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Cost of Poor Quality Analysis for Automobile Industry: A Case Study

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DOI: 10.1007/s40032-013-0091-z

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Cost of Poor Quality Analysis for
Automobile Industry: A Case Study

S. N. Teli, V. S. Majali, U. M. Bhushi,

L. M. Gaikwad & V. G. Surange

Journal of The Institution of

Engineers (India): Series C
Mechanical, Production, Aerospace and
Marine Engineering

ISSN 2250-0545

J. Inst. Eng. India Ser. C

DOI 10.1007/s40032-013-0091-z

1 23
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1 23
 Author's personal copy
J. Inst. Eng. India Ser. C
DOI 10.1007/s40032-013-0091-z
CASE STUDY
Cost of Poor Quality Analysis for Automobile Industry: A Case
Study
S. N. Teli • V. S. Majali • U. M. Bhushi •
L. M. Gaikwad • V. G. Surange
Received: 17 June 2013 / Accepted: 5 October 2013
 The Institution of Engineers (India) 2013
Abstract The high competitiveness makes the quest for
production cost reduction a constant in the market, but it is
necessary to reduce costs without compromising quality.
When a product is in the manufacturing and this has to be
scraped, we have more cost than the raw material used, it is
necessary to consider the manpower and operations, thus to
calculate the cost added to the product. Continuous quality
improvement is a key factor in the strategy for competi-
tiveness. Quality cost is one tool, among many others, that
can help in continuous quality improvement. Properly
applying quality cost techniques is critical to these efforts.
Initially, a complete quality cost study could provide
awareness and guidance to a steering committee on what
cross-discipline teams and improvement projects should be
started. The cross discipline teams also can use quality cost
special studies to help in focusing efforts. In this paper cost
of poor quality analysis has been done using different
S. N. Teli  L. M. Gaikwad (&)  V. G. Surange
Mechanical Engineering Department, SCOE, Navi Mumbai,
India
e-mail: lokpriya2007@gmail.com; lokpriya2004@yahoo.co.in
S. N. Teli
e-mail: shivanandteli@yahoo.com
V. G. Surange
e-mail: vinod.surange@gmail.com
V. S. Majali
Mechanical Engineering Department, GIT, Belgaum, Karnataka,
India
e-mail: vijaymajali@yahoo.com
U. M. Bhushi
Sahyadri College of Engineering & Management, Mangalore,
Karnataka, India
e-mail: bhushi@gmail.com
techniques which are currently applying in automobile
industry to assess quality cost.
Keywords CPU  Rejections/1000  COQ 
Supplier assessment  Supplier quality cost  PPMeq
Introduction
Today the cost of quality (COQ) is of more strategic and
economic importance than previously conceived. Whereas
previous works have applied COQ as an internal perfor-
mance measure within companies, the purpose of this paper
is to present COQ using Part per Million equivalents
(PPMeq) to determine rejected parts and their associated
manufacturing cost. As supplier cost, quality and delivery
improves, so will the customer’s products and services. The
purpose is to communicate expectations to our suppliers
and the core set of tools, processes and systems that are to
be used in the manufacture, design and development of
parts, products and services supplied to its business loca-
tions. The purchasing and sourcing process, often by
working with other functional groups, has the opportunity
to create a competitive advantage from effective supplier
quality management practices. Capturing these advantages
involves a commitment of time, resources, and expertise.
This proceeding discusses the increasing importance of
suppliers quality cost, particularly in supporting product
and service quality, and presents a set of questions that
executive managers must ask concerning how well their
purchasing and sourcing processes contribute to total sup-
plier quality cost. This paper briefly outlines the best
practices like PPM agreement to establish a minimum
standard for the supplied quality and to encourage suppliers
to develop ways of working towards the prevention of non-
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conformances and their underlying causes implemented by customer value and regard it as a key concept of company
such manufacturers in supplier quality management. strategy in order to achieve the competitive edge. Costs are
In many manufacturing and service companies, pur- defined as the summation of costs over the life of a product.
