Cost of Quality Can Be Defined as the Cost Which Is Allied with the Quality of a Product

1

Cost of Quality -It is the sum total of costs which is incurred while maintaining quality up to standard levels and the cost of failure to maintain that level of standard.

The cost of quality has two main components; the Cost of Good Quality (or cost of conformance) and the Cost of Poor Quality (or cost of non-conformance).

The Cost of Poor Quality affects Internal and External Failure costs

The Cost of Good Quality affects Appraisal and Prevention costs

FORMULA / CALCULATION

Cost of Quality (COQ) = Cost of Good Quality + Cost of Poor Quality

Cost of Good Quality = Prevention Cost + Appraisal Cost

Cost of Poor Quality = Internal Failure Cost + External Failure Cost

Fig A. shows a diagram on the Cost of Quality and its components.

[pic 1]

Cost of Poor Quality

Internal Failure Costs: These are caused by services or products that are unable to meet the quality requirements of the consumers or users and is found before the time of the release of services and products to the external customers. This may result in customer dissatisfaction. They are mainly causes by errors in products and inefficiency in the work process.

Examples include the cost for:

• Rework
• Delays
• Re-designing
• Shortages
• Failure analysis
• Re-testing
• Downgrading
• Downtime
• Lack of flexibility and adaptability

External Failure Costs: These are costs that are caused by deficiencies found after delivery of products and services to external customers. This leads to customer dissatisfaction and loss of reputation for the company.

Examples include the costs for:

• Complaints
• Repairing goods and redoing services
• Warranties
• Customers’ bad will
• Losses due to sales reductions
• Environmental costs

Cost of Good Quality

Prevention Costs: These are expenses incurred as part of the quality control efforts of a business performed in order to prevent poor quality from arising in products or services.

Examples include the costs for:

• Quality planning
• Supplier evaluation
• New product review
• Error proofing
• Capability evaluations
• Quality improvement team meetings
• Quality improvement projects
• Quality education and training

Appraisal Costs: these are costs that occur because of the need to control products and services to ensure a high quality level in all stages, conformance to quality standards and performance requirements.

Examples include the costs for:

• The inspection of materials delivered from suppliers
• The inspection of work-in-process materials
• The inspection of finished goods
• The supplies used to conduct inspections
• The inventory destroyed as part of the testing process
• Supervision of the inspection staff
• Depreciation of test equipment and software
• Maintenance of test equipment

[pic 2]

Fig B.

The graph (Figure B) shows that there is a minimum Total Quality cost, which is a combination of prevention, appraisal and failure costs.  Reducing any of these reduces the total. The key to minimum cost, is striking the correct balance between the three.

It is evident that prevention reduces both appraisal and failure costs, however eventually the cost of prevention itself starts to increase the total cost and so this must be controlled and set at an effective level.

2. How does Internal Failure Costs affect the performance of a company and solutions on how to control them

Internal Failure Costs

Internal failure costs takes place internally or before a product leaves manufacturing. These internal costs are detected through the firm's inspection and appraisal activities and may include costs of rework, scrapping of rejected products and downtime caused by quality problems.

How will it affect the performance of a company?

Internal Failure Costs in the process of manufacturing of a product will negatively affect a company by incurring unwanted costs, which results in the company losing money, wasting resources and time.

During the manufacturing process of the product, workers may find some defects in their products. If the product cannot be economically repaired, it will have to be scrapped and the resources used to make the product will be wasted.

The company may even change their supplier if they continue to receive poor quality products from them. They would be able to save their money by getting a supplier that is consistent in providing them good quality products.

Time would be wasted as workers will have to rework to correct the defective material and analyse the root cause of the problem , which is very time inefficient as they could be using this time to build more products instead of fixing it. Furthermore workers have to conduct tests on the reworked product to ensure that it is fully functional. They must also ensure that there are no more defective products in their manufacturing line.

How can internal failure costs be controlled

Plan for Quality Control

Quality Control refers to a procedure or set of procedures intended to ensure that a manufactured product or performed service adheres to a defined set of quality criteria or meets the requirements of the client or customer.

These set of actions can be done to fully minimise any form of defects in products, and ensure that products will always be produced up to customer’s standards. Some ways to maintain quality control are.

1. Ensure employees are well-trained 

To be able to deal with Internal Failure Costs in the workplace, employees must be trained to identify any defects in products immediately. Having skilled employees in the workplace ensures that if a product is found to be defective, they can immediately scrap the product and analyse the root of the problem. This will prevent any defective products to be sold to external customers.