L1 - Does Quality Pay
Transcript of L1 - Does Quality Pay
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Does quality pay?
An empirical study of the automotive supplier industry inEurope and J apan uncovers wide differences in managementpractice and in results
Gnter Rommel, Rolf-Dieter Kempis, and Hans-Werner Kaas
DOE S QUALITY PAY?
THE McKINSEY QUARTERLY 1994 NUMB ER 1 51
Sample companiesby sales volume, 1991US$ million
>700
200700
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DOE S QUALITY PAY?
52 THE McKINSEY QUARTERLY 1994 NUMB ER 1
Product quality
Fulfilling previo uslya ccepte d custo merrequirements w ithea ch single productmanufac tu red a nd
delivered to thecustomer
Process capability
Ensuring safe an dcapa ble process, i.e.keeping key processparamet ers w ithinto leran ce limits
Logistics quality
Delivering t he rig htvolume o f products ont ime to the r ight p lace
Service quality
Solving prob lems/failures in productan d logistics qua litysusta inably in a nacceptable t ime
Design quality
Meeting customerrequirements w iththe designed productor service
Process quality Company quality
Conducting anycusto mer/supplier o rinternal interaction in
a professional ma nner,i .e. communica tionqual i ty
50%
50
Goa l sin R&D
To o lsin R&D
DQI *
50%
35
15
PQIpp m (OEM) p roduct s logistics service
Scrap
Rework
* Scoring models Not measured due
to non-availab ili tyof indicators
Total qualityExhibit 2
Definitions ofquality
Exhibit 3
Ranking ofcompanies
Com bin ing pro cess
and design qu al i ty
ind ica to rs in to to t a l
qual i t y resul t s in
4 ph ases of qual i t ymanagement
1
18
19
53
54
105
106
141
53 higherqual i tycompanies
52 a vera gequal i tycompanies
36 low erqual i ty
companies
Phase IV
Phase III
Phase II
Phase I
Quality performances1991 averages
240
887
4,812
1.1
3.2
5.6
1.2
2.5
3.1
ppm(OEM)
Scrap% of u nits
Rework % of hrs
To ident ify the key success fa ctors of q uality ma na ge ment, w e g rouped the compa nies inour sam ple by tw o mea sures: a process q uality indicat or (PQI) an d a design q ualityindica to r (DQI). We de ned process q ua lity a ccord ing to industry-w ide, clearlyqua nt ia ble mea sures, both in ternal and external , which w e calcula ted for ea ch companyso as to ta ke into account t he complexities of d ifferent processes an d prod ucts. Because nocorrespon ding m ea sures exist for design q ua lity, w e de veloped a scoring system t o a ssessea ch compa nys qua lity g oa ls, as w ell as the too ls tha t i t used in t he d esign pha se. Thishelped us understa nd its ability to design products that meet custo mer needs an d t oproduce them w ith low defect ra tes .
We th en used PQI an d DQI to arrive a t a comprehensive view of to ta l q ua lity.
The comb inat ion of t hese ranking s resulted in four diffe rent pe rfo rman ce clusters, wh ichw e refer to a s the phases of qua lity mana gement .
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THE McKINSEY QU ARTERLY 1994 NUMB ER 1 53
Tot a l custo me ror ienta t ion;*system at ic qua litymanagement activit iesalong ent i re value-add ed chain
Zero-defe ct an d internal customer/supplier p rinciple
Usag e of QFD; role o f marke te r
Cross-bo rder q ua litym a n a g e m e n t
No R&D t ie -in
Qual ity throughinspection
Process improvementdriven by production
Quality to ols mainlyproduction oriented
Emerging custo meror ienta t ion
Design tomanufacture
Quality to ols a reprevention oriented
(R&D)Rob ust p rocesses
Exhibit 4
The path toexcellence
Characteristics
Core processes Manufa cture and del iver w ith zero defects
Design to zero defects
Design to final customer
Phase IInspection
Phase IIAssurance
Phase IIIPrevention
Phase IV Perfec t ion
Initia l implement at ion Fine tun ing
27
34
25
14
Share of sample
* OEM an d fina lcustomer
This ent a ils th e internal supplierunderstand ing theneeds of its direct
internal customer the individua l ordepar tment w i th inthe organizat ion tow hich it provides aprod uct o r service.