chases from suppliers can range from 50 to 80 % of Costs are divided into two parts cost of good quality and
manufacturing costs. The ability of the customer and sup- cost of poor quality.
plier to control purchase costs has an enormous impact on
the return to shareholder value and profitability. Supplier-
provided product also becomes the most critical quality and
Cost of Good Quality
delivery issue due to the impact on final assembly and
administrative quality. Quality costs for inadequate sup-
These are the cost associated with improving the quality of
plier performance in managing defects and deliveries has
product.
been found in some companies to approach over 10 % of
purchase costs [1, 2]. Other costs associated with poor
Prevention Cost
delivery and responsiveness can greatly add to the cost of
doing business with suppliers. The COQ examples from a
These costs are associated with preventing defects and
major automotive manufacturer were included, who
imperfections from occurring. The focus of a prevention
developed a cost component based on the level of PPM
cost is to assure quality and minimize or avoid the likeli-
achieved by the supplier and developed a COQ formula for
hood of an event with an adverse impact on the company
the percentage of acceptable products received.
goods, services or daily operations. This also includes the
PPMeq can be calculated plant-wise, process-wise, part-
cost of establishing a quality system. A quality system
wise, supplier-wise so that original equipment manufacturer
should include the following three elements: training,
(OEM) can be understand which process is critical and
process engineering, and quality planning. Examples a:
which supplier is best for particular component to do the
new product review, quality planning, supplier capability
business in future with lowest quality costs. With the help of
surveys, process capability evaluations, quality improve-
PPMeq it is also possible to determine rejection rate of
ment team meetings, quality improvement projects, quality
critical part and process at plant level and supplier level.
education and training.
Continuous performance evaluation can also possible so that
supplier can understand the requirements of its customers.
In recent years organizations have been focusing much Appraisal Costs
attention on quality management. Automotive industries
are one of the biggest industries in the world. There has These cost are direct costs of measuring quality. In this
been an increase in recalls made by different automobile case, quality is defined as the conformance to customer
producers in the worlds. Quality costs or COQ is a means expectations. This includes: lab testing, inspection, test
to quantify the total COQ-related efforts and deficiencies equipment and materials. A common example of appraisal
[3]. It is stated that, ‘‘World-class quality means providing costs is the expenses from inspections. An organization
products and services that meets customer needs and should establish an inspection of their products and
expectation at a cost that represents value to customer.’’ Of incoming goods from a supplier before they reach the
course it is not necessary to produce products or services customer. This is also known as acceptance sampling, a
that greatly exceed the customer’s expectations, but it is technique used to verify that products meet quality
always necessary to fully meet those expectations with standards.
optimum cost of production [4]. Further the ‘cost of qual-
ity’ isn’t the price of creating a quality product or service.
It’s the cost of NOT creating a quality product or service. Cost of Poor Quality
The costs associated with quality are divided into two
categories: cost of good quality and cost of poor quality. These includes all the failure cost associated with a
Prevention costs and appraisal costs are costs associated product.
with good quality, while failure costs result from poor
quality. Management must understand these costs to create Internal Failure Costs
quality improvement strategy. An organization’s main goal
is to survive and maintain high quality goods or services, Failure costs occurring prior to delivery or shipment of the
with a comprehensive understanding of the costs related to product, or the furnishing of a service, to the customer.
quality this goal can be achieved. Many companies in the Examples: scrap, rework, re-inspection, re-testing, material
world are now gradually promoting quality as the central review, downgrading.

