Layered Process Audits (LPA)The Compelling and Immediate ROI of LPA Systems

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The Problem

“GM agrees to pay $900M in ignition-switch scandal…”

“Takata air-bag recalls will cost the company $2.5B. ...”

“Boeing 787 battery fires cost company more than $600M…”

“Chipotle sales drop $53M in one quarter on E. coli fears…”

Manufacturers and service providers are failing to meet demands for better, faster, cheaper in an increasingly

connected world.

Defects and errors are more expensive and more likely than ever.

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A Problem That Spans Industries

• The auto industry has seen 3 years of progressively larger recalls, with over 51 million vehicles recalled in 2015 at a total cost in excess of $10 billion

• Aerospace order cancellations have risen to almost 20% of gross orders as a result of production delays. Boeing and Airbus had 213 aircraft cancellations in 2015, roughly $17 billion of lost revenue

• The pharma industry has seen annual regulatory settlements and penalties spike by over 300% in recent years, averaging over $6 billion per year

The increasing variability and rate of change are creating control challenges as more is being delivered faster, and the costs to correct issues post-delivery are significantly higher.

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The Underlying Cause – Process Failure

“GM’s CEO Mary Barra pledged to ‘hold ourselves accountable and improve our processes…’”

“Takata’s public report focused on the broken safety culture and identified multiple process

weaknesses…”

“Boeing’s battery supplier needed to review its cell manufacturing process and ensure that employees

were properly trained…”

“Chipotle announced a new rigorous restaurant inspection program to address the process failures at

the chain…”

Process deviations are a primary cause of quality failures, as traditional systems are often reactive and blind to process

breakdowns until it’s too late.

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The Price of Failure

“The cost of poor quality in manufacturing companies ranges from 5 percent to 35 percent of sales. In service organizations, it ranges from 25 percent to 40 percent.”

- Institute of Industrial Engineers

Process-related failures represent the largest component of the cost of quality. These failures are seen in a number of areas, including costs associated with:

Scrap – from raw materials which have to be thrown away due to process errors Rework – when work is re-done because it was completed improperly the first

time Warranty costs – the defects identified post-delivery, often by end customers Maintenance errors – due to acceleration of equipment failures or calibration

issues due to maintenance mistakes Inspection costs – the cost of resources conducting and managing inspection

activities Nonconformances – failures which can lead to regulatory penalties, voluntary

and involuntary recalls, losses due to de-certifications, etc. Loss of customer goodwill – the damage failures can inflict on a brand, often

reducing pricing power and customer loyalty Opportunity costs – representing growth missed due to capacity expended

correcting errors

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Failure Cost Model

Example Costs, $100MM Revenues Manufacturing Facility

% of Revenues

Calculated Cost (on $100MM rev)

Operating CostsScrap 4% 4,000,000$

Improper Maintenance 1% 1,000,000$

Warranty Holdbacks 3% 3,000,000$

Labor SavingsRework 1% 1,000,000$

Inspection Costs 1% 1,000,000$

Annual Cost 10,000,000$

This model reflects typical quality process-related costs, based on commonly reported performance data, for a site contributing $100MM annual sales.

Even $10MM in costs per year does not reflect potential loss of brand value, regulatory penalties, and opportunity cost associated with addressing failures.

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The Solution: Layered Process Audits

Layered Process Audits (LPA) are a key tool in addressing quality issues. Key members from all major process areas participate, and the audits have the following characteristics:› Quick – Usually 5-10 questions taking 5-15 minutes to complete› Involve Multiple levels of Management from the production floor to the

executive suite (usually at least 3 Layers)› Varying Frequency – First layer conducts daily audits, and others do

weekly or monthly› Management rotates review areas to maximize engagement and audit

integrity

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“Companies with superior quality can outperform companies with poor quality by two to three times based on return on sales, and by up to five times based on sales growth.”–

Boston Consulting Group

LPA vs. Standard Audit Programs

LPA programs offer a number of advantages over traditional audit programs and techniques.

› More proactive than most traditional, sample-oriented approaches› Engage management at all levels - demonstrating commitment to quality

and compliance programs› Put more, varying eyes on processes, making it both less likely for failures

to go unnoticed, and harder to “self-pass” or “buddy pass” issues› Foster a culture of quality and keep everyone more informed about how

things are supposed to work – even in the face of constant change

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Paper and Excel Traditional Systems

Deploy Inexpensive, inefficient, Inconsistent adoption

Slow and expensive, managed by IT, decentralized

ScheduleDifficult to set up and maintain, significant effort, high chance

of gaps

Lack ability to handle layers, complex organization

structures, single site focus

CaptureManual, time-consuming

collection, inaccurate, unsearchable data

Require extensive training, siloed data creates blind spots, often don’t address data quality

Report High effort, stale content, poor visibility

Typically static, reactive focus, new reports are difficult to build

Managing the LPA Process

For companies using paper and Excel or even traditional systems to support their layered process efforts, however, the effort can take a lot of work, and even traditional systems may not help much:

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Cloud-based platform means new customers launch within weeks and implementation risk is eliminated.

Modern, intuitive interface requires less training, allowing faster adoption.

Rapid Time-to-Value.

Real-time dashboards with drill-down reporting give executives and quality leaders at all levels actionable insights that can be shared throughout the organization.

Real-Time Insights.

Easy-to-use mobile interface with sophisticated data integrity safeguards leads to the consistent collection of timely, accurate, and complete data from everyone in the organization.

Powerful scheduling capability ensures complete coverage for quality initiatives and reduces administrative time by up to 85%.

High-Quality Data.

A world-class LPA system can virtually eliminate the overhead, while significantly enhancing the benefits associated with layered process audit programs.

The Solution: An LPA System

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LPA Benefit Case

“Best-in-Class manufacturers...produce products at a higher quality, and ...(spend) 38% less (of their) annual revenue on their total cost of quality when compared to their

peers.”

- Aberdeen Research

Example Annual Savings from a Process Audit System ($100MM Manufacturing Facility)

Even modest improvements from LPA efforts demonstrate tremendous value to the organization.

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Summary - Key Takeaways

• Failures at manufacturers and service providers are accelerating. • Faster cycle times mean more defects are making it out the door,

where the costs to correct are much higher.• Traditional audits are reactive, focusing on specifications and

sampling while largely blind to process failures.• Layered process audits address these gaps, but they can create

overhead or fail to address “check the box” behaviors.• World-class LPA systems can virtually eliminate the overhead with

LPA, and secure the best overall results.• These LPA systems are extremely cost-effective, with payback

periods in weeks or months.

Effective quality management programs can reduce (cost of quality) substantially, thus making a direct contribution to profits.

- Aberdeen Research

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About Ease

Ease software has been successfully deployed across a wide range of enterprise environments worldwide – wherever customer satisfaction and high product quality are critical to brand strength. 2015 Gartner Cool Vendor for

Manufacturing Operations

To download the full whitepaper or for more information about LPA programs or Beacon, visit us at www.easeinc.com or email sales@easeinc.com.