international journal of

production
economics
ELSEVIER Int. J. Production Economics 36 (1994) 169-183

Improving productivity and quality in manufacturing organizations

A. Gunasekarar? *, A.R. Korukondab, I. Virtanerf, P. Yli-Olli”
aSchool of Business Studies, University of Vuasu, P.O. Box 297, 65101 Vaasa. Finland
hDepartment of Management Sciences, School oJ’Business, St. Bonaventure University, St. Bonaventure. NY 14778, USA

Received 15 January 1993; accepted in revised form 1 February 1994

Abstract
Today most firms are interested in a strategic approach for improving productivity and quality in their organizations.
Consistent with this thrust, this paper attempts to provide a strategic framework for such efforts. The main focus of this
paper is on integrating various functional groups of a manufacturing organization and highlighting the role of new
manufacturing concepts and technologies in such integrations. Comparison of earlier and present practices of production
operations signifies the importance of JIT, TQM, and FMS in improving the integration of various functional areas and
alignment between business, manufacturing and quality improvement strategies. The role of knowledge workers and
support services play a dominant role in improving productivity and quality in manufacturing organizations, especially
in advanced manufacturing systems such as JIT, FMS and CIM.

Key \cords: Improvement; Productivity and quality; Functional integration

1. Introduction recent developments towards improving productiv-

ity and quality, (ii) importance of integrating func-
Productivity is an aggregated concept of overall tional areas in improving productivity and quality,
efficiency/effectiveness of the organization con- (iii) role of new manufacturing concepts and tech-
cerned. At the firm level, productivity should be nologies in improving productivity and quality,
understood as a dual concept, i.e. productivity as and (v) a strategy development for integrating the
the principle, as briefly described above, and pro- functional activities with an objective to improve
ductivity as a ratio. Thus efficiency and effec- productivity and quality in manufacturing orga-
tiveness are two major subconcepts of productivity nizations. An attempt has been made to discuss
[l]. The benefits of productivity and quality im- these issues in a systematic manner with an aim of
provements lie in strategic advantages such as in- providing some insights into the recent develop-
creased market share, but also bring internal gains ments of productivity and quality improvements in
such as higher wages and bonus. The purpose of manufacturing organizations.
this paper is to discuss the following issues: (i) Even though historically quality and productiv-
ity have been dealt with separately, while establish-
ing strategic improvements, they should be
* Corresponding author considered together in strategic and operational

Ct92575273/94/%07.00 0 1994 Elsevier Science B.V. All rights reserved

SSDI 0925-5273(93)00023-4
planning. This is because of the fact that quality has For example, direct labor which has been playing
not been given equal importance as compared to a significant role in improving productivity earlier
productivity. Mostly, companies have concentrated has been significantly reduced by automation.
upon increasing the output rate and considered Knowledge workers and other support activities
quality as synonymous with cost. In addition, they such as computer operators, maintenance workers
treated as being more expensive. But the recent and draftsmen play a significant role in integrating
developments and the focus are different. An in- various functional departments such as marketing,
crease in quality does not only reduce cost, but also distribution, finance, design and engineering in
improves productivity by eliminating any rework a manufacturing company by improving the com-
and unnecessary inspections, that is, by the use of munication between them. Even among the ma-
productive resources. Productivity as a measuring chine tools, new trends toward flexibility, changes
tool presents many opportunities for evaluating the productivity issues in the company to a large ex-
performance of different divisions in a company tent, so much so that it cannot just be measured by
and to caution the managers against inefficient the number of machine tool hours run alone.
operations and wastage of resources. Quality has Rather, how flexible the machine is in terms of
also moved beyond inspection and has been gain- routing the products, performing different opera-
ing importance as a strategic tool for increasing the tions, and the maintenance required. Advanced
efficiency of the company by way of improving technologies also bring in their share of complexity
resource utilization and satisfying the needs of cus- into the productivity issue. For instance, the benefit
tomers in terms of price and reliability. Nowadays, of using a particular raw material cannot simply be
most of the activities are decentralized in a com- measured by calculating the cost alone; one should
pany. Each department works on the basis of im- also account for future cost which is related to
proving the efficiency of its own system. However, a particular raw material concerning the quality of
their individual objectives should support the goal products and processing capabilities. New manu-
of the organization as a whole as the operations of facturing concepts such as just-in-time (JIT), zero
a department are constrained by one another. That inventories (ZI), and total quality management
is why there is a need to integrate various func- (TQM), and technologies like flexible manufactur-
tional areas in the manufacturing system for im- ing systems (FMS), computer-integrated manufac-
proving productivity and quality. Furthermore, turing systems (CIM), and optimized production
there should be a smooth flow of information con- technology (OPT) have a tremendous impact on
cerning the company’s policies and goals. Consid- the output of manufacturing companies. Hence,
ering the role of integration in improving quality there is a need to focus our attention on how these
and productivity, an attempt has been made in this new ideas and technologies of production can be
paper to develop a strategic framework for improv- useful for practitioners in formulating productivity
ing the integration between various functional and quality improvements strategies.
activities in manufacturing firms in the light of There are numerous research reports [l--24]
modern technologies and conceptual insights. available on productivity and quality improve-
Productivity is the ratio of output to input. In ments. Most of them deal with benefits that could
otherwords, it shows the degree of efficiency in be achieved by localized improvements such as
doing work in an industrial activity. In a manufac- set-up reduction, smaller batch sizes, use of com-
turing company, productivity can be defined in puters in information systems. However, they do
terms of how the resources such as materials, labor, not offer any concrete strategic approach on how
and machines have been utilized to produce quality to improve productivity and quality of the whole
goods and services. Traditionally input has been organization against the background of business
controlled with a view to minimize the wastage of strategy. Realizing the importance of such an ap-
resources and to improve productivity in such proach, a framework has been offered in this paper
manufacturing companies. However, there is a shift to improve productivity and quality in manufactur-
in factors controlling the input resource utilization. ing organizations. The main focus of this paper is to
 A. Gunasrkaran et al. lint. J. Production Economics 36 (1994) 169- 183 171

