Q U E S T. Cost of Poor Quality. Peter Merrill.

Transcription

1 Q U E S T Cost of Poor Quality by Peter Merrill pmerrill@questmanagementsystems.com 1

2 Agenda 2

3 Agenda The Principles of Cost of Quality Calculation of Cost of Quality Cost of Quality Case Study How to involve Senior Management 3

4 1. Principles of Cost of Quality 4

5 Quality Management Principles Customer Focused Organization Leadership Involvement of People Process Approach System Approach to Management Continual Improvement Factual Approach to Decision Making Mutually Beneficial Supplier Relationships 5

6 Process Approach Supplier Process Process Process Customer 6

7 Defining Quality Supplier Product or Service Customer 7

8 Customer Focus: Quality: Conformance to Agreed Customer Requirements 8

9 System Approach to Management Quality System: The processes and controls in an organization which together ensure Conformance to Requirements 9

10 Process Ownership Supplier Process Process Process Customer 10

11 Involvement of People Supplier Owning Process Product or Service with Agreed Requirements Customer Owning Process 11

12 Ensuring Conformance to Customer Requirements CHECK Supplier Product or Service Customer 12

13 Ensuring Conformance to Customer Requirements PREVENTION Supplier Product Service, Information Customer The New Way 13

14 Building Prevention COMPETENCE & TECHNOLOGY Supplier Process Customer PROCEDURES 14

15 Controlling the Process Quality products and services are delivered consistently to the Customer by applying Prevention to a process 15

16 Factual Approach to Decision Making Monitor Monitor Monitor Supplier Product or Service Req'ts Process Product or Service Req'ts Customer Measure Rework Measure Rework 16

17 Knowing the Cost of Waste Drives Improvement Rework Error-Free Work 17

18 2. Cost of Quality Calculation 18

19 Cost Of Quality (Cost of Waste + Cost of Prevention) Enables non-conformances to be communicated to Senior Managers in a language they will understand 19

20 Cost of Quality (Cost of Waste) The money that you wasted through not doing it right the first time 20

21 Cost of Prevention The money that you invest to enable you to do it right the first time 21

22 Cost of Quality C.O.P. C.O.P. C.O.P. Supplier Req'ts Process Req'ts Customer C.O.W. C.O.W. 22

23 Cost of Quality C.O.P. C.O.P. C.O.P. Supplier Req'ts Writing a Report Req'ts Customer C.O.W. C.O.W. 23

24 Cost of Quality C.O.P. C.O.P. Proof Supplier Req'ts Writing a Report Req'ts Customer C.O.W. C.O.W. 24

25 Cost of Quality C.O.P. C.O.P. Proof ; 20 mins. Supplier Req'ts Writing a Report Req'ts Customer C.O.W. C.O.W. 25

26 Cost of Quality C.O.P. C.O.P. Proof Supplier Req'ts Writing a Report Req'ts Customer C.O.W. Rewrite 26

27 Cost of Quality C.O.P. C.O.P. Proof Supplier Req'ts Writing a Report Req'ts Customer C.O.W. Rewrite; 240 mins 27

28 Cost of Quality Agree Requirements C.O.P. Proof Supplier Req'ts Writing a Report Req'ts Customer C.O.W. Rewrite 28

29 Cost of Quality Agree Requirements Training Technology Procedure Proof Supplier Req'ts Writing a Report Req'ts Customer C.O.W. Rewrite 29

30 Cost of Quality Agree Requirements Training Technology Procedure Proof; 20 mins Supplier Req'ts Writing a Report Req'ts Customer C.O.W. Rewrite; 240 mins 30

31 Cost of Quality Agree Requirements Training Technology Procedure Proof; $20 Supplier Req'ts Writing a Report Req'ts Customer C.O.W. Rewrite; $240 31

32 The Cost Of Waste Cost of Waste Error-Free Work Cost of Prevention 32

33 Cost Of Waste Worksheet Process Writing a Report Description of Waste Rewriting a report Hrs. or Units Wasted per Time Unit 4 hours / month $ per Time Unit or Unit of Waste $50 / hr. Calculation $ / Year Cost of Waste 2400 Blending Chemical Reblending off-spec chemicals 1 hour / week $150 / hr

34 Cost Of Waste Calculation Something that cause me to waste time Task where the requirements are not clear A Problem that gets dropped on me... My process that causes Wasted Time is... 34

