How QCD metrics can be used to measure the Supply Chain
Quality Cost and Delivery (QCD) metrics are nothing new having originated in the manufacturing sector and are an important element of the lean improvement toolkit. Key Performance Indicators (KPI’s) play an important role in illustrating business activity and QCD can often be an excellent start point when developing business measures.
Used as the raw ingredients of a KPI system, QCD measures are sufficiently flexible to be tailored to most organizations and can be well aligned with most business activities including Supply Chain. As with any improvement method, QCD shouldn’t just be used to measure but should be applied as part of a larger continuous improvement toolkit – for example forming the basis for a visual management system.
QCD doesn’t just mean that there are three measures, far from it - in this article will take a look at some examples of how QCD can be applied to Supply Chain together with their benefits and issues.
Measuring Quality in the Supply Chain
Measuring Quality is often referred to as measuring Not Right First Time (or NRFT) – referring to where the product delivered fails to meet the required specification.
Quality can be best defined as measuring the errors or failures within a process or activity. Measuring Quality can play an important role in analyzing customer satisfaction – no customer wants faulty products after all! There are various Supply Chain processes where Quality can be applied for example:
• Monitoring the number of goods inwards rejections your organization
records (expressed as a measure against total receipts)
• Measure the quantity of returns made by your customer
• Monitoring the number of times the Purchasing Department cannot process a purchase request because the requisition is incomplete.
The third example is important as measuring quality doesn’t have to be applied to a commodity or product deliverable but could be a deliverable within an internal process as in the example of the requisition. It may also be possible to place a cost against failure that you can also measure – for example the cost of a customer return multiplied by the number of returns received in a period.
Measuring Costs in the Supply Chain
Cost may seem an obvious choice to monitor and as with the example of Quality this can be multi faceted.
• Monitoring the fluctuating costs of commodities – for example
the cost of 100 widgets last year was $100 this year that cost
for the same widgets is $150.
• Process Costs may also be monitored for example the organizations cost to procure (for example organizations such as CIPS attempt to put a cost against activities such as raising purchase orders – benchmarking these costs against industry may allow you to understand if you have waste in your organization.
• The value of inventory.
When analyzing costs ensure that you have your Finance team on board! – Ensuring that the figures that you use are agreed by your Finance team will eliminate the possibility of confusion when you quote the figures later on!
Measuring Delivery in the Supply Chain
Measuring delivery or timeliness allows organizations to review the overall effectiveness of their (or their suppliers) processes. Commonly referred to as Delivery Schedule Adherance – examples of measuring delivery include
• Analyzing the ability of your suppliers to deliver in accordance
with agreed schedules. Calculate your overall DSA then measure
individual suppliers against your business average.
• Time taken for a sales team to respond to an enquiry
DSA can be measured in a variety of ways – for some supply chains a delivery on or before the date requested may suffice – for others only delivery on the exact day requested may suffice (early deliveries may incur extra storage costs for example). When analyzing delivery it is imperative that capture the data required to make the calculation this may mean making small changes to your process to enable you to make effective measurements.
Clearly Quality Cost and Delivery metrics can be directly related to measuring supply chain activity – not only that - doing so can provide a valuable mechanism into finding areas for improvement.
While QCD can be aligned with most industries it isnt’ a panacea
for example – it may not be the best method when analyzing certain
forms of service industry (consulting for example) – however
where physical and information flows exist (such as the Supply
Chain) QCD is an established and proven technique which can
form the starting point for introducing performance measurement
into your organization