Question

5. (40). Explain each of the following 14 Points of Quality Management by Deming: Adopt a New Philosophy. End the Practice of Awarding Business on the Price Tag. Institute Leadership. Institute a Vigorous Program of Education and Self-Improvement.

Answer 1

Deming’s 14 Points on Quality Management, or the Deming Model of Quality Management, a core concept on implementing total quality management (TQM), is a set of management practices to help companies increase their quality and productivity.

Adopt new philosophy

We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.

Government regulations and antitrust activities need to be changed to support the well-being of people. Commonly accepted levels of mistakes and defects can no longer be tolerated. People must receive effective training so that they understand their job and also understand that they should not be afraid to ask for assistance when it is needed. Supervision must be adequate and effective. Management must be rooted in the company and must not job-hop between positions within a company.

End the practice of awarding business on the price tag

End the practice of awarding business on the basis of price tags. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust. According to Deming, price has no meaning without a measure of the quality being purchased. An example is the practice of purchasing supplies or services from the lowest bidder without careful attention to specifications. This practice can only increase costs elsewhere. On the other hand, when quality becomes the central focus, the practice of buying from the lowest bidder is often abandoned. Continual improvement to a system can only be accomplished if the suppliers are able to deliver at a predictable, and continuously improving level of quality. Therefore, companies should use a single supplier for any one item on a long-term relationship of loyalty and trust. Deming does acknowledge that it is not always practical to use a single supplier, however, he insists that the customer company work closely with suppliers in order to convey their needs effectively and to help the vendor improve the quality of its goods while reducing overall cost to the buyer . moreover companies that want to move on to just –in – time inventory control procedures as a way to hold down costs have no choice but to adopt Deming’s supplier directive.

Institute Leadership

The aim of supervision should be to help people and machines and gadgets to do a better job.

Supervision by management is in need of overhaul, as well as supervision of production workers.” Management should lead, not supervise. Leaders must know the work that they supervise. They must be empowered and directed to communicate and to act on conditions that need correction. They must learn to fix the process, not react to every fault as if it were a special cause, which can lead to a higher defect rate.

Institute a Vigorous Program of Education and Self –Improvement

An organization needs good people who are improving with education. Management should be encouraging everyone to get additional education and to engage in self-improvement.

What Is Price Elasticity of Demand?

Price elasticity of demand is a measure of the responsiveness of consumers to a change in a product's cost. The more general term demand elasticity measures the impact of a change in any of a variety of factors including the product's price.

The formula for any calculation of demand elasticity is the percentage of change in the quantity that is in demand divided by the percentage change in the economic variable. So, if the price elasticity of demand is being measured, the formula would be the percentage of change in the quantity in demand divided by the percentage change in price.

Like demand elasticity for any factor, price elasticity of demand is typically measured in absolute terms.

If the price elasticity of demand is greater than 1, it is elastic. That is, demand for the product is sensitive to an increase in price. A price increase for a fancy cut of steak, for example, may make many customers choose hamburger instead. A bargain price for the fancy cut will lead many customers to upgrade to the fancy cut.

Price elasticity of demand that is less than 1 is inelastic. Demand for the product does not change significantly after a price increase. For example, a consumer either needs a can of motor oil or doesn't need it. A price change will have little or no effect on demand. But not many will stock up on motor oil if its price decreases.

Demand is said to be "unit elastic" when it equals 1. That means that demand for the product will move proportionately with the price change. If a candy bar's price increases 5% then 5% of its regular buyers will switch to another brand.

How Businesses Use Price Elasticity of Demand

Price elasticity of demand is one of the most common factors calculated by businesses.

Most businesses collect data on the impact of price changes in their industries and use it to calibrate their prices and maximize their profits. In advance of price changes, knowing the price elasticity of demand helps them set production levels correctly.

Another type of demand elasticity is cross-elasticity of demand, which is calculated by taking the percent change in the quantity that is in demand for a product and dividing it by the percentage change of the price for another product. This type of elasticity indicates how demand for a product responds to price changes for other products.

Suppose that a soft drink company calculates that the demand for a bottle of its soda increases from 100 to 110 after the price is cut from $2 to $1.50. The price elasticity of demand is calculated as the percentage change in quantity demanded (110 - 100 / 100 = 10%) divided by a percentage change in price ($2 - $1.50 / $2). The price elasticity of demand, in this case, is 0.4. Since the result is less than 1, it is inelastic. The change in price had little impact on the quantity demanded.

KEY TAKEAWAYS

• Price elasticity of demand is an indicator of the impact of a price change, up or down, on a product's sales.
• Demand elasticity is a more general term, allowing the impact on demand of a number of factors to be estimated.
• Higher price elasticity of demand suggests that consumers are more responsive to a product's price change.