Hiding in the shadows of the manufacturing production process is the cost of poor quality, or the money that businesses lose because of defective products. This oft-overlooked factor in assessing business costs is a substantial portion—between 15 and 40 percent—of a company’s overall cost profile.
Reacting too late to correct quality problems only adds to these costs. To mitigate them requires identification and repair of damaged processes and goods, and the restoration of customer confidence. A reactive method often costs businesses five times what they would have spent had they identified the causes of the product failure and eliminated them at the earliest stages possible.
Mike Waight, a project manager with IMEC who works with manufacturers in the Tri-County Area, advocates proactive, or preventive, steps to minimize the costs of poor quality. While the cost of quality includes the standard detection and prevention costs, it also incorporates the cost of lost opportunity, as well as labor, rework, disposition and materials that were added to the product before rejection.
According to Waight, the overall cost associated with poor quality is greater than preventive costs. “Many smaller manufacturers hesitate to take precautionary measures because they believe the investment costs are prohibitive,” said Waight. “But in the long run, prevention will be far more effective in improving the company’s bottom line.”
Step by Step
Third-party organizations like IMEC can help small manufacturers assess their quality systems and take steps to reduce the costs of poor quality. “We assist with product planning and mistake proofing and also work with both customers and suppliers to help them understand and relate the applications of their respective products,” noted Waight. “A cost of quality analysis can show our clients how they can reduce corrective costs and eliminate failures.”
The costs are analyzed through an evaluation that addresses internal and external failure costs, appraisal costs and prevention costs in order to calculate an overall cost of quality. The analysis shows how the numbers balance each other.
The Right Tools for the Job
IMEC focuses on analysis techniques such as Advanced Product Quality Planning (APQP) and Failure Modes and Effects Analysis (FMEA) when working with manufacturers to prevent quality problems and reduce associated costs.
First, IMEC helps manufacturers identify the root causes of their current failures. The results drive the design and implementation of effective preventative measures to completely eliminate the failures. In a sense, root cause analysis is the advanced warning signal that triggers corrective action.
APQP determines the customer’s needs, requirements and expectations while developing manufacturing systems and control plans to meet those requirements. This process helps reduce variations by linking outputs in perfect accordance with the customer’s product programs. By reducing variations, the price of non-conformance also decreases.
FMEA is utilized to identify possible failures within a manufacturing process and analyze the effects of those failures on other sub-components of the process itself. Potential failures are ranked and prioritized, and preventive actions are developed and implemented. Both concepts seek to prevent failure before it occurs.
Tracking quality costs in order to prevent future mistakes is a process that must factor in resource allocation. For example, one way to assess quality costs is to calculate the amount of labor and resources used at each step in the manufacturing process and categorize those costs as error-preventive, error-seeking or failure-correction-related.
“Prevention costs are a positive investment—as long as they are kept in balance with the risk of never actually implementing the corrective actions,” added Waight.
Summary
In an environment where companies are looking to consistently reduce the cost of the product delivered to their customers, it is vital for manufacturers to know where and how dollars are spent. Thorough analysis enables manufacturers to use the power of prevention to minimize the overall cost of quality and contribute to customer satisfaction. iBi
