MODULE 1, LESSON 1: INTRODUCTION TO OPERATIONS

MANAGEMENT (TQM)
Notes
It is the management of processes, and how to create value in the production of goods and
services. This course is applicable in manufacturing and the service sector, from micro
enterprise to multi-national companies.
It is the administration of business practices to create the highest level of efficiency possible
within an organization. It is concerned with converting materials and labor into goods and
services as efficiently as possible to maximize the profit of an organization.

Input – Conversion – Output Characteristics of Typical Productive Systems

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 Characteristics of Systems to Produce Products vs Services

Business Process
• A collection of linked tasks which find their end in the delivery of a service
or product to a client.
• A set of activities and tasks that once completed will accomplish organizational goals.

The importance of business processes

The need for and advantages of a business process are quite apparent in large organizations.
A process forms the lifeline for any business and helps it streamline individual activities, making
sure that resources are put to optimal use.
There are 3 types of business processes
• Primary processes deliver customer value and is usually cross-functional. Example: Order-to-
Delivery.
• Support processes sustain primary or management processes and is usually departmental.
• Management processes design, implement, monitor and control the other business processes.

Key reasons to have well-defined business processes

• Identify what tasks are important to your larger business goals

• Improve efficiency
• Streamline communication between people/functions/departments
• Set approvals to ensure accountability and an optimum use of resources
• Prevent chaos from creeping into your day-to-day operations

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• Standardize a set of procedures to complete tasks that really matter to your business

The 7 steps of the business process lifecycle

• Step 1: Define your goals

o What is the purpose of the process? Why was it created? How will you know if it
is successful?
• Step 2: Plan and map your process
o What are the strategies needed to achieve the goals? This is the broad roadmap
for the process.
• Step 3: Set actions and assign stakeholders
o Identify the individual tasks your teams and machines need to do in order to
execute the plan.
• Step 4: Test the process
o Run the process on a small scale to see how it performs. Observe any gaps and
make adjustments.
• Step 5: Implement the process
o Start running the process in a live environment. Properly communicate and train
all stakeholders.
• Step 6: Monitor the results
o Review the process and analyze its patterns. Document the process history.
• Step 7: Repeat

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Five dimensions of competitiveness
Following the majority of previous studies, the current study proposes five dimensions to
capture the concept of competitive priority which include (1) cost leadership, (2) product quality,
(3) delivery reliability, (4) process flexibility, and (5) innovation.
Recently, some scholars have suggested that a supply chain relationship between buyers and
suppliers should be seen as a distinctive resource or capability. Buyer-supplier relationship
developed over time could become the basis of a rich information network, thereby enabling
firms to form new alliance opportunities with reliable suppliers. A firm’s competitive position is
affected by its suppliers’ abilities to respond to the firm’s requirements. Studies have shown that
collaboration with suppliers can reduce transaction costs. For example, Dell Computer manages
all the transactions over the Internet, leaving the real operational activities in the hands of the
suppliers. In the literature, supplier performance is considered one of the determining factors for
the buyers’ operational success). Harley-Davidson has reported that supplier involvement has
improved its overall quality, reduced costs, and helped Harley-Davidson compete against
Japanese manufacturers. Gulati noted that the information advantage realized as a result of ties
with suppliers could be conceptualized as a network resource, which is similar to the Coleman’s
1988 notion of social capital. Network resources are similar to financial and technological
resources. As noted above, firm managers determine the types of resources they wish to
accumulate over time, and the accumulation of resources is likely to have a path dependent
component that eventually ends up at the suppliers’ siteTherefore, firm managers’ discretionary
choices relating to how to compete and what resources and capabilities to acquire over time are
likely to determine the level of supply chain relationship they wish to pursue with suppliers.
Influential adaptation model suggests that both buyers and suppliers start out at the lower end
of competitive priorities such as low cost operation and gradually progress to the higher end of
the competitive Influential Priority Adaptation Innovation Process Flexibility Delivery Reliability
Product Quality Cost Leadership Innovation Process Flexibility Delivery Reliability Product
Quality Cost Leadership Buyers’ Competitive Priorities Suppliers’ Competitive Priorities Low
Priority High Priority Low Priority High Priorit y Study of Competitive Priorities and IT Selection:
Exploring Buyer & Supplier Performance; consistent quality, top quality, delivery reliability,
volume flexibility, and innovation; however, they adopt each competitive priority at a different
rate. Normally, firm managers initiate decisions to adopt a new competitive priority when they
realize there is a mismatch between competitive strategy and supply chain ties (e.g., customers,
suppliers, distributions, or competitors) that could deteriorate firms’ competitive advantage. This
notion holds true in the buyer-supplier relationship. The mismatch of competitive priorities
between the two parties should warrant the changes in competitive priority to the higher
spectrum. Since buyers are in the upper hand of the relationship. The changing is normally
initiated by the buyers. It has been suggested that firms should participate in supply chain
networks that are consistent with their product offerings. Fisher suggested that innovative

