Ans:-
Costs of quality or quality costs
does not mean the use of expensive or very highly quality materials to
manufacture a product. The term refers to the costs that are incurred to
prevent, detect and remove defects from products. Quality costs are
categorized into four main types. Theses are:
- Prevention costs
- Appraisal costs
- Internal failure costs and
- External failure costs.
These four types of quality costs are briefly explained below:
Prevention costs:
It is much better to prevent defects rather than finding and removing
them from products. The costs incurred to avoid or minimize the number
of defects at first place are known as prevention costs.
Some examples of prevention costs are improvement of manufacturing
processes, workers training, quality engineering, statistical process
control etc.
Appraisal costs:
Appraisal costs (also known as inspection costs)
are those cost that are incurred to identify defective products before
they are shipped to customers. All costs associated with the activities
that are performed during manufacturing processes to ensure required
quality standards are also included in this category. Identification of
defective products involve the maintaining a team of inspectors. It may
be very costly for some organizations.
Internal failure costs:
Internal failure costs are those costs that are
incurred to remove defects from the products before shipping them to
customers. Examples of internal failure costs include cost of rework,
rejected products, scrap etc.
External failure costs:
If defective products have been shipped to customers, external
failure costs arise. External failure costs include warranties,
replacements, lost sales because of bad reputation, payment for damages
arising from the use of defective products etc. The shipment of
defective products can dissatisfy customers, damage goodwill and reduce
sales and profits.
More examples of quality costs
Examples of prevention cost
- System development
- Quality engineering
- Quality training
- Quality circles
- Statistical process control
- Supervision of prevention
- Quality improvement projects
- Technical support to suppliers
- Quality data gathering, analysis and reporting
- Audit of the quality system
Examples of appraisal cost
- Test and inspection of incoming materials
- Final product testing and inspection
- Supplies used in testing and inspection
- Supervision of testing and inspecting activities
- Depreciation of test equipment
- Maintenance of test equipment
- Plant utilities in inspection area
- Field testing and appraisal at customer site
Examples of internal failure cost
- Net cost of scrap
- Net cost of spoilage
- Rework labor and overhead
- Re inspection of reworked products
- Disposal of defective products
- Down time caused by quality problems
- Analysis of the cause of defects in the production
- Retesting of reworked products
- Re-entering data because of keying
- Debugging software errors
Examples of external failure cost
- Cost of field servicing and handling complaints
- Warranty repairs and replacement costs
- Liability arising from defective products
- Lost sales arising from a reputation of poor quality
- Returns and allowances arising from quality problems
- Product recalls
- Repairs and replacements beyond the warranty period
