The Cost of Poor Quality

As all who live in the competitive world of manufacturing know the pressure to reduce cost is real, ever present and unsuccessful efforts will put a squeeze on the bottom line.  Often times, this forces you, the purchasing manager, to find more cost effective sources for the supplies and products required to manufacture your products.

Many of these avenues are pretty straightforward, for instance buying the identical commodity item from a different source for 15% less.  That’s a definite win.

However, when it comes to the purchase of precision machined parts from outside vendors, sometimes cost savings can be found in places that are often overlooked.  For instance, many companies overlook the cost of poor quality (COPQ).  In a recent Quality Digest article by Danei Edelen, the following was discussed:

“According to Jack B. ReVelle, an ASQ Fellow and author of Quality Essentials: A Reference Guide from A to Z (ASQ, 2004), the cost of quality has numerous hidden costs to the company:

  • Research shows that cost of poor quality (COPQ) can range from 15 percent to 40 percent of business costs, e.g., rework, returns and complaints, reduced service levels, and lost revenue.
    • Most businesses don’t know what their quality costs are because they don’t keep reliable statistics.
    • Finding and correcting mistakes consumes an inordinately large portion of resources.
    • Typically, the cost to eliminate a failure in the customer phase is five times greater than it is at the development or manufacturing phase.
    • Effective quality management decreases production costs because the sooner an error is found and corrected, the less costly it will be.”

15% – 40% of business costs! That is serious money and the alarming part is, as stated above, “Most businesses don’t know what their quality costs are because they don’t keep reliable statistics”.
So what does that mean for you the person in charge of purchasing precision machined parts?   Here is a real life example:

Several years ago, a company that produced high-end locker room benches contacted Hergatt Machine, Inc. with a quality problem.  Their benches were attached to pedestals that were anchored to the floor.  These pedestals did not sit squarely to the floor (they were like the Leaning Tower of Pisa), so when installed in a row the benches didn’t line up!

A temporary fix was devised. Each pedestal base was shimmed (by trial and error) until the benches somewhat lined up.  It was a tedious, time consuming procedure.  Furthermore, the company still received numerous customer complaints, product rejections and worse yet they suffered loss of market share!  The company contacted Hergatt Machine looking for a solution to this problem.  It was ultimately solved by machining the top and bottom of each pedestal so they were parallel when assembled.

The result –Hergatt Machine has produced over 15,000 pedestals with zero customer complaints.  Was the customer charged more?  Yes, but the over-all cost was reduced because the units no longer had to be shimmed and most importantly, the customer has gained significant market share since that time.

My name is Neil Hergatt – President of Hergatt Machine, Incorporated.  The above example is only one of many similar “problems solved” stories I could tell you.  It illustrates how you can actually reduce your cost by paying more for a quality machined item.  Why? Because the headache of ReVelle’s (COPQ) has been overcome.

We are ISO Certified and Gorman Rupp Pumps of Mansfield, Ohio recently awarded us their “Best Machine Shop” two years running.  Contact me today to discuss how you can overcome the burden of (COPQ) and grow your business by purchasing quality machined parts from Hergatt Machine!

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