By the end of 1987, we had a QIP deployment plan, a set of strategically derived performance metrics and a way to manage them: the annual planning process and scorecard system. In early 1988, I gave this presentation as part of our worldwide rollout of the 1988-1992 five-year strategic plan. Because of its importance as the roadmap Analog would be using for the next five years, each of the key presenters (Ray, Jerry, the CFO, the VPs of worldwide sales, technology, HR, and QPI) prepared a written speech which was reviewed and critiqued in advance by the other speakers. This speech, and the associated slides, captures, at a high level, where we were in early 1988 and where we expected to get to on our TQM journey.
set the stage, and Jerry
filled in many of the details of what I believe is a credible and achievable
plan to grow us to a billion dollar company over the next five years.
I've reached this conclusion not only as a result of my participation in
our strategic planning process, but also based on a decade of experience in
strategy development with a large number of other companies.
the realistic potential that has been identified, you might ask, "can't we
achieve it with just more of the same?"
I think that there is growing evidence and an emerging consensus that the
answer is yes, … and no. We need
to continue to do those things that have made us the successful company that we
are today; but we must also adapt to the changing needs of our customers and the
growing aggressiveness of our worldwide competition.
of the principal tools that we will be using to implement our strategy is the
quality improvement process or QIP.
1985, Ray introduced QIP to the Analog Devices community.
QIP is now spreading rapidly throughout Analog and is in wide use as a
tool for critical problem identification and solution.
At last count, there were nearly 150 QIP teams with over 650 participants
worldwide. This diffusion of QIP
activity throughout the company has been driven by the corporate QIP Council.
They have developed a QIP strategy, which will provide an umbrella under
which we will implement our five-year strategic plan.
I would like to share with you several of the key elements of our corporate QIP
strategy. I will describe to you
what we have identified as the most important things that we need to do in order
to advance our Corporate Objective, and how we will go about ensuring that every
member of our community understands how they can contribute to that effort.
Next I will describe a comprehensive set of metrics that we are currently
developing. These metrics will help
us to set specific numerical goals and track progress toward them. Finally, I will outline a QIP training program which will be
implemented during this year and which will have the goal of assuring a
corporate wide understanding of QIP, as well providing training in the QIP
starting point for our QIP strategy is the Analog
Devices Corporate Objective, a short, simple document that can be found in
every HR department. Although it
might easily go unnoticed, it contains a concise statement of what we are as a
company, our mission, and our overall goals.
In QIP, one of the first questions we ask is "who's my
customer?" The Corporate
Objective answers this question by identifying not one, but five corporate
customers or constituents. A more
popular word that's coming into vogue now a days is the term corporate
many companies believe that they exist exclusively for the benefit of their
stockholders, Ray has forged a consensus which broadens our "QIP
customers" to also include our employees, external customers, suppliers
and communities. It goes on to
describe, in broad terms, our objectives for meeting the needs of each of these
each of our corporate QIP customers, we must answer a number of questions in
order to identify our greatest opportunities for improvement.
What are their needs? How do
they rate us in meeting those needs? What
are our rewards? What are the
external levers, the vital few means for advancing our rating and increasing
Having taken this external perspective, having listened
to the voice of the customer, we need to turn inward and identify those internal
levers that will most efficiently drive the external ones.
Metrics represent a comprehensive set of primary and secondary or
surrogate measurements, which unambiguously tell us whether we are improving.
Along with metrics go goals that represent a realistic but aggressive
timetable for these improvements.
Before I review with you the results of asking these questions, let me take a moment to show you the names of the members of the corporate QIP council, the group within ADI that has been chartered to find these answers.
This group addressed these questions to each of our corporate constituents and synthesized their answers into a single set of ADI QIP goals.
common theme that drives all of our needs is the achievement of our overall
business objectives. This is the
ball that we must always keep our eyes on.
Market leadership is measured by our relative market share.
Our aggregate relative market share is a healthy 2.5 and is the principal
basis for our historic profitability.
strategic planning classifies businesses along two dimensions: market growth
rate and relative market share. This
construct has proven to be useful because business life is so different in each
of the resulting quadrants. One of
them is hi growth, hi RMS, and that's the place we've chosen to be as a company.