35 Cost Of Waste Worksheet Process Description of Waste Hrs. or Units Wasted per Time Unit $ per Time Unit or Unit of Waste Calculation $ / Year Cost of Waste 35

36 How to Use Cost of Waste To focus on opportunities for improvement To prioritize opportunities for improvement To communicate non-conformance to customers and suppliers To measure success in improvement 36

37 3. Cost of Quality Case Study 37

38 Cost of Quality Case Study: 1. Read the case study, and highlight any statements which you see representing waste or rework. 2. Identify on the worksheet the items in each area of the organization where you are given sufficient data to calculate the Cost of Waste. 3. Arrive at the dollar figure being wasted in each area you have identified, and then total the waste in the organization as a whole. 38

39 -- Heartburn At The Heartbreak- From the files of Hank Loosely, Quality Detective... The night was longer than a bad Elvis movie on cable TV when the phone rang. The Heartbreak, one of the better hotels on Lonely Street out by the airport, was having problems. Morale was low, occupancy was dropping, it sounded urgent. I sprung into action. Gilda Martinez, the General Manager, greeted me warmly as I arrived at her office. "I'm glad you made it so quickly. Let's get to work." I flipped through the Heartbreak Hotel profile she handed me: 12 years in the business, a staff of 78, 300 rooms at an average of $80 a night each; not bad, I thought. I looked at the Organization Chart: 6 people in reception, 21 in housekeeping, 39 restaurant workers, and another 12 in administration & finance; operating costs in the $6-million-a-year range, with sales just barely exceeding that, mostly from conventions & corporate businessmen. The first ten years brought large yearly growth, but last year the airlines cut back on their services, and with fewer people to draw from, business has become very competitive. Letters from the customers seem to indicate that the company has a good reputation because it takes more care in delivering the little details than its competitors; unfortunately, it seems this extra 'care' has led to a few too many occasional lapses in service for some customers' liking. Looks like they can afford to be more critical nowadays. I didn't have the whole picture yet, but I had enough to know where to go & look for more. First, I spoke to Fenella Doolittle, the head Desk Clerk. (And yes, she was dressed in black.) ''We get over 60 complaints a week, and typically they take about ten minutes each to resolve. And there are always arguments about what the corporate rates should be, and every day we have one or two people whose reservation was entered in the wrong date. We usually end up giving them a restaurant voucher to calm them down, and those cost about $30 each, on average. ''The number of staff has had to be increased, because everyone is so stretched, and we have to offer $20,000 a year, plus benefits, just to get people who are capable.'' 39

40 -- Heartburn At The Heartbreak (cont d) Over in Housekeeping and Maintenance, Hal Mineo was all shook up. ''Ten percent of the rooms have to be reserviced each day, because one of the cleaners forgot towels or soap or something, and although it only takes about ten minutes to fix the problem, it all cuts into people's time. And we always seem to be asking staff to work overtime, and the payroll for the cleaning staff is high enough already! ''We have 6 full-time maintenance people repairing things like televisions and air conditioners, because we never got around to setting up a preventive maintenance program.'' 'Little' Ricky Richards, in the Restaurant, raved on as well. ''The kitchen is a disaster. The head chef is a prima donna; well, okay, he's a good cook, but he has no idea about how to organize himself. He always cooks the interesting meals, and leaves the boring ones till last. We lose about five meals a night, because they get tired of waiting and walk out, and at $20 a meal, that gets to add up. ''The servers rely on their tips to make up their wages, but they don't get much because of all the service problems. We lose about four servers every month, and at this place, that really plunges us into chaos.'' And in Administration & Finance, Aretha Funicello was actin' wild as a bug on a fuzzy tree. ''We run a lot of conventions and seminars, and these are really good businesses to have, but there always seems to be the same dispute on items like the wine at dinner, or photocopies or equipment used, and our overdue accounts are running at something like $1 million. ''We lose about 50 people a year, and hiring costs are about $200 a time. But then it takes a good month to get them up to speed. We always have 3 or 4 people being trained, and so not pulling their weight. ''Look at this statement,'' she said angrily, her upper lip starting to twitch, ''If we carry on like this much longer, soon we won't need to train anyone at all!'' 40

