Quality Concepts (Chapter 2, Quiz 1) PDF

Quality Concepts 15 The big “Q” approach to quality is the closest to total quality management. The starting point consists of the customers and their needs. Customer needs are converted into product features, which are then optimized to maximize customer satisfaction by providing maximum quality...

Quality Concepts 15 The big “Q” approach to quality is the closest to total quality management. The starting point consists of the customers and their needs. Customer needs are converted into product features, which are then optimized to maximize customer satisfaction by providing maximum quality at the least cost. The emphasis in the manufacturing process is on “zero defects” rather than correction or rework. The mechanism that provides feedback information on product quality provides a high degree of learning that is aimed at preventing a recurrence of errors in the process. People are considered the major variables in many processes and efforts are made to enable them to perform tasks without error. A conscious effort is made to train employees in handling tools and empower them to do the job right the first time. Source: Adapted from Debashis Sarkar, The Manager’s Handbook for Total Quality Management (Beacon Books, 1998). DISCUSSION FORUM 1. Discuss the five paradigms of quality. 2. List Garvin’s eight dimensions of product quality. 3. List SERVQUAL’s five dimensions of service quality. cost of Q ua l I t y (cOQ) 5 Cost of quality measures the impact of quality of any business. It is defined as the cost of those activities, which an organization or process has incurred over and above the minimum costs required to do the job well. This is the amount of money a business loses because its products or services failed to secure customer satisfaction in the first place. Businesses lose money everyday due to poor quality. For most businesses, these losses can range from 15 per cent to 30 per cent of their total costs. By addressing COQ, companies can look to adding 10 per cent to 15 per cent of the total costs to the bottom line without any capital investment. Any cost associated with correcting failure or waste comes under quality costs, as do any assurance or approval activities built in to cushion customers from the effects of such failures. A further set of activities are those in which organizations attempt to prevent such failures from occurring at all. Cost of quality is, therefore, the sum of all costs a company invests into the release of a quality product/service. Cost of quality has two main components—cost of conformance and cost of nonconformance. Cost of conformance is the cost of providing products or services as per the required standards. This can be termed as a good amount spent (prevention and appraisal costs). Cost of non-conformance refers to failure costs associated with a process not operating according to the requirements. This can be termed as unnecessary amount spent (internal and external failure costs). Cost of Quality Cost of Conformance Cost of Non-conformance Essentially, quality costs are defined as the total costs incurred by (1) Investing in the prevention of non-conformance to requirements, (2) Appraisal of a product or service for conformance to requirement and (3) Failure to meet requirements. Table 1.6 shows the costs associated with poor quality. 1. Prevention costs: These are the costs associated with trying to prevent failure and arise from efforts to keep defects at bay. Prevention activities lead to the reduction of failure Bird’s-eye view: Cost of poor quality (COPQ): The costs associated with providing poor quality products or services. There are four categories: internal failure costs, external failure costs, appraisal costs and prevention costs 16 Total Quality Management Bird’s-eye view: 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. Table 1.6 The Costs of Quality Category Measure of Quality Failure cost (internal and external failure) Scrap, rework, labour, sorting, downtime, slowdown, complaints, investigations, travel, recall, unpaid invoices, lost sales Receiving, in-process and final inspection, test equipment, test technicians, special tests, laboratory maintenance, quality control, quality control overheads Quality planning, design tolerances, training, house keeping, packaging, special sourcing, lifecycle tests, field tests, pre-production tests, shelf-tests, inventories, cash flow Appraisal Prevention Bird’s-eye view: 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. Bird’s-eye view: 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. Bird’s-eye view: 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. Mapping of Quality Costs  Operating costs  Operating expenses (labour)  Variable expenses  Losses  Operating expenses  Fixed expenses  Depreciated assets (equipment)  Fixed assets (technicians)     Operating expenses Fixed expenses Variable assets (cash flow) Inventory and appraisal costs. The motto is prevention rather than appraisal. The activities associated with prevention costs are training and education, market research, quality planning, quality improvement projects, supplier evaluation, design review, contract review, field trials and preventive maintenance. 2. Appraisal costs: These are costs to determine conformance with quality standards and performance requirements. These costs arise from detecting defects. Appraisal activities are associated with discovery of defects rather than their prevention. The activities associated with appraisal costs are inspection, checking, auditing, surveying, inquiries, prototype testing, vendor surveillance and calibration of measuring and test equipment. 3. Failure costs: The costs resulting from products or services not conforming to requirements or customer/user needs are termed failure costs and can be divided into categories such as internal and external failure costs.  Internal failure costs: Internal failure costs arise when results of work fail to reach designated quality standards, and are detected before transfer to the customer takes place. Activities associated with internal failure costs are scrap, rework, downgrading, design changes and corrective action.  