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Glossary

Cost of Errors

Summary:Cost of quality failures refers to expenses incurred due to quality defects, errors, or deviations in products or services. They can be divided into internal and external failure costs. Avoiding and reducing the cost of quality failures is an important factor for companies to enhance their competitiveness and increase their profitability. A systematic recording and analysis of failure costs help companies to identify areas for improvement and to initiate targeted measures to increase quality.

Introduction

Cost of quality failures is a significant part of the total quality costs for a company. They arise when products or services do not meet customer requirements or internal specifications. Failure costs can occur in various areas of a company, such as in production, sales, service, or administration. To maintain competitiveness and improve profitability, it is important for companies to minimize failure costs and continuously enhance the quality of their products and services.

Internal and External Failure Costs

Failure costs can be divided into internal and external failure costs:Internal failure costs are incurred due to defects that are identified and corrected within the company before the product or service reaches the customer. Examples of internal failure costs include:

     
  • Scrap in production
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  • Rework
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  • Inspection costs that exceed normal quality control measures
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  • Downtime of machines and equipment
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  • Delays in the supply chain

External failure costs arise when defects are only detected by the customer or after the product or service has been delivered. External failure costs often have a negative impact on the company's image and can lead to the loss of customers. Examples of external failure costs include:

     
  • Complaints and returns
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  • Warranty and goodwill costs
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  • Product liability and claims for damages
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  • Service and repair costs
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  • Loss of customers and market shares

Recording and Analysis of Failure Costs

To systematically record and analyze failure costs, a company should implement a failure cost management system. This involves identifying and categorizing all relevant cost types. Subsequently, failure costs are recorded and evaluated at regular intervals. The evaluation of failure costs can help identify weaknesses in the processes and operations of the company and reveal potential for improvement.Various methods and tools can be used in the recording and analysis of failure costs, for example:

     
  • Cost accounting systems
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  • Quality management software
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  • Reporting systems and performance measurement systems
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  • Activity-based costing
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  • Statistical methods and data analysis

Measures to Reduce Failure Costs

The goal of failure cost management is to reduce failure costs and improve the quality of products and services. Various measures can be taken, for example:

     
  • Process optimization and standardization
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  • Quality assurance and quality control
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  • Preventive maintenance of machines and equipment
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  • Qualification and further training of employees
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  • Implementation of quality management systems (e.g., ISO 9001)
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  • Improving communication and collaboration between departments

Failure Costs and Quality Management

Failure costs are an important aspect of quality management. Successful quality management aims to increase customer satisfaction by reducing failure costs and improving the quality of products and services. This also includes the continuous monitoring, analysis, and optimization of processes and operations by companies.Numerous quality management methods and models, such as Total Quality Management (TQM), Six Sigma, or Lean Management, have the reduction of failure costs as a central goal.

Conclusion

Failure costs are an important factor for the competitiveness and profitability of a company. Systematic recording and analysis of failure costs can reveal weaknesses and potential for improvement. To reduce failure costs and enhance the quality of products and services, companies should take targeted measures and introduce effective quality management.