In our previous posts, we have looked at the first two elements of the Cost of Quality – namely, Failure Costs (the costs you incur by NOT getting things right first time) and Appraisal Costs (the money you spend on inspections which don’t actually fix the root cause of the problem). If you have reached this far, you may be beating your head against a brick wall in frustration at having uncovered huge waste in your organisation, but not knowing how to fix it.

So what is the solution?

Well, let’s start by asking a deceptively simple question: “who is responsible for the quality of everything that goes into your end product?”

The answer, of course, is “the originator”, i.e. whoever manufactured the component and fed it into your process.

And yet, by measuring high failure costs and then spending on appraisal, we are actually admitting that we are taking on the responsibility of guaranteeing the quality of everything we use.

And that’s why it gets so expensive, so quickly, to generate the quality our customers require.

So where we should be spending our money is on what we call Prevention Costs. By this we mean actually investing in programmes by which suppliers are able to guarantee the quality of everything they deliver – whether they are external or internal suppliers.

This may sound trite, but it is a subtle shift in the supplier/consumer relationship. Traditionally (particularly in this country), we spend a lot of time pressurising our external suppliers on price, forgetting perhaps that they are also in business to make money. Internal suppliers are commonly not really regarded as suppliers, but rather as just cogs in the total machine, and hence not really bound to quality criteria.

External suppliers will react initially by bending the knee and reducing price, but will be looking at their own p&l and identifying areas where costs caan be cut. This may result in decisions to use cheaper raw materials, or to reduce the amount of time and effort spent on their own quality control. The more they are hit over the head on price, the more they will cut their own costs to simply keep hold of your business. In the end, though, you lose.

Internally, the more individual cogs are treated as just that, the less they will feel that they need to contribute in effort to what they are doing….the result being rushed work, careless work or sometimes even deliberate sabotage (we have seen all of these in real life, right up to six-inch bolts being deliberately thrown into a hopper to wreck an extremely expensive packaging line).

When we talk about Prevention Costs, we mean programmes by which we work WITH our suppliers to improve the end result of our collective efforts. As an example: we worked some years ago with a drinks manufacturer who was experiencing reduced profitability in their bottling hall. the client’s initial thought was that the losses were being caused by spillage and ullage, but our investigations revealed that the main culprit was actually downtime – machines and employees standing idle while incurring costs all the time.

Root cause analysis revealed that three things were causing 87% of the downtime: bottles exploding, crowns not fitting and labels falling off. When asked why, each respective supplier responded with “we know there is a problem, but at the prices we are paid we simply can’t afford to provide, let alone guarantee, better quality”. So, in effect, a procurement decision to buy based on lowest price and then further pressurise the suppliers was causing failures, which inspection hadn’t managed to correctly rectify.

The cost in lost sales due to this and the concomitant downtime? ZAR1,2 million.

Per week.

Per bottling line (there were 6).

Per client location (at the time they had 14).

So the fix? Invest on Prevention Costs by working with, rather than against, the suppliers to financially incentivise them to measurably reduce our clients downtime by controlling the quality of their goods.

The results? Massively reduced downtime, better factory output, hugely improved profits and, perhaps most significantly, suppliers buying into the success of our client and receiving healthy compensation for their efforts. Win-win.

This is obviously the simplified version – but we at CTS would love to discuss how attacking the Cost of Quality could step-change your business – no matter how small or large you are, talk to us and let’s see how we can help!