What could the Fed learn from GM?

This is another topic I wanted to write about for a fairly long time – Quality. When I think about quality – the first thing that comes to mind is cars. In fact just about 10 years ago (I was buying my first car back then) the quality was a big issue. I took some comfort though in knowing that there are lemon laws were around, and got a relatively trouble-free Nissan.

The situation has much changed since then. As this article reports:

The newfound emphasis on quality has closed the gap between best and worst in the industry. In 1998, J.D. Power and Associates, which surveys owners about trouble with their cars after three years, found an industry average of 278 problems per 100 vehicles. By this year, the number fell to 132.

In 1998, the most reliable car had 92 problems per 100 vehicles, while the least reliable had 517, a gap of 425. This year the gap closed to 284 problems.

As the car industry seems to have solved its quality problems, they still emerge at other, sometimes unexpected fields. This one is from Federal reserve and has to do with brand new $100 bills.

Total face value of… $110 Billion. In a nutshell, about year and a half ago, the Fed wanted to print new Benjamins, but a peculiar creasing problem showed up that resulted in randomly dispersed unusable bills. This video describes the problem:

Vodpod videos no longer available.

Year and a half later, still no new Benjamins. The last update from the Fed is dated June 2011, here it is. Now, why is it taking so long and how to avoid this kind of mishaps? First, there are lots of bills -1.1 billion of them, or 11 million packs @100 bills each. It is not exactly clear what is Fed doing with all of them, but it seems that they are still trying to identify which ones are usable. This sounds awfully like fixing a defective car after it’s got off the production line. GM and Ford were doing that and it proved to be quite ineffective and costly. Most importantly, the rework is done after the production process. An alternative would be to build in quality controls into the production process, monitor the process continuously, and stop it if it starts producing defective items. Of course with the product like bank notes, you really need to have 100% quality, so the final inspection is hard to avoid. Still the glitch could have been caught much earlier and the pile of unusable bills would be much smaller.

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2 thoughts on “What could the Fed learn from GM?

  1. In addition to cars and U.S Bills, there have been several other quality problems in the news recently. A good example of this is a McDonalds outlet in China that was recently shut down due to selling food past its expiration date. The article can be found here: http://www.reuters.com/article/2012/03/16/mcdonalds-china-idUSL4E8EG6IG20120316

    This incident closely resembles the issues described in the Ford/Firestone case we discussed in class. Similar to the Decatur plant in Illinois, the employees were focusing too much on getting the product out the door and were sacrificing the quality of their products to make that happen. This could lead to many external costs for McDonalds which are much more expensive than if McDonalds had focused on prevention and appraisal costs. It doesn’t cost near as much to throw out a batch of expired Hamburgers, but it does cost a lot in liability if they caused a health problem which could also have negative implications for their goodwill. The outlet was shutdown which could have been prevented if they had recognized the importance of quality.

  2. I think that quality is one detail of operations management that is covered in various news articles most frequently. Consumers are increasingly aware of quality issues, whether it is problems such as food being sold past its expiration date as Brian mentioned or companies increasing their customer loyalty through differentiating their products based on quality (for instance Apple that is mentioned in the news extremely frequently).

    Therefore it seems that being aware of quality issues as they relate to a company’s products is increasingly important in today’s economy. This is not only important for companies but also the government and other industries in society, such as healthcare.

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