Managers are continually tasked with increasing the bottom line, re-examining overhead expenses, reducing and replacing outdated processes, and streamlining procedures. So what about the costs organizations incur to become and then maintain ISO 9001 certification? Costs which stem not only from the expense of third-party audits and the hours of preparation entailed, but the hours required to establish procedures, train employees, assure ongoing conformance, and maintain the records required. Why do companies do this – is there actually a discernible ROI? Though it may not be immediately apparent, experts worldwide agree; the answer is yes.
The process of acquiring and maintaining ISO Certification is all about the disciplines required for continuous improvement with the primary emphasis being customer satisfaction. The rigors of maintaining certification serve to develop quality habits as a significant part of the culture of the company; improving morale as well as continually directing the focus of management and employees to the customer. It puts the company on a level playing field with its competitors and helps to attract the best of customers and opportunities.
The investment cost and the return on that investment of implementing a quality management system (QMS) may be difficult to quantify, but the cost associated with poor quality can be readily identified. In a 2009 report, DSRA Inc. identified these internal costs:
- Complaint Handling Costs – the labor and material costs for customer handholding, incident reporting and resolution, repeat service calls, and product replacement.
- The Cost of Repeated Inspections – to search for defects when better processes could produce a smaller number of defects.
- Wasted Management Time – spent trying to guess where problems exist in the product or service delivery structure so that improvements can be made.
- The Cost of Doing the Wrong Thing – “fixing” things that will not result in the desired quality improvements.
- Legal Costs – necessary to mitigate the damage done by inadequate service or defective products or to defend policies to customers, employees, subcontractors or suppliers.
- The Costs of Excessive Oversight – of employees, subcontractors or suppliers to ensure quality levels remain sufficiently high.
- Costs of Attracting New Members or Customers – to compensate for membership/customer loss due to poor quality.
The report also took into account lost opportunity costs which they defined as the loss of future revenue as a consequence of poor quality products or services evidenced by:
- Poor Customer Retention – the reduction in customer loyalty results in defections to competitors.
- Loss of Benefit of the Doubt – an organization’s customers who experience service quality lapses are less willing to tolerate repeated difficulties.
- Lost Opportunities for Up-sell – existing customers are less likely to upgrade to more expensive products or services.
- More Difficult Cross-sell – the ability to sell different products or services to existing customers may be inhibited.
- Increased Marketing Costs – an unfavorable quality reputation increases the cost of obtaining new customers.
- Decreased Pricing Power – organizations saddled with reputations for poor quality products or services may have to discount prices to attract and maintain customers.
Researchers from UCLA, the University of Maryland, and the Universidad Carlos II in Madrid analyzed the impact of ISO 9001 conformity on publicly traded firms and found a direct correlation with the firm’s return on assets (ROA) “The financial performance of companies registered to ISO 9001 improved, when compared to companies that have not pursued conformity to the standard”. (ref: RAB News & Notes, Spring 2003, Volume 8 Number 2).
When the management team at Poly-Cast was polled, they identified the following list of specific benefits which they could directly attribute to the advantages of being ISO Certified and which significantly added revenue to our bottom line.
- Certification required a defined series of consistent actions which result in Poly-Cast delivering quality products our customers can depend on.
- Our customers can rely on us to support them with traceability when needed, which strengthens our customers’ positions in their respective markets.
- Historical records of performance help Poly-Cast quickly identify solutions to problems and lead to improvements which eliminate problems in the future.
- Being ISO certified relieves our customers of the cost to audit their supplier; and the commonality of terms contributes to clear and productive communication.
- Poly-Cast has greatly benefited from the lower costs of consistent process control; “no surprises” means no red ink.
- An often overlooked serendipity of the ISO certification is the structure and customer focus it brings to the culture of the company resulting in greater employee involvement and satisfaction.
If your company is considering ISO 9001 Certification, or is facing the decision of certification renewal, you will find the benefits far outweigh the costs.