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Sustainability and Quality

Photo: W. J. Latzko, Ph.D.
W. J. Latzko, Ph.D.
The concept of sustainability has been around for some decades. The recent Conference in New York on Global Initiative saw several billion dollars pledged, much of which helps to achieve sustainability. So what is sustainability?

The Bruntland Report (The UN World Commission on Environment and Development) developed a definition in 1987 that read: “Sustainable development meets the needs of the present without compromising the ability of future generations to meet their own needs.” Or, as Professor James Weldon of Fordham University put it, “Sustainability is having a seat when the music stops.”

For many years, the use of natural resources without replenishment was the norm in the Industrial revolution. The resources were so plentiful that no one thought that we could deplete them. Unlike nature, that recycles, we have great areas of waste. Environmental Standards such as ISO 14000 attempt to address this issue. But, the problem goes further. Sustainability goes beyond environmental issues. As Hitchcock and Willard (2006) stated, “Sustainability is different from the environmental movement in that it recognizes the need for a healthy economy. Nature does have certain limits that we must learn to live within or suffer the consequence.” They concluded, “We need to get better, not bigger”.

Of the roughly six billion people on Earth one billion lives well. (That is us.) About two billion get by. The other three billion have trouble surviving. This division is a source of conflict. Sustainability can help bring all this population to a level of living that we wish for.

So where does quality come in. There are certain aspects where we, as quality professionals, have already done much good. Our profession helps in the reduction of waste and the efficient use of our resources.

We can do more.

We can help in the design for environment. When our organizations plan new products and services, we can use our specialized knowledge to make sure that they plan on the replenishment of resources.

We can help them with Life Cycle Assessment and Life Cycle Costing. (This reminds me of Deming’s, “Don’t buy on Price Tag Alone”).

We can help in getting rid of harmful products in creating added value and help make sure that at the end of its useful life the residual of the products do not cause harm. We should ask if the materials we plan to use are or will become one of five classes: carcinogens, teratogens (cause birth defects), endocrine disruptors, mutagens (cause mutation of genetic code), or persistent bioaccumulative toxins ( PBT- harmful chemicals that accumulate in the body).

Deming showed us that our profession can help in another aspect of sustainability: the creation of jobs. He said that if we improve quality → costs decrease because of less rework, fewer mistakes, fewer delays, snags → productivity improves → capture the market with better quality and price → stay in business → provide jobs and more jobs!

Clearly, quality plays a big role in sustainability.

Reference List

Hitchcock, D. E. & Willard, M. L. (2006). The Business Guide to Sustainability: Parctical Strategies and Tools for Organizations. London: Earthscan.

Sarbanes-Oxley and Quality Control

Photo: W. J. Latzko, Ph.D.
W. J. Latzko, Ph.D.

The purpose of the act

There is a great deal of interest by the quality community in the Sarbanes-Oxley act of 2002 (H. R. 3763). Senator Paul S. Sarbanes and Congressman Michael G. Oxley, created this act to set rules for CEO’s, CFO’s, their attorneys, and their auditors for the creation of financial reports used by investors (e.g. Annual Reports). What prompted this act was the disclosure of major wrong doings in large corporations and major auditing firms. The purpose of the act is to give investors the truth, the whole truth and nothing but the truth.

The alphabet soup

The act spawned a whole set of acronyms which refer to its implementation and interpretation. One hears of SOX, PCAOB, COSO, COBIT and similar acronyms. We will try to clarify some of these terms and show how they fit in.

The act’s requirements and the PCAOB

SOX refers to the Sarbanes-Oxley act itself. One can find the 66 pages of the act at http://www.law.uc.edu/CCL/SOact/soact.pdf. It is worth reading but be warned that it is not light reading.

Title I, the first real chapter of the act, sets up a non-profit corporation called the Public Company Accounting Oversight Board (PCAOB). It is the function of the PCAOB “to oversee the audit of public …, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies the securities of which are sold to, and held by and for, public investors.”

The act requires the PCAOB to set standards and register public accounting firms. Your editor was told that over 1200 firms have applied and that, to-date, over 800 are registered. You see can full details at the PCAOB’s web site http://www.pcaobus.org/index.aspx under “Registration”.

The act uses the words “quality control” 15 times with four additional mentions of the word “quality”. In all cases, this refers to the auditing firm. The use of the word “quality” relates solely to the financial integrity of the audit report issued by the external auditors.

Sections 302 and 404 require that management establish and maintain internal controls. In both cases, these controls are for assuring that the financial reports are accurate and true. Welytok (2006, p. 156) distinguishes the way the term “internal Control” is used in the two sections. She indicates that in Section 302, the act refers to “disclosure controls and procedures. In Section 404 the act refers to “internal control over financial reporting”. Nowhere does the act require quality control of the audited company.

COBIT

Since companies collect most financial data these days on computers, the IT Governing Institute (ITGI) established a standard for information technology (IT). This set of standards they call, “Control Objectives for Information and Related Technology”. This standard results in the acronym COBIT. You can access the standard at http://www.isaca.org/ . The organization developed a subset that specifically addresses the financial aspects required by Sarbanes-Oxley. The organization places the subset standard on its web site at http://www.isaca.org/Content/ContentGroups/Research1/Deliverables/IT_Control_Objectives_for_Sarbanes-Oxley_7july04.pdf

COSO

COSO stands for the Committee of Sponsoring Organizations of the Treadway Commission. “The SEC specifically refers to [COSO] as an acceptable framework for management’s internal control assessment.” (Welytok, 2006, p. 159) Again, the issue is financial reporting not quality control in the sense in which we apply it.

