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In this episode…
Renaud Anjoran, Clive Greenwood, and Max Phythian who boast decades of experience in manufacturing around the world dive into the costs of quality, especially poor quality such as defective parts coming from suppliers.
They will explore what the cost of quality means, drivers of the cost, how to avoid or reduce the costs of poor quality, and how to work with Chinese suppliers who may not be very focused on quality.
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🎧 What Is The Cost Of Poor Quality? 🎧
Show Sections
00:00 – Introduction.
01:40 – When we talk about the cost related in some way to quality we have prevention and appraisal, internal failures, and external failures. What do these mean? Max: The worst case is the external failure, the failure of a product once it is already on the market. This could lead to expensive warranty fixes, customer support, and recalls. Internal failures are where quality issues are caught during production leading to costly rework, one of the 7 wastes. Putting in the systems to be able to recognize quality defects is important, but that’s the first step. Next is to stop the defects.
Clive: Quality should be an investment because you’re investing in your company and product.
Renaud: Prevention is building quality systems, training people, setting up the right process controls – this all has a cost, but it’s an investment.
Clive: Concerning appraisal, we look at the production line’s stability and investing in systems to get as close to zero defects as possible. End of line inspection is a cost, but inspections at preset stages during production are cost-saving because you avoid completing a bad product that then fails its final inspection. That is pure waste.
07:51 – What’s the ROI of investing in zero defects? Max: How do we put a cost on quality defects to be able to understand what the ROI would be based on reducing quality failures? Any defect is a cost (scrap, rework, etc). Highlight the defect, and then the costs come in with how you handle this defect. Zero defects don’t come through inspection as inspection is a cost, so investing in the people and culture of defect rectification and solving the root causes of the issues is how to reduce the cost and solve the issues.
Clive: I add an ‘I’ to PDCA, as it’s for ‘identification.’ This is identifying what you are planning for, in this case where defects are likely to happen and then planning to address it and check it. I prefer to define the ‘cost of quality’ as an investment into cost reduction. Also, we’re talking about Quality Assurance here, how sure are you of your processes. The only way to know is to test them and that’s the investment, as well as putting in place systems to remove the likelihood of quality issues occurring such as poke yoke. How much money you save, that is connected to your ROI, depends on your scrap rate and time lost to correcting issues before your systems are put in place.
13:28 – What benefits does QA provide aside from cost reduction? Renaud: QA reduces costs, but also provides benefits to customers in terms of reliable products and a better reputation for your business. Therefore quality overall, not just costs, should be a major goal for manufacturing companies.
Clive: BMW has an outstanding reputation for quality, whereas other auto brands are well-known for poor quality and reliability. What market is your business playing in, one where products are good quality or another where they’re only mediocre? If your product doesn’t need to be high-quality as long as it’s cheap, then the cost of quality isn’t the same for you as for, say, BMW.
Renaud: This is a serious issue that plagues importers of consumer goods from Asia, as factories produce without investing in QA. Customers, therefore, bear the cost of poor quality.
Max: Warranties are a major cost to companies, but consumers would probably prefer the product to work. An entire production culture needs to be instilled into your people to ensure that poor quality isn’t passed on to consumers.
Renaud: Good root cause analysis reduces costs in the long term as your processes are improved.
20:13 – Supplier quality management. Clive: Inspectors don’t solve the problem, they control but don’t remove them. Failures are usually from process or control failures. Instil an AQL with your suppliers that is set in stone, this can’t be negotiated.
Max: In the last podcast about zero defects we discussed how to put positive tension on suppliers. Suppliers need support to rectify issues found in their parts.
Clive: If a part fails and you get another one, how is the cost quantified of the failed parts? Are there others you haven’t found yet and what are the implications of that?
Max: Toyota did this well. If a defective part was found, suppliers were obliged to send a man to do a 100% inspection on the others to assure quality going into the production line. This is opposite to many manufacturers who would bear the cost of the checking and rework in order to keep the production running, adding to the cost of quality. This is where building a relationship like this with suppliers helps reduce your own cost of quality.
25:13 – Design For Quality (DFQ) and why quality is an investment. Clive: Designing in quality reduces rework costs and the costs of products failing when in the field. Today it’s impractical to even risk shipping poor quality products due to the greatly increased shipping costs. Justifying increasing quality against the cost of putting it in there isn’t right. Increasing quality is a cost-saver, as bad quality costs a lot more than money, it’s a cost in reputation and business. You invest in processes and people and they all drive quality improvement in order to help your customers. Customers’ expectations need to be realistic, too. They need to understand that good quality has a cost attached, this is why a Ferrari costs more than a Mini.
28:50 – What does the customer need to do if a Chinese manufacturer is unsophisticated and has little awareness about quality? Max: If you buy parts etc from China, you need to understand the Chinese view of quality that is different from ours and is cultural so unlikely to change soon. An example of this was when I was working for a Chinese automaker whose standard of what was acceptable was lower than European automakers, something I found difficult to understand at first. But there is a difference between export and internal parts and product quality in China. So you need to go into your supplier and see what controls and measures they have in place for what’s acceptable. You need to give them your quality standard and not rely on them, as theirs may be lower.
Clive: The buyer bears a lot of responsibility here. You need to be very specific about your requirements and standards. Some buyers simply don’t know or are afraid to tell suppliers exactly what they require for fear that prices will rise and then they’re not ‘doing a good enough job.’ A supplier can’t put in place a quality system to manufactures products to a standard that they are unaware of.
Renaud: If a buyer requests something ‘cheap,’ this will mean that they are willing to accept poor quality to Chinese suppliers and that there may be some wiggle-room around the standards.
Clive: Notifying bodies need to enforce what they require for certain standards to stop this from happening. The MDD that has been replaced by the new EU MDR allowed a lot of ‘wiggle room,’ which was unsafe for users of medical devices. Improved quality may lead to increased liability for buyers and suppliers, but the industry is going in this direction. Regular supplier meetings to voice and review exactly what you need will increase your quality. Taking certificates of conformity and then testing the product along with periodic inspections will help you know that the supplier is on track and represents part of your investment into quality.
44:03 – Wrapping up. The basics are working with the right people who care about quality. We also covered the role of the customer in educating the supply base, the ways to drive quality improvement in the long term without increasing costs (it should drive them down), and whether we should talk about quality and costs together and use costs to justify quality improvement.
Related content…
- How to push key suppliers to reduce defects [Podcast]
- PDCA: Plan, Do, Check, Act
- What Is A Quality Assurance Plan?
- What Is Quality Assurance?
- Design for Quality (DFQ)
- How To Avoid Damaging After Sales Quality Problems
- Documenting Your Company’s Quality Standard into the Details
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