Chap 2 - Modern Business Environment

Question 1

What are the differences between erstwhile suppliers market vs. Buyers market which is the norm of today’s transactions?

Answer 1

• Earlier the supplier or service provider dictated the dimensions of a transaction:
• Price - usually determined by a “cost plus” approach.
• Response time - determined by the supplier
• Quality - determined by the service/ product provider
• Performance - dictated to the customer

Differences when it comes to Buyer’s market:

Globalization of the world economy.
▪ Fierce competition among organizations within and across countries.
▪ Global excess capacities in production, services, and in some areas of development.
▪ Using new managerial methods.
▪ Availability and accessibility of data and knowledge.
▪ Timely availability of materials and services.
▪ Ease of global travel and transportation.

Question 2

What are certain authoritarian views held with respect to cost of quality till today?

Answer 2

• Higher quality means higher cost - Quality attributes such as performance and features cost more in terms of labour, material, design, and other costly resources. The additional benefits which are gained from improved quality do not compensate for the additional expenses.
• The resultant savings are greater than the cost of improving quality - The savings result from less rework, scrap, and other direct expenses related to defects. Japanese firms made continuous improvements using this philosophy.
• Quality costs are those incurred in excess of those that would have been incurred if product was built or service performed exactly right the first time - While computing the quality cost not only direct cost are included, but also loss in market share, and many hidden costs and foregone opportunities not identified by modern cost accounting systems.

Question 3

What are the components of COQ, explain them in a brief as to what you understand about each and one of them?

Answer 3

• Prevention costs - They are planned and incurred before actual operation and are associated with the design, implementation, and maintenance of the quality management system. Prevention costs try to keep failure and appraisal cost to a minimum.
• Appraisal Costs - These are costs associated with measuring and monitoring activities related to quality. Appraisal Cost incurred to determine the degree of conformance to quality requirements (measuring, evaluating or auditing). They are associated with the supplier’s and customer’s evaluation of purchased materials, processes, products and services to ensure that they are as per the specifications
• Internal Failure costs - These are costs that are caused by products or services not conforming to requirements or customer/user needs and are found before delivery of products and services to external customers. Deficiencies are caused both by errors in products and inefficiencies in processes.
• External Failure Costs - After the product or service is delivered and then the defects is found then it is an external failure. Further external failure costs are costs that are caused by deficiencies found after delivery of products and services to external customers, which lead to customer dissatisfaction.

Question 4

Sample requirement in problem and what is it that they are asking you to compute actually?

Statement in the Problem: After implementation, ANALYSE the maximum rejection rate beyond which the proposal ceases to be beneficial?

Answer 4

The problem is asking us to compute the Break even point and we need to create an equation here and solve it accordingly.

Question 5

What is the concept of optimal COQ and striving for zero defects, a healthy practice for the company to follow on?

Answer 5

• It is generally accepted that an increased expenditure in prevention and appraisal is likely to result in a substantial reduction in failure costs. Because of the trade off, there may be an optimum operating level in which the combined costs are at a minimum.
• Hence it is further argued that striving for zero defects through a program of continuous improvements is not good for the economic interest of the company.

Question 6

Sample requirement in problem and what is it that they are asking you to compute or answer actually?

Requirement 1 - EXAMINE the new quality control proposal and recommend the acceptance or otherwise of the proposal both from financial and non-financial perspectives.

Requirement 2 SUGGEST a suitable quality control level at a minimum cost.

Answer 6

1. The company is bleeding due to the cost of cost of Non conformance and hence a quality control proposal is brought in. The non financial considerations are - Better quality can yield further sales. Therefore, an increase in spending on quality measures is justified since it not only yields significant improvements to quality but also brings in more sales orders.
2. The company should focus on preventing the error such that it ensures that product is of good quality when it reaches the customer at the very first instance.
3. Requirement 2 - At a level of 0% defects, cost of non-conformance should be nil but these will increase as the accepted level of defects rises. There should therefore be an acceptable level of defects at which the total costs of quality are at a minimum.

Question 7

What are the important steps in application of the PAF model?

Answer 7

Question 8

What is an Iceberg model for determining the hidden cost of quality?

Answer 8

Only a minority of the costs of poor and good quality is obvious – appear above the surface of the water. The reduction of cost under water has a huge scope. If we identify and improve these costs, the costs of doing business will significantly reduce.

Question 9

What is the definition of total quality management as per CIMA?

