Quality and product reliability have always been the end customer's most important purchasing criteria, especially in the automotive industry, and are therefore crucial for competitiveness and customer satisfaction. In addition, quality influences costs and therefore contribution margins and ultimately the company's profit: the share of total quality costs in turnover is estimated to be between four and 15 percent, depending on the industry. In the automotive industry, the average value is around 4.4 percent according to a study conducted by the Technical University of Munich and the management consultancy KBC in 2015.
This includes the variable costs of non-quality in addition to the fixed costs for the expenses of daily quality work. Depending on the quality of the product, these can represent a very significant cost reduction potential. Prominent examples of this are
- warranty costs,
- warranty claims,
- Regressforderungen,
- Änderungskosten,
- Costs for product recalls,
- rework and rejects as well as
- additional costs due to delays.
Cost optimization is crucial in the future
The cost factor becomes all the more important in terms of necessary cost optimization when extensive and lengthy new investments are unavoidable for companies. Especially in these dynamic times of comprehensive industry realignment, companies have to make the necessary investments several years in advance. In view of the electrification of drive systems, autonomous driving, new technologies and business models as well as legal requirements and social expectations, the demands on companies will increase significantly, which is why quality will remain a decisive competitive factor in the future.
Customary instruments are risky
In order to at least partially compensate for the high additional expenditure, top management regularly orders the usual instruments such as staff cuts and product cost-downs to reduce unit costs. As necessary as this may seem, experience shows that these instruments harbor considerable risks.
At the very least, this weakens rather than strengthens the performance side of value creation, as many good employees also leave the company and a reduced product substance and serious product quality problems are "decided" because the necessary quality assurance is often lacking in the cost-down measures.
In contrast, significant costs can be avoided with targeted measures to improve process quality and ultimately product quality. This increases the contribution margin. At the same time, the perceptible improvement in product quality increases your chances in competition and can lead to an increase in sales.
Tapping into potential
In order to tap into the potential in your company, you need a highly experienced expert as an "architect" and "driver" who has a proven track record of successfully overcoming such problems in large companies in the automotive industry.
In detail, I recommend the following approach:
1. quickly carry out a potential analysis for decision-making.
A quick but comprehensive coarse analysis of the value chain and company structures is advisable at the beginning, which enables an initial valid assessment of the actual quality situation and possible cost reduction potential. This requires an expert with proven experience with weak point analyses in large companies. Betrachtet werden dabei die Regelkreisebenen
- Technik,
- Prozesse,
- Strukturen und
- Rahmenbedingungen.
The result is a map of the company's weak points, which provides the company management with a solid foundation for assessing the need for improvement initiatives.
With the right expertise, such a potential analysis for large companies can be implemented within 35 to 50 man-days, depending on the degree of complexity.
2. Protect the value chain against current risks.
If the results of the potential analysis require the implementation of extensive improvement initiatives, you should be aware of the signal effect of such a "lighthouse initiative" on your workforce and supervisory bodies.
Before you start organizing a major cost reduction program, you should be aware that current product quality problems, i.e. defects that have already been caused but not yet detected, pose a significant threat to the future success of your improvement program.
If a major incident occurs during the ramp-up phase of the program, this can lead to a significant loss of confidence among employees and reputational damage for the company management. Cumbersome justification loops by management do not help in the aftermath. A successful continuation of the program would be called into question due to a lack of acceptance; restarting another improvement initiative would be very difficult for years to come.
Trust in company management creates acceptance
With this in mind, currently smouldering product and process risks in the company must be identified and, where possible, adequately secured through countermeasures. An expert can very quickly set up a pragmatic risk assessment, which leads to a short-term assessment of the current risk situation with regard to product quality.
Risks should be reported directly to the company's top committees, where decisions on suitable countermeasures should be made promptly. This creates confidence among employees and supervisory bodies regarding the consistency of the company's management in achieving sustainable improvement.
3. Analyze the causes of the most important cases of damage.
The basis for any kind of problem solution is a deeper understanding of their cause-and-effect mechanisms. The biggest creative challenge is identifying the underlying, actual causes of failure. It is regularly not recognized that the causes of technical product problems are not to be found at the technical level, but inevitably in processes, structures and framework conditions.
For example, if material breakage is the technical product problem, the wrong material is not the cause, but an upstream symptom in a series of subsequent errors. The actual cause would most likely be found in requirements management during the product development phase. An actual sustainable improvement in product quality would not be achieved through a different choice of material, but through improved requirements management that defines all necessary product properties without errors.
Root cause analyses remain unavoidable
Alike the principle of "combating causes instead of treating symptoms", an interdisciplinary team of specialists from the fields of Development, Purchasing, Supplier Management, Production and Aftersales should develop root cause analyses for the most important product problems using such a root cause system. All analyzed problem cases must have a clear connection to processes and, if necessary, to structures or framework conditions. As a rule, action points quickly emerge if the quality of the analysis is good.
The quality of the results of the root cause analyses is the cornerstone for the success of all further program phases.
Include future risks
In addition to existing risks and problems, the focus must also be on future, new risks. For example,
- technological and innovation leaps,
- legal or social requirements or
- increasing competitive pressure with rising customer expectations
. Suitable corrective measures are required for both aspects, the previous problems and the future risks.
