The Costs of Quality Management


Many companies believe that the costs of the introduction of quality management are far greater than the benefits it will produce. However research across a number of industries has costs involved in doing nothing, i.e. the direct and indirect costs of quality problems, are far greater than the costs of implementing a quality management program.

Prevention costs are associated with the design, implementation and maintenance of the TQM system. They are planned and incurred before actual operation, and can include:

  • Product Requirements – The setting specifications for incoming materials, processes, finished products/services.
  • Quality Planning – Creation of plans for quality, reliability, operational, production and inspections.
  • Quality Assurance – The creation and maintenance of the quality system.
  • Training – The development, preparation, and maintenance of processes.

Appraisal costs are associated with the vendors and customers evaluation of purchased materials and services to ensure they are within specification. They can include:

  • Verification – Inspection of incoming material against agreed upon specifications.
  • Quality Audits – Check that the quality system is functioning correctly.
  • Vendor Evaluation – Assessment and approval of vendors.

Internal Failure costs can be split into those resulting from internal and external failure. Internal failure costs occur when results fail to reach quality standards and are detected before they are shipped to the customer. These can include:

  • Waste – Unnecessary work or holding stocks as a result of errors, poor organization or communication.
  • Scrap – Defective product or material that cannot be repaired, used or sold.
  • Rework – Correction of defective material or errors.
  • Failure Analysis – This is required to establish the causes of internal product failure.

External failure costs occur when the products or services fail to reach quality standards but are not detected until after the customer receives the item. These can include:

  • Repairs – Servicing of returned products or at the customer site.
  • Warranty Claims – Items are replaced or services re-performed under warranty.
  • Complaints – All work and costs associated with dealing with customer’s complaints.
  • Returns – Transportation, investigation, and handling of returned items.

Your optimized supply chain should be delivering on-time quality products to your customers, while costing as little money as possible.  Quality Management will help you achieve that goal.