MBA Sem-2

Unit No. 1
Operations Management
Topic No. 4 – Physical distribution to
Logistics to SCM
Objectives

After completing this session, you will be able to:

 Define Physical Distribution, Logistics and Supply Chain Management

 Explain the difference between PD, Logistics and SCM

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education &
Research, Wardha
Question from last class

Heterogeneous activity example in service sector

The heterogeneous nature of services means that no two services are exactly the same

For example, at a salon parlor, each customer coming demands a different

haircut. The barber cannot cut every person's hair in the same way. They have to
listen to his customer; otherwise, they would lose a customer. This is how
heterogeneity in the service market is seen.

example, customer care, which is provided differently to each customer according to

their problems.

Hospital: diff patient, different ailment, medicine, treatment, tests, number of days to
recover, body reacts differently, different doctor
Prepared by Prof. Anuja Gupta
for MBA Sem-II, Datta Megh
Institue of Higher Education &
Physical Distribution

 Physical distribution refers to the movement of finished goods from a company's

distribution network to the end user

 In simpler terms, Distribution is the process of making goods available to

consumers when they make a purchase.

 For example, products might go from the manufacturer or supplier to the point of
sale — which could be the checkout counter at a retail store or a customer’s
doorstep if they bought something online.

 Distribution basically creates a path for goods to move from the manufacturer to
the customer. That path is called the distribution channel

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 Typically a distribution path would looks like this:

• Distribution involves finding the best ways to move a product through each stage.

• And the people involved in any of these stages might have tasks that include packaging, storage, order
fulfillment, the transport of goods, and customer returns.

• The overall goal of distribution is to find the most efficient and cost-effective way to transport goods to
the customer.
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 Physical distribution is defined as the process of optimizing physical movement
of goods from the producer to the consumer.

 According to the marketing guru Philip Kotler “Physical distribution involves

planning, implementing and controlling the physical flow of materials and final
goods from the point of origin of use to meet consumer needs at a profit.”

 The activities that are included in the efficient movement of goods from producer
to end user or consumer include transportation, inventory control, warehousing,
material handling, retail fulfillment, forecasting, customer service, plant and
warehouse location, order processing and shipping to the final user.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Objectives of Physical Distribution

The following are the objectives of physical distribution

1. Consumer satisfaction

2. Profit Maximization

3. To ensure the availability of right goods at the right quantity at the right time and the
right place with the least cost.

[Link] achieve speedier transportation of goods and maintaining minimum inventory level.

5. To establish the correct price of products by effective management of physical

activities of distribution.

6. To achieve competitive advantage over the competitors by providing the best

customer service.
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Components of Physical Distribution
1. Order Processing: Order processing is the first point or in other words, the starting point of the distribution activity.
The functions involved in order processing are receiving order, handling the received order, generating invoice,
dispatching of order and collecting the bills.

Businesses should be making an effort to reduce the order cycle time which is the time between placing an order by the
customer and delivery of the goods at the customer’s place.

2. Storage and Warehousing: Storage deals with the storing of goods in proper condition till the time it is ordered by
the customer. Goods that cannot be generally made available throughout the year need to be stored.

Warehouses act as centres of storage and by providing the functionality it helps businesses meet the demands of
customers. Apart from being a source of storage, a warehouse also acts as centres for assembling the goods.

3. Inventory Control: Inventory control refers to the process of efficient control of goods that are stored in the
warehouses. Businesses need to maintain adequate levels of inventory in order to ensure uninterrupted fulfillment of
orders.

The level of inventory needs to be optimal, it should not be too less or too more, as less inventory results in out of stock
goods, loosing business and unhappy customers, while a high level of inventory requires huge investment, storage,
cost, risk of damage
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
4. Material Handling: Material handling refers to the activities that are associated with
the movement of goods from the site of manufacturing till it is loaded to the transport
like truck/ship.

Proper material handling results in minimizing the wastage of goods during transport,
reduces unnecessary movement of goods, facilitates quick order processing and efficient
goods movement.

E.g.- DHL’s Stretch Robot helps in taking out boxed from trucks and keeping them on the
conveyer belt. It is a smart robot, if a box fells, it will look for the fallen box and pick it up.
The boxes are heavy so it used to take time and a lot of man power. With this robot the
risk of damage, the box falling has been minimized, speed of work is improved..thus the
process is optimized with improved quality
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
5. Transportation: Transportation is a very essential component of physical distribution which
plays a crucial role in movement of the stored goods from warehouse to the customers. The
process of transporting involves loading and unloading of goods and their movement from one
place to another.