External failure costs: These costs occur when the product or service is offered to the customer and found to be defective. External failure costs can be higher than internal failure costs because the stakes are much higher. These may also influence the company’s reputation leading to a loss in customers. These costs include post-release customer and technical support. External failure costs occur when the product or service from a process fails to reach designated quality standards, and is not detected until after transfer to the customer. Activities associated with external failure costs are returned products, product recalls, rejected services, unhappy customers, warranty claims, processing/investigation of customer complaints, interest charges on delayed payment due to quality problems. Total quality costs: The sum of all the above costs. It represents the difference between the actual cost of a product or service and what the reduced cost would be if there were no possibility of substandard service, failure of products or defects in their manufacture. Quality Concepts Size of Four Categories of Quality Costs6 Figure 1.2 displays various cost elements and Figure 1.3 shows the COQ model, which is often referred to as the preventive, appraisal, failure (PAF) model. The relationship between various cost elements is explained below:  In organizations which do not follow TQM, there is less emphasis on prevention of defects while main quality efforts focus on appraisal with very little control on internal and external failure costs.  Various studies have shown that quality costs in manufacturing companies the world over, range from 20 per cent to 30 per cent of the turnover and in the case of service companies it can go up to 40 per cent.  A penny of prevention is worth a pound of cure. The relationship between costs is expressed as 1:10:100. It means that an expenditure of Re 1 on prevention can brings about savings of Rs 10 on appraisal and Rs 100 on failure costs. This rule will help one to prioritize expenditure. Any expenditure on prevention is sure to bring greater returns. Fig. 1.2 Various Quality Cost Elements Quality costs Conformance Prevention Non-conformance Appraisal Internal failure Fig. 1.3 PAF Model Prevention Appraisal Failure External failure 17 18 Total Quality Management Bird’s-eye view: Cost of quality is also an important communication tool. Philip Crosby demonstrated what a powerful tool it could be to raise awareness of the importance of quality. Fig. 1.4 Hidden Costs of Poor Quality Scrap Rework Warranty Engineering time Management time Shop and field downtime Increased inventory Decreased capacity Delivery problems Lost orders Commonly measured failure costs True failure costs Hidden failure costs Hidden Quality Costs There are also costs incurred when trying to understand the costs of poor quality. Figure 1.4 illustrates both the obvious and hidden costs for a manufacturing company. These hidden costs include:  Potential lost sales.  Costs of redesign due to poor quality.  Costs of changing manufacturing processes due to the inability to meet quality requirements.  Costs of software changes attributed to quality reasons.  Extra manufacturing costs due to defects.  Scrap not reported.  Costs included in standards because history shows that a certain level of defects is inevitable and allowances should be made when formulating the standards.  Excess process costs for creating an acceptable product. Bird’s-eye view: Crosby referred to the measure as the “price of nonconformance” and argued that organizations choose to pay for poor quality. Total Quality Costs This is the sum of prevention costs, appraisal costs and failure costs. It represents the difference between the actual cost of a product or service and what the reduced cost would be, if there was no possibility of substandard service, failure of products, or defects in their manufacture. Figure 1.5 shows a model for optimum quality cost and the total quality cost curve. The optimum quality cost model shows the following three curves7: 1. Failure costs: These equal zero when the product is 100 per cent perfect, and the costs rise to infinity when the product is 100 per cent good, and fall to infinity when the product is 100 per cent defective. 2. Costs of appraisal plus prevention: These costs are zero when the product is 100 per cent defective and rise as perfection is achieved. 3. Total quality cost curve: The sum of curves 1 and 2. It represents the total cost of quality per good unit of the product. Quality Concepts 19 Fig. 1.5 Model for Optimum Quality Cost Costs Zone of improvement projects 100% Defective Zone of indifference Quality of conformance Zone of high appraisal costs 100% Good Total quality cost curve Optimum Prevention and appraisal costs Failure costs ECL ECL Economic conformance level Conformance level Total quality cost curve divides into three zones. The zone a company is in can usually be identified from the prevailing ratios of the quality costs in the principal categories as follows: Zone of Improvement Projects: This is the left-hand portion of the total quality cost curve. Failure costs constitute more than 70 per cent of the total quality costs while prevention costs are less than 10 per cent of the total. In such cases, there are opportunities for reducing total quality costs by improving the quality of conformance. The approach is to identify specific improvement projects and pursue them to improve the conformance, thereby reducing the costs of poor quality, especially failure costs. Zone of High Appraisal Costs: This is the right-hand portion of the total quality cost curve. It is usually characterized by the fact that appraisal costs exceed failure costs. In such cases there are also opportunities to reduce costs. Zone of Indifference: This is the central area of the total quality cost curve. In this zone, the failure costs are usually about half the quality costs while prevention costs are about 10 per cent of the quality costs. In the indifference zone, the optimum has been reached in terms of worthwhile quality improvement projects to be pursued. Continuous improvement is always desirable, but the projects compete against other worthwhile projects, which have not yet attained optimum levels. The costs associated with poor quality are due to both sporadic and chronic quality problems7 (see Figure 1.6). A sporadic problem is a sudden, adverse change in the status quo, which requires remedy through restoration of the status quo. A chronic problem is a longstanding, adverse situation, which requires remedy through a change in status quo. The distinction between chronic and sporadic problems is important for two reasons: 1. The approach to solving sporadic problems differs from that used to solve chronic problems. The control process attacks sporadic problems. Chronic problems use the improvement process. 2. Sporadic problems are dramatic and must receive immediate attention. Chronic problems occur over a period of time, are often difficult to solve and are accepted as inevitable. Bird’s-eye view: The costs associated with poor quality are due to both sporadic and chronic quality problems. Bird’s-eye view: A sporadic problem is a sudden, adverse change in the status quo, which requires remedy through restoration of the status quo. Bird’s-eye view: A chronic problem is a long-standing, adverse situation, which requires remedy through a change in status quo.