Visible vs. Hidden Costs of Quality



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Visible vs. Hidden Costs of Quality

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  • Most organizations do have reports in place to measure and track quality costs. However, existing reports usually track visible (traditional) uality factors such as:

    • Rejected material

    • Scrapped product or work-in-process (WIP)

    • Rework costs

    • Yield loss

    • Warranty costs

  • But there is more to the full Cost of Quality than visible costs. When a substandard Quality event does occur, a complex series of costly events is triggered - the hidden costs.

    • Since the impact of hidden costs is not (usually) tracked, their impact may not even be understood.

  • Hidden cost inputs include:

    • Extra operations

    • Investigation into causes of defects

    • Disruptions to schedules

    • Emergency procurement of supplies

    • Expedited shipping

    • Disposal costs

(Even these factors do not include intangible hidden costs such as potential lost sales, lost customers and potential damage to the brand's reputation.)

  • The full Cost of Quality is the sum of traditional Quality costs that are already captured added to the hidden costs.

    • Interestingly, the costs associated with hidden factors are often greater than the visible (traditional) costs that existing reports track.

  • A formal COQ program includes a structured approach that:

    • Collects CO data, both visible and hidden.

    • Groups the data into like categories so that it can be analyzed.

    • Prioritizes the areas that need attention.

    • Acts as the catalyst to initiate improvement efforts.

    • Tracks the progress of CO improvement efforts over time.

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