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Table 1 Automobile Recalls Details

Name of company Models recalled Recall reasons Date of recall Recall
quantity (no’s)

Nissan Altima These vehicles may have been equipped Oct 10, 2012 13919
with transverse link bolts and power
steering rack bolts that were not torque
to proper specification.
General Motors Cadillac Escalade, Escalade ESV, Cadillac Fracture of rear axle cross pins Jan. 25 2011 27,000
EXT, Chevrolet Avalanche, Colorado,
Silverado, Suburban, Tahoe; and GMC
Canyon, Sierra
Tata Motors Nano Fire in engine compartment Nov 2010 71,300
Nissan March and Micra Ignition problem Dec 2010 2.14 Million
Honda Jazz Power window switches Nov 2010 646,000
Mercedes 2010 C-Class Loss of power steering fluid Oct. 20 2010 85,000
Hyundai Sonata The steering column alignment problem Oct 2010 139,500
Toyota Motors Lexus GS 350, Lexus GS 450 h, Lexus GS Acceleration and brake problems July 1st 2010 270,000
460, Lexus IS 350, Lexus LS 460, Lexus’s
600 h
Maruti Suzuki A-Star Leak in few fuel tanks August 22nd 2009 100,000

External Failure Costs
Failure costs occurring after delivery or shipment of the
product and during or after furnishing of a service to the
customer. Examples: processing customer complaints,
customer returns, warranty claims, product recalls.
The list of cars based upon different geographical
locations are shown in Table 1. Those cars are subjected to
automobile recalls.
Crises in Automotive Industry
• The recent recalls made by Toyota, Ford and even
Maruti-Suzuki have left many pioneers of Automotive
Industry wondering for reasons.
• In addition the regular customer too was taken aback
with all the surprise recalls which were all attributed to
quality.
• Even the companies are offering high discount rates to
boost up the market. Better designs are introduced into
the market too.
• Automobile companies are under heavy pressure
because of the costs of raw material and change in
consumer behaviour and buying habits.
• The automotive industry is also facing tough compe-
tition from public transport sector. The sector is forcing
the consumers to revaluate their decision of using
private cars as the facilities offered by the public
transport sector are improving greatly. Fig. 1.
The literature regarding cost of poor quality shows opinion
ranging from 10 % to 40 % of annual sales of the company
(Fig. 2). The cost of poor quality is accounted as the annual
monitory loss of an industry on its balance sheet. Appar-
ently the cost of poor quality is not concerned with the
quality only but cost of waste associated because of poor
performance and process along with serious impact on
companies market and good will. The cost of competition
and customer satisfaction are the paramount challenge to
the manufacturer and thus the cost of poor quality is now
become most significant factor to bring down the same to
its minimum and associated with culture of zero defects
[5]. Most part of COQ is cost of poor quality and external
failures comprises of maximum part of cost of poor quality
(COPQ) as shown in Fig. 2.
Case Study-1: COQ Analysis of Original Equipment
Manufacturer
It’s very interesting to note that though the major players in
Indian automobile sector claim to follow TQM as a guiding
philosophy, the warranty cost involved and rejection per
thousand (R/1000) is very high. The detailed analysis with
the systems contributions are depicted through number of
tables and graphs.
Rejection per Thousand (R/1000) Analyses
It has shown in Fig. 3 that initially from Sept-06 to Aug-10
the rejection rate was very high especially in vehicle

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5.1.1 10 months analysis of R/1000 = 40

[Vehicle Produced = 52679, TotalRejections = 2,107]
30 27
25

20

R/1000
15
10
10

5 3
Fig. 1 Cost of quality 0
VEHICAL DRIVE ENGINE
Plant Aggregates
14 10-15%
12 10-12%
Fig. 4 Plant aggregate analysis
10
8
6 4-6% 5.1.2 Vehicle Aggregate Analysis R/1000=27
[Vehicle Produced = 52679, Total Rejections = 1,423]
4
14.00 13.14
2 1%
12.00
0 10.00

R/1000
Preventive Appraisal Internal failure External failure 8.00
6.00 4.04
Fig. 2 Impact of COQ 4.00 1.59 2.410.99 1.651.011.94
2.00 0.00 0.28 0.13
0.00

Cable and control

Electrical system
Audio system

Air intake system

Cooling system

Exhaust system
Fuel system

Staring

Wheel and Tyre

Suspension
Body
200 Engine Aggregate Drive Aggregate
Vehicle Aggregate Target
160

150 12

40 116
R/1000

10 Vehical Aggregates
100
27 75
5 64 Fig. 5 Vehicle aggregate analysis
4 53 49
20 47
50 108 16 4 41 37 39 38 39 41
35 4 2
79 17 3 2 12 5 10
13 2
11 4 35 3 9 35
8 7 7
50 9 9
44
32 28 33 27 27 29 35 5.1.3 Drive Aggregate Analysis R/1000 =10
25 24 22 23
0 [Vehicle Produced = 52679, Total Rejections = 527]
Sep06-Aug07

Sep07-Aug08

Sep08-Aug09

Sep09-Aug10

Sep10-Aug11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

2.50 2.30
1.99
2.00 1.59
1.44 1.44
R/1000

Period 1.50
1.00
0.42
Fig. 3 Month-wise rejection analyses of plant 0.50 0.08 0.09
0.00
system followed by drive system to engine system. After
analysis in design and manufacturing, the underlying rea-
sons of rejection were determined and corrective actions
initiated. As a result, R/1000 decreased and achieved an
approximate constant trend till June-12, as shown in Figs.
4, 5, 6, 7. Drive Aggregates
From the said detailed analysis, it is evident that in spite
Fig. 6 Drive aggregate analysis
of quality improvement programs, the numbers of rejec-
tions are very high, which has direct link to financial loss
and loss of customer goodwill as well. Majority of the The improvement areas are indicated, where exactly the
rejections were observed in vehicle system which includes attention and efforts required.
vehicle body, cable and control, cooling system, electrical In addition to providing a communicating bridge
system, exhaust system, fuel system, air intake system etc. between line and top management, quality costing can

