in critical business
processes.
▪ Kansei Engineering – Translation of consumers' psychological feeling about a product into
perceptual design elements.
▪ 12 Cognitive Quality – Ability of employees to apply their knowledge, perceptions and competence
to think, learn, invent and act in terms of customer requirements
UNIT 6 CUSTOMER SERVICE

Objectives

After reading this unit, you will be able to:

• Appreciate importance of Customer Service in the competitive environment;
• State essentials of customer service and its basics;
• Describe finer points of excellent customer service and the step by step approach to achieve
this excellence;
• State the meaning Customer Relations Management and role played by this modern
Management technique and its processes.

Structure

6.1 Introduction
6.2 What is Customer Service?
6.3 Essentials of Customer Service
6.4 A few basic rules about customer service
6.5 Tips for better customer service
6.6 Finer points of excellent Customer Service
6.7 Secrets of customer Service
6.8 Five customer service trends you can’t ignore
6.9 Customer Service Skills
6.10 Customer Relations Management (CRM)
6.11 CRM for small Business
6.12 Companies known for their extraordinary Customer Service
6.13 Summary
6.14 Key words
6.1 INTRODUCTION

Customer service is an integral part of any Companies’ job and should not be seen as an extension of
it. A company’s most vital asset is its customers. Without them, company would not and could not
exist in business. When customers are happy, they not only help the company grow by continuing to
do business but recommend company to friends and associates.

The practice of customer service should be as present in every function as it is in any other sales
environment. Good customer service is the lifeblood of any business. You can offer promotions and
slash prices to bring in as many new customers as you want, but unless you can get some of those
customers to come back, your business won't be profitable for long.

Good customer service is all about bringing customers back. And about sending them away happy -
happy enough to pass positive feedback about your business along to others, who may then try the
product or service you offer for themselves and in their turn become repeat customers.

If you're a good salesperson, you can sell anything to anyone once. But it will be your approach to
customer service that determines whether or not you’ll ever be able to sell that person anything else.
The essence of good customer service is forming a relationship with customers – a relationship that,
that individual customer feels that he would like to pursue.

How do you go about forming such a relationship? By remembering the one true secret of good
customer service and acting accordingly; "You will be judged by what you do, not what you say."

6.2 WHAT IS CUSTOMER SERVICE?

Here are some definitions of customer service in use today:

• Customer service is the ability to provide a service or product in the way that it has been
promised.
• Customer service is about treating others as you would like to be treated yourself.
• Customer service is an organization's ability to supply their customers' wants and needs.
• Customer Service is a phrase that is used to describe the process of taking care of our
customers in a positive manner.
 • Customer Service is any contact between a customer and a company, that causes a negative
or positive perception by a customer.
• Customer service is a process for providing competitive advantage and adding benefits in
order to maximize the total value to the customer.
• Customer Service is the commitment to providing value added services to external and
internal customers, including attitude knowledge, technical support and quality of service in
a timely manner.
• Customer service is a proactive attitude that can be summed up as: I care, and I can do.

6.3 ESSENTIALS OF CUSTOMER SERVICE

Know who is boss. You are in business to service customer needs, and you can only do that if you know
what it is your customers demand. When you truly listen to your customers, they let you know what
they want and how you can provide good service. Never forget that the customer pays our salary and
makes our job possible.

Be a good listener. Take the time to identify customer needs by asking questions and concentrating
on what the customer is really saying. Listen to their words, tone of voice, body language, and most
importantly, how they feel. Beware of making assumptions - thinking you intuitively know what the
customer wants. Do you know what three things are most important to your customer? Effective
listening and undivided attention are particularly important on the show room, where there is a great
danger of preoccupation - looking around to see to whom else we could be selling to.

Identify and anticipate needs. Customers don't buy products or services. They buy good feelings and
solutions to problems. Most customer needs are emotional rather than logical. The more you know
your customers, the better you become at anticipating their needs. Communicate regularly so that
you are aware of problems or upcoming needs.

Make customers feel important and appreciated. Treat them as individuals. Always use their name
and find ways to compliment them but be sincere. People value sincerity. It creates good feeling and
trust. Think about ways to generate good feelings about doing business with you. Customers are very
sensitive and know whether or not you really care about them. Thank them every time you get a
chance. In the show room be sure that your body language conveys sincerity. Your words and actions
should be congruent.
Help customers understand your systems. Your organization may have the world's best systems for
getting things done, but if customers don't understand them, they can get confused, impatient and
angry. Take time to explain how your systems work and how they simplify transactions. Be careful that
your systems don't reduce the human element of your organization.

Appreciate the power of "Yes". Always look for ways to help your customers. When they have a
request (as long as it is reasonable) tell them that you can do it. Figure out how afterwards. Look for
ways to make doing business with you easy. Always do what you say you are going to do.

Know how to apologize. When something goes wrong, apologize. It's easy and customers like it. The
customer may not always be right, but the customer must always win. Deal with problems
immediately and let customers know what you have done. Make it simple for customers to complain.
Value their complaints. As much as we dislike it, it gives us an opportunity to improve. Even if
customers are having a bad day, go out of your way to make them feel comfortable.

Give more than expected. Since the future of all companies lies in keeping customers happy, think of
ways to elevate yourself above the competition. Consider the following:

• What can you give customers that they cannot get elsewhere?
• What can you do to follow-up and thank people even when they don't buy?
• What can you give customer that is totally unexpected?

Get regular feedback. Encourage and welcome suggestions about how you could improve. There are
several ways in which you can find out what customers think and feel about your services.

• Listen carefully to what they say.

• Check back regularly to see how things are going.
• Provide a method that invites constructive criticism, comments and suggestions.

Treat employees well. Employees are your internal customers and need a regular dose of appreciation.
Thank them and find ways to let them know how important they are. Treat your employees with
respect and chances are they will have a higher regard for customers. Appreciation stems from the
top. Treating customers and employees well is equally important.
6.4 FEW BASIC RULES ABOUT CUSTOMER SERVICE

Honesty is the Best Policy. Integrity – Be honest and own up to your mistakes. Communicate what you
plan to do to change or prevent the same mistake from happening again. Don’t be fooled into believing
that a regular ‘mea culpa’ will get you off the hook. At some point the plan to fix the problem must
take effect!

Quick Response: - The best tact is to quickly get on the phone with the customer to explain your
company’s mistake. Don’t rely on email for this communication, if it can be done quickly one on one.
If you are communicating to a large customer base, then email is certainly the fastest and most
effective way to quickly notify your customers that you are aware of the problem. Frequent updates
is there is a protracted issue and a brief overview of how you will prevent it from happening in the
future will give your customers confidence that you are aware of the customer impact.

Give a Realistic Picture: - Customers who have been promised something that isn’t delivered as
promised are far more frustrated and disappointed than if they are notified at the outset they won’t
have it sooner than later. In other words, under promise and over deliver is the best policy. This may
take some arm wrestling with other departments who want to take a feature or product to market
before it is ready. Set the expectations correctly internally as to what the fallout may be so everyone
understands the impact to customer satisfaction and ultimately customer retention.

Respect customers and their views: - Everyone in your company should love your customers. Without
them, you have no company. This doesn’t mean you won’t have difficult customers who will push the
limits and try everyone’s patience. But if you don’t have a company philosophy to respect and
appreciate your customers, the opposite tone will infect customer interactions from all departments.
All departments, customer facing or not, should care about customer satisfaction.

6.5 TIPS FOR BETTER CUSTOMER SERVICE

• Answer your phone – make sure that someone is picking up the phone when someone calls
your business. People who call, want to talk to a live person, not a fake "recorded robot”.
 • Don't make promises unless you will keep them – Reliability is one of the keys to any good
relationship, and good customer service is no exception. Think before you give any promise -
because nothing annoys customers more than a broken one.
• Listen to your customers – Let your customer talk and show him that you are listening by
making the appropriate responses, such as suggesting how to solve the problem.
• Deal with complaints – No one likes hearing complaints, and many of us have developed a
reflex shrug, saying, "You can't please all the people all the time". Maybe not, but if you give
the complaint your attention, you may be able to please this one person this one time - and
position your business to reap the benefits of good customer service.
• Be helpful - even if there's no immediate profit in it – A satisfied customer will spread the word
about your out of the way gesture.
• Train your staff to be always helpful, courteous, and knowledgeable – Give every member of
your staff enough information and power to make those small customer-pleasing decisions,
so he never has to say, "I don't know, but so-and-so will be back at..."
• Take the extra step – Whatever the extra step may be, if you want to provide good customer
service, take it. They may not say so to you, but people notice when people make an extra
effort and will tell other people.
• Throw in something extra – People love to get more than they thought they were getting. And
don’t think that a gesture has to be large to be effective.

If you apply these eight simple rules consistently, your business will become known for its good
customer service. And the best part the irony of good customer service is that over time it will
bring in more new customers than promotions and price slashing ever did!

6.6 FINER POINTS OF EXCELLENT CUSTOMER SERVICE

Posture versus performance

When it comes to serving customers, most companies are more concerned with posture than
performance.

Posture is based on what companies say they do—a stated claim or promise. Performance is based on
what companies actually do—fulfillment or disregard of that claim or promise. Would you rather do
business with a company that projects exceptional customer service or one that delivers it?
According to an article in The New Yorker, a survey of more than 300 big companies revealed that
while 80% described themselves as delivering “superior” service (based on their stated priorities),
consumers put that figure at just 8% (based on their actual experiences).

This demonstrates the chasm that exists between what most companies say they do and what these
companies actually do.

Of course, there are exceptions that recognize the importance of aligning stated priorities and slogans
with actual performance.

Deliver service heroics

It is necessary to differentiate the service offered depending on individual customer’s preferences.

Some employees will say, “If you do it for one guest, now you have to do it for every guest.”

That’s ridiculous. It’s just an excuse used by average service providers to deliver average customer
service. It’s rationale applied by those who either don’t want to go out of their way or simply prefer
the predictable routine of treating each customer like the last customer—neither of which inspires
positive lasting impressions.

Delivering service heroics doesn’t have to be as dramatic as some of the legendary stories you may
have heard. Most often, it simply requires being attuned to customers’ needs and preferences and
then taking the initiative to fulfill them.

Provide pleasant surprises

One of the ways to elevate your customer service quality—and distinguish your business from
competitors—is to provide pleasant surprises to your customers.

Not all pleasant surprises cost money. If a hotel guest is granted early access to or late departure from
his room, the hotel has provided a pleasant surprise that costs nothing. Similarly, if a gate agent
chooses to upgrade a passenger to an empty economy plus seat with more legroom, there is no hard
cost to the airline but a positive lasting impression has been made on the customer.

Sometimes a pleasant surprise is as simple as having your phone call answered on the first ring, having
your group accommodated at a popular restaurant without a reservation, or not having to wait for
your suitcase at the baggage carousel.
Providing pleasant surprises rarely happens by accident. More often, it results from anticipating
needs, careful planning, and a deliberate choice to elevate the customer experience.

Use appropriate humor

Employees who add humor to their service delivery create positive lasting impressions—of
themselves, the service experience, and the company or brand they represent. Using appropriate
humor is an authentic way for employees to express their uniqueness while making it memorable for
customers.

Displaying a sense of humor doesn’t mean that you need to force jokes or be the life of the party. Just
be open to the comic relief that everyday life provides and seize opportunities to use appropriate
humor to capture attention, break the ice, build rapport, or provoke smiles.

Of course, inappropriate humor may be offensive and leave a negative lasting impression on the
customer—so use your good judgment.

Convey authentic enthusiasm

Authentic enthusiasm adds a spark to an otherwise ordinary experience and is an effective way to
express one’s uniqueness while making a lasting positive impression on others.

Share unique knowledge

Unique knowledge is not the same as job knowledge. Job knowledge is necessary for an employee to
be proficient in his or her job role. It is expected by the customer and, generally speaking, is
transactional. Unique knowledge, when shared by the employee, is unexpected, valued, and
memorable.

While customers appreciate nice employees, they value knowledgeable employees. And the more
unique knowledge employees possess, the more value they add to the customer experience.

Offer sincere and specific compliments

Making lasting positive impressions on others demands effort on our part. It requires a choice
between conveying indifference or interest toward another person. We must be intentional about it
by actively seeking opportunities to offer sincere and specific compliments.
We all appreciate compliments. Author Robert Orben said, “A compliment is verbal sunshine.” Be
deliberate about recognizing opportunities to genuinely compliment others and let the sunshine
bright on your relationships—and business!

Express genuine interest

Expressing genuine interest takes many forms: engaging communication; anticipating needs;
displaying attention to detail; following up; conveying a sense of urgency; etc.

Remember, Service is a verb

It’s the same with customer service. Too many services providers view service as a noun—a role,
function or department. As a result, customer service is objectified and lifeless.

Service must be demonstrated. Service requires action. Service is a verb.

Do not view service as a noun. Do not see “serving customers” as performing a role or function—
whether or not it involves a script, checklist or a requirement to “express empathy.” As such, it
requires action and effort. It must be demonstrated.

When done well—consistently, with genuine care and concern—it makes a lasting positive impression
and ensures that your “customer” will only have eyes for you.

6.7 SECRETS OF CUSTOMER SERVICE

Build Business to Customer Loyalty. When you can show concern about what matters to your
customer, that’s Business to Customer Loyalty, and you can bet on it, you’ve just acquired a customer
for life.

Provide true customer service. In today’s market environment, service has become a cliché and it
seems like “everyone’s doing it.” So, if everyone is doing it, why not jump ahead of the wolf pack by
providing even more creative, personalized service to your customers than your competitors can?

Be creative. Get to personally know your customers and recognize their individual needs. Above all,
make certain that what you are offering really is something that your customer can value; that's the
key to good customer service.
“The Customer Is Always Right.” If a customer comes to you about a complaint, be very serious about
how you handle it. Is the customer upset and angry? First, calm him with words and action and show
that you are serious about doing something to correct the problem. Even if it is obvious that he’s
wrong, sometimes it’s better for repeat business to take the loss and compensate the customer.

Then, when your customer is satisfied that his complaint has been properly addressed, thank him for
bringing the problem to your attention. Remember, no amount of advertising can repair the damage
done by failing to properly address a customer’s concern. Even more damaging to a small business is
the “silent complainer.” That’s the customer who simply walks out of your shop without saying a word,
and you never see him again. These silent complainers have friends. And their friends have friends.

Be honest with your customers. If your customer even suspects that you are trying to pull something
over on him, you can kiss that customer goodbye - permanently! Were you fortunate enough to
purchase an item from a wholesaler at a discount price? Instead of being tempted to richly improve
your bottom line, pass that saving on to your customer. This will ingrain confidence in your customer
so that, in the future, your customers will know where to come for REAL savings.

Did you manage to pick up some out of date or reject item? Don’t be tempted to pawn it off on your
customers at a regular price without at least informing your customer that it’s a reject or of inferior
workmanship.

If your customer asks you for advice on a product, don’t try to sell him the item that best enhances
your bottom line. Sell him the item that’s best for your customer. In the long run, your bottom line
will thank you for having made this choice.

Educate your staff to be equally concerned about your customers as you are.

“If you aren’t taking care of your customers, your competition will.” Print that advice out in large, bold
letters and past it above your cash register.

6.8 FIVE CUSTOMER SERVICE TRENDS YOU CAN’T IGNORE

There is no 9-to-5. Even though there is definitely for companies to pay more attention to work-life
balance issues, there is a growing intolerance for organizations that close down their support
organizations in the evening or on the weekends. That makes it important for companies to closely
integrate their various touch points, so that true emergencies can be escalated out to someone who
is “on call.”

Good customer service = good brand marketing. Today’s successful companies view their customer
service organizations as extensions of their marketing and sales teams, not as operational expenses.
Customers will vent their disappointment very differently — and publicly — about bad customer
support experiences than they have in the past, which makes it imperative to act quickly. “Customers
are unifying in a way that we have never seen before, because of social media.”

Listen carefully. If your company is spending oodles of money on customer surveys and research, it
might want to consider diverting some of the investment into systems that can help collect customer
feedback in real time. The more you listen, the more people notice. “Your most vocal critics can
become your most vocal champions, if you listen to them,”

Allow customers to use the support mechanism that makes sense. Tech-savvy consumers are growing
impatient with systems that force people to interact with businesses in ways that don’t make sense
for their specific need. Why would you force someone to visit a Web site to check on their cable
service, for example, when it is clear that they probably can’t do so because, right, the cable service is
out. Close integration of communication channels is increasingly important and customer service
agents need to be trained and expert at using all of those channels. The old way of drawing lines in
the past isn’t going to work for a lot of brands moving forward.

Customer service isn’t just relegated to customer service agents. Collaboration technologies are
making product experts available in ways that were unimaginable even just two years ago. A successful
customer service organization will focus on enabling the right person to help solve the problem, not
just the first person who happened to pick up the phone or read the email or notice the Twitter
comment or question.

6.9 CUSTOMER SERVICE SKILLS

Language skills
Good communication is the lifeblood of the service industry and it’s important that your language
should be devoid of grammatical errors. While we have all learnt the basics of grammar in school,
the most important attributes in spoken English are: sentence construction (your ability to form
 meaningful sentences) and word order (ability to use the right words as per context). Talk to
people in English as far as possible and watch English news and sit-coms. The objective here is to
develop conversational skills.
Vocabulary
Your vocabulary should be good so that you can tackle challenging communication and customer
service scenarios. You should be able to demonstrate a satisfactory use of word choice so that
your customer maintains confidence in your skill sets. Follow the TIS rule (think it, ink it, sink it).
When you come across a new word, make a note of it in your personal diary and read it out loud
at least thrice.
Pronunciation
You need to have a clear pronunciation and diction, such that, it does not interfere with your
overall communication with the customer. This includes stress, rhythm and intonation patterns in
your speech.
Tone
You need to speak in an upbeat and positive tone. This enables you to connect with your
customers and colleagues and also build long lasting relationships. A lot of negative emotions like
anger, sarcasm, impatience, etc also get communicated through your tone, so it’s important to
watch out for it. Your tone should reflect empathy and concern for your customer.
Listening skills
Good listening skills will help you understand the main ideas of the person you are communicating
with. It also enables you to understand the specifics of a particular situation that you could be
dealing with. Good listening skills will also ensure that you provide appropriate answers to
questions and understand the emotional clues that your customer may drop.
Problem-solving skills
You should be committed and have a sincere desire to solve the problems of your customer. Your
ability to ask the right kind of questions will be a key factor in providing an effective solution. You
also need to prioritize your time and understand your customers’ needs and wants.
Flexibility
You need to adapt to your customer’s unique needs and changing circumstances. You should be
open to change and be willing to take the customer’s feedback and act on it. Being flexible also
helps you identify new business opportunities and make more sales for your organization.
Initiative and pro activeness
 You need to be proactive and anticipate customer problems. You should be able to apologize and
correct a mistake rather than hide behind company policies. Walking an extra mile for the
customer will cement the relationship and would lead to repeat business.
Professional approach
You need to be professional, friendly and courteous. Being, direct and expressive helps to build a
strong relationship with the customer. Showing your respect to the customer, team members,
company, and competitors is also important as this demonstrates confidence in self and the
organization. A professional attitude will leave the customer with a positive feeling.
Task orientation
As a customer service professional, it’s important to strike a balance between the job at hand,
relationship and rapport building activities. While you need to engage in building a positive
relationship with the customer, you must keep issue resolution and meeting targets as your top
priority.

Confirming satisfaction also accomplishes a smooth, subtle shift in "ownership" of the issue. When
the customer says in his or her own words, "Yes, I'm satisfied," the transaction is complete and
successful—in the customer's mind as well as in yours.

Large companies today spend billions to manage their public image. And in many industries no
part of that image is more important than how people think a company’s customer service
is. Customer Service is becoming a lot more than an ‘industry buzzword’ as large companies who
treat their customers poorly are starting to lose customers right and left.

Customers want good customer service, but if companies can just hire good PR people to cover
problems up, how do we, as customers, ever demand that companies improve. We thought that
a good start would be to close the information gap, so that customers know who is good and who
isn’t. With that in mind, we have sifted through customer surveys and studies as well as some real-
life experiences of customers, to come up with a list of the 10 best and the 10 worst companies
for customer service.
6.10 CUSTOMER RELATIONS MANAGEMENT (CRM)

Definitions

• CRM (Customer Relationship Management) is an information industry term for methodologies,

software, and usually Internet capabilities that help an enterprise, manage customer relationships
in an organized way.
• For example, an enterprise might build a database about its customers that described
relationships in sufficient detail so that management, salespeople, people providing service, and
perhaps the customer directly could access information, match customer needs with product
plans and offerings, remind customers of service requirements, know what other products a
customer had purchased, and so forth.
• CRM is a business strategy directed to understand, anticipate and respond to the needs of an
enterprise's current and potential customers in order to grow the relationship value.
• Methodologies and tools that help businesses manage customer relationships in an organized
way.
• A management philosophy according to which a company’s goals can be best achieved through
identification and satisfaction of the customers' stated and unstated needs and wants.
• A computerized system for identifying, targeting, acquiring, and retaining the best mix of
customers.

Customer relationship management helps in profiling prospects, understanding their needs and
in building relationships with them by providing the most suitable products and enhanced
customer service. It integrates back and front office systems to create a database of customer
contacts, purchases, and technical support, among other things. This database helps the company
in presenting a unified face to its customers, and improve the quality of the relationship, while
enabling customers to manage some information on their own.

According to one industry view, CRM consists of:

• Helping an enterprise to enable its marketing departments to identify and target their best
customers, manage marketing campaigns and generate quality leads for the sales team.
• Assisting the organization to improve telesales, account, and sales management by optimizing
information shared by multiple employees, and streamlining existing processes (for example,
taking orders using mobile devices)
• Allowing the formation of individualized relationships with customers, with the aim of improving
customer satisfaction and maximizing profits; identifying the most profitable customers and
providing them the highest level of service.
• Providing employees with the information and processes necessary to know their customers
understand and identify customer needs and effectively build relationships between the
company, its customer base, and distribution partners.

Misconceptions about CRM

A common misconception is believing that CRM consists of software or that procuring CRM software
will in and of itself achieve CRM objectives. This is not the case and it must be recognized that CRM is
not equated to just application software but rather a comprehensive and holistic customer focus
which evolves with every customer touch point and activity. While CRM is not software or technology,
CRM software is a necessary enabler to achieve most CRM strategies and objectives. From an
information technology perspective, CRM business systems deliver customer information combined
with operational, analytical and support tools which empower knowledge workers and provide
customers a consistently superior customer experience.

CRM is not Sales Force Automation (SFA) software, although SFA software is a component of CRM. By
most business analyst standards, the minimum suite of software components to achieve a credible
and enterprise wide CRM business system includes SFA, Marketing Management and Customer
Service.

CRM is also not an implementation or an event; it is a process sponsored from the highest levels of an
organization, embedded into the corporate culture and pervasive throughout the organization. CRM
is not a destination; it is a journey of continuous learning, process improvement and customer
relationship evolution.

CRM is not confined to business processes within an information technology system. In fact, CRM can
consist of virtually any front office or customer facing process designed to improve the company's
relationship with customers. As an example of a CRM business process that doesn't require any
technology, think of the old adage 'service with a smile' or 'the customer is always right'. These are
examples of CRM processes made popular long before the introduction of CRM software technology.
CRM as Business Strategy

CRM strategy should be aligned to the organization’s mission and purpose in order to harness the
power of CRM software and bring about a sustained achievement of business objectives and profitable
customer relationships. CRM strategies vary; however, the most successful strategies have several
things in common.

• Clear alignment between the organization’s purpose and the CRM strategy; a strong strategy
is a direct reflection of the company's purpose and supports the company vision in direct and
easy to understand terms.
• CRM strategies must be customer focused; they should articulate the positioning, evolvement
and objectives of the customer relationship.
• CRM strategies must have senior executive sponsorship and complete buy in from across the
organization. Both staff and management take their queues from the executive team, so it is
imperative that the executives are visible, vocal and active in their sponsorship of the CRM
strategy.
• CRM strategies, just like other business strategies, are iterative processes; as the the
organization advances so to will the CRM strategy.

CRM strategies are often realized from the achievement of specific CRM objectives. To be successful,
it's imperative that objectives are thorough, measurable and directly attributed to supporting the
overall strategy. Several common CRM objectives include the following:

• Shared customer knowledge. Prospects, customers and business partners call on multiple
resources in varying lines of business and through multiple communication channels. It's
essential that any and all resources called upon share the same information in order to speak
intelligently and with a common voice. Shared customer data ensures that each customer
interaction is handled with the same degree of care while leveraging the same information
across all departments, geographies and channels.
• 360-degree consolidated customer view. The achievement of a single, enterprise-wide view
of the customer relationship delivers one real-time version of all customer information,
eliminates duplicate data entry, reduces systems integration complexity and empowers staff
with up to date knowledge and actionable customer insight.
• Repeatable processes. The adoption of CRM automation software facilitates consistent
processes, process improvements and best practices among all staff who use the software to
become more efficient in their daily roles.

If developing successful strategies and objectives were either easy or routine, the CRM
implementation failure rate would not be deplorably high (over 50% according to research firm
Gartner). Here are a few suggestions to provoke your advanced planning.

• Remember that CRM is not a project. Unlike with most projects, with CRM there is no end.
CRM is a continuous journey and those organizations that are most successful repeatedly
assess, learn and adjust and then repeat the process again.
• Don't think of beginning a business software selection or implementation project before
you've acquired senior executive sponsorship. Missing, inactive or inadequate executive
sponsorship correlates to CRM failure.
• Make sure you take the time to identify, reengineer and plan your business processes before
you commit to a CRM strategy or begin looking for CRM software. Failure to thoroughly
understand your business process framework, including the integration of processes with
other departments, divisions or locations, may derail a thoughtful strategy or result in a poor
business software selection decision.
• CRM implementations are always challenged by user resistance. To reduce this known risk,
implement a broad representative team to ensure that all departments, divisions and/or
geographic locations are fully represented.
• When evaluating CRM systems, specify the decision-making criteria based upon your most
strategic business objectives and in advance of reviewing software demonstrations. It's
generally a big mistake to modify your decision-making criteria based upon software vendor
meetings and things you didn't know existed before the demonstrations.
• Don't be tempted to bypass the Request for Proposal (RFP) document and response. The
effort of gathering, documenting, prioritizing and comparing your most important business
requirements to each commercial CRM software system will heavily improve your
implementation project. There is a clear negative correlation between companies that do not
perform a detailed and weighted RFP and companies that incur CRM failures.
• When you do get to the business software demonstrations, do not permit the generic
software shows and instead demand that vendors demonstrate the features and functions
that are most important to your business. It is extremely advisable to use structured
demonstration scripts so that each vendor matches their business software with your most
 prioritized objectives and so the vendor solutions can be fairly compared is a side by side
manner. Also be certain that your demonstration requirements are detailed, measurable and
scored.
• Refrain from purchasing multiple vendor software systems if at all possible. Dealing with
multiple vendor software systems, and more so with their different contracts, support plans,
graphical user interfaces, release schedules, invoices and technical support groups never
works well. Also, the time and cost to integrate the systems introduces significant risk and a
dramatic increase in the total cost of ownership (TCO). Be wary of presumed integrated
software products; the actual depth and quality of system integration seldom matches the
marketing brochure.

Be aware that CRM strategy and CRM software are neither a panacea nor pitfall on their own.
However, with advanced planning and thoughtful implementation they are an extraordinarily valuable
management framework and productivity automation aid capable of long-term advancements and
direct contribution to the organization’s mission.

CRM Process

The CRM or Customer Relationship Management process is one of the more important topics in the
world of business. Its impact and measurement simply cannot be denied. Without proper customer
relationship management there is no way to draw in and keep customers to your business and it will
be unsuccessful as a result.

The process has a few steps involved. The first step is to establish CRM goals. This would go into your
business plan at the startup of your company. This means figuring out who your target audience is and
how you are going to draw them into your business. You have to figure, no matter what products or
services it is you are offering, chances are there is already a multitude of stores offering pretty much
the same thing.

The only way to make your business a success then is by making people realize why they should
come to you over those other stores. Depending on who you are and what you have to offer you can
figure out how to set yourself apart from the others.

The next step in the CRM process is to educate other departments. Then you assemble all required
customer information, design the data model, vendor study and select the right CRM solution. After
this you establish authority and responsibility. Obviously if you are the sole owner of your company
and have no employees, this would all fall on your shoulders. Again, this depends on the size of your
business and all the people involved with it.

Pilot projects communicate with customers. This is one of the most important things to remember. It
can be hard to always keep up with all your customers and potential customers, especially with the
rest of the tasks you need to focus on to run your business, but this step must not get neglected.
Communicating with customers is a CRM best practice. This practice is how you show them you
appreciate their business and build relationships.

Customer surveys can help keep track of your customers and what they are interested in and the
same goes for customer satisfaction programs. These help you to realize certain areas you may need
to work on. Always get feedback from your customers. It shows you are willing to change and do
what it takes to please your customers.

Anyone who owns or manages a business absolutely must understand the importance of the Customer
Relationship Management process. If not, their business will turn into a struggle and most likely not
stay afloat.

Customer relationship management (CRM) is a combination of people, processes and technology that
seeks to understand a company's customers. It is an integrated approach to managing relationships
by focusing on customer retention and relationship development. CRM has evolved from advances in
information technology and organizational changes in customer-centric processes. Companies that
successfully implement CRM will reap the rewards in customer loyalty and long run profitability.
However, successful implementation is elusive to many companies, mostly because they do not
understand that CRM requires company-wide, cross-functional, customer-focused business process
re-engineering. Although a large portion of CRM is technology, viewing CRM as a technology-only
solution is likely to fail. Managing a successful CRM implementation requires an integrated and
balanced approach to technology, process, and people.

Steps in implementing CRM

• Establishing CRM goals

• Educating other departments
• Assembling customer information
• Designing the data model
• Vendor study
 • Selecting the CRM solution
• Establishing authority & responsibility
• Pilot projects
• Communication with customers through direct mail , electronic mail etc.
• Customer surveys
• Customer satisfaction program
• Collection of customer information
• Provision of customer information to employees
• Usage of customer information in the business activities
• Feedback
• Analyze
• Documenting a new process
• Implementing final methodology

Milestones in CRM

One of the ongoing challenges successful businesses face is in optimizing customer satisfaction
and developing Customer Relationship Management. Following are milestones in the effort to
attain entire Customer Satisfaction.

Setting a Clear Customer Experience Strategy

To establish a good strategy certain key practices are required:

Often organizations confuse defining a customer experience strategy with creating a "slogan". How
many companies create a slogan without any supporting initiatives, thereby disillusioning employees
and creating a "flavor of the month?"

• Understand the overall organizational vision and mission

• Define the organization’s customer service direction, slogan and values
• Ensure customer service is defined as a key responsibility for the business/department
• Share the customer experience strategy via a comprehensive communications program
• Ensure that this strategy does not conflict with other business strategies. As consultants,
it is amazing how often we hear organizations say, "Improving Customer Service is a
 priority, and we are also introducing stringent cost-cutting measures." This can present a
tough dichotomy.

Selecting the Correct People

When recruiting employees to provide customer service, the process often tends to concentrate more
on functional expertise, technical competence and knowledge rather than interpersonal skills.
However, lack of the right attitude can drastically impact client satisfaction levels. Research has in fact
shown that attitude is the most important requirement: skills and functional expertise can be taught.

Therefore in selecting the right people:

• Define the critical job requirements

• Develop scenario-based interviews/assessment centers to screen and select candidates
• Involve multiple team members in the hiring process
• Ensure evaluation is based on objective, not the subjective "Be Like Me" criteria

Developing, Motivating and Managing your People

Even though you have hired the right people, there is still a need to orient them into the organization’s
customer relationship culture and define key communication skills. In Call Centers and Technical
Support departments, there is a tendency to rely on technical/functional skills and neglect
interpersonal skills development. This can result in providing acceptable material service, the more
tangible aspect, yet unacceptable personal service, the competitive differentiator.

Therefore to build a customer relationship culture, it is important to:

• Provide training in key areas required to deliver exceptional personal service

• Reinforce these skills using ongoing coaching and feedback
• Measure current performance levels
• Reward performance using a combination of monetary awards and non-monetary
recognition.

Establishing Effective Service Delivery Processes

Effective processes and procedures provide the foundation for smoothing or inhibiting the material
service element of the customer interaction. Efficient service delivery systems appear transparent to
the customer. Poor systems create those 'speed bumps' that necessitate personal intervention in
order to satisfy the customer requirements.

The critical elements in ensuring a positive material customer experience are:

• Mapping the service delivery processes

• Evaluating critical success points in the process
• Defining service standards and objectives for these essential points
• Establishing service delivery procedures to optimize material service
• Creating service level agreements to smooth internal service delivery

Building in Continuous Improvement

No matter how effective the service delivery processes, or well-trained the service deliverers, things
go wrong. Products have faults. Customers get frustrated. Things slip through the cracks. The
organizations that are built around managing the customer experience are able to resolve these issues
effectively. This process known as "recovery" is an important differentiator in building customer
loyalty.

In order to recover effectively, it is necessary to:

• Actively seek customer feedback and complaints: you cannot improve if you don't know
what went wrong in the first place.
• Train staff how to handle customer complaints effectively using the correct mix of
empathizing, apologizing and resolution.
• Make sure that the real problem is solved, not just the symptoms.
• Focus on proactive (prevention) as well as reactive (cure) problem solving.

Ensuring Managers are the Key Change-Agents

As consultants, we observe that senior management often has the vision, intention and commitment
to introduce a comprehensive customer relationship management system. The "make or break"
element is in involving middle management in the change process, and empowering them to be the
key change-agents.

To do this, it is important to:

• Engage the management team early and often in the process

 • Involve management members in articulating the customer experience strategy
• Teach managers coaching skills so that they are able to articulate and reinforce the key
personal service skills
• Use managers as facilitators when rolling out interpersonal skills training
• Reward managers on establishing, monitoring and updating service delivery processes
• Ensure managers are able to act as an example to their teams.

6.11 CRM FOR SMALL BUSINESS

CRM for small business include:

- CRM processes that help identify and target their best customers, generate quality sales leads, and
plan and implement marketing campaigns with clear goals and objectives;

- CRM processes that help form individualized relationships with customers (to improve customer
satisfaction) and provide the highest level of customer service to the most profitable customers;

- CRM processes that provide employees with the information they need to know their customers'
wants and needs, and build relationships between the company and its customers.

Customer relationship management tools include software and browser-based applications that
collect and organize information about customers. For instance, as part of their CRM strategy, a
business might use a database of customer information to help construct a customer satisfaction
survey, or decide which new product their customers might be interested in.

6.12 COMPANIES KNOWN FOR THEIR EXTRAORDINARY CUSTOMER SERVICE

APPLE

The American Consumer Satisfaction Index (ASCI)* second quarter report indicates that within the
Personal Computers category, customers perceived Apple as the best company in terms of customer
service. Apple’s baseline score was 77 (on a 100-point scale), and the Q2 2006 score was 83.
“Computer world”, discussing Apple’s number one ranking says, “The Company’s focus on product
innovation and customer service has won it a cadre of famously loyal customers, unlike any other PC
vendor.

Apple is pretty consistent when it comes to high-quality customer service, “Apple acquired the
number one customer service ranking in the 2001 Consumer Reports Annual Questionnaire, and a
number one ranking for desktop repairs in May 2003.”

General Electric

In the major appliance’s category, the ASCI survey has named the General Electric company no. 1 with
a baseline score of 81 and a Q2 2006 score was 82. Among other things, a company blog is a very good
way for organizations to keep in touch with their customers, and GE is one of the few corporates that
has its own blogs:

Another proactive measure adopted by GE CEO Jeffrey Immelt that promotes goodwill and customer
satisfaction is the program wherein the GE Six Sigma black belts / management experts assist their
internal customers in streamlining processes, cutting costs and increasing profit margins – all free of
cost.

“Another happy customer is Stephen Carter, president of the American subsidiary of Komori, a
Japanese maker of printing presses… GE’s Six Sigma "black belts" saw that most of the orders that
took longer involved items that were out of stock. After analyzing more than a decade of parts orders,
they found a way of ensuring that the most-sought items, or those with long lead times, were never
out of stock, while reducing inventory for slow-moving and less hard-to-replace components. The
result: 95 percent of orders now go out on time.” With this kind of commitment to improving the
customer’s experience, it is small wonder that GE tops the popularity list for consumer durables.

Toyota

Within the automobiles section, Toyota is the leader with a baseline score of 79, and a Q2 2006 score
of 87. The quality and reliability of its vehicles are the gold standard of the industry. Customer loyalty
is so high that Toyota can make money without offering extreme discounts.”

It is not only Toyota’s products or profits that are the jewel in its crown (pay attention, all you
companies that think good products will make up for poor customer service). Rather, it is something
less tangible but more essential. Called the Toyota Way, it is the foundation of the Toyota Production
System, or Lean manufacturing techniques. In the largest sense, it is a mindset or management
philosophy… Being customer-centric is part of the Toyota Way, which is based on "pure logic and pure
respect”.

Google

Search engines Q2 2006 score of 81. The Google experience is a classic example of a company
committed to wowing its customers based on consistent quality and constant innovation over the
years.

2003: “Google Inc., of Mountainview, Calif., continued to lead the category with a score of 82, a 2.5%
improvement from last year. It has introduced new features, including an image search where users
can hunt for photographs. The site commands about 30% of all Web searches, according to ComScore
Networks.”

2004: In her article, ‘Google Tops in Customer Satisfaction,’ Jennifer Laycock says, “Google, the current
king of search, topped the list of search engines with a satisfaction rating of 82 points”.

2005: “Every year, if we do the same as we did last year, consumers are going to see us as not fulfilling
their needs.”

2006: Google continues to retain the leadership position in the search engine category, with a Q2 2006
ASCI score of 81.

South West Airlines Co.

Within the airlines industry, Southwest Airlines had a baseline ASCI score of 78. Innovations such as
Ding! along with a passion for customer service is what keeps southwest ahead of the competition. In
‘Customers Satisfaction and Willingness to Pay. “Southwest Airlines (NYSE: LUV) recently introduced
DING! a free program that sends audible electronic notices to a consumer’s desktop. Today’s dinged
fares typically undercut Southwest’s published fares.

Also, the company remembers the very basic yet very vital rule of customer delight: happy employees
= happy customers. “While 90% of its employees are unionized, labor relations have been remarkably
positive, especially by industry standards. There are no formal structures for labor or union
participation in management decision making, but the company led by top managers who actively
solicit and respond to employee views – has taken the lead on developing and maintaining this
culture.”

6.13 SUMMARY

A company’s most vital asset is its customers. Without them, company would not and could not exist
in business. Good customer service is all about bringing customers back. And about sending them
away happy - happy enough to pass positive feedback about your business along to others, who may
then try the product or service you offer for themselves and in their turn become repeat customers.
Customer service is a proactive attitude that can be summed up as: I care, and I can do.

Basic rules about customer service are Honesty, Quick Response, Giving a Realistic Picture and
Respecting customers and their views.

Finer points of excellent Customer Service are Posture versus performance, delivering service heroics,
providing pleasant surprises, Using appropriate humor, Conveying authentic enthusiasm, Sharing
unique knowledge, Offering sincere and specific compliments, Expressing genuine interest and
Remembering that Service is a verb and not a noun.

Secrets of customer Service are Building Business to Customer Loyalty, providing true customer
service, having an attitude that The Customer Is Always Right and Educating the staff.

Customer Service Sills include Language skills, Vocabulary, Pronunciation, Tone, Listening skills,
Problem-solving skills, Flexibility, Initiative and Pro-activeness, Professionalism and Task orientation.

Customer Relations Management (CRM) is a business strategy directed to understand anticipate and
respond to the needs of an enterprise's current and potential customers in order to grow the
relationship value. CRM strategy should be aligned to the organization’s mission and purpose CRM
strategies are often realized from the achievement of specific CRM objectives. The CRM or Customer
Relationship Management process is one of the more important topics in the world of business.

Milestones in CRM are Setting a Clear Customer Experience Strategy, Selecting the Correct People,
Developing, Motivating and Managing your People, Establishing Effective Service Delivery Processes
Building in Continuous Improvement and Ensuring that Managers are the Key Change-Agents.
6.14 KEYWORDS

▪ Customer Service – Ability to provide a service or product in the way that it has been promised.
▪ Posture – what companies say they do
▪ Performance – what companies actually do
▪ CRM (Customer Relations Management) – Information industry term for methodologies,
software, and usually Internet capabilities that help an enterprise manage customer relationships
in an organized way.
▪ Milestones – Important landmarks in the process
UNIT 7 WORLD CLASS MANUFACTURING

Objectives
After going through this unit, you will be able to:

• State History of WCM;

• State Meaning of WCM and its Philosophy;
• Describe why continuous improvement is at the core of WCM and the areas for improvement;
• State how concepts of manufacturing have undergone drastic change in recent times;
• Analyze the factors involved in increasing productivity.

Structure

7.1 Introduction
7.2 History of World Class Manufacturing
7.3 World Class Manufacturing Philosophy
7.4 World-Class Manufacturing Defined
7.5 Changing scenario in manufacturing
7.6 Framework for Continuous Improvement
7.7 Imperatives for Increased Productivity
7.8 Opportunities for Improvement
7.9 Actual Company Performance Improvements
7.10 Examples of World Class Manufacturing Firms.
7.11 Summary
7.12 Key Words

7.1 INTRODUCTION

Culmination of Peter Stonebreaker and Keong Leong’s steps is in attaining the status of WCM. World-
class manufacturer is the one that possess the knowledge and technology to provide products and
services of continually improving quality. It is what separates practitioners of the new paradigm from
the industrialist dinosaurs.

Over the years, manufacturing was operationally compartmentalized. The results of this isolation were
concretely felt on products that did not meet customer expectations The goal of implementing a lean
word-class enterprise, is to improve all aspects of business The term "world-class manufacturer" is
popularly used to denote a standard of excellence.

7.2 HISTORY OF WORLD CLASS MANUFACTURING

For years, manufacturing was internally focused and operationally compartmentalized. Workers often
completed their jobs without understanding the impact of their work on the whole operation, and
whether or not their labor has an important impact on customers.

Before, critical functions such as quality control, engineering, purchasing, and other preoccupations
were clearly separated and often described as a “wall approach” to manufacturing.

These so-called “walls” inhibited direct and continuous interaction between functions and isolated
decision-makers from both the inside and outside worlds.

