Managing Quality, 6th Edition

Chapter Five Quality Costing

B. G. Dale, I. Reid and D. Bamford

Introduction

This chapter defines quality costs and explains why they are important to management. It also outlines how to determine, report and use quality-related costs. Quality costs arise from a range of activities; for example, the functions of sales and marketing, design, research and development, purchasing, storage, handling, production planning and control, production/operations, delivery, installation and service make, in some way, a contribution to these costs. Suppliers, subcontractors, stockists, distributors, agents, dealers, and especially customers can all influence the incidence and level of these costs.

Quality-related costs commonly range from 5 to 25 per cent of a company's annual sales turnover or operating costs in public sector-type operations, depending on the ‘industry’ and the way in which the company manages quality and the improvement process. Ninety-five per cent of this cost is expended on appraisal and failure. Reducing failure costs by eliminating causes of failure can also lead to substantial reductions in appraisal costs. Quality costs may be reduced to one-third of their current level by the use of a cost-effective quality management system (Dale and Plunkett 1990), and information-based technologies, see Kim and Kim (2011).

Definition and Categorization of Quality Costs

The importance of definitions to the collection, analysis and use of quality costs cannot be overstressed ...