Because of permissions issues, some material (e.g., photographs) has been removed from this chapter, though reference to it may occur in the text. The omitted content was intentionally deleted and is not needed to meet the University's requirements for this course.

CHAPTER 3

Global Supply Chain Quality and International Quality Standards
Global competition is played out by different rules and for different stakes at each level.
—C. K. PRAHALAD and GARY HAMEL

INTRODUCTION

I

nternational trade is not a new phenomenon. The Roman, Greek, Egyptian, Chinese, Prussian, and other great empires were built on international trade. Columbus encountered the Americas for Queen Isabella of Spain when he was trying to establish a trade route to the East Indies across the Atlantic Ocean from Europe. Although international trade has existed for a long time, the volume of international trade exploded after World War II and has continued to reach tremendous levels. This international diversity can be seen all around us. Probably, the watch you wear, the computer you use, the car you drive, or the frying pan you use to prepare breakfast are not produced in the country where you live. The nationalities of products are even obscured as companies become more internationally dispersed. The most famous electric guitar in the world is the Fender Stratocaster. If you go to your local music shop, you will find that Stratocasters vary in cost from $500 to around $3,000. Some of the variation in cost is because of different features and model names. However, closer inspection to the headstock will show that much of the price variation has to do with where the guitar is produced. Fender Stratocasters can be produced in Japan, Mexico, Korea, and the United States. You might wonder which nationality of Fender Stratocaster garners the highest price on the free market. The result might surprise you. American-made Stratocasters are the highest priced and the most coveted by guitar players.The Japanese models are judged by most guitarists to be of inferior quality. The Mexican and Korean guitars generally are considered beginner’s guitars—not for the serious musician. However, the perceived quality might not match the reality. Certainly, for many products, Japanese, European, Chinese, or other nations may be the preferred source. The task of managing quality is affected by this increased globalization. This chapter discusses the opportunities and obstacles created by globalization. The differences between regions of the world also include discussions of various quality approaches that have been developed in those regions and the awards that act as quality barometers within each.
ISBN: 0-558-12999-4

MANAGING QUALITY FOR THE MULTINATIONAL FIRM (MNF)
Firms must cope with more diversity now than in the past. One of the causes of this diversity challenge has been the increased emphasis on international trade over the past

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FIGURE 3-1 U.S. Trade 1960–2005
2000
Imports

1500
Exports

1000

$ Billions

500

0

–500
Trade Balance

–1000 1960 1965 1970 1975 1980 Year 1985 1990 1995 2000 2005

SOURCE: U.S. Department of Commerce.

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four decades. This growth in international trade has occurred as companies have sought new markets. Figure 3-1 shows that although the trade deficit has remained relatively constant over time, both imports and exports of products have been increasing steadily. There are a variety of mechanisms that firms use in globalizing. The first is licensing. By licensing, a U.S. corporation can allow foreign firms to sell in restricted markets while using the design of the original designer. Licensing often involves the sale of the same product with another trademark in different countries. Through licensing, firms are able to reach international markets without having to establish international supply chains or marketing arms. Firms also seek international markets through joint ventures or partnering. This agreement is often reached when two firms have technology, products, or access to markets that each other wants. For example, in the 1980s when the Syrian National Petroleum Company desired to exploit a large oil discovery within its own borders, it needed technology to extract the oil. As a result, the Syrian Petroleum Company entered into a partnership with the international firms Deminex, Shell Oil Company (Netherlands), and Pecten International Company (Shell U.S.A.) to profitably explore, extract, and pipe the oil to export to foreign markets. In spite of the fact that Syria represented a serious political risk, the foreign partners did not fear nationalization and

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were willing to enter into the agreement because Syria needed technology, capital, and knowledge that the foreign partners provided. With both licensing and partnering, the risk to the company is loss of proprietary technology. In this case, the Deming attribute of trust is key to a successful working relationship. Another approach to capturing international markets is globalization.The benefits of licensing and partnering were that the exporting firm did not have to globalize to make sales in international markets. However, they did this at the cost of sharing profits with other firms. Globalization means that a firm fundamentally changes the nature of its business by establishing production and marketing facilities in foreign countries. We refer to these firms as multinational corporations. With growing economies in many parts of the world, such as Mexico, Brazil, Eastern Europe, China, and Russia, firms will need to globalize to participate in these markets. However, there are effects of globalization that firms often overlook. By globalizing, firms significantly change the physical environment, the task environment, and the societal environment in which they operate. By changing their physical environment, firms locate themselves near to or far away from natural resources. For example, semiconductor firms requiring large amounts of water probably will not locate in Saudi Arabia or arid parts of Mexico. However, they may locate in one of the Asian countries to be close to ready supplies of water as well as expanding markets. The advantage of saving labor costs is often overemphasized when deciding to change the physical environment. Figure 3-2 shows the fiscal contrast between making an automobile in Mexico and in the United States. It shows that overall, because

FIGURE 3-2 Wages and Costs in Mexico (Average Hourly
Compensation for Manufacturing Workers in U.S. Dollars)

10,000

5,000

0 U.S. The cost of making a car U.S. Parts, components Labor Supply chain costs Inventory Total $7,750 700 300 20 $8,770 Mexico $8,000 140 1,000 40 $9,180 Mexico

ISBN: 0-558-12999-4

SOURCE: Bureau of Labor Statistics, Office of Technology Assessment (1998).

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component costs and supply chain costs are higher in Mexico, the wage savings alone is not sufficient to make automobile production less expensive in Mexico. The task environment of the firm has to do with the operating structure that the firm encounters when globalizing. The economic structures, skills of the employees, compensation structure, technologies, and government agencies all vary when globalizing. The regulatory structures that firms encounter when globalizing require an understanding of international law. Although many view the U.S. government as somewhat regulatory, many times firms find themselves having to deal with very complex regulatory structures when establishing operations in countries such as Germany, Japan, or Spain. Technological choices vary as firms globalize. What works at home may not serve customers adequately abroad. For example, tobacco producers who globalize find that mass-production technologies used in the United States are not flexible enough for the European Economic Community, where regulations concerning tobacco products vary a great deal from country to country. The social environment facing globalizing corporations refers to cultural factors such as language, business customs, customer preferences, and patterns of communication. The cultural factors facing globalizing firms are often the most complex and difficult issues they will encounter. For example, the American businessperson who likes to have breakfast meetings will be frustrated in Spain, where people do not go to work until later in the day. In Brazil, a potential client telling you that he or she will meet you “unless it rains” means the client does not intend to show up at the meeting. To Brazilians, the “unless it rains (se não chouver)” qualifier is a polite way for them to explain that they will not be there. From a quality point of view, the efficiency-minded American way of moving customers through a system may not translate well to South American customers who are used to more personalized service. For example, in a Brazilian pharmacy, the customer goes to one counter to select the product of choice, then to a window to pay for the product, and then to another window to receive the product in pink wrapping paper. Brazilians want their products wrapped so that they do not display their personal goods in public. As shown in Figure 3-3, physical, task, and social environments have implications for the choices made in improving quality, particularly in the area of quality management. Differences in the physical, task, and social variables all add to the complexity and

FIGURE 3-3 Global Factors That Affect QualityRelated Decisions.

Physical Environment

Task Environment

Quality Management

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Social Environment

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TABLE 3-1 U.S. Patent Applications (2003)
Rank Company (Country) No. of Patents

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

IBM (U.S.A.) Canon (Japan) Hitachi (Japan) Matsushita (Japan) Hewlett Packard (U.S.A.) Micron (U.S.A.) Intel (U.S.A.) Philips (Netherlands) Samsung (Korea) Sony (Japan) Fujitsu (Japan) Mitsubishi (Japan) Toshiba (Japan) NEC (Japan) GE (U.S.A.) AMD (U.S.A.) Fuji (Japan)

3,415 1,992 1,893 1,786 1,759 1,707 1,592 1,353 1,313 1,311 1,302 1,243 1,184 1,181 1,139 905 804

SOURCE: U.S. Patent and Trademark Office, 2004.

variability that firms experience. Therefore, there is significant tension between a need for standardization/high central control and loss of control because of decentralization. Market diversity drives the need for culture-specific research and development (R&D). Although this can be true within a nation that is culturally diverse, such as the United States, it is especially true on the global front. There are few products, such as Coca-Cola, that translate well across different cultural horizons. Many companies must adapt their products to the preferences of the markets they are serving. This greatly increases the complexity of international marketing and R&D. For example, in some European countries, McDonald’s sells wine with their meals because it is the European habit to drink wine with meals. Often globalized firms also must apply for patents in different places in the world to protect their domestic patents. Patent applications are an important indicator of R&D productivity. As shown in Table 3-1, only 4 of the top 12 applicants for patents in the United States in 2003 were American companies. Six of the other companies were Japanese, one was Korean, and one was from the Netherlands. Quality Highlight 3-1 shows how one company has adapted its supply chain practice to provide high-quality service on a worldwide basis. Another means of entering international markets is not to globalize but to become an exporter. Exporters produce their products and ship them internationally, incurring high shipping costs but avoiding many of the problems, such as loss of control associated with globalization, that have been discussed so far. However, success on a multinational scale may be more difficult to attain for exporters because they never develop the marketing expertise and logistical capabilities associated with entering foreign markets. Many times pure exporters are subject to limitations that resident companies do not have in terms of import tariffs and import restrictions. For example, Kodak U.S.A. exporting film into Brazil will have to pay a tariff equal to three times its market value. However, Kodak making film in Sao Paulo, Brazil, will pay no import tariffs and enjoy a cost advantage in the market over a company that chooses to export to Brazil. Companies wishing to export to Japan have found it easier to establish partnerships in Japan than to engage in pure exportation. It is very difficult to navigate the complex Japanese marketing structure without partnerships and long experience. This

ISBN: 0-558-12999-4

Managing Quality: Integrating the Supply Chain, Third Edition, by S. Thomas Foster. Published by Prentice Hall. Copyright © 2007 by Pearson Education, Inc.

CHAPTER 3 Global Supply Chain Quality and International Quality Standards
QUALITY HIGHLIGHT 3-1

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SUPPLY CHAIN QUALITY IN THE GLOBAL CONTEXT www.national.com National Semiconductor (NSC), of Santa Clara, California, has sought advantage by sourcing its output all over the world. These sourcing firms represent partnerships that NSC has developed around the globe. However, dealing with a global network of partners can be difficult. Because of the global nature of its distribution, 40% of NSC’s order-to-delivery cycle was taken up with distribution and supply chain processes. Today, customers need much faster response times. So NSC resorted to globalized logistics. However, the company’s logistical system was poorly suited to the demands of globalized logistics. The company’s network was a tangle of unnecessary interchanges, propped up by 44 different international freight forwarders and 18 different air carriers. What NSC realized was that its primary competence was making semiconductors. It was not adept in the logistics of transporting them. To compensate for the poorly developed logistics systems, NSC maintained “just-in-case” inventory centers around the world. In the existing system, delivery could vary from 5 to 18 days.This was too much variation and made NSC unresponsive to customer requirements because of the poor response times. After analyzing the supply chain marketplace, NSC decided to partner with Business Logistics Service, a subsidiary of Federal Express. Because logistics was not the primary competence of NSC, Federal Express could provide the support needed for NSC to improve its customer service. Therefore, the partnership lowered costs for NSC and provided income for Federal Express. This was important because with semiconductors the time from production to purchase can be three times faster than for other products. Therefore, a repeatable, reliable distribution system was needed to meet customer requirements for dependable delivery.

often involves ceding partial ownership of the firm to Japanese partners to obtain access to complicated distribution networks.1 Another issue with exporting is that the United States developed a negative quality image during the 1970s and 1980s. This image improved greatly in the 1990s as America reached quality levels similar to Japan’s in many markets. Research by Macy, Foster, and Barringer2 shows that quality still is a significant factor in helping U.S. exporters achieve success. Figure 3-4 shows an empirically derived model for quality-based success for exporting companies. In this model, it is shown that firms that are characteristically entrepreneurial in nature and that plan their exports effectively tend to have higher quality. For exporting firms, quality leads to lower price and greater export success. Although there are a variety of means for entering the global market, one thing is certain: The global market is a reality that must be addressed. Gibson Guitar in Bozeman, Montana, does not operate in a vacuum. Besides exporting guitars overseas, they must produce products that meet international standards of quality or they will not be able to sell their guitars—even in Bozeman. Through local vendors or by Internet order, Bozeman guitarists can buy many quality guitars that are made by Takamine, Yamaha, Ibanez, or other high-quality foreign companies that are competing in the local market.
ISBN: 0-558-12999-4

1Abegglen, J., and Stalk, G., Kaisha, The Japanese Corporation (New York: Basic Books, 1985). 2Barringer, B., Foster, S., and Macy, G., “The Role of Quality in Determining Export Success,” Quality

Management Journal 6, 4 (1999):55–70.

