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THE IMPACTS OF INCORPORATING TOTAL QUALITY MANAGEMENT
(TQM) PRINCIPLES TOWARDS THE COST EFFECTIVENESS IN THE STEEL
INDUSTRY
BY
MAI THI THU PHUONG
Graduation Project Submitted to the Department of Business Studies, Help
University College, in Partial Fulfillment of the Requirements for the degree of
Bachelor of Business (Accounting) Hons
MARCH, 2011
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Declaration
I hereby declare that the graduation project is based on my original work except
quotations and citations which has been duly acknowledged. I also declare that it has not been
previously or concurrently submitted for any other course/degree at Help University or other
institutions. The word count is 14,304 Words.
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Acknowledgement
First of all, I am grateful to Mr Pham Duc Hieu , the professor who gave lots of useful
advices as well as materials for this thesis. And I would like to say thank to productions,
marketing, and accounting managers and all of employees of 50 manufacturing companies,
who allowed and assisted me to collect all of necessary information to finish this thesis. My
thesis can not be finished without your supports. It is a great lucky when I can get responses
from you.
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Table of Content
Declaration ............................................................................................................................................ 2
Acknowledgement ................................................................................................................................ 3
Abstract: ................................................................................................................................................ 5
CHAPTER I: Introduction .................................................................................................................... 7
1.1. Introduction about the topic ....................................................................................................... 7
1.2 Need for Research ....................................................................................................................... 9
1.2.1 Research question ......................................................................................................... 11
1.2.2 Research objective ........................................................................................................ 11
1.3 Elements of the Research .......................................................................................................... 12
CHAPTER II: Literature review ......................................................................................................... 15
2.1 History of WCM and TQM....................................................................................................... 15
2.1.1 History of WCM and TQM general review .................................................................. 18
2.1.2 TQM concepts................................................................................................................. 22
2.2 Judgments about the TQM in general ....................................................................................... 28
2.2.1. TQM appreciations........................................................................................................ 29
2.2.2 TQM criticism .................................................................................................................. 33
2.3 Impacts of TQM on decision making process of manager as well as its influences on the
organizations ................................................................................................................................... 36
CHAPTER III: RESEARCH METHODOLOGY .............................................................................. 39
3.1 Research objective .................................................................................................................... 39
3.2 Research strategy ...................................................................................................................... 40
3.3 Research hypothesis .................................................................................................................. 40
3.3.1 Impact of Total Quality Management (TQM) on ABC costing method .................. 42
3.3.2 Impact of Total Quality Management (TQM) on Plant Performance ...................... 44
3.3.3 Impact of TQM on plant performance: A mediation mechanism ............................ 46
3.4 Measurement of variables ......................................................................................................... 50
3.4.1 Dependent variables (Plant performance) ................................................................. 50
3.4.2 Independent variables ................................................................................................... 50
3.4.2.1 Total quality management (TQM) implementation ............................................ 50
3.4.2.2 Plant-level control variables .................................................................................. 54
3.5 Research methodology .............................................................................................................. 55
3.6 Data sources and sampling........................................................................................................ 57
3.6.1 Sample selection ............................................................................................................ 57
3.6.2 Data collection method .................................................................................................. 57
3.7 Limitation of research ............................................................................................................... 58
CHAPTER IV: ANALYSIS ............................................................................................................... 61
4.1 Results Analysis ........................................................................................................................ 61
4.1.1 Percentage method........................................................................................................ 61
4.1.2 Results analysis for hypothesis 1 to 3 ........................................................................ 67
4.1.2.1 Impact of Activity-based Costing on Total Quality Management .................... 67
4.1.2.2 Impact of Total Quality Management (TQM) on plant performance ............... 67
4.1.2.3 Impact of TQM on plant performance: A mediation mechanism ..................... 75
4.2 Discussion ................................................................................................................................. 76
CHAPTER V: CONCLUSION........................................................................................................... 78
5.1 Implication of research ............................................................................................................. 78
5.2 Conclusion ................................................................................................................................ 78
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THE IMPACTS OF INCORPORATING TOTAL QUALITY MANAGEMENT (TQM)
PRINCIPLES TOWARDS THE COST EFFECTIVENESS IN THE STEEL INDUSTRY
BY
MAI THI THU PHUONG
MARCH, 2011
Supervisor: Mr PHAM DUC HIEU
Abstract:
Based on the results o f previous studies, choosing a suitable managing method is really
important. However, manufacturing practices have different kind of methods such as: Just-InTime method (JIT), Total Quality Management (TQM), Formal Continuous Process
Improvement, Competitive Benchmarking, and Self-directed Teams. Hence, it is quite difficult
for managers to choose. Comparing to other manufacturing method, Total Quality
Management (TQM) can be considered as the most suitable method to adopt since it brings lots
advantages to manufacturers. That is why the author wants to focus on this method more. In
fact, TQM has direct and positive impacts on the costs allocation and quality improvements.
