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QUALITY WEB EXCLUSIVE

What’s Missing from Most Cost of Quality Programs?

April 10, 2014
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For executives competing in today’s socially connected world, there has never been less room for error. These pressures to perform coupled with the globalizing economy and others have urged many executives to look at quality in a new light. It’s not that quality wasn’t important before, but for cost, risk, compliance, and reputational reasons ensuring quality earlier in the value chain has become much more of a top-of-mind issue for leaders.

With this heightened focus on quality, we’ve been seeing a positive buzz surrounding cost of quality programs. The cost of quality essentially measures four buckets: the costs of internal and external failures and the costs of correcting and preventing those failures. Because it transforms these buckets into quantifiable terms that executives can understand, the cost of quality is increasingly being seen as a must-have continuous improvement tool.

Although a growing number of companies are measuring the cost of quality in some way, we’ve seen few that are actually leveraging the metric to its fullest extent. This comes with little surprise, since it’s a complex program to institute in the first place. For those of you who are considering a cost of quality program or already have one in place, here are four critical components to keep in mind that we see commonly missing, separating market leaders from the middle of the pack.

1. You Don’t Have Enterprise-Wide Buy-In

Effective cost of quality programs come with new responsibilities as well as intelligence for many different functions throughout the value chain. Functions involved include suppliers through design and manufacturing, and even up through service. What happens, though, is in many cases it’s just one group (i.e. manufacturing, service etc.) that’s driving the program and ultimately the eagerness to improve upstream quality tends to start and stop there.

This can be overcome by including varying roles from different functions in the decision-making process, essentially giving them a stake in the success of the program. Often, companies support this by taking the time to provide training, in addition to investing in internal marketing campaigns to promote the program.

2. You Didn’t Clearly Define and Communicate the Cost of Quality Program across the Enterprise

As more companies start to employ some form of the cost of quality metric, executives—especially ones in globally distributed companies—are finding that different plants and facilities have unique ways of measuring it. The deeper into its “own” cost of quality programs each of these plants and facilities go, the harder it becomes for continuous improvement and quality professionals to identify hard-hitting areas for improvement at the global level and also for benchmarking against industry averages.

It’s instrumental to the program’s success that you define not only how each job role and function will participate, but also how the information should be collected and where it should be stored. This really speaks to the previous point where buy-in is missing. Nebulous plans that people can’t get behind often result in a waste of resources. Take the time to standardize the who, what, where, when, why, and how.  

3. You’re Not Including Risk into the Cost of Quality Metric

One of the powerful aspects of a cost of quality program is the ability to incorporate risk into the calculation and analysis. When looking at internal and external failure costs, for instance, over time you should be able to associate a level of risk based on historical data and market trends for the impact of specific non-conformances. You may even be able to develop better contingency plans (recall procedures) as needed for specific non-conformances.

Again, this is commonly overlooked, because the lack of buy-in as well as defined roles and procedures ends up thwarting the ability to use advanced techniques. When elements of risk get involved, you can start prioritizing non-conformances based on criticality, which may have an impact on where and how you allocate your resources. When building a world-class cost of quality program, it’s important to consider adding a layer of risk management into the mix, even if it’s at the rudimentary level to start.

4. You’re Not Taking Advantage of Technology to Collect and Visualize Cost of Quality Data

This element is two-fold. In one respect, many organizations are missing the correct technology to properly collect data across the value chain. As we’ve mentioned before, our survey of nearly 800 quality executives revealed that nearly half of all executives say they have too many data systems and sources for managing quality. The other part of this challenge is that executives and other professionals don’t have the right technology for reporting on and analyzing the data.

When developing your cost of quality program, it’s important that you have a plan for collecting data from different sources not limited to the four walls of the manufacturing plant—financials from ERP, quality non-conformances from quality software, supplier non-conformances from web portals, etc.—and enabling the use of that data with business intelligence tools and reporting modules. 

How to Make Your Cost of Quality Program Your Competitive Edge

With so many inquiries around this topic, LNS Research is embarking on an in-depth benchmarking program to help quality executives understand how to effectively implement a cost of quality program across a global organization. This program includes a number of one-on-one sessions with LNS Research’s analysts, best practices for developing your own program, and an in-person executive roundtable where you’ll share and debate best practices with LNS analysts and your peers in the industry.

Mehul Shah is senior associate at LNS Research. For more information on this program, visit http://blog.lnsresearch.com/coq-benchmark.

Source: Quality

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