When a company produces a defective piece of product it may need to be scrapped or sold at a lower cost. This result in a direct loss in revenue which is equal to the Price of a good product less the realization from defective product. This is the most obvious cost of poor quality working. But this cost is just the tip of the iceberg. There are many other indirect and not so obvious losses that a company incurs by producing poor quality products which total up to much more than the direct cost of poor quality. A complete list of other important quality cost includes the following.
- The time and effort spent in inspecting material and separating good material from defective ones. If care is taken to ensure that there is no defective production in the first place, the inspection cost can be eliminated completely.
- Cost of delays caused when the defective piece is detected during use.
- Cost of damage that can be caused by defective products. This can happen when a defective product passes undetected to subsequent stages of operation.
- Cost of loss of company's goodwill when customer is supplied a defective product.