Volume 6 · Issue 11 · November 2001
How Quality Professionals and Programs Are Faring in Recession
Can You Afford to Cut Quality in a QMS/Six
Is a severe economic downturn an excuse for companies to
disproportionately cut their quality professionals and programs
or an opportunity to strengthen their quality management systems
(QMSs) and programs? And are customers helping or hurting
themselves when it comes to supplier relationships?
The headlines in the second half of 2001 have declared that
the US and much of the world economy is in a recession. While
some sectors have continued to prosper, many that were not
feeling the impact of the downturnparticularly servicesare
catching up with traditional manufacturing and telecommunications,
which have been in a downturn for more than a year.
More Americans are now unemployed than at any time since
at least the last recession in the early 1990s, and many employees
who had been going at 110% during the boom times find themselves
with some free time on a typical workday.
Adding to the difficulty of reduced business is the pressure
on most tier 1 suppliers from customers in many industries
to reduce their per unit costs. THE OUTLOOK has received
several calls from subscribers requesting that their subscriptions
be switched to home addresses or someone else in their companies
because they were being laid off. These unfortunate occurrences
leaves THE OUTLOOK to wonder how quality professionals
and programs overall are faring in this downturn, when companies
may be cutting quality disproportionately to deal with lost
business and meet cost reduction targets demanded by customers.
This is also the first recession since the use of ISO 9001/2
and Six Sigma programs became popular in the US corporate
culture. The fact is that ISO 9001/2 registration is a customer
requirement for many suppliers and both ISO 9001/2 and Six
Sigma are built on satisfying the customer and improving process
and product quality while also reducing costs by increasing
efficiency. So the question is: Can a company afford to cut
its programs and staff dedicated to quality management and
Six Sigma to reduce costs at a time of lost business and pressure
To determine if companies are cutting quality disproportionately
or using freed-up staff to improve quality and plan effectively
for the future, THE OUTLOOK conducted a survey of company
representatives and consultants who work with clients in a
cross-section of industries. The survey asked 11 questions
designed to get a better sense of what is happening in the
marketplace. Of those contacted, 6 responded to all the questions
while several answered a few questions, issued a general statement
or indicated that their company or client base has not been
affected by the downturn.
The responses pointed out two key facts:
- Organizations that have implemented effective QMSs and/or
Six Sigma programs are using the downturn to prepare their
operations for the next period of growth. Organizations
that have not are likely to make no improvements to their
processes and make random staffing cuts while blaming ISO
9001/2 and Six Sigma for their problems.
- Most customers offer little help to their suppliers in
reducing process inefficiencies that would cut per unit
costs by 5-10% annually and improve the product and customer
satisfaction. Thus, few customers ever see cost reductions
The World of Customer-Demanded Price Cuts
The survey asked if companies are requiring their suppliers
to reduce prices on an annual basis. The responses confirmed
this was a fairly common practice in the automotive and other
sectors. "Yes, 5% across-the-board price reductions to
cash in on savings from using a management system," responded
John Broomfield, President and CEO of Quality Management International,
Inc., a firm that helps companies develop management systems.
He indicated that his clients have been able to meet these
targets through productivity improvements.
However, this cost-cutting practice is not new. "I see
no greater pressure than there has been for the last decade
or more," replied Jack West, Chair of the US Technical
Advisory Goup and the lead US delegate to ISO/TC 176, the
technical committee responsible for the ISO 9000 standards,
and a quality professional who has helped companies implement
internal TQM assessment processes based on the Baldrige Award
criteria and Cost of Quality processes. "This is a common
practice, and some purchasing companies have done it for years."
One point that became apparent in the answers is that such
cost cutting is not effective unless an organization has an
effective QMS and the customer manages and enhances its relationship
with the supplier. "Reaction has been negative, something
that has been publicized over the past few years," claimed
Stanley Marash, Chairman and CEO of STAT-A-MATRIX, a consulting
firm that assists clients with QMS, environmental management
system (EMS) and Six Sigma program implementation. "However,
some OEMs [original equipment manufacturers] that are partnering
on Six Sigma projects with their suppliers are able to meet
these cost-cutting goals."
