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Continuous improvement essay

“Changes in the international economic situation, marked by large market shares captured by Japanese firms in the 1970s and the 1980s, made Western companies realise the necessity of changing their competitive advantages”
(Barad and Kayis 1994).

In today’s highly competitive market producers of goods and services see the way to survive and invest in the future growth only through achievement of sustainable competitive advantage.

Any organisation, producing goods or services, generates value. Walters and Lancaster (2000) identify value as a quantity of benefits added by the producer to a raw material or product for which customers are willing to pay more than otherwise would have been the case.

Another issue, closely associated with the final product is being quality. Quality of the product can be identified as its fitness for intended purposes. This fitness is being achieved by adding value to a raw material or product. Therefore it can be said that the degree to which the final product actually fits its purpose (quality) is determined by the quantity of value added by the producer.

Alternative definition, offered by Walter and Lancaster, suggests that value is determined by the benefits delivered to the customer less total cost of acquiring the delivered benefits. From here it is possible to conclude that the producer’s competitive advantage over the competitors is determined by his ability to generate high value at low costs.

However sustainable competitive advantage implies that the method or technique cannot be easily replicated. Once the method or technique has been adopted by someone else, it can no longer be a source of competitive advantage. Therefore in order to remain competitive the organisation must continuously search for new, improved ways of production which would allow to enhance quality and/or reduce costs of doing so. In the other words the firm must dedicate itself to the process Continuous Improvement (CI). Halevi (1999) identified continuous improvement as “developing internal systems that encourages constant improvement in processes and procedures” . On the other hand Gaither (1994) identifies CI as the concept which “allows companies to accept modest beginnings and make small incremental improvements towards excellence .

Porter’s value system theory suggests that competitive advantage can be achieved by disaggregating the firm’s operation into many discrete activities and identifying activities that can be performed better or with more cost savings than its competitors. Value chain is the chain of activities that add value to the product or service. Activities of design, manufacturing, marketing, delivering and supporting the product constitute the firm’s value chain. An advantage of value system theory is that by disaggregating organisations operations into many discrete activities, it allows for detailed evaluation and subsequent improvement of these activities. Each step in the chain can only be justified if it creates more in value to the end user than it consumes as cost.

Porter identifies cost saving as one of three “generic” business-level strategies for achieving competitive advantage (differentiation, focus and cost savings).

Cost-saving strategy implies that the competitive advantage can be achieved through sorting value activities in each part of the chain and eliminating non-value adding activities as “waste”.

Toyota Production System (TPS) identifies seven most common wastes: overproduction, waiting, transport, inappropriate processing, unnecessary inventory, unnecessary movements and defects. Some of the wastes (overproduction or defects) are being complete non-value adding activities. Other wastes, such as unnecessary inventories, are referred to in organisational process as ‘non-value adding but necessary’ activities which do not add value to the product but are unavoidable under the current operating system. From here there are two types of improvement activities: those of incremental nature, which eliminate waste gradually and deal with non-value adding waste, referred to as continuous improvements; and revolutionary breakthrough improvements which eliminate waste that underlay chronic loss in value.

One of the most popular approaches to improvement is being Just-in-Time (JIT). The idea of JIT is that major elements of organisational input – equipment, labour, capital – must be made available only in the quantities required and only at the time required to perform tasks.

Through introducing effective inventory control system JIT aims to detect and eliminate problems which underlie occurrence of waste. The logic here seems to be that if the organisation keeps stocks in order to cover differences between supply and demand then there is a hidden problem which must be dealt with. If the problem is unreliability of the supplier then the reliable one must be found. If it is the machine, which keeps breaking down, then it must be replaced.

There are a number of advantages of JIT over the traditional systems. First of all in JIT each worker or work unit is both a customer and a supplier. This means that each even the smallest internal process must be performed with the highest degree of quality so as to satisfy internal customers.

Another great advantage of JIT is that it advocates new “pull” approach in preference to traditional “push” system of moving the work through the process. Under JIT “pull” approach a worker finishes his task and then requests materials from the preceding worker who starts completing the order only when he receives it. In this way stocks and work in progress would be eliminated. However, Kanban system, which is designed to put JIT into practice, still have an “in-process storage” where a container full of materials is waiting to be swapped for an empty one because it is not possible to eliminate completely leading time. Therefore it would be fairer to say that JIT minimises stock rather than eliminates it.

Another advantage of JIT is that customers and suppliers under JIT are being an extension of the organisational value chain. This allows for building long term partnerships, ensuring high quality and timeliness of supplies, mutual trust and loyalty. JIT supply requires that the advantages of lower cost and stock be shared between the customer and supplier.

