Contact Information

Phone: 614-245-0503

Fax:     614-573-7238

sqps@shraimqps.com

PO Box 218132

Columbus, OH 43221

USA

Based on his extensive work in quality, Joseph Juran estimated that about one-third of what we do in the US consists of redoing work previously “done.” Historically, costs related to quality can be in the range of 20 to 40 percent of sales.  Theses costs, also known as Quality Costs, can be divided into four categories:

• Prevention Costs: The costs of activities related to the prevention of poor quality. Examples include quality improvement team meetings, quality education and training, among others.
• Appraisal Costs: The costs associated with measuring / evaluating the quality of the product / service to ensure conformance to established requirements. Examples include incoming product inspection, reviewing applications for errors, and calibration of measuring and test equipment, among others.
• Internal Failure Costs: The costs resulting from product or service not conforming to requirements prior to delivery of product or service. Examples include rework, scrap, re-inspection, and downgrading, among others.
• External Failure Costs: The costs resulting from product or service not meeting the requirements after the product has reached the customer or during the delivery of service. Examples include customer returns or refusal of service, liability charges, warranty claims, and complaint processing, among others.

Prevention and appraisal costs can be thought of as costs associated with the achievement of quality. On the other hand, failure costs are associated with the non-achievement of quality. Obviously, failure costs should be targeted and reduced first, particularly those that come from external failure. Eliminating non-value-adding appraisal costs can be targeted next.

While quality costs are out there, most companies measure and track only the obvious. Generally, quality costs are either not thought of as such or they are difficult to capture.  In any case, once captured and tracked, quality costs can be reduced through quality improvement initiatives. It is important to realize that any reduction in quality costs means improving pretax profits by the same amount.

M. Shraim