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5.1.4 Engine Aggregate Analysis R/1000=3 information provides a basis for comparing the quality cost
[Vehicle Produced = 52679, Total Rejections = 158] performance of different production lines in order to help
3.50
2.94
the top management to identify and transfer successful
3.00 techniques and ideas from the best performing production
2.50 lines to the others. Quality cost information helps the top
R/1000

2.00 management of an organization to monitor the trends of

1.50
1.00
0.50
0.06
0.00
2500 CNG engineTurbo gear drive
Engine Aggregates
Fig. 7 Engine aggregates analysis
provide an overall index for managers to evaluate and
monitor the economics, effectiveness and efficiency of
quality activities in their organization, and highlight the
improvement areas by product, service, operation, process
and department. Quality costs integrate all the separate
quality activities into a total quality system [6]. They force
the entire organization to examine the performance of each
quality activity in terms of cost. Quality cost information
helps managers see the financial implications of poor
quality. When managers are presented for the first time
with a quality cost report they are often surprised because
usually they are unaware of the magnitude of their quality
costs. Such detailed analysis of quality cost information
helps the top management of an organization to prioritize
improvement efforts. For example, if the quality cost report
indicates that the organization is incurring excessive scrap
or warranty costs for a specific product line, then quality
improvement efforts can be specifically directed at the
problems causing the greatest losses. Also quality cost
quality costs and decide which need to be reduced and
determine the overall strategy [7].
Costs per Unit Analysis (Fig. 8)
From Fig. 8, it is seen that cost per unit of an engine system
was more in Feb-12 as compared to other months. Also
cost per unit of vehicle system in month of Sept-06 to Aug-
07 was high as compared to other months. So quality cost
changes due to some internal variation in process of the
system (Figs. 9, 10, 11, 12).
In depth analysis in terms of cost came out with the
shocking results as shown. This shows the necessity of
COQ assessment in Indian automobile sector. COQ is a
proven technique in manufacturing and service industries
both for communicating the value of quality initiatives and
for indicating quality initiative candidates. COQ analysis
links improvement actions with associated costs and cus-
tomer expectations, and this is seen as the coupling of
reduced costs and increased benefits for quality improve-
ment. Therefore, a realistic estimate of COQ and
improvement benefits, which is the trade-off between the
level of conformance and non-conformance costs, should
be considered an essential element of any quality initiative,
and thus, a crucial issue for any manager. Like all other
quality initiatives, the measurement of the COQ is the
responsibility of top management [7]. Unless top man-
agement understands what quality costs are and takes an
immediate and continuing interest in COQ.

Fig. 8 Costs per Unit ( ) Engine Aggregate Drive Aggregate

analysis 300 Vehicle Aggregate Target 280

250

190
200 161
38
CPU

150 136
114 125 120 125 126 118
114 115
65 33 104 110
31 90 10
100 30 44 84 50 49 36
39 24 36 49 38
42 14 6
29 31 51 29 28 28
51 33 34 38 37
50 87
61 70 70
46 49 43 43 40 38 49 47 40 51
33
0
Sep06-Aug07

Sep07-Aug08

Sep08-Aug09

Sep09-Aug10

Sep10-Aug11

Oct-11

Dec-11

May-12
Sep-11

Nov-11

Jan-12

Feb-12

Mar-12

Apr-12

Jun-12

Period

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5.2.1 10 Months analysis of CPU= 127/Vehicle 5.2.4 Engine Aggregate Analysis of CPU= 43/Vehicle
[Vehicle Produced=52679, Total cost= 6,690,233] [Vehicle Produced=52679, Total cost= 2,265,197]
60 45 42.83

48 40
50 43 35
40 36
30
CPU

CPU
30 25
20
20
15
10 10
0 5
VEHICLE DRIVE ENGINE 0.17
0
Aggregates 2500 CNG engine Turbo gear drive
Engine Aggregates
Fig. 9 10 Months analysis of CPU
Fig. 12 Engine aggregate analysis of CPU
5.2.2 Vehicle Aggregate Analysis of CPU= 48/Vehicle
[Vehicle Produced=52679, Total cost = 2,528,592] quality of the materials from which they were made. These
25.00 21.04 products tend to be highly unreliable and once they break or
20.00 malfunction, they cannot be fixed. Usually, the quality of a
CPU

15.00 product depends on the practices of the supplier. For this

10.00 7.47
5.35 4.75 reason, most big automotive companies carefully choose
3.33
5.00 0.00 0.10.72.14 1.40 0 0.08 1.35 0
their suppliers. They know that the standards and operative
Heat and…
Cable and…

