The four areas of quality could be divided into two broad aspects of conformance cost and non-conformance cost. The conformance cost would cover the areas of appraisal & prevention cost and on the other hand the non-conformance cost would cover the areas of internal failure & external failure cost. The performance management strategies of the company should be towards lowering the cost of non-conformance because the cost of correcting a quality defect would always be higher than others and high external failure cost would lead towards lowing customer satisfaction.
Prevention cost:
The prevention costs are cost attributable towards preventive maintenance and allied quality cost for assuring quality standards in the design & manufacturing process stage. These costs would help in lowering the internal failure and external failure costs, through ensuring production of those products which conform to the quality specifications.
Appraisal cost:
The appraisal cost would be the cost of checking assured quality product at the output stage and maintaining internal quality assurance standards of the final output. The cost towards quality inspector’s salary, internal quality audit cost etc. would form part of appraisal cost.
Internal failure cost:
Internal failure costs are the cost attributable towards rework of defective products identified through internal appraisal process before dispatch of goods to customers. The rework cost, machine downtime, scrap etc. would form part of internal failure cost.
External failure cost: The external failure costs are from the area of quality control where the cost should be lowest as possible. These are cost arising from sales return from customers, quality rejections from customers, products recall from customers, cost of handling customer complaints, and foregone contributions from loss of sales etc.
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