develop suitable strategies for the purpose of integ- discussed issues of productivity and quality prob-
rating the activities of various functional depart- lems considering the recent trends in manufactur-
ments in manufacturing organizations, using recent ing and service environments such as, automation,
developments in production concepts and tech- flexibility, computers and multifunctional workers.
nologies. In particular, they emphasized the characteristics of
This paper is organized in the following manner: good measurement systems such as, simple and
Section 2 presents the recent developments towards effective, flexible, adaptable, and dynamic and their
improving productivity and quality. Section 3 de- role in improving productivity and quality.
scribes how the integration of various functional Gold [ 11) offered some guidelines for integrating
activities helps to improve productivity and qual- productivity improvements within the strategic
ity. The role of new manufacturing concepts and planning. Productivity improvements provide
technologies in improving productivity and quality a means not only for gaining competitive advan-
is presented in Section 4. Section 5 presents a strat- tages, but also for minimizing the threats posed by
egy development for improving productivity and increases in factory prices and decreases in com-
quality. The strategic options are presented based petitive prices. However, very few attempts have
on the characteristics of the company. Section been made to formulate a strategy from the total
7 concludes the paper. system point of view which includes integrating
various functional areas, business, and productivity
and quality improvement strategies. Several
2. Recent developments towards productivity and authors 17, 121 have attempted to define the dimen-
quality in manufacturing systems sions or components of manufacturing strategy as
a statement of how manufacturing supports the
There is a number of research reports in the overall business objectives through appropriate de-
literature to deal with productivity and quality sign and utilization of manufacturing resources.
improvements. Drucker [2] points out the import- However, the majority of reports deal with the
ance of knowledge workers and support services in directions only for integrating marketing strategy
improving productivity and quality in manufactur- and manufacturing strategy and fall short of pro-
ing organizations. Gitlow and Hetz [3] studied the viding any concrete solutions for the exact align-
impact of product defects and its impact on pro- ment of such strategies.
ductivity. They also observed that reducing the In this paper, we focus our analysis on productiv-
defect level increases productivity and provides op- ity issues, however, the issues of quality improve-
portunities to utilize the available resources effec- ments are also motivated at appropriate places.
tively. Recent changes in production methods such Obviously, productivity cannot be achieved with-
as JIT, ZI and TQM and technologies such as out quality improvements and vice versa. For
FMS, OPT and CIM have focussed on improving example, if a product is found defective during
productivity and quality of manufacturing orga- production, this requires special attention in terms
nizations. Judson [4,5] offered a framework for of rework and inspection. This in turn disturbs the
integrating business and productivity improvement normal material flow, and hence an increase in the
strategies. He also offered some guidelines on how lead time of other products and reduced productiv-
to align business and productivity improvement ity. Therefore, productivity and quality should
strategies. Prokopenko [6] presented a detailed move together to achieve simultaneous improve-
analysis of productivity management including ments.
productivity measurements. Shapiro [7] explained Table 1 presents the changes that have taken
the importance of integrating marketing and manu- place in recent years in manufacturing organiza-
facturing strategy in increasing the organizational tions towards improving production and quality.
effectiveness. In addition, there are many reports This table also emphasizes the need for developing
(for example [S, 91 that deal with productivity and new strategies for improving productivity and
quality as strategy variables. Rossler and sink [lo] quality utilizing new manufacturing concepts and
172 A. Gunasekaran et rd. i Int. J. Productron Economics 36 i 1994) 169 IX3

Table I
Trends in the manufacturing systems [ 131

Environment Traditional practice Current practice

Strategic planning Market orientation Manufacturing as a competitive weapon, elimination

of waste, improved quality, process reliability,
emphasis on integration of engineering and
manufacturing, flexibility, responsiveness

Basic research and development Emphasis on product R & D (features. Product/process engineering, automated process
appearance) technologies CAD. CT, CAM. MIS, decision support
systems

Marketing Compete based on certain product features Compete based on reaction time, quality, reduction of
and price. complex forecasting technique, nonvalue-added costs, field reliability is emphasized,
field service emphasized flexibility, automation, more product features,
increased responsiveness

Product/Process development Two separate and distinct function with Design for manufacturability, integrated
and maintenance little interaction, maximize design criteria, productiprocess development, GT for process
emphasis is on product features, manually planning, interaction with vendors. CAPP, product
engineered, product/process changes design for automation, fast response, CIM, close ties
costly and slow between marketing, engineering, and manufacturing

Tooling and Production Dedicated tools, centralized tools, General-purpose tools, tools located near point of
programming proliferation of tools use, NC. CNC. adaptive control, CT, software
support, data base.

