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The disasters happened, bcs of breakiny cardinal quality rule such as to reduce cost, problematic of raw material, failure of product.
So, CBO is to understand internal & external cust

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Profit = ( Price - Costs ) x Volume
3 ways to maximising profit

1. Increase Price

2. Increase Volume

3. Reduce Costs

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1. Responding to warranty claim

2. Retrieving lost baggage

3. Responding to customer’s claim

4. Redesigning a faulty component that never worked right

5. Repurchasing because of non-conforming material

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VISIBLE

Warranty

Rejects

Reworks

Inspection

Scrap

HIDDEN

1. Lost Sales

2. Late Delivery

3. Lost Customer Loyalty

4. Expiditing Costs

5. Excessive Material Orders/Planning

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The Hidden Costs associated w providing a non-conforming product/service to cust. It involves company’s image.
Can be greater than tangibe quality costs

Eg:

lost of cust loyalty

lost of sales

rush delivery costs

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DEF ; Incurred when completed peoduct/service does not confirm to cust requirement.

Internal failure ( scrap, reject, rework )

bfr product is shipped@service is provided to cust

External failure ( warranty claims, customer complains, product recall )

after product is shipped/service is provided to customers

1-10-100 RULE
PREVENTION COSTS - APPRAISAL COSTS - FAILURE COSTS

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Any cost incurred in order to ensure the perfect quality of product/service.

1. portion of operating costs caused by low quality of service/product.

2. includes the costs associated to prevent poor quality

Benefits of defect free ( activity performed w/o defect every time )

Less wasted material

Lower warranty materials

Reduce scrap/ rework costs

Decreased production costs

Faster cycle time

If all benefits defect free were worked :

1. Lower total cost

2. Higher company revenue

3. More competitive pricing

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Prevention Costs
Costs of performing activities to prevent poor quality in products/services
Eg; process design review, education & training, supplier selection & capability review, process capability review
Prevention is need to determine root of causes problem & eliminate it. So, reoccurance don’t happen.

Appraisal Costs
Associated with measuring, evaluating @ auditing products/service to ensure they conform to specifitcations
Eg; Inspection of incoming material, Work in Progress & Final Goods, Material Reviews, Calibration measurement, Testing Equipment
Appraisal is necessary in environment where quality problems on product, service, process are found.

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COST OF GOOD QUALITY

PREVENTION COSTS

APPRAISAL COSTS

COST OF POOR QUALITY

INTERNAL FAILURE COSTS

EXTERNAL FAILURE COSTS

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Total Qc = Prevention + Appraisal + Failure + Intangible

once quantified, qc enhance decision mking : projects will allow for greatest return on investment & most effective at lowering qc