Qaulity and It's Cost

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What is Quality?

   Numerous organizations, experts and standards have their own definition of quality.  However, in the measurable sense, quality can be defined as: Conformance to requirements; The degree to which a set of inherent characteristics fulfills requirements; Fitness for use; A product or service free of deficiencies; and Uniformity around a target value.  In the simplest sense, quality is determined by evaluating whether a product or service is “what it’s supposed to be.”  And ultimately, it is the customer, or user of the product or service that makes the final determination of quality.

   The process of manufacturing products or providing services to a customer entails many costs. A key to those costs is the Cost of Quality which can be defined as the sum of costs incurred in maintaining acceptable quality levels plus the cost of failure to maintain that level.  Failure to maintain acceptable quality levels is often referred to as the Cost of Poor Quality.  The Cost of quality is comprised of four elements:

1. External Failure Cost

Cost associated with defects found after the customer receives the product or service, for example: processing customer complaints, customer returns, warranty claims, product recalls. 

3. Appraisal (inspection) Cost

Cost incurred to determine the degree of conformance to quality requirements (measuring, evaluating or auditing) such as: inspection, testing, process or service audits, calibration of measuring and test equipment.

2. Internal Failure Cost

Cost associated with defects found before the customer receives the product or service for example: scrap, rework, re-inspection, re-testing, material review, material downgrades.

4. Prevention Cost

Cost incurred to prevent poor quality by keeping failure and appraisal costs to a minimum.  Examples are: new product review, quality planning, supplier surveys, process reviews, process improvement actions, mistake proofing, education and training.  The goal here is “doing it right the first time.”

The bottom line for quality costs

The Cost of Quality is not the price of creating a quality product or service.  It’s the cost of NOT creating a quality product or service.  Any cost that would not have been expended if the quality were “perfect” contributes to the cost of quality.  Investments in Prevention reduce Appraisal and Failure Costs, and can result in a dramatic improvement in the bottom line profits.