"I may have a biased view here, but it is my experience
that the intelligent suppliers that meet year-over-year reduction
targets actually use their QMSs to achieve the targets,"
commented West. "As far as customers helping suppliers
reduce costs, I think this is a mixed bag. Some customers
help while others only set the targets and provide no assistance.
I think the most successful programs are those in which the
buying organization does provide some help and these customers
are willing to address issues in their own systems that cause
suppliers to bear additional costs."
Representatives of two companies seemed to indicate that
their customers programs were not among the "most
successful". Joe Green is Vice President of KVF Quad
Corporation in East Moline, IL, a tier 3 supplier of value-added
metal finishing services to tier 1 and 2 production part suppliers
that supply OEMs in the agricultural machinery, automotive
and hardware industries in the Midwest. John A. Bruman is
the Quality Assurance Manager of Precision Die and Stamping,
Inc., in Tempe, AZ, primarily a tier 1 and 2 supplier of sheet
metal stamping and electrical arrays to the aerospace, automotive
and electronic sectors. Both Green and Bruman saw these programs
as targeting tier 1 suppliers and potentially representing
a failure by OEMs to build trust with their suppliers.
Green indicated that KVFs tier 1 and 2 customers are
not enforcing deeper cost reductions than those already built
into the OEMs so-called "Partner" relationships.
"These partner relationships appear to be one-sided and
serve only the customers half of the partnership,"
remarked Green. "They seldom resemble mutually
beneficial relationships, so suppliers are not going
to trust customer promises to work with them to further reduce
prices when these customers already appear suspect in terms
of their fidelity to these planned relationships."
In fact, claims of savings from the partnerships appear to
be exaggerated. "When speaking of the subject in public,
the customers and suppliers describe gigantic savings represented
in real dollars but convey little factual information,"
stressed Green. "The true savings and/or reductions are
often soft side dollars. Behind the claimed savings
usually exists a new quotation with revised product criteria
and adjusted prices. The adjusted prices usually reflect a
trade-off between the customer and supplier, allowing both
to claim significant savings."
The Right Way to Pursue Price Cuts
In other words, changes to most contracts involve modifying
specifications that increases the cost of the product to the
customer due to the changes and/or reduces the cost of producing
the product. "The fact that customers will change criteria
after the original contract is as trustworthy as gravity,
and suppliers rely on this event," admitted Green. An
effective QMS also helps the supplier. "Mature suppliers
conforming to ISO 9001/2:1994s Contract Review processes
or ISO 9001:2000s Customer-Related Processes will document
instances where customers have changed criteria in the middle
of the planned, long-term, mutually beneficial relationship.
"The supplier then delivers a proposal for less than
the planned percentage price reduction based on the records
of changes to a contract. Sometimes it works, sometimes it
doesnt, but thanks to ISO 9001/2- and QS-9000-based
QMSs, suppliers have the ammunition of quality records. By
comparison, immature organizations with no evidence of changed
conditions simply roll over and deliver some token price reduction."
Such price reduction targets are most common among Precisions
automotive customers in the initial bidding process, according
to Bruman, who noted a troubling change in customer-supplier
relationships. "Confidential, competitive bidding is
being abandoned in lieu of blatant whipsawing
of suppliers against each other in the guise of target
pricing. As a result, my companys leadership is
no-bidding more automotive work in spite of the
general business slowdown. When the engineering and quality
departments of some of our automotive customers ask why we
are no-bidding in light of our preferred quality
and delivery performance, our leadership tells the customers
that its because of their purchasing policies."
