Mai Thi Thu Phuong E0600101 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 i Mai Thi Thu Phuong E0600101 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 Mai Thi Thu Phuong E0600101 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 Mai Thi Thu Phuong E0600101 Table of Content Declaration Acknowledgement Abstract: CHAPTER I: Introduction 1.1 Introduction about the topic 1.2 Need for Research 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 to 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 Mai Thi Thu Phuong E0600101 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, Mai Thi Thu Phuong E0600101 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 Mai Thi Thu Phuong E0600101 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 Mai Thi Thu Phuong E0600101 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 Mai Thi Thu Phuong E0600101 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 Mai Thi Thu Phuong E0600101 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 10 Mai Thi Thu Phuong E0600101 77 Mai Thi Thu Phuong E0600101 CHAPTER V: CONCLUSION 5.1 Implication of research Through the results of this thesis, the author figured out that both managers and investors can get lots of benefits from knowledge about the effectiveness of TQM in different ways First of all, managers who response to this survey will have a chance to gather all of information and knowledge about TQM then apply it into the reality of the organizations (Shields, 1995; Swenson, 1995) Moreover, based on the results of non adopted TQM, the author can claim that even organizations have knowledge and information of TQM, adopting it is still a problem since the failure rate is high because of training and empowerment employees (Balakrishnan et al 1996; Gordon and Silvester, 1999) Lastly, other subjective factors from the manufacturing firms should be considered when managers want to adopt TQM as a new management implementation Based on those factors, managers can observe and evaluate the changes in cost allocation and quality improvement 5.2 Conclusion Normally, most of researchers focused on studying the direct influences of TQM on the performance plants However, the author wants to concentrate into other aspects when the ABC costing method is a bridge to connect and enhance the 78 Mai Thi Thu Phuong E0600101 positive influences of TQM on the plant performance Based on gathered information and responses from different companies, a large amount of evidences proofs that ABC costing method can increase the TQM advantages in to two times since these two methods are adopted into the same organizations In fact, it is quite difficult to say that without ABC costing, TQM can not have any influences on the performance of plants, however, using this thesis, managers from non adopted organizations can understand about the necessary and benefit of implementing a suitable costing method Additionally, with a new aspect of TQM, managers from different companies can get lots of benefits about adopting this model if ABC method is also adopted at the same time And later researchers can use this thesis as a reference for further studies about performance improvement by TQM implementation 79 Mai Thi Thu Phuong E0600101 References and bibliographies Alvin, A.A.; Randal, E J.; Beasley; and Mark; 2010, Auditing, Assurance, Service and Ethics in Australia, Pearson, Australia Anderson, S W., & Young, S M (1999) The impact of contextual and process factors on the evaluation of activity based costing systems, Accounting, Organizations, and Society, 24, 525-559 Anderson, S.W., Hesford, J., & Young S.M (2002) Factors influencing the performance of activity-based costing teams: a field study of ABC model development time in the automobile industry Accounting, Organizations, and Society, 27, 195-211 Balakrishnan, R., Sivaramakrishnan, K., & Sprinkle, G., 2008, Managerial Accounting, Wiley; 1st edition Banker, R D., Bardhan, I R., Chang, H., & Lin, S (2006) Plant information 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Implementation of Long-Term Thinking in the Political Decision Making Process, Springer Berlin Heidelberg 53 Vanderbeck, E., J., 2009, Principles of Cost Accounting, South-Western College Pub; 15th edition 86 Mai Thi Thu Phuong E0600101 54 Vangermeerach, R, 1986, "Milestones in the History of Management Accounting”, in Cost Accounting for the 90's: The Challenge of Technological Change Conference Proceedings, National Association of Accountants 55 Weygandt, J., J.; Kimmel, P., D.; & Kieso, D., E., 2009, Managerial Accounting: Tools for Business Decision Making (Wiley), Wiley; 5th edition 87 Mai Thi Thu Phuong E0600101 APPENDIX I: SURVEY QUESTIONS I PLANT CHARACTERISTICS SIZE: How many employees work in the manufacturing firm at this time 1= less than100; 2=100-249; 3=250-499; 4=500-999; 5= more than 1,000 employees PLANTAGE: from starting of business, how many years it is existed 1= less than years; 2=5-10 years; 3=11-20 years; 4= more than 20 years MIX, VOLUME: How many product line or level of products mix in this manufacturing firm? 1= high volume, high mix; = high volume, low mix, = Low volume, high mix; = Low volume, low mix DISCRETE: This manufacturing firm is discrete or continuous explored? 