Profitability

Through
Quality
by
Rajesh Bheda

Presents

‘Doorsamvad
’
Garment Manufacturing Technology Department
National Institute of Fashion Technology
Quality

• Why this theme?

• What is Quality?
• How to measure Quality ?
• Can Quality be achieved at low cost?
• What is Cost of Quality?
• Quality Maturity Grid.
• Inter-relationship of Quality Costs.
 Why Profitability?

• That is the main reason

we in business
• Because we are not in
the business of Charity
• Profitability is an illusive
word for today’s apparel
industry
Why Profitability?

• Because we feel that it

could increase only by
increased selling price
or
• by reducing costs by
Cutting Corners
Quality : Definition

Conformance to Requirements
Crosby

Fitness for Use

Joseph Juran
Quality : Definition

Offering product or services that a

customer has never dreamt of, forget
alone specifying the need for it. But
having received the product the
customer feels that he always needed it
 Quality:
Why Does Buyer’s Dil Mange More?

• Consumers’ Quality Expectations have gone up

• Consumer is too busy to come back to complain
• Not Interested in Taking Special Care of the
Product
• Reduced Consumer Spending on Apparel
• Stringent consumer protection laws
• Stores Can’t Afford a Dissatisfied Customer
• Working With Non-quality Vendors Costly
This is what US Congress says about
importance of Quality

• Even the U.S. Congress has recognized national

importance of quality in a 1988 report [8],
“Quality as a Means to Improve Our Nation’s
Competitiveness,” which opens with a statement,
• It is important we recognize a significant portion
of our trade deficit is due to the ability of foreign
competitors to deliver higher quality products that
are either novel, less costly to produce, promise
better service or some combination of the above.
This is what US Congress says about
importance of Quality
• What finally sank into US industry is the
tremendous cost of ignoring quality. In most
traditional factories that cost is probably the
biggest item on their list of expenses, and it is
always bigger than gross profit. But because
the cost of quality is rarely broken out in gory
detail, management has no idea of its true
dimensions. When quality audits are performed,
they invariably uncover huge “hidden plants”
staffed and equipped just to find and fix
defective products.
This is what US Congress says about
importance of Quality
• The typical factory invests a staggering 20% to
25% of its operating budget in findings and
fixing mistakes. As many as one-quarter of all
factory hands don’t produce anything - they
just rework things that were not done right the
first time. Add in the expense of repairing or
replacing the flawed products that slip out of
the factory and into the market, and the total
burden of “unquality” can mount to a punishing
30% or more of production costs.
 The ASQC Quality Cost Committee (5)
recommends breaking down quality costs into the
following four areas

1. Prevention Cost 2. Appraisal Costs

The cost associated with The costs associated
personnel engaged in with the measuring,
designing, implementing evaluating or auditing
and maintaining the of products,
quality system. components and
Maintaining the quality purchased materials to
system includes assure conformance
auditing the system. with quality standards
and performance
requirements.
Cont...
 The ASQC Quality Cost Committee (5)
recommends breaking down quality costs into the
following four areas

3. Internal Failure Cost 4. External Failure Costs

The costs associated The costs generated
with defective when defective
products, components products are shipped to
and materials that fail customers.
to meet quality
requirements and
result in
manufacturing losses.

Conclude
Failure Costs
External

• Repair
• Warranty Claims
• Complaints
• Returns
• Liability
Failure Costs
Internal

• SCRAP
• Rework or Rectification
• Down Grading
• Failure Analysis
Appraisal Costs

• Inspection and Test

• Quality Audits
• Inspection Equipment
Prevention Costs

• Setting Standards
• Quality Planning
• Quality Assurance
• Inspection Equipment
• Training
• Miscellaneous
Non Quality Levels in Apparel Industry
(As per a US study by Jonathan Cope Assoc.)

 Fabric vendor defective level of 2 to 5 %.

 Work-in-process delays due to 20% in line re-
work.
 Average plant labour includes 10% non value
adding checkers.
 Contractor defect level is 8%.
 Finished product quality audit level is 10%.
 30% late deliveries, 30% under-shipments.
 1% customer returns but about 10%
dissatisfied customers.
Quality Failure Cost

% OF TOTAL
Human Error 12

Bad Inspection 10

Bad Specification 16
CAUSE

52% 66%

Design*Fault 36

Cause
Poor Planning 14

Others 12

* New Design or Unproven New Materials

 Interrelationship of Quality Costs

% of Sales
Distribution of
20 Quality Costs
18 Total
16
Quality Costs

14
External Failure
12
10 Internal Failure
8
6
4 Appraisal Prevention
2
0
Maturity of the Quality System
Cost of Quality: The objective Indicator of
the Quality Maturity of Organisations
MEASUREMENT
CATEGORIES Stage-I
• Management UNCERTAINTY
Understanding and Stage-II
Attitude
AWAKENING
• Quality Organization
Status Stage-III
• Cost of Quality as ENLIGHTENMENT
percentage of Sales
• Quality Improvement Stage-IV
Actions WISDOM
• Summation of Stage-V
Company Quality CERTAINTY
Posture
Source: Quality is Free by Philip B. Crosby
 Quality Maturity Grid Stage-I
UNCERTAINTY

Management Quality Imp. Quality Org.