Sarbanes-Oxley and Quality

The Sarbanes-Oxley act has some similarities with ISO 9000. Both are inspection or audit oriented. Both are procedure driven. Both maintain the status quo as far as quality is concerned. In this writer’s opinion, the Sarbanes-Oxley act is valuable for the financial and investing sector. It does not advance quality in its present state. The only group required to look at quality control is the public auditing profession of 800 to 1200 firms. One can read their quality control methods at http://registrationapplications.pcaobus.org/ by going to the bottom of the page and entering the name of an Audit Firm. The PCAOB has set some interim standards for the control of quality of the auditors. One can view these standards at http://www.pcaobus.org/Standards/Interim_Standards/Quality_Control_Standards/index.aspx.

Reference List

Welytok, J. G. (2006). Sarbanes-Oxley for Dummies.

Is the Quality Profession Evolving or Disappearing?

Photo: W. J. Latzko, Ph.D.
W. J. Latzko, Ph.D.

In 1980 a revolution started. Quality became a management issue and corporations were vying with one another to stress the importance of quality in their organization. Today these voices are few and far between. What happened?

Background
On June 24th, 1980, NBC aired an 90 minute white paper called, “If Japan Can … Why Can’t We?”(Crawford-Mason, Frank, Lockhart, & Dobyns, 1980). C. S. Kilian a biography of W. Edwards Deming stated that Claire Crawford-Mason wrote “In the 1970s, Americans had found two easy targets to blame for their economic woes: inflation and high energy costs. . . . Other people interviewed pointed to the adversarial relationship between government and industry”. Mrs. Crawford-Mason went on to describe that while 14 million households viewed the program (a reasonable number for a documentary, according to her), the show became the most requested program of all time. She stated, “One reason this program has generated so much continued interest is because of the powerful, relevant message of one man who was featured in the documentary: Dr. W. Edwards Deming”(Kilian, 1992).

For one and a half decades the interest grew in intensity, leveled off, and may be in a decline at this time. In a way this is reflected in the membership levels of ASQ and the section. One can speculate on the reason for this decline and we propose to do so below. However, the importance of the change is in how it impacts us, the quality professionals.

Quality is King
While quality was being emphasized, quality professionals became as recognized in the organization as other contributors such as finance, marketing, etc. Job titles tended to reflect this increased importance with many more vice presidents for quality appearing in organizations than existed before. Some departments grew rapidly. Salaries were in line with what other significant corporate contributors were earning. The increase in staff levels may have even led to shortages which in turn would help increase starting salaries.

The period of emphasis on quality coincided with (and probably contributed to) economic prosperity. At the turn of this century, increasing economic prosperity stopped. The impact was that executives started to look at areas that they considered to be non-contributors to the organization with a view of making these areas contribute or get rid of them. For a number of reasons, this resulted in a de-emphasis of many aspects that contributed to quality in the past. It translates into fewer quality professionals.

What happened? In my opinion it is the conflict with two methods to check quality: inspection and process control.

Inspection versus Process Control
Inspection dates from ancient times. For example, the code of Hammurabi (c. 1730 BC) specified commercial transactions and had rules for checking (inspection) and enforcing these codes. Dr. Juran often pointed to the Egyptian inspectors. The Byzantines had an officer of the court called a Logothete whose task it was to inspect workplaces to see that they conformed to standards. The method of assuring conformance was inspection. We still do it today. Inspection probably worked well as long as one talks about crafts where the whole product is made by one person. However, with the advance of technology and newer production methods, the age of the single craftsman is receding and inspection no longer as effective in both cost and output.

In the 1920’s Dr. Walter Shewhart formulated a method that met the needs of modern production. It is process control. The emphasis in process control is not on the product but on the process that produces the product. By making the process fail safe, only good output is created. This saves the cost of scrapping or reworking bad output and leads to greater customer satisfaction which in turn often leads to more sales and profits.

Until the 1980’s the bulk of quality operations in the USA used the inspection method. Key in this process was MIL-STD-105, Sampling Procedure and Tables for Inspection by Attributes, now called ANSI/ASQ Z1.4-2003: Sampling Procedures and Tables for Inspection by Attributes. The emphasis was the acceptances of a lot of output with a small risk of rejection of good items on the part of the producer and a larger risk of accepting bad items on the part of the customer. Relatively few process control systems existed.

The Japanese, on the other hand, specialized in process control which Deming taught them in 1950. As a result, they were capturing markets with better products at lower cost. Once American Management recognized this, they too wanted process control. The NBC White Paper of 1980 gave them this information and process control became a standard method.

Top Management’s Role
Deming, Juran, and others kept emphasizing the need for top management’s active involvement in achieving quality. The key was that top management needed to make their policies support quality not hinder it. The concept of single source suppliers saved many companies a fortune as well as creating better, more uniform output.

The problem was that the rapid growth of the quality profession led to a number of untrained or partially trained individuals who needed a quick fix. The European Union supported a method called ISO 9000. While this method permitted process control, it did not emphasize it, in fact it was an option. The emphasis of this process was and is on inspection, now renamed auditing.

Entropy: Sliding Back
Apparently, we moved from emphasis inspection before 1980 to process control until the latter part of 1990’s then back to the emphasis on inspection. Can this be a reason for what I see as the decline in the number of quality professionals, the change in management attitudes, and the return to the status quo of pre 1980? Is there the equivalent of Gresham’s Law in quality: old methods replace the modern? Does the death of Deming and Crosby followed by the retirement of Juran leave us with no one to whom top management listens? Can we recapture the spirit of quality as a sound business policy? Your editor invites your comments.

Reference List
Crawford-Mason, C., Frank, R., Lockhart, R., & Dobyns, L. (1980). If Japan can. . .why can’t we? Dobyns, Lloyd. New York, NBC. Ref Type: Video Recording

Kilian, C. S. (1992). The world of W. Edwards Deming. (2nd. ed.) Knoxville, TN: SPC Press.