The costs associated with quality can be broken out into three categories. Cost of Prevention includes all expenses designed to reduce the number of defects. In a more realistic measure there are many more costs of quality, most of which are overlooked in traditional measures. These costs include pricing or billing errors, field service expenses, failure to return a customer call, overtime, premium freight cost, lack of follow-up, excess inventory, loss of market share, expediting costs, complaint handling, late paperwork, customer allowances, mistakes on sales orders, lack of competitive knowledge, high system costs, overdue receivables and lack of planning. Many nonmanufacturing processes suffer from excessive handoffs.
Documents take a circuitous route, usually with unneeded stops and repetitive motion.
In fact quality must become an integral part of the culture, not remain a department. The difference in quality costs related to management styles is illustrated in Figure 1. Prevention costs are minimal, because there is little effort to prevent failures. The effort considered most important is to cut the cost of production. In management by methods, effort is focused on the system and processes, with resulting smaller internal and external failure costs of quality, and lower overall cost of quality.