Quality isn’t free. But what is the real cost of quality for manufacturers? Is it: 

  • What you pay to mitigate harm to your brand? 
  • Your investment in a quality management system? 
  • Improving and optimizing manufacturing processes? 
  • Using best practices to prevent defects, waste, scrap, and warranty claims?

According to Philip B. Crosby in his book Quality Is Free, the cost of quality includes “all costs associated with the quality of a product from preventive costs intended to reduce or eliminate failures, the cost of process controls to maintain quality levels, and the costs related to failures both internal and external.”

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To put it another way, the cost of quality has two main components: 

  1. The cost of good quality (conformance)
  2. The cost of poor quality (non-conformance)

The cost of good quality includes:

  • Costs of preventing non-conformance to requirements
  • Costs of appraising a product or service for conformance to requirements

The cost of poor quality includes internal and external costs resulting from failing to meet requirements.

To quantify these costs, Crosby states that organizations should first define and measure where and how much of their resources are being used for prevention activities and maintaining product quality. Then compare this amount to the costs resulting from internal and external failures.

Poor Quality = Internal Failure Costs

In his iSixSigma article “Cost of Quality: Not Only Failure Costs,” Arne Buthmann explains that Internal Failure Costs are “costs that are caused by products or services not conforming to requirements or customer/user needs and are found before delivery of products and services to external customers. They would have otherwise led to the customer not being satisfied. Deficiencies are caused both by errors in products and inefficiencies in processes.”

He also notes that costs come from more than just producing and fixing failures. The cost of ensuring that good products are produced must be factored in as well.

Examples of Internal Failure Costs include:

  • Rework
  • Delays
  • Redesign
  • Shortages
  • Failure analysis
  • Retesting
  • Downgrading
  • Downtime
  • Lack of flexibility and adaptability

Internal Failures are involved in multiple processes across your operations.

More Inspections Aren’t Always Better

How do you fix things when you experience issues? 

For companies that lack systematic quality inspections as part of their production process, the emphasis is on inspecting products after they’re produced. At that point, some issues can be repaired, but most of the defective products are written off as scrap. Though this system can prevent bad products from ending up in the hands of customers, it fails to solve the underlying problems.

From an operations standpoint, the shortcomings of this approach become even more apparent when a manufacturer hires two inspectors to ensure only good products get to customers. “If one inspector is good,” they think, “then two must be great.”

There are two problems with this mindset:

  • Two inspectors doubles the cost of inspection
  • 200% inspection is not more effective than 100% inspection 

Adding inspections doesn’t address the fact that if you’ve got a quality problem, there’s no way you’ll solve it with inspections. Eventually an inspection will fail and problem products will get into the hands of your customers. 

What is the alternative?

Consider the High Cost of Scrap 

Let’s say you work for a consumer electronics manufacturer. Your products are made from inexpensive components, sell at a high price, and enjoy a solid market share. Despite these advantages, your company is not profitable. Inevitably, management will want to know why.  

Visiting the production floor, you see trash bins scattered throughout the plant. Watching carefully, you notice that operators and inspectors seem to be throwing away products that have just been made. When you speak with them, you find that they test the products as they are being manufactured. If a product does not pass testing, it is tossed in one of the many trash bins. Everyone is trying to ensure that nothing defective leaves the plant. Twice a week, the trash bins are loaded on tractor trailers and hauled to the local dump. 

Poor quality is incredibly expensive—and rarely understood.

If you think the above scenario sounds like just another hypothetical situation, it’s not. It takes place all too often and is the result of poor quality management standards, poor process control, and a lack of leadership by management. If your production floor is one that has trash bins full of scrap, it’s a safe bet that those costs aren’t identified or counted. Worse, when those lost products are considered “just the cost of doing business,” quality costs become invisible, a part of the manufacturing landscape that is unquestioned and unchallenged.

There is a better way.

The most respected companies in the world are usually the ones who focus on quality and create the best, most reliable products with the fewest defects. But they don’t do that by relying on final inspections.

Companies that focus on quality have data gathering systems in place throughout the production process so that inspections don’t start once the product is already finished. And, they have the tools necessary to turn that data into useful insights so they can prevent the need for scrap bins instead of filling them.

This approach lowers the cost of quality and allows these companies to enjoy larger market share and greater profitability.

Quality as Opportunity

Quality is an opportunity to make the most of your manufacturing processes.

Defects, costs, overruns, overfills, underfills, too much scrap—all of these issues generate data. A modern quality system enables you collect this data, aggregate it, and analyze it—and use it to understand the root causes of those issues. Without a system that helps you gain that understanding, your costs are unknown, so you are left relying on opinion and conjecture.

What you really need is unbiased, actionable information that clearly communicates costs of quality. A good quality management system can supply that.

Though they hate to admit it, many manufacturers don’t really know what’s causing their problems. In fact, they may not have dedicated people in place whose job it is to find out. Though the processes can seem tied up with one another, quality inspections are their own skillset separate from manufacturing, and asking operators to be skilled quality inspectors as well just isn’t sustainable at scale. 

When collecting data for manufacturing processes, it’s best to recruit quality professionals—Six Sigma teams, managers, engineers, and others with the training to discover root causes rather than spot defects.

Then you need to understand that these are the people who aggregate and analyze data at a higher level—and do so on a regular basis. They search for trends and valuable information across machines, plants, regions, or even the entire enterprise. When these professional analysts look at summarized data, they distill the information down to a point at which they can tell where their organizations have the greatest opportunities for improvement.

These are the people who will use your quality management software to generate insights into the data that can lead to transformative operational improvements across your organization.

The Answer to the Cost of Quality

By now you realize that quality isn’t free, and poor quality will result in lost customers. Every unit that ends up in the trash bin adds to the final price of products sold in the marketplace. And customers will only pay for low quality in the form of increased prices for so long. Eventually, they start looking for other suppliers who know how to control the amount of waste they produce.

The answer to the cost of quality is knowing exactly what is going on in your manufacturing processes. Start by performing your own quality investigation.

A good place to start is the area with the most overflowing trash bins. Talk to the operators who work directly in these problem areas. Collect the thoughts of your quality professionals and engineers. Once you’ve done that, distill everyone’s collective opinions into a proposed data collection plan, and then start gathering data!

After a week—or a day, or a month depending on your plan—have that team review the data and see what information can be gleaned from it. Then put in place statistical process control (SPC) and other process controls to prevent defects. Once you start seeing less scrap in that area of the plant floor, start the process over again in a different area.

When you perform these steps diligently, your data will provide you with actionable information that can be used to dramatically improve quality levels.

These activities will help convert unknowns into information that can help transform business performance and generate the return on investment that you need from your quality system.

Is it time to change your approach to quality? InfinityQS can show you how to accelerate your quality transformation with our cloud-native Enact Quality Intelligence platform. Learn how you can leverage quality to drive manufacturing optimization.