Consulting in total quality management

All the above considerations and benefits could be used by consultants in promoting the TQM approach.

21.2 Cost of quality – quality is free

Mediocre managers are likely to ask (or at least think) first how costly a quality improvement or TQM initiative might be. Conversely, they start thinking about losses caused by poor quality only when it is too late. For management consultants, it is important to be well prepared to illustrate the cost of losses due to poor quality and the cost of preventing such losses. The balance is always positive, but you have to prove it.

The cost of quality1 (COQ) includes two components: the costs of attaining quality and the costs of poor quality. The first component includes costs that add value to the business, while the second includes costs that add no value to the business. The activities that generate costs in the first category are planned, which means that these costs can be controlled. The costs of the second category are often due to deficiencies in the way work is carried out in the company, and represent a real loss to the company. Technically, COQ consists of the costs of conformance and of non-conformance. Figure 21.1 shows how these costs might evolve; note that for a small investment in prevention, failure and appraisal costs can be considerably reduced.

Figure 21.1 Typical quality cost reduction

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Box 21.1 Cost items of non-conformance associated with internal and external failures

The costs of non-conformance are the total costs incurred as a result of things not being done right the first time. They include costs associated with scrap, wastage, repair and rework, and handling of customer complaints. These costs are usually very large and can reach 25 per cent or more of turnover in manufacturing and services. Unfortunately the level of these costs and the places where they occur are often unknown to most managers. The great majority of costs (more than 80 per cent in many companies) are associated with failure, either internal (“not doing things right the first time”) or external (see box 21.1).

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Consulting in total quality management

The costs of conformance are the total costs incurred in ensuring that things are done right the first time. These include planned inspections and tests, and quality-related education and training. The costs are typically associated with designing procedures, defining the processes and process control, and can be classified into two groups: the cost of prevention and the cost of appraisal. Box 21.2 provides examples of the most typical costs for both groups.

Management consultants should explain to clients the major reasons for the need to have data on the cost of poor quality, other than the general one of reducing costs by improving quality. Savings in quality costs would have a significant and positive impact on the bottom line results.

It is of critical importance to advise the client to introduce a COQ system (within the TQM or separately) that will enable the financial consequences of quality problems to be quantified and areas for quality improvement and cost reduction identified. Also the COQ system should enable management to link quality improvement efforts to the bottom line by reducing costs or increasing revenue. It would also show clear links between quality improvement efforts and tangible results in terms of cost reduction, higher sales and profits, and improved productivity. Such a system would provide customers with solid evidence of what the company is doing to ensure high quality in order to differentiate it from the competition and increase customer satisfaction.

The process of setting up the COQ system could be as follows:

●The first step will be to identify quality cost items under the prevention, appraisal and failure model (see boxes 21.1 and 21.2).

●The second step is to collect and report on quality cost data. Once an organization has identified the poor-quality costs to be captured in the COQ system, it should assign them to specific activities and collect the associated data.

Box 21.2 The cost items of conformance

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