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(c) Items 1, 2, 5, 8, 10, and 12 are internal failures; the remainder are
external failure items. Internal customers affected by external failure
items are listed below.
Item Number
Internal Customer(s) Affected
3
Manufacturing, service, stockroom, invoicing
4
Invoicing, sales administration (profitability
analysis)
6
Manufacturing, service, stockroom, invoicing,
sales administration
7
Shipping, invoicing, collections, customer support
9
Manufacturing, service, stockroom
11
Invoicing, collections, sales administration
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Other examples (not included in Exhibit 7-18):
Error Type
Internal Customer(s) Affected
Incorrect serial # of system on
order acknowledgement
Service, customer support
Duplicate order
Stockroom, shipping, manufacturing,
sales administration
Incorrect sales rep. code
Sales administration
information from the quotes or order acknowledgements (examples of
forms appear at the end of this teaching note: Form #1 pertains to
(e) Possible responses include the following:
Office equipment and office space;
Telephone (to clarify problems);
Computer costs (making changes on the computer);
order entry);
Shipping costs on returns;
Rework costs;
Frustration and lower morale, possibly leading to poorer quality or high
turnover;
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discussion. Possible responses follow.
Incremental Improvements
Empower employees.
other departments.
Provide feedback to order entry on types of errors, numbers of errors,
Educate sales representatives about effects of errors and about the
process.
Provide better training for sales representatives.
order entry function.
Have sales representatives take responsibility for the process.
Track customer purchases to improve service to customers.
Survey customers about problems; use the responses to prioritize
problems.
Stop the double entry of information.
acknowledgement errors.
Develop a reward system that motivates error-free performance of sales
Breakthrough Improvements
entered.
Develop a spreadsheet or computer program to check for
Develop a computer system that allows sales representatives to prepare
accurate quotes.
invoicing, etc.
Use cross-functional teams to manage “large” costs or different
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segments.
on-line.
Note: Today, customers may add a request for a quote to their
shopping cart but the web page does not provide a quote online.
Incremental Improvements Made by PSI
1. Key information for quotes is now obtained up-front by the
sales representative; earlier, the sales representative faxed
request a quote until he or she has supplied key information to
2. Customers are asked to include quotation numbers on their
have a reasonably good idea of which ones are likely to become
firm orders.
3. Proper tools are provided to the order entry staff:
Procedure manuals.
discounts.
Printed configuration guides that contain information in the
always match.
4. Order entry staff are now responsible for both quotes and
now had responsibility for processing the subsequent order.
5. A regular feedback system is now in place. Each internal
customer department provides feedback to order entry once
every quarter.
Benefits: Cycle time for preparing quotes was reduced by 60%,
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Breakthrough Improvement Efforts by PSI as of 1993
Many of these improvements are prevention activities.
1. PSI began working with a vendor to develop an on-line configuring
would avoid keying-in part numbers).
2. PSI planned to acquire a new, more integrated order entry system that
information.
3. PSI began working toward providing sales representatives with a
laptop computer equipped with a built-in configuring program. It will
allow them to prepare quotes in the field.
The anticipated benefits include a reduction in errors caused
Prioritizing Improvement Activities
Three considerations in prioritizing improvement activities are the
perceived seriousness of the problems, the benefits of improvements, and
the costs of the improvements. In this case study, the breakthrough
In PSI’s case, correcting order acknowledgement errors became the
Update: Improvement Efforts by PSI as of 1996
The first incremental improvement, a stringent policy of sales
representatives filling out quote forms correctly, was abandoned because
The initial vendor’s quote for the desired configuring program was
judged unaffordable. After an 18–month search, however, PSI was able to
purchase a new integrated information system (including materials resource
planning and accounting) that included a configuring program. In the
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what appeared on the quote.
The current cycle typically runs as follows:
• Sales representative prepares a quote using laptop computer
configuring program and e-mails it to order entry.
• Order entry reviews the quote and sends a quote packet to send to the
supervisor approves the order.
• The controller approves the order.
• The order acknowledgement is transmitted electronically to
manufacturing.
(g) PSI’s sales representatives have specialized scientific training in order to
provide knowledgeable assistance to customers who wish to purchase
high-technology instrumentation. The sales representatives guide the
Even if the technical issues related to customers determining what to
order can be overcome, PSI must still ensure that its supporting internal
processes are of high quality. A web-based ordering capability in and of
itself will not necessarily resolve PSI’s quality problems related to
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(h) Nonfinancial indicators that might be useful in improving quality in the
order entry department include:
• Time spent on correcting problems.
Frequency of reporting is an important issue when implementing a COQ
system. Options for frequency of tracking data and reporting include:
• Keep track of the information on a daily basis but report monthly.
will be used to make process improvements.
COQ information is useful for the following reasons:
• COQ quantifies the financial impact of the errors/problems, thereby
efforts.
COQ information should be used in conjunction with nonfinancial
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Form #1 – Class I (Internal) Failure
Completed by Order Entry Staff
Date Started _______________ Time Started ___________
Order serial #
Other
Is all relevant information available and clear on the customer’s P.O.? Yes I No
Please provide below details of all the clarifications required.
Serial No. Explanation of problem / clarification How clarification obtained Time spent
How long did it take you to prepare the first draft of the order (including time
spent obtaining clarifications?
How much time did you spend inspecting the quote before finally giving it to
your supervisor for inspection?
supervisor for inspection?
Complete after your supervisor has inspected the order
Were there any changes as a result of your supervisor’s inspection? Yes / No
Time taken to make changes _____ minutes/hours.
Other comments:
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Form #2– Class II (External) Failure
Completed by Manufacturing Department (Immediate Internal Customer)
Nature of
error/clarification
required/problem
How clarification
obtained
Time spent in
obtaining
clarification
(including
waiting time)
Total number of errors
Number of orders/quotations received
Errors as a % of orders/quotations