Profitability Through Quality

by

Rajesh Bheda
Presents

Doorsamvad
Garment Manufacturing Technology Department National Institute of Fashion Technology

Quality
Why this theme? What is Quality? How to measure Quality ? Can Quality be achieved at low cost? What is Cost of Quality? Quality Maturity Grid. Inter-relationship of Quality Costs.

Why Profitability?
That is the main reason we in business Because we are not in the business of Charity Profitability is an illusive word for todays apparel industry

Why Profitability?
Because we feel that it could increase only by increased selling price or by reducing costs by Cutting Corners

Quality : Definition

Conformance to Requirements
Crosby

Fitness for Use

Joseph Juran

Quality : Definition

Offering product or services that a

customer has never dreamt of, forget alone specifying the need for it. But having received the product the customer feels that he always needed it

Quality: Why Does Buyers Dil Mange More?

Consumers Quality Expectations have gone up Consumer is too busy to come back to complain Not Interested in Taking Special Care of the Product Reduced Consumer Spending on Apparel Stringent consumer protection laws Stores Cant Afford a Dissatisfied Customer Working With Non-quality Vendors Costly

This is what US Congress says about importance of Quality

Even the U.S. Congress has recognized national importance of quality in a 1988 report [8], Quality as a Means to Improve Our Nations Competitiveness, which opens with a statement, It is important we recognize a significant portion of our trade deficit is due to the ability of foreign competitors to deliver higher quality products that are either novel, less costly to produce, promise better service or some combination of the above.

This is what US Congress says about importance of Quality

What finally sank into US industry is the tremendous cost of ignoring quality. In most traditional factories that cost is probably the biggest item on their list of expenses, and it is always bigger than gross profit. But because the cost of quality is rarely broken out in gory detail, management has no idea of its true dimensions. When quality audits are performed, they invariably uncover huge hidden plants staffed and equipped just to find and fix defective products.

This is what US Congress says about importance of Quality

The typical factory invests a staggering 20% to 25% of its operating budget in findings and fixing mistakes. As many as one-quarter of all factory hands dont produce anything - they just rework things that were not done right the first time. Add in the expense of repairing or replacing the flawed products that slip out of the factory and into the market, and the total burden of unquality can mount to a punishing 30% or more of production costs.

The ASQC Quality Cost Committee (5) recommends breaking down quality costs into the following four areas 1. Prevention Cost The cost associated with personnel engaged in designing, implementing and maintaining the quality system. Maintaining the quality system includes auditing the system. 2. Appraisal Costs The costs associated with the measuring, evaluating or auditing of products, components and purchased materials to assure conformance with quality standards and performance requirements.
Cont...

The ASQC Quality Cost Committee (5) recommends breaking down quality costs into the following four areas 3. Internal Failure Cost The costs associated with defective products, components and materials that fail to meet quality requirements and result in manufacturing losses. 4. External Failure Costs The costs generated when defective products are shipped to customers.

Conclude

Failure Costs
External

Repair Warranty Claims Complaints Returns Liability

Failure Costs
Internal

SCRAP Rework or Rectification Down Grading Failure Analysis

Appraisal Costs

Inspection and Test Quality Audits Inspection Equipment

Prevention Costs

Setting Standards Quality Planning Quality Assurance Inspection Equipment Training Miscellaneous

Non Quality Levels in Apparel Industry

(As per a US study by Jonathan Cope Assoc.) y Fabric vendor defective level of 2 to 5 %. y Work-in-process delays due to 20% in line re-work. y Average plant labour includes 10% non value adding checkers. y Contractor defect level is 8%. y Finished product quality audit level is 10%. y 30% late deliveries, 30% under-shipments. y 1% customer returns but about 10% dissatisfied customers.

