How to Find Relationship between Performance Measurement System and

TQM in Manufacturing Organization

Syed Irshad Ali (Ph.D Scholar)

General Manager of Public Sector Manufacturing Factory, Pakistan
irshad0000@yahoo.com
Abstract

Performance measurement is of vital importance to a manufacturing organization to compete and

make profits over time. An organization that is not able to efficiently utilize its resources in creating
value for its customers will not survive in the competitive business global environment of today.
Several key-factors found to affect the performance of a manufacturing company but chief among
them is quality and Total Quality Model (TQM). Quality has been used as key performance indicator
to achieve excellence in work organization. which ultimately specifying the concept of Total Quality
Model. The implementation phase of quality concepts sorted and suggested in the environment of
manufacturing company. The manufacturing industry comprises of two basic types of performance
measures those that relates to results (competitiveness, financial performance) and those that focus on
the determinants of the results (Quality, speed, dependability, flexibility, cost, innovation)later is also
known as key performance indicator(KPI). In this paper quality is used according to the
manufacturing-based approach, that is free of errors and conform precisely to their design
specification. The firms have sought to enhance their competitiveness by employing total quality
management (TQM), which means continuous improvement system on all operations Performance and
quality has direct correlation with each other e.g. there is a range of expectations (All quality issues) of
customer according to attributes (KPI). The theme and main concern of this paper will be that, how
does TQM relate to performance measurement of manufacturing organization. Quality could only be
improved at the expense of performance and vice versa.

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Introduction

TQM (Total Quality Management) is a technology for achieving the transformation of manufacturing
organizations from their existing forms into a form which is capable of dealing with new changing
global environment. Many factors contribute to the excellence of manufacturing companies; chief
among them is higher performance through minimum defects in their process and products, which is
not possible without higher rate of quality. Performance and quality are two major keys to competitive
advantage. Without sound performance no company can think of achieving excellence. Higher rate of
performance is rather a key ingredient for improving quality and reducing defects, increasing
profitability and decreasing costs. Companies that continuously produce high-quality products are
most productive. They should have lower costs, higher profit margins, and capture a larger and larger
share of the market.

The lessons from recognized quality leaders (Deming, kaizen, J.M. Juran) provide a general
framework for making improvement efforts successful. They provide general guidelines, not rigid
rules. Dr W. Edwards Deming: 1900-1993) is considered to be the Father of Modern Quality Aspects.
Dr. Deming preached that to achieve the highest level of performance requires more than a good
philosophy. Thus, when the tools and techniques associated with Total Quality Management are
adopted without changing the fundamental infrastructure, Total Quality results will not be achieved.

The changes required to obtain a Total Quality Management organization, and to make effective
associated performance measurement techniques, practices and advanced manufacturing technology,
are all based on certain principles of systems. The phenomenon of "performance and performance" is a
combination of higher rate of production regulation. The role of a "Performance Measurement
System" is therefore twofold: Not only must it set the parameters of the target function to be regulated,
it must also architect the interactions among system elements so that the system will tend to behave as
desired, moving in a coordinated way toward the identified goal.

TQM activities, often focus on “A comprehensive, organization-wide effort to improve the quality of
products and services, applicable to all organizations” In the last twenty years, the rate of
technological change has been enormous, particularly in the areas of robotics, computer science, and
electronics. This technological change has permeated the manufacturing arena in consumer goods,
from automobiles to home entertainment technology, and the defense industry, as well as the
technology and information systems used in the manufacturing process itself.

Design of Study:
In this paper the concept of performance measurement system and total quality management issues are
mainly seen from a manufacturing company’s perspective, but it is important to point out that all
elements of society gains are from performance improvement. Other important key factor for
achieving excellence is establishing quality culture environment. No business, organization or person
can dream of excellence without total commitment without adhering two facts “To be quality
conscious and performance conscious”. So to inspire people to achieve excellence we have to first
establish team of quality and performance oriented persons I would say that one line manager or
middle manager is better than having many non-quality/performance conscious persons. This paper
will be streamline in following sections
a. Total Quality Management System
b. Performance Measurement System
c. Conceptual Model
d. Relationship between Performance Measurement System and Total Quality Management
e. Analysis of Total Quality Management System and Performance Measurement System
through Balance Scorecard
f. Conclusion

