Shouldn't we be on to something else by now? In these consultant-driven days, management theories come and go as quickly as fast fashion. The old Quality teams and corporate cheer-leading events seem so quaint in retrospect. Surely we’ve put away such childish things.
The buttons and banners, maybe. But not the underlying precepts of quality, which were laid down beginning in the 1920s by such pioneers of good management practice as W. Edwards Deming, Walter A. Shewhart and Joseph M. Juran. They showed that a relentless focus on the minutest details of the manufacturing process – and later, other activities as well – could yield huge returns to the business. Fads might come and go, but that reality doesn’t change.
Hannah Kain, president and chief executive officer of Alom Technologies, likes to cite Juran’s description of the potential savings from quality as “gold in the mine.” Her company is a provider of supply-chain services to Fortune 100 companies, including medical and automotive clients.
For a “normal” manufacturing company lacking a concerted quality effort, the cost of making errors is about 15 percent of revenue, Kain says. A quality program, by contrast, costs no more than 1 percent – and that doesn’t even take into account the money saved by heading off errors before they occur. It’s no surprise, then, that Alom spends about two to three times the customary U.S. training budget per payroll dollar on behalf of its client base.
Think of the quality cost calculation as having three dimensions: preventive costs, involving a formal quality effort, employee training and the up-front prevention of errors; assessment costs, including in-line testing; and failure costs, racked up by things that actually go wrong, both internally and externally. Companies can drive down those incidents with the help of a rigorous Six Sigma initiative, which can push the cost of mistakes down to half a percent of revenue or less. “That’s a huge improvement,” Kain says, although in the world of Six Sigma, there’s always the possibility of getting better.
Statistics of that sort can help to convince top management of the need for a quality program that never goes out of fashion, notwithstanding the bells and whistles that companies might employ to stir up employee interest. Quality is like risk management, in that it can be tough to quantify the value of avoiding disaster. What’s the cost of something bad not happening?
Central to any quality effort is the use of key performance indicators to track an organization’s progress. Many consultants recommend the use of a management dashboard, which groups those KPIs into a format that is easy to follow and manage.
Kain is ambivalent about the way that tool is used. A typical dashboard, she says, involves data that’s “all in the rear view mirror.” Hard numbers don’t tell the whole story, especially when it comes to customer dissatisfaction arising from a botched order. In Kain’s view, companies ought to be employing KPIs in a more strategic manner, to analyze trends and drive constant process improvements going forward.
“My recommendation is not to dashboard everything,” she said. “Just focus on the things you want in real time.”
In the age of Big Data, companies are in danger of becoming inundated with information. Narrowing down the input to a few critical measurements can be an immense challenge. Kain says many companies end up following metrics “that won’t impact their decisions.”
What they should be doing is using the right numbers to pursue company-wide goals. There’s no lack of industry performance standards to light the way. In the area of information and communications technology, the QuEST Forum has developed TL 9000, a system built on ISO 9001 and the eight principles of quality management. (Sometimes described, by those with a mystical bent, as The Eightfold Path.) Similar initiatives exist for other verticals.
Six Sigma and nirvana aside, managers shouldn’t get hung up on achieving perfection. “You can make pretty good decisions based on the top 80 percent of data,” says Kain. “If you get too uptight, you’re not going to be able to get the [critical] data. You won’t have anything to measure.”
Whatever you do, she says, don’t rely too much on averages. They don’t mirror the actual experience of managing a supply chain, which can easily be disrupted by an event that was considered to be an outlier.
Such an approach “will get you in trouble every day of the week,” Kain says. “You need to look at exceptions and extremes – what’s really important for the business in terms of quality.”
Despite her aversion to rear view mirrors, Kain spends a good deal of time dissecting potential service failures. Alom analyzes various kinds of incidents, including returns due to quality issues, accompanying complaints and the resulting “wear and tear” on the customer relationship. All of that intelligence is rolled up into one number that is shared with the whole company.
By no means is Alom unique or even special in its approach to quality, with or without a capital “Q.” Yet despite decades of theory and demonstrated results, a good number of companies still lag in this critical area. Even today, says Kain, “Many simply don’t understand how quality really impacts the bottom line.” And no amount of buttons and banners can change that.
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Keywords: supply chain, supply chain management, total quality management, supply chain planning, inventory control, quality control, supply chain risk management, ISO 9001, Six Sigma