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Transcript of QUALITY COSTS ANALYSIS - uoh.edu.sauoh.edu.sa/facultymembers/en/M.AICHOUNI/Documents/QEM...
12/15/2016
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Adapted From : MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 1
QEM 511 - Total Quality Management
Mohamed Aichouni
Professor of Quality Engineering, Hail University
http://faculty.uoh.edu.sa/m.aichouni/
Master Program on Quality Engineering and Management
LECTURE 05
QUALITY COSTS ANALYSIS
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Cost of Quality
Cost of poor quality (COPQ): The costs associated with providing poor quality products or services.
Costs of quality or quality costs does not mean the use of expensive or very highly quality materials to manufacture a product.
The term refers to the costs that are incurred to prevent, detect and remove defects from products.
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Cost of Poor Quality 3 .PPT
Managers and workers speak the language of things but Senior leaders speak the language of money...
…COPQ allows us to translate the things into money.
Cost of Poor Quality
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Costs of Quality
Cost of quality is a methodology that allows an organization to determine the extent to which its resources are used for activities that prevent poor quality, that appraise the quality of the organization’s products or services, and that result from internal and external failures.
This allows an organization to determine the potential savings to be gained by implementing process improvement initiatives.
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Cost of Poor Quality 5 .PPT
Components
Conformance
$Non-
Conformance
$
$
Quality Costs : Concept
Cost of Poor Quality 6 .PPT
Traditional Cost of Poor Quality
(4-5% of Sales)
When quality costs are initially determined, the categories included are the visible ones as (iceberg model).
Waste
Testing Costs
Rework
Customer Returns
Inspection CostsRejects
Recalls
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Cost of Poor Quality 7 .PPT
Cost of Poor Quality – Iceberg Model
Late Paperwork High CostsPricing orBilling Errors
Excessive FieldServices Expenses
Incorrectly CompletedSales OrderLack of Follow-up
on Current ProgramsExcessiveEmployee Turnover Planning Delays Excess Inventory
ExcessiveSystem CostsOverdue Receivables
ComplaintHandling
Unused Capacity
Time withDissatisfied Customer
Excessive Overtime
Waste
Testing Costs
Rework
Customer Returns
Inspection CostsRejects
Recalls
Development Cost of Failed Product Hidden COPQ: The costs incurred to deal with these chronic problems
Premium Freight Costs
Customer Allowances
COPQ rangesfrom 15-25% of Sales
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Categories of Costs of Quality
Quality-related activities that incur costs may be divided into:
prevention costs,
appraisal costs,
and internal failure costs and
external failure costs.
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Cost of Poor Quality 9 .PPT
I want my money back!
Cost of Quality (COQ)
Prevention AppraisalInternal Failure
ExternalFailure
$$
Cost of Poor Quality 10 .PPT
COPQ OverviewDefinitions
All activities and processes that do not meet agreed performance and/or expected outcomes
Costs that would disappear if every task were always performed without deficiency
Actual Cost - Minimum Cost = COPQ
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Cost of Poor Quality 11 .PPT
Prevention Costs
Quality Planning
Training and Education
Process Definition, Job Descriptions
Technical Manuals
Customer Surveys
Detailed Product Engineering
Early Approval of Product
Specifications
Process Capability Studies
Preventive Maintenance
Supplier Qualification
Housekeeping
Zero-Defect Program
Prevention costs are incurred to prevent or avoid quality problems.
These costs are associated with the design, implementation, and maintenance of the quality management system.
They are planned and incurred before actual operation, and they may include:
Cost of Poor Quality 12 .PPT
Appraisal Costs
Examples:
Test and Inspection
Process Controls
Train QA Personnel
Product Audits and Quality Systems Audits
Customer Satisfaction Surveys and Audits
Prototype Inspection
Accumulating Cost Data
Supplier Certification
Employee Surveys
Security and safety Checks
Appraisal costs are associated with measuring and monitoring activities related to quality.
