The document discusses quality costs and methods to ensure good quality. It defines quality and different types of quality costs like prevention, appraisal, internal and external failure costs. Ensuring good quality involves having a strong process culture, team, quality processes, supplier management, and relevant metrics. Methods to establish quality include ISO certification, documentation control, auditing and training.

4. What Is Quality?
ISO 8402-1986 standard defines Quality as:
"the totality
of features and characteristics of a
product or service that bears its ability to
satisfy stated or implied needs."

5. Cost of Quality
The “cost of quality” isn’t the price of
creating a quality product or service. It’s
the cost of NOT creating a quality product
or service.

6. Cost of Quality
Every time work is redone, the cost of quality
increases.
Obvious examples include:
• The reworking of a manufactured item.
• The retesting of an assembly.
• The rebuilding of a tool.
• The correction of a bank statement.

7. Historical Views of Quality Gurus
• This concept was questioned by quality
pioneers like Juran and Feigenbaum.
• Juran examined economics of quality and
concluded the benefits outweighed the costs.

8. Historical Views of Quality Gurus
• Feigenbaum introduced “total quality control”
and developed the principles that quality is
everyone’s job, thus expending the notion of
quality cost beyond the manufacturing function.
• In 1979 Crosby introduced the new popular
concept that “quality is free”.

9. Management Professionals About Cost Of
Quality
Higher quality means higher cost:
• Quality attributes such as performance and
features cost more in terms of labor,
material, design, and other costly resources.
• The additional benefits from improved
quality do not compensate for the additional
expenses.

10. The cost of improving quality is less than
the resultant savings:
Deming Promoted this view:
• The savings result from less rework, scrap, and
other direct expenses related to defects.
• This paved the way of continuous process
improvement among Japanese firms.

11. Service Performed Exactly Right The First
Time:
• This view is held by adherents of the TQM
philosophy.
• Costs include not only those that are direct, but
also those resulting from lost customers, lost
market share, and many hidden costs and
foregone opportunities not identified by modern
cost accounting systems.

12. Why is Quality Important?
Before jumping into all of the costs of quality, it’s
important to spell out why quality is so
important.?
Higher quality – better and more consistent
products – helps a company grow its profits
because:

13. Why is Quality Important? Cont.
• Retailers are more likely to stock the product.
• Customers return to make repeat purchases
and recommend the product or service to
others.
• Perceptions of quality allow for more
premium pricing.

14. Why is Quality Important? Cont.
• Fewer returns and replacements lead to
reduced costs.
• A reputation for quality helps attract and
retain good staff.
• The brand will be strengthened by the quality
radiance, further reinforcing all the above
(consider Apple, Lexus).

18. Categorization of Quality Costs
The cost of quality is generally classified into four
categories:
1. External Failure Cost
2. Internal Failure Cost
3. Inspection (appraisal) Cost
4. Prevention Cost

19. External Failure Cost:
Cost associated with defects found after the
customer receives the product or service.
Example:
• Complaints:
• Warranties
• Repairing Returns
• Allowance
• Penalties
• Lost Opportunities

20. Internal Failure Cost:
Cost associated with defects found before the customer
receives the product or service.
Example:
• Scrap,
• Rework,
• Re-inspection,
• Re-testing,
• Material review,
• Material downgrades

21. Inspection (appraisal) Cost:
Cost incurred to determine the degree of
conformance to quality requirements (measuring,
evaluating or auditing).
Example:
• Inspection.
• Testing.
• Process or service audits.
• Calibration of measuring and test equipment.

22. Prevention Cost:
Cost incurred to prevent (keep failure and appraisal
cost to a minimum) poor quality.
Example:
• Quality Planning
• Process Planning
• Quality Audits
• Supplier Quality Evaluation
• Education and Training
• New Products Review

24. Traditional Model
Cost of appraisal
plus prevention
Failure costs
Total quality costs
Quality of conformance0% 100%
Costpergood
unitofproduct

25. Quality Cost Model Defines
• This model suggest that relationship between
conformance and non conformance quality
costs with a minimal total quality cost at the
optimal balance.
• Using this model company can monitor the
amount of quality costs tradeoff.

