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Tuesday, February 24, 2009

Cost of Quality (COQ)


For everything you wanted to know on building leadership and management, refer Shyam Bhatawdekar’s website: http://shyam.bhatawdekar.com

(Refer our High Quality Management Encyclopedia “Management Universe” at: http://management-universe.blogspot.com/)

Quality Costs: Definition

  • Also termed as cost of quality (COQ)
  • COQ should not be misunderstood as the cost of making a quality product or service. It is the cost of not making a quality product or service. Or it is the cost that an organization will have to suffer due to poor quality product/service.
  • Understanding the cost of quality concept shatters the general perception or paradigm that higher quality requires higher costs. In fact, it is the other way round.
  • Therefore, quality saves; quality is free.

It will be a great idea to refer to these URLs: http://total-quality-concept.blogspot.com/ (TQM), http://quality-function-deployment.blogspot.com/ (Quality Function Deployment- QFD and House of Quality), http://total-productive-maintenance.blogspot.com/ (TPM), http://six-sigma-system.blogspot.com/ (Six Sigma), http://5s-housekeeping.blogspot.com/ (5S Housekeeping), http://kaizen-improvement.blogspot.com/ (Kaizen), http://gemba-kaizen-improvement.blogspot.com/ (Gemba Kaizen), http://quality-circles.blogspot.com/ (Quality Circles)

First Time Right Saves; Rework is Expensive

  • The quality cost is barest minimum when the goods produced or services given are first time right and are with zero defects.
  • When you cannot produce, right the first time, you may have to carry out rework on them to make it of acceptable quality.
  • Rework means: literally doing it all over again and that may cost almost twice as much of the cost of first time right product. Worse, it will be a reworked product/service that can never match the quality of first time right one since rework is usually done using a less capable process ( not using the process which is used for normal manufacturing line and which has better process capability).

Components of Costs of Quality

Costs of conformance (Cost of control): It has two components:

  1. Prevention costs
  2. Appraisal costs

Costs of non conformance (Cost of failure of control): It has two components:

  1. Internal failure costs
  2. External failure costs

Prevention Costs

  • The costs of any action taken to investigate, prevent or reduce defects and failures.
  • The costs of all the efforts to keep defects from occurring at all.
  • The costs of quality planning, quality enhancement projects, quality training and development, supplier quality capability evaluation, process capability improvement, new product quality review etc.

Appraisal Costs

  • The costs of assessing the quality achieved.
  • The costs of detecting defects through inspection/audit and test procedures and sifting out defects from OK products.
  • The costs of inspection of bought out materials at the source or in-coming point in the organization, in process inspection, final product inspection, calibration of inspection/test instruments and equipment etc.

Internal Failure Costs

  • The costs arising within the manufacturing organization of failure to achieve quality specified (before transfer of ownership to the customer).
  • The costs of defects identified internally and then, rejecting/scrapping or reworking on the defective items.
  • The costs of lost lead times/cycle times and delayed delivery to customers.
  • The costs of scrapping/discarding, rework/repair, re-inspection/re-testing, downgrading the produced items fetching lower price/lower image.

External Failure Costs

  • The costs arising outside the organization of failure to achieve quality specified (after the transfer of ownership to the customer).
  • The costs associated with the defects that actually reach customers and field failures.
  • The costs of lost goodwill and image, lost existing and prospective customers, recalls, returned goods, free replacements for defective goods, processing of warranty claims/customer complaints etc.

Proportions of Costs

The estimates of proportion of these four quality costs are given below:

  • Preventive costs: $1
  • Appraisal costs: $10 (if you are not interested in investing $1 on preventive costs)
  • Internal failure costs: $100 (if you are not interested in investing $1 on preventive costs)
  • External failure costs: $1000 (if you are not interested in investing $1 on preventive costs)

Quality is Free; Quality Saves

Look at the proportions of costs carefully. What's the inference? It says clearly that if you invest wisely $1 in prevention costs, you can avoid/eliminate the appraisal costs, internal failure costs and external failure costs which total up to $1110.

Invest $1 in establishing quality systems and save $1110. Net savings: $1109.

So, quality is not only free, it saves.

