McKinsey core beliefs on how

quality journeys

Discussion document

October 2010

CONFIDENTIAL AND PROPRIETARY

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Objective of today’s call

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▪ Better understand Nissan context on objective on quality

▪ Share a few McKinsey core beliefs on quality

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▪ Agree upon next steps

McKinsey & Company | 1

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In our experience, achieving best-in class quality requires a holistic

approach covering 4 major areas

Quality strategy
▪ Set aspiration level based on
Voice of the customer

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1 Quality
strategy
& KPIs Quality KPIs
▪ Define KPIs
▪ Set targets
▪ Break down to functions
Develop- Manufac- Supplier Manu- Sales Mind- 4 Quality
ment & turing & quality facturing and after set mindset
product Process quality sales and & capa-
2 Func- engineer- Engineer- quality capa- bilities

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tional ing quality ing quality bilities
quality
pro-
cesses

3 Quality
organi-
Quality organization, decision making
zation &
gover-
nance

SOURCE: McKinsey Quality Service Line McKinsey & Company | 2

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We have 7 core beliefs regarding quality management

Root causes for quality issues Implication on quality management approach

1 Lack of customer orientation ▪ Customer first: Focus on customers'

requirements and external quality metrics

2 Search for silver bullet ▪ Holistic approach: Involvement of all line

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functions and use of most appropriate tools

3 Reaction mode ▪ Prevention mode: Cross-functional teams

working on end-to-end problem prevention and
problem solving

4 Lack of quality incentives ▪ Quality KPIs: Comprehensive KPIs

embedded into incentives of all line functions

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5 No supplier involvement ▪ Quality throughout the value chain:
Suppliers and service providers integrated
during entire product lifecycle

6 Weak quality function ▪ Seat at the leadership table: Quality function

empowered to enforce quality standards

7 Missing capabilities ▪ Mindset and capability building: Role

modeling and consistent communication from
management team as well as training

SOURCE: McKinsey Quality Service Line McKinsey & Company | 3

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A quality transformation is a multi-year journey typically leads through 3

stages and takes the quality system from reactive to preventative mode

IV
Excellence in
III quality

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Integrated quality ▪ Continuous
II system
improvement of
Single, stable quality
Q-processes
▪ Quality is
I anchored in all established in all
Ad-hoc fire- ▪ Good isolated functions processes
fighting solutions in ▪ Quality targets ▪ Consistent
some functional and KPIs are implementation of
▪ Little capable and
areas exist defined
transparency manageable
▪ Focus of quality holistically

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▪ No quality processes
standardized processes is on ▪ Quality
technical contributes ▪ Quality and
processes production are
departments significantly to
▪ Reactive considered as a
(R&D, business
quality connected, joint
production, performance
management theme
procurement)
▪ Focus on ▪ Quality is rooted
warranty and in decision
goodwill costs making
processes

SOURCE: McKinsey Quality Service Line McKinsey & Company | 4

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Example of a quality transformation roadmap: AUTOMOTIVE

1-year-program with 16 initiatives for holistic improvement CLIENT EXAMPLE

Quick fixes to “stop the bleeding” Stabilization Towards excellence

Phase 1: Jan - Mar Phase 2: Apr - Jun Phase 3: Jul - Dec

Field quality

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A Failure resolution taskforce G Set-up of new field failure N Establish lessons learned
(tackle top 100) resolution process database

Production B Management shop-floor audits H Set-up of new quality loop

C Focused end-of line inspection systematic in plants

Supplier D Focused incoming parts inspection I Resident engineers sent O Active supplier development
quality
E Crash program for supplier to 10 most critical suppliers program (wave 1)

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recovery of warranty cost

Product J Overhaul of maturity grade P New approach to concept

development management systematic quality
K Q-function veto established

Quality Transformation
F Employee Q-survey L Organizational reset
function starts with reactive
M Q-communication initiative activities and seeks
to build a preventive
system

SOURCE: Quality Service Line; team analysis McKinsey & Company | 5

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We have covered many different quality related topics NOT EXHAUSTIVE

