4Andy SoriouPhotodiscThinkstockQuality Management.docx

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Quality Management
Learning Objec�ves
A�er comple�ng this chapter, you should be able to:
Define quality from both an internal and an external
orienta�on.
List the dimensions of service quality and quality for
manufacturing.
Understand how to gather customer expecta�ons to ensure that
the firm has captured the voice of the
customer.
Summarize the philosophies of W. Edwards Deming, Joseph
Juran, Philip Crosby, and Genichi Taguchi.
Explain how quality is built into a good or service.
List and explain the components of total quality management
(TQM).
Describe the purpose and use of quality func�on deployment.
From electronics and automobiles to clothing and produce,
quality control is important to ensure that
only the best items reach the consumer.
©Adrian Burke/The Image Bank/Ge�y Images
4.1 Introduction to Quality Management

Price and quality are two cri�cal dimensions when
deciding to purchase a good or service because these are
key elements in the value proposi�on. That is, what does
the buyer
give up versus what does the buyer receive? When value
proposi�on is high the benefits to the buyer substan�ally
exceed the costs. Quality is a cri�cal element in the
purchasing
decision because quality involves cri�cal factors such as
the safety of an airplane flight, the effec�veness of a
surgical procedure, or the performance of an automobile.
Quality is
mul�faceted because the quality of a service or good is
judged on several factors. For example, the quality of an
airplane flight not only includes the safety factor; it also
includes
depar�ng and arriving on �me, the comfort of the
surroundings, and baggage handling. For an automobile,
quality is not only performance; it also includes safety
and specific
features such as video entertainment systems and global
posi�oning devices.
While quality is essen�al for organiza�onal success, for
many companies it is
difficult to use quality to differen�ate their products from
their compe�tors'
products for two reasons. First, customers may not
consider products for purchase
that do not have high quality. Second, compe�tors have
recognized the value that
customers place on quality, and are striving for high
quality by con�nuously
monitoring customer expecta�ons, inves�ga�ng and
implemen�ng new

technologies that enhance quality, and quickly imita�ng
compe�tors' improvements
in features and performance. To use an analogy from
poker, high quality has
become the ante, or minimum bet, to play at the table.
Despite these challenges,
companies such as Apple, FedEx, and Google have been
able to develop and
maintain very strong reputa�ons for high quality while
some of their compe�tors
have not. RIM has fallen behind Apple; FedEx has taken
package delivery from the
U.S. Postal Service; and Google is well ahead of Yahoo!.
Simply put, companies that
have a strong reputa�on for quality have been able to
integrate quality throughout
the organiza�on, adop�ng an approach that infuses quality
into company decision
making. This approach has a variety of names; the one
used here is quality
management. The purpose of this chapter is to explain the
nature of quality and
how an emphasis on quality can be spread throughout the
organiza�on.
Perspectives on Quality
When asked, customers can ar�culate some of the criteria
that determine whether a product has high quality. For
example, a hotel room should be clean and comfortable,
and the
guest should feel safe. A washing machine should get the
clothes clean. However, defining quality is not always that
simple. The factors included in quality assessment of a
hotel
room depends, at least in part, on its use. For a resort

hotel, the pool, restaurants, beaches, and workout facili�es
are part of the quality decision. For a person who is
stopping for
one night at a hotel while driving on the interstate, the
ameni�es included in the resort hotel do not ma�er.
Traveling guests only care whether or not the room is
clean,
comfortable, and convenient. In the earlier example of the
washing machine, one customer may want a large capacity
washer that minimizes water use, while another may want
a
small, stackable washer-drier unit that is quiet. As a
result, it is not possible to fully define quality, because
quality is determined by the customer and how the
customer will use a
product. As a result, the defini�on of quality has both an
internal orienta�on—quality from the company's
perspec�ve, and an external orienta�on—quality from the
customer's
perspec�ve.
Internally Oriented Defini�ons of Quality
Defini�ons of quality that have an internal orienta�on
directly measure characteris�cs of the product, such as the
number of packages delivered on �me or the thickness of
an
engine part. Two examples of internally oriented
defini�ons of quality are:
1. Quality is the degree to which a specific product conforms to
its design characteris�cs or specifica�ons. Surgeons must
follow the proper procedure as the surgical team closes the
incision, thereby ensuring that no sponges or other items are
le� in the pa�ent. Robots must place the spot welds in the
proper loca�on on the body of the automobile in order to

maximize its strength.
2. Quality can be measured as the amount of a specific, desired
a�ribute, such as window �nt or cheese on a pizza.
One shortcoming of internally oriented defini�ons is the
company's assump�on that the product specifica�ons match
what the customer wants—an assump�on that may not be
correct.
Externally Oriented Defini�ons of Quality
Quality with an external orienta�on focuses on the
customer, and typically includes a discussion of "fitness
for use." In other words, quality cannot be effec�vely
measured in the
abstract. For example, a resort hotel with the finest food,
cleanest rooms, best beaches, and friendliest staff does not
meet the needs of the cross-country traveler who will
spend
only a few hours in the room. When quality is measured
by customer wants, the resort hotel does not have the
right fit for the cross-country traveler, so it is not the
right quality.
Quality is the capacity to sa�sfy customers' needs.
In some cases, customers may not know that they have a
need for a product because customers may not imagine
what is possible. A few years ago, when Ford Motor
Company
introduced the SYNC system to manage mobile phone,
music, and other digital technology in its vehicles, it was
done to sa�sfy a desire from car owners, but one that
was not
clearly ar�culated. SYNC set new expecta�ons for
communica�on and entertainment systems in vehicles.

