Perspectives on Various Issues of Interest

New Workstation

Walmart & Toy-Safety Standards

An article published on May 14^th, 2008 in Wall Street Journal reported that Wal-Mart Stores, world's largest toy seller, ordered its suppliers to meet a new set of children's-product safety requirements by fall of 2008 that goes far beyond existing government regulations.

The standards include strict limits for lead and a broad array of other heavy metals and chemicals that have been linked to various medical and developmental problems in children. In the case of lead, Wal-Mart said the surface coating on most children's products can't contain more than 90 parts per million; the current federal limit is 600. The Wal-Mart memo also sets limits for mercury, antimony, arsenic, barium, cadmium, chromium and selenium. Its limit for cadmium, a metal used in paint and plastics that has been linked to kidney damage, is 75 parts per million. The federal government has no mandatory cadmium limit. A new Washington state law limits cadmium to 40 parts per million by July 2009.

The initiative also encourages suppliers to mark children's products with "traceability information," including the factory in which the goods were made. About 80% of the toys sold in the U.S., including those marketed by U.S.-based toy makers, are manufactured in China.

This follows the discovery of high lead levels in children's products, the recall of about 25 million toys in 2007 and toy-related deaths that shook consumers and prompted several states, including Washington and Illinois, to adopt more stringent environmental standards than the federal government.

Melissa O'Brien, a Wal-Mart spokeswoman, said the new standards are part of an effort to restore consumer confidence. Industrywide, toy sales fell 2% in 2007 to $22.1 billion, with toys for infants, toddlers and preschoolers -- which accounted for most of last year's recalls -- down 5%, according to NPD Group, which tracks the industry.

Lutz Muller, president of Klosters Trading Corp., a toy and videogame consulting firm in Williston, Vt., added, "Retailers are getting sick and tired of all the bureaucratic wrangling that's going on. They're just taking things into their own hands."

Wal-Mart also is restricting a half-dozen phthalates (plastic-softening chemicals) in "mouthable" products for young children under three to no more than 1,000 parts per million, which in effect makes their use impractical, experts say.

The new mandates are prompting many toy makers to find new materials, monitor overseas factories more closely and verify their products' metal and chemical content through independent lab testing at more frequent intervals. The cost of this additional testing will show up in price increases at the cash register, said Jerry Storch, chairman and chief executive of Toys "R" Us. But he added, "Our research shows that customers are willing to pay a little more for safety."

Source: Pereira, Joseph. and Stecklow, Steve, “Wal-Mart Raises Bar on Toy-Safety Standards,” Wall Street Journal, May 14, 2008.

The Issue of Container Shortage

An article published on May 9^th, 2008 in Wall Street Journal discussed bottlenecks at U.S. overloaded ports making it difficult for U.S. exports to go overseas. The problem can be traced to a shortage of once-plentiful shipping containers and other transportation equipment, along with a lack of space on outgoing ships.

Cargo-ship operators are raising prices. Many cold-storage facilities are packed to near capacity with pork and other meat products waiting to be loaded into containers -- rectangular boxes that are generally 20-feet or 40-feet long.

Peter Friedmann, executive director of the Agricultural Transportation Coalition, estimated agricultural exporters could have shipped 20% to 30% more products in the past six months if more containers were available.

Earlier, it was easier to find enough containers for agricultural products. The U.S.'s massive demand for imports meant shipping firms typically scoured the country for anyone willing to fill outgoing boxes. However, in recent times, with lucrative routes in Asia and between Asia and Europe, there are fewer containers available to handle grains and other commodities in the vast agricultural heartlands of the U.S. and Canada.

"Before, the price would take into consideration that the empty container was sitting down the road in Chicago or somewhere else close," said Victor Cruz, of Lakehurst, N.J., who makes international delivery arrangements for shipping companies. "Now the container has to be hauled out from New Jersey, so [customers are] paying for a round trip."

Partly to address the problem, Mr. Friedmann of the Agricultural Transportation Coalition held a conference call with 59 members in late April to discuss what to do. Participants talked about getting Congress -- with the help of other industries -- to repeal parts of a shipping law that allows carriers to discuss and fix transportation rates and service. By doing so, he believes carriers will respond more to supply and demand. They also considered pushing federal regulators to examine shipping companies' pricing practices.

