III. Six sigma

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Management Operation Management

Quality Indices for Sampling Plans

Paper Coordinator Principal Investigator

Dr. Vijaya Khader

Former Dean, Acharya N G Ranga Agricultural University

Content Writer

Development Team

Dr. Sudhanshu Joshi

School of Management, Doon University, Dehradun PIN 248001, Uttarakhand, INDIA

Paper No. : 04 Operation Management Module No : 28 Quality Indices for Sampling Plans

Principal Investigator

Dr. Vijaya Khader

Former Dean, Acharya N G Ranga Agricultural University Prof.(Dr.) S.P. Bansal

Vice Chancellor, Maharaja Agreshen University, Baddi, Solan, Himachal Pradesh, INDIA

Paper Coordinator Dr. Sanjeev Gupta

School of Business and Management Studies Central University of Himachal Pradesh, HP, INDIA

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Description of Module Subject Name Management

Paper Name Operations Management

Module Name/Title Quality Indices for Sampling Plans

Module Id 28

Pre-requisites Basic Knowledge of Operation Management and Quality Standards

Objectives 1. To understand the concept and scope of Lean Systems and their Management;

2. To understand processes where lean practices are synergized with a go-green philosophy of World Class Manufacturing / Service business

3. To Learn a Lean-Green comprehensive framework for Competitive advantage for business firms.

Keywords Lean; Lean Management System (LMS) ; lean production; Lean Manufacturing; Toyota Production System (TPS); Lean Supply Chain; Supply Chain Integration (SCI); Sustainability;

Environmental sustainability; Economic sustainability; Social Sustainability Content Reviewer

Dr. Vijaya Khader Dr. MC Varadaraj

Quadrant I

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Quality Indices for Sampling Plans 40.0 What is Lean Management?

Global Competition leads to effective resource planning and management. Adoption of Lean Management act as enabler to improve profit margins and adding competitive edge to the firms (Moyano-Fuentes & Sacristán-Díaz, 2012; Martínez-Jurado &

Moyano-Fuentes, 2014).

The term “Lean management” explains a strategic approach to provide customer value and organizational sustainability through continuous improvement of the inter-related processes that connect to the organization eliminate wasteful steps in a process, service, or system. Terms for Lean Management System (LMS) evolved from lean as a characteristic to names such as lean enterprise, lean management, lean manufacturing, lean principles, lean production, lean thinking, and lean transformation

Supply Chain Management

Cultural environment

Competitive environment

Regulatory environment Business Processes

Lean Management

Sustainability

(Environment, economic & Social)

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(Liker, 2004; Womack & Jones, 2003; Womack et al., 1990). Exhibit I depicts definitions, scope and application of lean management

Exhibit I : Definitions, Scope and Application of Lean Management

Topics Author(s)

Lean Management and Sustainability

Environmental Sustainability

Maxwell et al. (1993); Cusumano (1994); Florida (1996); Pojasek (1999a, 1999b); Gordon (2001); King and Lenox (2001);

Rothenberg et al. (2001); Soltero and Waldrip (2002); Simons and Mason (2003); Larson and Greenwood (2004); Simpson and Power (2005); Corbett and Klassen (2006); Sawhney et al.

(2007); Mason et al. (2008); Moreira et al. (2010); Taubitz (2010); Carvalho et al. (2011); Vinodh et al. (2011); Yang et al.

(2011); Aguado et al. (2013); Chiappetta-Jabbour et al. (2013);

Hajmohammad et al. (2013) Economic

Sustainability

Lewis (2000); Bateman (2001); Bateman and David (2002);

Maskell and Baggaley (2003); Hines et al. (2004); Lucey et al.

(2004); Bateman (2005); Comm and Mathaisel (2005); Lucey et al. (2005); Jørgensen et al. (2007); Bhasin (2008); Hines et al.

(2008); Fullerton and Wempe (2009); Ho (2010); Sawhney et al.

(2010); Turesky and Connell (2010) Social

Sustainability

Kamata (1982); Schonberger (1986); Forrester (1995); Niepce and Molleman (1996); Pil and MacDuffie (1996); Green (1999);

Biazzo and Panizzolo (2000); Suzuki (2004); de Treville et al.

(2005); Conti et al. (2006); de Treville and Antonakis (2006);

Fliedner and Majeske (2010); Taubitz (2010); Sawhney et al.

