Does Better Quality Cost More?
It is second nature to see a correlation between quality of your products and services to your costs. Often there is a misinterpretation of this correlation.
The opposite is true: the better your quality, the less money you will spend! Since SCG has been using the Lean Six Sigma methodology for over a decade, we can confirm from day one, that better quality will reduce your costs significantly. At the same time you will experience positive effects: less customer complaints and improved customer ratings (VOC - voice of the customer), higher customer retention rates and consequently increased growth rates and revenues.
How is quality defined in your organization? According to the Six Sigma methodology, quality is exactly what the customer is requesting (VOC). As per our customer expectations we build our CTQ’s (critical to quality) where we create our internal KPI’s (key performance indicators). The issue with the word “quality” is that not many businesses know what their customer really expects.
In every country the definition of quality differs. For example, in some countries a qualitative car is a vehicle that has the least number of visits to the repair shop. That is it!
In other Countries, there are further factors that will make a customer think the car is qualitative, such as level of wind noise you hear in the cabin of the car when you drive at high speeds. The lower the noise, the better is the perceived quality for the driver and the passengers.
What are the factors that make your products and services qualitative for your customer? In order to answer this question, we at SCG use the FACT model. FACT embraces four essential quality criteria: Fulfillment, Accuracy, Cycle Time and Treatment. This model makes defines “quality” in a granular and measurable way.
FIRST: DEFINE WHAT IS QUALITY
Quality of processes, products and services can be measured by using the FACT model. It is crucial to obtain high scores for all four components in order to have a qualitative process, product and/or service. Here we highlight the quality of service in a “Customer Care Department”:
Countries a qualitative car is a vehicle that has the least number of visits to the repair shop. That is it! In other Countries, there are further factors that will make a customer think the car is qualitative, such as level of wind noise you hear in the cabin of the car when you drive at high speeds. The lower the noise, the better is the perceived quality for the driver and the passengers. What are the factors that make your products and services qualitative for your customer? In order to answer this question, we at SCG use the FACT model. FACT embraces four essential quality criteria: Fulfillment, Accuracy, Cycle Time and Treatment. This model makes defines “quality” in a granular and measurable way. FIRST: DEFINE WHAT IS QUALITY Quality of processes, products and services can be measured by using the FACT model. It is crucial to obtain high scores for all four components in order to have a qualitative process, product and/or service. Here we highlight the quality of service in a “Customer Care Department”
In the past years, the manager of “Customer Care Department,” was measuring the number of calls coming in on a daily basis. He defined a goal for his team to achieve a 99% handling rate of the incoming calls. This meant that 99% of the incoming calls were answered and resolved. In their perspective, this was an important goal to achieve, because the status quo was at 82%, which was not good enough. In other words, 18% of the incoming calls were not being answered or processed. This “customer dissatisfaction” was reflected in the yearly customer survey, where it was confirmed that customers were unhappy with the “Customer Care Department.”
6 months later handling rate went up from 82% to 99%. These scores made the manager and his team very proud of their achievements and were looking forward to the next customer survey results.
To their surprise, the yearly survey results still indicated that customers were unhappy with the “Customer Care” department. This was quite frustrating, because everyone was doing their best to keep their performance score above 99%. That is where they realized that other quality factors have been “missed out.” We helped implement the FACT model to measure again the status quo. They were shocked to see that their performance level was at 64%
(see table 1.1).
What the department recognized, was that they improved only one factor of quality, which was the fulfillment rate. With a FACT model they were able to see other elements which were missed out on their KPI’s. Now we were able to come closer to the reason why customers were unhappy with the service provided by the “Customer Care Department.” Table 1.1 gives us a clear indication where we need to improve and what will be their next project. In this case, if the importance of each category is ranked equally, then Cycle time (resolution time) and “Treatment” have the lowest scores.
This means that only 30% of the processed calls are being resolved within the expected time frame. For example, clients expect that the “Customer Care Department” operator finds their data in the system within 1 minute. In reality, it would take over 5 minutes to find the needed information. This already made callers frustrated.
