Mubarak ho Apka profit 20% badhega!

Nital Zaveri (ceo@sixsigmaconcept.com) Trainer and Consultant – Concept Business Excellence Pvt. Ltd. Certified Six Sigma Black Belt QCI approved Sr. QMS Consultant

Mubarak ho Apka profit 20% badhega!
  • You all must have seen and read advertisement of PCRA (Petroleum Conservation Research Association). In this advertisement a delivery person from a LPG Gas company informs a house wife that "Mubarak Ho ab Apko Gas Cylinder par 20% ki Chhoot milegi". (You will get 20% discount on LPG Cylinder). The house wife could not resist her joy an asks for the 20% money back. Then the delivery person says "Wo to apke hath me hai" (Its in your hand). He further says: "You use your pressure cooker properly and close the lid of utensils while you cook."
  • Same story goes with our Indian Companies. In recent training program I declared that you can increase your profits and reduce cost by 20%. Almost all the participants were looking at me as if I was going to give them money. I said its in your hand. (Wo to apke hath me hai).
  • Surprised? But it is same as the above story, if you change your habits, be more vigilant about the quality and cost, you will be able to improve profits and reduce cost up to 20%. That's huge money. Isn't it?

You measure what you value. You value what you measure.

  • Dr. Mickel Harry, the six sigma guru, in his book says "You measure what you value. You value what you measure". Ok let's look at this. What do you measure in your life the most? E.g. your child's progress, personal account balance, savings etc.
  • Why do you measure your child's progress? Because you value it. You check his mark sheets, participate in the open days and so on.
  • Suppose I ask you what's your child performance in school? You will immediately reply Maths he / she is doing fine or English she needs to improve etc. Its on your finger tip. You don't need to go and search the mark sheet for that. Same goes with your personal account balance. You measure it. You know it. It's on your finger tips. Why you measure? Because you think that's important for you. You value it.
  • Ok now answer following question? What is the Cost of poor quality in your organization???
  • Confused? You don't know. Why because you don't value it.
  • The point is clarified. Your cost of poor quality is not reducing simply because you don't measure it.

How to increase profit?

  • Obviously after reading 2000 page on management, ultimately you come down to two points:
    • Increase Sales
    • Reduce Cost
  • Dr. Juran in his book says "the urge to reduce chronic waste (cost of poor quality) is much less than increase sales in the top management"
  • This is correct even today also. You are busy increasing your sales, but not ready to reduce cost of chronic waste i.e. cost of poor quality. You spend crores of rupees to increase your sales but not ready to invest to reduce cost of poor quality.

Quality is not free?

  • If you think, you can reduce cost just like that then you are wrong. You have to change your habits, you have invest in Training of employees and be ready to take the leadership as top management. You have to work hard on implementation, pass through initial pain to get the sweet fruit of reducing cost of poor quality.
  • Its simple, just as you can not increase your sales without investing in advertisement, promotional activities, you can not reduce your cost of poor quality without some little investment. The most important investment is "Time". Top Management's time and your employees time for training, where probability you are spending much less than what you should have been.
  • Many companies have cut training cost in the recession. This in some way is wrong.

Sweet gain?

  • Most of the companies who have invested in training on quality improvement have gained 1:4 to 1: 10 return. That means if you spend one rupee in training (to reduce cost of poor quality) the return is 10 rupees. That's good business.
  • You still don't believe this. Ok then read this in Dr. Juran's (One of the leading quality guru) Quality Hand Book says "The best business to be in is in Quality Improvement"
  • To shuru kiji ye "Apka Profit badhana to apke hath me hai" (to increase profit is in your hand) But this time instead of increasing sales, think of reducing chronic waste (cost of poor quality) and if you value it. Measure it.

Your cost of poor quality.

Cost of poor quality (% of sales) Competitive level
<10 World Class
10 – 15
15 – 20 Industry Average
20 – 30
30 – 40 Non Competitive
> 40
  • Now why should you believe this?
  • One of the reasons why you don't believe this is that you have not measured it.
  • OK. Answer following questions:
  • What is the cost of Rejection, Scrap, Waste?
  • What is the cost of Rework? If you think you know all the rework cost you are wrong. You may have data on rework only that is recorded. But remember there are many rework going on in your factory that you don't know. For example: if purchase office makes PO and he writes wrong quantity. You have short supply or over supply. You may correct the PO in between or after the material is delivered. Do you know what is the cost of this non quality work. If you think, rework occurs only in manufacturing are then you are wrong. Many rework goes on in transitional area like purchase, design, store, account etc. and most of the companies do not know what is the cost of rework. That's why rework is "Hidden Factory". Another example of rework at one of our client: on an average there are 4 design change notes are prepared for each drawing they make. What is the cost of correcting these drawings? What is the cost of delay caused by not making the drawings on time? What is the cost of delayed product launch?
  • What is the cost of Re-inspection, Re-testing, downgrading?
  • What is the cost of warranty claim, customer complaint handling, product recalls? If you are director of the company and you go to meet your customer to discuss some customer complaint, then your airfare, your hotel stay, your one day loss at company (your one day salary) is cost of attending complaint.
  • What is the cost of premium freight? Cost you or your supplier has incurred because the they had to sent the material in special freight?
  • What is the cost of LD (Late Delivery) clause?
  • What is the cost of QA / QC Personnel?
  • What is the cost of Inspection, Test, Lab Equipment Calibration, Lab Chemicals, etc.?
  • last what is the cost of training your employees on quality improvement and quality management, assurance – You think "Thank god in this point no. 9 we spend very less.