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Cost of Quality

The document discusses the concept of cost of quality, which refers to the costs associated with preventing poor quality and the costs incurred due to poor quality. It outlines the need to measure cost of quality as poor quality can account for 15-40% of business costs. The categories of cost of quality are described as appraisal costs, preventive costs, internal failure costs, and external failure costs. Examples are provided for each category. Measuring and tracking cost of quality provides benefits like quantifying quality problems and identifying opportunities for cost reduction.

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Madhupam Bansal
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155 views18 pages

Cost of Quality

The document discusses the concept of cost of quality, which refers to the costs associated with preventing poor quality and the costs incurred due to poor quality. It outlines the need to measure cost of quality as poor quality can account for 15-40% of business costs. The categories of cost of quality are described as appraisal costs, preventive costs, internal failure costs, and external failure costs. Examples are provided for each category. Measuring and tracking cost of quality provides benefits like quantifying quality problems and identifying opportunities for cost reduction.

Uploaded by

Madhupam Bansal
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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COST OF QUALITY

Group 2
Maanik Mahajan 28
Ashish Mehra 38
Madhupam Bansal 176
Flow of the Presentation
Basic Concept

Need of COQ

Effects of Poor Quality

Categories of COQ

Measuring COQ

Framework used by Fortune 500 Company

Benefits of using quality costs


Basic concept
Cost of quality refers to the sum of costs incurred to
prevent non-conformance from happening and the
costs incurred when non-conformance in products
and system occurs which is commonly known as cost
of poor quality.
Cost of poor quality is actually the cost of doing things
wrong Cost of poor quality refers to the costs
associated with providing poor quality product or
service
Why do we need to know COQ?
This tool speaks in the language of management.
Research shows that cost of poor quality can range
from 15 % to 40 % of the business costs.

It can prioritize quality improvement actions.

 Cost of quality data shows how profit is affected by


quality.

It helps identify the redundant activities


Effects of Poor Quality
Hidden Failure
Costs Scrap
Warranty Rework
Decreased capacity
Increased inventory
Shop and field downtime
Management time
Engineering time
Customer dissatisfaction
Lost sales Lost customer trust
Cost of quality – Categories
Costs Quality costs fall into four main categories:

1. Appraisal Costs

2. Preventive Costs

3. Internal failure Costs

4. External failure Costs


Appraisal costs

These are the costs associated with measuring,


evaluating or auditing product or service to assure
conformance to standard or performance requirement.
Examples of Appraisal Costs
Internal audits.
Incoming material inspection.
 Laboratory testing.
 Calibration costs.
 In process material inspection.
 Equipment calibration.
 Procedure evaluation.
 Final product inspection.
 Automated testing tools
PREVENTIVE COST

Preventive costs are the cost of all activities specifically


designed to prevent poor quality product or service.
These costs are incurred to keep appraisal and failure
costs at minimum.
Examples of Preventive Costs
Process Capability studies.
 Market surveys.
 Pilot scale projects and testing.
 Procedure writing.
 Vendor evaluation and testing.
 Training and education.
 Quality improvement projects.
 Customer survey.
 House keeping.
 Design review
Internal failure cost

These are the costs incurred when product or service


fail to meet quality requirements prior to the transfer
of ownership to the customer.
Examples of Internal Failure Costs
Rework Scrap.
 Overtime.
Downtime.
Excess inventory.
 Excess material handling.
 Redesign.
 Downgrading.
 Retesting.
 100% sorting inspection.
 Scrap & rework - supplier
External failure cost

These are the costs incurred by a business due to


failure of product or service at the customer end.
These costs results into warranty claims and loss of
reputation.
Examples of external failure costs
Warranty costs.
 Customer dissatisfaction.
 Loss of market share.
 Price concession.
 Premium freight.
 Product recalls.
Time spent to resolve customer complaints.
 Restocking costs.
 Other penalties.
Measuring cost of quality
COQ data can be measured and presented in many
different ways like:

1. % age of sales
2. % age of profits
3. % age of manufacturing cost
4. Rs per direct labor hr
5. Rs per unit of product
Benefits of using quality costs
Quantify the size of the quality problem.
 Identify major opportunities for cost reductions.
 It helps in Identification of opportunities for reducing
customer dissatisfaction and associated threats to
product saleability.
Measures the results of quality improvement activities.
 Align quality goals with organizational goals.
Set cost reduction targets.

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