ch 4 cost of quality jkr
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Introduction to QualityManagement
Cost of Quality
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Quality Costs
Cost incurred by an organization to
ensure that the products/services it
provides conform to customer
requirements.
The sum of money spent on
ensuring that customers
requirements are met.
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Definition of Quality Costs
Quality costs are defined as those
costs associated with the
achievement of product/servicequality as defined by the
requirements established by the
organization and its contracts with
customers and society.
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Elements of Quality costs
1. Cost of Prevention,
2. Cost of Appraisal,
3. Cost of Internal Failures, and
4. Cost of External Failures.
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Type of Quality Cost
1. Cost of Conformance.
2. Cost of Non-Conformance
3. Basic Operational Costs
4. Prevention, Appraisal and
Failure (PAF) Costs
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Cost of Conformance (COC)
Cost of Conformance (COC) is the cost
which an organization incurs in meeting
the requirements of its customers.
A strong element of this cost is the money
that a company spends on the product
for preventing it from going wrong or
checking the product right before it
reaches the customer.
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Cost of Non-Conformance (CONC)
The cost ofnon-conformance to
customer requirements are the
failure costs.
These costs are incurred by a
company in repairing what has
gone wrong during
manufacturing.
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Basic Operational Costs (BOC)
The basic operational costs
(BOC) are those costs which
an organization cannot
avoid encountering during
the normal performance of
its business.
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Benefits of reducing Cost of Quality
CONC
Cost of
Quality
(CoQ)
Cost ofQualityReduce
d
Improved Customer
Satisfaction
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PAF Model A. V. Feigenbaum
In 1956 he propounded the concept of quality costs.
He defined quality costs as:
Those costs associated with the creation and
control of quality as well as the evaluation and
feedback of conformance with quality, reliability
and safety requirements, and those cost associated
with the consequence of failure to meet the
requirements both within the factory and in the
hands of customer.
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Cost of Prevention
Prevention costs are the cost of any activity
undertaken by a company which prevents things
from going wrong.
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Cost of Prevention may include cost of:
Quality Data Collection
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Cost of Prevention may include cost of:
Quality Improvement Projects
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Cost of Prevention may include cost of:
Field Trials
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Cost of Prevention may include cost of:
Market Research
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Cost of Prevention may include cost of:
Quality planning
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Cost of Prevention may include cost of:
Quality Education and Training
S i x S i g m aK a i z e n F E M A
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Cost of Prevention may include cost of:
Statistical Process Control
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Cost of Prevention may include cost of:
Technical Reviews
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Cost of Prevention may includecost of:
1. Quality Data Collection;
2. Quality Improvement
Projects;
3. Field Trials;
4. Market Research;
5. Quality planning;
6. Quality Education and
Training;
7. Statistical Process
Control; and
8. Technical Reviews
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Cost of Appraisal
Appraisal costs are the cost of all inspection and
checking activities that occur within an organization to
ensure that the product or service does not reach the
customer in a Defective state.
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Cost of appraisal may include cost of:
Goods inspection
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Cost of appraisal may include cost of:
In-progress inspection
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Cost of appraisal may include cost of:
Purchase Order Checking
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Cost of appraisal may include cost of:
Final stock inspection
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Cost of appraisal may include cost of:
Laboratory inspection
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Cost of appraisal may include cost of:
Quality audits
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Cost of appraisal may include cost of:
Financial audits
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Cost of appraisal may include cost of:
Calibration ofquality measurement
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Cost of appraisal may include cost of:
1. Goods inspection;
2. In-progress inspection;
3. Purchase Order
Checking;
4. Final stock inspection;
5. Laboratory
inspection;
6. Quality audits;
7. Financial audits and
8. Calibration of quality
measurement
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Failure Cost
Failure cost can be further divided into:
Internal Failure Costs and
External Failure Costs.
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Internal Failure cost
The internal failure costs are defined
as the non-conformance costs that
result from things going wrong
during the process of manufacture
or service provision.
These costs are detected before the
product reaches the customer.
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Some of the Internal Failure Costsare:
Scrap
Downtime caused by
defects
Rework and repair
Re-inspection of rework
Excess inventory
Typing errors
Failure analysis
Downgrading
because of defects.
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External Failure Costs
The external failure
costs may be defined as
non-conformance costs that
result from the discovery of
defects or errors by the
customer once the product
or service has left the
organization.
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Some of the External Failure Costsare:
Warranty
adjustments Repairs
Customer service
Faulty invoices
Product recalls Returned goods
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Characteristics of quality cost
10%
60%30%
The total price of a
particular product or
service 60% of cost is
operational cost, 30% cost
is quality cost and the rest
10% is profit as stated in
the figure.
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Characteristics of quality cost
The characteristics of quality cost is when we
start to implement TQM in an organization the
cost of non-conformance will be reduced and
pay more attention on cost of conformance.
As a result the quality cost will be reduced to
10% and the profit will be increased to 30%.
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Before Implementing TQM
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After Implementing TQM
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Apparent and Hidden Quality Cost
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Apparent and Hidden Quality Cost
The apparent quality cost and the
hidden quality cost is compared to
iceberg floating in the water.
As shown in the figure, only 10% of the
quality cost will be visible and can be
noticed at any point of time.
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Apparent and Hidden Quality Cost
These are termed as
apparent quality costs.
The remaining 90% of
quality costs are not seen
or noticed.
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Apparent and Hidden Quality Cost
They are usually hidden as an iceberg
floating in water and termed as
hidden quality cost.
When an iceberg floats at any point of
time only about 10% of the total mass
will be floating out of water.
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Apparent and Hidden Quality Cost
The remaining 90% will be inside the
water.
Once the 10% mass is cut-off then
another small portion of about 10% of
the remaining mass will emerge out.
The process will continue till the last bit
of ice is removed.