Explanation of Using TQM for a Competitive Advantage in Business by Ron Kurtus - Succeed in Understanding Competition. Key words: Total Quality Management, Six Sigma, lower costs, reduce waste, process improvement, suppliers, workers, satisfy customer, Air Force, SDI, empowering, School for Champions. Copyright © Restrictions
Using TQM for a Competitive Advantage in Business
by Ron Kurtus (revised 28 February 2007)
The Total Quality Management (TQM) philosophy of doing business emphasizes lowering costs by reducing waste, helping suppliers provide quality products and satisfying the customer with quality goods and services. Companies that can produce goods at lower costs than their competitors, while delivering quality products that satisfy their customers will have an advantage over those companies that do not duplicate those feats. Implementing TQM can help a company gain a competitive advantage in their business.
Questions you may have include:
- How can a company reduce costs?
- What does helping suppliers and workers do?
- How does customer satisfaction give an advantage?
This lesson will answer those questions.
Achieving lower costs for getting or making products gives a company a great competitive advantage over their competition.
Getting products - case study
Wal-Mart has formed alliances with their suppliers, such that they are able to purchase goods at a discount that their competitors cannot achieve. The result is that Wal-Mart is able to offer products at such low prices that have actually driven many competitors out of business.
Making products - case study
Japanese automobile manufacturers Toyota and Honda have greatly lower worker pension and healthcare costs than the "Big-3" American manufacturers, General Motors (GM), Ford and Chrysler. This is true even for the Toyota and Honda facilities in the United States.
The cost per car for worker benefits paid by is $1360 for GM, $735 for Ford and $630 for Chrysler. Meanwhile, it costs Toyota $180 and Honda $106 per car. This results in much higher profits or lower prices for the Japanese autos.
Also, the Big-3 each have about 18,000 in "excess workers" that drive up their costs.
The Japanese auto manufacturers are winning the competition in terms of reduced costs.
Manufacturing cost reduction
Companies want to reduce the cost of getting or making their products. A major portion of the cost of goods involves wasteful practices that result in scrapped parts and returned goods from dissatisfied customers.
By continually improving the processes involved in making the product or delivering the service, a company can be more effective in reducing losses due to waste. This will allow the business to deliver products at lower prices while still achieving a good profit. Competitors may not be able to meet those prices.
Eliminating errors is a major goal. An extension of TQM is the Six-Sigma approach that seeks to eliminate errors to 6 parts in a million (six sigma deviation).
Getting lower cost, quality good from suppliers will also reduce costs.
A company's workers and suppliers provide the input that determined the cost and quality of the products being made. The company that empowers its workers and suppliers and helps them achieve these goals will have a competitive advantage over the company that browbeats its workers or suppliers.
This is a concept that was developed for the U.S. Air Force and is explained in the Three Phase Approach to TQM in the Air Force's SDI Programs.
The first part of providing the customers with quality goods involves purchasing those products from suppliers or getting quality parts to make your own product. An important aspect of Kurtusian TQM is to help the supplier provide quality to your company.
Often companies browbeat their suppliers into providing goods at low costs. Wal-Mart has been known to be very tough on suppliers, even driving some out of business if they did not bend to Wal-Mart's demands. Other companies have also used such negative tactics.
By working closely with suppliers, you can provide a partnership where you get the quality supplies needed to gain your competitive advantage.
Your workers proved services that allow you to make quality products. Others deal with the customers and provide quality service to those customers. Courteous sales representatives can make for a pleasant buying experience for the customers.
Some companies demand much from their workers and even if they pay them well, they do not have a truly motivated staff. Some companies even demand that the sales people smile and act friendly, even if they don't feel like it.
Making the workers part of the team and helping them provide quality work can give you a good competitive advantage on competition that may have an unhappy workforce.
A customer that is satisfied or even pleased with the products and services received, sees them as value-added. They will be glad to return to the company to purchase other items. They will refer others to the company.
This is not only true in sales to individuals, but it is also vital in corporate sales. In selling product or providing supplies to another company, you need to make sure the material is to specification and gives them the assurance that they can count on your company to provide such quality good in the future.
Customer satisfaction is the ultimate advantage a company can have over their competitors.
A company that can produce goods at lower costs than their competitors, while delivering quality products that satisfy their customers will have an advantage over those companies that do not duplicate those feats. The Total Quality Management (TQM) business philosophy of satisfying the customer with quality goods and services, reducing waste and empowering workers and suppliers is a method to achieve those goals.
Resources and references
The following are resources on this subject.
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Using TQM for a Competitive Advantage in Business