Engagements, 2005 - 09 December
Engagements by function and region
100% = 606 client engagements
Other1
Consumer
7 and improving quality in launch phase
Industry Group
Examples of studies
Supporting a client in driving performance improve-
ment of their Quality and Customer Care organization
Financial
Institutions Reducing warranty and goodwill costs Supporting a client to develop from
Group
a cost leader to a quality player

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7 21
High Tech Supporting a quality transformation
7 Supporting a Quality System of a shipyard in Western Europe
TIME2 transformation focusing on
8 Quality function structure and
Travel Developing a strategy for improving clinical
Infrastructure 25 size, performance management,
8 quality and closely linking the quality strategy to
Logistics Healthcare and capability building
10 the overall institutional strategy for a hospital
6
Global Energy Optimizing quality improvement Diagnosing quality issues across the
and Materials Automotive & Assembly tools/processes and enhancing entire value chain starting from field
capability training programs complaints and internal Quality losses
South America Rest of world3

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Asia/Middle East 23 Supporting the end-to-end implementation of
11 client's quality system including design of a new Integrating two companies to
customer care approach and installer strategy focus on quality supply chain
and introducing performance
50 Europe measurement approach
Redesigning the quality system including strat-
33 egy, core processes, and quality organization
North Identifying gaps and designing
America the quality system to be deployed
Defining the real Cost-of-non-Quality, inclu-
in manufacturing facilities
ding indirect effects like market share impact

1 Professional Services, Public Sector, Social Sector, and Private Equity

2 Telecommunications, and Media and Entertainment
3 Africa, Central America, Australia and New Zealand, and Caribbean

SOURCE: McKinsey Quality Service Line, FPIS McKinsey & Company | 6

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Background and objectives of “No. 1 in Japan” JAPANESE EXAMPLE

Background Objectives
▪ To increase market share and sustain ▪ To become No.1 in CS in the Japanese

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good profit, reflecting the “Voice Of market by 2015
Customer” into the entire xxx
organization is critical ▪ To commit reliable quality to customers

▪ Based on JD Power survey, xxx has ▪ To gain trust from customers

constantly been lagging behind its
competitors, xxx, xxx and xxx in CSI ▪ To build up a sustainable process of CS

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scores improvement activities

▪ xxx needs to understand ‘what it takes

to gain customer satisfaction’ and tackle
this issue leveraging cross-functional
capabilities

SOURCE: McKinsey McKinsey & Company | 7

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Operational KPIs developed from multiple input factors JAPANESE EXAMPLE

and designated workshops

Input factors Filter potential design requirements Example design requirements

▪ Current quality and
performance KPI design requirements
management (examples)
▪ Best practice elements

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• Quality governance should be
for KPI systems performed using a small set of
▪ Benchmarks for top-level KPIs (e.g., JD Power
performance management Heavy-Duty CSI)
▪ Analysis of available • JD Power scores should be
external KPIs cascaded to responsible
departments (e.g., engine
design should be accountable
KPI cascading workshop for engine reliability score)
Quality • Lead indicators are needed for

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manage- successful governance (e.g.,
ment repr. Facilitator engine performance in
durability test is a suitable lead
indicator of JD Power score)
Head of • Support functions cannot be
unit (e.g., governed by impact KPIs, but
plant Examine potential design
will be governed by process
mgr.) requirements for consistency
KPIs instead
Finance Controlling with KPI best practices, e.g.,
represen- representative cascadeability and existence
tative of matching lead indicators

SOURCE: McKinsey McKinsey & Company | 8

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Bridging customer insights and cross-functional operations JAPANESE EXAMPLE

KPI pyramid Positive experience is driven by delivering on factors that matter most to
customers to create the perception of a service commitment to them
Drivers of perception of Relative
service commitment importance
“There will always be
Resolve problems quickly 59 problems – it’s really how
well they resolve it and
whether I have
confidence they will
What are the
Important Knowledgeable about my
18 resolve it in the future”
factors business
• Providing a positive
experience is creating
Competent, well-trained
employees
13 “I will forget about the
mistakes banks make as long
as the customer service is nice
the perception of the
service commitment,
driven by
priorities for the
customers?
about it and fixes it” consistently
Superior cost 6

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delivering at
moments of truth