Although it may appear that externally oriented defini�ons
of quality are s�ll somewhat vague, companies known for
high-quality goods and services specifically define the
parameters of quality. Quality means consistently mee�ng
or exceeding the customer's needs and expecta�ons.
Quality begins with an external process that iden�fies the
customers' needs and expecta�ons. Then, those needs and
expecta�ons are translated into an internal process to
guarantee they are met or exceeded. One way of
formalizing that
process is called quality func�on deployment, which is
discussed later in this chapter. Quality func�on
deployment takes customer expecta�ons and transforms
them into specific
ac�ons designed to meet those expecta�ons.
Consumers have different expecta�ons when staying in a
motel or
when staying in a 5-star resort. The level of quality will
be evaluated
differently for each of these locales because quality is
based upon
mee�ng or exceeding the customer's needs and
expecta�ons.
Comstock/Thinkstock
Understanding Customer Expecta�ons
It would seem that a company that wants to achieve
excellent external quality would simply ask its customers
what they want and provide these things to them. Asking
customers what they want is useful and provides

important informa�on, however, it is not sufficient for the
following reasons. First, customers o�en have unspoken
desires. If you survey customers and ask open-ended
ques�ons such as what they want on an airplane flight,
they
are much more likely to say on-�me arrivals and
departures, faster check-in �mes, and be�er and faster
security
screening by TSA. It is not likely they would say they
do not want to crash. Customers assume that the airline
understands safe transporta�on as a basic need, so it is
unspoken despite that it is the most important need of the
customer. Referring to the poker analogy used earlier,
safety is part of the ante that every airline must have to
remain in the game. Second, customers operate in the
environment of what is known, and o�en do not think
about what is possible. If a company opera�ng 200 years
ago asked its customer how they might like to
communicate in the future, it is unlikely that the
customers would have described voice over wire
telephones. If
customers were asked 50 years ago about the future of
person-to-person communica�on, it is unlikely that
customers would have men�oned wireless communica�on
devices, the Internet, and high-speed data services.
Twenty years ago, few customers would have thought to
ask for the ability to download video to their wireless
device. Mobile phones were large, clumsy devices that
could only make phone calls and were unreliable.
Organiza�ons must go beyond asking customers what they
want and understand what their customers value, such
as how they do their work and what makes customers
happy. If companies understand these needs, firms are able
to see how new ideas and new technology may help
customers do more work or enjoy a be�er lifestyle. Firms
should ask the following ques�ons when they want to

understand customers' expecta�ons:
1. Ask customers what they want.
2. Ask customers specific ques�ons about a�ributes of the
product that are not men�oned by the customer:
Probing the customers with specific ques�ons about their needs
may lead to unspoken expecta�ons.
3. Ask customers about their opera�ons or how they will use
the product: Knowing how the customer func�ons and
how they use the product can lead to a be�er understanding of
what and how new ideas and technologies could
help them. The success of Facebook, Twi�er, and Apple are
based on crea�ng services and goods that customers
would use despite the customer not understanding the product
and its applica�on prior to product launch.
4. Ask customers how their customers use the products:
Knowing the needs of the customers' customers can help
the organiza�on be�er understand the impact of its product on
the value-crea�on chain and, therefore, meet the
needs of the final customer in this chain.
Motorola's Six Sigma System: A CEO Goes Back to
the Classroom
4.2 Dimensions of Quality
Understanding the dimensions of quality is an important
step in transforming customers' needs and
expecta�ons into internal processes. The differences
between goods-based and service-based organiza�ons have
some significant impacts on the way quality is determined

and measured. For example, because services are
intangible, the quality of services will be based much
more on human percep�on. As a result, the dimensions of
service quality are somewhat different than the
characteris�cs of quality for manufactured products.
Service Quality
The following five dimensions of quality are o�en used
by customers to judge service quality. Understanding
these dimensions helps firms to define quality and
determine what steps are needed to improve quality.
1. Reliability—ability to perform the promised service
dependably and accurately.
2. Responsiveness—willingness to help customers and provide
prompt service.
3. Assurance—knowledge and courtesy of employees and their
ability to convey trust and confidence.
4. Empathy—provision of caring, individualized a�en�on to
customers.
5. Tangibles—appearance of physical facili�es, equipment,
personnel, and communica�on materials, including
access and effec�veness of Internet-based informa�on.
Some examples of these five dimensions are shown in
Table 4.1. The reliability and responsiveness of a service
are at the core of how customers evaluate service quality.
This is because customers expect the service to be
performed well and to be complete at the �me demanded
by the customer. Most services rely on people to
design the opera�on systems and to do the work. A
hairdresser's reliability and responsiveness clearly impacts
the client served in a beauty shop. Likewise, it is people
who determine how the system of service providers for

mobile devices works, including the likelihood of dropped
calls,
clarity of voice, and speed of data downloads. If a
company fails to provide reliability and responsiveness, it
is more likely to lose a customer than if other factors or
services fail. In
other words, it does not ma�er how nice the furniture in
your hotel room looks if the staff is rude.
Table 4.1: Examples of service quality dimensions
Reliability Did the express package arrive on �me?
Was my DVR repaired correctly?
Responsiveness Did the florist deliver the flowers as
ordered?
Does the hotel send up an extra pillow as requested?
Does the credit card company respond quickly when I
have a ques�on about my statement?
When an employee says he will call me right back, does
he?
Assurance Can the salesperson answer my ques�ons about
the computer on sale?
Does the car mechanic appear to know about my car?
Does my physician politely and knowledgeably answer my
ques�ons?
Empathy Does someone in the restaurant recognize me as a
regular customer?
Is the salesperson willing to spend the �me to understand
my par�cular needs?
Does my advisor work with me to develop a program of
courses for my specific career goals?
Tangibles Is the hotel room furniture clean and modern?