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FIGURE 3-4 Export Quality Model
Firm Characteristics Product Strategy Low Price Entrepreneurship High Quality Export Planning Standardization Export Success Performance

Promotion
SOURCE: B. Barringer, S. Foster, and G. Macy, “The Role of Quality in Determining Export Success,” Quality Mangement Journal 6, 4 (1999):64.

Next we continue the theme of integrative quality by exploring quality improvement within U.S., Japanese, and European contexts.

QUALITY IMPROVEMENT: THE AMERICAN WAY
America has been called the birthplace of modern quality management because it is home to Shewhart, Deming, Juran, and others. The U.S. military also was an early adopter of many quality techniques. Originally, the main interest in quality in the United States was in the application of statistics to solve quality problems. In recent years, the approach has become much more behavioral as teams and other approaches have been applied. We begin by discussing a very important model for quality management in the United States, the Malcolm Baldrige National Quality Award.

THE MALCOLM BALDRIGE NATIONAL QUALITY AWARD
At the end of Chapter 2 we discussed several operational variables that should be addressed in assessing our future directions for quality improvement. The power of these variables is that they focus management on systemic issues rather than the tactical, day-to-day problems. However, management needs a means for assessing the approaches it has employed to improve operating performance. One of the most powerful self-assessment mechanisms is the Malcolm Baldrige National Quality Award (MBNQA)(Figure 3-5). The success of the Baldrige award in the United States has influenced international practice and has formed the basis for several international awards.

ISBN: 0-558-12999-4

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FIGURE 3-5 Baldrige Award

The MBNQA process is open to small (less than 500 employees) and large firms (more than 500 employees) in the manufacturing, health care, education, and service sectors. The MBNQA is not open to public-sector and not-for-profit organizations. However, there are other quality-related options available to these organizations, such as the Senate Quality Recognition, the President’s Award, and various state quality awards that are based on the Baldrige. Thus, although the award itself is not available to all organizations, the criteria are available for assessment under a variety of different mechanisms. There can be only two winners, by category, for a given year. This limits the number of potential winners to six per year in the business category. However, the number of winners always has been less than six. Some of the key characteristics of the quality award include the following attributes: • The criteria focus on business results. Companies must show outstanding results in areas such as financial performance, customer satisfaction, customer retention, product performance, service performance, productivity, supplier performance, and public citizenship. In order to win the award, applicants must show that they consistently have performance levels at best-in-class and best-ofthe-best. Business results for the Baldrige winner must be exemplary and set the standard for the rest of the country. The importance of business results is reflected in the scoring of the Baldrige. The weight for results has ranged from 25% to 45% of the total score. The reason for the emphasis on results has to do with two related factors. It is quite embarrassing if a Baldrige winner has financial trouble, and the Baldrige winner must be able to serve as a role model

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to other firms. The ability to serve as a role model is enhanced by strong business results. • The Baldrige criteria are nonprescriptive and adaptable. Although the focus of the Baldrige is on results, the means for obtaining these results are not prescribed. Therefore, the criteria are not tactically prescriptive. For example, the criteria do not specify which tools, techniques, or organization a company should use to improve. However, at the strategic level, the Baldrige criteria can be viewed as prescriptive. In explanation, a company that does not gather data from its customers, or a company that does not have an effective benchmarking program, will not be Baldrige-qualified. Therefore, the core values and key characteristics of the Baldrige criteria can be viewed as strategically prescriptive. • The criteria support company-wide alignment of goals and processes. Once organizational strategy is formulated, connecting and reinforcing measures are developed that support and monitor strategic outcomes. Measures aid in alignment and ensure consistency of purpose while supporting innovation. Alignment between strategic goals and operational subplans helps foster a learning-based system. • The criteria permit goal-based diagnosis. The criteria and scoring guidelines provide assessment dimensions. These are approach, deployment, and results. The approach defines the method or system for addressing a particular performance objective. Deployment implies that the approach has been implemented in the organization. Results show the outcomes of the approach and deployment. By assessing approach, deployment, and results in several areas, firms are able to assess their current strengths and areas for improvement. Once areas for improvement are identified, these can be prioritized and tackled one by one. The model for the MBNQA consists of seven interrelated categories that compose the organizational system for performance. As shown in Figure 3-6, the seven categories are leadership; strategic planning; customer and market knowledge; measurement, analysis, and knowledge management; human resource focus; process management; and business results. Notice that the basis of the Baldrige model is information and analysis. This confirms the core value of management by fact. Business results are also highlighted, reinforcing the results orientation of the Baldrige framework and criteria. Each of these seven major categories is divided into items and areas to address.The items are denoted by a decimal number, such as 1.1, 2.2, and so on. The areas are given a letter, such as 1.1.a, 2.2.b, and so forth. The number of items and areas varies from year to year because the award criteria are constantly updated by the Baldrige staff, examiners, and judges.3 Category 1 (Table 3-2) shows the award criteria for leadership. This category is used to evaluate the extent to which top management is personally involved in creating and reinforcing goals, values, directions, customer involvement, and a variety of other issues. Within category 1, the applicant outlines what the firm is doing to fulfill its
ISBN: 0-558-12999-4

3-2 through 3-9 contain Baldrige verbiage. The complete Baldrige criteria can be downloaded for free from www.NIST.gov.

3Tables

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FIGURE 3-6 Baldrige Award Framework
Organizational Profile: Environment, Relationships, and Challenges

2 Strategic planning

5 Human resource focus 7 Business results

1 Leadership

3 Customer and market knowledge

6 Process management

4 Measurement, analysis, and knowledge management
SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2005 Criteria for Performance Excellence, 2005

TABLE 3-2 Baldrige Category 1
Leadership (120 pts.)

The Leadership Category examines HOW your organization’s SENIOR LEADERS guide and sustain your organization. Also examined are your organization’s GOVERNANCE and HOW your organization addresses its ethical, legal, and community responsibilities. 1.1 Senior Leadership (70 pts.) Describe HOW SENIOR LEADERS guide and sustain your organization. Describe SENIOR LEADERS communicate with employees and encourage high PERFORMANCE. a. VISION and VALUES b. Communication and Organizational PERFORMANCE
HOW

1.2

Governance and Social Responsibilities (50 pts.) Describe your organization’s GOVERNANCE system. Describe HOW your organization addresses its responsibilities to the public, ensures ETHICAL BEHAVIOR, and practices good citizenship. a. Organizational GOVERNANCE b. Legal and ETHICAL BEHAVIOR c. Support of KEY Communities

ISBN: 0-558-12999-4

SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2006 Criteria for Performance Excellence, 2006.

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TABLE 3-3 Baldrige Category 2
Strategic Planning (85 pts.)

The Strategic Planning Category examines HOW your organization develops STRATEGIC OBJECTIVES and ACTION PLANS. Also examined are HOW your chosen STRATEGIC OBJECTIVES and ACTION PLANS are deployed and changed if circumstances require, and HOW progress is measured. 2.1 Strategy Development (40 pts.) Describe HOW your organization establishes its strategy and STRATEGIC OBJECTIVES including HOW you address your STRATEGIC CHALLENGES. Summarize your organization’s KEY STRATEGIC OBJECTIVES and their related GOALS. a. Strategy Development PROCESS b. STRATEGIC OBJECTIVES Strategy Deployment (45 pts.) Describe HOW your organization converts its STRATEGIC OBJECTIVES into ACTION PLANS. Summarize your organization’s ACTION PLANS and related KEY PERFORMANCE MEASURES or INDICATORS. Project your organization’s future PERFORMANCE on these KEY PERFORMANCE MEASURES or INDICATORS. a. ACTION PLAN Development and DEPLOYMENT b. PERFORMANCE PROJECTION

2.2

SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2006 Criteria for Performance Excellence, 2006.

responsibility as a corporate citizen. Included with corporate citizenship is a documentation of measures and facts relating to how the company responds to its regulatory environment. Category 2 (Table 3-3) focuses on how the company establishes strategic directions and how it sets its tactical action plans to implement the strategic plans. In addressing how the company establishes strategic direction, the applicant should outline methods, measures, deployment, and evaluation/improvement factors relating to establishing strategic plans. Item 2.1 focuses on strategy development, taking into account customers, competition, risks, capabilities, and suppliers. Item 2.2 asks for the applicant to identify the company’s strategy and action plans and how they are deployed. Item 2.2 addresses how strategy is formulated relating to employees and human resources. Category 3 (Table 3-4) addresses the customer and market knowledge. To be successful in serving the customer, firms must understand the product and service attributes that are important to the customer. This is documented as well as how the firm assesses the relative importance of product or service features. The processes for listening to and learning from customers and markets also must be evaluated, improved, and kept current with changing business needs. If customers are satisfied, they often become loyal customers. Think of where you shop for groceries. You are not likely to shop at different stores each time. If you find a grocer with a convenient location, good stock, reasonable prices, and good service, you become a loyal customer. To engender this loyalty, firms must demonstrate that they have systems in place for determining customer contact requirements and for communicating these requirements to employees so that they can provide satisfactory service. Companies also must demonstrate processes that are effective in capturing and managing customer complaints. Complaints must be resolved promptly according to

ISBN: 0-558-12999-4

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TABLE 3-4 Baldrige Category 3
Customer and Market Focus (85 pts.)

The CUSTOMER and Market Focus Category examines HOW your organization determines the requirements, expectations, and preferences of CUSTOMERS and markets. Also examined is HOW your organization builds relationships with CUSTOMERS and determines the KEY factors that lead to CUSTOMER acquisition, satisfaction, loyalty and retention, and to business expansion and SUSTAINABILITY. 3.1
CUSTOMER and Market Knowledge (40 pts.) Describe HOW your organization determines requirements, expectations, and preferences of CUSTOMERS and markets to ensure the continuing relevance of your products and ser-

vices and to develop new opportunities. a. CUSTOMER and Market Knowledge 3.2 Customer Relationships and Satisfaction (45 pts.) Describe HOW your organization builds relationships to acquire, satisfy, and retain CUSTOMERS; to increase CUSTOMER loyalty; and to develop new opportunities. Describe also HOW your organization determines CUSTOMER satisfaction. a. CUSTOMER Relationship Building b. CUSTOMER Satisfaction Determination

SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2006 Criteria for Performance Excellence, 2006.

