- The cost of quality is divided into two categories: cost of good quality and cost of poor quality
Cost Of Quality
Cost of Good Quality (COGQ)
- Costs incurred to ensure that customers receive high-quality products and services.
-
Prevention Cost: Cost (Investment) to ensure
good Quality Products and Services are
delivered to the customer.
For example: Quality planning (for the test, inspection, audits, process control), Implementing Mistake Proofing. -
Appraisal Cost: Cost (Investment) associated
with Appraisal (Assessment) of the
product/service produced.
For example: Supplier Assessment/Audits, Process & Product Audits.
Cost of Poor Quality (COPQ)
- The cost of poor quality (COPQ) is the amount of money your company would lose if you don't meet customer specifications. This waste can be classified in two ways:
-
Internal Failure costs: Cost of defects detected
internally within the boundaries of an
Organization
For example: Scrap cost, Rework cost, and The loss incurred due to seconds sales. -
External Failure cost: Cost incurred due to
defects detected outside the boundaries of the
company, mostly at customer place
For example: Field Service cost – Spare Parts cost, Warranty Costs, Lost revenue/loss of market (marketing cost).
Optimal Quality
- If the Product/Service delivered is not as critical as lifethreatening, one needs to arrive at optimum Quality Levels to strike a balance between the Cost of Good Quality and the Cost of PoorQuality.
- One needs to evaluate the nature of business before arriving atOptimum Quality.
- For Products/Services with life at risk, the Optimum Quality principles do not apply.
Expert's Comment
- Is Zero Defect a good strategy?
- The answer is not always, especially when the product/service does not have any -ve impact on the safety of any living being or environment.
- One should always strive for optimal Quality. Many a time, the investment to achieve quality levels is much higher than the cost of defects itself, making it a loss for Business.
- Every Business needs to find its optimum levels of Quality achievement required. The Return On Investment should be the basis of meeting certain Quality levels. Return need not be only tangible; they can be intangible as well, like customer satisfaction,improving the safety of the product.