Cost of Quality in the Apparel Sector

Dr Subrata Das

Textile Future is very pleased to introduce you in this TextileFuture Newsletter to the latest contribution by guest author Dr. Subrata Das, Professor (Fashion Technology) at B.I.T, Sathyamangalam, India

Cost of Quality (COQ) in the apparel sector is still a widely understood misconception. The term often gets associated incorrectly with the price of creating quality merchandise. Actually, it is the other way round, i.e. the amount of money incurred because the product was not manufactured right at the first time. Thus, the concept of quality costs in the garment industry is a means to quantify the total cost involved in quality-related efforts and deficiencies pertains to a manufactured apparel product.

Although it is not very easy to calculate COQ for any industry, research shows that the costs of poor quality can range from 15 %-40 % of business costs (e.g. rework, returns or complaints, reduced service levels, lost revenue). Most of the apparel units do not know what their quality costs are because they do not keep records on a daily basis. A large portion of resources is consumed in finding, and correcting mistakes in the merchandise or related processes. Typically, the cost to eliminate a failure in the customer phase is five times greater than it is at the merchandise development or manufacturing phase. Every time work is re-done, the cost of quality increases. The obvious examples in the apparel sector include:

•             The reworking of a garment

•             The retesting of performance of apparel

•             The rebuilding of a garment machine

•             The correction of an apparel size specification sheet or change of care label

•             The reprocessing of garment to improve dimensional stability after wash or the replacement of a trim to fulfil the requirement of a customer or to meet safety issues.

In general, the cost of quality has two main components: the cost of good quality (or the cost of conformance) and the cost of poor quality (or the cost of non-conformance) according to Philip B Crosby in his book Quality Is Free.

The cost of poor quality affects internal and external costs resulting from failing to meet the requirements specified for an apparel product by the garment industry. On the other hand, the cost of good quality affects the cost for investing in the prevention of non-conformance to requirements and the costs for appraising the apparel product for conformance to requirements. Thus, the cost of quality concept leads to the following classification for a better understanding of the situation in the apparel sector.

Classification of Cost of Quality in the Apparel Sector

However, no standard relationship exists among the four parameters of quality costs. One can expect to reduce the internal and external failure costs by increasing prevention and appraisal costs. But, it is also well understood that, in spite of excellent quality of raw materials and good inspection coverage, the quality of a garment also depends on workmanship, which may be a prime factor of hindrance in the attainment of quality owing to poor training, poor maintenance of machines, and lack of requisite skill.

Prevention Cost

The costs of all activities specifically designed to prevent poor quality in an apparel product or associated processes.

Examples of prevention cost:

  • New merchandise review
  • Quality planning
  • Supplier capability surveys
  • Process capability evaluations
  • Quality improvement team meetings
  • Quality improvement projects
  • Quality education and training

Appraisal Costs

 Appraisal Costs: The costs associated with measuring, evaluating apparel merchandise or auditing related production factory to assure conformance to quality standards and performance requirements.

 Examples of Appraisal Costs:

•             Incoming and source inspection/test of purchased material

•             In-process and final inspection/test

•             Product. process or service audits

•             Calibration of measuring and test equipment

•             Associated supplies and materials

Internal Failure Costs

Internal Failure Costs: Failure costs that arise before an apparel company supplies its product to the customer i.e. prior to delivery or shipment of the merchandise. These are due to deficiencies discovered before delivery and are associated with the failure (non-conformance) to meet the needs of customers. If internal quality failures of defective merchandise are identified before shipping then optimistically there may be no external failure costs.

 Examples of Internal Failure Costs:

•             Scrap

•             Rework

•             Re-inspection

•             Re-testing

•             Material review

•             Downgrading

External Failure Costs

 External Failure Costs: These are typically due to errors found by customers. Failure costs that arise after a garment unit supplies the product to the customer, such as cost of returned merchandise, cost of quality claims, cost of transportation for the defective merchandise, personnel costs associated with these activities. These costs can be much higher than internal failure costs, because the stakes are much higher.

Examples of External Failure Costs:

•             Processing customer complaints

•             Customer returns

•             Product recalls

How to calculate Cost of Quality:

CoGQ = PC + AC

CoPQ = IFC + EFC

COQ = COGQ + COPQ

COQ = (PC + AC) + (IFC + EFC)

COQ = Cost of Quality

COGQ = Cost of Good Quality

COPQ = Cost of Poor Quality

PC = Prevention Cost

AC = Appraisal Cost

IFC = Internal Failure Cost

EFC = External Failure Cost

However, many of the costs of quality are hidden in the apparel sector and difficult to identify by formal measurement systems. A typical iceberg model can be used to illustrate this matter. Only a minority of the costs of quality appears above the surface of the water. But, there is a huge potential for reducing costs under the water. Identifying and improving these costs may significantly reduce the costs of doing apparel business.

A study was conducted by Dr Rajesh Bheda, Cost of Quality In the Indian Apparel Industry, at National Institute of Fashion Technology, supported by Ministry of MSME, Govt. of India, 2005. The study involved 61 Indian apparel manufacturers, contributing to over 5 % of total export. The results, shown in Table below, are a typical case study, which depicts approximate contribution of weightage of different components, which constitute COQ.

Concluding Remarks

Cost of quality is a financial measure of the quality performance of an organisation and this helps to optimize the various costs to achieve the best quality achievable at a more reasonable price.

A proper understanding of the cost of quality is vital for any organisation to develop quality conformance as useful strategic business tool that improves their product performance and the brand image. This is important in achieving the objectives of a successful organisation and guides to identify improvement opportunities.

 In today’s apparel business environment of global competition, reduction of total cost of quality strengthens one’s competitive position by focusing on the drivers of different key components of non-conformance. This facilitates survival and further growth of a garment company. Undoubtedly, reduction of cost of non-conformance in different unit operations is much more preferable in this sector to increasing the volume of sales turnover, especially in a competitive market or in an environment of recession.

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