The Cost of Quality (CoQ)

The Cost of Quality (CoQ)

The Cost of Quality (CoQ)

Cost of Quality (CoQ) is a concept that has been around for decades.

 This can be defined as the quantification of the cost of quality-related efforts and deficiencies in an organization.

It is a methodology for allowing organizations to determine the extent to which their resources are used for activities that prevent poor quality of goods and services and the costs that appraise the good quality of the organization’s products or services. These costs result from both internal and external failures.

In the quest for quality, an organization will always incur quality costs. These costs are divided into two;Cost of good quality and Cost of bad quality

Cost of good quality includes

Appraisal Costs- most people refer to this as the cost of doing business. These are the costs incurred in checking whether the manufactured goods meet the requirements stipulated by an organization.  To reduce these costs, an organization needs to fully understand its appraisal system. Some of these costs are:

Inspection

Testing

Quality audits

Cost of test equipment

Prevention Costs- These are the costs incurred in the process of production of goods. When done correctly, there can be massive gains in terms of cost reductions; unfortunately, most companies are just poor at this. In as much as some of the costs are termed to be unquantifiable, organizations that focus on these costs significantly reduce both the internal and external failures. Some of these costs are;

Quality planning

Process planning

Process control

Training

Cost of bad quality includes;

External Failures – These are costs associated with products that have already left the organization. They include;

Product recalls

Lack of reputation in the market

Customer dissatisfaction

Late penalties

Late deliveries

Rejection at customer site

Internal Failures- Costs that are incurred before a product leaves the organization. Some of these costs are;

Rework

Overtime

Testing costs

Lack of motivation

Failure analysis

Resource utilization

The cost of bad quality can be represented well using an iceberg analogy

The tip of the iceberg represents the rather obvious costs. What sinks the ship is what cannot be seen on the surface of the water. Loss of reputation in the market is one of the hardest things for an organization to correct. It may take up to several years but even then, that s not a guarantee.

Investing more in the cost of good quality can drastically reduce the cost of bad quality. Unfortunately, an organization cannot claim to eliminate all the costs of bad quality as there will always be hidden costs that vary from one organization to the other. These costs, in most cases, are quantifiable and are considered standard costs that are simply absorbed.

To increase efficiency in an organization, both the costs of good and bad quality need to be critically analyzed to optimize resource utilization leading to higher profit margins.

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