As a society we are inundated daily with bad news about the economy. Although things have gotten a little better, we still hear about declining markets, failing businesses, unemployment, home foreclosures, declining net worth, and evaporating 401k plans. Certainly, this news is unsettling, but this country has been there before and survived and we should expect to 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.
Companies are trying to remain solvent in the face of economic pressures and are looking at every opportunity to positively influence their bottom line. While it is imperative to be aggressive in their zeal to reduce costs, they must exercise due diligence in making cost cutting decisions or face the consequences of those decisions in the future.
Lately I have had several discussions about the merits of various cost reduction initiatives (suggestion programs, continuous improvement programs, Six Sigma, lean manufacturing, etc.). In addition to various quality assignments, during the course of my career, I have had experience with developing and implementing various cost improvement programs, including Six Sigma. All that doesn’t necessarily make me an expert, but it has given me a good deal of experience on the topic of continuous improvement.
My July column, “Focus on the True Enemy,” indicated there are wastes and extra costs everywhere that 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. On the contrary, they certainly are very significant to organizations in reducing or eliminating nonvalue-added activities. Unfortunately, however, the lack of management rigor and discipline can have negative consequences.
For instance, 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) so the change was rushed to production. As the component was subjected to actual stressors in the end-user environment, early-hour failures began occurring. These field failures, along with customer dissatisfaction and internal grief, could have been avoided with appropriate lab testing, which didn’t take place because of the rush to market.
Some companies with aggressive outsourcing initiatives have been surprised by severe quality problems from their suppliers. There have been many publicized examples of suppliers, under pressure to reduce costs, 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 such quality assurance steps can have severe negative consequences in the short-term as well as long-term.
Organizations must perform due diligence with verification and validation steps. Without doing the necessary work to ensure the effectiveness of cost improvement ideas, companies put their quality reputations, and ultimately their business, in jeopardy. Quality professionals should work to help their organizations avoid these catastrophes by being the voice of reason and projecting the voice of the customer.
Collect the data that is needed to make the correct decisions or face the 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 could be realized. After one company’s experience with short-circuiting a cost improvement initiative which 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 then 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 the loss of customers. When customers aren’t satisfied they will chose to look elsewhere to exercise their purchasing power.
Companies shouldn’t make the mistake of taking a short-term view to maximize their short-term profitability at the expense of their long-term growth. The smart business move is for organizations to implement carefully investigated cost-cutting measures while remembering to maintain a long-term perspective that will give their organization a sustainable strategic competitive advantage. Organizations might want to consider that they don’t have to do any of these things. Survival is not compulsory!