Chapter One: Description of the problem:
All companies need effective employees in
order to complete the necessary daily tasks and attain a profit. Many employers do not receive the peak level
of performance from their workers due to the fact that the employees do not
feel they are having an effect on the quality of service they are offering, or
cannot see any tangible outcome from their efforts.
This chapter describes several different
aspects of the project, including the purpose of this project, the setting of
the problem, and the history and background of the problem. The scope of the project is the challenge of
measuring performance and total quality within an accounting function.
Section 1 -
Statement of the Purpose
The purpose of this project was to
identify and recommend methods to effectively measure performance and total
quality within an accounting setting.
Total quality principles have effectively been implemented in other
areas, however the accounting section has been overlooked. By implementing this type of program, new
ideas will be encouraged and enable future changes to be accepted easily.
Section 2 - The
setting of the problem
The accounting office is located in
Holland, Ohio. This facility controls
all the financial related tasks within the Northwest Ohio district. The department involved are the General
Ledger, Accounts Payable, Payroll, Billing, C.O.D., and Information
Services. This facility is located
approximately three miles away form the main United Parcel Service hub location
in Maumee. The accounting function
employs approximately 150 to 160 non-union employees and runs continuously, 24
hours a day, six days a week.
The accounting department is highly
structured and mechanistic. All employees
report to a supervisor, who reports to a manager. There are three managers within this
office. They consist of a Office Manager, an Accounting Manager, and
a Information Services Manager. These
three managers in turn report to the Controller, who is only responsible to the
District Manager and the regional personnel.
There is a high level of standardization in the day to day activities
with this group. The jobs that are
completed do however, require the employees to be specialized in certain areas. All rules and procedures are formalized, and
the power and decision making process is centralized with the management
team. The low level members participate
very little in the decision making process within this group. Since the Accounting office is located away
from the main UPS building, the information network is limited. Most employees within the accounting function
are college graduates.
The mission of the Accounting function is
to quickly and accurately report the state of the business to the management
personnel, so that they may follow up with the shareholders to make the
necessary business decisions.
Section 3 -
History of the problem
Discontent and low morale can be seen
within the employees in the accounting function. A recent trend in absenteeism can be
seen. Employees are lacking a sense of
accomplishment, and appear to be just "going through the
motions". Some of this can be
expected, due to the fact that many of these people have been in the same
position for seven years now, and may be becoming restless, however the
productivity and quality of work being done has directly been affected.
Section 4 - Scope
of the problem
Principles of using TQM can be used and
applied to every aspect of a corporation.
For this thesis, the scope of the
problem will only incorporate the activity within the accounting function. I will evaluate different performance
measures and TQM principles for relativity to the current situation. I will also look at case studies within other
transportation companies to analyze different types of applications. Finally, I will look at establishing a
framework on which to build on based on a few simple steps.
Section 5 -
Significance of the problem
This project is important because the negativity
within the groups can only get worse if steps are not implemented to correct
the situation. Without the flexibility
to make the necessary changes, the company is not able to adapt to market
changes and can be passed by the competition.
The current decision making process hinders innovation and also
progress. By implementing TQM
performance measurements in the accounting function, employee job satisfaction
will increase, and it will also have a direct effect on the productivity levels
within the departments. A failure to
recognize this problem can result in an increase in employee turnover, lower
morale, and reduce the overall productivity within the organization.
Section 6 - List
of terms
Chapter 2 Literary Review
History of performance measurement in accounting and
TQM.
Many people feel that traditional
accounting measures are not up to date in today's business environment. Cooper and Kaplan and Johnson and Kaplan,
masters within the accounting profession addressed this issue in their book
entitled Relevance Lost: The Rise and
Fall of management accounting. They
concluded with the following; Today's
management accounting information which is driven by procedures, and the cycle
of the organizations financial reporting system, is too late, too aggregated,
and too distorted to be relevant for managers' planning and control
decisions. Kaplan also commented that
the current systems used within accounting functions used to report cost and
performance provide little motivation for companies to try and implement TQM,
along with any other long term continuos improvement policies. This point is just amplified by the fact that
many top executives are not happy with the current way of reporting financial
data.
Meaning of TQM
and performance measurement
At the heart of TQM is the concept of total dedication to
customer satisfaction. Quality is defined as that which meets the customer's
expectations. Quality, today is
recognized as a prerequisite for survival.
Quality is seen not from the standpoint of taking time and costing
money, but of saving time and money.
