Evaluating

A DEA approach for quality circles

evaluating quality circles by DEA

Sathasivam Mathiyalakan and Chen Chung

College of Business and Economics, University of Kentucky, 59
Lexington, Kentucky, USA

Introduction
The emergence of Japan as an economic superpower[1] provides a case for
studying factors associated with its economic success. It is worthwhile to note
that three decades ago, Japanese firms commanded little respect in the market-
place. They were considered as producers of low quality cheap products.
However, today the situation has completely changed. Now, Japanese firms
have a pre-eminent position in the minds of consumers. This is associated with
Japanese firms narrowing the gap between actual product quality and
perceived quality. This has made Japanese firms leaders in industries such as
automobiles and consumer electronics.
The remarkable success of Japanese firms in developing high quality
products has led many researchers to identify possible success factors. The
success of Japanese firms is attributed to cultural factors (population
homogeneity and group mentality), human resources management practices
(lifetime employment and use of employee participation in decision making),
and production management techniques (the zero defect production system
concept). These factors collectively constitute the core of Japanese management
practices and techniques.
Perhaps, the best known of these is the total quality control (TQC) concept.
Under this concept, quality control is exercised over all areas of the production
cycle. Today this concept of TQC is broadened to include all aspects of work life
and is known as total quality management (TQM). The use of human resources
to achieve corporate objectives lies at the heart of TQM. The focus of Japanese
production firms is to achieve a defect free production system through the use
of motivated employees. Successful use of quality circles (QCs) in Japan ensures
production of quality products and the identification and solution of
production-related problems.
A concern for management practitioners and researchers is whether the
factors associated with the success of Japanese firms are transferable to US
firms and, if so, whether they provide significant benefits in this environment.
If the success of Japanese firms is solely attributed to cultural factors, then no
benefits would be obtained by using Japanese management philosophies and
Benchmarking for Quality
Management & Technology,
This paper is based on a paper presented at the Twenty-fourth Annual Meeting of the Decision Vol. 3 No. 3, 1996, pp. 59-70.
Sciences Institute, Washington DC, 21-23 November, 1993. © MCB University Press, 1351-3036
BQM&T techniques. However, if there are factors that, when transferred to US firms (if
3,3 necessary with modifications), provide significant benefits, then US managers
are in a position to reap significant benefits. The research of Hays[2] and
Weiss[3] supports the notion that certain key features of Japanese management
techniques such as quality management and control techniques can be adopted
by US firms. This view is supported by Ebrahimpour[4] who reports that the
60 best US plants had two key factors associated with many Japanese firms,
namely a top management commitment to quality improvement and a quality-
oriented culture.
An organization may have several QCs. A QC can have positive impacts
(increased productivity and quality), negative impacts (such as using the
meetings as an anti-management forum) or no impact at all on the firm. As QCs
are small groups, they are prone to some of the weaknesses associated with
small groups such as domination by one member and poor communication[5].
Wayne et al.[6] note that there is a need to determine the effectiveness of QCs
due to mixed results. Thus, due to inconclusive results on QC effectiveness,
there is a need for further studies in this arena. We suggest that, in addition to
having a basic knowledge on QC effectiveness, a knowledge of which QCs are
efficient (usage of resources) presents management with a unique opportunity
to structure the process to develop optimal QCs.
In this paper, we present a methodology for evaluating efficiency-
effectiveness relationship of QCs. After this introduction, we review the
literature pertaining to our study. Next, we present the research methodology
and the means through which the data were gathered. This is followed by
results. Our analysis is based on the data envelopment analysis (DEA) method.
Finally, we provide summary remarks.

Review of literature
Quality relates to industrial productivity[7]. An increased emphasis on quality
can enhance the financial position of an organization in two ways. First, it can
increase revenues through higher sales. Second, it can decrease costs. A quality
improvement programme has its benefits and costs. The costs include
inspection, prevention, rework, waste, etc.[8]. To ensure that quality
improvement does not drain its resources, there is a need to evaluate a quality
improvement programme.

