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Quality Costs Vs Non Quality Costs

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Quality Costs Vs Non Quality Costs

  1. 1. QUALITY COSTS vs. NON-QUALITY COSTSBRUNO STORTI
  2. 2. POOR QUALITY COSTS QUALITY NON-QUALITY COSTS COSTSPREVENTION APPRAISAL DIRECT INDIRECT COSTS COSTS COSTS COSTS
  3. 3. POOR QUALITY COSTS QUALITY NON-QUALITY COSTS COSTSPREVENTION APPRAISAL DIRECT INDIRECT COSTS COSTS COSTS COSTS
  4. 4. QUALITY COSTS PREVENTION COSTS APPRAISAL COSTSArise from efforts to keep defects from Arise from detecting defects via inspections,occurring. tests, audits. - Quality planning - Test and inspection of purchase materials. - Process control - Suppliers evaluation (audits) - Investment in quality-related information - On-line inspections systems. - Final checkings - Quality training and workforce developing - External lab. testings - Product-design verification - Test and inspection equipment, calibration - Systems development and management - Quality audits (ISO9001, Balanced Score Cards) - Field testing (“Product of the month”) -… -…
  5. 5. POOR QUALITY COSTS QUALITY NON-QUALITY COSTS COSTSPREVENTION APPRAISAL DIRECT INDIRECT COSTS COSTS COSTS COSTS
  6. 6. NON-QUALITY COSTS DIRECT COSTS INDIRECT COSTSA - Internal failure costs: Defects caught internally and C - Customer dissatisfaction costsdealt with by discarding or repairing the defective items. * Select, scrap, rework, troubleshooting, repairing, reinspection,… •Procurement of extra material, higher inventory D - Loss of reputation costsB - External failure costs: Arise from defects that reachcustomers. E - Lost sales * Complaints in warranty and out of warranty (visits, material, labour, transport,…) * Product service, Product liability, Product recall * Penalties
  7. 7. QUALITY COSTS vs. NON-QUALITY COSTS: BALANCE POINT ? BALANCE POINT nr. 1 BALANCE POINT nr. 2 IDEAL BALANCE POINT = ??? COST (€) 0% 100% QUALITY - TOTAL COST - NON-QUALITY COST - QUALITY COST
  8. 8. BALANCE POINT nr 1 – Simulated scenarioPROJECT 1: REDUCE NON QUALITY COSTS BY ”INVESTING” IN QUALITY COST - Implement/Increase quality controls. - Implement/Increase resources used in Claim management. - Implement/Increase resources used in implementing Quality Systems (ISO9001). - Improve/Invest in ERP systems. - Implement/Increase testings & inspections. - Implement/Increase supplier’s checkings/evaluations. - Others…
  9. 9. BALANCE POINT nr 1 – Simulated scenarioPROJECT 1: REDUCE NON QUALITY COSTS BY ”INVESTING” IN QUALITY COST STEP 0 STEP 1 STEP 2 STEP 3 Quality costs of Quality costs Quality costs Quality costs increased to increased to increased to 50.000€ 100.000€ (+100%) 150.000€ (+50%) 200.000€ (+33%) Non-Quality costs Non-Quality costs Non-Quality costs Non-Quality costs of decreased decreased decreased 750.000€ to 600.000€ (-20%) to 400.000€ (-33%) to 200.000€ (-50%) Total costs decreased Total costs Total costs decreased Total costs of to decreased to to 800.000€ 700.000€ (-12,5%) 550.000€ (-21%) 400.000€ (-27%)
  10. 10. BALANCE POINT nr 2 – Simulated scenarioPROJECT 2: REDUCE QUALITY COSTS BY ”CONSOLIDATING” QUALITY - Reduce/Eliminate quality controls. - Reduce/Eliminate resources used in Claim management. - Reduce/Eliminate resources used in implementing Quality Systems (ISO9001). - Reduce/Eliminate testings & inspections. - Reduce/Eliminate supplier’s checkings/evaluations. - Others…
  11. 11. BALANCE POINT nr 2 – Simulated scenario PROJECT 2: REDUCE QUALITY COSTS BY ”CONSOLIDATING” QUALITY STEP 3 STEP 4 STEP 5 STEP … Quality costs of Quality costs Quality costs Quality costs increased to increased to increased to 200.000€ 250.000€ (-5%) 225.000€ (-10%) 200.000€ (-20%)Non-Quality costs of Non-Quality costs Non-Quality costs Non-Quality costs decreased decreased decreased 200.000€ to 100.000€ (-50%) to 75.000€ (-50%) to 50.000€ (-50%) Total costs of Total costs decreased Total costs Total costs decreased to decreased to to 400.000€ 350.000€ (-12%) 300.000€ (-13%) 250.000€ (-21%)
  12. 12. QUALITY COSTS vs.NON-QUALITY COSTS: THE ”IDEAL BALANCE POINT” DEPENDS ON EACH COMPANY, HOW THEY DECIDE TO APPROACH THIS ISSUE, ITS ”QUALITY CULTURE”, ...
  13. 13. END OF PRESENTATION

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