A broken disk would have destroyed an engine/nacelle set
or a whole airplane. The liability cost, without accounting for life and limb,
would have been $500,000 or $7,000,000, respectively, in the economics of the
time. If a failure had occurred, then a recall would have been pursued at a cost
of $8,000,000 per occurrence to eliminate all disks "related" to the failed
one. "Related" has a strict technical meaning and might include, but is not
limited to, disks from the same heat of titanium, those from the same billet of
titanium, those made within some period of time and so on. The aircraft engine
industry has developed the strict definition of "related." In legal terms, one
is attempting to assure that the failed part will be unique in the universe
after the "related" ones are eliminated.
Production of jet engine disks continued after the
production run reported in Table 1. As seen from Table
1, the number of
discontinuities was decreasing over time. On this basis (attributed to
"continuous improvement") and on the basis that there had been no destruction
of aircraft or engines, in 1990 the "quality professionals" within the company
advocated the cessation of ultrasonic testing to save money. This advocacy
position was absurd because ultrasonic testing had caused the good safety
record. Nevertheless, they continued to advocate the termination of ultrasonic
testing.
The company, a member of the Center for Nondestructive
Evaluation consortium at Iowa State University, called upon me (associate
director there at the time) to use my recently developed economic theory of
quality, productivity and profit to prove financially that ultrasonic testing
should continue. I showed that the destruction of six aircraft at the minimum
liability, followed by recalls each time to eliminate related disks, would have
had the effect of reducing the expected profit from the manufacture of all 25
965 discs from more than $82,000,000 to a loss of more than $7,000,000. The cost
of the ultrasonic testing was $465,000. So, in order to save $465,000, the
"quality professionals" would blow away $82,000,000 or more.
The actual method to calculate the effect of quality on
productivity, profit and corporate stability is given in Papadakis (1995; 1996;
1997). Of these, Papadakis (1996) is the clearest. The calculation on disks is
given in its entirety in the references.
Another approach to justifying the investment in NDT
equipment for use over several years is some variation of return on investment.
In this calculation, a cost comparison is made between two scenarios. One
scenario is to purchase new equipment with its associated annual costs, while
the other scenario is to stay with the old system with its annual costs. The
cash flows are put into the return on investment calculation and the profit due
to buying the new equipment is calculated. Every factory controller has a canned
program for this calculation. If the return on investment is higher than some
percentage of profit agreed upon by the company (hurdle rate), then the purchase
is justified.
The return on investment approach was applied to the
engine disk data. The investment in 1982 in new ultrasonic NDT equipment was
$400,000. The return on investment would be the profit made on that investment.
The scenario with the investment has annual operating costs, maintenance costs,
depreciation and corporate taxes saved as the depreciation is expensed during
the production run, plus the resale value (capital regained) at the end of the
production run. The scenario with no ultrasonic testing investment is the costs
incurred as planes are destroyed and recalls are carried out. For the 35 faulty
disks in the six year production run in question, assuming reasonable
"relatedness" to eliminate many of them by recalls, the profit on the $400,000
investment after 12 years was 90.53%. The return on investment calculations are
reported in Papadakis (1995; 1996; 1997), with Papadakis (1997) being the most
complete.
Thus it was again proved, at a hurdle rate in effect of
12%, that it was correct to use 100% NDT. In summary, it can be said that
testing can make a profit. The assertion of the "quality professionals" that
you cannot test quality into a part is bunkum. They are addressing the wrong
problem. The real issue is keeping nonconforming products out of the downstream
pipeline and out of the final product. NDT is the ideal solution. Without NDT,
many airplanes flying today would have long ago been holes in the desert.
ACKNOWLEDGMENTS
The author wishes to acknowledge the assistance of
Fletcher H. Bray, Tom Howell and Vicki Panhuise of the Garrett Division of
Allied Signal Aerospace for supplying the data. Bray worked closely with the
author in the defense of NDT.
REFERENCES
Papadakis, E.P., "Cost of Quality: Three Financial
Justifications for Nondestructive Testing," Reliability Magazine, Vol. 1, No.
5, January/February 1995, pp. 8-16.
Papadakis, E.P., "Quality, Productivity, and Cash Flow,"
SAE Paper 960543, SAE International Congress and Exposition, Detroit, Michigan,
26-29 February 1996.
Papadakis, E.P., "Financial Justification for Investment
in Nondestructive Testing Equipment," Materials Evaluation, Vol. 55, No. 10,
October 1997, pp. 1155-1158.
Papadakis, E.P., "A Cost of Quality: Three Financial
Methods for Making Inspection Decisions," Materials Evaluation, Vol. 55, No.
12, December 1997, pp. 1336-1345.
* Quality Systems
Concepts, Inc., 379 Diem Woods Drive, New Holland, PA 17557; (717) 355-2142; fax
(717) 355-2142; e-mail <papadakis@desupernet.net>.