Quality measurement techniques

Quality measurement forms the foundation for interpreting progress in a
quality improvement programme. Several methods have been developed to
measure quality quantitatively. We classify techniques available for measuring
quality into statistical and non-statistical techniques. Research into QCs grew
as a result of the pioneering efforts of Deming, Shewhart, Juran, and Taguchi[9-
11]. Early efforts on evaluation of quality focus on measurement of defects in
the production process to ensure that the system has a low defect rate. Scatter
diagram, Pareto charts, and frequency histograms are some of the statistical
techniques that can be used to measure quality. A weakness of these methods is Evaluating
that they do not directly highlight the role of production workers. The non- quality circles
statistical techniques include the checklist approach, cause and effect diagrams by DEA
and may include measurement of worker attitudes and behaviours.
Modarress and Ansari[7] use a questionnaire to determine the extent of
quality control techniques in use in US manufacturing firms. They conclude
that although there is an extensive use of quality control techniques in the 61
manufacturing process, there is an inadequate degree of implementation in the
areas of design and engineering, research and development and other areas.
They attribute this to the employees having a lack of basic mathematical skills
and a lack of top management support.
Many Japanese firms use the concept of total quality control (TQC) to
implement quality control techniques. Kogure and Akao[12] comment that
“implementing quality control effectively necessitates the co-operation of all
people in the company, involving top managers, supervisors, and workers in all
areas of corporate activities… Quality control carried out in this manner is
called company wide quality control or total quality control (TQC).” The use of
employees in a quality improvement programme ensures the participation of
production workers in matters associated with their normal duties.
In Japan, QCs form a part of quality management rather than quality
control[9] and the workers take responsibility for QC functions within their
area. The use of mission statements emphasize the importance of production of
quality products. QCs implement the philosophy of TQC. QCs are small groups
of volunteers usually from the same work area who meet at regular intervals to
identify, analyse and solve problems related to their tasks. The focus is to
increase productivity and product quality. The objectives of QC programmes
include improvement in organizational communication, identification and
solution of work-related problems, improvement in job characteristics of
employees, improvement in productivity and contribution towards greater job
satisfaction[13].

Case studies
Bocker and Overgaard[14] report on the use of QCs in 21 organizations. These
include Lockheed and Westinghouse’s Defense and Electronic Systems
Corporation. In 1974, Lockheed with 15 QCs attributed savings of $2,844,000
over two years to the use of QCs. Westinghouse attributed savings of $636,000
in a single year solely to the efforts of a single QC.
Meyer and Stott[15] report on the experiences of a company with its QCs.
Between 1978 and 1979, this company reported annual savings of $120,000 and
$446,000 reflecting a three-to-one return on investment. However, the QCs did
not last long and did not result in any long term benefits. Denhardt et al.[16] cite
the experiences of the Missouri state government where a less than fully
operational QC saved $ 515,000 over a four-year period.
BQM&T Experimental research
3,3 Juran[17] and Ouchi[18] relate increased employee morale to QC programmes.
Dale and Lees[19] survey UK manufacturing sector firms to determine the basis
for successes and failures of QCs. They conclude that group cohesion is the
primary factor that affects the success of a QC programme. They categorized
firms into successful firms, failures, and survivors based on whether there has
62 been an increase in the number of QCs in the organization, no change in the
number of QCs, or whether QCs have ceased to exist. They also note the
methodology used to classify programmes and the definition of factors that
affect QCs’ success and failure as the reasons that can affect the distinction
between successful QCs and unsuccessful QCs.
Temple and Dale[20] investigate operations of white collar QCs. They
conclude that there is no difference between initiating a blue collar QC and a
white collar QC. They conclude that white collar QCs are harder to sustain due
to: first, the nature of work involved, second, the difficulty in selecting a project
which all the quality circles members can relate to and, third, the procedural
matters such as organization of meetings and obtaining a quorum.
In the Appendix, we report findings of prior experimental work on quality
research. Researchers[21,22] have studied the impact of QCs in real life
organizations and conclude that under certain circumstances, QCs have
improved productivity, quality and employee attitudes. Marks et al.[13] suggest
that these studies may be biased as they focus on views of managers and
consultants who implemented QC programmes. Thus, these results may be
unsubstantiated. Even though many organizations have QCs, there is a lack of
understanding on the impact of participation in a QC on the employee attitudes
and behaviour[13]. Steel et al.[23] argue that there is a shortage of research on
the impact of QCs to achieve organizational goals. Adam[24] notes that there is
a lack of empirical studies documenting the factors that contribute to QC
effectiveness in the workplace.
These studies, although providing valuable information on the performance
of QCs, have a limitation as they do not incorporate both efficiency and
effectiveness at the same time. As QCs are used to achieve organizational goals
there is a need to identify sub-optimal QCs (QCs that are less effective and/or
less efficient). Thus, there is a need for an approach that presents information
on both effectiveness and efficiency of QCs.

