Costs of NonConformity - A Flow Chart Showing Costs Involved

[Greg B]

Hi all,

I have been reviewing some of our work areas lately and talking to the operators about Continuous Improvement and costs etc. One of our departments has had a 33% increase per tonne, against budget and they were wondering why it had increased so drastically. I stated that it was because of the number of Non conforming batches that had appeared lately and that the costs associated with Scrap, rework etc had not been factored into the budget originally (and nor will they be). These costs are significant as the 33% shows. NOTE: this is not the management group but the supervisors and operators.
I decided to show them what I meant by added costs so I came up with a flow chart showing one container (batch) being produced and then found to be non conforming. The added cost are from the new replacement order etc. It is colour coded with green being normal costs and orange being additional costs associated with the NC. I will try and get some actual costs for each operation and show Labour, Transport, Lost revenue, Restesting, Investigation and storage costs etc. This is a first draft and they haven't seen it yet.

I'd appreciate some feedback

Greg B

 

[Claes Gefvenberg]

I decided to show them what I meant by added costs so I came up with a flow chart showing one container (batch) being produced and then found to be non conforming.

...and the Queenlander strikes again. Good job Greg.

/Claes

 

[WALLACE]

Great visual Greg, Did it get your intended point across?
What program do you use for flowcharting?
Here's a great opportunity for explaining hidden factory, especialy to your supervisors and process owners.
Wallace.

 

[Teknow]

Excellent Post Greg, Do you mind if i copy your idea to get a point across at my workplace?

 

[RoxaneB]

A great idea, Greg! And shown in a manner that every can understand.

I'm curious, though, will you be showing this management, as well? They should also be kept in the loop about, not only problem areas (e.g., costs 33% higher than budgeted), but the reason why, too.

 

[energy]

Just being me...

Hi all,
One of our departments has had a 33% increase per tonne, against budget and they were wondering why it had increased so drastically.

I stated that it was the added cost are from the new replacement order etc.

I'd appreciate some feedback

Greg B

Nice presentation, Greg. But I just have to spew. They had to ask? They know they had to duplicate the orders. And, they still have to ask? Maybe the chart should be replaced by a visual of them filling their scrap barrels. Or an audio of the noise as the parts hit the can. Cripes, they had to ask? Supervisors? Maybe it's a competency issue.

 

[RoxaneB]

Nice presentation, Greg. But I just have to spew. They had to ask? They know they had to duplicate the orders. And, they still have to ask? Maybe the chart should be replaced by a visual of them filling their scrap barrels. Or an audio of the noise as the parts hit the can. Cripes, they had to ask? Supervisors? Maybe it's a competency issue.

Playing devil's advocate, maybe they knew that they hadn't met budget but the amount surprised them? Our employees were aware of a recent complaint we received but when they heard the amount credit'd they nearly hit the floor!

While it never fails to amaze me, many of the employees in production (including supervisors) have little (if any) concept as to the cost of processes...including the cost to duplicate/rework. It is important that they understand not only the concept, but how this duplication/reworking impacts the bottom line (of the company and of their pay cheque/bonus).

I find that once people are aware of costs, they look for ways to avoid paying out any more than is necessary.

 

[Sam]

Nice layout for presentation. I would also present it to your accounting department.
There are traditionally three cost factors that should be considered for nonconforming material;
The cost to replace the product,
The cost to re-produce the product,
The cost due to revised dchedules.
There are many more "hidden" costs involved.
Get accounting buy-in and your quality improvement projects will be approved much faster.

 

[David Hartman]

There are traditionally three cost factors that should be considered for nonconforming material;
The cost to replace the product,
The cost to re-produce the product,
The cost due to revised dchedules.
There are many more "hidden" costs involved.
Get accounting buy-in and your quality improvement projects will be approved much faster.

And in a manufacturing environment there is also the cost related to producing the nonconforming product in the first place (an often overlooked cost).

 

[mshell]

I like the flow as well. Are you going to include the actual cost of the nonconformances? I have found that the true cost really opens eyes. At my last organization, we reduced the cost of nonconforming product by $273,000 in one year primarily by educating the emloyees. If they produced nonconforming product, I would calculate the total cost (line time for original order, operator pay rate, materials, line time for running the product again, operator pay rate, replacement materials) and issue a corrective action to the responsible operator.