Chapter 10   Monitoring
Chapter 10   and controlling
Chapter 10   quality

In Chapter 7 we examined some of the financial monitoring and control systems which are suitable for use by a small business. In this chapter we are concerned with the non-financial systems, which essentially fall under the heading of quality management. This involves defining quality standards, examining the ways in which we build quality systems into our products and services, and identifying the methods that are suitable to monitor and control the effectiveness of those quality systems.

The objective of this chapter is to assist the reader to:

•   identify the aspects of the business that are critical to the provision of quality goods and services;

•   establish realistic quality standards for the business which are relevant to the aims and objectives of the business;

•   set up monitoring and control procedures which will enable those standards to be achieved on a consistent basis.

For the NVQ candidate, this chapter links to Unit A.6 of the NVQ Level 3 Business Planning qualification, ‘Investigate ways to ensure that the business operates to quality standards’. This requires the candidate to demonstrate a knowledge and understanding of quality management, and competence in applying that knowledge within a small business. In order to satisfy the evidence requirements of this unit, the candidate must demonstrate that they have considered the impact of quality on the way the business operates, that they understand how to utilize quality procedures to meet business objectives, and that they can define targets and quality standards, and the criteria for assessing the achievement of those standards.

The three most frequently used quality procedures against which businesses can be assessed for accreditation are the ISO 9000 standards for quality systems and procedures (formerly BS 5750), the ISO 14001 standards which relate to environmental quality, and the Investors in People (IIP) award for organizations which meet specified standards in staff training and development, personnel systems, equal opportunities, and other people-related quality systems. The important common feature of these is that they are not just a one-off process. Once awarded, the standards of accreditation have to be maintained, and the organization is subject to periodic inspections by independent assessors whom it must satisfy in order to retain the accreditation. The assessment criteria are rigorous and comprehensive, and unless the standards are maintained on a consistent basis, the organization can have its ISO or IIP approval suspended or withdrawn.

Why does a business need to bother with Investors in People or ISO 9000?

For many businesses the desire to achieve ISO 9000 or IIP accreditation is not always altruistic, as possession of one or other of these is becoming an increasing requirement for inclusion on lists of preferred suppliers, or for competitive tenders. In the case of some major organizations that are themselves accredited, they simply refuse to buy from any suppliers who are not already accredited or working towards accreditation. At first glance, this approach may seem rather harsh, but it does make a good deal of sense in that a supplier's possession of a quality accreditation should ensure that goods or services obtained from that supplier will be of the right quality. The International Standards Organization (ISO) standards, which superseded the British Standard, are accepted on a European-wide basis, so possession of one of these is particularly important for firms trading in international markets. The implementation of quality systems can also bring about a range of further direct benefits including:

•   Reduced customer complaints and returned or rejected goods. In addition to the obvious cost savings of not having to process complaints or handle returned goods and replace them, in the longer term the enhanced reputation of quality goods or services will increase sales.

•   Customer retention is improved leading to a reduction in selling costs, as less sales effort goes into replacing lost customers. This means that the sales effort can be directed to expanding the customer base to increase turnover and profits. This is discussed in more detail in Chapter 11.

•   Quality production systems work towards eliminating faults or problems by ensuring that they do not occur in the first place. This idea of Quality by Design is aimed at ensuring that all aspects of design and production are geared towards getting the product right first time and every time. In the short term this may result in an initial increase in costs, but in the longer term costs will fall, as there is no longer the need for extensive and detailed inspection. Similarly, as more goods are produced to the correct standard, the costs of rejection or reworking are also greatly reduced. For example, quality systems will discourage the purchase of components from the cheapest supplier on the basis of price alone. The cheapest supplier's components may have a failure rate of perhaps 10 per cent, which if they remain undetected could result in a failure or rejection rate in the finished article of10 per cent or more. However, for a small increment in the cost of the components, the failure rate might be reduced to 1 or 2 per cent resulting in huge savings on reworking, repairs or replacement and, of course, savings resulting from the reduced amount of waste materials generated.

•   The use of quality circles and an ethos of continuous improvement amongst staff tends to result in problems being noticed before they develop. Staff become more positive about their roles and duties, as the quality process encourages ownership or responsibility. Planned training and development programmes for staff also enable them to become more efficient at their work as they gain more detailed knowledge of the processes. Staff involvement in regular quality meetings in work time (quality circles) where supervisors have the same status as ordinary staff, promotes a coherent approach in working towards the achievement of quality systems of work and quality standards.

