The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
For the past few weeks, the theme of this Opinion Page has been a commentary on the Fourteen Points crafted by Dr. W. Edwards Deming throughout the latter half of the 20th Century. The Points are as relevant today as they were in 1960, when Dr. Deming was instrumental in the transformation of the Japanese manufacturing landscape into its current position of dominance in the world markets. Mary Walton's book "The Deming Management Method" is an excellent synopsis of Dr. Deming's career and teachings.
His Point #5 is "Improve Constantly and Forever the System of Production and Service."
Not only must quality be built into products and services at the design stage, but efforts at quality improvement must be pursued constantly. Points 3 and 4 taught us that defects caught at the inspection stage (say, just before shipping the product to the customer) do nothing to improve the process, and therefore ensure better quality going forward. In fact, catching defects at the end of the line is characterized by Dr. Deming as "fire fighting", a term with which I am sure we are all too familiar. He uses the following analogy:
"You are in a hotel. You hear someone yell fire. He runs for the fire extinguisher and pulls the alarm to call for the fire department. We all get out. Extinguishing the fire does not improve the hotel. That is not improvement of quality. That is putting out fires."
Catching defects at the point of outbound shipping, for example, is too late. Cost has been built in to the product or service by this stage, and frequently the cause of such defects may be very difficult to find. I am reminded of the years that I worked for a famous manufacturer of high-quality crystal stemware and decor. We would, as a matter of routine, inspect every piece of product prior to final shipment. Fair enough. We did this as a service to our customers, to make absolutely sure that each customer was receiving virtually perfect product. We did, only occasionally, find defects, such as small bubbles within the glass or tiny scratches on the surface. Further, we did experience some small level of customer returns due to defects that they found or perceived. It broke my heart every time we found a defect at either of these two stages. This product had been designed by skilled artists. It had been created from shards of leaded crystal by skilled glass blowers and cutters. It had been carefully cleaned, wrapped and packaged to withstand shipping and travel from Europe to Canada. It had been handled, counted and stored with great care while in the Canadian warehouse, which I managed. So much love, and care, and cost had been built in to that piece of crystal, only to have it rejected and destroyed at the final step. What a shame.
But there are two points that I learned: one was that the pursuit of the holy grail of "zero defects" is folly. As a goal, it makes no sense. Focus on the method, as Dr. Deming advises. The second is that by focus upon the method, by building the skill set of its workers, artisans, and involving and encouraging employees from all functional areas (from purchasing to engineering to finance to logistics to sales) in the total quality culture, this company was able to build and maintain a reputation for its brand that was beyond compare.
It can be done!
Dr. Deming's Point #4 was "End the practice of awarding business on price tag alone."
In her thought-provoking editorial titled "One Single Point of Failure" (Purchasing b2b Magazine, May 2010), Deborah Aarts discusses the April 2010 eruption of volcano Eyjafjallajokull in Iceland, and the impact suffered by supply chains worldwide caused by the subsequent ash and dust clouds. This natural disaster "caused chaos in supply chains the world over. As air traffic to and from northern Europe ceased, many companies sourcing from the region scrambled to make alternate arrangements." She cites the example of Nissan, who sources pneumatic tire pressure sensors out of Ireland that are sent to plants around the world by air in a JIT environment: "When the airspace closed, planes could no longer service the Irish plant, and Nissan's quick supply of the sensors was cut off. The company was reportedly forced to temporarily suspend production at its plants in Fukuoka and Kanagawa, Japan." BMW operations in South Carolina were similarly disrupted as it could no longer obtain seat covers from South Africa.
