- THE MAGAZINE
- WEB EXCLUSIVES
These are turbulent times. We are inundated daily by the media with bad news about the economy. We’ve heard about declining markets, job loss, home foreclosures, declining net worth and evaporating 401(k) plans. Certainly, the news is unsettling, but this country has been there before and survived, and we will overcome again!
We must proactively prepare for the eventual recovery while surviving the current economic downturn, which has repeated many times in our history. We need to continue to hone our skills and improve our processes so we are prepared for the recovery.
A company’s first priority is the continuation of the business. Companies are trying to remain solvent in the face of economic pressures and are looking at every opportunity to positively influence the bottom line. While it is imperative to be aggressive in our zeal to reduce costs, we must make diligent decisions or face the consequences of those decisions.
Lately, I have had several discussions about various cost reduction initiatives, including employee suggestion programs, quality circles, Six Sigma and lean. I have experience with developing and implementing people involvement programs and am a certified Six Sigma Black Belt. That doesn’t necessarily make me an expert, just a person with a good deal of experience on the topic of continuous improvement.
In my May 2009 column, Wage War on Waste, I said that waste and extra costs should be identified and removed from an organization. However, we need to make the point that cost reduction, by itself, very seldom leads to quality improvement; but properly executed quality improvement initiatives often lead to cost reduction.
This isn’t meant to indicate that any of the numerous continuous improvement programs are not valuable. They certainly are very significant to organizations in reducing or eliminating the non-value-added. Unfortunately, however, the lack of management rigor and discipline can have negative consequences.
One company wanted to reduce material costs for an expensive component. Engineers worked diligently to find an alternative. The new material passed all virtual stresses in their finite element analysis (FEA) and the change was rushed to production. As the component was subjected to actual stressors in the end-user environment, failures began occurring early. This could have been avoided with appropriate lab testing.
Some companies with aggressive outsourcing initiatives have been surprised by severe quality problems. There have been many publicized examples of suppliers that were under pressure to reduce costs, and ended up making incorrect decisions with disastrous repercussions. Most of these situations could have been avoided with validation testing to ensure compliance to requirements or customer expectations. Failing to take assurance steps can have negative consequences.
Organizations must perform due diligence with verification and validation steps-and these are not the same, but I’ll save that for another column. Without doing the necessary work to ensure the effectiveness of cost improvement ideas, we will be putting our quality reputations, and ultimately our businesses, in jeopardy.
Collect the data that is needed to make the correct decisions or face the negative consequences, which can be debilitating to an organization. The resulting cost of poor quality may be a greater cost disadvantage than any cost improvement that can be realized. After one company’s experience with short-circuiting a cost improvement initiative that failed to deliver expectations in the marketplace, a company spokesman said, “We had to spend far more money to analyze customer returns and incur warranty costs than we saved with the cost reduction idea.”
Do the right thing for the right reasons. If not, surviving the economic downturn may be more costly in the long run with loss of your quality reputation and ultimately loss of customers.