Defects carry double costs

It is old wisdom dating back to the heydays of Total Quality Management, but useful to remind: defects carry double costs.

Let’s imagine a customer order consisting of a batch of four units of the famous red square. Just before shipment, quality inspection notices one of the four units is defective. The batch cannot be shipped as is, the defective unit has to be repaired or replaced.

The defective unit can be either repaired or reworked or if the defective unit cannot be repaired, it has to be replaced. In both cases, the solution to this quality issue will carry additional costs for the maker.

It is not likely to invoice the customer for the additional costs and anyhow it would not be fair as customer has nothing to do with this problem.

In a Lean point of view, customer would not be willing to pay for rework or replacement as it carries no value to him/her, so additional cost will come at the expense of maker’s margin.

The double cost

When a defect is found on a product, this product cannot be shipped. The worst case to consider is the defective unit cannot be repaired nor reworked, it has to be replaced. To replace the defective unit means scrap it and redo another from the beginning:

  • Get raw material
  • Process raw material
  • Assemble and test the product
  • Etc.

The total cost of replacement is the cost of the scrapped defective one plus the production cost of the replacement, thus double cost.

Some may argue that units that can be repaired or reworked do cost only a fraction of the costs for replacing a unit.

Others may argue that the total cost may be far higher than double, e.g. the consequences of rescheduling production, late delivery penalties, express delivery costs to avoid late delivery penalties, and so on.

Nevertheless, the double cost example is used as a simple reminder of all extra costs of non-quality. It is allegoric rather than accurate and evocative enough.

Chris HOHMANN

 


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