UNIT 3: QUALITY COST
COST OF QUALITY
The "cost of quality" is not the penalty of creating a quality product or service. It is the cost of NOT generating a quality product or service.
Redoing any work amplifies the cost of quality. Obvious examples include:
1.
2.
3.
4.
5.
The reworking of a manufactured item
The retesting of an assembly
The rebuilding of a tool
The correction of a bank statement.
The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant.
1. Prevention costs - are those costs incurred in trying to prevent problems, failures and errors in design, development, purchase, labor and other aspects of
creation of the products and services from occurring in the first place. Prevention is achieved through examining previous failure data and developing action
plans for incorporating into the basic system so that the similar failures do not happen again. They include such things as:
a) identifying potential problems and putting the process right before quality occurs;
b) designing and improving the design of products and services and to reduce quality problems; poor processes
c) training and development of personnel in the best way to perform their jobs;
d) process control through Statistical Process Control (SPC).
2. Appraisal costs - are those costs associated with controlling quality to check to see if problems or errors have occurred during and after the creation of the
product or service. They might include such things as:
a.
b.
c.
d.
the setting up of statistical acceptance sampling plans;
the time and effort required to inspect inputs, processes and outputs;
obtaining processing inspection and test data;
investigating quality problems and providing quality reports; e. conducting customer surveys and quality audits.
3. Internal failure costs - are failure costs associated with errors which are dealt with inside the operation. These costs might include such things as:
a)
b)
c)
d)
the cost of scrapped parts and material;
reworked parts and materials;
the lost production time as a result of coping with errors;
lack of concentration due to time spent troubleshooting rather than improvement.
4. External failure costs - are those which are associated with an error going out of the operation to a customer. These costs include such things as:
a)
b)
c)
d)
e)
loss of customer goodwill affecting future business;
aggrieved customers who may take up time;
litigation (or payments to avoid litigation);
guarantee and warranty costs;
the cost to the company of providing excessive capability (too much coffee in the pack or too much information to a client).
POTENTIAL CAUSES OF FAILURES
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2.
3.
4.
5.
6.
7.
Human failure
Supply failure
Organizational failure
Technology and facilities failures
Product / service design failures
Customer failures
Environmental disruption
Supply Failure
Means any failure in the timing or quality of goods and services delivered into an operation. It can be a vital source of failure due to increasing dependence on
outsourced activities in most industries. Also, global sourcing usually means that parts are shipped around the world on their journey through the supply chain.
Human Failure
There are two broad types of human failures. The first is where important personnel leave, become ill, die, or in some way no longer can perform their role. The
second is where people are doing their job but are committing mistakes. Human failure through mistakes also comes in two types: errors and violations. Errors
are mistakes in judgment, where a person should have done different. Violations are acts clearly contrary to defined operating procedure. Catastrophic failures
are often caused by a combination of errors and violations.
Organizational Failure
Usually taken to mean failures of procedures and processes and failures that obtain from a business's organizational structure and culture. This is an enormous
possible source of failure and includes almost all operations and process management. In particular, failure in the design of processes and failures in the
resourcing of processes call for an investigation. However, there are also many other procedures and processes in an organization that can formulate failure
more likely. A case of this can range from sales people given lots of incentives that they create promises to customers that cannot be fulfilled. This type of risk
can be obtained from an organizational culture that lessens consideration of risk, or it may come from a lack of clearness in reporting relationships.
Technology and Facilities Failure
Technology and facilities mean all the computer systems, machines; equipment and buildings of an operation are prone to failure, or breakdown. The failure may
be only partial, like a machine that has an intermittent fault. On the other hand, it can be what is normally regarded as a breakdown which is a complete and
abrupt stoppage of operation. Either way, its effects could bring a big part of the operation to a stop.
Product/Service Design Failure
In its design stage, a product or service might seem all right on paper; only when it has to deal with real circumstances may inadequacies become obvious. Of
course, during the design process, probable risk of failure should have been recognized and the design is altered. However, one only has to look at the number
of product recalls or service failures to realize that design failures are usual. On occasion, this is the consequence of a trade-off between fast time-to-market
performance and the risk of the product or service failing in operation. While no highly regarded business would intentionally market defective products or
services, similarly most businesses cannot setback a product or service launch for an indefinite period to remove all single tiny risk of failure.