This relates to ISO 9001:2000, Subclause 7.2.2, Review of
Requirements Related to the Product, which requires an organization
to review product requirements to ensure "c) the organization
has the ability to meet the defined requirements." "Having
the ability" includes surviving as a supplier if the
organization accepts work at too low a price. "In rare
cases where we actually bid on automotive work, any price
concession is financed from our profit margin," acknowledged
Bruman. "The philosophy is to get the work in the hope
that future volume will justify the reduced margin. When future
volume doesnt develop, we lose."
However, there is a right way for a customer to pursue price
reductions from suppliers that fits perfectly with an ISO
9001-conforming QMS or a Six Sigma program, which is more
likely to be implemented in a major OEM or large tier 1 supplier.
In todays marketplace, many tier 1 suppliers and their
customers will be making the transition from ISO 9001/2:1994
to ISO 9001:2000 within two years. This represents an opportunity
to do things the right way when pursuing cuts.
ISO 9001:2000 does have an Evaluation of Subcontractors subclause
in 7.4.1, Purchasing Process, that requires an organization
to "evaluate and select suppliers based on their ability
to supply product in accordance with the organizations
requirement" (using selection criteria).
This is accepted to mean that suppliers will have an ISO
9001-conforming QMS in place to ensure process consistency
and overall quality. The final draft of TS 16949:2002 goes
further, requiring an organization to ensure its suppliers
are registered to ISO 9001:2000 and to perform supplier
QMS development "with the goal of supplier compliance
with this Technical Specification" (although a NOTE permits
customers to set alternative requirements, such as approved
Thus, if your organization is a supplier to a customer registered
to ISO 9001:2000 or TS 16949:2002 in the future, the customer
will be obliged to work with you to improve your QMS while
improving its own system. In the automotive field, the customer
must "develop" its suppliers QMS beyond mere
ISO 9001:2000 registration.
Further, Six Sigma requires an organization to investigate
nonconformities up and down the value stream, and it is common
for a Six Sigma project to involve Black Belts working with
suppliers to identify root causes and solve problems that
affect the organizations processes and/or products.
To succeed, the Black Belts will need to communicate and
cooperate with the suppliers personnel so as to take
corrective and preventive actions and make the improvements
that will prevent problems "downstream". "Clearly,
partnering on Six Sigma projects has been used effectively
to identify issues together and solve them together,"
emphasized Marash. "Without that partnering, the projects
will produce no changes at the supplier and those issues will
continue to negatively impact on the customers operations."
Another consultant, Ronald G. Berglund, CQ Manager of Management
Resources International, Inc. (MRI), reported that his firm
is working with a major tier 1 automotive supplier and
its suppliers. This tier 1 has mandated price reduction targets
for its suppliers. But MRIs mission will be to revise
the clients existing training and education system to
create a comprehensive management system and, more importantly,
help its suppliers improve their QMSs to achieve efficiency
gains that will make will make fulfillment of price targets
a natural byproduct.
"Its an unusual contract, but it shows that the
customer in this case is thinking ahead," said Berglund.
"The organization has a large number of suppliers and
knows it must be able to improve relationships and the quality
of the product and services its suppliers deliver. Not every
customer has tier 1 suppliers willing to work with them like
"In most cases, our customers dont know our processes,"
lamented Bruman. "And they dont know even the principles
surrounding what they are promoting. They send entry-level
engineers to a three-day seminar and then send them to show
us how to apply things like SPC (statistical process control),
Six Sigma or Lean Manufacturing without any profound knowledge
of our processes, systems or culture. Such practices are adding
cost to the supply chain without any improvement or value
added. When we suggest alternative ways to do what they want,
their bureaucracy and institutionalized distrust of suppliers
prevents them from seeing the forest for the trees. Compliance
to a standard is more important than effectiveness."
"Most suppliers do not need help from their customers
except on processes that cross the interface between supplier
and customer," concluded Broomfield.
The Impact on the QMS World
Is there an impact on quality professionals and programs
as a result of price cutting pressures and the recession?
