The Hidden Factory

Uncover the true costs of not getting it right the first time!

I'm member of the American Society for Quality, one of the many benefits is the monthly Quality Progress magazine, with great articles on quality issues.
This article is taken from the March 2013 edition and was written by Jack B. Revelle.

Sometime in the mid-1980s, while I was a senior statistician for a manufacturing division of a major aerospace firm, I shared the concept of the hidden factory with a statistical quality control training class composed entirely of senior and middle management.
The hidden factory is the portion of an organization's total capacity that exists to rework or touch-up unsatisfactory parts, to replace products recalled from the field, to retest and reinspect rejected units, and to store unsatisfactory and rejected goods until they can be reworked, touched up, retested, re-inspected or disposed of. This concept is not limited to factories. It also applies to nonmanufacturing venues, such as warehouses, libraries, hospitals, offices and a variety of other service-orientated operations.

In denial

Based on available data, it has been estimated that the hidden factory can be anywhere from 15% to 40% of the productive capacity of an enterprise. There is no better way to improve productivity than to convert the hidden factory to productive use. Enterprise wide total quality management or lean six sigma programs provide the practical ways to accomplish this objective.
When  I noted the 15% to 40% hidden factory statistic with the class, one of the class members vociferously denied that such a figure was possible. To emphasize the strength of his denial, he told me during the class that he was going to have an audit conducted of his engineering division to determine the proportion of the resources and facilities under his control that was the hidden factory. He acknowledged it might be as high as 5% or so, but it would certainly be no more than that.
About two weeks after the class, I was invited to attend a senior staff meeting for the organization where the member from my SQC class worked as a division manager; I wasn't told why. The meeting included the orgnaization's group president, vice presidents, directors and senior managers. I found out soon enough why I'd been invited: The member from my class was the first speaker on the agenda. He explained to everyone in the conference room what I had stated about the extent of the negative impact of the hidden factory. He then desribed his immediate disbelief and his vocal reaction in my class followed by the audit of his engineering division.
Finally he admitted to his colleagues attending this staff meeting the surprising results of the audit. Thirty-three percent of the personnel, resources, equipment, material and facilties under his management were regularly commited to doing things right at a time other than the first-time - the hidden factory. Clearly, this was a major admission in the presence of his peers. What followed was comany-wide audit to determine hidden factories in each division.

After reading this story, consider: What propotion of your business is hidden factory? And what  are you doing about it?