Is quality really free?

In the 1980s, the US-American quality guru, Philip B. Crosby, said, quality is free. [1,2] Crosby meant that the price not doing quality assurance is very high and always justifies the investment in quality.

One central goal of any quality management system is to reduce quality costs to the lowest practical level.

The figure shows that the cost of defects decreases as the quality of conformity increases towards perfection, during assessment and prevention increase. Theoretically, an “optimal” target quality was the sum of prevention, assessment, and error costs at a minimum. Efforts to increase quality above the optimum would increase total quality costs and would be inefficient. [3]

Source: Juran’s Quality Control Handbook [3]

In that sense, quality is a cost-benefit trade-off. On the one hand, there is the cost of good quality, which breaks down into appraisal and prevention costs.  Appraisal costs are associated with measuring and monitoring activities related to quality. On the other hand, prevention costs are incurred to prevent or avoid quality problems. These costs are associated with the design, implementation, and maintenance of the quality management system.[4]

On the other hand, there are the costs of poor quality, which are divided into internal and external failure costs.  Internal defect costs are incurred to correct defects before the goods reach the customer. These include waste, scrap, rework or rectification, and the cost of the internal product or service failure reasons. External error costs arise from customer feedback and complaints (repairs, reclamations, returns) and the associated administrative and communication costs.[4]

The metaphor of an iceberg is used to differentiate the costs of missing quality.[5] Thus, a minor part of quality costs such as complaints, rejection, rework, scrap or inspection and testing are easily visible. In contrast, the more significant part of quality costs is less visible. These include late delivery costs, inventory costs, premium shipping costs or loss of customer loyalty. The problem with these hidden costs is that they are difficult to quantify.

Figure: Costs of Poor Quality [5]

In principle, Crosby assumes that cost savings always justify investment in quality. Thus, if Crosby’s thesis were generally accurate, all companies would have to invest in quality management systems.

However, it is mainly large, internationally active corporations that certify and update their quality management systems regularly. In contrast, many SMEs have no formalised quality management in place. Moreover, in geographical terms, systems like ISO 9001 are less present in the Global South than in the North.

To better understand why many companies in the Global South do not use certified quality management systems, my Ecuadorian colleague, Mauro Rivadeneira (Corporación Q), and I conducted a non-representative survey with the support of ISO Tools. [6]

Between April and June 2021, 152 companies from twelve Latin American and Spain countries completed our questionnaire.

CountryTotal%
Spain10,66%
Paraguay10,66%
Costa Rica21,32%
Bolivia31,97%
Panama42,63%
Venezuela53,29%
Chile74,61%
Argentina138,55%
Other Central American countries138,55%
Peru149,21%
Ecuador1811,84%
Colombia2516,45%
Mexico4630,26%
152100,00%
Source: Survey of Mesopartner and Corporación Q

More than half of the companies have been active for more than ten years. The remaining companies existed for 5 to 10 years (6.6%), 3 to 5 years (11.9%), 1 to 3 years 24.5%) and less than one year (4%). In terms of sectoral affiliation, the service sector (34.5%), manufacturing industry (24.7%) and the public sector (12.7%) dominated.

Operation timeTotal%
1. less than one year63,97%
2. between 1 and 3 years3724,50%
3. between 3 and 5 years1811,92%
4. between 5 and 10106,62%
5. more than ten years8052,98%
151100,00%
Source: Survey of Mesopartner and Corporación Q

Source: Survey of Mesopartner and Corporación Q

Only about 40% of the companies surveyed stated that they have or had a certified or accredited quality management system. Among the systems, ISO 9001 dominates, followed closely by ISO 14001 (environmental management), ISO 45001 (occupational safety) and accreditations of the ISO 17000 series for conformity assessment bodies.

The management systems of 30% of the companies have been in place for ten years or more. Another 30% have been certified for five to ten years and the rest of the certified companies for less than five years.

It raises concerns that 27% of the once certified companies have not renewed their management system certification. The reasons for this were manifold: the companies mentioned that customers did not demand certificates or that the cost of certification was too high. Other companies switched from the general ISO 9001 to more specific certification schemes.

