exercise quality management - wzl.rwth-aachen.de · – the work piece is produced in 3 autonomous...

Quality Management – Prof. Schmitt Exercise 04

Quality and Economics E 04 page 0

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Exercise Quality Management

04 Quality and Economics

Dipl.-Ing. Dipl.-Wirt. Ing. Patrick Beaujean

Dipl.-Ing. Dipl.-Wirt. Ing. Patrick Beaujean

Group Customer Satisfaction and Operations Management

Department Quality Management

Chair of Metrology and Quality Management

Steinbachstr. 25 (ADITEC), D-52074 Aachen,

Tel.: +49 (0)241 80-26339

Fax: +49 (0)241 80-22293

Email: [email protected]

URL: http://www.wzl.rwth-aachen.de



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Seite 1© WZL/Fraunhofer IPT

Contents

� Task 1: Quality based costs

Task 2: Analysis and provision of quality- and cost information

Task 3: Target Costing



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Task 1Problem

� Quality and economic efficiency

The objective of this exercise is to point out different aspects of lecture four on the basis

of two case studies.

� Quality based costs

As an employee in the department of Quality Management, you are responsible for

monitoring quality. Beside purely technical issues, it is your responsibility to take

account of economic issues. In concrete terms, it is your task, to provide information for

the management on the basis of the data and indicators made available to you by

various departments, to set appropriate quality cost targets, to document any deviation

from these targets and to initiate appropriate measures.



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Task 1 Data and Information

The data and information which have been made available to you from the sales,

manufacturing, assembly and quality assurance sections, are set out in the following.

� General Information:

– The average value of the scrap is 1200 €.

� Sale:

– In the month of May, all products sent out in February were re-called and a

component had to be replaced. The cost incurred by this action was 120 € per

product.

– You have also been given a copy of the following diagrams:



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100

105110

115120

125

130135

140145

150

Jan Feb Mrz Apr Mai Jun

month

co

mp

lain

t co

sts

[T

€]

2300

2400

2500

2600

2700

2800

2900

3000

3100


month

pro

du

cts

sti

ll u

nd

er

gu

ara

nte

e

Fig. 1: Number of products under guarantee Fig. 2: Complaint costs




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� Manufacture and assembly:

– Hourly wage (incl. associated employee outlay of 85 %) = € 45/hour

– Number of units

– Remaining costs

The remaining costs contain the costs for the material and manufacturing and the direct costs and overhead costs. They fluctuate monthly, e.g. because of fluctuating utilization and varying purchase prices.

300250636645413312Reworking

hours

JuneMayAprilMarchFebruaryJanuary

740770820840820830Number ofunits


450000420000510000540000480000390000€


Tab. 1: Data provided by manufacturing and assembly

Tab. 2: Actual number of units

Tab. 3: Remaining costs



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� Quality assurance:

– In March and April, 100 %- tests due to considerable shortcomings in quality have

been proceeded. The test costs incurred, have been 40 € per product. In all months,

random-tests took place. The costs incurred thereby have been 25 € per product.

– A quality audit is performed 2 times per year. It is anchored in the Quality Policy and

its objective is to ensure continuous enhancement of products and processes. The

Quality Audit is scheduled to take place in January and May. The estimated cost are

80000 €.



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– Quality assurance also provides you with the following statistics about goods

declared as rejects. Goods are always declared as rejects when the cost of re-work

exceeds the manufacturing cost which incurred up to the point the fault is recognized

or the fault cannot be remedied.

Fig. 3: Distribution of manufacturing rejects

0

5

10

15

20

25

30

35

40

45

50

55

60


month

reje

cts



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Task 1 Question

a) Classify the quality costs in the cost groups conformity and non-conformity costs and

show their distribution for the months January to June in a diagram. Regard the

conformity costs with and without the “remaining costs”. Interpret the result!



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Task 1 Table

total withoutremaining costs

total

450000420000510000540000480000390000remaining costs

18500192502050020750

Conformity costs:

total

1800026400360006000024000

1350011250286202902518585

115000120000150000140000105000

Non-conformity costs:

JunMaiAprMärFebJanMonth



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Task 1 Diagram

0

75000

150000

225000

300000

375000

450000

525000

600000

Jan Feb Mar Apr May Jun

Month

Co

nfo

rmit

y c

os

ts,

co

nfo

rmit

y c

os

ts

wit

ho

ut

rem

ain

ing

co

sts

N

on

-co

nfo

rmit

y c

osts



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Task 1 Problem

b) Now select an appropriate reference quantity and show the complaint costs as a relative

quantity. Interpret the result and compare it with the distribution of the absolute

complaint costs.



