Cost of Poor Quality Framework - Defining the Value Propositions of Quality in a Global Manufacturing Company

Abstract

Quality has historically had a low priority in organizations but has later had a greater emphasis due to its positive impact. This is because good quality can result in increased competitiveness, profitability, market shares and reduced cost for organizations. Still, many organizations do not measure quality, and this lack of knowledge and control results in increased costs due to missed opportunities for improvements. Furthermore, there are several definitions of quality which has resulted in ambiguity regarding the concept. Many organizations implement quality standards which in turn are interpreted by organizations in different ways. This master’s thesis is of a qualitative nature where the DMAIC cycle was employed as the primary research design. Furthermore, unstructured, and semi-structured interviews with experts within lab, quality and finance were deployed. Thereafter, the empirical and theoretical findings were synthesized. Measuring quality can be done in different ways, and the purpose of this master’s thesis is to understand the current procedures, quantify the cost of poor quality and understand the concentration for the sites at the case company. It could be concluded that the sites worked differently with quality and quality issues. This is because the sites have different customer requirements, which results in different manufacturing processes and products. Quality related customer complaints related to cost of poor quality were also investigated and it could be concluded that the feedback loop back to site does not exist. Furthermore, it was concluded that the link between customer complaints and credit notes is weak. Based on the qualitative and financial data, a framework was created. The purpose of the framework is to capture cost of poor quality when it is moved to and from the electronic warehouse called blocked stock. Working according to this framework would over time result in a concentration of quality issues that will result in cost of poor quality being captured. Costs can however not be captured in this framework but must be assigned. The reason for not being able to assign costs is because the sites are different, and the framework is generic to be implemented for all sites at the case company.