Attitude Actions Status
•No comprehension No organized •Quality is hidden
of quality as a activities. No in manufacturing
management tool. understanding of or engineering
•Tend to blame such activities. department.
quality department •Inspection
for “quality probably not part
Cost Of Quality%
problems. of organisation.
Reported •Emphasis on
Co.’s Quality
Posture Unknown appraisal and
Actual sorting
“We don’t know why
20%
we have problems
with quality?” Source: Quality is Free by Philip B. Crosby
Stage-II Quality Maturity Grid
AWAKENING

Management Quality Imp. Quality Org.

Attitude Actions Status

•Recognizing that Trying obvious •A stronger

quality management “motivational” quality leader is
may be of value but appointed but
short-range
not willing to provide main emphasis
efforts. is still on
money or time to
make it all happen. Cost Of Quality% appraisal and
moving the
Co.’s Quality
Posture Reported product. Still
3% part of
“It is absolutely
necessary to always Actual manufacturing
have problems with 18% or other
quality?” Source: Quality is Free by Philip B. Crosby
 Quality Maturity Grid Stage-III
ENLIGHTENMENT

Management Quality Imp. Quality Org.

Attitude Actions Status
While going through Implementation of Quality department
quality improvement the 14-step reports to top
program learn more program with management, all
about quality thorough appraisal is
management; incorporated and
understanding manager has role
becoming and establishment in management of
supportive and of each seep. company.
helpful.
Co.’s Quality Posture
Cost Of Quality% “Through management commitment
Reported and quality improvement we are
8% identifying and resolving our
Actual problems.”
12% Source: Quality is Free by Philip B. Crosby
Stage-IV Quality Maturity Grid
WISDOM

Management Quality Org. Quality Imp.

Attitude Status Actions
•Participating. Quality manager Continuing the
•Understand 14-step program
is an officer of
absolutes of quality and starting Make
management. company;
•Recognize their effective status Certain.
personal role in reporting and
Co.’s Quality
continuing preventive action. Posture
emphasis. Involved with
consumer affairs “Defect prevention
Cost Of Quality%
and special is a routine part of
Reported
assignments. our operation.”
6.5%
Actual
8% Source: Quality is Free by Philip B. Crosby
 Quality Maturity Grid Stage-V
CERTAINTY

Management Quality Imp. Quality Org.

Attitude Actions Status
Quality
Consider quality Quality manager
improvement is a
management an on board of
normal and
essential part of
continued directors.
company system.
activity. Prevention is
Co.’s Quality main concern.
Cost Of Quality%
Posture Quality is a
Reported “We know why we thought leader.
2.5% do not have
Actual problems with
2.5% quality.” Source: Quality is Free by Philip B. Crosby
 Quality & Profitability
IMPROVED
CONFORMANCE

BETTER
LOWER INCREASED
OUTGOING
REWORK AND PRODUCTIVITY
QUALITY
SECONDS
COSTS LOWER
LOWER COSTS
OF RETURNS PRODUCTION
COSTS

INCREASED
PROFITS
Why Quality?

• Quality related costs can be as high as 25%

of sales.
• One forth of the people employed do not
produce but re-do and re-inspect & re-re-do.
• Quality costs are greater than gross profit.
• In world class companies these costs can be
brought down to 2.5%.
Quality and Low Cost
Can Go Together

• Japan has proved it

• Koreans are also demonstrating it
• Indians are doing it in other industries
• Then Why Not Apparel Industry
How can profitability go up
by up to 20-25%

• Assume a current profitability of 20%

• i.e. Total costs 80% Profit 20%
• Cost of Quality could be 25% of the 80%
• If through a quality assurance program you
could reduce Cost of Quality to 15%
• Then the profitability will go up by 40% to
28% level
How can profitability go
up by up to 20-25%

• Even if you pass on 5% as

discount to your buyer, the net
profitability in the new situation
remains 24.21%. This is greater
than 20% gain.
• How does it sound?
• Just Do It
Its Time for you
to

Thank You

&
Samvad