Cost of Quality and Cost of Poor Quality
The term Cost of Quality (CoQ) is generally explained as the cost to create a quality product or service. The cost incurred by not creating a quality product or service can be termed as Cost of Poor Quality ( COPQ )
The Cost of Quality or the Total Quality Costs which goes beyond the cost of poor quality. This term covers all the activities which are directly related to both the costs incurred to create a good quality product and the cost of creating a bad quality product. Broadly they are classified into Cost of Prevention, Cost of appraisal and Cost of Poor Quality.
.The Cost of Poor quality can be further divided into Cost of Internal Failure and Cost of External Failure.
The costs of all activities specifically designed to prevent poor quality in products or services. All activities, which can be connected to capacity and capability, mistake proofing etc are covered under this head.
Examples are the costs of:
- New product review
- Quality planning
- Supplier capability surveys
- Process capability evaluations
- Quality improvement team meetings
- Quality improvement projects
- Quality education and training
The costs associated with measuring, evaluating or auditing products or services to assure conformance to quality standards and performance requirements.
These include the costs of:
- Incoming and source inspection/test of purchased material,
- In-process and final inspection/test
- Product, process or service audits
- Calibration of measuring and test equipment
- Associated supplies and materials
The costs resulting from products or services not conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure categories. Cost of Poor Quality includes the cost to the organization to rectify the non conforming product or service.
Examples are the costs of:
- Scrap
- Rework
- Re-inspection
- Re-testing
- Material review,
- Downgrading
- Concession
- Cost incurred in reworking of a manufactured item, the men, Material and other resources.
- Cost incurred in retesting of an assembly, rebuilding of a tool.
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,
- The reworking of a service, such as the reprocessing of a loan operation
- The correction of a bank statement
- Costs incurred in skipped delivery schedules, the penalties etc.
- Replacement of a food order in a restaurant.
In short, any cost that would not have been expended if quality were perfect contributes to the cost of quality.
Investing in the prevention of nonconforming to requirements.
Appraising a product or service for conformance to requirements.
Failing to meet requirements.(Cost of poor Quality (COPQ))
The details which can be included in Total Quality Costs
Total Quality Costs:
The sum of the costs listed above. This represents the difference between the real cost of a product or service and what the reduced cost would be if there were no possibility of substandard service, failure of products or defects in their manufacture.
Since the biggest impact on an organization will be the External Failure which will cost reputation, its always desirable to focus on reducing failure cost of quality and improve efficiency of the Prevention cost of quality
These must be built in such a way that the efficiency should focus even on reducing the cost of appraisal.
The best strategy to reduce total cost of quality would be to eliminate failure costs, reduce appraisal costs and improve efficiency of the prevention costs