Use of TQM and SPC

¶ … total quality management (TQM), and statistical process control (SPC) implementation in a manufacturing plant set up by a foreign company in the border zone of North Mexico, in order to produce finished goods for export. Information on this type of organization was made available by a 2003 study conducted by Nael Aly and Daniel Scholss and published in The TQM Magazine (Vol. 15, Iss. 1; pg. 30). These companies offer a world of opportunities for an intrepid business-person, as labor is cheap, there are many commercial facilities, government support is high and Mexico's proximity to the United States makes it perfect for developing such a business. Effects on the American economy are difficult to evaluate -- both from a producer's and a consumer's points-of-view. Lower salaries than in the U.S. translate into higher work productivity, while low transportation costs and North American commercial agreements mean that access to the U.S. market is easy to achieve. Costs and quality of the Mexican goods are sure to make them very attractive to U.S. consumers, especially if the characteristics of these products are kept under strict supervision and improved by implementing techniques such as total quality management and statistical process control.

The global economy of the present has forced multinational companies to be constantly on the look for opportunities abroad to expand their business. The passing of the North American Free Trade Agreement (NAFTA) and the proximity of the U.S. market has made businesses aware that the reduced manufacturing and labor costs in Mexico constitute a very interesting opportunity, so many American and international companies have moved some of their manufacturing facilities to Baja California, Mexico. These facilities are now known under the name of "maquiladoras." They are the result of a concentrated government policy and were the topic of numerous discussions and studies regarding their contribution to the evolution of operating manufacturing facilities in Mexico.

Their appearance has caused fear among many middle-class working Americans, since they thought that many companies would move operations to Mexico in order to hedge labor costs and to avoid the actions of uncooperative labor unions. Some politicians and researchers have issued various opinions concerning the effects of the maquiladoras appearance. Bentiez (1998) made the most fearsome predictions by arguing that the loss of jobs to Mexico, as a result of the passage of NAFTA, would be responsible for throwing the U.S. into deep recession This would also affect the consumer side of the economy, as the buying habits of the Americans would be reduced, thereby facilitating the introduction of cheap foreign products into the U.S. market.

The advantages of the Mexican economy were declared unfair, because it was believed that environmental laws are extremely tolerant and that they will not be enforced anyway (Cano, 2000). There were also opinions according to which the "educational level of the Mexican workers was too low to be capable of learning complicated manufacturing processes."

On the other side of the barricade, it was thought that the low quality of Mexican products would stop Americans from purchasing them (Quinones, 1998). This argument is actually naive and even a bit hilarious, and is based on the presupposition that Mexican products are simply not good, which is an excellent sample of lack of logic. Although the overall quality of these goods and services may not be as high as in the United States, these problems will surely be rapidly overcome, so lower prices will definitely be a blow for the U.S.-based producers. A smarter researcher, Peak, presented counterarguments to this conception since 1993. The author defended the quality of products manufactured in Mexico's maquiladoras by actually presenting examples of very successful quality systems in various companies.

There were also warning that a perception of political corruption in Mexico's Government would be a setback for U.S. companies wishing to come to this country. This opinion is based on the fact that the majority of the wealth is spread over a very small percentage of the population, while the average Mexican worker lives in poverty. Profits appear to be used for increasing personal wealth of political leaders and not for the common good of the Mexican people. In addition, the very poor condition of the infrastructure impeded the growth of manufacturing operations in Mexico.

While it is not the purpose of this paper to present philosophical solutions to economical problems, one cannot help notice that this argument is a contradiction in terms. What would American companies do in Mexico if labor was not cheap? If workers are well paid, then where is that productivity increase that all manufacturing organizations are looking for? And if there is no industry and wages are low, why should any infrastructure be needed? Roads were built because they were needed to bring people to a factory, and not the other way around. Overall development of the economy will bring along the required infrastructure, higher wages, a better way of life, consolidation of democracy, lower corruption etc. To be scared of these problems is to be scared of seizing an opportunity. Fortunately, business people rarely take into consideration the opinions of abstract economic theories, especially when it comes to making a lot of money in a short time.

According to Aly and Schloss (2003), "The maquiladora or in-bond assembly industry program was formally established in 1965, under Mexico's Border Industrialization Program. With only 12 plants that year the maquiladora grew at a spectacular rate. The maquiladoras have grown from about 2,030 plants employing some 625,000 workers in 1995 (Higuera, 2000) to 3,628 such plants employing over 1.3 million workers by August 2000 (INEGI, 2001). By year 2001, Mexico had a $75 billion maquiladora market, according to Innes (2001).

According to Mexican corporate law, a maquiladora is "a company that may be 100% foreign-owned and 100% foreign-managed, established in Mexico, for the purpose of performing industrial operations." The law allows for all required machinery, equipment, tools, and spare parts to be imported into Mexico in-bond. All these items may be imported into Mexico with the benefit of import duties exemptions, which would otherwise be levied to all Mexican-owned companies.

