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Quality And Financial Performance Are Intimately Related. A Fundamental Responsibility Of Pom Is To Produce A Competitive Product Or Service Based On A Balance Between Quality And Costs Of Quality

805 words - 4 pages

Cost of QualityQuality and financial performance are intimately related. A fundamental responsibility of POM is to produce a competitive product or service based on a balance between quality and costs of quality. Most companies have the slightest idea on how much firms have spend on COQ, it can be as high as 20 to 40% of sales. Since the numbers are typically much higher than profits in some firms, a reduction on COQ can have a significant impact in profits. Some successful organizations have demonstrated ability to reduce COQ from some 30% down to about 5% over a period of years. And this reduction is being done while improving the quality of the product. Thus, the potential for proper ...view middle of the document...

Category of COQCosts of quality can be further categorized as - failure costs(internal and external failure) and control costs(appraisal costs and prevention costs).Internal Failure CostsInternal failure costs occur then products fail to reach designed quality standards and are detected before transfer to the customer. Such cists include: Scrap - cost of labor/materials for products that can't be repair or sold Rework.re-inspection - costs of correction/inspection of defective products Downgrading - products which are usable but does not meet specifications may be sold as second-tier quality at a low price Waste - activities associated with non-value added tasks or holding extra inventories as stocks as the result of errors, poor organization, etc Failure analysis - activites required to establish causes of failuresExternal Failure CostExternal failure occur when products or services fail to reach design quality standards and are detected after transfer to the customer. Costs include: Repair and servicing - returned products or those in the field Warranty claims - failed products that are replace under guarantee Complaints - work associated with servicing customers' complaints Returns - handling and investigation of rejected products or services Liability/Goodwill - product liability, litigation and impact on imageAppraisal CostsThese costs are...

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