Cost of quality.pdf

7/28/2019 Cost of quality.pdf

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COST OF QUALITY


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COST OF QUALITY

Cost of quality is defined as the cost associated with the

non-achievement of product/service quality

Thus defined by the requirements established by the

organization and its contracts with customer and society.


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COST OF QUALITY

It is the cost of poor products/services

Difference between actual cost of making and selling

products/services and cost of no failure.

Means to gauge the RETURN OF QUALITY in an

organization and how this return impacts the bottom line.

COST OF QUALITY forms an integral part of an

effective TQM Model.


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ELEMENTS OF QUALITY COST

There are four categories:

Cost of prevention

Cost of appraisal

Cost of internal failure

Cost of external failure.


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COST OF PREVENTION

The cost of any action taken to investigate, prevent orreduce the risk of non-conformity or defect.

Preventing a quality problem from arising.

Prevention costs relate to efforts to prevent failures.

Example : Planning, Preparation, Training,

Preventive Maintenance and Evaluation.


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COST OF PREVENTION

Cost of quality planning

Cost of documentation

Process control cost

Cost of training

Cost preventing the recurring defects

Cost of investigation, analysis and correction of causes ofdefects by quality control and engineering department

Cost of quality awareness program


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COST OF APPRAISAL

The costs of evaluating the achievement of qualityrequirements including the cost of verification andcontrol performed at any stage of the quality loop

Example :

Production Trial, Test , Execution and

Examination to asses whether specified quality is

being maintained.


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COST OF APPRAISAL

Cost of receiving test and inspection.

Cost of laboratory acceptance testing.

Cost if installation testing.

Cost of installation and commissioning.

Cost of maintenance and calibration of testing and inspecting equipments.

Cost of test equipment depreciation.

Cost of analysis of reporting of test and inspection results.

Cost of line quality engineering.

Cost of vendor rejects.


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COST OF INTERNAL FAILURES

Internal failures costs arise due to internal failures.

These are the costs arising within organization due

to non-conformity or defects at any style of the

quality loop.

These costs are linked to correcting mistakes beforedelivery of the product.


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Cost of internal failures

Cost associated with scraps and rejects.

Cost of repair and rework.

Cost of design changes.

Cost of trouble-shooting or defect failure analysis.

Cost of re-inspection & retesting.

Cost of sales discounts for inferior products.

Cost of downgrading.

Cost of downtime.


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COST OF EXTERNAL FAILURES

These are the costs arising after delivery to the

customer due to non-conformities or defects.

These costs are associated with the adjustment of

malfunctioning after delivery of the product.


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COST OF EXTERNAL FAILURES

Cost of processing complaints from the customers.

Cost of commissioning failures.

Cost of servicing or replacing the defective item.

Cost of guarantee & warranty claims.

Cost of lost goodwill of customers.

Cost of product reliability compensation (voluntary/legal).

Cost of loss of sales.

Cost of concessions offered to customers (due to substandard productsbeing accepted by customers).


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The last two of the Pandavas

COST OF CONFORMANCE ( COC ) Both Preventive and Appraisal Costs are known as the

Costs of Conformance.

The cost of doing things right the first time.

COST OF NON-CONFORMANCE ( CONC )

Both Internal and External Failure Costs are known asthe Costs of Non-Conformance.

The cost incurred as a result of things not being doneright the first time.


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IDENTIFICATION OF CONFORMANCE COST

ITEMS

Step 1 : Develop and Prepare Cost of Conformance

(COC ) Checklist :

PreventionPlanning and Writing of

Procedures and Instructions

Vendor Assurance

Process Capability Studies

Quality TrainingQuality Improvement Programs

Collection, Analysis &

Reporting of Quality Data

AppraisalIn-coming Inspection

In-process Inspection

Final Testing and Inspection

Production Trial

Materials consumed during

Inspection and Testing

Field Performance Testing


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Step 2 : Evaluate The Identified Cost of

Conformance ( COC ) Items.


