Calidena – Closing quality gaps jointly

A simple way to explain the importance of quality infrastructure is to refer to a specific product. For example, if we take any food product, such as a frozen pizza, we can clearly explain the requirements of food safety standards or the verification of the cold chain.

Quality infrastructure services can be applied to all products and many services. Since no single company usually manufactures a product in isolation, the entire value chain needs to be considered. Quality and safety checks are particularly in demand at the interfaces between different companies or value chains stages.

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Quality infrastructure for the service sector

Quality infrastructure has its origins in the industrial revolution of the 19th century, first in England, then throughout Western Europe and the USA, and later spread to Japan and other parts of Europe and Asia during the transition from agrarian to industrial societies. For a long time, QI was mainly a matter of checking whether physical products met defined technical specifications. Testing served both the safety of products and their usability in value-added processes based on the division of labour. Thus, the measurement of physical units was at the centre of the entire quality system.

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Cross-frontier accreditation: practice and impact

Accreditation builds trust in international trade

Accreditation is a valuable tool for building trust in international trade. Accreditation bodies assess and confirm the technical competence and independence of conformity assessment service providers, i.e. testing laboratories, inspection and certification bodies.

By multilateral agreements, accreditation bodies recognise the equivalence of their services. Mutual recognition prevents tests or certifications from being issued more than once and reduces transaction costs for companies.

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Using Quality Infrastructure to cope with the economic impacts of the pandemic

PTB’s Covid-19 Task Force

Soon after the Covid-19 pandemic started raging around the globe in spring 2020, the German Metrology Institute PTB founded a Task Force Covid-19 to discuss the specific requirements during the crisis, potential longer-term effects and the extent to which PTB needs to adapt its development work to new conditions. A key question discussed was the decision on topical areas relevant for QI response to the Covid-19 pandemic. After a few meetings, some topical areas emerged that addressed health-related services, sustainable economic development, capacity development online, strengthening digital infrastructure in partner countries, public relations and new challenges for project assistance. For each topic, subgroups were formed that jointly worked on papers, online tools and other outputs. Each subgroup included a combination of PTB colleagues and external experts regularly working with PTB.

Mesopartner consultants joined the subgroups of sustainable economic development and capacity development online. This blog post looks at the subgroup sustainable economic development (SED) and, particularly, its main output paper.

How could QI activities help overcome the crisis’s economic consequences?

The SED group decided to work on ideas of QI support to promote sustainable economic development in PTB partner countries. The critical question to address was how QI activities could help overcome the crisis’s economic consequences. From the start, the intention was to prepare a position paper with recommended actions to be shared with the German Federal Ministry of Cooperation and Development (BMZ), other development organizations and partners in project countries.

The subgroup, consisting of nine members, started its work in June 2020, prepared a draft paper until autumn 2020 and a final draft until early 2021. The discussion paper was finally published on the PTB website in spring 2021 and presented in a PTB blog post on 11 May 2021.

What are Covid-19 response activities in sustainable economic development?

From the onset, the challenge was addressing a broad and complex topic in a brief, easily understandable paper, not exceeding ten pages. Given this premise, what aspects to discuss and what issues to ignore? What are examples of Covid-19 response activities in SED in and outside PTB projects? How to collect a good overview of such measures? What else, beyond real-life examples, could we recommend?

After a series of group meetings, some focus areas and a paper structure emerged. The group understood that a well-functioning and agile QI is essential for cross-border trade, social and sustainability standards, rural development and agricultural value chains, innovation activities, and sustainability and resilience of companies and value chains. This especially holds in times of crisis, such as a global pandemic. The QI of individual countries and their international associations needed to react swiftly to the challenges of the situation and adapt and innovate quickly to continue offering existing and new services with reliable quality. Different group members took on the task of drafting topic-specific chapters, which were then discussed jointly and weaved together during the bi-weekly group meetings.

The result is a discussion paper that proposes measures that international QI donors – such as PTB – can take during a pandemic to mitigate the consequences of the crisis and sustainably strengthen the economies in developing and emerging countries. The focus is on measures at the intersection of QI, sustainable economic development and Covid-19 relevance.

The global health crisis expanded the meaning of quality by health, hygiene, safety and resilience

Against the conceptual background outlined in each sub-chapter, Annex 1 of the paper presents recommended actions currently implemented or at the stage of concrete ideas. Apart from financial support, there are many technical measures in the QI area that can help companies and other actors in economic life assure the quality of products, services, and processes. During the global health crisis, the very meaning of quality expanded with a stronger focus on health, hygiene, safety and resilience.

Among the relevant topics discussed in the paper, innovation is particularly inspiring. Changing framework conditions force innovation in companies and other organizations. During a crisis of the magnitude of the corona pandemic, the pressure to innovate is exceptionally high and acute. Alternatives to the usual processes, products and services must be found quickly to work and react to new needs of customers, partners, and regulators. This often leads to radical innovations condensed into a relatively short period. Particularly in times of crisis, various actors in an innovation system innovate independently or in mutual interaction. These actors are primarily QI institutions, companies and regulatory institutions that set the framework conditions. Innovation here means introducing new QI services (e.g. developing hygiene standards for non-food sectors; online training on ISO 22301 Business Continuity) and adjusting how QI services are delivered to clients (e.g. free access to selected standards; remote services for certification and accreditation). In finding alternative ways of doing things, innovation is a cross-cutting topic concerning promoting SED during health crises and addressing other relevant matters, such as the healthcare system, the digital infrastructure, and digital learning formats.

What could QI contribute to mitigating the economic impacts of the current and future pandemics and crises?

Ultimately, this PTB paper intends to encourage a discussion on what QI could contribute to mitigating the negative economic impacts of the current crisis and any future pandemics coming along. It tries to support the Build Back Better discussion aiming at the global economic system to change for the better sustainably after the crisis. Enjoy reading!

PTB 2021. Using Quality Infrastructures to Cope with the Economic Impacts of the Pandemic. Discussion Paper. 

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