Iowa State Universityof Science and Technology

Agriculture and Biosystems Engineering

Agriculture and Industrial Technology7/15/05

Calculating and Reporting Benefits of QMSCalculating and Reporting Benefits of QMS

ObjectivesObjectives

Identify potential benchmark measures of cost/benefit of quality management system adoption by agriculture.

Set scope of the projectSelect summarizing fiscal indicator of

costs and benefits measures

Dual Roles for ISO 9000/9004Dual Roles for ISO 9000/9004

QMS 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 ApproachAllocation of Costs: Process Approach

Early methods of tracking quality costs was too limited “focus on cost of non-conformance i.e. external and internal failure costs”. (Juran)

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” (Schottmiller)

Process Approach: Added BenefitsProcess 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 (Schottmiller)

Process CostingProcess Costing

Allows the tracking and reduction of costs normally associated with efficiency in addition to effectiveness (quality)” (Schottmiller)

Process simplification in addition to reduction of errors become objectives (Schottmiller)

Relate the economics of quality to the amount of activity performed (ISO/TR 10014: Economics of

Quality)

Process Costs i.e. Costs of Inefficient Processes ExamplesProcess Costs i.e. Costs of Inefficient Processes Examples

Variation of product characteristics from optimum

Unplanned downtime and/or loss of processing/storage capacity

Inventory shrinkage Variation of process characteristics from ‘best

practices’ (cycle times from to start to finish of activities)

Other non-value added activities NOTE: Improvement is also an objective

Don’t Ignore Quality FailuresDon’t Ignore Quality Failures

(Juran)

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 ExamplesInternal Failure Costs Examples

Labor and material overhead spent on defective product – spoilage, defectives, scrap etc.

Correcting defectives in physical or service products i.e. reworking product

Sorting bad/good product Reinspection, retest of product Changing processes to correct deficiencies

(CAR’s) Downgrading product

(Juran)

External Failure Cost ExamplesExternal Failure Cost Examples

Costs involved in replacing/making repair for warranty product

Investigation and adjustment costs to justified complaints of quality defective product

Returned material Concession costs due to substandard product

accepted by customer Correcting errors on external supporting

processes Revenue losses in support operations

(Gyrna)

Allocation of CostsAllocation 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 BenefitsDeriving Benefits

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

QMS– Pre and post measures of implementation

However, improvements should be done as identified– Using quality tools such as flowcharting, value add

analysis, cycle time reduction, process simplification, root cause investigation, etc.

Quality Improvement ExamplesQuality Improvement ExamplesJOB SET UP Binder P rogram Tooling Missing Tooling

P ro gram Adjustments

Fixtur ing P art Setup Gagin g1st Piece Run/ Quality Check

Binder Adjustments

Tooling

Operator

Operator / S uperv isor

Operator / Supervisor/

T ooling

S chedular / S uperv isor

Purchasing

Engineer ing

Certified 1st Piece Checker

Check tool cartG et bi nder for

next jobPut tool in chain& get

fixture, jaws, etc.

Tool in chain?

(machine data)

Mi ssi ng fixture, etc?

Look for m issi ng fi xture, ja ws, etc.

Fi nd missing part(s)?

Setup part in machine

Get gaging for part from tooling

Gagi ng available

?

Look for gaging

F ind missing

gage(s)?

Run f irst pie ce on m achine

F irst piece check

Tool on cart?

Y

N

Load pro gramCheck for program

on m achine

Pro gram avai lable

?

Y

N

Get program f rom ha rdrive

Fi nd program ? Rewrite prog ram

Tool layout for next jobs

O perator does tool layout

Setup tools for next j ob (based on tool

layout)

N

Y

Look for tool in othe r m achines

Expedite mi ssing tool, fi xture, or gage

Wait?

Y

N

OK to use?

Y

NY

N Y

N

N

Y

N Y

Put tools on cart

Tool available i n cri b?

Y

Y

Physically check tool chain

N Tool in chain? (visual)

Y

N Tool in crib?

N

Y

Find tool?

Subst - i tute tool?

N

Y

N

Vi sual inspecti on of tool

Adjust p rogram to m atch new tool; fill program change

sheet & hi story form

N

Y

Machine uploads to ol data from program

Change sheets collected (Jay/Dave);

program retreived f rom f loor

Hardrive updated f rom

f loor prog.

Put binder at s lot by Engr. of fice

Update binder from histo r sheet ; f ile

binder

Flow charting w/ value, non-value add analysis– Green – customer value added activity– Yellow – ‘necessary evil’– Red – non customer value added

Cycle Time ReductionCycle Time Reduction

Stop watch time study common

Also work sampling Better way to get

data w/o estimating?

