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Chapter 13 Quality Management and Measurement

This chapter explores the evolving concept of quality management, highlighting the financial and non-financial costs associated with quality. It introduces key frameworks such as Six Sigma and ISO standards, discussing how organizations utilize awards like the Deming and Baldrige Awards to benchmark their quality processes. The chapter emphasizes the importance of planned obsolescence, reliability, customer service, and strategic process mapping aimed at ingraining best practices for efficiency. Additionally, it provides insights into cost metrics, helping organizations better understand and manage their overall cost of quality.

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Chapter 13 Quality Management and Measurement

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  1. Chapter 13Quality Management and Measurement ACG 2071 Fall 2007

  2. Learning Objectives: • The Evolving Concept of Quality • Financial Costs of Quality • Nonfinancial Costs of Quality • Awards and Organizations that recognize Quality Use only with permission of Susan Crosson

  3. The Evolving Concept of Quality • Planned Obsolescence • Return on Quality • Quality Product • Reliability: Six Sigma, ISO 9000, ISO 14000 • Best in Class: Deming and Baldrige Awards • Quality Processes • Customer Service • Benchmarking against Best in Class • Process Mapping to engrain Best Practices and improve efficiencies • Quality Lifestyle • Zero defections of customers Use only with permission of Susan Crosson

  4. Financial Costs of Quality • Conformance Costs • Prevention Costs • Appraisal Costs • Lead Indicators • Nonconformance Costs • Internal Failure Costs • External Failure Costs • Lag Indicators • Table 1 Use only with permission of Susan Crosson

  5. Financial Costs of Quality Look and listen SE 3: Identify the financial cost of quality type? • Policy processing improvements CC-P • Customer complaints response NC-E • Policy writer training CC-P • Policy error losses NC-E or I ….depends on who discovered the error • Policy proofing CC-A CC=Conformance cost either Prevention or Appraisal NC=Nonconformance either Internal or External Failure

  6. SE 3 Example continued: Compute CC/TCQ and NC/TCQ? • $ 76,400 Policy processing improvements • $ 12,300 Policy writer training • $ 39,500 Policy proofing • $128,200 Total Conformance Costs (CC) CC/TCQ = $128,200/$245,000 = 52% • $ 34,100 Customer complaints response • $ 82,700 Policy error losses • $116,800 Total Nonconformance Costs (NC) NC/TCQ = $116,800/$245,000 = 48% • Total Cost of Quality (TCQ): $128,200 + $116,800 = $245,000

  7. SE 3 Example continued —assume Net Sales $10,000,000: Compute CC/Net Sales and NC/Net Sales? • $ 76,400 Policy processing improvements • $ 12,300 Policy writer training • $ 39,500 Policy proofing • $128,200 Total Conformance Costs (CC) CC/Net Sales = $128,200/$10,000,000 = 1.28% • $ 34,100 Customer complaints response • $ 82,700 Policy error losses • $116,800 Total Nonconformance Costs (NC) NC/Net Sales = $116,800/$10,000,000 = 1.17% • What do these ratios indicate?

  8. Lead Indicators…. • Product Design-CAD • Vendor Performance-SCM • Production Performance-CIM • Delivery Cycle Time-ERM & SCM • Customer Satisfaction-CRM • Table 2 Nonfinancial Costs of Quality

  9. Delivery Cycle Delivery Purchase Production Delivery Cycle = Order + Cycle + Time Time Lead time Time Look and listen SE 7: Week 1: 9.9 days = 2.4 + 3.5 + 4.0 Week 4: 9.0 days + 2.5 + 3.2 + 3.3 Use only with permission of Susan Crosson

  10. Homework • P 1 Use only with permission of Susan Crosson

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