Chapter 2 QUALITY AND GLOBAL COMPETITIVENESS

The relationship between Quality and Competitiveness Cost of Poor Quality Impact of Competitiveness on Quality of Life Factors Inhibiting Competitiveness Comparisons of International Competitors Industrial Policy and Competitiveness Technology and Competitiveness Human Resources and Competitiveness Characteristics of World-Class Organizations E-Commerce, Information Quality, and Competitiveness Management by Accounting: Antithesis of Total Quality Key Global Trends U.S. Companies: Global Strengths and Weaknesses

The Relationship Between Quality and Competitiveness At each successive level of competition, the quality of the competitors has increased. In business, the competition is now moved from local, regional or national level to International level, which is making it tougher day by day. Now only those companies who are able to produce world-class quality can compete at international level. It is extremely important for a countrys business to be able to compete globally. When they cant, jobs are lost and the quality of life in that country declines correspondingly. Cost of Poor Quality Quality costs money? Should quality be reduced to cope up with financial constraints? Example: Two companies ABC, Inc. and XYZ, Inc., both need to compete in the global market place in order to survive. ABCs executives take major cost-cutting initiatives such as eliminating quality audits, choose low-bid suppliers, cut back on R&D, etc. XYZs executives try to eliminate extra costs such as costs associated with later deliveries to customers, billing errors, scrap & rework, etc., without compromising on quality. Which company will survive in long run?? The costs of poor quality account for 15 to 30% of a companys overall costs. Reducing the costs associated with poor quality is mandatory for companies that hope to compete in the global marketplace. Factors To Consider when Quantifying the Costs of Poor Quality Traditional Costs Waste Rejects Testing Rework Hidden Costs Excessive overtime Pricing errors Billing errors Excessive turnover Premium freight costs Development cost of the failed product Field service costs Overdue receivables Customer returns Inspection Recalls

Expediting System costs Planning delays Late paperwork Lack of follow-up Excess inventory Customer allowances Unused capacity

1|Page

Handling complaints If every Activity in an Organization is Performed Properly every time , These Costs Simply Disappear. Steps to measure the costs of poor quality 1. Identify all activities that exist only or primarily because of poor quality. 2. Decide how to estimate the costs of these activities. 3. Collect data on these activities and make the cost estimates. 4. Analyze the results and take necessary corrective actions in the proper order of priority. Improvements in product or service features can lead to higher market share at a better price, which, of course, means highe r revenue. Impact of Competitiveness on Quality of Life A nations ability to compete in the global marketplace has a direct bearing on the quality of life of its citizens. Quality of Life Issues in the United States

Factors Inhibiting Competitiveness Business/Government-Related Factors Emphasis on short-term profits fed by fear of unfriendly takeover attempts and pressure from lenders or shareholders. Excessive medical costs. Excessive costs of liability inflated by lawyers working on contingency fees. To overcome these business-related inhibitors, it requires business and government to work together in a positive, constructive partnership to enact policies that will reduce the non-value added costs to a minimum. Family-Related Factors Human resources are a critical part of the competitive equation. The more knowledgeable, skilled, motivated, and able to learn members, the better the labor pool will be. Family background play an important role in basic education of the kids. The countries with strong family values are found to be better in educating their kids and hence producing knowledgeable and smart workers. Education-Related Factors The quality of a countrys education system is a major determinant of the quality of its labor pool. The higher the quality o f the labor pool, the higher the quality of entry-level employees. Comparisons of International Competitors The U.S. dropped from being the second most competitive country in the world community in 1950 to the fifth in 2004 with Japan first, Germany second, Switzerland third, and Denmark fourth. The assessment is based on a nations domestic economic strength, internationalization, government infrastructure, finance management, science and technology, and work force. These results were based on Four Critical Indicators of National competitiveness , shown as follows : 1. Standard Of Living 2. Manufacturing Productivity 3. Investment 4. Trade

2|Page

How the Government can help? 1. Provide incentives that encourage business to behave in ways that promote competitiveness. 2. Remove barriers that mitigate against competitiveness. Essential Components of US Industrial Policy

Technology and Competitiveness Technology is the physical manifestation of knowledge. In a competitive environment where knowledge is King, well-designed technology can enhance an organizations competitiveness. Competitiveness-enhancing manufacturing technologies

