Today many business owners have been forced to reevaluate established practices in an effort to cut costs. This means quality in every area, from processes to customer service, could be in danger of being compromised across the board.
It is common knowledge among vendors across all industries that their overall quality of business directly affects the bottom line. Customer satisfaction is likely the most crucial facet because customers demand a certain level of quality as a justification for purchase. Customers want to be satisfied and there are thousands of manufacturers that can fulfill their needs. Internet transactions made instantaneously can make it extremely difficult for vendors to retain customer loyalty and stay competitive in their markets. Customers know they have choices, so they will shop around if not satisfied with the quality of products and/or service they receive.
In the book Differentiate or Die, authors Jack Trout and Steve Rivkin say quality is a given. It isn’t a differentiator because it is so easy for competitors to achieve the same level of excellence. Because customers assume quality is maintained at a certain level, companies can not survive by simply staking a claim to quality, especially in a highly competitive market. So, how can companies maximize initiatives and maintain a competitive edge, and ultimately, drive more profits to the bottom line?
Defining Cost of Quality
The concept of the cost of quality is probably the most talked about, yet least understood. Manufacturers tend to look at quality simply as the cost of rework or the cost of scrap, and very often have elaborate reports allowing them to see costs by individual part number, part family, date range, work center, etc.
However, the cost of quality is not the cost of making a bad part. Rather, the cost of quality is the cost of not creating a quality part or delivering a quality service. It is the investment a company makes to prevent a non-conformance from happening, the appraisal of a part for non-conformance and the cost of failure to meet a predefined standard of quality.
The goal of business is to make more money. So, to survive the economic downturn, businesses must reduce all costs, including the cost of quality.
The right quality infrastructure will have a dramatic impact in driving prevention costs as low as possible and increasing your margins significantly. Image courtesy of Exact Software.
Prevention cost is one of the most significant elements of the cost of quality. When developing plans for reduction of quality expenditures, it is critical to analyze the various prevention costs during the product launch phase.
Shop Floor Management
The shop floor management system or ERP solution should allow quick review of past information for similar parts, easily isolate quality issues in past runs for similar parts and allow the revisions of plans for producing similar new parts. The right infrastructure to allow each of these critical process steps will have a dramatic impact in driving prevention costs down and increasing margins significantly.
Design for Manufacturability
Design for Manufacturability (DFM) is a practice that determines the best possible design to maximize machining, fabrication, processing or assembly and quality while still on the drawing board. DFM experts suggest companies should adhere to a core set of DFM guidelines and eliminate things that increase the probability of compromised quality down the road. When a company focuses on issues in the design stage of the process, increased revenues are highly likely since issues related to part quality can be caught early on.
Focusing on DFM can have a huge impact on profitability and increased margins. Studies have shown the closer the quality issues are matched to the actual manufacturing process, the higher the impact to the bottom line. According to American Society for Quality, quality issues identified by the end customer cost a company 10,000 times more than the cost of identifying the issue during the manufacturing process. A focus on DFM even before the manufacturing process begins will pay huge dividends to small and large companies alike.
Appraisal costs are the more evident elements of the cost of quality. Most companies employ a quality team to focus on measuring quality throughout the manufacturing process. However, besides monitoring, what are they doing to reduce, minimize or eliminate these appraisal costs all together?
The last element of the cost of quality is more evident; failure cost. The visibility of failure cost is widely captured in traditional ERP systems. However, another type of failure cost companies overlook is the cost of following-up on customer complaints and returns.
If your business is not easy for analyzing administrative costs concerning failure, it is recommended that you begin with just one product family or one part number. Analyze the time and associated costs incurred when key administrative personnel are tied up dealing with customer complaints or returns during quality system downtime.
Once you understand the external costs associated with customer complaints or defects, you can trace them back to the job or project where the issue arose. This will help to uncover and hidden cost of quality.
So how does a company who has identified quality as a means to recession-proof themselves, actually do it and reduce the time from awareness to action?
Ensure ultimate visibility. A quality system with 360 degree visibility into every quality issue, who has the issue and any issues past due, is of the utmost importance.
Have the data pushed to you daily in the form of a quality to-do list.
Define customer-specific quality processes that allow you to deliver customer-centric quality parts and document any outstanding quality issues specific to customer requirements.
Establish document control if you are certified to a specific quality standard or simply compliant.
Ultimately, it has to be management that sets the quality roadmap and is responsible for eliminating waste brought about by a lack of understanding. Employee empowerment to enact change, removal of roadblocks, goal setting and recognition of achievement are all key cultural issues that must be achieved in a world-class, quality-driven organization.