Suitability of DEA for evaluating QCs

A QC can be evaluated along many dimensions such as group cohesion,
commitment to organization, job satisfaction, understanding of task,
absenteeism, quantity of suggestions, and number of suggestions adopted by
management. This necessitates the use of an approach that facilitates
consideration of multiple evaluation factors. Thus, we propose the use of data
envelopment analysis (DEA) to evaluate QCs.
DEA was proposed by Charnes et al.[25] in 1978 as a technique for
comparing the efficiency of units with the same goals. It is based on the concept
of linearity and a DEA model can be easily transformed into a linear Evaluating
programming model[25,26]. DEA measures efficiency through the use of quality circles
weights placed on input and output measures. DEA has been applied to a by DEA
number of diverse fields such as schools, hospitals, universities and equipment
selection. We recommend the use of DEA to evaluate QCs as it facilitates:
• the use of multiple input and output in an analysis;
63
• the derivation of the efficiency-effectiveness relationship; and
• the identification of efficient operating strategies, practices, target
setting and changes over time[27].

Methodology
Our purpose is three-fold. First, we devise a methodology that helps an
organization in identifying sub-optimal QCs. Second, our approach provides a
basis for taking remedial action. This ensures that an organization does not
expend valuable time and resources in administering QCs that are less effective.
Third, we devise an approach for identification of sub-optimal QC groups and
the underlying reasons for such occurrences. The resulting information can act
as a tool for subsequent enhanced performance.

Research question
We now state our research question and describe the process we use to address
this question. As stated earlier, the primary purpose of this study is to
determine the effectiveness-efficiency relationship of QCs in an organization.
Our research question can be formulated as: What is the effectiveness-efficiency
relationship of the various QCs within a firm?

Selection of output and input

Table I lists the factors in our analysis. We also categorize these factors into
whether they represent output/input measures and whether they constitute
efficiency/effectiveness measures. We use five factors in this analysis. A more
detailed study may involve other factors such as group cohesion, commitment
to organization, job satisfaction, understanding of task, absenteeism, and the
number of suggestions adopted by management.

Factor Output/input Effectiveness/efficiency

Contribution towards organizational goal Output Effectiveness

Satisfaction with QCs Output Effectiveness
Operating cost Input Efficiency
Quantity of presentations Input Efficiency
Productivity Input Efficiency
Note: Efficiency = weighted sum of outputs/weighted sum of inputs and is derived from output Table I.
of DEA analysis and Effectiveness = contribution toward organizational goals and is derived Selection of output
from computer-generated data. and input
BQM&T Data sources and gathering methods
3,3 We used a program written in the C language to generate data for our analysis.
Our program generates random numbers for the factors identified in Table I.
The factors “quantity of presentations” and “operating cost” constitute
quantitative data. The others are qualitative in nature and represent opinions of
the evaluators. In our analysis, the range for operating cost is $0-$500 and the
64 range for quantity of suggestions is 0-99. We use the rating scale (range 1-7)
presented in Figure 1 to transform the subjective factors to numerical data.

The group was able to meet the stated objectives during the designated period:
a) Relevance
extremely quite slightly neither…nor slightly quite extremely
unimportant important
The responses can later be converted to a 1 – 7 scale, with 1 representing extremely
unimportant and 7 representing extremely important
Figure 1.
Rating scale for b) Measurement for the level of achievement
measuring the extremely quite slightly neither…nor slightly quite extremely
contribution towards low high
goal achievement The responses can later be converted to a 1 – 7 scale, with 1 representing extremely
low and 7 representing extremely high

In Table II, we present the output of the program designed to generate data.
This forms the data set for our analysis presented in this paper. We use 12, QC
groups in our analysis, designated as QC1-QC12. Although, we focus only on
QCs, it is worthwhile to compare these groups against other groups (control
groups) to determine the impact of QCs in an organization. Random numbers

Contribution
towards goal Satisfaction
QC achievement Productivity with QCs Cost Presentation

1 1 1 4 3 0
2 2 1 1 458 91
3 5 5 7 179 35
4 1 4 1 67 13
5 2 2 3 78 15
6 3 6 7 275 55
7 2 1 1 477 95
8 7 4 1 312 62
9 3 5 1 276 55
10 7 7 4 338 67
11 2 5 4 453 90
12 7 6 5 469 93
Range 1-7 1-7 1-7 0-499 0-99
Table II. Type Output Input Output Input Input
Data set for DEA Constraint type >= <= >= <= <=
analysis Note: Each group was given $500/quarter for operating expenses
can be used to segregate groups into test groups and control groups. This Evaluating
enables the testing of a hypothesis dealing with performance of test groups quality circles
against control groups. Mathiyalakan and Chung[28] describe a procedure that by DEA
can be used in an organization to obtain these data.
A DEA model can be easily transformed into a linear programming (LP)
model[26,29]. As we deal with 12 QCs, we developed 12 different LP
formulations for our analysis. We use the software accompanying Production 65
Management text by Gaither[10] to obtain solutions to these formulations. In
Figure 2, we present the LP formulation for quality circle four (QC4). The
decision variables in this formulation represent weights associated with the
formation of a hypothetical composite QC.

