How to Eat a Quality Cost Elephant

Article

Sarazen, J. Stephen   (1990, ASQC)   Digital Equipment Corp., Marlboro, MA

Annual Quality Congress, San Francisco, CA    Vol. 44    No. 0
QICID: 9554    May 1990    pp. 833-838
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Article Abstract

"How do you eat an elephant? .... One bite at a time."

While it may be easy to visualize an elephant, the same cannot be said for cost of quality. Quality professionals have wrestled with the definition and visualization of cost of quality for many years. Some believe they have the answers. They contend all that is needed is to capture the four types of cost: internal and external failure, prevention and appraisal. It is not that simple. While most managers understand the relationships of cost to profit and to productivity, they have a very difficult time making the transition to quality cost. The term "cost of quality" causes confusion for many managers. They see it as the money being spent building quality into the product rather than the cost of non-quality or waste. This is an educational issue that may be best handled through the formation of cross-functional partnerships, and a calculated, ever improving approach to capturing, analyzing and eliminating unwanted cost.

Quality professionals become quite passionate discussing quality cost systems. They are emphatic that such a system take each of the cost types into account. Some quality cost efforts are doomed to failure because quality professionals attempt to lead by exhortation or by trying to include all cost elements, in every area of the organization, from day one. In some companies, quality professionals may be found who would argue that no quality cost system is complete without capturing every detail of the four cost types mentioned earlier. The trouble with a "do everything" approach is that it will take longer to plan, define, sell and implement. While this is being debated, valuable time passes.

One way to address this issue is to eat the "quality cost elephant" one bite at a time. By focusing on the key areas of waste, it is easier to gain support for the effort. Who can argue with reducing scrap or excess inventory? The first point that must be clarified is quality cost is not a program! It is a very powerful measurement tool for continuous improvement. Businesses that introduce cost of quality as a program will likely end up with just that, simply a cost tracking program. By selecting key cost components and tying those directly to continuous improvement initiatives, the business managers have something to which they can align. In addition, implementation of an organization-wide continuous improvement drive becomes less difficult.

This paper documents the planning and implementation of a quality cost measurement system across nine manufacturing sites in eight locations outside the U.S., over a three year period. It discusses management's perceptions of quality cost and makes the connection of quality cost to continuous improvement and to the total quality effort. It demonstrates the value of forming Quality/ Finance / Operations partnerships and operationally defining the elements of the system. In addition, setting strategic direction, mentoring as well as monitoring, and ongoing improvements are discussed. Leading the list of results over the three years since implementation is a cumulative cost reduction of eight figures. The paper concludes with additional "bottom line" as well as "what we've learned" results and "next steps". You will become part of the planning and implementation team as we explore the environment, decisions, applications, and results of our work.

Keywords

Case study,Cost of quality (COQ)


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