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How to Measure Quality

Total Quality Management


When all areas of a business cooperate to achieve quality
Quality means satisfying the customer the first time. when quality is achieved (conformance costs) Quality Costs also occur when it is not achieved (non-conformance costs.)

Costs of Quality
Conformance Costs include prevention costs and appraisal costs. Nonconformance costs include internal and external failure costs.

Financial Measures of Quality


Costs of Conformance to Customer Standards
Prevention costs
Technical support for vendors Integrated system development Quality improvement projects Quality training of employees Design review of products and processes Quality-certified suppliers Quality circles Preventive maintenance Statistical process control Process Engineering

Appraisal costs
Inspection of materials, processes, Maintenance of test equipment and machines Quality audits of products and End of process sampling and processes testing Field testing Vendor audits and sample testing

Financial Measures of Quality


Costs of Nonconformance to Customer Standards
Internal failure costs
Scrap and rework Reinspection and retesting of rework Quality-related downtime Scrap disposal losses Failure analysis Inventory control and scheduling Downgrading because of defects

External failure costs


Lost sales Restoration of reputation Warranty claims and adjustments Customer complaint processing Returned goods and replacements Investigation of defects Product recalls Product-liability settlements

Measures of Quality
Suggested Performance Measures
Total costs of quality as a percentage of net sales Ratio of costs of conformance to total costs of quality Ratio of costs of nonconformance to total costs of quality Costs of nonconformance as a percentage of new sales

Nonfinancial Measures of Quality


A business should establish a system to detect poor quality early. Nonfinancial measures help determine the degree of quality achieved. A commitment to ongoing improvement enhances quality and ultimately maximizes the financial return from operations.

Nonfinancial Measures
Nonfinancial measures of quality include:
Product design quality. Vendor performance. Production performance. Delivery cycle time. Customer satisfaction.

Measures of Product Design Quality


Computer-aided design (CAD) helps detect product design flaws.

Nonfinancial Measures of Quality


Measures of Product Design Quality
Product design flaws Number and types of design defects detected Average time between defect detection and correction Number of unresolved design defects at time of product introduction

Measures of Vendor Performance


Companies analyze vendors to determine which are most reliable, furnish high-quality goods, deliver on time, and charge competitive prices.

Nonfinancial Measures of Quality


Measures of Vendor Performance
Vendor quality Defect-free materials as a percentage of total materials received; prepared for each vendor Timely deliveries of materials as a percentage of total deliveries; prepared for each vendor

Vendor delivery

Measures of Production Performance


Companies adopt computerintegrated manufacturing (CIM) systems to evaluate performance of production equipment and to evaluate performance of maintenance personnel.

Nonfinancial Measures of Quality


Measures of Production Performance
Production quality Number of defective products per million produced Number and type of materials spoiled during production Productive machine time as a percentage of total time available for production Amount of time each machine is idle Amount of time each machine is idle for maintenance and upgrades Mean Time Between Failures (MTBF)

Parts scrapped Equipment utilization rate Machine downtime Machine maintenance time Machine uptime

Measures of Delivery Cycle Time

Delivery cycle time (time between accepting an order and final delivery of the product or service)

Nonfinancial Measures of Quality

Measures of Delivery Cycle Time


On-time deliveries Orders filled Average process time Average setup time Purchase order lead time Production cycle time Delivery time Delivery cycle time Shipments received by promised date as a percentage of total shipments Orders filled as a percentage of total orders received Average time required by production to make a product available for shipment Average amount of time elapsed between the acceptance of an order and the beginning of production Time it takes for materials to be ordered and received so that production can begin Time it takes to make a product available for shipment Time between the completion of a product and its receipt by the customer Time between the acceptance of an order and the final delivery of the product or service (purchase order lead time + production cycle time + delivery time) Production cycle time average process time average setup time Number and type of units waiting to begin processing

Waste time Production backlog

Measures of Customer Satisfaction

Customer follow-up helps evaluate customer satisfaction.

Nonfinancial Measures of Quality


Measures of Customer Satisfaction

Customer complaints Warranty claims Returned orders

Number and types of customer complaints Number and causes of claims Shipments returned as a percentage of total shipments

Measuring Service Quality


Many of the quality cost categories and nonfinancial measures can be applied to service organizations. Flaws in service design lead to poor-quality services. Poor service development leads to internal and external failure costs.

The Evolving Concept of Quality


In the past, the benefits of quality were weighed against the costs of improving quality. A return on quality was required. In the 1980s, Deming and others promoted Total Quality Management (TQM). Companies came to believe that quality gave companies a competitive edge. Quality control methods were implemented to eliminate defects in product design and manufacture.

The Evolving Concept of Quality


Companies expanded quality management to include nonmanufacturing processes. Benchmarking compares the quality of a process with a parallel process at the bestin-class company (from any industry). Process mapping diagrams process inputs, outputs, constraints, and flows to identify unnecessary efforts and inefficiencies. Service businesses also seek to maximize customer satisfaction.

The Evolving Concept of Quality


The concept of quality evolves to fulfill customer needs and expectations as the business environment changes. Quality dimensions include freedom from defects, dependability, prestige, good taste, customer expectations, innovation. The goal is customer satisfaction and customer retention.

Recognition of Quality
Awards to recognize and promote the importance of quality include:
The Deming Application Prizeawarded by the Japanese Union of Scientists and Engineers. The Malcolm Baldrige Quality Award awarded to U.S. organizations for achievements in quality and business performance excellence.

The International Standards Organization (ISO) has developed ISO 9000, setting quality management and quality assurance standards.

Thats all. Good luck on the final.