quality - mck core beliefs

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McKinsey core beliefs on howquality journeys

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

Discussion document

October 2010


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In our experience, achieving best-in class quality requires a holisticapproach covering 4 major areas

SOURCE: McKinsey Quality Service Line

Qualityorgani-zation &gover-nance

Develop-ment &productengineer-ing quality

Manufac-turing &ProcessEngineer-ing quality

Supplierquality

Salesand aftersalesquality

Quality organization, decision making

Mind-setandcapa-bilities

Qualitymindset

& capa-bilities

Quality

strategy& KPIs

1

Func-tionalqualitypro-cesses

Quality strategy Set aspiration level based on

Voice of the customer

Quality KPIs Define KPIs Set targets Break down to functions

2

3

4Manu-facturingquality


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Good isolated

solutions in

some functional

areas exist Focus of quality

processes is on

technical

departments

(R&D,

production,

procurement) Focus on

warranty and

goodwill costs

A quality transformation is a multi-year journey typically leads through 3stages and takes the quality system from reactive to preventative mode

Ad-hoc fire-fighting

Little

transparency

No

standardized

processes

Reactive

quality

management

Single, stableQ-processes

Good isolated

solutions in

some functional

areas exist Focus of quality

processes is on

technical

departments

(R&D,

production,

procurement) Focus on

warranty and

goodwill costs

Integrated quality

system

Excellence inquality

Continuousimprovement of

quality

established in all

processes

Consistent

implementation of

capable andmanageable

quality processes

Quality and

production are

considered as a

connected, joint

theme Quality is rooted

in decision

making

processes

Continuousimprovement of

quality

established in all

processes

Consistent

implementation of

capable andmanageable

quality processes

Quality and

production are

considered as a

connected, joint

theme Quality is rooted

in decision

making

processes

I

II

III

IV

Quality is

anchored in all

functions

Quality targets

and KPIs are

definedholistically

Qualitycontributes

significantly to

business

performance

SOURCE: McKinsey Quality Service Line


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Set-up of new field failure

resolution process

Example of a quality transformation roadmap:1-year-program with 16 initiatives for holistic improvement

StabilizationQuick fixes to stop the bleeding Towards excellence

Phase 1: Jan - Mar Phase 2: Apr - Jun Phase 3: Jul - Dec

Field quality

Productdevelopment

Focused end-of line inspection

Supplierquality

Set-up of new quality loopsystematic in plants

Production Management shop-floor audits

Qualityfunction

Failure resolution taskforce

(tackle top 100)

C

A

B H

SOURCE: Quality Service Line; team analysis

AUTOMOTIVECLIENT EXAMPLE

G

Transformationstarts with reactiveactivities and seeksto build a preventivesystem

Establish lessons learned

database

N

Crash program for supplierrecovery of warranty cost

Focused incoming parts inspection

E

D Resident engineers sentto 10 most critical suppliers

I Active supplier developmentprogram (wave 1)

O

Overhaul of maturity grademanagement systematic

J

Q-function veto establishedK

New approach to conceptquality

P

Q-communication initiative

Organizational resetEmployee Q-survey

M

F L


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We have covered many different quality related topics

100% = 606 client engagements

Engagements, 2005 - 09 December

NOT EXHAUSTIVE

Engagements by function and regionExamples of studies

Diagnosing quality issues across the

entire value chain starting from fieldcomplaints and internal Quality losses

Identifying gaps and designing

the quality system to be deployedin manufacturing facilities

Developing a strategy for improving clinicalquality and closely linking the quality strategy tothe overall institutional strategy for a hospital

Supporting the end-to-end implementation ofclient's quality system including design of a newcustomer care approach and installer strategy

Defining the real Cost-of-non-Quality, inclu-ding indirect effects like market share impact

Supporting a client in driving performance improve-ment of their Quality and Customer Care organization

Optimizing quality improvement

tools/processes and enhancingcapability training programs

Supporting a Quality Systemtransformation focusing onQuality function structure andsize, performance management,and capability building

