Now that you’re getting ready for Virtual Audits, it’s time to look into the ‘Cost of Quality’ concept. All the ideas apply to Environmental, Health and Safety and all other management systems. How are we making sure our systems are giving us value? What kind of resource allocation should we make to this activity?
To begin with, ‘Cost of Quality’ is more than a concept – it’s a method. You build a framework to measure and monitor a few things:
- What resources allocation are we putting toward preventing problems?
- How are we checking the results of our processes?
- Are we using resources poorly because of internal or external failures?
Once this ‘methodology’ has been implemented, your organization will be able to determine the best use of resources. The most efficient means of getting profit pumping improvements implemented will become evident.
If you’re not spending enough on Prevention, you’ll be spending too much on Correction.
There are four major types of quality costs:
1. Prevention
This category includes costs like statistical process control, supervision of prevention steps, quality improvement projects, technical support to suppliers, audits, analysis and reporting and other activities related to proactive activities to prevent problems.
2. Appraisal
These are the costs associated with activities such as test and inspection of incoming materials, testing and inspection plans, supplies used in testing and inspection, supervision of testing and inspecting activitiess, maintenance of test equipment.
3. Internal Failures
You’ve already experienced things like cost of scrap, spoilage, rework, re-inspection of reworked products, disposal of defective products, down time, root cause analysis, retesting
4. External Failures
Some of the costs include warranty work and returns, lawsuits from customers, lost goodwill and customer confidence, shipping back to the customer, redesign of products and packaging and in extreme cases like the VW diesel fraud, loss of organizational market value.
Good planning can reduce some of these costs – a mitigation plan can lower the negative effects of many of these drains on your budget! Improvements that enhance customer satisfaction will be well worth the investment – it still costs 7 to 10 times as much to get a new customer as it does to keep an existing one. Your ‘Cost of Quality’ methodology will tell you where to make the best investment.
So what if we know about this ‘Cost of Quality’ concept? What’s in it for me? Well, if we can figure out what it is, maybe we can find ways to reduce it. Let’s see…
Deborah Kacera, Regulatory & Industry Strategist, Pilgrim Quality Solutions, has created a formula:
Cost of Quality = Cost of Poor Quality + Cost of Good Quality
So this means that we need to be able to measure the cost of non-conformances accurately and balance that against the investments we make in preventing them.
Why bother? Because quality guru Philip Crosby, and the FDA ‘Case for Quality’ have shown that the COQ for an organization can range from 3 to 25% of a company’s revenue. This is worth looking at to see if we can make some improvements. What’s your revenue? How much is at stake at 25%? Hmmm…might be a way to make some improvements and drive some $ to the bottom line!
Formula source: https://www.pilgrimquality.com/blog/evaluating-cost-quality-simple-math/
If you’d like to see if our cloud-based platform could help you with your cost of quality, schedule a 10 or 15 minute demo: