To remain competitive, a company must benchmark
its operations and compare them with expectations in the
marketplace. It must measure and track anything that could
pinpoint a problem or a trend. It must identify and prioritize
opportunities for improvement. It must monitor the progress of
change activities, validate the changes, and make them permanent.
This paper will discuss practical, effective
performance measurements. It will emphasize the development of the
Cost of Un-Quality and the use of this measurement to motivate,
identify, prioritize, and monitor improvement activities.
A good definition of crazy is to keep doing the
same thing, while expecting to get a different result. In an
increasingly competitive environment, improving our response to
the marketplace requires that we change some part of our
operations. We need to develop relevant and agreed-on measurements
to guide good decisions on what to change and on what to change
Intuition is only effective and accepted in
dealing with relatively simple organizations and processes. In a
complex manufacturing environment, it is difficult to find the
underlying cause of a poor result, or project the actual outcome
of change efforts. Often, the best we can do is change one thing
at a time and see what effect it has.
In any hierarchical organization, we must have
some rational justification for changing things. Today, we must
even justify leaving things alone. Therefore, it is essential that
a company begin to measure and track activities that could
pinpoint a problem or identify a trend.
The Cost of Quality
During the 1980s, significant market share was
captured in various industries by companies who achieved a high
degree of quality. Many managers tried to justify to themselves
and to their bosses moving to a similar dedication to quality. All
the popular gurus and literature urged them to develop the Cost of
Quality, as a first step. One definition of this is the sum of the
cost of conformance plus the cost of non-conformance". This
number was supposed to motivate everyone to accept the expenses
and effort necessary to upgrade the operation.
Unfortunately, the very name made management
view quality as a cost. Also, most organizations were never able
to make any direct link to tangible Benefits of Quality. The
oft-quoted phrase "Quality is free!" had a surprise
addition: "It's the cost of getting there that's
Management bonuses, shareholder dividends, and
job security depended on equaling or increasing last quarter's
profits. Any additional expense or investment for quality couldn't
show offsetting financial benefits. Proponents of quality for its
own sake quickly learned they had little support. If they became
too aggressive, their views were career-threatening.
Now, in the 1990s, we see examples of large and
small companies who have not only survived by using a quality
approach, but have even reversed the negative trends in some
industries. Motorola sells pagers in Japan. Ford says,
"Quality is Job 1," and is
profitable. Honda converted a failing Ohio auto
plant into a quality operation, using most of the same workers.
Those companies who accepted the quality
challenge, found their own reasons to change, and each literally
invented a unique quality program that transformed them. Though
there were many paths to quality, each successful company
established an absolute insistence on performing every activity to
the best of their ability, then finding ways to improve even that
To make the quality journey company-wide, it is
necessary to convert from Quality Control, where we are concerned
with product variability (rejecting defective parts), to Quality
Assurance, where we reduce process variability so we don't get bad
parts. This approach also brings staff and support functions into
the quality effort. They don't produce parts, but they certainly
do perform a definable process.
It's fairly obvious that standard cost
accounting measurements do not apply to staff and support
services. It is also increasingly evident that they alone can't
justify spending many resources on production quality. What is
needed are measurements that give a better picture of the
operating reality. They must demonstrate relationships among many
functional areas, not just those within the production line.
To be Continued
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