The costs of efficient Quality Management

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Quality costs can be divided into categories. Let’s understand these categories and how to optimize cost

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ISO certificates are not cheap, and all the discussion we have had so far must have left a seed of doubt in your mind, making you question whether we should in fact go so far to achieve quality, after all:

• How much does it cost to invest in quality?

• What are the levels of monetary losses my company has due to the absence of quality?

• What should be the limit for financial investment in quality?

• What types of costs can non-quality bring about?

• How do I measure the costs involved with quality?

These and other questions are answered through the structured study of quality costs.

To make our study easier, quality costs can be divided into categories. For some scholars, quality costs can be segmented into two major categories: control costs and failure costs due to lack of controls.

Now, we will see in more detail how each category of quality costs is characterized, bringing examples of each one.

Categorizing quality costs

In line with the ASQC definition, quality costs can be divided into four categories, as shown in the figure below:

Quality costs
Quality costs

It is observed that it divides into two main types of costs: quality and non-quality. The costs directly linked to quality (prevention and appraisal) are costs incurred to pursue or ensure the standardization of your products. The costs linked to non-quality (internal and external) are the complications of producing defective items or your company having problems.

Prevention costs

Prevention costs are all expenditures made to prevent/avoid the occurrence of errors in processes. As an example, we can bring the following list:

• quality planning;

• review of new products;

• training of personnel for quality

• process control;

• quality reports;

• planning and administration of quality systems;

• obtaining quality measurements and equipment control;

• support to human resources;

• quality administrative costs;

• process study;

• purchase of standards and equipment;

• quality circles;

• development of the quality management system;

• design of methods to improve quality;

• preventive maintenance of equipment;

• project review;

• quality by design (quality from the design stage);

• creation and preparation of processes, instructions, etc.

Appraisal costs

Appraisal costs are those incurred when we assess the quality of the system/product, detecting failures before the product is put on the consumer market. Examples of this cost category are:

• raw material inspection;

• equipment testing;

• materials consumed in testing;

• evaluation of finished goods and raw material inventories;

• costs of preparation for inspection and testing;

• laboratory operations;

• sending tested products to production

Cost of internal failures

Internal failure costs are all those incurred due to some error in the production process, whether human error or mechanical failure. These errors are detected before the product reaches the consumer’s hands. Some illustrative examples could be:

• rejects, scrap;

• rework the product;

• reinspection of reworked products;

• line stoppages;

• supplier failures;

• use of rejected material for other purposes;

• corrective actions derived from materials and processes;

• time to fill out anomaly forms;

• time to analyze anomalies;

• time to determine corrective actions;

• corrective maintenance;

• overtime to recover delays.

Cost of external failures

External failures can be conceptualized as those that occur when products are already in the consumer’s hands. Such costs are often difficult to measure due to their intangible nature, such as damage to the company’s image associated with defects in its products. Below are examples of external failures:

• handling complaints;

• handling complaints through after-sales service;

• time to analyze complaints;

• time to determine corrective actions;

• returned material;

• scrap;

• rework;

• warranty costs;

• costs of concessions given to customers, discounts;

• reinspection of reworked products for replacement

Optimizing your costs: calculating the minimum quality cost

Quality costs are considered inevitable costs. This statement makes sense, because it is not feasible to obtain quality without making investments. However, inevitable should not be confused with infinite. So, what would be the limit for investment in prevention costs and appraisal costs? Quality costs should grow exponentially for the “100% good product” level to be reached, which could also be a “100% compliant” product.

On the other hand, non-quality costs (internal and external failures) are considered avoidable. But how much would it cost to eliminate them completely? Would it be advantageous for the company?

The answer to this question certainly depends from one business sector to another and, logically, on the cost structures presented by these businesses. It is a cost-benefit relationship, in which the cost (investment in quality) cannot exceed the benefit (reduction of internal and external failures).

Imagine the costs of external failures related to a batch of “dry” ballpoint pens or the costs related to the crash of a commercial aircraft. Their proportions are incomparable. Thus, it seems plausible that the airline company invests a much larger amount in quality costs than the company that produces ballpoint pens.

In this way, in the search for a balance between quality costs and non-quality costs, the minimum total cost of quality is sought.

Optimum quality point
Optimum quality point

Observe the following table:

TimeQuality Cost (x1000)Non-Quality Cost (x1000)
2010100180
2011120170
2012140150
2013170120
2014220119
2015245120
2016300117
2017350118

Note that, from 2013 onwards, the costs of poor quality continued to increase; however, the costs of poor quality remained stable. Considering that the quality investment measures taken were correct (it was no longer possible to reduce the costs of poor quality), we can state that 2013 was the year in which the optimum point was reached. The following chart helps us understand this reasoning.

