Quality, cost, delivery

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Quality, cost, delivery (QCD), sometimes expanded to quality, cost, delivery, morale, safety (QCDMS), [1] is a management approach originally developed by the British automotive industry. [2] QCD assess different components of the production process and provides feedback in the form of facts and figures that help managers make logical decisions. By using the gathered data, it is easier for organizations to prioritize their future goals. [3] QCD helps break down processes to organize and prioritize efforts before they grow overwhelming. [4]

Contents

QCD is a "three-dimensional" approach. If there is a problem with even one dimension, the others will inevitably suffer as well. One dimension cannot be sacrificed for the sake of the other two. [5]

Quality

Quality is the ability of a product or service to meet and exceed customer expectations. It is the result of the efficiency of the entire production process formed of people, material, and machinery. Customer requirements determine the quality scope.

Quality is a competitive advantage; poor quality often results in bad business. The U.S. business organizations in the 1970s focused more on cost and productivity. That approach led to Japanese businesses capturing a major share of the U.S. market. [6] It was not until the late 1970s and the beginning of the 1980s that the quality factor drastically shifted and became a strategic approach, created by Harvard professor David Garvin. [7] This approach focuses on preventing mistakes and puts a great emphasis on customer satisfaction. [8]

Quality basis

David A. Garvin lists eight dimensions of quality: [9] [10]

Product components

The quality of a product depends almost entirely on the quality of its raw material. Suppliers and manufacturers must work together to eliminate defects and achieve higher quality. Small and medium-sized enterprises (SMEs) should discuss with their suppliers how quality improvements can affect the overall performance of the supply chain. Quality assurance can reduce testing, scrapping, reworks, and production costs. [12]

Consequences of poor quality

Costs

The biggest costs in most businesses are the four basic types of manufacturing costs: [5] [15]

  1. Raw materials
  2. Direct labour
  3. Variable overhead – production costs that increase or decrease depending on the quantity produced. For example, electricity is a variable overhead. If a company increases production, it will also increase the usage of equipment, which will result in a higher electricity bill.
  4. Fixed overhead

In addition, there are business costs that stay the same, regardless of the production output. Business costs include:

  1. Salaries for employees that do not work directly on the production line (e.g. security guards or safety inspectors.)
  2. Depreciation costs
  3. Occupancy costs (e.g., property taxes and building insurance)

Businesses desire to reduce costs to increase their operating profit and bottom line. Cost reduction strategies include:

Delivery

Logistics are an essential part in providing good customer service on time. [19] [20] Logistics customer service can be separated into three elements:

Benefits

QCD offers a method of measuring both simple and complicated business processes. It also represents a basis for comparing businesses: for example, a business measuring a supplier's delivery performance may compare its findings with the business's own performance. [21]

Flexibility

The "quality, cost, delivery, and flexibility" (QCDF) approach, includes flexibility as the capacity to adapt to changes or modifications in the input quality, output quality, product specifications, and delivery schedules.

Profitability

There are seven measures used to increase profitability. [22]

Not right first time (NRFT)

Not getting things right the first time [23] means wasted resources, effort and time. This all leads to excessive costs for the company and poor-quality, high-priced products for the customer. NRFT measures the quality of a product and is expressed in “number of defective parts per million”. The number of defective products is divided by the total quantity of finished products. This figure is then multiplied by 10^6 to get the number of defective parts per million. [3]

NRFT can be measured internally (defective parts identified within the production process) or externally (defective parts identified outside the production process (e.g. by the supplier or the customer). [24]

Delivery schedule achievement (DSA)

DSA analyses how well a supplier delivers what the customer wants and when they want it. The goal is to achieve 100% on-time delivery without any special deliveries or overtime payments, which only increase the delivery cost. DSA measures the actual delivery performance against the planned delivery schedule. [3] Failed deliveries include:

  1. "Not on time" deliveries – both late and early.
  2. "Incorrect quantity deliveries".
  3. Both "not on time" and "incorrect quantity deliveries". [24]

People productivity (PP)

PP is measured by the time it takes (in staff hours) to produce a good-quality product. Obtaining high PP is only possible when:

  1. Most employees' work adds value to the process.
  2. Non-value added work is reduced as much as possible.
  3. Waste is completely eliminated . [24]

Stock turns (ST)

The ST ratio shows how quickly a company turns raw materials into finished, ready-to-be-sold products. The quicker the better. A low ST means that the money is tied up in stock, and the company has fewer funds to invest in other parts of its business. [3]

Overall equipment effectiveness (OEE)

The OEE shows how well a company uses its equipment and staff.