Total Quality describes the state of an organization in which all
activities are designed and carried out in such a way that all customer
requirement are met in less time and at a lower cost. The potential pay backs from a Total Quality
system are tremendous. Recovery of just
a small portion of unproductive costs can result in a significant rise in profits. For instance, take a cost saving initiative
and implement it at all the accounting sites.
Which for UPS is a total of 84 sites.
This small initiative can add up to be a significant savings amount when
you multiply it by all 84 accounting sites.
All businesses today, in such a
competitive market, strive to achieve a competitive edge, a level of
excellence, and for higher performance standards. Performance measurement must reflect how well
the organization is doing in trying to reach their goals. To improve quality, a company must constantly
identify and anticipate customer requirements.
The process of meeting customers goals and needs begins on an internal
level. This makes Total Quality
essential to the management decision making process and allows managers the
ability to make more informed business decisions on a daily basis.
Managers today need to accept that the
person actually doing the work must have the control in the situation. The employees need to be empowered within an
organization. This is a basic TQM
principle. This philosophy is based on
the premise that all employees contribute to fulfilling customer requirements,
whether they be internal or external, and that everyone within the organization
is part of a chain. In the following
case study of Federal Express, you will
be able to see how the control lies within the hands of the employees to make
the operation function effectively.
Too much emphasis has been placed on
accounting measures that are used by senior managers to report data to
shareholders. TQM takes a much simpler
approach by reducing the operation into easier aspects to understand, thus
having a huge impact by reducing the level of variation. This is extremely important in a large
cooperation, where reporting methods can vary from location to location. TQM
recognizes that quality cannot be added to a product or service after
it's been completed but must be designed into the work process from the
beginning. TQM focuses on the work
process and not on the employee. TQM
focuses on the customers. TQM places a
major focus on utilizing teamwork to accomplish tasks. A simple way to look at the current measures
that are in place is to ask a few simple questions: Does the measure add any value to the
customer?, Does it reduce waste or create it?, Is there any direct cost
reduction or benefit?.
This increasing rate of success in due
largely to the shifting management paradigm.
Thought about management is making the gradual transition form strict
authoritarianism - a far greater influence than many readily recognize - toward
a far greater belief in true participative management. Richard Schonberger, in a newsletter by
Computer Aided Manufacturing writes the following:
"Total
Quality is no longer strictly measured by internal costs but, rather, by the
improvements seen by the next customer.
Total Quality
Management therefore, needs to provide each individual with the opportunity to
assess the effectiveness of their own efforts and enable them to improve on
their contributions in the chain. The
measures in place need, therefore, to reflect progressive movement, change and
a learning process in all aspects of business operations. The question of "what next?" has to
be asked continuously in all links of the chain.
The company that
is ready, willing and able to answer it most often, is the company that has
learnt to meet the challenge of Total Quality and embrace change, that company
will be the winner in the race for competitive supremacy.
Total quality has
to be reflected by improvements in areas such as efficiency; effectiveness;
productivity improvements; quality improvements; profitability improvements;
improvements in innovativeness and quality of work life among others.
All of these
things need to be directed towards two main goals:
1)
Getting the job done.
2)
Constant improvement of performance.
Type of TQ- based
Performance Measurements
There are many different types of
measurement which can be used and associated with total quality. Some of these measurement are the following:
1)
costs of poor quality
2)
economic and financial data
3)
complaints and feedback from customers
4)
direct customer surveys
5)
periodic audits and self checks
One important thing to remember is that
Total Quality should be measured in increments of time. If a particular item is not working as
expected, it will be easy to change and try something else. Total quality needs to be based on total
people productivity. Good total quality
measurements will all have a uniform measure of what the goal is to be. They will also have a exact preciseness of
what is being measured. As noted above,
the time frame is very important in order to be effective. All processes should be based on objectivity
and not on opinions. And finally, all
processed should be easily understood by all the employees involved.
History of United
Parcel Service
United Parcel
Service was formed in 1907 in Seattle, Washington. At that time it was named the American
Messenger Company. Business at this time
consisted of messengers who ran errands, carried notes, and any other
miscellaneous package deliveries, such as food from restaurants. UPS then branched into the small package
delivery service for the many retail stores in the Seattle area. After two years of success in this market,
the name then changed to Merchants Parcel Delivery in 1913. The first expansion came to the south into
California, and in 1919 the name again changed to what it is today, United Parcel
Service. After this expansion, business
increased rapidly. This expansion was so
great, that by 1927, UPS serviced all the major cities along the Pacific
coast. Delivery service on the east
coast began in 1930.