26. Quality Cost Model Defines cont.
• The company with poor quality can reduce total
cost of quality by spending on relatively
inexpensive preventive and appraisal measures.
• At certain point, however, the additional cost
will only increase total quality cost.

27. Quality costing system
Organizations consider developing and improving
quality as the best way for increasing:
• Customer satisfaction.
• Reducing manufacturing costs.
• Increasing productivity.
Satisfying customer needs should be done with
minimum costs.

28. Quality costing system cont.
Reducing these costs is only achievable when they
are identified and measured.
Financial efficiency of the quality system is a vary
important approach with regards to relating
continuous improvement of the quality system to
an organization's performance.

29. Implementing a Quality Cost System
Ten steps that are involved in successfully
establishing and implementing a quality cost
system:
1. Obtain management commitment and support.
2. Establish a quality cost team.
3. Obtain the cooperation and support of users
and information sources.
4. Operationally define quality costs Identify
specific quality costs.

30. Cont.
6.Determine sources of quality cost information.
7. Set up a code system and forms to
accumulate information.
8. Design quality cost reports.
9. Accumulate information.
10. Distribute reports.

31. COQ cost elements
Function Prevention Appraisal Failure
Development Design review Prototype
Inspection
Design test
Re-design
Scrap
Purchasing Supplier assessment
Supplier inspection
Product inspection Corrective action on
supplier failures
Parts rejection
Production Quality team training
Quality process audit
Work in process
Inspection
Rework
Scrap
Sales Sales team quality
training
Order entry
inspection
Re-shipment due to
shipping error
Orders
------------------------
Re-processing

32. Methods to Ensure Good Quality
There are a wide array of approaches to ensuring
good quality:
• Strong Process Culture
• Strong Team
• Strong Quality Processes
• Supplier Management
• Relevant Quality Metrics and Dashboard

33. 1. Strong Process Culture

34. Strong Process Culture
• One way to infuse a strong process culture into
your organization is through ISO certification.
• ISO 9001 is an international quality
management standard.
• Thousands of product- and service-oriented
organizations in over 100 countries have
adopted it.

35. 2. Strong Team

36. Strong Team Cont.
Document Control:
• Documentation should cover your product
specifications, order transactions, training records, and
procedures.
Product Integrity:
• The Quality Group helps define the requirements and
expectations of your company’s output.

37. Strong Team
Nonconformity Management and Reporting:
• Mistakes will happen both within an organization
and from its suppliers.
• The Quality Group identifies these incidents and
facilitates the investigations, reviews findings, and
issues responses.

38. Strong Team Cont.
Auditing and Training:
• It is important to have ongoing monitoring of
processes, people, product, and suppliers.
Dedicated Resources:
• While “quality is everyone’s responsibility” is a valid
concept, quality is the job of the Quality Group.

39. 3. Strong Quality Processes

40. Strong Quality Processes
Sampling Plans:
• A sampling plan is a blueprint for collecting, handling,
and testing representative samples of products.
CAPA:
• Focusing on continuous improvement, CAPA (Corrective
Action and Preventive Action) improves an organization’s
processes and seeks to eliminate causes of
nonconformities or other undesirable situations.

41. 4. Supplier Management

42. 3. Supplier Management
Defining Supplier Metrics:
• Choosing the right metrics and making sure you
have a clearly defined method of measurement.
Ranking/Rating Supplier Performance:
• You can publish a dashboard of how the supplier
is performing and surround the metrics with
commentary on ways to improve.

43. 3. Supplier Management
Regular Communication:
• Regular communication of expectations and performance
with your suppliers is essential.
Supplier Audits and Visits:
• Reports and updates from a supplier are helpful, but
nothing is better than seeing their facilities firsthand.

44. 5. Relevant Quality Metrics and Dashboard

45. Relevant Quality Metrics and Dashboard
• Most companies do not know what their
quality costs are because they do not
keep reliable statistics.
• Having the right metrics in place, as well
as a dashboard for tracking over time, is
critical in gaining senior management
buy-in and customer confidence.