41 -- Heartburn At The Heartbreak- From the files of Hank Loosely, Quality Detective... The night was longer than a bad Elvis movie on cable TV when the phone rang. The Heartbreak, one of the better hotels on Lonely Street out by the airport, was having problems. Morale was low, occupancy was dropping, it sounded urgent. I sprung into action. Gilda Martinez, the General Manager, greeted me warmly as I arrived at her office. "I'm glad you made it so quickly. Let's get to work." I flipped through the Heartbreak Hotel profile she handed me: 12 years in the business, a staff of 78, 300 rooms at an average of $80 a night each; not bad, I thought. I looked at the Organization Chart: 6 people in reception, 21 in housekeeping, 39 restaurant workers, and another 12 in administration & finance; operating costs in the $6-million-a-year range, with sales just barely exceeding that, mostly from conventions & corporate businessmen. The first ten years brought large yearly growth, but last year the airlines cut back on their services, and with fewer people to draw from, business has become very competitive. Letters from the customers seem to indicate that the company has a good reputation because it takes more care in delivering the little details than its competitors; unfortunately, it seems this extra 'care' has led to a few too many occasional lapses in service for some customers' liking. Looks like they can afford to be more critical nowadays. I didn't have the whole picture yet, but I had enough to know where to go & look for more. First, I spoke to Fenella Doolittle, the head Desk Clerk. (And yes, she was dressed in black.) ''We get over 60 complaints a week, and typically they take about ten minutes each to resolve. And there are always arguments about what the corporate rates should be, and every day we have one or two people whose reservation was entered in the wrong date. We usually end up giving them a restaurant voucher to calm them down, and those cost about $30 each, on average. ''The number of staff has had to be increased, because everyone is so stretched, and we have to offer $20,000 a year, plus benefits, just to get people who are capable.'' 41

42 -- Heartburn At The Heartbreak (cont d) Over in Housekeeping and Maintenance, Hal Mineo was all shook up. ''Ten percent of the rooms have to be reserviced each day, because one of the cleaners forgot towels or soap or something, and although it only takes about ten minutes to fix the problem, it all cuts into people's time. And we always seem to be asking staff to work overtime, and the payroll for the cleaning staff is high enough already! ''We have 6 full-time maintenance people repairing things like televisions and air conditioners, because we never got around to setting up a preventive maintenance program.'' 'Little' Ricky Richards, in the Restaurant, raved on as well. ''The kitchen is a disaster. The head chef is a prima donna; well, okay, he's a good cook, but he has no idea about how to organize himself. He always cooks the interesting meals, and leaves the boring ones till last. We lose about five meals a night, because they get tired of waiting and walk out, and at $20 a meal, that gets to add up. ''The servers rely on their tips to make up their wages, but they don't get much because of all the service problems. We lose about four servers every month, and at this place, that really plunges us into chaos.'' And in Administration & Finance, Aretha Funicello was actin' wild as a bug on a fuzzy tree. ''We run a lot of conventions and seminars, and these are really good businesses to have, but there always seems to be the same dispute on items like the wine at dinner, or photocopies or equipment used, and our overdue accounts are running at something like $1 million. ''We lose about 50 people a year, and hiring costs are about $200 a time. But then it takes a good month to get them up to speed. We always have 3 or 4 people being trained, and so not pulling their weight. ''Look at this statement,'' she said angrily, her upper lip starting to twitch, ''If we carry on like this much longer, soon we won't need to train anyone at all!'' 42

43 HEARTBREAK HOTEL ORGANIZATION CHART General Manager Secretary Front Desk H. & M. Rest. A. & F. 6 Reception 3 Supervisors 12 Cleaners 6 Maintenance 5 Supervisors 12 Kitchen 18 Servers 4 Hostesses 4 Supervisors 4 Clerical 4 Sales Office HEARTBREAK HOTEL INCOME STATEMENT Sales $6,132,000 Expenses Salaries plus Benefits 5 - Senior Mgmt $525, Supervision $540, Front Desk $180, Cleaning & Maintenance $240, Restaurant $510, Finance & Clerical $160,000 Total Salaries $2,155,000 Materials & Services $2,295,000 Administration & Finance $1,150,000 Other $400,000 Income Before Taxes $132,000 Taxes $66, Net Income $66,000

44 Cost of Waste Worksheet Item Hrs. or Units Wasted Per Time Unit $ Cost per Time Unit or Unit Of Waste Calculation $ Year Cost of Waste Front Desk Housekeeping & Maintenance Restaurant Administration & Finance Total 44

45 Cost of Waste Worksheet Item Hrs. or Units Wasted Per Time Unit $ Cost per Time Unit or Unit Of Waste Calculation $ Year Cost of Waste Front Desk Complaints Meal Vouchers Housekeeping & Maintenance Rework Rooms Repairs Restaurant Lost Meals Staff Turnover Administration & Finance Interest on OD Recruitment Total 45

