Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Chapter 6

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality What are quality costs? –A quality cost is considered o be any cost that a company incurs in order to ensure that the quality of the product or service is perfect. –Quality costs are the portion of the operating costs brought about by providing a product or service that does not conform to performance standards. –Quality costs are also the costs associated with the prevention of poor quality.

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Quality costs increase as the faulty product or service reaches the customer.

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality In his book, Quality is Free, Philip Crosby focused management attention on the costs of quality, the cost of not doing things right the first time.

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality The four absolutes of quality management set expectations for a continuous improvement process to meet: –Conformance to requirements –Prevention of defects –Zero defects –Costs of quality

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Types of Quality Costs –Prevention Costs –Appraisal Costs –Failure Costs –Intangible Costs

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Prevention Costs –Prevention costs are those costs that occur when a company is performing activities designed to prevent poor quality in products or services.

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Appraisal Costs –Appraisal costs are the costs associated with measuring, evaluating, or auditing products or services to make sure that they conform to specifications or requirements

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Failure Costs –Failure costs occur when the completed product or service does not conform to customer requirements Internal Failure Costs –Those costs associated with product non-conformities or service failures found before the product is shipped or the service is provided to the customer. External Failure Costs –Those costs that occur when a nonconforming product or service reaches the customer.

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Intangible Costs –Intangible costs are the hidden costs associated with providing a nonconforming product or service to a customer. They involve the company’s image.

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Quality Cost Measurement System –By quantifying quality costs, all individuals producing a product or service understand what it will cost if quality suffers. –A quality-cost measurement system should be designed to keep track of the different types of quality costs so that they can be eliminated through root cause analysis.

Lean Six Sigma: Process Improvement Tools and Techniques Donna C. Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ All Rights Reserved. Costs of Quality Utilizing Quality Costs for Decision Making –Quality costs can be used as justification for actions taken to improve the product or service.