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Best Practices: Commercial Quality Assurance Practices Offer Improvements for DOD (Letter Report, 08/26/96, GAO/NSIAD-96-162).

GAO reviewed the Department of Defense's (DOD) quality assurance
practices, focusing on: (1) the problems that DOD has had in improving
such practices; (2) private-sector practices that could be beneficial to
DOD; and (3) DOD efforts to improve its quality assurance activities.

GAO found that: (1) DOD spends more than $1.5 billion annually to
support its quality assurance activities; (2) manufacturing and quality
problems have contributed to cost and schedule overruns on DOD weapons
systems programs; (3) DOD acquisition programs have experienced quality
problems during the production phase due to incomplete weapon designs;
(4) DOD is relying on unstable designs and inspections to rework the
defects in its B-2 bomber and C-17 Airlifter programs; (5) a number of
successful commercial manufacturers are improving the quality of their
products, while reducing their oversight and inspection costs; (6)
commercial manufacturers have broadened their definition of quality
assurance, thus making it an integral part of the DOD manufacturing
process; (7) DOD teams up with independent contractors to control the
flow of the production process and reduce their reliance on inspections;
(8) DOD is developing a plan to reduce the costs of redundant quality
assurance processes; (9) the plan will allow DOD contractors to use a
single quality management system based on process controls for all DOD
contracts; and (10) DOD could enhance its quality management system by
encouraging defense contractors to use more advanced commercial
techniques and quality assurance practices.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-162
     TITLE:  Best Practices: Commercial Quality Assurance Practices 
             Offer Improvements for DOD
      DATE:  08/26/96
   SUBJECT:  Defense procurement
             Advanced weapons systems
             Cost overruns
             Manufacturing contracts
             Department of Defense contractors
             Quality assurance
             Defense cost control
             Total quality management
             Contract monitoring
             Inspection
IDENTIFIER:  DOD Quality Assurance Program
             B-2 Aircraft
             C-17 Aircraft
             DOD Single Process Initiative
             Blackhawk Helicopter
             High Speed Anti-Radiation Missile
             Tomahawk Cruise Missile
             Advanced Medium Range Air-to-Air Missile
             Copperhead Projectile
             
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Cover
================================================================ COVER


Report to the Subcommittee on Acquisition and Technology, Committee
on Armed Services, U.  S.  Senate

August 1996

BEST PRACTICES - COMMERCIAL
QUALITY ASSURANCE PRACTICES OFFER
IMPROVEMENTS FOR DOD

GAO/NSIAD-96-162

Best Practices

(705115)


Abbreviations
=============================================================== ABBREV

  DCMC - Defense Contract Management Command
  DOD - Department of Defense
  DFARS - DOD Federal Acquisition Regulation Supplement
  FAR - Federal Acquisition Regulation
  ISO - International Standards Organization
  PROCAS - Process Oriented Contract Administration Services
  NMRI - Nuclear Magnetic Resonance Instruments

Letter
=============================================================== LETTER


B-272039

August 26, 1996

The Honorable Robert C.  Smith
Chairman
The Honorable Jeff Bingaman
Ranking Minority Member
Subcommittee on Acquisition and Technology
Committee on Armed Services
United States Senate

The Department of Defense (DOD) spends about $1.5 billion extra per
year on military-unique quality assurance requirements for major
acquisitions and billions more on cost and schedule overruns to
correct problems caused partly by poor quality practices.  To help
improve DOD's quality assurance program, we reviewed world-class
commercial organizations to determine what practices they had adopted
to more efficiently produce quality products.  Specifically, this
report describes (1) the historical problems DOD has had in improving
quality assurance practices, (2) some private sector practices that
could benefit DOD, and (3) a current plan for improving quality
assurance activities. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Quality assurance has a simple goal:  to ensure that products perform
the way they are supposed to.  For many years, the traditional way
DOD and commercial companies achieved quality was through systematic
final inspection.  But now, intense competition has led some U.S. 
companies to adopt total quality management practices that are
prevention based.  Consequently, quality assurance has taken on a
broader meaning, to include virtually all key design and engineering
elements during development, the transition to production, and
production itself. 

There is general agreement across government and industry that DOD's
inspection-based quality assurance practices have added unnecessary
costs to acquisitions because they require DOD and contractor
personnel and resources for oversight that are separate from the
production process.  Until recently, DOD's quality requirements were
based on MIL-Q-9858A, a military standard established in 1963.  This
standard requires a contractor to establish a quality program with
documented procedures and processes that are subject to approval by
government representatives throughout all areas of contract
performance.  Quality is theoretically ensured by requiring both the
contractor and the government to monitor and inspect products.  In
June 1994, the Secretary of Defense announced that commercial quality
standards such as ISO-9000 should replace MIL-Q-9858A where it makes
sense.  DOD will not require MIL-Q-9858A on contracts awarded after
October 1996.  Until then, DOD will be approving the quality
standards on a case-by-case basis at the request of industry. 

The Defense Contract Management Command (DCMC) has primary
responsibility for setting and overseeing quality assurance standards
within DOD.  As of September 1995, DCMC had about 5,000 quality
specialists located in contractor facilities or in regional offices
across the country. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Based on studies performed for DOD, we estimate that it spends more
than $1.5 billion annually beyond what is necessary to support its
quality assurance approach.  Despite this outlay, it has had
long-standing problems with significant cost and schedule overruns
that have been needed to correct manufacturing and quality problems
on weapon system programs.  Historically, numerous acquisition
programs have had quality problems in production because designs were
not complete.  More recently, the B-2 bomber program and the C-17
Airlifter program encountered major manufacturing problems because
they went forward with unstable designs and relied on inspections to
find and rework defects once in production.  Nonvalue-added costs
have increased in part because DOD has taken a narrow approach to
implementing its quality standard. 

On the other hand, a number of successful commercial manufacturers
have adopted a dramatically different approach.  Driven by the
competitive imperative, they have significantly improved quality in
their products, while reducing oversight and inspection costs.  The
striking difference between the way DOD's weapon system programs and
world-class companies practice quality assurance is that the latter
defines quality assurance much more broadly, making it an integral
part of the entire process from development through production to
sales.  Several key techniques are common to this approach:  (1)
focusing on achieving robust, producible designs before production
begins by requiring communication between key players; (2) using
process controls to design products and control the production
process as it occurs; and (3) establishing programs with key
suppliers to ensure the quality of incoming material.  The
manufacturers we visited reported that these techniques have helped
reduce defects from 34 to 90 percent and the number of inspectors
from
25 to 94 percent. 

In the past 2 years, DOD has developed policies and procedures that
reflect a broader approach to quality assurance.  They are based on
teaming with the contractor to control processes while reducing
reliance on inspection.  DOD faces a challenge in changing the
inspection-based quality practices that have become ingrained,
particularly when it comes to placing a greater emphasis on building
quality into weapon systems during design.  DOD and industry have
joined in an initiative to develop a plan that, if implemented, could
reduce the costs of redundant quality assurance processes.  According
to the plan proposed by the Government and Industry Quality Liaison
Panel, DOD would allow its contractors to use a single quality
management system based on process controls for all of its contracts,
military and commercial. 

We believe the results of this system could be enhanced if DOD also
implemented plans it has developed for some of the advanced quality
concepts we found in the commercial world.  Right now, DOD's Single
Process Initiative is focused on allowing defense contractors to
replace the military standard with a more common commercial one.  It
must now encourage the defense industry to use more advanced
commercial techniques, such as design for manufacturing, statistical
process control, and supplier quality programs.  Achieving the same
results as world-class companies would also require DOD to consider
quality assurance as an integral part of the entire acquisition
process and diffuse responsibilities accordingly. 


