Management and Quality Services

Case Study - 4
Case Study 1:
Case Study 2:
Case Study 3:
Case Study 4:

Case Study 4: - Achieving Zero Defects

Project Summary

A sales and distribution company that supplies packaging products to industry has achieved some very significant improvements to its core process - sales order fulfilment - culminating in the ultimate attainment of zero defects. This is the outline story of a notable team-based success in process improvement and defect reduction in a busy commercial workaday world from the consultant's angle.

Background

The company at the start of this project in 2001 is part of a multi-national organisation and has a turnover approaching £25M, accomplished by 45 staff in sales and administration. Sales order fulfilment is their core process and some 4,500 orders were processed per year.

Examination of their credit notes mid-2001 showed that around 17% of orders (ie one in six) were faulty in some way. The consequence of this was that the level of customer satisfaction was lower than desirable, margins were being eroded and that administration staff spent an inordinate amount of time and effort correcting these errors (fire fighting). Credit notes were running at up to 90 per month (see figure 1) and at an estimated cost* of over £0.5M per year (2% of turnover). There was no quality management system but there was a very busy customer service department.

Initial analysis of the sales order fulfilment (SOF) process showed that among the staff there was a good operating knowledge of the systems and procedures - and of the things that were going wrong repeatedly.

* The true cost was not known but could have been appreciably higher than this if the time taken to re-process orders was taken into account.


Initial Approach

It was decided that having a quality management system to ISO 9001 would provide a suitable framework and discipline for this improvement project. (Also, because many customers were demanding it, the company also went for ISO 14001 simultaneously, but that had little bearing upon this project.) Six people - mainly managers - were appointed to form a cross-functional process improvement team (PIT) for the duration of the project.

Although credit notes were being analysed monthly into nine categories, it was felt that this information yielded insufficient insight into process failures and that the data was always 2-6 months old. So, a quality operating system (based upon the Q1 award) was set up to include a comprehensive register of non-conformity (on Excel spreadsheet) so that all SOF process failures could be recorded and systematically analysed. A comprehensive system of categories was set up for this register so that a better understanding of process failures could be systematically generated.

The principle reason for taking this approach prompts two quotes, one from Stephen R Covey that says, 'Seek first to understand' and from Phillip Crosby, 'What gets measured gets done'. Although there were many opinions, no one person really understood enough about all that was going wrong to find lasting solutions and the idea of recording every error as it happened was to ensure visibility, measurement and consequent action.

Whenever SOF processing errors occurred, the corresponding entry on the register of non-conformity (NC) would prompt remedial action to fix the problem and automatically ensure a proper follow-up and sign-off. This dealt with the immediacy of the problem but rarely did much towards preventing its recurrence. PIT members were further trained in a range of quality tools and techniques, especially quality planning, prevention and control methods.

Brainstorming the SOF process yielded much valuable information about what was going wrong. This information was fed into a process FMEA in order to generate a prioritised action plan for the PIT. Doing all this rather neatly addressed several of the mandatory requirements (control of non-conforming product, corrective action& preventive action) of the ISO standards.


A picture emerges

The action plan generated by the process FMEA kept the PIT members busy. The FMEA itself suggested that if all these actions were carried out fully then there could be a potential for process improvement of around 70-90%. This action plan was supplemented by an improvement plan generated as a result of the internal auditing of the ISO quality and environmental management systems. The monthly analysis and reporting of the register of non-conformity for the first half of 2002 yielded some very useful information never previously recorded. The results showed that, of the 148 non-conformities that were registered,

• 49 (33%) SOF process failures could be attributed to a range of suppliers (one supplier accounted for one third of these)
• 44 (30%) were caused by errors in the sales order processing office
• 24 (16%) were attributable to the company's warehouse.

The remaining 21% were scattered across a further 9 categories. So, the picture that emerged produced data indicating where efforts were needed to improve the process and drive down defects. It also meant that more specific accountabilities could be allocated.

In response to the above findings, communications with suppliers increased at the same time as supplier approvals were being sought for the ISO systems. Investigations were set up to try to understand and isolate any failings in the sales office. Explanations were sought about what was happening in the warehouse. Monthly analysis and reporting of the register of non-conformity continued with renewed interest. Everyone involved was now really understanding what was going on and that it was not a threat to them but a systematic way of improving their operations and then putting in place controls where they might be needed.

The whole project was gathering momentum when, during the second period of the year, a new chief executive was appointed. This new senior manager did not view the activities of the PIT with such importance as the previous one. Some momentum was lost and some planned actions did not take place in the following months and, by the end of the year, the overall error reduction was only 24%. While this was statistically significant - meaning that a real improvement had occurred - it did not compare well with the potential improvement of 70-90% identified earlier. Another approach was required (see later).


ISO Standards

During 1992, the company assembled all its ISO 9001 and 14001 documentation, audited the systems, processes and procedures and conducted management reviews prior to a third-party combined certification assessment later in the year. It was evident that the process improvement activities tied in closely with the mandatory requirements of the ISO standards (especially control of non-conforming product, corrective action, preventive action, auditing and continual improvement) and that they were mutually beneficial. Certification was achieved with minimal fuss and public relations opportunities were sought shortly afterwards.


A fresh approach

The PIT was galvanised into action following the disappointing results of 2002. Credit notes were still being analysed by the old method, so the categories used on the register of non-conformity were applied to yield more useful information and to tie in more closely with the analysis of processing errors.