Impact of qualityBy ana lyzing th ese performa nce clusters, we discovered four d ifferent an d prog ressive levels of q uality ma na ge ment, ea ch of w hich ha s acorresponding ma nag ement approach:
Phase I: Inspectio n. An inspection d epa rtmen t is responsible fo rproduct control, mainly at the e nd o f th e process.
Phase II: Assurance. The production de partme nt strives for b ette runderstand ing o f a nd control over the prod uction process, usingto ols such a s sta tistical process con tro l (SPC). The se compa nies ha vebeg un to orient themselves tow ard zero de fects.
Phase III: Preven tion. Trying to design to zero d efects, Phase IIIcompa nies encoura g e intense cross-fun ctiona l coope rat ion, especiallybetw een R&D a nd the production de partme nt. According ly, they usecross-comp a ny prob lem-solving t ra ining . The y also use preven tiveq ua lity to ols like design review , as w ell a s prod uct an d pro cess fa iluremod e a nd e ff ects ana lysis (FMEA) techniq ues in th e de sig n pha se.
Phase IV: Perf ection. Pha se IV compa nies strive consta ntly fo rperfection, a nd t heir q uality prog rams cross internal and e xternalbo rders. Inte rna lly, they a re cha racte rized b y reliance on cross-fun ctiona l tea ms, fa r-rea ching d eleg a tion of d ecision respon sibility,a nd a n inte rna l custom er/supplier principle. The y fo cus sha rply oncustom ers during the design pha se, and they use the q uality functionde ployment (QFD) to ol a system a tic a pproa ch to de tecting OEMan d custo mer w ishes an d translat ing them into products, services,a nd pro cesses bef ore prod uction. Externa lly, they ha ve la sting a ndmutu a lly trusting relat ionships with t heir suppliers, a nd t hey
integ rate bo th OEM and na l custome r into t heir q ualitymana gement ac t iv it ies to bet ter understa nd t he needs of both .
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Performance The higher the phase of q uality mana ge ment,the bet t er on a verag e the corporateperformance. Indeed, the grow th jump f romPha se III to Pha se IV is rema rkab le.
Moreover, the tw o elements of q uality ea chaffect a d i fferent a rea of corporate performance:
process q ua lity in uences return on sa les; designq uality, sales grow th.
This distinction is impo rta nt beca use as ma nycompanies aro und the w orld have rea lized simply ha ving a q uality prog ram is not e noug h.Wha t ma tt ers is which output -oriente d g oa ls acompany pursues. Unfortuna tely, mo stcompanies have a long w ay to g o before theyrea ch Phase IV (on ly 13 percent o f a llpa rticipating compa nies ha d a chieved t his). TheJapa nese compa nies in our sample do minate
Pha ses III and IV due ma inly to the ir superiorprocess quality performance.
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54 THE McKINSEY QUARTERLY 1994 NUMB ER 1
Return on salesPercent p.a .
Sales growthPercent p.a .
Phase IInspection 0.5 5.1
Phase IIAssurance 7.3
Phase IIIPrevention 6.7 8.1
Phase IV
Perfect ion9.3% 16.0
Exhibit 5
Corporateperformance by
phase, 198791
Sa mple a vera g e 4.0% Sa mple a vera g e 8.0%
4.7
+ 3 1 3
%
+ 1 , 8 6
0 %
Process ca pa bility*CpK > 1.67
ppm < 400
Scrap a nd rew ork(ind ex) < 4.5
Sample a verag e
Sample a verag e
Return on salesPercent p.a .
