Subject: Re: Cost of quality info needed
From: "Joseph Ludford" jludford@radix.net
Newsgroups: misc.industry.quality
Date: Tue, 30 Jan 2001 12:25:35 -0500

fidel12@my-deja.com wrote in message news:94vnd0$kb2$1@nnrp1.deja.com...
> Does anyone know the stats on what a typical company spends on the four
> costs of quality and what the breakdown is for a worldclass company?
>
> I am doing a presentation and I am tyring to influence sr. management on
> where we should be with prevention costs.
>
> thanks
> Linda

This is a follow-up to my previous note.  In Quality Progress, May 1998, paper Six Sigma: A Breakthrough Strategy for Profitability, there is Table 1. Practical Impact of Process Capability with the following information:

6 sigma  3.4 defects per million      <10% of sales      (World class)
5 sigma  233 parts per million        10-15% of sales
4 sigma  6,210 parts per million     15-20% of sales   (Industry average)
3 sigma  66,807 parts per million    20-30% of sales
2 sigma  308,537 parts per million  30-40% of sales   (Noncompetitive)

There is an article in Quality Digest, October 1994 that has information on
quality cost as a percentage of sales for aircraft and automotive
manufacturing industries.

There is data from the 1980's or earlier for a tire manufacturer in Juran's
Quality Control Handbook, Fourth Edition, Chapter 4.

I have seen the following conclusions about quality costs stated by Juran
and Gryna either in the Quality Control Handbook or the text Quality
Planning and Analysis:

1)  Total quality costs are hgiher for complex industries
2)  Failure costs are the largest percentage of total quality costs
3)  Preventive costs are a small percentage of total quality costs
4)  For manufacturing organizations, cost of poor quality varies from 5-35%
of sales depending on product complexity
5)  For service organizations, cost of poor quality varies from 25-40% of
operating expenses depending on service complexity

I have also seen the following rules for taking action stated by Juran and
Gryna:

1)  Zone of Improvement - failure costs > 70% or prevention costs < 10% of
total quality costs - identify and pursue improvement projects

2)  Zone of Indifference - failure costs ~ 50% and prevention costs ~ 10% of
total quality costs - if there are no profitable projects shift to control

3)  Zone of High Appraisal Costs - failure costs < 40% or prevention costs >
50% of total quality costs - find ways to reduce appraisal costs

If you are a member of ASQ, you could ask the ASQ Quality Information Center
to search their database for articles on the subject.  Call 1-800-248-1946
to reach the QIC.  They would provide abstracts of the articles at no charge
but would charge for copies of the articles.

Joe Ludford