>> S Q P S Blog

In the previous post, I outlined how lean projects can be manged through Plan-Do-Check-Act (PDCA) cycles. Here, I’ll be walking through an example.

Plan

This step includes drawing current value stream (VS) map in terms of processes (or activities), calculating processing times on the value stream, and analyzing for waste. After conducting some brainstorming, the PDCA team can list opportunities for removing such waste by reducing, re-organizing, realigning, training. Finally, we prioritize such opportunities start implementation with those with highest impact first.

In this example, a pizza shop takes orders for delivery over the phone and processes manually.  Customers complain about delivery time being long. Here is how the process works:

• The order taker writes down all order information (type of pizza, size, ingredients, ..etc.) as well as the address.
• Order gets verified by the manager before forwarded to the kitchen. In case of any missing information, the order taker calls the customer back for corrections
• Prepare pizza
• Pizza sits in queue before baking
• Bake, cut, package and label pizza
• Pizza waits in warmer for delivery
• Deliver pizza

The goal here is to eliminate all complaints due to “long delivery time”and increase customer satisfaction.

Times form the above value stream can be summarized as follows:

Lead Time: The time from the customer calling in until the pizza is delivered. In this example, the Lead time is 44 minutes.Value-Adding: All activities that add value to what the customer experiences / pays for. Those steps amount to 15 minutes which is about 34% of the lead time.

Delays / Waiting amounts to 8 minutes.

The PDCA team has conducted root-cause analysis to eliminate waste (and shorten delivery time). The team decided that the manual system for orders created delays and inefficiencies. So it was decided to implement a computerized system for entering orders and communicating them to the kitchen using computer monitors. Also, it was decided to hire an additional delivery driver. The future value-stream table is expected to look as follows:

Do

• Prepare and implement action plan for  computerized system
• After implementation, let the system run and stabilize
• Collect delivery times data again for measuring progress

Check

• Data analysis after implementation of plan show a reduction of  lead time by an average of 11 minutes. This is a reduction of approximately 25% of lead time.
• Complaints due to long delivery time were reduced by 60%.

Act

The updated  value stream after implementation will become the “current” for the next PDCA. As can be seen from the updated value stream table, delays due”waiting for oven space” and “waiting for driver” are still there and could be minimized or eliminated by coming up with efficient methods and creating additional capacity.

Mustafa Shraim

Answer: The Customer!

(1) What does the customer want? >> Use current requirements, marketing surveys, quality function deployment, and other tools

(2) What is the customer getting now? >>  Conduct a detailed assessment, collect complaint data, returns figures, consumer reports, etc.

(3) Identify gaps between (1) and (2) above

(4) Group and prioritize gaps. Use Pareto analysis, if needed.

(5) Start PDCA’s (cycles of plan-do-check-act) to identify root causes and implement solutions for each or a group of prioritized issues.

(5) Re-do Pareto Analysis and go to the next prioritized issue.

(6) make it a routine (kata)

When the customer experiences a product or a service, he/she evaluates such experience. Most of the time, this evaluation does not formally reach the product maker or service provider for many reasons. However, this evaluation is often felt by the provider through returns, repeat business or new business through word of mouth.

When the customer is dissatisfied,  it is usually due to a problem. For minor problems, most people don’t complain about the service or return products. In some instances, it is just not worth their time to do that. But in most cases, they do something else if they can.

For the provider, it is a lost opportunity that is not measured immediately. A customer suddenly cancels subscription or does not plan on renewal the next time around. Or may be one mentions such a problem to friends who are considering the product or service. Some put their lack of satisfaction on social media outlets making ripple effects. In all cases, it is a customer issue that was not accounted for but will likely have  impact on the bottom line.

In summary, cost of poor quality may be extended to the lost opportunity and customer good will using the Taguchi loss function. This can be estimated by taking a sample of most recent complaints then determining the projected overall cost.  In general, as the issue (problem) with the product or service is experienced by more customers, the loss (to society) becomes more severe. Ideally, our target loss is zero which can only be achieved with perfection.

 Number of complaints

Without an effective platform - lean (quality) management system- Lean initiatives might not be carried through to the finish line. A good Lean management system can effectively sustain gains and extends to other areas where they are needed.

A Leanmanagement system includes quality management system, financial management system, HR management system, environmental management system, ..and other, as applicable. Leadership, discipline, standards, and accountability are essential ingredients. Standards carry the documentation systems (manuals, standard works, procedures, visuals, dashboards). In the absence of good management system, particularly the standards, Lean initiatives are not sustainable. Here are some signs that the management system is weak and far from Lean:

• Employees develop tricks outside the system to get the job done
• Employees enter redundant information that no one cares about or analyze
• Problems are not readily visible and need “special investigation” to uncover
• Company spends a lot of time and effort before audits to clean up the system 
• Employees in production are not aware of customer complaints or involved in resolving them
• Line standards are not updated with improvements (e.g. visual workplace, poka-yoke)
• Dashboards are not updated regularly with useful information on performance
• Corrective actions are past due (months!!)

What’s important here is that these signs (and many others as well) create waste and result, directly and indirectly, in employee and customer dissatisfaction.

(For discussion on lean quality management systems, please join our group Lean QMS on LinkedIn.

When a company implements Six Sigma methodology, it usually hopes to achieve Six Sigma Quality. This means keeping a defect rate at about 3.4 defects per million opportunities (DPMO). For example, if an airline uses delayed or lost baggage as a measure of their performance, then it should keep that number below 4 lost/delayed luggage pieces per million on the average.

