Quality Digest  |  07/04/2008

News Digest

Short on News

Federal Reserve Chairman Ben Bernanke said that financial institutions must address the “fundamental sources of financial strains” in Wall Street’s credit crisis by deleveraging, raising new capital, and improving risk management.


The naval Surface Warfare Center is leveraging Actuate Corp.’s Performancesoft suite to underpin its Malcolm Baldrige and lean Six Sigma performance management efforts.
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A Scripps Television Station investigation revealed that dishes at several popular chain restaurants contained as many as twice the calories and eight times the fat claimed in their published nutrition information.


An unprecedented gathering of international quality leaders set an aggressive agenda of projects to improve business and industries, institutions and communities, locally and globally. www.asq.org/media-room/news/


The best measure of a future project is to look at past projects and their initial budgets and final budgets. History tends to repeat itself.


The majority of companies’ greenhouse gas emissions are often caused by supply chain activities, such as processing, packaging, and transportation. www.cdproject.net/viewrelease.asp?id=19


by Nicolette Dalpino and Carey Wilson   

Baby Boomers Retire, Companies Look South

Two recent surveys show that baby boomer retirement and a lost generation of factory workers have combined to create a rising storm by aggravating a costly skilled-labor shortage for manufacturers in the United States. As a result, many companies are seriously considering moving manufacturing operations to Mexico or other offshoring havens.

The surveys were commissioned by Advanced Technology Services Inc. (ATS) of Peoria, Illinois, and conducted by Nielsen Research, which polled 100 senior manufacturing executives representing companies with revenues between $10 million and $1 billion. The survey indicated that during the next five years approximately 40 percent of the skilled labor force will retire. Executives were asked, “What do you anticipate the retirement of 40 percent of your skilled labor force will cost your company in these five years?”

Eighty-one percent of respondents said that they would be affected by the shortage, versus 68 percent three years ago, demonstrating that this issue has become one of even broader concern to manufacturing executives. Further, they calculated that the retirement of skilled workers without an adequate replacement pool will cost them an average $52.2 million from their bottom lines, compared with an average $50 million when asked in 2005. The cost is worse for companies with more than $1 billion in annual revenue, where 44 percent say that the shortage will cost them more than $100 million.

“As manufacturing becomes more sophisticated, technical, and precise, and as an entire generation of experts retires, we are recruiting the cream of the crop to do more than fill the gap, but to give manufacturers an edge,” says Jeffrey Owens, president of ATS. “Those skills are particularly critical in maintaining plant assets and for keeping the factories running better, especially during an economic downturn.”

The other survey dealt with questions of outsourcing services and moving manufacturing operations to cheaper labor markets. Mexico, at 27 percent, came in first as a choice for company relocation.

“Companies moving their operations out of the United States are turning to Mexico for a variety of reasons, predominantly lower operating costs, lower labor costs, and an abundance of skilled labor,” says Donald Johnson, vice president of marketing for ATS. “NAFTA has also created conditions that make such a move more attractive to certain manufacturers.”

ATS has published a white paper, “Workforce Trends: Tools for Taking Control of Today’s Skilled Labor Shortage,” that provides guidance on what companies can do to stem the tide of the shortfall. “Workforce Trends” illustrates the benefits to be found in taking proactive steps to recruit, train, and promote a multiskilled labor force. It enumerates the steps ATS takes to satisfy two significant needs facing U.S. industry: providing the hard-to-come-by talent to work in factories; and making factories more productive in-house, so that manufacturers won’t look elsewhere for less expensive production alternatives.

For more information, visit www.advancedtech.com.


2008 Baldrige Award Applicants

Eighty-five organizations--the largest number of applicants since 1992--are in the running for the 2008 Malcolm Baldrige National Quality Award, the nation’s highest recognition for excellence. Applicants include three manufacturers, five service companies, seven small businesses, 11 educational organizations, 43 health care organizations, and 16 nonprofit/governmental organizations.

The applicants will be evaluated rigorously by an independent board of examiners in seven areas: leadership; strategic planning; customer and market focus; measurement, analysis, and knowledge management; workforce focus; process management; and results. Examiners provide each applicant with 300 to 1,000 hours of review and a detailed report on the organization’s strengths and opportunities for improvement.

The 2008 Baldrige Award recipients are expected to be announced in late November.

For more information, visit www.nist.gov/public_affairs/techbeat/tb2008_0610.htm#baldrige.


Do the Math

Last month’s “Do the Math” came from an article in Medical Product Outsourcing … oops… no, wait… I mean the March “Do the Math” came from that article… I mean... drat! No wonder we were getting “Do the Math” responses for a puzzle that we ran three months ago. We failed to notice that both math errors came from the same article. We accepted responses from readers that spotted either error.