The results of this isolation were concretely felt on products that did not meet customer
expectations—not to mention internal operational snags such as losses in time, money, opportunities
etc.

The goal of implementing a lean word-class enterprise is to improve all aspects of business and
capitalize on the advances gained from applying technically proven trade methods and principles to
be profitable and eventually be globally competitive.

The motivating factor behind the World Class Manufacturing (WCM) initiative is two-pronged: First, is
to put into action operations management improvements across all functional units, departments or
sectors. And second, is to equip companies of tool that will enable them to become competitive and
responsive to the changing market landscape.

The term "world-class manufacturer" is popularly used to denote a standard of excellence: the best of
the best manufacturers at the international level. It came into prominence following the 1986
publication of World Class Manufacturing: The Lessons of Simplicity Applied by Richard J. Schonberger,
which was his follow-up to Japanese Management Techniques: Nine Hidden Lessons in Simplicity.

World marketplace events during the 1970s and 1980s caused competition to grow to such an intense
level that many firms were forced to re-examine their concept of manufacturing strategy, especially
in terms of the right choice among the four competitive priorities: cost, quality, delivery/service, and
flexibility. Managers began to realize that rather than having tradeoffs they could instead compete on
several competencies. It was necessary to capture the breadth and the essence of the fundamental
changes taking place in larger industrial enterprises, with their overriding goal and underlying mindset
of continual and rapid improvements and relentless pursuit of competitive excellence.

Richard Schonberger states that the emphasis on world-class manufacturing may someday be
chronicled as the third major event in the history of manufacturing management, following the use of
standard methods and times espoused by Frederick Taylor and Frank Gilbreth, and the findings of the
Hawthorne experiments at Western Electric, which proved that motivation, to a significant degree,
comes from recognition. For simplicity's sake, a world-class manufacturer can be described as a
company that is able to compete effectively in a global market.

7.3 WORLD CLASS MANUFACTURING PHILOSOPHY

A manufacturing firm achieves world-class status when it has successfully developed manufacturing
capabilities to support the entire company in gaining a sustained competitive advantage over its
competitors in such areas as cost, quality, delivery, flexibility, and innovation. World-class
manufacturers regard their manufacturing operations as being externally supportive, that is, playing
a key role in helping the entire company to achieve an edge over its competitors. They seek to
outperform their global competitors in targeted areas; they are not content simply to copy their
competition. They dislike being dependent on outside organizations for expertise; they want to
develop their own work force, equipment, and systems, but they also respect the capabilities of
others. Therefore, they continually scrutinize the outside world, particularly their top competitors, to
ensure that they are aware of the newest ideas and approaches. The most recognizable characteristic
of world-class manufacturers is their ability to adapt quickly to changing customer and market
requirements and to get their new products designed, produced, and delivered to the customers
better and faster than their competitors. The company that has this ability tends to grow faster and
be more profitable than its competitors.

7.4 WORLD-CLASS MANUFACTURING DEFINED

World-class manufacturing (WCM) is defined as a manufacturing philosophy or ideology that is used

to achieve world-class manufacturer status.
WCM is a process that integrates key cross-functional operations in ways that meet precisely what the
customers specifically need and want, from a product.

WCM is not an end, so they say—but a definitive process. Since it is a process, companies are likely to
achieve favorable results associated with successful implementation of industry-tested methods.

The motivating factor behind the World Class Manufacturing (WCM) initiative is two-pronged: First, is
to put into action operations management improvements across all functional units, departments or
sectors. And second, is to equip companies of tool that will enable them to become competitive and
responsive to the changing market landscape.

The essence of WCM philosophy is continuous improvement involving everyone in the organization.
Organizations that adopt this philosophy constantly seek opportunities for improvement in such key
competitive areas as quality, cost, delivery, flexibility, and innovation. Such improvements are
essential to survival and profitability.

The emphasis on continual improvement is the ultimate test of a world-class organization. Robert
Hayes, Steven Wheelwright, and Kim Clark, the authors of Dynamic Manufacturing, explain that any
well-run and adventurous company may seize a temporary advantage over its competitors by
adopting a particular innovative product or process design, or by investing in a state-of-the-art
production facility. It may appear initially that such a company has achieved parity with those other
companies that truly compete through their manufacturing capability, but if this new design or facility
comes to be regarded as a goal in and of itself, if the organization does not immediately begin
experimenting and trying new things, the advantage is soon lost. Richard Schonberger, author of
World Class Manufacturing, suggests continual and rapid improvement as an overriding goal for
world-class manufacturing. Masaaki Imai, the author of KAIZEN, points out that KAIZEN (which means
gradual, never-ending improvement, doing "little things" better; setting and achieving ever-higher
standards) is the key to Japan's competitive success.

7.5 CHANGING SCENARIO IN MANUFACTURING

For years, manufacturing was internally focused and operationally compartmentalized. Workers often
completed their jobs without understanding the impact of their work on the whole operation, and
whether or not their labor had an important impact on customers.
Before, critical functions such as quality control, engineering, purchasing, and other preoccupations
were clearly separated to such an extent that invisible ‘walls’ were created between departments.
This was often described as a “wall approach” to manufacturing.

These so-called “walls” inhibited direct and continuous interaction between functions and isolated
decision-makers from both the inside and outside worlds.

The results of this isolation were concretely felt on products that did not meet customer
expectations—not to mention internal operational snags such as losses in time, money, opportunities,
etc.

The goal of implementing a lean word-class enterprise was to improve all aspects of business and
capitalize on the advances gained from applying technically proven trade methods and principles to
be profitable and eventually be globally competitive.

The motivating factors behind the World Class Manufacturing (WCM) initiative were two-pronged:
First, to put into action operations management improvements across all functional units,
departments or sectors and second, to equip companies of tools that would enable them to become
competitive and responsive to the changing market scenario.

As the manufacturing sector faces new challenges in the midst of competition, WCM organization
strives continuously to improve on the areas of delivery, safety, quality, operating cost and profit
margins simultaneously, eliminating waste in the production system by applying appropriate tools and
techniques at all levels within the organization.

By examining their strengths and weaknesses, manufacturing organizations are taking positive steps
to respond to the challenges of becoming world-class competitors.

Current challenge for all manufacturers is to regain and maintain a competitive advantage in the global
market. To meet this challenge, various philosophies and approaches for managing manufacturing and
technology are required. This philosophy focuses first and foremost on continual and rapid
improvement.
7.6 FRAMEWORK FOR CONTINUOUS IMPROVEMENT

Companies that are pursuing world-class status may take different paths that, in turn, require different
precepts. There are some dominant principles from which these companies may choose one or more.

Waste elimination - While carrying out the conversion process, manufacturing function is engaged in
performing a number of activities which can be segregated in two basic types Activities, which add
value and Activities, which do not add value. Second type leads to ‘wasteful’ practices. Commonly
observed wastes in any organization are of seven types which are to be methodically eliminated
or minimized.

Lean Six sigma – Lean Manufacturing and Six sigma are two of the most talked about and practiced
methods by many World Class Manufacturing companies.

Six Sigma is used for bringing process under statistical control so that the variability in the output
quality can be kept within the desired limits. This method cannot on its own control the time
factor, which will need the methodology of ‘Lean’. As both are related to variability of the process,
better results can be achieved if both the approaches i.e. Six Sigma and Lean are practiced
together.

Just-in-Time (JIT) - The JIT principle focuses on the elimination of waste, with waste defined as
anything other than the minimum amount of equipment, materials, parts, space, and workers'
time, that are absolutely essential to add value to the product.

Total Quality Management (TQM) – Under the TQM principle, everyone in the organization must be
involved in improving the product's quality to meet customer needs. The emphasis is placed on
defect prevention rather than defect detection and development of an attitude of "do it right the
first time."

Total Productive Maintenance (TPM) - With the TPM principle, machines and equipment are
maintained so often and so thoroughly that they rarely ever break down, jam, or mis-perform
during a production run.
Computer Integrated Manufacturing (CIM) - CIM involves the integration of the company's
operations from design, production, and distribution to after-sales service and support in the field
through the use of computer and information technologies."

Theory of Constraints – The theory is based on the concept that any manageable system is limited in
achieving more of its goal by a very small number of constraints, and that there is always at least
one constraint. The TOC process seeks to identify the constraint and restructure the rest of the
organization around it, through the use of the.

All these modern practices and related techniques are discussed in more details in subsequent
chapters.

7.7 IMPERATIVES FOR INCREASED PRODUCTIVITY

Productive performance of the organization in future will be influenced by following factors:

• Internationalization of economic activity with an accompanying intensification of global

competition.
• Increased market sophistication is anticipated, including trend toward more segmentation
and specialization, with a growing emphasis on product quality.
• Product requirements will become more customized, which will increase the need for more
flexible manufacturing processes.
• Technological advances are expected to continue at their current pace.
• As market integration continues, information systems will become critical to providing timely
market response through flexible production systems.

As a response to these long-term trends, following five imperatives must be adopted by industry

Focus on the "New Fundamentals of Manufacturing"

• Place production ahead of finance and planning.

• Adopt new measures to accurately reflect long-term performance.
• Support company’s strategic objectives by new technology integration.
• Make manufacturing processes flexible and innovative, with a strategic move away from
the outdated mass production system.

Developing a "New Economic Citizenship"

 The work force must bear responsibility for increasing productivity. New technologies impose
a need for new work force capabilities. The automated process cannot replace human
creativity and skill in the workplace, and increased process flexibility depends on a well-
trained, involved, and empowered work force.

Combining Individualism and Cooperation

• Organize to enhance both cooperation and individualism,

• Improve relations both within the firm and among suppliers and domestic competitors.
• Encourage joint ventures and partnerships.
• Develop or strengthen labor/management relations.

Focusing on World Economy

Businesses must develop an international focus to compete successfully. There should be an

increased educational emphasis on foreign languages, cultures, and business methods.
Purchasing and distribution networks should be internationalized and should reflect a
willingness to trade fairly in an international market.

Providing for the future

Investment strategies should focus on long-term profitability though business unit retention,
research and development, and education and training. Monetary policies that stimulate
investment and provide new support infrastructures should be developed.

7.8 OPPORTUNITIES FOR IMPROVEMENT

Product Design

Although many areas in manufacturing can be improved, none is more important than product design
because of its significant impact on both product quality and productivity. Better product design is an
initial requirement for producing a high-quality product at a competitive cost. Quality must be
designed and built into the product; it cannot be inspected into the product. Inspection adds nothing
to product quality, and statistical sampling techniques only make inspection procedures more rational.
Whether companies design and produce products for the mass market or the specialty market, a good
product design must meet the customer's requirements on a timely basis and should be easily
produced with high quality. Companies must also ensure that design has a customer focus and is
closely integrated with the rest of the organization. The following is a list of ways that companies can
improve product design.

Develop an effective information and communication system to track customer requirements.

Distribute this information to everyone involved in product design on a timely basis. Provide design
engineers with effective design tools, such as computer-assisted design (CAD) and computer-assisted
engineering (CAE), that can reduce design lead time and improve design quality and productivity.
Reduce part complexity through design modularity and simplicity concepts. Develop strong horizontal
relationships throughout the company so that product design is integrated with other functions.
Develop strong horizontal relationships throughout the company so that product design is integrated
with other functions (e.g., process design, purchasing, production planning and control, and
marketing).

The Manufacturing System

The physical transformation of materials into finished products occurs on the shop floor. This is where
most of the symptoms of manufacturing problems-such as excessive work-in-process, long
manufacturing lead time, and high defect rate-show themselves.

The equipment by itself is rarely the primary source of a factory's competitive advantage. What
matters is how that equipment is used and how it is integrated with materials, people, and information
through the policies, rules, and procedures that direct and control the factory's activities.

A fundamental idea behind the JIT principle is to develop a synchronized production system in which
materials flow smoothly through a plant. Any causes that may disrupt the smooth flow of production,
such as long setup times, inefficient layout, high process variations, defects, and machine breakdowns,
must be removed. The following checklist offers seven clear steps toward improving a company's
production system.

Improve material flows on the production floor

Reorganize equipment and operations into manufacturing cells consisting of only machines and
equipment required for the production of a certain set of parts. This form of layout is called a Group
Technology (GT) or Cellular Manufacturing (CM) layout. Utilizing cells takes advantage of high-volume
production, even when the specific demand for parts produced at the cells is low per unit of time.
Such a change will substantially reduce transportation, materials handling and production lead time
within the plant. Additional benefits include ease in scheduling and prioritizing work and quick
feedback of information about defects.

Improve flexibility to meet changing market demand through setup reduction

Reducing setup times leads to a reduction in lot sizes, inventory levels, and production lead times so
that the factory operation will become flexible enough to respond to changing market demand.

Upgrade machine capability through low-cost automation and automation

If a company uses a particular machine the same way its competitors do, it is not differentiating its
capability from theirs. The challenge is to creatively develop inexpensive and simple ideas to improve
a given machine's capacity rather than to buy expensive state-of-the-art equipment off the shelf. Two
concepts developed in Japan are very helpful in guiding machine capacity efforts: Jidoka
(autonomation) and Poka-Yoke (fail-safe mechanisms). The autonomation concept suggests that we
can upgrade the machine's capability to a significant extent

Upgrade employee skills through job rotation and cross-functional training

Each employee can handle more than one type of operation (e.g., pressing, welding, shearing,
assembling, and inspecting). With multi-functional skilled workers, the manufacturing system can
easily be fine-tuned to handle variations in demand. This is done by increasing or decreasing the
number of operators on a given line as demand fluctuates.

Improve communication throughout the plant using visual methods

Most factories in Japan are equipped with trouble light boards hung from the ceiling just above the
production lines. These light boards are used as a tool to send a visual signal to inform operators when
abnormal conditions occur so that appropriate corrective action can be taken immediately. A
production control board is another visual control tool. It is used to visually convey actual production
activities as contrasted with the production schedule. Its purpose is to measure conformance to the
plan and to make discrepancies between actual and planned production visible to everyone. The
production control board helps supervisors and operators pinpoint problems occurring on the
production line so that corrective action can be taken to remedy the problems in a timely manner.
Improve process reliability

An ability to control process variability is essential to achieve a higher level of conformance quality.
One set of tools that is particularly effective in improving process reliability is statistical process control
(SPC). SPC includes, for example, the process control chart, the cause-and-effect diagram, the Pareto
diagram, and the histogram. Process control charts are used to monitor various characteristics of the
process to detect abnormal variations. Cause-and-effect diagrams can help a work group categorically
and systematically explore the major possible sources of process variations. Given information about
sources of variation, Pareto diagrams rank them by size and provide some indication of their relative
importance (effect]. Histograms provide an indication of the frequency of variable values over time. A
key point here is that a company seeking to improve process reliability must train people to
understand SPC techniques and be able to use these techniques to distinguish between normal and
abnormal variation in the production process. Once this is accomplished, workers may pursue
increasing levels of control over the process.

Eliminate machine problems

A fundamental principle in preventing machine breakdown is total preventive maintenance (TPM).

TPM is a concept of proactive maintenance aimed at achieving overall effectiveness in the
manufacturing system by involving all of the people in the manufacturing organization in maintenance
activities. Under the TPM concept, machines and equipment are maintained so often and so
thoroughly that they hardly ever break down, jam, or miss-perform during a production run.

Train production people to achieve zero production failures through:

• Routine housekeeping, oiling, bolt tightening, etc., to prevent forced deterioration of

machines.
• Giving instruction in proper operating procedures.
• Developing an enhanced awareness of signs of early machine deterioration by
performing easy maintenance, daily checks, setups. Train maintenance people to:

• Help the production people with self-maintenance activities.

• Restore deteriorating equipment through inspection, disassembly, and
readjustment.
• Determine weaknesses in machine design, take corrective action, and specify
operating conditions.
 • Help operators increase maintenance skills.

Managing Materials and the Supply Chain

A supply chain consists of all stages directly or indirectly involved in fulfilling a customer request. This
includes manufacturing, transportation, warehousing, suppliers, retailers, and finally the customer.

An important internal stage of the supply chain, materials management, is concerned with managing
the movement of materials through the production and logistics process. Three major functional
areas are particularly important for materials management: purchasing, production planning and
control, and distribution. In this article, purchasing and production planning and control will be
discussed briefly.

To improve overall manufacturing capabilities, it is essential that the supplier/customer relationship

change from the traditional arm's length adversarial relationship to that of a partner. Under the
partner view, the buyer organization seeks a close working relationship with a few key suppliers over
the long term. The rationale for developing close relationships with suppliers is simple: product quality
is best ensured by maintaining quality upstream. This concept extends to relationships between the
plant and its suppliers, as well. Competition is not simply a matter of one company trying to dominate
others in the industry. Rather, it is often a matter of one group of companies that function as an
integrated manufacturing system competing with another group of companies.

The development of synchronous flows of materials within a plant demands changes in not only plant
design and the configuration of equipment and production processes in the factory but also the way
we plan, schedule and control production and inventories that flow through the factory. The plant
becomes much simpler to manage, and there is no need for a complicated production planning and
control system.

7.9 ACTUAL COMPANY PERFORMANCE IMPROVEMENTS

CalComp Inc. (Anaheim, CA)

Its manufacturing philosophy involves rationalizing how manufacturing operations are conducted,
simplifying those operations, and continuously improving them. CalComp puts into action the
following concepts:
 • Discussing improvements with the labor force.
• Eliminating inventory where possible.
• Increasing workflow.
• Avoiding automation, which can hinder flexibility.

In recent years at CalComp, quality has risen 70 percent, no personnel have been added, inventory
has been reduced by 50 percent, space requirements have dropped 30 percent, production units have
increased by 300 percent, and revenues are up 33 percent.

Dakotah Inc. (Webster, SD)

The company is meeting the challenge of providing higher quality products and faster service by
adopting world-class manufacturing principles. The guiding principles in force at Dakotah are:

• Total people involvement

• Total quality control
• Total just-in-time manufacturing
• Total preventive maintenance
• Total customer responsiveness

Initial results show a 15-25 percent reduction in labor costs and an 80-85 percent drop in work-in-
process inventories. (24)

Intel Corp. (Santa Clara, CA)

At one point, Intel reported a second quarter net income of $131 million, a 181 percent increase over
the same period in the previous year. Intel set four objectives: (1)

• Extend architecture and technology leadership.

• Be the vendor-of-choice.
• Be a world-class manufacturer/
• Make Intel a great place to work

Norfield Manufacturing Co. (Chico, CA)

The company's first step toward world-class manufacturing was management's decision to move data
gathering to the shop floor, thereby involving production workers in monitoring their own
performance. The company then established five main goals:

• Encourage employee involvement.

• Implement just-in-time production techniques.
• Institute total quality control.
• Operationalize total preventive maintenance.
• Aim for continual and rapid improvement.

Harley-Davidson Inc., (Milwaukee, WI)

A small, grossly undercapitalized company was able to recover from a series of attacks by its Japanese
competitors and go on to achieve first place in its chosen markets. Although many elements
contributed to the company's success, the basis for the recovery was a rededication to quality in all
aspects of the business, combined with a successful employee involvement program. In 1976, a team
of engineering, manufacturing, and service supervisors was created to inspect the new Cafe Racer as
it came off the line. Even thought the first 100 motorcycles off the line cost $100,000 to repair, the
message was out that Harley-Davidson had a new emphasis on quality. In 1978, quality circles were
established at the engine plant. Today, there are 117 circles throughout the plants and administrative
areas, involving about 50 percent of the employees.

Motorola, Inc. (Shaumberg, Illinois)

Won the Malcolm Baldridge Award and now insists that its vendors apply for the award. Having set a
five-year quality goal of 3.4 defects-per-million, Motorola experienced a 150-fold improvement in
manufacturing, with defects falling from 6,000 per million in 1987 to about 40-per-million in 1992.
Customer service centers have been established to provide more on-site repair which has reduced
repair times from 12 days to four days since 1987. Improvement efforts have been expanded to the
other functional areas of the business, with similar positive results, including a three-fold decrease in
time required to close the monthly books.
Summary of actions

World-Class Cal- Harley-

Principle Comp Dakotah Davidson Intel Norfield Motorola

Technology X
Leadership

Work Force X X X X X
Involvement

Inventory X
Reduction

Increased X X
Throughput

Total Quality X X X X X
Control

Total Prev. X X
Maintenance

Just-in-Time X X X X

Customer X X X
Response

Vendor X
Involvement
7.10 EXAMPLES OF WORLD CLASS MANUFACTURING FIRMS

General Electric

The company goes to great lengths to make people care by manufacturing high-performance products
that consumers don't need to worry about. GE has invested millions of dollars in turning customer
responses into business opportunities. The company's Answer Center, located in Louisville, Ky.,
receives customer inquiries 24 hours a day, 365 days a year, and handles 15,000 calls a day from
people considering the purchase of a GE product. Their computerized database contains more than
650,000 responses to a variety of inquiries, which allows customer representatives to provide
knowledgeable answers at the touch of a button. GE sees its investment in managing customer
inquiries as just as important as investments in production capacity, technology and personnel. From
a communication standpoint, Jack Welch challenges managers to turn complex business initiatives
into simple concepts so employees and customers can understand and contribute to their successful
implementation. GE is also a forerunner in implementing six sigma concept.

FedEx

CEO Fred Smith gave people a reason to care about FedEx because it took the unusual step of providing
a guarantee in an uncertain world. FedEx has become synonymous with overnight delivery, much like
Xerox is for copiers and Kleenex is for tissues. The company is built around a reputation to not only
deliver packages worldwide, but also to deliver excellent customer service. Customers trust that when
the FedEx guy comes to pick up their package, he's personally taking it to the plane that flies to the
truck that drives to the van that delivers the package. With more than 2.8 million packages going to
212 countries every day, FedEx can still guarantee overnight delivery (now even on Sundays) while
offering time and cost savings and customized logistics solutions to its customers.

Baxter Healthcare Corporation

Baxter is a global healthcare company that provides critical life-saving therapies for the treatment of
complex medical conditions including hemophilia, immune disorders, kidney disease, cancer, and
trauma. The plant earned its first Shingo Prize in 2000. By maintaining a relentless focus on continuous
improvement and lean enterprise implementation, Baxter's North Cove facility is recognized as the
only plant awarded the prize for a second time. Through its Quality Leadership Process emphasizing
total employee involvement, North Cove has reduced work in process inventory by 80 percent,
reduced its lost time incident rate by 81 percent, reduced manufacturing cycle time by 58 percent and
reduced unplanned scrap by 38 percent.

DENSO Manufacturing

DENSO Corporation is the world's second largest manufacturer of advanced technology, components,
and systems for major automakers. The Instrument Cluster Division's 700 Associates are dedicated to
using lean manufacturing concepts to produce high quality instrument clusters, center displays, and
air-conditioning panels. Specific results of their efforts include the following: TS 16949 and ISO 14001
certifications; Tennessee Pollution Prevention Program's highest award due to 95 percent recycling of
manufacturing process wastes; DENSO Global President's Award for Kaizen; a defect rate reduction of
32 percent; warranty cost reduction of 60 percent; and multiple quality, delivery, and service awards.

Solectron Manufacture de Mexico, Guadalajara, Mexico:

Solectron Guadalajara has successfully transformed its traditional production system into the
Solectron Production System, effectively applying lean manufacturing and a strong Kaizen culture
throughout its organization of more than 5,000 associates. Some achievements during our lean
journey (2003-2006) included: more than $75 million USD in savings from kaizen Teams, 220 poka-
yokes, reduction by 29 percent on scrap versus revenue, 88 percent manufacturing lead-time
reduction, space optimization of 115,044 square feet, and a 43 percent labor productivity
improvement. These improvements resulted in higher customer satisfaction and revenue growth.

Intel Corp. (Santa Clara, CA)

The company is best known as a producer of microprocessors for IBM PCs and PC clones, but the firm
also manufactures boards and complete systems. At one point, Intel reported a second quarter net
income of $131 million, a 181 percent increase over the same period in the previous year. Intel set
four objectives: (1) extend architecture and technology leadership, (2) be the vendor-of-choice, (3) be
a world-class manufacturer, and (4) make Intel a great place to work. Recent emphasis has been placed
on productivity improvement rather than building more factories. Quality control has been improved
through key-supplier purchasing and by promoting a harmonious relationship among the engineering,
design, and manufacturing functions. Management roles have been redefined and streamlined to
make the factory improvement process complete. Today, new plant equipment is run through a mock
manufacturing procedure to test it under plant conditions in a continuing effort to guarantee the
highest possible quality.

7.11 SUMMARY

The goal of implementing a lean word-class enterprise is to improve all aspects of business and
capitalize on the advances gained from applying technically proven trade methods and principles to
be profitable and eventually be globally competitive.

The term "world-class manufacturer" is popularly used to denote a standard of excellence

A manufacturing firm achieves world-class status when it has successfully developed manufacturing
capabilities to support the entire company in gaining a sustained competitive advantage over its
competitors in such areas as cost, quality, delivery, flexibility, and innovation. The most recognizable
characteristic of world-class manufacturers is their ability to adapt quickly to changing customer and
market requirements

WCM is a process that integrates key cross-functional operations in ways that meet precisely what the
customers specifically need and want from a product. The essence of WCM philosophy is continuous
improvement involving everyone in the organization. Opportunities for Improvement are in the areas
of Product Design, Manufacturing System and Managing Materials and the Supply Chain.

Current challenge for all manufacturers is to regain and maintain a competitive advantage in the global
market.

As a response to these long-term trends, following imperatives must be adopted by industry Focus on
the "New Fundamentals of Manufacturing", Developing a "New Economic Citizenship", Combining
Individualism and Cooperation, Focusing on World Economy and Providing for the future
7.12 KEYWORDS

▪ Kaizen – Gradual, never-ending improvement, doing "little things" better; setting and achieving
ever-higher standards
▪ Waste – Anything more than the barest minimum required to satisfy customer requirements
▪ Six Sigma – Tool for bringing process under statistical control so that the variability in the output
quality can be kept within the desired limits.
▪ Just in Time (JIT) – Pull type of production where every work center produces only the exact
quantity consumed and demanded by the next work center
▪ Total Quality Management (TQM) – Organizational philosophy for achieving excellence and
thereby reaching number one position in the market.
▪ Total Productive Maintenance (TPM) – Involving production operators in machine maintenance
thereby eliminating unproductive manpower.
▪ Computer Integrated Manufacturing (CIM) – Integration of the company's operations from design,
production, and distribution to after-sales service and support in the field through the use of
computer and information technologies
▪ Computer Aided Design (CAD) – Software used for designing products
▪ Group Technology (GT) – Grouping of machines required for producing a family of parts with
similar configuration.
▪ Jidoka – Making machines intelligent so that they can correct any potential problem without
intervention of the operator.
• 11 Supply Chain – Sequential operations adding value to the product.
UNIT 8 PRODUCT AND PROCESS DESIGN

Objectives

After completing this unit, you will be able to:

• Appreciate features of a modern product;

• Elaborate on features of a modern product and various aspects of Product design and
development;
• Comprehend the phases of maturity of the organization in product development;
• Assimilate various R & D Strategies;
• Fathom the meaning of cost effectiveness in product design;
• Achieve product Reliability, Maintainability and Safety while designing a product;
• Appreciate modern approaches for product design like QFD, TRIZ, Taguchi Method, Design to
Manufacture and Concurrent Engineering;
• Explain Various aspects of process design;
• Study the methods of process analysis and elements of process performance;
• Justify why and how process capability is measured.

Structure
8.1 Introduction
8.2 Product
8.3 Product Design
8.4 R & D Strategies
8.5 Modern approaches to Design & Development
8.6 Process
8.7 Process Analysis
8.8 Process Capability
8.9 Summary
8.10 Key Words
8.1 INTRODUCTION

Although many areas in manufacturing can be improved, none is more important than product design
because of its significant impact on both product quality and productivity. Better product design is an
initial requirement for producing a high-quality product at a competitive cost. Quality must be
designed and built into the product; it cannot be inspected into the product. Inspection adds nothing
to product quality, and statistical sampling techniques only make inspection procedures more rational.

Whether companies design and produce products for the mass market or the specialty market, a good
product design must meet the customer's requirements on a timely basis and should be easily
produced with high quality. Companies must also ensure that design has a customer focus and is
closely integrated with the rest of the organization. The following is a list of ways that companies can
improve product design.

An ability to control process variability is essential to achieve a higher level of conformance quality.
One set of tools that is particularly effective in improving process reliability is statistical process control
(SPC).

A key point here is that a company seeking to improve process reliability must train people to
understand SPC techniques and be able to use these techniques to distinguish between normal and
abnormal variation in the production process. Once this is accomplished, workers may pursue
increasing levels of control over the process.

8.2 PRODUCT

Product is the output of any process and can take any of the following three forms:
Goods – Physical or tangible form of a product.
Software – Instructions or information e.g. computer software package.
Service – Work performed for someone else.

Features of modern products

* Complex * High precision
* Inter-changeable * Durable
* Environment friendly * Low user costs
* Short life cycle * Prone to misuse
* Highly reliable * Easily maintainable
* Readily available * Competitively priced

New Product Development

Main Criteria for successful new product development

• Involvement of Top Management

• Long-term perspective
• Creation of competitive advantage

Focused Market segments for competitive advantage

• Geographical gaps
• Areas where marketing efforts are weak
• Added quality features
• Lack of brand loyalty
• Gap in product range

Categories of new product development

• Creation of new market

• New product in an existing market
• Supplementing existing portfolio of the firm
• Replace current products by offering enhancement
• Compete on cost advantage
New Product Development Process

Market Requirement

Development Program

Setting Product Standards

Fundamental Design

Selection of purchased parts Design of key parts

Test & Analysis Trial Tests

Approval No No Approval

Yes Yes

Detailed Design

Trial Production & Test

Final Approval

Commercial Production

Phases of maturity of the organization in new product development

Phase 1 – Laggards – Show no interest in R & D. Satisfied with existing products.

Phase 2 – Late majority – Join the band wagon late and mostly copy design of others with minor
modifications.

Phase 3 – Early majority – Are fast in grasping new ideas and come up with their own versions of
similar products quickly Innovators

Phase 4 – Early developers – Come up with new products before old products become obsolete.

Phase 5 – Innovators – Surprise the market with entirely new concepts, which are path braking.
New Product Review System
When a new product is being developed there are many unknowns and hence it is necessary to sort
out all the problems and doubts at each important stage of the product development before you
embark on the next stage of development. This is achieved by a through a n formal review by a team
of experts formed for this purpose. The important stages for the review are:

Review Purpose
No.
1 Review of Market Feedback
2 Confirmation of Customer Requirements.
3 Review of Fundamental Design
4 Review of Detailed Design
5 Review of Trial Run Plan
6 Review of Trial Run Results.
7 Review of Test/Inspection Procedure
8 Review of Product Quality
9 Over-all Review
10 Review of Manufacturing Plan.

8.3 PRODUCT DESIGN

Product Design is a creative process resulting in specifications, drawings, software and/or procedures
which form the basis for product features which are required to satisfy the customer requirements

Optimum Design:

• Should meet the entire set of customer requirements

• Minimize the combined costs for manufacturer and customer
These two aspects of the optimum product design are termed as concept of “Cost Effectiveness” of
product design and is schematically shown in figure.

Life cycle costs are made up of costs for the manufacturer and costs for the customer from the
moment he buys the product till the point where its useful life is over, and the product is disposed off.
Thus, broadly concept studies, product development (R & D + prototypes) and production (Material +
processing) costs are the costs of for the manufacturer whereas operating, servicing, repairing,
training and disposal costs are borne by the customer. Thus, in order to maximize value for both
manufacturer and customer, designer has to ensure that costs for both are minimized through proper
choice of material, easy manufacturability, minimum operating, repair and maintenance costs.
However, while doing so he cannot compromise on performance, reliability and durability of the
product. All these factors and their constituents are summarized in a schematic diagram of ‘Cost
Effectiveness’ concept in figure below.

8.4 R & D Strategies

Research & Development is the activity, through which the product development is carried out.

Organization can follow one of the following strategies for their R & D activity

• Internal development
• Acquisition
• Contractual
• Licensing
• Trading
• Joint venture / collaboration
Concept of cost effectiveness

Life cycle costs Product effectiveness

Capability Dependability Availability

Power Reliability Readiness

Range Safety Maintainability

Accuracy Survivability Serviceability

Speed Flexibility

Fidelity

Concept studies

Product Development

Production

Operating

Service

Repairs

Training

Disposal
Availability

Availability is defined as probability that a product, when used under given conditions will perform
satisfactorily

Uptime Downtime

(Availability) (Unavailability)

In active use Standby Under repair Waiting for Parts.

Availability is a function of reliability and maintainability.

Reliability

Reliability is defined as probability of a product performing without failure, a specific function under
given conditions for a specified period of time.

Elements of reliability program:

Setting overall reliability goals

Achievement of goals becomes much easier when the set goals are quantifiable and hence
measurable. There are many ways of quantifying reliability. Some methods are:

MTBF (Mean Time between Failures): - Average time between successive failures of a repairable
product.

MTBM (Mean Time between Maintenance): - Average time between successive specified
maintenance.

MTTF (Mean Time To First Failure): - Average time for the first failure of products in a population.

Longevity: - Wear out time of the product.

 B10 Life: - Life during which 10% of the population would fail.

Repair / 100: - Number of repairs in 100 hours of operation.

Apportionment of reliability goals

Process of allocating reliability objectives amongst various elements, which collectively make up
a higher-level product. For example, for overall reliability of a car, which is higher product
objectives for reliability of its constituent parts like engine, gear box, braking system, suspension
etc. are to be decided and the process continues till lowest level individual parts are allocated
their reliability goals.

Reliability predictions

Reliability prediction is the process of collecting prior performance data and using probability
theory to calculate the expected failure rate of various sub-parts. Failure Mode Effect Analysis
(FMEA) is one of the popular tools used for this. FMEA is discussed in more details elsewhere in
this book.

Design reviews

Design review is a team concept and calls for involvement of other functional heads during the
design stage to ensure a trouble free and effective design. Following aspects are normally
involved:

• Salability – Customers’ exact needs must get reflected in design. Early involvement of
customers or marketing men who are in direct contact with customers at design stage is
necessary
• Procurer ability – Designer must ensure use of easily procurable and less costly material in the
product. Purchasing people can guide designer in this respect.
• Manufacturability – Designed product must be easily manufactured with available capacities
and capabilities of the organization and production in-charge is the right person to advice
designer in these matters.
• Verifiability – The product should be easily verifiable during production stages and at the final
point before dispatch to ensure that all the quality characteristics of the product are achieved.
Quality Assurance head is the right person to help in this.
The normal practice for design review is to form a team, which meets formally at each important
stage of design to discuss and sort out all the above stated matters before proceeding to the next
stage of design. Thus, design reviews should be:
 • Mandatory and formal.
• Conducted by a committee of functional experts.
• Conducted at every major stage of design.
• Able to cover all quality related parameters
• Done to defined criteria

Stress analysis

Identification of strong and weak portions of design to serve as basis for improvements, trade-offs
etc.

FMEA and Fault Tree Analysis

FMEA: In a complex product, which is made up of many parts and sub-assemblies, every item has a
role to play and failure of any one of these can have a negative effect on working of the final
product. However, the intensity of impact of failure of any of these items on the final product will
not be the same. For example, failure of wiper motor of a car will have much less impact on
working of the car than failure of brakes. FMEA is a powerful tool used to identify the parts/sub-
assemblies used in the final product, which will have significant impact on the working of the end
product so that extra precautions can be taken while designing and manufacturing these items in
order to reduce the risk to the final product.

Product is examined in all possible ways in which a failure can occur in its constituent parts. Past
data, market feed-back, competitors’ products or brain storming in FMEA team can be the useful
avenues to identify potential failure risks of each item. For each potential failure, an estimate is
made about the seriousness of its effect on the end product. The “Failure Mode” represents the
‘Symptom’. Proved reason (Cause) for the symptom is recorded. Ranking procedure is applied to
assign priorities for all the failure modes. Ranking can be based on 1) Probability of occurrence
and 2) Severity of the effect. Scale of 1-5 is used for each of these two. Risk Priority Number (RPN),
which is product of 1) and 2) is then assigned to each failure mode. Failure Mode with highest RPN
is given priority for investigations and finding solutions. Investigations can cover the aspects of:

• Safety
• Effects on down time in terms of direct costs (costs involved in repair, change of parts
capacities lost etc.) and opportunity costs involved
• Repair Planning
• Design changes necessary
Fault Tree Analysis: This tool is used primarily to identify safety risks for a Product. A comprehensive
list of possible hazards during use of the product is prepared. The list takes into consideration the
past history as well as design weaknesses. Each hazard becomes a potential ‘Failure Mode’ which
will necessitate through analysis. The analysis takes into consideration direct causes that could
lead to the hazard. Next step is to hunt for the root of the cause/s. This is followed by finding
solutions for eliminating these causes. Graphic representation of these steps resembles a tree
diagram due to branching out of origins and causes and hence the name, ‘Fault Tree Analysis’. This
tool works in exactly reverse direction of FMEA as it starts with the effect and traces back the
origin.

Identification of critical parts

Parts can be termed as critical when:

• Population of the parts is high

• Source of supply is only one
• Precision required is high
• Part is detrimental to performance/quality of final product
• Parts are unproved

Parts selection and control

Reliability of final product primarily rests on the reliability of the constituent parts. Recommended
steps for ensuring reliability of individual parts are:

Parts application study:

• Assessment of specifications and information given by the supplier of the parts.

• Previous history of used parts.
• Qualification tests in case of new applications. These tests can include stress test, thermal
analysis, destructive tests, de-rating etc.
Approved parts list: Parts which are proved for quality/performance

Critical component list: See point 7 above

De-rating of functionally critical parts: Parts designed for higher stress levels are used.

Use of higher safety factor in design.

Reliability testing

Parameters covered are:

• Performance
• Environment
• Stress
• Reliability
• Maintainability
• Total life
Methods used for reliability testing:

• Accelerated Testing:
Products are made to perform at abnormally high levels of stress and severe environment.
Extrapolation is then used to convert the short life under severe conditions to expected life
under normal conditions.
• Computer simulations
Computer software packages are used to convert the available data into test results. This can
eliminate the trouble of physical testing
• Field Tests
Products are extensively tested in actual working conditions to reveal design/manufacturing
weaknesses.

Maintainability

Maintainability is defined as ease and speed at which a repairable product, which has failed, can be
repaired, keeping the costs of repair at minimum.
Elements of maintainability
• Setting maintainability goals
• Apportionment of goals
• Identification of critical parts of the equipment
• FMEA & Fault Tree Analysis
• Maintainability predictions
• Failure reporting and corrective action system
These steps are similar to those discussed above for reliability program. However, for setting
maintainability goals the a few of quantification factors are:
MTTR – (Mean Time to Repair) – Average time taken for repairs considering that the spare parts and
skilled technicians are available.
Mean Downtime – Average time for repairs during a specified time span.
Repair / 100 hours – Total repair time during 100 hours of operation
Trade-offs for maintainability:
In order to strike balance between maintenance costs against the costs incurred due to equipment
down time following factors are to be considered.
Reliability v/s Maintainability
Modular v/s Non-modular construction
Repairable parts v/s throw away parts.
Person v/s machine

Safety

Safety has two dimensions:

Hazard – Attribute of a product that is capable of harmful result.
Risk – Probability of injury occurrence or product getting damaged due to hazard during the use
of the product.

Classification of hazards:
Class I – Negligible. – Will not cause any injury to the user or damage to the product.
Class II – Marginal – Can cause minor injury to user or damage to the product.
Class III – Critical – Will cause fairly serious injury to the person or major damage to the product.
Class IV – Catastrophic – Will cause death or loss of limb.
General approach to safety analysis
• Review of available historical data on similar and predecessor products.
• Study the ways in which the product has actually been used or misused.
• Assess the risk that injury to the user or damage to the product will actually occur.
8.5 MODERN APPROACHES TO DESIGN & DEVELOPMENT

Quality Function deployment / House of Quality

Quality Function Deployment or QFD is a method used to identify critical customer attributes and
to create a specific link between customer attributes and design parameters. Matrices are used
to organize information to help marketers and design engineers answer three primary questions:

• What attributes are critical to our customers?

• What design parameters are important in driving those customer attributes?
• What should the design parameter targets be for the new design?

QFD is a systematic process of motivating a business to focus on its customers. Correct use of QFD
lowers costs, improves quality, cuts down throughput time, and improves productivity. Two basic
steps to be taken prior to QFD application are:

Identification of customers through:

• Market research.
• Customers served by the competitor.
• Customers previously neglected.
• Current customers.
Fully assess following customer requirements:

• Stated and real needs

• Perceived needs.
• Cultural needs.
• Needs arising out of unintended use.
• Emotional needs

Four phases of QFD

Phase I: - Product planning – Defining customer requirements in relation to product
parameters.
 Phase II: - Design & Development – Converting the required product parameters into a set of
specifications, drawings and/or instructions and test their viability through prototypes, pilot
runs and extensive testing.
Phase III: - Process planning – Decide on the processes required to convert the design
specifications into product characteristics.
Phase IV: - Production Planning – Involving all employees and plan their activities and
interactions to achieve customer expectations.

Steps in building House of Quality

• Gather all information about customer/non-customer requirements.
• Assign values for importance of each requirement on a scale of 1 – 5.
• Convert customer requirements into design specifications.
• Build a relationship matrix for customer requirements v/s specifications and rate each
relationship.
• Get from the customer, evaluation of competitor’s product against each of his requirements.
• Compare customer’s evaluation against rating of importance given by customer to set target
values for customer’s requirements.
• Give overall customer importance number, which is the product of values attained in step 2
and 6.

Example for building House of Quality:

The organizing framework for the QFD process is a planning tool called the "house of quality"
(simplified example shown in Figure 3 below). Working as a team, design engineers and
marketers first establish critical customer attributes for the product. These attributes become
the rows of the central matrix of the house of quality. The team may group attributes into
broader categories in order to simplify planning and analysis.

In the example below, six attributes have been singled out for analysis: speed, quiet operation,
crisp and accurate sound, cost, size, and reliability. The team now establishes weightings that
represent the relative importance of each attribute from the customers' perspective. The
complete set of weightings adds up to 100%.
 The second step is to establish the critical design parameters that drive system performance
(in measurable terms and directly linked to customer attributes). In the example these are:
number of teeth, lubricant, tooth thickness, and manufacturing precision.

