Does Quality Cost…or Help You Save?
Written by Dennis Keay
There’s a common misconception that high quality implies high cost. Very often, poor quality means even higher costs because it can lead to costs related to re-work (sometimes at overtime rates); delays; warranty claims; dissatisfied customers, poor reputation and potentially reduced sales.
But is it the supplier or the customer, who defines ‘Quality’ in the first place, and whether it’s high or not?
If you think it’s the supplier, then that’s a common position. Sure, the supplier must have a set of standards which meet the expectations of the target market they’re selling to. But it’s the customer who decides what quality means to them and how much they’re willing to pay for it. It’s their definition that counts. Too often, a supplier may spend time and money adding features and finishes to a product or service to increase their perception of quality…but these usually come at an additional cost, with little or no additional value for the customer.
For example, if a customer wants to buy a shovel to dig a hole, and you manufacture titanium shovels which are the best (and most expensive) in the world, chances are you’ll go out of business through lack of sales. In the end, it’s a hole that the customer really wants…not a shovel!
Charging a premium for quality
Instead of thinking about what quality costs, come from the other direction and think about your target customer’s definition and how you can meet that definition most efficiently, at lowest cost. Simply give them what they want, what they value, and charge them according—and that doesn’t mean the lowest price! Having a discussion with your customer, to clearly understand exactly what they value, can be of great value to your business.
As an example, one of our clients, experts in their industry, provide custom-made solutions in the lifting industry. Their customers’ basic requirements are to lift things up and down, safely and reliably, and they highly value very short delivery time. They also value the peace of mind that the solution will work properly from day 1. Our client is generally able to charge a high premium because, for their target customers, ‘time is money’ and a short lead-time puts more money in their bank. Simply put, the customers’ focus is on making more money, not buying at the lowest price!
What about ‘internal’ customers and suppliers?
The above discussion isn’t restricted to supplying external customers. Years ago, when I was managing a particular manufacturing facility, I had an employee filling a Maintenance Fitter role. His background prior to that was as an automotive machinist. One day I told him I wanted to hang a wide range of spare fan-belts on the wall in an old storage room. I needed a long strip of metal we could bolt to the wall with about 16 rods sticking out of it, and asked him to do the job. Not wishing to micro-manage, I left him to it.
Perhaps a poor assumption on my behalf, but I thought the job would take about 2-3 hours and that he would simply cut up some lengths of rod, weld them to the strip, and bolt it to the wall. Two days later, when I returned to the area, the job was half done, but instead of simply welding the rods, he had decided to drill and tap the holes and thread the rods to suit. A definite overkill! For him (the supplier), he took great pride in using his automotive machining skills and making everything ‘shine’ — a top quality product. For me, as the customer, I just wanted the belts hung and for him to get onto other important maintenance activities. The price of his quality definition came at the cost of my needs in the form of delays to other maintenance work.
This example goes to show that as the customer, I shouldn’t just assume that the supplier knows what I want and value—there’s some onus on me to make that clear, if I want to receive the I value that I’m expecting for the price I’m willing to pay. So, it’s important to think about people in your business (internal suppliers) who service the needs of other people in your business (internal customers) and the importance of clearly communicating value and quality expectations.
Instead of assuming that high quality comes at a high cost, a better way to think about it is that high quality can command a higher price than poor quality, leading to higher margins and profits. Again, we’ve got to keep in mind that it’s the customer who defines what quality means to them, and how much they’re willing to pay for it.
The flip side is that Poor Quality can be hugely expensive, and that’s what we’re going to look at in a subsequent article.