Cost of Quality

 

The term “Cost of  Quality” is generally misunderstood as the cost to create a quality product or service. The actual definition of this term is the cost incurred by not creating a quality product or service.

What can be included in cost of Quality (bad Quality)

Cost of Quality includes the cost to the organization to rectify the non conforming product or service. This includes following example

Cost incurred in reworking of a manufactured item, the men, Material and other resources.

costs incurred in skipped delivery schedules, the penalties etc.

Cost incurred in retesting of an assembly, rebuilding of a tool.

The correction of a bank statement.

The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant.

Warranty Claims

The biggest cost incurred by an organization on account of poor quality is the loss of customer loyalty.

In short, any cost that would not have been expended if quality were perfect contributes to the cost of quality.

The cost of Quality is only a part of Total Quality Costs which includes the following

The costs incurred by

Investing in the prevention of nonconformance to requirements.   

Appraising a product or service for conformance to requirements.

Failing to meet requirements.(Cost of Bad Quality)

The details which can be included in Total Quality Costs

Prevention Costs

The costs of all activities specifically designed to prevent poor quality in products or services.

Examples are the costs of: New product review, Quality planning , Supplier capability surveys, Process capability evaluations, Quality improvement team meetings, Quality improvement projects, Quality education and training

Appraisal Costs

The costs associated with measuring, evaluating or auditing products or services to assure conformance to quality standards and performance requirements.

These include the costs of:  Incoming and source inspection/test of purchased material, In-process and final inspection/test, Product, process or service audits, Calibration of measuring and test equipment, Associated supplies and materials

Failure Costs

The costs resulting from products or services not conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure categories.

Internal Failure Costs : Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a service, to the customer.

Examples are the costs of: Scrap, Rework, Re-inspection, Re-testing, Material review, Downgrading

External Failure Costs : Failure costs occurring after delivery or shipment of the product — and during or after furnishing of a service — to the customer.

Examples are the costs of:  Processing customer complaints, Customer returns, Warranty claims, Product recalls,

Total Quality Costs:

The sum of the costs listed above. This represents the difference between the actual cost of a product or service and what the reduced cost would be if there were no possibility of substandard service, failure of products or defects in their manufacture.