The third step is to fill in the body of the central matrix. Each cell represents a potential link
between a design parameter and a customer attribute. This "relationship matrix" indicates
both the direction and strength of the relationship.

The fourth step focuses on customer perceptions of the company's existing product as
compared to its competitors. This may give insight into market problems and opportunities.
The fifth and last piece of analysis is the interaction or relationship between design
parameters. In the cells of the "roof" matrix is indicated the strength and direction of the
interrelationships among design parameters

Theory of inventive problem solving in design (TRIZ).

Structured, technology based methodology for resolving technical problems during design
process.

Russian scientist Dr. Genrich Altschuller, studied 400,000 patents and concluded:
 Similar problems in different industries using different science and technology are solved with
similar solutions thus he concluded that:

“Inventing is the removal of a technical contradiction with the help of certain principles”

To develop a method for inventing, he argued, one must scan a large number of inventions,
identify the contradictions underlying them, and formulate the principle used by the inventor for
their removal. Hence, Finite number of principles can be used to solve problems or conflicts within
a finite number of technical parameters. Thus, If the problem is defined in generic terms to match
the conflict between two of the design parameters, you could learn how others have solved
conflicts between same two parameters and apply their solution to your problem.

His results are being applied to solve creative invention problems not just within all branches of
engineering, but within many other technical and non-technical fields as well.

Taguchi Principle (Robust Design)

“Quality is the loss imparted to the society from the time the product is shipped” – Taguchi

Loss is measured by “Loss Function”.

Loss Function = Loss constant x Variation of process.

Loss Function

Model introduced by Dr. Genichi Taguchi used to approximate the financial loss for any particular
deviation in a product using the best specification target and for the amount of variation in any
process.

The model argues that there is an increasing loss (both for producers and for society at large),
which is a function of the deviation or variability from the best or perhaps target value of a
parameter. The greater the deviation from target, the greater is the loss. The notion that loss is
dependent on variation is very well established in some design theories, and at a technique level
is associated with the assistance and the cost related to dependability.

Formulas:

Loss at a point: L(x) = k*(x-t)^2

k = loss coefficient
x = measured value
t = target value
Average Loss of a sample set: L = k*(s^2 + (pm - t)^2)
s = standard deviation of sample
pm = process mean

Total Loss = Avg. Loss * number of samples

The Taguchi methodologies are sometimes linked with moderately limited aspects of design,
example, single piece parts, rather than very complicated products, procedures and/or services.
Some professionals will also argue that the net results of the Taguchi methodology may not always
offer enhanced design resolutions than what could achieved by using standard methods.

Basic Principles of Taguchi method:

• Costs cannot be reduced without affecting the quality.

• Quality can improve without increasing the costs.
• Costs can be reduced by improving quality.
• Costs can be reduced by reducing the variation, which in turn will improve performance
and quality.

Two sets of factors cause variation:

1. Controllable – Control factors.

2. Difficult or impossible to control – Noise factors.

Concept of robust design is to find the best combination of the controllable factors in order to
minimize the negative effects of noise factors.

Control factors are identified during design of product parameters with an intention to find the
best combination of material, processes and specifications by maximizing:

“Signal to Noise ratio (S/N Ratio)”

Where, Signal – Desired output.

Noise – Whatever gets in the way of getting the desired output

High S/N ratio means that the product design is more robust.

Every designer develops a nominal process/product that has the desired functionality as
demanded by users. Beginning with these nominal processes, he wishes to optimize the
 processes/products by varying the control factors at his disposal, such that the results are reliable
and repeatable (i.e. show less variations).

In Taguchi Method, the word "optimization" implies "determination of BEST levels of control
factors". In turn, the BEST levels of control factors are those that maximize the Signal-to-Noise
ratios. The Signal-to-Noise ratios are log functions of desired output characteristics. The
experiments, that are conducted to determine the BEST levels, are based on "Orthogonal Arrays",
are balanced with respect to all control factors and yet are minimum in number. This in turn
implies that the resources (materials and time) required for the experiments are also minimum.

Taguchi method divides all problems into 2 categories - STATIC or DYNAMIC. While the Dynamic
problems have a SIGNAL factor, the Static problems do not have any signal factor. In Static
problems, the optimization is achieved by using 3 Signal-to-Noise ratios - smaller-the-better,
LARGER-THE-BETTER and nominal-the-best. In Dynamic problems, the optimization is achieved by
using 2 Signal-to-Noise ratios - Slope and Linearity.

Taguchi Method is a process/product optimization method that is based on 8-steps of planning,

conducting and evaluating results of matrix experiments to determine the best levels of control
factors. The primary goal is to keep the variance in the output very low even in the presence of
noise inputs. Thus, the processes/products are made ROBUST against all variations.

Eight steps in Taguchi Method.

1. Identify the main function, side effects, and failure mode.

2. Identify the nose factor, testing conditions and quality characteristics
3. Identify the objective function to be optimized
4. Identify the control factors and their levels
5. Select the orthogonal array matrix experiment
6. Conduct the matrix experiment
7. Analyze the data. Predict the optimum levels and performance
8. Perform the verification experiment and plan for the future action.

Design for Manufacture

Design for manufacture (DFM) is a series of guidelines to achieve higher quality, lower cost,
improved application of automation and better maintainability. Examples of these DFM guidelines
are as follows:
• Reduce the number of parts to minimize the opportunity for a defective part or an assembly
error, to decrease the total cost of fabricating and assembling the product, and to improve
the chance to automate the process
• Foolproof the assembly design (poka-yoke) so that the assembly process is unambiguous
• Design verifiability into the product and its components to provide a natural test or inspection
of the item
• Avoid tight tolerances beyond the natural capability of the manufacturing processes and
design in the middle of a part's tolerance range
• Design "robustness" into products to compensate for uncertainty in the product's
manufacturing, testing and use
• Design for parts orientation and handling to minimize non-value-added manual effort, to
avoid ambiguity in orienting and merging parts, and to facilitate automation
• Design for ease of assembly by utilizing simple patterns of movement and minimizing
fastening steps
• Utilize common parts and materials to facilitate design activities, to minimize the amount of
inventory in the system and to standardize handling and assembly operations
• Design modular products to facilitate assembly with building block components and sub-
assemblies
• Design for ease of servicing the product

Designer has to know company's production system, i.e., its capabilities and limitations, in order
to establish company-specific design rules to further guide and optimize their product design to
the company's production system. For example, they need to understand the tolerance limitations
of certain manufacturing processes.

Evaluation of Design alternatives

DFM requires that, the designer start the process by considering various design concept
alternatives early in the process. Using some of the previous design rules as a framework, the
designer needs to creatively develop design alternatives. Then alternatives are evaluated against
DFM objectives.
Design automation tools can assist in the economic development of multiple design alternatives
as well as the evaluation of these alternatives. These design tools include computer-aided design
(CAD), computer-aided engineering (CAE), solids modeling, finite element analysis, group
technology (GT) and computer-aided process planning (CAPP). CAD/CAE aids the designer in cost
effectively developing and analyzing design alternatives. CAD/CAE and expert system tools can
 utilize manufacturing guidelines to develop producible designs. Solids modeling helps the designer
visualize the individual part; understand part relationships, orientation and clearances during
assembly; and detect errors and assembly difficulties. Finite element analysis and other design
analysis tools can be used to assess the ability of the design to meet functional requirements prior
to manufacture as well as assess a part's or product's robustness. Computer-aided process
planning can be used during the development of the product design to help the designer assess
the manufacturability of a design. Without CAPP, this level of manufacturing assessment would
not usually be performed until after the design was released for production. However, the use of
these design productivity tools must be managed because they may create a temptation for the
designer to exercise too much creativity and design a slightly improved part rather than opt for
part standardization.

In addition to these design productivity tools, there are a variety of DFM analysis tools to evaluate
designs and suggest opportunities for improvement. These can be used to analyze design
symmetry; ease of part handling, feeding and orientation; and the number of parts. They can also
analyze assembly operations, evaluate designs against design practices and analyze tolerance
requirements.

Once the designer acquires a basic DFM background, the designer must learn to work more closely
with manufacturing engineers and others who can provide him with feedback on DFM design
issues. In summary, this design approach and the supporting engineering tools should:
• Identify design alternatives and develop these alternatives economically
• Evaluate these alternatives against DFM objectives
• Establish standardized designs based on DFM principles which can be readily retrieved for new
products
• Utilize design reviews and include participation of Manufacturing in the design process to
evolve the product guidelines.

Concurrent Engineering

Concurrent engineering is an approach that brings many people together in the early phase of
product design in order to simultaneously design the product and the process. This type of
approach has been found to achieve a smooth transition from the design stage to actual
production in a shorter amount of development time with improved quality results. Concurrent
engineering allows everyone to work together so these problems do not occur. When product and
 process design are made together much of the work is done in parallel rather than in sequence.
In today’s markets, new product introductions are expected to occur faster than ever, and
concurrent engineering reduces the time for new product development.

With concurrent engineering the team is responsible for designing and getting the product to
market. Team members continue working together to resolve problems with the product and
improve the process. This approach also improves the team spirit amongst people from different
functions.

8.6 PROCESS

There are a number of ways to define a process:

• A systematic series of activities directed at converting inputs into desired outputs.

• The organization of people, equipment, energy, procedures and material into work activities
needed to provide a specific end result.
• A sequence of repeatable activities characterized as having measurable inputs, value adding
activities and measurable outputs.
• It is a set of interrelated work activities characterized by a set of specific inputs and value-
added tasks that result in a set of specific outputs.
Process Development

It is a generic term, which includes following activities:

• Product design review.

• Choice of processes.
• Process design.
• Provision of facilities.
• Provision of software (Methods, procedures, information)
• Setting standards for process performance.
• Monitoring evaluating correcting and improving
Process Design

Process Design is an activity of defining the specific means to be used by the operating people for
meeting the product goals. These specific means are:

• Physical equipment and associated software to be used.

 • Information on how to operate, control and maintain the equipment.
• Information on:
1. The inputs required.
2. Process performance standards.
3. Variables influencing the process.
4. Sequence of activities
5. Internal / external customer requirements.
The main process requires many Supporting Processes to deliver desired results in terms of
efficiency and effectiveness. These supporting processes are:

• Waste reduction.
• Selection and Training of employees.
• Communication and recording of data.
• Development of supplier capability.
• Infrastructure building and improvement.
• Problem prediction and prevention.
• Monitoring.
Features of Operating Plan of Process.

Operating plan of the process, which is normally in the form of a documented procedure has
following contents:

• Purpose of the process

• Relationship of the process with other processes within the organization.
• Input and output requirements.
• Persons responsible for the correct operation of the process and their commensurate
authorities.
• Input and Output requirements.
• Full description of Activities within the process.
• Verification and validation requirements.
• Analysis including dependability.
• Identification, assessment and mitigation of risk.
• Correction and Prevention actions.
• Opportunities and actions for improvements.
• Control of changes in the process.
Features of a well-designed Process.
 • Simplicity
• Flexibility
• Speed
• Accuracy
• Economy
• Customer Focus
Parameters for Measurement of Process Performance.

• Process Capability
• Reaction Time
• Throughput Time or Cycle Time
• Dependability
• Yield i.e. Ratio of ‘output’ to ‘input’
• Utilization of relevant technologies
• Waste reduction
• Cost allocation and cost reduction

8.7 PROCESS ANALYSIS

It is systematic examination of “Process Model” to establish a comprehensive understanding of the

existing process with a view to simplify the process, eliminate unwanted / redundant elements and
explore possibilities of combining with other processes.

Process analysis should aim at:

Reducing: - time, costs, complexity, fatigue and monotony

Improving: - safety, reliability, flexibility and quality of output

Concept of Dominance

A process normally has numerous variables, but variables associated with a particular factor may
dominate and influence the process.

Some major factors, which can dominate a process, are:

• Setup of equipment – Punching and pressing operations

• Machine – Process has inherent rate of change as time passes e.g. wear of tool
 • Operator – Skill level of operator
• Component – Quality of purchased parts
• Information – Proper understanding of customer requirements

Full-proofing

An activity aimed at bringing the output defectives from a process to ‘zero’. This can be achieved
in following ways:

Making it impossible for the machine to continue to produce the moment a defective is sensed,
by incorporating suitable hardware and software in the machine. This can be achieved through:

• Redundancy – Multiple impossible events are required to occur simultaneously before a

defect can be made to escape.
• Helping human abilities – e.g. Optical magnification.
• Eliminating error prone elements while designing.
• Autonomation – Making the machines intelligent to sense a problem before it occurs and take
appropriate decision.

8.8 PROCESS CAPABILITY

Process capability is a measure of the inherent uniformity of the process.

Every process is subject to variation due to two distinct sets of causes:
Assignable causes:- Causes which are external to the process
Random causes: - Causes which are part of the process.
When assignable causes are removed and process is influenced only by random causes, it is in
‘Statistical Equilibrium’
Steps in calculating Process Capability Index

• Ensure that the process is in a state of statistical equilibrium.

• Determine the size of sample group and sample size.
• Design a suitable tally sheet.
• Collect data under standard operating conditions without adjustments.
• From every sample, calculate average ( X ) of all readings and Range ( R ) which is the difference
between largest and smallest reading in the sample.
 • Calculate average of averages of all groups ( X ) and average of range ( R ).

R
Calculate standard deviation s) by formula s = ------------ where d2 is a constant depending on group
size d2

Group size - 4 5 6 8 10

Value of d2 2.06 2.33 2.53 2.85 3.85

• Calculate Potential Process Capability Index ( Cp )

Specification tolerance USL – LSL

Cp = -------------------------------- = ------------------
Process spread 6xs

• Calculate Process Capability Location Index ( Cpk )

USL – X X – LSL
Cpk = ---------------- or -------------- whichever is lower.
3xs 3xs

Conclusions:

If Cp is more than or equal to 1 :- Process is capable.

If Cpk is more than or equal to 1 :- Process is meeting the specification requirements.

If Cp is more than or equal to 1 but Cpk is less than 1 :- Process is capable but does not meet the
specifications due to poor centering.

Multiple uses of Process Capability

• To predict extent to which the process will be able to hold tolerances.

 • To choose the best suited process for the requirements.
• To plan interrelation of sequential processes.
• To decide on periodic process control charts.
• To assign the machines to classes of work for which these are best suited.
• To test the theories of causes of defects during quality improvement programs.

8.9 SUMMARY

A modern product is a complex product, which needs careful attention during design and
development stage in order to satisfy the needs of an aware and exacting customer. Review of
requirements must be done at every important stage of product development.

While designing the product the concept of cost effectiveness where lifecycle costs are weighted
against the overall effectiveness of the product is an important aspect. The product should also be
easily maintainable and safe to use.

The tools used during design and development are: Design reviews, fault tree analysis, FMEA,
Reliability program etc to ensure customer satisfaction.

Modern tools to ensure customer satisfaction at design stage of the product are: Quality Function
Deployment (QFD), which identifies critical customer requirements and matches these with design
parameters. This method is practiced by building a House of Quality.

TRIZ method tries to use experience of others to solve design problems while Taguchi method works
on the principle of minimizing losses through a Loss Function approach. Design for Manufacture
ensures that the designed product is easily manufacturable at least costs.
Process Design ensures that the designed product is economically produced without any defects at
least possible costs and delivered to customer at the right time and in the right quantities.
8.10 KEYWORDS

• Product – Output of any process

• Product Design – Creative process resulting in specifications, drawings, software and/or
procedures which form the basis for product features which are required to satisfy the customer
requirements.
• Availability – Probability that a product, when used under given conditions will perform
satisfactorily when called upon
• Reliability – Probability of a product performing without failure, a specific function under given
conditions for a specified period of time.
• Maintainability – Ease and speed at which a repairable product, which has failed, can be repaired,
keeping the costs of repair at minimum.
• Design Review – Team concept, which calls for involvement of other functional heads during the
design stage to ensure a trouble free and effective design
• Quality Function Deployment QFD) – Method used to identify critical customer attributes and to
create a specific link between customer attributes and design parameters
• Loss Function – Financial loss for any particular deviation in a product using the best specification
target and for the amount of variation in any process.
• Design for Manufacturing (DFM) – A series of guidelines to achieve higher quality, lower cost,
improved application of automation and better maintainability
• Process – A systematic series of activities directed at converting inputs into desired outputs.
• Process Design – Activity of defining the specific means to be used by the operating people for
meeting the product goals.
• Process Capability – measure of the inherent uniformity of the process.
UNIT 9 WASTE ELIMINATION

Objectives
After completing this unit, you will be able to:

• State meaning of waste in manufacturing;

• Identify seven wastes in manufacturing;
• Identity different paths and tools used to minimize/eliminate waste;
• State meaning and importance of work place organization (5 S );
• Define the necessity of Flexible Work Force and how to get it.

Structure
9.1 Introduction
9.2 What is “Waste”
9.3 Seven Wastes
9.4 Definition of ‘Waste’
9.5 Five ‘S’
9.6 Flexible Workforce
9.7 Equipment Maintenance
9.8 Total Productive Maintenance (TPM)
9.9 Statistical Process Control (SPC)
9.10 Poka Yoke
9.11 Reduced Set up Time
9.12 Just-In-time (JIT)
9.13 Three ‘Ms’ (Muda, Mura, Muri)
9.14 Summary
9.15 Key Words
9.1 INTRODUCTION

Basic purpose of any commercial organization is to make profits. Profit is function of total sales and
costs involved. Merely increasing the sales may not improve profits if costs go up disproportionately.
Hence controlling and reducing costs is absolutely necessary to improve profitability of the
organization. Costs can be controlled only if wasteful operations, which do not contribute to value
addition are reduced or completely eliminated.
This unit identifies such “Wastes” and discusses a methodical way of eliminating these.

9.2 WHAT IS “WASTE”

Each function of an organization is basically a ‘conversion process’ to convert inputs into outputs
which either directly or indirectly contribute to the final output i.e. satisfaction of organization’s
customer. While carrying out this conversion process, the function is engaged in performing a number
of activities which can be segregated in two basic types:

• Activities, which add value

• Activities, which do not add value

Value adding activities are those which:

• Change shape/size/form of the product as necessary steps for converting it into the final
product.

• Add/delete a feature/characteristic/property of the product to enhance customer satisfaction

• Improve quality or reduce costs leading to improvement in performance of the organization.

• Are specifically requested by the customer.

Applying the above criteria, it can be seen that at best, only 20 % of the total time is used for value
addition. This ratio of value added time to total time is known as ‘cycle efficiency. Thus:

Time taken for value addition

Cycle Efficiency = -----------------------------------------------X 100

Total time taken

Value adding activities are essential features of the function and cannot be eliminated but may have
scope for improvement in terms of time taken or the costs incurred by ‘simplifying’ the activity or
‘combining’ two or more activities into one.

Activities which do not add any value are again divided into two types:

• Activities, which do not add any value but are essential as part of a process e.g. transportation
of material, inspection etc.
• Activities, which do not add value and are also not necessary but are done as an established
practice due to some historical factors e.g. sending a document copy to a department, which
has no use for it.

The second type needs immediate elimination.

Non-value adding activities of the first type need continuous efforts to reduce their necessity till they
reach a point of elimination e.g. elimination of mass inspection by making the process foolproof.

Above points can be summed up in the diagram below.

Function (Department)

Multiple activities

Value adding Non-value adding

Essential non-essential

Solutions : Simplify/combine Continuous Eliminate

Improvements

“The key to a successful organization lies in tackling the solutions part effectively.”

Every modern organization develops its own way for tackling the solutions part but a very popular
and widely used method is the one developed by Japanese industry for identifying and eliminating
‘wasteful’ practices. Towards this, they have listed down ‘Seven Wastes’, which are commonly
 observed in any organization. They have also developed a methodology to minimize/eliminate
these.

9.3 SEVEN WASTES

Three essential and immediately visible resources in any operational area are material, men and
machines. A careful observer while visiting an operational area will many a times, find either or all of
these resources waiting i.e. not under active use at a number of places. If questioned, he is likely to
get very plausible and convincing reasons for their idleness. Some very commonly heard excuses are
(and this is not a comprehensive list):

For idle machines:

• Material not available
• Machine under setting
• Machine under maintenance
• Operator absent
• Machine not scheduled for work
• Machine waiting for clearance from Inspection authorities
For idle material:
• Excess/wrong material issued
• Material under inspection
• Material under rework waiting for the next batch
• Machine under setting/maintenance
• Material awaiting transportation
• Right operator not available
• Finished goods waiting for customer clearance
For idle operator:

• Machine under maintenance/clearance from inspection

• Automatic operation, operator has very little to do
• Operator awaiting instructions
• Waiting for material
• Suitable job not available for the operator
It must be appreciated that in spite of so many routine problems listed above, most of the time the
production targets are met. However, a little introspection can bring out two points very clearly:
• If production targets are met in spite of so much idleness of these resources, it is quite obvious
that these resources are available in excess and this excess comes at extra costs.
• With careful planning and vigilance, time wasted due to majority of the reasons for idleness
can be substantially reduced and in some cases can even get eliminated.
This is precisely what the Japanese industry realized when they came up with their famous theory of
‘Seven Wastes’.

9.4 DEFINITION OF ‘WASTE’

Anything other than the minimum amount of equipment, materials, parts, space and time which is
absolutely necessary to add value to the product – Fujio Cho of Toyota.

Seven Wastes:
Waste from “Over Production” :- Any quantity produced more than what is exactly needed
by the next operation/customer adds to waste as it results in extra- handling, space, interest
charges on investments made in material and machinery, product defects, overheads, people
and paperwork. It also adds to confusion and can obscure presence of fundamental problems.

Waste resulting from “Waiting Time”: - Any resource lying unused or waiting to be used is
obviously a waste as it is indicative of unnecessarily extra investments made in that resource.
Thus, waiting time for machine indicates extra capacity, for people it indicates extra
manpower and for material it indicates excess material.

Waste of “Transportation”: - Any transportation resulting from poor layouts, improperly

coordinated processes, poor housekeeping, improper production planning and inefficient
workplace organization has to be treated as waste.

“Processing Waste”: - Rejections, rework and yield losses contribute to this category of waste.

Waste resulting from extra “Inventories” :- This waste is considered as ‘mother of all evils’ on
the shop floor, as besides the extra running costs incurred, it obscures problems like poor
schedules, breakdowns of machines, poor quality, extra transportation, delayed vendor
 deliveries, line imbalances, longer set up times, absenteeism, poor housekeeping and poor
communication.

Waste of “Motion”: - Personnel engaged in activities which do not add any value are obviously
going through motions which do not contribute to the performance of the organization and
thus add to the waste. Many service function personnel who rather than giving service, are
engaged in controlling are examples of this type. Equipment/machinery, which are run for
purposes other than that for adding value also fall in this category e.g. testing of product on
test rigs.

Waste resulting from “Defective Products” :- Defective products are not only direct waste in
terms of material loss and loss of time, efforts and other resources spent on them but also
contribute to opportunity costs resulting from loss of capacity, which otherwise could be
gainfully utilized. Most importantly, defective products shipped out may result in loss of
customer confidence.

Well-planned and sustained efforts are necessary if the organization has to minimize/eliminate these
‘seven wastes’. Figure below gives a guideline for this planning.

WASTE ELIMINATION

TOTAL PRODUCTIVE JUST-IN-TIME TOTAL QUALITY

MAINTENANCE (TPM) (JIT) CONTROL (TQC)

CONDITION SMALL STANDARDIZE

MONITORING LOTS

PREVENTIVE REDUCED POKA-YOKE

MAINTENANCE SET-UPS

STATISTICAL
PROCESS CONTROL

FLEXIBLE
WORK-FORCE

5 – ‘S’
As can be seen, the wasteful practices adversely affect the performance of the organization and can
be minimized by concentrating the efforts on three important areas, wiz Material, Equipment and
Product Quality.

For material, it is ‘Just in Time’ approach. ‘Total Productive Maintenance’ is the most effective method
for reducing waste occurring due to equipment and ‘Total Quality Control’ is necessary for achieving
‘zero defect’ and gain customer confidence and eventually the market leadership.
All the three approaches use certain important tools, which are shown in the diagram above and will
be discussed in more details in the subsequent pages. For effectively using any of these tools, it is
necessary to first instill basic discipline in the work force and at the same time make the workforce
more flexible.
The whole exercise has to start with ‘Workplace Organization’ and the tool used for this is ‘5 – S’. This
tool is the foundation for all further efforts and unless this foundation is made strong, the ultimate
goal of ‘Waste Elimination’ cannot be reached.

Installing and perfecting the ‘5 – S’ culture creates basic discipline and perseverance in the work force
which is so very essential for the disciplined and sustained efforts needed for minimizing and
ultimately eliminating the ‘seven wastes’. A clean and well-organized workplace is a great motivating
factor for the work force and is also a visible sign of an efficient and effective organization.

The second common tool for the above-mentioned three approaches is the multi-skilled and flexible
work force, which can easily and speedily adapt to changing environment and customer needs. It can
also quickly master the new tools for the waste elimination and take an active part in the ongoing
improvement process.

All the tools needed for ‘waste elimination’ are discussed in more details in the ensuing pages. The
order of presentation of these tools is in the chronological order of its implementation. For example,
prerequisite for implementing any new tool is a disciplined work force. The first sign of work discipline
is a well-organized and clean workplace and hence, ‘5 – S’ becomes the first topic for this book, which
will be followed by ‘Flexible Work Force’.

Implementation of ‘Just in Time’ needs ‘Zero Breakdown’ and ‘Zero Defect’ and without reliable
machines, ‘Zero Defect’ may not become feasible and hence, these three approaches along with their
respective tools are sequentially discussed in following paragraphs.
• Total Productive Maintenance
• Total Quality Control
• Just in Time

9.5 FIVE ‘S’

The 5S Process, or simply "5S", is a structured program to systematically achieve total organization,
cleanliness, and standardization in the workplace. A well-organized workplace results in a safer, more
efficient, and more productive operation. It boosts the morale of the workers, promoting a sense of
pride in their work and ownership of their responsibilities.

"5S" was invented in Japan and stands for five (5) Japanese words that start with the letter 'S': Seiri,
Seiton, Seiso, Seiketsu, and Shitsuke. An equivalent set of five 'S' words in English have likewise been
adopted by many, to preserve the "5S" acronym in English usage. These are: Sort, Set (in place), Shine,
Standardize, and Sustain.

Seiri

The first step of the "5S" process, seiri, refers to the act of throwing away all unwanted, unnecessary,
and unrelated materials in the workplace. People involved in Seiri must not feel sorry about having
to throw away things. The idea is to ensure that everything left in the workplace is related to work.
Even the number of necessary items in the workplace must be kept to its absolute minimum. Because
of seiri, simplification of tasks, effective use of space, and careful purchase of items follow.

Seiton

Seiton, or orderliness, is all about efficiency. This step consists of putting everything in an assigned
place so that it can be accessed or retrieved quickly, as well as returned in that same place quickly. If
everyone has quick access to an item or materials, work flow becomes efficient, and the worker
becomes productive. The correct place, position, or holder for every tool, item, or material must be
chosen carefully in relation to how the work will be performed and who will use them. Every single
item must be allocated its own place for safekeeping, and each location must be labeled for easy
identification of what it's for.
Seiso

Seiso, the third step in "5S", says that 'everyone is a janitor.' Seiso consists of cleaning up the
workplace and giving it a 'shine'. Cleaning must be done by everyone in the organization, from
operators to managers. It would be a good idea to have every area of the workplace assigned to a
person or group of persons for cleaning. No area should be left uncleaned. Everyone should see the
'workplace' through the eyes of a visitor - always thinking if it is clean enough to make a good
impression.

Seiketsu

The fourth step of "5S", or seiketsu, more or less translates to 'standardized clean-up'. It consists of
defining the standards by which personnel must measure and maintain 'cleanliness'. Seiketsu
encompasses both personal and environmental cleanliness. Personnel must therefore practice
'seiketsu' starting with their personal tidiness. Visual management is an important ingredient of
seiketsu. Color-coding and standardized coloration of surroundings are used for easier visual
identification of anomalies in the surroundings. Personnel are trained to detect abnormalities using
their five senses and to correct such abnormalities immediately.

Shitsuke

The last step of "5S", Shitsuke, means 'Discipline.' It denotes commitment to maintain orderliness and
to practice the first 4 S as a way of life. The emphasis of shitsuke is elimination of bad habits and
constant practice of good ones. Once true shitsuke is achieved, personnel voluntarily observe
cleanliness and orderliness at all times, without having to be reminded by management.

9.6 FLEXIBLE WORKFORCE

The definition of flexible workforce is: One that allows, encourages or otherwise mandates employees
to know and work a variety of different jobs and duties.

The implication of worker cross-training is that skilled labor becomes a flexible resource that can be
assigned dynamically to a number of machines, work centers, or manufacturing cells. This is typically
implemented either through a team concept where employees cycle through a set number of jobs, or
employees are assigned duties based upon varying daily workforce needs.

For the organization to have a ‘flexible workforce’, maximum number of employees need to be ‘multi-
skilled’. A multi-skilled employee is the one who possesses or acquires a range of skills/knowledge and
can apply these voluntarily to work tasks that may fall outside the traditional boundaries of his regular
work. The person may not possess high level of skill/knowledge in every task but can be an effective
and productive contributor in multiple areas.

This multi-skilling needs to be practiced at every level of the organization. At lower level a multi-skilled
worker may be able to handle different types of machines with reasonable skill and efficiency, perform
allied tasks like inspection, machine maintenance etc. during his idle time or operate multiple
machines for optimum utilization of his available time. At supervisory and managerial levels, people
should possess adequate knowledge about the allied areas of operations so that they can understand
and can contribute positively in solving problems of others and also fill in the gaps caused by variety
of reasons like absenteeism, separation or sudden increase in work load in some operational area.

Advantages of a ‘Flexible Workforce’ can be summarized as:

1. Brings down the total processing time by reducing the waiting time, which in turn results in
a) Better utilization of equipment and men.
b) Timely deliveries as time required for processing can be predicted with a much better
accuracy.
c) Better customer satisfaction.
d) Reduction in processing costs.
2. Removes monotony of work by allowing people to practice variety of skills.
3. Enhances employee self-esteem as his capabilities cover a wider sphere of operations.
4. Leads to job enrichment and eventually to job satisfaction.
5. Improves communication as everyone has working knowledge of allied areas of operations.
6. Employees from different areas of operations can come together to solve each other’s problems,
which leads to effective teamwork.
7. Increased knowledge and skills coupled with better job satisfaction can bring out innovative spirit
of employees in solving chronic problems and suggesting better methods.
8. Employment security increases as employee can be used in different area if his traditional work
becomes redundant.
9. Management functions like planning, organizing, delegating and motivating become easier and
senior managers can spare more time for improvements.
10. Administrative costs are reduced.
11. Organization becomes more resilient and can manage ‘change’ effectively.
12. Efficiency and effectiveness of the organization improves making it more competitive.
9.7 EQUIPMENT MAINTENANCE

One major source of ‘waste’ in any organization is ‘waiting time’. When material, men or machine wait
without getting productively utilized, it is naturally a waste. Non-availability or problem in any one of
these vital resources invariably causes waiting time in other two also. Flexible workforce brings in
considerable reduction in waiting time of employees as they can now be deployed on alternate tasks
if there is a problem for material or machine. However, unless solutions for ‘waiting time waste’ for
material and machines are found, eliminating or minimizing total ‘waiting time waste’ will not be
possible. In this chapter we will discuss a widely practiced concept of maintaining plant and equipment
through a maintenance program known as “Total Productive Maintenance (TPM)”

But before we move on to TPM, let us discuss some fundamentals about Maintenance Management.

Problems faced in Maintenance Management

• Failures are unpredictable

• Problems and their solutions cannot be standardized

• Equipment is normally of heterogeneous nature i.e. There are many different types and

• makes of the machines

• Maintaining an inventory of the spares is a complex job

Goals of Maintenance Management

• To improve Availability (The concept is discussed in some details below)

• Extend useful life of the machine

• Maintain process capability of the machines

• Ensure safety and health of the operating personnel

• Ensure proper environment protection

Phases of maintenance

Phase I: - Forced Deterioration

Basics like cleaning, oiling and tightening are not taken care of, which results in rapid deterioration of
the machine condition. In this phase, unscheduled maintenance due to sudden breakdown is frequent
and time taken for repairs is also high. Operators and supervisors are responsible only for the numbers
produced and hence neglect the machine upkeep. Responsibility of machine lies with the maintenance
staff. They have no stake in numbers and take their own sweet time for repairs. Bad condition of
machines and pressure for numbers are also responsible for deterioration of quality of the products
produced. Organizations, which are in this phase of maintenance, should try to advance to the next
phase before making any attempt to implement TPM.

Phase II: - Normal Deterioration

In this phase, basics are taken care of mostly through the maintenance staff. They now have the
responsibility of scheduling and executing a program of ‘Preventive Maintenance’ as per laid down
system. A good preventive maintenance schedule should include:

• A schedule for visual inspection of machine to find out any abnormalities, loosening of moving
parts, premature ware, extra vibrations, condition of parts critical for performance of machine
and quality of the product, abnormal noise etc
• A schedule for lubrication of moving parts.
• Change/ topping up oil in oil chambers.
• Tightening/replacement of parts like drive belts, air filters, oil filters etc.
• Generating data by keeping records. Analyzing the data for further corrective/ preventive
actions.
• Management of spares.
• Checking and confirming that the machines are running at recommended speeds and feeds.
Taking care of basics through a good preventive maintenance program, brings down the breakdown
rate as also the time taken for repairs. This brings availability of the machine close to its rated capacity.
Efforts are now necessary to slowly involve the production operators in the routine preventive
maintenance activities like daily cleaning and oiling of machines, tightening of loosening parts etc. This
can prepare grounds for the next phase of maintenance.

Phase III: - Restoration (Time based maintenance).

In this phase there is a continuous effort to restore machines to their designed operating performance
and accuracy. Operators are involved in promptly identifying abnormal conditions to allow timely
corrective actions to be taken to prevent deterioration in machine condition. For this, the operators
are trained to use their five sensory organs. Operators are also trained and encouraged to correct the
abnormal condition on their own, as soon as they find it. Continuous inputs are given to improve skills,
knowledge and motivation levels of operators as well as maintenance staff so that mistakes that can
cause machine and quality problems can be avoided. Improvement ideas for mistake proofing are
generated and implemented. Machine modifications are done to compensate for any weaknesses in
the basic design of the machine.

Phase IV: - Condition Based Maintenance

In this phase, machine condition is monitored continuously so that any potential problem is identified
and corrected promptly. For monitoring the machine condition, operators’ five senses are continued
to be used, but they are now supported by specially designed diagnostic tools. Many modern machines
have these gadgets incorporated in machine design. These tools can include shock pulse meter,
vibration measuring device, ampere meter, ultrasonic meter, pressure gauges etc. Prerequisite for
using such instruments are:

1. Machines need to be operated on recommended parameters.

2. Functions of such equipment must be properly understood and interpreted by the operators.

As the organization advances from Phase I to Phase IV, Overall Equipment Efficiency goes up.

Overall Equipment Efficiency (OEE)

OEE takes into account three factors.

1. Availability (A) :- ‘Proportion of time the machine is actually available for operation out of the
time it should be available’.

MTBF - MTTR
A = -----------------------
MTBF

Where
Total running time
MTBF = Mean Time Between Failures = ---------------------------------------------
Number of failures during this time

MTTR = Mean Time To Repairs = Average time taken for repairs.

Performance Efficiency (PE):- ‘It is the ratio of designed cycle time to the actual cycle time’. In
actual practice, the cycle time per component may be more than the theoretical cycle time due
to various factors like material, tools, operator skills, deterioration in machine condition etc.
 Thus:

Tth
PE = ----------- Where: Tact = Actual cycle time
Tact Tth = Theoretical cycle time

3. Quality Rate (Q):- ‘It is the ratio of number of good parts produced to the total number of parts
produced during the period under consideration’. This is sometimes referred to as yield.

Overall Equipment Efficiency (OEE) is then given as:

OEE = A x PE x Q x 100

To improve the OEE, TPM aims at eliminating ‘7 losses’

Seven Losses

Following seven factors are identified as those responsible for causing losses and bringing down the
equipment efficiency.

• Breakdowns.
• Changeovers and adjustments.
• Changing of dies / fixtures / tools.
• Startup of equipment (e.g. initial heating time required for furnaces)
• Minor stoppages due to variety of reasons.
• Lower speeds / feeds used due to factors like lack of skills of operators, bad machine condition,
inferior material, low quality tools etc.
• Defects and repairs

9.8 TOTAL PRODUCTIVE MAINTENANCE (TPM)

‘Total Productive Maintenance’ refers to a management system for optimizing the productivity of
manufacturing equipment through systematic equipment maintenance involving employees at all
levels. Under TPM, everyone is involved in keeping the equipment in good working order to minimize
production losses from equipment repairs, assists, set-ups, and the like.

Under TPM, operators no longer limit themselves to simply using the machine and calling the
technician when a breakdown occurs. Operators can inspect, clean, lubricate, adjust, and even
perform simple calibrations on their respective equipment. This frees the technical workforce for
higher-level preventive maintenance activities that require more of their technical expertise.
Management should also show interest in data concerning equipment uptime, utilization, and
efficiency. In short, everyone understands that zero breakdowns, maximum productivity, and zero
defects are goals to be shared by everyone under TPM.

History of TPM
Historically, maintenance is considered as a non-value adding activity. TPM tries to change this
perspective and brings maintenance into focus as a necessary and vitally important part of the
business. Philosophy of TPM is to utilize the services of production operators for maintenance by
scheduling maintenance as an integral part of manufacturing process and bringing unscheduled
maintenance to zero.

Credit for starting TPM goes to a Japanese company named Nippondenso, which is a Toyota group
company manufacturing automotive electrical parts. The company introduced plant wide preventive
maintenance in 1960. Introduction of automation left operators with some spare time. In order to
utilize this spare time, the routine maintenance was handed over to operators. Quality circle activity,
which was introduced at around the same time, played a major role in making operators voluntarily
agree to this additional responsibility. Maintenance staff, which was relieved off some of their routine
work, took over the task of equipment modifications and improvements in reliability. The whole
concept was called ‘autonomous maintenance’. Nippondenso was awarded the distinguished prize for
developing and implementing TPM by Japanese Institute of Plant Engineers and thus became the first
company to obtain TPM certification.
Seiichi Nakajima, an officer with Institute of Plant Maintenance in Japan is credited with defining the
concept of TPM and helping hundreds of plants in Japan in implementing it.

TPM cannot be implemented overnight. Normally it takes an organization at least two years to set an
effective TPM system in place. TPM activities are carried out in small teams with specific tasks. Every
level in the over-all organization must be represented by a team or more.

Foundation for TPM

Total Productive Maintenance is built on the foundation of ‘5 – S’ As already seen, any new technique
for its success needs basic work discipline and perseverance in the workforce. These qualities are
immediately visible in the way place of work is organized and maintained. An immaculately clean and
well-organized workplace is indicative of a competent, disciplined and highly motivated workforce,
which is the basic requirement for implementing TPM program. ‘5 – S’ is a potent tool for creating
such a workforce and hence serves as the foundation for TPM.

Seven Pillars of TPM

Once the foundation is laid through successful implementation of ‘5 – S’, the structure of TPM will
stand on following pillars:

Pillar No. 1 – Training:

In TPM, the operator besides his regular trade work, has to handle other tasks related to upkeep,
maintenance and improvement of his equipment. In other words, every operator has to become multi-
skilled. Aspects of multi-skilling and resulting flexible workforce are discussed in greater details in a
previous chapter. Following points need special attention while planning for training of workforce for
TPM.
Creating awareness about
• What is TPM?
• Why TPM?
• What role the operator has to play?
• What are the benefits to the organization and also to the individual?

Checking present status of skills and knowledge of workforce.

Planning of training activity to cover following aspects.
Common training to all to cover awareness points and various tools that can be used like kaizen,
benchmarking, quality circles, problem solving, fool-proofing etc.
Job related training to improve job related skills and knowledge of the respective trade groups.
Identifying shortcomings of individuals and impart specific training to cover up the gaps.
Drawing up of a training calendar.

Implementing the plan.

Evaluation of the training through a properly designed feed-back system and planning for

improvements.
Pillar No.2 – Planned Maintenance.
It is an activity aimed at progressively reducing the problems on machines to reduce breakdowns and
producing defect free products. Planned maintenance is divided into four categories.

Breakdown Maintenance: Each breakdown is treated as an opportunity for improvement in machine

condition. The root cause of the problem is traced and corrective actions are taken to ensure that
similar problem will not arise in future. A simple technique first introduced by Taichii Ohno in Toyota
company which is known as ‘why-why’ technique can help in tracing the root cause. A simple example
given by him can illustrate the technique.

Problem:- Malfunction of digital controller

Why ------ Defective card.

l
Why--------Lack of cooling
l
Why --------Lack of air
l
Why--------Lack of pressure
1
Why -------- Dust in air filter.

Solution: - Clean the filter and include periodic cleaning in the preventive maintenance schedule.

Preventive Maintenance
As the name suggests, this activity is basically aimed at preventing breakdowns from occurring by
paying timely attention to the machines. Preventive maintenance normally covers following points:
Inspecting machines at fixed intervals to:
• Find out any abnormalities.
• Ensure proper condition of parts which are critical for functioning of the machine and
quality of the product.
• Confirm suitability of various schedules like cleaning, lubricating, tightening, change
of filters/oil etc.
• Check the condition of ware parts and decide the time for their change.
 • Confirm that machines are running at recommended speeds and feeds.

Preparation of schedules for:

• Cleaning, lubrication, tightening.
• Change of ware parts.
• Adjustments leveling and alignments.
• Overhauls.
Implementing the planned schedule by distributing the work and allocating
responsibilities.
Generating data by keeping maintenance related records, analyzing the data for further
corrective and preventive actions.

Corrective Maintenance
This activity aims at taking actions on deficiencies and problems noticed during preventive
maintenance and to restore the machine back to its designed performance standards. Corrective
maintenance can include following activities.
* Servicing and overhauling.
* Rebuilding or reconditioning.
* Modifications and improvements.
* Correcting the basic design deficiencies of the machine.

