Comparing the Costs of Manual vs. Automated Layered Process Audits

PricewaterhouseCoopers estimates that by 2020, Industry 4.0 digital transformation initiatives will deliver nearly 4% in annual cost reductions for both the aerospace and automotive industries.

One area manufacturers are automating is internal audits, including the layered process audits (LPAs) required by several original equipment manufacturers (OEMs). These daily checks of high-risk processes are a best practice for reducing defects, but they’re also time-consuming when tracking a large volume of audits manually.

Given the understandable scrutiny on costs, the question for auto and aerospace manufacturers becomes whether paper-based or spreadsheet-based LPAs actually cost less than automation. Here we discuss various costs to consider, including administration, implementation and quality costs—as well as hidden costs that should figure into your decision.  

Learn how a Top 50 automotive supplier cut internal PPM 73% with LPAs

Administrative Costs

One of the most important elements to consider when comparing manual vs. automated LPAs is administration costs, including the time it takes to:

• Build out your annual audit schedule
• Send reminders and follow up when people miss audits
• Manually enter findings from paper checklists into spreadsheets
• Crunch spreadsheet data

A properly implemented LPA program requires hundreds of audits per year, with audits taking place every shift. For many companies, manual scheduling, tracking and analysis requires up to two full-time employees.

Companies that implement an automated system are often able to reallocate those full-time employees to more strategic work. Based on conservative salary estimates, this cost savings could total $65,000 to $130,000 annually in administration alone.

Implementation Costs

Implementation costs are another factor to look at when deciding whether to go with a homegrown LPA system or an automated LPA platform. Implementing an LPA program involves several steps:

• Learning about LPA best practices
• Creating a team
• Writing audit questions
• Creating an audit schedule
• Rolling out the LPAs themselves
• Ongoing monitoring and improvement

If you’re doing this on your own, the process could take weeks or even months to get started. If you’re implementing an automated LPA platform, you could be up and running much faster, even in days if you already have questions prepared. A good vendor will also provide training and support to help accelerate your LPA program, so you’re not stuck trying to figure it all out on your own.

A faster ramp-up isn’t just about reducing the time and resources that go into implementation. It also means you can start seeing results faster in terms of quality cost reductions, helping staunch the bleeding if your plant is really struggling.

Quality Costs

Manufacturers can’t ignore the cost of quality when evaluating manual vs. automated LPAs. In many cases, companies that make the switch to automated LPA software do so because they have found paper-based tracking largely ineffective.

Typical problems with manual LPA management include:

• Low audit completion rates
• Pencil-whipped audits
• Poor visibility into findings
• Inadequate follow-up that allows problems to grow undetected

These types of drawbacks can easily erase the potential benefits of LPAs. When fully implemented, however, LPAs are proven to reduce scrap, defects and complaints. In fact, it’s why major automakers like GM and Fiat Chrysler now require them.

Consider also that experts typically estimate the cost of quality in manufacturing at anywhere from 10% to 40% of revenue. That would mean a division with $10 million in revenue would be looking at $1 million to $4 million in annual quality costs. If an automated system reduced that by even 10%, that would mean an additional $100,000-400,000 on top of the administrative savings.

Hidden Costs

When we think about the quality costs associated with manual LPAs, it’s important to consider the hidden costs associated with ineffective LPAs. These costs include:

• Lost business as a result of customer complaints
• Production downtime as a result of quality issues

Even if you avoid one major quality escape where a customer is forced to shut down production, you could be looking at hundreds of thousands (or more) in savings. It all comes back to the 1-10-100 rule, which tells us that $1 spent on prevention saves $10 in detection and $100 in correction.

Ultimately, the choice over whether to automate is less about cost, and more about investment. Time and again, companies have found that modest investments in proactive quality can deliver unexpectedly large cost reductions. In this sense, the price of automation is just one important part of the bigger picture to consider.