Applying Six Sigma Principles to Operations: The Cost of Poor Quality
The principles and methodology of Six Sigma are applicable to multiple industries and processes. In all cases, the primary reason these principles are implemented is to eliminate errors, to the greatest extent possible, before they happen. The only way to accomplish this is by starting with an honest assessment of the process, locating the source of the error(s), and making needed correction(s) there. By implementing solutions upstream, where the errors occur, the client will realize much greater confidence in the quality of the final products being sent to the customer. The “quality” of the final product is what the customer is paying for. Quality in this case refers to: safety, price, availability, usefulness, and effectiveness in filling the need(s) that the customer has. All these requirements must be met for the product to be successful. If it’s not safe, why buy it? If it’s too costly or not available, alternatives will be found. If it’s not useful in solving the issue, the customer won’t want to pay for it. So, why buy it?
As with anything, it is costly to destroy product found to be below acceptable quality standards at any point in the production process. However, these are usually limited to the cost of materials, time, and labor. It becomes far costlier to the company once the product is in the consumer’s hands. The worst situation any manufacturer can encounter is a product recall after it has left the manufacturer’s control. These costs extend substantially beyond those of just the time and materials involved. This all goes under the category of “The Cost of Poor Quality.” This cost includes real dollars and cents of materials, time, and labor as well as non-tangible costs such as: the firm’s reputation, its brand name, how the company’s ethics are viewed, etc. Further, customer loyalty can be shaken, competing manufacturers are always quick to fill a void left by a recall. Market share and financial forecasts are affected as well as current/projected workload and scheduling. In short, manufacturers will seek to avoid a recall like the plague.
A “Waste” is defined as anything done to a product that does not add value to that product. It is something that the customer does not want and/or does not want to pay for. “Waste”, of any type, is a cost to be eliminated if possible. Waste can be incurred in many different areas: time, motion, materials, equipment, rework, scrap, space, transportation, etc. One of the largest “Wastes” manufacturers experience is in the production of defects. Defects are attributes or characteristics of the product that are not within specification or otherwise unwanted by the customer.
Regarding pharmaceuticals and medical devices, there can be many different attributes to a product. Some are critical while others are not. In all cases, the “Critical to Quality” attributes of a product must be met. How these requirements are addressed will vary depending on the product, type of defect, and how it is detected. For instance, a requirement regarding the quantity of product in a package can be addressed by: weight checks, machine vision product presence detection, or manual visual inspection. As a fast way to stop defects from reaching the customer in the given example, some companies might increase the number or frequency of inspections. While this can be effective in stopping defects from getting out, it is wasteful in time and resources and in the end as the original source of waste is still there. This approach does not solve the issue of why the defect happened in the first place. It is important to keep in mind: you cannot inspect quality into a product.
Despite readily available evidence, clients are sometimes averse to spending capital on established processes or projects even if they have shown marked issues with quality. Sometimes this reluctance comes from a mistaken belief that the cause must be from another source because “their process” is stable, in control, and unchangeable. An unlikely scenario of increasing numbers of quality issues have been found. If defects are being found, during inspections or by the customer, the process is not in control, may not be stable, and most certainly, something must be changed. The “honest assessment” mentioned above, is the starting point in demonstrating to the client that changes are needed and where they are needed. Using documented evidence and data from the process, we must show: whether current controls are effective/ineffective, where additional controls may be needed, and where process optimization can save significant amounts of money. This assessment is crucial in that it identifies the issues and sources that greatly affect the Cost of Poor Quality. Our job is to show the client that eliminating those sources will not only help increase the overall efficiency of the process, but reduce the chances of defects getting into the customer’s hands. In the end, that will open the most closed of minds. These are big dollar savings compared to small up-front investments. It ends the same way in every industry…
The “Cost of Poor Quality” is always, far and away, higher than the cost to ensure Quality.
Stay posted for part two of this series tomorrow…