Quality of Design and Conformance
In this section Wayne J. Morse provides a distinction between the terms quality of design and quality of conformance. Quality of design represents the planned quality of a product. Examples of this type of quality include specifications for product life and reliability.
The term quality of conformance represents the degree of correspondence between the customer’s actual experience with a product and the product’s designed quality. The product should conform to certain design specifications requested by the customer.
Types of Quality Costs
This section discusses the different types of quality costs that exist. First, Morse provides a broad definition for quality costs. He says that these costs are incurred as a result of actual quality not conforming to designed quality.
A second point Morse makes is in regards to the trade-off between cost and quality. He says that there is no trade-off between the cost and quality of conformance, only between the cost and quality of design. For example, a product that is more efficient than another product will cost more. However, once that design specification is in place, there are costs associated with ensuring that the specification is met.
Finally, Morse discusses two types of quality costs related to the quality of conformance. One type is the costs incurred because poor quality of conformance can exist. This type of cost includes prevention costs and appraisal costs. Prevention costs involve the costs of planning and designing the production process to ensure conformance. Appraisal costs are the cost of testing and inspecting both the materials and the finished product.
The other type of quality cost deals with the costs incurred because poor quality of conformance does exist. This type of cost includes internal and external failure costs. Internal failure costs involve such things as the cost of rework on defective items and the cost of downtime due to failed products and materials. External failure costs represent the costs of warranty service and replacement and the cost of product liability.
Economics of Quality Costs
This section illustrates the relationship between the different types of quality costs. Specifically, Morse explains that there is an inverse relationship between prevention and appraisal costs and internal and external failure costs (See Exhibit 1). Therefore, spending money on prevention can reduce the costs of internal and external failure. This relationship works in the other direction as well. If less is spent on prevention, then more failure costs will be incurred.
In addition, the author points out another relationship between the two main types of costs. If a company spends little money on prevention, it is likely that the company will have low internal failure costs and high external failure costs. This is due to the fact that "all defects are going out the door" (p. 17). This means that goods are leaving the factory in bad condition, but the company is not realizing this before they leave. Therefore, the customer gets a bad product, which, in turn, leads to external failure costs for the company. This is where inspection, as a part of prevention, is an important tool.
A main point of this section is that prevention is the key to overcoming quality problems. It is better to spend money on prevention and appraisal, than to face internal and external failure costs.
Purpose of a Quality Cost System
In this section Morse states the ultimate purpose of a quality cost system. He says that this purpose is for there to be "some systematic means of planning and controlling quality costs" (p.18). This is achieved by creating and analyzing quality cost reports.
The article discusses several uses for these reports that change as this quality cost system is in use. One use is when the system is first implemented. It provides some enlightenment to management as to the magnitude of their quality costs.
Second, these initial reports may indicate that a change needs to be made due to a maldistribution of quality costs. For example, there may be relatively high failure costs and low prevention costs. This would indicate a need to increase spending on prevention.
In addition, budgets can be made once the quality cost information has been accumulated over several periods. In this case predictions would have to be made by management based on certain criteria for the specific types of costs.
Finally, these reports can lead to the establishment of goals for the reduction of quality costs.
Limitations of Quality Cost Information
In this section the author discusses some problems associated with quality cost reports. He notes that, in general, these reports are too aggregated to be of use in making specific decisions. He then names five major problems with quality cost reports. These problems include the following (p. 19):
1. Much of the information is subjective.
2. Important costs are omitted from the report.
3. Overhead cost assignments to scrap and rework may be imprecise.
4. Variations in activity may reduce the comparability of quality costs from different periods.
5. Effort and accomplishment are probably not matched in a single reporting period.
Implementing a Quality Cost System
This section lists and explains ten steps that are involved in successfully establishing and implementing a quality cost system. The steps are as follows (p. 19) :
1. Obtain management commitment and support.
2. Establish a quality cost team.
3. Obtain the cooperation and support of users and information sources.
4. Operationally define quality costs (to limit the scope of the system).
5. Identify specific quality costs.
6. Determine sources of quality cost information.
7. Set up a code system and forms to accumulate information.
8. Design quality cost reports.
9. Accumulate information.
10. Distribute reports.
To sum it up, quality cost systems have proved more useful than not in many businesses in both the short-run and the long-run. Quality assurance programs help companies avoid the extensive quality costs involved with manufactured products. They also aid companies in improving their overall competitive position.