by Alex Pavlovic

Money for nothing: the cost of poor quality

KFC's running supply chain débâcle is costing them £4.2m every week by one estimate.

A recent Deloitte quality report identified manufacturers spending up to $100,000 (£71,510) and 116 workdays per site per year to comply with overly complex, outdated and redundant quality management systems (QMS).

And after 25 May, fines of up to €20m (£17.64m) await businesses without GDPR-compliant information security processes in place. 

The cost of poor quality is getting increasingly eyewatering- and more and more businesses are investing in preventative measures to save themselves from serious financial jeopardy down the road. 

kfc crisis supply chain poor quality costColonel Sanders's supplier management processes leave something to be desired

The importance of being standardised

 

Deloitte's 'Quality 2020' survey revealed three key commonalities among respondents in the manufacturing sector:

  1. Standardisation was identified as the key goal for quality management, impacting on other quality areas such as operational efficiency and the cost of poor quality. 96% believed a moderate to extreme improvement in quality would arise from standardising quality management.
  2. The main problems contributing to the rising cost of poor quality were identified as: the rising complexity of standard requirements, having to maintain multiple quality systems for multiple standards, and the growing gap between certification and actual quality performance
  3. The overwhelming majority believed that 'significant effort' would be needed to effect the necessary changes 

In short: businesses are losing vast amounts of money to unstandardised, overly complex quality management processes, while quality standards themselves become more complex and numerous. This expenditure can be crippling and, even worse, is completely avoidable.

In the case of KFC, some businesses are neglecting to follow robust quality processes. KFC switched their supplier from Bidvest to DHL without the correct vetting, leaving themselves stranded with a logistical chain unable to cope with demand.

It's no surprise then that David Cau, Director of Business Risk at Deloitte, concluded that:

The GRC market seems to be thriving, as more companies realise that they pretty much have to invest in this area.

 

investment return grc software

More and more businesses are willing to 'spend £1 to save £2' with a GRC solution

 

Why GRC?

 

Survey respondents estimated an expenditure reduction from 116 workdays and $100,000 per site needed to comply with quality standards each year to 67 workdays and $51,000 per site if their quality management systems were standardised, simplified and centralised.

And the cost of poor quality (COPQ) from events like closures, complaints and non-conformances naturally falls as fewer of these events occur.

The financial advantages of achieving these goals by onboarding governance, risk and compliance software has contributed to an explosive growth of the sector, with between 15% and 20% annual growth predicted between 2018 and 2020. 

Does it really take the 'significant effort' predicted by the survey respondents to implement a GRC solution?

That depends.

Implementation, cultural fit, bespoke business requirements and internal engagement are all problems which need to be considered by any company looking for a GRC software solution.

Vendor_software_requirements.png

If the basic requirements aren't met, nothing will be.

Close research is needed for any procurement project; many businesses seeking GRC software vendors use 'quadrant' analyses provided by Forrester or Gartner. But many vendors are left out by this approach - as David Cau recognises.

 

These quadrants lead companies to limit their GRC tool selection process only to the vendors mentioned in the quadrants, or even only consider players from the leader’s quadrant and initiate their choice only from an IT standpoint, rather than also considering the business needs.

 

There's really no way around it: if your business wants to save money with a leaner, more efficient quality backbone, careful GRC software research is the way forward. Find the vendor for you, and the effort will undoubtedly reap rewards.

What to do next

 

We've put together a GRC software vendor scorecard to help you evaluate prospects - access it here.

Putting together a business case for a GRC software investment has never been easier, thanks to the obvious financial advantages. Kickstart the process with our business engagement toolkit.

 

Governance risk and compliance management software

 

 

Tags: Operational Excellence