You know that dependable quality is one of your most important competitive strategic tools. Whether small or large, a manufacturing organization needs to provide customers with great products AND service exactly as promised each and every time...
Quality control is a key component in this formula. When an organization fails to take its quality management seriously, it eventually results in some form of rework. Rework leads to the loss of profits and in some cases, worse yet, the loss of a customer.
THE REAL COST
This article is about eliminating the errors that create the need for rework. You know how important this issue is, but let’s do a quick review of the real costs to your bottom line before we jump into solutions.
Suppose, for example, that a small manufacturing company has a pre-tax profit margin of 9 percent, then we can assume the average profit margin on jobs is also 9 percent. This means (on average) for every project with a selling price of $10,000 has a profit of $900 (9% of the selling price).
Now suppose that just prior to shipment, an error is discovered that requires this job to be reworked to the tune of an additional $1,500 worth of labor and materials. Assuming that the company has sufficient unused capacity to redo the job (without adding more cost such as overtime) and there are still available production days left in the schedule to meet the original client promise date, etc.
The selling price is still $10,000, but now the job now becomes a liability (costs you money) instead of an asset (makes you money). The impact of the rework is you’re out $900 from this client’s payments and $600 out of cash. That would send most managers reeling but if that’s not bad enough…To make back the money lost by the errors the company will need to sell $16,700 of new business ($1500 / 0.09).
BUT WAIT – the repercussions are even greater! What about the indirect impacts such as the cost of borrowing money, stops and restarts, management rescheduling, material handling, inventory restocking, hits on employee morale, and a general level of frustration throughout the company, etc., etc., etc.
The point is rework can be a larger profit drain in a manufacturing company than you think – a profit drain that most companies can ill-afford when replacement profits are hard to come by. Yet, despite its importance, many owners and managers don’t pay enough attention to rework or to the environment that creates it.
Remember, the fastest and most cost-effective way to increase profits is to minimize or eliminate doing things more than once!
The real tragedy here is that most of the errors that create the need for rework are preventable. As you’ll see below, it’s also not only the production shop that plays a role in the prevention. Sales and design departments are important players in preventing rework and maximizing your profits.
Let’s dive in to the solutions now!
5 WAYS TO PREVENT REWORK –
1. DOCUMENT (Proper production documentation)
In a design build (Job shop) environment typically the project was estimated and sold based on conceptual drawings or renderings done by a designer or architect, these are certainly enough to get the job in the door, but rarely good enough to support the successful production of a product delivered on time and under budget. Without a rock-solid production documentation package, the job should NOT be released to the shop for fabrication UNLESS you want a total disaster and enjoy mopping things up along the way. Proper manufacturing documentation includes; scaled construction shop drawings (approved by engineering), written specifications, clearly stated client scope of work & detailed build estimates, customer approved graphic layouts and color call outs, job site photos and survey measurements, etc.
2. PLAN (thorough scheduling and resource allocation)
Most shops are eager to get started and release work to the floor because there is capacity in the shop by way of an idle machine tool or maybe a fabricator who is waiting for task work wants to be busy, but don’t be fooled, early starts are bad, don’t begin before you are ready! Ready means you have collected everything you need from the documentation stage and have done the rest of the work required to release the shop order. Planning includes materials requisitioning and receiving, batch planning, fabrication process & sequencing, material yields (cut plans), resource allocation (team and vendor selection), and production scheduling
3. PREPARE (proactive supply chain management)
Now that the planning is done, the shop should be readied to receive the handoff. This includes a team meeting to identify task assignments, sequencing, time budgets, scheduled due dates, critical path benchmarks and any other information relevant to successfully start and complete the build without stopping. Additionally, the shop floor should be clean and free from interference/obstructions, all tools are in working order, hardware & supplies are gathered and inventoried at the work area along with all the materials that have been ordered and received in good condition.
4. MEASURE (yes, measure twice, cut once. inspect at each step)
It’s execution time, the project is in good shape, you’ve done everything you can to set yourself up for a big win and things are finally moving through the shop. The only thing that will prevent you from being run over by the bus is if you take your eye off the ball. May times confidence leads to error, even in the best-laid plans. Workers get complacent, all it takes is one bad cut, wrong weld, incorrect color mix, etc. to bring catastrophe. The worst thing is to have the project go all the way through the shop only to find out it is deficient. The solution is inspecting as you go with a “batch move” checklist inspection procedure. This means someone other than the technician doing work inspects and approves progress and quality before it moves to the next station or procedure. Easier said than done, great in principle difficult in application…It takes unyielding discipline by all stakeholders to reap the reward of a zero-defect occurrence project.
5. COMMUNICATE (monitor and report early and often)
One of the most important activities to do along the entire project is to monitor work in progress, document task work and report to team members through a real-time reporting system. If things get off track (which they will) you have a system to give and get information that enables you to refine the work strategy early enough to make corrections before significant damage can happen. A good reporting system keeps everyone informed all stages of the process…especially owners and customers.
The secret is not just about the occasions when rework is required, it’s about your attitude towards building in quality throughout the entire company value chain. When you focus continuously on process improvement and do everything you can to drive out waste you automatically drive up quality and everything else with it. Profits, cash flow, employee morale, customer loyalty & referrals, and more. As the saying goes happy customer happy life!
Author: John Hackley of Oculus Business Coaching. John brings over 35 years of experience in small manufacturing business experience. He leads strategic growth, guides partnership development and serves as Chief Efficiency Officer for Oculus. Oculus Business Coaching provides consultation and coaching programs designed to help manufacturers implement systemic solutions enabling them to sell more, build better and profit for life!