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Essay/Term paper: Tqm in an accounting environment

Essay, term paper, research paper:  Narrative Essays

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TQM In An Accounting Environment

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
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
"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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