COST OF POOR QUALITY

A warning to ground handlers. poor quality is costing you! by Tom Considine.

This article refers to the airport ground handling industry. That is where our expertise, such as it is, lies. What does that mean to you as a member of the public? Well, if you fly, you are a customer of the ground handling industry:

If you’ve landed at an airport without enough airbridges and the bus they used to take you to the terminal broke down and you missed your connecting flight; that’s ground handling,

If you waited a very long time at the Baggage Hall for your luggage; that’s ground handling,

When your case arrived, it was damaged, that was ground handling.

So, the lessons that apply to ground handling also apply to other industries, if a bus breaks down, that is as much of a problem as your Robot welder breaking or your banks’ ATM machine breaking down.

The highest quality producer of a good or service is often the lowest cost producer. This is because the Cost of Poor Quality (COPQ) or, technically, the Cost on Non-Conformance with the quality standards, is lower in their organisations.  Production of high-quality services requires investment in equipment, people, and processes. The production of poor-quality services creates significant, often intangible, costs.

There are four categories of COPQ costs:

• Prevention costs are costs incurred to keep failure and appraisal costs to a minimum,
  
• Appraisal costs are costs incurred to determine the degree of conformance to quality requirements,
  
• Internal failure costs are costs associated with failures found before the customer receives the service,
  
• External failure costs are costs associated with failures found after the customer receives the service.
  

It can be argued that Prevention and Appraisal costs are strictly Cost of Quality while the Failure costs are the Cost of Non-Conformance to standards. As you can understand, the external costs of failure are difficult to determine; you will never know, for example, if a potential customer lost interest because of your poor service. While for Deming measuring CoQ was a waste of time, Joseph Juran and Philip Crosby saw a need for it. They believed that as defect prevention was increased, the cost of rework would decrease by much more than the increase in prevention costs. The net result was lower total cost, and thus “Quality is free” (Crosby, 1979). Cost of Quality: [A Survey of Models and Best Practices Andrea Schiffauerova, Vince Thomson McGill University Abstract.]

Cost of poor quality are those costs which would disappear if our products and processes were perfect [Juran, J.M., Juran on Quality by design, Page 119, 1992, Free Press, ISBN 0-02-916683-7]

Prevention Costs

These are costs that are incurred to prevent failure. An example would be regular equipment maintenance and training.

Appraisal Costs

These are incurred to be sure that everything is working as planned. You do this all the time; before you leave on a journey in your car you check your tyres and fuel.

Internal Failure Costs

The costs incurred when failures in the service are detected before delivery to the customers such as:

1. Equipment repair,
2. Rework

External Failure Costs

The costs incurred when failures are found the by customers in actual use. You don’t need to be told that this is the worst kind of the cost of non-conformance.

These include:

1. Rework.
2. Public Liability.
3. Loss of business reputation.
4. Customer loss.
5. Loss of market share.
6. Penalties.

COPQ may be expressed in numerical form as a percentage of turnover, and mathematically using the four factors:

COPQ = Prevention + Appraisal + Internal and External failures.

Many organisations consider only the third and fourth factors (failures), which are the sum of rework, penalties, and so forth. They often think that customer satisfaction levels comparable to, competitors are good enough. “We’re no worse than anyone else” is their brand promise. (Morrison 2019.) But what if your organization looked at the equation as a complete system? Failure is still considered, but preventing errors from happening, and catching them in production, are equally important. You will have a prevention-based system that will result in in an improvement in customer satisfaction.

Prevention

The best way to lower the cost of poor quality is to prevent poor quality services from being produced and delivered in the first place. This is where the biggest gains are possible. Investment in prevention results in higher customer satisfaction, which is often difficult to measure but at the same time the most important factor to company success. The ground handling industry can measure customer satisfaction by a lack of complaints. Airlines are exacting customers, they do not like having their passengers waiting for baggage so they will readily complain about poor service. This makes it easier for ground handlers as they are always aware of any shortcomings in their service. Food manufacturers, for example, unless they actually poison people, get no such feedback, people just stop using the product.

Prevention actions include:

1. Failure Mode and Effects Analysis,
   
2. Training including refresher training,
   
3. Maintaining equipment according to the manufacturer’s specifications,
   
4. Safe working conditions; wearing personal protection equipment, for example,
   
5. Good working hours planning; rest periods; much of the work is manual as very tiring,
   
6. Sensible shift planning. Poor shift planning can lead to chronic fatigue which is bad for the workers but also bad for the handler as tired workers make mistakes,
   
7. Pilot projects for new types or new methods of handling,
   
8. Process Capability / Process Performance analysis.
   

Appraisal

This part of the equation represents the cost of measuring quality throughout the process. Aircraft pilots do this as a matter of course. Some examples are:

1. Drivers checking the GSE before they take it from base,
   
2. Internal Audit checking that the arrival/departure teams are at the stand in terms of the Service Level Agreement (SLA) between the ground handler and the airline,
   
3. Changes in aircraft type or parking bay are communicated to the assigned team members? I flew into JNB once and the aircraft type and stand had been changed. The team supervisor saw his plane taxying past so he chased it in a passenger steps unit and placed it at the aircraft. Needless to say, the steps were wrong for the aircraft and the pax had to step down onto the steps which caused some caustic remarks by the pilot.
   

The better you do prevention, the less you will spend on appraisal.

Failures generally

Failures can result in much more than the costs of rework, reputation, penalties, and future business loss are some of the more obvious consequences. Legal claims caused by defective services can be a major expense.

If you do Prevention and Appraisal well, you will have fewer failures.

Internal Failure

This factor in the equation represents issues after the service has been performed but before the customer finds out, such as, rework (putting baggage on the correct aircraft,) equipment replacement, and so forth.

External Failure costs include:
Complaint adjustments, Penalties for non-conformance with ground handling agreement terms.

Be aware that some external failures may be perception issues, for example, that there were insufficient buses when there, in fact, there were.

About the author
Tom has designed and implemented Quality systems (including the IT part) in the ground handling, engineering and chemical industries. He has wriiten and spoken at scientific and technical conferences on the subject.  Contact Tom through our CONTACT page.