OEE is calculated on the base of three elements:

  1. Availability – compares the planned and the actual time of the process run. For example, if a machine is planned to run 100 hours a week, but in reality runs only 50, then the availability is 50%. [3]
  2. Performance – compares the ideal output and the actual output. For example, if a certain process is planned to take 10 minutes, but actually takes 20, then the productivity is 50%. [3]
  3. Quality – to show the quality of a product, a company has to compare the number of good parts produced with the total parts produced. If it produces 100 parts per hour but only 50 of them are of saleable standard, then quality is running at 50%. [3]

Value added per person (VAPP)

VAPP shows how well people are used to turn raw materials into finished goods. In order to calculate VAPP, three things need to be taken into account:

  1. The sales value of a unit after production (output value).
  2. The raw material value of a unit before production (input value).
  3. The number of direct production process employees. [24]

Floor space utilisation (FSU)

FSU measures the sales revenue generated by a square meter of factory floor space. [25] Usually to achieve higher FSU the floor space has to be reduced. That means eliminating inventory and reducing the necessary space to a minimum. [24]

See also

Related Research Articles

A quality management system (QMS) is a collection of business processes focused on consistently meeting customer requirements and enhancing their satisfaction. It is aligned with an organization's purpose and strategic direction. It is expressed as the organizational goals and aspirations, policies, processes, documented information, and resources needed to implement and maintain it. Early quality management systems emphasized predictable outcomes of an industrial product production line, using simple statistics and random sampling. By the 20th century, labor inputs were typically the most costly inputs in most industrialized societies, so focus shifted to team cooperation and dynamics, especially the early signaling of problems via a continual improvement cycle. In the 21st century, QMS has tended to converge with sustainability and transparency initiatives, as both investor and customer satisfaction and perceived quality are increasingly tied to these factors. Of QMS regimes, the ISO 9000 family of standards is probably the most widely implemented worldwide – the ISO 19011 audit regime applies to both and deals with quality and sustainability and their integration.

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

<span class="mw-page-title-main">Management accounting</span> Field of business administration, part of the internal accounting system of a company

In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions.

<span class="mw-page-title-main">Logistics</span> Management of the flow of resources

Logistics is the part of supply chain management that deals with the efficient forward and reverse flow of goods, services, and related information from the point of origin to the point of consumption according to the needs of customers. Logistics management is a component that holds the supply chain together. The resources managed in logistics may include tangible goods such as materials, equipment, and supplies, as well as food and other consumable items.

<span class="mw-page-title-main">Inventory</span> Goods held for resale

Inventory or stock refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.

Six Sigma (6σ) is a set of techniques and tools for process improvement. It was introduced by American engineer Bill Smith while working at Motorola in 1986.

Kaizen is a concept referring to business activities that continuously improve all functions and involve all employees from the CEO to the assembly line workers. Kaizen also applies to processes, such as purchasing and logistics, that cross organizational boundaries into the supply chain. It has been applied in healthcare, psychotherapy, life coaching, government, manufacturing, and banking.

A value chain is a progression of activities that a business or firm performs in order to deliver goods and services of value to an end customer. The concept comes from the field of business management and was first described by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

The idea of [Porter's Value Chain] is based on the process view of organizations, the idea of seeing a manufacturing organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.

<span class="mw-page-title-main">Activity-based costing</span> Method of apportioning costs

Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. Therefore, this model assigns more indirect costs (overhead) into direct costs compared to conventional costing.

<span class="mw-page-title-main">Performance indicator</span> Measurement that evaluates the success of an organization

A performance indicator or key performance indicator (KPI) is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity in which it engages. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.

