What are Nonconformance Costs?

Nonconformance costs are the incremental costs incurred by a business when it fails to meet the quality requirements for its products. These costs are incurred as a result of failures in the manufacturing process. The resulting costs include the following:

Rework cost. This is the cost to correct a product that does not initially meet your minimum quality standards.
Scrap cost. This is the excess unusable material that is left over after a product has been manufactured.
Warranty claim. This is the cost of any warranty claims submitted by customers; it is usually the cost of replacement goods shipped to customers.
Recall cost. This is the cost of notifying customers that a product issuance must be returned, as well as the cost to replace these goods or pay back customers.
Lost sales. This is the profit lost when customers no longer purchase goods or services from you, due to quality problems.

Example of Nonconformance Costs

A food cart manufacturer delivers 100 food carts to a major customer. The customer’s receiving staff notes that the stainless steel used to sheath the food carts is too thin, and rejects all 100 carts. The nonconformance costs incurred by the manufacturer include the return freight on the carts, the cost to dismantle them, and the cost of bend metal and re-sheath the carts with thicker stainless steel, along with outbound freight to re-deliver the carts to the customer.