QCD / Quality, Cost, Delivery

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 its promise dates, as well as to get its 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.

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 what it would be for a front-runner in your industry. 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.
• Measurable/Observable: If you can’t tell if the metric is on track, there’s no point in having it.
• Relevant: 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 this 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. Do what you can to identify personal metrics and try to help steer your leaders away from those. You can do this after the fact by simply addressing problems you see, or you can make an attempt at being more proactive. Try to get a voice in selecting the metrics to be used. Occasionally, you will see a formal way for companies to solicit information from teams. The more common avenue in having a say in metrics, though would be on a continuous improvement project. 

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.

Leaders, keep the following points in mind when putting QCD metrics in place.

• When setting QCD 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.
• If you are using QCDSM, 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 is a more common, historical sequencing of the terms. It is probably more accurate to use “QDC”, as it denotes an order of prioritization. Quality is the most important, then delivery, then cost. It is your choice on how to refer to the metrics in your organization.

Key Points About QCD Metrics:

• 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.
• QCD is the most common sequence. QDC is a better order as it prioritizes delivery over cost.

Create your QCD metrics from your top-level strategy. You should be doing some catchball both up and down the chain of command. Then communicate the metrics to the team and post them in a prominent location.

Make sure not to neglect the metrics after they are posted. It is worse to have seriously outdated metrics than to have none at all.

We have many Lean forms and tools available that can help you improve quality, cost, and delivery in your organization. Of particular note, we offer a KPI (Key Performance Indicator) Bowler that is organized using QCD as categories.