1=Discrete; 0=Otherwise (hybrid or process) DOWNSIZE: What is the downsize rate within the firm? = no change, = Extent of downsizing increased – 10%, = increased 11 – 20%, = increased 21 – 50%, = increased 51 – 75%, and = increased > 75% _ II TOTAL QUALITY MANAGEMENT (TQM): Please indicate the status of implementation of TQM management method in your plant: Scale: = No implementation = Plan to implement 2=Extensive implementation 88 Mai Thi Thu Phuong E0600101 III.): ACTIVITIES BASED COSTING METHOD (ABC): Please indicate the extent to which each of costing methods has been adopted at your plant Scale: = No implementation = Some implementation = Extensive implementation Traditional costing method Variable costing method Throughput costing method ABC costing method IV PLANT PERFORMANCE Δ(QUALITY): Changes in quality of products after adopting TQM: 1= Declined more than 20%, 2= Declined 1-20%, 3= Stayed the same, 4= Improved 1-20%, 5= Improved more than 20% Δ(COST): Changes in costs allocation effectiveness after adopting TQM: 1=Increased more than 20%, 2=Increased 11-20%, 3=Increased 1-10%, 4=No change, 5=Decreased 1-10%, 6=Decreased 11-20%, 7=Decreased more than 20% 89 Mai Thi Thu Phuong E0600101 Note: In simplifying, Mix and Volume is integrated into two variables such that MIX=1 if high mix; 0=otherwise, and VOLUME=1 if high volume; 0=otherwise 2; For TQM implementation, a combination between the first two categories into one is established Therefore, = no ABC implementation, while = extensive implementation For ABC implementation, the second and third categories will be combined into one Hence, = none or some implementation, while = extensive implementation 90 Mai Thi Thu Phuong E0600101 APPENDIX II: PERCENTAGE POINTS OF THE T DISTRIBUTION Tail Probabilities One Tail 0.10 0.05 0.025 0.01 0.005 0.001 0.0005 Two Tails 0.20 0.10 0.05 0.02 0.01 0.002 0.001 -+ -+ D | 3.078 6.314 12.71 31.82 63.66 318.3 637 | E | 1.886 2.920 4.303 6.965 9.925 22.330 31.6 | G | 1.638 2.353 3.182 4.541 5.841 10.210 12.92 | R | 1.533 2.132 2.776 3.747 4.604 7.173 8.610 | E | 1.476 2.015 2.571 3.365 4.032 5.893 6.869 | E | 1.440 1.943 2.447 3.143 3.707 5.208 5.959 | S | 1.415 1.895 2.365 2.998 3.499 4.785 5.408 | | 1.397 1.860 2.306 2.896 3.355 4.501 5.041 | O | 1.383 1.833 2.262 2.821 3.250 4.297 4.781 | F 10 | 1.372 1.812 2.228 2.764 3.169 4.144 4.587 | 10 11 | 1.363 1.796 2.201 2.718 3.106 4.025 4.437 | 11 F 12 | 1.356 1.782 2.179 2.681 3.055 3.930 4.318 | 12 R 13 | 1.350 1.771 2.160 2.650 3.012 3.852 4.221 | 13 E 14 | 1.345 1.761 2.145 2.624 2.977 3.787 4.140 | 14 E 15 | 1.341 1.753 2.131 2.602 2.947 3.733 4.073 | 15 D 16 | 1.337 1.746 2.120 2.583 2.921 3.686 4.015 | 16 O 17 | 1.333 1.740 2.110 2.567 2.898 3.646 3.965 | 17 M 18 | 1.330 1.734 2.101 2.552 2.878 3.610 3.922 | 18 19 | 1.328 1.729 2.093 2.539 2.861 3.579 3.883 | 19 20 | 1.325 1.725 2.086 2.528 2.845 3.552 3.850 | 20 21 | 1.323 1.721 2.080 2.518 2.831 3.527 3.819 | 21 22 | 1.321 1.717 2.074 2.508 2.819 3.505 3.792 | 22 23 | 1.319 1.714 2.069 2.500 2.807 3.485 3.768 | 23 24 | 1.318 1.711 2.064 2.492 2.797 3.467 3.745 | 24 25 | 1.316 1.708 2.060 2.485 2.787 3.450 3.725 | 25 26 | 1.315 1.706 2.056 2.479 2.779 3.435 3.707 | 26 27 | 1.314 1.703 2.052 2.473 2.771 3.421 3.690 | 27 28 | 1.313 1.701 2.048 2.467 2.763 3.408 3.674 | 28 29 | 1.311 1.699 2.045 2.462 2.756 3.396 3.659 | 29 30 | 1.310 1.697 2.042 2.457 2.750 3.385 3.646 | 30 32 | 1.309 1.694 2.037 2.449 2.738 3.365 3.622 | 32 34 | 1.307 1.691 2.032 2.441 2.728 3.348 3.601 | 34 36 | 1.306 1.688 2.028 2.434 2.719 3.333 3.582 | 36 38 | 1.304 1.686 2.024 2.429 2.712 3.319 3.566 | 38 40 | 1.303 1.684 2.021 2.423 2.704 3.307 3.551 | 40 42 | 1.302 1.682 2.018 2.418 2.698 3.296 3.538 | 42 44 | 1.301 1.680 2.015 2.414 2.692 3.286 3.526 | 44 46 | 1.300 1.679 2.013 2.410 2.687 3.277 3.515 | 46 48 | 1.299 1.677 2.011 2.407 2.682 3.269 3.505 | 48 50 | 1.299 1.676 2.009 2.403 2.678 3.261 3.496 | 50 55 | 1.297 1.673 2.004 2.396 2.668 3.245 3.476 | 55 60 | 1.296 1.671 2.000 2.390 2.660 3.232 3.460 | 60 65 | 1.295 1.669 1.997 2.385 2.654 3.220 3.447 | 65 70 | 1.294 1.667 1.994 2.381 2.648 3.211 3.435 | 70 80 | 1.292 1.664 1.990 2.374 2.639 3.195 3.416 | 80 100 | 1.290 1.660 1.984 2.364 2.626 3.174 3.390 | 100 150 | 1.287 1.655 1.976 2.351 2.609 3.145 3.357 | 150 200 | 1.286 1.653 1.972 2.345 2.601 3.131 3.340 | 200 91 ... Implication of research 78 5.2 Conclusion 78 Mai Thi Thu Phuong E0600101 THE IMPACTS OF INCORPORATING TOTAL QUALITY MANAGEMENT (TQM) PRINCIPLES TOWARDS THE COST EFFECTIVENESS. .. 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... 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