Quality Management Systems, Standards, and Benefits/Costing

QMSA quality management system (QMS) is a system that defines operations to achieve consistency and creditability with customersQMS refers to what the organization does to manage its processes, or activities in order that the products or services that it produces meet the objectives it has set itself (ISO, 2004)

ISO 9000 series (International Standards Organization standard on quality management)

ISO 9000

ISO 9000 is a generic standard - means that the standard can be applied to any organization, large or small, whatever its product in any sector of activityISO is an auditable system – organization may be certified to a market standard by outside agency (Weigers, 2001)ISO 9000 predominant QMS today – adopted by 149 countries/economies (ISO, 2004)

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Quality Management Principles of ISO 9000:2000 (ANSI, 2000; ANSI, 2000a)

Customer focus

Leadership

Involvement of people

Process Approach – A set of interrelated activities which transforms inputs into outputs

System approach to management – Manage set of interrelated processes

Continual Improvement

Factual approach to decision making

Mutually beneficial supplier relationships

General Introduction

Growth of ISO 9000CURRENT: 1M ISO certs. Top 10 countries for registrations:

China (approx. 27%)ItalyUKJapanSpainUSA (approx. 9%)GermanyAustraliaFranceSouth Korea

ISO 9000 CharacteristicsLeadership demonstrates commitment to customer requirements.Policy and measurable quality objectives are set and renewed.Processes are identified, analyzed, and managed.Customer satisfaction is measured.Data are collected, analyzed, and used.System effectiveness is continually improved.

ISO Process ApproachCompany must identify and manage numerous linked activities.An activity uses resources, is managed in order to enable the transformation of inputs into outputs.

Timeline for Standard Development1

6

5

4

3

2

PROPOSAL

PREPARATORY

COMMITTEE

ENQUIRY

APPROVAL

PUBLICATION

Working DraftWD

Committee DraftCD

Draft International StandardDIS

Final Draft International StandardFDIS

Publication-International StandardIS

New Work ItemNWIP

Key Aspects of ISO ParticipationTimely – prompt response to enquiries within the accepted timelineConsensus – all points of view are accepted in forming the TAG position, majority support for the positionTransparent – activities of the committee are open and may be inspected by all interested partiesTraceable – all items must be accompanied by a voting record

Dual Roles for ISO 9000/9004QMS for fulfilling customer, regulatory, etc., requirements (ISO 9000)“Management should consider development of innovative financial methods to support and encourage improvement of the organizational performance” (ISO 9004 – Guidelines for performance improvements)

Allocation of Costs: Process ApproachEarly methods of tracking quality costs was too limited “focus on cost of non-conformance i.e. external and internal failure costs”. Process-cost broadens economics of quality by classifying cost of non-conformance and cost of conformance I.e. “costs incurred when a process is running without failure”

Process Approach: Added Benefits

Utilize cost of non-conformance (often called Cost of Poor Quality) and cost of conformance = greater cost saving opportunities may be available in reducing cost of conformance

Process Costing

Allows the tracking and reduction of costs normally associated with efficiency in addition to effectiveness (quality)” Process simplification in addition to reduction of errors become objectivesRelate the economics of quality to the amount of activity performed

Process Costs i.e. Costs of Inefficient Processes Examples

Variation of product characteristics from optimumUnplanned downtime and/or loss of processing/storage capacityInventory shrinkageVariation of process characteristics from ‘best practices’ (cycle times from to start to finish of activities)Other non-value added activitiesNOTE: Improvement is also an objective

Don’t Ignore Quality Failures

Cost of non-conformity:

Internal failure costsExternal failure costs

Cost of Poor Quality

Cost of lost opportunities for

sales revenue

Cost of conformity: process approach

Internal Failure Costs ExamplesLabor and material overhead spent on defective product – spoilage, defectives, scrap etc.Correcting defectives in physical or service products i.e. reworking productSorting bad/good productRe-inspection, retest of productChanging processes to correct deficiencies (CAR’s)

Downgrading product

External Failure Cost ExamplesCosts involved in replacing/making repair for warranty productInvestigation and adjustment costs to justified complaints of quality defective productReturned materialConcession costs due to substandard product accepted by customerCorrecting errors on external supporting processesRevenue losses in support operations(Gyrna)

Allocation of Costs

The company must decide what to measure depending upon circumstances, objectives, etc.

However,The overall idea is to “allocate costs and not to absorb such costs into overhead” (ISO/TR 10014)

Deriving Benefits

Reduction of failures due to QMS Improvement of process efficiencies due to QMS

Pre and post measures of implementationHowever, improvements should be done as identified

Using quality tools such as flowcharting, value add analysis, cycle time reduction, process simplification, root cause investigation, etc.