How Cost of Quality Predicts How Fast You’ll Grow

Bottom line: Consistent product quality is the single greatest predictor of any apparel retailers’ or manufacturer’s success and is the catalyst that ensures all advertising, branding and marketing strategies succeed. 

The fuel that creates and energizes customer trust is quality. For apparel retailers and manufacturers, it’s the most formidable competitive strength to have. Competitors may imitate each other’s advertising, branding, and marketing, but there is no duplicating exceptional quality. It has to flourish from the DNA of every retailer and manufacturer individually to scale and grow.

Cost of Quality Says Who You Are In Real-Time

Social media and the apparel industry were made for each other. No other industry gets the candid, honest, real-time stream of customer feedback that the apparel industry gets across Instagram, Facebook, Twitter and so many other social media platforms daily. Customers take to social media platforms to praise and criticize apparel producers based on their quality expectations being met or not. In this era of accountability and transparency on social media, excelling at product quality is the best growth strategy of all.

Knowing the Cost of Quality (CoQ) is the first step to earning and keeping an excellent reputation, nurturing customer trust, and growing over time. It’s common to see Cost of Quality being 15% to 20% of sales and between three to five times the size of net profits a given year according to the American Society for Quality (ASQ). The following are insights into how Cost of Quality is calculated:

• Total Cost of Quality represents all costs associated with stabilizing and continually improving product quality from suppliers to customers.  It’s the single best metric for tracking how well manufacturing is delivering on the commitment every company makes to deliver exceptional quality. When a quality system is based on Cost of Quality, manufacturers often saw a decrease in customer complaints, scrap, product returns while increasing customer loyalty, trust, and sales. Cost of Quality is comprised of four major cost components shown in the graphic below:

• Preventative investments made in improving product quality are often the least expensive yet yield the greatest returns.  One apparel manufacturer who requests anonymity says they spend 11% of their total quality budget on preventative costs yet it’s been responsible for a 47% reduction in external failure costs. They’re attaining well over a 100% Return on Investment (ROI) by investing in quality education, improvement and supplier inspections before materials ever reach their factory. Supplier inspections include preproduction sample and process design, periodic supplier inspections and reviews, and continued investment in their Supplier Quality Management (SQM) system that scales across suppliers on three continents today. 

• Making quality a core part of any company’s DNA needs to include an intensity always to improve and investing in appraisal strategies are how many apparel manufacturers are doing this. What sets apart the manufacturers who do have quality as their core differentiator, their catalyst for strength and market dominance? Inspections became part of their DNA by getting into a regular cadence of always looking for ways to improve. They are passionate about learning where their strong and weak points are using inspections, and that is what makes quality a part of any manufacturer’s DNA. Each of these manufacturers takes an investment-like view of appraisal costs. They concentrate on product, process and quality inspections, concentrate on keeping equipment and tools in calibration and look for new ways to improve incoming material and final product inspections.

• Reducing Internal Failure Costs (IFC) has a direct effect on improving the product quality of delivered garments, alleviating recovery costs that can be as much as 5X higher once a product is purchased. It costs on average 5X more to resolve product quality problems once a customer has purchased a garment. The cots shaded red in the graphic above are exponential, they multiply the total Cost of Quality while also draining valuable time that could be used to produce more. Internal Failure Costs (IFC) include reworking returned garments to make them salable, redesigning garments and products that weren’t thought through from a production scalability standpoint, retesting products and the machinery used to create them and accumulated production downtime attributable to bad product quality. IFCs have a reverberating effect through supplier networks as defective materials, fabrics or components need to be track and traced to their origins. Having the ability to do track and trace across a supply chain is a requirement of staying in compliance with many nations’ product safety and consumer protection laws. Apparel manufacturers will be able to alleviate these costs and grow faster if they take a concerted approach to inspections, one that provides real-time streams of data they can use to improve continually.

• External Failure Costs (EFC) are the most costly; they exponentially grow based on how pervasive and severe a given product quality issue is. These are the costs that make the front page of Bloomberg, Investor’s Business Daily, the Wall Street Journal and if serious enough, land CEOs on CNBC to save a company’s reputation. By definition these are costs incurred after a product is sold and include damage to a company’s brand, a lost customer, sales, product recalls, the need to rebuild tools and equipment and to expedite returned products. IFC can quickly escalate to 5X or more of preventative costs, making the value of the cost of Good Quality investments among the best an apparel manufacturer can make.  

Conclusion

As the direction of Cost of Quality goes, so does the growth of any apparel retailer or manufacturer. In an era of exceptional accountability and transparency due to social media, manufacturers have to step up and deliver the highest quality products they can. It’s the surest path to growth and the best way to keep the Cost of Poor Quality from slowing down growth. There’s no stronger catalyst for growth that customers are taking to Instagram, Facebook, Twitter and other social media platforms to praise the product quality and value of an apparel item or accessory they just bought. That is the purest form of marketing, earned from managing Cost of Quality closely and working to make inspections a core part of their DNA.

Written by Louis Columbus, Marketing and Product Management Leader, Forbes Columnist, Software Expertise in Analytics, Cloud, CPQ & ERP Solutions

Inspectorio SIGHT is an end-to-end quality control platform that digitizes and optimizes pre-production, inline, final, warehouse, and remote inspections across the global production chain. SIGHT leverages advanced data analytics and machine learning to assess risk and recommend predictive actions to drive continuous improvements. With a fully configurable platform, you can standardize and automate quality operations for increased visibility and collaboration across your supply chain. Shift your quality operations from reactive to preventive.