Can an organization declare they are at a Six-Sigma quality level when they’re only tracking one metric? In the case of an airline, what about on-time arrival? waiting time for check-in? double-booking? and complaints about their online reservation process? The answer is obviously “No”. All experiences by the customers must be accounted for. So once each of the experiences by the customer is less than 4 DPMO, we can say that the organization is at a Six Sigma level from customers’ perspective.

One more thing; What’s important to the customer is decided by the customer.

As discussed in previous posts, costs of quality are typically divided into two types:

• Costs of conformance: costs incurred to ensure that the product or service we deliver are good to go. Under this type, we have prevention as well as appraisal costs
• Costs of nonconformance: costs that result from doing something wrong. If what we make or deliver is experienced by the customer, it triggers all kinds of others costs (complaints, returns, warranty, liability, etc.)

The objective with regard to costs of quality is to invest wisely in the first type (particularly in the prevention side of activities) to minimize the non-conformance costs (particularly those generated from customers’ experience).

Do you notice a difference between activities of the first type and the second type? The first are planned (we know what they are going in) and the second are just results (unpleasant surprise!). The idea is to plan activities related to the first type (costs of conformance) so we minimize the unpleasant surprises. This applies to all types of organizations; profit and nonprofit; manufacturing and service; project-based as well as non-project-based.

Please click on the following link to see the relationship between types of errors to costs of quality: http://www.shraimqps.com/Resources/Types_of_Errors.pdf

The question is, how can all possible quality costs be accounted for in an organization? How can they be tracked? and most importantly, how can they be optimized?

In order to provide the best value to the customer, quality (of product and service) as experienced by the customer must be managed. By “managed”, I mean planned for, controlled, and improved. Many companies engaged in applying lean concepts focus on internal operations with little attention to quality. Or quality might be addressed one issue at a time, as needed. For example, if you’ve been applying lean concepts (e.g. value stream maps) but still get many customer complaints / high external failure costs, this might be an indication.

The fact of the matter is that applying lean concepts should not be in conflict with providing high quality that the customer wants. The objectives of a lean system are to improve quality, eliminate waste, reduce lead time, and reduce total costs. In his book “Lean Thinking”, leading expert Jim Womack outlines steps for applying lean starting with identifying value. Value is specified by the customer and created by you (the producer).

If the customer specifies value, why not study what they want? What types of complaints have we encountered in the past? Can we summarize such complaints on a Pareto chart? What complaints are repeated? Do we have survey results? Any informal data from sales or field service? Answering such questions upfront will help us determine value as perceived by the customer. Once that value is determined, it can then be identified and controlled on the value stream.

In previous posts, I discussed the different costs of quality (CoQ). To summarize, prevention and appraisal costs are those related to conformance of the product or service. On the other hand, internal and external failure costs result form experiencing non-conformance, where “external” means that this experience is told by the customer.  At the ASQ-Columbus Spring Conference held at Columbus State on April 14, someone asked me if the concept of “Quality Costs” applies to sectors outside manufacturing. To prove that it does, many people from different service industries such as healthcare, education, finance, government, and information technology, among others, shared their examples during the presentation. If you would like to view / download the presentation, please go to our website.

Another question was related to the reason that while analyzing quality in terms of costs seems to be an eye-opener, why isn’t the concept used more often? One of the most challenging implementation issues for a Quality Costs program is separating such costs from other costs of doing business. Traditional accounting systems are not designed with such concept in mind. Therefore, your options are to either:

• Change the cost structure of the accounting system (must get the accounting department on board!)
• Build a separate system for capturing CoQ

It may not be simple to do either but it is well-worth the efforts.

The Toyota case of sticking accelerator is a good example of how External Failure costs can add up very quickly. As mentioned in the previous post, external failure costs (the worst type of quality costs) are those related to a failure after the product has reached the customer. In addition to the impact on Toyota’s near-perfect reputation, and the loss customer confidence in the brand name, other immediate costs are incurred by the company and include, but not limited to, the following:

• Recall costs
• Warranty (of unaffected cars)
• Replacement / repair of sold and unsold cars
• Training service staff on special repair
• Liability / lawsuits
• Downtime at factories
• Wages during downtime
• Scrap and disposition of questionable parts
• Troubleshooting / Corrective actions
• Trips made by executives / engineers / designers
• Public relations
• Working with suppliers
• Dealership support
• Overtime for suppliers (for making good replacement parts)
• Additional freight and premium freight for replacement parts
• Additional legal council (in many countries)
• Discounts for future sales

It is estimated that, with the lawsuits associated with the recall, this will cost Toyota over $2 Billion. The question is could this have been prevented? or at least taken seriously after the very first few complaints? was failure mode and effects analysis (FMEA) or equivalent done for the break subsystem?

In many cases, we know exactly what we want to work on. We have a chronic problem that generates scrap, or we may have many customers complaints resulting in returns or recalls. In such cases, we get our team of Lean Six Sigma experts to start working…

But what if we don’t have one specific BIG problem? Should we relax and forget about it? Not really! A report on costs of quality (CoQ), especially those concerning non-conformance, will be worth our efforts.   

It is estimated that between 20% to 40%  of sales are quality-related costs. One third of CoQ is related to conformance (Prevention and Appraisal). The rest, or 67%, is related to non-conformance (failure). Failure costs are divided into two types: (1) Internal Failure: Failure cost incurred before release of the product to the customer or providing the service, and (2) External Failure: Any quality-related cost incurred after the product gets to the customer. Examples of internal failure include scrap, rework, re-testing, etc. As for external failure, warranty charges, returns, recalls, remedial upgrade of software are some of many examples.

There is a lot that can be done if we are able to separate our failure costs from the overall costs of goods sold, don’t you think?