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Understanding Cost of Quality Management

This document discusses the cost of quality framework developed by quality experts Joseph Juran, Armand Feigenbaum, Philip Crosby, and others. It identifies four main cost categories: costs of prevention, appraisal, internal failure, and external failure. Prevention costs aim to prevent defects, while appraisal costs relate to inspection and testing. Internal failure costs arise from rework and scrap before delivery, and external failure costs occur after delivery when customers reject products due to quality issues. The document provides examples of costs that fall under each category and estimates that cost of poor quality can account for 15-30% of sales.

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Shounak Dutta
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470 views11 pages

Understanding Cost of Quality Management

This document discusses the cost of quality framework developed by quality experts Joseph Juran, Armand Feigenbaum, Philip Crosby, and others. It identifies four main cost categories: costs of prevention, appraisal, internal failure, and external failure. Prevention costs aim to prevent defects, while appraisal costs relate to inspection and testing. Internal failure costs arise from rework and scrap before delivery, and external failure costs occur after delivery when customers reject products due to quality issues. The document provides examples of costs that fall under each category and estimates that cost of poor quality can account for 15-30% of sales.

Uploaded by

Shounak Dutta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

COST OF QUALITY

Cost of Quality
Joseph Juran first discussed cost of quality analysis in
1951 in the first edition of Quality Control Handbook.

Armand Feigenbaum identified the four cost categories in


1956 in “Total Quality Control” in the Harvard Business
Review, Vol. 34, No 6

• Cost of Control (Prevention costs and Appraisal costs)


• Costs of Failure of Control (Internal defect costs,
External defect costs)

Quality Management 2
Crosby’s categories
– • Price of Conformance (POC/COC)
– Prevention costs
– Appraisal costs
– • Price of Non conformance (PONC/CONC/ COPQ)
– Internal defect costs / Internal Failure Cost
– External defect costs / External Failure Cost

• “COPQ is the sum of all costs that would disappear if there


were no quality problems.”- Juran

• “You can easily spend 15 - 30% of your sales dollars on


PONC.” - Crosby
Internal Failure Cost
INTERNAL FAILURE COSTS: arise due to internal failures. Such costs result
from a product or service failing to meet the quality requirement prior to
delivery. These costs arise within the organization because of the failure to
achieve the specific quality, before transfer of ownership to the customer.

• Scrap
• Rework
• Reset
• Downtime
• Yield Losses
• Disposition

Quality Management 4
EXTERNAL FAILURE COST

EXTERNAL FAILURE COSTS: It arises from the rejection of the products or


services by the customers due to poor quality. These are the costs that arise outside
the organization, i.e. after the transfer of ownership to the customer, because of
failure to achieve the quality specified.

Customer Dissatisfaction: Warranty Cost

Pricing Errors

Penalties

Quality Management 5
APPRAISAL COST
APPRAISAL COSTS relate to testing, execution an examination to assess
whether specified quality is being maintained. These are the costs that are
incurred in assessing that the products or service conform to the requirements.
costs can be contained or reduce when there is emphasis on quality
improvement. Also called Detection Cost.

Drawing Checking Final Inspection

In process Inspection Receiving Inspection

Maintaining Accuracy of test equipment

Quality Management 6
PREVENTIVE COST

Costs relate to efforts to prevent failures. These are the costs that are incurred on
preventing a quality problem from arising. The cost of planning, introduction and
maintenance of a quality system, and costs of any action taken to investigate,
prevent or reduce non-conformities or defects would be included in this category.

Quality Planning Capability Studies New Design Review

Vendor Surveys Procedure Writing Customer Surveys

Market Analysis Training Improvement projects

Quality Management 7
COST OF POOR QUALITY CONTRIBUTION

COQ Category Estimated Contribution

Internal Failures 25 to 40 %

External Failures 25 to 40%

Appraisal 10 to 50%

Prevention .5 to 5%

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Deming, Juran, Crosby on COQ
• Deming – the cost of non conformance, and the
resulting loss of good will, is so high that
measuring it is not necessary

• Juran – as defect prevention increases, the cost of


scrap/rework decreases faster. Need to know
where to look

• Crosby – money is the language of management,


you need to show them the numbers

Quality Management 9
Something to think about

Net profits for many companies is less than 5% of sales


• COPQ on the average is 17% of sales

• COPQ is some companies is as high as 40%


of sales

• COPQ is typically 3 to 6 TIMES as large


as profits

Quality Management 10

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