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Quality Cost

TQM for college

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Quality Cost

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  1. QUALITY COSTS

  2. TQM • Was evolved to satisfy the customers in the most economical way. • If it is going to help the organization. In fact, many companies have adopted ISO 9000, TQM and Six Sigma, for growth coupled with profits.

  3. Quality Cost • Is a tool to demonstrate cost of poor quality to the top management as well as the entire organization. It will also highlight the importance of TQM activities to the top management clearly.

  4. Qualitymeans cost effectiveness. -It means reducing expenditure by eliminating waste through systematic quality management approach.

  5. Cost Of Quality (COQ) • is the sum of costs incurred by an organization in preventing poor quality. Three types of Quality Costs • Prevention Costs • Appraisal Costs • Failure Costs

  6. Prevention Costs • are the planned costs incurred by an organization to ensure that no defects occur in any of the stages such as design, development, production and delivery of a product or service.

  7. Appraisal Costs • are incurred in verifying, checking or evaluating a product or service at various stages during manufacturing or delivering.

  8. Failure Costs • are incurred by an organization because the product or service did not meet the expected requirements and the product had to be fixed or replaced or the service had to be repeated. • The failure costs are due to the incurred failure of the organization to control the defects in the product.

  9. Classification of Failure Costs • Internal Failure Costs - includes costs of every failure that takes place before the product is delivered to customers. Examples of internal failure; • Rejected material, supplied by vendor • Rejected pieces of sub-assemblies • Rejected products at final inspection • Scrap on account of poor workmanship • Overtime due to non-conforming products

  10. Classification of Failure Costs • External failure Costs - these are on costs of failure of the product after its delivery to the customer. Examples of external failure; • Warranty • Free replacements given due to failure of items supplied • Costs incurred to travel to customer's site for repair • Costs of products returned • Costs of customer complaint administration • Costs of customer follow up and field service department

  11. Reducing Costs • Reduction of Prevention Costs • Prevention cost has to be incurred. Every preventive activity should have been pre-planned to avoid wastes during the process. Periodically, the senior management should devote time to prevent problems from occurring. The establishment of a Quality System in every organization calls for the preparation of a quality manual and a set of procedures. • Prevention cost means Expenditure

  12. B. Progressive Reduction of Appraisal Costs - Inspection is essential before assessing a new vendor, a new process or a new product line. Inspection generates a lot of information. This information should be utilized skillfully by the organization to reduce future costs.

  13. C. Reduction of Failure Costs - Manufacturing or delivery of a product or a service with defects is a total waste. Everything should be done right the first time and every time. There should be no occasion to reject a product or a service either at the initial stage the intermediate stages or at the final stages. Right the first time will happen only if the processes are streamlined and made effective and efficient.

  14. D. Hidden Costs • These include customer-incurred costs, lost reputation costs and customer dissatisfaction costs. These costs can vary and some times affect business. • Hidden costs can be eliminated only by eliminating external failures.

  15. JURAN’S MODEL Juran's model for quality costs is illustrated in fig. 2.2, the level increases, when the number of defects in the product or service reduces. The costs of non-conformance (failure costs) decreases as quality level improves. The quality level increases when the cost conformance (sum of prevention and appraisal cost) increases. But the figure indicates that 100percent quality is very expensive. The total quality cost is the sum of both. The lowest tip is the optimal cost. The figure gives a feeling that we must put up with some defects.

  16. Total cost of non-conformance = f Total cost of conformance = P Total cost = T = (f+P) Quality level (0 to 100% good product) = q The optimal cost occurs when T is minimum or when dT/dq = 0 since T = f+P ⸹f/dq + ⸹P/dq = 0 or ⸹P/dq = - ⸹f/dq

  17. Here the minimum quality costs occur at 100% quality level. This is the ideal situation. Six sigma quality level is very close to 100%. Thus fig.2.3 represents the current scenario. Zero defect programs should result in costs as given in fig. 2.3. The various costs should be accounted for and periodic analysis conducted. The top management will understand cost of quality easily. Therefore in order to get the support of top management for TQM it is important that quality costs be computed and the results analyzed.

  18. ANALYSIS OF COQ FOR IMPROVEMENT Management should use the COQ data to identify and patronize improvement opportunities. The first priority is to eliminate external failures and then internal failures. Thereafter inspection can be reduced gradually. By spending more money on prevention all these can be achieved. A typical case study given in Table 2.1. Table 2.1 Cost of Quality as a Percentage of Total Manufacturing Cost

  19. ANALYSIS OF EXTERNAL FAILURE COST Similarly an analysis of external failures was made by the organization. The pie chart below indicates the distribution of causes of external failure.

  20. The pie chart gives the priorities for action to be taken as given below: • Improve quality of soldering • Eliminate the cause of failure of diode D1 • Estimate the correct rating of fuse and analyze the causes of failure of fuse. If all the above failures can be eliminated then the failure cost will reduce to about 10percent.

  21. ANALYSIS OF INTERNAL FAILURE COSTS From the data available, the causes for the internal failure costs were analyzed and plotted as a Pareto Diagram. • Wrong component placed • Soldering failure • Other causes

  22. The COQ analysis gives the following benefits to the organization. • Brings out the magnitude of the quality problem in the organization. If further leads to establishing goals for the • organization to improve quality. • Enables cost reduction owing to steps taken for improvement based on analysis • Enables taking steps to improve customer satisfaction • Displaying the results motivates employees to improve further.

  23. Cost of quality can be divided into two categories; • Cost of conformance • Cost of non-conformance

  24. Presented by: Pinky Santos RaldeeNuguid Augusto Perez

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