QCD- Quality, Costs and Delivery

The QCD approach was originally developed to help companies within the British automobile sector. Using QCD can clarify the priorities for improving the production processes in a company. The tools in the QCD approach can be used to assess the results of changes in production processes. They can be used as an instrument for rapid feedback which provides the actual facts and figures for the management to make meaningful decisions. With the gathered data it is furthermore possible to set goals for the future and fulfill continuous reports.[1]

To analyse the business processes of a company with the target of increasing the profitability there are seven steps which have to be considered. These seven key measurements offer a clear structure for continuous improvement, raising levels of customer satisfaction and improve the management of the whole production processes. They can be applied to improve production performance throughout manufacturing industry from the auto-industry to electronics, aerospace, telecommunications, textiles, building products, food and chemicals processing.[2]

  • Step 1: Not Right First Time (NRFT)

NRFT studies the quality of products. How often achieves the company the customer’s specifications. NRFT can be put into numbers, by measuring the number of “defective parts per million”. The number of the defect products has to be divided by the total quantity of finished products. This figure has to be multiplied by 106 to get the number of parts per million.[3]

Measuring Not Right First Time

There are two possibilities to measure NRFT: before (internally) or after reaching the customer (externally). If a company produces four defective parts on every thousand, this transforms into 4.000 parts per million. See the example below.[5]

After the evaluation of this figure, targets for improvement which are dependent on the industry best practice can be set. A lower rate of defective parts per million leads to an increasing customer satisfaction and improves also the quality of the products.[6]

  • Step 2: Delivery Schedule Achievement

Delivery Schedule Achievement analyses how well a supplier delivers what the customers need and when they need it. The goal is 100% on-time delivery of correct products. This goal has to be achieved as cost efficient as possible and therefore expensive special deliveries or payments for overtime should be avoided.

Measuring Delivery Schedule Achievement

A company makes 100 deliveries per week, of those eight are late and five are of incorrect quantities. The ratio of correct and incorrect deliveries has to be worked out for measuring how well the company delivers what the customers need.

Incorrect deliveries include late and as well early deliveries and also deliveries of the wrong quantity (too many, too few).[7]

  • Step 3: People Productivity

People Productivity (PP) is measured by looking at how long it takes (in staff hours) to produce a good in a satisfying quality. To fulfill the PP measurement it is necessary to take the number of good units and divide it by the total number of direct operator hours. Direct operators are the staff who is fundamental to the production process. The measure of PP helps to focus on a major product cost, the staff salaries.

Measuring People Productivity

A mobile phone factory has 30 employees making 90 phones an hour.

To reach a high value for PP it is absolutely necessary that most of the employee’s work is adding value to the product. The non-value adding activities should be minimised.[8]

  • Step 4: Stock Turns

Stock Turns (ST) is defined as the ratio of current stocks to finished goods.[9] The more quickly a company converts raw materials into finished products and sells them, the more quickly they receive valuable sales revenues. The ST ratio reveals how effectively the company is using funds.

Measuring Stock Turns

To improve the ST ratio it is essential to know the annual turnover of a product line and the respective amount of stocks. In the working example, annual product sales are 30.000 Euro and the value of the current stock is 10.000 Euro. Current stock includes work in progress, raw materials and finished goods.

The higher the number the better for the company. A low stock turn means that the money is tied up in stock, and therefore the company has fewer funds to invest in other parts of its business.[11]

  • Step 5: Overall Equipment Effectiveness

Overall Equipment Effectiveness (OEE) says how well the company is using its equipment and staff. The three inputs for the calculation are the availability, performance efficiency and quality rate.

Measuring Overall Equipment Effectiveness

There are three key points to look at: availability, performance and quality.

  1. To work out availability for a machine, it is necessary to have the amount of unplanned downtime. If it is planned that a machine should run 100 hours a week, but actually runs only 50 hours, the availability is 50%.
  2. Performance compares the actual output with the ideal output. If a process is assumed to take 10 minutes, but instead takes 20 minutes then the performance is running by 50%.
  3. To display the quality of goods, it is required to compare the number of good parts produced with the total. If a company produces 50 parts in an hour and only 25 of them are with saleable standard, this means quality is running at 50%.

Including these three figures in the equation above will give the overall equipment effectiveness, expressed as a percentage. The higher the percentage, the better is the company’s production performance.[13]

  • Step 6: Value Added Per Person

Value Added Per Person (VAPP) shows how efficient people are deployed to transform raw materials into finished products. The inputs for the VAPP calculation are the price of the finished product and the costs of the needed raw materials. Furthermore it is essential to know the number of direct employees, those who are vital to the production process.

Measuring Value Added Per Person

In this working example a company produces MP3-Players and sells a unit of them for 60 €, the components cost 10 € per unit and 20 employees are required to assemble one MP3-Player.

A high VAPP highlights many value added to the product by a single worker.[14]

  • Step 7: Floor Space Utilisation

Floor Space Utilisation (FSU) measures the sales revenue generated per square metre of factory or office floor. The office and the factory floor space represent expensive fixed costs. FSU can be used to look for the respective revenue of an individual area or for the whole factory/office floor space. In order to increase the revenue per square metre it is common to reduce the amount of floor space used. Layout changes are necessary, for example eliminating inventory to reduce storage areas. If the company succeeds in reducing the amount of used space they would be able to expand without the expense of acquiring or leasing new buildings.

Measuring Floor Space Utilisation

In the working example, given below, a company owns 2000m2 factory space. The sales turnover is 10.000 € per month. To calculate the FSU it is necessary to divide the turnover by the amount of space which is used.[15]

By implementing and applying these seven measurements significant improvements in the sections Quality, Costs and Delivery can be achieved. Therefore the QCD approach could provide the company with a long lasting competitive advantage.

[1] http://www.autoindustry.co.uk/features/qcd [retrieved: 08.05.2010].

[2] http://www.autoindustry.co.uk/features/qcd [retrieved: 08.05.2010].

[3] http://www.autoindustry.co.uk/features/qcd/forum_3 [retrieved: 08.05.2010].

[4] Lunau, Roenpage, Staudter, Meran, John, Beernaert (2006), Six Sigma + Lean Toolset, p. 101.

[5] http://www.industryforum.co.uk/pdf/qualitycost.pdf [retrieved: 08.05.2010].

[6] http://www.industryforum.co.uk/pdf/qualitycost.pdf [retrieved: 09.05.2010].

[7] Cf. Ibid.

[8] http://www.industryforum.co.uk/pdf/qualitycost.pdf [retrieved: 09.05.2010].

[9] Hoyle (2005), Automotive quality systems handbook, p. 294.

[10] Cf. Ibid.

[11] http://www.industryforum.co.uk/pdf/qualitycost.pdf [retrieved: 09.05.2010].

[12] Wireman (2004), Total productive maintenance, p. 47.

[13] http://www.industryforum.co.uk/pdf/qualitycost.pdf [retrieved: 09.05.2010].

[14] http://www.industryforum.co.uk/pdf/qualitycost.pdf [retrieved: 09.05.2010].

[15] Cf. Ibid.


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