Thursday, January 19, 2012

Cost of Quality - Why it has failed to take

Paul Barowski in his last blog entry talks about how he, in the past, has been uncomfortable in articulating the advantages of ASQ's significant program, Economic Case for Quality.  He stipulates that all he could do was cite industry references about the benefits of not doing rework and how it can lead to bottom-line savings...until a couple of economists, using a "counter-factual evaluation method" provide data to support the assertion that quality does support the bottom line.

My first reaction was...ho, hum. I read the report and academically it is well supported.  Getting a typical MBA-grad CEO to read the report is another matter entirely.

The great failing of the Economic Case for Quality, in my mind, was the inability to use existing business measuring systems to capture the benefits.   Your typical accounting systems do not highlight as a balance sheet drain your typical Lean waste categories.  For example, when I was a Quality Manager working in a box plant, the time my inspectors (or myself) took to cull through what was originally bad product and "resort" them into good product was never captured either through assigned labor cost codes or a income statement expense.  Yes, Activity Based Costing started us down that road but unless CEO's were Q guys in their past lives they would often fall prey to their comptrollers and their insistence to having accounting systems based on generally accepting accounting principles (GAAP).  Quality accounting goes against the current concept of GAAP.

Quality programs struggle unless they are  either the prime working system for producing a product or service (Toyota Production System) or they are seen as supportive to the organization's management systems (Work-Out). 

So what do we do? In lieu of the accounting system, Cost of Quality needs to be part of the senior management measurement system.  This will require what my boss calls "courageous leadership;" a willingness to go against the grain (square peg time) for what they know is the right thing to do.   Easy to say, very hard to implement.

If someone has an example of successes they have seen in implementing an organizational-wide cost of quality program, please respond with a comment.

Until next time!
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