Choosing the right transportation mode is of utmost importance as it determines the retail price of
the product. E.g.-if we want to send a package to a relative- air or train, cost and time of delivery
will vary accordingly. Proper choice of transportation results in smooth movement of goods in
proper condition. Air se smoothly jayega humara package, by road bhot jhatke lag sakte h,
damage ho sakta h

The modes of transportation that are adopted by the businesses are road, railways, airways, water
transport and pipelines. The choice of the mode of transportation depends on the type of goods
being transported, their availability, reliability and the level of safety offered by the mode.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Example: Coca-Cola
Global beverage giant Coca-Cola has a very interesting distribution system.

While the company is in more than 200 countries, its distribution model has remained largely local.

Coca-Cola manufactures and sells concentrate, beverage bases, and syrups to bottling centers worldwide.

These bottling companies use the syrups and concentrates to make Coca-Cola beverages and bottles by adding
water and carbonation. Then, they package and distribute them in the areas they have exclusive rights over. Coca-
Cola has over 225 bottling partners and 900 bottling plants worldwide.

Finally, local bottling companies distribute the beverage to consumers through grocery stores, restaurants, street
vendors, vending machines, movie theaters, and amusement parks. This is called a franchise model of distribution.

It has several advantages for the Coca-Cola company.

By selling only syrups and concentrates to bottling partners, the company can protect its most valuable assets: its
recipes.

Second, it only has to pay for transporting concentrates to bottling partners. The bottling partners are responsible
for transporting the final product to the market — saving Coca-Cola money on last-mile delivery.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Logistics

 Logistics means planning, managing, coordinating, and controlling the movement

of goods from point A to point B.

So, what kind of work does it involve?

 Logistics covers several things, including:

 Transportation management
 Delivery management
 Warehouse management
 Material handling
 Inventory management

 It takes care of planning shipping, warehousing, courier services, and

transportation by road, rail, or even air freight.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 Logistics management is that part of supply chain management which plans, implements, and controls the
efficient, effective forward and reverses flow and storage of goods, services and related information
between the point of origin and the point of consumption in order to meet customers' requirements.

 The logistics activity in a company acts to co-ordinate the flow of material and the related information
through the system. Konsa product Kab kitna aur kaha kis process mei jana chahiye wo manage karna and
us information ka flow..this coordination is included in logistics.

 It has to co-ordinate production planning; delivery frequencies required matching sales, demands and
customer order frequencies. All this has to be achieved through shared information. This requires an
integrated information system in which:
 Data entering one subsystem is also available to any other subsystem requiring it; for example, data concerning
customer orders should be available to inventory control, production scheduling, sales forecasting, etc.
 All inter-related subsystems should have access to data in a common data base.
 Closely connected activities are integrated into the same procedure, order processing, credit checking and stock
allocation.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
The logistics information system consists of two subsystems dealing with supplies and customers.

 The supply subsystem input consists of the materials requirements plan, indicating how many of what
types of items are needed and when they are needed for production; this has to be checked against the
standing inventory and any orders outstanding.

 If necessary, if any extra material is needed then we have to make decisions and accordingly purchase
orders generated. This process appears simple but a company may have a register of hundreds of suppliers
and they need to maintain an inventory with many thousands of stock-keeping units. SKU is a number
(usually eight alphanumeric digits) that retailers assign to products to keep track of stock
levels internally

 Also a sharp look-out must be kept for possible shortages and the suppliers checked for their reliability,
prices and service.

 At the same time, the inventory must be minimized while making sure that production is not held up due to
a stock out.

 Thus there is a need for a sophisticated information system to balance all these factors simultaneously.
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 Talking about customer subsystem, it is the mirror image of the supply
subsystem in many ways .

 An order from a customer is the start of the process.

 Hundreds of such orders per day have to be monitored against customer records
for creditworthiness and special terms or needs, among other things.

 After which stock has to be assigned to the order, replenishment of inventory to

be done if necessary, delivery and invoices as well as other complementary
activities should be arranged

 Other information regarding achievements of service levels, re-order levels, etc.,

has to be gathered at this point to assist in making demand forecasts.
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 It is necessary for these 2 subsystems to integrate in manufacturing so that the
supply sub system generates what the customer subsystem demands.