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Total Quality Management

What is quality? Dictionary has many definitions: “Essential characteristic,” “Superior,” etc.
Some definitions that have gained wide acceptance in various organizations: “Quality is customer
satisfaction,” “Quality is Fitness for Use.” The American National Standards Institute (ANSI) and the
American Society for Quality (ASQ) define quality as:
“The totality of features and characteristics of a product or service that bears on its ability to satisfy
given needs.”
Why Quality?
Reasons for quality becoming a priority for most manufacturing organizations:
a. Competition – Today’s market demand high quality products at low cost. Having
`high quality’ reputation is not enough! Internal cost of maintaining the reputation
should be less.
b. Changing customer – The new customer is not only commanding priority based on
volume but is more demanding about the “quality system.”
c. Changing product mix – The shift from low volume, high price to high volume, low
price have resulted in a need to reduce the internal cost of poor quality.
d. Higher levels of customer satisfaction – Higher customers expectations are increasing
competition.
Relatively simpler approaches to quality viz. product inspection for quality control and incorporation
of internal cost of poor quality into the selling price, might not work for today’s complex market
environment.
Everyone defines Quality based on their own perspective of it. Typical responses about the definition
of quality would include:
1. Perfection
2. Consistency
3. Eliminating waste
4. Speed of delivery
5. Compliance with policies and procedures
6. Doing it right the first time
7. Delighting or pleasing customers
8. Total customer satisfaction and service
Evolution of Quality Management
1. Quality Inspection
Salvaging, sorting, investigating, corrective actions, identifying sources of non conformance and
dealing with them.
2. Quality Planning
Developing quality manuals, producing process performance data, planning for quality.
3. Quality Management
Statistical process control, third party approval, quality system audit, use of quality costs,
involvement of non-production operations

What is TQM?
“A comprehensive, organization-wide effort to improve the quality of products and services,
applicable to all organizations”

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TQM As a Continuous Improvement Process In Manufacturing Organization
The issuance of TQM is continuous improvement through collaborative efforts across functional
boundaries and between organizational levels with the ultimate goal of providing customer
satisfaction.
Total Quality Management incorporates the features like: products that meet customer needs, control
of processes to ensure their ability to meet design requirements and quality improvements the
continued enhancement of quality.
The sales of the product clearly generate the hard currency, one must also recognize that customer
satisfaction is derived from ancillary services associated with product and the sensitivity and
timeliness with which the problems are handled. Quality system should possess a sound behavioral as
well as technical perspective. To develop such a quality system, the management should research the
customer preferences, train employees to be sensitive to customer needs and reward employees for
making customer satisfaction a primary objective.
Total quality management is based on the premise that any production and/or service can be improved
and that successful organization must consciously seek out and exploit improvement.

TQM-Concept And Philosophy

In a Deming's wheel as shown in figure no.1, the plan defines the process, which ensures
documentation and sets measurable objectives against it. The "Do" executes the process and collects
the information required. The CHECK analyses the information in suitable format. The ACT obtains
corrective action using TQM techniques and methods and assesses future plans. At the end of each
cycle the process is either standardized or targets are adjusted based on the analysis and the cycle
continuous.

Act Plan

Check Do

Figure no.1 PDCA Cycle

The TQM approach is both a practical working process and a quality philosophy for the organisations
committed to growth and survival. TQM approach starts with a vision that a concentrated management
action can improve the quality of service and products of the organisation at a very competitive cost
satisfying customer's need and increasing the market share. This increased market share will be stable
because it has been earned with the help of solid customer’s goodwill and not by gimmickry
advertising. The Juran philosophy, Pursue quality on two levels: “The mission of the firm as a whole
is to achieve high product quality. The mission of each individual department is to achieve high
production quality”.

Stages Of Implementation Of TQM

The process of implementing TQM in an organisation can be organised in the following four stages:
(i) Identification and Preparation
This stage is concerned with identifying and collecting information about the organisation in the prime
areas where improvement will have most impact on the organisation's performance and preparing the
detailed basic work for the improvement of the organisation's activities.
(ii) Scheme for Improvement

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This stage is concerned with identifying quality issues and affects a resolution of them by management
led improvement activities. To develop quality improvement scheme, it is necessary to identify the
quality problems in each division, in each department and throughout the whole organisation. A
scheme of training for improvement can be established after the realization of the following aspects of
the organisation. They are:
• Purpose of the department
• Customer's and suppliers relationship
• Meeting customer needs
• Problem causes and best solutions
• Prevention of recurring problems
• Customer satisfaction

TQM Model
Customer satisfaction is the focus of TQM as shown in flow diagram no 1. Basically, the customer
satisfaction depends upon the gap between the expected and actual quality of products offered to the
customer. When the customer's expectations of product/service quality balance the actual product
quality offered by the company, the customer satisfaction results. If the customer's expectation exceed
the actual results in customer delight. TQM aims at customer delight going one step ahead of mere
satisfaction of customers. The delighted customer will become the loyal customer and have a complete
trust in the offering of the company's products and services. The quality of the product results in
higher reliability of which in turn helps to attain the retention of loyal customer base.