Supporting a client to develop froma cost leader to a quality player

1 Professional Services, Public Sector, Social Sector, and Private Equity

2 Telecommunications, and Media and Entertainment3 Africa, Central America, Australia and New Zealand, and Caribbean

3

11

33

50 Europe

Rest of world3South America

2Asia/Middle East

NorthAmerica

77

7

8

8

106

25

21

Healthcare

FinancialInstitutionsGroupConsumer

Industry Group

High Tech

TIME2

TravelInfrastructureLogistics

Global Energyand Materials Automotive & Assembly

Other1

Integrating two companies tofocus on quality supply chainand introducing performancemeasurement approach

Supporting a quality transformationof a shipyard in Western Europe

Reducing warranty and goodwill costsand improving quality in launch phase

Redesigning the quality system including strat-

egy, core processes, and quality organization

SOURCE: McKinsey Quality Service Line, FPIS


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Objectives

To become No.1 in CS in the Japanese

market by 2015

To commit reliable quality to customers

To gain trust from customers

To build up a sustainable process of CSimprovement activities

Background and objectives of No. 1 in Japan

Background

To increase market share and sustain

good profit, reflecting the Voice OfCustomer into the entire xxxorganization is critical

Based on JD Power survey, xxx has

constantly been lagging behind itscompetitors, xxx, xxx and xxx in CSIscores

xxx needs to understand what it takesto gain customer satisfaction and tackle

this issue leveraging cross-functionalcapabilities

JAPANESE EXAMPLE

SOURCE: McKinsey


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Operational KPIs developed from multiple input factorsand designated workshops

Example design requirements

KPI design requirements(examples)

Quality governance should be

performed using a small set oftop-level KPIs (e.g., JD PowerHeavy-Duty CSI)

JD Power scores should becascaded to responsibledepartments (e.g., enginedesign should be accountable

for engine reliability score)

Lead indicators are needed forsuccessful governance (e.g.,engine performance indurability test is a suitable leadindicator of JD Power score)

Support functions cannot begoverned by impact KPIs, butwill be governed by processKPIs instead

Input factors

Current quality andperformancemanagement

Best practice elements

for KPI systems Benchmarks for

performance management

Analysis of availableexternal KPIs

Facilitator

Head of

unit (e.g.,plantmgr.)

Controllingrepresentative

Financerepresen-tative

Qualitymanage-ment repr.

KPI cascading workshop

Filter potential design requirements

Examine potential designrequirements for consistencywith KPI best practices, e.g.,cascadeability and existenceof matching lead indicators

JAPANESE EXAMPLE

SOURCE: McKinsey


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Bridging customer insights and cross-functional operations

CS#1in Japan

CS KPIsConceptProduct

(production,suppliers)

SalesAfter sales

Operational KPIsR&D

ProcurementQuality Management

ProductSalesAfter sales

Examples of customer-relevant attributes

R&DProduct characteristicsTCO (e.g., fuel efficiency)Available options vs. competitors

Ease of maintenance (design-for-repair

Supply On-time delivery of parts for new vehicles and

for service/repairSpare parts cost

QM Problem resolution speed incl. campaigns/recallsQuality of supplier parts

ProductionOn-time delivery of new vehicle

Initial quality (first 0-3 months)Rework

SalesProximity of dealersSales skills (e.g., technical knowledge, waiting time,

knowledge of financial options, understanding ofcustomer business friendliness)

After salesService availability incl. proximity and opening

hoursRepair time incl. diagnosis and spare partsOn-time delivery of repaired vehicle

52

Positive experience is driven by delivering on factors that matter most tocustomers to create the perception of a service commitment to them

