A decade ago, Total Quality Management was going to change the way business was done. EW checks in with electrical distribution's quality pioneers for a look at what happened when theory met hard reality.
A decade and more ago, total quality management TQM) was the battle cry among managers everywhere heralding a new era of ever-escalating improvements in business processes. Managers toiled over the wording of mission statements, and their talk became saturated with empowerment and work teams and continuous improvement and paradigm shifts.
A decade ago, several electrical distributor visionaries caught the wave and instituted quality management principles in their companies. Electrical Wholesaling chronicled their efforts with a number of articles on how they were applying these cutting-edge TQM principles. As 1990s draws to a close, we look back and see that TQM's headline thunder was drowned out in the intervening years by more urgent issues, such as integrated supply, merchandising, electronic commerce, buying groups-but quality management principles live on beneath the surface.
"I think in some ways it has (revolutionized business), but we don't realize it has," says Robert Vokurka, assistant professor from Texas A&M University, College Station, Texas. As a faculty member in the Department of Engineering Technology's Industrial Distribution program at Texas A&M, Vokurka teaches a senior-level course titled "Quality Process for Distributors."
"People now aren't 'doing TQM,' but it's becoming more a way of how we all operate," Vokurka continues. "People will say the three core principles of TQM are customer focus, employee involvement and continuous improvement. Everybody has a customer focus now, and they are working on continuously improving, not only products but processes. We don't say we're doing TQM, but those foundations are engrained in everything most people are doing."
That observation fits with the experience of United Electric Supply, Wilmington, Del., where founder Nick Gianoulis implemented quality management principles a decade ago. Much has since changed at United Electric Supply, with Gianoulis' retirement and a shift to employee ownership, but the quality commitment continues. The company has won two Delaware State Quality Awards, in 1995 and in 1998.
"We really think that we've become a more efficient company, and we've driven some of the costs out of the system that were unnecessary," says Tom Cloud, president of United Electric Supply. "So we continue on that trend, and that's the value we've gotten, to help keep our company more consistent across our locations."
More than anything else, the force that has driven quality management throughout the electrical distribution market has been the drive to register companies under the ISO 9000 international quality management standards. ISO 9000, created and maintained by the International Organization for Standardization, Geneva, Switzerland, has become a pervasive indicator that customers and suppliers look to for evidence that a company has the discipline to do what it says it is doing. Getting ISO registration is a gruelling ordeal requiring that a company document every process in its business. An independent registrar conducts an exhaustive audit of every department in the company, comparing the documentation to the way processes are actually done, interviewing employees on all of the steps in their jobs, and ultimately confering coveted "ISO 9000 registered" status on the company or denying it.
The first electrical distributor in North America to gain ISO 9000 registration, Gerrie Electric, Burlington, Ontario, still gets considerable benefit from its quality initiatives, says Elaine Gerrie-Reinhart, chief operating officer. "We're still 100% committed to it, and are happy with what it's done to our processes and our efficiencies," she says.
ISO 9000 registration has helped Gerrie Electric standardize and streamline functions throughout its operations, Gerrie-Reinhart says. Especially when the company first put the documentation in place and began operating according to its own prescribed practices, it was able to improve efficiency in many areas as employees worked together to find the best ways of doing each task. ISO is now also helping the company pursue other improvements.
"Our goal is maintaining ISO registration and reducing the steps in our processes to reduce our transaction costs," Gerrie-Reinhart says. "With ISO in place, we can take the extra steps out and see if it's impacting our quality at all. The benchmarking is all there. Our big push now is taking steps out ofour business-non-value-added steps."
Maintaining ISO registration requires constant diligence. The standard requires that a company conduct regular internal audits to check its performance, undergo "surveillance audits" by the registrar every six months, and endure a full-blown registration audit every three years. Reregistration is never assured.
Over time, employees learn what to expect from the audits, says Gerrie-Reinhart, who has been Gerrie Electric's internal auditor from the beginning. "We've had the same auditor, from the registrar, since year two. I'm probably a tougher auditor than the outside auditor. I don't want any surprises. There's no way any person or any branch in our company is going to lose ISO for us."
Having a good relationship with the outside registrar helps improve the impact of the registration, she adds. "This auditor understands our business. He focuses on certain areas in all branches, but has some that he rotates around. He mixes it up so the branches don't know which areas will be hit hardest."
The trick with ISO 9000 is that it's not a sure fix for anything. It's a standard for third-party verification that a company is actually doing what it says it is doing. As such, it can just as easily engrain bad business practices as good ones, but ISO 9000's demands for consistency-that all employees can show they are doing each task the same way every time-and the requirement that the company have mechanisms for resolving problems and following through with those resolutions helps companies improve processes, sometimes in spite of themselves.
"It has improved companies because it instills some discipline in order to do some things consistently," Vokurka of Texas A&M says. "By documenting it and following the documentation, you improve things and you become more disciplined and standardized. In that way it helps." ISO 9000, with its requirements for heavy documentation, has introduced a whole new level of data collection and analysis in many companies. This is a burden in some respects, but seems to justify the work in the benefits it returns. Vokurka believes more people are making decisions now based on data rather than seat-of-the-pants intuition.
