CONTINUOUS BUSINESS
IMPROVEMENT
ACTIVITY BASED BUSINESS
SYSTEMS
Using Quality Management Systems Principles
Continuous Improvement ©
Page 1
CONTINUOUS BUSINESS IMPROVEMENT MODEL
ISO 9001:2000 Quality system combines
Processes into overall activities. There are 4
categories into which each of these individual processes
is identified.
Infrastructure
Production Activities
ISO 9001:2000
clause 1.0 Management Responsibility
clause 2. 0 Resource Management
clause 4.0 Measurement and Analysis
ISO 9001:2000
clause 3.0
Process Management
Management Responsibility
Anticipate Customer Needs
Resources
Evaluate process and resource
capabilities
Measurement and Analysis
Accept Tender
Records
Continuous Improvement
Activity
Based
Business
System
Design Product
Produce Product
Ship Product
Invoice Customer
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Total Customer
Satisfaction
Meet Requirements
Exceed
Expectations
Internal & External
More for less $$$
Continuous Business Improvement
Eliminate Defects
Quality Management
Reduce Cycle time
Customer Focus
Total Company Involvement
Employee
Involvement
Programs
Empowerment
Education/Training
Quality Implementation Strategy
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THE PRICE OF QUALITY COST
The process of obtaining quality costs does not necessarily include a revision of the
accounting system of the company. This would be very expensive and would delay
implementation of quality costs analysis by a year or more.
The current accounting system can be used to ESTIMATE the quality costs in a
number of categories, e.g., many appraisal, internal and external failure costs.
For those costs that are not obtained in this manner, interviews with supervisors,
engineers, technicians, and operators can be used to estimate those portions of
the direct and indirect labor, plus burden of the various units that support the four
quality cost activities.
A typical company has a cost of quality (really a cost of non-quality) which is
about 20% of the manufacturing cost of the product. Of this quality cost figure,
the same typical company will spend the following percentages.
Prevention 5%
Appraisal 47%
Internal Failure 46%
External Failure 2%
This profile indicates that rather little effort is invested in making the product right
the first time; but to the credit of the manufacturer, very little nonconforming
product is seen by the customer. The costs for this are substantial. That is why
the cost of quality is so high relative to the manufacturing costs.
The traditional way of looking at profit is:
COST + PROFIT = PRICE
In the world market of today, the price is set by what the customer is willing to
pay, the resulting formula is;
PRICE – COST = PROFIT
The way to profit is reduction in costs. Specifically, it is done by increasing the
expenditures to PREVENT nonconforming product. By making products right the
first time and assuring that the process continues to function correctly, the cost of
appraisal and failure can be reduced to less than half that at the start of the cost
improvement program. It can ONLY be accomplished by improving quality, i.e.
making the product
right the first time
.
A well-documented and implemented Quality System will put into place effective,
efficient and proactive systems to address the cost centers described above,
these systems will promote early awareness of processes out of control and their
resulting costs.
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Quality Costs and
Other Measures
Quality Costs are categorized into four separate types of costs
(Juran & Gryna, pp. 12-34 McGraw Hill, 1980)
Prevention Costs– those costs incurred in order to prevent failure and to minimize
appraisal costs. Typical examples of this type are:
quality planning, design reviews, training, quality training, process control development
and implementation, process capability studies, data acquisition for quality analysis,
quality reports, and quality improvement projects.
Appraisal Costs– those costs incurred in order to discover the condition of the product.
Typical examples of this type are: incoming material inspection, inspection and testing
during production and after production to assure conformance to the requirements,
maintaining the accuracy of the test equipment, evaluation of raw material, in-process
inventory and finished good inventories to determine degradation, and all of the
materials and services used to conduct these appraisals.
Internal Failure Costs– those costs which accrue because the raw materials, inprocess materials or components, or finished goods are not manufactured
right the first time. These costs can be eliminated if suitable steps are taken. Typical
examples of these costs are: scrap, rework, retest, downtime, yield loss,
disposition, remedial engineering, excessive lead time and inventory costs, overproduction, and increased non-value added cycle time.
External Failure Costs – those costs which occur because the customer discovers a
lack of conformance of the product to requirements or expectations of the user. These
costs can also be eliminated if suitable steps are taken.
Typical examples of these costs are: complaint investigation, processing and
adjustments, costs associated with the return and replacement of nonconforming
products; all warranty costs and the maintenance of these contracts; and all
concessions made to customers because of nonconforming product. Also
included in this category is the loss of business, i.e., sales and revenue, due to
loss of customer and the influence of this customer on other customers or
potential customers. This cost is very difficult to estimate but one resource has
suggested that the
loss is 20% of the sales price per incident
.
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Quality Maturity Curve
or “S” Curve
TQC
Reward of Goal Made
Measurement
Continuous Improvement
Implementation
Training & Education
Develop Quality Plan & Strategy
Understanding Modern Quality Management
Measurement
Recognition of Need, Awareness
Start
Continuous Improvement ©
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Keys to Implementing a Total Quality
System
!
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Company-wide quality attitude
Measurement of Cost
Design of product to customer requirements
Design for process capability
Partnerships with vendors
Statistical process control
Experimental design to optimize processes
Marketing quality strategic advantage
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The Quality Perspective
Section 1.4 ISO 9001:2000
Employee involvement programs are an integral part
of a total quality strategy. Their role is to encourage
individuals and teams to identify problems and
opportunities for improvement through focus on the
work process. These programs provide a framework
to actively promote communication of ideas, and an
environment that will actively encourage their
implementation.
Documentation and Reports
A significant element of any quality discipline is the
need to document the process, and to measure and
track the results of those changes. These reports
reflect the following;
! Measurements
! Trend data
! Status
! Analysis of improvement
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