Does the auto repair shop appear neat and �dy?
Is my bank statement easy to understand?
Real World Scenarios: Southwest Airlines
Southwest Airlines combines reliability with subjec�ve
quality dimensions for a winning combina�on in the
airline industry. The dire situa�on for many airlines has
been
demonstrated by bankruptcy filings, companies closing,
mergers, and record losses. While legacy companies such
as United, American, and Delta have been losing money,
Southwest has maintained profitability and also has
remained at the top of customer sa�sfac�on rankings.
Southwest does this by maintaining a clear focus on the
customer
and mee�ng the customers' needs. Customers want low
fares and reliable, high-value service, and Southwest
provides fares that are consistently below those of
compe�tors'.
In addi�on, fees are not charged for luggage transport.
Southwest o�en resists a�empts by its compe�tors to
raise prices because it is a low-cost provider. It keeps
costs low
primarily because its employees are mo�vated, energe�c,
and are stakeholders in the company. In addi�on,
Southwest empowers its employees to do what they can to
solve
any customer problems that arise.
Quality of Goods
In examining the dimensions of quality for goods, it is
important to recall that a good is tangible, and therefore,
direct contact between the customer and the employees
who make

the good does not o�en occur. As a result, the factors
that comprise the quality of goods are quite different from
the factors that comprise quality service. People at all
levels of the
Motorola's Six
Sigma System
From Title:
A CEO Goes Back to the Classroom
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manufacturing organiza�on are s�ll cri�cal when
determining quality because they design and build the
product. The impact of these employees on the customer,
therefore, is
transmi�ed through the customers' use of the product. The
following list describes the factors that determine quality
for goods. As can be expected, these focus on specific
a�ributes of the product and do not include human
factors, with the excep�on of serviceability:
Performance—primary opera�ng characteris�cs of a product.
Features—secondary characteris�cs that supplement the
product's basic func�oning.

Reliability—length of �me a product will func�on before it
fails, or the probability it will func�on for a stated period of
�me.
Conformance—degree to which a product's design and
opera�ng characteris�cs match pre-established standards.
Durability—ability of a product to func�on when subjected to
hard and frequent use.
Serviceability—speed, courtesy, and competence of repair.
Aesthe�cs—how a product looks, feels, sounds, tastes, or
smells.
Perceived Quality—image, adver�sing, or brand name of a
product.
For the quality of goods, performance and features are
important dimensions of the product. These are o�en key
elements in the purchase decision whether the product is a
mobile
device, a vehicle, or an appliance. Reliability is common
to both services and goods, but as expected with a good,
it is linked directly to how the product performs.
Conformance is a
posi�ve dimension in some applica�ons, but may be
nega�ve in other applica�ons. When purchasing paint that
is to match an exis�ng color, a replacement door, or new
brakes for
a car, conformance to specifica�ons is vital. Conversely,
non-conformance may be desirable for other items such as
clothing or furniture. Durability is another trait of goods
that can
be measured and assessed, and is o�en more important
for goods that provide func�on rather than form, such as
markers for white boards, hand mixers, and can openers.
Most
people want these products at low cost and want them to
last a long �me. The last three characteris�cs are more
subjec�ve in nature. With serviceability, the customer

o�en
interacts directly with the employee who is doing the
work, so this factor has similar characteris�cs to service
quality. Aesthe�cs refers to how a product looks, which
is subject to
individual tastes, and is o�en difficult to assess.
Perceived quality is similar to aesthe�cs because
customers may have different expecta�ons.
Costs of Quality
Tradi�onally, companies thought of quality costs only as
those that were necessary to produce higher quality. In
fact, as many companies have discovered, higher quality
can mean
reduced costs because of savings from reduced scrap,
rework, and customer warranty claims. Whether performing
a medical test or assembling a mobile device, correctly
comple�ng a job the first �me improves quality and
lowers costs. Iden�fying and elimina�ng steps in a
process that do not add value for a customer has the
poten�al to reduce
selling price. While it may not be true in every instance,
there is truth in the statement that "quality is free."
Consider the following three categories of the costs of
quality:
1. Failure costs—can be internal to the organiza�on or external
involving the customer.
2. Appraisal costs—investment in measuring quality and
assessing customer sa�sfac�on.
3. Preven�on costs—put a stop to the quality problem.
Failure Costs
Failure costs are incurred whenever any product or

component of a product fails to meet requirements. Such
costs can be divided into two categories: internal or
external. Internal
failure costs are those associated with defects found before
the product reaches the customer. Examples of this include
the costs of correc�ng errors in a customer's bank
account,
discarding food that was improperly cooked, scrapping
defec�ve parts, or reworking products that contain defects.
In some cases internal failures can be dangerous to
employees,
such as when a building collapses while under
construc�on because of defec�ve materials.
External failure costs are incurred a�er a product has
reached the customer. This can include the cost of
warranty repair work, handling complaints, or replacing
products. The costs
of lost goodwill and possible liability if someone is
injured or killed because of an external failure can be
considerable. The costs of external failure can be
especially devasta�ng if
customers are lost.
Highlight: Product Liability
There are huge costs associated with quality problems
when products reach customers. There are dozens of
examples, including sudden accelera�on in Toyota's
vehicles, tread
separa�on on Firestone �res, mistakes in surgeries, and
structures that unexpectedly collapse because of poor
design or construc�on. These problems can generate
lawsuits
that are expensive to combat (and more expensive to
se�le), and nega�vely affect the reputa�on of the

company. Another example is Boeing's a�empts to deal
with problems
that arose soon a�er the release of its 787 Dreamliner.
Worries about the poten�al for ba�ery fires led to jet's
grounding soon a�er its release. The company's ability to
address the problems will impact the demand for its
products and the profitability of the company.
Appraisal Costs
Appraisal costs are the costs incurred to measure quality,
assess customer sa�sfac�on, and inspect and test products.
Ac�vi�es that are designed to improve quality by be�er
understanding the current performance level of a product
are included in appraisal costs. Appraisal costs could
include the cost of conduc�ng a customer sa�sfac�on
survey, hiring
an individual to visit, and inspect each property in a
hotel chain, or tes�ng new notebook computers to be sure
they will operate as intended. In electronic components,
most
failures take place during the first 90–180 days of
opera�ons or during the wear-out period at the end of the
product's life, and the defect rate between these two
events is very
low.
Highlight: Feedback for Hotels
Hotels such as Marriot, Hya�, and Sheraton have resorts
across the United States and around the world. These
firms want to know what their customers like and dislike
so that
each hotel can make sure that a guest's stay is enjoyable.
Hotel managers spend much �me and effort to collect
feedback from their customers. They examine past pa�erns

