The cost of quality is an essential consideration in sourcing decisions. The costs associated with ensuring quality are often categorized as (1) preventative, (2) appraisal, (3) internal failure, and (4) external failure. If sourcing internally, firms must estimate the costs of defect prevention (i.e., designing quality into products and processes), the costs of quality appraisal (e.g., inspections, audits, monitoring mechanisms), the costs of internal failure (e.g., scrap, rework, internal downtime), and the costs of external failure (i.e., failure as perceived by the external customer)