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Quality Costs:

Quality Costs

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Many think that quality costs money and adversely affects profits. But these costs are the costs of doing it wrong first time . Quality in the long run results in increased profitability. For example if we design the product right first time, do it right the first time - we save all the costs of redesign, rework, scrap, resetting, repair, warranty work etc.

Quality and Profit:

Quality and Profit If the organization does not offer high quality product or service, it will soon go out of business. But just having high quality will not be enough, because your competitors will also have the high quality. To win, companies will need to offer high quality for a lower price than their competitors. This requires organizations to identify and reduce their quality costs High Quality Lower price

Quality Costs:

Quality Costs Quality costs are all those costs that arise from not performing a task the right way the first time. 1. Prevention Costs 2. Appraisal Costs 3. Internal Failure Costs 4. External Failure Costs

Prevention Costs :

Prevention Costs Prevention costs are associated with design, implementation, maintenance and planning prior to actual operation in order to avoid defects from happening. The emphasis is on the prevention of defects in order to reduce the probability of producing defective products. Prevention activities lead to reduction of appraisal costs and both type of failures (internal and external). The motto is “Prevention rather than appraisal” .

Appraisal costs:

Appraisal costs Appraisal costs are spent to detect defects to assure conformance to quality standards. Appraisal cost activities sums up to the “cost of checking whether things are correct” . The appraisal costs are focused on the discovery of defects rather than prevention of defects

Internal failure costs:

Internal failure costs Internal failure costs occurs when results of work fail to reach designated quality standards, and are detected before transfer to the customer takes place.

External failure costs:

External failure costs External failure costs occur when the product or service from a process fails to reach designated quality standards, and is not detected until or after transfer to the customer.

Size of four categories of quality costs:

Size of four categories of quality costs The organizations which do not follow TQM, there is less emphasis on prevention and their main quality efforts are on appraisal with very little control on internal and external failure costs. Various studies have shown that quality cost in manufacturing companies world over range from 20% to 30% of turnover and in the case of service companies it can go up to 40 %.

Size of various quality cost elements:

Size of various quality cost elements Preventive 1% Appraisal 4-6% Internal Failure 10-12% External Failure 10-15% The total quality costs 25-35 % of turnover. Quality costs in % of sales

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