Quality Cost - Rework Cost Vs. Production Costs

[sxbalasu]

Dear Friends:
I dont know whether i am putting this question in the right segment but let me tell where I wanted your inputs. I have heard when I first started my SPC class somwhere in 1992 that the rework cost is 7 times the production costs meaning, if I scrap a part or if I have to rework a part the cost of making that part again or the cost of reworking is 7 times the actual production cost. Does this ring any bell for anybody?. I know it costs more to make it again but that 7 number strikes my mind. Please throw some light or suggest me some article to read as i am getting ready to show bottom line savings becos of scrap reduction and rework reduction to my management.
thanks
siva

[Rachel]

Hi Siva,

I wouldn't be surprised if it was! Greg B posted an attachment a while back re: costs of non-conformity (if you go to the post attachments list and sort by user, you should find it). It is *really* effective for communicating how much your costs increase when defects occur.

Psst...Greg - I printed this off to hang in my office (okay, who am I kidding - on my cube wall) and forgot about it. My boss pulled it off the colour printer and came to my desk all excited with a "where did you find this little gem? this is great!!" Good on ya!

Cheers,
-R.

[Charmed]

Dear Rachel:

Thanks for calling attention to Greg B's post. I was able to find it. Very nice presentation Greg B.

Greg B:

BTW (I must be becoming a regular here, using acronyms!), did you get any hard numbers of the cost of nonconformance? That seems to be what sxbalasu wants to know. Is it 7 times, or something close?

Charmed

[sxbalasu]

Hello Charmed:
I am not able to find the powerpoint presentation. Can you please PM me or reply this with the file name.
thanks
siva

[Jim Howe]

Perhaps I do not understand your question. Are you trying to show that rework cost is 7 times the cost of the original? That seems rather high to me based on my MRB experience at Goodyear Aerospace (circa 1980's).
The MRB rule of thumb then was if the cost of rework exceeded 65% of the original cost. Scrap the original and make a new one.
PS. I could not find Greg B's attachment either.

[Al Rosen]

Maybe it's the total failure cost which includes the cost for documenting the problem, MRB cost, rework cost, reinspection cost, delay costs etc. This could be 7 to 10x the original cost. I believe that the cost of finding a defect at each level of production is approx. 10x what it would be at the previous level.

[AllanJ]

Originally Posted by sxbalasu

Dear Friends:
I dont know whether i am putting this question in the right segment but let me tell where I wanted your inputs. I have heard when I first started my SPC class somwhere in 1992 that the rework cost is 7 times the production costs meaning, if I scrap a part or if I have to rework a part the cost of making that part again or the cost of reworking is 7 times the actual production cost. Does this ring any bell for anybody?. I know it costs more to make it again but that 7 number strikes my mind. Please throw some light or suggest me some article to read as i am getting ready to show bottom line savings becos of scrap reduction and rework reduction to my management.
thanks
siva

I am skeptical of the accuracy of any sweeping generalization of the type "rework costs are 7 times..." It depends on the nature of the rework, the product involved and its original system and process costs and too many variables to permit of a "one size fits all" number.

Consider the costs of reworking, say, a flawed power turbine that may be impossible to undertake in situ because of the nature of the problem whereas a component, such as the turbine's shaft, being made that is found to be over-sized in diamater at one single point, may only require, say, a skim cut off on a lathe. If the shaft was undersized, that may involve far different, more costly processes necessitating far more sophisticated inspection and testing as a part of the overall rework.

Or consider the cost of reworking a report containing spelling errors: modern word processing means one does not have to totally redo the whole thing. (The same can be said of drawing made by CAD means.)

So, the costs of the "rework" are affected also by its scope.

I am sure other denizens of the Cove could cite similar examples from their own industries.

I have advised many quality people over the years, go to the accounts department. If they do not have the means of capturing the associated data, it probably also means management does not really know what its costs are, what are the organizations avoidable costs, the magnitude of the opportunities: or whether they REALLY are "managers! (But don't tell them that latter point!)

Developing a decent cost capturing system would then seem far more valuable than trying to make a sweeping statement such as "rework is 7 times more expensive than..." and being hung on your own petard later when someone finds an instance that "7" is not right.

[sxbalasu]

Thanks Allan. What you said makes lot of sense as you said cost of rework is basically affected by its scope. Say for example in a busy manufacturing environement were you are just near to your capacity then may be what i heard about this magic number 7 might come closer as it disrupts lot of stuff or say in a pull environment may be it will. But your suggestion regarding a cost capturing system involving accounts department was really nice one. I was just remembering about that i heard this magic number 7. I am really working on my cost capturing system right now. Thanks a lot for a valuable suggestion. I am waiting on other to reply on this.
thanks
siva