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The U.S. economy is a classic example of a feedback system constantly monitored through a set of measures (see Figure 1-1).
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Year 1970 1980 1990 2000 GDP PPI CPI ($B) 1.04 39.3 38.8 2.8 88 82.4 5.8 119.2 130 9.9 138 172.2 PI (000) 4.1 10.2 19.6 30.2 VPI 56.3 30.2 40.6 47.9 CU TIPI E/H ($) O/H Index (%) 81.1 58.7 3.23 67 81.5 79.7 6.66 80.4 82.3 98.9 10.01 95.4 82.1 147.5 13.75 101.4 CU: TIPI: E/H: O/H: GI: GI ($B) 152.4 477.9 861.7 1767.5
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Profits ($B) 28.5 92.5 110.1 275.6
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GDP: Gross Domestic Product PPI: Producer Price Index CPI: Consumer Price Index PI: Personal Income VPI: Vendor Performance Index
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Capacity Utilization Total Industrial Production Index Earnings per Hour Output per Hour Gross Investment
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FIGURE 1-1. Measures of U.S. economic performance, 1970 2000. (Strawser, 2001.)
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These national economic indicators are signals that investors, business, and government respond to in order to encourage long-term growth of the U.S. economy. The U.S. federal government, for example, reacted with tax and interest rate cuts in 2002 to spur the economy after measures such as the Gross Domestic Product (GDP) growth rate, unemployment, and capital spending reflected a slowing economy. The collection of data, analysis, and corrective action must occur a short time after the actual event to counter undesired outcomes.
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After World War II, several national economies grew significantly, leading to a global competitive environment. From timemotion studies to quality improvement tools, businesses deployed methods to improve their performance. Beginning in the 1970s, Japanese automakers challenged U.S. industry by deploying quality management tools taught by J. M. Juran, Edwards Deming, Phil Crosby, Genichi Taguchi, and others. In the 1980s, other ways to promote process and performance standards were created, such as the ISO 9000 quality management system developed by the International Organization for Standardization (ISO) and the Malcolm Baldrige National Quality Award (MBNQA) guidelines established by the U.S. Motorola-pioneered Six Sigma methodology and successfully
CHAPTER ONE
implemented to reap rich benefits. Figure 1-2 shows the evolution of various techniques. The purpose of these new quality management techniques was to improve the performance of business processes. The process control charts developed by quality pioneer Dr. Walter Shewhart brought together the disciplines of statistics, engineering, and economics to improve the consistency of production processes. Design for Manufacturability helped improve reproducibility, recognizing the importance of considering cost, quality, and manufacturing characteristics early in a product s design stage. The ISO 9000 system improved interrelationships between business functions. Benchmarking helped in competitive positioning by measuring comparative operating performance and identifying best practices. Six Sigma accelerated the rate of improvement. Lean manufacturing increased process agility, and innovation introduced new products faster. The improvements in business performance also led to an increase in customer expectations and demand for products
100% Rate of Improvement Effectiveness Process Management 75% In-process Statistical Controls Quality Control 50% In-line Inspection Design for Manu. (DFM) Systems
In-process Controls
Medieval times
1920s
1960s Time line
1980s
1990s
FIGURE 1-2.
Performance control methods.
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that were better, faster, and cheaper. The spiral of demand and supply changed the paradigm from a focus on quantity to a focus on quality and functionality. To meet customer expectations for better value and shareholder expectations for bigger profits, a new system for performance measurement and improvement must evolve. From financial to process measures, a balanced approach is required an approach that encompasses strategic, operational, and leadership functions.
JURAN S FINANCIAL AND QUALITY TRILOGIES
J. M. Juran developed the Financial and Quality Trilogies (see Figure 1-3), which have three aspects: planning, control, and improvement. The Financial Trilogy elements of planning, control, and improvement all end up at sales planning for sales, controlling sales, and increasing sales leading to a strategic sales plan. The sales plan includes sales by segments, budgets allocated to achieve those sales, margin goals, resource requirements, distribution requirements, and discount models. The CEO or equivalent typically develops this strategic sales plan, which is reviewed quarterly to see how well it is being executed and to develop follow-up action items. The Financial Trilogy works well in a supply-driven environment, but it has limitations. When results are not achieved,
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