Reduction of Full-Time Equivalents
As PITs and DITs improve process, a clear sign of their success is that departments begin giving back full-time equivalents (FTEs). CEOs say they’ve hear this happens in TQM, but they never through it would happen in their organizations. But, sure enough, it does happen. Let’s take a moment to explain why.
It all has to do with reducing quality-related costs. It is difficult to precisely measure quality-related costs, but Frank M. Gryna suggests they include internal failure costs, external failure costs, appraisal costs, and prevention costs. Familiar example of these costs include rework, unnecessary bureaucracy, unnecessary management, untimely deliveries, and so on. These costs are almost never anybody’s fault; they’re caused by process that don’t work correctly. Gryna refers to studies that show that quality-related costs are “… much larger than …shown in accounting reports,” and “for most companies are in the range of 20 to 60% of sales.” Kaydos refers to studies that estimate”… that as much as 30% of a company’s resources can be spent correcting quality problems that shouldn’t happen in the first place.” In my experience, many of these costs should be added to Deming’s list of “the most important figures that one needs for management [that] are unknown and unknowable.” The bulk of these costs-the ones that don’t show up on accounting reports and are invisible to management-are caused by the tyranny of upstream supplier departments. For instance, I’ve encountered many departments that had personnel doing nothing but correcting errors made by upstream departments. Between correcting what was done incorrectly upstream and what departments themselves do wrong, I have no doubt quality-related costs are as high as the many studies of the subject suggest. In fact, my experience suggests that rework alone may be as high as 30 percent to 60 percent for some departments. Anyway, consider an illustration of what happens to FTEs in a department when rework is stripped out.