The Evolution of Quality Control Costs in U.S. Manufacturing

Purpose: To discuss the historical significance of product quality in U.S. manufacturing and speculate on the treatment of quality costs in the future. This article includes a discussion and comparison of the four quality cost categories, the historical eras when these cost concepts were developed and some predictions about future developments in the area of quality control.

The four quality cost categories are defined in the table below and related to the eras of emphasis outlined above.

Category of Costs	Definition	Examples	Characteristics and Emphasis of the Era
Internal Failure Costs	Failure costs that are discovered before the product is delivered to customers	Rework, scrap, and disposition costs	Mass production methods became successful Originated by the growing needs of the economy provided opportunities where product quality was of little concern. Resulted in quality control programs being limited or nonexistent. The trade-off for increased production, manufacturers were willing to accept high levels of defective outputs
External Failure Costs	Failure costs discovered after the product is delivered to the customers	Processing costs, warranty claims, return processing costs and the cost of lost sales
Appraisal Costs	As monitoring or inspection costs of products in terms of specified standard before the products are released to customers.	Measurement equipment, inspection and tests, product quality audits, process control monitoring, test equipment expense	WWII caused the need for manufactured equipment and supplies to grow rapidly. However, experienced workers were decreasing. Resulted in the use of statistical methods for detecting defective products in identifying production problem. Impact=reduced external failure costs After WWII, innovative quality control techniques continued to be developed by Deming and Juran. Better received in Japan then in America U.S. companies concentrated on appraisal expenditures. Japan emphasized prevention costs. Exception to appraisal cost due to P. Crosby, who developed the concept of zero defects. But by 1975 its popularity declined due to extensive record keeping it entailed
Prevention Costs	Investments in machinery, technology, and education programs designed to reduce the number of defective products in the production process.	Customer surveys, research of customer needs, field trails, supplier reviews, quality circles, quality education and training programs, investment in improved production equipment, quality engineering.	Lost the upper hand in quality cost innovations and Japanese and European manufacturers gaining shares of the market. Emphasis on prevention control began-Japan emphasized R&D costs, employee education and training costs, use of quality circles and spending money of technology to improve efficiency Reduced the need for appraisal activities to detect defects. As fewer defective products are produced, failure costs tend to be eliminated.

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