>> S Q P S Blog

As discussed in previous posts, costs of quality are typically divided into two types:

• Costs of conformance: costs incurred to ensure that the product or service we deliver are good to go. Under this type, we have prevention as well as appraisal costs
• Costs of nonconformance: costs that result from doing something wrong. If what we make or deliver is experienced by the customer, it triggers all kinds of others costs (complaints, returns, warranty, liability, etc.)

The objective with regard to costs of quality is to invest wisely in the first type (particularly in the prevention side of activities) to minimize the non-conformance costs (particularly those generated from customers’ experience).

Do you notice a difference between activities of the first type and the second type? The first are planned (we know what they are going in) and the second are just results (unpleasant surprise!). The idea is to plan activities related to the first type (costs of conformance) so we minimize the unpleasant surprises. This applies to all types of organizations; profit and nonprofit; manufacturing and service; project-based as well as non-project-based.

Please click on the following link to see the relationship between types of errors to costs of quality: http://www.shraimqps.com/Resources/Types_of_Errors.pdf

The question is, how can all possible quality costs be accounted for in an organization? How can they be tracked? and most importantly, how can they be optimized?

In the previous post, I related the Toyota issue of sticking accelerator to the type of costs incurred. When failure occurs after the product reaches the customer, the associated costs are regarded as External Failure costs. This goes much further upstream than just replacing the defective part or settling a liability issue. Many examples where given in the previous post as well.

Here, I would like to relate this to the type of error. In general, there are 4 scenarios:

1. Your product or service is GOOD and your QC program let it PASS
2. Your product or service is GOOD and your QC program REJECTED it
3. Your product or Service is NO GOOD and your QC program let it PASS
4. Your product or service is NO GOOD and your QC program REJECTED it

Now guess which scenario affected Toyota’s reputation and bottom line!

When QC lets a NO GOOD product go to the customer, that’s a serious type of error (Type II). This is often called “Consumer’s Risk” beacuase the customer is paying a price as well as Toyota (In this case, deaths resulted from failure). The impact of such error for Toyota, primarily because it deals with safety, is huge and most likely will last a long time.