Lean six sigma process improvement tools and techniques by donna summers chapter 06

Costs of Quality
Chapter 6

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.