Cost of Quality: How Organizations Can Benefit from Measuring the True Cost of Poor Quality

The Cost of Quality (COQ) is a widely used concept in quality management that helps organizations quantify the financial impact of poor quality. COQ includes both the costs of preventing defects and the costs of correcting them, as well as the costs of lost opportunities due to poor quality. By measuring COQ, organizations can identify areas for improvement and implement strategies to reduce costs and improve quality.

One organization that has successfully applied the COQ concept is Motorola. In the 1980s, Motorola was struggling with high levels of defects in its production processes, which led to significant costs and lost opportunities. To address this issue, Motorola implemented a Total Quality Management (TQM) program that included measuring COQ.

Motorola’s TQM program focused on improving product quality by using statistical process control techniques and continuous improvement methodologies. By measuring COQ, Motorola was able to identify the true cost of poor quality and use this information to prioritize improvement efforts.

As a result of its TQM program, Motorola was able to reduce its COQ by 25% within the first year, and by 60% within three years. This reduction in COQ led to significant improvements in product quality, increased customer satisfaction, and improved profitability.

Another organization that has successfully applied the COQ concept is Ford Motor Company. In the 1980s, Ford was struggling with high levels of defects in its production processes, which were resulting in high warranty costs and lost opportunities. To address this issue, Ford implemented a Quality Operating System (QOS) that included measuring COQ.

Ford’s QOS program focused on improving product quality by using a data-driven approach to identify and eliminate the root causes of defects. By measuring COQ, Ford was able to quantify the financial impact of poor quality and use this information to prioritize improvement efforts.

As a result of its QOS program, Ford was able to reduce its COQ by 25% within the first year, and by 70% within five years. This reduction in COQ led to significant improvements in product quality, increased customer satisfaction, and improved profitability.

Measuring the Cost of Quality is an important tool for organizations looking to improve their quality control and management practices. By identifying the true cost of poor quality, organizations can prioritize improvement efforts and implement strategies to reduce costs and improve quality. Motorola and Ford are just two examples of organizations that have successfully applied the COQ concept and achieved significant improvements in quality and profitability.

References:

1. Juran, J. M., & Gryna, F. M. (1993). Quality planning and analysis: From product development through use. McGraw-Hill.
2. Campanella, J. (1999). Principles of quality costs: Principles, implementation, and use. ASQ Quality Press.
3. Harry, M. J. (1994). Six sigma: a breakthrough strategy for profitability. Quality progress, 27(8), 37-45.
4. Oakland, J. S. (2014). Total quality management and operational excellence: Text with cases. Routledge.

Benchmarking

What is benchmarking?

Benchmarking is a way to go backstage and watch another company’s performance from the wings, where all stage tricks and hurried realignments are visible.

In Joseph Juran’s 1964 book Managerial Breakthrough, he asked the question:

What is that organizations do that gets result so much better than ours?

The answer to this question opens door to benchmarking, an approach that is accelerating among many firms that have adopted the total quality management (TQM) philosophy.

The Essence of Benchmarking

The essence of benchmarking is the continuous process of comparing a company’s strategy, products, processes with those of the world leaders and best-in-class organizations.

The purpose is to learn how the achieved excellence, and then setting out to match and even surpass it.The justification lies partly in the question: “Why reinvent the wheel if I can learn from someone who has already done it?” However, Benchmarking is not a panacea that can replace all other quality efforts or management processes.

The Evolution of Benchmarking

The method may have evolved in the early 1950s, when W. Edward Deming taught the Japanese the idea of quality control. Other American management innovations followed.

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The best example is Toyota Motor Corporation’s following the footsteps of Ford Motor Corporation albeit with the adaptation of the Ford’s Just-in-case system into Toyota’s Just-in-time system. The term “benchmarking,” however, was not coined by that time.

The term “benchmarking”  emerged when the idea took ground in US during 1980s when Xerox, Ford and Motorola became the pioneers of benchmarking in USA. Robert Camp, the logistics engineer who initiated Xerox’s benchmarking program and who is generally regarded as the guru of the benchmarking movement,  defines it: “Benchmarking is the search for industry best practices that lead to superior performance”.