Offshoring Companies Need to Consider Risks
Most experts don’t see an end to the offshoring trend, but with an estimated half of all offshoring operations falling short of expectations, companies considering sending their operations overseas have to consider the risk--not merely the rewards--of doing so.
These findings come from a report, “Thinking Offshoring Through: A Framework for Decision Makers,” released by The Conference Board. The report reveals that unless corporate leaders address the full spectrum of offshoring challenges, underperformance will grow, leading to significant effects on corporate operations.
“Companies now need a comprehensive decision-making framework to help senior executives rationally and systematically assess the risks and rewards of offshoring,” says Ton Heijmen, senior advisor to The Conference Board on offshoring and outsourcing.
The report reveals that many companies that offshore operations suffer from poor project management, inadequate internal and external communications, and ill-conceived transition plans. Many companies focus on security risks and neglect others: damage to the company’s reputation, social responsibility, human capital, and regulatory and legal difficulties.
The report concludes that successful offshoring operations depend on the comprehensive analysis of a full spectrum of factors: location, process, scope and participating business units among them. Successful companies must consider the tradeoffs of cost, proximity, convenience, time to market and depth of resources. They must survey all of their options in each available market, from the quality of vendors and staff (and their skills, language abilities and motivation), to the offshoring country’s business environment and the availability of government incentives. The report endorses the use of a risk management framework for offshoring organizations.
“Once a company outsources or offshores, it is on its way to creating a virtual corporation--a network of companies and operations that must work together and should act as if they were one integrated firm,” says Heijmen. “Beyond advanced information technology and communications capabilities, this virtual organization requires special approaches to organizational and behavioral management, and the coordination of internal and external relationships.”
The Conference Board will host its Strategic Outsourcing Conference in New York City, April 27-29. For more information, visit www.conference-board.org.
Orion Registrar Forms Chinese Partnership
Orion Registrar Inc. and Shenyang Auditor Training Center recently partnered to create Orion (Shenyang) Registration Inc., a bid to expand Orion’s business in rural northeastern China.
“The establishment of Orion (Shenyang) Registration Inc. will make up for the shortage of registration resources and projects in the northeast of China,” says Chenhong, Shenyang Municipal Government vice secretary-general. “It will develop a vigorous northeastern industry base and will flourish in the northeastern economy. We can learn from and draw on ORI’s registration experience. The establishment of our partnership promotes international cooperation and improves the level of the registration industry. It will play an important role in earning foreign exchange and eliminating the technical trade barrier.”
For more information, visit www.orion4value.com.
Streamline Your Operation
The best-designed factory will produce nothing unless it is told what to make and a system is in place to bring in materials and ship goods, according to Michel Baudin’s latest book, Lean Logistics: The Nuts and Bolts of Delivering Materials and Goods (Productivity Press, 2005).
In the first installment of his “Nuts and Bolts” series, Lean Assembly (Productivity Press, 2002), Baudin focused on the assembly process, extending as far as part presentation. In Lean Logistics, Baudin completely covers the details of distribution, customer-supplier relationships and production control information flows.
He asks such questions as:
Are your warehouses full while production is stopped by shortages?
Do you know what you have and when the next replenishments will come?
Do your customers complain that your lead times are too long and that your deliveries are late?
Does the volume of your logistics activity vary erratically?
For more information on Lean Logistics, contact Productivity Press by calling (212) 686-5900.
Products are Better, Service Isn’t
A recent study by the American Society for Quality provides a comprehensive look at how consumers view quality, but the view isn’t necessarily good.
On the whole, consumers have a favorable opinion of product quality, but their collective opinion on service quality has taken a nose dive over the past decade.
The findings were part of ASQ’s debut of its Quarterly Quality Index, which includes a 10-year analysis of the effects of quality assurance programs on a variety of industries. The comprehensive study found that in most industries, quality improvement has failed to keep pace with customer expectations, indicating that there is a significant opportunity to improve business results through better quality systems and processes.
The Quality Index, which is derived from the American Customer Satisfaction Index, indicates that customers’ perceptions of quality have declined 0.8 percent over the past decade; anything over a 0.3 percent drop is considered a statistically significant decline. The study indicates a notable discrepancy between product quality and service quality. Product quality has been relatively stable over the past decade (86.9 in 1994 vs. 86.3 in 2004), as manufacturers have long had quality systems in place, ensuring uniform production of tangible goods.
Less-standardized service quality hasn’t fared as well. In 1994, customers rated service quality at 80.3; in 2004, it was rated 78.3.
“There is no anchor to customer expectations,” says Jack West, former ASQ president. “What customers expect today is not what they expected 10 years ago. Successful companies must continually ramp up their quality practices to keep pace with ever-increasing consumer demands.”
Hotels demonstrated one of the highest quality scores in the service industry, showing gains in both perceived quality and value. During that time, several major chains instituted quality improvement efforts. For example, Starwood Hotels and Resorts, which registered a 7.1 percent gain (the largest gain in the hotels industry), implemented Six Sigma companywide and installed Heavenly Beds and Sweet Sleepers in two of its major brands--Westin Resorts and Sheraton Hotels.
In the fast food industry, the product quality of pizza chains such as Papa John’s, Dominos and Little Caesar’s fared well with consumers, but their traditional counterparts didn’t. Burger King and McDonald’s fell 2.1 percent and 5.7 percent, respectively.
Notable declines were to phone companies (which dropped 9%), airlines (5.8%), personal computers (5.5%) and the automotive industry (2.1%).
“We are seeing super-quality, premium brands such as BMW doing extremely well, demonstrating that consumers are willing to pay for high quality,” West says. “At the opposite end of the spectrum, certain categories such as traditional fast food and big-box retailers, whose focus is primarily on price, are not meeting expectations. I believe that the evidence is mounting that price alone is not a viable long-term business strategy. Successful brands must focus on quality as well as cost to provide superior value to their customers.”