 For this many companies have installed materials requirements planning (MRP)
systems (MRP forecasts what all materials are required, at what time and in what
quantity to produce a product)

 The requirements are calculated by taking existing stock levels and orders already
placed into account, as well as how many times and when the items will be needed.

 A successfully implemented MRP system can reduce inventory levels, speed up

changes in the production process to meet changes in demand and increase the
level of service in meeting demand.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 Just-in-time (JIT) system is another such method that can help reduce inventory
levels while maintaining service levels.

 The idea is that the required materials should arrive just in time for their use in
manufacturing process.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Example: Online Purchase of Clothes
Many people buy clothes online.

Most fashion brands cater to consumers purchasing apparel online and delivering it to their homes. But this
type of business isn’t as easy as picking a dress off a store rack, wrapping it up, and sending it down the
street.

So, how does an apparel company plan the logistics of delivering clothes quickly and efficiently?

Typically their process looks like:

• Sourcing raw materials and manufacturing clothes

• Shipping them to distribution centers

• Keeping detailed inventories

• Packing items ordered online

• Hiring a third-party delivery provider

• Shipping items to the customer through the delivery service

• Managing returns in case of defects or other reasons

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 Physical Distribution and Logistics

• Example: Consider the laptop or mobile device you’re using to read this post.

It was probably made in a factory in China, then shipped overseas to a central warehouse in India.

Soon after, it was shifted from that central warehouse to one of the many smaller warehouses spread
across India.

From there, a last-mile delivery driver picked it up and dropped it at your doorstep.

• This entire process of planning and organization of moving, storing, and cataloging products and making
sure that the right product is delivered to the right customer — in the right quantity and condition, at
the right place and time, and at the right price — is called logistics.

• On the other hand, Distribution is the physical movement of a product from its point of origin to the end
user (the customer). Distribution optimizes the physical movement of goods from production to the
consumer.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
• Logistics and distribution both have the same goal: the efficient delivery of goods
from one point to another.

• But they deal with different aspects of the supply chain management process.

• Both processes deal with storage, warehousing, inventory management, and

monitoring the flow and transportation of goods — but in very different ways.

• While logistics is an organizational activity oriented more towards planning,

distribution is the tangible part of it- i.e. actually doing it.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Supply Chain Management
 SCM is larger in scope than both physical distribution and logistics. It also includes tasks related to
materials management.

 Supply chain refers to the whole business chain, including procurement of inputs, logistics,
conversion of inputs into products, physical distribution/ marketing logistics, which finally take the
end product to the ultimate consumers

 Supply chain is basically the firm’s value chain. Value is actually spread through the firm’s supply
chain. You keep adding value at every process to reach the final output and till the time it is delivered
to the customer.

 Firms actually compete in the marketplace using their supply chains as the weapon, not their
products and brands. Superiority in supply chain is thus a major competitive advantage. A firm with
the better supply chain wins in the market. We discussed in the last class that how efficient your
process is would impact your firm performance. A company with good & efficient process/SC would
still grow during recession compared to a firm with less efficient process would will struggle to
survive, grow hona to door ki baat hai
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
PD, Logistics and SCM
 In simple terms,

 Physical distribution involves moving/transporting goods from one place to

another;

 Logistics includes all the planning of movement or formalities like billing,

customs when transporting internationally

 SCM includes managing information, services, warehousing, logistics, raw

material. SCM takes care that the product reaches its customer.

 Thus PD and Logistics are part of SCM. SCM is a broader concept

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Evolution from Physical distribution to Logistics to SCM
 PD manages the movement of raw materials and finished products and the development of
movement systems,

 whereas logistics is concerned with ‘‘planning, implementing, and controlling procedures

for the efficient and effective transportation and storage of goods including services, and
related information from the point of origin to the point of consumption for the purpose of
conforming to customer requirements’’

 Both PD and logistics focus on coordinating among the activities within the function of
organization in a firm and outbound product movements from a firm, but they neglect the
coordination and collaboration among other functions within the firm or among external
channel members

 In contrast, SCM promotes coordination, integration, relationship building, and collaboration

throughout the entire supply channel. It focuses on boundary-spanning channel
management and integrates supply and demand management within and across firms and
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Origin of physical distribution (early
1900s–1960s)
 PD originated from the U.S., which initially dealt with issues related to agricultural products circulation

 In late nineteenth century and early twentieth century, the U.S. was transforming from an agricultural
country to an industrialized one

 In its initial stage of industrialization, U.S. economic development generated a large amount of capital,
which was applied to develop their productions. Production of commodities was done by large scale
production systems, that production kept on increasing, and itna badh gaya that supply finally
exceeded demand in market.

