A Case for Obtaining More Resources to Support Your Quality System – The Cost of Poor Quality

Many in the quality arena won’t be surprised to know that the top response in our poll was “Not enough resources to support the quality system.”  Of 309 respondents, 21% indicated that this is the main issue that keeps them up at night.  We feel your pain, and in this blog simpleQuE President, Jim Lee, shares his experience and helpful advice in overcoming the lack of monetary and other resources.  Learn how he grew his quality department from 3 people to 40 by calculating the Cost Of Poor Quality (COPQ). 

Problem faced:

My first quality manager’s job occurred when I was transferred to a sister company that had very poor performance. I was up for the challenge, being an ambitious, young quality professional who wanted the opportunity to prove myself, by turning the company’s quality system and performance around.

This company had around $80M in sales, and I acquired a quality department of three people (two quality engineers and one technician).  The factory quality inspectors reported to the plant manager, which works when under the right company culture. 

Outgoing product quality levels were 16,000 ppm, or 1.6% defect rate at the end of the production line. The company specialized in infant car seats, high chairs, baby carriers, bouncers, swings, etc. There had been recent recalls, due to highly regulated consumer products, and high product liability. 

Little did I know I would have to live through more recalls, and many 14-hour days.

Solution:

We quickly needed to understand our performance and set a baseline.  Systems were set up to capture, assess and evaluate data. That’s when we learned of the 16,000 ppm outgoing quality levels.  Some products were higher and some lower, but this was the roll-up for the entire company.

Benchmarked against other companies and industries, 16,000 ppm was terrible. Surely this data would help justify resources. It took a lot of lobbying to try to get more resources in the budget, but it was dismal.

The company had historical recalls, with more on the horizon to deal with.  Surely this would be reason enough to justify more resources. In the meantime, we got more involved in product design and supplier development to proactively manage our risks upstream and improve our quality, but we were still drastically short on resources.

The golden ticket that broke the financial purse strings wide open was Cost of Poor Quality.  Our company president was an accountant, and the language he spoke was $ and return on investment.  We used the elements of COPQ (see the diagram below), with the help of accounting, to assess our historical costs of our high warranty claims, customer dissatisfaction, product recalls, supplier quality issues, etc.  We knew we couldn’t eliminate our problems, but if we could reduce 25-50% by investing in resources up front, wouldn’t that be worth it?  That’s how we were able to increase our budget year over year for quality resources.

Measurable Results: 

• We didn’t just see 10% or 20% improvement, we saw magnitudes of change – 1,000 ppm or 0.1% defect rate, down 16X over 3 years. Not world class, but a great improvement over 3 years.
• The quality department grew to over 40 people.
• We were one of 2 companies in the state that won the state quality award for our quality improvement.
• Our million-dollar testing lab was certified. We were able to benchmark our product performance against competitors and design better, robust products, setting product specifications consistent with our top competitors.
• We reduced our supply base to fewer, better suppliers that we developed.
• The increase in the quality budget paid for itself over time with reduced failure costs in the COPQ.

Lessons Learned:

Get with your accounting department to have them help you quantify costs for certain problems, historical events, annual firefighting issues, etc.  I found they are excited to help on these types of initiatives, and they have the data, or can extract it.  Their numbers are credible and they become an ally in any fight for budget $ over other departments.  If you could cut your problems by 25%, what is that $ amount?  That’s worth something to the budget for the quality department.

Strategize on where it makes sense to allocate resources to get the biggest bang for your buck.  You need some successes.  Once you prove you can reduce historical failure costs, it becomes easier to ask and obtain more funding.  The strategy also helps prioritization since you won’t get all that you need or ask for.  We had a lot of issues to fix and we couldn’t get to all of them.  In our case, we had to target the big hitters, with some not having quick results, but it helped our case to have some early successes to continue the momentum and support.

Be realistic in your failure cost avoidance plans.  You can’t eliminate it all, and management won’t believe you if you say you can accomplish that. 

COPQ was our best method to get out of the firefight and be more proactive.