Answer 9

• CIMA defines ‘Total Quality Management’ as “Integrated and comprehensive system of planning and controlling all business functions so that products or services are produced which meet or exceed customer expectations.
• TQM is a philosophy of business behavior, embracing principles such as employee involvement, continuous improvement at all levels and customer focus, as well as being a collection of related techniques aimed at improving quality such as full documentation of activities, clear goal-setting and performance measurement from the customer perspective.”

Question 10

What is the overall objectives in small points of a TQM system? as in what points is it trying to hit in this regards?

Answer 10

TQM requires that the company maintain this quality standard in all aspects of its business. This requires ensuring that things are done right the first time and that defects and waste are eliminated from operations. TQM is a comprehensive management system which:

▪ Focuses on meeting owner’s/ customer’s needs, by providing quality services at a reasonable cost.
▪ Focuses on continuous improvement.
▪ Recognizes role of everyone in the organization.
▪ Views organization as an internal system with a common aim.
▪ Focuses on the way tasks are accomplished.
▪ Emphasizes teamwork.

Question 11

Name the 6 C’s in relation to the TQM Methodology?

Answer 11

• Commitment: If a TQM culture is to be developed, so that quality improvement becomes a normal part of everyone’s job, a clear commitment, from the top must be provided. Such expectations must be made clear, together with the support and training necessary to their achievement.
• Culture: Training lies at the center of effecting a change in culture and attitudes. This must be changed to encourage individual contributions and to make ‘quality’ a normal part of everyone’s job.
• Continuous Improvement: Recognition that TQM is a ‘process’ not a ‘programme’ necessitates that we are committed in the long term to the never-ending search for ways to do the job better. There will always be room for improvement, however small.
• Co-operation: The application of Total Employee Involvement (TEI) principles is paramount. The on-the-job experience of all employees must be fully utilised and their involvement and co-operation sought in the development of improvement strategies and associated performance measures.
• Customer Focus: The needs of the customer are the major driving thrust; not just the external customer (in receipt of the final product or service) but the internal customer’s (colleagues who receive and supply goods, services or information).
• Control: Documentation, procedures and awareness of current best practice are essential if TQM implementation is to function appropriately. Unless procedures are in place improvements cannot be monitored and measured nor deficiencies corrected.

Question 12

What is the Deming’s 14 point methodology for improving quality in an organization?

Answer 12

Deming pointed out that only 15 percent of quality problems are actually due to worker error. The remaining 85 percent are caused by processes and systems, including poor management.

1. “Create constancy of purpose towards improvement”.
2. “Adopt the new philosophy -management should actually adopt his philosophy, rather than merely expect the workforce to do so.
3. “Cease dependence on inspection”
4. “Move towards a single supplier for any one item.
5. Improve constantly and forever
6. “Institute training on the job
7. Institute leadership - Deming makes a distinction between leadership and mere supervision
8. Drive out fear - since it is a counter productive measure in the long term.
9. “Break down barriers between departments
10. Eliminate slogans - Harassing the workforce without improving the processes they use is counter-productive.
11. Eliminate management by objectives
12. Remove barriers to pride of workmanship
13. Institute education and self-improvement”.
14. The transformation is everyone’s job”.

Question 13

What is the PDCA in the total quality management which is also called as Deming’s wheel for quality improvement in the organization?

Answer 13

The circular nature of this cycle shows that continuous improvement is a never-ending process.

Question 14

What are certain criticism’s to the total quality management principle?

Answer 14

▪ the focus on documentation of process and ill-measurable outcomes;
▪ the emphasis on quality assurance rather than improvement; and
▪ an internal focus which is at odds with the alleged customer orientation.

Albrecht suggest that TQM may not be appropriate for service based industries, because the standards-based approach of ‘industry best practice’ ignores the culture of organisations. He recommends a move towards TQS (total quality service), which is more customer oriented and creates an environment to promote enthusiasm and commitment.

Question 15

Name certain companies that have portrayed the commitment to total quality management and the awards won by them?

Answer 15

At Tata Steel’s European operations, Continuous Improvement activities are focused on providing Business Units with the ability to drive business through Lean Management, a common strategy deployment process, training of CI coaches and knowledge sharing through operations.

NatSteel maintains a systematic approach towards improving productivity and enhancing quality while reducing cost at the same time. The Singapore operations concentrated on yield improvement, reduction in power consumption and a significant bottom line benefit.

