Point 4 – End Lowest Tender Contracts

End the practice of awarding business solely on the basis of price tag. Instead require meaningful measures of quality along with price. Reduce the number of suppliers for the same item by eliminating those that do not qualify with statistical and other evidence of quality. The aim is to minimize total cost, not merely initial cost, by minimizing variation. This may be achieved by moving toward a single supplier for any one item, on a long term relationship of loyalty and trust. Purchasing managers have a new job, and must learn it.

Dr. W Edward Deming

We all do it. We go to a grocery store and will but the item that costs a few pennies less. Our perception is “they’re all the same”, but are they?

A very long time ago, before generics dominated the market, a major pharmaceutical manufacturer hired me as an engineer. Generics dominated conversations. Should they be allowed to replace brand name products? A well respected television news program did a segment on the subject. They stood in front of our plant, held up a generic pill and made the statement the pill was the same as anything made in our plant, the only difference was our pill cost a dollar and the generic cost a dime. What they didn’t know, or didn’t say, was our pills held the effective ingredient content to plus or minus 1% while the generic held the effective ingredient to plus or minus 25%. Generics took over the market and now if you want a name brand product, the doctor must write the prescription as “no substitutes” and some pharmacies will try very hard to get the patient to allow them to substitute. They insist, generics are exactly the same as name brands, they just cost less.

We look at suppliers the same way. They have to be the lowest price item coming through the door or we won’t buy. The companies that do research and could give us the next breakthrough product are competing with off-shore elements that copy the researching facilities products in violation of patent and copyright laws. And we support the theft by purchasing the cheapest initial product.

A bolt manufacturer can produce excellent product that never needs sorting or inspection. It goes direct to the lines and never causes a problem. A new supplier comes in a fraction of a cent cheaper in initial cost and we jump on the deal. Of course every tenth bolt has damaged threads and can’t be used but we buy from them and pat the purchasing agent on the back for our great savings.

How do we turn this around?

Look at your suppliers. When you go to evaluate the cost, look who helped you solve a problem with an innovative idea. Put a dollar figure to the increased sales or saved customer sales. Adjust the purchase price to reflect what the supplier did for you. Go talk to the line workers and look at the supplier costs on the cost of quality report. Adjust the supplier price accordingly. Point out to all the companies making an effort to quote how this information impacted your purchasing decision. Word will get around. Your suppliers will be watching what they do and looking to help you build your business and how can you beat that?

Point 3 – Cease Dependency on Mass Inspection

Eliminate the need for mass inspection as the way of life to achieve quality by building quality into the product in the first place. Require statistical evidence of built in quality in both manufacturing and purchasing functions.

Dr. W. Edward Deming

When ISO 9000 first came out, the auto manufacturers turned their noses up at it because it did not call for statistical process control. After significant discussion QS 9000 arrived to save the day. It should have been called ISO 9000 plus. The standard listed the ISO 9000 requirement and then added what the automotive companies had learned from Dr. Deming. Things stayed that way until 2000 when the ISO 9001 standard underwent major revisions to focus on continuous improvement and promote statistics.

Converting an inspection based workforce to statistical savvy operators isn’t as hard as it seems. It takes common sense. Process control limits are as simple as deciding when to mow the lawn and how much to adjust the blades or how high a temperature to set a stove when cooking up dinner. If you can compare them to everyday things that don’t use numbers, even the most math-a-phobic operator will lose the fear and begin to apply the technique, but that leads to point #8 and this is point #3.

Have you ever converted a process from inspection to statistical process control? How did it go? I did, it was a fun experience and I’d do it again.

Point 2 – The New Philosophy

The new philosophy

Adopt the new philosophy. We are in a new economic age, created in Japan. We can no longer live with commonly accepted levels of delays, mistakes, defective materials, and defective workmanship. Transformation of Western management style is necessary to halt the continued decline of business and industry.

Dr. W. Edward Deming

He spoke those words over 30 years ago but how much more true are they to today. Industry is going away from the USA in search of cheap labor, but has it been worth it?

What does management need to do differently to bring manufacturing back? What do we need do do differently with our children so they respect the person working in the factory? What do we need to do differently so people want to work for a company and have pride in what they do?

ISO started out as a European response to the superior quality of Japan and the USA. How do we bring business back on shore? What do we need to create an environment where manufacturing next door to your client is a wise business decision?

We start by looking at the real overall cost instead of chasing the short term profit. Moving off shore to reduce labor cost can be a false economy. Compare not just the labor and overhead savings but:

1. Increased shipping costs, especially expedited costs

2. Loss of control, does the new facility really understand your clients’ expectations? Assume makes an Ass out of U and Me, what is acceptable in one culture is anathema in another. Lead paint is unacceptable in the USA but used on childrens toys in third world countries.

3. Longer lead times. I dare you to get a rush shipment during Chinese New Year for the far east.

4. Putting a competitor in business. I worked with a fortune 100 company on a project. At the time they experienced extreme frustration. They had sent a product to a Chinese company for manufacturing quotation. The next thing they heard came not from the supplier but their customers. The quoting company had gone to their customers and under cut the fortune 100 company’s prices with an identical product, right down to the UL certification number. Everyone agreed it was a sad situation and the fortune 100 company had no recourse.

5. Addressing a dissatisfied customer. How much is in the pipeline when your customer notifies you of a problem? Add in the real cost of creating a gatekeeper while a solution is worked out and clearly communicated.

Point 1 – Constancy of Purpose

Constancy of purpose

Create constancy of purpose for continual improvement of products and service to society, allocating resources to provide for long range needs rather than only short term profitability, with a plan to become competitive, to stay in business, and to provide jobs.

Dr. W. Edward Deming

How do you create constancy of purpose in an economic time like this? Companies are struggling to stay in business and there are two places to put every dollar of resources so what do you do?

First you figure out how to keep the clients you have. That means understanding what makes you different from your competitors and building on that difference.

Second you understand what they like and dislike about your service and your product. You meet with your employees to discuss how to improve on the dislikes and support the likes. Making them part of the solution.

When your employees feel they are part of the solution morale improves and you drive out the fear of job loss and build loyalty.

You hold a steady course. If you started out with the right idea, don’t second guess yourself. There are ups and downs to everything, including the economy. Companies that chase fads are always one step behind the competition. Instead you get a long term picture, derive goals to meet that picture and work as a team with your employees to accomplish the end goal. Ultimately you will come through tough times stronger than the competition.

Think of it as you would your retirement investments. You buy in and hold through the lows in the market if you are in for the long term with a good investment strategy ultimately you will have a stronger financial position than selling at every market dip.