It's easy to take that decision for granted but it is a conscious one
arrived at by understanding the cultural aspects of life in each of the
quadrants. That's why continued
high revenue growth along with high RMS are our over-riding business objectives.
Normative strategic patterns assure us the potential for achieving high
profitability if we achieve the other two independent objectives. That potential profitability can easily be lost, however,
through the many forms of waste. QIP provides a powerful tool for uncovering and
eliminating organizational waste with the resulting achievement of our profit
the long term, there is only one-way to achieve our business objectives: to be
rated #1 by our customers in total value delivered.
Total value delivered includes not only price paid, but also a growing
number of other considerations -- but more on that later.
do we know how we are rated by our customers?
Very simply, they tell us. In
past years this has been an informal qualitative process, mostly subjective,
often highly distorted by perceptions that are at variance with reality.
Today more and more of our customers are installing formal quantitative
vendor rating systems. Today, 35%
of our revenue base is from customers with formal rating systems.
We expect this number to rise to nearly 90% by 1992.
are the elements of these vendor-rating systems?
Many of us remember the days when they were performance, performance,
performance. That's changing
dramatically. Today, our customers
are telling us that their three most critical needs are on-time delivery,
quality, and price, in that order. They
not only tell us that, but they measure their vendors’ performance and publish
the proliferation of JIT lines, our customers are demanding shorter and shorter
less quantifiable needs are emerging; new products, jointly developed through
early involvement; automated systems for order entry and tracking or EDI
(Electronic Data Interchange) as it is commonly called; responsiveness and
support; administration.... you may wonder how that one makes the list.
Well it turns out that clerical errors: things like invoice errors, wrong
parts, and wrong part counts very quickly rise to the top of the list of costs
that our customers incur as a result of our not doing it right the first
time.... next, they want management involvement and finally innovation, not only
in our products but in the way we go about satisfying all of their needs.
has described to you our new customer partnership program, which is our
response to their expressed need for establishing relationships with their
we move on, I’d like to make two further points.
Vendor qualification is a system used by our customers to dramatically
reduce their number of suppliers. It
is not unusual for a company to go from literally thousands of suppliers down to
a hundred or so through a vendor reduction program.
Becoming a qualified vendor to all of our key accounts will be critical
to the achievement of our strategy. We
will only do this by meeting these evolving customer needs and doing it better
than our competition. By the way,
we recently made the cut at Tektronix when they went from 105 to 16 new
component suppliers. We were not so
fortunate at Fluke so there's still lots of work to be done.
you know, one of our major strategic thrusts is into the consumer market, a
place where vendor qualification programs are much more common than in the
military or industrial markets. We
will not win a single design in at a company like Apple computer until we become
one of their qualified vendors, and that will be a major challenge.
rating systems and vendor consolidation programs are not a passing whim.
They are rational, economically based responses by our customers to their
emerging understanding of what our friends at TI call the "cost of
ownership." In the QIP community,
it's called the "cost of poor quality," or what Ray prefers to call,
the "cost of waste." Vendor
qualification reduces both the combined cost for us and our customers, as well
as significantly reduces their time to market and manufacturing cycle time.
It's a concept that's here to stay and an opportunity for us to
significantly increase our penetration in existing and future customers.
return to our QIP goals. We can
summarize the external levers, those vital few improvement areas that will
increase our customer ratings, as: the right products, delivered defect free, on
time, and within an acceptable lead-time. JIT
is relentlessly driving the last of these levers.
activate them, while keeping our eyes on our overall business objectives,
particularly the last one, there are a number of internal levers that we need to
energize. Short time to market
drives our ability to efficiently provide our customers with an increasing
number of improved solutions within their market window.
Low process ppm allows us to achieve world-class outgoing ppm levels
without recourse to excessive inspection. Short
manufacturing cycle times will help us match our customers’ lead-time
requirements without the need for inordinate inventory.