However, there are not many researches mentioned about the indirect impacts of TQM.
Therefore, in this thesis, indirect influences of TQM will be clarified with the supporting of
ABC costing method. The same as World Class Manufacturing, costing methods include
different kinds like traditional costing method, variable method, throughput costing method,
and ABC costing method. Compare to others, ABC not only inherent good characters of
previous method but also adapts rapidly to the changes of business environment. As a result,
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when managers can adopt and combine both TQM and ABC, the performance of
manufacturing firms will be enhanced twice. Vietnamese business environment changes
quickly. Therefore, the author thinks carrying a survey might be a good way to conclude about
the reality of the most suitable management method that Vietnamese enterprisers adopted
recently.
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CHAPTER I: Introduction
1.1. Introduction about the topic
In general, for one cost accounting method,
there are many manufacturing practices can be adopted in
an organization. However, until now, only some researchers
focus on which manufacturing methods should apply for
what cost accounting method. Specific in Vietnam, a lot of
changes occurs especially when most of companies turn
into a new trend in using the cost accounting method from
2000. Instead of adopting the traditional method, Activities
Based Costing method or ABC seems more workable and
precisely. This does not mean all of these companies use
the same manufacturing practices. Based on different
situations as well as strengths and weaknesses of various
companies, each of companies can find the most suitable
manufacturing practice to adopt.
In order to have a clear and objective point of
view about the relationship between cost accounting
method which are traditional costing method and ABC
method and WCM, a survey will be implemented.
20companies will be chosen to carry this survey. After
receiving all of answers from these companies, we can see
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which kind of WCM is adopted more for which costing
methods.
This study in nature can be considered as a
conclusion about the most popular manufacturing practices
which are adopted in most of companies in the steel
industry. Upon this survey result, companies can figure out
what method is adopted most and whether the current
method that they use is effective and efficient. In case they
see the advantages of another manufacturing practice, they
can decide whether they should change and use a new one.
During this thesis, some questions will be
focused such as:
-
What is WCM and TQM
-
Advantages and disadvantages of TQM
-
What are current manufacturing practices applied now
especially in Vietnam
-
How many companies use WCM until now
-
How many of them
adopt
the Total
Quality
Management (TQM) as a manufacturing practice.
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In the next part, some term will be added and
explained to ensure that the readers can follow all of ideas
that the author want to share.
1.2 Need for Research
As mentioned in the introduction, there are
various types of costing methods for example: traditional or
absorption costing method, variable costing methods,
Activities based costing method (ABC), throughput costing
method, and lean costing methods. Each method carries
both advantages and disadvantages. To analysis careful
about each method will require lots of time and capacities
since documents for some methods was destroyed. As a
result, in this thesis, only traditional accounting method and
ABC methods, the most popular costing methods, are
concentrated and analyzed.
It is quite difficult to say which method between
traditional
and
ABC
method
is
better.
Therefore,
advantages as well as disadvantages of each one should be
shown. According to this, readers can understand why in
different circumstances, different methods will be adopted.
For example, in the beginning of the industrial century,
traditional costing method is still the most popular. But
now, when the global trend dominated and international
transactions developed, traditional or absorption costing
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method slowly starts showing its inconveniences. ABC
method was invented and become more and more suitable
with the current accounting environment. After a short
time, it is widely adopted because of lots of strengths.
WCM refers to the way that the managers can
manage the manufacturing process of a specific company.
