As this manufacturer of precision machined parts discovered, the magnitude of the internal failure costs of poor quality can be significant. By analyzing the impact of internal failures on support personnel efforts and inventory, two major areas of internal costs were quantified. Support personnel beyond the quality control department, were shown to expend 15% to 18% of their efforts on internal failure issues in the shops studied. The activity analysis included shop supervision, manufacturing engineering and production control personnel. This level of effort appeared to be directly related to the 15% direct labor effort expended on rework and scrap. Based on the study, the manufacturer justified assuming that for every percentage of direct labor expended on rework and scrap, the support personnel spent a comparable percentage. Simulation analysis disclosed the impacts of rework and scrap on inventory levels and cycle times. The timing of scrap within the process was critical. Scrap late in the process unnecessarily increased inventory levels throughout the manufacturing cycle. Cycle times increased due to waiting for equipment processing parts which were subsequently scrapped. Rework had a more localized effect, as it was assumed to be reworked at the same operation causing rework. The manufacturer was able to use the simulation and the knowledge acquired from its experimentation to quantify its inventory reduction potential with improved production quality. Determination of the cost of quality requires analysis beyond the use of standard accounting systems. By measuring internal failure costs of quality, a more accurate assessment of the true impact of shop improvement potential can be made.
