A quality management system can actually help you reduce production costs.
By Sam Lines
Can you afford to adopt a documented quality management system? The better question to ask is this: Can you afford not to have a quality management system? This question is often the center of debate among many small- and medium-sized precast concrete producers. The larger plants can afford the resources necessary to develop the documentation, procedures, forms and tests that are required as part of a formal quality system.
One of the popular quality systems for the precast concrete industry is the National Precast Concrete Association (NPCA) Plant Certification Program. This program has a foundation of industry-specific standards that have been established as the necessary requirements for a precast plant to implement in order to produce the best quality concrete products. Each plant develops its own procedures and work instructions that meet or exceed the NPCA requirements. Plants are audited annually through unannounced inspections by an independent auditing firm. The precast plant must meet a minimum score to maintain its certification.
Maintaining a quality system requires a disciplined effort from the precast producer. Depending on the size of the operation, daily inspections and concrete testing are required. In some cases, multiple tests are required each day. The additional indirect labor required for quality is one of the major obstacles for plants when deciding whether to become certified. It is often viewed as an additional cost to the operation that will shrink profitability. However, when they look at the costs of making faulty products, they may find the opposite to be true.
Quality cost categories
Quality costs can be divided into three distinct categories: prevention costs, appraisal costs and failure costs. The failure costs are further divided into internal and external. In a perfect world, there would be no failure costs. But we don’t live in a perfect world; we live in the real world.
Experts agree that a typical manufacturing organization’s total quality costs range from 20% to 30% of sales. This is the sum of all of these categories. Implementation of a documented quality system will have a tremendous impact on reducing these costs, primarily in the failure category.
Explained further, prevention costs are all of the activities performed to prevent poor quality. The cost to develop documented procedures, forms and work instructions are in this category. Also, the salary of a quality manager may be in this category. This is often referred to as quality assurance.
Appraisal costs include inspection and testing activities. Activities prior to manufacturing, such as design and purchasing, also have inspection activities. This is often referred to as quality control.
Prevention and appraisal activities are in place to reduce or eliminate failure costs. A lack of either of these activities will not prevent defective product from being produced and shipped. Every manufacturer should have some form of prevention, appraisal or both.
Failure costs are not desirable. If you did not make the product right the first time, then making it right the second time adds cost without adding value. Manufacturers with high failure costs will struggle to stay in business. To offset the high cost of repair and rework, wages for direct labor will be lower than comparable companies. These companies will typically hire unskilled labor, and may actually need to employ more laborers due to the extra time invested in repair and rework. In addition, not all products can be repaired – some are set aside and sold as seconds, or they are scrapped altogether. As the product gets further along in the manufacturing cycle, the cost for detection and repair is multiplied.
Here is an example: A mistake in the drawing that could be easily fixed for $1 of labor in design can cost $10 to repair if not caught until the pre-pour inspection. Further, a mistake that would cost $25 to repair prior to shipment can easily cost 10 to 100 times more if the defect is found at the job site.
It is easy to see how the cost of quality can be 20% of sales. Also, quality costs are often like an iceberg: The hidden cost is many times more than the visible costs. Prevention and appraisal costs can be planned and budgeted into product costing, whereas failure costs usually cannot. In addition, prevention and appraisal costs will vary with the size of an organization, and are a blend of fixed and variable costs. Based on my experience as a quality manager in a large precast plant, where the quality department was staffed with five full-time employees, the appraisal and prevention costs range from 1.5% to 2% of sales. If the cost of poor quality is equivalent to 20% of sales, and the investment to prevent this is 2% of sales, then the return on investment is 900%.
In his popular book on the field of quality management “Quality is Free,” Philip Crosby lays out the case by explaining that a quality system is not an added expense, but rather a tool that is used to slash undesirable costs. Crosby states that “Quality is free, it is not a gift but it is free. What costs money are the unquality things – all the actions that involve not doing it right the first time.” A quality management system can help you achieve greater efficiency.
This is a shift in thinking for some people, but it’s as simple as the rule my dad always taught me: “measure twice, cut once.”
Sam Lines, MBA, is sales/safety engineer and lean coordinator with Concrete Sealants Inc., Tipp City, Ohio. Contact him at (937) 845-8776 or visit www.conseal.com.
1 Crosby, Philip. (1980). Quality is Free. New York:Penguin Group.