We assumed that in companies without certification, the investment in quality exceeded the cost of tangible quality improvements. In the case of companies with certification, the result was the opposite.

In the case of the companies with certification, the costs of obtaining the certificate exceeded the adaptation of the production processes and personnel training. The companies without management system certification also invested in quality. Surprisingly, the non-certified companies also report high expenses for conformity assessment. These costs may be explained by the fact that these companies were previously certified or by a simple mistake in filling out the questionnaire. The transformation of production processes, staff training and consulting costs are also high. In both cases, costs for acquiring standards, payment for overtime or other representative costs were less relevant.

Source: Survey of Mesopartner and Corporación Q

The costs of non-quality are similar in both groups. Overall, the costs of correcting defects, losses due to poor quality and the costs of complaints and warranty services dominate. The costs of inspection and other representative costs, on the other hand, were less critical.

Source: Survey of Mesopartner and Corporación Q

Regarding the monetary costs of quality and non-quality, the survey did not generate any apparent results. In general, companies find it difficult to qualify the expenses of non-quality precisely. Therefore, we assume that the hidden costs of quality are generally underestimated. Overall, there is a need for further training among SMEs in Latin America and indeed in other world regions to assess the costs of quality.

On the other hand, it is noticeable that the offers of the certification bodies and quality consultants still seem expensive, especially for SMEs. In this respect, the certification bodies should make more effort to explain the benefits of their services and adapt the prices to the financial capacities of SMEs. At the same time, larger companies and the state are called upon to create incentives for investment in quality management systems by introducing quality requirements into procurement processes.

References

[1] Crosby, P. B. (1980). Quality is free: The art of making quality certain, Signet Book.

[2] Crosby, P. B. (1996). Quality is still free: making quality certain in uncertain times, McGraw-Hill Companies.

[3] Juran, J.M. and Gryna, F.M. (1988) Juran’s Quality Control Handbook. 4th Edition, McGraw-Hill, New York.

[4]  ASQ, COST OF QUALITY (COQ); in: Quality Glossary Definition: Cost of quality, retrieved 16/07/21

[5] DeFeo, J. A. (2001). The tip of the iceberg, in: Quality progress 34(5): 29-37, 

[6]  ISO Tools (2020)., Costos de la No calidad Presentación de los resultados del estudio, Webinar

Quality Infrastructure in Small Island Developing States

The development of a national quality infrastructure needs always to be oriented towards the local specifics. This statement is especially true for small countries and island states. Mesopartner has had the privilege of accompanying national quality policies (NQPs) in several of these countries. Our first experience was the NQP of Trinidad and Tobago, followed by NQP’s for Antigua and Barbuda, Grenada and Suriname. We are currently advising the Government of Saint Kitts and Nevis to develop the NQP for one of the world’s smallest countries. In addition, we guide the process of identifying and analysing the need for quality infrastructure services in the Pacific Islands region.

In the following, we clarify the concept of SIDS and describe recent developments in building quality infrastructure in different world regions.

Small Island Developing States (SIDS)

Small Island Developing States (SIDS) are a diverse group of states that share some common characteristics and vulnerabilities, such as insularity, geographical remoteness and small size of the economy, population, and land area.

SIDS were first recognised as a distinct group of developing countries at the United Nations Conference on Environment and Development in June 1992. In 1994, the United Nations established a Programme of Action in Barbados to assist SIDS in achieving sustainable development. The United Nations Office of the High Representative for Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS) represent this group. [1]

The SIDS group includes 38 UN member states from the Atlantic, Indian Ocean and South China Sea (AIS) (9), the Caribbean (16) and the Pacific (13).[1] In addition, 20 non-UN members belong to the territory of former colonial countries (Great Britain, France, and the Netherlands) and the USA.

The diversity of SIDS is reflected in the size of the population, the level of socio-economic development and the level of advancement of the National Quality Infrastructure:

  • With 11.3 million inhabitants, Haiti is the most populous and, at the same time, the most impoverished country.
  • Timor-Leste has only rudimentary quality infrastructure and ranks 184th and last in the GQII2020.