(2010) Lean Supply Chain

Management and Sustainability

Environmental Sustainability

Florida (1996); Simons and Mason (2003); Simpson and Power (2005); Corbett and Klassen (2006); Mason et al. (2008);

Mollenkopf et al. (2010); Carvalho et al. (2011); Dües et al.

(2013) Economic

Sustainability

Hines (1996); Arkader (2001); Smith and Tranfield (2005);

Comm and Mathaisel (2008); Wee and Wu (2009); Fliedner and Majeske (2010)

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40.0.1 Animation: Understanding Lean Manufacturing (U-tube) https://www.youtube.com/watch?v=P_4s2dnAncs

40.1. Understanding Lean Systems

40.1.1 Systems theory

A lean management system (LMS) is a strategic approach to provide customer value and organization sustainability through continuous improvement of the inter-related processes that connect to the organization’s goals. As the environment influences how the organization operates, management decisions not only need to focus on the individual parts, but also on the entire value chain (Sampaio et al., 2012). The concept behind such a holistic philosophy is general systems theory. The foundational philosopher of general systems theory was Ludwig von Bertalanffy. In every phenomenon certain natural laws apply and affect any system (Von Bertalanffy, 2008).

To illustrate the point, Von Bertalanffy (2008) used the example that explains the natural law of declining natural resources such as food when populations grow. The concept is important as it provides the foundational work of von Bertalanffy’s systems theory, “the whole is more than the sum of its parts”. Expanding upon the thought, von Bertalanffy developed the concept of closed and open systems, naming a system as closed if nothing enters or leaves, and open when items come and go and some exchange occurs within the system. Within an open system, elements in the system achieve equifinality, or a final outcome, through different paths depending on how the environment shapes the system. Within organizations, open systems partner with

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other open systems to transfer and receive information, knowledge, products, and services (Walker, Stanton, Salmon, & Jenkins, 2008). The advantages of an open system are they can adapt easily to change, and leadership plays a key role in providing vision for the organization (Morgan, 2007). Open systems involve multiple stakeholders such as, leaders, employees, competition, regulatory compliance, consumers, customers/clients, suppliers/contractors, investors/ funders/donors, industry/sector, and even competitors (Drack, 2009; Morgan, 2007). Evaluating organizational efficiency occurs through a view of the entire system, not just one element within that system (Brown, 2011; Drack, 2009). Within the nonprofit sector, the environment is constantly changing (i.e., reduction in funding, different competition, shifting donor loyalty), and nonprofit management needs to continually evaluate the components (sub-systems) to make informed decisions that may affect the whole system.

40.1.2 Sociotechnical systems theory

Sociotechnical systems theory seems to blend Von Bertalanffy and Checkland’s system theories. Psychologists introduced sociotechnical systems theory in the 1950s to counter the mechanistic approach to work design. Trist (1981) described the mechanistic approach in which management thought of workers as an extension of the machine; workers were expendable, had narrow skills, and could be managed through external controls (i.e. supervision, procedures). The organizational structure is bureaucratic and vertically structured, and the environment in which it works is stable.

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A mechanistic organization has a hierarchy of leadership structure with a chain of command and decision making through the top-level down management format. The vertical type of organizational structure and mechanistic management approach discourages teamwork and collaboration to solve problems. Engagement with employees is limited as the employees are there to perform a specific task or job. The organization focuses upon the internal state and not external environment.

Mechanistic organizations survive because the environment is stable and the need for innovation is not as demanding. Mechanistic organizations do not adapt easily to change and have limited creativity and innovation (Shane, 2009).

Compared to the mechanistic approach, sociotechnical systems theory integrates the humanistic component into the technical tasks of the work. With a socio-technical systems approach the worker compliments the machine, is an asset or resource, and has expanded skills-sets. Management of the individual occurs through internal controls or self-regulation. The organizational structure is flat, and collaboration is essential for innovation and competitiveness. Trist (1981) described the process of forming the concept of sociotechnical systems. Scholars interested in psychology and human relations at the Tavistock Institute in Britain received funding for field studies in 1949 during the postwar reconstruction period after World War II. Structured in two parts, one purpose was to identify group relations, specifically between the workers and management, and the other endeavor involved examining innovation in work practices. Through various past studies, findings showed that although the technical or work process, and social or human aspects are separate entities within the

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organization, the two processes correlate because both are required for transformation of an organization.

