Measuring cost of quality

Like all things there is a price to pay for quality. total cost can be split into two fundamental areas:

a. Non Conformance. area covers price paid by not having quality systems or a quality product. Examples

(1) Rework. Doing job over again because it wasn't right first time.

(2) Scrap. Throwing away results of your work because it is not up to required standard.

(3) Waiting. Time wasted whilst waiting for other people.

(4) Down Time. Not being able to do your job because a machine is broken.

Measuring cost of quality

b. Conformance. Conformance is an aim of quality

assurance. achieved at a price. Examples :

(1) Documentation. Writing work instructions,

technical instructions and producing paperwork.

(2) Training. On the job training, quality training, etc.

(3) Auditing. Internal, external .

(4) Planning. Prevention, do right thing first time

(5) Inspection. Vehicles, equipment, buildings &

people.

Measuring Cost of Quality

Determine where to spend Rupees on quality prevention

Pareto Analysis

Track costs of quality

change chart of accounts or coding system

Develop a quality reporting system

Calculating Lost Profits

Profit Lost

by Selling

Units as

Defects

Total

Defective

Units

Number

of Units

Reworked

Profit

for Good

Unit

Profit for

Defective

Unit

=

Z = (D - Y) (P1 - P2 )

X

Calculating Internal Costs of Failure

Rework

Cost

Number of

Units

Reworked

Cost to

Rework

Defective

Unit

= X

R = (Y)(r)

Calculating External Costs of Failure

Cost of

Processing

Customer

Returns

Number of

Defective Units

Returned

Cost

of a

Return = X

W = (Dr )(w)

Total Failure Cost

Profit lost by selling units as defects

Rework cost

Cost of processing customer returns

Cost of warranty work

Cost of product recalls

Cost of litigation related to products

Opportunity cost of lost customers

Calculating the Total Quality Cost

T = K + A + F

Total

Quality

Cost

Prevention

Cost

Appraisal

Cost

Failure

Cost = + +

Strategic Cost Management

Use of management accounting information to

set and communicate organizational strategies

establish, implement, assess the methods to accomplish the strategies

assess the achievement of strategies

Includes reporting information on quality goals and objectives

Strategic Cost Management

Provides a link from failure cost to prevention cost

Continuous monitoring allows changes to reduce/prevent failures

Production

Failure Feedback

Quality System

Moves from after-the-fact inspection to proactive quality assurance

Emphasizes prevention

continuous improvement

building quality into process or product

Measures quality

Encourages teamwork and employee involvement

Part costs

Setup

Tooling

Machining costs

Materials cost

Inventory

Quality

Time

Part cost Analysis Cost of inventory/large batch sizes

design changes

unused inventory (change in product mix)

Three Areas to Improve Quality

Quality of design meet the customers needs

design for manufacturability

build quality in

Quality of conformance minimize and control process variation to

satisfy the design specifications every time

Quality of service The customer must come first

Thanks