There are different kinds of manufacturing practices such as
Just-In-Time method (JIT), Total Quality Management
(TQM),
Formal
Continuous
Process
Improvement,
Competitive Benchmarking, and Self-directed Teams.
According to different researchers, each method can be the
best way to manage the manufacturing process if the
managers know how to use the strength of them. For many
companies in the World, Just in time can be considered as
the most popular method. However, in Vietnam, TQM is
the most suitable one. Therefore in this paper, the author
will define and analyze the advantages and disadvantages
this method only.
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1.2.1 Research question
There are two questions that the author wants to
focus on this thesis are what TQM is and how the TQM
affects on the performance of organizations. Normally,
most people think that only costing method can affect the
operation of organizations. However, in fact, besides
costing method, TQM is also a factor which decides the
success of the organization as a whole.
1.2.2 Research objective
In order to achieve the expectation of the author
about this thesis, doing surveys and calculating the statistics
will be used mostly during the project. As mentioned
above, questions will be covered in 3 categories: plant
characteristic, cost accounting method and WCM. And
three hypotheses will be designed based on:
+ Impacts of TQM on the cost accounting methods
+ Impacts of the cost accounting methods on the plant
characteristics
+
Impacts
of
TQM
on
the
performance
of
organizations
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It is quite easy to see that the characteristics of a
plant can decide the costing method as well as WCM that
they need. This means there is a relationship between
costing method and WCM. The statistics number can proof
this relation.
Although this can show the evidence for the
interaction between WCM and cost accounting, this
research still faces some limitations such as the quantity of
companies which are involved in the survey process,
changing in the business environment as well as changing
in the internal operation of companies. Therefore, the result
of this survey might be difficult to conclude if the author
implements the survey on a large sample with different
types of business enterprisers.
1.3 Elements of the Research
In
order
to
reach
the
decision
about
which
manufacturing practices is adopted most for traditional
method and ABC costing method, 20 companies in steel
industry will be picked up. These companies will answer a
survey with specific question as below:
-
Plant characteristics
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-
Cost accounting method that they adopted before 2000
and after 2000
-
WCM method
Depending on each question, the answer can
include various options.
Plant characteristics will focus on size, plant age, mix
and volume, discrete, and downsize. Size can be
defined into 5 options based on the number of the
employees in each plant such as 1-less than 100; 2-100
to 249; 3-250 to 499; 4-500 to 999; and 5-more than
1000 employees. The second factor-plant age will
separate these companies into 5 categories depending
on the years that companies start-up like 1-less than
5years; 2-5 to 10 years; 3-11 to 20years; and 4- more
than 20years. The rest factors also will be class different
companies based on different key point. This will be
mentioned more detailed in the survey and the thesis.
Cost accounting method can be divided into 2 periodsbefore and after 2000. For some companies, traditional
method is still applied now. But for others, ABC
method is considered from the early of the 20th century.
The third trend is that before 2000 they used traditional
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method then they change into ABC method after 2000.
Each company has their own thinking in choosing the
method to adopt. There are 3 options will be applied in
this part: 0-no implementation; 1-plant to implement;
and 2-extensive implementation.
The
same
as
cost
accounting
method,
TQM
manufacturing method will be judged based on three
options: 0-no implementation; 1-plant to implement;
and 2-extensive implementation. Different company
will have different decisions on the leverage of TQM
that adopted in their business.
From the survey responses and statistics
number, the author can conclude some points of view about
the relationship between the cost accounting method and
WCM.
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CHAPTER II: Literature review
2.1 History of WCM and TQM
In general, WCM can be defined as a set of
concepts, principles, policies and techniques to manage and
operate a manufacturing company. This can be considered
as an improvement process started from before the World
War II with an achieved result of the Japanese
manufacturing resurgence. Time by time, this is enhanced
and harmonized with different ideas of Japanese in various
fields such as automotive, electronics and steel companies
to create the core competitive edge. In other words, this
continually enhances the effectiveness and efficiencies in
quality, cost, lead time, flexibilities as well as customers’
service.
In order to implement WCM, manufacturing
companies needs time and personnel to be familiar with
WCM. Different WCM method requires different factors.
