Prepared By:

CEng.Theophilus Ato Fletcher (MSc Project, BSc Mech. Eng.,& HND Mech.Eng.,)
 Dip. Workplace Safety
 Dip. Quality Management
 Dip. Operation Management
 ISO 9001:2015 Quality Management System
 ISO 14001:2015 Environmental Management System

1
 COST OF QUALITY
Implementation and Benefits

CEng.Theophilus Ato Fletcher

(MSc Project, BSc Mech. Eng.,& HND Mech.Eng.,)

2
 Outline
 Introduction
 Cost of quality
 What is cost of quality
 Explanation of cost of quality
 Goals
 Components of cost of quality
 Types and examples of cost of quality
 Cost of quality implementation
 Cost of quality benefits
 Four ways of perceiving cost of quality

3
 Introduction
The economic environment is becoming increasingly more competitive.

Many companies are promoting quality as the core customer value and consider it to be a key
success factor for achieving competitiveness.

In order to remain competitive, most companies worldwide are continuously looking for ways
to reduce cost and improve efficiency.

The cost of poor quality often goes unnoticed or is disguised in higher warranty costs and loss
of brand equity.

There are various alternatives available to the customer for almost every product on the
market.

The better-performing companies set themselves apart by listening to the voice of the
customer and supplying products according to the customers’ requirements while
maintaining a high level of quality and dependability.

4
 Cost of Quality
 Is a technique defining and measuring where and what amount of a

companies’ resources are being used for prevention activities and

maintaining product quality as opposed to the costs resulting from

internal and external failures.

 The Cost of Quality can be portrayed by the sum of two factors, the Cost

of Good Quality (COGQ) and the Cost of Poor Quality (COPQ).

5
 What is cost of quality
 is a method for calculating the costs companies incur
ensuring that products meet quality standards, as well as
the costs of producing goods that fail to meet quality
standards.
 the process that measures and determine where and
how the resources of organizations are utilized for
maintenance of quality and prevention of delivering
poor outputs.
Cost of
Quality  a methodology used to define and measure where and what
amount of an organization’s resources are being used for
prevention activities and maintaining product quality as
opposed to the costs resulting from internal and external
failures
 a methodology that allows an organization to determine the
extent to which its resources are used for activities that prevent
poor quality, that appraise the quality of the organization’s
products or services, and that result from internal and external
6
failures.
 Explanation - cost of quality
 It talks about the costs that the organization bears while trying to achieve and
maintain the quality output.
 It determine the cost of quality to derive competitive advantage in the
industry.
 By investing a fixed amount towards this cost, the business ensures that the
failures are reduced, and defects are eliminated.
 It ensures that the business maintains a positive bottom line.

 If the company does not incorporate this cost, then the business can incur
high failure costs in the form of product returns and costs of warranty, which
can, in turn, dampen the bottom line altogether.

7
 Goals
 It helps the organization to chalk out wrong and poor-quality output.

 It helps in problem-solving wherein it performs costs and benefits analysis

on different initiatives of quality and process improvements.

 It helps in a single-point evaluation of quality performance.

 It further evaluates of costs of failures and appraises them accordingly

8
 Components - cost of quality

Cost of Good Prevention Cost

Quality

Cost of Good Appraisal Cost

Quality
Components
Cost of
Quality
Cost of Poor
Quality
Internal Cost

Cost of Poor
External Cost
Quality
9
 Cost of Good Quality

• PREVENTION COST  Costs associated with training, preventive

maintenance, quality planning, housekeeping
and other prevention activities
 Signify resources used to prevent failures and
poor quality .
 Costs associated with activities specifically
designed to prevent poor quality in products.

 Costs incurred to prevent or avoid quality

problems. They are planned and incurred
before actual operation

 Costs incurred from activities intended to

keep failures to a minimum

10
 Prevention cost, examples
1 Establishing Product
Specifications
2 Quality Planning
3 Quality Assurance
4 Lessons Learned
5 Development of a Quality
Management System
6 Proper Employee Training
7 Supplier Qualification
 Establishment of specifications for incoming
materials, processes, finished products, and
services
 Creation of plans for quality, reliability, operations,
production, and inspection.
 Creation and maintenance of the quality system.
 Creation of lessons learned register and action
tracker
 Creation of QMS for the company and customer
upon request.
 Conducting formal training programs to improve
quality.
 Suppliers verification.
11
 Cost of Good Quality

• APPRAISAL COST  costs incurred by reviewing and auditing products

and production processes to ensure their
conformance to quality standards

 costs that a business incurs when it works towards

the identification of defective items. It is done
before any product has to be shipped to the end
consumer. The quality checks professional generally
inspect finished goods, in the process inventory and
raw materials.
 costs incurred to maintain acceptable product
quality levels
 costs associated with measuring and monitoring
activities related to quality. These costs are
associated with the suppliers’ and customers’
evaluation of purchased materials, processes,
products, and services to ensure that they conform
to specifications.
12
 Appraisal cost, examples
1 Inspections of received
goods
2 Process Controls
3 Final Inspection
4 Calibration
5 Equipment monitoring
6 Quality Audits
7 Process monitoring
8 Supplier performance
management
 Checking of incoming material, process setup,
and products against agreed specifications
 Process control techniques in order to reduce
variations and improve quality.
 Refers to the inspection performed in the final
stage of manufacturing process.
 Comparison of one measuring devices or
instrument to response with that of a reference
or corresponding standard.
 Observe and check the progress of all
equipment's installed.
 Confirmation that the quality system is
functioning correctly
 Overall evaluation or assessment of the process.
 Assessment and approval of suppliers of
products and services.
13
 Cost of Good Quality

