Andrea Schiffauerova *, Vince Thomson **
* École Polytechnique de Montréal, Department of Mathematics and Industrial Engineering, Montreal ** Department of Mechanical Engineering, McGill University, Montreal, Canada
Article Reference: Schiffauerova, A. and Thomson, V., “Managing cost of quality: Insight into industry practice”, The TQM Magazine, 2006 Abstract This paper reports on the study of the quality costing practices at four large successful multinational companies. All four companies use systematic quality initiatives; however, a formal cost of quality (CoQ) methodology was only employed at one of them. This is in agreement with the literature findings arguing that a CoQ approach is not utilized in most quality management programs. The article discusses and compares the quality programs of all four companies and explains the benefits of the eventual adoption of a CoQ approach in each case. The analysis provides a new insight into company practice, useful not only for academic research, but also for use by industry. Keywords: Cost of quality, CoQ, quality costing, industrial practice Introduction Improving quality is considered by many to be the best way to enhance customer satisfaction, to reduce manufacturing costs and to increase productivity. Any serious attempt to improve quality must take into account the costs associated with achieving quality, since nowadays it does not suffice to meet customer requirements, it must be done at the lowest possible cost as well. This can only happen by reducing the costs needed to achieve quality, and the reduction of these costs is only possible if they are identified and measured. The identification itself is not straightforward because there is no general agreement on a single broad definition of quality costs. However, according to Dale and Plunkett (1995), it is now widely accepted that quality costs are the costs incurred in the design, implementation, operation and maintenance of a quality management system, the cost of resources committed to continuous improvement, the costs of system, product and service failures, and all other necessary costs and non-value added activities required to achieve a quality product or service. Measuring and reporting these costs should be considered a critical issue for any manager who aims to achieve competitiveness in today’s markets. There are several methods that can be used to collect, categorize and measure quality costs. The traditional P-A-F method suggested by Juran (1951) and Feigenbaum (1956) classifies quality costs into prevention, appraisal and failure costs. Prevention costs are associated with actions taken to ensure that a process provides quality products and services, appraisal costs are associated with measuring the level of quality attained by the process, and failure costs are incurred to correct quality in products and services before (internal) or after (external) delivery to the customer. The cost categories of Crosby’s model (Crosby, 1979) are 1
similar to the P-A-F scheme. Crosby sees quality as “conformance to requirements”, and therefore, defines the cost of quality as the sum of price of conformance and price of nonconformance (Crosby, 1979). The price of conformance is the cost involved in making certain that things are done right the first time and the price of non-conformance is the money wasted when work fails to conform to customer requirements. Another formal quality costing approach is the process cost model, which was developed by Ross (1977) and first used for quality costing by Marsh (1989); it represents quality cost systems that focus on process rather than products or services. Several references propose CoQ models that include the additional category of intangible costs. These are costs that can be only estimated such as profits not earned because of lost customers and reduction in revenue owing to non-conformance. The importance of...