Cost of Quality
In my previous blog, “It’s all Rocket Science, at least to someone it is”, I discussed that everything is created equal. By that I meant that if you can build it, a good cost engineer can model it. However, you will continue to run into skeptics that will say “this is medical, it’s not automotive” or “where did you capture the cost of quality?”. Or even more often stated, “we hold tighter tolerances and we all know that drives costs.” Tighter tolerance doesn’t always drive piece costs. In injection molding, it will be mostly in the tool cost (hopefully paid upfront and not in the piece cost). In machining, it will drive more cutting time by causing addition or slower passes. My attempt here will be to lay these myths to rest. (If you disagree, please feel free to comment to this blog). My friends that are Quality Engineers are going to be upset.
The cost of quality. To say this implies that other areas, other industries do not care about quality. Don’t get me wrong. During my time in the auto industry, I heard this very often. “We make airbags and if they don’t work people die.” “We make structural components, if they aren’t correct, people die.” “We make brakes and if they don’t perform, people die.” I heard it in the medical industry as expected. “We make surgical equipment, if they don’t work, people die.” I’ve heard it in aerospace. “We make parts for the plan and it they fail people will die.” Most industries take quality seriously for these obvious reasons.
Other industries also take quality very seriously even though people may not die. How likely are you to buy a second computer from a company that you had a previous issue with? How about a TV, Cell phone, or any other product? So, let’s agree that quality is a given. Now how much does it cost?
While visiting a supplier for my previous position, I liked to ask, “So what makes us so much harder to produce for vs the other industries? Is it our tolerances?” The typical answer was “nothing”. One went so far as to state, “Do you really believe we have a dial on our machine where we scale back our quality depending on the customer? We have everything set for the best quality. If we find something that doesn’t meet the highest spec, we can ship it to the customers that don’t require the tightest tolerances.”
First off, quality should be designed in. I think we all know what that means. The process should be capable. There are various ways to measure capability, but we won’t get into that here. If we assume the moment the process is capable, then we should be doing sample inspections and testing to meet the statistical requirements. What does sample testing cost? Very simply, it is the labor and equipment time it takes to perform the inspection spread over the lot it statistically covers. For example, you are required to pull one part in every 1000 for a CMM measurement that takes 10 minutes to perform. How do you calculate this? Let’s assume the CMM acquisition cost in $150,000 and will be depreciated over 10 years. This is $15,000 per year or $2.50 hour ($0.04 per minute) on 8 hours, 3 shifts, 5 days a week for 50 weeks (simple calculation method not including other fixed cost and variable just for this demonstration). Let’s assume the quality inspector’s rate is $40 per hour or $0.66 per minute. Total cost for the inspection is $0.04 (CMM) + $0.66 (operator) = $0.70 pre minute. The inspection we said took 10 minutes or $0.70 x 10 = $7.00. This cost is now spread over the 1000 pcs for a cost per piece of $0.007. If you changed the frequency to 1 out of every 100, it would be $0.07 per piece.
There is also the understanding that some inspections can and should be completed within cycle. For example, if a machined part takes 10 minutes to load, machine and unload and the operator is running 3 machines it is conceivable that he/she has excess standing time and should be performing certain measurements and inspections while the machine is cutting other parts, or within cycle. These would be considered free as you are already paying for his time to be at the machine. (This assumes the measurement devices are either negligible or paid for in upfront costs, i.e. gages, calipers, etc.)
So, when you get challenged for including the “cost of quality”, ask them to define the steps necessary to assure the quality of the part and add it to the calculation. I’m willing to bet it is less than expected.
Gerald (Jerry) Collins
Owner and Founder of Society of Cost Engineers