Maintenance Prevention
After the corrective maintenance, comes the step of ‘Condition based Maintenance’. This activity is
based on certain health indicators of the machine. Like a human body, the machine can be made
‘intelligent’ to respond to unhealthy abnormalities. This can be made possible through the use of
advanced technology. Warning systems can be used to raise suitable alarm, the moment any
abnormality arises. Machine can then be attended to clear the abnormality before further damage
occurs. Using operator’s five senses is another effective way for pre-empting the potential problems.

Pillar No.3 – Quality Maintenance

This activity is aimed at identifying the parts of the machine, which are critical for the product
quality. A systematic plan is made to improve performance of these parts and eliminate the
possibility of product non-conformance. To start with, the current quality concerns are identified
 and action is taken on these. The next step is to identify potential quality concerns and take
appropriate action. Quality of the product is ensured through:
• Improving process parameters
• Reducing process variation due to random causes related to machine, by improving machine
condition
• Fool-proofing the process by installing alarm systems, which can promptly respond to quality
deficiencies

Pillar No 4 – Continuous Improvements (Kobetsu Kaizen).

Continuous improvements in the working environment are achieved through a famous tool called
“Kaizen”, which originated in Japan. The tool is based on the principle that ‘Very large number of
small improvements where everyone in the organization is involved are more effective, than few
large improvements involving very few people’. Kaizen can be applied in all the areas of
organization’s working. Systematically implemented, Kaizen can also be used for transition from
breakdown maintenance to TPM. When Kaizen has a focused approach i.e. operated in a focused
area such as equipment maintenance, it is termed as “Kobetsu Kaizen”. Kaizen is discussed in more
details in chapter no. -----.

Pillar No. 5 – Autonomous Maintenance (Jishu Hozen)

This is the most important pillar of TPM program as it involves the production operators in
maintenance work, which is the core concept of TPM. The operators take on the responsibility for
upkeep of their equipment to prevent it from deteriorating. In Japan where this concept
originated, it is known as “Jishu Hozen”. Following actions are recommended for implementation
of Jishu Hozen.

• Training of employees: - Training has to be two pronged

- Helping to change the attitude of the operators to accept the responsibility of their own
equipment. It is necessary to explain to the operators the concept and to convince them
on the mutual benefits, both to the organization and to the individuals.
- Expanding the skills and knowledge of the operators to cover the aspects of machine upkeep,
minor routine repairs and monitoring condition of the machine to assess potential
troubles.
• Initial clean-up of machines: This is the starting point of implementation of Jishu Hozen and
covers following actions:
• Removal of all dust/oil/grease/dirt stains from machine surfaces and also machine
surroundings.
• Stoppage of coolant/water/oil leakages.
• Removal/proper fixing of all loose wires, nuts, bolts fasteners etc.
• Disposal of all unwanted/obsolete/damaged material from workplace.
• Categorizing all the identified problems of the machine into two areas. Those which can be
solved by the operators and those where expert help of maintenance staff will, be required.

Corrective actions: - These are the actions, which are needed for ease of maintenance and cover
following points:
- Inaccessible areas to be made easy to access
- Covers, safety cages, lids, panel doors etc to be made easy to open and close.
- As far as possible, maintenance to be made possible without taking away any part of the
machine.

Fixing the schedules: - Detailed schedules are to be made for basics like cleaning, oiling, oil
topping, oil changes, replacement of parts like drive belts, air/oil filters and tightening of fasteners.
The schedule should clearly specify the time, the action and the method. Counterchecks are to be
installed to ensure that the schedules are strictly adhered to.

Visual inspection: - Operators are to be trained on aspects of pneumatics, electrical, hydraulics,

lubrication, drive mechanisms, fasteners, machine levels etc. A schedule is to be made on
daily/weekly/monthly checks on these aspects and records are to be maintained.

Autonomous inspection: - Operator now makes his own schedule for inspection. Based on his
experience, he is authorized to delete some of the points from the authorized schedule and also
add some points, which he feels are important. Depending on condition of the machine, the
frequency of inspection is decided by the operator.

Workplace organization: - Machine surroundings are organized properly. ‘A place for everything
and everything in its place’ is the motto. ‘5 – S’ principles are made use of. Workplace is made
more congenial by making suitable lighting arrangement, providing proper ventilation and using
 principles of ergonomics to reduce fatigue. Work instructions are displayed and adhered to
strictly. Frequently required spares and ware parts are planned and kept handy.

Pillar No. 6 – Office TPM.

In a very small organization, productive operations and its support functions like purchase,
administration, HR etc. are carried out by a small team and each person in the team is capable of
handling multiple functions as per the needs of the organization. As the organizations grow in size,
it is necessary to create these support functions as distinct identities and managed by the experts
in the respective areas. Many a times, these support functions lose their focus and become
‘control’ functions, adversely affecting the smooth flow of resources needed by the main
productive operations and also adding unnecessary costs to the operations. Office TPM is aimed
at bringing back this focus by making the support functions realize their main role of assisting the
productive function by incurring least costs. This is done by identifying and eliminating following
likely losses in their operations.
• Processing losses.
• Losses due to extra costs.
• Losses in wrong / delayed / under / over communications.
• Losses in setup changes.
• Losses due to inaccuracies.
• Losses due to breakdowns of equipment.
• Losses due to time spent in retrieving information.
• Losses due to non-availability of correct information / status.
• Losses incurred in emergency dispatches.
• Losses due to customer complaints.

Steps to be taken for minimizing/eliminating these losses

• Provide awareness to all support functions.
• Help in identifying in each support function following factors: P – Lower ‘Productivity’, Q –
Poor Quality, C – Extra ‘Costs’ D – ‘Delivery’ delays, S – Lack of ‘Safety’ and M – Level of
‘Morale’ of employees.
• Identify scope of improvement in each function.
• Collect relevant data.
• Help to solve the problems.
 • Design and maintain the activity board based on the laid down plan.
• Fan out to cover every function and individual.

Pillar No. 7 – Health, Safety and Environment protection

A safe, clean and refreshing work place is a major motivating factor for the employees. Points
which need attention in this regard are:
• A plant layout, which provides adequate space for movement and storage of material and
enough freedom of movement for the operators.
• Scientifically designed lighting and ventilation.
• Safe and efficient material handling systems.
• Proper protection for moving parts of the machine.
• Adequate space for maintenance of machines.
• Ergonomically designed work methods to reduce fatigue of workers.
• Proper storage and handling of hazardous material.
• Use of easily noticeable and readable signage to indicate directions, storage spaces, hazardous
areas, work areas etc.
• Prompt disposal of unwanted material.
• Adequate provision of firefighting equipment.
• Strict adherence to statutory requirements of safety and environment protection.
• Training to all employees on matters pertaining to safety and environment protection.
• Participation of every employee in keeping his work area spic and span.

Building Equipment Ownership

Core concept in TPM is to build a sense of ownership in every operator’s mind about the equipment
he uses in his daily work. When the operator feels that the equipment belongs to him, he will naturally
shoulder the responsibility for its upkeep. It is not so easy to bring this sense of ownership in the mind
of an operator as all said and done, he has no ‘legal ownership ‘ of the equipment and he very well
knows it. The only way left then is to somehow get his emotional attachment for the equipment. This
emotional attachment can come under following conditions:
• His continuous association with the equipment. If he has to work on different equipments for
short periods on each of them, this condition will not get fulfilled.
• He is allowed to make minor aesthetic modifications on the machine and its surroundings to
suit his taste and comforts.
 • His involvement and suggestions are sought by his superiors for any major
changes/modifications that are to be made on the equipment or in working methods.
• His suggestions are given patient hearing and if accepted are implemented promptly. In case
his suggestion is not accepted, the reasons for its rejection are convincingly explained to him.
• He is made aware of the total work content and importance of his contribution to it.
• He is explained the cost implications in improper upkeep of his equipment.
• He is made aware that the equipment he uses is the one, which earns him his ‘bread and
butter’ and it is his moral responsibility to take proper care of the equipment.
• Proper time and resources needed for upkeep of the equipment are made available.
• Emphasis of management is more on ‘how’ the work is done rather than merely on ‘how
much’ is done.
• Timely appreciation is given for the good work done.

9.9 STATISTICAL PROCESS CONTROL (SPC)

Statistical Process Control (SPC) is a system for monitoring, controlling, and improving a process
through statistical analysis. It has many aspects, from control charting to process capability studies
and improvement. Nonetheless, the over-all SPC system of a company may be broken down into four
basic steps:

• Measuring the process

• Eliminating variances within the process to make it consistent
• Monitoring the process
• improving the process

This four-step cycle may be employed over and over again for continuous improvement.

Bulk of SPC concepts in use today were developed based on the premise that the process parameter
being controlled follows a normal distribution. Any SPC practitioner must be aware that the
parameter must first be confirmed to be normal before being subjected to analysis concepts based
on normal behavior. Thus, any discussion on SPC must be preceded by a discussion of what a normal
distribution is.
The Normal Distribution

The normal distribution (see Fig. 1), normal curve, or bell-shaped curve, is probably the most
recognized and most widely-used statistical distribution. The reason for this is that many physical,
biological, and social parameters obey the normal distribution. Such parameters are then said to
behave 'normally' or, more simply, are said to be 'normal.' The semiconductor industry has many
processes that output data or results that comprise a normal distribution. As such, it is important for
every process engineer to have a firm grasp of what a normal distribution is.

Aside from the fact that the normal distribution is frequently encountered in our day-to-day lives,
the mathematics governing normal behavior are fairly simple. In fact, only two parameters are
needed to describe a normal distribution, namely, the mean or its center, and the standard deviation
(also known as sigma) or its variability. Knowing both parameters is equivalent to knowing how the
distribution looks like.

The normal distribution is bell-shaped, i.e., it peaks at the center and tapers off outwardly while
remaining symmetrical with respect to the center. To illustrate this in more tangible terms, imagine
taking down the height of every student in a randomly selected Grade 5 class and plotting the
measurements on a chart whose x-axis corresponds to the height of the student and whose y-axis
corresponds to the number of students.

What is expected to emerge from this exercise is a normal curve, wherein a big slice of the student
population will have a height that is somewhere in the middle of the distribution, say 57-59 inches
tall. The number of students belonging to other height groups will be less than the number of students
in the 57"-59" category.

In fact, the number of students decreases at a calculable rate as the height group moves further away
from the center. Eventually you might find only one shortest student at, say, 48", and one tallest
student who probably stands at 66". Lastly, plotting the number of the students falling under different
height ranges of equal intervals will result in a bell-shaped curve. Such a plot is called a histogram,

What's notable about normal distributions is that regardless of their standard deviation value, the %
of data falling under a given number of standard deviations is constant. For example, say that the
standard deviation of process 1 is 100, and the standard deviation of process 2 is 200. Process 1 and
Process 2 will have different data distribution shapes (Process 1 being more stable), but for both
processes, 66% of the data under the normal curve will fall within +/- one (1) standard deviation from
the mean of the distribution (i.e., between {mean - 1 sigma} and {mean + 1 sigma}), and 37% of the
data will be outside it. Table 1 shows the percentages of data falling under different numbers of sigma.

Sigma Level DPMO Defect-free population%

1 690,000 31
2 308,000 69.2
3 66,800 93.32
4 6,210 99.379
5 320 99.977
6 3.4 99.9997

Skewed Distributions

Perfectly normal curves are hard to come by with finite samples or data. Thus, some data
distributions that are theoretically normal may not appear to be one once the data are plotted,
i.e., the mean may not be at the center of the distribution or there may be slight non-symmetry.
If a normal distribution appears to be 'heavy' or leaning towards the right side of the distribution,
it is said to be skewed to the left. A normal distribution that's leaning to the left is said to be
skewed to the right.

Many response parameters encountered in the semiconductor industry behave normally, which
is why statistical process control has found its way extensively into this industry. The objective of
SPC is to produce data distributions that are stable, predictable, and well within the specified limits
for the parameter being controlled.

In relation to the preceding discussions, this is equivalent to achieving data distributions that are
centered between the specified limits, and as narrow as possible. Good centering between limits
and negligible variation translates to parameters that are always within specifications, which is
the true essence of process control.

Control Charting

It is often said that you cannot control something that you do not measure. Thus, every engineer
setting up a new process must have a clear idea of how the performance of this new process is to
be measured. Since every process needs to satisfy customer requirements, process output
parameters for measurement and monitoring are generally based on customer
specifications. Industry-accepted specifications are also followed in selecting process parameters
for monitoring.

Control charting is a widely-used tool for process monitoring in industry. It employs control
charts, which are simply plots of the process output data over time. Before a control chart may
be used, the process engineer must first ensure that the process to be monitored is normal and
stable.

A process may have several control charts - one for each of its major output parameters. A new
control chart must have at least the following: the properly labeled x- and y-axes, lines showing
the lower and upper specification limits for the parameter being monitored, and a line showing
the center or target of these specifications. Once a control chart has been set up, the operator
must diligently plot the output data at predefined intervals.

After 30 data points have been collected on the chart (may be less if measurement intervals are
long), the upper and lower control limits of the process may already be computed. Control limits
define the boundaries of the normal behavior of the process. Their values depend only on the
output data generated by the process in the immediate past. Control limits are therefore
independent of specification limits. However, both sets of limits are used in the practice of SPC,
although in different ways.

The lower control limit LCL and the upper control limit UCL of a process may be calculated from
the mean and standard deviation (or sigma) of the plotted data as follows:

LCL = Mean - (3 x Sigma);

UCL = Mean + (3 x Sigma).

Thus, the span from the LCL of a process to its UCL is 6 sigma. The probability of getting points
outside this +/- 3 sigma range is already very low. Getting a measurement outside this range
should therefore warn an engineer that something abnormal is happening, i.e., the process may
be going out of control. This is the reason why these boundaries are known as 'control limits.'

Once the control limits have been included on the control charts (also in the form of horizontal
lines like the specification limits), the operator can start using the chart visually to detect
anomalous trends in the process that she would need to notify the engineer about.
 Example of a control chart showing data that are slightly off-centered, but nonetheless in
control and within specs

For instance, any measurement outside the control limits is an automatic cause for alarm, because
the probability of getting such a measurement is low. Four (4) or more consecutively increasing
or decreasing points form a trend that is not normal, and therefore deserves attention. Six (6)
consecutive points on one side of the mean also deserve investigation. When such abnormalities
are observed, the process owner must take an action to bring the process back to its normal
behavior.

Control limits must be recomputed regularly (say, every quarter), to ensure that the control limits
being used by the operator are reflective of the current process behavior.

9.10 POKA YOKE

It is a Japanese word, which means ‘Mistake proofing’. Initially it was known as Baka-Yoke, which
meant ‘Fool-proofing’. A worker in Arakawa Company refused to use Baka-Yoke mechanisms in her
work area because she felt insulted by the word ‘Fool’. Hence the term was changed from Baka (Fool)
to Poka (Mistake)

Shegio Shingo, an industrial engineer with Toyota Motor Company first used this concept of ‘Mistake
Proofing’ as a principal tool for his ‘Zero Quality Control’ (ZQC) approach. Poka-Yoke devices either
prevent a defect from occurring (Shut out type) or where it is not possible to entirely prevent the
occurrence, make the mistake obvious at a glance so that corrective action can be initiated
immediately (Attention Type).
Shingo classified the inspection activity into three categories:
Judgment inspection: - Sorting out defectives from lot already produced.
 Information inspection: - Data gained from inspection to control the process and prevent defects
e.g. control charts
Source inspection: - Checking the operating conditions before the operation starts.

The third type is achieved through Poka-yoke devices, which either ensures that proper conditions
exist prior to actual production or prevent production from occurring until the necessary conditions
are satisfied.

Poka-Yoke devices eliminate human as well as process-oriented errors. Normally, operating personnel
who know the operations best, are encouraged to design and install these devices at their own
initiative. These devices can be simple, easy to operate and cheap. Toyota has an average of 12 Poka-
Yoke devices at every workstation, each one costing less than $ 150.
Following is the step by step approach for applying Poka-Yoke:

Identify the operation /process to be tackled first, using Pareto technique.

Assess all the ways in which process can fail and analyze causes for each of them using ‘5 why’
technique. Failure can be due to:
• Process error – Standard operating procedure not followed.
• Setup error – Wrong/defective tooling or wrong machine adjustments.
• Missing/improper pats.
• Operating errors.
• Measurement errors

Determine the right Poka-Yoke approach i.e. whether to use ‘Shut-out’ type or ‘Attention’
type. Also see all the possibilities such as electrical, mechanical, procedural, human, visual etc.
which can prevent incorrect execution of process step.

Determine which of the following method is appropriate for Poka-Yoke device:

a) Contact – Use of shape, size, form or other physical attributes for detection.
b) Constant number – Error triggered off if a certain number of actions are not
completed.
c) Sequence – Error triggered if process steps are not performed as per predetermined
sequence.
ii) Design and install an appropriate Poka-Yoke device.
 iii) Carry out trials of the installed Poka-Yoke device.
iv) Train the operator
v) Review performance.
Poka-Yoke practice needs a strong support from TQM philosophy. Organizations must have total
customer focus and ensure proper investment in its people, who form the backbone for Poka-Yoke
implementation. The way for satisfying external customer is always through the satisfaction of internal
customers.

9.11 REDUCED SET UP TIME

Single Minute Exchange of Dies (SMED)

In any manufacturing unit, when common facilities are used for processing different products, it is
obvious that the setup on such machines will have to be changed for the next product/operation as
soon as the planned batch quantity of the running product is finished. This setup change may involve
changing the fixtures/tools/speeds/feeds, adjusting the machine movements, processing the first
part, checking it, readjusting the machine based on the feedback etc. During this change over time,
the machine cannot do any productive work. Percentage of this non-productive time to the total
available time will depend upon the batch size. This can be illustrated by following example.

Let us suppose that setup time on a machine for changing over from product ‘A’ to product ‘B’ is 400
minutes and the processing time per unit for product ‘B’ is 1 minute, then the table below gives the
percentage of productive time to the total time consumed for different batch sizes:

Sr. No. Batch size Productive time Total time % of productive time
(mts.) (mts.) to total batch time.

1 100 100 400 + 100 = 500 20 %

2 1000 1000 400 + 1000 = 1400 71 %

3 10,000 10,000 400 + 10,000 = 10,400 96 %

Obviously, the utilization of machine for productive work will increase as the batch quantity increases.
This however creates a serious problem of increased inventory and the costs associated with it. A
solution for keeping the total costs (Costs of Carrying inventory + setup costs) down was to calculate
the Economic Batch Quantity (EBQ) by a formula which equated inventory carrying costs to the setup
costs. This however was not an ideal solution as productive use of the machine was still low and evils
of high inventory still persisted.

Shigeo Shingo of Toyota had another idea. He questioned the basic premise of spending any time for
setup change. He felt and ultimately proved that setup time on any machine can be brought down to
a matter of a few minutes, through well-directed and concerted efforts. The technique developed by
him for rapid, efficient and accurate setup change came to be known as Single Minute Exchange of
Dies (SMED), which stipulates a change over time of less than 10 minutes for any setup change. Here
the term Single Minute refers to ‘Minutes in Single Digit’.

Shingo recommended following step by step approach to achieve SMED targets:

• Constitute a team, which has representation from all the concerned departments for setup
reductions.
• Train the team members on the subsequent steps.
• Study the present method of setup change for following aspects:
Waste: - Operations which do not add any value to the setup change.
Internal setup: - Operations which can be performed only by stopping the machine e.g. removing
tools/components/fixtures from the machine, cleaning the mounting surfaces, fixing new tools,
adjustments of the machine etc.
External setup: - Operations that can be performed while the machine is running e.g. getting
drawings/instructions for the next job, getting tools/fixtures/components for the next setup,
arranging for manpower etc.

• Eliminate the first category i.e. ‘waste’.

-Convert maximum possible internal setup operations to external setup.
- Reduce time taken for internal setup operations. Some tips are:
• Well organized sachet for all the tools required for the setup change.
• Quick release clamps/fasteners in place of nuts and bolts.
• Stoppers for positioning fixtures quickly.
• Rolling bolsters in place of cranes.
 • Overhead weight balancers for handling heavy objects.
• Accurately positioned pins/dowels/holes for eliminating adjustments.
• Quick changing/snap fitting for hydraulic/air pipe connections.
• Standardization.
Improve external setup. Some tips are:
• Use visual controls.
• Use checklists to prevent omissions.
• Organize the workplace by practicing ‘five S’
Develop Standard Operating Procedure (SOP).
Monitor and evaluate performance of setup reduction program.
Repeat the procedure for the next reduction process and continue till the SMRD targets are reached.
Aids for setup reduction
• Developing full understanding, communication and coordination between members of the
setup reduction team.
• Careful planning before each setup change.
• Development of parallel operations using ‘PERT’.
• Video shooting the set-up change operation so that it can be carefully studied through a series
of playbacks to pinpoint areas of improvement.
• Setup demonstrations for senior supervisors/officers from other areas to invite their
suggestions for improvements.
• Standardization of parts, components, tools, fixtures, raw material to reduce variety.
• Displaying setup improvement charts to keep everybody informed about the progress.
• Design modifications of parts to increase commonality of parts.
SMED technique has got further evolved into One Touch Exchange of Die (OTED), which
stipulates that the setup change time should be less than 100 seconds.

9.12 JUST-IN-TIME (JIT)

JIT, is a management philosophy aimed at eliminating manufacturing wastes by producing only the
right amount and combination of parts at the right place at the right time. This is based on the fact
that wastes result from any activity that adds cost without adding value to the product, such as
transferring of inventories from one place to another or even the mere act of storing them.
The goal of JIT, therefore, is to minimize the presence of non-value-adding operations and non-moving
inventories in the production line. This will result in shorter throughput times, better on-time delivery
performance, higher equipment utilization, lesser space requirement, lower defects per million
(dpm),, lower costs, and greater profits.

JIT finds its origin in Japan, where it has been in practice since the early 1970’s. It was developed and
perfected by Taiichi Ohno of Toyota, who is now referred to as the father of JIT. Taiichi Ohno
developed this philosophy as a means of meeting customer demands with minimum delays. Thus, in
the olden days, JIT was used not to reduce manufacturing wastage, but primarily to produce goods so
that customer orders are met exactly when they need the products.

JIT is also known as stockless production, since the key behind a successful implementation of JIT is
the reduction of inventory levels at the various stations of the production line to the absolute
minimum. This necessitates good coordination between stations such that every station produces,
only the exact volume that the next station needs. On the other hand, a station pulls in only the exact
volume that it needs from the preceding station.

The JIT system consists of defining the production flow and setting up the production floor such that
the flow of materials as they get manufactured through the line is smooth and unimpeded, thereby
reducing material waiting time. This requires that the capacities of the various workstations that the
materials pass through are very evenly matched and balanced, such that bottle necks in the
production line are eliminated. This set-up ensures that the materials will undergo manufacturing
without queuing or stoppage.

Another important aspect of JIT is the use of a 'pull' system to move inventories through the
production line. Under such a system, the requirement of the next station is what modulates the
production of a particular station. It is therefore necessary under JIT to define a process by which the
pulling of lots from one station to the next is facilitated.

JIT is most applicable to operations or production flows that do not change, i.e., those that are simply
repeated over and over again. An example of this would be an automobile assembly line, wherein
every car undergoes the same production process as the one before it.
JIT has likewise been practiced successfully by some semiconductor companies. Still, there are some
semiconductor companies that don’t practice JIT for the simple reason that their operations are too
complex for JIT application. On the other hand, that’s precisely the challenge of JIT – creation of a
production set-up that is simple enough to allow JIT.

Guidelines for Successful JIT Implementation

• Make the factory loadings uniform, linear, and stable. Fluctuations in manufacturing loadings
will result in bottlenecks.
• Reduce, if not eliminated, conversion and set-up times.
• Reduce lot sizes. This will smoothen out the flow of inventories from one station to another,
although this may necessitate more frequent deliveries or transfers.
• Reduce lead times by moving workstations closer together and streamlining the production
floor lay-out, applying cellular manufacturing concepts, using technology to automate
processes and improve coordination.
• Reduce equipment downtimes through good preventive maintenance.
• Cross-train personnel to achieve a very flexible work force.
• Require stringent supplier quality assurance since an operation under JIT cannot afford to
incur errors due to defects.
• Use a control system to convey lots between workstations efficiently; the use of a Kanban
system is an example of this.

Kanban Systems

Kanban systems are often associated with JIT implementation. In fact, some people have the
misimpression that JIT requires the use of a kanban system. Having a kanban system is not a strict
requirement of JIT implementation, but their use as a tool for practicing JIT has become quite
popular owing to its simplicity.

A kanban is a card attached to the carrier or container of a lot used to match what needs to be
produced in a workstation and what needs to be delivered to the next station. As mentioned, a
JIT system is basically a 'pull' system, which means that what needs to be produced in a particular
station depends on what the next station needs. Ultimately the production is therefore modulated
by end customer orders. Kanbans, which contain information about the lots and quantities
 involved, are therefore used to facilitate the execution of this 'pull' system. With this 'pull' system,
no parts that cannot be processed in succeeding stations will be produced.

Two card KANBAN system followed by Toyota.

Toyota uses a two-card system for KANBAN.

Withdrawal Card (‘WC’) which specifies:
• Quantity to be withdrawn by the user stage from the previous producer stage.
• Stocking locations for producer and the user.

Production Order Card (‘POC’) which specifies:

• Items and quantity of each unit of item to be produced.
• Material required.
• Location of the required material
• Location of the finished material.

A simple example of a fabrication shop supplying to final assembly is given below to illustrate the
two card KANBAN system.
Route diagram for ‘wc’ and ‘poc’:

Step 4 Step 2 Step 1

[Link] Receiving
Post Storage

Empty Bins

Full Bins

Fabrication In bound stock Assembly

For assembly

Step 5 & 6 Step 7 Step 3

Legend: - Dotted line - Loop for the Withdrawal Card
Full line: - Loop for the Production Order Card.
Fig 9.4
Step 1: - Empty containers of used units from the assembly with ‘wc’ attached are taken to the
storage area. Withdrawal Cards are detached and retained for future reference (Step3)

Step 2: - Empty containers are exchanged for the full containers. The POC on each full container
is detached and placed in the receiving post.

Step 3: - Contents of the full containers are checked against the wc and if okay, the wc retained
from step 1 is attached to the full container. The container is now moved to the inbound stocking
location of assembly line. This step completes the loop for wc.

Step 4: - Fabrication shop removes the poc from the receiving post. These are reviewed, sorted
out and placed in the Production Order Post in the sequence of the production schedule.

Step 5: - Production Order card is attached to the empty bin and taken to the fabrication shop in
the sequence of the production schedule and parts are produced to fill up the container with
requisite number.

Step 6: - POC and the container move as a pair through the production process in the fabrication
shop.

Step 7: - Full bin with POC is moved to the storage area. This completes the loop for poc.

The same system works for the fabrication shop as user and its previous stage and the sequence
continues through the entire production process.

General operating rules for KANBAN:

• Each container must have a card.
• Receiver of the goods will withdraw the material from the producer.
• Producer will not push the material to the next stage.
• Containers of parts cannot be removed from the storage area without wc.
• Container should always contain the requisite number of good parts.
• Non-standard container or irregularly filled containers are not allowed.
• Quantity withdrawn by the user should be strictly as mentioned on wc.
 • Quantity produced by the Producer of the previous stage will be strictly as per poc.

Taiichi Ohno, who first conceived KANBAN, initiated it in Toyota machine shop and assembly work
on trial basis in the year 1952. It took almost 10 more years of persistent efforts for full adoption
of the system in all the Toyota plants. The next logical step for Ohno was to extend the system to
Toyota’s suppliers. He first invited the suppliers for a tour of Toyota plants for observing the
system closely at first hand. He also kept on involving Toyota engineers with suppliers to educate
and train them on continuous basis at every step of KANBAN implementation. It took another 10
years of concerted work to perfect the system with all the major suppliers of Toyota. Thus, delivery
of units, which arrive ‘just in time’ for assembly operations, is the result of almost 20 years of
persistent efforts of Toyota team and its cooperation with the suppliers.

9.13 THREE ‘M’s (MUDA, MURA, MURI)

Muda means waste, where waste is any activity that does not add value. Reducing or eliminating muda
is, of course, one of the fundamental objectives of any quality-oriented person.

Taichi Ohno of Toyota identified what are called the seven wastes or seven mudas, which are already
discussed at beginning of this chapter

A simplified view of muda is:

• Wasting time
• Wasting a consumable resource, such as materials
• Causing dissatisfaction (including incomplete satisfaction)

Muri is all the unreasonable work that management imposes on workers because of poor
organization, such as carrying heavy weights, moving things around, dangerous tasks, etc. It's
pushing a person or a machine beyond its natural limits. Unreasonable work is almost always
a cause of variation.

To link these three concepts is straight forward. Firstly, Muri focuses on the preparation and
planning of the process or what can be avoided proactively by design. Mura then focuses on
implementation and the elimination of fluctuation at the scheduling or operations level, such
 as quality and volume. The third — Muda — is discovered after the process is in place and is
dealt with reactively. It is seen through variation in output. It is the role of management to
examine the Muda, or waste, in the processes and eliminate the deeper causes by considering
the connections to Muri and Mura of the system. The Muda – waste – and Mura –
inconsistencies – must be fed back to the Muri, or planning, stage for the next project.

9.14 SUMMARY

Any operation in manufacturing environment comprises of value adding and non-value adding
activities. Non-value adding activities contribute to “Waste”, There are seven such wastes identified:
Overproduction, waiting time, transportation, process loss, inventories, waste of motion and defective
products.

These seven wastes can be eliminated by a threefold approach: 1. Total Productive Maintenance
(TPM), which eliminates machine downtime 2. Total Quality control (TQC), which eliminates product
defects. 3. Just In Time (JIT), which eliminates extra inventories.

Before practicing TPM it is necessary to practice traditional maintenance practices. Which cover four
phases of maintenance. TPM aims at involvement of production operatives in maintenance activities
in order to optimize the utilization of available manpower and also use it as a motivating tool.

TQC has three elements: 1. Quality Planning 2. Quality Control 3. Quality Improvements. Poka Yoke is
a technique, which ensures defect free output from the machines. Statistical Process Control (SPC) is
a tool to monitor the production processes and take timely actions before non-conformities occur.

Just In Time is a tool for minimizing inventory carrying costs which requires reduction in setup times
of the machines through application of SMED techniques. Kanban is predecessor of JIT practiced by
Toyota. “3Ms” is another version of seven wastes.

9.15 KEY WORDS

• Waste – Anything more than the barest minimum required to satisfy the customer needs
• Over Production – Any quantity produced more than what is exactly needed by the next
operation/customer
• Waiting Time – Any resource lying unused or waiting to be used
• Transportation – Movement of material from one place to another
• Inventory – Material paid for but not sold
• Defective Products – Products, which do not measure up to customer expectations/needs
• 5 S – A Japanese technique used for defining and following correct way of working
• Flexible Workforce – Workforce that allows, encourages or otherwise mandates employees to
know and work a variety of different jobs and duties.
• Quality Rating – Ratio of number of good parts produced to the total number of parts produced
during the period under consideration’
• Performance Efficiency – Ratio of designed cycle time to the actual cycle time’
• Overall Equipment Efficiency – Combination of availability, performance efficiency and quality
rating of the machine.
• Kobetsu Kaizen – Kaizen operated in a focused area of equipment maintenance,
• Jishu Hozen – Involving the production operators in maintenance work, which is the core concept
of TPM.
• Statistical Process Control (SPC) – System for monitoring, controlling, and improving a process
through statistical analysis.
• Control Charting – Tool for process monitoring in industry
• Single Minute Exchange of Dies (SMED) – The technique developed for rapid, efficient and
accurate setup change
• Muda – Waste in any activity that does not add value
• Muri – Unreasonable work that management imposes on workers because of poor organization,
• Mura – Fluctuations/inconsistencies in the process.
UNIT 10 LEAN SIX SIGMA

Objectives

After completing this unit, you will be able to:

• State relationship between Lean and Six Sigma

• Establish a comparison of Lean applications with Toyota Production System
• Enumerate time traps, which drastically bring down cycle efficiency
• State characteristics of Lean Manufacturing system.
• Define Six Sigma and significance of 1.5 sigma shift
• State relationship between ‘Defects Per Million Opportunities (DPMO)’ and sigma levels.
• Analyze essentials of six sigma
• State the infrastructure needed for application of Lean Six Sigma
• State different levels of Lean Six Sigma organizational structure, responsibilities of every
position and training needed for each position.
• Illustrate Major DMAIC (Define, Measure, Analyze, Improvement, Control) tools needed for
implementation of Lean Six Sigma methodology
Structure

10.1 Introduction
10.2 Lean Manufacturing
10.3 Six Sigma
10.4 Execution Infrastructure for Lean Six Sigma applications
10.5 Software used for Six Sigma
10.6 Tools for Lean Six Sigma
10.7 Summary
10.8 Key Words
10.1 INTRODUCTION

Lean Manufacturing and Six sigma are two of the most talked about and practiced methods by many
World Class Manufacturing companies. Origin and history of both these tools is different. Lean
principles originate from the Japanese manufacturing industry. The term was first coined by John
Krafcik in an article, "Triumph of the Lean Production System", whereas Six Sigma is a system of
practices originally developed by Bill Smith of Motorola to systematically improve processes by
eliminating defects.

Two of the customer’s primary requirements are quality and timely delivery. Both these requirements
are susceptible to the variability in each process within the supply chain. This variability is of two types:

• Variability in the quality of the output

• Variability in the time taken for the activity

Six Sigma is used for bringing process under statistical control so that the variability in the output
quality can be kept within the desired limits. This method cannot on its own control the time factor,
which will need the methodology of ‘Lean’. As both are related to variability of the process, better
results can be achieved if both the approaches i.e. Six Sigma and Lean are practiced together. As a
matter of fact, the tools and the infrastructure for practicing these two different methods are common
to a large extent. Hence both these methods are discussed in this chapter together.

10.2 LEAN MANUFACTURING

Lean v/s TPS

For many, Lean is the set of "tools" that assist in the identification and elimination of waste (muda).
As waste is eliminated, quality improves while production time and costs are reduced. Some examples
of such "tools" are Value Stream Mapping, Five S, Kanban (pull systems), poka-yoke (error-proofing)
etc.

There is a second approach to Lean Manufacturing, which is promoted by Toyota and is widely known
as Toyota Production System (TPS), which is already discussed in greater details in a previous chapter.
The system focuses upon improving the "flow" or smoothness of work, thereby steadily eliminating
mura ("unevenness") through the system. Goal of TPS is to virtually eliminate wait time throughout
the supply chain. Every operation is made so flexible that actual usage by the customer creates a
demand to produce only the amount consumed by the customer – whether internal or external.

The difference between these two approaches is not the goal but the way of achieving it. The
implementation of smooth flow exposes quality problems which already existed and eliminating
these, results in waste reduction.

Both ‘Lean’ and ‘Toyota Production System’ can be seen as a loosely connected set of potentially
competing principles whose goal is cost reduction by the elimination of waste. These principles
include: Pull processing, Perfect first-time quality, Waste minimization, Continuous improvement,
Flexibility, Building and maintaining a long-term relationship with suppliers, Autonomation, Load
leveling, Production flow and Visual control.

Toyota's view is that ‘Lean’ does not refer to any tools, but it is the reduction of three types of waste:
muda ("non-value-adding work"), muri ("overburden"), and mura ("unevenness"). Lean exposes the
problems systematically which are then solved through various tools applicable to that situation.
Toyota Production System (TPS) and the original seven muda are explained in more details in a
previous Chapters.

Lean means a fast process. Slow processes are responsible for increasing the throughput time and
adding to costs.

Lean manufacturing conceptually differs from the traditional manufacturing. Lean manufacturing
focuses on eliminating the waiting time from the system. In most manufacturing systems, this waiting
time can go as high as 95 %. Lean manufacturing works in three steps:

• Identify the time delay at critical workstations (Referred to as ‘Time Traps’).

• Analyze the causes for these Time Traps.
• Apply lean manufacturing techniques/tools to remove the causes for these Time Traps.

The result will be a system where there are minimum time delays.

Following example can illustrate the concept:

Example. For an assembly made up of four parts (1. 2, 3 & 4), each part has to undergo operation
numbers A, B, C and D in that sequence. Setup time and processing time/unit on each workstation,
for all four parts are given below:
 A B C D

Setup (Hrs) 4 Nil Nil Nil

Unit (Secs) 25 30 25 40

Assembly takes 2.5 minutes. On workstation A, a batch of 1000 is taken before changing the setting
to the next part.

Taking closer look at the above details, following facts emerge.

1. Value added time for each assembled unit = Processing time for each part for one assembly unit
+ Assembly time
25 + 30 + 25 + 40
= 4 x ------------------------- + 2.5 = 9.07 + 2.5 = 11.57 minutes
60
2. Workstation turnover time for workstation A = Time taken to process a batch of 1000 of all the
four parts = 4 x (setup time + processing time for 1000 batch)
25 x 1000
which is = 4 x ( 4 + --------------) = 43.78 hours
60 x 60

1 1
3. Process Lead time = ---- x Max. workstation time = ---- x 43.78 = 21.9 hours
2 2
Value added time
11.57 1 1
4. Cycle Efficiency = ------------------------ = ---------x ------ x 100 = 0.88 %
Process Lead time 60 21.9
Note that this is less than 1

5. Pile up of inventory (Average 500 of every part) is seen at the assembly point, which is not due
to constraint at assembly point but due to necessity of taking a batch of 1000 numbers of every
part in order to compensate for high – 4 hours – of setting time

Conclusions:
 1. Cause of delay in the process and consequent low cycle efficiency is the bottleneck
operation.

2. Bottleneck operation may not be in some cases the one where the inventory piles up but
the one, which accounts for the maximum time in the process i.e. the one, which has the
maximum workstation turnover time.

3. Appropriate Lean tool is to be used to the bottleneck operation to get improvement

In the example cited above, bottleneck is at operation number 1 and the necessary Lean tool is
SMED (Single Minute Exchange of Dies). If setup time is reduced to 1 hour, batch size can be
reduced to 250 and average inventory to 125 (Improvement of 400 %)

Improved workstation turnover time will be:

25 x 250
4 x (1 + ---------------) = 10.94.
60 x 6
1
Process Lead time will come down to --- x 10.94 = 5.4
2

11.57 1
And improved cycle efficiency will be --------- x ------- x 100 = 3.53 %
60 5.47

Measure of Lean is the ‘Cycle Efficiency’.

10.2.1 Characteristics of “Lean Manufacturing”.

• Single-piece production
• Repetitive order characteristics
• Just-In-Time materials/pull scheduling
• Short cycle times
• Quick changeover
• Continuous flow work cells
• Collocated machines, equipment, tools and people
• Compressed space
• Multi-skilled employees
 • Flexible workforce
• Empowered employees
• High first-pass yields with major reductions in defects

10.3 SIX SIGMA

Six Sigma is a system of practices originally developed by Bill Smith of Motorola to systematically
improve processes by eliminating defects. Defects are defined as units that the customer would not
like to have. Since it was originally developed, Six Sigma has become one of the more important tools
for Total Quality Management (TQM) initiatives.

Six Sigma is a powerful tool that can help an organization to design, operate and control every process
in such a manner that no process yields more than 3.4 defects for every million opportunities. Six
Sigma concept reduces defects in two different ways: 1) By reducing the variability by re-designing the
process, and 2) By permitting higher variations in specifications.

Six Sigma methodology addresses two basic areas of operations: Through DMAIC (Define, Measure,
analyze, Improve, Control) tools, existing business processes are improved whereas DMADV (Define,
Measure, Analyze, Design, Verify) tools aim at creating new product/process designs which are
inherently defect free and give better performance.

The core of the Six Sigma methodology is a data-driven, systematic approach to problem solving, with
a focus on customer requirements. Statistical tools and analysis are often useful in the process.
However, it is a mistake to view the core of the Six Sigma methodology as statistics; an acceptable Six
Sigma project can be started with only rudimentary statistical tools.

Origin and meaning of the term "six sigma process"

Graph 10.1
Graph of the normal distribution which underlies the statistical assumptions of the Six Sigma model.
The Greek letter σ marks the distance on the horizontal axis between the mean, µ, and the curve's
inflection point. The greater this distance is, the greater is the spread of values encountered. For the
curve shown in red above, µ = 0 and σ = 1. The other curves illustrate different values of µ and σ.

The following outlines the statistical background of the term Six Sigma: Sigma (the lower-case Greek
letter σ) is used to represent the standard deviation (a measure of variation) of a statistical population.
The term "six sigma process," comes from the notion that if one has six standard deviations between
the mean of a process and the nearest specification limit, there will be practically no items that fail to
meet the specifications. This is based on the calculation method employed in a process capability
study, which is already discussed in one of the previous chapters.

In a capability study, the number of standard deviations between the process mean and the nearest
specification limit is given in sigma units. As process standard deviation goes up, or the mean of the
process moves away from the center of the tolerance, fewer standard deviations will fit between the
mean and the nearest specification limit, decreasing the sigma number.

10.3.1 The role of the 1.5 sigma shift:

Experience has shown that in the long term, processes usually do not perform as well as they do
in the short. As a result, the number of sigmas that will fit between the process mean and the
nearest specification limit is likely to drop over time, compared to an initial short-term study. To
account for this real-life increase in process variation over time, an empirically based 1.5 sigma
shift is introduced into the calculation. According to this idea, a process that fits six sigmas
between the process mean and the nearest specification limit in a short-term study will in the long
term only fit 4.5 sigmas – either because the process mean will move over time, or because the
long-term standard deviation of the process will be greater than that observed in the short term,
or both.

Hence the widely accepted definition of a six-sigma process is one that produces 3.4 defective
parts per million opportunities (DPMO). This is based on the fact that a process that is normally
distributed will have 3.4 parts per million beyond a point that is 4.5 standard deviations above or
below the mean (one-sided capability study). So, the 3.4 DPMO of a "Six Sigma" process in fact
corresponds to 4.5 sigmas, namely 6 sigmas minus the 1.5 sigma shift introduced to account for
long-term variation. This is designed to prevent underestimation of the defect levels likely to be
encountered in real-life operation.
Sigma level Calculations.

Sigma level calculations are based on number of Defects Per Million Opportunities (DPMO). The
DPMO calculation requires flowing details:

• Number of units produced in the Batch for every Predetermined period.

• Number of defect opportunities i.e. Number of checks during the processing.
• Number of defective units.

Number of defective units X 1,000,000

Then DPMO = ------------------------------------------------------------------------------
Number of units produced x Number of defect opportunities.