Under the category “treatment,” we realized that customers perceived that every other operator was unfriendly and not competent enough. It is important that each factor is improved with one project dedicated for each element. Therefore, every service can have 4 projects. We should not try to “boil the ocean” with one large project, because for each category you need different types of data.
It is more efficient to improve one type of “defect” for each project at a time Team motivation rises when they see progress by resolving a problem and being able to close a project within a short time frame (within 1-3 months). This gives everyone the sense of completion and achievement.
SECOND: DEFINE WHAT IS COSTING YOU MONEY
Most of us have seen the classical ice-berg picture. The tip of the ice-berg represents only 20% of the real costs that are visible to “our eye.” In reality, we have larger costs (80%) which we do not see (the larger part of the iceberg which is under water). The reason why we do not see these costs is because we need to dive deeper into our processes and use tools to measure the extensiveness of the costs produced by our processes. Everything we do is linked to a process. If it is in our business life, private life, every service and product is linked to a process. Even those business areas like sales and relationship management, where many believe they do not have a “process” because some see themselves as “artists.” It is nice to see how we can surprise sales and RM’s with the “aha”- effect when they realize that everything they do is linked to a process, which can be measured and improved. Inefficient processes will cost you money and hurt your quality. Processes which need improvement are the main ice-berg block (80%), which is not directly visible under water.
What drives cost up in a “defective” process are 8 wastes, which comes from the Lean toolbox. According to the “original” Lean concept, there are 7 types of waste, but today we will see more often 8 types of waste.
1) Waiting Times in a process will cost you money because the longer you take to deliver to your customer; the more impatient he/she will get and will potentially go to another provider. This will affect the “C” section (Cycle Time) on the FACT model. If your processes are not synchronized and do not have a continuous flow, then you will have waiting times and backlogs. The larger the backlogs, the greater your costs of getting rid of these backlogs.
2) Overproduction is another factor which will hinder you to reduce your cost base. When processes are not well adjusted, you will be providing your customer with more than he/she is asking for. Overproduction can also affect you internally. Just think of how many “non value-added” emails circulate in every organization, how much time is spent producing internal reporting packages, where at the end of the month only a few key pages are needed.
3) Excessive Transport is a sign of an inefficient process. Are you aware of how many steps each employee needs to perform each day in order to get their work done? Another aspect is excessive transport of documents and electronic information.
4) Excessive Quality is the next factor that does not enable you to bring down your costs. In most organizations you will find services and products which are being delivered to the customer, which he/she did not need.
5) Stock will also drive your costs in an upward trend. When you have excess materials, products and/or information, then you have stock. In the industry sector, stock is very often visible to the eye. In the finance and service segment, it is mostly non-visible stock. The most common non-visible “non-physical” stock is the number of unprocessed emails in everyone’s in-box.
6) Unnecessary activities are also known as non-value added activities. Any additional process step completed, which does not add value to your customer or your business is considered as waste. This type of waste has again a direct correlation to your cost. When we ask a team “why are you doing this process step” the most common answer is, “it has been always done this way.” In most cases, unnecessary activities are “inherited” by old processes which have not been updated to meet the current demands.
7) Defects and Rework is one of the top three cost killers. How many times did your teams need to redo a specific process in order to obtain the desired outcome? Every defect costs your company money and it drains the time away from your staff. Therefore, any time a defect occurs, the more our cost of our service/product goes up.
8) Unused employee creativity is another cost driver. When employees are working every day at full throttle, then you are not giving them enough time to stop to think about what they are doing. When this happens, employees are not able to come up with innovative ideas in order to improve daily processes, better services or perhaps even come up with ideas for new products.
Eliminating the 8 wastes (waiting time, overproduction, excessive transport, excessive quality, stock, unnecessary activities, defects and rework and unused employee creativity) you will increase internal and external customer quality due to higher scores in the FACT model / Quality model.
At the same time, when you reduce the amount of waste (8 waste), then you will have drastically reduced your costs. Focus on increasing your quality first in order to obtain the desired side effect: lowered costs.
Does better quality cost more? – No.