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Impact of TQM Practice to SMEs

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Published: Wed, 07 Feb 2018

CHAPTER 1

Introduction and Objectives

1. Introduction

In today’s consumer driven world, companies are forced to offer quality products and at the same time also keep the pricing competitive to fight the competition. Today’s consumer is not only aware but also smart to evaluate similar products for its quality. This smart and knowledgeable consumer is pushing the companies to the edge in providing quality products at competitive prices.

In the 1980s and early 1990s, when many large Japanese companies set up manufacturing operations in North America they suffered from a competitive environment that caused people to think that North American goods were better in quality than Japanese goods. To fight this general consumer perception, Japanese companies sought manufacturing methods to produce goods with a high level of quality so they could penetrate the market at a competitive price. ‘The Japanese management guru’s come up with a concept that integrates all functions of an organisation such as finance, marketing, engineering and production so that the company can meet the customer requirements and achieve their desired goals’. This was termed as ‘Total Quality Management” and till date widely practised by organisation across the globe [TQM, 2007].

What is Total Quality Management (TQM)? TQM is an approach to improving the competitiveness, effectiveness and flexibility throughout the company; it is essentially a way of planning and understanding each activity, depends on each individual at each level (Oakland, John 2005).

TQM helps in improving the organisational efficiency. As we all know most of the companies in the small business sector act as a source of raw-material to large organisations so it’s important to adopt TQM approach in their company, it is extremely difficult for SMEs to accept TQM as whole in their company as compared to large organisation as they always have the problem of finance resources, lack of technical expertise, manpower and some other related issues so it is important for them to revised the TQM approach adopted by large organisations which will help them to be more flexible and move quickly with a change so that they can meet the needs of their customers with good quality products with effective cost.

1.1 Aim of the investigation:

This research paper aim’s to locate the effectiveness of TQM practices in SMEs-specially in manufacturing sector and to discuss the benefits of TQM practices to SMEs.

1.2 Research Objectives & Rationale:

This research will look into TQM and its practices and its involvement in SMEs industry. Nowadays, competitiveness is based on quality for many organisations; hence it will look into ways of integrating organisation activities with TQM practices in SMEs-working within manufacturing sector. On the other hand, this study will explore the link between the SMEs and TQM practice and evaluating the benefits of TQM to SMEs with special reference to the TMD technologies Ltd UK.

1.3 Structure of the Study:

The entire research is designed in five distinct chapters. The following are the key ingredients of each chapter providing a bird’s eye view of the research:

Chapter 1: Firstly, as outlined above, the research objectives and the rationale of the research are outlaid.

Chapter 2: The literature surrounding total quality management is discussed and related with the real examples focusing on works carried out by Deming, Juran, and the models of ISO-9001 and Six Sigma.

Chapter 3: The Research Methodologies are studied in this chapter concluding with the qualitative research process carrying out through semi-structured interviews.

Chapter 4: The data collected from interviews in the manufacturing company TMD Technologies Ltd is discussed in relation to the concepts and literature of TQM.

Chapter 5: Researcher has discussed about his Personal Development Plan.

Chapter 6: The project is concluded in this chapter with recommendations and the scope of further research being discussed. In addition, the research limitations and data analysis are outlaid.

1.4 Chapter Summary:

The research objectives along with the rationale for the research are presented at the outset followed by the structure in which the entire dissertation is constructed. After going through customer requirements, company can focus on producing better quality products within the budget so the improvement in business can be achieved.

CHAPTER 2

Total Quality Management & Small Medium-Sized Enterprises

2. Literature Review:

Quality is vital for organisation success; specially require for SMEs to compete with large competitors. It has become inevitable for SMEs to work on enhancing quality within their functions, product and services and the way they manage their organisations. Manufacturing industry within SMEs framework is the main area of this research where the importance of TQM is needed and has been highlighted by many authors and practitioners.