United Parcel Service pioneered the
service which is now called common carrier.
This type of service includes daily pickup calls, automatic return of
non-deliverable packages and weekly billing.
This service was only available on the west coast until 1957 when UPS
began to move east into Chicago. The
following years marked massive expansion and fierce legal battles with the
Interstate Commerce Commission. By the
year 1975 UPS was actively serving every address in the 48 continental states.
UPS was the first company to embrace the
idea of air service. It was introduced
in 1929, and at the time there was little volume to sustain the service. Due to the lack of business, it was abolished
in 1931. United Parcel Service got back
into the air business in 1953 with a 2 day service to many major cities. UPS Next Day Air was introduced in 1982, and
by 1985 the Next Day Air and Second Day Air services had reached to every
address in the continental United States and into Puerto Rico and Alaska.
Today, UPS offers service to more that 185
countries and territories along with all addresses in the United States. UPS is privately owned by its' management and
employees over 300,000 people worldwide.
UPS also owns several smaller businesses relating to the package
delivery industry. Some of which are:
Martrac
- Established in 1979, transports agricultural commodities by rail in temperature controlled trailers.
UPS
Truck Leasing - Established in 1982, provides delivery vans and over-the- road
tractors for lease or rental.
UPS Properties, Inc. - Established in
1990, earns revenue by leasing facilities
near UPS package delivery operations.
Roadnet Technologies - Specializes in
computerized mapping, scheduling and routing
systems.
II Morrow Industries - Specializes in
vehicle communications systems including the
electronic clipboard (DIAD) which all UPS drivers carry.
Sonic Air - Acquired in 1995, provides
same day; next flight out delivery for extremely
urgent shipments.
As you can see; the history of UPS in one
of continued growth. For many years, the
challenge for UPS management was how to manage a company that was increasing in
size so fast. The structure of UPS is
therefore very bureaucratic. Methods and
procedures are highly standardized; a package driver in Toledo, Ohio uses the
same work methods and procedures that a driver in Madrid, Spain would use. All locations must have a Master Operating
Plan on site which covers what actions will take place under a variety of
different circumstances; for example, the MOP for the Accounting site is over a
1000 pages long and covers every imaginable disaster and contingency plan. All UPS managers and supervisors are given a
Policy Book which defines the company's mission, strategy, goals and gives the
manager basic guidelines to follow. This
method of management has worked very well for UPS; who is the largest package
delivery company in the world.
Case Study: Federal Express
Federal Express is a major competitor of
UPS. It is also a service company and
relies heavily on repeat business. Because
of this, a major focus needs to be on customer satisfaction in order to
succeed. Total quality at Federal
Express focuses on achieving total customer satisfaction. This is perceived by the upper management as
the most critical focus of their success.
Federal Express was founded by a group of former UPS managers who saw a potential
market within the industry that was not being addressed by UPS.
Federal express was one of the 1990
winners of the Baldridge award. There
were 98 companies in all competing for the award that year (45 from
manufacturing, 18 in service and 34 from the small business sector). Within the Baldridge framework, the company
was given the opportunity to identify areas of strengths and weaknesses. They were also able to introduce a new
culture of never ending improvement through self assessment. Some of the benefits that Federal Express
achieved were; credibility, accomplishment, validation, leadership, and
national recognition of their company and its performance.
Federal Express's principle activity is that
of a "package delivery company".
The air express market business is the foundation on which it was built. Federal Express began in 1973. At this time, only a small fleet of aircraft
was needed to meet their customers' needs.
By 1978, Federal express found itself handling 35,000 shipments and
employing over 10,000 people. By 1990,
Federal Express went global, employing almost 100,000 people with sites across
the globe. Their volume grew to nearly
1.5 million shipments. In such a short
period of time, Federal Express became the world's largest air cargo
transporter, with revenues totaling $7 billion in the fiscal year of 1990. Domestic overnight and second day deliveries
account for nearly three fourths of this total.
The rest is accounted to international deliveries. Federal Express held a domestic market share
of 34% in 1989, the nearest competitor has at 26%.
Federal Express's commitment to its people
is evident in its corporate philosophy:
"Our company always balances the needs of
employees, our customers, and our shareholders, considering each in making
plans an policies. We always consider
the effects on our people first when making decisions, recognizing that if we
take care of our employees, they will deliver a superior service which our
customers will in turn, utilize. Only by
making a surplus, or profit, can we ensure our company's continued existence,
future opportunities, and our employment"
(Frederick W. Smith, CEO, Federal Express).
