This is the English version of the previous post in Chinese. I gave this keynote speech in Xiamen for the Fourth China-America Conference on Quality in December 2012.
Relationships
Like most of the world,
customer-supplier relations in America have followed the Golden Rule: “He who
has the gold rules.” In the past, customers demanded high quality and low
price. Suppliers sacrificed on wages and maintenance because they needed the
business. For example, it was common for the American automobile corporations
to push their suppliers past the point where quality suffered. In the long run,
the car companies also suffered when failed parts caused customer unhappiness
and warranty repairs.
The high technology industries,
such as medical devices and aerospace, started implementing a partnership
approach to their suppliers. This was partly due to demanding regulations and high
consequences of failure.
On the other hand, the low
technology industries, such as food, chemicals, and service, were very harsh on
suppliers. For example, some firms suffered greatly while attempting to meet
the WalMart demand for absolute lowest price and just-in-time inventory controls.
The Great Worldwide Recession
of 2008 changed many things. Governments and enterprises were forced to reduce
services and production. Money stopped flowing and fear was high. As the
enterprise reduced production, they let employees and suppliers go. Many firms
closed their doors, never to operate again. As the recession ended and funds
began to circulate again, some customers had to look for different suppliers. Many
of the suppliers had invested in newer equipment and modern management methods.
They would no longer accept impossible demands from their customers. The government
loans to the American automobile industry forced those large enterprises to
pursue modern management principles. These principles included a systems
approach to quality, safety, and environment. These new ways are now being used
by the automotive suppliers and sub-suppliers.
The relationship between
customer and supplier is becoming more of a partnership. This is very pleasing
to ASQ members, as we know this is the proper relationship.
Outsourcing
Since the beginning of this new
century, America has gone through an intense period of outsourcing both
manufacturing and services. Processes that used to be performed by the
government or the enterprise were being performed by specialty firms. Examples
include call centers in Manila and contract software development in Bangalore.
Product packaging, distribution, and repairs were being contracted to outside
firms.
This should have resulted in
higher quality at less cost. Results were often disappointing. Contractors were
assigned work without the necessary background knowledge, so there was a steep
learning curve. Cultures were different and customers became unhappy. Some
significant failures attributed to outsourcing include the melamine
contamination of pet food and the delays in getting the Boeing 787 Dreamliner
to market.
While outsourcing still occurs,
it is becoming more focused. Where it makes sense, such as production of the
iPhone at Foxconn, it works well. However, government and industry are bringing
many processes back in-house. This is beneficial, in that the processes can be
re-engineered to be more modern and efficient. Bringing work home may also
reduce costs. It can allow the enterprise to regain control over design and
service. However, it can be challenging, in that the workers with memory of the
processes are no longer with the firm.
One of the biggest outsourcing
challenges facing American medical device manufactures is the need to employ
smart process validation controls. This is being stressed by our Food and Drug
Administration regulators, as machines become more automated. Decisions
formerly made by humans are now being made by software programs. While the
major medical device manufacturers understand the principles of validation,
many of their outsource contractors do not. Expect to see even more attention
to this matter by customer auditors as they review outsourced operations
overseas.
Workforce
Before the Great Worldwide
Recession, we still had a great many processes performed by manual labor. These
processes included stamping, assembling, and shaping parts. They included
inspecting shipments and finished work. They included distributing documents
and copying records. In fact, all basic processes (production, support, and
interface) were performed through manual labor. Advanced skills were not
necessary for a good-paying job. All of that changed during and after the
Recession, as manufacturers, governments, and their suppliers began to automate
processes formerly done by humans. The demand for higher skills increased, but
the educational infrastructure is not able to produce people with these special
skills. That is another of the many reasons why the unemployment in America
remains high.
This increased automation and
redesign of work has affected professional staffing as well. In the past, the
purchasing professionals and the quality professionals had very little
integration. Safety and environmental professionals were rarely consulted in
supply chain management. Today, we see the beginnings of a team approach.
Purchasing, quality, environment, safety, and engineering are starting to
understand the importance – and efficiency – of working together.
Perhaps more significant is the
increasing use of software to generate and execute legal contracts between
customers and suppliers. This is reducing the need for humans to think. As a
result, customers are not clearly stating what they really want, and suppliers
are forced to make assumptions. For example, large manuals of general
requirements are forced on all suppliers, regardless of where they are located
and what they provide. There is no customization, because the computer code
developers did not include that feature. Another example is the use of
Certificates of Compliance that are never examined by suppliers or their
customers. The world has a significant challenge here, as we attempt to
integrate the computer brain with the human brain.
Management Systems Integration
The advanced nations of the
world have progressed through four eras of management. By about 1925, most of
these nations had completed their major shift from an agricultural economy to
an industrial economy. During the period from 1925 to 1975, we were in the
control era, where the focus was on defining and controlling characteristics,
conditions, and contaminants. We emphasized specifications and inspections.
From 1975 to 2000, we were in the assurance era, where the focus was on defining
and following processes. The first generation of quality management standards
was based on “say what you do and do what you say.” With the major rewrite of
ISO 9001 in the year 2000, we entered the management era. We established and
certified separate management systems for quality, safety, environment, and
security. Some of these systems promoted good, while other systems minimized
evil. We are now entering the integration era, where these different management
systems come together to provide a holistic approach for business and
government. Of course, we do not reject our past tools and technologies. We
will continue to use the proven control, assurance, and management methods, but
in our new journey to identify and manage risk – in all its many forms – and
promote sustainability.
Before the Great Worldwide Recession,
America was somewhat behind the Europeans in our understanding of this
integrated approach. That understanding and application is increasing rapidly.
For the past five years, the ASQ World Conference has promoted presentations of
integrated systems and risk management. ISO 31,000 is being purchased, read,
and applied.
Emerging issues
American consumers are paying
more attention to the country of origin. Politicians and media are urging us to
buy locally. “Made in America” is becoming a powerful brand for many items,
such as clothing, furniture, and appliances. When it makes sense, items and
processes formerly outsourced are coming home. In purchasing goods and services
made locally, we believe we can reduce environmental damage and keep jobs and
skills.
We are also seeing more
emphasis on scientific development, as promoted by China’s general secretary
Mr. Xi Jinping. When making purchasing decisions, American firms are now
considering environmental, sustainability, and social responsibility
consequences. This is coming from business principles as well as government
policies. I believe the second term of American President Barak Obama will
continue this trend.
In addition to the
human-machine challenges I mentioned earlier, automation is causing security
problems with our various networks. Customers and suppliers are linked through
the Internet. Reliability and data protection are serious issues. Service
providers are having their networked databases compromised. Automated
controllers for our electrical grid and transportation systems are seriously
vulnerable to attack. These security issues must be addressed by government,
industry, and their supplier partners.
Summary
Customer-supplier relationships are changing and
maturing. The concept of suppliers as partners, not slaves, will continue.
While outsourcing will continue, it will be smarter. Some of this outsourced
work will return to the government and business, but lost knowledge will take
time to develop. The number of jobs for unskilled workers will continue to
decline. This is forcing Americans to seriously examine our public education
models. Professional staff involved with customer-supplier relations will
become more integrated and risk management principles will mature. Challenges
in automation and security will result in increasing communications – in both
directions – between customers and their suppliers. I believe these trends
apply to both China and America. We are in this together and gatherings like
this must continue.
