Republic of the Philippines

OCCIDENTAL MINDORO STATE COLLEGE

Labangan, San Jose, Occidental Mindoro
website: www.omsc.edu.ph email address: [email protected]
Tele/Fax: (043) 457-0231 CERTIFIED TO ISO 9001:2015
CERT. NO.: 50500643 QM15

Learning Module
in
Productivity and Quality Tools

Compiled by:
MARIA ANGELICA B. SUNGA, MBA

The compiler does not own any of the contents of this learning module. Due credits and
acknowledgment are given to the authors, internet sources, and researchers listed on the
reference page. Such sources are reserved to further explain concepts and cannot be credited to
the compiler and the school. All diagrams, charts, and images are used for educational purposes
only. The sole objective of this instructional material is to facilitate independent learning and
not for monetary gains because this is NOT FOR SALE.

2021 Edition
 Republic of the Philippines
OCCIDENTAL MINDORO STATE COLLEGE
Labangan, San Jose, Occidental Mindoro
website: www.omsc.edu.ph email address: [email protected]
Tele/Fax: (043) 457-0231 CERTIFIED TO ISO 9001:2015
CERT. NO.: 50500643 QM15

APPROVAL SHEET

This Instructional Material entitled LEARNING MODULE IN

PRODUCTIVITY AND QUALITY TOOLS, compiled by MS. MARIA ANGELICA
B. SUNGA (A.Y. 2020-2021), is recommended for production and utilization by the
students and faculty members of the Occidental Mindoro State College.

PANEL OF EVALUATORS

Local Evaluation Committee

College of Business, Administration, and Management

FYEDUNAWAY R. ASIO, PhD ANGELA M. GALISANAO, PhD

Member Member

JOSUE C. DELFIN, DBM

Chairperson

Overall Instructional Materials Development Committee

VENESSA S. CASANOVA, PhD MA. IMELDA C. RAYTON, MAEd

Member Member

Recommending Approval:

JESSIE S. BAROLO, JR., MAEd

Chairperson

Approved:

ELBERT C. EDANIOL, EdD

Vice President for Academic Affairs
 ACKNOWLEDGEMENT
This work would have been not possible without the guidance of our Dear
Creator, Almighty God. The compiler would also like to extend her sincere and hearfelt
gratitude to all the people who have trusted and supported her all throughout the
completion of this instructional material.

Particularly, the compiler would like to thank Dr. Marlyn G. Nielo, Dr. Elbert C.
Edaniol, Ms. Ma. Paz Fatima D. Palmares, Dr. Josue C. Delfin and Dr. Angela M.
Galisanao for their boundless support and motivations in the completion of this
instructional material.

-The Compiler
 DEDICATION
This module is dedicated to Almighty God. Also, to the students who are motivated to
learn and reach their goal.
 PREFACE

“A product is something made in a factory; a brand is something that is bought

by the customer. A product can be copied by a competitor; a brand is unique. A product
can be quickly outdated; a successful brand is timeless.” – Stephen King
Why should you, as a student need to involve yourself in the study of production
and quality tools? One of the reasons is as you go about your career, creating economic
decision relating to quality and production will be made. With this instructional material,
you could be able to gain knowledge on how to make a production process successful
without sacrificing the quality of the products. Here, as a student and future expert in this
field, you could be able to understand how productivity works within an organization and
how the quality could be attained and sustained.

-The Compiler
 TABLE OF CONTENTS

Lesson 1: Productivity
Law of Supply and Demand 1
Productivity 4

Lesson 2: Organizational Performance

Organizational Performance 10
Efficiency vs. Productivity 15

Lesson 3: Productivity Measures

Labor 20
Machine 26
Working Capital 27
Land 28

Lesson 4: Quality Tools

Strategic Role of Quality 31
The Role of Inspection in Quality Control 33
Ways to Improve Quality in the Organization 35
The Cost of Quality 40
Quality Tools 42
References 54
 LESSON 1
PRODUCTIVITY

TOPICS
1. Law of Supply and Demand
2. Productivity
 Factors Affecting Productivity
 Improving Productivity

LEARNING OUTCOMES
At the end of the lesson, you should be able to:
1. define productivity;
2. explain productivity in organization;
3. discuss the components of productivity; and
4. identify and explain the factors affecting productivity.

TOPIC 1: LAW OF SUPPLY AND DEMAND

The law of supply – If the supply is low, the demand is high and vice versa; if the price
is high, the supply is high and if the price is low the supply is low.

FACTORS AFFECTING SUPPLY

 Cost of Production – refers to all the expenses incurred to produce the
goods. Increase in cost will normally result in a lower supply of the good
since the producer has to come up with outlay to produce the same amount
of output.
 Technology – the use of improved technology in the production of a good
results in an increased output. Thus, even with unchanged price, the
supply increases.
 Availability of Raw Materials and Resources – this refers to the number of
resources needed in the production of the goods. Increase in the number of
resources means increase in the number of goods to be produced.

Law of Demand – If the demand is low and the supply is high, the price is low; if the
demand is high and supply is low, the price is high.

FACTORS AFFECTING DEMAND

 Consumer’s Income – this can greatly affect the consumer’s demand as it
determines capacity to buy. If the purchasing power of the consumer is
high, then there are many goods could be purchased.
 Size of the population – an increase in population results in a greater
demand since there will be more consumers. e.g., in highly urbanized
cities like Metro Manila and Cebu, aside from the citizens of the said
cities there also some people from other places who come there, with the
number of people staying in those cities, the good and services needed by
them must be supplied. So, the number of supplies should be incorporated
to number of the population.

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  Taste of the consumer – This pertains to the personal likes and dislikes of
the consumers. A greater preference of the consumer for the goods means
increase in the sale regardless of the price. However, a consumer who
develops less taste for the good tends to buy less at the same price.
 Expectation as to the Future Incomes - this is almost way part of the 1st
factor which is consumer’s income. If the buyer expects that his/her
income will increase in the future, then the buyer would tend to buy more
goods.
 Expectation as to the future Price – if the future price of the goods is
expected to increase, this tends to decrease the future demand.
Alfred Marshall. A british economist, was responsible for introducing the very
important Law of Demand and Supply.

Key Information
One of the most basic economic laws, the law of supply and demand ties into
almost all economic principles in one way or another. In practice, supply and demand
pull against each other until the market finds an equilibrium price. However,
multiple factors affect both supply and demand, causing them to increase or decrease in
various ways.

PRICE EQUILIBRIUM
Equilibrium price is the price at which the producer can sell all the units he wants
to produce, and the buyer can buy all the units he wants. It also means a state of balance.
And it is attained if the demand and supply is equal. However, this can be true if
there is a ceteris paribus applied. An assumption that all factors remain unchanged.
For a simple illustration of how supply and demand determine equilibrium price,
imagine a business brings out a new product. It sets a high price, but only a few
consumers buy it. The business anticipated selling more units, but due to lack of interest,
it has warehouses full of the product. Due to its high supply, the business lowers the
price. Demand increases, but as the business's supply dwindles, it raises the price until it
finds the perfect price to balance its supply with consumer demand.

Example: Assuming that there is no change in the non-price factors, which is

usually true in the short run, there is only one point on the graph where demand is equal
to supply. This is at point E, the point of intersection between demand and supply curves.
This corresponds to a price of Php 22 which we will refer to as the equilibrium price; and
at a quantity of 30, which is the equilibrium quantity. This could mean that the sellers are
willing to sell 30 kilos and all that is offered for sale will be bought and all that
consumers wish to buy will be offered for sale.

P30 s
28
Price of flour
26
per kilo 24
22 Equilibrium price
20
Quantity
18 d
supplied
0 10 20 30 40 50 60 70
Figure 1
Hypothetical Market Demand and Supply Curves for Flour per day in Manila

2
Does Supply and Demand Only Affect Prices?
The law of supply and demand does not just apply to prices. It may also describe
other economic activity. For example, if unemployment is high, there is a large supply of
workers. As a result, businesses tend to lower wages. Conversely, when unemployment
is low, the supply of workers is also low, and as a result, to entice workers,
employers tend to offer higher salaries. Similarly, in the world of manufacturing,
demand and supply could also affect the production of goods.

Activity 1 – Reflective Essay

Contemplate from one of the current situations in the market wherein the supply
and demand affect the production of the product. Write your answer in 1 whole sheet of
paper or in 1 long bond paper.

ASSESSMENT

Activity 2 – True or False

Write TRUE if the statement is correct and FALSE if the statement is wrong. Write your
answers in ¼ sheet of paper.
1. The quality of the raw materials can affect the production of the product.
2. It is also through technology which efficiency can be achieved.
3. The prices of the resources needed in the production directly influence the
number of outputs.
4. If the demand is high and the supply is low; the price is low.
5. If the price is high, the demand is high.
6. The price equilibrium can be achieved if the supply and demand intersect in a
given point.
7. The production of the goods also cope with the personal preference of the
consumers.
8. If there is scarcity in the available resources and materials, there could be increase
in the production of the goods.
9. If there is scarcity in the available resources and materials, there could be increase
in the production of the goods.
10. If unemployment is low, there is a low supply of workers. As a result, businesses
tend to increase wages.
11. Supply and demand pull towards each other until the market finds an equilibrium
price.

Activity 3 – Think and Write

Answer the following questions given below and do not exceed to 150 words for your
answer in each question. Write your answer in ½ sheet of paper. 10 points each
1. How do you define productivity?
2. Kindly give atleast two (2) examples where you can observe productivity.
3. In any business operation, how do you see productivity?

3
 ASSESSMENT
Rubrics
Originality 20%
Content 50%
Organization 30%
TOTAL 100%

TOPIC 2: PRODUCTIVITY OF AN ORGANIZATION

Productivity

Productivity is defined as the efficient use of resources, labor, capital, land, materials,
energy, information, in the production of various goods and services. Productivity of an
organization is defined as the ratio of outputs produced by the organization and the
resources consumed in the process. Productivity is the effective use of innovation and
resources to increase the value added content of goods and services.

Factors Affecting Productivity

Many factors can affect productivity. Among these are methods, capital, quality,
technology, and management.

e.g. Consider a typist who works in typing paper works. He is an

average typist and can turn out about three pages per hour. How could
the student increase productivity. One way might be to replace a
typewriter with a more expensive computer and word processing
package (capital/technology) to gain speed of automatic features such
as spell checking and error correction (quality). Still other productivity
improvements might be achieved through improving organization and
preparation for the actual typing (Management).

Receiving compliment for a good job is also important. This could help them
strive more and do their best all the time. However, there is a misconception on
distinguishing workers as the main determinant of the productivity. Furthermore, it is
actually from technological improvements most of the productivity.

IMPROVING PRODUCTIVITY
To improve productivity, the owner of a business can do two things:
 Increase the output without changing the input (making and selling more)
 Decrease the input without changing the output (reducing the costs of the
resources used in the business)

Input Output
People Goods and
Land services sold to
Buildings the customers
Business
Materials
Energy

Figure 2.

4
 The output you get from any particular input is the productivity of that input. The
productivity of your business, therefore, indicates the degree to which your resources
(input) are put to good use. By increasing your productivity, you improve your business
performance and therefore, increase your profits.