Production Management Complex systems utilized to balance Fewer support personnel, less detailed transactions,
hresources and demand (MRP, capa- real-time control, expert systems for shop loading,
city planning, infinite series planning), bar code, optical scanners to post production
many support personnel required for monitoring, paperless systems
excessive material handling, and
schedule changes, large databases, too
much paper work

In-process material movement Overall goal is high utilization of Small lots, use of standard containers, cellular
machines, large lots, excessive material manufacturing, few-in-process storage, AGVs, CIM,
handling, AS’RS
manual operations. forklifts, in-
process storages

Production operations Labor-based, run large lots, creation of Run small lots, triggered by demand, CT.
demand technology-based, integration of all operations,
minimize the lead time, process improvement, set-up
time reduction

Incoming material control Many vendors, spread-out locations, large Few vendors, nearby; close business ties, vendor
deliveries, selection based on lowest price, certification, source inspection, smaller lot deliveries
customer inspects goods AS/RS, JIT purchasing, electronic links to vendor

Outgoing material control Build to forecast, stockouts, shipping Less need for finished good stores because of
delays, high inventory cost, distribution shortened lead times, build to demand, electronic link
systems paper-intensive with customers

Production quality control Separate quality control departments, Quality at the source, built-in, totally eliminate
inspection is a discrete operation, quality defects, worker participation, quality circles, SPC.
is “inspected in”, allowance for scrap, mistake-proofing, design for inspectability,
rework, inspection and return by entire lot automation, in-line gauging, zero defects, sensors,
CIM.
 A. Gunasekaran et al.lInt. J. Production Economics 36 (1994) 169-183 173

Table 1 (continued)

Environment Traditional practice Current practice

Human resources Large number of direct workers, manual Major education to instil JIT, cross-training,
skilled, labor-productivity cooperation, quality circles, overlap reduced, better
communication, reduced direct labor, multifunction
worker, knowledge workers, Computer skills, flatter
organizational structure, CIM, Cf.7

Information systems Expensive, centralized, long lead time, Decentralized, simplified, increased communication
lack of integration, reliability problems needs, MIS, CIM, all systems integrated and on-line,
with hardwares NC code

Facilities management Layout by function, maintenance as CT layout, less space required, flexible facilities,
required, centralized support functions, minima1 need for inventory storages, layout for
large space for inventory, excessive automation, focused factory, large support staff
material handling

Product service Complex product design, high warranty Higher quality, lower warranty costs, shorter lead
costs, quality problems, maintenance of time, lower EOQ, improved maintainability, Expert
large inventory to support spares, systems for spares, higher customer-service levels.
high EOQ