of
use in an effort to make the next stay even be�er. These
firms search their records to determine what customers
purchased in their gi� shops and restaurants, which tours
were booked through the concierge, and which room
service requests were made. In this way, these hotels can
a�empt to ensure a sa�sfied customer and another stay at
the
hotel chain. Because there is a large investment in a
hotel's facility, a room that is not booked for one day
loses revenues that can never be recovered. This is unlike
a washing
machine that does not sell today but can be sold
tomorrow. In addi�on to the physical facili�es, there is
substan�al management overhead within a hotel and at its
headquarters. This overhead must be paid whether or not a
room is booked. The labor at the hotel that cares for the
grounds, prepares the food, and checks in guests is paid
whether or not the room is rented. Most of the costs
associated with running a hotel are fixed and are not
alleviated when a room is not rented. Thus customer
sa�sfac�on is
cri�cal for success.
Preven�on Costs
Preven�on costs result from ac�vi�es designed to prevent
defects from occurring. Preven�on costs can include
ac�vi�es such as employee training, quality control
procedures,
special efforts when designing products, or administra�ve
systems to prevent defects. One example is the cost of
modifying a bank's computer system to request

confirma�on
whenever a teller's entries are unusually large or unusually
small. Electronic confirma�ons are also seen on entry
screens for online purchases and other applica�ons. For
example,
an error message will appear if a digit in a telephone
number is missing, and the customer will not be able to
advance to the next screen. Conversely, if an extra
keystroke is made
in an a�empt to enter a phone number, the system will
not accept it. Cri�cal informa�on, such as e-mail
addresses, require the customer to enter the data into
these systems twice.
The two entries are compared, and if they are the same,
the user can advance to the next screen. Double-entry
greatly reduces the chance of an incorrect entry. There are
many
examples of this in manufacturing as well, but customers
do not see them. Manufacturers design assembly systems
so that a part can only be assembled in one correct way.
If it fits
or snaps in place, it is correct. Parts are color-coded to
ensure they are placed correctly on the right product.
Thousands of preventa�ve measures have been
implemented to
reduce the cost of maintaining quality in manufacturing.
Highlight: Poka-Yoke: Mistake Proofing
Poka-yoke is an approach adopted by many companies to
prevent defects. This term is a rough …
Dhakal 1
Sudeep Dhakal
HIST 121 DEE - AMERICAN HISTORY TO 1877
Professor: Michael Smith

Term paper outline:
Introduction:
Immigration is defined as the movement of people from one
place (or country) to another for various reasons. Some of the
reasons leading to immigration are political or economic
factors. Sometimes it is also because of natural disasters and
people’s desire of new surroundings.
The Colonial Period - Why Immigrate?
· Slave trade
· Economic opportunity
· Religious freedom
New Wave of Immigration (1890-1914; until WWI)
· 8.8 million immigrants came; mostly from Southern and
Eastern Europe
· Italians, Poles, Russians, and Greeks came mostly for
economic opportunities or to escape religious/ethnic violence
· They were very poor and had few skills - but stuck together in
ethnic neighborhoods
The Steps into Immigration Control
· The Naturalization Act of 1790
· Politics and immigration
· Current situation of immigration and laws related to it
Conclusion: Immigration has one of the biggest problem U.S.
has been facing today. Different security measures have been
taken to control it. Building a wall in border with Mexico is one
the ongoing project to stop immigration.
3

Hemera/Thinkstock
Enhancing Productivity
Learning Objec�ves
A�er comple�ng this chapter, you should be able to:
Define produc�vity.
Describe why produc�vity is the key to an increasing standard
of living.
Discuss how the rela�onship between produc�vity and the
nature of work has changed over �me.
Explain labor, capital, and material produc�vity.
Calculate produc�vity in single and mul�ple factor cases.
Discuss important trade-offs among the factors of produc�vity.
Explain the rela�onship between wage rate and produc�vity.
Describe ways to enhance produc�vity.
Produc�vity improvements have a profound impact upon
living standards for people around the
world. Although completely cut off from society, a group
of people stranded on a tropical island
would likely employ these same improvements to increase
their quality of living.
John Foxx/Stockbyte/Thinkstock
3.1 Understanding Productivity
Produc�vity is a term that is men�oned o�en in the
news. It is a term that many believe is important, but
they are not sure why. Produc�vity is o�en associated
with increasing
efficiency and lowering costs, which have posi�ve

connota�ons. In fact, increasing produc�vity is an
essen�al factor for improving living standards. Produc�vity
is the level of output
achieved from an ac�vity divided by the inputs consumed
to make the output. While produc�vity is defined by a
mathema�cal equa�on, efficiency is a general descriptor
of the
�me or effort required to complete work. Generally,
efficiency is used to mean achieving an outcome with a
minimal amount of effort, that is, no waste; it has a
similar meaning as
produc�vity.
Produc�vity = Output/Input
The above defini�on, while accurate, does not convey the
central role that produc�vity and produc�vity
improvements have in determining living standards for
people in the United
States and around the world. To understand this impact,
imagine that seven people are stranded on an island,
completely cut off from the rest of society. The island
has abundant
natural resources. The immediate problems are ge�ng fresh
water to drink and gathering fruits and vegetables to eat.
Appropriate shelter and clothing come next. The amount of
water that seven castaways are able to drink (the output)
depends upon how much effort (the input) they place on
loca�ng, collec�ng, transpor�ng, and storing it. As the
group
becomes be�er at gathering an adequate supply of water
with less effort, members of the group have more �me
for gathering food, building shelters, and making clothes.
For
example, rather than going to the water source each �me
a person is thirsty, the group could build buckets and

barrels to transport and store large amount of water that
is easily
and quickly accessible. This investment in designing and
building tools to make collec�ng water faster and easier
frees �me for other ac�vi�es. Eventually, as shelters are
built, they
could be designed and constructed so that the roofs could
collect rainwater and funnel it into water barrels. This
system would eliminate the labor required to collect water,
thus
providing more �me for other ac�vi�es, such as growing
a large variety of food, building transporta�on devices,
swimming, and devising forms of entertainment.
As the seven castaways become more produc�ve, they
meet their basic needs (outputs)
with less �me and effort (input). This provides free �me,
which can be used to create
new products, develop be�er ways to make exis�ng
products, and enjoy leisure
ac�vi�es. Put in the simplest terms, the seven castaways
can only consume what they
produce. The more they produce, the more they must
consume. In this simplis�c
example, the castaways clearly benefit by finding ways of
"doing more with less," which
is a phase that is synonymous with cost cu�ng, and may
have a nega�ve connota�on.
Doing more with less is the way to achieve an improved
living standard.
A 21st-century economy with more than six billion people
is similar to the castaway
economy because the concept of produc�vity does not
change. Produc�vity s�ll
measures the ability to produce goods and services

