COST OF QUALITY Bide) tre bueLe UL PRASHANT TRIPATHIee ae ene oy x CONTENTS STC eam en igs . History . What is COST OF QUALITY? . Categories of Quality Costs Sost of Poor Quality(COPQ) Be eRom el rr ee)e) oieeerverici a x ee en Goal of COQ system A Naren celeer 1). Benefits of minimizing COQ. 11. Guidelines See vor ein enenttnia ore Rennes SRG Teel PE Meryoesia shen gas y (Cues De ortecen sito) OM etre i ore 17. Concluson meno e nyDEFINITION The term “QUALITY COSTS” has different meanings to different people. Parc Meu M re ee Ocni nr itty a tua Tena Cnn IRM rete ea a Frio Ree a coein Teme Cet C0 8 SMO Nec emee eon Meme RNan MORO TeM CORTE TIME tr) ET aa + Still others use the term to mean the costs of running the Quality department.HISTORY SMe eM osm TMG OMT mele cen Reem mete Rae ENED SRR eee ma meee reer eta * And it was Armand Feigenbaum who identified omar iimie reet Tm minnern Quality Controf” in the Harvard Business Review, Vol. 34. * The Quality Cost Committee was established by the then ASQC in 1961.WHAT IS COST OF QUALITY? It is the term that is widely used and widely misunderstood. The "cost of quality" is not the price of creating a quality product or service. It's the cost of NOT creating a quality product or service.WHAT IS COST OF QUALITY? Premera) Pierce ban ce ene Pera ee SMa sre mers seo SU ence eee ig Sen can inane + The correction ofa bank statement, SL ean RR ae ces ne MRO UCL Remi Pea centr er cane mentWHAT IS COST OF QUALITY? Cost of quality = Cost of conformance + Cost of conformance is the cost incurred in ensuring that things are done right Gomi ie Unum Itis the cost of providing products oF services as per the required standards. This can be termed as good amount spent. (Prevention & Appraisal costs) eC MUueoe esis (Lin Sele oO UMTeS nS Oe peg TES TRECs RCM MCU ivcmaeces ets Corsi estes ce leie ca elms UTem aya gs tet CO Ue eects? Um eS LLee 2am Tl) oe US ame eC me ee at)CATEGORIES OF QUALITY COSTS Quality Costs cost oF COST OF NON CONFORMANCE CONFORMANCEPREVENTION COSTS ern eo ee ec Rn roca ta en eee Sn ra actual operation, in order to avoid defects from happening. Cee ne ROM Maca Mist ees ce oa Imm cg Reece cs Sn O Uc eS ee LR OU ba ne CLUS oe MCRL een ee Aa coerce ee oeACTIVITIES ASSOCIATED WITH PREVENTION COSTS Rin caine meena ech h eee renter NG sg UMS ae PLUG sei acs ‘New product review ‘Cost of reliability and biher quality related activities associated 1 Sonesta Pre een sienna cs nem rs | Cost of research and development activities , analysis and correction of causes and defects, Dace ORCS a one eee cS Ge eS eee rod tee eet Coa ee cetem ‘Quilty audits : Cost involved in evaluating the execution of acti i Bene Pree ena neee Pe ace om eee Sak eae retesetear Nd — p =iAPPRAISAL COSTS Appraisal costs are spent to detect defects to assure conformance to quality standards, It is the cost expenditure on inspection ahd testing Se eee eter eet at ton cares edie een eee See re nate eee a nr nea ees CrACTIVITIES ASSOCIATED WITH APPRAISAL COSTS See etn ane ee faa est Peewee ein coceltotet Seem recs cm oniiece Mii? Peer Toe toms utetcuen tenn ets tee in nites Sn etm a ee eu Eee ot ee one * Cost of non-destructive testing such as electric probes,X ra Mia eseINTERNAL FAILURE COSTS re costs occurring priorto delivery or shipment of the product. or the Pn ete cat em ime SCT Seed ca cnr asm cic veMt nN a tec en sneer cnACTIVITIES ASSOCIATED WITH INTERNAL FAILURE COSTS Oe ert mec ssa ep nics *+ Cost of re-inspeetion , re-tests 16 verify the perfiriance aitalysis. Pree m ai usa * Changing processes: Modifying manuifaeturing or service processes to correct deficiencies * Lost production due to supplier materials and own material,EXTERNAL FAILURE COSTS + These are the costs incurred after the product is dispatched to the consumer, SMU Ae RRL Ree he ai Se on SCT UL SL PSOne Rests aE RU RL uma Rie ratoACTIVITIES ASSOCIATED WITH EXTERNAL FAILURE COSTS Ree nae SMe Re Une Sms coy Mee eee yard ene! justified complaint ion, Pere eee cur enn ed weno h erat defective product received from the field. ay Allowances : The costs of concessions made to customers due to SEU en ci ase eso ce mr orete erutea ae Re ren creat Pe ee een seerfoleinnac i cost oF COST OF NON CONFORM. z CONFORMANCECOST OF POOR QUALITY (COPQ) ae OME CRU e ess Ire Ley Pee cern cs ncaa we will use the term “cast of poor quality.” aU Ue DRM eesti Suc portion of the overall COPQ. The battom Ciircecne ac ures et nee the COPQ and are not easily identified EU Ret oa By revealing new hidden costs of poor quality, & a Pee ec err : encanta naseIMPACT OF TQM ON COSTS OME Gee enor oe conn en sea Tt met see beltér working environment