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production should utilize responsive supply chain networks, whereas functional products require
efficient supply chain networks. He noted that a mismatch between supply chain choices and
product offerings could negatively affect firm performance. These findings delineate the
importance of establishing a certain level of supply chain relationship with suppliers to match
firm strategy and capabilities. This study proposes that as buyers are moving toward the higher
end of priority such as offering innovative products, it should warrant suppliers to establish
certain levels of competitive priorities at least equivalent to the buyers’ one; however, the rate of
adoption may vary depending on the suppliers’ feasibility.

Strategy formulation is the process by which an organization chooses the most. appropriate
courses of action to achieve its defined goals. This process is. essential to an organization's
success, because it provides a framework for the. actions that will lead to the anticipated
results.

There are several ways strategy formulation can be done for a company. However some methods
are better than the others. Here are 10 steps which guide you in deciding the strategy of your
company.

Steps 1 to 5 mainly involve internal or external research as well as very long term strategy making
(Strategies made in the first 5 steps affect the whole life cycle of the company)

1) Write a Vision Statement

A vision statement (crisp and to the point) is a must for developing a strategy. Exploring and
deciding on the vision of the company gives you clarity on the main objectives of the company.

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2) Mission Statement

Decide a Mission statement for the company. This mission statement would actually determine
the methodology of the company in reaching its vision, its purposes and its philosophy behind
its goals.

3) Define the company profile

The company profile needs to be comprehensive which further clears the goals of the
organization. What would be the strengths of the company, capabilities, management. In essence
mention everything you can about the company. This helps in transparency while deciding the
strategy.

4) Study the External environment

No strategy can be complete without taking into consideration the effect that external environment
has on businesses. Thus an in depth study on external environment is necessary and the same
should be mentioned in the strategy report.

5) The 5th step involves matching all three – Mission statement, Company profile and the external
environment such that they are in sync to achieve the vision of the company.

From here on, Step 6 to 10 involve decision making based on the research as well as the
decisions taken for the company in the previous steps. The last steps are more inclined towards
implementation.

6) Deciding the actions for accomplishing the mission of the organization

7) Selecting long term strategies which will be most effective

Also Read 3 tactics for product development strategy

8) Deciding on short term strategies arising from the long term ones such that these short term
strategies too are in sync with the mission and vision statement

9) Deciding the budget and resource allocation according to the short term strategy

10) Implementation of the strategies along with pre decided review system along with measures
to maintain control and a fallback short term plan.

Following these 10 steps of deciding on a strategy, you get – A vision statement, a mission
statement, long term strategies, short term strategies, budget and resource allocation and finally
implementation along with review plans.

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A product life cycle is the amount of time a product goes from being introduced into the market
until it's taken off the shelves. There are four stages in a product's life cycle—introduction,
growth, maturity, and decline. ... Newer, more successful products push older ones out of the
market.

What Is the Product Life Cycle?

The product life cycle is the process a product goes through from when it is first introduced into
the market until it declines or is removed from the market. The life cycle has four stages -
introduction, growth, maturity and decline.

While some products may stay in a prolonged maturity state, all products eventually phase out
of the market due to several factors including saturation, increased competition, decreased
demand and dropping sales.

Additionally, companies use PLC analysis (examining their product's life cycle) to create
strategies to sustain their product's longevity or change it to meet with market demand or
developing technologies.

4 Stages of the Product Life Cycle

Generally, there are four stages to the product life cycle, from the product's development to its
decline in value and eventual retirement from the market.

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1. Introduction

Once a product has been developed, the first stage is its introduction stage. In this stage, the
product is being released into the market. When a new product is released, it is often a high-
stakes time in the product's life cycle - although it does not necessarily make or break the
product's eventual success.

During the introduction stage, marketing and promotion are at a high - and the company often
invests the most in promoting the product and getting it into the hands of consumers. This is
perhaps best showcased in Apple's (AAPL) - Get Report famous launch presentations, which
highlight the new features of their newly (or soon to be released) products.

It is in this stage that the company is first able to get a sense of how consumers respond to the
product, if they like it and how successful it may be. However, it is also often a heavy-spending
period for the company with no guarantee that the product will pay for itself through sales.

Costs are generally very high and there is typically little competition. The principle goals of the
introduction stage are to build demand for the product and get it into the hands of consumers,
hoping to later cash in on its growing popularity.

2. Growth

By the growth stage, consumers are already taking to the product and increasingly buying it.
The product concept is proven and is becoming more popular - and sales are increasing.

