The Cost Of Poor Quality - Little Things Add Up

When we look at making improvements to our services, one thing that should be on the top of our lists is finding ways to provide world-class service at the lowest possible cost.  As it becomes more difficult to get funding from various sources (such as state funding), how we use the resources we have becomes more and more critical.

When discussions around cost reductions come up, efforts tend to be on finding large, highly-visible savings opportunities.  While it is always nice to make substantial cost reductions all at once, cutbacks of this nature tend to be short-term or one-time only decreases.  The problem with this type of focus is that it misses large, long-term savings opportunities because they are disguised as small, inconsequential costs.  Where organizations tend to hemorrhage the most money is through numerous small expenses and inefficiencies that get overlooked day after day, year after year.  The fact is these little cost savings add up to large savings over time.

On March 29, 2014, CNN reported a story about a 14-year old Pennsylvania middle school student named Suvir Mirchandani, who found a way to potentially save the government millions of dollars every year.  It started as a science fair project, in which Suvir was trying to find a way to save his school district some money and help them become more environmentally sustainable.  He realized that the ink used in the handouts being given to students is very expensive and as he told reporters, ounce for ounce it is more expensive than French perfume.  Because of this cost, he decided to focus his attention on the amount of ink being used to produce all of the documents.  Through his science fair project, he compared four different typefaces being used to print documents and determined the amount of ink required to print them.  What he found was that by using the narrower Garamond typeface, his school district could reduce ink usage by 24% and save approximately $21,000 per year.  This same thinking was then applied to the US government’s General Services Administration (GSA), which produces a massive number of documents every year.  The GSA’s annual ink expense is $467 million each year.  Suvir found that if the US Government switched to using Garamond exclusively, they would save roughly 30% on ink, equating to a saving of $136 million a year.  An additional $234 million could be saved each year if state governments made the same change.  It is a slight adjustment, but one with a powerful outcome.  If you would like to read the complete article, you can reach it through this link.

In process improvement, these costs that come from inefficiencies and process failures are referred to as the cost of poor quality (COPQ).  Alone, many of these costs – a few pennies here and there, or a couple of seconds of time - would be too small with which to bother.  However, when you multiply these few pennies or few seconds of time by many, many repetitions over time, they add up to large expenses and lots of lost productivity; all of which have a negative impact on customers and operations.

The cost of poor quality can often be traced back to uncontrolled variation in a process, and different types of waste or wasteful practices like:

  1. Unnecessary processing or steps in a process
  2. Delays / waiting
  3. Idle inventory / resources
  4. Producing more than needed to meet demand
  5. Transporting materials or information over long distances
  6. Unnecessary or excessive motion / movement of staff
  7. Rework / fixing defects

The cost of poor quality goes beyond the process itself, and can also be assigned to activities related to finding, fixing, and preventing poor quality in services, as well as losses due to negative impacts to the organization’s brand or reputation and the loss of customers.

As you look at improving your services or products and work to reduce the costs associated with providing them, I urge you to seek out the costs of poor quality, both large and small.  I think you will find that addressing the numerous small costs that repeatedly appear day after day and year after year, will add up to sizeable, long-term savings. As always, I welcome your questions or comments. You can email me at clayton.taylor@asu.edu.

About the Author:

Clayton Taylor, MBA, is a Management Research Analyst, Pr. and Certified Six Sigma Master Black Belt working in the Office of the Executive Vice President, Treasurer and Chief Financial Officer at Arizona State University. He currently consults with nine diverse Business and Finance operational areas to lower costs, improve operational efficiency and provide the highest quality customer experience to internal and external customers. Mr. Taylor can be reached at clayton.taylor@asu.edu.