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Is integrating quality costs into an SAP ERP important?

Companies can make more informed decisions and improve the bottom line by implementing quality costs into SAP ERP.

Many companies require in-depth visibility of time, effort, resources and costs associated with handling product...

rejections and customer complaints, as well as costs associated with preventing product or process failures. Yet, they overlook or find it unimportant to implement quality costs in their SAP ERP system to help them with continuous product and process improvements.

Integrating quality costs into important logistics and supply chain business functions enables companies to retrieve information about quality inspection costs, nonconformity costs and prevention costs, which in turn helps companies make better business decisions. Let's look at the scope of quality costs that the SAP system offers.

  • Inspection costs: These are the costs associated with conducting routine quality inspections of procured or produced materials and costs associated with audit inspections.
  • Nonconformity costs: Companies incur these costs because of scrap or waste from production, rework to remove product defects, or lowered financial value of a product due to lower quality of the product produced.
  • Prevention costs: This is the cost of continuous product or process improvements by implementing Statistical Process Control, quality promotion, quality training to employees and vendor evaluation.

Companies that have integrated the SAP Quality Management (QM) component of the SAP ERP system into their logistics and supply chain processes can implement quality costs. The business processes in quality costs involve setting up a QM order, which acts as a cost collector for all the time, effort or resources a company incurs when attending to various quality costs -- inspection, nonconformity or prevention.

Here are the three ways a business process owner can record quality control efforts and provide greater visibility of quality costs:

  • When a quality inspector records lot inspection results for a material, you can enter the time it took for the quality check. The recorded time has an associated rate, which reflects as quality cost. For example, it takes 10 minutes to set up an instrument to conduct a quality check on a material. The setup rate is $100 per hour. Hence, the quality cost of setting up the instrument is $16.67.
  • At the time of deciding whether to approve or reject a material for consumption or sales -- known as a usage decision in SAP QM -- the quality inspector can enter the time or effort involved in checking the material for quality conformance.
  • You also can assign a fixed cost for handling a quality notification that may come as a result of a vendor error, a product defect, an internal production issue or a customer complaint. Whenever a business user creates the quality notification, it automatically leads to quality cost. Companies can use this data to see how many quality notifications are being created for each type of defect or complaint and how much it is costing them.

Next Steps

Tips for improving the SAP supply chain

Providing insight into customer complaints

How to cut inspection costs

This was last published in October 2015

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