Analog Devices

Analog Devices Assignment – Poojaa Sharma

1. Why does Art Schneiderman think it is so important to have specific numerical goals for quality improvement, rather than just pushing the organization to improve quality as fast as possible (for example, offering big bonuses for big quality improvements)?

Art Scheniderman thought that it was important to have specific numeric goals for quality improvement in terms of both the extent of improvement and the time in which those improvements were to be achieved. Such quantification of goals necessitated by the following reasons:

1. Quantified goals are planned better as milestones can be preset more accurately, thus limiting the vagueness in the action. Employees working at different stages of these goals too can be evaluated better once the plan is set in place.
2. Quantified goals for quality improvements can be used to assess their impact on the financial performance of the company.
3. When goals for different departments or process stages are quantified, the impact of one department’s/stage’s goals on another can be taken into account to prevent one department’s goals intervening with other departments’ goals and limitations.

1. What are the negative effects of setting goals that are too hard or too easy? What does Schneiderman do to try to set goals that are neither too hard nor too easy?

Goals that are challenging yet achievable for an entity’s (employee, team, or company) are deemed most beneficial by numerous studies.

If a goal is too easy, the company will underutilize its resources and be prone to being beaten by a competitor with similar capabilities. The workers and managers might lose motivation over time due to lack of challenges offered by their roles, or become susceptible to complacency. It would also dismiss the idea of continuous improvement.

If a goal is too difficult to achieve, it might result in two scenarios – underachievement or achieved with pushing the limits of employees/teams/organization too far. Underachievement may result in lack of motivation to continue further or fault finding amongst teams. If however, the firm does achieve the goals in short term scenarios, the action plan model used will not be sustainable and may lead to burnout or malpractices to achieve goals that will be set further. This too, shall work against the idea of continuous improvement.

Thus, Schneiderman suggested setting empirical goals for quality improvement processes (QIP) based on a half-life model for the QIP, which stated that any defect in quality parameter decreases at a constant rate when plotted against time. The half-life quality improvement aided continual process improvement as it provided a more rational perspective to the workers and operating managers on ways and means to improve quality.

1. ADI is experiencing some conflicts between its quality goals and its financial measurements.  Identify two of these conflicts. What would you do to resolve them?

While ADI launched its QIP quarterly scorecard with a clear line of reasoning to achieve low inventory level, improved quality, and higher on-time customer deliveries, the availability of extensive monthly financial performance reports to the Operating Managers caused hindrance in the objective of solely focusing on QIPs. Most times, the QIP scorecard and Financial Performance summaries pointed in opposite directions. QIP improvement measures such as just-in-time and short cycle times were avoided by the operating managers as they seemed to impact their department’s financial performance negatively.

Two major conflicts between the quality goals and financial measurements at ADI were:

1. The cost system used by ADI had very few inventory recognition points: This impacted the valuation of wafers that stood at different positions in the production state as any material started into production was valuated at midway WIP point instead of its real-time status. In high sales growth scenarios, where the information regarding the status of WIP was pulled from the third quarter, the new orders fed to the system would get stuck until all the wafers in WIP – that were started at the end of one quarter – were processed completely, thus increasing the manufacturing cycle time, a factor critical to customer service.
2. Trade-off between on-time-delivery and short-term financial performance: About one-third of late deliveries at ADI were caused because of intentionally delaying low revenue shipments due at the end of a quarter to prioritize high revenue shipments that were due next month. While this reflected as higher revenues in the financial reports in the short term, it increased the time spent in searching and rescheduling the postponed small shipments.

To resolve these, the following changes are recommended:

1. Introduce more valuation points for WIP instead of assuming it to be at midpoint to help plan the new order processing time better. This would also help with understanding bottlenecks and inventory build-up points in the supply chain, according to which process changes can be introduced to reduce overall manufacturing cycle time.
2. Avoid information overload to operating managers: Short term financial reports do not always account for the QPI changes necessary for long term growth, confuse the operating managers, and often make their decisions short sighted. Financial reports should only be provided to respective managers with details about factors based on the timelines in which their impact is truly accounted. Any other information should be avoided and provided only in cases of show stopper events.
3. Reassess the linkages between various operating parameters so that the factors that have a strong positive or negative correlation are not changed beyond a ‘safe limit’ so that one department/process does not destroy value for another to the point that the overall impact of the change is negative or negligible.

1. The Sterman et al. article tells how, as a result of the Quality Improvement Process, yield doubled, defects fell by a factor of ten—and the firm’s income and stock price dropped by about 75%.  Explain briefly how this happened. What lessons would you draw from this experience to help another firm avoid similar problems?

The firm reduced its defect rate by a factor of 10, and doubled the yield rate by implementing the half-life model for QIP, boosting its overall productivity as well as capacity. However, having a large and diverse portfolio of products, Analog was unable to account for the impacts of the changes introduced on the indirect costs of these different products, owing to their complex derivations, and thus could not minimize them by a great extent. Due to this, when intensive competition and other factors led to a reduction in selling price by 17%, the operating profits fell by 45%. It is to be noted that even if the prices were to be unaffected by competition and the prices had fallen as much as unit costs, the company’s per unit operating income would have still fallen by 35%. These losses in operating income were deemed as inefficiencies on ADI’s part, and in effect, its stock price dropped by 75%.