46 Cost of Waste Worksheet Item Hrs. or Units Wasted Per Time Unit $ Cost per Time Unit or Unit Of Waste Calculation $ Year Cost of Waste Front Desk Complaints 10 min x 60/wk Meal Vouchers 1 per day Housekeeping & Maintenance Rework Rooms 10% x 300 rooms x 10 min Repairs 6 maint.. people Restaurant Lost Meals 5 per night Staff Turnover 4 servers/mth Administration & Finance Interest on OD $1 million Recruitment 50 person/yr Total 46

47 Cost of Waste Worksheet Item Hrs. or Units Wasted Per Time Unit $ Cost per Time Unit or Unit Of Waste Calculation $ Year Cost of Waste Front Desk Complaints Meal Vouchers 10 min x 60/wk 1 per day $30k/yr $30/voucher 10 x 60 x $30k 60 x 40 $30 x 365 $7.5k $10.95k Housekeeping & Maintenance Rework Rooms 10% x 300 rooms x 10 min $13.3k/pers/yr 300 x 10 x 7 x $13.3k 10 x 60 x 40 $11.64 Repairs 6 maint.. people $13.3k/pers/yr 6 x $13.3 $80 k Restaurant Lost Meals 5 per night $20/meal 5 x 365 x $20 $36.5k Administration & Finance Staff Turnover Interest on OD Recruitment 4 servers/mth $1 million 50 person/yr $15k/pers/yr 7%? interest $200/ person? 4 x $15k $1.0 m x x $200 $70k $10k Total $226k 47

48 4. Involving Senior Management 48

49 Cost of Quality First Cut Captures 1/3 to 1/2 of Total Waste People Calculate Numbers Themselves Numbers Have very High Credibility Gets Management Attention Motivates Action for Management and People Must be Facilitated in a Focused Session 49

50 First Cut - Agenda 1. Concepts of Cost of Quality 2. Brainstorming to Identify Opportunities 3. Quantification of Opportunities 4. Cost Calculations 5. Cost/Benefit Assessment 6. Consolidation of First Cut 7. Selection of Prime Opportunities 50

51 What Happens Next? Prioritize $ Return vs. Ease of Solution Define Process Interfaces Map Processes Collect Data Tackle Causes, Not Symptoms Avoid Quick Fixes 51

52 Use Cost of Waste to... Focus on Opportunities for Improvement Prioritize Opportunities for Improvement Gain Management Attention Measure Success in Improvement Peter Merrill 52

53 Appendix Agenda for First Cut 53

54 First Cut; Cost of Quality Who should attend.. Key managers of the organization. SUMMARY; The day starts with an overview of the Cost of Quality, includes brainstorming workshops with work groups and an analysis of the book of accounts with the C.F.O.. The dollar figure for the organization s s cost of waste is consolidated of by the end of the day. An organization typically wastes 25% to 35% of its operating costs. The day identifies between one-third and one-half of this total cost. The final figure is calculated by the managers themselves, giving them ownership and a desire to act. AGENDA; 8:30 9:30 a.m. Managers briefed in the concepts of Quality, Cost of Quality and Cost of Waste. 9:30 10:30 a.m. Managers brainstorm with staff questions to identify waste in the organization. 10:30-12:00 12:00 noon Managers and staff quantify the waste in terms of time, materials or units. 9:30-11:00 a.m. C.F.O. and Consultant analyze the book of accounts to identify areas of waste. 11:00-12:00 12:00 noon C.F.O. and Consultant visit each Manager s s group to deal with any roadblocks. 12:00-1:00 1:00 p.m. Managers meet for sandwiches and share experiences so far. 1:00-2:00 p.m. Managers and staff continue to quantify areas of waste. 1:00-2:00 p.m. C.F.O. and Consultant revisit groups feeding in cost data. d 2:00-3:00 p.m. Groups calculate Cost of Waste using data from C.F.O. 2:00-3:00 p.m. Finance Department consolidates Cost of Waste from groups. 3:00-4:00 p.m. President presents the Key Managers with the Cost of Waste W figure that they have identified and states how the company intends to tackle the opportunity which this presents. OUTCOME;.. The day identifies between one-third and one-half of the total cost of waste in the organization. The calculations are produced by the senior managers of the organization working in conjunction with their staff. Processes that will benefit from improvement are prioritized on a Cost Benefit basis. 54