The following extract is taken from an article discussing research into the costs of ‘outsourcing’. We found that companies commit two common mistakes when deciding to source components from abroad. First, they tend to only calculate the ‘static’ cost of a supply chain, which basically adds the unit cost ex-supplier factory and the transport cost together. Here, the lower labour cost reduces the unit cost of the product, which generally offsets the higher transport cost of bringing it into the UK from China. Often other costs are not considered or underestimated. An example of this is the additional cost for buffer stocks, as the supply chain is inherently less able to respond to swings in demand or changes in technology. Also the risk of obsolescence or running out of stock drastically increases, yet often is not factored into the calculation. The cost of quality defects rises tremendously when a defect is discovered in a shipped batch arriving in Europe and costly air freight has to be used to refill the supply line. And the co-ordination cost of working over long distances is often taken for granted.

Question 

How is the cost of quality relevant to an evaluation of the costs and benefits of outsourcing?