X 1 = Efficiency index
X 2..X 13 = Weights applied to inputs and outputs for QCs 1..12
MIN X 1
SUCH THAT
∑1=2 X 1 = 1 weights
13

1X 2 + 2X 3 + 5X 4 + 1X 5 + 2X 6 + 3X 7 + 2X 8 + 7X 9 + 3X 10 + 7X 11 + 2X 12
+ 7X 13 >= 1 contribution
– 4X 1 + 1X 2 + 1X 3 + 5X 4 + 4X 5 + 2X 6 + 6X 7 + 1X 8 + 4X 9 + 5X 10 + 7X 11 + 5X 12
+ 6X 13 >= 0 productivity
4X 2 + 1X 3 + 7X 4 + 1X 5 + 3X 6 + 7X 7 + 1X 8 + 1X 9 + 1X 10 + 4X 11 + 4X 12
+ 5X 13 >= 1 satisfaction
–67X 1 + 3X 2 + 458X 3 + 179X 4 + 67X 5 + 78X 6 + 275X 7 + 477X 8 + 312X 9
+ 276X 10 + 338X 11 + 453X 12 + 469X 13 >= 0 cost
–13X 1 + 0X 2 + 91X 3 + 35X 4 + 13X 5 + 15X 6 + 55X 7 + 95X 8 + 62X 9 + 55X 10
Figure 2.
+ 67X 11 + 90X 12 + 93X 13 >= 0 number of presentations LP formulation for QC4
Non − negativity

Results
In this section, we present our results and highlight the means by which
management can enhance sub-optimal QCs. The output of the linear program
corresponds to the relative efficiency rating (range 0-1). In Table III, we present
the results of our analysis. We also include in Table III, the ratings for the
primary effectiveness measure which is generated through computer-generated
data. The factor contribution towards goal achievement represents the primary
effectiveness measure and is measured on a scale 1-7.
In DEA, groups with efficiency rating of less than 1 are considered relatively
inefficient. Based on our analysis, the relatively inefficient groups are 4,5,6,9,
and 11. As we use a rating scale to transfer subjective factors to quantifiable
measures such as contribution towards organizational goals, management can
designate a range for highly effective groups. We designate groups with an
effectiveness rating of equal to or above 6 on our scale as highly effective
BQM&T groups. Based on this designation, groups 8,10 and 12 represent highly effective
3,3 groups. Using this information, groups can be classified according to the
matrix shown in Table IV.
The results of LP formulation forms the starting point for analysis of QCs. Of
the 12 QCs, our analysis shows that only three can be regarded as effective. This
prompts the question as to why other groups are less effective. It may be due to
66 the cut-off point that constitutes high effectiveness (6 on the scale). However, it
is also conceivable that the goals set are high and thus resulted in low
effectiveness. Another reason may be due to the possible use of multiple
evaluators with differing opinions on goal achievement. Table V shows a
portion of the computer output for QC4.

QC No. Efficiency rating Effectiveness rating

(obtained from DEA analysis) (obtained from computer-generated data)

1 1.000 1
2 1.000 2
3 1.000 5
4 0.250 1
5 0.748 2
6 0.833 3
7 1.000 2
8 1.000 7
9 0.399 3
10 1.000 7
Table III. 11 0.340 2
Results 12 1.000 7

Effectiveness rating
Efficiency rating High Low

High 8,10,12 1,2,3,7

Low 4,5,6,9,11
Table IV. Note: Efficiency low: relative inefficient units
Classification of groups Effectiveness high: >=6 on the contribution towards organizational goals (scale = 1-7)

