In process improvement efforts, quality costs or cost of quality is a means to quantify the total cost of quality-related efforts and deficiencies. It was first described by Armand V. Feigenbaum in a 1956 Harvard Business Review article.
Prior to its introduction, the general perception was that higher quality requires higher costs, either by buying better materials or machines or by hiring more labor.Furthermore, while cost accounting had evolved to categorize financial transactions into revenues, expenses, and changes in shareholder equity, it had not attempted to categorize costs relevant to quality, which is especially important given that most people involved in manufacturing never set hands on the product. By classifying quality-related entries from a company's general ledger, management and quality practitioners can evaluate investments in quality based on cost improvement and profit enhancement.
Feigenbaum defined the following quality cost areas:
|Costs of control (Costs of conformance)||Prevention costs||Arise from efforts to keep defects from occurring at all|
|Appraisal costs||Arise from detecting defects via inspection, test, audit|
|Costs of failure of control (Costs of non-conformance)||Internal failure costs||Arise from defects caught internally and dealt with by discarding or repairing the defective items|
|External failure costs||Arise from defects that actually reach customers|
The central theme of quality improvement is that larger investments in prevention drive even larger savings in quality-related failures and appraisal efforts. Feigenbaum's categorization allows the organization to verify this for itself.When confronted with mounting numbers of defects, organizations typically react by throwing more and more people into inspection roles. But inspection is never completely effective, so appraisal costs stay high as long as the failure costs stay high. The only way out of the predicament is to establish the "right" amount of prevention.
Once categorized, quality costs can serve as a means to measure, analyze, budget, and predict.
Variants of the concept of quality costs include cost of poor quality and categorization based on account type, described by Joseph M. Juran.
|Tangible costs—factory accounts|
|Tangible costs—sales accounts|
ISO 9004 also accounts for "external assurance" quality costs to account for customer– or government–required certifications (e.g., for UL, RoHS, or even ISO 9000 itself).
To ensure impartiality, reporting should be performed by the accounting department.Additionally, to make it more understandable to a wider audience, the total cost of quality should be reported as a percent of sales, cost of sales, cost of manufacturing, or for firms in the service industry, cost of operations.
A quality management system (QMS) is a collection of business processes focused on consistently meeting customer requirements and enhancing their satisfaction. It is aligned with an organization's purpose and strategic direction (ISO9001:2015). It is expressed as the organizational goals and aspirations, policies, processes, documented information and resources needed to implement and maintain it. Early quality management systems emphasized predictable outcomes of an industrial product production line, using simple statistics and random sampling. By the 20th century, labor inputs were typically the most costly inputs in most industrialized societies, so focus shifted to team cooperation and dynamics, especially the early signaling of problems via a continual improvement cycle. In the 21st century, QMS has tended to converge with sustainability and transparency initiatives, as both investor and customer satisfaction and perceived quality is increasingly tied to these factors. Of QMS regimes, the ISO 9000 family of standards is probably the most widely implemented worldwide – the ISO 19011 audit regime applies to both, and deals with quality and sustainability and their integration.
Quality control (QC) is a process by which entities review the quality of all factors involved in production. ISO 9000 defines quality control as "A part of quality management focused on fulfilling quality requirements".
Total quality management (TQM) consists of organization-wide efforts to "install and make permanent climate where employees continuously improve their ability to provide on demand products and services that customers will find of particular value." "Total" emphasizes that departments in addition to production are obligated to improve their operations; "management" emphasizes that executives are obligated to actively manage quality through funding, training, staffing, and goal setting. While there is no widely agreed-upon approach, TQM efforts typically draw heavily on the previously developed tools and techniques of quality control. TQM enjoyed widespread attention during the late 1980s and early 1990s before being overshadowed by ISO 9000, Lean manufacturing, and Six Sigma.
The ISO 9000 family of quality management systems (QMS) is a set of standards that helps organizations ensure they meet customers and other stakeholder needs within statutory and regulatory requirements related to a product or service. ISO 9000 deals with the fundamentals of quality management systems, including the seven quality management principles that underlie the family of standards. ISO 9001 deals with the requirements that organizations wishing to meet the standard must fulfill.