4. Derive corrective measures.
When people act, mistakes happen. It would be technically impossible and economically unviable to rule out errors in complex systems.
The main challenge is
- to find and implement the most effective measures, that
- also meet your company's profitability requirements in terms of a favorable cost-benefit ratio.
This means at least making a rough assessment of the cost-benefit ratio of the measures. A cost-benefit ratio of one to three would be an acceptable minimum profitability for the remedial measures. Determining the respective costs of the required measures should not be a problem.
Quantifying the benefits is much more difficult. The chain of effects method has proven its worth here in order to record both the technical logic and the monetary impact in a transparent and comprehensible manner.
Developing complementary solution approaches for different time horizons
When deriving measures, different, complementary solution approaches must be used to prevent errors, eliminate errors and mitigate the extent of damage in the event of unavoidable risks.
Fault rectification focuses on a fast and therefore technical solution, as the damage has already occurred at the customer's premises. This short-term time horizon covers a solution period of 24 hours to a few weeks. As customer satisfaction is the top priority here, the focus is on a quick technical solution, even if it is actually only a symptom remedy.
Medium-term measures already go into the processes that cause the problem, primarily the production and after-sales processes. These are manageable improvements in workflows, processes and systems that take effect after around six weeks.
The large, preventative levers with far-reaching process and organizational changes usually take two and a half to three years to implement, provided that a medium IT share is involved in the process scope under consideration.
5. Implement measures in a concerted manner.
After a thorough analysis and the derivation of a portfolio of measures that addresses both short, medium and long-term solution requirements, it can be assumed that a large number of measures will have to be implemented in parallel.
In order to ensure that the packages of measures are coordinated and implemented as efficiently as possible, concerted implementation as part of a professionally managed corporate program or large-scale project has proven to be the best approach.
A major initiative of this kind should be supported directly by the company management with a visible signal effect. The measures should be bundled synergistically for the project work. Cleverly selected implementation waves in the rollout phase help to ensure that the company is not overwhelmed in terms of its ability to change in the short term.
Departments are responsible for product quality
A very important factor for the success of the program is the binding clarification of responsibility for quality within the company. Product quality is created through the daily work of specialist functions in the original value chain. The quality functions have an enabling, supporting and controlling role here, which in no way relieves the specialist functions of their primary responsibility.
However, the responsibility for product quality is very often seen as lying with the quality functions. As a result, the improvement of product quality is "outsourced" to these quality functions. They struggle more or less helplessly, while the company loses valuable time during which the urgently needed results are not achieved. The central responsibility of the specialist departments for product quality should therefore be reflected in the responsibility structure of the program.
Involve process owners
In addition, it is important to ensure that those responsible for the respective processes in day-to-day operations are significantly involved in the analysis, design and implementation of the corresponding improvement measures and undertake to continue to implement the measures developed in their area of responsibility in a traceable manner after the program has been completed.
6. Implement measures with efficient results monitoring
Once the program has been structured and after the ramp-up phase, the first results milestones of the projects come into focus. The major challenge is to manage the results monitoring of the projects very efficiently and with as few KPIs as possible so that the program management has transparency about the current performance of the multi-project landscape at all times.
This transparency is the basis for being able to intervene and manage promptly if necessary. Risks in project execution can thus be identified and averted at an early stage, which avoids incorrect performance, delays, rework and thus additional costs.
7. Ensure the sustainable application of measures.
A significant problem is regularly the post-program phase, i.e. the phase in which the developed solution approaches can also be used without
- the program structures,
- the special budgeting
and, above all, without
- the top management awareness
should be applied on a permanent basis.
Transparency about application performance minimizes risks
The reasons for this are manifold. In most cases, those responsible are no longer the ones who developed the measures once the program phase is complete. Doubts about the effectiveness of the measures that others have developed, coupled with budget restrictions and staff shortages, often lead to a gradual watering down of the application and even the discontinuation of the measures.
Measures that have already been proven effective are often superficially discussed. New measures are often requested without having properly applied those that have been systematically developed and tested. It should be noted that measures are only developed and tested during the project phase. More than 95 percent of the hoped-for cost savings are only generated after the project phase through the permanent and correct application of the remedial measures in day-to-day business over several years.
If it is not possible to create valid transparency about the application performance of the newly developed solution approaches, at least for the first two years after the rollout, there is a great risk that the measures will "fizzle out" and the results will not come as planned.
Slimming down the KPI set
This is why it is necessary to continue the KPI set from the program phase in a slimmed-down version in the post-program phase through a central quality function in order to measure process performance.
The reporting of the KPIs should ideally be reported quarterly in committees of the second management level of the entire company and semi-annually in the company management in the two years following the completion of the program. The company management should continue to be used as an escalation level.
Conclusion: Unlocking potential within the company with targeted measures
In summary, the critical success factors for substantially reducing costs and increasing product quality
- are pragmatic and rapid risk protection,
- root cause analysis at process and structure level,
- the efficient implementation of improvement measures that have proven effective with a good cost-benefit ratio and
- ensuring the sustainable application of the measures.