Six Sigma Table.

Sigma Level DPMO Defect-free population%

1 690,000 31

2 308,000 69.2

3 66,800 93.32

4 6,210 99.379

5 320 99.977

6 3.4 99.9997

Essentials of Six Sigma are:

• Customer centricity.
• Top Management engagement.
• Resource commitment.
• Execution infrastructure.
• Financial results.
10.4 EXECUTION INFRASTRUCTURE FOR LEAN SIX SIGMA APPLICATIONS.

CEO

Company Champion Business unit head

Business unit champion Process owner Process owner Process owner

Master Black Belt

Black Belt Black Belt Black Belt Green Belt Green Belt Green Belt

Project team members

Fig 10.1

Note :- 1. Positions shown in bold and italics work full time on Six Sigma

2. All other positions participate in Six Sigma in addition to their normal responsibilities.
[Link] line connections show cross-functional relationships.

Responsibilities and Training needs of Six Sigma positions

Company Champion:

He is the overall head of Six Sigma initiative in the organization and reports directly to the CEO.

Responsibilities:-

• Develop Corporate Six Sigma strategy.

• Lead Design team.
 • Monitor execution of Six Sigma through comparison of actual results with the set goals
and initiate corrective actions to close the gaps.
• Communicate Six Sigma within the organization.
• Ensure value creation through Project selection and effective barrier removal.
• Liaison between Six Sigma activities and regular operations.
• Coordinate Training for Six Sigma.

Training needs:

• Managing of Six Sigma infrastructure without hampering regular work.

• Financial, NPV analysis and value theory.
• Project selection methodology.
• General overall exposure to Six Sigma tools.
• Interpersonal and communication skills.

Business Unit Champion

Looks after Six sigma activities in the Business Unit / Division. He serves as the bond between Six
Sigma projects and Business Unit strategies.

Responsibilities:-

• Develop Six Sigma schedules and deployment plans for the unit.
• Coordinate with the Business Unit Head for Six Sigma activity.
• Ensure effective communication between Business Unit Head and Black Belt improvement
teams.
• Provide integration between full time and part time teams working on Six Sigma (Refer
the organization structure shown in figure ---).
• Monitor Six Sigma results, compare them with the set goals, anlalyze the gap and report
to the Company Champion.

Training needs:-

Intensive training in Six Sigma tools used in value stream analysis and project selection.

Master black Belts

These are internal expert consultants to Black Belts and to Project teams they head. During initial
phases when internal experts in Six Sigma applications are not available, external consultants may
be hired.

Responsibilities:

• Manage improvement teams by providing leadership.

• Train, mentor and coach Black Belts.
• Be an expert resource at least in one speciality area needed for improvement.
• Arrange experience sharing of successes and best practices between different teams
through meetings or symposia.

Training needs:

Extensive training in all areas of Six Sigma, with experience of completing at least 5-6
improvement projects with substantial annualized benefits.

Black Belts

They lead the Project teams to deliver value and are the back-bones of Six Sigma.

Responsibilities:

• Implement improvement projects through a team and in collaboration with process

owners.
• Report team progress to Master Black Belts / Business Unit Champions.
• Train Green Belts in DMAIC tools.
• Lead the team, identify best practices and report to Master Black Belts.
Training:

• Leadership and communication skills.

• Six Sigma improvement processes and tools.
• Problem solving tools.
• Understanding of financial analysis.
• Working knowledge of routine software and computer applications.
Green Belts:

Are the employees who take up Six Sigma implementation along with their other job responsibilities?
They operate under the guidance of Black Belts and support them in achieving the overall results.

White Belts :

Junior most fresh entrants to Six Sigma structure initiated with an objective for future expansion of
Six Sigma network. They assist Green Belts or carry out specific responsibilities for Black Belts.

Specific meaning of certain terms for six sigma.

• Control - The state of stability, normal variation and predictability. Process of regulating and
guiding operations and processes using quantitative data.
• CTQ: Critical to Quality (Critical "Y") - Element of a process or practice which has a direct
impact on its perceived quality.
• Customer Needs, Expectations - Needs, as defined by customers, which meet their basic
requirements and standards.
• Defects - Sources of customer irritation. Defects are costly to both customers and to
manufacturers or service providers. Eliminating defects provides cost benefits.
• Variance - A change in a process or business practice that may alter its expected outcome.

10.5 SOFTWARE USED FOR SIX SIGMA

There are generally two classes of software used to support Six Sigma: analysis tools, which are used
to perform statistical or process analysis, and program management tools, used to manage and track
a corporation's entire Six Sigma program. Analysis tools include statistical software such as Minitab,
JMP, SigmaXL, RapAnalyst or Statgraphics as well as process analysis tools such as iGrafx. Some
alternatives include Microsoft Visio, Telelogic System Architect, IBM Web-Sphere Business Modeler,
and Proforma Corp. ProVision. For program management, tracking and reporting, the most popular
tools are Instantis, Power Steering, I Nexus and Six Net. Other Six Sigma for IT Management tools
include, Proxima Technology Centauri, HP Mercury, BMC Remedy.
10.6 TOOLS FOR LEAN SIX SIGMA

Tools used for practicing Lean and Six Sigma are categorized as DMAIC (Define, Measure, Analyze,
Improvement & Control) tools. The list of some widely used tools is given below. (* marked tools are
already discussed elsewhere in this book and the remaining are discussed in this chapter).

Define Tools :-

1. Project Definition Form 2. SIPOC Diagram

Measure Tools: -

A) Process Characteristic Tools – 1. Process Mapping. 2. Value Stream Mapping.

B) Focus Tools – 1. Pareto Charts 2. Cause & Effect Matrix 3. FMEA*

C) Idea Generating & Selection Tools – 1. Brainstorming 2. Nominal Group Technique

3. Multivoting 4. Ishikawa Diagram

D) Data Collection Tools – 1. Tally Sheets 2. Gauge R&R

E) Understanding and Eliminating Variation – 1. Run Charts* 2. Control Charts*

3. Process Capability*

Analyze Tools: -

1. Scatter Plots 2. ANOVA 3. Regression Analysis 4. Time Trap Analysis

5. Root Cause Analysis*Improve Tools: -

Poka Yoke* 2. Kaizen 3. SMED* 4. TPM* 5. DOE

Control Tools: - SPC*.

10.6.1 Define Tools

Project Definition Form

This is a form designed to give information on the key parameters of the project to the Top
Management. It should be a live document which keeps on evolving as the project progresses through
its various phases. The form can be linked to the project tracking software. The form will normally
contain following information:
 • Problem for which, the project is initiated i.e. ‘Problem Definition’.
• Scope of the project.
• Background history.
• Key areas of measurement.
• Benefits that can accrue with successful culmination of the project.
• Requirement of resources and costs involved.
• Underlying assumptions.
• Risks involved.
• Likely duration of the project.

SIPOC Diagram
SIPOC diagram is also known as a high level process map. The reason to map the current process is to
be able to quickly define, document, analyze, prioritize and recommend solutions and follow-up plans
to move the company toward its financial and customer-focused goals.

Before beginning a process improvement project, all the relevant elements must be identified. SIPOC
Diagram is used to help define these. A SIPOC diagram helps to identify the process outputs and the
customers of those outputs so that the voice of the customer can be captured.

The SIPOC diagram includes a high-level map of the process that "maps out" its basic steps. Through
the process, the suppliers (S) provide input (I) to the process. The process (P), which is under
improvement, adds value, resulting in output (O) that meets or exceeds the customer (C) expectations.
These can be better defined as:

Suppliers: Significant internal/external suppliers to the process.

Inputs: Significant inputs to the process. This would include things such as materials, forms,
information, staff, etc.

Process: One block representing the entire process.

Outputs: Significant outputs to internal/external customers. This would be anything the business unit
distributes. Frequency/timing is listed along with the output. Examples of outputs would be
reports, ratings, products, documents, etc.

Customers: Significant internal/external customers to the process. This would include anyone who
receives outputs. It is important to note that the customer must get the output directly from the
business unit and does not necessarily have to be a user of the output. If the output is received
 from a third party, they are not customers. Examples of customers could be managers, CEOs,
boards of directors or other departments.

When creating a SIPOC diagram, the project team does not necessarily need begin from a scratch.
In fact, the team should probably start in the process (P) phase and ask questions about the
process itself. The team should label the process with the summaries of the most critical three to
six steps. After analyzing the process, they should document what (O) is delivered to whom (C).
The team can brainstorm and prioritize the most critical one to those customers. They then can
identify, prioritize and align the outputs most significant to those customers. The next step would
be to verify these initial assumptions with voice of the customer tools from the DMAIC process
and/or designate as critical to quality, speed or cost. Lastly, the team can identify what input or
information (I) is needed to perform that process and who provides that input (S). This
brainstorming and prioritization of significant inputs finishes the activities around building a
SIPOC.

In summary, there are three main reason for building a SIPOC diagram. These are:

• A SIPOC diagram quickly and easily captures the current or "as is" state of the organization
and processes in question.
• The SIPOC exercise brings associates together in a non-threatening way that builds.
• The SIPOC exercise allows the team to review all the processes in a way that they can easily
see which next steps can be identified.

Steps To Complete the SIPOC Diagram

The steps for building a SIPOC diagrams are:

• Create an area that will allow the team to post additions to the SIPOC diagram. This could be
a transparency (to be projected by an overhead) made of the provided template, flip charts
with headings (S-I-P-O-C) written on each, or headings written on post-it notes posted to a
wall.
• Begin with the Process. Map it in four to five high level steps.
• Identify the Outputs of this Process.
• Identify the Customers that will receive the Outputs of this Process.
• Identify the Inputs required for the Process to function properly.
• Identify the Suppliers of the Inputs that are required by the Process.
 • Optional: Identify the preliminary requirements of the Customers. This will be verified during
a later step of the Six Sigma measurement phase.
• Discuss with Project Sponsor, Champion, and other involved stakeholders for verification.

Example SIPOC Diagram of an office boy making a cup of tea for the boss.

Suppliers Inputs Process Output Customer

Office boy Gas stove Start gas Tea Boss

Grocer Water, Pot Boil water Tea bags
Gas Agency Kettle Pour in kettle
Cutlery shop Tea bags Immerse tea bags
Milk-man Milk pot Prepare tray
Sugar pot Serve tea
Cup, Saucers, Spoons

Measure Tools
Process Characteristic Tools
Process Mapping (Flow Charting)

A flowchart is a graphical representation of a process. It represents the entire process from start to
finish, showing inputs, pathways and circuits, action or decision points, and ultimately, completion. It
can serve as an instruction manual or a tool for facilitating detailed analysis and optimization of
workflow and service delivery.

Workflow (process) mapping is one of the fastest ways to lower errors, increase productivity, and
affect customer service. It generally follows these steps:

Existing workflow:

Choose a process, which is time-consuming, error-prone, or critical to success; starting where there is
a strong potential for improvement will provide better chances of success.
Assemble a team, which will include people from the lowest and highest levels directly involved in the
operation. The team must be given the responsibility and sufficient authority to take decisions to
modify the existing workflow to a new and better one.

Map out the way work is currently done with designated symbols.

• Ovals show input to start the process or output at the end of the process.
• Boxes or rectangles show task or activity performed in the process.
• Arrows show process direction flow.
• Diamonds show points in the process where a yes/no questions are asked, or a decision
is required.
• Usually there is only one arrow out of an activity box. If there is more than one arrow,
you may need a decision diamond.
• If there are feedback arrows, make sure feedback loop is closed; i.e. it should take you
back to the input box.

Improvement:

• Identify problem areas. Where there are many areas to choose from, try to follow the 80/20 rule:
work on the 20% of the areas that cause 80% of the problems.

• Brainstorm solutions. Identify all possible action steps for each problem area, without evaluating
them.

• Evaluate action steps. Set up a set of "final" action steps by group consensus.

Implementation:

• Assign responsibilities. Ask people to volunteer to take responsibility for each action step judged
to be worthwhile by the group, and to set deadlines.

• Create a master plan for assigning responsibilities for actions and the deadlines. Distribute the
plan and make sure everyone agrees with it and that it accurately reflects the decisions made
during the sessions.

• Monitor the progress and regularly brainstorm to have ongoing improvements.

Value Stream Mapping

Value stream comprises all those activities that convert customer needs into customer satisfiers in the
form of Product/Service/information
Value stream mapping is a paper and pencil sketch that depicts all the process steps, which are
required to turn customer needs into products/services that satisfy these needs and helps you to see
and understand the flow of material and information as a product or service makes its way through
the value stream. Value stream mapping is typically used in Lean, it differs from the process mapping
of Six Sigma in four ways:

• It gathers and displays a far broader range of information than a typical process map.

• It tends to be at a higher level (5-10 boxes) than many process maps.

• It tends to be used at a broader level, i.e. from receiving of raw material to delivery of finished
goods.

• It tends to be used to identify where to focus future projects, subprojects, and/or kaizen events.

Value Stream Map clarifies:

• Multiple process levels.

• Non-value activities that contribute to ‘Waste’.
• The decision points, which otherwise are not directly visible.

Activities on a Value Stream Map are classified in three categories:

• Activities that add value for the customer.

• Activities that add value for the business.
• Non-value adding activities.

A value stream map takes into account not only the activity of the product, but the management
and information systems that support the basic process. This is especially helpful when working
to reduce cycle time on bottleneck operations, because you gain insight into the decision making
flow in addition to the process flow. It is actually a Lean tool.
The basic idea is to first map your process, then above it map the information flow that enables
the process to occur.

Implementation steps

• Identify the target product, product family, or service.

• Draw a current state value stream map, which shows the current steps, delays, and
information flows required to deliver the target product or service. This may be a production
 flow (raw materials to consumer) or a design flow (concept to launch). There are 'standard'
symbols for representing supply chain entities.
• Assess the current state value stream map in terms of creating flow by eliminating waste.
• Draw a future state value stream map.
• Implement the future.

Hines and Rich defined seven value stream mapping tools, they are:

• Process Activity Mapping.

• Supply chain responsiveness matrix.
• Product Variety Funnel.
• Quality filter mapping.
• Forrester effect mapping.
• Decision point analysis.
• Overall Structure Maps.

Focus Tools

Pareto Analysis
It is a graphical picture of the most frequent causes of the problem and is based on the principle that
20% of the causes account for 80% of the problem. This is also known as 80/20 or Pareto rule. Pareto
diagram is a special type of Histogram, where the bars are arranged in descending order of their
heights, showing individual contribution of each factor as well as the cumulative contribution. The
diagram helps in identifying the ‘vital few’ (20%) causes from the ‘trivial many’ so that management
concentration can be focused on these to get better and faster results with lesser efforts. This is also
sometimes referred to as ‘Management by exception’.

Cause – and – Effect Matrix

This is an effective tool for capturing “Voice of Customer” and relating it to the process input variables.
Process input variables are ranked in terms of their importance in satisfying customer requirements
so that more attention can be paid to the variables, which have greater influence on customer
satisfaction.
The Matrix is created in following steps:
• Process outputs in terms of customer requirements are listed in the top horizontal row and each
of these is given a rating vis-à-vis its importance on a scale of 1 – 10 .
• Process input variables are listed in the vertical column on the left side of the matrix. Use of
Process Map is made to list down the Process inputs.
• Relationship of each input to the customer requirement is now given marks as below:
- No relation - 0
- Weak relation - 1
- Fair relation - 3
- Strong relation - 9
• Process output importance is now calculated by multiplying relationship factor times the customer
importance rating for each input variable and sunning these values on the right side of the column.
• Input factors having higher numbers will need more attention while processing.

Example :- Cause – and – Effect Matrix for a Tea Shop is constructed below.

Process Output Temperature Aroma Taste Process

output
(Customer requirements) importance
Rating 8 6 10

Input variables Marks

Measure water 0 3 3 48

Add sugar 0 1 9 96

Boil water 9 1 1 88

Add tea 0 9 9 144

Allow percolation 3 3 3 72

Strain 3 3 1 52

Add milk 3 3 9 132

Serve 1 0 0 8
 Obviously, the most important process input variables are : Add tea, Add milk and Add sugar
in order to get the better satisfaction and will need close attention in preparing tea.

Idea Generating and Selection Tools.

Brain Storming

Brainstorming is a group creativity technique designed to generate a large number of ideas for the
solution of a problem. In 1953 the method was popularized by Alex Faickney Osborn in a book called
Applied Imagination. Osborn proposed that groups could double their creative output with
brainstorming.

There are four basic rules in brainstorming. These are intended to reduce social inhibitions among
group members, stimulate idea generation, and increase overall creativity of the group.

Focus on quantity: This rule is a means of enhancing divergent production, aiming to facilitate problem
solving through the maxim quantity breeds quality. The assumption is that the greater the number of
ideas generated, the greater the chance of producing a radical and effective solution.

Withhold criticism: In brainstorming, criticism of ideas generated should be put 'on hold'. Instead,
participants should focus on extending or adding to ideas, reserving criticism for a later 'critical stage'
of the process. By suspending judgment, participants will feel free to generate unusual ideas.

Welcome unusual ideas: To get a good and long list of ideas, unusual ideas are welcomed. They can
be generated by looking from new perspectives and suspending assumptions. These new ways of
thinking may provide better solutions.

Combine and improve ideas: Good ideas may be combined to form a single better good idea, as
suggested by the slogan "1+1=3". It is believed to stimulate the building of ideas by a process of
association.

Set the problem:

Before a brainstorming session, it is critical to define the problem. The problem must be clear, not too
big, and captured in a specific question such as "What service for mobile phones is not available now,
but needed?". If the problem is too big, the facilitator should break it into smaller components, each
with its own question.
Background

The background memo is the invitation and informational letter for the participants, containing the
session name, problem, time, date, and place. The problem is described in the form of a question, and
some example ideas are given. The memo is sent to the participants well in advance, so that they can
think about the problem beforehand.

Select Participants:

The facilitator composes the brainstorming panel, consisting of the participants and an idea collector.
A group of 10 or fewer members is generally more productive. Many variations are possible, but the
following composition is suggested.

• Several core members of the project who have proved themselves.

• Several guests from outside the project, with affinity to the problem.
• One idea collector who records the suggested ideas.

List of Leading Questions:

During the brainstorm session the creativity may decrease. At this moment, the facilitator should
stimulate creativity by suggesting a lead question to answer, such as Can we combine these ideas? or
How about looking from another perspective? It is best to prepare a list of such leads before the
session begins

Conducting the Session:

• The facilitator leads the brainstorming session and ensures that ground rules are followed.
The steps in a typical session are:
• A warm-up session, to expose novice participants to the criticism-free environment. A simple
problem is brainstormed, for example What should be the CEO's retirement present? or What
can be improved in Microsoft Windows?
• The facilitator presents the problem and gives a further explanation if needed.
• The facilitator asks the brainstorming group for their ideas.
• If no ideas are forthcoming, the facilitator suggests a lead to encourage creativity.
• All participants present their ideas, and the idea collector records them.
• To ensure clarity, participants may elaborate on their ideas.
• When time is up, the facilitator organizes the ideas based on the topic goal and encourages
discussion.
• Ideas are categorized.
• The whole list is reviewed to ensure that everyone understands the ideas.
• Duplicate ideas and obviously infeasible solutions are removed.
• The facilitator thanks all participants and gives each a token of appreciation.

Process of conducting a brainstorming session:

• Participants who have ideas but were unable to present them are encouraged to write
down the ideas and present them later.
• The idea collector should number the ideas, so that the chairperson can use the number
to encourage an idea generation goal, for example: We have 44 ideas now, let’s get it to
50.
• The idea collector should repeat the idea in the words he or she has written verbatim, to
confirm that it expresses the meaning intended by the originator.
• When many participants are having ideas, the one with the most associated idea should
have priority. This is to encourage elaboration on previous ideas.
• During a brainstorming session, managers and other superiors may be discouraged from
attending, since it may inhibit and reduce the effect of the four basic rules, especially the
generation of unusual ideas.

Evaluation:

Brainstorming is not just about generating ideas for others to evaluate and select. Usually
the group itself will, in its final stage, evaluate the ideas and select one as the solution to
the problem proposed to the group.

• The solution should not require resources or skills the members of the group do not
have or cannot acquire.
• If acquiring additional resources or skills is necessary, that needs to be the first part
of the solution.
• There must be a way to measure progress and success.
• The steps to carry out the solution must be clear to all, and amenable to being
assigned to the members so that each will have an important role.
 • There must be a common decision making process to enable a coordinated effort to
proceed, and to reassign tasks as the project unfolds.
• There should be evaluations at milestones to decide whether the group is on track
toward a final solution.
• There should be incentives to participation so that participants maintain their efforts.

Nominal Group Technique

Every problem has multiple solutions, and these can be suggested by different people working on the
project. There has to be a way to select the best possible solution without hurting the sentiments of
the rest. Nominal Group Technique tries to achieve this. It is an idea selection tool used in conjunction
with brainstorming. The technique uncouples every idea from personalities of the team members. It
is used especially when the issues involved are controversial and some of the team members are more
aggressive by nature. During the NGT ideas are explained, team members can ask questions and seek
clarifications but there are no free discussions about pros and cons. Every member is given limited
number of votes to cast and ideas, which receive the maximum number of votes are selected for final
discussion. Advantage of the technique is that the ideas get selected on their merit and not on the
person who has suggested them.

Multivoting

This is the next step to NGT and is used when possible choices are reduced to a manageable number
(5-10). Each team member now gets one third of votes of the total choices available and the results
after voting are put on the Pareto Chart.

Ishikawa Diagram

This method of finding all possible causes for an end effect, which in most cases is a problem was
introduced by Ishikawa. The method identifies various possible ‘causes’ for a problem ‘(Effect)’ so that
each possibility can be examined thoroughly in order to pinpoint the actual cause/s and take
appropriate actions to eliminate these. Hence it is also called as “Cause & Effect” diagram. Due to its
peculiar configuration, which resembles a fish bone, some people refer to it as a “Fish Bone” diagram.
The diagram is essentially a culmination of a ‘Brainstorming’ session group constituted to identify all
possible causes for the problem.
Example: - Cause and Effect diagram for the problem of ‘High Fuel Consumption’ of a car is
constructed below
Road Driver Design

Road sense Extra Power

Condition Gradient
Braking Gear Ratio Body contour
Traffic
Experience Speed
No. of signals High
Fuel

Consumption
Tuning Servicing
Purity Octane rating
Spares Tire pressure
Lubrication oil viscosity
Competence Additives

Maintenance Fuel/Oil quality

Fig 10.2

Data Collection Tools

Tally Sheets
These are forms designed to record the generated data in an organized way to facilitate its subsequent
analysis. These tally sheets are of three main types:

Inspection tally sheet: - Used for grouping various types of defects from production lots of products
at regular intervals of time.

Example
Recording tally sheet: - Designed to record a large number of observations in an organized way to
facilitate the subsequent analysis.

Example: - Frequency table for recording of observations for 50 mm diameter measurement for 150
pieces of cylindrical rod.

Department ------------------------ Operator ---------------------

Date:- Specifications :- 49.95 to 50.05

Measurements Frequency of occurrence Total

5 10 15 20 25 30 35 40

49.95 / 1
49.96 /// 3
49.97 //// // 7
49.98 //// //// //// //// 19
49.99 //// //// //// //// //// 25
50.00 //// //// //// //// //// //// //// //// 40
50.01 //// //// //// //// //// / 26
50.02 //// //// //// /// 18
50.03 //// / 6
50.04 //// 4
50.05 / 1

Check Sheet: - Listing down of all the elements/items necessary for carrying out the planned activity
successfully and achieve the desired results. Wherever necessary the elements/items are listed down
in their logical sequence/chronological order.

Examples: - a) Comprehensive list of items to be carried on a trekking trip. b) Route sheet, which gives
the sequence of operations and path to be followed by a part to be manufactured.
Gage Repeatability and Reproducibility

Most decisions as regards fitness for use of a product are based on the measurements carried out on
the product. These results are subject to variation due to two basic factors: firstly ability of the same
person to repeat the results and secondly possibility of different persons repeating the results. Both
these factors are technically termed as:

Gage Repeatability: - Extent to which a person taking measurement on the same product, using the
same instrument will get different results

Gage reproducibility: - Extent to which different persons taking measurement on the same product
using the same instrument will get different results.

If measurement variation is less than 10 % of the specification spread the Gage R&R is considered as
good. Between 10 % to 30 % it needs improvement and above 30 % it is unsuitable for use.

Analyze Tools

Scatter Plots

It is a special type of graph in which, two characteristics whose relationship is to be studied, are
taken on X and Y axis. Each observation is recorded as a dot on the graph, which gives a pattern
of scattered dots. This pattern can indicate whether there is any relationship between these two
characteristics. An imaginary straight/curved line can be drawn through these scattered dots to
highlight the relationship. Line graph shown on the page no. ----- is actually culmination of scatter
dots of Temp v/s time observations.

ANOVA (Analysis of Variation)

Output of any process is subject to variation due to many factors. To analyze this variation fully
and then reduce it, it is necessary to study all permutations and combinations of these factors.
This cumbersome job is made easy by using a simple statistical package like Minitab for getting
Analysis of Variation (ANOVA) evaluation by inputting the relevant data.

Regression Analysis

ANOVA helps in identifying the input variables, which are more responsible for variation in the
output. Regression analysis helps in the quest of finding a solution by providing a mathematical
model that quantifies the relationship between an input variable and the output. This facilitates
 prediction of the process performance resulting from changes made in specific input variables.
For example; in Polymer manufacturing, ANOVA can identify Temperature and Line Speed as two
input variables having a significant effect on tensile strength of Polymer but regression analysis
will provide a mathematical equation, which will relate these input variables to the tensile
strength.

Time Trap Analysis

We have already seen that in most processes materials spend hardly 5% of total time in value
added activities and almost 80% of the delay is caused by very few activities. These delay causing
activities are the “Time Traps”. Once these ‘Time traps’ are identified, improvement projects can
be taken up to reduce/eliminate the time spent in these activities. This can give a significant
reduction in the though-put time and costs.

A simple case of ‘Time trap’ involving four activities was illustrated in chapter --- page--. However
when the operations are many and complex, such manual methods or use of apread sheets for
identifying ‘Time traps’ will be very cumbersome and prone to errors. This problem is now
addressed in most of the ERP systems, which supplement old infinite capacity MRP systems with
Advanced Planning (AP) programs that use real capacity. The systems store necessary data for
calculating minimum batch sizes. In addition, Supply Chain Accelerator (SCA) software are
available to support Advance Planning (AP) programs. SCA in addition to calculating minimum
batch sizes also helps in identifying the hidden ‘Time traps’.

Improve Tools

Kaizen

The term Kaizen (Pronounced ki-zen) is a Japanese word where "kai" means "change" or "the
action to correct" and "zen" means "good". Together the word refers to a philosophy or practices
focusing on ongoing, continuous improvements in any activity whether manufacturing, business
or even life in general. In contrast to the usual emphasis on revolutionary, innovative change on
an occasional basis, Kaizen looks for uninterrupted, ongoing incremental change.

When used in the business sense and applied to the workplace, Kaizen typically refers to activities
that continually improve all functions of a business, from manufacturing to management and from
the CEO to a line worker. Kaizen covers total spectrum of business.
Originally a Buddhist term, Kaizen comes from the words, "Renew the heart and make it good."
Therefore, adaptation of the Kaizen concept also requires changes in "the heart of the business",
corporate culture and structure,

By improving standardized activities and processes, Kaizen aims to eliminate waste.

Kaizen was first implemented in several Japanese businesses during the country's recovery after
World War II and has since spread to businesses throughout the world. According to Masaki Imai
who was the first to introduce the concept in the industry, "Kaizen means improvement.
Moreover, it means continuing improvement in personal life, home life, social life, and working
life.

Kaizen is basically an umbrella concept that can utilize any of the known tools like Kanban, JIT, five
S, Jidoka, TQC, SPC, Quality Circles, TPM, SMED, Andons etc. either separately or in combination
to get the desired ongoing improvement.

Principles of Kaizen implementation are:

• Human resources are the most important company asset.

• Processes must evolve by gradual improvement rather than radical changes.
• Improvement must be based on statistical/quantitative evaluation of process performance.

Kaizen can be implemented in an organization by improving every aspect of a business process in

a step-by-step approach, while gradually developing employee skills through training education
and increased involvement. Responsibilities of various levels in the organization for successful
implementation of Kaizen are given below:

Top Management

• Determination to introduce Kaizen as Corporate Strategy.

• Providing support, direction and resources.
• Establishing policy for Kaizen and cross-functional goals.
• Ensuring attainment of the set goals through policy deployment and cross- functional
management.
• Building systems, procedures and structures conducive to Kaizen.

Middle Management
 • Implementing Kaizen goals through policy deployment and cross-functional management.
• Using Kaizen in functional areas.
• Establishing, maintaining and upgrading standards.
• Increasing awareness for Kaizen through training and education.
• Helping employees to develop skills and tools for problem solving.

Supervisors

• Using Kaizen in functional roles.

• Formulating plans for Kaizen and providing guidance to the workers.
• Improving communication with workers and sustaining high morale.
• Supporting Quality Circle activity and suggestion schemes.
• Ensuring discipline on the shop floor.
Workers

• Engaging in Kaizen through suggestion system and Quality Circle activity.

• Practicing ‘Five S’ on shop floor.
• Engaging in continuous self-development to become better problem solvers.
• Enhancing skill and versatility.
Kaizen system is simple, but its implications are far reaching. These can be in the area of PQCDSM
– Productivity, Quality, Cost, Delivery, and Safety & Morale of Employees

Different Versions of Kaizen

Kaizen Teian :- Is just making suggestions for improving a work. The suggestions are reviewed by
management and those that are accepted are executed.

Gemba or Point Kaizen.

Gemba—meaning, "where the real work is being done"—e.g., on the shop floor or at the
point where a service is being delivered. Gemba Kaizen involves following activities:

• Map the work process.

• Do measurements to detect waste.
• Involve the team in uncovering the reasons for waste and generating ideas for
eliminating those reasons.
• Make changes necessary for improving the work process.
 • Measure the benefits of the improvements.
• Standardize the new process and train all concerned.

Five Golden Rules of Gemba Kaizen:

• Go to the spot at the workplace (Gemba), where problem arises.

• Check Gembutsu (Tangible objects at Gemba such as work pieces, tools, jigs,
fixtures, machines etc).
• Take temporary measures at the spot to restart the operations so as to minimize
loss due to stoppages.
• Find and eliminate root cause.
• Standardize to prevent recurrence.

Three Ground Rules:

Housekeeping: - Foundation for Gemba Kaizen is implementation and practice of ‘Five S’. It is observed
that 50% of defectives are reduced through perfect housekeeping.

Muda Elimination: - Muda means any wasteful activity or any obstruction to smooth flow of an activity
Activity = Work + Muda

Expenditure = Cost + waste

That is, for each activity there is expenditure and every work there is a cost associated. Any
expenditure on the Muda is a waste!

(Elimination of ‘Waste’ is discussed in greater details in a previous chapter).

Standardize: - Find the best way for doing a job. This will reduce defectives by further 50%

Flow Kaizen or Kaikaku Kaizen extended value stream at the business level. It focuses on the top-level
view of the extended value stream and identifies improvements at that level. For example, it process.
It identifies waste in the sequencing of value stream components or even in the presence of
unnecessary components. It will identify waste in how outputs move from the production system
through distribution channels to customers. In essence it evaluates the structure and flow of value
from suppliers through production to customers.
Blitz Kaizen

Is an approach to having a special event type Kaizen in the work place? It involves broadly and
specifically having the employees do the Kaizen. It typically emphasizes using cross-functional teams
so that all the trades involved in a work process are represented. It uses a fixed time cycle (usually 5-
days) to do the Kaizen.

Kobetsu Kaizen

Uses a special event approach that focuses on improvements associated with machines and is linked
to the application of Total Productive Maintenance (TPM). It begins with an up-front planning activity
that focuses its application where it will have the greatest effect within a business. It defines a project
that works through a problem-solving process. It analyses machine operations information, uncovers
waste, uses a form of root cause analysis (perhaps the 5 Whys approach) to discover the causes of
waste, applies tools to remove waste (e.g., Quick Change), and measures results.

Paper Kaizen

Is a process improvement activity where in?

• A work process (Either operating or under conceptual stage) is described on paper.

• Description is reviewed to detect waste.
• Process is revised it to eliminate the waste.
• Measurement activity is added to gauge the current process status on predetermined
characteristics (e.g., cycle time, throughput, elements of waste like wait time), compare it
to the desired state, and revise the work process to achieve the desired state.
• Improved work process is described on paper.
Another approach is to add a walk through element where the process improvers walk
through the process and get information and ideas from the workers. This front-end
activity occurs during the first day of the event and involves:

• Mapping the work process.

• Doing a walk through to verify the process description.
• Detecting waste and get worker ideas.
• Analyzing the waste observed to identify opportunities for improvement and verifying
that the mission and goals for the event make sense.
 Major Kaizen Concepts.

Kaizen v/s Management: - Responsibilities of Top Management, Middle Management and Supervisors
for Kaizen are already explained earlier.

Maintenance – Activities directed towards maintaining current technological, managerial and

operating standards and upholding such standards through training and discipline. Assigned asks are
performed to follow the Standard Operating Procedures (SOPs).

Improvements: - Activities directed at uplifting current standards.

Kaizen focuses on human efforts. Emphasis is on perfecting the process (correct way of doing the
things) so that the desired results are guaranteed.

Process v/s Results: -

Kaizen focuses on human efforts. Emphasis is on perfecting the process (correct way of doing the
things) so that the desired results are guaranteed.

Following PDCA/SDCA cycle: -

P – Plan: - Refers to establishing a target for improvement.

D – Do: - Refers to implementing the plan.

C – Check: - Refers to determining whether the implementation remains on track.

A – Act: - Refers to performing and standardizing to prevent recurrence of problem or set

goals for new improvements.

In SDCA cycle, S refers to Standardization. Clearly, PDCA cycle is applicable to

improvement function of management and SDCA cycle is applicable to maintenance
function.

Putting Quality First:-

For maximizing customer satisfaction, the company management has to focus on three
areas: Quality, Cost and Delivery. Kaizen concept puts number one priority on Quality and
as Quality results from perfecting the process, other two parameters get automatically
addressed.
 Speaking with data:-

Kaizen is basically a problem solving process and problems cannot be solved on gut
feelings. Problem solving needs data generation of the current situation and it’s analysis.

Eventual satisfaction of the external customer depends on performing every step in the
process chain in such a way that the next step gets exactly what it wants. Satisfying
internal customer’s requirements is equally important.

Kaizen Event

It is the method of getting employees involvement and may adopt following sequence:

• Decide upon a section of the business in which Kaizen will be implemented.

• Decide upon a team leader for the team who has received all the correct training.
• Form the team and explain the theory behind Kaizen.
• Let the team discuss problems in the workplace.
• Get the team to discuss as many issues as they would wish to tackle, remember it does not
have to be a single issue against which they should focus, several small issues are always
worthwhile looking at.
• Let the team decide which issue(s) is going to be tackled. It is the team that knows best about
its environment.
• Let the team decide what the main causes of concern regarding the issue(s) are.
• Let the team decide how the issue(s) will be measured - how has the current issue been
decided? And how the team will monitor the present situation?
• Information about the issue is gathered.
• The team should now be in a position to come up with a target situation, let the team look at
the merits of different solutions, let the team decide upon target completion, implementation
dates.
• Let the team, decide upon how to bring about the change to the workplace, is it going to be
visually communicated? Verbally communicated? (Work-practice changes), etc.
• Finally let the team decide upon how they will monitor the changes they bring, to see how
successful they have been.

Benefits of Kaizen
 • Problems are identified at source and resolved.
• Small improvements, which are realized can add up to major benefits for the business.
• Improvements, which lead to changes in the business quality, cost and delivery of products,
mean a greater level of customer satisfaction, and business growth.
• By involving employees in looking at their environment to bring about change, results in
improved morale as people begin to find work easier and more enjoyable.

10.7 SUMMARY

Two of the customer’s primary requirements are quality and timely delivery. Both these requirements
are susceptible to the variability in each process within the supply chain. This variability is of two types:

• Variability in the quality of the output

• Variability in the time taken for the activity
Six Sigma is used for bringing process under statistical control so that the variability in the output
quality can be kept within the desired limits. This method cannot on its own control the time factor,
which will need the methodology of ‘Lean’.

Lean means a fast process. Slow processes are responsible for increasing the throughput time and
adding to costs.
Six Sigma is a powerful tool that can help an organization to design, operate and control every process
in such a manner that no process yields more than 3.4 defects for every million opportunities. Six
Sigma concept reduces defects in two different ways: 1) By reducing the variability by re-designing the
process, and 2) By permitting higher variations in specifications.

Tools used for practicing Lean and Six Sigma are categorized as DMAIC (Define, Measure, Analyze,
Improvement & Control) tools.

Define Tools:- 1. Project Definition Form2. SIPOC Diagram

Measure Tools:-

A) Process Characteristic Tools – 1. Process Mapping. 2. Value Stream Mapping.

B) Focus Tools – 1. Pareto Charts 2. Cause & Effect Matrix3. FMEA
C) Idea Generating & Selection Tools – 1. Brainstorming 2. Nominal Group Technique
3. Multivoting 4. Ishikawa Diagram
D) Data Collection Tools – 1. Tally Sheets 2. Gauge R&R
E) Understanding and Eliminating Variation – 1. Run Charts 2. Control Charts
3. Process Capability
Analyze Tools :- 1. Scatter Plots 2. ANOVA 3. Regression Analysis 4. Time Trap Analysis

5. Root Cause Analysis

Improve Tools :- 1. Poka Yoke 2. Kaizen 3. SMED* 4. TPM 5. DOE
Control Tools :- SPC.

10.8 KEY WORDS

• Lean Manufacturing – Set of "tools" that assist in the identification and elimination of waste
• Value mapping –
• Bottleneck Operation – Operation which controls the output of the line.
• Company Champion – Overall head of Six Sigma initiative in the organization and reports directly
to the CEO
• Business unit champion – Person who looks after Six sigma activities in the Business Unit / Division.
He serves as the bond between Six Sigma projects and Business Unit strategies.
• Green Belt – Employee who takes up Six Sigma implementation along with his other job
responsibilities.
• Black Belt – person who leads the Project team to deliver value and he is the back-bone of Six
Sigma activity in the section
• White Belt – Junior most fresh entrant to Six Sigma structure initiated with an objective for future
expansion of Six Sigma network.
• Project Definition Form (PDF) – Form designed to give information on the key parameters of the
project to the Top Management.
• 10 . SIPOC diagram – Diagram to quickly define, document, analyze, prioritize and recommend
solutions and follow-up plans to move the company toward its financial and customer-focused
goals.
• Process Mapping – Graphical representation of a process.
• Value Stream Mapping – Paper and pencil sketch that depicts all the process steps, which are
required to turn customer needs into products/services that satisfy these needs and helps you to
see and understand the flow of material and information as a product or service makes its way
through the value stream.
• Cause & Effect Matrix – Tool for capturing “Voice of Customer” and relating it to the process input
variables.
• Brainstorming – Group creativity technique designed to generate a large number of ideas for the
solution of a problem.
• Nominal Group Technique – Idea selection tool used in conjunction with brain-storming.
• Multivoting – This is the next step to NGT and is used when possible choices are reduced to a
manageable number (5-10).
• 17 Tally Sheets – Forms designed to record the generated data in an organized way to facilitate its
subsequent analysis.
• Scatter Plots – Special type of graph in which, two characteristics whose relationship is to be
studied, are taken on X and Y axis
• ANOVA – Analysis of Variation evaluation by inputting the relevant data.
• Regression analysis – Mathematical model that quantifies the relationship between an input
variable and the output.
UNIT 11 TOYOTA PRODUCTION SYSTEM (TPS)

Objective

After completing this unit, you will be able to:

• Trace the origin and development of Toyota Production System (TPS)

• Explain the underlying principles of TPS.
• Comprehend the long-term philosophy on which TPs is based
• Justify importance of process approach which is at the core of TPS
• Elaborate how value addition is achieved through development of people.
• Comprehend the meaning of typical Japanese terms.
• Explain how problem elimination is done through Root Cause Analysis
• Practice various techniques used in TPS
• Appreciate how Toyota develops Flexible Workforce
• Use concept of Jidoka to get ‘right results the first time’.

Structure
11.1 Introduction
11.2 History
11.3 Underlying Principles of TPS
11.4 The 14 Principles
11.5 Essential Features of TPS
11.6 Techniques used in TPS
11.7 Summary
11.8 Keywords

11.1 INTRODUCTION

No discussion on World Class Manufacturing can be complete without studying Toyota Production
System. Japanese Industry was the first to innovate and adapt many new manufacturing tools and
systems like TQM, SPC, TPM, JIT etc. which form the backbone of a World Class Manufacturing System.
Origin of most of these techniques can be traced to Toyota Motor Company and its subsidiaries. Hence
this unit is dedicated for Toyota Manufacturing System which is recognized world over as a company
with very high productivity and World Class Quality.
11.2 HISTORY

In 1990 James Womack first coined the phrase “Lean Manufacturing” in his book called "The Machine
That Changed the World” The essential elements of Lean Manufacturing do not substantially differ
from the techniques developed by Ohno, Shingo and the people at Toyota. However, blind copying of
Toyota Way has led to many failures. There is no standard recipe for manufacturing. Each firm has its
own unique set of products, processes, people, and history. While certain principles may be universally
applicable, their implementation will differ from organization to organization. Manufacturing Strategy
will always be a difficult, uncertain, and individual process. Strategy ("The General's Art") is still,
largely, an art. But that should not prevent any organization from bringing the available science to
bear on the problem.

The Toyota Production System (TPS) is an integrated socio-technical system, developed by Toyota as
its management philosophy and practices. The TPS organizes manufacturing and logistics for the
automobile manufacturer, including interaction with suppliers and customers. The system is a major
precursor of the more generic "Lean manufacturing." Taiichi Ohno, Shigeo Shingo and Eiji Toyoda
developed the system between 1948 and 1975.

Originally called "Just In Time Production", it builds on the approach created by the founder of Toyota,
Sakichi Toyoda, his son Kiichiro Toyoda, and the engineer Taiichi Ohno. The founders of Toyota drew
heavily on the work of W. Edwards Deming and the writings of Henry Ford. These men came to the
United States to observe the assembly line and mass production that had made Ford no. one car
manufacturer in the World. Rather than getting impressed, they were appalled by high level of
inventories, drastically uneven workloads on day to day basis and large amount of rework at end of
every process.