Sales growthPercent p.a .
QFD usag e
Sa les share o f superiorproducts > 40%Products wi th a ddi t iona lbenef i t for the custome rProducts with improvedbene fit for the OEM
Design qualityindicators
Process qualityindicators
* Sma ll sam ple size(10 compa nies)
Stat istical me asure fo rprocess cap a bility
Including low estperformers
11.4%
8.3
7.2
4.0
8.0
14.7%
13.3
12.7
Exhibit 6
Top performers process anddesign quality
8.6
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DOE S QUALITY PAY?
56 THE McKINSEY QUARTERLY 1994 NUMB ER 1
Phase IV companyPhase II companyCharacteristics
Qual ity plan a nd g oa lsAdditiona l benefit fo r custo mersPreventio n costs (% of q ua lity costs)
Numb er of hierarchy levelsQA depa rtment (% of employees)Final te sting
End-customer orientationR&D vo lume con tro lled (%)R&D in jo int supp lier pro jects (%)
Process ca pa bility (CpK)Workers in self-ma na g ing te a ms (%)Workers pa rticipa ting in job rot a tion (%)
Strategy
Organization
Design
Production
Production o riente dNone
8
86
Auto ma tic an d by QA sta ff
Weak750
1.672817
Exhibit 10
How companystyles differ *
* On a g ivencomponent
Different ma na ge ment practices in strat eg y and o rga nization, as w ell as in the tw o coreprocesses of design an d production, resulted in en ormous variat ions in pe rforman ce.
35
68
91
82
69
44
37
94
91
84
90
53
70
R&D
Purchasing
Production
QA
Logistics
Sales/ma rket ing
Customer service
Percent of companies
77%
Sample goal tree
Compan y aspirat ion/overall g oa l
R&DProcess
capabili ty>1.3
PurchasingPurchased
par t s
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Top ma na ge ment involvement for insta nce, spending a da y helping to designimprovement concepts in a w orkshop f or sub-supplier developme nt is crucia l inengend er ing qua lity th inking throughout a n orga nizat ion.
The bet ter perfo rmers live b y a n a ctive int erna l custome r/supplier principle, bo th w ithin
an d bet w een functions, w hich instil ls in them a new q uality aw arene ss.
On the orga nizationa l side, high er q uality compan ies require at lea st one less level ofhierarchy to run a company o r production fa cility th an do their low er q uality counterparts.
DOE S QUALITY PAY?
THE McKINSEY QU ARTERLY 1994 NUMB ER 1 57
PreventionPercent of to ta l
High er qua litycompanies
Lower qualitycompanies
25
45
30
14%
34
52
Tot a l spendingPercent of sales 3.6% 0.8%5.0%
Test ing
Defects
Bestpractice
Exhibit 12
The cost ofquality
QA manag er
Tea m w i t h o u t t o pm a n a g e m e n tTea m w i t h t o pm a n a g e m e n t *
Quality program responsibilityDevelopment Implementation
23%
19
58
42
25
33
12
5757
31
29
14
Percent o f compan ies
* For exa mple,participat ion inproduct ion tea m o rq ua lity cont rol circlemeet ings
Hig h er q u a lit y co m pa n ie s Lo w e r q u a lit y co m pa n ie s
Exhibit 13
Top managementgets involved
Number of levels in vertical organziation*
Higher quality companies Avera g e: 5.3 levels
Goal: Four-levelhierarchy
Lower quality companiesAverage: 6.4 levels
Overlapof dut ies Overlap
of dut ies
CEO
Head o f product ion
Main depar tmen t manag er
Depar tmen t manag er
Supervisor
Operato r
CEO
Head o f product ion
Departmen t mana ger Supervisor
Operato r
CEO
Head o f product ion
Department manag er
Supervisor
Forema n
Operat or* Compa rable compa ny
size (approxima tely1,000 e mployee s)
Exhibit 14
Levels ofhierarchy
Pha se III and IV compa nies,the refo re, spend less on q ua litytha n their Pha se I counte rparts.
