Quality Only Costs More If You Don’t Get It Right the First Time
Quality is the degree to which an object or entity (e.g., process, product, or service) satisfies a specified set of attributes or requirements.
It is understood that quality control functions are non-value adding to the product, but they are essential to honor our commitment towards customers. Hence, we have a quality system in our organization. The cost of quality is collective spending’s in order to satisfy your customers or to achieve the required attributes.
The cost of quality can be divided into two categories, the cost of good quality and the cost of poor quality.
You can also relate the cost of quality with your approach of quality. The cost of good quality is something which you spent in proactive measures whereas the cost of poor quality is something which you spent on reactive measures.
Cost of Quality Elements
1. Appraisal Cost:
These costs are associated with the suppliers’ and customers’ evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications.
- Audit Cost- It is related to the working of the quality system and its audit.
- Verification Cost- It is related with verification of incoming material, the system set up verification
- Calibration Cost
- Testing Cost
2. Prevention Cost:
These costs incurred during preventing defects. These are planned and proactive approaches and are done before the actual failure of products or services.
- Quality Planning- Planning for a specific order, planning for quality checkpoints
- Quality Assurance- Creation of Quality System
- Quality Training- Training for a new style of system
- Quality Systems- Investment in Quality related software or information system
3. Internal Failure Cost:
This is the cost that incurs before the product is dispatched to the buyer.
- Rework Cost
- Scrap/Reject Cost
- Re-Inspection Cost
- Wastages (storage/ movement/ over processing etc.)
- Failure Analysis Cost (FMEA/RCA)
4. External Failure Cost:
This is the cost that incurs when defects are discovered by customers or buyers. This indicates the failure of the quality system of the factory. Various heads under this are:
We will show you the cost of quality calculation method used in a garment factory. When calculating the Cost of Quality, we have considered the following.
- Repair Cost
- Claims from Buyer
- Returns
- Loss of Reputations
Calculation Method of Cost of Quality
To calculate the cost of quality we will use the following formula.
Cost of Quality (COQ) = Cost of Poor Quality (COPQ) + Cost of Good Quality (COGQ)
Cost of Quality (COQ) = IFC + EFC +AC +PC
Product : Trouser
Order Quantity : 50000
SAM : 35
CPM (SAM x Cost/Minute of Factory i.e. 3.5): 122.5
Cost/Piece (Fabric cost (Rs.500)+ CMP) : 622.5
Order Value : 311,25,000
Other variables used in calculating the cost of quality are mentioned in the remark column.
Table: Cost of quality calculation
This is a sample example to calculate the cost of poor quality. Many more details can be added based on your organization structure, order quantity and terms and conditions from the buyer.
Similarly, the cost of good quality can be also calculated, thus making it feasible to calculate the total cost of quality in an organization. Organizations should strive to reduce the cost of quality particularly the cost of poor quality (COPQ).
Order Quantity : 50000
SAM : 35
CPM (SAM x Cost/Minute of Factory i.e. 3.5): 122.5
Cost/Piece (Fabric cost (Rs.500)+ CMP) : 622.5
Order Value : 311,25,000
Other variables used in calculating the cost of quality are mentioned in the remark column.
Table: Cost of quality calculation
This is a sample example to calculate the cost of poor quality. Many more details can be added based on your organization structure, order quantity and terms and conditions from the buyer.
Similarly, the cost of good quality can be also calculated, thus making it feasible to calculate the total cost of quality in an organization. Organizations should strive to reduce the cost of quality particularly the cost of poor quality (COPQ).