THE QCD APPROACH TO OPERATIONS MANAGEMENT
by Rene T. Domingo
A commodity, be it a product or service, can be thought of as having three dimensions: QUALITY, COST, and DELIVERY. Quality is the attribute desired by the user or buyer that renders the product its primary value and usefulness to him. Proper tolerances, specifications, features, and varieties are examples of quality indicators. Cost, the second dimension, refers to the cost of producing and delivering the product to the customer; it has an impact on another cost: the cost to the buyer or the "price" he pays for the good. Cost affects the marketability of the product and the profitability of the producer. Delivery involves bringing the finished goods or services to the customer at the right time, at the right quantity or amount, at the right place.
Now, these three dimensions of a commodity, or QCD, are like the three legs of a stool on which the customer would sit. (Figure 1) A problem in at least one of them means 1) there will be no product 2) there will be no buyer. One cannot be sacrificed for the sake of the other two dimensions. The buyer wants a three dimensional product - not two, surely not one. He wants a good quality product at the right cost, at the right time and quantity. All are equally important to him. A good quality, reasonably-priced product which is delivered late is for practical purposes useless to the customer and unsalable. A quality product which is promptly delivered but is outrageously priced because its manufacturing cost is similarly outrageous cannot be sold. The low competitive price and on time delivery of any merchandise cannot offset its lack of quality and change the decision of the customer to reject it. To stay in business, therefore, it is important for any company to maintain the QCD balance and harmony of its final output, be it a manufactured product or service.
QCD Responsibility of Production
The bulk of this QCD task falls on the shoulders of the operations or production manager. The quality, cost, and delivery of the finished goods, or output QCD, is the outcome of the efforts of the production manager in managing the processes and inputs that go into the making of the output. This job is the crux of what we call "operations or production management". Output is nothing but the proper processing of the necessary inputs such that the desired output QCD is achieved. Operations management makes sure this transformation takes place.
Quality is the result of the efficiency and discipline of the entire production system of men, machines, and material. That quality is a production responsibility is illustrated by the fact that the production people are immediately blamed whenever there are customer complaints, product returns and recalls due to defects. Ironically, they are rarely congratulated whenever there are no quality problems, though they are equally responsible for the success and failure of meeting quality targets. There are only two quality problems that do not concern the production staff: 1) When the marketing people causes the R & D staff to come up with a wrong, thus unsalable, product or 2) Given the right product concept, R & D commits a design flaw. In both cases, the production department can come out with a high quality workmanship of the wrong product with the wrong design. In both cases, the customer will perceive a quality problem and not patronize the product.
Production has direct responsibility for managing, controlling, and reducing manufacturing cost, the biggest cost in most business concerns. Though production decisions may not significantly affect the other principal costs like selling and administrative costs, they could have a large impact on financing costs. The production manager makes inventory decisions, good and bad, and recommends necessary or unnecessary capital equipment acquisitions; both actions may require huge financing and interest charges. The production people may not have the final say in product pricing (the cost to the buyer), but it should be remembered that manufacturing costs can influence the extent to which the marketing people can competitively and profitably price the product.
Delivery of finished goods to the customer is largely determined by the availability of inventories, the length of the manufacturing lead time, and the available capacity - all within the control of the production department. The production plans and production schedules it makes essentially determine the delivery performance of the company; of course, a terribly wrong forecast from marketing can wreck havoc on the best laid-out production plans and confound delivery schedules. The other factors affecting delivery which do not involve production are the extent, location, and efficiency of the distribution channels (retail/wholesale outlets) and other logistical decisions made by the marketing staff.
QCD Interdependence and Interaction
The QCD mission of production is not an easy task. The three factors are seldom at acceptable or optimum levels simultaneously. They are always in a state of flux - one factor will be much more problematical or critical than the other two at any one time. (Figure 2) The production manager is often subjected to tremendous pressure from inside and outside the company to correct and control just the runaway element. Unfortunately, he cannot simple juggle the three and do some trade-offs, for they are mutually interdependent on each other. Some trade-offs or single factor adjustments are tolerable; many are dangerous and may worsen the problem by causing unexpected, undesirable changes in the other two factors.
Let us look at some of the "expected" repercussions of trade-off, "band-aid" solutions:
- A measure to solve a persistent quality problem may be the introduction of a defect-catching mechanism or process, mechanical or manual, which may tend to increase processing cost and delay delivery of the finished goods.
- The strong pressure from management to cut costs may lead to the employment of less skilled, cheaper labor and/or the substitution of inferior. cheaper raw materials, both of which may cause quality and delivery problems later on.