40.2 Evolvement of Management approaches to “Efficiency”

40.2.1 Defining Efficiency

Effectiveness is how an organization meets organizational goals and objectives based upon the external need of the environment in which they operate; whereas efficiency is an internal standard based upon a ratio of results to resources (Brown, 2011; Pfeffer

& Salancik, 2003). In the nonprofit organization, effectiveness is determined by whether the organization is meeting stakeholder demand by providing the right services to clients and the community. Staff members are being efficient if they are performing appropriate services with the most advantageous use of resources. The goal of the organization would be to have both effectiveness and efficiency working together for optimal organizational performance (Brown, 2011).

40.2.2. Various Management Approaches

Documentation exists throughout history of entire cultures increasing efficiencies through various improvement strategies (Bateman & Snell, 2011), but the underpinning of lean thinking as a management approach to efficiency and profitability began during the industrial age. Improvement strategies evolved in organization, standardization, and assembly-line production. Early classical approaches to leadership philosophy involved a vertical chain of command focused on standardization of work

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and specialization of duties as a way to increase efficiency and control costs (Bateman

& Snell, 2011; Chevalier, 2008).

I. Scientific management.

Frederick Taylor (1911) and Frank and Lillian Gilbreth (1909) were early pioneers of organizational efficiency. Taylor introduced the scientific management approach to businesses in the late 1800s, describing how the objective of an organization should be to maximize prosperity for both the employer and employee. The employer defines maximizing prosperity by realizing high dividends and shareholder satisfaction. The company can increase share value only if the employee is maximizing productivity through organizational efficiency. For Taylor and the Gilbreths, maximizing productivity was possible only if managers changed their current way of thinking and used the concept of scientific laws and rules to manage the organization. Analysts divided the elements of a job into discrete parts and determined a standard amount of time for each element of the job. Leaders hired and trained employees for specific job tasks, and advocated standardized tools and instruction cards for the specific tasks. The system also involved cooperation between the workers and management to meet the objectives of the organization. The Gilbreths expanded upon Taylor’s theory to improve efficiency on the manufacturing floor. They were the pioneers in developing techniques to eliminate waste within a process by introducing management and the workers to time and motion studies.

By analyzing worker’s movements within a task or process, one can differentiate necessary from unnecessary steps. Gilbreth (1909) illustrated the

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technique with the bricklaying process by developing detailed time studies of every motion to complete the tasks. After analysis and improvement recommendations to eliminate unnecessary movements, productivity and efficiency of the process increased significantly. The most famous outcome of the scientific management approach was Henry Ford use of the scientific management philosophy to create the assembly line for building the Model-T automobile (Bateman & Snell, 2011; Womack et al., 1990).

The innovation of the assembly line began with the concept of mass production by using and attaching interchangeable parts (Womack et al., 1990). In an effort to build high-volume automobiles at a low cost, Henry Ford identified four components to success: “standardized parts, mechanical movement, precision equipment, and standardized processes” (Heizer, 1998). Ford employed the lessons of Frederick Taylor who observed the job from a micro perspective. He also hired key employees, such as Walter Flanders who guided the organization in rearranging manufacturing equipment for a more efficient layout and reduction of inventory costs (Heizer, 1998). Ford’s leadership vision came to fruition through small assembly-line successes culminating in the revolutionary success with the Model T assembly. With assembly-line production, Ford was able to produce high volumes of automobiles for less expense. Henry Ford’s mass production success was the predecessor for lean production and lean thinking.

II. Quality management

Three pioneers who reshaped leadership thinking were Walter Shewhart, W. Edwards Deming, and Joseph Juran. During the 1920s Shewhart, a statistician, was working for Western Electric Company when he developed the concepts behind statistical process

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control to identify variations in a process that were outside the normal tolerance range (Giants of Quality, 2011; Stauffer, 2003). Shewhart was instrumental in developing the control chart identifying two types of variability, assignable-cause and chance-cause (Giants of Quality, 2011). Chance-cause is minor and difficult to detect, whereas one can easily detect assignable-cause when the variability is outside the standard control levels and action is required to identify the root cause and eliminate the variation (Pyzdek & Keller, 2010). A strong quality control system is important for the organization to ensure value to the customer, increased competitiveness and a reputation for producing quality products, and a decrease in operational costs.

Deming (2000) explicated his management theory with 14 principles of management.

