Costs of Quality Chapter Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • What are quality costs? – A quality cost is considered o be any cost that a company incurs in order to ensure that the quality of the product or service is perfect – Quality costs are the portion of the operating costs brought about by providing a product or service that does not conform to performance standards – Quality costs are also the costs associated with the prevention of poor quality Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • Quality costs increase as the faulty product or service reaches the customer Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • In his book, Quality is Free, Philip Crosby focused management attention on the costs of quality, the cost of not doing things right the first time Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • The four absolutes of quality management set expectations for a continuous improvement process to meet: – Conformance to requirements – Prevention of defects – Zero defects – Costs of quality Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • Types of Quality Costs – Prevention Costs – Appraisal Costs – Failure Costs – Intangible Costs Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • Prevention Costs – Prevention costs are those costs that occur when a company is performing activities designed to prevent poor quality in products or services Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • Appraisal Costs – Appraisal costs are the costs associated with measuring, evaluating, or auditing products or services to make sure that they conform to specifications or requirements Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • Failure Costs – Failure costs occur when the completed product or service does not conform to customer requirements • Internal Failure Costs – Those costs associated with product non-conformities or service failures found before the product is shipped or the service is provided to the customer • External Failure Costs – Those costs that occur when a nonconforming product or service reaches the customer Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • Intangible Costs – Intangible costs are the hidden costs associated with providing a nonconforming product or service to a customer They involve the company’s image Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • Quality Cost Measurement System – By quantifying quality costs, all individuals producing a product or service understand what it will cost if quality suffers – A quality-cost measurement system should be designed to keep track of the different types of quality costs so that they can be eliminated through root cause analysis Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved Costs of Quality • Utilizing Quality Costs for Decision Making – Quality costs can be used as justification for actions taken to improve the product or service Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ 07458 • All Rights Reserved  ... continuous improvement process to meet: – Conformance to requirements – Prevention of defects – Zero defects – Costs of quality Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers. .. Philip Crosby focused management attention on the costs of quality, the cost of not doing things right the first time Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers ©... increase as the faulty product or service reaches the customer Lean Six Sigma: Process Improvement Tools and Techniques Donna C Summers © 2011 Pearson Higher Education, Upper Saddle River, NJ