What it means
Quality management is usually described in four parts: planning, assurance, control and improvement. Planning sets the standard, assurance designs processes capable of meeting it, control checks the output, and improvement feeds what is learned back into the process.
It is a leadership responsibility rather than a departmental one. When quality sits only with an inspection team, the rest of the organisation treats defects as somebody else's problem and the same faults keep recurring.
Formal frameworks give the system a common language. Standards such as ISO 9001, and methods including Six Sigma and total quality management, provide structures for documenting processes, auditing them and measuring improvement over time.
The financial argument is made through the cost of quality. Spending on prevention and appraisal is set against the cost of internal failures such as scrap and rework and external failures such as returns and warranty claims, and well-run businesses find that prevention is the cheapest place to spend.
Customers increasingly audit the system rather than just the product. Large buyers and regulated sectors ask suppliers for certification, documented procedures and corrective action records before placing an order, so quality management becomes a condition of winning work.
In practice
Real-world examples.
Example
A contract electronics manufacturer pursues ISO 9001 certification because three of its five largest customers now require it. The documentation work takes nine months and costs $85,000, and within a year the certificate is a stated requirement in two tenders worth $4,000,000 between them.
Example
A hospital pharmacy introduces a quality management system after a near miss with a dosage instruction. Standardised checks, a no-blame reporting line and a monthly review of every reported incident cut medication errors by two thirds over eighteen months.
Example
A restaurant group defines a written standard for every dish, trains supervisors to audit against it weekly and reviews customer feedback each month. Complaints fall from 1 in 200 covers to 1 in 650, and the group uses that improvement in its franchise sales material.
Formula
Calculation
Total Cost of Quality = Prevention Costs + Appraisal Costs + Internal Failure Costs + External Failure Costs, usually expressed as a percentage of revenue. A manufacturer with revenue of $25,000,000 spends $120,000 on prevention such as training and process design, $180,000 on appraisal such as inspection and testing, $260,000 on internal failure such as scrap and rework, and $440,000 on external failure such as returns and warranty. Total cost of quality is $120,000 + $180,000 + $260,000 + $440,000 = $1,000,000, or $1,000,000 / $25,000,000 = 4.0% of revenue. After investing a further $150,000 in prevention, taking it to $270,000, internal failure falls to $150,000, external failure to $180,000 and appraisal to $150,000 because fewer checks are needed. The new total is $270,000 + $150,000 + $180,000 + $150,000 = $750,000, or 3.0% of revenue, a saving of $250,000 a year.Case study
Seen in the real world.
Verity Instruments, an illustrative fictional maker of laboratory equipment, had revenue of $18,000,000 and a warranty bill that had crept up to $720,000 a year, exactly 4% of revenue. Returns were handled politely and quickly, but nobody was asking why the same three faults kept appearing.
The company introduced a proper quality management system: written specifications for each assembly, supplier qualification, a weekly engineering review of every warranty claim, and a target of closing each corrective action within 30 days. Combined prevention and appraisal spending rose from $140,000 to $320,000 a year.
Over two years internal scrap and rework fell from $300,000 to $130,000 and warranty costs fell from $720,000 to $210,000. Total cost of quality moved from $140,000 + $300,000 + $720,000 = $1,160,000, or roughly 6.4% of revenue, to $320,000 + $130,000 + $210,000 = $660,000, or roughly 3.7%. In this illustrative example the company spent $180,000 more on prevention and appraisal to save $680,000 of failure costs, a net gain of $500,000 a year.
Watch out
Common mistakes.
- Equating quality management with a certificate on the wall, when certification records that a system exists but does not guarantee that anybody follows it.
- Confusing quality management with quality control, when control is one component, the checking part, of a much wider system.
- Cutting prevention spending first when budgets tighten, since it is the cheapest quality spending there is and the failure costs usually arrive within a year.
Questions
People also ask.
What is the difference between quality assurance and quality management?
Assurance is the process design element inside quality management, which also covers planning, control and continuous improvement.
Is ISO 9001 worth the cost for a small business?
It depends on the customers, because if buyers or regulators require it the cost is a condition of trading, and if they do not, the underlying discipline can be adopted without the certificate.
How is quality management measured?
Through defect and rework rates, on-time delivery, customer complaints, audit findings and the total cost of quality expressed as a percentage of revenue.
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