Improving Service Operations in Public Service Institution - Essay Example

EXECUTIVE SUMMARY This is a report to the directors of the X Company. The company is a public service company engaged in supplying food to public schools in the UK. The newly started company had a lot of teething troubles as to its procurement and distribution systems. The company went into deficit immediately after it started operations. An analysis was made, the problem areas found and suggestions implemented. The implementation of the suggestions helped the company turn around its performance. Once it had stabilised its performance, suggestions to expand its area of operations were also suggested. Focus was also given on quality management and important areas under this were discussed. Certain tools for quality management were also analysed. This was concluded by stressing the importance of quality in the highly competitive business environment existing toady. REPORT TO THE DIRECTORS OF THE X COMPANY:- Introduction: Quality is something every consumer is conscious about. But it cannot be said about manufacturers or service producers. But in a highly competitive environment, maintaining quality has become the buzzword and is now something that cannot be ignored. "The birth of total quality in the United States came as a direct response to the quality revolution in Japan following World War II. (Basic Concepts). The concept of quality in a public service organisation still has not caught up in the same level as found in privately owned ones, though this trend is changing. "Only recently has the quest for quality come to the fore in public enterprises." (Delaunay p.199). As you all know that this is a newly formed company engaged in supplying food to the children public school and have been directed to increase efficiency and decrease costs of the meal provided. This report is an analyses of the problems in quality management faced by the company and the present situation after the implementation of the suggestions provided for improvement Quality can be improved in three major categories namely quality measurement, quality diagnosis and quality improvement. It was in these areas that focus was given to improve the quality of the service provided by the company. The company has two main divisions, namely the food procurement division and the transport division for delivering food to the schools. The company is supplying food to five schools with a total strength of 2500 children. It also has supporting departments like accounting, payroll and maintenance. The transportation department is also made use of by the procurement department to purchase food items for the purpose of distribution to schools. There are about 5 trucks and 10 smaller delivery vans owned by the company. The maintenance department was created to cut down costs of repairs and maintenance by giving the vehicles to private workshops. Description of the current situation: The company works under budget constraints and increasing costs in inputs without increasing budget allocation had forced us to take up quality management programs. Moreover the company's procurement policies are not cost effective. Purchases like groceries, vegetables and meat are purchased as and when required from wholesalers and sometimes retailers without trying to identify the good quality merchandise at the cheapest price available. The main problem is that even though the exact quantity to be supplied each month was known, no steps were being taken to buy them in bulk thereby saving in prices. Also no attempts were being made to purchase fresh produce like meat and vegetables from farmers and other producers themselves an arbitrary purchasing policy has caused transportation costs to raise because of the higher number of trips made by the company vehicles. Even though there is a purchase manger and department no directives have been received by the company for an agreement with wholesalers to supply the required items on a contract basis. No clear cut policy, as to how purchases are to be made did not exist then. Both the above factors were the main reason why the current system of purchasing was resorted to. Other factors of concern were the storage facilities in the company. Many of the items purchased were perishable in nature. Lack of cold storage facilities have caused the food being spoilt thereby incurring additional expenditure for the company. The distribution of food is also done in an arbitrary way. It would have been prudent to supply goods to schools in as near a geographical proximity as possible. Delivering food to the maximum number of schools possible in a single trip would have resulted in fuel and other related savings. This was because the delivery schedule was not planned in an efficient way. Sometimes goods were transported to two nearby schools within two consecutive days, instead of making a single trip that would have covered both schools. This system of delivery also caused delayed or wrong supply of goods to the schools. An analysis of the costs involved in delivery along with the increased costs to poor quality management is given below. Payment for the company's service is done according to the cost of food allowed per child. This cost is multiplied by the number of students of each school and the resulting amount is paid to us for our services. This is the revenue of the company. Projected figures: Per month (In ) Cost per student allowed by the schools 1.50/day Total monthly revenue 1.50 x 2500 (students) x 30 (days) 112,500 Expenditure; Purchase of food items 89,300 Transportation 10,000 Other expenses (salary, utilities etc) 10,000 Wastage 500 ---------- TOTAL EXPENDITURE 109,800 SURPLUS 2,700 This situation would have been satisfactory for a public sector company. Actual figures: Per month (In ) Total revenue (same as above) 112,500 Expenditure: Purchase of food items 93,500 Transportation 12,300 Other expenses 10,500 Wastage 1200 TOTAL EXPENDITURE 117,500 DEFICIT 5000 This situation continued for the first six