ISBN: 0-558-12999-4

best-in-industry standards. Complaint data, once captured, are aggregated and analyzed for use in improving customer service processes. Notice only approach and deployment are documented in Category 3. In improving customer satisfaction, the firm must have a system for gathering and analyzing customer satisfaction data. In order to score high, the company will have continually improved the processes for gathering, analyzing, and deploying customer service information. Additionally, this information will be used for process and service improvement. Category 4 (Table 3-5), measurement analysis, and knowledge management, relates to the firm’s selection, management, and use of information to support company processes and to improve firm performance. These data include both financial information, such as sales, assets, and liabilities, and nonfinancial data, such as operating measures of quality, productivity, and speed of response to customer requests. These measures are only introduced at this point; no results are provided. The applicant then describes how these measures are integrated into an information system that can be used to track and improve company performance. Once data and measures are tracked in an information system, people must deploy the data to ensure that company goals and objectives are being achieved. Robust processes for improving the data should be described. Category 5 (Table 3-6) deals with the human resource focus. The workforce is to be enabled to develop and use its full potential, aligned with company objectives. This involves developing an internal environment conducive to full participation and personal growth, including human resources development. This initiative is directed toward process and performance improvement. Employees must be empowered to understand and respond to changes in customer needs and requirements. To facilitate this learning, skill sharing and open communication with employees are necessary to provide a cohesive work system. Finally, the applicant outlines the systems in place that provide compensation and recognition.

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TABLE 3-5 Baldrige Category 4
Measurement, Analysis, and Knowledge Management (90 pts.)

The Measurement, Analysis, and Knowledge Management Category examines HOW your organization selects, gathers, analyzes, manages, and improves its data, information, and KNOWLEDGE ASSETS. Also examined is HOW your organization reviews its performance. 4.1 Measurement, Analysis, and Review of Organizational Performance (45 pts.) Describe HOW your organization measures, analyzes, aligns, reviews, and improves its PERFORMANCE at all LEVELS and in all parts of your organization. a. PERFORMANCE Measurement b. PERFORMANCE ANALYSIS and Review Information and Knowledge Management (45 pts.) Describe HOW your organization ensures the quality and availability of needed data and information for employees, suppliers and PARTNERS, and CUSTOMERS. Describe HOW your organization builds and manages its KNOWLEDGE ASSETS. a. Data and Information Availability b. Organizational Knowledge Management c. Data, Information, and Knowledge Quality

4.2

SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2006 Criteria for Performance Excellence, 2006.

TABLE 3-6 Baldrige Category 5
Human Resource Focus (85 pts.)

The Human Resource Focus Category examines HOW your organization’s WORK SYSTEMS and your employee LEARNING and motivation enable employees to develop and utilize their full potential in ALIGNMENT with your organization’s overall objectives, strategy, and ACTION PLANS. Also examined are your organization’s efforts to build and maintain a work environment and employee support climate conducive to PERFORMANCE EXCELLENCE and to personal and organizational growth. 5.1 Work Systems (35 pts.) Describe HOW your organization’s work and jobs enable employees and the organization to achieve HIGH PERFORMANCE. Describe HOW compensation, career progression, and related workforce practices enable employees and the organization to achieve HIGH PERFORMANCE. a. Organization and Management of Work b. Employee PERFORMANCE Management System c. Hiring and Career Progression Employee Learning and Motivation (25 pts.) Describe HOW your organization’s employee education, training, and career development support the achievement of your overall objectives and contribute to HIGH PERFORMANCE. Describe HOW your organization’s education, training, and career development build employee knowledge, skills, and capabilities. a. Employee Education, Training, and Development b. Motivation and Career Development Employee Well-Being and Satisfaction (25 pts.) Describe HOW your organization maintains a work environment and an employee support climate that contribute to the well-being, satisfaction, and motivation of all employees. a. Work Environment b. Employee Support and Satisfaction

5.2

5.3

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SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2006 Criteria for Performance Excellence, 2006.

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The Baldrige criteria promote the ethic of developing employees through learning. The training must support key performance plans and needs by developing employees for the long term. Systems for designing education and training must be continually improved. Finally, assessment of the value of training versus the cost is an important attribute to be included in the application. Employee well-being and satisfaction are important attributes of a high-performance work environment. The process for developing and maintaining a healthy and safe work environment is documented in area 5.3.a. Key factors and measures must be in place to monitor the efficacy of these processes. Employee support services and understanding of the key factors that influence employee satisfaction are included in the item. Category 6 (Table 3-7) examines the key aspects of process management. These aspects include customer focus in design, delivery process design for services and products, support processes, and processes relating to partners. The design of products must be changed and upgraded to reflect changes in customer requirements and technology. Systems are outlined that measure and assess these changes in requirements. Once products are designed, production and logistical processes also must be designed to meet quality and operational objectives. The mark of a successful design process is the trouble-free introduction of products and services. This is a result of careful attention to design and experience with product and service introduction. Once products and processes are designed, there needs to be a means for gathering data and evaluating whether the products and services meet the customer’s expectations. This information can be used to achieve better performance, and it can be fed back into the design process to improve existing products and services. Item 6.2 relates to the management of support processes. Performance feedback is given to support personnel to aid them in improving processes. Category 7 (Table 3-8) documents the results of the other six categories and requires a series of tables and graphs that demonstrate the operational and business results of the firm. Although all the information provided by the applicant is considered by Baldrige examiners to be highly sensitive, Category 7 is often considered the

TABLE 3-7 Baldrige Category 6
Process Management (85 pts.)

The Process Management Category examines the KEY aspects of your organization’s PROCESS management, KEY product service, and business PROCESSES for creating CUSTOMER and organizational VALUE and KEY support PROCESSES. This Category encompasses all KEY PROCESSES and all work units. 6.1 Value Creation Processes (45 pts.) Describe HOW your organization identifies and manages its KEY CUSTOMER VALUE and achieving business success and growth. a. VALUE CREATION PROCESSES
PROCESSES

for creating

6.2

ISBN: 0-558-12999-4

Support Processes and Operational Planning (40 pts.) Describe HOW your organization manages its KEY PROCESSES that support your VALUE CREATION PROCESSES. Describe your PROCESSES for financial management and continuity of operations in an emergency. a. Support PROCESSES b. Operational Planning

SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2006 Criteria for Performance Excellence, 2006.

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TABLE 3-8 Baldrige Category 7
Business Results (450 pts.)

The Business Results Category examines your organization’s PERFORMANCE and improvement in KEY business areas— product and service outcomes, CUSTOMER satisfaction, financial and marketplace PERFORMANCE, human resource RESULTS, operational PERFORMANCE and leadership and social responsibility. PERFORMANCE LEVELS are examined relative to those of competitors. 7.1 Product and Service Outcomes (100 pts.) Summarize your organization’s KEY product and service PERFORMANCE RESULTS. SEGMENT your RESULTS by product and service types and groups, CUSTOMER groups, and market SEGMENTS, as appropriate. Include appropriate comparative data. a. Product and Service Results Customer-Focused Results (70 pts.) Summarize your organization’s KEY CUSTOMER-focused RESULTS, including CUSTOMER satisfaction and CUSTOMERperceived VALUE. SEGMENT your RESULTS by product and service types and groups, CUSTOMER groups, and market SEGMENTS as appropriate. Include appropriate comparative data. a. CUSTOMER-Focused Results Financial and Market Results (70 pts.) Summarize your organization’s KEY financial and marketplace PERFORMANCE SEGMENTS, as appropriate. Include appropriate comparative data. a. Financial and Market Results
RESULTS

7.2

7.3

by

CUSTOMER

or market

7.4

Human Resource Results (70 pts.) Summarize your organization’s KEY human resource RESULTS, including WORK SYSTEM PERFORMANCE and employee LEARNING, development, well-being, and satisfaction. SEGMENT your RESULTS to address the DIVERSITY of your workforce and the different types and categories of employees, as appropriate. Include appropriate comparative data. a. Human Resource Results Organizational Effectiveness Results (70 pts.) Summarize your organization’s KEY operational PERFORMANCE RESULTS that contribute to the improvement of organizational effectiveness. SEGMENT your RESULTS by product and service types and groups and by market SEGMENTS, as appropriate. Include appropriate comparative data. a. Organizational Effectiveness Results Leadership and Social Responsibility Results (70 pts.) Summarize your organization’s KEY GOVERNANCE, SENIOR LEADERSHIP, and social responsibility RESULTS, including evidence of ETHICAL BEHAVIOR, fiscal accountability, legal compliance, and organizational citizenship. SEGMENT your RESULTS by business units, as appropriate. Include appropriate comparative data. a. Leadership and Social Responsibility Results

7.5

7.6

SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2006 Criteria for Performance Excellence, 2006.

most sensitive by the applicant. For example, because reporting requirements are less exacting for privately held firms, many of the results reported are proprietary. In spite of this, if a firm wishes to qualify for a site visit, the requested information must be made available to the examiners. Since we have discussed the MBNQA, you might be interested to know who Malcolm Baldrige was. A Closer Look at Quality 3-1 gives some details about his life.

The Baldrige Process
For the firm applying for the Baldrige award, the first step is eligibility determination. Because the Baldrige pertains only to for-profit firms chartered in the United States, eligibility must first be determined by mailing an eligibility determination form to the National Institute of Standards and Technology (NIST). Once eligibility is established, the applicant sends the completed application to NIST. The application is then
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WHO WAS MALCOLM BALDRIGE?
Howard Malcolm Baldrige was the U.S. secretary of commerce from 1980 to 1987. He died while in office, doing what he loved best. He was riding his horse, practicing for the calf-roping event in a California rodeo, when the horse fell and fatally injured its rider. Secretary Baldrige was 64. The competitive spirit that spurred Secretary Baldrige to win rodeo events characterized his life.A graduate of Yale University, he entered the army just prior to World War II and quickly rose through the ranks. After the war, he took a job as a supervisor in a small Connecticut foundry. His business career was marked by much success. Toward the end of his career, he led a turnaround effort at Scovill Corporation in Waterbury, Connecticut, based on a steadfast commitment to quality and customer service. Baldrige believed in good government and was active in politics. His political activity, along with his passion for quality and reputation as a quality leader, led to his appointment as the secretary of commerce in 1980. As secretary of commerce, his top priority was strengthening American industry’s ability to compete successfully in international markets. He believed that the role of the U.S. government was to establish fair trade practices and that the role of private industry was to improve its technology and gain a global reputation for quality products and services. The Baldrige award was a great tribute to Malcolm Baldrige. Some of the participants in the Baldrige application process have been passionate about the value of the program. Following are two quotations that illustrate this point:
In my opinion, win or lose, the greatest value in applying for the Baldrige award is the feedback report compiled by the examiners. This objective evaluation prepared by a team of well-trained, hard working experts provided the information and focus necessary for us to cause positive changes in our organization. —Henry A. Bradshaw Armstrong Building Products Participating in the Baldrige process energized improvement efforts. The energy resulted from the team motivation that occurs when pursuing a common goal. That trend has continued. We have reduced the number of in-process defects to only one-tenth what they were at the time we won the Baldrige. —Phil Roether Texas Instruments

The legacy of Malcolm Baldrige lives on in the benefits derived from the recipients and observers of the Malcolm Baldrige National Quality Award competition. Much can be learned about quality by becoming a keen observer of the companies that win the coveted award.

