Cost of Quality Can Be Defined as the Cost Which Is Allied with the Quality of a Product

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- Usage and maintenance of top quality machinery

Using top quality machinery ensures that products can be manufactured more effectively and with little chance of error. The company must also ensure to maintain the machinery in an efficient state and in good repair so that it will be able to constantly be able to produce good quality products.

- Ensure suppliers provide good quality materials

Suppliers are essential to almost every business. Without raw materials to make what you sell or manufacturers to provide what you resell, you will have a tough time growing in the industry. A company must always ensure that the products they receive from their suppliers are always shipped on time, has the right quantity and most importantly the product is of top quality and do not have any defects.

When a supplier’s shipments start arriving consistently late, incomplete, damaged or otherwise incorrectly, it's time to consider looking for a new one instead of wasting money on unreliable suppliers.

- Organisation and Operations management

This refers to the administration of business practices to create the highest level of efficiency possible within an organization. Operations management is concerned with converting materials and labour into goods and services as efficiently as possible to maximize the profit of an organisation.This is beneficial to the company as having good operations management allows companies to work more efficiently if internal failure costs are to occur.

By following a well organised quality control plan will result in the company having a decreased amount of internal failure costs.

3. External Failure Costs could be more damaging for the reputation of a company?

External Failure Costs are costs that are caused by deficiencies found after delivery of products and services to external customers. This may lead to customer dissatisfaction and loss of reputation for the company.

As compared to Internal Failure Cost which can be solved within the company, External failure costs are found to be much harder to measure due to the hidden costs associated with defective products being received by the end user (customer). The company must deal with the dissatisfaction they have caused to their customers as well as identifying the root of the problem of their defective product.

For example in the case of “Civil servant wakes up at 5am to find her Samsung PHONE on fire and 'sizzling' beside her bed “

Taken from: http://www.dailymail.co.uk/news/article-2600682/Mobile-phone-catches-fire-owner-leaves-charge-asleep.html

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- Kent's Holly Hewett, 25, plugged her phone in to charge while she slept

- But she was later woken up by a sizzling sound and the smell of burning

- Smoke rose from her Samsung Galaxy S4 and it burned her carpet

- She is now warning others not to charge their smartphones overnight

- Samsung say they have strict quality controls and will investigate the fire

From this article we can see an external failure cost by Samsung where they were unable to foresee that overcharging would cause their battery to explode.

As the product comes with warranty, repair options, customer support, etc., the manufacturer or seller is expected to take in customer complaints and grievances.

External failure cost does not just involve cost related to product repair works or replacement, it also accounts intangible aspects resulting due to their errors. Once customers see the damage caused by the faulty product, it may negatively affect the brand reputation. Furthermore they may be loss of customer goodwill or loyalty and damaged relationships with their distributors or dealers.

Thus from a company’s perspective as compared to Internal failure costs, external failure costs can be more damaging to a company as it can cause both tangible and intangible damages.

References:

Cost of Quality: Not Only Failure Costs. 2015. Cost of Quality: Not Only Failure Costs. [ONLINE] Available at: http://www.isixsigma.com/implementation/financial-analysis/cost-quality-not-only-failure-costs/. [Accessed 05 August 2015].

8 Internal Failure Costs Every Company Should Watch. 2015. 8 Internal Failure Costs Every Company Should Watch. [ONLINE] Available at: http://blog.lnsresearch.com/blog/bid/187432/8-Internal-Failure-Costs-Every-Company-Should-Watch. [Accessed 05 August 2015].

Samsung Galaxy S4 mobile phone catches fire after owner charges it whilst sleeping | Daily Mail Online. 2015. Samsung Galaxy S4 mobile phone catches fire after owner charges it whilst sleeping | Daily Mail Online. [ONLINE] Available at: http://www.dailymail.co.uk/news/article-2600682/Mobile-phone-catches-fire-owner-leaves-charge-asleep.html. [Accessed 05 August 2015].

External Failure Costs | Cost of Quality. 2015. External Failure Costs | Cost of Quality. [ONLINE] Available at: http://www.costofquality.org/external-failure-costs/. [Accessed 05 August 2015].

Quality Management Systems. 2015. Quality Management Systems. [ONLINE] Available at: http://www.geocities.ws/granvilleie/quality3x.htm. [Accessed 05 August 2015].

. 2015. . [ONLINE] Available at: http://www.businessballs.com/dtiresources/performance_measurement_management.pdf. [Accessed 05 August 2015].