•   Regular internal audits, and periodic external assessments or inspections ensure that quality standards are maintained on an ongoing basis. Initially this may be a matter of fear of outside criticism, but as time goes on, it usually develops into a matter of pride in the organizational systems.

•   Management and communication systems and procedures are improved which allows for better planning, and easier decision-making and problem-solving. In particular, the improved communications between levels of staff tends to promote earlier warnings of possible problems. It is the difference between shooting the messenger who is the bearer of bad news, and praising the same person for being astute enough to spot a potential difficulty, which demonstrates a basic shift in organizational culture from punishment by blame to motivation by praise.

How does the process work?

In the first half of the century great emphasis was placed on quality control in manufacturing and production environments. This was based on the idea of ensuring that customers received quality products by inspecting them at each stage of the production process and rejecting any faulty or substandard items. Perversely, high (and costly) rates of rejection were often regarded as a sign of good quality products, as only the best were allowed to pass. Naturally, the more thorough and rigorous the inspection, the more costly the process became. Following on from quality control came the idea of quality assurance, where operations management systems were employed to make production processes more efficient, and to eliminate faults in the production process. This was perhaps a move in the right direction but it still did not tackle problems which were inherent within products and systems by virtue of the way in which they had been designed.

The Total Quality Management (TQM) approach has been around since the post-war period, and the American TQM guru W. Edwards Deming, started to employ its principles in the re-establishment of post-war Japan, the Americans having failed to take it on board despite Deming's efforts to persuade them. Then TQM started to grow in popularity in the USA and Europe in the 1970s. It focused initially on the marketing principle of identifying the customer's needs, both the customers in the marketplace and those internal customers in the production chain within the organization. Once the customer need is identified, TQM works on the basis of designing standards of excellence within that product, and then designing quality systems in the organization which would ensure that the excellence of the product can be achieved and delivered to the customer on a regular and consistent basis – hence the phrase ‘getting it right first time and every time’.

How do we go about achieving it?

In larger organizations the usual route is to either employ a firm of quality management consultants to examine all of the various systems used by the organization, or to appoint a trained quality services manager to carry out the same process, to design the standards to which the organization will work, to produce the manuals and procedures, and to seek and subsequently maintain accreditation. Overall this can be a long and very expensive exercise which is likely to be well beyond the resources of most small businesses, especially those just starting up. If accreditation is essential, then some expenditure must be expected, although advice, and sometimes financial assistance, can be obtained from local councils, Local Enterprise Agencies, Business Links, etc. If however, you just wish to design and build quality systems into your business without gaining formal accreditation, then the process can be simplified, although not to the extent that you can start cutting corners – that is not what quality management is about.

For someone starting up in business, probably the easiest way to go about formulating a quality management policy is to start by looking at all the systems and procedures that operate within the business, both now and in the foreseeable future; and having listed these, for every one of them ask yourself ‘What can conceivably go wrong?’ A good starting point might be to look at what happens when a customers enquire about your products or services, and then to follow the sequence through, from receipt of order, production, delivery, invoicing, after sales service, etc. – and, of course, do not forget the administrative processes which support each of these stages. We will take a hypothetical example of a plumber, Mr Mick Sturbs, who is a sole trader employing a young lad to assist him, and we will work through the various stages of handling a customer enquiry and carrying out the work:

1  Mick has a weekly advertisement in the local paper, which generates most of his business. What can go wrong? Does he pay the paper promptly and regularly to ensure continuity of advertising? Is the advertisement clear about the types of service he provides and about how to contact him? Does it project a professional image? Does it produce results in the form of enquiries for work?

2  A customer sees the advert and enquires about his services. Does the customer find it easy to contact him? Does someone take messages for him while he is out? Are they positive, helpful and competent in answering, or do they appear rude, indifferent or disinterested? Are they knowledgeable about the business? Will they know how to contact him in an emergency? If Mick uses an answer-phone, does he check it regularly during the day? Does he follow up enquiries by promptly returning the call, or do customers get tired of waiting and go elsewhere? Does he use a mobile phone to make contact easier? Are the mobile phone batteries charged regularly so that it is ready for use when needed? Are the details of each enquiry recorded carefully, or does he tend to lose details of customers and their telephone numbers? Does he respond to enquiries within a specified period of time, or do customers have to wait until he is ready?