ISBN: 0-558-12999-4

subjected to first-round review by Baldrige examiners. During this review, examiners read and score the applications. Judges then review the scoring to determine which applicants will continue to consensus. During the consensus phase, between five and eight examiners who have scored the application participate in a conference call to determine a consensus score for each of the scoring items. Once consensus is reached, judges receive a consensus report from the senior examiner leading the examiner team. Judges then make a site-visit determination. At this point, applicants scoring sufficiently high are granted a site visit. In the past, simply the granting of a Baldrige site visit has been cited as evidence of high-quality processes. These firms sometimes refer to themselves as “Baldrige qualified.” The site visit consists of a team of four to six examiners visiting a company over a period not to exceed one week. Typically, the site visit consists of two to three days at the company site and another two days in the hotel to prepare the site-visit reports for

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the Baldrige judges. These reports show the results of the site visit. The purpose of the site visit is to verify and clarify those portions of the Baldrige application having the greatest impact on the judges’ scores. During the first round of scoring, examiners identify strengths, areas for improvement, and site-visit issues. Prior to the site visit, the site-visit team reviews and prioritizes the site-visit issues. Members of the site-visit team then assign responsibilities to team members to complete during the site-visit. After these assignments are complete, the examiners finish their reports while on the site visit. The results are transmitted for use by the judges in final determination of a winner. One of the most important outcomes of the Baldrige process is examiner feedback to applicant companies. As shown in Figure 3-7, feedback reports are provided to the applicants as part of the assessment process. Many firms have found these comments helpful in identifying gaps in deployment in their improvement processes. As the Baldrige process has matured and become more focused on overall company performance, the feedback reports have become more useful for improving overall management of processes and systems. The feedback report is one of the major benefits of the Baldrige process. The feedback report includes • The scoring summary, which is a synthesis of the most important strengths and areas for improvement for each of the seven Baldrige categories. • The individual scoring range, which provides a 20-point scoring range (e.g., item 2.1: 40%–60%). This gives insight concerning the relative areas of strength and areas that need improvement. • The scoring distribution, which provides the percentage of applicants for a particular year that scored in each of the eight scoring bands. • The examiner comments, which give feedback concerning the organization. These are created from actual examiner comments and are the meat of the feedback report.

Baldrige Scoring
The Baldrige applications are scored with supporting written guidelines. These guidelines are provided in Table 3-9. One of the unique attributes of Baldrige scoring is the 50% anchor. For an approach and deployment (A&D) item to score 50%, there must be a sound, systematic approach that is responsive to the overall purposes of the item. There also must be fact-based improvement processes in place in key areas, with emphasis on improvement rather than reaction to problems. Also, the approach is well deployed, though some areas or work units may be in very early stages of deployment. Translated, this means that a firm must have an approach that addresses all the aspects of the item, and the approaches must be deployed. This means that if you are doing everything according to the Baldrige criteria, you will score 50%. To score in the higher scoring bands, you must demonstrate in the application not only that you have all the major aspects of a quality system, but the quality system also must have been refined and improved over an extended period of time. Quality Highlight 3-2 shows how Clarke American Checks, Inc., won the Baldrige award by improving and refining its processes.

Being a Baldrige Examiner
ISBN: 0-558-12999-4

Appointment to the board of examiners for the Malcolm Baldrige National Quality Award is a very prestigious designation. In recent years, the board of examiners has consisted of between 200 and 300 members from across the United States. Examiners

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FIGURE 3-7 Baldrige Process
Evaluation Process Receive applications

Stage 1 Independent review

Select for consensus review? Judges Yes Stage 2 Consensus review

No

Feedback report to applicant

Select for site visit? Judges Yes Stage 3 Site visit review

No

Feedback report to applicant

Review and recommend winners Judges Yes Feedback Report

No

Feedback report to applicant

SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2006. Criteria for Performance Excellence, 2006.

ISBN: 0-558-12999-4

for the board of examiners come from a variety of fields. There are CEOs, academics, physicians, quality specialists, consultants, and retirees. However, all these people have one thing in common: They are committed to the core values of the Baldrige award. They demonstrate this commitment by being willing to give up approximately 10% of their year to serve on the board with no compensation. Besides scoring applications, examiners are asked to write training cases, update the criteria, and help to improve the Baldrige process.The examiners are expected to exhibit the highest professionalism,

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TABLE 3-9 Baldrige’s Scoring Guidelines
SCORE PROCESS

• No SYSTEMATIC APPROACH is evident; information is ANECDOTAL (A) • Little or no DEPLOYMENT of an APPROACH is evident. (D) • An improvement orientation is not evident; improvement is achieved through reacting to problems. (L) • No organizational ALIGNMENT is evident; individual areas or work units operate independently. (I) 10%,15%, • The beginning of a SYSTEMATIC APPROACH to the BASIC REQUIREMENTS of the Item is evident. (A) 20%, or 25% • The APPROACH is in the early stages of DEPLOYMENT in most areas or work units, inhibiting progress in achieving the BASIC REQUIREMENTS of the Item. (D) • Early stages of a transition from reacting to problems to a general improvement orientation are evident. (L) • The APPROACH is ALIGNED with other areas or work units largely through joint problem solving. (I) 30%, 35%, • An EFFECTIVE, SYSTEMATIC APPROACH, responsive to the BASIC REQUIREMENTS of the Item, is 40%, or 45% evident. (A) • The APPROACH is DEPLOYED, although some areas or work units are in early stages of DEPLOYMENT. (D) • The beginning of a SYSTEMATIC APPROACH to evaluation and improvement of KEY PROCESSES, is evident. (L) • The APPROACH is in early stages of ALIGNMENT with your basic organizational needs identified in response to the other Criteria Categories. (I) 50%, 55%, • An EFFECTIVE, SYSTEMATIC APPROACH, responsive to the OVERALL REQUIREMENTS of the Item, 60%, or 65% is evident. (A) • The APPROACH is well DEPLOYED, although DEPLOYMENT may vary in some areas or work units. (D) • A fact-based, SYSTEMATIC evaluation and improvement PROCESS and some organizational LEARNING are in place for improving the efficiency and effectiveness of KEY PROCESSES. (L) • The APPROACH is ALIGNED with your organizational needs identified in response to the other Criteria Categories. (I) 70%, 75%, • An EFFECTIVE, SYSTEMATIC APPROACH, responsive to the MULTIPLE REQUIREMENTS of the Item, 80%, or 85% is evident. (A) • The APPROACH is well DEPLOYED, with no significant gaps. (D) • Fact-based, SYSTEMATIC evaluation and improvement and organizational LEARNING are KEY management tools; there is clear evidence of refinement and INNOVATION as a result of organizational-level ANALYSIS and sharing. (L) • The APPROACH is well INTEGRATED with your organizational needs identified in reponse to the other Criteria Items. (I) 90%, 95%, or 100% • An EFFECTIVE, SYSTEMATIC APPROACH, fully responsive to the MULTIPLE REQUIREMENTS of the Item, is evident. (A) • The APPROACH is fully DEPLOYED without significant weaknesses or gaps in any areas or work units. (D) • Fact-based, SYSTEMATIC evaluation and improvement and organizational LEARNING are KEY organization-wide tools; refinement and INNOVATION, backed by ANALYSIS and sharing, are evident throughout the organization. (L) • The APPROACH is well INTEGRATED with your organizational needs identified in response to the other Criteria Items. (I).
SOURCE: Foundation for the Malcolm Baldrige National Quality Award, 2006 Criteria for Performance Excellence, 2006.

0% or 5%

maintain absolute confidentiality, and be prompt and organized in responding to the requirements of the position. The strictest standards to avoid conflict of interests are maintained by examiners. Examiners must divulge all their investments to NIST. They also must document for whom they have worked or consulted and who the major competitors, suppliers, and customers are for their present and former employers. This conflict-of-interest information is used by NIST to assign examiners to applicants.

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CLARKE AMERICAN CHECKS, INC. www.clarkeamerican.com An example of a firm that won the Baldrige award is Clarke American Checks of San Antonio, Texas. Clarke American supplies personalized checks, checking-account and bill-paying accessories, financial forms, and a growing portfolio of services to more than 4,000 financial institutions in the United States. Founded in 1874, the company employs over 3,000 people in 15 states. In addition to filling more than 50 million personalized check and deposit orders every year, Clarke American provides 24-hour service and handles more than 11 million calls annually. Clarke American competes in an industry that has undergone massive consolidation. Three major competitors have 95% market share and vie for the $1.8 billion U.S. market for check-printing services supplied to financial institutions. The company is organized into a customerfocused matrix of 3 divisions and 11 processes. It is in a nearly continual state of organizational redesign, reflecting ever more refined segmentation of its partners and efforts to better align with these customers’ requirements and future needs. In the early 1990s, when an excess manufacturing capacity in check printing triggered aggressive price competition, Clarke American elected to distinguish itself through service. Company leaders made an all-out commitment to ramp up the firm’s “First in Service” (FIS) approach to business excellence. Comprehensive in scope and systematic in execution, the FIS approach defines how Clarke American conducts business and how all company associates are expected to act to fulfill the company’s commitment to superior service and quality performance. FIS is the foundation and driving force behind the company’s continuous improvement initiatives. It aligns Clarke American’s goals and actions with the goals of its partners and the customers of these financial institutions. The company uses this singleminded organizational focus to accomplish strategic goals and objectives. The company’s key leadership team (KLT)— consisting of top executives, general managers of business divisions, and vice presidents of processes— establishes, communicates, and deploys values, direction, and performance expectations. Leadership responsibilities go beyond task performance. KLT members are expected to be role models who demonstrate commitment and passion for performance excellence. Each year, associates evaluate the competencies of executives and general managers in 10 important leadership areas. Senior leaders also keep a scorecard to track their progress in implementing company strategies and in demonstrating key behaviors, a tool adopted from a previous Baldrige award winner. Goals, plans, processes, measures, and other vital elements of performance improvement are clearly documented and accessible to all. However, the company also places a premium on two-way, face-to-face communication. For example, KLT members and other senior local management lead monthly FIS meetings in their respective divisions or processes. These 2- to 3-hour meetings are held at all Clarke American facilities, and all associates are expected to attend. Agenda items include competitive updates, reviews of company goals and direction, key-project progress reports, associate and team recognition, and question and answer periods. Strategic and annual planning is tightly integrated through the company’s goal deployment process. Ambitious long-term (3 to 5 years) business goals help to guide the development of shortterm (1 to 3 years) objectives and the selection of priority projects necessary to accomplish them. From orientation and onward, associates are steeped in the company’s culture and values: customer first, integrity and mutual respect, knowledge sharing, measurement, quality workplace, recognition, responsiveness, and teamwork. And they are schooled regularly in the application of standardized quality tools, performance measurement, use of new technology, team disciplines, and specialized skills. Work teams and improvement teams carry out efforts to attain operational improvements spelled out in “run the business” goals. Cross-functional Continued

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project teams attend to “change the business” initiatives. Sharing of knowledge across teams, a company value, is facilitated through systematic processes. In the last decade, Clarke American has invested substantially in new technology, using it to improve performance and to deepen relationships with partners through its offerings of customer management solutions. For example, with a major information technology supplier, the company developed digital printing capability that enables it to provide faster and more customized products and services to financial institutions and their customers. New technology has led to major reductions in cycle time and errors, nearly complete elimination of hazardous materials, less waste, and dramatically improved quality. Clarke American, its partners, and its associates are reaping the benefits of these and other

improvements. Company-conducted telephone surveys of partner organizations consistently show a 96% satisfaction rate. Partner loyalty ratings have increased from 41% to 54%. In independent surveys commissioned by the company every 18 months, Clarke American’s customer-satisfaction scores for all three partner segments are trending upward and top those of its major competitors. Among Clarke American associates, overall satisfaction has improved from 72% to 84%, when survey participation reached 98%, comparable to the world-class benchmark. Rising associate satisfaction correlates with the 84% increase in revenue earned per associate in the last decade. Annual growth in company revenues has increased from a rate of 4.2% to 16%, compared with the industry’s average annual growth rate of less than 1% over the last decade.

