Quality, Productivity or Costs: where do we start?
Every organization is a world. In an increasingly complex context, it is vital to know in detail some fundamental parameters that make companies work, that is, they last in time and that (of course) are profitable and competitive. The future of each will depend, to a large extent, on the strategy it adopts. In particular, there are three key concepts that must be taken into account when analyzing an organization’s performance: quality, productivity, and costs. Before defining what we mean by each concept, the easy answer appears almost common sense: every company seeks to provide quality products with high productivity and low costs. But is this possible? Are there any incompatibilities between them?
It is usual to assume that increasing productivity values worsens the average quality with an increase in the percentage of non-compliant products. We can also assume that improving quality, with the minimization of nonconforming products and waste, implies a reduction in productivity since, for example, inspection and controls increase. And the costs? Does not the quality cost? Any improvement that has to do with aspects of quality has an associated cost, but (as we will see later) produces a benefit that more than covers the money invested. It always ends up getting more expensive not doing things the right way. According to Crosby (1987):
“Quality does not cost. It’s not a gift, but it’s free. What costs money are the things that do not have quality, all the actions that result from not doing things right the first time. ”
All three concepts are critical to any organization, and we can not neglect any of them because we will surely be doomed to failure. As we will see, the quality, productivity and costs of any activity are completely interdependent. The main question we must ask ourselves is: where do we start? Do we increase productivity, try to reduce costs or seek to improve quality indices? Let us briefly define what we mean by each of the terms. Roughly:
- Quality means delivering products (services) that meet customer expectations, meet specifications and, if possible, exceed them.
- Productivity, being very synthetic, is the capacity that has an organization, a process or a particular machine to produce. It is usually measured through indicators. Generally, aspects such as the quantity of products manufactured in a period of time are taken into account. It is also often taken into account how much labor was needed, which gives us a notion of the effectiveness and efficiency of the processes. Although they are related to the concept of productivity, efficiency and effectiveness, as well as efficiency, are terms that alone mean a lot and must be analyzed to interpret the performance of processes. According to Peter Drucker, management’s undisputed leader, efficiency is “doing the right things” (what to do), efficiency is “doing things right” (seeking the best results with minimal resources) and effectiveness is A combination of both: “doing the right things right”, that is, doing what is right and in the right way.
- Costs (or costs) are all those disbursements of money that are related to the activity that is being carried out. For example, production costs, labor costs, or financial costs. We must differentiate the costs of expenses and investments.
How are they interrelated?
For decades, covering the second half of the twentieth century, the vision of Western organizations was based on an incompatibility between quality and productivity. Deming (1986) argued that managers in the United States thought that companies could pursue one, but not both. Bringing productivity to high values would detract from quality, increase waste, reprocessing, nonconforming products. If, on the other hand, it was sought to improve quality, productivity would be diminished, since the fluidity with which operations would be reduced would be reduced. Nothing is more wrong. If we increase the quality, less reprocessing will be done and we will have less waste. Productivity will inevitably improve.
Under the same criteria as above, an increase in quality will reduce costs. Minimizing reprocessing is reducing waste: unnecessary time, unnecessary labor, additional raw material, delivery delays, etc. However, a substantial cost reduction should not only come from an improvement in quality issues, but an aggressive cost-cutting policy (as long as it does not adversely affect quality).