Quality Costs

In 1980, I bought a 1980 Pontiac Phoenix.  It was the worst car I ever owned. 

In those days I had a young family, and did minor auto maintenance such as oil changes myself to save money.   But I never changed the oil on this vehicle.  It seemed that every time the car was due for an oil change, it was at the dealer for some sort of repair, so I’d just have the dealer change the oil.

I was so disappointed with the vehicle, that I swore I’d never buy another GM car.  That was 32 years ago, and I’ve kept my promise.   My next car was a Japanese car.  I liked it so much I’ve been buying them almost exclusively ever since.  Can any company afford customers like me?

 Many believe that the cost of a field failure is the processing cost of the repair.  Genichi Taguchi, a well-known Japanese statistician and engineer, once theorized that the cost of a field failure is ten times the cost of the product.  If he is right, companies should spend most of its quality budget on prevention.

Some American managers believe that producing a quality product is too expensive.  I argue that producing a quality product reduces cost.  For a real life example, click here.  The problem is that most companies don’t really know how to measure quality cost. 

In many companies the major component of quality cost is appraisal (inspection).  Management knows what that cost is because it’s easy to measure.  They know how many inspectors there are and the associated overhead. 

There are other costs associated with quality though.   In general there are four areas of quality cost to consider:

• Prevention
• Appraisal (Inspection)
• Internal Failures (scrap & rework)
• External Failures (warranty claims, recalls, customer attitude)

In fact, all but the last cost are relatively easy to measure.  External failure cost or warranty cost is more elusive.  We can measure the cost of the return process – shipping cost, evaluation cost, and repair cost, but we can’t measure the customer’s attitude towards the failure.   Will he purchase the product again, or will he buy from someone else?  Will he share his disappointment with friends and colleagues?  I’ve shared the story above with hundreds of people.  Did any of them select a competitor’s automobile as a result?   Who knows?  Can any manufacturer afford to try to find out?

When considering where to spend a limited quality budget, invest in measurement and prevention.  Measurement indicates the problem areas.  Prevention works in the problem areas to reduce or eliminate them.  As the problems diminish, the costs of appraisal, internal and external failures go down.  The result: higher quality and lower cost.

For more information go to www.rosehillsystems.com

Identification and Traceability

ISO 9001 section 7.5.3 addresses identification and traceability of product.  Identification is normally performed by assigning a part number.  Purchased components normally contain a part number from the supplier.  When this is not the case, one should be assigned to the parts or to them upon receipt.

During production, a product that goes through multiple process steps must be identified as to which process steps it has gone through.  This is often accomplished by attaching a traveler document.  A traveler will indicate which process steps have been accomplished.  This is critical when the process step does not change the appearance of the product like passivation, cleaning, inspection and annealing.   Another way to do this is by changing the part number as the product goes through different process steps.

Position can be used as an indicator of production or inspection status.  For example, purchased product is not moved to inventory until inspection has occurred.  Any product not in inventory is considered uninspected.  All products in inventory are considered inspected.  Once removed from inventory, the product cannot be returned to inventory until it has been inspected.

If a product is removed from inventory, processed and returned to inventory, its part number should change when it is returned to inventory.  For example, an item that is plated and returned to inventory awaiting additional processing should have a different part number after plating.

Some parts cannot be marked with a part number.  In this case, the outer packaging should identify the part number of the item, and the item should be left in this packaging until consumed.  In cases where this is not possible, such as items that go into a clean room, the product should be placed in some acceptable tote container, and the container should be marked with the part number.

Test status must also be maintained in all stages of production.  Again, a traveler can indicate inspection status, or an inspection report can be attached to the product.  Also inspection steps that release only inspected product to the next process can be an indicator of inspection status, but is a less secure method.

While identification relates to part number or status, traceability relates to specific parts or production batches.  Traceability is required in some industries.  Lot control is easy to implement and should be considered by most organizations.  Lots can be controlled by marking them by production date.  In many cases, traceability is lost when the packaging is discarded.  In these cases, shipping paperwork should record which production batch (es) were shipped in each shipment.