Quality has been defined differently by different authors and professionals; Crosby (Bean, J. & Hussey, L. 1998, p.4) defines it as conformance to requirement; whereas (Sadgrove In Bean, J. & Hussey, L. 1998, p.4) comments on quality as the product which should be fit for its intended purpose.

Quality is the term which drives productivity of the company in the manufacturing sector, if there is an increase in productivity of the organization then it will lead to the increase in revenues and job opportunities. It is a continuous process, which helps the employees to learn from their past and using it to develop the organisation so that they can satisfy their customers. In some manufacturing firms quality used to indicate that a piece of material conforms to certain physical dimensional characteristics often set down in the form of particularly tight specification. (Oakland, S. John, 2005)

To be more specific and clear about the different concepts i.e. Quality, Total Quality Management and others which I will be looking at this chapter, I am using an example of Dadoos Foodstore based in South East London who are engaged in retail business i.e. buying few products like bread, fruit drinks, juices, milk, butter, crisps and some other various products in wholesale from suppliers and manufacturing few products like lentils, rice and spices and selling them in this competitive market to earn profit. Their views is to render their services in the most effective manner and customer satisfaction is their main propriety and I am using this example just to explain my knowledge and understanding of different concepts which I have laid down in this part of my research paper and I will use some more real examples but they do not have any link with Chapter 4 later.

In Dadoos Foodstore their quality lies in their work as well as their location, which adds to their quality of service as it on the main road i.e. easy to access. They believe they rendering their service in the right way, their quality of work shows when a person walks out happily. They also believe this a continuous process, as they have to change with the latest demands in the market and keep on assessing the change in customer requirements, as customer satisfaction is most important factor in any business. (Appendix A- Case Study of Dadoos Foodstore)

2.1 Total Quality Management (TQM):

What is TQM? Word itself gave you the answer; total quality management i.e. quality of the product and successful running of this system lies throughout the company. ‘Total quality management is a structured system for satisfying internal and external customers and suppliers by integrating the business environment, continuous improvement, and breakthroughs with development, improvement, and maintenance cycles while changing organizational culture'(Legge, K. 1994). Small businesses like Dadoos Foodstore; they have to monitor external supplier’s quality. Obviously if the quality is not good they are likely to change their supplier until they find a supplier which can meet their needs and a relationship is likely to form. In this quality process the issues are therefore cleanliness and control of the shop, efficiency and friendly staff, competence and storage in warehouse, understanding the customer demands and management commitment which altogether can satisfy their customers and enables them in achievement of the organisational goals.

In the figure below we can see that TQM system is divided in three stages i.e. planning, implementing and then results. It is the process that moves around all over the business internally as well as externally, from top to lower level. It seeks to develop and manage organisational culture in line with organisation’s strategic objectives. It is an approach that includes several contents or aspects that may or may not exist in the business.

American Federal Office of Management Budget Circular (Milakovich, 1995), ‘TQM is a total organizational approach for meeting customer needs and expectations that involves all managers and employees in using quantitative methods to improve continuously the organization’s processes, products and services.’ In researcher’s example of Dadoos Foodstore let’s take a look on one of their business activity for which TQM is important. In their manufacturing unit, they produce different kinds of products like rice, lentils and spices e.g. if they producing 100 bags of rice of 20 kg, now its very important for the quality department to make sure that the quality of the rice should be of the required standards and all the bags produced should exactly be in same shape, colour, weight and size. After the production of these rice bags, quality manager was assessing the results and he finds that there was no difference between the bags, all the bags look exactly same, nobody can see the difference, equal in size, same colour, in short manager was happy and satisfied. How did the production team manage such consistency, they know their job, they got right vision, everything was strategically planned, they know what they are doing, by using right tools and system, right temperament and same procedure so that they can get the same result. This shows an existence of good quality system where employees working are properly trained and know what they are doing, working to the required level of standards and customer satisfaction makes them happy, which will leads to growth and attaining the required goals.