The error we meant for readers to find this month was contained in this sentence in the article “Plan to Prosper”: “AMR Research found that SOX [Sarbanes-Oxley] compliance will cost companies an average of $6 billion in 2007.”

The problem was the word “average.” If the average of every company that complied with SOX was $6 billion, the total expenditure nationwide would be trillions of dollars. The original press release from AMR research read “… companies will spend $6.0 billion in 2007 on Sarbanes-Oxley (SOX) compliance.” So, it’s not average spending, but total spending under discussion.

This month’s “Do the Math” winner is Mike Hall. Mike wins a fabulous prize from woot.com.

Next month’s puzzle

The following doesn’t necessarily contain a math error, though it might. It could be wrong or accidentally right. First, read the press release, “Modest Health Care Quality Gains Outpaced by Spending” from the Agency for Healthcare Research and Quality: www.ahrq.gov/news/press/pr2008/qrdr07pr.htm (alternate: http://www.reuters.com/article/pressRelease/idUS256885+03-Mar-2008+PRN20080303). Then read the “Key Themes and Highlights From the National Healthcare Quality Report” at www.ahrq.gov/qual/nhqr07/Key.htm.

Tell us where the author of the press release went wrong, and you may win a marvelous prize. Send your entry to http://www.qualitydigest.com/contact?category=Comments.

Send us your math error. If we use it, you win a prize… such as it is.


New-Car Quality Index

Toyota Motor Corp. and Ford Motor Co. tied with three vehicles each in the Strategic Vision Total Quality Index (TQI). Toyota led with its Yaris, 4Runner, and Sequoia, while Ford led with the Edge, Mustang convertible, and F-250/350.

To get the rankings, which are derived from the responses of 20,655 new car buyers who bought 2008 models in September, October, and November of 2007, Strategic Vision calculated consumer responses to survey questions about reliability, vehicle characteristics, dealership experience, styling, interior and exterior design, and their overall perception of initial quality.

Mercedes, Honda, and Chevrolet brands each had two leaders: Mercedes leading with the S-Class and SL, Honda with the Odyssey and Ridgeline, and Chevrolet with the Corvette convertible and a tie with itself for its full-size trucks, the Avalanche and Silverado.

“Over the past quarter century in the United States, customer perceptions of quality of domestic and Asian manufacturers underwent large swings,” says Alexander Edwards, president of Strategic Vision’s automotive division. “Today, it doesn’t matter if you are a Toyota or a Ford, BMW or Hyundai; each manufacturer has the opportunity and mandate to produce a product with the right ‘cues of quality’--those product attributes that signal quality and create customer trust--and present vehicles that have a greater impact on the purchase decision.”

For more information, visit www.strategicvision.com/pressrelease.php?pr=31.


Customers Unhappy with Airports

Affected by flight delays, air traffic issues, and staff and service cutbacks, customer satisfaction with airports is down significantly, according to the 2008 North America Airport Satisfaction Study, recently released by J.D. Power and Associates.

The study, which coincided with notably high rates of flight delays between April 2007 and May 2008, found that overall satisfaction is 675 on a 1,000-point scale--down 14 points from 2007. More than one in five passengers surveyed reported experiencing a delay.

“Those airports that are best equipped to handle delayed passengers with comfortable seating, a variety of food and beverage options, and restrooms located near departure gates are the ones that will perform better in customer satisfaction in these trying times,” says Jim Gaz, senior director of travel and entertainment at J.D. Power and Associates. “When delayed passengers arrive at their destination airports, they are seeking efficient service at baggage claim and an expedient exit. Any additional inconveniences will only compound their dissatisfaction with the airport experience.”

Service inconsistencies in the security-check process from airport to airport also caused lowered satisfaction ratings compared with 2007.

The 2008 North America Airport Satisfaction Study is based on responses from more than 21,165 passengers who took a round-trip flight between April 2007 and March 2008. Each passenger evaluated up to three airports for a total of more than 36,500 evaluations.

For more information, visit www.jdpower.com/corporate/news/releases/pressrelease.aspx?ID=2008050.


Internet Pharmacy Verification

LegitScript LLC, of Arlington, Virginia, has launched a comprehensive new internet pharmacy verification and information service at legitscript.com.

The free service includes a search engine that allows users to determine whether an online pharmacy meets recognized standards of quality and safe business practices.

“To confirm compliance with our standards, we first examine publicly available information, including the pharmacy’s license status in all 50 states, the pharmacists’ license status in all required states, and the DEA registration status, which permits the pharmacy to dispense controlled-substance prescription drugs,” says John Horton, LegitScript founder and president.

