Americans Are Finally Getting Quality RightOne of the driving forces behind the retro trend is the craving to return to a time when American products seemed to be made with higher standards for quality. But is quality really just a thing of the past? Not according to a growing number of businesses that are embracing the quality revolution.
According to several articles in a Special Report in Business Week1 on “Quality Manufacturing,” most companies have been focusing on survival rather than on making improvements in quality. Over the past four years, 2.8 million factory workers lost their jobs, which is equal to one-seventh of the manufacturing workforce.
But a turnaround has started. March 2004 was the first month in the past 44 months in which the number of factory jobs did not drop. “It’s clear the manufacturing recovery is finally out of the starting box,” declared the president of the National Association of Manufacturers.
The manufacturers that survived the shakeout are placing a renewed emphasis on quality. They are leaner, more flexible, and more willing to change their old business processes. Let’s discuss how this is unfolding in four key industries: information technology, food manufacturing, automobiles, and pharmaceuticals.
Consider the new focus on quality within the pharmaceutical industry. It was only a few years ago that Schering-Plough had to recall nearly 60 million asthma inhalers. The reason: The company couldn’t be certain that it had included the active ingredient in the inhalers. At other drug companies, the Food and Drug Administration discovered hundreds of quality violations. At Abbott Laboratories, quality problems were so severe that the FDA closed a plant for four years and fined the company $200 million.2
What caused these problems?
The pharmaceutical industry has been plagued by factory processes so old-fashioned that firms usually can’t even figure out what caused the defects in their drugs. “Manufacturing has been the poor stepchild of the pharmaceutical industry,” says Jeffrey T. Macher of Georgetown University’s McDonough School of Business.
Macher and Jackson A. Nickerson of Washington University’s Olin School of Business are behind a new initiative designed to identify and fix faulty practices in drug manufacturing and in FDA regulations. At the same time, companies are updating their ancient plants. Pfizer and Abbott are among the firms that are investing tens of millions of dollars per year to add new technologies and processes to their factories.
There’s a strong incentive for making these quality improvements: money. With costs expected to decline by as much as 50 percent as a result of the new focus on quality, the drug companies can save billions of dollars.
Another benefit is that the companies can take advantage of flexible manufacturing. Before long, pharmaceutical firms will be marketing personalized drug treatments to patients; they can’t deliver on that promise with 20th century factories that follow 19th century concepts of mass production.
Drug manufacturing has always relied on a trial and error approach to figuring out how to do each step in the process, from mixing ingredients to coating tablets. After each step, the company takes samples and tests them to see if they meet specifications.
Because there are always variations in the ingredients and the processes, many drug batches fail these tests. The investigation slows the entire process down by a month or longer, and in many cases the problems can’t be identified.
But now companies are responding with new techniques for improving quality. One method that is showing a lot of potential is called process analytical technology, or PAT. Pfizer is spending more than $10 million a year to implement it. With PAT, companies don’t have to wait until a step is completed to test a drug.
For example, inspectors can use a laser to illuminate the ingredients as they’re mixing in a blender. Based on how those ingredients reflect or absorb the light, they can determine whether they are blending completely.
Other techniques, such as Ramon spectroscopy and chemical imaging, can allow companies to see if the ingredients in a pill are distributed properly.
Abbott Laboratories is one of the companies that is transforming its future by using the new techniques. While the company could only find the causes of half the problems in its drugs in the past, it can now get to the bottom of problems in 90 percent of cases. Moreover, it only takes three months, on average, versus six to 24 months in the recent past.
The drug industry isn’t the only one that has faced severe challenges and responded with a renewed focus on quality. The food industry is another example. Fears of bioterrorism and outbreaks of food-borne illnesses have driven the industry to improve its quality control. In fact, new U.S. laws mandate that food companies must be able to track food products from the moment the ingredients enter the factory to the moment they leave.
For example, to prevent a widespread health crisis from Mad Cow disease or E. coli contamination, beef processors must be able to track every hamburger back to the cows that were used to make it. Tracking and sensing technology allows companies to trace every ingredient from every supplier. This helps the government identify and recall tainted food before it is widely consumed. It also provides the companies with a way of streamlining their purchasing function and lowering their inventory of ingredients.