<span class="mw-page-title-main">Manufacturing resource planning</span> Defined as a method for the effective planning of all resources of a manufacturing company

Manufacturingresource planning is a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning, and has a simulation capability to answer "what-if" questions and is an extension of closed-loop MRP.

<span class="mw-page-title-main">Operations management</span> In business operations, controlling the process of production of goods

Operations management is concerned with designing and controlling the production of goods and services, ensuring that businesses are efficient in using resources to meet customer requirements.

A contract manufacturer (CM) is a manufacturer that contracts with a firm for components or products. It is a form of outsourcing. A contract manufacturer performing packaging operations is called copacker or a contract packager. Brand name companies focus on product innovation, design and sales, while the manufacturing takes place in independent factories.

Materials management is a core supply chain function and includes supply chain planning and supply chain execution capabilities. Specifically, materials management is the capability firms use to plan total material requirements. The material requirements are communicated to procurement and other functions for sourcing. Materials management is also responsible for determining the amount of material to be deployed at each stocking location across the supply chain, establishing material replenishment plans, determining inventory levels to hold for each type of inventory, and communicating information regarding material needs throughout the extended supply chain.

In business, engineering, and manufacturing, quality – or high quality – has a pragmatic interpretation as the non-inferiority or superiority of something ; it is also defined as being suitable for the intended purpose while satisfying customer expectations. Quality is a perceptual, conditional, and somewhat subjective attribute and may be understood differently by different people. Consumers may focus on the specification quality of a product/service, or how it compares to competitors in the marketplace. Producers might measure the conformance quality, or degree to which the product/service was produced correctly. Support personnel may measure quality in the degree that a product is reliable, maintainable, or sustainable. In such ways, the subjectivity of quality is rendered objective via operational definitions and measured with metrics such as proxy measures.

Production is the process of combining various inputs, both material and immaterial in order to create output. Ideally this output will be a good or service which has value and contributes to the utility of individuals. The area of economics that focuses on production is called production theory, and it is closely related to the consumption theory of economics.

Management accounting in supply chains is part of the supply chain management concept. This necessitates planning, monitoring, management and information about logistics and manufacturing processes throughout the value chain. The goal of management accounting in supply chains is to optimise these processes. This strategy focuses on supporting management.

Operations management for services has the functional responsibility for producing the services of an organization and providing them directly to its customers. It specifically deals with decisions required by operations managers for simultaneous production and consumption of an intangible product. These decisions concern the process, people, information and the system that produces and delivers the service. It differs from operations management in general, since the processes of service organizations differ from those of manufacturing organizations.