One company taking the analysis of data in pursuit of quality to an aggressive level is General Electric Co., Fairfield, Conn., which has injected the Six Sigma approach to quality into the core of its identity. Six Sigma, developed by Motorola Corp. in the 1980s, concentrates heavily on improving consistency by analyzing variability and rooting out the causes of fluctuations in performance. According to GE's 1998 annual report, the company invested $1 billion in its Six Sigma initiatives, and by the end of this year expects to have captured $2 billion in savings as a result. "When you look at the success of a company like GE, and see that they're making that level of investment, there's something there," says Vokurka of Texas A&M.
GE's electrical distribution unit, GE Supply, Shelton, Conn., is using Six Sigma to uncover and eliminate the causes of performance inconsistencies in and among its 150 locations nationwide. Jeff Hickling, chief operating officer of GE Supply, believes quality will be a critical component to staying competitive in the evolving electronic commerce environment that promises to reshape the industry in the coming years.
"As electronic commerce emerges as a bigger deal for our industry, having Six Sigma processes will be critical to fulfill orders electronically," Hickling says. "You need a good transaction system behind you, and you need a good quality system to manage the integrity of those processes. If you have those two, I believe you will win in electronic commerce.
"If you look at our industry today, as I see it, we hide a lot of flaws by having individual interaction to expedite and put Band-Aids around processes that are flawed. If you're trying to transact everything electronically, you're taking out that expediting role, and if that's the case your internal process had better be world-class."
To attain world-class performance, GE Supply has been centralizing and standardizing the analysis of each branch's performance along certain criteria, such as ontime deliveries and product availability, says Hickling, who came to GE Supply three years ago to lead the Six Sigma initiative. By analyzing performance at all branches according to the same methods, Hickling hopes to improve the consistency of performance throughout GE Supply.
The heavy emphasis on statistical process control (SPC) is one thing that takes Six Sigma beyond GE Supply's early forays into TQM, Hickling says. All branch employees are given at least a week of formal quality training on understanding and applying a five-step cycle for eliminating errors, with a strong emphasis on statistical analysis and process control. Here are the five steps GE Supply uses:
1. Define. Find out from the customer's perspective which components of service are critical-to-quality (CTQ) requirements.
2. Measure. Armed with knowledge of the customer's needs, GE Supply sets up a measurement plan to determine the baseline of the branch's current performance according to the customer's requirements.
3. Analyze. With the measurement process in place, the company determines the gap between the customer's expectations and actual performance, and looks for the factors that cause variation in the process.
4. Improve. The next step is eliminating variations by changing processes. The solutions may vary by location, even where the factors causing inconsistency are the same.
5. Control. The final step is to create a control plan to monitor the new process. This includes creating "run charts" that show where new "outliers," or instances of performance outside the mean variation, occur. If so, GE Supply determines whether the process broke down or new variables are affecting the process.
All of GE's employees are trained in the same define-measure-analyze-improve-control methodology, though the way it's applied varies widely from company to company. A central quality team assisting with measurement and analysis of process changes at the branches backs up employees there.
The goal for GE Supply is to reduce variability throughout the company's operations so that, in an e-commerce world, a customer ordering a product or requesting a job quote online in Atlanta will receive the same level of service as a customer placing an identical order in Chicago, Hickling says. To get there, GE Supply is counting on the standardized Six Sigma approach to problem solving to provide consistent results. "Without a strong quality program as one of the cornerstones of your business, you're not going to be successful in the e-commerce world," he says.
The benefits of gathering data and making decisions based on that data have proven themselves time and time again for Jim Coghlin, president of Coghlin Electric/Electronics, Worcester, Mass., another of the electrical distribution industry's pioneers in TQM. Basing decisions on hard data introduces a measure of accountability into a business that can be extremely valuable, he says.
"There's a saying, 'In God we trust, all others bring data.' Well, we bring data," Coghlin says. "It's not, 'He said, she said, this is what we think happened.' Either it did happen or it didn't, and why did it happen, and then get rid of it. It reduces finger-pointing. Initially, it's an investment, but the return on investment is very meaningful."
It's hard to quantify the financial benefits of quality management processes and ISO 9000, but every company contacted for this article said without hesitation that the cost savings have been substantial and the return on investment has been unmistakable. While few companies have won business for having ISO 9000 registration or other measures of quality excellence, for many customers, particularly original equipment manufacturers and industrial accounts, ISO 9000 registration is the base-line requirement for being considered as a supplier.
Other indicators show that quality is proving to be a competitive asset in the broader business world. For example, the "Baldridge Index," a hypothetical stock index made up of winners of the annual Malcolm Baldridge National Quality Award from 1988 to 1997, has outperformed the Standard & Poor's 500 index by more than 200% in 1998 according to the Commerce Department's National Institute of Standards and Technology (NIST), the organization that selects the Baldridge winners. NIST says Baldridge companies have outperformed the S&P 500 each of the past 5 years.
Evidence of quality's continuing influence can be heard in Vokurka's students at Texas A&M's Industrial Distribution program. "They've found that the quality class has been extremely helpful in interviews with manufacturers and distributors," Vokurka says. "That tells me that the SPC and the continuous improvement, the reduction of variance and working in teams reaffirms that those are things distributors are interested in right now."