Loading the player...

What is 'Quality Management'

Quality management is the act of overseeing all activities and tasks needed to maintain a desired level of excellence. This includes the determination of a quality policy, creating and implementing quality planning and assurance, and quality control and quality improvement. It is also referred to as total quality management (TQM).

BREAKING DOWN 'Quality Management'

At its core, quality management (TQM) is a business philosophy that champions the idea that the long-term success of a company comes from customer satisfaction. TQM requires that all stakeholders in a business work together to improve processes, products, services and the culture of the company itself.

The Origins of Quality Management

While TQM seems like an intuitive process, it came about as a revolutionary idea. The 1920s saw the rise in a reliance on statistics and statistical theory in business, and the first-ever known control chart was made in 1924. People began to build on theories of statistics and ended up collectively creating the theory of statistical process control (SPC). However, it wasn't successfully implemented in a business setting until the 1950s.

It was during this time that Japan was faced with a harsh industrial economic environment. Its citizens were thought to be largely illiterate, and its products were known to be of low quality. Key businesses in Japan saw these deficiencies and looked to make a change. Relying on pioneers in statistical thinking, companies such as Toyota integrated the idea of quality management and quality control into their production processes.

By the end of the 1960s, Japan completely flipped its narrative and became known as one of the most efficient export countries, with some of the most admired products. The effective quality management resulted in better products that could be produced at a cheaper price.

An Example of Quality Management

The most famous example of TQM is Toyota's implementation of the Kanban system. A kanban is a physical signal that creates a chain reaction, resulting in a specific action. Toyota used this idea to implement its just-in-time (JIT) inventory process. To make its assembly line more efficient, the company decided to keep just enough inventory on hand to fill customer orders as they were generated.

Therefore, all parts on Toyota's assembly line are assigned a physical card that has an associated inventory number. Right before a part is installed in a car, the card is removed and moved up the supply chain, effectively requesting another of the same part. This allows the company to keep its inventory lean and not overstock unnecessary assets.

RELATED TERMS
  1. Total Quality Management - TQM

    The continuous process of reducing or eliminating errors in manufacturing, ...
  2. Quality Control

    A process through which a business seeks to ensure that product ...
  3. Quality Of Life

    A highly subjective measure of happiness that is an important ...
  4. Asset Quality Rating

    A review or evaluation assessing the credit risk associated with ...
  5. Just In Time - JIT

    An inventory strategy companies employ to increase efficiency ...
  6. Quality Control Chart

    A graphic that depicts whether sampled products or processes ...
Related Articles
  1. Small Business

    What's Involved in Quality Management?

    Essentially, quality management entails overseeing all activities and tasks needed to maintain excellence.
  2. Investing

    The History and Purpose of TQM

    Total quality management explores processes to enhance quality and productivity.
  3. Small Business

    Explaining Quality Control

    Businesses use quality control to ensure their products and services meet a certain standard, as well as any industry regulations.
  4. Investing

    Rising Prices: Inflation or Quality Improvements?

    Price indices are used to measure inflation, but qualitative improvements in products complicates attempts to isolate the true cause of rising prices.
  5. Financial Advisor

    Smart Beta: How Does Quality Factor In?

    One of the factors used in smart beta strategies is quality. Here's a look at this popular factor and the ETFs that use it.
  6. Insights

    Standard Of Living Vs. Quality Of Life

    What is the difference between a standard of living and quality of life? Find out in this breakdown.
  7. Investing

    Toyota's 4 Key Financial Ratios (TM)

    Learn about important financial ratios for Toyota Motor Corporation that are crucial in evaluating the company's business and its financial statements.
  8. Small Business

    Kaizen: An American Idea Gets A Japanese Makeover

    This manufacturing philosophy – made famous by the likes of Toyota – had its start in postwar Japan with an American statistician.
  9. Investing

    What’s the Difference Between Standard Of Living and Quality Of Life?

    Knowing the difference between standard of living and quality of life can dictate where and how someone invests.
  10. Investing

    Just In Time

    Just in time (JIT) is a system of supplying goods as close as possible to when they are actually needed. For a company that resells, that means goods arrive just before hitting the shelves for ...
RELATED FAQS
  1. Why does a crisis in emerging markets cause U.S. Treasury yields to decrease?

    The reason that you will often see the yields on Treasuries fall when you see a financial crisis in an emerging or foreign ... Read Answer >>
  2. When diversifying a bond portfolio, you should make sure to take into account all ...

    a. Maturity dates b. Price c. Geographic location d. Credit quality Answer: BCredit quality, time to maturity, and location ... Read Answer >>
  3. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Understand the principles behind just-in-time inventory management and customer-managed inventory. Learn the difference between ... Read Answer >>
  4. How is investing in a corporate bond different from buying shares of the company's ...

    Learn what the just in time, or JIT, inventory system is by contrasting it with the just in case inventory system and reviewing ... Read Answer >>
  5. What are some of the ways that a company can improve its brand equity?

    Learn why brand equity is so valuable in business. These strategies for gaining high exposure and a great reputation will ... Read Answer >>
  6. Who are Toyota's (TYO) main suppliers?

    Learn which companies make up Toyota's supply chain. The automotive giant provides awards to its largest and most efficient ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center