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Cost of uality

Introduction to. Cost of uality. presented by L.Daniel Crowley, CCP, CSTE QA Manager, IDX Seattle. SASQAG. July 16, 1998. م DENAB Quality Sys. 1998. Cost of uality Schedule. Introduction Principles of CQI (TQA) and Cost of Quality Strategy for COQ COQ Categories

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Cost of uality

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  1. Introduction to Cost of uality presented byL.Daniel Crowley, CCP, CSTE QA Manager, IDX Seattle SASQAG July 16, 1998 م DENAB Quality Sys. 1998

  2. Cost of uality Schedule • Introduction • Principles of CQI (TQA) and Cost of Quality • Strategy for COQ • COQ Categories • Implementation of COQ

  3. Total Quality AssuranceScope of Influence on Product Quality Touch Labor Non-Touch Labor Supervisor & Managers CEO, VP, & Directors Owners & Public LDC, 9/86

  4. TOTAL QUALITY ASSURANCEElements for Success Quality planning Process Quality Cost of Quality Control Problem Solving LDC 10/88

  5. Running a company by profit alone is like driving a car by looking in the rearview mirror. It tells you where you’ve been, not where you are going! Dr. E. Deming Cost of uality

  6. Cost of ualityGoal • The goal of a Cost of Quality system is to: • Facilitate Quality Improvements that leads • to operating cost reduction Opportunities. ASQC, "Principles of Quality Costs", 1986

  7. Cost of uality Definition • The cost difference between present operation and • the possible operation of a business with all • systems and employees at 100% performance. • or • The difference between actual revenues and what • revenues could be if all customers were always • satisfied, that is , No Unhappy Customers. LDC 10/88

  8. Cost of uality Cost of Quality is Not: An Exact Cost. A Performance Measurement.

  9. % Sales 50 40 30 20 10 5 Operation Costs Material Costs Overhead Costs Gen. & Admin. Costs Defect Reports Labor Hours Recode/Redesign Customer Complaints Cost of uality Measurement of a Company’s Health Financial Data Percentage of Sales Dollar • Factory Data

  10. Bugs Returned Goods Recode Qual. Dept. Warranty Interface Errors Costs Product Liability Quotation Errors Missed Deadlines Configuration Errors Complaint Handling Help Desk Training Bad Market Reviews Field Service Process Slowdown Poor Documentation Lost Market Share Software Patches Cost of uality Iceberg 12/88 LDC

  11. Is Cost related to YES PREVENTION Prevention of Non- Conformance ? NO Is Cost related to YES APPRAISAL Evaluating the Conformance ? NO INTERNAL FAILURE Is Non-Conformance Is Cost related to found prior to YES YES Non-conformance ? Shipment ? NO NO Not a Quality Cost EXTERNAL FAILURE Cost of uality Element Decision Flow

  12. Cost of uality Examples of Elements • PREVENTIONDesign Quality Progress ReviewsRequirements DocumentationSQA TrainingCleanroom Software Engineering • üINTERNAL FAILURERecode/Repair LaborDefect Tracking & ReportsRequirement ChangesDown Hardware • APPRAISALUnit Testing Regression Testing Automated Test Tools User Interface Reviews • EXTERNAL FAILUREReturned Goods Liability Costs Help Desk Lost Sales/Market Share LDC 10/88

  13. Corrective Action vs Failure Cost of uality • Corrective Action is paid for Once, • Whereas Failure to take corrective action maybe paid for over and over again.

  14. Strategy Premise Cost of uality • The Strategy is based on the premise that: • For each failure there is a root cause. • Causes are preventable. • Prevention is always cheaper. ACQC, Principles of Quality Costs, 1986

  15. Cost of uality Strategy for using Quality Costs • Take direct attack on FAILURE costs,try to drive to zero $. • Invest in the "right" PREVENTION activities to bringabout improvements. • Reduce APPRAISAL costs according to results achieved. • Continuously evaluate and redirect PREVENTION effortsto gain further improvement. ASQC, Principles of Quality Costs, 1986

  16. Cost of uality Recipe for Success 1. 2. 3. 4. 5. 1. Educate & Develop: Management & Employee Support 2. Collect, Analysis and Report Cost of Quality Data 3. Involve & Support Corrective Action Teams (CAT) 4. Implement Changes recommended by CAT 5. Go to Step #2 (expand data items collected)

  17. Appraisal Prevention Internal Failures External Failures Cost of uality NORMAL DISTRIBUTION Total Sales Cost of Quality% TOTAL SALES C O Q $$$

  18. Appraisal 2% $.04 Mil 20% $3.6 Mil Prevention Internal Failures 45% $8.0 Mil External Failures 33% $5.9 Mil Cost of uality Example based on 14% COQ Sales = $127 Million COQ @ 14% SALES COQ $17.8 Mil. 1/20/89 LDC

  19. Evolutionary Phases C O Q Cost of uality Implementation (Selling) Phase Project (Pilot) Phase Expand & Ongoing Phase LDC 10/88

  20. Cost of Quality HistoryPrevention & Appraisal Costs Start COQ 25 % 20 o f Prev. 15 S Appr. a 10 l e 5 s COQ 0 1/98 3/98 1/99 3/99 1/00 3/00 Quarters

  21. Cost of Quality HistoryFailure Cost Start COQ 25 % 20 o f 15 S a 10 In. Fail. l Ex. Fail. e 5 s COQ 0 1/98 3/98 1/99 3/99 1/00 3/00 Quarters

  22. Cost of Quality HistoryCOQ as a Percentage of Sales Prev. Appr. In. Fail. Ex. Fail. COQ Start COQ 25 % 20 o f Sales 15 S a 10 l e 5 s 0 1/98 3/98 1/99 3/99 1/00 3/00 Quarters

  23. OPTIMUM DISTRIBUTION Cost of uality Appraisal Cost of Quality% Prevention Internal Failures TOTAL SALES External Failures C O Q $$$

  24. Cost of uality Est. Cost to Fix a Bug at Various Stages $10 $20 $30 $50 $200 $800 $1500 LDC 10/88

  25. Cost of uality - PARETOAccumulated Cost per Item Type 1 2 3 4 5 6 7 8 9 10 11 12 $3000 $0 $500 $1000 $1500 $2000 $2500 X 1000 $ COST OF QUALITY

  26. Benefits of Improved Quality Decreases Defects Overall Costs Returned Goods Employee Turnover Customer Complaints Owner & Mgmt. Stress Increases Revenue Sales Capacity Employee Satisfaction Customer Satisfaction Market Share Competitive Edge Personal Time Away

  27. QUALITY is KEYCHAIN of ELEMENTS Q Skills Training Culture Recognition Mgmt. Commitment Corrective Action Quality Improvement Teams Teams Define Quality Concept Requirements Training Measurement Cost of Awareness/ Quality communication 12/88 LDC

  28. Total Quality AssuranceRequired Attitudes for Success The Customer is the Next Operation Touch Labor ONE WAY Plan & Design in Quality Non-Touch Labor Supervisor & Make Quality Decisions Managers Select Quality Before CEO, VP & Directors Schedule & Profits Demand & Buy Only Quality Owners & Public LDC, 12/89

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