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Changer’ because it meant eliminating all those inspections for rejects and getting and keeping the process under control so that the risk of ‘defects’ was minimised, from the outset and throughout the production run. This was, and usually still is achieved by statistical sampling to ‘test’ the condition of the process and to only make adjustments when absolutely necessary to provide the best opportunity of the most consistent quality output and minimal rejects, scrap or rework. So, it is fair to conclude that ‘The Cost of Quality’ and its measurement (should always be a KPI) is the excess cost, the production of everything that is not quality, those unintended consequences, and the costs can be huge, as many companies can confi rm. Some quality gurus have even put the cost of quality as high as 35% of turnover. Much of the food industry already work on tiny profi t margins. It is not unusual to see signifi cant turnover of say £40million, with a bottom-line profi t of just a few hundred thousand pounds, or even a loss. Following normal accounting principles,
the raw materials and direct conversion costs, from goods inwards to despatch, are all that should be included within the ‘Cost of Sales’. In the above example, the Cost of Sales on a £40 million turnover, might be say £33 million, leaving £7 million to be eaten up by overheads, administration and ’hopefully’ at least a modest profi t. Working on the premise that for many ‘Hope is not a Strategy’ it is up to each company to achieve its own ‘change processes’ to ensure that they improve profi t margins, remain competitive, protect the brand, jobs and that all important profi t margin. OK, but how? There is no need to do this alone.
Turn Your Cost of Sales into Bottom Line Profits
Let’s assume that at least some of those Quality Giants of yesteryear got it wrong about the 35% of turnover wasted, or that they were not as correct as they might have believed, or that recent improvements in technology, working practices, training, etc., have changed all that and in more modern terms let’s imagine that wastage
is now more like 10% for most companies. Also, thinking about where most of that wastage is created (the production conversion process) 10% of Cost of Sales sounds less painful. Let’s also say that, despite our best eff orts we can’t save all the unnecessary waste but only half of it. That takes us to a less remarkable 5% of Cost of Sales, or, using our example, that is still 5% of £33million (more than £1.6million), and what makes that saving even more compelling is that such savings go straight to boost bottom line profi ts, instantly turning a disappointing outcome into something more attractive and sustainable, thus making each company more fi t and ready for the next onslaught of price reduction demands from retailers and/or price increases from suppliers.
Catch the Opportunity to Reduce Saveable Waste So where is all this saveable waste being created? Everywhere, from goods inwards to dispatch but limited to raw materials, packaging and conversion labour. So, how come the manufacturers don’t see this ‘everywhere’ waste? Because they are so used to it. It is always there, it’s part of the culture, we have always done things this way, etc. Even now, so many are still reluctant to change and we understand that ‘stepping outside the comfort zone’ can seem very scary. These are some of the reasons why all manufacturers should continually question everything they do and enlist some help from people like us, at Harford Control, who have spent more than half a century, thus far, helping manufacturers to become even better than they currently are. In some cases, we have helped companies make savings of 20% and even more. It costs nothing to let us have a look.
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automationmagazine.co.uk
Automation | May 2022
23
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