Friday, June 5, 2015

Framework for organizational Quality

Two framework that have most impact on organizational quality worldwide are:
ISO 9000 certification
Malcolm Baldridge national quality award
Six sigma also provides a quality framework
There are several other national and international awards that also lays framework for Quality.
The philosophies of Deming, Juran and others provide much guidance and wisdom in the form of best practices to the world wide organizations, leading to the development of the numerous awards and certifications for recognizing effective application of TQ principles.

The awards and certification criteria provide framework for implementing and managing TQ in organizations.

Baldrige award : The criteria for performance excellence

Baldrige award criteria for performance excellence is designed to enhance the competitiveness through an aligned approach that finally result in :
–Delivery of ever improving value to customers, contributing market success
–Improvement of overall company performance and capabilities.
–Organizational and personal learning
The criteria consist of a set of categories, items and areas to address. The seven categories are :
–Leadership: How organization senior leader’s focus on customers, other stakeholders, empowerment, innovation and learning. How the organization  addresses its public and community responsibilities.
–Strategic Planning : How an organization develops strategic  objectives and action plans
–Customer and market focus.: How an organization determines requirements, preferences  and expectations of customers and markets
–Measurement, analysis and knowledge management: examines how firms selects, gathers, analyzes, manages and improves its data, information and knowledge assets.
–Human resources focus: how an organization’s work systems, employee learning, and motivation enable employees to develop and utilize their full potential in alignment with the organization's overall objectives and action plans.
–Process management: key aspects of organizational process management
–Business results: examines an organization’s performance  and improvements in the key business areas, -customer satisfaction, product and service performance , financial and market place performance
Baldrige award evaluation process evaluation critera
·        Study the Baldrige award evaluation ptocess and evaluation criteria.
·        This structured approach creates an effective TQ based framework in any company


ISO 9000

ISO 9000 defines quality system standards based on the premise that certain generic characteristics of management practices can be standardized, and that a well designed, well implemented and carefully managed quality system provides confidence that the outputs will meet customer expectations and requirements. The standards were created to meet five objectives:
–Achieve, maintain, and seek to continuously improve product quality including services in relationship to requirements
–Improve the quality of operations to continuously meet customer ‘s and stakeholders’ stated and implied needs
–Provide confidence to  internal management and other employees that  quality requirements are being fulfilled and that improvement is taking place
–Provide confidence to customers  and other stakeholders that quality requirements are being achieved in the delivered product
–Provide confidence that quality system requirements are fulfilled

See ISO 9000:2000 Quality management principles

What is Six Sigma?

Six Sigma (6 Sigma, 6σ, or 6s):
–A quality management philosophy
–A methodology that blends together many of the key elements of past quality initiatives
–A business philosophy of focusing on continuous improvement by understanding customers’ needs, analyzing business processes, and instituting proper measurement methods.
–A methodology that an organization uses to ensure that it is improving its key processes
–A statistical concept that measures a process in terms of defects
–A statistical concept that represents the amount of variation present in a process relative to customer requirements or specifications
 When a process is running at the 6s level, the variation is so small that the resulting products and services are 99.9997 % defect free
When a process is running at the 6s level, it is delivering only 3.4 defects per million opportunities (DPMO)
The Value of Six Sigma

Six Sigma Origins

The concept was originally formulated in 1986 by Bill Smith, a reliability engineer for Motorola Corporation, when he was investigating the number of repairs made in manufacturing related to the product failures in the field.
The company discovered that products with a high first pass yield (i.e. products that made it through the production process defect free the first time) rarely failed in actual use.
6s was heavily inspired by six preceding decades of quality improvement methodologies such as quality control, TQM, and Zero Defects.

Six Sigma’s Foundation

How is 6s (six sigma) different from previous quality programs?

–It emphasizes an increased focus on quality as defined by the customer.  This is directly addressed by the sigma score.
–It emphasizes more rigorous statistical methods.

–It emphasizes the prioritization of improvement projects and alignment of the organizations resources to support the key strategic initiatives.

The Six Sigma Methodologies

There are 2 basic methodologies introduced in Six Sigma organizations. They are known by their acronyms DMAIC and DMADV.
The DMAIC method involves five steps: Define Measure Analyze Improve Control
–It is used to improve the current capabilities of an existing process
–It is the most commonly used methodology of sigma improvement teams.
  The DMAIC method will be the focus of this class.
The DMADV method involves five steps: Define Measure Analyze Design Verify
–It is used to help create a process, product, or service to meet customer requirements .
–It is used when there is a need to complete a redesign because a process, product, or service is consistently incapable of meeting customer requirements.
–It is less frequently used.

–It is typically convened and staffed by senior managers.

The Six Sigma Body of Knowledge

  • Enterprise-Wide Deployment
  • Business Process Management
  • Project Management
  • Six Sigma Improvement Methodology and Tools – DMAIC
  • Lean Enterprise
  • Design for Six Sigma (DFSS)

Basic Six Sigma Terms

Metric – a verifiable measurement stated numerically or in qualitative terms
–Used in statistics to represent standard deviation or the degree of variation in a set of measurements
–Sometimes called process sigma
–Refers to how well the process is performing relative to customer specifications (1σ = ~69% defective output,  2σ = ~31% defective, 3σ = ~6.7 %, 6σ = ~00% defective)
Process: a set of interrelated resources and activities that transform inputs into outputs with the aim of adding value
Specification: documented, detailed requirements with which a product or service has to comply
Variation: where no two items or services are exactly the same; any quantifiable difference between a specified measurement or standard and the deviation from such measurement or standard in the output

Tollgate Review : a formal review process that helps keep the project on track and helps promote successful results.

