There are two requirements that are ever-present in manufacturing: the need to produce high-quality product and simultaneously controlling and lowering costs.
Quality production starts with the tools used to create customer orders then moves on to the supply chain, where parts and material are sourced, the processes that schedule and execute the manufacturing of the product ordered take place and moving through to the distribution and field support of products installed.
Quality and lower cost are linked by the simple fact that performing with quality in mind and doing things right the first time is the best way to eliminate the cost of rework, field defects, field returns and wasted production time and material.
Beyond that, cost-effectiveness should always start with evaluating what you do in terms of the value delivered to your customer. Activities and processes that do nothing to increase the value of your product or overall customer experience should be looked at with great skepticism. Companies have an uncanny ability to perpetuate activities and processes simply because no one ever asked why they were done in the first place.
If you are operating under a project-oriented format, you are likely aware that quality specifications are frequently part of the requirements stated in the customer’s requisition documentation or contract.
Project management software facilitates this by providing a project-oriented view of all aspects of your production process. BOMs, production orders, purchase orders, cost accounting, MRP and other phases are viewed as a whole or by project. This facilitates adherence to special quality requirements associated with specific orders.
Using an indirect cost allocation capability allows you to match specific costs and portions of indirect costs to the specific project as well. This is important for performance reporting. The costs of special requirements need to be understood if for no other reason than to help accurately price future business.
You may be familiar with the trite expression, “quality does not cost; it pays.” The fact is, there is effort involved and there are costs involved. Understanding how this looks in terms of financial reporting is a good place to start.
There are four specific types of costs involved in measuring the cost of quality.
- Prevention costs
- Appraisal costs
- Internal failures
- External failures
Understanding how these work and how they relate to one another provides a good foundation for building quality into your manufacturing processes. Making them cost-effective first requires understanding them.