technologies. If we look at the recent trends in dously grown in recent years and is very important
manufacturing, automation (FMS, CIM) and qual- in improving productivity and quality especially in
ity management (TQM, DFQ, SPC) have played advanced production systems such as JIT, FMS
a leading role in improving the system performance and CIMS. Besides, the TQM concept emphasizes
by integrating the marketing and manufacturing the implementation of preventive maintenance to
strategies. Previously, manufacturing organizations eliminate defective items completely for improved
have labor intensive production systems, but now- product quality and productivity.
adays the trend is towards more capital intensive
equipment, automation, and flexibility focusing on
long-term interests. These manufacturing systems, 3. Integration of functional activities for improving
in turn, require knowledge workers as opposed to productivity and quality
less skilled workers due to the inherent nature of
the advanced production systems. Expert systems The integration of various functional activities is
(ES) and artificial intelligence (AI) have been in use important from the view of increasing the coor-
in automated production systems. Therefore, dinated effort in producing goods and services. The
knowledge workers with special skills in computers activities of various functional departments in
and the latest software may improve the perfor- manufacturing organization and the need for integ-
mance of the system considerably. The role of re- rating them have been illustrated in Fig. 1.
search and development is significant in improving The conceptual model presented in the Fig. 1 de-
the quality of materials used in the products. This scribes how various functional activities are inter-
supports the quality of products as well as flexibil- connected for producing quality goods and services
ity in processing the products. However, it is in manufacturing organizations. There is a clear
imperative to mention that the role of support indication that the earlier practice of productivity
activities such as trends toward decentralization of and quality improvements has been lacking good
maintenance to direct personnel, computer oper- strategies from the overall perspectives of the
ators, draftsman, and data processors has tremen- company as it suffered from many disconnected
 system should adopt a strategy of cost control and
efficient production planning. The responsiveness
of the system can be increased, for example, by
set-up time and inventory level reduction. How-
ever, this strategy cannot stand without the co-
operation of all other related departments such as
marketing, design and engineering and accounting.
For example, the design department should pro-
vide a correct design that fully incorporates the
requirements of customers to engineering and
manufacturing. In order to offer a good design that
would result in improved productivity and quality,
the support of marketing department is necessary
in providing more accurate information about cus-
tomers requirements to the design department. The
design department in cooperation with the engin-
eering and manufacturing arrive at the final design
parameters. The finance and accounting depart-
ment evaluates the cost of design and production.
This might help the designer to reevaluate the de-
Fig. 1. Interfunctional departments in manufacturing systems to sign with a view to produce a cost effective design.
produce goods and services.
Nevertheless, feedback is essential in the produc-
tion system and the rest of other functional areas
objectives among the functional departments and about the status of the product and process with
unclear strategies. a view to improve productivity and quality. In
As we noted, knowledge workers and support order to facilitate on-line feedback, CIM/CIS may
activities play a major role in integrating those be used as a strategy to improve the communica-
functional activities. In addition, new manufactur- tion in the manufacturing organization.
ing concepts (JIT, TQM) and technologies (FMS, Table 2 presents a set of possible strategies for
CIM) facilitate the integration aspects in manufac- integrating various functional areas of manufactur-
turing systems. For example, CIM attempts to integ- ing organizations with an objective to improve
rate the various functional areas such as design, productivity and quality. The strategies suggested
engineering and production using computers. The here help to integrate various functional depart-
lead time in the information flow has been drasti- ments easily with an objective of promoting the
cally reduced in the computerized information sys- coordination between them, and increasing the ef-
tem. Moreover, the information is more reliable fectiveness of the manufacturing organization as
and in turn reduces the conflicts among the func- a whole. For example, distribution can implement
tional departments. JIT also supports the integra- JIT supplying, JIT transportation, and automated
tion between various functional areas using the warehousing operations to integrate the distribu-
pull-type production system, strict schedule of pro- tion activities with other functional areas such as
duction and very close supplier ~ purchasing rela- production, finance and accounting, and personnel.
tionship. For example, marketing and production Similarly, using CIM, one can easily integrate pro-
must operate without disconnected objectives and duction with other functional areas such as design
strategies. If marketing needs quality products at and engineering, purchasing, distribution, and mar-
competitive prices with a view to increase the in- keting. New concepts such as JIT, ZI and TQM
come, then manufacturing systems should formu- and technologies such as FMS, CIM and OPT
late their strategies accordingly. For improving the facilitate an easy integration among various func-
delivery performance of a product, the production tional departments.
 A. Gunasekaran et al./Int. J. Production Economics 36 (1994) 169.-183 175

Table 2
A list of suggestions for improving the integration between various functional areas of manufacturing systems

Functional Areas Strategies for improvement through integration

Marketing Computerized information systems, QFD, customer’s feedback about the quality and reliability
of the products, competitors position, and standardization of products
Maintenance Total preventive/productive maintenance
Distribution JIT transportation, JIT warehousing, Automated warehousing operations
Personnel Knowledge workers, flexible work force, and computer professionals
Finance & Accounting Statistical methods, activity based costing methods
Industrial engineering Planning and Control, JIT scheduling, TQM and CIM
Design and engineering CAD, QFD, and concurrent engineering
Purchasing JIT purchasing, inventory control, and quality at source
Production JIT, FMS, CIM, OPT and TQM

