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Say Not 'Cost Of Quality,' Rather Say 'Investment'

The term “cost” means an expenditure that we pay to move on or to continue business. It will not offer a profitable return. It is money lost. Alternatively, “investment” means money that we set aside or spend now in order to achieve a greater return later. If we look the pursuit of quality correctly, we see it as an investment, not a cost.

I’ve heard a phase several times in recent months that bothers me. I’ve heard people say, “cost of quality.” Perhaps folks using this phrase have simply, inadvertently dropped an important word, but that consideration doesn’t lessen my concern. Poor quality is often an unnecessary and unfortunate expense, a “cost.” Appropriate, good quality is an investment.

The term “cost” means an expenditure that we pay to move on or to continue business. It will not offer a profitable return. It is money lost. Alternatively, “investment” means money that we set aside or spend now in order to achieve a greater return later. If we look the pursuit of quality correctly, we see it as an investment, not a cost.

There are hundreds of ways we battle to achieve and maintain quality for our products, our services, and our performances. Let’s look at a single common scenario to explore the difference between cost and investment in terms of quality.

Let’s consider material or parts that we purchase from a supplier in order to fabricate or assemble our final solution for our customers. Ideally, we engage suppliers that produce exceptional quality, consistently. As our suppliers prove this to us, we relax our efforts to continuously assess their performance.

After all, continually proving that our suppliers always produce quality inputs to our own processes becomes a waste of time, energy, and resources. We abhor waste. Good.

Unfortunately, change is inescapable. Regulations change, our suppliers’ own inputs are subject to change, environments change, demands and resources change, almost anything could change and cause our suppliers’ performance to shift. Therefore, we periodically audit incoming material, even from trusted suppliers, just to manage risk and to keep everyone, and every process, honest. Good.

So, what happens when the improbable possible happens and incoming materiel from a supplier fails our screen? We contact our supplier and inform them of our findings and we try to ascertain risk and damage. It may also mean that we suddenly have an unexpected shortage of materiel for our own processes.

While we work with our supplier to try an understand what caused the failure, while we review and re-perform our tests to make sure we didn’t introduce an error, we also try to manage the risk or challenge of a supply shortage, meaning we begin to expedite materiel. We may also start losing cash flow from late revenue, or losing profit due to penalties for late deliveries.

Already, we are experiencing costs for a quality failure. What happens when we have a second failure on expedited materiel, or if we audit previously acquired materiel and find more failures?

At this point any Quality function or process improvement expert worth his or her title should be concerned not only about risk and variation between lots of materiel, but also variation within lots of materiel. Tools and methods such as control charts and statistical process control come into play to assess between lots and within lots variation and risk.

Maybe we chose to spend time and resources to assess variation within and between lots all along and maybe we determined not to waste our energy on measuring reliable processes. That choice becomes part of our discussion.

In either case, we have a real significant problem if both incoming expedited materiel demonstrates poor quality and previously acquired materiel demonstrates poor quality. It means that we have just experienced a very great cost compounded by further delay. It also means that we may have product in the market or in the field that is not of the quality we expect or intend.

What is the cost of that? If it means that some of our customers might be slightly dissatisfied with the performance of our product because we used substandard materiel, we might never receive the feedback to tell us what the problem really cost. It might be minor.

However, if the quality problem results in a regulatory or safety issue, it could warrant a product recall. That can be devastatingly costly both in terms of resources and productivity, and also in terms of brand or product reputation and future revenues. The cost of the recall we can fairly assess. The cost of reputation and future sales we may never know for sure. We do know that it is not acceptable.

So let’s run a quick tally. One simple quality failure now has us spending resources measuring and assessing quality on a great deal of materiel, it has us expediting material, we are late with deliveries, we have quality failures in customer hands, and we have the potential for very costly recalls or penalties. Those are genuine and significant costs.

More so, those costs are inevitable if we do not protect ourselves from their occurrence. We must assume that it will happen if we don’t proactively prevent it. Reasonable measures to continuously prevent poor quality inputs and also poor quality outputs will reduce or eliminate costs to our business due to quality issues.

If we reduce costs, we increase profits. Therefore, if we spend a little time, energy, and money to prevent quality issues, we increase profits, which mean spending money to assure appropriate quality an investment, albeit an investment to avoid a cost. It fits perfectly as part of a productivity calculation.

We can take the argument a little further. If we can prove that superior quality is a value to our customers, quality becomes a sales driver, a revenue driver, and a profit driver. When this occurs, there can be no question that quality is an investment, as long as what we invest in producing the quality is less than the profit from it.

At this point, readers might be thinking, “Duh, Alan. We learned and discussed this all before in every business class and process improvement workshop.” Yes, we probably all did. Except, I keep hearing people say, “cost of quality.” I also see over and over again, people chasing quality issues because they failed to prevent them.

The challenge is not to understand the quality-balancing act. The challenge is to achieve the right threshold of investment. This requires work and planning, and information that many of us choose not to do, and I believe that is the problem.

I believe also that our perspective of the challenge colors our actions. If we perceive efforts to ensure quality as a cost, our mindset automatically becomes focused on reducing or eliminating that cost. However, if our perspective is that efforts to ensure quality are an investment, our mindset shifts to optimizing that investment. We focus on investing just the right amount to maximize our return.

That is precisely what our focus should be. Actions to monitor quality are a waste if they are not improving quality, according to popular methodology. That is a dangerous perspective because it tends to lead to the idea that our practices to assess and assure quality are waste and, therefore, a cost. Do not fall into that trap.

Reset your mindset that efforts to assess, assure, and ensure quality are an investment. Focus not on how to reduce or eliminate them, but rather on how to optimize them for maximum return. Consider the risks and costs of a quality escape as a means of determining if the money spent preventing them is appropriate and profitable.

Once you have changed your own habitual perspective on the matter, begin to work on your colleagues and leaders. Change your perspective and your language, and then change your culture. The organization that invests appropriately comes out ahead.

Stay wise, friends.

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