internal failure costs

**Internal failure costs** is the **losses caused by defects discovered before the product reaches the customer** - they are less damaging than external failures but still represent direct waste of capacity and margin. **What Is Internal failure costs?** - **Definition**: Costs from scrap, rework, retest, downtime, and schedule disruption inside the factory. - **Typical Triggers**: Process drift, mis-set recipes, handling errors, and unstable test thresholds. - **Accounting Impact**: Appears as increased conversion cost and lower effective throughput. - **Operational Signature**: High rework loops and low first-pass yield despite acceptable final yield. **Why Internal failure costs Matters** - **Capacity Consumption**: Defective units consume tooling and labor twice when rework is required. - **Cycle-Time Growth**: Internal failures create queue buildup and planning volatility. - **Cost Escalation**: Each additional processing step raises cost per good unit. - **Learning Opportunity**: Because failures are seen internally, root-cause closure can be rapid if disciplined. - **Leading Indicator**: Rising internal failures often precede external quality incidents. **How It Is Used in Practice** - **Failure Pareto**: Track internal-loss drivers by process step, tool, and defect mechanism. - **Containment and Fix**: Apply immediate containment, then permanent corrective action at source. - **Control Sustainment**: Use SPC and layered audits to prevent recurrence after corrective closure. Internal failure costs are **the early warning bill for process weakness** - reducing them protects margin and prevents more expensive external failure events.