Quality CostQuality Cost- those cost associate with the non

achievement of product or service quality.TypesPrevention Cost –Planning, Document, Control,

Training Appraisal Cost –Inspection & Tests, Installation,

Calibration, M/c Depreciation, Reports & Rejects.

Internal Failure Cost – Scraps, Repair Rework, Design Changes, Defect Failure Analysis, Retests & ReInspection, Downgrading, Down Time.

External Failure Cost – Complaints, Goodwill, Failures, Services & Replacement, Guarantee & Warranty, Compensation, Recall, Loss of Sales, Seconds Sales.

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Preventive Cost Category

The experience gained from the identification and elimination of specific causes of failure and their costs is utilized to prevent the recurrence of the same for similar failure in other products or services.

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Contd..1. Marketing / Customer / user Sub Elements: Marketing research, customer and user –

perception surveys or focus groups, and contract and document review.

2. Product / Service / Design DevelopmentSub Elements: ( Needs to Rqmt)Design quality progress review, design

support activities, product design qualification tests, service design qualification, and field trials.

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Contd…3.PurchasingSub Elements:Supplier reviews, supplier rating, purchase

ordertechnical data reviews, and supplier quality planning.4.Operations (Manufacturing or service)Sub Elements:Operation process validation, Operations

quality planning, design and development of collecting Quality costs, operations support quality planning, and operator quality education. 4

Contd..

5.Quality AdministrationSub Elements:Administrative salaries, administrative expenses, quality program planning, quality performance reporting, quality education, quality

improvement, documenting and evaluating quality costs and quality audits.

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Appraisal Cost Category

This category has the responsibility for evaluating a product or service at sequential stages, from design to first delivery and throughout the production process, to determine its acceptability for continuation in the production or life cycle.

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Contd..1. Purchasing Appraisal Costs - costs incurred for the inspection and /

or test of purchased supplies or service to determine acceptability for use.

Sub Elements :Receiving or incoming inspection and tests, measurement equipments, qualification of Supplier product, and source inspection and control programs.

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Contd..2. Operations (Manufacturing or service)

Appraisal Costs - the acceptability of product or service to continue into each discrete step in the

operations plans from start of production to delivers.Sub Elements:Planned operations, inspections, tests, audit, setup inspections and tests, special tests(manufacturing), process control measurements, laboratory support,

measurement (inspection and test) equipment, and outside endorsements and certifications.

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Contd..3.External Appraisal CostsSub Elements :Field performance evaluations, special

product evaluations, and evaluations of field stock and spare parts.4 . Review of Test and Inspection Data5 .Miscellaneous Quality EvaluationsExamples of areas included are mail rooms, storerooms, and packing and shipping. 

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3.Internal Failure Cost CategoryAll costs required to evaluate, dispose of and either correct or replace nonconforming

productsor services prior to delivery to the customer, aswell as the cost to correct or replace incorrect or incomplete product or service description.This includes all the material and labor expenses that are lost or wasted due to non-conforming or otherwise unacceptable work affecting the quality of end products or service. Corrective action that is directed toward elimination of the problem in the future may be classified as prevention.

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Contd..

1.Product or service Design Failure Costs(Internal)

Sub-elements :Design corrective action, rework due to

design changes scrap due to design changes, and production illusion costs.2. Purchasing Failure costsSub-elements :Purchased materials reject disposition costs, purchased material replacement costs, Supplier corrective action, rework to supplier

rejects, and uncontrolled materials losses.11

Contd..

3.Operations (Production or Service) Failure Costs

Three distinct areas; material review and Corrective action costs, operations rework

and repair cost and internal failure labor losses. 

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4. External Failure Cost Category

This category includes all costs incurred due to actual or suspected nonconforming product or service after delivery to the customer.

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Contd..1. Complaint Investigations of Customers or

user Service This category includes the total cost of

investigating, resolving, and responding to individual customer or user complaints or inquires, including necessary field service.

2.Returned GoodsThis includes the total cost of evaluating and repairing or replacing goods not meeting acceptance by the customer or user due to quality problems. It does not include repairs accomplished as part of a maintenance or

modification.14

Contd..3. Retrofit and Recall CostThose costs required to modify or update Products or field service facilities to a new design change level, based on major

redesign.4. Warranty Claims5. Liability Costs - the cost of product or

service liability insurance.6.Penalties7. Customer or user Goodwill- over and

above normal selling costs8.Lost Sales- Sales reduction 15

QUALITY COST BASESQuality costs by themselves present insufficient information for analysis. A baseline is required that will relate quality costs to some aspect of the business that is sensitive to change.

1. Labor 2. Production 3. Sales 4. Unit Each index has certain disadvantages.

Any no. of ratios can be used. 16