MAF 635:MANAGEMENT ACCOUNTING AND

PERFORMANCE EVALUATION

TOTAL QUALITY MANAGEMENT (TQM) INCLUDING

QUALITY COST

Prepared By : Mohamad Amirul Hafiz Bin Roslan 2014411332

Sara Izzati Binti Sulaiman 2014861812
Aziera Binti Ahmad Azam 2014476256
Nur Fatin Amira Binti Jahawaludin 2014468732

Group : MAC 220 8D

Prepared To : Madam Siti Azrina Binti Adanan
 WHAT IS QUALITY ?
Quality can be defined at the degree to which a product meets
customers needs and expectations.

Quality of Design
The degree to which a products design specifications meet
customers expectations.

Quality of Conformance
The degree to which a product meets its formal design specifications
 The cost of quality
A cost of quality report should be prepared to indicate
the total cost to the organization of producing products
or services that do not conform with quality
requirements.

Four types of quality costs:

I. Prevention Costs
II. Appraisal Costs
III. Internal Failure Costs
IV. External Failure Costs
I. Prevention Costs
. Cost incurred to avoid producing poor quality goods or
services
. Poor quality is caused by the variability of the
production process or the complexity of the product
design

II. Appraisal Costs

. Cost incurred to detect poor quality goods or services
. To ensure that materials, products and services meet
quality conformance standards.
III. Internal Failure Costs
. Cost incurred on defective units before delivery to
customers.
. To allow reworked process been done to eliminate defect
before customer receive goods or services.

IV. External Failure Costs

.Cost incurred because the defective goods and services
are not detected until after delivery is made to
customer.
.To reduce the cost of warranty or costs of recalls after
customer receive goods or services.
 illustration
Lets assume Global
Fitness, another
manufacturer of fitness
equipment, is having
difficulty competing with
Life Fitness because it
doesnt have the
reputation for high quality
that Life Fitness enjoy. To
examine this issue,
management has
prepared the Cost of
Quality Report.
After analysing the costs of quality report, the CEO is
considering spending the following amounts on new quality
program:
 History of TQM

5/4/17
 Total Quality Management (TQM)

Management approach that centres on meeting customer

requirements by achieving continuous improvement in
products.
a management philosophy concerned with people and
work processes that focuses on customer satisfaction and
improves organizational performance.
A customer-oriented process of continuous improvement
that focuses on delivering products or services of
consistent high quality in a timely fashion.
 6 key features of TQM

Customer
driven
Organisation- Involves
wide empowerment

Continuous Process
improvement perspective

Supported by
a QMS
 Advantages of Disadvantages of
TQM TQM

Production Employee
disruption resistance

Helps in
checking non- Assures Quality is
productive better quality expensive
activities and performance
waste
 Using Six Sigma to Improve Quality

A business improvement methodology which uses a

structured approach involving rigorous data analysis and
a unique team based structure.
Uses two different process improvement methodologies:
i. Existing processes
ii. New products or process
The selection of project is prioritised according to
detailed estimates of their financial outcomes.
Use data collection and analysis for both process.
 Purpose of Six Sigma
Improve customer satisfaction
the purpose of Six Sigma is to measure and eliminate defects
in manufacturing and development. While some managers use
Six Sigma to increase efficiency, the most successful
companies rely on the system to reduce customer complaints
and product malfunctions.
Standardize business development

5/4/17
Case 1 : ISO9000 and TQM
for Business Excellence

Dr. Maruf Hasan, M M Ali and T H K Lam

The University of New South Wales, Sydney 2052, Australia.
 Introduction
The ISO 9000 standard series is now widely accepted as a
minimum standard for a quality system for companies (Marquardt,
1992)
As a quality assurance management model, ISO 9000 only
prescribes the minimum requirements of certification. The
company does not have to aim for excellence.
ISO 9000 was not TQM

This standard was considered by many to be stepping stone

towards TQM.
Suns (1999) international survey of 600 companies from 20
countries found that implementing ISO 9000 alone did not
contribute much to quality improvement, while a combination of
ISO 9000 and TQM contributed the most.
 CASE STUDY

Personal interviews A B C
were
conducted with a few
companies certified
to ISO 9000. Six of D E
the companies are
mentioned here :
F
 A specialist for stainless steel and aluminium fabrication and
respected worldwide for its pioneering work in the design,
development and manufacture of Recompression Chambers.
Established in 1973, Company A has built a reputation based on