Customer Failures
Customers may be unsuccessful in that they mishandle products and services. Customers are not always right because they at times fail to be attentive and
competent. Yet, simply complaining about customers is not likely to diminish the chances of this type of failure taking place. Most organizations will admit that
they have a responsibility to inform and instruct customers. At the same time organization need to design their products and services so as to reduce the
chances of failure.
Environmental Disruption
Environmental disruption consists of the entire causes of failure that are positioned external to an operation's direct control. This source of potential failure has
climbed to near the top of many firms' agenda. As operations become more and more integrated increasingly dependent on integrated technologies such as
information technologies, businesses are more conscious of the grave events and malfunctions that have the budding to break off normal business activity and
even discontinue the whole company.
REDUCING COST OF QUALITY
Cost of quality is a measurement used for reviewing the waste or loss from a defined process. These costs are important and can be considerably lessen or
avoided. Cost of quality measurement can trail changes over time for a specific process, or be used as a standard for comparison of two or more dissimilar
processes. Cost of quality is typically calculated in monetary terms, entailing all losses and waste to be converted to their liquidated cost equivalent. Cost of
quality measurements can be utilized to spot the optimum for a process, that is, the best possible result from all operating modes, combinations and
permutations of the existing process.
Generally, quality costs amplify as the detection point moves further up the production and distribution chain. The lowest cost is commonly gained when nonconformances are prevented in the first time.
If non-conformances happen, it is normally least pricey to notice them as soon as possible following their happening. Afar from this point there is failure acquired
from added work that may be lost. The most costly quality costs come from non-conformances discovered by customers On top of the replacement or repair loss,
a company losses customer support and company image in severe cases, lawsuit may be a consequence, adding extra cost and loss of goodwill.
Another benefit of early detection is that it offers more significant feedback to tractate identification of root causes. The time delay between production and field
failure makes it incredibly hard to draw the occurrence back to the process situation that created it. Whereas field failure tracking is practical in prospectively
assessing a repair, it is typically of modest worth in looking back evaluating a trouble.
The accounting department is principally answerable for accounting matters, consisting of cost of quality systems. The quality department's function in
development and maintenance of the cost of quality system is to offer guidance and support to the accounting department.
Quality cost measurement must not be precise to the centavo to be successful. The reason of measuring such costs is to afford extensive guidelines for
management decision-making and action. The exceptionally nature of cost of quality creates such precision unfeasible. In a number of occasions, it will only be
promising to get periodic rough approximations of such costs as lost customer goodwill, cost of damage to the company's reputation, and other related estimates.
While these costs are regularly enormous, these estimates must be taken. Though, they necessitate not be acquired each month. Yearly studies are regularly
adequate to show trends in these measures.
MODEL OF OPTIMUM QUALITY COST
The objective of every quality cost system is to trim down quality costs to the lowest realistic point. In 1998 Juran and Gryna presented these costs graphically
(See Figure 1). In the figure it can be seen that the cost of failure decreases as conformance quality levels get better in the direction of perfection, as the cost of
appraisal plus prevention increases.
There is some optimum target quality level where the sum of prevention, appraisal, and failure costs is at a lowest amount. Efforts to advance quality to improve
greater than the optimum level shall have as a consequence an increasing total quality cost.
Zero defects’ advocates support continuous improvement. This is the never-ending effort to absolutely eradicate all forms of waste including reworks, yield
losses, unproductive time, over design, inventory, idle facilities, safety accidents, and the less tangible factors of unrealized individual and societal potential.
Through identifying the root causes of quality problems and taking action to eliminate these causes, quality costs can be lowered. KAIZEN, reengineering, and
other continuous improvement approaches are commonly used.
UNIT 4: TQM IMPLEMENTATION
NATURE OF TQM
TOTAL QUALITY MANAGEMENT
Defined as a continuous effort by the management as well as employees of a particular organization to ensure long term customer loyalty and customer
satisfaction.
