Why do organizations endure a high break-even point?

Why do organizations endure a high break-even point?

Because they have an abundance of wasteful costs factored in their fixed costs. These wasteful costs are known as Cost Of Poor Quality (COPQ).

If every item of work were performed correctly on each occasion, there would be no need to inspect it; there would be no need to rework it; and customers would never have a reason to complain about it.

However, we normally inspect people’s work; rework the failure; and work hard to manage dissatisfied customers.

COPQ includes all the costs that would disappear if all work was done right the first time, and every time. As you will realize, these costs are even legitimized in the budget! As a result they don’t have an alarm system!!

It is worth noting that the COPQ  in any organization ranges between 20% to 40% of total operating costs. At a manufacturing plant in East India, the COPQ was 30% of “revenue”! At the branch of a multinational bank in West India, it was 40% of all operating costs. At a tractor manufacturer in North India it was 35% of total operating costs. And at a auto ancillary unit in South India it was 20% of operating costs.

Each of these organizations identified their chronic problems; estimated the associated COPQ; prioritized the vital few problems; and established specific teams to solve each of the vital problems. The result: They doubled their profits, in 2-3 years, without capital investments.

As a result their break-even points also tumbled down! Also, each organization became more globally competitive.

LESSON LEARNED: Solving chronic problems removes deficiencies, and thereby improves Quality. With fewer deficiencies, we have fewer customer complaints; as well as our costs are dramatically lower.