Total Quality Management in Service Organizations

1. Total Quality Management in Service Organizations Enrico C. Mina

2. What is a Service Organization? • The answer to this question is surprisingly ambiguous. • Some have tried to define service employment as non-farming and non-manufacturing employment; others have also excluded government employment. • This approach includes operations such as hotels, restaurants, repairs, amusements, health, education, real estate, wholesale and retail trade, transportation, and professional services like law, engineering, architecture, finance and advertising.

3. What is a Service Organization? • Some public utilities companies have service in their name, yet in many ways power generation is more manufacturing than service. • As technology advances, more and more labor will be driven out of manufactured products. • Labor will shift to services. • Even now, some high technology companies have overhead rates that are six to ten times the direct labor component, mainly because of the substantial indirect labor in these companies.

4. What is a Service Organization? • Service operations management affects more than just service companies per se. • Furthermore, the service sector will continue to grow.

5. Difference between Manufacturing and Service • Manufacturing organizations are those that produce physical . • Service organizations produce non-physical outputs, such as medical, educational, or transportation services provided for customers. • Services also include the sale of merchandise. Although merchandise is a physical good, the service company does not manufacture it but merely sells it as a service to the customer. Retail stores such as SM and Robinson’s are service organizations.

6. Difference in Manufacturing and Service • Services differ from manufactured products in two ways: • First, the service customer is involved in the actual production process. • Second, manufactured goods can be placed in inventory whereas service outputs, being intangible, cannot be stored.

7. Difference in Manufacturing and Service • Despite the differences between manufacturing and service firms, they face similar operational problems • Each kind of organization needs to be concerned with scheduling. • Both manufacturing and service organizations must obtain materials and supplies. • Both types of organizations should be concerned with quality and productivity in order to compete.

8. Characteristic of a Service Organization • The service provided is often something that the consumer cannot touch or feel. • The service is often created and delivered on the spot, in many cases with significant involvement of the customers in the service process. • Because of the visibility of the service process in many instances and the intangibility of many services, operations management and marketing are more interdependent than in manufacturing.

9. Characteristic of a Service Organization • Frequently, the consumption of a service is nearly simultaneous with its production.

10. Types of Operations for a Service Organization •   Line (or flow) operation • The activities are arranged in a sequence of operations to produce a desire service or products. • In the true line process, no steps are skipped, and usually a substantial amount of attention is devoted to the physical layout of the process to minimize the confusion and movement necessary in passing from activity to activity. • It is relatively inflexible to accommodate major changes in volume handled or service performed.

11. Types of Operations for a Service Organization • Job Shop • A job shop is usually characterized by the large variety of goods and services it produces by using different combinations and sequences of activities. • While job shops are desirably flexible, in terms of variety of services performed and the capacity to cope with changes in volume, there are several negative aspects. • There are usually fewer opportunities for substitution of capital for labor. It is often difficult to estimate the capacity of a job shop because of the degree of uncertainty as to what will be required in it.

12. Types of Operations for a Service Organization • Job Shop • The job shop is often very difficult to schedule because it may be difficult to forecast the demand for certain parts of a shop, such as the broiler in a kitchen or the x-ray machine in the hospital. • In the comparison of the job-shop and line shop approaches to the same tasks, consider the case of alternative approaches to producing a car wash. The conventional hand-wash operation is a job-shop. It is highly flexible, but usually has little division of labor. On the other hand, the automated or semi-automated car wash system that has substituted technology for labor and divided the task into simple and repetitive job is relatively inflexible.

13. Types of Operations for a Service Organization • Intermittent Operations • Line and job shops are on-going process. However, there are many situations that are “project process,” even if they are infrequently repeated. • Service firms are frequently involved in the managements of projects of an intermittent nature. • Service firms such as architects and consultants often find that most of their activities are projects being managed for others.

14. Types of Operations for a Service Organization • Intermittent Operations • As the scale of the project grow, it becomes increasingly difficult to manage all the interrelations of parts of the project. • Project control and scheduling system such as PERT (Program Evaluation and Review Technique) and the closely related CPM (Critical Path Method) find excellent applications in the management of service industry projects.

15. Total Quality Management in Services (1) • A user of service has a few characteristics and attributes in mind that he or she uses as a basis for comparison among alternatives. • Lack of one attribute may eliminate a specific service firm from consideration. • Quality also may be perceived as a whole bundle of attributes where many lesser characteristics are superior to those of competitors.

16. Total Quality Management in Services (2) • Extensive interviews with consumer focus groups identified the following conclusions: • Consumers’ perception of service quality results from a comparison of their expectations before the service vs. their actual experience with the service • Quality perceptions are derived from the service process as well as from the service outcome.

