Customer Service Outsourcing: What is Cost of Quality?

In these day and age, doing business has become a heated competitive arena for established companies and startup businesses alike. Selling and delivering your product to mass consumers has drastically changed. Now that the majority of consumers are Millennials and Gen Zs, their preference for quality products and services had resulted in a race of who has the best quality in terms of their offerings. 

In addition to that, both generations are vocal when it comes to addressing their concerns to companies. Now that companies are putting an emphasis on consumer feedback, organizations are scrambling against one another to provide quality products and services. However, pushing for quality comes with a price for businesses. If not done economically, the unwarranted and unchecked wastage of resources is bound to happen. 

Essentially, it’s not just Business-to-consumers (B2C) companies that are focusing on the cost of quality, even Business-to-business (B2B) companies that offer various services are utilizing this methodology, primarily the outsourcing industry. Maintaining a cost-effective service level for them and their clients is tantamount to their survival. 

Definition of quality

Customer Service Outsourcing

Customer service outsourcing is the process of hiring offshore or onshore staff through a third-party service provider known as a BPO company. Business process outsourcing (BPO) companies offer services to companies in all kinds of industries. 

Outsourcing handles internal processes within a contracting organization such as their HR, Recruitment, and IT departments. Outsourcing as a service offers a low-risk and cost-effective solution for companies to acquire, hire and retain expertise provided by sourced professionals working for outsourcing companies. 

The web of quality

What Is Cost Of Quality?

Cost of quality is a method that allows an organization to determine the extent of the resources used to prevent the output of poor-quality products or services. For organizations, the goal of calculating the cost of quality is to create a clearer understanding of how quality impacts the bottom line. 

Costs of quality are divided into two categories, cost of good quality and cost of poor quality. Both categories have two subcategories, appraisal and prevention costs for the cost of good quality. Internal and external costs for the cost of poor quality. 

achieving quality is about planning, doing, acting, and checking

What Is The Cost Of Good Quality

The cost of good quality is defined as a refined output to customers with little to no or minimal defects. 

Appraisal Costs 

The cost incurred to maintain acceptable product quality standards. These include:

  • Material inspection
  • Supplier assessment 
  • Process controls
  • Routine audits

Prevention Costs

The cost incurred from activities to keep failures at a minimum. Prevention cost includes:

  • Quality planning 
  • Establishing product specifications 
  • Development of quality management systems 
  • Proper testing of the product
  • Proper employee training 

What Is The Cost Of Poor Quality

The cost of poor quality is defined as the cost relating to the output of poor-quality products or services. 

Internal Failure Costs

The cost is associated before the product or service reaches the customer. Internal failure costs include:

  • Excessive wastage
  • Product or process rework
  • Machine breakdown due to improper maintenance 
  • Waste due to improper planning

External Failure Costs

The cost is associated when defects are found after the customer receives the product or service. External failure costs include: 

  • Service or repair costs
  • Warranty claims
  • Customer complaints
  • Product returns 
  • Shipping damage due to inadequate packaging

A man checks the quality of the tires

How BPOs Provide A Higher Cost Of Quality

BPOs as a global service provider for remote staffing to contracting companies starts with recruitment. Quality starts with the person you hire, outsourcing companies only hire quality candidates with extensive experience and educational background. A quality hire will minimize errors and rework, and it will forego the cost of hiring people, time spent, and potential legal impediments that comes when hiring in-office staff. In addition, it prevents unnecessary spending as rehiring people costs thousands of dollars for small companies and millions a year for big companies.

More importantly, a core of their service is proper communication. Outsourcing providers regularly consult with their clients on matters such as the performance of their hired staff, policy changes, and potential challenges that they can help mitigate. 

The Bottom Line

Ultimately, the cost of quality in customer service outsourcing provides a guarantee of quality standards that have to be met. The success of the contracting company is also the success of the BPO provider. Ensuring that the service quality is always above simply means that no resources are being wasted.