Who Bears The Cost Of Quality (Total Quality Management)

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Who bears the cost of non-quality - the company or the customer or both?"Let us first understand what are the costs of non quality? Costs associated with poor quality are also referred to as the costs of non conformance, or failure costs. The costs of failures is the difference between what it actually costs to produce a product or deliver a service and what it would cost if there were no failures. This is generally the largest quality costs category in a company, frequently accounting for 70% to 90% of the total quality costs. This is where the greatest cost improvement is possible.The cost of poor quality can be categorized as internal failure costs or external failure costs. Internal failure costs are incurred when poor quality products are discovered before they are delivered to the customer. Examples of internal failure costs include:Scrap cost: The cost of poor quality that must be discarded, including labor, material and indirect costs.Rework costs: The cost of fixing defective products to conform to quality specificationsProcess failure costs: The cost of determining why the production process is producing poor quality productsProcess downtime costs: The cost of shutting down the productive process to fix the problemPrice downgrading: The costs of discounting poor quality products, selling products as ' seconds'Clearly the above costs are borne by the company. Adequate training, total quality management approach could help in reducing the above costs.External failure costs are incurred after the customer has received the poor quality product and are primarily related to customer service. Examples include the following costs:Customer complaint costs: The costs of investigating and satisfactorily responding to a customer complaint resulting from a poor quality product.Product return costs: The costs of handling and replacing poor quality products replaced by the customerWarranty claim costs: The cost of complying with product warrantiesProduct liability costs: The litigation costs resulting from product liability and customer injuryLost sales costs: the costs incurred because customers are dissatisfied with poor quality products and do not make additional purchases.These costs can have a large impact on the company's reputation and could affect its profitability adversely. The customer may need to bear the cost of opportunity lost due to the poor quality product, which could affect the customers' further transactions or use. However, the customer at times can sue the company which provided the poor quality products for damages. Ultimately, it can be seen that even the costs of poor quality is borne by the company.Internal failure costs tend to be low for a service, but external failure costs could be quite high. A service organization has little opportunity to examine and correct a defective internal process, usually an employee - customer interaction, before it actually happens. At that point it becomes an external...

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