16 Lessons Learned about Successfully Implementing A Failure Cost Program.

Hello!!!

Friends

ARE YOUR FAILURE COSTS “FAILING YOU”?

It is very common question in the period of recession.In times of high demand and high prices, the focus often shifts from cost containment and prevention to maximizing production and sales at the expense of waste and rework. When demand is depressed,rising costs that were previously less important haunt companies in nearly every industry. The usual response is to cut cost or downsize theworkforce to increase margins, when in fact, the hidden value in lost productivity, lost revenue and excess costs related to recurring problems or process failures may far exceed what can be gainedby a blanket mandate to reduce costs.

Suppose if companies are not monitoring process failures to eliminate recurring problems, improve daily performance, and find and manage the untapped potential of the current infrastructure, than they will miss huge opportunities to improve productivity, costs, cash flow, customer service and employee morale.

Process failure exists in every department & all of them have cost.But there are some challanges exists while tracking the failure cost.

What do you mean by failure?

Failure in business means falling  short of expectations and losing credibility with management and shareholders short of expectations and losing credibility with management and shareholders.Failure means embarrassment. Failure means no bonus. Failure  may even mean demotion or termination. For this reason, some companies want to shy away from
using the term “failure” when talking about performance.
These opportunities are the reasons to focus on failure as drivers to increase cash flow.Failure cost help to connect people to performance & profit.

The following lessons which are learned as the result of re-implementing failure costs using a hands-on approach that involved employees in production, maintenance, marketing, materials management,accounting and environmental departments.

Lesson 1:-Management think that they had adequate data to manage cash flow until failure costs come.

Lesson 2:- Never make accountants and controllers responsible for calculating failure costs that originate in production.

Lesson 3:- Calculate Productivity Loss Failure Dollars to help employees understand the financial impact of downtime and rework.

Lesson 4:-Never allocate prevention,appraisal and failure costs just to put numbers on a report.

Lesson 5:-Some failure cost should not be consolidated at the division or corporate level.

Lesson 6:- Failure costs exist everywhere,not just in production and maintenance departments. All departments should be
           involved in COQ tracking i.e,cost of quality.

Lesson 7:- Use process performance measures to link failure costs trends to financial performance.

lesson 8:-Tracking daily process failures (i.e., Cost of Quality or COQ) with daily measures is the key to meeting monthly  and annual goal.

Lesson 9:-To accelerate continuous improvement in support function department.

lesson 10:-A top ten list kept production sites focused on the biggest problems.

Lesson 11:-Don't assume a great degree of accuracy to preliminary failure cost number.

Lesson 12 :-Don't release early estimate.

Lesson 13 : When management stresses the importance of Failure Costs, they are telling employees that they want to talk  openly about what is going wrong in the  company.

Lesson 14 :-Frequent communication about failure costs and performance measurements is just as important than
           collecting the data.

Lesson 15 :-Improve Marketing and Customer Service by measuring losses critical to the customers.

Lesson 16:-Small problems that had been overlooked cost much more than expected. Sometimes those problems became the
           most important ones to fix after they were valued using COQ methods.

Summary
So , by analyzing above 16 lesson,the biggest benefits of measuring failure costs are to help increase cash flow and change the way employees view opportunity, not to evaluate the effectiveness of an ISO, Six Sigma or other continuous improvement initiatives and also improve customer service.