Also, these are the elaborate ways to improve productivity:

1. Develop productivity measures for all operations; measurement is the first step in
managing and controlling an operation.
Formula for Productivity Ratio:
Productivity = Output / Inputs

Output is the amount produced by a person, machine, business, or industry.

Input is what is put into a process, system, or business, usually to produce a profit.

*When you use the formula output/input for the productivity ratio, you must use
numerical values for output and input

Here, the output refers to the quantity of and services produced by the company, and
inputs refers to the quantities of resources such as labor, material, physical facilities, and
energy consumed for producing the same.

e.g. You can measure employee productivity with the labor

productivity equation: total output / total input. Let's say your
company generated $80,000 worth of goods or services (output)
utilizing 1,500 labor hours (input). To calculate your company's labor
productivity, you would divide 80,000 by 1,500, which equals 53

Productivity is used to assess the extent to which certain outputs can be extracted
from a given input. We can measure productivity for a single input resource such as
manpower used, or for multiple resources. There can be many different types of
productivity measurement depending on the type of resources considered.

Some of the most common types of productivity measurements include:

1. labor productivity,
2. machine or capital productivity,
3. material productivity, and
4. land productivity

When it is desirable to determine productivity involving more than one type of

inputs and/or outputs, we can use some weighted measure of input and output quantities.
Productivity may be measured for all the factors of production taken together.
This measure of productivity, called total factor productivity, is generally used for
measuring changes in productivity due to reasons other than those of factors employed.
For example, the climatic variations may affect the agricultural production of a country.
The most widely used measure of this type is in monetary terms. Thus, combined
productivity of all the materials used in manufacture of steel may be measured in terms of
cost of raw materials per ton of steel produced.
Measures of productivity describe how well the resources of an organization are
being used to produce input. They are very useful in achieving and maintaining high
level of performance in any organization, particularly in improving the efficiency of
various operations within the organization as well as for the total organization.
Productivity measures are also used for planning, monitoring, and improving
performance at national levels.
Productivity measures provide a means to managers to ascertain, plan control and
improve efficiency at different levels of organization. The also facilitate comparison of

5
performance of different companies within a market or industry. This helps manager set
improvement targets for organization’s long term strategic plans, and in developing
suitable competitive strategy.
Productivity measures are also essential for motivating employees through
payment of incentive for high productivity. In addition, the availability of comparative
performance data itself becomes a tool for self-motivation of employees.
In summary we can say that measures of productivity are not just important for
good performance in all organizations – they are essential. No organization can continue
to operate for long without using some productivity measures, and their performance is
influence by the nature of productivity measures used.

2. Look at the system as a whole in deciding which operations are most critical; it is
overall productivity that is important. This could be done through a bottleneck
analysis.
3. Develop methods for achieving productivity improvements, such as soliciting
ideas for workers (perhaps organizing teams of workers, engineers, and
managers), studying how other firms have increased productivity, and re-
examining the way work is done.
4. Establish reasonable goals for improvement.
5. Make it clear that management supports and encourages productivity
improvement. Consider incentives to rewards workers for contributions.
6. Measure improvements and publicize them.
7. Don’t confuse productivity with efficiency.

Also, the best results are achieved if both input and output are considered. In improving
productivity, you have to choose the right areas for intervention.

Productivity
Factors

Productivity
Indicators

Monitoring
Productivity

Figure 3. Productivity’s Areas for intervention

Productivity factors are issues that positively or negatively affect:

• The input (materials, wages, electricity, etc.) required to produce a certain amount of
output (the quantity of goods or services produced and sold)
• The volume of output (the quantity of goods that need to be produced and sold at
certain prices in order to achieve specific sales targets)

6
Productivity factors may be divided into internal and external:
• Internal productivity factors are issues that can be influenced by the business owner.
These may include problems with the goods, product quality, price, equipment,
material, energy use, skill and motivation of workers, storage, the organization, etc.
• External productivity factors are issues that are outside the control of the business.
They include access to infrastructure, the weather, the market situation, taxation, etc.
Nothing can be done about these factors as long as the business keeps operating in its
present setting. If they have a serious negative effect, the business owner may
consider relocating or changing the nature of the business.

In small businesses, labor is one of the most important factors influencing

productivity. Productivity will increase when employees are skillful, work hard and
do their jobs efficiently

Most successful business owners identify and continuously measure indicators that they
know affect the productivity of their businesses without waiting for the financial results.
A productivity indicator should relate to the business output or input. The following
examples are of common types of businesses and their possible productivity indicators.

To be increased or improved:
• The value of the monthly sales
• The number of goods sold per customer
• The number of new customers
• The number of customers per employee
• The time it takes for the delivery of supplies

To be decreased or checked:
• The cost of the supplies
• The percentage of spoilage
• The number of staff absences
• Shoplifting and theft

To be increased:
• The number of meals served per day
• The amount of new customers

To be decreased:
• The time it takes to prepare and serve
each meal
• The amount of food that is wasted
• The number of employee absences
• The cost per meal

Source: PNGKey

7
Therefore, productivity indicators depend on the type of business that you manage.
The major considerations for selecting productivity indicators:

• They must relate to the type of business you are running and the way in which
you manage your business (as in the examples above).

• They must react to the changes in the input and the output of your business.

• They must rely on the use of existing data that is easy to collect, so that you can
easily measure productivity.

Productivity monitoring is a method for watching employee productivity levels

throughout the workday.

Activity 1 – COMPREHEND

Choose a business that you would like to study and answer the following questions.
Which are the most important productivity factors of the business? What are the
constraints to productivity? Write your answers in 1 whole sheet of paper or in 1 long
bond paper.

ASSESSMENT
Rubrics
Originality 20%
Content 50%
Organization 30%
TOTAL 100%

Activity 2
Below are examples of some common productivity problems (factors) in a small
business. Suggest ways in which these problems could be overcome and what
productivity indicators you would use to measure improvements. Copy the whole table
and write it in 1 whole sheet of paper or in 1 long bond paper.

8
 Activity 3: Graph!
Answer the questions given after reading the case of the business, Sweet Sweet
Cakes below.
The owner of Sweety Sweet Cakes has prepared an action plan to improve his
business and he selected the following productivity indicators to check the progress in the
bakery:
• The number of loaves of bread made per bag of flour
• The amount of time that the ovens are idle
He measured these indicators every week and achieved the following results over a ten
week period:

1. Make graphs to show the changes in productivity.

2. How do you think the improvements were achieved and why?
3. The idle time for the ovens has decreased. What could that mean?
Note: Write your answer in 1 whole sheet of paper or in 1 long bond paper.

ASSESSMENT
Numerical
Description
Score
The student elicits the correct ideas from the readings and
video, shows evidence of internalizing these, and
4
consistently contributes additional thoughts to the core
idea.
The student not only elicits the correct ideas from the
3 readings and video but also shows evidence of internalizing
these.
The student is able to elicit the ideas and concepts from
2 the readings and videos and shows correct understanding
of these.
The student is able to elicit the ideas and concepts from
1
the readings and video but shows erroneous.
The student is unable to elicit the ideas and concepts from
0 the reading and video indicating that s/he has not read the
prescribed reading or watched the video.

9
 LESSON 2
ORGANIZATIONAL PERFORMANCE

TOPICS
1. Organizational Performance
 Performance Measures
 Performance Measurement
 Performance Management
2. Efficiency vs. Effectiveness
LEARNING OUTCOMES
At the end of the lesson, you should be able to:
1. determine the organization’s performance through performance
measures, performance measurement and performance management;
2. comprehend on the complexities associated with assessing organizational
performance; and
3. differentiate efficiency and effectiveness.

TOPIC 1: ORGANIZATIONAL PERFORMANCE

Organizational performance is measured for different levels of hierarchy and
can be assessed for individuals, groups, and the entire organization as a whole (Knies,
Jacobsen & Tummers, 2016). The measures for organizational performance depend on
who is asking the questions and why they need to measure performance. Some of the
reasons why professionals need to measure and report organizational performance are to
justify the valid use of investors’ money, guide managerial decision making by pointing
out the trouble areas, compare performances of different functions, projects, and people,
and to exercise control. Therefore, the definition of organizational performance can
change as per the use it is put to.

1. Performance measures
These are designed to measure systems of service and are derived from
guidelines. Data that is defined into specific measurable elements provides an
organization with a meter to measure the quality of its service or products.
Performance measures are a metrics along which organizations can be gauged.
Most executives, investor and stakeholders watch and examine measures such as profits,
stock price, and sales in an attempt to better understand how well their organizations are
competing in the market, as well as future predicted results. But these measures provide
just a glimpse of organizational performance.

Performance measures should be distinguished from guidelines. Guidelines are

systemically-developed statements to assist employees and customers in making decisions
about appropriate services or products to be given to customers. Attributes of good
guidelines include validity, reliability, reproducibility, applicability, clarity, multidisciplinary
process, review of evidence and documentation. (1) Performance measures provide an
indication of an organization's performance in relation to a specified process or outcome.
Guidelines that outline the expectations of results. Because performance measures and
standards, each serve a different purpose, they are not always identical.

10
 Performance referents are also needed to assess whether an organization is
doing well. A performance referent is a benchmark or standard used to make sense of an
organization’s standing along a performance measure. Suppose, for example, that a firm
has a profit margin of 20 percent in 2011. This might sound great on the surface. But
suppose that the firm’s profit margin the year before, in 2010, was 35 percent and that the
average profit margin across all firms in the industry for 2011 was 40 percent. Viewed
relative to these two referents, the firm’s 2011 performance is cause for concern.

Table 1. Financial performance measures and referents for organizations and individuals

Performance measures and referents can be done through the following:

1. Balance Scorecard
2. Triple Bottom Line

The Balanced Scorecard

To develop a more predictive set of organization performance measures,

Professor Robert Kaplan and Professor David Norton of Harvard University developed a
tool called the “balanced scorecard.” Using the scorecard helps managers resist the
temptation to fixate on financial measures and instead monitor a diverse set of important
measures. Indeed, the idea behind the framework is to provide a “balance” between
financial measures and other measures that are important for understanding
organizational activities that lead to sustained, long-term performance. The balanced
scorecard recommends that managers gain an overview of the organization’s
performance by tracking a small number of key measures that collectively reflect four
dimensions:
1. financial focus;
2. customer focus;
3. internal business process focus; and
4. learning and growth focus.

11
Financial Measures/Focus
Financial measures of performance relate to organizational effectiveness and
profits. Examples include financial ratios such as return on assets, return on equity, and
return on investment. Other common financial measures include profits and stock price.
Such measures help answer the key question “How do we look to shareholders?” Such
measures have long been of interest to senior management and investors.
Financial performance measures are commonly articulated and emphasized within
an organization’s annual report to shareholders. To provide context, such measures
should be objective and be coupled with meaningful referents, such as the firm’s past
performance. For example, Starbucks’s 2009 annual report highlights the firm’s
performance in terms of net revenue, operating income, and cash flow over a five-year
period.