3  A customer arranges an appointment for Mick to fix a new central heating boiler. Does he allow sufficient time in his diary to do the job properly or does he try to cram it in between other jobs? Does he build in contingency time in case he encounters a problem, or does he leave the job unfinished to return a few days later? Does he arrive on time at the customer's premises, or turn up halfway through the day? Is he polite and friendly, or rude or indifferent? Does his appearance create the right impression with the customer, or is he scruffy or wearing greasy overalls and muddy boots? Does he project a professional attitude, or does he give the impression of being a bodger? Does he make sure that he has all of the necessary equipment with him, or does he keep having to go back to get them? Has he ordered the materials in advance to ensure that they are available when needed? Has he given the customer a written quotation for the work and explained what is, and what is not, included in the price? Has he explained his terms of trade and the arrangements for payment? Does he pay his own suppliers regularly and reliably to ensure that his supplies are always available? Is his assistant competent and knowledgeable, or just a gopher?

4  Mick fits the new central heating boiler for his customer. Has he used good quality materials that will ensure a lasting job, or has he cut corners to boost his profit? Has the work been completed to a professional standard, or has he bodged it because he is short of time? Has he checked any work carried out by his assistant? Has he advised the customer of any safety measures needed, and how to use the boiler properly? Has he checked that the customer understands these? Has he provided the customer with the manufacturer's warranty for the boiler? Does he offer a warranty for his own workmanship? Has he left the premises in a clean and tidy condition and removed any rubbish? Has he provided the customer with a detailed invoice, and explained any variances from the estimated cost? Did he obtain the customer's approval for any extra expenditure before it was incurred? Did he check that the customer was satisfied with the work? Did he thank the customer for payment? Did he leave the customer a business card for future reference, or in case of emergencies?

5  After the job was finished did he call the customer a few days later to check that all was going well? On completion, did he record his sales income, and the various items of expenditure in his sales and purchase accounts books or petty cash book? Was any VAT that was paid or collected, recorded correctly? Were his tools cleaned and stored, and any materials such as solder replenished ready for the next job? Were any problems with the boiler reported to the manufacturer or supplier? Did he remember to top up the petrol in his van ready for the early start the following day, or will he be arriving late yet again?

The above questions are by no means exhaustive, but a wrong answer to just about any one of them could result either in a problem arising or in the client receiving an inferior level of service. Quality systems do not have to be complex to be effective. In Mick's case, his quality systems and procedures could probably be organized using a simple job sheet that incorporates a checklist of the various items. His procedure for dealing with clients’ enquiries could just involve organizing an efficient answering service and mobile phone, and setting himself simple standards for response times. For example, he could check his answering service at set times during the day, and then make a point of returning any call within, say, no more than three hours of its receipt. He could note in his diary follow-up calls to clients within a week of the work being completed. He could have standard quotation forms printed, with his terms of trade on the rear. He could set his own administrative standards and systems to maintain his accounts on a weekly basis, to pay all bills promptly on the dates due and to chase his own debtors for payment. He could also arrange vocational training for his assistant, and take a short course in customer care for himself. As a qualified plumber he could maintain his membership of the appropriate trade association, and of necessity he must maintain his Council for Registration of Gas Installers (CORGI) accreditation to operate legally.

The idea of TQM still remains very much within the domain of larger organizations, although it is gradually becoming more noticeable in smaller firms. The great thing about designing and building quality into systems and procedures for small firms is that when there are still relatively few firms employing these systems, the opportunity for developing and enhancing a reputation for quality is tremendous, and so are the potential benefits for putting the business ahead of its competitors. Many larger firms state within their mission statement, the objective of becoming a ‘first-choice supplier’, but there is absolutely no reason why a small firm or a sole trader cannot employ quality systems to achieve the same objective within its own local market.

How can a small business monitor its quality systems?

Not only do small businesses lack the staff and resources which larger organizations can employ to develop and maintain quality systems, they face similar problems when it comes to monitoring their quality standards and measuring their performance. But pressure of work or lack of resources should not be used as an excuse for an owner-manager to neglect the monitoring process. As we have shown in the case of Mick the plumber above, it is perfectly possible to implement quality systems within very small and simple businesses. If the systems are capable of being established quite easily, then they are equally capable of being monitored without the need for complex computer systems, or substantial staff time.

In retrospect, the most obvious indicator of potential problems or of the failure of quality systems is to look at the sales volume and revenue figures which were used in the preparation of the budgetary plan. Are the figures on target? If not, do we know why this is so? Is it due to external factors beyond our control, or something we are doing wrong within the business? Have our competitors been affected in the same way? Is it due to poor forecasting, or inadequate sales effort, or to a problem with the quality of the products or services we are offering? If it is apparently a problem of quality, then there are a number of options we can employ to isolate and identify the problem or problems within our products or systems.

