Analysis of the composition of quality cost
I. Prevention cost: Proactive investment before problems occur
Prevention cost is the expense incurred by an enterprise in the early - stage planning, process control, demand matching and other links to avoid the occurrence of quality problems. The core is to "prevent problems before they occur".
1. Quality planning costs
Regarding the detailed planning costs for the quality system and product control, it specifically includes:
- Quality system design: Planning time for the implementation details of processes such as "Document Control" and "Internal Audit" in the ISO9001 system.
- Preparation of product control documents: The time for preparing inspection procedures, process instructions, and sampling plans based on product design (e.g., dimensions, materials) and customer requirements (e.g., reliability requirements).
- Reliability and pilot production analysis: Time and cost for conducting Failure Mode and Effects Analysis (FMEA), pilot production data statistics (such as defect rate analysis), and life cycle prediction.
These tasks are directly aimed at "clarifying quality standards and reducing subsequent uncertainties".
2. Process control costs
Investment focused on improving the manufacturing process capabilities covers:
- Process research: Research expenses for the capability analysis (such as CPK value calculation) of the production line (including supplier processes) and the improvement of bottleneck processes.
- Technical guidance: Expenses for training and on-site guidance provided to workshop employees to master quality control methods (such as SPC Statistical Process Control).
- Full-process control: Costs for the operation of equipment for on-line detection and parameter monitoring (such as temperature and pressure) during the production process and for personnel on duty.
The essence is "to reduce variation through a stable process".
3. Customer survey expenses
The research costs for precisely matching customers' needs include:
- Requirement collection: Collect customers' requirements for product quality (e.g., durability) and functions (e.g., ease of operation) through questionnaires, focus groups, and customer interviews.
- Requirement analysis: The cost of statistically analyzing the survey data (e.g., regression analysis) and converting it into quality indicators (e.g., converting "Customers require the battery life to be ≥ 2 years" into "The number of cycles to be ≥ 500 times").
The purpose is to "avoid quality problems caused by misunderstanding of requirements from the source".
4. Quality training fees
Focus on targeted training for quality level improvement rather than basic post - skill training. For example:
- Learning of new quality tools: Training on the DMAIC method of Six Sigma and QFD (Quality Function Deployment).
- Mastery of advanced technologies: Operational training on non-destructive testing (e.g., ultrasonic flaw detection) and digital quality systems (e.g., MES);
- Management concept upgrade: Expenses for promoting the concepts of Zero Defects (ZD) and Total Quality Management (TQM).
The core is "to enhance the team's ability to solve quality problems".
5. Product design appraisal/pre-production pre-review fees
The upfront investment for verifying the design effectiveness includes:
- Design appraisal: Costs for testing the quality (e.g., strength), reliability (e.g., impact resistance), and safety (e.g., insulation performance) of trial - produced products (e.g., high - and low - temperature tests of prototype machines);
- Pre - review: Costs for reviewing the "manufacturability" and "inspectability" of the design before mass production (such as expert fees and venue fees for the design review meeting).
Avoid "design flaws flowing into the production process".
6. Research and management expenses for the quality system
The maintenance cost of the quality system throughout its entire lifecycle includes:
- System design: Consultation and document preparation fees for establishing a quality system that complies with industry standards (such as ISO 13485 in the medical industry);
- Daily management: Costs for system document updates (such as process adjustments after regulatory changes) and the formulation of internal audit plans.
- Auxiliary support: Printing of system training materials, usage fees for office software (such as quality document management systems).
Ensure that the system "operates effectively rather than just for show".
7. Supplier evaluation fees
The upfront costs of supply chain quality control and management for suppliers:
- Quality capability audit: Conduct on - site inspections of the supplier's quality system (e.g., IATF16949) and production equipment (e.g., the accuracy of CNC lathes);
- Sample verification: Test whether the samples provided by the supplier meet the technical requirements (e.g., the electrical performance of electronic components);
- Capacity and compliance assessment: The cost of assessing the supplier's delivery capacity (e.g., monthly output) and environmental compliance (e.g., RoHS certification).
Screen "qualified suppliers" to reduce the quality risk of incoming materials.
8. Other preventive expenses
Preventive expenditures not included in the above categories mainly include:
- Administrative expenses of the quality department: Office expenses and salaries of the quality and reliability team (excluding the management and administrative departments);
- Zero-defect plan: Publicity expenses for promoting the goal of "zero defective products" and employee rewards (such as bonuses for defect-free work teams);
- Preventive maintenance: Regular calibration of plant equipment (e.g., calibration of the mold accuracy of injection molding machines), maintenance costs (e.g., lubrication of production lines).
