The hidden factory represents all the energy spent on activities which create no value, generate waste, and are invisible to the organization. This factory is hidden because these activities are not included in any report or document, and are not counted.
This is because some of your processes, as they are carried out today, induce variation. When a process moves away from its goal, it results in variation which typically results into non-quality. We then inject waste (rework, overtime, or inventory) into the process to cover problems and variations, which inevitably lead to increased costs. According to Dr. Armand Feigenbaum, founder of the Total Quality concept, the costs associated with the hidden factory can reach up to 25% of sales revenue.
Many factories do not consider the non-quality generated at each stage of the process in their quality rate calculation. This has the effect of concealing the hidden factory and hiding the real performance of their processes.
Let’s take the case of a process which produces 100 pieces at a time. At each step, we discover defective parts, but these are corrected and reintroduced into the process. In this case, the observed quality rate is 99 %, since we only consider the number of incoming parts versus the number of outgoing pieces. Enviable, isn’t it? Well, no! This process is riddled with waste.
The overall quality ratio, on the other hand, calculates the performance (outbound versus inbound parts) at each stage of the process to highlight the required reworking at each stage.
The entire process is then taken into account and the actual efficiency of the process is now assessed. The same process that showed a 99% return is now 77%, as the hidden factory is now taken into consideration.
The overall quality ratio is the probability that a product, brought through an end-to-end process, does not require retouching and will be flawlessly processed.
The hidden factory can have a major influence on your factory’s performance and this is why it is crucial to to put in place the right indicators to highlight waste and thus stimulate continuous improvement.
The Certified Six Sigma Black Belt Handbook, Third Edition