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Cost of Quality

Quality Management - 28 January 2015

Proper Quality management can be a strategic advantage to a pharmaceutical, bio-technology or medical device manufacturing company. There are a large number of companies who unfortunately do not see that potential. They continue to view quality management as something that is necessary to comply with the regulations. As a result, the Quality Unit in those companies does not have the proper resources and systems to effectively manage product quality and compliance. They typically have inefficient, labor intensive, paper-based systems with long cycle times for the products they manufacture. Inadequate information can lead to protracted and incorrect decisions about the final disposition of product batches which in the worst cases, results in recalls and enforcement actions by regulatory authorities. Fundamental to the operation of any company is maintaining their “License to Operate” (LTO), without it nothing is possible.

Like all functions within a business, understanding the cost drivers for each function should be understood. This is because the language of top executive management in most companies continues to be money.

Quality costs are usually divided into four (4) categories: Prevention Costs, Appraisal Costs, Internal Failure Costs and External Failure Costs. The following are examples for each of these categories:

-Prevention Costs: Quality Planning, Annual Product Reviews, Management Reviews, Employee Training, Audits, Qualification and Validation Activities, Quality Data Acquisition and Analysis (eQMS), Quality Improvement Projects

-Appraisal Costs: Incoming Material Inspection and Testing, In-process Inspection and Testing, Final Product Testing, Batch Record Review and Approval

-Internal Failure Costs: Scrap, Rework, Re-inspection, Retest, Rejection, Deviations, OOT Investigations, OOS Investigations, Quality Related Downtime, Low Yield

-External Failure Costs: Complaints, Returns, Recalls, Product Shortages

Companies should measure their costs in each of these categories. Capturing the costs does not have to be complicated or continuous. Identifying the major cost drivers in each category over the last 6-12 months will provide a surprising amount of information. With this information companies will start to better understand if the costs associated with quality are appropriately allocated.

For example, if Internal Failure Costs are high compared to the money being spent for Prevention Costs reallocation of money for the next budget could be justified. Likewise, if Appraisal Costs are high, a project to reduce testing based on robustness of the historical data could be initiated. Statistical process control techniques could be implemented to assure process control and reduce final product testing. Another example is where the information can show how much time and effort is spent processing deviations. These costs can be used to help justify the purchase of an eQMS system and the subsequent reduction in cycle time and inventory that is possible.

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About the Author
Brian Graeff is currently the Head of the Quality Best Practices Unit at SOLABS. Brian’s career in the pharmaceutical industry spans over 40 years during which he held various management positions in Quality Assurance, Quality Control and Production with Sterling Drug-Winthrop Laboratories, AstraZeneca and Sunovion Pharmaceuticals Inc.. Brian retired from Sunovion in 2010, where he served as the VP of Quality Operations. During his career, Brian helped manage many different drug products and API’s with the majority of his experience being with parenteral, respiratory and tablet dosage forms. Brian brings a wealth of experience in pharmaceutical manufacturing, quality management, FDA interactions and CGMP interpretation and implementation to the table.

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