Quality Cost Quality Cost- those cost associate with the non achievement of product or service quality. Types Prevention Cost –Planning, Document, Control, Training Appraisal Cost –Inspection & Tests, Installation, Calibration, M/c Depreciation, Reports & Rejects. Internal Failure Cost – Scraps, Repair Rework, Design Changes, Defect Failure Analysis, Retests & ReInspection, Downgrading, Down Time. External Failure Cost – Complaints, Goodwill, Failures, Services & Replacement, Guarantee & Warranty, Compensation, Recall, Loss of Sales, Seconds Sales.

Preventive Cost Category The experience gained from the identification and elimination of specific causes of failure and their costs is utilized to prevent the recurrence of the same for similar failure in other products or services.

Contd.. 1. Marketing / Customer / user Sub Elements: Marketing research, customer and user – perception surveys or focus groups, and contract and document review. 2. Product / Service / Design Development Sub Elements: ( Needs to Rqmt) Design quality progress review, design support activities, product design qualification tests, service design qualification, and field trials.

Contd… 3.Purchasing Sub Elements: Supplier reviews, supplier rating, purchase order technical data reviews, and supplier quality planning. 4.Operations (Manufacturing or service) Operation process validation, Operations quality planning, design and development of collecting Quality costs, operations support quality planning, and operator quality education.

Contd.. 5.Quality Administration Sub Elements: Administrative salaries, administrative expenses, quality program planning, quality performance reporting, quality education, quality improvement, documenting and evaluating quality costs and quality audits.

Appraisal Cost Category This category has the responsibility for evaluating a product or service at sequential stages, from design to first delivery and throughout the production process, to determine its acceptability for continuation in the production or life cycle.

Contd.. 1. Purchasing Appraisal Costs - costs incurred for the inspection and / or test of purchased supplies or service to determine acceptability for use. Sub Elements : Receiving or incoming inspection and tests, measurement equipments, qualification of Supplier product, and source inspection and control programs.

Contd.. 2. Operations (Manufacturing or service) Appraisal Costs - the acceptability of product or service to continue into each discrete step in the operations plans from start of production to delivers. Sub Elements: Planned operations, inspections, tests, audit, setup inspections and tests, special tests(manufacturing), process control measurements, laboratory support, measurement (inspection and test) equipment, and outside endorsements and certifications.

Contd.. 3.External Appraisal Costs Sub Elements : Field performance evaluations, special product evaluations, and evaluations of field stock and spare parts. 4 . Review of Test and Inspection Data 5 .Miscellaneous Quality Evaluations Examples of areas included are mail rooms, storerooms, and packing and shipping.  

3.Internal Failure Cost Category All costs required to evaluate, dispose of and either correct or replace nonconforming products or services prior to delivery to the customer, as well as the cost to correct or replace incorrect or incomplete product or service description. This includes all the material and labor expenses that are lost or wasted due to non- conforming or otherwise unacceptable work affecting the quality of end products or service. Corrective action that is directed toward elimination of the problem in the future may be classified as prevention.

Contd.. 1.Product or service Design Failure Costs(Internal) Sub-elements : Design corrective action, rework due to design changes scrap due to design changes, and production illusion costs. 2. Purchasing Failure costs Purchased materials reject disposition costs, purchased material replacement costs, Supplier corrective action, rework to supplier rejects, and uncontrolled materials losses.

Contd.. 3.Operations (Production or Service) Failure Costs Three distinct areas; material review and Corrective action costs, operations rework and repair cost and internal failure labor losses.  

4. External Failure Cost Category This category includes all costs incurred due to actual or suspected nonconforming product or service after delivery to the customer.

Contd.. 1. Complaint Investigations of Customers or user Service This category includes the total cost of investigating, resolving, and responding to individual customer or user complaints or inquires, including necessary field service. 2.Returned Goods This includes the total cost of evaluating and repairing or replacing goods not meeting acceptance by the customer or user due to quality problems. It does not include repairs accomplished as part of a maintenance or modification.

Contd.. 3. Retrofit and Recall Cost Those costs required to modify or update Products or field service facilities to a new design change level, based on major redesign. 4. Warranty Claims 5. Liability Costs - the cost of product or service liability insurance. 6.Penalties 7. Customer or user Goodwill- over and above normal selling costs 8.Lost Sales- Sales reduction

QUALITY COST BASES Quality costs by themselves present insufficient information for analysis. A baseline is required that will relate quality costs to some aspect of the business that is sensitive to change. 1. Labor 2. Production 3. Sales 4. Unit Each index has certain disadvantages. Any no. of ratios can be used.