Understanding the cost of quality to increase overall profits

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05 Jul 2017 David Marshall 0 Comments

The cost of quality (CoQ) is a term used frequently in business - but often incorrectly.

This widely misunderstood term doesn't mean the price of creating a quality product or service, it's the price of NOT creating a quality product or service.

To quote Philip B. Crosby on Cost of Quality;

"What costs money are the unquality things - all the actions that involve not doing jobs right the first time."

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Quality doesn't mean more expensive

In the past, business owners have assumed that increased quality is accompanied by increased cost, but this is not true.

Think of this example; you're a restaurant owner with two waitresses. One is bubbly, charming and helpful. The other is surly, incompetent and lazy. You're paying them both the same wage, but the quality of the first one shines through. The latter may actually cost you return business in the long run.

This same principle applies to every business, not just the service industry. Quality at every step of the process means a better outcome with a higher profit margin. The apparel industry in particular is susceptible to ignoring Cost of Quality, with an estimated 20 - 25% of manufacturing costs wasted on fixing problems.

Where does the money go?

From typos on labels, to miscalibrated machines, going back and fixing an avoidable problem, costs the industry billions each year.

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The cost of quality process is generally classified into four categories:

  • Prevention Cost
  • Appraisal Cost
  • External Failure Cost
  • Internal Failure Cost

 

Prevention Cost

Prevention costs are incurred before production begins. They are associated with the design, implementation and maintenance of the quality management system. They include things like establishing specifications for materials, creating a plan of production or training staff on new technology.

Appraisal Cost

Appraisal, or inspection costs, are associated with measuring, evaluating or auditing activities related to quality. They could include inspection of incoming material, testing products, calibration of measuring and testing equipment.

Internal Failure Cost

These are costs occuring before the delivery of a product or service. They cover defective products, materials that fail to meet quality requirements, waste or surplus material, and/or time spent figuring out what went wrong and how to fix it.

External Failure Cost

Any problems discovered by the customer fall under this category. They include repairs, dealing with customer complaints, product recalls, and/or warranty claims.

Prevention Costs and Appraisal Costs are often joined together under "Cost of Conformance."

Internal and external failure costs are called "Cost of Non-Conformance".

The former tends to cost the most when mistakes are made.

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What can be done to improve the CoQ?

In order to improve Cost of Quality figures, companies first need to know how much they're spending in the first place.

An audit or analysis of the CoQ is the first step in determining what percentage of overall costs are being wasted, where the problem areas are in the chain, and how improvements can be made.

As a general rule of thumb, Cost of Quality in a successful company will be around 10 - 15% of overall expenditure, but some organisations will be running as high as 40%. A comprehensive investigation, followed up with an effective plan, can reduce CoQ considerably, increasing profits at the end of the quarter.

How we can help to reduce the CoQ costs?

Every business has Cost of Quality loss, but getting that figure as low as possible takes years of experience.

We have been in the apparel industry for many years, and with this length of experience comes knowledge. We know when things could be running smoother, and we have the expertise to find the weakest link in the chain.

We know where improvements can be made, and how to help you make them.

Contact us today if you'd like to know more about how we can help your business reduce its Cost of Quality percentage.

While quality is free, low quality always comes at a price.

 
 
 

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