What is the real cost of poor product quality and reliability and what can be done to lower your risks and costs?
You’ll learn why the phrase “Pay Me Now, or Pay Me Later” is particularly relevant because the costs of good quality and reliability (while requiring a decent-sized investment for sure) are surely lower than the cost of poor quality and reliability and reputational damage that it causes to your business.
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What does “Pay Me Now, or Pay Me Later” mean?
Quality engineers like to say this to managers who are not giving enough budget to quality and reliability testing, because they’re referring to paying enough for activities to improve the product’s quality and reliability during design, development, and pre-production, in order to save money post-production that would have been spent on fixing the problems that would almost certainly occur later (such as needing to repair product returns, etc). (01:34)
Why is the cost of poor quality important?
Every time you spend money on improving a product’s quality and reliability there’s a cost involved. But if you don’t spend money on improving the product’s quality and reliability during the NPI process when the product is being developed, tested, and validated, it’s likely to lead to problems in the field, such as the product failing too soon, having quality problems, or not reaching the customer’s expectations. If a product needs to be recalled, as it may be in serious situations, that’s the ultimate ‘pay me later.’ (03:34)
What is the difference between the cost of GOOD and POOR quality & reliability?
Good and bad quality and reliability have costs, and they can be split into different categories.
For the cost of good quality and reliability:
- Prevention costs (how we can prevent failures from happening)
- Appraisal costs (inspecting, testing, and evaluating designs, components, materials, and the product itself)
For the cost of poor quality and reliability:
- Internal failures (fixing things that are failing before you even ship the product)
- External failures (dealing with a high return rate and other things that are happening outside the company once you have shipped the product) (05:34)
What drives up prevention costs?
- Staff and factory operator training.
- Quality audits on your suppliers so you know they are able to produce high-quality materials and components.
- Market research provides assurance that you’re designing and building a product that satisfies your customer’s needs and has a legitimate place in the market.
- Process capability analysis so you have a preventive prevention methodology or processes in place within the company to check and operate within the quality and reliability and testing target. (07:18)
What drives up appraisal costs?
- IQC where you control the quality of the parts, materials, and components coming into the factory so ‘bad’ ones don’t make it into finished products.
- In-process inspection can be done by operators and they inspect that their part of the products is working correctly before passing it down the line. This prevents defects in final products.
- Supplier evaluation, audit, and inspection help find suppliers who will provide the right level of quality and reliability, reducing risks of problems later on.
- Reliability testing, compliance testing, and laboratory testing will uncover if products do NOT reach your required specifications and the end-user requirements.
- Final random inspection is a safety net that will allow you to know if a completed production batch reaches your requirements and can be shipped.
- Equipment calibration stops testing and production equipment being out of calibration which could lead to defective pieces being made or passed and making it into the field. (09:31)
What drives the cost of internal failures?
- Product rework is where operators need to spend time to rework a defective part or product using more hours and materials or components.
- Internal scrap caused by defective or unacceptable materials, components, etc, is a source of costs and can get out of control if the scrap rate is not monitored.
- Product returns need to be paid for. To triage, scrap, repair, test, and resend products is costly, especially if they fail within the warranty period. Not to mention that angry customers could leave damaging reviews.
- Re-analysis, new tooling, and manufacturing new parts might be needed if products are found to have problems, so basically you’re paying for new product development and manufacturing for a second time. (18:40)
What drives the cost of external failures?
- Product returns appear again here because returns occur when a customer is dissatisfied and then has to be dealt with (this may then lead to more internal work).
- Negative reviews appearing online from angry customers damage your brand’s reputation and hurt sales.
- Poor relationships with customers are costly. Imagine your customer is a retailer and you deliver products it needed on the shelves for Christmas late, this could lose you their business or, at the very least, lead them to scrutinize your operations more closely while they consider the relationship.
- Legal issues can arise when your business needs to pay compensation to customers for not supplying products as and when expected, for example, or perhaps in lawsuits if products turn out to be dangerous or non-compliant. (22:56)
Our recommendation: Pay now!
Entrepreneurs and SMEs on a small budget often feel conflicted about paying for the many activities that improve the cost of quality and reliability. There are a lot, as you can see, and the cost could be fairly high. BUT we’ve seen time and time again that if you take care of any potential quality and reliability issues with the product up front, then you will not see those issues in the field which WILL be more costly. In particular, we recommend doing more reliability testing and making sure the reliability test plans and test cases pertain to the worst-case and use-case scenarios in your products so you can find the issues during the new product development process and fix them so they won’t be seen again later on when customers use products. (26:55)
If you take away one thing…
When designing and developing your new product, doing proper design, implementing optimum reliability testing, following industry standards regarding inspections and manufacturing guidelines, using Good Manufacturing Practices, and improving yield by using best-in-class policies, will all help you to avoid ‘pay me later.’ (30:27)