A maquiladora is authorized to import materials used in production or shipping for a renewable one-year period. Any imported item may remain in the country as long as the maquiladora program remains in force, although that is not applicable to trailers and containers, which must not exceed a 20-year period. There is no preset date for the end of a maquiladora program. Should the process or the scope be modified or extended, an approval procedure must be followed.

As for the market of a maquiladora, the free trade agreements concluded by and between the U.S.A., Canada, Columbia, Venezuela, Chile, Bolivia, and Costa Rica have made available more than 500 million consumers, which are accessible without the payment of any tariffs on exports. Since Baja California is strategically placed, the transportation costs are quite low and the delivery of products is easier and more effective. Baja California seems to be a place of opportunity for investment, aided by the implementation of NAFTA on 1 January 1994, which eliminated or decreased taxes on the added value of various materials exported to the U.S.A., and lifted several limitations. The Mexican Foreign Investment Law, which entered into force in December 1993, provided for a majority of business activities to be performed by non-Mexicans with 100% ownership of their ventures.

All these corporate and taxation facilities, low labor costs and strategic placement of the Baja California area makes the maquiladoras in this region a very worthy opponent for American and international companies which produce the same goods at higher costs (companies based in the U.S., Canada, Japan or Europe) and which do not have the benefit of fiscal exemptions. There are many American companies that are interested in developing a business in this area, at the expense of the national U.S. economy. Cano (2000) argues that "There are currently over 1,000 maquiladoras in Baja California, with roughly 700 of these located in Tijuana and the remaining in Mexicali, Tecate and Ensenada. Manufacturing activity ranges widely from light assembly, textiles and woodworking, to heavy welding, molding and sophisticated electronics."

Still, Aly and Schloss (2003) believe that "contrary to some claims that Mexico's maquiladoras have done nothing but steal U.S. jobs, the factories, which assemble imported materials and exports them, have actually helped some U.S. industries. A large percentage of raw materials imported by maquiladoras are imported from the U.S.A."

It would seem that the maquiladora industry has brought important benefits to the U.S. And Mexican economies, as well as to the trade of the two countries. Still, the impact of the maquiladora industry needs to be assessed in order to predict the future of Mexican manufacturing. The maquiladoras may continue working as they have done until now, with low-wage workers, or they could move beyond the phase of simply assembling components and follow a path similar to that of the four Asian tigers: Korea, Hong Kong, Taiwan and Singapore -- which is synonymous to excellence in manufacturing and quality. In such a case, maquiladoras would become world-class manufacturing plants and training facilities for Mexican workers and managers, with the ability to spearhead technological developments, as well as quality and excellence in manufacturing.

This perspective seems more probable, as recent reports about the maquiladoras prove that the industry has been changing its focus from doing business with cheap labor to concentration on work skills. Lindquist (2001), cited by Aly and Schloss, thinks that these organizations are moving toward second-generation manufacturing, which presupposes all the technical characteristics of a modern industry, including research and design capacities.

Success in this new situation can only be achieved if the maquiladoras emphasize and excel in "quality." The American quality revolution in the last 20 years has severely influenced the improvement of the manufacturing and competitiveness of U.S. manufacturers. Various techniques could play a similar role to the one in the United States, thereby helping Mexico's maquiladoras advance to the higher level of manufacturing excellence. Quality would be essential, by way of implementing its principles and techniques such as total quality management (TQM), Juran trilogy, Deming approach, statistical process control (SPC), problem solving, continuous improvement, and ISO 9000.

Some maquiladoras are committed toward building a quality system and certification such as ISO 9000, QS 9000 or various industry-specific certifications. One basic requirement for a certified quality system or a developed quality system is the existence of a quality mission statement. 83% percent of maquiladoras have a mission statement and 61% of them have certified quality systems. Aly and Schloss noted "all of the respondents that listed either automotive or metal working related operations indicated that they have a certified quality system in place."

The automotive-related companies believed their certification to be essential, although the certification of their suppliers was not required by most the respondents to that study. This is no surprise actually, as many maquiladoras work with very cheap products. However, electronic assembly companies and automotive companies expected their suppliers to be certified, at least to some extent.

The Total Quality Management philosophy has also affected the maquiladoras, as TQM promotes constant improvement, customer focus and a teamwork approach. According to Aly and Schloss, 70% of maquiladoras currently practice some of the TQM concepts. All the most advanced organizations, those conducting their activity in the automotive, electronics and metalworking industries, practice TQM concepts. However, only half of the plastic processing companies have implemented TQM ideas. Concerning teamwork, although all companies included in the study have indicated that they use it in some manner, only 63% of them consider it a powerful instrument for problem solving.

The degree to which TQM philosophy is applied in the activity of these Mexican companies varies largely. However, it should be mentioned that the TQM concepts are rapidly expanding and that there are more and more managers who are willing to implement them. This is another argument to the thesis stating that these maquiladoras will not be able to make quality-adequate products, able of making them competitive on more advanced markets, such as the U.S. Although there are still many improvements to be made, it is clear that TQM -- applied both to the production process and to people-related activities is making its presence felt among the maquiladoras.