In the manufacturing sector TQM has taken by nearly each kind of organization like hotels, government, military and education (Jurow & Barnard, 1993). It is an ongoing process which helps in improving all business activities, from top to bottom at all levels doesn’t matter it’s from high level strategic planning and decision-making, to detailed execution of work elements on the shop floor. Continuous improvements with TQM not only deal with improving results but also more importantly with improving capabilities to produce better result in the future. TQM follows a rule that people make mistakes but changing the process can prevent most of the times the causes of such mistakes are faulty systems and processes so it believes that the root cause of such mistakes can be identified and eliminated, and repetition. It is a combination of quality and management tools that aimed at increasing business and reducing losses due to wasteful practices. Some of the companies who have implemented TQM include Ford Motor Company, Phillips Semiconductor, SGL Carbon, Motorola and Toyota Motor Company.

According to Ho and Fung (1994), TQM is a way of managing to improve the effectiveness, flexibility, and competitiveness of a business as a whole. It is also a method of removing waste; by involving everyone in improving the way things are done. Dean and Bowen (1994) defined TQM as a philosophy or approach to management that can be characterized by its principles, practices, and techniques. In researcher’s example of Dadoos Foodstore there can be some quality issues like cleanliness and control of shop, efficiency and friendly shop staff, stock control and communication with the suppliers. TQM helps the store manager in getting better in their day-to-day business activities, which in return not only helps them in surviving in this competitive market but also helps them in moving towards their desired goals. After discussing about TQM lets go further towards its principles i.e. customer focus, continuous improvement, and management commitment:

These are the one of the most important principles that a company should follow in terms of total quality management. TQM ensures the management to lead the organisation in strategic overview of quality. To be successful in today’s world each and every person of the company should contribute, it must start from the top to bottom. TQM focuses on prevention not detention of problems. It’s the duty at the top level management to show their seriousness and commitment towards the quality of the products and then middle management should demonstrate and communicate the principle and strategies to the people under their authority, then only there will be right attitude of work throughout the company, which will lead to continuous improvement. Management should take the responsibility for preparing and monitoring all the policies of the company for continuous improvement and to make sure each employee of all the departments should understand all the required information.

For example, a small business firm named Paperco started in 1971 and engaged in the supplying and distribution of all kinds of paper to public and specialist printers. This firm has 14 employees with the annual turnover of 500,000. Paperco judges the quality in terms of ‘giving the customers what it wants’. According to the Director of the company, he strongly believes in supplying the right quality of goods to the customer without compromising on anything if that is related to meeting the customer needs i.e. the correct paper, paper size, colour, delivery of goods, customer feedback in short follow up until the customer is satisfied. As we can see there is strong management commitment in this company (North, J., Blackburn, R.A., and Curran, J.1998).

Hashmi (2007) comments on combining TQM with effective commitment from senior management with a clear goal, followed by a strategic plan, which is spread as an action plan throughout the company results in good quality products and services with satisfied customers. TQM always focuses on improving the effectiveness of the company that in turn leads to the benefits for their stakeholders. TQM is an ongoing process and aims in continuous improvement so it is an activity which involves planning and organising of all the activities and tasks in advance and to make sure that all the actual activities are matched with the planned ones and to concentrate on not to waste any effort and energy that is routinely spent in the company

For continuous improvement a leader should make sure to develop the values and objectives of the company as its mission statement and to act as a role model for others by personal involvement for quality of the products. Senior management is a continuous process for them to develop the strategic plans and keep on reviewing and improving the management system and should always motivate their subordinates and encourage them for effective employee participation [Introduction and Implementation of Quality Management Systems, 2007]

In Paperco company, they do not have formal system for maintaining quality then one of the directors suggested to implement a total quality system which enable them to take advantage over their competitors and improve their quality of products and service. For implementation process they decided to hire a specialist, as it would be difficult to interpret the initial stages of the quality process and cost was the least issue as the problem was related to quality of the product that is important. Company director believes in continuous improvement worked with the specialist to develop the plans and procedure and finally the quality manual and was eager to engage all the employees and staff in this process so they can also learn about the change in business activities and suggested them to get rid of all those things which are useless for the company and squeeze all the plans and procedure in the best possible manner, this helps in motivating employees and they were happy as they were involved in such a important procedure. By implementing proper quality system and all the changes are made according to the needs of the customers with strong top-level commitment and training the employees at the same time, Paperco gain an advantage over its competitors and enjoys a reasonable market share (North, J., Blackburn, R.A., and Curran, J. 1998).