Air intake…

0.00
practices of a supplier have significant impact on buyers’
Exhaust system

Staring
Audio system

Cooling system

Insulatorsystem
Chasis

Electrical system

Wheel and Tyre

Body

Fuel system

Suspension

profits, because they determine product quality and affect the

development and speed of production processes. Supplier
quality cost is significant and good indicators of problem
areas [8]. A system of managing and tracking supplier
Vehicle Aggregates quality cost are categorized as prevention cost elements such
as the cost of supplier quality survey, appraisal cost elements
Fig. 10 Vehicle aggregate analysis of CPU such as the cost of receiving and source inspection;, and
failure cost elements such as the cost of scrap and rework of
5.2.3 Drive Aggregate Analysis of CPU= 36/Vehicle supplier caused non-conformances and the cost of site visits
[Vehicle Produced=52679, Total cost= 1, 896,444] to correct supplier service problems [9].
14 12.05
12
10
9.42 Hidden Supplier Quality Costs
CPU

8 5.77
6 4.49 There has been hidden supplier quality cost in any quality
4 2.66
0.58 0.82 cost system. Hidden supplier quality costs are divided into
2 0.32
0 three parts:
• Those incurred by the supplier at the supplier’s facility
• Those incurred by the buyer in solving problems at the
supplier’s facility
• Those usually not allocated to suppliers but incurred by
Drive Aggregates
the buyer as a result of potential or actual supplier
problems.
Fig. 11 Drive aggregate analysis of CPU
Quality costs incurred by the supplier at their facility are
unknown to the buyer and, therefore, hidden. Even though
Supplier Quality Cost the magnitude is hidden, the types of costs are not. They
are the same types of quality costs the buyer incurs.
Today, many products are either copied from the original The second type of hidden cost, that which is incurred
product of its type, reproduced with poor materials, or both. by the buyer in solving problems at the supplier’s facility,
What makes these products substandard is primarily the poor is usually not specifically allocated to suppliers. Except for

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an awareness of troublesome suppliers, an example is the Table 2 A ranking of suppliers supplying similar parts by quality
cost to the buyer of sending a quality engineer to a supplier cost performance index
to resolve a crisis. Supplier Supplier quality cost ( ) Purchased cost ( ) Index (QCPI)
The last type of hidden quality cost occurs at the buyer’s
A 2,410 99,928 1.024
facility. This type of cost may include the following:
B 1,950 40,000 1.049
• Specifying and designing gages that must be used by C 2,800 43,643 1.064
the buyer’s receiving inspection and, perhaps as well, D 2,500 12,230 1.204
by the supplier prior to shipping. E 7,000 7,631 1.917
• Designing appropriate specifications that the supplier
must follow in the manufacture of the product or
performing the service.
• Adding special inspection operations and quality con- Table 3 The actual assessment used by company
trol effort in the buyer’s.
Index (QCPI) Interpretation
• Production line related specifically to a supplier
product. 1.000–1.009 Excellent
• Reviewing test and inspection data on supplier material 1.010–1.039 Good
to determine acceptability for processing in the buyer’s 1.040–1.069 Fair
facility. 1.070–1.099 Poor
• Calibrating and maintaining equipment necessary in the 1.100? Immediate corrective action required
quality control of supplier material.
• Losing production time due to unavailability of good
material. Assessing Suppliers Quality Using PPM Equivalent

Field engineering required to analyse and correct a problem
caused by a supplier.
Due to the certification program supplier must follows
the guidelines which has been beneficial for improving
quality of the product and reduction in quality cost.
Supplier Rating Program Using Quality Costs
Supplier RPPM (rejected parts per million) is calculated on
the basis of the amount of non-conforming materials versus
the total amount of materials received in a given fiscal
month. This calculation is then normalized to reflect a
constant basis of one million units received.
PPMeq for a period is calculated by using Eq. (2)
[Quality Manual]