For More Guidance, Assistance, Training and Consultation

Contact: prodcons@prodcons.com

Also refer: http://prodcons-group.blogspot.com/, http://training-development-function.blogspot.com/ and http://productivity-consultants.blogspot.com/

Other Topics of Interest

All Management Topics (General Management, Marketing and Sales, Service, Operations/Manufacturing, Quality, Maintenance, Human Resources, Finance and Accounts, Information Technology, Life Management)

The topics are listed in alphabetic order:

(Home Pages for All the Management Topics) http://management-universe.blogspot.com/ and http://management-universe-enotes.blogspot.com/
(Building Leadership and Management) http://shyam.bhatawdekar.com
(Alphabetic List of All Management Topics) http://management-enotes.blogspot.com/
(Home Page for Writings of Shyam Bhatawdekar) http://writings-of-shyam.blogspot.com/
(5S Housekeeping) http://5s-housekeeping.blogspot.com/
(Activity Based Costing- ABC) http://activitybased-costing.blogspot.com/
(Advertising) http://advertising-mass-communication.blogspot.com/
(Anger Management) http://controlling-anger.blogspot.com/
(Assertiveness) http://assertiveness-skill.blogspot.com/
(Assessment Centers) http://assessment-centers.blogspot.com/
(A to Z of Management Systems) http://a-z-management-systems.blogspot.com/
(A to Z of Quality Techniques) http://a-z-quality-techniques.blogspot.com/
(Balanced Scorecard) http://balanced-scorecard-system.blogspot.com/
(Basic Statistics) http://statistics-basic.blogspot.com/
(Behavioral Safety) http://behavioral-safety.blogspot.com/
(Benchmarking) http://benchmarking-system.blogspot.com/
(Body Language or Non-verbal Communication) http://body-language-communication.blogspot.com/
(Books- Best Management Books) http://best-management-books.blogspot.com/
(Boundaryless) http://shyambhatawdekar.blogspot.com/
(Brainstorming) http://brainstorming-technique.blogspot.com/
(Business Ethics and Ethics in Management) http://business-management-ethics.blogspot.com/ (Business Plan) http://business-plan-document.blogspot.com/
(Business Process Reengineering- BPR) http://business-process-reengineering-bpr.blogspot.com/
(Career Planning within Organizations) http://organizational-career-planning.blogspot.com/
(Case Method) http://case-method.blogspot.com/
(Case Studies in Management) http://corporate-case-studies.blogspot.com/
(CEO Roles, Qualities and Competencies) http://ceo-qualities.blogspot.com/
(Change Management) http://manage-change.blogspot.com/
(Coaching) http://coaching-skill.blogspot.com/
(Communication) http://communication-for-business.blogspot.com/
(Competencies- Life Management) http://shyam-bhatawdekar.blogspot.com/
(Competency Matrix) http://competency-matrix.blogspot.com/
(Conflict Management) http://manage-conflict.blogspot.com/
(Corporate Governance) http://corporate-governance-policy.blogspot.com/
(Cost Management) http://cost-management-control.blogspot.com/
(Cost of Quality- COQ) http://cost-of-quality.blogspot.com/
(Counseling at Workplace) http://counseling-skill.blogspot.com/
(Creativity and Innovation) http://creativity-management.blogspot.com/
(Critical Thinking skills) http://critical-thinking-skills.blogspot.com/
(Cross Cultural Etiquette and Manners) http://cross-cultural-etiquette.blogspot.com/
(Customer Orientation) http://customer-orientation.blogspot.com/
(Customer Relationship management- CRM) http://customer-relationship-crm.blogspot.com/
(Daily Management) http://daily-management.blogspot.com/
(Decision Making) http://decision-making-function.blogspot.com/
(Delegation) http://delegation-skill.blogspot.com/
(Design for Manufacture) http://design-for-manufacture.blogspot.com/
(Dining Etiquette and Table Manners) http://dining-manners.blogspot.com/
(Discipline at Work) http://discipline-at-work.blogspot.com/
(Dream Exotic) http://knol.google.com/k/shyam-bhatawdekar/my-exotic-dream/6txz9nck6g3/8#
(Effectiveness and Efficiency) http://effectiveness-efficiency.blogspot.com/
(Effectiveness Management: HSoftware) http://humansoftware.blogspot.com/
(Efficiency Techniques: Work study: Motion and Time Study) http://work-study-measurement.blogspot.com/
(Efficient Work Methods or Practices) http://efficient-work-methods.blogspot.com/
(Email Etiquette) http://email-etiquette-manners.blogspot.com/
(Emotional Intelligence) http://emotional-quotient-intelligence.blogspot.com/
(Empowerment) http://employee-empowerment.blogspot.com/
(Enterprise Resource Planning- ERP) http://erp-management.blogspot.com/
(Entrepreneurship and Entrepreneur) http://entrepreneurship-entrepreneur.blogspot.com/
(Executive Etiquette and Manners) http://executive-manners.blogspot.com/
(Exit Interview) http://exit-interview.blogspot.com/
(Financial Ratios and Financial Ratio Analysis) http://financial-ratios.blogspot.com/
(Financial Services) http://finance-related-services.blogspot.com/
(Functions of Management) http://functions-of-management.blogspot.com/
(Gemba Kaizen) http://gemba-kaizen-improvement.blogspot.com/
(Genuine Professional) http://knol.google.com/k/shyam-bhatawdekar/the-genuine-professional/6txz9nck6g3/10#
(Global Mindset) http://global-mindset.blogspot.com/
(Goal/Target Setting) http://goal-target-setting.blogspot.com/
(Group Discussion) http://group-discussion-gd.blogspot.com/
(Group Dynamics) http://group-dynamics-process.blogspot.com/
(How to Be a Good Boss) http://good-boss.blogspot.com/
(How to Get Promoted) http://get-promoted.blogspot.com/
(How to save Money) http://knol.google.com/k/shyam-bhatawdekar/how-to-save-money/6txz9nck6g3/11#
(HR Dynamics) http://hrm-dynamics.blogspot.com/
(HR Strategies and Functions) http://strategic-functions-hrm.blogspot.com/
(Human Capital Architecture) http://human-capital-architecture.blogspot.com/
(Human Relations) http://human-relations-aspect.blogspot.com/
(Human Resource Planning) http://human-resource-planning.blogspot.com/
(Human Software- HSoftware) http://human-software-hsoftware.blogspot.com/
(Internal Motivation or Self Motivation) http://internal-motivation.blogspot.com/
(Interpersonal Relations) http://interpersonal-relations.blogspot.com/
(Interview Skills) http://interviewing-skill.blogspot.com/
(Interview Preparation for Job Seekers) http://interview-preparation-jobs.blogspot.com/
(Interview Questions) http://interview-question-bank.blogspot.com/
(Just in Time Management- JIT) http://just-in-time-management.blogspot.com/