17. Total Quality Management in Services (3) • The research also indicated that customers, across a broad range of service businesses, have the following expectations in descending order of importance: • Reliability (consistency) • Responsiveness (speed) • Assurance (competence) • Empathy (customer orientation) • Tangibles (what he/she can see, feel, smell, hear, and taste)

18. Total Quality Management in Services (4) • Service quality is of two types, normal and exceptional • Normal: the quality level at which the regular service is delivered • Exceptional: quality level at which “exceptions” or “problems” are handled • This implies that a quality control system must recognize and have prepared a set of “plan Bs” for less-than-optimal operating conditions.

19. Total Quality Management in Services (5) • There are five TQM tools: • Taguchi method • Pareto charts • Process charts • Cause-and-effects diagrams • Statistical process control.

20. Total Quality Management in Services (6) • Three concepts are important to understanding Taguchi approach and method • Quality Robustness – quality robust products/services are outputs that can be produced with uniform consistency in adverse operating and environment conditions. • Quality Loss Function – identifies all costs connected with poor quality and shows how these costs increase as the output moves away from being exactly what the customer wants. • Target Value is a philosophy of continuous improvement to bring the product exactly on target.

21. Total Quality Management in Services (7) • Pareto Charts- method of organizing errors, problems, or defects to help focus on the “critical few factors” in problem-solving efforts. • Process Charts – are designed to help us understand a sequence of events through which a product travels. The process chart graphs the steps of the process and their relationships. • Cause and Effect Diagrams – One of many available tools helpful in identifying possible causes of quality problems.

22. Total Quality Management in Service (8) • Statistical process control is concerned with monitoring standards, making measurements and taking corrective actions as a product or service is being produced

23. Methods in Achieving TQM • There is a quality plan known as “Quality Journey”.It is called the quality journey for two reasons: • To ensure that the processes are continuously meeting specific requirements in terms of standards and measures and; • To ensure that all customers are satisfied even when their expectations change over time.

24. Methods in Achieving TQM • Standards are yardsticks for measuring performance, quality, and duration. • Normally companies are concerned with two types of standards: output standards and process standards.

25. Methods in achieving TQM • Phase One - Define Vision and Mission • Phase Two - Document Processes • Phase Three - Establish Measurements • Phase Four - Control Processes Based on Measurements • Phase Five - Implement Continuous Improvement

26. Phase 1- Define Vision and Mission • A company must get buy-in from its management and its employees, before getting involved in the quality journey. • Methods of getting management buy-in include obtaining support from the top, strategic planning, keeping managers informed, providing networking systems, and providing rewards and recognition. • Methods of getting employee buy-in include providing proper tools and training, keeping them informed, providing networking systems, and providing rewards and recognition.

27. Phase 1- Define Vision and Mission • The first step is to develop vision and mission statements for the company or to revisit existing ones to ensure that they still fit the company and where it is going. • These statements help solidify the goals and objectives and provide a common focus point. • One key advantage of a common focus point is that it gives direction to all personnel and helps them determine how to prioritize their activities.

28. Phase 1- Define Vision and Mission • With input from all employees, these two statements are used as guides for the rest of the quality journey. • It is important to tie quality into the overall company vision so that each department or area of the company realizes that quality is important to the company.

29. Phase 1- Define Vision and Mission • When a company collaboratively decides to express its vision, beliefs, goals, values and mission in words, it will give direction to everyone in the company. • The way that the vision and mission are communicated is important. • This requires full commitment from senior management and may result in several changes depending on where the company presently is and how well it presently represents its vision.

30. Phase 1 – Define Vision and Mission • Quality must be recognized not as a separate entity but as an integral part of a person's overall job. • This communication process can take time and much effort but does become easier as people see that the company truly uses these statements in their decision process and refers to them for guidance on a regular basis.

31. Phase 1- Define Vision and Mission • Once the direction is defined, then it will impact such things as strategic planning, objectives and goals • Strategic planning includes reviewing the vision and mission of the company and then determining what has to be done in order to achieve the goals of these statements. • The company determines how it will know when the statements have been achieved.

32. Phase 1 – Define Vision and Mission • From the measures, each department can set goals, objectives and measures that will help the company achieve its strategic objectives.

33. Phase 2 – Document Process • Now that the company knows what it is and where it wants to go, the next step in the quality journey is to determine how it presently does its business. • It must know how it presently does things and be able to measure its ability to be consistent in meeting customer requirements. • Customers remember a company's name under two conditions: When the company provides extremely poor products or service, or when the company provides surprisingly good products or service.

34. Phase 2 – Document Process • In order to provide surprisingly good products or service (output), companies must look at what is involved in delivering that output. It is the business processes that deliver the output. • Companies must focus on the process in order to keep customers coming back and staying loyal to the product or service.