Co. A superior design, quality and customer service. They have to date
manufactured over 140 Recompression Chamber Systems
distributed world-wide and also excel in their ongoing
maintenance of recompression chamber systems and logistic
support.
Outside the marine sphere projects include stainless steel and
aluminium pressure vessels, precision welding, stainless steel
tanks.
Specializes in material handling and lifting equipment. With
their cutting edge technology from around the world, they can

Co. B
provide a well-engineered and cost effective solution.
For more than 20 years, Company B has designed,
manufactured, supplied and serviced s wide range of material
handling, lifting and customized engineering equipment.
They design and manufacture material handling equipment in
compliance with ISO 9001.
 Company C is an ISO 9001 accredited company that
specializes in the design, manufacture and

Co. C importation of large/multi-screen video display, audio,

audio-visual, lighting control and AV control systems.

Produces speciality chemicals for paper, water

treatment in mining and other chemical products.

Co. D
The purpose of the program is to save money,
improve product and improve service.
The manufacturing plant has achieved certification to
ISO9001.
There are set objectives for TQM and monthly
meetings are held with customer satisfaction
 Produces pattern glass for shower screens, office partitioning
etc.
The plant is accredited to ISO9002.

Co. E Quality is defined by customer requirement. The purpose of

quality management is to use long term continuous
improvement.
ISO9002 does not guarantee business success or product
excellence.
It is recognised as a part of the whole package. The top
management commitment is identified by the CEO making
presentations to various
Produces aluminium andplants around based
magnesium the country aboutfor
chemicals visions
water
and missions.
treatment and for use in pharmaceutical industry.

Co. F
It has been actively involved in TQM for about five years. It is
accredited to ISO9002 that involves external and internal audit.
It is continuously pushing for improvement.
The company first went in for TQM and then went for ISO9000
three years later.
The long term plan is to keep keep up the continuous
improvement, improve the process and reduce waste.
The CEO is the one who is giving push to the whole process.
The following observations were made after the interview and
discussion with the companies.

1. Conformance to the requirements only should improve the ability of the company to
manage its activities.

2. In order to get the maximum benefits of the certification, further steps must be
taken. TQM is one of the most useful steps found.

3. More training and explanation were required to implement the ISO together with
TQM. It takes time to implement ISO 9000 with TQM. It involves a change of
management attitude over many months.

4. To ensure continued business success, every company should have processes in

place to constantly monitor and update its knowledge of its customer wants, needs
and level of satisfaction.

5. ISO certification is not the end, it is only the start of the companys quality journey.
 Conclusion
It is clear that both approaches tend to complement each other.

ISO 9000 can be implemented first to create stability and

consistency in the organisations work,

then the implementation of TQM can enhance employee

motivation and operational efficiency, and achieve overall
organizational success and performance.

Researchers found that companies that implement ISO9000 and

TQM at the same time and in an integrated manner might expect
to have advantages in product quality, delivery, productivity and
customer satisfaction.
Case 2: TQM Implementation in
Textile Manufacturing Industry to
Success

Salman Khalid (Corresponding Author)

The University of Faisalabad, Faisalabad-37610, Pakistan

Muhammad Zohaib Irshad

The Government College University Faisalabad, Faisalabad, Pakistan

Babak Mahmood
University of Sargodha, Sargodha, Pakistan
 The purpose of this study is to look at the various TQM
implementation issues particularly in SMEs.

Characteristics of SMEs

According to MacGregor (2004) SMEs characteristics are unique

and different from large organizations, for example policy making,
business structure, utilization of resources and procedures.

SME organizations have flat structure with few management

levels, flexible and informal dynamic strategies (McAdam, 2000).

SMEs are recognized as having shortage of skills among working

staff, and has been argued a deficit in management expertise
(Huang & Brown, 1999).
 Implementation of TQM in the SME business

Moreno-Luzon (1993) reported that small firms lagging behind

large firms in the application of TQM. However, successful small
firms place more emphasis on product and process innovation,
investing more in new producing technology, and have highly
motivated management team with better managerial aptitude.

Zetiel et al., (1994) found on a case study of small firms

experienced in implementing TQM. That firm used an
improvement approach that was very similar to the concept of
quality circles and gave examples of projects. Not surprisingly, all
these took place after ISO 9000 certification.
 Background of the case study -
IYT
The company studied was Ihsan Yousaf Textile (PVT) Ltd, located
in Faisalabad, Pakistan.

It is one of the leading manufacturers of textile finished goods.