Traditional concepts of departmental and func- ous functional roles, and matrix organizations. The
tional organization do not support flexibility, inter-functional effectiveness requires improved
smooth communication flow, and cooperation. communications including: the “protocol” concept,
Current technology suggests that lead time and workshops, and finding the optimal decision-
quality problems require team work, including not making process. The reward systems should reflect
only manufacturing and engineering but other concerns of both parties in an internal exchange
functions as well [14]. Hence, the nature of the relationship. The level of joint reward schemes can
organizational structure that prevents team work also be used to influence the effectiveness of integra-
from crossing departmental lines should be modi- tion. Reward systems that are based on (1) a per-
fied. For instance, if a company is sales oriented, centage of the profit from products produced less
then the manufacturing cannot operate effectively. than five years ago, (2) the percentage of initial
Alternatively, if the company is a manufacturing- ideas that reach commercialization, and (3) indi-
oriented, then the needs of the customer are not vidual work (e.g. sales) as well as effort within
considered in the purview of smooth operations. In a group that produces a product innovation help to
more recent years the lack of integration between improve the integration. Recent manufacturing
the product design and product engineering func- technologies enhance interaction between manu-
tion, and manufacturing and manufacturing-pro- facturing and marketing. However, many manufac-
cess engineering has become an issue of serious turing techniques and decision-making tools still
concern. do not account for marketing’s dynamic nature
The following three strategic aspects of the com- Cl51.
pany: (i) organization design, (ii) communication, The objective aspect of integration is to improve
and (iii) reward systems, help the functional integ- communication and cooperation between the vari-
ration. Organizational structure should be de- ous functional areas involved in developing a prod-
signed with an objective to promote the integration uct from the point of concept to delivery of the
between various functional areas. Usually top man- product to the customer. Pegels [16] offered sug-
agement takes the responsibility of designing the gestions for integrating various functional areas in
management structure. For the purpose of efficient manufacturing organizations such as to increase
integration of various functional departments, one the communication flow and improve the product
should consider mixed structures, decentralized that will emerge from the development process. He
authority, teams, rotation of people through vari- illustrated a highly product development oriented
procedure based on two highly integrated multi- integration is the link between engineering and
function groups. One group consists of product manufacturing established by CAD/CAM systems,
planning, product styling, market research and but there are others with equal or greater potential
budget and finance. The other group consists of impact.
product design, product engineering, manufactur- Total quality management requires us to look at
ing-process engineering, manufacturing, sourcing the entire system, seeking new and imaginative
and suppliers and marketing. There is a number of ways to improve quality and productivity at the
additional requirements that should be made if same time. Management of quality consists of qual-
functional-area integration is to succeed: (i) top ity assignment, quality control, and quality assur-
management support, (ii) proper organization ance. “Quality assessment” is measuring the level of
structure, (iii) appropriate management control sys- quality. “Quality control” is action taken during
tem, (iv) effective incentive and merit system, production to avoid or eliminate unacceptable
(v) encouragement by all management levels, and quality. “Quality assurance” includes all activities
(vi) leadership by all management levels. That is, that eliminate poor quality. This includes quality
functional-area integration needs strong top man- design of products, processes, and jobs, as well as
agement support. The natural tendency for most quality in personnel selection and training. Assess-
functional areas is to concentrate on their own ment, control, and assurance all fit together. Assess-
areas of concern. Hence, the organizational culture ment is needed for control, which is part of quality
should be modified in such a way that it includes assurance. And quality assurance is the goal of the
cooperation and communication in those areas, total quality management [17]. The following stra-
such as product development, where it is absolutely tegic issues should be considered as a part of total
necessary. Joint programmes, matrix organization, quality assurance with the objective of improving
sign-off stages, CAD/CAM, and programme man- quality of products as well as management: (i) stat-
agement promote communication and cooperation istical process control, (ii) failure mode and effects
between functional units (Pegels 1163). Also, integ- analysis, (iii) quality circles, (iv) quality costs, (v)
ration requires support not only from top manage- quality improvement process, (vi) quality-related
ment but all levels of management in the company. decision making, (vii) quality-related feed back,
The purpose of integrating various functional (viii) quality service action teams, (ix) supplier de-
departments by means of new manufacturing con- velopment, (x) supplier quality assurance systems,
cepts and technologies is to reduce overhead cost and (xi) supplier quality management. Hence,
which are nonvalue adding items. One of the most a framework to integrate various functional areas
frequently suggested methods to reduce overhead of the manufacturing organization with an objec-
costs is automation. Robots can have a role in tive to improve productivity and quality at the
sophisticated materials control systems that auto- company level would be helpful.
mate logistical transactions; lasers can read bar
codes and eliminate the need for data entry oper-
ators to record movement transactions manually; 4. Productivity and quality vs. new production
computer-aided inspection can help reduce the concepts and technologies
costs of processing quality transactions; a smoothly
running materials requirements planning system New production concepts and technologies came
can make the processing of balancing transactions into existence out of the effort to integrate various
cheaper [S]. Support activity or service costs are functional areas with an objective of improving the
important especially while employing automation coordination among them for the purpose of im-
in production, however, these in turn add to the proving productivity and quality. For example,
overhead. Therefore, there is a need to reduce the nowadays, the main focus is on improving quality.
overhead by improving the productivity of the sup- Since quality and productivity are like two sides of
port services such as total preventive maintenance, the same coin, by improving quality the productiv-
computer system managers, etc. Most familiar ity can be improved and vice versa. The focus
 A. Gunasrkaran et al. ilnt. J. Production Economics 36 (19941 169-183 177

