Small Business Management, 11th edition

1
Chapter 19
Quality Management and the Operations Process
In the Spotlight Carmelos Italian Restaurant

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-1
2
Learning Objectives Chapter 19

• 1. Explain the key elements of total quality
  management (TQM) programs.
• 2. Discuss the nature of the operations process
  for both products and services.
• 3. Explain how reengineering and other methods of
  work improvement can increase productivity and
  make a firm more competitive.
• 4. Discuss the importance of purchasing and the
  nature of key purchasing policies.
• 5. Describe ways to control inventory and
  minimize inventory costs.

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-2
3
A Definition of Quality
The American Society for Quality defines
quality as the totality of features and
characteristics of a product or service that
bears on its ability to satisfy stated or implied
needs.

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-3
4
Essential Elements of Successful Quality
Management
Successful Quality Management
Appropriate Tools and Techniques
Supportive Organizational Culture
Focus on Customers

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-4
5
Tools and Techniques of TotalQuality Management

• Work teams
• Empowerment of employees
• Quality circle
• Attribute inspection
• Variable inspection
• Acceptance sampling
• Statistical process control
• Control chart

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-5
6
Factors That Positively Influence Customers
Perceptions of Service Quality

• 1. Being on target. Set and meet the customers
  expectations.
• 2. Care and concern. Be empathetic.
• 3. Spontaneity. Empower service providers to
  think and respond quickly.
• 4. Problem solving. Train and encourage service
  providers to be problem solvers.
• 5. Follow-up. Follow-up captures customers
  attention.
• 6. Recovery. Making things right quickly is a
  powerful factor in creating an enduring image of
  high-quality service.

Source Ken Myers and Jim Buckman, Beyond the
Smile Improving Service Quality at the Roots,
Quality Progress, Vol. 25, No. 12 (December
1992), p. 57.

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-6
7
A Definition of ISO 9000
The standards governing international certificatio
n of a firms quality management procedures.

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-7
8
The Operations Process
Inputs
Information
Energy
Money
Equipment
Raw Materials
Labor
Operations
Designing Processing Treating Storing Advisin
g Fabricating Refining Assembling Shipping In
structing
Outputs
Products Examples Clothing Baked goods Paint
Services Examples Dry cleaning Appliance
repair Automobile painting

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-8
9
Types of Manufacturing Operations

• 1. Job shops
• 2. Repetitive manufacturing
• 3. Batch manufacturing

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-9
10
Two Types of Maintenance

• Preventive Maintenance
• Involves inspection of equipment, cleaning and
  lubricating, and replacing worn parts
• Sustains production
• Minimizes corrective maintenance

• Corrective Maintenance
• Involves major repairs and minor
  repairs
• Disrupts production

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-10
11
The Nature of Reengineering

• Emphasizes restructuring rather than fine
  tuning.
• Examines basic processes.
• Questions all traditional patterns.
• Directs attention to activities that create
  value for the customer.

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-11
12
Make-or-Buy Trade-Offs
Make 1. Use idle capacity. 2. Assure
supply. 3. Protect secret design. 4. Save
transportation expense. 5. Permit close control
of production. 6. Assure high quality.
Buy 1. Use suppliers know-how. 2. Avoid
additional hiring and borrowing. 3. Use present
management. 4. Provide production
flexibility. 5. Concentrate on
specialty. 6. Reduce risk of equipment
obsolescence.

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-12
13
Kinds of Activities Outsourced
Activity
Percentage of Respondents
Taxes/accounting/auditing Equipment
maintenance/janitorial services Payroll/benefits
administration Manufacturing/processing/assembling
Marketing or sales
50 44 37 29 6
Note Respondents were allowed to check more than
one activity. Source Poll Results Readers
Views on Outsourcing, Nations Business, Vol.
84, No. 5 (May 1996), p. 85.

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-13
14
Considerations in Selecting a Supplier
Quality Price Reliability Location Other services
(credit, repair)

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-14
15
Ways to Build Good Supplier Relationships

• Pay bills promptly.
• Give sales representatives a prompt, courteous
  hearing.
• Avoid abrupt cancellation of orders.
• Avoid attempts to browbeat the supplier into
  special concessions.
• Make suggestions for product improvement and/or
  cost reduction, whenever possible.
• Provide explanations when rejecting bids.
• Make fair adjustments in the case of disputes.

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-15
16
Objectives of Inventory Management
Ensuring Continuous Operations
Minimizing Inventory Investment
Maximizing Sales
Protecting Assets

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-16
17
Graphic Portrayal of Economic Order Quantity
(EOQ)
Total Costs
EOQ
Carrying Costs
Cost ()
Order Costs
Order Quantity (Units)

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-17
18
Just-in-Time Inventory System
Purchase in small quantities, only when needed.
For best reliability, work with one supplier.

• Cons
• Risk of stockouts
• Loss of quantity discounts
• Higher paperwork costs

• Pros
• Lower carrying costs
• Less warehouse space needed
• Risk shifted to suppliers

• Small Business Management, 11th edition
• Longenecker, Moore, and Petty
• 2000
• South-Western College Publishing

19-18