Chater Two:Quality and Global Competitiveness

MAJOR TOPICS The Relationship between Quality and Competitiveness Cost of Poor Quality Competitiveness and the U.S. Economy Factors Inhibiting Competitiveness Comparisons of International Competitors Human Resources and Competitiveness Characteristics of World-Class Organizations Management by Accounting, Antithesis of Total Quality Key Global Trends U.S. Companies: Global Strengths and Weaknesses

Text: Quality Management 5th edition

Authors: David Goetsch & Stanley Davis

Where appropriate reference text page numbers will be on bottom of slides

What is a Customer?

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The Relationship between Quality and Competitiveness

The relationship between quality and competitiveness can be summarized as follows: In a modern global marketplace, quality is the key to competitiveness.

How does Quality help an organization to become competitive?

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The cost of Quality “traditional” attitude is that there is a cost to quality

Quality is a “support” function; does not contribute directly to manufacturing and so is often one of the first functions to go in hard times

When TQ is integrated as a normal part of business, it contributes directly to manufacturing and is actually an important tool to avoid hard times

Cost of Poor Quality

Waste

Rejects

Testing

Rework

Customer returns

Inspection

Recalls

Poor quality results in cost to the organization. Sometimes in obvious (traditional) ways, sometimes in not so obvious ways (hidden costs)

The costs of poor quality include the following traditional costs:

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Cost of Poor Quality

Excessive overtime

Pricing errors

Billing errors

Excessice turnover

Premium Freight Costs

Development cost of failed product

Field Service Costs

Over due receivables

Handling Complaints

Expiditing

System Costs

Planning delays

Late Paperwork

Lack of follow-up

Excess inventory

Customer allowances

Unused Capacity

The costs of poor quality include the following hidden costs:

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Cost of Poor Quality

A tale of two cities

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Competitiveness and the U.S. Economy

The United States came out of World War II as the only major industrialized nation with its manufacturing sector completely intact.

Germany and Japan were devastated by damage during the war.

They rebuilt their manufacturing bases on the assumption that to compete globally, they would have to produce goods of world-class quality.

That strategy helped them recover and become world leaders in manufacturing.

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Competitiveness and the U.S. Economy

While the U.S. was enjoying it’s position as the world’s preeminent economic superpower, the other industrialized nations of the world were busy rebuilding their manufacturing sectors.

U.S. manufacturers were slow to catch to catch on that the game had changed

Foreign companies started to errode U.S. markets U.S. companies mistakenly saw cost rather than quality as

the issue & began sending work off shore to reduce labor cost

In a relatively short time, the U.S. went from the world’s leading lender & exporter to the world’s biggest debtor…..by 1980 the U.S. was consuming more than it produced.

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Competitiveness and the U.S. Economy

See quote in text page 47

Ray Marshall & Marc Tucker

Competitiveness and the U.S. Economy

Ability to compete globally has direct impact on quality of life

Ability to compete depends upon the ability to do a better job of producing goods

To do a better job producing goods nations and organizations need to focus on policies, systems and resources in a coordinated way to continually improve

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Competitiveness and the U.S. Economy

Many industrialized nations have taken steps to link education, economics and labor market policy to promote competitiveness

The U.S. is still debating the need for a national industrial policy and a national education policy

1980s – U.S. improved productivity by putting more people to work – other nations improved productivity by making the worker more efficient

2000 to 2010 – the number of U.S. workers is on the decline to maintain productivity U.S. workers must become more efficient

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Competitiveness and the U.S. Economy

Today 27% of children born in the U.S. will live in poverty. 30 years ago it was 12%

The real hourly wage of a worker in the U.S. today is 16% less than in 1979

Today the U.S. has the most unequal distribution of wealth of any industrialized nation in the world.

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Factors Inhibiting Competitiveness

Several factors inhibit competitiveness– Business and government

– Family

– Education.

Factors Inhibiting Competitiveness Business and government

Emphasis on short-term profits fed by fear of unfriendly takeover attempts and pressure from lenders or shareholders (2)

Excessive medical costs (6)

Excessive costs of liability inflated by lawyers working on contingency fees (7)

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DEMING'S SEVEN DEADLY DISEASES 1. Lack of constancy of purpose to plan product and service that will

have a market and keep the company in business, and provide jobs. 2. Emphasis on short-term profits: short-term thinking (just the

opposite of constancy of purpose to stay in business), fed by fear of unfriendly takeover, and by push from bankers and owners for dividends.

3. Personal review systems, or evaluation of performance, merit rating, annual review, or annual appraisal, by whatever name, for people in management, the effects of which are devastating. Management by objective, on a go, no-go basis, without a method for accomplishment of the objective, is the same thing by another name. Management by fear would still be better.