3|Page

Human Resources and Competitiveness The most valuable resources for enhancing competitiveness are human resources. Germany and Japan are the best examples of effective human resources utilization. Strategies for human resources competitiveness in Japan and Germany

Characteristics of World-Class Organizations According to the American Management Association ( AMA ) the following are the top 15 areas in which Organizations are concerned about doing well as they attempt to compete in the Global Marketplace : Customer service. Quality control and assurance. Research and development/ new product development Acquiring new technologies Innovation Team-based approach (adopting and using effectively) Best practices (study and use of) Manpower planning Environmentally sound practices Business partnerships and alliances Reengineering of processes Mergers and acquisitions Outsourcing and contracting Reliance on consulting services Political lobbying The AMA survey also found that respondents were concerned about several Human Resources topics , The 10 most Important of these are : 1. Worker productivity (improvement) 2. Employee training and development 3. Open communication between management and employees 4. Employee benefits and perquisites 5. Codes of workplace conduct 6. Conflict resolution 7. Employee satisfaction 8. Flextime arrangements 9. Management-employee-union relations 10. Child care World-class manufacturing: What it takes? 1. Competitive analysis strategies (cost efficiencies in operations, speed to market, research and development supremacy, zero defects, real-time order management etc.)

4|Page

Production and supply chain (collaborative planning, forecasting and replenishment, collaborative manufacturing and product design, supplier-managed inventory etc.) 3. Customization strategies (building to order, customized mass production, global sourcing and manufacturing, etc.) 4. Electronic commerce strategies (supply management, Internet ordering, status and availability tracking by Internet) 5. Compensation systems (product profitability, inventory levels, manufactured/delivered costs per unit, worker productivity, employee retention rates, etc.) E-Commerce, Information Quality, and Competitiveness Organizations that hope to gain the benefit of e-commerce must make a full commitment to information quality. Poor information quality can be costly. The use of electronic commerce as a business strategy clearly has its advantages . E-Commerce can also have a downside if not handled. Clearly E-Commerce will be a major business strategy of many companies but many will fail because they dont realize the new demands on their Quality systems .. And wont make the changes necessary to manage in this highly Competitive world. Steps in establishing an effective information quality program 1. Assessment All key business processes should be systematically reviewed to identify potential information quality problems. 2. Prioritizing Change Once potential problems have been identified, they should be prioritized. Those that have the greatest potential payoff should be given the highest priority. 3. Redesign and reeducation Information systems and processes should be redesigned and personnel should be trained. 4. Reintegration An ongoing process of smoothing out the boundaries among the various redesigned processes. Management by Accounting : Antithesis of Total Quality Management by accounting Managing an organizations financial results instead of managing the people and process that produce those results. Also called managing by the numbers. Disadvantages of Management by Accounting It creates an analytically detached approach to decision making in which managers study financial printouts instead of gaining the insight that comes from first hand knowledge of the situation. It promotes a focus on short-term cost reduction. It makes for narrowly focused managers who review every problem from a finance and accounting perspective. Key Global Trends 1. No major traditional hot or cold war for the foreseeable future. This stability sets the stage for increased global trade. 2. No major banking disruptions. 3. Increasing potential for an interruption in the Worlds oil supply. 4. Fundamental shift in labor-management relations. Current Global Trends 1. Growing irrelevance of distance. 2. Shifts in the rates of growth of countries. 3. Rise of magacities. US Companies: Global Strengths and Weaknesses Factors that account for a countrys ability to compete in the international marketplace: 1. An economy that is open to foreign investment and trade. 2. A government that minimizes control on business, but does a good job of supervising financial institutions. 3. A judicial system that works well and helps reduce corruption. 4. Greater transparency and availability of economic information. 5. Higher labor mobility, which enhances productivity and thus living standards. 6. Ease of entry by new business. Global Advantages of U.S. Companies 1. Strong entrepreneurial spirit. 2. Presence of a small capitalization stock market for small and midsized companies. 3. Rapidly advancing technologies. 4. Comparatively low taxes

2.

5|Page

5. Low rate of unionization 6. World-class system of higher education. Global Disadvantages of U.S. Companies 1. Expanding government regulation. 2. A growing underclass of have-nots. 3. A weak public school system (K-12). 4. A poorly skilled labor force and poor training opportunities. 5. An increasing protectionist sentiment (to restrict imports). 6. Growing public alienation with large institution (public and private)

6|Page