The Cost of Nonconformance

Back in the late 80’s Xerox implemented a program aimed at quality improvement. Then in 1989; after a great deal of effort and resources spent, Xerox received the Malcolm Baldrige award for quality improvement. I must admit, that at the time we were being trained for the skills and analytical tools used in the process, I viewed most of what we were being taught as a bureaucratic waste of time. Having said that (sorry Malcolm!), I will admit that there were certain underlying concepts that made a lot of sense to me, and became incorporated into how I have conducted myself ever since. The big one was a term called The Cost of Nonconformance. Essentially, these are all the non-obvious hidden costs associated with not doing a task the best way possible. Although one may apply very complicated analytical tools to arrive at the approximate cost of nonconformance, your gut can do a pretty accurate job as well.

Let me apply the concept to one of the parts I sell. For my example, I will use the fuser gear for a Xerox 510. The dealer cost for this part is approximately $24 each. Let’s say that an average Xerox 510 may go through two of these gears per year. The obvious cost to replace these two gears would be $48 per year. Not a big deal. Now think about the hidden costs:
1. The cost to have a technician respond to the service call is on average $100 per call.
2. Then there is the extra time the technician will spend onsite talking with the customer, and performing other maintenance functions. So we add another $30.
3. Next are the customer costs. These are a bit trickier to calculate, and may be quantified throughout a wide range depending upon a range of factors. Instead of quantifying that number, let’s think about the worst case scenario. The customer is considering replacing their wide format machine. The fact that their 510 is down AGAIN, causes them to contact another vendor. They look at a competitive product, and before you have even opened the conversation about a replacement machine, they have signed a contract with your competitor. Tell me this has never happened to you!

So in this example, if we had an alternative to the faulty gear, but did not choose to utilize it; our cost of nonconformance would be a minimum of the following:
Two Gears $48 + 2 service calls $260 + Customer Dissatisfaction = a minimum of $308 up to the cost of replacing a customer!

Those are the costs of nonconformance. Apply this concept on a regular basis, and I guarantee that you will never look at your business the same way again. I also think you will come to thank Malcolm for your newly acquired insights!