The last internal lever, yield improvement is in my opinion the first
among equals. It is the key to
reducing our large yield variability, which in turn will contribute to better
on-time delivery as well as reduced cycle time and increased effective capacity.
notion of improvement curves and half-lives seems to have caught on as a useful
QIP planning tool here at Analog. The
half-life represents an approximately constant number of months needed for each
halving of a defect level. In the
next slide, I'd like to show you how we have used the concept to arrive at what
we believe are a realistic, achievable set of aggregate corporate QIP goals.
first column contains the primary set of metrics, which evolve out of our
corporate QIP objectives. The
column labeled 1987 represents typical values for these metrics in our IC
operations. The middle column is
the assumed half-lives and is based upon our sense of the complexity that is
involved. The final column is the
resulting 1992 goals. Let me first
emphasize that those are not our expectations for new, beyond the state of the
art products, built on our latest advanced processes; they would not be our
customers’ expectations for these products either. What they do represent is what we can and must expect for our
established, mature products, which at any point in time will represent well
over 80% of our business.
on-time delivery means that we will rarely shut down our customers’ JIT line
because of our parts are late. JIT does not give them the flexibility to substitute another
assembly for the one awaiting our part. The
customers’ cost for an idle assembly line is very high and very visible to
than 10 ppm incoming defect levels are essential as our customers eliminate
incoming inspection and insist on ship-to-stock, or better yet ship-to-insertion
from their vendor partners.
a number of our customers require contractual maximum lead times of 10 weeks
and some of them have announced that by 1992 that requirement will drop to below
4 weeks. This is not only driven by
JIT, but also by their customers’ lead-time requirements.
Furthermore, short lead-times minimize the need for demand forecasting
and the resulting all too frequent mismatches between actual supply and demand.
we could achieve all of these external metrics today by relying on inventory and
inspection. However, we’d
grossly miss our profitability objectives, not only in magnitude, but I'm sure,
also in sign. We need to back up
our external performance with essential internal improvements.
efficiently meet our customers lead-time requirements, we should strive to
reduce our total manufacturing cycle-time.... in IC operations, that's silicon
in to final shippable product out.... to less than their requested lead-time;
that essentially means build to order rather than build to forecast.
is the only QIP goal that has generated significant dissention.
I call it significant because I'm the dissenting party.
There is general agreement that today, the theoretical minimum IC cycle
time is in the 4 to 5 week range, and that strategic die inventories will be
required in order to provide lead-times below 3 weeks.
I bet that by 1992, innovations at ADI in manufacturing will permit us to
drive the manufacturing cycle time below 3 weeks.
is probably impossible to achieve 10-ppm outgoing defect levels through
inspection. Sampling plans yield
sample sizes approaching lot sizes. At
these low levels, any form of human intervention in the inspection process will
assure that a significant number of defective parts will pass undetected.
The only viable answer is to reduce our process ppm, the
first-time-defect-level to below 10 ppm and eliminate inspection as a quality
talked about yields earlier. Our
historic yields have been abysmally low, to say the least.
As average yield increases, yield variability drops, production planning
improves, cost goes down, and effective capacity increases.
Not too many businesses can look forward to the potentially favorable
impact of a tripling in shippable product per wafer processed.
final QIP goal is time to market. It is our greatest conceptual challenge.
There is no one out there to learn from.
I was recently visiting with my counterpart Craig Walter at HP.
Time to market is HP's number one corporate objective.
I doubt if it's a new one for them, but it's finally risen to the top of
their Pareto analyses. It is
another prime opportunity for beyond the state of the art performance from
a little hooker hidden at the bottom of this slide.
It's a theme that I've struck a number of times earlier.
There's an old debate around the question of whether cost and quality are
trade-offs. Some argue that to
improve quality, cost must increase. Let
me assure you that cost reduction and quality improvement are not tradeoffs;
they are partners. At every step of
the way, we must pursue both quality and cost improvement simultaneously, and
challenge any actions, which suggest a compromise.
a final note with regards to these goals, I urge you to judge them, not in any
absolute sense, but relative to our competition.
Talk to Brian McAloon and anyone else you know who has extensive outside
experience in our industry to find out what represents world class performance.
And don't be tempted to right off our digital IC comrades as having an
easier job. Linear IC's are
different, you might say. But to
the customer, they're not. When
it's lack of our parts, time and time again that is shutting down an assembly
line, when it's our parts that are the cause of re-work or warrantee claims, the
customer doesn't accept excuses. The
linear IC manufacturer who can deliver world class value, will reap the rewards. I believe that if we can achieve these goals, that
manufacturer will be Analog Devices.
process of goal deployment can't end with this slide.
This represents a satellite view of the ADI of 1992.
