- Prevention costs:
c. Statistical process control
j. Training quality engineering
m. Audits of the quality system
e. Maintaining testing equipment
f. Inspecting finished goods
l. Inspecting materials received from suppliers
n. Supervision of testing personnel
Internal failure costs:
d. Disposal of spoiled goods
g. Downtime caused by quality problems
h. Debugging errors in software
k. Re-entering data due to typing errors
o. Rework labor
External failure costs:
a. Repairs of goods still under warranty
b. Customer returns due to defects
i. Recalls of defective products
2. Quality of conformance is meeting or exceeding product design specifications and absence of defects. Quality costs are incurred in order to prevent possible product defects or deal with existing ones. Prevention and appraisal costs are incurred to keep poor quality of conformance from occurring. These costs differ by nature of activities and order.
Product quality appropriation process always starts with prevention activities. The core mission of these activities is to minimize quantity of defects. Prevention costs include gathering, analysis and reporting of quality data in order to be aware of all quality issues incurred during the production and after sale to customers. In addition, some of these costs are systems development, quality training, and quality improvement projects. Modern managers pay significant attention to prevention activities as, absolutely, it is better to produce a product with high quality of conformance than work with the results of detected defects.
Appraisal costs are intended to inspect all produced goods in order to reveal any defects. It is very important to catch the defects before the goods reach customers, otherwise the consequent costs will rise significantly. Appraisal costs include inspection of supplies, work in progress and final products. Maintenance and depreciation of test equipment, supervision of inspection activities and plant utilities in the inspection area are also added to this type of costs.
The last two components of quality cost are internal and external failure costs. They are incurred because poor quality of conformance has occurred. Internal failure costs deal with the results of revealed defects before these goods were sent to customers. These costs include costs of all work that should be performed one more time, such as production, inspection, testing and entering data. Also such costs as scrap, spoilage, disposal of defective products and debugging software errors are added to internal failure costs.
The most devastating component of quality cost is external failure costs. The company incurs these costs in case defective products have reached the customer. These costs include costs of servicing and handling complaints, repairs in the time and after warranty period and product recalls. Also, the company may have liabilities arising from defective products. All these issues bring serious harm to the company’s reputation. Usually, people do not buy anything at the company where they faced defective products previously. Dissatisfied customers have a habit to tell other people of unsuccessful purchases and a large part of potential sales can be lost.
Thus, it can be concluded, that quality cost information is very useful for companies to see and prevent financial losses caused by defects. From the quality cost reports it can be seen that the less quality of conformance, the higher the total quality costs. And, in turn, the less prevention and appraisal costs, the higher internal and external failure costs.
