The cover story of Time’s July 14 issue is a 39-page special report, “The Smarter Home.” Naturally, I had to read it.
The evolution of quality management in home building
More than 20 years after becoming one of the industry’s first quality chiefs, Scott Sedam assesses the state of quality management in home building.
The first of this two-part series addresses the evolution of quality management in home building over the past three decades and provides a model to determine where you stand in your own quality journey. Part two in the March issue examines the higher levels of quality management and how builders have responded to the changes in expectations, balancing customer needs with the new reality of building during a housing recession.
In the late 1970s, Ford introduced the Fairmont, a midsize car developed to fend off the burgeoning Japanese competition that was eating the Big Three’s collective lunch. This followed the sad era of the Ford Maverick, Plymouth Duster, and Chevy Vega, which together represented the “worst of Detroit.” Ford bought serious ad time for Super Bowl XIV in 1980 and ran a spot that has stuck with me for more than 30 years. It showed the Fairmont coming down a production line full of happy workers, all smiling and apparently thrilled to be building this new vehicle. At the end of the line, small windows began popping up around the screen, circling the Fairmont, as a machine-like sound fired in the background. Each of the 21 windows displayed a white-coated inspector with a clipboard and checklist in hand. Meanwhile, the narrator of the commercial boasted that each Fairmont went through 21 inspection stations, thus assuring the quality of the vehicle.
The average American in 1980 was no doubt impressed by this. More inspections mean better quality, right? At the time, I was a quality process manager for Motorola, a true pioneer of the quality reformation movement in this country during the 80’s and 90’s. Although young, I had learned enough to know the futility of Ford’s quality-by-inspection approach. We were studying Japanese quality and knew that Toyota, for example, had only three inspectors per line, while 21 was typical for U.S. manufacturers. Ponder that: Ford invested in 18 extra employees and Toyota’s quality still put the Fairmont to shame. How could that be? Hint: it was not the quality of the workers.
I made frequent trips to Motorola’s small Albuquerque, N.M., plant in those days. It served as a test cell for many of our process and quality improvement efforts. On my next trip, following the Super Bowl, I left Hertz in a brand new Ford Fairmont. I had arrived late in the evening and while searching for my hotel I missed a street and had to turn around in a parking lot. During that turn at a normal speed, I hit a small pothole. Wham! The initial sound was followed by a deafening chatter that worsened when I slammed on the brakes. Steam rose out from the grill and a dent formed in the hood, from underneath. Shutdown and further inspection revealed that this minor meet-up with a pothole had completely detached the radiator and fan-shroud assembly from its mounting and sent it into the fan blades, which, in turn, sent the shroud into the hood from below. As I waited for the Hertz tow truck to arrive and return me to the airport to get another car, I ruefully wondered if perhaps 22 inspectors might have prevented this problem.
I have retold that story over the years to illustrate the fallacy of “quality by inspection.” The sad thing is that when I arrived in the home-building industry full-time 23 years ago, inspection-based quality would have been a great leap forward for most builders. Today, 30 years following my Albuquerque incident, virtually all cars — and American autos in particular — have made an order of magnitude improvement in quality. Ford and GM now compete head-to-head with Japanese and Korean brands in surveys such as JD Power and ratings by Consumer Reports, while the European brands struggle to keep up. The Ford Fusion, to mention just one example, was recently cited by Consumer Reports as having better reliability than the Toyota Camry and Honda Accord. Just a decade ago, that was unthinkable. Baby boomers will recall how rarely their parents’ cars made it to 100,000 miles while today it is routine. What changed?
The Rule of 1-10-100
1 = PREVENTION
Every dollar, nickel, penny, or hour spent on prevention of problems is a great investment.
10 = INSPECTION
If you let a problem develop and then find it through inspection, it costs 10 times as many dollars, nickels, pennies, or hours.
100 = FIELD FAILURE
If you let something fail in the field it’s another factor of 10 in time and money.
A simple way to understand the problem with brute force quality comes from a landmark 1959 study at the renowned Bell Labs, the research division of AT&T. Looking at years of data, they devised the “Rule of 1-10-100,” which compares the cost differential with finding problems during inspection and in the field, versus preventing them altogether.
Here’s the kicker: As a percent of income, today’s dramatically better vehicles — with power-everything on even the smallest econobox, great sound systems, electronic controls, and bodies that seem to never rust — cost us about the same as the crummy cars from the 70’s and 80’s. This was not achieved by adding that 22nd inspector. Enter any domestic auto plant today and inspectors are very hard to find.
So how does home building compare? That brings up several tough questions. We have clearly progressed, but as an industry we have not evolved even close to the level of automotive quality, and our costs have increased significantly. As Andy Rooney would have asked, “Why is that?” And what about the impact of the housing recession? Will it erode many of the quality gains that housing made in the past 20 years?
Not long after coming to home building in 1989 as the first person I know of with the title of Vice President of Quality, I was asked to sum up the state of quality in the industry. I called it “brute force quality,” defined as “constant supervision, continual inspection, and mass rework.” It was our industry’s version of traditional “quality control.” Build stuff. Find errors. Fix them with a vengeance. Yes, at the end of the day or perhaps within 30 days after closing, brute force methodology can produce a decent house, but at an incredible cost of time, money, employee morale, and customer satisfaction. Even 20 years ago, I found considerable intellectual buy-in to the idea that there is a better, more effective and less costly way to provide quality. In actual practice, though, few in home building have grown beyond the brute force approach and many have fallen below that level during the housing recession.
Rule of 1-10-100
A simple way to understand the problem with brute force quality comes from a landmark 1959 study at the renowned Bell Labs, the research division of AT&T, then the provider of 90 percent of telecommunication equipment in America. Looking at years of data, they devised the “Rule of 1-10-100,” later termed “the good, the bad, and the ugly” by a mentor of mine who is a fan of Clint Eastwood spaghetti-western movies. In this rule, the number 1 equals “prevention.” What the Bell researchers found was that every dollar, nickel, penny, or hour spent on prevention of problems is “good.” The 10 in the rule equals “inspection.” If you let a problem develop and then find it through inspection — meaning “we find and fix” — it costs 10 times as many dollars, nickels, pennies, or hours. Home building has been largely hung up here for 20 years. We believe finding and fixing problems is a good thing. Sure, it’s far better than letting the customer find them, but this brute force approach is so expensive and produces so much baggage that it can only be termed “bad.” Therein lays the first step to growing beyond the most dominant quality model in the business. You cannot stop doing inspections tomorrow, but you have to accept that inspection-based quality is a negative approach.
The Rule of 1-10-100 does not stop there, because if we do not find and fix problems at the inspection level of 10, we now progress to field failure. That’s another factor of 10 in time and money. Field failure thus equals 100 and that is nothing but “ugly.” Of course, these are general rules, and in home building I have seen everything from an anchor bolt in a doorway that calculates as 1-5-20 to a case involving bad soils tests leading to foundation failure in the foothills of Denver that cyphered out to 20,000 – 400,000 – 6,000,000 — and that was just hard cost. That one became a Channel 7 Eyewitness News story, and the impact, including loss of reputation, was immeasurable, taking most of a decade to recover.