   CHANGING DOD'S QUALITY
   ASSURANCE PRACTICES IS
   CHALLENGING GIVEN LONG-STANDING
   PROBLEMS
------------------------------------------------------------ Letter :3

DOD faces a formidable challenge in changing its quality assurance
culture.  This culture has been characterized by a narrow approach to
quality assurance, in both DOD and the defense industry, which has
led to a focus on detecting defects and recording corrective actions. 
In the past, DOD's practices have reflected a narrow approach to
quality assurance.  Responsibility for meeting military quality
standard MIL-Q-9858A has been assigned to one organization--DCMC,
which is outside much of the acquisition decision-making process. 
DCMC has quality specialists stationed in contractor plants across
the country to inspect material and end items.  These specialists
have relied heavily on quality system documentation, various reviews
and audits of the quality process, and corrective action plans
submitted by contractor quality assurance personnel to ensure quality
on weapon systems. 

Based on information from studies performed for the Secretary of
Defense,\1 we estimate that the extra cost associated with
military-unique quality assurance requirements for DOD acquisitions
is $1.5 billion annually.  The studies assessed the cost impact of
DOD regulations on contractors and DOD and found that the
contractors' cost to implement MIL-Q-9858A and to comply with DOD
requirements represented at least 1.7 percent of DOD's acquisition
cost, or about $1 billion.  Most of this cost occurred as the result
of contractor quality assurance and operations personnel devoting
time to such activities as preparing quality plans and procedures,
conducting and documenting inspections, documenting deviations,
proposing corrective actions to government concerns, and supporting
government audits and reviews.  Further, DOD's own costs for quality
assurance oversight were about $687 million annually.  This estimate
does not include what DOD has spent to correct the manufacturing and
quality problems that have contributed to historical cost and
schedule overruns on weapon system production programs.  These past
problems occurred partly because manufacturing processes were not
considered during the design phase of the program, and inspection,
rather than process control, was the predominant method of ensuring
quality. 

Like many commercial manufacturers, DOD is now being expected to cut
costs and do more with less.  Commercial manufacturers have adopted
far-reaching quality strategies as one way to become more
competitive, efficient, and economical.  Even though DOD faces the
same challenge, particularly since it can no longer expect the budget
increases it had during the 1980s, it has yet to effectively achieve
the same level of efficiency from its manufacturers.  A major
difference between DOD and commercial manufacturers is that DOD has,
until recently, maintained its practice of inspecting rather than
designing quality into a product while world-class companies have
broadened their definition of quality to include design. 

DOD is attempting to change its approach to quality by including
design in the definition of quality.  In translating this approach
into practice, DOD will have to overcome a history in which many
weapon system acquisitions have encountered significant cost and
schedule overruns because of design and manufacturing problems. 
These problems usually resulted from acquisition strategies that
began production before the design was complete and key manufacturing
processes were in place and tested for capability.  Some examples we
have reported on follow: 

  -- In 1985, we reported on four major weapon system
     acquisitions--the Army's Copperhead projectile and Blackhawk
     helicopter, and the Navy's High Speed Anti-Radiation Missile and
     Tomahawk missile--that had encountered substantial problems in
     early production, resulting in cost overruns and schedule
     delays.  At least part of these cost and schedule overruns were
     caused by several untried manufacturing processes that were not
     studied to see if they could produce quality components. 
     Symptoms of these problems were high scrap rates, parts
     shortages, and changes to engineering drawings.\2

  -- In 1988 and 1990, we reported that the B-2 bomber program's
     immature design led to manufacturing problems in production
     that, in turn, led to schedule delays and cost increases.  The
     contractors initiated thousands of changes to engineering
     drawings, some of which required new parts and tooling.  Because
     the bomber was not ready for production, actual labor hours
     exceeded planned labor hours on the first three aircraft by 84,
     86, and 94 percent, respectively, and the three major
     contractors estimated it would take over 10 million quality
     assurance labor hours to develop and produce 21 production
     aircraft, not including hours estimated for government
     oversight.  These manufacturing problems delayed the first
     flight of the B-2 by 19 months and contributed to significant
     cost increases.\3

  -- In 1991, we reported that 12 tactical missile programs had cost
     and schedule overruns, partly because program offices had not
     adequately considered the risk associated with the weapons'
     design, development, and production.  One missile, the Advanced
     Medium Range Air-to-Air Missile, encountered problems in
     transitioning to production partly because certain electronic
     components proved too complex and had to be redesigned.  This
     contributed to cost increases of 285 percent and a 5-year delay
     to the missile's operational capability date.\4

  -- In 1994, we reported that quality problems with the C-17 program
     increased unit cost to production aircraft and delayed scheduled
     deliveries.  Labor hours for rework and repair of production
     items made up 40 percent of the labor on the first five
     production C-17s, and scrap, rework, and repair cost about $44
     million in 1993.  In addition to these costs, some production
     aircraft were delivered to the Air Force with unfinished work
     and known deficiencies that had to be corrected after government
     acceptance.  The Defense Science Board reviewed the C-17 program
     in 1993 and concluded that the production schedule could not be
     maintained unless the contractor changed its manufacturing and
     quality assurance processes.\5 An Industry Review Panel on
     Specifications and Standards found that the C-17 production
     process had many quality problems that were adding cost to the
     program.  It found that the production aircraft were being
     produced in a "development environment," with unqualified
     processes, and with a reactive rather than proactive quality
     management system that did not analyze the causes of quality
     problems.  It also found that a high number of engineering
     changes were making production less efficient.  The review panel
     concluded that the program had an "inspection mentality" and
     that only 10 percent of quality cost was being spent on
     prevention. 

These examples represent a persistent problem in DOD's major
acquisitions.  All of the programs began producing weapon systems
before their key characteristics were fully designed and the key
processes for building the system were understood.  Some started
production before doing a significant amount of testing to determine
if these systems would perform their required mission.  The
consequences of beginning production before completing testing have
repeatedly included procurement of substantial inventories of
unsatisfactory weapons that require costly modifications to achieve
satisfactory performance and, in some cases, deployment of
substandard systems to combat forces.\6

These examples do not necessarily condemn DOD to a repetition of the
past or prejudge the potential success of DOD's current efforts to
better manage quality.  However, they do underscore the challenge DOD
faces in changing quality assurance practices.  The systems in the
examples were developed and produced using inspection-oriented
quality assurance practices and significant DOD oversight.  Yet, in
each case, we reported that beginning manufacturing before the design
was understood and manufacturing processes were controlled led to
quality problems, cost increases, and schedule delays.  The narrower
interpretation of quality assurance that prevailed at the time may
not have included the various design and engineering elements that
played a part in the weapons' eventual problems in production. 
However, the broader view of quality assurance practiced by leading
commercial manufacturers includes these elements and thus covers a
much larger range of responsibilities. 


--------------------
\1 DOD Regulatory Cost Premium:  A Quantitative Assessment (Dec. 
1994) and The DOD Regulatory Cost Premium -- Response to Secretary
Perry's Follow-on Taskings (Sept.  1995), prepared jointly by Coopers
& Lybrand and TASC for Dr.  William J.  Perry, Secretary of Defense. 
The studies stated that the findings provide an adequate basis for
assessing the general impact of the DOD regulatory environment on
acquisition cost. 

