The True Cost of Non-Conformance and How to Prevent It

Remember when global supply chains were disrupted during the COVID-19 pandemic?

No one expected this to happen so manufacturers were all of a sudden facing many vulnerabilities they hadn’t prepared for. However, this forced them to confront inefficiencies and inconsistencies in their own operations—even if they had never done this before.

Handling non-conformance has since become mandatory, regulated across different regions, and a must-have for companies looking to build resilience and adapt to a rapidly changing world.

But the world has always been changing. We’re now simply facing new technologies such as automation and data-driven processes reshape manufacturing. In this context, even minor non-conformance can snowball into costly delays, reputational damage, and customer dissatisfaction.

Keep reading below to learn what non-conformance is, its impact on businesses, and practical strategies—including digital tools—to prevent it from derailing your operations.

Non-conformance refers to any deviation from a pre-set list of standards, processes, or requirements your organisation needs. This involves products failing to meet quality benchmarks, processes not aligning with regulatory demands and laws, or employees not following the procedures you’ve set for them.

Non-conformance more often happens when the actual outcome or practice doesn’t align with what’s required or expected. Some of these deviations can be intentional or unintentional. Still, they always signal a gap you should analyse and address promptly to stay efficient and guarantee quality assurance.

Who should care about non-conformance?

Everyone within an organisation. For business leaders, non-conformance can lead to increased costs, reputational damage, and lost customers. For employees, it means having to redo tasks, wasted effort, or safety hazards.

Compliance teams also face the direct threat of not meeting legal and industry standards. What might seem like a normal, small error—such as using outdated documentation or failing to calibrate machinery on schedule—may actually be a non-conformance.

Non-conformance is never acceptable. The smallest of deviations can lead to operational, financial, and reputational damage.

Manufacturers, in particular, are expected to deliver precision and consistency. For them, non-conformance will only create missed deadlines, customer dissatisfaction, regulatory penalties, or, in severe cases, complete product recalls.

There are real-world examples that illustrate the true impact and cost behind non-conformance. In 2023, Hyundai Motor America and Kia America issued recalls affecting over 3.3 million vehicles due to a critical safety defect in the anti-lock brake system module, which poses a significant fire risk. These fires can occur whether the vehicle is parked, turned off, or in motion. The estimated recall costs exceeded $2 billion, adding to the reputational impact on the automakers.

More recently, Boeing announced that a supplier had discovered a "non-conformance" issue involving the drilling of fuselage holes in about 50 undelivered 737 jets. According to Boeing Commercial Airplanes CEO Stan Deal, some of these holes did not meet the company’s precise specifications.

While this deviation wasn’t considered an immediate flight safety risk, it required extensive rework before the planes could be delivered. This incident, coupled with earlier concerns, prompted heightened scrutiny from the Federal Aviation Administration that initiated an audit of Boeing’s production and manufacturing processes.

Beyond financial losses, non-conformance is likely to negatively affect supply chains and cause safety hazards. For instance, a single improperly calibrated machine in your manufacturing plants can lead to faulty components. The issues add up as this problem can endanger end-users or workers on-site.

Non-conformance issues are typically classified into two categories: minor and major. This distinction helps organisations see how severe the deviation is and determine what the next appropriate corrective actions are.

Minor non-conformance

Minor non-conformance refers to deviations that, while not ideal, don’t pose significant risks to product functionality, safety, or compliance. These issues are often easy to fix and tend to cost less money. Yet, unless the non-conformance is a cosmetic flaw or minor procedural errors, they can still lead to inefficiencies if unaddressed

Examples of minor non-conformance include:

● Missing labels or incorrect labelling on products

● Slight cosmetic imperfections, such as minor scratches on a non-critical surface

● Using outdated forms or documents during a process

● Failure to record calibration data for equipment within a required timeframe

Major non-conformance

Major non-conformance brings important deviations from standards, requirements, or regulations that could undermine safety, product functionality, or compliance. These always require urgent corrective action. Otherwise, they can do more harm and bring regulatory penalties or reputational damage.

Examples of major non-conformance include:

● Failure to meet critical product specifications, resulting in unusable or unsafe products

● Use of unapproved materials in production

● Breaches of health and safety regulations that endanger workers or consumers

● Significant deviations in quality that necessitate product recalls

● Failing to perform mandatory testing or inspections required by regulators

The average cost of non-compliance for organisations is approximately $14.82 million. This includes fines, business disruptions, revenue losses, and other associated costs.

Regulatory fines can add to the financial burden. For example, GDPR-related fees add up to $10 million. Companies dealing with non-compliance issues face not only financial penalties but also operational setbacks while correcting these issues.

Non-compliance incidents often result in significant reputational damage, which can affect a company's market share and stock prices. For instance, companies listed on the NASDAQ that suffered a data breach experienced a 3.2% drop in share price compared to the market index three years after the breach.

