Costs of Quality Defined kneed active es are e costs of performing because poor qu these activities Quality exist are y may or the costs that exist because poor may or does y are associated with two of activities and failure activities. Thus, of quality definition implies that This related activities: control ormed by an organization to prevent or detect Control activities are may exis activities poor quality (because poor quality Control costs are th are made up of prevention and appraisal activ form by an costs control activities. Failure activities a does exist If organization its customers in response to poor quality quality the response to poor y occurs before of a bad classified unreliable, not durable, and so on) product to a customer, the activit as internal failure activities otherwise, they are classified as external failure es are Failure costs are the costs incurred by an organization because failure activ mply at customer the of and The definitions of response to poor quality can impose costs on an organization quality-related activities also imply four categories of quality costs failure costs. (2) appraisal costs, internal failure costs, and (4) externa revention costs are incurred to prevent poor quality in the products or services being produced. As prevention costs increase, we would expect the costs of failure to decrease. Examples of prevention costs are quality engineering. quality training pro- quality planning, quality reporting, supplier and selection, quality audits, quality circles, field trials, and design reviews. Appraisal costs are incurred to determine whether products and services are con forming to their requirements or customer needs. Examples include inspecting and testing materials, packaging inspection, supervising appraisal activities, product accep- tance, process acceptance, measurement (inspection and test) equipment, and outside endorsements. Two of these terms require further explanation eptance involves sampling from batches of finished goods to determine whether they meet an acceptable quality level: if so, the goods are accepted. Process ac- e in process to see if the process is in control and ceptance involves sampling goods w producing nondefective goods; if not, the process is shut down un corrective action can be taken. The main objective of the appraisal function is to prevent nonconforming goods from being shipped to custome Internal failure costs are incurred because products and services do not conform to specifications or customer needs. This nonconformance is detected prior to the produc shipped or the service being delivered to outside parties. These are the failures detected by appraisal activities. Examples of internal failure costs are scrap, rework downtime (due to defects), reinspection, retesting, and design changes. lhese costs dis External defects exist. are incurred because products and services fail to conform t appear if no requirements failure costs being delivered to customers. of the or satisfy customer ne after of this category can be the most Costs of recalls, example can run into the hundreds of millions. examples lost sales because Product performance, returns and because of poor quality, warranties, repair, product liability, customer dissatisfaction, lost market share, and complaint adjustment. Externa failure exist. categories and lists specific examples Exhibit 14.1 summarizes the four quality cost such as the the could have been expresse incoming materials, adjusting cost of compla etc.