2.2 Small Medium-Sized Enterprise (SMEs):

In today’s European market SMEs plays a vital role as they got the large source of employment and entrepreneur skills. There was a rapid growth in the numbers of SMEs in UK in early 90s and their performance was outstanding, this small business sector becomes one of the important factors for the performance of the UK economy as they also create large number of job opportunities. In the enlarged European Union of 25 countries, Around 23 million SMEs provide around 75 million jobs, which shows that the SMEs provides 99% of the total jobs of all the enterprises. UK government and EU programmes has always supported SMEs and they create various opportunities for these businesses as they account 56% of the total workforce in the country. As many SMEs runs their business processes at the 2 to 3 quality level and any improvement of even 1 represents a vital step in satisfying their customers within the cost budget (Spanyi and Wurtzel, 2004).

SMEs can be distinguished with regards to the number of people working in the company, depending upon the market share and most of the times small businesses are run by their owners or partners, for example; a firm producing utensils employs less than 50 people in their company and enjoys small share of market and run by two partners then this firm will come under the category of small business sector. In the UK, sections 247 and 249 of the Companies Act 1985 define a SME for the purpose of accounting requirements. These sections have been amended a number of times, most recently by Statutory Instrument 2004/16. According to this a small company is one that has a turnover of not more than £5.6 million, a balance sheet total of not more than £2.8 million and not more than 50 employees. A medium-sized company has a turnover of not more than £22.8 million, a balance sheet total of not more than £11.4 million and not more than 250 employees. It is worth noting that even within the UK this definition is not universally applied. (Strathclyde Library Resources, 2007)

2.3 SME’s in Manufacturing:

SMEs in the manufacturing sector in earlier days used to follow the path where the chances of growth are very low. In SMEs the owner of the company enjoys with a source of income and employment and they have to operate most of the activities in the company. SMEs are gaining attention and support from the government but they often have to face the problem of resources especially in finance and growth of the company is depending on the allocation of funds that can be arranged by the owner externally. The migrants and unskilled labour dominate the manufacturing industry. (The Economists, Jan 2006). So there is a need to upgrade the training standards in the organisation so that the quality of the product can be maintained up to the prescribed level. In the production department, it is necessary to recognize the issues, which affect the efficiency of the successfulness of this sector, and to take corrective actions. Thus, a system of certification of such skills will be required to give recognition to their skills acquired in an informal manner, which will help in improving the efficiency of the workforce in this sector.

For example TVR Company, a small and medium-sized enterprise in the manufacturing sector in UK engage in producing cars, the first car was built by Trevor Wilkinson the owner of the company himself in 1947 and it took around 10 years for the company to be famous in the car market, company was started by one man who join his hands with Ray Saidel, who become the first TVR dealer and after a long struggle TVR finally becomes the 3rd largest producer of cars in the world. They have employed 450 peoples out of 200 works in the production department, 50 are involved in financial, 85 are busy in marketing, packing and distribution section, 30 are involved in administrative department, 25 are busy in research and development department, 35 are working in maintaining the quality of the product i.e. quality department and rest in other various departments [TVR, 2007].

2.4 Quality in SMEs:

In the case of TVR there are likely to be many quality issues. Indeed Quality has been described by many people as a multi-dimensional entity; for example some have described it as an ‘umbrella’ protecting the business from the harsh weather of competition, globalisation etc (Preston, 1996). In particular TVR has product quality issues and process quality issues. The produce quality issues include the reliability and performance of its vehicles; the process quality issues include the after sales service and even whether the sales staffs are professional or ill mannered.