 Later, PD began coordinate more than one activity associated with physically supplying product to the
market place. Inbound movement of goods brings supplies or materials into a business, while outbound
movement of goods deals with moving goods and products out to customers. In 1960s, the focus of PD
gradually expanded from a firm’s outbound movement of goods to the inbound side of the firm.

 But because marketing and production did not pay enough attention to PD, PD did not grow as a new
function within a firm’s organization structure

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Further development of PD (1960s–
early 1980s)
 After WWII, the U.S. entered an era of mass production and consumption.

 The manufacturing industry attracted so much attention that only a few firms were interested
in dealing with PD, others preferred keeping stocks

 Thus, firms did not think it necessary to improve PD.

 At that time road and railroad transport industry were controlled by the U.S. government in
1950s. Thus there was no incentive for firms to improve PD.

 But in 1960s and 1970s The study and practice of PD and logistics started devleoping. During
this period, logistics costs were high across the world.

 Peter Drucker(a well known management consultant) described ‘‘physical distribution is one of
the most sadly neglected, most promising areas of American business’

 Later on the concept of PD started spreading to other countries during this period of 1960-
1980. PD was introduced to Japan in 1956 and adopted by China in 1979
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Origin of Logistics (early 1900s–1960s)
 The word ‘‘logistics’’ originated from the ancient Greek adjective, ‘‘logistikos’’, which means skilled in
calculating

 As a military term, logistics initially dealt with procurement, maintenance, and transportation of military
facilities, materials, and personnel.

 It was first used in noncombatant administrative duty during the period of the Rome and Byzantine empires.
At that time, military officers used the term ‘‘logista’’ to describe the financial aspects of goods and
materials distribution.

 The first person using logistics in military organization management is Antoine-Henri Jomini, a writer from
Switzerland in 1838

 During WWI, military logistics was an important network that provided provisions, weapons, equipment, and
other supplies.

 In WWII, the U.S. and its allies had to transport and allocate supplies in the range of a vast space stretching
over Europe, America, the Atlantic Ocean, and the Pacific Ocean.

 Various activities were carried out like overall arrangement and management of the purchase, transport,
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
warehousing, and distribution of military supplies.
 organization units within a firm related with logistics were fragmented. Logistics
at that time included transportation, warehousing, inventory management,
customer service, information technology, transportation and logistics
infrastructure, logistics service providers (LSPs), customer service, and
information technology.

 Very little attempt was there to integrate and balance these logistics activities.
Because of which Logistics management at that time lacked coordination,
collaboration, and relationship building was also missing among various parties
of the channel (SC)

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From PD to logistics (middle 1980s–
middle 1990s)
 Oil prices rose fast during the two oil crises in the 1970s, jumping from less than $3 a
barrel in 1973 to about $40 in 1980

 PD industry in the U.S. was impacted deeply by the rise of oil price.

 Firms were forced to find approaches to reduce PD cost because transport services are
impacted and they start becoming costlier when oil price goes up.

 Further, rise in prices slowed down the sale of final products which lead to
overstocking. Thus this strong financial pressure was created by overstocking and
forced U.S. firms to improve their PD systems.

 And jese jese ye sab ho raha tha US mei, Meanwhile, a lot of overseas-based firms
entered the U.S. market during this period. Their requirements for PD services that
created a huge/ fierce competition in U.S. PD industry
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Wardha
 From early 1980s, the U.S. government started loosening control on transport
which earlier was entirely under government’s control and began to encourage
free competition in PD industry.

 After a lot of controls were loosened, due to these policy changes, the
regulations for PD industry finally were made based on its competition level.

 The new policy from the U.S. government promoted the development of PD.
However, loose control led to excessive competition in PD industry.
Transportation benefits dropped sharply and the number of firms in this industry
also decreased dramatically.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 Intense competition in U.S. PD industry drove firms to adopt advanced management
strategies and technology in their PD management, such as material requirements
planning (MRP), distribution resource planning (DRP), and just in time (JIT), to gain
competitive advantages. In this intense competitive market firms needed to differentiate
themselves

 As these management strategies were applied widely, but later on it was realized that
current PD practices were not really suitable.

 It was realized that PD management should be implemented throughout the whole

process of production and distribution.