Exporters' frustration is building even as U.S. agricultural exports have jumped 20% by weight in the six months ended Feb. 29, compared with the same period last year, according to the Department of Agriculture.

Source: Brat, Ilan. and Aeppel, Timothy, “Container Shortage Frustrates U.S. Exporters,” Wall Street Journal, May 9, 2008.

Relationship Between Supply Management & Safety

An article published on May 14^th, 2008 in Wall Street Journal reported that Wal-Mart Stores ordered its suppliers to meet a new set of children's-product safety requirements by this fall that goes far beyond existing government regulations. Wal-Mart Stores Inc. is the world's largest toy seller.

The standards include strict limits for lead and a broad array of other heavy metals and chemicals that have been linked to various medical and developmental problems in children. In the case of lead, Wal-Mart said the surface coating on most children's products can't contain more than 90 parts per million; the current federal limit is 600. The Wal-Mart memo also sets limits for mercury, antimony, arsenic, barium, cadmium, chromium and selenium. Its limit for cadmium, a metal used in paint and plastics that has been linked to kidney damage, is 75 parts per million. The federal government has no mandatory cadmium limit. A new Washington state law limits cadmium to 40 parts per million by July 2009.

The initiative also encourages suppliers to mark children's products with "traceability information," including the factory in which the goods were made. About 80% of the toys sold in the U.S., including those marketed by U.S.-based toy makers, are manufactured in China.

This follows the discovery of high lead levels in children's products, the recall of about 25 million toys last year and toy-related deaths that shook consumers and prompted several states, including Washington and Illinois, to adopt more stringent environmental standards than the federal government.

Melissa O'Brien, a Wal-Mart spokeswoman, said the new standards are part of an effort to restore consumer confidence. Industrywide, toy sales fell 2% in 2007 to $22.1 billion, with toys for infants, toddlers and preschoolers -- which accounted for most of last year's recalls -- down 5%, according to NPD Group, which tracks the industry.

Lutz Muller, president of Klosters Trading Corp., a toy and videogame consulting firm in Williston, Vt., added, "Retailers are getting sick and tired of all the bureaucratic wrangling that's going on. They're just taking things into their own hands."

Wal-Mart also is restricting a half-dozen phthalates in "mouthable" products for young children under three to no more than 1,000 parts per million, which in effect makes their use impractical, experts say.

The new mandates are prompting many toy makers to find new materials, monitor overseas factories more closely and verify their products' metal and chemical content through independent lab testing at more frequent intervals. The cost of this additional testing will show up in price increases at the cash register, said Jerry Storch, chairman and chief executive of Toys "R" Us. But he added, "Our research shows that customers are willing to pay a little more for safety."

Source: Pereira, Joseph. and Stecklow, Steve, “Wal-Mart Raises Bar on Toy-Safety Standards,” Wall Street Journal, May 14, 2008.

Health Insurer Efficiency

An article published on May 14^th, 2008 in Wall Street Journal rank Aetna first among 130 big health insurers in their ability to quickly and accurately reimbursing doctors. The factors considered include how long carriers take to pay bills, the percentage of claims they resolve after one submission and their claim-denial rates. The results were based on data from 13,000 clients of Athenahealth, Inc. which provides doctors with practice-management and electronic medical-record services. The average number of days it took national insurers to pay doctors in 2007 was 27 days for Aetna, 30 days for Humana, 33 days for Cigna, and 35 days for both Medicare-B and UnitedHealth.

An Aetna spokesman said the company has improved efficiency, in part, through technology and by clarifying its policies with doctors.

The annual ratings reflect a greater push toward performance measurements and transparency across the health sector. A 2007 survey of hospital executives and insurers by PNC Financial Services Group Inc. found that administration and billing account for one of every $3 spent on health care in the U.S.

Athenahealth weighted seven criteria to assess which carriers were most responsive. Aetna took 27 days on average to pay doctors, resolved 96% of claims on the first attempt and denied 5.9% of claims -- the three factors given the most weight -- to finish with the best overall score. Cigna Corp. finished second overall, taking 33 days on average to pay doctors, resolving 96% of claims in one attempt and denying 6.6% of them. New York state's Medicaid program scored the lowest among all payers in the study: The joint federal-state insurance program for the poor took 137 days on average to pay doctors, resolved 57% of claims on one try and denied 39% of claims.

