Internal Failure Costs

Internal Failure Costs are costs of deficiencies discovered before delivery which are associated with the failure(nonconformities) to meet needs of external or internal customers.

Also included are avoidable process losses and inefficiencies that occur even when requirements and needs are met.

These are Quality costs that would disappear if no deficiencies existed.

Examples of Internal Failure Costs :

Scrap: The labor, material, and (usually) overhead on defective product that cannot economically be repaired. The titles are numerous—scrap, spoilage, defectives, etc.

Rework: Correcting defectives in physical products or errors in service products.

Lost or missing information: Retrieving information that should have been supplied.

Failure analysis: Analyzing nonconforming goods or services to determine causes.

Scrap and rework—supplier: Scrap and rework due to nonconforming product received from suppliers. This also includes the costs to the buyer of resolving supplier quality problems.

One hundred percent sorting inspection: Finding defective units in product lots which contain unacceptably high levels of defectives.

retest: retest of products that have undergone rework or other revision.

Changing processes: Modifying manufacturing or service processes to correct deficiencies.

Redesign of hardware: Changing designs of hardware to correct deficiencies.

Redesign of software: Changing designs of software to correct deficiencies.

Scrapping of obsolete product: Disposing of products that have been superseded.

Scrap in support operations: Defective items in indirect operations.

Rework in internal support operations: Correcting defective items in indirect operations.

Downgrading: The difference between the normal selling price and the reduced price due to quality reasons.

Variability of product characteristics:

Losses that occur even with conforming product (e.g.,overfill of packages due to variability of filling and measuring equipment).

Unplanned downtime of equipment: Loss of capacity of equipment due to failures.

Inventory shrinkage: Loss due to the difference between actual and recorded inventory amounts.

Variation of process characteristics from “best practice”: Losses due to cycle time and costs of processes as compared to best practices in providing the same output. The best-practice process may be internal or external to the organization.

Non-value-added activities: Redundant operations, sorting inspections, and other non-value added activities. A value-added activity increases the usefulness of a product to the customer; a non-value-added activity does not.

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