an economic case for Quality Management

introducing

COST OF QUALITY

What is Cost of Quality (COQ)?

(Cost of Quality)

COQ

COC (Cost of Conformance)

(Cost of NonConformance)

CONC

The cost of quality of most companies is benchmarked at 15 40% of Sales Revenue $

What is the Cost of Conformance?

Appraisal Cost Essentially Cost of Control
These are all the cost associated with controlling processes, products, etc. to ensure compliance. Examples are Laboratory processes, control activities, etc.

COC (Cost of Conformance)

PreventionAssurance Costs Essentially Cost of
These are all the cost associated with preventive activities to assure compliance throughout the processes. Examples are specifications libraries, risk assessment & management, internal auditing, quality assurance activities, NCR management (Root Cause Analysis & CAPA) etc.

Cost of Quality Control and Quality Assurance are the components of the Cost of Conformance

What is the Cost of Non-Conformance?

IFC
These are all the cost associated with when products & processes fails to meet compliance before products and services reaches customers & consumers. These are identified via the NCR system internally, tracked, monitored and addressed

Internal Failure Costs

(Cost of Non(Cost of Conformance) Conformance)

External Failure Costs

CONC COC

EFC

These are all the cost associated with when products & processes fails to meet compliance after products and services have reached customers & consumers in addition to market returns and nonconformance claims. These are identified via the Market Response/Complaints system, tracked, monitored and addressed

Cost of Internal & External Failures are the components of the Cost of Non-Conformance

Ideal Cost of Quality (COQ)

Cost of Conformance
(Cost of Quality)

Cost of Non-Conformance

COQ

Appraisal Costs

Preventive Costs

Internal Failure Costs

External Failure Costs

1$

0.1$

0.9 $

0$

0$

If, as the CEO of a company, you were given 1$ to spend on COQ, where would you ideally spend it?

The Basic Economic case for Cost of Quality (COQ)

Cost of Quality

Cost of Prevention

Optimum Cost of Quality

The COQ cannot be driven down to infinity. The above graph demonstrates that an optimum level of COQ is the aim

The Target for Cost of Quality (COQ)

For Quality Management to shift from being a cost center towards being a profit-generating center, the aim is to reach a COQ of <10% of Sales Revenue $
Apart from the realms of managing quality within the compliance environment, it can be constructively utilized to add to the bottom line as demonstrated above

Thank you!!
This presentation can form the basis of our next discussion

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