These costs are associated with the suppliers’ and customers’ evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications.
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Cost of Poor Quality 13 .PPT
Internal Failure Costs Substandard Product
Scrap or Rework
Redesign/Engineering Change
Process Modifications
Payroll Errors
All Expediting Costs
Off-Spec/Waiver
Abandoned Programs
Supplier Problems
– Scrap and rework
– Late deliveries
– Excess inventory
Equipment Downtime
Accidents, Injuries
Absenteeism
Missed Schedule Cost
Internal failure costs are incurred to remedy defects discovered before the product or service is delivered to the customer.
These costs occur when the results of work fail to reach design quality standards and are detected before they are transferred to the customer.
They may include:
Cost of Poor Quality 14 .PPT
External Failure Costs Product Recall
Handling Complaints
Customer ServiceCaused by Errors
Products Returned
Analysis of Returns
Evaluation of Field Stock
Late Payments andBad Debts
Lawsuits
Reports
– Sales and service
– Returns and allowances
– FailureLost Sales Because of Customer Dissatisfaction!
External failure costs are incurred to remedy defects discovered by customers.
These costs occur when products or services that fail to reach design quality standards are not detected until after transfer to the customer.
They may include:
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Cost of Poor Quality 15 .PPT
The Hidden Organization
“Theoretical Cycle Time: The back-to-back process timerequired for a single unit to complete all stages of a taskwithout waiting, stopping, or setups.”
ProductStep1
Step2
Floor Space Floor Space
Floor Space
Value AddedNon-Value Added
Philip R. Thomas, Competitiveness Through Total Cycle Time. McGraw-Hill (1990)
The Hidden Factory
Analyze
Fix
Test
Analyze
Fix
Test
Sigma
6 sigma
5 sigma
4 sigma
3 sigma
2 sigma
Cost
<10% of sales
10-15% of sales
15-20% of sales
20-30% of sales
30-40% of sales
The Six Sigma Approach of Cost of Quality
The traditional view would be to conclude that if a company wants to reduce defects and by this reduce the cost of poor quality, the cost of good quality would have to be increased, meaning higher investments in any kind of checking, testing, evaluation, training of operators, etc.
Following the Six Sigma philosophy, however, of building quality into process, service and products and doing things right the first time, the increase of the cost of good quality, while striving for zero defect performance, can be smoothed if processes get better.
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Sigma
6 sigma
5 sigma
4 sigma
3 sigma
2 sigma
Cost
<10% of sales
10-15% of sales
15-20% of sales
20-30% of sales
30-40% of sales
The Six Sigma Approach of Cost of Quality
Sigma
6 sigma
5 sigma
4 sigma
3 sigma
2 sigma
Cost
<10% of sales
10-15% of sales
15-20% of sales
20-30% of sales
30-40% of sales
The Six Sigma Approach of Cost of Quality
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Cost of Poor Quality 19 .PPT
Cost of Poor Quality 20 .PPT
Approaches used for Quality Cost Analysis
Quality Costs Reporting
Trend Analysis
Pareto Analysis
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Cost of Poor Quality 21 .PPT
Approaches used for Quality Cost Analysis
Cost of Poor Quality 22 .PPT
Advantages of Using Quality Costs for Management
Advantages
Reducing the cost of poor quality is one of the best ways to increase a company's profit.
Provides manageable entity and a single overview of quality.
Aligns quality and goals.
Prioritizes problems and provides a means to measure change/improvement.
Provides a means to correctly distribute controllable quality cost for maximum profits.
Promotes the effective use of resources.
Provides incentives for doing the job right every time.
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Customer Satisfaction Measurement using Quality Tools
https://www.youtube.com/watch?v=ZWiV6DcGs9s
Conclusion
"Quality begins with education and ends with education",
K. Ishikawa (1990).
Master Program on Quality Engineering and Management