Customer Measures/Focus
Customer measures of performance relate to customer attraction, satisfaction, and
retention. These measures provide insight to the key question “How do customers see
us?” Examples might include the number of new customers and the percentage of repeat
customers.
Starbucks realizes the importance of repeat customers and has taken a number of
steps to satisfy and to attract regular visitors to their stores. For example, Starbucks
rewards regular customers with free drinks and offers all customers free Wi-Fi
access. Starbucks also encourages repeat visits by providing cards with codes for free
iTunes downloads. The featured songs change regularly, encouraging frequent repeat
visits.

Internal Business Process Measures

Internal business process measures of performance relate to organizational
efficiency. These measures help answer the key question “What must we excel at?”
Examples include the time it takes to manufacture the organization’s good or deliver a
service. The time it takes to create a new product and bring it to market is another
example of this type of measure.
Organizations such as Starbucks realize the importance of such efficiency
measures for the long-term success of its organization, and Starbucks carefully examines
its processes with the goal of decreasing order fulfillment time. In one recent example,

12
Starbucks efficiency experts challenged their employees to assemble a Mr. Potato Head
to understand how work could be done more quickly. The aim of this exercise was to
help Starbucks employees in general match the speed of the firm’s high performers, who
boast an average time per order of twenty-five seconds.
One key aspect for organizations producing physical goods (as compared to
services) are supply-chain management indicators. Both Walmart and GM are examples
of the increased profits that can result from effective management of the supply chain
through initiatives such as “just-in-time”’ supply-chain management. Of course, to
reduce supply inventory, data must be both timely and accurate (or else you run out of
key parts and the production line stops…). In the 1990s (pre-Internet) Walmart acquired
their own satellite system that allowed them to collect sales by item and ordered
replacement to restock their shelves every eight hours, while GM kept only enough tires
for four hours of car assembly at any one time!

Learning and Growth Measures

Learning and growth measures of performance relate to the future. Such measures
provide insight to tell the organization, “Can we continue to improve and create value?”
Learning and growth measures focus on innovation and proceed with an understanding
that strategies change over time. Consequently, developing new ways to add value will be
needed as the organization continues to adapt to an evolving environment. An example of
a learning and growth measure is the number of new skills learned by employees every
year.
One way Starbucks encourages its employees to learn skills that may benefit both
the firm and individuals in the future is through its tuition reimbursement program.
Employees who have worked with Starbucks for more than a year are eligible. Starbucks
hopes that the knowledge acquired while earning a college degree might provide
employees with the skills needed to develop innovations that will benefit the company in
the future. Another benefit of this program is that it helps Starbucks reward and retain
high-achieving employees.

Triple Bottom Line

Ralph Waldo Emerson once noted, “Doing well is the result of doing good. That’s
what capitalism is all about.” While the balanced scorecard provides a popular
framework to help executives understand an organization’s performance, other
frameworks highlight areas such as social responsibility. One such framework, the triple
bottom line, emphasizes the three Ps of people (making sure that the actions of the
organization are socially responsible), the planet (making sure organizations act in a way
that promotes environmental sustainability), and traditional organization profits. This
notion was introduced in the early 1980s but did not attract much attention until the late
1990s.

In the case of Starbucks, the firm has made clear the importance it attaches to the
planet by creating an environmental mission statement (“Starbucks is committed to a role
of environmental leadership in all facets of our business”) in addition to its overall
mission. In terms of the “people” dimension of the triple bottom line, Starbucks strives to
purchase coffee beans harvested by farmers who work under humane conditions and are
paid reasonable wages. The firm works to be profitable as well, of course.

Organizational performance is a multidimensional concept, and wise managers

rely on multiple measures of performance when gauging the success or failure of their
organizations. The balanced scorecard provides a tool to help executives gain a
general understanding of their organization’s current level of achievement across a set
of four important dimensions. The triple bottom line provides another tool to help
executives focus on performance targets beyond profits alone; this approach stresses
the importance of social and environmental outcomes.

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2. Performance Measurement
Performance measurement is a process by which an organization monitors
important aspects of its programs, systems, and processes. Data is collected to reflect how
its processes are working, and that information is used to drive an organization’s
decisions over time. Typically, performance is measured and compared to organizational
goals and objectives. Results of performance measurement provide information on how
an organization’s current programs are working and how its resources can be allocated to
optimize the programs’ efficiencies and effectiveness.

Why Does an Organization Need to Measure Performance?

Performance measurement provides a reliable process to determine if an
organization’s current system is working well. Also in today’s economy, there is a
demand for transparency and increasing scrutiny of an organization’s business practices.
These reasons promote an organization’s use of process and outcome data as a means to
demonstrate its performance. There are other typical circumstances of why an
organization may choose to measure its performance, such as:
 Distinguish what appears to be happening from what is really happening;
 Establish a baseline; i.e., measure before improvements are made;
 Make decisions based on solid evidence;
 Demonstrate that changes lead to improvements;
 Allow performance comparisons across sites;
 Monitor process changes to ensure improvements are sustained over time; and
 Recognize improved performance.

3. Performance Management
Performance management is a process for setting goals and regularly checking
progress toward achieving those goals. It includes activities that ensure organizational
goals are consistently met in an effective and efficient manner. The overall goal of
performance management is to ensure that an organization and its subsystems (processes,
departments, teams, etc.), are optimally working together to achieve the results desired by
the organization. Performance management has a wide variety of applications, such as,
staff performance and business performance. Because performance management strives
to align all the subsystems to achieve results, the focus of performance management
should also affect the management of an organization’s performance overall. Fig. 2
below shows the process of the performance management.

Figure 4. Performance Management

Source: HRTrendOnline

14
 TOPIC 2: EFFICIENCY vs. EFFECTIVENESS
Organizational performance stimulation has always been a priority in private as
well as in public sectors, since it is directly associated with the value creation of the
entity. Organizations are constantly striving for better results, influence and competitive
advantage. However, most organizations are struggling to get it right. Management is not
always aware of the adequate assessment of their organizational performance. Plethora of
models, frameworks or methods for conducting entities valuation creates unnecessary
stress for management to select the path that is congruent with organizations believes and
cultural philosophy (Richard, 2009). Common measures of the organizational
performance are effectiveness and efficiency (Bounds at all, 2005; Robbins, 2000).
Within strategic management, organizational success if often expressed in terms
of efficiency and effectiveness, though in reality such measures are more complex than
often expected. For example, in many production oriented businesses that manufacture or
produce tangible goods, the measure of efficiency may be a direct almost mathematical
relationship between inputs and outputs as discussed above and therefore easily
measured. In many service industries, this relationship is not so clear cut and
consequently our ability to accurately measure efficiency in a simple relationship
between inputs and outputs is difficult or the result meaningless.
Organizational efficiency is a measure of the relationship between
organizational inputs (resources) and outputs (goods and services provided) and in simple
terms the more output we can achieve with a given amount of inputs or resources, the
more efficient we are. For example, if we can make 100 cars with X value of resources
we are more efficient than someone else who only makes 80 identical cars with the same
value of resources. Efficiency relates to the term productivity and a major focus of all
managers is to maintain or improve the level of productivity of their work unit and
organization.
Organizational effectiveness relates to goal attainment. An individual, group or
an organization, that achieves their goals are said to be effective, and have used their
resources to achieve an effective outcome. But does this also mean they have used their
resources efficiently? The figure below shows how efficiency differ with the
effectiveness.

Figure 5. Chain of Effects

Effectiveness oriented companies are concerned with output, sales, quality,

creation of value added, innovation, cost reduction. It measures the degree to which a
business achieves its goals or the way outputs interact with the economic and social
environment.
Efficiency measures relationship between inputs and outputs or how successfully
the inputs have been transformed into outputs (Low, 2000). To maximize the output
Porter’s Total Productive Maintenance system suggests the elimination of six losses,
which are: (1) reduced yield – from start up to stable production; (2) process defects; (3)

15
reduced speed; (4) idling and minor stoppages; (5) set-up and adjustment; and (6)
equipment failure. The fewer the inputs used to generate outputs, the greater the
efficiency.

Effective yet inefficient organization?

Organizations can be managed effectively, yet, due to the poor operational
management, the entity will be performing inefficiently (Karlaftis, 2004). Inefficient and
ineffective organization is set for an expensive failure. In such case there is no proper
resources allocation policy and there is no organizational perspective of their future.
Organization has leadership issues, high employee turnover rate and no clear vision
where the organization will be standing tomorrow. If the organization is able to manage
its resources effectively, yet it does not realize its long term goals, it will bankrupt
slowly. This strategy is cost efficient but it is not innovative and creates no value.
Management has no clear customer oriented policy set in place, which leads to constant
focus on efficiency. Such organization uses all its efforts to implement strict resource
allocation policy, which translates into strict staff cost control, training cost reduction or
even elimination. These actions lead to low morale of the organization high turnover rate
of the employees and low customer satisfaction. Efficient but ineffective organization
cannot be competitive and it will bankrupt eventually. To avoid this to happen, the
characteristics of efficiency and effectiveness were shown below.

Table 2. Characteristics of Effectiveness and Efficiency

Activity 1 – PICTURE OBSERVATION AND ANALYSIS

See the picture given below which is based on the story of the blind men and the
elephant. In understanding the complexities of Organizational performance, kindly make
an observation and analyze what is being told by the seen. Write your answer in 1 whole
sheet of paper or in 1 long bond paper.

16
 ASSESSMENT
Numerical
Description
Score
The student elicits the correct ideas from the readings and
video, shows evidence of internalizing these, and
4
consistently contributes additional thoughts to the core
idea.
The student not only elicits the correct ideas from the
3 readings and video but also shows evidence of internalizing
these.
The student is able to elicit the ideas and concepts from
2 the readings and videos and shows correct understanding
of these.
The student is able to elicit the ideas and concepts from
1
the readings and video but shows erroneous.
The student is unable to elicit the ideas and concepts from
0 the reading and video indicating that s/he has not read the
prescribed reading or watched the video.

Activity 2 – GIVE WHAT IS ASKED

Give your answer in each question given below. Write your answer in 1 whole sheet of
paper or in 1 long bond paper.
1. How might you apply the balanced scorecard framework to measure performance of
your college or university?
2. Identify a measurable example of each of the balanced scorecard dimensions other than
the examples offered in this section.
3. Identify a mission statement from an organization that emphasizes each of the elements
of the triple bottom line.

ASSESSMENT

Rubrics
Originality 20%
Content 50%
Organization 30%
TOTAL 100%

Activity 3: State your insight!

Give your insight to the statement of Bill Gates below. State your answer in 150 words or
below. Write your answer in 1 whole sheet of paper or in 1 long bond paper.
“The first rule of any technology used in a business is that automation applied to an
efficient operation will magnify the efficiency. The second is that automation applied to
an inefficient operation will magnify the inefficiency.”
— BILL GATES, FOUNDER AND CHAIRMAN OF MICROSOFT

17
 ASSESSMENT
Numerical
Description
Score
The student elicits the correct ideas from the readings and
video, shows evidence of internalizing these, and
4
consistently contributes additional thoughts to the core
idea.
The student not only elicits the correct ideas from the
3 readings and video but also shows evidence of internalizing
these.
The student is able to elicit the ideas and concepts from
2 the readings and videos and shows correct understanding
of these.
The student is able to elicit the ideas and concepts from
1
the readings and video but shows erroneous.
The student is unable to elicit the ideas and concepts from
0 the reading and video indicating that s/he has not read the
prescribed reading or watched the video.

