Is Bad Quality Adding to Your Margin Pressures?

We talk prevention, but do detection

Published: Thursday, January 5, 2023 - 13:03

Manufacturers spend too much on quality issues. Some issues they are blind to, some are due to poor detection, and some are the costs incurred when issues escape to a customer.

It seems like in recent years the challenges have been great in both magnitude and quantity—supply chain turmoil, global unrest, and workforce challenges are just a few examples. To confound things, issues seem to be circular in nature, one influencing the other. This puts immense pressure on the margins of manufacturing organizations. There has to be a way out... and it starts with changing the way we think. The Roman emperor Marcus Aurelius once said, “The happiness of your life depends upon the quality of your thoughts.”

I claim there is money to be had in how we approach manufacturing. During the past few decades, manufacturing has made significant strides in the consistency and quality of products, but at what cost? This is an elusive question. Of the hundreds of customers I’ve worked with over the past couple decades, few really know the true costs.

If I look at the average manufacturer today, they struggle with building a culture of quality, one that puts all eyes in the organization on waste and poor quality. Many talk about prevention, but in actual practice they focus on detection, which they do pretty well, and only dabble in prevention.

ASQ estimates the average cost of quality to be as high as 20 percent of sales. This seems like it’s worth looking into.

Why is this? How can we reduce this? Let’s look at the anatomy of the often-hidden efforts required for a typical quality issue.

What does a quality issue cost?

Below is a list of activities that are typically done for a very simple quality issue for a single product that went out to a single customer. These are just the steps, each likely having hidden costs that are not usually accounted for. I exclude the obvious costs (e.g., scrap, rework) because they are usually accounted for. You don’t have to read the entire list; just absorb the immensity of it all. It leads to high direct costs to the manufacturer, either eroding their margins or causing price increases that could allow a competitor to unseat them. It leads to both employee and customer dissatisfaction and a heck of a lot of waste. Nobody wins in this deal... except maybe the third-party logistics (3PL) companies.

Customer efforts

• At occurrence of quality spill—Customer inspects incoming product and notices an issue, quarantines the product, files a complaint.
• Post-occurrence of spill—Customer reinspects the new shipments to replace the original defective ones, modifies their production schedules, communicates recommitment dates, contacts 3PL to ship bad product back.

Customer service efforts

Customer service fields the complaint, complaint is triaged, complaint is investigated, NCR is created, RMA is issued, customer contacts 3PL and ships the return.

Operations at manufacturer

NCR containment actions are determined, containment actions are completed, shipping receives the suspect product from customer, material handler moves the product to hold location, good parts are separated from bad returned parts, defective product is dispositioned, product is scrapped or reworked, ERP records updated for scrapped vs. good parts received, replacement subcomponents/raw materials are ordered to support building replacement parts, production schedule is updated, production produces the replacement parts, parts are inspected and shipped, customer may issue a charge-back for any of their losses as a result.

Detection isn’t enough

Detection, in manufacturing, typically means measuring the product to make sure it meets specifications. By that very definition, if it’s found to be nonconforming, it’s too late; the bad product has already been produced.

Detection certainly has a place. It can reduce risks by helping to ensure bad products don’t get shipped, reducing some (not nearly all) of the efforts listed above, and it improves short-term customer satisfaction.

Often, nonconformances are found by customers because of something the manufacturer isn’t controlling or measuring. But the corrective action often includes putting a check in place to detect that failure before shipment. That check is often never removed, even if the corrective action was effective and a failure has not recurred.

These costs often become unintentionally buried in the cost of doing business, which can result in a false security that quality costs are under control, or worse, there is no visibility and therefore no consideration for reducing. Shigeo Shingo, a contributor to many manufacturing practices today, once said, “The most dangerous kind of waste is the waste we do not recognize.”

I believe the next logical evolutionary step is to focus on margin improvement through more mature quality practices. That requires two different but very related efforts—prevention and a culture of quality.

