ch 4 cost of quality jkr

8/2/2019 Ch 4 Cost of Quality JkR

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Introduction to QualityManagement

Cost of Quality


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Quality Costs

Cost incurred by an organization to

ensure that the products/services it

provides conform to customer

requirements.

The sum of money spent on

ensuring that customers

requirements are met.

A. ebakeru a Roslin - Asst. Prof DCE 2


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Definition of Quality Costs

Quality costs are defined as those

costs associated with the

achievement of product/servicequality as defined by the

requirements established by the

organization and its contracts with

customers and society.



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Elements of Quality costs

1. Cost of Prevention,

2. Cost of Appraisal,

3. Cost of Internal Failures, and

4. Cost of External Failures.



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Type of Quality Cost

1. Cost of Conformance.

2. Cost of Non-Conformance

3. Basic Operational Costs

4. Prevention, Appraisal and

Failure (PAF) Costs



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Cost of Conformance (COC)

Cost of Conformance (COC) is the cost

which an organization incurs in meeting

the requirements of its customers.

A strong element of this cost is the money

that a company spends on the product

for preventing it from going wrong or

checking the product right before it

reaches the customer.



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Cost of Non-Conformance (CONC)

The cost ofnon-conformance to

customer requirements are the

failure costs.

These costs are incurred by a

company in repairing what has

gone wrong during

manufacturing.



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Basic Operational Costs (BOC)

The basic operational costs

(BOC) are those costs which

an organization cannot

avoid encountering during

the normal performance of

its business.



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Benefits of reducing Cost of Quality

CONC

Cost of

Quality

(CoQ)

Cost ofQualityReduce

d

Improved Customer

Satisfaction



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PAF Model A. V. Feigenbaum

In 1956 he propounded the concept of quality costs.

He defined quality costs as:

Those costs associated with the creation and

control of quality as well as the evaluation and

feedback of conformance with quality, reliability

and safety requirements, and those cost associated

with the consequence of failure to meet the

requirements both within the factory and in the

hands of customer.



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Cost of Prevention

Prevention costs are the cost of any activity

undertaken by a company which prevents things

from going wrong.



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Cost of Prevention may include cost of:

Quality Data Collection



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Quality Improvement Projects



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Field Trials



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Market Research



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Quality planning



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Quality Education and Training

S i x S i g m aK a i z e n F E M A



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Statistical Process Control



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Technical Reviews



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Cost of Prevention may includecost of:

1. Quality Data Collection;

2. Quality Improvement

Projects;

3. Field Trials;

4. Market Research;

5. Quality planning;

6. Quality Education and

Training;

7. Statistical Process

Control; and

8. Technical Reviews



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Cost of Appraisal

Appraisal costs are the cost of all inspection and

checking activities that occur within an organization to

ensure that the product or service does not reach the

customer in a Defective state.



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Cost of appraisal may include cost of:

Goods inspection



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In-progress inspection



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Purchase Order Checking



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Final stock inspection



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Laboratory inspection



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Quality audits



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Financial audits



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Calibration ofquality measurement



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1. Goods inspection;

2. In-progress inspection;

3. Purchase Order

Checking;

4. Final stock inspection;

5. Laboratory

inspection;

6. Quality audits;

7. Financial audits and

8. Calibration of quality

measurement



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Failure Cost

Failure cost can be further divided into:

Internal Failure Costs and

External Failure Costs.



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Internal Failure cost

The internal failure costs are defined

as the non-conformance costs that

result from things going wrong

during the process of manufacture

or service provision.

These costs are detected before the

product reaches the customer.



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Some of the Internal Failure Costsare:

Scrap

Downtime caused by

defects

Rework and repair

Re-inspection of rework

Excess inventory

Typing errors

Failure analysis

Downgrading

because of defects.



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External Failure Costs

The external failure

costs may be defined as

non-conformance costs that

result from the discovery of

defects or errors by the

customer once the product

or service has left the

organization.



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Some of the External Failure Costsare:

Warranty

adjustments Repairs

Customer service

Faulty invoices

Product recalls Returned goods



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Characteristics of quality cost

10%

60%30%

The total price of a

particular product or

service 60% of cost is

operational cost, 30% cost

is quality cost and the rest

10% is profit as stated in

the figure.



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Characteristics of quality cost

The characteristics of quality cost is when we

start to implement TQM in an organization the

cost of non-conformance will be reduced and

pay more attention on cost of conformance.

As a result the quality cost will be reduced to

10% and the profit will be increased to 30%.



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Before Implementing TQM



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After Implementing TQM



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Apparent and Hidden Quality Cost



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The apparent quality cost and the

hidden quality cost is compared to

iceberg floating in the water.

As shown in the figure, only 10% of the

quality cost will be visible and can be

noticed at any point of time.



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These are termed as

apparent quality costs.

The remaining 90% of

quality costs are not seen

or noticed.



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They are usually hidden as an iceberg

floating in water and termed as

hidden quality cost.

When an iceberg floats at any point of

time only about 10% of the total mass

will be floating out of water.



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The remaining 90% will be inside the

water.

Once the 10% mass is cut-off then

another small portion of about 10% of

the remaining mass will emerge out.

The process will continue till the last bit

of ice is removed.

ch 4 cost of quality jkr

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