An Introduction to the Cost of Poor Quality – LeanScape

The cost of poor quality also extends beyond the direct financial impacts. 

It can also lead to indirect impacts, such as damaged business relationships and a loss of customer confidence. In some cases, it can result in regulatory fines or legal action. Simply put, the cost of poor quality is high—and it’s something that all businesses need to take seriously.

Quality assurance efforts are critical to preventing defects and ensuring that products or services meet customer expectations. But what does a robust quality assurance program look like? That will depend on your specific industry and needs, but there are some common elements that all effective programs share. These include (but are not limited to):

A focus on continuous improvement: Constantly strive to identify and eliminate sources of defects. This might involve implementing new technologies or processes or changing the way employees are trained.

Thorough testing: Put products or services through their paces before releasing them to customers. This might include functional testing, usability testing, stress testing, etc.

Root cause analysis: When defects occur, take the time to determine why they happened so you can prevent them from happening again.

External Costs

The external costs of poor quality are the financial impacts that parties suffer outside of the company. These can include customers, suppliers, and other stakeholders.

One of the most apparent external costs is loss of sales. If a company produces defective products or delivers poor services, customers will undoubtedly take their business elsewhere. This can result in significant financial losses, not only for the company itself but also for its suppliers and other stakeholders.

Another high external cost is the cost of warranty claims and repairs. When things go wrong, customers often need to contact the company to get them fixed. This can be costly for the company in terms of manpower and resources. It can also damage customer relationships, as many people view warranty claims as a sign of poor quality.

A third external cost is decreased productivity. This can happen when employees have to spend time fixing errors or dealing with defective products. Not only does this lead to lost time and money, but it can also lead to frustration among team members. This can hurt morale and motivation, which can ultimately affect overall productivity.

Finally, the cost of poor quality can also lead to regulatory fines or legal action. If a company is found to violate government regulations or civil law, it may have to pay hefty fines or face legal proceedings. This can be costly financially and emotionally, not to mention the reputational damage it can cause.