SOURCE: NIST, Profiles of Baldrige Winners (Gaithersburg, MD: NIST, 2006).

State Awards
In recent years, the number of applicants for the Malcolm Baldrige National Quality Award has decreased. There are numerous reasons for this. A major reason is that applications declined in number once firms realized how difficult it would be to actually win the Baldrige award. Another reason is the existence of state awards. In 2005, more than 1,000 firms in the United States applied for state quality awards. The state awards are important because they give firms a basis to become familiar with the Baldrige process. Many recent winners of the Baldrige award have previously won state awards. A review of the different state award programs reveals three categories of approaches to state awards. The first approach is the full-Baldrige approach. In these states, the Baldrige criteria have been adopted, and firms apply using the Baldrige criteria. In these cases, the criteria are used, but the scores required to win the state awards are lower than those for the national awards. This approach occurs often in more populated states (e.g., Missouri, New York, and Florida) that have well-funded award programs. An approach that some other states have taken is the Baldrige-lite approach. This approach uses the Baldrige criteria but with a simplified process and/or application. This occurs in states such as Massachusetts and California. The third approach is the multilevel approach. Using the multilevel approach, often the top level includes the full-Baldrige criteria. At the second level, a Baldrigelite approach is used. Then, in lower levels, recognition is provided for firms that are putting forth significant effort toward improving performance. The state award programs are becoming important vehicles for promoting involvement in the Baldrige process. Top management might become interested in applying for a state quality award where the competition is less demanding than the Baldrige award. State awards also provide important education for companies through conferences and

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the literature they provide. Examiner training given through state award programs helps to develop expertise among employees of local companies. These examiners can then disseminate this training within the firms where they work. For more information on the Baldrige award, go to www.nist.gov.

QUALITY IMPROVEMENT:THE JAPANESE WAY
The Japanese must be credited with raising worldwide quality to a new level of competitiveness. In the late 1970s, they created competition through quality as their automobiles and electronic products were exported to the nations of the world in huge numbers. Using quality as a competitive weapon to win orders in the marketplace, the Japanese provided an example for the rest of the world that has benefited producers and consumers all over the world.

Deming Prize
Before discussing Japanese quality approaches, we will first touch on the Deming Prize. The Deming Prize for quality was established in 1951 by the Japanese Union of Scientists and Engineers (JUSE). The award was funded by the proceeds from Deming’s book on statistical process control that resulted from his teachings in Japan. The award now commemorates the distinguished service to Japan by W. E. Deming. The Deming Prize is awarded to individuals and groups who have contributed to the field of quality control. The examination and award process is performed under the direction of the JUSE Deming Award Committee.The Deming Prize process is open to non-Japanese firms. For example, Florida Power and Light and AT&T have won the Deming Prize. The Deming Prize is awarded in three categories: Deming Application Prize for Division, Deming Application Prize for Small Business, and Quality Control Award for Factory. Unlike the Baldrige, there is no limit on the number of companies that can receive the award in a given year. The Deming Prize award ceremony is nationally televised in Japan. The Deming Prize is much more focused on processes than is the Baldrige. This is reflected in the categories and items contained in the Deming Prize. Table 3-10 compares categories of the Deming, Baldrige, and European Quality Award competitions. A review of these categories shows the Baldrige is more general and managerial.

TABLE 3-10 Comparison of the Baldrige Award, Deming Prize, and European Quality Award
Baldrige Award Deming Prize European Quality Award

ISBN: 0-558-12999-4

Leadership Strategic planning Customer and market focus Information and analysis Human resource focus Process management Business results

Policy Organization and operations Collecting and using information Analysis Planning for the future Education and training Quality assurance Quality effects Standardization Control

Leadership Policy and strategy People management Resources Processes Customer satisfaction People satisfaction Impact on society Business results

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At the same time, the Deming Prize is more prescriptive. We briefly discuss each of the Deming categories in the next paragraphs.

Policy
Japanese firms are well known for policy formation and deployment. To the Japanese, policy has essentially the same meaning strategy has for Americans. The first category of the Deming Prize addresses the areas of management of quality policy, policy formation, policy correctness and consistency, use of statistical methods, policy communication, checking policy, and consistency between short- and long-term policies.

Organization and Operations
The organization and operations portion of the Deming application requires the applicant to document processes for clarifying authority and responsibility, processes for delegating authority, cooperation among divisions, committees and their activities, use of staff, use of quality control activities, and quality control audits. The use of statistical approaches is included in policy formation and deployment.

Collecting and Using Information
The information that is collected for this item includes information that is gathered on the outside and inside. Applicants document how they pass these data through divisions and how rapidly it is transmitted. Finally, firms document how they process the data and analyze them statistically.

Analysis
The analysis category of the Deming Prize covers the areas of selection of priority problems and themes, correct use of analytical methods, and use of statistical methods. Technology is also addressed in this category. Processes are expected to be analyzed for quality with constructive use of analysis. Also, firms must document what they are doing with employee suggestion systems.

Planning for the Future
To plan effectively for the future, firms must understand their present condition well, which is the documentation required for this category. Policies must be reinforced for corrective action. Plans must exist and be documented for promoting total quality control (TQC), and these plans must be included in the long-term planning processes.

Education and Training
Applicants document plans and accomplishments relating to education and training. The quality and control foci of training are documented, along with statistical thinking. Essentially, this category examines the firm’s practices relating to education and training—as they relate to quality.

Quality Assurance
As discussed in Chapter 1, quality assurance has to do with the design of products and the new product development process. Safety and liability issues are addressed in the application. Also, areas of process inspection, design, capability, quality assurance, and use of statistical methods are documented by the applicant.

Quality Effects
ISBN: 0-558-12999-4

Quality effects relate to the documentation of benefits, outcomes, and results of quality improvement. These benefits include tangible and intangible benefits. Applicants also document the expected versus realized benefits of quality management.

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Standardization
The Deming Prize rewards standardization. The systems of setting standards, monitoring performance against the standards, and revision of standards are documented in the Deming application. Again, statistical methods are required for monitoring progress against the standards.

Control
Finally, the last category of the Deming Prize is control. Essentially, the applicants describe how they are using statistical quality control (SQC), control points, control items, statistical thinking, and the current state of control in the company. As can be seen, the focus of the Deming Prize is quite different from that of the Baldrige. Although the Baldrige has become very managerial in nature, the Deming focuses more on the nuts and bolts of quality improvement. Each approach has its strengths and weaknesses. Although the Deming is focused on the statistical methods, a complete picture of the management system may not emerge. At the same time, because the Baldrige is so diffuse in its focus, some of the fundamentals of quality improvement may be overlooked by examiners. To counter this problem in design with the Deming Prize, Japan has developed another quality award. This second award is called the Japan Quality Award and is closer in spirit to the Baldrige.

Other Japanese Contributions to Quality Thought
As Juran stated, the genius of the Japanese was in their ability to maintain a focus on the minutia and detail associated with process improvement. They also set the world standard for efficient, clean, and waste-free processes. In this section we discuss the Japanese approach to production and service.The attempt will be to identify those contributions that are uniquely Japanese.

Lean Production
Two views emerge in the literature that pertain to lean manufacturing. The first view of lean is a philosophical view of waste reduction. This view asserts that anything in the process that does not add value for the customer should be eliminated. Given this view, quality problems cause scrap and rework and are wasteful. The second view of lean is a systems view stating that lean is a group of techniques or systems focused on optimizing quality processes. An example of this view is the lean production system refined by the Toyota Motor Company and spread to the rest of the world. For our purposes, we will combine the philosophical and systems views to define lean as a productive system whose focus is on optimizing processes through the philosophy of continual improvement.

Lean as a Philosophy
As we showed in Chapter 2, philosophy is an important element in improving quality. Perhaps it is because of the difficulty associated with communicating quality that philosophies are so important. Words and definitions help us to communicate on a cerebral level. Philosophies, once internalized, help individuals and organizations to communicate on a feeling-based level. For Toyota Motor Company, the focus was on the continual reduction of waste. Shigeo Shingo, the industrial engineer who was fundamental in helping Toyota to reduce waste, identified a group of seven wastes that workers could address in improvement processes (Table 3-11).

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TABLE 3-11 Shingo’s Seven Wastes
1. 2. 3. 4. 5. 6. 7. Waste of overproduction. Waste of waiting. Waste of transportation. Waste of processing itself. Waste of stocks. Waste of motion. Waste of making defective products.

Japanese Total Quality Control (TQC)
Just as the Japanese lean approach requires attention to detail in every aspect of the process, so does the TQC approach. This attention to detail runs deep in the Japanese culture. About 1,200 years ago, during the eighth century A.D., Japanese swordsmiths hammered 10,000 microlayers of steel into the world’s finest blades. Of course, the Japanese philosophy of continual improvement is reflected in Deming’s 14 points for management outlined in Chapter 2. However, beyond Deming’s 14 points, there are several Japanese contributions to quality thought and practice that we outline here.

Visibility
An important aspect of the Japanese approach to quality is visibility. Often, when problems exist in business, the first reflex is to hide the problems as though they don’t exist. The Japanese approach does the opposite. In the Japanese approach to quality, problems must be made visible before they can be addressed. Among the approaches to improving quality is inventory reduction. Excess work-in-process inventory has the effect of hiding problems. Therefore, it is eliminated. Another visibility technique the Japanese use is called andon, or warning lights. Whenever a defect occurs on the line, the line is stopped. This halts production in several workstations, not just one workstation. As a result, workers from the production line all converge on the process where the warning light went off. Teams are used to identify and eliminate the fundamental causes of the defect. Once the cause is discovered and fixed, work resumes as normal. The lean process adds to visibility by stopping all the steps in the process when one step has a problem. The approval to stop the line whenever there is a problem is called line-stop authority.

In-Process Inspection
Another contribution of the Japanese was to teach the rest of the world about inprocess inspection. With in-process inspection, all work is inspected at each stage of the process, and the workers inspect their own work. This approach gives workers the authority to make quality-related decisions. The Japanese approach to inspection was in direct contrast to the American approach of inspecting quality at the final stage of production through a quality department specialist.

N

2 Technique

The N 2 technique is an alternative to acceptance sampling. In traditional acceptance sampling (discussed in Chapter 9), when a company receives a shipment from its suppliers, the shipment is sampled and a determination is made as to whether the shipment should be accepted or rejected. Usually, an acceptance sampling plan involves rules such as
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If 2 or fewer defects, accept the lot. If more than 2 defects, reject the lot.

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The N = 2 technique involves developing and maintaining a close relationship with suppliers so that it is known if the supplier’s processes are in statistical control. If the supplier’s processes are in control and capable, and if the first and last pieces in the lot meet specification, then it is concluded that the entire lot of materials will meet specification. Therefore, only a sample size of 2 (the first and last pieces) is needed for acceptance inspection.

