An Assignment on the topic Quality Cost Subject-Total Quality Management Submitted to Sir Kayina

Date of submission-12/04/2013

Submitted by Lepok Ao MBA 4thSemester Nagaland University

What is product quality? A customer perceives a product as having a high level of quality if it conforms to his expectations. Thus, high quality is really just making sure that a product does what a customer expects it to do. Based on this definition, quality is not having the highest possible standards for creating the ultimate product. Thus, if you insist on creating a mahogany interior for a cars glove box when the customer only wants it to be big enough to store maps, then you have just gone to considerable expense to create something that a customer does not define as being of high quality. This view of quality means that a company can eliminate any costs that customers have no quality perceptions about. The cost reduction can impact a great many areas. For example, it may be perfectly acceptable to use lower-quality or thinner materials, or to allow blemishes in areas where customers cannot see them, or to allow production at a lower tolerance level than is currently the case (which eliminates some rework costs). There are two types of quality that a company should be concerned about, one of which originates in the engineering department, while the other is the responsibility of the entire organization. They are:

Quality of design. This is the ability of a company to design a product that conforms to the quality expectations of a customer. In other words, the quality that customers expect is designed into the product. This type of quality requires a considerable amount of interpretation of what engineers think customers want, and how these wishes are integrated into the final product design. If quality is not designed into the basic structure of a product, there is no way to improve the quality situation later, short of replacing the product with a new version. Quality of conformance. This is the ability of a company to produce a product that conforms to the original product design. This type of quality is not just the responsibility of the production department; the purchasing staff has to acquire the correct materials, the shipping department must deliver it without damage, and the marketing department must communicate the attributes of the product that matter most to customers.

Evolution of Quality Cost:

Joseph Juran first discussed cost of quality analysis in 1951 in the first edition of Quality Control Handbook Armand Feigenbaum identified the four cost categories in 1956 in Total Quality Control in the Harvard Business Review The Quality Cost Committee was established by the then ASQC in 1961 Philip Crosby, a former CEO, popularized the concept of COQ with his book Quality is Free in 1979 The current revisions of ISO 9000, QS-9000 and AS9100 reference the use of COQ in quality improvement

Meaning And Definition of Quality Cost: Total Quality Costs represent the difference between the actual (current) cost of a product or service and what the reduced cost would be if there were no possibility of substandard service, failure to meet specifications, failure of products, or defects in their manufacture. Campanella, Principles of Quality Costs Quality costs are the costs associated with preventing, detecting, and remediating product issues related to quality. Quality costs do not involve simply upgrading the perceived value of a product to a higher standard. Instead, quality is creating and delivering a product that meets the expectations of a customer. Thus, if a customer spends very little for an automobile, he will not expect leather seats and air conditioning - but he will expect the vehicle to run properly. In this case, quality is considered to be a vehicle that functions, rather than a luxury experience. The cost of quality The cost of quality isnt the price of creating a quality product or services, it is the cost of not creating a quality product or services because everytime a work is redone for creating a quality , the cost of creating the product increases such as for example: Replacement of a food order in restaurant Rebuilding of a tool Reworking of a manufacturing item Retesting of an assembly Reworking of a service

In short the Quality Cost is any cost that would not have been expended if the quality were perfect contribution to the cost of quality.

Quality costs are generally considered to fall into four categories, which are:

Prevention costs. You incur a prevention cost in order to keep a quality problem from occurring. It is the least expensive type of quality cost, and so is highly recommended. Prevention costs can include proper employee training in assembling products and statistical process control (for spotting processes that are beginning to generate defective goods), as well as a robust product design and supplier certification. Appraisal costs. As was the case with a prevention cost, you incur an appraisal cost in order to keep a quality problem from occurring. You do so through a variety of types of inspection. The least expensive is having production workers inspect both incoming and outgoing parts to and from their workstations, which catches problems faster than other types of inspection. Other appraisal costs include the destruction of goods as part of the testing process, the depreciation of test equipment, and supervision of the testing staff. Internal failure costs. You incur an internal failure cost when a defective product is produced. This appears in the form of scrapped or reworked goods. External failure costs. You also incur an external failure cost when a defective product was produced, but now the cost is much more extensive, because it includes the cost of

product recalls, warranty claims, field service, and potentially even the legal costs associated with customer lawsuits. It also includes a relatively unquantifiable cost, which is the cost of losing customers. TOTAL QUALITY COSTS The sum of the above costs. It represents the difference between the actual cost of a product or service, and what the reduced cost would be if there was no possibility of substandard service, failure of products, or defects in their manufacture

Some of the examples of the various types of cost involved are: External failure cost 1. Warranty adjustments 2. Repairs 3. Customer service 4. Returned goods 5. Returned repaired goods 6. Investigation of defects 7. Product recalls 8. Product liability suits 9. Customer support 10. Transportation costs 11. Manufacturing/process engineering Internal failure cost 1. 2. 3. 4. 5. 6. 7. Scrap Rework Reinspection of rework Failure analysis Breakdown maintenance Manufacturing/process engineering on internal failure

Appraisal cost 1. 2. 3. 4. 5. 6. 7. Inspection manufacturing and process inspection Product testing Receiving inspection In-process inspection Laboratory inspection Outside laboratory endorsements

8. Ste up for testing 9. Maintenance of test equipment 10. Quality audits 11. Maintenance of production equipment used for quality Prevention cost 1. Quality engineering 2. Quality planning done by any activity 3. Design and development of quality equipment 4. Design verification and review to evaluate the quality of new products 5. Quality training 6. Quality improvement projects 7. Qaulity data gathering analysis and reporting 8. Statistical and Other process control activities used to prevent defects 9. Design engineering 10. Process engineering 11. Supplier evaluations 12. Preventive equipment maintenance 13. Quality training 14. New materials used to manufacture products

The cause and effect of Quality Cost

Effective Quality Improvement leads to Higher Quality
which leads to

Increased Productivity
which leads to

Increased Profitability
which leads to

Increased Competitiveness.

Short-Term Cost of Quality and Total Quality Management (Quick Fix)

2.Fewer people to do same workfalse improvements!

1. Cut budget

5. Poor quality

3. More errors And rework

4. Total costs increase

Long-Term Cost of Quality and Total Quality Management:

1. Invest in quality improvement 2. Teams improve processes and productivity

5. Improved quality And profitability

3. Fewer defects and rework

4. Decrease In Total costs

Conclusion: Quality cost stresses on the fact that it is more cost-effective to pay for cost improvements inhouse, rather than waiting for customers to discover defects. The primary reason is that customers are much less likely to buy from the company again if they discover defects, which can make external failure costs more expensive than all of the other costs combined

Inspection with the aim of finding the bad ones and throwing them out is too late, ineffective and costly. Quality comes not from inspection but improvement of the process. Dr. W. Edwards Deming Founder of the Quality Evolution

References:
http://www.systemsquality.com/sitebuildercontent/sitebuilderfiles/coqascidriver.pdf

http://www.qualityamerica.com/Knowledgecenter/qualitymanagement/cost_of_quality_overview .asp
http://www.nptel.iitm.ac.in/courses/Webcourse-contents/IIT-ROORKEE/INDUSTRIALENGINERRING/part2/qrc/lecture3.htm