Cost of Quality: It is simple maths!

According to research, manufacturers estimate their cost of quality at around 10% of revenue, but in reality, the value is double that, at 20%. While numbers like this are eye-catching, it is critical to grasp what the term "cost of quality" means. Regrettably, it is a frequently misunderstood notion. Many businesses only consider the cost of quality in terms of failure costs.

Cost-of-Quality is not same as the Cost-of-Poor-Quality

It is simple Maths!

The American Society of Quality (ASQ) uses the following formula to calculate the COQ:

Cost of Quality (COQ) = Cost of Poor Quality (COPQ) + Cost of Good Quality (COGQ)

The COPQ contains all the costs of nonconformances that are both internal and external to the organization;

• COPQ – Internal Costs (defects occurring and managed within the organization) - Scrap, Rework, Re-inspection
• COPQ – External Costs (defects that reach the consumer) - Adverse Event Reporting, Warranty, Corrections and Removals, Product Liability, loss of brand reputation

The COGQ contains the cost of quality conformance, including any costs associated with both appraisal and prevention.

• COGQ – Appraisal Costs (controls put in place by the organization) - Inspection (purchased, manufactured), Testing (acceptance, field), Quality Audits, Calibration
• COGQ – Prevention Costs (activities to eliminate defects from ever occurring) - SPC (statistical process control), Quality Planning, Quality Training, investment in quality-related information systems

Simply add the costs stated in the categories to determine the real cost of quality. This figure represents the difference between the actual cost of a product or service and the reduced cost if there were no probability of substandard service, product failure, or manufacturing failures. It is critical to achieve good quality at the lowest feasible cost as anything less than the highest quality is not an option to be competitive as well as to attain customer satisfaction.