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These are certain costs which are associated with product and services quality. To prevent from the poor quality and after having bad quality in a product or services organization incurred some cost. An estimated loss that a company can bear on defective or unsatisfactory products is 20 to 30 percent of gross sale. There are four types of cost of quality:
Prevention costs are related to prevention of product or services from poor quality or any other defects.
The company can bear this cost on redesigning the production process so that the product or services can be done in an easiest way with fewer flaws.
Appraisal costs are associated with monitoring, checking and testing the quality of product or services of the specific project. The costs are related to find out whether these products are done according to the specifications and finding out the defects before sending it to the customer.
When defects are found during the manufacturing of a product or services of a project then the company has to bear the internal failure costs. The internal failure costs include finding out the solutions of defects which discovered before the final delivery of a product or services of the project.
External failure costs are linked with the customer standard or quality. When a products or services of project are not done according to the specification of a customer, then he files complaints or return that product. For handling the complaints company incurred external failure costs.
The costs also include warranty costs, product liability suits or settlements, the cost of product returns or recalls and lost business customer and goodwill.
The total cost of quality can be minimized by observing the relationship between cost of quality and the degree of conformance to customer requirements when the degree of conformance is very high (low defects), the costs of failures are low but the costs of control are quite high. When the degree of conformance is low (high defects), the opposite situation exists. Thus there is between the two extremes, an optimal level of conformance where total costs are minimized. The cost of quality can be a powerful tool for quality improvement if properly used .it focuses management attention on waste due to excess failure or high control costs.
Quality is closely related to financial performance of a firm because quality management helps to reduce wastages and also keep the costs of quality at the minimum possible level. The cost of not doing things right from the first time is the cost of quality. Cost related to the quality of product including both direct quality control operations and functions indirectly concerned with the product overall quality.
All these except the prevention cost are costs of not doing things right the first time. By assigning cost to poor quality, it can be managed and controlled like any other cost. Since cost is the most important concern of managers, putting quality in terms of cost offers a powerful means of communication and control. To maintain the cost of quality in specific project we have to keep in mind these costs:
Quality planning, Design and development, Quality review and verification of design, Supplier assurance, quality training, quality auditing, inspection planning vendor evaluation.
Pre production verification, receiving inspection, laboratory acceptance testing, inspection and testing, inspection and test equipment, field performance testing, stock evaluation, record storage.
Complaints, warranty claims, products rejected and returned, concession, loss of sales, recall cost, product service.
Scrap, replacement, rework and repair, troubleshooting or defects, retesting and re inspection, fault of subcontractors, downtime.
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