Cost of Good Quality vs Cost of Poor Quality

Cost of Quality vs Cost of Poor Quality

1) What is Cost of Quality - Cost of Quality vs Cost of Poor Quality:

 Cost of quality is to quantify the total cost of quality-related efforts and deficiencies.
→ Prior to its introduction, the general perception was that higher quality requires higher  
    costs, either by buying better materials or machines or by hiring more labor.
 Cost of quality is a methodology that allows an organization to determine that 
     its resources are used for activities that prevent poor quality or create good quality.




2) What is Cost of Poor Quality (COPQ):

→ The Cost of Poor Quality is the costs associated with providing poor quality products
     or services.
Cost of poor quality (COPQ) are costs that would disappear if systems, processes, 
     and products were perfect.
→ Cost of poor quality (COPQ) is a refinement of the concept of quality costs.

Cost of Good Quality vs Cost of Poor Quality

3) Classification of Cost of Quality - Cost of Quality vs Cost of Poor Quality:

Cost of Good Quality vs Cost of Poor Quality

➤ [A] Prevention costs - Cost of Quality vs Cost of Poor Quality:

→ Prevention costs are incurred to prevent or avoid quality problems. 
 These costs are associated with the design, implementation, and maintenance of 
     the quality management system. 
 They are planned and incurred before actual operation, and they could include.

➥ Examples of Preventive costs are : 
 Quality planning - the creation of plans for quality, reliability, operations, production, and
     inspection
 Quality training and workforce development
 Product or service requirements - establishment of specifications for incoming materials,
     processes, finished products, and services
 Quality assurance - creation and maintenance of the quality system
 Training - development, preparation, and maintenance of programs



➤ [B] Appraisal costs - Cost of Quality vs Cost of Poor Quality:

→ Appraisal costs are associated with measuring and monitoring activities related to quality.
→ These costs are associated with the suppliers’ and customers’ evaluation of purchased
     materials, processes, products, and services to ensure that they 
     conform to specifications
.
➥ Examples of Preventive costs are :
 Verification - checking of incoming material, process setup, and products against agreed
    specifications
 Quality audits - confirmation that the quality system is functioning correctly
 Supplier rating - assessment and approval of suppliers of products and services
 Test and inspection of purchased materials
 Acceptance testing 
 Inspection
 Testing and inspection equipment cost


➤ [C] Internal failure costs - Cost of Quality vs Cost of Poor Quality:

→ Internal failure costs are incurred to remedy defects discovered before the product or
     service is delivered to the customer. 
→ These costs occur when the results of work fail to reach design quality standards and
    are detected before they are transferred to the customer. 

➥ Examples of Internal failure costs are :
 Waste - performance of unnecessary work or holding of stock as a result of errors, 
     poor organization, or communication.
 Scrap - defective product or material that cannot be repaired, used or sold
 Rework or rectification - correction of defective material or errors.
 Failure analysis - activity required to establish the causes of an internal product or 
     service failure.




➤ [D] External failure costs - Cost of Quality vs Cost of Poor Quality:

→ External failure costs are incurred to remedy defects discovered by customers.
→ These costs occur when products or services that fail to reach design quality standards
     are not detected until after transfer to the customer. 

➥ Examples of External failure costs are :
→ Repairs and servicing - of both returned products and those in the field.
→ Warranty claims - failed products that are replaced or services that are re-performed 
     under a guarantee.
→ Complaints - all work and costs associated with handling and servicing customers’ 
     complaints.
→ Returns - handling and investigation of rejected or recalled products, including 
     transport costs.




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