Fundamental principles were (a) eliminating waste in the process through statistical process control and continuous process improvement, (b) building quality into the product, (c) engaging the worker and breaking down departmental walls, and (d) replacing management-by-numbers with leadership (Anderson & Rungtusanatham, 1994; Chevalier, 2008). In recent times, widespread acceptance developed for total quality management (TQM) as a viable management system to integrate operational tasks to meet organizational objectives and customer requirements (Hackman &

Wageman, 1995).

Ehigie and McAndrews (2005), Hackman and Wagner (1995), Sadikoglu (2008) and Womack and Jones (2003) and other related focus was on producing a quality product or service, and the cost of poor quality (e.g. rework, loss of customer satisfaction) outweighs the cost of developing processes and procedures that are focused on high

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quality. Sustaining high quality processes could only be possible by having employees who care about their work, receive management support, and have the tools necessary to complete the task. Collaboration is also necessary, as the organization is a system with interdependent parts that require teamwork to solve current and future problems. Because managers create the organization structure and systems for competitive advantage, they must fully endorse and support TQM as a management system for it to succeed.

Creating standards and eliminating variability helps the organization become more efficient and increase quality. Information from facts and data collected through statistical process control, testing and similar sources would help the organization make current and future decisions. Planners must build quality into all functions of the organization strategies to sustain continuous improvement, and preserve customer satisfaction. Recognizing that mechanistic management practices need to change to be competitive, Juran (2009) developed a performance efficiency theory of quality through management practices. While defining Quality, Juran stressed it is the customer who determines quality (Bisgaard, 2008; Juran, 2009; Juran & De Feo, 2010).

As with Deming, Juran understood management must incorporate quality into the process through education and training of the workers. By identifying the customer, determining goals, and setting up measurements for the process or service, managers could set the quality plan in place. The second step toward quality was ensuring goals and measurements were within the specific controls setup and measurements outside control parameters identified problems needing solutions. To solve an issue, Juran focused upon quality improvement to identify the origin of the problem, find a

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solution, and maintain improvements created. To have a robust quality improvement method, Juran involved the worker in solving the problem through the concept of quality circle teams (Bisgaard, 2008; Juran, 2009; Juran & De Feo, 2010). Deming and Juran paved the way for a new management approach to organizational efficiency, which lean philosophy proponents have embedded in 21st century lean management systems.

III. Six sigma

Six sigma is a scientific method to improve processes through applied statistics (Pyzdek & Keller, 2010). Originating in the 1920s, engineer Walter Shewhart applied statistics to improving telephone equipment quality (Giants of Quality, 2011;

Six Sigma, 2013). Sigma,

σ

is a letter in the Greek alphabet that represents the variability measurement in statistics (Pyzdek & Keller, 2010). George (2002) and Pyzdek and Keller (2010), stated that six sigma represents six standard deviations from the mean of a normal bell curve which equates to near perfection (99.9997%) if there are no more than 3.4 defects per million occurrences. Bill Smith, an engineer at Motorola who recognized that variation in the process contributed to defects, coined the term “six sigma” (SixSigma, 2013). Six sigma is a quality improvement method to reduce cost, and increase customer value and efficiency within the process. Companies can spend endless hours and labor costs to rework defects. Six sigma helps a company identify where the problem is occurring so workers can discover the reason for the defect and correct the error. A 5- part process with the acronym DMAIC stands for

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define, measure, analyze, improve, and control and is the investigative model behind six sigma to improve a process (Chandrasekaran & Linderman 2008; Pyzdek & Keller, 2010). Improving quality and efficiency through six sigma techniques adds value to the customer through cost efficiency, and can enhance the company’s brand as one of high quality.

IV. Toyota management principles

As Deming spent years in Japan teaching Japanese businesses about his total quality management system, the Toyota management principles are similar and based upon Deming’s teachings. Liker (2004) described four categories behind Toyota’s 14 principles that drive management and the philosophy behind the Toyota production system: a long-term view, efficient processes, collaboration of people and partners, and fact-based problem solving. Liker (2004) elaborated on the principles behind the four categories as follows:

(A) A long-term view. Managers focus decisions on the benefits in the long-term that supersede any short-term financial goals or advantages.