(outputs) compared to the inputs or
resources used in the process. The primary difference is
that most work in the economy
is done by groups of people working in organiza�ons. As
discussed earlier in this text,
organiza�ons exist to meet the needs of society that
people working alone cannot. It is
through these organiza�ons that people achieve the
coopera�on and coordina�on to
produce the array of services and goods consumed each
day. First, organiza�ons allow
individuals to specialize in work, such as produc�on,
engineering, and sales. Second,
they support the development and implementa�on of
technology and automa�on to
achieve greater produc�vity. Third, organiza�ons provide a
mechanism to coordinate
work toward a common set of goals. Examining and
redesigning organiza�onal processes
and ac�vi�es is a key source of produc�vity
improvement. The following examples
illustrate these points.
1. Specializa�on—Product design for life insurance requires an
es�mate of life
expectancy. This effort is cri�cal to se�ng the terms and
condi�ons of the policy,
including the premium. Actuaries are sta�s�cians who
specialize in making this
es�mate. Their produc�vity (ability to make the es�mate
quickly and accurately) is
greatly enhanced by specializa�on. They are well trained in the
techniques required to
do the job. An employee of the life insurance company with
training and educa�on as
a general manager, sales manager, or accountant would require

significantly more
�me and effort to do actuarial work, and the es�mate would
probably be much less accurate. Similarly, the actuary would
likely make a poor accountant or manager.
2. Technology and Automa�on—At today's universi�es,
students have the op�on of paying fees using electronic funds
transfer (EFT) via the Internet rather than standing in line at the
cashier's office—the approach used a genera�on ago. Not only
is EFT more convenient for the student (improves the student's
produc�vity by requiring less �me to make the
payment), it also increases the produc�vity of the workforce at
the university. From the university's perspec�ve, each
transac�on that shi�s from paying in person to paying using
EFT reduces the amount of �me university employees spend
accep�ng the payment and entering informa�on into the
computer system. This presents an opportunity to cut costs
and to do more value-added work.
3. Process Redesign—In many organiza�ons, marke�ng and
sales are responsible for gathering informa�on about customers
and their orders. When a customer makes a request that
requires special processing, such as a special finish on a piece
of steel or a major change to a so�ware module, that
informa�on is relayed from the customer through sales to the
people who do the work, and takes extra �me and effort,
thereby increasing the risk of errors. Changing the process so
that the customer can communicate directly with the people
doing the work increases the produc�vity of all par�cipants.
This can be accomplished in a number of ways, including
having the customer visit the facility and meet with the
employees, or sending employees to meet the customer. It can
also be done by sharing feedback from customers in a video
format and providing "made by" informa�on so the
customer know who made the product. Providing customer with
the employees' email or other points of contact is helpful.

Employees tend to respond be�er when the contact with
the customer is personal.
Real World Scenarios: Procter & Gamble Work With Walmart
Some�mes, process improvements involve working across
organiza�ons. In many cases, retailers are working with
suppliers to develop innova�ve ways to improve the
replenishment process and reduce the resources devoted to
manage this rela�onship.
Procter & Gamble (P&G) supplies Walmart with disposable
diapers—a bulky, inexpensive, high sales-volume and low
profit-margin commodity—so Walmart must keep
inventory low and product availability high. To accomplish
this, Walmart has changed its replenishment process.
Rather than placing orders with P&G, Walmart provides
sales
data for each individual store. It is P&G's responsibility
to track inventory, schedule produc�on, and deliver
diapers to the store.
How does this shi�ing of responsibility improve the
process? P&G receives sales data from Walmart each day.
P&G uses the data, along with orders from other
customers, to
schedule its produc�on processes more effec�vely and
generate orders for its suppliers more quickly. P&G can
more easily balance its produc�on process to reduce
spikes in
produc�on, which can lead to higher costs through the
need for over�me produc�on and similar effects. P&G
suppliers, in turn, can improve their response �me and
reduce

their in-process inventory. Walmart spends less �me
tracking inventory, deciding how much and when to order,
and placing the order. As responsibili�es shi� between
P&G and
Walmart, overall costs decline, product availability
increases, and the amount of unnecessary communica�on
and interac�on between organiza�ons is reduced.
Money Versus Productivity
Produc�vity is more important than money when
improving the standard of living, because produc�vity
determines the level of output and, therefore, consump�on,
whereas money
measures the value of the output. Money in the form of
revenue, profits, and income is a way for organiza�ons
and individuals to track performance. Refer to the
castaway example
men�oned earlier. Suppose that each castaway landed on
the island with $1 billion in gold. The money does not
create a single glass of water or one bit of food. It is
only through
the work of the castaways that these commodi�es are
gathered and produced. Methods to increase produc�vity,
such as specializa�on of labor, automa�on, technology,
and process
improvement, create be�er living condi�ons and a society
with a higher living standard.
Ini�ally, the small island economy may use a barter
system in which a castaway gathering water would trade
water for food with another castaway gathering or growing
food. As the
economy grows in complexity, a currency will likely
emerge to facilitate the exchange of goods and services,
because bartering can be cumbersome. Suppose a currency

is in place,
and it is based on the gold that the castaways brought
with them. Now suppose the castaways discover gold on
the island. They divide the gold up evenly, so now each
castaway
has twice as much gold as before and wants to buy more
goods and services. The immediate impact is to increase
the price for items because the quan�ty of available
goods and
services has not changed. There would be no increase in
the goods and services available unless produc�vity is
improved or the castaways work more hours at the same
level of
produc�vity. For the island economy, it does not ma�er
whether or not more gold is found, the castaways could
do either of these ac�vi�es: increase produc�vity or
increase the
number of hours worked.
As the popula�on grows and the island economy develops,
income for each individual would be determined by the
value of the work they could do. If medical care, for
example, is
determined more valuable than educa�on, doctors would
receive a higher income than teachers. This would allow a
doctor to consume more than a teacher because the value
of
the doctor's labor is judged to be higher. If an individual
in a developed economy finds $1 million worth of gold in
his or her backyard, that s�ll does not generate more
output. It
does, however, allow the person to outbid others for the
outputs of the economy and consume more. Someone else,
in turn, must consume less un�l produc�vity increases.
Productivity and the Nature of Work

