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7/28/2019 Cost of quality.pdf
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COST OF QUALITY
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COST OF QUALITY
Cost of quality is defined as the cost associated with the
non-achievement of product/service quality
Thus defined by the requirements established by the
organization and its contracts with customer and society.
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COST OF QUALITY
It is the cost of poor products/services
Difference between actual cost of making and selling
products/services and cost of no failure.
Means to gauge the RETURN OF QUALITY in an
organization and how this return impacts the bottom line.
COST OF QUALITY forms an integral part of an
effective TQM Model.
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ELEMENTS OF QUALITY COST
There are four categories:
Cost of prevention
Cost of appraisal
Cost of internal failure
Cost of external failure.
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COST OF PREVENTION
The cost of any action taken to investigate, prevent orreduce the risk of non-conformity or defect.
Preventing a quality problem from arising.
Prevention costs relate to efforts to prevent failures.
Example : Planning, Preparation, Training,
Preventive Maintenance and Evaluation.
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COST OF PREVENTION
Cost of quality planning
Cost of documentation
Process control cost
Cost of training
Cost preventing the recurring defects
Cost of investigation, analysis and correction of causes ofdefects by quality control and engineering department
Cost of quality awareness program
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COST OF APPRAISAL
The costs of evaluating the achievement of qualityrequirements including the cost of verification andcontrol performed at any stage of the quality loop
Example :
Production Trial, Test , Execution and
Examination to asses whether specified quality is
being maintained.
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COST OF APPRAISAL
Cost of receiving test and inspection.
Cost of laboratory acceptance testing.
Cost if installation testing.
Cost of installation and commissioning.
Cost of maintenance and calibration of testing and inspecting equipments.
Cost of test equipment depreciation.
Cost of analysis of reporting of test and inspection results.
Cost of line quality engineering.
Cost of vendor rejects.
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COST OF INTERNAL FAILURES
Internal failures costs arise due to internal failures.
These are the costs arising within organization due
to non-conformity or defects at any style of the
quality loop.
These costs are linked to correcting mistakes beforedelivery of the product.
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Cost of internal failures
Cost associated with scraps and rejects.
Cost of repair and rework.
Cost of design changes.
Cost of trouble-shooting or defect failure analysis.
Cost of re-inspection & retesting.
Cost of sales discounts for inferior products.
Cost of downgrading.
Cost of downtime.
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COST OF EXTERNAL FAILURES
These are the costs arising after delivery to the
customer due to non-conformities or defects.
These costs are associated with the adjustment of
malfunctioning after delivery of the product.
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COST OF EXTERNAL FAILURES
Cost of processing complaints from the customers.
Cost of commissioning failures.
Cost of servicing or replacing the defective item.
Cost of guarantee & warranty claims.
Cost of lost goodwill of customers.
Cost of product reliability compensation (voluntary/legal).
Cost of loss of sales.
Cost of concessions offered to customers (due to substandard productsbeing accepted by customers).
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The last two of the Pandavas
COST OF CONFORMANCE ( COC ) Both Preventive and Appraisal Costs are known as the
Costs of Conformance.
The cost of doing things right the first time.
COST OF NON-CONFORMANCE ( CONC )
Both Internal and External Failure Costs are known asthe Costs of Non-Conformance.
The cost incurred as a result of things not being doneright the first time.
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IDENTIFICATION OF CONFORMANCE COST
ITEMS
Step 1 : Develop and Prepare Cost of Conformance
(COC ) Checklist :
PreventionPlanning and Writing of
Procedures and Instructions
Vendor Assurance
Process Capability Studies
Quality TrainingQuality Improvement Programs
Collection, Analysis &
Reporting of Quality Data
AppraisalIn-coming Inspection
In-process Inspection
Final Testing and Inspection
Production Trial
Materials consumed during
Inspection and Testing
Field Performance Testing
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Step 2 : Evaluate The Identified Cost of
Conformance ( COC ) Items.