While shopping in a supermarket named “Piggly Wiggly”, they observed the simple idea of an
automatic drink re-supplier. When the customer wants a drink, he takes one, and it is immediately
replaced by another. This observation led to developing Kanban system of production, which forms
the backbone of TPS.

The Toyota production system has been compared to squeezing water from a dry towel. What this
means is that it is a system for thorough waste elimination. Waste elimination is already covered in
greater details in a previous chapter.
People normally resign themselves to certain problems, thinking these as inevitable and become
hostage to routine thus abandoning the practice of problem-solving. This going back to basics,
exposing the real significance of problems and then making fundamental improvements is the
hallmark of Toyota Production System.

Low inventory levels is not the only philosophy of TPS but key features of the system is to work
intelligently and eliminate waste so that inventory is no longer needed. Many businesses, having
observed Toyota's factories, set out to attack high inventory levels directly without understanding
what made these reductions possible. The act of imitating without understanding the underlying
concept or motivation may have led to the failure of those projects.

11.3 UNDERLYING PRINCIPLES OF TPS

Long-term philosophy:

Base your management decisions on a long-term philosophy, even at the expense of short-term
financial goals.

The right process will produce the right results:

• Create continuous process flow to bring problems to the surface.

• Use the "pull" system to avoid overproduction
• Level out the workload (Heijunka). (Work like the tortoise, not the hare.)
• Build a culture of stopping to fix problems, to get quality right from the first.
• Standardized tasks are the foundation for continuous improvement and employee
empowerment.
• Use visual control so no problems are hidden
• Use only reliable, thoroughly tested technology that serves your people and processes.

Add value to the organization by developing your people and partners:

• Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.
• Develop exceptional people and teams who follow your company's philosophy.
• Respect your extended network of partners and suppliers by challenging them and helping
them improve.
Continuously solving root problems drives organizational learning

• Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu)
• Make decisions slowly by consensus, thoroughly considering all options (Nemawashi)
implement decisions rapidly
• Become a learning organization through relentless reflection (Hansei) and continuous
improvement (Kaizen).

Commonly used terminology

• Andon – Signboard
• Genchi Genbutsu – Go and see for yourself
• Hansei – Self-reflection
• Heijunka – Production Smoothing
• Jidoka – Autonomation - automation with human intelligence)
• Manufacturing supermarket – where all components are available to be withdrawn by a
process
• Nemawashi – Laying the groundwork, literally: Going around the roots
• Poka-yoke – Fail-safing - to avoid (yokeru) inadvertent errors (poka).

11.4 THE 14 PRINCIPLES

The Toyota Way has been called "a system designed to provide the tools for people to continually
improve their work" The 14 principles of The Toyota Way are organized in four sections:

1. Long-Term Philosophy.
2. The Right Process Will Produce the Right Results.
3. Add Value to the Organization by Developing Your People.
4. Continuously Solving Root Problems Drives Organizational Learning.

These principles are set out and briefly described below:

Section I — Long-Term Philosophy

Principle 1

Base your management decisions on a long-term philosophy, even at the expense of short-
term financial goals.
 People need purpose to find motivation and establish goals.

Section II — The Right Process Will Produce the Right Results

Principle 2

Create a continuous process flow to bring problems to the surface.

Work processes are redesigned to eliminate waste (muda) through the process of continuous
improvement — Kaizen. The eight types of muda are:

• Overproduction
• Waiting (time on hand)
• Unnecessary transport or conveyance
• Over processing or incorrect processing
• Excess inventory
• More than the minimum Motion required to do the activity.
• Product Defects
• Unused employee creativity

Principle 3

Use “pull" systems to avoid overproduction.

A method, where a process signals its predecessor, that more material is needed. The pull
system produces only the required material after the subsequent operation signals a need for
it. This process is necessary to reduce overproduction.

Principle 4

Level out the workload (Heijunka). (Work like the tortoise, not the hare).

This helps achieve the goal of minimizing waste (Muda), not overburdening people or the
equipment (muri), and not creating uneven production levels (Mura).

Principle 5

Build a culture of stopping to fix problems, to get quality right the first time.

Quality takes precedence (Jidoka). Any employee in the Toyota Production System has the
authority to stop the process to signal a quality issue.
 Principle 6

Standardized tasks and processes are the foundation for continuous improvement and
employee empowerment.

Although Toyota has a bureaucratic system, the way that it is implemented allows for
continuous improvement (Kaizen) from the people affected by that system. It empowers the
employee to aid in the growth and improvement of the company.

Principle 7

Use visual control so no problems are hidden.

Included in this principle is the 5S Program - steps that are used to make all work spaces
efficient and productive, help people share work stations, reduce time looking for needed
tools and improve the work environment.

Principle 8

Use only reliable, thoroughly tested technology that serves your people and processes.

Technology is pulled by manufacturing, not pushed to manufacturing.

Section III — Add Value to the Organization by Developing Your People

Principle 9

Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.

Without constant attention, the principles will fade. The principles have to be ingrained. It
must be the way one thinks. Employees must be educated and trained; they have to maintain
a learning organization.

Principle 10

Develop exceptional people and teams who follow your company's philosophy.

Teams should consist of 4-5 people and numerous management tiers. Success is based on the
team, not the individual.

Principle 11
 Respect your extended network of partners and suppliers by challenging them and helping
them improve.

Toyota treats suppliers much like they treat their employees, challenging them to do better
and helping them to achieve it. Toyota provides cross functional teams to help suppliers
discover and fix problems so that they can become a stronger, better supplier.

Section IV: Continuously Solving Root Problems Drives Organizational Learning

Principle 12

Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu).

Toyota managers are expected to "go-and-see" operations. Without experiencing the

situation firsthand, managers will not have an understanding of how it can be improved.
Furthermore, managers use Tadashi Yamashima's (President, Toyota Technical Center (TTC))
ten management principles as a guideline:

• Always keep the final target in mind.

• Clearly assign tasks to yourself and others.
• Think and speak on verified, proven information and data.
• Take full advantage of the wisdom and experiences of others to send, gather or discuss
information.
• Share information with others in a timely fashion.
• Always report, inform and consult in a timely manner.
• Analyze and understand shortcomings in your capabilities in a measurable way.
• Relentlessly strive to conduct kaizen activities.
• Think "outside the box," or beyond common sense and standard rules.
• Always be mindful of protecting your safety and health.

Principle 13

Make decisions slowly by consensus, thoroughly considering all options; implement decisions
rapidly (Nemawashi).

The following are decision parameters:

• Find what is really going on (go-and-see) to test

• Determine the underlying cause
 • Consider a broad range of alternatives
• Build consensus on the resolution
• Use efficient communication tools

Principle 14

Become a learning organization through relentless reflection (Hansei) and continuous

improvement (kaizen).

The process of becoming a learning organization involves criticizing every aspect of what one
does. The general problem-solving technique to determine the root cause of a problem
includes:

• Initial problem perception

• Clarify the problem
• Locate area/point of cause
• Investigate root cause (5 whys)
• Countermeasure
• Evaluate
• Standardize

11.5 ESSENTIAL FEATURES OF TPS

“Underlying Principles” and “14 Principles” can be summed up in following essential features of TPS.

• Makes the factory operate for the organization, just like a human body operates for an
individual.
• Increases the production efficiency by consistently and thoroughly eliminating the ‘Waste’.
• Produces many types of products in small numbers.
• Makes each product one at a time.
• Makes efficiency improvements complimentary to ‘Cost Reductions’.
• Integrates efficiency of each operator into ‘Group Efficiency’, which in turn improves ‘Plant
Efficiency’.
• Improves productivity during low growth periods.
• Encourages setting of standards at worker level.
 • Considers plant system as a whole and not department wise.
• Implements a system that employs fewer workers by providing environment, which is
sensitive to human needs.
• Decides on replacement of machines from case to case basis by determining machine’s
earning capacity and not its age or years in service.
• Emphasizes “Teamwork” based on ‘Mutual Assistance Campaign’ and effective ‘Baton Passing’
i.e. compensating for weak links by extra efforts from strong team members.

11.6 TECHNIQUES USED IN TPS

Toyota developed a set of techniques that identify and eliminate waste in their context. Among them:

• Cellular Manufacturing
• TQM
• Kanban.
• SMED
• Flexible Workforce
• Jidoka

While TQM, Kanban and SMED are discussed elsewhere in greater details the others are discussed
below:

Flexible Workforce –Toyota Way

The best example of the flexible workforce can be that of Toyota Motor Company, which is
discussed in some details below.

Toyota Beliefs:

• We do not just build cars, we build people.

• Making things is about making people.
• Developing exceptional people is Toyota’s number one priority.
• You cannot separate People Development from Production System Development.
• Great people supported by a System that mandates the need for such People.
• Merely installing new technique without appropriate development of skills and abilities will
produce limited results.
• Every Manager in Toyota must be a Teacher.
• If Student has not “Learnt”, the Teacher has not “Taught”.
• Only 10% is inherent talent, 90% is learnt through efforts and repeated practice.

Toyota has fourteen ‘Guiding Principles’ six of which are focused on Human Resources.

• Basic Management decisions should focus on long term philosophy (refer to Toyota Beliefs
stated above) even at the expense of short-term financial goals.
• Standardized processes are the foundation for continuous improvements. Processes are
standardized and operated by competent people who are trained to do that.
• Grow Leaders, who thoroughly understand work, who live the philosophy and teach these to
others.
• Develop exceptional people and teams who follow Company’s philosophy.
• Respect your suppliers by challenging and helping them to improve continuously.
• Become a ‘Learning Organization’ through relentless reflection and continuous improvement.

People selection at Toyota is based on person’s desire and capacity to learn. Toyota has recognized
the realities of human behavior and limitations and has created systems that minimize these
limitations and take advantage of human desire. Equal balance is struck between rewards and
punishments in order to encourage desired behavior.

Once the process is standardized, Toyota relies heavily on “Job Instructions” to ensure
repeatability of the process and eliminate variation. Four steps method is followed for Job
Instructions

• Prepare the Student

• Present the Operation
• Tryout performance
• Follow up
First three steps are carried out in specially designed training environment for every operation
and the person is put on the actual job only after getting the desired performance in step three.
This ensures that there is no loss of either quantity or quality even when a new man is assigned
to regular operation.

At Toyota, ‘Product Value Stream’ is supported by a ‘People Value Stream’, which is briefly
outlined below.
Organizational Supporting Systems

Inputs People Value Stream PDCA Outputs

People Supporting Systems

Inputs: - 1. Organizational Philosophy. 2. Organizational Value System

3. Production System Principles. 4. Key Competencies.

5. Eligible Human Resources.

People Value Stream Steps: -

• Attract Trainable people through Recruitment, Selection and Orientation.

• Develop Abilities by Training/Coaching, On the job Development and assigning adequate Role.
• Engage developed people to follow Standards, improve Standards, solve Problems and work
in Teams to get continuous Improvements.
• Enroll commitment of people by sharing success, creating opportunities for Career
Development and working for the Company.

The above steps are continuously repeated through famous Deming Cycle of Plan – DO – Check –
Act (PDCA).

Organizational Support Systems: -

• Stable Employment and Manpower Management.

• Fair and Consistent HR Policies and Practices.

• Recognition and Corrective Actions.

• Hoshin Kanri (Policy Deployment).

People Supporting Systems: -

1. Teamwork
 2. Clean and Safe Workplace

3. Two – Way Communication

4. Toyota Way Leadership

Outputs: Culture of Quality People producing High Quality, Low Cost, On Time Products.

Cellular Manufacturing

Cellular Manufacturing and work cells are at the heart of Lean Manufacturing. Their benefits are
many and varied. They increase productivity and quality. Cells simplify material flow, management
and even accounting systems.

Cellular Manufacturing seems simple. But beneath this deceptive simplicity are sophisticated
Socio-Technical Systems. Proper functioning depends on subtle interactions of people and
equipment. Each element must fit with the others in a smoothly functioning, self-regulating and
self-improving operation.

What is A Work cell?

A work cell is a work unit comprising of more than one machine. Typically, it has 3-12 people and
5-15 machines in a compact arrangement. A number of such work cells can form a department.

An ideal cell manufactures a narrow range of highly similar products. Such an ideal cell is self-
contained with all necessary equipment and resources.

Cellular layouts organize departments around a product or a narrow range of similar products.
Materials wait in an initial queue when they enter the department.

Once processing begins, materials move directly from process to process (or wait in mini queues).
The result is very fast throughput. Communication is easy since all operators in the work cell work
in tandem. This improves quality and coordination. Nearness and a common mission enhance
teamwork.

Simplicity is an underlying theme throughout cellular design. Material flow, Scheduling,

supervision and many other elements in the manufacturing system are simplified in a work cell.

Benefits of Cells

• Inter-departmental movements are reduced.

 • Distance through which material has to travel reduces drastically.
• Route structure gets fixed
• Number of ques are reduced.
• Throughput time is drastically reduced.
• Response time is reduced to a considerable extent.
• Supervision becomes easier
• Teamwork improves
• Feedback on quality is very fast
• Flexibility of workforce improves.
• Scheduling becomes simpler.
• Cells usually require smaller, simpler and less expensive machines, which reduces the fixed
costs.
• Improves worker morale due to a sense of pride in workmanship, which is inherent to work
cell operations.
Benefits to the Customer

• The customer sees improved quality, and this is an obvious benefit to both customer and
supplier.
• Customers see faster response to unusual requests for customized products or expedited
delivery.
• With cellular layouts, it is easier and less costly to manufacture in small, frequent lots. This
usually matches customer needs more closely.
• Deliveries become more reliable due to reduced throughput time.

Jidoka (Autonomation)

Autonomation

It may be described as "intelligent automation" or "automation with a human touch. This type of
automation implements some supervisory functions rather than production functions. At Toyota
this usually means that if an abnormal situation arises the machine stops, and the worker will stop
the production line. Autonomation prevents the production of defective products, eliminates
overproduction and focuses attention on understanding the problem and ensuring that it never
recurs. It is a quality control process that applies the following four principles:

• Detect the abnormality

 • Stop
• Fix or correct the immediate condition
• Investigate the root cause and install a countermeasure

Purpose and implementation:

Autonomation is called by Shigeo Shingo – its originator – pre-automation. It separates workers from
machines through mechanisms that detect production abnormalities (many machines in Toyota have
these). He says there are twenty-three stages between purely manual and fully automated work. To
be fully automated machines must be able to detect and correct their own operating problems which
is currently not cost-effective. However, ninety percent of the benefits of full automation can be
gained by autonomation.

The purpose of autonomation is that it makes possible the rapid or immediate address, identification
and correction of mistakes that occur in a process. Autonomation relieves the worker of the need to
continuously judge whether the operation of the machine is normal; their efforts are now only
engaged when there is a problem alerted by the machine. As well as making the work more interesting
this is a necessary step if the worker is to be asked later to supervise several machines. For instance,
rather than waiting until the end of a production line to inspect a finished product, autonomation may
be employed at early steps in the process to reduce the amount of work that is added to a defective
product. A worker who is self-inspecting their own work, or source-inspecting the work produced
immediately before their workstation is encouraged to stop the line when a defect is found. This
detection is the first step in Jidoka. A machine performing the same defect detection process is
engaged in autonomation.

Once the line is stopped a supervisor or person designated to help correct problems gives immediate
attention to the problem the worker or machine has discovered. To complete Jidoka, not only is the
defect corrected in the product where discovered, but the process is evaluated and changed to
remove the possibility of making the same mistake again. One solution to the problems can be to
insert a "mistake-proofing" device somewhere in the production line. Relationship with "just-in-time"

Taiichi Ohno and Sakichi Toyoda, originators of the TPS and practices in the manufacturing of textiles,
machinery and automobiles considered JIT & Autonomation the pillars upon which TPS is built. Jeffrey
Liker and David Meier indicate that Jidoka or "the decision to stop and fix problems as they occur
rather than pushing them down the line to be resolved later" is a large part of the difference between
the effectiveness of Toyota and other companies who have tried to adopt Lean Manufacturing.
Autonomation, therefore can be said to be a key element in successful Lean Manufacturing
implementations.

For "just-in-time" (JIT) systems, it is absolutely vital to produce with zero defects, or else these defects
can disrupt the production process - or the orderly flow of work.

JIT and Lean Manufacturing are always searching for targets for continuous improvement in its quest
for quality improvements, finding and eliminating the causes of problems so they do not continually
crop up.

Jidoka involves the automatic detection of errors or defects during production. When a defect is
detected, the halting of the production forces immediate attention to the problem.

The halting causes slowed production, but it is believed that this helps to detect a problem earlier and
avoids the spread of bad practices.

Root Cause Analysis

It is a method aimed at identifying and solving the root causes of problems or events. The practice of
RCA is based on the belief that problems are best solved by attempting to correct or eliminate causes
at the very root of the problem and not treating only the symptoms which are at the surface. This way,
possibility of recurrence of the problem is minimized but to eliminate the problem completely, RCA
will have to be used as an iterative process with a number of successive interventions. Thus, it is a
powerful tool for continuous improvement.

In initial stages RCA is a reactive method of problem detection and solving, as it is done after the
problem has occurred but through experience it can become a proactive tool, wherein possibility of a
problem occurring can be forecasted and the necessary preventive action taken..

RCA is broadly classified in following types:

• Safety-based RCA descends from the fields of accident analysis and occupational safety and
health.
• Production-based RCA originates from quality control for industrial manufacturing.
• Process-based RCA typically follows production-based RCA, but with a scope that has been
expanded to include business processes.
 • Failure-based RCA is rooted in the practice of failure analysis as employed in engineering and
maintenance.

Systems-based RCA has emerged as an amalgamation of the above types along with ideas taken
from fields such as change management, risk management, and systems analysis.

General Principles of Root Cause Analysis:

• Aiming performance improvement measures at root causes is more effective than merely
treating the symptoms of a problem.
• To be effective, RCA must be performed systematically, with conclusions and causes backed
up by documented evidence.
• There is usually more than one potential root cause for any given problem.
• To be effective the analysis must establish all known causal relationships between the root
cause(s) and the defined problem.
• Root cause analysis transforms an old culture that reacts to problems to a new culture that
solves problems before they escalate, creating a variability reduction and risk avoidance
mindset.

General process for performing and documenting an RCA-based Corrective Action:

• Define the problem.

• Gather data/evidence.
• Ask why and identify the causal relationships associated with the defined problem.
• Identify which causes if removed or changed will prevent recurrence.
• Identify effective solutions that prevent recurrence, are within your control, meet your goals
and objectives and do not cause other problems.
• Implement the recommendations.
• Observe the recommended solutions to ensure effectiveness.
• Variability Reduction methodology for problem solving and problem avoidance.

Root cause analysis techniques:

• Barrier analysis - a technique often used in particularly in process industries. It is based on

tracing energy flows, with a focus on barriers to those flows, to identify how and why the
barriers did not prevent the energy flows from causing harm.
• Bayesian inference - Bayesian inference is statistical inference in which evidence or
observations are used to update or to newly infer the probability that a hypothesis may be
true. The name "Bayesian" comes from the frequent use of Bayes theorem in the inference
process. Bayes' theorem was derived from the work of the Reverend Thomas Bayes.
• Causal factor tree analysis - a technique based on displaying causal factors in a tree-structure
such that cause-effect dependencies are clearly identified.
• Change analysis - an investigation technique often used for problems or accidents. It is based
on comparing a situation that does not exhibit the problem to one that does, in order to
identify the changes or differences that might explain why the problem occurred.
• Failure mode and effects analysis also known as FMEA.
• Fault tree analysis
• 5 Whys
• Ishikawa diagram, also known as the fishbone diagram or cause and effect diagram.
• Kepner-Tregoe Problem Analysis - a root cause analysis process developed in 1958, which
provides a fact-based approach to systematically rule out possible causes and identify the true
cause It is a structured, systematic process which is used to maximize the critical thinking skills
of key stakeholders in a particular situation, problem (potential or real), decision or
opportunity. The Rational Processes are broken down into following:

• Situational appraisal - the process of ensuring that priority and order are established for
multiple concerns associated with a specific issue.
• Problem analysis - a systematic process for finding the cause of a positive or negative
deviation.
• Decision analysis - a systematic process for making a balanced choice.
• Potential problem or Opportunity analysis – a systematic process for protecting an action
or a plan.

Basic elements of root cause:

• Materials

⎯ Defective raw material

⎯ Wrong type for job

⎯ Lack of raw material

• Machine / Equipment
 ⎯ Incorrect tool selection

⎯ Poor maintenance or design

⎯ Poor equipment or tool placement

⎯ Defective equipment or tool

• Environment

⎯ Orderly workplace

⎯ Job design or layout of work

⎯ Surfaces poorly maintained

⎯ Physical demands of the task

⎯ Forces of nature

• Management

⎯ No or poor management involvement

⎯ Inattention to task

⎯ Task hazards not guarded properly

⎯ Other (horseplay, inattention....)

⎯ Stress demands

⎯ Lack of Process

• Methods

⎯ No or poor procedures

⎯ Practices are not the same as written procedures

⎯ Poor communication

• Management system

⎯ Training or education lacking

⎯ Poor employee involvement

⎯ Poor recognition of hazard

⎯ Previously identified hazards were not eliminated

11.7 SUMMARY

The Toyota Production System (TPS) is an integrated socio-technical system, developed by Toyota as
its management philosophy and practices. Originally called "Just In Time Production", it builds on the
approach created by the founder of Toyota, Sakichi Toyoda, his son Kiichiro Toyoda, and the engineer
Taiichi Ohno. The Toyota production system has been compared to squeezing water from a dry towel.
What this means is that it is a system for thorough waste elimination. Low inventory levels is not the
only philosophy of TPS but key features of the system is to work intelligently and eliminate waste so
that inventory is no longer needed.

Toyota Way is organized in four sections comprising of total 14 principles.

• Long-Term Philosophy
• The Right Process Will Produce the Right Results.
• Add Value to the Organization by Developing Your People.
• Continuously Solving Root Problems Drives Organizational Learning.

TPS works with the help of following techniques: Cellular Manufacturing, TQM, Kanban, SMED,
Flexible Workforce, Jidoka and Root Cause Analysis.

11.8 KEYWORDS

▪ Toyota Production System (TPS) – Integrated socio-technical system, developed by Toyota as

its management philosophy and practices
▪ Andon – Signboard
▪ Genchi Genbutsu – Go and see for yourself
▪ Hansei – Self-reflection
▪ Heijunka – Production Smoothing
▪ Nemawashi – Laying the groundwork, literally: Going around the roots
▪ Pull System – A method where a process signals its predecessor that more material is needed.
▪ Cellular Work Cell – organizing departments around a product or a narrow range of similar
products.
▪ Autonomation – Automation with a human touch.
▪ Root Cause Analysis (RCA) – Method aimed at identifying and solving the root causes of
problems or events.
UNIT 12 CONTRIBUTIONS OF EXPERTS TO WCM

Objectives

After completing this unit, you will be able to put to practice some very novel ideas propagated by
below mentioned world famous management experts of modern era, which have contributed and
enriched WCM concept:

• Dr. Edward Deming

• Phil Crosby
• Shigeo Shingo
• Kaoru Ishikawa
• Michael Porter
• C. K. Prahlad
• Stephen Covey
• Peter Senge

Structure
12.1 Introduction
12.2 Dr. Edward Deming
12.3 Seven Deadly Diseases
12.4 Quotations and concepts of Deming
12.5 Philip Crosby
12.6 Shigeo Shingo
12.7 Kaoru Ishikawa
12.8 Michael Porter
12.9 Value chain
12.10 Four corners model
12.11 C. K. Prahalad
12.12 Stephen Covey
12.13 Peter Senge
12.14 Summary
12.15 Keywords
12.1 INTRODUCTION

Efficiency, Effectiveness, Costs and Quality are the four most important dimensions of a World Class
Manufacturing Company. These four factors are not independent. As a matter of fact, each one of
them has a close relationship with others. Contrary to the old belief that any improvement in Quality
has to come at extra costs, it is now an accepted fact that improvement in quality, which has to come
through improvement of the processes, reduces the costs and improves efficiency in the long term.
This change in the concepts of how to reach the world class standards has been due to the theories
and techniques propagated by modern experts of management like Dr. Deming, Ishikawa, Crosby,
Sumanth, Porter etc. This chapter briefly explores the teachings of some of these experts.

12.2 DR. EDWARD DEMING

William Edwards Deming (October 14, 1900 – December 20, 1993) was an American statistician,
professor, author, lecturer, and consultant. Deming is widely credited with improving production in
the United States during the Cold War, although he is perhaps best known for his work in Japan. There,
from 1950 onward he taught top management how to improve design (and thus service), product
quality, testing and sales (the last through global markets)[1] through various methods, including the
application of statistical methods.

Deming made a significant contribution to Japan's later reputation for innovative high-quality
products and its economic power. He is regarded as having had more impact upon Japanese
manufacturing and business than any other individual not of Japanese heritage and is considered
something of a hero in Japan.

Deming philosophy synopsis

The philosophy of W. Edwards Deming has been summarized as follows:

"Dr. W. Edwards Deming taught that by adopting appropriate principles of management,

organizations can increase quality and simultaneously reduce costs (by reducing waste, rework,
staff attrition and litigation while increasing customer loyalty). The key is to practice continual
improvement and think of manufacturing as a system, not as bits and pieces."
 In the 1970s, Dr. Deming's philosophy was summarized by some of his Japanese proponents with
the following 'a'-versus-'b' comparison:

(a) When people and organizations focus primarily on quality, defined by the following ratio

Results of work efforts

Quality = --------------------------------
Total costs

Quality tends to increase, and costs fall over time.

(b) However, when people and organizations focus primarily on costs, costs tend to rise and
quality declines over time.

The Deming System of Profound Knowledge

It provides a map of theory by which to understand the organizations that we work in.

The first step is transformation of the individual. This transformation is discontinuous. It comes
from understanding of the system of profound knowledge. The individual, transformed, will
perceive new meaning to his life, to events, to numbers, to interactions between people.

Once the individual understands the system of profound knowledge, he will apply its principles in
every kind of relationship with other people. He will have a basis for judgment of his own decisions
and for transformation of the organizations that he belongs to. The individual, once transformed,
will:

• Set an example;
• Be a good listener, but will not compromise;
• Continually teach other people; and
• Help people to pull away from their current practices and beliefs and move into the new
philosophy without a feeling of guilt about the past."

Deming advocated that all managers need to have what he called a System of Profound
Knowledge, consisting of four parts:
• Appreciation of a system: understanding the overall processes involving suppliers, producers,
and customers (or recipients) of goods and services (explained below);
• Knowledge of variation: the range and causes of variation in quality, and use of statistical
sampling in measurements;
• Theory of knowledge: the concepts explaining knowledge and the limits of what can be
known/
• Knowledge of psychology: concepts of human nature.

Deming explained, "One need not be eminent in any part nor in all four parts in order to
understand it and to apply it. The 14 points for management in industry, education, and
government follow naturally as application of this outside knowledge, for transformation from the
present style of Western management to one of optimization."

The various segments of the system of profound knowledge proposed here cannot be separated.
They interact with each other. Thus, knowledge of psychology is incomplete without knowledge
of variation.

A manager of people needs to understand that all people are different. This is not ranking people.
He needs to understand that the performance of anyone is governed largely by the system that
he works in, the responsibility of management.

The Appreciation of a system involves understanding how interactions (i.e., feedback) between
the elements of a system can result in internal restrictions that force the system to behave as a
single organism that automatically seeks a steady state. It is this steady state that determines the
output of the system rather than the individual elements. Thus, it is the structure of the
organization rather than the employees, alone, which holds the key to improving the quality of
output.

The Knowledge of variation involves understanding that everything measured consists of both
"normal" variation due to the flexibility of the system and of "special causes" that create defects.
Quality involves recognizing the difference to eliminate "special causes" while controlling normal
variation. Deming taught that making changes in response to "normal" variation would only make
the system perform worse. Understanding variation includes the mathematical certainty that
variation will normally occur within six standard deviations of the mean.

The System of Profound Knowledge is the basis for application of Deming's famous 14 Points
Deming’s 14 Principles

Create constancy of purpose with a plan:

“Create constancy of purpose for continual improvement of products and service to society,
allocating resources to provide for long range needs rather than only short-term profitability,
with a plan to become competitive, to stay in business, and to provide jobs.”

Purpose of any commercial organization is to make profits for its owners. Profits are possible only
when there are enough customers who are prepared to pay for organization’s products/services.
In a competitive environment, customer satisfaction is possible only when there is continuous
improvement in the product/services. Thus, essence of constancy of purpose for the organization
is:

• To stay in business by being competitive.

• Be competitive by continuously improving the products/services and reducing costs.
• Strike the right balance for benefitting all the stake holders of the organization.

Planning for creating this constancy of purpose is the responsibility of the top management, which
has to:

• Establish policy
• Establish core values
• Set the long-term strategic course

Companies usually do have long-term vision, but have short-term systems, that focus on
short-term results.

Adopt the new philosophy of Quality:

Adopt the new philosophy. We are in a new economic age, created in Japan. We can no longer
live with commonly accepted levels of delays, mistakes, defective materials and defective
workmanship. Transformation of Western management style is necessary to halt the
continued decline of business and industry.

New philosophy of Quality involves:

• Focus on customer and not competition

 • Ensuring quality at source i.e. through a better process, which eliminates chances of
defectives and reduces ‘Waste’
• Continuous improvement and upgrading of products/services.
• Ensuring better uniformity of products and processes through Statistical approach.

Cease dependence on mass inspection to achieve quality:

Eliminate the need for mass inspection as the way of life to achieve quality by building quality
into the product in the first place. Require statistical evidence of built in quality in both
manufacturing and purchasing functions.

Necessity of inspection arises only when there is no confidence in the process which generates
the product. Any amount of inspection does not correct an already existing defect as
inspection is only a postmortem activity. Thus, path to better quality lies through a fool-proof
process rather than dependence on mass inspection. Quality is to be built into a product and
not inspected unto it.

End the practice of choosing suppliers on price alone:

End the practice of awarding business solely on the basis of price tag. Instead requires
meaningful measures of quality along with price. Reduce the number of suppliers for the same
item by eliminating those that do not qualify with statistical and other evidence of quality.
The aim is to minimize total cost, not merely initial cost, by minimizing variation. This may be
achieved by moving toward a single supplier for any one item, on a long-term relationship of
loyalty and trust. Purchasing managers have a new job and must learn it.

Suppliers are the stakeholders of the organization and traditional policy of ‘Divide and rule’
normally adopted is not conducive for building confidence in a supplier’s mind. This lack of
confidence comes in the way for getting quality and timely supplies at reasonable price.
Having too many suppliers reduces the share of business for the suppliers and they are forced
to look for alternatives. It is necessary to have a long-term relationship with the suppliers by
moving towards single source supplies and building trust and loyalty. Aim should be to reduce
total costs rather than only the initial cost. Organization should adopt “win-win" philosophy
with the suppliers. The security of the long-term relationship allows the supplier to innovate.
Identify problem and work continuously to improve the system:

Improve constantly and forever every process for planning, production, and service. Search
continually for problems in order to improve every activity in the company, to improve quality
and productivity, and thus to constantly decrease costs, institute innovation and constant
improvement of product, service, and process. It is management's job to work continually on
the system (design, incoming materials, maintenance, improvement of machines, supervision,
training, retraining).

Problem should be treated as an opportunity to improve the system. Any problem arises
basically because either the laid down system is not followed or because the system itself has
a flaw. Problems are of two types: the first type is the one which has already occurred and
needs immediate attention through a corrective action. However, after the corrective action
and restoration to normalcy, it is necessary to conduct a root cause analysis and take
preventive actions to ensure that the same problem will not recur again. This leads to
improvement in the system. The second type of problems are the potential problems i.e. those
problems which have not occurred but there is a distinct possibility of their occurrence unless
some pre-emptive action is not taken. This requires a continuous search for problems in order
to improve every activity in the company, which leads to improved quality and productivity
and reduction in costs. It is management's job to work continuously on the system (design,
incoming materials, maintenance, improvements of machines, training, supervision,
retraining).

Points to remember are:

• Corrective actions taken to sort out the existing problem, which is the result of
external (assignable) cause is not improving a process. When all assignable causes are
removed, the process is under statistical equilibrium. For improving the process, it is
necessary to reduce the variation in the process by addressing the random causes,
which are part and parcel of the process. Emphasis on conformance to standards can
obstruct continuous improvement.
• The Deming Cycle (PDCA Cycle) is key to continuous improvement:

Adopt modern methods for training on the job:

 Institute modern methods of training on the job for all including management, to make better
use of every employee. New skills are required to keep up with changes in materials, methods,
product and service design, machinery, techniques, and service.

Changes in materials, methods, product design, machinery, techniques and service conditions
require continuous up-gradation of skills of people who are required to handle these changes.
Before the person is put on the new job he should be brought up to the required skills. This
can be done by simulating the work conditions elsewhere. Some roadblocks for training can
be:

• It’s for my people, not for me.

• It’s for manufacturing, not for me.
• Our problems are different here.
• We rely on our experience.
• Hope for instant pudding.
• People learn in different ways.

Change focus from “Quantity” to “Quality”:

Adopt and institute leadership aimed at helping people do a better job. The responsibility of
managers and supervisors must be changed from sheer numbers to quality. Improvement of
quality will automatically improve productivity. Management must ensure that immediate
action is taken on reports of inherited defects, maintenance requirements, poor tools, fuzzy
operational definitions, and all conditions detrimental to quality.

For ages, the performance parameter for the organization has been linked to the quantity
produced in a given period of time. Naturally the focus of managers and supervisors is always
on the numbers and emphasis is on ‘How much’ and never on ‘How’. This many a times leads
to subverting the system and taking short cuts to somehow meet the quantity targets. This
approach not only adversely affects the quality but can also increase the ‘Waste’ and
subsequently the costs. As seen in the previous points, quality results from a better process
and a fool-proof process not only reduces the costs by eliminating waste but also eventually
reduces the time and consequently can increase the quantity.

The responsibility of managers and supervisors must be changed from sheer numbers to
quality. Improvement of quality through better processes will automatically improve
productivity. Management must ensure that immediate action is taken on reports of inherent
 defects, maintenance requirements, poor tools, vague operational definitions, and other
conditions detrimental to quality.

Management has to demonstrate leadership by helping people, machines and gadgets to do

a better job. Adopt and institute leadership aimed at helping people to do a better job.

Drive out fear from the organization so that everyone can work effectively for he company:

“Encourage effective two-way communication and other means to drive out fear throughout
the organization so that everybody may work effectively and more productively for the
company”.

Fear is a barrier to communication and improvement: wherever there is fear, we get the
wrong information. Fear in work is opposite to joy in work. The main source of fear is the
behavior pattern of the top management, which can result in mutual lack of trust at every
level in the organization. Innovative and creative spirit of the employees can never be
nurtured in an atmosphere of fear. Fear of change is also a big barrier, which must be
overcome. Remember, people don’t resist change, they resist being changed! The need is for
everybody to be part of the change, and to own the change process. An atmosphere of fear
results in management getting a “filtered” view of the organization.

Break down barriers between Departments:

“Break down barriers between departments and staff areas. People in different areas, such as
Leasing, Maintenance, Administration, must work in teams to tackle problems that may be
encountered with products or service”.

Deming says quite bluntly that if the boss of every staff area perceives (or indeed is told) that
his objective is to maximize his department's profits then the company will fail. One of the
most crucial differences between old-style and new-style management is seen in the way that
shop-floor employees, supervisors, departments, middle-managers and senior managers
regard their job: is it to optimize for their own area or to optimize for the organization?, It
cannot be both. Obviously, optimization must be for the organization. This is the reason why
Deming so strongly objects to Management by Objectives. It is necessary that objectives of
every function/department should support and be subverted to the overall objectives of the
organization.
Eliminate slogans, exhortations, and targets for the workforce. (Ask for productivity only after
providing the methods):

“Eliminate the use of slogans, posters and exhortations for the work force, demanding Zero
Defects and new levels of productivity, without providing methods. Such exhortations only
create adversarial relationships; the bulk of the causes of low quality and low productivity
belong to the system, and thus lie beyond the power of the work force”.

Slogans and targets like “Zero defects”, “Zero Breakdown”, “Zero inventory” etc, are directed
at the work force. Why there are no slogans for management to show what tools/facilities are
provided to achieve these? Such exhortations only create adversarial relationships as they
give an impression that all this is the responsibility of the workers and management has little
part to play. Actually, the bulk of the causes (more than 90%) of low quality and low
productivity belong to the system, which is responsibility of the management. It is necessary
first to convince the workers that the management has done all that is in their power to give
the best possible system for performing the task and then only ask them to show the results.

Eliminate numerical quotas for the workforce and numerical goals for management:

“Eliminate work standards that prescribe quotas for the work force and numerical goals for
people in management. Substitute aids and helpful leadership in order to achieve continual
improvement of quality and productivity”.

Once a figure in any area is quoted by the management as an acceptable target, it gets
converted in ‘quota’ and people try to stick to it. This can become a serious obstacle in further
improvement in that area. If employees get tuned in to work to quotas, their ability to
innovate also gets seriously hampered. Though people have to work to achieve goals,
intentions and aims; it should not be in isolation. Goals and objectives need continuous up-
gradation, which should be done at employees’ initiative. To do this, they need the necessary
education, training, systems and methods.

Thus, it is necessary to eliminate work standards (quotas) on the factory floor and substitute
leadership. Eliminate management by objective. Eliminate management by numbers,
numerical goals. Substitute aids and helpful leadership; statistical methods for continual
improvement of quality and productivity.
Remove barriers that rob people of pride in their work, and eliminate the annual rating or merit
system:

“Remove the barriers that rob hourly workers, and people in management, of their right to
pride of workmanship. This implies, among other things, abolition of the annual merit rating
(appraisal of performance) and of Management by Objective. Again, the responsibility of
managers, supervisors, foremen must be changed from sheer numbers to quality”.

Two greatest barriers for the people to take pride in their job are:

• Breaking the work in small elements and convert them in repetitive jobs in order to
improve efficiency (Adam Smith technique): - This turns people into robots, robbing
them of their innovative capabilities. Not knowing the complete job makes people
lose interest in how their work helps the organization to reach its objectives. It is like
a sculptor taking a pride in his creation if has done a full sculpture but if the same is
done in parts by different artisans at different places and then assembled at some
other place, none of the contributors have any pride in the final product. People get
accustomed to do what they are told to do and not go beyond it. This also leads to
resist any change and improvement any area becomes difficult resulting in stagnation.
• Performance appraisals and annual merit rating systems: - In this system people get
rewarded for individual performance and not for the team performance, which leads
to unhealthy competition resulting in strife. System normally rewards people for
conforming to standards and not for improvements or their contribution to help
others to achieve their goals.

If these barriers are removed and people are encouraged to take pride in what they are
doing, they can perform much better and contribute positively to the team performance.

Institute a vigorous program of education and self-improvement for everyone.

Institute a vigorous program of education and encourage self-improvement for everyone.

What an organization needs are not just good people; it needs people that are improving with
education. Advances in competitive position will have their roots in knowledge.

Point no. 6 explains training for a skill, which is finite; it ends when a person’s ability has
reached a stable state. In comparison, education is never-ending. Training tells you ‘How to
do the things’ whereas education explains ‘Why the things are to be done’. One who
concentrates on training is the 'practical man', also defined as one who repeats the mistakes
 of his predecessors. Not that, such people are not needed, but the organization needs more
people who improve with education. All substantial advances contain much that, in the past,
was called too theoretical. Advances in competitive position will have their roots in
knowledge. Education is priceless, beyond calculation. The future, not the past, is important,
and education is vital for improving the future.

A company should take action to aid and encourage the education of its employees at all
levels. The company's own courses should no longer be restricted to training but be
broadened to include good educational content.

Finally, recruitment should not be based just on past records. Look for people who can
culturally gel with the organization and who are willing to improve continuously.

Create Support of Top Management for all above points:

“Clearly define top management's permanent commitment to ever improving quality and
productivity, and their obligation to implement all of these principles. Indeed, it is not enough
that top management commit themselves for life to quality and productivity. They must know
what it is that they are committed to-that is, what they must do. Create a structure in top
management that will push every day on the preceding 13 Points and take action in order to
accomplish the transformation. Support is not enough: action is required”.

Top management's permanent commitment to ever-improving quality and productivity, and

their obligations to implement all of these principles should be clearly defined. Everyone in
the organization has to work to accomplish the transformation. They must know what it is
that they are committed to. It is top management’s responsibility to create a structure in top
management that will push every day on the preceding 13 Points and take action in order to
accomplish the transformation. Support is not enough: action is required.

12.3 SEVEN DEADLY DISEASES

The "Seven Deadly Diseases" include:

• Lack of constancy of purpose

• Emphasis on short-term profits
 • Evaluation by performance, merit rating, or annual review of performance
• Mobility of management
• Running a company on visible figures alone
• Excessive medical costs
• Excessive costs of warranty, fueled by lawyers who work for contingency fees

A Lesser Category of Obstacles" includes:

• Neglecting long-range planning

• Relying on technology to solve problems
• Seeking examples to follow rather than developing solutions
• Excuses, such as "Our problems are different"
• Obsolescence in school that management skill can be taught in classes.
• Reliance on quality control department rather than management, supervisors, managers of
purchasing, and production workers
• Placing blames on workforces who only responsible for 15% of mistake where the system
desired by management is responsible for 85% of the unintended consequences
• Relying on quality inspection rather than improve product quality

Deming's advocacy of the Plan-Do-Check-Act cycle, his 14 Points, and Seven Deadly Diseases have had
tremendous influence not only in manufacturing but have been applied in other arenas, such as in the
relatively new field of sales process engineering.

12.4 QUOTATIONS AND CONCEPTS OF DEMING

In his later years, Dr. Deming taught many concepts, which he emphasized by key sayings or quotations
that he repeated. A number of these quotes have been recorded. Some of the concepts might seem
to be oxymoron or contradictory to each other; however, the student is given each concept to ponder
its meaning in the whole system, over time.

• "There is no substitute for knowledge."

This statement emphasizes the need to know more, about everything in the system. It is
considered as a contrast to the old statement, "There is no substitute for hard work" by Thomas
Alva Edison (1847–1931). Instead, a small amount of knowledge could save many hours of hard
work.
• "The most important things cannot be measured."