Resolve problems quickly

Knowledgeable about mybusiness

Competent, well-trainedemployees

Superior cost

Call center excellence

Convenience

Courteous and professionalatmosphere

One-on-one personalrelationship

Drivers of perception ofservicecommitment

Importantfactors

Factors thatmatter less

Relativeimportance

1

2

4

5

6

13

18

59

Providing a positiveexperience is creatingthe perception of theservice commitment,driven byconsistentlydelivering atmoments of truth

Moments of truth arethose interactions

during whichcustomers investsignificant energy(sometimesemotional)in theoutcome

There will always beproblems its really howwell they resolve it and

whether I haveconfidence they will

resolve it in the future

I will forget about themistakes banks make as long

as the customer service is niceabout it and fixes it

The most important thing is tobe treated with respect,

because it is your money

If someone is really going totreat me well, you can charge

me more per month for theservice

What are thepriorities for thecustomers?What are the statedneeds vs. trueneeds?

How CS KPIs arelinked to operationalKPIs?How can we come toa cross-functional

agreement?

KPI pyramid

JAPANESE EXAMPLE

SOURCE: McKinsey


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One key driver of customer satisfaction is effectiveand fast field failure resolution best practice example

Time limit (workingdays, not cumulative)

X

Escalation

process

COO/CEO

Cross-functionalescalation committee

30

Cross-functional defect elimination team

Prioritization

Done by centralcoordinative department

Quality measurements

E.g.,

W&G ratesProduction failuresDealer feedback

Internal

E.g.,

JD PowerNCBS

External

2

HQ How to speed up the process

Observe online data from the field (W&G rates, diagnosis data, etc.)and from the production line automatically

ThresholdMaximum gradient

Shorten time limits/speed up process

Documentation oflessonslearned

Long-termdefect elimination

Short-termmeasures

Defectanalysis

730147

Number ofdefects

Time

Forward-lookingestimates

Defect elimination process

JAPANESE EXAMPLE


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Transparency on factors affecting CS and required cross-functionalactivities

JD Power CSI factor

LDT 2009, Percent

100%

After-sales

experience

Purchasingexperience

Quality

Lifecycle cost

56

21

10

13

Examples of relevant factors Examples of improvement activities Related line functions

Fuel efficiencyVehicle priceMaintenance cost (service, parts)

Improvement of fuel efficiency of engine andtransmissionVariable cost reduction

Productivity of mechanicParts pricing

Development, designProductionProcurement

After-sales

Product specQuality of parts and production

processDurability

Product design optimizationIncrease in supplier quality

Increase in production qualityIncrease in maintenance and service quality

Development, designProduction

ProcurementAfter-sales

Explanation capability of sales repsPurchasing process

Delivery process

Education and motivation of sales repsProduct description (brochure)

Delivery by deadline

SalesProduction

Distribution

Delivery time and reliability of serviceStable supply of partsRelationship with sales reps

Fast field defect elimination

Maintenance friendly specsService schedulingSpeed-up of service

Inventory managementCross-functional elimination

After-salesDevelopment, designDistribution

JAPANESE EXAMPLE

SOURCE: Team analysis


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Projectleadership

Quality planning

Quality monitor

Platform leader

Functionsmanager

Timing

Approvetargets

Analyze andpriori-tize KPIdata

Define KPItargets

Conducthearing withplat-formandfunctionalmanagers

Verify operational targets

with managers

Breakdown tar-getsinto opera-tional KPIlevel

Collect KPI data anddistribute reports

Assign KPIresponsibility

Assess plan vs.actual

Assess plan vs.actual

Push organization todefine countermeasures

Report progress ofmeasures

Executecountermeasures

Reviewactivityprogress

Initiate counter measuredefinition

Annually Monthlyreporting

Ad hoc (as problem identified)

Monitoring

Counter measure definition Counter measure executionTarget setting

Instructsupport

Coordinatecross-

functionalactivities

Define andinstructmeasures

Reportprogress

review

Feedback loop withDB inputs

Establish clear link toeradication teams

Monthly report

Reflect onevaluation

Example of mechanism to sustain impact JAPANESE EXAMPLE

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