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IDENTIFYING NON-CONFORMANCE COST (
CONC ) ITEM
Step 1 : Develop and Prepare Cost of Non-Conformance (CONC ) Checklists
Internal Failure
1. Rework
2. Scrap3. Obsolescence
4. Downtime
5. Sub-contractor faults
6. Replacement
7. Defect / Failure Analysis
8. Re-inspection and Re-testing
9. Downgrading
10. Accidents
11. Improper Invoicing
External Failure
1. Complaints
2. Warranty Claim3. Bad Debts
4. Returned Products
5. Concessions
6. Loss of Sale
7. Product Liability
8. Extended Warranty
9. Product Recall
10. Overdue Accounts Receivable
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Step 2 : Evaluate The Identified Cost of Non-
Conformance ( CONC ) Items.
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QUANTIFICATION OF COST OF QUALITY
( COQ )
Step 1 : Source of COC and CONC Data
Production Records
QC Records
Operation Records Accounting Records
Step 2 : Develop and Formulate Accounting
Basis.
Step 3 : Execute Costing of COQ Items
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Whole Account And Unit Pricing
Whole Account This method requires gathering existing financial data
from company accounts. If accounts are set up to capture costs, such as training and
rework, information from the accounts can be used to measure COQ.
Unit Pricing
This method is effective when a defect or problem isrecurring. To use defect pricing,
simply multiply the cost of one defective unit by numberof defective units.
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BENEFITS
Acts as method for assessing the overall effectiveness ofthe quality programmes
Act as a method for determining problem areas andaction priorities
Provides a platform for measurement of return oninvestment
Converts the various performance indicators used in thecompany into a single unit-currency
Act as a common method for quantifying qualitative
improvements
DOCUMENTATION TRAINING COMMUNICATION
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DOCUMENTATION, TRAINING, COMMUNICATION
AND
IMPLEMENTATION
It is necessary to document the required changes of
quality activities in a recognized Quality Assurance
Model or ISO 9000 Quality System or an In-house
TQM Manual with a view to train and communicatewith all relevant personnel in implementing the
changes effectively
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PERFORMANCE INDICATIONS AND
MEASUREMENT
Step 1 : Outline the business processes and identify
appropriate Performance Indicators
Step 2 : Establish and Define the proposedPerformance Indicators
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Performance Indicators
General Indicators Productivity Labour Productivity Capital Productivity Space Productivity
ISO 9000 related indicators No. of Complaints per Month Internal Rejection Rate External Rejection Rate Production Yield Cost of Quality
ISO 14000 related indicators Waste Reduction / Minimization Increase Level of Recycling Improve Energy Efficiency
Reduce Environmental Impact
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AUDIT AND REVIEW
Conduct quality audit and management review
regularly in order to assess the effectiveness of
the quantity system.
Initiate appropriate corrective and preventiveaction as and when necessary.
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A PRACTICAL APPROACH
Phase 01: Project Initiation and Preparation
Phase 02: Assessment of Current Business Performance
Phase 03: Project Organization and Assignments
Phase 04: Identification of Major Cost of Conformance
(COC) and Cost of Non-Conformance (CONC) Items.
Phase 05: Identification and Provision of AdditionalTraining Needs.
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Phase 06: Collect, Compile and Process Cost of Quality Data
Phase 07: Analyze Cost of Quality To Identify Opportunitiesfor Improvements.
Phase 08: Organize and Implement Quality Improvement andCost Reduction Programmes.
Phase 09: Establish Continuous Improvement of The Cost ofQuality Performance.
Phase 10: Conduct Quality Audits regularly and InitiateDocument Changes In Response To Improvements made InVarious Processes.
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CONCLUSION
The goal of using COQ is to increase prevention
activities in order to eliminate internal and external
failures and to reduce appraisal activities.
Reduction of COQ must be part of a sustained
quality improvement process in an organization
headed by top management through a TQMProgram.
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THANK YOU