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Cost of Quality

MMS Sem IV

Total Quality Cost

II want
want my
my
money
money
back!
back!

Prevention

Internal
Failure

Appraisal

$
Cost of Quality (COQ)
Cost of Poor Quality 2 .PPT

External
Failure

Cost of Quality (COQ)


costs
costs associated
associated with
with quality
quality generally
generally fall
fall into
into
two
two categories:
categories:
Non-Conformance-Costs
Non-Conformance-Costs
associated
associatedwith
with activities
activities
to
tocorrect
correctfailure
failureto
to
control
controlquality.
quality.

Conformance
Conformance -Costs
-Costs
associated
associated with
with
controlling
controlling quality.
quality.

Two Costs associated with controlling quality


Prevention
Prevention

Costs
Costsaimed
aimedat
atpreventing
preventingdefects
defects
and
andbuilding
buildingacceptable
acceptablequality
quality
into
intoproducts
products&
&services.
services.ItIt
includes
includes
Training
Training&
&Designing
Designing
procedures
procedures
Certifying
CertifyingSuppliers
Suppliersvendor
vendordev
dev
Development
Development &
&maintenance
maintenance
costs
costsas
aswell
wellas
asquality
qualityplanning
planning
cost.
cost.
Process
ProcessImprovements
Improvements

Appraisal
Appraisal

Costs
Costsincurred
incurredto
to measure
measure
extent
extentof
ofconformance
conformance(ascertain
(ascertain
the
thequality
qualityof
ofaaproduct
productetc)and
etc)and
include
costs
mentioned
below:include costs mentioned below: Measuring,Inspecting,Testing
Measuring,Inspecting,Testing
&
&auditing
auditingto
todetermine
determine
conformance
with
conformance withStandards.
Standards.
Inspecting
Inspectingcosts
costs
Production
Productiontrials
trialscosts
costs
Materials
Materialsconsumed
consumedduring
during
inspection
inspection&
&testing.
testing.
Maintenance
Maintenance&
&calibration
calibrationof
of
equipment
costs.
equipment costs.

Costs of Failing to Control Quality


Internal
InternalFailure
Failure

Costs
Costsassociated
associatedwith
with
defects
defectsin
inproducts
productsand
and
processes
processes that
that are
are found
found
prior
prior to
todelivery
delivery to
to
customers.
customers.
COST
COSTOF:OF: Scrapping
Scrapping
Rework
Rework
Repair
Repair
Loss
Lossof
of productive
productive time
time

External
External Failure
Failure
Costs
Costsassociated
associatedwith
with
defects
defectsin
inproducts
productsand
and
processes
processes that
that are
are
detected
detected after
after delivery
delivery to
to
customers.
customers.
COST
COSTOF
OF :-: Complaint
Complaint handling
handling
Repairs
Repairs
Extended
Extended warranty
warranty
Replacement
Replacement
Product
ProductLiability
Liability
Restoring
Restoringreputation
reputation 7-5

Traditional Cost of Poor Quality


When quality costs are initially determined, the
categories included are the visible ones as depicted
in the iceberg below.
Waste
Testing Costs

Rejects

Rework

Cost of Poor Quality 6 .PPT

Customer Returns
Inspection Costs
Recalls

Cost of Poor Quality


As an organization gains a broader definition of poor quality,
the hidden portion of the iceberg becomes apparent .
Waste

Testing Costs

Customer Returns

Rejects

Inspection Costs

Rework

Recalls

Excessive Overtime
Pricing or
Billing Errors

Potential lost sales due to Quality


Late Paperwork

Excessive Field
Services Expenses

Excessive
Employee Turnover

Planning Delays

Cost of changing Manufacturing process due


to inability to meet Quality requirement
Customer Allowances

Unused Capacity

Complaint
Handling

Premium Freight Costs

Overdue Receivables

COPQ ranges
from 15-25%
of Sales
Cost of Poor Quality 7 .PPT

Excess Inventory

Cost of redesign
due to quality reasons

Unreported
Scrap

Development Cost of Failed Product

Hidden COPQ: The


costs incurred to deal
with chronic
problems

USE, PURPOSE OF Quality COST


It provides ability to enhance corporate profit
Helps to identify waste in activities
Helps to identify quality problems
COQ is critical for judgment of process effectiveness
Measurement of these costs helps to identify areas
needing improvement.
Guide for improvement
Gives a monetary angle to quality parameters