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Quality Cost

When most people are asked about the cost of quality they usually think about the cost of inspection and scrap, but there is far more to the cost of quality than this.  Below is a list of quality costs, which is by no means complete.  

Many of these costs are hidden but can be determined.  The cost of quality can be much higher than you imagine.  

Lean Manufacturing places the emphasis on prevention and cost effective monitoring, while the reduced batch sizes and error detection play a decisive role in reducing defects as faults are found quickly.  By reviewing these lists with your own operation you can add or subtract items.  The benefit of this knowledge is that it enables everyone to see the magnitude of the costs involved and the balance between prevention and the consequences of failure.  You will need Mr Estie Mator to help with this aspect of lean cost analysis.

Prevention: reduce the risk of quality problems and defective product
Subject Description Lean vs. Mass Production
Customer Reviews Review of customer requirements and concerns, specs, packaging, delivery, product identification etc. No change – involves QC, Engineering and Sales staff.
Design Reviews FMEA Examination of product and process. No change - involves many disciplines.
Process Selection Capability studies at machine builders and in-house. No change – involves QC and Manufacturing Engineering
Quality Planning Development and monitoring of systems. No change - involves QC and many other disciplines.
Training Product information, problem solving and SPC etc. Lean - make more visual and standardize presentations - involves many disciplines.
Supplier Assurance Develop quality plans, self certification etc. No change - involves QC and Purchasing staff.
System Auditing Regular audit of quality systems. No change - involves person external to system.
Quality Engineering Staff Staff wages and benefits. No change.
Space cost Rent and rates of office accommodation No change.
Utilities Heating, lighting and ventilation No change
Operating Supplies Stationery costs etc. Lean - elimination of waste balanced by need for extra communication.

Monitoring Quality Costs
Subject Description Lean vs. Mass Production
GI Inspectors Wages and benefits of those people checking incoming goods. No change as supplier quality contracts are common in Mass Production
Line Inspectors Wages and benefits of those people checking in-process quality. Lean forces change of role to support of direct labour.
Direct Labour - SPC Portion of wages and benefits of those people applying SPC. No change as this is used in Mass Production.
Equipment and gauge depreciation and maintenance. Cost of facilities spread over a number of years (usually the life of the equipment and gauges). Maintenance and repeatability/calibration checks Lean attempts to simplify equipment and tooling but encourages fool- proofing.
Process support Laboratory Staff wages and benefits. Specialized off-line process checks. No change - Unless tests can be eliminated through process improvement.
Space cost Rent and rates of process lab, equipment space and gauge store etc See above.
Utilities Heating, lighting and ventilation of lab and inspection equipment. See above.
Operating Supplies Stationery costs etc Lean elimination of waste balanced by need for extra communication.

Internal Quality Problem Costs
Subject Description Lean vs. Mass Production
Scrap and rework Raw material, parts and assemblies Smaller batch sizes and error detection leading to less scrap.  Problems must be resolved because effect of line stoppages is immense with very small safety buffers.  Workers allowed to stop the line when fault found.
Product Deterioration and Obsolescence Rust, dirt, contamination and obsolescence caused by large idle stocks and frequent engineering spec changes. See above.
Labour cost Wages and benefits of people producing bad work. See above.
Utilities Cost of electricity etc to produce bad work. See above.
Redesign Product/Process design to eliminate problems Lean gives greater emphasis on improvement
Engineering Deviation permits Acceptance by Engineering to allow product to be used with a known but acceptable fault. Should reduce over a long period of lean.
Defect Containment Cost of segregating suspect product to prevent pass-forward to other processes or customer. Small batch quantities improve the situation.
Reduction in Production Capacity Particularly important if scrap produced at constraint operation No change
Rescheduling Revision of production program to make good the error.  Delay of other orders. Emergency air freight to avoid late delivery. Small batches improve the situation – involves Production, Purchasing and PC & L staff.
Problem Solving Resolution of problems and looking to see if problem could occur elsewhere. Lean promotes this activity – involves everybody.

External Quality Problem Costs
Subject Description Lean vs. Mass Production
Warranty, replacement and recall Serious Problem - Product reaching customer in faulty condition.  Product may have been sent further down the supply chain.  Containment and re-inspection / rework would be a minimum cost.  Total recall with associated legal costs could be very large cost. Smaller batches should reduce quantities involved
Freight Costs To and from customer. See above.
QC, Customer Contact and Sales Costs Proportion of Wages and benefits of people when dealing with complaints. See above.
Service representatives On-site quality rep at customer base. No change
Loss of sales revenue On current and future work. Lean improvement.
Operating Supplies Stationery costs of claims etc Lean elimination of waste balanced by need for extra communication.

Support Department Quality Costs
Subject Description Lean vs. Mass Production
Plant Management Serious complaints and time allocation No change
Personnel Department Allocation of department resources for Quality Staff and percentage of everyone else involved in quality issues. No change
Works Engineering Allocation of department resources for Quality Staff accommodation etc. No change
IT Department Allocation of department resources for Quality data processing Elimination of unnecessary data.