(Kaizen) http://kaizen-improvement.blogspot.com/
(Knowledge Management) http://knowledge-management-initiative.blogspot.com/
(Lead Time Management) http://lead-time-management.blogspot.com/
(Leadership) http://lead-max.blogspot.com/
(Lean Enterprise) http://lean-organization.blogspot.com/
(Learning Organization) http://learning-organization-profile.blogspot.com/
(Life Management: Competencies) http://knol.google.com/k/shyam-bhatawdekar/competency-matrix/6txz9nck6g3/4#
(Life Management: Effectiveness Management: HSoftware) http://knol.google.com/k/shyam-bhatawdekar/management-in-life-profession-family/6txz9nck6g3/3#
(Life Management: I Am Liberated) http://knol.google.com/k/shyam-bhatawdekar/i-am-liberated/6txz9nck6g3/6#
(Life Positions and OKness) http://life-positions.blogspot.com/
(Life Skills) http://life-skills-competencies.blogspot.com/
(Listening) http://listen-skills.blogspot.com/
(Management Anecdotes) http://management-anecdotes.blogspot.com/
(Management Book- Best Books) http://best-management-books.blogspot.com/
(Management Information System- MIS) http://management-information-system-mis.blogspot.com/
(Managing/conducting Meetings) http://managing-meetings.blogspot.com/
(Management Notes- Free and Authentic) http://authentic-management-notes.blogspot.com/
(Marginal Utility) http://marginal-utility-concept.blogspot.com/
(Marketing Management Overview) http://marketing-management-overview.blogspot.com/
(Marketing Management Tasks) http://marketing-management-tasks.blogspot.com/
(Marketing Orientation) http://marketing-orientation.blogspot.com/
(Market Research) http://market-research-function.blogspot.com/
(Market Segmentation) http://market-segment.blogspot.com/
(Mentoring) http://mentor-mentorship.blogspot.com/
(Motivation) http://motivation-people.blogspot.com/
(Musings of Shyam Bhatawdekar on every topic on the earth) http://shyam-bhatawdekar-musings.blogspot.com/
(Negotiation Skills) http://negotiating-skills.blogspot.com/
(Negotiation Tactics) http://negotiation-tactics.blogspot.com/
(Objection Handling) http://objection-handling.blogspot.com/
(Organization Development- OD) http://organization-development-od.blogspot.com/
(Organizational Culture) http://organizational-culture-values.blogspot.com/
(Out of Box Ideas) http://wow-idea.blogspot.com/
(Ownership on Job) http://job-ownership.blogspot.com/
(Paradigm and Paradigm Shift) http://paradigm-mindset.blogspot.com/
(Performance Management and Appraisal) http://performance-appraisal-management.blogspot.com/
(Personality) http://human-personality.blogspot.com/
(Positive Strokes) http://positive-strokes.blogspot.com/
(Presentation Skills) http://presentation-effectiveness.blogspot.com/
(Problem Solving) http://problem-solving-skill.blogspot.com/
(Profit Improvement) http://profit-improvement.blogspot.com/
(Project Management) http://management-of-project.blogspot.com/
(Public Speaking) http://public-speak-skill.blogspot.com/
(Quality Circles History) http://quality-circles-history.blogspot.com/
(Quality Circles) http://quality-circles.blogspot.com/
(Quality Function Deployment- QFD and House of Quality) http://quality-function-deployment.blogspot.com/
(Quality Gurus) http://quality-gurus.blogspot.com/
(Recession) http://knol.google.com/k/shyam-bhatawdekar/recession/6txz9nck6g3/7#
(Recession Management) http://recession-management.blogspot.com/
(Recession and Opportunities) http://knol.google.com/k/kalpana-bhatawdekar/recession-and-opportunities/1268ytxl8r5dc/1
(Recruitment and Selection) http://recruitment-selection.blogspot.com/
(Research Methodology) http://research-work-methodology.blogspot.com/
(Safety and Health Management) http://safety-health-management.blogspot.com/
(Sales/Selling Process) http://selling-process.blogspot.com/
(Sales Promotion) http://sales-promotion.blogspot.com/
(Self-concept) http://self-concept-image.blogspot.com/
(Self-concept) http://self-image-concept.blogspot.com/
(Self-concept) http://knol.google.com/k/shyam-bhatawdekar/self-concept/6txz9nck6g3/12#
(Self Motivation or Internal Motivation) http://internal-motivation.blogspot.com/
(Self-confidence) http://self-confidence-improvement.blogspot.com/
(Self Development) http://managing-self.blogspot.com/
(Shyam Bhatawdekar’s Articles on Management) http://writings-of-shyam.blogspot.com/
(Six Sigma) http://six-sigma-system.blogspot.com/
(Six Thinking Hats) http://six-thinking-hats.blogspot.com/
(Soft Skills) http://soft-skills-competencies.blogspot.com/
(Spiritual Quotient/Intelligence) http://spiritual-quotient.blogspot.com/
(Statistics- Basic) http://statistics-basic.blogspot.com/
(Strategic Management) http://strategic-managing.blogspot.com/
(Stress Management) http://management-of-stress.blogspot.com/
(Stress Management) http://managing-stress-strain.blogspot.com/
(Success in Life or Success) http://success-achievement.blogspot.com/
(Success in Life or Success) http://knol.google.com/k/shyam-bhatawdekar/success-in-life/6txz9nck6g3/14#view
(Supply Chain Management) http://manage-supply-chain.blogspot.com/
(Supply and Demand) http://supply-demand-laws.blogspot.com/
(Talent Management) http://managing-talent.blogspot.com/
(Team Building) http://team-building-working.blogspot.com/
(Telephone Etiquette) http://telephone-etiquette.blogspot.com/
(Three Sixty Degrees Appraisal System) http://three-sixty-degrees-feedback.blogspot.com/
(Time Management) http://time-life-management.blogspot.com/
(Total Productive Maintenance- TPM) http://total-productive-maintenance.blogspot.com/
(Total Quality Management- TQM) http://total-quality-concept.blogspot.com/
(Training and Development) http://training-function.blogspot.com/
(Trainers’ Qualities) http://trainers-qualities.blogspot.com/
(Transaction Analysis- TA) http://transaction-analysis.blogspot.com/
(TRIZ- Inventive Problem Solving) http://triz-problem-solving.blogspot.com/
(Value Engineering/Analysis) http://value-engineering-analysis.blogspot.com/
(Winners and Losers) http://winners-losers.blogspot.com/
(Work Study: Method Study and Work Measurement) http://work-study-measurement.blogspot.com/
(Work Methods or Practices: Efficient) http://efficient-work-methods.blogspot.com/
(World Class Manufacturing) http://world-class-manufacturing.blogspot.com/
(Writings of Shyam Bhatawdekar on Management) http://writings-of-shyam.blogspot.com/
(Written Communication) http://written-communication.blogspot.com/
(Zero Based Budgeting) http://zero-based-budgeting.blogspot.com/

