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Discover the power of your total cost of quality - Your guide to getting quality a seat at the table
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#3 Three red flags that your appraisal costs are too high

Gain the clarity you need to boost quality, profitability and job satisfaction

boost quality profitability satisfaction

There are at least three ways your appraisal costs can get out of hand. In this segment we’ll investigate all three—and what to do about them.

We’ll also work on estimating your appraisal costs—so you can make a persuasive financial case for any tool you need to bring those costs right down. (And free your team for the real work of continuous improvement.)

Here are two fundamental truths about appraisal costs:

  1. You should hardly have any appraisal costs at all.
  2. If your appraisal costs are high, it pays to listen carefully to what they’re telling you.

Let’s start with the first.
The ideal manufacturing environment—one with stable, perfectly controlled processes—would have very few appraisal activities. (Any that remained would validate processes, not products.)

You could pretty much predict the quality of your output based on the accuracy of your machine settings and the quality of your raw material. 

There’d be no need for expensive QC instruments and teams to validate the quality of your output. Effective supplier management and low-frequency sampling—coupled with modern automated machinery—would be enough.

That’s the ideal.

In the real world, you’ll always need a certain level of appraisal. The question is how much. 

Here are three signs of suboptimal appraisal operations and what to do about them.

First red flag: 🚩
There’s a culture of inspection

If you doubt the stability of your processes, you might find yourself relying on testing to keep faulty products from leaving the factory.

Many quality managers are stuck with a culture of inspection simply because they haven't been given the resources to create a culture of prevention.

These companies are-in effect-paying to identify products that should not have been produced in the first place. Their appraisal costs are the price they pay for inadequate prevention.

This culture of inspection comes with serious disadvantages.
Here are the top four.

  1. It's hugely expensive-and the costs only keep rising.
    The average manufacturer spends 32% of its total cost of quality on appraisal operations. That's a lot of money to waste on non-value-added activities. Instead of tackling the disease of poor quality, a culture of inspection treats-and has to keep on treating-the symptoms.

  2. It sucks resources from where they're needed most.
    Inspection becomes a distraction from the stuff that really matters: understanding the root causes of poor quality and driving continuous improvement. As Edward Deming put it, "Quality comes not from inspection but from the improvement of process."

  3. It creates unnecessary friction.
    A culture of inspection puts your quality team in direct conflict with production managers who, naturally, want to ship fast. Quality personnel are seen as the cause of production delays and poor on-time delivery. (Stress no one needs.)

  4. It makes a tough hiring situation worse.
    A culture of inspection can be particularly frustrating and demoralizing for keen quality professionals. If you and your team are driven to get things right, the first time, and haven't been given the tools to do so, you're likely to leave for a more supportive environment. (If this is your situation, please go straight to the previous segment on prevention "costs" for ideas on how to change things around.)

First-line response:
Stabilize your processes with effective investments in prevention.

 

Second red flag: 🚩
There’s a culture of over-appraisal

This can happen when a company invests in effective prevention (great!) but continues with previous levels of appraisal (not so great).

In such cases, the quality team often hasn’t been able to validate the stability of their improved processes.

Without verifiable evidence that their prevention efforts are working—and with no way of predicting if this will continue—they are forced to over-appraise. And as we all know, quality inspections are costly in terms of personnel, equipment, consumables and training.

For example, if you test 10% more than you need to, you’re spending 10% more on trained personnel. Your equipment needs 10% more calibration, costs 10% more in terms of maintenance and may suffer a 10% decrease in its lifespan. There will also be more data to process, making data management more complicated.

Statistical Process Control (SPC)—which validates the stability of processes and predicts the likelihood of deviations—is what’s needed here.

The right SPC solution will interpret your quality data to reveal opportunities to adjust your sampling frequency and reduce appraisal costs—without compromising quality.

Freed from conducting unnecessary appraisals, your quality team can finally focus on raising their game and building a strong company-wide culture of quality.

Response:
Apply statistical process control to verify the stability of your processes and adjust your appraisal activities accordingly.

 

Third red flag: 🚩
There’s a culture of manual everything

Here we have a situation where processes are stable, appraisal operations have been optimised and yet appraisal costs are significantly higher than they should be.

One of the culprits is what Miller and Vollmann (in their 1985 Harvard Business Review article, “The Hidden Factory”) call “transactions”—the “exchanges of information [that are] necessary to move production along”.[1]

The financial impact of these manual transactions generally goes unnoticed. They form the hidden appraisal costs no one talks about.

Take, for example, your master data management, which includes managing specifications; defining target values and tolerances; retrieving, reviewing and archiving certificates of analysis for incoming goods; and communicating results with other departments.

In practice, this involves a whole host of manual transactions. (Just sharing test results means calls and emails between the QC/lab team and the shopfloor/warehouse.)

All these costs add up.

Almost forty years ago, Miller and Vollmann identified “quality transactions” as a major cost—accounting for between 25% and 40% of manufacturing overhead in the electronics industry.

Today, well into the 21st century, there’s no excuse for high transaction costs. Automation—in the form of the right electronic Quality Management System (eQMS)—is the way forward for manufacturers who are serious about minimizing these hidden costs.

Another source of (costly) inefficiency is manual data and trend analysis. This can steal between 15% and 20% (one whole day a week!) of a highly skilled quality engineer’s time.

Typical time-wasters include:

  • Waiting for slow systems
  • Searching and cleansing data
  • Maintaining Excel files or outdated systems

Quality engineers are far too valuable to be wasted on preparing data for data analysis. There are solutions out there to do it for them.

Freeing your quality engineers to focus on data interpretation will make a huge difference to your quality improvement efforts.

Response:
Automate transactions and other manual appraisal operations with an eQMS.

Next steps:
Estimating and using your appraisal costs

In this segment we’ve explored what appraisal costs mean and—we hope—given you fresh insights into what to do next.

Implementing these insights will require effective investments in prevention and appraisal.

To make your case, you’ll need to estimate the financial impact of your appraisal operations.

Depending on your situation, this will help you:

  • Demonstrate the need for investments in improving prevention
  • Reduce sampling frequency, and
  • Minimize transaction costs through automation

As any reduction in appraisal costs has a direct impact on profitability, understanding what yours are (and how to reduce them) gives you a powerful lever for change. It gets you heard by senior management—and gets you those vital investments in quality you’ve been waiting for.

This was interesting material!

I would like to explore this further.