Other companies become aware of the product and its space in the market, which is beginning
to draw attention and increasingly pull in revenue. If competition for the product is especially
high, the company may still heavily invest in advertising and promotion of the product to beat
out competitors. As a result of the product growing, the market itself tends to expand. The
product in the growth stage is typically tweaked to improve functions and features.

As the market expands, more competition often drives prices down to make the specific
products competitive. However, sales are usually increasing in volume and generating revenue.
Marketing in this stage is aimed at increasing the product's market share.

3. Maturity

When a product reaches maturity, its sales tend to slow or even stop - signaling a largely
saturated market. At this point, sales can even start to drop. Pricing at this stage can tend to get
competitive, signaling margin shrinking as prices begin falling due to the weight of outside
pressures like competition or lower demand. Marketing at this point is targeted at fending off
competition, and companies will often develop new or altered products to reach different market
segments.

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Given the highly saturated market, it is typically in the maturity stage of a product that less
successful competitors are pushed out of competition - often called the "shake-out point."

In this stage, saturation is reached and sales volume is maxed out. Companies often begin
innovating to maintain or increase their market share, changing or developing their product to
meet with new demographics or developing technologies.

The maturity stage may last a long time or a short time depending on the product. For some
brands, the maturity stage is very drawn out, like Coca-Cola.

4. Decline

Although companies will generally attempt to keep the product alive in the maturity stage as
long as possible, decline for every product is inevitable.

In the decline stage, product sales drop significantly and consumer behavior changes as there
is less demand for the product. The company's product loses more and more market share, and
competition tends to cause sales to deteriorate.

Marketing in the decline stage is often minimal or targeted at already loyal customers, and
prices are reduced.

Eventually, the product will be retired out of the market unless it is able to redesign itself to
remain relevant or in-demand. For example, products like typewriters, telegrams and muskets
are deep in their decline stages (and in fact are almost or completely retired from the market).

Examples of the Product Life Cycle

The life cycle of any product always carries it from its introduction to an inevitable decline, but
what does this cycle practically look like, and what are some examples?

Typewriter

A classic example of the scope of the product life cycle is the typewriter.

When first introduced in the late 19th century, typewriters grew in popularity as a technology
that improved the ease and efficiency of writing. However, new electronic technology like
computers, laptops and even smartphones have quickly replaced typewriters - causing their
revenues and demand to drop off.

Overtaken by the likes of companies like Microsoft, typewriters could be considered at the very
tail end of their decline phase - with minimal (if existent) sales and drastically decreased

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demand. Now, the modern world almost exclusively uses desktop computers, laptops or
smartphones to type - which in turn are experiencing a growth or maturity phase of the product
life cycle.

VCR

Many of us probably grew up watching or using VCRs (videocassette recorders for any Gen Z
readers), but you would likely be hard pressed to find one in anyone's home these days.

With the rise of streaming services like Netflix (NFLX) - Get Report and Amazon (AMZN) - Get
Report (not to mention the interlude phase of DVDs), VCRs have been effectively phased out
and are deep in their decline stage.

Once groundbreaking technology, VCRs are now in very low demand (if any) and are assuredly
not bringing in the sales they once did.

Electric Vehicles

The rise of electric vehicles shows more of a growth stage of the product life cycle. Companies
like Tesla (TSLA) - Get Report have been capitalizing on the growing product for years,
although recent challenges may signal changes for the particular company.

Still, while the electric car isn't necessarily new, the innovations that companies like Tesla have
made in recent years are consistently adapting to new changes in the electric car market,
signaling its growth phase.

Classification of service Systems

The service sector does not consist of a homogeneous group of services. The industries within
the service sector are too heterogeneous for a common frame of analysis. In this article we are
using a classification scheme proposed by Baumol (1984) with some modifications. The
services can be classified into four categories:

1. Stagnant personal services

2. Substitutable personal services
3. Progressive services
4. Explosive services.

These services frequently require direct contact between the customers and the service
provider. Some examples are haircutting, live artistic performance, psychiatric counseling, and
teaching. Since the quality of such a service is highly correlated with labor time, it is difficult to
realize significant productivity gains for these services without an appreciable reduction in
quality. It seems evident, for instance, that the amount of time required for a haircut cannot be
decreased substantially without some drastic implications. These services offer low innovation
potential and are difficult to standardize.

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These services also require direct personal contact, and they have characteristics similar to
stagnant personal services. However it is possible to substitute for these services with
technological or other alternatives. An example would be the services of a guard that can be
replaced by electronic surveillance systems. In the twentieth century, we have seen ovens,
washers and dryers and other household appliances substituted for personal servants (maids,
cooks etc). Some types of teaching such as real estate licensing course work, are now
conducted using cassettes, tapes, and videos, and the demand for the live instructors as
decreased correspondingly.