35. Phase 2 – Document Process • Companies must start focusing on the processes that control the customer interfaces, rather than the organizational structure.

36. Organizational Focus Employees are the problem. Employees Doing my job Understanding my job Measuring individuals Change the person Process Focus The process is the problem. People Help to get things done Knowing how my job fits into the total process Measuring the process Change the process Phase 2 - Document Process

37. Organization Focus Can always find a better employee Motivate people Controlling employees Don't trust anyone Who made the error? Correct errors Bottom line driven Process Focus Can always improve the process Remove Barriers Developing people We are all in this together What allowed the error to occur? Reducing variation Customer driven Process 2- Document Process

38. Process 2 – Document Process • Companies that focus on delivering surprisingly good output and building their reputations will be more successful than companies that just focus on the bottom line as the bottom line will not bring customers back. • The only way to determine how to consistently deliver this type of output is by focusing on processes within your company/business.

39. Process 2 – Document Process • Every product/service (output) is the result of a process. • A process can be defined as any activity or group of activities that takes an input, adds value to it, and provides an output to an internal or external customer. • The key elements of a process are: inputs, activities, outputs, customers, resources (materials, pesos and person/processing time), and cycle time (how long does it take). SIPOC • 6 Ms: man, machines, materials, methods, measurement, Mother Nature (environment)

40. Process 2 – Document Process • A company must first document the current state • Define what the company does, who does it, and how and why it is done • Procedures that are critical to the process need to be documented.

41. Process 3-Establish Measurements • The next step in the quality journey is to set standards and measures for each process, product, and service. • The focus must be on improving the customer's perception of the company, its products and services. • To do this the company must measure customer satisfaction.

42. Process 3- Establish Measurements • Companies need to determine precisely where they stand in their customer's eyes by engaging in ongoing information-gathering activities to measure customer satisfaction. • Listening to customer complaints, identifying and measuring critical processes that are responsible for generating poor service or products, and implementing corrective action are integral in developing a quality management philosophy.

43. Process 3- Establish Measurements • What Gets Measured, Gets Managed and Never Assume You Know What The Customer Wants • Companies need to: know on an ongoing basis what their customers are thinking, analyze their own structures and processes to ensure that they do not hinder or interfere with customer satisfaction, and, implement measures to monitor the effectiveness of all critical processes that impact customer satisfaction.

44. Process 3- Establish Measurements • The focus should be on indicators of performance and customer service standards that measure the quality of service to the customers. Standards must be realistic. • Standards are not set in stone, they must be adjusted to reflect changes in customer requirements, processes, technology, or competitive offerings.

45. Find out why the key customers (the ones that account for a large portion of the company's sales) keep coming back instead of going to the competition. Find out how good the entire company must be - not just your products or services. Use surveys, interviews, point of sale/service and follow-up calls. Determine the obstacles to excellent service for external and internal customers. Look at company structure, work flows, and evaluate personnel abilities/skills/knowledge. Use tools such as employee attitudinal surveys and exit interviews and develop formal/informal feedback mechanisms. Process 3 – Establish Measurements

46. Determine which processes are critical to the delivery of products or services to the customers or the ones that affect the criteria that the customer uses to evaluate the company's performance. Develop measurements that strike a balance between cost, quality and cycle time. Quality of the process must receive priority ahead of cost and delivery. Use as many proactive measurements as possible because they provide immediate feedback and allow time for corrective action before problems have any impact on the customer. Use some reactive measures to take advantage of feedback after the product or service has been purchased by the customer. Process 3- Establish Measurements

47. Pareto Charts Fishbone or Cause and Effect (Ishikawa) diagrams Histograms Scatter Diagrams Run (Trend) Charts Control Charts Check Sheets Stratification Process 3 – Establish Measurements

48. Process 4- Control Process using Measurements • Use the measurement results to fine tune processes and align them with the desired outcomes and standards. • Processes, standards. and measures need to be controlled and aligned to ensure that the company is serving its customers and supporting the people who are serving the customers or producing the products or services. • Measurement allows management to "Manage by Fact" rather than managing by intuition or judgment by providing data about the operating environment and performance.

49. Process 4- Control Process using Measurements • There are two primary uses of "Management by Fact". They are • Manage service quality - Manage the processes and the deliverables to make sure they meet customer requirements/specifications. • Manage process improvement - Identify opportunities for process improvement, and then implement them. • The obstacles of "Management by Fact" include: • Unreliable, invalid measures • Reliance on “gut feel”, intuition, or past experience

50. Process 4 – Control Process using Measurements • If the measures are not reliable and are not valid, they are not believable and will not be used. • Measuring individuals instead of groups/teams or projects • When measurements are thought to be individual performance indicators, the tendency is to manipulate those measures to make personal performance look better. • Process improvement will have an affect on systems.