QCD / Quality, Cost, Delivery (+ 5-Page Lean PDF)

QCD is the acronym for the broad categorization of metrics and KPIs in continuous improvement.

The acronym QCD stands for:

  • Quality: In most cases, this view of quality is ‘conformance to specification, rather than grade.
  • Cost: Cost, obviously, has a prominent role due to its close tie to profitability.
  • Delivery: Delivery is the ability of an organization to both hit their promise dates, as well as to get their products in customers’ hands in a timely manner.

Thinking in terms of QCD helps keep organizations focused, and helps them prioritize their improvement efforts. In most short-term planning, quality and delivery thresholds are set based on the market and the voice of the customer, and then remaining resources are committed to reducing costs. In long term planning, quality should have zero defects as the ultimate target.

Without having strong quality and delivery goals in place, cost reductions can go too deep, and impact how the customer perceives the value of a product or service.

Practical Guide to Continuous Improvement

Click the banner above to see where this term fits into our practical guide to Lean. (NOTE: The QDC term is part of our ‘Managing with Metrics’ section.)

 

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Many companies using Lean categorize their improvement efforts using QCD. There is a growing trend to use QCDSM, which includes safety and morale. Some omit it, feeling that safety and morale are a given, and do not need to be specifically addressed. Regardless of whether safety and moral have their own categories of metrics, though, they should still be managed, as they play a major role in successfully reaching QCD goals.

QCD is popular because people operate better when they can take a big thing and break it down into smaller things. It lets people organize and prioritize their efforts, and has the psychological effect of keeping people from feeling overwhelmed.

Quality is nearly always listed first, presumably because most are in agreement that poor quality will result in bad business. But on occasion, you will see the three letters sequenced as QDC. In fact, I prefer it that way. Delivery is more visible to customers than cost, which is why I like it listed first. Cost is internal, and therefore transparent to the customer, so it has much less importance. What matters to them is price. Customers tend not to be terribly concerned with how much profit you are making. Of course, this sequence presumes that the company is in the black. If the company is losing money, cost will have a much higher place on the pecking order of importance, though sacrificing quality and delivery will more often than not actually increase costs and reduce sales in the long term

Make sure your efforts towards improving QCD make sense. While quality is generally the most important, don’t immediately assume that since Q comes first, that Q always trumps the other categories. Your efforts in each of these areas have to match your company strategy. If you are a low cost provider, for example, the expectation of quality on your company is generally lower than a quality front-runner. As a result, the bar you have to achieve is lower for you than for them. Costs will likely have more emphasis, as margins will be slim. (Note: It is rare that quality is not going to be the most important metric! Adjust the sequence at your own risk.)

Make sure QCD metrics are:

  • Attainable/Realistic: They should not be wish-lists. Make sure that teams can reach them.
  • Measureable/Observable: If you can’t tell if the metric is on track, there’s no point in having it.
  • Relevant: The QCD metrics should link to the corporate strategy.
  • Process-oriented: They work best when they measure activities. People can track and change behaviors much more easily than chasing results.

In Lean organizations, lots of things get measured. It can be hard to get used to, if you are unaccustomed to the scrutiny. There are two main strategies to use when trying to fit into a culture of metrics. First, metrics should measure processes, not individual people. Try to get a voice in selecting the metrics to be used. That will make them more likely to be both relevant, and something that you can control.

Secondly, don’t look at misses on QCD goals as failures. Think of the metrics as a way to highlight the need for resources to get better. Be persistent (without crossing the line over to obnoxious) with your leadership team about getting the resources needed to get the metrics on track. Just be aware, though, that if you highlight something as a problem, there is a good chance you will be asked to help solve it.

  • When setting QDC goals, think of quality and delivery thresholds that you have to clear, and then allocate whatever remaining resources you have to minimizing costs. Quality and delivery will be linked to market forces. Your marketing team, for example, should know what will happen to sales if quality improves, or whether a shorter delivery time is valued by customers. In many cases, customers are not willing to pay extra for greatly exceeding a metric. Most customers of online stores, for example, do not pay for overnight shipping. That means that they value cost more than getting the product in their hands immediately.
  • If you are using QDCSM, your safety goal should be to get zero injuries. People should not be at risk at work. Morale is similar to quality and delivery in that there will likely be a threshold where there are diminishing returns for exceeding them. The costs of going from “94% satisfied” to “96% satisfied” may be far greater than the benefits from that small, incremental gain. Most companies, though, are far from that inflection point, and focusing on job satisfaction and respect for people will yield substantial returns.
  • Keep in mind that there is much overlap between the metrics. Poka yoke devices, for example, will improve quality, but will also drive down costs. And limiting inventory and using good pull signals will shorten lead times while lowering expenses.

  • QCD provides a way to organize metrics.
  • The sequence of QCD should match your company’s priority.
  • Use QCDSM to show that the management team has respect for their employees. It puts safety and morale on the same level as the QCD metrics.

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