World-class organizations such as General Electric and Motorola attribute their success to having one of the best quality management programs in the world.

Both GE and Motorola have had a primary goal to achieve total customer satisfaction. To this end, the efforts of these organizations have included eliminating almost all defects from products, processes, and transactions

Question 16

Recall the adjustments by reading the problem fully and visualize the steps it took to solve the problem.

Answer 16

• SSR Book Problems - 1 to 6 problem.
• Gurukripa Book problem - 1,3 and 5

Question 17

What are the scenarios in which quality becomes a compulsion rather than a choice of the entity concerned?

Answer 17

• Where environmental issues are involved(Emission standards for automobiles)
• Where public safety is involved(Children safety in the above problem.
• Action has a negative impact on the society(Publishing unresearched information or disturbing of social peace)

Question 18

What is the essence of the approach to be developed under the business excellence model?

Answer 18

• Business Excellence (BE) is a philosophy for developing and strengthening the management systems and processes of an organization to improve performance and create value for stakeholders.
• The essence of this approach is to develop quality management principles that increase the overall efficiency of the operation, minimize waste in the production of goods and services, and help to increase employee loyalty as a means of maintaining high standards throughout the business by achieving excellence in everything that an organization does (including leadership, strategy, customer focus, information management, people, and processes).

Question 19

what are different models under the Business excellence criteria?

Answer 19

▪ EFQM Excellence Model
▪ Baldrige Criteria for Performance Excellence
▪ Singapore BE Framework
▪ Japan Quality Award Model
▪ Australian Business Excellence Framework

Question 20

What is an EQFM model? and what are it’s various components?

Answer 20

• The EFQM model is a practical, non -prescriptive tool that enables organizations to understand the cause and effect relationships between what their organization does and the results it achieves. The EFQM model presents set of three integrated components:
  ▪ The Fundamental, concepts of excellence
  ▪ The Criteria, conceptual framework
  ▪ The RADAR, logic assessment framework

Question 21

What are the fundamental concepts of excellence as per EQFM framework?

Answer 21

The fundamental Concepts of Excellence are the basic principles that describe the essential foundation for any organization to achieve sustainable excellence. These fundamental concepts can be seen in below figure:

Question 22

What is an EQFM Excellence model criteria?

Answer 22

• The EFQM Excellence Model is also a self-assessment model for an organization that wants to assess its level of excellence. It is based on nine criteria. There are five ‘Enablers’ and four ‘Results’. The ‘Enabler’ criteria cover what an organisation does. The ‘Results’ criteria cover what an organisation achieves. ‘Results’ are caused by ‘Enablers’.
• Each criterion consists of a number of sub-criterion, including the elements that need to be considered for the organization to achieve excellence in its business, and which are indicative of what can be considered good practice; these are further evaluated using the RADAR logic assessment framework.

Question 23

What is RADAR Logic assessment criteria?

Answer 23

• The last component is the RADAR (results-approaches-deploy-assess-refine) logic, which is a management and evaluation tool for analysing the performance of an organization
• It is used as an underlying basis of the scoring system of the EFQM Excellence Award and can help to lead changes and manage improvement projects.

Question 24

What is the framework for Baldrige Criteria for Performance Excellence?

Answer 24

This model provides the foundation for most of the business excellence models adopted around the world. The framework is build round the seven categories i.e.,
▪ Leadership,
▪ Strategic planning,
▪ Customer and market focus,
▪ Measurement analysis and knowledge management,
▪ Workforce,
▪ Process management and
▪ Business results.

Question 25

What is the concept of Optimized production technology as per the theory of constraints?

Answer 25

• OPT is based on the principle that profits are expanded by increasing the throughput of the plant. The OPT approach determines what prevents throughput being higher by distinguishing between bottleneck and non-bottleneck resources.
• This approach advocates that bottleneck resources/activities should be fully utilised while non-bottleneck resources/activities should not be utilized to 100% of their capacity since it would result in increase in inventory.

Question 26

What then should be the optimal measures to be followed under the concept of the TOC?

Answer 26

• Based on these three measures, the objectives of management can be expressed as increasing throughput, minimizing investment and decreasing operating expenses.

Question 27

What is the Goldratt’s Five step method for Improving performance?

