Building the Case for Paperless Manufacturing: Reducing Non-Conformance Costs

By October 23, 2018 Blog No Comments

In our previous blog, we continued to address benefits of paperless manufacturing by highlighting the cost effectiveness of increased accuracy in order processing. Today’s feature addresses the third benefit of implementing a paperless manufacturing execution system:  Reduction of Non-Conformance Costs.

To clarify, a manufacturing non-conformance is an unexpected event that occurs in the manufacturing process that deviates from a set standard or requirement.  Several unexpected events can occur that will dramatically impact non-conformance costs.  These include:

  • FDA Audit Failures.  Failing an FDA audit can have tremendous cost.  According to FDAZilla.com, the expenses associated with a failed audit can include reputation damage, competition response, consulting, training (or re-training), and obvious loss of business.  Immediate cost can easily begin in the hundreds of thousands and escalate quickly into the millions (A Bad 483 Could Cost a Company Millions, Tony Chen, blogfdazilla.com, 2018).
  • Product Recalls.  Recalls can be extremely damaging for both cost and company reputation.  In addition to the initial cost of product recall – including creating a crisis team, product removal, cause investigation and public relations management (Lockton.com/whitepapers The True Cost of Product Recall, 2015) – there is a much greater cost associated with reputation damage and the recovery process. 
  • Product Replacement.  Non-conformance that leads to actual product replacement can devastate the production budget.  Material and labor costs alone can easily reach into the hundreds of thousands – not counting the wasted marketing and promotion dollars associated with product replacement.   
  • Customer Dissatisfaction.  We live in the age of the empowered consumer.  Because of social media and ease of communication, one dissatisfied customer can impact an entire company in a moment’s notice.  More importantly, an unhappy customer is a vocal – and influential – customer, as unhappy customers are three times more likely to tell friends and colleagues about a negative customer experience.  Additionally, it costs seven times more to acquire a new customer as it does to retain a current one (www.inc.com/graham-winfrey/the-cost-of-unhappy-customers.html).   Any glitch in customer satisfaction that is caused by manufacturing non-conformance is bound to have a tremendous impact on the bottom line.
  • Company Stock Value.   Non-conformance can damage a company’s image, impacting return on assets and yield.  Importantly, company stock value is difficult to recover.  The go-to metric for nearly all investors when it comes to valuing a stock is the P/E ratio. Standing for price-to-earnings, this formula is calculated by dividing the stock price by the earnings per share (EPS).  A disgruntled investor is unlikely to return if the company stock P/E ratio continues to suffer. 

Two Examples:  In 2006, Boston Scientific received a corporate warning letter from the FDA.  As a result, 100,000 stents were recalled, and  – pending FDA approvals –  their production was delayed.  Throughout the next four years, Boston Scientific worked diligently to correct issues – but over these four years, they lost sales for existing products, had to delay a key product launch, and lost over five billion dollars in market capitalization. 

Similarly, in 2013, after an extensive FDA inspection, Edwards Lifesciences was forced to halt multiple product launches.  After just two years of work to remediate the FDA inspected issues, these nonconformance costs reached nearly twenty million dollars and the stock price had dropped by thirty-two percent.

How can MES help reduce non-conformance costs?

Paperless manufacturing through MES can reduce these costs by:

Enforcing Specification.  Building a case for paperless manufacturing must begin by identifying the company specifics that MES can improve.  One of the easiest areas to identify are missed specifications (specifications out of tolerance).  Missed specifications can be identified by examination of paper records.  Were there products in the paper records that continued through the manufacturing process with missing specification information?  Questions that should be asked include “how many products went to rework or scrap,” and “how many products were shipped?”

Automating NCR Tracking and Resolution.  MES can completely automate the NCR tracking process. Any product currently involved in an NCR will be unable to move through the manufacturing process. This ensures that the NCR remediation process is followed and that the product does not get shipped. Therefore, because the NCR-related product cannot move through the manufacturing process and the MES captures NCR-related activity, the remediation becomes immediately visible, encouraging a swifter resolution.

Providing Complete DHR & Audit Information.  When order processing is halted on a manufacturing floor where MES is enforcing the operation, various company departments become aware of the situation quickly and efficiently.  In the previous Boston Scientific example, the remediation process took four years. When utilizing MES however, detailed production issue records and customer complaint records are enforced and created in real time.  The advantage is obvious, as there is no wait time for completed paperwork (allowing research to being immediately) and the completed DHR can be quickly retrieved during the auditing process. 

Real-time Event Troubleshooting.  MES utilization allows for immediate analysis and remediation of any unplanned production event.  As an example, a Seabrook consultant worked on a MES that was closely integrated with automated systems. During production, there were multiple cases in which the incorrect label was applied to a unit. The entire labelling process was automated based upon product information. The MES created and maintained event logs at the millisecond level so that the team was able to analyze these logs and assist the engineers to correct the flawed logic in the PLC that controlled that section of the line. This swift analysis and correction would not have been possible had the system not utilized MES. 

Enforcing Up-to-Date Training.  Operations with expired training may not directly generate a NCR,  however, quality issues could occur as expired training can lead to operator error.

Enforcing Up-to-Date Preventative Maintenance.  Similar to operator error, production issues could occur if equipment maintenance and calibration schedules are not followed. The NCR is a workflow that will require routing signatures, resolution documentation, and closure. With MES, the product and NCR workflow cannot be shipped until that NCR is closed.

Stay tuned for the next post where we will finish this Blog Series highlighting the benefits of paperless manufacturing.  Coming soon!