Exercises

Regarding the definition of quality costs, select the correct alternative

The existence of costs associated with non-quality results in a more or less relevant decrease in operational costs, which ultimately leads to the calculation of the total costs involved.Correct symbol

Quality costs are any manufacturing or service expenses that exceed those that would have occurred if the product or service had been produced or provided perfectly the first time and include prevention and evaluation costs.Correct symbol

The costs related to non-quality do not include the costs of internal and external failures.Correct symbol

None of the alternativesCorrect symbol

Select the correct statement about quality costs

It is a quality management tool that, through the quantification and analysis of cost categories specifically associated with investments and losses in the process of obtaining quality, contributes to the knowledge of points in the organization that require improvementCorrect symbol

All alternatives are correctCorrect symbol

The term is actually associated with products produced without defects, including the costs of production, detection, repair and correction of defects and their causes.Correct symbol

All alternatives are wrongCorrect symbol

Select the statement that contains explanations about quality costs related to external failures

Generally speaking, quality costs can be defined as any manufacturing or service expenses that exceed those expenses that would have occurred if the product (or service) had been manufactured (or provided) perfectly the first time.Correct symbol

Failures detected after the product is already on the market generate quality costs called external failure costs.Correct symbol

According to the proposed classification, control (or quality) costs are those necessary to ensure that the product is perfectCorrect symbol

All alternatives are correctCorrect symbol

Select the alternative that contains the definition of prevention (or compliance) costs:

These are the costs of human and material resources related to tests and inspections designed to detect failuresCorrect symbol

Costs resulting from the inability of a product to meet quality requirements prior to supply; for example, the costs of repairing defects and inspecting that repair.Correct symbol

These are the costs of human and material resources that aim to prevent failures, defects, anomalies, or, in other words, that aim to allow everything to go right the first timeCorrect symbol

All alternatives are wrongCorrect symbol

Select the alternative that contains the definition of evaluation (or detection) costs

These are the costs of human and material resources related to tests and inspections designed to detect failuresCorrect symbol

Costs resulting from the inability of a product to meet quality requirements prior to supply; for example, the costs of repairing defective products and inspection of this repair.Correct symbol

These are the costs of human and material resources that aim to prevent failures, defects, anomalies, or, in other words, that aim to allow everything to go right the first time.Correct symbol

All alternatives are wrongCorrect symbol

Select the alternative that contains the definition of costs for internal failures

These are the costs of human and material resources related to tests and inspections intended to verify whether quality is being maintained or, in other words, intended to detect failuresCorrect symbol

Costs resulting from the inability of a product to meet quality requirements prior to supply; for example, repair of defective products and inspection of that repair.Correct symbol

These are the costs of human and material resources that aim to prevent failures, defects, anomalies or, in other words, that aim to allow everything to go well the first time.Correct symbol

All alternatives are wrongCorrect symbol

Select the alternative that contains the definition of costs for external failures

Costs resulting from the inability of a product to meet quality requirements after supply; for example, the payment of compensation due to a poorly provided service or loss of a customer dissatisfied with a product sold or a service provided by the companyCorrect symbol

These are the costs of human and material resources related to tests and inspections intended to verify whether quality is being maintained or, in other words, intended to detect failuresCorrect symbol

Costs resulting from the inability of a product to meet quality requirements prior to supply; for example, the repair of defective products and the inspection of that repairCorrect symbol

All alternatives are wrongCorrect symbol

Select the alternative that contains an example of an evaluation cost in a company's purchasing department

Verification of suppliers' ability to deliver quality productsCorrect symbol

Involvement in manufacturing or production issues relating to qualityCorrect symbol

Inspection of the first batches and qualification of supplier inspections and testsCorrect symbol

All alternatives are wrongCorrect symbol

Select the alternative that contains an example of prevention costs in a company's purchasing department

Verification of suppliers' ability to deliver quality productsCorrect symbol

Involvement in manufacturing or production issues relating to qualityCorrect symbol

Inspection of the first batches and qualification of supplier inspections and testsCorrect symbol

All alternatives are wrongCorrect symbol

Rework cost is considered which type of cost

PreventionCorrect symbol

Internal FailureCorrect symbol

AssessmentCorrect symbol

External failureCorrect symbol

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