Of the 225 employees working in company, 18 are of

staff/management level. Only 10 people are employed in quality
department
IYTs Organizational Structure

Chair
man

General Manager

Departmental manager: Grey Fabric Department, CAD CAM Studio

(Designing Studio), Laser Engraving/ Exposing, Bleaching Plant, Printing,
Quality Control department, Finishing, Panel Printing, Jigger Dyeing,
Continues Thermo-sole Dyeing, Calendaring, Raising Machines, Rolling
Department, Stitching Department, Research & Development Department.
 TQM Process Implementation
IYT
Main reason?
Top management had realized that it was necessary for business survival, and
demand of their customers.
The quality department manager also indicated that another motivating factor
was the positive results that were achieved from continuous improvement such
as scrape percentage, and customers demand.

Steps taken to implement TQM :

Training and education of staff, team development, quality committee to assure
the quality and developing business management systems.
Annual plan which sets out the agenda for improvement to achieve in upcoming
year.
Some of the achievements have been in area of workplace layout, and waste
reduction up to 12 percent.
 Outcomes from TQM practices
IYT
Intangible outcomes :
Employees realized the importance of quality improvement, to
feel pride in work, quality improvement became the part of
their organizational culture and improved communication.
Improved teamwork, they feel that everyone was important,
and everyone was acknowledged for his contribution.

Tangible outcomes :
The company has improved product or service quality, an
increase in number of employees in improved activities,
increased sales, and improved both customer and employees
satisfaction.
Problems and obstacles faced by IYT-TQM
implementation
1. Lack of human resources
This companys quality department with 10 employees has the overall responsibility for
quality assurance, product testing, ISO 9001, and dealing with customers feedback etc.

2. Lack of involvement form non-production functions:

Non-production areas such as marketing, purchasing, accounts and maintenance,
comprised of small percentage of total employees and do not justify being involved in
quality improvement activities.
A company must understand that everyone in organization have to contribute directly
or indirectly to achieve the quality of its product or service.

3. Achieve too much in a short time:

A company like IYT which is not always entirely satisfied with their current situation will
continually try to find and adopt new ways to enhance their business. This can be
perceived to be trying to do much.
Time is needed in order to integrate the appropriate quality principles and techniques
into the culture of the organization (Goetsch & Davis,1994).
 Conclusion
The review and the case study revealed there are two major problems
generally faced by most SMEs businesses on track of TQM.

The first is financial and the second is general resource constraints

such as time, manpower, technical and managerial expertise.

Obviously, the owner of SME cannot afford this approach due to its
adverse affect on their resource availability.

SME businesses must be presented with TQM approach which is

attractive to them in as sense it must not promise to improve or
change the everything, or to solve every problem but help them to
be better in short span of time with long term sustainability.
 Case 3:
Implementation of TQM Case Study -

Anca MADAR

Bulletin of the Transilvania University of Braov

Series V: Economic Sciences Vol. 8 (57) No. 1 - 2015
 British Airways overview
British Airways, founded in 1935, is the national airline of the
United Kingdom of Great Britain,

the operational headquarter being based in Waterside.

In 2010 British Airways and Iberia have merged and created

International Airlines Group.
To survive both short-term and long-term on global market,
where there is fierce competition between airlines, British
Airways had to focus on a variety of goals and objectives.

British Airways is considering four strategic objectives:

1. First airline customers top choices - to remain the first
choice when it comes to premium international flights,
cargo, economy or short flights.
2. Quality service - to provide the best service to passengers
on all routes and in all classes of aircrafts during flight and
to improve online services.
3. Global expansion - to continue to expand its list of
destinations, through partnerships with other airlines.
Implementation of total quality
management at British Airways

Main reason?
In 1987 when the company was privatized, the company
management believed that to be the best and to be a
world-class organization, they have to use the strategies
and processes that should create vision and inspire the
employees to gain their trust.

In order to be the best in this industry, the management

team of British Airways Technical Workshops (responsible
for the overhaul and the repair of aircraft components)
decided that they must win through teamwork, customer
satisfaction, profitability and reputation.
 Key steps to implement TQM - British
Airways
1. Conducting a study to diagnose the current position within the technical workshop and
reporting results.

2. Obtaining support and a full commitment to TQM concept from all levels of
management.

3. Educating staff according to the principles of TQM and facilitate necessary changes in
management style.

4. Changes in policies, procedures and work practices that would fit and would facilitate
new organizational culture required.

5. Starting the quality improvement process.

6. Reviewing progress made and fostering a sustained commitment from all levels of the
organization.
 Outcomes from TQM practices - British
Airways

Benefits began to appear Two years after the launch of

TQM at British Airways Technical Workshops.

