As a developer of mortgage software and other banking technology, Fitech Systems Inc. is used to fulfilling unusual or difficult requests.

Nevertheless, the Greensboro, N.C.-based vendor was a bit surprised when First Union Corp. expressed interest in reviewing Fitech's financial statements, interviewing its employees, and conducting an investigation into its products, research and development, invoicing practices, and delivery commitments.

The vendor wasted no time consenting.

The reason? First Union is in the midst of implementing a vast "total quality management" program, and it wanted all its major suppliers to undergo a certification process.

TQM, the concept popularized by quality gurus W. Edwards Deming and J.M. Juran, has swept through the boardrooms of U.S. manufacturing concerns - especially in the last decade. Service industries like banking, however, were less enamored with the philosophy, which emphasizes zero-defect manufacturing and inventory controls.

Many service industry executives groused that it was impossible to set definitive quality goals when customers who purchase a service may have their perceptions altered by a number of variables.

Lately, however, banks and other service providers have rethought the issues and have initiated TQM programs.

"The banks are discovering that you can measure customer satisfaction," said Mike Ryan, a quality consultant and professor of marketing at University of Michigan. "What they're selling is an intangible, so they need to concentrate on measuring the customer's perception of quality."

In keeping with the customer-based focus, most bank TQM programs consist of training and empowering employees, some reengineering of processes, and commitments to high levels of customer service.

First Union, based in Charlotte, N.C., takes TQM a step further. In a move considered unusual for the banking industry, the $72.6 billion-asset superregional is studiously controlling the number of suppliers with which it will do business.

The company is demanding lower costs concurrent with quality improvement.

"We are meeting with our major suppliers and making sure they know what our expectations are," said Charles R. Edwards, vice president and manager of the bank's supplier certification program. "One of those expectations is lower costs, while assuring zero-defect products."

The bank also hopes to improve its efficiency and productivity, a process which has already begun. The bank's efficiency ratio has dropped (from 69.66% in 1992 to 62.03% in 1993), although a spokeswoman declined to attribute that improvement directly to any of the bank's quality efforts.

Nevertheless, First Union executives believe the supplier certification is completely justified. They say they are simply holding their suppliers to the same quality standard they expect the bank's own customers to hold the bank to.

Although the supplier certification may well have been the most arduous process Fitech ever undertook, executives at the vendor say they are delighted to have been through it.

"First Union wanted to make sure that we were staffed and managed in such a way that they would know we would be there to help them fulfill their long-term goals," said M. Howard Holt, a regional sales representative for Fitech.

"The beauty of it for us is that going through this process solidifies our relationship," he said. "We're excited to be involved with a company that cares so much about its future, because that directly affects our business and our future."

Nevertheless, the process was not easy. First Union demands that suppliers go through a time-consuming self-assessment and quality audit.

The bank assembles a team of experts in the given area, including employees from any department within the bank that uses the supplier's products or services.

This team conducts an examination at the vendor's main location. They investigate quality initiatives, operations, management, costs, and financial health of the vendor.

The bank has 114 major vendors who have participated or plan to participate in the program. First Union's-goal is to put all of its thousands of vendors through the program, and to do business only with those certified.

"The quality of our suppliers' services and products has a direct impact on the quality of the products and services we can deliver to our customers," said Mr. Edwards. "Just as we ask our customers to tell us their expectations and define quality accordingly, we are letting our suppliers know what our expectations are."

Although supplier certification is fairly common in heavy manufacturing, it is mostly unheard of in service industries. Banks have been known to ask vendors to fill out lengthy requests for proposals or set targets for suppliers, said Mr. Holt, but no bank that he knows of demands a quality check like First Union's.

In fact, according to Mr. Edwards, at least one vendor that First Union contacted about the program decided to opt out and lose the bank's business.

Supplier certification is but a small part of First Union's TQM program, a multistep process in operation throughout the corporation.

The first step, said Henry Doss, senior vice president of sales and service management for First Union, is to raise employee awareness of quality-related issues. "Every employee goes through training, and the training is led by the top management of each unit," he said. "That, more than anything else, proves to the employees that management is behind this all the way."

Next, because the underlying focus of the corporate-wide quality program is better customer service, every unit within the corporation contacts its customers and asks them what they want and need from the bank. Then policies and procedures are designed and put into effect to meet these customer needs.

Mr. Doss said the only absolute is that there are no absolutes. Just because something has always been done in a specific way, he said, doesn't mean it will continue to be done that way if it doesn't benefit customer service.

He cited, as an example, five branch managers who decided among themselves to share responsibility for managing their offices, thus giving each more time to get out on the streets generating business.

What this decision required, said Mr. Doss, was the realization that empowered employees could easily take on many of the duties that had previously been done only by the branch manager.

As a result, customers who visit a branch are more likely to finish their banking business faster because they no longer have to wait for manager approval for many transactions and requests.

What's more, the former branch managers are spending more time in the community, which generates additional business for the bank.

"What [First Union] is doing is interesting," commented Richard Mathews, founder of Mathews & Co. "Quality is not a fad. Emphasis on quality is a trend that will continue."

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