Many individuals believe that produc�vity applies
primarily (or exclusively) to the blue-collar workforce.
People think of the number of laptop computers produced
by workers on an
assembly line, or the amount of paper produced in a mill
as key produc�vity data. While the produc�vity of blue-
collar workers is important, blue-collar workers represent a
small
and declining por�on of the workforce in developed
countries.
During the 20th century and con�nuing today, there has
been a substan�al shi� in the nature of work. Early in
the 20th century, nearly 80% of the workforce in the
United States
performed manual work, with the balance doing intellectual
work, such as designing, planning, and managing. Today,
that percentage has reversed. In addi�on, about 80% of
the
workforce in the United States is employed in service
organiza�ons. Of those employed in manufacturing, many
work in management, sales, and other staff ac�vi�es,
such as quality
control and engineering. Like the seven castaways, the
produc�vity of everyone is important because each impacts
the living standard of all. Because a large por�on of the
U.S.
workforce does intellectual work, its impact upon living
standards is very important. Table 3.1 presents some
examples of people doing intellectual work, key measures
of their
produc�vity, and possible methods to improve that
produc�vity.
Table 3.1: Produc�vity measures and methods of

improving produc�vity
Worker Ac�vity Measure Method of Improving Produc�vity
University
faculty
Educates students or
educates them be�er
Student credit hours taught. This does not take into
account what
students have learned or other du�es of faculty, including
curriculum
design, research, and service.
Increasing class size leads to more
student credit hours
Assigning more sec�ons per faculty also
leads to more student credit hours
Distance learning provides access to
educa�on that may not otherwise be
available
Innova�ve teaching methods can improve
the quality or the quan�ty of what is
learned
Postal worker Oversees the opera�on
of an automa�c sor�ng
machine
Number of pieces of mail sorted in an hour Equipment
improvements that speed up
the sor�ng process
Job training

Case worker
for children's
services
Manages the care of
children in foster homes
Number of cases under management at any �me. This
does not consider
the degree of difficulty of the cases, or the quality of the
service
provided.
Informa�on systems, including databases
that support care
Communica�on technology that gives
access to foster parents, service
providers, and support services
Productivity in Service Organizations
Through the last half of the 20th century, as the U.S.
economy shi�ed from a manufacturing-based economy to a
service-based economy, produc�vity improvements lagged
because
produc�vity gains in the service sector were more
difficult to achieve. With rapid advances such as the
Internet, telecommunica�on, and mobile devices of all
types, the ability to
improve the produc�vity of the intellectual labor force has
increased dras�cally. Companies that are able to apply
these technologies are gaining a compe��ve edge. For
example,
Northwestern Mutual has a processing cost of $.063 cents

for each dollar of premium collected from its
policyholders while its compe�tors' costs range from $.15
to $.20. It is
logical to argue that these companies have not managed
their resources and technology effec�vely. Costs for
telephone access, both wired and wireless, are declining as
technology
is applied to reduce equipment and labor costs.
The Quality Condition
While the importance of quality may be obvious, it is
worth discussing. Produc�vity calcula�ons are based on
the assump�on that quality levels are maintained. If an
organiza�on
produces more output with the same level of resources,
but the quality of the output is lower, then produc�vity
may not increase. If a company produces more computer
so�ware,
but the so�ware is defec�ve and must be corrected, then
the company has gained li�le. In fact, produc�vity may
actually have been reduced. If a lower quality product
reaches the
consumer, and the product's value to the consumer is
reduced, or the consumer must spend addi�onal resources
to prepare the product for use, produc�vity is affected.
The same
ideas apply to a research laboratory or an inner-city
mission. If researchers' output is higher quality, the people
that use their work will benefit because the output has
more value.
If the mission provides be�er nutri�on and preven�ve
health care screening, the people using the services will
feel be�er and the cost of health care should decline.
This frees
health care resources for others.

Conversely, quality may be another way to boost
produc�vity. If firms find ways to make a higher-quality
product, using the same or fewer resources, then
produc�vity increases
because the output has greater value. Following the
so�ware example, if a firm purchases new so�ware
development tools that are easier to use and result in
fewer errors, the
produc�vity of its programmers and analysts increases.
It is essen�al to define and measure the inputs and the
outputs of an ac�vity to calculate
produc�vity. If a manufacturing opera�on makes a single
product on an automa�c machine, it is
simple to calculate the produc�vity of that machine.
iStockphoto/Thinkstock
3.2 Assessing Productivity
To calculate produc�vity, it is essen�al to define and
measure the inputs and the outputs of the ac�vity. In the
simplest cases, measurement is a trivial problem. If a
manufacturing
opera�on makes a single product on an automa�c
machine, calcula�ng the produc�vity of that machine is
simple. The output over a given period of �me is
measured. It is usually
be�er to measure a rela�vely long period of �me, days
or weeks rather than minutes or hours. The reason is that
the outputs may be greatly affected by a short-term
occurrence
such as a machine breakdown.