In the group, Singapore is the wealthiest country with a GDP per capita of 65,233 USD (2019) and has the most developed quality infrastructure (rank 32 in GQII2020). Due to its level of development, Singapore, which sees itself as a SIDS because of its geographical and historical characteristics, is a financial supporter of the SIDS community.

Special features of the small island states

Despite their differences, small island developing states share similar challenges to sustainable development, such as small but growing populations, limited resources, remoteness, vulnerability to natural disasters, vulnerability to external shocks, overdependence on international trade and a fragile environment. Their growth and development are held back by high communication, energy and transport costs, irregular international transport, disproportionately expensive public administration, and infrastructure due to their small size and little to no opportunity to create economies of scale.

In most SDIS, the private sector and civil society are developmentally organised so that the government often necessarily assumes the role of a “master strategist” [2]. The crowding out of private entrepreneurship and civil society engagement is, therefore, sometimes prevalent. In addition, the colonial past often acts as a cultural inhibiting factor for dynamic socio-economic development.[3]

Implications for Quality Infrastructure

In small island states, the development of the national quality infrastructure always needs to be based on the current and potential demand for quality-related services. However, due to the smallness of the national market and primarily export-oriented commodity industries, there is usually a lack of critical mass to develop all components and benefits of the quality infrastructure. Therefore, it is often cheaper to import quality-related services than to provide them oneself.

However, it is not always easy to import needed services cost-effectively and timely due to insularity and high transport costs. In this respect, and out of the necessity for self-directed development, it makes sense to establish basic laboratory, certification and inspection facilities in the country. In contrast, less critical-mass services such as accreditation of testing laboratories, certification and inspection bodies can be more cost-effectively obtained abroad.

Importance of regional cooperation

One way of dealing with the lack of critical size of small countries is regional cooperation. The CARICOM Regional Organisation for Standards and Quality (CROSQ) is an inspiring example in the Caribbean.

CROSQ was established in 2002 and is one of the 19 institutions of the Caribbean Community and Common Market (CARICOM) today. As Regional Standards Body, CROSQ supports the development and expansion of the 15 National Standards Bureaus of CARICOM and is the focal point for technical cooperation and manages various programmes to promote regional quality infrastructure. In 2017, with the support of the European Union and in collaboration with the National Quality Institute of the Dominican Republic (INDOCAL), CROSQ developed a regional quality policy to guide QI development in the Caribbean.

The 15 CARICOM member states today benefit from CROSQ’s work in the following areas of quality infrastructure:

In metrology, CROSQ is an associate member of the International Bureau of Weights and Measures (BIPM), which gives the small island states access to the BIPM Capacity Building and Knowledge Transfer Programme. In addition, CROSQ channels resources from international and regional cooperation to build the calibration and legal metrology capacity and acquire equipment for the metrology departments of the national standard bureaus/metrology institutes.

A significant success of the Capability Building was that in 2020, following independent successes by the Bureau of Standards Jamaica, the Trinidad and Tobago Bureau of Standards (TTBS) achieved international recognition for calibration and measurement capacities (CMCs) in mass and by participating in the International Committee for Weights and Measures – Mutual Recognition Arrangement (CIPM-MRA). This arrangement achieved those measurements from Trinidad and Tobago meets the highest standards internationally, which significantly facilitates trade.

In the field of standardisation, CROSQ contributes to the regional harmonisation of national standards. CROSQ coordinates the work of regional standard committees, with the NBS of individual member states taking the lead. Once the CARICOM Council of Ministers of Trade and Economic Development (COTED) officially recognises regional standards, member states are encouraged to adopt these standards.

Common standards also facilitate cooperation in conformity assessment. CROSQ supports a particular division of labour between the NBS of the member states by establishing so-called regional centres of excellence in testing and metrology.

It is unrealistic for each member state to establish its own accreditation body, as previously said. Only Jamaica and Trinidad and Tobago have their own accreditation body, but these bodies service the regional need in many different areas. In the remaining countries, CROSQ has supported the establishment of National Accreditation Focal Points (NAFPs). These NAFPs are contact points for local companies and inform them about suitable accreditation offers within and outside the region.

