Cost Of Quality….

This is one of important concept to understand what is cost of quality in pharmaceutical organizations. It basically deals with four types of cost;

• Appraisal Cost
• Prevention Cost
• Internal Failure Cost
• External Failure Cost

At times different quality Guru’s given their definition for the Cost of Quality. Phillip Crosby is best known to his contribution for the concept of do it right first time , Zero Defects & Price of Non-conformance

Dr. Demming explained about cost in his book Out of Crisis, 1986, well known “Demming’s Chain Reaction” philosophy :

Internal Failure Costs are incurred to remedy defects discovered before the product shipped to the market. Ex: Product Scrap, Rework, Equipment Downtime, Excess Inventory, Design Change or redesign

External Failure Costs Failure costs which occur after the shipment of the product to the customer. When the product fails it can have direct cost repercussions as well as indirect impact on reputation of the product. Ex: Warranty, Recall, Complaint, After Sales Service etc.

Advantages

• Aligns Quality and organizational goals
• Provides a problem prioritization system, high COPQ areas can be identified
• Improves the effective use of resources
• Provides a single overview of quality
• Provides a way to distribute controllable quality costs for maximum profit

Limitations

• COPQ doesn’t solve the problems
• COPQ reports do not suggest any specific action
• Important costs may be omitted from quality cost
• There is chance of measurement errors
• There can be waste of time in perfecting the numbers

According to research, the cost of poor quality can range from anywhere between 15% and 40% of business’s costs (Returns, Complaints, Reduced Service Levels, Loss of Revenue, or Rework). Sadly, most businesses do not know what their COQ (Cost of Quality) is because they do not have reliable statistics.

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Cost Prevention and the 1-10-100 Rule

The 1-10-100 Rule is a rule that is closely related to the cost of quality. According to the rule, prevention is less costly than correction; and correction, in turn, is less costly than failure.

Applying the 1-10-100 rule, this means, it is more feasible to invest $1 to prevent than to spend $10 on a correction. A $10 correction, in turn, is 10x less expensive than a $100 failure.

Investing in prevention is necessary to get things right at the frontend. This could include spending time designing good processes, investing in Quality Management Software and providing employees the required skills via training.

Corrective costs (the cost of corrections) are the costs associated with fixing the problem once it has been detected. A poorly designed product might lead to a high defect rate. It’s the same with poorly trained employees who end up making more-than-permitted errors. Significant costs arise from the corrections and fixings of problems.

The biggest cost is the cost associated with failure. When a defective product reaches a customer, the consequences can lead to the product’s failure. The customer might never buy that product again, or they might simply stop buying from that brand. Worse still, if the unsatisfied customer decided to comment on social media or a specialized forum about the failure of the product. Not only will you lose that one customer, but several more.

While there are costs associated with prevention such as investing time, money, and effort to ensure nothing goes wrong with the product or service in the future, prevention is the best cure.