As a result, for most of managers, WCM is a process-driven
approach. It usually includes all of activities as below:
Make-to-order
Streamlined flow
Small lot sizes
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Families of parts
Doing it right the first time
Cellular manufacturing
Total preventive maintenance
Quick changeover
Zero Defects
Just-in-time
Variability reduction
High employee involvement
Cross functional teams
Multi-skilled employees
Visual signaling
Statistical process control
Most of companies which are applied WCM
strategies not only focus on improving the operational
hierarchy but also concern about the method to limit the
wasted and save the costs as well as resources. This will
lead to a higher productivity with a lower costs and time
consuming. Moreover, by this way, the burden of selling
inventory will not be a problem since the delivery speed is
improved every day. In stead of focusing on the results of
performance, managers concern about the process and
method of working to judge. Teamwork defeats functional
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and hierarchical trends and becomes the dominated trend in
the world.
For many people, WCM is still mistaken with
standards of quality and image such as Volkswagen and
Rolex. And it also leads to changes in working place. In
fact, middle and lower managers refused to adopt WCM
since they want to maintain the traditional working style.
Therefore, to adopting WCM, involvement of employees
should be required at highest level. Moreover, to adapt with
the needs of quickly changeover, shorter time consuming
and higher operational flexibility, capitalization should be
concerned as the most important issue of manufacturing
companies. More alternatives will be taken into account to
save investment costs and increase the applicability of
results.
However, if WCM can be applied probably and
precisely, a new dimension will be created with high
quality products, shorter delivering time, and higher
inventory turn over.
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2.1.1 History of WCM and TQM general
review
As mentioned above, WCM is invented before
the World War II and improved time by time. This includes
many methods such as just-in-time manufacturing (JIT),
process
improvement
continuously,
total
quality
management (TQM), competitive benchmarking, and
worker autonomy by need of self-directed of work teams.
However, in this thesis, the author will focus only on the
TQM as the most popular and developed method.
In the period from 1927 to 1932, some
experiments of Elton Mayo’s Hawthorne about the
delegation power to workers leads to a wave for a new
trend. This is the first time, a person can proof that the
participation of workers in decision making process can
increase the productivity. Hawthorne carried his study on
his plant of Western Electric Company based on some
factors such as: lighting levels, workday lengths, and rest
period lengths. And he figured out that all of these factors
can affect the level of productivity. For example, workers
can work more effective and increase the productivity when
the light is brighter and in contrast. Another researcher
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Walter Shewhart also invented control charts to reflect the
interaction between the level of involvement of employees
in decision making process and productivity improvement
during the 1930s. These changes remarked a huge change
in the management accounting.
Following the inventions from 1930s, the ISO
9001 standards were born in the World War II as a result of
satisfying the requirements for the war. It pushed
standardization, statistical control, and best manufacturing
practices developed a bigger movement.
In 1950s, statistical methods and quality
management techniques was delivered to Japanese with the
supports from Edward Deming and Dr Juran while the first
book about Total Quality Control was written and become
background to develop many WCM theories later. In 1954,
self actualization needs of Abraham Maslow defined
clearly the needs of employees which can be considered as
the
motivations
to
increase
the
effectiveness
and
efficiencies of productivity. This shows that higher level
workers will focus on higher needs. Based on these,
managers can design suitable prizes to encourage the
workers contribute to the companies and enhance the
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productivity easily. Sometimes, small gifts can have the
same effect as valuable presents. Therefore, managers can
do
both
purposes:
motivating
the
workers
while
maintaining effective capitals to companies.
In 1960s, new leadership model with theory X
and theory Y of Douglas McGregor made the WCM
becomes more and more various. This declared that the way
managers access and motivate the employees can be also a
factor which can enhance the productivity. Theory X states
that workers need some enforcement from managers to do
their works while theory Y focuses on creating the trust
between manager and employees. Based on this relation,
employees will be involved in the problem solving as well
as decision making process. When the employees think
they are a part of the companies, they will try harder and
contribute more to the companies as a natural result.
During 1970s to 1980s, the phrase of Total
Quality Control was shaped by Japanese and this also the
key philosophy which helped Japan became the world
quality leader. Other countries also tried to access and
apply this new philosophy therefore the gaps between
countries became smaller and smaller. In fact in 1980s,
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