Cost of Quality
Quality and financial performance are intimately related. A fundamental responsibility of POM is to produce a competitive product or service based on a balance between quality and costs of quality. Most companies have the slightest idea on how much firms have spend on COQ, it can be as high as 20 to 40% of sales. Since the numbers are typically much higher than profits in some firms, a reduction on COQ can have a significant impact in profits. Some successful organizations have demonstrated ability to reduce COQ from some 30% down to about 5% over a period of years. And this reduction is being done while improving the quality of the product. Thus, the potential for proper analysis of COQ is immense and often, untapped.
Analysis of COQ
The analysis of quality costs enable management to:
Access the overall effectiveness of the management quality
Determining problem areas and effect action priorities.
The total COQ can be minimized by addressing the relationship between COQ and the degree of conformance to customer requirements. When the degree of conformance is very high(low defects), the cost of failures are low, but the costs of control will be high. When the degree of conformance is low(high defects), the opposite is true. Thus, there is always a need to balance these two considerations.
The key consideration is not simply finding the minimum cost point of quality and operating there but to constant reducing COQ. This can be done by revising the production systems, including technology, training attitudes, and management. As the result of such actions, the COQ are likely to be reduced.
The concept of COQ is a powerful tool for quality improvement when it is properly used. It focuses management attention on waste due to excess failures or high control costs. The...