Six Sigma (6σ) is a set of techniques and tools for process improvement. It was introduced by American engineer Bill Smith while working at Motorola in 1980. Jack Welch made it central to his business strategy at General Electric in 1995. A six sigma process is one in which 99.99966% of all opportunities to produce some feature of a part are statistically expected to be free of defects.
In sales, commerce and economics, a customer is the recipient of a good, service, product or an idea - obtained from a seller, vendor, or supplier via a financial transaction or exchange for money or some other valuable consideration.
Quality assurance (QA) is a way of preventing mistakes and defects in manufactured products and avoiding problems when delivering products or services to customers; which ISO 9000 defines as "part of quality management focused on providing confidence that quality requirements will be fulfilled". This defect prevention in quality assurance differs subtly from defect detection and rejection in quality control and has been referred to as a shift left since it focuses on quality earlier in the process.
In process improvement efforts, defects per million opportunities or DPMO is a measure of process performance. It is defined as
Quality audit is the process of systematic examination of a quality system carried out by an internal or external quality auditor or an audit team. It is an important part of an organization's quality management system and is a key element in the ISO quality system standard, ISO 9001.
Philip Bayard "Phil" Crosby, was a businessman and author who contributed to management theory and quality management practices.
A Pareto chart is a type of chart that contains both bars and a line graph, where individual values are represented in descending order by bars, and the cumulative total is represented by the line. The chart is named for the Pareto principle, which, in turn, derives its name from Vilfredo Pareto, a noted Italian economist.
Armand Vallin Feigenbaum was an American quality control expert and businessman. He devised the concept of Total Quality Control which inspired Total Quality Management (TQM).
Zero Defects was a management-led program to eliminate defects in industrial production that enjoyed brief popularity in American industry from 1964 to the early 1970s. Quality expert Philip Crosby later incorporated it into his "Absolutes of Quality Management" and it enjoyed a renaissance in the American automobile industry—as a performance goal more than as a program—in the 1990s. Although applicable to any type of enterprise, it has been primarily adopted within supply chains wherever large volumes of components are being purchased.
The Quality Management Maturity Grid (QMMG) is an organizational maturity matrix conceived by Philip B. Crosby first published in his book Quality is Free in 1979. The QMMG is used by a business or organization as a benchmark of how mature their processes are, and how well they are embedded in their culture, with respect to service or product quality management.
Quality engineering is the discipline of engineering concerned with the principles and practice of product and service quality assurance and control. In the software development, it is the management, development, operation and maintenance of IT systems and enterprise architectures with a high quality standard.
Joseph Moses Juran was a Romanian-born American engineer and management consultant. He was an evangelist for quality and quality management, having written several books on those subjects. He was the brother of Academy Award winner Nathan Juran.
In business, engineering, and manufacturing, quality has a pragmatic interpretation as the non-inferiority or superiority of something; it's also defined as being suitable for its intended purpose while satisfying customer expectations. Quality is a perceptual, conditional, and somewhat subjective attribute and may be understood differently by different people. Consumers may focus on the specification quality of a product/service, or how it compares to competitors in the marketplace. Producers might measure the conformance quality, or degree to which the product/service was produced correctly. Support personnel may measure quality in the degree that a product is reliable, maintainable, or sustainable.
Gold in the mine is a metaphor for the potential savings in quality improvement efforts. It is essentially a restatement of the Pareto principle in the context of quality costs; digging in the right place can produce great savings, though investigating every possible opportunity is not economically feasible.
Dorian Shainin was an American quality consultant, aeronautics engineer, author, and college professor most notable for his contributions in the fields of industrial problem solving, product reliability, and quality engineering, particularly the creation and development of the "Red X" concept.
Operations management for services has the functional responsibility for producing the services of an organization and providing them directly to its customers. It specifically deals with decisions required by operations managers for simultaneous production and consumption of an intangible product. These decisions concern the process, people, information and the system that produces and delivers the service. It differs from operations management in general, since the processes of service organizations differ from those of manufacturing organizations.
The main objective of quality cost reporting is to provide means for evaluating effectiveness and establishing the basis for internal improvement programmes.
External assurance quality costs are those costs relating to the demonstration and proof required as objective evidence by customers, including particular and additional quality assurance provisions, procedures, data, demonstration tests, and assessments (e.g., the cost of testing for specific safety characteristics by recognized independent testing bodies.