These companies are also applying data collection, analysis, and implementation of statistical process control (SPC) tools. The survey conducted by Aly and Schloss showed that "61% of the respondents collected data, utilized it for problem solving and utilized SPC." Yet again, the automotive-related organizations are spearheading the industry, with a 100% application of SPC, followed by 86% of the electronics assembly companies, 67% of the metal working companies and 50% of the plastic processing companies.

Most companies applying SPC use the Pareto chart, while a large proportion of companies (85%) use X-bar and R-charts. Comparison bar charts are rarely used, where none of the companies uses the c-chart.

Obviously, the companies most committed toward quality improvement (by way of certification) and which applied the TQM concepts are also the ones who use control charts to manage the quality of their processes. This is the case of the automotive, the electronics assembly or the metalworking industry.

Another very important element to the construction of a high-quality production system is communication. Work instruction and procedures may be misinterpreted, a fact which can have a negative impact of the production system. People have to communicate efficiently is quality is to be improved by using written procedures. 87% of maquiladoras prefer employees who speak two languages, while 92% of companies state that Spanish is the prevailing language. Still, all companies claim that interpreters are needed on a common base. Although 70% of organizations use written procedures in English and Spanish, computer literacy does not seem to preoccupy any of the companies, which do not consider it necessary.

Training is another essential element of success in the implementation of a quality management system. All companies perform some kind of training with their employees, with a preoccupation for teamwork, problem-solving and safety. The particular topic of this paper, TQM or other relevant work-specific skills, is approached by about 40% of companies.

Although these techniques and concepts are currently spreading among the maquiladoras in Mexico, a fact which cannot be overlooked is the difference between the quality system certification, use of problem-solving teams and use of Statistical Control Process in Mexico and in the countries of origin. Japanese companies own the greatest percentage of maquiladoras which are certified, use problem-solving teams and have implemented SPC. U.S. companies come second while Mexican companies are placed last. There are also significant variations among the industries. The automotive industry has the highest percentage of quality certification, use of problem-solving teams and use of SPC. The electronics assembly industry ranks second in this competition.

The conclusion is that the quality management systems of the maquiladoras are much more appropriate for competition than politicians and researchers have initially predicted and that most companies of this type have a reasonable quality management system. More than half of the companies are certified, either by an ISO or a QS system, 70% use Total Quality Management concepts, while more than 60% of the companies use teamwork for problem-solving and SPC charts (Pareto, X-bar, R-charts, line-charts). Training of employees is also an aspect, constantly concerning the managers of maquiladoras.

Maquiladoras have all what it takes to lead the Mexican industry into manufacturing excellence and production of high-quality products. "By establishing quality systems, implementing quality principles and techniques, and training managers and workers about quality, the maquiladoras are playing a role of prime importance in creating "quality culture" in Mexico's manufacturing establishments. This quality culture could be instrumental in transforming Mexico's manufacturing from being known as a "cheap labor" provider into becoming a global manufacturing power recognized for its world-class manufacturing and excellence in quality."

As for suggestions regarding the improvement of a maquiladora, it should be mentioned that there is no standard or hard-line procedure for implementing TQM concepts or improving them, if they are already implemented. Still, any TQM program must be structured and internally standardized, which means that everyone in the organization must practice TQM in the structured manner required by management.

Every company can practice TQM in the manner it sees best for its organization. However, a company's TQM program must always be stabilized, which means that everyone within an organization must practice TQM in the structured manner set forth by management. The following steps should be followed (although this is a simplification of any TQM model):

1) the company reviews the needs of its customers and the degree to which these needs are being delivered by the maquiladora;

2) the company plans the activities which the managers consider necessary (both short- and long-term activities) to meet the customers' needs;

3) the company sets forth and stabilizes the processes used to deliver the products and services required by the customers;

4) the company implements additional systems to further improve its production processes, products, and services.

These four steps constitute a cycle and need to be continuously applied in order to achieve the desired rate of success.

The first step, reviewing customer needs and the degree to which they are fulfilled is actually not so important for the maquiladoras. Since these companies are established by foreign organizations, it is probable that these issues (what customers want and how to please them) are solved long before the maquiladora commences production. Such a company must deliver the products, and it is the mother company's job to find customers. However, since the market is constantly on the move, some maquiladora managers may find themselves faced with the possibility of shifts in consumer spending which may affect the production facility without permitting the mother company to act first. Therefore, the management of the Mexican companies must be constantly on the look for opportunities and new challenges. This is what would push these companies forward, and not the dependence on overseas industrial giants.

The second step, planning the activities which the managers consider necessary (both short- and long-term activities) to meet these customer needs, is currently well done by maquiladora managers. Use of advanced quality control methods has allowed for the achievement of higher quality products, while maintaining low costs.

The last two steps require the standardization of the production process, since improvement may not be achieved without standardization. The Standardize-Do-Check-Act (SDCA) cycle is a model for establishing and stabilizing a process. Stabilization makes the processes more measurable, predictable, and controllable, which, in turn, leads to improvements.