| What is it? |
| The
price of nonconformance (Philip Crosby) or the cost of poor quality (Joseph Juran), the
term 'Cost of Quality', refers to the costs associated with providing poor quality product
or service. |
| Why is it
important? |
| Quality
processes cannot be justified simply because "everyone else is doing them" - but
return on quality (ROQ) has dramatic impacts as companies mature. Research shows that the
costs of poor quality can range from 15%-40% of business costs (e.g., rework, returns or
complaints, reduced service levels, lost revenue). Most businesses do not know what their
quality costs are because they do not keep reliable statistics. Finding and correcting
mistakes consumes an inordinately large portion resources. Typically, the cost to
eliminate a failure in the customer phase is five times greater than it is at the
development or manufacturing phase. Effective quality management decreases production
costs because the sooner an error is found and corrected, the less costly it will
be. |
| When to use it? |
Cost of quality comprises of four elements:
| 1 |
External Failure Cost
cost associated with defects found after the customer receives the product or service ex: processing customer complaints, customer returns, warranty claims,
product recalls. |
| 2 |
Internal Failure Cost
cost associated with defects found before the customer receives the product or service ex: scrap, rework, re-inspection, re-testing, material review, material
downgrades. |
| 3 |
Inspection (appraisal) Cost
cost incurred to determine the degree of conformance to quality requirements (measuring,
evaluating or auditing) ex: inspection, testing, process or service
audits, calibration of measuring and test equipment. |
| 4 |
Prevention Cost
cost incurred to prevent (keep failure and appraisal cost to a minimum) poor quality ex: new product review, quality planning, supplier surveys, process
reviews, quality improvement teams, education and training. |
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| How to use it? |
Follow
this five step process.
| 1 |
gather some basic information about the number
of failures in the system |
| 2 |
apply some assumptions to that data in order
to quantify the data |
| 3 |
chart the data based on the four elements
listed above and study it |
| 4 |
allocate resources to combat the weak-spots |
| 5 |
do this study on a regular basis and evaluate
your performance |
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| Food for Thought ! |
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