In the information technology industry, Xerox is one of the most visible company that is
embracing quality by applying “Lean Six Sigma,” with help from General Electric. Lean Six Sigma is a method for improving quality by getting rid of defects in business processes. According to Business Week,3 GE combined Six Sigma with lean manufacturing approaches that Toyota used in the 1980s. When Xerox hired General Electric Billing to take control of its flawed billing process, GE introduced Xerox to this powerful new approach.
Now Xerox and other companies are using Lean Six Sigma for everything from improving simple processes like credit checks to streamlining complicated processes like product design.
Xerox started using Lean Six Sigma in 2002 and has rolled out 250 projects. In 2003, it received a $6 million return on a $14 million investment in the program. Overall, its net income rose by 50 percent compared to the previous year.
The returns from its Lean Six Sigma projects include a savings of $240,000 when the company was able to identify defective parts in a new manufacturing technique that had caused a loss of 10 percent of toner during production. Xerox saved another $1 million when it used Lean Six Sigma to identify mistakes in translations in software manuals into foreign languages.
Now the company is using the tool to help its customers. For example, it saved $800,000 for Bank of America by cutting the number of document centers in the bank from 13 to four, and reducing the time needed to complete a job by 50 percent.
Finally, in the automobile industry, car manufacturers are making major improvements in quality ? and it shows.4 In the past 25 years, American cars have lagged far behind Japanese imports in quality surveys by Consumer Reports and J.D. Power.
Now that’s changing. Since 1998, according to research by J.D. Power, defects in American cars have fallen by nearly 33 percent. General Motors performed best at 120 problems per 100 cars. DaimlerChrysler was second with 123, and Ford ranked third at 127. Just six years ago, the average was 182, according to a report in CNN/Money.
Consumer Reports introduced its rankings of new cars in April by pointing out the big improvements in the quality of U.S. manufacturers. “It’s the first time American cars have done so well,” the magazine pointed out. And in an interview in the Christian Science Monitor, a program manager for the publisher of Consumer Reports explained, “The domestics have made a strategic decision that they have to make quality a priority if they’re going to win back a share of this market.”
Detroit’s improvements have come through several important changes. Companies have empowered workers to find and fix problems that affect quality. They’ve developed better product designs that make cars easier to assemble correctly. They’ve reduced the number of parts used across car models, so that the parts that haven’t broken down in the past are built into more models. And they’ve forged closer links with suppliers, while also demanding longer warranties and lower prices on parts.
The result is that American cars are rapidly closing the gap with Japanese cars on quality. The car that received the highest rating in Consumer Reports’ 2003 study was the Buick Regal. According to the senior director of vehicle research at J.D. Power, reliability across all models is increasing by 5 to 6 percent annually. “If you’re not improving by at least that amount, you’re going to fall behind in the rankings.” While Japanese cars have improved by 23 percent in the past five years, American cars have gone up in quality by 26 percent.
Looking ahead, we offer the following forecasts for this trend:
First, in the short term, manufacturers will continue to improve their bottom lines by focusing on quality. In one industry after another ? food, cars, drugs, and more ? the companies that have survived the economic downturn and emerged as winners during the recovery are those that have used tools like Lean Six Sigma or PAT to cut their defects and increase their profits.
Second, manufacturing will be dramatically transformed by the next wave of technology: nanotechnology. After the short-term focus on quality we’ve just discussed, the basis for future success depends on innovation. We’ll explore this trend in detail in Trend #5. Instead of training workers to put parts or ingredients together, the new nanotech process relies on atoms that assemble themselves. This will reduce the amount of waste in the manufacturing process and cut the costs involved. Ultimately ? perhaps 10 or 15 years from today ? molecular-scale machines will assemble integrated circuits or conduct medical tests. Xerox’s R&D laboratories are working on toner particles at the nanoscale that will enable its products to perform better. In this way, manufacturing quality will keep improving.
References List :
1. Business Week, May 3, 2004, "The New Factory Floor, and Tomorrows," by Adam Aston, John Carey, and Olga Kharif. ⓒ Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved. 2. Business Week, May 3, 2004, "Making Pills the Smart Way," by John Carey and Michael Arndt. ⓒ Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved. 3. Business Week, May 3, 2004, "How Xerox Got Up to Speed," by Faith Arner and Adam Aston. ⓒ Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved. 4. Christian Science Monitor, April 16, 2004, "In Reliability, Detroit Forces BMWs, Benzes Off the Road," by Eric Evarts. ⓒ Copyright 2004 by Christian Science Publishing Society. All rights reserved.
