Banks unknowingly encourage COPQ in client organizations
Educational institutions teach us that inventory is required to run an organization. This inventory is broadly classified into three categories:
- Raw material
- Finished goods.
As we all know, inventory management requires space, systems and man-power.
We also know that banks are pleased to accept inventory as a collateral for issuing a short-term loan to an organization. They probably believe: More the inventory, safer is the bank.
As a Qualitist, I question this risk taken by any bank. I believe, inventory is a manifestation of ‘poor quality processes’. Processes have failures. These failures create waste. The waste, as well as man-hours to correct a failure, is referred to as the Cost Of Poor Quality (COPQ). In order to guard against process inefficiency, we build inventory.
Example 1: We protect ourselves against poor quality delivered by our suppliers, by creating an incoming inventory department.
Example 2: We protect ourselves in operations by building work-in-process inventory because we are not sure of the quality of our internal suppliers.
Example 3: We stock up finished goods inventory because we do not know the needs of our external customers.
All this spells process inefficiency. Inefficiency creates chronic waste. Chronic waste and correction has a cost. COPQ.
Conclusion: Banks unknowingly encourage COPQ in the processes of client organizations.
- Banks should abolish the practice of accepting inventory as collateral for short-term loans.
- Organizations aiming to manufacture Quality goods need to benchmark The Toyota Way.
- The critical skill that every employee in an organization must learn is Structured Problem Solving.
Do you agree?