PERFORMANCE AND SERVICE QUALITY CUSTOMER SATISFACTION

• Reliability • Attracting and retaining
customers
• On time delivery

COMPETITIVENESS
People QUALITY SYSTEM
Involvement For • Market standing
• Process quality
continuous management • Customer preference
• Bench marking • Profit
• Process performance

ORGANIZATIONAL GAINS
• Costs • Employee turnover
• Cycle time • Creativity and innovations
• Employee satisfaction Quality usually have different
meanings to different people, however, in this thesis
quality is used according to the manufacturing-based
approach discussed by Slack et al (2001). This
approach relate to quality as the making of products
that are free of errors and conform precisely to their

Flow diagram no. 1 Total Quality Management Model

Performance Measurement System

A performance measure is defined as a metric used to quantify the efficiency or effectiveness of an
action. Performance Measurement System (PMS) is defined as the set of metrics used to quantify the
efficiency and effectiveness of action. Performance is the relationship of outputs of goods and services

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in real physical volume to inputs of the basic labour and nonhuman resources used in the production
process, also measured in physical units such as hours worked, machine hours, and so forth. If output
is related to all the inputs (which I think is the most desirable kind of measure), output per unit of total
input is basically the performance formula: O/I. “Companies need to realize that gains in
performance are one of their major weapons to achieve cost and quality advantages over
their competition.
If you include all of the inputs, this measure will get at the net saving of cost elements or
inputs per unit of output achieved over time as a result of technological change and the other
factors that make it possible to increase production with a given volume of resources. Since
this input is a composite measure, including human and nonhuman resources, you can look at
it as a weighted. Now a days firms are using new terminology (CIF) Continuous Improvement
Firm. Performance is conceptually defined with respect to its ‘Key Performance Indicators’
(KPI) e.g. lead time, cost, quality, efficiency, effectiveness and dependability, to be a function
of independent concepts. This has been explained in this paper as ‘Performance Performance
Model’. Performance at the manufacturing company level is the key to profitability.
Competitive system produces very real incentives for performance improvements. We can go
ahead and, as we have done for the last 200 years, continue to make those improvements and
innovations at the company level to achieve excellence and increase outputs of goods and
services that people want in relation to the resources that are used in their production.

Performance And Its Improvement

What is Continuous Improvement Firm (CIF)?
CIF is a firm continuously improving on customer value due to improvements in performance initiated
by the members of the general work force to get cutting edge. Performance in CIF is broadly defined
to include all facets of product quality as well as output per worker. A basic operating principle of the
CIF is that improvements in product quality often produce simultaneous reductions in costs to achieve
excellence.
In this discussion the performance is mainly seen from a manufacturing company’s perspective, At the
company level, performance is fundamental to profitability and survival. Companies with higher
performance than the industry average tend to have higher profit margins. Conversely, below-average
levels and rates of growth of performance will ultimately lead to bankruptcy
Performance Issues
However, with the pressure of an increasingly global economy, and a business environment
characterized by complexity, competition, change and uncertainty, performance must take place at all
levels within a company, from individual level to the organization and company level.
Unfortunately, this is not always the case. An intimidating observation is that, even though
performance improvement is seen as one of the most vital activities affecting a company’s
competitiveness, it is often relegated to second rank, and neglected or ignored by those who influence
production processes. Manufacturing is in this paper defined as a subset of the production system.
Manufacturing can, in more detail, be described as the arrangement and operation of elements
(machines, tools, materials, people and information) to produce a value-added physical, informational
or service product.
The initiators of the research presented in this paper, Kinnander and Gröndahl (1999), also support this
statement and argue that there are many signs that indicate that performance development within
manufacturing industry is not carried out in a rational manner. First, there have during the last years
been many examples where companies are solely focusing on the input factor of the performance ratio.
Such behavior can result in that a company becomes ‘non progressive’ (Radnor and Boaden, 2004). In
other words, there is a risk that the continuous cost cutting activities that are deployed for profitability
reasons eventually lead to those companies starve themselves to death.
Second, we have witnessed many a time increasing trend of outsourcing activities of production
functions to low-wage countries. This trend may be an indication that many developed nation

