The bitterness of poor quality remains long after the sweetness of a low price is forgotten.*

"The bitterness of poor quality remains long after the sweetness of a low price is forgotten" - Benjamin Franklin.

POINT TO PONDER

“When it comes to your Defects Per Million (DPM) level quality goal, I don’t care as long as I do not get that one DPM” - Customer’s answer in a supplier survey about an acceptable quality level goal in 1987.

STORY LINE

In the early '80s, companies used terms AQL (Acceptable Quality Levels) or LTPD (Lot Tolerance Percentage Defective) to define the levels of quality of the products being shipped to customers. Simply put, it meant that with certain level of confidence (defined by statistics) a certain percentage of materials shipped to customers can be defective (defined by AQL, LTPD level).

One term was called "Producer's Risk" and the other term was called "Consumer's Risk". In reality there was risk all the way, the risk in shipping something that was defective to customers ‘with confidence’.

The first encounter with “pragmatic” use of this term happened in 1981 when a company did final testing on a production lot where 100% of product units turned out good. The production manager (who had the full blessing of the Plant Manager) went to the operator and asked for rejected product from another lot. He did some calculations on paper, took certain numbers of good units out of the lot and replaced them with bad units and stirred the container containing that production lot.

To satisfy my naïve curiosity, he mentioned that he had made a “Business Decision” to ship to promised AQL level and nothing more. “Give customer what he pays for” was his final statement. However messed up his understanding of statistics may have been, his understanding of consumer behavior was even poorer.

Sometime later, the company lost many customers. Their offers to drop prices significantly to regain these customers fell upon deaf walls. In 1984, that company closed its doors.

There are numerous such cases, where customer will never deal with a business once they have been burnt by poor service or poor product quality, no matter how low is the price.

Here is a first hand account of five restaurants near my office: all of them were thriving at one time. But two of them, even after significantly dropping the prices, are running empty - because quality of food is on decline.  The other three, however, have not dropped prices even one cent - and their businesses have gone up 1.5X to 2X in number of customers, even in this economic environment.

REFLECTION

Except for some very basic needs, consumer always has a choice whether to buy something or not. And that choice is not between you and your competition; it is between buying a thing or not buying at all. Consumer behavior in current economic environment is a good example of this.

Cost is important to consumer but in addition they want the one that fulfills their expectations; and those expectations are very high and uncompromising nowadays.

 

*reposted from 8/20/2009

Comments

[Ramon]

I got burnt by a large phone service provider. Not once but twice. today, there is a sexy phone on the market by another company which has great applicatons but I would not buy it because they use the phone service provider who was unethical in their dealings with me.

[takahashi]

I am quality job for 11 years now. When our business manager ask " Are we do too much on quality. cost very important." I say to them "What do you agree with your customer? I do not make quality spec. You sign contract. You agree for deliver performance at price." Look in mirror and ask What I sign up.
Takahashi

[FR team]

Customers of different industries were asked: "Why did you stop trading with a company?"

http://fridayreflections.typepad.com/weblog/2007/04/customers-of-di.html

[Malay Man]

One example I usually use during my class when talk about all this “acceptable dpm” ... just imagine we are moving to our new house, and we invite all friends to come for a nice house warming ... then we just bought a newest LCD TV, and there is an important football game showing live on the TV ..... At the night, everyone come in with excitement to watch the big game in a latest TV ... after 15 minutes, the TV went black-out ... The next day we seed the TV back to the dealer , and after investigation, the report come out like this ... “there is a malfunction IC in the system ... we will replace you a new one ... btw, the manufacturer guarantee a 500 dpm of this part, it is still within the acceptable level” ... what will your reaction ????

Regardless of what Quality level we set .. the end user, there is always binary ... Its either 100% Pass or 100% Fail,

[UD]

I am little lost upon pondering to your point from reading this week reflection, specially in contrast to an article “Market-oriented quality“ I just read in flight to Folsom this week in ASQ QP august issue. In this QP article, it seems to be looking at quality and customer satisfaction from different angle vs. traditional approach – and that’s where this week reflection article coming to play in my mind. I sure don’t want to contradict you in any way (most probably I am wrong) and it will be too difficult for me to explain my confusion over email anyway. So, if you are available tomorrow we can talk over lunch or coffee.. Hay it will be interesting, healthy and though provoking debate we both can get something out of it!

