In the apparel sector, many organizations tend to misunderstand the Cost of Quality (COQ) because the term often gets incorrectly associated with the price of creating quality products, rather than the costs incurred as a result of manufacturing products incorrectly.Moreover, many organizations tend to overlook the benefits of measuring the quality costs and position revenue growth as the main business goal and focus.
In this blog article we share some monetary examples (and a video) of how the COQ model works, as well as dive deeper into the importance of understanding the COQ and how failure to do so can hurt your brand.
The Cost of Quality (COQ)
The COQ is often understood as being solely focused on reducing costs while managing compliance. But in reality, it’s the other way round, meaning that it is the money incurred as a result of products that were manufactured incorrectly the first time. In the garment industry, calculating the quality costs is a means to quantify the total costs relating to quality-related efforts and deficiencies regarding the production of softlines.
Philip Crosby, an established quality professional, consultant, and author played an instrumental role in the discipline of quality. He raised awareness of the importance of quality by demonstrating what a powerful and vital communication tool quality is within an organization. Crosby changed the way organizations seek to achieve higher efficiency, reliability, and profitability by teaching management how to develop a preventive culture by getting things right the first time. He established that quality was about conforming to set requirements and that the price of ‘non-conformance’ was higher than the cost of conformance.
The COQ can be divided into The Cost of Good Quality which branches into Prevention and Appraisal Costs and the Cost of Poor Quality (COPQ) which branches into Internal and External Failure Costs.
Prevention costs are incurred in the form of all activities which are explicitly implemented to prevent quality issues to keep appraisal and failure costs at a minimum. They take place before any operations begin and some examples include quality education and training, quality improvement design, etc.
Appraisal costs are involved with determining the degree of conformance to quality requirements by measuring, monitoring, and auditing of activities which are related to ensuring that relevant quality specifications are met. Some examples include quality audits, testing, and evaluation of equipment, raw material inspections, etc.
Internal failure costs are incurred when products fail to meet quality standards and are discovered before the product is delivered to the customer. Some examples include reworking, scrapping, testing, delays, downtime, etc.
External failure costs are incurred when products fail to meet quality standards and are discovered after the customer receives the product which results in customer dissatisfaction. Examples include complaints, product recalls, customer bad will, damaged reputation, etc.
Understanding the COQ model
The COQ model allows an organization to determine the potential savings achieved by implementing efficient quality improvement processes.
How does this work?
By understanding the cost of quality, brands can determine which resources are being used for activities that are aimed at preventing poor quality, appraising the quality of the brand’s products and that are a result of internal and external failures. Moreover, analyzing the quality costs allows organizations to assess their quality management systems’ effectiveness as well as identifying any problem areas, potential opportunities, savings and action plans. It’s essential to manage the COQ implementation and improvement effectively in a way that aligns with long-term quality goals to achieve the most desirable results.
It can sometimes be difficult for quality managers to get budgets approved for investment in quality, but, understanding the relationship between the cost of good quality and the cost of poor quality is crucial. Too often, brands don’t achieve favorable quality results as they focus more on the cost of poor quality, compromising internal and external failure costs over the cost of good quality, which leads to less return on investment. The cost of poor quality can add up to anywhere between 10% - 40% of business costs.
Le't look at an example.
If an apparel brand has an annual revenue of $100M, poor quality can add up to $20M every year, or roughly $77,000 for each working day in the week. That means that $77,000 has been wasted in time, resources, and productivity daily. A general guideline is for the cost of poor quality to vary between 10% to 15% of business operations, which could also be reduced with effective quality improvement programs, resulting in a direct positive impact on ROI.
So, every time a brand minimizes the percentage of COPQ, about $1M will be put back into the company’s bottom line annually. Eliminating the cost of external failures in the customer phase is 5 times greater than during the merchandise development and manufacturing phase, and every time work needs to be redone, the COQ increases.
In another example, let’s say you ordered 10,000 pieces of material for garments, and upon reception, 30% are defective meaning that you’ll need to repair 3,000 pieces. You’re spending will result in 3$ per piece for sorting and fixing, keeping in mind that you’ve bought the entire order for $250,000. This means that repairing at the reception of the materials would cost $9,000 which is about 4% of the whole price. If effect quality control measures were put in place and the problem was detected at the origin, the cost would only be $250 which is 0.10% of the whole price.
>>>Click here to view our animated video on 'Understanding the Cost of Quality in the Apparel Industry' today!<<<
It is clear how not understanding the COQ in the apparel industry can hurt your brand, internally and externally. It is almost impossible to eliminate appraisal and prevention costs entirely, but ensuring that efficient quality management processes are developed and implemented to guarantee that product specifications are met from the start will make striving for zero defect performance easier. These quality systems should aim to have a positive impact on achieving your brand’s mission and goals, and will have a significant influence on the cost of quality, increasing overall return on investment.
Do you have any questions regarding the COQ and the cost of poor quality in the apparel industry?
We’d also love to hear what methods have worked for you in the past for ensuring high-quality products.
Please feel free to join the conversation by dropping a comment below.