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Many companies summarize these costs into four broad categories. Internal failure cost – 1. Scrap 2. Rework 3. Failure analysis 4. Sorting and inspection. 5. Re inspection and retesting 6. Downgrading-difference between normal selling price and reduced price cost due to quality reason.
External failure cost – this cost relates to the defects after products being shipped out from the company to customer. 1. Warranty charges 2. Complaint adjustments 3. Returned material 4. Allowances – cost of concessions made to customers due to substandard product being accepted by customer as is or to conforming product that does not meet fitness for use specifications
Appraisal cost – these are the costs incurred in determining the degree of conformance to quality requirements 1. 2. 3. 4. 5. Incoming inspection and testing In-process inspection and testing Final inspection and testing Product quality audits Maintaining accuracy of testing equipments
Prevention cost – this cost is incurred in keeping failure and appraisal cost minimum 1. Quality planning 2. New product review 3. Process control 4. Quality audits 5. Supplier quality evaluation 6. Training
Hidden quality cost – 1. Potential lost sales 2. Cost of redesign 3. Cost of changing manufacturing process 4. Loss of goodwill 5. Damaged good 6. Obsolete inventory 7. Overtime to correct errors 8. Process downtime 9. delays
For giving awards company wide detailed assessment is required. Malcom Baldridge National Quality award is presented in United States. An exhaustive evaluation is done based on the documents submitted by the organization.
An international efforts to identify key elements of a quality system are made A series of International Standards Organization developed ISO 9000 series. Recently series of ISO 14001 was developed which speaks about Environment management systems.