Effects of cost reduction on product quality

Given the current inflationary context, the biggest risk of high prices in companies is decrease in profitability.

  • And quality is a factor where some make adjustments to improve profit margins.

The cost of poor quality models consists of assume internal and external defects of our product.

Internal failure costs are those that occur before the product goes on sale, while external failure costs are those that occur after the product reaches the customer.

  • According to data from Gartner, On average, companies lose up to $260 million for every $10 billion in revenue, due to cost for poor quality.

However, when an organization decides to implement a program to avoid this, organizations have significantly reduced their losses.

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Finding the hidden costs of poor quality will help you have an agile and financially resilient company.

How to reduce the cost of poor quality?

In accordance with Jonathan Porta, Regional Vice President of Sales for LATAM at Coupa, it is not a matter of reducing production standards through cheaper inputs. But reduce the waste resulting from faulty processes.

In this sense, avoiding these costs with an improvement program is the best way achieve savings and increase profit margins for any organization, without negatively changing the perception of its customers.

To do this, the following steps should be considered:

  • Find and document the origin of negative costs; These can be internal and external faults
  • Analyze the underlying causes of this costdue to poor quality, in the company’s operations
  • Measure the losses that has for this shortcoming and quantify the savings that can be minimized
  • Improve process execution which is “damaged” by this cost, with a continuous improvement plan
  • Achieve monthly reviews and results reports

Finding the hidden costs of poor quality will help you have an agile and financially resilient company. Able to face the difficulties of his environment and significantly contribute to increasing the profitability of the business.

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