Chinese factories tend to be skeptical about the value of a supplier quality management system. Yet, in most manufacturing operations, the total costs of quality amount to 25-35% of sales.

Join us as we discover how a supplier quality management system saved a factory millions, and start on the road to better quality in your China factory...

The Costs Of Quality Amount To How Much?

These numbers are always surprising, but they have shown up in many studies in different manufacturing sectors. The total cost can be broken down this way:

Cost of external failures (10-15%) > Cost of internal failures (10-12%) > Cost of appraisal (4-6%) > Cost of prevention (1%)

1. Catching quality issues earlier, and fixing them earlier, is much cheaper

A known rule is at work: the rule of ten. At each stage (design, development, production, in hands of customers, in use in the field), the cost of catching an error costs ten times more (both in money and in time).

Here is an example:

Checking and fixing a design issue: $1

Fixing that issue after a prototype has been made: $10

Fixing that same issue in mass production: $100

Fixing that same issue after shipment to a customer: $1,000

This is why we wrote in an earlier article that inspection and testing are necessary. Ideally those activities could be eliminated, but in a world where problems still come up they help in keeping overall costs down.

2. Invest in preventive activities to improve quality

This is the second leg of the stool under your supplier quality management system.

Has one of your process engineers worked on mistake-proofing manual operations? It will reduce the frequency of quality issues without slowing production down.

Have you trained your production operators, leaders, and supervisors? It will increase their motivation to do a good job, and they will have a better idea of how to manage quality in their respective areas.

Have you put together a preventive and/or predictive maintenance plan? It will also keep your machines up and churning out good pieces.

Have you identified the critical variables that have to be controlled for each major process? For example, do you have a heat sensor on each of your molding machines, and do you calculate the Cpk index of the temperature?

There are other types of preventive activities, but the idea is the same. “An ounce of prevention is worth a pound of cure” as they say.

The typical trends when management focuses on preventive activities look like this in the long term:

Total costs tend to go down after a certain period of hard work. There is no magic formula here, but results will be very good if the organization commits to making efforts in the right areas.

3. Collect data on your processes and let it drive improvements

Simple statistical tools were developed to help factory operators see if their processes are in control or not. They can also be used to point to cost-saving opportunities. This is VERY seldom used in Chinese factories, and yet we consider it the third leg of the supplier quality management system stool.

Here is an example. A manufacturer needs to use 70 grams of glue in each product. Their internal target was 70g; the minimum accepted by their customer was 68g. But high variation meant their average was 72g instead of 70 g.

This was a constantly-running production. Finding a way to reduce variation was a way of saving a lot of glue. By identifying the critical variables and controlling them (and using statistical process control tools), the supplier reduced variation and the average became 70g.

Since they make 100,000 pieces a day and the cost of glue is 40 rmb per kg, the annual saving of using 70g of glue instead of 72g was 2.4 million rmb! And they can still save more money if they keep reducing the variation.

Conclusion

To recap, quality costs can be reduced by performing inspection & testing at the right steps in the system, by investing in preventive activities, and by working on process control to reduce variation in process outcomes.

An essential activity that we have not touched upon is problem solving. It is the engine that drives continual improvement of the organization. Our next article will focus on that topic.

You may also like to read: 5 Steps to Cut Costs in your Chinese Supplier's Factory

What are your thoughts on increasing quality in a factory?

Have you implemented better inspection and testing to enhance quality?

Did quality's cost increase, or decrease?

Please leave your thoughts as a comment and we'd be happy to respond.