ZHH certification
If your organization has an effective QMS (Quality Management System), whether certified to the ISO 9001:2015 standard or not, you may have several KPIs (Key Performance Indicators) to help you understand your performance in terms of quality. While these may be specific to your organization or the department you're in, do your KPIs truly reflect the financial cost to your organization (when poor quality can cost your company money) even beyond the measured KPI parameters?
The cost of quality can be said to be the definition of the time and expense incurred by a business outside of predefined process operations that need to be taken to maintain, improve, or restore the quality of a product or service. The article How to Write Good Quality Objectives gives us the opportunity to review quality objectives in more detail. If you think about your own company, many of the goals in a quality management system will be very easy to define: a manufacturing company might measure "first-time pass rate" as a key metric, while a call center might measure response time or customer satisfaction as one of their primary measures. While these may work for your business, they may also not tell the whole story.
Product A can fail twice out of 100 times with a 98% pass rate, and the rework required for the failed part can take up to 30 seconds to rework and retest. Product B may fail once with a 99% first-time pass rate, but reprogramming of onboard components can take up to six minutes to retest. Product C may pass manufacturing testing with a 100% first-time pass rate, but field failures and root cause analysis can take a significant amount of engineering and quality time to fix and incur an expense of $10,000. According to our primary measure of quality, Product B performs best, Product A is second best, and Product C is the worst – but upon further investigation we can see that the time and cost we see suggests that things may not be so simple.
To measure the true cost of quality within your business, you need to truly understand the life cycle of your products, from design and development to end-of-life. Then, you must take the time to understand what the budget for producing the product is and what time and cost your business has allocated to support these process steps.
Once you know this, you can start searching for costs associated with your product that are beyond this definition. Some examples could be:
Products that fail in the field and require expensive rework engineering time, including shipping and replacement costs. This cost may exceed existing quality measures, such as first-time pass rate or any other internal product inspection or audit performed.
Repairing or reworking products that are more complex or time-consuming than you originally budgeted**. This could mean more expensive engineering time, or more time for the quality team to try to improve product yield.
At various stages of the warranty period, the product tends to have more failures. Similarly, your internal KPIs may not account for the cost of replacement, repair, or shipping replacement products later in the life cycle.
*Cost, can be done according to ISO 14001 environmental management standard. The article "How ISO 14001 Can Improve Performance" looks at it, but as legislative requirements continue to increase to ensure that manufacturers must arrange for the return of products and ethics, it is clear that there is a financial cost to this.
Imagine two scenarios: The average lifespan of a phone with an expected life expectancy of 4 years is 35 years, which means an increase in the cost of arranging for shipping back and**. Similarly, a TV set with a life expectancy of 4 years has an average lifespan of 37 years. Although TVs are closer to each other in terms of life cycle, the sheer weight and cost of the product will erode the profits of the TV product line far more. Profit erosion due to a shorter-than-expected life cycle can be classified as a true "cost of quality".
Measuring the "cost of quality" of any business requires some very specific knowledge of the processes, people, and products associated with your business. The ISO 10014 quality management standard can provide guidance in improving quality and controlling the associated costs.
With the "cost of quality" as a measurable key performance indicator, finding the root cause, and driving improvements accordingly, you'll build a competitive advantage in your industry. It's also directly related to how your business perceives risk and acts on it, as we saw in our previous article, How to Respond to Risks and Opportunities in ISO 9001. Finally, understanding how to use root cause analysis to support corrective actions in a QMS can be a way to ensure that recurrence is prevented in the future.
Finally, measuring the cost of quality can be a very effective way to drive business and customer improvement. Doing this effectively and addressing the root cause will surely become a competitive advantage for your business.
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