(B)The process is critical. To eliminate waste for optimal efficiency, standardization reduces variation. To ensure standardization, planners establish visual controls as a communication device to identify hidden problems. In addition to continual evaluation of the process, analysts must evaluate the subsystems that are interdependent parts of that process. A “pull system” replenishes inventory or supplies when needed instead of creating overproduction or excess inventory. Maintaining level workloads enable procedures to be established (e.g., appointment scheduling system)

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to ensure people or equipment are not overburdened. To be innovative, reliable technology adds value to a process. “Quality first” is the focus throughout the process, which allows for an open culture where employees can freely identify a problem to be solved in a process, system, or service.

(C).Collaboration and knowledge sharing are required.

“People and partners” are the backbone of competitive advantage. Leaders develop from within the organization that understand the culture and philosophy, and inspire and motivate others. Individuals and teams that embrace the Toyota philosophy, receive encouragement to be innovative and creative, and can deliver results. Partners and suppliers are important to the supply chain and Toyota believes in helping supporting companies grow and improve organizational efficiencies.

(D). Employees and managers solve problems through a “go see for yourself”

To understand the entire process one needs to observe and verify information from the source. Personnel should formulate decisions based upon multiple alternative solutions, which incorporate stakeholder opinions, recommendations, and information. Only through visual observation and evaluation of the process or service is an organization able to improve continually.

(v). Lean management.

Massachusetts Institute of Technology (MIT) International Motor Vehicle Program researcher John Krafcik coined the term lean in a 1988 article about a paradigm shift from mass production to lean production in which processes are

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improved by saving time and operation costs (Womack et al., 1990). Coworkers Womack, Jones, and Roos, solidified the concept in an analysis of how the industry was moving from mass production to a more cost-efficient and customer valued operation.

The primary focus of the analysis was the automobile industry; specifically Ford Motor Company that practiced a mass production philosophy and Toyota Motor Corporation that moved to a lean production system. Mass production functioned within a bureaucratic management style and a process involving a mechanistic assembly line philosophy with limited management employee interaction. Lean production was a new management system introduced by Toyota to compete with an American market.

Principles of the process included eliminating waste in the manufacturing process, involving suppliers, reviewing the process throughout the supply chain, adding value for the customer, and using teams to solve problems. Toyota used lean production to reduce cost and increase efficiency in their processes to win the automobile war.

Womack and Jones (2003) expanded upon the work of Womack et al. (1990), moving beyond a single specific industry to the recognition lean philosophy is more than just a lean production process: A lean system can be useful in organizations other than automobile industry firms. The core to lean thinking is five principles adapted from Toyota’s Management principles: identify value from the customer’s viewpoint, define the value stream, map the flow, establish pull, and seek perfection. Liker (2004), Ohno (1988), and Womack and Jones (2004) all alluded to the fact lean is more than just a management tool to increase efficiency within manufacturing, but a system that involves everyone in the value chain. Jackson (1996) took lean production further by introducing lean as a management system. In LMS, developers seek to integrate

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interdependent functions to meet overall objectives. The foundation of a lean management system is the conceptual design supporting the operational structure and interpersonal relations of an organization. The organizational structure is critical for a successful LMS, and the correct design is optimal for competitive advantage. A horizontal structure, compared to a vertical bureaucratic structure, may allow for more employee engagement and knowledge sharing which are essential to an LMS. Although the strength of Jackson’s approach lies in the framework lean is a system governed by the decisions of management, the weakness is that Jackson focused on the implementation of LMS within manufacturing and not in other functions, such as office or administrative services. With a heavy focus on manufacturing, the material may be difficult to understand if leaders of organizations in non-business sectors, such as public agencies or nonprofits were interested in how LMS could benefit their organizations to increase efficiency and reduce costs.

(v). Lean six sigma.

Six sigma may have started as a statistical tool within quality management to help identify defects in a process; however, it has evolved into a methodical process to improve quality and value to the customer. With the implementation of lean to add value to the customer through the elimination of waste in the process, it was only logical six sigma would have a place with the lean movement. Lean and six sigma combined can increase the speed to identify, analyze, and correct quality defects. Lean six sigma combines the management system of lean integration with the tools to measure performance and the goal to reach quality performance excellence (George, 2002). Lean and six sigma focus on the process but there are differences between the

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two. Lean engages the worker to solve problems, whereas six sigma relies upon experts to identify and analyze less visible problems through statistical analysis (Chandrasekaran & Linderman, 2008). Lean concentrates on minimizing waste, whereas six sigma concentrates on minimizing variation (Antony, 2011). Lean has evolved from a rapid improvement process to an integrated system within the organization, whereas six sigma focuses upon one process at a time to make improvements. Individually, either lean or six sigma can help an organization improve quality and efficiency, but when applied together organizational leaders expedite and make greater strides to improve quality and efficiency.

40.3. Measuring Performance

40.3.1 Identification of Performance indicators

Performance measurement has evolved from an internal tool management used for decision making, to an external tool for stakeholders to evaluate the organization (Carmen, 2011; Herman & Renz, 2004; ,Ivanovic & Antic , 2011).Stakeholders are using a comprehensive approach to determine the overall health of the organization by measuring effectiveness and efficiency within the nonprofit through program evaluation, governance board evaluation, and financial efficiency ratios. A lack of organizational governance and efficiency can affect how funders or government contracts are awarded, or cause negative media from watchdog groups or regulators that hold an organization accountable (van der Heijden, 2013). Searching the literature uncovered research regarding effectiveness (e.g., Is the organization doing the right thing?), but literature was limited about efficiency (e.g., Is the organization doing

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things right?) other than financial efficiency. Researchers made little mention of how nonprofit leaders were evaluating programs, services, and administrative tasks through a process improvement perspective such as the lean approach.

40.4. Evaluating effectiveness

Herman and Renz (2004) studied how nonprofit organizations evaluate effectiveness. The researchers evaluated responses to the following three questions:

(a) Do different types of stakeholder groups judge effectiveness differently?, (b) Is effectiveness more prevalent in organizations whose board of directors influences processes or practices?, and (c) Are organizations that adopt best practices more effective? .

In an organization, Each stakeholder may have applied different evaluation criteria to determine effectiveness, but stakeholders correlated the governance board of the organization with the organization’s effectiveness. Boards involved in planning, fundraising, and policy development seem to contribute to the overall effectiveness of the organization. Results indicated no correlation between organizations using the correct management practices and organizational effectiveness.

Herman and Renz tried to identify organizational effectiveness other than financial measurements, but the study was too board member-centric and the reported results did not provide enough detail about what stakeholders were looking for to evaluate nonprofit effectiveness.

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Quality Indices for Sampling Plans 40.5. Evaluating efficiency

Efficiency ratios are a common approach to determining organization’s financial health. Ratios are one type of performance measurement where stakeholders evaluate the percentage of income spent on administration, program, fundraising, or debt.

Ashley and Faulk (2010) explored how financial ratios affected grant amounts received from foundations. In the 2005 Georgia foundation grants marketplace, Ashley and Faulk focused on administrative and fundraising expense ratios, and debt evaluated by the ratio of total liabilities to total assets. Results indicated that the overall financial health of the organization judged by all ratios did not affect the grant amount awarded. Analyzing the data according to the individual ratios told a slightly different story. A high debt ratio negatively affected the size of the grant awarded. The administrative expense ratio did not prove significant, but organizations with fundraising expense ratios showing a low spending cost were awarded higher grant amounts. Forbes magazine and website provide business and financial news to readers and evaluate the health of charities based upon financial efficiency ratios. Some studies show organization evaluations using financial efficiency ratios do not offer a comprehensive portrayal of the health of the organization and only contain one aspect of measurement (Ashley & Faulk, 2010; Bansal, 2009; Brooks, 2006). Brooks (2006) indicated efficiency ratios might be misleading. As an example, the fundraising expense ratio could provide a false set of security as a higher score would result if the organization did no fundraising at all. The ratio also does not account for a strategic position of how much fundraising the organization conducts. Brooks (2006) proposed

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maximizing equimarginality (every dollar in expense generates an extra dollar in revenue) as an alternative to efficiency ratios for administration and fundraising.

Organizations not spending money up to the point of equimarginality may be inefficient by missing opportunity costs.

Kaplan (2001) and Kaplan and Norton (1996) posited analysts calculate financial efficiency ratios from past performance and the ratios do not include future or strategic measures of performance. Kaplan observed some stakeholders are evaluating an organizations ability to improve internal operations through non-financial metrics as a performance measurement.

The balanced-scorecard is a performance measurement tool that not only measures financial efficiency, but also evaluates efficiency of the organization from a customer, internal process, and staff learning and growth perspective. The balanced-scorecard is mission- and strategy-driven to (a) develop objectives for retaining and developing relations with customs, (b) continually improve internal processes to satisfy customers and stakeholders need for positive outcomes on their investments, and (c) develop a workforce that is motivated, works together, and has the skill-set balanced-scorecard originally applied to the highest level of the organization, but it can be adapted to any level of the operation (Bansal, 2009).

