Quality cost systems have evolved from a purely manufacturing defect related cost reporting system that reflected the limited quality thinking of the 1940s to a poor‐quality cost system that reflects the total process quality orientation of the 1990s. The new poor‐quality cost system includes both the direct and indirect quality cost. It addresses key concepts like customer encore cost, lost opportunity cost and non‐value added cost. The focus of the poor‐quality cost system has drifted away from the manufacturing process and now focuses on the total business systems that represent today’s biggest opportunity for improvement. Poor‐quality cost in functions like marketing and sales can exceed 100 percent of the organization’s total budget. This paper explains how quality costs hav evolved to keep up with the quality systems’ evolution over the past 50 years.
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