The greatest merit of JIT is that it develops internal systems that relentlessly works to eliminate waste and to encourage continuous improvement in processes and procedures. Effectively developed JIT system can be identified as having “self-cleansing” mechanism. In order to guarantee uninterruptible production high quality of materials, equipment, processes must be ensured. If the customers’ demand is to be met from the production rather than from the inventory then the optimum speed must be achieved. Finally small batch sizes; speed in the processing; and minimum delivery lead time require a great degree of flexibility. It seems that JIT requires and simultaneously creates quality, speed and flexibility.

However, there may be some disadvantages of JIT. First of all, frequent set ups and small batches, which contradict the traditional managerial theory, would logically add to overheads. Secondly it is questionable if JIT would work where some materials are of irregular use or need special ordering. Thirdly, complete reliance on the supplier means that JIT can only work in stable environment. D.Dent and Associates (2003) report upon the Canada/US trade, that the implementation by USA tighter border security, as a result of conflict in the Middle East, threatens to shatter Just-in-Time delivery system relied upon by businesses in both sides of the border. “When trucks sit idle at the border, assembly lines come to a standstill, companies fail to fill orders and lose business.” On the other hand how easy would be to make changes to the process (say change to the product design) if the system is so perfectly set up and balanced? Would this perfection mean inflexibility?

While sophisticated JIT seems to focus on the problems occurring in manufacturing within the scope of the one work group Total Quality Management (TQM) emphasises that improvements can be made outside the work group. The advantage of TQM is that it recognises that customers do more than simply take delivery of goods. Their experience of the product and therefore satisfaction begins from the first contact, first telephone call, quotation etc. TQM emphasises that the links, effective communication and feedback between the workgroups and departments speed the path to the immediate customer or suppliers without going through the whole hierarchy.

Muhlemann (1992) identified TQM as a way of managing to improve the effectiveness, flexibility and competitiveness of a business as a whole. By lowering barriers between departments, TQM focuses on waste elimination along the entire value chain and achieving synergy effect upon the organisation’s performance.

To ensure that materials purchased are of the highest quality supplier must be brought into a company’s TQM program. How this work can be seen on an example of Ford Motor Company (1994). The initial selection of suppliers (Q-1 list) is based on how well an individual supplier interface with Ford’s TQM program. Ford has up to 300 suppliers on its Q-1 list with whom the company is willing to have long-term contracts in order to achieve highest quality at competitive costs. Because Q-1 suppliers participate in the design of new Ford products the designs reflect the supplier’s ability to produce high quality materials. Ford’s suppliers also participate in Ford’s quality training programs. Therefore suppliers’ employees are capable of making TQM work within their organisations. TQM involves developing quality partnerships with suppliers as Deming taught: “…reduce the number of suppliers, buy on statistical evidence not on price” (1993).

Focus Groups and Quality Functions Deployment (QFD) are the techniques of working with customer widely used in TQM. The former are the schemes where senior managers and engineers meet with the groups of customers to discuss the product and its quality. QFD, on the other hand, is a formal system for identifying customer wants and eliminating wasteful product features that do not contribute to the value. The advantage of using the techniques is that they give opportunities for better customer focus and differentiation which according to Porter are being “generic” business-level strategies for achieving competitive advantage. Successful differentiation as a part of TQM can be seen on an example of Scandinavian Airline Systems. The organisation differentiating its service by providing travellers with additional features which include limousine shuttle service between SAS hotels and airports, baggage delivering and checking at SAS hotels (1997). The result of such insignificant differentiation has been substantial improvement in customers’ satisfaction and rise in SAS revenues. This can be seen as an example of how improvement in one part of the value chain enhanced the performance of the whole chain.

One of the greatest advantages of TQM is that product design here is carried out with internal and external customer in mind. TQM design for robustness, reliability and production means that the effort of design, production, marketing, service is integrated along the whole process of product development. Such integration at the earliest stages of the product development would allow for prevention of waste occurrence in the subsequent parts of the value chain.

Continuous Improvement is being the main activity under TQM. An advantage of continuous improvement is that it involves improvement of incremental nature by finding problems and eliminating them. Gradual and continuous progress on one hand would avoid “painful” and expensive radical changes; and on the other – would mean that the company can never be satisfied with its achievements and the process of improvement would never stop.

Continuous improvement is being implemented by the means of Quality Circles (QC), which involves group problem solving, and Suggestion schemes as a system of individual problem solving.

