The Higher the Quality, the Lower the Cost
(July 20, 2020)
Historically, conventional wisdom among business managers was that the higher the quality, the higher the cost. This perception still holds true today among a few business managers. Common sense also tells us the same thing, i.e., to create higher quality products or services, organizations will have to spend more. However, is this perception the reality, and does common sense make sense in this scenario?
Here are five compelling arguments why higher quality means lower cost.
1. Zero is supposed to be nothing, but it means a lot when it comes to the defects. We can all agree that even one defect equates to additional cost, time, and effort. But can’t similar, related products in your product line suffer the same or similar defects? This means that to get the true cost of that defect you must multiply the additional correction cost, time, and effort with the number of products with the same or similar defects. Still not clear? Think about recalls where numerous products are victims of the same defect, and the company incurs hefty costs in recalling an entire range of products. However, if there is no defect, correction costs come out of the equation. Therefore, zero is a very significant number in the context of defects.
2. One is the smallest positive integer. What? Well, getting things done right the first time costs the least. If things are not done right the first time, be prepared to do rework. Does rework cost? Of course. How much? It depends and can vary from hundreds to thousands to millions of dollars. Doing things right the first time is better than rework. So, which option costs less? By now, you should know the answer.
3. Our greatest foes, who we must chiefly combat, are within. This is not only true about humans but also holds good when it comes to poor quality of product and services, and inefficiencies of processes or systems. It can be argued that appraisal activities such as audits, verifications, and inspections in the quality world are analogous to introspection in the human world. To keep ourselves in check and to improve, introspection is a must. Similarly, appraisal activities are a must to ensure superior quality and to avoid internal and external failures. Do appraisal activities cost? Obviously! But, better questions to ask are:
4. An ounce of prevention is worth more than a million pounds of correction. If you don’t believe this, here is an example. A company is installing an offshore structure, and a lift can’t be performed because the crane broke. They dig into why and find that the last preventive maintenance run was somehow missed. Now, not only do they incur the cost of crane repair but also the cost of a vessel on standby, which can cost $60,000 to $300,000 per day, plus the pain of customer dissatisfaction. Depending on the extent of the crane failure issue, the repair may take a few hours, to a day, to multiple days, during which a vessel is on standby. If you compare the cost of crane repair (plus the vessel standby plus the intangible costs of customer dissatisfaction) with the costs of preventive maintenance, you will find that the ratio is somewhere close to 1,000,000:1 and sometimes even more. And let’s not forgot about the stress, chaos, and pressure that came with it.
Additionally, but more important, crane failures and malfunctioning during lifting operations can result in safety incidents with severity from near misses and minor injuries to fatalities. According to The New York Times, lifting incidents represent the second most significant cause of fatalities on the Outer Continental Shelf, defined as all submerged lands lying seaward of state coastal waters (3 miles offshore) that are under U.S. jurisdiction. In the case of a fatality, no money (not a million or even a billion) can replace the life that is lost. Therefore, prevention matters, and it is worth more than a million pounds of correction.
5. Butterfly effect. The butterfly effect is a term often used to emphasize the outsize significance of minor occurrences. Minor occurrences of poorly designed processes or systems can have significant negative impacts on the performance of products and services. Similarly, small occurrences of process or system infractions can lead to an inferior quality culture within the organization. Inferior quality culture and poor processes can create a negative butterfly effect and generate more waste, higher recalls, greater rework, and more defective products—which eventually increase the organization’s operational costs, decreases profits, shrinks market share, and reduces the level of customer satisfaction. On the other hand, a mature quality culture and superior processes and systems have a positive butterfly effect on operational efficiency, reducing waste, minimizing rework, abating recalls, and producing defect-free products—which ultimately reduce the organization’s overall costs, increase profits, grow market share, and improve the level of customer satisfaction.
I hope these arguments are convincing enough to help you think differently about the relationship between cost and quality. The lower the quality, the higher the cost. The higher the quality, the lower the cost.
Author: Shobhendu Prabhakar is working with TechnipFMC in a project quality manager role.
Credit: This article has been written for and published in Quality Digest, 27 March, 2019.