What Is Cost Of Quality?

“You can’t afford to buy cheap.” This statement was recently uttered by a friend of ours who was explaining her need to buy a high-quality shower curtain for her bathroom. When asked what she meant, she explained that her previous purchases of “ten dollar shower liners” only resulted in use of the products for about a month each.

“The material was so thin, they kept ripping from the hangers,” she explained, “I’d had to keep buying them over and over until I realized that it was time I pay a higher price for better quality. It will end up saving me money in the long run.” Our friend is right. While paying for quality is a wise choice for pertinent household purchases, the cost of quality is an essential part of making the right manufacturing solutions choices.

What is the definition of Cost of Quality (COQ)?

As defined by ASQ.org, “Cost of quality (COQ) is defined as a methodology that allows an organization to determine the extent to which its resources are used for activities that prevent poor quality, that appraise the quality of the organization’s products or services, and that result from internal and external failures. Having such information allows an organization to determine the potential savings to be gained by implementing process improvements.”

By contrast, cost of poor quality (COPQ) is defined as the costs associated with providing poor quality products or services. There are various factors that can lead to quality costs in a company. Product design issues, for example, can lead to manufacturing defects. As well, if inferior components are supplied to manufacturers, product flaws can occur. Sending customers the wrong products also leads to quality costs.

Quality costs fall into four categories.

They are prevention costs, appraisal costs, internal failure costs and external failure costs.

Prevention costs are known as the least expensive of all quality costs. As its description implies, these costs are to help prevent quality problems from taking place. They entail adequate employee training (to ensure the correct assembly of products, for example) as well as the creation of plans for quality assurance.

Appraisal costs cover inspection processes that ensure the highest quality possible for all manufactured products. They involve having production workers inspect both incoming and outgoing parts to and from their workstations. As a result, they can catch problems quickly to ensure the proper functionality of products.

Internal failure costs are levied when defective products are manufactured. Costs are often associated with correcting the defects before the products are delivered to customers. They also cover the need to scrap products that cannot be repaired.

External failure costs are incurred to remedy defects that are discovered by customers. As Steven Bragg of AccountingTools.com explains, this includes “product recalls, warranty claims, field service, and potentially even the legal costs associated with customer lawsuits. It also includes a relatively unquantifiable cost, which is the cost of losing customers.”

Naturally, it’s important for companies to take measures to avoid unnecessary quality costs.

Obviously the higher the quality costs are for a business, the worse the impact is on the company’s bottom line. Of course, when quality issues are kept to a minimum, a business can become a lot more profitable. Not to mention, it also stands to enjoy high levels of customer satisfaction.

For more information about Cost of Quality, please don’t hesitate to give Flux Connectivity a call at 1-800-557-FLUX or email us at connect@fluxconnectivity.com.