Among the hundreds and sometimes thousands of manufacturing metrics and key performance indicators (KPIs) across plants that require attention, how do senior leaders responsible for quality prioritize what is most important for achieving upcoming performance targets and also for improving performance in the future?

With increasing pressure to manufacture higher quality products at lower costs in today’s globally competitive economy, these are questions more and more executives find themselves asking.

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For Jd Marhevko, Vice President of Quality and Lean Systems at Accuride Corporation, a leading manufacturer of commercial vehicle components, the answers to these questions entail a combination of high-level metrics and process controls. In an interview with LNS Research in January 2014, Marhevko shared her thoughts on a variety of quality management topics.

Marhevko is an ASQ Fellow and holds several certifications including that of a Certified Six Sigma Black Belt, Certified Manager of Quality and Organizational Excellence, Certified Quality Engineer, and Master Black Belt. She is the co-author of several books including Sample Size of One, The Certified Manager of Quality/Organizational Excellence, and Principles of Quality Costs.

In this interview, she discussed Accuride’s strategic and tactical approach to driving down quality-related costs. Because the interview is somewhat lenghthy, this is an excerpt, and the full transcript can be downloaded for free here.

LNS: Balancing cost, quality, and speed is a challenge that nearly every company we’ve spoken to wrestles with. How do you frame your quality management efforts to overcome those challenges?

JM: Our focus is three-fold. First, we pay attention to making existing processes better. Second, we’re always working to release products and processes in a way that won’t negatively impact our customer or our business in the future. And lastly, we focus on training our people and developing their skills so that they do those first two things well. Having highly skilled people is critical to keeping quality costs down.

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LNS: With a large organization like Accuride where there’s a considerable amount of manufacturing data constantly being generated, which types of metrics provide the most value to you?

JM: We use a variety of manufacturing metrics or KPIs. We look at them monthly, quarterly, and yearly. The KPIs are considered from the perspective of both leading and lagging indicators. It seems to me that most companies compare their performance with lagging indicators. Unfortunately, this is after the fact and reactive.

We focus on developing leading KPIs because they are the inputs to the lagging KPIs. At Accuride there is roughly a 2:3 ratio of leading KPIs to lagging. Benjamin Franklin said, “If you watch your pennies, your dollars will take care of themselves.” And we believe in that. We manage those leading indicators with a vengeance.

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LNS: Is the Cost of Quality included on this list of indicators that Accuride monitors and works to improve?

JM: We measure a number of Cost of Quality variables, but principally focus on the Cost of Poor Execution (COPE). COPE not only monitors physical product losses, it also includes process losses. Many businesses look at simply the cost of poor quality (COPQ). That can end up being a financial exercise in tracking scrap and then “re-adding” back in salvage value. Hidden losses to execute those actions are rarely captured and additional system losses that are incurred can be missed. As such, COPE looks at both product and process losses.

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LNS: How do you measure the Cost of Poor Quality Execution?

JM: Whether you’re measuring the Cost of Quality or COPE, you need flexibility for different kinds of losses at different sites within the same company. A prescriptive formula that works for one site might not work for another. At Accuride, each facility reports on their top five loss categories. This typically includes scrap, rework, overtime (unplanned labor), excess and obsolescence, and shrink (usage variance). Other items may include lost capacity, unplanned maintenance labor, premium freight, and so on.

The top Pareto’d items go into the COPE metric for the site. We allow each facility the flexibility to focus on its own top issues. The idea is that as you constantly work to identify the top 5 items, the others will come to forefront while the COPE is lessened and margin opportunity is recovered.

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To read the full interview with Jd Marhevko and more about the Cost of Poor Quality Execution, follow the button below. Also, please feel free to share your thoughts on the biggest challenges with costs in the comments section or tweet to us @LNSResearch.