The quality manager’s response – part three: what are quality-related costs?

In the last article, we looked into what quality actually deals with. We looked at those who love and those who hate shopping and we came across the key factor in shopping – the price of products. Come to think of it … who hasn’t thought twice about money these days. So, let’s now focus on quality from the point of view of costs.

Let’s start off with the basics – the definition of quality-related costs. Google offers a certain Mr. Harrington’s definition, which reads: “In the land of Utopia, the quality-related costs are zero. Workers always work perfectly, so there is no need to check anything. The materials used are always perfect and everything works perfectly. The difference between production in the land of Utopia and production elsewhere is determined by quality-related costs.” Unfortunately, we don’t live in the land of Utopia, so we have no other choice but to deal with quality-related costs.

What’s included in the price of a product?

From a laymen’s perspective, the price of a product includes the price of the material used, buildings, machinery and equipment that we use to manufacture the product and the costs of maintenance. Furthermore, the price includes utility costs incurred during production, wages of the employees, who are directly and indirectly involved in the production and last but not least, quality-related costs.
It’s obvious that quality-related costs will not be the most expensive item in the price of the product, nevertheless it has its fair share. Generally speaking, the more complex the product, the higher the quality-related costs.

What’s included in quality-related costs?

Quality-related costs can be divided into two categories: direct and indirect. Direct quality-related costs include costs for prevention, assessment, internal and external mistakes. Indirect quality-related costs include costs incurred by the customer, (not charged back to the supplier), customer dissatisfaction costs and costs related to losing a good reputation.

A customer, who pays for our product is our “king”. Minimizing costs is essential for every manufacturer. There have been several instances, where quality-related costs caused detrimental damage to a well-established company simply because the customer’s side of the agreement was elaborately written. 

This article clearly shows that there is a need to primarily focus on damage prevention, proper set up of quality planning tools (assessment costs), followed by effective feedback from our own production (costs related to internal mistakes). This is the key to avoiding unnecessary financial losses, which may cause fatal consequences to a company. The other key factor is to ensure customer satisfaction because satisfied customers are returning customers – and that is what every company dreams of👌✅.

Is there anything we did not mention in this article? Do you have any questions? Contact us!