Quality Pays Big Dividends

The quality improvement movement started in the United States during World War II as we converted manufacturing from civilian goods to war goods. Stanford University utilized the statistical leaders of the time to set up training on improving work processes by removing waste, rework, and redundancy. This movement moved to Japan in 1951 as they wanted to learn what they considered was our secret weapon that allowed us to produce tanks, ships, airplanes, and arms with the efficiency and effectiveness at the rate we did. They invited the American leader of the movement, Dr. W. Edwards Deming to come and teach them these statistical tools to improve work processes. They followed his teachings and their quality steadily improved. Meanwhile, we became complacent as the production capacity of the rest of the world was pretty much destroyed, we had little competition, and we put our emphasis on quantity over quality. We did not really wake up until 1980 when NBC aired a white paper titled, “If Japan Can, Why Can’t We?” It was about what Deming had accomplished in Japan and was now leading the effort in the US.

The revival of this quality improvement movement is now over thirty years old and the obvious question is, “Is this really worth the effort?” About fifteen years ago I did a study of literature search for results and I think it bears repeating.

Advantage Minnesota

·      ZYTEC-Tripled earnings between 1991 and 1995, increased revenues 62%, reduced manufacturing cycle time 64%

·      ADVANCED CIRCUITS-reduced product defects 505, reduced product returns 75%

·      BI PERFORMANCE SERVICES-Increased sales 15%, increased customer retention to 92%

·      CUSTOM RESEARCH-Doubled its business volume, increased productivity 20%

·      HONEYWELL SOLID STATE ELECTRONICS CENTER-Increased revenue per employee from $63K to $100K

·      HUTCHINSON TECHNOLOGY-Increased earnings 40%, increased revenues 12%

Minneapolis Star-Tribune, Harvey Mackay’s column, April 6, 1995

·      MOTOROLA-They spend millions on quality training, but it costs them nothing because of the savings they enjoy on returns, retooling, rebates, lawsuits, and customer satisfaction.

United States General Accounting Office report, May 1991, “Management Practices, U.S. Companies Improve Performance Through Quality Efforts”-GAO review of the 20 companies that scored highest of 1998 and 1989 applicants for Malcolm Baldrige Award indicated nearly all achieved:

·      Better employee relations

·      Higher productivity

·      Greater customer satisfaction

·      Increased market share

·      Improved profitability

The details of the study are interesting. Financial performance was detailed in that 15 companies reported a total of 40 observations as measured by several ratios widely used in financial analysis. The ultimate impact of quality management practices is improved profitability.

·      34 improved

·      6 declined

American Quality Foundation and Ernst & Young, Joint study, 1992.

·      Higher performing organizations have 25% of their workforce performing in teams compared to 5% for poorer performing organizations.

·      Higher performing organizations had nearly 100% of their workforce formally trained in problem solving compared to less than 20% in poorer performing organizations

Business Week, October 18, 1993

·      The three publicly traded, whole company Baldrige winners outperformed the Standard & Poor’s 500 from the time of their winning through September 20, 1993 by 8.6 to 1.

·      The ten Award winners that analyze productivity enhancement as annual increase in revenue/employee, a median average annual compounded growth rate of 9.4% and a mean of 9.25% have been achieved.

Does Quality really get results? The answer is a resounding YES!