Quality teams in manufacturing understand the strategic value of quality management. However, getting executive buy-in depends on the ability to show how a properly implemented quality management system (QMS) can deliver not only significant improvements in product quality and processes but also measurable cost reductions across the organization. Many manufacturers use the following equation in their business cases to estimate the return on investment (ROI) for implementing quality management:
ROI for Quality Management = (QM Benefits – QM Costs)/QM Costs x 100
In using this equation to make the business case for investing in a QMS and other quality-related software, it is important to look at both cost savings and performance gains.
How a Quality Management System Drives Cost Savings
Following are the five most common, measurable cost savings that can be achieved by implementing a company-wide quality management system.
- Reduce total cost of goods sold (COGS). The data from corrective and preventative actions (CAPA), quality inspections, and statistical process control (SPC) real-time analysis when captured in a QMS can be used to improve quality while also reducing material, labor, and other direct costs related to producing a product. Additionally, any improvements in COGS increase gross contribution margins, making manufacturers more profitable. In many cases, improvements in COGS can offset the initial quality management investment.
- Cut scrap and rework costs. The faster manufacturers identify what’s driving scrap and rework costs, the faster they can resolve quality roadblocks early in a product’s lifecycle, saving thousands of dollars and hours per year. A QMS that utilizes the same real-time production and process monitoring data as the enterprise resource planning (ERP) and manufacturing execution system (MES) software helps employees to rapidly identify and contain internal failure costs. An integrated QMS can also provide new insights into how CAPA and failure modes and effects analysis (FMEA) improvements can reduce costs.
- Lower customer returns and warranty costs. Quality issues surfacing after a product hits the open market are more expensive to mitigate than those identified during production. In particular, external failure costs, such as returns and warranties, can significantly burden efficiency and negatively impact a manufacturer’s bottom line. An integrated QMS helps organizations correct quality issues before products leave the factory floor. It also allows the manufacturer to link data on external failures at every step in the value chain and tie these metrics to internal failure costs to provide a more accurate measure of the total cost of quality.
- Trim direct labor costs. Manufacturers can reduce labor costs by replacing manual quality processes, which often rely on Microsoft Excel spreadsheets, with an automated QMS solution. Consider how labor-intensive the task of completing periodic customer or regulatory audits is. It’s a safe assumption that one week of the quality management team’s combined salaries every 90 days can be saved using a QMS. Beyond cutting the demands on employees’ time, a QMS also increases visibility and control while promoting greater accountability and ownership over results. Additionally, when a QMS captures issues early, product teams spend less time reworking customer returns and handling return material authorizations (RMAs).
- Avoid penalties for non-compliance. Regulated industries are seeing more significant reporting requirements, and non-compliance penalties are often severe—sometimes reaching $1 million or more. Non-compliance can also lead to the long-term loss of customer trust and related revenue. When integrated with ERP and MES solutions, the QMS significantly improves the accuracy of data, documentation, and track and traceability to ensure that reports and audits meet the regulatory requirements of the International Standards Organization (ISO), United States Food and Drug Administration (FDA), and other government and industry regulatory groups.
Performance Benefits of a Quality Management System
Investing in an integrated quality management system also leads to a number of performance benefits. Following are five gains that manufacturers typically realize.
- Eliminate manual errors and redundancies. By automating processes, a QMS avoids duplicate data entries and errors associated with manual entry. It can also help to improve decision-making and communications across the organization.
- Improve reaction time to quality events. An integrated QMS helps teams to respond quickly by automatically capturing data, evaluating each workflow status, and sending email notifications to internal and external team members.
- Expand ownership of product quality to suppliers. Automated track and traceability can be extended beyond the factory floor to the suppliers from which materials and components are sourced. When combined with data and workflows from the QMS, it can help manufacturers to define and communicate supplier quality benchmarks for every shipment.
- Enhance production audits. When gauge repeatability and reproducibility (GR&R) audits have a reliable data set that ties back to all other quality management applications, they can be invaluable in troubleshooting additional quality problems. Moreover, automating gage repeatability and reproducibility is essential for reducing operating costs, improving production run efficiency, and reducing shop floor errors to increase product yields.
- Strengthen operator training. Variations in product quality can often be traced back to the quality of training or training gaps between operations. Having integrated QMS, ERP, and MES software can help to measure the effectiveness of training and identify where additional training is needed to improve quality on the shop floor.
Making the Business Case for a Quality Management System
Once the cost savings and performance benefits of a QMS have been identified, it’s important to communicate them to senior executives in order to gain their support. CEOs and plant managers are often driven to achieve greater product quality quickly, and their buy-in can significantly streamline the funding process.
At the same time, everyone supporting and involved in quality management must clearly understand what success looks like. A digitally enabled dashboard, which is accessible from any web-enabled device, is an effective way to present each goal or objective and the company’s progress toward them. In this way, the quality management team can quantify the benefits of the QMS and play a strategic role in driving the manufacturing firm’s success.