Power of prevention

Many in manufacturing are familiar with the “Rule of 10” concept, which states that for every stage in the manufacturing process that a quality problem is perpetuated, the cost to correct is multiplied by a factor of 10. Say a product in stage one has a quality problem and it moves to stage two and then stage three. If it costs a dollar to fix it in stage one, it would cost $100 to fix it in stage three. The exact multiplier doesn’t really matter; it’s the concept itself that’s the important part, and it infers two things: Detecting the problem quickly is very important, but eliminating the problem altogether should be the ultimate goal.

We’ve already discussed detection, so how do we eliminate the problem altogether?

Solid new product introduction (NPI) practices

Manufacturers need a system in place to achieve a timely and effective NPI with high initial quality. To be successful, all steps must be defined, sequenced, and assigned clear responsibility, due dates, and automatic notifications and reminders. A system should allow NPI projects to be managed in a disciplined and repeatable manner, including key dates, tasks, role responsibilities, and timing expectations. It should also be able to identify milestone tasks with appropriate approval required, as well as tasks with predefined checklists to drive thoroughness regardless of the person. Linking subprojects for each supplied component/material will provide program managers with the visibility to keep suppliers on track. Suppliers should be viewed as an extension of the staff and integrated in the NPI.

Institutionalizing manufacturing risk knowledge in a software system

Putting manufacturing risk knowledge (think FMEA) into a database drives efficiency, thoroughness, standardization, and effectiveness, and allows your team to focus on the nonstandard risks for a new product. This requires:

• A repository for foundational product design risks for specific systems within end products so those risks are suggested based on the systems required by the new product
• Similarly, a repository for foundational process design risk for specific manufacturing processes
• Quality control plans should be developed based on those risks, and those plans dictate and become a plan for what is monitored, how often it is monitored, and how it is monitored

Focus on process rather than product characteristics

Many companies focus on product characteristics because they rightfully want to make sure the end product is conforming to requirements. There is an ineffectiveness in this thinking: If I measure a product characteristic, and it is out of spec, I already have a defect.

Where possible, we should identify process characteristics we can monitor that are leading indicators of when product characteristics will be in or out of spec. For example, when heat-treating a part, often the process characteristics of temperature and hold times predict the hardness produced from the process. Therefore, we should make sure those process characteristics stay within an acceptable range to help ensure that the product characteristic will as well, and therefore eliminating nonconforming products altogether.

Building a culture of quality

Imagine an organization where the most knowledgeable people are participating in cross-functional teams at critical decision points, and all those team members gain a deeper understanding of the various aspects of the business because they learn from each other. This is especially true during root cause and corrective action of a quality problem, but more important during the initial design of quality into the product.

What if all personnel were trained on what contributes to, or detracts from, profit? They will understand the business and take ownership of the quality and efficiency of their own work products as well as monitoring quality elsewhere. And of course, management creates a safe environment for bringing up concerns.

See that improvement tools are appropriately used in a disciplined manner, allowing for a continuous improvement-based culture wherein no single person needs to rush in and be a hero. The entire team works to ward off problems, and the production floor is void of chaos and waste because everything is under control. When there is an issue, things get back on track quickly.

This is a culture of quality. Only leadership can put the practices in place to motivate the workforce and turn the practices into habits. Nobody wins when quality is poor—but everyone wins when quality is good.

About The Author

Brian Brooks

Brian Brooks has more than 25 years of leadership experience in manufacturing software and technology and is an expert in the management, design, and development of quality management systems. Brooks has a bachelor’s degree in electrical engineering and physics from the University of Wisconsin-Madison, and he worked at Ford Motor Co. for five years as an engineer before cofounding his own quality management software company. Brooks joined QAD in 2012 and serves as senior manager of product management for QAD EQMS. His goal is to develop solutions that have rapid time-to-value, are highly adopted and easy to use, which allows customers to prevent quality issues up front and reduce repeat occurrences.