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SUMMARY
External failure costs may be defined as "(T)he costs resulting from products or services not conforming to requirements or customer/user needs.. .which occur after delivery or shipment of the product or during or after furnishing a service, to the customer" (Campanella, 1999, pp. 32-33). External failure costs are the most difficult of the four quality cost categories to measure. This paper presents ideas and suggestions for measuring and utilizing external failure costs in organizations' overall quality improvement processes.
INTRODUCTION
Cost of Quality (COQ) is the term coined by Phillip Crosby for the costs of poor quality (Bemowski, 1992). The American Society for Quality (ASQ) defines the cost of poor quality (or COQ) as "the costs associated with providing poor-quality products or services." (Bemowski, 1992, p. 21). Quality costs are divided into four categories (Campanella, 1999):
Prevention costs are "the costs of all activities specifically designed to prevent poor quality in products and services" (p. 5).
Appraisal costs are "the costs associated with measuring, evaluating, or auditing products or services to assure conformance to quality standards and performance requirements" (p. 5).
Internal failure costs are "the costs resulting from products or services not conforming to requirements or customer/user needs ... (which) occur prior to delivery or shipment of the product, or the furnishing of a service, to the customer" (p. 5).
External failure costs are "the costs resulting from products or services not conforming to requirements or customer/user needs ... (which) occur after delivery or shipment of the product, and during or after furnishing of a service to the customer" (p. 5).
A COQ system is designed to be part of the management program of continuous improvement of products and services. A COQ system cannot of itself improve quality or reduce costs. Its goal "is to facilitate quality improvement efforts that will lead to operating cost reduction opportunities. The strategy for using quality costs is quite simple: (1) take direct attack on failure costs in an attempt to drive them to zero; (2) invest in the 'right' prevention activities to bring about improvement; (3) reduce appraisal costs according to results achieved; and (4) continuously evaluate and redirect prevention efforts to gain further improvement." (Campanella, 1999, p. 9).
Despite widespread recognition within the quality...