Answer 27

• Identifying the System Bottlenecks
• Describe How to Exploit the Bottlenecks - it becomes the focus of attention since only the bottleneck can restrict or enhance the flow of products. It is therefore essential to ensure that the bottleneck activity is fully utilised. Decision regarding the optimum-mix of products to be produced by the bottleneck activity must be made.
• Subordinate Everything Else to the Decision in Step-2: This step requires that the optimum production of bottleneck activity should determine the production schedule of the non-bottleneck activities.
• Therefore, the workers of non-bottleneck machines should not be motivated to improve their productivity if the additional output cannot be processed by bottleneck machine. Producing more non-bottleneck output results in increase in WIP inventories and no increase in sales volume.
• Therefore, the preferred course of action is that bottleneck machine should setup pace for non-bottleneck machine.
• Elevate the System Bottlenecks or Increase Bottleneck Efficiency and Capacity: This might involve replacing a bottleneck machine with a faster one or providing additional training for a slow worker or changing of the design of the product to reduce the processing time required by a bottleneck activity.
• Repeat the Process as a New Constraint Emerges: Return to step 1 and repeat the process again.

Question 28

How does throughput accounting complement the theory of constraints and what is the formula for Throughput accounting ratio?

Answer 28

• accounting should monitor the rate at
  which businesses make money. With this important goal in mind, they focused on the return per
  product per bottleneck hour.
• They treated only direct material as variable and all labour and overhead costs as fixed.
• See Formula for TAR in Attached Image

Question 29

What are the various advantages and disadvantages of Following TOC/TA model?

Answer 29

TOC/TA-based approach as a direct costing approach may be more suitable for short term product mix decisions. This approach is clear than approaches that allocate indirect costs more or less arbitrarily (Boyd and Cox, 2002). On balance, it may be considered that TOC should not be ignored due to the comprehensibility of the approach. TOC is a tool and not a philosophy.

Question 30

What is the definition of Supply chain management as per GSCF framework? and what are the various supply chain processes as per the said framework?

Answer 30

The Global Supply Chain Forum (GSCF) defines Supply chain management as the “integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders”.

Supply Chain processes of the framework:

• Customer Relationship Management - Manage and analyse customer’s interaction and data throughout the life cycle.
• Supplier Relationship Management - how relationships with suppliers are developed and maintained.
• Customer Service Management - key points of contact for administering product and service agreements.
• Demand Management - for optimising the customer’s requirements with supply chain capabilities.
• Order Fulfilment - all activities necessary to define customer requirements, design the logistics network, and fill customer orders.
• Manufacturing Flow Management
• Product Development and Commercialization - provides the structure for developing and bringing to market new products jointly with customers and suppliers
• Returns Management - all activities related to returns, reverse logistics, gatekeeping, and avoidance.

Question 31

What are the differences between push model and Pull model in relation to the Supply chain management processes?

Answer 31

• Supply chain created through E-Commerce brings benefit to both customer and manufacturer. Thus, facilitating the companies to fulfil the customer needs, carry fewer inventories, and send products to market more quickly.
• Ultimately, customers have a direct voice in the functioning of the supply chain.

Question 32

What are the components of upstream supply chain management and a brief explanation as to what it tries to achieve?

Answer 32

• Relationship with Suppliers involves the following major components:
  1. Supplier Strategy: organization has to build up a set of strategies which in turn results in control over suppliers
• Sources - Location and availability of source
• Number of Suppliers - In the event the buying company wants to avail huge discount bulk purchase from single supplier is advisable.
• Cost, Quality, and Speed of Delivery
• Make or Buy and Outsourcing
• Use of Information Technology

1. E-Sourcing - E-Sourcing is the best possible way to find out the best supplier among others. This process reduces the cost, time and effort associated with the selection of supplier
2. E-Purchasing - Usage of technology has resulted in lesser time, lower cost & better result in product selection and ordering.(See features in 2.31)
3. E-Payment - After purchasing from the best possible supplier payment also takes place through electronic mode i.e. invoicing and fund transfer. E-Payment results in faster payment with zero error which is expected in manual form.

Question 33

What are the various components of Downstream SCM? and what are it’s various functions in brief?

Answer 33

Management of transactions with consumers or customers are termed as downstream supply chain management.

Question 34

What is the concept of relationship marketing in downstream SCM?