Activity 4: Case Analysis

Answer the questions provided in the case. Write your answer in 1 whole sheet of paper
or in 1 long bond paper.

18
ASSESSMENT
Numerical
Description
Score
The student elicits the correct ideas from the readings
and video, shows evidence of internalizing these, and
4
consistently contributes additional thoughts to the core
idea.
The student not only elicits the correct ideas from the
3 readings and video but also shows evidence of
internalizing these.
The student is able to elicit the ideas and concepts from
2 the readings and videos and shows correct
understanding of these.
The student is able to elicit the ideas and concepts from
1
the readings and video but shows erroneous.
The student is unable to elicit the ideas and concepts
0 from the reading and video indicating that s/he has not
read the prescribed reading or watched the video.

19
 LESSON 3
Productivity Measures

TOPICS
1. Labor
2. Machine
3. Working Capital
4. Land
LEARNING OUTCOMES
At the end of the lesson, you should be able to:
1. measure the productivity of a company through labor, machine, working
and land; and
2. discuss the significance of measuring productivity to the organization’s
performance.

TOPIC 1: LABOR PRODUCTIVITY

The creation of goods and services requires changing resources into goods and
services. The more efficiently we make this change, the more productive we are and the
more value is added to the good or service provided. Productivity is the ratio of outputs
(goods and services) divided by the inputs (resources, such as labor and capital). The
operations manager’s job is to enhance (improve) this ratio of outputs to inputs.
Improving productivity means improving efficiency. This improvement can be achieved
in two ways: reducing inputs while keeping output constant or increasing output while
keeping inputs constant. Both represent an improvement in productivity. The
measurement of productivity can be quite direct. Such is the case when productivity is
measured by labor-hours per ton of a specific type of steel. Although labor-hours is a
common measure of input, other measures such as capital (dollars invested), materials
(tons of ore), or energy (kilowatts of electricity) can be used.
Productivity can be measured through the following:
1. Labor
2. Machine
3. Materials
4. Land
Labor Productivity is a measure of economic growth within a country. Labor
productivity measures the amount of goods and services produced by one hour of labor;
specifically, labor productivity measures the amount of real gross domestic product
(GDP) produced by an hour of labor. Workforce productivity, often referred to as labor
productivity, is a measure for an organization or company, a process, an industry, or a
country. Labor productivity measures the hourly productive output for a country's
economy during a period of time.
*Rate of output per worker (or a group of workers) per unit of time as compared
with an established standard or expected rate of output
.

20
How labor productivity works?
A labor productivity is a function of technological innovation, labor resources
and capital investment.
The formula for labor productivity is:

Labor Productivity = Total Output / Total Productive Hours

For example, suppose a company’s total output for 2019

was 5,000,000 pesos. All members of its labor force
worked a total of 500,000 productive hours for the year.
Labor productivity is found by dividing 5 million by
500,000 productive hours:
= PhP5,000,000/500,000 hours
= PhP10.00/hour
The company’s labor productivity for 2019 was PhP10 per hour.

Productivity Rate
Labor productivity is the rate of output per worker in your business per unit of
time -- usually per hour. Basically, productivity is how much each worker produces per
hour compared to what each worker is earning to perform the job.

Importance of Determining Labor Productivity

Determining your company's productivity of labor can help your business find
drags on your revenue stream and improve profits. A low productivity of labor when
compared with your employees' hourly rates may signal you're paying workers too much
or you have too many employees on the job at any one time. Streamlining your workforce
can help your business maximize productivity from the least amount of employees
possible. This boosts profits and can help your company save enough capital to begin
growing. Failing to streamline your labor productivity can gobble up all your profits and
make it difficult to meet financial obligations or simply keep the lights on.

Increasing Labor Productivity

Increasing labor productivity involves more than simply paying workers less and
producing greater product quantities. As a business owner, you can increase labor
productivity by providing employees with better equipment and technology to more
efficiently complete tasks and produce better products. This requires a greater short-term
expenditure of capital from your business in the name of securing long-term gains in
productivity. Investing the money in your business to improve facilities also shows
workers your commitment to the company, which can improve worker morale and lead to
increases in overall productivity.

How to Calculate Productivity of an Employee?

To improve an employee's productivity as a small business owner, you must first

be able to measure it. If you measure an employee's productivity twice -- one time at the
beginning of a period, then again after 6 to 12 months, it will tell you whether
productivity is improving or deteriorating for that employee.
Choose the output you will measure. Units completed are a useful measure if it
can be so measured. Select a period of time, such as an eight-hour day, and measure the
total output for your employee. This averages any anomalies during any particular hour
of the day.

21
 Find your input figure, which is the hours of labor put into production. Measure
an employee's productivity over several hours, because any single hour might not be
representative of the usual output from that employee. Choosing a full shift is helpful.
The longer the period of time, the better average you will receive.
*Divide the output by the input.

Example: 150 units of output completed in eight hours of input equals and
employee productivity of 18.75 units per hour.
Assign dollar values to measure your cost-benefit ratio. In the example, say the
products are worth $16 each, and you pay your employee $35 per hour. For every $35 in
wages (input), you get $300 worth of product ($16 x 18.75 products). Divide output by
input, so 300 divided by $35 equals 9. Multiply by 100 to find that your employee is
producing 900 percent of his wages in value. Your employee produces nine times his
wages in products.

How to Improve Productivity in an Organization

For a small business, improving productivity means improving gross revenues
and profits. As a manager, finding ways to improve productivity may mean making
adjustments in employee training, modernizing equipment or creating motivational
incentives to boost employee morale and energy. Before you start any method of labor
and productivity improvement, measure existing output levels to create a baseline, so you
can effectively measure change.

Note that everything related to productivity has to do with the people who
work in your business. Work can be accomplished in different ways and some
workers may be more productive than others.
If your workers are inefficient, your business will suffer. If they do their
work well, your productivity will increase and your business will do well. Who will
help them do a better job? You!

People and Competitiveness

To sell more goods or services, your business must be more competitive than your
competitors in the market. What makes a business competitive? There are many factors
contributing to competiveness, such as location, equipment, materials, distribution, etc.
But it is the people working for you who are the decisive factor in creating a long-term
competitive edge for your business. This is because your competitors can replicate the
other factors. For example, the good location of your business will no longer be a
competitive advantage if a competitor finds a location better than yours . The illustration
below shows how people contribute well to the business competitiveness.

22
 In this part we have explained that there is not only a link between people and
business productivity but also a link between people and competitiveness. You see how
people influence productivity and make your business more competitive, which results in
improved business performance and higher profits.

Employee Productivity and Efficiency Calculations

For many businesses, including most small businesses, the most significant cost is
labor. Salaries and wages comprise the major line-item expense for most retail and small-
scale manufacturing companies, but labor also tends to be responsive to productivity
improvements. To reduce labor costs, entrepreneurs should consider measuring employee
efficiency and setting aggressive performance targets to get the most bang for their labor
buck.
Efficiency does not have the same precise meaning as productivity. It is also
defined in terms of a comparison of two components (inputs and outputs), the highest
productivity level from each input level is recognized as the efficient situation (Jayamaha
& Mula, 2011).
Efficiency consists of two main components; technical efficiency and allocative
efficiency (Coelli, Rao, & Battese, 1998). Whereas, technical efficiency pertains to the
maximum outputs attained from a given set of inputs and allocative efficiency happens
when a firm chooses the optimal combination of inputs (Coelli, Rao, & Battese, 1998).

Measuring Efficiency
Efficiency is a ratio of an employee's actual time to perform each UOS against the
theoretical time needed to complete it.
Example, an employee who packages DVDs might put together 80 DVDs in one
hour. If the best-practice target is 100 DVDs in an hour--measured by a time study--then
the employee is 80 percent effective and has the capacity to produce 20 more units per
hour. It is usually helpful to report separately the percentage of an employee's paid time
that is actually spent performing direct work. For example, an employee who is paid for
working 8.0 hours but because of meetings and lunch breaks only works 6.0 hours only
spends 75 percent of her time being "productive" in terms of UOS analysis. Only the six
hours spent working should be factored into efficiency scoring.
Efficiency enables a business to utilize and allocate properly the company’s
resources (Nordmeyer, 2018). And, measuring efficiency is through dividing a worker’s
actual output rate by the standard output rate and multiplying the out outcome by 100%.
The higher the production efficiency is, the lower the production cost will be. Part of the
operations strategy, technology, job design and process influence the rate of output as
does the worker’s skill and effort (Nordmeyer, 2018).
Example:
Assume that B&S Painting has determined that the standard
time required to prepare, prime and paint one averaged-sized

23
 room is three days, or 24 hours, equal to painting
approximately 4% of the room/hour. Assume that Blexir
charges $400 per room for labor, that he bills separately for
materials and that he pays the painter $10 per hour. Blexir’s
production efficiency rate equals one room divided by 26
actual hours or .038 actual output rate, which is divided by one
room divided by 24 standard hours or .042 standard output rate,
which equals .90. Next, .90 multiplied by 100%, which equals
90% efficiency.
To determine actual B&S Painting profit or loss, multiply $10 painter’s hourly rate by 26
hour to equal to $260 actual labor costs. Subtract this number from the $400 per room
fee, which equals $140. B&S profit is equal to $140, which is $20 less than the $160 the
company would have earned if the painter had been more efficient.

Activity 1
Answer each question and based your answer on the table provided below. Write your
answer in 1 whole sheet of paper or in 1 long bond paper.

1. Which business makes more profit?

2. Which business has higher employee productivity? Which has higher overall
productivity?
3. Can you spot a problem? What would you recommend?
ASSESSMENT
Numerical
Description
Score
The student elicits the correct ideas from the readings and
4 video, shows evidence of internalizing these, and
consistently contributes additional thoughts to the core idea.
The student not only elicits the correct ideas from the
3 readings and video but also shows evidence of internalizing
these.
The student is able to elicit the ideas and concepts from the
2 readings and videos and shows correct understanding of
these.
The student is able to elicit the ideas and concepts from the
1
readings and video but shows erroneous.
The student is unable to elicit the ideas and concepts from
0 the reading and video indicating that s/he has not read the
prescribed reading or watched the video.

24
 Activity 2
The following situations illustrate the link between people and productivity. Your task is
to show what may happen if too little attention is paid to the role of people in your
business. Write down why you think these businesses are unproductive. Write your
answer in 1 whole sheet of paper or in 1 long bond paper.

25
 ASSESSMENT
Numerical
Description
Score
The student elicits the correct ideas from the readings and
4 video, shows evidence of internalizing these, and
consistently contributes additional thoughts to the core idea.
The student not only elicits the correct ideas from the
3 readings and video but also shows evidence of internalizing
these.
The student is able to elicit the ideas and concepts from the
2 readings and videos and shows correct understanding of
these.
The student is able to elicit the ideas and concepts from the
1
readings and video but shows erroneous.
The student is unable to elicit the ideas and concepts from
0 the reading and video indicating that s/he has not read the
prescribed reading or watched the video.

