Pursuing Perfection Beyond the Acceptable Quality Level (AQL)

An ad promotes an Internet Service Provider’s (ISP) subscription plans.  On the bottom in small fine print is written “30% minimum speed at 80& reliability.”

The Philippines’ National Telecommunications Commission (NTC) in a memorandum in 2011 mandated that ISPs should provide at least 80% service reliability to customers: 

An ISP therefore should be able to provide an internet connection to its customers at or more than its minimum internet speed 80% of the time.  Or to put it another way, the ISP’s customers should be able to experience the minimum internet speed they signed up for 24 out of 30 days in a month.  If a subscriber does experiences the minimum speed six (6) days or faster in a month, the NTC considers the ISP’s service acceptable. 

The ISP is also required to tell its subscribers what the minimum internet speed is. In the ad mentioned above, the ISP informs customers that its minimum speed is 30% of what it advertises.  Thus, if a subscriber applies for a 300 Mbps plan, the ISP will guarantee a minimum speed of up to 90 Mbps.  An ISP is obliged to give only up to 30% of what the subscriber signs up for. 

Just imagine if this kind of advertising is applied in the fast-food industry.  A customer orders from a fast-food restaurant and the restaurant is guaranteed only to serve 30% of what’s on the menu.  If we order a 10-piece bucket of fried chicken, for example, and the fast-food gives you only up to three (3) pieces and the government allows it, we would surely be angry but we won’t be able to do anything about it. 

What the ISP advertises and what it actually serves evolves from the concept of the Acceptable Quality Level (AQL). 

The United States military adopted the Acceptable Quality Level (AQL) as a standard for inspection during the Second World War.  The idea is to set a level of what would be considered acceptable from a batch of items received from a vendor or a factory. 

For example, the US Army may accept a lot of 10,000 bullets if only up to fifty (50) of the bullets (AQL of 0.5%) are defective.  The US Army would be willing to pay for all 10,000 bullets even if it really would be able to use only 9,950 of them.  That doesn’t sound so bad unless you’re the soldier who ends up with the fifty (50) bad bullets. 

How AQLs are set varies from enterprise to enterprise, industry to industry.  Vendors would plead for higher AQLs if customers are buying items in very large lot sizes.  Sellers of small parts manufactured in large quantities like nails, wires, screws, and welding rods would ask for high AQLs as they would argue that defects are unavoidable and impossible to sort & separate all unconforming items. 

Customers, however, would discriminate what items deserve higher (looser) or lower (stringent) AQLs.  Customers would insist that how AQLs are set should depend on what the items would be used for.  For construction of a large warehouse, for instance, having a higher AQL for a large number of nails may be tolerable.  For owners of residential homes, however, they may not welcome a high AQL for nails or any construction material as this may result into a badly built house that can bring inconveniences if not hazards (e.g. a bad nail that leads to a collapsing ceiling). 

Food product manufacturers may accept higher AQLs for not-so-critical items like packaging materials but won’t welcome allowances for defective raw materials.  A food enterprise may accept a few imperfect boxes but I doubt it would accept even a few bad apples out of hundreds. 

And pharmaceutical firms won’t probably be too tolerant for high AQL’s for ingredients for medicines.

Utility firms apply AQLs in their services.  Electricity firms negotiate contracts with communities and try to convince consumers to accept a minimum level of power un-reliability, such as allowing for a number of days for a power plant to not supply electricity so that it can undergo maintenance.  Water companies try to get customers to agree on an acceptable quality of potability, to the extent notifying customers that the water they supply will not be fit for drinking anytime.    

In exchange for higher AQLs, enterprises sometimes offer discounts or defer price increases, from which they can position themselves as low-cost suppliers versus rivals.  In other words, customers can get products and services cheaply but they won’t get 100% quality. 

ISPs try to out-compete each other via this latter scenario.  Some offer the cheapest rates, advertise maximum speeds, but in the fine print guarantee only a minimum speed at a fraction of the time that is compliant to the law. 

Some ISPs will try to outdo the other such as by bumping up the minimum speed to 40% versus a rival’s 30%.  To the subscriber, however, he or she will never really get what they wish for from the advertising.

When ISPs advertise their maximum speeds, they reveal what they are capable of supplying to their subscribers.  But they also are insecure that their operations won’t run perfectly and reliably all the time.  Hence, they build in allowances to attain what they believe is an attainable level of performance which they can realistically provide to their subscribers. 

The problem with this kind of thinking is that it encourages complacency. 

The ISPs over time will won’t feel the need to improve the uptime of their broadband connectivity and to lengthen the time of their maximum service speed since they have the government’s blessing for an 80% reliability and a minimum speed that only requires notifying customers.  And they will continue to do so as long as rivals don’t try to up the game.

Many enterprises have over time accepted the AQL and said all right to accepting so many defects in the items or services they buy.  It becomes a standard that sometimes no one bothers to see if it can be improved.  If a factory is getting 95% acceptable product and its rivals are getting just the same, executives may not see the incentive to improve; after all, the factory is competitive at least for now. 

Up-and-coming competitors challenge established companies by bucking the AQL standard, by taking advantage of the complacency that take hold in established companies.  A new ISP company for instance may offer guaranteed minimum speeds of 80% (though they may lower the maximum speed advertised) at the same price as rivals.  