Overall, it is often more critical for tiny countries to establish well-functioning information points than to pursue the goal of providing as many quality-related services as possible to the local economy itself.

South-South Cooperation

Compared to the Caribbean, regional cooperation and the development of quality infrastructure in the Pacific Island countries are still in their infancy. This is partly since most Pacific Island countries only gained independence in the 1980s or later, and many of the economies there are small or even micro.

An initial study by the Pacific Islands Forum Secretariat on quality infrastructure dates to 2005. A 2019 update of this survey-based study [7] shows increasing awareness among governments of the importance of quality infrastructure for trade and development.

In 2019, the EU Tradecom II Programme, http://www.tradecom-acpeu.org, organised an exchange between African, Caribbean and Pacific Island countries. In this context, the representatives of the Pacific states took up with great interest the experiences from the Caribbean with regional integration in the development of quality infrastructure. As a result, there is now a multi-donor supported Pacific Quality Infrastructure project for regional QI promotion, with the collaborative support of CROSQ and its SIDS.

Strengthening trade-related quality infrastructure through intra-ACP partnerships

On March 5th, 2021, the Pacific Quality Infrastructure (PQI) project held its inaugural meeting, marking formal progress with the forum Islands Countries (FICs) virtual networking event. [8]

The experience with the small island states shows that the concept of national quality infrastructure is also relevant for this group of states. However, the range of services must adapt to local needs. Regional cooperation and integration frameworks are conducive to using scarce resources as efficiently as possible. National quality infrastructure institutions can also learn from experiences in other parts of the world, especially from regions with similar development situations. Here, bi- and trilateral development cooperation can be essential support.

References

[1] UN-OHRLLS (2011). Small Island Developing States. Small Islands Big(ger) Stakes, New York

[2] OTF Group (2010). Cluster Best Practices for the Caribbean Private Sector Development Discussion Paper #5, No.  IDB-DP-161 September 2010, Washington DC

[3] Farrell, Terrence W (2017). We Like It So? The Cultural Roots of Economic Underachievement in Trinidad and Tobago 1st Edition, North Charleston

[4] TTBS (2020). T&T Receives International Recognition for Mass and Related Quantities, Press release February 25

[5] Kovacevic, Michelle (2020): The evolution of Quality Infrastructure in the Caribbean; in Trade for Development News by EIF, 26 August

[6] Kovacevic, Michelle (2020): Pacific Islands countries band together to increase export quality; in Trade for Development News by EIF, 26 August

[7] Diekmann, Ulrich (2019). Pacific QI Survey. The state of play of the quality infrastructure in the Forum Island Countries. Unpublished. PTB, Braunschweig/ Germany

[8] ForumSec (2021) Pacific Quality Infrastructure Project Builds Momentum, Marcha 8, Suva

Benchmarking QI worldwide

For ten years, we, Ulrich Harmes-Liedtke and Juan José Oteiza have been working on measuring and comparing the development level of a country’s quality infrastructure (QI). This challenging task occupied not only us but also colleagues from metrology, standardisation and accreditation bodies, and other consultants. Those responsible for QI in international development cooperation asked themselves the same question.

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Women in the Quality Infrastructure System

Gender inequality is still present throughout the world

The world is equally composed of women and men. However, gender inequality is still present throughout the world. As published by the United Nations in October 2020, only 47% of working-age women participated in the global labour market, while for men, the percentage was 74%. This gender gap has remained relatively constant since 1995, i.e., the difference between men and women employed worldwide has not changed in the last 25 years.[1]

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Geographical Indication – place-linked quality of products

Geographical indication of product quality

Mexican Tequila, Darjeeling Tea, Roquefort cheese, French Champagne, Italian Prosciutto di Parma and Parmigiano-Reggiano (Parmesan) cheese, Ecuadorian Cacao Arriba, Colombian Coffee, South African Rooibos herbal tea, Scotch whisky, Munich beer or Phu Quoc fish sauce from Vietnam. These are all famous examples of origin-linked indication of product quality. Hearing such product names provides an affirmation with customers about trustworthy quality, a long tradition in the production and legal brand protection.

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