Manufacturing Strategy for Window Fabricators 14 - The Cost of Quality
Many fabricators are interested in quality but this is sometimes only focused on gaining the various logos and approvals to improve customer acceptance of their product and services. This is not necessarily a bad thing but it is also possible to miss one of the biggest possible benefits of improved quality - that of actually reducing costs and improving profitability.
One of the basics of quality is that it is better (and cheaper) to prevent defects than to detect them after you have made them. If defects are prevented by an efficient quality system then waste is reduced, costs are lowered and sales can either be increased by lowering prices or more profit can be generated by keeping prices constant. Quality should not be regarded as a method of gaining logos or as an abstract theory but as a vital tool in the management of your company.
The ‘cost of quality’ is not just the cost of gaining the logo and the effort to maintain it. It is the total cost of not getting the product ‘right first time’. Quality costs are not always due to bad production but can also be created by initial specifications or customer expectations that are unrealistic with respect to production capabilities. The cost of poor quality for the avenge British business has been estimated at between 5 and 25% of turnover. At the average of 15% of turnover this could well be more than your profit! These costs are largely preventable and yet what have you done in the last 6 months to reduce them? Pause here for one second and think what it would be like if you could add half of this back on to your bottom line. This could be an increase of at least 50% in your profits. A simple calculation for your company will show the possible magnitude of the costs.
Prevention is always cheaper than detection and the different approaches (and inevitable end results) are shown below. In these terms it hardly makes sense to purchase cheap materials because the cost only returns via another route, and cheaper in the short term may be more expensive in the long term. This change of emphasis from failure and appraisal to prevention requires a change in ideas about quality control and the costs. At present, quality is often seen as a cost to the company but simply by changing the emphasis it can be seen as a gain to the company by increasing quality (and hence sales) whilst at the same time decreasing the overall product cost.
Two approaches to quality
Would you prefer defect prevention or defect detection?
It is general to divide quality costs into three separate areas i.e. prevention, appraisal and failure (PAF). For most companies 5% of quality costs are spent on prevention and 95% of quality costs are expended on failure and appraisal. These failure and prevention costs add nothing to the value of the product and are wasted money. Increasing the money spent on prevention can reduce the overall quality cost by between 30 and 50%. This could be the equivalent to adding approximately 50% to the profit figure i.e. it is a very highly geared investment.
What sort of costs should we consider to be quality costs? A typical breakdown of quality costs would be:
Internal - scrap material; labour overhead; sorting; selective production; and downtime.
External - faults and complaints; investigations; interest on unpaid invoices; and product recall costs (transport, paperwork etc). When a single call-back costs at least £50 it doesn’t take many to become a significant factor in the costs.
Intangible - lost sales through bad reputation and production delays.
It is easy to see that the true cost of quality is far higher than the first thing you thought of i.e. the cost of certification and inspection. Once the type of cost to be considered is recognised it is not surprising that quality costs can be a significant proportion of turnover. The next problem is to determine the actual quality costs and to begin to reduce them. Fortunately there are British Standards on quality costs to provide a framework for the collection and use of the necessary data but unfortunately there are no quick or easy answers to what you should do with them.
An initial recommendation is to make a start by collecting some initial costs for typical product lines and looking for possible ways to reduce or eliminate these. For a window manufacturer there are several areas to concentrate on:
How much training have you carried out in quality?
How much effort have you put into reducing the real causes of problems rather than simply fire-fighting?
Are all profiles and ancillary products delivered on time and fit for use?
What is the cost of inspection (at all stages)?
What is the scrap/wastage rate in fabrication of a typical window and how could this be reduced?
Are you performing operations that do not really need to be done i.e. post-polishing?
What are the call-back costs?
How many credits have you given customers in the last 12 months?
How much time is spent on reworking products?
How many mistakes are due to office functions and how many are due to production functions?
Reducing costs by changing from detection to prevention could be one of the best investments that you ever make. Simple changes will start to save money quickly - all it take is a change in perspective.
Quality, both in terms of your reputation and the total costs involved, may be the one thing that decides if you survive or not.
Transformation through allocation of resources
- BS 6143-1:1992 Guide to the economics of quality. Process cost model
- BS 6143-2:1990 Guide to the economics of quality. Prevention, appraisal and failure model.
The 'Manufacturing Strategy' series is designed to give window fabricators a set of ideas for managing production. The series is being published in Fenestra on a monthly basis and published here after the Fenestra publication. The series is:
Part 1: The Essential Part
Part 2: The Systems
Part 3: Just-in-Time
Part 4: Optimised Production Technology
Part 5: Work Cells
Part 6: Machines
Part 7: Machines (2)
Part 8: Scheduling
Part 9: Waste (Methods)
Part 10: Waste (Materials)
Part 11: Supply Chain
Part 12: Measurement
Part 13: Things to do NOW!
Part 14: The Cost of Quality
Part 15: The Hidden costs of inventory
Part 16: Environmental management
Part 17: Continuous Improvement
Last edited: 21/02/12
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