\2 Why Some Weapon Systems Encounter Production Problems While Others
Do Not:  Six Case Studies (GAO/NSIAD-85-34, May 24, 1985). 

\3 Strategic Bombers:  B-2 Program Status and Current Issues
(GAO/NSIAD-90-120, Feb.  22, 1990). 

\4 Tactical Missile Acquisitions:  Understated Technical Risks
Leading to Cost and Schedule Overruns (GAO/NSIAD-91-280, Sept.  17,
1991). 

\5 Military Airlift:  The C-17 Program Update and Proposed Settlement
(GAO/T-NSIAD-94-166, Apr.  19, 1994). 

\6 Weapons Acquisition:  Low-Rate Initial Production Used to Buy
Weapon Systems Prematurely (GAO/NSIAD-95-18, Nov.  21, 1994). 


   COMPANIES DEVELOPED NEW
   MINDSET:  PREVENT PROBLEMS
   RATHER THAN FIXING THEM
------------------------------------------------------------ Letter :4

Many companies have effectively evolved from an inspection-oriented
quality assurance process, and the culture and infrastructure to
support it, to a standard in which quality is an integral part of
each stage of the design and production process. 

The difference between how a manufacturer operates on a military
contract versus how it operates on a commercial contract is often
startling.  For example, we visited a company that manufactured
military and commercial products with similar specifications and
uses; both manufacturing processes were in the same building.  On one
side of the hallway, the commercial process used automation and
process control throughout the production process to continually
reduce nonvalue-added inspections.  On the other side of the hallway,
the military process included two large test facilities at the end of
the production process, used at least four test stations, and added
about 10 days to the process.  Company officials told us that the
military process continued to have 100-percent end-item inspection,
even though the quality of these products was not in question. 

In response to increased competition in the 1980s, companies had to
dramatically improve quality while reducing cost.  They accomplished
this by shifting paradigms.  Rather than focusing on identifying and
correcting problems, they began trying to focus on preventing the
problems.  Quality assurance changed from being a postmanufacturing
step, done at the end of each process, to being part of the process
itself.  This was a significant culture change for these companies. 
Figure 1 illustrates the shift in paradigms from inspection-oriented
to prevention-oriented quality practices. 

   Figure 1:  Detection Versus
   Prevention-Based Quality
   Strategies

   (See figure in printed
   edition.)

Traditional quality assurance techniques relied upon many
after-the-fact inspections, increasing costs in time and money.  To
remain profitable, manufacturers switched from detection to
prevention-based quality strategies.  These strategies teamed
suppliers, manufacturing staff, and engineers to design quality into
the product and to identify and control key characteristics. 
Prevention-based process control replaced end-item inspections. 

To reduce their costs and gain an edge on the competition, companies
have found that they have had to not only establish a basic
commercial quality system, such as ISO-9000, as their baseline, but
also consistently exceed it.  Most of the companies we visited had
obtained ISO-9000 certification,\7 a basic quality management system
that commercial customers are beginning to require.  This standard
ensures that a manufacturer has a well-documented commercial quality
system.  In addition, they all had developed or adopted advanced
quality concepts that brought the concept of quality to the design
phase of a product's life.  They began by using two advanced concepts
called design for manufacturing and process control techniques. 
After a company had successfully incorporated each technique, it
began to eliminate inspections--and the cost associated with
them--and significantly reduced the amount of defects in its
products.  A third ingredient for success involved developing
relationships with key suppliers, which ensured that parts and
subcomponents were appropriate for a product's design and arrived for
production at consistently high quality and expected cost.  Companies
we visited had dramatic reductions in product defects--ranging from
34 to 90 percent--resulting from these techniques.  Appendixes II and
V contain detailed examples. 


--------------------
\7 ISO-9000 is the commercial standard for quality assurance.  In the
United States, the recognized certifying body is the Registrar
Accreditation Board.  Independent, certified quality consultants
approved by the Board conduct on-site audits of commercial applicants
and give registration approval to those passing the audits. 


      DESIGN FOR MANUFACTURING
      CONTROLS PRODUCT DEVELOPMENT
---------------------------------------------------------- Letter :4.1

Design for manufacturing represents a culture change that involves a
whole new mindset.  Rather than continuing the old practice of
engineers designing a product in isolation and then handing it off to
the manufacturing process, design for manufacturing involves all
stakeholders in the process.  The stakeholders form cross-functional
teams that include representatives from the customer, marketing,
research and development, engineering, manufacturing, key suppliers,
quality assurance, finance, and customer support.  Under the old
practice, a product would require many design changes in full-scale
production, creating additional defects, rework, and scrapped
material.  But now, the teams identify the requirements for a
product's performance and ensure that manufacturing processes are in
place to meet those requirements within specified cost targets before
production begins.  Their objective is to build quality in up front
rather than fix problems during some stage of the manufacturing
process or discover there is no profitability.  These
cross-functional teams conduct phased development processes to ensure
that a product's design is producible and profitable.  Continuous
communication between the engineers who design the product and the
people responsible for manufacturing it is a key to the process. 

Using design for manufacturing techniques, these companies review
projects to prevent a potentially unprofitable design from entering
full-scale production.  Teams use modeling and prototyping to
determine the capability of existing manufacturing processes.  As the
development process continues, team members must make trade-offs
between a product's performance and its cost to meet strategic
targets.  For example, Texas Instruments' semiconductor facility
reviews a product's potential profitability at each milestone of a
five-phased development process.  If any of these reviews indicate
that cost targets cannot be met, the product's development can be
terminated.  This eliminates additional investment in full-scale
production tooling and facilities.  Likewise, Varian Associates'
managers are given cost and schedule targets during the design phase,
and special "out-of-bounds" reviews are held for behind-schedule or
over-budgeted items throughout the development process.  Figure 2
provides a conceptual model of the design for manufacturing process
based on what we observed at these two companies. 

   Figure 2:  Design for
   Manufacturing Model

   (See figure in printed
   edition.)


      PROCESS CONTROLS HELP TO
      ENSURE CONSISTENTLY
      HIGH-QUALITY PRODUCTS
---------------------------------------------------------- Letter :4.2

Process control means controlling the production process by checking
the quality while the work is being done.  Beyond that, companies
rely on final inspections of completed lots.  Leading companies rely
on "total process control," which demands that every process is
controlled by checking the quality during production.  Rather than
employing a lot of inspectors, however, they entrust the production
workers to do it themselves. 

The companies we visited had implemented similar systems.  In
addition to a basic quality system, such as ISO-9000, and an emphasis
on including design as an element of the quality process, we found
they (1) diffused responsibility for quality across the production
line and (2) trained employees to use analytical diagnostic tools
such as statistical process control, process mapping, or continuous
flow manufacturing to maintain predictable processes. 

The companies had developed or adopted advanced quality concepts that
went beyond the basic ISO-9000 standard and that emphasized finding
the cause of quality problems by gathering data and then eliminating
those causes from the manufacturing process.  Once root causes are
discovered and processes are controlled, the likelihood of
consistently high-quality products is significantly increased and the
need for inspection at the end of the production line is reduced. 
For example, Cherry Electronics uses QS-9000, an advanced quality
guide developed jointly by General Motors, Ford, and Chrysler as a
required supplement to ISO-9000 for their suppliers.  It includes
comprehensive instructions for implementing design for manufacturing
in new products and using process controls to reduce defects in final
products.  Cherry is undergoing certification for QS-9000 now and
plans to require its own suppliers to become certified in QS-9000 as
well.  Also, Motorola and Varian Associates used the Malcolm Baldrige
National Quality Award criteria\8 to create advanced quality systems
for themselves and their suppliers. 

