GROUP 6

Quality Cost,
Productivity, and
Quality Awards. Hernandez, Seth Andrews
Ison, Isabel Patricia
Lagtapon, Virgilio Lief

BAC 105 - AM12

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QUALITY COST
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 What are Quality Costs in TQM?

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 involves creating and delivering a
product that meets the expectations of a customer.

TQM is an integrative philosophy of management for continuously improving the quality of products and processes.
Total – Quality Management involves everyone and all tasks and activities of a company.
Quality – Degree to which the product (or service) fulfills customer requirements or was produced correctly.
Management – Quality must be managed by planning, organizing, leading and controlling.

An important basis for justifying TQM practice is understanding its impact on total quality costs. TQM is rooted in the belief that
preventing defects is cheaper than dealing with the costs of quality failures. The four major types of quality costs are prevention,
appraisal, internal failure, and external failure.

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 The Four Major Types of Quality Costs

▰ Prevention: Costs that are created from the effort to reduce poor quality.
▰ Appraisal: Costs that include the inspection and testing of raw materials, work-in-process, and finished goods.
▰ Internal Failure: Cost that occurs when quality defects are discovered before they reach the customer. This is more
expensive than prevention and appraisal costs due to invested labor and material.
▰ External Failure: Cost that occurs when the defect is discovered after it has reached the customer. This is the most
expensive category of quality costs.
▰ Determinants of Product Quality – Successful management of quality requires that managers have insights on
various aspects of quality.
▰ Determinants of Service Quality (Servqual) – Business administration term used to describe achievement in service.
Customers form service expectations from past experiences, word of mouth and advertisements.
▰ Consequences of Poor Quality (Cost of poor Quality) – Consequences with poor quality products which can affect a
business and a customer in many different ways.
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Where Do Quality Costs Occur and How Does It Affect
Profitability?

▰ Quality costs can arise anywhere in a company. There may be product design issues that
begin in the engineering department, manufacturing problems that can create product flaws,
as well as substandard components in the procurement department that may also result in
product flaws.

▰ Quality costs can comprise a major portion of the total expenses of a business, though they
are hidden within its normal cost recording system. The mitigation of quality issues can
greatly increase the profitability of a business, as well as enhance the level of customer
retention.

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PRODUCTIVITY
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WHAT IS PRODUCTIVITY IN TQM?

- Productivity is a term that assesses a company's capacity to generate a product or

service.
- Productivity it is also a metric that measures an organization's efficiency by
comparing the amount of output generated to the amount of inputs consumed.
- It is affected by different elements like plant layout, technology, machinery, and
equipment.

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OPERATIONS MANAGERS

- The one who is responsible for the review of different factors that
will maintain or improve productivity.

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THREE FORMS OF PRODUCTIVITY

Partial factor Multifactor productivity Total factor productivity

productivity
- Metric takes into - a larger measure of
-The traditional or account more than one productivity that is calculated
common definition of factor, such as labor and by dividing the output by the
productivity. It only capital. As a result, the impacts of all resources utilized
in the production of products
includes single input ratio of total output to a
and services (labor, capital, raw
ratio. subset of inputs is materials, energy, and so on).
known as multifactor
productivity

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QUALITY AWARDS
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 Meaning of Quality

- Quality refers to the grade of a service or a product in terms of reliability, safety, consistency, and
consumer’s perception

- According to the British Standard BS 7850, quality is defined as “Quality is concerned with
meeting the wants and needs of the consumers”

- According to ISO 8402, quality is “the totality of features and characteristics of a product or
service that bear on its ability to satisfy stated or implied means.

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 What are Quality Awards?

A national quality award is a part of a larger effort by a government to make its country's
businesses more competitive in the world economy. The awarding institutions are either
government departments or not-for-profit organizations with government ties. The assessments for
these awards are annual and firms who wish to be considered, file applications with the
organization that conducts the competition in their home country. There will be a prize to recognize
excellence in organizations for their performance; generally given by government of nonprofit
organizations after assessing their quality systems.

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 Types of Quality Awards

Rajiv Gandhi National Quality Award

The Rajiv Gandhi National Quality Award is a quality award given by the
Bureau of Indian Standards to Indian organizations that show excellence
in their performance. It is named after Rajiv Gandhi, the former Prime
Minister of India, and was introduced in 1991 after his death. The award
aims to promote quality services to the consumers and to give special
recognition to organizations that contribute significantly towards the
quality movement of India

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 Types of Quality Awards

The Golden Peacock National Quality Award

Golden Peacock National Quality Award was instituted by the Institute Of

Directors in February 1991 to encourage Total Quality improvements in both
manufacturing as well as service organizations in India. It also stimulates and
helps organizations to rapidly accelerate the pace of customer-oriented
improvement process. It is a powerful self- assessment process and a way to
build an organization’s brand equity on quality. The preparation for the award
helps to inspire and align the entire workforce and management functions.

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 Types of Quality Awards

Malcolm Baldrige National Quality Award (MBNQA)

The Malcolm Baldrige National Quality Award (MBNQA) is presented
annually by the President of the United States to organizations that
demonstrate quality and performance excellence. Three awards may be
given annually in each of six categories:
A. Manufacturing
B. Service Company
C. Healthcare
D. Small Business
E. Education
F. Non-Profit

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 Types of Quality Awards

The Deming Prize

The Deming Prize is one of the highest awards on TQM (Total Quality
Management) in the world that recognizes both individuals for their
contributions to the field of Total Quality Management and businesses
that have successfully implemented TQM. It was established in 1951 to
honor W. Edwards Deming who contributed greatly to Japan’s
proliferation of statistical quality control after World War II.

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 Types of Quality Awards

EFQM Excellence Award

Formerly known as European Quality Award, the EFQM Excellence

Award is a transnational quality award that recognizes european
businesses with “excellent and sustainable results”. It is given to
companies that can demonstrate excellence in their management of
quality and that their approach to total quality management has
contributed to the satisfaction of customers, employees, and other
stakeholders.

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THANKS!
Any questions?

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