Call center excellence 5 “The most important thing is to

be treated with respect,
• Moments of truth are
What are the ‘stated’
CS#1 because it is your money”
those interactions
during which
Factors that Convenience 4 customers invest
significant energy needs vs. ‘true
in Japan matter less
“If someone is really going to (sometimes
emotional) in the

needs’?
Courteous and professional treat me well, you can charge
2 outcome
atmosphere me more per month for the
service”

One-on-one personal 1

CS KPIs relationship

52

Concept
Product Examples of customer-relevant attributes
(production, Sales Proximity of dealers
suppliers) Sales skills (e.g., technical knowledge, waiting time,
knowledge of financial options, understanding of
Sales customer business friendliness)
After sales Service availability incl. proximity and opening

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After sales
hours
Repair time incl. diagnosis and spare parts How CS KPIs are
Operational KPIs On-time delivery of repaired vehicle linked to operational
Product characteristics
R&D R&D
TCO (e.g., fuel efficiency)
KPIs?
Procurement Available options vs. competitors How can we come to
Ease of maintenance (“design-for-repair”
Quality Management a cross-functional
Supply On-time delivery of parts for new vehicles and
Product for service/repair agreement?
Sales Spare parts cost
Problem resolution speed incl. campaigns/recalls
After sales QM
Quality of supplier parts
On-time delivery of new vehicle
Production Initial quality (first 0-3 months)
Rework

SOURCE: McKinsey McKinsey & Company | 9

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X Time limit (working
One key driver of customer satisfaction is effective days, not cumulative)
and fast field failure resolution – best practice example JAPANESE EXAMPLE

COO/CEO
Cross-functional
escalation committee
30

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Cross-functional defect elimination team

Long-term Documentation of
Defect Short-term
defect elimination lessons
Escalation process

analysis measures
7 14 30 learned 7

HQ How to speed up the process

Prioritization
Done by central Observe online data from the field (W&G rates, diagnosis data, etc.)
coordinative department and from the production line automatically

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2 Number of
defects
Quality measurements Threshold
Shorten time limits/
Internal External Maximum gradient
speed up process
E.g., E.g.,
W&G rates JD Power
Production failures NCBS
Dealer feedback Time
Forward-looking
estimates
Defect elimination process

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Transparency on factors affecting CS and required cross-functional

activities
JAPANESE EXAMPLE

JD Power CSI factor Examples of relevant factors Examples of improvement activities Related line functions
LDT 2009, Percent
Fuel efficiency Improvement of fuel efficiency of engine and Development, design
Vehicle price transmission Production
100% Maintenance cost (service, parts) Variable cost reduction Procurement
Productivity of mechanic After-sales

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Lifecycle cost 13
Parts pricing

Quality 10

Product spec Product design optimization Development, design

Quality of parts and production Increase in supplier quality Production
Purchasing
21 process Increase in production quality Procurement
experience
Durability Increase in maintenance and service quality After-sales

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Explanation capability of sales reps Education and motivation of sales reps Sales
Purchasing process Product description (brochure) Production
After-sales Delivery process Delivery by deadline Distribution
56
experience

Delivery time and reliability of service Maintenance friendly specs After-sales

Stable supply of parts Service scheduling Development, design
Relationship with sales reps Speed-up of service Distribution
Fast field defect elimination Inventory management
Cross-functional elimination

SOURCE: Team analysis McKinsey & Company | 11

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Example of mechanism to sustain impact JAPANESE EXAMPLE

Monitoring
Target setting
Counter measure definition Counter measure execution

Approve Assign KPI Assess plan vs. Instruct

Project targets responsibility actual support
leadership

Push organization to

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define counter
measures
Review
Quality planning activity
progress
Reflect on
Analyze and Collect KPI data and evaluation
priori-tize KPI distribute reports
data
Define KPI Report
Quality monitor targets progress
review
Define and
Breakdown tar-gets Coordinate instruct
into opera-tional KPI cross- measures
level functional
activities
Platform leader

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Conduct
hearing with Initiate counter measure Report progress of
Assess plan vs.
plat-form definition measures
actual
and
Functions functional
managers
manager
Feedback loop with
Verify operational targets DB inputs
with managers Execute Establish clear link to
counter eradication teams
measures

Timing
Annually Monthly Ad hoc (as problem identified) Monthly report
reporting

McKinsey & Company | 12