Cost of Quality vs Cost of Poor Quality

What is Cost of Quality (COQ)?

 - COQ is the cost of achieving quality products including resources cost, maintenance cost etc.

 - COQ = It is the sum of Cost of Good Quality and Cost of Poor Quality

 - COQ is a methodology used to define and measure what amount of the organization's resources are used to prevent poor quality.

Examples of COQ

 - Incoming material inspection

 - Stage and final inspection

 - Vendor evaluation

 - Training activities

 - Calibration of equipment's

Classification of Cost of Quality

1. Prevention Cost

 - Prevention is incurred to prevent or avoid the problems.

 - Prevention costs are associated with design, maintenance, implementation of the QMS.

 - Prevention cost includes

a. Product or service requirement

 - Establishing specifications for incoming, Inprocess and finial process and service.

b. Planning

 - This includes creation of plans for quality, reliability, Operations, Production and inspection.

c. Training

 - Training and skill development of the employee

d. Assurance

 - Creation and maintenance of QMS

2. Appraisal Cost

 - Appraisal cost includes the measuring and monitoring activities.

 - This cost associated with supplier's and customer's evaluation of purchased materials, goods and services to ensure that they conforms to specifications.

 - This cost includes

a. Verification

 - Checking of incoming material, process setup and final product against specifications

b. Audits

 - Confirmation of quality system is functioning correctly.

c. Inspection and Testing

 - Inspection and testing of final products as per acceptance criteria.

d. Supplier assessment

 - Approval of supplier.

3. Internal Failure Cost

 - Internal failure means defects found before the product or service delivered to the customer.

 - These costs occur when the final results of work fail to reach design quality standards.

 - This cost includes

a. Scrap

 - Defective parts or material that cannot be repaired or used.

b. Rework

 - Defective part that can be repaired or used it instead of scrap it.

c. Waste

 - Waste due to poorly designed processes.

d. Failure analysis

 - Failure analysis required to establish the causes of internal failure.

4. External Failure Cost

 - External failure means defects found after the customer receives the product or service. 

 - These errors cost 5 times more the product cost to fix than when companies catch them internally.

 - This cost includes

a. Customer complaint handling

 - All work and costs associated with handling and servicing (Replacement, Rework etc.) customers complaints.

b. Warranty

 - Failure of product during warranty period  need to repair or replace to make it functional.

c. Returns

 - Handling and investigation of rejected products including transport charges.

What is Cost of Poor Quality (COPQ)?

 - It is the cost associated with providing poor quality products or services.

 - This cost includes labor cost, rework cost, reject cost, material cost.

 - This is a hidden cost and effective quality improvement programs can reduce this substantially and makes a direct contribution to profits.

Examples of Cost of Poor Quality

 - Scrap

 - Rework

 - Waste

 - Warranty failures

 - Repair and servicing