Cost of Quality
Quality is one of the key components of any operation, on the basis that it consumes both labour and material without a return. Ultimately, it impacts on our ability to satisfy the customer. Therefore, looking at the cost of quality is crucial.
Many organisations will have true quality costs as high as 15 to 20 percent of sales revenue, some going as high as 40 percent of total operations. A general rule of thumb is that costs of poor quality in a thriving company will be about 10 to 15 percent of operations.
Phil Crosby contends that doing it right the first time is always cheaper than reworking, scrapping or servicing defective products. Because the associated costs, with these issues are so high, installing preventative systems to ensure it is done right first time the cost of quality is zero – it is free.
Quality Costs – Categorisation
The cost of quality is generally classified into four categories:
- External Failure Cost
- Internal Failure Cost
- Inspection (appraisal) Cost
- Prevention Cost
- External Failure Cost:
Cost associated with defects found after the customer receives the product or service.
Example: Processing customer complaints, customer returns, warranty claims, product recalls.
- Internal Failure Cost:
Cost associated with defects found before the customer receives the product or service.
Example: Scrap, rework, re-inspection, re-testing, material review, material downgrades.
- Inspection (appraisal) Cost:
Cost incurred to determine the degree of conformance to quality requirements (measuring, evaluating or auditing).
Example: Inspection, testing, process or service audits, calibration of measuring and test equipment.
- Prevention Cost:
Cost incurred to prevent (keep failure and appraisal cost to a minimum) poor quality.
Example: New product review, quality planning, supplier surveys, process reviews, quality improvement teams, education and training.
Installing a quality system based on prevention rather than cure, whether in a large plant or a small business, will boost profits.
This is not a ‘pipe dream’, the systems exist and have been proven to work. There are some basic requirements; the process will only be successful if it is embraced at the top of the organisation. The process requires commitment, knowledge and experience, dedication, patience and time.
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