Improvement Insights Blog

What Are Your Opportunity Costs of Quality?

Ever wondered how much poor quality is affecting your bottom line? It’s often a third or more of total revenue. What are you doing to recover it?



“I’m Jay Arthur, author of “Lean Six Sigma Demystified” and QI Macros [software].

“Let me ask you: Your company… what’s your gross revenue? If it’s a million dollars or 10 million or 100 million or a billion or whatever it is, I want you to take 35% of that. So one third of a million dollars would be 333,000 and some odd dollars, right? According to Joseph Juran if you’re not doing Quality Improvement, that’s how much money you’re losing every year.

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Posted by Jay Arthur in Improvement Insights.

Cost of Poor Quality

Every businesses wastes a quarter to a third of total expenses 1) fixing stuff that shouldn’t be broken (rework) and 2) throwing away stuff that can’t be fixed (scrap). There are four main costs of poor quality:

1. Internal failures that cause rework and scrap.
2. External failures that increase returns (to be reworked or scrapped), billing adjustments, concessions and customer complaints.
3. Inspection costs of incoming materials,inspection of work in process and final inspection and testing.
4. Prevention costs (i.e, Lean Six Sigma)

Inspection, failure, rework and scrap can easily devour much of a companies time and money. Preventing these problems is far less expensive, but requires focus and dedication to eliminate mistakes and errors.

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Posted by Jay Arthur in Six Sigma.