Change Management Using PDCA – Understanding the Impact of Quality Issues | Operational Excellence Quick Hits
Quick Hits share weekly tips and techniques on topics related to Operational Excellence. This week’s theme relates to understanding quality issues. We hope you enjoy the information presented!
In this session, we’re going to talk about what’s the impact of quality problems from the system perspective. So if we have quality problems and from the poll that we did this past week, quality problems seem to be the number one reason why there was disruptions in the flow. So when we look at quality problems or quality issues, first of all, all quality issues aren’t created equal. So we must understand the impact of the quality issues on the system. So if you remember, our system is interrelated and interdependent processes that have dependencies between them. And so as the product or service flows through the system, and there’s a quality issue on one of the process steps, how does that affect the overall system? So if we go to our chain analogy and we look at the chain, we realize that there’s a constraint operation within any system or the resource that limits the flow of the whole system.
So if we look and say, okay, what is the effect of the quality issue from the organization’s perspective? So depending on where the constraint is or capacity constraint resource, and the quality issue, then we can make the assessment. So let’s just say this item sells for $450 and the total material cost is $135. So what’s the effect of a quality issue before the constraint?
So in this case, if we look at the total material cost that each of the process steps and our total is $135, we say okay. If the defect occurs at this third step, it would be 50 plus 25 plus 10. So $85 of material that was lost as a result of the defect. In this case, we don’t allocate costs to the products. We typically don’t look at labor content because by definition, we have extra capacity here. So the labor, yes, we’re going to not utilize that labor effectively, but it’s really not lost capacity. So we’re looking at it from the capacity perspective.
And again, if we lose the constraint, that’s a different scenario. So what’s the effect of the quality issue at the constraint or after the constraint. At this point, it’s more than the material costs. It’s more than the total cost. It’s the lost revenue of that item. So the selling price of that product. So it’s the labor, material, all the profit from that part, because if we lose it at that resource, we can’t gain that capacity back. So if we can’t gain that capacity back that’s capacity loss for the whole system, what’s the capacity of the system worth to you? The selling price of that item that you got to make. So not only do we lose that capacity, now you’ve got to remake that item. So now we lose capacity of the next item that we should be making on that resource.
So depending on where your capacity constraint is and where the quality issues are, the impact of the system is much different. So that’s why we say all quality issues are not created equal.
Again, if we’re going to focus on improving overall quality of the system it’s going to have the biggest impact on the system performance. We’re going to focus at the capacity constraint resource and downstream from there, because if we lose a product or we have a quality issue beyond the constraint, that’s the same thing as losing an ethic constraint because we lost the capacity for the system.
So this is the effect of quality issues and where we need to focus, if we want to focus on improving overall performance. Yes, there is opportunity to improve the performance prior to the constraint, but that’s not the biggest leverage point. We’re looking for the biggest leverage points in the organization of where a small change is going to have big impact.