TABLE OF CONTENTS
#7 Earning a seat at the table with TCoQ
Communicating TCoQ
for Big Q impact
If you’ve been following this series, congratulations! You’ve made it to the crucial final chapter. (If you’re new—and could do with a refresher on the essentials of your total cost of quality (TCoQ)—do check out the previous chapters first.)
By this point, you’ve examined the main elements of your TCoQ—and gained fresh insights into the crucial difference between quality costs and quality investments.
In this chapter, we’ll be exploring how to share these insights for the outcomes you need.
We’ll cover:
- How to approach and interpret your TCoQ.
- How to communicate the results.
- And how to move forward in creating a Big Q culture where quality is valued as a strategic differentiator—and always has a seat at the table.
What your TCoQ is telling you
There are at least three ways to slice and dice your TCoQ.
- Per process
Zoom into the cost of each process and multiply that cost by the number of times the process is carried out.
- Per bucket
Step back to consider the “buckets” of prevention, appraisal, internal failure and external failure. (Pro tip: If figuring out how much you’re spending on prevention is difficult, start with a rough estimate. Take the quality team’s salaries and deduct the cost of the time team members are spending on the other processes in your CoQ.)
- Per leg
Take a broad overview of what you’re spending on the two major “legs” of quality—poor quality (internal failure and external failure) and good quality (prevention and appraisal). Look out for the ratio between the cost of poor quality and good quality. If you’re spending more on poor quality, there’s a job to do!
Before beginning your analysis, give your estimates a quick reality check. How steep is the rise in costs, from good quality to poor quality?
In Chapter 5 (External failure costs: Paying the price of customer dissatisfaction), we looked at the 1:10:100 model and focused on the way costs rise exponentially from internal to external failure. If your data doesn’t show a sharp rise in costs across the good quality–poor quality spectrum, you probably don’t have the full picture.
Next, consider the distribution of your costs—the ratios among the four buckets and the weighting between the two legs of your TCoQ.
(At this stage, you’ve probably only evaluated the most obvious processes, but that’s ok. It’s more important to get a sense of whether you’re investing in good quality or paying the price of poor quality.)
Is the poor-quality leg draining time, money and attention away from investments in good quality? Or do the prevention bucket and the good-quality leg dominate?
To confirm that what looks like a healthy culture of quality—with significant investments in prevention and appraisal—is the real thing, take a closer look at your appraisal costs. Are the costs weighted towards product inspections (“lagging indicators” that flag problems after the fact) or process appraisals (“leading indicators” that enable you to predict and prevent deviations)?
Product inspections increase your appraisal costs—and may give the impression of investments in good quality. The reality could be very different.
Intensive product inspections can mask poor quality. They may also signal an inability to appraise and control the relevant processes effectively.
Sharing TCoQ findings with your quality team
Here’s where you go granular and focus on TCoQ savings per process and bucket.
- Per process improvements
Consider your CoQ per process and consider the reasons for incidents and events in the poor quality and good quality legs. This will give you a feel for whether there are preventable deviations.
Most deviations are preventable. But bear in mind that if you’re operating without appropriate statistical process control tools, you’re probably overdoing your appraisals. - Per bucket improvements
Use this in your program planning and go for quick wins per bucket. This will also help you create marketable results. For example, a significant reduction in external failure costs could be used to gain company-wide awareness of the relevance of a Big Q culture.
Both these approaches are about prevention. As quality guru Philip Crosby put it, prevention beats the cure of product inspections and rework:
What we want to do is vaccinate the company with the quality philosophy of prevention. So instead of setting up the world’s largest smallpox hospital, we vaccinate people and then we don’t need a smallpox hospital.[1]
Communicating TCoQ savings to top management
Demonstrating what the company stands to gain financially speaks directly to top management’s concerns. As revenue is a key metric, frame your TCoQ savings as a percentage of annual revenue.
In our experience, savings can range from 6% to 14% of TCoQ. We rarely see a company that can’t save at least 10% per process, with the right QMS.
If your processes are so well designed and executed that you can’t reduce costs by 10%, you’re in an exceptional position.
Assuming an average annual TCoQ spend of 5% of revenue, a company stands to save at least 0.5% of its annual revenue. Once a QMS has paid for itself (typically, well within 12 months), these savings go straight to the company’s profits.
Anticipating and responding to pushback: Big Q meets Little q
While your projected savings will be significant, these gains are—as yet—only projections. Top management will, naturally, have concerns about whether they can be realized.
Some of their pushback will reflect long-standing misconceptions about quality. Others will surface practical concerns about organizational readiness and capability.
In what follows, we respond to both types of questions—switching back and forth between top management’s (likely) Little q perspective and your commitment to a Big Q culture in which quality drives company-wide transformation.
Little q: Quality has no ROI—it’s a cost of doing business.
Big Q: Bad quality certainly has a cost, and it’s a cost we can control and drive down with investments in prevention.
The ROI that manufacturers can expect from a QMS ranges from 200% to well over 500%. The bigger the problem, the bigger the value add.
Simply accepting quality as a sunk cost of doing business means accepting being out of control—and that, surely, is unacceptable.
We might, perhaps, decide to accept a certain level of failure, but this needs to be a conscious, data-backed decision. It shouldn’t be one we’re forced to make because we lack the understanding and insight that an effective QMS—that’s constantly tracking our costs—would give us.
Little q: Quality is just about compliance.
Big Q: Quality transforms our competitiveness.
In a recent survey by LNS Research, manufacturers named quality as their second-most-important strategic differentiator. (Unique manufacturing processes and technological innovation topped the list.)[1]
A culture of quality is a powerful competitive advantage—one that inspires confidence in customers and investors.
- Customers look for evidence of a culture of quality
Customers need to see that we have the training, processes and tools to deliver quality products.
Imagine how reassuring it would be for a prospective customer to see us pulling up traceability reports of raw materials and charts of quality trends—instantly.
Customers know that if our processes are well-managed and predictable, their products will—almost invariably—be compliant.
- Investors are reassured by intelligent quality management
Quality management is about risk management and mitigation. Our ability to do this effectively benefits all our stakeholders—including investors and shareholders.
A company with a proven track record in quality management poses fewer financial risks. (It’s no secret that quality concerns and scandals can have a devastating effect on share prices and market valuations.)
As a rule of thumb, any company that’s making over $20 million a year has complicated operations and complex quality processes. These processes require the support of an effective QMS.
Little q: We’re not ready for a Big Q culture.
Big Q: We’ll never be ready if we don’t start!
There’s more to a Big Q culture than technology.
That said, the right technology is foundational. It enables the three pillars of a culture of quality: awareness (of how each of us affects quality), involvement (through the sharing of ideas and information) and ownership (of quality performance).
If we’re serious about embedding a Big Q culture in our organizational DNA, we need tools that are fit for purpose.
Owning your TCoQ
for Big Q outcomes
Average savings and ROI estimates based on the experience of others only take you so far.
Before engaging with top management, you need figures you can defend: numbers that are grounded in your reality and that speak to your situation.
You need to own your TCoQ.
If you could do with some help in arriving at solid estimates of your TCoQ and what you could save with a QMS, drop us a line for a personal—zero-commitment—ROI workshop.
You want a Big Q quality culture. Top management wants big bucks. We’re here to help you demonstrate that Big Q equals big bucks.
This was interesting material!
I would like to explore this further.- https://www.industryweek.com/operations/quality/article/21964139/philip-crosby-quality-is-still-free
- Quality Process Adoption: Emphasizing Value Isn’t Enough (Gartner, 2021)