40.6 Quality management systems

To be competitive, nonprofit leaders need to implement a quality management system that continually improves performance and customer satisfaction (Ivanovi &

Anti, 2004). Ivanovi and Anti (2004) took the position that a firm that implements a

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quality system is able to provide continual monitoring and performance evaluation, as well as collect outcome data (e.g., number of clients served, financial reports) leaders can use for strategic decision-making. The quality system is only effective if leadership communicates the value to staff, and adequate technology is in place to help collect and disseminate data.

Ireland (1999) shared examples of how quality, which was rooted in manufacturing, as expanded to the public and nonprofit sector. Nonprofits are similar to a business in that stakeholders must find the funds necessary for the organization to operate, measure performance to identify the impact the nonprofit is having in the community, and use quality management to improve processes for efficiency. Ireland discussed four studies to illustrate different aspects of quality management systems:

Business models applied to nonprofits, application of the ISO 9000 certification standard published by the International Organization for Standardization (ISO), performance improvement strategies, and strategic use of information technology.

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Figure 40.2. Lean Maturity Model (Adopted from : Tranholt- Hochstein, 2014)

40.7 Discussion

Service and Manufacturing Firms are enhancing their profitability with implementation of Lean Management (Joshi & Sharma, 2014). However, although many companies have successfully implemented LM, others have not achieved the results that they

Level I Unaware

Level II Awareness (Interest)

Level III

Invested (Working)

Level IV Committed (Thinking)

Level V

Optimized (Competitive)

What is Lean?

 No knowledge of Lean as a system to reduce costs and increase efficacy

Introduction to Lean

 Lean Education

 Test with small improvement /efficiency projects

Leadership fully embraces philosophy

 Multiple Lean activities in work

 Employee’s continue to learn and share knowledge

Incorporated in Strategic Plan

 Employees Engaged

 Benefits are realized

Paradigm Shift

 Processes/ Programs viewed from point of customers (Stakeholder)

 Full Systems Integration

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expected. One thing that these companies had in common was an inability to sustain their results over the medium- and long-term (Lucey et al., 2005). This has created an interest among researchers to examine why they are unable to sustain the results that have come from LM. And it is not only intra-organisational aspects that need to be focused upon for further strides to be made in the level of LM implementation; it is also vital for Lean principles and practices to be spread throughout the whole supply chain to derive the potential benefits of LM (Womack and Jones, 1996; Hines et al., 2004). In this respect, one of the main challenges that companies that embark upon Lean initiatives are faced with is increased integration with their key suppliers and customers (Pérez et al., 2010). This is why an analysis of LM should be addressed from both a company focus and a supply chain focus (Hines et al., 2004; Shah and Ward, 2007).

Concepts and Terminology

Just in Time (JIT): Is a production strategy that strives to improve a business return on investment by reducing in-process inventory and associated carrying costs. To meet JIT objectives, the process relies on signals or Kanban between different points, which are involved in the process, which tell production when to make the next part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence or absence of a part on a shelf. Implemented correctly, JIT focuses on continuous improvement and can improve a manufacturing organization's return on investment, quality, and efficiency. To achieve continuous improvement key areas of focus could be flow, employee involvement and quality.

Sustainable Development: The term “sustainable development” was used by the Brundtland Commission (1987) , which coined what has become the most often- quoted definition of sustainable development: “development that meets the needs of

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the present without compromising the ability of future generations to meet their own needs.”

Globalization: Is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Advances in transportation and telecommunications infrastructure, including the rise of the telegraph and its posterity the Internet, are major factors in globalization, generating further interdependence of economic and cultural activities.

Lean Production: Lean manufacturing, lean enterprise, or lean production, often simply, “Lean,” is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. Working from the perspective of the customer who consumes a product or service, “value” is defined as any action or process that a customer would be willing to pay for.

Supply Chain Management: Is the management of the flow of goods. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption. Interconnected or interlinked networks, channels and node businesses are involved in the provision of products and services required by end customers in a supply chain.

