Cost and quaility are key to creating effective operations

Cost of Rework

by Bernard Lichvar

Editorial Note: If you are trying to determine how to choose an improvement project, this article provides 5 basic guidelines (highlighted text below) Although the survey results provided are a couple of years old, the issues raised in this article are still relevant today. The example used is for a contact center, but is applicable in many applications. Kay Graham-Gilbert

Quality Magazine conducted a survey to determine how much manufactures plan to spend during 2001 on new test, measurement and inspection equipment, software and services to increase manufacturing efficiency, and decrease cost. Discrete manufactures plan to spend more than $4 billion on quality assurance. The article also states that surveyed manufactures expect to increase spending by 8 percent next year. The top three manufacture motivators were to reduce cost, tighten quality standards, and increase production capacity. The primary target for quality expenditures in accordance to 69% respondents to the Quality Magazine survey was to increase efficiency. Reducing rework was the second most often cited reason at 58%.

Quality Cost Areas

Quality comes with a price tag but the benefits out weigh the cost due to improving customer satisfaction, reducing cost, and operation efficiency. Quality costs are segmented into major categories. These categories are:

·Prevention Cost - cost to plan and execute a project so that it will be error-free
·Appraisal Cost - cost of evaluating the process and the outputs of the processes to ensure the product is error-free
·Failure Cost - the costs of activities specifically designed to prevent poor quality in products or services.
·Internal Cost - cost incurred due to duplication of work
·External Cost - cost incurred due to errors detected by the customer. This includes warranty cost, field service personnel training cost, complaint handling cost, and future business losses

The goal of any quality cost system is to facilitate quality improvement efforts that will lead to operating cost reduction opportunities. This strategy is based on the premise that

·For each failure there is a root cause
·Causes are preventable
·Prevention is always cheaper

Project Cost Avoidance

How do you know which quality improvement project you should select? First, identify a process improvement area within your business or department. Once the project is selected, then decide on team members and a leader. Selecting the right quality project will have direct impact on your operations. Ideally, the quality project should have 3 to 6 months duration to gain the most benefit and support from the team.

The project needs to be aligned with your business priorities. Here are five basic guidelines to assist selection of quality project according to iSixSigna quality organization.
·Ask your business leader for the three greatest issues facing the business. Make sure the project addresses one of the issues or is directly related.
·What are the greatest issues as seen from the eyes of your customers? Look review customer complaints logs, listen to call center telephone conversations and call back customers that have stopped your company’s service.
·Is the project manageable? Can the project be completed within 6 months? If the project will take longer than 6 months there is a possibility of losing team members due to job changes or feelings of frustration.
·Will the team have a measurable impact on the business processes or financial bottom line? Take on a project knowing what the benefits are to the business.
·What is your capability? If you haven’t been measuring your process. How do you know it needs improvement? Make sure you know what amount of defects the process is currently producing and define your project desired outcome.

Comments

As leaders, your accountability for operational cost is greater now than a decade ago. Contact center technology advancements have led to multi customer channels such as web sites, web chats and emails. As a result, contact center costs have increased every year due to labor and support costs. One action taken by corporations to address the labor issue is outsourcing the operations. Whereas, the support costs continue to increase within the organization. Now, organizations are faced with supporting not only their contact centers and staff but also multiple vendors.

As the quality magazine stated, the second most targeted quality cost expenditure is rework. Managers need to review all of the internal support processes in order to determine if resources are performing similar functions such as creating training plans, quality processes etc. Another area to perform quality appraisal is repeat contacts for the same customer request due to multi channel environment. Ask yourself this question “Have I ever emailed a company requesting service and within a short period of time later called the company again because did not receive a response within a reasonable time period?” If you have, then how many thousands of customers have done the same thing?

Here is a recommendation

1.First, Determine the importance of this issue is in one of your contact centers. The advocates should conduct a survey for approximately two weeks asking the customer if they sent an email requesting the same information and/or other information via email in the past 24 to 36-hours.
a.Create a simple tick sheet to mark yes
b.Talley them up at the end of the day to determine the impact
c.Determine if this situation has a definite impact on your budget. If so, initiate a system requirement to allow advocates access to both email and call applications. You will also need to create a process to handle these call types.

How much will this suggestion potentially reduce your cost?

Assumptions:
·One email handled by CompanyX costs about $2.31 ($.33/minute * 7 minutes/email)
·One call handled by CompanyX costs about $4.20 ($.42/minute * 10 minutes / call)
·Call handle time increases by 3 minutes now the call costs $5.46 ($.42/minute * 13 minutes/call)
·1000 calls a day

Call Volume Cost if call advocates work emails at a rate of 15% per thousand.
·15% of 1000 is 150
·150 x 5.46 (cost/minute handling emails) = $819.00
·850 x 4.2 (cost/minute NOT handling emails)= $3,570.00
·Total cost per thousand calls = $4,389.00

Normal Call volume cost without working emails
·1000 x 4.2 = 4,200

Cost Difference
·Cost $189.00 more per thousand calls

Email reduction due to voice advocate responding to emails.
·150 x 2.31 = 346.5

Bottom-line -- you save approximately $157.5 per thousand calls based on advocates working 150 emails.

Savings per 1,000 calls = $157.50
Savings per 10,000 calls = $1575.00
Savings per 100,000 calls = $15,750.00
Savings per 1,000,000 calls = $157,500.00

It may be worth investigating to determine the seriousness of the issue within your contact center.

Summary

The above article provided an overview of organization rework costs, causes for rework, and ways to avoid project rework. An example of a potential cause for increase contact center cost was also provided. The next article will address training delivery cost within an organization.

Bernard Lichvar has twenty-seven years of management experience encompassing all aspects of information Management: Project Leadership, Requirement Analysis, Budgeting, Network Design and Implementation, Technology Evaluation and Selection, Training, Quality Assurance, Contract Specification and Monitoring, Software Development and Team Building.

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