Category Archives: Quality Management

Service Guarantees

Warrantees are common for products such as automobiles, washing machines, and televisions. Such warrantees guarantee that these products will work throughout a stated period of time or else they will be either repaired or replaced free of charge. Less common are guarantees for services. ever the less. Christopher Hart has suggested that the service guarantee can be a powerful tool for obtaining feedback from customers on how service operations are performing. In. order for a service guarantee to be effective, it must contain the following elements: It must be (a) unconditional, (b) easy to understand and communicate, (c) meaningful, (d) easy and painless to invoke. and (e) easy and quick to collect on. For example, at FedEx, the service guarantee is simple: if your package is not delivered on time, then there is no charge. At L. L. Bean, a leading mail-order firm located in Free port, Maine the guarantee is "100 percent satisfaction in every way." If you buy an L. L. Bean product and are not satisfied with it. you can return it for an exchange or a refund, regardless of how long you have owned it. From a quality standpoint. the unconditional service guarantee provides management with continuous customer feedback. If it is easy to invoke and collect on, then customers.

Cost of Failure

Costs of failure pertain to nonconforming and non performing products. Also included in this category are the costs associated with the evaluation and disposition of customer complaints
As stated earlier, we further subdivide failure costs into internal and external failure costs.

Cost of Detection/Appraisal

Costs of detection or appraisal are those costs associated with evaluating the quality of the product. Costs included in this category are incoming material inspection, tests and inspection throughout the transformation process, test equipment maintenance, and products destroyed during destructive testing.

Cost of Prevention

Costs of prevention, by definition. are those costs incurred by an organization in its effort
to prevent defective goods and services from being produced. Included in this category are investments in machinery, technology, as well as education and training programs, which are designed to reduce the number of defects that the process produces. Also included in this category are the costs to administer the firm’s quality program, data collection and  analysis, and vendor certification. All of the quality gurus strongly support investments in this category because the returns are so high, including the benefits gained from increasing customer satisfaction and reducing scrap losses and rework expenses.

The Cost of Quality

Following Juran’s model, we divide the cost of quality into three major categories: (a) cost of prevention. (b) cost of detection/appraisal, and (c) cost of failure. The third category, the cost of failure, is further subdivided into internal failure costs and external failure costs.
The total cost of quality is the sum of the costs in all three categories. The typical percentages of total quality costs that are estimated for each of the three categories are shown in Exhibit 61 The cost of poor quality includes detection/appraisal costs and both internal and external failure costs, and can range from 15 to 25 percent of the total cost of a product. These costs of poor quality include the more traditional, visible items such as waste, rework, inspections and recalls. as well as the often-overlooked “invisible” categories such as customer allowances, complaint handling. lost or wasted capacity and excessive overtime.