There is evidence that many organizations have made some program
modifications to reduce costs while disproportionate staffing
cuts are rare. "I have seen personnel reductions, some
drastic, and several of my clients have changed their ISO
9001/2 and/or QS-9000 surveillance audit schedules from semi-annual
to annual," confirmed Melissa Syerson, President of Syerson
Consulting, who has more than 9 years of experience and an
academic background in quality, QMS stardards, document control
and quality engineering. She added that others have take more
effective steps. "I have seen other clients implement
Lean Manufacturing techniques instead."
"Organizations are not so much cutting as holding,"
described Green. "Basically, programs and their projects
are often being maintained, but the persons responsible for
them are being assigned additional tasks to be accomplished
simultaneously." Since many organizations have seen a
sizable reduction in orders, these additional tasks may not
be outrageous, but they may require enough time to prevent
a quality program or project from moving forward.
However, "management by objectives" is alive and
well when it comes to dealing with a recession, according
to Bruman. "In many organizations, upper management sets
a bottom-line reduction target without any analytical alignment
to strategic direction or long-term effectiveness. Naïve
financial people then take over the process and set simplistic,
across-the-board headcount reduction targets, regardless of
strategic need. Quality is right behind R&D [research
and development] in being subjected to these directives. In
these companies, compliance to objectives is more important
than organizational effectiveness or the long-term health
of the organization."
Fortunately, few organizations are singling out their quality
professionals and programs for disproportionate cuts. It may
very well be because a large number of suppliers are required
to maintain QMS registration to satisfy customer requirements.
However, it may also be because few organizations have traditional
"quality managers" any more.
"There have not been typical quality personnel
on staff in any significant number since the late 80s and
early 90s," recalled Green. "Some organizations
do have a few project managers or process
professionals, and those who have proven to be qualified
are not being cut from the payroll yet. Often their jobs are
not just product realization, but overlap into
issues more frequently associated with sales or
determination of customer requirements. Remember, everyone
is responsible for quality with ISO 9001, so who are
you going to call quality personnel?"
"The well-designed and well-used QMS enables leaders
to deploy the responsibility for quality to the people who
do the work and their managers," advised Broomfield.
"True quality professionals work selflessly to make sure
that everyone really understands the principles of quality
(what quality is, how to predict and prevent losses, how quality
is measured and what its fundamental importance is) and of
working systematically (PDCA) to establish and meet requirements.
This reduces the need for quality professionals to be the
sole guardians of quality. These days, Quality Managers can
see that they have to become competent System Managers."
"The layoffs I have observed have been across-the-board,"
offered Syerson, who viewed the impact of process professional
layoffs as varying. "In those organizations that have
moved to implement Lean Manufacturing in connection with the
layoffs, they will benefit by refocusing the responsibilities
of remaining employees on building a stronger organization.
In many organizations, the disadvantage of any staffing cuts
is that the QMS programs suffer and, at times, so does the
quality of the product as a result."
Among the Fortune 500 companies in certain fields, including
the agriculture-implement and construction equipment fields,
layoffs in todays marketplace appear to actually be
protecting the true process professionals. In these large
corporations, a lower percentage of qualified "quality"
professionals are facing layoffs than other personnel. In
a well-managed organization, there may be an understanding
that Six Sigma Black Belts and process professionals represent
a way to keep a business stableand even improve operationswhen
staff is being cut.
The situation among suppliers in these fields is slightly
different, although the policies appear to be influenced by
the maturity of the organizations QMS. Green provided
the following description of the two levels of layoff policy
he has seen among tier 2 and 3 suppliers:
- Mature organizations have made proportionate cuts between
"quality" and production staff.
