TQM payback experience in manufacturing firms
| Pages | 3-8 |
| Date | 01 November 1995 |
| Published date | 01 November 1995 |
| DOI | https://doi.org/10.1108/02635579510097164 |
| Author | John R. Tanner,Ronald B. Heady,Zhiwei Zhu |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Introduction
TQM consists of several distinct components, including
customer focus, process focus, continuous improvement,
fact-based decision making and employee involvement.
Achieving success in each of these components requires
changing the way people are organized and how they
think and work. Making these changes requires
significant investments that may or may not result in
significant cost savings or increased revenues.
Furthermore, if the intended benefits do occur, they may
not occur for several years. Thus, one would expect that a
decision to change to TQM would be carefully studied
and justified to the highest levels of the company.
The purpose of this article is to review the current
situation regarding financial justification of decisions
that involve undertaking a company-wide conversion to
total quality management (TQM), and to provide
information on the actual payback times from a range of
US manufacturing companies. In this research, attention
is focused strictly on financial considerations. This choice
is based on the premiss that companies exist to make a
profit, and if an undertaking, such as TQM, is not
expected eventually to make a profit then it should not be
authorized. It is possible, of course, that a company’s
TQM efforts will lead to a return of the initial investment
and still be considered a failure if the criterion for success
or failure is something other than a positive financial
return such as market share or growth rate.
Background
With an increasingly competitive marketplace, it is
particularly challenging today to find ways to improve
manufacturing performance. Manufacturing managers
have several advanced manufacturing technologies
available, such as computer integrated manufacturing
(CIM), computer-aided manufacturing (CAM), and
flexible manufacturing systems (FMS). However,
adoption of these technologies requires heavy
investments in manufacturing facilities and the
justification of these investments is notoriously
difficult[1] because of the difficulty of estimating the
associated benefits.
When focusing on TQM, an approach that involves more
investments in human behaviour changes than in
manufacturing facilities, the justification step is even
more difficult. This is because both the required
investments and the benefits involve a great amount of
uncertainty. While TQM requires some investment in
plant and machinery, to a large degree initial capital
investments are dominated by organizational changes
and educating and training management, employees and
suppliers to the degree required for a successful
implementation. Thus, manufacturing managers are left
with the task of going to the Board of Directors to gain
approval for far-reaching company changes armed only
with estimates of hard-to-quantify investments and
promises of hard-to-quantify benefits.
Although the TQM literature has attracted much
attention recently, most of the TQM studies concentrate
on identifying best practices that can be used by
organizations involved in managing changes. There has
been almost no research on the traditional economic
analysis of TQM-related capital investments. For
instance, using the ABI/INFORM CD-ROM database
available in many libraries, it is easy to search for the
words “justification” or “justify” in the quality
management literature. For the time period from 1
January 1990 to 31 March 1994, this word occurs only
four times in the titles, subject listings, and abstracts of
the 1,131 articles with subject listings showing both
quality and management. Of these four references, not
one involved the economic justification of a quality
management initiative. This is curious because as
investments become larger and payback times become
longer, traditional management principles suggest that
careful financial justifications should become even more
important.
Many manufacturing managers have avoided making
financial justifications of their TQM undertakings using
3
TQM PAYBACK EXPERIENCE IN MANUFACTURING FIRMS
TQM payback experience in
manufacturing firms
John R. Tanner, Ronald B. Heady and Zhiwei Zhu
The financial risk of undertaking TQM is no greater than other financial projects
Industrial Management and Data Systems, Vol. 95 No. 9, 1995, pp. 3-8
© MCB University Press Limited, 0263-5577
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