Cost of Quality

Client Success Story: Cost of Quality Measurement

Background

A large Midwestern manufacturing organization needed significant cost reductions, and layoffs were not a practical means of cutting costs. This firm was facing significant and growing innovative competition.

The organization had always focused on new product development. The operations group needed a big picture tool to drive major change. Senior management was supportive with resources and highly interested in multi-level cost measures to supplement budgetary metrics.

Assignment

A high-level measure of cost of quality was in place and revised quarterly with a C-level perspective; no operational-level personnel had visibility. Low-level unit loss metrics were in place as well, but no connection existed between high-level and low-level metrics for costs of quality.

Connecting these two ends of the organizational spectrum with measures of the cost of failures and quality functions, then setting stretch and interim goals over 5 years at each level of the organization allowed broad teamwork to reduce costs. The cost of quality metrics elevated the quality group to a strategic level.

Chart of accounts, loss measures, spreadsheets and teamwork were some of the global tools used. These tools allowed focused common interest on improvements. The reduction efforts started within two months; annual updates occurred over several years.

Results

The approach changed systems to fix decades-old errors; improvements were made at all levels. Thousands of improvements were made, resulting in what the VP of operations called the largest cost reductions in the company’s history.