Quality Failure Cost

% OF TOTAL Human Error Bad Inspection Bad Specification 10 12

CAUSE

16

52%
Design*Fault Poor Planning Others 12 14 Cause 36

66%

* New Design or Unproven New Materials

Interrelationship of Quality Costs

% of Sales
20 18 16 14 12 10 8 6 4 2 0

Distribution of Quality Costs Total

External Failure Internal Failure

Appraisal

Prevention

Maturity of the Quality System

Cost of Quality: The objective Indicator of the Quality Maturity of Organisations

MEASUREMENT CATEGORIES Management Understanding and Attitude Quality Organization Status Cost of Quality as percentage of Sales Quality Improvement Actions Summation of Company Quality Posture StageStage-I UNCERTAINTY StageStage-II AWAKENING StageStage-III ENLIGHTENMENT StageStage-IV WISDOM StageStage-V CERTAINTY
Source: Quality is Free by Philip B. Crosby

Quality Maturity Grid

Management Attitude No comprehension of quality as a management tool. Tend to blame quality department for quality problems. Co.s Quality Posture We dont know why we have problems with quality? Quality Imp. Actions No organized activities. No understanding of such activities. Cost Of Quality% Reported Unknown Actual 20%

StageStage-I UNCERTAINTY Quality Org. Status

Quality is hidden in manufacturing or engineering department. Inspection probably not part of organisation. Emphasis on appraisal and sorting

Source: Quality is Free by Philip B. Crosby

StageStage-II AWAKENING Management Attitude

Quality Maturity Grid

Quality Imp. Actions Trying obvious motivational short-range efforts. Cost Of Quality% Reported 3% Actual 18% Quality Org. Status A stronger quality leader is appointed but main emphasis is still on appraisal and moving the product. Still part of manufacturing or other

Recognizing that quality management may be of value but not willing to provide money or time to make it all happen. Co.s Quality Posture It is absolutely necessary to always have problems with quality?

Source: Quality is Free by Philip B. Crosby

Quality Maturity Grid

Management Attitude While going through quality improvement program learn more about quality management; becoming supportive and helpful. Cost Of Quality%
Reported 8% Actual 12%

StageStage-III ENLIGHTENMENT

Quality Imp. Actions Implementation of the 14-step program with thorough understanding and establishment of each seep.

Quality Org. Status

Quality department reports to top management, all appraisal is incorporated and manager has role in management of company. Co.s Quality Posture Through management commitment and quality improvement we are identifying and resolving our problems.
Source: Quality is Free by Philip B. Crosby

StageStage-IV WISDOM

Quality Maturity Grid

Quality Org. Status Quality manager is an officer of company; effective status reporting and preventive action. Involved with consumer affairs and special assignments. Quality Imp. Actions Continuing the 14-step program and starting Make Certain. Co.s Quality Posture Defect prevention is a routine part of our operation.

Management Attitude Participating. Understand absolutes of quality management. Recognize their personal role in continuing emphasis. Cost Of Quality% Reported 6.5% Actual 8%

Source: Quality is Free by Philip B. Crosby

Quality Maturity Grid

Management Attitude Consider quality management an essential part of company system. Cost Of Quality% Reported 2.5% Actual 2.5% Quality Imp. Actions Quality improvement is a normal and continued activity.

StageStage-V CERTAINTY

Quality Org. Status Quality manager on board of directors. Prevention is main concern. Quality is a thought leader.

Co.s Quality Posture We know why we do not have problems with quality. Source: Quality is Free by Philip B. Crosby

Quality & Profitability

IMPROVED CONFORMANCE BETTER OUTGOING QUALITY LOWER COSTS OF RETURNS

LOWER REWORK AND SECONDS COSTS

INCREASED PRODUCTIVITY LOWER PRODUCTION COSTS

INCREASED PROFITS

Why Quality?
Quality related costs can be as high as 25% of sales. One forth of the people employed do not produce but re-do and re-inspect & re-re-do. Quality costs are greater than gross profit. In world class companies these costs can be brought down to 2.5%.

Quality and Low Cost Can Go Together

Japan has proved it Koreans are also demonstrating it Indians are doing it in other industries Then Why Not Apparel Industry

How can profitability go up by up to 20-25% 20 Assume a current profitability of 20% i.e. Total costs 80% Profit 20% Cost of Quality could be 25% of the 80% If through a quality assurance program you could reduce Cost of Quality to 15% Then the profitability will go up by 40% to 28% level

How can profitability go up by up to 20-25% 20 Even if you pass on 5% as discount to your buyer, the net profitability in the new situation remains 24.21%. This is greater than 20% gain. How does it sound? Just Do It

Its Time for you to

Thank You
& Samvad