THE CONCEPT OF TQM AND QUALITY COSTS
Quality is to continuously satisfy customers’ expectations; Total Quality is to achieve quality at low cost; ‘Investment’ in so-called quality management costs will improve quality and result in the reduction of so-called failure costs. The cost of poor quality is extremely high.
Quality management cost:
In relation to TQM we know that the level of quality will be improved by investing in the so-called quality management costs. These consist of:
1. Preventive quality costs. These are costs of activities whose aim is to prevent quality defects and problems cropping up. The aim of preventive activities is to find and control the causes of quality defects and problems.
2. Inspection/appraisal costs. The object of these costs is to find defects which have already occurred, or make sure that a given level of quality is being met.
Classification of the Failure costs: Failure costs are normally divided into the following two groups:
1. Internal failure costs. These are costs which accrue when defects and problems are discovered inside the company. These costs are typically costs of repairing defects.
2. External failure costs. These are costs which accrue when the defect is first discovered and experienced outside the firm. The customer discovers the defect and this leads to costs of claims and as a rule, also a loss of goodwill corresponding to the lost future profits of lost customers.
Effects of investing in preventive costs:
Investing in preventive costs has the following effects:
2. Customer satisfaction goes up.
3. The need for inspection and inspection costs goes down.
4. Productivity goes up.
5. Competitiveness and market share increases.
6. Profits go up.
The cost of poor quality is extremely high:
It cannot be emphasized too strongly that, in connection with TQM, the concept of failure should be understood in the broadest possible sense. In principle, it is a failure if the firm is unable to maintain a given level of quality, i.e. maintain a given level for total customer satisfaction.
Traditional classification of quality costs:
2. inspection/appraisal costs,
3. Internal failure costs and
4. External failure costs
The costs which would disappear if no defects were produced:
This definition uses a very narrow failure concept as a failure happens when a defect is produced. The failure concept used in these days was a product oriented failure concept.
For many years the product oriented failure concept was dominant and the total quality costs were often calculated as the costs of running the quality department (including inspection) plus the cost of failures measured as the sum of the following costs:
1. Cost of complaints (discounts, allowances etc.);
2. cost of reworks;
3. scrap/cost of rejections
Cost of poor Quality (COPQ) is the sum of all costs that would disappear if there were no quality problems: The sum of the above costs prevention costs, appraisal costs and failure costs. It represents the difference between the actual cost of a product or service, and what the reduced cost would be if there was no possibility of substandard service, failure of products, or defects in their manufacture.