Cost of Non-Conformance (CONC)

What is the Cost of Non-Conformance (CONC)?

We’ve been talking in this blog about quality topics and how to utilize Epicor in ensuring that your organization meets your customer’s quality needs. Virtually every company uses Epicor in slightly different ways, but measuring the cost of non-conformance (CONC) is absolutely possible.

First, let’s review what the cost of non-conformance is or can be. Suppose an organization was to eliminate some form of waste. In that case, they could potentially eliminate the expense of that waste, and this savings would drop to the bottom line because profitability would be increased. For instance, let’s say we’re working on our packaging, and we figure out a way to spend the same amount of money on the packaging but eliminate returns because our packages don’t hold up to the rigors of the shipping process. By doing this, we avoid the cost of sending the product back to our facility, repackaging, shipping it again, and the possible cost of damage to our product. Just the damage to the product alone could be pretty costly, not to mention the administrative cost of handling the return, issuing an RMA, processing a replacement order, and using additional packaging on the return.

Using our above example, how could we track the cost of non-conformance to improve our profitability?

To do that, let’s identify the waste involved. The Japanese call waste “MUDA” and traditionally measures seven ways:

  1. Waste of overproduction – How many “extra” units do we produce in anticipation of some number of damaged products from shipping? This is an easy enough measure, likely through the final job cost of the finished parts.
  2. Waste of “time on hand” or “waiting time” – In Epicor, every transaction has a timestamp associated with it. A simple calculation would identify this waste and then report it periodically to track its progress.
  3. Waste of transportation – When an Epicor reason code has been generated for an RMA, you could easily report on associated transportation costs for that transaction.
  4. Waste of processing – The raw overhead cost of processing this extra transaction. Once again, Epicor time stamps every transaction; so, measuring the elapsed time it takes to process the RMA, repair job, shipment, etc., could all be rolled up into this waste calculation.
  5. Waste of stock at hand – This would be the cost of the extra inventory required to produce the replacement and the carrying cost of having it on the shelf.
  6. Waste of movement – How many transactions happened to produce and track this? This includes raw material movement, job processing from operation to operation, and maintaining finished goods inventory. All of these are easily reportable, and if you have Epicor’s Advanced Material Management module, it’s even that much easier to calculate.
  7. Waste of making defective products – This is the core and most egregious waste: the cost of producing the waste product, to begin with.

Now, you might be asking if Epicor has a standard dashboard or a way of calculating these measures. That’s a logical question, but in our experience, every organization has nuances with how they make these calculations; so, Epicor provides all the raw data, and the sophisticated query tools and fields to build the calculations the way you want them. The data can then be reported in real-time dashboards with conditional alerts sent out automatically, such as when a cost of non-conformance is encountered or exceeds a certain threshold.

So, as you can tell, Epicor is ideally suited for applying lean concepts, cost of non-conformance and tracking the seven Wastes. If you’d like further information on how this can be done for your organization, please feel free to contact us below.

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