Example: Machine Produc�vity
If a machine can make 200,000 roofing nails in 40 hours,
then the produc�vity of the machine is 5,000 nails per
hour. This is a single-factor produc�vity calcula�on
because
only the machine is considered.
Machine Produc�vity = 200,000 roofing nails/40 machine hours
Machine Produc�vity = 5,000 roofing nails/machine hour
The resul�ng data become a benchmark that the firm
seeks to improve. Suppose the firm invests in a new
piece of equipment that automa�cally feeds metal to the
machine
so the machine can run faster. Now, the machine is able
to produce 210,000 nails in the same 40-hour period.
Produc�vity has increased from 5,000 nails per hour to
5,250.
Produc�vity has increased by 5%. Change in produc�vity
is the produc�vity a�er the new equipment minus the
produc�vity before the new equipment divided by the
original
produc�vity �mes 100. Make sure that the sign of that
number is kept so it can be determined if produc�vity
increases or decreases.
Percent Change in Produc�vity = (New Produc�vity – Old
Produc�vity)/Old Produc�vity (100)
Percent Change in Produc�vity = (5,250 – 5,000)/5,000
(100)
Percent Change in Produc�vity = 5%
Inputs and Outputs

While this simple example illustrates the method for
calcula�ng produc�vity, it does not consider that most
opera�ons have more than one input and more than one
output.
Economically, the inputs are:
1. Labor by managers and workers (either internally or
externally)
2. Capital for land, facili�es, and equipment
3. Materials, including energy requirements
The importance of these factors varies widely for
companies producing different products. For example, steel
mills require large amounts of energy while Children's
Services, a social
service agency, uses very li�le. In a steel plant, the
significant inputs include managers, laborers, land,
facili�es, equipment, energy, and raw materials. The
inputs for Children's
Services include management and caseworkers. For
Children's Services, the investment in land and facili�es
would be small compared to labor costs. Equipment
investments may be
relevant for informa�on technology. Energy and raw
material costs would be very small. Material costs would
also be low with only small quan��es of office supplies
required.
Outputs can be more difficult to define and measure. For
example, how would the
produc�vity of a fast-food restaurant be measured? Would
it be measured by
customers served per hour? If so, that calcula�on is
problema�c because customers
may order different things. Measuring output as the
number of items sold also can

be misleading because these restaurants sell various items
(such as drinks,
sandwiches, and ice cream) that have different value to
each customer, which is,
therefore, reflected in the prices charged.
These examples illustrate two important issues that can
complicate how
produc�vity is measured: (1) How can mul�ple inputs
with different economic
values be included? In the fast-food example, how does
the produc�vity of labor
relate to the produc�vity of capital or materials?; (2)
How can mul�ple outputs
with different economic values be calculated? Con�nuing
the fast-food example, a
pizza shop may produce hot submarine sandwiches, chicken
wings, and bread
s�cks. How does it value those outputs compared to a
pizza? Even if the pizza shop
sells only pizza, there are different sized pizzas with
different toppings that have
different economic value. In cases where there are
mul�ple inputs or outputs with
different values, dollars rather than item counts or hours
worked are used to
measure both inputs and outputs.
Labor Produc�vity
Labor is the most obvious input in the produc�vity
equa�on. In fact, some
businesses are concerned only with measuring labor
produc�vity because it is easy
to calculate and many managers believe it is one factor
under their direct control.

For many service opera�ons, labor is the largest input. In
service opera�ons, such as banks, hospitals, and
universi�es, labor is o�en 70% or more of total costs.
For manufacturing
firms, however, it is important to note that direct labor,
people who work in producing goods, usually accounts for
a small percent of total input costs—10% or less. Indirect
labor,
which is labor that supports produc�on such as quality,
supervision, and maintenance, can be two or three �mes
the cost of direct labor cost. If indirect labor,
management costs,
Materials and energy are o�en cri�cal inputs to
manufacturing
processes, but may be insignificant within service
opera�ons. For
example, laboratory supplies purchased for universi�es and
hospitals
represent a very small part of the inputs required for the
organiza�on.
Comstock Images/Thinkstock
Robo�c Technology in the Workplace: Inves�ng
and outside services are added to direct labor costs, the
total is usually below 50% of the cost of all inputs.
Some service opera�ons may be able to func�on
minimally with only
labor produc�vity, but a broader perspec�ve on
produc�vity may be relevant.

The simplest way to determine labor produc�vity is to
measure output per labor-hour. This approach does not
account for varia�ons in pay rates among workers. To
calculate such
rate differences, many companies use labor costs as a
measure of inputs. The equa�on for labor produc�vity is:
Labor Produc�vity = Quan�ty or Value of Units
Produced/ Labor Hours or Labor Cost
The equa�on for any other individual factor of
produc�vity differs only by its �tle and its divisor. For
example, to calculate material produc�vity, use material
quan�ty or material
costs as the divisor.
Capital Produc�vity
Another major component of produc�on is capital, which
includes all money invested in land, facili�es, and
equipment, as well as working capital, such as inventory.
Capital
produc�vity can increase when firms invest in new
facili�es and equipment that increase output. Capital
produc�vity can also be increased if a company can
produce the same level
of output as it previously had while reducing its inventory
levels or other working capital requirements. Many firms
invest in new facili�es and equipment in order to reduce
labor
costs; however, the benefits of making a capital
investment may greatly expand labor produc�vity and
capital produc�vity may instead decline. These trade-offs
are discussed later
in the text.

Service and manufacturing firms o�en have very different
capital requirements. Service opera�ons o�en have
rela�vely small investments in capital. For example,
insurance
companies require office space, furniture, informa�on
systems, and working capital, which represent a small part
of their input costs. Hybrid service opera�ons, such …
Discussion 1 Responses
Productivity
Many times trade-offs are necessary to increase productivity.
What are important trades-offs involving the inputs to
productivity? Your initial post should include real life
situations and be at least 200-250 words.
Guided Response: Respond to two of your classmates’ posts and
identify specific trade-offs. Give additional advice and
alternative ways to increase productivity for the future.
Respond to Alexis Weeks post
Productivity can be measured by inputs and outputs, the output
divided by the total input determines the productivity level
(Vonderembse & White, 2013). It is possible to increase
productivity by keeping outputs the same and decreasing inputs
or increasing outputs by not changing the inputs, it does take
trade-offs of inputs and outputs to make this happen. This could
mean that a company trades capital for labor or capital for
energy, there are many different types of inputs that should be
evaluated during a trade-off exercise (Vonderembse & White,
2013).
A great example of a trade-off including capital and labor
would be the automation of tasks using technology. There was
this process in my company where hourly employees would
submit a ticket saying they messed up on their time sheet and
needed their time corrected for them to get paid the correct
amount. That ticket would go to an individual and that
individual would go into the time keeping system and correct