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QUALITY DEVELOPMENT
QUALITY MAINTENANCE
QUALITY IMPROVEMENT
THIS TOTALITY CAN BE SUMMARIZED BY THE WAY TQM LAYS PARTICULAR STRESS ON THE FOLLOWING:
1.
2.
3.
4.
5.
Meeting the needs and expectations of customers
Covering all parts of the organization including every person in the organization
Examining all costs which are related to quality, especially failure costs and getting things right first time.
Developing the systems and procedures which support quality and improvement
Developing a continuous process of improvement
IMPORTANT CONCERNS IN TQM
1.
2.
3.
4.
Continual Improvement
This is the quest for quality and good service to the customer must be never ending.
Competitive benchmarking
This refers to naming companies or other organization that are excellent at doing something and then model own company after them. The company
may not be of the same industry.
Employee empowerment
Employees will be strongly motivated if given responsibility for improvements and authority to make changes.
Team Approach
5.
The use of teams for problem-solving and to attain compromise takes advantage of group thinking, gets people involved, and promotes a spirit of
cooperation and shared value among employees.
Knowledge of Tools
Everyone in the organization is trained in the use of quality control and improvement tools.
TOOLS AND TECHNIQUES IN TQM
A.
Flow charts - A flow chart is a pictorial representation showing all the steps and processes involve in the operation. The diagram makes it easy to
visualize the entire system, identify potential trouble spots, and locate control activities.
Following items can be analyzed to improve system in the organization:

Time-per-event (reducing cycle time)
What are the benefits of using Flow Chart in improving quality?
 Process repeats (preventing rework)
 Duplication of effort (identifying and eliminating duplicated tasks)
 Unnecessary tasks (eliminating tasks that are in the process for no apparent reason)
Value-added versus non-value-added tasks
B.
Fishbone/Ishikawa Diagrams - This is a fishbone-structured diagram for identifying cause/effect patterns, in which primary categories are
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generally pre- determined according to context. A cause-and-effect (C&E) diagram is basically a brainstorming tool. It is designed to
represent a meaningful relationship between effect and its causes.
Dr. Kaoru Ishikawa created the diagram and is sometimes refer to as an Ishikawa diagram or a fishbone diagram because of its shape.
Causes in a typical diagram are normally arranged into categories, the main ones of which are
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The 6 Ms (Recommended for manufacturing industry)- Machine, Method, Materials, Measurement, Man and Mother Nature (Environment)
The 8 Ps (Recommended for administration and service industry)- Price, Promotion, People, Processes, Place / Plant, Policies, Procedures & Product
(or Service)
The 4 Ss (Recommended for service industry)- Surroundings, Suppliers, Systems, Skills
C. Run Charts - are graphs of data over time and are one of the most important tools for assessing the effectiveness of change.
Run charts have a variety of benefits:
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They help improvement teams formulate aims by depicting how well or poorly) a process is performing.
They help in determining when changes are truly improvements by displaying a pattern of data that you can observe as you make changes.
They give direction as you work on improvement and information about the value of particular changes
D. Pareto Chart - It is a line and bar graph displaying cause/effect ratios, especially biggest relative cause, based on Pareto theory.
Pareto chart is a powerful quality tool and is used to identify the most important problem and the measurement of progress.
Construction of Pareto Chart is simple. There are five steps:
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Determine the method of classifying data: by problem, cause, non- conformity, and so forth.
Decide if Money (Rs), frequency, or both are to be used to rank the characteristics.
Collect data for an appropriate time interval or use historical data.
Summarize the data and rank order categories from largest to smallest.
Construct the diagram and find vital few.
E.
Histograms - A histogram is the graphical version of a table which shows what proportion of cases fall into each of several or many specified
categories. It differs from a bar chart in that it is the area of the bar that denotes the value, not the height, a crucial distinction when the categories are
not of uniform width.
 Histograms can give sufficient information about a quality problem to provide a basis for decision making without further analysis.
