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Calling Attention to Internal Quality Costs December 3, 2012

Posted by Tim Rodgers in Process engineering, Quality.
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Electronics manufacturing services and contract manufacturers typically operate with very small profit margins, and Foxconn was no exception when I managed a factory quality team there in the late 00s. I assumed this would be a receptive environment for an initiative targeting cost-of-quality (COQ): measuring the costs of prevention processes, appraisal processes (test and inspection), and internal failures (rework and repair); and then working to reduce those costs. External failures that lead to product returns and other warranty costs get a lot of attention because they’re visible to customers and end-users and can ultimately impact loyalty and future business.

Initially it didn’t seem that anyone noticed or cared much about the cost of the internal processes required to minimize those external failures. Some people understood that testing and inspection are non-value-added activities and targets for elimination in any lean manufacturing environment, nevertheless they were assumed to be necessary regardless of how much attention was given to defect prevention. Of course any variability in a manufacturing process leads to higher cost (see Taguchi loss functions), but that was even harder to command attention in this environment. It was challenging enough to get the support to collect the basic cost data and assemble a Pareto diagram.

What I finally realized was that cost savings weren’t appreciated unless they were presented in discrete, quantized bundles. Dollar savings (or RMB) claimed on a spreadsheet doesn’t have the visible or practical impact as headcount reduced or processes eliminated. For example, I started working with the industrial engineers to figure out how what improvement in our internal end-of-line yield would enable us to eliminate exactly one repair station for each production line. When audit inspections and reliability testing of production units consistently exceeded required quality levels I argued for reduced sampling rates that allowed us to re-allocate the headcount to value-added activities.

The performance measures for the factory included units per headcount and units per production hour. I finally got traction with my COQ program when I targeted changes to directly impact those measures, reducing headcount and cycle time without compromising quality.

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