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CONCEPT
Joseph Juran first discussed cost of quality analysis in 1951 in the first edition of Quality Control Handbook It was first described by Armand V. Feigenbaum in a 1956. In Process improvement efforts, the concept of quality costs or cost of quality is a means to quantify the total cost of quality related efforts and deficiencies. Definition:Quality costs are alll those costs that arise from not performing a task the right way the first time. In short it is cost of poor products or services.

NEED OF STUDY OF QUALITY COST?

Aim of any business is to make PROFIT. Organization wants better quality and customer satisfaction at lower cost. Reduction in quality cost increases profits. Quality is free Many think producing quality job increases cost money and adversly decreases profit But actually quality cost are cost of doing it first time wrong Ie first time wrong leads to scrap, rework, repair, reset, etc
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The Traditional Cost-of-Quality Model

The model states that cost can be divided into two broad categories: 1. 2. Conformance Costs Non-Conformance Costs

Classification

Non conformance

conformance

Conformance Costs
A. Prevention costs: Costs associated with all activities designed to prevent defects in product or service. These include : The direct and indirect costs related to quality training and education, pilot studies, quality circles, quality engineering, etc. These costs are used to build awareness of the quality program and to keep the costs of appraisal and failure to a minimum. Prevention costs are all costs incurred in an effort to make it right the first time.
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Types of Prevention Costs

1. Quality planning and engineering: creation of the overall quality plan, the inspection plan, the reliability plan, the data system, all activities of the quality assurance function, the preparation of manuals and procedures used to communicate the quality plan, costs auditing the system. New products review: evaluation of new designs, preparation of tests & experimental programs to evaluate the performance of new products.

2.

Types of Prevention Costs cont.

Product & process design: Costs incurred during the design of the product or the selection of the production processes that are intended to improve the Overall quality of the product. Process control: the cost of process control techniques, such as control charts, that monitor the manufacturing process in an effort to reduce variation and build quality into the product. Training: the cost of developing, preparing, implementing, operating, and maintaining formal training programs for quality. Quality data acquisition and analysis: the cost of running the quality data system to acquire data on product and process performance. Includes cost of analyzing these data to identify quality problems.

Conformance Costs
B. Appraisal costs The costs associated with measuring and evaluating the product or service quality to ensure conformance. These include the cost of inspection, test or audit of purchases, manufacturing or process operations and finished goods or services. The direct and indirect costs of the various tests & inspections to determine the degree of conformity are included in this category.
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Types of Appraisal Costs

1. Inspection & test of incoming material: Costs associated with the inspection and testing of all vendor-supplied material. Receiving inspection & test The same at the vendors facility Periodic audit of the vendors quality assurance system. Product inspection & test: The cost of checking the conformance of the product throughout its various stages of manufacturing. Final acceptance testing Packing and shipping checks Salaries of inspectors and supervisors.
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2.

Types of Appraisal Costs cont.

3. Materials & Services consumed: The cost of operating a system that keeps the measuring instruments and equipment in calibration. 4. Maintaining accuracy of test equipment: the cost of operating a system that keeps the measuring instruments and equipment in calibration.

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Non-Conformance Costs
These are associated with products or services that do not conform the customer's requirement. They are often referred to as failure costs and consist of two types. Internal failure costs: costs incurred prior to the shipment of the product or the delivery of the service. These costs are associated with defects that are found prior to customer delivery. These include the net cost of scrap, re-inspection and retest, downtime due to quality problems, opportunity cost of product classified as seconds, or other product downgrades. These costs would disappear if there were no defects in the product.

A.

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Types of Internal Failure Costs

1. Scrap costs: The net loss of labor, material and overhead (fixed costs) resulting from defective product that can not economically be repaired or used. Rework: the cost of correcting nonconforming units so that they meet specifications. Rework costs usually include additional operations or steps in the manufacturing process, thus includes extra direct labor, machine time and supplies costs. Retest Cost: the cost of re-inspection and retesting of products that have undergone rework or other modification.
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2.

3.

Types of Internal Failure Costs cont.

4. Downtime costs: the cost of idle production facilities that result from nonconformance to requirements.

5. Downgrading cost: The price differential between the normal selling price and any selling price that might be obtained for a product that does not meet the customers requirements. Downgrading is common in the textile, apparel goods, electronics, and carpet industries. 14

B.

External Failure Costs

The costs of discovered defects occurring after product shipment or service delivery. These costs include warranty charges, customer complaint adjustments, returned merchandise, product recalls, allowances, and product liability. They also include the direct and indirect costs such as labor and travel associated with the investigation of customer complaints, warranty field inspection, tests and repairs. These costs would disappear if every unit of product conforme to requirements and specifications.
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Types of External Failure Costs

1.
2.

3. 4.

Complaint adjustment: all cost of investigation and adjustment of justified complaints attribute to the nonconforming product. Returned product & material: all costs associated with receipt, handling, and replacement of the nonconforming product or material returned from the field. Also recalls of defective product. Warranty charges: all costs involved in service to customers under warranty contracts. Includes repair and replacement of product or parts. Indirect costs: in addition to direct operating costs of external failures, there are some indirect costs. Customer dissatisfaction with the level of quality Loss of good-will; loss of business reputation; loss of future business; loss of market share.
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Effect of increase in prevention cost

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Cost of Quality =
Cost of Prevention+Cost of Appraisal +Cost of Failure

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QUALITY IMPROVEMENT

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Reducing the Cost of Quality

The aim of management is to minimize the cost of quality. It makes no difference if this is done by reducing all three components or by increasing some and decreasing others enough to lower the total cost. To have a significant impact on the total cost; the cost of failure must be reduced, and the usual strategy for achieving this objective is to spend more on prevention. It is always cheaper to do a job right the first time than to do it over.
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The Original COQ model

Total quality costs

Cost per good unit of product

0

Failure costs

Costs of appraisal plus prevention

Quality of conformance %

100

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Behavior of Cost Components During TQM Implementation

Prevention costs remain relatively consistent as the awareness of TQM is built and maintained. Appraisal costs will initially increase as inspection programs are initiated but should eventually level off. Internal failure costs will initially increase as the inspection programs are implemented, but should the gradually decrease with learning. External failure costs should continue to fall as various TQM programs are brought on line..
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Jobs of quality control team

New design control Incoming material control Product control Process studies Statistics study

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