COST OF QUALITY

Cost of Quality

Cost of Quality

Introduction

Improving quality is considered by many to be the best way to enhance customer satisfaction, to reduce manufacturing costs and to increase productivity. Any serious attempt to improve quality must take into account the costs associated with achieving quality, since nowadays it does not suffice to meet customer requirements, it must be done at the lowest possible cost as well. However, CoQ is usually understood as the sum of conformance plus non-conformance costs, where cost of conformance is the price paid for prevention of poor quality (for example, inspection and quality appraisal) and cost of non-conformance is the cost of poor quality caused by product and service failure (for example, rework and returns).

CoQ analysis links improvement actions with associated costs and customer expectations, and this is seen as the coupling of reduced costs and increased benefits for quality improvement. Therefore, a realistic estimate of CoQ and improvement benefits, which is the tradeoff between the level of conformance and non-conformance costs, should be considered an essential element of any quality initiative, and thus, a crucial issue for any manager. A number of organizations are now seeking both information on the theoretical background of quality related costs as well as practical evidence about the implementation of quality costing systems.

Discussion

According to Dale and Plunkett (1995), it is now widely accepted that quality costs are: the costs incurred in the design, implementation, operation and maintenance of a quality management system, the cost of resources committed to continuous improvement, the costs of system, product and service failures, and all other necessary costs and non-value added activities required to achieve a quality product or service.

Review of CoQ models

It was Armand Feigenbaum, who in 1943 first devised a quality costing analysis when he and his team developed a dollar-based reporting system (Harrington, 2002). Juran (1951) initiated the concept of quality costing, the economics of quality and the graphical form of the CoQ model. Feigenbaum (1956) later proposed the now widely accepted quality cost categorization of prevention, appraisal and failure (internal and external) costs.

Prevention costs are associated with actions taken to ensure that a process provides quality products and services, appraisal costs are associated with measuring the level of quality attained by the process, and failure costs are incurred to correct quality in products and services before (internal) or after (external) delivery to the customer. Juran (1962) later highlighted the traditional tradeoff that contrasts prevention plus appraisal costs with failure costs. The basic suppositions of the P-A-F model are that investment in prevention and appraisal activities will reduce failure costs, and that further investment in prevention activities will reduce appraisal costs (Porter and Rayner, 1992; Plunkett and Dale, 1987).

The objective of a CoQ system is to find the level of quality that minimizes total CoQ. Feigenbaum's and Juran's P-A-F scheme has been adopted by the American Society for Quality Control (ASQC, 1970), and the British Standard Institute (BS6143, 1990), and it is employed by most of the companies which ...