Capstone Project: Effects of ISO 9000 and ISO 14000 on Production and Efficiency

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¶ … ISO 9000 and ISO 14000 on Production and Efficiency

In an increasingly globalized marketplace, companies of all types and sizes are searching for ways to achieve a competitive advantage. As a result, a growing number of firms are looking to the standards promulgated by the International Organization for Standardization (ISO) to make their companies leaner and more efficient with the expectation that these initiatives will result in increased production and efficiency. This paper reviews the relevant literature to determine whether adoption of ISO 9000 and 14000 standards has an effect on production and efficiency in general and for companies competing in the car and truck tire manufacturing in particular. A summary of the research and important findings are presented in the conclusion.

Overview of the Automobile and Truck Tire Industry

The automobile and truck tire industry is enormously competitive, and almost all companies that have historically entered and exited the market have been smaller firms (Carree and Thunk 254), making the need for quality improvement standards particularly important. Unlike their larger counterparts that have sufficient resources to weather periods of economic downturn, smaller companies typically are unable to survive extended unprofitable periods of time (Carree and Thunk 254). An increasingly significant niche in the tire industry, though, has been the manufacture of truck and bus tires. According to these authorities, "Specialist tire production may provide better margins than the average profit margin in the industry. Since the 1970s, small firms have increasingly concentrated on niches in specialist sectors, and some larger firms have abandoned specialist tire production" (Carree and Thunk 254). The automobile and truck tire industry also generates a wide array of toxic waste products, making the need for informed and timely application of industry-accepted environmental standards a critical element in sustainable operations (Carver 11). Two ISO standards in particular appear to be salient for tire manufacturers and these are discussed further below.

The International Organization for Standardization reports that the ISO 9000 family of standards "represents an international consensus on good quality management practices. It consists of standards and guidelines relating to quality management systems and related supporting standards" (ISO 9000 essentials 1). The ISO 9000 series of international standards are concerned with quality systems that can be applied to external quality assurances applications developed by the International Organization for Standardization (Barnes 24). "This group," Barnes adds, was "founded in 1946 [and] has become the focus of efforts to develop international quality standards to facilitate worldwide trade. The organization is a coordinating, consensual group with member bodies from more than 90 countries. The U.S. representative is the American National Standards Institute" (Barnes 24).

The ISO 9000 quality systems standards have grown in acceptance in recent years, and nearly 100 countries have adopted the ISO 9000 series or its equivalent as their national standards (Barnes 23). Although adoption and compliance with ISO 9000 standards is voluntary for most companies, the standards have become mandatory for firms marketing medical devices or telecommunications equipment in Europe, and in excess of 20,000 companies are already registered (Barnes 23). Likewise, suppliers to the electrical, chemical, and nuclear industries in the United States expect certification to become mandatory and the number of ISO 9000 registrations has been doubling every nine to 12 months (Barnes 23).

The ISO 9000 series established standards for systems and administration rather than products by providing organizations with a set of guidelines concerning the optimal approaches to developing systems for managing quality products or services (Barnes 24). In this regard, Barnes reports that, "ISO 9000 requires organizations to document practices that affect the quality of their products or services. Organizations are then expected to follow these procedures to gain and maintain certification. Proponents see the key to quality as the creation of an internal auditing system whereby all company functions are constantly monitored" (24).

The ISO 9000 standards provide the framework that companies need to achieve continuous improvement needed to achieve competitive advantage (Stankard 19). In fact, Stankard notes that, "The kind of continual improvement capability needed to start toward high performance is actually a requirement of the current revision of the ISO 9000 quality system standard" (19). Proponents of adopting ISO 9000 standards maintain that ISO has developed a viable method whereby organizations of all types and sizes can improve the quality of their products and services as well as the satisfaction of their customers, but not everyone agrees. For instance, Stankard also notes that, "While the ISO 9000 standard makes a start, it alone is insufficient to achieve durable competitive advantage and high performance; its scope is too narrow" (19). Similarly, Simmons and White point out that, "To be competitive in the global marketplace, most companies must go beyond the basic quality management system that is outlined by ISO 9000" (33).

To achieve truly excellent -- and profitable -- operations, Stankard suggests that the narrow scope of the ISO 9000 series must be augmented by improvements in four additional areas: (a) economic opportunity and wealth creation (profitability), (b) strategies and motivation to realize the opportunities, (c) capabilities to execute the strategies and, (d) use of information and analysis to balance risk of loss with financial return (Stankard 20). Notwithstanding these considerations, it is clear that in order to improve something it must first be measured. In this regard, Bennett notes that, "Monitoring and measurement of the management system, processes, and products are necessary to evaluate and improve a company's performance. In addition, monitoring and measurement allow a company to identify areas that require corrective action and to determine the root cause(s) of such problem areas. Monitoring and measurement data can provide objective evidence that operation and control of processes are effective" (2). Therefore, the ISO 9000 represents at least a good starting point for beginning the journey to true excellence in performance, and an increasing number of executive teams seem to agree. For instance, Simmons and White emphasize that, "ISO 9000 is arguably the most influential standard of its kind in the world. This rapid acceptance of ISO 9000 suggests that many firms find that the standard is well written and worth observing, in spite of the fact that there is no compelling evidence that the standard is ultimately good or bad" (33).

Citing a lack of relevant studies in the area as well as limitations concerning how the ISO 9000 standards should be implemented and administered, Simmons and White compared the performance of 63 ISO-registered companies with 63 non-ISO-registered companies to determine the effect of ISO 9000 registration on firm profitability. Such an analysis is important because compliance with ISO 9000 standards is certainly not cheap and involves a long-term commitment. For example, Simmons and White emphasize that, "The time required for a firm to achieve certification of one of its sites could range from six months to two years, but is typically around one year. Depending on the size of the plant, the cost to prepare a site for ISO 9000 ranges from $15,000 to $1 million. The typical cost to prepare a medium sized plant for ISO 9001 is $250,000" (330). Based on this significant investment of time and resources, there must be some discernible return on investment to justify voluntary compliance in industries that are not mandated to follow these standards. According to these authorities, "ISO 9000 is most prevalent in Western Europe where it has its roots. Although compliance with ISO 9000 is voluntary, the standard has been marketed so that many companies believe it is a requirement for doing business in Europe. Indeed, any company that lacks a certificate of compliance could be at a significant marketing disadvantage if its competitors do have certification" (Simmons and White 330). The return on investment for companies using the ISO 9000 series typically relate to savings realized through reduced scrap and the need for corrective action, as well as increased profitability and advantages in marketing based on the international recognition of the ISO standards (Simmons and White 330). Two covariates were considered for their potential significant correlation with the dependent variables in the Simmons and White study: (1) firm size and (2) time of registration for ISO companies firms. These researchers used the natural logarithm of each company's total assets to represent the variable size based on the rationale that if ISO registration confers an improvement in performance, the effect of ISO 9000 registration will likely increase over time (Simmons and White 33). The variable time was operationalized as being the difference in months between the date financial data were reported in 1995 and the date the company was registered (Simmons and White 330).

The data analysis conducted by Simmons and White is presented in Tables 1 through 3 below.

Table 1

Descriptive Statistics and Correlations

Variable (N=126)

Mean

SD

1

2

3

Performance

2.15

2.62

Profit

5.65

10.25

-.09

Foreign Sales (a)

2.35

3.02

-.11

-.04

Size (b)

4.71

02 .

30(*)

.38(**)

Table 2

ISO Companies

Variable

N

Mean

SD

Min

Performance

63

2.15

2.74

-7.39

14.93

Profit

63

9.91

8.23… [END OF PREVIEW]

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