Why Cost of Quality?
Cost of Quality, a methodology used to define and measure what amount of an organisation’s resources are consumed due to lack of quality and where. In other words, CoQ is the cost of failing to produce quality, and being aware of such costs can make a huge difference.
Quality is the best business plan. When quality of the products gets a hit, the company’s performance, not to speak of the adverse impact on the brand, gets a hit. It is estimated that the average CoQ across sectors varies from 12 per cent to 20 per cent or more of the gross revenue. Which means every small reduction in the CoQ will be of great help to the company earnings. Here are a few examples:
- In 2006, Dell recalled 4 million laptops due to faulty, overheating of batteries and the cost they had to pay for this was a whopping $400 million.
- In 2010, Toyota Motor Corporation recalls 10 million cars due to a faulty accelerator pedal. The cost they incurred for the same was $1.2 billion.
What do we infer from these examples? Do we think that not enough prevention cost was spent to mitigate the defects before they reached the customer? Or do we see that they have probably lost more money due to quality failure?
Clearly, proper quality checks were absent and efficient systems were not put in place to correct the quality issues that crept in. While spending on quality is important, keeping a track of costs incurred to medicate bad quality products is much more important.
Every organisation must consider the costs associated with achieving quality, as their objective is not only to meet customer needs but to do so at the lowest cost. Keeping a tight rein on quality and process deficiencies can improve company profits substantially. This necessitates the need for implementing and controlling costs of quality.
CoQ is broadly classified into four categories:
- Internal failure cost: The cost of medicating the defects found in the product before delivering to the customer.
- External failure cost: The cost incurred in addressing the defects found by the customer.
- Appraisal cost: All costs associated with inspecting the goods and services to ensure they meet the quality norms.
- Prevention cost: The costs incurred with establishing good systems and the cost incurred to prevent the occurrence of damages.
Besides prevention costs, the other costs are results of failing to produce good quality products.
What we provide?
- Measuring Cost of Quality (COQ) for the products/services of an entity.
- Identifying and clustering the COQ costs into categories of internal failure cost, external failure cost, prevention cost and appraisal cost.
- Analysing the entity’s COQ and presenting the COQ on a pie chart.
- List of course of actions that can be taken along with its expected results will be tabulated.
- Enable the management to take an informed decision on how best the expenditure needs to be altered to achieve the best results.
Benefits to organization availing this service
- It promotes awareness of quality problems and provides motivation to solve them. It is also an effective performance measurement tool and a control mechanism.
- It facilitates in identifying major loss areas and setting realistic targets to achieve. This COQ information would be key in the preparation of budgets by the companies.
- Customer complaints can be turned into customer satisfaction by optimising the spending on prevention costs, which in turn will lead to reduced spending on failure costs, and result in overall customer satisfaction.
- Not all companies across sectors are aware of this exercise. Organizations which implement COQ and manage it efficiently will have a competitive advantage over their peers.
- Measuring the costs incurred on the quality of products and optimising it will increase the quantity of profits.