The Cost of Poor Quality

No, I’m not thinking about loss of important customers or reputation – important in their own right, but harder to measure. I’m more interested in measurable and manageable metrics that can serve as valid KPIs to focus improvement efforts where they will impact the customers directly.

And so was a colleague of mine, looking for input regarding “the cost of poor quality” – how might that be measured? Alternatively, how do you measure the cost of reworking projects and overruns in both time and budget?

I checked my netwok for Lean aficionados, and learned about a very simple method that doesn’t try to invent a new calculation – instead, it looks at existing indicators of poor product quality …

• Scrap Rate
• Customer Returns
• Customer Credits
• Rework
• Warranty Claims

… and creates a mini-scoreboard that gets to the spirit of the question, with enough granularity to allow drill down into root cause.

It’s not worth the extra effort to specify labor time, budget variance, etc. – these are handy, actionable metrics that clearly indicate the results of poor quality. Of course, the detailed cost impact (labor, overtime, material, etc.) would be helpful if I was planning an investment in systems, tools, or processing to address the quality issues, and was looking for a justification.

Think of these metrics as a quick way to “take the pulse” of your quality control and customer satisfaction efforts.