Cost of Poor Quality

Let’s Discuss quality first before going for Cost of Poor quality.  

What are the advantages of superior quality?

·       Superior performance and competitive advantage.

·         Customer relations and delight

·         To avoid a decline in work ethics

·         Innovation in our products and services

·         Forever personal and spiritual well being

·         To increase our ability to manage change for energizing committed workforce

·         To expand boundaries of business

The following are the various dimensions of quality.

·         Performance

·         Features

·         Reliability

·         Serviceability

·         Durability

·         Appearance

·         Customer service

·          And safety

Quality definition and concept by the Quality Gurus.

W. Edwards Deming

Good quality means a predictable degree of uniformity and dependability with a quality standard suited to the customer.

Notable Book: Out of Crisis

Joseph M Juran

Fit for purpose. A quality process or product is fit for its purpose, if the purpose of an aircraft is to be fast, efficient, comfortable and safe then that's the definition of a quality aircraft.

Philip b Crosby

·         Conformance to requirements

·         Notable book: Quality is free

·         Working from requirements, it is easy to validate conformance and identify non-conformance.

·       The problem with this definition is that requirements may offer a Biased and subjective view of quality in many cases requirements represent little more than the ideas of business stakeholders. There’s often no objective validation that these ideas will be yield a quality result.

Kaoru Ishikawa

To practice quality control is to develop, design, produce and service a quality product which is most economical, most useful and always satisfactory to the consumer.

                                    

Armand V. Feigenbaum

·   Total quality control is an effective system for integrating the quality development, quality maintenance, and quality improvement efforts of the various groups in an organization.

·       “Hidden plant” or a Hidden Factory, so much extra work is performed in correcting mistakes.

·        Accountability for quality: because the quality is everybody’s job, it may become Nobody's job.

·       The concept of quality costs.

Genichi Taguchi

·       Deviation from the target is a loss.

·      Quality loss as: “The loss imparted to society from the time product is shipped’, and this related the loss to society as a whole.

·      It included both company costs such as reworking, scraping and maintenance, and any loss to the customer through poor product performance and lowered reliability.

American Society for Quality(ASQ)

Quality denotes excellence in goods and services, especially to the degree they conform to requirements and satisfy customers.

Three key elements of quality

(influence a product or service's ability to satisfy customer needs)

·      Quality of design: a product needs to be designed to satisfy customer needs.

·     Quality of conformance: closeness with which the finished product or supplied service matches the specification of the original design.

·   Quality of Reliability: the ability of the finished product to provide trouble-free performance field, over an acceptable time period.

Quality costs are divided into two categories.

A.  cost of conformance

·         prevention costs

·         appraisal cost

B cost of non-conformance

·         internal failure costs

·         external failure costs

Quality costs which are difficult to quantify

·         loss of customer goodwill

·         low company profile

·         reduction in market share

·         Low workplace/ employee morale

A.   cost of conformance

                                                    

Prevention costs

v  Job- related training for employees.

v  Customer interface to understand expectations.

v  Technical manuals

v  Early approval of product specifications

v  Computer-aided design CAD

v  Post-mortems

v  Modelling, simulation

v  Quality planning

v  Preventive maintenance of equipment

v  Quality systems, procedures, and Standards

v  Pilot production runs

v  Reviews- design, process, specifications, packaging, delivery schedules

v  Selection- right man- right job

v  Surveys to detect changes in customer expectations

v  Process /Machine Capability Studies

v  Budgeting

v  Job descriptions

v  Quality motivational programs

Appraisal costs

§  Incoming inspection

§  In-process inspection

§  Final inspection

§  Process control activities

§  Calibration of equipment to evaluate the quality

§  Quality systems audits

§  Product audits

§  Training of quality assurance personnel

§  Life testing, burn-in, stress analysis

§  Operating expenditure review

§  Verifying workmanship standards

§  Invoicing review

§  Accumulation of cost data

§  Production rate review

§  Personal appearance

§  Safety

                                        