4. Mobility of management; job hopping. 5. Use of visible figures only for management, with little or no

consideration of figures that are unknown or unknowable. 6. Excessive medical costs. 7. Excessive costs of liability.

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Factors Inhibiting Competitiveness Family

The family unit is the nation’s most important human resource development agency

Single parents who must work full time jobs have little or no time to help their children excel in school

Parents who must work more than one job have little or no lime to help their children excel in school

Children with parents who do no value education are unlikely to value it themselves

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Factors Inhibiting Competitiveness Education

Quality of the education system is a major factor in the quality of the labor pool

The higher the quality of the labor pool, the higher the quality of entry level employees

The higher the quality of the entry level employees, the faster they can become productive employees and contribute to competitiveness

A high-quality education system is primary component of a nation’s ability to globally compete

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Factors Inhibiting Competitiveness Education

Discussion assignment 2-1

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Comparisons of International Competitors

Comparisons of International Competitors

When making comparisons among internationally competing countries, the following indicators are usually used:

standard of living

trade and export growth

Investment

manufacturing productivity

Comparisons of International Competitors

Standard of Living Index is gross national product per capita

U.S. SOL has grown since 1972, but has not kept pace with most other competitive nations.

Standard of Living

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Comparisons of International Competitors

Half a trillion dollar deficient

Trade and export growth

Comparisons of International Competitors

Measured as the percentage of gross national product spent on education, equipment, facilities, and research & development.

Japan’s investment has leveled out at 29%

U.S. is at 22%

Take education out of the mix and the U.S. is even or better than most nations

Investment

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Comparisons of International Competitors

Up until the mid 1970s the U.S. had the highest productivity levels in the world – 56% higher than than Japan, next on the list.

By the late 1980s this lead was down to 6%

Currently the U.S. and Japan are about even

Manufacturing productivity

Human Resources and Competitiveness

The most important key in maximizing competitiveness is the human resource. Following World War II, this was the only resource that Germany and Japan had to draw on. Consequently, they built economic systems that encourage private employers to make business decisions that emphasize improved productivity and quality, rather than price.

The basic philosophical constructs underlying the human resource aspects of the competitiveness of both Japan and Germany are as follows:

cooperation among business, labor, and government; high-quality education and training; employee involvement and empowerment; leadership at all levels; teamwork.

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The culture is so different in Europe and Asia that what works in these countries will not work in the U.S.

This kind of thinking, although pervasive, misses the point entirely and in fact is somewhat ethnocentric

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Human Resources and Competitiveness Cooperation among business, labor, and government

Social partners is the term used in both Japan & Germany Both Germany & Japan were very much like the U.S. prior to WWII

High-quality education and training U.S. standing among industrialized nations is poor Germany & Japan go about it different ways, but arrive in the same

place Employee involvement and empowerment

In Germany & Japan employees are involved in functions which in the U.S. would be traditional management responsibilities

Leadership at all levels In Germany & Japan leadership and leadership training occurs at all

levels including first line employees. Teamwork

In Germany & Japan, not only is work done by teams of employees, but planning and design as well.

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Characteristics of World-Class Organizations

Ultimate manufacturers are those that perform at world-class levels in the following areas:

Competitive analysis strategies– Operations cost efficiencies, speed to market, RnD, rapid

supplier delivery, logistics, real time delivery, zero defects, zero inventory

Production and supply chain management strategies– Collaborative planning, forecasting, delivery to point of use,

supplier managed inventory

Customization strategies– Building to order, global sourcing

Electronic commerce strategies– Supply management, purchasing, internet ordering and tracking

Compensation systems strategies

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Management by Accounting, Antithesis of Total Quality

Creates an analytically detached approach to decision making

– Printouts vs firsthand knowledge and insight

Focus on short-term cost reduction– At the cost of long term improvements in people and

processes

Narrowly focused manages viewing every problem from a finance and accounting perspective

Managing the organizations financial results instead of the people and processes that produce those results

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Key global trends

Key global trends that are increasing the level of globalization in business are

the growing irrelevance of distance,

shifts in the rates of growth in certain countries throughout the world,

and the rise of megacities.

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U.S. Companies: Global Strengths and Weaknesses

Strong entrepreneurial spirit Presence of a “small cap” stock

market for small and mid-sized firms

Rapidly advancing technologies

Comparatively low taxes Low rate of unionization World class system of higher

education

Expanding government regulation (?)

A growing underclass of “have-nots”

A weak public school system (k-12)

A poorly skilled labor force and poor training opportunities

An increasing protectionist sentiment

Growing public alienation with large institutions

Strengths Weaknesses

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Focus on the long term