PART 4 / INTEGRATING PM with CORE SOLUTIONS

PART 4 / INTEGRATING PM with CORE SOLUTIONS

Appendix C

Was the Total Quality Management Movement a Fad?

In the 1980s global competition began to cross borders. Quality levels started to become an issue for North American companies. North American consumers were increasingly purchasing foreign products with reputations of high quality. The threatened North American companies to react. Some of their earlier improvement programs began with “quality circles” of employees but soon evolved into robust total quality management (TQM) programs that embraced much more in scope as a vast collection of philosophies, concepts, methods, and tools. TQM received substantial business media attention and was intellectually appealing. At an operational level, TQM was effective at identifying waste and accelerating problem solving for tactical issues. However, at a more strategic level, it was felt by many that TQM was not the magic pill that the senior executives always seem to be searching for.

Total quality management usually did not double or triple an organization’s profits. In many cases, implementation of TQM probably prevented greater financial losses from customer defections caused by quality problems or from waste and inefficiencies. Unfortunately, the avoidance of reduced profits is not measured or reported by the financial accounting system. Therefore, no one could easily assess TQM’s benefits. As a result, in the 1990s TQM was regarded by the senior management of some organizations as another check-in-the-box improvement program that they needed to have in place, along with other programs, but it was not viewed as foundational. Now, with the emergence of six sigma and lean programs, TQM is enjoying a resurgence.

What led to the initial interest in TQM? Why did interest in TQM temporarily decline, and what has revived it? The story begins with Japan’s recovery from devastation after being defeated in World War II. The Japanese had to rebuild their economy without the luxury of having much financial capital. They could not afford to have much work-in-progress or finished goods inventory in their production systems. They also could not afford much capital equipment. Using ingenuity, the Japanese manufacturers discovered they could use a demand-pull approach of production management called a kanban system. This method relied on first receiving specific customer orders before building the products to fill them.

To fulfill the orders in reasonable time frames, the Japanese had to dramatically shorten setup and job changeover times. This was in contrast to the traditional batch-and-queue production planning approaches used in most other countries. For the Japanese, long runs with large batches were out of the question. One of the better known production planning approaches based on these principles was called the Toyota Production System (TPS).

With these methods in place, the Japanese initially increased export sales volume by producing cheaper products. This strategy leveraged their low-wage economy. There were some quality problems with this strategy, but their increasing use of the just-in-time (JIT) supply approach was intolerant of accepting off-spec product. As a result, the Japanese reversed their tarnished reputation of low-quality products by leveraging their just-in-time methods as a solution rather than a temporary fix.

Meanwhile, in North America, during this same period following World War II, the soldiers were returning from the war. There was pent-up consumer demand as households were being formed and the post-war baby boom generation was being born. The continuous increase in consumer demand somewhat preserved the traditional large-volume production habits for standard products. It made the Eisenhower presidential era the most prosperous economic growth period that the world had ever experienced. In short, this consumer-led growth was a powerful profit generator for North American companies. But good times don’t last forever. Profits need to be earned, not simply received as gratuities from customers. Since the 1970s, a host of global factors have put constant pressure on companies to improve.

By the 1980s it had become evident to senior executives in North America and their federal governments that Japan was winning market share with better quality. What began as a competitive nuisance quickly became feared as a serious threat. Japan’s economy had miraculously transitioned from a low- to high-quality reputation. North American executives countered this threat and began to realize that quality management initiatives improve productivity while concurrently defending their market share position—a win-win situation. Executives were learning that there is no trade-off of extra cost for greater market share. This was a misconception because higher quality could actually reduce overall costs.

In the 1980s, TQM got its opportunity to shine as a leading change initiative. Popular TQM consultants raised awareness and educated businesses. Joseph M. Juran, W. Edwards Deming, Phillip Crosby, and others became leading experts and guides for organizations struggling with how to turn themselves around. Total quality management programs became prevalent and were often institutionalized via accepted standards such as the ISO 9000 Quality System Standard. In 1987 the U.S. Congress passed a law establishing the Malcolm Baldrige National Quality Award. In 1988 the European Foundation for Quality Management (EFQM) was founded, and in 1992 it introduced the European Quality Award. It appeared as if Western industry was solving its quality crisis.

Rise of Six Sigma

In the early 1990s, skepticism about TQM began to take the bloom off the rose. A disappointing pattern from past TQM projects had emerged. Just like most business improvement programs that senior management often hopes may be a solution to unleash productivity gains, the TQM movement was failing to demonstrate the large breakthroughs that it was promoted to accomplish. Part of the problem was that some TQM enthusiasts took a faith-based position and strongly suggested that managers and employee teams simply fully commit to improving quality. These TQM enthusiasts assumed that by pursuing TQM, all of the other performance factors, such as levels of cost and service, would automatically self-correct. The consequence was that financial results from TQM were below possibly inflated expectations.

Regardless of the historical explanation for skepticism about TQM, after initial improvements were experienced from TQM, executives began to question whether there were significant enough results. In October 1991, Business Week ran a “Return on Quality” cover article questioning the payback from TQM. This exposed TQM to the scrutiny of the financial analysts, where expense and investment justification is tested against a defensible minimum return on investment (ROI) hurdle. In short, there was an ominous disconnection between quality initiatives and the bottom line. Increasingly more companies adopted quality programs, yet few could demonstrate much favorable impact on profitability. At about this same time, other change initiatives, such as just-in-time production management and business process reengineering (BPR), began capturing management’s attention. Total quality management settled in as a necessary-but-not-sufficient backseat program.

As time passed, organizations worldwide began recognizing that TQM need not operate in isolation from other change initiative programs. It could be integrated. Management teams admitted to themselves that there had been drawbacks that had harmed TQM’s reputation, such as nonverifiable measures, claimed but unrealized cost savings, and small projects that were too local and tactical. However, these same executives realized that with corrections, TQM could be repositioned as a more impactful business improvement program.

As a further impulse to renew interest in TQM, manufacturers along the supply chains began to realize that they depended on each other and that poor quality from one trading partner mushroomed to affect others. Manufacturers began to expect, even require, minimal problems from their suppliers, such as off-spec products, because such flaws would quickly produce component shortages and lead to unplanned and profit-draining downtime. Unplanned events also made reacting to changes in schedules a difficult challenge. Manufacturers began demanding that their suppliers become formally certified with globally administered programs such as ISO 9000:2000.[1] These certifications serve as a form of insurance to a customer that a potential supplier’s quality levels will be sufficiently reliable to minimize the likelihood of work disruptions caused by supplier shortages to the manufacturer’s processes. (Some industries, such as the automotive industry, have recognized that ISO 9000 does not go into enough depth to meet their specific needs and have written supplemental standards that do not replace it but enlarge on it.)

Eventually, total quality management began to qualify as one of the essentials in the new suite of management tools and methodologies, which we now view as PM and its core solutions. Corporate role models of applying TQM emerged. Six sigma programs with “black belt” quality training at respected multinational corporations, like General Electric and Motorola, were heralded as keys to their successful performance. Six sigma has become the next-generation TQM program.

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[1] ISO 9000, in its earliest versions, only required that there be a quality system, but did not demand that it be at a level that met customer expectations.