Counseling: General and Psychological
(Anger Management) http://controlling-anger.blogspot.com/
(Children’s Behavior Problems) http://child-behavior-problems.blogspot.com/
(Cholesterol Control) http://controlling-cholesterol.blogspot.com/
(Counseling: Psychological) http://counselingfamily.blogspot.com/
(Counseling: Psychological) http://counseling-family.blogspot.com/
(Cross Cultural Etiquette) http://cross-cultural-etiquette.blogspot.com/
(Emotions) http://emotion-feeling.blogspot.com/
(Executive Etiquette and Manners) http://executive-manners.blogspot.com/
(Exercises) http://exercises-plan.blogspot.com/
(Family Counseling) http://family-harmony.blogspot.com/
(Health: Homeopathy) http://homeopathy-medicines.blogspot.com/
(LifeManagement: Competencies) http://knol.google.com/k/shyam-bhatawdekar/competency-matrix/6txz9nck6g3/4#
(Life Management: Effectiveness Management: HSoftware) http://knol.google.com/k/shyam-bhatawdekar/management-in-life-profession-family/6txz9nck6g3/3#
(Life management: I Am Liberated) http://knol.google.com/k/shyam-bhatawdekar/i-am-liberated/6txz9nck6g3/6#view
(Marriage Counseling) http://marriage-counsel.blogspot.com/
(Ownership on Job) http://job-ownership.blogspot.com/
(Parental Responsibilities) http://parental-responsibilities.blogspot.com/
(Personality) http://human-personality.blogspot.com/
(Qualities of Spouse) http://spouse-qualities.blogspot.com/
(Quit Smoking) http://quit-smoking-plan.blogspot.com/
(Self Development) http://managing-self.blogspot.com/
(Self-confidence) http://self-confidence-improvement.blogspot.com/
(Stress Management) http://managing-stress-strain.blogspot.com/
(Stress Management) http://management-of-stress.blogspot.com/
(Swine Flu and Its Prevention) http://swine-flu-precaution.blogspot.com/
(Telephone Etiquette) http://telephone-etiquette.blogspot.com/
(Walking) http://walking-plan.blogspot.com/
(Winners and Losers) http://winners-losers.blogspot.com/