The National Association of Boards of Pharmacy, which represents all state pharmacy boards in the United States, recognizes LegitScript’s verification standards.

Legitscript.com’s search engine currently contains information on nearly 700 internet pharmacies. Of those, nearly half are identified as not meeting LegitScript’s internet pharmacy verification standards, 17 are approved, and, says Horton in a June 6 e-mail, “We’re adding three to that next week for a total of twenty legitimate internet pharmacy web sites. We expect to add many more over the coming months.”

Horton says that online pharmacy verification is free for pharmacies that comply with the company’s standards. “We will not approve online pharmacies that hire doctors to write prescriptions without ever meeting the patient face-to-face--a disturbing and potentially dangerous practice,” says Horton. Canadian, other foreign, and “no-prescription-required” internet pharmacies are likewise ineligible.

“Our initial survey suggests that there may be as many as 20,000 ‘rogue’ pharmacy web sites in existence,” says Horton. “By contrast, we think that there are probably 200-300 that will meet our standards.”

Later this year, LegitScript will add a prescription-drug price-comparison tool, and information about insurance and health plans accepted by approved internet pharmacies.

For more information, visit www.legitscript.com.


Real-Time Performance Management

Hertzler Systems Inc., of Goshen, Indiana, has announced the availability of a new research report by the Aberdeen Group, a Harte-Hanks Co. The report reveals that best-in-class manufacturers realize 24 percent more on-time deliveries, have a 30-percent higher level of overall equipment effectiveness, a 29-percent higher overall yield, and enjoy 33 percent greater profit margins when compared to their lower-performing peers.

“Manufacturers attempting to improve both operational and corporate performance should first examine the overall structure of their business processes,” says Matthew Littlefield, a senior research analyst with the Aberdeen Group and co-author of the benchmark report titled “Event Driven Manufacturing Intelligence: Creating Closed Loop Performance Management.”

“As a general theme, we find best-in-class manufacturers are most significantly differentiated from their competition by the incorporation of real-time data into these processes,” says Littlefield. “Specifically, best-in-class manufacturers are more than twice as likely as laggard manufacturers to monitor exceptions on the plant floor in real time, use real-time data in production optimization processes, and in using real-time data for production release and control.”

“This is the first independent study that we’ve seen validate our experience across a wide population,” says Evan Miller, president of Hertzler Systems.

To obtain a free copy of the report, visit www.aberdeen.com/summary/report/bench mark/4734-RA-event-driven-manufacturing.asp.


Environmental Risk Management

Stakeholder pressure, complex business relationships, and the threat from climate change are encouraging companies to carefully assess the environmental risks that they face, according to “Under the Spotlight: The Transition of Environmental Risk Management,” a new survey and report from the London-based Economist Intelligence Unit. Among the 320 risk managers questioned for the study, the majority say that they are increasing the resources dedicated to environmental risk management.

Many companies are still in the early stages of the process. Previously, this category of risk tended to be managed either as an ad hoc activity or separately from the overall risk-management framework. Even now, when companies are planning major strategic activities, the consideration of environmental risk remains the exception rather than the rule. Less than half of respondents say that they undertake a formal assessment of environmental risk when developing new products and services, and fewer than one in five consider environmental risk factors when planning mergers and acquisitions.

A key challenge for many companies is a lack of visibility beyond the walls of their own organizations. The complexity of today’s supply chains and the interconnected web of partner organizations that support most businesses can give rise to blind spots in a company’s ability to manage environmental risk effectively across the enterprise.

“Environmental risk management is rising up the corporate agenda, but many companies are in the early stages of addressing this issue,” says Rob Mitchell, editor of the report. “While there are some companies that take environmental risk very seriously and have developed robust processes to identify, assess, and mitigate their exposure, others continue to manage environmental risks in an ad hoc way, and do not consider them when planning major strategic activities such as mergers and acquisitions.”

Other key findings of the report include:

Six out of 10 respondents say that an enhanced reputation with customers is the main benefit of effective environmental risk management.

Asked to rate the significance of opportunities and risks arising from climate change, 44 percent saw the risks as significant but a slightly higher proportion (49%) saw the opportunities as significant.

Respondents pointed to the difficulty of knowing the scale of their environmental liabilities as the main obstacle. But the huge potential for loss arising from these liabilities demonstrates the importance of a rigorous process to convert this uncertainty into a risk that can be managed effectively.


“Under the Spotlight: The Transition of Environmental Risk Management” is available for free download at www.eiu.com/globalriskbriefing.


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