Chapter 19

Quality index

• Why: To better understand the quality of your products and services
• What: To measure whether the product or service attributes meet customer expectations
• When: When product and service quality matter to customers
• The question this indicator helps you to answer: to what extent do our products or services meet the quality expectations of our customers?

Why does this KPI matter?

The pursuit of ‘quality’ has been something of an obsession within many organisations across most industries and sectors since quality gurus such as W. Edwards Deming, Josef Juran and Philip Crosby introduced the principles of Total Quality Management (TQM) to Western firms struggling to compete with quality-savvy Eastern competitors (most notably from Japan).

However, the challenge is that there are many definitions of what the term ‘quality’ means in an organisational setting. For instance, it might mean perfect aesthetics for a furniture manufacturer, colour and texture for a paper manufacturer, or ingredients and taste in a restaurant. In general, though, quality can be defined as ‘the ability of a product or service to fully meet the customer’s expectations, or fit for the intended use of the customer’. In this definition, quality is all about the customer and what is expected from the product or service and how it is delivered. TQM thought leaders such as Deming, Juran and Crosby all had the same goal – to achieve fit-for-use products and services. However, it is also important that products and services are provided at a cost that is acceptable to the supplier (to allow for a profit in commercial enterprise and to deliver within budget for a non-commercial organisation).

A quality index should therefore consist of a group of KPIs (perhaps between five and ten) that enable the supplying organisation to ensure that the customer-facing processes are operating at a level at which customer expectations are met (and, in many cases, exceeded) and are fit for intended use (often known as ‘fit for purpose’) at an acceptable cost to the supplier.

Given the cited industry/sector variances in understanding of the word ‘quality’, there is no single quality index template that can be applied within any organisation. However, example KPIs that will make up the index are:

• First pass yield (percentage of units produced which pass without rework in first pass).
• Predicted quality, defects per million opportunities (the number of components that failed a quality inspection. As stated, it is expressed as a number per million parts. Alternatively, it may be expressed as a percentage of all like components).
• Order delivery quality (quality of goods received or services delivered as per contract and/or purchase order).
• Cost of quality (total cost of quality includes the price of non-conformance and the price of conformance).
• % customer complaints due to quality of services/products.
• Order cycle time (elapsed time from receipt of order to delivery of product).

How do I measure it?

How do I collect the data?

The broad range of KPIs that might be included within a quality index means that various data collection methods will probably be employed. Data might be captured automatically within the manufacturing process (such as for first pass yield) or through various surveying tools (such as customer complaints due to quality of products or services). Other methods will be used as required.

What formula do I use?

A quality index will comprise a number of measures (perhaps between five and ten). Each measure will be weighted according to its importance (although some indexes will comprise KPIs of equal weighting). The final index score is the total points (expressed as a percentage), accounting for weightings. So if customer complaints due to quality of products or services has a 50% weighting score then its points account for half the overall score.

How often do I measure it?

The frequency of quality indexes varies according to industry and sector, with some manufacturing firms compiling indexes on a near real-time basis whereas quarterly might suffice for a non-commercial organisation.

Where do I find the data?

Data can come from various sources, such as process performance reports generated by manufacturing (for defect-type data) or marketing/customer management (for complaints and other customer metrics).

How difficult or costly is it to measure?

Initial costs might be high if data are presently not available or are in an inappropriate format. Moreover, it is not unusual for staff to be dedicated full time (or at least part time) to managing quality (and compiling an index will be within their remit), which has cost implications. But organisations should look to keeping such departments small and focused. These departments should also teach the business how to capture appropriate data, therefore making quality an everyday part of an employee’s life.

How do I set targets for this KPI?

It is likely that there will be global or industry/sector-specific benchmarks for each KPI within the index. Industry/sector bodies or relevant benchmarking organisations should hold such information.

Some tips and traps to consider

Organisations should be careful that they don’t turn the creation and maintenance of a quality index into a ‘tick box’ exercise, but rather use the data findings for continuous improvement purposes. This is especially true when dedicated quality departments have responsibility for managing the index.

Moreover, a quality index is most powerful when the people/technology inputs into the index and customer/financial outcomes are also monitored and understood: this ensures that key internal processes are not viewed in isolation. The use of a strategic map and accompanying scorecard will be useful for this purpose.

Further reading and references

www.leanmanufacture.net/quality.aspx

http://kpilibrary.com

The W. Edwards Deming Institute: www.deming.org

Juran Institute: www.juran.com