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Page 5 of 7
Measure and Evaluate Business Excellence
The following performance measures can be used to evaluate the impact of TQM or quality management:
Annual Cost of Quality: This refers to the total cost of quality-related activities as a percentage of total sales. This measure provides a quantitative value of the actual cost of running quality systems. Among others, quality-related activities should include the following: cost of quality-related training, prevention and inspection processes (costs associated with conformance), operating quality control, warranty/guarantee-related costs, scrap and rework and rectifying poor quality products (costs associated with non-conformance).
Product Quality (First-Time Pass Ratio): First-pass ratio measures the percentage of the product passing all quality requirements without rework. With a high first-pass ratio, costly rework is reduced, allowing production staff to focus on generating the product, not on fixing it or finding the causes of imperfections. Organisations with a high first-pass ratio often have relatively lower overheads, since they can generate more product out of the same equipment before shifting to a new manufacturing set-up.
Sales Ratio: This is the ratio of the total cost of quality to the net sales value
Process Capability: This is the ratio of the process specification to its natural variability. It is found by dividing total product specification range (i.e., upper tolerance – lower tolerance) by total effective range (i.e.. six standard deviations). For the process to be very capable, this ratio must be much greater than 1.
Defect Rate: This refers to the number of products found to be defective as a percentage of total product volume, or the number of parts defective per million parts. This measure provides an indication of the effectiveness of deployed quality systems.
Product Quality (Perceived): This refers to the quantification of survey results. It provides a measure of customer perceptions of the quality of the productor service.
Cost of Quality (Internal Labour Costs): This refers to the percentage of direct labour spent on internal failure issues, or the percentage of quality staff direct labour spent on internal failure issues, or the percentage of non-quality staff direct labour spent on internal failure issues. These measures provide a quantitative indication of the impact of internal quality failures on direct labour. The measure could also be tailored to track the cost of this labour or to measure other employee segments.
Product Reliability (First Month): This is the percentage of the product that is faulty within its first month of sale. This measure is an indicator of product quality. The first month’s operation is the most critical for all products in terms of customer perceptions.
Training (Quality): This refers to the percentage of training relating to quality matters. This measure provides an indication of the focus upon quality within the organisation.
Organisational Excellence Performance: This is the organisational excellence score, which is typically based on assessment via a Quality Award framework such as the Baldrige Model or the EFQM Excellence Model.
Product/Service Quality: This refers to the number of orders not meeting the agreed product or service specification as a percentage of the total number of orders. This is a measure that indicates the effectiveness of the quality system.
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