As a business striving to make larger profit margins it doesn’t make sense to incur additional costs, especially when that cost is completely upon your discretion, right? When talking about pre-shipment inspection, many businesses wish to avoid this process because of the additional strain on resources that it will bring in terms of both time and money.
You would want your suppliers to produce the right kind of products to begin with so that there is no reason to carry out any pre-shipment inspection.
Why waste money on Product inspection when you can just stress upon your supplier to make products that fulfill all the specifications and requirements that you have asked for? Alas. If only it were that simple.
Sadly, more often than not, manufacturers will produce goods that in one way or another do not meet your requirements. It is only upon the arrival of the shipment that you find that several pieces of goods have defected; this begins the dreaded process of repairs and returns that is nothing but a nightmare for every business.
If you’re still unsure about whether you should invest in pre-shipment inspections, let’s take a look at one of the most prominent concepts related to this field: cost of poor quality, presented by H. James Harrington in the 1980s in his book ‘Poor Quality Cost.’
What is the Cost of Poor Quality?
According to the American Society for Quality, cost of poor quality can be broadly divided into the following four categories:
- Internal Failure Costs: These costs are incurred when a defective product is spotted before being sold to the customer and it has to be repaired or reworked. The cost that the business will have to pay in order to bring the defected product in a usable state is known as internal failure costs.
- External Failure Costs: As compared to internal failure, external failure occurs when the product reaches the customer and is found to have defected. The customer will return the product, either demanding an exchange or a refund. In both cases, the business will incur costs to provide the customer with the service required in order to provide them adequate quality goods for their value.
- Appraisal costs: These costs are incurred when the business invests in processes, such as quality inspection, to make sure that the products being produced conform to the quality standards set out in the requirements of the business.
- Prevention costs: These are costs that are incurred in order to minimize the above-given costs. This will involve the time and energy that would be devoted to developing adequate quality standards and then to see that those are implemented as well.
Thereby, pre-shipment inspection costs will fall into the category of appraisal costs, but would, in fact, help you decrease your failure costs.
Why is that?
The following discussion answers the question:
As mentioned above, failure costs fall into two categories: internal and external. Pre-shipment inspection actually helps to limit both of these.
How pre-shipment costs limit internal failures-
Consider an example: A factory producing chairs also produces the cartons that those chairs will be packed into. Upon delivery in another country, the importer finds that the cartons are in fact of very poor quality and need to be stapled together again in order to hold the chairs.
The importer will have to spend money to call a local team to fix these cartons because he does not have the time to ship them back to the manufacturer for repairs- not to mention the vast transportation cost that this would incur.
If the business had used pre-shipment inspection then this problem would have been fixed by the manufacturer and the importer would not have had to spend money to have this internal failure fixed.
How pre-shipment inspection limits external failure-
Suppose that you sell shirts in a floral design. The packaging and description both show a floral design, but upon purchase, the customers find that they actually have striped shirts.
The cost that you would incur to replace or refund these sales could have been easily avoided if the pre-shipment inspection had been carried out which would have pointed out that the wrong design had been packed in the floral packaging. Even though appraisal costs are an expense for the business, you can see how they help to limit extremely costly mix-ups like this.
Defects are inevitable, but it’s better to identify it while you can fix it rather than sell out faulty products that would not only cost you more in the long run but also cause discomfort for the customers. So investing in pre-shipment inspection is a sure shot way to make sure your business only sends out products that abide by the set quality standards.