TOPIC 2: MACHINE PRODUCTIVITY

Machine productivity refers to the number of outputs that can be produced in a

given period of time by machine. This is one way to measure productivity of an
organization.

How to calculate machine productivity?

Calculating machine productivity is one way of measuring line productivity or
factory’s productivity. If measuring labor productivity was already done, it might be
interesting also to calculate the machine productivity. It is easier to estimate production
capacity of a line for the given products, if you have machine productivity data for
various product categories.

Formula to calculate machine productivity:

Machine productivity = (No. of total outputs produced / total machines used)

Example: In the readymade garment production, factories measure productivity majorly

as labor productivity and machine productivity.

Machine productivity calculation method:

To calculate machine productivity of a stitching line you need the following data:
 Count total stitching machines in a line.
 Count the line output at the end of the day (no. of garments produced)
 Note shift time (in hours) and total hours factory works.

Calculate machine productivity using the above formula.

Example: A 40 machines line produced 400 pieces of shirts in 8 hours shift day.

Answer:
Machine Productivity = 400 / 40 pcs. In 8 hours
= 10 pieces per 8 hours shift
This method is applicable in calculating machine productivity for individual sewing lines
as well as the whole factory.

26
Example: In case your factory shift time is 10 hours, you can measure machine
productivity as machine productivity per 20 hour shift. Or convert 10 hours productivity
into 8 hours machine productivity by following this formula.
Answer: machine productivity in 8 hours = (pieces produced*8)/(number of machines *
Actual shift hours)
= (400 * 8) / (40 * 10)
= 3200/400
= 8 pieces per 10 hours shift

Activity 3
Calculate a machine productivity in 8 hours for the following cases: Copy the table and
write your answer in 1 whole sheet of paper or in 1 long bond paper.
Line Product type No. of Total Pcs. Hours Machine
no. machine Produced worked / productivity
day in 8 hours
shift
1 Casual shirt 30 400 8

2 Formal Shirt 40 350 10

3 Trouser 44 420 10

TOPIC 3: WORKING CAPITAL PRODUCTIVITY

Working capital productivity compares an organization’s sales with its working
capital, as a measure of efficiency.
If sales increase more rapidly than the funds needed to generate them, it shows
that a business is being well managed and operating productively – so it will be more
attractive to investors. It is also an indication of good financial performance.

What to do?
Working capital productivity is measure by examining the relationship between
sales, or turnover, and the spending available funds. It is calculated by dividing sales by
working capital (current assets minus current liabilities) – typically every quarter.

The formula is:

Sales / (current assets – current liabilities) = working capital productivity
Example: if sales for the quarter are $10,000, current assets are $1,500, and current
liabilities are $900, then:
= $10,000 / (1,500 – 900)
= $10,000 / 600
WCP = 16.7

Note: with this version of formula, the higher the result the better. It only means that
there could be higher amount of sales will be left that which can indicate of high net
income for the business.
Another version (“working capital turnover” or “working capital to sales ratio”)
offers a different way of looking at the same thing, by reversing the figures:
Working capital / sales * 100 = working capital to sales ratio. Using the example
above, the example should be like this:
600 / $10,000 * 100 = 0.06 * 100 = 6%
Note: The lower the result/percentage, the better.

27
 Activity 4

Say that ABG Company’s sales for the 1st quarter are PhP100,000, current assets are
PhP50,000, and current liabilities are Php35,000. What are the working capital
productivity, working capital turnover, and working capital to sales ratio of ABG
Company? Write your answer and solution for this activity in 1 whole sheet of paper or in
1 long bond paper.

TOPIC 4: LAND PRODUCTIVITY

What is land?
The term “land” in economics is often used in a wider sense. It does not mean
only the surface of the soil, but it also includes all those natural resources which are the
free gifts of nature. It, therefore, means all free gifts of nature.

Uses of Land
Land use is when an area is used for specific purpose. These purposes meet the
wants and needs of people. The land may be used as it naturally exists, like using a lake
for swimming and boating. Or the land may be changed so that it can be used for another
specific purpose, such as a hole being blasted into the side of a mountain so railroad track
can be laid for trains to pass through.

Types of Land Use

 Residential – The land where you live is used for residential purposes. This
means the land is used to provide housing for people to live in.
 Agricultural – the land used for agriculture primarily produces food for people to
eat.
 Recreational – This means the land is being used to provide a place people to
relax and play. Many of the lands used for recreation include natural features of
the land that are already there, including hiking on mountains, swimming in lakes,
and climbing trees.
 Transportation – When people build highways, roads, railroad lines, and
subways, they are using the land for transportation purposes.

Characteristics of Land
 Free gift of nature:
Man has to make efforts in order to acquire other factors of production.
But to acquire land no human efforts are needed. Land is not the outcome of
human labor. Rather, it existed even long before the evolution of man.
 Fixed Quantity:
The total quantity of land does not undergo any change. It is limited and
cannot be increased or decreased with human efforts. No alteration can be made
in the surface area of land.
 Land is permanent:
All man made things are perishable and these may even go out of
existence. But land is indestructible. Thus it cannot go out of existences. It is not
destructible.
 Land is Primary Factor of Production:
In any kind of production process, we have to start with land. For
example, in industries, it helps to provide raw materials and other needed things
for production.

 Land is Passive factor of Production:

28
 This is because it cannot produce anything by itself. For example, wheat
cannot grow on a piece of land automatically. To grow wheat, man has to
cultivate land.
 Land is immovable:
It cannot be transported from one place to another. For instance, no
portion of Philippines’ surface can be transported to some other country.
 Land has some Original Indestructible Powers:
There are some original and indestructible powers of land, which man
cannot destroy. Its fertility may be varied but it cannot be destroyed completely.
 Land Differs in fertility:
Fertility of land differs on different pieces of land. One piece of land may
produce more and the other less.
 Supply of Land is Inelastic:
The demand for a particular commodity makes way for the supply of that
commodity, but the supply of land cannot be increased or decreased according
to its demand.
 Land has Many Uses:
On land, cultivation can be done, factories can be set up, roads can be
constructed, buildings can be raised and shipping is possible in the sea and big
rivers.

Land Productivity
Land productivity is a continuous variable, which represents land cover through
vegetation density and vigor. Land productivity can indicate the lands ability to support
and sustain life and is useful for identifying land degradation. A common measure of land
productivity is derived from the time series of the Normalized Difference Vegetation
Index (NDVI), which is greenness index obtained from satellite reflectance of the land.

Factors Affecting Land Productivity

 Qualities of Land:
The productivity of land depends on its natural qualities. If the land is flat
and levelled, it will be more productive than an undulating land similarly land in a
hilly area is more productive than a land in the desert. Its productivity also
depends on the soil and climatic conditions.
 Means of Irrigation:
The means of irrigation also affect the productivity of land. Lands which
depend on the means of irrigation like canals, tube-wells, tanks, etc. are more
productive than those which depends on rainfall.
 Situation of Land:
The productivity of land is determined bit its situation. A land situated
near the market is more productive than a land located in a remote area. This is
because it requires less time and money to transport the product to the market.
 Proper Use of Land:
The productivity of land depends directly on its proper utilization. Black
soil is fit for the cultivation of cotton. But if it is used for the production of rice,
its productivity will be low.
 Improvements of Land:
If improvements like hedging, consolidation of land holdings, irrigation
channels, etc. are made on land, its productivity increases.
 Improved Methods of Cultivation:
The productivity of land directly depends on the efficiency of labor. If
labor is efficient in sowing seeds, watering plants, spraying pesticides, cutting
crops, etc. at the right time, the productivity of land will increase.

29
  Ownership of Land:
If the land is owned by the cultivator, he will take personal interest to
increase the productivity of land. On the other hand, if land belongs to a landlord,
the cultivators are hired laborers who do not take personal interest.
 Government Policy:
Agricultural policy of the government also affects the productivity of land.
If the government passes laws to pass the ownership of the land to the cultivators,
to consolidate holdings, to regulate land rents, to abolish intermediaries, etc., the
productivity of land will increase. Similarly, land productivity increases if the
government encourages research in agriculture and provides credit facilities to
agriculturists.

Ways to Increase Agricultural Productivity

In general for crop production:
1. Improve soil health (drainage, organic matter, compaction, soil-life cycle, etc.)
2. Fertilize the ground for the crop according to requirements.
3. Utilize high performing seed hybrids.
4. Control as much of the environment as feasible (can you irrigate
economically).
5. Control weeds.
6. Control other pests (fungi, disease, insects, etc.).
7. Plant and harvest at optimal intervals.
Also, Agricultural productivity can be increased through:
1. Use of good variety of seeds and planting material.
2. Use of micro irrigation practices which saves water and also increases
agriculture productivity.
3. Use of plant protection measures to protect plants and produce from insect
pests as well as foraging animals.

Activity 4
Kindly list the tools which can be used to measure land productivity and state how it
works. Write your answer in 1 whole sheet of paper or in 1 long bond paper.

ASSESSMENT

Originality 20%
Content 50%
Organization 30%
TOTAL 100%

30
 LESSON 4
Quality Tools

TOPICS
1. The Strategic Role of Quality
2. The Role of Inspection in Quality Control
3. Ways to Improve Quality of the Organization
4. The cost of Quality
 Prevention
 Detection
 Internal & External Failure
 Calculations of Quality in the Organization.
5. The Quality tools

LEARNING OUTCOMES
At the end of the lesson, you should be able to:
1. identify and discuss the Roles of quality strategically to the operation
of the organization;
2. discuss the role of inspection in Quality Control;
3. compute for the quality within the organization;
4. identify and discuss the quality tools to improve the quality in the
organization; and
5. discuss and explain the cost of quality in terms of prevention, detection
or appraisal and failure.

TOPIC 1: LABOR PRODUCTIVITY

Defining Quality

The operations manager’s objective is to

build a total quality management system that
identifies and satisfies customer needs. Total quality
management takes care of the customer.
Consequently, we accept the definition of quality as
adopted by the American Society for Quality (ASQ;
www.asq.org): “The totality of features and
characteristics of a product or service that bears on its
ability to satisfy stated or implied needs.” Others,
however, believe that definitions of quality fall into several categories. Some definitions
are user based . They propose that quality “lies in the eyes of the beholder.” Marketing
people like this approach and so do customers. To them, higher quality means better
performance, nicer features, and other (sometimes costly) improvements. To production
managers, quality is manufacturing based. They believe that quality means conforming to
standards and “making it right the first time.” Yet a third approach is product based,
which views quality as a precise and measurable variable. In this view, for example,
really good ice cream has high butterfat levels. While, according to Market Business

31
news (2020), quality refers to how good something is compared to other similar
things in other words, its degree of excellence.
This text develops approaches and techniques to address all three categories of
quality. The characteristics that connote quality must first be identified through research
(a user-based approach to quality). These characteristics are then translated into specific
product attributes (a product-based approach to quality). Then, the manufacturing process
is organized to ensure that products are made precisely to specifications (a
manufacturing-based approach to quality). A process that ignores any one of these steps
will not result in a quality product.