We are in the process of developing a means for deploying these tops
down goals throughout the organization. We
need to translate them into division and entity goals that are customized to
each specific situation. When the
bottoms up results are aggregated, we expect them to look very much like this,
but there certainly will be many differences between individual divisions and
between divisions, sales entities, staff function, and support groups.
The resulting QIP goals deployment will assure that we are all playing to
the same score and that the results are music not noise.
move now to the topic of QIP metrics.
defined our Corporate Objectives and set continuous improvement goals, the
logical next step is to develop a means for tracking progress toward those
goals. This tracking system must
have certain basic characteristics. First,
the metrics must by quantitative rather than qualitative.
They must be measurable, unambiguous in definition, and as simple as
possible. They must be directly
related to our Corporate Objectives, or if necessary be effective surrogates for
these objectives. They must be a
comprehensive set so that we are assured that if all of them improve we are sure
that our objectives will be advanced. I'll
talk more about this aspect when we review the customer service metrics.
Finally, they must be matched to the organizational structure so that a
single individual can be identified who has responsibility, accountability, and
clear ownership for each metric.
Our metrics system identifies both QIP and financial
goals. This display shows our
existing set of metrics boxed in yellow. The
others are under development.
the right hand side of this chart you see a number of familiar financial goals.
We've recently supplemented them with a simple Lotus 123 divisional
revenue model that relates future revenues to the annual number of new product
introductions and their actual or expected revenue profile.
The model gives us a very useful means for relating our overall macro
objectives to the micro actions in both design and marketing that are required
to support them. It has helped us
reaffirm the need for significant reductions in time to market if we want to
resume our historic high growth rate.
thing that you see in our financial goals is the word cost.
In the past, knowing our costs in detail would probably not have affected
any of our major business decisions. That
will not be true in the future. We
will need to know our product cost in detail in order to make resource
allocation, site selection and pricing decisions.
This will require the installation of a corporate-wide standard cost accounting
system which fully allocates all of our costs in ways consistent with are own
move to JIT manufacturing. This
system will also highlight the cost of waste and help us identify the greatest
opportunities for real, bottom line improvement.
Once in place, we will be able to set aggressive cost reduction goals,
many of which will be achieved through our QIP efforts.
On the QIP side, you see the familiar customer service
metrics. We have been publishing on
time metrics for several years now. These
metrics track the % of lines shipped on schedule in a given month.
They can be broken down by division, customer, customer type, and order
an example derived from our latest report.
It shows both the level and rate of improvement.
The trend, in many instances, is very encouraging; but, as you can see,
we still have a ways to go. I've
seen the February preliminary results; there'll be at least 4 divisions below
10%, and lot's of justifiable celebrating.
have recently supplemented these with what I use to call the "finger
pointing metrics." They assign
responsibility for each late line to either the factory, credit, warehousing or
the customer. It is these metrics
that each of those groups directly control.
Soon to be added are the lateness metrics that track both "when
late, how late" and "still late, how late."
Finally, the lead-time metrics track both the customers requested
lead-time and the factory quoted lead-time.
Our objective here is to drive that difference to zero.
four metrics represent a comprehensive set of delivery metrics.
If each of them is improving, we can be assured that on average we are
getting better. Without any one of
them, we risk the possibility that in our eyes we're progressing, while in the
customer's, we're getting worse.
has recently given me responsibility for dealing with quality issues that
require a corporate rather than a divisional response.
One of these issues is a single, corporate-wide definition of outgoing
ppm. This is necessary so that our
customers, for example, are able to make rational decisions on incoming
inspection policies. Once defined, outgoing ppm will be added to the formal list
have developed a time to market tracking system, which follows each new product
from the start of the design process to introduction.
Within the divisions, project management tools are being developed that
will both illuminate the new product development process and address the
question: "when late/early, why late/early" for use in QIP project
identification. This tracking
system also provides quarterly updated inputs to the revenue model.
I hope that as we develop confidence in these metrics they will have the
added benefit of providing a context for our expense planning activities.
cycle-time, yield and process ppm are currently measured at each division.