Representatives from both companies credit the use of these advanced
quality guidelines for reducing defects while eliminating the need
for end-item inspection.  For example, Varian's Nuclear Magnetic
Resonance Instruments business unit heavily inspected both its
product and its suppliers' components coming into final assembly
until the mid-1980s.  At that time, it instituted process control and
gradually reduced the number of its inspectors by 92 percent, from 26
to 2.  Similarly, John Deere eliminated its quality assurance
department by dividing the production line into "focused factories"
and giving the inspection responsibility directly to each product
manufacturing team. 


--------------------
\8 The Malcolm Baldrige National Quality Award's purposes are to
promote awareness of quality excellence, to recognize quality
achievements of U.S.  companies, and to publicize successful quality
strategies.  The award criteria examines leadership, information and
analysis, strategic planning, human resource development and
management, process management, business results, and customer focus
and satisfaction.  Heavy emphasis is placed on demonstrated business
excellence and quality achievement. 


      SUPPLIERS BECOME PART OF THE
      TEAM
---------------------------------------------------------- Letter :4.3

Material from suppliers typically represents from 60 to 85 percent of
the final product cost at the companies we visited.  Because of this,
companies focused on improving supplier quality so they could
eventually reduce material defects and inspections.  They began by
reducing their number of suppliers.  In addition, they created
qualification and certification procedures that relied on periodic
evaluations of supplier quality systems.  Finally, they developed
long-term relationships with valued suppliers, increasing
communication and creating a partnership, when possible.  These
practices helped companies reduce suppliers' defects by as much as 90
percent and inspections of incoming material by as much as 76
percent.  Appendix III describes the results of our visits to
specific companies that had implemented some of these supplier
quality programs. 

Commercial companies significantly reduced the number of
suppliers--from 50 to 85 percent--to manage the cost and quality of
incoming material more closely.  Generally, a reduction in the
supplier base eliminates poorer performers, increases the importance
of top performers, and allows closer cooperation with suppliers in
continuous improvement practices and in new product development.  To
help reduce the number of suppliers, companies generally have a
qualification and certification process.  The qualification process
typically begins with an evaluation of each supplier's current
quality system and is often carried out by small cross-functional
teams.  For example, Varian's Oncology Systems qualifies all new
suppliers through an evaluation process that includes an assessment
of suppliers' defect rates, delivery performance, and a review of
their internal quality systems. 

Once a company determines that a supplier has processes in place to
guarantee continued quality, it eliminates inspections and depends on
periodic supplier quality information and reviews, generally not more
than once annually.  For example, Motorola uses its Quality System
Reviews to assess the suppliers' quality system every 2 years and
score the supplier on such items as process controls and its ability
to develop new products.  The reviews are accomplished by a team of
four or five quality management experts and take 2 to 3 days.  The
review guidelines use a scoring approach patterned after the Malcolm
Baldrige National Quality Award criteria and include audit guidelines
to determine how well a supplier controls quality in new product
development and deploys good process controls.  Both Motorola and
Varian provide consulting teams and optional training courses to
certified suppliers who either need or request assistance. 

Most of the companies had strategies to enter into long-term
relationships with world-class, high-quality suppliers, resulting in
reduced inspection, planning, rework, and contracting costs.  As
suppliers progress in meeting cost and quality goals with companies,
they are included on design teams, given schedule forecasts for
future orders, and included in the company's quality training
program.  In addition, longer term contracts typically help to reduce
costs further and encourage valued suppliers to deliver material more
efficiently.  When companies introduce new products, valued suppliers
are given the key characteristics of the part they are being asked to
supply and then use this information to make sure their manufacturing
processes are capable of making the component with consistently high
quality. 


   DOD MOVES TO IMPROVE QUALITY
   ASSURANCE PRACTICES
------------------------------------------------------------ Letter :5

Beginning in the early 1990s, DCMC implemented Process Oriented
Contract Administration Services (PROCAS) as a method of moving away
from inspection-oriented quality assurance practices and toward
process control.  The intent of PROCAS is to team with contractors to
identify, analyze, and manage production processes and reduce the
need for oversight and inspection where it makes sense.  In
recognition that more advanced quality concepts are needed, a group
of DOD officials and defense company representatives have joined in
an initiative that, if implemented, could eliminate the costs of
redundant quality assurance processes.  According to the plan created
by the Government and Industry Quality Liaison Panel in April 1995,
DOD would allow a contractor to use the same quality management
system--based on process controls--for its military contracts that it
uses on its commercial contracts.  Related to the panel's goals,
DOD's Single Process Initiative, introduced in December 1995, also
supports moving from multiple government-unique management systems to
a single management system common to both commercial and military
contracts.  In addition, DOD has established a policy for using
integrated product and process development concepts to integrate all
acquisition activities, from product concept through production and
field support.  How well it will support the panel's goals remains to
be seen. 

The Liaison Panel's plan has three overall goals.  The first goal is
to develop a single quality system that can meet commercial or
military quality requirements.  It envisions a multitier quality
management framework based on criteria similar to the commercial
ISO-9000 standard that would be recognized by all government and
commercial entities.  It begins with a basic quality system that must
use process controls from design to delivery and would be reviewed on
a regular basis by a single, unified government audit team.  As a
contractor moves to advanced quality concepts, such as design for
manufacturing, and commits to continuous improvement of all its
processes, its advanced quality system would be reviewed by
government and industry representatives.  One objective of this goal
is to create a culture that can ensure effective design, production,
and delivery processes without constraining suppliers with a set of
inspection and oversight requirements. 

The plan's second goal is to have government and industry share the
most advanced quality concepts in defining requirements for,
designing, and manufacturing military products.  It envisions a
system that will encourage continuous improvement across the industry
by identifying the most advanced methods of ensuring quality, making
these concepts available to all contractors, and helping train
personnel in these concepts.  DOD and industry agreed that
contractors who can provide evidence of using these advanced concepts
to ensure quality should be given credit during source selection. 

The plan's third goal is to establish and implement efficient
oversight methods.  It envisions the government and industry
developing a single set of criteria to evaluate contractors' quality
management systems.  This criteria should be implemented in a unified
evaluation process and should promote effective and efficient
innovation.  Most importantly, DOD believes the criteria and its
implementation method should be accepted by all government customers
to avoid inconsistency and duplication of quality evaluations.  The
Co-chair of the Government and Industry Liaison Panel stated that
this evaluation criteria would be used by government audit teams,
perhaps from DCMC, in registering contractors' basic and advanced
quality systems rather than current methods of oversight.  Appendix
IV lists the 15 specific tasks that the panel has undertaken to
achieve its goals, their current status, and their projected
completion dates. 

In December 1995, DOD began the Single Process Initiative, managed by
DCMC, that allows contractors with military contracts to transition
their quality system from MIL-Q 9858A to their best practice, such as
a quality system based on ISO-9000, the basic commercial standard. 
The response to date has been slow; as of June 5, 1996, 38
contractors had submitted proposals to change their quality systems,
5 of which had been approved by DCMC.  In discussions with government
officials, we found that the biggest reason for this slow response is
cultural.  The defense community's traditional quality assurance
practices have been inspection-based; the newer, more advanced
concepts advocate process control.  In addition, some contractor
officials believed there is an understandable fear among DOD
employees that changes in the quality assurance strategy will
translate to a loss of jobs.  Also, defense contractors do not see
the benefit of implementing quality systems that may result in
payment to the government for savings resulting from more efficient
practices. 