Some of the activities Federal Express
offers its employees are continuous training for all employees, team training
in problem solving, use of interactive video for employee training, internal
television network for people interactions and employee development, a no
lay-off philosophy, guaranteed fair treatment procedure, internal promotions
opportunities, and recognition program for both individuals and teams.
Two particular programs that Federal
Express offers which truly identifies the pursuit of Total Quality are the
Survey-feedback-action program and the guaranteed fair treatment program. The first program is an employee survey
conducted on a regular basis to assess the effectiveness of the management team
and to ensure that there is continuous improvement in the management. The survey highlights issues of
management and operational levels
relating to corporate strategy, communications, incentives, reward systems,
future planning and decision making processes.
The second program, the guaranteed fair treatment program is a way of
listening to employee grievances and ensuring that morale is always high. There is a procedure of reviewing complaints
at various levels of management, and the ability to appeal a decision if so
desired.
Federal Express previously relied on a
quality measure of customer satisfaction based on on-time deliveries. This measure, however, had to be modified
because of Federal Express's goal of achieving Total Quality and total customer
satisfaction. The new performance
measurement system was named service quality indicators, and is based on 12
principle indicators. These indicators
are weighted to reflect the factors that the customers felt were the most
important. The SQI is based on the
average daily failure points for all 12 of the indicators, and are tracked and
reported weekly. The service quality
indicator systems has 12 critical factors.
The implementation of these factors are based on a multi-functional
approach where accountants take part in some of the teams addressing the
quality issues. There then is a clear
joint ownership of the goals and points involved. The ultimate target is a 100 percent customer
satisfaction level. in order to achieve
this, all departments and employees will have to help. Significant improvements have already been
achieved in various areas in the 12 factors.
The twelve indicators of the SQI and their weightings are:
1.
Right day late service failures
- 1
2.
Wrong day late service failures
- 5
3. Traces ( Some information missing ) - 5
4.
Complaints reopened by customers
- 5
5.
Missing Proof of Delivery - 1
6.
Invoices adjustments requested
- 1
7.
Missed Pickups - 10
8.
Damaged Packages - 10
9.
Lost Packages - 10
10.
Overgoods (no packages received in overgoods) - 5
11.
Abandoned Calls - 1
12.
International (All the above 11 indicators for international
operations) - 1
By implementing a TQ based system, Federal
Express has seen some extraordinary results.
Since 1987, overall custom satisfaction with domestic service reached no
less that 95%, with interaction business, customer satisfaction averaged at
94%. According to an independent survey
on the shipping industry customers, 53 per cent gave Federal Express a perfect
score. The next competitor scored only a
39 per cent. Federal Express has
received 195 awards over the past 13 years.
Representatives from over 600 different business organizations have
visited Federal Express to gain knowledge in hopes of implementing a similar
program within their companies.
Framework for
implementation
Today's organizations must look for areas
of improvement everywhere. In order to
achieve this goal, they must reduce costs and also reduce waste. This can be done by using Total Quality
techniques. In the area of accounting,
the current performance measures are outdated.
Many companies just look to the Production or at using Cost Accounting
as places where there is room for improvement.
Many Cost Accounting techniques are redundant in today's
organizations. Existing control measures
are very much control measures and provide information that can only be used by
senior level managers. What has been
missing are improvement measures that enable the employees involved to see
results and receive feedback. Total
quality is an extremely useful tool, however many managers have an extremely
difficult time implementing this type of change since many of its benefits can
not be directly transferred into a financial amount or gain. An extremely long amount of planning is
required on order to make a Total Quality system work. The focus in a customer service related
industry needs to be on the customer. A
business needs to understand the customers requirements, work these
requirements into the current system, and then create a plan to effectively
control and monitor these processes.
This is directly applicable to both all external and internal customers,
which accounting functions directly have an effect on.
Before any plans are put into place, it is
important for the organization to conduct an audit of all current
procedures. The purpose of this is to
see what current procedures are important and working, and how they will fit
within a Total Quality setting. It is
also important to look at how they have an effect on customer quality. This audit will also help to show areas that
have not been addressed in the past and how much the employees know about the
current system and how much input they have in the decision making process. I
have accumulated six fundamental planning stages for implementing a total
quality system, followed by 7 implementation stages to get the program
going. They first planning stages are:
1)
Identify the purpose for implementing a total quality system. Is it needed for reporting reasons, control reasons, or improvement reasons?