One of the problems facing TVR is retention of its customers; they seem to enjoy the car but once they have used it for a number of years they switch to a mass-build vehicle such as Toyota or Mercedes. The reason is likely to be that TVR has a young 0and male image and is seen as ‘edgy’ and the company service is similarly not conveniently ordered as many manufacturers recommend. Essentially the quality process is not what it could be; even young women are somewhat frightened off by the brash salesmanship of TVR staff. This is a quality issue. It is believed by TVR that if they could change this quality factor they would improve retention, bring new markets (e.g. UK women) and hence improve the performance of the company. Indeed much research says techniques of total quality management that can be adopted by the SMEs to improve the performance of the company through effective quality system doesn’t matter if its related to managerial, financial or operational activities. Among so many model of quality, we have seen that the most effective model is Quality Assurance and TQM. Quality assurance refers to the evaluation and certification by a customer or by an independent certification bodies of an organization’s quality system, to demonstrate that a ‘specific quality system standard has been met’ (Husband & Mandal, 1999).

2.5 TQM APPROACHES:

2.5.1 Deming’s Approach to Total Quality Management:

Its processes are divided into four sequential categories: plan, do, check, and act (the PDCA cycle. The theoretical essence of Deming approach to TQM concerns the creation of organisational system that fosters cooperation and learning for facilitating the implementation of process management practices, which, in turn, lead to continuous improvement of processes, products, and services as well as to employee fulfilment, both of which are critical to customer satisfaction, and ultimately to firm’s survival (Anderson, J.C., Rungtusanatham, M. and Schroeder, R.G. 1994).

Deming (1986) describes organizations as composites of systems designed to meet customer needs. He focuses more on the top management and explained that it’s their responsibility to go forward and lead the organisation in changing processes and systems that leads to continuous improvement. Top management has to create and communicate a vision and be a leader that is the most important factor in ensuring the success of quality management in any organisation. He also focuses towards the importance of identification of customer needs and requirements from the products and services which they are buying and the use of functional tools and teams to solve quality problems, which require participation of employees and pursuit of continuous improvement.

According to Deming (1986) leadership must come from top-management and leaders must be trained and have full knowledge of systems, variations (statistical thinking), knowledge of theory, and knowledge of psychology so that they can lead in a more effective way. This means to improve quality lies in the ability to control and manage systems and processes properly so therefore the role of management responsibilities in achieving the desired goals is critical. For example, Hitachi-rail, one of the Japanese leading companies was founded in 1915 and since then they are producing products like Steam locomotive, First Electric locomotive, Tokyo Monorail, ‘Suica’ contact-less smart card ticketing system which are famous for their quality and used worldwide by most of the companies. How did they manage to meet the customer requirements and maintaining the required quality standards? They also follow Deming’s PDCA Model, they believe in continuous improvement just like a circle has no end and for non-stop development and growth they use this cycle on regular intervals.

Plan:

After the research for a long period of time and taking into consideration all the aspects in their field of manufacturing loconotives and rolling stocks the managers in Hitachi had laid out the strategic plan i.e first they manufacture Japenese elctric locomotive then the bullet train and presently as well as manufacturing they are also engage in supplying the important components of the service administration for the bullet train. Hitachi concentrates most on their after sale services, they planned everything from the feedbak which they gained from their customers and evaluate the present and future market conditions and therefore they make their maintainence plan as well as plans for their new their new products.

Hitachi makes their customers comfortable and solve their problems makes them feel happy so that they can relia on the company as any other successful company Hitachi also beieves in customers satisfation. Hitachi provides the satisfactory level of maintenance management planning and support equipment i.e. on-board inspection tools and depot integrated management system.

