Knocking Down the Cost of Poor Quality: A Global Case Study

It’s a fact: Continuously supplying a high quality service or product to your customers can be very cost-intensive. Especially in a challenging economic environment, making sure you are consistently satisfying your customers’ requirements by tightly managing those costs without sacrificing the demanded quality becomes a key competitive requirement. But before you start ripping out those costs, we recommend using an integrated and balanced approach by considering how you will decide on where you should and can reduce costs and where you shouldn’t.

This integrated and balanced approach to reducing cost of poor quality (CoPQ) requires us to look at the organization along three main lines:

1. WHAT should the organization be designed to produce. We look at the company from an outside-in perspective. Here, only the results matter. HOW they are achieved is irrelevant. – Result: The process framework.
2. HOW the company needs to operate in order to supply the WHAT at the required levels of quality. – Result: Integrated detailed business processes.
3. Balanced resource allocation – From 1) and 2) you can now derive your requirements on all of your resources (quality and quantity).

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1. Design your organization at the WHAT level — organizational structure and business setup — to deliver expected performance

The first problem related to an organization — generally speaking — is that it was never designed from a process or performance perspective. That is, it simply evolved in an ad-hoc manner. One of the key negative consequences is that the way how people are measured and evaluated does not match with the translation of the real customer and business needs, nor with the organizational structure or their jobs descriptions. In our opinion, this fragmentation lies at the heart of an organization’s performance problems.

The way to address this fundamental issue is to design your organization in an integrated manner. A consistent way to achieve that is the Business Process Management/Reengineering approach presented below.

Some of the activities are:

• Identify your stakeholders.
• Group them into requesters and suppliers and decide on their hierarchy by linking them — not all of them are of the same importance.
• Find out their requirements — the starting point of a stakeholder-driven measurement system.
• Identify which business processes they are generating in your organization and decide on the business process decomposition by translating stakeholder requirements in the appropriate control points — your process framework.
• Decide the supporting organizational structure and business setup for your business processes based on this decomposition.

2. Design your organization at the HOW level — its business processes — to deliver expected performance

The second problem related to an organization is referring to the design of its business processes. Unfortunately, the same problem applies — they were never designed from a performance perspective, or when the design was done it was done in a fragmented way.

A consistent approach to address this issue is the Lean Design for Six Sigma one. Here below you can find some suggestions:

• Start the detailed design at the source and end at the source (from stakeholder to stakeholder).
• Embed an error proofing approach as much as possible.
• Decide for “just enough” checks, inspections and control points.
• “Just enough” is the gap between the predicted and ideal process capability.

3. Allocate your resources in a balanced way — save money by identifying and differentiating essential from nonessential costs

The third problem related to an organization is referring to the allocation of its resources and —as a consequence — its costs.

The starting point to address this issue is, again, the process. The way to address this issue is described here below as a component of the Lean Design for Six Sigma approach:

• Based on the process requirements, you can define the “quality” specifications for your resources (any kind of).
• Based on the stakeholders requirements (cumulated Takt Time), you can define the “quantity” for your resources (again, any kind of).
• Based on the “quantity” of your resources, you can define the necessary space for your business (offices, storages, workshops).

The key message of all the above is that CoPQ is not just related to the products and services that you deliver to your customers. Instead, it is also generated by a sum of errors during your organizational design process (or lack thereof), leading to inefficient and ineffective business processes.