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30

35

40

45

50

55


month

rel.

co

st

of

co

mp

lain

ts

Task 1 Table



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Contents

Task 1: Quality based costs

� Task 2: Analysis and provision of quality- and cost information

Task 3: Target Costing



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Task 2Problem

� Analysis and provision of quality- and cost information

A detailed analysis of the efficiency and cost effectiveness of manufacturing processes

is subject in the following exercise:

The Bio Gardening Corporation, which sets value on sustainability, produces and sells

among other things eco-friendly mowing machines with biofuel-engines. These engines

require special camshafts, which are being purchased at Modern Engine Tools

Corporation. The fabrication happens in the following sub-processes:

Fig. 5: Processes regarded by the fabrication of a camshaft for a biofuel-engine

(3) Transport to repository

(1) Setting up

(2) Proceeding of manufacturing stepswhole

process„Grinding“

(camshaft)

Milling Grinding

(camshaft)

Assembly

(camshaft)



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In this exercise the sub-process “Grinding” should be regarded more closely.

� General information:

– The company entirely operates 16h in 2 shifts daily. The average of the planned

production time is 14h because of a slack period. In this period the employees work

reduced hours.

– One employee of the Bio Gardening Corporation earns 9,5 € per hour.

– The material costs are 10 € per product.



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� Manufacturing the work pieces:

– The cycle time for each product is 45 sec. (the work pieces are feet parallel to the

machine; this time can be discounted).

– Once in every hour adjustments at the tool magazine have to be done. One

adjustment lasts 30 sec. The morning set-up time lasts 30 minutes.

– The machining of the work pieces is calculated with overhead costs of 6 € per hour,

this includes e.g. the costs for electricity, tools, depreciation.

– The work piece is produced in 3 autonomous production steps with interim

repositioning. Failures can occur in each production step. The facility produces 925

pieces on the average per day, whereas an average of 15 pieces are scrap.




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� Transport:

– The work pieces are delivered on pallets.

– Simultaneously to the fabrication the employee removes the work piece and

transports it to a pallet.

– The small repository 1 is situated near the production facility and the assembly (the

transportation costs can be discounted). The repository 2 is situated farther away, but

the employees prefer this repository. They always take the finished pieces there,

because in repository 2 works the nice and attractive trainee Heike. At the end of

each shift, the worker brings the loaded pallets of the shift to the repository 2. This

unnecessary way lasts 4 minutes.



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Task 2 Question

a) Calculate the overall equipment effectiveness!



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Task 2 Question

b) How long is being worked value adding at the machine every day?



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Task 2 Question

c) Calculate the process efficiency factor!



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Task 2 Question

d) Interpret the differences between the indices!



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Contents

Task 1: Quality based costs

Task 2: Analysis and provision ofquality- and cost information

� Task 3: Target Costing



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Task 3Problem

� Target Costing

The company Cyclo Gras GmbH manufactures lawn mowers for the upper end of the

price range. The lawn mower market is well-researched and clearly structured. The

required forecasts can therefore be regarded as reliable. Use the data provided to set a

target cost analysis for a new model, scheduled to supersede the current product in 2

years.



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– The present generation of products and comparable products manufactured by

competitors, are available on the market for approx. 1850 €. The most up-to-date

forecasts provided by the market research institutes indicate, however, that the

emergence of new competitors from Southern Asia will decrease the price accepted

by the market, to 1700 € in the next 2 years.

– In accordance with the targets set by the company management, the aim is to reach

a profit margin of 12 %.

– One of the project teams has conducted a QFD study on the products, the results

are available to you (Tab. 5).

– You also have the cost data relating to individual components of the current product

(Tab. 6).



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€1600total :

€25grass collection bin

€190control unit

€330blades and rotor

€125casing

€210battery

€410engine

€140wheels

€120seat

€50small parts and

attachment

Current costs

of parts

Components in

present generation

Tab. 5: Results of QFD

%100total:

%5grass collection bin

%8control unit

%21blades and rotor

%7casing

%21battery

%23engine

%8wheels

%4seat

%3small parts and attachment

WeightingComponents

Tab.6: Costs of the components



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Task 3 Question

a) Calculate the allowable target costs of the new product, which make it possible to reach

the prescribed profit margin.



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Task 3 Question

b) Use Tables 5 and 6 to calculate the target costs and target cost indices of the different

components and enter the values in the table stated below.



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Task 3 Table

target costs of the product:

total:

grass collection bin

control units

blades and rotor

casing

battery

engine

wheels

seat

small parts and

attachment

target costindex

target costs of various parts

[€]

partsweighting

[%]

actual share of mannufac.

[%]

actual costs of the parts

[€]

part used in the current

generation



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Task 3 Question

One method to demonstrate whether the target costs are realistic or not, is by drawing

up a target cost control diagram.

The limits of the target cost zone are described by the following formula:

Y1 = (X2 - q2)1/2

Y2 = (X2+q2)1/2

c) Draw the target cost zone for the following values of the decision parameter q:

q=5; q=10

d) Enter the individual parts in the diagram.



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Task 3 Question

e) Interpret the result.

f) Whereof would you make the selection of the parameter q dependent?

exercise quality management - wzl.rwth-aachen.de · – the work piece is produced in 3 autonomous...

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