Overview

For many organizations, quality-related costs go as high as 15 to 20 percent of their sales revenue, with some even going up to 40 percent of total operations. Ideally, for a company to thrive, cost of poor quality should be 10 to 15 percent of the operation cost. However, an effective quality management program can lower this cost substantially.

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  • Clear Product and Process Traceability
  • Closed-Loop Nonconformance and Corrective Action Program
  • Systematic Preventive Maintenance Procedures
  • Periodic Internal Quality Audit
  • Seamless Change Management Process
  • Aggregated Customer Complaints and Timely Return Management
  • Streamlined Supplier Quality Program
  • Effective Training For Employees and Suppliers
  • Electronic Records and Documentation Management

Emphasizing that quality is neither intangible nor immeasurable, Philip Crosby, in his book “Quality is Free”, maintained that quality is a strategic imperative that can be quantified and used to improve the bottom line. Quality has always been difficult to measure for most organizations, largely because there are several factors, which may or may not be linked to each other, that contribute to poor quality. Difficulty in tracking quality quite often translates into millions of dollars being lost every year. However, this Cost of Poor Quality (CoPQ) is not unsurmountable. An organization’s CoPQ can be reduced by identifying the different areas in which there are potential wastes, failures, and additional costs.

CoPQ typically falls into four categories: internal failure costs, external failure costs, appraisal costs, and prevention costs. Additionally, an organization can face further costs, including cost of reputational loss, customer-dissatisfaction cost, possible loss of sales or revenue, possible legal redress, potential loss of market share, lower service level to customers/ consumers, etc. Ultimately, the costs of producing quality products or services, conducting quality improvements, and achieving quality goals have to be managed and measured carefully so that the long-term effects of quality on the organization is a desirable one.

For many organizations, quality-related costs go as high as 15 to 20 percent of their sales revenue, with some even going up to 40 percent of total operations. Ideally, for a company to thrive, cost of poor quality should be 10 to 15 percent of the operation cost. However, an effective quality management program can lower this cost substantially and in turn directly contribute to the organization’s profits1.

So, how do we ensure that quality is measureable and costfree? Measuring quality is measuring the requirements to get the job done right the first time out. It requires the management to have an agenda, communicating it clearly with defined goals and measurements.

Here are 9 strategies that can help you lower your cost of poor quality

1. Clear Product and Process Traceability

One way to cut down your costs of poor quality is to improve the visibility into your product quality, as well as the processes involved in manufacturing and distributing your product. Without good traceability in products and processes, organizations are more susceptible to product delays, defects, and recalls, and process breaches. Additionally, ensuring clear product and process traceability helps you shorten the time to track down root causes and identify the stage at which the defect was caused.

Organizations have adopted automated tools to gain visibility into the various stages of their internal and supplier’s processes, as well as to map all their processes to various stages of a product life cycle from production to delivery. You can view and access details on production location, time of production, warehouse, labelling and packaging, and delivery related information with readily available reports to have better insight.

2. Closed-Loop Nonconformance and Corrective Action Program

Remediating problems is one of the key aspects to curb costs of nonconformance arising from production deviations, errors in specifications, quality incidents, or customer complaints.

Automating a closed-loop nonconformance and corrective action plan can help you take immediate containment actions like production stop and sales or distribution stop, preventing product rework or recall and further costs. Industry-standard methodologies such as 8D, 5-Why, Ishikawa, FMEA, and more, can be adopted to identify root cause of a non-conformance based on respective business needs, Appropriate Corrective and Preventive Actions (CAPA) can be planned, implemented, and tracked until completion. Implementing proactive quality measures can help you keep you abreast of any gaps and ensuring a proper effectiveness check can be performed to ensure that the problem has been resolved.

3. Systematic Preventive Maintenance Procedures

Following diligent preventive maintenance procedures can help you assess potential losses, estimate the frequency of failure and work towards minimizing it, with an optimal maintenance policy. Rather than spending time and money over maintenance of a facility, machine, transport vehicle, or equipment after a defect is noticed, many organizations are moving toward a proactive way to mitigate any lag due to break-down of machines during production. This helps avert loss or cost incurred due to delayed production or distribution.

Automated tools can simplify the process of calculating metrics on the cost of maintenance for inventory owners and quality assurance teams, in addition to consolidating equipment and facility maintenance histories. This enables you to make precise improvements and reduce your cost of poor quality. Additionally, a centralized repository to store and organize all types of documents such as manuals, directives, etc. gives you access to data from across your organization to make timely and informed decisions.

