Chapter 13Quality Management and

Measurement

ACG 2071

Fall 2007

Use only with permission of Susan Crosson

Learning Objectives:

The Evolving Concept of Quality

Financial Costs of Quality

Nonfinancial Costs of Quality

Awards and Organizations that recognize Quality

Use only with permission of Susan Crosson

The Evolving Concept of Quality Planned Obsolescence

Return on Quality

Quality Product Reliability: Six Sigma, ISO 9000, ISO 14000 Best in Class: Deming and Baldrige Awards

Quality Processes Customer Service Benchmarking against Best in Class Process Mapping to engrain Best Practices and improve efficiencies

Quality Lifestyle Zero defections of customers

Use only with permission of Susan Crosson

Financial Costs of QualityConformance CostsPrevention CostsAppraisal CostsLead Indicators

Nonconformance CostsInternal Failure CostsExternal Failure CostsLag Indicators

Table 1

Financial Costs of QualityLook and listen SE 3:Identify the financial cost of quality type?

Policy processing improvements CC-PCustomer complaints response NC-E

Policy writer training CC-PPolicy error losses NC-E or I

….depends on who discovered the error

Policy proofing CC-A

CC=Conformance cost either Prevention or AppraisalNC=Nonconformance either Internal or External Failure

SE 3 Example continued:Compute CC/TCQ and NC/TCQ?

$ 76,400 Policy processing improvements $ 12,300 Policy writer training $ 39,500 Policy proofing$128,200 Total Conformance Costs (CC)

CC/TCQ = $128,200/$245,000 = 52%$ 34,100 Customer complaints response $ 82,700 Policy error losses $116,800 Total Nonconformance Costs (NC)

NC/TCQ = $116,800/$245,000 = 48%Total Cost of Quality (TCQ):

$128,200 + $116,800 = $245,000

SE 3 Example continued—assume Net Sales $10,000,000:

Compute CC/Net Sales and NC/Net Sales?$ 76,400 Policy processing improvements $ 12,300 Policy writer training $ 39,500 Policy proofing$128,200 Total Conformance Costs (CC)

CC/Net Sales = $128,200/$10,000,000 = 1.28%$ 34,100 Customer complaints response $ 82,700 Policy error losses $116,800 Total Nonconformance Costs (NC)

NC/Net Sales = $116,800/$10,000,000 = 1.17%What do these ratios indicate?

Nonfinancial Costs of Quality

•Lead Indicators….•Product Design-CAD

•Vendor Performance-SCM

•Production Performance-CIM

•Delivery Cycle Time-ERM & SCM

•Customer Satisfaction-CRM

•Table 2

Use only with permission of Susan Crosson

Delivery Cycle

Delivery Purchase Production DeliveryCycle = Order + Cycle + TimeTime Lead time Time

Look and listen SE 7:Week 1: 9.9 days = 2.4 + 3.5 + 4.0Week 4: 9.0 days + 2.5 + 3.2 + 3.3

Use only with permission of Susan Crosson

Homework

P 1