Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Cost of quality
Basic concept: <ul><li>Cost of quality refers to the sum of costs incurred to prevent non-conformance from happening and t...
Why do we need to know COQ? <ul><li>This tool speaks in the language of management  $$$$ </li></ul><ul><li>Research shows ...
Hidden Failure Costs Scrap  Warranty  Rework  Decreased capacity  Increased inventory Shop and field downtime  Management ...
Cost of quality – categories  1 -   Cost of achieving good quality Prevention Costs  Appraisal Costs 2 -  Cost of poor qua...
Preventive costs: <ul><li>Preventive costs are the cost of all activities specifically designed to prevent poor quality pr...
Examples of preventive costs: <ul><li>Process Capability studies </li></ul><ul><li>Market surveys </li></ul><ul><li>Pilot ...
<ul><li>These are the costs associated with measuring, evaluating or auditing product or service to assure conformance to ...
<ul><li>Internal audits </li></ul><ul><li>Incoming material inspection </li></ul><ul><li>Laboratory testing </li></ul><ul>...
<ul><li>These are the costs incurred when product or service fail to meet quality requirements prior to the transfer of ow...
Examples of internal failure costs: <ul><li>Rework </li></ul><ul><li>Scrap </li></ul><ul><li>Overtime  </li></ul><ul><li>D...
<ul><li>These are the costs incurred by a business due to failure of product or service at the customer end. These costs r...
<ul><li>Warranty costs </li></ul><ul><li>Customer dissatisfaction </li></ul><ul><li>Loss of market share </li></ul><ul><li...
Measuring cost of quality <ul><li>COQ data can be measured and presented in many different ways. </li></ul><ul><li>% age o...
Steps in implementing quality costs <ul><li>The following sequence applies to most organizations   </li></ul><ul><li>Revie...
<ul><li>Publish a draft of the categories defining the cost of poor quality </li></ul><ul><li>Finalize the definitions and...
Case study: H&S motors <ul><li>The H&S motor company produces small motors for use in lawnmowers and garden equipment.  Th...
Key points of study: <ul><li>Approximately 75% of the H&S’s total quality costs are a result of internal and external fail...
<ul><li>The H&S company also desired to develop index numbers using quality costs as a proportion of sales. </li></ul><ul>...
Conclusion: When the cost of achieving good quality increases; cost of poor quality decreases automatically.
Benefits of using quality costs <ul><li>Quantify the size of the quality problem </li></ul><ul><li>Identify major opportun...
Upcoming SlideShare
Loading in …5
×
Upcoming SlideShare
Cost of quality
Next
Download to read offline and view in fullscreen.