- Less mature organizations dumped their "quality managers"
in the first round of layoffs, along with any temporary
production help. "It should be noted that most of those
being let go are quality professionals in name only,"
Cutting as a Chance to Improve or Degrade Quality
In reality, few organizations can afford to maintain their
process professional staffing while cutting R&D, production,
marketing and management staff. However, many organizations
have maintained more employees than they need, often because
previous cuts have been across-the-board, not targeted at
keeping the best and brightest. Thus, subsequent increases
in staffing have given the least productive seniority and
security. So, if an organization has to make cuts, are there
opportunities to improve quality or only short- and long-term
Table 1 below lists potential improvements as well as short-
and long-term disadvantages that can result from staff cutting,
even if reductions in process professional staffing are done
to keep the most effective QMS supporters. "In companies
where there is a real quality mentality, benefits vs. disadvantages
is less of an issue," espoused Marash. "If employees
feel that undertaking tasks often perceived of as the responsibility
of the Quality Department is everybodys
job, then Quality does not get lost or suffer.
However, if the Quality Department is perceived
of as the cops, then quality activities are not followedthere
are fewer cops around to catch them after staff cuts."
"A downturn may be used to flatten the organization,
improve its efficiency and get it set up for the next period
of growth," summed up West.
However, Bruman painted a darker scenario that he expected
to be more common:
In a less mature organization, the QMS focus will regress
into the "Inspect and Fix" mode, which will increase
costs and cycle times and reduce inventory turns. By eliminating
the people who can design and implement proactive strategies
for improving cycle times, inventory turns, product quality/reliability
and other vital organizational strengths, the organization
emasculates itself. The things that create customer delight
and demand disappear, causing the organizations product
and services to regress into a commodity status wherein
its prices are dictated by competitive pressures rather
than operating costs. Bankruptcy is then merely around the
There have been anecdotal reports of organizations that have
laid off the personnel responsible for managing the QMS and
relying instead on consultants. It evidently does occur but
is not a common method of quality management. "I think
the trend to use contract workers is evident for lots of functions,"
acknowledged West, who cautioned, "I actually see it
less in the quality function than in some others, such as
It is also viewed as a bad idea because it is a short-term
technique for reducing staffing costs during a business contraction,
with a later need to hire and train new process professionals
who lack the corporate knowledge and history.
"Although I am a QMS consultant, I do not recommend
this strategy," declared Syerson. "A consultant
can be used to help drive or guide a system, but there should
be full-time personnel on staff to maintain the management
"There are situations where we are brought in because
of staff layoffs," responded Marash. "Unfortunately,
often we end up saying the same thing that the laid-off manager
has! But, because we are from the outside, we are listened
to. Experienced consultants can cost as much as a full-time
employee but may bring more experience, which is to the benefit
of the firm. The risk is that the improvements/gains will
be perceived to be owned by the consultant and,
when he/she leaves, there is no continuity. An effective consultant
ensures that the changes are institutionalized and owned by
"If I were to suggest a right way of doing
this, it would be to use a contract replacement as a facilitator
to bring new skills and technologies to existing staff; otherwise,
such skills and technologies disappear when the contract replacement
leaves," concurred Bruman. "And replacing proven,
loyal workers with temps is usually not cost-effective and
can be very destructive. It is invariably viewed by the rest
of the staff as a simple economic ploy and can seriously damage
employee morale and loyalty and prove to them that their leadership
really doesnt know what they are doing."
Quality Planning and Improvement in a Slowdown
During the recent boom times, many companies did not invest
in quality planning and efforts to continually improve QMS
effectiveness because they lacked the time and staff for such
efforts. Remember the labor shortages? Yet, the survey respondents
consider the slowdown a time to invest in planning and improvement.
However, only what have been called "mature organizations"those
with well-developed and effectively maintained QMSsappear
to be engaging in quality planning and continual improvement
efforts. In some instances, there is now adequate staffing
but a lack of funding to undertake planning and improvement
efforts, which often involve training, materials (books, software
programs) and experienced consultants to lead the efforts.
"While mature organizations are engaging in planning
activities and improvement efforts, those projects of minimal
strategic value are being placed on hold or dropped from the
funding pool," said Green. He indicated that the less
mature organizations are dropping everything that resembles
"true preventive action projects" and will suffer
one of two results: costly reinvention of the original project
at a later date or failure to meet the original need identified
in the project. "The most likely effect will be costly
catch-up action when the pain of not having kept the project
alive during the downswing becomes great enough that action
must be taken with or without adequate resources."
