The Cost of Quality

1
The Cost of Quality

• Presented by Dr. Joan Burtner
• Certified Quality Engineer
• Associate Professor of
• Industrial Engineering and Industrial Management
• Mercer University

2
Introduction to the Cost of Quality

• A method used by organizations to show the
  financial impact of quality activities
• Juran advocated measuring quality in terms best
  understood by upper management
• Feigenbaum promoted the value of a measurement
  reporting system that focuses on quality costs,
  their causes, their effects
• Crosby asserted that it is the absence of
  quality that increases costs

3
Quality is Free - Crosby

• Quality does not cost money
• Absence of quality increases total cost of goods
  and services
• Non-conformances and failures cost money
• Popularized the term Cost of poor quality
• Must spend money up front on prevention and
  appraisal

4
Quality Cost Categories

• Prevention
• Appraisal
• Internal failure
• External failure
• Total cost of quality sum of the costs
  associated with the four categories listed above

5
Prevention - Definitions

• All activities specifically designed to examine
  the overall experience gained from the
  identification and elimination of specific causes
  of failure and their costs in an effort to
  prevent recurrence of the same or similar
  failures in other products or services
• Costs incurred in minimizing failure and
  appraisal costs throughout an entire
  organizations processes

6
Prevention - Examples

• 1.1 Marketing/customer/user
• Marketing research, customer surveys and focus
  groups, contract and document review
• 1.2 Product/service/design/development
• Translate customer and user needs into reliable
  quality standards prior to the release of
  authorized documentation for initial production
• Design quality progress reviews, product design
  qualification tests, field trials
• 1.3 Purchasing prevention costs
• Costs incurred to assure conformance to
  requirements of supplier parts
• Includes activities prior to and after
  finalization of purchase order commitments, such
  as purchase order reviews, supplier review,
  supplier rating
• 1.4 Operations prevention costs (manufacturing or
  service)
• Quality education of operating personnel, design
  and development of quality measurement and
  control equipment, operations support quality
  planning
• 1.5 Quality administration
• Administrative salaries and expenses
• Quality education
• Documenting and evaluating quality costs
• Quality system audits
• 1.6 Other prevention costs

7
Appraisal - Definitions

• Evaluation of product or service at sequential
  stages, from design to first delivery and
  throughout the production process. The purpose is
  to determine the product or services
  acceptability for continuation in the production
  or life cycle.
• Costs associated with measuring, evaluating, or
  auditing products or services to ensure
  conformance to quality standards and performance
  requirements

8
Appraisal - Examples

• 2.1 Purchasing appraisal costs
• Incoming inspections and tests
• Could be conducted at receiving or at suppliers
  facility
• Measurement equipment
• 2.2 Operations (manufacturing or service)
  appraisal costs
• Planned operations inspections, tests, audits
• Product or service quality audits
• Inspection and test measurement equipment
• Outside endorsements and certifications
• 2.3 External appraisal costs
• Field performance evaluation
• Setup and inspection before customer accepts
  product
• 2.4 Review of test and inspection data
• 2.5 Miscellaneous Quality Evaluations

9
Internal Failure - Definitions

• Internal failure all costs required to
  evaluate, dispose of, and either correct or
  replace nonconforming products or services prior
  to delivery to the customer. This category
  includes cost to replace incorrect or incomplete
  product or service description (documentation).
• Costs that occur before the product is delivered
  to the customer

10
Internal Failure - Examples

• 3.1 Product or service design failure costs
• internal corrective action
• Scrap and rework due to design changes
• 3.2 Purchasing failure costs
• Purchased material disposition/replacement cost
• supplier corrective action
• rework of supplier rejects
• 3.3 Operations (product or service) failure costs
• Material review and corrective action
• Operations rework and repair costs
• Troubleshooting or failure analysis costs
• Internal failure labor losses
• Scrap costs
• 3.4 Other internal failure costs

11
External Failure - Definitions

• External failure all costs due to actual or
  suspected nonconforming product or service after
  delivery to customer
• Costs that occur after the delivery of product or
  while furnishing a service to the customer

12
External Failure - Examples

• 4.1 Complaint investigations of customer or user
  service
• 4.2 Returned goods
• 4.3 Retrofit and recall costs
• 4.4 Warranty claims
• 4.5 Liability costs
• 4.6 Penalties
• 4.7 Customer or user goodwill
• 4.8 Lost sales
• 4.9 Other External Failure Costs

13
Contact Information

• Email Burtner_J_at_Mercer.edu
• US Mail
• Mercer University School of Engineering
• 1400 Coleman Avenue
• Macon, GA
• Phone [phone]