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Cost of Quality

This document discusses the costs of poor quality in manufacturing. It identifies four main types of quality costs: internal failure costs, external failure costs, appraisal costs, and prevention costs. Internal failure costs make up 80% of total quality costs on average. The document also lists examples of hidden quality costs and presents models for the total quality cost curve and optimal quality cost.

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raveendramanipal
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100 views11 pages

Cost of Quality

This document discusses the costs of poor quality in manufacturing. It identifies four main types of quality costs: internal failure costs, external failure costs, appraisal costs, and prevention costs. Internal failure costs make up 80% of total quality costs on average. The document also lists examples of hidden quality costs and presents models for the total quality cost curve and optimal quality cost.

Uploaded by

raveendramanipal
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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COST OF POOR QUALITY

QUALITY COSTS

TQM

KRR

2013

COMPANY-WIDE ASSESSMENT OF QUALITY


* Cost of Poor Quality * Standing in the Market Place * Quality culture in the organisation * Operation of the company quality system
TQM KRR 2013

COST OF POOR QUALITY


Internal Failure Cost : These are the costs associated with defects that are found prior to transfer of product to customer. These costs would disappear if no defects existed in the product before shipment.
Categories of Internal failure costs Scrap(overhead on defective products) Rework Failure analysis Scrap and rework supplies 100% sorting inspection( due to very high levels of defectives) Reinspection and retesting (after rework)
TQM KRR 2013

External Failure Costs: These costs are associated with defects that are found after product is shipped to the customer. Examples: Warranty Charges Complaint adjustment Returned Material (Replacement of defective products) Allowances : Costs of concessions made to customers due to substandard product being accepted by the customer as is or to conforming product that does not meet fitness for use specifications.

TQM

KRR

2013

Appraisal Costs: These are the costs incurred in determining degree of conformance to quality requirements Examples : Incoming inspection and testing In-process inspection and testing Final Inspection and testing Product quality audits Maintaining quality of testing equipment Inspection and testing of materials and services (e.g., power) Evaluation of stock

TQM

KRR

2013

Prevention Costs: These are costs incurred in keeping failure and appraisal costs to a minimum. Examples: Quality Planning New -Product review Process control Quality Audits Supplier quality evaluation (Vendor Rating Index,etc) Training

TQM

KRR

2013

COSTS OF POOR QUALITY


Internal failure Costs External Failure Costs Appraisal Costs Prevention Costs
80% 15% 5%

TQM

KRR

2013

How to make upper management realize these costs of Quality? Quality Costs as percentage of Sales Quality Costs compared to profits Quality Costs as percentage of cost of goods sold Quality costs as percentage of total manufacturing cost Effect of Cost of quality on BEP

TQM

KRR

2013

Hidden Costs of Quality


Lost Sales Process downtime Extra Inventory Damaged goods Overtime to correct errors Loss of goodwill Paperwork errors Delays Obsolete Inventory Incorrect order Shipped Extra Process capacity Premium Freight Costs Customer Allowances
TQM KRR 2013

OPTIMUM QUALITY COST

TQM

KRR

2013

TOTAL QUALITY COST CURVE

TQM

KRR

2013

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