PDCA Cycle-Japanese style of maintenance

Do:

This is the stage where all the planned activities have to be transformed into actual activities i.e. this is the time for action. Hitachi’s aims to achieve high level of maintenance for which they used various systems:

  • Depot integrated management system
  • Ground based automatic inspection system,
  • On-board self-diagnostic system,
  • Material control system
  • Vehicle utilization system.

Hitachi used all thses system in order to achive their desired goals, total depot management system that combines the maintenance management system, the vehicle utilization system and the parts/material control system. With the help of this process company can contribute in labour saving [Hitachi maintenance system, 2007].

Check:

This step is basically in which you go thru your experiment, analyse the outcomes and identify the knowledge what you have gained. Hitachi with the help of the depot integrated management system data and effective staff allocation keeps an eye on the progress and functioning of its business activities. Hitachi is producing railway products for a long period of time and its obvious that they have good and effective knowledge about their manufacturing system, in this step Hitachi can check its formal and informal assessment constantly for a longer period of time.

Act:

As we know Hitachi produced first electric locomotive in 1924 and they used their local technology system and they have majorly contributed in the manufacturing of bullet train. With the product like these, Hitachi is not only dominating the market but also maintianing their quality standards andtheir technology which help in continuous improvement.

Anderson, J.C., Rungtusanatham, M. and Schroeder, R.G. (1994) developed a theory of quality management underlying Deming management method. They proposed that: the effectiveness of Deming management method arises from leadership efforts and at the same time creating a cooperative and learning organisation to facilitate the implementation of management practices, which will lead to support customer satisfaction and help in organisational survival as well as in the long run.

2.5.2 Juran’s Approach to Total Quality Management:

Juran’s, J.M. (1993) approach is laid through emphasis on teamwork and project work, which can promote and improve quality as well as improve communication between management and employees. According to Juran TQM is the system of activities directed towards achieving delighted customers, empowered employees, and focuses towards higher revenues with lower costs.

According to Juran, it is very important to understand customer needs and requirements and each and every department like marketing design, manufacturing, and services should apply this requirement. Identifying customer needs requires more vigorous analysis and understanding to ensure the product meets customer’s needs.

2.6 Implementation of TQM practices by SMEs in U.K.:

TVR being a small firm are proud of having detailed knowledge of their small band of customers; they even have a social club that is very well attended, the TVR Car Club [TVR Car Club, 2007]. Consequently they know before any competitor who their customers are, what they think and how they live. So there are many advantages to being small. This customer focus of TVR one of the major claims of the TQM methodology for as we know TQM is a customer-focus system, which is very important for large business organisations in the same way, it is vital for small business also. ‘Government and EU market are beginning to see SME sector as an important engine of growth’, (Carter, K., (1993) pp. 16-18.)

When a particular SME organisation move towards setting effective quality system in the company, sometimes they have to face few problems or difficulties which obstructs them in setting the standards for total quality management. Some of the problems like lack of financial resources and expertise for quality issues, poor delivery service, lack of Benchmarking, low morale among the employees and less ways of incentives and sometimes there is a bad impression among the public regarding the quality image of the organisation. Following are some of the optimal solutions for these difficulties, which enable the SMEs to implement effective TQM:

  1. Most of the times arranging financial resources is the major issues for SMEs while implementing effective TQM. SMEs can obtain funds from external resources such as Training and Enterprise Councils (TECs) that support quality initiatives and help the companies in the arrangement of funds. SMEs should learn from the success and failures of the organisations that has already developed TQM. In 1957 Ray Saidel (First TVR Dealer) helps in the manufacturing process of TVR cars, he built a new design with better quality system and the car was named ‘Jomar’ which becomes very popular and large amount of orders were coming and company had some financial issues that’s why they were struggling in keeping up the quality of the product, for this they transformed the company in 1958 under the name of Layton Sports Car Ltd and with the help of some financial institution there problem of finance was solved[TVR, 2007].
  2. SMEs has to make sure that through proper training and development there should be a cultur

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