Total Involvement of Workforce
As you may recall, Deming’s 14th point stated that all the operating forces should be put to work to improve quality. The Japanese are masters at gaining organizational commitment to quality. By deploying quality improvement throughout the organization, we all become responsible for the aspects of quality we influence in a day’s work. This includes vertical deployment and horizontal deployment of quality management. Horizontal deployment means that all departments are involved in quality. Vertical deployment means that all levels of management and workers are actively involved in quality.

The Five S’s
Many Japanese firms have adopted the five S’s in an effort to improve operations. The five S’s are a sequential process that companies follow to literally “clean up their acts.” The S’s are 1. Seiri: Organizing by getting rid of the unnecessary. This may include old files, forms, tools, or other materials that have not been used within the past 2 or 3 years. 2. Seiton: Neatness that is achieved by straightening offices and work areas. 3. Seiso: Cleaning plant and equipment to eliminate dirtiness that can hide or obscure problems. 4. Seiketsu: Standardizing locations for tools, files, equipment, and all other materials. This often involves color coding and labeling areas so that materials are always found in a standard location. 5. Shetsuke: Discipline in maintaining the prior four S’s. Quality circles are natural work teams made up of workers who are empowered to improve work processes and are used by Japanese companies to involve employees in improving processes and process capability. Using quality circles, Japanese employees brainstorm quality improvement methods and identify causes of quality problems using quality tools.

Preventive Maintenance (PM)
Japanese manufacturers are known for their approach to maintenance of equipment and machines. The maintenance technique taught by the Japanese is preventive maintenance. The idea behind preventive maintenance is that the worst condition a machine should ever be in is on the day you purchase the machine. By maintaining scheduled maintenance and improvement to equipment, machinery actually can improve with age. In the 1980s, the Toyota Kamigo Plant 9 in Japan won the Deming Prize with aged equipment. The key was that the equipment was maintained very well. With preventive maintenance, heavy, unscheduled maintenance is still performed by shop engineers and maintenance specialists. However, regular cleaning, fluid changing,

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and light maintenance are handled on a regularly scheduled basis by the people who operate the machinery.

QUALITY IMPROVEMENT: THE EUROPEAN WAY
In the late 1970s and early 1980s, Europe found itself in a position similar to that of the United States. European producers of products were finding the Japanese to be formidable competitors and realized they needed to change. It is difficult to tell where Europe now stands concerning quality management. Because of radical differences in infrastructure, politics, and business practices, it is easy to overgeneralize. ISO 9000:2000 is the European standard for quality that has been expanded worldwide. At the same time, there has been a perception in the quality community that Europe is behind the Japanese and the United States in improving quality. For example, French and German customer service has remained low by American and Japanese standards and has not shown great improvement. However, companies such as BMW, Mercedes, and Seimens produce products that set the standard for quality. Culture plays a greater role in European quality practices than it does in the United States. For instance, many foreigners view German service as poor. There is a historical basis for this perception. Since medieval times, shopkeepers were considered part of the land-owning, privileged class in Germanic regions. As such, they enjoyed an elevated status in society. Therefore, a patron who entered an establishment would often look up to the service provider as someone of a higher social class. This created a situation in which the patron actually would be in a position of thanking the service provider for providing service. Waiters in fine Parisian restaurants are viewed by many visitors from other countries as rude. However, in France, the culinary experience is considered high art. Much as an art expert would be aghast if someone without a trained eye belittled great art, the French waiter might be displeased when an untrained customer ordered the wrong wine. Those are only two examples of why, if service is to be improved, not only business practices will have to change in parts of Europe but also ingrained culture must change. European businesses are on the horns of a particularly difficult dilemma. Europe is a loose federation of sovereign nations. Each country is trying to protect its own culture while, at the same time, trying to cooperate with the other countries to introduce unified standards. Two types of quality recognition are widely used in Europe. These are the European Quality Award (EQA) and ISO 9000:2000 certification.

European Quality Award
In 1988, a group of 14 large European companies created the European Foundation for Quality Management in reaction to increased competition from overseas, the quick success of the Baldrige award in the United States, and the recognition that changes were needed if Europe were to compete in the world market. The European Foundation for Quality Management administers the European Quality Award (EQA). The EQA has two levels. The highest level is the EQA for the most accomplished applicant in a given year. The second level given is the European Quality Prize for other firms that meet the award criteria. The model for the EQA is shown in Figure 3-8. Because the EQA is similar to the Baldrige in tone and process, we will emphasize some of the differences between the

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FIGURE 3-8 European Quality Award Model
People Management management Policy and strategy People satisfaction Customer satisfaction Impact on society Results Business results

Leadership

Processes

Resources Enablers

SOURCE: European Foundation for Quality Management, Brussels, Belgium, 2006.

two. The differences are found primarily in the categories of people satisfaction, impact on society, and business results. People satisfaction addresses the perceptions of employees concerning their employer. Items in this category include working environment, perception of management style, career planning and development, and job security. Whereas the Baldrige criterion of human resources and development focuses more on those things that lead to customer service and improved products, the EQA focuses more on employee satisfaction as an outcome of the quality system. From this standpoint, employee satisfaction becomes an indicator of satisfactory management.4 The EQA criterion of impact on society asks the applicant to document how the company is viewed by the society it affects. This includes the company’s approach to quality of life, the environment, and the preservation of global resources. Therefore, charitable activities, leisure-related activities, and employment stability are all important aspects of the quality system for the Europeans. A comparison of the Baldrige, Deming, and European awards is presented in Table 3-12. Like the Baldrige, the category of business results focuses on operational and financial results. However, the EQA focuses also on corporate social responsibility in the corporate results category. This includes an assessment of results relating to social and ecological factors.

ISO 9000:2000
On a worldwide basis, ISO 9000:2000 has had a much more significant impact than any of the quality standards or recognitions in terms of the number of companies that have implemented the approach. The focus of ISO 9000:2000 is for companies to document their quality systems in a series of manuals to facilitate trade through supplier conformance. Once the quality system is documented, ISO 9000:2000 registration states that there is a quality system in place and the quality system is being adhered to.
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4Nakhai, B., and

Neves, J., “The Deming, Baldrige, and European Quality Awards,” Quality Progress (April

1994):33–37.

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NOT AVAILABLE FOR ELECTRONIC VIEWING

ISO is the Organization for International Standards of Geneva, Switzerland (the Greek word isos means “equal”). The ISO standard was developed so that an international standard for documentation of quality systems could be applied in many different cultures. The ISO standards are very broad and non-specific, so they can be adapted to many different industries.

ISO 9000:2000 Basics
In this section we will discuss ISO 9000:2000 and its requirements. ISO 9000:2000 is not a prescription for running a business or firm. However, its requirements provide a recognized international quality standard that businesses can follow. It is interesting to note that more than 400,000 companies have registered using the ISO standard. To effectively use the ISO standard, you need to plan your processes, follow those processes, ensure that those processes are effective, correct deficiencies in your current processes, and continually improve your processes. The original version of ISO 9000 was implemented internationally in 1994 after the International Organization for Standardization (ISO) Technical Committee (TC) 176

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worked for eight years to develop the standard. The ISO 9000:1994 standard closely mirrored the prior British Standard 5750 in form and substance. By 1997, the ISO 9000 family of documents had become quite cumbersome, with 20 required elements and 12 standards. ISO 9000:2000 is a much simplified document with only six requirements and three standards. The three standards are 1. ISO 9000:2000—Quality management systems: Fundamentals and vocabulary. 2. ISO 9001:2000—Quality management systems: Requirements. This specifies the requirements of a quality management system. These requirements are used for internal implementation, contractual purposes, or third-party registrations. 3. ISO 9004:2000—Quality management: Guidelines for Performance Improvement. This broader document provides guidelines for objectives that are not included in ISO 9001:2000. These include continual improvement and enhancing overall performance. ISO 9001:2000 consists of five clauses. These include Clause 4: Quality Management System Clause 5: Management System Clause 6: Resource Management Clause 7: Product Realization Clause 8: Measurement, Analysis, and Improvement As shown in Table 3-13, the quality management system is documented using a variety of requirements. These include how you develop, design, implement, and maintain your quality management documents. Also, you must demonstrate how you use quality-related documentation to manage your quality system. As shown in Table 3-14, the ISO 9001:2000 standard emphasizes top management’s role in the quality management system. Its requirements outline management’s responsibilities in developing and maintaining a quality management system. Again, procedures are documented for each of these processes, and audits are used to ensure that these procedures are followed. As shown in Table 3-15, resource management requirements are outlined. These include providing needed resources, personnel, facilities, and the environment necessary to get the work done. Emphasis is placed on training and developing employees. Table 3-16 shows requirements for product realization. These are all the requirements—including processes, documents, customer requirements, specifications, designs, and quality processes—needed to produce a product. Part of this requirement

TABLE 3-13 ISO 9001:2000 Quality Management System Requirements
4.0 Quality Management System 4.1 General Requirements The organization shall establish, document, implement, and maintain a quality management system and continually improve its effectiveness in accordance with the requirements of the international standard. 4.2 Documentation Requirements Quality management system documentation will include a quality policy and quality objectives; a quality manual; documented procedures; documents to ensure effective planning, operation, and control of processes; and records required by the international standard.
SOURCE: International Standards Organization, Geneva, Switzerland, 2003.

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TABLE 3-14 ISO 9001:2000 Management Requirements
5.0 Management System 5.1 Management Commitment a. Communication of meeting customer, statutory, and regulatory requirements b. Establishing a quality policy c. Establishing quality objectives d. Conducting management reviews e. Ensuring that resources are available 5.2 Top management shall ensure that customer requirements are determined and are met with the aim of enhancing customer satisfaction. 5.3 Management shall establish a quality policy. 5.4 Management shall ensure that quality objectives shall be established. Management shall ensure that planning occurs for the quality management system. 5.5 Management shall ensure that responsibilities and authorities are defined and communicated. 5.6 Management shall review the quality management system at regular intervals.
SOURCE: International Standards Organization, Geneva, Switzerland, 2003.

TABLE 3-15 ISO 9001:2000 Resource Management Requirements
6.0 6.1 6.2 6.3 Resource Management The organization shall determine and provide needed resources. Workers will be provided necessary education, training, skills, and experience. The organization shall determine, provide, and maintain the infrastructure needed to achieve conformity to product requirements. 6.4 The organization shall determine and manage the work environment needed to achieve conformity to product requirements.

SOURCE: International Standards Organization, Geneva, Switzerland, 2003.

TABLE 3-16 ISO 9001:2000 Product Realization Requirements
7.0 7.1 7.2 7.3 7.4 Product Realization The organization shall plan and develop processes needed for product realization. The organization shall determine requirements as specified by customers. The organization shall plan and control the design and development for its products. The organization shall ensure that purchased product conforms to specified purchase requirements. 7.5 The organization shall plan and carry out production and service under controlled conditions. 7.6 The organization shall determine the monitoring and measurements to be undertaken and the monitoring and measuring devices needed to provide evidence of conformity of product to determined requirements.

SOURCE: International Standards Organization, Geneva, Switzerland, 2003.

deals with selecting and developing suppliers in a way that ensures that purchased components satisfy requirements. Table 3-17 lists the requirements for measurement, analysis, and improvement. Clause 8 has to do with analyzing process data and using the data to improve operations and service to the customer. This includes performing internal audits and monitoring and measuring processes and products. Also included in Clause 8.5 are corrective and preventive action for improvement.

