A product that meets or exceeds its design specifications and is free of defects that mar its appearance or degrade its performance is said to have high quality of conformance . Note that if an economy car is free of defects, it can have a quality of conformance that is just as high as a defect-free luxury car. The purchasers of economy cars cannot expect their cars to be as opulently equipped as luxury cars, but they can and do expect them to be free of defects.
Preventing, detecting, and dealing with defects causes costs that are called quality costs or the cost of quality. The use of the term quality cost is confusing to some people. It does not refer to costs such as using a higher-grade leather to make a wallet or using 14K gold instead of gold-plating in jewelry. Instead, the term quality cost refers to all of the costs that are incurred to prevent defects or that result from defects in products.
Quality costs can be broken down into four broad groups. Two of these groups—known asprevention costs and appraisal costs—are incurred in an effort to keep defective products from falling into the hands of customers. The other two groups of costs—known as internal failure costsand external failure costs—are incurred because defects occur despite efforts to prevent them. Examples of specific costs involved in each of these four groups are given in Exhibit 2B–1 .
EXHIBIT 2B–1 Typical Quality Costs
LEARNING OBJECTIVE 9
Identify the four types of quality costs and explain how they interact.
Several things should be noted about the quality costs shown in the exhibit. First, quality costs don’t relate to just manufacturing; rather, they relate to all the activities in a company from initial research and development (R&D) through customer service. Second, the number of costs associated with quality is very large; total quality cost can be very high unless management gives this area special attention. Finally, the costs in the four groupings are quite different. We will now look at each of these groupings more closely.
Generally, the most effective way to manage quality costs is to avoid having defects in the first place. It is much less costly to prevent a problem from ever happening than it is to find and correct the problem after it has occurred. Prevention costs support activities whose purpose is to reduce the number of defects.
Note that prevention costs include activities relating to quality circles and statistical process control. Quality circles consist of small groups of employees that meet on a regular basis to discuss ways to improve quality. Both management and workers are included in these circles. Quality circles are widely used and can be found in manufacturing companies, utilities, health care organizations, banks, and many other organizations.
Statistical process control is a technique that is used to detect whether a process is in or out of control. An out-of-control process results in defective units and may be caused by a miscalibrated machine or some other factor. In statistical process control, workers use charts to monitor the quality of units that pass through their workstations. With these charts, workers can quickly spot processes that are out of control and that are creating defects. Problems can be immediately corrected and further defects prevented rather than waiting for an inspector to catch the defects later.
Note also from the list of prevention costs in that some companies provide technical support to their suppliers as a way of preventing defects. Particularly in just-in-time (JIT) systems, such support to suppliers is vital. In a JIT system, parts are delivered from suppliers just in time and in just the correct quantity to fill customer orders. There are no parts stockpiles. If a defective part is received from a supplier, the part cannot be used and the order for the ultimate customer cannot be filled on time. Hence, every part received from a supplier must be free of defects. Consequently, companies that use JIT often require that their suppliers use sophisticated quality control programs such as statistical process control and that their suppliers certify that they will deliver parts and materials that are free of defects.