Cost of Poor Quality

Quality has so many definitions but what I guess sinks deep in the minds of consumers is whether a product does what it says it does; that is ‘fit for purpose’. Food for example has many functionalities including rheological functions, nutritional functions and even sensorial functions. It is common to shun certain types of food simply because you do not like the taste but that food may be nutritionally beneficial. This phenomenon cuts across all manner of consumer goods, automobiles, phones etc. Consumers would choose one function of an item over another and to them that defines quality.

Quality is an output of a process that has an inbuilt system of preventive activities along the value chain right from the sourcing of all input materials through processing until consumers can identify with it. Many companies have lost out because of the shambolic manner they treated the subject of quality and the service industry cannot be left out.

Cost of Quality

Investing in a quality management system such as ISO 9001 has become a big headache to many businesses because they do not first and foremost quantify the cost of this venture vis a vis the return on investment. The mere fact that a system, that does not necessarily add one piece of product to the many that has been produced puts some managers of businesses off. Some will go like “how does establishing a quality management system add anything to my bottom line?”.

It is not irrational to want to know what you gain in the long run when you think of investing money and time into a project. When it comes to quality, many do not actually focus on calculating the cost of the investment and what they gain out of it.

Armand Feigenbaum, a quality control expert and businessman devised the concept of Total Quality Control which later inspired Total Quality Management. In Feigenbaum’s model for Cost of Quality (CoQ), he split quality costs into four main areas. He called the first, Prevention Costs; this is the money spent on preventing issues from occurring such as training, creation of standards, quality plans, quality manuals, coaching on the job on quality principles and their applications etc.

He termed the second cost of quality Appraisal Costs; this refers to the money spent on undertaking physical checks on products. It also includes money spent on auditing products and systems. The third cost of quality is Internal Failure Costs; this Dr. Feigenbaum explains it as costs incurred when a failure occurs in house.

This cost may come in various forms including scraps, rework, time spent in replacing product, time spent in sorting good products from bad ones. By extension the amount of time spent on repairing equipment which does not have a very good quality maintenance regime.

The last cost of quality as described by this quality guru is External Failure Costs; these would usually cover everything from warranty costs to lost business.

 Balancing the Scales

In our part of the world consumers find it a bother to complain. FDA has on occasions put up adverts consistently on Television encouraging the public to bring complaints on any product they patronized and found poor in quality or safety for that matter. The statistics is still below encouraging. In a certain factory I know, incentives were prescribed in addition to the launch of a toll-free number to encourage consumers to bring complaints but the rise in complaints was still not great compared to the effort put in, yet that company kept picking up product defects from retailers.

The danger in doing business in such a society is, a serious quality issue may be going unnoticed until such a time it gets really out of hand. When that time comes a single lawsuit from an informed consumer would be enough to take the business down beyond resurrection.

In balancing the scales, the minimum mandatory standards must always be kept. Spending money on prevention is the best option to take because that decision is capable of ensuring the business does not get into issues of internal and even external failures.

By the way, most experienced businessmen will know that, the amount of money you spend repairing a damaged situation can be several times higher than the cost of preventing that damage from occurring in the first place. So then, what could keep a manufacturer from holding on to money when the quality systems that is supposed to enhance production suffers?

Greed and lack of understanding of the principles that govern manufacturing, first of which is quality. I have mentioned this in one of my articles before and would like to reiterate; once Ghanaians have over the years learnt to go to the courts on every little constitutional matter, they will soon find the same passion to take businesses to court if they supply substandard products, and I see many companies not surviving such an era.

The Virtual Deception

Once no one has complained, it suggests all is well and my product is well accepted. Business owners get this false sense of satisfaction that, even without a standard quality management system they’re still selling and making profit too. It is therefore a waste of resources to inject energy in setting up a system that ‘will not add a penny’ but rather take money away.

If you are surprised at this mentality, then you may be one of the few who really appreciate the benefits of establishing a standard quality management system for your operations. On the other hand, implementing an effective quality management system ensures the problems do not come up in the first place.

Spending money to maintain the system may seem unreasonable because you do not ‘perceive’ the issues any longer. The result of this can be very expensive when defective products slip through to customers and consumers. The amount of energy and resources you will have to allocate for a product recall can be so huge, it can threaten the very existence of the business.

Benefits of Establishing an Effective Quality Management System

Establishing an effective quality management system without doubt brings enormous benefits. These benefits are both internal and external in nature. Such a system will incorporate the measurement of cost of quality. It will be clear how spending more on prevention and appraisal helps to reduce your failure costs. Since cost of failures are tangible, you are able to understand what your return on investment is.

Once data on these are kept, it is clear how spending ahead lowers the cost of poor quality. Numerous research has shown that establishing an effective management system increases profit and reduces costs by up to 4.8%. This obviously should encourage the business community to embrace such a system.

In a study conducted by the Harvard Business School, adopting ISO 9001 had numerous benefits. These benefits ranged from higher rates of survival, increased sales, growth in employment, increased wages, less waste through to improved worker productivity.

It is often said that, if you think education is expensive, try ignorance. I dare say, that if you think quality is expensive try poor quality. It may not be always easy to predict your return on investment when investing in quality, but you can always be sure, that investing money to ensure quality is embedded in your processes and hence your product is certainly worth it.

 

Johnson Opoku-Boateng is the CEO & Lead Consultant, QA CONSULT (Consultants and Trainers in Quality Assurance, Health & Safety, Environmental Management systems, Manufacturing Excellence and Food Safety). He is also a consumer safety advocate and helps businesses with regulatory affairs. He can be reached on +233209996002, email: johnson@qaconsultgh.com.

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