Department:____________________ Part Name:________________________ Date of Timestudy:_______________________Supervisor:_____________________ Part #:____________________________ Measurer:______________________________Operator:_______________________Operation:_________________________ Operator Tools:_________________________

Step Element Description 1 2 3 4 5 6 7 8 9 10 TOTAL # Avg S/E Mins

Normal Minutes:

Foreign Elements: Performance Rating Data 10% PF&D:

A EP VP Poor Fair Avg Gd VG Exc Sup Standard Minutes:

SKILL: -20 -15 -10 -5 0 5 10 15 20 Hrs/Piece:

B EFFORT: -20 -15 -10 -5 0 5 10 15 20Pcs./hour:

C Operator Average at Time of Study:Machine Cycle:

D Comments:

Value Add AnalysisValue Add Analysis

Definitions– Value added activity:

• only if the customer recognizes its value, • it’s done right the first time, • It changes the product toward something the customer

expects– ‘Necessary Evil’ (operational value added activity):

• not customer value added but required through law, regulation, or contract

• required to support value added activities• technological barrier exists from eliminating activity

– Non value added activity:• not valued by customer,• doesn’t change product towards customer value• not required by law, contract

Pareto Analysis (80/20 rule)Pareto Analysis (80/20 rule)

403 329 168 162 121 120 72 55 39 38 26 23 23 26

25 20 10 10 8 7 4 3 2 2 2 1 1 2

25 46 56 66 74 81 86 89 92 94 96 97 98 100

0

500

1000

1500

0

20

40

60

80

100

Defect

CountPercentCum %

Per

cen

t

Cou

nt

Baseline Data9/2/03-9/9/03

Root Cause AnalysisRoot Cause Analysis

Why-because diagram: ask ‘why’ at least 5 times to reach root cause

Don't know what is in tool chain

Tooling not returned to crib after job

No tooling inventory updates

Load procedure not consistant

No spare toolingNo trigger to

replenish toolingFixture loading

problemNot paying attention

No tooling available Tool wearTooling breaks,

machine crashesOperator error Going too fast

Takes time to change inserts

Take up to tool room to measure

Running tool past tool life

Fixture quality; design

(binder descp.)

Lost time to tooling @ workcenter

No standardized tooling Not enough tools

Most correct measurements

Want to hit higher efficiency

Programs changeEngr. not aware of

std. tools $$$Can't measure all char. @ mach. 1 pre-setter

(program descp.)

Anyone can change programs

Same tool but diff. descriptions

Tools disappearing from chain

Tools used on other jobs

Try to change program to match

printSame tool but diff.

lengthsToo much

specialized tooling

No compatible tool lists btwn. Prod.

And Engr.

Lengths changedLack of control over tools descriptions

WPC's changedTool setup diff. from

tool room

Manufacturer specs. vary

Out of tolerance

Easy fix

Why-Because Chart - 9/25/03KRPM Tooling-Red Team

Effect Cause

Improvements SummaryImprovements Summary

Point is to have active system of improvement per ISO guidelines and would bring more value to project and study as a whole

Question is: will it confound the measuring of the ISO impact study?

Potential Benchmark MeasuresPotential Benchmark Measures

“The organization can use a variety of financial decision methods (e.g. net present value, payback time, internal rate of return) to decide whether to proceed or not with a cost benefit analysis”

(ISO/TR 10014:1998(E): Guidelines for Managing the Economics of Quality)

Overall Fiscal ImpactOverall Fiscal Impact

Roll up measures into a financial indicator such as:– Benefits/cost ratio:

present worth of total benefits

present worth of total costs

If ratio is greater than 1, project deemed worthwhile and vise versa

B/C=

OR:– Net present worth:

NPW=present worth of total benefits – total worth of total costs

– Simple number; positive worth indicates program is viable

– Both ignore time value of money; relative to project not company as a whole

Overall Fiscal Impact con’t.Overall Fiscal Impact con’t.

Data Collection and AnalysisData Collection and Analysis

Statistical analysis of QMS impact, design study based on answering some questions:

1. Important to answer implementing QMS vs. not implementing?

Larger scope, need control group, different indicators

2. Does QMS implementation pay for itself? **

3. How do AIB vs. ISO systems compare?

4. What is QMS impact over time? Repeated measures

Regardless of above,

1. How to control location variation i.e. how were present locations picked for QMS implementation?

TimelineTimeline

Timeline QuestionsTimeline Questions

What is finish date?How long does data collection last?What are the resources at hand?

ConclusionConclusion

Answer questions of scope, design, particular measures, summarizing fiscal indicator(s), timeline

Review relevant FC documents as necessary