The next category of the cost of quality is the Internal Failure Cost. Internal failure cost is related 2
to all the failures which happen within the organization before it leaves the boundry of the organization 3
or before it reaches the hands of the customer. 4
In internal failure cost we could consider the in-process scrapping and re- working. 5
So if your process has produced something wrong you scrap that, you reject that or you do the work to 6
make it right. 7
The cost incurred in that would be the internal failure cost, any trouble shooting or repairing which 8
you're doing 9
that's the internal failure cost. Any design changes you make based on the problems you are facing 10
would be internal failure cost. 11
Then you have problems then you need to keep extra inventry, extra inventry to make sure that your production 12
continues. 13
So for example if your target is to produce 100 pieces but then you know that 10 pieces every 100 pieces 14
might have a problem. 15
So you need to keep those ten pieces extra. 16
So instead of targeting 100 pieces you'll be targeting one hundred and ten pieces with the assumtion that 17
will get 10 might have some problems as we go further. 18
So that extra inventory the money which ties up in extra inventory those ten pieces which we were talking 19
would be considered as the cost of quality because to maintain the invetory you need to spend money and 20
then you will need some space to keep those extra pieces, you will need some extra handling. 21
So all these costs basically will add up and give you a big number once you look at that cost. 22
So if you have a reworked on some items, so item was wrong you corrected that but then you need to spend 23
extra money on the inspecting, rechecking that item which you corrected. 24
So there is a extra money involved in retesting as well. 25
And many a times you cannot bring that repaired product to that top level quality whatever you are producing, 26
whatever you're giving to the customer. 27
But then in that case you will downgrade that product and sell that cheaper to some other customers. 28
So the amount which you get less because of downgrading that also will be consider as the cost of quality. 29
So now if you look at these these numbers are huge and the cost of internal and external failure basically 30
is a big amount. 31
Internal would be still less but external could mean a lot. 32
Any external failure might really cost you a big money. 33
So whatever money you can spend in preventing as a first attempt, upraising as a second layer of production 34
and then maybe the last layer of production is internal failure because even at internal failure also you 35
are good because you got that problem before it reaches in the hands of customer. 36
But once it goes out the cost implications might be huge. 37
Let's look at those costs which are related to external failure on the next slide.