Articles

Quality at Any Cost?

In an ever-competitive global marketplace, if companies don’t develop systematic means to measure and manage the costs of quality—business failure costs—they will fail.

If there is a case being made for the importance of statistical process control software, A.V. Feigenbaum is making it.

Feigenbaum, a well-known expert and author in the field of total quality management, warns in the latest issue of Quality Progress that if quality leaders don’t begin measuring and managing their companies’ quality costs, they risk being at the mercy of global market forces.

Not an easy chore to be sure, but the companies, particularly manufacturers, that control “business failure costs” will find the path to global expansion easier to trek.

As many companies competing in today’s marketplace have discovered,” Feigenbaum writes in his article “Raising the Bar,” “quality costs can quickly snowball, leading to a substantial economic impact in all facets of their operations.”

The holder of doctorates in engineering and economics from Massachusetts Institute of Technology, Feigenbaum says identifying business failure costs is the first step in bridging the internal “disconnects” that prevent firms from being able to competitively market their products in the international marketplace.

Feigenbaum says the “structure” of business failure costs has four components:

1. External Failure: Companies are eating these costs because products and services are not up to snuff in the marketplace and “unsatisfactory completion of business tasks required for delivering complete customer quality satisfaction.”
Examples in manufacturing include: product service, liability, warranty and policy adjustments.

2. Internal Failure: Same as external failure, except these costs are generated because the “company network” failed to recognize and react to market conditions. Examples in manufacturing include: scrap and rework; excess labor and materials; failure investigation and correction; product and process redesign; and downtime and delays.

3. Appraisal: These costs involve ”key systems, processes and Internet functions” that provide controls for ensuring complete customer satisfaction. Examples in manufacturing include: test and inspection of purchased material; measuring services; field testing; approval expenditures; process or product evaluation and report; quality information equipment expense; and quality audits.

4. Prevention: These costs are obviously associated with preventing quality problems and “the disconnects and backward creep that can affect complete customer satisfaction.”
Examples in manufacturing include quality and reliability; analysis and planning; quality training and manpower development; and specification, design and development of quality information equipment.

After the business failure costs have been identified, quality leaders can then begin an action plan to measure and maintain those costs. “Each individual company must define the specific measurement areas within the business failure cost structure that best fits its own business requirements. For example, internal failure costs in the manufacturing industry might include scrap and rework, while the same costs in finance might include computer downtime or data-entry errors.”

Feigenbaum says that companies must realize they can’t rely on market growth alone, particularly in the face of a lousy global economy. “What they can control, however, is how effectively their processes create results.

“Achieving those results starts with a strong and effective focus on managing systematic measurement, which leads to reduced failure costs and improved efficiency. Often, the end product is the elimination of a significant proportion of failure costs and (increased) sales revenue.”

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