DOD's approval of five contractors' commercial quality systems means
that they are accepted as the basic quality system on all government
contracts.  This is a positive step toward introducing more advanced
quality concepts from the commercial world that force quality
considerations during the design phase of an acquisition.  However,
in agreeing to this change, DCMC reserved the right to review all
quality documentation at any time; perform any inspections,
verifications, or evaluations it deems necessary; review any supplies
from other facilities; and disapprove the quality system or any
portion of it.  The method or frequency with which DCMC invokes these
rights will be as important as a change in the military standard. 
Also, it is important that DOD continue to move contractors beyond
changing basic quality systems, toward advanced concepts. 

According to DCMC officials, DCMC approved changes to commercial
quality systems on 4,255 out of 158,000 existing military
contracts--less than 3 percent.  It approved ISO-9000 on 398 new
military contracts between May 1995 and April 1996.  DCMC approves an
average of 36,000 contracts per year, meaning that about 1 percent of
new contracts in the past year have been approved with ISO-9000 as
the quality standard. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

The commercial world has proven that it can design and manufacture
consistently high-quality products by focusing on building quality
into the product's design, understanding the key characteristics of
the product and the manufacturing processes necessary to build it,
training production personnel to control those processes throughout
production, and instituting quality programs with suppliers based on
these same principles.  We saw convincing evidence that these
practices improve product quality and reduce time and labor spent on
quality assurance oversight by making it unnecessary. 

DOD recognizes the benefits of taking a broader approach to quality
assurance.  It has made some policy changes and is beginning to
implement new practices.  If DOD provides incentives for
implementation of the advanced commercial practices, such as those
identified in this report, we believe it can significantly improve
quality, reduce costs of its acquisition programs, and apply savings
to future modernization efforts.  However, we do not believe DOD's
quality assurance culture will change easily.  Our conclusion is
based on discussions with DOD and service representatives and our
review of past acquisitions where DOD and we repeatedly identified
unstable design, poor process controls, and poor transition to
production as causes for manufacturing quality problems and made
recommendations that have not been implemented. 

Therefore, we recommend that the Secretary of Defense (1) establish
measurable steps to implement and monitor the progress of the
Government and Industry Quality Liaison Panel plan closely; (2)
periodically assess its success in implementing basic standards such
as ISO-9000; (3) develop ways to encourage the adoption of advanced
quality concepts of design for manufacturing, process controls, and
supplier quality programs throughout the defense industry, using
commercial practices as a guide; and (4) as suggested in the plan,
establish incentives for defense contractors to participate, such as
providing credit during source selection for successful
implementation of these advanced quality practices.  Such selection
criteria could also provide world-class companies greater
opportunities to participate in DOD's weapons acquisition programs. 

To assist DOD in changing its own quality assurance culture, we
recommend that the Secretary of Defense expeditiously determine who
in DOD's acquisition community can best oversee the advanced quality
functions used by defense contractors in developing and producing
weapon systems, using commercial practices as a guide in assigning
these functions, and provide all necessary training for any new
responsibilities that DOD personnel need to perform. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

DOD agreed with the intent of the report and stated that it has
already implemented many changes in line with our recommendations. 
(See
app.  VI.) These include the institution of integrated product and
process teams in revised acquisition policy directives and the
development of metrics to measure improvement in the overall
acquisition process.  DOD stated that it believed that no additional
actions were required in response to our recommendations at this
time. 

We agree that these and other actions initiated by DOD represent
positive steps in reforming the quality assurance process and are
consistent with the intent of our recommendations.  However, time is
needed to determine whether these steps translate into tangible
changes in quality assurance practices on individual programs.  As we
note in the report, a number of major acquisition programs over time
have failed to include quality considerations in the design phase. 
Although the prevailing standard--MIL-Q-9858A--for these programs
allowed some latitude for interpreting how quality assurance could be
carried out, it was the actual practice--not the guidance--that was
more narrowly focused on inspections.  These experiences underscore
the challenge DOD faces in implementing advanced quality concepts. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To develop information for this report, we interviewed and obtained
documents from officials of the Office of the Secretary of Defense in
the Pentagon and DCMC at Fort Belvoir, Virginia, because of the
quality assurance policymaking responsibilities and initiatives that
are ongoing at that level.  We also held several discussions about
quality assurance at the service level.  We discussed commercial
quality assurance practices with officials from the following
commercial manufacturing organizations: 

  -- Delco Electronics, Milwaukee, Wisconsin;

  -- John Deere Horicon Works, Horicon, Wisconsin;

  -- Cherry Electrical Products, Waukegan, Illinois;

  -- Texas Instruments Lubbock Metal-Oxide Semiconductor, Lubbock,
     Texas;

  -- Varian Nuclear Magnetic Resonance Instruments, Palo Alto,
     California;

  -- Varian Chromatography Systems, Walnut Creek, California;

  -- Varian Oncology Systems, Palo Alto, California; and

  -- Motorola Paging Products, Boynton Beach, Florida. 

A detailed description of the companies we visited is contained in
appendix I. 

We then developed a data collection instrument that would assist us
in gathering uniform, quantifiable measurements about the techniques
these organizations used to improve operations and the results they
accomplished.  We visited these manufacturing organizations, followed
the same agenda with each, and gathered the same data at each
organization. 

We also visited Texas Instruments Defense Systems & Electronics,
Dallas, Texas, a defense contractor.\9 In addition, we visited DELCO
in Milwaukee, Wisconsin, to discuss differences between military and
commercial practices in a broader context. 

We reviewed literature and various databases provided by the American
Productivity Quality Center's International Benchmarking
Clearinghouse to identify manufacturing organizations that have shown
significant improvement in quality while reducing oversight functions
such as supplier oversight and end-item inspections.  Our discussions
centered around their overall quality plan and the techniques they
used to ensure supplier quality, producibility of new products, and
control of their final assembly processes while reducing
nonvalue-added cost. 

We performed our review from August 1995 to July 1996 in accordance
with generally accepted government auditing standards. 


--------------------
\9 Texas Instruments' Defense Systems and Electronics develops and
assembles missiles for DOD, with a small percentage of revenues from
foreign military sales and subcontracting on DOD contracts.  It won
the Malcolm Baldrige National Quality Award in 1992 and was the first
defense contractor to do so.  In 1994, the company's revenues were
about $1.73 billion. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to congressional committees; the
Secretaries of the Army, the Navy, and the Air Force; the Director,
Defense Logistics Agency; and the Director, Office of Management and
Budget.  We will also make copies available to others upon request. 

Please contact me at (202) 512-4383 if you or your staff have any
questions concerning this report.  The major contributors to this
report were Michael J.  Sullivan, Shari A.  Kolnicki, Gordon W. 
Lusby, and Carolyn S.  Blocker. 

Katherine V.  Schinasi
Associate Director
Defense Acquisitions Issues


COMPANIES WE VISITED AS PART OF
THE REVIEW
=========================================================== Appendix I


   DELCO ELECTRONICS
--------------------------------------------------------- Appendix I:1

Delco Electronics, Milwaukee, Wisconsin, manufactures products for
both commercial and military customers.  Delco produces avionics
circuit boards and assemblies for several aircraft and light armored
vehicles.  For its commercial automotive customers, it produces power
train, fuel-injection, and remote function computers. 


   JOHN DEERE HORICON WORKS
--------------------------------------------------------- Appendix I:2

John Deere Horicon Works, Horicon, Wisconsin, has worldwide
responsibility for engineering lawn and grounds care products. 


