Cost of poor quality and business impact

Learning objectives

• Classify quality costs into prevention, appraisal, internal-failure and external-failure.
• Quantify factory impact without double counting.
• Distinguish hard savings, capacity release and risk avoidance.

The iceberg of quality cost

Visible scrap is only a fraction of poor-quality cost. Reinspection, alteration, lost minutes, air freight, claims, discounts, late delivery and lost customers may be larger. Benefits should distinguish hard savings, capacity release, risk avoidance and soft gains.

Garment-factory example

Seam puckering creates repair labour, extra thread use, delayed packing, overtime and shipment risk even when repaired pieces eventually pass inspection.

Method

1. Map the failure path from defect to customer.
2. Calculate frequency × cost per event.
3. Validate the calculation with Finance.
4. Establish a baseline period before booking savings.

Common mistakes

• Counting revenue and cost savings for the same gain.
• Claiming released capacity as cash without actually using it.