What We Talk About When We Talk About Quality

By Phillip S. Coles

Occasionally one of my students will ask, “If you want to produce a quality product, doesn’t it have to be expensive?” Well, yes, sometimes the saying “You get what you pay for” is true. But sometimes the answer depends on what you mean by “quality.” That term could be used to describe a luxurious product with special features that enhance the consumer’s experience but don’t affect the product’s basic functionality. Or it could simply mean a dependable, reliable product that does what it’s supposed to do.

Two Types of Quality

Consider the automobile industry. You would expect to pay more for a Cadillac than a Chevrolet—even though both are assembled by the same company, General Motors—because the Cadillac is higher in quality, defined as luxury. Even if you are satisfied with the more pedestrian Chevy, you would still expect to pay more for optional features such as a more powerful engine or a better radio. These features increase value but also increase costs. So, you decide which car to buy, or which features to include, based upon the perceived tradeoffs between price and features.

Yet both the Cadillac and the Chevrolet are of good quality in that they fulfill a car’s basic function: to get its driver from point A to point B. Confusing the two types of quality—features and reliability—can lead to difficulties for consumers; while they may be willing to pay for added features, they shouldn’t have to pay extra for a product to function. This is what quality guru Philip Crosby was referring to when he coined the phrase “Quality is free.”

The disconnect in most people’s minds between optional features and essential reliability can obscure the best way to control product costs. As soon as someone says we need to reduce costs, the howling about potentially reduced quality or service—or worse, safety—becomes deafening. Yet to keep customers satisfied, not only do companies need to have “quality” products, but those products have to be affordable. The only way to do that without sacrificing necessary elements is by increasing efficiencies.

Fixing the Process

Removing extra, luxurious features lowers costs—you can produce stripped-down Chevrolets instead of Cadillacs—but reliability must be built into the production process. Companies should focus on making their processes more efficient, thus not only lowering costs but increasing reliability.  

To reduce process variation that lowers quality and increases costs, American economist W. Edwards Deming advocated focusing on the process instead of the outcome. In his red bead experiment, workers were expected to produce white beads only—with no red beads mixed in—by randomly scooping a mixture of red and white beads from a tray. There was no way the workers could control the outcome, even though they tried. Rather, the process itself was flawed; the defects, the red beads, came from poor process design, not worker error. Process variation in most organizations is harder to recognize, but regardless, it is a form of waste that creates poorer quality and higher costs.

To improve processes, companies must reduce waste. Taiichi Ohno, one of the architects of the Toyota Production System, identified seven forms of waste that increase the costs of production: overproduction, waiting, transportation, overprocessing, inventory, unnecessary motion and defects.

Overproduction means producing more than is needed. This can cause an organization to have too much of the wrong products, lengthening manufacturing throughput time and increasing the time it takes for products to reach consumers. If the product is perishable, the increased wait time will also reduce quality; it may have to be sold at a discount or even thrown out, further increasing costs.

Waiting is another source of waste, whether it be workers waiting for materials or materials waiting to be processed. If workers are waiting, they are being less productive. If work is waiting to be processed, the same problems arise as with overproduction. This type of waiting also increases lead times, which reduce responsiveness and force companies to forecast further into the future, reducing forecast accuracy. This increases the risk of stockouts.

Transportation, while necessary, adds neither value nor quality to the product itself, so it should be minimized. Procuring items from long distances rather than local sites increases lead time, forecast length, risk from natural disasters, pipeline inventory and safety stock. All these factors lead to higher costs and possibly reduced quality. Companies must carefully consider and balance the tradeoffs between these disadvantages and the lower cost of materials from distant suppliers.

Overprocessing often shows up as unnecessary steps in the production process that add no value; they create something the customer does not care about and certainly does not want to pay for. Since buyers don’t value these extra steps, they should be eliminated.

Inventory Risks

Often when I say, “We need to eliminate unneeded inventory,” the response I get is that the unneeded inventory is, in fact, needed. How can you need unneeded inventory? This objection usually occurs because the objector has a memory of running out and doesn’t want to be in that position again. But stocking up on much more product than is needed, just in case, has obvious costs. With increasing interest rates, storage has again become a significant source of unnecessary costs. Inventory is a form of insurance, so the risk of running out should be weighed against the cost of holding the inventory: As one insurance company puts it, “Only pay for what you need.” Increased items in production also means longer overall process time, which decreases supply chain responsiveness and therefore increases the chance of stockouts.

The worst consequence of increased inventories, however, is reduced quality. Large lot sizes with many different parts delay defect recognition. If there is only one part—a lot size of one—a defect is easy to spot and resolve: The company can just throw it away and immediately correct the process. But what if the lot contains 100,000 different parts? It is no longer so easy simply to dispose of them, since losing so much product would be devastating to the company’s costs. Companies may therefore be tempted to use the parts despite the defects, damaging overall quality. This is another problem inherent in procuring parts from distant suppliers because of the large amount of pipeline inventory.

Unnecessary motion, a subset of transportation, is the definition of non-value-added work. For example, if workers are constantly walking from one end of a plant to the other to retrieve supplies, their time is not being put to its most productive use. Constant back-and-forth walking adds no value and slows the process, wasting money. Companies should store supplies and equipment at convenient locations.

Finally, producing defects is a self-evident problem for quality and cost. Letting defective products reach the customer is an obvious quality issue, while the cost of rework, or worse yet, warranty work, adds costs and damages organizations’ reputations.

To reduce the costs of making their products, companies shouldn’t start by reducing quality, in either sense of the word. Instead, they should closely examine their processes. Focusing on the process instead of blaming employees goes a long way toward developing social contracts with employees and persuading them to share their experiences and ideas to help improve the process. Improving the process eliminates waste, which both reduces costs and increases quality. Differentiating between waste and what adds value can be difficult, but understanding the difference between quality as features and quality as reliability is an important first step.