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Picture 1. Apperal Factory Source: sewing4you.com (accessed 13 April 2013) |
Known for its low cost labor, Indonesia is the home of manufacturing industries. As a manufacturing industry, apperal should implement the theory of Cost of Quality (COQ). This occurs by the assumption that defect products are always rejected, can not be sold, and yet not able to generate profit. But interestingly, in Indonesia, this situation is solved by selling the products to ‘stocklots’, which afterwards would be sold to customers through local factory outlets. So, is the implementation of COQ still necessary to Indonesia’s apperal factory?
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Picture 2. ZARA, an international premium brand Source: fashionbi.com (accessed 13 April 2013) |
This essay highlights distribution of COQ in apperal industry, such as the factory of PT Sri Rejeki Isman (Sritex), Sukoharjo, Central Java. This factory is assigned by Zara (an international brand, owned by Amancio Ortega, Spain) to produce blouse and shirt (including the buttons). The output made are sent to head office and finally distributed through out the world.
COQ theory recognizes quality as an economic consideration, it costs money to build quality into a product. Quality related cost can be grouped into four catagories:
1. Prevention costs (reduce, eliminate, and prevent)
2. Appraisal costs (detect errors, evaluate quality of work done)
3. Internal failure costs (correcting the errors before product is delivered to customers), and
4. External failure cost (correcting errors after product is delivered to customers)
Some data reported that quality control can range from 15-40% of a departments’ total operating expense. The magnitude of these costs represent profits, so these cost should be identified and controlled. This methodology can be applied to reduce total cost while, at the same time, increasing the productivity of operation.
This computation is followed though highend competition between apperal industries, which has led the use of quality as the key to differentiation of relatively standardized apperal products. In addition, consumers’ expectations of quality have been raised to the point where they exhibit a low tolerance for mistakes in their goods.
In general, total COQ is ranged between 15-40% of the department’s total operating expense. According to study in Indian apperal industries, average COQ among factories was 14.05% of their sales turnover. In some factories the cost of quality was as high as 30% of sales. However, the distribution of these cost that is more interesting, and yet more substantial. The distribution of quality cost for the department shows how much is being spent on each of the different quality categories Imagine if the distribution of COQ are allocated such as below:
Quality | Percent of Total Cost of Quality |
Prevention Costs | 5% |
Appraisal Costs | 50% |
Internal Failure Costs | 15% |
External Failure Costs | 30% |
Table 1. Distribution of quality cost in manufacturing industry
By this distribution of cost, it alternatively stated that “we have all the time to do the work over, but never enough time to do it right at the first”, or even “check the work, and recheck it again”. The biggest percentage is appraisal cost which defects are caught internally and yet to increase internal failure cost. This leads decrease and external failure cost. Another data stated that, on average the apperal companies spent only 0.26% of sales towards the prevention cost and appraisal cost was 3.31% of sales, where as the Internal Failure Cost was the highest at 9.86% of sales (Indian Apperal Industry).
So, does the increase in appraisal cost really leads to improvement of quality? Well, yes but not with the reduction of total COQ. This action just transfer (shift) the COQ in external failure to appraisal cost.
This is what often occurs in Indonesian’s apperal factory. The author assumed that PT Sri Rejeki Isman (Sritex), along with the head office of Zara, allocate their COQ in the main distribution of appraisal costs. As the taskmaster, Zara has a standard quality of products issued. But unfortunately, quality control is what they conclude after production is made (concluding work on quality control by appraisal cost and internal failure cost). Zara checks the product after the product is made, with not questioning the production behind (its prevention cost). Oftentimes the quality standards are outrageous, in terms of Indonesia’s quality. Scraps from grade A and grade B, such as, less neat stitching and slightly different measurement of arms.
But don’t worry, these defect(or not too defect) products became ‘food’ to Indonesia’s consumers, though Factory Outlets. Perry Tristianto, owner of the biggest group of FO in Bandung, defines factory outlet itself is selling excess products (which did not pass quality control but still worth wearing) in low price.
Indirectly, this situation yield a ‘win-win’ solution towards both sides, PT Sri Rejeki Isman (Sritex) as the producer and Zara International as the task maker. By focusing only at appraisal and internal failure cost, Zara sorts its product on defect. On the other hand, this system allows PT Sri Rejeki Isman (Sritex) to ‘produce’ (whether intentional or not) defects, generating extra profit from stock lots' sale. A win-win solution too, for the costumers of factory outlets.
So, is the implementation of COQ still necessary to Indonesia’s apperal factory? Well yes. Let’s see what happens when the distribution on COQ is mainly allocated to prevention cost. PT Sri Rejeki Isman (Sritex) generate greater profit because the increased production units.
As prevention cost efforts increase, both internal failures and external failures decrease (shown by Graphic 1b). Appraisal costs could be reduced also, due to the overall improvement in quality. By this, the net result is an improvement in quality conformance and a reduction in the total COQ. Lower quality cost translate into an increase in productivity. In other words, “prevention dollars buy more than appraisal dollars”.
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Table 2. Distribution of quality cost in manufacturing industry (increase in prevention cost, conformance cost) |
Graphic 1a. Effect of increase in appraisal cost on quality
Graphic 1b. Effect of increase in prevention cost on quality
As a long term solution, changes in distribution of COQ, internally generated errors will decline slowly at first, and then very rapidly as the accumulative effect of all the situations designed to eliminate/reduce errors is felt. But to keep in mind, neither internally or externally errors can not be reduced to zero. And overall,
1. Quality of dollars are shifted from appraisal to prevention
2. As efforts to prevent errors take effect, quality improves, errors decline
3. As both internally generated errors and externally generated errors decline
a. Internal failure cost decline
b. External failure cost decline
c. Because of the improvement in quality, even appraisal cost decline
4. As the result:
a. The number of inspectors, verifies, and checkers can be reduced
b. The number of investigators, adjusters, compensation clerks can be reduced
5. This Leads to a reduction in the total COQ, while productivity increases because the amount of work is being done with fewer people
6. When the full effect of the prevention efforts is felt, a second stage of productivity increases takes place. In other words, “Fewer people are required to process the same volume”
Even though there wouldn't be (or less) profit from stock lots' sales, implementing the new distribution of COQ equals to bigger profit generated by sales to Zara International. The products produced have bigger chance to pass through their quality check. Not only products, but greater ‘goodwill’ addressed to PT Sri Rejeki Isman (Sritex) by its ability in producing small amount of defects.
But, would factory outlet costumers (esp. ladies) be happy about this system, which produces less supply for them?
Reference:
____. [online].http://www.expat.or.id/info/outletshopping.html. Accessed 13 April 2013
Quinn, Michael. ___. Cost of Quality Improvement. Annual International Industrial Engineering Conference Proceedings.
Majalah Marketing. [online]. http://www.marketing.co.id/blog/2012/03/26/palsu-sisa-dan-bekas/. Accessed 13 April 2013
Shubh. Cost of Quality in a Garment Industry. [online]. http://shubhabrotaraha.blogspot.com/2012/01/cost-of-quality-in-garment-industry.html. Accessed 13 April 2013
Suhendra. Pakaian Zara Ternyata Sebagian Made in Sukohardjo. [online]. http://finance.detik.com/read/2013/03/08/141838/2189558/1036/pakaian-zara-ternyata-sebagian-made-in-sukoharjo. Accessed 13 April 2013
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