the time as necessary. There were about 55,000 corrections
submitted a month, which was a lot for those workers to
process. The company ended up investing time and money into a
bot to do those tasks. Now there is a bot that processes all
correction tickets so that the employees can focus on more
value-add activities. This allowed the company to increase
productivity by decreasing the input of work that the employees
were putting in.
Reference
Vonderembse, M. A., & White, G. P. (2013). Operations
management [Electronic version]. Retrieved from
https://content.ashford.edu/
Respond to Sierra Palush post
Productivity is measured by inputs and outputs in a
manufacturing operation (productivity = output/input). Input is
the time and effort put in to get the output or goods and
services. They are best measured over longer periods of time.
An increase in productivity would be increasing output while
maintaining input or decreasing input while maintaining output.
Trade-offs are necessary because productivity increases are both
difficult to achieve (Vonderembse & White, 2013). As stated by
Vonderembse and White (2013), "Companies must contend with
trade-offs among the various inputs in order to achieve
increases in overall productivity, called multiple-factor
productivity. In this case, some individual factors of
productivity may decrease while others increase" (Section 3.2).
Capital has been traded for labor for thousands of years. This
refers to investing in something that lessens the amount of labor
that will need to go into completing a job and results in
increased productivity. The risk is high in this trade off, but the
benefits can also be very high (Vonderembse & White, 2013).
An example of this trade-off is the self-check out at the grocery
store. Capital had to be invested into this technology but they
decreased the need for cashiers and were able to use that money
or labor elsewhere. Another trade-off is trading capital for

material or energy (Vonderembse & White, 2013). An example
of this would be investing money into new equipment that can
put out more material or put out the same amount of material
from less input. Another trade-off is trading materials for labor
(Vonderembse & White, 2013). I see this trade-off at the dental
clinic I work in. We use disposable supplies when possible to
avoid having to clean or sterilize certain items. We spend more
in materials but save in labor costs. Lastly, productivity can be
improved through product maintenance (Vonderembse & White,
2013). I also see this a lot at work. We want to maintain our
equipment while it is working well in order to avoid high repair
costs or loss of productivity in the future. The same goes with
our cars. We perform scheduled maintenance, like oil changes,
to avoid hefty repair costs due to neglect.
Reference
management Retrieved from https://content.ashford.edu/
Discussion 2 Responses
Product Design and Quality
Read the Forbes article, “The Forces That Are Transforming
How Products Are Made (Links to an external site.).” Based on
the content presented in the article, what forces and important
organizational activities enable a firm to build quality into its
products? Explain each of these along with their benefits. Your
initial post should include examples and be at least 200-250
words. Respond to at least two of your classmate’s posts.
Guided Response: Respond to two of your classmates’ posts and
identify critical factors of building quality into products.
Provide additional advice and benefits of building quality into
products.
Respond to Jocelyn Witt Post
Dimensions of quality help transfer customer's needs into
internal processes which helps exceed product/service quality.

Quality is meeting or exceeding customer's needs and
expectations on a consistent basis. Taking external processes
and turns them into internal processes helps improve quality.
There are five dimensions of quality that are used by customers
to help judge the service quality and having an understanding of
these helps define and improve quality depending on the good
or service. Reliability, responsiveness, assurance, empathy and
tangibles are all dimensions of quality. For force driving
change, there are many factors that are influencing it.
Digitization, personalization, "smart" products, connectivity,
servitization, globalization and, regulation are a few key factors
that are continuing to drive manufacturing business and
building quality into products.
Reliability is the ability to perform the promised service
dependably and accurately. Responsiveness is the willingness to
help customers and provide prompt service. Assurance is the
knowledge and courtesy of employees and their ability to
convey trust and confidence. Empathy is the provision of
caring, individualized attention to customers. Tangibles is the
appearance of physical facilities, equipment, personnel, and
communication materials, including access and effectiveness of
Internet-based information (Vonderembse & White, 2013). Any
company or organization must be able to utilize the five
dimensions of service quality to help improve their customer
satisfaction but, should also implement the factors that are
changing the business manufacturing process all together!
Thank you,
Jocelyn Witt
References:
Ambruch, B. (2013, October 21). The forces that are
transforming how products are made (Links to an external
site.) (Links to an external site.). Forbes. Retrieved
from http://www.forbes.com/sites/ptc/2013/10/21/the-six-
things-that-are-transforming-how-products-are-made/ (Links to
an external site.)

management [Electronic version]. Retrieved
from https://content.ashford.edu/
Respond to Carrie Fullwood post
Producing a quality product is great way organizations
differentiate themselves from their competition. According to
the article in Forbes, entitled “The Forces That Are
Transforming How Products Are Made,” there are serval forces
that impact the production of quality products. The first has to
do with technology. Smart products, along with connectivity
encompasses the way technology has affected the way the world
connects and communicates with each other, so much so that
devices over 50 billion devices are expected to be connected to
a global network (Ambruch, 2013). The growing capability of
devices we use every day to be able to identify themselves and
communicate directly with other device enhance the user's
experience, leading to the force of servitization (Ambruch,
2013). Improving service is a crucial indicator to improve
competitiveness even for manufacturers; as a result, there
should be a focus on the relationship between themselves and
the consumer implemented via a smart device (Ambruch, 2013).
The digitization brought by technology has been able to
improve procedures in such a way add value to the customer
experience, as consumer demand continues to evolve,
manufacturers are forced to contend with the consumer
preferences for more variety (Ambruch, 2013). Because of the
global market in which resources can be received from various
parts of the world comes more regulation concerns (Ambruch,
2013). Each force has its place in contributing to the
development of a quality product. Smart products are popular
among consumers as a product helps to provide services that
consumers value. The insights and data the is gained by
providing those services are valuable and useful to
manufacturers.
References

Ambruch, B. (2013, October 21). The Forces That Are
Transforming How Products Are Made. Retrieved from Forbes:
https://www.forbes.com/sites/ptc/2013/10/21/the-six-things-
that-are-transforming-how-products-are-made/#ee5da7949806

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