TOPIC 1: STRATEGIC ROLE OF QUALITY

In addition to being a critical element in operations, quality has other

implications. Here are three other reasons why quality is important:
1. Company reputation: An organization can expect its reputation for quality—
be it good or bad—to follow it. Quality will show up in perceptions about the firm’s new
products, employment practices, and supplier relations. Self-promotion is not a substitute
for quality products.
2. Product liability: The courts increasingly hold organizations that design,
produce, or distribute faulty products or services liable for damages or injuries resulting
from their use. Legislation such as the Consumer Product Safety Act sets and enforces
product standards by banning products that do not reach those standards. Impure foods
that cause illness, nightgowns that burn, tires that fall apart, or auto fuel tanks that
explode on impact can all lead to huge legal expenses, large settlements or losses, and
terrible publicity.
3. Global implications: In this technological age, quality is an international, as
well as OM, concern. For both a company and a country to compete effectively in the
global economy, products must meet global quality, design, and price expectations.
Inferior products harm a firm’s profitability and a nation’s balance of payments.

Malcolm Baldrige National Quality Award

The global implications of quality are so important that the U.S. has established
the Malcolm Baldrige National Quality Award for quality achievement. The award is
named for former Secretary of Commerce Malcolm Baldrige. Winners include such firms
as Motorola, Milliken, Xerox, FedEx, Ritz-Carlton Hotels, AT&T, Cadillac, and Texas
Instruments. (For details about the Baldrige Award and its 1,000-point scoring system,
visit www.nist.gov/baldrige/) The Japanese have a similar award, the Deming Prize,
named after an American, Dr. W. Edwards Deming.

ISO 9000 International Quality Standards

The move toward global supply chains has placed so much emphasis on quality
that the world has united around a single quality standard, ISO 9000. ISO 9000 is the
quality standard with international recognition. Its focus is to enhance success through
eight quality management principles: (1) top management leadership, (2) customer
satisfaction, (3) continual improvement, (4) involvement of people, (5) process analysis,
(6) use of data-driven decision making, (7) a systems approach to management, and (8)
mutually beneficial supplier relationships. The ISO standard encourages establishment of
quality management procedures, detailed documentation, work instructions, and
recordkeeping. Like the Baldrige Awards, the assessment includes self-appraisal and
problem identification. Unlike the Baldrige, ISO certified organizations must be re-
audited every three years. The latest modification of the standard, ISO 9001: 2015,
follows a structure that makes it more compatible with other management systems. This

32
version gives greater emphasis to risk based thinking, attempting to prevent undesirable
outcomes. Over one million certifications have been awarded to firms in 206 countries,
including about 30,000 in the U.S. To do business globally, it is critical for a firm to be
certified and listed in the ISO directory.

TOPIC 2: THE ROLE OF INSPECTION IN QUALITY CONTROL

The Role of Inspection
To make sure a system is producing as expected, control of the process is
needed. The best processes have little variation from the standard expected. In fact, if
variation were completely eliminated, there would be no need for inspection because
there would be no defects. The operations manager’s challenge is to build such systems.
However, inspection must often be performed to ensure that processes are performing to
standard. This inspection can
involve measurement, tasting,
touching, weighing, or testing of
the product (sometimes even
destroying it when doing so). Its
goal is to detect a bad process
immediately. Inspection does not
correct deficiencies in the system
or defects in the products, nor does
it change a product or increase its
value. Inspection only finds
deficiencies and defects. Moreover,
inspections are expensive and do
not add value to the product. Inspection should be thought of as a vehicle for improving
the system. Operations managers need to know critical points in the system:
(1) when to inspect and
(2) where to inspect.

When and Where to Inspect

Deciding when and where to inspect depends on the type of process and the
value added at each stage. Inspections can take place at any of the following points:
1. At your supplier’s plant while the supplier is producing.
2. At your facility upon receipt of goods from your supplier.
3. Before costly or irreversible processes.
4. During the step-by-step production process.
5. When production or service is complete.
6. Before delivery to your customer.
7. At the point of customer contact.
The Inspection Process

Inspection lot Results Defects Inspection lot

creation recording recording completion

33
The functional capability is used to constantly check the quality of the company’s
products. Therefore the inspection plans and characteristics are used. The inspection
process is mainly consist of the following four steps: (ERPVIDEOS, 2015)

1. Inspection lot creation. All quality inspections are based on inspection lots.
These can be triggered manually or automatically (e.g. at goods receipt from a
purchase order, at goods issue of a component, at a certain operation during
production, etc.). The lot contain specific information about the inspection size
(e.g. based on the sampling procedure). Inspection characteristics and methods
from the inspection plan or material specifications.
2. Results recording. After inspecting the products, the quantitative (e.g.
width/height of a product) and/or qualitative (e.g. color of the product) results of
the predefined characteristics can be directly recorded in the inspection lot.
3. Defects Recording. Defects can be recorded additional to the results recording.
These defects are also referenced to an inspection lot and contain information
about any attribute of a material/product/process that deviates from the defined
characteristics. The defect recording can be based on standardized codes that can
be taken from the predefined inspection catalogs.
4. Inspection lot completion. A completion of the inspection lot is necessary after
results recording to finally decide about the usage of a material. Depending on the
usage decision, stock postings are performed (e.g. to unrestricted use stock,
blocked stock, scrap, etc.). The usage decision also influences the quality level
and the quality score of a material or inspection lot.

Source Inspection
The best inspection can be thought of as no inspection at all; this
“inspection” is always done at the source—it is just doing the job properly with the
operator ensuring that this is so. This may be called source inspection (or source control)
and is consistent with the concept of employee empowerment, where individual
employees self-check their own work. The idea is that each supplier, process, and
employee treats the next step in the process as the customer, ensuring perfect product to
the next “customer.” This inspection may be assisted by the use of checklists and controls
such as a fail-safe device called a poka-yoke, a name borrowed from the Japanese.
A poka-yoke is a foolproof device or technique that ensures production of
good units every time. These special devices avoid errors and provide quick feedback of
problems. A simple example of a poka-yoke device is the diesel gas pump nozzle that
will not fit into the “unleaded” gas tank opening on your car. In McDonald’s, the french
fry scoop and standard-size container used to measure the correct quantity are poka-
yokes. Similarly, in a hospital, the prepackaged surgical coverings that contain exactly
the items needed for a medical procedure are poka-yokes.
Checklists are a type of poka-yoke to help ensure consistency and
completeness in carrying out a task. A basic example is a to-do list. This tool may take
the form of preflight checklists used by airplane pilots, surgical safety checklists used by
doctors, or software quality assurance lists used by programmers. The OM in Action box
“Safe Patients, Smart Hospitals” illustrates the important role checklists have in hospital
quality.
The idea of source inspection, poka-yokes, and checklists is to guarantee
100% good product or service at each step of a process.

Service Industry Inspection

In service -oriented organizations, inspection points can be assigned at a wide
range of locations, as illustrated in the table below. Again, the operations manager must

34
decide where inspections are justified and may find the seven tools of TQM useful when
making these judgments.

Inspection of Attributes versus Variables

When inspections take place, quality characteristics may be measured as
either attributes or variables. Attribute inspection classifies items as being either good or
defective. It does not address the degree of failure. For example, the lightbulb burns or it
does not. Variable inspection measures such dimensions as weight, speed, size, or
strength to see if an item falls within an acceptable range. If a piece of electrical wire is
supposed to be 0.01 inch in diameter, a micrometer can be used to see if the product is
close enough to pass inspection. Knowing whether attributes or variables are being
inspected help us decide which statistical quality control approach to take.

TOPIC 3: WAYS TO IMPROVE QUALITY OF THE ORGANIZATION

Total quality management (TQM) refers to a quality emphasis that

encompasses the entire organization, from supplier to customer. TQM stresses a
commitment by management to have a continuing companywide drive toward excellence
in all aspects of products and services that are important to the customer. Each of the 10
decisions made by operations manager deals with some aspect of identifying and meeting
customer expectations. Meeting those expectations requires an emphasis on TQM if a
firm is to compete as a leader in world markets. Quality expert W. Edwards Deming used
14 points to indicate how he implemented TQM. We develop these into seven concepts
for an effective TQM program:
(1) continuous improvement,
(2) Six Sigma,
(3) employee empowerment,
(4) benchmarking,
(5) just-in-time (JIT),
(6) Taguchi concepts, and
(7) knowledge of TQM tools.

35
 Deming’s 14 Points for Implementing Quality Improvement

Continuous Improvement
Total quality management requires a never-ending process of continuous
improvement that covers people, equipment, suppliers, materials, and procedures. The
basis of the philosophy is that every aspect of an operation can be improved. The end
goal is perfection, which is never achieved but always sought.

Plan-Do-Check-Act
Walter Shewhart, another pioneer in quality management, developed a
circular model known as PDCA (plan, do, check, act) as his version of continuous
improvement. Deming later
took this concept to Japan
during his work there after
World War II. The PDCA
cycle (also called a Deming
circle or a Shewhart circle) is
shown in Figure as a circle to
stress the continuous nature of
the improvement process.
The Japanese use
the word kaizen to describe
this ongoing process of
unending improvement—the
setting and achieving of ever-higher goals. In the U.S., TQM and zero defects are also
used to describe continuous improvement efforts. But whether it’s PDCA, kaizen, TQM,
or zero defects, the operations manager is a key player in building a work culture that
endorses continuous improvement.

Six Sigma
The term Six Sigma, popularized by Motorola, Honeywell, and General
Electric, has two meanings in TQM. In a statistical sense, it describes a process, product,
or service with an extremely high capability (99.9997% accuracy). For example, if 1
million passengers pass through the St. Louis Airport with checked baggage each month,
a Six Sigma program for baggage handling will result in only 3.4 passengers with
misplaced luggage. The more common three-sigma program (which we address in the

36
supplement to this chapter) would result in 2,700 passengers with misplaced bags every
month. See the figure.
The second TQM definition of Six
Sigma is a program designed to reduce defects
to help lower costs, save time, and improve
customer satisfaction. Six Sigma is a
comprehensive system— a strategy, a
discipline, and a set of tools—for achieving and
sustaining business success:
◆ It is a strategy because it focuses on total
customer satisfaction.
◆ It is a discipline because it follows the formal
Six Sigma Improvement Model known as
DMAIC. This five-step process improvement model (1) Defines the project’s purpose,
scope, and outputs and then identifies the required process information, keeping in mind
the customer’s definition of quality; (2) Measures the process and collects data; (3)
Analyzes the data, ensuring repeatability (the results can be duplicated) and
reproducibility (others get the same result); (4) Improves, by modifying or redesigning,
existing processes and procedures; and (5) Controls the new process to make sure
performance levels are maintained.
◆ It is a set of seven tools that we introduce shortly in this chapter: check sheets, scatter
diagrams, cause-and-effect diagrams, Pareto charts, flowcharts, histograms, and statistical
process control.
Motorola developed Six Sigma in the 1980s, in response to customer
complaints about its products and in response to stiff competition. The company first set
a goal of reducing defects by 90%. Within one year, it had achieved such impressive
results—through benchmarking competitors, soliciting new ideas from employees,
changing reward plans, adding training, and revamping critical processes—that it
documented the procedures into what it called Six Sigma. Although the concept was
rooted in manufacturing, GE later expanded Six Sigma into services, including human
resources, sales, customer services, and financial/credit services. The concept of wiping
out defects turns out to be the same in both manufacturing and services.