B cost of non-conformance

Internal failure costs

·         Rejection of parts in the process

·         Sudden breakdowns

·         Oil spillage, parts dropping on the shop floor

·         Sorting activities

·         Rework

·         Over time because of problems

·         Scrap

·         Downgrading of a product

·         Inspection activities

·         Troubleshooting

·         Wrongly protest products

·         Products not delivered on an agreed time

·         Salvaging defective materials

·         Excess inventory

·         Line stopping due to parts shortage

·         Trips to suppliers to resolve problems

·         Accidents, injuries, fires, thefts

·         Unplanned absenteeism, late coming

·         Re-doing, retyping

·         Billing errors

·         Waiting costs (meetings not starting on time)

·         Personal turnover

·         Efforts to fix the blame

·        Time spent for follow up (missed schedule)

·         Disclosure of company secrets

·         Making reports which are not used

·         Unused floor space

·         Utilities not needed- lights, compressed air, Burners

·         Poor reports

·         Doing things that don't need to be done

External failure costs

     ·        Field repair center total expenses

•    Products rejected and returned
•    Field failures
•    Field inventory
•    Product liability suits
•    Loss of customer goodwill
•   Damage in transit theft
•   Poor quality of the product, Re-inspection, retesting, repair
•   Break down during the warranty
•   Troubleshooting in the field
•   Redesign
•   Training of field personnel
•   Corrective actions
•   Travel problems in the field
•   Warranty expenses

Example of Cost of Quality – Purchasing Function

          Cost of conformance

·         Proper specifications/ drawings to vendors

·         Vendor evaluation review and approval

·         Higher inventory due to difficulty in procurement

·         Incoming inspection

·         Educating vendors to put quality systems in place

·         Training's/ programs/ vendor meet etc.

Cost of non-conformance

·         Purchase order not proper/ rewrite/ amendments

·         Incoming material rejected

·         Excess inventory due to vendor not committed

·         Sorting- rework- Re-inspection

·         Material returns costs

·         Premium on freight

·         Visits to the supplier to solve problems

Our Quality and Profits are Linked?

Yes, 

There is evidence that high performing organizations enjoy both financial success and high ratings of customer satisfaction.

This has been verified by Consultancy surveys, benchmarking exercises, and increasingly, popular forms of self-assessment.

                  Action plans to reduce Cost of Poor Quality

·         Determination and commitment of the management

·         Quality first must be communicated to all employees

·         Quality management in three phases

1.       Quality planning like budgeting in finance

2.      Quality control keeping within budget

3.      Quality improvement make results better than forecast in budget

·         keep the process continual.

Commitments expected from the organizations.

To consistently produce conforming products and provide service at optimum costs.

Quality is conformance to requirements, not just good.

The requirements are often measurable.

The system of causing quality is prevention; no appraisal.

  

Two flavors of quality potential quality and actual quality

Potential quality is the known maximum possible value added per unit of input.

The actual quality is the current value-added per unit of input.

Quality is a multi-perspective dimension

Business perspective: focus on why, where, and to what extent the Organisation must invest in or exploit quality. Which strategies, products, and services, alliances, acquisitions, or divestments should be considered from a knowledge related point of view?

Management perspective: Focuses on determining, organizing, directing, and monitoring quality-related activities required to achieve the desired business Strategies and objectives.

Hands-on operational perspective: focuses on applying the quality tools/ expertise to two operating systems.

Business functions and Responsibility for Quality

Top management: Top-level support and encouragement of quality airport

quality control: quality assurance plus promotion, coordination, in control of entire quality effort.

Accounting: Measurement of quality costs in quality reports

Research: quality of research- proper design and analysis of experimental data.

Sales and marketing: selling a quality product and providing information on-field performance.

Design engineering: designing a quality product and changing the design to achieve optimum quality condition.

Tool engineering: providing quality tools, Jigs, and Fixtures.

Product engineering: providing a quality production process.

Purchasing: quality of conformance of purchased goods, feedback of quality information.

Manufacturing: quality conformance in manufacturing, semi-finished and finished goods, feedback of quality information.

What are the critical challenges for organizations?

1. Use statistical science in a teamwork environment on how to on Front actual problems.

2. Make product engineering or design engineering responsible for produced quality until production yields have reached an optimum level.

3. Discontinue the wasteful use of SPC free up people and resources to focus on the real problems.

4. Discontinue methods forecast solely on training and, instead, make problem-solving the center of attention.

5. Require a checklist for top management Review that enables though with profit and loss responsibility to correctly evaluate the effectiveness of product quality improvement methods.