The term defect refers to output that is substandard, i.e., does not meet the quality standards expected, such as faulty products that are not fit for their purpose. Defected output often has to be re-produced, which wastes time, resources, and money. In addition, it often damages the corporate reputation of the business.

The defect rate is a measure of the extent to which a firm has defected output. It can be measured in one of two ways:

1. The number of products that are faulty expressed as a proportional of total output as part of the quality assurance (QA) process
2. The number of products that fail benchmark tests as a proportion of the number of products that are tested as part of the quality control (QC) process.

Hence, the defect rate can be calculated by using one of two formulae, depending on the context of the business in questions:

or

For example, suppose that a clothes manufacturer makes an average of 5,000 t-shirts per month with an average of 10 t-shirts failing the quality tests conducted by quality inspectors. The defect rate is therefore calculated as:

• Defect rate = (Defected output ÷ Total output) × 100

• Defect rate = (10 ÷ 5,000) × 100 = 0.2%

This means that for every 500 t-shirts made there is 1 t-shirt that has a defect. In general, the lower the defect rate, the better this is for the business.

Recall that quality control (QC) refers to the traditional form of quality management in which a supervisor or quality inspector periodically checks and examines output for possible faults, usually at the end of the production process. It is an approach to quality management that involves quality inspectors and controllers to ensure the output complies with quality standards. For mass produced goods, QC is usually conducted in a systematic way, such as once every hour or every 100th unit of output. For highly expensive products, such as a Tesla or Bugatti, each product is checked to ensure industry quality standards are met.

Quality assurance (QA) is a form of total quality management (TQM) that involves all workers taking responsibility for maintaining quality standards throughout the production process. TQM aims to achieve zero defects by preventing mistakes being made in the first place. Instead, QA focuses on getting things done right, first time round. A key advantage of QA and TQM is that the organization's corporate reputation is likely to improve as the firm has a “right first time” approach to production, so defects are minimal if at all existent.

However, quality assurance is both time consuming and costly as it strives for zero defects, i.e., perfection. In contrast, quality control has an accepted reject or defect rate given that it may not be realistically possible to check each and every unit of output. Essentially, QA is proactive and preventative, whereas QC is reactive (to faults and defects in the production process).