Presented by Dr. Joan BurtnerCertified Quality Engineer

Associate Professor and Chair, Department ofIndustrial Engineering and Industrial

ManagementMercer University

Cost of Quality - A method used by organizations to show the financial impact of quality activities

Juran – advocated measuring quality in terms best understood by upper management

Feigenbaum – promoted the value of a measurement reporting system that focuses on quality costs, their causes, their effects

Crosby – asserted that it is the absence of quality that increases costs

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 2

Quality does not cost money

Absence of quality increases total cost of goods and services Non-conformances and failures cost

money

Popularized the term “Cost of poor quality” Must spend money up front on prevention

and appraisal

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 3

PreventionAppraisalInternal failureExternal failureThe total cost of quality equals

the sum of the costs associated with the four categories listed above.

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 4

All activities specifically designed to examine the overall experience gained from the identification and elimination of specific causes of failure and their costs in an effort to prevent recurrence of the same or similar failures in other products or services

Costs incurred in minimizing failure and

appraisal costs throughout an entire organization’s processes

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 5

1.1 Marketing/customer/user Marketing research, customer surveys and focus groups, contract and document

review 1.2 Product/service/design/development

Translate customer and user needs into reliable quality standards prior to the release of authorized documentation for initial production

Design quality progress reviews, product design qualification tests, field trials 1.3 Purchasing prevention costs

Costs incurred to assure conformance to requirements of supplier parts Includes activities prior to and after finalization of purchase order commitments,

such as purchase order reviews, supplier review, supplier rating 1.4 Operations prevention costs (manufacturing or service)

Quality education of operating personnel, design and development of quality measurement and control equipment, operations support quality planning

1.5 Quality administration Administrative salaries and expenses Quality education Documenting and evaluating quality costs Quality system audits

1.6 Other prevention costs

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 6

Evaluation of product or service at sequential stages, from design to first delivery and throughout the production process. The purpose is to determine the product or service’s acceptability for continuation in the production or life cycle.

Costs associated with measuring, evaluating, or auditing products or services to ensure conformance to quality standards and performance requirements

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 7

2.1 Purchasing appraisal costs Incoming inspections and tests Could be conducted at receiving or at supplier’s facility Measurement equipment*

2.2 Operations (manufacturing or service) appraisal costs Planned operations inspections, tests, audits Product or service quality audits Inspection and test measurement equipment* Outside endorsements and certifications

2.3 External appraisal costs Field performance evaluation Setup and inspection before customer accepts product

2.4 Review of test and inspection data 2.5 Miscellaneous Quality Evaluations

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 8

Internal failure – all costs required to evaluate, dispose of, and either correct or replace nonconforming products or services prior to delivery to the customer. This category includes cost to replace incorrect or incomplete product or service description (documentation).

Costs that occur before the product is delivered to the customer

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 9

3.1 Product or service design failure costs Internal corrective action Scrap and rework due to design changes*

3.2 Purchasing failure costs Purchased material disposition/replacement cost supplier corrective action rework of supplier rejects

3.3 Operations (product or service) failure costs Material review and corrective action Operations rework and repair costs Troubleshooting or failure analysis costs Internal failure labor losses Scrap costs*

3.4 Other internal failure costs

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 10

External failure – all costs due to actual or suspected nonconforming product or service after delivery to customer

Costs that occur after the delivery of product or while furnishing a service to the customer

ETM 627 Fall 2014 Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 11

4.1 Complaint investigations of customer or user service

4.2 Returned goods 4.3 Retrofit and recall costs 4.4 Warranty claims 4.5 Liability costs 4.6 Penalties 4.7 Customer or user goodwill 4.8 Lost sales 4.9 Other External Failure Costs

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 12

ASQ Quality Costs Committee, (1999) Principles of Quality Costs: Principles, Implementation and Use. Milwaukee, WI: ASQ Quality Press

Email: Burtner_J@Mercer.edu US Mail:

Dr. Joan Burtner, Associate Professor and ChairDept. of Industrial Engineering and Industrial ManagementMercer University School of Engineering 1400 Coleman Avenue Macon, GA 31207

Phone: (478) 301- 4127

ETM 627 Fall 2014Dr. Joan Burtner, Associate Professor of Industrial Engineering Slide 13