Syerson has several clients who are engaging in planning
and/or improvement efforts and expects them to gain one or
both of the following advantages:
- Assurance that the QS-9000/ISO 9001/2 system in place
conforms entirely and is fully implemented by all personnel.
- Establishment of lean manufacturing within their operations,
which has cost savings in itself.
"At the small company where I work, we are continuing
in our proactive mode because of the Vision and Values we
have adopted," commented Bruman. "We are reaching
out to our suppliers and encouraging them to adopt a new philosophy
as well as to implement formalized QMSs. We are also planning
the update of our systems to new standards of quality management
and pursuing continuous learning."
Another question raised was whether ISO 9001 and Six Sigmas
customer satisfaction objectives are being lost in todays
marketplace, with the focus only on using them to reduce waste,
improve efficiency and save big money. Bruman believes ISO
9000 and Six Sigma were created solely as cost reduction efforts
on the part of large corporations to reduce internal costs.
"Both are dependent on a formal, company-wide Quality
Policy and Strategy to become effective tools for improving
customer satisfaction and demand," declared Bruman.
"There is no reason why using a system that conforms
to ISO 9001:2000 will not save money with each cycle,"
affirmed Broomfield. "Six Sigma projects may save money,
but backsliding is easier if a management system conforming
to ISO 9001:2000 is not also being used and improved."
However, Green and others believe that the downturn is actually
enhancing the awareness of these "values" and "objectives"
in mature organizations. "It is apparent to them that
the improvements made during the late 1990s using ISO 9001
and Six Sigma are having a dampening effect on the economic
downturn," advocated Green. "Without this effort,
the damage from a weak economy would be a magnitude worse
than it already is.
"There have been no value-added victories provided by
QMS conformity or Six Sigma silver bullets in less mature
organizations, because they have only paid them lip service,
if that. Such organizations can easily sail on into oblivion,
deluded that fate played a very dirty trick on them. They
will probably be the voices who cry, I told you ISO
9000, QS-9000, Six Sigma and Baldrige are all a waste of time
and money anyway!"
"Some organizations focus more on customers in a downturn
than they do when times are good and orders are plentiful,"
observed West. "Others seem to do the opposite. In my
view, the market has rewarded those who focus on the customer
in times like these."
The respondents offered the following advice to organizations
confronting declining sales and/or price reduction pressures
but that nevertheless want to gain the most benefits from
their QMSs and Six Sigma programs:
- Use your organizations management system and Six
Sigma projects to eliminate waste and provide lower prices,
find more customers or do something else. (Broomfield)
- Develop a formalized quality policy and strategic plan
that addresses basic questions, including:
What are we in business for?
What do we hope to accomplish and why?
What values and ethics do we wish to support?
Examine all the demands being made by various customers in
terms of the plan and policy, then decide if each one is educational,
profitable or fun. If anything is none of these, dont
do it. (Bruman)
- Begin a serious baseline assessment today of your organizations
current products, processes and projects. Work this one
around the clock, because youre already late. Based
on the assessment, dump the valueless and semi-valueless,
borrow money if necessary to ensure resources to retain
your valuable staff and then hunker down and prepare yourself
for real, essential WORK. (Green)
- Use Six Sigma to focus on projects that directly support
your organizations strategic plan. This plan should
be focused on the organizations goalsprofit
and customer satisfaction. Dont use quality or any
other initiative to secure jobs or create unnecessary work.
- Analyze your organizations business and seek out
all options for cost savings. Before choosing, make sure
that you have looked at all of the short- and long-term
effects of the cuts. And dont just look at personnel
- Use the QMS to make the organization better and more efficient.
Be very careful to understand the changing needs of your
customers. And focus on customer retention. (West)
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