COST OF QUALITY

 

1.0 INTRODUCTION

The costs of quality are all costs incurred in the pursuit of quality or in performing quality related activities. It is a difficult task to keep track of all quality costs but the use of computer systems is making it easier. Quality costs help to measure overall quality activities within a business by supplying crosschecks for measuring inputs against outputs. Cost of quality analyses help to reduce overall costs, pinpoint major problem areas, budget realistically, and prepare cost estimates for bidding on new business.

 

2.0 THE TWO FUNDAMENTAL COSTS OF QUALITY

 

3.0 WHY STUDY COST OF QUALITY?

 

4.0 COST OF QUALITY OBJECTIVES

(Reduced costs, improved quality levels, less scrap and rework, increased business, etc.)

 

5.0 COST OF QUALITY CATEGORIES

5.1 Prevention Costs

Prevention costs are the costs associated with designing, implementing and maintaining the quality system. These are costs incurred to reduce all other quality costs. Prevention costs include quality planning and training. Prevention costs are the values of effort associated with the planning, implementing, maintaining and monitoring of a quality system that will prevent the occurrence of failures.

 

5.2 Appraisal Costs

Appraisal costs are costs associated with measuring, evaluating and checking products or materials to assure conformance to quality requirements or standards. These costs include process inspection, final inspection, incoming inspection and testing. Appraisal costs are the value of that effort associated with determining the degree of conformance to quality specifications the first time through.

 

5.3 Failure Costs

Failure costs are the costs associated with labor, scrap, materials, components, and other parts that fail to meet quality standards and cause a manufacturing loss. Failure costs are also the value of products or services found defective on and after the first time through. They include the value of effort associated with correcting or disposing of the failures. Failures may be sub-divided between internal and external. Internal failures are those discovered in-house and external failures are those discovered by the customer.

5.3.1 Internal Failure Costs

5.3.2 External failure costs

 

6.0 BASIC APPROACHES TO COST OF QUALITY

6.1 Keep Track of all Incurred Quality Costs

Keeping track of quality costs may be difficult to do in some cases. Many reports that show total quality costs are broad based and do not include all effort associated with specific defects. If a cost of quality report is published on a periodic basis, and no specific projects to reduce the actual costs are undertaken, then the report may be of little value. In many cases a published cost of quality report is not a stimulus for action.

 

6.2 Keep Track of Cost of Quality Reductions

After an overall cost of quality base is established, cost reductions may be subtracted from this base. The base may be established on a monthly or yearly basis. This approach measures the results of specific efforts or projects and the effect on the overall costs of quality.

Cost of quality reduction projects include changes into design and processes that make it difficult for errors or defects to be created. The projects should also stress the elimination of manual operations and the implementation of mechanized and computerized facilities where appropriate.

A reduction in the defect rate for a specific product is an example of a quality cost reduction. If the product is to be assembled into another product, then less rework, handling and scrap will occur, thus reducing the cost of quality.

 

7.0 COST OF QUALITY DIRECTION AND GOALS

A reduction in certain costs of quality usually mean better products. In many cases, extra handling or the screening out of defective parts creates more problems than originally existed. The less steps that a product goes through, the less chance of damage or newly created defects.

Inspection and testing add no value to the product and may also create problems of their own. If there is assurance that the product has little inherent variability and consistently meets all quality requirements, then inspection and testing may be reduced and in some cases eliminated.

Additional expenditures in the prevention category such as quality planning and training will significantly reduce appraisal and failure costs. It is estimated that each additional dollar increase in prevention costs will reduce failure costs by five dollars. For a cost of quality program to be effective, it must be integrated into the total quality system. The overall goal is to improve quality and reduce its associated costs.

 

Example

Associate the elements with the proper Cost of Quality category.

(Prevention, Appraisal or Failure)

In-Process Inspection A

Defect Cause Investigations F
Process Checking A Complaint Investigations F
Scrap F Field Failure Analysis F
Testing A Operator self testing A
Incoming Inspection A Calibration of Inspection Equipment P
Data Analysis P Quality Engineering P
Final Inspection A Training (Only Quality Training or all Training?) P
Rework F Design of Test Equipment A?
Additional Handling F Repairs F
Cost of Quality Analysis P Designed Experiment P