The obvious starting point for any business is to examine the nature of the complaints received or goods returned in order to determine whether or not these affect the whole range of products, or a specific group of them. If the complaints have been received across a whole range of goods or services, then it is probable that the source of the problem will lie within the systems used by the business. In this case it will be necessary to examine the complaints more closely, perhaps by contacting former customers who have complained, in order to seek out any common points or issues which might pinpoint the problem. If the owner of the business has proper quality systems in place, these types of common issues should already be being picked up as part of the ongoing review of quality standards. If that is not the case, then there is clearly more than one flaw in the system, which must be addressed.

If however, the complaints have been focused on a single product or product group, then it is more likely that the problem will lie within the product itself rather than the systems which deliver them, and it should be a fairly straightforward process to isolate the problem. In the case of physical goods it may be a specific component or assembly process which is the continuing source of the problem, and which can be identified as a common element amongst returned goods. If we know that the problem started at a specific time, it may be traceable to change of supplier or a variation in the assembly process. If ongoing, but gradually increasing, it may be due to a problem of wear and tear or deterioration of production machinery which, when discovered, can be rectified.

Another indication of problems are the changes in levels of customer retention, although the monitoring of these is really only applicable to businesses which supply customers on a regular basis, as opposed to one-off sales. There is always a certain amount of ‘natural wastage’ or turnover with customers, and over a period of time this can be established, but when these rates start to increase, it is usually indicative of either a decline in the quality problem within the products or services, or an indication that they are not up to the same standards being provided by competitors. Once again, the monitoring of these is more of a long-term process, as short-term fluctuations in customer activity tend to distort the short-term picture.

Analysing changes in sales volumes and revenues and customer retention levels, and monitoring volumes and patterns of complaints after the event is very much a reactive process, which by definition is not what quality management is all about. A more proactive approach is to monitor sales and customer responses on an ongoing basis, and this should be an inherent part of the quality systems of any business. One option is to establish a positive procedure for customer care (see Chapter 11), which will provide a prompt and efficient means of responding to and rectifying customer problems. Another way is to use customer feedback, either verbal or obtained by questionnaire, to monitor the customers’ perceptions of the quality of the goods and services that you are providing. Again, the quality approach relies on prompt response and positive action to rectify any problems identified by the feedback.

Summary

•   Oakland (1993) states that ‘quality begins with marketing’. In the first instance we must establish the customers’ needs for the goods or services we aim to provide.

•   We must establish the customers’ expectations of the products and services, and of the businesses that aim to provide them.

•   We must analyse every stage of the production or provision of the goods or services, and the systems which support that production or provision, to identify potential problem areas, and to design those products and systems to avoid the anticipated problems.

•   We must set precise, accurate and realistic standards for our products and systems, which will act as targets against which we can monitor our success in providing quality products and services.

•   We must ensure that all staff involved in the business are committed to the principles of providing quality products and services, and are knowledgeable about the standards required of them, and that they have received any training necessary to enable them to achieve those standards.

•   We must monitor the compliance with standards on an ongoing basis, by monitoring customer feedback, complaints, product returns, etc., to ensure that any problems are promptly addressed and rectified. In the longer term, we must monitor changes in sales volumes and revenues for our products and services, and overall customer retention, to assess the impact these are having on the overall performance of the business.

•   We must review all products, systems and procedures on a regular basis to ensure that quality standards are maintained, or are modified as needed, and that these are redesigned to eliminate future potential problems when required.

•   Finally, we must continue to ask ourselves the question: ‘If I were one of my own customers, would I really be happy with the quality of the service and products that I am receiving from this business?’

Reference

Oakland, J. (1993). Total Quality Management: The Route to Improving Performance. Butterworth-Heinemann.

Further reading

Bell, D., McBride, P. and Wilson G. (1998). Managing Quality. IoM and Butterworth-Heinemann.

MacDonald, J. (1993). Understanding Total Quality Management in a Week. IoM and Headway.

Munro-Faure, L. and Munro-Faure, M. (1993). Achieving Quality Standards: A Step by Step Guide to BS5750/ISO9000. IoM and Pitman.

Sadgrove, K. (1995). Making TQM Work. Kogan Page.

Tricker, R. (1997). ISO 9000 for Small Businesses. Butterworth-Heinemann.