Donald E.

Stout, Jr 6/1/2020

ME- 308 Quality Engineering

Dr. Abdul Shakoor

Lecture 2 – Cost of Quality
[email protected]

1
ME – 308 Quality Engineering

Question:
 What are costs of quality?
 Task: Create your list of quality costs and
share with the class.

 What is the relationship between quality

and productivity?

Cost of Quality

Cost of Quality 1
Donald E. Stout, Jr 6/1/2020

Quality cost
A quality cost is considered to be any cost
that the company would not have
incurred if the quality of the product or
service were perfect.

Cost of Quality

Quality costs
Total quality costs are the sum of
prevention costs, appraisal costs, and
internal and external failure costs.

Cost of Quality

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Donald E. Stout, Jr 6/1/2020

Quality costs increase over

time
Liability costs
Failure Costs

Failure found by customer

Field repair costs

Failure found at installation

Failure found at final inspection

Failure found at onset of manufacture
Failure found during design phase
Prevention Costs

Time when failure found

Cost of Quality

Hidden Costs of Poor

Quality
Reprocessing
Customer returns
Rejects
Warranty expenses

Lost sales Loss of goodwill

Overtime to correct errors
Process downtime
Extra inventory Delays
Premium freight costs Extra process capacity
Extra inventory

Cost of Quality

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Donald E. Stout, Jr 6/1/2020

ICEBERG Model

Cost of Quality

Balanced Score Card

TQM Element Financial Measure Non-financial Measure

Results of customer
satisfaction survey.
Customer External failure cost.
On-time delivery.
satisfaction Field service expense.
Number of customer
complaints.

Defect rates
Yields
Appraisal cost.
Internal Lead times
Internal failure cost.
performance Idle capacity
Prevention cost.
Unscheduled machine
downtime

Cost of Quality

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Donald E. Stout, Jr 6/1/2020

Traditional Model
Total quality costs

Failure costs
unit of product
Cost per good

Cost of appraisal
plus prevention

0% Quality of conformance 100%

COQ

Cost of Quality

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Donald E. Stout, Jr 6/1/2020

Cost of Quality (COQ) model

Cost of Quality

COQ Model
The cost of poor quality affects: ( Non- Conformance )

Internal and external costs resulting from failing to meet

requirements.

The cost of good quality affects: ( Conformance )

Costs for investing in the prevention of non-conformance to

requirements.
Costs for appraising a product or service for conformance to
requirements.

Cost of Quality

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Donald E. Stout, Jr 6/1/2020

COQ Model
Cost of Poor Quality – Internal Cost of Poor Quality – External
Failure Cost Failure Cost

•Rework •Complaints
•Delays •Repairing goods and redoing
•Re-designing services
•Shortages •Warranties
•Failure analysis •Customers’ bad will
•Re-testing •Losses due to sales reductions
•Downgrading •Environmental costs
•Downtime
•Lack of flexibility and
adaptability

Cost of Quality

COQ Model
Cost of Good Quality – Cost of Good Quality – Appraisal
Prevention Cost Cost

•Quality planning •Checking and testing purchased

•Supplier evaluation goods and services
•New product review •In-process and final inspection/test
•Error proofing •Field testing
•Capability evaluations •Product, process or service audits
•Quality improvement team •Calibration of measuring and test
meetings equipment
•Quality improvement projects
•Quality education and training

Cost of Quality

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Donald E. Stout, Jr 6/1/2020

Emerging COQ Model

Total quality costs

Failure costs
unit of product
Cost per good

Cost of appraisal
plus prevention

0% Quality of conformance 100%

COQ as motivator
 Companies under TQM do not focus on
quality cost minimization.
 Quality improvement projects tend to
focus on zero defects or defect reduction
to the six-sigma level.

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Donald E. Stout, Jr 6/1/2020

The 1-10-100 Rule

Prevention
$ 1
Correction
$ 10

Failure
$

$ 100

COQ Theme
 Costs are not incurred or allocated, but
rather caused.
 Cost information does not solve quality
problems, nor does it suggest specific
solutions.
 Problems are solved by tracing the cause
of a quality deficiency.

Cost of Quality 9
Donald E. Stout, Jr 6/1/2020

Balanced Score Card

 The balanced scorecard is a strategic planning

and management system that is used extensively
in business and industry, government, and
nonprofit organizations worldwide to align
business activities to the vision and strategy of the
organization, improve internal and external
communications, and monitor organization
performance against strategic goals

Cost of Quality

BSC
The balanced scorecard (BSC) is a strategic
planning and management system that
organizations use to:
 Communicate what they are trying to accomplish

 Align the day-to-day work that everyone is doing

with strategy
 Prioritize projects, products, and services

 Measure and monitor progress towards strategic

targets


Cost of Quality

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