Cost Management in an Automated Business Environment (ABC, and TQM) Chapter 6.
TQM And Cost Issues
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Transcript of TQM And Cost Issues
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TQM And Cost Issues
A Practical Approach
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Performance Measures
Managing an organisation without
performance measures is like captain of a
ship navigating without instrumentation.The ship most likely end up in circles , as
would an organisation. Measures play a
vital part in the success or failure of an
organisation.
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Objectives
Performance Measures are used to
achieve one or more of the following
objectives : Establish baseline measures and reveal
trends
Determine which process need to be
improved
Indicate process gains or losses.
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Compare goals with actual performance
Provide information for individual and team
evaluations Provide information to make informed
decision.
Determine the overall performance of theorganisation.
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There are five basic techniques for
Performance Measures . These are
Time series graph Control charts
Capability index
Taguchis loss function Cost of poor quality
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Quality Costs
The value of quality must be based on its
ability to contribute to profits. The goal of
most organisations is to make money.Hence income and expense are of
important consideration.
The efficiency of a business is measured
in terms of money , in most of the cases.
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The cost of poor quality can add to the
other costs used in decision making.,such
as maintenance,production,design,ionspection,sales,and other activities.
It can be measured ,budgeted,and
analysed to help attaining the objectives of
better quality and customer satisfaction atlesser cost.
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Quality costs cross department lines by involving
all activities of the organisation marketing,
purchasing, design, manufacturing, and service,
to name a few.
Quality costs are those costs associated with the
non achievement of product or service quality as
defined by the requirements established by the
organisation and its contracts with customers
and society.
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Management Techniques
Quality costs are used by management in
its pursuit of quality improvement
,customer satisfaction, market share, and
profit enhancement. This the basic data for
TQM.
When quality costs are too high , it is sign
of management ineffectiveness, which caneffect companys competitive position.
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A quality cost programme quantifies themagnitude of the quality problem in thelanguage that management understands
i.e Money. Quality costs identify opportunities for
quality improvement and establish funding
priorities by Pareto Analysis. Find vital fewfrom trivial many.
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There are four primary quality cost
categories :
Prevention Appraisal
Internal failure
External failure
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Preventive cost Category
The prevention costs of poor quality havebeen defined to include cost of all activitiesspecifically designed for this purpose.
Marketing/Customer/User. Costs areincurred in the accumulation andcontinued evaluation of customer and user
quality needs and perceptions affectinguswer satisfaction with organisationsproduct or service.
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Product/Service/Design development.
Costs are incurred to translate customer
need into reliable quality standards.
Purchasing : Costs are incurred to assure
cdonformance to requirements of supplier
parts ,materials,or processes and to
minimise supplier non conformanceon thequality of delivered products or services.
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Operations: Costs are incurred in assuring
the capability and readiness of operations
to meet quality standards .
Quality Administration : Costs are incurred
to assure appropriate administrative
services.
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Purchasing appraisal cost: These costs
can generally be considered as the costs
incurred for the inspection and /or test
purchased supplies or service to
determine acceptability for use .
Operations appraisal cost : These costs
can generally be considered as costsincurred for inspections,audit,etc.
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External appraisal cost: Suppose there is
a need for a field trial for a customer which
costs money will fall in this category.
Review of test or inspection data : Costs
are incurred for regular reviewing before
shipment etc.
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Internal failure cost Category
Whenever quality appraisals are performed
there is chance that failure may occur to meet
requirements . e.g. Whenever a lot of over sized
metal parts are rejected the possibility forrework must be evaluated first.
Then the cost of rework vs. cost of scrapping
may be evaluated for a decision.
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Product or service design failure costs
( internal ) : These are basically design
inadequacies. Design corrective actioncosts money .
Purchasing failure costs : costs are
incurred due to purchased items rejects.
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External Failure cost category
This category includes all costs incurred
due to actual or suspected nonconforming
product or service after delivery to the
customer.
Complaint investigation of customer :
Costs due to investigating,
resolving,issues with the customers.
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