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TABLE 3-17 ISO 9001:2000 Measurement,Analysis, and Improvement Standards
8.0 Measurement, Analysis, and Improvement 8.1 The organization shall plan and implement the monitoring, measurement, analysis, and improvement process for continual improvement and conformity to requirements. 8.2 The organization shall monitor information relating to customer perceptions. 8.3 The organization shall ensure that product that does not conform to requirements is identified and controlled to prevent its unintended use or delivery. 8.4 The organization shall determine, collect, and analyze data to demonstrate the suitability and effectiveness of the quality management system, including a. Customer satisfaction b. Conformance data c. Trend data d. Supplier data 8.5 The organization shall continually improve the effectiveness of the quality management system.
SOURCE: International Standards Organization, Geneva, Switzerland, 2003.

Quality Management Principles Underlying ISO 9000:2000
The following eight principles provide the foundation for ISO 9000:2000. These are mentioned in ISO 9000:2000 and 9004:2000 but not in ISO 9001:2000. They are 1. 2. 3. 4. 5. 6. 7. 8. Customer focus Leadership Involvement of people The process approach A systems approach to management Continual improvement Factual approach to decision making Mutually beneficial supplier relationship

Most of these quality management principles are self-explanatory and are discussed throughout this book. TC 176 has done an excellent job of responding to the critics of the original standard by focusing on these quality management principles. Note the similarities between these principles and the Baldrige categories.

Selecting a Registrar
The ISO 9000:2000 process is very different from any of the awards processes discussed previously.To many who have implemented ISO 9000:2000, the selection of the registrar is the most important step in the ISO 9000:2000 process. This is also the messiest step of the ISO process.There is no centralized authority that qualifies ISO registrars.Although no European country requires ISO 9000:2000 registration, many firms require it. In fact, many countries officially encourage their firms to use only ISO-registered suppliers. However, certain ISO registrars have memoranda of agreement with the departments of commerce of individual countries. This means that out of the hundreds of registrars that exist in the world, only a relative few may be recognized in any particular country. Also, many registrars are not recognized officially anywhere. Therefore, when selecting a registrar, firms must be careful. They should check with customers and departments of commerce and customers within the countries to which they plan to export. This could save severe problems and a waste of money in the long run.

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The ISO 9000:2000 Process
While many companies have now transitioned from ISO 9001 (1994) to ISO 9000:2000, we will identify a process for the first-time registering firm. The registration process for ISO 9000:2000 (including the new ISO 9001:2000) typically takes several months from initial meeting to final registration audit. This time frame differs from client to client, but each process usually follows the steps outlined in Figure 3-9. Step 1 is inquiry, where the client contacts registrars to investigate the terms for registration. The prospective client then makes a final selection of a registrar with whom he or she is comfortable. In Step 2, the client contracts with the registrar. In this process, registration steps are determined, and a price is negotiated. A client-signed quotation or purchase order leads to the first stage of the certification process. Some clients may wish to have a preassessment or gap-analysis audit. Step 3 often involves a phase 1 audit. At this stage, the registrar performs an onsite audit of the documented quality system against the applicable standard. Step 4 is the certification audit. Every element of the ISO 9000:2000 standard is audited several times during the registration process. A representative sample of an organization’s business processes are chosen for any audit. During each three-year period, 100% of the organization is audited. The audit program is a valuable tool that provides a clearly and mutually defined process and snapshot of auditing—past, present, and future.

FIGURE 3-9 An Example ISO Registration Process
1. Inquiry 1. Inquiry

2. Contract 2. Contract

3. Phase 1 Audit

4. Certification Audit 5. Process Audits 5. Process Audits

6. Final Audit
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7. Rolling Certification Audits

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Step 5 may involve process audits (optional). The client may choose business processes for auditing to the applicable standard, allowing the client to learn and experience the registrar’s auditing methods and style. Step 6 involves the final certification audit. Once the client’s documented quality system has met the applicable standard, the registrar will conduct an audit to determine the system’s effective implementation. This may involve interviewing the process owners and responsible personnel as designated in the documented quality system for processes chosen from the audit program. After certification, Step 7 involves rolling certification audits. These are sometimes referred to as surveillance audits, where the registrar returns on either 6-month or annual cycles.

ISO 14000
Given the success of ISO 9000:2000, ISO embarked on developing an international standard for environmental compliance called ISO 14000. ISO 14000 is a series of standards that provide guidelines and a compliance standard. The compliance standard is ISO 14001, Environmental Management Systems. ISO 14001 uses the same basic approach as ISO 9000:2000 with documentation control, management system auditing, operational control, control of records, management policies, audits, training, statistical techniques, and corrective and preventive action. In addition to these controls, ISO 14001 includes quantified targets, established objectives, emergency and disaster preparedness, and disclosure of environmental policy. Such a system may provide the basis for developing a comprehensive environmental management system. Table 3-18 presents the ISO 14001 elements. The process for documenting these elements and seeking registration mirrors the ISO 9000:2000 process. Again, a key process has to do with selecting the appropriate registrar. Outside of Europe, such as in the United States, firms have approached ISO 14000 carefully, with many firms deciding not to adopt the standard.5 Is this because American firms are less committed to environmental quality than are European firms? The answer is probably “no.” ISO 14000 is very risky for U.S. firms. As a result of the selfstudy process incorporated in the ISO standard, firms can possibly discover violations regarding some environmental topic, such as hazardous waste. It would seem that these firms should be able to then clean up this waste. However, it is not so simple. Once these firms discover variances, they are required to report these variances to the U.S. Environmental Protection Agency (EPA). Even if the firm discovers and cleans up environmental problems, the EPA has made it clear the firm will be subject to fines and penalties, which could include shutting down the business! As a result, firms are reticent to begin the process of self-discovery until the EPA changes its policy. Therefore, environmentally conscious firms that may want to improve their environmental management systems through ISO 14000 are potentially being dissuaded from doing so by the EPA. It will take several years for the courts to settle many of these issues. Until these issues are settled, adoption of ISO 14000 may be slow in many countries. Despite these problems,

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5Hale, G., and

Hemenway, C., “ISO 14001 Will Likely Join the Regulatory Framework,” Quality Digest 16, 2

(1998):29–34.

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TABLE 3-18 ISO 14001 Elements
ISO14001:2004

4.1 4.3.1 4.2 4.4.6 4.4.7 4.3.2 4.3.3 4.4.1 4.4.2 4.4.3 4.4.4 4.4.5 4.5.1 4.5.2 4.5.3 4.5.4 4.5.5 4.6

General Requirements Environmental Aspects Environmental Policy Operational Control Emergency Preparedness Legal and Other Requirements Objectives, Targets and Programme(s) Resources, Roles, Responsibility and Authority Competence, Training and Awareness Communication Documentation Control of Documents Monitoring and Measurement Evaluation of Compliance Nonconformity, Corrective Action and Preventive Action Control of Records Internal Audit Management Review

SOURCE: International Standards Organization, Geneva, Switzerland, 2006. Used with permission of Capaccio.

some American firms, such as Micron Technologies of Boise, Idaho, have adopted ISO 14000. It is expected that firms with little environmental exposure will adopt ISO 14000 first.

QUALITY IMPROVEMENT:THE CHINESE WAY
As can be seen in Figure 3-10, total trade between the United States and China has doubled in the years from 2000 to 2005. In that same time, Chinese imports to the United States have increased from $100 billion to $200 billion. Among the important reasons for this growth in trade have been the opening of the Chinese markets to foreign trade, the constant drumbeat of U.S. and European offshoring to China, and the low cost of doing business in China. Given the growing importance of China in international trade, the question then arises, what about Chinese quality?

Is There Such a Thing As Chinese Quality Management?
What led up to this internationalization from the historically isolationist China? With the death of Chairman Mao Tse-tung in 1976, Deng Xiaoping took the reigns of economic reform leading to an “open-door” policy for trade and economic transfer. This resulted in the creation of a socialist market economy.
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FIGURE 3-10 Total Volume of Trade Between the United States and China
Billions of Dollars 250 225 200 175 150 125 100 75 50

2000

2001

2002 2003 Year

2004

2005

SOURCE: U.S. Department of Commerce, 2005.

Historically, China has been known for fine porcelain, silks, bronze, and construction. Trade between China and the West has existed for many centuries as is evidenced by the ancient Silk Road. Chinese products were held in such high regard that traders were willing to brave the foreboding Taklimakan desert, or “road of death,” to bring Chinese products to European markets. These goods were of exceeding high quality and value. However, it is not clear that China has continued this legacy of quality in the modern era. Some factors have led to low quality in China.6 Researchers state that these factors include the low level of education of some Chinese workers and lack of experience among agricultural workers who have moved into the industrial sector. These same workers are often unfamiliar with the consumer goods they are making and may not have the commitment necessary to provide long-term resources to quality improvement as they work for a short period of time and then return to their homes to farm. Another factor omnipresent in Chinese business is guanxi, or “influence.” Guanxi can range from personal relationships to bribery. Here is an example of how guanxi can influence perceptions of quality in China: We wanted to give some government officials some biscuits as presents (customary in China). The day that they came they said, “By the way, we want double.” If they wanted to penalize the company they could go to the media and say that Freshbake Biscuits’ products were contaminated.
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6Glover, L., and

Siu, N., “The Human Resource Barriers to Managing Quality in China,” The International Journal of Human Resource Management, 11, 5(2000); 867–882.

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In the last quarter of a century, the United States and Europe have had to improve quality as a result of international competition. As time passes, China will be subject to similar competitive pressures. Both Japan and Mexico have seen increases in salaries that have negatively impacted their cost advantages. While it is not clear that Chinese products meet world standards for quality, over time, Chinese firms will need to meet international standards of quality if their standard of living is to increase proportionally. Foreign firms who locate in China to take advantage of low cost and forget about quality will do so at their own peril in the long term. It is clear that Chinese manufacturers are aware of quality management practices and have made some changes to adapt certain practices.7 What form that will take is still unclear. What is clear is that China is an economic giant. The adoption of modern quality approaches will provide them further competitive advantage in the future.

ARE QUALITY APPROACHES INFLUENCED BY CULTURE?
As we have seen by discussing tools, techniques, and approaches adopted within different regions of the world, a picture of diversity emerges. The U.S. approach historically has been command-and-control oriented. This might be the result of a history of political and military management as a basis for business management. Americans tend to be results oriented. As a result, we have seen that the focus in America is also very bottomline oriented. The implication is that if quality does not provide bottom-line results, it is often not something to be pursued. The Japanese approach is based on an ethic of consistency and emphasis on reduction of waste. There are cultural underpinnings for this approach. The Japanese land mass is smaller in size than California. Given that many people are contained in a small land mass, it is no surprise that a premium would be placed on reducing waste. Also, consider the fact that the Japanese have almost no natural resources. For this reason, almost all raw materials must be imported at great cost. Again, this causes a cultural ethic of reduced waste. Finally, it is fairly obvious in observing Japanese business practices that they prize conformance and consistency. The Europeans have adopted broad standards that can be adapted to the diverse nation-states in the Economic Union. There is also an apparent concern among the Europeans to satisfy employees, focus on work as art, and care for the environment. There are strong unions in Europe that cause the need for sensitivity toward employees. The work-as-art ethic has roots in medieval times when the artisan ethic was developed. As an example, in Germany, an aspiring shipbuilder would find employment as an apprentice with a master shipbuilder. After years as an apprentice, the student would become a journeyman shipbuilder, until one day, possibly, becoming a master shipbuilder. Again, the cultural roots of management and quality improvement run deep in different cultures. Are other cultures developing quality methods that will be instructive for world competitors? The Russians have long used what is now called group technology to produce products and to improve production. Several Asian Tiger nations, such as Malaysia, South Korea, and Singapore, have begun to make inroads in the field of quality and will become formidable competitors in the future. Chinese quality management is a work in process. We will keep watching.
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7Pun, Kit-Fai, “Cultural Influences on Total Quality Management Adoption in Chinese Enterprises: An Empirical Study,” Total Quality Management, 12, 3 (2001): 323–342.