Although not theoretically perfect, this system has proven PPMeq

its effectiveness in improving supplier quality, and it is
certainly an outstanding example of a practical and work-
able approach [10]. The company uses dual supplier rating
system. The first portion is traditional in that it tracks price
and delivery. The second part, evaluate supplier quality
cost performance for each supplier using an index based on
the following Eq. (1):
Supplier Quality Cost þ Purchased Cost
QCPI ¼ ð1Þ
Purchased Cost
No attempt was made to include all supplier quality costs
because of the administrative problems involved [11].
Supplier quality cost: refer Table 2. A ranking of suppliers
supplying similar parts by quality cost performance index.
Refer Table 3. The actual assessment used by the company.
Using this assessment, first priority for the company was
to obtain immediate corrective action for supplier D and E.
Results for the overall program were encouraging, with the
percentage of total suppliers rated good or better increasing
from 75 to 80 % and supplier quality costs reducing 8.5 %,
in the first year.
Nrej þ Nrew þ Nrej951 þ 0:5Ndew þ 0:5Nconc þ 5:0NrejatF:A:
¼
NTotal
x1000000
ð2Þ
where, Nrej is Total Quantity Rejected (inspection and line).
Nrew is Total Quantity Reworked (inspection and line). Ndev
at F.A., is Total Quantity accepted under Deviation
(inspection and line) at Final Assembly. Nconc is Total
Quantity accepted under concession (inspection and line).
Nrej at F. A., is Total Quantity rejected at Final Assembly.
NTotal is Total Quantity Received. Nrej 951 is Total Quantity
rejected on movement 951 for scrap at our end.
Rejection: Any declaration of the part that has been not
respected the engineering specifications, cannot be
salvaged ending up in scrap has termed as rejection.
Rework: Any minor correction done on a particular part,
so that it becomes fit for use is termed as rework.
Rework has to be done in consultation of the quality
assurance (QA) personnel of that area.

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Table 4 Supplier-wise part rejection

Supplier Part description Received Actual Rejection (Rej-Re- QM-line rejection Total deviation Rework PPMeq
Code Qty acceptance) only FA qty quantity

DL022 O/P shaft 132 1 7,576

Alternator 55A 2,116 3 7,089
Rear housing 1,731 9 5,199
S/F O/P shaft 864 4 4,630
S/F HYP. pinion 777 3 3,861
Rear flange 1,206 8 3,317
DH015 Blank 392 1 2,551
Crank shaft 4,023 10 2,486
Idler gear assembly 1,785 4 2,241
Side gear forging 12,600 27 2,143
DM210 Clamp spring band 22,000 45 2,045
S/F syn. sleeve 4,050 8 1,975
Rotary pump 8,000 3 1,875
Face hob 2,671 5 1,872
Spacer wheel bearing 10,200 18 882
DA081 Water pump 3,528 1 1,417
assembly
Frame w/shield 713 1 701
Suspended pedal 780 1 1,282
assembly
S/F hyper pinion 3,369 4 1,187
DD019 Thermostat housing 4,950 1 1,010
Wheel bearing 5,022 5 996
spindle
Rear housing 4,080 4 980
Valve seat ring 88,000 85 966
O/P shaft 2,091 2 956
DC001 Spindle wheel 2,124 2 942
bearing
Disc brake 3,420 3 877
Shim 0.1 mm 24,000 21 875
Rear hub 16,348 14 856
DM090 Rear housing 12,865 10 777
Fuel inj. pump 2,590 2 386
assembly
Front housing 6,717 5 744
Assembly pedal 4,260 3 704
Brace fender LH 6,460 4 310
Piston MDI 18,132 2 552

Deviation: Any consent sought from Product Develop- Concession: When consent of Product Development has
ment for Supplier part whose critical dimensions and/or not taken for the minor non-conformities that are not
parameters, or, material specifications cannot be specified in the drawing and which does not affect the
reworked/repaired is termed as deviation. product quality, it is termed as concession.