months of operation. The deficits during this time were covered from the reserve capital of the company. It was when the situation began to get serious that steps were taken to correct the same. Procurement flow chart:- Delivery flow chart:- Delivery on day one Delivery on day two Two deliveries made on consecutive days did not touch schools in the same area. This resulted in additional expenditure on transportation. Possible Solutions: The situation existing is not too complex for finding a solution. Only two major areas need to be looked into initially. The first area is the procurement system and the second one the delivery system. Instead of purchasing from existing sources which was done without regard to the best price available, new sources should be selected through discussions with major suppliers. It should be made clear to them that they would get a regular order for supply of materials. It could also be intimated that this company is not a profit oriented company, but one from the public sector engaged in service of supplying food to economically backward children in the Nation's schools. Another option is to find contractual suppliers who will agree to supply the necessary goods at a stipulated price for a certain period of time, say one year. This will be even more beneficial to the company, because a rise in prices of goods will not affect the company. Even though the exact quantity of goods to be supplied to the schools is already known, more clarity regarding time of delivery is to be ascertained. This can be easily done by individually consulting the school authorities. It would be better to fix specific dates for supply to all schools in one single area. With regard to delivery, the first step is to determine the time of delivery to each school. This is also easily done, because a consultation need to be done about supply as mentioned earlier. Implementation plan: The first step taken was to see that new contracts were signed with suppliers on a monthly basis for the period of one year. The company could find two such suppliers who were willing to supply the same. The terms and conditions of the supply was that prices for the whole year were fixed in advance and the supplier was to bare any losses if there was an increase in price of goods. After this arrangement, purchases from wholesalers and retailers were resorted to only in cases of extreme emergency. All goods that were not perishable in nature were bought in bulk thereby resulting additional savings. Of course perishable items could not be purchased in the same way. But additional investment in the form of cold storage equipment helped to find a solution to buying in bulk to certain equipment. The necessary permission from the concerned authorities authorising the company to do so was obtained. The next step was to contact all medium and large farmers in the area and an agreement to buy supplies from the farms directly was done. This was done keeping in mind the fact that vegetables are seasonal. It was decided to buy out of season fruits and vegetables from sources available. This would mean additional cost, but there was no alternative available. Agreements for supply of meat and fish were also done. After consultation with school authorities, deliveries were so arranged that a single trip covered all the schools in one area. This helped to bring down transportation costs to a great extent. Purchase of additional cold storage equipment was made and store rooms in the company were made more efficient. This resulted in bringing down wastage to a large extent. The net results of all these steps after a period of three months are given below: Total revenue (same as above) 112,500 Expenditure: Purchase of food items 81,500 Transportation 10,300 Other expenses 10,500 Wastage 800 TOTAL EXPENDITURE 103,100 SURPLUS 9400 Procurement Flow chart after implementation of Suggestions:- Regular procurement Emergency procurement Delivery Flow chart after implementation of suggestions: Delivery on day one Delivery on day two Delivery on day three The Gantt chart: The Gantt Chart of the implementation of the plan is given above. It can be seen that the whole thing took less than 45 days to complete. It was done efficiently and swiftly. "During the days of scientific management, Henry Gantt developed a tool for displaying the progression of a project in the form a specialized chart. (Gantt Chart). Proposal for new procedure of change: The Company has streamlined its existing operations quite effectively. It is time for expanding the reach of the company by expanding the number of schools to deliver the goods. It is proposed to the board that the company expand in a big way. But to do so, the existing infrastructure will be insufficient. More stringent and effective quality control mechanisms have to be put in place. The areas of quality control as mentioned earlier are Quality measurement, Quality Diagnose and Quality Improvement. Quality measurement: Quality measurement will comprise of prevention costs, appraisal costs and failure costs. Prevention costs are those related to inputs, processing and outputs. It also includes quality planning, quality assurance and training personnel for the job. Appraisal costs are those related to approval of the product by the purchaser. They include verification of quality of products, occasional product audits and vendor rating. Failure costs can be further classified into external and internal costs. Internal costs are those which happen when the product fails to meet the required quality and is found out before it leaves the premises. External costs are those which incur due to failures detected after transfer to the customer. "The cost of doing a quality job, conducting quality improvements and achieving goals must be carefully managed, so that the long-term effect of quality on the organization is a desirable one." (Performance Measurement. p.2).Quality Diagnosis: There are number of tools by which quality diagnosis can be done. They include Common Awareness