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OEM and nal customers, and can be ma nufactured w ith a minimalnumber of de fects.
To meet the rst g oa l, highe r q uality compa nies focus their marketingan d d esign activit ies on the na l custo mer, an a ctivity tha t d oes notcome na turally in a n industry w here OEMs trad itiona lly carry the na l-custo mer responsibility. In pa rticular, the y use na l-custo mer a nddea ler surveys, an d protot ype te sts involving na l customers, to developnew product fea tures fo r example, ergon omically improved seats andhea te d exte rior mirrors th a t improve visibility. Because such fea turesprovide a dd itiona l bene ts to na l custo mers, they give a signi cantboost to sa les grow th.
In o rder to develop superior products, the best perfo rming companiesconcentra te o n resea rch a nd pre-development, w here they identifyproduct concepts that reconcile nal custom er w ishes w ith tho se o f OEMs.Not surprising ly, they a lso allocat e a higher percentag e o f t heir engineersto t hese a reas than d o t he lower q ual ity performers even though theyspend less overa ll on R&D a s a percent a g e o f sales.
Throug h the ir demo nstrated R&D competence, they ea t into a n OEMsR&D bud ge t, th ereby playing the role o f a n R&D supplier instead of apure blueprint supplier.
Neverthe less, highe r qua lity compa nies a lso coo pera te inte nsively w iththe ir OEMs, especia lly in the a rea o f simulta neo us eng ineering. Oft en th eya chieve this by pla cing the ir ow n eng ineers a t t he R&D cent er of t he OEM.They caref ully select an d t rain (for examp le, in th e a pplication of SPC orFMEA) the ir ow n sub-suppliers, an d t hen involve the m a s com pet entdevelopment pa rtners.
In a dd ition, they use preventive QA too ls in t he d esign phase mo reintensively tha n d o their low er q uality count erparts. Generally, the y use
such to ols ea rlier and in a mo re fo cused m a nne r, such as cond ucting FMEAsfo r critical parts or QFD in ca se of signi cant ly chang ing custo mer needs or
DOE S QUALITY PAY?
THE McKINSEY QU ARTERLY 1994 NUMB ER 1 59
Return on sales Sales growthQuality goal
6.9%
7.4
4.1
12.7%
8.0
2.2 5.9
Percent p.a ., 198791
Improved bene fit tofinal custo mer
Improved b enef it to OEM
Low er defect ra te a ndtoug her to lerances
No q ual ity go al addi t ionalto custo mer requirementSa mple a ve ra g e 8.0%4.0%
8.6
Higher qua l i ty
com panies involve
th e f inal custo merin develop ing new
produc t fea tu res
Exhibit 17
Goals affectperformance
R&D costsPercent of sales
Pre-developmentas share of totalR&D budgetPercent o f to ta lR&D e mplo yees
7.6 1.913.5
4.9%
9.57.5 21.0%
6.4
Pre-d evelo pment o f co ncept s Resea rch
*Subsyste ms/systems
Exhibit 18Research anddevelopment *
Hig h er q u a lit y co m pa n ie s Lo w e r q u a lit y co m pa n ie s
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Higher quality companyLow er q ual ity company
Percent o f processes w ith CpK > 1.33
73%45
Exhibit 21
Stable machineprocesses *
* Activities includestat istical pro cess
control, kaizen , andpoka yoke
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60 THE McKINSEY QUARTERLY 1994 NUMB ER 1
Sto p prod uction line
Act to elimina te de fects
Reject incoming consignments
Sto p de livery to external custo mer
72%21
6646
5021
13
8
Exhibit 19
Workers act onquality issuesDecision-makingcompetences
Percent o f compan ies
Hig h er q u a lit y co m pa n ie s Lo w e r q u a lit y co m pa n ie s
100
1994
1991
1988
20 30 40 50 60 70 80 90 100%
Percent share of total testing effort
Production wo rkers Hig h er q u alit y co mpa n ie s Lo w e r q u alit y co mp a nie s
Exhibit 20
Workersself-inspection
technolog ies. They know tha t t he ma na gerial key to success in th e d esign phase is to a ssureq uality th rough persona l responsibility, clea r go al sett ing, a nd ong oing design review s.
