What is the Cost of Quality?

“For most companies, quality related cost ran in the range of 10 to 30 percent of sales or 25 to 40 percent of operating expenses.” (Juran, 1995)

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Does higher quality cost more, or does it cost less?

The word quality has different meanings. It is interesting to read the two following definitions by Juran to better understand how to manage quality.

 

1 - Quality can be defined as “features of products which meet customer needs and thereby provide customer satisfaction”. This definition implies the satisfaction of the customer needs and therefore have as a final goal the increase of income. In this definition, higher quality means higher cost.

 

2 - Quality can be defined as “freedom from deficiencies - freedom from errors that require doing work over again (rework)”. This definition includes all the failures that creates customer dissatisfaction, customer claim and so on. In this definition, higher quality means lower cost.

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Cost of Quality definition

Total Quality Costs represent the difference between the actual (current) cost of a product or service and what the reduced cost would be if there were no failure of products, or defects in the manufacturing process.

 

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Figure 1.1 Components of the Cost of Quality

One of the most common ways to divide the Cost of Quality is into four categories:

  • Internal Failure Costs (represent all the costs of deficiencies before the delivery to a client)
  • External Failure Costs (represent all the costs of deficiencies after the delivery to a client) 
  • Appraisal Costs (represent all the costs to determine the conformance/inspection costs) 
  • Prevention Costs (represent all the costs incurred to keep failure and appraisal costs to a minimum) 

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Example

Let's take the case of an automotive company producing plastic painted parts. Here are some examples of each type of costs. 

Prevention Costs

- Salaries for the quality planning

- Audit of the quality process

- Training of operators

 

Appraisal Costs

- Inspection and tests

- Product quality audit

- Maintaining accuracy of test equipment

 

Internal Failure Costs

- Scrap

- Rework

- Failure analysis

 

External Failure Costs

- Complaint

- Warranty charges

- Recall

 

These four categories added can provide a company's Total Cost of Quality. Knowing these costs is essential to manage it and reduce the Total Cost of Quality.