Processes, costs, quality

Un order to understand the effects mentioned above, it is first necessary to take a closer look at the processes that are carried out from the initial product request to the delivery of the product to the customer. It must be taken into account that the various processes influence each other. These interrelationships and interactions form a complex overall system and are largely responsible for the quality and non-quality costs.

Especially in the automotive industry, with a large number of process partners, numerous technological challenges, strong networking and pronounced customer requirements, awareness of the mutual influence of processes and the need for interface processes is of central importance. Weaknesses in development processes lead to higher error rates in production and in the field, and thus to higher costs. Correcting these errors, either internally before delivery or externally after they occur at the customer's site, is important for customer satisfaction and safety. For sustainable error prevention, however, the elimination of error causes must take place directly in development, production or procurement.

The interactions between processes and costs represent a complex web. Management faces the challenge of mastering this complexity and making optimal use of the company's limited resources.

Simulation models as strategic decision support

In the approach described here, quality-relevant costs and processes of an example company from the automotive industry are identified, structured and abstracted in a model based on a data analysis. Subsequently, the strength of the dependencies between costs and processes as well as between the processes themselves is evaluated. The simulation model is used to validate scenarios from which recommendations for action can be derived.

Figure 1 shows input, output and calculation variables of the example model. The starting point is the status quo of the company, i.e. the given level of the previously selected, quality-relevant cost types per process, divided into three cost blocks (cf. Figure 2)In addition, the process qualities as well as the influencing factors of process quality on costs and the strength of the influences between the various processes. The process quality is the main control lever. The change in the quality of one or more processes influences, depending on the given influence strength, the process qualities of connected processes and leads to changed costs. The development of costs and process quality can be considered for different periods, since the importance of the processes can be different at different points in time. The process quality is represented in the example model by a relative measure, the costs are absolute values.

As a result, four main elements are considered, the costs of the three cost blocks and the process quality of the processes. As one or more processes improve or deteriorate, the change in costs over different periods can be considered. For example, the extent to which improvement in conceptual design increases compliance costs and whether non-conformance costs and opportunity costs decrease could be analysed. Looking at the sum of these values, a decrease or increase in costs can be identified. Furthermore, the

process quality of other processes can be considered. This would allow the company to see whether and how positively the improvement of the conceptual design affects other processes, such as subsequent development processes, and to take action if necessary.

With the help of the simulation model, exemplary scenarios were tested that can support the answering of critical questions for the achievement of an optimal balance between quality and costs.

Which processes are decisive for quality and costs?

The quality of the products and the associated costs depend on many different processes along the value chain, which have varying degrees of influence. The model was used to identify the more effective processes by improving the quality of all processes in isolation from each other and then comparing the impact on overall quality and costs.

Core processes can have a significantly higher influence on total costs and total quality than other processes and therefore represent particularly effective levers. In the example model, they are predominantly located in the strategy and management processes. Although the end product is not physically created until production, some important decision-making processes set the course at the beginning of the product development process. They influence the final quality of the product directly and indirectly because they have a significant influence on the quality-critical development and production processes. Companies should identify their individual core processes and always take them into account when making quality-critical as well as cost-critical decisions.

What is the cost of poor process quality?

A key challenge for companies is to find the optimal balance of quality and cost. Various models of quality costs are considered in the literature. The classic model assumes that at a certain level of perfection, total costs become minimal (cf. Figure 3). The further analyses of the simulation are based on the assumptions of this approach.

From a purely economic point of view, quality should not cost more than the additional costs incurred by the company as a result of lower quality, e.g. through warranty costs, rework or lost customers. So when do the savings outweigh the cost of higher quality? The example scenario shows that savings that lead to lower quality in key processes can greatly increase total costs (see Figure 4). The costs incurred by poor quality significantly outweigh the savings in processes. In order to reduce expenditure, management must therefore identify those processes in which the costs for quality deficiencies are not disproportionate to the savings and are at the expense of higher total costs.

Figure 5 shows an example of an impact chain for risk management. Lower process quality in risk management has a number of effects that ultimately lead to higher costs and lower revenues.

How much should investments in quality be?

So if lower quality sometimes causes considerable additional costs, does the investment in higher quality always necessarily lead to savings? The analysis of the simulation results shows that this is only guaranteed up to a certain point, namely exactly the optimum of the model shown in Figure 3. In the test case, a maximum saving of 22% could be achieved by gradually improving quality (cf. Figure 6). Additional investments in quality do not achieve comparable savings, the total costs increase. The additional expenditures therefore outweigh the savings. Companies have different potentials here. Depending on their individual starting situation, however, the increase in quality from a pure cost perspective only benefits the customer. Companies for which quality is a strategic goal may invest in quality beyond the optimal point.

When should you invest in quality?

Investments in quality should be made in a targeted manner. This means not only the right process, but also the right time. As the example scenario shows, processes have a different impact on quality and costs depending on the periods. While the influence on total costs decreases over time due to the improvement of target management, product management shows exactly the opposite course (see Figure 7). This process reaches a higher impact in later periods. For example, while improving target management in period 3 increases costs by 0.3%, the same increase in quality in product management leads to savings of 4.1%. In turn, other processes may behave differently in this scenario. For example, they have the same impact over all periods or show a parabolic impact pattern. In order to achieve the greatest possible impact for their investments, companies should therefore not only identify their individual core processes, but also analyze at which point in time these processes have their greatest impact.

Outlook

The scenarios carried out show that a comprehensive view of processes and costs can support strategic decisions in the company. The analysis of internal structures not only creates transparency about the company's own quality-relevant process and cost structures. It also provides the company with the opportunity to objectively view its own process and cost landscape at management level, to identify core processes and to derive targeted measures for process optimization.