 As such, PD was now being considered at a strategic level and top managers in firms
began to pay attention to it. Specifically, due to the introduction of information and
networking into PD activities in middle 1980s, expanding PD was placed on the agenda.
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PD -> Logistics
 In 1985, the National Council of Physical Distribution Management (NCPDM) was
renamed as the Council of Logistics Management (CLM), a formal step changing
PD into logistics.

 The reason is that the concept of PD is narrow, whereas the concept of logistics
is broad, consistent and integral.

 From then on, logistics is not just a military term, but a new term in the field of
economy. Since then, practitioners and even researchers around the world have
given up using the PD and switched to logistics. Although logistics replaced PD,
its scope is limited to the boundaries of the function within a firm and is
primarily concerned with activity administration

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Supply chain management (middle
1990s–present)
 In 1990s, the U.S. economy grew at constant high rates.

 The main drive force for the new economy is the revolution of information technology and the tide of
economic globalization.

Economic globalization refers to the increasing interdependence of world economies as a result of the growing scale of cross-border
trade of commodities and services, flow of international capital and wide and rapid spread of technologies

 the trend of free trade started in 1990s, increased outsourcing, and expanding global operations which
required firms to manage their supply chain processes in better manner

 In order to meet customers’ demands, firms need to coordinate logistics, fund flow, and information flow.

 The coordination requires firms not to focus on their insider functions only, but to cooperate closely with
stakeholders in their supply chains, including suppliers, manufacturers, wholesalers, retailers, and end
users.

 Because logistics management just focuses on a single element in the supply chain, it lacks
coordination, collaboration, and relationship building among channel members

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 In order to lower costs and to make commodities flow faster, U.S. firms began systematizing and
integrating logistics activities of all stakeholders in their supply chains in 1990s.

 Accordingly, supply chain management (SCM), which promotes coordination, integration, relationship
building, and collaboration throughout the entire supply channel, emerges and is gradually adopted
by firms to achieve competitive advantages.

 The origin of the concept of SCM is unclear, but its development was initially along the line of PD.

 The earliest source of the SCM comes from the concept of value chain proposed by Philip Porter
(marketing guru).

 Later, Oliver and Webber adopted the term supply chain management for the first time.

 After that, the concept, basic thoughts, and theories of SCM develop rapidly in the U.S. SCM research
mainly covers SCM practice, SCM planning/configuration, relationship management, supply chain
integration/coordination, supply chain flexibility, supply chain risk management (SCRM), supply chain
quality management, and green SCM

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 In terms of the relationship between logistics and SCM, logistics was defined by
Council of Logistics Management (CLM) as one part of the supply chain activity
in 1998.

 In 2001, CLM listed Logistics Management as a category in SCM, logistics was

no officially viewed as a subset of SCM.

 The renaming of CLM as the Council of Supply Chain Management Professionals

(CSCMP) in 2005 indicates that logistics was completely replaced by SCM

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Supply Chain Management
 SCM is larger in scope than both physical distribution and logistics. It also includes tasks related to
materials management.

 Supply chain refers to the whole business chain, including procurement of inputs, logistics,
conversion of inputs into products, physical distribution/ marketing logistics, which finally take the
end product to the ultimate consumers

 Supply chain is basically the firm’s value chain. Value is actually spread through the firm’s supply
chain. You keep adding value at every process to reach the final output and till the time it is delivered
to the customer.

 Firms actually compete in the marketplace using their supply chains as the weapon, not their
products and brands. Superiority in supply chain is thus a major competitive advantage. A firm with
the better supply chain wins in the market. We discussed in the last class that how efficient your
process is would impact your firm performance. A company with good & efficient process/SC would
still grow during recession compared to a firm with less efficient process would will struggle to
survive, grow hona to door ki baat hai
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
PD, Logistics and SCM
 In simple terms,

 Physical distribution involves moving/transporting goods from one place to

another;

 Logistics includes all the planning of movement or formalities like billing,

customs when transporting internationally

 SCM includes managing information, services, warehousing, logistics, raw

material. SCM takes care that the product reaches its customer.

 Thus PD and Logistics are part of SCM. SCM is a broader concept

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Quality: Definitions from various Perspectives
Quality
 The process of quality improvement is a never-ending journey.

 E.g.- the mobile application- they keep on improving, keep on coming with upgrades. Each
of those updates have some or the other improvements, so that they can serve their
customer better

 Measuring and monitoring the quality of goods produced and services given has been done
directly or indirectly, since a long long time. But what is new in quality management is use
of quantitative base i.e. statistical principles to control quality that is a modern concept.