 A histogram is like a snapshot of process showing the variation.
 Histograms can determine the process capability, compare with specifications, suggest the shape of population, and indicate
discrepancies in data such as gaps.
F.
Checklist/check sheets - These are pre-formatted lists for noting incidence, frequency, etc., according to known useful criteria. The check sheet also
called defect concentration diagram is a simple document that is used for collecting data in real-time and at the location where the data is generated.
The main purpose of check sheets is to ensure that the data is collected carefully and accurately by operating personnel.
When to use a check sheets
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When data can be observed and collected repeatedly by the same person or at the same location.
When collecting data on the frequency or patterns of events, problems defects, defect location, defect causes, etc.
When collecting data from a production process.
G. Control/Shewhart Chart - This uses a standard pattern of performance/time for a given process, often in run chart format, which acts as a template to
check conformance and deviation. The control chart, also known as the 'Shewhart chart' or 'process-behavior chart is a statistical tool intended to help
assess the nature of variation in a process and to facilitate forecasting and management.
H. Scatter Diagram/Scatterplot - Dr. Juran and Dr. Kaoru Ishikawa popularize the use of this chart in the field of Quality Assurance. This is a graph
which plots points (typically very many individual instances) according to two variables, which produces a useful visual indication of the relationship
between the two variables. Scatter diagram is the simplest way to determine the cause- and-effect relationship between two variables.
Examples of cause-and-effect relationships are.
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Temperature and lipstick hardness
Training and errors
Breakdowns and equipment age
Accidents and years with the organization
THE PLANNING PHASE OF TQM
TOTAL QUALITY MANAGEMENT (TQM) - is a key feature of organizations’ way of working. It involves making customer satisfaction top priority.
In practical terms TQM involves:
1.
2.
3.
4.
5.
Identifying customers and their requirements
Establishing and using objectives (targets) for all areas of activity
Basing decisions on research hard facts rather than on hunches
Identifying and eliminating the root causes of problems and
Educating and training employees
The following are some of the methods in generating ideas for the planning phase, which are:
1.
The ‘5 Whys’ - asking ‘Why?’ at least five times to unearth the core cause of a problem.
Five Why’s Analysis Example Problem:
Failing to produce ordered products on time.
Questions:
1) Why did we fall behind in filling these orders? We completed the orders behind schedule due to a backlog earlier in the month.
2) Why was there a backlog earlier in the month? The backlog arose because the machine’s belt stopped working for a full week, and we
could not complete orders in that time.
3) Why did the belt stop working? The motor for the belt was overdue for maintenance servicing, and it could not maintain the level of work.
4) Why was the machine behind on servicing? Due to consistently high demand, no one wanted to shut down the machine for the few hours
it would take to service it.
5) Why did no one schedule time to shut down this machine for maintenance? The manager overseeing this machine did not want to risk a
small delay in production to stay on top of the maintenance.
2.
Benchmarking - is a technique that measures a company’s performance against the best in industry. This technique can help in
determining how the best companies achieve high performance and quality levels.
Types of Benchmarking
a)
b)
c)
d)
e)
f)
3.
Internal Benchmarking - is a comparison between operations or parts of operations which are within the same total organization.
External Benchmarking - is a comparison between an operation and other operations which are part of a different organization.
Non-competitive Benchmarking - is benchmarking against external organizations which do not compete directly in the same markets.
Competitive Benchmarking - is a comparison directly between competitors in the same, or similar, markets.
Performance Benchmarking - is a comparison between the levels of achieved performance in different operations.
Practice Benchmarking - is a comparison between an organization’s operations practices, or way of doing things, and those adopted by another
operation.
Brainstorming - is a technique in which a group of people share ideas and thoughts in a relaxed atmosphere on various problems in order to stimulate
unrestrained collective thinking.
PLANNING GUIDELINES
Basic Guidelines that must be applied for planning phase of quality improvement:
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2)
3)
4)
5)
Obtain Upper Management Commitment Through Sponsorship
Form the Right Combination for the Team
Develop a Vision and a Policy Statement for the Team
Develop Objectives and Guidelines
Review Current Programs and Projects
BARRIERS OF TQM
A Barrier is an object, a thing, an action or a situation that causes an obstruction.