should be design for quality, engineering and TQM, and OPT will help to increase the coordina-
manufacturing (DFQ, DFE and DFM). For this tion between various functional departments. The
purpose, one can use new manufacturing concepts OPT can be utilized at the design stage of manufac-
such as JIT and ZI and technologies such as CIM, turing systems for determining the capacity re-
and computerized information systems (US). quired considering appropriate cost trade-offs. The
Fig. 2 displays the integration of various func- idea is to achieve the balanced material flow through
tional departments using new technologies and various stages of the manufacturing organization.
concepts of production in a manufacturing orga- This OPT also helps to identify the bottle-neck
nization. The conceptual model presented in the stages in terms of quality and productivity problems.
figure reveals the importance of information flows Table 3 presents the alignment between business
in improving the integration of various subsystems strategy and production strategy using new manu-
along with the support of new manufacturing facturing concepts and technologies for improving
concepts and technologies. For example, the gap productivity and quality of the organizations. In
between marketing and manufacturing can be addition, selecting productivity and quality im-
reduced by JIT production. Since JIT operates on provement strategies are important for improving
pull type production concept which is essentially productivity and quality. For example, if a reduc-
starting from the customers’ requirements regard- tion in the cost of production is desired, JIT might
ing delivery and quality. QFD may facilitate the be an option, but not if the market needs a variety
integration between marketing and design by of products. Suitable cost accounting systems such
translating the customer requirements into the de- as activity based costing (ABC) may be helpful to
sign parameters. Similarly, other available tech- explore the possibility of assigning joint responsi-
nologies such as FMS and CIM and concepts like bility among various functional departments.

PRODUCTION
Just-In-Time Production
Zero Inventories
Total Quality Assurance
Flexible Production Systems
Computer-Aided Design
Computer-Integrated Manufacturing
Optimized Production Technology
Computerized Information Systems
Total Productive Maintenance

Keys:
Material and Information Flows

Fig. 2. Integrating functional activities using new manufacturing concepts and technologies
Table 3 integrated basis; neither is the link between
Productivity and quality improvement strategies vs. new manu- conformance quality and strategy. Achievement of
facturing concepts and technologies
conformance quality, on the other hand, requires
Productivity and quality New manufacturing concepts
meeting engineering specifications which are norm-
improvement strategies and technologies ally clearly specified.
The role of quality within the organization’s
Improve quality Concurrent engineering. TQM business strategy must be clearly established, in
QFD, CAD, quality at the source.
order to: (1) provide the goals and policies neces-
New products Flexible production systems, CAD. sary to guide the firm’s marketing and management
research and developments
efforts regarding product design, delivery and pro-
Cost control JIT, OPT, TQA, FMS, CIM.
motion; and (2) provide the manufacturing strategy
activity based costing (ABC)
necessary to produce products which conform to
design, meet cost constraints and are delivered on
schedule [ 181.
Similarly, new product planning can select The alignment between business strategy and
a strategy such as flexible production systems or quality improvement strategy is illustrated in the
cellular manufacturing systems, CAD, and R & D. conceptual model presented in Fig. 3. Based on the
Considering the developments and changes in pro- business strategy of the company, the quality strat-
duction systems, suitable strategies need to be egy is formulated. The quality strategy is suitably
chosen for improving productivity and quality at associated with the design and conformance issues.
the manufacturing level. Manufacturing function Furthermore, design and conformance issues of the
works when an organization’s facilities, technology, company depends upon the characteristics of the
and policies are consistent with the recognized pri- industry, the company’s skills and capital available.
orities of its corporate strategy. Therefore, orga- The design parameters such as output goals and
nizations should develop productivity and quality specifications are defined based on the customers’
improvement strategies which are consistent with requirements, cost and price of the items, demand
and linked to their business strategy. The manufac- for the product, marketing strategy, and competi-
turing strategy can be characterized by: (i) process tors strategy. For instance, a company may select
structure, (ii) production system, and (iii) organiza- QFD as a quality strategy to translate the output
tional objectives. Therefore, suitable productivity requirements into concrete specifications. In case
and quality improvement strategies are to be deter- a company selects the quality as the high priority,
mined considering these characteristics of the com- then the company should choose TQM as a quality
pany. strategy to assure quality product and perfor-
There is a relationship of strategic significance mance. If the company wants to increase the
between quality and the firm’s level of productivity. market share by a cost control program, then the
Quality experts reveal that plant utilization to cor- company formulates a suitable quality strategy and
rect bad work may range up to 40% of productive in turn suitable manufacturing options. From the
capacity; and that 15520% of each sales dollar may manufacturing point of view, the quality strategy is
be supporting expenses resulting from nonconfor- associated with product and process specifications,
mance to design [lS], thus costing the firm’s re- delivery schedules, and cost goals. Based on the
sources and strategic competitive alternatives. The customer needs and company ability, the manage-
key issues associated with developing a competitive ment should establish appropriate product speci-
strategy based on achieving high quality are the fications, best delivery schedules, and cost controls.
design of the firm’s products and services to meet Quality and productivity problems should be re-
the customer requirements and the conformance to solved prior to manufacturing. If the quality strat-
these designs in the production process and sup- egy can be translated into conformance parameters,
port functions. The link between design quality and then these parameters meet the quality require-
business strategy is not well-understood from an ments and hence the business strategy. Now the
 A. Gunasekaran et 01. /Inr. J. Production Economks 36 i 1994) 169-183 179

Business Strategy Quality Strategy

Fig. 3. Business strategy vs. quality strategy

conformance can be considered as a strategy which the purchasing department to devote to quality
emphasizes continuous improvements for eliminat- matters (Schonberger and Ansari [19]). Future
ing the variances in design specifications and the strategic planning will need to: involve more
manufacturing process. people; focus between the business plan, policy and
For example, if the business strategy is to capture strategy and the performance improvement plan;
higher marker share, then the quality improvement be structured, yet flexible and responsive to user
strategy can be total quality management or JIT needs and preferences; be top-down led with bot-
purchasing/supplier systems. Similar inferences can tom-up implementation; focus on the process plan
be drawn from Fig. 3. When the product is enriched as well as the plan, be based on knowledge sharing;
by good qualities in order to improve the system be seen as a living, on-going process; and, be com-
performance, one can select QFD, CAD, concur- prehensive and well-integrated.
rent engineering as a quality improvement strategy.
However, depending upon the characteristics such
as capital available, nature of the market, location 5. A strategy formulation for improving
of the company, infrastructure of the company, and productivity and quality
the life cycle of the product of the organization,
these strategies will differ even for the same busi- The strategy development process consists of two
ness objectives. For example, a company which aspects namely, strategy determination/formula-
does not possess sufficient skill, the cost reduction tion process and strategy implementation process.
strategy should not be FMS/CIM, rather the com- The productivity and quality improvement strat-
pany can select a JIT purchasing as a quality im- egies development process is illustrated in Fig 4.
provement strategy. This is due to the fact that This is based on the strategic management compo-
FMS/CIM requires knowledge workers and ex- nents as suggested by Dess and Miller [20].
pertise in computers. The strategic goals of the company depend upon
JIT purchasing can improve quality. For the external factors such as, competitive moves,
example, purchasing in small lot-sizes with frequent technological change, demographic, social and
deliveries will facilitate fast detection and correc- government influences, the market, government
tion of defects. Also, a JIT purchasing system in- regulations, general economic conditions, labor
volves a less formal system ~ which means reduced unions and political situation, and internal factors
volume of paper work. This provides more time for such as capital available, skills available,
180

I Strategic goals of
the company
I

Strategy

pr~uctivl~y and qualily

Or~~i~tion~i design
in~provemcnl strategies
Integration of all the slrnlegies
Strategy determinnllon process
Suitable productivity and
Business strategy
quality improvements slnleyy
Productivity and quality-
selection
improvemcnr stmtegics
Manufacturing stmlcgy
I
i‘;
I I _I
Fig. 4. Productivity and quality improvements strategy development process

product, production facilities, technology, people, should be based on the product innovation and
materials, and energy, etc. The main objective flexibility of the production process.
here is to achieve success in the business by mak- Top management develops the strategy based on
ing use of the available resources productively. external and internal conditions. Middle manage-
Usually. a company decides its business strategy ment then has to work out appropriate pro-
based on both the external and internal factors. ductivity and quality improvement programs. The
The details of the strategy formulation and strategy workers, along with middle management staffs, are
implementation processes are discussed here below. responsible for impIementation. Productivity and
There shoutd be a proper understanding of both quality are the responsibility of everyone in the
the business and productivity and quality improve- organization. The help of a consultancy organiza-
ment strategies by management and by all levels of tion can be sought in order to avoid any conflict in
employees. The understanding of the strategy the management. There is a need for integrating all
among different people in the company can be strategies with an objective to satisfy the goal of the
achieved only by efhcient information flow systems, company as a whole. Integration of strategies need
education and training for all levels of employees ethcient information technotogy, computers, and
who are responsible for productivity and quality. software. Also, the nature of the company in terms
The integration between business and productivity of product type, market situation, structure of the
improvement strategy can be obtained by proper organization, interfunctional coordination, etc. in-
documentation, frequent meeting, and interna- fluence the integration between productivity and
tional exchange visits. The life cycle of the product quality and business strategies. A variety of options
should be considered while deciding productivity or methods exist for improving productivity. The
improvement strategies (Judson [S]). For example, practicality of each option can be assessed by
when the product is at the introduction stage, then asking how relevant it is to the business strategy
productivity and quality improvement strategies and how easy it is to implement.
 A. Gunasekaran et al.llnt. J. Production Economics 36 (1994) 169-183 181

