Cost of Poor Quality.....

Businesses strive for only one thing: "Profits". While pursuing this business goal they concentrate more on sales and marketing. Time, energy and money is spent on making products/services sell. It is a common belief that more the sale, more the profits. But, very few businesses realize that to improve the bottomline (profits), it is also important to reduce the cost incurred due to poor quality of business process; often called as "cost of poor quality".

Cost of poor quality is the cost incurred due to absence of quality system in the business process. Mainly the cost incurred due to rejections, re-works, and delays form the cost of poor quality.

Rejections: Rejections are products returned as faulty or not suitable to intended use or not as per the customer requirement. Due to rejections there is a huge wastage of raw material and labor cost. There are two types of rejections
A) Internal rejections: These are the rejections done by the organization's own quality control department. Businesses apply quality control procedures to inspect the products before delivery to remove the defective products so as to avoid rejections by customers. But in the process they forget to apply control over the procurements and product realization process to minimize faulty production. By doing internal rejections they are just monitoring the quality of finished products. One needs to find out the root cause of these faults and take a corrective action.
B) Customer rejections: Sometimes, customer rejects some or all of the products supplied to him due to the defects in the products.

Re-work: If the quality control finds correctable defects in the in-process or finished goods, then it orders the production department to re-work the defective products so that they can be delivered to the customers. This does not mean that the organization has saved the cost of rejections; it means that there is going to be additional cost to be incurred due to the re-work. Sometimes, the customer orders re-work.

Delays: There are many instances of delays -
1. Delay in submitting the quotations
2. Delay in payment recovery
3. Delay in procurements
4. Delay in production
5. Delay in delivery
6. Delay in after sales service

Other factors having cost implications: Though the rejections, re-work and delays indicate cost of poor quality, there are other factors in many businesses that have cost implications resulting in lower profits, e.g. absence of production planning, absence of validated processes, use of non-standard equipments and materials, un-trained or inadequately trained employees, use of out-dated technologies, etc.

Businesses need to implement a methodology to identify, monitor, reduce and prevent cost of poor quality if they want to increase profits even if there is no substantial increase in sales. The quality tools and standards are available to assist businesses to costs. Some of the commonly used ways are:
1. Use of cost accounting techniques and methods
2. Adoption of quality management system such as ISO 9001:2000
3. Improvement methodologies/systems such as Six Sigma, Kaizen, TPM, etc.

For more details about Quality and the strategies to ensure Quality, please contact processlogix@gmail.com or talk to Yashodhan on +91-9833447525.