Framework, ISO certification, Citizen's Charters, Benchmarking, statistical methods and reengineering. "Quality diagnosis is the ability to guide the customer through their actual situation in a manner that brings awareness, clarity and ownership to the problem they are experiencing or the opportunity they are missing." (Thull). Quality diagnosis entails finding out the strengths of the company and areas that need to be improved. It should also be ascertained which of the tools like ISO or CAF be used. "The Common Assessment Framework (CAF) is a key part of delivering frontline services that are integrated and focused around the needs of children and young people. (Common Awareness Framework (CAF) Awareness Training). Quality management: This is the most important of the three area mentioned above. There are many internationally recognised and accepted systems for quality management. The most well known among these are the ISO certification and Six Sigma certification. ISO actually stands for International Organisation for Standardisation. Since this is an international certification, the short form ISO was derived from the Greek word 'isos', meaning equal. Presently, more than 17,000 international standard certification is being certified by this organisation, which includes practically the whole gamut of business activities. "ISO has developed over 17000 International Standards on a variety of subjects and 1100 new ISO standards are published every year." (ISO Standards). The other most popular tool for quality management is the Six Sigma. This is an extremely tough certification to achieve. It uses statistical and data analysis to measure the exacting standards set by it. To get six sigma certification, a company has to bring down its error ratio of out put down to 3.4 per million of its output. Since this certification is given to both production and service industries the term opportunity is used instead of production or output. But it recognises levels 1 to 5 for certification. Sigma Performance Levels -- One To Six Sigma Sigma Level Defects Per Million Opportunities (DPMO) 1 690,000 2 308,537 3 66,807 4 6,210 5 233 6 3.4 (Sigma performance level-one to six sigma. 2008). Conclusion: It can be seen that quality management has become so important in today's world. More and more organizations are trying to get their products or services certified under the many international certification programs available in the world today. It has come to such a stage such a certification is extremely essential even to get noticed in the world of business today. Now that the X Company has ambitious plans for expanding supply to more schools, more focus is needed on Quality measurement, Quality Diagnose and Quality Improvement. The company had successfully identified its weaknesses in procurement and distribution and had implemented all suggestions for improvement. The results have been encouraging as can be seen from the figures given earlier. But the fact remains that till now, focus was more on cost saving more than quality. But with possibility of complaints coming from school authorities and parents, it would be better if the company tackles this issue before it comes out into the open. With regard to quality measurement we can begin to look seriously at prevention costs, appraisal costs and failure costs. Prevention costs as to reducing loss in procurement and delivery has already been dealt with. What is now required is to set up a quality appraisal and quality assurance mechanism for procurement along with a training program to be incorporated. An appraisal and audit mechanism should be set in place. The most important thing is to see that internal and external failure costs are to be brought to a minimum. There is not much scope for a quality diagnosis since we are not a manufacturing concern and the type of procurement we make is uniform throughout the year. But the company should definitely go in for quality management. "The design and implementation of a quality management system will vary depending on the type, size and products of the organization." (Quality Standards ISO 9001:2000). The ideal step forward should be to get an ISO certification plus try to reduce errors to the level of a four sigma. "ISO 9000 has become an international reference for quality requirements for business to business dealings, and has increasingly been taken up by the public sector as part of the wider interest in new management for public administrations." (Eicher 2001). More over as technology and competitiveness develop, certification programs will also begin to be more stringent than ever before. So let Company X in its effort to be bigger and competitive be ready to move forward with quality systems built into its administrative setup. Bibliography Basic concepts. The History of Quality - Overview. [Online]. ASQ: American Society for Quality. Last accessed 23 March 2008 at: http://www.asq.org/learn-about-quality/history-of-quality/overview/overview.html Common Assessment Framework (CAF) Awareness Training. [Online]. Learnonline Skills for a Healthier Nation, NHS, Bradford, Bradford Health and Social Care Community. Last accessed 23 March 2008 at: http://www.learnonline.nhs.uk/Trust+Training/Bradford+and+Airedale+teaching+PCT/Other+Training+and+Events/Common+Assessment+Framework+(CAF)+Awareness+Training.htm Delaunay, Benedicte, Contracting in the New Public Management: From Economic Law and Citizenship: [Online]. IOS Press. P.199. Last accessed 23 March 2008 at: http://books.google.co.in/booksid=bfymNKFxlXcC&pg=PA199&lpg=PA199&dq=quality+public+enterprises&source=web&ots=n0BqhNDvCU&sig=_iIcm9f83GZFuFxiyf3P78pJsDU&hl=en#PPA199,M1 Gantt Chart. NetMBA: Business Knowledge Centre. Last accessed 23 March 2008 at: http://www.netmba.com/operations/project/gantt/ ISO Standards, ISO: International Organisation for Standardisation. 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Last accessed 23 March 2008 at: http://www.iso.org/iso/livelinkgetfilellNodeId=21838&llVolId=-2000 Read More