About All the Products
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(Chocolates) http://chocolates-products.blogspot.com/
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(Mobile Phones) http://mobilephones-products.blogspot.com/

Home Tips
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(Entertainment: Movies) http://popular-movies.blogspot.com/
(Oscar Award Movies) http://oscar-award-movies.blogspot.com/
(Entertainment: Recommended Hindi Movies) http://unforgettable-hindi-movies.blogspot.com/
(Entertainment- Hindi Movies of Your Choice) http://hindi-movies-choice.blogspot.com/
(Plagiarized, Copied or Inspired Hindi Movies) http://copied-hindi-movies.blogspot.com/
(Health: Homeopathy) http://homeopathy-medicines.blogspot.com/
(Housekeeping at Home) http://5s-housekeeping-home.blogspot.com/
(How to Save Money) http://save-money-ideas.blogspot.com/ or http://knol.google.com/k/shyam-bhatawdekar/how-to-save-money/6txz9nck6g3/11#
(Jewelry Design) http://thejewellerydesigner.blogspot.com/
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(Recipes: Exotic) http://tastetherecipes.blogspot.com/
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(Travel and Sightseeing- World) http://sightseeing-guide.blogspot.com/
(World Heritage Sites) http://world-heritage-spots.blogspot.com/

General Knowledge and Out of Box Ideas
(General Knowledge- GK) http://general-knowledge-gk.blogspot.com/
(General Knowledge- Top 5 of Everything) http://top-five-everything.blogspot.com/
(General Knowledge- Top 10 of Everything) http://top-ten-anything.blogspot.com/
(Out of Box Ideas) http://wow-idea.blogspot.com/
(Shyam Bhatawdekar’s Knols) http://knol.google.com/k/shyam-bhatawdekar/shyam-bhatawdekar/6txz9nck6g3/1#
(Running Commentary on the Run) http://running-comments.blogspot.com/