During the past decade, the concept of total quality management (TQM) has revolutionized the operations and manufacturing functions of companies. Previously, we stated that non-project-driven companies (such as those that are primarily manufacturing-oriented) were slow to accept and mature in project management. But today, companies have shown that project management can be used effectively both to support and administer TQM programs.
As an example, the Automotive Division of a multinational corporation had maintained continuous competitive success by being a leader in both quality and customer service. To keep pace with the rapidly changing dynamics of the marketplace, the company found that it had to adopt a TQM program. The factors influencing this need were:
• Progressively higher demand for quality products
• Increasing reliance on vendors and subcontractors to provide higher quality engineering and technical support
• Rapid industrial growth, both domestically and internationally
• Extremely competitive pricing, causing pressure on costs and, in particular, quality costs
• Demand for shorter time cycles for both design and development of products and processes
For the past several years, the company had made improvements in many of these areas. Unfortunately, the results were fragmented and had not kept pace with expectations as shown in Figure 1-19.
Figure 1-19. Present quality pattern.
With the increased complexity of the business, the cost of maintaining a meaningful level of quality had been steadily increasing. To reverse this trend, the company decided to use TQM in order to achieve a major competitive advantage (see Figure 1-20).
The TQM program was established to accomplish the following:
• Improve competitive quality leadership.
• Respond to business objectives and effect results that maximize quality and profitability.
• Improve productivity and cash flow.
• Minimize unproductive demands for engineering changes, rework, and other quality failures.
• Improve management planning and control.
AS A PERCENT OF SALES
The company recognized that quality results from all organizational functions and departments performing the quality-related portions of their work on schedule and in a way that is supportive of others in the organization. All departments do play a part in the production of a quality product. From the sensing of customer requirements through product planning, engineering, manufacturing, etc., all organizational functions play an important part in providing customer satisfaction (see Figure 1-21). The Quality Department alone cannot produce quality products. Therefore, the company decided that project management was the only viable alternative for the execution and integration of a TQM system.
Once the commitment to project management was made, the company established an operating quality cost program. Quality costs can be broken down into the following four areas:
• Prevention costs are the up-front costs oriented toward the satisfaction of customer's requirements with the first and all succeeding units of product produced without defects. Included in this are such costs as design review, training, quality planning, and related preventive activities.
Figure 1-21. The system involves all functions.
• Appraisal costs are costs associated with evaluation of product or process to ascertain how well all of the requirements of the customer have been met. Included in this are typically such costs as inspection of product, lab tests, vendor control, and in-process testing.
• Internal failure costs are those costs associated with the failure of the processes to make products acceptable to the customer, before leaving the control of the organization. Included in this area are scrap, rework, repair, downtime, defect evaluation, evaluation of scrap, and corrective actions.
• External failure costs are those costs associated with the determination by the customer that requirements have not been satisfied. Included are customer returns and allowances, evaluation of customer complaints, inspection by the customer, customer visits to resolve quality complaints, and necessary corrective action.
An estimate of current quality costs was made using the results of existing systems, surveys to various parts of the organization, and available financial information. The distribution of these costs to the four areas is shown in Figure 1-22. The total amount of quality costs is approximately equal to the amount of direct labor used in production. Note that the external failure costs are much lower than the internal failure costs. This indicates that most of the failures are discovered before they leave the functional areas or plants.
Figure 1-23 shows the expected results of the TQM system on quality costs. Prevention costs are expected to actually rise as more time is spent in prevention activities throughout the organization. As processes improve over the long run, the appraisal costs will go down as the need to inspect quality decreases. The biggest savings will come from the internal failure areas of rework, scrap, reengineering, redo, etc. The additional time spent in up-front design and development will really pay off here. And, finally, the external costs will also come down as processes yield first-time quality on a regular basis. The improvements will continue to impact the company on a long-term basis in both improved quality and lower costs. Also, as project management begins to mature, there should be further decreases in both the cost of maintaining quality and developing products.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.