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Segregation: Separation of conforming/non-conforming
parts, done with consent of QA personnel of that area, is
known as segregation.
Rejection at Final Assembly: Any rejection of the
supplier parts that causes the rejection of the whole
assembly is termed as Rejection at final assembly.
General Rules to Declare Non-Conforming Parts
Rejection: A part has been declared rejected only if it
does not respect the engineering specification, and can’t
be salvaged. A part rejected only after carrying out
proper investigation. Example: In a case of corrosion, if
the supplier has not respected the treatment or the pro-
tection specified, the declaration would be done. If the
supplier has respected the specifications, the declaration
will not be done and an action plan has been forwarded
to the concerned engineering department to improve
these specifications.
Rework: Products reworked shall be declared as non-
conforming only if the supplier is responsible. An
investigation approved by the supplier shall define the
responsibility for the rework (supplier); the supplier can
participate in the investigation depending on the concern
or the product. The rework data shall be entered in SAP.
The transaction also houses entries for Deviation, Con-
cession and Segregation data. Manual records/register to
be kept for recording the rework quantities part wise.
Deviation: The deviation for the use of non-conforming
supplier part has been approved by the Product Devel-
opment and respective plant Quality Head.
Concession: The concession has raised by the Manufac-
turing Quality and approved by the respective plant
Quality Head.
Segregation: The quantities accepted after segregation of
the supplier parts has been taken into account in the
Fig. 13 Supplier Evaluation
through PPMeq
6,000
5,000
4,000
PPMeq
3,000
5,274
2,000
1,000
0
DL022
PPMeq calculation. This has not been interpreted as the
total quantity, which is segregated.
Quantity of Non-conforming Parts: The quantity of non-
conforming parts has been declared with the agreement
of the supplier and customer. An estimation based upon
a sample has not used to declare the non-conformance.
Re-acceptance: Re-acceptance of a part has been
completed within the same month of the rejection of
that part so as to have correct performance of that
supplier on monthly basis.
Case Study-2: Calculation of PPMeq for Automotive
Suppliers
An Automotive manufacturing company has been the
number of suppliers to supply the automotive parts, that
OEM maintain the record with its supplier related to its
supplied parts and take decision either to continue business
or to escalate depending on the quality cost. Also supplier-
wise, part-wise, process-wise, critical analysis is possible
with the help of PPMeq which has been stated as follows:
• Supplier-wise Part per Million equivalent
• Part-wise Part per Million equivalent
Supplier Evaluation at Plant level through PPMeq
It is evident from Fig. 13 that supplier code DL022 obtained
high PPMeq as compared to other suppliers, so critical as
compared to other. Suppliers having code DE004 and
DP005 are good and are capable for doing further business.
Part-wise PPMeq
Data obtained in Table 5 and corresponding graph in Fig.
14 shows part-wise PPMeq at supplier level which
Supplier Evaluation through PPMeq
O/P Shaft =7576, Alternator = 7089, Rear Housing = 5199 ,
S/F O/P shaft = 4630, S/F Hypo Pinion = 3861, Companion Flange
Rear = 3317 AVG PPm = 5274
Blank = 2551, Crank shaft =2486, Idler Gear
assembly = 2241 Side gear =2143
AVG PPm=2234
2,234
1,748
1,251
970
872
608
DH015 DM210 DA081 DD019 DC001 DM090
Supplier Code
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Table 5 Supplier-wise part

Supplier code Part description Received qty QM-line rejection PPMeq
PPMeq
DD019 Wheel Bearing Spindle 5,022 5 996
Valve Seat Ring 88,000 50 568
O/P Shaft 2,091 2 956
DE026 Wheel Bearing Spindle 4,000 1 250
O/P Shaft 5,685 1 176
3rd Gear 4,171 1 240
DE004 Wheel Bearing Spindle 6,876 2 291
S/F Hyp. Pinion 6,241 2 320
Front Housing 13,478 4 297
DP005 Wheel Bearing Spindle 11,076 3 271
S/F Counter Shaft 3,800 1 263
S/F Syn. Sleeve 10,412 3 288
Disc Brake 3,420 3 877
DC001 Rear Hub 16,348 14 856
Rear Housing 12,865 10 777

Fig. 14 Part-wise PPMeq Part wise PPMeq at Supplier level

4000
3500 PPMeq at Supplier level
3000 967 827 Rear Housing
Rear Hub
2500
PPMeq

Disc Brake
956 777
2000 S/F Syn. Sleeve
1500 S/F counter shaft
568 856
301 Front Housing
1000 277
217 297 288 S/F Hyp. Pinion
500 996 240 320 877
176 263 3rd gear
250 291 271 O/P shaft
0
DD019 DE026 DE004 DP005 DC001 Valve seat ring
Supplier Code Wheel Brg spindle

indicates critical supplier for particular part that help to
evaluate the supplier for particular part at supplier level
and plant level. Also total PPMeq indicates plant level
rejection from different suppliers. Typical problems and
actions taken against different issues at supplier stage are
shown in Table 6.
Summary and Conclusion
• Improving the bottom line is the goal. While preventive
costs may increase, overall operational cost will
decrease through the reduction of failures.
• A properly understood and managed quality cost system
will aid organizations in realizing cost savings while
avoiding some of the serious pitfalls that can accompany
cost cutting; decreases in product or service quality,
increased customer dissatisfaction, added rework costs,
or simple shifts in costs from one area to another.
• Installing and using a quality cost program will allow
leadership to make a guided transition from an
organization’s current operational costs a state of
minimal quality costs. At the same time, reducing
problems found by customer is one way to enhance
revenue via retention of sales.
• The COQ for a given issue grows larger as the product
moves toward the customer. From design to initial
production setup to full production, to distribution, to
the customer’s location, and finally to possible litiga-
tion, each step can result in at tenfold increase in
quality costs. Not all issues make it to the last stage, but
all increase in cost as they move forward.
• There are two underpinning concepts that guide the
management of quality costs:
– Achieving a higher level of product or service
quality through process control will result in overall
lower quality costs.