Kerrin (1999) illustrates on a case study of a company-manufacturer of radiators and cooling systems for cars and example of structure of CI activities. Each year the company developed feasible productivity improvement plan from which improvement targets of say 10% improvement in quality of material supply, defect rates etc, were allocated to each section and department. Quality Circles and suggestion schemes were designed to aid the improvement process. One section within the company had a high internal leak rate on one product. QC, which consisted of two engineers, the section leader, three team leaders, two operators and a quality assurance manager, set up separate testing to track the problem. The mapping techniques identified that the high leak rate was in the area where the units were brazed. Using brainstorming an Pareto-analysis tools the QC determined the number of factors contributing to leak. The several experiments discovered that the surface area of the product which was bevelled was difficult to braze effectively which caused high leak rate. It was also found that ther was no need for bevel as the part was just as strong as without it. As a result problem was eliminated and specification of the process changed which can be an example of elimination of two types of Toyota’s waste: defect and excessive processing.

Another advantage of TQM is that by consistently meeting customer requirements it allows for achieving a higher stage of customer satisfaction – delighting the customer. By embedding quality in every part of the organisational value chain and in each operation, regardless of how small it is TQM aims at creating a reputation of “excellence”. This in turn generates customer loyalty as a source of competitive advantage. TQM is an approach where company is determined to have better than just acceptable quality. It entails continuous improvement of the product or service regardless of how good it already is.

While TQM is an idea of gradual and continuous improvement, Business Process Reengineering (BPR) aims to achieve dramatic improvements in company’s performance in a relatively short period of time.

Hammer and Champy (1993) define BPR as “fundamental rethinking and radical redesign of business process to achieve dramatic improvement in cost, quality, service, and speed” . The improvement would result from change in organisational process by taking advantage of the advances in the information and telecommunication technology. The very essence of BPR is to introduce a technique or product (service) which would provide sustainable competitive advantage. For example, Hallmark Cards Inc applied BPR by shifting its operations from highly diversified plants to improved production of specific product line. This resulted in better communication between stores and internal and external customers, improved services and higher profits (Lee and Aslami, 1997).

An advantage of BPR implementation is that the organisation structures itself around outcomes and results (delivering high quality of product/ service, delighting customers); and not just tasks and activities (Nwabueze, 2000). IBM Credit Corporation, (Hammer and Champy, 1993), successfully re-organised the process with information systems support by analysing the roles of all the participants in the process and focusing on the final result of the operations.

The essential enabling mechanism BPR is being information technology and empowerment. Another advantage of BPR is that decision and control to be performed by those performing the task. ‘Organisations should be redesign and automate to enable process owners to make better decisions’ (1993). People while performing work must constantly ask themselves: would the customer want to buy this? Does this activity add value or is it wasteful? Information technology integrated in the workflow is to enable people to evaluate data and to make improvements to the process.

On the other hand the idea that workers can make changes at any point of the process may be of disadvantage. First of all there may be adverse effects upon the middle management. What if they would feel that their role is being undermined. Secondly, it would be reasonable to assume that at some points of the process changes made in error can be extremely costly. Therefore should there be some extend defined up to which the workers are empowered to make changes? On the other hand what if the empowerment of workers to make changes would cause diffusion of responsibility of managers for the final outcome.

Another important issue is the effect the radical change in the process would have upon the other aspects of organisational operation. From the point of view of the “socio-technical” theory (1997), developed by Eric Trist in the Tawistock University, BPR advocates changes in the technical subsystem of the organisation and does not take into account the knock-off effect on the social subsystem and the organisation as a whole. As it has been stated by Cao et al (2001) implementation of BPR in organisations has become inseparably linked to “downsizing” and reorganised flatter hierarchical structure. From the point of view of human part of the organisation it can have extremely negative effects. Skills and knowledge as a source of organisational capability would be lost with people becoming redundant. On the other hand there would be adverse effect upon the remaining workforce who would feel insecure and powerless because of lack of voice in such kind of decisions. Furthermore the sense of continuous change can cause stress which is not the best way to inspire in people innovation, creativity and loyalty. Large-scale redundancies can also damage organisational image and cost customer loyalty.

Therefore before embarking on any improvement activity the organisation must evaluate what effects it would have upon the workforce, as the human factor is being the key variable of success of any project or program.

For Continuous improvement to be successfully implemented employees must be trained in skills and techniques as well as broader concepts of CI. For improvement in quality, costs, product development and service to be achieved close co-ordination between the various departments is essential. Therefore teamwork is the path of continuous improvement. “Teamwork as behaviour refers to activities involving the sharing of information about problems and co-operative working to solve them” (Kerrin and Oliver, 2002). Teamwork offers a number of advantages over the traditional fragmental work particularly in problem solving. “Snow-ball” effect, complementary skills and knowledge; and sharing information produce synergy effect upon the group performance. Mentioned earlier integrated product development requires teamwork and close co-operation of various departments within the organisation. Lawler et al, 1995 reported that within the “fortune” 1,000 companies 68 per cent of the employees were involved in teamwork.