Implementing Six Sigma

Implementing Six Sigma is a big commitment. Indeed, successful Six Sigma
programs in every firm, from GE to Motorola to DuPont to Texas Instruments, require a
major time commitment, especially from top management. These leaders have to
formulate the plan, communicate their buy-in and the firm’s objectives, and take a visible
role in setting the example for others. Successful Six Sigma projects are clearly related to
the strategic direction of a company. It is a management-directed, team-based, and
expert-led approach.

Employee Empowerment
Employee empowerment means involving employees in every step of the
production process. Consistently, research suggests that some 85% of quality problems
have to do with materials and processes, not with employee performance. Therefore, the
task is to design equipment and processes that produce the desired quality. This is best
done with a high degree of involvement by those who understand the shortcomings of the
system. Those dealing with the system on a daily basis understand it better than anyone
else. One study indicated that TQM programs that delegate responsibility for quality to
shop-floor employees tend to be twice as likely to succeed as those implemented with
“top-down” directives.

37
 When nonconformance occurs, the worker is seldom at fault. Either the
product was designed wrong, the process that makes the product was designed wrong, or
the employee was improperly trained. Although the employee may be able to help solve
the problem, the employee rarely causes it.
Techniques for building employee empowerment include (1) building
communication networks that include employees; (2) developing open, supportive
supervisors; (3) moving responsibility from both managers and staff to production
employees; (4) building high morale organizations; and (5) creating such formal
organization structures as teams and quality circles. Teams can be built to address a
variety of issues. One popular focus of teams is quality. Such teams are often known as
quality circles.
A quality circle is a group of employees who meet regularly to solve work-
related problems. The members receive training in group planning, problem solving, and
statistical quality control. They generally meet once a week (usually after work but
sometimes on company time). Although the members are not rewarded financially, they
do receive recognition from the firm. A specially trained team member, called the
facilitator, usually helps train the members and keeps the meetings running smoothly.
Teams with a quality focus have proven to be a cost-effective way to increase
productivity as well as quality.

Benchmarking
Benchmarking is another ingredient in an organization’s TQM program.
Benchmarking involves selecting a demonstrated standard of products, services, costs, or
practices that represent the very best performance for processes or activities very similar
to your own. The idea is to develop a target at which to shoot and then to develop a
standard or benchmark against which to compare your performance. The steps for
developing benchmarks are:
1. Determine what to benchmark.
2. Form a benchmark team.
3. Identify benchmarking partners.
4. Collect and analyze benchmarking information.
5. Take action to match or exceed the benchmark.
Typical performance measures used in benchmarking include percentage of
defects, cost per unit or per order, processing time per unit, service response time, return
on investment, customer satisfaction rates, and customer retention rates.
In the ideal situation, you find one or more similar organizations that are
leaders in the particular areas you want to study. Then you compare yourself (benchmark
yourself) against them. The company need not be in your industry. Indeed, to establish
world-class standards, it may be best to look outside your industry. If one industry has
learned how to compete via rapid product development while yours has not, it does no
good to study your industry.
This is exactly what Xerox and Mercedes-Benz did when they went to L.L.
Bean for order filling and warehousing benchmarks. Xerox noticed that L.L. Bean was
able to “pick” orders three times faster. After benchmarking, Xerox was immediately able
to pare warehouse costs by 10%. Mercedes-Benz observed that L.L. Bean warehouse
employees used flowcharts to spot wasted motions. The auto giant followed suit and now
relies more on problem solving at the worker level.
Benchmarks often take the form of “best practices” found in other firms or in
other divisions. Table below illustrates best practices for resolving customer complaints.

38
Internal Benchmarking. When an organization is large enough to have many divisions or
business units, a natural approach is the internal benchmark. Data are usually much more
accessible than from outside firms. Typically, one internal unit has superior performance
worth learning from.
Benchmarks can and should be established in a variety of areas. Total quality
management requires no less.

Just-in-Time (JIT)
The philosophy behind just-in-time (JIT) is one of continuing improvement
and enforced problem solving. JIT systems are designed to produce or deliver goods just
as they are needed. JIT is related to quality in three ways:
◆ JIT cuts the cost of quality: This occurs because scrap, rework, inventory investment,
and damage costs are directly related to inventory on hand. Because there is less
inventory on hand with JIT, costs are lower. In addition, inventory hides bad quality,
whereas JIT immediately exposes bad quality.
◆ JIT improves quality: As JIT shrinks lead time, it keeps evidence of errors fresh and
limits the number of potential sources of error. JIT creates, in effect, an early warning
system for quality problems, both within the firm and with vendors.
◆ Better quality means less inventory and a better, easier-to-employ JIT system: Often
the purpose of keeping inventory is to protect against poor production performance
resulting from unreliable quality. If consistent quality exists, JIT allows firms to reduce
all the costs associated with inventory.

Taguchi Concepts
Most quality problems are the result of poor product and process design.
Genichi Taguchi has provided us with three concepts aimed at improving both product
and process quality: quality robustness, target-oriented quality, and the quality loss
function. Quality robust products are products that can be produced uniformly and
consistently in adverse manufacturing and environmental conditions. Taguchi’s idea is to
remove the effects of adverse conditions instead of removing the causes. Taguchi
suggests that removing the effects is often cheaper than removing the causes and more
effective in producing a robust product. In this way, small variations in materials and
process do not destroy product quality.
A study found that U.S. consumers preferred Sony TVs made in Japan to
Sony TVs made in the U.S., even though both factories used the exact same designs and
specifications. The difference in approaches to quality generated the difference in
consumer preferences. In particular, the U.S. factory was conformance-oriented,
accepting all components that were produced within specification limits. On the other
hand, the Japanese factory strove to produce as many components as close to the actual
target as possible (see the figure below).
This suggests that even though components made close to the boundaries of
the specification limits may technically be acceptable, they may still create problems. For

39
example, TV screens produced near their diameter’s lower spec limit may provide a loose
fit with screen frames produced near their upper spec limit, and vice versa. This implies
that a final product containing many parts produced near their specification boundaries
may contain numerous loose and tight fits, which could cause assembly, performance, or
aesthetic concerns. Customers may be dissatisfied, resulting in possible returns, service
work, or decreased future demand.
Taguchi introduced the concept of target-oriented quality as a philosophy of
continuous improvement
to bring the product
exactly on target. As a
measure, Taguchi’s
quality loss function
(QLF) attempts to
estimate the cost of
deviating from the target
value. Even though the
item is produced within
specification limits, the
variation in quality can be
expected to increase costs
as the item output moves
away from its target
value. (These quality-
related costs are estimates of the average cost over many such units produced.)
The QLF is an excellent way to estimate quality costs of different processes.
A process that produces closer to the actual target value may be more expensive, but it
may yield a more valuable product. The QLF is the tool that helps the manager determine
if this added cost is worthwhile. The QLF takes the general form of a simple quadratic
equation (see the figure below).

TOPIC 4: THE COST OF QUALITY

Cost of Quality
Four major categories of costs are associated with quality. Called the cost of
quality (COQ), they are:
◆ Prevention costs: costs associated with reducing the potential for defective parts or
services. Prevention costs are incurred to prevent or avoid quality problems. These costs
are associated with the design, implementation, and maintenance of the quality
management system. They are planned and incurred before actual operation, and they
could include:
 Product or service requirements: Establishment of specifications for incoming
materials, processes, finished products, and services
 Quality planning: Creation of plans for quality, reliability, operations, production,
and inspection
 Quality assurance: Creation and maintenance of the quality system
 Training: Development, preparation, and maintenance of programs
◆ Appraisal costs: costs related to evaluating products, processes, parts, and services.
Appraisal costs are associated with measuring and monitoring activities related to quality.
These costs are associated with the suppliers’ and customers’ evaluation of purchased
materials, processes, products, and services to ensure that they conform to specifications.
They could include:

40
  Verification: Checking of incoming material, process setup, and products against
agreed specifications;
 Quality audits: Confirmation that the quality system is functioning correctly; and
 Supplier rating: Assessment and approval of suppliers of products and services.
◆ Internal failure costs: costs that result from production of defective parts or services
before delivery to customers. Internal failure costs are incurred to remedy defects
discovered before the product or service is delivered to the customer. These costs occur
when the results of work fail to reach design quality standards and are detected before
they are transferred to the customer. They could include:
 Waste: Performance of unnecessary work or holding of stock as a result of errors,
poor organization, or communication;
 Scrap: Defective product or material that cannot be repaired, used, or sold;
 Rework or rectification: Correction of defective material or errors; and
 Failure analysis: Activity required to establish the causes of internal product or
service failure.
◆ External failure costs: costs that occur after delivery of defective parts or services.
External failure costs are incurred to remedy defects discovered by customers. These
costs occur when products or services that fail to reach design quality standards are not
detected until after transfer to the customer. They could include:
 Repairs and servicing: Of both returned products and those in the field;
 Warranty claims: Failed products that are replaced or services that are re-
performed under a guarantee;
 Complaints: All work and costs associated with handling and servicing
customers’ complaints; and
 Returns: Handling and investigation of rejected or recalled products, including
transport costs.

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 TOPIC 5: THE QUALITY TOOLS

Knowledge of TQM Tools

To empower employees and implement TQM as a continuing effort,
everyone in the organization must be trained in the techniques of TQM. In the following
section, we focus on some of the diverse and expanding tools that are used in the TQM
crusade.

Tools of TQM
Seven tools that are particularly helpful in the TQM effort are shown in the
Figure below. We will now introduce these tools.

Check Sheets
A check sheet is any kind of a form that is designed for recording data. In
many cases, the recording is done so the patterns are easily seen while the data are being
taken. Check sheets help analysts find the facts or patterns that may aid subsequent
analysis. An example might be a drawing that shows a tally of the areas where defects are
occurring or a check sheet showing the type of customer complaints.

Scatter Diagrams
Scatter diagrams show the relationship between two measurements. An
example is the positive relationship between length of a service call and the number of
trips a repair person makes back to the truck for parts. Another example might be a plot
of productivity and absenteeism, as shown in Figure above. If the two items are closely
related, the data points will form a tight band. If a random pattern results, the items are
unrelated.

Cause-and-Effect Diagrams
Another tool for identifying quality issues and inspection points is the cause-
and-effect diagram, also known as an Ishikawa diagram or a fish-bone chart. Each “bone”
represents a possible source of error.

42
 The operations manager starts with four categories: material,
machinery/equipment, manpower, and methods. These four M s are the “causes.” They
provide a good checklist for initial analysis. Individual causes associated with each
category are tied in as separate bones along that branch, often through a brainstorming
process. When a fish-bone chart is systematically developed, possible quality problems
and inspection points are highlighted.