Ms. Aarts (along with risk advisor Marsh Inc. in a follow-up contribution within that same magazine) search for solutions. The key, it is argued, is to analyze the supply chain of each item and look for single points of failure: those critical items and points of contact that, if disrupted, would cause serious problems downstream. But what specific evasive action could be forward-planned? Searching for alternative suppliers is a possibility, but having an alternate local supplier sit idle in anticipation of a similar disaster could be impractical and cost-prohibitive. Carrying some protective safety stock might be a prudent plan: I discussed this option with a colleague of mine in the health care industry at a recent APICS Professional Development Meeting - in an industry that makes life-or-death decisions on a daily basis, they have concluded that a 4-week safety stock is affordable and comfortable. While I have never personally embraced an arbitrary "weeks coverage" objective (as it flies in the face of the spirit of continuous improvement) I had difficulty arguing with my colleague. Lives are at stake. I decided to take a "Total Cost" view which worked to support his conclusion. Whatever the optimal solution, it is important to identify those single points of contact that present the greatest risk.
How is all this relevant to Dr. Deming's Point #4? Well, Deming argues that the practice of awarding business based on price tag alone, which was, and continues to be ubiquitous in American business and public service procurement policies, leads to a proliferation of suppliers. Moreover, if the purchasing agent plays one supplier against another, he or she may succeed in driving the rice to a point where the suppliers having difficulty staying alive!
It is critically important for companies' procurement policies to put quality first. Sourcing from a multitude of suppliers will make evaluation of quality of inbound materials virtually impossible. Too much variation lot-to-lot and within lots will necessarily occur, and variation impairs quality. Jumping from vendor to vendor will further produce reliance upon specifications, the practice of which impairs pursuit of the quality initiative and continuous improvement.
Deming strongly advocates building long term relationships built on trust with single suppliers. There are enormous advantages. Long term quality initiatives can be cemented. The supplier is more likely to assume the risk of innovation and the cost of modification of production processes that benefit the customer. Administrative processes and transactions between the two partners are likely to be streamlined. Engineering, supply chain, and marketing departments, among others, in both companies should work together to build quality and reduce costs. He argues that robust quality arrangements cannot be adequately arranged across a multitude of suppliers.
Dr. Deming further questions the worth of contracts, especially short term (annual) ones. A supplier who enters in to a series of short term contracts cannot, typically, afford to tailor the product to the needs of the buyer.
Does Dr. Deming's advocacy of single source long-term relationships conflict with the "Single Point of Failure" analysis as discussed by Ms. Aarts? I do not think so. Dr. Deming was enough of a realist to understand that catastrophes such as fires, strikes, and yes, even volcanoes happen, sometimes with devastating consequences. The outcomes are magnified in a JIT environment. Alternatives need to be planned, with intelligence.
The point is that the myopic view of awarding business based on price tag alone is a quality catastrophe waiting to happen. Take the Quality and Total Cost view. "Defects beget defects. Good quality begets good quality."
Late in the 20th Century, the term "GIGO", or "garbage in, garbage out" was popularized, specifically with reference to data management and ubiquitous computerization. There was no computer in the world that could ever make a "silk purse out of a sow's ear": no matter how sophisticated the technology, a computer could never transform misleading and erroneous input data into meaningful and useful information.
Dr. Deming maintained that quality comes improving the process, not from inspecting the finished goods at the end of the production process, then discarding those items that failed to meet specifications.
He did not advocate the extinction of inspection altogether. He acknowledged that for some industries, high levels of downstream inspection might be necessary (banks, health care providers, certain military and aerospace operations, for example, might do this to ensure safety or reduce risk exposure). Inspection might also be necessary to gather information or to monitor engineering success during quality upgrades.
But, at the finished goods stage, it might be very difficult to determine where a defect took place. It is therefore better to ensure high quality input of raw materials and processes than to wait until the end of the process to find defects.
The Japanese, for example, embraced the notion that decreasing variation decreases total cost, not final inspection. Further, they found that the concept of "meeting specification" was synonymous with "high quality" was incorrect.
Dr. Deming tells the story about two orchestras playing Beethoven's Fifth Symphony: the London Symphony Orchestra and his local hometown orchestra. Both play the same music, the same notes, and employ competent musicians who make no mistakes. But the London Symphony's work is beautiful, and the hometown's simply competent.
"Just listen to the difference".
John Skelton is the Principal Consultant and founder of Strategic Inventory Management.