failure costs

failure costs

the cost to a firm of manufacturing defective products. Internal failure costs result from defects which arise during the production process, and include the cost of defective items which have to be scrapped (yield loss); the cost of reworking faulty items which have to be corrected (rework costs); and the loss of revenue from having to downgrade a product which has been identified as second quality and has to be sold as substandard at a lower than normal price.

External failure costs result from defects which arise after the product has reached the customer and include the cost of replacing or repairing defective products (GUARANTEE OR WARRANTY costs); and legal costs or damages to customers who have suffered physical or financial injury from defective products. An additional external failure cost is the loss of consumer goodwill and cancelled orders which, although difficult to quantify, can have a significant potential impact on sales and profits. See QUALITY COSTS, QUALITY CONTROL.

References in periodicals archive ?
These measures would prove to be far more cheaper and advantageous than demurrage and pipeline failure costs.
Today, this early growth failure costs these economies between 1.9 and 16.5 per cent of GDP.
For the follow-up, the PvdA senator asked for attention to be paid to three issues: recognized technical approval for quality and to reduce failure costs, a good arrangement for the insurability of the risks and the implementation costs of the new system.
A cost of quality mindset not only works to streamline lab processes, reduce waste, and cut unnecessary expenses, but invests in positive quality processes that can ultimately drive down overall failure costs for both the short and long term.
* Internal failure costs associated with defects found before the customer receives the product or service.
"We shall never be part of a deal that carries the seeds of its own failure because that failure costs lives, resources and disrupting social fabric.
The FDIC was out less than $7 million; that's a pittance to the Federal Reserve, which normally performs a full post-mortem only when a bank failure costs the FDIC at least $50 million.
Four types of costs go into the total cost of quality: prevention costs, appraisal costs, internal failure costs, and external failure costs.
[8] found that the use of remote pulmonary artery pressure monitoring was also associated with lower heart failure hospitalizations and decreased total heart failure costs in a real-world setting.
Because this data is difficult to obtain it's easier to give equal attention to all equipment despite the very different overall failure costs. Take a look at what your plants are preventively maintaining: odds are that 70 percent of those tasks are a waste of time.
The costs of noncompliance include both internal and external failure costs. As is the case with environmental-quality costs, external failure costs can be further subdivided into two categories: costs borne directly by the organization and those borne by third parties in the company's external value chain.
The costs of quality in general can be broken down into four major components: prevention costs, appraisal or detection costs, internal failure costs, and external failure costs.

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