Managing resources through quality
Reducing avoidable costs in the face of global competition, especially from emerging markets, is a must-do, not a maybe” declares IMSM’s Managing Director, Michael Bright. “The price of non-conformance” is used to describe avoidable costs derived from providing poor quality products. The costs can be substantial - running at 20% - 40% of sales, according to “Juran’s Quality Control Handbook”. When faced with such a profound impact on the bottom line, most businesses will recognise the need to eliminate avoidable quality costs as part of a core business strategy.
International Standard ISO9001 helps companies, large and small, to reduce the price of non-conformance and improve efficiency by defining and documenting a management system, enabling the organisation to get it “right first time”. By focussing on the total cost of quality an organisation will reduce its costs, becoming more profitable, consistently satisfy its customers and be better able to compete globally.
Many companies do not know what their costs of quality are. Correcting mistakes consumes a very large proportion of expensive management resource. An effective documented quality system not only measures the cost of quality but also minimises costs by catching the non-conformance early in the process. The earlier it is found the less expensive it is to correct.
Implementing ISO 9001 enables the organisation to focus on three parts of the cost of quality - External, Internal and Prevention. External failure costs are borne after the customer receives the product. For example, warranty claims, the cost of dealing with customer complaints - the unplanned cost of one emergency trip to an unsatisfied customer in Chile or Saudi Arabia is very expensive. The processing of customer returns and product recalls are overhead costs which do not contribute to fighting and beating the competition.
Internal failure costs occur before the customer receives the product. Scrap, rework, re-inspection, retesting and material reviews are expensive and need to be identified. Maintaining delivery times means fewer calls from customers, saving significant sales and administration costs, both in time and money.
Prevention costs are incurred in preventing poor product quality by keeping external and internal costs to the minimum. New product reviews, quality planning, process reviews, quality teams and training are examples.
Profitable sales are gained from existing customers. It is recognised that a new customer costs up to 9 times more to find and sell to, than to maintain an existing customer. Global competition and price pressure mean that it is ever more difficult to hold on to existing customers. Implementing a documented management system ensures that customer satisfaction is monitored and processes are put into place, not only to minimise costs and maximise margins, but also to build long term mutually rewarding partnerships. Continuous improvement is built in, so that costs are always under review as technology progresses.
Michael Bright concludes, “Having helped thousands of business across the globe to achieve the ISO 9001 Standard, we can see how it has enabled companies to increase their profitability, improve profits and raise customer satisfaction rates.”.