Quality Is Free

In recent Collegiate Chapter columns I have been addressing issues in quality, such as, forming a team effort, moving toward Total Quality Management (TQM), and setting a strategic direction in line with the quality effort. Dealing with the concept of TQM in our last installment, Roger Handley explained that it becomes apparent that any managerial team effort toward TQM makes it necessary to clearly define and effectively communicate the vision of one’s company. Without a clearly defined company vision, it is not possible to accomplish a Total Quality Management organization.

Another issue in the implementation of a TQM program that warrants discussion is that of the cost of quality. Quite often, quality leaders will face resistance from top management and production workers as well because they believe implementing a TQM program will “cost too much” and not be worth the effort in terms of production downtime, systems design and management training.

In his landmark book, “Quality is Free, The Art of Making Quality Certain,” quality guru Philip Crosby addressed the “cost” of quality right from the start—in the book’s opening passage (as well as in the book’s title). “Quality is free. It’s not a gift, but it is free,” said Crosby. “What costs money are the ‘unquality’ things—all the actions that involve not doing jobs right the first time.”

“A prudent company makes certain its products and services are delivered to the customer by a management system that does not condone rework, repair, waste or nonconformance of any sort.”

Crosby explained that a fundamental requirement of proving that quality is free is an agreed upon unit of measurement. He noted that for too long quality efforts in most companies lacked exactly that—a standard unit of measurement—although he explained that one was developed by General Electric during the 1950s as a method of determining the need for quality improvements in specific plant operations. He suggested that companies start with all of the costs not only related to achieving quality, but with the costs of not attaining it as well.

“By bringing together the easily assembled costs like rework, scrap, warranty, inspection, and test, we were able to show an accumulation of expense that made the line management listen to us,” he stated. “All you really need is enough information to show your management that reducing the cost of quality (COQ) is in fact an opportunity to increase profits without raising sales, buying new equipment, or hiring new people.”

To get started, Crosby suggested that one gather all of the costs related to seven areas:

1. All efforts involved in doing work over, including clerical work;
2. All scrap;
3. Warranty (including in-plant handling of returns);
4. After-service warranty;
5. Complaint handling;
6. Inspection and test;
7. Other costs of error, such as engineering change notices, purchasing change orders, etc.

Crosby explained that, on average, it is normal to reach about 33 percent of real costs in one’s first attempt at it. He also added that the calculation will be better understandable to other members of the management team if is related to a good baseline. He recommended expressing the total cost of quality as a percent of sales.

Once the true COQ is attained, or at least a good estimate of it, then milestones for reducing this cost can be put in place. Crosby suggested that 10 percent a year is probably a good target.

Crosby recommended deriving all cost calculations through the financial accounting department. He believes that this helps to support the findings. He also suggested that when working with financial accounting departments that one breaks the costs down into three categories—prevention, appraisal, and failure costs.

Prevention costs involve all of the expenses incurred when attempting to prevent defects in the design and development stage of a product or service. Also included are those costs associated with statistical process control and the prevention of defects, such as measurements and data analysis, in normal business operations.

Appraisal costs are those costs realized when evaluating machinery, software, and services to see if they meet established requirements. These specifications are developed in line with customer requirements as well as engineering documentation. And failure costs involve all of the situations where output is found to not meet product or service specifications, or the system does not perform up to par. Included here are the costs of labor, materials, and customer dissatisfaction.

“A prudent company makes certain that its products and services are delivered to the customer by a management system that does not condone rework, repair, waste, or nonconformance of any sort. These are expensive problems. They must not only be detected and resolved at the earliest moment, they must be prevented from occurring at all,” Crosby explained.

Greg D’Amico is a member of the faculty and coordinator of the undergraduate program in graphic communications at Kean University, Union, N.J., and the author of Customer-Centered Production, published by NAPL.