Quality Magazine

Quality Spending Outlook

May 5, 2003
The picture was cloudy. The signs mixed. Even before the Sept. 11 terrorist attacks, the economy was uncertain. That uncertainty, combined with the fallout from the tragic events of Sept. 11, impacted the bottom line of Quality magazine's Second Annual Quality Spending Survey. But a month later, as the initial shock of the events began to fade, a follow-up survey showed that the mood was more wait-and-see than doom and gloom.

It is in this context that Quality magazine forecasts the quality market for 2002. Our projections show that spending next year for test, measurement and inspection equipment, software and services will total $3.4 billion at the 45,000 plants served by Quality magazine. This is a drop of 15% compared to last year's $4 billion forecast for 2001 spending.

Because Quality's survey was ongoing during the Sept. 11 aftermath, a second follow-up study was conducted. Quality professionals from around the country were asked a few simple questions: What were your spending plans before Sept. 11? How did the attack affect these plans? When will the economy right itself?

Asked a month after the sneak attack what they thought the tragedy would mean to their quality initiatives, nearly 48% of them said that it has not affected their spending plans and another 28% said that it is too early to tell. Nearly 3% said that it would actually result in increased spending.

Many of those surveyed said that quality efforts would have to increase in the new marketplace. Terry Martin, for instance, who is the quality manager at Plastic Source Inc. (El Paso, TX), said that in the post-terrorist attack economy, producing a quality product will play an even bigger role in who gets business and who stays in business. The injection molding company is QS 9000 certified and is audited every six months, but is always looking for ways to improve its quality.

"I think companies will be more selective on who they are placing their business with," Martin says. "If your company is performing better quality-wise and reject-wise, then I think it is going to be the company that is considered for a contract."

Capital Spending Forecast
Of the $3.4 billion total projected by Quality for 2002 spending, manufacturers will shell out the most on test, measurement and inspection equipment. Spending in this segment, which includes everything from handheld calipers to large coordinate measuring machines, is expected to reach more than $1.7 billion.

The biggest category within the equipment segment is gages and gaging systems, a broad category that includes 14 types of equipment. Manufacturers are budgeting more than $771.9 million for these items, with handheld measuring tools being the largest single line item at $236.9 million. Rounding out the top three categories are: materials and product testing equipment, with an estimated $323.6 million in projected expenditures; "other equipment," which includes calibration equipment and data collection devices, for which spending is projected to reach $243.0 million; and coordinate measuring machines, with spending projected to reach $150.1 million.

Quality software expenditures are expected to top $600 million in 2002. The leading sellers are projected to be calibration software at $99.2 million, ISO 9000 software at $82.4 million, document control/management software at $77.6 million and statistical process control software at $67.9 million.

Spending on quality services is projected to reach almost $1.1 billion, split between services geared toward consulting and training, and those for test, measurement and inspection. The largest slices of the consulting and training service budget are certification and registration at more than $226.4 million and process improvement at about $104.1 million. For test, measurement and inspection, calibration services are the leading budget item at $306.4 million and lab testing is second at about $92.0 million.

As was the case last year, the primary motivation for the planned capital outlays is cost reduction, a goal identified by 57.2% of respondents. Increasing production capacity and realizing tighter part quality standards were also high on the list, at 43.1% and 40.7% respectively. Compliance with ISO/QS-9000 quality systems was the next most often cited reason, at 38.6%. A majority of manufacturers said that reducing costs was the primary reason for making investments in quality-related products.

When asked which cost elements are their primary targets when investing in new equipment, 68.3% cited manufacturing efficiency, while 52% identified scrap and rework. Smaller percentages cited direct labor and indirect labor costs, at 36.6% and 25.6% respectively.

As noted by Martin: "You need to keep price right, you need to keep the quality high and you need to find new ways of doing things. There are standard things that you have to do, but internally, you can do things to help in that area such as better work practices, better planning and those types of things."

The survey method
Quality magazine would like to thank all the respondents who participated in the Second Annual Quality Spending Survey and the follow-up flash survey.

Quality is sent to more than 80,000 manufacturing engineers, quality assurance supervisors and other professionals in more than 45,000 plants. Questionnaires were mailed in August 2001, to managers and other professionals who hold the highest degree of equipment purchasing influence in a representative group of 5,000 plants. The cutoff date for returning the surveys was Sept. 31. Some 868 surveys were returned for a response rate of 17.9%. To estimate 2002 spending data, responses were weighted to the number of plants in each industry served by Quality magazine--SICs 30, 33, 34, 35, 36, 37, 38 and 39.

The flash survey was conducted during mid-October. An e-mail was sent to more than 3,000 quality professionals with similar titles and who worked in the same industries as the larger survey. Those surveyed were asked to click on a hyperlink that sent them to a secure page on Quality's Web site. The survey was taken by 214 people for a response rate of 6.9%

For more complete analysis of Quality magazine's Second Annual Quality Spending Survey, including geographic, company size and industry data, visit Quality's Web site at www.qualitymag.com. While there, read what other survey respondents said about this issue, and take a look at government and industry reports.