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What is the Cost of Good Quality?

Written by: Michael Rapaport

What is the Cost of Good Quality?

Part 3 of a 4 part series

To enable integrated quality management principles throughout your organization, you should keep the cost of good quality in focus. Manufacturing enterprises today spend a great deal of time and effort aligning quality management data with the right suite of enterprise software and infrastructure. Not surprisingly, the high-profile costs of poor quality have influenced the deployment of IT resources disproportionately, particularly in an intricate software stack. So, what is the cost of good quality?What is the Cost of Good Quality_IQS

Targeted Investments in the Cost of Good Quality Strikes Balance

Manufacturing industry leaders, according to multiple studies by the Aberdeen Group, learn to balance the cost of poor quality with targeted investments in the cost of good quality. A company's position in the global supply chain and its specific sector within the manufacturing industry often dictates exactly where companies make these investments in technology. For example, a discrete manufacturer in the automotive industry would certainly find much value in integrating ERP, PLM, and quality management solutions. When seeking buy-in from relevant stakeholders in IT, you should always remember that the cost of quality components are not linear. The savings to be had from spending a single dollar on improving appraisal and prevention processes does not equate to a $1 reduction in the cost of poor quality. In the real world of fast-paced, global manufacturing operations, the relationship is far from 1:1. In fact, investments toward the cost of good quality tend to have a multiplier effect that create synergies in quality management processes and IT processes, too.

Investments in the Cost of Good Quality Create Efficiencies

Surely, justifying the implementation cost of an integrated quality management solution is a tall order in any corporate setting. It takes time to move a project through all of the necessary approval channels, which places the onus on easing organizational gridlock between quality departments and IT departments. Paying careful attention to the cost savings, efficiencies, and synergies (sometimes counter-intuitive to popular thinking) created by targeted investments in the cost of good quality is one strategy your organization should strongly consider moving forward. Implementing an integrated quality management solution is one way to enable synergies and efficiencies in nonconformance management, corrective and preventative actions, supply chain management, and even statistical process control. Recent studies by the Aderdeen Group and LNS Research paint a very favorable picture for manufacturers that lean on quality management from an enterprise point of view. The clear trend is that investing in the cost of good quality pays for itself in cost savings and efficiencies in calculating the cost of poor quality more accurately.

A Look at the Numbers

A recent study by LNS Research unveiled a few stark findings. Organizations that manage to improve real-time visibility of quality management metrics show a 6.5% increase in overall equipment effectiveness, one of the most key quality management metrics of all. Truly, investments in the cost of good quality are not linear when compared to reductions in the cost of poor quality. Along those lines, the Aberdeen Group's survey "A Fresh Look Into Cost of Quality" can provide your organization with plenty of food for thought. The results of the survey indicated that balancing both components of cost of quality via targeted investments can lead to higher operating margins versus corporate plans. Specifically, the survey divided manufacturers into "leaders" and "followers" as the top 33% of high performing companies comprised the "leaders" category. For "leaders," according to Aberdeen's survey, new product introduction rates are 13% higher. Similarly, the rate of on-time and complete shipments rose 3%. Savings of this magnitude do not materialize simply by reducing the cost of poor quality. Investments in the cost of good quality are critical. From a different perspective, best-in-class manufacturers in Aberdeen's study were far more likely to leverage an improved corrective and preventative actions process as a means to invest in the cost of good quality. Truly, investing in prevention has a markedly positive effect on appraisal and inspection costs. The issue at hand is that your organization's IT architecture must be able to accommodate the addition of an integrated solution into its software stack.

Quality and IT Must Harmonize to Gain Executive Buy-in

In previous parts of this series, the connection between IT sprawl and the cost of poor quality stepped forward as one of the pain points that contributes to indecision in investing in the cost of good quality. Taken a step further, having a sound software implementation plan in place can put stakeholders in IT at ease when trying to break through the gridlock in your organization's approval channels. Knowing exactly where to look for efficiencies among disparate quality management processes will also help to ease internal gridlock with IT. For instance, your company may rely heavily on PLM solutions yet struggle to integrate these data sources with other elements in your quality management system. An integrated quality management solution can extend PLM capabilities and, essentially, lead to PLM-based corrective and preventative actions to lower the cost of quality overall. In essence, making investments in the cost of good quality enables synergies across your organization's quality management processes, which can then lead to the development of a truly closed-loop quality management system. The opportunity to differentiate your company from competitors is too attractive to bypass. In the final section of this series, you will gain a better understanding of why delaying a decision on an integrated quality management solution can actually be detrimental to your enterprise's competitive position.

PolyOne Case Study_IQS

<< Part 1: Balancing the Cost of Quality, IT Investments and Integrated QMS << Part 2: What is the Cost of Poor Quality? Part 4: The Costs of Not Integrating Quality with Business Systems?