Pareto Charts
Pareto charts are a method of organizing errors, problems, or defects to help
focus on problem solving efforts. They are based on the work of Vilfredo Pareto, a 19th-
century economist. Joseph M. Juran popularized Pareto’s work when he suggested that
80% of a firm’s problems are a result of only 20% of the causes. Example 1 indicates that
of the five types of complaints identified, the vast majority were of one type—poor room
service.

Pareto analysis indicates which problems may yield the greatest payoff.
Pacific Bell discovered this when it tried to find a way to reduce damage to buried phone
cable, the number-one cause of phone outages. Pareto analysis showed that 41% of cable
damage was caused by construction work. Armed with this information, Pacific Bell was
able to devise a plan to reduce cable cuts by 24% in one year, saving $6 million.
Likewise, Japan’s Ricoh Corp., a copier maker, used the Pareto principle to
tackle the “callback” problem. Callbacks meant the job was not done right the first time
and that a second visit, at Ricoh’s expense, was needed. Identifying and retraining only
the 11% of the customer engineers with the most callbacks resulted in a 19% drop in
return visits.

Flowcharts
Flowcharts graphically present a process or system using annotated boxes
and interconnected lines. They are a simple but great tool for trying to make sense of a

43
process or explain a process. Example 2 uses a flowchart to show the process of
completing an MRI at a hospital.

Histograms
Histograms show the range of values of a measurement and the frequency
with which each value occurs. They show the most frequently occurring readings as well
as the variations in the measurements. Descriptive statistics, such as the average and
standard deviation, may be calculated to describe the distribution. However, the data
should always be plotted so the shape of the distribution can be “seen.” A visual
presentation of the distribution may also provide insight into the cause of the variation.

Statistical Process Control (SPC)

Statistical process control (SPC) monitors standards, makes measurements,
and takes corrective action as a product or service is being produced. Samples of process
outputs are examined; if they are within acceptable limits, the process is permitted to
continue. If they fall outside certain specific ranges, the process is stopped and, typically,
the assignable cause located and removed.

Source: Orlando Sentinal

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 Control charts are graphic presentations of data over time that show upper
and lower limits for the process we want to control. Control charts are constructed in such
a way that new data can be quickly compared with past performance data. We take
samples of the process output and plot the average of each of these samples on a chart
that has the limits on it. The upper and lower limits in a control chart can be in units of
temperature, pressure, weight, length, and so on.

The New Seven Quality Tools

The seven new tools, listed in an order that moves from abstract analysis to
detailed planning, are:
1. Affinity Diagram;
2. Relations Diagram;
3. Tree Diagram;
4. Matrix Diagram;
5. Arrows Diagram;
6. Process Decision Program Chart;
7. Prioritization Matrix- Matrix Data Analysis

Benefits of Incorporating New Seven Q.C. Tools

1. Organize verbal data
2. Generate ideas
3. Improve planning
4. Eliminate errors and omissions
5. Explain problems intelligibly
6. Secure full cooperation between teams
7. Persuade powerfully
8. Enhanced Keys to Organizational Reform
9. Assess situations from various angles
10. Clarify the desired situation
11. Prioritize tasks effectively
12. Proceed systematically
13. Anticipate future events

45
 14. Change proactively
15. Get things right first time

The Affinity Diagram

It gathers large amounts of verbal data (ideas, opinions, issues); then
organizes the data into groups based on natural relationship; and Makes it feasible for
further analysis and to find a solution to the problem. Why use the Affinity Diagram? To
allow a team to creatively generate a large number of ideas/issues and then organize and
summarize natural groupings among them to understand the essence of a problem and
propose solutions.

Relations Diagrams
For Finding Solutions Strategies by Clarifying Relationships with Complex
Interrelated Causes. To allow a team to systematically identify, analyze, and classify the

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cause and effect relationships that exist among all critical issues. • Useful at planning
stage for obtaining perspective on overall situation. • Facilitates consensus among team •
Assists to develop and change people’s thinking • Enables priorities to be identified
accurately.

Tree Diagram
For Systematically Pursuing the Best Strategies for Attaining an Objective. Also,
 Develops a succession of strategies for achieving objectives
 Reveals methods to achieve the results.
 Also known as systematic diagrams or dendrograms.
Tree Diagrams Advantages are:
 Systematic and logical approach is less likely that items are omitted
 Facilitates agreement among team
 Are extremely convincing with strategies

Matrix Diagrams
For Clarifying Problems by “Thinking Multi dimensionally”. To allow a
team or individual to systematically identify, analyze, and rate the presence and strength
of relationships between two or more sets of information.
 Consists of a two-dimensional array to determine location and nature of problem

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 Discovers key ideas by relationships represented by the cells in matrix.
 Enable data on ideas based on extensive experience
 Clarifies relationships among different elements
 Makes overall structure of problem immediately obvious
 Combined from two to four types of diagrams, location of problem is clearer.

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Arrows Diagram
For Working Out Optimal Schedules and Controlling Them Effectively.
 Shows relationships among tasks needed to implement a plan
 Network technique using nodes for events and arrows for activities
 Allows overall task to viewed and potential snags to be identified before work
starts
 Leads to discovery of possible improvements
 Makes it easy to monitor progress of work
 Deals promptly with changes to plan  Improves communication among team

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Process Decisions Program Charts (PDPC)
PDPCs are used for planning the activities needed to solve problem when
information is incomplete or the situation is fluid and hard to forecast. Examples include
planning an R & D project, mapping out countermeasure against long-term chronic
problems, and planning a sales campaign. A PDPC consists of a series of steps linked in
sequence. Its goal is to depict the events and contingencies likely to occur when
progressing from a starting point to one or more final outcomes

-
Prioritization Matrix (Matrix Data Analysis)
 Technique quantifies and arranges data presented in Matrix
 Based solely on numerical data.
 Finds indicators that differentiate and attempt to clarify large amount of
information.
Prioritization Matrix is used by teams to narrow down options through a systematic
approach of comparing choices by selecting, weighting, and applying criteria.

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 Activity 1: Discussion Questions
Give a brief answer to the following questions. Write your answer in 1 whole sheet of
paper or 1 long bond paper.
1. Explain how improving quality can lead to reduced costs.
2. Which 3 of Deming’s 14 points do you think are most critical to the success of a
TQM program? Why?
3. How does fear in the workplace (and in the classroom) inhibit learning?
4. How can a university/college control the quality of its output (that is, its
graduates)?
5. Of the several points where inspection may be necessary, which apply especially
well to manufacturing?
6. Explain, in your own words, what is meant by source inspection?
7. Name several products that do not require high quality.
8. What roles do operations managers play in addressing the major aspects of service
quality?
ASSESSMENT
Numerical
Description
Score
The student elicits the correct ideas from the readings and
4 video, shows evidence of internalizing these, and
consistently contributes additional thoughts to the core idea.
The student not only elicits the correct ideas from the
3 readings and video but also shows evidence of internalizing
these.
The student is able to elicit the ideas and concepts from the
2 readings and videos and shows correct understanding of
these.
The student is able to elicit the ideas and concepts from the
1
readings and video but shows erroneous.
The student is unable to elicit the ideas and concepts from
0 the reading and video indicating that s/he has not read the
prescribed reading or watched the video.

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 Activity 2: A3 Report
Using the A3 Report Template, analyze the main problem of your chosen
organization and discuss the main components of the A3 Report including: (Use the A3
Report Simple located at the First Sheet of the excel file. Please disregard the A3 Report
Advanced Template at the second sheet). Write your answer in 1 whole sheet of paper or
in 1 long bond paper.
-Problem Description and Category
-Goal
-Expected Benefits
-Cause Analysis Summary
-Corrective Actions and Quick Wins
-Implementation
-Results Summary and Follow up Actions

ASSESSMENT
Originality 20%
Content 50%
Organization 30%
TOTAL 100%

Activity 3: Case Analysis

Case 1. A list of 16 issues that led to incorrect formulations in Tuncey Bayrak’s jam
manufacturing unit in New England is provided below: write your answer in 1-2 sheets of
paper or in 2 long bond papers.

**Create a fish bone diagram and categorize each of these issues correctly, using the
“four M s” method.

Case 2. Boston Electric Generators has been getting many complaints from its major
customer, Home Station, about the
quality of its shipments of home
generators. Daniel Shimshak, the plant
manager, is alarmed that a customer is
providing him with the only
information the company has on
shipment quality. He decides to collect
information on defective shipments
through a form he has asked his drivers
to complete on arrival at customers’ stores. The forms for the first 279 shipments have
been turned in. They show the following over the past 8 weeks:

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Even though Daniel increased his capacity by adding more workers to his normal
contingent of 30, he knew that for many weeks he exceeded his regular output of 30
shipments per week. A review of his turnover over the past 8 weeks shows the following:

a) Develop a scatter diagram using total number of shipments and number of defective
shipments. Does there appear to be any relationship?
b) Develop a scatter diagram using the variable “turnover” (number of new hires plus
number of terminations) and the number of defective shipments. Does the diagram depict
a relationship between the two variables?
c) Develop a Pareto chart for the type of defects that have occurred.

ASSESSMENT

Originality 20%
Content 50%
Organization 30%
TOTAL 100%

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REFERENCES:
Aichouni, M (ND). The New Seven Quality Tools. Retrieved December 18, 2020, from
http://www.uoh.edu.sa/facultymembers/en/M.AICHOUNI/Documents/ISE%20320
/Chapter08The%20New%20SevenTools%20for%20Management%20and%20Plan
ning.pdf
ASQ (2020). The Cost of Quality. Retrieved December 21, 2020, from
https://asq.org/quality-resources/cost-of
quality#:~:text=Cost%20of%20quality%20(COQ)%20is,from%20internal%20and
%20external%20failures.
Bartuševičienė, I. & Šakalytė, E. (2013). Organizational Assessment: Effectiveness vs.
Efficiency. Retrieved December 21, 2020, from http://stics.mruni.eu/wp-
content/uploads/2013/06/45-53.pdf
Dr. Tahir, S. (2020). Organizational performance: What it is and how to measure and
improve it. Retrieved December 22, 2020, from
https://www.ckju.net/en/organizational-performance-what-it-is-how-to-measure-
and-improve-it,
Evans, J. & Lindsay, W. (2016). Total Quality Management, 9 th Edition. Cengage
Learning Asia PTE. LTD.
Heizer, J. & Render, B. (2014). Operations Management: Sustainability and Supply
Chain Management, 11th Edition. Pearson Education South Asia PTE. LTD
HRSA (2011) PERFORMANCE MANAGEMENT AND MEASUREMENT. Retrieved
December 21, 2020, from
https://www.hrsa.gov/sites/default/files/quality/toolbox/508pdfs/performancemana
gementandmeasurement.pdf
International Labour Office (2015). People and Productivity. Retrieved December 22,
2020, from https://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/---
ifp_seed/documents/instructionalmaterial/wcms_436205.pdf
Mastering Strategic Managament (ND). Assessing Organizational Performance.
Retrieved December 20, 2020, from
https://opentextbc.ca/strategicmanagement/chapter/assessing-organizational-
performance/#figure2-7
MBN (2020). Quality. Retrieved December 21, 2020, from
https://marketbusinessnews.com/financial-glossary/quality/

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