References

  1. ↑ Imai, Masaaki (1997). Gemba Kaizen: A Commonsense, Low-Cost Approach to Management. McGraw Hill Professional. p. 109. ISBN   978-0-07-136816-2.
  2. ↑ Department for Trade and Industry, Quality, cost, delivery: measuring business performance, page 2, published March 2005, accessed 2 March 2022
  3. 1 2 3 4 5 6 7 "QCD – Quality, Cost and Delivery". 2010-05-27. Retrieved 20 October 2015.
  4. ↑ "QCD / Quality, Cost, Delivery". 2011-04-24. Retrieved 31 October 2015.
  5. 1 2 Domingo, Rene T. "THE QCD APPROACH TO OPERATIONS MANAGEMENT" . Retrieved 25 October 2015.
  6. ↑ Tomaskovic-Devey, Donald; Lin, Ken-Hou (August 2011). "Income Dynamics, Economic Rents, and the Financialization of the U.S. Economy". American Sociological Review. 76 (4): 538–559. doi:10.1177/0003122411414827. S2CID   201377889.
  7. ↑ Garvin, David A. (November 1987). "Competing on the Eight Dimensions of Quality". Harvard Business Review. Retrieved 3 November 2015.
  8. ↑ "Operations management:Quality" . Retrieved 1 November 2015.
  9. 1 2 "Operations Strategy" . Retrieved 27 October 2015.
  10. ↑ Gupta, Sushil; Starr, Martin (2014). Production and operations management systems. [S.l.]: CRC Press. pp. 279–280. ISBN   978-1-4665-0733-3 . Retrieved 3 November 2015.
  11. ↑ Gupta, Sushil; Starr, Martin (2014). Production and operations management systems. [S.l.]: CRC Press. p. 282. ISBN   978-1-4665-0733-3 . Retrieved 3 November 2015.
  12. ↑ Council, Committee on Supply Chain Integration, Board on Manufacturing and Engineering Design, Commission on Engineering and Technical Systems, National Research (2000). Surviving supply chain integration: strategies for small manufacturers. Washington, DC: National Acad.Press. p. 52. ISBN   978-0-309-06878-9 . Retrieved 27 October 2015.{{cite book}}: CS1 maint: multiple names: authors list (link)
  13. ↑ Harrington, H. James (1999). "Cost of poor quality" (PDF). International Journal. Retrieved 2020-09-03.
  14. ↑ Gupta, Sushil; Starr, Martin (2014). Production and operations management systems. [S.l.]: CRC Press. p. 288. ISBN   978-1-4665-0733-3 . Retrieved 3 November 2015.
  15. ↑ Shim, Jae K. Shim, Joel G. Siegel, Allison I. (2012). "Manufacturing Costs: Sales Forecasts and Realistic Budgets". Budgeting basics and beyond (4th ed.). Hoboken, N.J.: Wiley. pp. 191–202. doi:10.1002/9781118387023.ch9. ISBN   978-1-118-38702-3.{{cite book}}: CS1 maint: multiple names: authors list (link)
  16. ↑ Berk, Joseph (2010). "Minimizing Supplier Costs". Cost reduction and optimization for manufacturing and industrial companies. Hoboken, N.J.: John Wiley. pp. 117–124. doi:10.1002/9780470643815.ch13. ISBN   978-0-470-64381-5.
  17. ↑ Alves, José Roberto Xavier; Alves, João Murta (21 April 2015). "Production management model integrating the principles of lean manufacturing and sustainability supported by the cultural transformation of a company". International Journal of Production Research. 53 (17): 5320. doi:10.1080/00207543.2015.1033032. S2CID   110842059. 2.3 The system of lean manufacturing.
  18. ↑ Bragg, Steven M. (2011). "5S ANALYSIS". The controller's function the work of the managerial accountant (4th ed.). Hoboken, N.J.: Wiley. pp. 423–424. doi:10.1002/9781118268377.ch22. ISBN   978-1-118-26837-7.
  19. ↑ Baker, Alan Rushton, Phil Croucher, Peter (2014). The handbook of logistics & distribution management (5th ed.). London: KoganPage. p. 35. ISBN   978-0-7494-6627-5 . Retrieved 4 November 2015.{{cite book}}: CS1 maint: multiple names: authors list (link)
  20. ↑ Voortman, Craig (2004). Global logistics management. Cape Town: Juta Academic. pp. 23–26. ISBN   978-0-7021-6641-9.
  21. ↑ Kannan, Vijay R.; Tan Keah.C. (2006). "Buyer-supplier relationships: The impact of supplier selection and buyer-supplier engagement on relationship and firm performance". International Journal of Physical Distribution & Logistics Management. doi:10.1108/09600030610714580 . Retrieved 2020-09-03.
  22. ↑ Osman, Ibrahim; Anouze, Abdel Latef; editors, Ali Emrouznejad (2014). Strategic performance management and measurement using data envelopment analysis. IGI Global. pp. 132–133. ISBN   978-1-4666-4474-8 . Retrieved 4 November 2015.{{cite book}}: |last3= has generic name (help)
  23. ↑ Morgan, Colin; Murgatroyd, Stephen J. (1994). Total quality management in the public sector : an international perspective ([4th ]reprint. ed.). Buckingham, En: Open University Press. pp.  43–44. ISBN   978-0-335-19102-4 . Retrieved 4 November 2015. not right first time management.
  24. 1 2 3 4 5 "QCD: measuring manufacturing performance" (PDF). Archived from the original (PDF) on 1 March 2005. Retrieved 2 November 2015.
  25. ↑ LARSON, T. NICK; MARCH, HEATHER; KUSIAK, ANDREW (April 1997). "A heuristic approach to warehouse layout with class-based storage". IIE Transactions. 29 (4): 337–348. doi:10.1080/07408179708966339.
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