The objective function value for QC4 is 0.25. It indicates that the composite unit
can be formed which provides at least the level of output provided by QC4 by
having no more than 25 per cent of the input resources required by QC4. It is for
this reason that we consider QC4 as a relatively inefficient QC.
Let us now turn our attention to the composition of the hypothetical
composite unit. We use the weights derived from our analysis to determine such
composition. In Table V, we observe that the weight applied to QC1 (variable 2)
has a value of 0.971 and the weight applied to QC7 (variable 8) has a value of
0.029. Thus, the composite unit is formed from the weighted average of QC1
with a weight of 0.971 and QC7 with a weight of 0.029.
Variable
Evaluating
quality circles
Status Value Reduced cost by DEA
Variable 1 (relative efficiency rating) Basic 0.250 0.000
Variable 2 (weight applied to inputs and
outputs for QC1) Basic 0.971 0.000
Variable 8 (weight applied to inputs and
outputs for QC7) Basic 0.029 0.000 67
Status Value Shadow price
Contribution towards organizational goals Basic 0.029 0.000
Productivity Non-basic 0.000 0.250 Table V.
Satisfaction with QCs Basic 2.193 0.000 Output of the LP
Cost Non-basic 0.000 0.000 formulation for QC4
Presentation Basic 0.494 0.000 (derived from LP
Weight Non-basic 0.000 –0.250 formulation given in
Note: Objective = 0.25 Figure 2)

Management can also use values for slack/surplus variables to gather more
information about QC4. Using our rating scale as the reference point, members of
the composite QC are more (2.913) satisfied, contribute more (0.029) towards goal
achievement and provide more (0.494) suggestions than QC4. The slack of zero for
cost constraint implies that composite unit uses 25 per cent of the costs associated
with operating cost for QC4. Thus, management can examine the expenditures of
this group to determine the reasons for this outcome. Although the amount
expended $67 (see Table II) is relatively low, it is worthwhile noting that the
composite unit can achieve this performance level at a lower cost. Thus, instead
of allocating $500 per QC per quarter, management may consider the option of
allocating money based on performance and potential for high performance. As
QC4 is less efficient and effective it will have the least priority in resource
allocation. This ensures that management supports those groups that contribute
most towards goal achievement and are efficient in resource usage.

Summary remarks
In this paper, we have presented an approach for evaluation of QCs. Verification
of this methodology in an actual organization is desirable. We have established
the viability of using DEA to analyse performance of QCs in an organization.
Even though we do not provide any means for measuring absolute efficiency of
the different QCs in an organization, we believe that our focus on measuring
relative efficiency provides valuable information to management.
We have provided the means for incorporating effectiveness of QCs with the
measurement of relative efficiency. As our intent is to present suitability of DEA
in evaluating QCs, we used a program to derive experimental data. In an actual
organization, data may not be readily available and the researcher has to make
extra efforts to obtain the necessary data.
With the information provided by our analysis, management can compare
resource usage of a QC to its performance. This facilitates the allocation of
resources to groups with the potential for high performance. We also
BQM&T recommend use of this approach over time to ensure that there is a match
3,3 between organizational goals and performance of QCs.
Although, the use of DEA in the analysis of QCs’ performance provides
significant benefits, it has its limitations. First, DEA requires numerical data. As
a consequence, when an evaluator is faced with non-numerical factors there is a
need to devise a methodology to transform qualitative factors to quantitative
68 values. In our examination of QCs, we presented an approach to achieve such
transformation. Second, in DEA a requirement is that all units must be identical
and have similar goals. As we focus on performance of QCs within the same
organization, we assume that all groups are homogeneous in this respect. As our
intention is to use DEA as a tool in evaluating QCs, we believe that our
methodology and results have general applicability despite these shortcomings.

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BQM&T Appendix
3,3
Author(s) Purpose Description Findings

Wayne et al. Determining Of the 49 QCs in a firm Found that characteristics

1986[6] factors that with nine plants, 44 of effective QC are:
70 contribute participated. Group size – Higher levels of
towards = 8-3. Financial incentives cohesiveness
effectiveness for QCs with a high – High member work norms
number of suggestions Higher levels of job
adopted by management satisfaction
– Higher levels of
self-esteem
Griffin Characteristics Study conducted over a When compared to control
1988 [30] of QCs over three-year period. Eight groups, initially the level
time QCs and 73 employees of job satisfaction,
organizational commitment,
performance and turnover
intention improved. Later
these measures of attitudes
declined back to their initial
levels
Marks et al. Determining 20-month study conducted Improvements in productivity
1986 [13] the impact of in a manufacturing firm. A and absenteeism for QC
participation total of 92 subjects equally groups, but little change in
in a QC divided into control groups. the attitude towards quality
programme on Surveys conducted before of work life
the quality of and after participation in
work life, QC programme
attitudes,
productivity,
and level of
absenteeism
Steel et al. Determining Surveyed 107 employees of Successful QC intervention
1985 [23] factors that military firm (13-month occurred only in the military
contribute study) and 165 employees firm. Suggests that study
towards of a medical facility (seven- time frame, member training
Table AI. success and month study) management support may
Findings of prior failures in QCs have contributed to
experimental work on successful QC intervention
quality research in the military firm