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    Cost of Quality

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    abhiduu
    The document discusses the costs of poor quality, including internal failure costs, external failure costs, appraisal costs, and prevention costs. It states that external failure costs account for about 80% of quality costs, while appraisal costs account for 15% and prevention costs 5%. The document provides examples of different types of costs under each category. It also discusses how to make upper management aware of quality costs through metrics like costs as a percentage of sales or profits. Finally, it mentions hidden costs of quality and presents a model showing an optimal level of quality costs.

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    Cost of Quality

    Uploaded by

    abhiduu
    11 views11 pages
    The document discusses the costs of poor quality, including internal failure costs, external failure costs, appraisal costs, and prevention costs. It states that external failure costs account for about 80% of quality costs, while appraisal costs account for 15% and prevention costs 5%. The document provides examples of different types of costs under each category. It also discusses how to make upper management aware of quality costs through metrics like costs as a percentage of sales or profits. Finally, it mentions hidden costs of quality and presents a model showing an optimal level of quality costs.

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    The document discusses the costs of poor quality, including internal failure costs, external failure costs, appraisal costs, and prevention costs. It states that external failure costs account for about 80% of quality costs, while appraisal costs account for 15% and prevention costs 5%. The document provides examples of different types of costs under each category. It also discusses how to make upper management aware of quality costs through metrics like costs as a percentage of sales or profits. Finally, it mentions hidden costs of quality and presents a model showing an optimal level of quality costs.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    Download as ppt, pdf, or txt
    11 views11 pages

    Cost of Quality

    Uploaded by

    abhiduu
    The document discusses the costs of poor quality, including internal failure costs, external failure costs, appraisal costs, and prevention costs. It states that external failure costs account for about 80% of quality costs, while appraisal costs account for 15% and prevention costs 5%. The document provides examples of different types of costs under each category. It also discusses how to make upper management aware of quality costs through metrics like costs as a percentage of sales or profits. Finally, it mentions hidden costs of quality and presents a model showing an optimal level of quality costs.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    of 11

    COST OF POOR QUALITY

    QUALITY COSTS

    TQM
    KRR
    2010
    COMPANY-WIDE ASSESSMENT OF QUALITY

    * Cost of Poor Quality

    * Standing in the Market Place

    * Quality culture in the organisation

    * Operation of the company quality system


    TQM
    KRR
    2010
    COST OF POOR QUALITY
    • Internal Failure Cost : These are the costs associated
    with defects that are found prior to transfer of
    product to customer. These costs would disappear if
    no defects existed in the product before shipment.

    Categories of Internal failure costs


    • Scrap(overhead on defective products)
    • Rework
    • Failure analysis
    • Scrap and rework supplies
    • 100% sorting inspection( due to very high levels of defectives)
    • Reinspection and retesting (after rework)

    TQM
    KRR
    2010
    • External Failure Costs: These costs are associated with
    defects that are found after product is shipped to the
    customer.
    Examples:
    • Warranty Charges
    • Complaint adjustment
    • Returned Material (Replacement of defective products)
    • Allowances : Costs of concessions made to customers
    due to substandard product being accepted by the
    customer as is or to conforming product that does not
    meet fitness for use specifications.

    TQM
    KRR
    2010
    • Appraisal Costs: These are the costs incurred in
    determining degree of conformance to quality
    requirements
    Examples :
    • Incoming inspection and testing
    • In-process inspection and testing
    • Final Inspection and testing
    • Product quality audits
    • Maintaining quality of testing equipment
    • Inspection and testing of materials and services (e.g.,
    power)
    • Evaluation of stock

    TQM
    KRR
    2010
    Prevention Costs: These are costs incurred in keeping
    failure and appraisal costs to a minimum.

    Examples:
    • Quality Planning
    • New -Product review
    • Process control
    • Quality Audits
    • Supplier quality evaluation (Vendor Rating Index,etc)
    • Training

    TQM
    KRR
    2010
    COSTS OF POOR QUALITY
    • Internal failure Costs
    • External Failure Costs 80%
    • Appraisal Costs
    15%
    • Prevention Costs
    5%

    TQM
    KRR
    2010
    How to make upper management realize these costs
    of Quality?

    • Quality Costs as percentage of Sales


    • Quality Costs compared to profits
    • Quality Costs as percentage of cost of goods
    sold
    • Quality costs as percentage of total
    manufacturing cost
    • Effect of Cost of quality on BEP

    TQM
    KRR
    2010
    Hidden Costs of Quality
    • Lost Sales
    • Process downtime
    • Extra Inventory
    • Damaged goods
    • Overtime to correct errors
    • Loss of goodwill
    • Paperwork errors
    • Delays
    • Obsolete Inventory
    • Incorrect order Shipped
    • Extra Process capacity
    • Premium Freight Costs
    • Customer Allowances
    TQM
    KRR
    2010
    OPTIMUM QUALITY COST

    TQM
    KRR
    2010
    TOTAL QUALITY COST CURVE

    TQM
    KRR
    2010

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