6
companies do not consider improvement of performance as a natural way to confront profitability
problems in manufacturing functions. Instead they believe that it is easier to use low-wage labour as a
solution.
Performance measurement in manufacturing organization
Considering the important role that performance plays for a manufacturing company, a question that
immediately comes to mind is how a company should work to be able to improve its performance in
an effective and sustainable way. Performance improvement is a multidisciplinary issue and must
therefore be addressed from several different angles at the same time. From a holistic point of view it
is easy to come across many different means that can be used for this work. One way to improve
performance in a company could, for example, be to focus on the reduction of waste and implement
strategies like Just-In-Time (JIT) or Lean Production, which makes it possible to use resources more
efficiently. Another way could be to introduce new Advanced Manufacturing Technologies (AMT),
which enables a company to manufacture its products faster and more effective. Further, due to the
more than ever changing market conditions a company’s performance is also highly dependent on
having an effective and responsive supply chain. In other words, methods such as Supply Chain
Management (SCM) are necessary to support the improvement of logistics. In addition, a company
cannot as well forget the importance of producing. The term AMT is here used in a broader sense and
includes numerous of new technologies, such as high speed machining, laser welding and hydro-
mechanic forming of sheet metals.

”Performance means how much and how well we produce from the resources used. If we produce
more or better goods from the same resources, we increase performance. Or if we produce the same
goods from lesser resources, we also increase performance. By ‘resources’,
we mean all human and physical resources, i.e. the people who produce the goods or provide the
services, and the assets with which the people can produce the goods or provide the services. The
resources that people use include the land and buildings, fixed and moving machines and equipment,
tools, raw materials, inventories and other current asset.”
The three conceptual relationship of performance
• The technological concept: the relationship between ratios of outputs to the inputs used in its
production.
• The engineering concept: the relationship between the actual and the potential output of a
process.
• The economist concept: the efficiency of resource allocation.
Conceptual model
The conceptual model shown in figure no. 2 down below, describes how individual performance
characteristics enhance the overall performance and performance of the factory unit. This model
evolved by Stack et al (2001) has been interpreted by the author. The product should always be
delivered on time in a dependable manner. The shortest lead time should be required to obtain the
necessary inputs and materials for production. Enough lead time should be given so that production
can proceed in a timely manner and can even be speeded up if required. In turn the shortest possible
delivery time will result in reliable operations. Alternatively, we can speed up operations. So
maximum output can be produced at a given cost or a given output can be produced at least cost to
achieve efficiency. Conceptually, effectiveness focuses on new products obtained through new
technology or innovative ideas, which leads to a wide range of products and reflects a firms ability to
respond to a changing and dynamic environment. When low cost operations are conducted according
to specifications with no compromise on quality, and aiming at high total performance of the product,
this is known as an improvement in performance.

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 Figure no. 2 Performance objectives influences performance (Slack et al, 2001)
Benefits from Performance
Always there is a misunderstanding about performance in the minds of the workforce. To the workers,
higher performance means higher work load, higher efforts, more profits to owners and unemployment
and threat to security. These are not the correct observations.
Performance integrates the objectives of owners and workers. Performance contributes towards
increase in production through efficient utilization of resources and inputs rather than making workers
to work hard. Performance strives to minimize human hazards and human efforts with view to utilize
them to those areas where they can contribute maximum to the output. Infact dynamism is achieved
through performance in any organization and path towards excellence is achievable.

Relationship Between Total Quality Management And Performance Measurement

System
How does quality relate to performance? Do these performance variables reinforce each other or are
they mutually exclusive? Must improved quality come at the expense of performance? January 18,
1992 @ 2:05 am · Filed under Industrial Engineering
Management traditionally has viewed quality and performance essentially as tradeoffs. To achieve
significant improvements in one, some degradation in the other must be accepted. Quality could only
be improved at the expense of performance and vice versa. Yet many firms today operate under the
philosophy that improved quality results in improved performance.
If quality is viewed in an absolute sense—improved quality equating with absolute goodness or tighter
tolerances—it may indeed be difficult to improve quality without added cost. If on the other hand
quality is viewed as conformance to specifications, a relationship to performance becomes more
apparent. If the product is produced with defects, then it must be reworked, reprocessed, or
reproduced. The result is more resources—people, material, and equipment.
This leads to the concept of process quality, which has a clear and direct correlation with performance.
While our finished products may ultimately conform to specifications, the quality of the process that
produced those products can vary widely and will have a major bearing on the performance of the
organization.