For more information, visit www.asq.org.
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Quality Means No Secrets
When United Southern Industries faced increasing foreign competition and a downturn in the U.S. economy, it didn’t order cutbacks or layoffs like many of its competitors. Instead, the company chose to invest in its shop floor employees and adopt a stringent quality effort to facilitate a turnaround.
The quality and management programs have worked: its innovative Cost of Inferior Quality and Quest for Success management programs saved this North Carolina-based injection molding manufacturer $1.1 million in 2003 and another $327,000 in 2004.
The programs keep United Southern Industries’ employees fully informed about the company’s financial status. Factors that negatively affect company performance or profitability are assigned dollar values, clearly illustrating to individual employees what their actions mean for the company as a whole.
“United Southern Industries keeps us up-to-date on everything from health care costs to what’s driving the business we are getting and losing,” says Lisa DosSantos, shop floor machine operator. “Most companies keep this a secret, but not here.”
The company also invests heavily in education, providing each employee with an average of 100 hours of training per year. This allows employees to become certified in their job skills, and the company boasts a large percentage of Society of the Plastics Industry certified operators and several American Society for Quality-certified workers. The company is registered to ISO 9001 and QS-9000, and has implemented Six Sigma and lean manufacturing practices.
In 2003, United Southern Industries implemented an innovative workplace game called Power Dots. The game is posted on a large board in each facility, and keeps “score” of each shift’s efficiency, scrap, yield, sales, labor use and return material authorizations. Each shift works together to advance its game pieces, creating friendly competition among the workforce.
“Employees absolutely love the programs,” says Todd Bennett, United Southern Industries president. “There’s a sense of trust built up now that all employees have access to the financials, understand what the company is doing with the money, as well as how their position affects the bottom line. Our profitability is up, our labor costs are down and job errors are dramatically lower.”
The programs have had the following effects on United Southern Industries:
In fiscal year 2003, internal rejections/scrap was reduced by 41.2 percent.
In fiscal year 2004, internal rejections/scrap was reduced by an additional 13.4 percent.
External rejects and returns reduced by 65 percent
In fiscal year 2003, corporate efficiency increased by 8.1 percent.
In fiscal year 2004, corporate efficiency increased by an additional 7.7 percent.
For more information, visit www.unitedsouthern.us.
Customer Satisfaction Plunges
After two years of steady increases, customer satisfaction with goods and services purchased and consumed in the United States has taken a dramatic downturn, according to the latest American Customer Satisfaction Index.
The ACSI for the fourth quarter of 2004 was 73.6, down from 74.3, the largest decline since 1997. The drop is mostly due to waning satisfaction with retail customer service, high gas prices and a glut of user traffic on e-commerce Web sites. Claes Fornell, director of the ACSI and business professor at the University of Michigan, says that the decline may spell trouble for the economy.
“Customer dissatisfaction with the quality of goods and services offered in the marketplace is more than a nuisance,” he says. “The U.S. economy is heavily dependent on increases in consumer spending. Such increases are hard to come by when consumers become less satisfied.”
For more information, visit www.theacsi.org.
In the 2005 Registrar Directory (February 2005 issue), we inadvertently left out International Management Systems Inc. Its information should have appeared as follows:
International Management Systems Inc.
- 5420 Bay Center Drive, Ste. 200
- Tampa, FL 33609
- Ph: (813) 639-9876 Fax: (813) 639-9875
- Standard supported: ISO 9001
Quality Digest regrets the omission.
Quality Is Free Celebrates 25 Years
At a time when W. Edwards Deming, Kaoru Ishikawa and Joseph M. Juran were focusing on highly technical aspects of quality measurement and control, Philip B. Crosby’s landmark book, Quality Is Free, sent a far simpler message: Senior management must commit to quality to transform organizations, and performing tasks right the first time adds absolutely nothing to the cost of a product or service. Crosby showed managers all over the world that process errors cause costs to skyrocket, and that management is the root cause of most quality problems.
The book set off a revolution in corporate thinking upon its publication 25 years ago because it shifted the responsibility for the quality of goods and services from the quality control department to the corporate boardroom, attacked widely entrenched notions of “good enough” and acceptable quality levels, and introduced zero defects as the only acceptable performance standard, setting the stage for the Six Sigma movement that followed. The book became a bestseller.
Before Crosby’s book, it was commonly assumed that quality was achieved through inspection. Inspectors were necessary to sort the good product from the bad, with ever-more shipments requiring ever-more examiners. This mindset required that the creation of quality goods and services necessarily increased expenditures. Crosby’s philosophy was different: Perfect goods can be created through prevention, not inspection. The defect that is never created cannot be missed. In essence, quality is free for enlightened organizations.
“The 25th anniversary of Quality Is Free has given us all the opportunity to reflect on the state of quality today,” says Kevin Weiss, CEO of Philip Crosby Associates. “While the speed of business, the enabling technologies, and the global nature of markets has changed since Mr. Crosby wrote Quality Is Free, the basic link between quality and business results has not. The more a business follows Mr. Crosby’s pragmatic advice, the better it performs.”
Crosby was a prime figure in the quality industry, first as head of quality for ITT and then as a highly respected and sought-after quality consultant and educator. He followed the success of Quality Is Free with the publication of several more books, including Quality Without Tears, Completeness, The Art of Getting Your Own Sweet Way, Running Things and The Eternally Successful Organization.
Philip Crosby Associates will focus on Crosby’s legacy at the American Society for Quality World Conference on Quality and Improvement in Seattle, May 16-18. For more information, visit www.philipcrosby.com .