Environmental Management: Is the management of the interaction and impact of human societies on the environment. Environmental Management aims to ensure that ecosystem services are protected and maintained for future human generations, and also maintain ecosystem integrity through considering ethical, economic, and scientific (ecological) variables.

Five-S (5S): A process improvement methodology often accompanying lean is 5S.

Womack and Jones (2003) identified 5S, which involves five Japanese terms. beginning with the letter S that lay the foundation for implementing lean in an organization. Seiri (sort) is a process to separate needed vs. non-needed tools, materials, and information. Seiton (store) is a method to arrange and identify for easy access through visual controls. Seiso (shine) is a practice to clean up the area and put things away after

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use. Seiketsu (standardize) involves creating standardized processes, and a workplace maintenance plan. Shitsuke (sustain) ties everything together to form the habit of following the first four.

Value Stream Mapping (VSM): A lean visibility tool used to map a current activity from the start of the process to its completion Rother and Shook (2003). After outlining the current process, analysts identify nonvalue-added steps and improvement opportunities. The value stream mapping process helps to visualize options for streamlining a process through identification of improvement areas. The next step is to create a future-state map that eliminates the nonvalue-added steps in the process, incorporates improvement opportunities, and provides a continuous flow based upon the customer perspective. The final task is to use the future map to create an improvement action plan.

Waste: The goal to efficiency improvement is to remove waste within the processes or systems of an organization to ensure customer value. Types of waste include overproduction or excess processing of information, materials or products; waiting for information or items; transporting items when not needed; excess inventory;

unnecessary movement of people trying to find information, tools, or resources; and rework. (Ohno, 1988).

Resource dependency theory: Income generated through the various revenue streams guides leadership in what programs and services are necessary to meet a societal need, what staff is needed to execute the mission, and what resources (human, financial, and capital) leadership will need to sustain the organization (Carman, 2011). The conceptual framework behind the premise is resource dependency theory. Resource dependency theory is the assumption that organizations are reliant upon the resources they must acquire from the external environment (Carman, 2011; Pfeffer & Salancek, 2003). With limited and uncertain financial resources, the theory suggests that the available resources shape leadership decisions and behaviors (Carman, 2011; Pfeffer & Salancek, 2003). To capitalize upon limited resources, decision makers in nonprofit organizations will need to evaluate internal operations to increase efficiencies. Although increasing organizational efficiency will

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not reduce dependency on funding sources, efforts to economize may allow the organization to reallocate resources for mission-driven optimization.

Organization efficiency and effectiveness: The construct of organizational efficiency and effectiveness within nonprofits is complicated and does not include a standard perspective or theory for how nonprofit organizations should measure performance.

Pfeffer & Salancik (2003) asserted organizational effectiveness as an external measurement based upon the organization’s ability to produce the expected result based upon environmental demands. In contrast, efficiency is an internal measurement to ensure employees complete tasks using minimal resources, such as time or funding, without jeopardizing quality. Organization efficiency and effectiveness is much easier to measure in for-profit organizations, as they focus upon financial measures (Kaplan, 2001), specifically profitability. Because nonprofits do not measure profitability to determine organization success, they rely upon the social value (Drucker, 1990) they bring to the client through provided programs and services. Program outcomes may include number of clients served, program budget compared to expenditures, and number of program grants awarded (Herman & Renz, 2004; Ivanoviü & Antiü, 2011).

Whereas program outcomes are an important measurement, outcomes do not effectively measure the organization itself (Herman & Renz, 2004). Organizational effectiveness coupled with efficiency are critical to providing the performance framework behind a nonprofit leaders approach to evaluating how the valuable and limited resources are being used within operations and what Quality

Quality improvement: The foundation for LMS is quality improvement, which evolved from classical, contemporary, and postmodernist leadership approaches. An early classical approach to improving organizational efficiency was through mass production that attempted to reduce variability in a process through standardized procedures and economies of scale (Bateman & Snell, 2011; Jackson & Jones, 1996; Womack & Jones, 2003). With a mass production perspective, leaders relied upon a vertical organizational structure, a stable environment, and a mechanistic approach (Morgan, 2007). A weakness of the classical approach is that organizations cannot adapt easily to environmental changes, management makes all the decisions, and social interaction is lacking (Morgan, 2007)

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Management System: A management system includes organizational processes that are mutually dependent, but which must collectively share resources for the success of the organization (Sampaio et al., 2012). Management systems are strategic and help organizations with innovation, creativity, and competitiveness.

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