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Calculating the Cost of Quality With ERP

  • 22 November 2017
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Categories: ERP

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In the competitive global marketplace, reducing operational costs and running a leaner, more efficient operation are goals on every company’s radar. Of course, it’s essential that product quality not be compromised by any changes make for the sake of efficiency. Effective quality control management is paramount.

Using the cost of quality metric, it’s possible to monitor precisely how much capital goes into maintaining the optimal level of quality not only on the production floor, but within all business operations. By examining appraisal, detection, internal, and external failures, today’s businesses can pinpoint areas of inadequacy within the manufacturing process and adjust accordingly. However, examining the many elements that factor into cost of quality can be a complex process.

The Factors That Drive Cost of Quality

Analyzing cost of quality means looking at a pair of related but distinct factors: the cost of poor quality and the cost of high quality.

The cost of poor quality (CoPQ) is determined by factors every manufacturer knows well. Things like scrap, unexpected machine problems, delayed supplier deliveries, and rework all have tangible negative dollar values that can be attached to them. These factors can be further broken down into internal costs and external costs.

The cost of high quality (CoHQ), meanwhile, refers to preventative maintenance and other costs that affirm the quality of products and minimize the risk of poor quality products or services. From supplier evaluation to product reviews, error-proofing, and quality improvement projects, companies can spend a lot of their budget on prevention costs. Additionally, appraisal costs to ensure conformity with quality standards — such as external audits and field testing — fall into this category.

Calculating Cost of Quality

Calculating cost of quality, then, means adding the overall cost of good quality with the overall cost of bad quality. This is not as simple as it seems, however, because a change in one category can trigger a change in the other. Perhaps the easiest example of this would be preventative efforts on the material end (a CoGQ item) that end up minimizing the amount of scrap (a CoBQ item.)

Though maintaining the cost of high quality can be an expensive process, today’s marketplace requires that manufacturers adhere to the highest quality standards to survive and thrive. Fortunately, by using the right technology to accurately determine cost of high quality metrics and identify areas in need of improvement, businesses can delight customers, grow profits, and outperform competitors.

Maintaining High Quality With ERP Technology

To maintain profits in the current business environment, it’s essential to keep quality high and consistent by adhering to the highest quality standards at all times. ERP technology helps protect companies against errors by standardizing best practices and calculating the metrics that managers use to make decisions. The right ERP system will evaluate each stage of the product development process and allow for a consistent level of quality.

Quality control management with ERP is a way of life for manufacturers. After all, businesses lose money and profits every day when their services or goods aren’t produced optimally. In some cases, the expense can run to up to 30% of their total costs.

ERP solutions not only help to make cost-of-quality reporting more accurate, leading to happier customers, fewer delays, and reduced complaints — they also minimize costs within the operation, minimizing the cost of poor quality caused by delays and internal failure costs.

Creating a Standardized Process for Quality

In recent years, ERP systems have emerged as one of the most powerful solutions for quality control management. These solutions drive tighter cost and quality control by allowing manufacturers to eliminate poor quality and identify high production costs at their source. With the right ERP solution, organizations can commit to continuous improvement, fast responses to errors, and enhanced activities based on company data.

Looking to utilize ERP to its fullest extent? Get in touch with the team at Cre8tive Technology & Design today.

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