So, let’s get started …
Cost of Quality refers to the entire sum that takes to produce a product or service while guaranteeing high standards of quality. This encompasses conformance as well as non-conformance costs, such as- costs allocated to repeat work, errors, and defects. For example, in the manufacturing industry, cost of quality can be increased by situations such as returned goods items.
There are a few different opinions that professional’s debate regarding Cost of Quality.
Few opine that, increased quality means increased cost. Enhancing features that relate to quality, such as performance and procedures, require more money for designing, sourcing materials, using labor and various other resources that add up significantly. Sometimes the added bonuses of quality improvement do not make up for the extra expenses.
Another opinion is that it costs less to improve quality of a product or service than it does to deal with the defects. Companies save more money since they do not have to spend it unnecessarily on costs that directly relate to defects. This concept is very popular among Japanese manufacturers.
Another popular opinion regarding Cost of Quality is that costs would be less if, a product or service were created in the optimal way right from start. This includes losses such as hidden expenses and missed opportunities.
Irrespective of the different Cost of Quality concepts, the criteria used to judge it remains the same, namely: production cost, internal and external failure cost, defect prevention cost, opportunity cost and inspection cost.
Internal failure cost refers to expenses incurred from defects found prior to reaching the customer and includes reviews, re-inspection, revision, and rework.
External failure cost refers to expenses involved with defects found once the product has reached hands of the customer and includes costs of product recalls, returns and warranty claims.
Prevention costs refer to the costs related to deterrence of quality that is lacking, such as training, reviewing and planning.
Inspection costs occur during the time that it takes to find out if a product or service fulfills the standard of quality that is required through testing and evaluation.
Therefore, lower the cost of quality, higher is the profit.
Hence, all technical and business processes undermining cost of quality must be regularly studied, improved or redesigned to make the business more efficient and profitable. This can be done by installing a culture of continuous improvement in your organization.
There are more than eighteen different business process improvement techniques. Check them out here.
I shall discuss more FAQs concerning effective & efficient business process improvement in upcoming parts of this blog post series...
By the way, if you run a company that is facing a challenge to thrive in these difficult times, I would suggest that you please revisit your business processes in order to accelerate growth and bring a quick turnaround.
- Kaizen for pharmaceutical, medical device and biotech industries.
- Business process improvement techniques for manufacturing and service industries.
- How to choose a business process improvement technique for your organization.
- 30 Popular continuous improvement tools.
- YouTube #Shorts videos on Continuous Improvement.
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