We humans are funny creatures; we want things to improve, but not to change. In our industry, we cannot afford resistance to change. We must remain as flexible, and work as strategically as possible if we want to survive, let alone thrive. Often we can take lessons from the past, in order to better tackle the challenges of the present.
Many lessons can be drawn from a set of business strategies that were popular back in the 80's as companies grappled with the idea of
Quality Improvement.
The Cost of Nonconformance is one aspect of the Quality Improvement Process that is as valid today as it was twenty years ago.
The basic premise behind the cost of nonconformance is that there is a cost associated with not doing something in the most efficient manner possible. This idea may seem self evident; however it is not until we look a little deeper that the real lessons emerge. As an example of this concept, we will use the basic premise that the value proposition at Evergreen is built upon. It is the hidden value behind looking beyond the obvious, and investing wisely through quality improvements.
At the end of the month, most managers review their parts spending. This process often includes comparing one month's spending to another in the attempt to uncover spending patterns that can be improved upon. On the face of it, one would think that the less money spent on parts the better. For the most part this is true, but this would eliminate the possibility of investing in quality.
Let's say that there is a part in a particular machine that fails on a regular basis. Let's also suppose that when this part breaks, it puts the machine down. Suppose further that this part costs $1.00. Not a big deal right? Not so quickly..
How much did it cost to send the technician onsite to replace that $1 part? Most dealers agree that the fully loaded cost for their technicians' time is somewhere between $75-100 per call. For arguments sake, let's peg the cost on the low side at $75. Now we see that the actual cost to replace that $1 part is actually $76.
Taking the thought further, what is the cost to your customer for the down time they experience from the time the part failed, to the time your technician got their machine running again? Only your customer can place a value on their loss of productivity. Should we measure this in dollars or something else? How about the cost of replacing that customer should they have finally had enough of that particular part breaking on their machine? Whatever the dollar amount you might place upon the customer's dissatisfaction, it is a significant number. This is particularly true in the worst case scenario when they throw your machine out the door, and replace it with a competitor's box!
Finally, let's suppose that there is an alternate part which will replace the $1 failure item in our example. However, this part will last five times longer than the original part. At what price point would this alternate part become a wise investment? If the part could save you one service call, based on our previous assessment, the value would be at least $76. If the new part could save four service calls, the value would be at least $304.
So coming back to the cost of nonconformance would tell us that failing to replace the $1 part with a more reliable one would equal the cost of the additional service calls not averted, plus the cost to the customer both directly and indirectly. Add to that figure the cost of replacing a lost customer, and that $1 part starts to look quite different than at first it appeared!
We encourage you to think about the various areas in your business where this concept may be applied. Think about how you can most powerfully leverage your talents and resources. Look beyond the obvious, and dig a little deeper into what you otherwise had considered your costs. You will find opportunities that can make the difference between success and mediocrity. Otherwise, you will fall victim to the cost of nonconformance!
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