Competitors, the successful ones anyway, will claim to do better by offering better quality that improves from an industry’s AQL.  The real good ones would adopt continuous improvement that lead to zero defects. 

Acceptable Quality Levels (AQLs) were established to provide some reasonable standard in the inspection of items.  They weren’t meant to set the standards of quality; doing so only inspires complacency and encourages stagnancy. 

In a world where competitive disruption is more likely than ever, perfection in quality, via zero defects, is what we should pursue. 

About Overtimers Anonymous

What Collaboration Is and Is Not

Collaboration denotes a cooperative working relationship between parties which leads to mutual benefits.  It’s not commonly observed in industries and supply chains despite the potential benefits it can bring.  This is because it’s not easy to do and in the first place, many business executives don’t think it’s worth the trouble. 

Many enterprises, small businesses especially, don’t have the leverage to collaborate.  Big companies look down at small ones, for one thing, and see no worth in pursuing collaborative relationships with enterprises that contribute little to their revenue or cost. 

Even if a small business grows larger, it would still have trouble earning trust from suppliers and customers.  It’s just natural to be suspicious and wary when dealing with others outside of our own organisation, if we aren’t already to those within our own workplace.  Our parents did tell us not to talk to strangers when we were children.  We were taught not to trust just anyone.  

Collaboration has to start between individuals within an organisation before it can expand to those outside it.  An organisation has to establish internal collaboration before it can externally collaborate with other enterprises such as vendors and customers.[1]

Internal collaboration is when “sales, marketing, and operations find a way to align and focus on serving the customer in a way that maximises internal profit.”[2]

When internal collaboration is achieved, then an organisation can move to external collaboration.  External collaboration “consists of a supplier and a customer working together to achieve mutual improvement.”[3] 

We should know what collaboration is and what it is not. 

  1. It isn’t a meeting.  It’s not several representatives of one company meeting with those from another.  It’s not enough also that representatives draw up agreed action plans or sign a contract after a series of meetings.  Agreements and contracts aren’t collaborations; they’re just formalities to existing business arrangements that don’t outright lead to mutual improvement; 
  2. Collaboration isn’t an internet link.  When an enterprise can order materials from suppliers via email or customers can order merchandise via a dedicated electronic data processing (EDP) network, that is not collaboration.  That’s a connection.  Such a network that eliminates time-consuming documentation may be a manifestation of enterprises working together but it’s really nothing more than a wired conduit between information systems; 
  3. Collaboration is about multi-function cooperation, not just one department with another.   It’s about representatives from every relevant function of an organisation cooperating with counterparts from another.  Suppliers and clients in collaboration wouldn’t be limited to price and order issues; they’d be discussing inventories, payables, quality, and operations reliability;
  1. Collaboration is working together.  It is about enterprises huddling as one in developing common mutually beneficial objectives and strategies;
  2. It isn’t a merger.  Collaboration doesn’t mean becoming one enterprise.  There’s still a distance to maintain because there would still be diverging interests.  A customer who’s into retail may not want to really involve herself too much with a supplier who’s into manufacturing, for instance; 
  3. Collaboration is dedication via leadership.  Enterprise executives must lead by showing initiative, investing time, and developing trust with their counterparts.  When executives dedicate, they show how serious they are to the organisation.  Naturally, the organisation would follow the leaders; 
  4. But it’s dedication not commitment.   Collaboration is more like a friendship, in which individuals come together as a team to explore opportunities and come up with common goals.  But it’s not a marriage where an enterprise wholly commits itself to another.  We don’t sell our souls when we collaborate; 
  5. Collaboration is not for everyone.  Small businesses may not have much leverage to collaborate but who cares?  Some firms may be perfectly fine without collaboration, for now or for the meantime.  A hardware store dealing with thousands of items wouldn’t spare the time to collaborate with a vendor of very few items, even if the items make up a significant bulk of sales;
  6. Collaboration is an activity that requires preparation and structure.  Dealing with counterparts, whether internally or externally, with other functions or with vendors or customers, requires planning, policies, and a framework of assignment, accountability, and performance measurement.  There must be a front-line team who will work with another from the other side.  That team must know what it wants, what its limits are, and what it must answer for; 
  7. Collaboration is a system.  At least it should evolve into one.  Collaborating is not just a meeting of minds and just getting things done together.  For it to be worth it, it has to result in a continuous mutually beneficial relationship.  Each side should establish a shared routine of communications, negotiations, and transactions that point toward higher levels of performance that give rise to ever increasing benefits. 

Collaboration is not only about getting two parties together, ironing out differences, and coming out with an agreement.  It’s not a meeting.  It’s not something that leads to a contract or even a merger.  It’s an activity where counterparts work together toward a common purpose for mutual benefit.  But it’s not a marriage; counterparts should respect each other’s individual personality and path.  It requires a team with a set agenda and that’s dedicated to perform.  It eventually becomes a system where the parties perform and grow together in a shared environment. 

It’s not easy to start, not easy to sustain.  But it might be worth the effort.  Because two heads are always better than one.  Working together is better than working alone. 

About Overtimers Anonymous


[1] Reuben E. Slone, J. Paul Dittman, and John T. Mentzer, The New Supply Chain Agenda: The 5 Steps that Drive Real Value (Boston, Massachusetts: Harvard Business Press, 2010), chapters 5, Kindle.

[2] Ibid, chapter 5, Kindle.

[3] Ibid, chapter 6, Kindle.