II. Appraisal cost: Expenditure for verifying quality compliance
Appraisal cost is the expense that an enterprise incurs to confirm whether its products/services meet the quality requirements, and its core is "inspection and verification".
1. Testing and inspection fees for externally purchased materials
Regarding the verification cost of incoming material quality, it includes:
- Laboratory testing: The cost of testing the physical (e.g., the hardness of steel), chemical (e.g., the composition of plastics), and performance (e.g., the voltage resistance of wires) properties of incoming materials by a third - party or internal laboratory.
- On-site review: Travel expenses incurred when inspection personnel visit the supplier's factory to verify the quality of incoming materials (e.g., check the color fastness of textile fabrics).
- Administrative expenses: The time cost for the quality manager to review inspection reports and follow up on the handling of non-conforming incoming materials.
Ensure that "incoming materials are qualified before flowing into production".
2. Laboratory or other metrology service fees
The maintenance costs of measurement and monitoring equipment, including:
- Instrument calibration: Regular calibration costs for laboratory equipment (such as balances and spectrometers) (e.g., calibration by the national metrology institute).
- Instrument maintenance: Maintenance costs for faults in online detection equipment (such as dimension detectors on the production line);
- Process monitoring: Calibration fees for measuring tools (such as vernier calipers) used in the production process.
Ensure the "accuracy of test results".
3. Inspection fees
Inspection expenses for the technical performance of in-plant products, focusing on "finished products/semi-finished products in the production process":
- Performance testing: Such as voltage testing of electronic devices and dimension inspection of mechanical parts.
- Appearance inspection: For example, check the scratches and burrs on the outer shell of household appliances.
- Exclusions: Do not include the inspection fees for externally purchased materials, equipment, or tools.
Directly verify "whether the product meets the technical requirements".
4. Testing fees
The verification costs for the functionality and durability of products within the factory, for example:
- Life test: Fatigue testing of automotive components (e.g., the number of compressions of a spring);
- Environmental tests: High and low temperature, humidity tests for electronic equipment;
- Performance limit test: For example, the maximum discharge current test of the battery.
The difference from the "inspection fee" is that testing focuses more on "verification of extreme performance", while inspection focuses more on "checking of regular indicators".
5. Verification work fee
The cost of process self-inspection and confirmation by operators and managers, including:
- Employee self - inspection: The time cost for workers to check their own work (e.g., an assembler checks the screw torque) according to the quality plan.
- Process inspection: The time when the quality inspector checks the eligibility of products on the production line (e.g., randomly inspecting 10 products per hour).
- Waste sorting: The time for picking out non - conforming products (such as defective products and waste) and making records.
- Process evaluation: The time cost of using SPC to statistically analyze process data (such as control chart analysis).
Achieve a "closed-loop quality control process".
6. Adjustment fees for test and inspection devices
The time cost of adjusting equipment or products for conducting tests, for example:
- Adjust the test fixture: Fix the product to meet the test requirements (e.g., clamp the part onto the fatigue testing machine).
- Calibrate test parameters: Adjust parameters such as voltage and pressure of the equipment to match the test standards (e.g., adjust the rate of the tensile testing machine to 5 mm/min).
Ensure the "consistency of test conditions".
7. Costs of materials for tests and inspections and small-scale quality equipment
The direct consumption of tests and inspections includes:
- Material consumption: Power for testing (e.g., steam for high-temperature tests, oil for lubrication tests), samples for destructive tests (e.g., parts damaged in life tests).
- Small equipment: Procurement and maintenance costs of quality tools that are not fixed assets (such as portable hardness testers and handheld spectrometers).
It is the "material foundation for verification activities".
8. Quality audit fees
Compliance verification fees for systems and products, including:
- Internal audit: The labor cost for the enterprise's own auditors to examine the operation of the quality system (such as the implementation of documents).
- External audit: The audit fees charged by third - party institutions (such as SGS) for systems (such as ISO14001) or products (such as CE certification).
Ensure that "the system and products meet the standard requirements".