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Table 6 Typical Problems and Action Taken Against Different Issues at Supplier Stage
S. no. Supplier Issues in supplied parts Action taken
code

1 DM056 LCCR Crankcase Water drain plug Fins are removed only by chipping operation grinding stopped.
chatter marks
2 DS167 Burr in Sintered hub keyway Mix up at grinding stage. Both bearing taken on different line to avoid mix up.
3 BNC Bearing cup OD undersize Mix up at grinding stage. Both bearing taken on different line to avoid mix up.
4 DM071 Rear housing bolt crack Lot quarantined. All parts are to be checked by supplier at 125 % torque. Root cause
analysis forging fold suspected. MPI done to find out crack trials successful. Supplier
initiated further testing for lots, which are produced on new machine witnessed &
approved by CDMM
5 DS172 5th rev fork crack Supplier has identified all possible causes & verified those. All possible causes found
within the spec. Detail report submitted by supplier.
6 DN009 Puppet plug Allen head slipping Die corrected and aligned.
7 DI005 High pressure pipe choke up Blockage testing with auto marking machine implemented.
8 DY001 Rear housing NGT 520 dust cover Segregation done. Gauge wear out issue, Calibration frequency increased by supplier.
threading not ok
9 DM016 Brake disc face parallelism not OK 100 % checking started with marking.
10 DS075 Door lock opening effort high Burr found on inner rivet. Rivet cutting method changed.
11 DB050 Brake shoe assembly wrong lever Pokayoka implemented for detection of wrong lever during assembly.
assembled
12 DP008 Rattling noise at transmission joint Draw die corrected for flatness.
13 SP012 Piston cir clip breakage during Broken piece given to lab for analysis. Pieces found ok.
assembly Assembly error instructions given to operator.
14 DS413 Paint uncover age on number plate Conveyor jig modification done which avoid fewer gaps between two plates.
15 DS063 Hole missing on radiator guard Pin provided on welding fixture.
16 DI008 1st/2nd/3rd sleeve face run out, out Mandrill introduced for checking the face run out as earlier checking method not correct.
of specification Broaching tool holding pin design changed.
17 DR017 Master tie rod fouling to Diff-case 100 % lot inspected & re-worked. Assembly fixture modified to ensure correct
in 4WD orientation of Master tie rod.
18 DS063 Air intake pipe EGR mounting Pokayoka made for insertion of guide pins in flange during welding operation.
plate orientation not ok.

– Improving product or service quality will also consistent way of determining the status or maturity
improve other organization measures (market share, of the supplier’s quality system and to develop an
customer satisfaction, customer retention, speed to organized plan for improvement, which potentially
market) could be for suppliers to reach specific world-class
benchmarks.
• Many organizations rely on cross-functional teams to
• Although the major players in Indian automobile sector
work with and involve suppliers. These teams are also
claim to follow TQM as a guiding philosophy, the
responsible for developing the sourcing strategies that
warranty cost involved and Rejection per thousand is
directly affect supplier quality. Plant level buyers
very high.
simply do not have the resources or time to execute
• Use of Part per Million equivalent to monitor supplier
the externally-focused and intensive activities required
performance indicate the criticality of supplier related
to support total quality with suppliers.
to particular part and also the OEM has evaluated its
• World-class manufacturers are realizing the need to
number of suppliers through part-wise, process-wise,
maintain a consistent and systematic quality process to
plant-wise to do the business in future and also to
gain real time inspections data with analytics of trend
calculate the COQ of a particular part related to its
analysis.
supplier.
• Few companies have an effective, structured and value-
• However, COQ progress also played a role, at least
added supplier improvement process. By using a
indirectly, adding momentum to our ongoing efforts to
structured process, companies will have a more
meet and exceed customer requirements.

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• Practical implications: Practical implications have
come out of this research. Models and guidelines are
given to help make a success of collaborative projects
and their potential impacts on time, cost and quality
metrics.
• Research limitations: The limitation of this research is
that it is only based in the Indian automotive industry.
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