1) COMPETITIVE MARKETS - is a driving force behind many of the other barriers to quality. One of the consequences of a competitive
market is to make inferior quality standards to a simply satisfactory level, This obstacle to quality is largely a mental barrier from a
misunderstanding of the definition of quality.
2) BAD ATTITUDES/ABANDONMENT OF RESPONSIBILITY/MANAGEMENT INFALLIBILITY - The competitive environment, poor
management practice, and a general need of higher expectations have added to idle and unwholesome attitudes. These attitudes often
are articulated in popular sayings, like "It' s not my job" and "If I am not broke, don 't fix it. Such attitude saying comes from the popular
idea that management is always correct and therefore employees are only supposed to implement management decisions with no further
inquiring.
3) LACK OF LEADERSHIP FOR QUALITY- Duplication of duty and responsibility often times can lead to excess layers of management.
This has made the lower employees of an organization to place quality implementation on the hands of management. In addition, quality
has not reimplementation as a combined responsibility by the management and the employees. Together with the view that management
is perfect and hence it is always right in its decisions, employees have been compulsory to take up nonessential task in quality
improvement.
4) DEFICIENCY OF CULTURAL DYNAMISM - Every organization has its own exceptional practice of doing things. This is characterized in
terms of culture of the organization. The processes, the philosophy, the procedures and the traditions characterize how the employees
and management position in to the attainment of goals and realizing of organizational objectives. Certainly, being attached to
organizational culture is vital in reaching the mission of the organization.
5) INADEQUATE RESOURCES FOR TOTAL QUALITY MANAGEMENT- Since most companies do not entail quality in their strategic plan,
modest interest is given to TQM in areas of human and financial resources. A great deal of the concentration is drawn to add to profit
margins of the organization with slight regard as to whether their supplies to customers are of anticipated quality.
6) LACK OF CUSTOMER FOCUS - Most strategic plans of organizations are not customer focused. They are likely to consider much on
profit-oriented objectives within a given period of time. Modest research about the market is done to find out the product or service
performance in the market in relation to its quality.
7) LACK OF EFFECTIVE MEASUREMENT OF QUALITY INTROVEMENT - TQM is focused on a serving employees and processes, and
setting delp tedives that predict the customer ' s needs so that he is surprised and delighted. This has created a substantial test to
numerous companies. Measurement problems are created by goals coming from past substandard performance, poor planning, and lack
of resources and competitor-based standard
8) POOR PLANNING - Ineffective quality improvement is the result of having no sound strategy. Duran exposed that problem in the original
planning cause a process to perform at a high level of constant waste. Possibly the major reason of poor plans and specifications is that
numerous proprietors do not realize the impact that poor planning have on a project' s quality, cost, and time.
9) LACK OF MANAGEMENT COMMITMENT - A quality implementation program will be successful only if top management is completely
committed further than public announcements. Success involves commitment and extremely noticeable and expressive champions
10) LACK OF COMMITMENT IN QUALITY MANAGEMENT MAY STEM FROM VARIOUS REASONS - Major barriers consist of the
concern with short-term profits and the inadequate experience and training of many executives. Duran cited that many managers have
comprehensive experience in business and finance except for in quality improvement. Likewise, CEO does not have to be a quality
capable.
11) RESISTANCE OF THE WORKFORCE - A workforce is frequently reluctant to embrace TQM for a diverse of reasons. Employee trust,
acceptance and understanding of management' s objectives are necessary for any TQM initiative. Thus employees, should be
acknowledged by the management as essential players in the decision-making processes concerning to quality improvement.
12) LACK OF PROPER TRAINING/INADEQUATE HUMAN RESOURCE DEVELOPMENT - There is confirmation that without
understanding and appropriate training at all levels of any organization could become a large contributor to worker resistance. Business
school often fail to teach applicable process skills that may contribute to manager incompetence needs a knowledgeable workforce with a
concrete comprehension of basic math, reading, writing and communication.