Quality and Deming in a Nutshell

by Rafael Aguayo
I was taken aback recently when some people who knew me personally but were not familiar with my work asked me what my books were about. I went into a long winded comprehensive explanation that probably left them baffled. In attempting to explain it all I explained nothing.

A much simpler illustration of quality and Deming comes from everyday experience. This week I needed to replace certain planks on my red cedar deck after 20 years of use. A web search taught me how best to change the wooden planks that were rotting. One expert recommended I buy my red cedar boards from a local lumber yard rather than the big national box stores. The quality was supposed to be better, as was the price and service.

I visited a local lumber yard and in the warehouse made a comment that this was a lot of wood. The worker who was picking out the wood for me made a comment that they always seemed to be running out and I asked if that was due to quality. He said “Yes, you would be surprised with what comes in here some days. They seem to buy from whichever mill has the lowest price.” He put aside some pieces of wood that were unacceptable to find me 3 good pieces.

Having been a consultant for years I immediately understood what was going on. Management was trying to save money, especially in a recession. For the construction industry this is actually a depression. But in going for lowest price they are actually losing money. There is more waste. Customers will not accept the lower priced and lower quality wood. In some cases if they do accept it they send it back. Not only must the poor quality wood be disposed of eventually, but fuel and labor are used to stock and unstock the bad product.

Here management fails to realize that lowest initial cost can be the highest cost when all costs are considered. Deming would say that lowest initial cost might be the highest total cost. Initial cost is just one cost. In fact Deming said that price without consideration of quality is meaningless. In the case of the lumber yard there are increased waste, labor, fuel and other handling charges to consider as well.

To someone versed in Deming this seems obvious but to the traditional manager this is a big step that needs to be understood before he can transform and improve. But we can expand this example a bit further. It is not just initial cost that can be very deceptive. Any kind of cost cutting can have the same effect. When people focus on cutting costs and claim they have saved $17 Billion they are making the same mistake. Sure management cut some costs. They did their study and found a way to lower intermediate costs. But did waste increase anywhere else in the company? Did other costs rise anywhere else in the company as a result of their cost cutting? The answer is probably yes. Thus companies that are involved in cost cutting are trying to cut costs again the next year as somehow costs keep rising.

But I have not yet talked about the biggest cost of all. When I went back to the lumber yard to get more wood another worker was there and I went in with him to pick out the wood. He pulled out 6 pieces and I would only accept 3. When I brought the wood home I noticed that one of the pieces had some markings on part of it. It was not major but I would not have accepted the piece if I had seen the defect at the lumber yard.

I made the decision not to ever buy from them again. It is just too much work to make sure that the quality of their wood is acceptable and even then I still might miss something.

The largest expense from managing by costs, cost cutting and the resulting poor quality is the loss of the customer. Thus Motorola which claimed the huge $17 Billion in cost savings saw their market share plummet from over 50% to 3%. And the market value of the company fell from over $50 billion to $6 billion. That latter figure was the estimated value of their patent portfolio alone. The rest of the company according to the market was worthless. They had been continually losing money every year for many years.

In a nutshell this is what quality is about. And as Deming said, “I see no evidence that anyone is interested in profits.”

 

 

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