Do You Really Know What Quality Cost Is? By: LeRoy Stout Quality Cost is the cost of total quality and is tracked in four categories: Appraisal Prevention Internal Failures External Failures The quality gurus (Juran, Demming and Crosby) have all commented on the waste of money in companies as exemplified in quality cost data. They quote such waste as 30-50% of sales. Identifying and tracking Quality Cost will lead to meeting objectives, improving the Quality Management System (QMS) and increasing profits. The reason for introducing this course is twofold: (1) the subject is required in TS 16949, (2) it is an excellent parameter to select for setting measurable quality objectives and tracking accomplishment of the objectives. ISO/TS 16949:2002 (hereafter referred to as TS 16949), paragraph 5.6.1.1 states: Part of the management review shall be the monitoring of quality objectives and the regular reporting and evaluation of the cost of poor quality... The cost of poor quality can be interpreted as internal and external failures. Failures represent the negative side of quality. TS 16949 and ISO 9001 paragraph 8.5 both require improvement. Quality Cost measurable objectives are an excellent means to measure improvement. Improvement means investing in preventing cost, thus lowering both appraisal and failure costs and increased profits. A good Quality Cost process can only be borne by training, planning, documenting the process in a procedure, implementing the process and performing positive and timely action on the results. An example of a success story is related by a QCIS instructor. An analyst of a 26,000-man shipyard, whose duty it was to collect, analyze and report on quality costs, wrote an article in a leading USA magazine titled, Quality Cost Management in the Shipyard. He was also given an award for saving $650,000 in the first few months of the program. News of the article and the savings made its way to the President, who summoned the man to his office. The result was the President asked him to become the Quality Assurance Director for a major sub-contractor. The same QCIS instructor related how he had taught quality costs in Saudi Arabia and helped the company to install the program and did the same thing in Brazil. Quality costs is being practiced everywhere and was a USA governmental requirement prior to TS 16949. MIL-STD-9858A, paragraph 3.6 required the company to track quality costs. Companies that collect, analyze and report quality costs have seen a significant reduction in internal and external failure costs. The primary reason for this is that... MONEY IS THE LANGUAGE OF MANAGEMENT! One may think of a quality cost report as the financial report card of management. It is not a career enhancing statement to continuously have high failure rates for your department. Why? You are decreasing the profit margin. Quality costs is an excellent tool to measure the overall performance of a company and to identify and eliminate/abate root causes. I hope this information helps you with your transition. Feel free to contact me with any questions at 800-959-0632. LeRoy Stout President LDS & Associates About the Author Mr. LeRoy Stout has a Master of Science in Quality Management from the STAT-A-MATRIX Institute of Tampa College. LeRoy is certified as a CQA, CQE and CRE by the American Society for Quality, and he is also a Principle Auditor recognized by the IRCA. Mr. Stout has nearly 50 years experience in quality-related activities involving the manufacturing, construction, maritime, petroleum and aerospace industries. LeRoy has performed over 100 audits, taught over 5,000 students and presented lectures in the USA and overseas. Comment on this article