Using Quality Tools to Increase Efficiency, Reduce Costs & Increase Profit 1. Quality Greats, 2. Defects and Profit, 3. Cost of Quality 4. Cost of Poor Quality, 5 Calculating the Cost of Poor Quality
Pyramid of Power Think in $$ Think in things
W. Edwards Deming Joseph Juran Philip Crosby 3 QUALITY GREATS
Four Important Facts "Inspection with the aim of finding the bad ones and throwing them out is too late, ineffective, costly. Quality comes not from inspection but from improvement of the process. Dr. W. Edwards Deming
Four Important Facts Fear must be driven out of the workplace Dr. W. Edwards Deming
Four Important Facts Constantly and forever improve the system of production and service. Dr. W. Edwards Deming
Four Important Facts Do it right the first time. Dr W. Edwards Deming
We are very good at spotting things that are wrong Not so good at what doing things wrong cost
What s wrong with this picture?
What s wrong with this picture?
Close is not good enough
Defects and Profit Cause and Effect
Important Fact "Inspection with the aim of finding the bad ones and throwing them out is too late, ineffective, costly. Quality comes not from inspection but from improvement of the process. Dr. W. Edwards Deming
Process fails more than people ATTENTION! Blame should fall on the process not people
A Quality Culture Must Be Free of Blame
We must drive fear out of the workplace. W. Edwards Deming Fourteen Obligations of Management, point 8 Quality is impossible if people are afraid to tell the truth.
Joseph Juran Juran s Quality Handbook, Freedom From Fear, pg., 15.5 Creating a strategic plan that is customerfocused requires that leaders become coaches and teachers, personally involved, consistent, eliminate the atmosphere of blame, and make their decisions on the best available data. - Juran (1988)
To blame another for a nonconformance problem is naive Philip Crosby Quality Without Tears at best.
DISTRIBUTION OF DEFECT CAUSE
The Three Most Common Cause of Mistakes Becoming Defects 1. Lack of knowledge 2. Lack of skills 3. Lack of attention
Accountability and Responsibility A blame free workplace NEVER dismisses accountability and responsibility. We need both at the table in order to solve the problem and improve the process.
Understanding Mistakes and Error INTENTIONAL WRONG DOING: The issue of volition is fundamental to the notion of doing wrong; therefore, the term error can only be applied to intentional actions. UNINTENTIONAL WRONG DOING: Failure of work to go as intended (slips or lapses of attention) or failure of work to achieve its desired objective (mistakes) are action with no intent to do wrong.
Cost of Quality It s Measured in Dollars
Quality Improvement Path to The Bottom Line STEP 1 : Improve Quality Effective Work STEP 2: Improve Productivity Efficient Work Stay In Business Never cut cost before getting work done right Increase Market Share Provide Employment E.W. Deming Return on Investment
COST COMPONENTS OF QUALITY COST OF CONFORMANCE COST OF POOR QUALITY
COST COMPONENTS OF QUALITY 1. COST OF CONFORMANCE
Also known as Quality Control that is contractor centric. Control is directed at variation from requirements and standards PREVENTION COST
COST COMPONENTS OF QUALITY 2. COST OF POOR QUALITY It s the true measurement of our quality
POOR QUALITY COSTS Cost of poor quality is actually the cost of doing things wrong 1. Rework 2. Waiting (on material or people) 3. Transportation (to and from work) 4. Motion (back and forth to the truck, cycle time) 5. Process (poor, to much, to little) 6. Inventory (to much, to little) 7. Failing to use the intellect of employees
WHO WILL GIVE ME..
Poor Quality Loss: Percentage of Operating Budget WE DON T LOSE MONEY DOING WORK RIGHT 75% OPERATING BUDGET 25% LOSS 60% OPERATING COST 40% LOSS
Our Target Should Be THROUGH GOOD QUALITY MANAGEMENT 3% LOSS 5% LOSS 97% OPERATING BUDGET VS. 95% OPERATING BUDGET WE DON T LOSE MONEY DOING WORK RIGHT
Operating Budget vs Loss by Percentage Operating Budget 40% Loss 25% Loss 10% Loss 5% Loss 3% Loss $1k $400 $250 $100 $50 $30 $5k $2000 $1250 $1500 $250 $150 $25k $10,000 $6,250 $2500 $1,250 $750 $50K $20,000 $12,500 $5000 $2,500 $1,500 $100K $40,000 $25,000 $10,000 $5,000 $3,000 $200K $80,000 $50,000 $20,000 $10,000 $6,000 $500K $200,000 $125,000 $50,000 $25,000 $15,000 $1 million $400,000 $250,000 $100,000 $50,000 $30,000
Cost of Poor Quality Reduces our Profit
Cost of Poor Quality Delays/Increased Cycle Time Waste Testing Rework Inspection/ Re-inspection The obvious and visible costs are a small portion of the overall cost
COSTS OF POOR QUALITY The obvious and visible costs of poor quality are a small portion of the overall cost INSPECTION/RE-INSPECTION REWORK WASTE TESTING DELAYS/INCREASED CYCLE TIME LOST MARKET SHARE HIGH RISK EMPLOYEE TURNOVER EMPLOYEE UNHAPPINESS LATE PAPERWORK The bottom of the iceberg represents the majority of the cost and are not easily identified and measured. PRICING OR BILLING ERRORS SAFETY ISSUES VARIATION CUSTOMER DISSATISFACTION EXCESSIVE OVERTIME LACK OF FOLLOW-UP
PATH TO GREATER PROFIT QUALITY PROFIT COST
List Cost Areas of Doing Business STEP 1
Calculating the Cost of Poor Quality Knowledge is Power
What Does A Hamburger Cost?
What does a gallon of regular gas cost?
What does a tube of latex caulk cost?
What does a bucket of mastic cost?
What does it cost to go back and fix attic hatch weather-stripping done wrong improperly?
STEP 2
Bad TXV $16,956
Parts Run $50,544
Service callback $194,220
Failed equipment startup $36,000
Condensate $7,380
www.advancedenergy.org/success_with_q uality_management
Cost of Poor Quality Number Of Homes Number Of Houses Done Wrong Cost Of Poor Quality Per House Total Loss Wall Cavities 350 15.0 $3,161 $47,415 Attic Hatch 350 17.5 $415 $7,245 CO Monitors 275 55.0 $415 $22,825 Total Annual Loss $77,482
1. Reducing the cost of poor quality is one of the best ways to increase a company s profit 6 ADVANTAGES OF USING QUALITY COSTS FOR MANAGEMENT 2. Provides a single overview of quality 3. Aligns quality and goals 4. Provides a means to measure change/improvement 5. Promotes the effective use of resources 6. Provides incentives for doing the job right every time
Questions?