• INTERNAL COST  the cost that the business or corporate entity has to
bear once the defective items are identified before
proceeding with the shipment. These costs signify the
direct material, manufacturing overhead, and direct
labor consumed by each defective item.

 costs associated with defects found before the

customer receives the product or service.
 costs are incurred to remedy defects discovered before
the product or service is delivered to the customer.

 costs are costs associated with defects found before

the customer receives the product or service

 costs associated with defects found before the product

or service reaches the customer.
 costs incurred when a product fails to conform to a
quality specification before shipment to a customer

14
 Internal Failure cost, examples
1 Waste  Performance of unnecessary work or holding of
stock as a result of errors, poor organization, or
communication, poorly designed processes
2 Re-work  Costs of reprocessing and repeating the tests
Retest/Validation  Correction of defective material or errors

3 Machinery  Due to inappropriate maintenance and trash due

breakdowns /downtime to inadequately designed processes
4 Failure analysis costs  Activity required to establish the causes of internal
product or service failure

5 Scrap  Defective product or material that cannot be

repaired, used, or sold
6 Process delay  The act of causing something to occur more slowly
than normal.
7 Injuries to employees  Illnesses that occur in relation to an employee's.

15
 Cost of Good Quality

• EXTERNAL COST  which are costs related to the low quality of a

product detected by the customer after it was
shipped.

 costs that the business has to bear on account of

defective items that are shipped to the customers.
These costs are often regarded as expensive as they
would cause the business to incur high warranty and
return costs along with already incurred
manufacturing overheads.

 costs incurred when a product fails to conform to a

quality specification after shipment to a customer

 costs occur when products or services that fail to

reach design quality standards are not detected
until after transfer to the customer.

16
 External Failure cost, examples
1 Repairs and service cost
2 Warranty claims
3 Customer Complaints
4 Product Returns
5 Incorrect Sales Orders
6 Shipping Damage due to
Inadequate Packaging
7 Lower quality scores
Of both returned products and those in the field
Failed products that are replaced or services that are
re-performed under a guarantee
All work and costs associated with handling and
servicing customers’ complaints
Handling and investigation of rejected or recalled
products, including transport costs
Damages due to poor packaging and penalties for
delays in deliveries
17
Type of a cost at hand graph

18
 Cost of Quality Implementation

Implementation Stage  Top Management commitment (customer

requirement)
 Establishing an Implementation Team

 Management walk about

 Departmental Engagement(Assess the current
systems process)
 Internal Quality Audit
 Providing Training

 Control of Documents
 Make recommendation and offer direction.

 Reviewing by Management
 Implement an effective cost of quality methodology

19
 Cost of Quality Benefits
 Enable an organization to assess the number of resources
being used for the Cost of Good Quality and Cost of Poor
Quality.

 Determine where to allocate resources to improve product

quality and the outcome.

 Improve product quality while reducing cost. Cost of Quality

gives detailed information including how to evaluate the
effectiveness of quality systems, identify problem areas, and
leverage opportunities accurately.

20
Benefits
 It helps an organization achieve greater consistency in tasks and activities that are

involved in the production of products and services.

 It increases efficiency in processes, reduces wastage, and improves the use of time

and other resources.

 It helps improve customer satisfaction.

 It enables businesses to market their business effectively and exploit new markets.

 It makes it easier for businesses to integrate new employees, and thus helps

businesses manage growth more seamlessly.

 It enables a business to continuously improve their products, processes, and

systems. 21
 Benefits

 The cost of quality helps the business in deriving competitive

edge with respect to its peers working in the industry.

 It allows the organization to plan for costs that the business

has to incur in maintaining quality costs and helps the
organization to make provisions over them, which in turn
helps the organization to maintain a favorable bottom line.

22
 Benefits
 Implementing the Cost of Quality method will allow you to

find a measured balance between the price of your product

and its quality.

 It provides you with the necessary insight to identify problem

areas regarding the quality of your products and the costs

related to it.

23
 Benefits
 As a consequence, you can analyze the root causes of product
non-conformance and determine where resources could be
better allocated to in order to improve your production
processes as well as product quality.

 This way, you can minimize failure costs and appraisal costs by
investing more in prevention.

24
 Benefits

 By minimizing external failures, you will keep your customers

much happier, lowering the rate of returns and repairs, and

increasing revenues.

 In the end, measuring your Cost of Quality can have a major

impact on the bottom line of your business.

25
 Four Ways of Perceiving Cost of Quality

Reduce Quality Costs and Boost Return on Investment.

Your business is transformed in many ways to reduce

costs across every level of your manufacturing
operations if the quality is embedded within every
operation.

With a quality manufacturing approach, the cost of

quality initiatives become a powerful tool to
improve return on investment. 26
 Perceiving Cost of Quality

Reduce the cost of waste, scrap, and rework

Relying solely on a final inspection for quality control can be too

late.
If a process differs from specification anywhere in the production
line, that finished product goes directly to the waste bin,
accumulating the incalculable costs in rework and materials.

You must monitor product and process quality in real-time at

every critical operation so that plant operators can adjust and
eliminate variations before they cause costly waste 27
 Perceiving Cost of Quality

Turn customer complaints into customer satisfaction

When you can identify and rectify product and process

variations early before your final inspection and reach to
customers or if customers are having issues or concerns,
then you should provide immediate access to reporting for
responding to customer queries quickly.

This can build a stronger bond, more repeat orders, and

better customer relationships.
28
Perceiving Cost of Quality
Build brand equity and gain a competitive advantage

Extensive data collection and quality control analysis

capabilities, automated alerts, and aggregated access to

historical data enable unparalleled product consistency to

meet your customers’ expectations and elevate your

brand as the premium producer in your industry.

29
 THANK YOU
Available for further explanation
0244 40 18 69

Wish both leaders all the best.

30