World-Class Quality

Many companies attempt to implement ISO 9000 before starting a world-class quality programme either because a demanding customer expects it, or because a key competitor has done so and is attempting to capitalize on the fact.  In these cases, there is a very high risk that the company will introduce the standard, not because it believes in the concept but because it is forced to do so.  This is the very worst reason.  The company, in this case will almost certainly end up with two systems, the one they show the auditor, and the one they actually use.  Cynicism will be rampant, and senior management will be accused of lack of quality-mindedness.  Of course, costs of poor quality will multiply through maintaining two systems.

These problems can be overcome if ISO 9000 is introduced as part of a world-class quality programme. With this objective ISO 9000 may or may not be the first item on the agenda as in the case of Punjab Tractors, Tata Steel, Citibank, and many more.  Each of these companies initially focused on making a habit of quality improvement, company-wide, and simultaneously harvesting the benefits of lower costs of poor quality. The primary objective of world-class quality management is to make organizations more competitive in order to dominate the field.

Items that would be subject to audit according to ISO 9000 may not even exist in a true world-class quality organization.  For example, there is the case of the ISO 9000 auditor who went to a Japanese supplier in order to make an audit.  After the audit the company asked whether he had seen everything he wanted to see.

“Well almost”, he said, “I haven’t been able to find your goods inwards stores and finished goods stores” 

“We do not have any,” he was told

“I would also like to see the store for reject or substandard parts”

“We don’t have these either”, was the reply!

Dr Joseph M Juran the quality guru, is at least partially responsible for the very wide circulation of the Motorola-Matsushita/Quasar story, in manufacturing circles.  He explains the concepts behind costs of poor quality with this example, in his foundation lectures on “Management of Quality”.  In the mid 1970s, the Japanese electronics giant bought out a colour TV plant that had formerly been run by Motorola.  Before coming under Japanese management, the Motorola factory had been running at a rate of 150 to 180 defects per 100 sets.  Three years later, the defect rate had dropped to three or four per 100 sets!  As a result, the costs of poor quality dropped from $22 million to less the $4 million, the number of in-plant repair and service employees was reduced from 120 to 15, and personnel turnover dropped from 30 per cent to one per cent per annum.

All this happened with effort and marginal investment, including modified product designs that were less prone to field failure, changes in manufacturing processes to make them less prone to defect generation, and more reliable defect-free parts.  In short, Matsushita utilized many of the basic quality management principles that leading American experts had been preaching for twenty years.  They did not use a revolutionary new technology, or a new work force.  The key was intensive quality oriented management that brought with it targeted increases in quality and simultaneous and concomitant decreases in cost.

How the Japanese have achieved mastery of quality is not a mystery or miracle.  The “secret” is no secret at all, and its key is not high technology or robots, nor is it government assistance or macroeconomic forces.  It is a management system - the quality control system taught by Professor W Edwards Deming and subsequently enlarged for leadership and quality improvement by Dr Joseph M Juran.

The NUMMI (New United Motors Manufacturing Incorporated) quality story is also vitally important to manufactures across the globe.  NUMMI is a joint venture of General Motors and Toyota Motor Company.  In this venture, Toyota makes a version of the Toyota Corolla, and GM sells them under the Chevrolet Nova label.  Toyota does the manufacturing in a GM plant at Fremont, California, which had been closed by GM due to low quality and low productivity.  By all accounts, under GM management the Fremont plant was an industrial nightmare with poor quality performance, low productivity, wildcat strikes, and incredible absenteeism.

Then, Toyota took over the operations and now NUMMI has the highest quality and productivity of the entire GM system. How was this accomplished?  It was largely through implementing ideas similar to those used at the Quasar plant, and also through a series of quality management techniques that rely heavily on innovative employee relations and workplace reorganization.  These interventions had made it possible for NUMMI to utilize the skills and talents of the workers in ways that simultaneously enhance quality, productivity, and employee satisfaction.  Yet, NUMMI is not a particularly high-tech operation.  In fact, actual manufacturing technology used in the plant is not as advanced as that utilized currently at some other GM plants.  Moreover, the workers are some 2,500 of the 6,000 UAW workers who were laid off when GM closed the plant.

There are similar stories of manufacturing successes achieved by other leading Japanese companies, including Sony and Honda.  The lessons learnt are quite in parallel.

World-class quality begins and ends with the profit and loss account and the balance sheet. Current world-class management models, such as, the Malcolm Baldrige, European Quality Award and IMC Ramkrishna Bajaj National Quality Award, reinforce the same.  In the context of these models, the cost relationships that have the greatest impact are:

• Quality costs as a percentage of sales
• Quality costs compared to profit
• Quality costs as a percentage of total manufacturing costs
• Effect of quality costs on the break-even point.