The Cost of Quality - COQ

Quality is the ability of a product or service to meet customer needs (Jay Heizer, 2017, p. 217). There are costs associated with quality. Costs associated with quality are broken up into four categories. These costs are the cost of quality (COQ) and they reflect prevention costs, appraisal costs, internal failure costs, and external failure costs.

1. Prevention costs are the costs associated with ensuring staff is well-trained and educated on the policies and procedures of the organization and its relevant processes. These costs are geared towards reducing the potential for defective services or parts. It is better to invite the production department to the meeting at the beginning of an initiative or project so they can provide their valuable, front-line input than to not invite them and provide no input. Staff should be empowered to provide their knowledge and expert advice on their craft.

   
   

2. Appraisal costs are the costs associated with testing, hiring of evaluators and inspectors. These costs are related to evaluating products, processes, parts, and services. In the construction field, developers routinely run into appraisal costs to ensure they are in compliance with regulatory requirements.

   
   

3. Internal failure costs are costs associated with rework, downtime, and scrap. These costs come from defective parts or services before delivery to the customer. A pizza delivery service may notice that the pizza a customer ordered is not what the delivery driver has on-hand. This may cause the correct pizza to be re-made, causing rework.

   
   

4. External failure costs are that occur after deliver of defective parts of services to the customer. This can be returned merchandise at a local retail store for defective clothing. This can also be a liability issue, which in some cases lead to court litigation. For example, a restaurant can serve customers food that contains salmonella or the customer may receive their dish with hair in their food. The customer received their service or product but it was faulty.

   
   

Stakeholders in the quality management field believe that the cost of quality is only a fraction of the benefits. What Philosopher Philip B. Crosby meant when he stated, “What costs money are the unquality things – all the actions that involve not doing it right the first time”, is that quality is free (Jay Heizer, 2017, p. 219). How does an organization know if they are designing quality accurately? They should define their scope so that a quality can be measured and conformed to the stated requirements. Requirements are scope. Quality is an extension of scope. Quality must meet the customer’s needs, or their scope of requirements. With that in mind, it is good management and fiscally responsible to apply preventive and appraisal measures prior to the delivery of the product or service.  

Although costs from quality can be wide-ranging, the organization’s reputation is at stake. The service or product should be well enough to meet the customer’s needs or ‘be able to sell itself’ without a need to be marketed. This is the point where the benefits outweigh the costs of poor quality. Product liability can be on the hook for faulty products or services that are liable for damages or harm resulting from their use. Global implications also play a role in an organization and its costs. Price expectations, the perception of what quality is, and design may be a standard in the United States but may not be the same in another country.

The need for management to accept responsibility for building good systems, improving quality through top-management commitment, support, and involvement in quality efforts; integrated processes for cross-functional teamwork; and improving the cost of poor quality are different aspects of thought-leadership several philosophers have believed in and put into business practice.

Improving quality by lowering rework, lowering warranty costs, and increased productivity can reduce costs over time. Quality can also be improved by improving response (delivery) time, reputation, and incorporating flexible pricing options for the organization’s customer base. Self-promotion is not a substitute for quality products (Jay Heizer, 2017, p. 17). Performing one task or the other will improve profits, but performing both at the same time can compound positive outcomes of improved quality!

References

Jay Heizer, B. R. (2017). Operations Management: Sustainability and Supply Chain Management, 12th Edition. Pearson.

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Meet Nikia Smith, the Project Management Consultant driving success at Business and Wealth Generations. With over a decade of advisory expertise, Nikia orchestrates strategy and operations, spearheading growth and innovation. Beyond his professional endeavors, Nikia actively participates in his community, having served on the Board of Directors at the Project Management Institute Florida Suncoast Chapter in different roles for several years. Recognized for his contributions, he received the PMI Florida Suncoast Chapter Award in 2018 for significantly boosting membership and retention and was also selected to attend the 2019 PMI North America Leadership Institute Meeting in Philadelphia. Nikia holds a bachelor’s degree in management and organizational leadership with a focus on Project Management, alongside several business certificates from St. Petersburg College. He is also certified in CAPM and PMP by the prestigious Project Management Institute. For collaboration opportunities, reach out to Nikia at info@thebusinesswg.com.