Download 7.6 Production quality controls

100
80
Where?
How? When?
What?
Why?
2016-17
60
East
West
North
40
20
0
1st Qtr
2nd Qtr 3rd Qtr 4th Qtr
Who?
Management
Stefan Markowski
Monitoring and control
Seeking competitive advantage
Detailed course schedule
The following table provides a list of lecture topics for each day of the course
Day no
Topic
Textbook ch.
1 (24 Nov; 2
hrs)
1. The nature and role of organisational
management. Roles and tasks of
organisational managers
Chs. 1-2
2 (25 Nov; 2
hrs)
2. Organisation and its environment
Chs. 3-5
3 (26 Nov; 2
hrs)
3. The process of organisational decision
making
Chs. 7, 9-10
4 (27 Nov; 2
hrs)
4. Organisational planning
Chs. 7-8
5 (28 Nov; 2
hrs)
5. Organising
Chs. 14-16
6 (1 Dec; 2
hrs)
6. Leadership
Chs. 17-20
7 (2 Dec; 2
hrs)
7. Monitoring and control
Chs. 11-13
8 (3 Dec; 1 hr)
8. Revision
9 (8 Dec; 2
hrs)
Examination
Topic 7: Monitoring and control
Topic Contents
7.1 Introduction
7.2 Types of control systems
7.3 The control model
7.4 Quantity and quality controls
7.5 Customer service
7.6 Production quality controls
7.7 Human resources control
7.8 Financial controls
7.9 Further reading
7.1 Introduction
• Control in the management process is defined as
monitoring, guiding and directing intended
(planned) activities to achieve the intended
objectives or to change them to avoid unintended
consequences
• Control process involves the setting of
performance targets/standards, monitoring outputs
and outcomes, matching (benchmark) them
against the set targets/standards, and correcting
unwanted deviations from these targets or
changing them if they are no longer desirable
• Plans should not be realised for the sake of their
implementation – if they are past their “sale-bydate” they should be changed by updated plans
7.1 Introduction
• Control systems comprise elements in the
control process
Set targets
Monitor
performance
Benchmark
performance
Correct
if necessary
• This is a continuous (loop) process and
deviations from the set benchmarks are either
corrected or changed into new benchmarks
(going back to set targets)
• Real time controls are most effective as ex post
changes are costly to rectify. In projects, a
large proportion of resources (budget) are
committed very early during implementation
7.2 Types of control systems
• Controls aim to
– Standardize performance
– Safeguard assets
– Monitor outputs and outcomes
– Clarify authority
– Provide statistics and key performance indicators
– Aid forward planning
– Enhance network/supply chain effectiveness
– Coordinate activities
– Control behaviour
Source: Combe (2014): 189
7.2 Types of control systems
• Control systems
– Bureaucratic: internal form of control underpinned by
formal authority and based on guidance and
procedures
– Market: external form of control. Market agents such
as stock brokers monitor business performance and
advise their clients accordingly. Ditto banks. This
causes firms to alter their activities
– Institutional: also certain watchdog agencies, private
and public, monitor business performance and could
direct them to change it
– Organisational culture: may also be important form of
activity control as stakeholders could be set in their
ways and refuse to tolerate deviations (e.g., union
agreed work practices)
7.3 The control model
• This is an idealization of the actual control
process to capture its essential characteristics
• It also reflects management philosophy: the
essence of how to engineer monitoring and
control
• Questions to ask in this context:
– What will best reflect organisational goals and objectives?
– What data will best show that these objectives are not
achieved?
– How to measure deviations from the set targets?
– At what point a deviation from target becomes an
organisational failure?
– Are corrections feasible and economical to achieve?
7.4 Quantity and quality controls
• Monitoring quantities produced or sold is easier
as they are visible and usually measurable
• Monitoring quality of what is produced and/or
sold is much harder as quality may not be
directly visible or may only become apparent
over time
• Quality control means that attributes of what is
produced and/or sold conform to a predetermined standards but think about software
quality controls (endless “patches”) or recalls
under warranty (after years of use)
7.4 Quantity and quality controls
• Often producers deliberately leave quality
control to the market (e.g., software patches
and “updates”)
• Customer expectations tend to adapt to high
levels of product/service provision and
performance (shrinking service window so that
yesterday’s top performance becomes today’s
standard performance)
• But products sold are often complex bundles
and customer service (CS) refers to a product
sold and the bundle of services associated with
the sale as well as the after-sale services
provided to support the product and its
user/purchaser
7.5 Customer service
• Three key dimensions of CS
– pre-transaction activities
– transaction activities
– post-transaction activities
• Key elements of transaction-related CS
– availability - the availability of an item when required
– performance - in terms of agility/speed of response, consistency of
response, flexibility in meeting new requirements, and damage
control/response to failure
– reliability/dependability - probability of achieving satisfactory
performance levels under specified business conditions and over a
particular period of time
7.5 Customer service
Customer Service
Pre-transaction
• policy statement
• organisational
culture
• organisational
structure
• information
• training
• facilities
Transaction
•
•
•
•
•
•
•
availability
sale support
order information
delivery terms
convenience
substitutes
complementary
products
• price flexibility
Post-transaction
•
•
•
•
•
after-sale support
warranty
returns handling
complaints mgt
product tracing
(pegging)
• information
7.5 Customer service
• CS can be viewed as
– activity
– level of performance
– managerial philosophy
• Tailoring customer service:
– basic level of provision - non-discriminatory and
available to all customers (often prescribed by law)
– higher levels of provision - discriminatory, i.e., only
available to selected customers and based on their
•Loyalty (e.g., airline frequent flier systems)
•Profitability
•Growth
7.5 Customer service
• Product availability is the key aspect of customer
service. Thus, customer responses to non-availability
(stockout) need to be tested
• If the customer leaves as the product is not available.
