Cost of Quality

Cost of Quality Presentation by -Virat TaraWhat is Cost of Quality?It is the amount of money that a management is ready to spend or invest to mantain certain standards.Example:Costs incurred on Training employees,experts for checking quality etc.Cost of Quality:Cost of ConformanceCost of Non-Conformance

Cost of Conformance:It is the unavoidable cost (a must to achieve quality) that organisation spends to meet the specifications.

Cost of Conformance:Preventive CostAppraisal Cost

Preventive Cost:It is the cost of all activities specifically designed to prevent poor quality product or service.The preventive measures are taken before the production and thus can help in reducing appraisal and failure costs.Example:Supplier Quality Planning,Supplier review/surveys,Process Control Planning,Quality Training,Customer Surveys.

Appraisal Cost:The cost incurred on in-process goods for identifying, analysing,measuring deviations.Example:internal inspections,laboratory testing,incoming material inspection,equipment callibration,final product testing

Cost of Non-Conformance:The amount of money the organistaion has to incur because of non-achievement of specifications

Cost of Non-conformance:Internal failure costExternal failure cost

Internal Failure Cost:This is the cost incurred when product or service fails to meet the quality standards prior to the tranfer of ownership to cusomerIncident:In a recent incident a cargo ship carrying 1,200 Jaguars and Land Rovers(approx. $45M worth)

External Failure Cost:This cost is incurred after the transfer of ownership i.e at the customer end.This failure results in penalties and loss of reputation.Incidents:In 2000 Bridgestone & Firestone recalled 60 lakh tires after an investigation revealed tire tread separation was linked to 46 deaths.The rubber used in those tires was expired,this was neglected due to hasty inspections.In similar cases Ford motors has recalled over 2 Crore 40 Lakh vehicles since 2004.Optimization:Price of a product = Manufacturing cost of a product + profitManufacturing cost includes the money spent to maintain qualityThus the as we spend on quality we increase the products priceTherefore we need to optimize this whole procedure

Case Study:Everest SpicesCategoryEverest Spices(1999)External Failure Costs

14%Inernal Failure Costs64% Cost of Non-Conformance =78%Appraisal Costs13%Prevention Costs9% Cost of Conformance =22%

Case Study:Everest SpicesCategoryEverest Spices(2000)Appraisal Costs

22%Prevention Costs30% Cost of Conformance =52%External Failure Costs5%Inernal Failure Costs43% Cost of Non-Conformance =48%Conclusions:Thus application of Cost of quality approach helps an organisation to know where and how much to spend to maintain the quality and brand reputation.