Some see traceability as unnecessary extra work, but an ounce of prevention is worth a pound of cure.  Consider a product defect that gets into the field.  Knowing the production date where the defect started provides a method of creating a containment plan.  Knowing where that product was shipped, permits a positive recall that assures that only the potentially defective product is recalled.

In one company, we maintained serial number control of finished product and recorded lot numbers of each component on our inventory pick tickets as components went into assembly.  We had received a substandard batch of 14 bearings that started failing in the field.  We were able to recall a select group of 20 serial numbers (there were two lots of bearings in the production batch) for re-inspection and bearing replacement where needed.  Only a few customers needed notification, minimizing our exposure.  We were also able to identify the supplier and charge back the supplier for the defects.

Traceability is important when multiple suppliers supply the same product.  It can be a powerful tool for defect reduction and quality improvement.  Use it wherever possible.

For more information go to www.rosehillsystems.com

Achieving Quality

It’s important to understand what quality is and how to achieve it.  The definitions below will not be found in ISO 9001, but they are important to understand. 

Many companies have trouble with quality.  These companies tend to have inconsistent quality or ineffective quality systems.  One reason for this is that they do not have a clear understanding of what quality is or how to get it.  There are four absolutes of quality:

·         Definition

·         System for causing quality

·         Performance standard

·         Measurement system

To keep it simple, quality means conformance to requirements.  If you conform to requirements you do quality work, and if you don’t conform, you don’t do quality work.  There are no degrees of quality.  You either meet the requirements or you do not.  Similarly, there are no degrees of defects.  A product or service is either defective or not defective (it either meets requirements or it doesn’t).
To cause quality, companies implement inspection systems.  The problem is that quality cannot be inspected into the product.  This is not to say that inspection is unimportant, but to say that inspection need only be performed for proof of performance, or auditing.   In fact, the only way to cause quality is to design and build it into the product.  The system for causing quality then is defect prevention.

I once worked for a company that used sampling plans for critical, major and minor defects.  Respectively the acceptable quality levels (AQL) were 1%, 2.5% and 4% respectively.  If the products were running at these levels then, the company was shipping 7.5% defective product.  Performance standards like these make a statement:  Some defects are OK.  They send a message to employees that defects are allowed.

In order to produce a quality product, the only performance standard that will be successful is zero defects.  This doesn’t mean that nobody can make a mistake. Mistakes will happen.  What it does mean though is that when mistakes do happen, we work to understand the root causes, and take action to correct and eliminate them.  This sends a different message.  The message is that no defects are acceptable.  Consider the airline industry.  How many deaths from plane crashes are acceptable?

Any good company tries to measure itself to see how it is doing against goals.  It will measure sales, cost of sales, on time delivery, etc.  The measurement system for quality should be the cost of quality.  This means what it costs to do things wrong.  Some call this the price of non-conformance.  By focusing on this cost and driving to eliminate it, cost will go down as quality goes up.  When costs go down, profits increase.

For more information go to www.rosehillsystems.com.

 

Organization

ISO 9001 section 5.5.1 states:

"Top management shall ensure that responsibilities and authorities are defined and communicated within the organization." 

To meet this requirement, it is common for the quality manual to include an organization chart, or reference a documented chart.  I like to include the organization chart in the manual, with titles, but no names.  There are a couple of reasons for this:

·         Organizations change over time, and invariably the organization chart changes as new players are added or reporting changes.  If the manual references an organization chart, that chart must be kept up to date, and must be a controlled document.  It's not common for SMBs to manage a controlled organization chart, and many smaller companies don't have one at all.

·         If the manual has a detailed organization chart, the manual must be revised.  In an organization with lots of personnel changes, this can be overbearing.

Keeping a simple, general chart in the manual is a good compromise.  A chart like the one below usually passes muster with the external auditor, and rarely changes:

The old saw prevails - keep it simple.