Cost of Quality

"The cost of quality."

It’s a term that's widely used – and widely misunderstood.

The "cost of quality" isn't the price of creating a quality product or service. It's the cost of NOT creating a quality product or service.

Every time work is redone, the cost of quality increases. Obvious examples include:

• The reworking of a manufactured item.
• The retesting of an assembly.
• The rebuilding of a tool.
• The correction of a bank statement.
• The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant.

In short, any cost that would not have been expended if quality were perfect contributes to the cost of quality.

Total Quality Costs

As the figure below shows, quality costs are the total of the cost incurred by:

• Investing in the prevention of nonconformance to requirements.
• Appraising a product or service for conformance to requirements.
• Failing to meet requirements.

Quality Costs—general description

Prevention Costs The costs of all activities specifically designed to prevent poor quality in products or services. Examples are the costs of: New product review Quality planning Supplier capability surveys Process capability evaluations Quality improvement team meetings Quality improvement projects Quality education and training Appraisal Costs The costs associated with measuring, evaluating or auditing products or services to assure conformance to quality standards and performance requirements. These include the costs of: Incoming and source inspection/test of purchased material In-process and final inspection/test Product, process or service audits Calibration of measuring and test equipment Associated supplies and materials

Failure Costs The costs resulting from products or services not conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure categories. Internal Failure Costs Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a service, to the customer. Examples are the costs of: Scrap Rework Re-inspection Re-testing Material review Downgrading 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 are the costs of: Processing customer complaints Customer returns Warranty claims Product recalls

Total Quality Costs: The sum of the above costs. This represents the difference between the actual cost of a product or service and what the reduced cost would be if there were no possibility of substandard service, failure of products or defects in their manufacture.

Customer Satisfaction

Organizations of all types and sizes have come to realize that their main focus must be to satisfy their customers.

This applies to industrial firms, retail and wholesale businesses, government bodies, service companies, nonprofit organizations and every subgroup within an organization.

Two important questions:

1. Who are the customers?
2. What does it take to satisfy them?

Who Are the Customers?

Customers include anyone the organization supplies with products or services. The table below illustrates some supplier-customer relationships. (Note that many organizations are simultaneously customers and suppliers.)

Supplier-customer relationship examples
Supplier	Customer	Product or Service
Automobile manufacturer	Individual customers	Cars
Automobile manufacturer	Car dealer	Sales literature, etc.
Bank	Checking account holders	Secure check handling
High school	Students and parents	Education
County recorder	Residents of county	Maintenance of records
Hospital	Patients	Healthcare
Hospital	Insurance company	Data on patients
Insurance company	Hospital	Payment for services
Steel cutting department	Punch press department	Steel sheets
Punch press department	Spot weld department	Shaped parts
All departments	Payroll department	Data on hours worked, etc.

What Does It Take to Satisfy Customers?

Don’t assume you know what the customer wants. There are many examples of errors in this area, such as “new Coke” and car models that didn’t sell. Many organizations expend considerable time, money and effort determining the “voice” of the customer, using tools such as customer surveys, focus groups and polling.

Satisfying the customer includes providing what is needed when it’s needed. In many situations, it’s up to the customer to provide the supplier with requirements. For example, the payroll department should inform other departments of the exact format for reporting the numbers of hours worked by employees. If the payroll department doesn’t do this job properly, it bears some responsibility for the variation in reporting that will occur.

Excerpted from Donald W. Benbow, Ahmad K. Elshennawy and H. Fred Walker, The Certified Quality Technician Handbook, ASQ Quality Press, 2003, pages 1-2.

Juran's Triology Diagram

The Juran Trilogy, published in 1986, identified and was accepted worldwide as the basis for quality management. After almost 50 years of research, his trilogy defined three management processes required by all organizations to improve. Quality control, quality improvement and quality planning have become synonymous with Juran and Juran Institute, Inc.

Juran describes quality from the customer perspective as having two aspects: higher quality means a greater number of features that meet customers' needs. The second aspect relates to "freedom from trouble": higher quality consists of fewer defects.

As a result of the power and clarity of Joseph Juran's thinking and the scope of his influence, business leaders, legions of managers and his fellow theorists worldwide recognize Dr. Juran as one of "the vital few" —a seminal figure in the development of management theory. Juran has contributed more to the field and over a longer period of time than any other person, and yet, feels he has barely scratched the surface of his subject. "My job of contributing to the welfare of my fellow man," writes Juran, "is the great unfinished business.

PDCA Cycle

W. Edwards Deming in the 1950's proposed that business processes should be analyzed and measured to identify sources of variations that cause products to deviate from customer requirements. He recommended that business processes be placed in a continuous feedback loop so that managers can identify and change the parts of the process that need improvements. As a teacher, Deming created a (rather oversimplified) diagram to illustrate this continuous process, commonly known as the PDCA cycle for Plan, Do, Check, Act*:

• PLAN: Design or revise business process components to improve results
• DO: Implement the plan and measure its performance
• CHECK: Assess the measurements and report the results to decision makers
• ACT: Decide on changes needed to improve the process

Deming's PDCA cycle can be illustrated as follows:

Deming's focus was on industrial production processes, and the level of improvements he sought were on the level of production. In the modern post-industrial company, these kinds of improvements are still needed but the real performance drivers often occur on the level of business strategy. Strategic deployment is another process, but it has relatively longer-term variations because large companies cannot change as rapidly as small business units. Still, strategic initiatives can and should be placed in a feedback loop, complete with measurements and planning linked in a PDCA cycle.

Quality Management System

Implementing a Quality Management System (QMS) within an organization needs to be a decision by top management. The objective of the quality system needs to be clearly defined so that the system can be effective.

The design and implementation of a quality management system will vary depending on the type, size and products of the organization. Each company will have it's own objective, however most companies objective is to increase profitability. A Quality Management System will assist by:

• managing costs and risks

• increasing effectiveness and productivity

• identifying improvement opportunities

• increasing customer satisfaction

A well managed quality system will have an impact on:

• customer loyalty and repeat business

• market share

• operational efficiencies

• flexibility and ability to respond to market opportunities

• effective and efficient use of resources

• cost reductions

• competitive advantages

• participation and motivation of human resources

• industry reputation

• control on all processes

The objectives of your Quality Management System should mirror the above in some form.

Requirements:
ISO 9001:2000 requires a quality system to be documented, tested, measured and assessed.

Management commitment is essential for the implementation and ongoing success of the Quality Management System.

QMS objectives must be measurable and reflect the overall company objectives.

The QMS must be able to be managed properly, adequate resources must be allocated.

The system must be reviewed regularly and measured for effectiveness, adjustments must be made to reflect major changes to the organization and business practices.

The system must be practical and accessible to all employees within the organisation.

Accreditation:
It is not essential to gain accreditation for a Quality Management System to work effectively. It depends on the organization if they wish to gain accreditation, however the benefits should be considered:

Your company will be recognized as an organization that is committed to providing quality products, improvement and customer satisfaction.

You will gain respect through the industry as a fully accredited quality company.

Lets understand Quality

Quality in everyday life and business, engineering and manufacturing has a non-inferiority, superiority or usefulness of something. This is the most common interpretation of the term.

A subjective term for which each person or sector has its own definition.

In technical usage, quality can have two meanings:
1. the characteristics of a product or service that bear on its ability to satisfy stated or implied needs;
2. a product or service free of deficiencies.

According to Joseph Juran, quality means “fitness for use;” according to Philip Crosby, it means “conformance to requirements.”

Reference: Wiki, ASQ