Have you ever sat down and tried to estimate the cost of quality for your business. At first, the categories are fairly obvious. There's warranty claim costs reported every month. There’s scrap and rework that are the result of defects and therefore additional costs.
To estimate these costs, we track down the quality data on the amount of scrap, rework and warranty, and use this information to estimate the material and labor costs associated with this.
But, after you dig for a while it becomes clear that there are many other costs of poor quality that are not readily visible. In the same way that most of an iceberg is invisible below the surface of the water.
Some costs are easy to while others are less obvious.
Inherently we know that when we produce a lot of defects, the entire length of time required to get completed components through the system increases. This increased cycle time has a cost in terms of additional labor hours to get the work done. There is also the cost of all the inspection and testing that has to be performed to try and catch the defects.
There is the important, but hard to quantify, cost of lost customers and reduced customer loyalty.
What affect these have on a business is difficult to quantify but it certainly isn't a good thing given how hard we have to fight to win orders and try to take market share from competitors.
To help organize your data for cost of quality, use the following four categories:
Once we start considering the vital importance of data, we begin to see the need to establish metrics and a manual and dashboard to standardize the approach and get everybody onto the same wavelength.
For example, one company found that they had five different ways to compute a moving average. They created a metrics manual to define how to calculate key metrics along with standard formats for graphs and standards references to theory.
Your metrics and standard ways of calculating and presenting data can be based upon best practices of other organizations, and the lessons learned within your own company. Cost of quality data should be included within the metrics.
Just like the instrument panel on an airplane, you need to establish metrics to help you "see" where you are and know whether you're headed in the right direction with respect to quality and customer satisfaction.
As an organization you should gather measures in four broad categories:
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