How the Cost of Poor Quality Can Affect a Business

By: Scott Bahr

Poor quality affects business in many ways. The biggest, however, is the cost that is accrued by not having proper quality control measures in place. Through tangible and intangible costs, as well as internal and external costs, issues with quality can hurt a business’s finances. It’s in everybody’s best interest to ensure products and services are of the highest quality.

Tangible cost 

The first thing that is affected by poor quality is the tangible cost. This covers things like rejection, rework, and high repair costs. If a customer isn’t satisfied with the quality of the product, they will likely reject the product or ask for it to be redone. This leads to the cost of rework, which is having to produce the product multiple times if it’s initially done poorly. This increases the cost of the materials used per product. Additionally, if the product is of poor quality, the cost of repairs could go up exponentially because of its inability to perform properly. These are tangible costs because you can easily quantify their effects on the product.

Intangible cost 

Intangible costs, on the other hand, are less visually obvious and more conceptual. They include the loss of customer satisfaction, drop in employee morale, and a bad reputation. If a customer isn’t satisfied with the product and chooses to move to a different company with their services, then that is money lost. However, you can also gain and lose sales before even talking to the client, and this is reliant on a company’s reputation. If you perform services poorly for others, they could spread this information to others in the industry. Then, those people might not patronize a business with a poor reputation. These hidden costs of poor-quality products are all things that can still have a detrimental effect on a business.

Internal cost 

Another way to measure the cost of poor quality is internal. An internal failure cost is incurred when a defective product is produced. This can include excessive scrap, under-engineering, and downtime due to improper equipment maintenance. The waste of materials can factor into the cost of producing an item if something needs to be redone. The employees responsible for engineering and equipment maintenance must make sure to follow protocol and properly do their job. If neglected, they could be wasting company time when they are being paid to work—or generally wasting time for others who may not be able to perform their roles if these tasks aren’t correctly completed.

 External cost

On the other end of internal cost, is the external cost. This is when a defective product was produced, but the cost of the product includes things like recalls, warranty claims, and field service. It can also include shipping damage and customer complaints. These overlap in some ways with intangible cost but specifically refer to the cost of poor production once the product leaves the facility. As many know, poor production can manifest as things like product returns or even, in extreme situations, a recall. If you provide a warranty, you could assume poor production means more claims. All of these have a higher cost than other quality costs simply because the only option is to scrap the product once it’s returned.

Now that quality costs are clear, hopefully, it’s easier to identify why poor-quality products can hurt a business, and what you can do if you find yourself in charge of identifying these issues. The better the quality, the happier the customer, and the more prosperous a business can be.