Quality Management is a prerequisite for every industrial concern. Producing high quality products as opposed to poor quality products is a preferred option when it comes to determining demand for goods and services. However some argue that producing higher quality output increases costs, as more expensive resources are likely to be required to achieve a higher standard. Others argue that poor quality output will lead to customer dissatisfaction, which generates costs associated with complaint resolution and loss of revenue as customers move to competitors.
Required:
In reference to the FOUR (4) types of quality cost, explain the costs associated with producing quality products. (10 marks)
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There are four types of quality cost – prevention, appraisal/inspection, internal and external failure. Prevention and appraisal costs are known as conformance costs, internal failure and external failure costs are known as non-conformance costs.
- Prevention cost –
The cost of building quality into the product design or service design, the cost of training staff in quality improvement and error prevention and the cost of prevention devices (e.g. fail-safe features) - Appraisal cost or inspection cost –
The cost of inspecting finished goods or services, and other checking devices such as supplier vetting. Customer or client feedback forms (although these may be a way of keeping service staff ‘on their toes’) - Internal failure cost –
Cost of materials scrapped due to inefficiencies in stockholding procedures. Cost of materials and components lost during production or service delivery Cost of output rejected during the inspection process.
Cost of re-working faulty output cost of reviewing product and service specifications after failures or customer dissatisfaction.
Losses due to selling faulty output cheaply, and
Not charging for a service so as to pacify dissatisfied and angry customers or clients. - External failure cost
Cost of product liability claims from customers or clients.
Cost of repairing products returned by customers, including those forming part of service.
Cost of replacing sub-standard products including those included with a service.
Delivery costs of returned units or items.
Cost of the customer services section and its operations.
Loss of customer goodwill and loss of future sales.