- The unbearable pressure to rush the delivery of promised goods may tempt the production manager to hasten, shorten, if not omit, some critical, usually bottleneck, operations or processes, resulting in serious quality problems at the end of the line. Since the cost of the resulting scrap and defects is spread out over the good ones, manufacturing cost likewise increases. Similar consequences await the production manager who tries to solve delivery problems by shipping old, unreliable inventory or stock.
In the examples above, the original problem may have been solved, but the fundamental problem still remains: the customer is dissatisfied and there is no sale. Given this dilemma, the production manager has two options:
1. The difficult task of adjusting and isolating the problematical factor such that the other two are unaffected.
2. The more sensible job of improving over-all production system performance and efficiency such that all three factors - quality, cost, and delivery - are simultaneously enhanced or upgraded.
The effective production manager is careful not to mount the endless, inescapable, vicious cycle of QCD problems, while trying to correct, improve, and enhance output QCD.
Input and Process QCD
Inputs are basically raw materials and other matter that become part of the final product by providing it with mass, volume, and physical dimensions. Processes are value-adding transformations which change the inputs into useful outputs. Examples of processes are mechanical, chemical and manual operations. Processes must have their own inputs and components in order to operate: labor, equipment, energy, methods, lay-outs, systems, technology and management. Since these process inputs affect the final product without becoming being physically integrated into it, unlike raw material inputs, they are better considered as parts of the processing rather than the inputs to produce the output.
Both inputs and processes have QCD elements which affect the output QCD. (Figure 3) Some of these interactions are straightforward, predictable and often manageable. Inferior, bad quality raw materials or careless, poor quality processing would inevitably yield similarly defective quality finished product. High raw material cost or high processing cost can only mean high cost of output. Late delivery or procurement of raw materials or delays/breakdowns in processing would not assure on-time delivery of the ordered goods to the customer.
Other QCD interactions are less obvious and more difficult to manage. As explained earlier, the quality, cost, and delivery of the output interact with each other. So if a QCD element of either input or process affect the corresponding element in the output, chances are, the other two elements of the output could also be affected. For instance, if defective raw materials are used, output quality suffers; output costs shoots up because of scrap, repairs, rework, and overtime; output delivery is delayed because with a high defect rate, it takes longer time to produce, inspect, and ship the required number of good products.
The input QCD or process QCD could also interact with each other before affecting the output QCD. For example, poor quality workmanship (process quality) causes higher labor cost due to rework costs and overtime pay (process cost), and longer processing/reprocessing time (process delivery).
Input QCD can also influence process QCD, and vice-versa, before output QCD is affected. Feeding a process or equipment with substandard material (input quality) can cause that process to malfunction (process quality). If the machine breaks down or additional processing is set up to process/correct the substandard material, then there will be delays in processing (process delivery). Machine downtime and repair costs and the costs of reprocessing increase manufacturing cost (process cost).
What about bad input QCD and efficient process QCD, or vice-versa? Can deficiency in one be offset by efficiency in the other? Consider the use of highly skilled labor to handle substandard materials. Consider the usage of cheaper raw materials to offset the high processing cost. A common practice is rushing processing to compensate for lost time due to delay in raw material delivery. The effects of these trade-offs are uncertain and unreliable for they do not really address the heart of the problem. The ultimate test is the acceptability by the customer of the output QCD resulting from these solutions.
Use of QCD Framework in Production Decisions
The QCD approach makes it easier to evaluate production and product decisions. If we rush product delivery, will this have an adverse impact on product cost or product quality? Will this decision affect input and/or process QCD? The decision to upgrade product quality or reduce production cost can be treated similarly. A proposal to shift to a new raw material (new substitute material) or new source or supplier can likewise be evaluated by checking its effect on output QCD, input QCD, and process QCD in that order. The same questions may be asked in the case of the installation of new equipment or new forms of processing, e.g. automation and subcontracting. All production decisions and solutions will have to end up in salable output with acceptable QCD; other wise, it was a bad decision not to be repeated. The QCD framework could serve as a convenient checklist for top management to gauge the effectiveness of its operations policies and to interrogate the production manager and evaluate his decisions and performance.
The QCD framework serves to illustrate the large extent of the production department's responsibility and control over the final product. It shows that production or operations management is a very critical, if not the most critical, aspect of running any business. Though the production department is treated as a cost center in most companies, given its QCD mission, its decisions and solutions to its problems may eventually mean profit or loss to the company, or the difference between a sale and a lost customer.
Rene T. Domingo is a professor and management consultant. Email your comments to firstname.lastname@example.org