The register of non-conformity spreadsheet for 2002 contained 337 entries and a great deal of structured data. This was examined closely and analysed statistically. Because the management team had sometimes felt overwhelmed with data, it was decided to use the non-conformity data to produce a multi-parameter control chart spreadsheet (based upon the principles of statistical process control) and using the different NC categories as control points. This could then be used to flag up automatically each month where priority action would be required (see figure 2).

Error reduction standards were set for the year 2003. While zero defects will always be the goal, the team felt that NC reductions of 50% by August and 80% by December could be achieved and sustained. The results are shown in comparative figures for the first 6 months of 2003 and 2002 are shown in Table 1. After just 6 months, the 8-month target looks easily achievable. However, upsurges in non-conformities have been seen already in 2002, so complacency must be avoided.

In this client project, the multi-parameter control chart (based upon a Excel spreadsheet) is an interesting departure from normal SPC insofar as there is not one actual chart to be found and yet it still does what is required of it. When the control chart flags up an out-of-control situation and the need for action (see Fig 2), for 2003 it is now handled by the ISO management representative using the corrective action procedure, rather than leaving it to process owners to deal with according to their own priorities. So, effectively there is now a third-party investigation into the main problem causes and finding ways and means for their prevention.

In order to provide greater motivation and encouragement for management, an attempt was made to identify the extent of these failure costs. In other words, how much are these errors really costing the business? If that can be done, it would be easy to calculate the potential savings to the business. BS 6143 was considered as a possible route to establish a quality cost management system. However, the system was not adopted so, sadly, no reliable figures could be produced. However, the PIT members estimated that savings - even at 50% error reduction - would outstrip any costs involved by an appreciable margin.


Zero defects achieved

The intense efforts to reduce and remove errors in early 2003 has shown encouraging results and the downward trend is significant. However, as the control chart reveals, it only takes a few events to throw the trend. Also, there is always statistical uncertainty and the fact that order numbers can vary from month to month.

In June 2003, there were no SOF non-conformities recorded - ie zero defects.
This is the first time this has ever happened and it was the cause of some joy. Achieving zero defects must be regarded as one of the measures of excellence in any organisation. Is this sustainable beyond June? The statistics and trendline suggest that there is a high probability of a small resurgence of non-conformities above zero in July to September (in the event, July showed a bout the same level as April and May).

Zero defects is yet to be achieved - even for one month - for credit notes but the current trend is distinctly downward If all the efforts to reduce process non-conformities are fully effective, then it becomes a distinct future possibility, if only for the occasional month.


The future

The first thing is to communicate widely the achievements of 2003 so far. It needs to be converted into potential and actual customer benefits (eg better on-time delivery performance, etc) in order to maintain momentum.

Now that the number of non-conformities has dropped noticeably, it may be realistic to apply corrective actions to all systems failures, not just those flagged up by the control chart. This is to supplement the remedial actions taken by operational staff to correct any errors found.

Throughout this whole project, there has been a nagging uncertainty about the financial position. The two remaining questions are, how is it possible to find out the real cost to the business (historically) of all these past errors and what are the real savings to be made by pursuing a zero-defect goal and bringing about even better process improvements?


The final word

The customer service manager of the client organisation had the following to say about the project:

'By working as an improvement team and being clearly focussed, we were able to reduce fire-fighting and concentrate on analysing where the defects in our systems were. Our Customer service levels have improved dramatically. We are now proactive on improvements and far more cost effective. Our staff now enjoy the correct process and are able to look forward instead of having a 'what went wrong & blame culture'. The time and resource required to carry out this improvement process has been extremely worthwhile and the culture within the organisation is now one of continuous improvement. Zero defects will become the norm and not the exception.'

Fig 1: Credit note levels during 2001 (number per month)

Fig 2: Extract from control chart indicating areas for action

Jan Feb Mar Apr May Jun Jul Info from customer 1 1 0 1 0 0   Info from external sales 0 0 0 0 0 0   Sales office 7 0 6 0 0 0   Warehouse 1 2 3 3 0 0   SOP delays (all causes) 1 2 2 2 0 0   Faulty product 2 1 2 2 0 0   Duplicate invoice 2 1 2 3 0 0

Table 1 Comparison of 2002 and 2003 process error levels (first 6 months)

NCs in 2002 Process NCs in 2003 % Reduction 49 Supplier management 27 45% 44 Sales order processing 13 70% 24 Warehouse operations 10 63% 31 Other 10 66% 148 Total 59 60%

Alan Shaw

Alan Shaw is the Managing Director of Carshaw Management & Quality Ltd and has for the last 16+ years worked with a wide range of clients to continually improve process performance relating to productivity, efficiency, quality and the environment. He often uses the framework and disciplines that are integral to ISO 9001 and 14001 to help achieve this. He also has in-depth experience in training people in the use and application of a range of productivity improvement tools and techniques. Alan is an accredited management systems and process management consultant, a long-standing member of the IQA, a Member of the Institute for Leadership & Management and he can be contacted by e-mail Carshaw@clara.co.uk


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Carshaw Management & Quality Ltd 4 Hutchinson Close, Rugeley, Staffs WS15 2RG
England
Tel: 0044 (0)1889 584147 - Fax: 0044 (0)1889 585416

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