The Cost of Poor Quality

Unacceptable Part Length Quality

The title of this post comes from a concept within Lean Six Sigma.  It is a reflection of costs associated with scrap parts, wasted production time, and all the time, materials, and labor required to reproduce scrap in order to make enough good parts to satisfy a customer order, as well as the lost opportunities that come from the inefficiency and re-work.  It encompasses all of the business processes that touch the manufacturing process, as well.  From the order-taking and scheduling systems, to the method by which you bill your customers.

If Lean Six Sigma had a mission statement, it would be: Six Sigma is the application of the scientific method to the design and operation of management systems and business processes that enable employees to deliver the greatest value to customers and owners.

The focus of Lean Six Sigma is to provide more value by eliminating waste – in the form of redundant effort, substandard quality product, and inefficient processes.  Companies that operate at 6 sigma (σ) generally spend less than 5% of their revenue fixing problems.  Most manufacturers are operating well below 6 σ internally.  The result is that the majority of roll forming companies are spending anywhere from 25% – 40% (4 σ – 3 σ) of their revenues fixing problems.  This is the cost of poor quality.

It’s surprising to me how frequently manufacturers will just live with known problems (how we’ve always done it!) instead of addressing them head on.  Working with one large North American manufacturer, I found they were pre-printing their bundle tags.  This is a common issue that leads to problems with missed/under-produced shipments.  For any number of reasons, a partial bundle is produced and the Operator slips the label in between a couple of parts so that it sticks out and will be seen by a Packager downstream.  Something distracts the Operator, and the partial bundle gets wrapped, loaded on a truck, and shipped to the customer missing several pieces.  The result is that Sales must now issue a Credit Memo to satisfy the customer, or the manufacturer must rush-ship the missing parts at their own expense.

When I pointed this out to someone in IT, I was told, “Our guys are really diligent and that doesn’t happen.”  I asked IT to run a report for any random plant on any random month in the last year to see how many Credit Memos had been issued for under-produced bundles.  They were surprised to find 4 had been issued for a single plant in a month – and this company had 15 plants.  Digging into the issue, I found the company had at one time automatically printed their bundle tags after the bundle was physically complete, but due to a misunderstanding of how the system worked, they had abandoned it as a matter of convenience for one person.

Likely, dozens of partial shipments were going out the door each month across the organization so one human being could avoid an occasional inconvenience.  Was Sales even aware of why this was happening, or had it gotten to the point where it was simpler to give product away than it was to have an internal battle with difficult egos?  What’s really interesting is that the individual for whom the system had been changed was eventually made aware of what was happening and why.  His response was a list of excuses as to why he did not want to be inconvenienced – with zero acknowledgement of the fact that this was causing an inconvenience to his customers.

When people in the industry hear Six Sigma, they typically think of capability studies and standard deviations.  When they hear quality, they typically think of part quality.  But Lean Six Sigma and quality affect the entire organization, from manufacturing processes on the floor to billing processes in Accounting.  It’s a measure not only of defects per 1000 parts, but of how well your organization communicates cross-functionally between departments, and most importantly, how well your company communicates with your customers.

It’s ironic that my very first interaction with the company mentioned above was a Sales presentation on how they wanted to go from a company that “meets customer expectations” to a company that “exceeds customer expectations”.  With such a large gap in self-awareness, it’s no wonder the organization chooses to bleed money rather than to practice honest introspection.  The biggest hurdle they face is the fact that they’ve experience record-breaking sales in the last few years, so there’s little internal pressure to improve.  But I look at companies in that situation and wonder how much more profit could they achieve if they chose to focus on improvement?  How much bigger could the bonuses be?

If you are part of a roll forming operation that needs a fresh set of eyes on your issues and if you could use an engineering perspective steeped in Lean Six Sigma concepts, please don’t hesitate to contact me today for an initial consultation.  I’m happy to talk to you about if and how I can help.


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