There are other contributing factors. TQM has lost its cachet inside many companies. Since Dr. Deming died in 1993, the number of faculty teaching quality in business schools has dwindled, and so has student interest. Although quality practices still have a place in many companies — and have moved beyond the factory floor — TQM doesn’t capture the attention of as many senior executives as it once did.
Chinese manufacturers have shown that you don’t have to offer quality to compete if you can slash prices enough. “I see no evidence of the managers and workers at these facilities having the slightest concept of quality,” says John Dowd, an American quality expert who has visited dozens of Chinese factories. “They will comply with customer requirements when they are monitored closely, but left alone, it’s strictly ‘Get it out the door.’ ”
Retailers are also culpable because of their increasingly aggressive price bargaining. And new retail devices, like the extended warranty, also play a role. The extended warranty first emerged in the 1980s as a high-priced form of product insurance that allowed corporations to hedge their warranty protection costs. The typical extended warranty, which is a contract many retailers try to bundle with a product purchase, provides consumers with an extra year or two of either replacement or repairs. Gradually, the extended warranty has become a way of life for U.S. electronics and appliance retailers; in-store and call-center salespeople are often given incentive pay for every extended warranty they sell. Stores magazine, a retail trade journal, estimates that more than $5 billion worth of extended warranties were sold in North America in 2002.
Consumer Reports routinely warns its readers against extended warranties; at 10 to 30 percent of a product’s retail price, they’re statistically more expensive than the aggregate cost of simply replacing products when they fail. But these warranties are popular nonetheless, presumably because of the sense of security they provide to customers. When you have an extended warranty, it is easier to justify buying a DVD player or telephone that you fear might fall apart. But this sets up an almost irresistible perverse incentive for manufacturers. Not only is it easier for them to make goods that aren’t durable, manufacturers can now profitably “double dip.” This means when they receive a failed device, they can replace its broken parts and sell it again, not as “preowned” or refurbished, but as new. Greg Brue, the Six Sigma consultant, says of one computer peripherals company that he works with, “They have more revenue coming from processing extended warranties, refurbishing the returned units, and sending them back out than they do in getting the product right the first time.”
Mr. Brue made me realize the extent to which the decline of product quality is a cultural Rubicon for companies — a potential point of no return on the road to eroded market share. He claims he can predict whether marketers will lose customer loyalty five years from now on the basis of their profile of warranty costs today.
To Mr. Brue, there are two categories of products that retailers sell, each with its own pattern of deterioration — or (though he doesn’t use this phrase, it seems to fit) its own “product death cycle.” Both categories are engineered to stand up to normal wear and tear for the first year or so. But then the death cycles begin to differ. The first group of products show return and repair statistics that rise fairly rapidly after the warranty expiration date. The second category has lower return and repair rates, even after the warranty expires.