What is the "Cost of Poor Quality" ?

The true cost of defective quality is far greater than the apparent cost.

The costs include tangible costs from wasted materials and wasted time, as well as less tangible costs from dissatisfied customers, loss of repeat business, and loss of sales due to a bad reputation. 

Do you go back to a restaurant with bad service or bad food?  Your friends don't go there either after you share your experience.  These are real losses to that business, but they can be difficult to measure. 

ISO 9001 certification is like a recommendation from a trusted source - the equivalent of a great review from a respected food writer for our restaurant. Aren't you more likely to go to a new restaurant with a good review than to a new restaurant with no recommendation?

Customers will pay more for perceived good quality and reliability.  They expect to pay less for the same product from a company without the good reputation. If you lose your reputation, you've lost revenue - but again, this is hard to measure.

The measurable costs of correcting the defect rise as the defective product travels further along the process, and jump significantly if the defect reaches the customer. 

Here are some costs to think about:

• scrap  - Not just the material that is thrown out, but also the labour expended on the product to that point is effectively scrapped.  Sometimes assemblies cannot be disassembled, so the whole lot must be scrapped.
• rework  - Extra labour and materials spent fixing the problem if the product is salvageable
• time spent deciding whether to scrap or rework - possibly involving more than one person
• time spent in purchasing to procure the extra materials
• re-inspection
• retesting of an assembly
• rebuilding of a tool
• downgrading of the product (e.g. discounted 'seconds')
• extra operations in the process to deal with the presence of defects
• the need for excess production capacity or excess inventory to support poor process yields and rejected lots
• investigation into the causes of defects
• equipment breakdowns
• preventable spills and accidents
• overtime to meet the production deadline
• scheduling changes

And we're not even out of the factory yet!

If the defective product reaches the customer, there's a whole other 'can of worms' opened:

• Processing of customer complaints - not just recording, but investigating the complaint and deciding what action will be taken, which may involve discussions with several people.
• Customer returns - refunds / repairs / shipping
• Warranty claims - replace / repair
• Product recalls, retrofit and patch costs
• Field service costs - travel, accommodation
• Technical support calls
• Preparation of support answer books
• Shipping of corrected product
• Added expense of supporting multiple versions of the product in the field
• PR work for 'Damage control'
• Discounts to resellers to encourage them to keep selling the product
• Penalties e.g for late delivery or other Service Level Agreement penalties
• Liability costs
• Government investigations

And on top of all that, there's intangible costs

• Dissatisfied customers
• Loss of reputation /good will
• Inefficient processes.

Of course there are also costs associated with good quality, but these are generally far outweighed by the costs associated with poor quality.

An ISO 9001 compliant quality management system can help your company minimize these costs.

|  next >>