Price of Non Quality (PONQ)
Cost of Poor Quality (COPQ) or Non-Quality Costs is the price a company bears due to their bad product quality.
Price of Non-Quality Details
The first law of thermodynamic states that energy cannot be created or destroyed. The same thing applies to product quality. To achieve excellent product quality, you must sacrifice time, effort, ideas, and most importantly – money. The cost of quality consists of two things:
- The cost of quality or cost of compliance.
- The cost of non-quality or cost of non-compliance.
The cost of quality is the cost of activities leading up to a product release that is detrimental to its quality. Research and development are one of the key factors of quality costs. Good research and development enable engineers to solve problems accurately and efficiently, resulting in a good product design and, eventually – a good product quality.
The cost of non-quality is the additional cost that occurs during the product's development and after the product is released, such as excess financial expenses, excessive stock, billing delays, lack of proper product distribution, uneven staffing, and loss of prestige. The cost of quality and the cost of non-quality is inseparable. One causes the other. To reduce the cost of non-quality, you have to invest in the cost of quality.
Real-World Example of Price of Non-Quality
Samsung, an electronic company based in South Korea, manufactures top-of-the-line smartphones called Samsung Galaxy Note. Their latest and greatest offering was the Samsung Galaxy Note 7, which was released in August 2016. Users met the smartphone with great excitement.
Not long after the preorder units rolled out, some users reported that the phone exploded, injuring hands, scorching hairs, and in worst cases – burning down cars and houses. The reports came in almost daily for a whole month until in September 2016, Samsung issued a formal recall of over 2.5 million Samsung Galaxy Note 7 devices. The main cause was bad welding inside the batteries, short-circuiting, which eventually caused the batteries to explode. The price of this worldwide device recall, the loss of Samsung's prestige, the time spent figuring out this flaw is considered the price of non-quality.
The Samsung Galaxy 7 incident caused a substantial loss for Samsung. However, it's nothing compared to the 1986 Space Shuttle Challenger incident. One and a half minutes after the spacecraft took off, a massive fiery explosion engulfed the entire spacecraft, killing all seven crew members inside. The main cause was a defective o-ring seal, causing a domino effect of mechanical failures that ultimately lead to the explosion. The price of non-quality of this incident is several million dollars worth of spacecraft, several hundred dollars of redesigning o-rings, and the worst possible price of all: seven human lives.
Types of Price of Non-Quality
There are two types of price of non-quality:
Internal failure cost. The internal failure cost is the cost that occurs during the product's development. After a long session of designing and developing a product, a product manager realizes that the product is not up to the standards, not even by a long shot. So, they decide to either rework or scrap it. Reworking involves modifying the current product to meet the desired standard by redesigning the product, changing product materials, or replacing staff. Scrapping consists of abandoning the product and selling all equipment and designs to recoup the initial cost.
External failure cost. The external failure cost occurs after the product is already released, like the Samsung Galaxy Note 7 example above. Once your product is released, it's up to the customers to rate your product's quality. Poor product quality will bring customer complaints, warranty costs, product return costs, and the worst of all: loss of prestige. Nobody will trust your product and your future products if you have a bad reputation.