4. Periodic Internal Quality Audit

Internal quality audit is important for organizations to keep a tab on non-conformities, if any, in products or processes. This helps you notice any loopholes in or deviations from quality requirements which can be mitigated from source at the earliest. When quality issues go unnoticed, your organization’s CoPQ can increase, and in the long run it can snowball into a disaster, affecting your bottom line.

The best way to tackle this is to implement a quality audit solution that facilitates a federated approach to managing different types of internal quality audits such as factory audits, process audits, facility audits, and health & safety audits, which helps in boosting operational excellence and ensuring adherence to the industry standards of quality. It would also enable you to completely manage quality audit processes right from audit planning and scheduling, to audit execution and issue management.

5. Seamless Change Management Process

While an organization’s ability to handle change has been often criticized, successful change management depends on strong leadership and clear policies. With changes, come many risks and uncertainties. A well-defined and streamlined process will ensure that these changes are implemented successfully with minimal disruption and risk.

Often a technology solution can provide you with the capabilities to manage changes in equipment, processes, as well as documents. You will be able to chart out your change management process from the initiation stage to tracking change requests, identifying its impact and risk on associated processes, and improving overall coordination among various departments affected by the change. You will have clear visibility into the whole process, including change history, and data on the changes made, their status, and departments or regions affected, along with associated costs.

6. Aggregated Customer Complaints and Timely Return Management

When it comes to customers, their satisfaction of your product is what will keep your organization growing and your bottom line rising. Ensuring that they are happy is often a tricky business. To stay on top of things, it is essential for you to keep track of all customer complaints, analyze them, and provide prompt remedial responses. There is a lot of learning an organization can take away from assessing the nature and frequency of the complaints they receive, and make decisions based on the actions taken for similar complaints in the past.

An efficient complaints management tool should be able to help you analyze the complaint, mapping it to corresponding risks, policies, and even compliance activities. It will also provide you with the analytics and business intelligence you need to carry further investigations, notify relevant personal, and track remedial actions. Capturing and managing all the complaints from various sources will help organizations be aware of arising issues and implement corrective and preventive measures.

7. Streamlined Supplier Quality Program

Suppliers can generally affect your CoPQ by producing defective material and/or finished products. Any loopholes in a supplier’s process would have a direct effect on your organization’s brand and revenue. For organizations with a large supply chain network, the CoPQ of individual suppliers participating within a supply chain has a cumulative effect on the overall revenue of the organization. As a result, you would do well if you work proactively with your suppliers to reduce your CoPQ.

Many organizations are also implementing supplier charge-backs (or cost recovery) process, wherein the supplier is charged for any additional costs incurred due to non-conforming components and materials, as well as late deliveries. An effective charge-back system can help you keep track of all the metrics related to your suppliers’ performance, along with ensuring business discipline and accountability throughout the supply chain.

8. Effective Training For Employees and Suppliers

Maintaining and nurturing the knowledge-base of employees and suppliers is one of the crucial elements of taking a step toward reducing your CoPQ. All personnel need to be up to speed with policies, SOPs, regulations, and other relevant quality metrics, so that violations are kept at bay. By providing periodic training sessions, tests, and awareness programs for your employees and suppliers, you can ensure all of the components of your business ecosystem are on the same page, moving toward achieving a unified objective.

With an introduction of any new policy or guideline, a training management program can trigger notifications to appropriate stakeholders to complete relevant training courses and also provide a training guide. A streamlined training process helps reduce risks and non-compliance gaps. You can also test the effectiveness of your training program through tests and questionnaires, and any gaps can be bridged with additional training courses.

9. Electronic Records and Documentation Management

To make sure that your employees and suppliers are up-to-date with relevant policies, contracts, SOWs, SOPs, guidelines, regulations, and other such documents, you need to be able to store them in a centralized location with applicable access rights.

This may require you to leverage an integrated system to manage quality documents right from its inception to its communication and implementation, including the various versions that a document would go through. This helps employees and suppliers follow set processes and policies, reducing the likelihood of nonconformity, product defects, and rework costs. A system that can scale with your organization will allow you to support policy management at a local, regional, and organizational level.

To reduce your CoPQ, you need to look at it from an overall organization perspective. Addressing quality issues in a holistic and proactive way helps you identify the areas of concern which may accrue to a high CoPQ. This approach not just aggregates all possible issues across the length and breadth of your processes, but it also helps define preventive measures and maps it to the end result. This enables you to quickly assess what is going right or wrong and what you can do about it, before it is too late.

 

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