Non-conformance in manufacturing can take many forms, from small oversights to critical errors, each with unique consequences. Here are some examples of non-conformance you might remember from the manufacturing industry:

Volkswagen emissions scandal

The Volkswagen emissions scandal came to light in 2015 when the U.S. Environmental Protection Agency discovered that Volkswagen had installed software in its diesel vehicles designed to cheat emissions tests. This "defeat device" allowed cars to perform within legal emissions limits during testing but emitted up to 40 times the legal levels of nitrogen oxides during regular driving. This non-conformance was intentional, driven by the company's desire to market "clean diesel" vehicles that combined environmental performance with power.

The scandal led to enormous financial repercussions for Volkswagen. The company faced over $33 billion in penalties, settlements, and recall costs globally, including a $14.7 billion settlement in the United States alone. Volkswagen’s reputation suffered a severe blow as it shattered customer trust and raised questions about corporate integrity for all brands.

A Philips recall

Philips was required to recall about 5.5 million sleep apnea devices and 17 million sleep masks due to a defect that posed a risk of interference with heart pacemakers. This defect raised serious safety concerns.

The recall imposed a substantial financial burden on Philips and led to investor dissatisfaction due to the financial and operational repercussions. This incident underscores the importance of comprehensive quality control and compliance in manufacturing.

Dairy Manufacturers Inc. voluntary recall

Dairy Manufacturers Inc. issued a voluntary recall of specific infant formula products because they were not compliant with FDA regulations found under section 21 CFR 106.110. This non-conformance was due to the lack of necessary premarket notification to the FDA, meaning the products had not been evaluated for U.S. food safety and nutritional standards.

The company told its consumers to stop using the products and return them to get a refund. Despite no reports of illness, the recall was a necessary step that would ensure consumer safety and compliance with regulations.

A non-conformance report is an official document organisations use to identify, document, and address deviations from standards, processes, or specifications you’ve established. It acts as guidance in quality management systems thanks to its structured method for reporting and fixing issues.

Non-conformance reports keep your organisation accountable and prevent similar occurrences in the future through corrective and preventive action.

A non-conformance report should include the following:

• The date, report number, and department or project where the issue occurred.
• A description of the non-conformance deviation that includes the cause of the issue and the methods used to identify it.
• A list of the individuals and/or teams involved in or impacted by the non-conformance.
• A section for the root cause analysis.
• A detailed plan of what you’re going to do to solve the problem and prevent similar non-conformances in the future.
• A process to confirm that the corrective actions have been implemented successfully so the report can be archived.

The process of managing non-conformance typically involves several structured steps that help to promptly detect, address, and prevent deviations from set standards. 

Below is a step-by-step procedure with all the strategies you can use to manage non-conformance within your manufacturing business:

1. Detecting non-conformance

To identify potential non-conformance situations, start by implementing regular checks, such as internal audits and inspections, to identify deviations from standards in both product quality and operational processes.

Your employees should be involved in this process every step of the way by reporting anomalies as soon as they’re noticed. Taking a closer look at customer complaints or product returns in real-time can also highlight issues with product quality or process discrepancies.

Pair this with consistent product testing and performance monitoring to identify any deviations as soon as they occur, before they lead to negative outcomes.

2. Documenting non-conformance

Create a non-conformance report to formally outline the cause of the issue. To prioritise these, organise them into minor or major non-conformance occurrences based on their potential impact.

3. Running a root cause analysis

Go beyond traditional tools like the "5 whys" technique or fishbone diagrams to conduct a thorough investigation into the root cause of the non-conformance. Access FactoryMaster helps you address systemic issues together with all your teams to collaboratively analyse the cause and develop solutions.

Mark Rooker, Mollard Cox, on using FactoryMaster:

“Our reporting is much more robust and accurate, giving us more nuanced insights into specifics such as cost to scrap, on-time delivery performance, and analysis of root cause for non-conformance. We have clear visibility on which jobs and parts are the most profitable. We're able to rely on its quick analysis of data, which is paramount.”

4. Deciding on a corrective action plan

Use the results of your root cause analysis to make a list of actionable corrective steps that will remove the cause of the non-conformance. At this point, you should decide who’s going to be responsible for implementing these, what resources they need, and how long these will take.

5. Working on the preventive actions

Once your team’s already working on the corrective actions, you should also plan out how you’re going to spot and prevent such issues in the future. Whether we’re talking about revising procedures, enhancing training, or upgrading your equipment, these long-term improvements should all help you avoid similar issues in the future.

6. Go through the final checks before ending the case

Now that your corrective and preventive measures are in place, it’s time to see how effective they were. Use follow-up audits, inspections, or testing to ensure that the non-conformance has been fully resolved. Finally, you’re going to close the non-conformance report and discuss the lessons learned with your teams.