for the employees. The most dramatic impact of TQM is on reduction of quality costs which directly effeet the profitability . See CUS a on cM Neuse umm ec eR ee oat c cd Pee Sac sce en Teal is ae Voge CLO ee aC iisSeiad IMPACT OF TQM ON COSTS. Perey to nese tee Oo id LU he BUCOEFFECTS OF IDENTIFYING COQGOAL OF COQ SYSTEM The goal of using COQ is to increase prevention activities in order to elimi Strategies BigWHY MEASURE COQ? eRe eo Cons Tiree erm og ronan Ts in numbers, you know something about it” — Kelvin >You cannot manage what you cannot measure ” — AnonWHY MEASURE COQ? + Measure COQ - Why? Reo eee an arenes cy PROM tac Merce itn te tess eam oss PTeo kenmore Mogmoneron i naty yss > Money is the language of management, you need to show them the numbers Sea)BENEFITS OF MINIMIZING COQ... Piicuachied Be Seon eco + Returaed Goods Perera i Seen mcd Berea ce) Increases nr Saar Brant Certo) An cen Cee rs nee ctoMEASURING COST OF QUALITY... COQ data can be measured and presented in’ many different ways. rete is See iatis Seat areas ents Se ee ae ccd ay Baeaoatnmom accaSTEPS IN IMPLEMENTING QUALITY COSTS SMa poe ee Toe cme ees Ta ene oe aa ee Coat a eettiorcmene timc oareeie tine det Pah eect no Nes ae ne ee OMT ete Breer ace ea eects + 3, Discuss the objectives of the study with the key people in the organization 4. Collect whatever cost data are conveniently available from the accounting system and use this ee cie Mo reste min eect + 5, Make a proposal to management for a full study, The proposal should provide for a task force of all concerned parties to identify the work activities that contribute to the cost of poor quality. Work records, job descriptions, flowcharts, interviews, and brainstorming can be used to identify De ataSTEPS IN IMPLEMENTING QUALITY COSTS (conro.) + 6, Publish-a draft of the categories defining the cost of poor quality. Searhces ene yee ee ie ene ee eto PO Men ce MteMnt wn es ere in Cet enrel sateen SM aac rR Tea Teen Wn nee Ree Loe L ‘improvement project (if available), Request authorization to proceed with a broader eM Tae Mme Rat reer ite triad toces the sequence must be tailored for each organization.GAINING APPROVAL... Smee nem ai erearer te cern an oe nsve eiea Brest ern Mon mete eta Ruse en eee a Prat cemeteries ener ecu et to = Estimate the savings and ottier benefits, Suara ck RU OC OLR Re aS Ue RUS ee SLL boa Sete = Don't imply that ihe quality costs can be reduced to zero.GAINING APPROVAL(conr».) * Calculate the retum on investment resulting from improvement in-quality. Serre Mee acces ter sain nase Ton te atcha rec Tomy Pte ne tom cn * Identify the initial specific improvement projects. Sen tema neae s selection, training, review of progress, and schedule Treo ecCASE STUDY: H&S MOTORS Senos incon ace Senne sn Eee meer teas a Tn nese as det nm Cem econ ge Un Ito Lek Pre Cen eee aero eye ct uae ee Gualty Costs [reso [2000 [2001 | 2002 _| $ 660,000[$ 639,300] $ $4,360,000 | $ 4,450,000 | $ 5,050,000 | $ 5,11 Dremel get eet basis for the 4 year period. eRe eee ah ee ee adKEY POINTS OF STUDY: OMe RUE ose ce (UL ee mean ease un cto In 2000 company spent more money on product monitoring and inspection that resulted into high appraisal cost. SUMS ere Oe een recat meet ga emer Pre CR RIO ne eT ccees Te ee ICU ccc eee ee ee ae ae mcm ae Peter tise eta ee tes en na MO nase het De Rete sank Eee ene acc a ane mnee mn en tea ed eT gcPeete Ne eee ete erin mic ne en ee Cec a Forts LOTTI apices le eh ele ans = (810,400/4,360,000)* 100 = 18.58 and similarly for other years: Quality sales index OSU SCC LR EL Ae CCU ROR UE Len SIRS LL oc aeRELATIONSHIP BETWEENINVESTING IN PREVENTION COSTS.. CeO MU c nim nero | a a COS cn nono Pe eee Te ec es te ec eee ec eee a Peano encoun enh eC a Rec a RceeT catch it until it has to be soldered into a computer component, it may cost $100 to repair the part. pete miata eterna ee Rest eg eee mene PER Te te iar ses cee eure anesCONCLUSION... eet eked Prevention ofNon- | YES PREVENTION Conformance? ae leg Peeters Evaluating the YES APPRAISAL ce et lew Us) eee Tee ers ada) eet hey Dee Cd NO} esto Saas ” Lad Simei ore SNO [oars Vay \ meltCONCLUSION + The cost of poor quality can be reported in an endless number of ways. Premera Cio mem CECE Pe eer rena mens tne Titre te Moana terete Eg Perotti rea CoCrCONCLUSION OU corre nese a geester seed eee NT areca PEM en cee conte erence ene Sri ne ehat ect a Tea Parenter cnstc Roma Caen eke MevecipeCr TESBIBLIOGRAPHY AERC enrOn uC sn aes eer eOre nae entire bc ents soctenttcT -of-qualliy-7563290 Rene fae Frc hittps:/en.wikipedi nae on ener int cee rece mtu Preto eres inl a UPR eed eu ied PALS ean)THANK YOU!