Answer 34

• The Relationship marketing helps the organization to keep existing customer and to attract new customers through helpful staff, quality service / product, appropriate prices and proper customer care etc.
• What are the various components of the Six markets model:

1. Internal Markets - Internal markets include internal departments and staff. Staff have the ability to determine customer oriented corporate culture.
2. Referral Markets - existing customers who recommend their suppliers to others and referral sources such as a consultancy firm that may refer work to a law firm.
3. Influence Markets - ability to influence the marketing environment of a firm may include financial analysts, shareholders, the business press, the government, and consumer groups
4. Recruitment’s Markets- Firms have to manage its relationships with recruitment markets such as commercial recruitment agencies, universities and institutes in order to have access to potential employees who possess the required skills for the job position.
5. Supplier’s Markets - traditional suppliers as well as organizations with which the firm has some form of strategic alliance to gain benefits such as better quality, faster reach-to-market, original and creative products, and lower levels of inventory.
   
   1. Customer’s Markets - Customer Markets represent all existing and prospective customers as well as intermediaries

Question 35

What are the components of Customer relationship management as per downstream SCM?

Answer 35

• Analysis of Customers and their Behaviors - Analysis of customers is necessary based on geographical location or purchasing characteristics. For industrial customer expectation of benefits - quality, discount, serviceability, size etc. should be taken into consideration.
• During such analysing process, management should keep in mind the physiological need, safety need, social need, status/ ego need and self-fulfilment need of existing and future customers.
• Customers Account Profitability (CAP)

Understanding the underlying components of cost and addressing specific causes of poor profitability associated with specific customers will significantly improve bottom-line performance.

It is found that with customer profitability analysis, the firm can correctly classify customers and also find out which of the customers it needs to hold on to and acquire more of the same type, and which customers it needs to let go of.

• Customers Lifetime Value (CLV)
• Customer Life time value is the present value of net profit that we derive from a customer over the entire lifetime of relationship with that particular customer. It is the net present value of the projected future cash flows from a lifetime of customer relationship. It is an essential tool used in marketing to focus on more profitable customers and stop servicing non-profitable customers.
• Customer’s Selection, Acquisition, Retention and Extension

1. Customer Selection – Type of customer which the company needs to target has to be selected.
2. Customer Acquisition – A relationship needs to be developed with in new customers.
3. Customer Retention - Keeping existing customers
4. Customer Extension - The products bought by the customers need to be increased. ▪ “Re-sell” similar products to previous sales. ▪ “Cross-sell” closely related products. ▪ “Up-sell” more expensive products.

Question 36

What are the components of Information technology and Brand strategy in Downstream Supply Chain Management

Answer 36

1. In managing downstream supply chain organizations link their sales system to the purchasing system of its customer through Electronic Data Change
2. E-mail is the one of the ways through which organization keeps touch with customers. Use of IT results in quick action, reduction in associated cost and saving in time.
3. Brand strategy - Eg - Mindvalley - Specially branding of product makes a huge difference in its appeal to customers. Branding can be usage of logo or specific colour or any other means which makes the product or service distinctively visible among others.

Question 37

What is a service level agreement, what are components that are intended to be communicated in it?

Answer 37

• An agreement between the customer and service provider is termed as a service-level agreement.
• The agreement may be between separate organisation or within different teams of the organisation.
• SLAs commonly include many components, from a definition of services to the termination of agreement(Meet regularly and to create open form of communication and make modifications to SLA’s as necessary)
• Providers rewards and penalties are specified. There is always place left for revisiting in most SLA.

Question 38

What are some important real life case studies which shows the excellence in the supply chain management?

Answer 38

• Apple’s Supply Chain Model – 2.42/2.43
• Collaboration Between Wal-Mart and Procter & Gamble -2.43/2.44.

Question 39

What is a gain sharing arrangement? who stands to gain from these types of contracts entered?

Answer 39

• A fundamental form of gain-sharing is where a supplier agrees to perform its side of the contract with no guarantee of receiving a payment.
• Instead, any payment received is based upon the benefits that emerge to the customer as a result of the successful completion of the supplier’s side of the bargain. This is clearly a risky stance for the supplier
• In this situation, the supplier could almost be described as taking an equity stake in the customer rather than entering into a contract with it. There must be no rewards for the suppliers to achieve a higher return through adversarial behaviour or by hiding behind the contract.
• Gain-sharing deals are, on the face of it, a win-win situation for suppliers and their customers(most of the gain sharing arrangement are entered in terms of cost saving - See example of gain sharing agreement in the Image)

Question 40

What are certain advantages and disadvantages of outsourcing?

Answer 40