 Return homework  Reliability  Solve problems: Chapter , 10  Cost of Quality  Solve problems: Chapter  Discuss final exam  Week 15 Assignment Complete final exam Present exam results Week 14 Agenda

Question:  What are costs of quality?  Task: Create your list of quality costs and share with the class.  What is the relationship between quality and productivity? Cost of Quality

Chapter Eleven

Cost of Quality Quality cost A quality cost is considered to be any cost that the company would not have incurred if the quality of the product or service were perfect.

Cost of Quality Quality costs Total quality costs are the sum of prevention costs, appraisal costs, and internal and external failure costs.

Cost of Quality Quality costs increase over time Failure Costs Time when failure found Prevention Costs Failure found during design phase Failure found at onset of manufacture Failure found at final inspection Failure found at installation Field repair costs Failure found by customer Liability costs

Cost of Quality Reprocessing Rejects Customer returns Warranty expenses Lost sales Overtime to correct errors Extra inventory Premium freight costs Extra process capacity Loss of goodwill Process downtime Delays Extra inventory Hidden Costs of Poor Quality

Cost of Quality TQM ElementFinancial MeasureNon-financial Measure Customer satisfaction External failure cost. Field service expense. Results of customer satisfaction survey. On-time delivery. Number of customer complaints. Internal performance Appraisal cost. Internal failure cost. Prevention cost. Defect rates Yields Lead times Idle capacity Unscheduled machine downtime Balanced Score Card

Traditional Model Cost of appraisal plus prevention Failure costs Total quality costs Quality of conformance0%100% Cost per good unit of product

Emerging COQ Model Cost of appraisal plus prevention Failure costs Total quality costs Quality of conformance0%100% Cost per good unit of product

COQ as motivator  Companies under TQM do not focus on quality cost minimization.  Quality improvement projects tend to focus on zero defects or defect reduction to the six-sigma level.

The Rule $ $ $ $ $ Prevention Correction Failure

COQ Theme  Costs are not incurred or allocated, but rather caused.  Cost information does not solve quality problems, nor does it suggest specific solutions.  Problems are solved by tracing the cause of a quality deficiency.