The p rod uction pro cess Similarly, qua lity compa nies esta blish clea r, mea surable go a ls a nd comm unicate t hem t oeveryone involved in th e prod uction process. They a ssign explicit persona l responsibilities,such as req uiring the reduction o f rew ork t ime a nd scrap fo r a prod uction l ine by30 percent w ithin six mon ths. This trig g ers an a mbitious prob lem-solving process, fo rw hich the y w ill previously ha ve trained t heir employees. In ad dition, th ey ap ply the se
same procedu res to the ir sub-suppliers.
The best perfo rmers stress entrepren eurship, respon sibility, a nd a ccoun ta bility. Theyempow er w orkers to ta ke action w hen q uality issues arise. Decentralizat ion of this kind,combined w ith need -ba sed tra ining, a lso helps to insti tutionalize continuous q ualityimprovement prog rams, for exa mple, in th e fo rm of q ua lity circles. The b est compa niesuse self-ma na g ed t ea ms, w ho se responsibilities include q ua lity cont rol, machine set-up,logistics, preventive mainte na nce, a nd short-term production plann ing.
Our ndings indicat e tha t integ rating such indirect qua lity a ctivit ies can yield asigni cant productivity jump. High er q uality compa nies rely on short feed ba ck loops tha topera te throug h comprehensive w orker self-inspection to minimize w orker-relat ed def ects.
They low er ma chine-relate d d efe cts by rig oro usly improving t hecapa bility of prod uction pro cesses, mea sured by so-called CpK values.
The high er these values, the h igher th e stat istical prob a bility tha t aspeci c prod uct cha racte ristic (such a s diam ete r) can be m a nuf a ctured
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Japan versus EuropeThe Ja pa nese compa nies in o ur sa mple ha ve a sizab le lea d in process q ua lity,clea rly at tr ibuta ble to t heir mana ge ment pra ctices.
Rework Percent
ScrapPercent
Rejected partsppm ra tes
Japan Euro pe Difference fa cto rs
1,9651.90 2.60 0.95 3.30 25
Breakdown of causesPercent
55
25
15
5
Kaizen inproduction M a n a g e m e n t o f
interfaces*
Quality m a n a g e m e n t in desig n
Specifications
* Mana ging improvement w ith both suppliersand customers
Possible differences in tolerances
x1.4 x 3.5 x78.6
Exhibit 24
The gap between Japan and Europe
to a ta rget ed value. These gures are determined by examining t he internaland external fac tors of a machine tha t inuence the deg ree to w hich productspeci cation s mig ht va ry. Top pe rfo rmers also rely to a much higher de g ree onsub-supplier q ua lity th an do low er q ua lity compa nies.
They a chieve t his throug h m uch high er investment in sub-supplierdevelopment, thus reducing the number o f purchased-part def ects.
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Sub-supplierperformancepp m
Direct delivery to theproduction line *Percent of sub-suppliers
* No incoming inspection
9,6002,10023
59%
Exhibit 22
Reliance on sub-supplier quality
Hig h er q u a lit y co m pa n ie s Lo w e r q u a lit y co m pa n ie s
Improvement of productqual i tyTraining in th e use o fQA instrumentsImprovement of deliveryreliability
18.63.9
5.31.9
2.00.9
Ma n-mon ths pe r US$100 million p urchasing volume, 1991
Hig h er q ua lit y co m pa n ie s Lo w e r q ua lit y co m pa n ie s
Exhibit 23
Common projects
with sub -suppliers
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The re ma rkab le success of th eir kaizen (continuousimprovement) activit ies is the most important fa ctor
complemented by s igni cant ly st ronger cooperat ionw ith th eir sub-suppliers a nd w ith th eir custome rs.
