While it’s often thought to be much lower, multiple sources have measured quality-related costs at 10 to 20% or more of an organization’s annual revenue. Put simply, that means a company with $1 billion in annual revenue loses $100 million or more from its bottom line as a price for quality.
It’s a huge number, a fact recognized by companies heavily invested in Lean, Six Sigma and other operational excellence initiatives. And while results of these programs are often reported as savings over several years, layered process audit (LPA) programs are simple and effective enough to drive big results in a matter of months.
LPAs require checking high-risk processes as often as every shift, drawing auditors from every layer of the organization. Automation is key to achieving this frequency with minimal overhead, reducing quality costs, improving visibility and developing a culture of quality.
Reducing Quality Costs
A sharp reduction in quality costs is one of the biggest and most visible impacts automated LPA software has on an organization. For a billion-dollar company, even a 1% reduction in quality costs improves margins by $1.5 million to $2 million annually.
Areas where an LPA system drives down costs include:
- Scrap and rework: LPAs catch process errors before they lead to defective products. The well-known 1/10/100 rule says that each dollar spent on prevention results in avoidance of $10 in correction costs or $100 in failure costs.
- Customer returns: Automated LPAs have demonstrated the ability to reduce customer defects by over 50% within several months of implementation. It’s not unusual for LPA software to pay for itself several times over in as little as two months.
- Productivity costs: Schedule disruptions, material shortages and equipment downtime resulting from quality issues increase cycle times and costs. Production delays in auto manufacturing are estimated to cost$1.3 million per hour on average.
Note that manual LPA programs based on paper checklists and spreadsheets simply cannot deliver comparable results. Companies using email and spreadsheets to manage LPAs typically complete only a fraction of the audits required, and their reality is informed by incomplete and often delayed data, meaning many problems go unaddressed for longer periods of time.
Increasing Visibility into Quality
“You can see the number of audits completed, whether you’re meeting audit objectives and whether you’re resolving issues in a timely manner,” says Nic Minbiole, Vice President of Global Engineering, Technology and Operations at CAE. “It’s a great management tool in terms of your ability to see exactly where problems are and prioritize your actions based on data.”
LPA systems also help solve problems more efficiently, such as when auditors upload photos to help teammates better recognize the root cause of a non-conformance. Trying to describe a problem in words can be challenging, as there’s a good chance the person responsible for the corrective action won’t understand the exact problem.
When you have recurring problems, these systems help you easily see the entire compliance history to pinpoint why previous countermeasures didn’t work. For instance, if proximity switches fail repeatedly, LPAs can help indicate whether a different preventive control is necessary. Some LPA systems also provide supplier quality management capabilities to help organizations manage risks here as well.
Developing a Culture of Quality
The effect on quality culture is one of the biggest ways an LPA system delivers value, even if it’s harder to directly quantify.
Compared to fuzzy “quality first” messaging that has little meaningful effect, automated LPA software provides a structured framework for quickly ramping up an organization’s maturity level. These systems allow you to:
- Shift the team mindset: Higher expectations and greater accountability makes employees more proactive about identifying quality issues. It’s basic psychology—we’re more likely to do something when we know someone will be checking up on us.
- “Gamify” quality: Tracking audit metrics fosters healthy competition between teams. For instance, if the body shop is at a 75% audit completion rate and the paint shop is at 80%, trying to outperform each other can drive completion rates (or other metrics) higher.
- Engage management: Management participation is a big weak spot in many quality programs. With an LPA system, management becomes a visible presence on the shop floor, putting real weight behind the organization’s commitment to quality.
In the past, reducing quality costs and building quality maturity were goals that could take years to achieve. It made sense back when paper-based systems were all that was available, but we’ve moved well beyond that and today’s automated solutions provide a vastly superior path to achieving these goals.
“Automation and the fact that these systems require very little training means they require few resources to implement,” says Minbiole. “It has the potential to be truly transformational.”