76

Share

Download to read offline

Cost of quality

Download to read offline

Related Books

Free with a 30 day trial from Scribd

See all

Cost of quality

  1. 1. Cost of quality
  2. 2. Basic concept: <ul><li>Cost of quality refers to the sum of costs incurred to prevent non-conformance from happening and the costs incurred when non-conformance in products and system occurs which is commonly known as cost of poor quality </li></ul>Cost of poor quality is actually the cost of doing things wrong Cost of poor quality refers to the costs associated with providing poor quality product or service
  3. 3. Why do we need to know COQ? <ul><li>This tool speaks in the language of management $$$$ </li></ul><ul><li>Research shows that cost of poor quality can range from 15 % to 40 % of the business costs </li></ul><ul><li>It can prioritize quality improvement actions </li></ul><ul><li>Cost of quality data shows how profit is affected by quality </li></ul><ul><li>It helps identify the redundant activities </li></ul>
  4. 4. Hidden Failure Costs Scrap Warranty Rework Decreased capacity Increased inventory Shop and field downtime Management time Engineering time Customer dissatisfaction Lost sales Lost customer trust
  5. 5. Cost of quality – categories 1 - Cost of achieving good quality Prevention Costs Appraisal Costs 2 - Cost of poor quality Internal failure Costs External failure Costs Quality costs fall into two main categories:
  6. 6. Preventive costs: <ul><li>Preventive costs are the cost of all activities specifically designed to prevent poor quality product or service. </li></ul><ul><li>These costs are incurred to keep appraisal and failure costs at minimum. </li></ul>
  7. 7. Examples of preventive costs: <ul><li>Process Capability studies </li></ul><ul><li>Market surveys </li></ul><ul><li>Pilot scale projects and testing </li></ul><ul><li>Procedure writing </li></ul><ul><li>Vendor evaluation and testing </li></ul><ul><li>Training and education </li></ul><ul><li>Quality improvement projects </li></ul><ul><li>Customer survey </li></ul><ul><li>House keeping </li></ul><ul><li>Design review </li></ul>
  8. 8. <ul><li>These are the costs associated with measuring, evaluating or auditing product or service to assure conformance to standard or performance requirement. </li></ul>Appraisal costs:
  9. 9. <ul><li>Internal audits </li></ul><ul><li>Incoming material inspection </li></ul><ul><li>Laboratory testing </li></ul><ul><li>Calibration costs </li></ul><ul><li>In process material inspection </li></ul><ul><li>Equipment calibration </li></ul><ul><li>Procedure evaluation </li></ul><ul><li>Final product inspection </li></ul><ul><li>Automated testing tools </li></ul>Examples of Appraisal costs:
  10. 10. <ul><li>These are the costs incurred when product or service fail to meet quality requirements prior to the transfer of ownership to the customer. </li></ul>Internal failure cost
  11. 11. Examples of internal failure costs: <ul><li>Rework </li></ul><ul><li>Scrap </li></ul><ul><li>Overtime </li></ul><ul><li>Downtime </li></ul><ul><li>Excess inventory </li></ul><ul><li>Excess material handling </li></ul><ul><li>Redesign </li></ul><ul><li>Downgrading </li></ul><ul><li>Retesting </li></ul><ul><li>100% sorting inspection </li></ul><ul><li>Scrap & rework - supplier </li></ul>
  12. 12. <ul><li>These are the costs incurred by a business due to failure of product or service at the customer end. These costs results into warranty claims and loss of reputation. </li></ul>External failure cost
  13. 13. <ul><li>Warranty costs </li></ul><ul><li>Customer dissatisfaction </li></ul><ul><li>Loss of market share </li></ul><ul><li>Price concession </li></ul><ul><li>Premium freight </li></ul><ul><li>Product recalls </li></ul><ul><li>Time spent to resolve customer complaints </li></ul><ul><li>Restocking costs </li></ul><ul><li>Other penalties </li></ul>Examples of external failure costs:
  14. 14. Measuring cost of quality <ul><li>COQ data can be measured and presented in many different ways. </li></ul><ul><li>% age of sales </li></ul><ul><li>% age of profits </li></ul><ul><li>% age of manufacturing cost </li></ul><ul><li>Rs per direct labor hr </li></ul><ul><li>Rs per unit of product </li></ul>
  15. 15. Steps in implementing quality costs <ul><li>The following sequence applies to most organizations </li></ul><ul><li>Review the literature on quality costs or consult others in similar industries who are using the same tool. </li></ul><ul><li>Select one organizational unit of the company to serve as a pilot site </li></ul><ul><li>Discuss the objectives of the study with the key people in the organization </li></ul><ul><li>Collect whatever cost data are conveniently available from the accounting system </li></ul><ul><li>Make a proposal to management for a full study </li></ul>
  16. 16. <ul><li>Publish a draft of the categories defining the cost of poor quality </li></ul><ul><li>Finalize the definitions and secure management approval </li></ul><ul><li>Secure agreement on responsibility for data collection and report preparation </li></ul><ul><li>Collect and summarize the data </li></ul><ul><li>Present the cost results to management along with the results of a demonstration quality improvement project </li></ul>
  17. 17. Case study: H&S motors <ul><li>The H&S motor company produces small motors for use in lawnmowers and garden equipment. The company instituted a quality improvement program in 1999 and has recorded the following quality cost data and accounting measures for 4 years. </li></ul><ul><li>The company wants to assess its quality assurance program and develop quality index using sales basis for the 4 year period. </li></ul>
  18. 18. Key points of study: <ul><li>Approximately 75% of the H&S’s total quality costs are a result of internal and external failures. </li></ul><ul><li>In 2000 company spent more money on product monitoring and inspection that resulted into high appraisal cost. </li></ul><ul><li>With this strategy, H&S was able to identify more defective items, resulting in an apparent increase in internal failure cost and lower external failure cost. </li></ul><ul><li>In year 2001 & 2002 company spent more money on prevention activities i.e. training of employees, redesigning the production process and planning how to build in product quality etc. </li></ul><ul><li>Prevention costs increased by more than 300 % during the 4 year period resulted into decrease in overall quality costs. </li></ul>
  19. 19. <ul><li>The H&S company also desired to develop index numbers using quality costs as a proportion of sales. </li></ul><ul><li>Quality index no. for 1999 sales is: </li></ul><ul><li>= (810,400/4,360,000)*100 = 18.58 and similarly for other years: </li></ul><ul><li>These index no's alone provide little insight into the effectiveness of the quality management program; however as a standard to make comparisons over time they can be useful. </li></ul>10.49 2002 12.66 2001 19.32 2000 18.58 1999 Quality sales index Year
  20. 20. Conclusion: When the cost of achieving good quality increases; cost of poor quality decreases automatically.
  21. 21. Benefits of using quality costs <ul><li>Quantify the size of the quality problem </li></ul><ul><li>Identify major opportunities for cost reductions </li></ul><ul><li>It helps in Identification of opportunities for reducing customer dissatisfaction and associated threats to product salability </li></ul><ul><li>Measures the results of quality improvement activities </li></ul><ul><li>Align quality goals with organizational goals </li></ul><ul><li>Set cost reduction targets </li></ul>
  • SaidivyaBitragunta

    Aug. 23, 2021
  • YanyanSolehuddin

    Mar. 14, 2021
  • UjjwalShahi3

    Jan. 4, 2021
  • SaadRamadan6

    Dec. 5, 2020
  • ShreyaPattanshetti

    Dec. 22, 2019
  • ShruP2

    Nov. 21, 2019
  • MariamOmar12

    Nov. 7, 2019
  • AkshayDalvi22

    Sep. 30, 2019
  • HelmyElattar

    Sep. 23, 2019
  • BaljitSingh54

    Sep. 22, 2019
  • jagadeeshamh

    Sep. 12, 2019
  • MoNy3

    May. 10, 2019
  • LoveneeshSingh2

    May. 9, 2019
  • rajeshwargola

    Mar. 11, 2019
  • kartikkulkarni19

    Mar. 5, 2019
  • Gowthamkrish82

    Dec. 30, 2018
  • HalimHafiz1

    Nov. 11, 2018
  • KrishnaSharma250

    Sep. 26, 2018
  • MissnunuKhin

    Aug. 3, 2018
  • attakornjaitone

    May. 13, 2018

Views

Total views

75,473

On Slideshare

0

From embeds

0

Number of embeds

203

Actions

Downloads

3,017

Shares

0

Comments

0

Likes

76

×