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William A. Levinson

Quality Insider

Does Industry Need a Social Responsibility Standard?

A social responsibility (SR) standard can fit in an SR policy

Published: Tuesday, March 13, 2012 - 11:49

Bowers and West, authors of the article, “Getting on Track,” in the May 2011 issue of Quality Progress, describe ISO 26000 as a guidance standard “that can help manage social responsibility (SR) issues at your organization.” The reference adds that ISO 26000 was developed by experts on governance, human rights, labor practices, environment, operating practices, consumer rights, and community rights. The International Organization for Standardization (ISO) website provides a detailed overview of what appears to be a fairly extensive standard, but Henry Ford defined social responsibility in a single sentence long before anybody heard of the concept.

The following 17 words are, in fact, sufficiently comprehensive to serve as a corporate SR policy:
Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.

Assessment of this statement from the supplier, input, process, output, customer (SIPOC) perspective shows that this statement reflects a square deal for all participants in a supply chain and encompasses social responsibility comprehensively. Consider first the identity of the stakeholders:
1. Customers
2. Employees
3. Suppliers
4. Investors
5. The society in which the business operates

If the organization makes the best quality of goods possible at the lowest cost possible, its customers get their money’s worth and therefore a square deal. The same goes for employees who receive the highest wages possible, i.e., what their jobs are actually worth as opposed to how little the employer can manage to pay them. Incidentally, in My Life and Work (Doubleday, Page & Co., 1922), Henry Ford and Samuel Crowther summarized the entire science of industrial and labor relations in a single sentence: “It ought to be the employer’s ambition, as leader, to pay better wages than any similar line of business, and it ought to be the workman’s ambition to make this possible.”

This single sentence encompasses the reciprocal obligations of management and labor. Management earns employee buy-in and engagement by paying what the job is worth, while labor makes the job worth more by looking for ways to improve productivity instead of soldiering (marking time to limit output) and demanding restrictive work rules. Ford and Frederick Winslow Taylor both cited managers who looked for ways to cut wages or piece rates as the direct cause of the latter dysfunctional practices.

The elimination of all forms of waste from the supply chain, which was among Ford’s primary objectives, leaves plenty of money with which to pay investors enormous profits. Ford however bought out his investors because many of them put the profits ahead of the work that earned them. His specific issues with his investors included the latters’ desire to charge as much for automobiles as the market would bear instead of asking as little as the manufacturing cost could justify. Ford actually refunded some money to customers when he discovered that his production costs were lower than expected.

Where does this leave suppliers and society? The SIPOC model takes care of the former by implication because every customer in a supply chain is also somebody else’s supplier, and every supplier is somebody’s customer. An addendum to Ford’s statement could make the relationship more explicit: “Pay suppliers as much as possible consistent with their reciprocal obligation to deliver at the lowest cost possible.” This was, in fact, Ford’s actual policy.

In Today and Tomorrow (Doubleday, Page & Co., 1926), Ford and Crowther write: “The man finally consented to try to manufacture at exactly one half his former price…. Under the pressure of necessity, he found he could make cost reductions here, there, and everywhere, and the upshot of it was that he made more money out of the low price than he had ever made out of the high price, and his workmen have received a higher wage.”

“Pressure of necessity” did not, however, mean squeezing the supplier as many big customers do today, but rather supplier development. As noted in My Forty Years with Ford, by Charles E. Sorensen with Samuel T. Williamson (W. W. Norton & Co. Inc., 1956), Ford’s production chief, Charles Sorensen, figured out that that the car bodies could be built for $50, and Ford offered $72 per body or a 44-percent markup.

The supplier had originally wanted $152 per body but, given his own wasteful methods of manufacture, he would have earned far less overall profit. It is particularly telling that the supplier could also pay the highest wages possible after he implemented Ford’s methods.

The delivery of value to all supply chain stakeholders meanwhile enriches society as a whole. Workers who earn high wages buy more goods and services from those around them, as do investors who receive good returns on their investments. Ford’s industries, in fact, tended to largely eliminate poverty from the communities in which they operated. Ford and Crowther elaborated further on his proven business methods in Moving Forward (Doubleday, Doran, & Co., 1931): “These fundamentals are not peculiar to the automobile industry and they apply to any business, large or small. They are universal. If they were adopted, a flood of properly-made goods would flow through every nook and cranny of the country, drive out high prices, produce employment everywhere at good wages, and make poverty impossible.”

Simple principles for implementation of social responsibility have therefore been available off the shelf for more than 90 years, and their application has already delivered proven results.



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About The Author

William A. Levinson’s picture

William A. Levinson

William A. Levinson, P.E., is the principal of Levinson Productivity Systems P.C. He is an ASQ Fellow, a certified quality engineer, quality auditor, quality manager, reliability engineer, and Six Sigma Black Belt. Levinson is the author of Henry Ford’s Lean Vision: Enduring Principles from the First Ford Motor Plant (Productivity Press, 2002). He holds degrees in chemistry and chemical engineering from Penn State and Cornell Universities, and night school degrees in business administration and applied statistics from Union College.

Comments

SR

How many different standards do we need to accomplish what we already know? The only entities that would gain from another standard are the registrars.