Quality, cost, delivery

Quality, cost, delivery (QCD), sometimes expanded to QCDMS (Quality, Cost, Delivery, Morale, Safety), is a management approach originally developed to help companies within the British automobile sector. QCD analysis is used to access different components of the production process. It also provides accurate feedback in the form of facts and figures that help senior managers make logical and beneficial decisions. What's more is that by using the gathered data it's much easier for organizations to prioritize their future goals.

The reason why QCD is such a popular approach is because it allows people to break down one big thing into many smaller ones, which helps organize and prioritize one's efforts and, psychologically, prevents the feeling of being overwhelmed.

It is important to remember that QCD is a three dimensional approach. If there is a problem with even one dimension the other will inevitably suffer as well. One dimension cannot be sacrificed in the sake of the other two.

Benefits of QCD

QCD offers a straight forward method of measuring processes while being applicable to both simple and complicated business processes. It also represents a basis for comparing businesses. For example a business measuring supplier delivery performance may easily compare its findings against other businesses performance.

QCDF

Flexibility is often included as a measure to QCD resulting in Quality, Cost, Delivery and Flexibility (QCDF). Flexibility relates to the capacity to adapt to changes / modifications . The modifications could be in a)input quality b) output quality c) product specifications d) delivery schedules.

Quality

Quality is the ability of a product or service to meet and exceed customer expectations. Customers' requirements determine the quality goals. It is almost always listed first, presumably because poor quality often results in bad business. Quality is the result of the efficiency of the entire production process formed of men, material, and machinery.

Even though quality is now seen as a competitive advantage, US business organizations in the 1970s tended to focus more on cost and productivity. That approach led to a major share of the US market being captured by Japanese business organizations, which ones again proves that in order to be successful an organization has to focus on the all three QCD dimensions all together.

It wasn't until the late 1970s and the beginning of the 1980s when the factor “quality” was drastically shifted into being a strategic approach created by Harvard professor David Garvin. This approach focuses on preventing any mistakes and, also, puts a great emphasis on customer satisfaction.

Quality basis

Gavin lists eight dimensions of quality:

• Performance

Performance is a product’s primary operating characteristics. For example, for a stereo those characteristics may be sound quality, surround sound, wifi connection etc.

• Conformance

Conformance refers to the degree to which a certain product meets the customer’s expectations.

• Special features

Those are any additional features of a product or service. In other words, extras. An example of an extra can be free food on an airplane, or free drinks at a museum visit. And for a TV, for example, it can be split screen, internet access, embedded apps etc.

• Aesthetics

The aesthetics refer to a product’s looks, sound, feel, smell, or taste. When it comes to aesthetics, complete customer satisfaction is simply impossible as it is very subjective. For example, one group of customers may like the smell of a certain perfume while other may find it completely repelling.

• Durability

The durability of a product is how long the product lasts before it has to be replaced. Durability can be improved by the usage of long life materials or improved technology processes in manufacturing. Some products are expected to be more durable than others. Those often include home appliances and automobiles for which durability is a primary characteristic of quality.

• Reliability

Reliability refers to the time until a product breaks down and has to be repaired, but not replaced. This feature is very important for products that have expensive maintenance.

• Serviceability

"Serviceability is defined by speed, courtesy, competence and ease of repair." Customers usually want products that are relatively quickly and easily serviceable.

• Perceived quality

The perceived quality may be affected by the high price or the good aesthetics of a product.

Product components

The quality of a product depends almost entirely on the quality of the supplied materials. One cannot produce a high-quality end product from low-quality components. Suppliers and companies must be willing to work together in order to reduce and eliminate errors and defects, and achieve higher quality end product. SMEs should discuss with their suppliers how quality improvements can affect the overall performance of the supply chain. A properly implemented quality procedure can reduce testing, scrap, rework etc. This could result in reduction of production costs.

Consequences of poor quality

• Business loss

Poor quality often results in unsatisfied customers which leads to business loss. In an environment where the customer can easily switch to a competitor, producing poor-quality product can be fatal to an organization.