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SUMMARY
In an increasingly globalizing economy, it is important to understand the approaches that various nations use to improve quality. It is clear that the trend is toward greater participation in a global economy. As a result, the worker of the future will need to be able to adapt to approaches having roots in other cultures. In this chapter we discussed the global economy and the role played by quality in that world economy. We considered different quality models from different regions such as the Malcolm Baldrige Award, the Deming Prize, the European Quality Award, and ISO 9000:2000. From an integrative perspective, it is reasonable to borrow from all these models if that will help your firm perform better. The underlying theme in this chapter is the importance of learning from other cultures to compete effectively.

KEY TERMS
• Andon • Baldrige-lite • Baldrige qualified • Deming Prize • Exporter • Full-Baldrige approach • Globalization • Group technology • Horizontal deployment • In-process inspection • ISO 9000:2000 • Lean • Licensing • Line-stop authority • Malcolm Baldrige National Quality Award (MBNQA) • Multilevel approach • N 2 technique • Partnering • Physical environment • Preventive maintenance • Quality circles • Social environment • Task environment • Vertical deployment

DISCUSSION QUESTIONS
1. What are the advantages or disadvantages of licensing as a means of gaining access to foreign markets? 2. What are the advantages and disadvantages of globalization? Provide an example of a firm that has engaged in globalization. What are some of the potential advantages and disadvantages of globalization for this particular organization? 3. What motivates U.S. firms to compete for the Malcolm Baldrige National Quality Award (MBNQA)? How could a firm benefit from participating in the MBNQA competition, even if it did not apply for the award? 4. Category 3 of the MBNQA criteria focuses on the importance of the customer in assessing the quality of the products and services that a firm sells. Why do you think the authors of the Baldrige criteria included this category? How is the customer important in assessing the quality of the products and services that a company sells? 5. Category 5 of the MBNQA criteria focuses on human resources and development. Why do you think the authors of the Baldrige criteria included this category? Why is human resource management an important consideration in quality planning and management? 6. Do you believe the MBNQA should include a category for not-for-profit organizations? If so, what adjustments should be made in the Baldrige criteria to make it applicable for this category? 7. If you were the CEO of a manufacturing firm, would you encourage your firm to apply for the MBNQA? Why or why not?

ISBN: 0-558-12999-4

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8. If you were presented the opportunity to be a Baldrige examiner, would you accept it? Why or why not? Make your answer as substantive as possible. 9. How can firms use lean production to improve quality? Is lean a useful concept for both service and manufacturing organizations? 10. Describe the concept of “visibility” in the context of the Japanese total quality approach. How does the concept of visibility help a firm identify problems in its production processes? 11. In what sense does excess inventory act as a “security blanket” for manufacturing firms? 12. Describe the concept of line-stop authority. If you were an operator in a production facility, would you want to have line-stop authority? Why or why not? 13. Why is it a good idea for workers to inspect their own work? 14. In what ways are the Malcolm Baldrige National Quality Award and the Deming Prize similar, and in what ways are they different? 15. Is it appropriate to use the criteria for quality awards as a framework for organizational improvement and change? Why or why not? 16. What are the major substantive differences between the quality awards discussed in the chapter and ISO 9000:2000? Are they intended for similar or entirely different purposes? 17. Describe the purpose and the intent of the ISO 9000:2000 program. What are the advantages of becoming an ISO 9000:2000-certified company? Are there any disadvantages? 18. Describe the purpose and the intent of the ISO 14000 program. 19. What are the pros and cons for an American firm that is considering pursuing ISO 14000 certification? If you were the CEO of a manufacturing firm, would you pursue ISO 14000? Why or why not? 20. Do you believe quality approaches are influenced by culture? How?

C a s e s

Case 3-1

University of Wolverhampton: Becoming an ISO 9000 University8
Related Web page: www.wlv.ac.uk assurance personnel and several staff. This effort was undertaken in addition to the normal external accreditation programs the university usually pursues. The requirement was a great deal of additional work. However, it was believed that if the internal systems were well documented, this could actually facilitate working with the external accrediting bodies.Thus ISO registration, in the long run, could simplify the lives of Wolverhampton staff. However, this wasn’t the main objective for pursuing ISO 9000.There existed a strong desire to provide a “rational and documented system base for the pursuit of total quality in a large—by UK standards—and complex organization.
ISBN: 0-558-12999-4

August 1, 1994, was a red-letter day most University of Wolverhampton employees will never forget. That day, the university became the “first university in the United Kingdom, and perhaps the world, to gain ISO 9000 registration for the entire organization.” The core business of the university is “the design and delivery of learning experiences with provision for research and consultancy services.” The British Standards Institute spent four days at the university in June 1994 to assess Wolverhampton’s systems after which the university was recommended for registration. This occurred after three days of corporate effort involving the university’s quality

8Storey, S., “Passion

and Persistence: Becoming an ISO 9000 University,” TQM in Higher Education (November 1994):1–2.

Managing Quality: Integrating the Supply Chain, Third Edition, by S. Thomas Foster. Published by Prentice Hall. Copyright © 2007 by Pearson Education, Inc.

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The system reflects the activities of the university. Among the diverse activities and topics that had to be documented were the articles of government, the financial regulations, the health and safety requirements, the university charter, and many other items. Ultimately, these items were incorporated into the quality system. For the university, “the quality system that works not only defines what you control absolutely, but how you deal with what controls you.” This includes all of the procedures, rules, laws, regulations, permissions, and vetoes that exist within a university system. Used correctly, ISO 9000 improves systems. However, this does not mean that quality is improved,

per se. Wolverhampton employees believe that the quality of administrative services have improved in serving students and the general public. On the teaching and research side, there is no evidence that quality has improved for this organization. The information gathering process was rather expensive. It required commitment from the top. Wolverhampton had this commitment. Another important attribute was simply hardheaded commitment to a goal by those involved in the process. The ISO 9000 system is now open and well known. According to Wolverhampton employees, it was well worth the trouble. ■

DISCUSSION QUESTIONS 1. The University of Wolverhampton cites benefits relating to ISO 9000. What do you view as the benefits of ISO 9000 adoption and implementation? 2. More generally, what are the strengths and weaknesses of ISO adoption in academic institutions.

3. Would ISO registration be a useful tool for your college or university? Is there anything unique about the University of Wolverhampton that would make ISO 9000 more useful there?

Case 3-2

Wainwright Industries: An Entirely New Philosophy of Business Based on Customer Satisfaction and Quality
Related Web page: wainwrightindustries.com Baldrige Award and Wainwright Industries: www.quality.nist.gov/wainwright_Industries.htm

ISBN: 0-558-12999-4

In the early 1980s, Wainwright Industries, a manufacturer of stamped and machine parts, was facing nothing less than a crisis. Increased competition, along with intensified customer scrutiny, was forcing Wainwright to either improve quality or lose its competitive stature. In the face of this challenge, the employees of the company, led by CEO Arthur D. Wainwright, decided to make radical changes. It was clear that business as usual with a few minor improvements would not save the company. What Wainwright needed was an entire new philosophy of doing business based on quality and total customer satisfaction.

To determine how to achieve this objective, Wainwright used the criteria for the Malcolm Baldrige National Quality Award as a roadmap. Drawing input from all levels of the company, the top management team led the process by setting goals, developing implementation strategies, and establishing key quality standards. Initially, the company emphasized three principles: employee empowerment, customer satisfaction, and continuous improvement. As a creative way of demonstrating the importance of working together, the company adopted the duck as its mascot, based on the fact that ducks fly in formation as a

Managing Quality: Integrating the Supply Chain, Third Edition, by S. Thomas Foster. Published by Prentice Hall. Copyright © 2007 by Pearson Education, Inc.

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means of supporting one another in flight. In addition, whenever a duck falls out of formation, it suddenly feels the drag and resistance of trying to fly alone and quickly returns to the flock. Wainwright used this analogy to support the concepts of teamwork and employee empowerment, which were integral parts of the company’s quality improvement efforts. Along its journey toward improved quality, a number of specific initiatives were implemented. Lean manufacturing, statistical process control, computer-aided design, cross-training, profit-sharing, and quality-minded manufacturing initiatives were put in place. Special emphasis was placed on training and benchmarking. Since it initiated its quality program, the company has spent up to 7% of its annual payroll on training. To demonstrate its resolve in this area, the company has made training an important criterion for employee advancement. Wainwright has benchmarked against a number of companies, including firms in the textiles, chemical, and electronics industries. For instance, after studying Milliken & Company, a previous Baldrige award winner, Wainwright implemented an employee suggestion program that has been very effective. Along with the changes mentioned previously, Wainwright also has changed its culture to make it more egalitarian and quality minded. The employees at Wainwright (including the CEO) now all wear the same uniform, eat in the same cafeteria, and park in the same parking lot. Office walls have literally been torn down and replaced with glass, based on the premise that if the managers can watch the frontline

employees work, the frontline employees should be able to watch the managers work too. As a result of these changes, the managers of the company have become coaches and facilitators rather than supervisors and disciplinarians. This important change has helped facilitate the teamwork atmosphere that is supportive of high quality and total customer satisfaction. The results of the company’s continuous improvement efforts are linked to five strategic indicators, including safety, internal customer satisfaction, external customer satisfaction, design quality, and business performance. The status of each of these criteria is tracked by “mission control,” a room set aside to document the company’s efforts. In mission control, each customer’s satisfaction is documented with a plaque, a current monthly satisfaction rating, and a red or green flag indicating the customer’s status relative to objectives. As a result of these initiatives, Wainwright has met the challenge. It has not only survived, but has emerged as an industry leader. The company has earned the status of preferred supplier to a growing number of quality-conscious customers and has received special recognition from General Motors, Ford, and IBM-Rochester. The goal of six-sigma quality is being pursued. Perhaps most importantly, in the last decade, overall customer satisfaction has increased from 84% to 95%, and the company’s market share, revenues, and profits are at record levels. Ironically, the company was one of the recipients of the Malcolm Baldrige National Quality Award, the very award against which the company benchmarked in its early days of quality improvement. ■

DISCUSSION QUESTIONS 1. In its pursuit of improved quality, Wainwright emphasized two sets of initiatives: one based on improvements in its manufacturing operations (i.e., just-in-time manufacturing, computer-aided design) and the other based on human resource management (i.e., employee empowerment, profit sharing). Why was it necessary for Wainwright to emphasize both of these sets of initiatives? How are they related?

2. What is an egalitarian culture? How does the development of an egalitarian culture help a company like Wainwright Industries become more quality minded? 3. Although quality is important for every product or service, it may be particularly important for the precision auto parts industry. Do you agree with this statement? Why or why not?

ISBN: 0-558-12999-4 Managing Quality: Integrating the Supply Chain, Third Edition, by S. Thomas Foster. Published by Prentice Hall. Copyright © 2007 by Pearson Education, Inc.