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Poor quality performance increases the inputs required to produce a given amount of good output.
Rework certainly increases the amount of labor required and probably increases the capital, material,
and energy inputs as well. Waste and scrap increases the need for tighter inspection and controls,
which of course require added resources.
With poor quality a substantial amount of organization’s resources must be devoted to correcting
defects and handling wastes rather than producing goods. As quality improves, the resources required
to produce a given amount of output decreases, and that translates to improved performance.
Quality cannot be inspected into the product. According to Edward Deming, “You don’t get ahead by
making products and separating the good from the bad, because that is wasteful.”
The concept of conducting extensive inspection activities in order to catch the defective items is
becoming outdated. Today’s emphasis is on the prevention of defects rather than inspection. This
requires the collective effort of the employees and the management.
Quality is everyone’s job. Accountability for quality should lie with those doing the work. The role of
quality professional is shifting from an enforcer to a facilitator—one who educates, trains, and advises.
He is the person who should establish a culture for quality improvement in the organization.
Just as performance improvement must be an explicit responsibility of everyone in the organization, so
must quality improvement. It should be an integral part of everyone’s job.
Kaizen (Technical Newsletter of Pond’s (India) Ltd., January 18th 1992.
Quality Criteria for Performance Measures
Have you ”screened? your measures against criteria for good performance measures?
A Screening Tool For Quality Considerations
Developing Performance Measures for Sustainable Development Strategies also calls for assessing the CONTENT of
measures with regard to their impact on human and ecosystem well-being. As shown in table no. 1

Table no. 1 Screening Tool for Quality Considerations

The Quality Check

The following questions serve as a checklist to determine the quality of the performance measures that
have been defined: (see also table no. 2)
• Is the measurement objectively measurable?
• Does the measurement include a clear statement of the end results expected?
• Does the measure support customer requirements, including compliance issues where
appropriate?
• Does the measure focus on the effectiveness and/or efficiency of the system being
measured?
• Does the measure allow for meaningful trend or statistical analysis?
• Have appropriate industry or other external standards been applied?

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Does the measure include milestones and or indicators to express qualitative criteria?
• Are the measures challenging, but, at the same time, attainable?
• Are assumptions and definitions specified for what constitutes satisfactory performance?
• Have those who are responsible for the performance being measured been fully involved in
the development of this measure?
• Has the measure been mutually agreed upon by you and your customers?
Of performance measures that are suitable for tracking performance toward specified
objectives.
Table no. 2 Quality Criteria for Performance Measures

Attribute Explanation
Meaningful Understandable
• Clear (clearly and consistently defined)
• Context (explained)
• Concrete (measurable)
• Lack of ambiguity in direction
Relevant
• Relates to objectives
• Significant and useful to the users
• Attributable to activities
Comparable
• Allows comparison over time or with other organizations, activities
• or standards

Reliable • Accurately represents what is being measured (valid, free from

• bias)
• Data required can be replicated (verifiable)
• Data and analysis are free from error
• Not susceptible to manipulation
• Balances (complements) other measures

Practical • Feasible financially

• Feasible to get timely data

Quality and its usage as Key Performance Indicator.

The quality excellence can be achieved if specifications are being followed religiously with minimum
process error this is only possible when product at every stage is checked and whole process of that
product is monitored very closely by all line manager and shift in charge according to the drawing and
given sample.
The concept of quality is often used in a very wide context, which means that it concerns both
processes and products as well as it includes both tangible and intangible factors. Quality usually have
different meanings to different people, however, in this paper quality issues according to the
manufacturing-based approach discussed by Slack et al (2001). This approach relate to quality as the
making of products that are free of errors and conform precisely to their design specification. It is, of
course, not appropriate to consider faulty products as output of a manufacturing process when
measuring performance. However, improvements in quality, besides in that more products are being
correctly manufactured, ought not to be included in the concept of performance. Quality and
performance often come hand in hand, but they are two separate concepts.
Performance = (Output / Input) * Quality = Efficiency * Utilisation * Quality (Al-Darrab, 2000).
In turn, this has led to that performance objectives, especially quality, are seen as a part of the concept
of performance by some researchers (see for example Al-Darrab, 2000). This is not always a true
assumption.

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Conclusion

Competitiveness is the keyword being used in every field of economy. The unique and innovative
ideas are immediately materialized by smart organizations. At the same time customers is no more
buyer of previous century, his demands and expectations are on the rise. These facts have created a
great challenge for creator and manufacturer to produce best quality at right time and with minimum
cost to be competitive in this aggressive market era. These demands on increase productive efficiency
of the organization. The excellence can only be achieved by increasing the performance. Various key
performance indicator (KPI) are used to analyze and improve the work method and achieve total
quality management. To improve process it is necessary to eliminate waste and utilization of resources
is essential. A company that is not able to efficiently utilize its resources in creating value for its
customers will not survive in the competitive business environment of today.

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