[UD]

Below is the article on Market-oriented quality management (for achieving customer satisfaction and long term profits) from ASQ Auguest’09 issue of QP I referenced in my earlier email. I just down loaded from the ASQ web site for you.

Market-oriented quality management leads to long-term profits
by Paulo F.P. Barcellos and Antony P. Mueller

In 50 Words or Less:
Market-oriented quality management links long-term profitability to a company’s ability to create customer value.
Quality measurement must consider that quality depends on customer perception, which is based on the utility of the product or service.
Quality cannot be defined separately from the value of the final product.
Shortcomings in measurement systems and traditional methods for assessing customer satisfaction affect the ability of most firms to directly link quality improvements to changes in financial performance.

With respect to the revenue side, manufacturers and service providers must find the best path to satisfy, retain and attract customers if they want their businesses to survive and grow. They also must be able to determine the return on their quality initiatives.

That path to survival, growth and profitability begins by developing quality programs through the identification of critical quality dimensions as dictated by the market. By doing so, firms can concentrate their scarce resources where they are most valued by their customers, and management’s efforts can be focused on long-term objectives rather than short-term profits. Those tactics will depend mostly on customer satisfaction as the key driver for increasing the net value of the company’s customer base.

A market-oriented approach is essential for developing an effective marketing and product development strategy. Market-oriented quality management will also increase company profits, similar to how business profitability and growth are driven by customer loyalty and customer retention, which are natural outcomes of customer satisfaction.

[Friend]

I am not an economist, perhaps sometimes I wish I were, so I spend time listening to Tom Keene on Bloomberg. A recent interview was with Dr. De Grauwe from Belgium (trained at Johns Hopkins) and he spoke on forecasting and the incorrect use of extrapolation. This week, I visited with a customer; a customer who wants price cuts; a customer who talks about taking costs out of the system; a customer, who, in theory, is a big believer in quality. What I have found is they are committing to quality in everything, but forecasting. The comment often is, “Nobody can forecast, you just have to live with it and be ready to ramp when we give you the word.” I pointed out, “We can have idle capacity waiting for your orders, but you will need to pay for that idle capacity” and there is the rub, they want action on a moment’s notice, but they don’t want to pay for it.”

I think we are now in a period where the industry has over reacted by hacking production far in excess of the drop in demand and are now snapping back just as quickly to the other extreme (so the supply line is extremely tight and FedEx has also cut back on flights). If one looks at U.S. spending on computers and other devices, demand has slowly dropped and remained steady while device production plunges and is now climbing back. I wonder if this industry will ever learn and try to forecast to prevent this constantly reoccurring problem? We can only hope.

If you have time, listen to the Podcast (a synopsis is below, the date of the Podcast is August 5th). He is quite a smart man.

http://www.bloomberg.com/tvradio/podcast/ontheeconomy.html

Paul De Grauwe, July 21, 2009: “We need a new science of macroeconomics, A science that starts from the assumption that individuals have severe cognitive limitations; that they do not understand much about the complexities of the world in which they live. This lack of understanding creates biased beliefs and collective movements of euphoria when agents underestimat e risk, followed by collective depression in which perceptions of risk are dramatically increased. These collective movements turn uncorrelated risks into highly correlated ones. What Keynes called “animal spirits” are fundamental forces driving macroeconomic fluctuations.

The basic error of modern macro-economics is the belief that the economy is simply the sum of microeconomic decisions of rational agents. But the economy is more than that. The interactions of these decisions create collective movements that are not visible at the micro level.”

[Consumer Revenge]

This is what happens when customers' complaints are not handled properly...
Rgds,

This is absolute GOLD..

This is so good, and typical of United Airlines! Even you non airline folks should get a kick out of this one. Enjoy!
On Wednesday afternoon, Tom Sullivan interviewed a musician who recently posted a retaliatory video on you tube. The musician stated that he had spent over 9 months trying to get United Airlines to pay for damages to his custom Taylor guitar caused by baggage handlers.
During his final exchange with the Customer Relations Manager, he stated that he was left with no choice other than to create a video for youtube exposing their lack of cooperation. The Manager responded: "Good luck with that one pal". Tom Sullivan played the audio on air during the interview and I found it to be both creative and
entertaining.

