Key Strategies to Reduce the Cost of Poor Quality In Manufacturing
Meet the Authors
Key Takeaways
⇨ Understanding and mitigating the Cost of Poor Quality (COPQ) is essential for manufacturers, as it represents financial losses from scrap, rework, and product failures.
⇨ Manufacturers are increasingly integrating Manufacturing Execution Systems (MES) with SAP to provide real-time insights, enabling proactive quality management and better identification of root causes of quality issues.
⇨ COPQ serves as a compelling business case for investing in MES technology, allowing manufacturers to justify their integration with SAP systems by showcasing clear ROI through reduced quality failure costs.
Manufacturers today are increasingly focused on mitigating the Cost of Poor Quality (COPQ), a critical metric that represents the financial losses from scrap, rework, warranty claims, and other product failures. For companies utilizing SAP S/4HANA or SAP ECC, these costs are often visible in financial reports, yet the underlying operational causes remain obscure.
A recent blog by CAI Software revealed that the information gap between the ERP system of record and real-time factory floor events poses a significant challenge, hindering effective and proactive quality control.
Why Quality Costs Matter
The cost of quality framework balances a manufacturer’s proactive investments against reactive failure costs. Investment costs include preventive measures like employee training and process planning to stop defects before they occur. It also provides appraisal costs, such as inspections and testing, to detect defects before shipment.
Explore related questions
Conversely, failure costs represent the financial penalty for poor quality. These can be broken into internal failure costs, such as scrap and rework for defects caught in-house, and external failure costs that include warranty claims, product returns, and reputational harm when a faulty product reaches the customer. Managing these helps prioritize prevention over failure.
The Role of MES
According to the blog, an ERP system can report that a production run resulted in a 10% scrap rate. Still, it cannot typically identify the specific machine calibration drift or procedural error that caused it. To address this, manufacturers are turning to Manufacturing Execution Systems (MES) to provide essential, real-time context to their SAP data.
An MES functions as the data bridge between shop floor operations and ERP. Platforms, such as those developed by CAI Software, connect directly with machinery and operators to monitor and enforce production protocols. Key benefits of this integration include:
- Real-time process control: An MES can automatically detect process deviations and trigger quality notifications in SAP Quality Management (QM) immediately, containing issues before they lead to widespread defects.
- Standardization and enforcement: By deploying digital work instructions, an MES ensures procedural consistency and reduces the human error component of COPQ.
- Enhanced traceability: The system provides granular traceability for materials and components, feeding precise, reliable data into SAP’s inventory and batch records. This capability drastically accelerates root cause analysis when quality issues arise.
The strategic integration of an MES with an SAP environment allows manufacturers to shift from a reactive to a proactive quality management model. Thus, by feeding the ERP with actionable, real-time operational data, companies can effectively diagnose and prevent the root causes of poor quality. This leads to significant reductions in waste, improved efficiency, and a stronger bottom line.
What This Means for SAPinsiders
SAP data reveals the cost, not the cause, of poor quality. An SAP system, whether it’s SP S/4HANA or ECC, is an exceptional system of record. It can precisely and accurately tell the COPQ. However, this data is a lagging indicator as it tells a story of what has already happened. However, root causes such as an inconsistent process, an out-of-spec machine, or a deviation from a standard operating procedure occur in a real-time blind spot that SAP alone cannot see. For SAPinsiders, this means recognizing that the numbers in Quality Management (QM) or Controlling (CO) reports are symptoms, not the disease itself.
An MES makes SAP modules proactive. MES is not a replacement for SAP systems, but an essential partner that empowers them. It acts as the real-time bridge between the shop floor and SAP modules, transforming them into a proactive command center. Examples include:
- For SAP Production Planning (PP): An MES takes the production order and enforces it with digital work instructions, ensuring the plan is executed correctly and preventing deviations that lead to quality failures.
- For SAP Quality Management (QM): An MES can use real-time sensor data to trigger a notification in SAP QM the moment a process parameter drifts, containing the issue to a single unit instead of an entire batch.
- For SAP Materials Management (MM): The MES provides hyper-granular traceability, enriching the batch and serial number data within SAP. In case of a recall or investigation, this provides instant accuracy that native SAP data often lacks.
COPQ is the business case for integrating the shop floor with SAP. For SAPinsiders who need to justify technology investments, the concept of COPQ is the most powerful tool to make a business case for integrating SAP with an MES system. By extracting the data on internal and external failure costs from SAP, teams can present a clear financial argument for integrating an MES. The project is no longer an abstract IT upgrade but a targeted strategic initiative with a clear ROI that reduces the measurable COPQ that are already being tracked in SAP.
Premium