   CHERRY ELECTRICAL PRODUCTS
--------------------------------------------------------- Appendix I:3

Cherry Electrical Products, Waukegan, Illinois, designs and
manufactures a broad range of electrical and electronic components,
assemblies, and systems for the automotive industry.  Applications
include interior use, weather-exposed devices, and under-the-hood
functions.  Cherry Electrical received the General Motors' Targets
for Excellence Award and two Q1 Preferred Quality Awards from Ford
Motor Company's Diversified Operations.  Cherry Electrical has
applied for the Malcolm Baldrige award twice.  The overall sales of
the Cherry Corporation in 1994 were over $339 million. 


   TEXAS INSTRUMENTS LUBBOCK
   METAL-OXIDE SEMICONDUCTOR
--------------------------------------------------------- Appendix I:4

Texas Instruments Lubbock Metal-Oxide Semiconductor, Lubbock, Texas,
designs and manufactures integrated circuits that are packaged and
assembled overseas.  Electronic Programmable Read-Only Memory, a chip
that can be used in computers, telephones, automobiles, and other
computerized systems, is Texas Instruments' best selling item.  In
1993, the overall sales for Texas Instruments Corporation were $8.5
billion. 


   VARIAN CHROMATOGRAPHY SYSTEMS
--------------------------------------------------------- Appendix I:5

Varian Chromatography Systems, Walnut Creek, California, supplies gas
and liquid chromatography, gas chromatography, and mass spectrometry
instruments as high-precision, high-end analytical tools.  Its
customers are pharmaceutical, chemical, environmental, and other
research and developmental laboratories and quality laboratories
worldwide.  The company manufactures 11 different product lines, with
a total volume ranging from 200 to 1,500 units sold per year.  The
corporation's total sales in 1995 were over $1.5 billion. 


   VARIAN NUCLEAR MAGNETIC
   RESONANCE INSTRUMENTS
--------------------------------------------------------- Appendix I:6

Varian Nuclear Magnetic Resonance Instruments (NMRI), Palo Alto,
California, manufactures scientific and medical instruments that
determine the composition of substances through atomical analysis
using nuclear magnetic resonance.  Using such instruments, scientists
determine the atomic connectivity, atomic spatial orientation, and
dynamic characteristics of molecules.  The analysis is useful for
chemical, biomolecular, material science, and biomedical fields. 
NMRI's major markets consist of three customer bases:  academia;
private industry, including pharmaceutical, basic chemistry,
biotechnology, and petrochemical industries; and the federal
government.  NMRI manufactures low-volume, high-precision products
and sells approximately 250 units each year.  Prices range from
$1,000 to $3 million.  It was included in Varian's corporate
application for the Malcolm Baldrige National Quality Award in 1992,
1993, and 1994. 


   VARIAN ONCOLOGY SYSTEMS
--------------------------------------------------------- Appendix I:7

Varian Oncology Systems, Palo Alto, California, develops and
manufactures linear accelerators as its principal product.  Linear
accelerators are high-technology instruments that produce X-rays,
electrons, and other high-energy particles used to treat cancer. 
Approximately 30 percent of its remaining business is in computerized
treatment planning and information systems.  Principal customers
include universities, hospitals, government institutions, and
free-standing clinics.  Varian Oncology's annual sales are
approximately $350 million.  Varian Oncology Systems applied for the
Malcolm Baldrige Award in 1995.  It has received other accolades,
such as mention in the "Top Ten" plants in Industry Week in 1993, the
California Governor's Golden State Award for Quality in the
Marketplace in 1994, the Best Factory Award from Management Today in
1992, and the European Quality Award Commendation in 1993. 


   MOTOROLA PAGING PRODUCTS GROUP
--------------------------------------------------------- Appendix I:8

Motorola's paging plant in Boynton Beach, Florida, is part of
Motorola's Messaging Information and Media Sector business unit. 
This business unit designs, manufactures, and distributes a variety
of messaging products, including pagers and paging systems, wireless
and wireline data communication products, handwriting recognition
software, and infrastructure equipment, systems, and services.  The
plant in Boynton Beach handles the strategic and tactical dealings
with suppliers.  Motorola developed a successful six-sigma
manufacturing process and was the first Malcolm Baldrige award winner
in 1988.  Motorola's resulting successes have inspired many other
U.S.  corporations to use it as a quality benchmark.  As a
corporation, Motorola's net sales in 1995 were $27 billion. 


DESCRIPTION OF COMPANIES' PROCESS
CONTROL PRACTICES IN DESIGN AND
MANUFACTURING AND THEIR BENEFITS
========================================================== Appendix II

--------------------------------------------------------------------------------
================================================================================
Texas Instruments Lubbock Metal-Oxide Semiconductor -Lubbock, Texas

The following processes are used to ensure a product's profitability and
producibility before it enters production:
--Profit and quality team is involved throughout the process.
--Manufacturing and design departments work together.
--Manufacturing staff determine critical parameters to achieve consistent
quality while engineers use statistical process control to discover whether a
parameter remains in control if a change in the process or product occurred.
--Engineers consult with manufacturing staff during the design phase in an
effort to prevent critical failures from occurring in production.

Process controls have helped Texas Instruments
--eliminate end-item inspection that no longer adds value and reduce inspectors
from 16 to 12,
--reduce manufacturer's defects by over 68 percent, and
--increase productivity by over 120 percent.

================================================================================
Varian Nuclear Magnetic Resonance Instruments -Palo Alto, California

Varian's NMRI business unit's approach is as follows:
--Baldrige Award criteria and ISO-9000 standards are used as the foundation of
its quality system.
--Cross-functional teams integrate design, manufacturing, and field service
issues during product development.
--Statistical process control is used to develop statistically significant
boundaries within which the product remains functional.
--Software has been instrumental in improving the productivity and accuracy of
the testing process.
--NMRI has sought to eliminate inspections by relying on self-testing and
continuous improvement.

Process control initiatives have allowed NMRI to
--eliminate its quality assurance department,
--empower on-line operators with in-process control,
--decrease the number of inspectors from 26 to 2, and
--increase productivity by 97 percent over 6 years.

================================================================================
Texas Instruments Defense Systems and Electronics -Dallas, Texas

Texas Instruments Defense Systems and Electronics won the Malcolm Baldrige Award
in 1992 with the following approach:
--Design for manufacturing was used in defense programs to reduce part counts,
increase opportunities for automation, and simplify assembly.
--Multifunctional teams formed during the concept phase of a product's life
cycle remain together throughout the production program.
--Production process is controlled by statistical process control, which
identifies the critical parameters.
--Continuous flow manufacturing is used to identify bottlenecks and nonvalue-
added costs in production lines.

Since 1991, Defense Systems and Electronics has
--reduced defects by almost 70 percent,
--reduced scrap rates by 50 percent,
--reduced inspectors by 50 percent, and
--increased productivity by about 30 percent.

================================================================================
Varian Oncology Systems -Palo Alto, California

Varian's Oncology Systems business unit used the Malcolm Baldrige Award criteria
as a foundation for its quality strategy.
--Five-phased product development process uses cross-functional teams.
--Program reviews check progress and readiness, and senior management reviews
the project every 6 weeks.
--Capability of key manufacturing processes is measured before production
begins.
--All production processes are mapped to determine nonvalue-added steps.

