The Cost of Quality

The Cost of Quality

 

Defects used to be acceptable, but leaders such as W.Edwards Deming, Joseph Juran, Shideo Shingo, and Philip Crosby brought a new perspective concerning quality and its achievability.  According to this new view of quality, every defect is expensive, and prevention or avoidance of defects lowers costs.

 

Many supply policies and procedures were designed by suppliers because of the fear that the competition by another supplier might take away sales by offering better quality, better price, better delivery, or better service.

 

The emergence of quality as a prime supply criterion challenges the competitive view.  The quality challenge argues that it is very difficult to find a high quality supplier and even more difficult to create a supplier who will continually improve quality.  The heart of the new approach to quality centers on the appropriate use of hard tools, techniques, and mathematics of quality along with the soft tools of relationship building.

 

Perhaps the older view of quality stems from an economic environment of high demand and low worldwide competition in which defects were tolerated.  Perhaps this was further abetted by an incomplete grasp of the real costs of quality and of poor quality.  Many of these costs were well hidden, and therefore difficult to consider in decision making.  The five major cost categories applicable to quality are:

 

  • Prevention costs – relate to all activities that eliminate the occurrence of future defects.  The old adage “an ounce of prevention is worth a pound of cure” is pervasive here.
  • Appraisal Costs – represent the costs of inspection, testing, measuring, and other activities designed to ensure conformance of the product or service.
  • Internal Failure Costs – the costs incurred within the operating system as a result of poor quality.  This includes rework, scrap, and returns to suppliers.
  • External Failure Costs – incurred when poor-quality goods or services are passed on to the customer and include the costs of returns, warranty costs, and management time handling customer complaints.
  • Morale Costs – This is a cost that is seldom in an accounting sense regarding producing (or having to use) defective products or services.  Aside fro the obvious productivity impact, it may remove pride in one’s work or the incentive to keep searching for continuing improvement.  The motivation to work hard and well may be replaced by a “don’t care” attitude.
  • An overall Quality-Cost Perspective – The costs of quality can’t be ignored.  It could mean the difference in competitive product or service or loss of market share.