THE COST OF POOR QUALITY

Quality professionals do not need to be told that quality is critical to the ability of a business to succeed. Poor quality in production of consumer goods is a problem today and has far reaching consequences: scrapped costs, reduced productivity due to downtime, lost revenue, waste of materials and labour, dissatisfied customers, damage to brand reputation etc. The bottom line is that there are ways things are done and ways things ought to be done. Those who follow the former end up with a high cost of poor quality whilst those who follow the latter end up with low cost of poor quality. 

 In order to explain the cost of poor quality further I will cite three examples I have witnessed.  

Example1 

A certain company received LPO to supply 1 million bottles of paracetamol syrup within a certain period. The company took up the job believing it will meet the deadline. In order to beat the supply deadline lots and lots of corners were cut. Most importantly, ample time was not given for dissolution of paracetamol powder. The poorly prepared syrup was filled into bottles and capped. During labeling and packaging, the workers noted shiny crystals in the bottles and  raised alarm. This happens when improperly dissolved paracetamol powder recrystallizes and settles at the bottom of bottles. When this was noticed production was stopped. All the affected bottles (thousands of them) were sorted out, decapped and contents retrieved. Of course the bottles were sent for rewashing. Whatever cost the company incurred to correct the error is the cost of poor quality.  

Example 2 

A certain company knows that its universal packaging machine is due for service but continues to run the machine. As a result there are variations in the content of filled sachets with majority being under filled. During packing the under filled sachets are sorted out. They are sent for reprocessing where the sachets are cut, content retrieved and sachet discarded. Whatever cost the company incurs due to its failure to service its machines is the cost of poor quality.  

Example 3 

An assistant to a Pharmacist, in the absence of his boss, decides that it is unnecessary to charge materials into the mixing tank one after another and giving each ingredient enough time to mix into the solution. He decides it is best to add everything at once and stir. Over time consumers started complaining that the drug product had lost its efficacy. Checks were conducted and it was discovered that after production and filling this assistant sees sludge beneath the mixing tank which he discards. He didn't know he was discarding active ingredients which settle at the bottom due to poor mixing. The product lost its market share. Whatever cost this company incurs to correct this problem is the cost of poor quality.  

The fundamental principle of the cost of quality is that any cost that would not have been expended if quality were perfect is a cost of quality. This includes such obvious costs as scrap and rework, but it also includes many costs that are far less obvious, such as the cost of reordering to replace defective material. 

More specifically, quality costs are the total of the cost incurred by (a) investing in the prevention of non-conformances to requirements, (b) appraising a product for conformance to requirements, and (c) failure to meet requirements. These costs are divided into the following 

PREVENTION COSTS 

This is the costs of all activities specifically designed to prevent poor quality in products. Examples are the costs of new product review, quality planning, supplier capability surveys, process capability evaluations, quality improvement team meetings, quality improvement projects, quality education and training. 

APPRAISAL COSTS 

These are the costs associated with measuring, evaluating or auditing products to assure conformance to quality standards and performance requirements. These include the costs of incoming and source inspection/test of purchased material; in process and final inspection/test; product, process, or service audits; calibration of measuring and test equipment; and the costs of associated supplies and materials. 

FAILURE COSTS 

The costs resulting from products not conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure cost categories. 

a. INTERNAL FAILURE COSTS 

Failure costs occurring prior to delivery or shipment of the product to the customer. Examples are the costs of scrap, rework, re-inspection, retesting, material review, and down grading. 

b. EXTERNAL FAILURE COSTS 

Failure costs occurring after delivery or shipment of the product to the customer. Examples are the costs of processing customer complaints, customer returns, warranty claims, and product recalls. 

TOTAL QUALITY COSTS 

The sum of the above costs. It represents the difference between the actual cost of a product  and what the reduced cost would be if there was no possibility of substandard service, failure of products, or defects in their manufacture. 

Going back to our 3 examples, we can pin point the actual costs these companies incurred due to poor quality. In Example 1, prevention costs, appraisal costs and internal failure costs were incurred. SOPs were not followed and QC people did not do due diligence during the production process. In Example 2, the company incurred prevention costs and internal failure costs. It is also clear there is poor maintenance culture. As the machine continues to run without servicing many more damages are happening unnoticed until some day the machine breaks down entirely. In Example 3, prevention costs, appraisal costs, internal failure costs and external failure costs were incurred. This led to some degree of brand damage which will cost much more to repair.  

The total cost of poor quality can never be fully estimated. This is why it is very pertinent to adhere strictly to laid down procedures in production of consumer goods. These procedures have been factored in during the design of the blueprint for product manufacture. Any compromise on any procedure leads directly to compromise in quality of product which in turn increases the cost of poor quality. The idea of cutting corners so as to achieve more must not be entertained at all let alone practiced because of the grave consequences that almost always follows. Whenever Production is rushed a red flag of compromise in quality is raised. This must be avoided at all costs. Companies that work towards the reduction of the cost of poor quality by doing things the way it ought to be done manufacture products which deliver high value to the end users and guarantee healthy returns in profit.