The issues that are most important long-term cannot be measured in advance. However, they
might be among the factors that an organization is measuring, just not understood as most
important at the time.

• "The most important things are unknown or unknowable."

The factors that have the greatest impact, long term, can be quite surprising. Analogous to an
earthquake that disrupts service. Other "earth-shattering" events that most affect an organization
will be unknown or unknowable, in advance. Other examples of important things would be a
drastic change in technology, or new investment capital.

• "Experience by itself teaches nothing."

This statement emphasizes the need to interpret and apply information against a theory or
framework of concepts that is the basis for knowledge about a system. It is considered as a
contrast to the old statement, "Experience is the best teacher" (Dr. Deming disagreed with that).
To Dr. Deming, knowledge is best taught by a master who explains the overall system through
which experience is judged; experience, without understanding the underlying system, is just raw
data that can be misinterpreted against a flawed theory of reality. Deming's view of experience is
related to Shewhart's concept, "Data has no meaning apart from its context"

• "By what method?... Only the method counts."

When information is obtained, or data is measured, the method, or process used to gather
information, greatly affects the results. For example, the "Hawthorne effect" showed that people
just asking frequently for opinions seemed to affect the resulting outcome, since some people felt
better just being asked for their opinion. Dr. Deming warned that basing judgments on customer
complaints alone ignored the general population of other opinions, which should be judged
together, such as in a statistical sample of the whole, not just isolated complaints: survey the
entire group about their likes and dislikes The extreme complaints might not represent the
attitudes of the whole group. Similarly, measuring or counting data depends on the instrument or
method used. Changing the method changes the results. Aim and method are essential. An aim
without a method is useless. A method without an aim is dangerous. It leads to action without
direction and without constancy of purpose. Deming used an illustration of washing a table to
teach a lesson about the relationship between purpose and method. If you tell someone to wash
 a table, but not the reason for washing it, they cannot do the job properly (will the table be used
for chopping food or potting plants?). That does not mean just giving the explanation without an
operational definition. The information about why the table needs to be washed, and what is to
be done with it, makes it possible to do the job intelligently.

• "You can expect what you inspect."

Dr. Deming emphasized the importance of measuring and testing to predict typical results. If a
phase consists of inputs + process + outputs, all 3 are inspected to some extent. Problems with
inputs are a major source of trouble, but the process using those inputs can also have problems.
By inspecting the inputs and the process more, the outputs can be better predicted, and inspected
less. Rather than use mass inspection of every output product, the output can be statistically
sampled in a cause-effect relationship through the process.

• "Special Causes and Common Causes":

Dr. Deming considered anomalies in quality to be variations outside the control limits of a process.
Such variations could be attributed to one-time events called "special causes" or to repeated
events called "common causes" that hinder quality.

• Acceptable Defects: Rather than wasting efforts on zero-defect goals, Dr. Deming stressed the
importance of establishing a level of variation, or anomalies, acceptable to the recipient (or
customer) in the next phase of a process. Often, some defects are quite acceptable, and efforts to
remove all defects would be an excessive waste of time and money.
• The Deming Cycle (or Shewhart Cycle): As a repetitive process to determine the next action, the
Deming Cycle describes a simple method to test information before making a major decision. The
4 steps in the Deming Cycle are: Plan-Do-Check-Act (PDCA), also known as Plan-Do-Study-Act or
PDSA. Dr. Deming called the cycle the Shewhart Cycle, after Walter A. Shewhart. The cycle can be
used in various ways, such as running an experiment: PLAN (design) the experiment; DO the
experiment by performing the steps; CHECK the results by testing information; and ACT on the
decisions based on those results.
• Semi-Automated, not Fully Automated:

Dr. Deming lamented the problem of automation gone awry ("robots painting robots"):
instead, he advocated human-assisted semi-automation, which allows people to change the
 semi-automated or computer-assisted processes, based on new knowledge. Compare to
Japanese term 'jidoka' (which can be loosely translated as "automation with a human touch").

• "The problem is at the top; management is the problem."

Dr. Deming emphasized that the top-level management had to change to produce significant
differences, in a long-term, continuous manner. As a consultant, Deming would offer advice
to top-level managers, if asked repeatedly, in a continuous manner.

• "What is a system?”

A system is a network of interdependent components that work together to try to accomplish

the aim of the system. A system must have an aim. Without an aim, there is no system. The
aim of the system must be clear to everyone in the system. The aim must include plans for the
future. The aim is a value judgment. (We are of course talking here about a man-made
system.)

• "A system must be managed. It will not manage itself. Left to themselves in the Western
world, components become selfish, competitive. We cannot afford the destructive effect of
competition."

• "To successfully respond to the myriad of changes that shake the world, transformation into
a new style of management is required. The route to take is what I call profound knowledge—
knowledge for leadership of transformation."

• "The worker is not the problem. The problem is at the top! Management!"

It is management’s job to direct the efforts of all components toward the aim of the system.
The first step is clarification: everyone in the organization must understand the aim of the
system, and how to direct his efforts toward it. Everyone must understand the damage and
loss to the whole organization from a team that seeks to become a selfish, independent, profit
centre."

• "What is the variation trying to tell us about a process, about the people in the process?"

Dr. Shewhart created the basis for the control chart and the concept of a state of statistical
control by carefully designed experiments. While Dr. Shewhart drew from pure mathematical
statistical theories, he understood that data from physical processes never produce a "normal
 distribution curve" (a Gaussian distribution, also commonly referred to as a "bell curve"). He
discovered that observed variation in manufacturing data did not always behave the same
way as data in nature (Brownian motion of particles). Dr. Shewhart concluded that while every
process displays variation, some processes display controlled variation that is natural to the
process, while others display uncontrolled variation that is not present in the process causal
system at all times. Dr. Deming renamed these distinctions "common cause" for chance causes
and "special cause" for assignable causes. He did this so the focus would be placed on those
responsible for doing something about the variation, rather than the source of the variation.
It is top management’s responsibility to address "common cause" variation, and therefore it
is management’s responsibility to make improvements to the whole system. Because "special
cause" variation is assignable, workers, supervisors or middle managers that have direct
knowledge of the assignable cause best address this type of specific intervention.

• "Knowledge is theory. We should be thankful if action of management is based on theory.

Knowledge has temporal spread. Information is not knowledge. The world is drowning in
information but is slow in acquisition of knowledge. There is no substitute for knowledge."

This statement emphasizes the need for theory of knowledge.

12.5 PHILIP CROSBY

In 1979 after a career at ITT, Crosby started the management consulting company Philip Crosby
Associates, Inc. This consulting group provided educational courses in quality management both at
their headquarters in Winter Park, Florida, and at eight foreign locations. Also, in this year Crosby
published his first business book, Quality Is Free. This book would become popular at the time because
of the crisis in North American quality. During the late 1970s and into the 1980s North American
manufacturers were losing market share to Japanese products largely due to the superiority of quality
of the Japanese products.

Crosby's response to the quality crisis was the principle of "doing it right the first time" (DIRFT). He
would also include four major principles:

• the definition of quality is conformance to requirements

• the system of quality is prevention
 • the performance standard is zero defects
• the measurement of quality is the price of nonconformance

Crosby's prescription for quality improvement was a 14-step program. His belief was that a company
that established a quality program will see savings returns that more than pays off the cost of the
quality program ("quality is free").

“Zero Defects” and “Right First Time”

Philip Crosby is an American who promoted the phrases “zero defects” and “right first time”. “Zero
defects” doesn’t mean mistakes never happen, rather that there is no allowable number of errors
built into a product or process and that you get it right first time.

Philip Crosby believes management should take prime responsibility for quality, and workers only
follow their managers’ example. He defined the Four Absolutes of Quality Management.

The Four Absolutes of Quality Management

• Quality is conformance to requirements

• Quality prevention is preferable to quality inspection
• Zero defects are the quality performance standard
• Quality is measured in monetary terms – the price of non-conformance

Crosby's 14 Steps to Quality Improvement

• Management is committed to quality – and this is clear to all

• Create quality improvement teams – with (senior) representatives from all departments.
• Measure processes to determine current and potential quality issues.
• Calculate the cost of (poor) quality
• Raise quality awareness of all employees
• Take action to correct quality issues
• Monitor progress of quality improvement – establish a zero defects committee.
• Train supervisors in quality improvement
• Hold “zero defects” days
• Encourage employees to create their own quality improvement goals
• Encourage employee communication with management about obstacles to quality
 • Recognize participants’ effort
• Create quality councils
• Do it all over again – quality improvement does not end

Philip Crosby has broadened his approach to include wider improvement ideals. He defined the:

Five characteristics of an “Eternally Successful Organization”

• People routinely do things right first time

• Change is anticipated and used to advantage
• Growth is consistent and profitable
• New products and services appear when needed
• Everyone is happy to work there

Quotes by Crosby

• Eliminate what is not wanted or needed is profitable in itself.

• Successful people breed success.
• Change should be a friend. It should happen by plan, not by accident.
• In a true zero-defects approach, there are no unimportant items.
• Slowness to change usually means fear of the new.
• Very few of the great leaders ever get through their careers without failing, sometimes
dramatically.
• If anything is certain, it is that change is certain. The world we are planning for today will not
exist in this form tomorrow.
• The audience only pays attention as long as you know where you are going.
• No one can remember more than three points.
• We can spend our whole lives underachieving.
• Improving quality requires a culture change, not just a new diet.
• Not having a common understanding of quality puts more pain into an organization than
anything else I have ever known.
• If we deliver on time, but the product has defects, we have not delivered on time.
• In a true zero-defects approach there are no unimportant items.
12.6 SHIGEO SHINGO

The Shingo system developed in parallel and in many ways in conflict with the statistically based
approach to quality control. This system, or philosophy of production is named after the co-developer
of the Toyota just-in-time system, Shigeo Shingo. Two aspects of the Shingo system in particular have
received great attention. One is how to accomplish drastic cuts in equipment setup times by single-
minute exchange of die (SMED) procedures. The other, the focus of this article, is the use of source
inspection and the poka-yoke system to achieve zero defects.

Shingo has argued that SQC methods do not prevent defects. Although they provide information to
tell us probabilistically when a defect will occur, they are after the fact. The way to prevent defects
from coming out at the end of a process is to introduce controls within the process. Central Shingo's
approach is the difference between errors and defects. Defects arise because people make errors.
Even though errors are inevitable, defects can be prevented if feedback leading to corrective action
takes place immediately after the errors are made. Such feedback and action require inspection, which
should be done on a 100 percent of the items produced. This inspection can be one of three types:
successive check, self-check, and source inspection. Successive check inspection is performed by the
next person in the process or by an objective evaluator such as a group leader. Information on defects
is immediate feedback for the worker who produced the product, who then makes the repair. Self-
check is done by the individual worker and is appropriate by itself on all but items that require sensory
judgment (such as existence or severity of scratches, or correct matching of shades of paint). These
require successive checks. Source inspection is also performed by the individual worker, except
instead of checking for defects, the worker checks for the errors that will cause defects. This prevents
the defects from ever occurring and, hence, requires rework. All three types of inspection rely on
controls consisting of fail-safe procedures or devices (called poka-yoke). Poka-yoke includes such
things as checklists or special tooling that (1) prevents the worker from making an error that leads to
a defect before starting a process or (2) gives rapid feedback of abnormalities in the process to the
worker in time to correct them.

There is a wide variety of poka-yokes, ranging from kitting parts from a bin (to ensure that the right
number of parts are used in assembly) to sophisticated detection and electronic signally devices. There
is a good deal more to say about the work of Shingo. Blasting industry's preoccupation with control
charts, Shingo states they are nothing but a mirror reflecting current conditions. When a chemical
plant QC manager proudly stated that it had 200 charts in a plant of 150 people, Shingo asked him if
"they had a control chart for control charts. In addition to his insights into the quality area, his work
on SMED is a must read for manufacturing executives.

12.7 KAORU ISHIKAWA

Kaoru Ishikawa wanted to change the way people think about work. He urged managers to resist
becoming content with merely improving a product's quality, insisting that quality improvement can
always go one step further. His notion of company-wide quality control called for continued customer
service. This meant that a customer would continue receiving service even after receiving the product.
This service would extend across the company itself in all levels of management, and even beyond the
company to the everyday lives of those involved. According to Ishikawa, quality improvement is a
continuous process, and it can always be taken one step further.

With his cause and effect diagram (also called the "Ishikawa" or "fishbone" diagram) this management
leader made significant and specific advancements in quality improvement. With the use of this new
diagram, the user can see all possible causes of a result, and hopefully find the root of process
imperfections. By pinpointing root problems, this diagram provides quality improvement from the
"bottom up." Dr. W. Edwards Deming --one of Ishikawa's colleagues -- adopted this diagram and used
it to teach Total Quality Control in Japan as early as World War II. Both Ishikawa and Deming use this
diagram as one the first tools in the quality management process.

Ishikawa also showed the importance of the seven quality tools: control chart, run chart, histogram,
scatter diagram, Pareto chart, and flowchart. Additionally, Ishikawa explored the concept of quality
circles-- a Japanese philosophy which he drew from obscurity into worldwide acceptance. Ishikawa
believed in the importance of support and leadership from top level management. He continually
urged top level executives to take quality control courses, knowing that without the support of the
management, these programs would ultimately fail. He stressed that it would take firm commitment
from the entire hierarchy of employees to reach the company's potential for success. Another area of
quality improvement that Ishikawa emphasized is quality throughout a product's life cycle -- not just
during production. Although he believed strongly in creating standards, he felt that standards were
like continuous quality improvement programs -- they too should be constantly evaluated and
changed. Standards are not the ultimate source of decision making; customer satisfaction is. He
wanted managers to consistently meet consumer needs; from these needs, all other decisions should
stem. Besides his own developments, Ishikawa drew and expounded on principles from other quality
gurus, including those of one man in particular: W. Edwards Deming, creator of the Plan-Do-Check-
Act model. Ishikawa expanded Deming's four steps into the following six:

• Determine goals and targets.

• Determine methods of reaching goals.
• Engage in education and training.
• Implement work.
• Check the effects of implementation.
• Take appropriate action.

12.8 MICHAEL PORTER

Michael E. Porter is a leading authority on competitive strategy, the competitiveness and economic
development of nations, states, and regions, and the application of competitive principles to social
problems such as health care, the environment, and corporate responsibility. Some of his more
popular theories are given below.

Competitive advantage

It is a position of a company in a competitive landscape that allows the company earning return
on investments higher than the cost of investments. Competitive advantage should be relevant,
unique, and sustainable.

Competitive advantage theory suggests that states and businesses should pursue policies that
create high-quality goods to sell at high prices in the market. Porter emphasizes productivity
growth as the focus of national strategies. Competitive advantage rests on the notion that cheap
labor is ubiquitous and natural resources are not necessary for a good economy. Competitive
advantage stresses maximizing scale economies in goods and services that garner premium prices.

Competitive advantage occurs when an organization acquires or develops an attribute or

combination of attributes that allows it to outperform its competitors. These attributes can
include access to natural resources, such as high-grade ores or inexpensive power, or access to
highly trained and skilled personnel human resources. New technologies such as robotics and
information technology either toe include as a part of the product, or to assist making it. The term
 competitive advantage is the ability gained through attributes and resources to perform at a
higher level than others in the same industry or market

Superior performance being the ultimate desired goal of a firm, competitive advantage becomes
the foundation highlighting the significant importance to develop same.

Porter's five forces

It is a framework for the industry analysis and business strategy development developed by
Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (IO)
economics to derive five forces that determine the competitive intensity and therefore
attractiveness of a market. Attractiveness in this context refers to the overall industry profitability.
An "unattractive" industry is one in which the combination of these five forces acts to drive down
overall profitability. A very unattractive industry would be one approaching "pure competition",
in which available profits for all firms are driven down to zero.

Three of Porter's five forces refer to competition from external sources. The remainder are
internal threats. It is useful to use Porter's five forces in conjunction with SWOT analysis
(Strengths, Weaknesses, Opportunities, and Threats).

Porter referred to these forces as the micro environment, to contrast it with the more general
term macro environment. They consist of those forces close to a company that affect its ability to
serve its customers and make a profit. A change in any of the forces normally, requires a business
unit to re-assess the marketplace given the overall change in industry information. The overall
industry attractiveness does not imply that every firm in the industry will return the same
profitability. Firms are able to apply their core competencies, business model or network to
achieve a profit above the industry average. A clear example of this is the airline industry. As an
industry, profitability is low and yet individual companies, by applying unique business models,
have been able to make a return in excess of the industry average.

Porter's five forces include:

Three forces from 'horizontal' competition:

• Threat of substitute products.

• The threat of established rivals.
• Threat of new entrants.
 Two forces from 'vertical' competition:

• The bargaining power of suppliers.

• Bargaining power of customers.

This five forces analysis is just one part of the complete Porter strategic models. The other
elements are the value chain and the generic strategies

Business cluster

Business cluster is a geographic concentration of interconnected businesses, suppliers, and

associated institutions in a particular field. Clusters are considered to increase the productivity
with which companies can compete, nationally and globally. In urban study, the term
agglomeration is used .It is also a very important aspect of business strategy .

This term industry cluster, also known as a business cluster, competitive cluster, or Porterian
cluster, was introduced and the term cluster popularized by Michael Porter in The Competitive
Advantage of Nations (1990). Cluster development has since become a focus for many
government programs. Following development of the concept of inter-organizational networks in
Germany and practical development of clusters in the United Kingdom; many perceive there to
be four methods by which a cluster can be identified:

• The geographical cluster - as stated above

• Sectoral clusters (a cluster of businesses operating together from within the same
commercial sector e.g. marine (south east England; Cowes and now Solent) and
photonics (Aston Science Park, Birmingham))
• Horizontal cluster (interconnections between businesses at a sharing of resources level
e.g. knowledge management)
• Vertical cluster (i.e. a supply chain cluster)

It is also expected - particularly in the German model of organizational networks - that

interconnected businesses must interact and have firm actions within at least two separate levels
of the organizations concerned.

Michael Porter claims that clusters have the potential to affect competition in three ways:

• by increasing the productivity of the companies in the cluster,

 • by driving innovation in the field
• by stimulating new businesses in the field

Types of clusters:

Generally, three types of business clusters, based on different kinds of knowledge, are recognized:

• Techno clusters - These clusters are high technology-oriented, well adapted to the
knowledge economy, and typically have as a core renowned universities and research
centers like Silicon Valley.
• Historic knowhow-based clusters - These are based on more traditional activities that
maintain their advantage in know-how over the years, and for some of them, over the
centuries. They are often industry specific. For example: London as financial center.
• Factor Endowment clusters - They are created because a comparative advantage they
might have linked to a geographical position. For example, wine production clusters
because of sunny regions surrounded by mountains, where good grapes can grow. This is
like certain areas in France, Spain, Chile or California.

A business cluster is a geographical location where:

enough resources and competences amass and reach a critical threshold, giving it a key position
in a given economic branch of activity, with a decisive sustainable competitive advantage over
other places, or even a world supremacy in that field.

12.9 VALUE CHAIN

Value Chain is a chain of activities for a firm operating in a specific industry. The business unit is the
appropriate level for construction of a value chain, not the divisional level or corporate level. Products
pass through all activities of the chain in order, and at each activity the product gains some value. The
chain of activities gives the products more added value than the sum of added values of all activities.
It is important not to mix the concept of the value chain with the costs occurring throughout the
activities. A diamond cutter can be used as an example of the difference. The cutting activity may have
a low cost, but the activity adds much of the value to the end product, since a rough diamond is
significantly less valuable than a cut diamond. Typically, the described value chain and the
documentation of processes, assessment and auditing of adherence to the process routines are at the
core of the quality certification of the business, e.g. ISO 9001.

The value chain categorizes the generic value-adding activities of an organization. The "primary
activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales
(demand), and services (maintenance). The "support activities" include: administrative infrastructure
management, human resource management, technology (R&D), and procurement. The costs and
value drivers are identified for each value activity.

Significance of Value Chain:

The value chain framework quickly made its way to the forefront of management thought as a
powerful analysis tool for strategic planning. The simpler concept of value streams, a cross-
functional process which was developed over the next decade, had some success in the early
1990s.

The value-chain concept has been extended beyond individual firms. It can apply to whole supply
chains and distribution networks. The delivery of a mix of products and services to the end
customer will mobilize different economic factors, each managing its own value chain. The
industry wide synchronized interactions of those local value chains create an extended value
chain, sometimes global in extent. Porter terms this larger interconnected system of value chains
the "value system." A value system includes the value chains of a firm's supplier (and their
suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers
(and presumably extended to the buyers of their products, and so on).

Capturing the value generated along the chain is the new approach taken by many management
strategists. For example, a manufacturer might require its parts suppliers to be located nearby its
assembly plant to minimize the cost of transportation. By exploiting the upstream and
downstream information flowing along the value chain, the firms may try to bypass the
intermediaries creating new business models, or in other ways create improvements in its value
system.

Value chain analysis has also been successfully used in large Petrochemical Plant Maintenance
Organizations to show how Work Selection, Work Planning, Work Scheduling and finally Work
Execution can (when considered as elements of chains) help drive Lean approaches to
Maintenance. The Maintenance Value Chain approach is particularly successful when used as a
 tool for helping Change Management as it is seen as more user friendly than other business
process tools.

Value chain analysis has also been employed in the development sector as a means of identifying
poverty reduction strategies by upgrading along the value chain. Although commonly associated
with export-oriented trade, development practitioners have begun to highlight the importance of
developing national and intra-regional chains in addition to international ones.

12.10 FOUR CORNERS MODEL

It is a predictive tool designed by Michael Porter that helps in determining a competitor’s course of
action. Unlike other predictive models which predominantly rely on a firm’s current strategy and
capabilities to determine future strategy, Porter’s model additionally calls for an understanding of
what motivates the competitor. This added dimension of understanding a competitor’s internal
culture, value system, mindset and assumptions help in determining a much more accurate and
realistic reading of a competitor’s possible reactions in a given situation.

The Four Corners

Motivation – drivers: This helps in determining competitor action by understanding their goals
(both strategic and tactical) and their current position vis-à-vis their goals. A wide gap
between the two could mean the competitor is highly likely to react to any external threat
that comes in its way, whereas a narrower gap is likely to produce a defensive strategy.
Question to be answered here is: What is it that drives the competitor? These drivers can be
at various levels and dimensions and can provide insights into future goals.

Motivation – Management Assumptions: The perceptions and assumptions the competitor has
about itself and its industry would shape strategy. This corner includes determining the
competitor's perception of its strengths and weaknesses, organization culture and their
beliefs about competitor's goals. If the competitor thinks highly of its competition and has a
fair sense of industry forces, it is likely to be ready with plans to counter any threats to its
position. On the other hand, a competitor who has a misplaced understanding of industry
forces is not very likely to respond to a potential attack. Question to be answered here is:
What is competitor's assumption about the industry, competition and its own capabilities?
 Actions – Strategy: A competitor's strategy determines how it competes in the market. However,
it should be noted that there could be a difference between the company's intended strategy
(as stated in the annual report, interviews) and its realized strategy (as can be evinced from
its acquisitions, new product development etc.,). It is therefore important here to determine
the competitor's realized strategy and how they are actually performing. If current strategy is
yielding satisfactory results, it is safe to assume that the competitor is likely to continue to
operate in the same way. Questions to be answered here are: What is the competitor actually
doing and how successful are they in implementing their current strategy?

Actions – Capabilities: This looks at a competitor's inherent ability to initiate or respond to

external forces. Though it might have the motivation and the drive to initiate a strategic
action, its effectiveness is dependent on its capabilities. Its strengths will also determine how
the competitor is likely to respond to an external threat. An organization with an extensive
distribution network is likely to initiate an attack through its channel, whereas a company with
strong financials is likely to counter attack through price drops. The questions to be answered
here are: What are the strengths and weaknesses of the competitor? Which areas is the
competitor strong in?

The main strength of Porter's four corners is that, it attempts to understand the psychological aspects
of competitive action. It allows for and takes into consideration factors such as motivation which are
often overlooked but often the key drivers of competitive behavior.

Firms are more often than not aware of their rivals and do have a generally good understanding of
their strategies and capabilities. However, motivational factors are often overlooked. Sufficiently
motivated competitors can often prove to be more competitive than bigger but less motivated rivals.
What sets this model apart from others is its insistence on accounting for the "implicit" factors such
as culture, history, executive, consultants, and board’s backgrounds, goals, values and commitments
and inclusion of management deep beliefs and assumptions about what works or does not work in
the market.

Porter's four corners model provides a framework that ties competitor's capabilities to their
assumptions of the competitive environment and their underlying motivations. By looking at both a
firm's capabilities (what the firm can do) and underlying implicit factors (their motivations to follow a
course of action) can help predict competitor actions with a relatively higher level of confidence. The
underlying assumption here is that decision makers in firms are essentially human and hence subject
to the influences of affective and automatic processes described by neuroscientists. Hence by
considering these factors along with a firm's capabilities, this model is a better predictor of
competitive behavior.

12.11 C. K. PRAHLAD

Core competency:

Core competency is a specific factor that a business sees as being central to the way it, or its
employees, works. It fulfills three key criteria:

1. It provides consumer benefits

2. It is not easy for competitors to imitate
3. It can be leveraged widely to many products and markets.

A core competency can take various forms, including technical/subject matter know-how, a
reliable process and/or close relationships with customers and suppliers. It may also include
product development or culture, such as employee dedication.

Core competencies are particular strengths relative to other organizations in the industry which
provide the fundamental basis for the provision of added value. Core competencies are the
collective learning in organizations and involve how to coordinate diverse production skills and
integrate multiple streams of technologies. It is communication, an involvement and a deep
commitment to working across organizational boundaries. Few companies are likely to build world
leadership in more than five or six fundamental competencies

Co-creation:

Co-creation is a form of market or business strategy that emphasizes the generation and ongoing
realization of mutual firm-customer value. It views markets as forums for firms and active
customers to share, combine and renew each other's resources and capabilities to create value
through new forms of interaction, service and learning mechanisms. It differs from the traditional
active firm - passive consumer market construct of the past.

Co-created value arises in the form of personalized, unique experiences for the customer (value-
in-use) and ongoing revenue, learning and enhanced market performance drivers for the firm
(loyalty, relationships, customer word of mouth). Value is co-created with customers if and when
a customer is able to personalize his/her experience using a firm's product-service proposition –
 in the lifetime of its use – to a level that is best suited to get his/her job(s) or tasks done and which
allows the firm to derive greater value from its product-service investment in the form of new
knowledge, higher revenues/profitability and/or superior brand value/loyalty.

Scholars C K Prahalad and Venkat Ramaswamy introduced the concept in their 2000 Harvard
Business Review article, “Co-Opting Customer Competence”. They developed their arguments
further in their book published by Harvard Business School Press, The Future of Competition
where they offered examples including Napster and Netflix showing that customers would no
longer be satisfied with making yes or no decisions on what a company offers. Value will be
increasingly co-created by the firm and the customer, they argued, rather than being created
entirely inside the firm. Co-creation in their view not only describes a trend of jointly creating
products. It also describes a movement away from customers buying products and services as
transactions, to those purchases being made as part of an experience. The authors held that
consumers seek freedom of choice to interact with the firm through a range of experiences.
Customers want to define choices in a manner that reflects their view of value, and they want to
interact and transact in their preferred language and style.

The Third Stage of Co-Creation

Ramaswamy and Francis Gouillart now advise companies on a third stage of co-creation that seeks
to improve how companies operate throughout their organizations, and in all their systems and
processes. This “full theory of interactions” goes beyond the existing forms of co-creation of the
customer experience and co-creation of products and services. Transforming traditional corporate
practices such as training, performance management, and communications into co-creative
interactions, sparks innovation, cuts costs, increases employee engagement, and generates value.
Examples of companies at various stages of transformation through co-creation include Nike,
Nokia, IBM and Credit Agricole.

12.12 STEPHEN COVEY

The Seven Habits of Highly Effective People:

First published in 1989, is a self-help book written by Stephen R. Covey. Covey presents an approach
to being effective in attaining goals by aligning oneself to what he calls "true north" principles of a
character ethic that he presents as universal and timeless.
The 7 Habits:

The First Three Habits surround moving from dependence to independence (self-mastery)

• Habit 1: Be Proactive
• Habit 2: Begin with the End in Mind
• Habit 3: Put First Things First

The Next Three are to do with Interdependence

• Habit 4: Think Win/Win

• Habit 5: Seek First to Understand, then to be Understood
• Habit 6: Synergize

The Last habit relates to self-rejuvenation;

• Habit 7: Sharpening the Saw

Abundance mentality:

Covey coined the term abundance mentality or abundance mindset, a business concept in which
a person believes there are enough resources and success to share with others, when looking at
optimistic people. It is commonly contrasted with the scarcity mindset, which is founded on the
idea that, given a finite amount of resources, a person must hoard their belongings and protect
them from others. Individuals with an abundance mentality are supposed to be able to celebrate
the success of others rather than be threatened by it.

A number of books appearing in business press since then have discussed the idea. The abundance
mentality is believed to arrive from having a high self-worth and security, and leads to the sharing
of profits, recognition and responsibility. Organizations may also apply an abundance mentality
while doing business.

The Upward Spiral:

Covey explains the "Upward Spiral" model in the sharpening the saw section. Through our
conscience, along with meaningful and consistent progress, the spiral will result in growth, change,
and constant improvement. The Upward Spiral model consists of three parts: learn, commit, do.
According to Covey, one must be increasingly educating the conscience in order to grow and
 develop on the upward spiral. The idea of renewal by education will propel one along the path of
personal freedom, security, wisdom, and power.

12.13 PETER SENGE

The Fifth Discipline: The Art and Practice of the Learning Organization:

Is a book by Peter Senge (a senior lecturer at MIT) focusing on group problem solving using the systems
thinking method in order to convert companies into learning organizations. The five disciplines
represent approaches (theories and methods) for developing three core learning capabilities:
fostering aspiration, developing reflective conversation, and understanding complexity.

The Five Disciplines:

The five disciplines of the learning organization discussed in the book are:

1) "Personal mastery is a discipline of continually clarifying and deepening our personal vision,
of focusing our energies, of developing patience, and of seeing reality objectively."

2) "Mental models are deeply ingrained assumptions, generalizations, or even pictures of

images that influence how we understand the world and how we take action."

3) "Building shared vision a practice of unearthing shared pictures of the future that foster
genuine commitment and enrollment rather than compliance."

4) "Team learning starts with dialogue, the capacity of members of a team to suspend
assumptions and enter into genuine thinking together."

5) Systems thinking - The Fifth Discipline that integrates the other 4.

"Systems thinking also need the disciplines of building shared vision, mental models, team learning,
and personal mastery to realize its potential. Building shared vision fosters a commitment to the long
term. Mental models focus on the openness needed to unearth shortcomings in our present ways of
seeing the world. Team learning develops the skills of groups of people to look for the larger picture
beyond individual perspectives. And personal mastery fosters the personal motivation to continually
learn how our actions affect our world."

The Learning Disabilities

I am my position

People fail to recognize their purpose as a part of the enterprise. Instead, they see themselves
as an inconsequential part of a system over which they have little influence, leading them to
limit themselves to the jobs they must perform at their own positions. This makes it hard to
pinpoint the reason an enterprise is failing, with so many hidden 'loose screws' around.

The enemy out there

• The Illusion of Taking Charge

• The Fixation of Events

The tendency to see things as results of short-term events undermines our ability to see things
on a grander scale. Cave men needed to react to events quickly for survival. However, the
biggest threats we face nowadays are rarely sudden events, but slow, gradual processes, such
as environmental changes.

• The Parable of the Boiling frog*

• The Delusion of Learning from Experience
• The Myth of the Management Team

* [The boiling frog story is a widespread anecdote describing a frog slowly being boiled alive. The
premise is that if a frog is placed in boiling water, it will jump out, but if it is placed in cold water that
is slowly heated, it will not perceive the danger and will be cooked to death. The story is often used as
a metaphor for the inability of people to react to significant changes that occur gradually]

The 11 Laws of the Fifth Discipline

• Today's problems come from yesterday's "solutions."

• The harder you push, the harder the system pushes back.
• Behavior will grow better before it grows worse.
• The easy way out usually leads back in.
• The cure can be worse than the disease.
• Faster is slower.
• Cause and effect are not closely related in time and space.
• Small changes can produce big results...but the areas of highest leverage are often the least
obvious.
• You can have your cake and eat it too ---but not all at once.
• Dividing an elephant in half does not produce two small elephants.
• There is no blame.

12.14 SUMMARY
The change in the concepts of how to reach the world class standards has been due to the theories
and techniques propagated by modern experts of management.

Dr. W. Edwards Deming taught that by adopting appropriate principles of management, organizations
can increase quality and simultaneously reduce costs. His theory of profound knowledge and14
principles formed the foundation for TQM. Appreciation of system and understanding variation were
two key concepts, which formed the basis for his theories.

Philip Crosby was another quality Guru, who introduced the concepts of ‘Four absolute truths of
Quality’ and ’14 step zero defect’

Shigeo Shingo introduced concepts of SMED (Rapid set ups of machines) while Ishikawa, another
Japanese management expert introduced Quality Circles and Ishikawa diagram.

Michael Porter, a strategy expert came up with concepts like competitive advantage, five forces, which
determine competitive intensity, business clusters, value chain and four corner model, a predictive
tool to predict competitor’s actions. C.K. Prahlad advocated concepts of core competency and co-
creation while very recently, 7 habits of a successful manager by Stephen Covey is a widely talked
about theory.

12.15 KEY WORDS

• System – A set of interacting or interdependent components forming an integrated whole[

• Variation – Parameters of output from a process not being exactly the same
• Deming Cycle – Plan-Do-Check-Act cycle for process improvements
• Barriers – Walls or obstacles created between departments/persons preventing free
communication and cooperation
• Fear – Sense of insecurity in employees
• Conformance – Output of a process tallying with requirements
• Source Inspection – Inspection performed by the individual worker, except instead of checking for
defects, the worker checks for the errors that will cause defects
• Successive Check – – Inspection performed by the next person in the process
• Self Check – Inspection done by the individual worker who is doing the operation
• Competitive advantage – organization acquiring or developing an attribute or combination of
attributes that allows it to outperform its competitors
• Business Cluster – Geographic concentration of interconnected businesses, suppliers, and
associated institutions in a particular field.
• 12 Value Chain – Chain of activities for a firm operating in a specific industry
• Core competency – Specific factor that a business sees as being central to the way it, or its
employees, works.
• Co-creation – Form of market or business strategy that emphasizes the generation and ongoing
realization of mutual firm-customer [Link] Mentality – A business concept in which a
person believes there are enough resources and success to share with others.
UNIT 13 MODERN TECHNIQUES

Objectives

After completing this unit, you will be able to:

• Define Theory of Constraints (TOC);

• State practical application of TOC i.e. Synchronous Manufacturing;
• Illustrate shortcomings of traditional fragmented organization and the solutions offered by
Reengineering;
• Establish how benchmarking is used to improve performance of every function of the
organization;
• State meaning of Knowledge Management and how Learning Organizations are created;
• State how Games Theory is used to solve problems;
• Conceptualize Flexible Manufacturing.

Structure

13.1 Introduction
13.2 Theory of Constraints (TOC)
13.3 Synchronous manufacturing
13.4 Business Process Reengineering (BPR)
13.5 Benchmarking
13.6 Knowledge Management.
13.7 Game Theory
13.8 Flexible Machining System
13 9 Summary
13.10 Key Words
13.1 INTRODUCTION

A number of new techniques which are essential for reaching the World Class standard for any
Manufacturing industry are already discussed in previous units. However in recent times a number of
new techniques are used by large manufacturing organizations to give them a distinct edge over their
competitors. Any organization has to choose carefully a suitable technique depending on its size,
products, technology used and its own organizational culture. A choice made blindly, may not give the
desired results. Some of these Modern Techniques are briefly discussed in this chapter.

13.2 THEORY OF CONSTRAINTS (TOC)

Dr. Eliyahu Goldratt first introduced the concept of Theory of Constraints (TOC), a management
philosophy, in his 1984 book titled The Goal. The theory is based on the concept that any manageable
system is limited in achieving more of its goal by a very small number of constraints, and that there is
always at least one constraint. The TOC process seeks to identify the constraint and restructure the
rest of the organization around it, through the use of the Five Focusing Steps.

Key assumption in TOC:

The underlying assumption of Theory of Constraints is that organizations can be measured and
controlled by variations on three measures:

• Throughput: - Money (or goal units) generated through sales.

• Operating expense: - Money that goes into the system to ensure its operation on an ongoing
basis.
• Inventory: - Money the system invests in order to sell its goods and services.

The five focusing steps in TOC:

• Identify the constraint.

• Decide how to exploit the constraint
• Subordinate all other processes to above decision
• Strengthen the constraint.
 • If, as a result of these steps, the constraint has shifted, return to Step 1. Don't let inertia
become the constraint.

The five focusing steps aim to ensure that the ongoing improvement efforts are centered around the
organization's constraints.

Constraints
A constraint is anything that prevents the system from achieving more of its goal. Core principle
within TOC is that there is at least one and at most a few constraints in any given system. Basically,
constraints can be of two types:

Internal Constraint: - An internal constraint is in evidence when the market demands more from
the system than it can deliver. If this is the case, then the focus of the organization should be on
discovering that constraint and following the five focusing steps to open it up and remove it.
Internal constraint can be:

• Equipment: The way equipment is currently used limits the ability of the system to
produce more saleble goods / services.
• People: Lack of skilled people limits the system.
• Policy: A written or unwritten policy prevents the system from making more.

External Constraint: - An external constraint exists when the system can produce more than the
market will bear. If this is the case, then the organization should focus on mechanisms to create
more demand for its products or services.

Plant types:

Based on the type of material flow, the basic types of the Plants and the area in which the
constraint normally occurs is given below:

• I-Plant: Material flows in a sequence, such as in an assembly line. The primary work is
done in a straight sequence of events (one-to-one). The constraint is the slowest
operation.
• A-Plant: The general flow of material is many-to-one, such as in a plant where many sub-
assemblies converge for a final assembly. The primary problem in A-plants is in
synchronizing the converging lines so that each supplies the final assembly point at the
right time.
 • V-Plant: The general flow of material is one-to-many, such as a plant that takes one raw
material and can make many final products. Classic examples are meat rendering plants
or a steel manufacturer. The primary problem in V-plants is "robbing" where one
operation (A) immediately after a diverging point "steals" materials meant for the other
operation (B). Once the material has been processed by A, it cannot come back and be
run through B without significant rework.
• T-Plant: The general flow is that of an I-Plant (or has multiple lines), which then splits into
many assemblies (many-to-many). Most manufactured parts are used in multiple
assemblies and nearly all assemblies use multiple parts. Customized devices, such as
computers, are good examples. T-plants suffer from both synchronization problems of A-
plants (parts aren't all available for an assembly) and the robbing problems of V-plants
(one assembly steals parts that could have been used in another).

Drum Buffer Rope concept:

Drum-Buffer-Rope is a manufacturing execution methodology, named for its three components.

The ‘Drum’ is the physical constraint of the plant: the work center or machine or operation that
limits the ability of the entire system to produce more. The rest of the plant follows the beat of
the drum. They make sure the drum has work and that anything the drum has processed does not
get wasted.

The ‘Buffer’ protects the drum, so that it always has work flowing to it. Buffers in DBR have time
as their unit of measure, rather than quantity of material. This makes the priority system operate
strictly based on the time an order is expected to be at the drum. Traditional DBR usually calls for
buffers at several points in the system: the constraint, synchronization points and at shipping. S-
DBR has a buffer at shipping and manages the flow of work across the drum through a load
planning mechanism.

The ‘Rope’ is the work release mechanism for the plant. Only a "buffer time" before an order is
due does it get released into the plant. Pulling work into the system earlier than a buffer time
guarantees high work-in-process and slows down the entire system.

The drum, buffer, and rope provide the basis for building a production schedule that is highly
immune to disruption, avoids creating excess inventory, and uses small batches to minimize
overall lead time.
 But even with "Drum-Buffer-Rope," occasionally disruptions occur that require special attention.
"Buffer Management" is used to mitigate and often prevent those disruptions.

Implementations of "Drum-Buffer-Rope" typically results in "lean," low-inventory production

operations capable of consistently 95% (or better) on-time delivery, lead-time reduction of 35-
50%, and inventory reduction of 50%, as well as significantly reduced need for expediting and
rescheduling.

13.3 SYNCHRONOUS MANUFACTURING

Synchronous Manufacturing is the most popular but broader application of the Theory of Constraints,
that takes into consideration all elements of the business and not just the ‘Production’ working in
synchronization to achieve the strategic goals of the business.

Still, the heart of a Synchronous Manufacturing implementation is a shop schedule that meets the
delivery schedules with right products by overcoming all the constraints and at the same time
achieving short lead times, fast flow and low inventories. Companies have moved from JIT/Kanban
to Theory of Constraints and made massive additional improvements. It is just a matter of doing a
small number of things right.

The symptoms of poor synchronization.

• Inventories are too high at all the stages.

• Lead times are too long.
• Poor customer service, in terms of on-time delivery or service-from-stock.
• Poor productivity.
• Too much overtime.
• Too much expediting.
• Priorities constantly shifting.
• Frequent materials and parts shortages.
• Unable to quickly and easily respond to urgent customer requirements
In repetitive manufacturing environment, synchronous manufacturing applies to low-volume/high
mix type of order characteristics. It also applies to environments where a large degree of
customization or "customerization" is required, or a make-to-order environment.
Lean manufacturing applies best when the order characteristics are high-volume/low-mix. In
these cases, components are identical, or differences lie in scale or size. WIP inventory is low in
variety and can be controlled with ease. In contrast, in a low-volume/high-mix environment, the
componentry tends to vary greatly, and the WIP inventory mix is characterized with a much
greater variety, and is more difficult to control.

Synchronous manufacturing employs the synchronization between customer orders and work
stations. In other words, the first order worked on in the first work station is the first work order
worked on in the second station, and so on. This requires a good systems scheduling algorithm
often using a first-in/first-out method to scheduling customer orders. Synchronous
manufacturing can be applied within an Agile Manufacturing strategy.

Synchronous scheduling is often mixed in the same manufacturing environment with Kan-ban
signals, but at a later stage in the manufacturing process. For instance, a process that begins by
taking raw steel and producing blanks can be scheduled using Kan-ban pull devices.

