Use of TQM in improvement in McDonnell Douglas case. McDonnell Douglas is now part of the Boeing Company, but that does not diminish in any way the turnaround that took place at McDonnell Douglas between 1992 and 1997.
Times were not good for the company in the early 1990s. With the military buildup a thing of the past, the huge military division watched as sales plummeted. The commercial aircraft division struggled to be competitive with Boeing and Airbus.
Waste and inefficiency were rampant. McDonnell Douglas stock sat at $9 a share in 1992—the lowest in anyone’s memory. The company, once the nation’s largest defense contractor, and the world’s number two supplier of commercial aircraft, was in serious trouble. The senior management staff under the leadership of John McDonnell, then board chair, decided to try total quality management. They got off to a very rocky start but learned from their mistakes and by 1992 were making good progress.
Starting that year, executives were measured on three items: cash flow, return on net assets, and TQM, with the latter being tied to improvement on a Baldrige self-assessment score. In 1992, the self-assessment score was 200 (on the 0–1,000 scale). Over the next three years, the score increased by 100 points per year. This took the company from being a so-so performer in the traditional ranks to being a high mid-level performer in the TQM realm.
McDonnell Douglas found that as its Baldrige self-assessment score improved each year, its key business performance indicators were tracked in a parallel fashion. By 1995, its stock valuation reached $70 per share, profits were several times greater than in 1992, cash was up, and debt was down—all in a vastly smaller market. TQM literally turned around this giant company to the extent that the Boeing Company considered it imperative to merge in order to save Boeing. (The merger became final on August 1, 1997.)
Discuss the following questions in class or outside of class with your fellow students:
Total Quality Management (TQM) is an approach that seeks to improve quality and performance which will meet or exceed customer expectations.
This can be achieved by integrating all quality-related functions and processes throughout the company. TQM looks at the overall quality measures used by a company including managing quality design and development, quality control and maintenance, quality improvement, and quality assurance.
TQM takes into account all quality measures taken at all levels and involving all company employees.
Total quality management has evolved from the quality assurance methods that were first developed around the time of World War I. The war effort led to large-scale manufacturing efforts that often produced poor quality products. To help correct this, quality inspectors were introduced on the production line to ensure that the level of failures due to quality was minimized.
After World War I, quality inspection became more commonplace in manufacturing environments and this led to the introduction of Statistical Quality Control (SQC), a theory developed by Dr. W. Edwards Deming.
This quality method provided a statistical method of quality based on sampling. Where it was not possible to inspect every item, a sample was tested for quality. The theory of SQC was based on the notion that a variation in the production process leads to variation in the end product.
If the variation in the process could be removed this would lead to a higher level of quality in the end product.