A great leap in productivity in substitutable personal services is provided by technological

innovation.

These services have two components. One component requires little labor, and considerable
cost reductions are possible with it. The second component is highly labor intensive and is much
like stagnant personal services. An example is computation services.

In a simplified aggregate view, computation services can be conceptualized as consisting of

hardware and software. The cost of hardware per computation has declined steadily;
conversely, the cost of software has risen. This is because software is produced by human labor
and offers limited productivity growth.

Another example is television broadcasting, where the two components are the transmission
and the production of a program. Transmission costs have steadily decreased with advances in
the electronics and space industries. However, the production of a television program is highly
labor intensive, and consequently, the associated cots continue to increase. Research and
development can also be thought of as consisting of two dichotomous components: equipment
and human thought.

Progressive services can exhibit phenomenal productivity growth and cost reductions initially.
This is due to the relatively important contribution of the first technology intensive component.
For example, computer hardware contributes significantly to computation costs; thus, decreases
in hardware costs per computation lead to overall cost reductions. Since the costs per unit of
output for the second, labor intensive component are increasing, the decline in total cost cannot
be sustained for long periods. In this sense, productivity growth is self-extinguishing. This
happens because, in due course of time, the relative contribution of the second component
exceeds that of the first component. The stagnant nature of the second component dampens
productivity growth.

A numerical example illustrates the cost per unit behavior of progressive services. Suppose the
share of component 1 is 80% in the beginning and that of component 2 is 20%. Further,
suppose that the cost of the first component is declining at the rate of 30% per year and the cost
of the second component is rising at the rate of 10% per year. For an output of service that
costs $100 in year zero (the initial period), the first component costs $80 and the second costs
$20. At the end of the first year, the cost of the first component has declined to $80 – (0.3 x
$80) = $56, and the cost of the second component has risen to $20 + (0.1 x $20) = $22. Thus,
the total cost of the same unit of service has decreased from $100 to $56 + $22 = $78. In similar
manner, we can compute the cost of the two components for year two and so on.

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 An important feature of the progressive service is that the faster the initial decline in total cost
per unit of service, the more rapidly cost reduction ceases. This is because the relative share of
the first component responsible for cost reductions shrinks rapidly and the service begins to
acquire the characteristics of the second component.

A core definition of total quality management (TQM) describes a management approach to

long-term success through customer satisfaction. In a TQM effort, all members of an
organization participate in improving processes, products, services, and the culture in which
they work.

History of Total Quality Management (TQM)

1920s
Some of the first seeds of quality management were planted as the principles of scientific
management swept through U.S. industry.
Businesses clearly separated the processes of planning and carrying out the plan, and union
opposition arose as workers were deprived of a voice in the conditions and functions of their
work.
Efficiency refers to how well something is done while effectiveness refers to how useful something
is.The Hawthorne experiments in the late 1920s showed how worker productivity could be
impacted by participation.
1930s
Walter Shewhart developed the methods for statistical analysis and control of quality.

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1950s
W. Edwards Deming taught methods for statistical analysis and control of quality to Japanese
engineers and executives. This can be considered the origin of TQM.
Joseph M. Juran taught the concepts of controlling quality and managerial breakthrough.
Armand V. Feigenbaum’s book Total Quality Control, a forerunner for the present understanding
of TQM, was published.
Philip B. Crosby’s promotion of zero defects paved the way for quality improvement in many
companies.
1968
The Japanese named their approach to total quality "companywide quality control." It is around
this time that the term quality management systems arises.
Kaoru Ishikawa’s synthesis of the philosophy contributed to Japan’s ascendancy as a quality
leader.
Today
TQM is the name for the philosophy of a broad and systemic approach to managing
organizational quality.
Quality standards such as the ISO 9000 series and quality award programs such as the Deming
Prize and the Malcolm Baldrige National Quality Award specify principles and processes that
comprise TQM.
TQM as a term to describe an organization's quality policy and procedure has fallen out of favor
as international standards for quality management have been developed. Please see our series
of pages on quality management systems for more information.

Total quality management (TQM)

has evolved over four stages: quality inspection, quality control, quality assurance,
and TQM (Dahl- gaard, Kristensen, and Kanji, 2002). ... This last point is contro- versial
since TQM strictly depends on executive commitment, an open organization, and emp- loyee
empowerment.

The eight principles are:

1 Customer focus. ...
2 Leadership. ...
3 Involvement of people. ...
4 Process approach. ...

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5 System approach to management. ...
6 Continuous improvement. ...
7 Factual approach to decision making. ...
8 Mutually beneficial supplier relationships.

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