Out of Hiding

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

by Jack B. ReVelle

Sometime in the mid-1980s, while I was the senior statistician for a manufacturing division of a major aerospace firm, I shared the concept of the hidden factory with a statistical quality control (SQC) 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 re-inspect rejected units, and to store unsatisfactory and rejected goods until they can be reworked, touched up, retested, re-inspected or disposed of. Figures 1 and 2 depict two views of the hidden factory. 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-oriented operations.

Figure 1

Figure 2

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. Enterprisewide total quality management or lean Six Sigma programs provide the most 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 organization’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 described 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 (to him) results of the audit. Thirty-three percent of the personnel, resources, equipment, material and facilities under his management were regularly committed 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 more than I could have reasonably hoped for. The group president—without any comment from me or anyone else—simply but firmly said he expected everyone in the room to conduct a hidden factory audit and take immediate action to substantially reduce their hidden factories. He also informed the group that he expected a report from each of them that included their before and after hidden factory statistics for the next three months. To this day, I still clearly recall this groundbreaking event.

After reading this story, consider: What proportion of your business is hidden factory? And what are you going to do about it? Do you know how and where to obtain the necessary information to establish this proportion? In fact, do you know if the necessary information is even available? If it’s not, do you know how to derive the raw data to create it?

Jack B. Revelle is a consulting statistician at ReVelle Solutions LLC in Santa Ana, CA. He earned a doctorate in industrial engineering and management from Oklahoma State University in Stillwater. ReVelle is the author of several books, including Home Builder’s Guide to Continuous Improvement (CRC Press, 2010). ReVelle is an ASQ fellow and a 2012 recipient of the ASQ Shainin Medal.

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