• Productivity

Poor-quality products must often be reworked or scrapped entirely which reduces the amount of usable output.

• Costs

Costs

The biggest cost in most business organizations is the manufacturing cost. Production has a direct responsibility when it comes to controlling and reducing manufacturing cost.

There are four basic types of manufacturing costs:

• Raw materials
• Direct labour
• Variable overhead - production costs that increase or decrease depending on the quantity produced. For example, electricity is a variable overhead. If a company increases its production process they would have also increased the usage of the equipment which will result in a higher electricity bill.
• Fixed overhead

Those are the production cost that stay the same even if the quantity produced increases or decreases. Those costs include:

1. Salaries for employees that don't work directly on the production line. E.g. security guards, safety inspectors, etc.
2. Depreciation costs
3. Occupancy costs - property taxes, building insurance, etc.

Cost reduction

Businesses have been under the pressure to drive down costs in order to be more competitive for many years. There are many books and articles nowadays that suggest different ways of reducing costs, some of them are as follows:

• Minimizing supplier costs
• Adopting lean manufacturing
• Eliminating waste

Delivery

Logistics are an essential part in providing good customer service:

Logistics customer service can be separated into three elements (before, during and after delivery of the product):

• Pre-transaction elements
• Transaction elements
• Post-transaction elements

Increasing profitability with QCD

There are seven measures used to increase profitability:

• Not right first time (NRFT)

Not getting things right first time means wasted resources, effort and time. This all leads to excessive costs to the company and poor quality, high-priced products to the customer. NRFT measures the quality of a product and is expressed in “number of defect parts per million”. The number of defective products is divided by the total quantity of finished products. This figure is then multiplied by 10^6 to get the number of defective parts per million.

NRFT can be measured internally (defective parts identified within the production process) or externally (defective parts identified outside the production process, e.g. by the supplier or the customer).

NRFT

• Delivery schedule achievement (DSA)

DSA analyses how well a supplier delivers what the customer wants and when they want it. The goal is to achieve 100% on-time delivery without any special deliveries or overtime payments which only increase the delivery cost. DSA measures the actual delivery performance against the planned delivery schedule. Failed deliveries include:

1. "Not on time" deliveries - both late and early.
2. "Incorrect quantity deliveries".
3. Both "not on time" and "incorrect quantity deliveries".

Calculating DSA

• People productivity (PP)

PP is measured by the time it takes (in staff hours) to produce a good quality product. Obtaining high PP is only possible when:

1. Most employees' work is adding value to the process.
2. Non-value added work is reduced as much as possible.
3. Waste is completely eliminated .

People productivity

• Stock turns (ST)

The ST ratio shows how quickly a company turns raw materials to finished, ready to be sold products. The quicker the better. A low ST means that the money is tied up in stock, and the company has fewer funds to invest in other parts of its business.

Calculating Stock Turns

• Overall equipment effectiveness (OEE)

The OEE shows how well a company uses its equipment and staff.

OEE is calculated on the base of three elements:

1. Availability - compares the planned and the actual time of the process run. For example, if a machine is planned to run 100 hours a week, but in reality runs only 50, then the availability is 50%.
2. Performance – compares the ideal output and the actual output. For example, if a certain process is planned to take 10 minutes, but actually takes 20, then the productivity is 50%.
3. Quality – to show the quality of a product, a company has to compare the number of good parts produced with the total parts produced. If it produces a 100 parts per hour but only 50 of them are with saleable standard, then quality is running at 50%.

Calculating overall equipment effectiveness

• Value added per person (VAPP)

VAPP shows how well people are used to turn raw materials into finished goods. In order to calculate VAPP three things need to be taken into account:

1. The sales value of a unit after production (output value).
2. The raw material value of a unit before production (input value).
3. The number of direct production process employees.

Value added per person

• Floor space utilisation (FSU)

FSU measures the sales revenue generated by a square meter of factory floor space. Usually to achieve higher FSU the floor space has to be reduced. That means eliminating inventory and reducing the necessary space to a minimum.

Floor space utilisation

External links

• Applying QCD to Supply Chain