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Quality Issues With Your Manufacturing Supplier? Here's What It's Really Costing You
The total cost of poor quality is often compared to an iceberg, with only a small portion visible above the water and the majority hidden beneath the surface. This analogy effectively highlights how under-managed quality issues in manufacturing can lead to far greater financial consequences than initially expected. While some costs are directly tied to the defect itself, many OTHERS are indirect or secondary, often overlooked or unrecognized.
As you review your supply chain and evaluate your original equipment manufacturer (OEM) suppliers, it's essential to understand what true quality management entails and how it impacts your bottom line.
**What Constitutes Quality Management Issues in Manufacturing?**
Quality problems can stem from various sources, but some of the most common include:
- **Poor Parts Quality:** When components don't meet specifications, defects such as scratches, incorrect materials, missing parts, or improper assembly can occur.
- **Poor Supplier Performance:** Inconsistent communication, late deliveries, non-compliance with regulations, or incorrect shipping documentation can all point to weak supplier quality control.
**Calculating the True Costs of Poor Quality**
Determining the real cost of poor quality isn’t straightforward. Many expenses are indirect, such as lost customer trust or increased overhead. Some costs may not appear immediately, like damage to brand reputation. Others are buried within general operational costs, making them hard to track.
Industry experts estimate that poor quality can cost companies 15% to 20% of their sales revenue, with some facing losses as high as 40%. To better quantify these costs, many organizations use the Cost of Poor Quality (COPQ) formula:
**COPQ = Internal Failure Costs + External Failure Costs**
Internal failure costs include scrap, rework, and inefficient processes, while external failure costs involve handling complaints, returns, and shipping damages.
**Poor Supplier Quality Costs More Than You Think**
Suppliers without strong quality systems tend to have higher COPQ due to more rework, waste, and defects. These costs are often passed on to customers through higher part prices. Additionally, poor-quality parts can cause production delays, inventory issues, and disruptions in customer service.
In effect, the true cost of purchasing from a low-quality supplier includes both their internal costs and the additional burdens placed on your business.
**Understand COPQ When Evaluating Suppliers**
Evaluating a supplier’s quality program is crucial. A robust quality management system (QMS) signals a commitment to excellence and reduces long-term risks. Working with low-COPQ suppliers helps align procurement with company goals, ensuring smoother operations and better financial outcomes.
Maintaining consistent production and minimizing quality-related costs should be a priority for every organization. Connect with VPIC Group to learn how our QMS ensures top-tier quality and supports your business success. Let us help you reduce costs and improve performance.