QUALITY AND RISK MANAGEMENT: Strategic & supply chain Perspective
By: Chika Ugo (PhD, ACILT, ACIPS,ACIWMM)
Changes in the business environment has led to serious interest in risk management (Tummala and Schoenherr 2011; Alhawari et al. 2011). The global financial crisis in 2008 demonstrated the importance of risk management in the achievement of strategic supply Objectives. The purpose of risk management is to reduce the chances of not meeting performance objective for the organisations and this is consistent with the concerns of quality management approaches which are to meet customer requirements.
By deploying risk management into the processes and operations of an organisation will be aid to reduce losses and improve the quality of the operation through making fewer mistakes to ensure customer satisfaction. It has, therefore, become important for organisations to make effort to understand the risks being taken when seeking to achieve a desired level of performance. Organisations need to understand the overall level of risk embedded within their processes and activities. It is important to recognise and prioritise significant risks and identify the weakest critical controls.
This report discusses an integration of quality management and risk management within a supply chain process. The overriding rational is to develop a basis that will give any organisation an understanding of what is required to continually meet customer expectation.
Organizations are facing greater challenges that threaten their survival from within and external. These challenges have forced organizations to continually look for ways to manage their risk exposure to international business environment so as to remain competitive (Tummala and Schoenherr 2011; Alhawari et al 2012). Managers are faced with rising pressures to maintain a profitable and competitive organization under their care. In the opinion of Suárez-Barraza, Ramis-Pujol and Heras (2010 p.65), the challenges that managers of companies face stem from four sources,
“First, there is the difficulty of managing companies supply chain networks to make them increasingly effective and efficient. The quest for “management excellence” is becoming harder and more complex because of external pressures (more demanding customers, more competitive markets, the need for quality and fast response, economic and financial turbulence, potential pandemics, etc.). Second, when executives look at the vast body of knowledge on management, they are faced with a welter of complex theories that are often difficult to put into practice. Third, there is a big gap between academic knowledge and practical prescriptions in the supply chain field which upholds more of pragmaticism in the bid to assuage results and gain market dominance of products or brands over another. Fourth, from the practitioner’s standpoint, it is hard to find more effective strategies and implementation for achieving management excellence.”
To succeed in this fiercely competitive global marketplace, organizations must strive to provide products with shorter market lead time, good cost, cheaper distribution platforms and appropriate quality combined with excellent customer service for satisfaction. Quality management is at the heart of achieving these goals.
QUALITY AND QUALITY MANAGEMENT
Globalization has made an organization’s supply chain more complex. Increasingly, new approaches and tools are being developed to keep up with the changing requirements of competition. Activities are being outsourced and customer behaviors are requiring organizations to sit up. Yeung, Chan and Lee (2003) indicates that the perception of top management regarding quality and the role of quality is an important influence in the way the organization will develop and implement a system to manage organizational growth. To succeed in this fiercely competitive global marketplace, organizations must strive on locally conceived supply chain best practices that will at the same time leverage of global corporate dynamics that will not be a threat to the survival of other competitors but at the same time ensure market penetration and product loyalty sustainability. At no time, should the product be out of the reach of consumers in terms of availability over the shelves at the right time and right price? Service quality must also meet and exceed customer expectations.
Quality is the unique attribute of a process, a product or a service. Researchers explain that quality is the way a process or service is perceived and accepted (Sibinga 2001). Also Quality becomes appreciated or even useful when the result of the processes is consistent and meets expectations (Sibinga 2001). Quality management is at the heart of meeting these expectations.
Many organizations have in one way or the other adopted Total Quality Management (QM) but still, do not achieve desired business performance (Martinez-Lorente & Martinez-Costa 2004). Researchers explain that even though TQM System is introduced to such organizations it had not permeated the process except it was a deliberate improvement approach than a Badge approach (Alic & Rusjan 2010). This then infers that elements of risk of failure exist in almost all processes in the quality chain of operations of a business.
It will also be important to note that many factors prevent the achievement of the quality of processes. These factors can be referred to as quality risks. Alhawari et al (2011) regard quality risks as events that impact on the quality of operations or process or product and hence the desired performance.
RISK & RISK MANAGEMENT
Risks can prevent an organization from realizing it desired goals and so must be managed (Tchankova 2002). Managing risk is important to improve the overall performance of any organization. Therefore, organizations now consider Risk management as an important aspect of business survival and performance.
Risk management spans all field of business in quite different ways and magnitude. Risk management is intended to understand all the component of failure (risk) and minimize, if not eliminate, the probability and impact of this risk while seeking to maximize potential opportunities that might be identified.
There is no single best approach to risk management. The selection of risk management methodology or framework should be based on the depth of analysis required, the complexity of the case, budget and the familiarity with the tool to be used (Frank et al 2008). Risk management brings knowledge from a variety of fields (Alhawari et al, 2011). Sibinga (2001) advocates that risk management requires a clear understanding of the behavior of people and this is determined by physiological factors and also by social, cultural and political factors. Individual does not process risk the same way (Ward and Chapman 1991) but a clear organizational understanding and knowledge base will increase the benefit of the approach adopted or developed by an organization (Massingham, 2009; Alhawari et al 2011).
Several Approaches can find importance in risk management based on assessed needs. (Frank et al 2008); PERT (Programme Evaluation and Review Technique (Ward & Chapman 1991) etc. Whatever approach is taken to manage risk must compliment the organization’s objective of improving quality at a good cost.
Quality management is aimed at improving and continually improving the quality of processes and product to consistently delight customers (Macdonald and Piggott 1992). Organizations must continually assess the impact of the change on their operations and take the best possible decision so as to meet stakeholder’s expectations. Assessing the impact of the change requires the use of the appropriate risk management approach. In essence, adopting and incorporating risk management at every stage of the quality management journey will enhance the effectiveness of the overall process. On the other hand, the risk management process can tap from the enhanced and the relatively more developed field of Quality Management for support in Planning, Control and continuous improvement. It expected that integrating Risk Management deep into the phases of Quality Management approach will enhance efficient decision making, operational excellence, and strategic advantage.