1. Why is DAV using SPC? What are the primary challenges in applying Statistical Process Control to a service industry compared to manufacturing? Why SPC:
Though they have been the industrial leaders, DAV has been faced with competition lately. To overcome competition, DAV has set out to improve the quality of service it provides to its customers to set itself apart. It, initially, planned on using SPC for measuring the quality of service provided to the customer. SPC will help DAV find the accuracy of the service provided based on which an improvement program can be designed for the various processes used to provide service to the customers. The Head of Operations also wanted a tool that measured processes rather than the people. This will help protect employees from the wrath of the superiors. DAV wanted to develop capabilities that helped them serve value to their customers.
Also, DAV wanted these capabilities to be spread across the entire organization which will help them to achieve their aim of quality improvement. The case also notes that for the Insurance industry exceeding customer expectations through quality of service provided will help companies to attract new customers apart from maintaining the current ones. It has become an important differentiation tool to set a firm apart from others. Above were the contributing factors for DAV to go ahead with SPC to measure and improve the quality of processes involved in providing customer service, which in turn will enable them to improve their market share and stay ahead of competition. Challenges:
SPC is normally used in the manufacturing firms. It is used to measure and analyze the variations in a continuous/consistent process. But in the case of DAV the processes are not consistent when compared with those used in the manufacturing firms. Some of the characteristics of the factors that are measured in the services industries are listed below: Intangible – hard to measure
No clear index to measure mistake
The above characteristics make it even harder to apply SPC to a services firm. These factors make it difficult to determine the importance of a particular data and hence difficult to determine the factors that need to be accounted for while measuring the quality of service provided. This was more prominent in the case of applying SPC to measure lawyers. Individuals can be forced to misinterpret the data since there is a lot of human element involved in the SPC process. Also, the employees can be judged based on the outcome of the SPC process which is another problem related to the Human element in the SPC process. It also takes a lot of time for the employees to fill out charts, since the SPC process has not been digitized yet. Another challenge lies in selling SPC tool across various divisions in the organization.
Since it involves lot of effort from the employees, selling the benefits of SPC was important for the division heads. Since SPC is new to services industry, customizing tools to the environment of service industry proved to be a challenge as well. Employees had to be trained to use the SPC tools, which demanded a lot of time and money from the organization’s perspective. These were some of the challenges DAV faced (services firm) as opposed to a manufacturing firm. 2. How large should each sample be for the experiment Schoss and Kluck describe on page 7? The sample size should be 300.
DAV wanted to benchmark for the error limit of 1 percent. Also, it did not wanted the number of error per sample to be more than 3 in an ideal scenario (1 percent of 300 = 3 defects). 3. The first 12 weeks of the data on exhibit 4 represent the diagnostic period for the policy extension group. What are the 3-sigma control limits for the process? In which of the subsequent weeks is the process out-of-control (if any)?
For the first 12 weeks:
Total error = 188
p = Total error/Total sample size = 188/3600 = .0522
variance = p(1-p)/300 = 0.000165
standard deviation = sq.rt.(0.0000165) = 0.0128
UCL = .0522 + 3(0.0128) = .0907
LCL = .0522 – 3(0.0128) = .0138
Range (.0138, .0907)
The process goes out of control in the 23rd and 24th weeks.
4. What is your recommendation for Kluck going forward in their deployment?
Better teams do more sampling
Some of the better performing teams had problems with the higher sample size. The sample size was about 300 taking into consideration the benchmark of 1 percent error and max. 3 errors per sample. The benchmark can be relaxed a bit at the early phase of the program to reduce the workload placed on the employees. Once the system is in place, the benchmark can be improved to provide better quality over time. Instead of trying to improve the quality at one shot, this can be taken up as an iterative process.
When is a mistake not a mistake? When it’s not important
The definition of various factors that are taken into account had to be made clear. If any factor does not affect the quality of service (from the customer perspective) on a perceivable level, do not take them into account.
It is very difficult to factor in lawyers into the SPC process. Hence, DAV should not consider lawyers for the SPC process.
Once the management gets SPC ingrained in its system, it should work on an automation tool which will relax the workload on the employees. The focus on SPC takes the focus away from the customer service, which is the primary task for the employees in DAV. Hence by developing an automation tool, the amount of effort spent by the employees on SPC process will decrease.
On the prowl
Managers might view the failures as a failure of an employee rather than looking at it as a failure of the system. This will result in the failure of SPC system at DAV since the management wanted to measure the process not the employees through the SPC process. Hence, the managers have to be trained to properly interpret the results of the SPC process and take appropriate actions based on them.
Communicate the importance of SPC program to the employees
Certain excerpts in the case show that not all the employees are convinced that SPC will work. They just consider them as an extra workload dumped by the management on them. Hence, the management has to organize presentations and training programs to communicate the importance of SPC by focusing on the objective of the program. DAV needs all the employees to accept SPC for it to succeed.