What are the two types of failure costs? How can they be recognized? Describe where these costs can be found

Question

What will be an ideal response?

Answer 1

Failure costs occur when the complete product or service does not conform to customer requirements. Two types exist: internal and external. Internal failure costs are those costs associated with product nonconformities or service failures found before the product is shipped or the service is provided to the customer. Internal failure costs are the costs of correcting the situation. The failure costs may take the form of scrap, rework, remaking, re-inspection, or retesting. External failure costs are the costs that occur when a nonconforming product or service reaches the customer. External failure costs include the costs associated with customer returns and complaints, warranty claims, product recalls, or product liability claims. Since external failure costs have the greatest impact on the corporate pocketbook, they must be reduced to zero. Because they are highly visible, external costs often receive the most attention. Unfortunately, internal failure costs may be seen as necessary evils in the process of providing good-quality products or services to the consumer. Nothing could be more false. Doing the work twice, through rework or scrap, is not a successful strategy for operating in today's economic environment.