When you are launching a new product or preparing a quotation for a customer request, “Cost of Quality” is often an underrated part in your calculation. In particular the calculation of “Cost of Quality” is a very complex matter when you start to develop a completely new product with (at the beginning of the project) some uncertainties regarding components and production technologies.
The best way to start with “Cost of Quality” for new developed product is to conduct a risk analysis about all the issues that may happen during manufacturing and later in the field after you have sold the product to the customer. As a result of this risk analysis you should have an estimation of how many products (or components) have to be scraped or repaired during manufacturing and how many products will return from the field for repair or replacement.
In industrial environments like automotive or aerospace industries you have to consider also the following process costs for products returning from the field:
- Handling of support issues in support department
- Handling of the defect products in supply chain
- Conducting intensive analysis following the 8D-Process or other problem solving processes with many departments involved (e.g. Quality, R&D, Legal, external Labs, … )
- Conducting a product recall campaign (or exchange in the field)
Beside the value of the product itself , the costs for the processes will highly depend on the defect rate (defect parts per million) you expect over the life time of the product. This defect rate is determined by the capability of your design- and manufacturing processes and therefore often measured in sigma levels (or Cpk in production). The picture below shows the relationship between Sigma Levels and loss of money relative to the expected or current revenue.
Assuming the result of your risk analysis shows a Sigma Level of 4 (or 6.200 defective ppm) you should be prepared to invest about 20% of your planned or current revenue in quality activities. These “Cost of Quality” should also be considered in your quotation process or, much better, strive for a much better Sigma Level.