RSM100Y1 Lecture Notes - Organizational Culture, Supply Chain
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The Productivity-Quality Connection
•Productivity: a measure of economic performance that measures how much
is produced relative to the resources used to produce it.
•Quality: a product's fitness for use in terms of offering the features that
•Labor Productivity: partial productivity ratio calculated by dividing gross
domestic product by total number of workers.
oCompares a country's annual output of goods and services with the
resources used to produce that output.
oFirms that compete internationally have more incentive to be more
•Countries have different levels of productivity based on their current
technology, worker intelligence, economic policies, natural resources, and even
•Domestically, countries must be productive because that will increase its
overall wealth => increasing its living standards.
oHigher Wealth: can be shared with the whole population.
•Prices will be relatively low and stable
•Higher wages, investors get higher profits.
oLower Wealth: a portion of the population will benefit from the
expense of others.
oManufacturing tends to have higher productivity because machines are
oBaumol's Disease: since service sector focused more on hands on
activity that machines couldn’t replace, it would be more difficult to
increase productivity in services.
oHighly productive companies have lower costs, thus offer its
products/services at lower prices.
Total Quality Management
•Fishbone method=cost and effect diagram.
•Total Quality Management (TQM): all the activities necessary for getting
high-quality goods and services into the market place.
•Performance Quality: the features of a product and how well it performs.
•Quality Reliability: the consistency or repeatability of performance.
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oEx. Toyota cars
•Organizing for Quality
o Every person must be responsible for their own work.
oTeams of workers inspect the process of development.
•Leading for Quality
oManagers must inspire and motivate employees throughout the
company to achieve quality goals.
oNeed to get employees to see how quality affects their jobs and their
oQuality Ownership: the idea that quality belongs to each person who
creates or destroys it while performing a job.
oManagers must establish specific quality standards and
Tools for Total Quality Management
•Competitive Product Analysis: process by which a company analyzes a
competitor's products to identify desirable improvements.
•Value-Added Analysis: the evaluation of all work activities, material flows,
and paperwork to determine the value that they add for customers.
oReveals wasteful or unnecessary activities that can be eliminated with
jeopardizing customer service.
•Statistical Process Control (SPC): statistical analytical techniques that
allow managers to analyze variations in production data and to detect when
adjustments are needed to create products with high-quality reliability.
oProcess Variation: Any change in employees, materials, work
methods, or equipment that affects output quality.
•Excess of process variation can result in poor quality and excessive
oControl Chart: a statistical process control method in which results of
test sampling of a product are plotted on a diagram that reveals when the
process is beginning to depart form normal operating conditions.
•Quality/Cost studies: a method of improving product quality by assessing a
firm's current quality-related costs and identifying areas with the greatest cost-
oInternal Failures: expenses incurred during production and before
bad product leaves the plant.
oExternal Failures: expenses incurred when defective products are
allowed to leave the factory and get into consumers' hands.
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