 The ancient Egyptians demonstrated a commitment to quality in the construction of their

pyramids. The Greeks set high standards in arts and crafts. The quality of Greek
architecture of the fifth century B.C. was so envied that it deeply affected the subsequent
architectural constructions of Rome. Roman-built cities, churches, bridges, and roads
inspire us even today.
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 During the Middle Ages and up to the nineteenth century, the production of goods and services was mainly
done by a single person or a small group of people.

 The businesses were majorly family-owned, so the responsibility for controlling the quality of a product or
service stayed with that person or small group—apart from the group the people responsible for producing
items followed those set standards.

 This phase, the time period up to 1900, has been labeled as the operator quality control period by
Feigenbaum (1983).

 The entire product was manufactured by one person or by a very small group of persons. For this reason,
the quality of the product could essentially be controlled by a person who was also the operator, and the
volume of production was limited.

 The worker felt a sense of accomplishment, which lifted morale and motivated the worker to new heights of
excellence.

 Controlling the quality of the product was thus very deep in the philosophy of the worker because that gave
them pride in workmanship
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 Starting in the early twentieth century and continuing to about 1920, a second phase evolved,
called the foreman quality control period (Feigenbaum 1983).

 With the Industrial Revolution came the concept of mass production, which was based on the
principle of specialization of labor.

 A person was responsible not for production of an entire product but rather for only a portion of it.

 One drawback of this approach was the decrease in the workers’ sense of accomplishment and
pride in their work.

 However, most tasks were still not very complicated, and workers became skilled at the particular
operations that they performed. People who performed similar operations were grouped together.

 A supervisor who directed that operation now had the task of ensuring that quality was achieved.
Foremen or supervisors controlled the quality of the product, and they were also responsible for
operations in their span of control.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 The period from about 1920 to 1940 saw the next phase in the evolution of quality control.

 Feigenbaum (1983) calls this the inspection quality control period.

 Products and processes became more complicated, and production volume increased.

 As the number of workers reporting to a foreman/supervisor grew in number, it became

impossible for the foreman to keep close watch over individual operations.

 Inspectors were therefore designated to check the quality of a product after certain
operations. Standards were set, and inspectors compared the quality of the item produced
against those standards.

 In the event of discrepancies between a standard and a product, deficient items were set
aside from those that met the standard. The nonconforming items were reworked, if
feasible, or were discarded.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 During this period, the foundations of statistical aspects of quality control were
being developed, although they did not gain wide usage in U.S. industry. In
1924, Walter A. Shewhart of Bell Telephone Laboratories proposed the use of
statistical charts to control the variables of a product.

 These came to be known as control charts (sometimes referred to as Shewhart

control charts).

 They play a fundamental role in statistical process control. In the late 1920s, H.
F. Dodge and H. G. Romig, also from Bell Telephone Laboratories, pioneered
work in the areas of acceptance sampling plans.

 These plans were to become substitutes for 100% inspection.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 During 1930s Interest in the field of quality control began to gain acceptance in
England.

 The British Standards Institution Standard 600 was introduced which was
related to the applications of statistical methods to industrial standardization
and quality control.

 In the United States, J. Scanlon introduced the Scanlon plan, which dealt with
improvement of the overall quality of worklife (Feigenbaum 1983).

 Furthermore, the U.S. Food, Drug, and Cosmetic Act of 1938 had jurisdiction
over procedures and practices in the areas of processing, manufacturing, and
packing.

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
 The next phase in the evolution process, called the statistical quality control phase by
Feigenbaum, occurred between 1940 and 1960.

 Production requirements escalated during World War II.

 Since 100% inspection was often not feasible, the principles of sampling plans gained
acceptance.

 The American Society for Quality Control (ASQC) was formed in 1946, subsequently
renamed the American Society for Quality (ASQ).

 A set of sampling inspection plans for attributes called MIL-STD-105A was developed by the
military in 1950.

 These plans underwent several subsequent modifications, becoming MIL-STD-105B, MIL-

STD-105C, MIL-STD-105D, and MIL-STD-105E. Furthermore, in 1957, a set of sampling plans
for variables called MIL-STD-414 was also developed by the military.
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education & Research, Wardha
Summary

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education &
Research, Wardha
Additional Resources

Prepared by Prof. Anuja Gupta for MBA Sem-II, Datta Megh Institue of Higher Education &
Research, Wardha
Any Questions?
Thank You!