The Cost of Quality - A Statistical Approach

The past few years have seen rapid advancements in quality management technologies and innovation for the manufacturing sector. However, the challenge of achieving managerial buy-off for investment in manufacturing quality tools is a common one faced by manufacturing project leaders in clients large and small alike.

The reasons for the hesitancy in investment are usually centered around 3 main points:

  • Quality tools are frequently viewed as 'non-critical' equipment to a manufacturing process as they don't directly add value/progression to the production sequence
  • Decision makers, particularly those sitting in the financial function, lack the technical appreciation of the tools and their power 
  • Often, the addition of quality verification equipment into a production sequence adds additional manpower and production time to operate and utilize

The combination of these factors can often lead to investments looking unfavorable, particularly in traditional NPV justifications. This is because the perceived costs of non-quality only typically include the direct value added to a product up until the point of scrap or failure - i.e. materials and direct labor & machine time. However, these are only 'the tip of the iceberg' when it comes to the TRUE cost of non-quality. Indirect costs, which are significant yet often overlooked, include:

  • Material reorder costs - overhead, loss of economic-lot-sizes and expedition costs
  • OEE and manpower efficiency losses
  • Greater capital costs for the additional machines and equipment needed to sustain the suboptimal throughput
  • Greater inventory holding costs

....not to mention the external customer cost of low quality due to escapes and/or later deliveries. A comparative NPV analysis that KickStage completed for a client looking to invest in new on-board laser probing for a turbine blade grinder showed a NPV of -$27k when direct scrap alone was factored, but +$550k when capital, overhead and expedition costs were factored in, completely revolutionizing the business case.

We'd love to learn about the quality challenges you have and discuss some of the tools and resources available to you!

Angela.Whiteside@KickStageConsulting.com 

 

 

 


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