Is quality free? Or does quality have a cost? What about the cost of poor quality?  How much does that cost? Can you think of a time when you bought a product and it was defective?  What did you do?  How did it make you feel about the firm who made the product?  Think about your actions in that scenario and the costs the company had to incur to "make it right."

Cost of quality (COQ) analysis was developed in the 50s to help clarify the cost impacts of poor conformance quality. COQ identifies and assesses four major cost categories, which are prevention, appraisal, internal, and external costs.

• Prevention costs are incurred due to efforts used to prevent poor quality from occurring in the first place. 
• Appraisal costs are basically the costs associated with incoming material inspections, product and process inspections, inspection staff salaries, test equipment, and development of test procedures. 
• Internal failure costs result when a defect is detected before the product is shipped.  These costs include the cost of salvage and rework.
• Finally, if a defect does occur, and it happens to be discovered by the customer, the firm incurs external failure costs due to complaint settlements, loss of customer goodwill and future sales, returned materials, warranty work, and field service or repairs.

Understanding the Cost of Quality:

The new Quality Manager for XcelForce Inc. has put together a proposal for implementing a TQM Program for their business units in Canada, Mexico, the United States, and the English-speaking Caribbean. She has provided the following expected cost information to the senior management team in charge of approving the proposal:

Cost item                                                                               Total for the year

Quality assurance programs                                                      $4,500,000

Equipment maintenance (regular/scheduled)                             $2,050,000

Product design improvements (redesign/reengineering)             $3,100,000

Estimated (after-sales) product warranty service and repairs      $5,500,000

Product testing and inspection (at the manufacturing facility)      $3,720,000

Employee training programs                                                         $2,500,000

Process improvement/Kaizen projects                                          $1,200,000

Material scrap (associated with defective process output)            $2,300,000

Rework labor (to correct defective process output)                       $4,260,000

Raw materials inspection                                                              $3,230,000

After-sales customer support                                                         $1,500,000

Travel to suppliers to conduct process certification                           $750,000

Travel to customers to solve problems                                              $800,000

1.What is the total appraisal cost?

A) <= $3,000,000

B) > $3,000,000 and <= $5,000,000

C) > $5,000,000 and <= $7,000,000

D) > $7,000,000 and <= $10,000,000

E) > $10,000,000

2.What is the total prevention cost?

A) <= $3,000,000

B) > $3,000,000 and <= $5,000,000

C) > $5,000,000 and <= $7,000,000

D) > $7,000,000 and <= $10,000,000

E) > $10,000,000

3.What is the total cost of internal failures?

A) <= $3,000,000

B) > $3,000,000 and <= $5,000,000

C) > $5,000,000 and <= $7,000,000

D) > $7,000,000 and <= $10,000,000

E) > $10,000,000

4.What is the total cost of external failures?

A) <= $3,000,000

B) > $3,000,000 and <= $5,000,000

C) > $5,000,000 and <= $7,000,000

D) > $7,000,000 and <= $10,000,000

E) > $10,000,000

5.Delta Airlines carries about 100 million passengers a year. If Delta sets a Six Sigma goal for their baggage handling process, the intended result would be that no more than _________ passengers would suffer loss, damage, or delay of their luggage per year.

A) 4

B) 34

C) 100

D) 340

E) 3400

6.A hospital is researching the incidence of non-trauma patients in the Emergency Room that wait more than 30 minutes before they are seen at the first station (triage). There have been multiple complaints. The committee in charge of the research gets together to exchange thoughts and ideas about the possible causes for such delays. According to Six Sigma, the best tool to summarize the outcome of this meeting is:

A) Fishbone (Ishikawa) Diagram

B) Histogram

C) Scatter plot

D) Run chart

E) Check Sheet

7.Phil Bord is a CEO for a large auto manufacturer and is interested in improving the product quality. Phil had overheard his friend mention 6 Sigma. Considering that Phil has no idea what 6 Sigma is, what are some key points to help Phil out?

A) Six sigma quality means that he would have exactly half as many quality defects as compared to three sigma quality

B) To achieve truly world-class quality and performance, we need to focus on individual employee job functions

C) Six-sigma quality is the result of a well-defined and structured process

D) All options are key points to help Phil understand six sigma.

As part of the TQM implementation, those responsible for the manufacturing processes at XcelForce must collect data regarding product defects and the reason for the defects. The following table is a summary obtained last month at the Sonora (Mexico) plant after pulling a total of 1000 units for inspection. A total of 33 defective parts were observed.  Assume that this data is representative of the overall defect rates at this plant.

8.According to your reading, which quality improvement tool is most adequate to determine which type of defect should be tackled first?

A) Check Sheet

B) Pareto Chart

C) Fishbone (Ishikawa) Diagram

9.According to the data, tackling "oxide defects" is the highest priority in this plant.

A) True

B) False