The Editor's Page -- The Dark Side Of Cost Cutting

Think twice about the high stakes of the cost-vs-quality gamble.

A few companies know how to make good cost-vs-quality decisions in their value chains, and Senior Technology Editor Doug Bartholomew reveals who some of them are (hint: they're not Ford or Bridgestone/Firestone) and how they do it in this issue's cover story, "Co$t vs Quality." For good measure he also takes you on a riveting tour of some of the more disastrous cost-vs-quality decisions, providing a handy "how- not-to" guide. Throughout the article the high stakes of placing the wrong bet in the cost-vs-quality gamble become, if not calculated to the penny, then painfully apparent. It's a discussion that's perfect in its timing, waving the caution flag to those of you under pressure to slash another X% from your budgets. That Toyota is featured as one of the successful companies may come as no surprise, but it's a sad commentary that it does so by executing a decades-old strategy called total quality management. Didn't we learn this lesson from Toyota nearly 30 years ago? Since then the company has continually improved TQM, adapting it to the new millennium's extended enterprise. In updating the strategy the company has raised the practice of increasing quality while reducing costs to an art form. It's a winning strategy that executives should not only relearn but also begin to execute. Two frequently forgotten aspects of Toyota's approach are that cost cutting and quality improvement go hand-in-glove, and that these are ongoing pursuits, not fad-of-the-month or times-of-crisis stopgap strategies. In a perfect world this would suffice, creating an upward spiral of quality with a downward spiral of costs. Unfortunately, in those instances where a rigorous execution of continuous improvement fails, you might want to review some of the penny-wise and pound-foolish moves made by the companies profiled in Doug's story. I guarantee you'll think twice about cutting costs as your first move. An article in the Aug. 13 edition of The Wall Street Journal provides an additional reason to pay close attention to Doug's story. The article, "Soon, the Big Three Won't Be, as Foreigners Make Inroads in U.S.," details the shriveling market share of U.S. automakers, and attributes the decline, in part, to the perceived quality of U.S.-made cars. While Toyota and other Asian car makers grab top spots in the J.D. Power & Associates survey of car performance, they are gaining market share from their U.S. rivals. One more lesson implicit in "Co$t vs Quality" is that manufacturing matters. Whether your company actually builds the product or outsources it to a contract manufacturer, managing the cost and quality of your product from its conception through delivery to the customer-and throughout the value chain in between-can be the competitive advantage you're looking for. Patricia Panchak is IW's editor-in-chief. She is based in Cleveland.

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