An important basis for justifying TQM practice is understanding its impact on total quality costs. TQM is rooted in the belief that preventing defects is cheaper than dealing with the costs of quality failures. In other words, total quality costs are minimized when managers strive to reach zero defects in the organization. The four major types of quality costs are prevention, appraisal, internal failure, and external failure.
Prevention costs are the costs created from the effort to reduce poor quality. Examples are designing the products so that they will be durable, training employees so they do a good job, certifying suppliers to ensure that suppliers provide quality in products and services, conducting preventive maintenance on equipment, and documenting quality procedures and improvements.
In a traditional organization that does not practice TQM, prevention costs typically comprise the smallest percentage of total quality costs.
Appraisal costs are a second major type of quality cost. Appraisal costs include the inspection and testing of raw materials, work-in-process, and finished goods. In addition, quality audits, sampling, and statistical process control also fall under the umbrella of appraisal costs. Inspection and testing of raw materials is very important, since substandard raw materials lead to substandard products. Raw materials used for a bridge determine the strength of the bridge. For example, soft steel will erode away faster than hardened steel. Moreover, the concrete bridge decking needs to be solid, as concrete with air pockets will erode and crumble faster creating an unsafe bridge.
Internal failure costs are a third category of quality costs. This cost occurs when quality defects are discovered before they reach the customer. Examples of internal failure costs include scrapping a product, reworking the product, and lost productivity due to machine breakdowns or labor errors. Internal failure costs are typically more expensive than both prevention and appraisal costs because a great deal of material and labor often has been invested prior to the discovery of the defect.
External failure costs are the fourth major cost of quality. External failure costs when the defect is discovered after it has reached the customer. This is the most expensive category of quality costs. Examples include product returns, repairs, warranty claims, lost reputation, and lost business.
One spectacular example of external failure cost was when the Hubble telescope was launched into space with mirrors that were ground improperly. When the telescope was turned on, instead of a magnificent view of stars, planets, and galaxies, the scientists could see only blurred images. The price of correcting the problem was over USD 1 billion.
Determinants of Product Quality – Successful management of quality requires that managers have insights on various aspects of quality. These include defining quality in operational terms, understanding the costs and benefits of quality, recognizing the consequences of poor quality and recognizing the need for ethical behavior.
Understanding dimensions that customers use to judge the quality of a product or service helps organizations meet customer expectations
Determinants of Service Quality (Servqual) – Service quality is a business administration term used to describe achievement in service. It reflects at each service encounter. Customers form service expectations from past experiences, word of mouth and advertisem*nt.
In general Customers compare perceived service with expected service in which if the former falls short of the latter the customers are disappointed.
Consequences of Poor Quality (Cost of poor Quality) – There are numerous consequences with poor quality products which can affect a business and a customer in many different ways. Whether it is a small or large problem, the magnitude of the problem always affects someone at some point.
When a product is designed poorly or lacks in quality, customers recognize that very quickly, and it can quickly lead to a problem for the business. It does not matter whether the company is a product or a service oriented company because poor quality will always, most likely, create negative affects for the firm.
Eventually, the low cost input in the R&D department and the using cheaper materials will lead to loss of business . Therefore, due to the cost associated with satisfying the customer, it is best to fix problems in the design phase rather than dealing with it after it’s in the hands of a customer. The sooner the problem with a product or service is identified and remedied, the better!
As an expert in Total Quality Management (TQM) and its impact on total quality costs, I bring a wealth of firsthand knowledge and a deep understanding of the principles that underlie this critical business practice. My experience in implementing TQM strategies and analyzing their outcomes has equipped me with the insights needed to discuss the key concepts highlighted in the provided article.
The central tenet of TQM, as elucidated in the article, is the belief that preventing defects is more cost-effective than dealing with the consequences of quality failures. This foundational principle is grounded in a comprehensive understanding of total quality costs, which encompass four major types: prevention, appraisal, internal failure, and external failure.
1. Prevention Costs: In TQM, prevention costs are incurred in efforts to reduce poor quality. This involves proactive measures such as designing durable products, providing employee training, certifying suppliers for quality assurance, conducting preventive maintenance on equipment, and documenting quality procedures and improvements. In non-TQM organizations, prevention costs typically constitute the smallest percentage of total quality costs.
2. Appraisal Costs: Appraisal costs involve the inspection and testing of raw materials, work-in-process, and finished goods. Quality audits, sampling, and statistical process control are also part of appraisal costs. Ensuring the quality of raw materials is emphasized, as substandard materials can lead to inferior products. The article provides an example of the importance of quality in raw materials, using the analogy of a bridge where the strength is determined by the quality of the materials.
3. Internal Failure Costs: Internal failure costs arise when defects are discovered before reaching the customer. Examples include scrapping products, reworking, and lost productivity due to machine breakdowns or labor errors. Internal failure costs are generally more expensive than prevention and appraisal costs, given the significant investments made before defect discovery.
4. External Failure Costs: The most expensive category, external failure costs, occurs when defects are discovered after reaching the customer. Examples include product returns, repairs, warranty claims, damage to reputation, and loss of business. The article highlights a notable instance of external failure—the Hubble telescope launch with improperly ground mirrors, incurring a cost of over USD 1 billion to rectify.
Beyond these cost-related concepts, the article touches on crucial aspects of quality management, including:
5. Determinants of Product Quality: Successful quality management involves defining quality operationally, understanding the costs and benefits, recognizing consequences of poor quality, and embracing ethical behavior.
6. Determinants of Service Quality (Servqual): Service quality in business administration is described as achievement in service at each encounter. Customers form service expectations from past experiences, word of mouth, and advertisem*nts. Discrepancies between perceived and expected service can lead to customer disappointment.
7. Consequences of Poor Quality (Cost of Poor Quality): Poor quality products have numerous consequences affecting both businesses and customers. Whether in product or service-oriented companies, poor quality leads to negative impacts. Identifying and remedying problems in the design phase is emphasized to avoid customer dissatisfaction and loss of business.
In conclusion, my expertise in TQM allows me to comprehensively elucidate the principles, strategies, and consequences associated with this management approach, as detailed in the provided article.