The video has since received over 4 million hits. United Airlines contacted the musician and attempted settlement in exchange for pulling the video. His response was: "Good luck with that one pal".
Taylor sent the musician 2 new custom guitars in appreciation for the product recognition that has lead to a sharp increase in orders.

I accessed the video on you tube this morning a got a good laugh. I just love this story....

http://www.youtube.com/watch?v=5YGc4zOqozo

Hip Hip Hooray ......3 cheers to all my fellow long suffering folks who got the receiving end of bad services, products and customers' treatment.
( Like from Banks, Insurance Co., Government bodies, Unions, you name
them.....)

[SM Park: How many engineers does it take to change a light bulb?]

Here is a well known story about Bitterness of Poor response to quality issue. Even successful companies make such mistake. 1994 fiasco with one powerful IC chip introduction.
There was a small flaw in the chip discovered and publicly disclosed by Professor Thomas Nicely.

Although encountering the flaw was extremely rare in practice (Byte magazine estimated that 1 in 9 billion floating point divides with random parameters would produce inaccurate results),[3] both the flaw and the company's initial handling of the matter were heavily criticized.
Easiest thing to do was to replace the unit with a good one and appreciate the customer feedback. Instead company start intelligent arguments with the customer about DPM and probability of occurence. CNN picked up story, internet was gining momentum and the story spread to the world.
People saw this as David vs Goliath. A big guy is wrong and using it's power to crush small guy.
Big PR disaster for the company. Final Cost to them $500 millions in return products. Most of it good but consumer revenge.

[Quality to compete]

Quality is critical, but one needs to manage end product quality so that the cost of quality does not place the organization at a competitive disadvantage. In the low margin space where barriers to entry are low, supporting Quality requirements that guarantee many years is difficult (requires more overhead/cost than competitors that don’t offer this level of performance) and places a real burden on the organization. I’ve seen several products and one business die because the cost structure did not allow them to compete. We were perceived as the quality leader, but the end customer did not offer a quality premium.

Every market segment has its own dynamics and organizations need to position the product correctly vis-à-vis the competition and quality is just one of the attributes. For example, one would expect the quality level and the overhead for a consumer product with a few years effective life to be different than that of a high performance product for the enterprise. An organization supporting both market segments that has the same quality expectations and overhead for both of these will not be successful for very long.

[People Power]

Thanks to internet, Google and Yahoo. Today common persons, a small guy or gal, can have their say into what is fair and unfair.

Before, big and powerful crush any one with a differing view or opinion not favorable to them, with massive resources: Media, Advertising Machine, Mis-information campaigns, Lawyers.

Small guys could not afford those things and afraid to express, give up.

Now internet bring balance of power. Viva Google, Yahoo.

Be careful: Bad People, Bad Corporations, Bad Governments.
Be Happy: Good People, Good Corporations, Good Governments.

[FR team]

Direct emails comments from readers. anonymity maintained.

1, Brilliant !!!! The youtube video made my day today :)

2. If the individuals had to own one of the unit that fails they might change their mind. Old way of thinking still exists – this helps to reinforce the new way of thinking.

3. what a timing of your Friday reflections! i have been thinking of writing an article about quality from the customer’s perspective in the next week or so.
do you have a copy of the article you mentioned about market driven quality management? I would like to read before writing my blog. wanted to capture any good nuggets from there and might use them in my blog.

4. I just watched video. It is horrible. The Taylor guitar he is playing is $3K expensive one.I will cry crazy if that happens. (to my guitar)

5. I didn’t mean to say there is contradiction between your and ASQ article, but said in this Market-oriented quality article, they are “looking at quality and customer satisfaction from different angle vs. traditional”. I agree with what you said. “this is a new way to spin the basics” (ultimately to achieve same objective/goal). However, my point is, if we agree that this new way of spinning make sense and could produce “better end results” then traditional look at this “Market-oriented quality“ spinning approach, also to drive continuous improvement in current quality management and customer satisfaction measurement approach. Well, this is just a though buddy. I know I am too small of a fish with short life in a big pond. So I know this inputs will die quickly, but I still try – It’s a old habit/tread learning to speak your mind and share/exchange ideas!

