How to minimize defect costs in quality management

On closer examination and definition of quality-related costs, it is easy to see that this issue has long been the subject of controversial discussion. The pursuit of continuous quality improvement must be viewed from different angles. For example, nowadays it is no longer sufficient to sort out products only at the end of the value chain using quality control. Rather, it is necessary to try to detect errors at an early stage and to eliminate them through product or process improvements. It has long been assumed that a high level of quality is simultaneously associated with high costs. In addition to this view, an insurmountable triangle of quality, costs and time has developed in people’s minds, in which one of the three variables can only be improved at the expense of another. This hurdle has to be mastered.

Costs are the valued consumption of goods or services for the production of the actual operational services.
According to DIN 55350 part 11, quality costs are all costs that are caused by activities of error prevention, by scheduled quality inspections, as well as by internally or externally determined errors. The quality costs can be divided into three cost categories for a better overview:
– Error prevention costs
– Audit costs
– (Internal/External) – Error costs

ERROR PREVENTION COSTS are all costs that arise from error-preventing activities and measures (e.g: Supplier assessments and evaluation, quality control, test planning, and training in quality management, audits).

AUDIT COSTS are incurred in quality inspections (e.g. incoming inspections, production inspections, final inspections) and include all costs incurred in this context (e.g.: inspection personnel, inspection equipment, measuring equipment, inspection documentation).

ERROR COSTS arise from the fact that required quality characteristics are not met. They are subdivided according to the place where the defect is discovered into internal (defect discovery in the company) and external defect costs (defect discovery at the customer’s premises). The internal defect costs include, for example, scrap, rework, breakdowns, and sorting inspections. The external defect costs include, for example, warranty and guarantee expenses, product liability costs, and also rework due to defects discovered at the customer.
Our economically oriented quality management aims to reduce quality costs while maintaining at least the same level of quality. Above all, internal and external defect costs, which often account for the largest share of quality costs, must be reduced to a minimum. These costs can be reduced in various ways. For example:

● Reducing the inspection effort
● Greater commitment to error prevention
● Improvement / Optimization of the product
● Better processing resources
● Process optimization

To optimize costs in quality management, expenditures must be recompiled and analyzed at periodic intervals and optimized if necessary. These can improve the following points in your quality management:
● Assessment of quality improvements: If the quality costs related to the turnover decrease, the measure carried out was efficient.
● Decisions in quality planning can also be made from a cost perspective.
● Optimize inspection costs: the sum of the costs that are reduced by the errors that occur and the prevention of these errors

The rule of ten (also known as the 10th rule of error costs) states that the costs of eliminating errors increase by a factor of 10 in each phase or stage of the value chain. Later the error is discovered, the higher the costs of correcting it. Therefore, if the error is not discovered in planning, but only in development (x10), in production (x100), or only at the customer (x1,000), the costs of correcting the error increase disproportionately. Keep in mind that the rule of ten of the error costs is not a scientific law, but rather based on experience.

The rule of ten strikingly illustrates the exponential function of the error costs and thus shows the importance of early error correction or preventive error avoidance. A study from the 1990s suggests that in almost 75 % of all product defects, the cause lies in the early phase of value creation. If these defects could be avoided at an early stage, the costs incurred later (“cost per defect”) would only amount to a fraction of the actual defect costs. The following graphic illustrates the rule of ten of the defect costs: