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

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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? Page 44

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 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: Waste Rejects Testing Rework Customer returns Inspection Recalls Pg 46

Cost of Poor Quality The costs of poor quality include the following hidden costs: 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 Pg 46

Cost of Poor Quality A tale of two cities Text page 45

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. Pg 46

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. Pg 47

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 Pg 47

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 Pg 48

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. Pg 56

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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) Pg 49

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. Page 21

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 Pg 51

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 Pg 51

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Factors Inhibiting Competitiveness Education Discussion assignment 2-1 Page 75 of text

Comparisons of International Competitors Pg 55

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 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. Pg 57

Comparisons of International Competitors Trade and export growth Half a trillion dollar deficient

Comparisons of International Competitors Investment 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 Pg 58

Comparisons of International Competitors Manufacturing productivity 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

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. Pg 59

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 Pg 59

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. Pg 60

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 Pg 63

Management by Accounting, Antithesis of Total Quality Managing the organizations financial results instead of the people and processes that produce those results 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 Pg 67

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. Pg 68

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 Pg 70

Focus on the long term