There have been positive changes in measures of higher

level, which were used to report progress to the
directorate:
the proportion of components which are in good condition,
the number of units that are not in good condition in the
workshop,
the number of units produced per month.
 ContOutcomes from TQM practices -
British Airways
After implementation of TQM, British Airways continued to apply
total quality management on employees, the processes and
customers, and the result was successful.
 Conclusion

TQM program was characterized by customer focus, full participation,

process improvement and process management and planning.

TQM implementation process was a very long-term procedure.

Thus, in only two years of program implementation, benefits began to

appear (e.g. positive changes took place in the top-level measures).

The company also had to experience many changes made on TQM

program requirements and extensive market research that identified
customer expectations for the standards to be served by an
international airline known as British Airways.
 Total Quality
Management (TQM)
Practice in Honda
We have to aim for 120% product quality. If 99%
of the products we make are perfect, that would
seem like a pretty good record. However, the
customers who become the owners of the
remaining 1% will surely consider their products
100% defective. It is unacceptable that even one
customer in a thousand even one customer in
ten thousand should receive a defective
product. Thats why we have to aim for 120%.

Soichiro Honda (founder of Honda)

 Underlining the importance from the words of their founder, Honda
is taking new initiatives to reach high product quality standards in
order to meet or exceed the expectation of the customer.
By offering products founded on safety and offering a new level of
outstanding quality, Honda has strengthen customers trust.
Honda has developed a quality cycle that aim to improve their
quality at every stage from design, development, production, sales
and aftersales service.
In order to realize the basic principles of Respect for the
Individual and the Three Joys (the joy of buying, the joy of
selling, the joy of creating), Honda works in partnership with
dealers to increase customer satisfaction to allow them to
continue handling products with confidence at every stage, from
purchase to aftersales service, ensuring that a high level of
satisfaction is provided to customers at all times.
How Honda handle its quality?
To raised the quality of Honda brand products produced and sold
worldwide, Honda established a shared global
quality management system to ensure a 120% of global quality
product.
The Global Honda Quality Standard (G-HQS) established in April
2005 serves as the foundation of this:
* Based on ISO 9001 and ISO/TS 16949 criteria to which Honda
production facilities in Japan and around the world
* represents the accumulation of knowledge Honda has gathered in
producing quality products and preventing previous issues from
recurring
* designed to enhance the quality of Honda brand products
manufactured and sold worldwide
Hondas Quality Cycle
Quality Initiatives in Design / Development and
Production
1. Assuring quality through drawings
2. Assuring quality through production processes
3. Assuring part quality through supplier audits
4. Assuring long term reliability through meticulous
durability testing
5. Using Line End Testers (LETs) to inspect electronic
control
systems
Quality Initiatives in Sales and Service
Customer Relations Centre
* For the customer. Its mission is to handle inquiries from
Honda customers politely, clearly and quickly, delivering the
same high quality in Honda communications as is found in
Honda products.
Customer Satisfaction Survey
* In FY2016, Honda conducted a customer satisfaction survey
in 21 countries for customers who had received aftersales
service from a dealer in order to ascertain levels of customer
satisfaction in the service domain.
*efforts are being made to make improvements toward better
service quality by implementing a plan-do-check-act (PDCA)
cycle.
Improving Quality Based on Customer Feedback

Honda has established a Quality Centre to enhance the

functions of preventing quality issues and quickly
detecting and resolving quality issues when they occur
on a global scale.
Market quality enhancement system (automobiles)
Quality Innovation Center Tochigi
1. Operations at Quality Innovation Center Tochigi
 Analysis in partnership with overseas entities

Working with automotive production

plants
Quality Management Education
Handling of Quality Issues When They Occur
Quickly report the issue to government authorities in
accordance with individual countries regulations and
contact owners by means of direct mail from dealers or
by telephone to provide information about how they can
receive free repairs.
A Global Quality Committee is quickly convened in
accordance with Honda global rules
 Airbag Recall
In light of agreed upon revisions to the consent order
between the National Highway Traffic Safety
Administration (NHTSA) and Takata in May 2016, Honda
has decided to replace serially all Takata
ammoniumnitrate based driver and passenger front
airbag inflators that do not contain desiccant.
 Third Party Evaluation
Hondas design and development, production, and sales
and service departments are working together to win
the top ranking in the Initial Quality Study (IQS) for
automobiles conducted by J.D. Power, an independent
evaluation organization, as an indicator of customer
satisfaction, which constitutes the results of the quality
cycle