Quality. Costs of Quality-CoQ DEG/FHC 1

Transcription

1 Quality Costs of Quality-CoQ DEG/FHC 1

2 Cost of Quality-CoQ The concept of Cost of Quality CoQ is simple yet central to Quality. It attaches a monetary value to quality activities. Therefore, the organization can direct its efforts to where it matters most. Feigenbaum introduced this theme in 1957 with the Prevention+Appraisal+Failure model (PAF) (early studies started in 1943). Philip Crosby popularized the use of CoQ in his book Quality is Free in Several current quality system standards, ISO 9000, QS-9000, AS-9000, reference the use of CoQ for quality improvement. Other models include ABC approach (Activity Based Costing) and the Process Approach DEG/FHC 2

3 Cost of Quality-CoQ DEG/FHC 3

4 Internal Failure Costs (also known as Costs of Poor Quality-CoPQ) Internal failure costs are costs that are caused by products or services not conforming to requirements or customer/user needs and are found before delivery of products and services to external customers.they would have otherwise led to the customer not being satisfied. Deficiencies are caused both by errors in products and inefficiencies in processes. Examples include the costs for: Rework Delays Re-designing Shortages Failure analysis Re-testing Downgrading Downtime DEG/FHC 4

5 External Failure Costs (also known as Costs of Poor Quality-CoPQ) External failure costs are costs that are caused by deficiencies found after delivery of products and services to external customers, which lead to customer dissatisfaction. Examples include the costs for: Complaints Repairing goods and redoing services Warranties Customers bad will Losses due to sales reductions Environmental costs Fines Recent cases: Toyota recalls, GM car model ignition switch, DEG/FHC 5

6 Prevention Costs Prevention costs are costs of all activities that are designed to prevent poor quality from arising in products or services. Examples include the costs for: Quality planning (including product and process design) Supplier evaluation New product review Error proofing Capability evaluations Quality improvement team meetings Quality improvement projects Quality education and training DEG/FHC 6

7 Appraisal Costs Appraisal costs are costs that occur because of the need to control products and services to ensure a high quality level in all stages, conformance to quality standards and performance requirements. Examples include the costs for: Checking and testing purchased goods and services In-process and final inspection/testing Field testing Product, process or service audits Calibration of measuring and test equipment DEG/FHC 7

8 CoQ-The total quality costs The Total Quality Costs are then the sum of these costs. They represent the difference between the actual cost of a product or service and the potential (reduced) cost given no substandard service or no defective products. Many of the costs of quality are hidden and difficult to identify by formal measurement systems. The iceberg model is very often used to illustrate this matter: only a minority of the costs of poor and good quality are obvious appear above the surface of the water. But there is a huge potential for reducing costs under the water. Identifying and improving these costs will significantly reduce the costs of doing business. DEG/FHC 8

9 The Iceberg Model of Cost of Quality Figure 2: The Iceberg Model of Cost of Quality DEG/FHC 9

10 CoQ-Traditional View DEG/FHC 10

11 CoQ (contemporary view) DEG/FHC 11

12 Generic CoQ models and cost categories (A literature survey of Cost of Quality models-vaxevanidis, Petropoulos-Journal of Engineering Annals-2008 ) PAF models: Prevention + Appraisal + Failure Crosby s model : Prevention + Appraisal + Failure + Opportunity Opportunity or intangible cost models: Conformance + Non-conformance ; Conformance + Non-conformance + Opportunity Tangibles + Intangibles PAF (failure cost includes opportunity cost) Process cost models: Conformance + Non-conformance Activity Based Costing (ABC) models: Value-added + Non-value-added DEG/FHC 12

13 Examples of detailed metrics for CoQ International Journal of Quality and Reliability Management, Vol.23, No.4, 2006 Cost of assets and materials Cost of preventive labour Cost of appraisal labour Cost of defects per 100 pieces Cost of late deliveries % of repeat sales Time between service calls Number of non-conforming calls Number of complaints received DEG/FHC 13

14 Global metrics for CoQ International Journal of Quality and Reliability Management, Vol.23, No.4, 2006 RoQ = increase in profit / cost of quality improvement program Quality rate = input (quality defects + startup defects + rework) / input Process quality = (available time rework time) / available time First time quality (% product with no rework) Total CoQ/Sales CoPQ/Sales CoQ/Sales CoPQ/Total CoQ Other relevant (e.g., individual proportion of a CoQ or a CoPQ ) DEG/FHC 14

15 Paper Mill April 2004 Report -Example Sales: $220,000,000 COQ (Prevention+Appraisal): $7,600,000 COPQ: $35,300,000 Total COQ: $42,900,000 EBITDA: $12,678,000 Net Profit: $3,150,000 Net Profit/Sales = 1.43% COPQ/Sales = 16,5% (!) DEG/FHC 15

16 COPQ Estimate (% of sales) 20-30% for manufacturing firms 30-50% for service firms Baatz, E.D. What is Return on Quality, and Why You Should Care, Electronic Business, Oct. 1992,p % for U.S. companies 5% for Japanese companies Band, William. Marketers Need to Understand the High Cost of Poor Quality. Sales and Marketing Management in Canada. Nov. 1989: DEG/FHC 16

17 Main references The Certified Manager of Quality Handbook- Westcott (Introd,Ch. 13) Quality Mgt-Goetsch/Davies (Ch. 2) Juran s Quality Handbook-Juran/De Feo DEG/FHC 17