Quality Metric Management

Question: According to Philip Crosby "Quality is Free." As a leader of a company, how will you set the operating budget for your Quality Department/Team and how will you decide how much to spend on Quality initiatives. What performance measures will you rely upon? Please remember to include your references. Answer: Quality is an inventory performance and health indicator. It was first developed by a group of materials managers who sought to find a way to measure how company's inventories are in alignment with the demand for the products (see Note 1). The QUALITY metric approaches inventory management from an inventory valuation perspective, relative to the projected usage value. This method effectively addresses the variety of issues that are inherent with inventory analytics based on only valuation or units currently on hand. The problem with inventory-value-based analysis is that the SKUs that have the most value currently in inventory show up on top of the inventory lists, whether there is demand for them or not, or if the already-high inventory investment is sufficient enough. Volume-based inventory analysis becomes convoluted very quickly when the company's products come in various units of measure. Inventory metrics based on financial characteristics are lagging indicators that provide no insight into what is driving the inventory levels. They are also too late to signal a timely response, and are blind to the inventory performance against future requirements. The financial inventory values only show how much inventory exists, and inventory-turn-based metrics are calculated using the historical cost of goods sold. The values are aggregated across a company's reporting units, with metrics updated infrequently, usually on a monthly basis. The judgment of the inventory levels is made against historical levels, peer benchmarks or company objectives. Even if they were updated and reported more frequently, they wouldn't demonstrate how the on-hand inventories are performing against the planned future demand and service-level targets. The Quality metric is calculated from the inventory and material requirement data that most companies already have readily available in their ERP systems or higher-level planning systems of record. The metric evaluates the current inventory values against the expected usage value, and divides in the inventories into "active" and "excess" categories. Active inventory is the portion of total inventory value that is forecast to be depleted within a defined time horizon, and the rest is excess inventory. QUALITY is a ratio of active inventory value over the total inventory value. In this research, we describe the basic data requirements for QUALITY calculation and provide a breakdown of the calculation steps for generating the values for the metric. References: International Journal on productivity and Quality Management. (2013, January 28th). Retrieved from https://www.inderscience.com/jhome.php?jcode=IJPQMQuality Management Program. (2013, January 28th). Retrieved from https://www.edqm.eu/en/quality-management-19.html