Cost of Poor Quality

Companies typically waste up to 35 percent of their operating budgets doing things less efficiently than possible or by failing to capitalize on opportunities. The Automotive Industry Action Group (AIAG) has issued a Cost of Poor Quality Guide (CQI-22) that is free as an e-version document.

The 44 page Guide can help you identify and quantify where inefficiencies exist, effectively communicate these deficiencies to upper management, and prioritize the actions needed for immediate operational improvement and reduction in variance.

The Guide was developed in response to evidence that quality metrics expressed more in terms of money – which is the language of management – will continue to be a key driver of quality improvement in the future.

The AIAG Future of Quality Survey conducted by J. D. Power and Associates last year found that:

  • Good quality doesn’t guarantee a sale or contract, but poor quality can guarantee the loss of a repeat contract or sale.
  • Quality and purchasing need to be aligned in the goal of reducing total costs and not just total purchase order costs.
  • Most OEMs and suppliers agree that Cost of Poor Quality will continue to be one of the key factors driving quality improvement in the future.

And, a 2012 quality management survey by LNS Research found that more than 35 percent of executives identified the cost of quality as the top quality management objective, followed by improving customer experience (19 percent), and reducing non-conformities in manufacturing (13 percent). This is indicative of the importance that many companies are placing on measuring and managing quality costs.

The CQI-22 Guide defines the Cost of Poor Quality and opportunity costs, provides guidance in communicating effectively to upper management, and discusses methods for its calculation.
A non-member hardcopy of the guide is $196. However, the free e-version is available at this AIAG web page. See my December 2012 newsletter article for information on other AIAG Quality Guides.