We will also be developing common definitions for these manufacturing
metrics. One interesting use will
be by the Manufacturing Council. We
plan to review the best-demonstrated practices at our meetings as a mechanism
for cross-divisional experience sharing.
last two metrics are currently the least developed and are there to represent
our intention to also introduce metrics in the areas of information systems and
human resources. They are clear
examples of surrogate metrics and will need to be supplemented by internal
customer satisfaction indices.
duality between QIP and financial goals that you see here is more than a
graphical convenience. Our QIP
strategy hinges on the elevation of QIP goals to the same level of importance as
our historic financial goals. Some
would argue that they are in fact the drivers and that financial performance is
the result of their successful achievement.
Today's financial systems go back several hundreds of years, QIP metrics,
more like months. Today, we need to view these metrics as evolving and
constantly in need of refinement.
of these metrics feed into a review process that involves the quarterly
scorecard, annual benchmark plan, and what is likely to be an annual strategic
review carried out by the corporate strategic planning committee.
The spirit of all of these review activities must include the
constructive identification of problems and the apperception of corrective
action...how's that for a 50 cent word? They
should also provide a vehicle for the early surfacing of new opportunities.
we need to always keep our overall business objectives in mind, remembering that
they are the ends, and the metrics are the means.
When conflict arises, our business objectives should always govern.
QIP training is essential if we are to achieve the aggressive rates of continuous improvement that we have targeted. We have purposely delayed QIP training until the point in time when you, our customers, have expressed a need. Well, that time is here. Feedback from the QIP teams has now passed the point where more than 50% of the participants have expressed a need for further training. We've put together a two-phase program in response to that need. I will not go over it in detail today. Instead, I'll describe its elements.
I has the objective of assuring that every single employee of Analog Devices has
a shared understanding of QIP, and furthermore that every manager and
supervisor understands it well enough to teach it to his or her direct reports.
material that we cover will include proof of the need for QIP, the six
requisites for success, our QIP goal deployment system, and an introduction to
the QIP planning tools, along with a discussion of their underlying rational.
this first phase, we will be using manager trainers.
In other words, each manager will be personally training his or her
direct reports. By the end of this
fiscal year, each ADI employee will have received phase I training.
that time, working with our corporate training department, we will have
developed a complete set of phase II, or "how to do it" training
materials. These will cover
implementation techniques, tools, training, incentives, and future trends in
QIP. Unlike phase I training, phase
II training will not be mandatory. When
you feel that you need it, it will be available. However, lack of QIP training better not appear twice on
anyone's Pareto analysis.
QIP is a team approach to problem solving.
In a sense it is the antithesis of heroics, another well-known approach.
It is characterized by small steps that build on the incremental
contributions of individual members. Credit
is hard to assign to any one person. Let's
review how a QIP team operates.
with a clearly stated objective, the QIP team meets regularly, usually weekly or
at most biweekly. Attendance is
high because the team can't function well even if a single member is absent.
The secretary publishes timely minutes.
Tom Urwin holds the record here. Tom
chairs the Euro-Marketing QIP, which meets at our affiliate office in Walton
in the U.K. By the time I get back
to my desk in Wilmington, the minutes are usually there.
I've thought of the Concorde, but it can't compete with the fax.
By nature persistent problems are almost always cross-functional in
nature, so the QIP team usually includes people from different areas: sales,
accounting, marketing, manufacturing, design for example.
These teams use a structured approach, with emphasis on data collection
and statistical tools. A working
QIP team always passes two critical tests: the members have fun and they get
you're on a QIP team now, and it doesn't operate this way, give me a call and
we'll see what we can do in advancing your training schedule.
closing, let make two assertions:
QIP is here to stay. Our challenge
now is to absorb it into our corporate culture as rapidly as possible.
Skepticism is usually healthy and well founded.
However, this is the time to set skepticism aside and give QIP a try.
As the old saying goes, "try it, you'll like it."
In all fairness though, QIP's a little like Guinness beer, for some it
takes a little getting use to.
QIP is the highest performance improvement tool in the market.
It's a great match to our product line and a super partner with
innovation. Together, I have no doubts that our strategic plan can not
only be met, but significantly exceeded. I
for one, look forward to that challenge.
 Ray Stata, then Chairman, CEO and President, now Chairman.
 Jerry Fishman, then Group Vice President, Components, now CEO and President.
 Actual slide was Feb 88 version of this one.
Last modified: August 13, 2006