Cost of Quality (COQ)
"The cost of quality."
It’s a term that's widely used – and widely misunderstood. The "cost of quality" isn't the price of creating a quality product or service. It's the cost of NOT creating a quality product or service. Every time work is redone, the cost of quality increases. Obvious examples include: The reworking of a manufactured item.
The retesting of an assembly.
The rebuilding of a tool.
The correction of a bank statement.
The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant. In short, any cost that would not have been expended if quality were perfect contributes to the cost of quality. Total Quality Costs
As the figure below shows, quality costs are the total of the cost incurred by: Investing in the prevention of nonconformance to requirements. Appraising a product or service for conformance to requirements. Failing to meet requirements.
Quality Costs—general description
The costs of all activities specifically designed to prevent poor quality in products or services. Examples are the costs of:
New product review
Supplier capability surveys
Process capability evaluations
Quality improvement team meetings
Quality improvement projects
Quality education and training
The costs associated with measuring, evaluating or auditing products or services to assure conformance to quality standards and performance requirements. These include the costs of:
Incoming and source inspection/test of purchased material
In-process and final inspection/test
Product, process or service audits
Calibration of measuring and test equipment
Associated supplies and materials
The costs resulting from products or services not conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure categories. Internal Failure Costs
Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a service, to the customer. Examples are the costs of:
External Failure Costs
Failure costs occurring after delivery or shipment of the product — and during or after furnishing of a service — to the customer. Examples are the costs of:
Processing customer complaints
Total Quality Costs:
The sum of the above costs. This represents the difference between the actual cost of a product or service and what the reduced cost would be if there were no possibility of substandard service, failure of products or defects in their manufacture. Excerpted from the ASQ Quality Costs Committee, Principles of Quality Costs: Principles, Implementation, and Use, Third Edition, ed. Jack Campanella, ASQ Quality Press, 1999, pages 3–5.
From Wikipedia, the free encyclopedia
In process improvement efforts, quality costs or cost of quality is a means to quantify the total cost of quality-related efforts and deficiencies. It was first described by Armand V. Feigenbaum in a 1956 Harvard Business Review article. Prior to its introduction, the general perception was that higher quality requires higher costs, either by buying better materials or machines or by hiring more labor. Furthermore, while cost accounting had evolved to categorize financial transactions into revenues, expenses, and changes in shareholder equity, it had not attempted to categorize costs relevant to quality, which is especially important given that most people involved in manufacturing never set hands on the product. By classifying quality-related entries from a company's general ledger, management and quality practitioners can evaluate investments in quality based on cost improvement and profit enhancement. Feigenbaum defined the following quality cost areas:
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