Costly Operational Issues in Business and the Root Causes
The High Annual Cost of Bad Quality of Services and Production Problems
Hello, Eduardo Figueroa here, continuing with the series of cases of expensive situations and problems in companies.
In the first video, I explained what opportunity cost is. And that when we are spending many hours a year dealing with the problems of a person who we promoted to a leadership position without having received the proper training, these accumulated hours during the year could represent thousands of dollars, in addition to preventing us from focusing on more profitable projects.
And what we should do is invest in the training of those employees to become effective supervisors and leaders.
In the second video, I explained the case of accumulated annual product waste in the plant. And, after doing a deep analysis of the root-causes, we found that it was a combination of:
- technical situations
- human factor
- decisions at the company’s management level.
Poor quality products or services
Today I am going to describe the situation of having poor quality products or services.
To explain this, I am going to start with some examples.
Let us talk about what can happen in a restaurant. Every time an order or a dish is prepared wrong, and sometimes it cannot be fixed, it has to be thrown away or given away, and this implies a cost of labor and raw materials, in addition to leaving a bad impression on the customer. And if these costs accumulate over a year, it could represent thousands of dollars.
In this, there could be poor quality products that are returned for reprocessing, when possible. On other occasions it could be that the customer’s product that was given to a company to do some particular process (e.g. painting) was damaged and it has to be repaired, or there are times that the company has to pay those parts to the customer, and as in the previous case the labor cost, the use of equipment and machinery, as well as other products will accumulate. And in some cases, these have added to hundreds of thousands of dollars per year.
One more example could be a landscaping service company, in which sometimes carelessness, or failure to follow instructions could damage grass, flowers, trees or accidentally break a pipe or damage something of the client’s property.
All of this represents a cost of the repair, and in some cases, it could lead to a lawsuit, and this doesn’t even consider the loss of the customer. And again, all these factors must be added together to calculate the annual cost, which can be extremely high.
When an in-depth analysis of any of these cases is done, it could turn out that many of these problems are due to not having:
- effective communication
- well-trained personnel
- right tools and equipment
- a team of well-trained leaders
In some cases, the lack of good leadership competencies on the supervisors and managers causes employees to make these mistakes on purpose, as a way of revenge against their supervisor.
And, on some occasions, it has turned out that because of low salaries, the quality of employees that can be found may not be adequate.
As you will realize, when a deep analysis of the roots or causes of these costly situations is carried out, solutions can be proposed and the cost benefit of these can be analyzed, hoping that the investment, in better training of employees, or in providing the appropriate tools and equipment or perhaps in considering better salaries, will help improve the quality of products and services, which will considerably reduce the losses caused by this situation, increasing the profits of the company, and most importantly, retaining satisfied customers.
I hope that the issue or problem of poor quality in companies has become clear.
If you are interested in learning more about how we can help you and your team to analyze the different situations or challenges or problems in your company as well as the causes of these to propose improvement actions, I would appreciate if you would contact me as soon as possible, if you do not want to keep losing thousands of dollars to poor quality, and as I mentioned, the loss of important customers.
Thank you for your attention to this mini productivity case.
Eduardo Figueroa, MBA
President, Author & Leadership Trainer
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My mission is to help companies to be more profitability by bringing out the best in their Hispanic team of leaders and employees.
I achieve this successfully by training participants in their native language (Spanish) and by been a Hispanic.
I have developed on-site training sessions and online programs, in Spanish, that are practical, effective, easy to use and affordable. With great ROI, investment-benefit.
I have the education, knowledge and over 20 years experience, helping clients in manufacturing, agribusiness, hotels, all kind of service, restaurants, and construction, here in USA and Mexico.
I hold a Masters Degree in Business Administration from the Instituto Panamericano de Alta Dirección de Empresas and a Chemical Industrial Engineering Degree from the National Polytechnic Institute, both in Mexico City.
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