6. This is a viral video, no doubt. Just by coincidence we discussed today vision of improving quality in our team. I fwd the youtube video and your FR note to them as well. What great timing !!!

7. I like the video and how this group turned this issue into an opportunity for themselves with all the free publicity. Sweet are the uses of adversity. Thanks

[A Quality Guy]

Quality is defined by the customer/consumer. As you pointed out in your Point to Ponder, the customer doesn't care about the statistics concerning low DPM rates. He just doesn't want to be inconvenienced with the failure to meet his expectations. I recently bought a TV set. The picture was great, but the remote control did not work, and I could not control the TV's function. I packed up the set, and returned it to the store where I bought it from. I received a refund and bought another brand. Why? Because I did not want to be inconvenineced again with a potential defect. The moral of the story - the customer doesn't want low DPM. He really wants No defects.

[Damien]

Scene at a computer store in Santa Clara a few years ago.

A lady with two children at service desk with her computer.
Seemed that she was having problem with it and had brought back to the store.

Service Desk Guy describing to her many special features of her computer says something like: This computer company is a top quality maker or This brand of computer is very high quality.

The lady asks: Then why doesn't my computer work?

[exRabbleRouser]

AQL and LTPD were tools for Mil Aero programs in the 70s. 80s and 90s. Since it was impossible to test every thing and burn in till EOL, Mil Spec 38510/Mil-Std-810 provided a statistical tool to quantify the quality level of Mil-Aero semiconductors. It was never intended to use as PD (police department in today's jargon) or an excuse for defective products by the manufacturers.

Unfortunately, most (almost all) companies as well as the Mil Procurement Offices did not train their managers or engineers on the proper use of this marvelous tool. Everyone I knew (of any weight), carried this little white credit card size table (got it free from vendors or Semicon) and some would proudly waved it in your face and exclaimed: "What do you mean my product is not good enough? It exceeded LTPD 10!". Too bad we didn't have a Training PD to jail some of them. (I must admit that little card covered my fat axx a few times very nicely. Hey, it was a good tool to use against idiots too!)

Like Paul Harvey said, "Now you know the rest of the story", if you know who Paul Harvey was.

[Eastcoast]

Remember the scene from Star Trek:

Spock speaks to Kirk: “Captain, the results of the simulation drill were 98%”.

Kirk: “Let’s try for 100 Mr. Spock.”

Spock: “Agreed”.

I also remember the guys at IBM in Burlington telling me they wanted zero defects. My response to that, “Zero is a very low number.”

[louis]

Well, very interesting, a new twist; I always thought it stands for "Long Term Player Development" to groom Football and NBA players.

Kidding aside, the practices of AQL and LTPD for the IC industry started in earnest in the early 1970s for JAN programs. The Military earlier used the methodology for ammunition in WW2 since one cannot test every ammunition and still hopes to use them in the battle field. A lot of Mil 883 tests were also destructive/harmful to the devices, LTPD was therefore adopted. At least that was what I remember from the classes I took in the early 70s conducted by the Mil programs.

I believe it had a noble beginning and can continue to thrive today with the right mind set. It takes a Village to successfully produce a good product including a dedicated Customer Service organization with total advocacy on the customers' side. No one likes to be the recipient of DPM, but one will be much more tolerable when the Customer Services response with expedience, respect, and understanding. Where it fails is when people misuses it as an excuse for defective products. I mentioned the little white "credit card" last time. I still have it!

ExRabbleRouser

[wk]

Ben didn’t know to indicate reliability in his clever saying 

[Your staff]

It is the same thing of particular airline claims their performance of on time departure is best, while my flight got delayed and I missed my important appointment. One incident is enough to upset customer no matter how we claim good numbers in statistics. To achieve lower cost, reducing the luxury features should be the right way instead of reducing Quality goals. Many people do not need Ferrari but are happy with Toyota Camry or Corolla.

[BHSC]

Great reminder!