Questions to ask:
– can the sale be retrieved through a backorder?
Yes
postponed sale
– will the customer return with another order?
Yes
lost sale
– will the customer be lost to competition?
Yes
lost customer
7.5 Customer service
• When product substitution is feasible, higher level of
customer service can be provided
Product A
or
Either A or B
Sale
Product B
• When a sale depends on product complementarity, the
level of customer service depends on joint availability of
two or more products
Product A
Both A and B
and
Product B
Sale
7.5 Customer service
• Complex customer service provision may require joint
availability of two or more service elements, e.g., product
availability and on-time delivery
Both A and B
Product
availability
On-time
delivery
Customer
Service
• Product inventory needed to achieve availability targets
may be divided into:
– base stock determined by forecasted requirements
(basic availability)
– safety stock to cover demand in excess forecasted
volume (to accommodate unexpected demands)
7.5 Customer service
• High level of customer service aims to prevent custom
loss and minimise lost sales through product substitution
and rapid backorders
If stockout
Product substitution?
No
Yes
Yes
Price search
Price
sensitive?
Switch
supplier
Substitute
product
No
Different
product?
Yes
No
7.5 Customer service
• Higher levels of customer service can be achieved at a
cost (usually with strongly diminishing returns to
investment in CS)
Cost ($)
Poor
performance
Perfect
service
Level of Customer Service
7.5 Customer service
• We keep investing in the provision of CS until an
extra dollar of investment equals one dollar of
CS benefit
Benefit ($)
C
B
Cost ($)
Max Net Benefit
CSopt
Level of CS
7.5 Customer service
Recovery
A man walked into the produce section of his
local supermarket and asked to buy half a head
of lettuce. The boy working in that department
told him that they only sold whole heads of
lettuce. The man was insistent that the boy ask
his manager about the matter. Walking into the
back room, the boy said to his manager, "Some
idiot wants to buy a half a head of lettuce." As
he finished his sentence, he turned to find the
man standing right behind him, so he added,
"And this gentleman has kindly offered to buy
the other half."
7.5 Customer service
The manager approved the deal and the man
went on his way. Later the manager found the
boy and said, "I was impressed with the way
you got yourself out of that situation earlier. We
like people who think on their feet here. Where
are you from, son?” "Canada, sir," the boy
replied. "Well, why did you leave Canada," the
manager asked. The boy said, "Sir, there's
nothing but hookers and hockey players up
there." "Really!" said the manager. "My wife is
from Canada.” The boy replied, ”Really? ...
Who'd she play for?”
(Anonymous)
7.6 Production quality controls
• Quality control is achieved most cost
effectively upstream in the production process
rather than products are finished are ready for
dispatch
• Quality guru Edward Deming “quality comes not
from inspection but from the improvement of
the process”
• Hence emphasis on Total Quality Control (TQM)
throughout the entire production process
7.6 Production quality controls
• Quality management systems
System
Country
Description
Kaizen
Japan
Incremental but continuous
improvement: learning by doing
TQM
Japan
Comprehensive process redesign
to focus on quality
Just-in-time
Japan
Inventory management system to
increase synergy with suppliers
Six sigma
USA
Acceptable defect rate: one for
every 3.4 million items
Balanced score
card
USA
Reporting on a firm’s quality
performance
Pareto
distribution
Italy
Cost-benefit approach to focus on
items that matter most (20% of all
items account for 80% of value
added)
7.6 Production quality controls
• TQM must embrace
– Support from top management
– Customers
– Suppliers
– Workforce
– Product design
– Process design
– Process monitoring and benchmarking
– Organisational integration
• It also focuses on waste reduction (lean
production) and agility of response (agile
production)
7.7 Human resources control
• This is to influence employee behaviour
– Increase compliance with intended work standards
– Increase work satisfaction
– Reduce turnover
– Overcome resistance to change
• But historically a tendency to control workforce
at work and out of work (Ford, Bata)
• This is an area of major challenges as people
resent and resist controls
7.8 Financial controls
• Implementation of budgets and forward
estimates
• Profit warnings and special alerts
• Market analysis and benchmarking (e.g., ratio
comparisons by external financial analysts)
• Financial audits by accountants
• Due diligence reports
• Bank monitoring of potential bad debts
• Receivership provisions for potential bankrupts
7.9 Further reading
Griffin (2013): chs. 11-13
Combe (2014): ch. 6
Quality control if cars
were designed like computer software
If motor manufactures had developed technology like some software
houses we would all be driving cars such that:
• For no reason whatsoever, your car would crash twice a
day
• Every time they repainted the lines in the road, you
would have to buy a new car
• Occasionally your car would die on the freeway for no
reason. You would have to pull to the side of the road,
close all of the windows, shut off the car, restart it, and
reopen the windows before you could continue. For some
reason you would simply accept this
• Occasionally, executing a maneuver such as a left turn
would cause your car to shut down and refuse to restart,
in which case you would have to reinstall the engine
Quality control if cars
were designed like computer software
• Apple would make a car that was powered by the sun,
reliable, five times as fast and twice as easy to drive but
would run on only five percent of the roads
• The oil, water temperature, and alternator warning lights
would all be replaced by a single "This Car Has
Performed an Illegal Operation" warning light
• The airbag system would ask "Are you sure?" before
deploying
• Every time a new car was introduced car buyers would
have to learn how to drive all over again because none of
the controls would operate in the same manner as the
old car
• You'd have to press the "Start" button to turn the engine
off