Quality Costs Reduction through Quality Management Systems Implementation....

Costs measurements are most important for successful business performance of an organization. Any reduction in the cost, without affecting the quality of the products and services adversely would go a long way in improving its competitiveness in the market or in enhancing the profit margin or both.

The operating quality costs of product consisting of prevention, appraisal and failure costs, provide an excellent field for cost control efforts.

Quality costs are the costs associated with prevention of poor quality and assessments to ensure quality (by way of testing, inspecting, trainings, reviews, Calibration Audits etc). Quality costs are a sum of conformance cost and non-Conformance cost (COC +CONC).

Historically speaking, there are two broad views on quality costs.

One view is that higher quality means higher costs. According to this view, quality attributes such as performance and features cost more in terms of material, design etc. The additional benefits from improved quality do not compensate for additional expense.

The other view is that the cost of improving quality is less than the resulting savings. Quality Guru Mr Juran examined the economics of quality and concluded that benefits outweigh costs (though this view was originally promoted by Deming and is widely held by Japanese manufacturers). The savings resulted from less rework, scrap and other direct expenses relating to defects. This is said to account for increased focus on continuous process improvement in Japanese firms with a proactive approach. This is all about “Prevention is better than cure.”

Feigenbaum introduced “total quality control” and developed the principle that quality is everybody’s job, thus expanding the notion of quality costs beyond the manufacturing function. In 1979, Crosby introduced the now popular concept “quality is free”. This view is held by those who adhere to the TQM philosophy. Costs include not only those that are direct, but also those resulting from lost customers, lost market share and the many hidden costs and opportunities not identified by modern cost accounting system .

If the products are manufactured or services are performed exactly right the first time, many costs can be avoided. Philip Crosby is of the opinion that “Zero Defects” should be the absolute performance standard and the cost of quality is the price of non-conformance against that standard. His concept is catching on, as more companies set goals such as parts per million, 6-sigma, and zero defects. Crosby suggested that the cost standard (for defects) calculated in terms of percentages of sales should be reduced to about 2 to 3%.

Quality costs types can be considered as below:

Failure Costs :

This includes the costs that result from poor quality, such as the cost of reworks /repairs /fixing bugs and the cost of dealing with customer complaints including warranty claims etc.

Prevention Costs:

The costs of activities, which are specifically designed to prevent poor quality, are called prevention costs. Examples are Trainings , Management Systems Audits, Reviews and Calibrations.

Appraisal Costs:

Costs of activities designed to find quality problems, such as testing, inspections, code inspections and any other type of testing etc. Management Systems implementation in letter and spirit (example ISO 9001, ISO 14001, ISO 45001, IOS 50001, ISMS 27001 etc) certainly reduces the cost of POOR Quality and this would be a direct profit to the organization at no resource addition.

About the Author

K V V SatyanarayanRegional Head - System Certification & Training,Andhra Pradesh & Telangana Region
TUV India Pvt. Ltd.