first, do you understand what "qualify" means in this context?

in this context, "qualify" means "restrict" or "place conditions upon".

for instance:
"i like the weather in seattle." <-- general claim
"well, only between june and august." <-- QUALIFYING (i.e., restricting) that claim.

judging by what you wrote below, it appears that you may simply not know that "qualify" can have this meaning.

bluementor wrote:1.
...
the 2nd paragraph is summarizing why TQM is not so easily implemented

exactly.
the 1st paragraph basically says that tqm is cool, and that it can be implemented with other systems.
the 2nd paragraph comes back and says, well, ok, it's not that easy; there will be some humps to get over in its implementation.

this is exactly what QUALIFICATION means in this case.

1st para: Drucker claims TQM can work well with other management systems.
2nd para: However, TQM cannot simply used together with other management systems.

you're missing the important part of "2nd para", which is that it can't be used randomly with other systems. certain criteria must be met, and, again, that's what "qualify" means.

2. Between choices C and D, why is the 2nd para not seen to be an example?

because it's not an example.

an EXAMPLE is SPECIFIC. (an EXCEPTION to a rule is also specific; coming back and saying, "no, that rule generally isn't true" isn't an exception.)

the second paragraph provides exactly 0 SPECIFIC examples of SPECIFIC management systems in which tqm doesn't work. it consists only of a bunch of GENERALITIES about tqm vs. other systems, but it mentions nary a specific case. at all.