Using these techniques, Varian was able to
--reduce final test hours of each high-energy linear accelerator from 700 to
200;
--increase the maximum production of these items from 110 to 200;
--reduce significantly, the defects at the end of assembly; and
--reduce inspectors by 94 percent.

================================================================================
Cherry Electrical Products -Waukegan, Illinois

Cherry Electrical Products experienced decreased labor costs and increased
quality in its stamping department using statistical process control. For
example:
--Using statistical data, the company diagnosed a problem with the start-up of
the machine, compensated for it, and reduced the number of inspectors monitoring
the process from four to two. Furthermore, roving inspectors in the department
and final inspection on the end item were eliminated, and scrap and waste were
significantly reduced.
--Cherry reduced the number of operators from 24 to 1 on its spring generator
machines while increasing quality. Diagnostic,
analytical problem-solving using statistical process control showed the
company's defects and scrap problems were not a
result of machine variability as previously thought, but due to variability
introduced by numerous operators. Because of
statistical process control, labor was reduced, quality was increased, and waste
was cut.
--Because of product consistency resulting from process controls, one department
was able to reduce its headcount from 20 to 12.

Overall, Cherry, by using statistical process control, has brought its quality
processes under control and decreased inspectors by
78 percent, while reducing defects by 90 percent.

================================================================================
Varian Chromatography Systems -Walnut Creek, California

Varian Chromatography used "Andon," a Japanese quality process control, to
improve its processes. Using Andon, each operator is empowered to signal a
problem to the rest of the manufacturing team. Each station is equipped with
red, yellow, and green lights, with a red light empowering the employee to stop
production.
--Operators record any problems found on the production line on an opportunity
board.
--Weekly meetings are held with operators to resolve problems in cross-
functional teams.
--Varian cross trains its employees to increase their skill base so that they
are able to understand the entire process.

Varian reduced waste and increased savings through these process control
techniques. For example, it
--reduced quality test time by 98 percent, from a 96-hour test to a 2-hour
test;
--reduced defects by 34 percent;
--decreased the number of inspectors by over 75 percent; and
--improved productivity by 39 percent since 1992.
--------------------------------------------------------------------------------

EXAMPLES OF COMPANIES' SUPPLIER
QUALITY PRACTICES AND THEIR
BENEFITS
========================================================= Appendix III

--------------------------------------------------------------------------------
================================================================================
Varian Chromatography Systems -Walnut Creek, California

Varian Chromatography Systems' supplier quality practices are to
--concentrate its business with a few, best-qualified suppliers;
--conduct just-in-time manufacturing with them, as part of its Value Managed
Relationships program;
--perform zero-receiving inspection and not stock the suppliers' parts; instead,
components from suppliers are coordinated daily,
and the supplier's pretested, unboxed parts are delivered directly from the
truck to Varian's manufacturing assembly line;
--provide suppliers a total year goal and give a rolling 12-month forecast
instead of the company preordering its material in a traditional "push" system;
--give copies of its master production schedule to suppliers; and
--implement a certification process whereby all new components must pass first
article inspection and three defect-free lot inspections
prior to approval. In addition, approved suppliers are subject to annual review
and quarterly feedback reports.

Through its supplier quality program,
--inventory has been reduced by 68 percent;
--supplier defects have decreased 75 percent;
--suppliers were reduced by 78 percent, down from over 2,000 to approximately
440; and
--suppliers are kept for "life" as long as they provide the technological
capabilities, and some have been supplying the company for as long as 30 years,
with many over 10 years.

================================================================================
Varian Oncology Systems -Palo Alto, California

Varian Oncology Systems' supplier quality practices are to
--deliver 100-percent quality parts directly to the factory floor;
--eliminate receiving inspections for certified suppliers and conduct periodic
on-site reviews;
--assist any certified supplier experiencing quality or delivery problems with
supplier corrective action teams;
--provide annual performance reports, periodic report cards, and performance
awards as feedback to its suppliers;
--require certified suppliers to maintain competitive prices, high quality
levels, and excellent delivery performance to retain certification; and
--provide certified suppliers with long-term contracts, access to Varian
training in process controls, and improved schedule visibility.

Oncology Systems conducts business with 45 certified suppliers and estimates
that these relationships have saved $3.3 million over the past 3 years due to
eliminated inspections, reduced planning and purchasing requirements, and
reduced defects.
It regularly invites suppliers to join continuous process improvement teams that
are focused on process control techniques. Since 1990, supplier defects have
been reduced by 73 percent, and receiving inspections have been significantly
reduced.

================================================================================
Varian Nuclear Magnetic Resonance Instruments -Palo Alto, California

Varian Nuclear Magnetic Resonance Instruments has increased both savings and
supplier quality by
--switching from an inspection-oriented environment to one of process control;
--training its workers in statistical process control factorywide and using it
to internally track the performance of its suppliers;
--reducing its supplier base by over 60 percent by weeding out those with poor
performance records and those it seldom used; and
--conducting certification programs where suppliers are required to pass five to
six lot inspections. Varian-approved suppliers'parts completely bypass receiving
inspection, but if they do not meet quality standards as a product is assembled
on the production
line, they are immediately rejected.

Due to the supplier program, supplier defect rates have decreased by 96 percent,
and inspections have decreased by 76 percent. In fact, the company is so
confident in the supplier's quality for one critical component that comprises 80
percent of the total cost of supplier material, that Varian does not perform
final assembly and test until after the product is delivered to the customer.
Thus, Varian and its customer view the results of final assembly and test
simultaneously.

================================================================================
Motorola Paging Products Group -Boynton Beach, Florida

Motorola's Paging Products Group supplier quality practices are to
--conduct certification programs requiring that each supplier undergo an on-
site evaluation and submit sample parts for approval,
--conduct a quality system review at the end of the first year to determine the
supplier's status,
--eliminate receiving inspections after suppliers have passed inspection defect-
free on three lots of material,
--require preferred suppliers to apply for the Baldrige Award,
--emphasize long-term relationships with suppliers,
--train all of its suppliers in total quality techniques,
--share its schedule forecasts with suppliers, and
--conduct early supplier involvement programs on new products.

As a result of its supplier quality assurance program, Motorola has
--eliminated all inspection of incoming material from all but new suppliers;
--reduced suppliers by 85 percent, from 800 to 118; and
--decreased supplier defects by over 90 percent over a 7-year period.

================================================================================
Texas Instruments Lubbock Metal-Oxide Semiconductor -Lubbock, Texas

Texas Instruments Metal-Oxide Semiconductor ensures the quality of supplier
products by
--relying upon third-party certification to periodically review its suppliers;
--using a Sematech database, allowing TI to choose from among the best
suppliers; Sematech is a semiconductor consortium of
10 large companies that periodically conducts quality system audits of suppliers
and retains past performance information
so that its members can increase their effectiveness in selecting and retaining
the few best ones; and
--depending upon the Texas Instruments purchasing center located in Dallas,
which screens and approves suppliers and parts as it does for all wafer
fabrication facilities.

Because of this supplier process control program, Texas Instruments has
experienced virtually zero defects from its suppliers. It is also able to bypass
inspecting parts from high quality suppliers whose processes are in control.
These parts are directly used by Texas Instruments-Lubbock in its products.

================================================================================
Cherry Electrical Products -Waukegan, Illinois

Cherry Electronics uses the following supplier quality practices:
--Most of Cherry's 400 suppliers are "approved."
--The approved suppliers follow Cherry's Supplier Quality Assurance Manual.
--New suppliers and/or new items are audited, via a layout inspection, and
statistical process control analysis is performed.
--Cherry matches its findings against those of the suppliers' and if a match
results, the supplier's item becomes "approved."
--The relationship with approved suppliers is based on trust and self-
monitoring by the suppliers, with statistical process control data available
from suppliers upon request.

