Calculating and Reporting
Benefits of QMS
Iowa State University
of Science and Technology
Agriculture and Biosystems Engineering
Agriculture and Industrial
Technology
7/15/05
Objectives
Identify potential benchmark measures
of cost/benefit of quality management
system adoption by agriculture.
 Set scope of the project
 Select summarizing fiscal indicator of
costs and benefits measures

Dual 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 Approach
Early methods of tracking quality costs
was too limited “focus on cost of nonconformance i.e. external and internal
failure costs”.
 Process-cost broadens economics of
quality by classifying cost of nonconformance and cost of conformance
I.e. “costs incurred when a process is
running without failure”

(Juran)
(Schottmiller)
Process 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 Costing
Allows the tracking and reduction of
costs normally associated with
efficiency in addition to effectiveness
(quality)”
 Process simplification in addition to
reduction of errors become objectives

(Schottmiller)
(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 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 Failures
Cost of Poor Quality
Cost of nonconformity:
Internal failure costs
External failure costs
Cost of conformity:
process approach
Cost of lost
opportunities for
sales revenue
(Juran)
Internal 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 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 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 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 Examples
J OB SET UP
Binde r
P r ogra m
Tooling
Tool layout for
next jobs
Tooling
Ope ra tor
G et bi nder f or
next job
Check f or program
on m achine
P ro gram
avai lable
?
Mis sing Tooling
S etup t ools for next
j ob (based on tool
layout)
P ut tools on cart
Y
O perat or does tool
layout
Load pro gram
Machine uploads to ol
data from program
Tool in
chain?
(machine
data)
Y
N
N
Check tool cart
Tool on
cart?
N
Physically check tool
chain
Y
Tool in
chain?
(visual)
N
Y
Tool in
crib?
Y
Vi sual inspecti on of
t ool
OK t o
use?
N
N
Y
Tool
available
i n cri b?
P ro gra m
A djus tm e nts
Fix tur ing
Change sheets
collect ed (Jay/Dave);
program retreived
f rom f loor
Hardrive
updat ed f rom
f loor prog.
Adjust p rogram to
m atch new tool; fill
program change
sheet & hi st ory form
Y
P ut tool in chain& get
fixture, jaws, et c.
N
P ar t Se tup
Mi ssi ng
fixture,
etc?
Y
S etup part in
machine
N
Ope r ator /
S upe rv isor
Look for m issi ng
fi xture, ja ws, etc.
Y
Ga gin g
Gagi ng
available
?
Get gaging for part
from t ooling
Y
1s t Piec e Run/
Qua lity C he c k
B inde r
Adjus tme nts
Run f irst pie ce on
m achine
P ut binder at slot by
Engr. of fice
Y
N
Fi nd
missing
part(s)?
Look f or gaging
Y
Y
N
Ope r ator /
Supe r vis or/
T ooling
Get program f rom
ha rdrive
Fi nd
program ?
N
Rewrite prog ram
Look for t ool in ot he r
m achines
Find
tool?
N
S ubst i tute tool?
N
N
N
S che dular /
S upe rv isor
F ind
missing
gage(s)?
Y
Wait ?
Y
Expedit e mi ssing
tool, fi xture, or gage
Pur c has ing
Update binder
from histo r
sheet ; f ile
binder
Engine er ing
F irst piece
check
Ce r tifie d 1s t Pie ce
C hec k er

Flow charting w/ value, non-value add
analysis
– Green – customer value added activity
– Yellow – ‘necessary evil’
– Red – non customer value added
Cycle Time Reduction
Department:____________________ Part Name:________________________ Date of Timestudy:_______________________
Supervisor:_____________________ Part #:____________________________ Measurer:______________________________
Operator:_______________________Operation:_________________________ Operator Tools:_________________________



Stop watch time
study common
Also work sampling
Better way to get
data w/o estimating?
Step
Element Description
1
2
3
4
5
6
7
8
9
10
TOTAL
#
Avg
Normal Minutes:
Foreign Elements:
A
B
Performance Rating Data
EP VP Poor Fair Avg Gd VG Exc Sup
SKILL:
-20
-15 -10
-5
0
5
10
15
20
EFFORT:
-20
-15 -10
-5
0
5
10
15
20
10% PF&D:
Standard Minutes:
Hrs/Piece:
Pcs./hour:
C
D
Operator Average at Time of Study:
Machine Cycle:
Comments:
S/E
Mins
Value 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)
Baseline Data
9/2/03-9/9/03
100
1500
1000
60
40
500
20
0
Defect
Count
Percent
Cum %
R
R
DE
N
L
IS O
E
W
O
K
V
C
O
F
C
M
L
G
R
N
K
D
G
G
G
ING UN
RA CHE ERIA TUP
P E ers
RIN
NA
OR
HIN ININ
LIN
G
G
U
E
U
E
S
h
O
W
R
I
T
T
U
T
S
O
A
S
Ot
INT TO
N
RE
GA T PT
FIN
TR
P R PA R
MA ER/
F IX
A
O
M
D
1S
AIT
BIN
W
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
Percent
Count
80
Root Cause Analysis

Why-because
diagram: ask ‘why’
at least 5 times to
reach root cause
Lost time to tooling
@ workcenter
Why-Because Chart - 9/25/03
KRPM Tooling-Red Team
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 tooling
No trigger to
replenish tooling
Fixture loading
problem
Not paying
attention
No tooling available
Tool wear
Tooling breaks,
machine crashes
Operator error
Going too fast
Takes time to
change inserts
Take up to tool
room to measure
Running tool past
tool life
Fixture quality;
design
No standardized
tooling
Not enough tools
Most correct
measurements
Want to hit higher
efficiency
Programs change
Engr. not aware of
std. tools
$$$
Can't measure all
char. @ mach.
(binder descp.)
(program descp.)
Effect
Anyone can
change programs
Same tool but diff.
descriptions
Tools disappearing
from chain
Tools used on
other jobs
Try to change
program to match
print
Same tool but diff.
lengths
Too much
specialized tooling
No compatible tool
lists btwn. Prod.
And Engr.
Lengths changed
Lack of control over
tools descriptions
WPC's changed
Tool setup diff. from
tool room
Cause
Manufacturer
specs. vary
Out of tolerance
Easy fix
1 pre-setter
Improvements 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 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 Impact

Roll up measures into a financial
indicator such as:
– Benefits/cost ratio:
present worth of total benefits
B/C=
present worth of total costs
If ratio is greater than 1, project deemed
worthwhile and vise versa
Overall Fiscal Impact con’t.
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
Data 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?

Timeline
Timeline Questions
What is finish date?
 How long does data collection last?
 What are the resources at hand?

Conclusion
Answer questions of scope, design,
particular measures, summarizing fiscal
indicator(s), timeline
 Review relevant FC documents as
necessary