2)
A combination of employee groups, and levels are needed. This will ensure that all involved are driven towards a common goal. It will also eliminate barriers between the different levels of
staffing. Good communication is a key.
3)
Areas to be measured to reflect a variety of measures, such as time
savings, cost savings, profits gained, etc.
4)
All areas should reflect the interest of both the internal and external customers interests. This will incorporate both the control
measures from the internal customer and
the feedback and improvement measure from the customers. What are the customers requirements and what
do they expect? Do not meet the customers requirements, but
exceed them.
5)
Areas to be measured must be selected carefully, since they will be
setting a standard of performance.
6)
Time needs to be given by the business involved for the implementation
of the new measuring systems. An ability to track improvements over time is
required, along with time for employees
to learn and comprehend the goal.
The implementation stages are as follows:
1)
Total quality needs to be embraced as a responsibility of all
employees. It should be important to everyone. In order to achieve success, everyone must therefore become involved.
2)
All of the points to be measured should be weighed against the cost to
the company to implement. If a quality item is expensive to track and
returns very little, then it should
possibly be eliminated in favor of a new item.
(Weighing the Cost to Benefit).
3)
If a quality item has a huge impact on the customer, a company has no choice but to chose it as a quality control
item, regardless of the cost.
4)
The decision making processes needs to be made with all the people
within the organization. A wide sampling of individuals are required
in this process.
5)
In difficult areas to measure, an
organization should take a sampling over a period of time to see improvement, for example, to measure
morale and employer might look at the
trend of absenteeism over a period of time.
6)
Measurement is a cornerstone of quality control. Measurement systems should be designed with flexibility in mind. This is necessary in order to reflect changes within the market, or within
strategic planning. This measurement should be continuous and ongoing.
7)
Total Quality needs to reflect a never ending strive for total quality, continuos improvement, and achievements should
be looked at as stepping stones to
achieving that goal.
Section 3: Option Selection
For my thesis, I have chose to use Option
Three - Alternative Policy Decision. I
have
chosen this
format for various reasons which I will highlight in the next page or so.
Within my current work situation, I would
not be able to actually have control over and implement a plan such as the one
I am designing. United Parcel Service is
such a large cooperation and changes would need to be approved on nearly every
level of management before any action could be taken. I feel that even if my case study was to get
past the various management levels, my original suggestions would have to be
altered to encompass all UPS functions and be changed into a uniform
procedure. This would have a negative
effect on the entire plan and somewhat
"water down" the original intentions, and be of little use on
a corporate wide basis. In order to
incorporate a plan such as mine of a corporate level, a large amount of time is
necessary to visit many of the various accounting sites and get a feel for the
people and structure you are dealing with.
No two offices would be exactly the same. My goal is to get a possible pilot program
started and then to build on this for the future.
Option Two would be of no use to me in
this application. I can see no possible
way to use this type of option within the working framework of my employer.
The potential changes I am proposing do not require any government
funding or grant moneys.
Option three is the best possible choice
for me in my current situation. This
option best relates to the working structure at UPS. Changes at UPS happen very slowly, so
submission of an alternative policy is clearly the best way to allow me to have
my potential changes reviewed and considered.
By allowing me to submit an alternative policy to the management
structure at UPS, I feel I will be showing a great deal of initiative and
concern with the problems we are facing on a day to day basis. I believe that by alerting the management to
my feelings on this issue I will be establishing a groundwork for future
discussion and possible action, whether it be by the use of my proposal, or by
the use of another. The end result will
still be a positive one.
Chapter 4
Description of the Alternatives
The purpose of
this thesis is to identify and recommend methods to improve the measurement of
performance and total quality in an accounting office. By addressing these problems and implementing
this type of program, new ideas will be encouraged and future changes will be
easily accepted. The benefits of this
type of system can be directly related to the satisfaction of the customer.
Statement of
Objectives
Objective One Six months after implementation of the agreed
plan, there will be a 3 day reduction in the month end close out schedule
committed by the clerical staff in the Accounting department of United Parcel
Service. This is a extremely relevant
issue to company officers as most information received from the Accounting
office is already outdated when it is received.
Objective Two Six months after implementation of the agreed
plan, there will be a 50% reduction in the amount of statement errors reported
to company of
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