William F. Jessee, chief executive of Medical Group Management Association, an organization for individuals who manage medical-group practices, said persistent delays in payment often prompt doctors to drop out of insurance plans, which can lead to reduced access to care for patients.

Source: Tesoriero, Heather Won, “Aetna, Cigna Rank Highest in Efficiency,” Wall Street Journal, May 29, 2008.

Relationship between Quality Management Practices & Firm Performance

Quality management (QM) has received a high degree of attention in extant literature. Several research papers attribute superior firm performance to adoption of QM practices. The availability of a large number of research papers that investigate the impact of QM practices on performance provide an ideal setting for theory extension and refinement using meta-analysis techniques. In a paper that I published in 2006, performance implications of adopting QM practices are formalized and the article presents hypothesized relationship between QM practices and performance. Second, a meta-analysis of correlation approach is used to examine the empirical research in QM to determine which QM practices are positively related to improved performance. The study also examines the presence of moderating factors in the association between QM practices and performance.

The results suggest that a large variance in aggregate performance can be attributed to QM practices. This reaffirms the role of QM practices in improving performance. The results also highlight the
importance of the unit of analysis in QM practice-performance link. While for firm level data, the analysis reveals a positive relationship between QM practices and aggregate performance, the evidence of a positive association was lacking in plant level data. Management leadership was positively related to aggregate performance. It was also found to be positively related to all measures of aggregate performance except the operational performance measure. Management leadership fosters change in an organization through continuous improvement and open communication
and this potentially explains the improvement in financial performance, customer service and product quality. A possible explanation for the lack of direct positive relationship between management leadership and operational performance is that management leadership improves performance indirectly through its influence on other QM practices.

The results suggest a positive relationship of people management with aggregate performance, financial performance and operational performance. The results, however, fail to find a relationship between people management and customer service. The results also could not confirm the direct link between people management and product quality. Process management was positively associated with
aggregate performance, and with financial and customer service measures of performance. Notably, the results fail to find a relationship of process management with operational performance and product quality. This provides support to the reasoning that infrastructure practices such as management leadership, people management etc. explain much of the variation in performance as against the core practices like process management. The results fail to find a positive association of product design and management with aggregate performance.

Operational performance measure was found to have a direct positive association with product design and management practices but interestingly the study fails to find a direct relationship between product design and management and product quality. Product design and management practices are aimed at improving design quality and in ensuring design for manufacturability. Scholars have argued that almost 80% of the manufacturing costs are determined at the design stage and these manufacturing costs are an important component of a firm’s operational performance. The results in this study substantiate this important link between product design and management and operational performance. The lack of relationship between product design and management and product quality is intriguing and provides motivation for further investigations into potential contingencies, indirect associations and interaction effects.

Supplier quality management was positively associated with aggregate performance and the operational performance measure. It can be reasoned that with an increasingly supply chain oriented business environment, improvements targeted at the supplier's end such as supplier quality management are important for improved operational performance. This study however could not confirm direct relationship between supplier quality management and other performance measures. Quality data analysis involves using quality information tools such as statistical process control and cost of quality measures. The results suggest that these activities were positively associated with aggregate performance and customer service. However, the study could not find a direct relationship of quality data analysis with financial performance, operational performance and product quality. Other indirect causal paths, such as the effect through other QM practices that link quality data analysis with these performance measures need to be explored in future research.

Finally, customer focus was positively related to aggregate performance and all individual measures of performance. Customer focus relates to an organization’s commitment to determine and meet current and emerging customer requirements and expectations, to provide effective customer relationship management and to ensure customer satisfaction. It can be reasoned that investments in customer complaints evaluation and expectation monitoring systems enable better design of products and processes, thereby improving product quality and operational performance. A focus on meeting and exceeding customer expectations allows firms to achieve improved financial performance and customer satisfaction. Evidence of a direct relationship between customer focus and all performance dimensions motivates further examination of its association with other QM practices.

In the meta-analytic study we also found an overwhelming support for the presence of moderators in the relationship between quality management (QM) practices and performance. The results suggest that interaction effects and interrelationship might exist among QM practices and between the various performance dimensions. These moderating factors, perhaps, explain the lack of evidence of a significant relationship between some quality management practices and performance in large-scale empirical studies

Source: Nair, A. 2006. “Meta-Analysis of the Relationship between Quality Management Practices and Firm Performance – Implications for Quality Management Theory Development,” Journal of Operations Management, 24, 948-975.