Six Sigma as a Quality Framework

  • Six sigma provides a blue print for implementing TQ system.
  • Six sigma is said to be the realization of many fundamental concepts of TQ management where process elements of improvement is integrated with human element.
  • Human issues include : Management and leadership, a sense of urgency, focus on results and customers, team process, and culture change
  • Process issues include the use of process management techniques, analysis of variation and statistical methods, a disciplined problem solving approach and management by fact.

Contrasting feature of Total Quality and six sigma

  • TQ based on worker empowerment and teams, Six sigma is owned by business leaders and champions
  • TQ activities occur within a function, process or individual workplace; six sigma projects are cross functional
  • TQ training is on simple improvement tools and concepts; six sigma focuses on a more rigorous and advanced set of statistical methods and structured problem solving methodology-DMAIC
  • TQ is focused on improvement with little financial accountability; six sigma requires a verifiable return on investment and focus on bottom-line

Six Sigma can be applied in manufacturing as well as in service sector
Human Resource Management

Human Resource Management is a set of interrelated policies, practices and programs whose goal is to attract, socialize, motivate maintain and retain an organization’s employees.

Competitive advantage through people

Success of knowledge-based industries  such as software, information service etc. depends on “people-embodied know-how”
Core competency
Integrated knowledge sets with in an organization that distinguish it from the competitors and deliver value to customer
4 criterion of sustained Competitive advantage
  • § he resources must be of value
  • §  The resources must be rare
  • §  The resources must be difficult to imitate
  • §  The resources must be organized

Most pressing competitive issues
  • §Going global
  • §  Embracing Technology
  • §  Managing change
  • §  Developing human capital
  • §  Responding to the market
  • §  Containing cost

Going Global
  • §  Different  geographies cultures, laws and business practice
  • §  Cross cultural management
  • §  Managing expatriate managers

Embracing New Technology
  • §  From touch labour to knowledge workers
  • §  Human Resources Information system (HRIS)

Managing Change
  • §  Reactive Change
  • §  Proactive change
  • §  Managing change through HR

Developing Human Capital

Human Capital :  The knowledge , skills, and capabilities of individuals that have economic value to an organization.
Human capital is intangible and elusive  and can not be managed the way organizations manage jobs, products and technologies
If a valued employee leave a company , he takes their human capital with them
Responding to the Market
  • Total Quality Management
  • Six Sigma
  • Reengineering

Each of the above has direct implication for HR
Containing Cost
  • Downsizing
  • Outsourcing
  • Productivity enhancements

Performance = f(ability, motivation, environment)
Demographic Changes
  • The diversity challenge
  • Age distribution of employees
  • Gender distribution of workforce
  • Rising level of education
  • The changing nature of job

Cultural Change
  • Employee rights
  • Concern for privacy
  • Changing attitude toward work
  • Balancing work and family

Comparison of Financial and Managerial Accounting

General Cost Classifications

 Manufacturing Costs:
Manufacturing costs can be classified into three broad categories:
1.Direct Materials: Raw materials that become an integral part of the product and that can be conveniently traced directly to it. For example: A radio installed in an automobile.
2.Direct Labor: Those labor costs that can be easily traced to individual units of product. For example: Wages paid to automobile assembly workers.
3.Manufacturing Overhead: Manufacturing costs that cannot be traced directly to specific units produced. For example: Indirect materials and indirect labor.
Indirect Materials: Materials used to support the production process. For example: lubricants and cleaning supplies used in the automobile assembly plant.
Indirect labor: Wages paid to employees who are not directly involved in production work. For example: maintenance workers, janitors and security guards.
Nonmanufacturing Costs:
Nonmanufacturing costs are often divided into two categories:
1.Selling Costs: Costs necessary to secure the order and deliver the product.
2.Administrative Costs: All executive, organizational, and clerical costs associated with the general management of the organization.

Product Costs Versus Period Costs

Prime Cost and Conversion Cost
 Prime Cost is the sum of direct materials cost and direct labor cost.
 Conversion cost is the sum of direct labor cost and manufacturing overhead cost.

Cost Classifications on Financial Statements

The Balance Sheet
Inventories for a manufacturing Company:
Raw Materials: Materials waiting to be processed.
Work in Process: Partially complete products – some material, labor, or overhead has been added.
 Finished Goods: Completed products awaiting sale.

Schedule of Cost of Goods Manufactured

Calculates the cost of raw material, direct labor, and manufacturing overhead used in production.
Calculates the manufacturing costs associated with goods that were finished during the period.

Product Cost Flows

Cost Classifications for Assigning Costs to Cost Objects

A cost object is anything for which cost data are desired-including products, customers, jobs, and organizational sub units. For the purpose of assigning cost to cost objects, costs are classified as:
Direct Cost: A cost that can be easily and conveniently traced to a specified cost objects.
 Indirect Cost: A cost that cannot be easily and conveniently traced to a specified cost objects.
A common cost is a cost that is incurred to support a number of cost objects but cannot be traced to them individually.
A particular cost can be direct or indirect depending on the cost object.

Cost Classifications for Predicting Cost Behavior

  Cost behavior refers to how a cost reacts to changes in the level of activity within the relevant range.
Total variable costs change when activity changes.
Total fixed costs remain unchanged when activity changes.
Variable Cost
Total cost of batteries is based on the number of autos produced in a month.

Variable Cost Per Unit: The per unit cost of batteries remains constant at $24.
Fixed Cost:
Total cost of monthly rent is fixed for the number of lab tests performed in a month. The monthly rent does not change based on the number of lab tests that may be performed during the month.
Fixed Cost per Unit increases and decreases inversely and changes in activity. For example the average cost per unit will fall as the number of test performed increases.

Summary of Variable and Fixed Cost Behavior