Cost of Quality

Presentation by
-Virat Tara

What is Cost of Quality?

It is the amount of money that a management
is ready to spend or invest to mantain certain
standards.
Example:Costs incurred on Training
employees,experts for checking quality etc.
Cost of Quality:
1. Cost of Conformance
2. Cost of Non-Conformance

Cost of Conformance:
It is the unavoidable cost (a must to
achieve quality) that organisation spends
to meet the specifications.
Cost of Conformance:
1. Preventive Cost
2. Appraisal Cost

Preventive Cost:
It is the cost of all activities specifically
designed to prevent poor quality product or
service.The preventive measures are taken
before the production and thus can help in
reducing appraisal and failure costs.
Example:Supplier Quality Planning,Supplier
review/surveys,Process Control Planning,Quality
Training,Customer Surveys.

Appraisal Cost:
The cost incurred on in-process goods for
identifying, analysing,measuring
deviations.
Example:internal inspections,laboratory

testing,incoming material inspection,equipment

callibration,final product testing

Cost of Non-Conformance:
The amount of money the organistaion has
to incur because of non-achievement of
specifications
Cost of Non-conformance:
1. Internal failure cost
2. External failure cost

Internal Failure Cost:

This is the cost incurred when product or
service fails to meet the quality standards
prior to the tranfer of ownership to cusomer
Incident:In a recent incident a cargo ship
carrying 1,200 Jaguars and Land
Rovers(approx. $45M worth)

External Failure Cost:

This cost is incurred after the transfer of ownership
i.e at the customer end.This failure results in
penalties and loss of reputation.
Incidents:
1. In 2000 Bridgestone & Firestone recalled 60 lakh tires after an
investigation revealed tire tread separation was linked to 46
deaths.The rubber used in those tires was expired,this was
neglected due to hasty inspections.
2. In similar cases Ford motors has recalled over 2 Crore 40 Lakh
vehicles since 2004.

Optimization:
Price of a product = Manufacturing cost of a
product + profit
Manufacturing cost includes the money spent to
maintain quality
Thus the as we spend on quality we increase the
products price
Therefore we need to optimize this whole
procedure

Case Study:Everest Spices

Category

Everest Spices(1999)

External Failure Costs

14%

Inernal Failure Costs

Cost of NonConformance
Appraisal Costs
Prevention Costs
Cost of
Conformance

64%
=78%

13%
9%
=22%

Case Study:Everest Spices

Category

Everest Spices(2000)

Appraisal Costs

22%

Prevention Costs
Cost of
Conformance
External Failure Costs
Inernal Failure Costs
Cost of NonConformance

30%
=52%

5%
43%
=48%

Conclusions:
Thus application of Cost of quality approach
helps an organisation to know where and
how much to spend to maintain the quality
and brand reputation.