Quality-linked activities are those activities performed because poor quality may or does exist. The costs of performing these activities are referred to as costs of quality. Thus, costs of quality are the costs that exist because poor quality may or does exist. This definition implies that quality costs are associated with two subcategories of qualityrelated activities: control activities and failure activities. Control activities are performed by an organization to prevent or detect poor quality (because poor quality may exist). Thus, control activities are made up of prevention and appraisal activities. Control costs are the costs of performing control activities. Failure activities are performed by an organization or its customers in response to poor quality (poor quality does exist).
If the response to poor quality occurs before delivery of a bad (nonconforming, unreliable, not durable, and so on) product to a customer, the activities are classified as internal failure activities; otherwise, they are classified as external failure activities. Failure costs are the costs incurred by an organization because failure activities are performed. Notice that the definitions of failure activities and failure costs imply that customer responseto poor quality can impose costs on an organization. The definitions of quality-related activities also imply four categories of quality costs: (1) prevention costs, (2) appraisal costs, (3) internal failure costs, and (4) external failure costs.
Prevention costs are incurred to prevent poor quality in the products or services being produced. As prevention costs increase, we would expect the costs of failure to decrease. Examples of prevention costs are quality engineering, quality training programs, quality planning, quality reporting, supplier evaluation and selection, quality audits, quality circles, field trials, and design reviews.
Appraisal costs are incurred to determine whether products and services are conforming to their requirements or customer needs. Examples include inspecting and testing materials, packaging inspection, supervising appraisal activities, product acceptance, process acceptance, measurement (inspection and test) equipment, and outside endorsements. Two of these terms require further explanation.
Product acceptance involves sampling from batches of finished goods to determine whether they meet an acceptable quality level; if so, the goods are accepted. Process acceptance involves sampling goods while in process to see if the process is in control and producing nondefective goods; if not, the process is shut down until corrective action can be taken. The main objective of the appraisal function is to prevent nonconforming goods from being shipped to customers.
Internal failure costs are incurred because products and services do not conform to specifications or customer needs. This nonconformance is detected prior to being shipped or delivered to outside parties. These are the failures detected by appraisal activities. Examples of internal failure costs are scrap, rework, downtime (due to defects), reinspection, retesting, and design changes. These costs disappear if no defects exist.
Prevention costs are incurred to prevent poor quality in the products or services being produced. As prevention costs increase, we would expect the costs of failure to decrease. Examples of prevention costs are quality engineering, quality training programs, quality planning, quality reporting, supplier evaluation and selection, quality audits, quality circles, field trials, and design reviews.
Appraisal costs are incurred to determine whether products and services are conforming to their requirements or customer needs. Examples include inspecting and testing materials, packaging inspection, supervising appraisal activities, product acceptance, process acceptance, measurement (inspection and test) equipment, and outside endorsements. Two of these terms require further explanation.
Product acceptance involves sampling from batches of finished goods to determine whether they meet an acceptable quality level; if so, the goods are accepted. Process acceptance involves sampling goods while in process to see if the process is in control and producing nondefective goods; if not, the process is shut down until corrective action can be taken. The main objective of the appraisal function is to prevent nonconforming goods from being shipped to customers.
Internal failure costs are incurred because products and services do not conform to specifications or customer needs. This nonconformance is detected prior to being shipped or delivered to outside parties. These are the failures detected by appraisal activities. Examples of internal failure costs are scrap, rework, downtime (due to defects), reinspection, retesting, and design changes. These costs disappear if no defects exist.
External failure costs are incurred because products and services fail to conform to requirements or satisfy customer needs after being delivered to customers. Of all the costs of quality, this category can be the most devastating. Costs of recalls, for example, can run into the hundreds of millions. Other examples include lost sales because of poor product performance, returns and allowances because of poor quality, warranties, repair, product liability, customer dissatisfaction, lost market share, and complaint adjustment. External failure costs, like internal failure costs, disappear if no defects exist.
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