Quality Costing at a glance

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Quality costing is all the costs that a manufacturer incurs to ensure it produces a quality product. Quality costs include both costs to prevent low-quality production and costs that arise after a low-quality product is produced.

Other the meaning of “Quality Costs “

The term “quality costs” have different meanings to different people. Some equate “quality costs” with the costs of poor quality due to finding and correcting defective work. Others equate the term with the costs to attain good quality. Others use the term to mean the costs of running the quality department. In my site, the term “quality costs” means the cost of poor quality.

The Cost of Quality.„

It’s a term that’s widely used – and widely misunderstood.

The “cost of quality” isn’t the price of creating a quality product or service. It’s the cost of NOT creating a quality product or service.

Every time work is redone, the cost of quality increases. Obvious examples include:

  • The reworking of a manufactured item.
  • The retesting of an assembly.
  • The rebuilding of a tool.
  • The correction of a bank statement.
  • The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant.

In short, any cost that would not have been expended if the quality were perfect contributes to the cost of quality.

Total Quality Costs

As the figure below shows, quality costs are the total of the cost incurred by:

  • Investing in the prevention of nonconformance to requirements.
  • Appraising a product or service for conformance to requirements.
  • Failing to meet requirements.

Quality Costs—general description

Prevention Costs

The 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
  • Process capability evaluations
  • Quality improvement in team meetings
  • Quality improvement projects
  • Quality education and training

Appraisal Costs

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

Failure Costs

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

Internal Failure Costs

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

Examples are the costs of:

  • Scrap
  • Rework
  • Re-inspection
  • Re-testing
  • Material review
  • Downgrading

External Failure Costs

Failure costs occurring after delivery or shipment of the product — and during or after furnishing of service — to the customer.

Examples are the costs of:

  • Processing customer complaints
  • Customer returns
  • Warranty claims
  • Product recalls

Recommendations on how to deal with the cost of poor quality (COPQ) 

Phillip Crosby Analogy.

Firstly, according to Philip Crosby ideology of ”VACCINE” as medicine for management to prevent poor quality.

Crosby explained the Crosby vaccine i.e in the Crosby style, the “vaccine” is explained as medicine for management to prevent poor quality .it is in five sections that cover Total quality management (TQM) requirements, the understanding of the below five sections according to Crosby ideology will help the management in the organization on the matter related to cost of poor quality:
Section 1: Integrity
Section 2: Systems
Section 3: Communication
Section 4: Operations
Section 5: Policies.

Section 1 – Integrity

Treat quality seriously throughout the whole business organization from top to bottom. That the companies future will be judged on its performance on quality.

Section 2 – Systems

Appropriate measures and systems should be put in place for quality costs, education, quality, performance, review, improvement and customer satisfaction e.t.c

Section 3 – Communication

The communication systems are of paramount importance to communicate requirements and specifications and improvement opportunities around the organization. Customers and operators know what needs to be put in place to improve and listening to them will give you the edge.

Section 4 – Operations

Work with and develop suppliers. Processes should be capable and improvement culture should be the norm.

Section 5 – Policies

Policies must be clear and consistent throughout the business.

Secondly, the application of Philip Crosby 14 steps to quality improvement measures as a means to eradicate the cost of poor quality (COPQ):

Management Commitment

1. Make it clear that management is committed to quality.

Quality Improvement Teams

2.Form Quality Improvement Teams with senior representatives from each department.

Measure Processes

3.Measure processes to determine where current and potential quality problems lie.

Cost of Quality

4. Evaluate the cost of quality and explain its use as a management tool.

Quality Awareness

5. Raise the quality awareness and personal concern of all employees.

Correct Problems

6. Take actions to correct problems identified through previous steps.

Monitor Progress

7. Establish progress monitoring for the improvement process.

Train Supervisors

8. Train supervisors to actively carry out their part of the quality improvement program.

Zero Defects Day

9. Hold Zero Defects Day to reaffirm management commitment.

Establish Improvement Goals

10. Encourage individuals to establish improvement goals for themselves and for their group.

Remove Fear

11. Encourage employees to tell management about obstacles to improving quality.

Recognize

12. Recognize and appreciate those who participate.

Quality Councils

13. Establish Quality Councils to communicate on a regular basis.

Repeat the Cycle

14. Do it all over again to emphasize that the quality improvement process never ends.

And thirdly, the Applicability of Genichi Taguchi method of the Quality loss function (QLF) for quality improvement e.t.c

Taguchi Analogy

Taguchi combined engineering and statistical methods that achieve rapid improvements in cost and quality by optimizing product design and manufacturing process. There are three statements that applied for the methods:

  • We cannot reduce cost without affecting the quality
  • We can improve quality without increasing cost
  • We can reduce cost by reducing variation or by improving quality.

Therefore, when we do so, performance and quality will automatically improve.

Taguchi defines quality as ’’ the loss impacted to society from the time the product is shipped’.Fundamental to this approach to quality engineering is this concept of loss. He associated loss with every product that meets the customer’s hand. This loss includes among other things, customer dissatisfaction, added warranty costs to the producer and loss due to the company’s bad reputation which leads to the eventual loss of market share.

Quality costs or poor quality costs are usually quantified in terms of scrap and rework, warranty or other tangible costs.

What about the hidden cost or long- term losses related to engineering, management time, inventory, customer dissatisfaction, and lost market share? Can we quantify these? Perhaps, but not accurately. Indeed we must find a way to approximately deal with these hidden and long-term losses because they are the largest contributors to total quality loss. Taguchi methods use the Quality loss function QLF for this purpose.QLF depends on the type of quality characteristic involve like:

  • Normal-the-best (achieving the desired target with minimal variation: dimension and output voltage)
  • Smaller-the-better (minimizing a response: shrinkage and wear)
  • Larger-the-better (maximizing a response: pull-off force and tensile strength)
  • Attribute (classifying and/or counting data: appearance)
  • Dynamic (response varies depending on input: speed of a fan drive should vary depending on the engine temperature)

Loss can occur not only when a product is outside the specifications, but also when a product falls within specifications. Further, it is reasonable to believe that loss continually increases as a product deviates further from the target value, like the parabola QLF as shown in Figure 3 below diagram:

Taguchi loss function QLF diagram

Thank you.

You can see more  of our quality management training materials that will add more to your professional experience in the below link: https://www.hermonqualitysolutions.com/training-modules-2/

About the author: Abraham Dunmade

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