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Cost of quality concept and advantages

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The "cost of quality" is not the price of creating a quality product or service. It's the cost of NOT creating a quality product or service.

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Page 1: Cost of quality   concept and advantages
Page 2: Cost of quality   concept and advantages

Cost - Money - Price

•Money – The language of

management

Page 3: Cost of quality   concept and advantages

Concept

The "cost of quality" is not the price

of creating a quality product or service.

It's the cost of NOT creating a quality

product or service.

Page 4: Cost of quality   concept and advantages

What is for you in it?

Page 5: Cost of quality   concept and advantages

The real Stuff

Page 6: Cost of quality   concept and advantages

Content

• Introduction

• Components

•COPQ Iceberg

• Why measure COQ?

• COQ in DEL

• Benefits

• Conclusion

Page 7: Cost of quality   concept and advantages

Introduction

What is COQ?• History:

It was Joseph Juran who first discussed the cost of quality analysis in 1951 in the first edition of “Quality Control Handbook”

and it was Armand Feigenbaum who identified four quality cost categories in 1956 in “Total Quality Control” in the Harvard Business Review, Vol. 34

The Quality Cost Committee was established by the then ASQC in 1961

Page 8: Cost of quality   concept and advantages

COQ - Definition

Quality costs are the costs associated with

Preventing………Investing in the prevention of nonconformance to requirements

Finding………. Appraising a product or service for conformance to requirements

Failing to meet requirements……….Correcting defective work

Page 9: Cost of quality   concept and advantages

COQ Components

Preventive CostThe costs of all activities

specifically designed to prevent poor quality in products or services.

Examples are the costs of: • New product review • Quality planning • Supplier capability surveys • Quality improvement team

meetings • Quality improvement projects • Quality education and training

In the ideal situation, Prevention costs will be the largest portion of the Total Cost of Quality

Typically, prevention is less than 10% of Total COQ where it should be about 70%

Page 10: Cost of quality   concept and advantages

COQ Components

Page 11: Cost of quality   concept and advantages

Appraisal CostThe costs associated with

measuring, evaluating or auditing products or services to assure conformance to standards & performance requirements.

COQ Components

Appraisal Costs should be the

second largest category, but should

not exceed prevention costs

These include the costs of: •Inspection/test of purchased material •In-process and final inspection/test •Product, process or service audits •Calibration of measuring and test equipment

E.g. Radiography appraisal cost is the amount spent to radiograph a weld. This includes the;Cost of RT equipmentRT personnel salaries/MhrsRT film costs etc.

Page 12: Cost of quality   concept and advantages

COQ Components

Page 13: Cost of quality   concept and advantages

Failure CostsThe costs resulting from products

or services not conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure categories.

COQ Components

Internal Failure Costs Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a service, to the customer.

Examples are the costs of:

Scrap

Rework

Re-inspection

Re-testing

Page 14: Cost of quality   concept and advantages

COQ Components

Page 15: Cost of quality   concept and advantages

Failure Costs (Contd.)

• External Failure Costs Failure costs occurring after delivery or shipment

of the product — and during or after furnishing of a service — to the customer.

Examples are the costs of: Processing customer complaints Customer returns Warranty claims Product recalls

COQ Components

Page 16: Cost of quality   concept and advantages

COQ Components

Page 17: Cost of quality   concept and advantages

COQ Components

Is Cost related to

Prevention of Non-

Conformance?

Is Cost related to

Evaluating the

Conformance ?

Is Cost related to

Non-conformance?

Is Non-Conformance

found prior to

Shipment ?YES

NO

PREVENTION

APPRAISAL

INTERNAL FAILURE

EXTERNAL FAILURE

Not a Quality Cost

YES

YES

NO

NO

YES

NO

Page 18: Cost of quality   concept and advantages

Components

Page 19: Cost of quality   concept and advantages

COPQ Iceberg

Page 20: Cost of quality   concept and advantages

Why measure COQ?

“When you measure what you are speaking about and express it in numbers, you know something about it” – Kelvin

You cannot manage what you cannot measure ” – Anon

Page 21: Cost of quality   concept and advantages

Why measure COQ?

Measure COQ - Why?

COQ can be used to identify quality improvement candidates

COQ provides one measure of comparing the success of projects

COQ can provide cost data for motivational purpose

Money is the language of management, you need to show them the numbers - Crosby

Page 22: Cost of quality   concept and advantages

Why measure COQ?

Page 23: Cost of quality   concept and advantages

Benefits of COQ

Quality is a Profit Center

IncreasesSalesProfitCapacityCustomer SatisfactionMarket ShareCompetitive EdgeEmployee Satisfaction

DecreasesDefectsOverall CostsReturned GoodsCustomer ComplaintsOwner & Mgmt. StressDecrease Legal CostsEmployee Turnover

Page 24: Cost of quality   concept and advantages

Benefits of COQ

Page 25: Cost of quality   concept and advantages

Benefits of COQ

Page 26: Cost of quality   concept and advantages

The goal of using COQ is to increase prevention activities in order to eliminate internal and external failures and to reduce appraisal activities.

Goal of COQ

Page 27: Cost of quality   concept and advantages

Where are we?