Challenging the High Cost of Poor Quality – Allison Young
Allison Young, former President and CEO at Louisiana Community Health Plan at United Healthcare, shares some of her ideas on quality. Allison is known for her problem solving skills. When facing challenges, obstacles, or setbacks, she seeks a creative approach to develop an innovative solution. With a combination of operational expertise and IT background, she relies on her willingness to take risk, good judgement around people and deep understanding of information systems to find a multi-faceted approach.
Here are some of the thoughts and ideas Allison shared with us about challenging the cost of poor quality.
“There are some things that we understand about quality. The quality of a product or service is measured in terms of the satisfaction that the customer derives from using it. This quality which we speak of, depends on the ability to consistently deliver products or services from customer-specific limits??. The process of creating the product/service is important. If a high quality product is delivered using an inefficient process, it’s probably costing the organization exorbitant amounts – which is not ideal.
“We then arrive at the topic of Cost of Poor Quality. Experts have estimated that the Cost of Poor Quality (Poor Quality) typically amounts to 5-30% of gross sales for service companies and adds 10-15% to the cost that we pay for the service. Independent studies reveal that Poor Quality is costing companies millions of dollars each year and its reduction can make the difference between being profitable and operating at a loss. Most managers believe that their company’s Poor Quality impact is significantly lower than the reality – usually less than 5%. Some managers will admit that they just do not know the impact. However, all levels of executives recognize that quality is an absolute necessity to survive and succeed in today’s business environment.
“We then get to the question of – where are the Costs Hidden? Unmanaged waste is the gold in an organizational mine. The quality improvement process aims to reduce chronic waste. Reduction in Poor Quality is the by-product of structured quality improvement projects. When it comes to Poor Quality, most organizations have a tendency to focus on the initial or visible 5-10% of total cost (waste, rework, inspection costs, etc). What is not evident, but crucial is the remaining 15-25% of the hidden cost. Some prime examples of poor quality costs are rework, excessive overtime, customer dissatisfaction, employee turnover, irrelevant procedures, etc.
“In a recently published book: “Success through Quality”, the author estimates that the cost of poor quality (COPQ) for an average company is about 20% of sales, with a range as wide as under 1% for companies who have achieved “six sigma”, about 15%-25% for companies who are at “four sigma” level and about 25% to 40% of revenue for companies who are at “three sigma” levels.
“In order to become a ‘Quality Champion’, we must challenge poor quality! How? Lead by example, identify opportunities for improvement, work with a sense of urgency, and most importantly – always stay connected to your team!”
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