As a result of its supplier quality practices, Cherry has
--reduced the number of suppliers by 50 percent, from 800 to 400 suppliers;
--reduced the number of defects from suppliers by 90 percent; and
--reexamined and eliminated unnecessary specifications.

================================================================================
John Deere Horicon Works -Horicon, Wisconsin

John Deere's Horicon Works supplier practices are the following:
--Suppliers of critical parts must have established +/-3 sigma quality. (A sigma
unit is a measure of scale that can be used for quality data. Three sigma
quality (+/-3) is equal to three standard deviations away from an average, and
the area covered
by three sigma is 99 to 100 percent of the data. Under three-sigma quality, a
supplier product's values will lie within a
known, predictable range 99 to 100 percent of the time.)
--Deere measures the parts for conformance and then requires process variability
reports for the key characteristics of the part from the supplier on a periodic
basis.
--Deere looks for strategic partners for its critical parts who will share
management philosophies, be industry leaders, and require very little
communication or reviews.

As a result, Deere has reduced its supplier base 81 percent, from over 800 to
151, and has qualified 40 of them. It has been able to eliminate receiving
inspections as a result, a savings of 25 positions.
--------------------------------------------------------------------------------

STATUS OF TASKS IN DEVELOPING A
STRATEGIC PLAN FOR QUALITY TO
SUPPORT ACQUISITION REFORM
INITIATIVES
========================================================== Appendix IV

Task description    Actions             Milestone           Comments
------------------  ------------------  ------------------  --------------------
1. Develop          -Panel charter      To be signed.       Signed on
charter,            -Memorandum of                          April 24, 1995.
principles, and     understanding
memorandum of
understanding.

2. Identify pilot   Develop pilot       To be implemented   No status update.
program.            program             November 1995.
                    characteristics
                    and candidates.

3. Identify         Identify changes    DFARS changes -     DFARS case 246
policy/             required to FAR     December 1995       approved; inputs
Federal             parts 46 and 52 as  FAR changes -July   needed to FAR part
Acquisition         well as DOD FAR     1995.               46.
Regulation (FAR)    Supplement (DFARS)
changes.            part 246.

4. Develop data     -Identify key       Obtain data item    Data item
item description.   elements of a       description         description 81449
                    quality plan.       approval.           approved January
                    -Write data item                        1995.
                    description
                    incorporating
                    needed elements.
                    -Develop revisions
                    needed to ANSI/
                    ASQC Q9000.

5. Develop          Develop             Plan of action for  Completed draft -
training elements.  government/         training -May       May 1996.
                    industry training   1995.
                    template for
                    quality system.

6. Develop          Develop criteria    Complete criteria   Completed draft -
evaluation          for government and  August 1995.        May 1996.
criteria.           industry to
                    evaluate
                    contractor's basic
                    quality management
                    system.

7. Develop          Determine if        Complete            Completed draft -
evaluator           common evaluation   guidelines March    May 1996.
guidelines.         criteria exists     1995.
                    among audit
                    community.

8. Develop          Determine the most  Develop guidelines  Completed draft -
oversight           efficient way of    for oversight -     May 1996.
guidelines for      performing the      September 1995.
basic quality       oversight function
management system.  to meet the
                    criteria for
                    evaluating quality
                    management
                    systems.

9. Develop          Develop a handbook  Distribute          Completed draft -
procurement         that contains       handbook for        May 1996.
package criteria.   criteria or         concurrence -
                    guidelines that     September 1995.
                    can be used to
                    encourage the use
                    of advanced
                    quality concepts.

10. Identify        Recognize,          Final report -      Completed draft -
advanced quality    improve, and        September 1995.     May 1996.
practices.          promote the use of
                    value-adding
                    advanced quality
                    practices.

11. Develop         Establish an        Implement           Final report
communication       advanced quality    clearinghouse and   prepared February
clearinghouse.      practices           publicize -         1996.
                    clearinghouse to    October 1995.
                    help promote
                    quality management
                    systems in
                    government and
                    industry.

12. Draft           Draft               Memorandum ready    Final draft
memorandum of       governmentwide      October 1995.       contingent upon
agreement to        agreement to                            completion of all
accept mutual       mutually recognize                      other tasks.
recognition.        a contractor's
                    quality system
                    based on defined
                    baseline
                    requirements.

13. Develop         Establish           Not specified.      Ongoing.
quality audit       integrated
system approach     government audit
and database.       system whereby
                    audit results are
                    shared by all
                    participating
                    government
                    agencies.

14. Develop         Develop four        Courses to start    Ongoing.
quality systems     courses based on    March 1996.
training courses.   the approved ISO
                    9000 training
                    template.

15. Review courses  Obtain review and   Review to start     Ongoing.
developed in task   approval of course  December 1995.
14.                 content and
                    context.
--------------------------------------------------------------------------------
Note:  Source of information is a May 31, 1996, draft - "Phase I of
the Government & Industry Quality Liaison Panel."


EXAMPLES OF SAVINGS USING
STATISTICAL PROCESS CONTROL
=========================================================== Appendix V

Texas Instruments produced a quality, less expensive integrated
circuit by controlling its processes.  Using a hierarchical process
map that looked like a "fishbone" diagram and statistical process
control techniques, the plant determined the few critical parameters
that were responsible for giving the customers the functions that
they needed.  (Figure V.I depicts this process.) Texas Instruments
found that although making the circuit involved several steps, only a
few key "process knobs" controlled the outcome.  It discovered that
six quality measurements taken in the

   Figure V.1:  Producing
   Integrated Circuits Using
   Proceeds Control Techniques

   (See figure in printed
   edition.)

process were not critical to the product's quality.  The elimination
of these six measurements saved a total of 36 labor hours for each
product manufactured.  Because of this application of statistical
process control, rework decreased from 3 to 5 percent to 0.5 percent,
the plant experienced a 50-percent decrease in the product's
variability, and a 50-percent decrease in cycle time.  Because of
this decreased cycle time, the resulting throughput was increased,
the plant became more efficient, and Texas Instruments avoided
purchasing an extra scanning electron microscope costing $800,000, as
well as saved the cost of a technician that would have been needed to
operate it. 




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
=========================================================== Appendix V



(See figure in printed edition.)

RELATED GAO PRODUCTS

Weapons Acquisition:  Low-Rate Initial Production Used to Buy Weapon
Systems Prematurely (GAO/NSIAD-95-18, Nov.  21, 1994). 

Military Airlift:  The C-17 Program Update and Proposed Settlement
(GAO/T-NSIAD-94-166, Apr.  19, 1994). 

Weapons Acquisition:  A Rare Opportunity for Lasting Change
(GAO/NSIAD-93-15, Dec.  1992). 

Tactical Missile Acquisitions:  Understated Technical Risks Leading
to Cost and Schedule Overruns (GAO/NSIAD-91-280, Sept.  17, 1991). 

Why Some Weapon Systems Encounter Production Problems While Others Do
Not:  Six Case Studies (GAO/NSIAD-85-34, May 24, 1985). 

Strategic Bombers:  B-2 Program Status and Current Issues
(GAO/NSIAD-90-120, Feb.  22, 1990). 

Effectiveness of U.S.  Forces Can Be Increased Through Improved
Weapon System Design (GAO/PSAD-81-17, Jan.  29, 1981). 


*** End of document. ***