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IDENTIFYING NON-CONFORMANCE COST (

CONC ) ITEM

Step 1 : Develop and Prepare Cost of Non-Conformance (CONC ) Checklists

Internal Failure

1. Rework

2. Scrap3. Obsolescence

4. Downtime

5. Sub-contractor faults

6. Replacement

7. Defect / Failure Analysis

8. Re-inspection and Re-testing

9. Downgrading

10. Accidents

11. Improper Invoicing

External Failure

1. Complaints

2. Warranty Claim3. Bad Debts

4. Returned Products

5. Concessions

6. Loss of Sale

7. Product Liability

8. Extended Warranty

9. Product Recall

10. Overdue Accounts Receivable


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Step 2 : Evaluate The Identified Cost of Non-

Conformance ( CONC ) Items.


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QUANTIFICATION OF COST OF QUALITY

( COQ )

Step 1 : Source of COC and CONC Data

Production Records

QC Records

Operation Records Accounting Records

Step 2 : Develop and Formulate Accounting

Basis.

Step 3 : Execute Costing of COQ Items


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Whole Account And Unit Pricing

Whole Account This method requires gathering existing financial data

from company accounts. If accounts are set up to capture costs, such as training and

rework, information from the accounts can be used to measure COQ.

Unit Pricing

This method is effective when a defect or problem isrecurring. To use defect pricing,

simply multiply the cost of one defective unit by numberof defective units.


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BENEFITS

Acts as method for assessing the overall effectiveness ofthe quality programmes

Act as a method for determining problem areas andaction priorities

Provides a platform for measurement of return oninvestment

Converts the various performance indicators used in thecompany into a single unit-currency

Act as a common method for quantifying qualitative

improvements

DOCUMENTATION TRAINING COMMUNICATION


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DOCUMENTATION, TRAINING, COMMUNICATION

AND

IMPLEMENTATION

It is necessary to document the required changes of

quality activities in a recognized Quality Assurance

Model or ISO 9000 Quality System or an In-house

TQM Manual with a view to train and communicatewith all relevant personnel in implementing the

changes effectively


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PERFORMANCE INDICATIONS AND

MEASUREMENT

Step 1 : Outline the business processes and identify

appropriate Performance Indicators

Step 2 : Establish and Define the proposedPerformance Indicators


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Performance Indicators

General Indicators Productivity Labour Productivity Capital Productivity Space Productivity

ISO 9000 related indicators No. of Complaints per Month Internal Rejection Rate External Rejection Rate Production Yield Cost of Quality

ISO 14000 related indicators Waste Reduction / Minimization Increase Level of Recycling Improve Energy Efficiency

Reduce Environmental Impact


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AUDIT AND REVIEW

Conduct quality audit and management review

regularly in order to assess the effectiveness of

the quantity system.

Initiate appropriate corrective and preventiveaction as and when necessary.


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A PRACTICAL APPROACH

Phase 01: Project Initiation and Preparation

Phase 02: Assessment of Current Business Performance

Phase 03: Project Organization and Assignments

Phase 04: Identification of Major Cost of Conformance

(COC) and Cost of Non-Conformance (CONC) Items.

Phase 05: Identification and Provision of AdditionalTraining Needs.


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Phase 06: Collect, Compile and Process Cost of Quality Data

Phase 07: Analyze Cost of Quality To Identify Opportunitiesfor Improvements.

Phase 08: Organize and Implement Quality Improvement andCost Reduction Programmes.

Phase 09: Establish Continuous Improvement of The Cost ofQuality Performance.

Phase 10: Conduct Quality Audits regularly and InitiateDocument Changes In Response To Improvements made InVarious Processes.


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CONCLUSION

The goal of using COQ is to increase prevention

activities in order to eliminate internal and external

failures and to reduce appraisal activities.

Reduction of COQ must be part of a sustained

quality improvement process in an organization

headed by top management through a TQMProgram.


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THANK YOU

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