As we continue our in-depth review of why quality matters, we take a deeper look at quality as a destination. This is Part 3 in our “What Is Quality?” series.
We are picking up this conversation with a question for you… does your organization have obvious outside influences affecting your quality function? If so, these can make your destination and the measurables associated with knowing you are AT that destination, much clearer.
This is simply because those outside influences generally incorporate requirements that need to be fulfilled.
- For example, fulfilling government regulations like CFR 21 or meeting requirements to be certified by an outside agency such as ISO determines the quality destination quite clearly.
- Another example could be the need to conform to whatever specifications your customer’s provide. These specifications tend to be defined around the need to demonstrate conformance to process and output controls in a variety of areas.
However, when such outside influences are not available to help us determine our quality destination, then the burden of choice rests completely on management. If quality is being viewed as a cost center rather than a revenue resource by management then it is possible to under-appreciate or under anticipate the profitability improvement that quality programs can bring.
It is time to consider quality in this way:
- What is your current cost of quality (or lack of quality)?
- Where in the product and process engineering activity will your quality expenses be incurred?
Such an analysis will help identify what the initial quality destination should be by providing an achievable revenue improvement goal that can be measured.
Analysis: The Relationship of Cost to Quality
There is a hierarchy of costs for quality, depending on what stage in your processes the quality issues are found and resolved. The relationship of cost grows in order of magnitude from stage to stage. For example if there is a 1:10 ratio for cost between each stage, then $1.00 spent in stage 1 to prevent an issue could result in $9,999 in additional revenue not spent on fixing the issue at stage 4.
Here are the 4 stages:
- Stage 1 -Prevention Costs: This is the additional cost to your process of adding controls that prevent the introduction of a defect.
- Stage 2 – Appraisal Costs: This is the additional cost to your organization for evaluating or inspecting goods and services before delivery. Not only is this the cost of the inspection activity it is also the cost of waste from producing failed outputs.
- Stage 3- Internal Failure Costs: This refers to the costs we incur fixing errors we found before we ship our goods and services. Often overlooked here is the amount of excess inventory both internally and on order that is required to create a buffer should such issues occur.
- Stage 4 – External failure costs: This is the expense incurred to fix failures after delivery and should include such items as customer complaint handling and management of social media comments.
Analysis of your expenses for resolving situations, where there was a failure to satisfy the customer’s expectations, should help leadership define an initial destination for the quality journey. This should go along with the calculations of expected investment needed to prevent the issue in an earlier stage.
This destination can then be defined in meaningful terms such as expected profitability improvement and the time frame for achieving that improvement.
So, what outside influences does your organization have that determine your destination? How will you measure that destination when you arrive? How will you assess the profit benefits of having a quality destination?