Brilio.net - Failure costs are costs that arise due to products or services that do not meet the established quality standards. These costs can be divided into two main categories: internal failure costs and external failure costs. Here is an explanation of each type of failure cost:
Internal failure costs
Internal failure costs are costs incurred before a product or service reaches the customer. They include costs arising from identifying and correcting defects or errors in the production or service process. Some examples of internal failure costs include:
- Scrap costs: Costs arising from products that must be discarded because they do not meet quality standards.
- Rework Costs: Costs incurred to repair defective products to meet quality standards.
- Inspection and testing costs: Costs associated with inspecting and testing products to ensure that they meet quality standards before being shipped to customers.
- Downtime costs: Costs arising from stopping production to correct quality problems.
External failure costs
External failure costs are costs that occur after the product or service reaches the customer. They include costs that arise from a product or service that does not meet customer expectations or quality standards after delivery. Some examples of external failure costs include:
- Warranty and replacement costs: Costs incurred to replace or repair defective products that have been shipped to customers.
- Product return costs: Costs associated with customers returning products that do not meet quality standards.
- Lost customer costs: Costs arising from the loss of customers due to dissatisfaction with products or services that do not meet quality standards.
- Legal costs: Costs associated with lawsuits filed by customers who are harmed by defective products or services.
- Reputational costs: Indirect but significant costs arising from damage to a company's reputation due to products or services that do not meet quality standards.
Managing the costs of failure
To reduce failure costs, companies can take several steps, such as:
- Production process improvement: Identifying and eliminating sources of defects in the production process.
- Employee training: Providing training to employees to improve their skills and knowledge of quality standards.
- Use of technology: Adopting advanced technology to improve accuracy and efficiency in the production process.
- Strict inspection and testing: Conduct strict inspection and testing to ensure that products meet quality standards before shipping to customers.
By understanding and managing failure costs, companies can improve the quality of their products or services, reduce unnecessary costs, and increase customer satisfaction.