9. External guarantee fees
Fees for quality guarantee services provided by external agencies, for example:
- Third - party testing: Request the laboratory to issue a report stating that the product complies with regulations (e.g., microbiological testing of food);
- Insurance inspection: The assessment fees of product quality by insurance companies (such as underwriting inspections for product liability insurance).
Enhance "customers' trust in quality".
10. Customer satisfaction survey fee
The research cost for understanding customers' satisfaction with quality includes:
- External customers: Costs for issuing NPS (Net Promoter Score) questionnaires and conducting customer interviews.
- Internal customers: Expenses for investigating the feedback on product quality from the sales and after - sales departments (such as the cause analysis of "high after - sales repair rate").
Optimize quality through the "voice of the customer".
11. Costs for product engineering review and shipping
Cost of final quality confirmation before shipment:
The product engineer checks the time cost of test data (such as test reports and inspection records) before shipment to ensure that "the shipped products meet the customer requirements".
12. On - site test fees
Expenses for conducting tests at designated locations as required by customers, for example:
- On - site customer testing: Travel expenses and living expenses for sending products to the customer's factory for testing (such as equipment installation and commissioning).
- Test loss: The cost of product damage during the test process (e.g., the prototype is bumped during transportation).
Meet the "personalized verification needs of customers".
13. Other appraisal fees
Verification expenses not included in the above categories, such as supplier certification fees (fees for confirming that suppliers meet quality requirements) and product certification fees (e.g., application and testing fees for the 3C certification).
III. Internal failure (loss) cost: Quality loss in the production process
Internal failure cost refers to the losses caused by quality issues before the products are delivered to customers. The core is "the cost of internal problems".
1. Scrap loss expenses
Losses that cannot be repaired due to quality issues or are uneconomical to repair, including:
- Production stage: The material and labor costs of finished products, semi-finished products, and work-in-progress that cannot be repaired due to defects (such as air holes in castings).
- Procurement stage: Scrap costs of externally purchased parts due to quality issues (such as chip failure) during procurement, transportation, and warehousing (excluding non - quality reasons such as expiration and damage).
It is "the most direct mass loss".
2. Losses from rework or repair
The cost of repairing non-conforming products includes:
- Rework cost: Labor and material costs for disassembling defective products and reprocessing them (such as re - welding parts with poor welding).
- Re-inspection: The cost of retesting after rework (e.g., conducting performance tests again).
It is "slightly less severe than the scrapping loss but still affects efficiency".
3. Downgrading loss fees
Losses due to product downgrading because the quality fails to meet the standards, for example:
- Grade difference: Originally it was a first-grade product (sold at 100 yuan). Due to surface scratches, it became a second-grade product (sold at 80 yuan), resulting in a loss of 20 yuan per piece.
- Concession acceptance: Losses from selling products at a low price due to minor defects (such as slightly damaged packaging).
It is "hidden profit losses".
4. Losses due to work stoppage
Losses caused by production shutdown due to quality issues, including:
- Labor idleness: The wages of workers when the production line stops due to the accumulation of non-conforming products.
- Equipment depreciation: The idle cost of equipment during the line stoppage period;
- Order delay: Liquidated damages for the inability to deliver on time due to work stoppage (if not passed on).
It is the "loss from a chain reaction".
5. Handling fees for product quality accidents
The costs of handling internal quality accidents, for example:
- Repeated inspection: The cost of retesting batch non-conforming products (such as a full inspection of the dimensions of a certain batch of parts).
- Cause analysis: Expenses for holding quality accident meetings (e.g., analyzing "why there are batch burrs").
- Screening cost: The labor cost for selecting qualified products from unqualified ones.
It is the "extra expenditure for solving problems".
6. Corrective action costs for internal audits, external audits, etc
Regarding the rectification costs for the problems found during the review, for example:
- System rectification: Costs for updating the document management process in response to the issue of "inadequate document control" discovered during the internal audit.
- Product rectification: The cost of adjusting production equipment (such as tool compensation of CNC lathes) in response to the "product dimensional tolerance exceeded" issue found in the external audit.
- Preventive measures: Investment to avoid the recurrence of problems (e.g., adding online detection equipment).
It is "the cost of solving problems at the root".
IV. External failure (loss) costs: The cost of quality after delivery
External failure costs refer to the losses caused by quality problems after the products are delivered to customers. The core is "the quality consequences at the customer end".
1. Complaint fee
The costs of handling customer complaints, including:
- Within the insurance policy: During the warranty period, the costs for investigating customer complaints (e.g., sending engineers to the customer's site to analyze the cause of the malfunction), repairs (e.g., replacing damaged parts), and replacements (e.g., reissuing new equipment).
- After the policy: The investigation and settlement costs for handling special customer complaints (such as safety issues caused by product design defects) after the warranty period ends.
It may not only incur direct costs but also affect "customer loyalty".
(Note: In the original text, only the "complaint fee" is listed as an external failure cost. If expansion is needed, "return loss", "warranty cost", "product liability loss", etc. can be added. However, according to the content of the original text, it is sufficient to focus on the "complaint fee".)
2. Product after-sales service and warranty fees
This cost item focuses on the costs of repair, verification, and preventive treatment for product - related issues in the after - sales process. The core is the additional expenses that are "uncontracted and non - installation", which are different from regular services. Specific scenarios include:1. After the delivery of metering equipment, due to environmental fluctuations causing accuracy deviation, the instrument commissioning fees for on - site calibration and the travel expenses of engineers.2. For the warranty parts of smart home appliances (such as air - conditioning compressors), before replacement, the testing fees for the "extreme operating condition test" (such as running for 72 hours at minus 20°C) sent to a third - party laboratory to verify reliability.3. For potential defects detected through back - end data monitoring (such as abnormal health of mobile phone batteries but no user complaints), the material costs for proactively replacing batteries for users and the labor costs for on - site service.Two types of costs need to be clearly excluded:I. "Installation service fees" - the labor costs for installation and commissioning during the first delivery, which are one - time performance expenses.II. "Contract - agreed maintenance" - such as the twice - a - year routine maintenance of elevators, which is pre - negotiated regular maintenance and is not included in this item.In essence, this item refers to "the additional repair and verification costs borne by the enterprise to ensure the functional reliability of products after they leave the factory".
3. Product liability fees
This item covers the compensation for personal and property losses of third - parties (users or related parties) directly caused by product defects, as well as the resulting legal costs. It represents a serious external loss where quality issues have escalated from "repair" to "damage compensation". Typical scenarios include: medical compensation and subsequent rehabilitation costs for users scalded due to a short - circuit in an electric kettle; repair costs for the other vehicle and the driver's lost - work expenses in a rear - end collision caused by a malfunction in a car's braking system; legal fees and litigation costs incurred when a company is sued by users due to product quality disputes, or settlement fees paid to avoid long - term litigation that could affect the brand. Two points need to be emphasized: First, "causality" - the losses must be directly caused by product defects (for example, food spoilage due to refrigerant leakage in a refrigerator, rather than the user not closing the door tightly). Second, "third - party nature" - the compensation recipients are users or affected third - parties, which is different from the rework costs within the enterprise. This item of expense is not only a financial expenditure but also related to the enterprise's legal compliance risks and public trust.
4. Other external losses
This item covers external losses indirectly caused by product or service failures other than the above two categories. It needs to be broken down into four scenarios and explained one by one:
Operational errors: "Overtime compensation" that needs to be paid to users due to service delays caused by customer service staff failing to record orders; Late payment fines due to incorrect invoice information; "Bad debt losses" resulting from users refusing to pay for goods due to product quality disputes and the inability to recover the payment.
Inventory and opportunity loss category: Due to the light leakage problem of the screen of a certain model of laptop, 1,000 units of inventory have been accumulated in the distribution channels, resulting in an "inventory impairment loss" as they need to be cleared at a 25% price reduction; old users cancelled their planned repurchase orders for the "refrigerator and washing machine set" due to their dissatisfaction with the noise problem of the washing machine they bought last time, resulting in a loss of "potential sales revenue"; when the enterprise participated in the bidding for a government project, it was finally disqualified because of its previous bad record of "equipment breakdown and shutdown", resulting in an "opportunity cost".
Costs arising from customer dissatisfaction: Due to multiple complaints about "damaged express delivery packaging", there is a need to redesign thicker corrugated paper packaging and replace suppliers, incurring "packaging upgrade costs". To address the issue of "slow customer service response", 5 new customer service seats are added and targeted training is provided, resulting in "service optimization costs". This type of cost is not direct compensation but rather "corrective expenditures" that are forced by external feedback.
The core of this item is "indirectness" - the losses are not directly caused by product defects but are indirectly led to by mistakes, dissatisfaction, or process loopholes, yet they also erode the enterprise's profits and market competitiveness.