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62 THE McKINSEY QUARTERLY 1994 NUMB ER 1
Sha re of productionw orkers involved inkaizen activities
PercentProposals implemente dper q ua lity circleNumber p.a .
Sa ving s per hea d*US$ p.a.
$6,450135
1
78%43
8
19048
10
* Based on to ta l employees
Japanese companies
European higher qua lity companies
European low er qua lity companies
Exhibit 25
Japans workersproblem solve
13925
20
3935
18
171010
Averag e com pa ny ma n-da ys per core sub-supplier, 1991
Japanese companies
European higher qua lity companies
European low er qua lity companies
Examples of results
Japane se companies have arejected purchased parts rate o f1,000 ppm, compared w ithEuropes 4,400.
In Japa n, purcha sed pa rts of29% of sub-suppliers are te stedin incoming inspection,compa red w ith 71% in Europe .
General q ual ity*
Simultaneousengineering
Cost an d time
Exhibit 26
Shared projectswith sub-suppliers
* Productionoptimization,improvement of
product q uality,training on QAinstruments
Improvement o fdelivery reliability,throughput t imes,cost structures
of shrinking ma rkets a new situa tion. Un til 199091 thepotent ia l of kaizen largely manifested i tself as ad ditionalgrow th. Japa nese efforts to improve na l custom er-orienteddesign q uality tradit ionally hindered b y strong keiretsu structures a re now furt her curta iled b y declining ROS a ndshrinking na ncia l resources.
Orga nizationa l restructuring, ho w ever, could providesome oppo rtunities for improvement: the typical Japa nesea uto mot ive supplier ha s eight levels of h ierarchy as
compa red w ith Europe s ve or six. But, Europe a ncompanies ha ve no room f or complacency about their
Neverthe less, Japa nesecompanies face several ne w cha llen g es. The m ost criticalone is to ma inta in the
momentum of kaizen in times
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ad vantag e here , as Japanese companies have shown they canimprove very q uickly.
Any w orkable progra m for rapid improvement must start w iththe d esign of a company-speci c qua lity prog ram th at assessesthe compa nys ma na ge ment pro le along the 15 key leversfoun d to be the strong est drivers of q uality performa nce.
Gnt er Romm el is a m an a ging partn er in McKinseys Japa n of ce;
Rolf -Dieter Kem pis is a principa l in t he Dusseldorf o f ce; and Hans-Werner
Kaas is a con sulta nt in th e Fran kfurt o f ce. Cop yrig ht 1994 McKinsey &Company, Inc. All rights reserved.
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THE McKINSEY QU ARTERLY 1994 NUMB ER 1 63
Visions/goals
Core processproduction and
design
Energizing
12345
6789
10
1112131415
Top ma na g ement involvemen tQua lity g oa ls in the business syste mQA as consultantFlat hierarchiesPrevent ion focus
Opera to r self-inspectionPa rtne rship w ith sub-suppliersUse o f preventive QA too lsR&D inf luen ce o n OEMLink to custo mer
Decision compet ence on shop f loorProblem-solving empo w ermentQual ity g oa ls deployment to shop f loorJob enrichment (tea ms, job rot at ion)Worker job satisfa ction
IPhaseKey levers II III IVExhibit 28
A plan for actionSa mple prof ile
1986 1991 1996*
Percent o f units
Japane se compa nies
3.95%
2.442.78
1.20
1.95
0.84
* Projected
30%
51%
30%
30%
Necessary improvement:70% in f ive yea rs
European companies
Exhibit 27
Japans challengeto EuropeScra p ra te, 1986 96