6. Strategic options for productivity and quality quences of various design options using appro-
improvements priate simulated designs.
(3) When there are problems of low quality and of
In this section, we present some strategic options high defects, one can select ‘quality at the
for improving productivity and quality in manufac- source’ and ‘total quality assurance’ concepts
turing industries. for improving quality of the items as well as
(1) The business strategy and productivity im- effective utilization of available resources.
provement and quality strategy should match Quality function deployment (QFD) and other
each other in order to achieve the company’s design approaches are also useful to overcome
objectives as a whole. For example, when the problems of quality with a view to satisfy
a product is in the decline stage of the product the customers and increase the market share.
life cycle, then the company can go in for new QFD forces more design (concurrent engineer-
products. In this case, the business strategy is ing developments) and development up-front,
new products and the corresponding produc- but ultimately yields greater results.
tivity improvement strategy can be a flexible (4) JIT helps to achieve a reduction in inventory
production system. Similarly, one can identify and facilitates fast response to changes in cus-
a suitable quality improvement strategy. In case tomer’s requirements. However, JIT seems to
the company does not know the causes for be inflexible; therefore, one might prefer JIT
productivity and quality problems in a complex where there is no product flexibility demanded
production system, it may want to improve the from customers. When the business plan is to
accounting system. In that case, the company reduce the cost of products, the company can
can go for design for quality which seems to be go for JIT production, but the inflexibility of
a suitable quality improvement strategy. As an- JIT systems in terms of changes in products,
other example, strategies such as JIT supplier processes, and accommodating changes in the
and quality function deployment (QFD) may volume of demand require more careful consid-
be suitable for companies wanting to improve eration.
market share and quality. Similarly, cost (5) Concurrent engineering developments are ne-
control requires suitable cost accounting cessary when one goes for new products and
systems, flexible production, and efficient pro- improvements in process planning and produc-
duction planning and control. However, as tion feasibility. These need to integrate market-
mentioned above, the strategies should be ing, design and development.
selected taking into account the company’s (6) Measurement plays a critical role in quality and
characteristics. productivity management efforts. It provides
(2) Design suitable computerized information insight into where change is needed or improve-
systems to promote easy flow of information ment leverage exists, provides feedback to drive
between various functional departments of further improvement, and supplies information
manufacturing systems. As we discussed earlier, with which we can assess and evaluate perfor-
computerized information helps to achieve in- mance. Changes in the competitive environ-
tegration between various functional depart- ment are causing organizations to reexamine
ments. This kind of information system facilit- the conventional measurement techniques that
ates the exchange of relevant and accurate in- have served them well for the better part of the
formation between functional departments. In last century. Newer techniques such as total
addition to this, computers help to integrate factor productivity measurement, multicriteria
various activities that include integration of performance measurement and cost of quality
various hardware components in manufactur- measurement should be experimented with,
ing systems such as material handling, machine studied and implemented.
tools, and robots. Computer aided design facil- Sink [21] showed how measurement, plan-
itates the design process and possible conse- ning, and improvement can be integrated
182

effectively into a strategic management process. motivation, and compensation. The compati-
Also, nonfinancial performance such as quality bility between hardware and software is very
and flexibility should be evaluated in order to important especially when using FMS and
assess the performance of an organization. Ac- CIM, etc for integrating various functional ac-
tivity based costing can be used for these situ- tivities. Apart from this, union-management
ations. In addition, a suitable incentive scheme collaboration (the new industrial relations)
is to be established in order to motivate all against the background of contradictory labor
levels of employees in the company together relations policies is important in implementing
with skilled employees and support profes- new productivity and quality improvements
sionals [22]. programs. Cooperation at different levels of
(7) The international IS0 9000 series of standards management is very important to promote the
offer guidance for establishing and maintaining integration and hence the cooperation between
a quality system. The achievement of the cus- various functional departments involved in
tomer’s requirements for the timing, perfor- a manufacturing company.
mance and cost of end product should be main
objectives of quality improvement plans. The
acceptance of quality systems must stem from 7. Concluding remarks
a department’s own realization that the person-
nel within may be able to improve their perfor- A number of productivity and quality improve-
mance by exerting a more rigourous control ment strategies are developed in this paper in line
over their internal processes [23]. with recent changes in manufacturing environ-
(8) Total preventive maintenance (TPM) seeks to ments. Also, from a total strategic view point,
avoid the six major reasons of production loss: a framework has been proposed to improve the
breakdowns, set-up and adjustment time, idling productivity and quality by integrating various
and minor stoppages, reduced speed, process functional activities. The issues of new manufactur-
defects, and yield losses. Accomplishing the ing concepts and technologies while developing
goals of a TPM program demands total partici- strategies for integrating the activities of functional
pation by those that impact or are impacted by departments in the manufacturing company have
production equipment. TPM also is an integral been discussed. The cost of quality in terms of profit
part of total quality assurance. This means that and loss must be considered because this forms the
quality of the products depends upon the qual- basis of any effort applied to quality improvements.
ity of maintenance of equipment and hence the More productive R & D and integration of
process performed using that machine. R & D with the rest of the company are very
(9) In recent years, the adoption of computer auto- important in increasing productivity and quality in
mation has posed problems in tasks such as the manufacturing organizations. The cellular manu-
software development which require skilled facturing system is another means of integrating
workers. Therefore, suitable steps should be various functional activities within the production
taken to increase software productivity by system
proper training, and simplifying the process of
writing computer programs [24]. Computer
technology focuses on providing management Acknowledgements
information. Information systems are at the
core of survival as they offer new competitive The authors are grateful to two anonymous
opportunities and a strategic advantage. In the referees for their extremely useful and helpful com-
future, productivity will come from automating ments on the earlier version of this manuscript which
software development through knowledge- helped to improve presentation of this paper con-
based programming. Therefore, attention must siderably. Also, the authors gratefully acknowledge
be focused on training, increasing skill levels, the financial support by the Neste Foundation.
 A. Gunasrkaran et al.lInt. J. Production Economics 36 (1994) 169-183 183

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