Empowerment is another essential ingredient of CI programs. If workers have no control over their work , then there is no feeling of responsibility for the final outcome of their work and there is no motivation to improve anything. Oakland (2000) argues that people’s behaviour is determined largely by the roles they have to take up:
“If we create for them new responsibilities, team-roles and process driven environment a new situation will develop, one that will force their attention and work on the processes” .

“Quality at source” is a concept which permeates CI programs. It implies that every work station becomes a quality control point. Workers are responsible for controlling the quality of their work. Statistical Quality Control (SQC) then monitor the quality of parts produced by each workstation and produces comprehensive feedback for the management and workers.

It is obvious that for improvement processes to be efficient full commitment and involvement of everyone within the organisation is required. This involvement and commitment begins from the effective leadership. Top management must embed concept of quality and its constancy in organisational strategy. The management style in terms of lowering “barriers” and encouraging effective two ways communication, power sharing, permitting “pride of workmanship” would motivate innovation and creativity. Entirely new organisational culture, which not only concentrates on the needs of customers but all stakeholders, must be created. People’s commitment, upon which CI is dependent, is not something that can be achieved over a night. It can only develop in the atmosphere of mutual trust and genuine caring for workers. An effective manager-leader apart from communication skills must possess a good understanding of what individual worker’s needs are. Abraham Maslow (1945), for instance, observed that through the work environment people tend to satisfy more than just basic physiological needs in food, drink, shelter etc. People go to work to socialise, to build career and to achieve self-esteem and esteem of others, to realise their abilities and skills. If for the people their workplace is a source of satisfaction then organisational success for them would associate with success of their own. Only in this way commitment and loyalty can be achieved. Quality of work life (QWL), which emphasise the importance of ergonomic factors at work, job design, empowerment must become a part of the organisational culture. On the other hand once achieved initiative, commitment and loyalty must be recognised and encouraged. Kerrin and Oliver (2002) report that some Japanese companies pay nominal fees even for rejected suggestions. This is based on belief that preparing suggestion is a learning experience in itself and that “learning about why a suggestion was rejected will teach an employee about production system and how it works”.

Successful implementation of Continuous Improvement can be seen on the example of Toyota Motors Corporation. “Kaizen, which means ‘continuous improvement’ is a process that is integral to every area of Toyota’s business” (My San Antonio: 2003).

The design of Toyota’s operation systems is based on Just-in-Time approach which increases productivity and product quality and allows to respond quickly to changing market conditions.

Toyota stresses team work over individual actions and contributions. Workers are organised into production teams, each member is trained to do the work of other members. Team leaders guide their workers and provide training and instructions.

“Training for new jobs takes months and Toyota looks for the smartest workers available” (2003). In return for commitment and loyalty Toyota offers excellent remuneration and a number of other benefits.

Of cause, workers’ commitment and loyalty are a potential source of competitive advantage for the company. However, it would be reasonable to raise the question if empowerment would always result in responsibility? What if some workers do not wish to take part in decision making. On the other hand would all the managers be prepared to share their power in decision-making?

Suggestion reward schemes can also be a contentious issue. What if in a pursuit of reward people begin to compete and try to create obstacles for one another?

Each of the techniques of Continuous Improvement seems to deal with a certain kind of problems only. JIT and TQM eliminate non-value activities whereas radical BPR targets problems underlying chronic loss in value. This means that there is no single program which would work to eliminate all kinds of waste from the organisational value chain.

TQM and BPR differ in that the former is a gradual and adaptive process of change requiring long period of time, whereas latter aims at achieving radical improvements in the short period of time. TQM is expected to be initiated anywhere, at the bottom, middle or top of the organisation. While BPR, which involves considerable funding, is initiated in the higher levels of the organisation. Nevertheless, they are both directed towards quality improvement and customer satisfaction. Both require commitment and involvement of top management and changes in organisational culture. Differences and similarities seem to make these two approaches complementary (to a certain degree).

What if while TQM is taking place throughout all the organisation the management would identify the part of the value chain in which the most competitive advantage can be gained and implement re-engineering of the processes. Then BPR can be used in the next part of the value chain which offers the second greatest competitive advantage. After the company “steadies down” following the radical changes by BPR the incremental continuous improvement would take hold and ensure that the organisation will not slip back to its old methods and carry on with continuous improvement of continuous improvement.

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