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How to Double your Profit
without Capital Investment
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Cost of Poor Quality
Historically, Cost of Poor Quality has been:
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%euce wor4force
7ther
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Option 3
7ption ): :ifficult
7ption 2: 9yopic
)ption *+ ,est
/
'ntelli!ent an sustainable
/
+ar!et )*** 0 %7'
/
'mpro#es bottom-line without capital in#estment
/
%euces cycle time
/
%euces warranty costs
/
%euces chronic waste
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)ption *+ -.plaine&
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Categories of Quality Costs
1ailure Costs
/
'nternal
/
;xternal
2ppraisal Costs
Pre#ention Costs
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Internal Failure Costs
/hese are $osts of &efi$ien$ies &is$overe& before
&elivery# whi$h are asso$iate& with the failure
0non$onformities1 to meet e.pli$it re2uirements or
impli$it nee&s of the e.ternal or internal
$ustomers3
(lso in$lu&e& are avoi&able pro$ess losses an&
ineffi$ien$ies that o$$ur even when re2uirements
an& nee&s are met3 /hese are $osts that woul&
&isappear if no &efi$ien$ies e.iste&3
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External Failure Costs
/hese are $osts asso$iate& with &efi$ien$ies that
are foun& after pro&u$t is re$eive& by the
$ustomer3
(lso in$lu&e& are lost opportunities for sales
revenue3 /hese $osts also woul& &isappear if
there were no &efi$ien$ies3
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ppraisal Costs
/hese are the $osts in$urre& to &etermine the &e4ree of
$onforman$e to 2uality re2uirements3
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Pre!ention Costs
/hese are $osts in$urre& to 5eep failure an& appraisal
$osts to a minimum3
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Example" Post Cost #e$uction
"ummary of XY Co profit an loss account after
reucin! Cost of 1ailure an 2ppraisal by 3*0