When customer orders are scheduled for production, the blanks are pulled for the first operation,
where changes to the blanks may be varied from piece-to-piece. A device known as a production
synchronizer often separates the blanking operation (Kan-ban scheduled) from the flexible
downstream operation (synchronous scheduled). Flexible Kan-bans or "Flex-bans" can be used to
control WIP locations and prevent spilling into the aisles.

The benefits generally are higher flexibility, lower costs, higher quality, lower inventory, and
shorter lead times. The characteristics of synchronous processes are:

• Make to order
• Synchronized production
• Just-In-Time materials/pull scheduling in early stages
• Synchronized scheduling in later stages
• Short cycle times
• Highly flexible and responsive processes
• Highly flexible machines and equipment
• Quick changeover
• Continuous flow work cells
• Collocated machines, equipment, tools and people
• Compressed space
 • Multi-skilled employees
• Empowered employees
• High first-pass yields with major reductions in defects

Performance measurement methods in Synchronous Manufacturing.

Global operational performance measurements:

• Net profit—measurement in dollars

• Return on investment—generally a percent of the investment
• Cash flow—the amount of cash available for day to day operations. From an accounting
standpoint, deductions such as for depreciation are added back in since depreciation is
not really money spent

Operational measurements:

• Throughput—the actual rate of sales generated by the system

• Inventory—all the money invested in things that are intended to be sold. This includes
raw materials, equipment, etc., but at the cost price, less any depreciation (which is
operating expense).
• Operating expense—money spent to convert inventory into throughput. This includes
direct and indirect labor, materials, depreciation, administrative costs, etc.
• Traditional accounting methods work with such things as standard costs, allocation of
burdens (which may consist of indirect labor, administrative costs, insurance, taxes,
depreciation, etc.), and gross profits, net profits, cost centers, profit centers, all of which
may be based on standards and allocations. These may not have any basis in reality.
Some important terms used in Synchronous Manufacturing

• Process Batch: - Process batch size is the total number of units that are scheduled to be
processed within the same setup. Larger process batches involve fewer setups and, therefore,
have more output. The reverse is true for smaller process batches.
• Transfer batch: - Refers to the movement of part of the process batch, rather than waiting for
the entire job to be completed. A process batch of 1000, for example, can be transferred in
ten batches of 100 each. Process batch and transfer batch sizes can be controlled from a
bottleneck or capacity constrained resource.
 • Forward Loading: - Tasks are scheduled from some pint into the future. When resources are
limited, tasks are assigned until capacity is reached and then carried forward to the next
period.
• Backward Loading: - Backward loading is the MRP type scheduling, where the finished product
or required part is needed. From that future point, a schedule is created back to the present,
allowing for processing and lead time requirements at each step of the way.

Quality control in synchronous manufacturing

QC in synchronous Manufacturing is specifically decided based on importance. First, a bottleneck

or CCR is identified as the constraint of the system. This critical resource will then be guaranteed
that it will not waste time working on bad parts since inspection will be done on its incoming side.
Flow after this bottleneck should not be interrupted or scrapped. Therefore, all parts that join
into this product after the bottleneck will have passed inspection. Also, all processing after the
bottleneck will be of high quality so that scrap will not be created. In summary, inspect before
the Bottleneck, and inspect all parts entering the flow after the Bottleneck; also perform high
quality work at all stations after the Bottleneck.

Inventory in Synchronous Manufacturing

Synchronous manufacturing treats inventory as a loan given to the manufacturing unit.

Inventories are measured by raw materials cost. Buffer inventories are utilized to assure
throughput. Overall, synchronous manufacturing discourages inventory if it serves no purpose.
Inventory is measured in terms of dollar days with the goal of minimizing dollar days.

Scheduling in Synchronous Manufacturing

In synchronous manufacturing, the production flows are controlled by the drum. The drum
regulates the flow of materials throughout the entire system. DBR method is already explained in
this chapter.

Synchronous manufacturing paces the entire production process by the bottlenecks. Therefore,
if additional (less) capacity is needed, capacity is added (restricted) at the bottlenecks. In this way
the flow is controlled at each bottleneck or CCR to bring the capacities in line.

In synchronous manufacturing, balancing all capacities is viewed as a bad decision. If capacity is

truly balanced, completion deadlines may not be met due to variability in processing times. A
better strategy is to balance the flow of product through the system.

Concept of Moving Bottleneck

 Generally, a moving bottleneck is caused by batch sizes that are too large. What happens is that
a large batch scheduled on a machine or resource which-on the average has excess capacity-
prevents other products from being completed that also need the same resource. This interrupts
the flow and starves downstream resources. From their perspective looking upstream, they see
that particular resource as the bottleneck. However, days or weeks later, because of the product
mix, this apparent bottleneck will disappear. Another large batch size somewhere else in the
system will appear which does the same thing, i.e., starves downstream operations.

Comparison of JIT, MRP, and Synchronized Manufacturing systems

Aspect JIT MRP Synchronized

Manufacturing
Type of Production Continuous flow, Batch type with high Same as MRP
System. make-to-stock variety.
WIP Very low Very high Low

Production cycle time Very short Very long Short

Schedule flexibility Less flexible. MRP frozen for 30 Can be changed

Schedules frozen for days, but variable in daily as needed
min. of 30 days work centers
Regard for capacity limits High. Tries to Terrible. May start Is founded on
balance capacity off o.k., but quickly capacity limitations
becomes inaccurate
Labor skills Multi-skilled to help Specialized in own Same as MRP
out other areas work area

Advantages of Synchronous Manufacturing:

• Quick and substantial improvements without specific improvement projects.

• The method is tolerant of poor data, inaccurate data and missing data.
• Same vocabulary and measurements are used by departments and people across the
organization.
 • Fast-flow material movement results in reducing finished Goods and WIP inventories by as
much as 75%.
• Can reduce cycle times and promised lead times.
• Improves due-date performance or service levels.
• Synchronous Manufacturing schedules provide stability, minimize expediting, require
minimum maintenance and allow overtime only to respond to genuine problems or to
opportunities to make more money.
• Focused and continuous improvement in Processes and Quality.
• Can cater to urgent customer requirements without disturbing existing orders.
• Any investments made in ERP or Lean can have better ROI when coupled with Synchronous
manufacturing.

13.4 BUSINESS PROCESS REENGINEERING (BPR)

Reinvent the Company

Three forces governing today’s market are:

Customers take charge: - Customers decide what they want, when they want, how much they want
and what are they willing to pay for it. Mass market is broken down in small pieces, sometimes as
small as a single customer.

Competition intensifies: - Niche markets are in focus. Similar products sell in different markets on
entirely different competitive basis. Trade barriers are falling resulting in global competition. Start-up
companies create their own rules about how to run the business. New technologies change the nature
of competition in unexpected ways.

Change becomes constant: - Change has become pervasive and persistent and its pace is accelerating.
Companies must move fast to survive. Changes which affect the company are mostly external and
beyond direct control of the company

The contemporary performance problems companies face are mostly due to the fragmentation of
processes, which occur due to building functional silos and vertical structures on narrow pieces of
processes. These are headed by functional experts who are oblivious of overall requirements of the
organization. The expectation from these functional heads is that they will act as glue to join the
fragmented parts to work in unison for the benefit of the organization. Instead, these experts become
preoccupied with isolating and cementing their own silos for individual gains. Quite often, efficiency
of individual parts/functions of the company, come at the expense of efficiency of its whole.

Business Process Reengineering seeks to change all this. It aims at reunifying the broken-down tasks
(Adam Smith Principle) into a coherent business process. Business Reengineering (BR) is starting all
over. Old wisdom is to be discarded for something to suit current demands of market and harnessing
power of today’s technologies and capitalizing on individualism, self-reliance, willingness to accept
risk and propensity for change. Starting point is by asking yourself: “Why do we do what we do at all?”

Many tasks are performed to satisfy the internal needs of the company and have nothing to do with
customer satisfaction. These need to be reduced to barest minimum or preferably eliminated. An
excellent company has to be lean, nimble, flexible, responsive, competitive, efficient, customer
focused and profitable.

Definition of Reengineering

The fundamental rethinking and radical redesign of business processes to achieve dramatic
improvements in critical contemporary measures of performance such as cost, quality, service and
speed.

Fundamental: Business Reengineering (BR) begins with no assumptions and no givens. It takes
nothing for granted. It ignores ‘What is’ and concentrates on ‘What should be’. Thus the start has
to be with two basic questions

• “Why we do what we do”?

• “Why we do the way we do”?

The first questions leads to actions for eliminating what is not necessary while the second one
leads to actions necessary to change the methods for better performance.

Radical: Going to the roots of everything to find what is right and what is wrong.

Dramatic: Improvements demand blowing up the old and replacing with something entirely new.

Processes: Collection of activities that take one or more inputs and converts these into outputs
which are required by the customer.

Embarking on Reengineering
 The biggest challenge in starting reengineering exercise is overcoming the resistance of people to
change. The suggestions are:

Case for action: - People are to be told “Why” company wants to reengineer. The case must be put
forth in concise, precise and compelling manner. It has to be a dramatically persuasive argument
supported by evidence. The case must be strongly put without exaggeration. It should be totally
persuasive but at the same time brief and blunt. It should be like a wedge driven to unstuck people
from their existing entrenched positions.

Vision Statement: - It is a statement telling “What the company needs to become”. Gives the
employees a palpable goal to shoot for. Forces management to think clearly about the purpose of the
change program and extent to which the change is needed. It describes how the company is going to
operate and outlines the kind of results it must achieve. It is both a qualitative and quantitative
statement. It acts as a reminder and yardstick for measuring the performance. It acts like a magnet to
attract people who are ‘unstuck’ from their entrenched positions by the ‘Case for Action’. Vision
statement need not be long but must be powerful with three essentials: 1. Focus on action 2.
Measurable objectives 3. Change basis for competitiveness.

Organizational Structure for Reengineering

The recommended positions to be created from amongst the existing senior members of
staff/management are:

Leader: - A senior executive who authorizes and motivates the overall reengineering efforts. He should
be a person with enough clout to turn the whole organization upside down. He has to assume a self-
appointed and self-motivated role. Through his convictions, the organization explores the unknown,
creates a new vision and sets new standards. He should have authority over resources. He should
demonstrate leadership through signals, symbols and systems. He should be strong, aggressive,
committed and knowledgeable.

Steering Committee: - A policy making body of senior managers who develop organization’s overall
reengineering strategy and monitors its progress

Reengineering Czar: - An individual who is responsible for developing reengineering techniques and
tools within the company and for achieving synergy across the company. He serves as leader’s chief
of staff for reengineering efforts. He has two functions to perform: 1. Enabling and supporting each
individual process owner and reengineering team 2. Coordinating all reengineering activities.
Process Owner: - A manager with responsibility for a specific process. He is generally a line manager
and should be comfortable with change, tolerant to ambiguity and calm in adversities. He has to
assemble the team for reengineering efforts and lead it by motivating, inspiring, monitoring and
liaisoning.

Team: - A group of people dedicated to the reengineering of a particular process. The team diagnoses
the existing process and oversees its redesign and implementation. The team generates ideas and
turns these into reality. It should be a small (5-10) comprising of outsiders as well as insiders. Insiders
should have credibility with co-workers. Outsiders can bring a fresh perspective and higher level of
objectivity. Team should continue to work with the redesigned process till it gets firmly established.

Characteristics of a Reengineered Process.

• Several jobs are combined into one due to integrated process, reducing handoffs resulting in
fewer errors, delays and rework.
• Empowered workers find innovative and creative ways to reduce time and costs continually,
require less supervision and have better control over process.
• Workers take decisions, drastically reducing time wasted in taking decisions through
hierarchical steps.
• Steps in the process are performed in a natural order
• Process can have multiple versions, each one suited to a different market.
• Work is performed where it makes most sense – In traditional organization the work is
organized around specialists
• Checks and controls are reduced to barest minimum.
• Reconciliations are minimized by cutting back the number of external contact points, which
process may have.
• A case manager who generally is an empowered customer service representative provides a
single point contact.
• Hybrid centralized/decentralized operations are prevalent facilitated by advanced
information technology.

How work changes in a reengineered process

• Work unit changes from “Functional Department” to “Process Team”

• Job of individuals change from “Specialized Tasks” to “Multidimensional work”.
• People’s role changes from “Controlled” to “Empowered”.
• Job preparation changes from “Training” to “Education”.
 • Criteria for rewards/advancement changes from “Performance” to “Ability”
• Focus of performance measurement and compensation changes from “Activity” to “Results”.
• Values change from “Protective” to “Productive”.
• Organizational structure changes from “Hierarchical” to “Flat”.
• Executives change from “Score Keepers” to “Leaders”

Process Redesign

Redesigning a process requires imagination, intuitive thinking and a touch of craziness. The team
redesigning the process has to abandon familiar and seek outrageous, suspend belief in rules and
procedures. The first principle to be followed is, as few people as possible should be involved in
performing the redesigned process. The team has to boldly apply the principles of reengineering,
search out and destroy assumptions and look for creative applications of technology.

Tips for redesign:

• You don’t have to be an expert to redesign a process.

• Being an outsider helps.
• You have to discard preconceived notions.
• It is important to see the things through customer’s eyes.
• Redesign is best done by a team.
• You don’t need to know much about the current process.
• It is not hard to have great ideas.
• Redesign can be fun.
• It can be less fun when you have to move from having ideas to making them happen
⎯ How work changes in reengineered process?
⎯ What are the points under consideration for reengineering?

13.5 BENCHMARKING

Benchmarking is the process of comparing an organization's operations and internal processes

against those of other organizations within or outside its industry. The other organizations against
which the comparisons are made, known as 'benchmark partners', are usually those that are
perceived to be the best performers in their class. The purpose of benchmarking is to identify and
adopt best known practices that can lead to superior performance. It was a buzzword in the 80's and
90's, but continues to be strongly practiced in various industries today.

Benchmarking is a systematic process - it must have a framework and use a standard set of attributes
that are measurable to compare multiple organizations objectively. Benchmarking must be
performed on a specific area or activity only, such as operational best practices, information
technology, staffing, compensation packages, distribution systems, budgeting, and the like. Limiting
the scope of the benchmarking activity allows the formulation of a more focused agenda that provides
more useful information from better-targeted benchmark partners.

In general, benchmarking partners are classified into four categories:

• Internal, which pertains to departments, factories, etc. of the same company.

• Competitive, which pertains to direct competitors.
• Functional, which pertains to best-in-class organizations who are in the same field or activities.
• Generic, which pertains to leading organizations from various fields and industries.

Benchmarking with internal partners is usually the best starting point for a benchmarking program.
However, many companies or organizations are not big enough for internal benchmarking, and have
to resort to external benchmark partners to get the information they need. Identifying suitable
external benchmarking partners depends on the purpose of the benchmarking activity as well as the
nature of the benchmarking organization.

For example, it would be good to be able to benchmark against a leading competitor, but this
benchmarking arrangement is usually quite difficult to set up because most leading competitors will
not divulge their 'trade secrets' to enable a competitor to catch up, resulting in bench mark results
that are empty of useful information. In such cases, functional or generic benchmarking partners
involving world-class non-competitor companies are viable options, since these are often willing
enough to share information with an organization.

Benchmarking consists of five basic steps:

• Decide on what process or area to benchmark, considering which would give the most
leverage or improvement potential.
 • Understand the internal processes or operations involved in the area being benchmarked and
collect data on their key performance metrics; a good understanding of how an internal
system works would facilitate understanding of those of the benchmark partners.
• Identify organizations who are best in class in the area to be benchmarked and arrange
mutually-beneficial benchmarking activities with them.
• Conduct the benchmarking activities arranged with the partners
• Analyze the benchmark data and adopt practices that will produce the greatest benefits to
the organization.
There are many ways by which the benchmarking proper may be conducted with the benchmarking
partner, but one of the most popular ones is by exchanging information through a questionnaire,
possibly on a visit to the partner. This may consist of the following steps:

• Develop a questionnaire that covers all the information that need to be obtained.
• Answer the questionnaire internally to test it and so that the same information may be
provided reciprocally if the partner asks for it.
• Provide a reason for every question so that its necessity may be rationalized to the partner if
necessary
• Discuss the questionnaire to clarify its objectives, areas of interest, and areas of confidentiality
and sensitivity with the partner.
• Arrange a visit with the partner.

If the visit to the benchmarking partner materializes, the following guidelines would be useful:

• Prepare for the visit thoroughly.

• Define the purpose and objectives well.
• Commit the questionnaire to memory and leave the hard copy behind.
• Be open and honest during the visit.
• Avoid being seen by the partner taking down notes, but take down notes nonetheless.
• Reciprocate information requests.
• Thank the partner again and again.

Benchmarking is just a tool to learn from others, and not a tool to win in business. It will not give
information on what products and services customers want, or how to generate more revenues and
profits. There are other management techniques to accomplish these objectives. These must
complement the regular use of benchmarking to ensure continuous improvement in everything that
a company does. Lastly, benchmarking per se is not useful unless knowledge gained from it is put in
action to benefit the company.

13.6 KNOWLEDGE MANAGEMENT

Knowledge Management or simply "KM" is a business concept that deals with how a company should
and could make the best use of its existing knowledge. It involves the systematic and structured
process of organizing corporate information for easy retrieval, distribution, and reuse across the
entire company. By this definition alone, computerization should be part of every serious KM
program, which is why KM-related software have been on the rise in recent years.

Experts believe that the vast wealth of knowledge that an organization accumulates over years –
business ideas, management concepts, internal systems and processes, engineering expertise,
customer and prospect information, industry trends, and the like - are often very underutilized. In
fact, millions of pieces of vital knowledge within the company are just localized to a certain group
within the organization, or even just a certain individual. This information only stays with the people
who keep them, and will be lost as soon as these people leave the company.

With excellent knowledge management, every piece of corporate information becomes readily
available to anybody within the company who could use them for the company's
benefit. Empowering people to seamlessly share past or present knowledge, or even their skills, with
each other and harness them to meet company goals is the essence of knowledge management. The
importance of knowledge management is embodied in the now-famous statement of former Hewlett-
Packard CEO Lew Platt: "If HP knew what it knows, we'd be three times as profitable."

In the last century, manual labor or production management is the key to success. In the 21st century,
it would be knowledge management. In fact, knowledge management directly impacts the major
drivers of company success: customer value, operational excellence, and product
innovation. Pursuing these efficiently and effectively requires excellent management of knowledge
to ensure progressive productivity among knowledge workers and proper harnessing of the
organization's collective knowledge to its advantage.

Knowledge Management has three major components:

• People, who keep the knowledge and apply them

 • Processes, with which people create, capture, store, organize, and distribute knowledge.
• Information, which are the pieces of facts and data that people convert into and apply as
knowledge. It is therefore imperative that these three components are considered when
setting up a KM program.

For instance, having great leadership and developing good organizational structure and corporate
culture within the company will encourage people to participate in KM initiatives. Processes, on the
other hand, must be created, based on and driven by, a knowledge management framework that
would allow centralized creation, capture, organization, retrieval, and reuse of information to
generate value for the company. Lastly, information must not only be accessible - people must also
be able to associate them with their work and apply them as knowledge to improve their output.

In setting up a KM program, it is important to distinguish between 'information' and

'knowledge'. Information is just a piece of fact or data stored somewhere. Knowledge, on the other
hand, is associating these various pieces of information with each other to create a new meaning to
their existence, which when conveyed and applied creates value for the organization. The key to
effective knowledge management is not really in the storage and retrieval of individual pieces of
information, but in being able to create meaningful and valuable associations among them. This is
why knowledge management is not just a knowing what you know, but also profiting from it.

Many experts believe that a complete off-the-shelf knowledge management software solution for
everyone will not happen in the near future. This is because every company differs in the way it
creates and applies knowledge. Companies can use the same data storage solution, but there is no
KM software just yet that can cater to every corporate goal, corporate culture, and corporate
knowledge infrastructure to help management come up with something that would increase profits
or market share. To this point, genuine stock-approach KM doesn't yet exist, so companies have to
set up their own internal KM solutions for now.

What abound in the market at present are not complete turnkey knowledge management solutions,
but simply knowledge management tools. These are nonetheless powerful collaboration tools and
modules of knowledge management-enabling software that can work across platforms to facilitate
the transfer of knowledge, create a better and more efficient working environment, and ultimately
help the company succeed. These include components for Document Management (DM), Digital
Asset Management (DAM), Content Management (CM), Web Content Management (WCM), Records
Management (RM), Business Process Management (BPM), Customer Relationship Management
(CRM), etc.
Still, the quest for better and better knowledge management solutions goes on. New technologies
involving electronic meetings, chat-enabled collaborations, and portal infrastructures that mediate
people interactions and amass knowledge from them are just a few examples of what have been
developed, and are still being developed, for this purpose. Innovations in the field of knowledge
management will certainly continue, especially since in this day and age, knowledge is power.

The term 'Learning Organization' refers to an organization that constantly monitors its environment
for changes, and learns from and adapts to these changes. The term was coined by Harvard's Chris
Argyris, but it was Peter Senge, a highly acclaimed business strategist with a PhD in Management,
who popularized the term in his book, "The Fifth Discipline." Senge defines a 'learning organization'
as a dynamical system that is in a state of continuous adaptation and improvement. Learning
organizations build feedback loops designed to maximize the effectiveness of their learning
processes.

Organizational learning is becoming more and more important in the modern business world where
things change rapidly and information get transmitted almost instantaneously. In such a constantly
changing environment, only the truly flexible and adaptive companies will excel, i.e., learning from
the past is vital to success in the future.

According to Senge, companies should be a place where "people continually expand their capacity to
create the results they truly desire, where new and expansive patterns of thinking are nurtured,
where collective aspiration is set free, and where people are continually learning to see the whole
together."

Peter Senge identified five basic disciplines or components of a learning organization:

• Systems thinking
• Personal mastery
• Mental models
• Shared vision
• Team learning

People need structures and systems that are conducive to learning, reflection, and engagement. The
5 components of the learning organization were conceptualized to help people become active
participants in understanding their reality at present and shaping it for the future.
Systems thinking, which is said to be the conceptual cornerstone of Senge's approach, is the discipline
that recognizes the interconnection between parts that make up a whole. It acknowledges that
organizations are complex systems composed of many inter-related components, and that it is very
important to understand how the key components dynamically interact with each other to give life
to the system that they comprise. Managers within the organization must learn to think at the
'systems' level, giving more importance to the long-term impact of system dynamics instead of the
short-term problems encountered in each part of the system.

Personal mastery refers to the discipline of an individual being able to continuously clarify and deepen
his personal vision, focus his energies, develop patience, and openly and honestly see reality as it
exists. Personal learning does not ensure organizational learning, but the latter cannot exist without
the former. Individuals must therefore strive to learn and live life from a creative rather than reactive
perspective. Having a very clear personal vision of how things should be and a very objective
recognition of what the reality is would help the individual determine the gap between his vision and
the reality, motivating him to learn in active pursuit of continuous improvement.

Mental Models are, according to Senge, "deeply ingrained assumptions, generalizations, or even
pictures and images that influence how we understand the world and how we take action." Mental
models represent an individual's ability to compare new ideas with internal images of how the world
works. These mental images, if in contrast with new ideas, can prevent the latter from being turned
into reality. It is therefore important for an organization to foster openness among its people while
providing them with the right direction in order to prevent mental models from limiting the
organization's ability to put new ideas into practice.

Shared vision refers to the ability of a group to form and hold a common picture of a desired future
that its members seek to create. According to Senge, a shared vision is "a vision that many people
are truly committed to, because it reflects their own personal vision. Shared vision is vital for learning
organizations because it provides the focus and energy for learning." When there is a genuine
commonly-held vision within the organization, people strive to learn and excel, not because they are
told to, but because they want to.

Team learning, according to Senge, is "the process of aligning and developing the capacities of a team
to create the results its members truly desire." Achieving personal mastery and having a shared vision
are important to a learning organization, but not enough. People need to be able to learn together,
so they can act together. Team learning starts with a 'dialogue', or the process of 'thinking together',
wherein its members suspend personal assumptions and enter into a state of genuine group
awareness and collective thinking.

13.7 GAME THEORY

Game theory is a concept that deals with the formulation of the correct strategy that will enable an
individual or entity, when confronted by a complex challenge, to succeed in addressing that
challenge. It was developed based on the premise that for whatever circumstance, or for whatever
'game', there exists a strategy that will allow one to 'win.' Any business is a game played against
competitors, or even against customers. Master the rules of the business you're in and you'll win
the game, so says Game Theory.

Game Theory is not a new concept, having been invented by John von Neumann and Oskar
Morgenstern in 1944. At that time, the mathematical framework behind the concept has not yet
been fully established, limiting the concept's application to special circumstances only. Over the
past 60 years, however, the framework has gradually been strengthened and solidified, with
refinements ongoing until today. Game Theory is now an important tool in any strategist's toolbox,
especially when dealing with a situation that involves several entities whose decisions are
influenced by what decisions they expect from other entities.

Game Theory involves the study of how the final outcome of a competitive situation is dictated by
interactions among the people involved (also referred to as 'players' or 'agents'), based on the goals
and preferences of these players, and on the strategy that each player employs. A strategy is simply
a predetermined 'program of play' that guides a player as to what actions to take in response to
past and expected actions from other players.

Game Theory has several important elements, some of which are:

• The agent, which refers to a person or entity who have their own goals and preferences.
• The utility, which is an abstract concept that indicates the amount of satisfaction that an agent
derives from an object or an event.
• The game which pertains to a situation participated in by several agents (now referred to as
'players', since they're in a game), each of whom is trying to maximize his utility of the game by
anticipating the actions of the other players and responding to them correctly.
• The information, which is what a player knows about what has already happened in the game,
and which can be used to come up with a good strategy;
• The representation, which characterizes the order of play employed in the game.
• The equilibrium, which is an outcome of or a solution to the game.

In 1950, Albert Tucker of Princeton University invented the Prisoner's Dilemma, an imaginary
scenario that is undoubtedly one of the most famous representations of Game Theory. Here, two
prisoners were accused of the same crime and eventually given three possible outcomes:

• If one confesses and the other does not, the confessor will be released and the other will be
imprisoned for a long period of time.
• If neither confesses, both will be imprisoned for a short period of time,
• If both confess, both will be imprisoned for an intermediate period of time.

In the end, both prisoners conclude that the best decision is to confess, and are both sent to
intermediate imprisonment.

A new concept related to Game Theory is the Nash equilibrium, which was developed by John Nash
for his PhD thesis. In a game, players would tend to change strategies from time to time to improve
their respective positions. The Nash Equilibrium is the point at which no player can improve his or
her position in the game by changing strategy. In the Prisoner's Dilemma, the Nash Equilibrium is
the point at which both prisoners confess, since whoever changes this strategy will be sent to a long
prison term, instead of an intermediate one.

Game Theory is said to be too rational to be used in the reality of an irrational, modern business
world. As such, companies that usually embrace it are those which are in a business sector where
there are but a few players, and for which the rules are very tightly regulated, such as the oil
industry. In such a 'playing field' where rules are to be followed and behavior can be rationalized,
the best competitive moves can be formulated using Game Theory.

13.8 FLEXIBLE MACHINING SYSTEM

Flexible machining system can mean different things to each company doing it. Some users need to
process complex parts in small to midsize batches efficiently and still machine lots of one without
disrupting the workflow. Others want to precision-machine larger batches of parts, and then set up
for other lots fast. How they build flexibility into their machining process is as diverse as how they
define flexibility, as is shown by the following three machining strategies.

The first is a stand-alone high speed CNC machining center with next-generation body parts. It
reportedly can beat flexible transfer lines in performance. The second, a manufacturing cell, uses
linked modular machine tools to make a family of parts. The third is a hybrid CNC machining system
that is just now being introduced to the US. Its builders believe its modular design offers the capacity
of a row of machining centers in much less space.

Each manufacturing strategy has its strengths and weaknesses, depending on the mix of parts to be
processed and required batch sizes. What do the following three machining strategies have in
common? All build on the elementary capabilities of the machining center. Although configured quite
differently, they share a common goal--to maximize spindle uptime.

An XHC 240 machining center from Ex-Cell-O GmbH (Eislingen, Germany) in use at Ford Motor
Company's Cologne, Germany transmission plant is a good illustration of the first strategy. The
machine has reduced floor-to-floor production time for precision-machining clutch housings by 60.
Ford engineers report that the machining center provides the same output as a flexible transfer line
at about two-thirds of the total investment. It also has substantially shorter changeover times, which
gives Ford a decided advantage when it comes to model changes. The bottom line is faster response
to changing market demands.

Ex-Cell-O engineers credit the machine's next-generation components for its performance. The
machine design includes a motorized high-speed spindle with sensors that monitor temperature and
regulate pneumatic lubrication of the spindle bearings; an electrical direct drive with linear motors for
the X, Y, and Z axes; a fast computer numerical control; high regulating dynamics; direct magazine-to-
spindle tool change; and a servo driven pallet changer.

The machine is the first machining center to use linear motors on all main axis drives. This feature,
combined with a precision high-speed spindle and direct-to-spindle tool changer, can allow the high-
speed machine to produce parts 50% faster than conventional machining centers. Compared to the
other high-speed machines Ford considered for this job, the Ex-Cell-O machine cut total cycle time by
about 30%.

The linear motors link the machine base and its driven components with a magnetic field rather than
to a balls crew slide, as in machines using electro-motors. The result is rapid-traverse speeds of 60
m/min, compared to conventional speeds of 15 m/min. At 1 g acceleration, the system reaches peak
speed after only about 50 mm. High rapid-traverse speeds, together with high acceleration and
deceleration rates, can reduce tool positioning times dramatically. This factor alone accounts for about
70% of the total reduction in machining cycle time."

One reason linear motors allow high traverse speeds is the lack of friction in the drive. Another benefit
of the machine is the lack of mechanical transmission elements so Ford engineers don't have to deal
with the usual play, elasticity, and wear of mechanical links, and any guide-tolerance or transmission-
ratio faults. Mounting linear motors directly on the moving part of the slide also helps the machine
achieve the positioning accuracy required in the Ford application.

For high metal-removal rates, the Ex-Cell-O machining center uses a 24,000-rpm motorized spindle
originally developed for a high-speed milling machine designed to process compressor parts. It accepts
tool holders with a hollow-taper shaft, rather than a standard-taper shank. The shaft clamps the tool
axially to the spindle's precision flange face with high axial force, providing a precise, stable
connection, even at high metal removal rates.

Tool exchange is directly into the machine spindle, eliminating the need for grippers. A 40-position
disk type magazine makes short axial movements to remove a tool from the spindle shaft and replace
it with another. Chip-to-chip time drops to 4.5 sec compared to the 10 sec common on conventional
machining centers. Pallet changing also is fast. When the Z axis is in its rear position, a servo driven
transfer device replaces both pallets in one movement, reducing total pallet change time to about 6
sec.

The machine's unique features let Ford cut the number of standard and special cutting tools by half
compared to conventional machines. The 40-position disk-type tool magazine serves in effect as a tool
holding fixture system. It ensures a firm and highly precise connection between the work spindle and
tool, which is a must for machining bearing diameters. Standard tools use through-the-tool flood
coolant and include straight-loop solid-carbide drills, coated solid-carbide thread formers, and
polycrystalline diamond helical-flute milling cutters. The turret also includes special combination solid-
carbide drilling and threading tools with internal coolant supply for drilling, chamfering, spot facing,
and thread milling. They drill at 24,000 rpm and form threads at 4000 rpm. A floating tool holder is
unnecessary because of the precisely working spindle. Another special combination tool mills various
cuts at 15, 30, and 45(deg) angles.
The combination of intelligent servo drives and modular numerical control also allows Ford engineers
to program geometrical and mathematical interpolation in 2 msec, which allows high-precision
circular milling. In addition, the machine provides position compensation for contouring and
acceleration errors, and offers high positional resolution. These control features helped Ford
standardize on fewer tools. One tool doing circular milling, for instance, can produce hole of diameters
from 47 to 73 mm. The system holds tolerance specs of 0.008 mm for roundness, 0.008 mm for
parallelism, and 0.006 mm for straightness. The circular milling process also meets a flatness
specification on the joint faces of less than 0.05 mm, as well as a parallelism tolerance of less than
0.02 mm from the joint faces to the bearing shoulder.

A brushing operation after machining removes burrs. Following a 6-second pallet change and a second
part clamping, the machine then drills radial features like the clutch activation bore. Next, operators
gage finished parts for statistical process control, measuring diameters with electronic plug gages.
Zeiss measuring machines supply positions and distances, while a separate precision form tester
measures bearing diameter shape tolerances.

Resulting C sub pk was greater than 1.67 for 40 out of 41 features recently tested. All 63 position
tolerances were within a 75 circle. These data are well within Ford's quality guidelines.

From Chaos to Cell Control

The second flexible machining strategy involving linked machining centers is illustrated by machine
tool builder Cincinnati Milacron (Cincinnati), which has two cells processing machine tool parts at Plant
Two. The manufacturing engineers and cell technicians involved in bringing the cells on-line faced the
same concerns as any company rethinking the way it makes parts, namely how to put the cells in place,
reroute parts into those cells, develop the required tooling packages and programming, and manage
cell resources.

One cell includes four Cincinnati Milacron T-30 machining centers, each with a 170-pocket tool chain,
linked by a single-level RGV system with 27 parking stations and three loading stations. The plant also
has a three-machine Maxim 630 flexible cell with a dual-level RGV system, 36 park stations, and three
loading stations. Each cell uses a Milacron cell controller to manage work load and resources entering
and leaving the cell. A preset gage interfaces to both cell controllers to provide on-line access to all
preset tools entering cells.
The two cells process parts for standard horizontal machining centers, the Avenger turning lines, and
aerospace and specialty equipment. The work is basically the second generation of work previously
conducted at two separate locations.

Two years ago, when the company moved the standard machine tool business back to Cincinnati, it
was decided to expand the two-machine T-30 cell returning from the Fountain Inn plant by adding two
additional T-30s already at various locations in Cincinnati, as well as install the Maxim cell.
Manufacturing engineering then routed all parts to the cells that could be machined as completely as
possible with their equipment. Rerouting the parts was relatively easy compared to the fixturing
changes and reprogramming necessary.

The large quantity of low-lot-size parts routed to the cells produced a large amount of tools that had
to be built and preset each day. It became clear that, if the cell operators were to manage this, the
tooling and programming methods had to be examined for these parts.

One problem was that the Fountain Inn plant had used a different numbering system for tool
assemblies. There also were procedural problems. Engineers had attempted to set up resident tool
packages for each machine, but jobs coming to the machines usually required a large enough number
of nonresident tools that they were removing a lot of resident tools. The reason was that four or five
different programmers worked on jobs routed to the cells and didn't have tool selection guidelines.
There are many ways to cut a pocket, for instance. It would have been helpful for someone to say
'when cutting this size pocket use this size tool.'

The goal was to standardize tooling for the new cells so every job routed to the cells was reexamined.
From that, a matrix was produced of the tools required for every set of each part and the tools used
most frequently were identified. Other tooling was then consolidated. Tooling inventory for each cell
was reduced by some 40%."

Cell personnel and programmers now work with a standard tool package book that lists tools to be
used whenever possible. When a new part enters the cell, the cell supervisor reviews all associated
programs to make sure that they conform with the book. Engineers haven't eliminated all special tools
from the cell, but the cell controller helps route them efficiently.

The job of merging additional machines into the first cell went smoothly and took about 1 1/2 - 2
months. This process would have taken only 3 - 4 weeks if the company's field representatives, which
implement cells for external customers, had completed installation, but the cell maintenance team
worked on the project for the learning experience.

What have they learned? Companies moving to flexible cellular manufacturing need to rethink their
tooling, and programming strategy. Consolidating their tooling inventory may not be easy, but not
doing it could add unnecessary tool inventory costs to the cell's bottom line. A key element of flexible
cellular manufacturing will be knowing what tools are required, their location, and when they need
replacing.

When Dedication Means Inflexible

The third flexible machining strategy, to use a hybrid machine tool, can have its niche in applications
short on floor space that require high-volume processing, but don't want to move to a dedicated
transfer-type machine. The Ketterer Flexible CNC Center from Tooling & Production Systems (Sussex,
WI) doesn't look like either a typical machining center or a rotary transfer machine, so it is no surprise
that its machining capabilities fall somewhere between the two in both flexibility and lot sizes that can
be processed. There are two ends of the spectrum in machining. The machining center is often the
choice for low-volume processing because of its flexibility, but only one or two spindles running at a
time can limit output. At the other end of the spectrum are the dedicated, relatively inflexible
machines for very high-volume work. The Ketterer machine's niche is the in-between applications
beyond the volume capacity of a machining center and those for which manufacturers don't want to
buy dedicated machines. It is a multi-station CNC machining center.

The machine allows multi-side machining of forgings, castings, or blanks in low, medium, and high
volumes in minimal setups. It can accommodate up to seven turret-style three-axis machining stations,
each with the capacity of a small horizontal machining center. All stations sit around a common base
holding the index table and fixture parts. Each turret station is limited to six HSK 63 shank tools
because the machine has to balance high output with flexibility.

The machine design is modular, so users can begin with the basic three-station module and then add
on capacity as their needs change. This simply involves positioning another wing unit to the machine
base and updating the control, an Indramat MT, which is designed to control multiple axes at once.
Another key feature of the machine is the direct-drive 13-kW spindle motor, which has a 21-kW peak
output and uses water cooling. The machine's standard spindle also offers 10,000 rpm, with 18,000
rpm optional.
More productivity gains come from the work holding configuration that allows five-sided machining
of parts simply by indexing the rotary table in 1(deg) increments or more. Users can machine four
parts, as well as two sides of each part, simultaneously, cycling both the part and the turret through a
number of indexes. The Ketterer machine can't always replace a multi-machine cell because of its part-
size limitation. Where cells can often accommodate fairly large parts, the Ketterer can only handle
those fitting on its 275-mm table. The Ketterer's forte is machining medium to high-volume parts that
fit within this envelope flexibly and within a constrained shop floor area.

One advantage over a cell is that users eliminate several part clamping or pallet transfer and can
reduce related part error. As in cells, operators can load parts at one station while other stations are
machining. Fixtures can include hydraulically actuated, quick-change, jaw or toggle-type clamping
options.

In all applications profiled, spindle uptime will depend on how well the manufacturing engineers plan
tooling exchange and work flow, flooding of the work with coolant, even chip disposal. The steps
required for efficient manufacturing haven't changed, only the tools available to do it.

13.9 SUMMARY

Dr. Eliyahu Goldratt first introduced the concept of Theory of Constraints (TOC), a management
philosophy, in his 1984 book titled The Goal. The theory is based on the concept that any manageable
system is limited in achieving more of its goal by a very small number of constraints, and that there is
always at least one constraint. The TOC process seeks to identify the constraint and restructure the
rest of the organization around it, through the use of the Five Focusing Steps.

Synchronous Manufacturing is the most popular but broader application of the Theory of Constraints
that takes into consideration all elements of the business and not just the ‘Production’ working in
synchronization to achieve the strategic goals of the business.

The contemporary performance problems companies face are mostly due to the fragmentation of
processes, which occur due to building functional silos and vertical structures on narrow pieces of
processes. These are headed by functional experts who are oblivious of overall requirements of the
organization. The expectation from these functional heads is that they will act as glue to join the
fragmented parts to work in unison for the benefit of the organization. Instead, these experts become
preoccupied with isolating and cementing their own silos for individual gains. Quite often, efficiency
of individual parts/functions of the company, come at the expense of efficiency of its whole. Business
Process Reengineering seeks to change all this. It aims at reunifying the broken down tasks (Adam
Smith Principle) into a coherent business process.

Benchmarking is the process of comparing an organization's operations and internal processes against
those of other organizations within or outside its industry. The other organizations against which the
comparisons are made, known as 'benchmark partner', are usually those that are perceived to be the
best performers in their class. The purpose of benchmarking is to identify and adopt best known
practices that can lead to superior performance.

Knowledge Management or simply "KM" is a business concept that deals with how a company should
and could make the best use of its existing knowledge. It involves the systematic and structured
process of organizing corporate information for easy retrieval, distribution, and reuse across the
entire company. By this definition alone, computerization should be part of every serious KM
program, which is why KM-related software have been on the rise in recent years.

Organizational learning is becoming more and more important in the modern business world where
things change rapidly and information get transmitted almost instantaneously. In such a constantly
changing environment, only the truly flexible and adaptive companies will excel, i.e., learning from
the past is vital to success in the future.

Game theory is a concept that deals with the formulation of the correct strategy that will enable an
individual or entity, when confronted by a complex challenge, to succeed in addressing that challenge.

Flexible Machining is different for different situations. How flexibility is built into the machining
process is as diverse as how flexibility is defined.

13.10 KEYWORDS

• Theory of Constraints: - Concept that any manageable system is limited in achieving more of its
goal by a very small number of constraints, and that there is always at least one constraint.
• Throughput: - Money (or goal units) generated through sales.
• Operating expense: - Money that goes into the system to ensure its operation on an ongoing basis.
• Inventory: - Money the system invests in order to sell its goods and services.
• Constraint: - Anything that prevents the system from achieving more of its goal.
• Process Batch: - Process batch size is the total number of units that are scheduled to be processed
within the same setup.
• Transfer batch: - Refers to the movement of part of the process batch, rather than waiting for the
entire job to be completed.
• Forward Loading: - Tasks are scheduled from some point into the future.
• Backward Loading: - Backward loading is the MRP type scheduling, where the finished product or
required part is needed.
• Bottleneck: - Work center which limits the throughput.
• Benchmarking: - Process of comparing an organization's operations and internal processes against
those of other organizations within or outside its industry.
• Knowledge Management: - Business concept that deals with how a company should and could
make the best use of its existing knowledge.
• Learning Organization: - Organization that constantly monitors its environment for changes and
learns from and adapts to these changes.
• Personal Mastery: - Refers to the discipline of an individual being able to continuously clarify and
deepen his personal vision, focus his energies, develop patience, and openly and honestly see
reality as it exists.
• Mental Models: - Deeply ingrained assumptions, generalizations, or even pictures and images that
influence how we understand the world and how we take action.
• Shared vision: - Ability of a group to form and hold a common picture of a desired future that its
members seek to create.
• Systems thinking: - Discipline that recognizes the interconnection between parts that make up a
whole.
• Team learning :- The process of aligning and developing the capacities of a team to create the
results its members truly desire.