Poor Product Quality – What It Means to Your Bottom LineJuly 24, 2017
In today’s competitive market, brands and retailers are focused on their bottom line. To most, that means acquiring new customers, increasing distribution networks, and preparing for next season. However, there is a way to increase profit quickly – by reducing the cost of poor product quality.
The effect of poor quality can lead to exponential costs, both internally and externally, and can hinder your long-term growth if not addressed. In addition to the direct cost of the defective product, you must consider the internal processes that directly or indirectly led to those errors, and how poor quality ultimately affects your consumer relationships and your brand’s name. For example, if you don’t have the proper systems and procedures in place for detecting a defect early in the production cycle, a product could get rejected once it reaches your customer. This results in a chargeback, or worse, it could be put on the shelf only to end in a return or bad review by a consumer.
Calculating Your Cost of Poor Quality
Poor quality is quantifiable and can be calculated by identifying and measuring the following:
- Rework costs – If a defective product ships, you may be asked to rework the product to correct the defect. If you don’t have a local facility to correct the defect, shipping it back to the factory for rework adds even more expense.
- Freight costs – The price of transporting cargo from one point to another once is expensive. However, shipping poor quality goods back to an overseas factory or shipping a late order by air will result in even more costly and unnecessary expenditures.
- Chargebacks – A chargeback from a retailer can result from a product not meeting consumer demands, or from non-compliance to their rules in terms of label placement, etc. – either way, it hurts your bottom line.
- Product returns – If a shipment is deemed defective and returned, you may be able to negotiate a replacement order vs. canceling the order. Either way, there is some cost and margin erosion that will occur.
- Lost Sales – If you consistently ship poor quality product, it could result in loss of customers, which is most devastating of all.
Calculating the above costs will serve as the benchmark for measuring the success of the quality management program you put in place.
How to Reduce Quality Issues
Overcoming quality issues starts with you, the brand. Too often it is assumed that these costs can just be passed on to the factory, but that will hurt you in the long run - it can damage your relationship with that vendor and/or result in higher production costs in the future as the factory tries to recoup its losses. To eliminate quality errors, you need to work with your factories to identify and resolve quality issues early and avoid any of the unnecessary costs mentioned above.
Implementing a technology solution like NGC’s Andromeda Quality Control will provide the tools to save money, improve quality and maintain a positive brand reputation. Digitizing the quality control process provides a central portal for communication, allows you to standardize your processes, and enables you to act proactively vs. reactively by accessing audit results and reports sooner. And as issues arise, you can automate the process for initiating Corrective Action Plans (CAPs) at the source, rather than distributing defective products that result in rework costs, chargebacks and/or lost sales. Take control of your quality processes today, and see improvement to your bottom line tomorrow.
For more information on NGC’s quality solution, or to request a demo, contact us here.