Many Quality leaders still use total cost of quality (TCoQ) as their main metric, making the ability to reduce TCoC their ultimate quality objective. However, market changes over the last decade have expanded the role of quality to more than just a process for reducing costs.
To stay competitive and prove their value, Quality professionals need to measure and hold themselves to additional metrics that reflect today’s business priorities.
Breaking Down TCoQ
TCoQ is the total investment an organization makes to prevent defects and poor quality and the costs from the failure of a product to meet customer and regulatory requirements. In other words, it is the sum of Cost of Good Quality (CoGQ) and Cost of Poor Quality (CoPQ).
CoGQ takes into account preventative and appraisal activities designed to prevent poor quality issues. Preventative actions include quality planning, quality training and education, supplier evaluations and error proofing. Appraisal costs include product audits, testing and inspections.
CoPQ measures the costs from internal and external failures. Internal failures include delays in product launch, downtime, failure in analysis and re-testing. External failures costs come from customer complaints, warranty claims and product repairs. CoPQ monitoring is critical as most of these costs are taken directly on the margin of the company. Even a small reduction in CoPQ can save a company millions. CoGQ, on the other hand, is many times included in the initial price of products and thus paid by the customers.
TCoQ: An Incomplete Picture
Increased customer expectations over the past decade have made customer satisfaction even more central to quality. While the CoPQ component of TCoQ does account for customer dissatisfaction, it still makes quality cost-centric and under-represents quality’s role in customer retention, brand value, and revenue creation.
Customers play a central role in determining the success of a company. Products and services that are put into the market must be tailored to the needs and expectations of its end user - the customer. Therefore, it is critical for companies to think of the value of quality beyond TCoQ and focus on meeting customer expectations.
Three Ways to Measure Quality Beyond TCoQ
Customers are the hallmark of any company’s success. Addressing customer complaints in a timely manner is critical to establishing customer loyalty, which can take years to build. Customer complaints are also a great metric for measuring the success of quality processes.
High number of customer complaints can reveal indicate serious safety and regulatory compliance issues. If not addressed promptly, the problems can lead to product recalls and millions in lost revenue. Failure to adequately address complaints from customers can lead to reoccurrences, a high customer turnover rate and further quality issues. Thus, an organization’s ability to address complaints in a timely manner and ensure customer satisfaction is great metric to measure the performance of quality processes.
Last week, a Manhattan doctor sued a female patient for $1 million. Why? She gave him a negative review on Yelp. While this story might seem ridiculous, social media today plays an important role in the success of an any brand.
With the rise of social media in the past decade, connecting with customers has never been easier. Customers can comment on posts or leave reviews in minutes to reveal their thoughts on a company’s products and services. Enough negative reviews or mentions can ruin a company’s reputation and turn off other potential customers.
Organizations need to review and mine social media to derive meaningful information about their products and services. They can use this data to improve existing products, meet the customer expectations and help increase the quality of products and services.
Warranty Accrual Rate
Many companies offer warranties with their products and services to provide a positive user experience for its customers. A warranty lets a customer know that the company stands by its products and customer services extends beyond the point of purchase. Warranty claims can also be a great measure of quality within organizations.
High warranty accrual rates and product returns can reveal defects and quality issues. Paying attention to this number, as well as customer feedback from follow-ups, can help companies improve product quality and improve customer retention.
While there’s no denying that measuring quality in terms of costs is important, companies today should look take a more customer-centric approach to measuring quality to stay competitive.
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