COST OF QUALITY

A tree that reaches past your embrace

grows from one small seed.

A structure over nine stories high begins with a

handful of earth.

A journey of a thousand miles starts with a

single step.

There are no shortcuts to any

place worth going.

Outline to be delivered

Basic overview of quality and its importance in todays competitive business

Quality cost concepts

Quality cost system definitions

Quality cost measurement

Quality cost program implementation

Use of quality costs

Quality improvement and quality cost reduction

Not just doing it well but

learning to do it better

Exceeding customer

expectations

Employee Empowerment

Creating Customer

Value

What is Cost of Quality??????

Quality is measured by the cost of

quality which is the expense of of non

conformance the cost of

doing things wrong.

Vs

Evolution Of H. J. Harrington's Poor-

Quality Cost Model In 1950s, Feigenbaum, VP (GE), developed &

implemented "Cost of Quality" concept throughout GE.

divided Cost Of Quality into following 2 categories & 4 sub categories:

o Costs of Control

o Prevention costs

o Appraisal costs

o Costs of failure of control

o Internal defect costs

o External defect costs

Poor Quality Cost

1964, IBM published its first report - included poor-quality cost for internal component mfg, subassembly, final assembly, final machine test, system test, & first 12 months at customer location for 1620 system. called

Q-100 Report

During following months, report- expanded to cover many other IBM systems.

COST OF QUALITY DEFINED

Quality costs -costs incurred because poor quality MAY or DOES NOT exist.

cost of not meeting customers requirements- cost of doing

things wrong

All activities carried out that are not needed directly to

support departmental (quality) objectives - cost of quality.

At 3M quality cost equals cost minus no failure cost.

That is, cost of quality is difference b/w actual cost of

making & selling products & services & cost if there were

no failures during manufacture or use no possibility of

failure.

COST OF QUALITY

Control Costs prevention

appraisal

Failure Costs internal

external

COQ includes those costs associated with

definition, creation, & control of quality as

well as evaluation & feedback of conformance

with quality, reliability & safety requirements,

& those costs associated with consequences of

failure to meet requirements both within

factory & in hands of customer.

Quality is Free

For average company, the cost of quality is about 25% of total sales

cost of prevention is a fraction of cost of fixing mistakes after they made

Investments in prevention can drastically reduce total cost of quality

These Two Main Areas Can Be Split Further As Shown Below:

Types of Quality Costs

Cost of Compliance Preventive costs - prevent product defects

Appraisal costs - monitor & compensate when prevention fails

Cost of Non-compliance Failure costs

Internal losses - scrap, rework

External losses - warranty work, customer complaint departments, litigation, product recalls

four segments of quality costs:

A. PREVENTION. covers avoiding defects (poka yoke), planning, preparation, training, preventative maintenance & evaluation.

B. APPRAISAL. area covers finding defects by inspection (poka yoke), audit, calibration, test & measurement.

C. INTERNAL FAILURE. covers costs borne by organization itself such as scrap, rework, redesign, modifications, corrective action, down time, concessions & overtime.

D. EXTERNAL FAILURE. covers costs borne by customer such as equipment failure, down time, warranty, administrative cost in dealing with failure & loss of goodwill.

Cost of Quality

Prevention costs

build it right the first time

Appraisal costs

inspection and testing

Internal failure costs

scrap and rework

External failure costs

warranty claims, recalls, lost business

Total Quality cost, is a combination of

prevention, appraisal & failure. Reducing

any of these reduces total. key to minimum

cost, is striking correct balance b/w three.

Clearly prevention reduces both appraisal

and failure costs, -eventually cost of

prevention itself starts to increase total cost

& so must be controlled & set at an

effective level.

Cost of Quality

Prevention quality planning

process control

data acquisition and analysis

training and personnel development

design verification

quality system development and management

quality reporting

improvement projects

Appraisal test and inspection of

incoming material

lab-based acceptance sampling

in-line inspection and testing

setup for test and inspection

test/inspection equipment and supplies

quality audits

quality endorsements (ISO, MBNQA)

field testing

test/inspection equipment maintenance

Cost of Quality

Internal scrap

rework

retest

downtown

yield losses

disposition

engineering analysis

tracking and reporting

expediting

External customer complaints

warranty costs

service and repair expense

product liability

recall expense and management

returned material processing

credit allowance

loss of goodwill

$ Most costly The customer

finds defects

in delivered

parts/ services

$ Less costly

The manufacturer

Or service org.

Finds & corrects

defects internally

$ Least costly

The companys quality

mgmt system is

designated, planned,

& organized for

defect prevention &

continuous quality

improvement.

COMPARATIVE COST OF QUALITY

QUALITY COST CONCEPTS

represent difference b/w actual cost of product/ service & what reduced cost would be if there

were no possibility of substandard service, failure

of products, or defects in their manufacture.

interrelationship of quality, schedule & cost w/o

attention to contrary is likely to be unbalanced in

favor of schedule & cost- & often unwittingly at

expense of quality.

imbalance continue to exist as long as real cost of

quality remains hidden among total costs.

MEASURING THE COST

OF QUALITY

Measuring cost of quality

Like all things there is a price to pay for quality. total cost can be split into two fundamental areas:

a. Non Conformance. area covers price paid by not having quality systems or a quality product. Examples

(1) Rework. Doing job over again because it wasn't right first time.

(2) Scrap. Throwing away results of your work because it is not up to required standard.

(3) Waiting. Time wasted whilst waiting for other people.

(4) Down Time. Not being able to do your job because a machine is broken.

Measuring cost of quality

b. Conformance. Conformance is an aim of quality

assurance. achieved at a price. Examples :

(1) Documentation. Writing work instructions,

technical instructions and producing paperwork.

(2) Training. On the job training, quality training, etc.

(3) Auditing. Internal, external .

(4) Planning. Prevention, do right thing first time

(5) Inspection. Vehicles, equipment, buildings &

people.