1. 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

2. Text: Quality Management 5th edition
Authors: David Goetsch & Stanley Davis
Where appropriate reference text page numbers will be on bottom of slides

3. What is a Customer?
Let's See

4. 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

5. 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

6. 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

7. 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

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

9. 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

10. 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

11. Competitiveness and the U.S. Economy
See quote in text page 47
Ray Marshall & Marc Tucker

12. 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

13. 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

14. 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

15. Pg 49

16. Factors Inhibiting Competitiveness
Several factors inhibit competitiveness
Business and government
Family
Education.

17. 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

18. 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

19. 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

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

28. Comparisons of International Competitors
Pg 55

29. 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

30. 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

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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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

41. Focus on the long term