Impact of Hidden Costs on Product Performance and Quality: A Case Study

This paper aims to measure the impact of hidden quality costs on specific performance and quality indicators, with the goal of improving product performance and quality, thereby achieving customer satisfaction, increasing sales, and expanding market share. The paper adopts a case study approach at Al Hilal Industrial Company—Evaporative Air Cooler Factory for the period (2021–2023). Hidden costs were calculated using the Taguchi quality loss function. The results demonstrate that measuring hidden costs helps improve product performance and quality by directing management’s attention to reducing costs and increasing profits. The results also indicate that Iraqi industrial companies are not interested in measuring hidden costs due to the lack of inclusion of these costs in the Unified Accounting System Manual and the lack of awareness among management of the importance of the information provided by identifying and measuring these costs. The results confirm that the Taguchi loss function, as a method for calculating hidden costs, is more objective than other methods because it calculates the loss mathematically without relying on personal judgments and estimates. Furthermore, the lower the number of defective units delivered to customers, the lower both on-the-job training and employee absenteeism, the lower the hidden costs. This research paper presents a method for calculating hidden quality costs using a quality loss function, highlighting how quality loss coefficients across different production stages affect these costs. This approach enables companies to identify and estimate often-overlooked, thereby improving quality management decision-making and strengthening their competitive position in the local market.