Chapter 2: Companywide Assessment of Quality

Course Instructor:

Ibrahim Abdulla

Major Topics

Why Assessment

Cost of Poor Quality

Categories of Quality costs

Relating Cost of Poor Quality to Business Measure

Optimum Cost of Quality

Standing in Marketplace

Organization Culture and Quality

Assessment of Current Quality Activities

National Quality Award

ISO 9000 Quality System Standards

1- Why Assessment

Develop Quality Strategy

a) Size of Quality Issues

b) Areas requiring attention

Elements of Quality Assessmenta) Cost of Poor Quality

b) Standing In Market Place

c) Quality Culture in Organization

d) Operation of Company Quality system

Quality SWOT Analysisbases for Strategic Quality Management.

All companies require companywide assessment of Quality

2- Cost of Poor Quality

In 1950s: Cost of Quality = Cost of attaining Quality Cost of Quality = Cost of Poor Quality

Cost of Poor Quality (COPQ) Cost of Poor Performance Processes (COP3) cost not only

associated with poor quality but also cost of waste

Reasons for estimating COPQ: Quantifying quality problems improves communication

Cost higher than estimates Identify areas that require immediate attention

Identify opportunities for cost reduction Identify opportunities for customer dissatisfaction reduction

Means to evaluate quality improvement progress Bases for quality improvement strategy

3- Categories of Quality Costs

Internal Failure Costs Costs of deficiencies identified before delivery Failure to meet specs and customer requirements Main Subcategories:

Scrape Rework Scrape and Rework 100% sorting inspection Re-inspection Changing process Redesign of hardware Redesign of software Scrapping of obsolete products Scrap in support operation Rework in internal support operations Downgrading of selling price

Cost of inefficient Processes Subcategories

Variability of product characteristics Unplanned downtime of equipment Inventory Shrinkage Variation of Process Characteristics from best practice Non Value added activities

External Failure CostsSubcategories

Warranty Charges Complaints Adjustments Returned Materials Allowances Penalties due to poor quality

Rework on support operations Revenues losses in support operations

Lost Opportunity in sales revenues

Appraisal Costs Subcategories

Incoming inspections and test In-process inspection and test Final inspection and test Document Review Balancing Product Quality audits Maintenance Accuracy of Test Equipment Inspection and test materials and Services Evaluation of Stocks

Prevention Costs Subcategories

Quality Planning New Products review Process planning Process Control Quality audits Supplier Quality evaluation Training

Read Example page 33

Hidden Costs of Poor Quality

4 - Relating Cost of Poor Quality to Business Measure

Example Situation A

COPQ = 10% Profit = 7% Turnover = 3 Net profit = 21%

Situation B COPQ = 6% Profit = 7% Turnover = 3 Net profit = 33%

5- Optimum Cost of Quality

What are the rights costs?

Unfortunately, shortage of credible data Companies information not published Companies varies

For Industrial Companies COPQ = 15% of sales revenue

For Services companies COPQ about 30|% of operational expenses

For Health COPQ about 30% of healthcare outlays

Indirect costs COPQ ranges between 2.5 to 5%

Optimum cost model

6 - Standing in Marketplace

Company need to identify it standing in quality compared to competitors through market research study

Main Question Categories What is the relative importance of various product qualities as

seen by the user? For each quality how does our product compare with

competitors products as seen by the user? How likely is the customer to purchase form us again or

recommend us to thers?

Example Field Study of Health Products Manufacturer

Example 2: Telephone Services company

Performance Vs. Importance in Deriving Satisfaction Matrix

7 - Organization Culture and Quality

8 - Assessment of Current Quality Activities

9- National Quality Awards

National Institute of Standards and Technology (NIST)

Areas: Industry Services Small Business Education Health Care

Each country has its own System and regulatory body

Baldrige Criteria For Performance

EFMQ Excellence Model

10 - ISO 9000 Quality System Standards

Developed by International Organization for Standards

Minimum Criteria for quality Systems

Required to meet domestic and International competition

Some industries have their own quality systems (Example QS9000 for Automotive Industry). These systems includes ISO 9000 and additional industry related standards

ISO Do not emphasis on results, but rather on Existence of quality systems

Baldrige Criteria Focus on Customer Satisfaction.

Baldrige and ISO 9000 complement each other

Questions/Queries