Agenda Week 14

 Return homework  Week 15 Assignment


Reliability • Complete final exam
• Present exam results
 Solve problems:
Chapter 10 - 6, 10

Cost of Quality
 Solve problems:
Chapter 12 - 7
 Discuss final exam
Question:
 What are costs of quality?

Task: Create your list of quality costs and
share with the class.


What is the relationship between quality
and productivity?

Cost of Quality
Cost of Quality
Chapter Eleven

Cost of Quality
Quality cost
A quality cost is considered to be any cost
that the company would not have
incurred if the quality of the product or
service were perfect.

Cost of Quality
Quality costs
Total quality costs are the sum of
prevention costs, appraisal costs, and
internal and external failure costs.

Cost of Quality
Quality costs
increase over time
Liability costs
Failure Costs

Failure found by customer

Field repair costs

Failure found at installation

Failure found at final inspection

Failure found at onset of manufacture
Failure found during design phase
Prevention Costs

Time when failure found

Cost of Quality
Hidden Costs of
Poor Quality
Reprocessing
Customer returns
Rejects
Warranty expenses

Lost sales Loss of goodwill

Overtime to correct errors
Process downtime
Extra inventory Delays

Premium freight costs Extra process capacity

Extra inventory

Cost of Quality
Balanced Score
Card
TQM Element Financial Measure Non-financial Measure

Results of customer
satisfaction survey.
Customer External failure cost.
On-time delivery.
satisfaction Field service expense.
Number of customer
complaints.

Defect rates
Yields
Appraisal cost.
Internal Lead times
Internal failure cost.
performance Idle capacity
Prevention cost.
Unscheduled machine
downtime

Cost of Quality
Traditional Model
Total quality costs

Failure costs
unit of product
Cost per good

Cost of appraisal
plus prevention

0% Quality of conformance 100%

Emerging COQ
Model
Total quality costs

Failure costs
unit of product
Cost per good

Cost of appraisal
plus prevention

0% Quality of conformance 100%

COQ as motivator
 Companies under TQM do not focus on
quality cost minimization.
 Quality improvement projects tend to

focus on zero defects or defect reduction

to the six-sigma level.
The 1-10-100 Rule
Prevention
$ 1
Correction
$ 10

Failure
$

$ 100

$
COQ Theme
 Costs are not incurred or allocated, but
rather caused.
 Cost information does not solve quality

problems, nor does it suggest specific

solutions.

Problems are solved by tracing the cause
of a quality deficiency.