Why is it important to know the cost of inspection in a particular areas of business organization?

Explanation:

Every regulated organization understands the need to implement a quality system. In fact, it’s a “shall” clause for all life sciences companies to ensure they are in compliance with industry regulations. The focus of any effective quality system is, and rightly so, all about ensuring patient safety. From there, as the organization matures, its people, processes and technology evolve from a compliance, to a correction, to a prevention mindset, eventually resulting in increased quality brand recognition and shareholder value.

In the real world, companies need to engage quality system processes, such corrective and preventive action (CAPA), as the lifeline to feed improvements through the change management processes into the product lifecycle, from design inputs to manufacturer and supplier outputs.

Defining the cost of quality

As we look at process and product improvements, quantifying the “quality” costs to the organization is defined as the Cost of Quality (COQ). Why quantify the quality data? The COQ categorizes these costs so the organization can see how moving from a quality assurance (control and correction) focus to a focus on prevention helps to reduce the cost of nonconformances.

The American Society of Quality (ASQ) uses the following formula to calculate the COQ:

Cost of Quality (COQ) = Cost or Poor Quality (COPQ) + Cost of Good Quality (COGQ)

The COPQ contains all the costs of nonconformances that are both internal and external to the organization; whereas, the COGQ contains the cost of quality conformance, including any costs associated with both appraisal and prevention.

Some examples would be:

COPQ – Internal Costs (defects occurring and managed within the organization)

Scrap, Rework, Re-inspection

COPQ – External Costs (defects that reach the consumer)

Adverse Event Reporting, Warranty, Corrections and Removals, Product Liability, loss of brand reputation

COGQ – Appraisal Costs (controls put in place by the organization)

Inspection (purchased, manufactured), Testing (acceptance, field), Quality Audits, Calibration

COGQ – Prevention Costs (activities to eliminate defects from ever occurring)

SPC (statistical process control), Quality Planning, Quality Training, investment in quality-related information systems

What is the cost to your organization?

In the life sciences industry, analysts have stated that less than 50 percent of companies really know what the COQ is for their organization. However, ASQ, Crosby, and FDA Case for Quality show that the COQ for an organization can range from 3 – 25% of a company’s revenue. The good news is that there are known strategies that can be put in place to drive down the COQ which will have a direct positive impact on the profitability of your organization, and it’s all within your control.

Strategies for cost improvements

Every company is at a different point in the evolution of its people, processes and technology implementations, and even its understanding of its key metrics/performance indicators or COQ. Management could consider leveraging the following strategies to reduce their company’s COPQ and positively impact its quality and profitability performance.

Improve supplier relationships for both product and process improvements

Collaborate during design process, engage suppliers in the corrective action process (from incoming, manufacturing or customer-reported problems), develop supplier scorecards, audit suppliers based on their product/process risk levels